<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
-------- --------
COMMISSION FILE NUMBER 0-9207
HARKEN ENERGY CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 95-2841597
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5605 N. MACARTHUR BLVD., SUITE 400 75038
IRVING, TEXAS (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code (972) 753-6900
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES [X] NO [ ]
The number of shares of Common Stock, par value $0.01 per share,
outstanding as of August 3, 1998 was 133,408,830.
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<PAGE> 2
HARKEN ENERGY CORPORATION
INDEX TO QUARTERLY REPORT
JUNE 30, 1998
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
Consolidated Condensed Balance Sheets.............................................. 4
Consolidated Condensed Statements of Operations.................................... 5
Consolidated Condensed Statements of Stockholders' Equity.......................... 6
Consolidated Condensed Statements of Cash Flow..................................... 7
Notes to Consolidated Condensed Financial Statements............................... 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................................... 21
PART II. OTHER INFORMATION
Notes Concerning Other Information................................................. 30
SIGNATURES ................................................................................... 33
</TABLE>
2
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PART I - FINANCIAL INFORMATION
3
<PAGE> 4
ITEM 1. CONDENSED FINANCIAL STATEMENTS
HARKEN ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
--------------- ---------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and temporary investments $ 85,740,000 $ 187,525,000
Cash in segregated accounts 37,771,000 --
Accounts and notes receivable, net 2,175,000 4,406,000
Related party notes receivable 295,000 355,000
Prepaid expenses and other current assets 411,000 538,000
--------------- ---------------
Total Current Assets 126,392,000 192,824,000
Property and Equipment, net 106,798,000 164,408,000
Other Assets, net 5,323,000 8,337,000
--------------- ---------------
$ 238,513,000 $ 365,569,000
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Trade payables $ 6,268,000 $ 6,678,000
Accrued liabilities and other 8,668,000 6,663,000
Revenues and royalties payable 816,000 664,000
--------------- ---------------
Total Current Liabilities 15,752,000 14,005,000
European Convertible Notes Payable 39,880,000 85,000,000
Deferred Revenue 25,000,000 33,824,000
Stockholders' Equity:
Series F Preferred Stock, $1.00 par value; 15,000 shares
authorized and issued as of June 30, 1998 -- 15,000
Common stock, $0.01 par value; 225,000,000 shares authorized;
121,811,534 and 133,408,830 shares issued, respectively 1,218,000 1,334,000
Additional paid-in capital 248,770,000 323,140,000
Retained deficit and other comprehensive income (92,107,000) (91,749,000)
--------------- ---------------
Total Stockholders' Equity 157,881,000 232,740,000
--------------- ---------------
$ 238,513,000 $ 365,569,000
=============== ===============
</TABLE>
The accompanying Notes to Consolidated Condensed Financial Statements
are an integral part of these Statements.
4
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HARKEN ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------------- ---------------------------------
1997 1998 1997 1998
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenues:
Oil and gas operations $ 3,164,000 $ 2,634,000 $ 6,844,000 $ 5,334,000
Interest and other income 863,000 2,262,000 1,434,000 3,924,000
-------------- -------------- -------------- --------------
4,027,000 4,896,000 8,278,000 9,258,000
-------------- -------------- -------------- --------------
Costs and Expenses:
Oil and gas operating expenses 1,247,000 1,346,000 2,486,000 2,728,000
General and administrative expenses, net 1,166,000 1,766,000 2,500,000 3,524,000
Depreciation and amortization 1,239,000 1,286,000 2,330,000 2,416,000
Interest expense and other, net 329,000 208,000 848,000 216,000
-------------- -------------- -------------- --------------
3,981,000 4,606,000 8,164,000 8,884,000
-------------- -------------- -------------- --------------
Income before income taxes 46,000 290,000 114,000 374,000
Income tax expense -- 46,000 -- 46,000
-------------- -------------- -------------- --------------
Net income $ 46,000 $ 244,000 $ 114,000 $ 328,000
============== ============== ============== ==============
Accretion related to preferred stock -- (169,000) -- (169,000)
-------------- -------------- -------------- --------------
Net income attributed to common stock $ 46,000 $ 75,000 $ 114,000 $ 159,000
============== ============== ============== ==============
Income per common share:
Basic income per common share $ 0.00 $ 0.00 $ 0.00 $ 0.00
============== ============== ============== ==============
Weighted average shares outstanding 104,638,246 130,452,657 100,640,530 126,394,977
============== ============== ============== ==============
Diluted income per common share $ 0.00 $ 0.00 $ 0.00 $ 0.00
============== ============== ============== ==============
Weighted average shares outstanding 107,666,856 133,103,990 103,668,547 129,231,422
============== ============== ============== ==============
</TABLE>
The accompanying Notes to Consolidated Financial Statements are
an integral part of these Statements.
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HARKEN ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
ADDITIONAL
PREFERRED COMMON PAID-IN TREASURY RETAINED
STOCK STOCK CAPITAL STOCK DEFICIT
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 $ -- $ 939,000 $ 171,191,000 $ (1,390,000) $ (92,386,000)
Issuance of common stock, net -- 77,000 20,208,000 -- --
Conversions of European notes
payable -- 202,000 57,371,000 1,390,000 --
Comprehensive income:
Equity adjustment from
foreign currency translation -- -- -- -- --
Net income -- -- -- -- 189,000
Total comprehensive income
------------- ------------- ------------- ------------- -------------
Balance, December 31, 1997 -- 1,218,000 248,770,000 -- (92,197,000)
Issuance of common stock, net -- 37,000 22,597,000 -- --
Issuance of preferred stock 15,000 -- 14,438,000 -- --
Conversions of European notes
payable -- 79,000 37,335,000 -- --
Comprehensive income:
Equity adjustment from foreign
currency translation -- -- -- -- --
Net income -- -- -- -- 328,000
Total comprehensive income
------------- ------------- ------------- ------------- -------------
Balance, June 30, 1998 $ 15,000 $ 1,334,000 $ 323,140,000 $ -- $ (91,869,000)
============= ============= ============= ============= =============
<CAPTION>
ACCUMULATED
OTHER
COMPREHENSIVE
INCOME TOTAL
------------- -------------
<S> <C> <C>
Balance, December 31, 1996 $ (15,000) $ 78,339,000
Issuance of common stock, net -- 20,285,000
Conversions of European notes
payable -- 58,963,000
Comprehensive income:
Equity adjustment from
foreign currency translation 105,000
Net income --
Total comprehensive income 294,000
------------- -------------
Balance, December 31, 1997 90,000 157,881,000
Issuance of common stock, net -- 22,634,000
Issuance of preferred stock -- 14,453,000
Conversions of European notes
payable -- 37,414,000
Comprehensive income:
Equity adjustment from foreign
currency translation 30,000
Net income --
Total comprehensive income 358,000
------------- -------------
Balance, June 30, 1998 $ 120,000 $ 232,740,000
============= =============
</TABLE>
The accompanying Notes to Consolidated Financial Statements are
an integral part of these Statements.
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HARKEN ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------------------------
1997 1998
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 114,000 $ 328,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,330,000 2,416,000
Amortization of European note issuance costs 246,000 33,000
Provision for doubtful accounts -- 15,000
Change in assets and liabilities:
Decrease (increase) in accounts receivable 112,000 (164,000)
Increase (decrease) in trade payables and other (223,000) (203,000)
--------------- ---------------
Net cash provided by operating activities 2,579,000 2,425,000
--------------- ---------------
Cash flows from investing activities:
Proceeds from sales of assets 6,000 --
Investor advances, net 3,779,000 10,832,000
Capital expenditures, net (11,143,000) (46,396,000)
--------------- ---------------
Net cash used in investing activities (7,358,000) (35,564,000)
--------------- ---------------
Cash flows from financing activities:
Transfer from segregated account cash 15,302,000 38,647,000
Proceeds from issuances of common stock,
net of issuance costs 2,224,000 2,075,000
Proceeds from issuance of preferred stock, net -- 14,473,000
Proceeds from issuance of European notes, net -- 81,800,000
Investment in segregated account cash, net 22,000 (2,071,000)
--------------- ---------------
Net cash provided by financing activities 17,548,000 134,924,000
--------------- ---------------
Net increase in cash and temporary investments 12,769,000 101,785,000
Cash and temporary investments at beginning of period 9,855,000 85,740,000
--------------- ---------------
Cash and temporary investments at end of period $ 22,624,000 $ 187,525,000
=============== ===============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 2,000 $ 5,000
Income taxes -- --
</TABLE>
The accompanying Notes to Consolidated Condensed Financial Statements
are an integral part of these Statements.
7
<PAGE> 8
HARKEN ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1998
(Unaudited)
(1) MANAGEMENT'S REPRESENTATIONS
In the opinion of Harken Energy Corporation ("Harken"), the accompanying
unaudited consolidated condensed financial statements contain all adjustments
necessary to present fairly its financial position as of December 31, 1997 and
June 30, 1998 and the results of its operations and changes in its cash flows
for all periods presented as of June 30, 1997 and 1998. These adjustments
represent normal recurring items.
The accompanying unaudited condensed financial statements have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission ("SEC"). Certain information and note disclosures normally included
in annual financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to these rules and
regulations, although Harken believes that the disclosures made are adequate to
make the information presented not misleading. It is suggested that these
condensed financial statements be read in conjunction with the financial
statements and the notes thereto included in Harken's Form 10-K for the year
ended December 31, 1997.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
period. Actual results could differ from these estimates.
The results of operations for the six month period ended June 30, 1998 are
not necessarily indicative of the results to be expected for the full year.
(2) ACQUISITIONS
On August 29, 1997, Harken, along with Harken Exploration Company, a
wholly-owned subsidiary, purchased working interests in oil and gas properties
located in the panhandle region of Texas (the "Cal-T Properties"). The purchase
price of approximately $3,416,000 consisted primarily of 565,000 shares of
Harken common stock.
On May 19, 1998, Harken, along with Harken Exploration Company, a
wholly-owned subsidiary, purchased working interests in oil and gas properties
located in southern Louisiana (the "Bargo Properties") from St. Martinville
Partners, Ltd. and Bargo Energy Company (collectively "the Sellers"). The
purchase price consisted of 2,716,483 shares of Harken common stock, having an
approximate value of $16,250,000, which were issuable at closing. According to
the Asset Purchase and Sale Agreement, additional consideration having a value
of $4,000,000 less certain adjustments, is payable by Harken to the Sellers if
the Sellers are able to obtain new or renewal leases for certain of the Bargo
Properties. Such adjustments may include unresolved title issues on certain
leases and an allowance of up to a maximum of $750,000 for environmental and
regulatory compliance. The additional consideration is to be paid 120 days after
closing and is payable at Harken's option in the form of additional shares of
Harken common stock or cash. See Note 11--Related Party Transactions for a
discussion of the relationship between Harken and the Sellers.
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(3) MARKETABLE SECURITIES
Included within cash and temporary investments and cash in segregated
accounts at December 31, 1997 and June 30, 1998 are certain investments in
marketable debt securities having maturities of sixty days or less. Harken
management determines the appropriate classification of such debt securities at
the time of purchase and reevaluates such designation as of each balance sheet
date. Such debt securities are classified as held-to-maturity as Harken has the
positive intent and ability to hold the securities to maturity. Held-to-maturity
securities are stated at amortized cost, adjusted for amortization of premiums
and accretion of discounts to maturity. Such amortization is included in
interest and other income. Harken holds no securities which are classified as
available-for-sale or trading.
The following is a summary of held-to-maturity securities:
<TABLE>
<CAPTION>
December 31, June 30,
1997 1998
--------------- ---------------
<S> <C> <C>
Included in cash and temporary investments:
Cost $ 50,906,000 $ 149,946,000
Estimated fair value $ 50,973,000 $ 150,313,000
Included in segregated accounts:
Cost $ 37,184,000 $ --
Estimated fair value $ 37,242,000 $ --
</TABLE>
Harken includes in cash and temporary investments and cash in segregated
accounts other cash and cash equivalent amounts in addition to the above
marketable debt securities.
(4) PROPERTY AND EQUIPMENT
A summary of property and equipment follows:
<TABLE>
<CAPTION>
December 31, June 30,
1997 1998
--------------- ---------------
<S> <C> <C>
Unevaluated oil and gas properties:
Unevaluated international properties $ 21,413,000 $ 25,312,000
Unevaluated domestic properties 5,780,000 14,496,000
Evaluated oil and gas properties:
Evaluated international properties 22,754,000 55,460,000
Evaluated domestic properties 67,431,000 81,109,000
Gas plant and other property 8,325,000 9,363,000
Less accumulated depreciation and amortization (18,905,000) (21,332,000)
--------------- ---------------
$ 106,798,000 $ 164,408,000
=============== ===============
</TABLE>
9
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(5) COLOMBIAN OPERATIONS
Harken's Colombian operations are conducted through Harken de Colombia,
Ltd., a wholly-owned subsidiary of Harken, which held six exclusive Colombian
Association Contracts with Empresa Colombiana de Petroleos ("Ecopetrol") as of
June 30, 1998. These Association Contracts include the Alcaravan Contract,
awarded in 1992, the Bocachico Contract, awarded in 1994, the Cambulos Contract,
awarded in 1995, the Bolivar Contract, awarded in 1996, the Miradores Contract,
awarded in December 1997, and the Los Olmos Contract, awarded in March 1998. The
Alcaravan and Miradores Contracts currently cover a combined area of
approximately 242,000 acres in the Llanos Basin of Eastern Colombia. The
Bocachico and Cambulos Contracts cover a combined area of approximately 492,000
acres in the Middle Magdalena Valley of Central Colombia and the Bolivar
Contract covers an area of approximately 250,000 acres in the Northern Middle
Magdalena Valley of Central Colombia. The Los Olmos Contract covers
approximately 374,000 acres in the Lower Magdalena Valley of Northern Colombia.
Terms of each of the Association Contracts commit Harken to perform certain
activities in accordance with a prescribed timetable. As of August 1, 1998,
Harken was in compliance with the requirements of each of the Association
Contracts, as amended.
Under the terms of the Association Contracts, if, during the first six
years of each contract, Harken discovers one or more fields of producing oil or
gas in quantities that are economically exploitable and Ecopetrol agrees that
such field is economically exploitable (a "commercial discovery"), the term of
that contract will be extended for a period of 22 years from the date of such
commercial discovery. Upon discovery of a field capable of commercial
production, and upon commencement of production from that commercial field,
Ecopetrol will begin to reimburse Harken for 50% of Harken's successful well
costs expended up to the point of declaration of a commercial discovery plus,
in the case of the Cambulos, Bolivar, Miradores and Los Olmos Contracts, 50% of
all seismic and dry well costs incurred prior to the point of declaration of a
commercial discovery. Production from a commercial discovery will be allocated
as follows: Ecopetrol, on behalf of the Colombian government, will receive a
20% royalty interest in all production, and all production (after royalty
payments) will be allocated 50% to Ecopetrol and 50% to Harken until cumulative
production from all fields (or the particular productive field under certain of
the Association Contracts) in the Association Contract acreage reaches 60
million barrels of oil. As cumulative production increases in excess of 60
million barrels of oil, Ecopetrol's share of production will increase
progressively (to a maximum of 75% under certain of the Association Contracts)
with a corresponding decrease in Harken's share of production. After a
declaration of a commercial discovery, Harken and Ecopetrol will be responsible
for all future development costs and operating expenses in direct proportion to
their interest in production. For any fields that are not declared by Ecopetrol
to be a commercial discovery, Harken would retain the rights to all production
after royalty.
Harken has entered into certain development finance and operating
agreements with outside parties whereby such parties have received a beneficial
interest in certain of Harken's Colombian operations. For further discussion,
see Note 6 -- Development Finance and Operating Agreements.
(6) DEVELOPMENT FINANCE AND OPERATING AGREEMENTS
Rio Negro Development Finance Agreement -- In October 1995, Harken entered
into a Development Finance Agreement (the "Rio Negro Development Finance
Agreement") with Arbco Associates L.P., Offense Group Associates L.P., Kayne
Anderson Nontraditional Investments L.P. and Opportunity Associates L.P.
(collectively, the "Rio Negro Investors"), pursuant to which the Rio Negro
Investors
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provided $3,500,000 to Harken to finance drilling on the Rio Negro prospect in
the Bocachico Contract area in exchange for the right to receive future payments
from Harken equal to 40% of the net profits that Harken de Colombia, Ltd. may
derive from the sale of oil and gas produced from the Rio Negro prospect (the
"Rio Negro Participation").
In March 1997, Harken and the Rio Negro Investors entered into a Conversion
Agreement whereby Harken purchased 75% of the Rio Negro Participation in
exchange for 900,000 restricted shares of Harken common stock. From the
remaining 25% of the Rio Negro Participation retained, the Rio Negro Investors
have the right to receive 10% of the net profits that Harken de Colombia, Ltd.
may derive from the sale of oil and gas produced from the Rio Negro prospect.
Palo Blanco Development Finance Agreements -- In June 1996, Harken, along
with Harken de Colombia, Ltd., entered into separate Development Finance
Agreements with two investors. Under the terms of the agreements, the two
investors provided an aggregate of $2,500,000 to finance the drilling of a well
on the Palo Blanco prospect in the Alcaravan Association Contract area. In
return for the $2,500,000, the investors were initially granted a beneficial
interest in 40% of the net profits from the Palo Blanco prospect which might
have been received by Harken de Colombia, Ltd. In 1996, the investors exercised
their rights under the agreement to convert one-half of their beneficial
interest into 599,988 shares of restricted Harken common stock. During the first
quarter of 1997, the investors exercised their right to convert the remaining
portion of their beneficial interest into an additional 599,988 shares of
restricted Harken common stock.
Rochester Agreement -- Harken de Colombia, Ltd. has entered into an
operating agreement (the "Rochester Agreement") with Rochester Energy
Corporation ("Rochester", a Canadian corporation) pursuant to which Rochester
has paid 33 1/3% of the aggregate costs of the Estero #1 well and related
production facilities on the Palo Blanco prospect, 25% of the aggregate costs
related to the Estero #3 well, and 25% of the aggregate costs of the initial
well drilled on the Anteojos prospect, the Canacabare #1, all of which are
located within the Alcaravan Contract area, along with 25% of the aggregate
costs related to the Miradores Association Contract. In exchange, Rochester
acquired a beneficial interest equal to 25% of the interest held by Harken de
Colombia, Ltd. in the Palo Blanco and Anteojos prospect operations.
Parkcrest Financing Agreement -- Harken de Colombia, Ltd. has entered into
a financing agreement (the "Parkcrest Financing Agreement") with Parkcrest
Explorations, Ltd. ("Parkcrest", a Canadian corporation) pursuant to which
Parkcrest has paid 33 1/3% of the aggregate costs of the Estero #1 well and
related production facilities on the Palo Blanco prospect, 33 1/3% of the
aggregate costs of the initial well to be drilled on the Anteojos prospect, the
Canacabare #1, and 25% of the aggregate costs related to the Estero #3 well, all
of which are located within the Alcaravan Contract area. In addition, Parkcrest
will pay 33 1/3% of the aggregate costs of the initial well to be drilled under
the Miradores Association Contract. Parkcrest is also responsible for their
contracted percentage share of costs related to seismic on the Alcaravan and
Miradores Contract areas. In exchange, Parkcrest, upon its full performance,
will acquire a beneficial interest equal to 25% of the interest held by Harken
de Colombia, Ltd. in these prospects.
In April 1998, Harken and Parkcrest entered into a Loan and Security
Agreement (the "Parkcrest Loan Agreement") whereby Harken agreed to provide up
to $2,600,000 to Parkcrest to be used as needed by Parkcrest to finance its
share of costs under the Parkcrest Financing Agreement. Under the terms of the
Parkcrest Loan Agreement, any outstanding loans bear interest at 6% per annum in
addition to a monthly management fee payable to Harken of $37,500 per month. Any
outstanding balance pursuant to the Parkcrest Loan Agreement is due and payable
by Parkcrest on November 30, 1998 and is secured by 50% of Parkcrest's
beneficial interest in the Palo Blanco prospect. As of June 30, 1998, Parkcrest
had borrowed
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approximately $2,130,000 pursuant to the Parkcrest Loan Agreement, and such
amount is included in accounts and notes receivable in the accompanying balance
sheet.
EnCap Development Finance Agreement -- In October 1997, Harken entered into
a Development Finance Agreement (the "EnCap Development Finance Agreement") with
EnCap Energy Capital Fund III, L.P., EnCap Energy Capital Fund III-B, L.P., BOCP
Energy Partners, L.P. and Energy Capital Investment Company PLC (collectively
the "EnCap Investors"), pursuant to which the EnCap Investors provided $25
million (the "Payment Amount"), less a 2% investment banking fee, to Harken to
finance the planned drilling of the initial wells on three unexplored oil and
gas prospects in the Middle Magdalena Basin of Colombia. As part of the
transaction, Harken issued 150,000 shares of Harken common stock to the EnCap
Investors. The three well exploratory program contemplates the drilling of one
prospect on Harken's Bocachico Contract area and the drilling of two prospects
on Harken's Cambulos Contract area, including the Islero #1 well which is
scheduled to be spudded in August 1998. In exchange, the EnCap Investors
received the right to receive future payments from Harken equal to 5% of the net
profits that Harken de Colombia, Ltd. may derive from the sale of oil and gas
produced from each of the three prospects if the planned drilling on the
prospect is successful (the "EnCap Participation"). Pursuant to the EnCap
Development Finance Agreement, Harken is obligated to drill each of the three
wells prior to October 2000.
Pursuant to the EnCap Development Finance Agreement, the EnCap Investors
have the right, for a period of two years beginning in October 1998, to convert
all or part of the EnCap Participation into shares of Harken common stock. The
number of shares of Harken common stock to be issued upon conversion of the
EnCap Participation will be equal to the quotient of (i) the Payment Amount
(less any distributions made in respect of the EnCap Participation) plus an
amount equal to 15% interest per annum on the net Payment Amount compounded
monthly (the "Invested Amount"), divided by (ii) the market price of Harken
common stock at the time of conversion. During the same two year period, Harken
also has the right to convert the EnCap Participation into shares of Harken
common stock with the number of shares of Harken common stock to be issued to be
equal to the quotient of (i) the Payment Amount (less any distribution made in
respect of the EnCap Participation) plus an amount equal to 25% interest per
annum on the net Payment Amount compounded monthly, divided by (ii) the market
price of Harken common stock at the time of conversion. Harken can also elect to
pay cash upon any conversion of the EnCap Participation in lieu of issuing
Harken common stock. The EnCap Development Finance Agreement also provides for
additional shares of Harken common stock to be issued by Harken in the event of
a conversion to the extent that the EnCap Investors do not, under certain
circumstances, realize the Invested Amount from the sale of shares of Harken
common stock issued at the conversion. See Note 11 -- Related Party Transactions
for a discussion of the relationship between Harken and the EnCap Investors.
European Development Finance Agreements -- In December 1997, Harken entered
into a Development Finance Agreement and other related agreements (the "European
Development Finance Agreement") whereby Sidro S.A., Lambertine Holdings, Ltd.
and Rauscher Pierce and Clark (collectively the "European Investors") purchased
all of the outstanding common stock of Harken Capital Corporation, ("HCC", a
newly-formed U.S. corporation) for $7 million. Pursuant to the European
Development Finance Agreement, HCC then provided the $7 million to Harken in
January 1998 to finance a portion of the cost of the three-well exploratory
program discussed above pursuant to the EnCap Development Finance Agreement. In
exchange, HCC received the right to receive future payments from Harken equal to
1.4% of the net profits that Harken de Colombia, Ltd. may derive from the sale
of oil and gas produced from each of the three prospects if the planned drilling
on the prospect is successful. Beginning in December 1998, the European
Investors have the right to convert their shares of HCC into shares of Harken
common stock with terms substantially identical to the EnCap Development Finance
Agreement. As part of the transaction, Harken
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<PAGE> 13
issued 42,000 shares of Harken common stock to the European Investors and paid a
cash fee of $175,000 to one of the European Investors.
In March 1998, Harken received directly an additional $3 million pursuant
to a Development Finance Agreement with Faisal Finance ("Faisal"), which
contains terms substantially identical to the EnCap Development Finance
Agreement, including conversion provisions which begin in March 1999. In
exchange, Faisal received the right to receive future payments from Harken equal
to 0.6% of the net profits that Harken de Colombia, Ltd. may derive from the
sale of oil and gas produced from each of the three prospects discussed above
pursuant to the EnCap Development Finance Agreement if the planned drilling on
the prospect is successful. As part of this transaction, Harken issued 18,000
shares of Harken common stock and paid a cash fee of $75,000 to a financial
advisor.
(7) EUROPEAN CONVERTIBLE NOTES PAYABLE
6 1/2% European Notes -- On July 30, 1996, Harken issued to qualified
purchasers a total of $40 million in 6 1/2% Senior Convertible Notes (the
"6 1/2% European Notes") which were to mature on July 30, 2000. In connection
with the sale and issuance of the 6 1/2% European Notes, Harken paid
approximately $3,142,000 from the 6 1/2% European Note proceeds for commissions
and issuance costs. Interest incurred on these notes was payable semi-annually
in January and July of each year to maturity or until the 6 1/2% European Notes
were converted. Such 6 1/2% European Notes were convertible at any time by the
holders into shares of Harken common stock at a conversion price of $2.50 per
share ("the 6 1/2% European Note Conversion Price"). The 6 1/2% European Notes
were also convertible by Harken into shares of Harken common stock after one
year following issuance, if for any period of thirty consecutive days commencing
on or after November 28, 1996, the closing price of Harken common stock for each
trading day during such period shall have equaled or exceeded 135% of the 6 1/2%
European Note Conversion Price (or $3.375 per share of Harken common stock).
During the last half of 1996, holders of 6 1/2% European Notes totaling
$1,400,000 exercised their conversion option and such holders were issued
560,000 shares of Harken common stock. In February 1997, Harken gave notice as
required under the Trust Indenture that it had met the market price criteria
necessary to call for mandatory conversion of the 6 1/2% European Notes and on
June 2, 1997 formally called the 6 1/2% European Notes for conversion on July
31, 1997. During the first six months of 1997, holders of 6 1/2% European Notes
totaling $19,300,000 exercised their conversion option and such holders were
issued 7,720,000 shares of Harken common stock. On July 31, 1997, Harken
converted the remaining 6 1/2% European Notes into 7,720,000 shares of Harken
common stock.
5 1/2% European Notes -- On June 11, 1997, Harken issued to qualified
purchasers a total of $70 million in 5 1/2% Senior Convertible Notes ( the
"5 1/2% European Notes") which were to mature on June 10, 2002. In connection
with the sale and issuance of the 5 1/2% European Notes, Harken paid
approximately $5,174,000 from the 5 1/2% European Note proceeds for commissions
and issuance costs. Interest incurred on these notes was payable semi-annually
in June and December of each year to maturity or until the 5 1/2% European Notes
are converted. Such 5 1/2% European Notes were convertible into shares of Harken
common stock at an initial conversion price of $5.00 per share, subject to
adjustment in certain circumstances ("the 5 1/2% European Note Conversion
Price"). The Trust Indenture provided for a five percent premium on the number
of shares of Harken common stock issuable on conversion that was paid to holders
converting the 5 1/2% European Notes prior to December 11, 1997. The 5 1/2%
European Notes were also convertible by Harken into shares of Harken common
stock after one year following issuance, if for any period of thirty
13
<PAGE> 14
consecutive days commencing on or after June 11, 1997, the average of the
closing prices of Harken common stock for each trading day during such thirty
day period shall have equaled or exceeded 130% of the 5 1/2% European Note
Conversion Price (or $6.50 per share of Harken common stock). In October 1997,
Harken met the market price criteria necessary to call for mandatory conversion
of the 5 1/2% European Notes any time on or after June 11, 1998, and provided
notice to the holders as required under the Trust Indenture. In May 1998, Harken
formally called the 5 1/2% European Notes which remain outstanding for
conversion on June 12, 1998. As of December 31, 1997, holders of 5 1/2% European
Notes totaling $30,120,000 exercised their conversion option and such holders
were issued 6,325,200 shares of Harken common stock. During the first six months
of 1998, additional holders of 5 1/2% European Notes totaling $610,000 have
exercised their conversion option and such holders were issued an additional
122,000 shares of Harken common stock. On June 12, 1998, Harken converted the
remaining 5 1/2% European Notes into 7,854,000 shares of Harken common stock.
Upon closing, all proceeds from the sale of the 6 1/2% European Notes and
5 1/2% European Notes issuances were each initially paid to a Trustee under the
terms of a Trust Indenture covering each issue and held in separate interest
bearing Trust accounts (the "Segregated Accounts") to be maintained for Harken's
benefit, until the Trustee is presented with evidence of sufficient asset value,
as defined in the Trust Indenture, held by Harken to permit an advance of a
portion of the proceeds. Until all of the 5 1/2% European Notes were converted,
Harken was to maintain an Asset Value Coverage Ratio as defined in the Trust
Indenture. Upon the June 1998 conversion of the 5 1/2% European Notes which
remained outstanding, Harken transferred the approximately $38.6 million
remaining in the Segregated Accounts to its main operating account.
All Segregated Account cash related to the 5 1/2% European Notes is
reflected as a current asset at December 31, 1997 as all such cash was available
according to the Trust Indenture. The initial cash proceeds from the issuance of
the 5 1/2% European Notes are not included in the Statement of Cash Flows
because the proceeds are not considered to be cash equivalents due to the
Segregated Account requirement of these notes. Transfers of proceeds from the
Segregated Accounts are included in cash flows from financing activities in the
accompanying consolidated statements of cash flows.
5% European Notes - On May 26, 1998, Harken issued to qualified purchasers
a total of $85 million in 5% Senior Convertible Notes (the "5% European Notes")
which mature on May 26, 2003. In connection with the sale and issuance of the 5%
European Notes, Harken paid approximately $4,256,000 from the 5% European Notes
proceeds for commissions and issuance costs. Interest incurred on these notes is
payable semi-annually in May and November of each year to maturity or until the
5% European Notes are converted. Such 5% European Notes are convertible into
shares of Harken common stock at an initial conversion price of $6.50 per share,
subject to adjustment in certain circumstances ("the 5% European Note Conversion
Price"). The Trust Indenture provides for a three percent premium on the number
of shares of Harken common stock issuable on conversion to holders of the 5%
European Notes who convert prior to November 25, 1998. The 5% European Notes are
also convertible by Harken into shares of Harken common stock after May 26,
1999, if for any period of thirty consecutive days commencing on or after May
26, 1998, the average of the closing prices of Harken common stock for each
trading day during such thirty-day period shall have equaled or exceeded 125% of
the 5% European Note Conversion Price (or $8.125 per share of Harken common
stock). The 5% European Notes may be redeemed for cash, at Harken's option, at
par, in whole or in part, at any time after May 26, 2002, upon not less than 30
days notice to the holders. In addition, beginning November 26, 2002, Harken may
redeem up to 50% of the 5% European Notes in exchange for shares of Harken
common stock at a defined conversion price based on an average market price
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<PAGE> 15
of Harken common stock. Beginning May 26, 2003, Harken may similarly redeem all
remaining 5% European Notes. The 5% European Notes are listed on the Luxembourg
Stock Exchange.
Commissions and issuance costs associated with the European Notes are
deferred and are included in Other Assets and are amortized to interest expense
over the period until conversion or maturity of the European Notes. As European
Notes are converted to Harken common stock, a pro-rata portion of these deferred
costs are charged to Additional Paid-In Capital.
(8) STOCKHOLDERS' EQUITY
Common Stock -- Harken currently has authorized 225,000,000 shares of $.01
par common stock. At December 31, 1997 and June 30, 1998, Harken had issued
121,811,534 and 133,408,830 shares, respectively.
Issuance of European Convertible Notes Payable -- In July 1996, Harken
issued to qualified purchasers a total of $40 million in 6 1/2% European Notes
which were to mature on July 30, 2000. The 6 1/2% European Notes were
convertible under certain terms into approximately 16,000,000 shares of Harken
common stock. During the last half of 1996, holders of 6 1/2% European Notes
totaling $1,400,000 exercised their conversion option and such holders were
issued 560,000 shares of Harken common stock. In February 1997, Harken gave
notice as required under the Trust Indenture that it had met the market price
criteria necessary to call for mandatory conversion of the 6 1/2% European Notes
and on June 2, 1997, formally called the 6 1/2% European Notes for conversion on
July 31, 1997. (see Note 7 -- European Convertible Notes Payable for further
discussion). During the first six months of 1997, holders of 6 1/2% European
Notes totaling an additional $19,300,000 exercised their conversion option and
such holders were issued 7,720,000 shares of Harken common stock. On July 31,
1997, Harken converted the remaining 6 1/2% European Notes into 7,720,000 shares
of Harken common stock.
In connection with the issuance of the 6 1/2% European Notes, Harken issued
to the placement agents for the 6 1/2% European Notes certain non-registered
non-transferrable stock purchase warrants to purchase 1,280,000 shares of Harken
common stock which are currently exercisable by the holders thereof at any time
on or before July 31, 1999 at an exercise price of $2.50 per share. As of June
30, 1998, all but approximately 60,000 of such warrants had been exercised for
shares of Harken common stock.
In June 1997, Harken issued to qualified purchasers a total of $70 million
in 5 1/2% European Notes which were to mature on June 11, 2002. In connection
with the issuance of the 5 1/2% European Notes, Harken issued to the placement
agents for the 5 1/2% European Notes warrants to purchase 1,120,000 shares of
Harken common stock at any time after December 11, 1997 and on or before
December 11, 1999 at an exercise price of $5.00 per share. As of December 31,
1997, holders of 5 1/2% European Notes totaling $30,120,000 exercised their
conversion option and such holders were issued 6,325,200 shares of Harken common
stock. Subsequent to December 31, 1997 and as of June 11, 1998, holders of
5 1/2% European Notes totaling an additional $610,000 exercised their conversion
option and such holders were issued 122,000 shares of Harken common stock. On
June 12, 1998, Harken converted the remaining 5 1/2% European Notes into
7,854,000 shares of Harken common stock.
In May 1998, Harken issued to qualified purchasers a total of $85 million
in 5% European Notes which mature on May 26, 2003. The 5% European Notes are
convertible under certain terms into a maximum of approximately 13,500,000
shares of Harken common stock. In connection with the issuance
15
<PAGE> 16
of the 5% European Notes, Harken issued to the placement agents for the 5%
European Notes warrants to purchase 200,000 shares of Harken common stock on or
before June 26, 2000 at an exercise price of $6.50 per share.
Acquisition of Bargo Properties - In May 1998, Harken acquired working
interests in the Bargo Properties in exchange for 2,716,483 shares issuable at
closing. Additional consideration of up to $4,000,000 is payable by Harken to
the Sellers in the form of additional shares of Harken common stock or cash
under certain circumstances. See Note 2 - Acquisition for further discussion.
Acquisition of Cal-T Properties -- In August 1997, Harken acquired working
interests in the Cal-T Properties in exchange for 565,000 shares of Harken
common stock. See Note 2-- Acquisition for further discussion.
Acquisition of EnerVest Properties -- In March 1997, Harken and EnerVest
Acquisition - II Limited Partnership ("EnerVest") entered into a Resolution and
Settlement Agreement whereby in addition to the 1,550,000 shares of Harken
common stock previously issued to EnerVest at the July 10, 1996 acquisition
closing date, Harken issued 1,400,000 shares of Harken common stock as final
consideration for the purchase of the EnerVest Properties.
Palo Blanco Development Finance Agreements -- In June 1996, Harken, along
with Harken de Colombia, Ltd. entered into separate Development Finance
Agreements with two investors. In 1996, the investors exercised their rights
under the agreement to convert one-half of their beneficial interest into
599,988 shares of restricted Harken common stock. During the first quarter of
1997, the investors exercised their right to convert the remaining portion of
their beneficial interest into an additional 599,988 shares of restricted Harken
common stock. See Note 6 -- Development Finance and Operating Agreements.
Rio Negro Development Finance Agreement -- In March 1997, Harken and the
Rio Negro Investors entered into a Conversion Agreement whereby Harken purchased
75% of the Participation relating to the Rio Negro Development Finance Agreement
for 900,000 restricted shares of Harken common stock. These shares were issued
in April 1997. See Note 6 -- Development Finance and Operating Agreements for
further discussion.
EnCap Development Finance Agreement -- In October 1997, Harken and the
EnCap Investors entered into a Development Finance Agreement under which the
EnCap Investors funded approximately $25 million to finance the drilling of
three wells in the Middle Magdalena Basin of Colombia. Pursuant to the EnCap
Development Finance Agreement, both Harken and the EnCap Investors have the
right under certain circumstances to convert all or part of the EnCap
Participation into shares of Harken common stock. Harken also issued 150,000
shares of Harken common stock to the EnCap Investors. See Note 6 -- Development
Finance and Operating Agreements for further discussion of the EnCap Development
Finance Agreement and Note 11 -- Related Party Transactions for further
discussion of the EnCap Investors.
European Development Finance Agreements -- In December 1997, Harken, HCC
and the European Investors entered into a Development Finance Agreement under
which HCC funded $7 million in January 1998 to finance the drilling of three
wells in the Middle Magdalena Basin of Colombia. Pursuant to the European
Development Finance Agreement, both Harken and HCC have the right under certain
circumstances to convert some or all of the shares of HCC common stock into
shares of Harken common stock. In addition, Harken issued 42,000 shares of
Harken common stock to the European Investors. In March 1998, Harken entered
into an additional Development Finance Agreement with Faisal, which also
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<PAGE> 17
contained terms whereby both Harken and Faisal have the right under certain
circumstances to convert part of the Participation into shares of Harken common
stock. In addition, Harken issued 18,000 shares of Harken common stock to a
financial advisor in connection with the Development Finance Agreement with
Faisal. See Note 6 -- Development Finance and Operating Agreements for further
discussion.
Series F Preferred Stock -- On April 9, 1998, Harken entered into a
Securities Purchase Agreement with RGC International Investors, LDC ("RGC"),
pursuant to which Harken issued to RGC 15,000 shares of its Series F Convertible
Preferred Stock (the "Series F Preferred") in exchange for $15,000,000. The
Series F Preferred is convertible into shares of Harken common stock at a
conversion price based upon the market price of Harken common stock at the time
of conversion. The number of shares of Harken common stock issuable upon
conversion of the Series F Preferred will also include a premium amount equal to
an increase calculated on the face value of the Series F Preferred at 5% per
annum. The Series F Preferred does not pay dividends.
During the first six months following the issuance of the Series F
Preferred, RGC can elect to convert the shares of the Series F Preferred into
Harken common stock on any day that the closing sales price of the Harken common
stock on the American Stock Exchange is equal to or greater than 115% of the
"Market Price." The Market Price is equal to the lower of (a) the average of the
closing bid prices of Harken common stock for any five consecutive trading days
during the 22 trading days ending one trading day prior to the conversion date,
or (b) the low closing bid price of Harken common stock over the five trading
days ending one trading day prior to the conversion date.
During the first nine months following the issuance of the Series F
Preferred, the conversion price will be equal to 103% of the Market Price on the
conversion date. On January 9, 1999, the conversion price will be fixed at 90%
of the average of the closing bid prices of Harken common stock for the previous
22 trading days. Beginning February 9, 1999, the conversion price will be fixed
at 90% of the average of the closing bid prices of Harken common stock for the
previous 22 trading days if it would result in a lower conversion price than
that calculated on January 9, 1999. Any shares of Series F Preferred outstanding
on April 9, 1999, will automatically be converted into shares of Harken common
stock at the then applicable conversion price.
Harken has the option to redeem for cash any shares of Series F Preferred
presented for conversion if (a) prior to January 9, 1999, the closing price of
Harken common stock on the conversion date is less than $4.80, or (b) on or
after January 9, 1999, the then applicable conversion price is less than $4.80,
for an amount equal to the number of shares of Harken common stock that would
otherwise be issuable upon conversion multiplied by the closing price of Harken
common stock on the conversion date.
At each election to convert shares of Series F Preferred into Harken common
stock, RGC will have the option to purchase from Harken for cash additional
shares of Harken common stock equal to the number of shares issued on such
conversion (less any shares issued in respect of the premium amount) at a
purchase price equal to the then applicable conversion price.
Stockholder Rights Plan -- In April 1998, Harken adopted a rights agreement
(the "Rights Agreement") whereby a dividend of one preferred share purchase
right (a "Right") was paid for each outstanding share of Harken common stock.
The Rights will be exercisable only if a person acquires beneficial ownership of
15 percent or more of Harken common stock (an "Acquiring Person"), or commences
a tender offer which would result in beneficial ownership of 15 percent or more
of such stock. When they become exercisable, each Right entitles the registered
holder to purchase from Harken one one-
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<PAGE> 18
thousandth of one share of Series E Junior Participating Preferred Stock
("Series E Preferred Stock"), at a price of $35.00 per one one-thousandth of a
share of Series E Preferred Stock, subject to adjustment under certain
circumstances.
Upon the occurrence of certain events specified in the Rights Agreement,
each holder of a Right (other than an Acquiring Person) will have the right to
purchase, at the Right's then current exercise price, shares of Harken common
stock having a value of twice the Right's exercise price. In addition, if, after
a person becomes an Acquiring Person, Harken is involved in a merger or other
business combination transaction with another person in which Harken is not the
surviving corporation, or under certain other circumstances, each Right will
entitle its holder to purchase, at the Right's then current exercise price,
shares of common stock of the other person having a value of twice the Right's
exercise price.
Unless redeemed by Harken earlier, the Rights will expire on April 6, 2008.
Harken will generally be entitled to redeem the Rights in whole, but not in
part, at $.01 per Right, subject to adjustment. No Rights were exercisable under
the Rights Agreement at June 30, 1998.
The terms of the Rights generally may be amended by Harken without the
approval of the holders of the Rights prior to the public announcement by Harken
or an Acquiring Person that a person has become an Acquiring Person.
(9) PER SHARE DATA
Basic earnings per common share was computed by dividing net income
attributed to common stock by the weighted average number of shares of Harken
common stock outstanding during the year. Diluted earnings per common share was
determined by including the effect of outstanding options and warrants using
the treasury stock method to the extent that the average share price exceeds
the exercise price. The impact of certain unconverted European Convertible
Notes was not included for the periods ended June 30, 1997 or 1998 as their
effect would have been antidilutive. The impact of unconverted Series F
Preferred Stock was not included for the periods ended June 30, 1998 as their
effect would have been antidilutive. Harken has adopted Statement of Financial
Accounting Standards No. 128, "Earnings per Share", effective December 15,
1997, and as a result has restated 1997 weighted average shares outstanding
calculations, although there was no impact on prior year income per share
amounts. A reconciliation of the calculations of diluted earnings per common
share is as follows:
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<PAGE> 19
<TABLE>
<CAPTION>
Three Months Ended June 30, 1997 Six Months Ended June 30, 1997
------------------------------------- ----------------------------------------
Weighted Weighted
Average Average
Income Shares Per Share Income Shares Per Share
--------- ----------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Basic earnings per common share $ 46,000 104,638,246 $ 0.00 $ 114,000 100,640,530 $ 0.00
Treasury stock method effect of:
Outstanding employee stock options -- 1,551,261 -- -- 1,468,578 --
Outstanding warrants -- 1,477,349 -- -- 1,559,439 --
--------- ------------- ------- --------- ------------- --------
Diluted earnings per common share $ 46,000 107,666,856 $ 0.00 $ 114,000 103,668,547 $ 0.00
========= ============= ======= ========= ============= ========
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended June 30, 1998 Six Months Ended June 30, 1998
-------------------------------------- ---------------------------------------
Weighted Weighted
Average Average
Income Shares Per Share Income Shares Per Share
--------- ----------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Basic earnings per common share $ 75,000 130,452,657 $ 0.00 $ 159,000 126,394,977 $ 0.00
Treasury stock method effect of:
Outstanding employee stock options -- 2,363,615 -- -- 2,465,490 --
Outstanding warrants -- 287,718 -- -- 370,955 --
--------- ------------- ------- --------- ------------- --------
Diluted earnings per common share $ 75,000 133,103,990 $ 0.00 $ 159,000 129,231,422 $ 0.00
========= ============= ======= ========= ============= ========
</TABLE>
(10) INCOME TAXES
At June 30, 1998, Harken had available for federal income tax reporting
purposes, net operating loss (NOL) carryforward for regular tax purposes of
approximately $60,000,000 which expires in 1998 through 2012, alternative
minimum tax NOL carryforward of approximately $51,000,000 which expires in 1998
through 2011, investment tax credit carryforward of approximately $842,000 which
expires in 1998 through 2002, statutory depletion carryforward of approximately
$2,400,000 which does not have an expiration date, and a net capital loss
carryforward of approximately $12,400,000 which expires in 2007 through 2011.
Approximately $16,000,000 of the net operating loss carryforward has been
acquired with the purchase of subsidiaries and must be used to offset future
income from profitable operations within those subsidiaries.
Total deferred tax liabilities, relating primarily to property and
equipment, as of June 30, 1998 were approximately $680,000. Total deferred tax
assets, primarily related to the net operating loss carryforward, were
approximately $20,538,000 at June 30, 1998. The total net deferred tax asset is
offset by the valuation allowance of approximately $19,858,000 at June 30, 1998.
(11) RELATED PARTY TRANSACTIONS
In June 1997, Harken added to its Board of Directors a new director who is
also a managing director of EnCap Investments L.C. ("EnCap"). EnCap has
historically provided financial consulting and investment banking services to
Harken. In connection with the June 1997 placement of the 5 1/2% European Notes,
EnCap received as a financial consulting fee, $466,667 in cash, and a warrant to
purchase 50,000 shares of Harken common stock at any time after December 11,
1997 and on or before December 11, 1999 at an exercise price of $5.00 per share.
As described in Note 6 -- Development Finance and Operating Agreements, in
October 1997, Harken entered into a Development Finance Agreement with the EnCap
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<PAGE> 20
Investors. EnCap serves as the general partner of three of the EnCap Investors
and the new Harken director serves as a director of the fourth EnCap Investor.
In connection with the EnCap Development Finance Agreement, EnCap received an
investment banking fee of $500,000. As described in Note 2--Acquisitions, in May
1998 Harken acquired the Bargo Properties from St. Martinville Partners, Ltd.
and Bargo Energy Company, which are affiliates of Encap.
During 1997 and 1998, Harken made short-term loans totaling $355,000 to
certain members of Harken's Board of Directors and Management. Such notes
receivable are reflected in Harken's consolidated balance sheet at December 31,
1997 and June 30, 1998 as Related Party Notes Receivable.
(12) COMMITMENTS AND CONTINGENCIES
Harken has accrued approximately $1,887,000 at June 30, 1998 relating to
operational or regulatory contingent liabilities related to Harken's domestic
operations. Harken and its subsidiaries currently are involved in various
lawsuits and other contingencies, including the guarantee of certain lease
obligations of a former subsidiary, which in management's opinion, will not
result in significant loss exposure to Harken.
The exploration, development and production of oil and gas are subject to
various Navajo, federal and state laws and regulations designed to protect the
environment. Compliance with these regulations is part of Harken's day-to-day
operating procedures. Infrequently, accidental discharge of such materials as
oil, natural gas or drilling fluids can occur and such accidents can require
material expenditures to correct. Harken maintains levels of insurance customary
in the industry to limit its financial exposure. Management is unaware of any
material capital expenditures required for environmental control during the next
fiscal year.
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<PAGE> 21
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)
Certain statements included in the accompanying condensed financial
statements and in the following discussion and analysis of financial condition
and results of operations, including statements of Harken management's current
expectations, intentions, plans and beliefs, and statements containing the words
"believes", "anticipates", "estimates", "expects", or "may" are forward-looking
statements, as defined in Section 21D of the Securities Exchange Act of 1934.
Such forward-looking statements involve known and unknown risk, uncertainties
and other factors which may cause the actual results, performance, timing or
achievements of Harken to be materially different for any results, performance,
timing or achievements expressed or implied by such forward-looking statements.
Such factors include, among others, the risks described in Harken's filings with
the Securities and Exchange Commission.
OVERVIEW
Harken reported net income for the six months ended June 30, 1998 of
$328,000 compared to a net income of $114,000 for the prior year period. Total
revenues increased from approximately $8.28 million during the six months ended
June 30, 1997 to approximately $9.26 million for the same period in 1998, due to
increased interest income as a result of net proceeds received from the issuance
of the 5 1/2% European Notes, the 5% European Notes and from three Development
Finance Agreements. Gross profit from both domestic and Colombia oil and gas
operations before depreciation and amortization, general and administrative and
interest expenses totaled approximately $2.6 million during the six months ended
June 30, 1998 compared to approximately $4.3 million for the prior year period.
Internationally, during the second quarter of 1998, Harken reflected its
initial revenues from its Colombia operations, consisting of oil revenues from
Harken's Bolivar and Bocachico Contract Areas. During March 1998, Harken signed
an additional Association Contract in Colombia with Ecopetrol, bringing the
total number of Association Contracts to six and increasing the total number of
acres currently operated in Colombia by Harken to approximately 1,358,000.
Harken has continued its Colombian exploration efforts during the first part of
1998 with the drilling of the Estero #3 and Canacabare #1 wells on the Alcaravan
Contract area, the Catalina #1 and Olivo #1 wells on the Bolivar Contract area,
and the drilling of the Torcaz #5 well on the Bocachico Contract area.
In the Alcaravan Contract area, Harken's operations have been affected by
the rainy season in the Llanos Basin, which will delay the completion and
testing of the recently drilled Canacabare #1 well until the fourth quarter of
1998. Despite weather conditions, Harken is now planning to begin in August 1998
the construction of the Phase I Pipeline connecting the Estero wells to the
closest existing pipeline. Harken also expects to initiate a long-term
production test of the Estero wells in August 1998, with an initial trucking
rate of 500 barrels of oil per day, which is expected to increase to 1,000
barrels of oil per day within thirty to sixty days. Construction and initial
operations of the Phase I Pipeline, pending weather conditions, are scheduled
to be completed in late 1998.
An independent reservoir engineering firm estimates the Olivo #1 and the
Catalina #1 are each capable of producing at rates in excess of 20,000 barrels
of oil per day with larger production equipment. Harken anticipates initiating a
long-term production test by trucking from the Catalina #1 and Olivo #1 wells in
August 1998. Harken intends to submit its application to Ecopetrol for
commerciality of its Catalina, Olivo, Estero and Torcaz wells later in 1998 or
early 1999. In the Cambulos Contract area, Harken anticipates drilling its
first well
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<PAGE> 22
on the Cambulos acreage, on the Emerald Mountain feature, in August 1998.
Harken plans to continue its Colombian exploration program during 1998,
expecting to spud seven additional exploratory wells in the Bolivar and Cambulos
Contract areas as well as certain pipeline and facility installation efforts,
including planned construction during the year of a Bolivar Association Contract
area pipeline and facility project to be completed and operational during the
first half of 1999. The completion of this Bolivar pipeline and facility
project is expected to allow the initial transport of a maximum of 30,000 gross
barrels of oil and 150 million gross cubic feet of gas per day.
For a detailed discussion of all of Harken's operations in Colombia, see
Harken's Annual Report on Form 10-K for the year ended December 31, 1997.
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<PAGE> 23
RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain
significant factors which have affected Harken's earnings and balance sheet
during the periods included in the accompanying consolidated financial
statements.
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
----------------------------------- -----------------------------------
Revenues 1997 1998 1997 1998
- -------- --------------- --------------- --------------- ---------------
(Unaudited)
<S> <C> <C> <C> <C>
Domestic Exploration and Production Operations
- ----------------------------------------------
Oil sales revenues $ 1,975,000 $ 1,346,000 $ 4,135,000 $ 2,725,000
Oil volumes in barrels 106,000 106,000 206,000 201,000
Oil price per barrel $ 18.63 $ 12.70 $ 20.07 $ 13.56
Gas sales revenues $ 1,037,000 $ 1,051,000 $ 2,344,000 $ 2,240,000
Gas volumes in mcf 474,000 469,000 868,000 971,000
Gas price per mcf $ 2.19 $ 2.24 $ 2.70 $ 2.31
Gas plant revenues $ 152,000 $ 103,000 $ 365,000 $ 235,000
Colombia Exploration and Production Operations
- ----------------------------------------------
Oil sales revenues $ -- $ 134,000 $ -- $ 134,000
Oil volumes in barrels -- 14,000 -- 14,000
Oil price per barrel $ -- $ 9.57 $ -- $ 9.57
Other Revenues
- --------------
Interest Income $ 854,000 $ 2,133,000 $ 1,414,000 $ 3,789,000
Other Income $ 9,000 $ 129,000 $ 20,000 $ 135,000
</TABLE>
For the quarter ended June 30, 1998 compared with the corresponding prior
period.
DOMESTIC OPERATIONS
Harken's domestic operations consist primarily of the operations in the
Four Corners area of Utah, Arizona and New Mexico, primarily on the Navajo
Indian Reservation, onshore South Texas, the Western and Panhandle regions of
Texas, the Magnolia region of Arkansas and the Carlsbad region of New Mexico,
and beginning in May 1998, the onshore region of southern Louisiana.
Gross oil revenues decreased 32% to $1,346,000 during the second quarter of
1998 compared to $1,975,000 during the second quarter of 1997 primarily due to
the sharp decline in oil prices, which averaged $5.93 less per barrel during the
second quarter of 1998 compared to the prior year period. With the May 1998
acquisition of the Bargo Properties, Harken should begin to reflect production
volumes slightly higher than volumes produced in 1997. During the first half of
the third quarter of 1998, prices have continued to remain lower than prices
received during 1997.
Gross gas revenues increased only slightly to $1,051,000 for the three
months ended June 30, 1998 compared to $1,037,000 for the prior year period,
with the increased production resulting from the acquisition of the Cal-T
Properties in August 1997 approximately offsetting the normal declines of
Harken's other domestic gas production. The slight increase in gas revenues was
also caused by the increase in average gas prices received during the second
quarter of 1998, as Harken received an overall average price of $2.19 per mcf of
gas production during the second quarter of 1997 compared to $2.24 per mcf
received during the second quarter of 1998.
23
<PAGE> 24
Oil and gas operating expenses consist of lease operating expenses and gas
plant expenses, along with a number of production and reserve based taxes,
including severance taxes, property taxes, Utah conservation taxes and Navajo
severance and possessory interest taxes. The increase in oil and gas operating
expenses compared to the prior year is primarily a result of the above mentioned
acquisitions of the Cal-T and Bargo Properties.
COLOMBIAN OPERATIONS
In April 1998, Harken initiated trucking operations from its Torcaz #2 and
Torcaz #3 wells on the Bocachico Contract area. In addition, Harken sold
production which was generated during the drilling of the Catalina #1 and Olivo
#1 wells on the Bolivar Contract area. All sales volumes were transported using
trucking operations from the wellsite.
Harken's Colombian oil revenues are expected to increase throughout the
remainder of 1998, particularly as production tests commence for the Catalina #1
and Olivo #1 wells beginning in August 1998. In addition, long-term production
tests of the Estero wells are also expected to begin in August 1998.
INTEREST AND OTHER INCOME
Interest and other income increased significantly during the second quarter
of 1998 compared to the prior year period due to interest earned by Harken on
its invested funds, including the net proceeds from the June 1997 issuance of
$70 million of 5 1/2% European Notes, the May 1998 issuance of $85 million of 5%
European Notes and from proceeds from the EnCap Development Finance Agreement
and the European Development Finance Agreements. Harken generated approximately
$2.1 million of interest income during the second quarter of 1998, compared to
approximately $854,000 of interest income during the prior year period. Harken's
cash balances, which include investments in short-term marketable debt
securities, are expected to decrease in the second half of 1998 as such funds
are used to support Harken's capital expenditure plans, however, interest income
is expected to continue to be higher than the corresponding period of 1997.
OTHER COSTS AND EXPENSES
General and administrative expenses increased 51% from $1,166,000 for the
second quarter of 1997 to $1,766,000 for the second quarter of 1998, related to
Harken's increased executive, corporate and administrative personnel costs
associated with Harken's expanding overall operations. In addition, Harken has
increased its corporate office space to accommodate the growth in personnel.
Depreciation and amortization expense increased slightly during the second
quarter of 1998 compared to the prior year period due to the production from
Harken's Colombian operations. Depreciation and amortization on oil and gas
properties is calculated on a unit of production basis in accordance with the
full cost method of accounting for oil and gas properties. In addition, Harken's
depreciation on other property has increased as a result of Harken's expanding
operations.
Interest expense and other decreased during the second quarter of 1998
compared to the prior year period despite the June 1997 issuance of the 5 1/2%
European Notes and the May 1998 issuance of the 5% European Notes due to the
increase in the amounts of interest capitalized to Harken's Colombian
exploration activity.
24
<PAGE> 25
For the six months ended June 30, 1998 compared with the corresponding prior
period.
Gross oil revenues decreased 34% to $2,725,000 during the first six months
of 1998 compared to $4,135,000 during the first six months of 1997 primarily due
to the sharp decline in oil prices, which averaged $6.51 less per barrel during
the first six months of 1998 compared to the prior year period. During the first
half of the third quarter of 1998, prices have continued to remain lower than
prices received during 1997.
Gross gas revenues decreased 4% to $2,240,000 for the six months ended June
30, 1998 compared to $2,344,000 for the prior year period, the increased
production resulting from the acquisition of the Cal-T Properties in August
1997. The decrease in gas revenues was partly caused by the decrease in average
gas prices received during the first six months of 1998, as Harken received an
overall average price of $2.70 per mcf of gas production during the first six
months of 1997 compared to $2.31 per mcf received during the first six months of
1998. Harken also reflected decreased gas production from certain of its Texas
Panhandle properties during the first quarter of 1998 as many of the properties
experienced numerous temporary operational curtailments.
Oil and gas operating expenses consist of lease operating expenses and gas
plant expenses, along with a number of production and reserve based taxes,
including severance taxes, property taxes, Utah conservation taxes and Navajo
severance and possessory interest taxes. The increase in oil and gas operating
expenses compared to the prior year is primarily a result of the above mentioned
acquisition of the Cal-T and Bargo Properties.
COLOMBIAN OPERATIONS
Harken initiated trucking operations for a ninety day production test from
its Bocachico Contract operations during the second quarter of 1998, and also
began sales of trucked volumes produced during the drilling of the Catalina #1
and Olivo #1 wells on the Bolivar Contract area. Harken expects to initiate
trucking of long-term test production from its Bolivar and Alcaravan Contract
operations in August 1998. In addition, 1998 production operations could further
increase if the current and planned drilling activities in Colombia are
successful. Harken reflected no oil and gas revenues or operating expenses from
its Colombian operations during the first quarter of 1998.
INTEREST AND OTHER INCOME
Interest and other income increased significantly during the first six
months of 1998 compared to the prior year period due to interest earned by
Harken on its invested funds, including the net proceeds from the June 1997
issuance of $70 million of 5 1/2% European Notes, and the May 1998 issuance of
$85 million of 5% European Notes, and from proceeds from the EnCap Development
Finance Agreement and the European Development Finance Agreements. Harken
generated approximately $3.8 million of interest income during the first six
months of 1998, compared to approximately $1.4 million of interest income during
the prior year period. Harken's cash balances, which include investments in
short-term marketable debt securities, are expected to decrease in the second
half of 1998 as such funds are used to support Harken's capital expenditure
plans, however, interest income is expected to continue to be higher than the
corresponding period of 1997.
25
<PAGE> 26
OTHER COSTS AND EXPENSES
General and administrative expenses increased 41% from $2,500,000 for the
first six months of 1997 to $3,524,000 for the first six months of 1998, related
to Harken's increased executive, corporate and administrative personnel costs
associated with Harken's expanding overall operations. In addition, Harken has
increased its corporate office space to accommodate the growth in personnel.
Depreciation and amortization expense increased slightly during the first
six months of 1998 compared to the prior year period consistent with the
increased equivalent barrel production levels during the period. Depreciation
and amortization on oil and gas properties is calculated on a unit of production
basis in accordance with the full cost method of accounting for oil and gas
properties. In addition, Harken's depreciation on other property has increased
as a result of Harken's expanding operations.
Interest expense and other decreased significantly during the first six
months of 1998 compared to the prior year period despite the June 1997 issuance
of the 5 1/2% European Notes and the May 1998 issuance of the 5% European Notes
due to the increase in the amounts of interest capitalized to Harken's Colombian
exploration activity.
LIQUIDITY AND CAPITAL RESOURCES
Harken's working capital at June 30, 1998 was approximately $178.8 million,
versus approximately $110.6 million at December 31, 1997. The increase in cash
and working capital resulted primarily from approximately $81.8 million of net
proceeds from the 5% European Notes issued in May 1998 and from the receipt of
approximately $9.8 million pursuant to Development Finance Agreements. In
addition, Harken's operations provided approximately $2.4 million of cash flow
during the first six months of 1998. Such activity was sufficient to fund
capital expenditures of approximately $46 million during the first six months of
1998.
Harken's primary need for capital is to fund the planned exploration and
development efforts in Colombia. In 1997, Harken's capital expenditures totaled
approximately $37 million, including $30 million related to exploration and
development in Colombia. Harken anticipates that its 1998 Colombian capital
expenditures will total approximately $112 million. Harken believes that it will
have sufficient cash resources to fund all of its planned capital expenditures
for 1998. In addition, Harken intends to continue to pursue domestic acquisition
opportunities during 1998. Harken intends to fund such acquisitions, if any are
consummated, through a combination of cash on hand, issuances of debt or equity
securities.
Harken anticipates that full development of its Colombian reserves will
take several years and will also require extensive production facilities,
transportation pipelines and development activity which will require significant
additional capital expenditures. The ultimate amount of such expenditures cannot
be presently predicted. As a result of its recent successes in Colombia from its
exploratory drilling program, Harken's current business plan includes estimated
total capital expenditures in Colombia for the years 1998 through 2001 that
approximate $1 billion. Harken estimates that approximately 75 to 80% of
external funds applicable to these capital expenditures will be provided from
non-recourse project finance and other similar forms of debt which can be
identified to specific development projects. Harken anticipates it would put
this type of debt facility in place after establishing ongoing production rates
from its recently announced discoveries. There can be no assurances, however,
that Harken will have adequate funds available to it to fund all of its
Colombian activities.
26
<PAGE> 27
Terms of each of the Association Contracts entered into between Harken de
Colombia, Ltd. and Ecopetrol commit Harken to perform certain activities in
accordance with a prescribed timetable. Failure by Harken to perform these
activities as required could result in Harken losing its rights under the
particular Association Contract, which could potentially have a material adverse
effect on Harken's business.
Harken's domestic operating strategy includes efforts to acquire additional
oil and gas reserves through drilling activities in North America and through
acquisitions. Harken plans to continue development of proved undeveloped
reserves on its North American properties in addition to a continual workover
program on producing properties. Harken expects such drilling and workover costs
to total approximately $4 million in 1998. The targeted results of these efforts
are to maintain North American production levels during 1998.
On May 26, 1998, Harken issued a total of $85 million in 5% Senior
Convertible Notes (the "European Notes") which mature on May 26, 2003. In
connection with the sale and issuance of the 5% European Notes, Harken paid
approximately $4,256,000 from the 5% European Notes proceeds for commission and
issuance costs. Interest incurred on these notes is payable semi-annually in May
and November of each year to maturity or until the 5% European Notes are
converted. Such European Notes are convertible into shares of Harken common
stock at a conversion price of $6.50 per share, subject to adjustment in certain
circumstances. Harken also has the right to require conversion of the 5%
European Notes into shares of Harken common stock at any time on or after May
26, 1999, if for any period of thirty consecutive days commencing on or after
May 26, 1998, the average of the closing prices of Harken common stock for each
trading day during such thirty-day period shall have equaled or exceeded 125% of
the 5% European Note Conversion Price (or $8.125 per share of Harken common
stock).
All proceeds from the sale of previous European Notes issuances were
initially paid to a Trustee pursuant to a Trust Indenture and held in Segregated
Accounts to be maintained for Harken's benefit. In order for any of the proceeds
to be released from the Segregated Accounts, Harken was required to demonstrate
that an Asset Value Coverage Ratio (as defined in the Trust Indenture) test
would continue to be met after such release of funds. At June 30, 1998, all
proceeds held in the Segregated Accounts had been released following the
conversion of these European Notes into shares of Harken common stock. There is
no Segregated Account requirement related to the proceeds from the 5% European
Notes. For a detailed discussion of the 5% European Notes see "Notes to
Consolidated Financial Statements, Note 7 -- European Convertible Notes
Payable."
Interest payments related to the 5% European Notes will be funded from cash
flow from operations or existing cash balances.
In October 1997, December 1997, and March 1998, Harken entered into
separate Development Finance Agreements with institutional investors
(collectively the "Institutional Investors"), pursuant to which the
Institutional Investors provided approximately $34.5 million (the "Payment
Amount") of net proceeds to Harken to finance the drilling of the initial wells
on three unexplored oil and gas prospects in the Middle Magdalena Basin of
Colombia. Approximately $24.5 million of net proceeds was received in October
1997 and approximately $10 million of net proceeds was received during the first
quarter of 1998. In exchange, the Institutional Investors obtained the right to
receive future payments from Harken equal to 7% of the net profits that Harken
de Colombia, Ltd. may derive from the sale of oil and gas produced from each of
the three prospects if the planned drilling on the prospect is successful (the
"Institutional Participation"). Pursuant to the Development Finance Agreements,
Harken is obligated to drill each of the three wells prior to October 2000.
27
<PAGE> 28
Pursuant to the Development Finance Agreements, the Institutional Investors
have the right, for a period of two years beginning in October 1998, to convert
all or part of the Institutional Participation into shares of Harken common
stock. The number of shares of Harken common stock to be issued upon conversion
of the Institutional Participation will be equal to the quotient of (i) the
Payment Amount (less any distributions made in respect of the Institutional
Participation) plus an amount equal to 15% interest per annum on the net Payment
Amount compounded monthly (the "Invested Amount"), divided by (ii) the market
price of the Harken common stock at the time of conversion. During the same two
year period, Harken also has the right to convert the Institutional
Participation into shares of Harken common stock with the number of shares of
Harken common stock to be issued to be equal to the quotient of (i) the Payment
Amount (less any distribution made in respect of the Institutional
Participation) plus an amount equal to 25% interest per annum on the net Payment
Amount compounded monthly, divided by (ii) the market price of Harken common
stock at the time of conversion. Harken can also elect to pay cash upon any
conversion of the Institutional Participation in lieu of issuing Harken common
stock. The Development Finance Agreements also provide for additional shares of
Harken common stock to be issued by Harken in the event of a conversion to the
extent that the Institutional Investors do not, under certain circumstances,
realize the Invested Amount from the sale of shares of Harken common stock
issued at the conversion.
At the present time, it is not known whether the Institutional Investors or
Harken will exercise their rights to convert the Institutional Interest into
Harken common stock, nor can Harken determine the number of shares of Harken
common stock which would be required to be issued in the event that Harken or
the Institutional Investors elect to convert the Institutional Participation
into shares of Harken common stock.
On April 9, 1998, Harken entered into a Securities Purchase Agreement with
RGC International Investors, LDC ("RGC"), pursuant to which Harken issued to RGC
15,000 shares of its Series F Convertible Preferred Stock (the "Series F
Preferred") in exchange for $15,000,000. The Series F Preferred is convertible
into shares of Harken common stock at a conversion price based upon the market
price of Harken common stock at the time of conversion. The number of shares of
Harken common stock issuable upon conversion of the Series F Preferred will also
include a premium amount equal to an increase calculated on the face value of
the Series F Preferred at 5% per annum. The Series F Preferred does not pay
dividends.
Harken has the option to redeem for cash any shares of Series F Preferred
presented for conversion if (a) prior to January 9, 1999, the closing price of
Harken common stock on the conversion date is less than $4.80, or (b) on or
after January 9, 1999, the then applicable conversion price is less than $4.80,
for an amount equal to the number of shares of Harken common stock that would
otherwise be issuable upon conversion multiplied by the closing price of Harken
common stock on the conversion date.
At each election to convert shares of Series F Preferred into Harken common
stock, RGC will have the option to purchase from Harken for cash additional
shares of Harken common stock equal to the number of shares issued on such
conversion (less any shares issued in respect of the premium amount) at a
purchase price equal to the then applicable conversion price. For a detailed
discussion of the Series F Preferred see "Notes to Consolidated Financial
Statements, Note 8--Stockholders' Equity".
The exploration, development and production of oil and gas are subject to
various Colombian, Navajo, federal, state and local laws and regulations
designed to protect the environment. Compliance with these regulations is part
of Harken's day-to-day operating procedures. Accidental discharge of such
materials as oil, natural gas or drilling fluids can occur and such accidents
can require material expenditures to correct. Harken maintains levels of
insurance customary in the industry to limit its financial exposure. Management
28
<PAGE> 29
is unaware of any material capital expenditures required for environmental
control during the next fiscal year.
Harken has accrued approximately $1.9 million at June 30, 1998 relating to
operational or regulatory contingent liabilities related to Harken's domestic
operations. Harken and its subsidiaries currently are involved in various
lawsuits and other contingencies, which in management's opinion, will not result
in significant loss exposure to Harken.
29
<PAGE> 30
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
In September 1997, Harken Exploration Company, a wholly-owned
subsidiary of Harken, was served with a lawsuit filed in Amarillo,
Texas in Federal District Court for the Northern District of Texas
styled D. E. Rice and Karen Rice, as Trustees for the Rice Family
Living Trust vs. Harken Exploration Company. The Rice Family Living
Trust ("Rice") is a surface land owner in Hutchinson County, Texas.
Rice has alleged that oil and saltwater spills from Harken Exploration
Company's equipment and wells have polluted and otherwise damaged its
property. Rice is seeking payment of costs to prevent, minimize and
mitigate the alleged oil pollution, costs to restore and repair the
land and vegetation, costs to decontaminate the ground and surface
water, interest, attorneys' fees, and punitive damages. Furthermore,
Rice has requested that Harken Exploration Company be enjoined from
producing any oil or gas from its lands. Rice has alleged that
remediation of all of the pollution on its land will cost approximately
$40,000,000. Harken believes that this lawsuit is wholly without merit.
Harken has filed a Motion to Dismiss for Failure to State a Claim and
has asserted numerous other defenses, all of which Harken believes are
meritorious. Harken intends to defend itself vigorously.
Harken and its subsidiaries currently are involved in various other
lawsuits and other contingencies, which in management's opinion, will
not have a material adverse effect on Harken's financial position.
Item 2. Changes in Securities.
In April 1998, Harken adopted a Stockholder Rights Plan. For further
discussion, see Harken's Current Report on Form 8-K dated April 6,
1998.
Item 3. Default Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Securities Holders.
On June 11, 1998, Harken held its Annual Meeting of Stockholders. At
the Annual Meeting, the stockholders cast their votes as follows:
(1) Approval of an amendment to Harken's Certificate of
Incorporation increasing the number of authorized shares
of common stock from 175,000,000 to 225,000,000:
For: 82,501,016
Against: 29,424,711
Abstain: 433,301
(2) Election of Michael M. Ameen, Jr., Michael R. Eisenson,
and Hobart A. Smith to serve as Class B Directors:
<TABLE>
<CAPTION>
For Vote Withheld
<S> <C> <C>
Michael M. Ameen, Jr. 96,620,679 15,748,349
Michael R. Eisenson 95,644,664 16,724,364
Hobart A. Smith 96,679,368 15,689,660
</TABLE>
Item 5. Other Information
Not applicable.
30
<PAGE> 31
Item 6. Exhibits and Reports on Form 8-K.
(a) EXHIBIT INDEX
Exhibit
3.1 Certificate of Incorporation of Harken Energy
Corporation as amended (filed as Exhibit 3.1 to
Harken's Annual Report on Form 10-K for fiscal year
ended December 31,1989, File No. 0-9207, and
incorporated by reference herein).
3.2 Amendment to the Certificate of Incorporation of
Harken Energy Corporation (filed as Exhibit 28.8 to
the Registration Statement on Form S-1 of Tejas Power
Corporation, file No. 33-37141, and incorporated by
reference herein.)
3.3 Amendment to the Certificate of Incorporation of
Harken Energy Corporation (filed as Exhibit 3 to
Harken's Quarterly Report on Form 10-Q for fiscal
quarter ended March 31, 1991, File No. 0-9207, and
incorporated by reference herein.)
3.4 Amendments to the Certificate of Incorporation of
Harken Energy Corporation (filed as Exhibit 3 to
Harken's Quarterly Report on Form 10-Q for fiscal
quarter ended June 30, 1991, File No. 0-9207, and
incorporated by reference herein.)
3.5 Amendment to the Certificate of Incorporation of
Harken Energy Corporation (filed as Exhibit 3.6 to
Harken's Annual Report on Form 10-K for the fiscal
year ended December 31, 1997, File No. 0-9207, and
incorporated by reference herein).
*3.6 Amendment to the Certificate of Incorporation of
Harken Energy Corporation.
3.7 Bylaws of Harken Energy Corporation, as amended
(filed as Exhibit 3.2 to Harken's Annual Report on
Form 10-K for fiscal year ended December 31, 1989,
File No. 0-9207, and incorporated by reference
herein.)
4.1 Form of certificate representing shares of Harken
common stock, par value $.01 per share (filed as
Exhibit 1 to Harken's Registration Statement on Form
8-A, File No. 0-9027, and incorporated by reference
herein.)
4.2 Certificate of Designations, Powers, Preferences and
Rights of Series A Cumulative Convertible Preferred
Stock, $1.00 par value, of Harken Energy Corporation
(filed as Exhibit 4.1 to Harken's Annual Report on
Form 10-K for the fiscal year ended December 31,
1989, File No. 0-9207, and incorporated by reference
herein).
4.3 Certificate of Designations, Powers, Preferences and
Rights of Series B Cumulative Convertible Preferred
Stock, $1.00 par value, of Harken Energy Corporation
(filed as Exhibit 4.2 to Harken's Annual Report on
Form 10-K for the fiscal year ended December 31,
1989, File No. 0-9207, and incorporated by reference
herein).
4.4 Certificate of the Designations, Powers, Preferences
and Rights of Series C Cumulative Convertible
Preferred Stock, $1.00 par value of Harken Energy
Corporation (filed as Exhibit 4.3 to Harken's Annual
Report on Form 10-K for fiscal year ended December
31, 1989, File No. 0-9207, and incorporated by
reference herein).
4.5 Certificate of the Designations of Series D Preferred
Stock, $1.00 par value of Harken Energy Corporation
(filed as Exhibit 4.3 to Harken's Quarterly Report on
Form 10-Q for the fiscal quarter ended September 30,
1995, File No. 0-9207, and incorporated by reference
herein).
4.6 Rights Agreement, dated as of April 6, 1998, by and
between Harken Energy Corporation And ChaseMellon
Shareholder Services L.L.C., as Rights Agent (filed
as Exhibit 4 to Harken's Current Report on Form 8-K
dated April 7, 1998, file No. 0-9207, and
incorporated by reference herein).
31
<PAGE> 32
4.7 Certificate of Designations of Series E Junior
Participating Preferred Stock (filed as Exhibit B to
Exhibit 4 to Harken's Current Report on Form 8-K
dated April 7, 1998, file No. 0-9207, and
incorporated by reference herein).
4.8 Certificate of Designations, Preferences and Rights
of Series F Convertible Preferred Stock (filed as
Exhibit 4.8 to Harken's Quarterly Report on Form 10-Q
for the period ended March 31, 1998, File No. 0-9207,
and incorporated by reference herein).
*10.1 Trust Indenture, dated as of May 26, 1998, by and
between the Company and Marine Midland Bank.
*10.2 Asset Purchase and Sale Agreement dated as of May 19,
1998, by and among the Company, St. Martinville
Partners, Ltd. and Bargo Energy Company.
*27 Financial Data Schedules.
- --------------------
* Filed herewith
(b) REPORTS ON FORM 8-K.
Current Report on Form 8-K dated May 26, 1998, reporting the
issuance of the 5% European Notes.
32
<PAGE> 33
HARKEN ENERGY CORPORATION
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 thereunto duly authorized.
Harken Energy Corporation
----------------------------------------
(Registrant)
Date: August 10, 1998 By: /s/ WAYNE HENNECKE
---------------------- ----------------------------------------
Wayne Hennecke, Vice President of
Finance and Chief Financial Officer
33
<PAGE> 34
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT PAGE
- ------- ------- ------------
<S> <C>
3.6 Amendment to the Certificate of Incorporation
10.1 Trust Indenture
10.2 Asset Purchase and Sales Agreement
27 Financial Data Schedules
</TABLE>
<PAGE> 1
EXHIBIT 3.6
CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF INCORPORATION
OF
HARKEN ENERGY CORPORATION
Harken Energy Corporation, a corporation organized and exiting under
and by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), does hereby certify that:
FIRST: The name of the Corporation is Harken Energy
Corporation.
SECOND: The first paragraph of Article Four of the
Certificate of Incorporation is hereby amended in its
entirety as follows:
"The aggregate number of shares which the Corporation shall
have the authority to issue is two hundred thirty-five million
(235,000,000), of which two hundred twenty- five million
(225,000,000) shall be designated as Common Stock of the par
value of One Cent ($.01) per share and ten million
(10,000,000) shall be designated as Preferred Stock of the par
value of One Dollar ($1.00) per share."
THIRD: The foregoing amendment to Article Four of the
Certificate of Incorporation was duly adopted by the
Corporation in accordance with the provisions of
Section 242 of the General Corporation Law of the
State of Delaware.
IN WITNESS WHEREOF, Harken Energy Corporation has caused this
Certificate of Amendment to be signed by Gregory S. Porter, its Vice President
- - Legal and Assistant Secretary this 15th day of June, 1998.
HARKEN ENERGY CORPORATION
/s/ Gregory S. Porter
------------------------------------
Gregory S. Porter
Vice President - Legal and
Assistant Secretary
<PAGE> 1
EXHIBIT 10.1
HARKEN ENERGY CORPORATION
U.S.$85,000,000
5% Senior Convertible Notes Due 2003
TRUST INDENTURE
May 26, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
SECTION 1.01
Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Agent Members . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Alternative Stock Exchange . . . . . . . . . . . . . . . . . . . . . 2
AMEX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Authenticating Agent . . . . . . . . . . . . . . . . . . . . . . . . 2
Authorized Denomination . . . . . . . . . . . . . . . . . . . . . . . 2
Authorized Newspapers . . . . . . . . . . . . . . . . . . . . . . . . 2
Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . 2
Board Resolution . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Business Day . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Capitalized Lease Obligation . . . . . . . . . . . . . . . . . . . . 3
Cedel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Certificate of Incorporation . . . . . . . . . . . . . . . . . . . . 3
Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Commission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Common Depository . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Company Request or Company Order . . . . . . . . . . . . . . . . . . 3
Conversion Agent . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Conversion Date . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Conversion Period . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Conversion Price . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Conversion Right . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Conversion Shares . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Corporate Trust Office . . . . . . . . . . . . . . . . . . . . . . . 4
Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Coupon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Couponholder . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Distribution Compliance Period . . . . . . . . . . . . . . . . . . . 5
Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
</TABLE>
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Euroclear . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Event of Default . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Exchange Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Extraordinary Resolution . . . . . . . . . . . . . . . . . . . . . . 5
Federal Bankruptcy Code . . . . . . . . . . . . . . . . . . . . . . . 5
Freely Tradable . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Generally Accepted Accounting Principles or GAAP . . . . . . . . . . 5
Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Guaranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Holder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Interest Payment Date . . . . . . . . . . . . . . . . . . . . . . . . 7
Lien . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Luxembourg Paying Agent and Conversion Agent . . . . . . . . . . . . 7
Mandatory Conversion . . . . . . . . . . . . . . . . . . . . . . . . 7
Mandatory Conversion Date . . . . . . . . . . . . . . . . . . . . . . 8
Market Capitalization . . . . . . . . . . . . . . . . . . . . . . . . 8
Market Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Marketable Securities . . . . . . . . . . . . . . . . . . . . . . . . 8
Maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Noteholder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Offering Circular . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Officers' Certificate . . . . . . . . . . . . . . . . . . . . . . . . 9
Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . 9
Outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Paying Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Person . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Predecessor Note . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Presentation Date . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Principal Paying and Conversion Agent . . . . . . . . . . . . . . . . 10
Principal Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . 10
Property or Properties . . . . . . . . . . . . . . . . . . . . . . . 11
Redemption by Conversion . . . . . . . . . . . . . . . . . . . . . . 11
Redemption Date . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Redemption Price . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Regulation S . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
</TABLE>
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<TABLE>
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Relevant Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Responsible Officer . . . . . . . . . . . . . . . . . . . . . . . . . 12
Rule 144A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Rule 144 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Securities Act . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Special Conversion Right . . . . . . . . . . . . . . . . . . . . . . 12
Stated Maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Stock Exchange Business Day . . . . . . . . . . . . . . . . . . . . . 12
Subordinated Obligation . . . . . . . . . . . . . . . . . . . . . . . 12
Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Unexercised Note . . . . . . . . . . . . . . . . . . . . . . . . . . 13
U.S. Government Obligations . . . . . . . . . . . . . . . . . . . . . 13
U.S. Person . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Vice President . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 1.02 Other Definitions . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 1.03 Rules of Construction. . . . . . . . . . . . . . . . . . . . . 14
SECTION 1.04 Compliance Certificates and Opinions. . . . . . . . . . . . . 15
SECTION 1.05 Form of Documents Delivered to Trustee. . . . . . . . . . . . 15
SECTION 1.06 Acts of Noteholders. . . . . . . . . . . . . . . . . . . . . . 16
SECTION 1.07 Notices, Etc., to Trustee and Company. . . . . . . . . . . . . 17
SECTION 1.08 Notice to Noteholders; Waiver. . . . . . . . . . . . . . . . . 18
SECTION 1.09 Effect of Headings and Table of Contents. . . . . . . . . . . 18
SECTION 1.10 Successors and Assigns. . . . . . . . . . . . . . . . . . . . 18
SECTION 1.11 Separability Clause. . . . . . . . . . . . . . . . . . . . . . 18
SECTION 1.12 Benefits of Indenture. . . . . . . . . . . . . . . . . . . . . 18
SECTION 1.13 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 1.14 Legal Holidays. . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE TWO
FORMS OF THE NOTES
SECTION 2.01 Forms Generally. . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 2.02 Restrictive Legends. . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE THREE
THE NOTES
SECTION 3.01 Terms. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 3.02 Denominations. . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 3.03 Execution, Authentication, Delivery and Dating. . . . . . . . 26
SECTION 3.04 Maintenance of A Common Depository; Temporary Notes. . . . . . 27
</TABLE>
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SECTION 3.05 Exchange. . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 3.06 Book-Entry Provisions for Global Notes. . . . . . . . . . . . 28
SECTION 3.07 Special Transfer Provisions. . . . . . . . . . . . . . . . . . 30
SECTION 3.08 Mutilated, Destroyed, Lost and Stolen Notes. . . . . . . . . . 30
SECTION 3.09 Payment of Interest; Interest Rights Preserved. . . . . . . . 31
SECTION 3.10 Persons Deemed Owners. . . . . . . . . . . . . . . . . . . . . 32
SECTION 3.11 Cancellation. . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 3.12 Computation of Interest. . . . . . . . . . . . . . . . . . . . 32
SECTION 3.13 ISIN, CUSIP Or Other Identifying Numbers. . . . . . . . . . . 33
SECTION 3.14 Prescription. . . . . . . . . . . . . . . . . . . . . . . . . 33
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 4.01 Satisfaction and Discharge of Indenture. . . . . . . . . . . . 33
SECTION 4.02 Application of Trust Money. . . . . . . . . . . . . . . . . . 34
ARTICLE FIVE
EVENTS OF DEFAULT AND REMEDIES
SECTION 5.01 Events of Default. . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 5.02 Acceleration of Maturity; Rescission and Annulment. . . . . . 37
SECTION 5.03 Collection of Indebtedness and Suits for Enforcement by
Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 5.04 Trustee May File Proofs of Claim. . . . . . . . . . . . . . . 38
SECTION 5.05 Trustee May Enforce Claims Without Possession of Notes. . . . 39
SECTION 5.06 Application of Money Collected. . . . . . . . . . . . . . . . 40
SECTION 5.07 Limitation on Suits. . . . . . . . . . . . . . . . . . . . . . 40
SECTION 5.08 Unconditional Right of Holders to Receive Principal
and Interest. . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 5.09 Restoration of Rights and Remedies. . . . . . . . . . . . . . 41
SECTION 5.10 Rights and Remedies Cumulative. . . . . . . . . . . . . . . . 41
SECTION 5.11 Delay or Omission Not Waiver. . . . . . . . . . . . . . . . . 42
SECTION 5.12 Control by Noteholders. . . . . . . . . . . . . . . . . . . . 42
SECTION 5.13 Waiver of Past Defaults. . . . . . . . . . . . . . . . . . . . 42
SECTION 5.14 Waiver of Stay or Extension Laws. . . . . . . . . . . . . . . 43
SECTION 5.15 Undertaking for Costs. . . . . . . . . . . . . . . . . . . . . 43
ARTICLE SIX
THE TRUSTEE
SECTION 6.01 Notice of Defaults. . . . . . . . . . . . . . . . . . . . . . 43
SECTION 6.02 Certain Rights of Trustee. . . . . . . . . . . . . . . . . . . 44
SECTION 6.03 Trustee Not Responsible for Recitals or Issuance of Notes. . . 45
SECTION 6.04 May Hold Notes. . . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 6.05 Money Held in Trust. . . . . . . . . . . . . . . . . . . . . . 46
SECTION 6.06 Compensation and Reimbursement. . . . . . . . . . . . . . . 46
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SECTION 6.07 Corporate Trustee Required; Eligibility. . . . . . . . . . . 47
SECTION 6.08 Resignation and Removal; Appointment of Successor. . . . . . 47
SECTION 6.09 Acceptance of Appointment by Successor. . . . . . . . . . . 48
SECTION 6.10 Merger, Conversion, Consolidation or Succession to Business . 49
SECTION 6.11 Certain Duties and Responsibilities. . . . . . . . . . . . . 49
SECTION 6.12 Meetings of Noteholders. . . . . . . . . . . . . . . . . . . 50
SECTION 6.13 Authenticating Agents. . . . . . . . . . . . . . . . . . . . 52
ARTICLE SEVEN
NOTEHOLDERS' LISTS AND REPORTS BY COMPANY
SECTION 7.01 Disclosure of Names and Addresses of Noteholders. . . . . . 53
SECTION 7.02 Reports by Company. . . . . . . . . . . . . . . . . . . . . 53
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER, OR LEASE
SECTION 8.01 Company May Consolidate, Etc., Only on Certain Terms. . . . 54
SECTION 8.02 Successor Substituted. . . . . . . . . . . . . . . . . . . . 55
ARTICLE NINE
SUPPLEMENTAL INDENTURES
SECTION 9.01 Supplemental Indentures Without Consent of Noteholders. . . 55
SECTION 9.02 Supplemental Indentures with Consent of Noteholders. . . . . 56
SECTION 9.03 Execution of Supplemental Indentures. . . . . . . . . . . . 57
SECTION 9.04 Effect of Supplemental Indentures. . . . . . . . . . . . . . 57
SECTION 9.05 Reference in Notes to Supplemental Indentures. . . . . . . . 57
SECTION 9.06 Notice of Supplemental Indentures. . . . . . . . . . . . . . 57
ARTICLE TEN
COVENANTS
SECTION 10.01 Payment of Principal and Interest. . . . . . . . . . . . . . 58
SECTION 10.02 Maintenance of Office or Agency. . . . . . . . . . . . . . . 58
SECTION 10.03 Money for Payments to Be Held in Trust. . . . . . . . . . . 58
SECTION 10.04 Corporate Existence. . . . . . . . . . . . . . . . . . . . . 60
SECTION 10.05 Payment of Taxes and Other Claims. . . . . . . . . . . . . . 60
SECTION 10.06 Maintenance of Properties. . . . . . . . . . . . . . . . . . 60
SECTION 10.07 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . 61
SECTION 10.08 Statement by Officers as to Default. . . . . . . . . . . . . 61
SECTION 10.09 Provision of Financial Statements. . . . . . . . . . . . . . 62
SECTION 10.10 Limitation on Other Indebtedness. . . . . . . . . . . . . . 62
SECTION 10.11 Limitation on Liens. . . . . . . . . . . . . . . . . . . . . 63
SECTION 10.12 Waiver of Certain Covenants. . . . . . . . . . . . . . . . . 63
SECTION 10.13 Restrictions on Charter Amendments. . . . . . . . . . . . . 63
SECTION 10.14 United States Withholding and Reporting Requirements. . . . 64
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SECTION 10.15 Registration of Shares and Maintenance of Listings for
Notes and Shares. . . . . . . . . . . . . . . . . . . . . . . 64
SECTION 10.16 Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . 65
SECTION 10.17 Rights Agreement. . . . . . . . . . . . . . . . . . . . . . 65
ARTICLE ELEVEN
REDEMPTION OF NOTES
SECTION 11.01 Right of Redemption. . . . . . . . . . . . . . . . . . . . . 65
SECTION 11.02 Applicability of Article. . . . . . . . . . . . . . . . . . 66
SECTION 11.03 Election to Redeem; Notice to Trustee. . . . . . . . . . . . 66
SECTION 11.04 Selection by Trustee of Notes to Be Redeemed. . . . . . . . 66
SECTION 11.05 Notice of Redemption. . . . . . . . . . . . . . . . . . . . 66
SECTION 11.06 Deposit of Redemption Price. . . . . . . . . . . . . . . . . 67
SECTION 11.07 Notes Payable on Redemption Date. . . . . . . . . . . . . . 68
SECTION 11.08 Surrender of Notes . . . . . . . . . . . . . . . . . . . . . 68
SECTION 11.09 Conversion on Redemption . . . . . . . . . . . . . . . . . . 68
SECTION 11.10 Redemption by Conversion . . . . . . . . . . . . . . . . . . 69
ARTICLE TWELVE
CONVERSION
SECTION 12.01 Conversion Right and Conversion Price . . . . . . . . . . . . 70
SECTION 12.02 Exercise of Conversion Right . . . . . . . . . . . . . . . . . 70
SECTION 12.03 Calculation of Shares Issued on Conversion and Fractions of
Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . .71
SECTION 12.04 Adjustment of Conversion Price. . . . . . . . . . . . . . . 71
SECTION 12.05 Notice of Adjustments of Conversion Price . . . . . . . . . 76
SECTION 12.06 Notice of Certain Corporate Action. . . . . . . . . . . . . 77
SECTION 12.07 Company to Reserve Common Stock. . . . . . . . . . . . . . . 78
SECTION 12.08 Taxes on Conversions. . . . . . . . . . . . . . . . . . . . 78
SECTION 12.09 Cancellation of Converted Bearer Notes. . . . . . . . . . . 78
SECTION 12.10 Provisions in Case of Reclassification Consolidation,
Merger or Sale . . . . . . . . . . . . . . . . . . . . . . . 78
SECTION 12.11 Mandatory Conversion. . . . . . . . . . . . . . . . . . . . 79
SECTION 12.12 Special Conversion Right. . . . . . . . . . . . . . . . . . 80
SECTION 12.13 Amendments to Regulation S. . . . . . . . . . . . . . . . . 80
ARTICLE THIRTEEN
DEFEASANCE AND COVENANT DEFEASANCE
SECTION 13.01 Company's Option to Effect Defeasance or Covenant Defeasance. 81
SECTION 13.02 Legal Defeasance and Discharge. . . . . . . . . . . . . . . 81
SECTION 13.03 Covenant Defeasance. . . . . . . . . . . . . . . . . . . . . 81
SECTION 13.04 Conditions to Legal Defeasance or Covenant Defeasance. . . . 82
SECTION 13.05 Deposited Money and U.S. Government Obligations to Be Held
in Trust; Other Miscellaneous Provisions. . . . . . . . . . . 83
SECTION 13.06 Reinstatement. . . . . . . . . . . . . . . . . . . . . . . . 84
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ARTICLE FOURTEEN
SENIORITY OF NOTES
SECTION 14.01 Seniority of the Notes. . . . . . . . . . . . . . . . . . . 84
ARTICLE FIFTEEN
IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS
SECTION 15.01 Liability Solely Corporate. . . . . . . . . . . . . . . . . 85
</TABLE>
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Exhibits:
Exhibit A -- Form of Bearer Notes
Exhibit B-1 -- Form of Temporary Global Note
Exhibit B-2 -- Form of Permanent Global Note
Exhibit C -- Conversion Notice
Exhibit D -- Form of Mandatory Conversion Notice
Exhibit E -- Form of Notice of Redemption for Shares
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<PAGE> 10
TRUST INDENTURE dated as of May 26, 1998 ("Indenture"), between HARKEN
ENERGY CORPORATION, a corporation duly organized and existing under the laws of
the State of Delaware (herein called the "Company"), and MARINE MIDLAND BANK, a
banking corporation and trust company duly organized and existing under the
laws of the State of New York, as Trustee (herein called the "Trustee").
WHEREAS:
The Company has duly authorized the creation of an issue of up to U.S.
$85,000,000 of 5% Senior Convertible Notes Due 2003 and the Coupons, if any,
thereto appertaining (collectively, the "Notes") and to provide therefor the
Company has duly authorized the execution and delivery of this Indenture.
All things necessary have been done to make the Notes, when duly issued
and executed by the Company and authenticated and delivered hereunder, the
valid obligations of the Company and to make this Indenture a valid agreement
of the Company, in accordance with their and its terms.
The Trustee has agreed to act as trustee under this Indenture on the
terms and conditions set forth herein.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the Notes
by the Holders thereof, it is mutually covenanted and agreed, for the equal and
proportionate benefit of all Holders of the Notes, as follows:
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
SECTION 1.01 Definitions.
"Act," when used with respect to any Noteholder, has the meaning
specified in Section 1.06.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person and the terms "controlling" and "controlled"
have meanings correlative to the foregoing.
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"Agent Members" has the meaning specified in Section 3.06.
"Alternative Stock Exchange" means any other national or regional stock
exchange or quotation service such as NASDAQ National Market System or any
similar quotation service maintained by the National Quotation Bureau or any
successor thereto agreed between the Company and the Trustee.
"AMEX" means The American Stock Exchange, Inc. or any successor thereto.
"Authenticating Agent" means the Person authorized pursuant to Section
6.13 to act on behalf of the Trustee to authenticate the Notes until a
successor Authenticating Agent shall have become such pursuant to the
applicable provisions of this Indenture, and thereafter "Authenticating Agent"
shall mean such successor Authenticating Agent. Pursuant to the terms hereof,
Midland Bank Plc will initially act as the Authenticating Agent.
"Authorized Denomination" means the denomination authorized in Section
3.02.
"Authorized Newspapers" means the Luxembourg Wort of Luxembourg and The
Financial Times (European Edition) of London, England. If either such
newspaper shall cease to be published, the Company or the Trustee shall
substitute for it another newspaper in Europe, customarily published at least
once a day for at least five (5) days in each calendar week, of general
circulation. If, because of temporary suspension of publication or general
circulation of either such newspaper or for any other reason, it is impossible
or, in the opinion of the Company or the Trustee, impracticable to make any
publication of any notice required by this Indenture in the manner herein
provided, such publication or other notice in lieu thereof which is made by the
Company or the Trustee in the exercise of its reasonable discretion shall
constitute a sufficient publication of such notice.
"Board of Directors" means either the board of directors of the Company
or any duly authorized committee of that board.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board of Directors and in full force and effect on the date of such
certification, and delivered to the Trustee.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is a day on which banking institutions in Luxembourg, the City of
New York, New York, and London, England are not authorized or obliged by law,
regulation or executive order to close.
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"Capitalized Lease Obligation" means the amount of the liability under
any capital lease that, in accordance with GAAP, is required to be capitalized
and reflected as a liability on the balance sheet of the relevant Person.
"Cedel" means Cedel Bank, societe anonyme.
"Certificate of Incorporation" means the Certificate of Incorporation of
the Company, as in effect on the date hereof and as amended or restated from
time to time hereafter.
"Closing Date" means May 26, 1998.
"Commission" means the Securities and Exchange Commission, as from time
to time constituted or, if at any time after the execution of this Indenture
such Commission is not existing, then the body performing similar duties at
such time.
"Common Depository" means the common depository appointed by Morgan
Guaranty Trust Company of New York, Brussels office, as operator of the
Euroclear System, and Cedel Bank, societe anonyme, which shall initially be
Midland Bank plc, including the nominees and successors of any Common
Depository.
"Common Stock" means, with respect to any Person, any and all shares,
interests, participation and other equivalents (however designated, whether
voting or non-voting) of such Person's common stock, whether now outstanding or
issued after the date of this Indenture, and includes, without limitation, all
series and classes of such common stock.
"Company" means the Person named as the "Company" in the first paragraph
of this Indenture, until a successor Person shall have become such pursuant to
the applicable provisions of this Indenture, and thereafter "Company" shall
mean such successor Person.
"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by its Chairman, a Vice Chairman, its
President, or a Vice President and by its Treasurer, an Assistant Treasurer,
the Secretary or an Assistant Secretary, and delivered to the Trustee.
"Conversion Agent" means any Person (including the Company acting as
Conversion Agent) authorized by the Company to effect conversions of the Notes
on behalf of the Company. Pursuant to the terms hereof, the Company has
initially appointed Midland Bank plc to act as the Principal Conversion Agent
and Kredietbank S.A. Luxembourgeoise to act as the Luxembourg Conversion Agent
for the Notes.
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<PAGE> 13
"Conversion Date" means the Business Day during the Conversion Period on
which the Conversion Right is exercised (or, with respect to the exercise of a
Special Conversion Right, the Business Day on which the Special Conversion
Right is exercised) by delivery to the Conversion Agent of the Note surrendered
for conversion and the completed notice of a Noteholder's intention to exercise
its Conversion Right (as set forth in Exhibit C hereto) with respect to any
Note.
"Conversion Period" means, with respect to any Note, the period which
commences on the Effective Date and which ends on the earliest to occur of (i)
the close of business on the second Business Day preceding the later to occur
of May 26, 2003 or the date on which all principal and interest on such Note is
repaid in full, (ii) if such Note shall have been called for redemption
pursuant to Article Eleven, the close of business two (2) Business Days prior
to the Redemption Date, or (iii) if the Company shall have given notice that
the Mandatory Conversion option in Section 12.11 has been exercised, the
Mandatory Conversion Date; provided, however, that the Conversion Period shall
exclude (unless an exemption from registration is available) all days upon
which a registration statement with respect to the Conversion Shares is not in
effect and all days upon which a distribution pursuant to a filed registration
statement is subject to a stop-order issued by the Commission.
"Conversion Price" means, except as otherwise provided pursuant to
Article 11.10, $6.50, the price at which Conversion Shares shall be issued
upon conversion, subject to adjustment as set forth herein.
"Conversion Right" means the right of a Holder of any Note to convert
such Note into Conversion Shares.
"Conversion Shares" means the Shares into which the Notes are
convertible.
"Corporate Trust Office" means the principal corporate trust office of
the Trustee, at which at any particular time its corporate trust business shall
be administered, which office at the date of execution of this Indenture is
located at 140 Broadway, New York, New York 10005-1180, except that with
respect to presentation of Notes for payment upon redemption, for conversion or
exchange, such term shall mean the office or agency of the Trustee at which, at
any particular time, its corporate agency business shall be conducted.
"Corporation" includes corporations, limited liability companies,
limited and general partnerships, associations, joint-stock companies and
business trusts.
"Coupon" means bearer interest Coupons relating to the Bearer Notes and
any replacement Coupons issued pursuant to Section 3.08.
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<PAGE> 14
"Couponholder" means a Person who is the bearer of any Coupon.
"Default" means any event which is, or after notice or passage of time
or both would be, an Event of Default.
"Distribution Compliance Period" means the one year period commencing
after the Closing Date.
"Effective Date" means the earlier of (a) the first Business Day
following the date upon which the Commission declares to be effective a
registration statement filed by the Company pursuant to the Securities Act
relating to the Conversion Shares and (b) the first Business Day occurring
after the expiration, as applicable, of the Distribution Compliance Period.
"Euroclear" means the Euroclear System.
"Event of Default" has the meaning specified in Section 5.01.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Extraordinary Resolution" means a resolution passed at a meeting of the
Noteholders duly convened and held in accordance with Section 6.12 hereof.
"Federal Bankruptcy Code" means the Bankruptcy Act or Title 11 of the
United States Code, as amended from time to time.
"Freely Tradable" means, with respect to the Notes and the Shares, that
under the Securities Act the holders thereof may then offer and sell any amount
of such outstanding securities to the public in the United States in
transactions that are not brokers' transactions (as defined in the Securities
Act) either (i) pursuant to an effective registration statement then in effect
or (ii) pursuant to Rule 144(k). For purposes of determining whether such
securities are Freely Tradable, it shall be assumed that no person that
directly, or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, the Company has ever held such
securities from and after their issuance.
"Generally Accepted Accounting Principles" or "GAAP" means generally
accepted accounting principles in the United States, as applied from time to
time by the Company and its Subsidiaries in the preparation of its financial
statements.
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<PAGE> 15
"Global Notes" means the Temporary Global Note and the Permanent Global
Note that may be issued pursuant to this Indenture.
"Group" means the Company and all its Principal Subsidiaries.
"Guaranty" means all obligations of any Person (other than endorsements
in the ordinary course of business of negotiable instruments for deposit or
collection) guaranteeing or in effect guaranteeing any Indebtedness, dividend
or other obligation, of any other Person (the "primary obligor") in any manner,
whether directly or indirectly, including without limitation all obligations
incurred through an agreement, contingent or otherwise, by such Person: (i) to
purchase such Indebtedness or obligation or any Property or assets constituting
security therefor, or (ii) to advance or supply funds (1) for the purchase or
payment of such Indebtedness or obligation, or (2) to enable the recipient of
such funds to maintain certain financial conditions (e.g. agreed amount of
working capital) under loan or similar documents, or (iii) to lease Property or
to purchase securities or other Property or services primarily for the purpose
of assuring the owner of such Indebtedness or obligation of the ability of the
primary obligor to make payment of the Indebtedness or obligation, or (iv)
otherwise to assure the owner of the Indebtedness or obligation of the primary
obligor against loss in respect thereof. For the purposes of all computations
made under this Indenture, a Guaranty in respect of any Indebtedness shall be
deemed to be Indebtedness equal to the principal amount and accrued interest of
such Indebtedness which has been guaranteed, and a Guaranty in respect of any
other obligation or liability or any dividend shall be deemed to be
Indebtedness equal to the maximum aggregate amount of such obligation,
liability or dividend.
"Holder" means a Person who is a bearer of a Note or Coupon, as the case
may be.
"Indebtedness" of any Person means and includes all present and future
obligations of such Person, which shall include, without limitation, all
obligations (i) which in accordance with generally accepted accounting
principles in the United States shall be classified upon a balance sheet of
such Person as liabilities of such Person, (ii) for borrowed money, (iii) which
have been incurred in connection with the acquisition of Property (including,
without limitation, all obligations of such Person evidenced by any debenture,
bond, note, commercial paper or other similar security, but excluding, in any
case, obligations arising from the endorsement in the ordinary course of
business of negotiable instruments for deposit or collection), (iv) secured by
any Lien existing on Property owned by such Person, even though such Person has
not assumed or become liable for the payment of such obligations, (v) created
or arising under any conditional sale or other title retention agreement with
respect to Property acquired by such Person, notwithstanding the fact that the
rights and remedies of the seller, lender or lessor under such agreement in the
event of default are limited to repossession or sale of such Property, (vi)
which are Capitalized Lease Obligations, (vii) for all Guarantees, whether or
not reflected in the balance sheet of such Person and (viii) which are all
reimbursement and other payment obligations (whether contingent, matured or
otherwise) of such
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<PAGE> 16
Person in respect of any acceptance or documentary credit. Notwithstanding the
foregoing, Indebtedness shall not include (i) Indebtedness incidental to the
operation of the business of the Person in the ordinary course and in the
aggregate not material to the business and operations of the Person, (ii)
Indebtedness for which the Company or any of its Subsidiaries are the sole
obligors and obligees, and (iii) Indebtedness represented by purchase, rental
or lease obligations not to exceed $1,000,000 in any period of 12 months for
any Person and its Subsidiaries.
"Indenture" means this instrument as originally executed and as it may
from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof.
"Interest Payment Date" means the Stated Maturity of an instalment of
interest on the Notes.
"Lien" means any mortgage, charge, pledge, lien, security interest or
encumbrance of any kind whatsoever, including any interest in Property securing
an obligation owed to, or a claim by, a Person other than the owner of the
Property, whether such interest is based on the common law, statute or
contract, and including but not limited to the security interest lien arising
from a mortgage, encumbrance, pledge, conditional sale or trust receipt or a
lease, consignment or bailment for security purposes. The term "Lien" shall
include reservations, exceptions, encroachments, easements, rights-of-way,
covenants, conditions, restrictions, leases and other title exceptions and
encumbrances affecting Property. For the purposes of this Indenture, the
Company or its Subsidiary shall be deemed to be the owner of any Property which
it has acquired or holds subject to a conditional sale agreement, financing
lease or other arrangement pursuant to which title to the Property has been
retained by or vested in some other Person for security purposes.
"Luxembourg Paying Agent and Conversion Agent" means any Person
authorised by the Company to act as the Luxembourg paying and conversion agent
for the Notes until a successor Luxembourg Paying and Conversion Agent shall
have become such pursuant to the applicable provisions of this Indenture, and
thereafter "Luxembourg Paying and Conversion Agent" shall mean such successor
Luxembourg Paying and Conversion Agent. Pursuant to the terms hereof, the
Company has initially appointed Kredietbank S.A. Luxembourgeoise as the
Luxembourg Paying and Conversion Agent.
"Mandatory Conversion" means conversion of the Notes at the option of
the Company pursuant to Section 12.11.
"Mandatory Conversion Date" means the date specified in a notice
published by the Company in accordance with Sections 1.07, 1.08 and 12.11, on
which the Noteholders are required to surrender their Notes for conversion.
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<PAGE> 17
"Market Capitalization" means, for any date, the average, over the
thirty (30) calendar day period immediately preceding the date that notice of
redemption is given pursuant to this Indenture, of the product of the Market
Price of the Common Stock (ignoring days in such period which are not Stock
Exchange Business Days) and the number of shares of Common Stock of the Company
issued and outstanding on such date; provided, however, that appropriate
adjustments shall be made to the Market Prices and number of shares used in
determining such Market Capitalization to account fairly for the effect of
dividends payable in cash or equity securities of the Company or any other
Person, spin-offs of subsidiaries, mergers in which the Company or a Principal
Subsidiary is a constituent party, and similar events; and further provided,
that in the event that the Company's Common Stock is not traded on the New York
Stock Exchange, the AMEX or any Alternative Stock Exchange and the Trustee and
the Company are not able to agree on the value of the Company's Market
Capitalization, then the average Market Price for any particular day or over
the disputed period shall be calculated promptly at the Company's expense by a
reputable investment bank selected by the Trustee.
"Market Price" means, on any given day, the daily closing sale price of
the Common Stock for a Stock Exchange Business Day on the AMEX or, if not
quoted on the AMEX, then on an Alternative Stock Exchange, but if the Common
Stock is not quoted on the AMEX or an Alternative Stock Exchange, then the
Market Price for any particular day shall be calculated promptly at the
Company's expense by a reputable investment bank selected by the Trustee.
"Marketable Securities" means any "security" (as such term is defined in
Section 2(1) of the Securities Act) of any Person listed, admitted to trading
or quoted on the New York Stock Exchange, the AMEX or any Alternative Stock
Exchange.
"Maturity," when used with respect to any Note, means the date on which
the principal of such Note becomes due and payable as therein or herein
provided, whether at the Stated Maturity or the Redemption Date and whether by
declaration of acceleration, call for redemption or otherwise.
"Noteholder" means a Person who is the bearer of any Note.
"Notes" has the meaning stated in the first recital of this Indenture
and more particularly means any Notes authenticated and delivered under this
Indenture.
"Offering Circular" means that certain Final Offering Circular dated May
26, 1998, together with all supplements and amendments thereto.
-8-
<PAGE> 18
"Officers' Certificate" means a certificate signed by the Chairman, a
Vice Chairman, the President or a Vice President, and by the Treasurer, an
Assistant Treasurer, the Secretary or an Assistant Secretary of the Company,
and delivered to the Trustee. Any one individual holding the requisite titles
may sign and deliver an Officer's Certificate without cosignature of another
individual with a requisite title.
"Opinion of Counsel" means a written opinion of counsel, who may be
counsel for the Company, including an employee of the Company, and who shall be
reasonably acceptable to the Trustee.
"Outstanding," when used with respect to Notes, means, as of the date of
determination, all Notes theretofore authenticated and delivered under this
Indenture, except: (1) Notes heretofore cancelled by the Paying and Conversion
Agent or delivered to the Paying and Conversion Agent for cancellation; (2)
Notes, or portions thereof, for whose payment or redemption money in the
necessary amount has been theretofore deposited with the Trustee or any Paying
Agent (other than the Company) in trust or set aside and segregated in trust by
the Company (if the Company shall act as its own Paying Agent) for the Holders
of such Notes; provided that, if such Notes are to be redeemed, notice of such
redemption has been duly given pursuant to this Indenture or provision therefor
satisfactory to the Trustee has been made; (3) Notes, except to the extent
provided in Sections 13.02 and 13.03, with respect to which the Company has
effected defeasance and/or covenant defeasance as provided in Article Thirteen;
and (4) Notes which have been paid pursuant to Section 3.08 or in exchange for
or in lieu of which other Notes have been authenticated and delivered pursuant
to this Indenture, other than any such Notes in respect of which there shall
have been presented to the Trustee proof satisfactory to it that such Notes are
held by a bona fide purchaser in whose hands the Notes are valid obligations of
the Company; provided, however, that in determining whether the Holders of the
requisite principal amount of Outstanding Notes have taken any Act or given or
made any Extraordinary Resolution or other request, demand, authorization,
direction, consent, notice or waiver hereunder, Notes owned by the Company or
any other obligor upon the Notes or any Affiliate of the Company (other than
Persons whose Affiliate relationship arises solely from ownership of Conversion
Shares) or such other obligor shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Trustee shall be protected
in making such calculation or in relying upon any such request, demand,
authorization, direction, consent, notice or waiver, only Notes which the
Trustee knows to be so owned shall be so disregarded. Notes so owned which
have been pledged in good faith may be regarded as Outstanding if the pledgee
establishes to the satisfaction of the Trustee the pledgee's right so to act
with respect to such Notes and that the pledgee is not the Company or any other
obligor upon the Notes or any Affiliate of the Company or such other obligor.
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<PAGE> 19
"Paying Agent" means any Person (including the Company acting as Paying
Agent) authorized by the Company to pay the principal of or interest on any
Notes on behalf of the Company. Pursuant to the terms hereof, the Company has
initially appointed Midland Bank plc as the Principal Paying Agent and
Kredietbank S.A. Luxembourgeoise as the Luxembourg Paying Agent.
"Person" means any individual, corporation, limited liability company,
limited or general partnership, joint venture, association, joint-stock
company, trust, unincorporated organization or government or any agency or
political subdivision thereof.
"Predecessor Note" of any particular Note means every previous Note
evidencing all or a portion of the same debt as that evidenced by such
particular Note; and, for the purposes of this definition, any Note
authenticated and delivered under Section 3.08 in exchange for or in lieu of a
mutilated, lost, destroyed or stolen Note shall be deemed to evidence the same
debt as the mutilated, lost, destroyed or stolen Note.
"Preferred Stock" means, with respect to any Person, any and all shares,
interests, participation or other equivalents (however designated) of such
Person's preferred or preference stock whether now outstanding or issued on or
after the date of this Indenture, and includes, without limitation, all classes
and series of preferred or preference stock.
"Presentation Date" means the date on which a Note is presented by a
Noteholder for payment of principal or a Coupon is presented by the
Couponholder for payment of interest, as the case may be.
"Principal Paying and Conversion Agent" means any Person authorized by
the Company to act as the principal paying and conversion agent for the Notes
until a successor Principal Paying and Conversion Agent shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Principal Paying and Conversion Agent" shall mean such successor Principal
Paying and Conversion Agent. Pursuant to the terms hereof, the Company has
initially appointed Midland Bank plc as the Principal Paying and Conversion
Agent.
"Principal Subsidiary" means a Subsidiary of either the Company or any
Subsidiary:
(a) whose gross assets represent 10 percent or more of the
consolidated gross assets of the Group as calculated by reference to the then
latest audited financial statements of the Group; or
(b) to which is transferred all or substantially all of the
business, undertaking and assets of a Subsidiary of the Company which
immediately prior to such transfer is a Principal
-10-
<PAGE> 20
Subsidiary, whereupon the transferor Subsidiary shall immediately cease to be a
Principal Subsidiary and the transferee Subsidiary shall cease to be a
Principal Subsidiary under the provisions of this sub-paragraph (b) (but
without prejudice to the provisions of sub-paragraph (a) above), upon
publication of its next audited financial statements; and
(c) and shall include, for the avoidance of doubt, Harken
Exploration Company, Harken Energy West Texas, Inc., Harken Southwest
Corporation, Search Acquisition Corp., and Harken de Colombia, Ltd.
"Property" or "Properties"means any kind of property or asset, whether
real, personal or mixed, or tangible or intangible, and any interest therein.
"QUIB" means a qualified institutional buyer within the meaning of Rule
144A.
"Redemption by Conversion" has the meaning specified in Section 11.10.
"Redemption Date," when used with respect to any Note to be redeemed, in
whole or in part, means the date fixed for such redemption by or pursuant to
this Indenture.
"Redemption Price," when used with respect to any Note and Coupons to be
redeemed, means the price at which they are to be redeemed pursuant to the
terms hereof, plus accrued interest to the Redemption Date if applicable,
expressed in a number of Conversion Shares into which such Note and Coupon
shall be converted in the event the Notes and/or Coupons are to be redeemed for
Shares and, in the event of any other redemption, a cash amount.
"Regulation S" means Regulation S under the Securities Act as in effect
on the date hereof or as such Regulation may hereafter be amended and deemed
applicable to the Notes.
"Relevant Date" means the date on which the payment first becomes due;
provided, that if the full amount of the money payable has not been received by
the Principal Paying Agent or the Trustee on or before the due date, it shall
mean the date on which, the full amount of the money having been so received,
notice to that effect shall have been duly given to the Noteholders by the
Company in accordance with Section 1.08.
"Responsible Officer," when used with respect to the Trustee, means any
trust officer or assistant trust officer or any other officer of the Trustee
customarily performing functions similar to those performed by any of the
above-designated officers, and also means, with respect to a particular
corporate trust matter, any other officer to whom such matter is referred
because of such officer's knowledge of and familiarity with the particular
subject.
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<PAGE> 21
"Rights Agreement" has the meaning specified in Section 10.17.
"Rule 144A" means Rule 144A, as amended, promulgated by the Commission
pursuant to the Securities Act.
"Rule 144" means Rule 144, as amended, promulgated by the Commission
pursuant to the Securities Act.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated from time to time by the Commission pursuant
thereto.
"Shares" means the common stock, par value U.S.$0.01, of the Company
(and all other (if any) shares or stock resulting from any sub-division,
consolidation or reclassification of such shares).
"Special Conversion Right" means the right of the Holder or the Trustee
to require the conversion of Notes into shares of Common Stock pursuant to
Section 12.12.
"Stated Maturity," when used with respect to any Indebtedness or any
instalment of principal thereof or interest thereon, means the date specified
in such Indebtedness as the fixed date on which the principal of such
Indebtedness or such instalment of principal or interest is due and payable.
"Stock Exchange Business Day" means any day (other than a Saturday or
Sunday) on which the AMEX or the Alternative Stock Exchange, as the case may
be, is open for business.
"Subordinated Obligation" means any Indebtedness of the Company
outstanding on such date which is contractually subordinate or junior in right
of payment to the Notes. Notwithstanding the immediately preceding sentence,
any Indebtedness and shares of Preferred Stock issued by any Subsidiary shall,
for purposes of this definition, be treated as Subordinated Obligations.
"Subsidiary" of any Person means any Corporation of which at least a
majority of the shares of stock having by the terms thereof ordinary voting
power to elect a majority of the Board of Directors of such Corporation
(irrespective of whether or not at the time stock of any other class or classes
of such Corporation shall have or might have voting power by reason of the
happening of any contingency) is directly or indirectly owned or controlled by
any one of or any combinations of the Company or one or more of the Principal
Subsidiaries.
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<PAGE> 22
"Trustee" means the Person named as the "Trustee" in the first paragraph
of this Indenture until a successor Trustee shall have become such pursuant to
the applicable provisions of this Indenture, and thereafter "Trustee" shall
mean such successor Trustee.
"Unexercised Note" means any Note with respect to which Conversion
Rights have not been exercised by the Noteholder.
"U.S. Government Obligations" means securities that are (x) direct
obligations of the United States of America for the timely payment of which its
full faith and credit is pledged or (y) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States
of America the timely payment of which is unconditionally guaranteed as a full
faith and credit obligation by the United States of America, which, in either
case, are not callable or redeemable at the option of the issuer thereof, and
shall also include a depository receipt issued by a bank (as defined in Section
3(a)(2) of the Securities Act), as custodian with respect to any such U.S.
Government Obligation or a specific payment of principal of or interest on any
such U.S. Government Obligation held by such custodian for the account of the
holder of such depository receipt, provided that (except as required by law)
such custodian is not authorized to make any deduction from the amount payable
to the holder of such depository receipt from any amount received by the
custodian in respect of the U.S. Government Obligation or the specific payment
of principal of or interest on the U.S. Government Obligation evidenced by such
depository receipt.
"U.S. Person" means any Person who is a "U.S. person" as defined in
Regulation S.
"Vice President," when used with respect to the Company or the Trustee,
means any vice president, whether or not designated by a number or a word or
words added before or after the title "vice president".
SECTION 1.02 Other Definitions.
<TABLE>
<CAPTION>
Term Defined in Section
---- ------------------
<S> <C>
5.5% Senior Notes 3.01
Agency Agreement 10.02
Bearer Notes 2.01
Commencement Date 12.04
Covenant defeasance 13.03
Current Event 12.04
Expiration Time 12.04
legal defeasance 13.02
</TABLE>
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<PAGE> 23
<TABLE>
<S> <C>
Notice 1.08
Other Event 12.04
Permanent Global Note 2.01
Reference Date 12.04
Temporary Global Note 2.01
</TABLE>
SECTION 1.03 Rules of Construction.
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
(a) all the terms defined in this Article have the meanings
assigned to them in this Article, and include the plural as well as the
singular;
(b) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with GAAP;
(c) all ratios and computations based on GAAP contained in
this Indenture shall be computed in accordance with the definition of GAAP set
forth above;
(d) the words "herein," "hereof" and "hereunder" and other
words of similar import refer to this Indenture as a whole and not to any
particular Article, Section or other subdivision of this Indenture;
(e) "or" is not exclusive;
(f) all references to $, U.S.$, dollars or United States
dollars shall refer to the lawful currency of the United States of America;
(g) provisions apply to successive events and transactions;
(h) all references to Sections or Articles refer to Sections
or Articles of this Indenture unless otherwise indicated; and
(i) all references to Terms or Conditions refer to the Terms
and Conditions of the Notes unless otherwise indicated.
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<PAGE> 24
SECTION 1.04 Compliance Certificates and Opinions.
Upon any application or request by the Company to the Trustee to take
any action under any provision of this Indenture, the Company shall, with
respect to (i) any application or request to make an optional redemption or
Mandatory Conversion and (ii) upon the request of the Trustee, any other
application or request, furnish to the Trustee an Officers' Certificate stating
that all conditions precedent, if any, provided for in this Indenture
(including any covenant compliance with which constitutes a condition
precedent) relating to the proposed action have been complied with and an
Opinion of Counsel stating that in the opinion of such counsel all such
conditions precedent, if any, have been complied with, except that in the case
of any such application or request as to which the furnishing of such documents
is specifically required by any provision of this Indenture relating to such
particular application or request, no additional certificate or opinion need be
furnished.
Every certificate or opinion with respect to compliance with a condition
or covenant provided for in this Indenture shall include:
(a) a statement that each individual signing such certificate
or opinion has read such covenant or condition and the definitions herein
relating thereto;
(b) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions contained in
such certificate or opinion are based;
(c) a statement that, in the opinion of each such individual,
such individual has made such examination or investigation as is necessary to
enable such individual to express an informed opinion as to whether or not such
covenant or condition has been complied with; and
(d) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
SECTION 1.05 Form of Documents Delivered to Trustee.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
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<PAGE> 25
Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which such officer's certificate or opinion is
based are erroneous. Any such certificate or Opinion of Counsel may be based,
insofar as it relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Company stating that the
information with respect to such factual matters is in the possession of the
Company, unless such counsel knows, or in the exercise of reasonable care
should know, that the certificate or opinion or representations with respect to
such matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 1.06 Acts of Noteholders.
(a) Any Extraordinary Resolution, request, demand,
authorization, direction, declaration, notice, consent, waiver or other action
provided by this Indenture to be given or taken by Noteholders may be embodied
in and evidenced by one or more instruments of substantially similar tenor
signed by such Noteholders in person or by agents duly appointed in writing;
and, except as herein otherwise expressly provided, such action shall become
effective when such instrument or instruments are delivered to the Trustee and,
where it is hereby expressly required, to the Company. Such instrument or
instruments (and the action embodied therein and evidenced thereby) are herein
sometimes referred to as the "Act" of the Noteholders signing such instrument
or instruments. Proof of execution of any such instrument or of a writing
appointing any such agent shall be sufficient for any purpose of this Indenture
and conclusive in favour of the Trustee and the Company, if made in the manner
provided in this Section.
(b) The fact and date of the execution by any Person of any
such instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to such witness, notary public or other
such officer the execution thereof. Where such execution is by a signer acting
in a capacity other than such signer's individual capacity, such certificate or
affidavit shall also constitute sufficient proof of authority. The fact and
date of the execution of any such instrument or writing, or the authority of
the Person executing the same, may also be proved in any other manner which the
Trustee deems sufficient.
(c) Any Extraordinary Resolution, request, demand,
authorization, direction, notice, consent, waiver or other Act of the Holders
of any Note shall bind every future Holder of the
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same Note and the Holder of every Note issued upon conversion or redemption
thereof or in exchange therefor or in lieu thereof in respect of anything done,
omitted or suffered to be done by the Trustee or the Company in reliance
thereon, whether or not notation of such action is made upon such Note.
SECTION 1.07 Notices, Etc., to Trustee and Company.
Any request, demand, authorization, direction, declaration, notice,
consent, waiver, Extraordinary Resolution or Act of Noteholders or other
document provided or pertained by this Indenture (herein collectively called
"Notice") to be made upon, given or furnished to, or filed with:
(a) the Trustee by any Noteholder or by the Company shall be
sufficient for every purpose hereunder if made, given, furnished or filed in
writing to or with the Trustee and received at its Corporate Trust Office,
Marine Midland Bank, 140 Broadway, New York, New York 10005-1180, Attention:
Corporate Trust Services - Harken, Tel. (212) 658-1000, Fax. (212) 658-6425, or
(b) the Company by the Trustee or by any Noteholder shall be
sufficient for every purpose hereunder (unless otherwise herein expressly
provided) if made, given, furnished or filed in writing to or with the Company
addressed to it at the address of its principal office which shall initially
be: Harken Energy Corporation, 5605 North MacArthur Boulevard, Suite 400,
Irving, Texas 75038, Attention: Bruce N. Huff, President and Chief Operating
Officer, Tel. (972) 753-6939, Fax. (972) 753-6926, with a copy to Larry E.
Cummings, General Counsel, Tel. (972) 753-6932, Fax. (972) 753-6963.
Any Notice to be given hereunder by any party to another shall be in
writing and in English (by letter, telex or fax) delivered in person or by
courier service requiring acknowledgment of delivery, mailed by first class
mail, postage prepaid, or sent by fax or telex to the addressee (including
telecopier number, if applicable) set forth herein. Except for notices to the
Trustee, Notice given by mail, fax, personal delivery or courier service shall
be effective upon actual receipt. Notice given by telex shall be effective
upon receipt by the sender of the addressee's answer-back at the end of
transmission, provided that any such Notice or other communication which would
otherwise take effect after 4:00 p.m. on any particular day shall not take
effect until 10:00 a.m. on the immediately succeeding Business Day in the place
of the addressee. A party may change any address to which Notice is to be
given to it by giving Notice as provided above of such change of address.
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SECTION 1.08 Notice to Noteholders; Waiver.
Where this Indenture provides for notice of any event to Noteholders by
the Company or the Trustee, such notice shall be sufficiently given (unless
otherwise herein expressly provided) if published in the Authorized Newspapers.
Neither the Trustee nor the Company need give any notice to the Couponholders
and such Couponholders will be deemed to have notice of the contents of any
notice given to the Noteholders in accordance with this Section.
In case by reason of any cause it shall be impracticable to publish
notice of any event to the Noteholders when such notice is required to be given
pursuant to any provision of this Indenture, then any manner of giving such
notice as shall be satisfactory to the Trustee shall constitute a sufficient
notification for every purpose hereunder.
SECTION 1.09 Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of Contents are
for convenience only and shall not affect the construction hereof.
SECTION 1.10 Successors and Assigns.
All covenants and agreements in this Indenture by the Company shall bind
its successors and assigns, whether so expressed or not.
SECTION 1.11 Separability Clause.
In case any provision in this Indenture or in the Notes shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions, to the extent permitted by law, shall not in any way
be affected or impaired thereby.
SECTION 1.12 Benefits of Indenture.
Nothing in this Indenture or in the Notes, express or implied, shall
give to any Person, other than the parties hereto, any Paying Agent, any
Conversion Agent and their respective successors hereunder, and the Noteholders
any legal or equitable right, remedy or claim under this Indenture.
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SECTION 1.13 Governing Law.
THIS INDENTURE AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE
CONFLICTS OF LAWS PRINCIPLES THEREOF.
SECTION 1.14 Legal Holidays.
In any case where any Interest Payment Date, Conversion Date, Redemption
Date or Stated Maturity or Maturity of any Note or Coupon shall not be a
Business Day, then (notwithstanding any other provision of this Indenture or of
the Notes or Coupons) payment of interest or principal or any other payment
required to be made on such date need not be made on such date, but shall be
made on the immediately following Business Day with the same force and effect
as if made on the Interest Payment Date or Redemption Date, or at the Stated
Maturity or Maturity.
ARTICLE TWO
FORMS OF THE NOTES
SECTION 2.01 Forms Generally.
The Notes and the Trustee's certificate of authentication shall be in
substantially the forms set forth in this Article, with such appropriate
insertions, omissions, substitutions and other variations as are required or
permitted by this Indenture, and may have such letters, numbers or other marks
of identification and such legends or endorsements placed thereon as may be
required by applicable law or rules or regulations thereunder or as may,
consistently herewith, be determined by the officer or officers executing such
Notes, as evidenced by their execution of the Notes. Any portion of the text
of any Note may be set forth on the reverse thereof.
The definitive Notes shall be typed, printed, lithographed or engraved
on steel-engraved borders or may be produced in any other manner as determined
by the officers of the Company executing such Notes, as evidenced by their
execution in accordance with Section 3.03 of such Notes.
The Notes shall be known as the "5% Senior Convertible Notes Due 2003"
of the Company. The Notes and the Trustee's certificate of authentication
shall be in substantially the form annexed hereto as Exhibit A. The Company
shall approve the form of the Notes and any notation, legend or endorsement on
the Notes. Each Note shall be dated as of May 26, 1998.
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The terms and provisions contained in the form of the Bearer Notes
annexed hereto as Exhibit A, in the form of the Temporary Global Note annexed
hereto as Exhibit B-1, and in the form of the Permanent Global Note annexed
hereto as Exhibit B-2 shall constitute, and are hereby expressly made, a part
of this Indenture. To the extent applicable, the Company and the Trustee, by
their execution and delivery of this Indenture, expressly agree to such terms
and provisions and to be bound thereby.
The Notes shall be issued initially in the form of a temporary global
bearer note substantially in the form set forth in Exhibit B-1 (the "Temporary
Global Note") deposited with the Common Depository, duly executed by the
Company and authenticated by the Trustee as hereinafter provided. The
aggregate principal amount of the Temporary Global Note may from time to time
be decreased by adjustments made on the records of the Common Depository or its
nominee, as hereinafter provided. On or after the first anniversary of the
Closing Date, the Temporary Global Note shall be replaced by and exchanged for
a permanent global bearer note substantially in the form set forth in Exhibit
B-2 (the "Permanent Global Note"), in an aggregate principal amount equal to
the then-outstanding aggregate principal amount of the Temporary Global Note,
deposited with the Common Depository, duly executed by the Company and
authenticated by the Trustee as hereinafter provided. The aggregate principal
amount of the Permanent Global Note may from time to time be decreased by
adjustments made on the records of the Common Depository or its nominee, as
hereinafter provided.
The Notes offered and sold, other than as described in the preceding
paragraph, shall be issued in the form of permanent certificated Notes in
bearer form in substantially the form set forth in Exhibit A (the "Bearer
Notes") and in an aggregate maximum principal amount equal to the outstanding
aggregate principal amount of the Permanent Global Note or the Temporary Global
Note, as the case may be immediately prior to issue.
The Terms and Conditions contained in the form of the Bearer Notes
annexed hereto as Exhibit A are expressly incorporated by reference herein. To
the extent applicable, the Company and the Trustee, by their execution and
delivery of this Indenture, expressly agree to such terms and provisions and to
be bound thereby. To the extent of any conflict between the Terms and
Conditions and the provisions of this Indenture, the Terms and Conditions shall
control the interpretation of the terms of the Note and this Indenture.
SECTION 2.02 Restrictive Legends.
Each of the Temporary Global Note and the Permanent Global Note shall
bear the following legend on the face thereof:
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"THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE `SECURITIES ACT'), OR THE SECURITIES LAWS OF ANY STATE AND
MAY NOT BE OFFERED, SOLD, PLEDGED, CONVERTED OR OTHERWISE DISPOSED OF IN
THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, ANY `U.S.
PERSON' (AS DEFINED IN REGULATION S UNDER THE SECURITIES ACT) UNLESS THE
NOTE HAS BEEN REGISTERED UNDER THE SECURITIES ACT AND ANY APPLICABLE
STATE SECURITIES OR BLUE SKY LAWS OR EXEMPTIONS FROM THE REGISTRATION
REQUIREMENTS OF SUCH LAWS ARE AVAILABLE. NO HEDGING TRANSACTIONS
INVOLVING THIS NOTE MAY BE CONDUCTED, UNLESS IN COMPLIANCE WITH THE
SECURITIES ACT. ANY UNITED STATES PERSON WHO HOLDS THIS OBLIGATION WILL
BE SUBJECT TO LIMITATIONS UNDER THE U.S. INCOME TAX LAWS, INCLUDING THE
LIMITATIONS PROVIDED IN SECTIONS 165(j) AND 1287(a) OF THE UNITED STATES
INTERNAL REVENUE CODE OF 1986, AS AMENDED."
Each Bearer Note and Coupon thereto shall bear the following legend on
the face thereof:
"NEITHER THIS NOTE NOR THE SHARES OF COMMON STOCK ISSUABLE ON CONVERSION
OF THIS NOTE (THE `SHARES') HAVE BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE `SECURITIES ACT'), OR THE SECURITIES LAWS
OF ANY STATE. THE HOLDER HEREOF, BY PURCHASING THIS NOTE, AGREES FOR THE
BENEFIT OF THE COMPANY THAT THIS NOTE AND THE SHARES MAY NOT BE RESOLD,
PLEDGED OR OTHERWISE TRANSFERRED, EXCEPT AS FOLLOWS.
PRIOR TO THE FIRST ANNIVERSARY OF THE ISSUANCE OF THIS NOTE (OR
PREDECESSOR SECURITY HERETO), THIS NOTE MAY NOT BE SO TRANSFERRED OTHER
THAN (1) TO THE COMPANY, (2) SO LONG AS THIS NOTE IS ELIGIBLE FOR RESALE
PURSUANT TO RULE 144A (`RULE 144A') UNDER THE SECURITIES ACT, TO A
PERSON WHOM THE SELLER REASONABLY BELIEVES IS A `QUALIFIED INSTITUTIONAL
BUYER' WITHIN THE MEANING OF RULE 144A (a `QUIB') PURCHASING FOR ITS OWN
ACCOUNT OR FOR THE ACCOUNT OF A QUIB TO WHOM NOTICE IS GIVEN THAT THE
RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A,
(3) PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS THAT OCCUR OUTSIDE
THE UNITED
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STATES IN A TRANSACTION MEETING THE REQUIREMENTS OF REGULATION S (RULES
901 THROUGH 905) UNDER THE SECURITIES ACT, OR (4) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH CASE
IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE
UNITED STATES.
AFTER THE FIRST ANNIVERSARY AND PRIOR TO THE SECOND ANNIVERSARY OF THE
ISSUANCE OF THIS NOTE (OR PREDECESSOR SECURITY), THIS NOTE MAY NOT BE SO
TRANSFERRED OTHER THAN (1) TO THE COMPANY, (2) SO LONG AS THIS NOTE IS
ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON WHOM THE SELLER
REASONABLY BELIEVES IS A QUIB WITHIN THE MEANING OF RULE 144A PURCHASING
FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUIB TO WHOM NOTICE IS GIVEN
THAT THE RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON
RULE 144A, (3) PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS THAT
OCCUR OUTSIDE THE UNITED STATES IN A TRANSACTION MEETING THE
REQUIREMENTS OF REGULATION S (RULES 901 THROUGH 905) UNDER THE
SECURITIES ACT, (4) PURSUANT TO AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT PROVIDED BY RULE 144 (IF APPLICABLE)
UNDER THE SECURITIES ACT, OR (5) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH ANY
APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES.
IF THE HOLDER OF THIS NOTE WAS AN AFFILIATE OF THE COMPANY AT ANY TIME
DURING THE THREE MONTHS PRECEDING THE DATE OF ANY SUCH TRANSFER, THE
FOREGOING CONDITIONS MUST BE COMPLIED WITH REGARDLESS OF WHEN SUCH
TRANSFER IS MADE.
NO HEDGING TRANSACTIONS INVOLVING THIS NOTE OR THE SHARES MAY BE
CONDUCTED, UNLESS IN COMPLIANCE WITH THE SECURITIES ACT.
ANY UNITED STATES PERSON WHO HOLDS THIS OBLIGATION WILL BE SUBJECT TO
LIMITATIONS UNDER THE U.S. INCOME TAX LAWS, INCLUDING THE LIMITATIONS
PROVIDED IN SECTIONS 165(j) AND 1287(a) OF THE UNITED STATES INTERNAL
REVENUE CODE OF 1986, AS AMENDED."
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In the event that Regulation S is amended during the period while any Note or
Coupon remains outstanding and the Company determines that the foregoing
restrictive legends are required to be amended as a result thereof or
additional or different procedures are required in connection with the trading
of such securities, the Company shall provide the Trustee with notice pursuant
to Section 1.09 and the Noteholders pursuant to Section 1.08 setting forth the
revised form of restrictive legends and other procedures that the Company
believes are required and shall provide the Trustee with an Opinion of Counsel
to the effect that such restrictive legends are required to be amended or that
such procedures are required to be adopted and observed. The form of Bearer
Note set forth at Exhibit A, the Temporary Global Note set forth at Exhibit B-
1, and the Permanent Global Note set forth at Exhibit B-2 and any Notes issued
shall be deemed to be so amended effective at the date of such notice to the
Trustee.
Conversion Shares that may be issued prior to the date such Conversion
Shares would be Freely Tradable, and any Conversion Shares that may be issued
to affiliates of the Company (as defined in Rule 144), shall bear the following
legend on the face thereof:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE (THE `SHARES') HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
`SECURITIES ACT'), OR THE SECURITIES LAWS OF ANY STATE. THE HOLDER
HEREOF AGREES FOR THE BENEFIT OF THE COMPANY THAT THE SHARES MAY NOT BE
RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, EXCEPT AS FOLLOWS.
PRIOR TO THE FIRST ANNIVERSARY OF THE ISSUANCE OF THE SHARES (OR
PREDECESSOR SECURITY HERETO), THE SHARES MAY NOT BE SO TRANSFERRED OTHER
THAN (1) TO THE COMPANY, (2) SO LONG AS THE SHARES ARE ELIGIBLE FOR
RESALE PURSUANT TO RULE 144A (`RULE 144A') UNDER THE SECURITIES ACT, TO
A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED
INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A (a `QUIB')
PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUIB TO WHOM
NOTICE IS GIVEN THAT THE RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE
IN RELIANCE ON RULE 144A, (3) PURSUANT TO OFFERS AND SALES TO NON-U.S.
PERSONS THAT OCCUR OUTSIDE THE UNITED STATES IN A TRANSACTION MEETING
THE REQUIREMENTS OF REGULATION S (RULES 901 THROUGH 905) UNDER THE
SECURITIES ACT,
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OR (4) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES.
AFTER THE FIRST ANNIVERSARY AND PRIOR TO THE SECOND ANNIVERSARY OF THE
ISSUANCE OF THE SHARES (OR PREDECESSOR SECURITY), THE SHARES MAY NOT BE
SO TRANSFERRED OTHER THAN (1) TO THE COMPANY, (2) SO LONG AS THIS NOTE
IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON WHOM THE
SELLER REASONABLY BELIEVES IS A QUIB WITHIN THE MEANING OF RULE 144A
PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUIB TO WHOM
NOTICE IS GIVEN THAT THE RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE
IN RELIANCE ON RULE 144A, (3) PURSUANT TO OFFERS AND SALES TO NON-U.S.
PERSONS THAT OCCUR OUTSIDE THE UNITED STATES IN A TRANSACTION MEETING
THE REQUIREMENTS OF REGULATION S (RULES 901 THROUGH 905) UNDER THE
SECURITIES ACT, (4) PURSUANT TO AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT PROVIDED BY RULE 144 (IF APPLICABLE)
UNDER THE SECURITIES ACT, OR (5) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH ANY
APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES.
IF THE HOLDER OF THE SHARES WAS AN AFFILIATE OF THE COMPANY AT ANY TIME
DURING THE THREE MONTHS PRECEDING THE DATE OF ANY SUCH TRANSFER, THE
FOREGOING CONDITIONS MUST BE COMPLIED WITH REGARDLESS OF WHEN SUCH
TRANSFER IS MADE.
NO HEDGING TRANSACTIONS INVOLVING THE SHARES MAY BE CONDUCTED, UNLESS IN
COMPLIANCE WITH THE SECURITIES ACT.
THIS CERTIFICATE ALSO EVIDENCES AND ENTITLES THE HOLDER HEREOF TO
CERTAIN RIGHTS AS SET FORTH IN A RIGHTS AGREEMENT BETWEEN HARKEN ENERGY
CORPORATION (THE `COMPANY') AND CHASEMELLON SHAREHOLDER SERVICES L.L.C.,
AS RIGHTS AGENT, DATED AS OF APRIL 6, 1998 AS THE SAME MAY BE AMENDED
FROM TIME TO TIME (THE `RIGHTS AGREEMENT'), THE TERMS OF WHICH ARE
HEREBY INCORPORATED HEREIN BY REFERENCE AND A COPY OF
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WHICH IS ON FILE AT THE PRINCIPAL EXECUTIVE OFFICES OF THE COMPANY.
UNDER CERTAIN CIRCUMSTANCES, AS SET FORTH IN THE RIGHTS AGREEMENT, SUCH
RIGHTS WILL BE EVIDENCED BY SEPARATE CERTIFICATES AND WILL NO LONGER BE
EVIDENCED BY THIS CERTIFICATE. THE COMPANY WILL MAIL TO THE HOLDER OF
THIS CERTIFICATE A COPY OF THE RIGHTS AGREEMENT WITHOUT CHARGE AFTER
RECEIPT OF A WRITTEN REQUEST THEREFOR. UNDER CERTAIN CIRCUMSTANCES, AS
SET FORTH IN THE RIGHTS AGREEMENT, RIGHTS OWNED BY OR TRANSFERRED TO ANY
PERSON WHO IS OR BECOMES AN ACQUIRING PERSON (AS DEFINED IN THE RIGHTS
AGREEMENT) AND CERTAIN TRANSFEREES THEREOF WILL BECOME NULL AND VOID AND
WILL NO LONGER BE TRANSFERABLE."
ARTICLE THREE
THE NOTES
SECTION 3.01 Terms.
The aggregate principal amount of Notes which may be authenticated and
delivered under this Indenture is limited to U.S.$85,000,000, except for Notes
authenticated and delivered in exchange for, or in lieu of, other Notes
pursuant to Section 3.03, 3.04, 3.05, 3.06, 3.08, 9.05 or 11.08. Their Stated
Maturity shall be May 26, 2003, and they shall have the rights and shall bear
interest at the rate per annum specified therein from the Closing Date or from
the most recent Interest Payment Date to which interest has been paid or duly
provided for, payable in arrears, and thereafter as provided in the Notes and
at said Stated Maturity, until the principal thereof is paid or duly provided
for.
The principal of and interest on the Notes shall be payable at the
office or agency of the Company maintained for such purpose in The City of
London, or at such other office or agency of the Company as may be maintained
for such purpose.
The Notes shall be convertible as provided in Article Twelve.
The Notes shall be redeemable as provided in Article Eleven.
The Notes shall rank pari passu with the 5.5% Senior Notes Due 2002 of
the Company (the "5.5% Senior Notes").
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The Notes shall be senior in right of payment to Subordinated
Obligations as provided in Article Fourteen.
SECTION 3.02 Denominations.
The Notes shall be issuable only in bearer form and, in the case of
Bearer Notes, with Coupons attached thereto, and shall be issuable only in the
denomination of $10,000.
SECTION 3.03 Execution, Authentication, Delivery and Dating.
The Notes shall be executed on behalf of the Company by its Chairman, a
Vice Chairman, its President or a Vice President under a facsimile of its
corporate seal reproduced thereon and attested by its Secretary or an Assistant
Secretary. The signature of any of these officers on the Notes may be manual
or facsimile signatures of the present or any future such authorized officer
and may be imprinted or otherwise reproduced on the Notes.
Notes bearing the manual or facsimile signatures of individuals who were
at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Notes or did not hold
such offices at the date of such Notes.
At any time and from time to time after the execution and delivery of
this Indenture, the Company may deliver Notes executed by the Company to the
Trustee for authentication, together with a Company Order for the
authentication and delivery of such Notes, and the Trustee or the
Authenticating Agent in accordance with such Company Order shall authenticate
and deliver such Notes. Such Company Order shall specify the amount of Notes
to be authenticated and the date on which the original issue of Notes is to be
authenticated. The aggregate principal amount of Notes outstanding at any time
may not exceed $85,000,000 except for Notes authenticated and delivered in
exchange for, or in lieu of, other Notes pursuant to Section 3.04, 3.05 or
3.08.
Each Note shall be dated as of May 26, 1998.
No Note shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose unless there appears on such Note a
certificate of authentication substantially in the form provided for in Exhibit
A duly executed by the Trustee or the Authenticating Agent by manual or
facsimile signature of an authorized officer, and such certificate upon any
Note shall be conclusive evidence, and the only evidence, that such Note has
been duly authenticated and delivered hereunder and is entitled to the benefits
of this Indenture.
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<PAGE> 36
In case the Company, pursuant to Article Eight, shall be consolidated or
merged with or into any other Person or shall convey, transfer, lease or
otherwise dispose of its Properties and assets substantially as an entirety to
any Person, and the successor Person resulting from such consolidation, or
surviving such merger, or into which the Company shall have been merged, or the
Person which shall have received a conveyance, transfer, lease or other
disposition as aforesaid, shall have executed an indenture supplemental hereto
with the Trustee pursuant to Article Eight, any of the Notes authenticated or
delivered prior to such consolidation, merger, conveyance, transfer, lease or
other disposition may, from time to time, at the request of the successor
Person, be exchanged for other Notes executed in the name of the successor
Person with such changes in phraseology and form as may be appropriate, but
otherwise in substance of like tenor as the Notes surrendered for such exchange
and of like principal amount; and the Trustee or an Authenticating Agent, upon
Company Request of the successor Person, shall authenticate and deliver Notes
as specified in such request for the purpose of such exchange.
SECTION 3.04 Maintenance of A Common Depository; Temporary Notes.
If the Common Depository notifies the Company that it is unwilling or
unable to continue as Common Depository for the Permanent Global Note or the
Temporary Global Note, the Company shall use its best efforts to identify and
appoint a successor depository within 90 days of such notice. Pending the
preparation of definitive Notes, if required pursuant to this Indenture, but in
no event prior to September 1, 1998, the Company may execute, and upon Company
Order the Trustee or an Authenticating Agent shall authenticate and deliver,
temporary Notes which are printed, lithographed, typewritten, mimeographed or
otherwise produced, in the Authorized Denomination, substantially of the tenor
of the definitive Notes in lieu of which they are issued and with such
appropriate insertions, omissions, substitutions and other variations as the
officers executing such Notes may determine, as conclusively evidenced by their
execution of such Notes.
If temporary Notes are required to be issued pursuant to this Indenture,
the Company will cause definitive Notes to be prepared without unreasonable
delay. After the preparation of definitive Notes, the temporary Notes shall be
exchangeable for definitive Notes upon surrender of the temporary Notes at the
office or agency of the Company designated for such purpose pursuant to Section
10.02, without charge to the Noteholder. Upon surrender for cancellation of
any one or more temporary Notes, the Company shall execute and the Trustee or
an Authenticating Agent shall authenticate and deliver in exchange therefor a
like principal amount of definitive Notes of the Authorized Denomination.
Until so exchanged, the temporary Notes shall in all respects be entitled to
the same benefits under this Indenture as definitive Notes.
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SECTION 3.05 Exchange.
Upon surrender for exchange of any Note at the office or agency of the
Company designated pursuant to Section 10.02, the Company shall execute, and
the Trustee or the Authenticating Agent shall authenticate and deliver, in the
name of the designated transferee or transferees, one or more new Notes of the
Authorized Denomination or denominations of a like aggregate principal amount.
Furthermore, any Holder of the Temporary Global Note or the Permanent
Global Note shall, by acceptance of such Global Note, agree that transfers of
beneficial interest in such Global Note may be effected only through a book-
entry system maintained by the Holder of such Global Note (or its agent) and
that ownership of a beneficial interest in the Global Note shall be required to
be reflected in a book entry.
All Notes issued upon any exchange of Notes shall be the valid
obligations of the Company, evidencing the same debt, and entitled to the same
benefits under this Indenture, as the Notes surrendered upon such exchange.
Every Note presented or surrendered for exchange shall (if so required
by the Company or the Trustee) be duly endorsed, or be accompanied by a written
instrument of transfer, in form satisfactory to the Company and the Trustee,
duly executed by the Noteholder thereof or such Noteholder's attorney duly
authorized in writing.
No service charge shall be made for any exchange, conversion or
redemption of Notes, but the Company may require payment of a sum sufficient to
cover any tax or other governmental charge that may be imposed in connection
with any exchange of Notes, other than exchanges pursuant to Sections 3.03,
3.04, 3.05, 3.06, 9.05, or 11.08.
The Company shall not be required (i) to issue or exchange any Note
during a period beginning at the opening of business 15 days before the
selection of Notes to be redeemed under Section 11.04 and ending at the close
of business on the day of such mailing of the relevant notice of redemption,
(ii) to exchange any Note so selected for redemption in whole or in part,
except the unredeemed portion of any Note being redeemed in part, or (iii) to
register the transfer of or exchange of any Note during a period beginning five
days before the date of Maturity and ending on such date of Maturity.
SECTION 3.06 Book-Entry Provisions for Global Notes.
(a) The Global Notes shall be delivered to the Common
Depository and shall bear the legends set forth in Section 2.02. Members of, or
participants in, Euroclear and Cedel
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("Agent Members") shall have no rights under this Indenture with respect to any
Global Note held on their behalf by the Common Depository, or under such Global
Note, and the Common Depository may be treated by the Company, the Trustee and
any agent of the Company or the Trustee as the absolute owner of such Global
Note for all purposes whatsoever. Notwithstanding the foregoing, nothing
herein shall prevent the Company, the Trustee or any agent of the Company or
the Trustee, from giving effect to any written certification, proxy or other
authorization furnished by the Common Depository or shall impair, as between
the Common Depository and the Agent Members, the operation of customary
practices governing the exercise of the rights of a Noteholder.
(b) Transfers of a Global Note shall be limited to transfers
of such Global Note in whole, but not in part, to the Common Depository, its
successors or their respective nominees. Interests of beneficial owners in a
Global Note may be transferred in accordance with the rules and procedures of
the Common Depository and the provisions of Section 3.06. Bearer Notes shall
be transferred to all beneficial owners in exchange for their beneficial
interests in a Global Note in accordance with the Common Depository's
procedures if (i) the Common Depository notifies the Company that it is
unwilling or unable to continue as Common Depository for such Global Note and a
successor depository is not appointed by the Company within 90 days of such
notice, (ii) Euroclear or Cedel is closed for business for a continuous period
of 14 days (other than by reason of legal holidays) or announces an intention
permanently to cease business, or (iii) an Event of Default has occurred and is
continuing and the Trustee has received a request from the Common Depository.
(c) In connection with any transfer of beneficial interests in
a Global Note to beneficial owners pursuant to subsection (b) of this Section,
the Common Depository shall reflect on its books and records the date and a
decrease in the principal amount of such Global Note in an amount equal to the
principal amount of the beneficial interests in the Global Note to be
transferred, and the Company shall execute, and the Trustee or an
Authenticating Agent shall authenticate and deliver, one or more Bearer Notes
of like tenor and amount.
(d) In connection with the transfer of the beneficial
interests in an entire Global Note to beneficial owners pursuant to subsection
(b) of this Section, the Global Note shall be deemed to be surrendered to the
Trustee for cancellation, and the Company shall execute, and the Trustee or an
Authenticating Agent shall authenticate and deliver, to each beneficial owner
identified by the Common Depository, in exchange for its beneficial interest in
the Global Note, an equal aggregate principal amount of Bearer Notes.
(e) Any Bearer Note delivered in exchange for an interest in
the Global Note pursuant to subsection (b) or subsection (c) of this Section
shall bear the applicable legend regarding transfer restrictions applicable to
the Bearer Note set forth in Section 2.02.
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(f) The Holder of the Global Note may grant proxies and
otherwise authorize any person, including Agent Members and persons that may
hold interests through Agent Members, to take any action which a Noteholder is
entitled to take under this Indenture or the Notes.
(g) Any Bearer Note delivered in exchange for an interest in
the Global Note pursuant to subsection (b) or (c) of this Section will prior to
delivery to the Noteholder have all matured Coupons as of such delivery date,
which are attached to such Bearer Note, cancelled and voided by the
Authenticating Agent.
(h) Nothing contained herein shall be deemed to authorize any
transfers (by book-entry or otherwise) of the Global Note otherwise than in
accordance with Regulation S and the Securities Act. Unless otherwise required
by applicable law, none of the Company, the Common Depository or the Trustee
shall recognize or give effect to any attempt to transfer (by book entry or
otherwise) or convert any Note or any interest therein in violation of either
Regulation S or the Securities Act.
SECTION 3.07 Special Transfer Provisions.
The Noteholders by acceptance of the Notes hereby covenant and agree
that neither the Notes nor the Conversion Shares will be offered, sold,
transferred, pledged, converted or otherwise disposed of in the United States
or to, or for the account or benefit of, any U.S. Person unless the Notes
and/or the Conversion Shares have been registered under the Securities Act and
any applicable state securities or blue sky laws or exemptions from the
registration requirements of such laws are available.
SECTION 3.08 Mutilated, Destroyed, Lost and Stolen Notes.
If (i) any mutilated Note or Coupon is surrendered to the Trustee or the
Authenticating Agent, or (ii) the Company and the Trustee receive evidence to
their satisfaction of the destruction, loss or theft of any Note or Coupon, and
there is delivered to the Company and the Trustee such security and/or
indemnity as may be required by them to save each of them harmless, then, in
the absence of notice to the Company or the Trustee that such Note or Coupon
has been acquired by a bona fide purchaser, the Company shall execute and upon
Company Order the Trustee or an Authenticating Agent shall authenticate and
deliver, in exchange for any such mutilated Note or Coupon or in lieu of any
such destroyed, lost or stolen Note or Coupon, a new Note or Coupon of like
tenor and principal amount, bearing a number not contemporaneously Outstanding.
In case any such mutilated, destroyed, lost or stolen Note or Coupon has
become or is about to become due and payable, the Company in its discretion
may, instead of issuing a new Note or Coupon, pay such Note or Coupon, as the
case may be.
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Upon the issuance of any new Note or Coupon under this Section, the
Company may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee and the Authenticating
Agent) connected therewith.
Every new Note or Coupon issued pursuant to this Section in lieu of any
destroyed, lost or stolen Note or Coupon shall constitute an original
additional contractual obligation of the Company, whether or not the destroyed,
lost or stolen Note or Coupon shall be at any time enforceable by anyone, and
shall be entitled to all benefits of this Indenture equally and proportionately
with any and all other Notes or Coupons duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Note or Coupon.
Any new Note issued under this Section 3.08 in lieu of any destroyed,
lost or stolen Note shall be issued by the Authenticating Agent with all
matured Coupons as of such date of issuance cancelled or voided.
SECTION 3.09 Payment of Interest; Interest Rights Preserved.
Interest on any Note which is payable, and is punctually paid or duly
provided for, on any Interest Payment Date, shall be paid to the bearer against
presentation and surrender (or in the case of part payment only, endorsement)
of the relevant Coupons (if in issue), outside of the United States at the
corporate trust office or agency of any Paying Agent maintained for such
purpose pursuant to Section 10.02. The Noteholders and Couponholders shall
furnish the Common Depository, for delivery to the Company, certifications at
November 26, 1998 and May 26, 1999 that the Notes and Coupons either are not
held for the account or benefit of a U.S. Person or are held by a QUIB.
Each such payment will be made at the specified office of any Paying
Agent, at the option of the Holder of such Coupon (if in issue), by U.S. dollar
cheque drawn on, or by transfer to a U.S. dollar account maintained by the
payee with a bank in Europe subject in all cases to any applicable fiscal or
other laws and regulations.
Subject to the foregoing provisions of this Section, each Note delivered
under this Indenture in exchange for or in lieu of any other Note shall carry
the rights to interest accrued and unpaid, and to accrue, which were carried by
such other Note.
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SECTION 3.10 Persons Deemed Owners.
Subject to the provision of Section 3.14 and except with respect to any
unmatured Coupon, the Company, the Trustee and any agent of the Company or the
Trustee may treat the Person who is the bearer of any Note or Coupon as the
owner of such Note or Coupon for the purpose of receiving payment of principal
of and (subject to Sections 3.05 and 3.09) interest on such Note and for all
other purposes whatsoever, whether or not such Note be overdue, and none of the
Company, the Trustee or any agent of the Company or the Trustee shall be
affected by notice to the contrary.
SECTION 3.11 Cancellation.
All Notes surrendered for payment, conversion, redemption or exchange
shall, if surrendered to any Person other than the Trustee, be delivered to the
Trustee and shall be promptly cancelled by it once payment, conversion,
redemption or exchange has occurred. The Company may at any time deliver to
the Trustee for cancellation any Notes previously authenticated and delivered
hereunder which the Company may have acquired in any manner whatsoever, and may
deliver to the Trustee (or to any other Person for delivery to the Trustee) for
cancellation any Notes previously authenticated hereunder which the Company has
not issued and sold, and all Notes so delivered shall be promptly cancelled by
the Trustee. If the Company shall so acquire any of the Notes, however, such
acquisition shall not operate as a redemption or satisfaction of the
indebtedness represented by such Notes unless and until the same are
surrendered to the Paying and Conversion Agent for cancellation. No Notes
shall be authenticated in lieu of or in exchange for any Notes cancelled as
provided in this Section, except as expressly permitted by this Indenture. All
cancelled Notes held by the Paying and Conversion Agent shall be disposed of by
the Paying and Conversion Agent in accordance with its customary procedures and
certification of their disposal delivered to the Company unless by Company
Order the Company shall direct that cancelled Notes be returned to it.
SECTION 3.12 Computation of Interest.
Interest on the Notes shall be computed on the basis of a 360-day year
of twelve 30-day months and, in the case of an incomplete month, the number of
days elapsed.
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SECTION 3.13 ISIN, CUSIP Or Other Identifying Numbers.
The Company in issuing the Notes may use "ISIN", "CUSIP" or other
identifying numbers (if then generally in use), and the Trustee shall use ISIN,
CUSIP or other identifying numbers in notices of redemption, conversion or
exchange, and any other notice provided for the benefit of the Noteholders, as
a convenience to Noteholders; provided that any such notice shall state that no
representation is made as to the correctness of such numbers either as printed
on the Notes or as contained in any notice of redemption, conversion or
exchange or other notice.
SECTION 3.14 Prescription.
Notes and Coupons will become void unless presented for payment within
periods of ten (10) years (in the case of principal) and five (5) years (in the
case of interest) from the Relevant Date in respect of the Notes or the
Coupons, as the case may be, subject to the provisions of Section 11.09.
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 4.01 Satisfaction and Discharge of Indenture.
This Indenture shall upon Company Request cease to be of further effect
(except as to surviving rights of conversion or redemption of Notes herein
expressly provided for, the Company's obligations to the Trustee pursuant to
Section 6.06, and the registration obligations in Section 10.15) and the
Trustee, at the expense of the Company, shall execute proper instruments
acknowledging satisfaction and discharge of this Indenture when:
(a) either:
(i) all Notes theretofore authenticated and delivered
(other than (1) Notes which have been destroyed, lost, mutilated or stolen and
which have been replaced or paid as provided in Section 3.08 and (2) Notes for
whose payment money has theretofore been deposited in trust with the Trustee or
any Paying Agent or segregated and held in trust by the Company and thereafter
repaid to the Company or discharged from such trust, as provided in Section
10.03) have been delivered to the Trustee for cancellation; or
(ii) all such Notes not theretofore delivered to the
Trustee for cancellation (1) have become due and payable, or (2) will become
due and payable at their Stated Maturity,
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within one year, or (3) are to be called for redemption within one year under
arrangements satisfactory to the Trustee for the giving of notice of redemption
by the Trustee in the name, and at the expense, of the Company, and the Company
has irrevocably deposited or caused to be deposited with the Trustee as trust
funds in trust for the purpose an amount sufficient to pay and discharge the
entire indebtedness on such Notes not theretofore delivered to the Trustee for
cancellation, for principal and interest to the date of such deposit (in the
case of Notes which have become due and payable) or to the Stated Maturity or
Redemption Date, as the case may be;
(b) the Company has paid or caused to be paid all other sums
payable hereunder by the Company; and
(c) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent herein provided for relating to the satisfaction and discharge of
this Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 6.06 and, if money
shall have been deposited with the Trustee pursuant to subclause (ii) of clause
(a) of this Section, the obligations of the Trustee under Section 4.02 and the
last paragraph of Section 10.03 shall survive.
SECTION 4.02 Application of Trust Money.
Subject to the provisions of the last paragraph of Section 10.03, all
money deposited with the Trustee pursuant to Section 4.01 shall be held in
trust and applied by it, in accordance with the provisions of the Notes and
this Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal and interest for
whose payment such money has been deposited with the Trustee; but such money
need not be segregated from other funds except to the extent required by law.
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ARTICLE FIVE
EVENTS OF DEFAULT AND REMEDIES
SECTION 5.01 Events of Default.
"Event of Default," wherever used herein, means any one of the following
events (whatever the reason for such Event of Default and whether it shall be
occasioned by the provisions of Article Fourteen or be voluntary or involuntary
or be effected by operation of law or pursuant to any judgment, decree or order
of any court or any order, rule or regulation of any administrative or
governmental body) which shall have occurred and is continuing:
(a) if default is made for a period of five (5) Business Days
or more in the payment of interest or principal due in respect of the Notes or
any of them; or
(b) if the Company fails to perform or observe any of its
other obligations, covenants, conditions or provisions under the Notes, this
Indenture, the Company's 5.5% Senior Notes, or the trust indenture pursuant to
which such 5.5% Senior Notes were issued, and (except where the Trustee shall
have certified to the Company in writing that it considers such failure to be
incapable of remedy, in which case no such notice or continuation as is
hereinafter mentioned will be required) such failure continues for the period
of 30 calendar days (or such longer period as the Trustee may in its absolute
discretion permit) next following the service by the Trustee on the Company of
notice requiring the same to be remedied; or
(c) if (i) any other Indebtedness of the Company or any
Principal Subsidiary becomes due and payable prior to its Stated Maturity by
reason of an event of default (howsoever defined) or (ii) any such Indebtedness
of the Company or any Principal Subsidiary is not paid when due or, as the case
may be, within any applicable grace period or (iii) the Company or any
Principal Subsidiary fails to pay when due (or, as the case may be, within any
applicable grace period) any amount payable by it under any present or future
guarantee for, or indemnity in respect of, any Indebtedness of any Person or
(iv) any security given by the Company or any Principal Subsidiary for any
Indebtedness of any Person or any guarantee or indemnity of Indebtedness of any
Person by the Company or any Principal Subsidiary becomes enforceable by reason
of default in relation thereto and steps are taken to enforce such security
save in any such case where there is a bona fide dispute as to whether the
relevant Indebtedness or any such guarantee or indemnity as aforesaid shall be
due and payable (following any applicable grace period), provided that in each
such case the Indebtedness exceeds in the aggregate U.S.$2,000,000 and in each
such case such event continues unremedied for a period of 30 calendar days (or
such longer period as the Trustee may in its sole discretion consent to in
writing upon receipt of written notice from the Company); or
(d) if the Company or any Principal Subsidiary shall generally
fail to pay its debts as such debts come due (except debts which the Company or
such Principal Subsidiary, as the case may be, may contest in good faith
generally) or shall be declared or adjudicated by a competent court to be
insolvent or bankrupt, shall consent to the entry of an order of relief against
it in an involuntary bankruptcy case, shall enter into any assignment or other
similar arrangement for the
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benefit of its creditors or shall consent to the appointment of a custodian
(including, without limitation, a receiver, liquidator or trustee); or
(e) if a receiver, administrative receiver, administrator or
other similar official shall be appointed in relation to the Company or any
Principal Subsidiary or in relation to the whole or a substantial part of the
undertaking or assets of any of them or a distress, execution or other process
shall be levied or enforced upon or sued out against, or an encumbrancer shall
take possession of, the whole or a substantial part of the assets of any of
them and in any of the foregoing cases is not paid out or discharged within 90
calendar days (or such longer period as the Trustee may in its absolute
discretion consent to in writing upon receipt of written notice from the
Company); or
(f) if the Company or any Principal Subsidiary institutes
proceedings to be adjudicated a voluntary bankrupt, or shall consent to the
filing of a bankruptcy proceeding against it, or shall file a petition or
answer or consent seeking organization under the laws of the Federal Bankruptcy
Code or any similar applicable U.S. federal, state or foreign law, or shall
consent to the filing of any such petition, or shall consent to the appointment
of a receiver or liquidator or trustee or assignee (or other similar official)
in bankruptcy or insolvency of it or its Property, or shall make an assignment
for the benefit of creditors, or shall admit in writing its inability to pay
its debts generally as they come due; or
(g) if a decree or order by a court having jurisdiction in the
premises shall have been entered adjudging the Company or any Principal
Subsidiary a bankrupt or insolvent, or approving as properly filed a petition
seeking the reorganization of the Company or any Principal Subsidiary under the
Federal Bankruptcy Code or any other similar applicable U.S. federal, state or
foreign law, and such decree or order shall have continued undischarged or
unstayed for a period of 90 calendar days; or a decree or order of a court
having jurisdiction in the premises for the appointment of a receiver or
liquidator or trustee or assignee (or other similar official) in bankruptcy or
insolvency of the Company or any Principal Subsidiary or of all or
substantially all of its Property, or for the winding up or liquidation of its
affairs, shall have been entered, and such decree or order shall have continued
undischarged and unstayed for a period of 90 calendar days; or
(h) if a warranty, representation, or other statement made by
or on behalf of the Company contained in this Indenture, the Notes or any
certificate or other agreement furnished in compliance with such documents is
false in any material respect when made and (except where the Trustee shall
have certified to the Company that it considers such falsity to be incapable of
remedy, in which case no such notice or continuation as is hereinafter
mentioned will be required) such falsity continues for a period of 30 calendar
days (or such longer period as the Trustee may in its absolute discretion
permit) next following the service by the Trustee on the Company of notice
requiring the same to be remedied; or
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(i) if there is any final judgment or judgments for the
payment of money exceeding in the aggregate U.S.$2,000,000 outstanding against
the Company or any Principal Subsidiary which has been outstanding for more
than 60 calendar days from the date of its entry and shall not have otherwise
been discharged in full or stayed by appeal, bond or otherwise.
SECTION 5.02 Acceleration of Maturity; Rescission and Annulment.
If an Event of Default (other than an Event of Default specified in
Section 5.01(f) or 5.01(g)) occurs and is continuing, then and in every such
case the Trustee or the Holders of not less than 25% in principal amount of the
Outstanding Notes may, and the Trustee upon the request of the Holders of not
less than 25% in principal amount of the Outstanding Notes shall, declare the
principal amount of all the Notes to be due and payable immediately, by a
notice in writing to the Company (and to the Trustee if given by Noteholders),
and upon any such declaration such principal amount shall become immediately
due and payable.
If an Event of Default specified in Section 5.01(f) or 5.01(g) occurs
and is continuing, then the principal amount of all the Notes shall ipso facto
become and be immediately due and payable without any declaration or other act
on the part of the Trustee or any Noteholder.
At any time after a declaration of acceleration has been made and before
a judgment or decree for payment of the money due has been obtained by the
Trustee as hereinafter in this Article provided, the Holders of a majority in
principal amount of the Outstanding Notes, by written notice to the Company and
the Trustee, may rescind and annul such declaration and its consequences if
(a) the Company has paid or deposited with the Trustee a sum
sufficient to pay
(i) all overdue interest on all Outstanding Notes,
(ii) all unpaid principal of any Outstanding Notes which
has become due otherwise than by such declaration of acceleration, and interest
on such unpaid principal at the rate prescribed therefor in the Notes,
(iii) to the extent that payment of such interest is
legally enforceable, interest on overdue interest at the rate prescribed
therefor in the Notes, and
(iv) all sums paid or advanced by the Trustee hereunder
and the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel; and
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(b) all Events of Default, other than the non-payment of
amounts of principal of or interest on Notes which have become due solely by
such declaration of acceleration, have been cured or waived as provided in
Section 5.13.
No such rescission shall affect any subsequent default or impair any
right consequent thereon.
SECTION 5.03 Collection of Indebtedness and Suits for Enforcement by
Trustee.
The Company covenants that if
(a) default is made in the payment of any instalment of
interest on any Note when such interest becomes due and payable and such
default continues for a period of five (5) Business Days, or
(b) default is made in the payment of the principal of any
Note at the Maturity thereof and such default continues for a period of five
(5) Business Days,
the Company will, upon demand of the Trustee, pay to the Trustee for the
benefit of the Holders of such Notes, the whole amount then due and payable on
such Notes for principal and interest, and interest on any overdue principal
and, to the extent that payment of such interest shall be legally enforceable,
upon any overdue instalment of interest, at the rate prescribed therefor in the
Notes, and, in addition thereto, such further amount as shall be sufficient to
cover the costs and expenses of collection, including the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel.
If the Company fails to pay such amounts forthwith upon such demand, the
Trustee, in its own name and as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, may
prosecute such proceeding to judgment or final decree and may enforce the same
against the Company or any other obligor upon the Notes and collect the moneys
adjudged or decreed to be payable in the manner provided by law out of the
Property of the Company or any other obligor upon the Notes, wherever situated.
If an Event of Default occurs and is continuing, the Trustee may in its
discretion proceed to protect and enforce its rights and the rights of the
Noteholders by such appropriate judicial proceedings as the Trustee shall deem
most effectual to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.
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SECTION 5.04 Trustee May File Proofs of Claim.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company or any other obligor upon the Notes
or the Property of the Company or of such other obligor or their creditors, the
Trustee (irrespective of whether the principal of the Notes shall then be due
and payable as therein expressed or by declaration or otherwise and
irrespective of whether the Trustee shall have made any demand on the Company
for the payment of overdue principal or interest) shall be entitled and
empowered, by intervention in such proceeding or otherwise,
(a) to file and prove a claim for the whole amount of
principal and interest owing and unpaid in respect of the Notes and to file
such other papers or documents as may be necessary or advisable in order to
have the claims of the Trustee (including any claim for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel) and of the Noteholders allowed in such judicial proceeding, and
(b) to collect and receive any moneys or other Property
payable or deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
similar official in any such judicial proceeding is hereby authorized by each
Noteholder to make such payments to the Trustee and, in the event that the
Trustee shall consent to the making of such payments directly to the
Noteholders, to pay the Trustee any amount due it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee under Section 6.06.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Noteholder any plan
of reorganization, arrangement, adjustment or composition affecting the Notes
or the rights of any Noteholder thereof, or to authorize the Trustee to vote in
respect of the claim of any Noteholder in any such proceeding.
SECTION 5.05 Trustee May Enforce Claims Without Possession of Notes.
All rights of action and claims under this Indenture or the Notes may be
prosecuted and enforced by the Trustee without the possession of any of the
Notes or the production thereof in any proceeding relating thereto, and any
such proceeding instituted by the Trustee shall be brought in its own name and
as trustee of an express trust, and any recovery of judgment shall, after
provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, be for the
ratable benefit of the Noteholders in respect of which such judgment has been
recovered.
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SECTION 5.06 Application of Money Collected.
Any money collected by the Trustee pursuant to this Article shall be
applied in the following order, at the date or dates fixed by the Trustee and,
in case of the distribution of such money on account of principal or interest,
upon presentation of the Notes and the notation thereon of the payment if only
partially paid and upon surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under
Section 6.06;
SECOND: To the payment of the amounts then due and unpaid for
principal of and interest on the Notes in respect of which or for the benefit
of which such money has been collected, ratably, without preference or priority
of any kind, according to the amounts due and payable on such Notes for
principal and interest, respectively; and
THIRD: The balance, if any, to the Person or Persons entitled
thereto.
SECTION 5.07 Limitation on Suits.
No Noteholder shall have any right to institute any proceeding, judicial
or otherwise, with respect to this Indenture, or for the appointment of a
receiver or trustee, or for any other remedy hereunder, unless:
(a) such Noteholder has previously given written notice to the
Trustee of a continuing Event of Default, with a copy of such notice to the
Company;
(b) the Holders of not less than 25% in principal amount of
the Outstanding Notes shall have made written request to the Trustee to
institute proceedings in respect of such Event of Default in its own name as
Trustee hereunder;
(c) such Noteholder or Noteholders have offered to the Trustee
reasonable indemnity against the costs, expenses and liabilities to be incurred
in compliance with such request;
(d) the Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute any such proceeding; and
(e) no direction inconsistent with such written request has
been given to the Trustee during such 60-day period by the Holders of a
majority or more in principal amount of the Outstanding Notes;
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it being understood and intended that no one or more Noteholders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other
Noteholders, or to obtain or to seek to obtain priority or preference over any
other Noteholders or to enforce any right under this Indenture, except in the
manner herein provided and for the equal and ratable benefit of all the
Noteholders.
SECTION 5.08 Unconditional Right of Holders to Receive Principal and
Interest.
Notwithstanding any other provision in this Indenture, the Holder of any
Note or of any Coupon, as the case may be, shall have the right, which is
absolute and unconditional, to receive payment, as provided herein (including,
if applicable, Article Thirteen) and in such Note, of the principal of and
(subject to Section 3.09) interest on, such Note on the respective Stated
Maturity expressed in such Note or Coupon (or, in the case of redemption, on
the Redemption Date) and to institute suit for the enforcement of any such
payment, and such rights shall not be impaired without the consent of such
Holder; provided, that all monies paid by the Company to the Paying Agent for
the payment of principal or interest on any Note which remain unclaimed at the
end of two (2) years after the Stated Maturity or Redemption Date of such Note
will be repaid to the Company and the Holder of any Note or Coupon shall
thereafter have only the rights of a creditor of the Company or such rights as
may be otherwise provided by applicable law.
SECTION 5.09 Restoration of Rights and Remedies.
If the Trustee or any Noteholder has instituted any proceeding to
enforce any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Noteholder, then and in every such case, subject to any
determination in such proceeding, the Company, the Trustee and the Noteholders
shall be restored severally and respectively to their former positions
hereunder and thereafter all rights and remedies of the Trustee and the
Noteholders shall continue as though no such proceeding had been instituted.
SECTION 5.10 Rights and Remedies Cumulative.
Except as otherwise provided with respect to the replacement or payment
of mutilated, destroyed, lost or stolen Notes in the last paragraph of Section
3.08, no right or remedy herein conferred upon or reserved to the Trustee or to
the Noteholders is intended to be exclusive of any other right or remedy, and
every right and remedy shall, to the extent permitted by law, be cumulative and
in addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy
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hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
SECTION 5.11 Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder of any Note to
exercise any right or remedy accruing upon any Event of Default shall impair
any such right or remedy or constitute a waiver of any such Event of Default or
an acquiescence therein. Every right and remedy given by this Article or by
law to the Trustee or to the Noteholders may be exercised from time to time,
and as often as may be deemed expedient, by the Trustee or by the Noteholders,
as the case may be.
SECTION 5.12 Control by Noteholders.
The Holders of not less than a majority in aggregate principal amount of
the Outstanding Notes shall have the right to direct the time, method and place
of conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred on the Trustee, provided that in each
case:
(a) such direction shall not be in conflict with any rule of
law or with this Indenture,
(b) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction, and
(c) the Trustee need not take any action which might involve
it in personal liability or be unjustly prejudicial to the Noteholders not
joining in such direction.
SECTION 5.13 Waiver of Past Defaults.
Subject to Section 5.02, the Holders of not less than a majority in
principal amount of the Outstanding Notes may on behalf of the Holders of all
the Notes waive any past default hereunder and its consequences, except a
default
(a) in respect of the payment of the principal of or interest
on any Note, or
(b) in respect of a covenant or provision hereof which under
Article Nine cannot be modified or amended without the consent of the Holder of
each Outstanding Note affected.
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Upon any such waiver, such default shall cease to exist, and any Event
of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other default or Event of Default or impair any right consequent thereon.
SECTION 5.14 Waiver of Stay or Extension Laws.
The Company covenants (to the extent that it may lawfully do so) that it
will not at any time insist upon, or plead, or in any manner whatsoever claim
or take the benefit or advantage of, any stay or extension law wherever
enacted, now or at any time hereafter in force, which may affect the covenants
or the performance of this Indenture; and the Company (to the extent that it
may lawfully do so) hereby expressly waives all benefit or advantage of any
such law and covenants that it will not hinder, delay or impede the execution
of any power herein granted to the Trustee, but will suffer and permit the
execution of every such power as though no such law had been enacted.
SECTION 5.15 Undertaking for Costs.
All parties to this Indenture agree, and each Holder of any Note by such
Noteholder's acceptance thereof shall be deemed to have agreed, that any court
may in its discretion require, in any suit for the enforcement of any right or
remedy under this Indenture, or in any suit against the Trustee for any action
taken, suffered or omitted by it as Trustee, the filing by any party litigant
in such suit of an undertaking to pay the costs of such suit, and that such
court may in its discretion assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in such suit, having due regard to
the merits and good faith of the claims or defenses made by such party
litigant; but the provisions of this Section shall not be deemed to require any
court to require an undertaking or to make such an assessment in any suit
instituted by the Company except against the Trustee.
ARTICLE SIX
THE TRUSTEE
SECTION 6.01 Notice of Defaults.
Within 90 days after the occurrence of any Default hereunder, the
Trustee shall publish notice of such Default hereunder known to the Trustee,
unless such Default shall have been cured or waived; provided, however, that,
except in the case of a Default in the payment of the principal of or interest
on any Note, the Trustee shall be protected in withholding such notice if and
so long as the board of directors, the executive committee or a trust committee
of directors and/or
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Responsible Officers of the Trustee in good faith determines that the
withholding of such notice is in the interest of the Noteholders.
SECTION 6.02 Certain Rights of Trustee.
(a) The Trustee may request and rely and shall be protected in
acting or refraining from acting upon any Extraordinary Resolution, Act, Notice
or other resolution, certificate, statement, instrument, opinion, report,
notice, request, direction, consent, order, bond, debenture, note, other
evidence of indebtedness or other paper or document believed by it to be
genuine and to have been signed or presented by the proper party or parties.
(b) Any request or direction of the Company mentioned herein
shall be sufficiently evidenced by a Company Request or Company Order and any
resolution of the Board of Directors may be sufficiently evidenced by a Board
Resolution.
(c) Whenever in the administration of this Indenture the
Trustee shall deem it desirable that a matter be proved or established prior to
taking, suffering or omitting any action hereunder, the Trustee (unless other
evidence be herein specifically prescribed) may, in the absence of bad faith on
its part, rely upon an Officers' Certificate.
(d) The Trustee may consult with counsel and the written
advice of such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or
omitted by it hereunder in good faith and in reliance thereon.
(e) The Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Indenture at the request or
direction of any of the Noteholders pursuant to this Indenture, unless such
Noteholders shall have offered to the Trustee reasonable security or indemnity
against the costs, expenses (including reasonable fees of Trustee's counsel),
and liabilities which might be incurred by it in compliance with such request
or direction.
(f) The Trustee shall not be bound to make any investigation
into the facts or matters stated in any Extraordinary Resolution, Act, Notice
or other resolution, certificate, statement, instrument, opinion, report,
notice, request, direction, consent, order, bond, debenture, note, other
evidence of indebtedness or other paper or document, but the Trustee, in its
discretion, may make such further inquiry or investigation into such facts or
matters as it may see fit, and, if the Trustee shall determine to make such
further inquiry or investigation, it shall be entitled to examine the books,
records and premises of the Company, personally or by agent or attorney.
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(g) The Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through
agents or attorneys and the Trustee shall not be responsible for any misconduct
or negligence on the part of any agent or attorney appointed with due care by
it hereunder.
(h) The Trustee shall not be liable for any action taken,
suffered or omitted by it in good faith and believed by it to be authorized or
within the discretion or rights or powers conferred upon it by this Indenture.
(i) The permissive right of the Trustee to take or refrain
from taking any actions enumerated in this Indenture shall not be confused as a
duty and the Trustee shall not be answerable in such actions other than for its
own negligence or wilful misconduct.
The Trustee shall not be required to expend or risk its own funds or
otherwise incur any financial liability in the performance of any of its duties
hereunder, or in the exercise of any of its rights or powers if it shall have
reasonable grounds for believing that repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to it.
SECTION 6.03 Trustee Not Responsible for Recitals or Issuance of Notes.
The recitals contained herein in the Notes, except for the Trustee's
certificates of authentication, and in the Coupons, shall be taken as the
statements of the Company, and the Trustee assumes no responsibility for their
correctness. The Trustee makes no representations as to the validity or
sufficiency of this Indenture or of the Notes or the Coupons or of the
Conversion Shares, except that the Trustee represents that it is duly
authorized to execute and deliver this Indenture, authenticate the Notes and
perform its obligations hereunder. The Trustee shall not be accountable for
the use or application by the Company of Notes or the proceeds thereof.
SECTION 6.04 May Hold Notes.
The Trustee, any Paying Agent, any Conversion Agent, any Authenticating
Agent or any other agent of the Company or of the Trustee, in its individual or
any other capacity, may become the owner or pledgee of Notes and the Coupons
and may otherwise deal with the Company with the same rights it would have if
it were not Trustee, Paying Agent, Conversion Agent, any Authenticating Agent
or such other agent.
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SECTION 6.05 Money Held in Trust.
Money held by the Trustee in trust hereunder need not be segregated from
other funds except to the extent required by law. The Trustee shall be under
no liability for interest on any money received by it hereunder except as
otherwise agreed with the Company.
SECTION 6.06 Compensation and Reimbursement.
The Company agrees:
(a) to pay to the Trustee from time to time reasonable
compensation for all services rendered by it hereunder (which compensation
shall not be limited by any provision of law in regard to the compensation of a
trustee of an express trust);
(b) except as otherwise expressly provided herein, to
reimburse the Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Trustee in accordance with
any provision of this Indenture (including the reasonable compensation and the
expenses and disbursements of its agents and counsel), except any such expense,
disbursement or advance as may be attributable to its negligence, bad faith or
wilful misconduct; and
(c) to indemnify the Trustee for, and to hold it harmless
against, any loss, liability or expense incurred without negligence or bad
faith on its part, arising out of or in connection with the acceptance or
administration of this trust, including the costs and expenses of defending
itself against any claim or liability in connection with the exercise or
performance of any of its powers or duties hereunder.
When the Trustee incurs expenses or renders service in connection with
an Event of Default specified in Section 5.01 (f) or Section 5.01 (g), the
expenses (including the reasonable charges of its counsel) and the compensation
for the services are intended to constitute expenses of the administration
under any applicable federal, state or foreign bankruptcy, insolvency or other
similar law.
As security for the performance of the obligations of the Company under
this Section, the Trustee shall have a claim prior to the Notes upon all
Property and funds held or collected by the Trustee as such, except funds held
in trust for the payment of principal of or interest on particular Notes.
The provision of this Section shall survive the termination of this
Indenture or the earlier resignation or removal of the Trustee. Any Paying
Agent or Authenticating Agent appointed
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hereunder shall be entitled to the benefits of Section 6.06 (c) as if the
indemnity set forth therefor were specifically afforded to such Paying Agent or
Authenticating Agent.
SECTION 6.07 Corporate Trustee Required; Eligibility.
There shall at all times be a Trustee hereunder which shall be eligible
to act as Trustee and shall have a combined capital and surplus of at least
$50,000,000. If such corporation publishes reports of condition at least
annually, pursuant to law or to the requirements of federal, state, territorial
or District of Colombia supervising or examining authority, then for the
purposes of this Section, the combined capital and surplus of such corporation
shall be deemed to be its combined capital and surplus as set forth in its most
recent report of condition so published. If at any time the Trustee shall
cease to be eligible in accordance with the provisions of this Section, it
shall resign immediately in the manner and with the effect hereinafter
specified in this Article.
SECTION 6.08 Resignation and Removal; Appointment of Successor.
(a) No resignation or removal of the Trustee and no
appointment of a successor Trustee pursuant to this Article shall become
effective until the acceptance of appointment by the successor Trustee in
accordance with the applicable requirements of Section 6.09.
(b) The Trustee may resign at any time by giving written
notice thereof to the Company. If the instrument of acceptance by a successor
Trustee required by Section 6.09 shall not have been delivered to the Trustee
within thirty (30) days after the giving of such notice of resignation, the
resigning Trustee may petition any court of competent jurisdiction for the
appointment of a successor Trustee.
(c) The Trustee may be removed at any time by Act of the
Holders of not less than a majority in principal amount of the Outstanding
Notes, delivered to the Trustee and to the Company.
(d) If at any time:
(i) the Trustee shall cease to be eligible under
Section 6.07 and shall fail to resign after written request therefor by the
Company or by any Noteholder who has been a bona fide Holder of a Note for at
least six (6) months, or
(ii) the Trustee shall become incapable of acting or
shall be adjudged a bankrupt or insolvent or a receiver of the Trustee or of
its Property shall be appointed or any public officer shall take charge or
control of the Trustee or of its Property or affairs for the purpose of
rehabilitation, conservation or liquidation, or
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(iii) the Trustee shall fail or refuse to timely carry
out and discharge its duties hereunder,
then, in any such case, (i) the Company, by a Board Resolution, may
remove the Trustee, or (ii) any Noteholder who has been a bona fide Holder of a
Note for at least six (6) months may, on behalf of such Noteholder and all
others similarly situated, petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or become
incapable of acting, or if a vacancy shall occur in the office of Trustee for
any reason, the Company, by a Board Resolution, shall promptly appoint a
successor Trustee. If, within one year after such resignation, removal or
incapability, or the occurrence of such vacancy, a successor Trustee shall be
appointed by Act of the Holders of a majority in principal amount of the
Outstanding Notes delivered to the Company and the retiring Trustee, the
successor Trustee so appointed shall, forthwith upon its acceptance of such
appointment, become the successor Trustee and supersede the successor Trustee
appointed by the Company. If no successor Trustee shall have been so appointed
by the Company or the Noteholders and accepted appointment in the manner
hereinafter provided, any Noteholder who has been a bona fide Holder of a Note
for at least six (6) months may, on behalf of such Noteholder and all others
similarly situated, petition any court of competent jurisdiction for the
appointment of a successor Trustee.
(f) The Company shall give notice of each resignation and each
removal of the Trustee and each appointment of a successor Trustee to the
Noteholders in the manner provided for in Section 1.08. Each notice shall
include the name of the successor Trustee and the address of its Corporate
Trust Office.
SECTION 6.09 Acceptance of Appointment by Successor.
Every successor Trustee appointed hereunder shall execute, acknowledge
and deliver to the Company and to the retiring Trustee an instrument accepting
such appointment, and thereupon the resignation or removal of the retiring
Trustee shall become effective and such successor Trustee, without any further
act, deed or conveyance, shall become vested with all the rights, powers,
trusts and duties of the retiring Trustee; but, on request of the Company or
the successor Trustee, such retiring Trustee shall, upon payment of its
charges, execute and deliver an instrument transferring to such successor
Trustee all the rights, powers and trusts of the retiring Trustee and shall
duly assign, transfer and deliver to such successor Trustee all Property and
money held by such retiring Trustee hereunder, whether or not invested. Upon
request of any such successor Trustee, the Company shall execute any and all
instruments for more fully and certainly vesting in and confirming to such
successor Trustee all such rights, powers and trusts.
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No successor Trustee shall accept its appointment unless at the time of
such acceptance such successor Trustee shall be qualified and eligible under
this Article.
SECTION 6.10 Merger, Conversion, Consolidation or Succession to
Business.
Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any
merger, conversion or consolidation to which the Trustee shall be a party, or
any corporation succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
provided such corporation shall be otherwise qualified and eligible under this
Article, without the execution or filing of any paper or any further act on the
part of any of the parties hereto. In case any Notes shall have been
authenticated, but not delivered, by the Trustee then in office, any successor
by merger, conversion or consolidation to such authenticating Trustee may adopt
such authentication and deliver the Notes so authenticated with the same effect
as if such successor Trustee had itself authenticated such Notes; and in case
at that time any of the Notes shall not have been authenticated, any successor
Trustee may authenticate such Notes either in the name of any predecessor
hereunder or in the name of the successor Trustee; and in all such cases such
certificates shall have the full force which it is anywhere in the Notes or in
this Indenture provided that the certificate of the Trustee shall have;
provided, however, that the right to adopt the certificate of authentication of
any predecessor Trustee or to authenticate Notes in the name of any predecessor
Trustee shall apply only to its successor or successors by merger, conversion
or consolidation.
SECTION 6.11 Certain Duties and Responsibilities.
(a) Except during the continuance of an Event of Default with
respect to the Notes,
(i) the Trustee undertakes to perform such duties and
only such duties with respect to the Notes as are specifically set forth in
this Indenture, and no implied covenants or obligations with respect to the
Notes shall be read into this Indenture against the Trustee; and
(ii) in the absence of bad faith on its part, the
Trustee may conclusively rely as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or opinions
furnished to the Trustee and conforming to the requirements of this Indenture;
but in the case of any such certificates or opinions which by any provision
hereof are specifically required to be furnished to the Trustee, the Trustee
shall be under a duty to examine the same to determine whether or not they
conform to the requirements of this Indenture, but not to verify the contents
thereof.
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(b) In case an Event of Default has occurred and is continuing
of which a Responsible Officer of the Trustee has actual knowledge, the Trustee
shall exercise such of the rights and powers vested in it by this Indenture
with respect to the Notes, and use the same degree of care and skill in their
exercise, as a prudent person would exercise or use under the circumstances in
the conduct of such person's own affairs.
(c) No provision of this Indenture shall be construed to
relieve the Trustee from liability for its own negligent action, its own
negligent failure to act, or its own wilful misconduct, except that:
(i) this Subsection shall not be construed to limit the
effect of Subsection (a) of this Section;
(ii) the Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer, unless it shall be proved
that the Trustee was negligent in ascertaining the pertinent facts;
(iii) the Trustee shall not be liable with respect to any
action taken or omitted to be taken by it in good faith in accordance with the
direction of the Noteholders, given as provided in Section 5.12, relating to
the time, method and place of conducting any proceeding for any remedy
available to the Trustee, or exercising any trust or power conferred upon the
Trustee, under this Indenture; and
(iv) no provision of this Indenture shall require the
Trustee to expend or risk its own funds or otherwise incur any financial
liability in the performance of any of its duties hereunder, or in the exercise
of any of its rights or powers, if it shall have reasonable grounds for
believing that repayment of such funds or adequate indemnity against such risk
or liability is not reasonably assured to it.
(d) Whether or not therein expressly so provided, every
provision of this Indenture relating to the conduct or affecting the liability
of or affording protection to the Trustee shall be subject to the provisions of
this Section.
SECTION 6.12 Meetings of Noteholders.
(a) The Trustee or the Noteholders may convene a meeting at
any time and from time to time to consider any matter affecting the interests
of the Trustee or the Holders of the Notes, including the modification of the
Terms and Conditions or this Indenture and to make, give or take any request,
demand, authorization, direction, notice, consent, waiver or other action
provided by this Indenture to be made, given or taken by Holders of the Notes.
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(b) The Trustee may at any time call a meeting of the Holders
of the Notes for any purpose specified in Section 6.12(a), to be held at such
time and at such place in the Borough of Manhattan, The City of New York, or in
the City of London, England, as the Trustee shall determine. Notice of every
meeting of the Holders of the Notes, setting forth the time and the place of
such meeting and in general terms the action proposed to be taken at such
meeting, shall be given in the manner provided in Section 1.08, not less than
21 nor more than 180 days prior to the date fixed for the meeting.
(c) In case at any time the Company, pursuant to a Board
Resolution, or the Holders of at least 25% in aggregate principal amount of the
Outstanding Notes shall have requested the Trustee to call a meeting of the
Holder of the Notes for any purpose other than specified in Section 6.12(a), by
written request setting forth in reasonable detail the action proposed to be
taken at the meeting, and the Trustee shall not have made the first publication
of the notice of such meeting within 21 days after receipt of such request or
shall not thereafter proceed to cause the meeting to be held as provided
herein, then the Company or the Holders of the Notes in the amount specified,
as the case may be, may determine the time and the place in the Borough of
Manhattan, The City of New York, or in the City of London, England, for such
meeting and may call such meeting for such purposes by giving notice thereof as
provided in Section 1.08.
(d) To be entitled to vote at any meeting of Holders of the
Notes, a Person shall be (i) a Holder of one or more Outstanding Notes, or (ii)
a Person appointed by an instrument in writing as proxy for a Holder or Holders
of one or more Outstanding Notes by such Holder or Holders. The only Persons
who shall be entitled to be present or to speak at any meeting of Noteholders
shall be the Persons entitled to vote at such meeting and their counsel, any
representatives of the Trustee and the Company, and their respective counsel.
(e) The quorum at any meeting for passing any Extraordinary
Resolution will be one or more Persons present holding or representing 50% or
more in principal amount of the Outstanding Notes as of the date of the
meeting, or at any adjourned such meeting one or more Persons present whatever
the principal amount of the Notes held or represented by such Person and the
vote required for passing an Extraordinary Resolution at such meeting will be
not less than a majority of the principal amount of the Outstanding Notes and
represented at such meeting or adjournment thereof; provided, that at any
meeting, the business of which includes the modification of the provisions of
the Terms and Conditions (including without limitation Condition 8) and the
provisions of this Indenture, the necessary quorum and vote required for
passing an Extraordinary Resolution will be one or more Persons present holding
or representing not less than a majority, or at any adjourned such meeting not
less than one-third, of the principal amount of the Outstanding Notes. An
Extraordinary Resolution passed at any meeting of the Holders of the Notes will
be
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binding on all Holders of the Notes, whether or not such Noteholders are
present at the meeting, and on the Holders of all Coupons.
(f) The Trustee may agree, without the consent of the Holders
of the Notes or the Coupons, to any modification (subject to certain
exceptions) of, or to the waiver or authorization of any breach or proposed
breach of, any of the Terms and Conditions or any of the provisions of this
Indenture which is not, in the reasonable opinion of the Trustee materially
prejudicial to the interests of the Holders of the Notes or the Coupons or
which is of a formal, minor or technical nature or to correct a manifest error.
SECTION 6.13 Authenticating Agents.
The Principal Paying and Conversion Agent may authenticate the Global
Note, the Temporary Notes and the Notes, as the Trustee's Authenticating Agent.
The Trustee may, with the written consent of the Company, appoint an additional
Authenticating Agent acceptable to the Company with respect to the Notes which
shall be authorized to act on behalf of the Trustee to authenticate Notes
issued upon exchange or substitution pursuant to this Indenture.
Notes authenticated by an Authenticating Agent shall be entitled to the
benefits of this Indenture and shall be valid and obligatory for all purposes
as if authenticated by the Trustee hereunder, and every reference in this
Indenture to the authentication and delivery of Notes by the Trustee or the
Trustee's certificate of authentication shall be deemed to include
authentication and delivery on behalf of the Trustee by an Authenticating Agent
and a certificate of authentication executed on behalf of the Trustee by an
Authenticating Agent. The Notes shall have endorsed thereon the certificate of
authentication set forth in Exhibits A and B hereto. Each Authenticating Agent
shall be subject to acceptance by the Company and shall at all times be a
corporation organized and doing business under the laws of the United States of
America, any state thereof, the District of Colombia, Luxembourg, or England
and Wales authorised under such laws to act as Authenticating Agent and subject
to supervision or examination by government or other fiscal authority. If at
any time an Authenticating Agent shall cease to be eligible in accordance with
the provisions of this Section 6.13, such Authenticating Agent shall resign
immediately in the manner and with the effect specified in this Section 6.13.
Any corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Authenticating Agent
shall be a party, or any corporation succeeding to the corporate agency or
corporate trust business of an Authenticating Agent, shall continue to be an
Authenticating Agent; provided such corporation shall be otherwise eligible
under this Section
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6.13, without the execution or filing of any paper or any further act on the
part of the Trustee or the Authenticating Agent.
An Authenticating Agent may resign at any time by giving written notice
thereof to the Trustee and to the Company. The Trustee may at any time
terminate the agency of an Authenticating Agent by giving written notice
thereof to such Authenticating Agent and to the Company. Upon receiving such a
notice of resignation or upon such a termination, or in case at any time such
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section 6.13, the Trustee may appoint a successor
Authenticating Agent which shall be subject to acceptance by the Company.
The Company agrees to pay to each Authenticating Agent from time to time
reasonable compensation for this service under Section 6.13.
ARTICLE SEVEN
NOTEHOLDERS' LISTS AND REPORTS BY COMPANY
SECTION 7.01 Disclosure of Names and Addresses of Noteholders.
Every Noteholder, by receiving and holding the same, agrees with the
Company and the Trustee that neither the Company nor the Trustee nor any agent
of either of them shall be held accountable by reason of the disclosure of any
such information as to the names and addresses of the Noteholders regardless of
the source from which such information was derived.
SECTION 7.02 Reports by Company.
The Company shall:
(a) file with the Trustee, within 15 days after the Company is
required to file the same with the Commission, copies of the annual reports and
of the information, documents and other reports (or copies of such portions of
any of the foregoing as the Commission may from time to time by rules and
regulations prescribe) which the Company may be required to file with the
Commission pursuant to Section 13 or Section 15(d) of the Exchange Act; or, if
the Company is not required to file information, documents or reports pursuant
to either of said Sections, then, on the 120th day following the initial
issuance of the Notes and annually thereafter, it shall file with the Trustee,
in accordance with rules and regulations prescribed from time to time by the
Commission, such of the supplementary and periodic information, documents and
reports which may be required pursuant to Section 13 of the Exchange Act in
respect of a security listed and registered on a national securities exchange
as may be prescribed from time to time in such rules and regulations; and
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(b) file with the Trustee, in accordance with rules and
regulations prescribed from time to time by the Commission, such additional
information, documents and reports with respect to compliance by the Company
with the conditions and covenants of this Indenture as may be required from
time to time by such rules and regulations.
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER, OR LEASE
SECTION 8.01 Company May Consolidate, Etc., Only on Certain Terms.
The Company will not merge or consolidate with or sell, convey, transfer
or lease or otherwise dispose of all or substantially all of its assets
substantially as an entirety to any Person, unless:
(a) either (i) the Company shall be the surviving Person or
(ii) the Person (if other than the Company) formed by such consolidation or
into which the Company is merged or the Person which acquired by conveyance or
transfer, or which leases, the Properties and assets of the Company
substantially as an entirety (1) shall be a Person organized and validly
existing under the laws of the United States of America, any state thereof or
the District of Colombia and (2) shall expressly assume, by a trust indenture
supplemental hereto, executed and delivered to the Trustee, in form
satisfactory to the Trustee, the Company's obligation for the due and punctual
payment of the principal of and interest on all the Notes and the performance
and observance of every covenant of this Indenture on the part of the Company
to be performed or observed;
(b) immediately after giving effect to such transaction (and
treating any Indebtedness which becomes an obligation of the Company in
connection with or as a result of such transaction as having been incurred at
the time of such transaction), no Default or Event of Default shall have
occurred and be continuing; and
(c) the Company or such Person shall have delivered to the
Trustee an Officers' Certificate and an Opinion of Counsel, each stating that
such consolidation, merger, conveyance, transfer or lease and, if a
supplemental indenture is required in connection with such transaction, such
supplemental indenture complies with Article 9 and that all conditions
precedent herein provided for relating to such transaction have been complied
with.
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SECTION 8.02 Successor Substituted.
Upon any consolidation of the Company with or merger of the Company with
or into any other Person or any conveyance, transfer or lease of the Properties
and assets of the Company substantially as an entirety to any Person in
accordance with Section 8.01, the successor Person formed by such consolidation
or into which the Company is merged or to which such conveyance, transfer or
lease is made shall succeed to, and be substituted for, and may exercise every
right and power of, the Company under this Indenture with the same effect as if
such successor Person had been named as the Company herein, and in the event of
any such conveyance or transfer, the Company (which term shall for this purpose
mean the Person named as the "Company" in the first paragraph of this Indenture
or any successor Person which shall theretofore become such in the manner
described in Section 8.01), except in the case of a lease, shall be discharged
of all obligations and covenants under this Indenture and the Notes and may be
dissolved and liquidated.
ARTICLE NINE
SUPPLEMENTAL INDENTURES
SECTION 9.01 Supplemental Indentures Without Consent of Noteholders.
Without the consent of any Noteholders, the Company, when authorized by
a Board Resolution, and the Trustee, at any time and from time to time, may
enter into one or more indentures supplemental hereto, in form satisfactory to
the Trustee, for any of the following purposes:
(a) to evidence the succession of another Person to the
Company and the assumption by any such successor of the covenants of the
Company contained herein and in the Notes; or
(b) to add to the covenants of the Company for the benefit of
the Noteholders or to surrender any right or power herein conferred upon the
Company; or
(c) to add any additional Events of Default; or
(d) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee pursuant to the requirements of Section 6.09;
or
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(e) to cure any ambiguity, to correct or supplement any
provision herein which may be inconsistent with any other provision herein, or
to make any other provisions with respect to matters or questions arising under
this Indenture; provided that such action shall not adversely affect the
interests of the Noteholders in any material respect; or
(f) to secure the Notes pursuant to the requirements of
Section 10.11 or otherwise.
SECTION 9.02 Supplemental Indentures with Consent of Noteholders.
With the consent of the Noteholders of not less than a majority in
principal amount of the Outstanding Notes, by Act of said Noteholders delivered
to the Company and the Trustee, the Company, when authorized by a Board
Resolution, and the Trustee may enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of this Indenture or of
modifying in any manner the rights of the Noteholders under this Indenture;
provided, that no such supplemental indenture shall, without the consent of the
Holder of each Outstanding Note affected thereby:
(a) change the Stated Maturity of the principal of, or any
instalment of principal of or interest on, any Note, or reduce the principal
amount thereof or the rate of interest thereon, or change the coin or currency
in which any Note or the interest thereon is payable, or impair the right to
institute suit for the enforcement of any such payment after the Stated
Maturity thereof (or, in the case of redemption, on or after the Redemption
Date), or
(b) reduce the percentage in principal amount of the
Outstanding Notes, the consent of whose Holders is required for any such
supplemental indenture, or the consent of whose Holders is required for any
waiver of compliance with certain provisions of this Indenture or certain
defaults hereunder and their consequences provided for in this Indenture, or
(c) modify any of the provisions of this Section or Section
5.13, except to increase any such percentage or to provide that certain other
provisions of this Indenture cannot be modified or waived without the consent
of the Holder of each Outstanding Note affected thereby; provided, that this
clause shall not be deemed to require the consent of any Noteholder with
respect to changes in the references to "the Trustee" and concomitant changes
in this Section and elsewhere, or the deletion of this proviso, in accordance
with the requirements of Section 6.09 and 9.01(d), or
(d) modify any of the provisions of Section 10.11 or any of
the provisions of this Indenture relating to the subordination of the Note in a
manner adverse to the Holders thereof.
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It shall not be necessary for any Act of Noteholders under this Section
to approve the particular form of any proposed supplemental indenture, but it
shall be sufficient if such Act shall approve the substance thereof.
SECTION 9.03 Execution of Supplemental Indentures.
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby
of the trusts created by this Indenture, the Trustee shall be entitled to
receive, and (subject to Section 6.11) shall be fully protected in relying
upon, an Opinion of Counsel stating that the execution of such supplemental
indenture is authorized or permitted by this Indenture. The Trustee may, but
shall not be obligated to, enter into any such supplemental indenture which
affects the Trustee's own rights, duties or immunities under this Indenture or
otherwise.
SECTION 9.04 Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this Article,
this Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every
Holder of Notes theretofore or thereafter authenticated and delivered hereunder
shall be bound thereby.
SECTION 9.05 Reference in Notes to Supplemental Indentures.
Notes authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so
determine, new Notes so modified as to conform, in the opinion of the Trustee
and the Company, to any such supplemental indenture may be prepared and
executed by the Company and authenticated and delivered by the Trustee in
exchange for Outstanding Notes.
SECTION 9.06 Notice of Supplemental Indentures.
Promptly after the execution by the Company and the Trustee of any
supplemental indenture pursuant to the provisions of Section 9.02, the Company
shall give notice thereof to the Holders of each Outstanding Note affected, in
the manner provided for in Section 1.08, setting forth in general terms the
substance of such supplemental indenture.
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ARTICLE TEN
COVENANTS
SECTION 10.01 Payment of Principal and Interest.
The Company covenants and agrees for the benefit of the Noteholders and
the Couponholders that it will duly and punctually pay the principal of and
interest on the Notes in accordance with the terms of the Notes and this
Indenture.
SECTION 10.02 Maintenance of Office or Agency.
The Company will maintain in Luxembourg and in not less than one other
European city an office or agency where Notes may be presented or surrendered
for payment, where Notes may be surrendered for conversion or exchange and
where notices and demands to or upon the Company in respect of the Notes and
this Indenture may be served. The office of the Luxembourg Paying Agent at 43
Boulevard Royal, L-2955 Luxembourg and the corporate trust office of the
Principal Paying Agent at Mariner House, Pepys Street, London EC3N 4DA, England
shall be such offices or agencies of the Company, unless the Company shall
designate and maintain some other offices or agencies for one or more of such
purposes pursuant to the terms of that certain Paying and Conversion Agency
Agreement of even date herewith (the "Agency Agreement"). The Company will
give prompt written notice to the Trustee of any change in the location of any
such offices or agencies. If at any time the Company shall fail to maintain
any such required offices or agencies or shall fail to furnish the Trustee with
the address thereof, such presentations, surrenders, notices and demands may be
made or served at the Corporate Trust Office of the Trustee, and the Company
hereby appoints the Trustee as its agent to receive all such presentations,
surrenders, notices and demands.
The Company may also from time to time designate one or more other
offices or agencies (in or outside of Europe) where the Notes may be presented
or surrendered for any or all such purposes and may from time to time rescind
any such designation; provided, that no such designation or rescission shall in
any manner relieve the Company of its obligation to maintain an office or
agency in Europe for such purposes. The Company will give prompt written
notice to the Trustee of any such designation or rescission and any change in
the location of any such other office or agency.
SECTION 10.03 Money for Payments to Be Held in Trust.
If the Company shall at any time act as its own Paying Agent, it will,
on or before each due date of the principal of or interest on any of the Notes,
segregate and hold in trust for the benefit of
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the Persons entitled thereto a sum sufficient to pay the principal or interest
so becoming due until such sums shall be paid to such Persons or otherwise
disposed of as herein provided and will promptly notify the Trustee of its
action or failure so to act.
Whenever the Company shall have one or more Paying Agents for the Notes,
it will, on or before 3:00 p.m. (London time) on the Business Day immediately
preceding each due date of the principal of or interest on any Notes, deposit
with a Paying Agent a sum sufficient to pay the principal or interest so
becoming due, such sum to be held in trust for the benefit of the Persons
entitled to such principal or interest, and (unless such Paying Agent is the
Trustee) the Company will promptly notify the Trustee of such action or any
failure so to act.
Pursuant to the terms of the Agency Agreement, each Paying Agent shall
agree with the Trustee, subject to the provisions of this Section, that such
Paying Agent will:
(a) hold all sums held by it for the payment of the principal
of or interest on Notes in trust for the benefit of the Persons entitled
thereto until such sums shall be paid to such Persons or otherwise disposed of
as herein provided;
(b) give the Trustee notice of any Default by the Company in
the making of any payment of principal or interest; and
(c) at any time during the continuance of any such Default,
upon the written request of the Trustee, forthwith pay to the Trustee all sums
so held in trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held
in trust by the Company or such Paying Agent, such sums to be held by the
Trustee upon the same trusts as those upon which such sums were held by the
Company or such Paying Agent; and, upon such payment by any Paying Agent to the
Trustee, such Paying Agent shall be released from all further liability with
respect to such sums.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of or interest on any
Note and remaining unclaimed for two years after such principal or interest has
become due and payable shall be paid to the Company on Company Request, or (if
then held by the Company) shall be discharged from such trust; and the Holder
of such Note shall thereafter, as an unsecured general creditor, look only to
the Company for payment thereof, and all liability of the Trustee or such
Paying Agent with respect to such trust money, and all liability of the Company
as trustee thereof, shall thereupon cease; provided, however, that the Trustee
or such Paying Agent, before being required to make any such repayment, may at
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the expense of the Company cause to be published once, in the Authorized
Newspapers, notice that such money remains unclaimed and that, after a date
specified therein, which shall not be less than 30 days from the date of such
publication, any unclaimed balance of such money then remaining will be repaid
to the Company.
SECTION 10.04 Corporate Existence.
The Company will do or cause to be done all things necessary to preserve
and keep in full force and effect its corporate existence, rights (charter and
statutory) and franchises of the Company; provided, however, that the Company
shall not be required to preserve any such right or franchise if the Board of
Directors shall determine that the preservation thereof is no longer in the
best interests of the Company and its Principal Subsidiaries as a whole and the
conduct of their collective businesses, and that the loss thereof is not
disadvantageous in any material respect to the Noteholders; and provided,
further, that nothing contained in this Section 10.04 shall prohibit any
transaction permitted by Article Eight or Sections 10.13.
SECTION 10.05 Payment of Taxes and Other Claims.
The Company will pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (a) all taxes, assessments and
governmental charges levied or imposed upon the Company or any Principal
Subsidiary or upon the income, profits or Property of the Company or any
Principal Subsidiary and (b) all lawful claims for labour, materials and
supplies which, if unpaid, might by law become a Lien upon the Property of the
Company or any Principal Subsidiary; provided, however, that the Company shall
not be required to pay or discharge or cause to be paid or discharged any such
tax, assessment, charge or claim whose amount, applicability or validity is
being contested in good faith by appropriate proceedings.
SECTION 10.06 Maintenance of Properties.
The Company will cause all Properties owned by the Company or any
Principal Subsidiary or used or held for use in the conduct of its business or
the business of any Principal Subsidiary to be maintained and kept in good
condition, repair and working order (ordinary wear and tear excepted) and
supplied with all necessary equipment and will cause to be made all necessary
repairs, renewals, replacements, betterments and improvements thereof, all as
in the judgment of the Company may be necessary so that the business carried on
in connection therewith may be conducted at all times; provided, however, that
nothing in this Section shall prevent the Company from discontinuing the
maintenance of any of such Properties if such discontinuance is, in the
judgment of the Company, desirable in the conduct of its business or the
business of any Principal
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Subsidiary and not disadvantageous in any material respect to the Noteholders,
and provided, further, that nothing contained in this Section 10.06 shall
prohibit any transaction permitted by Article Eight or Section 10.11.
SECTION 10.07 Insurance.
The Company will at all times keep all of the Company's and its
Principal Subsidiaries' Properties which are of an insurable nature insured
with insurers, believed by the Company to be responsible, against loss or
damage to the extent that Property of similar character is usually so insured
by Corporations similarly situated and owning like Properties in similar
geographic areas in which the Company or such Principal Subsidiary operates;
provided that such insurance is generally available at commercially reasonable
rates, and provided further that the Company or such Principal Subsidiary may
self-insure directly or through captive insurers or insurance cooperatives, to
the extent that the Company determines that such practice is consistent with
prudent business practices. Such insurance shall be in such amount, on such
terms, in such forms and for such periods as are customary for similarly
situated Persons in the Company's industry or in insurance markets available to
the Company.
SECTION 10.08 Statement by Officers as to Default.
The Company will deliver to the Trustee at its Corporate Trust Office,
within 120 days after the end of each fiscal year, a brief Officers'
Certificate including a statement by the officer executing such certificate
that in the course of performing his or her duties as an officer of the Company
such officer would normally obtain knowledge of (i) whether or not any Default
exists in the performance and observation of any terms, provisions and
conditions of this Indenture and (ii) whether or not the Company has otherwise
kept, observed, performed and fulfilled its obligations under this Indenture in
all material respects. Such Officers' Certificate shall further state, as to
the officer signing such certificate, to the knowledge of such officer, as of
the date of such Officers' Certificate, (i) whether or not any Default exists,
(ii) whether or not the Company during the preceding fiscal year kept,
observed, performed and fulfilled in all material respects each and every
covenant and obligation of the Company under this Indenture and (c) whether or
not there was any Default in the performance and observance of any of the
terms, provisions or conditions of this Indenture during such preceding fiscal
year. If the officer signing the Officers' Certificate knows of such a
Default, whether then existing or occurring during such preceding fiscal year,
the Officers' Certificate shall describe such Default and its status with
particularity. The Company shall also promptly notify the Trustee if the
Company's fiscal year is changed so that the end thereof is on any date other
than the then current fiscal year end date. For purposes of this Section
10.08, such compliance shall be determined without regard to any period of
grace granted by the Trustee or requirement of notice under this Indenture.
The Company will deliver to the Trustee, forthwith upon becoming aware of any
default
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in the performance or observance of any covenant, agreement or condition
contained in this Indenture, or any Event of Default, an Officers' Certificate
specifying with particularity such Default or Event of Default and further
stating what action the Company has taken or is taking or proposes to take with
respect thereto.
SECTION 10.09 Provision of Financial Statements.
Whether or not the Company is subject to Section 13(a) or 15(d) of the
Exchange Act, the Company will, to the extent permitted under the Exchange Act,
file with the Trustee the annual reports, quarterly reports and other documents
which the Company would have been required to file with the Commission pursuant
to such Sections 13(a) or 15(d) if the Company were so subject, such documents
to be filed with the Commission on or prior to the respective dates (the
"Required Filing Dates") by which the Company would have been required so to
file such documents if the Company were so subject. The Company will also in
any event (x) within 15 days of each Required Filing Date file with the Trustee
copies of the annual reports, quarterly reports and other documents which the
Company has filed with the Commission or would have been required to file with
the Commission pursuant to Section 13(a) or 15(d) of the Exchange Act if the
Company were subject to such Sections and (y) if filing such documents by the
Company with the Commission is not permitted under the Exchange Act, promptly
upon written request, supply copies of such documents to any prospective
Noteholder at the Company's cost.
SECTION 10.10 Limitation on Other Indebtedness.
Neither the Company nor any Principal Subsidiary will create, incur,
assume, guarantee or in any other manner become directly or indirectly liable
for the payment of any Indebtedness that is senior (whether by agreement, by
operation of law, or structurally by virtue of the identity of the obligor) in
right of payment to the Notes; provided, however, that the Company and/or a
Principal Subsidiary may incur and become liable with respect to Indebtedness
which is senior in right of payment to the Notes provided (i) such Indebtedness
is incurred in connection with purchase money obligations in respect of any
Property or assets purchased after the Closing Date or to pay all or a portion
of the purchase price of Property or assets acquired by the Company and/or by a
Principal Subsidiary after the Closing Date, (ii) if the Company and/or a
Principal Subsidiary shall grant a security interest in existing Property or
assets, the Company shall, at all times when any such Indebtedness is
outstanding, maintain a negative pledge covering other Property and assets
which are not subject to any security interest senior in right of payment to
the Notes with an asset value coverage ratio, being the quotient of (a) the
fair market value of the assets covered by the negative pledge to (b) the
aggregate principal amount of the Notes then Outstanding, equal to or greater
than 1.5 to 1.0, or (iii) if such Indebtedness is incurred in connection with
project finance transactions by the Company and/or a Principal Subsidiary, such
Indebtedness will be recourse only to the project
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and/or project assets so encumbered, except to the extent a corporate guarantee
by the Company and/or a Principal Subsidiary may be required in connection
therewith. All such Indebtedness as contemplated under provisos (i), (ii), and
(iii) above to the extent it ranks senior to the Notes shall rank senior to the
Notes only as to payment from the assets or Property encumbered and shall rank
pari passu to the Notes for all other purposes.
SECTION 10.11 Limitation on Liens.
The Company will not, and will not permit any of its Principal
Subsidiaries to, create, incur, assume or suffer to exist, any Lien of any kind
securing any Indebtedness that is senior to (whether by agreement, by operation
of law, or structurally by virtue of the identity of the obligor) the Notes
(including any assumption, guarantee or other liability with respect thereto by
any of its Principal Subsidiaries) upon any Properties of the Company or any of
its Subsidiaries, unless the Notes are equally and ratably secured or rank
prior to the Indebtedness secured by such Lien; provided, however, that such
Liens may be incurred if the Indebtedness secured by such Lien is contractually
subordinated to the Indebtedness represented by the Notes in a manner
satisfactory to the Trustee, and except that Liens may be incurred securing
Indebtedness which is senior Indebtedness permitted under the provisos set
forth in Section 10.10 (provided that the Property encumbered by the Lien is
limited to, in the case of proviso (iii), the project and/or project assets and
to, in the case of proviso (i), the Property acquired by the Company and/or by
a Principal Subsidiary with the proceeds of the Indebtedness).
SECTION 10.12 Waiver of Certain Covenants.
The Company may omit in any particular instance to comply with any term,
provision or condition set forth in Section 8.03 or Sections 10.05 through
10.07, 10.09 through 10.11 if before or after the time for such compliance the
Holders of at least a majority in principal amount of the Outstanding Notes, by
Act of such Noteholders, waive such compliance in such instance with such term,
provision or condition, but no such waiver shall extend to or affect such term,
provision or condition except to the extent so expressly waived, and, until
such waiver shall become effective, the obligations of the Company and the
duties of the Trustee in respect of any such term, provision or condition shall
remain in full force and effect.
SECTION 10.13 Restrictions on Charter Amendments.
The Company will not amend its Certificate of Incorporation or Bylaws
except as required by law or except to the extent that such amendment would not
have a material adverse effect on (a) the ability of the Company to perform its
obligations under this Indenture or the Notes or (b) the rights of the
Noteholders, except that neither (i) increases in the number of Shares and
issuance thereof with related securities, nor (ii) designations of Preferred
Stock of the Company, modifications of the terms of such designations and
issuance thereof with related securities, nor (iii) modification or expansion
of the indemnity provisions provided by the Company to its directors and
officers, nor (iv) change of the Company's registered agent shall be deemed an
amendment hereunder.
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SECTION 10.14 United States Withholding and Reporting Requirements.
To the extent permitted by law, the Company will provide to the Trustee,
the Paying Agents or to any Noteholder such statements, certificates or other
documentation concerning the organization or operations of the Company as may
be reasonably necessary to establish any exceptions or exemptions from United
States federal income tax withholding and reporting requirements.
SECTION 10.15 Registration of Shares and Maintenance of Listings for
Notes and Shares.
The Company shall file a registration statement on Form S-3 (or such
other form as the Company may determine is appropriate) at the earliest
practicable date, but in any event prior to thirty (30) days following the
Closing Date, in respect of all Conversion Shares that may be issuable at any
time upon the conversion of the Notes. The Company shall use its best efforts
to cause the Commission to declare such registration statement (and any
necessary amendments thereto) effective. The Company shall also use its best
efforts to maintain the effectiveness of such registration statement, and to
refile such a registration statement from time to time in the event its
effectiveness lapses, until all Conversion Shares that either issued or that
may be issued are Freely Tradable in the United States.
The Company shall use its best efforts to list the Notes on the
Luxembourg Stock Exchange and maintain such listing until all Notes have been
converted, redeemed, or paid in full. In addition, while any Conversion Right
remains exercisable, the Company will use its best efforts to maintain a
listing for all the issued Shares on the AMEX, it being understood that if the
Company is unable to obtain or maintain such listing of Shares, to obtain and
maintain a listing of all the Shares issued on the exercise of the Conversion
Rights on such Alternative Stock Exchange as the Company may from time to time
(with the written consent of the Trustee) determine, it will forthwith give
notice to the Noteholders in accordance with Section 1.08 of the listing, de-
listing or quotation or lack of quotation of the Shares (as a class) by AMEX or
any such Alternative Stock Exchange. To the extent that the maintenance of
such a listing is within the reasonable control of the Company and to the
extent the Company has reasonable control over the timing of any delisting or
loss of quotation, the Company shall not take any action or omit to take any
action which could lead to such delisting or loss without giving the
Noteholders notice, in accordance with Section 1.08, at least ninety (90) days
in advance of the taking of such action or the making of such omission (and, if
either ninety (90) days notice can not be given or if the action or omission
has occurred, then within one Business Day after the Company becomes aware of
an appreciable risk of such delisting or loss).
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SECTION 10.16 Use of Proceeds.
The Company shall utilize the net proceeds of the Notes for the
following purposes: (i) working capital, (ii) domestic and/or international
acquisitions, (iii) domestic and international exploration and development,
(iv) other purposes consistent with the previous business practices of the
Company and its Subsidiaries and (v) other business purposes which the
Noteholders may approve by Extraordinary Resolution.
SECTION 10.17 Rights Agreement.
Holders of Conversion Shares shall be entitled to all the rights and
benefits that accrue to holders of Common Stock under the Rights Agreement
dated April 6, 1998 between ChaseMellon Shareholder Services L.L.C., as Rights
Agent, and Harken Energy Corporation, as amended from time to time (the "Rights
Agreement"). The Company agrees not to amend the Rights Agreement in any
manner which would prejudice the rights of holders or potential holders of
Conversion Shares relative to the rights of holders of Common Stock who are
entitled to the benefit of the Rights Agreement.
ARTICLE ELEVEN
REDEMPTION OF NOTES
SECTION 11.01 Right of Redemption.
At any time after May 26, 2002, the Notes may be redeemed, at the
election of the Company, as a whole or from time to time in part in accordance
with this Article Eleven. Prior to such time and on giving notice pursuant to
Section 11.05, the Company may redeem all of the Notes for the time being
outstanding at their principal amount, together with interest accrued to the
Redemption Date, in the event that prior to the date of such notice, Conversion
Rights shall have been exercised and/or purchases (and corresponding
cancellations) have been effected in respect of 85% or more in principal amount
of the Notes. Redemption shall be subject to the conditions specified in the
form of Note and shall be made at a Redemption Price equal to 100% of the
principal amount thereof, together with accrued and unpaid interest to and
including the Redemption Date, but only to the extent that all unmatured
Coupons (if applicable) are attached to such Notes.
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SECTION 11.02 Applicability of Article.
The redemption of Notes at the election of the Company or otherwise, as
permitted or required by any provision of this Indenture, shall be made in
accordance with such provision and this Article.
SECTION 11.03 Election to Redeem; Notice to Trustee.
The action of the Company to redeem any Notes pursuant to Section 11.01
shall be evidenced by a Board Resolution. In case of any redemption pursuant
to Section 11.01, the Company shall, at least 30 days and not more than 60 days
prior to the Redemption Date fixed by the Company (unless a shorter notice
shall be satisfactory to the Trustee), notify the Trustee of such Redemption
Date and of the principal amount of Notes to be redeemed and shall deliver to
the Trustee such documentation and records as shall enable the Trustee to
select the Notes to be redeemed pursuant to Section 11.04.
SECTION 11.04 Selection by Trustee of Notes to Be Redeemed.
If less than all the Notes are to be redeemed, the particular Notes to
be redeemed shall be selected not more than 60 days prior to the Redemption
Date by the Trustee, from the Outstanding Notes not previously called for
redemption, by such method as the Trustee shall deem fair and appropriate and
which may provide for the selection for redemption of portions of the principal
of Notes; provided, however, that no such partial redemption shall reduce the
portion of the principal amount of a Note not redeemed to less than $10,000.
The Noteholders do not have a right to a prorated redemption.
The Trustee shall promptly notify the Company in writing of the Notes
selected for redemption and, in the case of any Notes selected for partial
redemption, the principal amount thereof to be redeemed.
For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to redemption of Notes shall relate, in the
case of any Notes redeemed or to be redeemed only in part, to the portion of
the principal amount of such Note which has been or is to be redeemed.
If the Company shall so direct, Notes registered in the name of the
Company or any Subsidiaries shall not be included in the Notes selected for
redemption.
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SECTION 11.05 Notice of Redemption.
Notice of redemption shall be given in the manner provided for in
Section 1.08 not less than 30 days nor more than 60 days prior to the
Redemption Date, to each Holder of Notes to be redeemed.
All notices of redemption shall state:
(a) the Redemption Date;
(b) the Redemption Price;
(c) if less than all Outstanding Notes are to be redeemed, the
identification (and, in the case of a partial redemption, the principal
amounts) of the particular Notes to be redeemed;
(d) that on the Redemption Date the Redemption Price (together
with accrued and unpaid interest, if any, to the Redemption Date payable as
provided in Section 11.07, but only with respect to Notes with all unmatured
Coupons (if applicable) attached) will become due and payable upon each such
Note, or the portion thereof, to be redeemed, and that interest thereon will
cease to accrue on and after said date;
(e) the place or places where such Notes are to be surrendered
for payment of the Redemption Price;
(f) pursuant to Section 3.13, any ISIN, CUSIP or other
identifying numbers relating to the Notes; and
(g) in the event of a redemption pursuant to Section 11.10,
the amount of the conversion premium, if any.
Notice of redemption of Notes to be redeemed at the election of the
Company shall be given by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company. In the event of a
redemption pursuant to Section 11.10, notice in the form set forth in Exhibit E
shall also be given, in the manner provided for in Section 1.08, together with
the notice referenced above.
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SECTION 11.06 Deposit of Redemption Price.
Not less than one Business Day prior to any Redemption Date, the Company
shall deposit with the Trustee or with a Paying Agent (or, if the Company is
acting as its own Paying Agent, segregate and hold in trust as provided in
Section 10.03) an amount of money sufficient to pay the Redemption Price of,
and accrued and unpaid interest on, all the Notes which are to be redeemed on
that date.
SECTION 11.07 Notes Payable on Redemption Date.
Notice of redemption having been given as aforesaid, the Notes so to be
redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified (together with accrued and unpaid interest,
if any, to the Redemption Date, subject to the delivery of all unmatured and
matured but unpaid Coupons (if applicable)), and from and after such date
(unless the Company shall default in the payment of the Redemption Price) such
Notes shall cease to bear interest. Upon surrender of any such Note for
redemption in accordance with said notice, such Note shall be paid by the
Company at the Redemption Price, together with accrued interest, if any, to the
Redemption Date, to the extent that all matured and unpaid and unmatured
Coupons, if any, are attached; provided, however, that instalments of interest
whose Stated Maturity is on or prior to the Redemption Date shall be payable to
the Holders of such Notes, or one or more Predecessor Notes, according to their
terms.
If any Note called for redemption shall not be so paid upon surrender by
the Noteholder as prescribed hereunder thereof for redemption, the principal
shall, until paid, bear interest from the Redemption Date at the rate
prescribed therefor in the Notes. In the event that the Company shall default
in making payment in full in respect of any Note which shall have been called
for redemption prior to May 27, 2003, on the Redemption Dates the Conversion
Right attaching to such Note will continue to be exercisable (unless previously
exercised by the Trustee or the Company) up to, and including the close of
business (at the place where the Note is deposited in connection with the
exercise of the Conversion Right) on the date upon which the full amount of the
monies payable in respect of such Note has been duly received by the Trustee or
the Principal Paying Agent or, if earlier, May 26, 2003.
SECTION 11.08 Surrender of Notes
Each Note should be presented for redemption together with all unmatured
Coupons (if applicable) relating to such Note. If such Coupons are not so
presented, the full amount of any missing unmatured Coupon (or, in the case of
payment not being made in full, that proportion of the full amount of the
missing unmatured Coupons which the amount so paid bears to the total amount
due) will be deducted from the amount due for payment. Each amount so
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deducted will be paid in the manner mentioned above against presentation and
surrender (or, in the case of part payment only, endorsement) of such missing
Coupon at any time before the expiry of six (6) years after the Relevant Date
in respect of the relevant Note (whether or not such Coupon would otherwise
have become void pursuant to Condition 10), or if later, five (5) years after
the date on which such Coupon would have become due, but not thereafter.
SECTION 11.09 Conversion on Redemption
(a) The Trustee may, at its absolute discretion (and without
any responsibility for any loss occasioned thereby), within the period
commencing on the date four (4) Business Days prior to, and ending at the close
of business on the Business Day prior to the Redemption Date of any of the
Notes, elect by notice in writing to the Company to convert, as of such
Redemption Date, the aggregate number of Unexercised Notes due for conversion
on such date into Shares at the Conversion Price applicable at such Redemption
Date if all necessary consents (if any) have been obtained and the Trustee is
satisfied or is advised by a reputable independent investment bank appointed by
it that the net proceeds of an immediate sale of the Shares arising from such
conversion (disregarding any liability (other than a liability of the Trustee)
such as tax or the payment of any capital, stamp, issue or registration duties
consequent on conversion) would be likely to exceed by 5 percent or more the
amount of redemption monies and interest which would otherwise be payable.
(b) Subject to applicable law, the Trustee shall arrange for
the sale on behalf of the Holders of the Unexercised Notes of the Shares issued
on such conversion as soon as practicable, and (subject to any necessary
consents being obtained and to the deduction by the Trustee of any amount which
it determines to be payable in respect of its liability to taxation or the
payment of any capital, stamp, issue or registration duties (if any) and any
costs incurred by the Trustee in connection with that allotment and sale
thereof) the net proceeds of sale together with accrued and unpaid interest
payable [under Condition 6(C)(iv) of the Terms and Conditions of the Notes] in
respect of such Unexercised Notes (if any) shall be held by the Trustee and
distributed by the Principal Paying Agent rateably to the Holders of such
Unexercised Notes against due presentation in accordance with Condition 5 of
the Terms and Conditions of the Notes. The amount of such net proceeds of sale
shall be treated for all purposes as the full amount due by the Company in
respect of such Unexercised Notes.
SECTION 11.10 Redemption by Conversion
Commencing November 26, 2002, the Company may elect to redeem up
to fifty percent (50%) of the Notes then Outstanding in accordance with this
Article Eleven by
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requiring their immediate conversion pursuant to Article Twelve; provided,
however, that on or after May 26, 2003, regardless of whether this right has
previously been exercised, the Company may so redeem up to 100% of the Notes
then Outstanding. The Conversion Price for purposes of this Section 11.10
shall be a price per share equal to the average of the Market Price of the
Common Stock over the 30 calendar days immediately preceding the date of notice
of such redemption, subject to appropriate adjustments to account for the
effects of dividends, distributions, stock splits, recapitalizations and
similar events. Each Note will be redeemed for the number of shares of Common
Stock equal to 110% of the sum of face value of the Note plus interest accrued
and unpaid thereon divided by the Conversion Price; provided, however, that if
the Market Capitalization is less than $500 million, each Note will be redeemed
for the number of shares of Common Stock equal to 115% of the sum of the face
value of the Note plus interest accrued and unpaid thereon divided by the
Conversion Price. If the Company elects to redeem less than all of the Notes
pursuant to this Section 11.10, the Trustee will select which Notes to so
redeem by lot, random or such method as it deems fair and appropriate.
ARTICLE TWELVE
CONVERSION
SECTION 12.01 Conversion Right and Conversion Price.
(a) Subject to and upon compliance with the provisions of this
Article, any Note may be converted at the option of the Noteholder, either
during the Conversion Period or pursuant to the Special Conversion Right set
forth in Section 12.12, at the principal amount thereof (plus, in the case of
any conversion pursuant to Sections 11.10, 12.11, or 12.12, any interest
accrued and unpaid thereon) into fully paid and non-assessable Conversion
Shares at the Conversion Price.
(b) The Conversion Price shall be adjusted in certain
instances as provided in Section 12.04.
(c) Except as otherwise provided in this Indenture, a holder
of shares of Common Stock issued on conversion of Notes shall not be entitled
to any rights for any Record Date which precedes the relevant Conversion Date
or Mandatory Conversion Date, as the case may be.
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SECTION 12.02 Exercise of Conversion Right.
(a) In order to exercise the Conversion Right, the Noteholder
to be converted shall provide notice to the Conversion Agent that it intends to
exercise its Conversion Right and the Noteholder shall surrender such Bearer
Note or Notes and (if applicable) all unmatured Coupons, including the one for
the next due interest payment, to the Conversion Agent at its corporate trust
offices, or such other office of any Conversion Agent as published in the
Authorized Newspapers from time to time, accompanied by written notice (as set
forth in Exhibit C hereto) to the Conversion Agent that the Noteholder elects
to convert such Note. A Conversion Notice once delivered shall be irrevocable.
(b) Notes shall be deemed to have been converted on the
Conversion Date, and at such time, except as provided in this Section 12.02
below, the rights of the Noteholders as Noteholders shall cease, and the Person
or Persons entitled to receive the Common Stock issuable upon conversion shall
be treated for all purposes as the record holder or holders of such Common
Stock at such time. As promptly as practicable on or after the Conversion
Date, the Company shall issue and shall deliver through the Conversion Agent at
the Conversion Agent's office or agency a certificate or certificates for the
number of fully paid shares of Common Stock issuable upon such conversion. The
Conversion Agent shall deliver the share certificate or certificates in
accordance with the instructions set forth in the notice of exercise of
Conversion Rights.
(c) If the Conversion Date is a date other than an Interest
Payment Date the Company shall not pay and the Noteholder shall not be entitled
to receive any interest accrued on the Notes from the last Interest Payment
Date prior to the Conversion Date; provided, however, that interest shall
accrue through the Conversion Date or Mandatory Conversion Date, as the case
may be, in the event of a conversion pursuant to Sections 11.10, 12.11, or
12.12.
(d) No Noteholder will be entitled upon conversion thereof to
any payment or adjustment on account of interest on the Notes or dividends on
the shares of Common Stock issued in connection therewith save as provided
herein.
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SECTION 12.03 Calculation of Shares Issued on Conversion and Fractions
of Shares.
(a) The number of Shares to be issued on conversion of a Note
will be determined by dividing the principal amount of the Note to be converted
(plus any interest accrued pursuant to Sections 11.09, 11.10, 12.11 or pursuant
to applicable law) by the Conversion Price in effect on the Conversion Date and
adding any Shares issuable pursuant to Section 12.03(b), with the result being
rounded down to the nearest whole number. No cash in lieu of or fractional
shares of Common Stock shall be issued upon conversion of Notes. If more than
one Note shall be surrendered for conversion at one time by the same
Noteholder, the number of full Shares which shall be issuable upon conversion
thereof shall be computed on the basis of the aggregate principal amount of the
Notes (or specified portions thereof) so surrendered.
(b) Holders of Notes voluntarily converted during the
Conversion Period and prior to November 26, 1998 will receive on such
conversion a premium in the number of Shares to be issued on such conversion
determined based on the aggregate principal amount of Notes to be converted by
multiplying .03 times the number of Shares to be so issued and rounding down to
the nearest whole number.
SECTION 12.04 Adjustment of Conversion Price.
(a) Dividends or Distributions of Common Stock. In case the
Company shall pay or make a dividend or other distribution on its Common Stock
exclusively in Common Stock or shall pay or make a dividend or other
distribution on any other class of capital stock of the Company which dividend
or distribution includes Common Stock, the Conversion Price in effect at the
opening of business on the day next following the date fixed for the
determination of stockholders entitled to receive such dividend or other
distribution shall be reduced by multiplying such Conversion Price by a
fraction of which the numerator shall be the number of shares of Common Stock
outstanding at the close of business on the date fixed for such determination
and the denominator shall be the sum of such number of shares and the total
number of shares constituting such dividend or other distribution, such
reduction to become effective immediately after the opening of business on the
day next following the date fixed for such determination. For the purposes of
this Section 12.04(a), the number of shares of Common Stock at any time
outstanding shall not include shares held in the treasury of the Company.
(b) Dividends or Distributions of Rights, Warrants or Options
to Purchase Common Stock. In case the Company shall pay or make a dividend or
other distribution on its Common Stock consisting exclusively of, or shall
otherwise issue to all holders of its Common Stock, rights, warrants or options
entitling the holders thereof to subscribe for or
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purchase shares of Common Stock at a price per share less than the Market Price
per share (determined as provided in Section 12.04(g)) of the Common Stock on
the date fixed for the determination of stockholders entitled to receive such
rights, warrants or options, the Conversion Price in effect at the opening of
business on the day following the date fixed for such determination shall be
reduced by multiplying such Conversion Price by a fraction of which the
numerator shall be the number of shares of Common Stock outstanding at the
close of business on the date fixed for such determination plus the number of
shares of Common Stock which the aggregate of the offering price of the total
number of shares of Common Stock so offered for subscription or purchase would
purchase at such Market Price and the denominator shall be the number of shares
of Common Stock outstanding at the close of business on the date fixed for such
determination plus the number of shares of Common Stock so offered for
subscription or purchase, outstanding at the close of business on the date
fixed for such reduction to become effective immediately after the opening of
business on the day following the date fixed for such determination. For the
purposes of this paragraph (b), the number of shares of Common Stock at any
time outstanding shall not include shares held in the treasury of the Company.
The Company shall not issue any rights, warrants or options in respect of
shares of Common Stock held in the treasury of the Company.
(c) Dividends or Distributions in Cash. In case the Company
shall, by dividend or otherwise, make a distribution to all holders of its
Common Stock exclusively in cash in an aggregate amount that, together with (i)
the aggregate amount of any other distributions to all holders of its Common
Stock made exclusively in cash within the 12 months preceding the date of
payment of such distribution and in respect of which no Conversion Price
adjustment pursuant to this Section 12.04(c) has been made and (ii) the
aggregate of any cash plus the fair market value (as determined in good faith
by the Board of Directors, whose determination shall be conclusive and
described in a resolution of the Company's Board of Directors), as of the
expiration of the tender or exchange offer referred to below, of consideration
payable in respect of any tender or exchange offer by the Company or a
Subsidiary for all or any portion of the Common Stock concluded within the 12
months preceding the date of payment of such distribution and in respect of
which no Conversion Price adjustment pursuant to paragraph (f) of this Section
12.04 has been made, exceeds five percent (5%) of the product of the Market
Price per share (determined as provided in Section 12.04(g)) of the Common
Stock on the date fixed for stockholders entitled to receive such distribution
times the number of shares of Common Stock outstanding on such date, the
Conversion Price shall be reduced so that the same shall equal the price
determined by multiplying the Conversion Price in effect immediately prior to
the effectiveness of the Conversion Price reduction contemplated by this
paragraph (c) by a fraction of which the numerator shall be the Market Price
per share (determined as provided Section 12.04(g)) of the Common Stock on the
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date of such effectiveness less the amount of cash so distributed applicable to
one share of Common Stock and the denominator shall be such Market Price per
share of the Common Stock, such reduction to become effective immediately prior
to the opening of business on the day following the date fixed for the payment
of such distribution.
(d) All Other Distributions or Dividends. Subject to the last
sentence of this paragraph (d), in case the Company shall, by dividend or
otherwise, distribute to all holders of its Common Stock evidences of its
indebtedness, shares of any class of capital stock, securities, cash or
Property (excluding any rights, warrants or options referred to in Section
12.04(b), any dividend or distribution paid exclusively in cash and any
dividend or distribution referred to in Section 12.04(a), the Conversion Price
shall be reduced so that the same shall equal the price determined by
multiplying the Conversion Price in effect immediately prior to the
effectiveness of the Conversion Price reduction contemplated by this paragraph
(d) by a fraction of which the numerator shall be the Market Price per share
(determined as provided in paragraph (g) of this Section) of the Common Stock
on the date of such effectiveness less the fair market value (as determined in
good faith by the Board of Directors, whose determination shall be conclusive
and described in a resolution of the Company's Board of Directors and shall, in
the case of securities being distributed for which prior thereto there is an
actual or when issued trading market, be no less than the value determined by
reference to the average of the Market Price over the period specified in the
succeeding sentence), on the date of such effectiveness, of the portion of the
evidences of indebtedness, shares of capital stock, securities, cash and
Property so distributed applicable to one share of Common Stock and the
denominator shall be such Market Price per share of the Common Stock, such
reduction to become effective immediately prior to the opening of business on
the day next following the date fixed for the payment of such distribution
(such date to being referred to as the "Reference Date"). If the Board of
Directors determines the fair market value of any distribution for purposes of
this paragraph (d) by reference to the actual or when issued trading market for
any securities comprising such distribution, it must in doing so consider the
prices in such market over the same period used in computing the Market Price
per share pursuant to paragraph (g) of this Section. For purposes of this
paragraph (d), any dividend or distribution that includes shares of Common
Stock or rights, warrants or options to subscribe for or purchase shares of
Common Stock shall be deemed instead to be (i) a dividend or distribution of
the evidences of indebtedness, cash, Property, shares of capital stock or
securities other than such shares of Common Stock or such rights, warrants or
options (making any Conversion Price reduction required by this paragraph (d))
immediately followed by (ii) a dividend or distribution of such shares of
Common Stock or such rights, warrants or options (making any further Conversion
Price reduction required by Section 12.04(a) or (b)), except (i) the Reference
Date of such dividend or distribution as defined in this Section 12.04(d) shall
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be substituted as "the date fixed for the determination of stockholders
entitled to receive such dividend or other distribution", "the date fixed for
the determination of stockholders entitled to receive such rights, warrants or
options" and "the date fixed for such determination" within the meaning of
Section 12.04(a) and (b) and (ii) any shares of Common Stock included in such
dividend or distribution shall not be deemed "outstanding at the close of
business on the date fixed for such determination" within the meaning of
Section 12.04(a)).
(e) Subdivision of Common Stock. In case outstanding shares
of Common Stock shall be subdivided into a greater number of shares of Common
Stock, the Conversion Price in effect at the opening of business on the day
following the day upon which such subdivision becomes effective shall be
proportionately reduced, and, conversely, in case outstanding shares of Common
Stock shall each be combined into a smaller number of shares of Common Stock,
the Conversion Price in effect at the opening of business on the day following
the day upon which such combination becomes effective shall be proportionately
increased, such reduction or increase, as the case may be, to become effective
immediately after the opening of business on the day following the day upon
which such subdivision or combination becomes effective.
(f) Tender or Exchange Offer for Common Stock. In case a
tender or exchange offer made by the Company or any Subsidiary for all or any
portion of the Common Stock shall expire and such tender or exchange offer
shall involve an aggregate consideration having a fair market value (as
determined in good faith by the Board of Directors, whose determination shall
be conclusive and described in a resolution of the Company's Board of
Directors) at the last time (the "Expiration Time") tenders or exchanges may be
made pursuant to such tender or exchange offer (as it may be amended) that,
together with (i) the aggregate of the cash plus the fair market value (as
determined in good faith by the Board of Directors, whose determination shall
be conclusive and described in a resolution of the Company's Board of
Directors), as of the expiration of the other tender or exchange offer referred
to below, of consideration payable in respect of any other tender or exchange
offer by the Company or a Subsidiary for all or any portion of the Common Stock
concluded within the preceding 12 months and in respect of which no Conversion
Price adjustment pursuant to this paragraph (f) has been made and (ii) the
aggregate amount of any distributions to all holders of the Common Stock made
exclusively in cash within the preceding 12 months and in respect of which no
Conversion Price adjustment pursuant to Section 12.04(e) has been made, exceeds
five percent (5%) of the product of the Market Price per share (determined as
provided in Section 12.04(g)) of the Common Stock on the Expiration Time times
the number of shares of Common Stock outstanding (including any tendered
shares) on the Expiration Time, the Conversion Price shall be reduced (but not
increased) so that the same shall equal the price determined by multiplying
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the Conversion Price in effect immediately prior to the Expiration Time by a
fraction of which the numerator shall be (i) the product of the Market Price
per share (determined as provided in Section 12.04(g)) of the Common Stock at
the Expiration Time times the number of shares of Common Stock outstanding
(including any tendered or exchanged shares) at the Expiration Time minus (ii)
the fair market value (determined as aforesaid) of the aggregate consideration
payable to stockholders based on the acceptance (up to any maximum specified in
the terms of the tender or exchange offer) of all shares validly tendered or
exchanged and not withdrawn as of the Expiration Time (the shares deemed so
accepted, up to any such maximum, being referred to as the "Purchased Shares")
and the denominator shall be the product of (i) such Market Price per share at
the Expiration Time times (ii) such number of outstanding shares at the
Expiration Time less the number of Purchased Shares, such reduction to become
effective immediately prior to the opening of business on the day following the
Expiration Time.
(g) Determination of Market Price. For the purpose of any
computation of the Market Price under this paragraph (g) and Section 12.04(b),
(d) and (e), (i) if the "ex" date (as hereinafter defined) for any event (other
than the issuance or distribution requiring such computation) that requires an
adjustment to the Conversion Price pursuant to paragraph (a), (b), (c), (d),
(e) or (f) above ("Other Event") occurs on or after the tenth Stock Exchange
Business Day prior to the date in question and prior to the "ex" date for the
issuance or distribution requiring such computation (the "Current Event"), the
closing price for each Stock Exchange Business Day prior to the "ex" date for
such Other Event shall be adjusted by multiplying such closing price by the
same fraction by which the Conversion Price is so required to be adjusted as a
result of such Other Event, (ii) if the "ex" date for any Other Event occurs
after the "ex" date for the Current Event and on or prior to the date in
question, the closing price for each Stock Exchange Business Day on and after
the "ex" date for such Other Event shall be adjusted by multiplying such
closing price by the reciprocal of the fraction by which the Conversion Price
is so required to be adjusted as a result of such Other Event, (iii) if the
"ex" date for any Other Event occurs on the "ex" date for the Current Event,
one of those events shall be deemed for purposes of clauses (i) and (ii) of
this proviso to have an "ex" date occurring prior to the "ex" date for the
other event, and (iv) if the "ex" date for the Current Event is on or prior to
the date in question, after taking into account any adjustment required
pursuant to clause (ii) of this proviso, the closing price for each Stock
Exchange Business Day on or after such "ex" date shall be adjusted by adding
thereto the amount of any cash and the fair market value on the date in
question (as determined in good faith by the Board of Directors in a manner
consistent with any determination of such value for purposes of this Section
12.04(c) or (d), whose determination shall be conclusive and described in a
resolution of the Company's Board of Directors) of the portion of the rights,
warrants, options, evidences of indebtedness, shares of capital stock,
securities, cash or Property being distributed applicable to one share of
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Common Stock. For the purpose of any computation under Section 12.04(f), the
Market Price per share of Common Stock on any date in question shall be deemed
to be the Market Price on the date selected by the Company commencing on or
after the latest (the "Commencement Date") of (i) the date 20 Stock Exchange
Business Days before the date in question, (ii) the date of commencement of the
tender or exchange offer requiring such computation and (iii) the date of the
last amendment, if any, of such tender or exchange offer involving a change in
the maximum number of shares for which tenders are sought or a change in the
consideration offered, and ending not later than the date of the Expiration
Time of such tender or exchange offer (or, if such Expiration Time occurs
before the close of trading on a Stock Exchange Business Day, not later than
the Stock Exchange Business Day immediately preceding the date of such
Expiration Time); provided, however, that if the "ex" date for any Other Event
(other than the tender or exchange offer requiring such computation) occurs on
or after the Commencement Date and on or prior to the date of the Expiration
Time for the tender or exchange offer requiring such computation, the closing
price for each Stock Exchange Business Day prior to the "ex" date for such
Other Event shall be adjusted by multiplying such closing price by the same
fraction by which the Conversion Price is so required to be adjusted as a
result of such other event. For purposes of this paragraph, the term "ex"
date, (i) when used with respect to any issuance or distribution, means the
first date on which the Common Stock trades regular way on the relevant
exchange or in the relevant market from which the closing price was obtained
without the right to receive such issuance or distribution, (ii) when used with
respect to any subdivision or combination of shares of Common Stock, means the
first date on which the Common Stock trades regular way on such exchange or in
such market after the time at which such subdivision or combination becomes
effective, and (iii) when used with respect to any tender or exchange offer
means the first date on which the Common Stock trades regular way on such
exchange or in such market after the Expiration Time of such tender or exchange
offer.
(h) Further Reductions for Federal Income Tax. The Company
may make such reductions in the Conversion Price, in addition to those required
by Section 12.04 (a), (b), (c), (d), (e) and (f), as it considers to be
advisable in order that any event treated for Federal income tax purposes as a
dividend of stock or stock rights shall not be taxable to the recipients.
(i) Adjustments to be Carried Forward. No adjustment in the
Conversion Price shall be required unless such adjustment would require an
increase or decrease of at least five percent (5%) in the Conversion Price;
provided, however, that any adjustments which by reason of this paragraph (j)
are not required to be made shall be carried forward and taken into account in
any subsequent adjustment.
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SECTION 12.05 Notice of Adjustments of Conversion Price
Whenever the Conversion Price is adjusted as herein provided the Company
shall compute the adjusted Conversion Price in accordance with Section 12.04
and shall prepare a certificate signed by the chief financial officer of the
Company setting forth the adjusted Conversion Price and showing in reasonable
detail the facts upon which such adjustment is based, and such certificate
shall forthwith be delivered to the Trustee, the Paying Agent and the
Conversion Agent, and the Company shall cause notice thereof to be published in
accordance with Section 1.08 at least ten (10) Business Days in advance of the
effective date of such adjustment.
SECTION 12.06 Notice of Certain Corporate Action.
In case:
(a) the Company shall declare a dividend (or any other
distribution) on its Common Stock payable (i) otherwise than exclusively in
cash or (ii) exclusively in cash in an amount that would require a Conversion
Price adjustment pursuant to Section 12.04(c); or
(b) the Company shall authorize the granting to the holders of
its Common Stock of rights, warrants or options to subscribe for or purchase
any shares of capital stock of any class or of any other rights (excluding
employee stock options); or
(c) of any reclassification of the Common Stock of the Company
(other than a subdivision or combination of its outstanding shares of Common
Stock), or of any consolidation or merger to which the Company is a party and
for which approval of any stockholders of the Company is required, or of the
sale or transfer of all or substantially all of the assets of the Company; or
(d) of the voluntary or involuntary dissolution, liquidation
or winding up of the Company; or
(e) the Company or any Subsidiary of the Company shall
commence a tender or exchange offer for all or a portion of the Company's
outstanding shares of Common Stock (or shall amend any such tender or exchange
offer);
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then the Company shall cause to be mailed to the Trustee, the Paying Agent and
the Conversion Agent and to be published in the manner provided under Section
1.08 hereof within ten (10) Business Days after the date on which notice is
sent to the holders of the Company's Common Stock, a notice stating (i) the
date on which a record is to be taken for the purpose of such dividend,
distribution or granting of rights, warrants or options, or, if a record is not
to be taken, the date as of which the holders of Common Stock of record to be
entitled to such dividend, distribution, rights, warrants or options are to be
determined, or (ii) the date on which such reclassification, consolidation,
merger, sale, transfer, dissolution, liquidation or winding up is expected to
become effective, and the date as of which it is expected that holders of
Common Stock of record shall be entitled to exchange their shares of Common
Stock for securities, cash or other Property deliverable upon such re-
classification, consolidation, merger, sale, transfer, dissolution, liquidation
or winding up, or (iii) the date on which such tender offer commenced, the date
on which such tender offer is scheduled to expire unless extended, the
consideration offered and the other material terms thereof (or the material
terms of any amendment thereto).
SECTION 12.07 Company to Reserve Common Stock.
The Company shall at all times reserve and keep available, free from
pre-emptive or similar rights, out of its authorized but unissued Common Stock,
solely for the purpose of effecting the conversion of Notes, the whole number
of Shares then issuable upon the conversion in full of all Outstanding Notes.
SECTION 12.08 Taxes on Conversions.
The Company will pay any and all taxes that may be payable in respect of
the issue or delivery of Shares on conversion of Notes pursuant hereto. The
Company shall not, however, be required to pay any tax which may be payable in
respect of any transfer involved in the issue and delivery of Shares in a name
other than that of the Holder of the Notes to be converted, and no such issue
or delivery shall be made unless and until the Person requesting such issue has
paid to the Company the amount of any such tax, or has established to the
satisfaction of the Company that such tax has been paid.
SECTION 12.09 Cancellation of Converted Bearer Notes.
All Bearer Notes delivered for conversion to the Conversion Agent shall
be cancelled by the Company, and shall not under any circumstances be reissued.
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SECTION 12.10 Provisions in Case of Reclassification Consolidation,
Merger or Sale of Assets.
In the event that the Company shall be a party to any transaction,
including without limitation any (i) recapitalization or reclassification of
the Common Stock (other than a change in par value, or from par value to no par
value, or from no par value to par value, or as a result of a subdivision or
combination of the Common Stock), (ii) any consolidation of the Company with,
or merger of the Company into, any other person, any merger of another person
into the Company (other than a merger which does not result in a
reclassification, conversion, exchange or cancellation of all of the
outstanding shares of Common Stock of the Company), (iii) any sale or transfer
of all or substantially all of the assets of the Company, or (iv) any
compulsory share exchange pursuant to which the Common Stock is converted into
the right to receive other securities, cash or other Property, then lawful
provision shall be made as part of the terms of such transaction whereby the
Holder of each Note then outstanding shall have the right thereafter to convert
such Note only into the kind of common stock receivable upon such transaction
by a holder of Common Stock (at an adjusted Conversion Price equal to (a) the
Conversion Price determined pursuant to Section 12.04 as though all such
securities, cash or Property (other than common stock) had been distributed in
a dividend covered by Section 12.04(d) with an "ex" date on the date of such
transaction divided by (b) the number of shares (or fraction thereof) of common
stock receivable upon such transaction in respect of each share of Common
Stock). The Person formed by such consolidation or resulting from such merger
or which acquired such assets or which acquired the Company's Shares, as the
case may be, shall execute and deliver to the Trustee on behalf of each of the
Noteholders an amendment to this Indenture as provided for under Article Nine.
Such amendment shall provide for adjustments which, for events subsequent to
the effective date of such amendment, shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Article and shall provide
for the assumption by such other Person, if any, of the Company's obligations
under this Indenture and the Notes. The above provisions of this Section 12.10
shall similarly apply to successive transactions of the foregoing type.
SECTION 12.11 Mandatory Conversion.
At any time after May 26, 1999, and provided that (i) the Conversion
Shares are Freely Tradeable on the date the criteria set forth below are met
and for a period of 30 days thereafter and (ii) the Conversion Shares are
Freely Tradeable on the date of Mandatory Conversion, the Notes may be
converted in whole, at the Company's option, if at any time the average of the
Market Price of the Common Stock over the Stock Exchange Business Days in any
thirty (30) consecutive calendar day period, the first day of which falls on or
after May 26, 1998 and the last day of which falls on or after the Effective
Date, is equal to or greater than 125% of the
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Conversion Price; provided, however, that the foregoing right may not be
exercised during any period in which the Conversion Shares into which the Notes
are convertible would not be Freely Tradable. In the event that the Company
has met the criteria for Mandatory Conversion at any time, the Company shall
give notice to the Noteholders in the manner provided for in Section 1.08
within 30 calendar days of the date on which such criteria has been met.
In the event that any amendments to Regulation S are deemed to be
applicable to the Notes, notice of such amendments will be given to the
Luxembourg Stock Exchange and to the Noteholders in accordance with Section
1.08.
At any time after May 26, 1999, and subject to the provisions hereof,
the Company may require such Noteholders to convert all of such Notes pursuant
to the terms of this Article. The Company shall deliver to the Trustee a
notice in the form of Exhibit D hereto and the Company shall cause to be
published once in accordance with Section 1.08 hereof a notice of Mandatory
Conversion not less than thirty (30) and not more than (60) calendar days prior
to the Mandatory Conversion Date. Such notice shall specify the Mandatory
Conversion Date. After the Mandatory Conversion Date, the Notes will no longer
represent Indebtedness of the Company and will no longer accrue interest or
require the Company to make any payment of principal; and the Company's
obligations to make any further payments with respect to the Notes will
terminate (except for this Section 12.11); and the only rights of a Holder of a
Note not surrendered for conversion pursuant to the preceding sentence will be
to receive the number of Conversion Shares such Noteholder would have received
had the Holder's Note or Notes been surrendered for conversion as required
hereby. Any notice which is published in the manner herein provided shall be
conclusively presumed to be given and any defect in such notice to the
Noteholder designated for required conversion shall not affect the validity of
the proceedings for the required conversion of any other Bearer Note.
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SECTION 12.12 Special Conversion Right.
Any Note may be converted in accordance with this Article Twelve at any
time after the date that occurs ten days prior to the Distribution Date (as
defined in the Rights Agreement). This conversion right may be exercised
either by the Noteholder directly or, if the Trustee has not received any
instruction to the contrary from the Noteholder, by the Trustee acting in the
best interests of the Noteholder, as the Trustee may determine in good faith.
In accordance with this Indenture, the Company shall deliver written notice to
the Trustee and written notice to the Noteholders in the manner set forth in
Section 1.08 and by dissemination of notice through Euroclear and Cedel not
later than nine days prior to the Distribution Date (as defined in the Rights
Agreement). The notice shall expressly disclose: (i) that the Company will
issue Right Certificates (as defined in the Rights Agreement) to holders of
Common Stock of record on the Distribution Date, (ii) that the Noteholders have
the currently exercisable right to convert the Notes at the Conversion Price,
(iii) that a failure to convert the Notes prior to the Distribution Date is
likely to materially and adversely affect the Noteholders' rights and interests
and (iv) a brief summary of the Rights Agreement. The Company shall also
notify the Trustee and the Noteholders in accordance with Section 1.08, at
least seven days in advance of its implementation or vesting, of any plan or
exercise of a right by the Company to redeem, cancel, exchange for Common
Stock, terminate or materially modify the Rights Agreement or any Right granted
or issuable pursuant thereto. Interest shall continue to accrue on the Note
through the date on which such Note is converted.
SECTION 12.13 Amendments to Regulation S.
The Company may, in its discretion, revise the selling restrictions on
the Notes and/or the Shares if the Commission should, subsequent to Closing
Date, give advice or interpretations respecting such restrictions imposed by
Regulation S or should the Commission amend Regulation S respecting such
restrictions. If the Company so revises the selling restrictions, it will give
notice to the Noteholders pursuant to Section 1.08 and will give notice of the
same to the Trustee and the Conversion Agent.
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ARTICLE THIRTEEN
DEFEASANCE AND COVENANT DEFEASANCE
SECTION 13.01 Company's Option to Effect Defeasance or Covenant
Defeasance.
The Company may, at its option by Board Resolution, at any time, with
respect to the Notes, elect to have either Section 13.02 or Section 13.03 be
applied to all Outstanding Notes upon compliance with the conditions set forth
below in this Article. The Company shall promptly give notice of such election
to the Trustee.
SECTION 13.02 Legal Defeasance and Discharge.
Upon the Company's exercise under Section 13.01 of the option applicable
to this Section 13.02, the Company shall be deemed to have been discharged from
its obligations with respect to all Outstanding Notes on the date the
conditions set forth in Section 13.04 are satisfied (hereinafter, "legal
defeasance"). For this purpose, such legal defeasance means that the Company
shall be deemed to have paid and discharged the entire indebtedness represented
by the Outstanding Notes, which shall thereafter be deemed to be "Outstanding"
only for the purposes of Section 13.05 and the other Sections of this Indenture
referred to in (A) and (B) below, and to have satisfied all its obligations
under such Notes, including the obligation to pay interest on the Notes, and
this Indenture insofar as such Notes are concerned (and the Trustee, at the
expense of the Company, shall execute proper instruments acknowledging the
same), except for the following which shall survive until otherwise terminated
or discharged hereunder: (A) the rights of Holders of Outstanding Notes to
receive, solely from the trust fund described in Section 13.04 and as more
fully set forth in such Section, payments in respect of the principal of and
interest on such Notes when such payments are due, (B) the Company's
obligations with respect to such Notes under Sections 3.04, 3.05, 3.08, 10.02
and 10.03 and with respect to the Trustee under Section 6.06, (C) the rights,
powers, trusts, duties and immunities of the Trustee hereunder and (D) this
Article. Subject to compliance with this Article, the Company may exercise its
option under this Section 13.02 notwithstanding the prior exercise of its
option under Section 13.03 with respect to the Notes.
SECTION 13.03 Covenant Defeasance.
Upon the Company's exercise under Section 13.01 of the option applicable
to this Section 13.03, the Company shall be released from its obligations under
any covenant contained in Sections 10.04 through 10.14 with respect to the
Outstanding Notes on and after
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the date the conditions set forth in Section 13.04 are satisfied (hereinafter,
"covenant defeasance"), and the Notes shall thereafter be deemed not to be
"Outstanding" for the purposes of any request, demand, authorization,
direction, declaration, notice, consent, waiver or Act of Noteholders (and the
consequences of any thereof) in connection with such covenants, but shall
continue to be deemed "Outstanding" for all other purposes hereunder. For this
purpose, such covenant defeasance means that, with respect to the Outstanding
Notes, the Company may omit to comply with and shall have no liability in
respect of any term, condition or limitation set forth in any such covenant,
whether directly or indirectly, by reason of any reference elsewhere herein to
any such covenant or by reason of any reference in any such covenant to any
other provision herein or in any other document and such omission to comply
shall not constitute a Default or an Event of Default under Section 5.01(d),
but, except as specified above, the remainder of this Indenture and such Notes
shall be unaffected thereby.
SECTION 13.04 Conditions to Legal Defeasance or Covenant Defeasance.
The following shall be the conditions to application of either Section
13.02 or Section 13.03 to the Outstanding Notes:
(a) The Company shall irrevocably have deposited or caused to
be deposited with the Trustee (or another trustee satisfying the requirements
of Section 6.07 who shall agree to comply with the provisions of this Article
applicable to it) as trust funds in trust for the purpose of making the
following payments, specifically pledged as security for, and dedicated solely
to, the benefit of the Holders of such Notes, (A) money in an amount, or (B)
U.S. Government Obligations which through the scheduled payment of principal
and interest in respect thereof in accordance with their terms will provide,
not later than one day before the due date of any payment, money in an amount,
or (C) a combination thereof, sufficient, in the opinion of a nationally
recognized firm of independent public accountants expressed in a written
certification thereof delivered to the Trustee, to pay and discharge, and which
shall be applied by the Trustee (or other qualifying trustee) to pay and
discharge, the principal of and interest on the Outstanding Notes on the Stated
Maturity (or Redemption Date, if applicable) of such principal or instalment of
interest; provided that the Trustee shall have been irrevocably instructed to
apply such money or the proceeds of such U.S. Government Obligations to said
payments with respect to the Notes; and provided further that, upon the
effectiveness of this Section 13.04, the money or U.S. Government Obligations
deposited shall not be subject to the rights of the Noteholders pursuant to the
provisions of this Article. Before or after such a deposit, the Company may
give to the Trustee, in accordance with Section 11.03 hereof, a notice of its
election to redeem all of the Outstanding Notes at a future date in accordance
with Article Eleven hereof, which notice shall be irrevocable. Such
irrevocable redemption notice, if given, shall be given effect in applying the
foregoing.
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(b) No Default or Event of Default with respect to the Notes
shall have occurred and be continuing on the date of such deposit or, insofar
as paragraphs (h) and (i) of Section 5.01 hereof are concerned, at any time
during the period ending on the 91st day after the date of such deposit (it
being understood that this condition shall not be deemed satisfied until the
expiration of such period).
(c) No event or condition shall exist that pursuant to the
provisions of Section 13.02 or 13.03 would prevent the Company from making
payments of the principal of or interest on the Notes on the date of such
deposit or at any time during the period ending on the 91st day after the date
of such deposit (it being understood that this condition shall not be deemed
satisfied until the expiration of such period).
(d) Such legal defeasance or covenant defeasance shall not
result in a breach or violation of, or constitute a default under any material
agreement or instrument to which the Company is a party or by which it is
bound.
(e) In the case of an election under Section 13.02, the
Company shall have delivered to the Trustee an Opinion of Counsel stating that
the Holders of the Outstanding Notes will not recognize income, gain or loss
for federal income tax purposes as a result of such defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at
the same times as would have been the case if such defeasance had not occurred.
(f) The Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that all
conditions precedent provided for relating to either the legal defeasance under
Section 13.02 or the covenant defeasance under Section 13.03 (as the case may
be) have been complied with.
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SECTION 13.05 Deposited Money and U.S. Government Obligations to Be Held
in Trust; Other Miscellaneous Provisions.
Subject to the provisions of the last paragraph of Section 10.03, all
money and U.S. Government Obligations (including the proceeds thereof)
deposited with the Trustee (or other qualifying trustee) (collectively for
purposes of this Section 13.05, the "Trustee") pursuant to Section 13.04 in
respect of the Outstanding Notes shall be held in trust and applied by the
Trustee, in accordance with the provisions of such Notes and this Indenture, to
the payment, either directly or through any Paying Agent (including the Company
acting as its own Paying Agent) as the Trustee may determine, to the Holders of
such Notes of all sums due and to become due thereon in respect of principal
and interest, but such money and U.S. Government Obligations need not be
segregated from other funds except to the extent required by law.
The Company shall pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against the U.S. Government Obligations
deposited pursuant to Section 13.04 or the principal and interest received in
respect thereof other than any such tax, fee or other charge which by law is
for the account of the Holders of the Outstanding Notes.
Anything in this Article to the contrary notwithstanding, the Trustee
shall deliver or pay to the Company from time to time upon Company Request any
money or U.S. Government Obligations held by it as provided in Section 13.04
which, in the opinion of a nationally recognized firm of independent public
accountants expressed in a written certification thereof delivered to the
Trustee, are in excess of the amount thereof which would then be required to be
deposited to effect an equivalent legal defeasance or covenant defeasance, as
applicable, in accordance with this Article.
SECTION 13.06 Reinstatement.
If the Trustee or any Paying Agent is unable to apply any money or U.S.
Government Obligations in accordance with Section 13.05 by reason of any order
or judgment of any court or governmental authority enjoining, restraining or
otherwise prohibiting such application, then the Company's obligations under
this Indenture and the Notes shall be revived and reinstated as though no
deposit had occurred pursuant to Section 13.02 or 13.03, as the case may be,
until such time as the Trustee or Paying Agent is permitted to apply all such
money or U.S. Government Obligations in accordance with Section 13.05;
provided, however, that no action taken in good faith by the Company after a
deposit of money or U.S. Government Obligations or both pursuant to Section
13.05 and prior to the revival and reinstatement of obligations under this
Indenture and the Notes pursuant to this Section 13.06 shall constitute the
basis for
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the assertion of an Event of Default pursuant to Section 5.01; and provided,
further, that if the Company makes any payment of principal of or interest on
any Note following the reinstatement of its obligations, the Company shall be
subrogated to the rights of the Holders of such Notes to receive such payment
from the money or U.S. Government Obligations held by the Trustee or Paying
Agent.
ARTICLE FOURTEEN
SENIORITY OF NOTES
SECTION 14.01 Seniority of the Notes.
The Company's obligations under the Notes and the Coupons and hereunder
do and will rank at all times at least pari passu with all other present and
future Indebtedness of the Company (including the 5.5% Senior Notes), subject
to the provisions of Section 10.10, and shall be superior in rank to all
existing and future Subordinated Obligations. The Company covenants and agrees
that, except with respect to any Lien permitted by this Indenture, the
Indebtedness represented by the Notes and the Coupons and the payment of the
principal of and interest on each and all of the Notes and Coupons are hereby
expressly made pari passu to all other present and future Indebtedness other
than all Subordinated Obligations.
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ARTICLE FIFTEEN
IMMUNITY OF INCORPORATORS,
STOCKHOLDERS, OFFICERS AND DIRECTORS
SECTION 15.01 Liability Solely Corporate.
No recourse shall be had for the payment of the principal of or interest
on any Notes or any part thereof, or for any claim based thereon or otherwise
in respect thereof, or of the indebtedness represented thereby, or upon any
obligation, covenant or agreement of this Indenture, against any incorporator,
or against any stockholder, officer or director, as such, past, present or
future, of the Company, or of any predecessor or successor Person, either
directly or through the Company or any such predecessor or successor Person,
whether by virtue of any constitution, statute or rule of law, or by the
enforcement of any assessment or penalty or otherwise, it being expressly
agreed and understood that this Indenture and all the Notes are solely
corporate obligations, and that no personal liability whatsoever shall attach
to, or be insured by, any such incorporator, stockholder, officer or director,
as such, past, present or future, of the Company or of any predecessor or
successor Person, either directly or through the Company or any such
predecessor or successor Person, because of the indebtedness hereby authorized
or under or by reason of any of the obligations, covenants, promises or
agreements contained in this Indenture or in any of the Notes or to be implied
herefrom or therefrom; and that any such personal liability is hereby expressly
waived and released as a condition of, and as part of the consideration for,
the execution of this Indenture and the issue of the Notes; provided, however,
that nothing herein or in the Notes contained shall be taken to prevent
recourse to and the enforcement of the liability, if any, of any stockholder or
subscriber to capital stock of the Company upon or in respect of shares of
capital stock not fully paid up.
This Indenture may be signed in any number of counterparts each of which
so executed shall be deemed to be an original, but all such counterparts shall
together constitute but one and the same Indenture.
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IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, all as of the day and year first above written.
HARKEN ENERGY CORPORATION
By:
------------------------------------------------
Name:
----------------------------------------------
Title:
---------------------------------------------
MARINE MIDLAND BANK,
as Trustee
By:
------------------------------------------------
Name:
----------------------------------------------
Title:
---------------------------------------------
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EXHIBIT 10.2
ASSET PURCHASE AND SALE AGREEMENT
AMONG
ST. MARTINVILLE PARTNERS, LTD. AND
BARGO ENERGY COMPANY, COLLECTIVELY AS SELLER, AND
HARKEN ENERGY CORPORATION AND
HARKEN EXPLORATION COMPANY, COLLECTIVELY AS BUYER
DATED MAY 19, 1998
<PAGE> 2
ASSET PURCHASE AND SALE AGREEMENT
This Asset Purchase and Sale Agreement ("Agreement") is entered into
this 19th day of May, 1998, among St. Martinville Partners, Ltd., a Texas
limited partnership ("SMPL"), and Bargo Energy Company, a Texas general
partnership ("Bargo"), and Harken Energy Corporation, a Delaware corporation
("Harken Energy") and Harken Exploration Company, a Delaware corporation
("Exploration"). SMPL and Bargo are called herein collectively "Seller". 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 1
DEFINITIONS
Capitalized terms used in this Agreement have the meanings given such
terms in this Article 1 or elsewhere in this Agreement.
"Additional Shares" has the meaning set forth in Article 13.02.
"Affiliate"means (i) with respect to the Seller, any corporation,
limited liability company, association, partnership or person that directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
under common control with, the Seller, and (ii) any Seller's officers, directors
and shareholders.
"Assets" means Seller's right, title and interest in and to the
following (except to the extent constituting Excluded Assets):
(i) All of the stated working interests in the Wells described on
Exhibit "A" hereto, an equal undivided interest in the
Equipment used in producing, operating and maintaining each
Well respectively, and an equal undivided interest in the
Units described or referred to on Exhibit "A";
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<PAGE> 3
(ii) 75% of Seller's interests in the Mineral Interests described
on Exhibit "A-1" (St. Martinville Prospect Area) hereto and
the Lands covered thereby from the surface down to the base of
the Discorbis 4 Sand and an equal undivided interest in the
Equipment located thereon and used in connection therewith to
the extent such Equipment is not described in (i) above;
(iii) 75% of Seller's interests in all of the Mineral Interests
described on Exhibit "A-2" (S. Bayou Boeuf Prospect Area)
hereto and the Lands covered thereby and an equal undivided
interest in the Equipment located thereon and used in
connection therewith to the extent such Equipment is not
described in (i) above;
(iv) 50% of Seller's interests in all of the Mineral Interests
described on Exhibit "A-3" (Bol Mex Prospect Area) hereto and
the lands covered thereby and an equal undivided interest in
the Equipment located thereon and used in connection therewith
to the extent such Equipment is not described in (i) above;
(v) To the extent the following relate to any of the property
described in (i), (ii), (iii) or (iv), the same undivided
interest as specified for the related property above: 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, Mineral
Interests, Lands, and/or Equipment insofar as same concern or
relate to the Wells, Mineral Interests, 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, Mineral
Interests, Lands, and/or Equipment;
(vi) To the extent the following relate to any of the property
described in (i), (ii), (iii) or (iv), an undivided interest
that corresponds to the interest in such property to be
conveyed hereunder: All Records and, to the extent
transferable, all other contract rights, intangible rights
(excluding Seller's trademarks and service marks), inchoate
rights, choses 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; and
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<PAGE> 4
(vii) To the extent the following relate to any of the property
described in (i), (ii), (iii) or (iv), an undivided interest
that corresponds to the interest in such property to be
conveyed hereunder: 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.
"Bol Mex Prospect Area" shall mean the area described on Exhibit "A-3".
"Buyer" has the meaning set forth in the preface to this Agreement.
"Buyer Indemnified Party" has the meaning provided in Article 7.03.
"Closing" has the meaning set forth in Article 3.04 hereof.
"Closing Date" has the meaning set forth in Article 3.04 hereof.
"Closing Shares" has the meaning set forth in Article 3.01(a) hereof.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission (or any
successor body thereto).
"Conveyance Documents" means the Assignment, Bill of Sale and
Conveyance in the form attached hereto as Exhibit "B", 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 or Option
Assets from Seller to Buyer.
"Easement Agreement" has the meaning set forth in Article 8.04.
"Effective Date" means 7:00 a.m. local time with respect to each of the
Assets on January 1, 1998.
"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, Mineral
Interests, 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 "C" hereto.
"Examination Period" has the meaning set forth in Article 6.02.
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<PAGE> 5
"Excluded Assets" has the meaning set forth in Article 2.01(b) hereof.
"Expiring Leases" has the meaning set forth in Article 8.03(b).
"Fee Tract" has the meaning set forth in Article 2.01(b).
"Final Settlement Date" has the meaning set forth in Article 9(h).
"Final Settlement Statement" has the meaning set forth in Article 9(h).
"Governmental Approvals" has the meaning set forth in Article 14.
"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.
"Imbalances" has the meaning set forth in Article 9(f).
"Indemnifying Party" has the meaning set forth in Article 7.04(a)
hereof.
"Lands" means the lands covered by the Mineral Interests.
"Leases" means the oil and gas leases or oil, gas, and mineral leases
shown in Exhibits "A- 1", "A-2" and "A-3" hereto or that cover any portion of
the area described in such Exhibits.
"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, provided,
however, that Buyer shall be deemed to have incurred a Loss or Losses only if,
and only to the extent that, the cumulative aggregate of all such Loss or Losses
attributable to or arising in connection with the portion of the Assets acquired
from SMPL exceeds $74,000 or the cumulative aggregate of all such Loss or Losses
attributable to or arising in connection with the portion of the Assets acquired
from Bargo exceeds $126,000.
"Mineral Interests" means the Leases and any mineral interest owned by
Seller in and to the lands described on Exhibits "A-1", "A-2" and "A-3".
"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.
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<PAGE> 6
"Operating Agreement" has the meaning set forth in Article 2.01(b).
"Option Assets" has the meaning set forth in Article 13.01.
"Option Closing" has the meaning set forth in Article 13.02.
"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 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 "D" 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 proportion
ate 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 "E" 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:
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(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 proportion
ate 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;
(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; and
(ix) calls on production exercisable only at prices substantially
equivalent to then current fair market value.
(x) the absence of Governmental Approvals other than Governmental
Approvals that 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.
"Preference Right" means any preemptive right, option or preferential
right to purchase any portion of the Assets held by any person or entity other
than Buyer.
"Product Contracts" has the meaning given set forth in Article 4.01(m).
"Purchase Price" has the meaning given set forth in Article 3.01.
"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 any agent for the 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
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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 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).
"Records Delivery Date" has the meaning given set forth in Article
13.03(a).
"Registration Rights Agreement" has the meaning set forth in Article
11.01(c).
"Related Agreements" means the Conveyance Documents, the Easement
Agreement and the Registration Rights Agreement.
"Remaining Purchase Price" means $4,000,000, subject to adjustment in
accordance with Article 8.03(b) and Article 6.02.
"Reserve Shares" has the meaning set forth in Article 3.01(b).
"S. Bayou Boeuf Prospect Area" shall mean the area described on Exhibit
"A-2".
"Seller" has the meaning set forth in the preface to this Agreement.
"Seller Indemnified Party" has the meaning given to it in Article 7.02.
"Shares" means shares of the common stock, $0.01 par value per share,
of Harken Energy.
"St. Martinville Prospect Area" shall mean the area described on
Exhibit "A-1".
"Survival Period" has the meaning set forth in Article 7.01 hereof.
"Taxes" has the meaning set forth in Article 9.
"Third Party Claim" has the meaning set forth in Article 7.04(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 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.
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"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; OPTION TO 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 provided in this Agreement, 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, and those listed in Exhibit
"H" and the following:
(i) the surface estate in and to the tract in
the St. Martinville Prospect Area described
under Lease No. R133-000 on Exhibit "A-1"
(the "Fee Tract");
(ii) 25% of the Seller's interest in the St.
Martinville Prospect Area, and the right to
act as operator for the St. Martinville
Prospect Area;
(iii) 25% of the Seller's interest in the S. Bayou
Boeuf Prospect Area, and the right to act as
operator for the S. Bayou Boeuf Prospect
Area;
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<PAGE> 10
(iv) 50% of the Seller's interest in the Bol Mex
Prospect Area, and the right to act as
operator for the Bol Mex Prospect Area.
Subsequent to the Effective Date, the form of Operating Agreement
attached hereto as Exhibit "K" (the "Operating Agreement") will govern
operations on the the St. Martinville Prospect Area and the Bol Mex Prospect
Area. At the Closing, the Parties will execute separate Operating Agreements
covering each of those prospect areas.
(c) OPTION TO PURCHASE. The Buyer will have, and the Seller hereby
grants to Buyer, a continuing option, on the terms set forth
in Article 13.01 below, for a period of one (1) year following
the Closing Date to purchase from Seller all of Seller's
remaining interest in the St. Martinville Prospect Area and in
the S. Bayou Boeuf Prospect Area (including the right to
operate both areas).
ARTICLE 3
PURCHASE PRICE
3.01 Purchase Price. In consideration for the sale and conveyance to
Buyer of the Assets, subject to the terms and conditions hereof, the Buyer
agrees to tender and deliver to the Seller in the manner hereinafter provided
shares of its capital stock as consideration (the "Purchase Price"), that is of
an aggregate value, which the Parties agree is equal to Twenty Million Two
Hundred Fifty Thousand Dollars ($20,250,000):
(a) Harken Energy will issue and deliver to the Seller following
Closing, at the time, in the amount, and in the manner
described in Article 8.03(a), the number of Shares equal in
value to Sixteen Million Two Hundred Fifty Thousand Dollars
($16,250,000) which the parties hereto have calculated to be
2,716,483 (the "Closing Shares").
(b) Harken Energy will withhold from the Purchase Price that
number of shares (the "Reserve Shares") which are equal in
value to $4 million as a contingency against Seller obtaining
new or renewal leases under St. Martinville Prospect Area as
described in Article 8.03(b) and the need for environmental
compliance operations under Article 6.02.
3.02 The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") will take place at the offices of the Buyer, 5605
North MacArthur, Suite 400, Irving, Texas 75038, simultaneously with the
execution of this Agreement on May 19, 1998, or at such other place, date and
time as the Buyer and the Seller may mutually determine (the "Closing Date").
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3.03 Allocation of Purchase Price. The Closing Shares and the Reserve
Shares shall be allocated and deliverable in the proportion of thirty-seven
percent (37%) to SMPL and sixty-three percent (63%) to Bargo.
3.04 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, and (ii) the Buyer will deliver to the
Seller the documents referred to in Article 11.02 below.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
4.01 Representations and Warranties of Seller. 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) SMPL is a limited partnership and Bargo is a general
partnership, each of which is duly organized, validly existing
and in good standing under the laws of the State of Texas, and
is qualified to do business and in good standing under the
laws of the State of Louisiana.
(b) Each Seller has all requisite power and authority, limited
partnership or corporate and otherwise, to carry on its
business as presently conducted, to enter into this Agreement
and the Related Agreements, to perform its obligations under
this Agreement and the Related Agreements.
(c) The execution and delivery of this Agreement and the Related
Agreements have been, and the execution and delivery of all
certificates, documents and instruments required to be
executed and delivered by the Seller at Closing, and the
consummation of the transactions contemplated hereby and
thereby as of the Closing Date shall have been duly authorized
by all necessary limited partnership action on the part of the
Seller. No further authorization is required by any law,
statute, regulation, court order or judgment applicable to the
Seller. This Agreement and the Related Agreements constitute
the legal, valid and binding obligations the Seller
enforceable in accordance with their respective terms, subject
however, to the effects of bankruptcy, insolvency,
reorganization, moratorium and similar laws, as well as to
principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at
law). After Closing, the Seller will have the ability to
continue in its same business without a fundamental change in
the nature or scope of its business.
(d) The execution and delivery of the Agreement and the Related
Agreements and the consummation of the transactions
contemplated hereby and thereby will not (i) violate, or be in
conflict with, any provisions of the Seller's agreement of
limited
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<PAGE> 12
partnership or other governing documents, (ii) constitute a
breach of, or any event of default under, any contract or
agreement to which the Seller is a party or by which it or its
assets are bound, or constitute the happening of an event or
condition upon which any other party to such a contract or
agreement may exercise any right or option which will
materially adversely affect any of the Assets, (iii) violate
any judgment, decree, order, statute, rule or regulation
applicable to Seller, or (iv) result in any material liability
to Buyer under the terms of any contracts or agreements.
(e) Except as set forth on Exhibit "J" hereto, no suit, action or
other proceeding is pending before any court or any
governmental agency as of the date of this Agreement to which
the Seller is a party or which involves the Assets and which
might result in a material impairment or loss of the Seller's
title to the Assets or that might materially hinder or impede
the operation of the Assets or the ability of the Seller to
perform its obligations under this Agreement or under the
Related Agreements. Seller will promptly give the Buyer notice
of any such proceeding arising prior to or after the Closing
with respect to which it has notice. The Seller has received
no notice of any pending or threatened action, suit,
proceeding, inquiry or investigation, at law or in equity,
before or by any court, governmental agency, public board or
body against or affecting the Seller or the Assets that
questions the powers and authority of the Seller to enter into
or perform its obligations under this Agreement or the Related
Documents or to carry out the transactions on its part
described in this Agreement or the Related Documents or the
power of the Borrower to own and dispose of the Assets.
(f) Seller has no knowledge of material defects or breakage in the
Equipment to be conveyed in whole or in part to Buyer pursuant
to the terms hereof, and to the best of Sellers knowledge, all
the Equipment is in working order as of the Closing Date. As
used in this Article 4.01(f), a material defect or breakage
means any defect that requires repair or replacement of any
personal property or fixtures conveyed herein to Buyer
requiring an expenditure by Buyer in excess of $50,000 per
defect, or $100,000 in the aggregate for all defects and
breakage.
(g) All royalties, rentals and other payments due with respect to
the Mineral Interests have been properly and timely paid as
prescribed by the Leases governing them. All conditions
necessary to keep the Leases in force have been fully
performed no notices have been received by Seller of any claim
to the contrary and all of the Leases are in full force and
effect.
(h) Prior to the Closing Date, (i) Seller is not obligated by
virtue of any prepayment arrangement under any contract for
the sale of hydrocarbons and containing a "take or pay" or
similar provision to deliver Hydrocarbons produced from the
Assets at some future time without then or thereafter
receiving full payment therefor, and (ii) Seller has not
produced a share of gas materially greater than its ownership
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<PAGE> 13
percentage and Seller is under no obligation to reduce its
share of production under any gas balancing agreement or
similar contract to allow under-produced parties to come back
into balance.
(i) All ad valorem, property, production, severance and similar
taxes and assessments based an or measured by the ownership of
property or the production of Hydrocarbons or the receipt of
proceeds therefrom on the Assets have been properly paid and
all such taxes and assessments which become due and payable
prior to the Closing Date shall have been properly paid by
Seller.
(j) All laws, regulations and orders of all governmental agencies
having jurisdiction over the Assets or operations conducted
thereon have, to Seller's knowledge, been and shall continue
to be complied with in all material respects until the Closing
Date. Seller has obtained all material necessary permits from
governmental agencies having jurisdiction in connection with
the Assets, including, without limitation, the injection and
disposal of salt water, or operations conducted thereon and
have timely, properly and accurately made and will continue to
timely, properly and accurately make all filings required by
all governmental agencies with respect to the Assets or
operations conducted thereon.
(k) Seller has not incurred liability, contingent or otherwise,
for brokers' or finders' fees relating to the transactions
contemplated by this Agreement or the Related Agreements for
which Buyer shall have any responsibility whatsoever.
(l) With respect to the Basic Documents (defined below), in all
material respects (i) the Basic Documents all are in full
force and effect and are the valid and legally binding
obligations of the parties thereto and are enforceable in
accordance with their respective terms; (ii) Seller is not in
breach or default with respect to any of its material
obligations pursuant to any such Basic Document or any
regulations incorporated therein or governing same; (iii) all
material payments (including, without limitation, royalties,
delay rentals, shut-in royalties, or payments, fees for salt
water disposal or injection, and joint interest or other
billings under unit or operating agreements) due from Seller
thereunder have been made by Seller; (iv) to Seller's
knowledge no other party to any Basic Document (or any
successor in interest thereto) is in breach or default with
respect to any of their material obligations thereunder; (v)
neither the Seller nor, to Seller's knowledge, any other party
to any Basic Document has given or threatened to give notice
of any action to terminate, cancel, rescind or procure a
judicial determination of any Basic Document or any provision
thereof; and (vi) the execution and delivery of this Agreement
and the Related Agreements and the consummation of the
transactions contemplated hereby and thereby will not result
in a breach of, constitute a default under, or result in a
violation of the material provisions of any Basic Document and
none of the Basic Documents will require, after the Effective
Date, that any advance payments be made
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to any party other than those required under operating
agreements. As used herein the term "Basic Documents" shall
mean the Leases, the Product Contracts (defined below),
partnership, joint venture, limited partnership, farmout, dry
hole, bottom hole, operating agreements, acreage contribution,
purchase and acquisition agreements, area of mutual interest
agreements and salt water disposal and/or injection
agreements, servicing contracts, casement and/or right-of-way
agreements, surface leases, surface use agreements,
unitization or pooling agreements and all other material
executory contracts and agreements relating to the Assets,
including, without limitation, those contracts and agreements
described in Article 4.01(m) hereto.
(m) Other than agreements which are cancellable on 90 days notice
or less without material penalty or detriment, all product
purchase agreements and all agreements relating to or
affecting the purchase, sale, gathering, delivery,
compressing, transporting, processing, marketing or any other
disposition of the gas and condensate produced from or
attributable to the Assets are described on Exhibit "F"
attached hereto and made a part hereof under the heading
"Product Contracts," and are herein referred to as the
"Product Contracts".
(n) Seller has good and valid title to the Assets subject to
Permitted Encumbrances. Exhibit "A-1", "A-2" and "A-3"
contains a list of all Mineral Interests and other mineral
estates and interests within the Lands owned by Seller and is
true and correct, except as otherwise noted therein; provided,
however, that title to the Leases shall be assigned to Buyer
with warranties of title by, through and under Seller and its
Affiliates who are predecessors to Seller's title, but not
otherwise.
(o) The Mineral Interests entitle Seller to receive not less than
the undivided interest set forth in Exhibit "A" as NRI of all
indicated hydrocarbons produced, saved and marketed from or
attributable to the Wells, including any non-producing, behind
the pipe, or proved undeveloped reserves, through plugging,
abandonment and salvage of such Wells. Seller's obligation to
bear costs and expenses relating to the development of and
operations on the Wells is not, and, through the plugging,
abandonment and salvage of such Wells, shall not be greater
than the WI set forth in Exhibit "A."
(p) Seller is currently receiving from all purchasers of
production from the Mineral Interests at least the NRI set
forth in Exhibit "A" without suspense or any indemnity other
than standard division order warranties. Seller is currently
bearing, as Operator, or paying to operators of the Leases,
for the development and operation thereof no more than the WI
set forth in "Exhibit A," and the Seller is current for all
costs and expenses pertinent to the development and operation
of the Leases.
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(q) No portion of the Mineral Interests (1) has been contributed
to and is currently held by a tax partnership; (2) is subject
to any form of agreement (whether formal or informal, written
or oral) deemed by any state or federal tax statute, rule or
regulation to be or have created a tax partnership; or (3)
otherwise constitutes "partnership property" (as that term is
used in Subchapter K of Chapter 1 of Subtitle A of the Code)
of a tax partnership. For the purpose of this Article 4.01(s)
a "tax partnership" is an entity deemed to be a partnership
within the meaning of Section 761 of the Internal Revenue Code
or any similar state or federal statute, rule or regulation,
by reason of elections made not to be excluded from the
application of such partnership provisions.
(r) The Seller represents that it has been furnished with such
information as Seller may have requested from the Buyer
concerning the Buyer, Harken Energy's common stock and the
Shares being delivered hereunder. The Seller further
represents that (A) it is an "accredited investor," as defined
in Rule 501(a) of the Securities Act of 1933, as amended (the
"Securities Act"), and (B) it has had the opportunity to ask
questions of and receive satisfactory answers from management
of Harken Energy concerning Harken Energy, its operations, the
matters set forth in the Harken SEC Documents and an other
matters. The Seller acknowledges and agrees that the Shares
may not be sold or transferred following the Closing unless
either (a) such Shares have been registered under the
Securities Act and applicable state securities laws, or (b)
the transfer is exempt from the registration requirements of
the Securities Act and applicable state securities laws and
Harken Energy shall have been furnished with a written opinion
of legal counsel reasonably satisfactory to Harken Energy to
the effect that such sale or transfer is exempt from the
registration requirements of the Securities Act and applicable
state securities laws; provided, however, that Bargo may
freely sell or transfer all or any number of Shares to SMPL
and SMPL may freely sell or transfer a portion of its Shares
to EnCap Equity 1996 Limited Partnership or Energy Capital
Investment Company PLC (limited partners of SMPL), so long as
all such sale or transfers are accomplished in a manner
consistent with the Securities Act and applicable state
securities laws; provided, however, no legal opinion shall be
required in connection with sales or transfers of Shares to
SMPL or to limited partners of SMPL as provided above. The
Seller agrees that the certificates representing the Shares
issued pursuant to this Agreement will contain the following
restrictive legend: THE SHARES OF STOCK REPRESENTED BY THIS
CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY STATE SECURITIES ACT AND CANNOT BE
SOLD, TRANSFERRED, OR OTHERWISE DISPOSED OF UNLESS REGISTERED
UNDER SUCH ACTS OR EXEMPTIONS FROM REGISTRATION ARE AVAILABLE.
THE TRANSFER OF THE SHARES REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED UNDER THE PURCHASE AND SALE AGREEMENT DATED AS OF
MAY 19, 1998, AMONG HARKEN ENERGY CORPORATION, HARKEN
EXPLORATION COMPANY,
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ST. MARTINVILLE PARTNERS, LTD. AND BARGO ENERGY COMPANY. A
COPY OF THE PURCHASE AND SALE AGREEMENT MAY BE OBTAINED
AT NO COST BY WRITTEN REQUEST MADE BY THE RECORD HOLDER OF
THE CERTIFICATE TO HARKEN ENERGY CORPORATION.
(s) Seller has provided Buyer with complete and accurate
information relating to the Leases and Assets, including
without limitation, all applicable agreements relating,
appertaining or incidental to the Leases, production history
and characteristics. Seller has also provided Buyer with
copies of all land and well files heretofore maintained and
belonging to Seller.
(t) Prior to Closing, Seller shall have made available to Buyer
for examination at Seller's office in Houston, Texas, all
title and other information relating to the Assets insofar as
the same are in Seller's possession and after Closing will
cooperate with Buyer in Buyer's efforts to obtain such
additional information relating to the Assets as Buyer may
reasonably require, to the extent in each case that Seller may
do so without violating legal constraints or any obligation of
confidence or other contractual commitment of Seller to a
third party. After Closing, Seller shall cooperate with Buyer
in Buyer's efforts to obtain, at Buyers' expense, such
additional title information as Buyer may reasonably deem
prudent.
(u) Seller has caused the Assets to be produced, operated and
maintained in a good and workmanlike manner consistent with
good oilfield practices, has maintained insurance now in force
with respect to the Assets, has paid or caused to be paid all
costs and expenses in connection therewith, has kept the
Leases in full force and effect and has performed and, to the
best knowledge of Seller, complied with all the covenants and
conditions contained in the Leases and all agreements relating
to the Assets.
(v) During the period between the Effective Date and the Closing,
Seller has not entered into any agreements or commitments with
respect to the Assets, has not modified or terminated any of
the agreements relating to the Assets, including, without
limitation, the Basic Documents and the Product Contracts, has
not encumbered, sold or otherwise disposed of any of the
Assets other than personal property which has been replaced by
equivalent property or consumed in the operation of the
Assets, and has not voluntarily compromised any amounts
payable to the Seller due to casualty loss or any pending or
threatened taking related to the Assets.
(w) Seller has exercised reasonable efforts in safeguarding and
maintaining all engineering, geological and geophysical data,
reports and maps, contract rights and like information
relating to the Assets.
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(x) In the event that as of the Closing Date the Assets are
subject to outstanding Governmental Approvals, Seller agrees
to indemnify the Buyer Indemnified Party against any Loss or
Losses arising by reason of the failure to obtain such
Governmental Approvals. Seller represents that it will
exercise reasonable efforts to obtain such Governmental
Approvals. The indemnity herein provided shall survive the
Closing until the required Governmental Approvals have been
obtained.
(y) Seller has permitted Buyers' authorized representatives to (i)
consult with Seller's and/or any third-party contract
operator's agents and employees during reasonable business
hours and to conduct on-site inspections, reasonable tests and
inventories with respect to the Assets and inspect and examine
all production and related data, well logs and geological and
geophysical data relating to the Assets, and (ii) inspect and
make copies of all orders, proceedings and evidence with
respect to the Assets of the Louisiana Conservation
Commission.
(z) Prior to the Closing Date, Seller has used reasonable efforts
to maintain its relationships with all suppliers, customers
and others having business relationships with Seller with
respect to the Assets so that such relationships will be
preserved for Buyer on and after the Closing Date.
(aa) All Wells, whether producing or not, located on the Lands,
other than Wells which have been previously plugged and
abandoned in compliance with applicable rules and regulations,
are set forth in Exhibit "A" hereto.
(bb) There are no underground storage tanks located on any of
Lands.
(cc) Since the Effective Date, Seller has purchased new Leases for
the St. Martinville Prospect Area, S. Bayou Boeuf Prospect
Area and Bol Mex Prospect Area as set forth on Exhibits "A-1",
"A-2" and "A-3", respectively, under the heading "Post
Effective Date Leases." Seller paid the bonus amount set forth
in the description of such Post Effective Date leases on such
Exhibits.
(dd) Exhibit "I" sets forth each "authority for expenditure" issued
or received by Seller since the Effective Date along with an
indication of the Prospect Area which the authorization
relates to, the amount of the authorization and specifically
states whether Seller has approved that authorization.
4.02 Representations and Warranties of Buyer. Each of Harken Energy and
Exploration jointly and severally represents and warrants to Seller that the
statements contained in this Article 4.02 are true and correct as of the Closing
Date:
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(a) 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, and is duly qualified to do
business and in good standing in the State of Texas.
(b) Each Buyer has all requisite power and authority, corporate
and otherwise, to carry on its business as presently
conducted, to enter into this Agreement and Related Agreements
to which it is a party, and to perform its obligations under
this Agreement and such Related Agreements.
(c) The execution and delivery of this Agreement and the Related
Agreements have been, and the execution and delivery of all
certificates, documents and instruments required to be
executed and delivered by each Buyer at Closing, and the
consummation of the transactions contemplated hereby as of
the Closing Date shall have been duly authorized by all
necessary corporate action on the part of each Buyer and no
further authorization is required by any law, statute,
regulation, court order or judgment applicable to either
Buyer. This Agreement constitutes a legal, valid and binding
obligation of each Buyer enforceable in accordance with its
terms, subject however, to the effects of bankruptcy,
insolvency, reorganization, moratorium and similar laws, as
well as to principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at
law).
(d) The execution and delivery of the Agreement and the
consummation of the transactions contemplated hereby will not
(i) violate, or be in conflict with any provisions of either
Buyer's certificate of incorporation, bylaws or governing
documents, (ii) constitute a material breach of, or any event
of default under, any contract or agreement to which either
Buyer is a party or by which it or its assets are bound, or
constitute the happening of an event or condition upon which
any other party to such a contract or agreement may exercise
any right or option which will materially adversely affect the
ability of either Buyer to perform its obligations hereunder,
or (iii) violate any judgment, decree, order, statute, rule or
regulation applicable to either Buyer.
(e) No suit, action or other proceeding is pending before any
court or governmental agency as of the date of this Agreement
to which either Buyer is a party and which might materially
hinder or impede the ability of either Buyer to perform its
obligations hereunder. Harken Energy shall promptly notify
Seller of any such proceeding arising prior to the Closing
with respect to which its receives actual notice.
(f) Neither Buyer has incurred any liability, contingent or
otherwise, for brokers' or finders' fees relating to the
transactions contemplated by this Agreement for which Seller
shall have any responsibility whatsoever.
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(g) Harken Energy is current with respect to all required reports,
schedules, forms, statements and other documents with the
Commission. The consolidated financial statements of Harken
Energy filed with the Commission for the year ended December
31, 1997, comply as to form in all material respects with
applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto, have been
prepared in accordance with generally accepted accounting
principles (except, in the case of unaudited statements, as
permitted by Form 10-Q of the SEC) applied on a consistent
basis during the periods involved (except as may be indicated
in the notes thereto) and fairly present the consolidated
financial position of Harken Energy and its consolidated
subsidiaries as of the dates thereof and the consolidated
results of their operations and cash flows for the periods
then ended (subject, in the case of unaudited statements, to
normal year-end audit adjustments and other adjustments
described therein).
(h) The Closing Shares 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.
(i) The Reserve Shares and Additional Shares which may be received
by Seller will when so issued and received (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.
(j) Set forth on Exhibit "4.02(j)" 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.
ARTICLE 5
ENVIRONMENTAL REPRESENTATIONS AND WARRANTIES
5.01 Definitions. As used in this Article 5.01:
(a) "Contaminated Site List" means any list, registry, or
other compilation established by any Governmental
Entity of sites that require or potentially require
investigation, removal actions, remedial actions, or
any other response under any Environmental Laws or
treaty covering environmental
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matters, as the result of the Release or threatened
Release of any Hazardous
Materials.
(b) "Environmental Laws" means all laws, rules,
regulations, statutes, ordinances or orders of any
Governmental Entity relating to (A) the control of
any potential pollutant or protection of the air,
water or land, (B) solid, gaseous or liquid waste
generation, handling, treatment, storage, disposal or
transportation, and (C) exposure to hazardous, toxic
or other substances alleged to be harmful, and
includes without limitation, the terms and conditions
of any license, permit, approval, or other
authorization by any Governmental Entity, and
judicial, administrative, or other regulatory
decrees, judgments, and orders of any Governmental
Entity. The term "Environmental Laws" shall include,
but not be limited to, the Clean Air Act, 42
U.S.C.ss.7401 et seq., the Clean Water Act, 33
U.S.C.ss.1251 et seq., the Resource Conservation
Recovery Act ("RCRA"), 42 U.S.C.ss.6901 et seq., the
Superfund Amendments and Reauthorization Act, 42
U.S.C.ss.11011 et seq., the Toxic Substances Control
Act, 15 U.S.C.ss.2601 et seq., the Water Pollution
Control Act, 33 U.S.C.ss.1251, et seq., the Safe
Drinking Water Act, 42 U.S.C.ss.300f et seq., the
Comprehensive Environment Response, Compensation, and
Liability Act ("CERCLA"), 42 U.S.C.ss.9601 et seq.,
the Oil Pollution Act of 1990, 33 U.S.C.A.ss.2701 et
seq.; the Louisiana Environmental Quality Act, La.
R.S. 30:2001 et seq.; the Louisiana Conservation Act,
La. R.S. 30:1 et seq.; the Louisiana Oilfield Site
Restoration Law, La. R.S. 30:80 et seq.; the
Louisiana Coastal Zone Management Program, La. R.S.
49:214.21 et seq.; the Louisiana-Coastal Wetlands
Conservation and Restoration Act, La. R.S. 49:214.1
et seq.
(c) "Environmental Liabilities" shall mean any and all
liabilities, responsibilities, claims, suits, losses,
costs (including remediation, removal, response,
abatement, cleanup, investigative, and/or monitoring
costs and any other related costs and expenses),
damages, settlements, expenses, charges, assessments,
liens, penalties, fines, prejudgment and postjudgment
interest, attorney fees and other legal fees (A)
pursuant to any agreement, order, notice, or
responsibility, (including directives embodied in
Environmental Laws), injunction, judgment, or similar
documents (including settlements), or (B) pursuant to
any claim by a Governmental Entity or other person
for personal injury, property damage, damage to
natural resources, remediation, or similar costs or
expenses incurred by such Governmental Entity or
person pursuant to common law, statute, rule or
regulation.
(d) "Environmental Remediation Costs" means all costs and
expenses of actions or activities to (A) cleanup or
remove Hazardous Materials from the environment, (B)
to prevent or minimize the further movement, leaching
or
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migration of Hazardous Materials in the environment,
(C) prevent, minimize or mitigate the Release or
threatened Release of Hazardous Materials into the
environment, or injury or damage from such Release,
and (D) comply with the requirements of any
Environmental Laws. Environmental Remediation Costs
include, without limitation, costs and expenses
payable in connection with the foregoing for legal,
engineering or other consultant services, for
investigation, testing, sampling, and monitoring, for
boring, excavation, and construction, for removal,
modification or replacement of equipment or
facilities, for labor and material, and for proper
storage, treatment, and disposal of Hazardous
Materials.
(e) "Governmental Entity" means any court, administrative
agency or commission or other governmental authority
or agency, domestic or foreign, including local
authorities.
(f) "Hazardous Materials" means any toxic or hazardous
materials or substances, or solid wastes, including
asbestos, buried contaminants, chemicals, flammable
or explosive. materials, radioactive, materials,
petroleum and petroleum products, and any other
chemical, pollutant, contaminants substance or waste
that is regulated by any Governmental Entity under
any Environmental Law.
(g) "Material" or "Material Adverse Effect" for purposes
of this Article 5.01 means any matter, response,
action, remediation, or other item calling for the
payment or expenditure by any Seller or Buyer after
the Closing of funds in excess of $50,000 per
occurrence, or $500,000 in the aggregate.
(h) "Release" means any spilling, leaking, pumping,
pouring, emitting, emptying, discharging, injecting,
escaping, leaching, dumping, or disposing into the
environment of any Hazardous Materials.
5.02 Representations and Warranties. With respect to the Assets, the
Seller represents and warrants to Buyer that, to the best of its knowledge:
(a) With respect to permits and licenses relating to the Assets,
(A) all Material licenses, permits, consents, or other
approvals required under Environmental Laws that are necessary
to the operations the Assets have been obtained and are in
full force and effect, and Seller is unaware of any basis for
revocation or suspension of any such licenses, permits,
consents or other approvals, (B) no declaration, environmental
impact statement, or other filing or notice to any
Governmental Entity is required under Environmental Laws as a
condition or in connection with the transactions contemplated
by this Agreement, and (C) no Environmental Laws impose any
obligation upon any Seller, as a result of any transaction
contemplated hereby,
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requiring prior notification to any Governmental Entity of the
transfer of any permit, license, consent, or other approval
which materially is necessary to the operations of the Assets.
(b) No Governmental Entity has given notice to the Seller of any
claim or investigation under or violation of any Environmental
Law with respect to the Assets or of any intent to encumber or
place a lien under any Environmental Laws upon the Assets. No
Material notice or Material restriction has been, or is
required to be placed in any deed or other public real
property record pursuant to any Environmental Laws with
respect to the Assets.
(c) Except as would not have a Material Adverse Effect and with
respect to the Assets or any of the Lands, (A) no oral or
written notification of any Release of any Hazardous Materials
has been given to any Governmental Entity by or on behalf of
Seller, (B) none of the Assets is on (nor has any Seller
received any notice from any Governmental Entity that any of
the Assets is being considered or proposed for listing on) any
Contaminated Site List, (C) none of the Assets is the subject
of any judgment, decree or order of any Governmental Entity
requiring any investigation, removal, remediation or similar
action, or other response under any Environmental Laws, (D)
the Seller has not received any notice from any Governmental
Entity that it is liable or responsible, or potentially liable
or responsible, in any material respect for any removal,
remedial, or other similar type action under any Environmental
Laws as the result of the Release or threatened Release of
Hazardous Materials with respect to the Assets and (E) there
is no claim, complaint, investigation, litigation, or
administrative proceeding threatened before any Governmental
Entity (and to the best of its information and belief, Seller
knows of no threatened claim, complaint, investigation,
litigation, or administrative proceeding) in which it is
asserted by any Governmental Entity or any other person that
Seller (x) has violated or is not in compliance with any
Environmental Laws with respect to the Assets, (y) is liable
for or should be ordered or compelled to undertake any
removal, remediation, or other response action as the result
of the Release or threatened Release of any Hazardous
Materials with respect to the Assets or (z) is liable for
damages (including without limitation, damages to natural
resources), fines, penalties, or other relief as the result of
the violation or noncompliance of any Environmental Laws or as
the result of the Release or threatened Release of any
Hazardous Materials with respect to the Assets.
(d) Except where the failure to have such permits and
authorizations would not have a Material Adverse Effect, all
Hazardous Materials, garbage, refuse, and similar waste
materials with respect to the Assets have been transported by
Seller only to sites which have proper permits or other
authorization from Governmental Entities for the disposal of
such materials. To the best knowledge of Seller, no such site
to which
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Hazardous Materials, garbage, refuse, or similar waste
materials have been transported for disposal Seller are on any
Contaminated Site List.
(e) Except as would not have a Material Adverse Effect, all
operations of Seller with respect to the Assets are in
compliance with all Environmental Laws.
(f) Except as would not have a Material Adverse Effect, no facts
or circumstances exist which could reasonably be expected to
result in any Environmental Liabilities to Seller or the Buyer
following the Closing with respect to the Assets.
(g) Seller does not now own, lease or otherwise operate any
disposal sites on the Assets, other than the saltwater
disposal wells which are listed on Exhibit "A", for which the
Seller has obtained necessary permits from any Governmental
Entity and which wells are in material compliance with all
Environmental Laws and other applicable laws and regulations.
ARTICLE 6
ENVIRONMENTAL COVENANT
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. Seller has
further delivered to Buyer true and correct copies of its Phase 1 Environmental
Report for the St. Martinville Prospect Area dated February 10, 1997 and its
Phase 1 Environmental Report for the S. Bayou Boeuf Prospect Area dated
December, 1997. No material environmental events have occurred since the dates
of these reports.
6.02 Environmental Assessment. Buyer shall have the right to make an
environmental assessment of the Assets during the period beginning on the date
of execution of this Agreement and ending ninety (90) days after the Closing
Date ("Examination Period"). If during the Examination Period, Buyer determines
that operations of Seller or its affiliates with respect to the Assets are not
in compliance with all Environmental Laws, without regard to whether Seller has
been previously notified of such matter by an applicable authority, then Buyer
shall give Seller notice thereof together with an explanation of the
environmental problem. Seller shall have five (5) days following such notice to
notify Buyer whether Seller elects to (x) remediate, dispose of, restore, or
otherwise resolve such environmental problem or lack of compliance in accordance
with all applicable laws, rules, and regulations, and to Buyer's reasonable
satisfaction, or (y) reduce the consideration to be paid under
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Article 8.03 (b) by $750,000.00. Buyer and Seller agree to cooperate with each
other in connection with all activities to be conducted hereunder.
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 and Article 5 hereof
shall survive the Closing for a period of one year from the Closing Date and
(ii) the representations and warranties of the Buyer contained in Article 4.02
hereof shall survive the Closing for one year from the Closing Date (the
"Survival Period").
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 current, former, and future director, officer, manager, member,
partner, shareholder, employee and agent of Seller, and any successor, assign,
heir, and executor of any of the foregoing (the "Seller 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. Further, subject to
the limitations of the immediately preceding sentence, the Buyer indemnifies,
defends and holds the Seller Indemnified Parties harmless from and against any
and all Losses directly or indirectly arising out of or resulting from any
Hazardous Materials being present or released in, on or around any part of the
surface of the Fee Tract, or in the soil, groundwater or soil vapor on or under
the surface of the Fee Tract subsequent to the Closing Date that is caused by
the Buyer or its agents and employees.
7.03 Indemnification Provision for the Benefit of the Buyer In the
event the Seller breaches any of its representations and warranties contained in
Article 4.01 and Article 5 hereof, then the Seller agrees to indemnify and hold
harmless the Buyer, any current, former, and future director, officer, manager,
member, partner, shareholder, employee and agent of Buyer, and any successor,
assign, heir, and executor of any of the foregoing (the "Buyer Indemnified
Party"), from and against the entirety of any Losses resulting from or related
or attributable to the breach which the Buyer, 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 Seller shall not be responsible or liable for, any death, personal
injury, or consequential damages in respect of such breach. Further, subject to
the limitations of the immediately preceding sentence, the Seller
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indemnifies, defends and holds the Buyer Indemnified Parties harmless from and
against any and all Losses directly or indirectly arising out of or resulting
from any Hazardous Materials being present or released in, on or around any part
of the surface of the Fee Tract, or in the soil, groundwater or soil vapor on or
under the surface of the Fee Tract prior to the Closing date and thereafter,
except for the presence of such Hazardous Materials that is caused by the Buyer
or its agents and employees.
7.04 Matters Involving Third Parties.
(a) If any third party shall notify a Seller Indemnified or Buyer
Indemnified Party with respect to any matter which may give
rise to a claim for indemnification against Seller or Buyer,
as the case may be (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 7.04(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 7.04(b) above,
however, the Indemnified Party may defend against the Third
Party Claim in any manner it reasonably 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
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Indemnified Party waives indemnification with respect to the
Third Party Claim so settled and adjudicated.
(e) The indemnification obligations of Seller and Buyer,
respectively under this Agreement 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.
ARTICLE 8
POST CLOSING COVENANTS
8.01 Certain Obligations of Seller. Seller agrees that, with respect to
the period following the Closing:
(a) RECORDS. On or before five (5) business days after Closing,
Seller shall, at Seller's cost, deliver to Buyer, at Buyer's
offices in Irving, Texas, copies of all Records.
(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. Seller shall remain responsible for distribution
of such proceeds to the parties lawfully entitled thereto, and
agrees to indemnify, defend and hold harmless Buyer from and
against any and all Losses arising out of or relating to such
proceeds.
(c) 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.
(d) BOL MEX PROSPECT. The Seller will continue its best efforts to
bring partners in on a promoted basis to drill the Bol Mex
Prospect Area and the depths below the base of the Discorbis 4
Sand in the St. Martinville Prospect Area. Buyer will have the
right to participate in any well drilled to the Discorbis 4
Sand or below for its interest or to participate with Seller
in the promote, including cash, carried interest on other
value, consideration or interest to be received in any such
transaction by Seller.
8.02 Certain Obligations of Buyer. Each Buyer agrees that 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
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not be obligated to, record such Conveyance Document on Buyer's behalf and at
Buyer's cost (for which Buyer will promptly reimburse Seller upon demand).
8.03 Agreements Regarding the Issuance of Closing Shares or Cash
(a) CLOSING SHARES. Harken will issue and deliver to the Seller,
within thirty (30) days of the Closing Date, the Closing
Shares equal in value to Sixteen Million Two Hundred Fifty
Thousand Dollars ($16,250,000), which number of Closing Shares
will be determined by dividing such value by the Average
Closing Price of the Shares for the thirty (30) consecutive
calendar days immediately preceding the Closing Date.
(b) RESERVE SHARES. Exhibit 8.03(b) attached hereto contains a
list of Leases (the "Expiring Leases") covering depths above
the base of the Discorbis 4 Sand in the St. Martinville
Prospect Area, the primary terms of which have or will expire
on or before December 31, 1998. At any time, and from time to
time, from and after forty- five (45) days following the
Closing Date until the close of business one hundred twenty
(120) days following the Closing Date (or if such day is not
a business day, the next following business day) Seller may
notify Buyer that Seller has acquired new or renewal leases
covering all or portions of the lands and depths covered by
the Expiring Leases, providing for at least a three-year
primary term and landowners' royalty interests comparable to
those contained in the Expiring Leases. Such notice shall
include (i) Seller's proposed form of assignment of such new
or renewal leases to Harken Exploration, such assignment to
be substantially in the form attached as Exhibit "B" hereto,
(ii) a statement of how many net mineral acres are covered by
each lease, and (iii) the abstracts, title opinions or
whatever other title information Seller used in determining
what interests are leased and the net mineral acres covered
by each lease. Buyer shall have a period of not more than
forty-five (45) days following notice and tender in which to
notify Seller of Buyer's approval of title to the new or
renewal leases or to make objections to title with regard to
all or any part of the renewal leases included in the subject
notice (the date of such notice or, if no notice is given,
the date of the expiration of such forty-five-day period, is
herein called the "Approval Date"). In the absence of timely
notice, Buyer will be deemed to have approved title to all of
the new or renewal leases. Those leases subject to Buyer's
good faith title objections shall be excluded from the
assignment. Upon tender of the assignment by Seller at any
time subsequent to the Approval Date, Harken Energy will, at
its option, either: (i) tender cash to Seller in the amount
of the Remaining Purchase Price, subject to adjustment as set
forth below; or (ii) deliver to Seller Reserve Shares equal
in value to the Remaining Purchase Price, subject to
adjustment as set forth below. The number of Reserve Shares
to be delivered will be determined by dividing the Remaining
Purchase Price, as adjusted, by the Average
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Closing Price. In the event the new or renewal leases to be
assigned by Seller cover less than the number of net mineral
acres set forth on Exhibit 8.03(b) attached hereto, the
Remaining Purchase Price payable after the deduction, if any,
required for environmental compliance under Article 6.02,
shall be reduced in the proportion that the number of net
mineral acres covered by the new or renewal leases bears to
the number of net mineral acres set forth on Exhibit 8.03(b).
(c) As used in this Agreement:
"Approval Date" has the meaning set forth in Article 8.03(b).
"Average Closing Price" means, when used in Article 8.03(a),
the average of the last reported Sales Price for the Shares
for the 30 consecutive calendar days immediately preceding the
Closing Date, when used in Article 8.03(b) means the average
of the last reported Sales Price for the Shares for the 30
consecutive calendar days immediately preceding the Approval
Date.
"Sales Price" means, 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.
8.04 Agreement In Regard to an Easement. The Seller is not selling the
surface with respect to the Assets in the St. Martinville Area. However, the
Seller and the Buyer agree to enter into an Easement Agreement substantially in
the form of Exhibit "G" attached hereto in regard to the use by the Buyer of
such surface for its operations. Such Agreement shall comply with Louisiana law
and will include the granting of the following rights: (i) the right of ingress
and egress to and from the Assets over and across all present, future and
designated roads and highways situated on the Lands, this right of ingress and
egress being for persons, vehicles, and equipment necessary or convenient for
use in the Buyers' exercise of their rights to explore for, produce, maintain ,
sell, and transport oil and gas in the Assets; the right to install, maintain,
and use gates in any fences, which now or will cross any easement tracts; the
right to mark the location of any easement tracts by suitable markers set in the
ground, provided, however, these markers may be placed in fences or other
locations that will not interfere with any reasonable use of the Seller may make
of the easements; and the right to cut and trim trees and shrubbery that may
encroach on any easement area.
8.05 Agreement Concerning Prescriptive Rights. Sellers agree to execute
the form of Act of Acknowledgment of Mineral Servitude for Purpose of
Interruption of Liberative Prescription attached hereto as Exhibit "L" upon the
request of Buyer, or Buyer's successors, not more frequently than annually,
acknowledging the interruption of liberative prescription on the Fee Tract. Any
sale
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or other disposition of Seller's interest in such surface rights shall be made
expressly subject to the covenant to execute future acts on the form attached
as Exhibit "L". In the event that any portion of the mineral servitude estate
under the Fee Tract shall revert to ownership of the surface holder, then
Seller covenants for itself, its heirs and assigns forever to reconvey all such
minerals that may have so reverted to Harken Energy or its nominee. If the
preceding provisions of this Article 8.05 are not effective or are held to be
invalid or unenforceable as against public policy, then Seller shall be deemed
to have leased all of the minerals under the Fee Tract to Buyer for a term of
99 years without any royalties, or rental or other consideration deemed payable
other than the Purchase Price.
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
28
<PAGE> 30
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. Buyer shall be liable for any
sales taxes or other transfer taxes, as well as any applicable
conveyance, transfer and recording 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. For
purposes of this Agreement, "Imbalances" means 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, each Seller shall prepare and deliver to Buyer, in
accordance with this Agreement and generally accepted
accounting principles, a statement (herein called the "Final
Settlement
29
<PAGE> 31
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 each 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 either Seller additional
monies, Buyer shall pay such Seller or to such Seller's
account (as designated by such Seller) in immediately
available federal funds such amount; or (ii) either Seller
owes Buyer monies, such Seller shall pay Buyer or to Buyer's
account (as designated by Buyer) in immediately available
federal funds such amount. Payment by Buyer or either Seller
shall be made within five (5) days after the Final Settlement
Date.
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
30
<PAGE> 32
(c) REGISTRATION RIGHTS AGREEMENT. The Registration Rights
Agreement dated the Closing Date, substantially in the form of
Exhibit 11.01(c) .
11.02 Buyer's Closing Obligations. Buyer shall deliver to Seller at
Closing with respect to items (a) and (c) 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); and
(c) REGISTRATION RIGHTS AGREEMENT AND OTHER RELATED AGREEMENTS.
The Registration Rights Agreement substantially in the form of
Exhibit 11.01(c) ( and the other Related Agreements in
substantially in the forms of Exhibits G and H.
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 to purchase such Assets or portions thereof
notwithstanding any such destruction, taking or pending or threatened taking
(without reduction in the 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
BUYER'S OPTION
13.01 Grant of Option. As stated in Article 2.01(c) above, Buyer shall
have an ongoing option for one year from and after the Closing Date to purchase
all of Seller's remaining 25% interest in the St. Martinville Prospect Area and
the S. Bayou Boeuf Prospect Area, and a like undivided interest in all wells and
Equipment located thereon (the "Option Assets"). Seller shall not sell or
31
<PAGE> 33
dispose of any portion of the Option Assets during this option period and any
encumbrances created by, through or under Seller shall be made expressly subject
to Buyer's option.
13.02 Option Closing. In order to exercise the option, Buyer will give
Seller written notice of its exercise. The closing ("Option Closing") of the
purchase under the option shall occur 10 business days thereafter, and at the
Option Closing Seller shall deliver Conveyance Documents, with only the changes
that may be necessary, including the naming of Buyer's nominee or assignee, if
applicable, as the grantee in such instruments conveying and transferring the
Option Assets to Buyer. The price payable at the Option Closing shall be
$5,750,000, less an amount equal to 25% of the value of any of the Reserve
Shares that Seller was not entitled to receive for acquiring renewal leases
under Article 8.03(b). The fact that the Reserve Shares due under Article
8.03(b) constitute a component of the amount due under the option purchase price
shall not diminish the amount that may be due under Article 8.03(b). Buyer may
pay for the interests purchased through the exercise of this option by
delivering Shares ("Additional Shares") or by cash, at Buyer's option. If the
Additional Shares are delivered, the number shall be determined by dividing the
appropriate value by the average of the last reported Sales Price for the Shares
for the thirty (30) consecutive calendar days immediately preceding the Option
Closing. Buyer shall give two (2) business day's notice of whether Buyer will
pay with cash or Additional Shares. Any Additional Shares delivered under this
Article 13.02 shall be registered under the same procedures as contained in the
Registration Rights Agreement. At the Option Closing, Buyer and Seller will
execute and deliver certificates through which Seller makes the representations
and warranties contained in Article 4.01 and Article 5, and Buyer makes the
representations and warranties contained in Article 4.02, with any references in
such provisions to the Assets being modified to refer to the Option Assets;
references to Effective Date being the date of Buyer's exercise of the Option;
references to the Closing being the Option Closing; and references to Shares
being the Additional Shares. Further, the Parties agree that, if Buyer exercises
the option, the provisions of Article 7, Article 8 and Article 9 shall also
pertain to the Option Closing and the Option Assets, with the appropriate
changes noted in the preceding sentence being effectuated for the proper
construction of these provisions with regard to the Option Closing; provided,
however, with regard to the Option closing and Option Assets, the
representations and warranties contained in Article 4.01, Article 4.02 and
Article 5 and the indemnities contained in Article 7 shall only survive for six
(6) months following the Option Closing.
13.03 Obligations of Seller at Option Closing. Seller agrees that, with
respect to the period following the Option Closing:
(a) RECORDS. On or before five (5) business days after Option
Closing (the "Records Delivery Date"), Seller shall deliver to
Buyer, at Buyer's offices in Irving, Texas, the originals of
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.
32
<PAGE> 34
(b) SUSPENSE FUNDS. As soon as practicable after Closing, Seller
shall provide Buyer with a list showing all proceeds from
production attributable to the Option Assets which are
currently held in suspense and, except as to funds in suspense
for the account of Gregg Production Company, 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 the
proceeds so transferred, except for any Losses caused by
Seller's negligence or willful misconduct.
(c) 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 Option Assets, whether known or unknown, accrued or
contingent and not otherwise specifically set forth in this
Agreement.
13.04 Certain Obligations of Buyer. Each Buyer agrees that, with
respect to the period following the Option Closing:
(a) RECORDING. Within (30) days following Option Closing, Buyer
shall record those Conveyance Documents necessary to evidence
in the public record that Buyer has acquired the Option Assets
and within a reasonable time thereafter, Buyer shall supply
Seller with a true and accurate photocopy of the recorded and
filed Conveyance Documents covering the Option Assets. 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 Buyer's
behalf and at Buyer's cost (for which Buyer will promptly
reimburse Seller upon demand).
(b) REMOVAL OF NAMES. As soon as reasonably practicable after
Option 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 Option
Closing.
ARTICLE 14
GOVERNMENTAL CONSENTS
At the Closing and Option Closing, if any, Seller shall execute and
deliver to Buyer such assignments of federal, state and Indian leases as require
consent to assignment, on the forms
33
<PAGE> 35
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 (the "Govern mental Approvals") are obtained, Seller shall
continue to hold governmental title to such leases as nominee for Buyer.
ARTICLE 15
MISCELLANEOUS
15.01 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 or Option Closing, if any, without
the prior approval of the other Party, which 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).
15.02 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.
15.03 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.
15.04 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.
15.05 Headings. The section or Article headings contained in this
Agreement are inserted for convenience only and shall not affect in any way the
meaning or interpretation of this Agreement.
15.06 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.
15.07 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 fees from the nonprevailing party. Each
Party shall pay their respective legal costs associated with the negotiation and
drafting of this Agreement.
34
<PAGE> 36
15.08 Exhibits. All exhibits and schedules hereto which are referred to
herein are hereby made a part hereof and incorporated herein by such reference.
15.09 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 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.
15.10 Further Assurances. After the Closing and Option Closing, if any,
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.
15.11 Resignation as Operator, etc. At the Option Closing, Seller shall
execute and deliver to Buyer appropriate letters resigning as the Operator of
any of the Assets or Option 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 or Option Assets,
since the Assets or Option 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.
15.12 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:
Bargo Energy Company
700 Louisiana, Suite 3700
Houston, Texas 77002
Attention: Mr. Tim J. Goff, President
Telephone: (713) 236- 9792
Fax: (713) 236-9799
35
<PAGE> 37
with a copy to:
EnCap Investments L.C.
1100 Louisiana, Suite 3150
Houston, Texas 77002
Attention: Mr. D. Martin Phillips
Telephone: (713) 659-6100
Fax: (713) 659-6130
IF TO BUYER:
Harken Energy Corporation
Harken Exploration Company
5605 North MacArthur, Suite 400
Irving, Texas 75038
Attention: Mr. Larry Cummings, Vice President and Secretary
Telephone: (972) 753-6932
Fax: (972) 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.
15.13 Disclaimer of Representations and Warranties. Except as expressly
set forth in this Agreement and in Conveyance Documents delivered pursuant to
Article 11.01(a) and Article 13.02, 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
36
<PAGE> 38
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.
15.14 Seller's Liabilities Several and Not Joint. Notwithstanding
anything herein contained to the contrary, it is understood and agreed that the
obligations and liabilities of Seller hereunder are several, and not joint or
joint and several, with respect to that portion of the Assets owned by SMPL and
Bargo, respectively. More specifically, it is understood and agreed that:
(a) The representations and warranties set forth in Article
4.01, the environmental representations and warranties set forth in
Article 5.01, the environmental covenant set forth in Article 6.01, the
indemnification provision for the benefit of Buyer set forth in Article
7.03 and the post-closing covenants set forth in Article 8.01 shall
bind SMPL insofar and only insofar as the same pertain to the St.
Martinville Prospect Area, the Bol Mex Prospect Area and that part or
portion of the Assets included therein, and SMPL shall have no
liability or obligation whatsoever under the above-referenced or any
other provisions hereof with respect to the S. Bayou Boeuf Prospect
Area or that part or portion of the Assets included therein; and
(b) The representations and warranties set forth in Article
4.01, the environmental representations and warranties set forth in
Article 5.01, the environmental covenant set forth in Article 6.01, the
indemnification provision for the benefit of Buyer set forth in Article
7.03 and the post-closing covenants set forth in Article 8.01 shall
bind Bargo insofar and only insofar as the same pertain to the S. Bayou
Boeuf Prospect Area and that part or portion of the Assets included
therein, and Bargo shall have no liability or obligation whatsoever
under the above-referenced or any other provisions hereof with respect
to the St. Martinville Prospect Area, the Bol Mex Prospect Area or that
part or portion of the Assets included therein.
Furthermore, no default by one Seller under this Agreement shall affect in any
way the right of a non-defaulting Seller to enforce this Agreement by
appropriate proceedings at law or in equity.
15.15 Severability. Any term or provision of this Agreement that is
invalid or unenforce able 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.
15.16 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
37
<PAGE> 39
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 ss. 17.41 et seq., other than any of the
provisions of ss. 17.555 of such Act, if such Act would for any reason be deemed
applicable to the transactions contemplated hereby.
15.17 No Third Party Beneficiaries. Except as provided for in Article 7
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.
15.18 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.
38
<PAGE> 40
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:
ST. MARTINVILLE PARTNERS, LTD.
By: Bargo Energy Partners, Ltd., General
Partner
By: Bargo Energy Corporation
By: /s/ Tim J. Goff
---------------------------------------
Tim J. Goff, President
BARGO ENERGY COMPANY
By: /s/ Tim J. Goff
---------------------------------------
Tim J. Goff, Manager
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
39
<PAGE> 41
LIST OF EXHIBITS
Exhibit A Well List with Working Interest and Net Revenue Decimals
Exhibit A-1 St. Martinville Prospect Area
Exhibit A-2 S. Bayou Beouf Prospect Area
Exhibit A-3 Bol Mex Prospect Area
Exhibit B Assignment, Bill of Sale and Conveyance
Exhibit C Equipment
Exhibit D Easements
Exhibit E Contests of Liens
Exhibit F Product Contracts
Exhibit G Easement Agreement
Exhibit H Excluded Assets
Exhibit I Authorization for Expenditures
Exhibit J Disclosure under Article 4.01
Exhibit K Operating Agreement
Exhibit L Act of Acknowledgment of Mineral Servitude
Exhibit 4.02(j) Capitalization Schedule
Exhibit 9(f) Gas Imbalances
Exhibit 8.03(b) Expiring Leases
Exhibit 11.01(b) Opinion of Seller's Counsel
Exhibit 11.01(c) Registration Rights Agreement
Exhibit 11.02(a) Opinion of Buyers' Counsel
40
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<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 37,579,000
<SECURITIES> 149,946,000
<RECEIVABLES> 4,744,000
<ALLOWANCES> (338,000)
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<CURRENT-ASSETS> 192,824,000
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0
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