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As filed with the Securities and Exchange Commission on September 21, 1995
Registration No. 33-58265
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________
POST-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-4
ON
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
_____________
HARKEN ENERGY CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 95-2841597
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification Number)
_____________
5605 NORTH MACARTHUR BLVD., SUITE 400
IRVING, TEXAS 75038
(214) 753-6900
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
_____________
LARRY E. CUMMINGS
VICE PRESIDENT, SECRETARY AND GENERAL COUNSEL
HARKEN ENERGY CORPORATION
5605 NORTH MACARTHUR BLVD., SUITE 400
IRVING, TEXAS 75038
(214) 753-6900
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
_____________
With a copy to:
JOHN D. CURTIS
BAKER & MCKENZIE
2001 ROSS AVENUE, SUITE 4500
DALLAS, TEXAS 75201
(214) 978-3000
_____________
Approximate date of commencement of proposed sale to the public: From
time to time after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [x]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] _______________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ____________
If delivery of the Prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
_____________
THIS POST-EFFECTIVE AMENDMENT SHALL HEREAFTER BECOME EFFECTIVE IN ACCORDANCE
WITH THE PROVISIONS OF SECTION 8(C) OF THE SECURITIES ACT OF 1933, AS AMENDED.
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EXPLANATORY NOTE
On May 22, 1995, Search Exploration, Inc. ("Search") merged (the
"Merger") with and into Search Acquisition Corp., a wholly-owned subsidiary of
Harken Energy Corporation (the "Company"). In connection with the Merger, the
Company agreed to exchange certain outstanding options and warrants of Search
("Search Warrants") for warrants of the Company ("Harken Warrants") pursuant to
an exchange offer (the "Exchange Offer").
This Post-Effective Amendment No. 1 on Form S-3 amends the Registration
Statement on Form S-4 (File No. 33-58265) (the "Registration Statement")
pursuant to which the Company registered, among other securities, Harken
Warrants issued in the Exchange Offer, the shares of common stock, par value
$.01 per share, of the Company ("Common Stock") that may be issued upon the
exercise of such Harken Warrants and additional shares of Common Stock, if any
("Contingent Shares"), which may be issued to the holders of record of such
Harken Warrants upon exercise of the Harken Warrants based on the increase that
may subsequently be realized in the value of a group of undeveloped leases and
properties formerly held by Search.
This Post-Effective Amendment No. 1 is filed for the purpose of
satisfying the undertaking made by the Company in accordance with Item 512(a)
of Regulation S-K promulgated under the Securities Act of 1933, as amended,
with respect to the shares of Common Stock issuable upon the exercise of the
Harken Warrants.
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PROSPECTUS
HARKEN
ENERGY
CORPORATION
This Prospectus relates to the issuance of up to 732,779 shares of
common stock, par value $.01 per share ("Common Stock"), of Harken Energy
Corporation (the "Company") upon the exercise of non-transferable warrants of
the Company ("Harken Warrants") to purchase shares of Common Stock at a price
of $1.82 per share, subject to adjustment under certain conditions, from the
date of issuance until their expiration at 3:00 p.m., Dallas, Texas time on
June 30, 1996. The Harken Warrants were issued as a result of an offer to the
holders of Search Exploration, Inc. ("Search") options or warrants ("Search
Warrants") to exchange the Search Warrants for Harken Warrants (the "Exchange
Offer"), in connection with the merger (the "Merger") of Search with and into
Search Acquisition Corp., a wholly-owned subsidiary of the Company, on May 22,
1995 (the "Effective Time"). All Search Warrants not exchanged in the Exchange
Offer subsequently expired pursuant to their terms.
Upon the exercise of a Harken Warrant, the holder of such warrant
shall receive the number of shares of Common Stock exercised by such holder.
In addition, upon the exercise of a Harken Warrant, the holder of record of
such warrant will be eligible to receive additional shares in the future, if
any, of Common Stock (the "Contingent Shares") or, under certain circumstances,
cash, based upon the increase that may subsequently be realized in the value of
a group of undeveloped leases and properties previously owned by Search (the
"Undeveloped Properties"). However, due to the contingent nature of the
distribution of additional shares, the holders of the Harken Warrants should
not base their decision to exercise such warrants on the receipt of such
additional shares. See "The Harken Warrants," "Issuance of Contingent Shares,"
"Use of Proceeds" and "Plan of Distribution."
The Common Stock of the Company is listed on the American Stock
Exchange (the "AMEX") under the symbol "HEC." On September 19, 1995, the
closing sale price of the Common Stock was $1.875 per share.
FOR INFORMATION CONCERNING CERTAIN FACTORS THAT SHOULD BE CONSIDERED
PRIOR TO AN INVESTMENT IN THE COMMON STOCK OFFERED HEREBY, SEE "RISK FACTORS"
BEGINNING ON PAGE 4.
_____________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
_____________
THE DATE OF THIS PROSPECTUS IS SEPTEMBER , 1995.
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith the Company files reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission").
The reports, proxy statements and other information filed by the Company with
the Commission can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's Regional Offices at Seven World Trade
Center, New York, New York 10048 and Northwest Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such material also can
be obtained at prescribed rates from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. The Common Stock
is listed and traded on the AMEX and certain of the Company's reports, proxy
statements and other information can be inspected at the offices of the AMEX,
86 Trinity Place, New York, New York 10006.
The Company has filed with the Commission a Registration Statement
(File No. 33-58265) (together with any amendments or supplements thereto, the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the Common Stock offered hereby. This
Prospectus, which constitutes a part of that Registration Statement, does not
contain all of the information set forth in the Registration Statement and the
exhibits thereto, certain parts of which are omitted in accordance with the
rules and regulations of the Commission. Such additional information may be
obtained from the Commission's principal office in Washington, D.C. Statements
contained in this Prospectus or in any document incorporated in this Prospectus
by reference as to the contents of any contract or other document referred to
herein or therein are not necessarily complete, and in each instance reference
is made to the copy of such contract or other documents filed as an exhibit to
the Registration Statement or such other document, each such statement being
qualified in all respects by such reference.
TABLE OF CONTENTS
<TABLE>
<S> <C>
Available Information . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Incorporation of Certain Documents by Reference . . . . . . . . . . . . . . 3
The Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
The Harken Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Issuance of Contingent Shares . . . . . . . . . . . . . . . . . . . . . . . 8
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Appendix A - Form of Harken Warrant . . . . . . . . . . . . . . . . . . . A-1
Appendix B - Interim Report dated September 19, 1995 . . . . . . . . . . B-1
</TABLE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR ANY OFFER TO OR SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company hereby incorporates by reference in this Prospectus the
following documents which have been filed with the Commission pursuant to the
Exchange Act and made a part hereof:
(1) The Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1994;
(2) The Company's Quarterly Report on Form 10-Q, for the quarterly
period ended March 31, 1995;
(3) The Company's Quarterly Report on Form 10-Q, for the quarterly
period ended June 30, 1995;
(4) The Company's Proxy Statement for the Annual Meeting of
Stockholders of Harken held on June 16, 1995;
(5) The description of the Common Stock contained in the Company's
Registration Statement on Form 8-A, as amended, including all
amendments and reports filed for the purpose of updating such
description;
(6) The Company's Current Report on Form 8-K dated November 4,
1994, as amended by the Company's Current Report on Form 8-K/A
filed on January 3, 1995;
(7) The Company's Current Report on Form 8-K dated April 27, 1995;
(8) The Company's Current Report on Form 8-K dated May 16, 1995;
and
(9) The Company's Current Report on Form 8-K dated June 2, 1995,
as amended by the Company's Current Report on Form 8-K/A filed
on August 3, 1995.
Each document filed subsequent to the date of this Prospectus pursuant
to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act and prior to the
termination of the offering shall be deemed to be incorporated by reference
into this Prospectus and to be made a part hereof from the date of filing of
such document. Any statement contained in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is
incorporated or deemed to be incorporated by reference herein modifies or
supersedes such statement. Any statement so modified or superseded shall not
be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company will furnish without charge, upon written or oral request,
to each person, including any beneficial owner, to whom this Prospectus is
delivered, a copy of any or all of the documents incorporated by reference
herein other than exhibits to such documents (unless such exhibits are
specifically incorporated by reference into such documents). Such requests
should be directed to Harken Energy Corporation, 5605 N. MacArthur Blvd., Suite
400, Irving, Texas 75038, Attn: Gregory S. Porter (telephone number (214)
753-6900).
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THE COMPANY
Harken is engaged in oil and gas exploration, development and
production operations both domestically and internationally through its various
wholly-owned subsidiaries and joint venture investments. Harken's domestic
operations include oil and gas exploration and production operations in the
Aneth Field and Blanding Sub-Basin portions of the Paradox Basin in Utah,
Arizona and New Mexico, in the Western Paradox Basin in Utah, and in Texas and
Louisiana. Harken's international operations include four exclusive Colombian
Association Contracts between Harken's wholly-owned subsidiary, Harken de
Colombia, Ltd., and Empresa Colombiana de Petroleos ("Ecopetrol"), as well as a
production sharing agreement between Harken's wholly-owned subsidiary, Harken
Bahrain Oil Company, and the Bahrain National Oil Company ("Banoco"). Harken's
international operations currently consist solely of exploration activities,
however, management is continuing to pursue international opportunities in all
areas of Harken's operations.
The Company was incorporated in 1973 in the State of California and
reincorporated in 1979 in the State of Delaware. The Company's principal
offices are located at 5605 N. MacArthur Boulevard, Suite 400, Irving, Texas
75038 and its telephone number is (214) 753-6900.
RISK FACTORS
Prior to making an investment decision, prospective investors should
consider carefully all of the information contained and incorporated by
reference in this Prospectus and, in particular, should evaluate the following
risk factors:
CURRENT PROSPECTUS AND STATE REGISTRATION REQUIRED TO EXERCISE HARKEN WARRANTS
Holders of Harken Warrants will only be able to exercise the Harken
Warrants if (a) a current prospectus under the Securities Act relating to the
Common Stock underlying the warrants is then in effect and (b) such securities
are qualified for sale or exempt from qualification under the applicable
securities laws of the states in which the various holders of Harken Warrants
reside. Although the Company intends to use commercially reasonable efforts to
maintain a current prospectus covering the Common Stock underlying the Harken
Warrants to the extent required by Federal securities laws and to obtain
appropriate approvals or qualifications under applicable state securities laws,
there can be no assurance the Company will be able to do so.
CONTINGENT NATURE OF ADDITIONAL ISSUANCE
The Company's obligations to issue Contingent Shares is conditional in
nature, and the Company may never make any additional payments beyond those
shares of Common Stock issued upon the exercise of the Harken Warrants. The
determination and calculation of the number of Contingent Shares to be issued,
if any, will be determined solely by the Company in its exercise of good faith
based upon the procedures set forth under the section "Issuance of Contingent
Shares."
LOSSES FROM CONTINUING OPERATIONS
Harken reported losses from continuing operations for the fiscal years
ended December 31, 1993 and 1994 and the six months ended June 30, 1995, in the
amounts of $1,797,000, $8,211,000 and $297,000, respectively. There can be no
assurance that Harken will not continue to report losses.
EFFECT OF SALES OF COMMON STOCK ON MARKET PRICE
As of September 12, 1995, there were 66,696,846 shares of Common Stock
outstanding. Harken has previously registered with the Commission an aggregate
of 3,386,308 shares of Common Stock for resale by certain stockholders of the
Company.
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In addition, pursuant to the terms of an Agreement and Plan of Merger
among Harken, Search and a wholly-owned subsidiary of Harken, Harken may be
required to issue up to approximately 8.8 million shares of Common Stock,
including the shares issuable upon exercise of the Harken Warrants, in addition
to the approximately 2.2 million shares of Common Stock that were issued upon
the consummation of the Merger in May 1995. Of the approximately 8.8 million
shares of Common Stock which may be required to be issued in connection with
the Merger, (i) approximately 730,000 shares of Common Stock may be
issued upon the exercise of the Harken Warrants, and (ii) up to 8.1 million
shares of Common Stock may be issued on or about September 30, 1996, to the
holders of record at the effective time of the merger of certain securities of
Search and overriding royalty interests in certain properties held by Search,
based in part upon the increase that may subsequently be realized in the value
of a group of undeveloped leases and properties of Search. Furthermore, Harken
has $15,000,000 in principal amount of 8% Senior Convertible Notes (the
"Notes") outstanding which are presently convertible by the holders thereof
into 10,000,000 shares of Common Stock. There can be no assurance that the
sale of (i) the 3,386,308 shares of Common Stock previously registered for
resale, (ii) the shares of Common Stock which may be required to be issued in
connection with the Merger, or (iii) the shares of Common Stock which may be
issued in connection with the conversion of the Notes into Common Stock will
not have a material adverse effect on the then prevailing market price of the
Common Stock.
VOLATILITY OF HARKEN COMMON STOCK TRADING PRICE
The daily closing prices of the Common Stock as reported by the
American Stock Exchange has fluctuated significantly over the past 18 months,
ranging from a high of $2 3/4 per share on September 14, 1994, to a low of
$15/16 on April 10, 1995. Management believes that the price fluctuations and
trading activity in the Common Stock during the past 18 months is attributable
to a number of factors, including Harken's international exploration
activities. In the event that Harken's international exploration activities
are unsuccessful, there can be no assurance that such results will not have a
substantial adverse effect on the then prevailing market price of the Common
Stock.
CONTINGENT LIABILITIES OF HARKEN
Harken has certain contingent liabilities that could have a material
adverse affect on its financial condition if Harken were required to satisfy
these liabilities, including the following:
Harken Southwest Corporation ("HSW") owns an interest in the Aneth Gas
Plant. The Aneth Gas Plant facility was in operation for many years prior to
HSW becoming an owner. The operations at the Aneth Gas Plant previously used
open, unlined drip pits for storage of various waste products. The current
plant owners have replaced all of the open ground pits currently being used
with steel tanks. The plant owners are currently in the process of closing the
open ground pits.
Texaco, the plant's operator, received a letter from the Environmental
Protection Agency ("EPA") dated July 21, 1991 and a subsequent letter dated
June 8, 1992, in which the EPA requested certain information in order to
determine if hazardous substances had been released into the environment at the
Aneth Gas Plant. Texaco has advised HSW that certain information was supplied
to the EPA pursuant to this request. Subsequently, core samples in and around
certain pit areas were jointly taken by the EPA and Texaco. The EPA has
responded to the initial sampling of the drip pits, and Texaco is now
completing a Phase II environmental investigation to provide further test
results in response to evaluation procedures required by the EPA related to the
drip pits.
The prior owner of the Aneth Gas Plant facility has agreed to accept
financial responsibility for a portion of this remediation work. Texaco and
the other current plant owners, including HSW, are presently negotiating a
formal agreement with the prior owner to allocate the costs of the remediation
work. At this time, however, it is impossible for HSW to estimate the costs of
the cleanup at the Aneth Gas Plant facility or the amount of indemnification
the prior owner will provide to the present owners, including HSW, for the
costs of the remediation work.
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PREFERRED STOCK AUTHORIZED FOR ISSUANCE
Harken has ten million shares of preferred stock available for
issuance. The Board of Directors is authorized to issue such preferred stock
in one or more series and to set the designations, preferences, powers and
relative rights and restrictions thereof without further approval by the
stockholders of the Company. Presently, Harken has three series of preferred
stock authorized, of which only one has any shares currently outstanding. Such
shares have certain preferences over the shares of Common Stock with respect to
the payment of dividends and upon liquidation, dissolution, winding-up and in
certain instances, voting. The Board of Directors of Harken also may authorize
additional series of preferred stock in the future that have similar or
additional preferences over the shares of Common Stock.
RISKS RELATED TO INTERNATIONAL OPERATIONS
Harken presently conducts international operations and anticipates
that it will conduct significant international operations in the future.
Foreign properties, operations or investments may be adversely affected by
local political and economic developments, exchange controls, currency
fluctuations, royalty and tax increases, retroactive tax claims, renegotiation
of contracts with governmental entities, expropriation, import and export
regulations and other foreign laws or policies governing operations of
foreign-based companies, as well as by laws and policies of the United States
affecting foreign trade, taxation and investment. In addition, as certain of
Harken's operations are governed by foreign laws, in the event of a dispute,
Harken may be subject to the exclusive jurisdiction of foreign courts or may
not be successful in subjecting foreign persons to the jurisdiction of courts
in the United States. Harken may also be hindered or prevented from enforcing
its rights with respect to a governmental instrumentality because of the
doctrine of sovereign immunity. Exploration and production activities in areas
outside the United States are also subject to the risks inherent in foreign
operations, including loss of revenue, property and equipment as a result of
hazards such as expropriation, nationalization, war, insurrection and other
political risks.
Harken anticipates that full development of reserves in the Alcaravan
area of the Llanos Basin and the Bocachico area of the Middle Magdalena Basin
of Columbia may take several years and may require extensive production
facilities which could require significant additional capital expenditures.
The ultimate amount of such expenditures cannot be presently predicted. Harken
anticipates that amounts required to fund international activities, including
those in Columbia, will be funded from existing cash balances, asset sales,
stock issuances, operating cash flows and potentially from industry partners;
however, there can be no assurances that Harken will have adequate funds
available to it to fund its international activities without participation from
industry partners or that industry partners can be obtained to fund such
international activities.
INDUSTRY RISKS
Oil and Gas Price Volatility. The revenues generated by Harken are
highly dependent upon the prices of crude oil and natural gas. Fluctuations in
the energy market make it difficult to estimate future prices of oil and
natural gas. Fluctuations in energy prices are caused by a number of factors,
including regional, domestic and international demand, energy legislation,
federal or state taxes (if any) on sales of crude oil and natural gas,
production guidelines established by the Organization of Petroleum Exporting
Countries, and the relative abundance of supplies of alternative fuel such as
coal. Additionally, changing international economic and political conditions
may have a dramatic impact upon crude oil and natural gas prices. Many of
these factors are beyond the control of Harken.
Business Risks. Harken must continually acquire or explore for and
develop new oil and gas reserves to replace those being depleted by production.
Without successful drilling or acquisition ventures, Harken's oil and gas
assets, properties and revenues derived therefrom will decline over time. To
the extent Harken engages in drilling activities, such activities carry the
risk that no commercially viable oil or gas production will be obtained. The
cost of drilling, completing and operating wells is often uncertain. Moreover,
drilling may be curtailed, delayed or canceled as a result of many factors,
including title problems, weather conditions, shortages of or delays in
delivery of equipment, as well as the financial instability of well operators,
major working interest owners and drilling and well servicing companies. The
availability of a ready market for Harken's oil and gas depends on numerous
factors beyond
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its control, including the demand for and supply of oil and gas, the proximity
of Harken's natural gas reserves to pipelines, the capacity of such pipelines,
fluctuation in seasonal demand, the effects of inclement weather, and
government regulation. New gas wells may be shut-in for lack of a market until
a gas pipeline or gathering system with available capacity is extended into the
area.
Operating Hazards and Uninsured Risks. The operations of Harken are
subject to the inherent risks normally associated with exploration for and
production of oil and gas, including blowouts, cratering, pollution and fires,
each of which could result in damage to or destruction of oil and gas wells or
production facilities or damage to persons and property. As is common in the
oil and gas industry, Harken is not fully insured against these risks, either
because insurance is not available or because Harken has elected to self-insure
due to high premium costs. The occurrence of a significant event not fully
insured against could have a material adverse effect on Harken's financial
condition.
Environmental Regulation. The activities of Harken are subject to
various Navajo, federal, state, and local laws and regulations covering the
discharge of material into the environment or otherwise relating to protection
of the environment. In particular, Harken's oil and gas exploration,
development, production, its activities in connection with storage and
transportation of liquid hydrocarbons and its use of facilities for treating,
processing, recovering, or otherwise handling hydrocarbons and wastes therefrom
are subject to stringent environmental regulation by governmental authorities.
In addition to these domestic laws and regulations, Harken's international
operations are subject to the laws, regulations and governmental approvals of
each foreign country in which it conducts activities including, but not limited
to, environmental laws and regulations governing oil and gas operations. Such
domestic and foreign laws and regulations have increased the costs of planning,
designing, drilling, installing, operating and abandoning Harken's oil and gas
wells and other facilities.
Imprecise Nature of Reserve Estimates. Reserve estimates are
imprecise and may be expected to change as additional information becomes
available. Furthermore, estimates of oil and gas reserves, of necessity, are
projections based on engineering data, and there are uncertainties inherent in
the interpretation of such data as well as the projection of future rates of
production and the timing of development expenditures. Reserve engineering is
a subjective process of estimating underground accumulations of oil and gas
that cannot be measured in an exact way, and the accuracy of any reserve
estimate is a function of the quality of available data and of engineering and
geological interpretation and judgment.
Competition. The oil and gas industry is competitive in all its
phases. Competition is particularly intense respecting the acquisition of
desirable producing properties and the sale of oil and natural gas production.
Harken's competitors in oil and gas exploration, development and production,
include major oil companies and numerous independent oil and gas companies, and
individual producers and operators. Many of Harken's competitors possess and
employ financial and personnel resources substantially greater than those which
are available to Harken, and may, therefore, be able to pay greater amounts for
desirable leases and to define, evaluate, bid for and purchase a greater number
of producing prospects than the financial or personnel resources of Harken will
permit.
Extensive Regulation. The production of oil and gas is subject to
extensive Navajo, federal and state laws, rules, orders and regulations
governing a wide variety of matters, including the drilling and spacing of
wells, allowable rates of production, prevention of waste and pollution and
protection of the environment. In addition to these domestic laws and
regulations, Harken's international operations are subject to the laws,
regulations and governmental approvals of each foreign country in which it
conducts activities including, but not limited to, environmental laws and
regulations governing oil and gas operations. Such laws, rules and regulations
are subject to change. Any such change in any law, rule or regulation could
have the effect of increasing the Company's cost of exploration or production
or may limit the Company's revenues by regulating the level of oil and gas
production, either of which could have a material adverse effect on the
financial condition of the Company.
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THE HARKEN WARRANTS
The Harken Warrants are evidenced and governed by a Warrant Agreement
(the "Warrant Agreement"), a form of which is attached hereto as Appendix A.
The following statements are subject to the detailed provisions of the Warrant
Agreement.
Each Harken Warrant entitles the holder to purchase that number of
shares of Common Stock as set forth on such warrant at a price of $1.82 per
share, subject to adjustment, from the date of issuance until 3:00 p.m.,
Dallas, Texas time on June 30, 1996. In addition, upon exercise of the Harken
Warrants the holders of record of such warrants will be eligible to receive
Contingent Shares, if any, or, under certain circumstances, cash. See
"Issuance of Contingent Shares."
The Harken Warrants may be exercised upon surrender of the Warrant
Agreement therefor on or prior to the expiration date at the offices of the
Company with the "Form of Subscription" attached to the Warrant Agreement
filled out and executed as indicated, accompanied by payment of the full
exercise price by certified check for the number of whole shares of Common
Stock being exercised. In the case of the exercise of only a portion of a
Harken Warrant prior to the expiration date of the Harken Warrant, the Company
will deliver to the holder a new warrant of like tenor in the name of the
holder evidencing the right to purchase the number of shares as to which such
Harken Warrant has not been exercised.
The Harken Warrants contain provisions that protect the holders
thereof against dilution by adjustment of the exercise price and shares
issuable upon exercise in certain events, such as stock dividends, stock
splits, mergers, sales of all or substantially all of the Company's assets and
other unusual events. The ownership of a Harken Warrant does not entitle the
holder thereof to any of the rights of holders of shares of Common Stock.
The Harken Warrants are not transferable other than by laws of descent
and distribution. However, the shares of Common Stock issuable upon the
exercise of the Harken Warrants or the Contingent Shares, if any, received by
the holders of record of the Harken Warrants will be freely transferable,
except that shares received by persons who are deemed to be "affiliates" (as
such term is defined under the Securities Act) of Search prior to the Merger
may be resold by them only in transactions permitted by the resale provisions
of Rule 145 promulgated under the Securities Act (or Rule 144 in the case of
such persons who are affiliates of the Company) or as otherwise permitted under
the Securities Act. See "Plan of Distribution."
Pursuant to the Merger Agreement, the Company has agreed to use
commercially reasonable efforts to provide, until July 17, 1996, to the holders
of the Harken Warrants, in connection with the exercise of such warrants, a
prospectus meeting the requirements of the Securities Act, as it may be amended
or supplemented from time to time.
PRIOR TO THE EXERCISE OF THE HARKEN WARRANTS, THE HOLDERS OF HARKEN
WARRANTS SHOULD CONSULT THEIR PERSONAL TAX ADVISORS AS TO THE TAX CONSEQUENCES
TO HIM OR HER OF THE EXERCISE OF THE HARKEN WARRANTS, INCLUDING THE
APPLICABILITY AND EFFECT OF FOREIGN, FEDERAL, STATE, LOCAL, AND OTHER TAX LAWS.
ISSUANCE OF CONTINGENT SHARES
Pursuant to the Merger Agreement, at the Effective Time, (a) each
outstanding share of the common stock, par value $.05 per share, of Search
("Search Common Stock"), (b) each outstanding share of the Series 1993
Redeemable Preferred Stock, par value $.001 per share, of Search and (c) each
of certain promissory notes issued by Search (the "Notes"), was converted into
shares of Common Stock. In addition, the holders of record at the Effective
Time of Search Common Stock, the Notes and the Search Warrants tendered and
exchanged in the Exchange Offer for Harken Warrants and the holders of
overriding royalty interests ("Royalty Holders") (collectively, the "Rights
Holders") received a non- transferable right to receive Contingent Shares, if
any, or, under certain circumstances, cash, to the extent the value of the
Undeveloped Properties as of June 30, 1996 (the "Valuation Date"), subject to
certain adjustments as described below, exceeds $1,733,000 (the "Stipulated
Value"). The Stipulated Value
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was determined based on negotiations between the Company and Search and may or
may not represent the value of the Undeveloped Properties at the Effective
Time. The obligation of the Company to deliver a number of Contingent Shares
will first be determined in dollar terms, as described below under "--Valuation
of the Undeveloped Properties," and then converted to a number of shares of
Common Stock. The Contingent Shares will then be allocated among the Rights
Holders as described below under "--Allocation of Contingent Shares." The
total number of shares of Common Stock to be issued as Contingent Shares is
subject to the limitation set forth below under "--Maximum Number of Contingent
Shares."
VALUATION OF THE UNDEVELOPED PROPERTIES
The value of the Undeveloped Properties as of the Settlement Date (the
"Valuation") will be determined by an independent reserve report (the "Report")
covering the Undeveloped Properties, providing the then present value of such
properties as of June 30, 1996 (the "Present Value") and adjusted as set forth
below:
(a) The Present Value will be reduced by 20% (the "Adjusted Present
Value").
(b) The Adjusted Present Value will be reduced for geological
risks based upon reserve categories of the Undeveloped
Properties as of the Valuation Date (the "Further Adjusted
Value") as set forth below:
0% reduction for proved developed producing reserves
20% reduction for proved developed non-producing reserves
40% reduction for proved undeveloped reserves
(c) The Further Adjusted Value will be adjusted by:
(i) Adding the then market value of any consideration
received by the Company or any of its affiliates from
any prospect sales, farmouts, or joint venture
arrangements with respect to any of the Undeveloped
Properties or any other consideration received upon
the disposition of an oil and gas interest in the
Undeveloped Properties;
(ii) Adding 80% of the net revenue (calculated before
income taxes and after deduction of lease operating
expenses) from sales of oil and/or gas produced from
the Undeveloped Properties for the period of time
from the Effective Time to the Valuation Date (the
"Development Period");
(iii) deducting the amount of any direct costs, direct
expenses and direct charges (in each case not
associated with oil or gas production and which are
not otherwise taken into account in the Report)
incurred or accrued by the Company or its affiliates
with respect to the Undeveloped Properties during the
Development Period, including $180,000 for overhead;
(iv) deducting the amount of the Reserve Deficiency (as
defined below);
(v) deducting the amount of the Stipulated Value; and
(vi) deducting the amount of the Adverse Consequences (as
defined below), provided, however, that no amount
shall be deducted until the Company has suffered
Adverse Consequences equal to or in excess of
$100,000 (at which point the entire amount of such
Adverse Consequences will be deducted relating back
to the first dollar).
"Reserve Deficiency" means the amount that the aggregate value of the
oil and gas reserves attributed to all of the properties of Search and its
subsidiaries as set forth in the reserve report dated as of July 1, 1994, after
giving credit for actual production from such properties for the period of time
from July 1, 1994 to December 31, 1994, is
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<PAGE> 12
greater than the aggregate value of the oil and gas reserves attributed to all
of such properties pursuant to a subsequent reserve report to be prepared as of
December 31, 1994. The subsequent reserve report will be prepared by a reserve
engineering firm known in the oil and gas industry and chosen by the Company in
good faith, based upon the same pricing and substantially the same parameters
and criteria as used in the properties of the reserve report dated as of July
1, 1994.
"Adverse Consequences" means (a) the amount of any and all liquidated
losses, liabilities or damages (including reasonable amounts paid in
settlement) actually suffered or incurred by the Company as a result of a
breach by Search of any of its representations, warranties or covenants
contained in the Merger Agreement, (b) the amount of any and all unliquidated
losses, liabilities or damages as reasonably estimated in good faith by the
Company to be suffered or incurred by the Company as a result of a breach by
Search of any of its representations, warranties or covenants contained in the
Merger Agreement, and (c) all reasonable fees and expenses, including
attorneys' fees and court costs, actually incurred by the Company or reasonably
estimated in good faith by the Company to be incurred in connection with any
claim, action, suit, proceeding or demand relating to a breach by Search of any
of its representations, warranties or covenants; provided, however, that the
Company must have used commercially reasonable efforts to defend against or
otherwise challenge the merits of any claim, action, suit, proceeding or demand
of a third party. Solely for purposes of calculating the amount of the Adverse
Consequences, any representation, warranty or covenant made by Search in the
Merger Agreement will be read and interpreted as if the qualification stated
therein with respect to materiality or material adverse effect were not
contained therein.
CALCULATION OF CONTINGENT SHARES
The number of shares of Common Stock to be distributed is determined
by dividing the amount of the Valuation, as adjusted above, by the average
closing price of Common Stock for the 90 days immediately preceding the
Valuation Date (the "Contingent Share Price").
ALLOCATION OF CONTINGENT SHARES
The Contingent Shares will be allocated among the Rights Holders as
follows:
(a) Two percent (2%) of the Contingent Shares will be distributed
to Concorde Financial Corporation ("Concorde") pursuant to the
terms of a promissory note payable by Search to Concorde.
(b) Two percent (2%) of the Contingent Shares will be distributed
to EnCap Investments, L.C. ("EnCap") pursuant to the terms of
an $80,000 promissory note payable by Search to EnCap.
(c) That number of Contingent Shares equal to the quotient of the
Value of the Eastern Shelf Properties (as defined below)
divided by the Contingent Share Price shall be distributed to
the Royalty Holders which Contingent Shares will be
distributed among the Royalty Holders in proportion to the
interest in the Eastern Shelf Properties conveyed by a Royalty
Holder to Search and the interest in the Eastern Shelf
Properties conveyed by all Royalty Holders. "Value of the
Eastern Shelf Properties" means the amount equal to a two
percent overriding royalty interest in the Eastern Shelf
Properties as determined in the Report.
(d) The remainder of the Contingent Shares will be distributed to
the Record Holders (as defined below), with each such Record
Holder receiving that fraction of such Contingent Shares as
equal to the quotient of the number of shares of Common Stock
into which such holders' Search Common Stock were converted at
the Effective Time (not including Contingent Shares) plus the
number of shares, if any, of Common Stock received by the
Record Holder upon the exercise of Harken Warrants divided by
the number of shares of Common Stock into which all Record
Holders' Search Common Stock were converted at the Effective
Time (not including Contingent Shares) plus the number of
shares of Common Stock received upon the exercise of all
Harken Warrants.
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<PAGE> 13
"Record Holder" means a holder of record at the Effective Time of
Search Common Stock or a holder at the Effective Time of Search Warrants that
were tendered and exchanged in the Exchange Offer for Harken Warrants.
PAYMENT OF CONTINGENT SHARES
The Company will distribute the Contingent Shares (except for the
number of shares of Common Stock that exceed the Maximum Share Limit (as
defined below), on such dates as set forth below:
(a) On or about September 30, 1996 (the "Settlement Date"), the
Company will deliver to each of the Rights Holders, at the
addresses of the Rights Holders as they appear on the stock
records of Search at the Effective Time (or, in the case of
Concorde, EnCap or the Royalty Holders, at such address as may
be specified in writing by Concorde, EnCap and the Royalty
Holders, respectively) or at such other addresses as Rights
Holders shall provide to the Company by written notice,
certificates representing the number of shares of Common Stock
payable to such Rights Holder and a letter from the chief
financial officer of the Company describing the calculations
made in determining the number of Contingent Shares.
(b) As soon as practicable after the date all Unliquidated Losses
(as defined below) have become liquidated losses, liabilities,
damages, fees or expenses actually suffered or incurred by the
Company (the "Final Settlement Date"), the Company will
determine the amount, if any, that the Unliquidated Losses
exceed such liquidated amount actually suffered or incurred by
the Company (the "Excess Amount"). The Company will then
distribute to the Rights Holders (excluding the Royalty
Holders), as described in paragraph (a) above and under
"--Allocation of Contingent Shares," the number of additional
Contingent Shares equal to the quotient of the Excess Amount
divided by the Contingent Share Price. "Unliquidated Losses"
means the amount of unliquidated losses, liabilities, damages,
fees and expenses reasonably estimated in good faith by the
Company in determining the amount of the Adverse Consequences.
The determination and calculation of the number of Contingent Shares
to be issued, if any, to the Rights Holders will be determined solely by the
Company in its exercise of good faith based upon the procedures described
above.
MAXIMUM NUMBER OF CONTINGENT SHARES
Pursuant to the Merger Agreement, the Company is not required nor
obligated to issue any portion of the Contingent Shares as provided above which
when added to all other shares of Common Stock issued or reserved for issuance
in connection with the Merger, the Exchange Offer and in all related
transactions, would exceed a maximum amount of eleven million (11,000,000)
shares of Common Stock (the "Maximum Share Limit"). Assuming the exercise of
all outstanding Harken Warrants, there are currently approximately 8,100,000
shares of Common Stock which may be issued by the Company as Contingent Shares
prior to reaching the Maximum Share Limit. In the event the shares of Common
Stock to be issued by the Company, exceed the Maximum Share Limit, then in such
event the Company will within 30 days after the Settlement Date or the Final
Settlement Date, as may be applicable, elect at its sole option:
(a) to pay the amount in cash of the number of such Contingent
Shares which exceed the Maximum Share Limit times the
Contingent Share Price to the parties entitled to receive such
shares, provided, however, that the cash received by the
holders of Search Common Stock and Search Preferred Stock
shall in no event exceed fifty percent (50%) of the aggregate
consideration received by such holders at the Effective Time
and on the Settlement Date (and the Final Settlement Date, if
applicable); or
(b) to obtain the consent and approval from its stockholders, if
required, to issue additional shares of Common Stock in excess
of the Maximum Share Limit.
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<PAGE> 14
In the event the Company elects to pursue the alternative to pay cash,
the Company will use commercially reasonable efforts to make such payments
within 45 days after the Settlement Date or the Final Settlement Date, as may
be applicable. In the event the Company elects to pursue the alternative to
pay in additional shares or in the event the cash alternative is not available
because of the above limitations placed upon the amount thereof, then the
Company will use commercially reasonable efforts to obtain the necessary
consent and approval from its stockholders, if required, so as to issue such
additional shares within six months after the Settlement Date or the Final
Settlement Date, as may be applicable. Pending such additional authorizations
or other actions necessary, the Company will issue that portion of the
Contingent Shares up to the Maximum Share Limit on the Settlement Date. In the
event the Company elects to obtain the approval of its stockholders to issue
additional shares in excess of the Maximum Share Limit and fails to obtain such
approval, the Company will pay cash.
MANAGEMENT OF THE UNDEVELOPED PROPERTIES
During the Development Period, the Company shall, through Search
Acquisition Corp., own, hold and manage the Undeveloped Properties. The
Company may sell, farmout, develop or otherwise deal in these Undeveloped
Properties during the Development Period in a manner that, in its judgment,
optimizes the full potential of these properties under the circumstances then
existing. During the Development Period, the Company will cause a maximum of
$600,000 (the "Development Amount") to be expended in the further exploration
and/or development of the Undeveloped Properties. In the event that the
Company determines that an insufficient number of the wells drilled on the
Undeveloped Properties during the Development Period are determined to be
commercial to warrant the prudent expenditure of the full Development Amount or
otherwise which would not justify further development and expenditures to a
reasonable, prudent operator, then the Company will not be required nor
obligated to cause any additional minimum investments to be made on such
Undeveloped Properties even if the Development Amount has not yet been expended
in full. During the Development Period, the Company will cause all production
of oil and gas from the Undeveloped Properties to be sold to non-affiliates
pursuant to bona fide contracts providing for the highest price reasonably
attainable through good faith negotiations as of the date of each such
contract.
INTERIM REPORTS
The Company has delivered to the Rights Holders an Interim Report
dated September 19, 1995 containing the status as of June 30, 1995, of
development and production activities on the Undeveloped Properties, a copy of
which is attached hereto as Appendix B. Within 90 days after December 31,
1995, the Company will also provide to the Rights Holders a second interim
report containing an update on the status of development and production
activities on the Undeveloped Properties as of December 31, 1995.
CONTINGENT NATURE OF ISSUANCE
The Company's obligation to issue Contingent Shares is conditional in
nature, and the Company may never make any additional payments beyond those
shares of Common Stock issued upon the exercise of the Harken Warrants.
ASSIGNMENT OF CONTINGENT RIGHT
The right to receive the Contingent Shares extends only to the Rights
Holders, may not be assigned or otherwise transferred by them other than by
laws of descent and distribution, and will not be represented by a form or
certificate. Although Common Stock, when received as Contingent Shares by the
Rights Holders will generally not be subject to restrictions upon disposition
(other than by affiliates of Search), the right to receive future Contingent
Shares is personal to the Rights Holders and non-transferable. See "Plan of
Distribution." In general, this right is independent of the shares of Common
Stock which will be issued upon the exercise of Harken Warrants.
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<PAGE> 15
MISCELLANEOUS
In the event of any stock split, stock dividend, reclassification,
merger or consolidation occurring on or after 90 days immediately preceding the
Valuation Date, the number of shares of Common Stock distributable to the
Rights Holders as Contingent Shares will be appropriately adjusted to accord
the equitable benefit of such changes to the Rights Holders. Dividends and
other distributions with respect to Common Stock declared after the Settlement
Date and payable to the holders of record thereof after the Settlement Date
will be payable to the Rights Holders with respect to the shares of Common
Stock to be delivered as Contingent Shares; provided, however, no such payment
will be made unless and until a certificate representing the Contingent Shares
has been delivered to the Rights Holders. No dividends payable to holders of
record of shares of Common Stock prior to the Settlement Date shall be paid to
the Rights Holders with respect to such Contingent Shares.
USE OF PROCEEDS
Holders of the Harken Warrants are not obligated to exercise their
warrants and there can be no assurance that the holders of the Harken Warrants
will choose to exercise all or any of the Harken Warrants. It is unlikely that
the holders of Harken Warrants will exercise Harken Warrants unless the market
price of the Common Stock exceeds the exercise price of Harken Warrants. As of
September 19, 1995, the last sales price of the Common Stock was $1.875. In
the event that all of the outstanding Harken Warrants are exercised, the net
proceeds to the Company upon such exercise would be approximately $1,300,000,
after deducting expenses payable by the Company. There can, of course, be no
assurance as to what percentage, if any, of the Harken Warrants will be
exercised. Any net proceeds received from the exercise of the Warrants will be
used for general corporate purposes, including possible acquisitions of other
businesses. See "Plan of Distribution."
Pending use of the net proceeds as described above, the Company
intends to invest such proceeds in interest bearing obligations or marketable
securities.
PLAN OF DISTRIBUTION
From time to time, the Company will issue and sell shares of Common
Stock to the holders of the Harken Warrants upon the exercise of such warrants
in accordance with their terms. In addition, upon the exercise of the Harken
Warrants, the holders of record of such Warrants will be eligible to receive
Contingent Shares, if any, or under certain circumstances, cash. See "The
Harken Warrants" and "Issuance of Contingent Shares."
All shares of Common Stock issued upon the exercise of Harken Warrants
and the Contingent Shares, if any, issued to the holders of record of such
warrants will be freely transferable, except that shares of Common Stock
received by persons who are deemed to be "affiliates" (as such term is defined
under the Securities Act) of Search prior to the Merger may be resold by them
only in transactions permitted by the resale provisions of Rule 145 promulgated
under the Securities Act (or Rule 144 in the case of such persons who are
affiliates of the Company) or as otherwise permitted under the Securities Act.
Persons who may be deemed to be affiliates of Search or the Company generally
include individuals or entities that control, are controlled by, or are under
common control with, such party and may include certain officers and directors
of such party as well as principal stockholders of such party.
LEGAL MATTERS
The legality of the issuance of the Common Stock offered hereby has
been passed upon for the Company by Larry E. Cummings.
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EXPERTS
The (a) consolidated financial statements and schedules of the Company
included in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994, and (b) financial statements of the CHAP Venture as of
December 31, 1993, included in the Company's Current Report on Form 8-K/A dated
January 3, 1995, each of which are incorporated by reference in this
Registration Statement of which this Prospectus forms a part, have been audited
by Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are incorporated by reference herein in
reliance upon the authority of said firm as experts in accounting and auditing
in giving said reports.
The consolidated financial statements of Search for the year ended
December 31, 1994, included in Company's Current Report on Form 8-K dated June
2, 1995, as amended by the Company's Current Report on Form 8-K/A filed on
August 3, 1995, have been audited by Hein + Associates LLP, independent
certified public accountants, as indicated in their report with respect
thereto, and are incorporated by reference herein in reliance upon the
authority of said firm as experts in accounting and auditing in giving said
report.
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APPENDIX A
FORM OF HARKEN WARRANT
WARRANT NO. 95-____________
Warrant to Purchase
________ Shares
(subject to adjustment)
of Common Stock of
Harken Energy Corporation
Void after 3:00 p.m.
Dallas, Texas
June 30, 1996
HARKEN ENERGY CORPORATION
Stock Purchase Warrant
THIS IS TO CERTIFY THAT, for value received, ____________________________
(the "Holder"), whose address is _____________________________, upon due
exercise of this Warrant, is entitled to purchase from Harken Energy
Corporation, a Delaware corporation (the "Company"), at any time before 3:00
p.m., Dallas, Texas time, on June 30, 1996 (the "Expiration Date"), all or any
part of _____________ shares (the "Shares") of fully paid and non-assessable
common stock, par value $.01 per share (the "Common Stock"), of the Company, at
a purchase price of $1.82 per share (the "Strike Price"), both the Strike Price
and number of shares being subject to possible adjustment as provided below.
1. Exercise of Warrant.
(a) Subject to subsection 1(b) below, the Holder may
exercise this Warrant in whole or in part at any time, but only in such
multiples as are required to permit the issuance by the Company of one or more
full shares of Common Stock of the Company, by surrender of this Warrant with
the Form of Subscription attached hereto duly executed, to the Company at or
prior to 3:00 p.m. Dallas, Texas local time on the Expiration Date, together
with payment of the Strike Price for each of the Shares into which the Warrant
is exercised. Payment for the Shares to be purchased upon exercise of this
Warrant may be made by the delivery of a certified or cashier's check payable
to the Company for the aggregate Strike Price of the Shares to be purchased.
In case of the exercise of this Warrant in part only prior to the Expiration
Date, the Company will deliver to the Holder a new Warrant of like tenor in the
name of the Holder evidencing the right to purchase the number of shares as to
which this Warrant has not been exercised.
(b) The Warrant may not be exercised by the Holder
unless, at the time of exercise, (i) the Company has delivered to the Holder a
current prospectus covering the Shares which complies with the requirements of
the Securities Act of 1933, as amended, and the rules and regulations
thereunder (the "Act"); (ii) the Shares are qualified for sale or exempt from
qualification under applicable state securities laws; and (iii) such exercise
and issuance would otherwise be in compliance with applicable laws in the
opinion of counsel to the Company. Harken agrees to take commercially
reasonable efforts to deliver to the Holder at the time of exercise of the
Warrant a current prospectus meeting the requirements of the Act and to obtain
appropriate approvals or qualifications under applicable state securities laws.
The Warrant may not be, directly or indirectly, transferred to, or exercised
by, any person in any state where such transfer or exercise would violate any
law, including securities law, of such state in the opinion of counsel to the
Company. Legends as required by applicable federal and state laws may be
placed on the certificates representing the Shares. The Holder and the Company
agree to execute such documents and instruments as counsel
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<PAGE> 18
for the Company reasonably deems necessary to effect compliance of the issuance
of this Warrant and any Shares issued upon exercise hereof with applicable
federal and state securities laws.
2. Stock Dividends, Reclassification, Reorganization,
Anti-Dilution Provisions, Etc.
This Warrant is subject to the following further provisions:
(a) In case, prior to the expiration of this Warrant by
exercise or by its terms, the Company issues any shares of its Common Stock as
a stock dividend or divides the number of shares, then, in either of such
cases, the Strike Price per share of the Shares purchasable pursuant to this
Warrant in effect at the time of such action will be proportionately reduced
and the number of Shares at that time purchasable pursuant to this Warrant
shall be proportionately increased; and conversely, in the event the Company
shall combine such shares of its Common Stock into a smaller number of shares,
then, and in such event, the Strike Price per share of the Shares purchasable
pursuant to this Warrant in effect at the time of such action shall be
proportionately increased and the number of Shares at that time purchasable
pursuant to this Warrant shall be proportionately decreased.
(b) In case, prior to the expiration of this Warrant by
exercise or by its terms, the Company is recapitalized by reclassifying its
outstanding Common Stock into stock with a different par value or by changing
its outstanding Common Stock with par value to stock without par value, or the
Company or a successor corporation consolidates or merges with or conveys all
or substantially all of its or of any successor corporation's property and
assets to any other corporation or corporations (any such corporation being
included within the meaning of the term "successor corporation" in the event of
any consolidation or merger of any such corporation with, or the sale of all or
substantially all of the property of any such corporation to, another
corporation or corporations), the Holder of this Warrant may thereafter
purchase, upon the terms and conditions and during the time specified in this
Warrant, in lieu of the Shares theretofore purchasable upon the exercise of
this Warrant, the kind and amount of shares of stock and other securities
receivable upon such recapitalization or consolidation, merger, or conveyance
by a Holder of the number of shares of Common Stock which the holder of this
Warrant might have purchased, immediately prior to such recapitalization or
consolidation, merger, or conveyance.
(c) Upon the occurrence of each event requiring an
adjustment of the Strike Price and/or of the number of Shares purchasable
pursuant to this Warrant in accordance with, and as required by, the terms of
subdivision (a) of this Section 2, the Company shall forthwith employ a firm of
certified public accountants (who may be the regular accountants for the
Company) who shall compute the adjusted Strike Price and the adjusted number of
Shares purchasable at such adjusted Strike Price by reason of such event in
accordance with the provisions of subdivision (a) and shall prepare a
certificate setting forth such adjusted Strike Price and the adjusted number of
Shares and showing in detail the facts upon which such conclusions are based,
including a statement of the consideration received or to be received by the
Company for any additional shares of Common Stock issued or sold or deemed to
have been issued or sold and of the number of shares of Common Stock
outstanding or deemed to be outstanding. The Company shall mail forthwith to
the holder of this Warrant a copy of such certificate, and thereafter said
certificate shall be conclusive and shall be binding upon such holder unless
contested by such holder by written notice to the Company within ten (10) days
after receipt of the certificate of the public accountants by such holder.
(d) In case:
(i) of any classification, reclassification, or
other reorganization of the capital stock of the Company, consolidation, or
merger of the Company with or into another corporation, or conveyance of all or
substantially all of the assets of the Company; or
(ii) of the voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, and in any such case, the Company shall mail to the holder of this
Warrant a brief statement of the event giving rise to such effect and a
description thereof.
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(e) In case the Company at any time while this Warrant
remains unexpired and unexercised, sells all or substantially all of its
property or dissolves, liquidates, or winds up its affairs, the holder of this
Warrant may thereafter receive upon exercise hereof in lieu of each share of
Common Stock of the kind and amount of any securities or assets as may be
issuable, distributable, or payable upon any such sale, dissolution,
liquidation, or winding up with respect to each share of Common Stock of the
Company.
3. NONTRANSFERABILITY. THIS WARRANT MAY NOT BE SOLD, PLEDGED,
ASSIGNED, HYPOTHECATED, TRANSFERRED, OR DISPOSED OF IN ANY MANNER OTHER THAN BY
WILL OR BY THE LAWS OF DESCENT AND DISTRIBUTION. THIS WARRANT IS EXERCISABLE,
DURING THE LIFETIME OF THE HOLDER, ONLY BY THE HOLDER. ANY ATTEMPTED
ASSIGNMENT, TRANSFER, PLEDGE, HYPOTHECATION, OR OTHER ENCUMBRANCE OF THIS
WARRANT CONTRARY TO THE PROVISIONS HEREOF, ANY EXECUTION, ATTACHMENT, OR
SIMILAR PROCESS UPON THIS WARRANT, WILL BE NULL, VOID, AND OF NO EFFECT.
4. Warrant Holder Not Stockholder. This Warrant does not confer
upon the Holder any right whatsoever as a stockholder of the Company.
5. Loss, Theft, Destruction, or Mutilation. Upon receipt by the
Company of evidence satisfactory to it (in the exercise of its reasonable
discretion) of the ownership of and the loss, theft, destruction, or
mutilation of this Warrant and (in the case of loss, theft, or destruction) of
indemnity satisfactory to it (in the exercise of its reasonable discretion),
and (in the case of mutilation) upon surrender and cancellation thereof, the
Company will execute and deliver, in lieu thereof, a new Warrant of like tenor.
6. Mailing of Notices, etc. All notices and other communications
from the Company to the Holder of this Warrant shall be mailed by first-class
mail, postage prepaid, to the address of the Holder set forth above or such
other address as may be furnished to the Company in writing by the Holder of
this Warrant. All notices from the Holder of this Warrant to the Company shall
be mailed to the Company by first-class mail, postage prepaid at P.O. Drawer
612007, Dallas, Texas 75261.
7. Law Governing. This Warrant shall be construed and enforced
in accordance with and governed by the laws of the State of Delaware.
IN WITNESS WHEREOF, the Company has caused this Warrant to be
executed, sealed, and delivered, in its name by its duly authorized officers.
HARKEN ENERGY CORPORATION
By: _____________________________
Name:_____________________________
Title: ___________________________
Dated: , 1995
A-3
<PAGE> 20
FORM OF SUBSCRIPTION
(To be signed only upon exercise of Warrant)
TO: Harken Energy Corporation
P.O. Drawer 612007
Dallas, Texas 75261
The undersigned, the Holder of the within Warrant numbered
95-_______, hereby irrevocably elects to exercise the purchase rights
represented by said Warrant for, and to purchase thereunder, __________ shares
of Common Stock of the Company, and herewith makes payment of $__________
therefore, and requests that the certificates for such shares be issued in the
name of and be delivered
to_____________________________________________________________, whose address
is _____________________________________________, and if such shares do not
constitute all of the shares purchasable hereunder, that a new Warrant of like
tenor for the balance of the shares purchasable hereunder be delivered to the
undersigned.
Date: _______________________ ______________________________________
(Signature must conform in all respect
to name of holder as specified on the
face of the Warrant.)
(Print Name)
______________________________________
Signature Guaranteed By:
____________________________________
A-4
<PAGE> 21
APPENDIX B
INTERIM REPORT
September 19, 1995
To Rights Holders of Search Exploration, Inc.:
The Amended and Restated Agreement and Plan of Merger ("Agreement") among
Harken Energy Corporation ("Harken"), Search Acquisition Corp., and Search
Exploration, Inc. ("Search") which was closed effective May 22, 1995, provided
for a periodic report to be presented to Search Rights Holders (as defined in
the Agreement).
The initial report on the development progress related to Search prospects set
forth in Exhibit D of the Agreement is required to be presented to the Search
Rights Holders no later than September 30, 1995, setting forth the status of
such development activities from the date on which the merger was effective,
May 22, 1995, through June 30, 1995.
The attached report is intended only for information purposes as an interim
summary of such activities and is presented to you as required of Harken
regarding the status of the prospects which constituted Exhibit D of the
Agreement.
If the determination of Contingent Shares would have been made as of June 30,
1995, the valuation information available at that date would not have resulted
in any Contingent Shares being issued. However, the final determination of the
number of Contingent Shares which may ultimately be issued under the provisions
of the Agreement, if any, will be subject to valuation increases or decreases
based upon valuations to be made at the end of the Development Period on June
30, 1996.
We trust this information will prove to be useful in your analysis. If
additional public information is required concerning Harken, please contact our
main office for such information at 214/753-6900. The next report will be
submitted on or before March 30, 1996.
Sincerely,
HARKEN ENERGY CORPORATION
/s/ Bruce N. Huff
Bruce N. Huff
Senior Vice President and
Chief Financial Officer
B-1
<PAGE> 22
STATUS OF DEVELOPMENT AND PRODUCTION ACTIVITIES ON THE UNDEVELOPED
PROPERTIES FROM MAY 22, 1995 THROUGH JUNE 30, 1995
The following is a synopsis of the activities on the "undeveloped properties"
(as defined in the Amended and Restated Agreement and Plan of Merger among
Harken Energy Corporation ("Harken"), Search Acquisition Corp. and Search
Exploration, Inc. ("Search") through June 30, 1995:
o New Taiton -
Search has a 3.75% working interest after pay-out on a well by well
basis. The undeveloped property associated with this prospect
currently has one (1) new producing well, and the operator is
currently processing and evaluating an additional 40 miles of 2-D
seismic data. One (1) additional well is planned to be drilled in late
1995 or early 1996.
o Hancock Ranch - Frio -
This 13,000 acre prospect was subject to a 3-D seismic option. Search
elected to sell its rights to a carried working interest (3.75%) to
casing point on 11 Frio formation wells that were already developed
and sold to others. Such sales were all made prior to the closing of
the acquisition of Search on May 22, 1995 by Harken. Any proceeds
from the sale received by Harken after May 22, 1995, will be
reflected in the final valuation report as of June 30, 1996.
o Hancock Ranch - Wilcox -
This prospect covered 13,000 acres which was subject to a 3-D seismic
option. After detailed geophysical review, no Yegua or Wilcox
formation prospects were developed. The seismic option terminated of
its own accord without drilling activities. Therefore, no further
rights were earned and there is no further activity anticipated on
this prospect.
o Throckmorton (AKA Kings Creek Prospect) -
No drilling activity has occurred on this prospect since acquiring the
3-D seismic data. The operator is currently re-processing the 3-D
seismic data to select an optimum location for a late 1995 test well.
Search will have a carried working interest to casing point (25%) if
the test well is drilled.
o Eastern Shelf (farmout) and Eastern Shelf (25%) -
Search sold its interest in these prospects to a third party prior to
the closing of the acquisition of Search by Harken on May 22, 1995.
Search retained a production payment equal to $250,000 payable out of
a 15% production payment; however the only well drilled in the
reporting period was a dry hole. Harken received a $50,000 payment
related to this sale from the third party in June 1995, along with a
note receivable for $50,000 due on December 31, 1995.
o Provident City -
Search has a 14% carried to casing point working interest on the
initial well which is currently awaiting completion. A second well
may be drilled in late 1995 or early 1996.
B-2
<PAGE> 23
o Gracey Ranch -
This prospect was sold by Search prior to the acquisition of Search by
Harken and Harken has not received any amounts from such sale as of
June 30, 1995. Additionally, Search has a small overriding royalty
interest and retains a 2.5% working interest after pay-out on a
prospect basis. Two other companies are currently shooting seismic to
select a potential test well location.
o Southwest Speaks -
This prospect is the subject of current efforts to obtain a partner.
o Estrella Prospect -
Search sold its interest in this prospect to the operator of the
existing gas unit prior to the closing of the acquisition of Search by
Harken on May 22, 1995.
o Magnolia Beach, Lay, Tatum Square and Black Owl Deep -
No further activity on these prospects is anticipated due to prior
unsuccessful drilling efforts.
B-3
<PAGE> 24
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The table below sets forth the estimated expenses expected to be paid
by the Company in connection with the issuance and distribution of the Common
Stock covered by the Prospectus included as a part of this Registration
Statement.(1)
<TABLE>
<S> <C>
SEC Registration Fee . . . . . . . . . . . . . . . . . $ 459.88
AMEX Listing Fee . . . . . . . . . . . . . . . . . . . 17,500.00
"Blue Sky" Fees and Expenses . . . . . . . . . . . . . 1,000.00
Printing and Engraving Expenses . . . . . . . . . . . 3,000.00
Legal Fees and Expenses (other than Blue Sky) . . . . 15,000.00
Accounting Fees and Expenses . . . . . . . . . . . . . 2,000.00
Miscellaneous . . . . . . . . . . . . . . . . . . . . 1,041.12
---------------
Total . . . . . . . . . . . . . . . . . . . . . $ 40,000.00
===============
</TABLE>
---------------
(1) Such amounts reflect only the estimated expenses paid by the
Company which were applicable to the shares of Common Stock covered by the
Prospectus included as a part of this Registration Statement. The Company
incurred additional expenses in connection with the issuance and distribution
of securities registered under the Registration Statement but which are not
covered by the Prospectus included as a part of this Registration Statement.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Section 145 of the General Corporation Law of the State of
Delaware ("Delaware Law"), a Delaware corporation may indemnify its directors,
officers, employees and agents against expenses (including attorneys fees),
judgments, fines and settlements in nonderivative suits, actually and
reasonably incurred by them in connection with the defense of any action, suit
or proceeding in which they or any of them were or any made parties or are
threatened to be made parties by reason of their serving or having served in
such capacity. Delaware law, however provides that such person must have acted
in good faith and in a manner they reasonably believed to be in or not opposed
to the best interests of the corporation, and in the case of a criminal action,
such person must have had no reasonable cause to believe his or her conduct was
unlawful. Section 145 further provides that in connection with the defense or
settlement of any action by or in the right of the corporation, a Delaware
corporation may indemnify its directors and officers against expenses actually
and reasonably incurred by them if, in connection with the matters in issue,
they acted in good faith, in a manner they reasonably believed to be in or not
opposed to the best interests of the corporation, except that no
indemnification may be made with respect to any claim, issue or matter as to
which such person has been adjudged liable for negligence or misconduct unless
the Court of Chancery or the court in which such action or suit is brought
approves such indemnification. Section 145 further permits a Delaware
corporation to grant its directors and officers additional rights of
indemnification through bylaw provisions and otherwise, and to purchase
indemnity insurance on behalf of its directors and officers. Indemnification
is mandatory to the extent a claim, issue or matter has been successfully
defended.
Article Ten of the Registrant's Certificate of Incorporation and
Article VII of the Registrant's Bylaws provide, in general, that the Registrant
shall indemnify its directors and officers under certain of the circumstances
defined in Section 145. Pursuant to an Advancement Agreement dated September
13, 1989, between the Registrant and each director thereof, the Registrant in
accordance with its Certificate of Incorporation and By-laws, has agreed to
advance certain reasonable expenses incurred by such director(s) in defending a
claim or claims made against such director(s) for certain covered acts (as such
acts are described in the Advancement Agreement). The Registrant will have no
obligation under the Advancement Agreement to pay any expenses incurred by a
director in connection with
II-1
<PAGE> 25
a claim which a majority of disinterested directors determines to be an
excluded claim as described in the Advancement Agreement.
ITEM 16. EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
+2.1 Amended and Restated Agreement and Plan of Merger among Harken Energy
Corporation, Search Acquisition Corp. and Search Exploration, Inc.
dated as of November 8, 1994 and as amended on March 27, 1995
4.1 Certificate of the Designations, Powers, Preferences and Rights of
Series C Cumulative Convertible Preferred Stock, $1.00 par value of
the Company (incorporated by reference as Exhibit 4.3 to the Company's
Annual Report on Form 10-K for fiscal year ended December 31, 1989)
+5 Opinion of Larry E. Cummings, General Counsel of the Company, as to
the legality of the securities being registered
+8 Opinion of Hein + Associates LLP, as to certain tax matters
+23.1 Consent of Larry E. Cummings (included in Exhibit 5)
*23.2 Consent of Arthur Andersen LLP
*23.3 Consent of Hein + Associates LLP
+24 Powers of Attorney
99.1 Form of Harken Warrant (attached as Appendix A to the Prospectus filed
as a part of this Registration Statement)
99.2 Interim Report regarding the status of the Undeveloped Properties
dated September 19, 1995 (attached as Appendix B to the Prospectus
filed as a part of this Registration Statement)
------------------
* filed herewith
+ previously filed
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act.
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the Registration Statement (or the
most recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the information
set forth in the Registration Statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered
(if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of
prospectus filed with the
II-2
<PAGE> 26
Commission pursuant to Rule 424(b) if, in the aggregate, the changes
in volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective Registration Statement.
(iii) To include any material information with respect to
the Plan of Distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement.
provided, however, that paragraphs (a)(1)(I) and (a)(1)(ii) do not apply if the
Registration Statement is on Form S-3 or Form S-8, and the information required
to be included in a post-effective amendment by those paragraphs is contained
in periodic reports filed by the Registrant pursuant to Section 13 or Section
15(d) of the Exchange Act that are incorporated by reference in the
Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act, each filing of
the Registrant's annual report pursuant to Section 13(a) or Section 15(d) of
the Exchange Act (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in the Registration Statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
II-3
<PAGE> 27
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Irving,
State of Texas, on September 21, 1995.
HARKEN ENERGY CORPORATION
By: *
-------------------------
MIKEL D. FAULKNER,
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Chairman of the Board and Chief Executive September 21, 1995
--------------------------------- Officer (Principal Executive Officer)
MIKEL D. FAULKNER
* President and Director September 21, 1995
---------------------------------
RICHARD H. SCHROEDER
* Senior Vice President and Chief Financial September 21, 1995
--------------------------------- Officer (Principal Accounting and
BRUCE N. HUFF Financial Officer)
* Director September 21, 1995
---------------------------------
MICHAEL R. EISENSON
* Director September 21, 1995
---------------------------------
TALAT M. OTHMAN
* Director September 21, 1995
---------------------------------
MICHAEL M. AMEEN, JR.
* Director September 21, 1995
---------------------------------
DONALD W. RAYMOND
* Director September 21, 1995
---------------------------------
EDWIN C. KETTENBRINK, JR.
Director September 21, 1995
---------------------------------
GARY B. WOOD
</TABLE>
*Larry E. Cummings, by signing his name hereto, does hereby sign this
Registration Statement on behalf of Harken Energy Corporation and each of the
above-named officers and directors of such Company pursuant to powers of
attorney, executed on behalf of the Company by each officer and director.
/s/ Larry E. Cummings
---------------------
Larry E. Cummings
Attorney-in-Fact
II-4
<PAGE> 28
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------ ----------- ----
<S> <C>
+2.1 Amended and Restated Agreement and Plan of Merger among Harken Energy Corporation, Search
Acquisition Corp. and Search Exploration, Inc. dated as of November 8, 1994 and as amended
on March 27, 1995
4.1 Certificate of the Designations, Powers, Preferences and Rights of Series C Cumulative
Convertible Preferred Stock, $1.00 par value of the Company (incorporated by reference as
Exhibit 4.3 to the Company's Annual Report on Form 10-K for fiscal year ended December 31,
1989)
+5 Opinion of Larry E. Cummings, General Counsel of the Company, as to the legality of the
securities being registered
+8 Opinion of Hein + Associates LLP, as to certain tax matters
+23.1 Consent of Larry E. Cummings (included in Exhibit 5)
*23.2 Consent of Arthur Andersen LLP
*23.3 Consent of Hein + Associates LLP
+24 Powers of Attorney
99.1 Form of Harken Warrant (attached as Appendix A to the Prospectus filed as a part of this
Registration Statement)
99.2 Interim Report regarding the status of the Undeveloped Properties dated September 19, 1995
(attached as Appendix B to the Prospectus filed as a part of this Registration Statement)
</TABLE>
-------------
* filed herewith
+ previously filed
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incoporation by
reference in this registration statement on Form S-3 (File No 33-58265) of our
report dated February 10, 1995, included in Harken Energy Corporation's Form
10-K for the year ended December 31, 1994, and of our report dated December 22,
1994, on the financial statements of the CHAP Venture as of and for the year
ended December 31, 1993, included in Harken Energy Corporation's Form 8-K/A
dated January 3, 1995, and to all references to our Firm included in this
registration statement.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Dallas, Texas
September 21, 1995
<PAGE> 1
EXHIBIT 23.3
INDEPENDENT AUDTOR'S CONSENT
We consent to the incoporation by reference in the Registration Statement Post
Effective Amendment No. 1 to Form S-4 on Form S-3 of Harken Energy Corporation
of our report dated February 10, 1995, accompanying the consolidated financial
statements of Search Exploration, Inc. incorporated by reference in such
Registration Statement, and to the use of our name and the statements with
respect to us, as appearing under the heading "Experts" in the Registration
Statment.
/s/ HEIN + ASSOCIATES LLP
HEIN + ASSOCIATES LLP
September 20, 1995
Dallas, Texas
