<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): July 10, 1996
HARKEN ENERGY CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 0-9207 95-2841597
(State or other jurisdiction (Commission File (IRS Employer
of 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
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On July 10, 1996, 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 EnerVest Acquisition II - Limited Partnership ("EnerVest").
Pursuant to the Purchase and Sale Agreement, Harken Exploration acquired all of
EnerVest's working interests in certain producing oil and gas leases located in
Arkansas and New Mexico and property and equipment related thereto (the
"Properties"), for a preliminary purchase price of $15,200,000 and the
assumption of certain operational liabilities. The preliminary purchase price
consisted of 1,550,000 shares of common stock, $.01 par value per share (the
"Common Stock") of the Company (the "Tranche A Shares") to be issued within 30
days after closing, $5,000,000 in cash payable at closing, and an additional
number of shares of Common Stock to be issued in the future as described below.
The Company also issued to EnerVest warrants to purchase for a period of three
(3) years from closing 300,000 shares of Common Stock at an exercise price of
$2.75 per share.
Pursuant to the Purchase and Sale Agreement, upon the expiration of
180 days from the date a registration statement is declared effective by the
Securities and Exchange Commission relating to the resale of the Tranche A
Shares, the Company is required to issue an additional 1,159,091 shares of
Common Stock (the "Tranche B Shares") to EnerVest; provided, however, that if
the sum of (i) the actual gross proceeds realized by EnerVest from the sale of
the Tranche A Shares and (ii) the then market value of Tranche A Shares still
held by EnerVest (together, the "Tranche A Realized Proceeds") is less than
$4,262,500, the Company is required to issue such number of shares of Common
Stock (the "Deficiency Shares"), in addition to the Tranche B Shares, having a
market value at the time of issuance equal to the difference between $4,262,500
and the Tranche A Realized Proceeds. In addition, at the time the Company is
to issue the Tranche B Shares, it will calculate the aggregate value of all
adjustments that are either identified and agreed to under the Purchase and
Sale Agreement or identified but still contingent under the Purchase and Sale
Agreement. These adjustments will include matters such as title defects,
identification of unplugged uneconomic wells, environmental matters and gas
imbalances. The aggregate value of all such adjustments that have been
identified and agreed to will be offset against the Tranche B Shares prior to
issuance. The aggregate value, up to $500,000, of all such adjustments that
have been identified but are still contingent will be evidenced by a portion of
the Tranche B Shares which the Company will hold back from issuance until such
contingent matters are resolved. EnerVest will also put $1,000,000 cash into
an escrow account which may be offset or drawn against by the Company to
satisfy other defects identified by the Company under the Purchase and Sale
Agreement. Upon the expiration of 180 days from the date a registration
statement is declared effective by the Securities and Exchange Commission
relating to the resale of the Tranche B Shares and the Deficiency Shares, the
Company may be required to issue an additional number of shares of Common Stock
(the "Tranche C Shares") if the sum of (i) the actual proceeds realized by
EnerVest from the sale of all of the shares of Common Stock sold by EnerVest up
to such time and (ii) the then market value of any shares of Common Stock still
held by EnerVest (together, the "Total Realized Proceeds") is less than
$10,200,000 as adjusted for the defects and adjustments raised by the Company.
In such event, the Company shall be required
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to issue the number of Tranche C Shares having a market value at the time of
issuance equal to the difference between $10,200,000 and the Total Realized
Proceeds.
The Purchase Shares issued to EnerVest 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 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 EnerVest 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 EnerVest of the Tranche A Shares no later than October 9,
1996, and to use diligent efforts to maintain the effectiveness of the First
Registration Statement for the shorter of (i) 180 days from the date of
effectiveness of the First Registration Statement, or (ii) the date on which
all of the Tranche A Shares have been sold by EnerVest. 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 90 days following the issuance of the Tranche B Shares, covering
all of the shares of Common Stock held by EnerVest at such time, and to use
diligent efforts to maintain the effectiveness of the Second Registration
Statement for the shorter of (i) 180 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
EnerVest. Harken has granted EnerVest the right to exercise one demand at any
time to require registration of the Tranche C Shares, if any, that may be
issued. Harken also has the election to require EnerVest to include these
Tranche C Shares in a registration statement filed by the Company.
Each of the Purchase and Sale Agreement and the Registration Rights
Agreement, attached hereto as Exhibits 2.1 and 99.1 respectively, is
incorporated herein by reference.
ITEM 5. OTHER EVENTS
The Company entered into an Exchange Agreement (the "Exchange
Agreement") with Harken Exploration and Momentum Operating Co., Inc.
("Momentum") on July 11, 1996. Pursuant to the Exchange Agreement, the Company
agreed to issue within 15 business days 5,150,000 shares of Common Stock to
Momentum as full payment for all amounts due under a promissory note of Harken
Exploration in the original principal amount of $13 million (the "Note"), and
Harken Exploration agreed that, in the event that Momentum realizes less that
$8,000,000 of gross proceed from the sale of the Common Stock, Harken
Exploration will pay to Momentum the difference between $8,000,000 and such
realized proceeds. The Note was originally issued on December 20, 1995,
pursuant to a Purchase and Sale Agreement between the Company, Harken
Exploration and Momentum and upon the consummation of the acquisition of
certain oil and gas properties by Harken Exploration from Momentum. The
original terms of the
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Note provided that it was convertible into shares of Common Stock at the option
of Harken Exploration and the Company.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial statements of businesses acquired.
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Harken Energy Corporation:
We have audited the accompanying statements of revenues and direct operating
expenses of the EnerVest Properties for the fiscal years ended May 31, 1996,
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 the EnerVest Properties for the fiscal years ended
May 31, 1996 and 1995, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Dallas, Texas,
July 10, 1996
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ENERVEST PROPERTIES
Statements of Revenues and Direct Operating Expenses
For the Fiscal Years ended May 31, 1996 and 1995
(In thousands of dollars)
<TABLE>
<CAPTION>
Fiscal Years Ended
May 31,
-----------------------
1996 1995
-------- --------
<S> <C> <C>
REVENUES:
Oil $ 3,658 $ 2,942
Gas 744 540
-------- --------
Total revenues 4,402 3,482
DIRECT OPERATING EXPENSES:
Production and other expenses 1,178 1,332
Production taxes 262 203
-------- --------
Total direct operating expenses 1,440 1,535
EXCESS OF REVENUES OVER DIRECT OPERATING EXPENSES $ 2,962 $ 1,947
======== ========
</TABLE>
See notes to statements of revenues and direct operating expenses.
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ENERVEST PROPERTIES
Notes to Statements of Revenues and Direct Operating Expenses
Fiscal Years ended May 31, 1996 and 1995
1. BASIS OF PRESENTATION:
On July 10, 1996, Harken Energy Corporation (the "Company") and Harken
Exploration Company, a wholly owned subsidiary of the Company, entered into an
agreement, effective June 1, 1996, with EnerVest Acquisition II - Limited
Partnership ("EnerVest"), to acquire certain oil and gas producing properties
("EnerVest Properties") in exchange for total consideration valued at
$15,200,000, comprised of at least 2,709,091 shares of the Company's restricted
common stock, $5,000,000 cash consideration, and stock warrants entitling the
holder to purchase 300,000 shares of the Company's common stock for $2.75 per
share. The restricted shares of Harken common stock will be initially issued
in two tranches, Tranche A and Tranche B. The Tranche A issuance will consist
of 1,550,000 shares and will be issued within 30 days after closing and the
Tranche B issuance will consist of at least 1,159,091 shares and will be issued
180 days from the date a registration statement is declared effective by the
Securities and Exchange Commission relating to the resale of the Tranche A
Shares. In the event the amount of gross proceeds received by EnerVest from
the sale of the 2,709,091 shares of the Company's common stock does not equal
or exceed $10,200,000, the Company will issue to EnerVest such additional
shares of its common stock (Tranche C shares) as is necessary for EnerVest to
realize such amount. The total purchase price was allocated to proved
properties. The EnerVest properties consist of interests in approximately 60
operated and nonoperated wells in New Mexico and Arkansas.
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 EnerVest are not necessarily indicative
of the costs to be incurred by the Company. The accompanying statements of
revenue and direct operating expenses are presented for the fiscal years ended
May 31, 1996 and 1995.
Historical financial information reflecting financial position, results of
operations, and cash flows of EnerVest 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 by an independent
petroleum engineering firm using June 1, 1996 prices and costs. Proved
reserves are estimated quantities of crude oil
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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.
The proved oil and gas reserves at June 1, 1996 are as follows:
<TABLE>
<CAPTION>
Oil (Mbbls) Gas (Mmcf)
----------- ----------
<S> <C> <C>
Proved reserves 2,015 4,490
Proved developed reserves 1,261 3,280
</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 June 1, 1996, is as follows (in thousands):
<TABLE>
<S> <C>
Future cash inflows $ 44,902
Future costs-
Production (14,223)
Development (3,443)
--------
Future net cash flows 27,236
10% annual discount (11,300)
--------
Discounted net cash flows $ 15,936
========
</TABLE>
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ITEM 7.(B.) PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma combined condensed financial statements give
effect to the July 10, 1996 acquisition by Harken Exploration Company, a wholly
owned subsidiary of Harken Energy Corporation ("Harken"), of certain oil and
gas producing properties ("EnerVest Properties") in exchange for, among other
consideration, $5,000,000 cash consideration payable at closing, and a future
value of no less than $10,200,000, plus or minus any adjustment, in proceeds
received by the seller from the sale of Harken common stock issuable by Harken
subsequent to closing. Restricted shares of Harken common stock will be issued
to the seller in at least two tranches; Tranche A shares will be comprised of
1,550,000 shares. Tranche B shares will be comprised of at least 1,159,091
shares, plus or minus any adjustment, to be issued 180 days from the date a
registration statement is declared effective by the Securities and Exchange
Commission relating to the resale of the Tranche A Shares, in addition to any
additional shares necessary for the seller to realize total proceeds from the
sale of Tranche A shares of $4,262,500. If, as of 180 days from the date a
registration statement is declared effective by the Securities and Exchange
Commission relating to the resale of the Tranche B shares, the seller has not
realized total proceeds from the sale of Tranche A and Tranche B shares of
$10,200,000, Harken will issue Tranche C shares sufficient to equal such amount
based on the average closing market price of Harken common stock for the 30 day
period prior to the expiration of the registration of the Tranche B shares.
In addition, the 1995 unaudited pro forma combined condensed statement of
operations also reflects the December 15, 1995 acquisition of certain oil and
gas properties ("Panhandle Properties"), 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, and the May 22, 1995 merger with Search Exploration, Inc.
("Search"). The following unaudited pro forma combined condensed financial
statements do not give effect to the recent (July 1996) early payoff of certain
long-term obligations recorded in the acquisition of the Panhandle Properties
using shares of Harken common stock.
The pro forma combined condensed balance sheet gives effect to the acquisition
of the EnerVest Properties as if it had been consummated March 31, 1996. The
pro forma combined condensed statements of operations for the year ended
December 31, 1995 and for the three months ended March 31, 1996, give effect to
all transactions as if all 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.
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HARKEN ENERGY CORPORATION
Pro Forma Combined Condensed Statement of Operations
for the Year Ended December 31, 1995
(unaudited)
(in thousands of dollars)
<TABLE>
<CAPTION>
Period from January 1, 1995 to
Closing Date of Acquisition
--------------------------------------------
Yellowhouse Panhandle
Harken Search Properties Properties
Actual Actual Actual Actual
---------------------------------------------------------
<S> <C> <C> <C> <C>
Oil and gas revenue $ 5,960 $ 188 $ 1,510 $ 1,251
Other revenues 1,511 - - -
--------------------------------------------------------
Total revenues 7,471 188 1,510 1,251
Oil and gas operating expenses 2,135 79 665 242
General and administrative expenses, net 3,376 236 123 -
Depreciation and amortization 2,251 18 - -
Provision for asset impairments 457 - - -
Interest expense and other, net 877 19 - -
--------------------------------------------------------
Total expenses 9,096 352 788 242
Income tax expense (benefit) - - - -
--------------------------------------------------------
Income (loss) from continuing operations $ (1,625) $ (164) $ 722 $ 1,009
========================================================
Net loss per share from continuing (0.02)
operations attributable to common stock
Weighted Average Shares Outstanding 65,041,063
</TABLE>
<TABLE>
<CAPTION>
EnerVest
Properties Pro Forma
Actual Adjustments Pro Forma
-------------------------- ---------
<S> <C> <C> <C>
Oil and gas revenue $ 4,172 $ 13,081
Other revenues - (117) (2) 1,144
(250) (6)
------------------------ ----------
Total revenues 4,172 (367) 14,225
Oil and gas operating expenses 1,410 48 (5) 4,579
General and administrative expenses, net - 108 (5) 3,967
124 (7)
Depreciation and amortization - 2,486 (3) 4,755
Provision for asset impairments - 457
Interest expense and other, net - 616 (1) 2,352
840 (4)
------------------------ ----------
Total expenses 1,410 4,222 16,110
Income tax expense (benefit) - - -
------------------------ ----------
Income (loss) from continuing operations $ 2,762 $ (4,589) $ (1,885)
======================== ==========
Net loss per share from continuing (0.03)
operations attributable to common stock
Weighted Average Shares Outstanding 74,456,504
</TABLE>
PRO FORMA ADJUSTMENTS - PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS -
(1) Pro forma entry to reflect interest and amortization expense incurred
on the European 8% Senior Convertible Notes Payable.
(2) Pro forma entry to reflect the reduction in interest income earned due
to the $2,500,000 cash consideration paid in connection with the
acquisition of the Panhandle Properties.
(3) Pro forma entry to adjust actual depreciation and depletion expense on
oil and gas properties for the acquired interests to the depreciation
and depletion expense calculated on a consolidated basis.
(4) Pro forma entry to reflect the accretion of interest expense related
to the discounted fair value of the note payable issued by Harken as
part of the acquisition of the Panhandle Properties.
(5) Pro forma entry to record additional operating and general and
administrative expenses expected to be incurred by Harken related to
the Panhandle Properties. The additional oil and gas operating
expenses consist of $4,000 per month in pumper and related expenses
that have been incurred in connection with operating the Panhandle
Properties. The additional general and administrative expenses
consist of $24,000 for the annual cost of a new field office in the
panhandle region and $84,000 related to newly hired operating and
administrative employees to serve the Panhandle Properties.
(6) Pro forma entry to reflect the reduction in interest income earned due
to the $5,000,000 cash consideration paid in connection with the
acquisition of the EnerVest Properties.
(7) Pro forma entry to record additional general and administrative
expenses expected to be incurred by Harken related to the EnerVest
Properties. The additional general and administrative expenses
consist of $10,000 per month, net of overhead reimbursements, for
additional necessary operating and administrative employees to serve
the EnerVest Properties.
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HARKEN ENERGY CORPORATION
Pro Forma Combined Condensed Statement of Operations
for the Quarter Ended March 31, 1996
(unaudited)
(in thousands of dollars)
<TABLE>
<CAPTION>
EnerVest
Harken Properties Pro Forma
Actual Actual Adjustments Pro Forma
------------------------------------------- -----------
<S> <C> <C> <C> <C>
Oil and gas revenue $ 1,997 $ 1,043 $3,040
Other revenues 344 - (62) (6) 282
----------------------------------------- ----------
Total Revenues 2,341 1,043 (62) 3,322
Oil and gas operating expenses 760 318 1,078
General and administrative expenses, net 817 - 31 (7) 848
Depreciation and amortization 627 - 407 (3) 1,034
Interest expense and other, net 433 - 433
----------------------------------------- ----------
Total Expenses 2,637 318 438 3,393
Income tax expense (benefit) - - - -
----------------------------------------- ----------
Income (loss) from continuing operations $ (296) $ 725 $ (500) $(71)
========================================= ==========
New loss per share from continuing
operations attributable to common stock (0.00) (0.00)
Weighted Average Shares Outstanding 75,151,824 78,860,915
</TABLE>
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HARKEN ENERGY CORPORATION
Pro Forma Combined Condensed Balance Sheet
March 31, 1996
(unaudited)
(in thousands of dollars)
<TABLE>
<CAPTION>
Pro Forma
Adjustments-
Harken EnerVest
ASSETS Actual Properties Pro Forma
------------------------- ------------
<S> <C> <C> <C>
Current Assets $ 13,483 $ (5,000) (1) $ 8,483
Property and Equipment, net 52,237 15,679 (1) 67,916
Restricted Cash in European Segregated Account 3,232 3,232
Notes Receivable from Related Parties, including interest 232 232
Other Assets, net 1,560 1,560
----------------------- --------
Total assets $ 70,744 $ 10,679 $ 81,423
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities $4,230 $658 (1) $4,888
Long-Term Obligations 24,020 24,020
Stockholders' Equity 42,494 10,021 (1) 52,515
----------------------- --------
Total liabilities and stockholders' equity $ 70,744 $ 10,679 $ 81,423
======================= ========
</TABLE>
PRO FORMA ADJUSTMENTS - PRO FORMA COMBINED CONDENSED BALANCE SHEET -
(1) Pro forma entry to record, as of March 31, 1996, the acquisition of
the EnerVest Properties in exchange for $5,000,000 cash and 1,550,000
shares of Harken common stock, in addition to at least 1,159,091
shares of Harken common stock to be issued no later than one year
subsequent to Closing. Harken has valued the shares of Harken common
stock to be issued at $10,021,000, the present value of $10,200,000,
as Harken has guaranteed such a minimum sales proceeds value to the
seller pursuant to the Purchase and Sale Agreement. The purchase
price was allocated entirely to the EnerVest Properties proved
reserves and includes $658,000 of estimated transaction costs and
liabilities received related to the acquired EnerVest Properties.
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(c) Exhibits.
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C>
2.1 -- Agreement of Purchase and Sale dated July 10, 1996, by and
between Harken Energy Corporation, Harken Exploration
Company and EnerVest Acquisition II - Limited Partnership.
99.1 -- Registration Rights Agreement, dated as of July 10, 1996, by
and among Harken Energy Corporation and EnerVest Acquisition
II - Limited Partnership.
</TABLE>
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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: July 12, 1996 By: /s/ Bruce N. Huff
-----------------------------------
Bruce N. Huff,
Senior Vice President and
Chief Financial Officer
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INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Sequentially
Numbered
Exhibit No. Exhibit Page
--------------- ---------------------------- -------------------
<S> <C> <C>
2.1 Agreement of Purchase and Sale dated July 10, 1996, by and
between Harken Energy Corporation, Harken Exploration Company
and EnerVest Acquisition II - Limited Partnership.
99.1 Registration Rights Agreement, dated as of July 10, 1996, by
and among Harken Energy Corporation and EnerVest Acquisition
II - Limited Partnership.
</TABLE>
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EXHIBIT 2.1
ASSET PURCHASE AND SALE AGREEMENT
BY AND BETWEEN
ENERVEST ACQUISITION-II LIMITED PARTNERSHIP, AS SELLER, AND
HARKEN ENERGY CORPORATION AND
HARKEN EXPLORATION COMPANY, COLLECTIVELY AS BUYER
DATED JULY 10, 1996
<PAGE> 2
ASSET PURCHASE AND SALE AGREEMENT
This Asset Purchase and Sale Agreement ("Agreement") is entered into
this 10th day of July, 1996, by and between ENERVEST ACQUISITION-II LIMITED
PARTNERSHIP, a Texas limited partnership ("Seller"), and HARKEN ENERGY
CORPORATION, a Delaware corporation ("Harken Energy") and HARKEN EXPLORATION
COMPANY, a Delaware corporation ("Exploration"), Harken Energy and Exploration
are called herein collectively "Buyer"). Buyer and Seller are called herein
collectively the "Parties."
WITNESSETH:
WHEREAS, Seller desires to sell to Buyer certain producing,
nonproducing and undeveloped oil and gas properties and other related assets
and Buyer desires to purchase such properties and assets upon and subject to
the terms and conditions hereinafter provided.
NOW, THEREFORE, in consideration of the premises and the mutual
promises herein made, and in consideration of the representations, warranties,
and covenants herein contained, the Parties agree as follows:
ARTICLE I
DEFINITIONS
Capitalized terms used in this Agreement shall have the meanings given
said terms in this Article I or elsewhere in this Agreement.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act of 1933, as amended (the
"Securities Act").
"Agreed Rate" means a per annum interest rate equal to the lesser of
(i) the Prime Rate of interest as quoted daily (or at such other interval of
one week or less) in The Wall Street Journal or (ii) the maximum amount of
interest allowed by law. If The Wall Street Journal ceases to quote the Prime
Rate of interest at least weekly, the referenced rate of interest in (i) above
shall be the rate of interest from time to time announced as its prime
commercial lending rate by the bank which, at the most recent point in time,
held all or the large portion of the Buyer's bank debt.
"Assets" means Seller's right, title and interest in and to the
following (except to the extent constituting Excluded Assets):
(i) All of the Wells described on Exhibit "A" hereto;
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(ii) All of the Leases described on Exhibit "A-1" hereto and the
Lands covered thereby;
(iii) All of the Units, including the Units described on Exhibit
"A";
(iv) All of the Equipment;
(v) All of the licenses, permits, contracts, agreements and other
instruments owned by Seller (other than bonds posted by
Seller) which concern and relate to any of the Wells, Leases,
Lands, and/or Equipment INSOFAR AND ONLY INSOFAR as same
concern or relate to the Wells, Leases, Lands, and/or
Equipment, or the operation thereof, including, without
limitation, oil, gas and condensate purchase and sale
contracts; permits; rights-of-way; easements; licenses;
servitudes; estates; surface leases; farmin and farmout
agreements; division orders and transfer orders; bottomhole
agreements; dry hole agreements; area-of-mutual interest
agreements; salt water disposal agreements; geologic and
geophysical agreements; acreage contribution agreements;
operating agreements; balancing agreements; and unit
agreements; pooling agreements; pooling orders;
communitization agreements; processing, gathering, compression
and transportation agreements; facilities or equipment leases
relating thereto or used or held for use in connection with
the ownership or operation thereof or with the production,
treatment, sale or disposal of Hydrocarbons; and all other
contracts and agreements related to the Wells, Leases, Lands,
and/or Equipment;
(vi) All Records and, to the extent transferable, all other
contract rights, intangible rights (excluding Seller's
trademarks and service marks), inchoate rights, chooses in
action, rights under warranties made by prior owners,
manufacturers, vendors or other third parties, and rights
accruing under applicable statutes of limitation or
prescription, attributable to the Assets; and
(vii) All payments, and all rights to receive payments, with respect
to the ownership of the production of Hydrocarbons from, or
the conduct of operations on, the Assets and the interests to
be conveyed to Buyer hereunder accruing after the Effective
Date.
"Assumed Liabilities" means any Environmental Liabilities and Losses,
resulting from, arising out of or attributable to the Assets, including,
without limitation, Offsite Environmental Liabilities that arise from, out of,
or are attributable to Materials of Environmental Concern that have been
transported for disposal, reclamation or recycling from the Assets, but in each
case only to the extent such Environmental Liabilities and Losses relate to or
are attributable to the Assets; provided, however, that Assumed
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Liabilities shall not include any Environmental Liabilities or Losses which
Seller has agreed to assume or pay pursuant to any terms of this Agreement.
"Available Deductible Amount" has the meaning set forth in Article
6.02(g) hereof.
"Buyer" has the meaning set forth in the preface to this Agreement.
"Buyer's Projected Costs" means the costs and expenses associated with
the operation and abandonment of a Well or Unit described on Exhibit "A",
assuming that the Well or Unit continues to produce Hydrocarbons for the time
period necessary for Buyer to realize the Allocated Value for such Well or
Unit.
"CERCLA" means the Comprehensive Environmental Response, Compensation
and Liability Act, as amended.
"Closing" has the meaning set forth in Article 3.04 hereof.
"Closing Date" has the meaning set forth in Article 3.04 hereof.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" shall mean the Securities and Exchange Commission (or any
successor body thereto).
"Conveyance Documents" means that certain Assignment, Bill of Sale and
Conveyance in the form attached hereto as Exhibit "C", together with those
other forms of assignments, bills of sale, deeds and other instruments the
Parties agree are necessary or appropriate to convey title to the Assets from
Seller to Buyer.
"Cure Period" means that period of time from 5:00 p.m. on the date a
Defect Notice was given until 5:00 p.m. on the sixtieth (60th) day following
the date such Defect Notice was given.
"Defect" means (i) any lien, security interest, collateral assignment,
charge, obligation, encumbrance, irregularity of title or other condition that
causes Seller's title to one or more of the Assets (or any portions thereof) to
be less than Good and Defensible Title (provided, however, notwithstanding
anything else contained herein, Buyer shall not assert as a Defect the
following: (1) the existence of a federal sliding scale royalty burdening part
or all of the Leases (notice of which was provided to Buyer by Seller prior to
Buyer's evaluation of the Assets and offer to purchase same for the Preliminary
Purchase Price set forth herein), even if the application of same would result
in a lesser NRI than set forth in Exhibit A hereto for a particular Well; (2)
any issues relating to lease operating expenses, changed decline curves or
pricing used in the Reserve Report, (3) interest defects in the early chain of
title consisting of the failure to recite marital status
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in documents or omissions of successions of heirship proceedings, (4) defects
arising out of a lack of survey or a lack of corporate authorizations, (5)
defects that have been cured by possession under applicable statutes and
limitations for statutes for prescription and (6) other similar matters that
are not reasonably expected to result in claims that will adversely affect in a
material manner Buyer's title to or ownership of the Assets), (ii) any Plugging
Liability as hereinafter defined, or (iii) any breach of Seller's
representations and warranties contained in Article 4.01 hereof.
"Defect Adjustment" means an amount of money equal to the sum of the
Defect Amounts for all Defects (but excluding Environmental Defects) asserted
by Buyer under this Agreement as finally determined, whether by agreement or
Expert determination, subject to the deductible provided in Article 5.02(h)
hereof.
"Defect Amount" means the amount attributable to each Defect or
Environmental Defect, as applicable.
"Defect Notice" has the meaning set forth in Article 5.02(b) hereof.
"Effective Date" means 7:00 a.m. local time with respect to each of the
Assets on June 1, 1996.
"Environmental Defect" has the meaning set forth in Article 6.02(b)
hereof.
"Environmental Defect Adjustment" means an amount of money equal to
the sum of the Defect Amounts for all Environmental Defects asserted by Buyer
under this Agreement as finally determined, whether by agreement or
Environmental Expert determination award, subject to the deductible provided in
Article 6.02(g) hereof.
"Environmental Defect Notice" has the meaning set forth in Article
6.02(b) hereof.
"Environmental Laws" means all federal, state, and local laws,
regulations, ordinances, rules, orders and permits relating to the control of
any pollutant or protection of the environment, including, without limitation,
laws, regulations, ordinances, rules, orders, and permits relating to the
emission, discharge, disposal, treatment, recycling, reclamation, permitting,
manufacture, processing, distribution, generation, storage, transportation,
release or threatened release of, or exposure of persons or property to,
Materials of Environmental Concern.
"Environmental Liabilities" means any and all costs (including
remedial, removal, response, abatement, cleanup, investigative, and/or
monitoring costs), damages, settlements, expenses (including charges and
assessments, and expenses and costs of investigating, preparing or defending
any action or proceeding), liens, penalties, fines, taxes, pre- judgment and
post-judgment interest, court costs and attorneys' fees incurred or imposed (i)
pursuant to any agreement, order, notice of responsibility, directive
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(including requirements embodied in Environmental Laws), injunction, judgment
or similar documents (including settlements) attributable to or arising out of
or under Environmental Laws, (ii) pursuant to any claim by a government
authority or other entity or person for personal injury, property damage,
damage to natural resources, remediation or response costs arising out of or
associated with any Environmental Matter, or (iii) pursuant to requirements as
of the Closing Date embodied in Environmental Laws. Environmental Liabilities
do not include (i) liabilities imposed under statutes enacted after the Closing
Date (including the elimination of the exclusion of petroleum from the
definition of "hazardous substance" under CERCLA and the elimination of the
exclusion of oil and gas exploration, development and production wastes from
the definition of "hazardous wastes" under RCRA) or (ii) liabilities imposed
under regulations promulgated or amended after the Closing Date which implement
new requirements.
"Environmental Matters" means matters resulting from or attributable
to actual, threatened or alleged emissions, discharges or releases of Materials
of Environmental Concern into ambient air, surface water, groundwater, or land,
or otherwise resulting from or attributable to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Materials of Environmental Concern.
"Environmental Response Notice" has the meaning set forth in Article
6.02(c) hereof.
"Equipment" means all the tangible personal property, tools,
machinery, materials, pipelines, gas plants, gathering systems, equipment,
fixtures and improvements, which are incident or attributable to the Wells,
Leases, Lands and/or Units or with the production, treatment, sale or disposal
of Hydrocarbons or water produced therefrom or attributable thereto, on the
Effective Date, including the personal property, materials and equipment listed
on Exhibit "D" hereto.
"Examination Period" has the meaning set forth in Article 5.02(b)
hereof.
"Excluded Assets" has the meaning set forth in Article 2.01(b) hereof.
"Final Settlement Date" has the meaning set forth in Article 9(h)
hereof.
"Final Settlement Statement" has the meaning set forth in Article 9(h)
hereof.
"Good and Defensible Title" means, with respect to ownership of Leases
attributable to a Well or Unit, a record title that:
(i) entitles Seller to receive, throughout the life of a Well or
Unit described on Exhibit "A", at least the NRI for such Well
or Unit shown in Exhibit "A", except for decreases in
connection with those operations as to which an election is
made by Buyer after Closing or with Buyer's consent, to become
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a non-consenting co-owner and decreases resulting from those
Wells or Units where Seller is obligated to allow others to
make up past underproduction and except for
horizontal/vertical Pugh clauses and continuous development
clauses in the Leases or related agreements;
(ii) obligates Seller to bear, throughout the life of a Well or
Unit described on Exhibit "A" (and the plugging, abandonment
and salvage thereof), no greater WI for such Well or Unit than
the WI shown therefor in Exhibit "A", except increases in such
WI that result in at least a proportionate increase in
Seller's NRI for such Well or Unit (including, without
limitation, increases resulting from co-owner non-consents)
and increases that result from contribution requirements with
respect to defaulting co- owners; and
(iii) is free and clear of all liens, security interests, collateral
assignments, encumbrances, irregularities and defects except
for Permitted Encumbrances.
"Good and Defensible Title" means, with respect to any other Asset,
record title that:
(i) is free from reasonable doubt as to all matters of law and
fact such that a reasonably prudent person, engaged in the
ownership, development and operation of oil and gas properties
or assets, with knowledge of all the facts and appreciation of
their legal significance, would be willing to accept title to
such property without a reduction in the Allocated Value for
such property; and
(ii) is free and clear of all liens, security interests, collateral
assignments, encumbrances, clouds on title, irregularities and
defects except for Permitted Encumbrances.
"Hydrocarbons" means crude oil, natural gas, casinghead gas, coalbed
methane, condensate, helium, sulphur, S02, C02, natural gas liquids and other
gaseous and liquid hydrocarbons or any combination thereof.
"Indemnified Party" has the meaning set forth in Article 7.03(a)
hereof.
"Indemnifying Party" has the meaning set forth in Article 7.03(a)
hereof.
"Knowledge" means, with respect to a Party hereto, the actual
knowledge of any officer or manager of such Party in charge of a discrete
business area or function having responsibility for the referenced matter after
due inquiry by such officer or manager of the person or persons in charge of
such matter.
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"Lands" means the lands covered by the Leases as described in Exhibit
A hereto.
"Leases" means the oil and gas leases or oil, gas, and mineral leases
shown in Exhibit "A-1" hereto.
"Litigation and Claims" has the meaning set forth in Article 4.01(e)
hereto.
"Loss" or "Losses" means all damages, payments, penalties, fines,
assessments, costs, amounts paid in settlement, obligations, taxes, losses
(including reductions in the value of Assets), liabilities, expenses and fees
incurred, including court costs and attorneys' fees and expenses and costs of
investigating, preparing or defending any action or proceeding.
"Material Adverse Event" means Losses or potential Losses that cause
or could cause a reduction in the Preliminary Purchase Price of more than
twenty-five percent (25%).
"Material Contracts" means any contract or other agreement in force
and effect on the Closing Date affecting Seller's interest in and to one or
more of the Assets and having a net impact to the interest of Seller in excess
of $175,000.
"Materials of Environmental Concern" means any chemical pollutants,
contaminants, waste, petroleum waste, used oil, toxic substances, hazardous
substances and any other substances that are regulated by any governmental
entity having jurisdiction under any applicable Environmental Law.
"NRI" means a fractional or percentage interest in and to all
Hydrocarbons produced from or allocated to a Well or Unit described on Exhibit
"A" after deduction of all lessors' royalties, overriding royalties, and other
burdens and payments out of production that burden such fractional or
percentage interest in such Well or Unit.
"Offsite Environmental Liability" means an Environmental Liability
arising from or attributable to Materials of Environmental Concern that have
been transported for disposal, reclamation or recycling from the Assets to
properties owned by third parties.
"Parties" has the meaning set forth in the preface above.
"Permitted Encumbrances" means, with respect to the Assets, the
following:
(i) liens for taxes not yet due or, if due, being challenged in
good faith by appropriate proceedings;
(ii) materialmen's, mechanics' and other similar liens or charges
arising in the ordinary course of business for obligations
that are not delinquent and that
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will be paid or discharged in the ordinary course of business
or, if delinquent, that are being contested in good faith in
the ordinary course of business;
(iii) easements, rights-of-way, servitudes, permits, surface leases,
and other rights granted to or reserved for third parties in
respect of surface operations (including without limitation
those rights set forth in Exhibit "E" attached hereto and made
a part hereof for all purposes) that do not materially
interfere with the operation of the portion of the Assets
burdened thereby;
(iv) rights reserved to or vested in any governmental authority to
control or regulate any of the Wells or Units and all
applicable laws, rules, regulations and orders of such
authorities so long as the same:
(a) do not decrease Seller's NRI below the NRI
shown in Exhibit "A" or increase Seller's WI
above the WI shown in Exhibit "A" without at
least a proportionate increase in Seller's
NRI, or
(b) do not create any liens in respect of such Wells or
Units;
(v) liens arising under operating agreements, unitization and
pooling agreements, orders and statutes and production sales
contracts securing amounts not yet due or, if due, being
contested in good faith in the ordinary course of business as
set forth in Exhibit "F" attached hereto and made a part
hereof for all purposes;
(vi) the terms and conditions of all contracts and agreements
relating to the Leases and Wells, including, without
limitation, exploration agreements, gas sales contracts,
processing agreements, farmins, farmouts, operating
agreements, and right-of-way agreements, to the extent such
terms and conditions:
(a) do not decrease Seller's NRI below the NRI shown in
Exhibit "A" or increase Seller's WI above the WI
shown in Exhibit "A" without at least a proportionate
increase in Seller's NRI,
(b) are normal and customary in the oil and gas industry
in the area in which the affected Assets are located,
and
(c) would not conflict with any other portion of this
definition of Permitted Encumbrances;
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(vii) royalties, overriding royalties, net profits interests,
production payments, reversionary interests, and similar
interests that do not decrease Seller's NRI below the NRI
shown in Exhibit "A" or increase Seller's WI above the WI
shown in Exhibit "A" without at least a proportionate
increase in Seller's NRI;
(viii) conventional rights of reassignment requiring notice to the
holders of the rights prior to surrendering or releasing a
leasehold interest;
(ix) calls on production exercisable only at prices substantially
equivalent to then current fair market value; and
(x) Transfer Requirements and Preference Rights other than any
such Transfer Requirements or Preference Rights which were
applicable to a previous transaction involving the transfer of
all or any portion of the Assets but were not complied with at
the time of the consummation of such transaction.
"Phase I Environmental Audit" means an assessment of Seller's
compliance with Environmental Laws relative to the Assets consisting of
examination of Seller's files and public documents, interviews of personnel of
Seller and of other appropriate persons and visual inspection of the Assets.
The foregoing definition shall not include or authorize any soil borings or
laboratory analysis of soil or groundwater samples on or from the Assets.
"Plugging Liability" means any Well which, as of the Effective Date,
was not (i) producing or capable of producing Hydrocarbons in paying quantities
or (ii) being used in water disposal or other operations on, for or related to
any of the Assets; provided, however, if the Preliminary Purchase Price is
reduced by a Defect Amount relating to a Plugging Liability and on or before
the date one (1) year after the Closing Date Buyer elects to use such Well for
water disposal or other operations rather than plugging said Well, Buyer shall
refund to Seller an amount equal to the Defect Amount for said Plugging
Liability.
"Preference Rights" means all rights or agreements that enable or may
enable any third party to purchase or acquire any Asset or any interest therein
or portion thereof as a result of or in connection with (i) the transactions
contemplated by this Agreement or (ii) the execution or delivery of this
Agreement or the consummation or performance of the terms and conditions
contemplated by this Agreement.
"Preliminary Purchase Price" has the meaning set forth in Article 3.01
hereof.
"Purchase Price" means the Preliminary Purchase Price, as may be
adjusted pursuant to Articles 5, 6, 9, and 12 hereof.
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"RCRA" means the Resource Conservation and Recovery Act, as amended.
"Records" means all originals, copies, computer tapes and discs,
files, records, information or data relating to the Assets in the possession of
Seller or in the possession of Petroleum Financial, Inc., as agent for Seller,
including, without limitation, title records (including abstracts of title,
title opinions, certificates of title and title curative documents), accounting
records and files, contracts, correspondence, production records, electric
logs, core data, pressure data, decline curves, graphical production curves,
geologic and geophysical information, drilling reports, well completion
reports, drill stem test charts and reports, engineering reports, regulatory
reports, and all related materials, INSOFAR AND ONLY INSOFAR as the foregoing
items constitute materials that may be lawfully conveyed to Buyer (i.e. the
materials are not subject to a proprietary agreement precluding their transfer
to Buyer).
"Related Agreements" means the Conveyance Documents, the Deed of
Trust, the Registration Rights Agreement, and the Warrants.
"Registration Rights Agreement" has the meaning set forth in Article
11.01(c) hereof.
"Reserve Report" means that certain reserve report dated July 3, 1996,
effective as of June 1, 1996, covering the Estimated Future Reserves and Income
Attributable to Certain Leasehold and Royalty Interests of Seller and prepared
by Ryder Scott Company, the Summary Table for which is attached hereto as
Exhibit "B", with Exhibit B and the remainder of said report of which Exhibit B
is a part being made a part hereof for all purposes.
"Response Notice" has the meaning set forth in Article 5.02(c) hereof.
"Seller" has the meaning set forth in the preface to this Agreement.
"Share Adjustment Factor" means a number of Shares determined by
dividing the amount of the relevant adjustment to the Preliminary Purchase
Price by the Average Closing Price.
"Shares" means shares of the common stock, $0.01 par value per share,
of Harken Energy.
"Survival Period" has the meaning set forth in Article 7.01 hereof.
"Third Party Claim" has the meaning set forth in Article 7.03(a)
hereof.
"Transfer Requirements" means all consents, approvals, authorizations
or permits of, or filings with or notifications to, any third party which must
be obtained, made or
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complied with for or in connection with the transactions contemplated by this
Agreement in order (a) for such transactions to be effective, (b) to prevent
any termination, cancellation, default, acceleration or change in terms (or any
right arising therefrom) under any terms, conditions or provisions of any Asset
(or of any agreement, instrument or obligation relating to or burdening any
Asset or any interest therein or portion thereof) as a result of such
transactions, or (c) to prevent the creation or imposition of any lien, charge,
penalty, restriction, security interest or encumbrance on or with respect to
any Asset or any interest therein or portion thereof (or any right arising
therefrom) as a result of such transactions.
"Units" means all unitization, communitization, pooling agreements,
working interest units created by operating agreements, and orders covering the
lands subject to the Leases, or any portion thereof, and the units and pooled
or communitized areas created thereby.
"Wells" means wells for the production of Hydrocarbons which are
listed in Exhibit "A" or which are located on the Lands.
"WI" means a fraction or percentage of the costs and expenses
associated with the maintenance, exploration, development, operation and
abandonment of a Well or Unit described on Exhibit "A".
ARTICLE 2
SALE AND PURCHASE
2.01 Sale and Purchase.
(a) INCLUDED ASSETS. Subject to the terms and conditions of this
Agreement and in consideration of Buyer's payment to Seller of
the Purchase Price as herein provided, the Buyer agrees to
purchase from the Seller, and the Seller agrees to sell and
convey to Buyer, the Assets.
(b) EXCLUDED ASSETS. Notwithstanding anything herein provided to
the contrary, the term "Assets" as used in this Agreement
shall not include, and there is excepted, reserved and
excluded from the sale contemplated hereby the following
("Excluded Assets"): (i) all cash, deposits, checks, funds,
accounts receivable, notes receivable, or similar items
attributable to the Assets with respect to any period of time
prior to the Effective Date, except for those funds in
suspense accounts to be delivered to Buyer pursuant to Article
8.01(b) hereof and (ii) all Hydrocarbon production from or
attributable to the Assets with respect to all periods prior
to the Effective Date and all proceeds attributable thereto,
and all Hydrocarbons that, at the Effective Date, are owned by
Seller and are in storage or otherwise held in inventory and
all proceeds attributable thereto.
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ARTICLE 3
PURCHASE PRICE
3.01 Preliminary Purchase Price. In consideration for the sale and
conveyance to Buyer of the Assets (and subject to the other terms and
conditions hereof), the Buyer agrees to tender to the Seller in the manner
hereinafter provided the following cash and capital stock consideration (the
"Preliminary Purchase Price"), the aggregate value of which the Parties agree
is Fifteen Million Two Hundred Thousand Dollars ($15,200,000):
(a) CASH CONSIDERATION. The cash sum of Five Million Dollars
($5,000,000) (the "Cash Consideration"), payable at Closing.
(b) TRANCHE A SHARES. One Million Five Hundred Fifty Thousand
(1,550,000) Shares to be issued by Harken Energy in favor of
Seller within thirty (30) days after the Closing Date (the
"Tranche A Shares").
(c) TRANCHE B SHARES. An additional One Million One Hundred
Fifty-nine Thousand and Ninety-one (1,159,091) Shares,
adjusted as hereinafter provided, to be issued by Harken
Energy in favor of Seller at the Tranche A Expiration Point,
as defined in Article 8.03(a) hereof (the "Tranche B Shares").
(d) TRANCHE C SHARES. Certain additional contingent Shares to be
issued in accordance with the provisions of Article 8.03(c)
hereof (the "Tranche C Shares").
3.02 Additional Consideration. As additional consideration for the
sale of the Assets, Harken Energy shall issue to Seller, at the Closing, a
warrant or warrants, substantially in the form of Exhibit "3.02" attached
hereto and made a part hereof for all purposes in all material respects, issued
in favor of Seller or Seller's affiliates (as designated by Seller prior to
Closing), entitling the holders thereof to purchase 300,000 Shares ("the
Warrants").
3.03 Security.
(a) CREATION OF LIEN, MORTGAGE AND SECURITY INTEREST. To secure
the payment of at least Seven Million Dollars ($7,000,000) of
the Preliminary Purchase Price (other than and in addition to
the Cash Consideration), at Closing, Seller shall retain a
first priority lien, mortgage and purchase money security
interest in and to an undivided fifty percent (50%) of all of
the interests in and to the Assets conveyed by Seller to Buyer
pursuant hereto (the "Mortgaged Interests"). Said lien,
mortgage and purchase money security interest shall be
evidenced by a Mortgage, Deed of Trust and Security Agreement
substantially in the form of Exhibit "3.03", attached
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hereto and made a part hereof for all purposes, to be executed
and delivered by Buyer to Seller at the Closing (the "Deed of
Trust").
(b) RELEASES. Buyer shall have the right to request and obtain
from Seller up to seven (7) partial releases of the Deed of
Trust releasing an undivided interest in and to the Mortgaged
Interests equal to the quotient obtained by dividing the
Aggregate Proceeds by $7,000,000. The first two (2) such
partial releases requested by Buyer shall be at the expense of
Seller and any such additional partial releases shall be at
the expense of Buyer. Seller shall execute and deliver to
Buyer a final release of the Deed of Trust within ten (10)
business days after the date Seller has received Aggregate
Proceeds equal to or greater than $7,000,000. Buyer shall
have the right to require Seller to register the Tranche C
Shares simultaneously with any other applicable registration
undertaken by Seller after the issuance of the Tranche C
Shares as further set forth in the Registration Rights
Agreement.
(c) FORECLOSURE. If Seller has not received Aggregate Tranche
A/B/C Realized Proceeds in excess of $7,000,000 on or before
the date six (6) months after the effective date of the
registration of the Tranche C Shares (the "Foreclosure
Trigger Date"), Seller shall have the right to foreclose upon
its Deed of Trust and the liens, mortgages and security
interests created thereby in a proportionate part of the
Mortgaged Interests equal to the ratio which the difference
between $7,000,000 and the Aggregate Tranche A/B/C Realized
Proceeds bears to Seven Million Dollars ($7,000,000).
3.04 The Closing. The closing of the transactions contemplated by
this Agreement (the "Closing") shall take place at the offices of the Buyer,
5605 North MacArthur, Suite 400, Irving, Texas 75038, simultaneously with the
execution of this Agreement on July 10, 1996, or at such other place, date and
time as the Buyer and the Seller may mutually determine (the "Closing Date").
3.05 Deliveries at the Closing. At the Closing or as otherwise set
forth in Article 11, (i) the Seller will deliver to the Buyer the documents
referred to in Article 11.01 below, (ii) the Buyer will deliver to the Seller
the documents referred to in Article 11.02 below, and (iii) the Buyer will
deliver to the Seller the Cash Consideration by wire transfer or delivery of
other immediately available funds.
3.06 Purchase Price Allocations. The Preliminary Purchase Price
shall be allocated among the Assets in accordance with the terms of this
Article 3.06. Each Asset shall be allocated that portion of the Preliminary
Purchase Price (the "Allocated Value") which is equal to the net present value
for each such Asset as set forth in the Reserve Report multiplied by the
number .9538. Seller and Buyer acknowledge that this is a proper allocation of
the Preliminary Purchase Price and that the Purchase Price shall be reallocated
to the Assets after accounting for any adjustments pursuant to Articles 5, 6,
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9, and 12 hereof, and Seller and Buyer each agree that for all income and
franchise tax purposes (and, where applicable, financial accounting purposes)
they will report consistently with such allocation.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
4.01 Representations and Warranties of Seller. The Seller
represents and warrants to Buyer that the statements contained in this Article
4.01 are true and correct as of the Closing Date:
(a) ORGANIZATION OF SELLER. The Seller is a limited partnership
duly organized, validly existing and in good standing under
the laws of the State of Texas.
(b) AUTHORIZATION OF TRANSACTION. The Seller has full power and
authority to execute and deliver this Agreement and each of
the Related Agreements to which it is a party and to perform
its obligations hereunder and thereunder. This Agreement and
each of the Related Agreements to which it is a party
constitute the valid and legally binding obligation of the
Seller, enforceable against the Seller in accordance with
their respective terms and conditions except as such
enforceability may be limited by or subject to (a) any
bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to creditors' rights generally and (b)
general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at
law). Except for (i) consents of or filings with the United
States Department of Interior or other governmental agency or
the applicable state or Indian agencies or authorities in
connection with the assignment of any federal, state, or
Indian leases or any interest therein, and (ii) other Transfer
Requirements and Preference Rights which are applicable to the
transactions contemplated by this Agreement or any Related
Agreements to which it is a party, the Seller need not give
any notice to, make any filing with, or obtain any
authorization, consent or approval of, any government or
governmental agency or any other person or entity in order to
consummate the transactions contemplated by this Agreement or
any Related Agreements to which it is a party.
(c) NONCONTRAVENTION. Neither the execution and the delivery of
this Agreement or any Related Agreements to which it is a
party, nor the consummation by the Seller of the transactions
contemplated hereby or thereby, will in any material respect
violate any statute, regulation, rule, injunction, judgment,
order, decree, or ruling of any government, governmental
agency, or court to which the Seller is subject, or any
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provision of its limited partnership agreement or any
agreement or instrument to which Seller is a party.
(d) BROKER'S FEES. The Seller has incurred no liability,
contingent or otherwise, for broker's or finder's fees with
respect to the transactions contemplated by this Agreement for
which Buyer shall have any responsibility whatsoever.
(e) LITIGATION AND CLAIMS. At the Effective Date there were no,
since the Effective Date there have not been any, and as of
the date of this Agreement there are no lawsuits, orders,
decrees, injunctions or administrative, arbitration or other
proceedings pending or, to the Knowledge of Seller, individual
claims in excess of $10,000 or aggregate claims in excess of
$50,000 which are threatened (collectively, the "Litigation
and Claims"), against the Seller or, to the Knowledge of
Seller, against the operator of any of the Assets.
(f) CONDITION OF ASSETS. The Assets have been maintained in a
state of repair so as to be adequate for normal operations.
(g) NORMAL BUSINESS. Since the Effective Date, Seller (i) has
caused the Assets to be maintained and operated in a good and
workmanlike manner, consistent with prior operations and (ii)
has not transferred or sold any Assets other than (1)
Hydrocarbons produced, saved, and sold from the Assets in the
ordinary course of business, (2) personal property and
equipment which has been replaced with personal property and
equipment of comparable or better value and utility in the
ordinary and routine maintenance and operation of the Assets,
and (3) transfers or disposal of items of personal property
having a value of less than $10,000 individually or $50,000 in
the aggregate.
(h) TAXES. Seller has paid or caused to be paid all federal,
state, and local taxes, rates and like assessments for periods
prior to the Closing Date that have become due and payable
which, if not so paid, could result in a lien or encumbrance
upon the Assets, including excise, property, ad valorem,
franchise, severance and production taxes; but not including
(i) taxes, rates and like assessments which are being
contested in good faith, as shown on Item (h) of Schedule
4.01, (ii) taxes not yet due and payable and (iii) taxes which
are the responsibility of Buyer.
(i) NO VIOLATIONS. Except as listed in Item (i) of Schedule 4.01,
to the Seller's Knowledge, Seller has not violated or received
notice of probable violation of any regulations, rules or
orders promulgated by any federal, state or local regulatory
agency or governmental authority which, if adversely decided,
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would have a Material Adverse Effect on the operation of the
Assets or the revenues attributable thereto.
(j) MATERIAL CONTRACTS. Part I Item (j) of Schedule 4.01 hereto
is a listing of all Material Contracts relating to the Assets
operated by Seller as of the Closing Date, and Part II of Item
(j) of Schedule 4.01 is a listing, to Seller's Knowledge, of
all Material Contracts relating to the Assets which are not
operated by Seller as of the date of Closing and, with respect
to all such Material Contracts, neither Seller nor, to
Seller's Knowledge, any other party thereto, is in default
thereunder or in breach thereof.
(k) TAKE-OR-PAY. Seller has not made any agreement relating to
the Assets which required Seller between the Effective Date
and the Closing Date or Buyer, following Closing, to (i)
deliver gas paid for, but not taken from production prior to
the Effective Date, or (ii) make a cash payment to a buyer of
gas for reimbursement or recoupment of prior take-or-pay
payments which cannot be accomplished through such buyer
taking gas production, or (iii) deliver hydrocarbons or
products produced from the Assets at some future time without
then receiving the full payment therefor it would have
received absent such agreement or condition.
(l) ROYALTIES. To Seller's Knowledge, all rentals, royalties,
overriding royalties and other payments in or measured by
production to be paid by Seller with respect to the Assets
have been timely, properly and fully paid, except for those
funds held in or allocated to suspense accounts in the
ordinary course of business which will be remitted to Buyer
pursuant to Article 8.01(b) hereof.
(m) PERMITS AND LICENSES. Except for those items referred to in
Article 4.01(b) above, to the Knowledge of Seller, Seller has
obtained and currently holds all permits, licenses, approvals
and authorizations which are required under federal, state or
local law, rules and regulations in order to own and operate
the Assets and, except for those items referred to in Article
4.01(b), no such permit, license, approval or authorization
restricts Seller from selling or otherwise transferring to
Buyer Seller's interest in the Assets.
(n) WELLS. All Wells located on the Lands, other than Wells which
have been plugged and abandoned, are set forth in Exhibit "A"
hereto.
(o) OPERATION OF ASSETS. From the Effective Date until the
Closing Date, except as otherwise consented to by Buyer in
writing, Seller has (i) not mortgaged, pledged or subjected to
any security interest any of the Assets; (ii) not entered into
any termination or amendment of any agreement affecting the
Assets except in the ordinary course of business; (iii) not
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entered into any settlement of any pending or threatened
litigation involving any of the Assets or cause a surrender of
the Assets; (iv) not consented to the entry of any decree or
order by a governmental body or pay any fine having an adverse
effect of more than $5,000 (U.S.) to the Assets; (v) not
entered into any agreement affecting the Assets with a term in
excess of (30) days, unless such transaction is in the
ordinary course of business and has a term of six (6) months
or less; (vi) not made an expenditure with respect to any of
the Assets which exceeds the amount expendable by operator
without non-operator approval under the applicable operating
agreement; (vii) used its best efforts to take all action
necessary to comply with any Preference Right affecting the
Assets; and (viii) used its best efforts not to subject to any
lien, claim or encumbrance any of the Assets.
4.02 Representations and Warranties of Buyer. Each of Harken
Energy and Exploration represents and warrants to Seller that the statements
contained in this Article 4.02 are true and correct as of the Closing Date:
(a) ORGANIZATION OF BUYER. Each of Harken Energy and Exploration
is a corporation, duly organized, validly existing and in good
standing under the laws of the State of Delaware.
(b) AUTHORIZATION OF TRANSACTION. Each of Harken Energy and
Exploration has full power and authority to execute and
deliver this Agreement and each Related Agreement to which it
is a party and to perform its obligations hereunder and
thereunder, and this Agreement and each Related Agreement to
which it is a party constitutes the valid and legally binding
obligation of each of Harken Energy and Exploration,
enforceable against each of Harken Energy and Exploration in
accordance with their respective terms and conditions, except
as such enforceability may be limited by or subject to (a) any
bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to creditors' rights generally and (b)
general principals of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at
law). Except for (i) consents of or filings with the United
States Department of Interior or other governmental agency or
the applicable state or Indian agencies or authorities in
connection with the assignment of any federal, state, or
Indian leases or any interest therein, and (ii) other Transfer
Requirements which are applicable to the transactions
contemplated by this Agreement or any Related Agreement to
which it is a party, neither Harken Energy nor Exploration
needs to give any notice to, make any filing with, or obtain
any authorization, consent or approval of, any government or
governmental agency or any other person or entity in order to
consummate the transactions contemplated by this Agreement or
any Related Agreement to which it is a party.
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(c) NONCONTRAVENTION. Neither the execution and the delivery of
this Agreement or any Related Agreement to which it is a
party, nor the consummation by Harken Energy or Exploration of
the transactions contemplated hereby or thereby, will in any
material respect violate any statute, regulation, rule,
injunction, judgment, order, decree, or ruling of any
government, governmental agency, or court to which Harken
Energy or Exploration is subject, or any provision of any
agreement or instrument to which Harken Energy or Exploration
is a party.
(d) BROKER'S FEES. Neither Harken Energy nor Exploration has
incurred any liability, contingent or otherwise, for broker's
or finder's fees with respect to the transactions contemplated
by this Agreement for which Seller shall have any
responsibility whatsoever.
(e) FINANCIAL ABILITY. Each of Harken Energy and Exploration has,
and at all relevant times will continue to have, sufficient
funds and credit arrangements or other arrangements to tender
the Cash Consideration at the Closing, to issue the Tranche A
shares, any required Deficiency Shares, the Tranche B Shares,
the Tranche C Shares, the Warrants and the Shares represented
by the Warrants and to take such other actions as may be
required by either of them to consummate the transactions
contemplated hereby.
(f) TRANCHE A SHARES. The Tranche A Shares to be received by
Seller (i) have been duly authorized, and (ii) within thirty
(30) days after the Closing Date, will be validly issued,
fully paid, nonassessable, and not issued in violation of any
preemptive rights or any applicable laws, rules or
regulations. Such Shares will, upon delivery thereof, be free
and clear of all liens, charges, pledges, encumbrances,
equities and claims whatsoever other than those created by
Seller.
(g) TRANCHE B SHARES, TRANCHE C SHARES AND DEFICIENCY SHARES. The
Tranche B Shares, the Deficiency Shares, if any, and the
Tranche C Shares, if any, to be received by Seller (i) have
been duly authorized, and (ii) at the time of their issuance,
will be validly issued, fully paid, nonassessable, and not
issued in violation of any preemptive rights or any applicable
laws, rules or regulations. Such shares will, upon delivery
thereof, be free and clear of all liens, charges, pledges,
encumbrances, equities and claims whatsoever other than those
created by Seller.
(h) WARRANTS. The Warrants to be issued by Harken Energy at
Closing have been duly authorized for such issuance and, when
issued and delivered by Harken Energy in accordance with the
provisions of this Agreement, will be validly issued and will
constitute valid, legal and binding obligations of
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Harken Energy enforceable against Harken Energy in accordance
with their respective terms. The Shares issuable upon the
exercise of the Warrants have been duly reserved for such
issuance and, when issued and delivered by Harken Energy in
accordance with the provisions of the Warrants, will be
validly issued, fully paid and non-assessable.
(i) OWNERSHIP OF HARKEN ENERGY AND EXPLORATION. Set forth on
Exhibit "4.02(i)" attached hereto and made a part hereof for
all purposes is the authorized capitalization of Harken Energy
and Exploration and the number of shares of their respective
capital stock (or other equity interests) issued and
outstanding as of the date hereof.
(j) SECURITIES FILINGS. As of the date hereof, except for
disclosure with respect to the transactions contemplated
hereby, the description of Harken Energy's business and the
condition of Harken Energy (financial and otherwise) as
described in Harken Energy's Annual Report on Form 10-K for
the year ended December 31, 1995, or Harken Energy's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1996, as
amended or supplemented prior to the date hereof (the "SEC
Documents"), did not at the time of their filing with the
Commission contain an untrue statement of a material fact and
do not omit to state a material fact necessary to make the
statements contained therein not misleading and otherwise
complies in all material respect with the Securities Exchange
Act of 1934 and the rules and regulations promulgated
thereunder (the "Exchange Act"). Harken Energy has filed
reports, and is in all compliance with, Section 13 and 15(d)
of the Exchange Act. No material adverse change in the
business or condition (financial or otherwise) of Harken
Energy or Exploration has occurred from December 31, 1995
through the date hereof. There are no material liabilities
(contingent or otherwise) of Harken Energy or Exploration,
other than as disclosed in the SEC Documents and the financial
statements included therein.
(k) DEFECT NOTICES AND ENVIRONMENTAL DEFECT NOTICES. Prior to the
Closing date, Buyer has provided written Defect Notices and
Environmental Defect Notices with respect to all Defects and
Environmental Defects of which Buyer has knowledge as of
Closing Date hereof.
ARTICLE 5
TITLE MATTERS AND SELLER'S BREACHES OF
REPRESENTATIONS AND WARRANTIES
5.01 No Warranty or Representation. At the Closing, Seller shall
convey to Buyer all the Assets. Such conveyance shall be subject to the
Permitted Encumbrances and WITHOUT ANY WARRANTY OF TITLE, EITHER EXPRESS OR
IMPLIED, AND
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WHETHER BY COMMON LAW, STATUTE OR OTHERWISE, except for the warranty of title
as to persons claiming by, through and under Seller contained in the Conveyance
Documents delivered pursuant to Article 11.01(a) hereof. Without limiting
Buyer's right to reduce the Purchase Price in the manner provided in this
Article 5, Seller makes no warranty or representation, express or implied, with
respect to the accuracy or completeness of any information, Records or data
now, heretofore, or hereafter made available to Buyer in connection with this
Agreement, including, without limitation, any description of the Assets set
forth in Exhibit "A" or Exhibit "A-1", pricing assumptions, potential for
production of Hydrocarbons from the Assets, or any other matters contained in
any material furnished by Seller to Buyer or its officers, directors,
employees, agents, advisors or representatives. Nothing in this Article 5
shall operate to expand or increase or limit Seller's representations and
warranties contained in other parts of this Agreement or to limit the
provisions of Article 14.13.
5.02 Defect. The procedures to be followed with respect to Buyer's
assertion of Defects concerning the Assets and adjustment of the Preliminary
Purchase Price attributable to such Defects shall be as follows:
(a) ACCESS TO RECORDS. Prior to the execution of this Agreement,
Seller has provided Buyer and its consultants and advisors
access at all reasonable times to Seller's accounting, land,
production, engineering, and other Records regarding the
Assets for the purpose of reviewing title to the Assets and
the accuracy of Seller's representations and warranties
contained in Articles 4.01 and 6.02(a) hereof and reasonable
office space in Seller's offices for such review. To the
extent any such Records are in possession of a co-working
interest owner, partner or third party and Seller has the
right of access thereto, Seller has used its reasonable
efforts (without being obligated to incur expense) to provide
Buyer access to such other Records or obtain copies thereof
for Buyer's review.
(b) NOTICE OF ASSERTED DEFECTS. Prior to the expiration of the
period ending ninety (90) days after the Records Delivery
Date (the "Examination Period"), Buyer shall furnish to Seller
written notice specifying in reasonable detail each matter
which, in Buyer's opinion, constitutes a Defect and which
Buyer wishes to assert as a Defect hereunder, together with
the Defect Amount estimated by Buyer for each such asserted
Defect (each such notice being called a "Defect Notice"). In
the event the Defect is a Plugging Liability, the Defect
Notice shall be in the form of an AFE for the plugging and
abandonment of the relevant Well setting forth all costs and
expenses associated therewith, the anticipated salvage value
for all equipment and other materials recovered from the Well
and reflecting Seller's pro rata share of such net costs and
expenses. Any Defects not asserted on or before the
expiration of the Examination Period with respect to the
Assets, shall be deemed conclusively to be waived by Buyer.
Failure by Buyer to
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identify all Assets (or to identify all portions of an Asset)
which are subject to a particular Defect in a Defect Notice
shall not prevent Buyer from asserting such Defect in separate
or subsequent Defect Notices, subject to otherwise timely
asserting such Defect prior to the expiration of the
Examination Period.
(c) NOTICE IN RESPONSE TO BUYER'S NOTICE. On or before 5:00 p.m.
on the fifth (5th) business day following Seller's receipt of
a Defect Notice from Buyer, Seller shall give written notice
to Buyer for each Defect asserted in a Defect Notice
("Response Notice") as to whether it (a) intends to cure the
asserted Defect, (b) disagrees with Buyer's assertion that the
Defect exists, (c) disagrees with the Defect Amount estimated
by Buyer for such Defect, or (d) takes any combination of the
foregoing positions. If Seller disagrees with Buyer's
assertion of the existence of a Defect or the Defect Amount
with respect thereto, Seller's Response Notice shall also
specify in reasonable detail Seller's grounds for such
disagreement, the Defect Amount estimated by Seller therefor,
or both, as the case may be. Seller's failure to include in
its Response Notice a Defect asserted in a Defect Notice shall
be deemed to be an admission of the existence of such Defect,
acceptance of Buyer's estimate of the Defect Amount with
respect thereto and a waiver of Seller's rights to cure such
Defect.
(d) METHOD OF DETERMINING DEFECT AMOUNTS. Without limiting
Seller's right to dispute the existence of a Defect, Defect
Amounts for each asserted Defect shall be determined as
follows:
(i) If the Defect results in the failure of the entirety
of Seller's title to an Asset, the Defect Amount
shall be the Allocated Value for that Asset.
(ii) If the Defect results from a lien, security interest,
pledge or collateral assignment upon one or more
Assets (or a portion thereof) which is liquidated in
amount, then the Defect Amount shall be the amount
necessary to remove such lien, security interest,
pledge or collateral assignment from Seller's title
to such one or more Assets (or portion thereof).
(iii) If the Defect results from Seller having a lesser NRI
in a Well or Unit described in Exhibit "A" than the
NRI specified therefor in Exhibit "A", the Defect
Amount shall be equal to the product obtained by
multiplying the Allocated Value for that Well or Unit
by a fraction, the numerator of which is the
reduction in the NRI and the denominator of which is
the NRI specified for such Well or Unit in Exhibit
"A".
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(iv) If the Defect results from Seller having a greater WI
in a Well or Unit described in Exhibit "A" than the
WI specified therefor in Exhibit "A" without a
proportionate increase in the NRI, the Defect Amount
shall be equal to the present value (discounted at
10% compounded annually) of the increase in Buyer's
Projected Costs with respect to such Well or Unit for
the period from and after the Effective Date which is
attributable to such increase in the WI.
(v) If the Defect results from any matter not described
in paragraphs (i), (ii), (iii), or (iv) above, then
the Defect Amount shall be a portion of the Allocated
Value for that Asset, said portion to be equal to the
difference between the value of Seller's interest in
such Asset without such Defect and with such Defect
(assuming the value without such Defect to be the
Allocated Value).
(vi) If a Defect is not effective or does not affect
Seller's title to an Asset throughout the entire
productive life of such Asset, such fact shall be
taken into account in determining the Defect Amount.
(vii) If a Defect affects only a portion of an Asset (as
contrasted with an undivided interest in the entirety
of such Asset) and a portion of the Purchase Price
has not been allocated specifically to such portion
of that Asset as provided in Article 3.06 hereof,
then for purposes of computing the Defect Amount, the
Allocated Value of such Asset shall be further
allocated among the portions of such Asset in a fair
and reasonable manner.
(viii) If the Defect is a Plugging Liability, the Defect
Amount shall be Seller's pro rata share of the
necessary and reasonable expenses to plug and
abandon the Well in accordance with all applicable
rules and regulations, net of Seller's pro rata share
of all salvage value of equipment and other materials
recovered from the Well.
Except with respect to (viii) above, notwithstanding anything
herein to the contrary, the aggregate Defect Amounts
attributable to Defects relating to an Asset for which Buyer
receives an adjustment in the Purchase Price shall never
exceed the Allocated Value of that Asset.
(e) CURE OF DEFECTS. If Seller elects to cure a Defect in
accordance with Article 5.02(c) hereof, then Seller shall use
reasonable efforts to cure such Defect during the Cure Period.
On or before expiration of the Cure Period, Seller shall give
Buyer written evidence of any curative actions which, in
Seller's determination, cure or reduce the Defect Amount of a
Defect asserted by Buyer, including an explanation in
reasonable detail of any claimed
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reduction in the Defect Amount. On or before the expiration
of seven (7) days after the end of the Cure Period, Buyer
shall provide to Seller in writing a list of those Defects
asserted by Buyer which Seller claims to have cured pursuant
to this Article 5.02(e), and which Buyer determines have not
been cured, together with the revisions, if any, in Buyer's
estimates to the Defect Amounts attributable to such Defects
after giving effect, if any, to Seller's curative efforts.
For a period of seven (7) days after Seller's receipt of
Buyer's written list of such uncured Defects and revised
Defect Amounts, Seller and Buyer shall attempt to resolve
disputes as to such items. During the Cure Period and
thereafter until all disputes regarding such Title Defect and
the Defect Amount in respect thereof have been fully resolved
by agreement or arbitration, Buyer shall afford Seller and its
representatives and agents access at all reasonable times to
files, Records and documents formerly in Seller's possession
or in the possession of Petroleum Financial, Inc. relating to
title to the one or more Assets that are the subject of such
disputed Defect or Defect Amount. Such access shall be
subject to confidentiality restrictions reasonably imposed by
Buyer.
(f) EXPERT DETERMINATION. In the event that the Parties are
unable to resolve all disputes as to the existence of Defects
or Defect Amounts within the later of fifteen (15) days after
the expiration of the Examination Period or fifteen (15) days
after the expiration of the last Cure Period, as applicable,
then all remaining disputes regarding Defects and/or Defect
Amounts shall be referred to a panel of three experts for
determination (the "Experts"). Seller and Buyer shall each
select one of the Experts who in turn shall select the third
Expert. All three (3) Experts shall be selected by no later
than fifteen (15) days after the end of the period described
above in the Article 5.02(f). Any and all such experts so
selected by the Parties shall have appropriate experience in
and knowledge of oil and gas title and/or other matters
relevant to the determination of the dispute. The Experts may
retain such other experts to assist them in rendering their
decision as they may deem necessary or appropriate. The
Parties shall submit all relevant information available to the
Experts within fifteen (15) business days after the date of
referral and may submit position papers on the subject to the
Experts within such period, but not thereafter. The Experts
shall render their decision to the Parties in writing within
thirty (30) days after the date of referral. The
determination and award, if any, of the Experts shall be final
and binding upon the Parties, and judgment may be entered
thereon in any court of competent jurisdiction upon the
application of either Party. Seller and Buyer agree to share
equally the costs and expenses associated with such expert
determination proceedings.
(g) ADJUSTMENT FOR UNCURED DEFECTS. Subject to the deductible
provided for in Article 5.02(h) hereof, the Preliminary
Purchase Price shall be reduced
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by the amount, if any, of the Defect Adjustment at the times
and in the manner hereinafter provided:
(i) With respect to any and all Defects and Defect
Amounts attributable thereto which have been finally
resolved, whether by agreement or as determined by
the Experts, on or prior to the date of the issuance
of the Tranche B Shares, the Preliminary Purchase
Price shall be reduced by the aggregate of all said
Defect Amounts by decreasing the number of Tranche B
Shares to be issued by the appropriate Share
Adjustment Factor;
(ii) In the event there exists on the date of the issuance
of the Tranche B Shares one or more Defects (or
Environmental Defects pursuant to Article 6.02(f)
hereof) and Defect Amounts attributable thereto which
have not been finally resolved at said time, Buyer
shall withhold from the Tranche B Shares to be issued
to Seller a number of Shares equal to the aggregate
of all such Defect Amounts, as asserted by Buyer (but
subject to the limitation hereinafter set forth)
divided by the Average Closing Price (the "Tranche B
Holdback"). All Tranche B Shares including Tranche B
Holdback Shares, shall be registered in accordance
with the Registration Rights Agreement. In no event
shall the aggregate of all such Defect Amounts used
to calculate the Tranche B Holdback exceed the sum of
Five Hundred Thousand Dollars ($500,000).
Thereafter, when and as each said Defect,
Environmental Defect and/or the Defect Amount
attributable thereto is finally resolved by agreement
between the Parties, by the Experts or the
Environmental Experts, as applicable, the Preliminary
Purchase Price shall be reduced, if appropriate, by
decreasing the number of Shares to be issued to
Seller from the Tranche B Holdback by the appropriate
Share Adjustment Factor and releasing to Seller the
remainder of the Shares held back as part of the
Tranche B Holdback with respect to said Defect or
Environmental Defect. All said Defects and
Environmental Defects which are unresolved on the
date of the issuance of the Tranche B Shares shall be
fully and finally resolved on or before the date one
year after the Closing Date and all Tranche B
Holdback Shares shall either have been released to
Seller or used to reduce the Preliminary Purchase
Price as provided for in this Article 5.02(g)(ii).
(iii) Seller shall place in an interest bearing joint
control account to be established at Texas Commerce
Bank, N.A. and styled "Harken/EnerVest Escrow Fund"
(the "Escrow Account"), out of the net proceeds from
the sale of Tranche B Shares when and as sold, One
Million Dollars ($1,000,000) (the "Escrow Amount").
On the
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date one (1) year after the Closing Date, (1) Buyer
shall be entitled to receive from the Escrow Account
a sum equal to the aggregate amount of (i) the Defect
Adjustment and the Environmental Defect Adjustment
less that portion of said amounts by which the
Preliminary Purchase Price has been reduced at the
time of the issuance of the Tranche B Shares and in
connection with the final resolution of the Tranche B
Holdback Shares, (ii) claims of third parties against
the Seller which are not related to the Assets and
which Buyer has not otherwise assumed under this
Agreement but for which Buyer has been judicially
determined liable by reason of the "de facto merger
doctrine" or similar legal theory or any relevant
statute, rule or regulation and (iii) any amounts
owing pursuant to Articles 9(a)-(e) and Article
9(h)by Seller to Buyer and not previously paid by
Seller or credited to Buyer, plus all interest
accrued thereon or attributable to said aggregate
sum. Seller shall be entitled to receive the
balance, if any, of the Escrow Amount after said
payment to Buyer plus all interest accrued thereon or
attributable thereto.
(h) DEDUCTIBLE FOR DEFECTS. The Preliminary Purchase
Price and the Purchase Price shall be reduced for
Defects pursuant to Article 5.02(g) hereof if, and
only to the extent that, the cumulative aggregate of
all Defect Amounts exceeds the sum of $100,000.
ARTICLE 6
ENVIRONMENTAL
6.01 Availability of Data to Buyer; Phase I Environmental Audit.
Prior to the date hereof, Seller has made available to Buyer information which
is in the possession or control of Seller or to which Seller has access (other
than publicly available information to which Buyer has equal access) and which
relates to the environmental condition of the Assets, which information
includes, without limitation, information regarding crude oil and produced
water that may have been spilled or disposed of on-site and the locations
thereof; onsite pits and pit closures; on-site burial; land farming; land
spreading; underground injection; and on-site solid waste disposal sites.
Buyer has also had the right, prior to the Closing Date, at its own risk and
expense, to conduct or have conducted a Phase I Environmental Audit of the
Assets. To enable Buyer to conduct the Phase I Environmental Audit, Seller has
provided Buyer (and its representatives) with reasonable access to the Assets,
subject to any third party restrictions on Seller with respect to access to the
Assets, to Seller's books, records, and files relating to the Assets, and to
current employees of Seller. Buyer shall provide Seller with copies of any
Phase I Environmental Audit report, whether completed prior to or after the
Closing Date, not less than five (5) days after Buyer's receipt of same, Buyer
agrees to release, indemnify, defend, and hold the Seller harmless from any
fines, penalties or damage to persons or property caused by the activities of
Buyer or its representatives, agents, consultants,
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contractors or subcontractors in conducting a Phase I Environmental Audit;
provided, however, that the foregoing indemnity shall not extend to fines,
penalties or damages to persons or property that relate to matters discovered
by Buyer in conducting the Phase I Environmental Audit.
6.02 Environmental Matters.
(a) ENVIRONMENTAL REPRESENTATION. Seller hereby represents and
warrants to Buyer, for the sole and limited purpose of
determining the existence of Environmental Defects and
appropriate adjustments to the Preliminary Purchase Price, if
any, with respect thereto, as provided in this Article 6.02,
the following:
Except as listed in Schedule 6.02 attached hereto and
made a part hereof for all purposes, (i) the Seller is in
substantial compliance in all material respects with all
applicable Environmental Laws with respect to the Assets, and
(ii) the Seller has not received any inquiry or notice, other
than an inquiry or notice that has been fully and finally
resolved, nor does the Seller have any reason to believe it
will receive any inquiry or notice, that alleges that the
Seller is not now, or in the past has not been, in compliance
with all applicable Environmental Laws with respect to the
Assets. Except as listed in Schedule 6.02 hereto, to the
Knowledge of Seller, the Seller has not released, as such term
is defined in CERCLA, Materials of Environmental Concern on,
in, or about the Assets other than as allowed by Environmental
Laws, none of the Assets is listed in the National Priority
List as a superfund site pursuant to CERCLA and relevant
regulations, and no conditions exist on, in, or about the
Assets as the result of Environmental Matters that give rise to
liabilities, potential liabilities or Third Party Claims under
Environmental Laws or common law. Except as listed in Schedule
6.02 hereto, to the Knowledge of Seller, there are no
underground storage tanks on the Assets and the Seller has not
transported, disposed, or arranged for disposal, reclamation,
recycling, or sale of Materials of Environmental Concern from
the Assets to other properties, other than as allowed by
Environmental Laws, and to the Knowledge of Seller, the Seller
has not transported, disposed, stored offsite, or arranged for
disposal, reclamation, recycling, or sale of Materials of
Environmental Concern from the Assets that give rise to
liabilities, potential liabilities or Third Party Claims under
Environmental Laws or common law. Seller asserted no
Environmental Defects against its predecessor in title in
connection with its acquisition of the Assets.
(b) NOTICE OF ASSERTED ENVIRONMENTAL DEFECT. Prior to the
expiration of the Examination Period, Buyer shall furnish to
Seller written notice specifying in reasonable detail each
Environmental Matter which, in Buyer's opinion,
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constitutes a breach by Seller of Seller's representation set
forth above in Article 6.02(a) hereof (an "Environmental
Defect"). Such written notification ("Environmental Defect
Notice") shall contain a reasonable description of the facts
used by Buyer in making its determination that a breach exists
and Buyer's good faith estimate of the costs to remediate such
Environmental Matter and shall be sent to Seller by telecopy
or postage prepaid. Any Environmental Defects not asserted on
or before the expiration of the Examination Period with
respect to the Assets, shall be deemed conclusively to be
waived by Buyer. Failure by Buyer to identify all Assets (or
to identify all portions of an Asset) which are subject to a
particular Environmental Defect in an Environmental Defect
Notice shall not prevent Buyer from asserting such
Environmental Defect in separate or subsequent Environmental
Defect Notices, subject to otherwise timely asserting such
Environmental Defect prior to the expiration of the
Examination Period.
(c) NOTICE IN RESPONSE TO BUYER'S NOTICE. On or before 5:00 p.m.
on the fifth (5th) business day following Seller's receipt of
an Environmental Defect Notice from Buyer, Seller shall give
written notice to Buyer for each Environmental Defect asserted
in an Environmental Defect Notice ("Environmental Response
Notice") as to whether it (a) disagrees with Buyer's assertion
that the Environmental Defect exists, (b) disagrees with the
Defect Amount estimated by Buyer for such Environmental
Defect, or (c) takes any combination of the foregoing
positions. If Seller disagrees with Buyer's assertion of the
existence of an Environmental Defect or the Defect Amount with
respect thereto, Seller's Environmental Response Notice shall
also specify in reasonable detail Seller's grounds for such
disagreement, the Defect Amount estimated by Seller therefor,
or both, as the case may be. Seller's failure to include in
its Environmental Response Notice an Environmental Defect
asserted in an Environmental Defect Notice shall be deemed to
be an admission of the existence of such Environmental Defect
and acceptance of Buyer's estimate of the Defect Amount with
respect thereto.
(d) METHOD OF DETERMINING DEFECT AMOUNTS FOR ENVIRONMENTAL
DEFECTS. Without limiting Seller's right to dispute the
existence of an Environmental Defect, Defect Amounts for each
asserted Environmental Defect shall be determined by agreement
between the Parties giving due consideration to the multiple
goals of minimizing Environmental Liabilities (including the
selection of remedies which reflect customary industry
practices, are cost effective and consider all related
business and time requirements), avoiding Environmental
Liabilities and fully complying with all Environmental Laws.
If the Parties are unable to agree as to the Defect Amount for
any Environmental Defect, the Parties shall refer the matter
to the
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Environmental Experts (as hereinafter defined) for
determination as provided in Article 6.02(e) hereof.
(e) ENVIRONMENTAL EXPERT DETERMINATION. In the event that the
Parties are unable to resolve all disputes as to the existence
of Environmental Defects or Defect Amounts with respect
thereto within fifteen (15) days after the expiration of the
Examination Period, then all remaining disputes regarding
Environmental Defects and/or Defect Amounts with respect
thereto shall be referred to a panel of three environmental
experts for determination (the "Environmental Experts").
Seller and Buyer shall each select one Environmental Expert
who in turn shall select the third Environmental Expert. All
three (3) Experts shall be selected by no later than fifteen
(15) days after the end of the period previously described in
this Article 6.02(e). Any and all such experts so selected by
the Parties shall have appropriate experience in and knowledge
of oil and gas environmental matters. The Environmental
Experts may retain such other experts to assist them in
rendering their decision as they may deem necessary or
appropriate. The Parties shall submit all relevant
information available to the Environmental Experts within
fifteen (15) business days after the date of referral and may
submit position papers on the subject to the Environmental
Experts within such period, but not thereafter. The
Environmental Experts shall render their decision to the
Parties in writing within (30) days after the date of
referral. The determination and award, if any, of the
Environmental Experts shall be final and binding upon the
Parties, and judgment may be entered thereon in any court of
competent jurisdiction upon the application of either Party.
Seller and Buyer agree to share equally the costs and expenses
associated with such expert determination proceedings.
(f) ADJUSTMENT FOR ENVIRONMENTAL DEFECTS. Subject to the
deductible provided for in Article 6.02(g) hereof, the
Preliminary Purchaser Price shall be reduced by the amount, if
any, of the Environmental Defect Adjustment, at the times and
in the manner hereinafter provided:
(i) With respect to any and all Environmental Defects and
Defect Amounts attributable thereto which have been
finally resolved, whether by agreement or the
Environmental Experts, on or prior to the date of the
issuance of the Tranche B Shares, subject to the
deductible provided in Article 6.02(g) hereof, the
Preliminary Purchase Price shall be reduced by the
aggregate of all said Defect Amounts by decreasing
the number of Tranche B Shares to be issued by the
appropriate Share Adjustment Factor;
(ii) In the event there exists on the date of the issuance
of the Tranche B Shares one or more Environments
Defects (or Defects pursuant
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to Article 5.02 hereof) and Defect Amounts
attributable thereto which have not been finally
resolved at said time, Buyer shall withhold from the
Tranche B Shares the number of Shares provided in
Article 5.02(g)(ii) hereof. All said Environmental
Defects shall be resolved and the Preliminary
Purchase Price adjusted therefore, if and to the
extent appropriate, and/or Tranche B Holdback Shares
released to Seller, if and to the extent appropriate,
in accordance with Article 5.02(g)(ii).
(g) LIMITATION ON SELLER'S LIABILITY. Seller shall not be
required to pay any Defect Amount with respect to an
Environmental Defect until the Available Deductible Amount has
been reduced to, but not below, zero. The Buyer shall not be
entitled to reduce the Preliminary Purchase Price for any such
Environmental Defects to the extent the same are actually
applied to reduce the Available Deductible Amount. "Available
Deductible Amount" means $500,000 as reduced, but not below
zero, by the total amount of Defect Amounts attributable to
Environmental Defects incurred or paid by the Buyer.
(h) BUYER'S REMEDIAL ACTIONS. With respect to any Environmental
Defect which is subject to the limitation set forth in Article
6.02(g) or for which the Preliminary Purchase Price is
adjusted pursuant to Article 6.02(f) hereof, and which
requires corrective, remedial, or other actions necessary to
respond to, remove, or otherwise address any conditions that
cause, contribute to, or are associated with such
Environmental Defect, Buyer will implement and complete or
cause to be implemented and completed all such corrective,
remedial, or other actions in a reasonable and professional
manner and will use its best efforts to do so in a timely and
cost-effective manner.
(i) BUYER'S SOLE REMEDY. Buyer agrees that its sole remedy for
Environmental Defects that result from, arise out of, or are
attributable to the Assets will be pursuant to this Article 6,
and Buyer hereby releases, waives, and disclaims any and all
rights of contribution, indemnification, or other means of
recovery from Seller under Environmental Laws, including,
without limitation, CERCLA.
ARTICLE 7
SURVIVAL AND INDEMNIFICATION
7.01 Survival of Representations and Warranties. The
representations and warranties of (i) the Seller contained in Article 4.01
hereof shall survive the Closing for a period of ninety (90) days from the
Closing Date and (ii) the Buyer contained in Article 4.02 hereof shall survive
the Closing indefinitely (the "Survival Period").
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<PAGE> 31
7.02 Indemnification Provision for the Benefit of the Seller. In
the event the Buyer breaches any of its representations and warranties
contained in Article 4.02 hereof, then the Buyer agrees to indemnify and hold
harmless the Seller, any partner (general or limited) of Seller and any
current, former, and future director, officer, manager, member, partner,
shareholder, employee and agent of Seller and such partner, and any successor,
assign, heir, and executor of any of the foregoing (the "Indemnified Party"),
from and against the entirety of any Losses resulting from or related or
attributable to the breach which the Seller, or any such Affiliate (or any such
other indemnified person in such person's capacity set forth above) shall
suffer, provided such claim for indemnification is brought within the Survival
Period; and further provided that "Losses", as used in this sentence, shall not
include, and Buyer shall not be responsible or liable for, any death, personal
injury, or consequential damages in respect of such breach.
7.03 Matters Involving Third Parties.
(a) If any third party shall notify an Indemnified Party with
respect to any matter which may give rise to a claim for
indemnification against Buyer (the "Indemnifying Party") under
this Article 7 or otherwise pursuant to this Agreement, then
the Indemnified Party shall promptly (and in any event within
ten (10) business days after receiving service of process in a
lawsuit, administrative proceeding or arbitration proceeding
with respect to the Third Party Claim) notify each
Indemnifying Party thereof in writing. Each of the matters
described in this Article 7.03(a) shall be referred to in this
Agreement as a "Third Party Claim".
(b) Any Indemnifying Party will have the right to assume and
thereafter conduct the defense of the Third Party Claim with
counsel of its choice reasonably satisfactory to the
Indemnified Party; provided, however, that the Indemnifying
Party will not consent to the entry of any judgment or enter
into any settlement with respect to the Third Party Claim
without the prior written consent of the Indemnified Party
(not to be withheld unreasonably) unless the judgment or
proposed settlement involves only the payment of money damages
and does not impose an injunction or other equitable relief
upon (or constitute an admission of guilt, liability, fault or
responsibility for) the Indemnified Party. The Indemnified
Party shall have the right to employ separate counsel in any
such action and to participate in the defense thereof, but the
fees and expenses of such counsel shall be at the expense of
the Indemnified Party unless (i) the employment thereof has
been specifically authorized in writing by the Indemnifying
Party or (ii) the Indemnifying Party failed to assume the
defense and employ counsel.
(c) Unless and until an Indemnifying Party assumes the defense of
the Third Party Claim as provided in Article 7.03(b) above,
however, the Indemnified Party may defend against the Third
Party Claim in any manner it reasonably
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<PAGE> 32
may deem appropriate with such reasonable costs and expenses
associated therewith to be borne for the account of the
Indemnifying Party.
(d) In no event will the Indemnified Party consent to the entry of
any judgment or enter into any settlement with respect to the
Third Party Claim without the prior written consent of the
Indemnifying Party (not to be withheld unreasonably), unless
the Indemnified Party waives indemnification with respect to
the Third Party Claim so settled and adjudicated.
(e) The indemnification obligations of Buyer under this Agreement
(including Articles 7 and 8 hereof shall include court costs
and attorney's fees and expenses and costs of investigating,
preparing or defending any action or proceeding with respect
to any Third Party Claim to the extent such Third Party Claim
may give rise to a claim for indemnification under such
indemnification obligations of Buyer, as the case may be.
7.04 Effect of lndemnification Provisions. The Seller acknowledges
and agrees that the foregoing indemnification provisions in this Article 7 and
in Article 8 shall, following the Closing hereof, be the exclusive remedy of
Seller for any breach of Buyer's representations and warranties in Article 4.02
hereof, provided that, the foregoing shall not limit the Buyer's obligations
for any breach of a covenant or agreement contained in any Article other than
Article 4. If a claim for payment of a liquidated amount covered by Buyer's
indemnification obligations under this Agreement is made in accordance with the
terms of this Agreement and is not paid within sixty (60) days after such claim
is received by Buyer, the liquidated amount of such claim shall bear interest
at the Agreed Rate from the date such claim was received until paid.
7.05 Negligence, Etc. IT IS EXPRESSLY AGREED THAT BUYER'S
INDEMNIFICATION OBLIGATIONS UNDER THIS ARTICLE 7, ARTICLE 8 OR UNDER ANY OTHER
ARTICLE OF THIS AGREEMENT INCLUDE, WITHOUT LIMITATION, LOSSES AND ENVIRONMENTAL
LIABILITIES, IF ANY, BASED ON NEGLIGENCE, ALLEGED NEGLIGENCE, GROSS NEGLIGENCE
OR ALLEGED GROSS NEGLIGENCE OF SELLER, ANY PARTNER OF SELLER (GENERAL OR
LIMITED), AND ANY CURRENT, FORMER AND FUTURE DIRECTOR, OFFICER, MANAGER,
MEMBER, PARTNER, SHAREHOLDER, EMPLOYEE AND AGENT OF ANY SELLER OR ANY SUCH
PARTNER, AND ANY SUCCESSOR, ASSIGN, HEIR AND EXECUTOR OF ANY OF THE FOREGOING.
ARTICLE 8
POST CLOSING COVENANTS
8.01 Certain Obligations of Seller. Seller agrees that, with
respect to the period following the Closing:
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(a) RECORDS. On or before five (5) business days after Closing
(the "Records Delivery Date"), Seller shall deliver to Buyer,
at Buyer's offices in Dallas, Texas, all Records. Seller
shall be entitled to retain, or to obtain from Buyer at
Seller's cost, one copy of all such information for its
records as may be reasonably necessary for Seller to address
matters relative to its ownership and operation of the Assets,
including, without limitation, the preparation of accounting
and financial information, the filing of tax returns and the
pursuing or defending of litigation.
(b) SUSPENSE FUNDS. As soon as practicable after Closing, Seller
shall provide Buyer with a list showing all proceeds from
production attributable to the Assets which are currently held
in suspense and transfer to Buyer all such proceeds. Buyer
shall be responsible for distribution of such proceeds to the
parties lawfully entitled thereto, and agrees to indemnify,
defend and hold harmless Seller from and against any and all
Losses arising out of or relating to such proceeds, except for
any Losses caused by Seller's negligence or willful
misconduct.
(c) OBTAINING FINANCIAL INFORMATION. Seller agrees to use
reasonable efforts to assist Buyer in obtaining from Union
Pacific Oil and Gas Company relevant financial information
concerning the Assets for periods of time prior to the time
Seller acquired the Assets in connection with Buyer's
reporting requirements under applicable securities
regulations.
(d) CONTINUED EXISTENCE. The Seller shall maintain its
partnership existence for a minimum period of one (1) year
following the Closing Date.
(e) RETAINED LIABILITIES. Seller retains and shall remain liable
and responsible for, and Buyer specifically does not assume,
any liabilities and obligations of Seller not related to or
arising out of the ownership, use, maintenance and operation
of the Assets, whether known or unknown, accrued or contingent
and not otherwise specifically set forth in this Agreement.
8.02 Certain Obligations of Buyer. Each of Buyer agrees that, with
respect to the period following the Closing:
(a) RECORDING. Within (30) days following Closing, Buyer shall
record those Conveyance Documents necessary to evidence in the
public record that Buyer has acquired the Assets and within a
reasonable time thereafter, Buyer shall supply Seller with a
true and accurate photocopy of the recorded and filed
Conveyance Documents. In the event Buyer fails to record any
such Conveyance Document within such time period, Seller may,
but shall not be obligated to, record such Conveyance Document
on
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Buyer's behalf and at Buyer's cost (for which Buyer shall
immediately reimburse Seller upon demand).
(b) REMOVAL OF NAMES. As soon as reasonably practicable after
Closing, Buyer shall cause to be removed the names and marks
of Seller and any variations and derivations thereof and logos
relating thereto from any of the Assets, and will not
thereafter make any use whatsoever of such names, marks, and
logos; provided, however, that the Buyer shall have no
obligation to remove such names or marks from any lease site
or well until such time as such names or marks are removed in
the ordinary course of the Buyer's business. Buyer shall
indemnify Seller for any Losses it suffers as a result of the
Buyer's non- removal of such names or marks after the Closing.
(c) GEOLOGIC AND GEOPHYSICAL INFORMATION. Seller reserves the
right to use any and all geologic and geophysical information
transferred to Buyer hereunder and Buyer agrees to cooperate
with Seller in granting reasonable access to such information.
(d) RESPONSIBILITY FOR ASSUMED LIABILITIES. FROM AND AFTER THE
CLOSING DATE, BUYER AGREES TO ASSUME AND TO INDEMNIFY AND HOLD
HARMLESS THE SELLER, ANY PARTNER OF SELLER (GENERAL OR
LIMITED), AND ANY CURRENT, FORMER AND FUTURE DIRECTOR,
OFFICER, MANAGER, MEMBER, PARTNER, SHAREHOLDER, EMPLOYEE AND
AGENT OF ANY SELLER OR ANY SUCH PARTNER, AND ANY SUCCESSOR,
ASSIGN, HEIR AND EXECUTOR OF ANY OF THE FOREGOING FROM AND
AGAINST THE ENTIRETY OF ANY LOSSES RESULTING FROM, ARISING OUT
OF, OR ATTRIBUTABLE TO THE ASSUMED LIABILITIES.
(e) MAINTENANCE OF LIEN PRIORITY. Buyer shall keep the Assets
free and clear of all liens, mortgages, deeds of trust and
other encumbrances other than the Deed of Trust and the liens
and security interests created thereby and shall maintain the
first priority status of the Deed of Trust and the liens and
security interests created thereby.
(f) RESPONSIBILITY FOR LITIGATION AND CLAIMS. From and after the
Closing Date, Buyer agrees to assume and to indemnify Seller,
any partner of Seller (general or limited) and any current,
former, and future director, officer, manager, member,
partner, shareholder, employee, and agent of Seller or any
such partner, and any successor, assign, heir and executor of
any of the foregoing, from and against the entirety of any
Losses resulting from arising out of, or attributable to the
Litigation and Claims.
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8.03 Certain Agreements Regarding the Issuance of Additional
Shares.
(a) TRANCHE B SHARES. Harken Energy shall issue to Seller the
Tranche B Shares, as adjusted pursuant to Articles 5, 6 and
9(f) hereof, upon the expiration of the First Shelf Life (the
"Tranche A Expiration Point").
(b) DEFICIENCY SHARES. If, as of the Tranche A Expiration Point,
Tranche A Realized Proceeds are less than $4,262,500, then,
within ten days after the Tranche A Expiration Point, Harken
Energy shall issue to Seller additional Shares in an amount
equal to A divided by B, where "A" is equal to the Tranche A
Deficiency Amount, and where "B" is equal to the Average
Closing Price. The Shares issued pursuant to this Article
8.03(b) shall be herein called the "Deficiency Shares".
(c) TRANCHE C SHARES. If, as of the expiration of the Second
Shelf Life (the "Tranche B Expiration Point"), the Aggregate
Tranche A/B Realized Proceeds are less than $10,200,000 (as
reduced or increased, as appropriate, by the net aggregate
amount of the Defect Adjustment, the Environmental Defect
Adjustment and the value of the Imbalances), then, within ten
days after the Tranche B Expiration Point, Harken Energy shall
issue to Seller additional Shares in an amount equal to A
divided by B, where "A" is equal to the Aggregate Tranche A/B
Deficiency Amount, and where "B" is equal to the Average
Closing Price.
(d) As used in this Agreement:
"Aggregate Proceeds" means the sum of A plus B plus
C, where "A" is equal to the aggregate gross proceeds actually
received by Seller (prior to any commissions, fees or other
costs), from the sale of Tranche A Shares, Deficiency Shares,
Tranche B Shares and Tranche C Shares, as applicable, where
"B" is equal to the aggregate gross proceeds Seller could have
received (prior to any commissions, fees or other costs) from
a Qualified Offer from a Qualified Purchaser for the sale of
Tranche A Shares, Deficiency Shares, Tranche B Shares and
Tranche C Shares, as applicable, and where "C" is equal to the
product obtained by multiplying (i) the remainder obtained by
subtracting the number of Tranche A Shares, Deficiency Shares,
Tranche B Shares and Tranche C Shares which could have been
sold by Seller pursuant to a Qualified Offer from a Qualified
Purchaser from the aggregate number of unsold Tranche A
Shares, Deficiency Shares, Tranche B Shares and Tranche C
Shares, as applicable, in Seller's possession by (ii) the
Average Closing Price.
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"Aggregate Tranche A/B Deficiency Amount" shall mean
A minus B, where "A" is $10,200,000 (as reduced or increased,
as appropriate, by the net aggregate amount of the Defect
Adjustment, the Environmental Defect Adjustment and the value
of the Imbalances), and where "B" is the Aggregate Tranche A/B
Realized Proceeds.
"Aggregate Tranche A/B Realized Proceeds" shall mean
the sum of A plus B plus C, where "A" is equal to the
aggregate gross proceeds actually received by Seller (prior to
any commissions, fees or other costs), from the sale of
Tranche A Shares, Deficiency Shares and Tranche B Shares,
where "B" is equal to the aggregate gross proceeds Seller
could have received (prior to any commissions, fees or other
costs) from a Qualified Offer from a Qualified Purchaser for
the sale of Tranche A Shares, Deficiency Shares and Tranche B
Shares, and where "C" is equal to the product obtained by
multiplying (i) the remainder obtained by subtracting the
number of Tranche A Shares, Deficiency Shares and Tranche B
Shares which could have been sold by Seller pursuant to a
Qualified Offer from a Qualified Purchaser from the aggregate
number of unsold Tranche A Shares, Deficiency Shares and
Tranche B Shares in Seller's possession by (ii) the Average
Closing Price.
"Aggregate Tranche A/B/C Realized Proceeds" shall
mean the sum of A plus B plus C, where "A" is equal to the
aggregate gross proceeds actually received by Seller (prior to
any commissions, fees or other costs), from the sale of
Tranche A Shares, Deficiency Shares, Tranche B Shares and
Tranche C Shares, where "B" is equal to the aggregate gross
proceeds Seller could have received (prior to any commissions,
fees or other costs) from a Qualified Offer from a Qualified
Purchaser for the sale of Tranche A Shares, Deficiency Shares,
Tranche B Shares and Tranche C Shares, and where "C" is equal
to the product obtained by multiplying (i) the remainder
obtained by subtracting the number of Tranche A Shares,
Deficiency Shares, Tranche B Shares and Tranche C Shares which
could have been sold by Seller pursuant to a Qualified Offer
from a Qualified Purchaser from the aggregate number of unsold
Tranche A Shares, Deficiency Shares, Tranche B Shares and
Tranche C Shares in Seller's possession by (ii) the Average
Closing Price.
"Average Closing Price" shall mean (i) when used in
Articles 5.02(g)(ii), 8.03(b) and in the definitions of
Tranche A Realized Proceeds and Share Adjustment Factor, the
average of the last reported Sales Price for the Shares for
the 30 consecutive calendar days immediately preceding the
Tranche A Expiration Point, (ii) when used in Article 8.03(c)
and in the definitions of Aggregate Tranche A/B Realized
Proceeds the average of the last reported Sales Price for the
Shares for the 30 consecutive calendar
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days immediately preceding the Tranche B Expiration Point,
(iii) when used in the definition of Aggregate Proceeds, the
average of the last reported Sales Price for the Shares for
the 30 consecutive calendar days immediately preceding the
date of Buyer's request for a partial release or final
release, as applicable; and (iv) when used in Article 3.03(c)
and the definition of Aggregate Tranche A/B/C Realized
Proceeds, the average of the last reported Sales Price for the
Shares for the 30 consecutive calendar days immediately
preceding the Foreclosure Trigger Date.
"Deficiency Shares" shall have the meaning assigned
to such term in Article 8.03(b).
"First Shelf Life" shall have the meaning assigned to
such term in the Registration Rights Agreement.
"Qualified Offer" shall mean an offer to purchase
Tranche A Shares, Deficiency Shares, Tranche B Shares, or
Tranche C Shares, as applicable, at a price not less than
$2.75 per share (which price per share shall be
proportionately adjusted in the event of any subdivision or
combination of the Shares).
"Qualified Purchaser" shall mean a person that, in
the good faith determination of Seller, is financially able to
purchase the Shares that is the subject of the Qualified Offer
made by such person.
"Sales Price" shall mean, when used with respect to a
calendar day, (i) the last reported sales price of the Shares
on such day on the exchange where the Shares are primarily
traded, (ii) if the Shares are not traded on an exchange, the
last reported sale price of the Shares on such day on the
NASDAQ National Market System, or (iii) if the Shares are not
reported on the NASDAQ National Market System, the closing bid
price for the Shares last quoted on such day as reported by an
established quotation service for over-the-counter securities.
"Second Shelf Life" shall have the meaning assigned
to such term in the Registration Rights Agreement.
"Tranche A Deficiency Amount" shall mean A minus B,
where "A" is $4,262,500, and where "B" is the Tranche A
Realized Proceeds.
"Tranche A Expiration Point" shall have the meaning
assigned to it in Article 8.03(a).
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"Tranche A Realized Proceeds" shall mean the sum of A
plus B plus C, where "A" is equal to the aggregate gross
proceeds actually received by Seller (prior to any
commissions, fees or other costs), from the sale of Tranche A
Shares, and where "B" is equal to the aggregate gross proceeds
Seller could have received (prior to any commissions, fees or
other costs) from a Qualified Offer from a Qualified Purchaser
for the sale of Tranche A Shares, and where "C" is equal to
the product obtained by multiplying (i) the remainder
obtained by subtracting the number of Tranche A Shares which
could have been sold by Seller pursuant to a Qualified Offer
from a Qualified Purchaser from the aggregate number of unsold
Tranche A Shares in Seller's possession by (ii) the Average
Closing Price.
"Tranche B Expiration Point" shall have the meaning
assigned to it in Article 8.03(c).
(e) SHARE CEILING. If at any time from and after Closing, Buyer
is required, pursuant to this Agreement, to issue an amount of
Shares, which, when aggregated with the amount of Shares
previously issued hereunder, equals or exceeds 5,100,000
Shares, Buyer shall have the option, in its discretion, to (i)
issue the additional Shares in accordance with the other terms
and provisions hereof or (ii) terminate its obligations to
issue such Shares and any other Shares required hereunder by
making a cash payment (the "Buyout Payment") to Seller in an
amount equal to the difference between $15,200,000 (as reduced
or increased, as appropriate, by the net aggregate amount of
the Defect Adjustment, the Environmental Defect Adjustment and
the value of the Imbalances) and the aggregate gross cash
proceeds previously received by Seller pursuant hereto
including the Cash Consideration and the proceeds from all
sales of Shares (to include broker's fees and other expenses
associated with the sale of the Shares) received by Seller
pursuant hereto. In the event Buyer elects to make the Buyout
Payment, such payment shall be made no later than the date on
which the Shares which would have been issued but for the
Buyout Payment were required to be registered.
Contemporaneously with said payment, Seller shall reconvey to
Buyer all Shares (other than the Warrants and the Shares
underlying the Warrants) acquired by Seller pursuant hereto
and not previously sold by Seller. After receipt of the
Buyout Payment, Seller shall have no further rights to receive
Shares hereunder other than the Shares to be issued in respect
of the Warrants. Nothing contained in Article 8.03 hereof is
intended or shall be construed as terminating, limiting or
otherwise adversely impacting Seller's rights with respect to
the Warrants or the Shares to be issued in respect thereof.
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ARTICLE 9
EFFECT OF CLOSING
The following terms, provisions and prorations shall be effective at
the Closing:
(a) REVENUES. All proceeds from production, accounts
receivables, notes receivable, income, revenues, monies and
other items attributable to the Assets with respect to any
period of time prior to the Effective Date shall belong to and
be retained by or paid over to Seller and all necessary
reports with respect to such proceeds shall be filed by
Seller. All proceeds from production, accounts receivables,
notes receivables, income, revenues, monies and other items
attributable to the Assets with respect to any period of time
from and after the Effective Date shall belong to and be
retained by or paid over to Buyer, except for Hydrocarbons
that, at the Effective Date, are attributable to the Assets
and are in storage or are otherwise held in inventory and all
proceeds attributable thereto.
(b) EXPENSES. All accounts payable and accrued liabilities for
costs and expenses attributable to the Assets with respect to
any period of time prior to the Effective Date, including
excise, severance, and similar taxes based on production or
royalties, shall be the obligation of and paid by the Seller,
and all necessary reports with respect to such costs and
expenses shall be filed by Seller. All accounts payable and
accrued liabilities for direct costs and expenses attributable
to the Assets (but not including Seller's overhead costs) with
respect to any period of time from and after the Effective
Date shall be the obligation of and be paid by the Buyer.
(c) AD VALOREM AND PROPERTY TAXES. All ad valorem taxes, real
property taxes, personal property taxes and similar
obligations (the "Taxes") shall be apportioned as of the
Effective Date between Buyer and Seller. All such Taxes
allocable to periods prior to the Effective Date shall be paid
by Seller, and all such Taxes allocable to the Effective Date
and after shall be paid by Buyer. Any refunds of Taxes
allocable to periods prior to the Effective Date shall be the
property of Seller. Any refunds of Taxes allocable to periods
after the Effective Date shall be the property of Buyer.
Buyer shall file or cause to be filed all required reports and
returns incident to such Taxes which are due on or after the
Effective Date, and shall pay or cause to be paid to the
taxing authorities all such Taxes reflected on such reports
and returns; provided, however, Seller shall promptly
reimburse Buyer for any amounts owing by Seller with respect
thereto pursuant to this paragraph.
(d) SALES TAXES, FILING FEES, ETC. The Preliminary Purchase Price
shall be net of any sales taxes or other transfer taxes, and
Buyer shall be liable for any such tax, as well as any
applicable conveyance, transfer and recording
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fees, and real estate, transfer, stamp or other taxes imposed
upon the sale of the Assets. Seller agrees to use its
reasonable best efforts to assist Buyer in obtaining any
applicable exemptions to any applicable state sales tax. If
Seller is required by applicable state law to report and pay
these taxes or fees, Buyer shall promptly deliver a check to
Seller in full payment, and Seller shall deliver said check to
the appropriate taxing authorities and shall bear any and all
penalties, costs and expenses associated with the failure of
Seller to deliver said check.
(e) OTHER TAXES. All production, severance or excise taxes,
conservation fees and other similar such taxes or fees (other
than income taxes) relating to production attributable to the
Assets prior to the Effective Date shall be paid by Seller and
all such taxes and fees relating to such production
attributable to the Assets on and after the Effective Date
shall be paid by Buyer.
(f) GAS IMBALANCES. Buyer has not included in its engineering
pertaining to the Assets the effect of any Imbalances (as
hereinafter defined) with respect to shares of production
taken or marketed from or attributable to working interests
comprising the Assets. Attached hereto as Exhibit 9(f) and
made a part hereof for all purposes is a listing of all
Imbalances (including working interest imbalances and pipeline
imbalances) affecting the Assets as of the Effective Date.
The Preliminary Purchase Price shall be adjusted as
hereinafter provided to reflect such Imbalances. If either
party determines within ninety (90) days after Closing that
gas volume Imbalances exist relative to working interests or
with respect to pipelines, subject to verification and cure of
the other Party in accordance with the provisions of Article
5.02(e) hereof, the Preliminary Purchase Price shall be
adjusted upward or downward, depending upon whether there is a
net overproduction or a net underproduction attributable to
the Assets. The amount to be paid by Buyer to Seller with
respect to any underproduction, or by Seller to Buyer with
respect to any overproduction, shall be the present value of
the net cash flow attributable to all such volumes of gas
recoverable without cash balancing as determined by Ryder
Scott Company or another petroleum engineer mutually agreed
upon by both Parties (the "Evaluation Engineer") using (i) an
agreed upon pricing index, (ii) an annual discount rate of ten
percent (10%), and (iii) the maximum rate of recovery
permitted under the applicable gas balancing agreements. Upon
the final determination of the quantity of overproduction
and/or underproduction attributable to a Well as of the
Effective Date, the parties will submit all relevant
information to the Evaluation Engineer for valuation as
described above. The adjustment to the Preliminary Purchase
Price shall be made in accordance with the provisions of
Article 5.02(g) hereof by increasing or decreasing, as
appropriate, the number of Tranche B Shares by the appropriate
Share Adjustment Factor. Pursuant to that certain Asset
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Purchase and Sale Agreement dated January 18, 1995, but
effective as of August 1, 1994, between Union Pacific Oil and
Gas Company ("UPOGC"), as seller, and EnerVest Management
Company, L.C. ("EnerVest"), as buyer (the "UPOGC Agreement"),
Seller, as assignee of EnerVest, is entitled to
indemnification from UPOGC with respect to certain Imbalances
affecting the Assets. Seller hereby retains the right to seek
indemnification against UPOGC under the UPOGC Agreement with
respect to any Imbalances for which the Preliminary Purchase
Price is adjusted downward pursuant to this Article 9(f). For
purposes of this Agreement, "Imbalances" shall mean any
situation in which any party entitled, including Seller, to
produce gas from a Well in which Seller owns a working
interest has produced such gas in excess of its pro rata share
and thereby has incurred a future liability or makeup
obligation.
(g) PAYMENTS; SHARED OBLIGATIONS. If amounts are received by
either Party hereto which, under the terms of this Article 9
belong to the other Party, such amount shall immediately be
paid over to the proper Party. If an invoice or other
evidence of an obligation is received which under the terms of
this Article 9 is partially the obligation of Seller and
partially the obligation of Buyer, then the Parties shall
consult each other and each shall promptly pay its portion of
such obligation to the obligee.
(h) POST-CLOSING ADJUSTMENTS. Within ninety (90) days after
Closing, Seller shall prepare and deliver to Buyer, in
accordance with this Agreement and generally accepted
accounting principles, a statement (herein called the "Final
Settlement Statement"), setting forth each adjustment or
payment that was not finally determined as of the Closing or
in accordance with Articles 9(a)-(e) and 9(g), above, and
showing the calculation of such adjustments. As soon as
practicable after receipt of the Final Settlement Statement,
Buyer shall deliver to Seller a written report containing any
changes that Buyer proposes be made to the Final Settlement
Statement. The Parties shall undertake to agree with respect
to the amounts due pursuant to such post-Closing adjustment no
later than thirty (30) days after Buyer's receipt of the Final
Settlement Statement. The date upon which such agreement is
reached shall be herein called the "Final Settlement Date." In
the event, as a result of the Final Settlement Statement (i)
Buyer owes Seller additional monies, Buyer shall pay Seller or
to Seller's account (as designated by Seller) in immediately
available federal funds such amount; or (ii) Seller owes Buyer
monies, Seller shall pay Buyer or to Buyer's account (as
designated by Buyer) in immediately available federal funds
such amount. Payment by Buyer or Seller shall be made within
five (5) days after the Final Settlement Date.
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ARTICLE 10
CONFIDENTIALITY AGREEMENT
Each Party, its Affiliates and its and their directors, officers,
employees, agents, representatives, consultants, investors and lenders, agree
to keep the terms and conditions of this Agreement and all proprietary and
confidential information exchanged between Buyer and Seller in connection with
this Agreement, confidential, and to not disclose the existence of this
Agreement without the prior written consent of the other Party, which consent
may be withheld at either Party's sole discretion, for a period not to exceed
one year from the Closing Date. The foregoing restriction shall not apply to
disclosures and information which (i) are required to comply with applicable
statutes and regulations; (ii) are required to enforce this Agreement;(iii) are
required to obtain financing related to the transactions contemplated hereby;
(iv) enter the public domain through a third party who does not thereby breach
an obligation of confidentiality; or (v) are made in association with press
releases issued in accordance with Article 14.01 hereof.
ARTICLE 11
CLOSING
11.01 Seller's Closing Obligations. At Closing, Seller shall
deliver or cause to be delivered to Buyer the following:
(a) CONVEYANCE DOCUMENTS. The Conveyance Documents;
(b) OPINION OF COUNSEL. An opinion of counsel to the Seller
substantially in the form of Exhibit "11.01(b)" attached
hereto and made a part hereof for all purposes; and
(c) REGISTRATION RIGHTS AGREEMENT. The Registration Rights
Agreement dated the Closing Date, substantially in the form
of Exhibit 11.01(c) in all material respects (the
"Registration Rights Agreement").
11.02 Buyer's Closing Obligations. At Closing, Buyer shall tender
to Seller the Cash Consideration by wire transfer in immediately available
funds and shall deliver to Seller at Closing with respect to items (a), (c),
(d) and (e) listed below and within thirty (30) days after Closing with respect
to item (b) hereinbelow the following:
(a) OPINION OF COUNSEL. The opinion of counsel to the Buyer
substantially in the form of Exhibit "11.02(a)" attached
hereto and made a part hereof for all purposes;
(b) SHARES. A certificate or certificates in definitive form
representing the Shares to be issued pursuant to Article
3.01(b);
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(c) WARRANTS. The Warrants;
(d) DEED OF TRUST. The Deed of Trust described in Article 3.03(a)
hereof; and
(e) REGISTRATION RIGHTS AGREEMENT. The Registration Rights
Agreement substantially in the form of Exhibit 11.01(c) in
all material respects;
ARTICLE 12
CASUALTY LOSS AND CONDEMNATION
If, prior to the Closing Date, all or any portion of the Assets are
destroyed by fire or other casualty or are taken in condemnation or under right
of eminent domain or proceedings for such purpose are pending or threatened in
writing, Buyer may elect (i) to treat such destruction, taking or pending or
threatened taking as a Defect pursuant to Article 5 hereof, in which case
Seller shall retain any amounts that have been or will be paid to it by third
parties (including insurers) by reason of such destruction or taking; or (ii)
to purchase such Assets or portions thereof notwithstanding any such
destruction, taking or pending or threatened taking (without reduction in the
Preliminary Purchase Price with respect thereto), in which case Seller shall,
at the Closing, pay to Buyer all sums paid to Seller by third parties
(including insurers) by reason of the destruction or taking of such Assets, and
shall assign, transfer and set over unto Buyer all of Seller's right, title and
interest in and to any unpaid awards or other amounts due from third parties
(including insurers) arising out of the destruction, taking or pending or
threatened taking of such Assets or portions thereof. Prior to Closing, Seller
shall not voluntarily compromise, settle or adjust any amounts payable by
reason of any destruction, taking or pending or threatened taking as to the
Assets or portions thereof without first obtaining the written consent of
Buyer.
ARTICLE 13
GOVERNMENTAL CONSENTS
At the Closing, Seller shall execute and deliver to Buyer such
assignments of federal, state and Indian leases as require consent to
assignment, on the forms required by the governmental or tribal agency having
jurisdiction thereof. Buyer shall promptly file for and obtain the necessary
approvals for such assignments. Until such approvals are obtained, Seller
shall continue to hold governmental title to such leases as nominee for Buyer.
ARTICLE 14
MISCELLANEOUS
14.01 Press Releases and Public Announcements. Neither Party shall
issue any press release or make any public announcement relating to the subject
matter of this Agreement prior to the Closing without the prior approval of the
other Party, which
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approval shall not be unreasonably withheld; provided, however, that either
Party may make any public disclosure it believes in good faith is required by
applicable law or any listing or trading agreement concerning its publicly
traded securities (in which case the disclosing Party will use its reasonable
best efforts to advise the other Party prior to making the disclosure).
14.02 Entire Agreement. This Agreement (including the documents
referred to herein) constitutes the entire agreement between the Parties and
supersedes any prior agreements, or representations by or between the Parties,
written or oral, to the extent they have related in any way to the subject
matter hereof.
14.03 Succession and Assignment. This Agreement shall be binding
upon and inure to the benefit of the Parties and their respective successors
and permitted assigns. Neither Party may assign either this Agreement or any
of its rights, interests, or obligations hereunder without the prior written
approval of the other Party, which approval shall not be unreasonably withheld.
14.04 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
14.05 Headings. The section headings contained in this Agreement
are inserted for convenience only and shall not affect in any way the meaning
or interpretation of this Agreement.
14.06 Governing Law. This Agreement shall be governed by and
construed in accordance with the domestic laws of the State of Texas without
giving effect to any choice or conflict of law provision or rule (whether of
the State of Texas or any other jurisdiction) that would cause the application
of the laws of any jurisdiction other than the State of Texas.
14.07 Legal Fees. The prevailing party in any legal proceeding
brought under or to enforce this Agreement shall be additionally entitled to
recover court costs and reasonable attorney's's fees from the nonprevailing
party. Each Party shall pay their respective legal costs associated with the
negotiation and drafting of this Agreement.
14.08 Exhibits. All exhibits and schedules hereto which are
referred to herein are hereby made a part hereof and incorporated herein by
such reference.
14.09 Waiver. Any of the terms, provisions, covenants,
representations, warranties or conditions hereof may be waived only by written
instrument executed by the Party waiving the compliance. The failure of either
Party at any time or times to require performance of any provisions hereof
shall in no manner affect such Party's right to enforce the same. No waiver by
either Party of any condition or of the breach of any
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term, provision, covenant, representation or warranty contained in this
Agreement, whether by conduct or otherwise, in any one or more instances, shall
be deemed to be construed as a further or continuing waiver of any such
condition or breach, or a waiver of any other condition or of the breach of any
other term, provision, covenant, representation or warranty.
14.10 Further Assurances. After the Closing, each of the Parties
will execute, acknowledge, and deliver to the other such further instruments,
and take such other actions, as may be reasonably requested in order to more
effectively assure to said Party all of the respective properties, rights,
titles, interests, estates, and privileges intended to be assigned, delivered,
or inuring to the benefit of such Party in consummation of the transactions
contemplated hereby.
14.11 Resignation as Operator, etc. Within a reasonable period of
time following the Closing, Seller shall execute and deliver to Buyer
appropriate letters resigning as the Operator of any of the Assets that Seller
is operating and other appropriate documents concerning transfer of operations.
Buyer acknowledges and agrees that Seller cannot and does not covenant or
warrant that Buyer shall become successor operator of all or any portion of the
Assets, since the Assets or portions thereof may be subject to unit, pooling,
communitization, operating or other agreements which control the appointment of
a successor operator; provided, however, that Seller agrees to use its
reasonable best efforts to assist Buyer in becoming successor operator.
14.12 Notices. All notices, requests, demands, claims and other
communications hereunder will be in writing. Any notice, request, demand,
claim or other communication hereunder shall be deemed duly given if (and then
two business days after) it is sent by registered or certified mail, return
receipt requested, postage prepaid, and addressed to the intended recipient as
set forth below:
IF TO SELLER:
EnerVest Acquisition-II Limited Partnership
c/o EnerVest Management Company, L.C.
1001 Fannin, Suite 1111
Houston, Texas 77002
Attention: Mr. John B. Walker
Telephone: (713)659-3500
Fax: (713)659-3556
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IF TO BUYER:
Harken Energy Corporation
Harken Exploration Company
5605 North MacArthur, Suite 400
Irving, Texas 75038
Attention: Mr. Larry Cummings
Telephone: (214)753-6932
Fax: (214)753-6963
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been
duly given unless and until it actually is received by the intended recipient.
Any Party may change the address to which notices, requests, demands, claims,
and other communications hereunder are to be delivered by giving the other
Party notice in the manner herein set forth.
14.13 Disclaimer of Representations and Warranties. Except as
expressly set forth in this Agreement and in Conveyance Documents delivered
pursuant to Article 11.01(a), the Parties hereto make no, and disclaim any,
representation or warranty whatsoever, whether express or implied. Each Party
hereto disclaims all liability and responsibility for any other representation,
warranty, statement, or communication (orally or in writing) to the other Party
(including, but not limited to, any information contained in any opinion,
information, or advice that may have been provided to any such Party by any
officer, stockholder, director, partner, member, manager, employee, agent,
consultant, representative, or contractor of such disclaiming Party or its
Affiliates or any engineer or engineering firm, or other agent, consultant, or
representative) wherever and however made. Without limiting the generality of
the foregoing, Seller makes no representation or warranty as to (a) the amount,
value, quality, or deliverability of petroleum, natural gas, or other reserves
attributable to the Assets or any portion thereof, or (b) any geological,
engineering, or other interpretations or economic evaluations. EXCEPT AS
EXPRESSLY PROVIDED IN ARTICLE 4.01(F), ALL TANGIBLE PERSONAL PROPERTY,
EQUIPMENT, FIXTURES AND APPURTENANCES CONSTITUTING A PART OF THE ASSETS ARE
SOLD "AS IS, WHERE IS," AND SELLER MAKES NO, AND DISCLAIMS ANY, REPRESENTATION
OR WARRANTY, WHETHER EXPRESS OR IMPLIED, AND WHETHER BY COMMON LAW, STATUTE, OR
OTHERWISE, AS TO (I) MERCHANTABILITY, (II) FITNESS FOR ANY PARTICULAR PURPOSE,
(III) CONFORMITY TO MODELS OR SAMPLES OF MATERIALS, AND/OR (IV) CONDITION. The
Parties agree that the preceding disclaimers of warranty are "conspicuous"
disclaimers for purposes of any applicable law, rule, or order.
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14.14 Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation and in any jurisdiction shall not
affect the validity or enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the offending term or provision in
any other situation or in any other jurisdiction.
14.15 Texas Deceptive Trade Practices Act Waiver. Buyer (a)
represents and warrants to Seller that it (i) is acquiring the Assets for
commercial or business use, (ii) has assets in excess of $25,000,000 and (iii)
has knowledge and experience in financial and business matters such that enable
it to evaluate the merits and risks of the transactions contemplated by this
Agreement and is not in a significantly disparate bargaining position with
respect to Seller; and (b) hereby unconditionally and irrevocably waives any
and all rights or remedies it may have under the Deceptive Trade Practices -
Consumer Protection Act of the State of Texas, Tex. Bus. & Com. Code Section
17.41 et seq., other than any of the provisions of Section 17.555 of such Act,
if such Act would for any reason be deemed applicable to the transactions
contemplated hereby.
14.16 No Third Party Beneficiaries. Except as provided for in
Articles 7 and 8 hereof with respect to the rights of an Indemnified Party,
this Agreement shall not confer any rights or remedies upon any person other
than the Parties and their respective successors and permitted assigns, and
other persons given rights of indemnification hereunder.
14.17 Construction. The Parties have participated jointly in the
negotiating and drafting of this Agreement. In the event ambiguity or question
of intent or interpretation arises, this Agreement shall be construed as if
drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring either Party by virtue of the authorship of any
of the provisions of this Agreement. Any reference to any federal, state,
local or foreign statute or law should be deemed also to refer to all rules and
regulations promulgated thereunder, unless the contexts requires otherwise.
The word "including" shall mean including, without limitation. If the date
specified in this Agreement for giving any notice or taking any action is not a
business day (or if the period during which any notices required to be given or
any action taken expires on a date which is not a business day) then the date
for giving such notice or taking such action (and the expiration date for such
period during which notice is required to be given or action taken) shall be
the next day which is a business day.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written, but effective for all purposes as of the
Effective Date.
SELLER:
ENERVEST ACQUISITION-II LIMITED PARTNERSHIP
By: EnerVest Management Company, L.C.,
its sole general partner
By: /s/ James M. Vanderhider
-------------------------------------------
James M. Vanderhider
Senior Vice President and
Chief Financial Officer of
EnerVest Management Company, L.C.
BUYER:
HARKEN ENERGY CORPORATION
By: /s/ Larry E. Cummings
-------------------------------------------
Larry E. Cummings
Vice President
HARKEN EXPLORATION COMPANY
By: /s/ Larry E. Cummings
-------------------------------------------
Larry E. Cummings
Vice President
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<PAGE> 1
EXHIBIT 99.1
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT is made and entered into as of the
10th day of July, 1996, by and among Harken Energy Corporation, a Delaware
corporation ("HARKEN"), and EnerVest Acquisition - II Limited Partnership, a
Texas limited partnership (the "PARTNERSHIP").
RECITALS:
A. Reference is hereby made to that certain Asset Purchase and
Sale Agreement dated as of even date herewith (the "PURCHASE AGREEMENT"), by
and between Harken, Harken Exploration Company and the Partnership.
B. In order to induce the Partnership to enter into the Purchase
Agreement (and recognizing that the Partnership would not be willing to enter
into the Purchase Agreement in the absence of this Agreement), Harken has
agreed to provide the Holders (as defined herein) 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).
"COMMON STOCK" shall mean the common stock, par value $0.01 per share,
of Harken.
"DEFICIENCY SHARES" shall mean the shares of Common Stock issued to
the Partnership pursuant to Article 8.03(b) of the Purchase Agreement.
<PAGE> 2
"DEMAND REGISTRATION" shall have the meaning assigned to it in Section
3(a).
"ELIGIBLE WARRANT SHARES" shall mean those Warrant Shares which have
been issued upon exercise of the Warrants (but shall not include any Warrant
Shares which have not been so issued).
"ENCAP GROUP" shall have the meaning assigned to it in Section 3(c).
"ENERVEST" shall have the meaning assigned to it in Section 3(c).
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended, and all rules and regulations promulgated 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).
"HARKEN" shall have the meaning assigned to it in the preamble to this
Agreement.
"HARKEN INDEMNIFIED PARTIES" shall have the meaning assigned to it in
Section 7(b).
"HOLDER" shall mean any Person that holds Registrable Securities.
"HOLDER INDEMNIFIED PARTIES" shall have the meaning assigned to it in
Section 7(a).
"PARTNERSHIP" shall have the meaning assigned to it in the preamble
to this Agreement.
"PERSON" shall mean any individual, corporation, partnership, joint
venture, limited partnership, limited liability company, trust, unincorporated
organization or government or any agency or political subdivision thereof.
"PIGGYBACK EXPIRATION POINT" shall mean July 10, 2002.
"PIGGYBACK REGISTRATION" shall have the meaning assigned to it in
Section 4.
"PURCHASE AGREEMENT" shall have the meaning assigned to it in
Paragraph A of the Recitals hereto.
"RECORDS DELIVERY DATE" shall have the meaning assigned to it in the
Purchase Agreement.
"REGISTRABLE SECURITIES" shall mean the Tranche A Shares, the Tranche
B Shares, the Tranche C Shares and the Eligible Warrant Shares.
"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,
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<PAGE> 3
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.
"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,
any selling commissions and stock transfer taxes attributable to sales of
Registrable Securities and the fees and expenses of counsel for any Holder.
"TRANCHE A SHARES" shall mean (i) the shares of Common Stock issued to
the Partnership pursuant to Article 3.01(b) of the Purchase Agreement and (ii)
any securities issued or issuable with respect to the Tranche A Shares by way
of a stock dividend or stock split or in connection with a combination of
shares, recapitalization, merger, consolidation or other reorganization.
"TRANCHE B SHARES" shall mean (i) the shares of Common Stock issued to
the Partnership pursuant to Article 3.01(c) of the Purchase Agreement, (ii) any
Tranche A Shares not sold pursuant to the First Registration Statement, (iii)
any Deficiency Shares and (iv) any securities issued or issuable with respect
to the shares of Common Stock described in clauses (i) through (iii) of this
definition by way of a stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization.
"TRANCHE C SHARES" shall mean the shares of Common Stock issued
pursuant to Article 3.01(d) of the Purchase Agreement.
"WARRANT HOLDER" shall mean (i) any holder of a Warrant and (ii) any
holder of Eligible Warrant Shares.
"WARRANTS" shall mean the Warrants to buy Common Stock issued pursuant
to Article 3.02 of the Purchase Agreement.
"WARRANT SHARES" shall mean (i) the shares of Common Stock purchasable
under the terms of the Warrants and (ii) any securities issued or issuable with
respect to the Warrant Shares by way of a stock dividend or stock split or in
connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization.
(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
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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 REGISTRATION - TRANCHE A AND TRANCHE B SHARES.
(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 90 days after the Records Delivery 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 the Holders of the Tranche A Shares. Harken shall use its
reasonable 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 180 days
(the "FIRST SHELF LIFE").
(b) On or before 90 days subsequent to the expiration of the First
Shelf Life, 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 the Holders of the Tranche B Shares. Harken shall use its
reasonable 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 the sum of A plus B, where "A" is 180 days and where "B" is the number of
additional days that elapse before all Defects and Environmental Defects (as
such terms are defined in the Purchase Agreement) affecting the Tranche B
Holdback Shares (as such term is defined in the Purchase Agreement) are finally
resolved under the Purchase Agreement (the "SECOND SHELF LIFE").
SECTION 3. DEMAND REGISTRATION--TRANCHE C SHARES.
(a) Provided Tranche C Shares are issued pursuant to the Purchase
Agreement and subject to subsections (b) and (c) below of this Section 3 and
the other terms and provisions hereof, any Holder may request at any time a
registration by Harken under the Securities Act of all or a part of its Tranche
C Shares (a "DEMAND REGISTRATION").
(b) Notwithstanding subsection (a) above or anything else herein
to the contrary, Harken shall not be obligated to effect more than one
registration pursuant to this Section 3; provided, however, that any
registration requested pursuant to this Section 3 will not be deemed to have
been effected unless it has become effective and remained effective no less
than 180 days; provided, further, that any such registration which does not
become effective after Harken has filed a registration statement in accordance
with the provisions of this Section 3 solely by reason of the refusal to
proceed of the Holder or Holders that have requested the Demand Registration
pursuant to subsection (a) above, including failure to comply with the
provisions of this Agreement (other than any refusal to proceed based upon the
advice of counsel to such Holder or Holders that the registration statement, or
the prospectus contained therein, contains an untrue statement of a material
fact or omits to state a material fact required to be stated therein or
necessary to make
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<PAGE> 5
the statements therein not misleading in the light of the circumstances then
existing, or that such registration statement or such prospectus, or the
distribution contemplated thereby, otherwise violates or would, if such
distribution using such prospectus took place, violate any applicable state or
federal securities law) shall be deemed to have been effected by Harken at the
request of such Holder or Holders.
(c) Notwithstanding subsection (a) above or anything else herein
to the contrary, it is hereby agreed that (i) only the Partnership, EnerVest
(as defined below) or the EnCap Group (as defined below) may make a Demand
Registration pursuant to this Section 3 and (ii) the Demand Registration must
cover no less than 50% of the Tranche C Shares. In the event a Demand
Registration is made pursuant to this Section 3, Harken will (x) promptly give
notice of the proposed registration to any other Holder, if any, of Tranche C
Shares and (y) use its reasonable best efforts to effect the registration of
the Tranche C Shares specified in the request, together with the Tranche C
Shares of any other Holder joining in such request as are specified in a
written request received by Harken within 20 days after receipt of the notice
referred to in clause (x) above. As used in this Section 3(c), "ENERVEST"
shall mean Enervest Management Company, L.C., a Texas limited liability
company, or any affiliate thereof. As used in this Section 3(c), the "ENCAP
GROUP" shall mean (A) EnCap Equity 1994 Limited Partnership, a Texas limited
partnership, (B) the partners of EnCap Equity 1994 Limited Partnership and (C)
ECIC Corporation, a Texas corporation.
SECTION 4. PIGGYBACK REGISTRATIONS--WARRANT SHARES AND TRANCHE C
SHARES. If, prior to the Piggyback Expiration Point, Harken proposes to
register any of its securities (including securities to be registered under
Section 2) under the Securities Act other than (i) under employee compensation
or benefit programs or (ii) an exchange offer or an offering of securities
solely to the existing stockholders or employees of Harken, and the
registration form to be used may be used for the registration of Warrant Shares
or Tranche C Shares, Harken will give prompt written notice to all Warrant
Holders and Holders of Tranche C Shares of its intention to effect such a
registration and will include in such registration all Eligible Warrant Shares
and Tranche C Shares with respect to which Harken has received written requests
for inclusion therein within 15 days after the receipt of Harken's notice (a
"PIGGYBACK REGISTRATION"). Harken shall use its reasonable best efforts to
cause the managing underwriters of a proposed underwritten offering to permit
the Eligible Warrant Shares and the Tranche C Shares requested to be included
in the registration statement (or registration statements) for such offering to
be included therein on the same terms and conditions as any similar securities
of Harken included therein. Notwithstanding the foregoing, if Harken gives
notice of such a proposed registration, the total number of Eligible Warrant
Shares and Tranche C Shares which shall be included in such registration shall
be reduced pro rata to such number, if any, as in the reasonable opinion of the
managing underwriters of such offering would not adversely affect the
marketability or offering price of all of the securities proposed to be offered
by Harken in such offering; provided however, that (x) if such Piggyback
Registration is incident to a primary registration on behalf of Harken, and to
the extent not prohibited by any registration rights agreements existing as of
the date hereof, the securities to be included in the registration statement
(or registration statements) for any person other than the Holders and Harken
shall be first reduced prior to any such pro rata reduction, and (y) if such
Piggyback Registration is incident to a secondary registration on behalf of
holders of securities of Harken and to the extent not prohibited by any
registration rights agreements existing as of the date hereof, the securities
to
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<PAGE> 6
be included in the registration statement (or registration statements) for any
person not exercising "demand" registration rights other than the Holders
shall be first reduced prior to any such pro rata reduction.
SECTION 5. REGISTRATION PROCEDURES.
(a) In connection with the First Registration Statement, the
Second Registration Statement and whenever the holders of Registrable
Securities have requested that any Registrable Securities be registered
pursuant to Section 3 or Section 4, Harken will use its reasonable 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:
(i) prepare and file with the Commission a registration
statement on the appropriate form with respect to such Registrable
Securities and use its reasonable 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 any holder of Registrable Securities covered
by such registration statement);
(ii) 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 the sellers thereof set forth in
such registration statement;
(iii) furnish to each seller of Registrable Securities 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 such seller may reasonably request in
order to facilitate the disposition of the Registrable Securities
owned by such seller;
(iv) use its reasonable best efforts to register or
qualify such Registrable Securities under such other securities or
blue sky laws of such jurisdictions within the United States as any
seller reasonably requests and do any and all other acts and things
which may be reasonably necessary or advisable to enable such seller
to consummate the disposition in such jurisdictions of the Registrable
Securities owned by such seller (provided that Harken will not be
required to qualify generally to do business or subject itself to any
general service of process in any jurisdiction where it is otherwise
not then so subject);
(v) notify each seller of such Registrable Securities, 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
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<PAGE> 7
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 any such seller, Harken
will prepare a supplement or amendment to such prospectus so that 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;
(vi) use its reasonable 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;
(vii) enter into such customary agreements (including,
without limitation, underwriting agreements in customary form,
substance, and scope) and take all such other actions as the holders
of a majority of the Registrable Securities being sold or the
underwriters, if any, reasonably request in order to expedite or
facilitate the disposition of such Registrable Securities;
(viii) otherwise use its reasonable 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;
(ix) in the event of the issuance of any stop order
suspending the effectiveness of a registration statement, or of any
order suspending or preventing the use of any related prospectus or
suspending the disqualification of any common stock included in such
registration statement for sale in any jurisdiction, Harken will use
its reasonable best efforts promptly to obtain the withdrawal of such
order; and
(x) use its reasonable 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 the Sellers thereof to
consummate the disposition of such Registrable Securities.
(b) In connection with the First Registration Statement, the
Second Registration Statement and whenever the holders of Registrable
Securities have requested that any Registrable Securities be registered
pursuant to Section 3 or Section 4, the Partnership agrees, and each holder of
Registrable Securities (including Registrable Securities in any registration
statement filed pursuant to this Agreement) will be deemed to have agreed as
follows:
(i) upon receipt of any notice from Harken of the
happening of any event of the kind described in Section 5(a)(v), the
holders of Registrable Securities will forthwith discontinue
disposition of any Registrable Securities until the holders of
Registrable Securities receive copies of the supplemented or amended
prospectus contemplated by Section 5(a)(v), or until they are advised
in writing by Harken that the use of the applicable
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<PAGE> 8
prospectus may be resumed, and they have received copies of any
additional or supplemental filings that are incorporated or deemed to
be incorporated by reference in such prospectus (it being the
agreement of the parties hereto, however, that the obligation of
Harken with respect to maintaining the subject registration statement
current and effective shall be extended by a period of days equal to
the period the holders of Registrable Securities are required by this
Section 5(b)(i) to discontinue disposition of such Registrable
Securities); and
(ii) furnish to Harken such information regarding each
holder, the Registrable Securities held by such holder and the
intended method of disposition thereof as Harken shall reasonably
request and as shall be reasonably required in connection with the
preparation of the applicable registration statement and other actions
taken by Harken under this Agreement, and it shall be a condition
precedent to the obligation of Harken to take any action pursuant to
this Agreement in respect of the Registrable Securities that such
information has been furnished to Harken by the holders of Registrable
Securities.
SECTION 6. EXPENSES. Harken shall pay all Registration Expenses
in connection with each registration effected pursuant to Sections 2, 3 and 4
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 incurred in connection with a
registration effected pursuant to the terms hereof shall be borne by the seller
or sellers of Registrable Securities pro rata based upon the number of
Registrable Securities included in such registration.
SECTION 7. INDEMNIFICATION.
(a) Harken shall indemnify and hold harmless, with respect to any
registration statement filed by it, to the full extent permitted by law, each
holder of Registrable Securities covered by such registration statement, and
each other Person, if any, who controls such holder within the meaning of
Section 15 of the Securities Act (collectively, "HOLDER INDEMNIFIED PARTIES")
against all losses, claims, damages, liabilities and expenses, joint or several
to which any such Holder Indemnified Party may become subject under the
Securities Act, the Exchange Act, at common law or otherwise, insofar as such
losses, claims, damages, 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, 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 by Harken of any federal, state or common law rule or
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<PAGE> 9
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 Holder 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, liability, expense, action or proceeding;
provided, however, that Harken shall not be liable to any such Holder Indemni-
fied Party in any such case to the extent, that any such loss, claim, damage,
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 Holder 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 Holder Indemnified Parties and shall survive the transfer of such
securities by such Holder Indemnified Parties.
(b) Each holder of Registrable Securities participating in any
registration hereunder shall severally (and not jointly or jointly and
severally) 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, 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, 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 holder's 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 such holder for use in the
preparation thereof, or (iii) any violation by such holder of any federal,
state or common law rule or regulation applicable to such holder 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 such
securities by such holder.
(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 threat thereof made in writing with respect
to which a claim for indemnification may be made pursuant to this Section 7,
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
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<PAGE> 10
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 7 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 the indemnifying party has failed to assume the
defense of such claim or action or to employ counsel reasonably satisfactory to
such indemnified party. 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. 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 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 7.
(d) Indemnification similar to that specified in the preceding
subsections of this Section 7 (with appropriate modifications) shall be given
by Harken and each seller of Registrable Securities 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 7 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, 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 statements,
omissions, actions or inactions which resulted in such losses, claims, damages,
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, 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
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<PAGE> 11
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 Section 7, 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 securities by any such party.
(f) In connection with any underwritten offering contemplated by
this Agreement which includes Registrable Securities, Harken and all sellers
of Registrable Securities included in any registration statement shall agree to
customary provisions for indemnification and contribution (consistent with the
other provisions of this Section 7) in respect of losses, claims, damages,
liabilities and expenses of the underwriters of such offering.
SECTION 8. SELECTION OF UNDERWRITERS. If any registration
effected pursuant to Section 2 or Section 3 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, that such investment bankers and managers must be reasonably
satisfactory to the holders of a majority of the Registrable Securities to be
registered in such registration.
SECTION 9. RULE 144. Harken covenants to each Holder that, to
the extent that Harken shall be required to do so under the Exchange Act,
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
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144 adopted by the Commission under the Securities Act) and the rules and
regulations adopted by the Commission thereunder, and (b) take such further
action as any Holder may reasonably request, all to the extent required from
time to time to enable such Holder 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 any Holder, Harken shall deliver to such
Holder a written statement as to whether it has complied with such
requirements.
SECTION 10. MISCELLANEOUS.
(a) From and after the date of this Agreement, Harken will not,
without the prior written consent of the holders of a majority of the number of
Registrable Securities then outstanding, enter into any agreement with respect
to its securities which is inconsistent with or violates the rights granted to
the holders of Registrable Securities in this Agreement.
(b) The Partnership agrees, and each other holder of Registrable
Securities (including Registrable Securities in any registration statement
filed pursuant to this Agreement) will be deemed to have agreed, as follows:
(i) if any Registrable Securities are being registered in
any registration pursuant to this Agreement, the holder thereof 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; and
(ii) at the end of any period during which Harken is
obligated to keep a registration statement current and effective as
described herein, the holders of Registrable Securities included in
the registration statement shall discontinue sales thereof pursuant to
such registration statement.
(c) 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.
(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 expressed or
not; provided, that the rights and benefits accruing to, and the obligations
of, a holder of Registrable Securities shall not be assignable in connection
with, and shall not attach to, any transfer of Registrable Securities to any
person other than the Partnership, EnerVest and the persons comprising the
EnCap Group.
(e) 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. There are no restrictions,
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promises, warranties or undertakings, other than those set forth or referred to
herein, with respect to the registration rights granted by Harken to the
holders of the Registrable Securities. 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 when delivered personally or
sent by reputable express courier service (charges prepaid), or mailed to the
recipient by certified or registered mail, return receipt requested and postage
prepaid, or sent by telefax, 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 the Partnership:
EnerVest Acquisition - II Limited Partnership
c/o Enervest Management Company
First City Tower
1001 Fannin Street
Suite 1111
Houston, Texas 77002-6708
Attention: John B. Walker, President
with a copy to:
EnCap Investments L.C.
1100 Louisiana
Suite 3150
Houston, Texas 77002
Attention: Gary R. Petersen,
Managing Director
(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;
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provided, however, that if any such provision may be made enforceable by
limitation thereof, then 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. Each counterpart may
consist of a number of copies hereof each signed by less than all, but together
signed by all, the parties hereto.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
HARKEN ENERGY CORPORATION
By: /s/ Larry E. Cummings
-----------------------------------------
Name: Larry E. Cummings
Title: Vice President and Secretary
ENERVEST ACQUISITION - II LIMITED PARTNERSHIP
By: Enervest Management Company, L.C.
By: /s/ James M. Vanderhider
-----------------------------------------
Name: James M. Vanderhider
Title: Senior Vice President and
Chief Financial Officer
-15-
