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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13E-4
ISSUER TENDER OFFER STATEMENT
PURSUANT TO SECTION 13(e)(1) OF THE SECURITIES EXCHANGE ACT OF 1934
HARKEN ENERGY CORPORATION
(NAME OF ISSUER)
HARKEN ENERGY CORPORATION
(NAME OF PERSON(S) FILING STATEMENT)
5% SENIOR CONVERTIBLE NOTES DUE 2003
(TITLE OF CLASS OF SECURITIES)
NOT APPLICABLE
(CUSIP NUMBER OF CLASS OF SECURITIES)
LARRY E. CUMMINGS
VICE PRESIDENT AND GENERAL COUNSEL
HARKEN ENERGY CORPORATION
16285 PARK TEN PLACE, SUITE 600
HOUSTON, TEXAS 77084
(281) 717-1300
WITH A COPY TO:
BILL GREENHILL
HAYNES AND BOONE, LLP
201 MAIN STREET
SUITE 2200
FORT WORTH, TEXAS 76102
(817) 347-6602
(NAME, ADDRESSES AND TELEPHONE NUMBERS OF PERSONS AUTHORIZED
TO RECEIVE NOTICES AND COMMUNICATIONS ON BEHALF OF PERSON(S) FILING STATEMENT)
NOVEMBER 25, 1999
(DATE TENDER OFFER FIRST PUBLISHED,
SENT OR GIVEN TO SECURITY HOLDERS)
CALCULATION OF FILING FEE
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TRANSACTION VALUATION AMOUNT OF FILING FEE
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<S> <C>
$43,750,000(1) $8,750.00
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(1) For purposes of calculating fee only. The market value of the Notes
proposed to be acquired by Harken Energy Corporation was established by
multiplying $6,250, the last reported sales price of the Notes as reported
on the Luxembourg Stock Exchange on June 30, 1999, by 7,000, the maximum
number of Notes that the Company has offered to acquire. The amount of the
filing fee calculated in accordance with Rule 0-11 of the Securities
Exchange Act of 1934, as amended, equals 1/50 of 1% of the transaction
valuation.
[ ] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the Form
or Schedule and the date of its filing.
Amount Previously Paid: Not Applicable
Form or Registration No.: Not Applicable
Filing Party: Not Applicable
Date Filed: Not Applicable
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ITEM 1. SECURITY AND ISSUER
(a) The issuer of the securities to which this Statement relates is
Harken Energy Corporation, a Delaware corporation (the "Company"). The principal
executive offices of the Company are located at 16285 Park Ten Place, Suite 600,
Houston, Texas 77084.
(b) As of the date hereof, there were $85,000,000 aggregate principal
amount of the Company's 5% Senior Convertible Notes Due 2003 (the "Notes")
outstanding. Upon the terms and subject to the conditions set forth in the
Offering Circular dated November 25, 1999 (as the same may be amended or
supplemented from time to time, the "Offering Circular") and the related Letter
of Transmittal, copies of which are filed herewith as Exhibits (a)(1) and
(a)(2), respectively, the Company is offering to accept for exchange up to the
maximum amount set forth below each $10,000 principal amount of its 5% Senior
Convertible Notes Due May 26, 2003 (the "Notes") for either (i) 4,000 shares of
its Common Stock (the "Common Stock"), $0.01 par value per share (the "Common
Stock Consideration"), or (ii) 1,000 shares of its Series G Convertible
Preferred Stock (the "Preferred Stock"), $1.00 par value per share (the
"Preferred Stock Consideration" and, together with the Common Stock
Consideration, the "Exchange Consideration"), at the election of the holder of
the Notes. As of the date of this Offering Circular, Notes in the aggregate
principal amount of $85,000,000 are outstanding. The Company will only issue in
this exchange up to (i) 6,000,000 shares of Common Stock and (ii) 2,700,000
shares of Preferred Stock in connection with the Exchange Offer; however, the
Company may elect, in its sole discretion, to (a) increase the aggregate amount
of the Common Stock to be issued in this exchange up to 10,000,000 shares (the
"Common Stock Election") and/or (b) increase the aggregate amount of Preferred
Stock to be issued in this exchange up to 4,500,000 shares (the "Preferred Stock
Election" and, together with the Common Stock Election, the "Elections").
Therefore, the Company will only exchange up to $42,000,000 aggregate principal
amount of Notes (or up to $70,000,000 aggregate principal amount of Notes if the
Company makes the maximum amount of both of the Elections).
The Exchange Offer is available only to holders of Notes who are not
"U.S. persons" (as defined in Regulation S under the Securities Act of 1933, as
amended (the "Securities Act")). Holders of Notes who are U.S. persons are
ineligible to participate in the Exchange Offer. The information under the
captions "Summary -- The Exchange Offer," "Summary -- Comparison of the Notes
and the Preferred Stock," "The Exchange Offer -- Terms of the Exchange Offer;
Number of Notes," "The Exchange Offer -- Restriction on Offerees" and "The
Exchange Offer -- Tenders of Excess Aggregate Principal Amount of Notes" in the
Offering Circular is incorporated herein by reference. To the knowledge of the
Company, no officer, director or affiliate of the Company beneficially owns any
of the Notes.
(c) See "Summary -- Comparison of the Notes and the Preferred Stock"
and "Price Range and Dividend Policy," which are incorporated herein by
reference.
(d) Not applicable.
ITEM 2. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION
(a) The information set forth under the captions "Summary --The
Exchange Offer," "Summary -- Comparison of the Notes and the Preferred Stock,"
"The Exchange Offer -- Terms of the Exchange Offer," and "The Exchange Offer --
Tenders of Excess Aggregate Principal Amount of Notes," in the Offering
Circular, and in Appendix A to the Offering Circular is incorporated herein by
reference.
(b) Not applicable.
ITEM 3. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE ISSUER OR
AFFILIATE
The information under the captions "Summary -- The Exchange Offer,"
"Summary -- Comparison of the Notes and the Preferred Stock," "Risk Factors --
Risk Factors Associated with the Exchange Offer" and "Purposes and Effects of
the Exchange Offer" in the Offering Circular is incorporated herein by
reference.
Other than as described in this Item, the Company presently has no
plans or proposals which relate to or would result in any of the matters listed
in Items 3(a) through 3(j) of Schedule 13E-4.
ITEM 4. INTEREST IN SECURITIES OF THE ISSUER
Neither the Company nor, to the best of its knowledge, any of the other
persons covered by Item 4 of Schedule 13E-4 has effected any transaction in the
Notes during the 40 business days preceding the date of the Offering Circular.
2
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ITEM 5. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO
THE ISSUER'S SECURITIES
Not applicable.
ITEM 6. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED
The information appearing in the Offering Circular under the caption
"The Exchange Offer -- Solicitation of Tenders; Expenses" is incorporated herein
by reference.
ITEM 7. FINANCIAL INFORMATION
(a) The information set forth in the Offering Circular under the
caption "Capitalization" is incorporated herein by reference.
(b) The information set forth in the Offering Circular under the
caption "Capitalization" is incorporated herein by reference.
ITEM 8. ADDITIONAL INFORMATION
(a) Not Applicable.
(b) The information set forth under the captions "Available
Information," "Summary -- The Exchange Offer," "Summary --Comparison of the
Notes and the Preferred Stock," "Risk Factors -- Risk Factors Associated with
the Exchange Offer," "The Exchange Offer -- Restriction on Offerees," "Selling
Restrictions" and "Definition of U.S. Person Under Regulation S" in the Offering
Circular, and in Appendices A and B to the Offering Circular, is incorporated
herein by reference.
(c) Not Applicable.
(d) Not Applicable.
(e) The Offering Circular and the Letter of Transmittal, each of which
is filed as an exhibit hereto, are incorporated herein in their entirety.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS
(a)(1) -- Offering Circular dated November 25, 1999
(a)(2) -- Form of Letter of Transmittal
(a)(3) -- Press release issued November 26, 1999
(b) Not applicable
(c) None
(d) None
(e) Not applicable
(f) None
3
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SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
Date: November 25, 1999 HARKEN ENERGY CORPORATION
By: /s/ Larry E. Cummings
-----------------------------------
Name: Larry E. Cummings
Title: Vice President and Secretary
4
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EXHIBIT INDEX
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EXHIBIT
NUMBER EXHIBIT NAME
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99(a)(1) -- Offering Circular dated November 25, 1999
99(a)(2) -- Form of Letter of Transmittal
99(a)(3) -- Press release issued November 26, 1999
</TABLE>
<PAGE> 1
OFFERING CIRCULAR
HARKEN ENERGY CORPORATION
OFFER TO EXCHANGE
UP TO A MAXIMUM AMOUNT OF $70,000,000 OF
$10,000 PRINCIPAL AMOUNT OF ITS
5% SENIOR CONVERTIBLE NOTES DUE MAY 26, 2003
FOR
4,000 SHARES OF ITS COMMON STOCK
OR
1,000 SHARES OF ITS SERIES G CONVERTIBLE PREFERRED STOCK
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., GREENWICH MEAN TIME, ON
DECEMBER 15, 1999, UNLESS EXTENDED.
Harken Energy Corporation (the "Company" or "Harken") hereby offers,
upon the terms and subject to the limitations and conditions contained in this
Offering Circular (the "Offering Circular") and in the related Letter of
Transmittal (the "Letter of Transmittal") (which together constitute the
"Exchange Offer"), to accept for exchange up to the maximum amount set forth
below each $10,000 principal amount of its 5% Senior Convertible Notes Due May
26, 2003 (the "Notes") for either (i) 4,000 shares of its Common Stock (the
"Common Stock"), $0.01 par value per share (the "Common Stock Consideration"),
or (ii) 1,000 shares of its Series G Convertible Preferred Stock (the
"Preferred Stock"), $1.00 par value per share (and $10.00 liquidation
preference per share as described herein) (the "Preferred Stock Consideration"
and, together with the Common Stock Consideration, the "Exchange
Consideration"), at the election of the beneficial owners of the Notes (the
"Noteholders").
THE EXCHANGE OFFER IS AVAILABLE ONLY TO NOTEHOLDERS WHO ARE NOT "U.S.
PERSONS" (AS DEFINED IN REGULATION S UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT")). NOTEHOLDERS WHO ARE U.S. PERSONS ARE
INELIGIBLE TO PARTICIPATE IN THE EXCHANGE OFFER.
As of the date of this Offering Circular, Notes in the aggregate
principal amount of $85,000,000 are outstanding. The Company will only issue in
this exchange up to (i) 6,000,000 shares of Common Stock and (ii) 2,700,000
shares of Preferred Stock in connection with the Exchange Offer; however, the
Company may elect, in its sole discretion, to (a) increase the aggregate amount
of the Common Stock to be issued in this exchange up to 10,000,000 shares (the
"Common Stock Election") and/or (b) increase the aggregate amount of Preferred
Stock to be issued in this exchange up to 4,500,000 shares (the "Preferred
Stock Election" and, together with the Common Stock Election, the "Elections").
Therefore, the Company will only exchange up to $42,000,000 aggregate principal
amount of Notes (or up to $70,000,000 aggregate principal amount of Notes if
the Company makes the maximum amount of both of the Elections). Although the
Company has no current plans otherwise, the Company may in its sole discretion
elect to further increase the number of Notes to be accepted for exchange
pursuant to the Exchange Offer. In the event an excess aggregate principal
amount of Notes is properly tendered to the Company for exchange pursuant to
the terms of the Exchange Offer, the Company will only accept for exchange from
each tendering Noteholder that Noteholder's pro rata portion of the total
aggregate principal amount of Notes properly tendered for exchange. In this
event, the excess Notes tendered by the Noteholder to the Company over the
Noteholder's pro rata amount of tendered Notes will not be accepted by the
Company for exchange, and each such Noteholder shall receive back a beneficial
interest in the Global Note for a principal amount representing the excess
principal amount not accepted pursuant to the Exchange Offer. THIS OFFER IS NOT
CONDITIONED UPON A MINIMUM AGGREGATE PRINCIPAL AMOUNT OF NOTES BEING EXCHANGED.
Except as otherwise provided in this Exchange Offer, the Company will exchange
any Notes properly tendered to it, up to an aggregate principal amount of
$42,000,000 (or $70,000,000, if the Company makes the maximum amount of both of
the Elections).
The Notes may be tendered by the Noteholders for exchange in minimum
denominations of $10,000 each and integral multiples thereof. The shares of
Preferred Stock will have a liquidation preference of $10.00 per share. Notes
tendered in the exchange will be entitled to receive the regular interest
payment coming due on the Notes on November 26, 1999. Noteholders whose Notes
are accepted in exchange for the Common Stock Consideration will receive a cash
payment equal to the accrued and unpaid interest, if any, on such Notes
accumulating after November 25, 1999 to, but excluding, the date of issuance of
such Common Stock Consideration, payable as soon as practicable after the
Expiration Date to the holders of such Notes. The Preferred Stock Consideration
issued in exchange for Notes will begin to accrue dividends commencing on
November 26, 1999. Holders of Notes accepted for exchange in the Exchange Offer
will have the right to withdraw such Notes until the Expiration Date.
Thereafter, such tenders are irrevocable, except that they may be withdrawn
after the expiration of 40 business days from the commencement of the Exchange
Offer, unless accepted for exchange prior to that date.
Pursuant to the terms and subject to the conditions of the Exchange
Offer, the Company will accept up to the maximum amount of Notes set out above
for exchange provided such Notes that are validly tendered and not properly
withdrawn prior to 5:00 p.m., Greenwich Mean Time ("GMT"), on December 15, 1999
or, if the Exchange Offer is extended by the Company in its sole discretion,
the latest time and date to which it is extended (the "Expiration Date").
Tenders of Notes pursuant to the Exchange Offer are irrevocable, except that
Notes tendered pursuant to the Exchange Offer may be withdrawn at any time
prior to the Expiration Date (and after the expiration of 40 business days from
the commencement of the Exchange Offer, unless accepted for exchange prior to
that date). The Exchange Offer also may be withdrawn, modified or terminated by
the Company at any time and for any reason.
<PAGE> 2
See "Summary -- Comparison of the Notes and the Preferred Stock,"
"Risk Factors," "The Exchange Offer" and "Description of Capital Stock" for a
description of the principal terms of and certain significant considerations
relating to the Exchange Offer, the Common Stock, the Preferred Stock and the
Notes.
THE COMPANY, ITS BOARD OF DIRECTORS AND ITS EXECUTIVE OFFICERS MAKE NO
RECOMMENDATION AS TO WHETHER ANY NOTEHOLDER SHOULD EXCHANGE ANY OR ALL OF SUCH
NOTEHOLDER'S NOTES PURSUANT TO THE EXCHANGE OFFER. SUCH NOTEHOLDERS MUST MAKE
THEIR OWN DECISIONS AS TO WHETHER TO EXCHANGE THEIR NOTES AND, IF SO, WHAT
PRINCIPAL AMOUNT TO EXCHANGE.
None of the Common Stock Consideration, the Preferred Stock
Consideration nor the Common Stock into which the Preferred Stock Consideration
may be converted (the "Conversion Shares") has been or will be registered under
the Securities Act of 1933, as amended (the "Securities Act"), except as
described herein, and the Exchange Consideration and the Conversion Shares may
not 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"
(as defined in Regulation S under the Securities Act) by the Company or any
person accepting this Exchange Offer (a "Participant") unless the Exchange
Consideration and the Conversion Shares have been registered under the
Securities Act and any applicable state securities laws or exemptions from the
registration requirements of the Securities Act and such laws are available.
Hedging transactions involving the Exchange Consideration or the Conversion
Shares may not be conducted unless in compliance with the Securities Act. This
Exchange Offer is not being made to U.S. persons and at the time the Exchange
Offer is accepted, the buyer must be located outside the United States.
The Common stock is traded on the American Stock Exchange (the "Amex")
under the symbol "HEC." On November 19, 1999, the last reported sales price of
the Common Stock on the Amex was $1.06. THE COMPANY ENCOURAGES NOTEHOLDERS TO
OBTAIN CURRENT QUOTATIONS OF THE MARKET PRICE OF THE COMMON STOCK. Each share
of Preferred Stock will be convertible into shares of the Common Stock, at an
initial conversion price of $3.00 (the "Preferred Conversion Price"), as
compared to an effective conversion price of $6.50 for the Notes (the "Note
Conversion Price").
Information concerning the Company and the Exchange Offer will be
available at the office of Kredietbank S.A. Luxembourgeoise (the "Luxembourg
Paying Agent"), the paying and conversion agent for the Notes in Luxembourg, at
43 Boulevard Royal, L-2955 Luxembourg. Further, services linked to the Exchange
Offer will be possible at the office of the Luxembourg Paying Agent, and the
documentation required for the Exchange Offer, including the Letter of
Transmittal, will be available at the office of the Luxembourg Paying Agent.
RP&C International, Inc. (the "Solicitation Agent") is acting as
solicitation agent for the Company in connection with the Exchange Offer and
will be compensated therefor. For information regarding the relationship of the
Solicitation Agent to the Company, the fees to be paid to see the "The Exchange
Offer -- Solicitation of Tenders; Expenses."
FOR A DISCUSSION OF CERTAIN FACTORS TO BE CONSIDERED IN CONNECTION
WITH THE EXCHANGE OF THE NOTES, SEE "RISK FACTORS" BEGINNING ON PAGE 19.
NEITHER THIS TRANSACTION NOR THE SECURITIES OFFERED HEREBY HAVE BEEN
APPROVED OR DISAPPROVED BY THE U.S. SECURITIES AND EXCHANGE COMMISSION (THE
"COMMISSION") OR ANY OTHER GOVERNMENTAL AUTHORITY, NOR HAS THE COMMISSION OR
ANY OTHER GOVERNMENTAL AUTHORITY PASSED UPON THE FAIRNESS OR MERITS OF THIS
TRANSACTION OR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN
THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
------------------------
The date of this Offering Circular is November 25, 1999
RP&C INTERNATIONAL
2
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Since all Notes are currently held in permanent global form on deposit
with Morgan Guaranty Trust Company of New York, Brussels office, as operator of
the Euroclear System ("Euroclear"), and Cedelbank, societe anonyme
("Cedelbank"), any beneficial owner of Notes desiring to tender all or any
portion of the aggregate principal amount of his or her Notes must request the
agent member bank which is reflected as the holder of the Notes in Euroclear or
with Cedelbank (the "Agent Member Bank") to effectuate the transaction for him
or her. In addition, the Agent Member Bank must complete and sign the Letter of
Transmittal or a facsimile thereof on behalf of each beneficial owner(s) of
Notes in accordance with the instructions in the Letter of Transmittal and any
other required documents. See "The Exchange Offer -- How to Tender."
Questions and requests for assistance may be directed to the
Solicitation Agent or HSBC Bank plc, the Company's exchange agent (the"Exchange
Agent") at the addresses and telephone numbers set forth on the last page of
this Offering Circular. Requests for additional copies of this Offering
Circular, the Letter of Transmittal or other information concerning the Company
may be directed to the Exchange Agent or to the Solicitation Agent.
The Exchange Consideration is being offered to Noteholders who are not
"U.S. persons" (as defined in Regulation S under the Securities Act) in
reliance upon an exemption from the registration requirements of the Securities
Act pursuant to Regulation S under the Securities Act. The Exchange
Consideration and the Conversion Shares will have restrictions on their resale.
See "Risk Factors -- Risk Factors Associated with the Exchange Offer -- Selling
Restrictions" and "Selling Restrictions." The Exchange Consideration has not
been approved or disapproved by any regulatory authority nor has any regulatory
authority passed on the merits of the Exchange Offer or the accuracy or
adequacy of this Offering Circular. Any representation to the contrary is
unlawful.
Regulation S, the safe harbor pursuant to which the Exchange
Consideration is being offered, prohibits the Exchange Consideration or the
Conversion Shares from coming into the hands of U.S. persons for a period of
one year (unless registered under the Securities Act or sold pursuant to an
exemption from such registration), deems the Exchange Consideration and the
Conversion Shares "restricted securities" as defined in Rule 144 of the
Securities Act, and imposes legend requirements. Hedging transactions involving
the Exchange Consideration or the Conversion Shares may not be conducted unless
in compliance with the Securities Act. The Company may, in its discretion,
revise the selling restrictions on the Exchange Consideration and/or the
Conversion Shares if the Commission should, subsequent to the date of this
Offering Circular, give advice or interpretations respecting such restrictions
imposed by Regulation S or Rule 144 or should the Commission amend Regulation S
or Rule 144 respecting such restrictions. See "Selling Restrictions."
The Company has agreed to file at the earliest practicable date and
in any event not later than ninety (90) days from the first date of issuance of
the Exchange Consideration, a registration statement with the Commission on an
appropriate form to permit resales of the Common Stock Consideration and the
Conversion Shares in the U.S. markets and to use its best efforts to maintain
the effectiveness of such registration statement until such time as an
exemption from registration to permit sales of the Common Stock Consideration
and the Conversion Shares in the U.S. markets without restrictions under the
Securities Act is available. At the present time, the exemption from
registration that is available is Rule 144(k) ("Rule 144(k)") promulgated by
the Commission under the Securities Act. Pursuant to this Rule, the Exchange
Consideration and the Conversion Shares may be sold without restriction by
persons who are not affiliates of the Company after the expiry of two years
from the date of issuance of the Exchange Consideration.
Acceptance of the Exchange Offer may result in tax or other legal
consequences not discussed herein. Prospective participants are not to construe
this Offering Circular or any prior or subsequent communication from the
Company or the Solicitation Agent or any of their respective directors,
officers, agents, or employees as legal, tax, or investment advice and should
consult with and rely on the Noteholder's own professional advisors as to the
consequences of accepting the Exchange Offer.
In this Offering Circular, all references to U.S. dollars," "dollars,"
"U.S. $," "$" and "cents" are to United States dollars and cents.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THE EXCHANGE OFFER OTHER THAN THOSE
CONTAINED IN THIS OFFERING CIRCULAR. IF GIVEN OR MADE, THE INFORMATION OR
REPRESENTATIONS SHOULD NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. THE DELIVERY OF THIS OFFERING CIRCULAR SHALL NOT, UNDER ANY
CIRCUMSTANCES, IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO ITS DATE.
THIS OFFERING CIRCULAR DOES NOT CONSTITUTE AN EXCHANGE OFFER TO ANY
PERSON IN ANY JURISDICTION IN WHICH THE EXCHANGE OFFER WOULD BE UNLAWFUL, AND
THE COMPANY WILL NOT ACCEPT TENDERS FROM NOTEHOLDERS IN ANY JURISDICTION IN
WHICH SUCH ACCEPTANCE WOULD NOT BE IN COMPLIANCE WITH THE APPLICABLE SECURITIES
LAWS OF SUCH JURISDICTION.
3
<PAGE> 4
AVAILABLE INFORMATION
The Company has filed with the Commission an Issuer Tender Offer
Statement on Schedule 13E-4, which term shall encompass any amendments thereto,
under the Securities Exchange Act of 1934, as amended ("Exchange Act") with
respect to the Exchange Offer. This Offering Circular does not contain all the
information set forth in the Schedule 13E-4 and the exhibits thereto, to which
reference is hereby made for further information about the Company and the
Exchange Offer.
Harken is subject to the informational requirements of the Exchange
Act, and the rules and regulations promulgated thereunder. The Schedule 13E-4
and all reports, proxy and information statements and other information filed
by the Company with the Commission may be inspected at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the regional offices of the Commission located at 7 World
Trade Center, New York, New York 10048, and Suite 1400, Citicorp Center, 700
West Madison Street, Chicago, Illinois 60661-2511. Copies of such material may
be obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates. Such documents may
also be obtained at the Web site maintained by the Commission
(http://www.sec.gov). In addition, the Common Stock is listed on the Amex, and
such reports, proxy statements and other information concerning Harken may be
inspected at the offices of the Amex, 86 Trinity Place, New York, New York, and
at the office of the Luxembourg Paying Agent, the paying and conversion agent
for the Notes in Luxembourg, at 43 Boulevard Royal, L-2955 Luxembourg. This
Offering Circular does not contain all of the information set forth in the
documents which the Company has filed with the Commission under the Exchange
Act and to which reference is made herein.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
This Offering Circular and the information contained herein is summary
in nature, does not purport to be a full and complete statement of the
business, affairs and financial condition of the Company and should be read in
conjunction with the following documents which are hereby incorporated by
reference into this Offering Circular:
(1) Harken's Annual Report on Form 10-K for the year ended
December 31, 1998, as amended on August 12, 1999 (as amended,
the "Annual Report");
(2) Harken's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1999, as amended on August 12, 1999 (the "March
Quarterly Report");
(3) Harken's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1999 (the "June Quarterly Report");
(4) Proxy Statement for the Annual Meeting of Stockholders of
Harken held on June 22, 1999 (the "Proxy Statement");
(5) Harken's Current Report on Form 8-K, filed on September 3,
1999, as amended on November 1, 1999;
(6) Harken's Current Report on Form 8-K, filed on October 15,
1999;
(7) Harken's Current Report on Form 8-K, filed on November 8,
1999; and
(8) Harken's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999 (the "September Quarterly Report" and,
collectively with the March Quarterly Report and the June
Quarterly Report, the "Quarterly Reports").
All documents filed by the Company pursuant to Section 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date of this Offering
Circular and prior to the termination of the Exchange Offer shall be deemed to
be incorporated by reference in this Offering Circular and to be a part hereof
from their respective dates of filing. Any statement contained in this Offering
Circular, in a supplement or amendment to this Offering Circular or in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified, amended or superseded for purposes of this Offering
Circular to the extent that a statement contained herein or in any supplement
or amendment to this Offering Circular or in any subsequently filed document
that also is or is deemed to be incorporated by reference herein modifies,
amends or supersedes such statement. Any statement so modified, amended or
superseded shall not be deemed, except as so modified, amended or superseded,
to constitute a part of this Offering Circular.
4
<PAGE> 5
The Company will provide without charge to each person to whom a copy
of this Offering Circular has been delivered, on the written or oral request of
any such person, a copy of any or all of the documents incorporated by
reference into this Offering Circular, other than exhibits to such documents,
unless such exhibits are specifically incorporated by reference in such
documents. The Company urges each Noteholder to request any such documents for
informational or other purposes. Written or oral requests for such copies
should be directed to Larry E. Cummings, Harken Energy Corporation, 16285 Park
Ten Place, Suite 600, Houston, Texas 77084, (281) 717-1300.
Neither the delivery of this Offering Circular nor any distribution of
securities made hereunder shall, under any circumstances, create any
implication that there has been no change in the affairs or financial condition
of the Company since the date hereof or that the information contained herein
is correct as of any time subsequent to its date.
The selection of certain sections of the documents incorporated herein
by reference for summarization in this Offering Circular does not indicate that
any sections of such documents not so selected for summarization are of any
less importance, and such summaries are hereby qualified in their entirety by
the full text of the documents incorporated herein by reference to which
Noteholders are referred.
FORWARD LOOKING STATEMENTS
This Offering Circular and the documents incorporated by reference
herein contain certain "forward-looking statements" (as that term is defined in
the Private Securities Litigation Reform Act of 1995) which can be identified
by the use of forward-looking terminology such as "believes," "expects," "may,"
"will," "should" or "anticipates" or the negative thereof or comparable
terminology, or by discussions of strategy that involve risks and
uncertainties. In addition, all statements other than statements of historical
facts included in this Offering Circular and the documents incorporated by
reference herein, including, without limitation, statements regarding the
Company's business strategy, future governmental regulation, oil and natural
gas reserves, future drilling and development opportunities and operations,
future acquisitions, future production of oil and natural gas (and the prices
thereof and costs therefor), anticipated results of hedging activities, future
capital expenditures and future net cash flows, are forward-looking statements
and may contain information concerning financial results, economic conditions,
trends and known uncertainties. Such statements reflect the Company's current
views with respect to future events and financial performance, and involve
risks and uncertainties. Actual results could differ materially from those
projected in the forward-looking statements as a result of these various risks
and uncertainties, including, without limitation, (i) factors discussed under
"Risk Factors" such as oil and natural gas price fluctuations and markets,
uncertainties of estimates of reserves and future net revenues, competition in
the oil and natural gas industry, operating risks, risks associated with
acquisitions, future need for and availability of capital, and regulatory and
environmental risks, (ii) adverse changes in the market for the Company's oil
and natural gas production and (iii) those additional factors discussed
elsewhere in this Offering Circular and the documents incorporated by reference
herein. Noteholders are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof.
TABLE OF CONTENTS
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Available Information.........................................................4
Incorporation of Certain Documents by Reference...............................4
Forward Looking Statements....................................................5
Summary .....................................................................6
Risk Factors.................................................................19
Recent Developments..........................................................25
Financial Information about the Company......................................25
Capitalization...............................................................25
Pro Forma Combined Condensed Financial Statements............................26
Ratio of Earnings to Fixed Charges and Book Value per Share..................34
Price Range and Dividend Policy..............................................34
Purposes and Effects of the Exchange Offer...................................35
The Exchange Offer...........................................................35
Certain U.S. Federal Income Tax Considerations...............................41
Description of Capital Stock.................................................43
Selling Restrictions.........................................................48
Definition of U.S. Person under Regulation S.................................52
Global Preferred Stock Certificates; Book Entry..............................53
Appendix A - Certificate of Designation of the Preferred Stock..............A-1
Appendix B - Form of Investor Letter........................................B-1
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SUMMARY
The following is a summary of certain terms of the Exchange Offer and
certain other information contained in this Offering Circular. It is not
intended to be complete and is qualified in its entirety by the more detailed
information contained elsewhere, or incorporated by reference, in this Offering
Circular. For definitions of certain capitalized terms which are not
specifically defined herein, see the Certificate of Designation (the
"Certificate of Designation") of the Preferred Stock attached hereto as
Appendix A. Unless otherwise indicated, references in this Offering Circular to
the Company include its wholly-owned subsidiaries.
THE COMPANY
Harken Energy Corporation is engaged in oil and gas exploration,
development and production operations both domestically and internationally
through its various subsidiaries.
Harken's domestic operations include oil and gas exploration,
development and production operations in the Four Corners area of Utah, Arizona
and New Mexico, in the onshore region of South Texas, in the Texas Panhandle
region, in the Magnolia region of Arkansas, in the Carlsbad region of New
Mexico, the onshore region of Southern Louisiana, and, beginning in August
1999, the Texas and Louisiana Gulf Coasts.
Harken's international operations include five exclusive Association
Contracts with the state-owned oil company in the Republic of Colombia and
Harken's contract to participate in an Exploration and Production Contract
signed with the Republic of Costa Rica.
Harken was incorporated in 1973 in the State of California and
reincorporated in 1979 in the State of Delaware. Harken's principal offices are
located at 16285 Park Ten Place, Suite 600, Houston, Texas 77084, its telephone
number is (281) 717-1300 and its fax number is (281) 717-1450.
For further information regarding the Company, its business,
operations and management, reference is hereby made to the Company's Annual
Report, Quarterly Reports and Proxy Statement, each of which is incorporated
herein by reference and made a part hereof for all purposes.
PURPOSES AND EFFECTS OF THE EXCHANGE OFFER
The principal purposes of the Exchange Offer are to reduce the
Company's debt service requirements and to lower the Company's debt-equity
ratio. As of the date of the Offering Circular, the Company's long term debt in
the form of the Notes was $85,000,000. Depending upon the amount of Notes
tendered as a result of the Exchange Offer, such long-term debt could be
reduced to approximately $43,000,000. In addition, if the Company chooses to
make both of the Elections, such long-term debt could be reduced to
approximately $15,000,000. The Exchange Offer will permit the Noteholders to
obtain an equity position in the Company upon terms more favorable than given
to them in the Notes. See "Purposes and Effects of the Exchange Offer."
THE EXCHANGE OFFER
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Terms..................................... Upon the terms and subject to the
limitations and conditions set
forth in this Offering Circular and
in the Letter of Transmittal, the
Company is offering to exchange
each $10,000 principal amount of
Notes tendered to the Company prior
to the Expiration Date and accepted
by the Company for the Exchange
Consideration, which consists of
either (i) 4,000 shares of Common
Stock or (ii) 1,000 shares of the
Preferred Stock, at the election of
the Noteholder.
Restriction on Offerees................... The Exchange Offer is being offered
only to Noteholders who are not
U.S. persons in reliance upon an
exemption from the registration
requirements of the Securities Act
pursuant to Regulation S of the
Securities Act. Consequently, the
Exchange Consideration received
pursuant to the Exchange Offer will
be subject to certain Selling
Restrictions. See "The Exchange
Offer -- Restriction on Offerees,"
"Risk Factors -- Risk Factors
Associated with the Exchange
Offer -- Selling Restrictions" and
"Selling Restrictions."
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Conditions to the Exchange Offer.......... The Company will only issue in this
exchange up to (i) 6,000,000 shares
of Common Stock and (ii) 2,700,000
shares of Preferred Stock in
connection with the Exchange Offer;
however, the Company may elect, in
its sole discretion, to (a)
increase the aggregate amount of
the Common Stock to be issued in
this exchange up to 10,000,000
shares pursuant to the Common Stock
Election and/or (b) increase the
aggregate amount of Preferred Stock
to be issued in this exchange up to
4,500,000 shares pursuant to the
Preferred Stock Election.
Therefore, the Company will only
exchange up to $42,000,000
aggregate principal amount of Notes
(or up to $70,000,000 aggregate
principal amount of Notes if the
Company makes the maximum amount of
both of the Elections). Although
the Company has no current plans
otherwise, the Company may in its
sole discretion elect to further
increase the number of Notes to be
accepted for exchange pursuant to
the Exchange Offer. See "The
Exchange Offer -- Tenders of Excess
Aggregate Principal Amount of
Notes."
The Exchange Offer is further
subject to certain other
conditions, any or all of which may
be waived by the Company. See "The
Exchange Offer -- Certain
Conditions of the Exchange Offer."
Expiration Date........................... 5:00 p.m., GMT, on December 15,
1999, unless extended by the
Company.
Selling Restrictions...................... Prior to the end of one year from
the date of the issuance of the
Exchange Consideration
("Distribution Compliance Period"),
the Preferred Stock Consideration
and the Common Stock Consideration
and Conversion Shares may be sold,
pledged or transferred only (i) to
the Company, (ii) so long as the
Exchange Consideration and the
Conversion Shares are eligible for
resale pursuant to Rule 144A, to a
person whom the seller reasonably
believes is a qualified
institutional investor within the
meaning of Rule 144A (a "QUIB")
that purchases for its own account
or for the account of a QUIB to
whom notice is given that the
resale, pledge or transfer is being
made in reliance on Rule 144A,
(iii) pursuant to offers and sales
that occur outside the United
States in a transaction meeting the
requirements of Rules 901 to 905 of
Regulation S under the Securities
Act, or (iv) 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.
Regulation S provides that if
within two years after the date of
original issuance of the Exchange
Consideration or if within three
months after an investor ceases to
be an affiliate (within the meaning
of Rule 144 under the Securities
Act) of the Company, the investor
decides to resell, pledge or
otherwise transfer the Exchange
Consideration or the Conversion
Shares, such Exchange Consideration
or Conversion Shares, as the case
may be, may be resold, pledged or
transferred only (i) to the
Company, (ii) so long as such
securities are eligible for resale
pursuant to Rule 144A, to a person
whom the seller reasonably believes
is a QUIB that purchases for its
own account or for the account of a
QUIB to whom notice is given that
the resale, pledge or transfer is
being made in reliance on Rule
144A, (iii) pursuant to offers and
sales that occur outside the United
States in a transaction meeting the
requirements of Rules 901 to 905 of
Regulation S under the Securities
Act, (iv) pursuant to an exemption
from the registration requirements
of the Securities Act provided by
Rule 144 (if applicable) under the
Securities Act or (v) 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. See
"Risk Factors -- Risk Factors
Associated with the Exchange
Offer -- Selling Restrictions" and
"Selling Restrictions." During the
time the foregoing selling
restrictions apply to the Exchange
Consideration, each holder thereof
will be deemed to have represented
and agreed to the foregoing selling
restrictions and to certain other
restrictions described in "Selling
Restrictions." Each proposed
transferee of the Common Stock
Consideration will also be required
to execute and deliver to the
transfer agent an investor letter
in the form attached to this
Offering Circular as Appendix B
acknowledging and agreeing to the
foregoing selling restrictions
during such time as such
restrictions are applicable. See
"The Exchange Offer -- Terms and
Conditions of the Letter of
Transmittal." The Company has
agreed to file at the earliest
practicable
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date and in any event not later
than ninety (90) days from the date
of issuance of the Exchange
Consideration, a registration
statement with the Commission on an
appropriate form to permit resales
of the Common Stock Consideration
and the Conversion Shares in the
U.S. markets and to use its best
efforts to maintain the
effectiveness of such registration
statement until such time as an
exemption from registration to
permit sales of the Common Stock
Consideration and Conversion Shares
in the U.S. markets without
restrictions under the Securities
Act is available. The Company has
no obligation to, and does not
intend to, file a registration
statement with respect to the
Preferred Stock Consideration.
Further, hedging transactions with
respect to the Exchange
Consideration and the Conversion
Shares may not conducted unless in
compliance with the Securities Act.
The Company may, in its discretion,
revise the selling restrictions on
the Exchange Consideration and/or
Conversion Shares if the Commission
should, subsequent to the date of
this Offering Circular, give advice
or interpretations respecting such
restrictions imposed by Regulation
S or Rule 144 or should the
Commission amend Regulation S or
Rule 144 respecting such
restrictions. If the Company so
revises the selling restrictions,
it will provide notice to the
holders of the Preferred Stock by
publication of a notice in the in
the Luxembourg Wort of Luxembourg
(a daily newspaper) and The
Financial Times (European Edition)
of London, England (any notice so
distributed, "Publication Notice").
Holders should contact their own
legal advisors before effectuating
any resales of the foregoing
securities.
Restrictions on Offerees.................. The Exchange Consideration is being
offered only to Noteholders who are
not U.S. persons in reliance upon
an exemption from the registration
requirements of the Securities Act
pursuant to Regulation S under the
Act.
Treatment for Interim Interest Accruing
for Exchanged Notes....................... Noteholders whose Notes are
accepted in exchange for the Common
Stock Consideration will receive a
cash payment equal to the accrued
and unpaid interest, if any, on
such Notes accumulating after
November 25, 1999 to, but
excluding, the date of issuance of
such Common Stock Consideration,
payable as soon as practicable
after the Expiration Date to the
holders of such Notes.
The Preferred Stock Consideration
issued in exchange for Notes will
begin to accrue dividends
commencing on November 26, 1999,
the interest payment date on the
Notes.
Common Stock.............................. The Common stock is traded on the
Amex under the symbol "HEC." On
November 19, 1999, the last
reported sales price of the Common
Stock on the Amex was $1.06.
Preferred Stock........................... Until and including March 31, 2004,
each share of Preferred Stock will
accrue a $0.50 annual dividend
(equivalent to 5% annually or $500
per $10,000 of Preferred Stock),
commencing November 26, 1999,
payable semi-annually on May 26 and
November 26 of each year, when, as
and if declared by the Board of
Directors. Thereafter, each share
of Preferred Stock will accrue a
$0.75 annual dividend (equivalent
to 7.5% annually or $750 per
$10,000 of Preferred Stock) payable
semi-annually in arrears, when, as
and if declared by the Board of
Directors. Dividends shall be paid
without reduction for any
withholding tax. The Company may
elect to pay dividends on account
of arrears for any unpaid dividends
for any past dividend period at any
time.
Dividends on the Preferred Stock
will be payable in cash or, at the
option of the Company, in shares of
Common Stock valued at 95% of the
average of the Market Prices
thereof for the twenty-five (25)
Stock Exchange Business Days prior
to the dividend payment date;
provided, however, that the Company
may elect to pay such dividends in
shares of Common Stock only if such
shares would be Freely Tradeable
(as defined in the Certificate of
Designation) in the United States
upon their issuance. "Market Price"
is defined as the closing price of
the Common Stock on the Amex or any
Alternative Stock Exchange on any
Stock Exchange Business Day.
"Alternative Stock Exchange" means
any other national or regional
stock exchange or quotation
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service such as the Nasdaq National
Market System or any similar
quotation service maintained by the
National Quotation Bureau or any
successor thereto. "Stock Exchange
Business Day" is defined as 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.
The amount of accrued and unpaid
dividends (whether or not earned or
declared) accrued by the Preferred
Stock will be payable upon any
mandatory conversion or optional
redemption by the Company upon such
conversion or redemption; provided,
however, upon any conversion of the
Preferred Stock by the holder of
such Preferred Stock accrued
and unpaid dividends will only be
payable through the end of the full
dividend payment period ending
prior to the date of conversion.
The Preferred Stock will have a
liquidation value of $10.00 per
share and will not be subject to
any sinking fund or mandatory
redemption requirements. The
Preferred Stock will be convertible
at any time prior to redemption, at
the option of the holder thereof,
into shares of Common Stock at an
initial conversion rate (the
"Preferred Conversion Price") of
$3.00 per share (or a conversion
ratio of approximately 3.333 shares
of Common Stock to 1 share of
Preferred Stock or approximately
3,333 shares of Common Stock per
$10,000 of Preferred Stock). In the
event any exchange of Notes for
Preferred Stock pursuant to the
Exchange Offer would result in the
issuance of a fractional share of
Preferred Stock, the number of
shares to be issued will be rounded
to the nearest whole number. In the
event that the Company has not
filed a registration statement with
the Commission to permit resales of
the Conversion Shares and such
registration statement has not been
declared effective within six
months from the date of the
issuance of the Preferred Stock
Consideration, or there is not an
applicable exemption from
registration then in effect for the
Conversion Shares, the Preferred
Conversion Price will be reduced by
5% and by a further 5% for each
subsequent whole six month period
that the registration statement is
not declared effective or an
applicable exemption does not
exist. See " -- Comparison of the
Notes and Preferred Stock" and
Appendix A. The Preferred
Conversion Price is subject to
adjustment in certain
circumstances. See Appendix A.
Mandatory Conversion...................... The Company may, at its option, at
a time when the Conversion Shares
are Freely Tradeable (as defined in
the Certificate of Designation)
cause all the Preferred Stock to be
converted into shares of Common
Stock at the Preferred Conversion
Price at any time and from time to
time after December 1, 2000, by
giving thirty days Publication
Notice within thirty (30) trading
days of having met the criteria
described below, if the average of
the Market Prices of the Common
Stock over the Stock Exchange
Business Days in any twenty (20)
consecutive trading day period
ending not more than five days
prior to the giving of such
Publication Notice by the Company,
has equaled or exceeded $3.75. Upon
any mandatory conversion of any
Preferred Stock by the Company,
payment will be made by the Company
in either cash or shares of Common
Stock for accrued and unpaid
dividends; provided, however, that
such payment may be made in shares
of Common Stock only if such shares
would be Freely Tradeable in the
United States upon their issuance.
Optional Redemption....................... All of the Preferred Stock may be
redeemed at the Company's option at
any time, for $10.00 per share plus
accrued and unpaid dividends (the
"Redemption Value"), upon not less
than thirty (30) calendar days
Publication Notice to the holders
of the Preferred Stock. During the
notice period, holders of the
Preferred Stock retain the ability
to convert the Preferred Stock
Consideration into Conversion
Shares. Commencing June 1, 2004,
Harken may further elect, in any
six month period, to redeem up to
50% of the outstanding Preferred
Stock for Common Stock (valued at
the average Market Price during the
twenty (20) consecutive Stock
Exchange Business Days ending not
more than five days prior to the
giving of the Publication Notice
described above) (i) at 115% of the
Redemption Value if the aggregate
Market Price of all of the
outstanding shares of Common Stock
on the date notice of redemption is
provided is $300 million
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or more; or (ii) at 120% of the
Redemption Value if the aggregate
Market Price of all of the
outstanding shares of Common Stock
on the date notice of redemption is
provided is less than $300 million.
Form ................................... The Preferred Stock Consideration
will be represented initially by
single, temporary global Preferred
Stock certificate (the "Temporary
Global Certificate") in fully
registered form and will be
deposited with or on behalf of The
Depository Trust Company as
depository ("DTC") and registered
in the name of DTC or its nominee.
On or shortly after the closing
date of the Exchange Offer (the
"Closing Date"), the DTC accounts
for Euroclear and Cedelbank will be
credited with the appropriate
amounts of Preferred Stock as
requested by the Agent Member
Banks, and the interests in the
Preferred Stock so credited will be
held by Euroclear and Cedelbank on
behalf of such Agent Member Banks.
On or after the first anniversary
of the Closing Date, upon
certification as to non-U.S. person
or QUIB beneficial ownership, the
Company will deposit a single,
permanent global Preferred Stock
certificate (the "Global
Certificate") in fully registered
form with or on behalf of DTC and
registered in the name of DTC or
its nominee to replace the
Temporary Global Certificate. The
Temporary Global Certificate will
then be cancelled. Except as
described herein, Preferred Stock
certificates will not be issued in
exchange for beneficial interests
in such Global Certificates. See
"Global Preferred Stock
Certificates; Book Entry."
Identification Numbers.................... The CUSIP Number for the Preferred
Stock is 412552-20-0, the ISIN
number for the Preferred Stock is
US4125522007, and the Swiss
Securities Number for the Preferred
Stock is 1020294.
The CUSIP Number for the Common
Stock is 412552-10-1,and the Swiss
Securities Number for the Common
Stock is 937712.
Expiration Date; Withdrawals.............. The Company will accept for
exchange Notes validly tendered and
not withdrawn prior to 5:00 p.m.,
GMT, on December 15, 1999, or if
the Exchange Offer is extended by
the Company, in its sole
discretion, the latest date and
time to which extended. The
Exchange Offer will expire on the
Expiration Date. Tenders may be
withdrawn at any time prior to the
Expiration Date. Thereafter, such
tenders are irrevocable, except
that they may be withdrawn after
the expiration of 40 business days
from the commencement of the
Exchange Offer, unless accepted for
exchange prior to that date. See
"The Exchange Offer -- Withdrawal
Rights."
Extensions, Amendments and
Terminations.............................. The Company expressly reserves the
right to: (i) extend, amend,
increase or modify the terms of the
Exchange Offer or any portion
thereof in any manner and (ii)
withdraw or terminate the Exchange
Offer and not accept for exchange
any Notes, at any time for any
reason. See "The Exchange Offer --
Expiration Date; Extensions;
Amendments; Termination."
How to Tender............................. Since all of the Notes are
currently held in permanent global
form and accepted for clearance
through Euroclear and Cedelbank,
tendering beneficial owner(s) of
Notes must request their Agent
Member Bank to effectuate the
transaction for them. In addition,
their Agent Member Bank must
complete and sign the Letter of
Transmittal or a facsimile thereof
on behalf of each beneficial
owner(s) of Notes in accordance
with the instructions in the Letter
of Transmittal and any other
required documents. Questions
regarding how to tender and
requests for information should be
directed to the Solicitation Agent.
See "Exchange Offer -- How to
Tender."
Acceptance of Tenders.................... Subject to the terms and conditions
of the Exchange Offer, Notes
validly tendered will be accepted
on or promptly after the Expiration
Date. Subject to such terms and
conditions, certificates for the
Common Stock Consideration to be
issued in exchange for properly
tendered Notes will be mailed by
the Exchange Agent promptly after
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acceptance of the tendered Notes.
See "The Exchange Offer --
Acceptance of Tenders."
Certain U.S. Federal Income
Tax Considerations........................ Non-U.S. Noteholders are urged to
contact their tax advisers with
respect to the tax implications of
any exchange of Notes for the
Exchange Consideration and the
ownership of Preferred Stock and
Common Stock. See "Certain U.S.
Federal Income Tax Considerations."
Listing Considerations.................... The Company shall, if so requested
by the Solicitation Agent, use its
best efforts to list the Preferred
Stock on the Bermuda Stock Exchange
or, at the Company's election,
another non-U.S. stock exchange
which is reasonably acceptable to
the Solicitation Agent and the
Company. However, no assurance can
be given that such listing
application will be accepted. See
"Risk Factors." The Common Stock
Consideration and the Conversion
Shares will be listed on the Amex.
Un-tendered Notes......................... Noteholders who do not tender their
Notes in the Exchange Offer or
whose Notes are not accepted for
exchange will continue to hold such
Notes and will be entitled to all
the rights and preferences, and
will be subject to all of the
limitations applicable thereto. The
remaining Noteholders may be
subject to the risk of the possible
delisting of the Notes from the
Luxembourg Stock Exchange, should
subsequent events occur, including
possible market repurchases by the
Company, that cause the total
aggregate outstanding principal
amount of the Notes to fall below
approximately $250,000. See "Risk
Factors."
Solicitation Agent........................ RP&C International, Inc. is serving
as Solicitation Agent in connection
with the Exchange Offer. Requests
for additional copies of this
Offering Circular, Letter of
Transmittal or other information
concerning the Company should be
directed to the Solicitation Agent
at its address and telephone number
set forth on the back of this
Offering Circular. See "The
Exchange Offer -- Solicitation of
Tenders; Expenses."
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COMPARISON OF THE NOTES AND THE PREFERRED STOCK
The following is a brief summary comparison of certain of the principal
terms of the Notes and the Preferred Stock. Noteholders are encouraged to
review in detail the terms of the Preferred Stock, as set forth in the
Certificate of Designation attached hereto as Appendix A, the description of
the Common Stock set forth under the heading "Description of Capital Stock --
Common Stock" and the terms of the Trust Indenture and Notes for a more
complete description of each security.
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NOTES PREFERRED STOCK
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Interest/Dividend Rate ................... 5% annual interest (equivalent to Until and including March 31, 2004,
$500 annually per $10,000 principal each share of Preferred Stock will
amount of Notes) payable accrue a $0.50 annual dividend
semi-annually in arrears on May 26 (equivalent to 5% annually or $500
and November 26 of each year, per $10,000 of Preferred Stock),
commencing November 26, 1998. commencing November 26, 1999,
payable semi-annually on May 26 and
November 26 of each year, when, as
and if declared by the Board of
Directors. Thereafter, each share
of Preferred Stock will accrue a
$0.75 annual dividend (equivalent
to 7.5% annually or $750 per
$10,000 of Preferred Stock) payable
semi-annually in arrears, when, as
and if declared by the Board of
Directors. Dividends shall be paid
without reduction for any
withholding tax. The Company may
elect to pay dividends on account
of arrears for any unpaid dividends
for any past dividend period at any
time.
Dividends on the Preferred Stock
will be payable in cash or, at the
option of the Company, in shares of
Common Stock valued at 95% of the
average of the Market Prices
thereof for the twenty-five (25)
Stock Exchange Business Days prior
to the dividend payment date;
provided, however, that the Company
may elect to pay such dividends in
shares of Common Stock only if such
shares would be Freely Tradeable in
the United States upon their
issuance.
The amount of accrued and unpaid
dividends (whether or not earned or
declared) accrued by the Preferred
Stock will be payable upon any
mandatory conversion or optional
redemption by the Company upon such
conversion or redemption; provided,
however, upon any conversion of the
Preferred Stock by the holder of
such Preferred Stock accrued and
unpaid dividends will only be
payable through the end of the full
dividend payment period ending
prior to the date of conversion.
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Maturity.................................. May 26, 2003. The Preferred Stock will not be
subject to any sinking fund or
mandatory redemption requirements.
However, on March 31, 2004, the
dividends declared and paid on the
Preferred Stock increase to 7.5%
per annum.
Restrictions on Payment
of Interest/Dividends..................... None. Under the Delaware General
Corporation Law (the "DGCL"), the
Company may only pay dividends out
of surplus, as defined therein, or,
if no surplus is available, out of
its net profits for the fiscal year
in which the dividend or
distribution is declared and the
preceding fiscal year, and neither
dividends nor distributions may be
declared or paid if the Company is
or would be rendered insolvent by
virtue of the dividend
distribution.
Conversion................................ Convertible at the option of the Convertible at any time prior to
Noteholder at any time prior to redemption, at the option of the
maturity, unless previously holder thereof, into shares of
redeemed, into Common Stock at the Common Stock at an initial
Note Conversion Price of $6.50 Preferred Conversion Price of $3.00
(equivalent to approximately 1,538 per share (equivalent to a
shares of Common Stock per $10,000 conversion ratio of approximately
principal amount of Notes). 3.333 shares of Common Stock to 1
share of Preferred Stock or
approximately 3,333 shares of
Common Stock per $10,000 of
Preferred Stock). Such a conversion
would not be taxable for U.S.
Federal income tax purposes.
In the event that the Company has
not filed a registration statement
with the Commission to permit
resales of the Conversion Shares
and such registration statement has
not been declared effective within
six months from the date of the
issuance of the Preferred Stock
Consideration, or there is not an
applicable exemption from
registration then in effect for the
Conversion Shares, the Preferred
Conversion Price will be reduced by
5% and by a further 5% for each
subsequent whole six month period
that the registration statement is
not declared effective or an
applicable exemption does not
exist.
Conversion Price Reset.................... The Note Conversion Price is The Preferred Conversion Price is
subject to adjustment upon the subject to adjustment upon the
occurrence of certain events. occurrence of certain events.
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Mandatory Conversion...................... The Notes may be converted in The Company may, at its option, at
whole, at the Company's option, if a time when the Conversion Shares
at any time the average of the are Freely Tradeable (as defined in
Market Price of the Common Stock the Certificate of Designation)
over the Stock Exchange Business cause all the Preferred Stock to be
Days (as defined in the Trust converted into shares of Common
Indenture with respect to the Stock at the Preferred Conversion
Notes) in any 30 consecutive Price at any time and from time to
calendar day period, the first day time after December 1, 2000, by
of which falls on or after May 26, giving thirty days Publication
1998, and the last day of which Notice within thirty (30) trading
falls on or after the Effective days of having met the criteria
Date, equals or exceeds 125% of the described below, if the average of
Conversion Price. "Market Price" the Market Prices of the Common
means the daily closing sale price Stock over the Stock Exchange
of the Common Stock for a Stock Business Days in any twenty (20)
Exchange Business Day. The consecutive trading day period
"Effective Date" means (i) the ending not more than five days
effective date of a registration prior to the giving of such
statement filed by the Company with Publication Notice by the Company,
the Commission with respect to the has equaled or exceeded $3.75. Upon
shares underlying the Notes (the any mandatory conversion of any
"Note Shares") and (ii) the date Preferred Stock by the Company,
such Note Shares may be sold payment will be made by the Company
pursuant to the exemption from in either cash or shares of Common
registration under the Securities Stock for accrued and unpaid
Act pursuant to Rule 144 dividends; provided, however, that
promulgated by the Commission under such payment may be made in shares
the Securities Act, or other of Common Stock only if such shares
exemption from registration under would be Freely Tradeable in the
such Act. United States upon their issuance.
Optional Redemption....................... The Notes may be redeemed for cash All of the Preferred Stock may be
at the Company's option, upon not redeemed at the Company's option at
less than 30 calendar days notice any time, at the Redemption Value,
to the Noteholders in whole or in upon not less than thirty (30)
part, at any time on or after May calendar days Publication Notice to
26, 2002. Commencing November 26, the holders of the Preferred Stock.
2002, Harken may redeem up to 50% During the notice period, holders
of the Notes for Note Shares and, of the Preferred Stock retain the
on May 26, 2003, the maturity date, ability to convert the Preferred
Harken may redeem all remaining Stock Consideration into Conversion
Notes for Note Shares. If Harken Shares. Commencing June 1, 2004,
elects to redeem the Notes for Note Harken may further elect, in any
Shares, each Note will be redeemed six month period, to redeem up to
for the number of Note Shares of 50% of the outstanding Preferred
Common Stock equal to 110% of the Stock for Common Stock (valued at
sum of the face value of the Note the average Market Price during the
divided by the average of the twenty (20) consecutive Stock
Market Price of the Common Stock Exchange Business Days ending not
over the 30 calender day period more than five days prior to the
immediately preceding the date of giving of the Publication Notice
notice of such redemption; described above) (i) at 115% of the
provided, however, that if the Redemption Value if the aggregate
average of the aggregate Market Market Price of all of the
Price of all of the outstanding outstanding shares of Common Stock
shares of Common Stock over such 30 on the date notice of redemption is
calendar day period is less than provided is $300 million or more;
$500 million, each Note will be or (ii) at 120% of the Redemption
redeemed for the number of shares Value if the aggregate Market Price
of Common Stock equal to 115% of of all of the outstanding shares of
the sum of the face value of the Common Stock on the date notice of
Note divided by the average of the redemption is provided is less than
Market Price of the Common Stock $300 million.
over the 30 calender day period
immediately preceding the date of
notice of such redemption.
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Ranking................................... The Notes are senior unsecured The Preferred Stock will be
obligations of the Company and will subordinate to claims of creditors,
rank pari passu with all present including holders of the Company's
and future Indebtedness (as defined outstanding debt securities
in the Trust Indenture with respect (including the Notes), but senior
to the Notes) of the Company, to claims of the holders of the
except that (i) the Company and/or Company's Common Stock. The
its Principal Subsidiaries (as Preferred Stock will also be
defined in the Trust Indenture with effectively subordinated to all
respect to the Notes) may become claims of creditors of the
liable with respect to secured Company's subsidiaries. There will
Indebtedness incurred in connection be no restriction on the Company's
with purchase money obligations in ability to issue additional shares
respect of any property or assets of Preferred Stock (including
or to pay all or a portion of the Preferred Stock with the same
purchase price of property acquired designations and preferences as the
by the Company, or the Company may Preferred Stock) so long as such
become liable with respect to additional preferred stock ranks
Indebtedness that is secured by junior or pari passu to this series
existing assets of the Company, of Preferred Stock.
provided that such Indebtedness and
the security extend only to the
property so encumbered or the asset
so acquired and (ii) in addition to
any indebtedness incurred pursuant
to (i), the Company may further
incur additional indebtedness,
whether secured or unsecured, up to
the amount of $42,500,000 that may
be made senior in payment to the
Notes. The Notes also rank senior
to all existing and future
Subordinated Obligations (as
defined in the Trust Indenture with
respect to the Notes). The Notes
are not secured by any assets or
other properties of the Company.
Form...................................... The Notes are represented by a The Preferred Stock Consideration
global note (the "Global Note"), will be represented initially by
without interest coupons, which has the Temporary Global Certificate in
been deposited with a common fully registered form and will be
depository on or about May 26, deposited with or on behalf of DTC
1999, and held on behalf of and registered in the name of DTC
Euroclear and Cedelbank for credit or its nominee. On or shortly after
to the accounts designated by the the Closing Date, the DTC accounts
Noteholders at Euroclear and for Euroclear and Cedelbank will be
Cedelbank. credited with the appropriate
amounts of Preferred Stock as
requested by the Agent Member
Banks, and the interests in the
Preferred Stock so credited will be
held by Euroclear and Cedelbank on
behalf of such Agent Member Banks.
On or after the first anniversary
of the Closing Date, upon
certification as to non-U.S. person
or QUIB beneficial ownership, the
Company will deposit the Global
Certificate in fully registered
form with or on behalf of DTC and
registered in the name of DTC or
its nominee to replace the
Temporary Global Certificate. The
Temporary Global Certificate will
then be cancelled. Except as
described herein, Preferred Stock
certificates will not be issued in
exchange for beneficial interests
in such Global
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Certificates. See "Global Preferred
Stock Certificates; Book Entry."
Voting Rights............................. None. Non-voting, except as otherwise required
by law.
Listing................................... Luxembourg Stock Exchange. The Company shall, if so requested
by the Solicitation Agent, use its
best efforts to list the Preferred
Stock on the Bermuda Stock Exchange
or, at the Company's election,
another non-U.S. stock exchange
which is reasonably acceptable to
the Solicitation Agent and the
Company. However, no assurance can
be given that such listing
application will be accepted. See
"Risk Factors." The Common Stock
Consideration and the Conversion
Shares will be listed on the Amex.
Selling Restrictions...................... The Notes were issued pursuant to Prior to the end of one year from
Regulation S under the Securities the date of the issuance of the
Act. As a result, within two years Exchange Consideration
after the date of original issuance ("Distribution Compliance Period"),
of the Notes or within three months the Preferred Stock Consideration
after the Noteholder ceases to be and the Common Stock Consideration
an affiliate (within the meaning of and Conversion Shares may be sold,
Rule 144 under the Securities Act) pledged or transferred only (i) to
of the Company, the Notes may be the Company, (ii) so long as the
resold, pledged or transferred only Exchange Consideration and the
(i) to the Company, (ii) so long as Conversion Shares are eligible for
such securities are eligible for resale pursuant to Rule 144A, to a
resale pursuant to Rule 144A, to a person whom the seller reasonably
person whom the seller reasonably believes is a qualified
believes is a QUIB that purchases institutional investor within the
for its own account or for the meaning of Rule 144A (a "QUIB")
account of a QUIB to whom notice is that purchases for its own account
given that the resale, pledge or or for the account of a QUIB to
transfer is being made in reliance whom notice is given that the
on Rule 144A, (iii) pursuant to resale, pledge or transfer is being
offers and sales that occur outside made in reliance on Rule 144A,
the United States in a transaction (iii) pursuant to offers and sales
meeting the requirements of Rule that occur outside the United
904 of Regulation S under the States in a transaction meeting the
Securities Act, (iv) pursuant to an requirements of Rules 901 to 905 of
exemption from the registration Regulation S under the Securities
requirements of the Securities Act Act, or (iv) pursuant to an
provided by Rule 144 (if effective registration statement
applicable) under the Securities under the Securities Act, in each
Act, or (v) pursuant to an case in accordance with any
effective registration statement applicable securities laws of any
under the Securities Act, in each state of the United States.
case in accordance with any Regulation S provides that if
applicable securities laws of any within two years after the date of
state of the United States. The original issuance of the Exchange
Company has no obligation to, and Consideration or if within three
does not intend to, file a months after an investor ceases to
registration statement with the be an affiliate (within the meaning
Commission with respect to the of Rule 144 under the Securities
Notes. Act) of the Company, the investor
decides to resell, pledge or
otherwise transfer the Exchange
Consideration or the Conversion
Shares, such Exchange Consideration
or Conversion Shares, as the case
may be, may be resold, pledged or
transferred only (i) to the
Company, (ii) so long as such
securities are eligible for resale
pursuant to Rule 144A, to a person
whom the seller reasonably believes
is a QUIB that
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purchases for its own account or
for the account of a QUIB to whom
notice is given that the resale,
pledge or transfer is being made in
reliance on Rule 144A, (iii)
pursuant to offers and sales that
occur outside the United States in
a transaction meeting the
requirements of Rules 901 to 905 of
Regulation S under the Securities
Act, (iv) pursuant to an exemption
from the registration requirements
of the Securities Act provided by
Rule 144 (if applicable) under the
Securities Act or (v) 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. See
"Risk Factors -- Risk Factors
Associated with the Exchange Offer
-- Selling Restrictions" and
"Selling Restrictions." During the
time the foregoing selling
restrictions apply to the Exchange
Consideration, each holder thereof
will be deemed to have represented
and agreed to the foregoing selling
restrictions and to certain other
restrictions described in "Selling
Restrictions." Each proposed
transferee of the Common Stock
Consideration will also be required
to execute and deliver to the
transfer agent an investor letter
in the form attached to this
Offering Circular as Appendix B
acknowledging and agreeing to the
foregoing selling restrictions
during such time as such
restrictions are applicable. See
"The Exchange Offer -- Terms and
Conditions of the Letter of
Transmittal." The Company has
agreed to file at the earliest
practicable date and in any event
not later than ninety (90) days
from the date of issuance of the
Exchange Consideration, a
registration statement with the
Commission on an appropriate form
to permit resales of the Common
Stock Consideration and the
Conversion Shares in the U.S.
markets and to use its best efforts
to maintain the effectiveness of
such registration statement until
such time as an exemption from
registration to permit sales of the
Common Stock Consideration and
Conversion Shares in the U.S.
markets without restrictions under
the Securities Act is available.
The Company has no obligation to,
and does not intend to, file a
registration statement with respect
to the Preferred Stock
Consideration. Further, hedging
transactions with respect to the
Exchange Consideration and the
Conversion Shares may not conducted
unless in compliance with the
Securities Act. The Company may, in
its discretion, revise the selling
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restrictions on the Exchange
Consideration and/or Conversion
Shares if the Commission should,
subsequent to the date of this
Offering Circular, give advice or
interpretations respecting such
restrictions imposed by Regulation
S or Rule 144 or should the
Commission amend Regulation S or
Rule 144 respecting such
restrictions. If the Company so
revises the selling restrictions,
it will provide notice to the
holders of the Preferred Stock by
Publication Notice. Holders should
contact their own legal advisors
before effectuating any resales of
the foregoing securities.
Registration of Underlying
Securities................................ The shares of Common Stock The Company has agreed to file at
underlying the Notes have been the earliest practicable date and
registered under the Securities in any event not later than ninety
Act, pursuant to an effective (90) days from the first date of
registration statement dated June issuance of the Exchange
26, 1999. Consideration, a registration
statement with the Commission on an
appropriate form to permit resales
of the Conversion Shares in the
U.S. markets and to use its best
efforts to maintain the
effectiveness of such registration
statement until such time as an
exemption from registration to
permit sales of the Conversion
Shares in the U.S. markets without
restrictions under the Securities
Act is available.
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RISK FACTORS
In evaluating the Exchange Offer, Noteholders should carefully
consider, in addition to the other information set forth elsewhere in this
Offering Circular and the documents incorporated by reference herein, the
following investment considerations:
RISK FACTORS ASSOCIATED WITH THE EXCHANGE OFFER
Selling Restrictions. The Exchange Consideration is being offered
pursuant to Regulations S. Regulations S imposes additional restrictions on the
resale of the Exchange Consideration and the Conversion Shares that
significantly effect the ability of a holder of the Exchange Consideration to
resell the Exchange Consideration and the Conversion Shares in the U.S.
markets, if such Conversion Shares are not registered with the Commission after
the issuance of the Exchange Consideration as contemplated herein.
The dates on which the Exchange Consideration and the Conversion
Shares may be subject to the foregoing restrictions on resale may include dates
on which the Company (a) makes public announcements, including announcements
relating to its exploration activities, and (b) issues or announces its
intention to issue its securities.
During the one year Distribution Compliance Period, the Preferred
Stock Consideration, and the Common Stock Consideration and the Conversion
Shares, may be sold, pledged or transferred only (i) to the Company, (ii) so
long as the Exchange Consideration and Conversion Shares are eligible for
resale pursuant to Rule 144A, to a person whom the seller reasonably believes
is a QUIB that purchases for its own account or for the account of a QUIB to
whom notice is given that the resale, pledge or transfer is being made in
reliance on Rule 144A, (iii) pursuant to offers and sales that occur outside
the United States in a transaction meeting the requirements of Rules 901 to 905
of Regulation S under the Securities Act, or (iv) 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.
Regulation S provides that if within two years after the date of
original issuance of the Exchange Consideration or if within three months after
an investor ceases to be an affiliate (within the meaning of Rule 144 under the
Securities Act) of the Company, the investor decides to resell, pledge or
otherwise transfer the Exchange Consideration or the Conversion Shares, such
Exchange Consideration or Conversion Shares, as the case may be, may be resold,
pledged or transferred only (i) to the Company, (ii) so long as such securities
are eligible for resale pursuant to Rule 144A, to a person whom the seller
reasonably believes is a QUIB that purchases for its own account or for the
account of a QUIB to whom notice is given that the resale, pledge or transfer
is being made in reliance on Rule 144A, (iii) pursuant to offers and sales that
occur outside the United States in a transaction meeting the requirements of
Rules 901 to 905 of Regulation S under the Securities Act, (iv) pursuant to an
exemption from the registration requirements of the Securities Act provided by
Rule 144 (if applicable) under the Securities Act or (v) 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.
Although the Company has agreed to file a registration statement with
the Commission with respect to the Common Stock Consideration and the
Conversion Shares, it has no obligation to, nor does it intend to, file a
registration statement with respect to the Preferred Stock Consideration.
Further, hedging transactions with respect to the Exchange Consideration and
the Conversion Shares may not conducted unless in compliance with the
Securities Act. The Company may, in its discretion, revise the selling
restrictions on the Exchange Consideration and/or the Conversion Shares if the
Commission should, subsequent to the date of this Offering Circular, give
advice or interpretations respecting such restrictions imposed by Regulation S
or Rule 144 or should the Commission amend Regulation S or Rule 144 respecting
such restrictions. See "Selling Restrictions."
Luxembourg Stock Exchange Maintenance Requirements; Possible Delisting
of the Notes from the Luxembourg Stock Exchange. After the consummation of the
Exchange Offer, the remaining Noteholders will be subject to the risk of the
possible delisting of the Notes from the Luxembourg Stock Exchange should
subsequent events occur, including possible market repurchases by the Company,
that cause the total aggregate outstanding principal amount of the Notes to
fall below approximately $250,000.
Other Consequences for Noteholders. To the extent that Notes are
tendered and accepted in the Exchange Offer, the trading market for un-tendered
Notes may become more limited. A debt security with a smaller outstanding
principal amount available for trading may command a lower price than would a
comparable debt security with a greater float. The reduced float may also tend
to make the trading price more volatile.
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<PAGE> 20
RISK FACTORS ASSOCIATED WITH THE PREFERRED STOCK
Ranking of the Preferred Stock. The Preferred Stock will be junior in
right of payment to all existing and future liabilities and obligations
(whether or not for borrowed money) of the Company (other than the Common Stock
and any preferred stock which by its terms is pari passu or junior to the
Preferred Stock), including the Notes. Accordingly, in the event of a
liquidation, dissolution or winding up of the Company, lenders to and other
creditors of the Company and its subsidiaries would be entitled to payment in
full before the holders of Preferred Stock.
Additional Indebtedness. Additional indebtedness may be incurred by
the Company and its subsidiaries from time to time subject to certain
restrictions contained in the Indenture pursuant to which the Notes were
issued. In the event of bankruptcy, liquidation or reorganization of the
Company, the assets of the Company will be available to pay obligations on the
Preferred Stock only after all indebtedness has been paid in full, and there
may not be sufficient assets remaining to pay amounts due on any or all of the
Preferred Stock then outstanding.
Absence of Public Market for the Preferred Stock; No Assurance of
Listing. There is no existing market for the Preferred Stock and, although the
Company will, if so requested by the Solicitation Agent, use its best efforts
to list the Preferred Stock on the Bermuda Stock Exchange or, at the Company's
election, another non-U.S. stock exchange which is reasonably acceptable to the
Solicitation Agent and the Company , no assurance can be given that such
listing application will be accepted. The Company will notify the Preferred
Stock stockholders when the Preferred Stock is listed on a stock exchange. In
addition, even if listed, there can be no assurance as to the liquidity of any
markets that may develop for the Preferred Stock, the ability of holders of the
Preferred Stock to sell their Preferred Stock or the price at which holders
would be able to sell their Preferred Stock. Future trading prices of the
Preferred Stock will depend on many factors, including, among other things,
prevailing dividend rates, the Company's operating results and the market for
similar securities.
Dividends on the Preferred Stock. Pursuant to the DGCL, dividends on
the Preferred Stock are payable only when, as and if declared by the Board of
Directors of the Company. The Board of Directors cannot be placed under an
ongoing obligation to declare dividends on the Preferred Stock. In addition,
under the DGCL, the Company may only pay dividends out of surplus, as defined
therein, or, if no surplus is available, out of its net profits for the fiscal
year in which the dividend or distribution is declared and the preceding fiscal
year, and neither dividends nor distributions may be declared or paid if the
Company is or would be rendered insolvent by virtue of the dividend
distribution.
RISK FACTORS WITH RESPECT TO HARKEN AND THE COMMON STOCK
Fluctuations in Trading Price of Common Stock. Harken believes that
the price of the Common Stock may fluctuate significantly based upon the
success or failure of each well that Harken drills in Colombia and Costa Rica.
Based in part on the results of such drilling activity and on the significant
decline in the market price of crude oil, the market price of Harken's Common
Stock declined significantly in 1999. During this period, Harken's Common Stock
ranged from a high of $3.06 per share to a low of $1.00 per share.
History of Losses. Harken has reported losses in each of the last five
years, including a loss of $55.8 million for the year ended 1998. Harken has
reported cumulative losses of $66.5 million over the last five years. Harken
has also reported a loss of $6.1 million for the nine months ended September
30, 1999. Harken's ability to generate net income is strongly affected by the
market price of crude oil and natural gas. If the market price of crude oil and
natural gas remains low or declines, Harken may report additional losses in the
future.
Status of Compliance with the Terms of Colombian Association
Contracts. Terms of each of the Association Contracts commit Harken to perform
certain activities in accordance with a prescribed timetable. As of November
19, 1999, Harken was in compliance with the requirements of each of the
Association Contracts, as amended. The Cambulos Association Contract required
Harken to have drilled two wells to a depth sufficient to test productive
formations for oil and/or gas by May 16, 1999. During May 1999, Harken received
approval from Ecopetrol to allow for the additional well depth drilled during
the Islero #1 well to substitute for the obligation to drill a second
exploratory well within the third contract year. During September 1999,
Ecopetrol conditionally granted a six month extension until May 16, 2000 to
Harken for the exploratory well required in the fourth year of the Cambulos
Contract. Harken anticipates relinquishing in the future a portion of its
Cambulos acreage to meet the conditions required by Ecopetrol in granting
Harken an extension.
In exchange for the obligation to drill the fifth year exploratory
well for the Alcaravan Contract, Harken has proposed to relinquish certain
contract acreage. During July 1999, Harken submitted to Ecopetrol a proposal
setting out the specific acreage for this relinquishment. Harken's submitted
relinquishment proposals specifically include plans to retain those structure
areas associated
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with Palo Blanco and Anteojos discoveries. During September 1999, Ecopetrol
granted a six month extension until March 31, 2000 to Harken for drilling of
the exploratory well required in the sixth year of the Alcaravan Contract.
Harken was required to drill the fifth year exploratory well for the
Bocachico Association Contract by March of 1999. Harken is currently in
negotiations with Ecopetrol regarding the Bocachico work obligations as well as
the future development of the Rio Negro field. Ecopetrol has advised Harken
that during these negotiations, Ecopetrol will consider the contract to be in
full compliance.
Inability to Obtain Additional Financing. Harken anticipates that full
development of its existing and future oil and gas discoveries in Colombia and
Costa Rica will take several years and may require extensive production and
transportation facilities requiring significant additional capital
expenditures. If Harken is unable to timely obtain adequate funds to finance
these investments, it could limit or substantially delay Harken's ability to
develop its oil and gas reserves. In such a case, Harken's business and results
of operations could suffer.
Harken cannot predict the ultimate amount of expenditures for its
international operations. Harken anticipates that amounts required to fund its
international activities, will be funded from its existing cash balances, asset
sales, stock issuances, production payments, operating cash flows and
potentially from industry partners. Harken can provide no assurance that it
will have adequate funds available to it to fund its international activities.
Issuance of Additional Shares of Common Stock. Harken may be required
to issue up to approximately 28 million shares of Common Stock as a result of
its outstanding warrants, stock options, and convertible notes, including the
Notes for which this Exchange Offer is being made. Harken may also be required
to issue an additional number of shares of the Common Stock pursuant to
Development Finance Agreements with institutional investors. If Harken issues
additional shares, it could result in significant dilution in a stockholder's
ownership position in Harken. In addition, the issuance of a significant number
of additional shares of Common Stock could have an adverse effect on the market
price of the Common Stock.
In addition, sales of substantial amounts of Common Stock on the
public market during and after the Exchange Offer could adversely affect the
market price of the Common Stock. There are currently several registration
statements with respect to the Common Stock that are effective, pursuant to
which certain selling stockholders of the Company may sell up to an aggregate
of 14,778,718 shares of Common Stock. If the selling stockholders named in such
registration statements sell all of the shares of Common Stock registered
pursuant to such registration statements, such sales could cause an adverse
effect on the market price of the Common Stock.
Development Finance Agreements. Harken has entered into and has
continuing obligations under two separate Development Finance Agreements with
institutional investors. These Development Finance Agreements may require
Harken to issue an additional number of shares, which could result in
significant dilution in a stockholder's ownership position in Harken and may
adversely affect the market price of Harken Common Stock.
In April and May, 1999, certain institutional investors converted
their net profits interest into approximately 8.9 million shares of Harken
Common Stock. The issuance of these shares will dilute a stockholder's
ownership position in Harken and may adversely affect the market price of
Harken Common Stock. For additional details regarding the Development Finance
Agreements see the Annual Report, which is incorporated by reference herein.
In October 1999, Harken and the largest institutional investor entered
into a repurchase agreement whereby Harken paid cash in the amount of $20
million to the institutional investor as full settlement and repurchase of the
remaining Development Finance Agreement obligations to it. Such settlement
included the release of Harken's contingent obligation to issue additional
shares of Common Stock to the extent that the investor did not realize any
amount that may become due from the sale of shares issued to it in April 1999.
Following the October 1999 purchase of the Development Finance
Agreement discussed above, only the $1 million principal amount from one other
institutional investor along with related accrued interest, remains outstanding
as an obligation under these Development Finance Agreements. This institutional
investor retains its right to receive future payments from Harken equal to 0.2%
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, which were to be drilled
under the terms of that Development Finance Agreement, if the planned drilling
on the prospects is successful.
Under the Development Finance Agreements, the institutional investors
provided funds to Harken to partially finance the drilling of three prospects
in Colombia in exchange for a net profits interest in the prospects. Harken and
the institutional investors
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each have the right to convert the net profits interest into shares of Harken
Common Stock. The number of shares of Common Stock which may be issued upon
conversion of the net profits interest is based upon the market price of the
Common Stock at the time of conversion. Based upon the current market price of
Harken Common Stock of $1.06 per share, if the institutional investors elected
to convert the net profits interest into shares of Common Stock, Harken would
be required to issue approximately 1,214,643 shares of Common Stock. The
institutional investors could be entitled to receive more shares of Harken
Common Stock if the market price of Harken Common Stock falls. There is no
ceiling on the number of common shares the institutional investors can receive
upon conversion of their net profits interest.
Foreign Political, Economic and Other Uncertainties. Harken conducts
significant operations in Colombia and Costa Rica, and will conduct operations
in other foreign countries. At December 31, 1998, approximately 83% of Harken's
proved reserves were related to Harken's Colombian operations. In addition,
Harken anticipates focusing substantially all of its exploratory efforts in the
next several years in Colombia and Costa Rica. Harken may also operate in other
countries in the future. Operations in foreign countries, particularly in the
oil and gas business, are subject to political, economic and other
uncertainties, including:
o the risk of war, revolution, border disputes, expropriation,
renegotiation or modification of existing contracts, import,
export and transportation regulations and tariffs;
o taxation policies, including royalty and tax increases and
retroactive tax claims;
o exchange controls, currency fluctuations and other
uncertainties arising out of foreign government sovereignty
over Harken's international operations;
o laws and policies of the United States affecting foreign
trade, taxation and investment; and
o the possibility of having to be subject to the exclusive
jurisdiction of foreign courts in connection with legal
disputes and the possible inability to subject foreign
persons to the jurisdiction of courts in the United States.
Central and South America and other regions of the world have a
history of political and economic instability. This instability could result in
new governments or the adoption of new policies that might assume a
substantially more hostile attitude toward foreign investment. In an extreme
case, such a change could result in termination of contract rights and
expropriation of foreign-owned assets. These uncertainties could adversely
affect Harken's interests.
Writedowns Resulting from Decreases in Oil and Gas Prices. Harken must
periodically review the carrying value of its oil and gas properties under
applicable accounting rules. These rules require a writedown of the carrying
value of oil and gas properties if the carrying value exceeds the applicable
estimated future net revenues.
As a result of the sharp decline in world-wide oil prices experienced
during 1998, at September 30, 1998, Harken recognized a non-cash charge in the
amount of approximately $27 million. Additionally, at December 31, 1998, Harken
recognized an additional non-cash charge in the amount of approximately $23
million.
If oil and gas prices decrease from price levels at December 31, 1998,
Harken could be required to take an additional non-cash charge to earnings
related to the carrying value of its oil and gas properties. Whether Harken
will be required to take such a charge will depend on the prices for oil and
gas at the end of any quarter and the effect of reserve additions or revisions
and capital expenditures during such quarter.
Inaccurate Oil and Gas Reserve Information. Harken's proved oil and
gas reserve information described in the Annual Report, which is incorporated
by reference herein, is based upon criteria mandated by the Commission and
represents only estimates. Harken's actual production, revenues and
expenditures with respect to such oil and gas reserves will likely be different
from estimates and the differences may be material. If estimates of oil and gas
reserves are greater than actual amounts, or if actual production costs and
expenditures are greater than estimates, Harken's business, financial
condition, and results of operations may be negatively affected.
Petroleum engineering is a subjective process of estimating
underground accumulations of oil and gas that cannot be measured in an exact
manner. Estimates of economically recoverable oil and gas reserves and of
future net cash flows necessarily depend upon a number of variable factors and
assumptions.
Because all reserve estimates are to some degree subjective, each of
the following items may differ materially from those assumed in estimating
reserves:
22
<PAGE> 23
o the quantities of oil and gas that are ultimately recovered;
o the production and operating costs incurred;
o the amount and timing of future development expenditures; and
o future oil and gas sales prices.
Furthermore, different reserve engineers may make different estimates
of reserves and cash flows based on the same available data.
The estimated discounted future net cash flows described in the Annual
Report, which is incorporated by reference herein, should not be considered as
the current market value of the estimated oil and gas reserves attributable to
Harken's properties from proved reserves because such estimates are based on
prices and costs as of the date of the estimate, while actual future prices and
costs may be materially higher or lower.
Risk of Economic or Trade Sanctions on Colombia. The United States has
imposed economic and trade sanctions on Colombia in the past, and may impose
sanctions on Colombia in the future. The President of the United States is
required to determine whether foreign countries have cooperated with the United
States to prevent drug trafficking. In 1995, 1996 and 1997, the President
determined that Colombia had not taken sufficient steps to prevent drug
trafficking. As a result, the United States imposed economic sanctions on
Colombia, including withholding bilateral economic assistance, blocking
Export-Import Bank and Overseas Private Investment Corporation loans and
political risk insurance, and voting against multilateral assistance to
Colombia in the World Bank and the InterAmerican Development Bank. In 1998, the
President determined that Colombia had taken sufficient steps to prevent drug
trafficking and the economic sanctions were lifted.
If the United States were to impose sanctions on Colombia, it could
affect Harken's ability to obtain the financing it needs in order to develop
its Colombian properties. The imposition of sanctions on Colombia could also
cause Colombia to retaliate against Harken by nationalizing Harken's Colombian
assets. Accordingly, imposition of the foregoing economic and trade sanctions
on Colombia could materially affect the performance of Harken's Common Stock
and its long-term financial results. Harken can not provide any assurance that
the United States will not impose sanctions on Colombia in the future.
Exchange Rate Fluctuations. Beginning with the fourth quarter of 1998,
Harken began accounting for its Colombian operations using the U.S. dollar as
its functional currency. The costs associated with Harken's exploration efforts
in Colombia have typically been denominated in U.S. dollars. Harken expects
that a substantial portion of its Colombian revenues in 1999 will be
denominated in Colombian pesos and a substantial portion of Harken's future
Colombian revenues may be denominated in Colombian pesos. To the extent that
the amount of Harken's revenues denominated in Colombian pesos is greater than
the amount of costs denominated in Colombian pesos, Harken could suffer a loss
if the value of the Colombian peso were to drop relative to the value of the
U.S. dollar, which could have a material adverse effect on Harken's results of
operations.
Risks Associated with Foreign Oil and Gas Operations. The oil and gas
industries in Colombia and Costa Rica are not as developed as the oil and gas
industry in the U.S. As a result, Harken's drilling and development operations
may take longer to complete and may cost more than similar operations in the
U.S.
Harken's oil and gas operations will be subject to the economic risks
typically associated with exploration, development and production activities,
including the necessity of significant expenditures to locate and acquire
producing properties and to drill exploratory wells. In conducting exploration
and development activities, the presence of unanticipated pressure or
irregularities in formations, miscalculations or accidents may cause Harken's
exploration, development and production activities to be unsuccessful. This
could result in a total loss of Harken's investment. In addition, the cost and
timing of drilling, completing and operating wells is often uncertain.
Hurricanes and Other Operating Hazards. Harken's operations in
Colombia and Costa Rica are subject to risks from hurricanes. Damage caused by
hurricanes or other operating hazards could result in substantial losses to
Harken. The occurrence of such an event that is not fully covered by insurance
could have a material adverse effect on the financial position and results of
operations of Harken.
Issuance of Additional Preferred Stock. Harken is permitted under its
charter to issue up to ten million shares of preferred stock. Harken can issue
shares of its preferred stock in one or more series and can set the terms of
the preferred stock without seeking any further approval from its stockholders.
Any preferred stock that is issued by Harken may rank ahead of its Common Stock
in
23
<PAGE> 24
terms of dividend priority, liquidation premiums and may have greater voting
rights than its Common Stock. Harken does not currently have any shares of
preferred stock outstanding.
Dilution Resulting from Future Acquisitions. Harken's strategic plan
includes the acquisition of additional reserves, including through business
combination transactions. Harken may not be able to consummate future
acquisitions on favorable terms. Additionally, future acquisitions may not
achieve favorable financial results.
Future acquisitions may involve the issuance of shares of Harken
Common Stock, which could have a dilutive effect on the current stockholders of
Harken. Furthermore, acquisitions may require substantial financial
expenditures that will need to be financed through cash flow from operations or
future debt and equity offerings by Harken. Harken may not be able to acquire
companies or oil and gas properties using its equity as currency. In the case
of cash acquisitions, Harken may not be able to generate sufficient cash flow
from operations or obtain debt or equity financing sufficient to fund future
acquisitions of reserves.
Competition. The exploration and production business is highly
competitive. Many of Harken's competitors have substantially larger financial
resources, staffs and facilities than Harken. Harken's competitors in Colombia
and Costa Rica include such major oil and gas companies as Amoco BP, Exxon,
Mobil, Texaco, Conoco, Shell and Arco. These major oil and gas companies are
often better positioned to obtain the rights to exploratory acreage that Harken
competes for.
Risks Associated with Foreign Governmental Regulations. In Costa Rica
and Colombia, the laws governing the oil and gas industry require Harken to
obtain an environmental permit or approval prior to conducting seismic
operations, drilling a well or constructing a pipeline. The process of
obtaining an environmental permit has delayed Harken's operations in the past,
and could do so again in the future. Compliance with these laws and regulations
may increase Harken's costs of operations, as well as further restricting its
activities.
24
<PAGE> 25
RECENT DEVELOPMENTS
PURCHASE OF INTERESTS UNDER DEVELOPMENT FINANCE AGREEMENT
The Company has just purchased for $20 million in cash all of the
interests held by certain institutional investors under a Development Finance
Agreement that was entered into originally in October 1997. These interests
purchased included the remaining investment of $15 million outstanding under
this Development Finance Agreement plan, accrued interest at 15% plus certain
contingent rights to receive shares of Common Stock related to a prior exchange
by these investors in April 1999 when they exchanged $10 million of this
investment plus accrued interest for 6,481,512 shares of Common Stock. See
"Risk Factors -- Risk Factors with Respect to Harken -- Development Finance
Agreements."
FINANCIAL INFORMATION ABOUT THE COMPANY
Reference is hereby made to the Company's Annual Report and the
Quarterly Reports, each of which are incorporated by reference herein and made
a part hereof for all purposes.
CAPITALIZATION
The following sets forth the capitalization of the Company as of
September 30, 1999, on an actual basis, and as adjusted to give effect to the
Exchange Offer, assuming alternatively (i) acceptance of $42,000,000 aggregate
principal amount of the Notes and (ii) acceptance of $70,000,000 aggregate
principal amount of the Notes.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
-------------------------------------------------------------
(UNAUDITED)
AS ADJUSTED AS ADJUSTED
ASSUMING THE ASSUMING THE
EXCHANGE OF EXCHANGE OF
$42,000,000 $70,000,000
AGGREGATE PRINCIPAL AGGREGATE PRINCIPAL
ACTUAL AMOUNT (1) AMOUNT (2)
----------------- --------------------- -------------------
<S> <C> <C> <C>
Current liabilities................................................. $ 37,597,000 $ 38,047,000 $ 38,347,000
================= ===================== ===================
Long-term debt:
5% Senior Convertible Notes Due 2003............................. $ 85,000,000 $ 43,000,000 $ 15,000,000
Development Finance Obligation................................... 1,255,000 1,255,000 1,255,000
Bank Credit Facility Obligation.................................. 10,500,000 10,500,000 10,500,000
----------------- --------------------- -------------------
Total long-term debt................................................ $ 96,755,000 $ 54,755,000 $ 26,755,000
----------------- --------------------- -------------------
Stockholder's equity:
Series G Preferred stock, $1.00 par value,
4,500,000 shares authorized and none issued or outstanding ... $ -- $ 13,500,000 $ 22,500,000
Common stock, $.01 par value, 225,000,000 shares authorized;
145,607,549 shares issued..................................... 1,557,000 1,617,000 1,657,000
Additional paid-in capital....................................... 347,345,000 364,136,000 375,050,000
Retained deficit and other comprehensive income.................. (164,686,000) (156,375,000) (150,835,000)
Treasury stock, at cost, 1,218,000............................... (3,512,000) (3,512,000) (3,512,000)
----------------- --------------------- -------------------
Total stockholder's equity......................................... $ 180,704,000 $ 219,366,000 $ 244,860,000
----------------- --------------------- -------------------
Total capitalization............................................... $ 315,056,000 $ 312,168,000 $ 309,962,000
================= ===================== ===================
</TABLE>
- -------------------
(1) Assumes the exchange of $42,000,000 aggregate principal amount of Notes
for 6,000,000 shares of Common Stock Consideration and 2,700,000 shares
of Preferred Stock Consideration.
(2) Assumes the exchange of $70,000,000 aggregate principal amount of Notes
for 10,000,000 shares of Common Stock Consideration and 4,500,000 shares
of Preferred Stock Consideration.
25
<PAGE> 26
PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed financial
statements (the "Pro Forma Combined Condensed Financial Statements") have been
based on the historical financial statements of the Company for the year ended
December 31, 1998 and the nine months ended September 30, 1999 as if the
Exchange Offer was closed on December 31, 1998 and September 30, 1999. The
information contained in the Pro Forma Combined Condensed Financial Statements
assumes alternatively (i) acceptance of $42,000,000 aggregate principal amount
of the Notes and (ii) acceptance of $70,000,000 aggregate principal amount of
the Notes. The pro forma adjustments are described more fully in the
accompanying notes.
The Pro Forma Combined Condensed Financial Statements are based on
assumptions that management believes are reasonable, and such information is
presented for comparative and informational purposes only and do not purport to
be indicative of the results of operations and balance sheet that actually
would have been achieved had the Exchange Offer been consummated on the date or
for the periods indicated and do not purport to be indicative of the balance
sheet data or results of operations as of any future date or for any future
period. The Pro Forma Combined Condensed Financial Statements should be read in
conjunction with the Company's historical consolidated financial statements and
notes thereto and other information contained in the Annual Report, the
Quarterly Reports and other documents incorporated by reference herein.
<TABLE>
<CAPTION>
PRO FORMA COMBINED CONDENSED BALANCE SHEET
AT DECEMBER 31, 1998 (UNAUDITED)
------------------------------------------------------------------
PRO FORMA
ADJUSTMENTS
$42 MILLION
ACTUAL CONVERSION (1) PRO FORMA
-------------------- --------------------- ---------------------
<S> <C> <C> <C>
(Restated)
ASSETS
Current Assets $ 144,163,000 $ (1,260,000)(2) $ 142,903,000
Property and Equipment, net 166,218,000 -- 166,218,000
Other Assets, net 9,735,000 (1,946,000)(3) 7,789,000
-------------------- ------------------- --------------------
$ 320,116,000 $ (3,206,000) $ 316,910,000
==================== =================== ====================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities $ 20,426,000 $ 450,000(4) $ 20,876,000
European Convertible Notes Payable 85,000,000 (42,000,000)(5) 43,000,000
Development Finance Obligation 38,552,000 -- 38,552,000
Stockholders' Equity 176,138,000 38,344,000(6) 214,482,000
-------------------- ------------------- --------------------
$ 320,116,000 $ (3,206,000) $ 316,910,000
==================== =================== ====================
</TABLE>
PRO FORMA ADJUSTMENTS-PRO FORMA COMBINED CONDENSED BALANCE SHEET AT
DECEMBER 31, 1998
(1) Assumes face amount of $27 million of European notes converts into
preferred stock and face amount of $15 million converts into common
stock.
(2) Entry to reflect cash payment of costs incurred in the conversion of the
European convertible notes.
(3) Adjustment to reflect the write-off of deferred issuance costs
associated with the conversion of the European notes.
(4) Entry to reflect accrual of income taxes in connection with the
conversion of the European notes.
(5) Adjustment to reflect the conversion of the European notes into common
and preferred stock.
(6) Adjustments to reflect the conversion of the European notes into common
and preferred stock, the loss on common stock issuance, the net
extraordinary gain on the preferred stock issuance, the tax effects of
the conversions, the write-off of deferred issuance costs, and the costs
incurred in the conversions.
26
<PAGE> 27
<TABLE>
<CAPTION>
PRO FORMA COMBINED CONDENSED BALANCE SHEET
AT DECEMBER 31, 1998 (UNAUDITED)
-----------------------------------------------------------------
PRO FORMA
ADJUSTMENTS
$70 MILLION
ACTUAL CONVERSION (1) PRO FORMA
-------------------- --------------------- ---------------------
<S> <C> <C> <C>
(Restated)
ASSETS
Current Assets $ 144,163,000 $ (2,380,000)(2) $ 141,783,000
Property and Equipment, net 166,218,000 -- 166,218,000
Other Assets, net 9,735,000 (3,243,000)(3) 6,492,000
-------------------- ------------------- --------------------
$ 320,116,000 $ (5,623,000) $ 314,493,000
==================== =================== ====================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities $ 20,426,000 $ 750,000(4) $ 21,176,000
European Convertible Notes Payable 85,000,000 (70,000,000)(5) 15,000,000
Development Finance Obligation 38,552,000 -- 38,552,000
Stockholders' Equity 176,138,000 63,627,000(6) 239,765,000
-------------------- ------------------- --------------------
$ 320,116,000 $ (5,623,000) $ 314,493,000
==================== =================== ====================
</TABLE>
PRO FORMA ADJUSTMENTS-PRO FORMA COMBINED CONDENSED BALANCE SHEET AT
DECEMBER 31, 1998
(1) Assumes face amount of $45 million of European notes converts into
preferred stock and face amount of $25 million converts into common
stock.
(2) Entry to reflect cash payment of costs incurred in the conversion of the
European convertible notes.
(3) Adjustment to reflect the write-off of deferred issuance costs
associated with the conversion of the European notes.
(4) Entry to reflect accrual of income taxes in connection with the
conversion of the European notes.
(5) Adjustment to reflect the conversion of the European notes into common
and preferred stock.
(6) Adjustments to reflect the conversion of the European notes into common
and preferred stock, the loss on common stock issuance, the net
extraordinary gain on the preferred stock issuance, the tax effects of
the conversions, the write-off of deferred issuance costs, and the costs
incurred in the conversions.
27
<PAGE> 28
<TABLE>
<CAPTION>
PRO FORMA COMBINED CONDENSED BALANCE SHEET
AT SEPTEMBER 30, 1999 (UNAUDITED)
------------------------------------------------------------------
PRO FORMA
ADJUSTMENTS
$42 MILLION
ACTUAL CONVERSION (1) PRO FORMA
-------------------- -------------------- --------------------
(Restated)
<S> <C> <C> <C>
ASSETS
Current Assets $ 67,966,000 $ (1,260,000)(2) $ 66,706,000
Property and Equipment, net 237,605,000 -- 237,605,000
Other Assets, net 9,485,000 (1,628,000)(3) 7,857,000
-------------------- ------------------- --------------------
$ 315,056,000 $ (2,888,000) $ 312,168,000
==================== =================== ====================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities $ 37,597,000 $ 450,000(4) $ 38,047,000
European Convertible Notes Payable 85,000,000 (42,000,000)(5) 43,000,000
Development Finance Obligation 1,255,000 -- 1,255,000
Bank Credit Facility Obligation 10,500,000 -- 10,500,000
Stockholders' Equity 180,704,000 38,662,000(6) 219,366,000
-------------------- ------------------- --------------------
$ 315,056,000 $ (2,888,000) $ 312,168,000
==================== =================== ====================
</TABLE>
PRO FORMA ADJUSTMENTS-PRO FORMA COMBINED CONDENSED BALANCE SHEET AT
SEPTEMBER 30, 1999
(1) Assumes face amount of $27 million of European notes converts into
preferred stock and face amount of $15 million converts into common
stock.
(2) Entry to reflect cash payment of costs incurred in the conversion of the
European convertible notes.
(3) Adjustment to reflect the write-off of deferred issuance costs
associated with the conversion of the European notes.
(4) Entry to reflect accrual of income taxes in connection with the
conversion of the European notes.
(5) Adjustment to reflect the conversion of the European notes into common
and preferred stock.
(6) Adjustments to reflect the conversion of the European notes into common
and preferred stock, the loss on common stock issuance, the net
extraordinary gain on the preferred stock issuance, the tax effects of
the conversions, the write-off of deferred issuance costs, and the costs
incurred in the conversions.
28
<PAGE> 29
<TABLE>
<CAPTION>
PRO FORMA COMBINED CONDENSED BALANCE SHEET
AT SEPTEMBER 30, 1999 (UNAUDITED)
--------------------------------------------------------------------
PRO FORMA
ADJUSTMENTS
$70 MILLION
ACTUAL CONVERSION (1) PRO FORMA
-------------------- -------------------- ---------------------
(Restated)
<S> <C> <C> <C>
ASSETS
Current Assets $ 67,966,000 $ (2,380,000)(2) $ 65,586,000
Property and Equipment, net 237,605,000 -- 237,605,000
Other Assets, net 9,485,000 (2,714,000)(3) 6,771,000
-------------------- ------------------- --------------------
$ 315,056,000 $ (5,094,000) $ 309,962,000
==================== =================== ====================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities $ 37,597,000 $ 750,000(4) $ 38,347,000
European Convertible Notes Payable 85,000,000 (70,000,000)(5) 15,000,000
Development Finance Obligation 1,255,000 -- 1,255,000
Bank Credit Facility Obligation 10,500,000 -- 10,500,000
Stockholders' Equity 180,704,000 64,156,000(6) 244,860,000
-------------------- ------------------- --------------------
$ 315,056,000 $ (5,094,000) $ 309,962,000
==================== =================== ====================
</TABLE>
PRO FORMA ADJUSTMENTS-PRO FORMA COMBINED CONDENSED BALANCE SHEET AT
SEPTEMBER 30, 1999
(1) Assumes face amount of $45 million of European notes converts into
preferred stock and face amount of $25 million converts into common
stock.
(2) Entry to reflect cash payment of costs incurred in the conversion of the
European convertible notes.
(3) Adjustment to reflect the write-off of deferred issuance costs
associated with the conversion of the European notes.
(4) Entry to reflect accrual of income taxes in connection with the
conversion of the European notes.
(5) Adjustment to reflect the conversion of the European notes into common
and preferred stock.
(6) Adjustments to reflect the conversion of the European notes into common
and preferred stock, the loss on common stock issuance, the net
extraordinary gain on the preferred stock issuance, the tax effects of
the conversions, the write-off of deferred issuance costs, and the costs
incurred in the conversions.
29
<PAGE> 30
<TABLE>
<CAPTION>
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED)
------------------------------------------------------------------------
PRO FORMA
ADJUSTMENTS
$42 MILLION
ACTUAL CONVERSION (1) PRO FORMA
------------------- -------------------- -------------------
<S> <C> <C> <C>
Revenues:
Oil and gas operations $ 12,891,000 $ -- $ 12,891,000
Interest and other income 3,132,000 -- 3,132,000
------------------- -------------------- -------------------
16,023,000 -- 16,023,000
------------------- -------------------- -------------------
Costs and Expenses:
Oil and gas operating expenses 5,503,000 -- 5,503,000
General and administrative expenses, net 6,757,000 -- 6,757,000
Depreciation and amortization 4,375,000 -- 4,375,000
Loss on conversion of common stock -- 3,692,000(2) 3,692,000
Interest expense and other, net 4,863,000 (1,893,000)(3) 2,970,000
------------------- ------------------- -------------------
21,498,000 1,799,000 23,297,000
------------------- ------------------- -------------------
Loss before income taxes (5,475,000) (1,799,000) (7,274,000)
Income tax expense 24,000 180,000(4) 204,000
------------------- ------------------- -------------------
Loss before extraordinary item (5,499,000) (1,979,000) (7,478,000)
Extraordinary items (589,000) 12,183,000(5) 11,594,000
-------------------- ------------------- -------------------
Net income (loss) $ (6,088,000) $ 10,204,000 $ 4,116,000
=================== =================== ===================
Accretion related to preferred stock (8,427,000) -- (8,427,000)
Preferred stock dividends -- (1,893,000)(6) (1,893,000)
------------------- ------------------- -------------------
Net income (loss) attributed to common stock $ (14,515,000) $ 8,311,000 $ (6,204,000)
=================== =================== ===================
Basic net income (loss) per share
attributable to common stock $ (0.10) $ (0.04)
=================== ===================
Basic weighted average shares outstanding 140,972,170 146,972,170
=================== ====================
</TABLE>
PRO FORMA ADJUSTMENTS-PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS-NINE
MONTHS ENDED SEPTEMBER 30, 1999
(1) Assumes face amount of $27 million of European notes converts into
preferred stock and face amount of $15 million converts into common
stock.
(2) Entry to reflect loss associated with the conversion of the European
notes into common stock.
(3) Adjustment to reduce interest on the European notes as a result of the
conversion into common and preferred stock.
(4) Entry to reflect tax impact of the conversion of the European notes into
common stock.
(5) Adjustment to reflect net extraordinary gain on conversion of the
European notes into preferred stock.
(6) Entry to record 5% dividends earned on the European Notes that were
converted into preferred stock.
30
<PAGE> 31
<TABLE>
<CAPTION>
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED)
----------------------------------------------------------------------
PRO FORMA
ADJUSTMENTS
$70 MILLION
ACTUAL CONVERSION (1) PRO FORMA
------------------- -------------------- -------------------
<S> <C> <C> <C>
Revenues:
Oil and gas operations $ 12,891,000 $ -- $ 12,891,000
Interest and other income 3,132,000 -- 3,132,000
------------------- ------------------- -------------------
16,023,000 -- $ 16,023,000
------------------- ------------------- -------------------
Costs and Expenses:
Oil and gas operating expenses 5,503,000 -- 5,503,000
General and administrative expenses, net 6,757,000 -- 6,757,000
Depreciation and amortization 4,375,000 -- 4,375,000
Net loss on common stock conversion -- 6,154,000(2) 6,154,000
Interest expense and other, net 4,863,000 (3,155,000)(3) 1,708,000
------------------- ------------------- -------------------
21,498,000 2,999,000 24,497,000
------------------- ------------------- -------------------
Loss before income taxes (5,475,000) (2,999,000) (8,474,000)
Income tax expense 24,000 300,000(4) 324,000
------------------- ------------------- -------------------
Loss before extraordinary item (5,499,000) (3,299,000) (8,798,000)
Extraordinary items (589,000) 20,306,000(5) 19,717,000
------------------- ------------------- -------------------
Net income (loss) $ (6,088,000) $ 17,007,000 $ 10,919,000
=================== =================== ===================
Accretion related to preferred stock (8,427,000) -- (8,427,000)
Preferred stock dividends -- (3,155,000)(6) (3,155,000)
------------------- ------------------- -------------------
Net loss attributed to common stock $ (14,515,000) $ 13,852,000 $ (663,000)
=================== =================== ===================
Basic net income (loss) per share
attributable to common stock $ (0.10) $ (0.00)
=================== ===================
Basic weighted average shares outstanding 140,972,170 150,972,170
=================== ===================
</TABLE>
PRO FORMA ADJUSTMENTS-PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS-NINE
MONTHS ENDED SEPTEMBER 30, 1999
(1) Assumes face amount of $45 million of European notes converts into
preferred stock and face amount of $25 million converts into common
stock.
(2) Entry to reflect loss associated with the conversion of the European
notes into common stock.
(3) Adjustment to reduce interest on the European notes as a result of the
conversion into common and preferred stock.
(4) Entry to reflect tax impact of the conversion of the European notes into
common stock.
(5) Adjustment to reflect net extraordinary gain on conversion of the
European notes into preferred stock
(6) Entry to record 5% dividends earned on the European Notes that were
converted into preferred stock.
31
<PAGE> 32
<TABLE>
<CAPTION>
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998 (UNAUDITED)
---------------------------------------------------------------------
PRO FORMA
ADJUSTMENTS
$42 MILLION
ACTUAL CONVERSION (1) PRO FORMA
------------------- -------------------- -------------------
<S> <C> <C> <C>
(Restated)
Revenues:
Oil and gas operations $ 10,932,000 $ -- $ 10,932000
Interest and other income 8,838,000 -- 8,838,000
------------------- ------------------- -------------------
19,770,000 -- 19,770,000
------------------- ------------------- -------------------
Costs and Expenses:
Oil and gas operating expenses 5,988,000 -- 5,988,000
General and administrative expenses, net 9,404,000 -- 9,404,000
Depreciation and amortization 5,319,000 -- 5,319,000
Valuation allowance 50,518,000 -- 50,518,000
Loss on common stock conversion -- 3,692,000(2) 3,692,000
Interest expense and other, net 4,294,000 (1,503,000)(3) 2,791,000
------------------- ------------------- -------------------
75,523,000 2,189,000 77,712,000
------------------- ------------------- -------------------
Loss before income taxes (55,753,000) (2,189,000) (57,942,000)
Income tax expense 34,000 180,000(4) 214,000
------------------- ------------------- -------------------
Net Loss before Extraordinary Item (55,787,000) (2,369,000) (58,156,000)
Extraordinary item -- 12,183,000(5) 12,183,000
------------------- ------------------- -------------------
Net Loss $ (55,787,000) $ 9,814,000 $ (45,973,000)
=================== =================== ===================
Accretion related to preferred stock (1,846,000) -- (1,846,000)
Preferred stock dividends -- (1,503,000)(6) (1,503,000)
------------------- ------------------- -------------------
Net loss attributed to common stock $ (57,633,000) $ 8,311,000 $ (49,322,000)
=================== =================== ===================
Basic net income (loss) per share
attributable to common stock $ (0.44) $ (0.35)
=================== ===================
Basic weighted average shares outstanding 130,252,727 140,252,727
=================== ===================
</TABLE>
PRO FORMA ADJUSTMENTS-PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS-YEAR
ENDED DECEMBER 31, 1998
(1) Assumes face amount of $27 million of European notes converts into
preferred stock and face amount of $15 million converts into common
stock.
(2) Entry to reflect loss associated with the conversion of the European
notes into common stock.
(3) Adjustment to reduce interest on the European notes as a result of the
conversion into common and preferred stock.
(4) Entry to reflect tax impact of the conversion of the European notes into
common stock.
(5) Adjustment to reflect net extraordinary gain on conversion of the
European notes into preferred stock
(6) Entry to record 5% dividends earned on the European Notes that were
converted into preferred stock.
32
<PAGE> 33
<TABLE>
<CAPTION>
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998 (UNAUDITED)
---------------------------------------------------------------------
PRO FORMA
ADJUSTMENTS
$70 MILLION
ACTUAL CONVERSION (1) PRO FORMA
------------------- -------------------- --------------------
<S> <C> <C> <C>
(Restated)
Revenues:
Oil and gas operations $ 10,932,000 $ -- $ 10,932000
Interest and other income 8,838,000 -- 8,838,000
------------------- ------------------- -------------------
19,770,000 -- 19,770,000
------------------- ------------------- -------------------
Costs and Expenses:
Oil and gas operating expenses 5,988,000 -- 5,988,000
General and administrative expenses, net 9,404,000 -- 9,404,000
Depreciation and amortization 5,319,000 -- 5,319,000
Valuation allowance 50,518,000 -- 50,518,000
Loss common stock conversion -- 6,154,000(2) 6,154,000
Interest expense and other, net 4,294,000 (2,505,000)(3) 1,789,000
------------------- ------------------- -------------------
75,523,000 3,649,000 79,172,000
------------------- ------------------- -------------------
Loss before income taxes (55,753,000) (3,649,000) (59,402,000)
Income tax expense 34,000 300,000(4) 334,000
------------------- ------------------- -------------------
Loss before Extraordinary Item (55,787,000) (3,949,000) (59,736,000)
Extraordinary item -- 20,306,000(5) 20,306,000
------------------- ------------------- -------------------
Net Loss $ (55,787,000) $ 16,357,000 $ (39,430,000)
=================== =================== ===================
Accretion related to preferred stock (1,846,000) -- (1,846,000)
Preferred stock dividends -- (2,505,000)(6) (2,505,000)
------------------- ------------------- -------------------
Net loss attributed to common stock $ (57,633,000) $ 13,852,000 $ (43,781,000)
=================== =================== ===================
Basic net income (loss) per share
attributable to common stock $ (0.44) $ (0.31)
=================== ===================
Basic weighted average shares outstanding 130,252,727 140,252,727
=================== ===================
</TABLE>
PRO FORMA ADJUSTMENTS-PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS-YEAR
ENDED DECEMBER 31, 1998
(1) Assumes face amount of $45 million of European notes converts into
preferred stock and face amount of $25 million converts into common
stock.
(2) Entry to reflect loss associated with the conversion of the European
notes into common stock.
(3) Adjustment to reduce interest on the European notes as a result of the
conversion into common and preferred stock.
(4) Entry to reflect tax impact of the conversion of the European notes into
common stock.
(5) Adjustment to reflect net extraordinary gain on conversion of the
European notes into preferred stock
(6) Entry to record 5% dividends earned on the European Notes that were
converted into preferred stock.
33
<PAGE> 34
RATIO OF EARNINGS TO FIXED CHARGES
AND BOOK VALUE PER SHARE
The following table sets forth the Company's ratio of earnings to fixed
charges for the periods indicated.
<TABLE>
<CAPTION>
Ratio of Earnings
to Fixed Charges Deficiency
------------------- --------------
<S> <C> <C>
Year ended December 31, 1997 0.24 $ 1,140,000
Year ended December 31, 1998 (4.52) 61,749,000
Nine months ended September 30, 1999 (0.08) 8,753,000
</TABLE>
The book value per share of the Company was $1.31 and $1.17 at
December 31, 1998 and September 30, 1999, respectively.
PRICE RANGE AND DIVIDEND POLICY
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded on the Amex under the symbol
"HEC." As of November 19, 1999, there were 153,522,248 shares issued and held
of record by approximately 3,443 holders of record. The following table sets
forth, for the periods indicated, the reported high and low sales prices of the
Common Stock on the American Stock Exchange Composite Tape after such date.
<TABLE>
<CAPTION>
Prices
------
High Low
---- ----
<S> <C> <C>
1996 - First Quarter................................... $ 2.00 $ 1.56
Second Quarter.................................. 3.13 1.81
Third Quarter................................... 3.13 1.94
Fourth Quarter.................................. 3.00 2.25
1997 - First Quarter................................... $ 5.44 $ 2.88
Second Quarter.................................. 7.13 4.00
Third Quarter................................... 7.00 5.25
Fourth Quarter.................................. 7.50 4.50
1998 - First Quarter................................... $ 7.18 $ 5.87
Second Quarter.................................. 6.43 4.56
Third Quarter................................... 4.69 3.06
Fourth Quarter.................................. 3.93 1.81
1999 - First Quarter................................... $ 2.13 $ 1.44
Second Quarter.................................. 2.38 1.63
Third Quarter................................... 1.94 1.00
October through November 19..................... 1.19 0.81
</TABLE>
COMMON STOCK DIVIDEND POLICY
Harken has not paid dividends on its Common Stock in the past and does
not foresee that any such dividends will be paid in the near term. Harken's
policy has been to retain earnings and cash generated for operations to be
reinvested in corporate opportunities.
PRICE RANGE OF NOTES
The Notes are traded on the Luxembourg Stock Exchange. As of November
19, 1999, Notes in an aggregate principal amount of $85,000,000 were
outstanding. No current price information is available for the Notes.
34
<PAGE> 35
PURPOSES AND EFFECTS OF THE EXCHANGE OFFER
The principal purposes of the Exchange Offer are to reduce the
Company's debt service requirements and to lower the Company's debt-equity
ratio. As of the date of the Offering Circular, the Company's long term debt in
the form of the Notes was $85,000,000. Depending upon the amount of Notes
tendered as a result of the Exchange Offer, such long-term debt could be
reduced to approximately $43,000,000. In addition, if the Company chooses to
make both of the Elections, such long-term debt could be reduced to
approximately $15,000,000.
The Exchange Offer will permit the Noteholders to obtain an equity
position in the Company upon terms more favorable than given to them in the
Notes.
To the extent that any Notes are exchanged by the Company at the
option of the holders thereof, such Notes will be retired.
THE BOARD OF DIRECTORS OF THE COMPANY HAS APPROVED THE MAKING OF THE
EXCHANGE OFFER BUT IS NOT MAKING ANY RECOMMENDATION TO NOTEHOLDERS AS TO
WHETHER OR NOT TO TENDER NOTES. EACH NOTEHOLDER MUST MAKE HIS OR HER OWN
DECISION WHETHER OR NOT TO TENDER NOTES, AND, IF SO, HOW MANY NOTES TO TENDER.
The Company may in the future purchase additional Notes on the open
market, in private transactions, through tender offers or otherwise, subject to
the approval of the Board of Directors. In particular, the Board of Directors
may repurchase Notes in the open market beginning after the expiration of the
period of ten business days after the Expiration Date. Future purchases by the
Company may be on the same terms or on terms that are more or less favorable to
Noteholders than the terms of the Exchange Offer. Rule 13e-4 under the Exchange
Act prohibits the Company and its affiliates from purchasing any Notes, other
than pursuant to the Exchange Offer, until at least ten business days after the
Expiration Date. Any possible future purchases by the Company pursuant to this
intention or otherwise will depend on many factors, including the market price
of the Notes, the results of the Exchange Offer, the Company's business and
financial position and general economic and market conditions.
Except as disclosed in this Offering Circular, the Company currently
has no plans or proposals that relate to or would result in: (a) the
acquisition by any person of additional securities of the Company or the
disposition of securities of the Company; (b) an extraordinary corporate
transaction, such as a merger, reorganization or liquidation, involving the
Company or any of its subsidiaries; (c) any change in the present Board of
Directors or management of the Company; (d) any material change in the present
dividend rate or policy, or indebtedness or capitalization of the Company; (e)
any other material change in the Company's corporate structure or business; (f)
any change in the Company's Articles of Incorporation or Code of Regulations or
other actions which may impede the acquisition of control of the Company by any
person; (g) a class of equity security of the Company being delisted from a
national securities exchange or ceasing to be authorized for quotation in an
inter-dealer quotation system of a registered national securities association;
(h) a class of equity security of the Company becoming eligible for termination
of registration pursuant to Section 12(g)(4) of the Exchange Act; or (i) the
suspension of the Company's obligation to file reports pursuant to Section
15(d) of the Exchange Act.
THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER; NUMBER OF NOTES
The Company hereby offers, upon the terms and subject to the
limitations and conditions set forth in this Offering Circular and in the
accompanying Letter of Transmittal, to accept for exchange up to the maximum
amount set forth below under "Tenders of Excess Aggregate Principal Amount of
Notes" each $10,000 principal amount of the Company's Notes into either (i)
4,000 shares of Common Stock or (ii) 1,000 shares of Preferred Stock, at the
election of the Noteholder. On November 19, 1999, there was $85 million in
aggregate principal amount of Notes outstanding. The Exchange Offer is not
conditioned upon any minimum number or principal amount of Notes being
tendered.
The Exchange Offer will expire at 5:00 p.m., GMT, on the Expiration
Date, unless extended. See "-- Expiration and Extension of Tender Period;
Termination; Amendment."
Beneficial owner(s) of Notes who wish to exchange Notes for the
Exchange Consideration must request the Agent Member Bank which is reflected as
the holder of the Notes in Euroclear or with Cedelbank to effectuate the
transaction for him or her. In addition, the Agent Member Bank must complete
and sign the Letter of Transmittal or a facsimile thereof on behalf of each
beneficial owner(s) of Notes in accordance with the instructions in the Letter
of Transmittal and any other required documents. See "-- How to Tender."
Certificates for the Common Stock Consideration will be mailed to the person
indicated in the Letter of
35
<PAGE> 36
Transmittal by the Exchange Agent, promptly after the tender is accepted by the
Company. The Preferred Stock Consideration will be represented initially by
single, temporary global Preferred Stock certificate in fully registered form
and will be deposited with or on behalf of DTC as depository and registered in
the name of DTC or its nominee. See "Global Preferred Stock Certificates; Book
Entry." The Common Stock Consideration to be issued in exchange for properly
tendered Notes will be registered as provided in the Letter of Transmittal.
Subject to the applicable rules, the Company reserves the right to delay
acceptance of a proposed exchange upon the occurrence of any of the conditions
set forth below under the caption "Certain Conditions of the Exchange Offer."
This Offering Circular and the related Letter of Transmittal will be
mailed or otherwise delivered to Noteholders identified by the Company or upon
the request of any Noteholder and will be furnished to Agent Member Banks
reflected as the holder of Notes on Euroclear or Cedelbank on behalf of
Noteholders for subsequent transmittal to beneficial owners of Notes. In
addition, the Company will make a Publication Notice of the commencement of the
Exchange Offer.
If (a) the Company (i) increases or decreases the consideration to be
paid for the Notes, (ii) increases or decreases the number of Notes being
sought (including pursuant to one or both of the Elections), or (iii) increases
the fee to be paid to the Solicitation Agent, and (b) the Exchange Offer is
scheduled to expire at any time earlier than the tenth business day from and
including the date that notice of such increase or decrease is first published,
sent, or given as described under the heading "-- Expiration and Extension of
Tender Period; Termination; Amendment," the Exchange Offer will be extended
until the expiration of such ten business day period; provided, however, that
in accordance with regulations of the Commission, no such extension is required
if the Company purchases pursuant to the Exchange Offer an additional number of
Notes not to exceed 2% of the number of Notes outstanding as of the date
hereof. For purposes of the Exchange Offer, "business day" means any day other
than a Saturday, Sunday, or United States Federal holiday and consists of the
time period from 12:01 a.m. through 12:00 midnight Eastern Standard Time.
RESTRICTION ON OFFEREES
The Exchange Offer is available only to Noteholders who are not "U.S.
persons" (as defined in Regulation S under the Securities Act). Noteholders who
are U.S. persons are ineligible to participate in the Exchange Offer. See
"Definition of U.S. Person under Regulation S." ONLY NOTES TENDERED BY NON-U.S.
PERSONS WILL BE ACCEPTED AND PURCHASED BY THE COMPANY PURSUANT TO THE EXCHANGE
OFFER. BY TENDERING NOTES, THE BENEFICIAL OWNER OF THE NOTES WILL BE DEEMED TO
HAVE REPRESENTED THAT IT IS A NOT A U.S. PERSON.
TENDERS OF EXCESS AGGREGATE PRINCIPAL AMOUNT OF NOTES
The Company will only issue in this exchange up to (i) 6,000,000
shares of Common Stock and (ii) 2,700,000 shares of Preferred Stock in
connection with the Exchange Offer; however, the Company may elect, in its sole
discretion, to (a) increase the aggregate amount of the Common Stock to be
issued in this exchange up to 10,000,000 shares pursuant to the Common Stock
Election and/or (b) increase the aggregate amount of Preferred Stock to be
issued in this exchange up to 4,500,000 shares pursuant to the Preferred Stock
Election. Therefore, the Company will only exchange up to $42,000,000 aggregate
principal amount of Notes (or up to $70,000,000 aggregate principal amount of
Notes if the Company makes the maximum amount of both of the Elections).
Although the Company has no current plans otherwise, the Company may in its
sole discretion elect to further increase the number of Notes to be accepted
for exchange pursuant to the Exchange Offer. In the event an excess aggregate
principal amount of Notes is properly tendered to the Company for exchange
pursuant to the terms of the Exchange Offer, the Company will only accept for
exchange from each tendering Noteholder that holder's pro rata portion of the
total aggregate principal amount of Notes properly tendered for exchange. In
this event, the excess Notes tendered by the Noteholder to the Company over the
Noteholder's pro rata amount of tendered Notes will not be accepted by the
Company for exchange, each such Noteholder shall receive back a beneficial
interest in the Global Note for a principal amount representing the excess
principal amount not accepted pursuant to the Exchange Offer. THIS OFFER IS NOT
CONDITIONED UPON A MINIMUM AGGREGATE PRINCIPAL AMOUNT BEING EXCHANGED. EXCEPT
AS OTHERWISE PROVIDED IN THIS EXCHANGE OFFER, THE COMPANY WILL EXCHANGE ANY
NOTES PROPERLY TENDERED TO IT, UP TO AN AGGREGATE PRINCIPAL AMOUNT OF
$42,000,000 (OR $70,000,000, IF THE COMPANY MAKES THE MAXIMUM AMOUNT OF BOTH OF
THE ELECTIONS).
In the event that proration of tendered Notes is required, the Company
will determine the proration factor as soon as practicable following the
Expiration Date. Proration for each Noteholder tendering Notes, will be based
on the ratio of the number of Notes validly tendered and not properly withdrawn
by such Noteholder to the total number of Notes validly tendered and not
properly withdrawn by all Noteholders. Because of the difficulty in determining
the number of Notes validly tendered and not properly withdrawn, the Company
does not expect that it will be able to announce the final proration factor or
commence payment for any Notes exchanged pursuant to the Exchange Offer until
approximately five business days after the Expiration Date. The preliminary
results of any proration will be announced by Publication Notice as promptly as
practicable after the Expiration Date. Noteholders may obtain preliminary
proration information from the Solicitation Agent.
36
<PAGE> 37
LISTING OF THE PREFERRED STOCK AND THE COMMON STOCK
The Company shall, if so requested by the Solicitation Agent, use its
best efforts to list the Preferred Stock on the Bermuda Stock Exchange or, at
the Company's election, another non-U.S. stock exchange which is reasonably
acceptable to the Solicitation Agent and the Company. However, no assurance can
be given that such listing application will be accepted. The Common Stock
Consideration and the Conversion Shares will be listed on the Amex.
EXPIRATION AND EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT
The Exchange Offer will expire at 5:00 p.m., GMT, on the Expiration
Date. The Company expressly reserves the right, in its sole discretion, at any
time and from time to time, and regardless of whether or not any of the events
set forth under the heading "Certain Conditions of the Exchange Offer" shall
have occurred or shall be deemed by the Company to have occurred, to extend the
period of time during which the Exchange Offer is open and thereby delay
acceptance for payment of, and payment for, any Notes by giving oral or written
notice of such extension to the Exchange Agent and making Publication Notice
thereof. During any such extension, all Notes previously tendered and not
properly withdrawn will remain subject to the Exchange Offer and to the rights
of a tendering Noteholder to withdraw such Noteholder's Notes.
The Company also expressly reserves the right, in its reasonable
discretion, to terminate or withdraw the Exchange Offer and not accept for
payment or pay for any Notes not theretofore accepted for payment or paid for
or, subject to applicable law, to postpone payment for Notes upon the
occurrence of any of the conditions specified under the heading "Certain
Conditions of the Exchange Offer" by giving oral or written notice of such
termination or postponement to the Exchange Agent and making a Publication
Notice thereof. The Company's reservation of the right to delay payment for
Notes which it has accepted for payment is limited by Rule 13e-4(f)(5)
promulgated under the Exchange Act, which requires that the Company pay the
consideration offered or return the Notes tendered promptly after termination
or withdrawal of a tender offer. Subject to compliance with applicable law, the
Company further reserves the right, in its reasonable discretion, and
regardless of whether any of the events set forth under the heading "Certain
Conditions of the Exchange Offer" shall have occurred or shall be deemed by the
Company to have occurred, to amend the Exchange Offer in any respect
(including, without limitation, by decreasing or increasing the consideration
offered in the Exchange Offer to Noteholders or by decreasing or increasing the
number of Notes being sought in the Exchange Offer). Amendments to the Exchange
Offer may be made at any time and from time to time effected by Publication
Notice thereof, such announcement, in the case of an extension, to be issued no
later than 9:00 a.m., Eastern Standard Time, on the next business day after the
last previously scheduled or announced Expiration Date. Any public announcement
made pursuant to the Exchange Offer will be disseminated promptly to
Noteholders in a manner reasonably designed to inform Noteholders of such
change. Without limiting the manner in which the Company may choose to make a
public announcement, except as required by applicable law, the Company shall
have no obligation to publish, advertise or otherwise communicate any such
public announcement other than by making a Publication Notice and issuing a
press release to the Dow Jones News Service.
The Company further reserves the right, in its sole discretion, (i) to
elect to increase the number of Notes to be accepted for exchange pursuant to
the Exchange Offer, whether pursuant to either or both of the Elections or
pursuant to an additional increase in the number of Notes to be accepted for
exchange or (ii) to otherwise amend or modify the terms of the Exchange Offer
or any portion thereof.
If the Company materially changes the terms of the Exchange Offer or
the information concerning the Exchange Offer, or if it waives a material
condition of the Exchange Offer, the Company will extend the Exchange Offer to
the extent required by Rule 13e-4 promulgated under the Exchange Act. This rule
provides that the minimum period during which an offer must remain open
following material changes in the terms of the Exchange Offer or information
concerning the Exchange Offer (other than a change in price or a change in
percentage of securities sought) will depend on the facts and circumstances,
including the relative materiality of such terms or information. If (a) the
Company (i) increases or decreases the consideration to be paid for the Notes,
(ii) increases or decreases the number of Notes being sought (including
pursuant to one or both of the Elections), or (iii) increases the fee to be
paid to the Solicitation Agent, and (b) the Exchange Offer is scheduled to
expire at any time earlier than the tenth business day from and including the
date that notice of such increase or decrease is first published, sent, or
given as described above, the Exchange Offer will be extended until the
expiration of such ten business day period; provided, however, that in
accordance with regulations of the Commission, no such extension is required if
the Company purchases pursuant to the Exchange Offer an additional number of
Notes not to exceed 2% of the number of Notes outstanding as of the date
hereof.
37
<PAGE> 38
CERTAIN CONDITIONS OF THE EXCHANGE OFFER
Notwithstanding any other provisions of the Exchange Offer, the
Company will not be required to issue the Exchange Consideration in respect of
any properly tendered Notes not accepted and may terminate the Exchange Offer
(by timely public announcement communicated, unless otherwise required by
applicable law or regulation, by making a Publication Notice and issuing a
press release to the Dow Jones News Service) and, subject to compliance with
the applicable rules, delay the acceptance of the tendered Notes if any of the
following events shall have occurred (or shall have been determined by the
Company to have occurred) and which in the Company's sole judgment in any such
case makes it inadvisable to proceed with the Exchange Offer:
(a) Any action or proceeding, order, decree or injunction
shall have been taken or threatened, instituted or pending, or any
statute, rule, regulation, judgment, order, stay, decree or injunction
shall have been sought, promulgated, enacted, entered, enforced or
deemed applicable to the Exchange Offer or the Company taken as a
whole, by or before any court or governmental, regulatory or
administrative authority or agency or tribunal, which (i) challenges
the making of the Exchange Offer, the acquisition of the Notes or
issuance of the Exchange Consideration pursuant to the Exchange Offer
or might directly or indirectly prohibit, prevent, restrict or delay
consummation of the Exchange Offer, or (ii) materially adversely
affects the business, operations, condition (financial or otherwise),
results of operations, prospects, assets, liabilities, working capital
or reserves of the Company taken as a whole, or otherwise materially
impairs in any way the contemplated future conduct of the business of
the Company taken as a whole.
(b) There shall have occurred (i) the declaration of any
banking moratorium or suspension of payments in respect of banks in
the United States, (ii) any general suspension of trading in, or
limitation on prices for, securities on any national securities
exchange or in the over-the-counter market, (iii) the commencement of
a war, armed hostilities or any other national or international crisis
directly or indirectly involving the United States, (iv) any
limitation (whether or not mandatory) by any government or
governmental, regulatory or administrative agency or authority on, or
any event which in the Company's sole judgment might adversely affect,
the extension of credit by banks or other lending institutions in the
United States, or (v) in the case of any of the foregoing existing at
the time of the commencement of the Exchange Offer, a material
acceleration or worsening thereof.
(c) There shall have occurred any event that has resulted, or
may in the sole judgment of the Company result, in an actual or
threatened material adverse change in the business, operations,
condition (financial or otherwise), results of operations, prospects,
assets, liabilities, working capital or reserves of the Company.
The foregoing conditions are for the sole benefit of the Company and
may be asserted by the Company in its sole discretion regardless of the
circumstances (including any action or inaction by the Company) giving rise to
any such conditions, or may be waived by the Company, in its sole discretion,
in whole or in part at any time.
HOW TO TENDER
Since all of the Notes are currently held in permanent global form and
accepted for clearance through Euroclear and Cedelbank, tendering beneficial
owner(s) of Notes must request their Agent Member Bank to effectuate the
transaction for them. In addition, their Agent Member Bank must complete and
sign the Letter of Transmittal or a facsimile thereof on behalf of each
beneficial owner(s) of Notes in accordance with the instructions in the Letter
of Transmittal and any other required documents. The Agent Member Bank must (i)
send by courier or via facsimile the completed and signed Letter of Transmittal
to the Exchange Agent and (ii) send the original completed and signed Letter of
Transmittal via first class mail or overnight mail to the Exchange Agent.
Questions regarding how to tender and requests for information should be
directed to the Solicitation Agent, the Exchange Agent or the Company.
On or prior to the Expiration Date, (i) the Agent Member Bank must
have effectuated the transaction on behalf of the tendering beneficial owner(s)
and (ii) the Letter of Transmittal, with any other required documents, must be
transmitted to and received by the Exchange Agent at its address set forth on
the last page of this Offering Circular.
THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER
DOCUMENTS, IS AT THE ELECTION AND RISK OF THE NOTEHOLDER.
The Notes may be offered for exchange in minimum denominations of
$10,000 each and integral multiples thereof. Tendering persons or entities
executing Letters of Transmittal may tender less than all of the Notes held by
such party provided they appropriately indicate this fact on the Letter of
Transmittal. Absent such an indication, the Exchange Agent may rely on a Letter
of Transmittal as representing a tender of all Notes held by such party.
38
<PAGE> 39
With respect to tenders of Notes, the Company reserves full discretion
to determine whether the documentation is complete and generally to determine
all questions as to tenders, including the date of receipt of a tender, the
propriety of execution of any document, and other questions as to the validity,
form, eligibility or acceptability of any tender. The Company reserves the
right to reject any tender not in proper form or otherwise not valid or the
acceptance for exchange of which may, in the opinion of the Company's counsel,
be unlawful or to waive any irregularities or conditions, and the Company's
interpretation of the terms and conditions of the Exchange Offer (including the
instructions on the Letter of Transmittal) will be final. The Company shall not
be obligated to give notice of any defects or irregularities in tenders and
shall not incur any liability for failure to give any such notice. Notes shall
not be deemed to have been duly or validly tendered unless and until all
defects and irregularities have been cured or waived.
TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL
The Letter of Transmittal contains, among other things, certain terms
and conditions, which are summarized below and are part of the Exchange Offer.
On or prior to the Expiration Date, (i) the Agent Member Bank must
have effectuated the transaction on behalf of the tendering beneficial owner(s)
and (ii) the Letter of Transmittal, with any other required documents, must be
transmitted to and received by the Exchange Agent at its address set forth on
the last page of this Offering Circular. The Agent Member Bank tendering the
Notes for exchange on behalf of the beneficial owner(s) (the "Holder") by
execution of the Letter of Transmittal sells, assigns and transfers the Notes
to the Exchange Agent and irrevocably constitutes and appoints the Exchange
Agent as the Holder's agent and attorney-in-fact to cause the Notes to be
transferred and exchanged. The Holder warrants that it has full power and
authority to tender, exchange, sell, assign and transfer the Notes and to
acquire the Exchange Consideration issuable upon the exchange of such tendered
Notes, that the Company will acquire good and unencumbered title to the
tendered Notes, free and clear of all liens, restrictions, charges and
encumbrances, and that the Notes tendered for exchange are not subject to any
adverse claims when accepted by the Company. The Holder also warrants that it
will, upon request, execute and deliver any additional documents deemed by the
Company to be necessary or desirable to complete the exchange, sale, assignment
and transfer of the tendered Notes. All authority conferred or agreed to be
conferred under the Letter of Transmittal by the signatory and any beneficial
owner under the signatory shall survive the death or incapacity of the
signatory and of any beneficial owner under the signatory, as applicable, and
any obligation of the signatory and of any beneficial owner under the signatory
shall be binding upon the heirs, personal representatives, successors and
assigns of the signatory and of any beneficial owner under the signatory.
In addition, by authorizing the execution and transmission of a Letter
of Transmittal, a tendering holder will be deemed to have made certain
representations and certifications, for the purposes of Regulation S, including
that it is not a U.S. person (as defined in Regulation S) and that it
understands that certain restrictions exist on the transferability of the
Exchange Consideration. See "Selling Restrictions" and, in the Letter of
Transmittal, "Representations and Certifications Concerning Regulation S."
All questions as to the validity, form, eligibility (including time of
receipt) and acceptability of any tender will be determined by the Company, in
its sole discretion, and such determination will be final and binding. Unless
waived by the Company, irregularities and defects must be cured by the
Expiration Date. The Company will pay all stock transfer taxes applicable to
the transfer and exchange of Notes tendered unless Notes are transferred to a
third party.
WITHDRAWAL RIGHTS
All tenders may be withdrawn at any time prior to the Expiration Date.
Thereafter, such tenders are irrevocable, except that they may be withdrawn
after the expiration of 40 business days from the commencement of the Exchange
Offer unless accepted for exchange prior to that date.
To be effective, a notice of withdrawal must be timely received by the
Exchange Agent at the address set forth below under "Exchange Agent" and on the
back cover of this Offering Circular. Any notice of withdrawal must specify the
person named in the Letter of Transmittal as having tendered the number of
Notes to be withdrawn and the name of the Noteholder. The Exchange Agent will
confirm to each Noteholder in writing any properly withdrawn Notes as soon as
practicable following receipt of notice of withdrawal. All questions as to the
validity, including time of receipt, of notices of withdrawals will be
determined by the Company, and such determination will be final and binding on
all parties.
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ACCEPTANCE OF TENDERS
On or prior to the Expiration Date, (i) the Agent Member Bank must
have effectuated the transaction on behalf of the tendering beneficial owner(s)
and (ii) the Letter of Transmittal, with any other required documents, must be
transmitted to and received by the Exchange Agent at its address set forth on
the last page of this Offering Circular. Subject to the terms and conditions of
the Exchange Offer, if such tendering procedures are followed, and the tender
is not withdrawn subject to the terms, limitations and provisions of the
Exchange Offer, the tender offer will be accepted on or promptly after the
Expiration Date. Subject to such terms and conditions, delivery of certificates
of the Common Stock Consideration to be issued in exchange for properly
tendered Notes will be made by the Exchange Agent promptly after acceptance of
the tendered Notes. The Preferred Stock Consideration will be represented
initially by single, temporary global Preferred Stock certificate in fully
registered form and will be deposited with or on behalf of DTC AS depository
and registered in the name of DTC or its nominee. See "Global Preferred Stock
Certificates; Book Entry." The Common Stock Consideration to be issued in
exchange for properly tendered Notes will be registered as provided in the
Letter of Transmittal. Subject to the applicable rules, the Company, however,
reserves the right to delay acceptance of tendered Notes upon the occurrence of
any of the conditions set forth above under the caption "Certain Conditions of
the Exchange Offer."
The tender of Notes pursuant to any one of the procedures set forth in
"How to Tender" will constitute an agreement between the tendering Noteholder
and the Company upon the terms and subject to the conditions of the Exchange
Offer.
Noteholders whose Notes are accepted in exchange for the Common Stock
Consideration will receive a cash payment equal to the accrued and unpaid
interest, if any, on such Notes accumulating after November 25, 1999 to, but
excluding, the date of issuance of such Common Stock Consideration, payable as
soon as practicable after the Expiration Date to the holders of such Notes. The
Preferred Stock Consideration issued in exchange for Notes will begin to accrue
dividends commencing on November 26, 1999. Holders of Notes accepted for
exchange in the Exchange Offer will have the right to withdraw such Notes until
the Expiration Date. Thereafter, such tenders are irrevocable, except that they
may be withdrawn after the expiration of 40 business days from the commencement
of the Exchange Offer, unless accepted for exchange prior to that date.
SOLICITATION OF TENDERS; EXPENSES
The Company has retained RP&C International, Inc. to assist in the
solicitation of exchanges with respect to the Exchange Offer. In addition to
the delivery of this Offering Circular to Noteholders, the Solicitation Agent
will orally solicit the exchanges of Noteholders who are not U.S. persons. The
Solicitation Agent will not solicit the exchange of any Noteholder who is a
U.S. person.
For the services of RP&C International, Inc. as Solicitation Agent in
connection with the Exchange Offer, the Company has agreed to (i) reimburse the
Solicitation Agent for all reasonable out-of-pocket expenses properly incurred
in connection with the Exchange Offer, (ii) pay a fee in cash equal to the
percentage of the face value of the Notes tendered in exchange for the Exchange
Consideration, and (iii) upon the successful completion of the Exchange Offer,
issue the Solicitation Agent 200,000 warrants to purchase Common Stock at an
exercise price equal to the average closing price of the Common Stock for the
thirty (30) trading days prior to the closing of the Exchange Offer, with such
warrants having a term of two years following the closing of the Exchange
Offer. The Company has also agreed to indemnify the Solicitation Agent against
certain liabilities and expenses, including liabilities under federal
securities laws. RP&C International, Inc. will receive no additional
compensation for its services as Solicitation Agent for the Exchange Offer.
In addition, directors, officers and employees of the Company (who
will not be separately compensated for such services) may solicit exchanges by
use of the mails, personally or by telephone, facsimile or similar means of
electronic transmission. The Company also will pay brokerage houses and other
custodians, nominees and fiduciaries their reasonable out-of-pocket expenses
incurred in forwarding copies of this Offering Circular and related documents
to the beneficial owners of the Notes and in handling or forwarding tenders of
Notes by their customers.
No person has been authorized to give any information or to make any
representations in connection with the Exchange Offer other than those
contained in this Offering Circular. If given or made, such information or
representations should not be relied upon as having been authorized by the
Company. Neither the delivery of this Offering Circular nor any exchange made
hereunder shall, under any circumstances, create any implication that there has
been no change in the affairs of the Company since the respective dates as of
which information is given herein. This Offering Circular does not constitute
an offer to exchange, or a solicitation of an offer to exchange, any securities
other than the securities covered by the Offering Circular by the Company or
any other person, nor does it constitute an offer to exchange or a solicitation
of an offer to exchange such securities by the Company, or any such other
person in any jurisdiction in which or to any person to whom it is unlawful to
make any such offer or solicitation. In any jurisdiction the laws of which
require the offer to be made by a licensed broker or dealer, the offer is being
made on behalf of the Company by one or more registered brokers or dealers
licensed under the laws of such jurisdiction.
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CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following is a discussion of certain material U.S. Federal income
tax considerations of (i) the exchange of Notes for the Exchange Consideration,
and (ii) the ownership and disposition of the Exchange Consideration.
The following summary is for general information only and is not tax
advice. The rules governing U.S. Federal income taxation of Non-U.S. Holders
(as defined below) are highly complex, and the following discussion is intended
only as a summary of the applicable rules. This summary is based upon the U.S.
Internal Revenue Code of 1986, as amended (the "Code"), Treasury Regulations
promulgated thereunder (the "Treasury Regulations") (including, but not limited
to, proposed Treasury Regulations which may be finalized in a form different
than their proposed form), court decisions, and administrative rulings and
practice, all as in effect on the date of this Offering Circular. Future
legislative, judicial or administrative changes, which might or might not have
retroactive application, could modify significantly the statements and
conclusions expressed in this summary. The Company has not sought, and does not
intend to seek, a ruling from the Internal Revenue Service (the "Service") or
an opinion of counsel regarding the tax consequences of purchasing, owning or
disposing of the Exchange Consideration or the Conversion Shares. This summary
does not address any state, local or foreign tax considerations that may be
relevant to an investment in the Company.
As used herein, the term "Non-U.S. Holder" means a beneficial holder
who, for U.S. Federal income tax purposes, is not a U.S. Holder. The term "U.S.
Holder" means a beneficial holder who, for U.S. Federal income tax purposes, is
(i) a citizen or resident of the United States, (ii) a corporation or
partnership (or other entity treated as a corporation or partnership for U.S.
Federal income tax purposes) created or organized in or under the laws of the
United States, any state thereof or the District of Columbia (unless otherwise
provided by Treasury Regulations), (iii) an estate the income of which is
subject to U.S. Federal income taxation regardless of its source, or (iv) a
trust with respect to which (A) a court within the United States is able to
exercise primary supervision over the administration of the trust and (B) one
or more U.S. fiduciaries have the authority to control all substantial
decisions of the trust (or certain electing trusts in existence on August 20,
1996 to the extent provided in Treasury Regulations).
The tax treatment of a Non-U.S. Holder will vary depending upon the
holder's particular situation. This discussion addresses only Non-U.S. Holders
that purchased the Notes at their original issuance and held the Notes and will
hold the Exchange Consideration as capital assets. This discussion is not
addressed to holders who subsequently purchase the Common Stock or Preferred
Stock. In addition, this discussion does not purport to deal with all aspects
of taxation that may be relevant to particular holders in light of their
personal investment or tax circumstances, or to certain types of holders
subject to special treatment under the U.S. Federal income tax laws, including,
without limitation, dealers in securities or currencies, banks, tax-exempt
organizations, life insurance companies, persons that hold securities that are
a hedge or that are hedged against currency risks or that are part of a
straddle or conversion transaction.
This summary also does not discuss all of the tax consequences that
may be relevant to a Non-U.S. Holder whose ownership of the Exchange
Consideration is effectively connected with that Non-U.S. Holder's conduct of a
trade or business in the United States or, if a treaty applies, attributable to
a permanent establishment maintained by the Non-U.S. Holder in the United
States. In addition, this summary is not addressed to (i) a Non-U.S. Holder who
is an individual who is present in the United States for 183 days or more in
the taxable year of the disposition of the Exchange Consideration, and either
(A) has a tax home in the United States and the gain from the disposition is
not attributable to an office or other fixed place of business maintained by
that Non-U.S. Holder in a foreign country or (B) the income is attributable to
an office or other fixed place of business maintained by that Non-U.S. Holder
in the United States; (ii) a Non- U.S. Holder who is subject to the provisions
of the U.S. tax law applicable to former citizens and residents of the United
States; or (iii) a Non-U.S. Holder who has elected to be treated as a resident
of the United States for tax purposes.
PROSPECTIVE NON-U.S. HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS TO
DETERMINE THE IMPACT OF FEDERAL, STATE AND LOCAL INCOME TAX LAWS WITH REGARD TO
THE EXCHANGE AND AN INVESTMENT IN THE EXCHANGE CONSIDERATION AND THE CONVERSION
SHARES, INCLUDING REPORTING REQUIREMENTS AS WELL AS THE TAX TREATMENT OF SUCH
AN INVESTMENT IN THEIR HOME COUNTRY LAWS.
EXCHANGE OF NOTES FOR THE EXCHANGE CONSIDERATION
Assuming, as the Company believes, the Notes are securities for U.S.
federal income tax purposes, a Non-U.S. Holder should generally not be subject
to U.S. Federal income tax on any gain or income realized in connection with
the exchange of Notes for the Exchange Consideration.
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DIVIDENDS PAID ON THE EXCHANGE CONSIDERATION
In general, dividends paid to a Non-U.S. Holder on the Exchange
Consideration should be subject to U.S. Federal income tax withholding at a
thirty percent (30%) rate unless such rate is reduced by an applicable U.S.
income tax treaty.
Under present Treasury Regulations, the Company is required to
withhold on the gross amount of all distributions made with respect to its
stock regardless of whether it has any current or accumulated earnings and
profits. Under Treasury Regulations that are proposed to be effective for
distributions made after December 31, 2000, withholding would not be required
on distributions that are not paid out of current or accumulated earnings and
profits. The Company will be given the option of treating the full amount as a
dividend or of treating only a portion of the distribution as a dividend
subject to withholding based upon a reasonable estimate of projected earnings
and profits.
Dividends paid to an address in a foreign country are presumed (absent
actual knowledge to the contrary) to be paid to a resident of such country for
purposes of the withholding tax discussed above and, under the current
interpretation of Treasury Regulations, for purposes of determining the
applicability of a tax treaty rate. A Non-U.S. Holder of the Exchange
Consideration that is eligible for a reduced rate of U.S. Federal withholding
tax pursuant to an income tax treaty may be entitled to a refund of any excess
amounts withheld by filing an appropriate claim for refund with the Service.
All dividends on the Preferred Stock Consideration will be paid without
reduction for any withholding tax.
SALE OF THE EXCHANGE CONSIDERATION
A Non-U.S. Holder of the Exchange Consideration should generally not
be subject to U.S. Federal income or withholding tax on gain realized on the
sale, exchange or redemption (provided that the redemption is treated as the
sale or exchange of the stock) of such stock, unless the Company is, or has
been, a U.S. real property holding company under the FIRPTA. A "U.S. real
property holding company" is defined as any corporation if the fair market
value of its U.S. real property interests equals or exceeds fifty percent (50%)
of the fair market value of the sum of (i) its U.S. real property interests,
(ii) its interests in real property located outside the United States, plus
(iii) any other of its assets which are used or held for use in a trade or
business. The Company believes that it is not U.S. real property holding
company at this time. However, there can be no assurance that the Company is
correct or that the Company will not be a U.S. real property holding company at
the time any Non-U.S. Holder sells the Exchange Consideration.
CONVERSION OF PREFERRED STOCK CONSIDERATION TO CONVERSION SHARES
A Non-U.S. Holder should not recognize gain or loss upon the exchange
of the Preferred Stock Consideration for Conversion Shares. The Non-U.S.
Holder's tax basis in the Conversion Shares received in the exchange should be
the same as the Non-U.S. Holder's tax basis of the Preferred Stock
Consideration exchanged therefor (reduced by the portion of such tax basis
allocable to any fractional Common Stock interest for which the Non-U.S. Holder
receives a cash payment from the Company). The holding period of the Conversion
Shares received in the exchange should include the holding period of the
Preferred Stock Consideration that was exchanged therefor. A Non-U.S. Holder
who receives cash in lieu of a fractional share of Common Stock shall be
treated as having sold that portion of the Preferred Stock Consideration for
cash.
ADJUSTMENTS TO PREFERRED CONVERSION PRICE
Pursuant to Treasury Regulations promulgated under Section 305 of the
Code, a Non-U.S. Holder of Preferred Stock Consideration should be treated as
having received a constructive distribution from the Company upon an adjustment
in the Preferred Conversion Price if (i) as a result of such adjustment, the
proportionate interest of such Non-U.S. Holder in the assets or earnings and
profits of the Company is increased and (ii) the adjustment is not made
pursuant to a bona fide, reasonable anti-dilution formula. An adjustment in the
Preferred Conversion Price would not be considered made pursuant to such
formula if the adjustment were made to compensate for certain taxable
distributions with respect to the Conversion Shares into which the Preferred
Stock Consideration is convertible. Thus, under certain circumstances, a
decrease in the Preferred Conversion Price may be taxable to a Non-U.S. Holder
of Preferred Stock Consideration as a dividend to the extent of the current or
accumulated earnings and profits of the Company. In addition, the failure to
adjust fully the Preferred Conversion Price to reflect distributions of stock
dividends with respect to the Common Stock Consideration may result in a
taxable dividend to the Non-U.S. Holders of the Common Stock Consideration.
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ESTATE TAXES
Exchange Consideration held directly by an individual who at the time
of death is not a citizen or resident of the United States will nevertheless
generally be included in the gross estate of such individual for U.S. estate
tax purposes, subject to contrary provisions of an applicable estate tax
treaty.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES TO HARKEN
The Company anticipates that if the Exchange Offer is fully subscribed
by the Noteholders, the resulting transaction may result in some potential gain
recognition by the Company. The Company has accumulated over past years a net
tax loss carry forward ("NOL") that it believes will be sufficient to offset in
all material respects any tax liability that may arise to the Company from such
transaction. The Company does not believe that it has triggered an "ownership
change" with respect to the Company for federal income tax purposes in the
past, nor that the currently contemplated Exchange Offer will trigger such an
ownership change. If, however, an ownership change were determined to have
occurred at some time in the past or to occur from this presently contemplated
transaction, then the ability of the Company to use NOLs from periods before
such a change as an offset to current or future tax liability may be limited.
DESCRIPTION OF CAPITAL STOCK
COMMON STOCK
Harken's Certificate of Incorporation, as amended ("Certificate of
Incorporation") authorizes the issuance of 225,000,000 shares of Common Stock.
As of November 19, there were 153,522,248 shares issued and held of record by
approximately 3,443 stockholders. As of such date, there were no shares of
Common Stock held in the treasury.
The shares of Common Stock are equal in all respects. Each issued and
outstanding share of Common Stock entitles the holder thereof to one vote on
all matters submitted to a vote of stockholders. The Certificate of
Incorporation permits cumulative voting of shares for any election of directors,
however, it does not permit preemptive rights to stockholders to acquire
additional shares. The Certificate of Incorporation makes no provisions with
respect to subscription or conversion rights, redemption privileges, or sinking
funds with respect to shares of Common Stock. The Common Stock presently issued
and outstanding is fully paid and non-assessable. The Common Stock to be issued
upon any conversion of the Notes will, when issued, be fully paid and
non-assessable.
The number of directors constituting the full Board of Directors of
Harken has been established as ten, in accordance with Harken's Bylaws. The
Certificate of Incorporation provides that the number of directors be divided
into Classes A, B and C, with staggered terms of three years each. The Class A,
B and C terms expire in 2000, 2001 and 2002, respectively. The Class A, B and C
directorships consist of three, three and four positions respectively. The
Class C term currently has one open and unfilled seat. As noted above, the
holders of Harken Common Stock are entitled to cumulate their votes in the
election of directors by voting the total number of shares of Harken Common
Stock held by them multiplied by the number of directors to be elected. Because
Harken's Board of Directors is divided into classes, Harken's stockholders do
not have the ability to cumulate their vote with respect to the entire number
of board members at each annual meeting, but only with respect to the number of
nominees for the particular class of directors to be elected. Further, the
classification of the Board of Directors could create impediments or otherwise
discourage persons from attempting to gain control of Harken because the
director terms do not all expire at the same time, thereby making it difficult
to replace all of the directors at any one annual meeting. Further, as a result
of stockholders having the right to cumulate their votes in the election of
directors, minority stockholders might be able to elect at least one director
in an election for directors for a particular class, which also might impede or
otherwise discourage persons attempting to gain control of Harken.
Upon liquidation, dissolution or winding up of the affairs of Harken,
holders of Common Stock are entitled to receive pro rata all of the assets of
Harken available for distribution to stockholders, after payment of any
liquidation preference on any preferred stock outstanding at the time. Subject
to the rights of holders of Preferred Stock (as defined below), dividends on
the Common Stock may be paid if, as and when declared by the Board of Directors
out of funds legally available therefor. Harken does not anticipate declaring
or paying any cash dividend on the Common Stock in the foreseeable future.
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AUTHORIZED PREFERRED STOCK
Harken's Certificate of Incorporation authorizes the Board of
Directors, without first obtaining the approval of the holders of Common Stock,
to issue up to 10,000,000 shares of preferred stock, par value of $1.00 per
share ("Authorized Preferred Stock"). The Authorized Preferred Stock may be
issued in one or more series, and Harken's Board of Directors is authorized to
establish the terms and conditions of such series including, but not limited to
(i) the designation and number of shares constituting each series, (ii) the
dividend rate payable, if any, and whether such dividends are cumulative or
non-cumulative, (iii) voting rights, if any, (iv) redemption rights, if any,
(v) conversion or preference rights, if any and (vi) any other rights and
qualifications, preferences, and limitations or restrictions of the shares of
such series. In addition to the series of preferred stock described below, the
Company has four series of preferred stock authorized for issuance, no shares
of which were outstanding as of the date of this Offering Circular.
Series E Junior Preferred
On April 6, 1998, the Board of Directors of the Company declared a
dividend of one preferred share purchase right (a "Right") for each outstanding
share of Common Stock. The dividend was paid on April 17, 1998 (the "Record
Date") to the stockholders of record on that date. Each Right entitles the
registered holder to purchase from the Company one one-thousandth of a share of
Series E Junior Participating Preferred Stock, par value $1.00 per share, of
the Company (the "Series E Preferred Stock") at a price of $35.00 per one
one-thousandth of a share of Series E Preferred Stock (the "Purchase Price"),
subject to adjustment. The description and terms of the Rights are set forth in
a Rights Agreement dated as of April 6, 1998, (the "Rights Agreement") between
the Company and ChaseMellon Shareholder Services L.L.C., as Rights Agent (the
"Rights Agent").
Until the earlier to occur of (i) 10 days following a public
announcement that a person or group of affiliated or associated persons (with
certain exceptions, an "Acquiring Person") has acquired beneficial ownership of
15% or more of the outstanding shares of Common Stock or (ii) 10 business days
(or such later date as may be determined by action of the Board of Directors
prior to such time as any person or group of affiliated persons becomes an
Acquiring Person) following the commencement of, or announcement of an
intention to make, a tender offer or exchange offer the consummation of which
would result in the beneficial ownership by a person or group of 15% or more of
the outstanding shares of Common Stock (the earlier of such dates being called
the "Distribution Date"), the Rights will be evidenced, with respect to any of
the Common Stock certificates outstanding as of the Record Date, by such Common
Stock certificate together with a copy of a Summary of Rights to Purchase
Shares of Series E Preferred Stock of Harken Energy Corporation (the "Summary
of Rights") that was mailed to the holders of such stock as of the Record Date.
The Rights Agreement provides that, until the Distribution Date (or
earlier expiration of the Rights), the Rights will be transferred with and only
with the Common Stock. Until the Distribution Date (or earlier expiration of
the Rights), new Common Stock certificates issued after the Record Date upon
transfer or new issuances of Common Stock will contain a notation incorporating
the Rights Agreement by reference. Until the Distribution Date (or earlier
expiration of the Rights), the surrender for transfer of any certificates for
shares of Common Stock outstanding as of the Record Date, even without such
notation or a copy of the Summary of Rights, will also constitute the transfer
of the Rights associated with the shares of Common Stock represented by such
certificate. As soon as practicable following the Distribution Date, separate
certificates evidencing the Rights ("Right Certificates") will be mailed to
holders of record of the Common Stock as of the close of business on the
Distribution Date and such separate Right Certificates alone will evidence the
Rights.
The Rights are not exercisable until the Distribution Date. The Rights
will expire on April 6, 2008 (the "Final Expiration Date"), unless the Final
Expiration Date is advanced or extended or unless the Rights are earlier
redeemed or exchanged by the Company, in each case as described below.
The Purchase Price payable, and the number of shares of Series E
Preferred Stock or other securities or property issuable, upon exercise of the
Rights is subject to adjustment from time to time to prevent dilution (i) in
the event of a stock dividend on, or a subdivision, combination or
reclassification of, the Series E Preferred Stock, (ii) upon the grant to
holders of the Series E Preferred Stock of certain rights or warrants to
subscribe for or purchase Series E Preferred Stock at a price, or securities
convertible into Series E Preferred Stock with a conversion price, less than
the then-current market price of the Series E Preferred Stock or (iii) upon the
distribution to holders of the Series E Preferred Stock of evidences of
indebtedness or assets (excluding regular periodic cash dividends or dividends
payable in Series E Preferred Stock) or of subscription rights or warrants
(other than those referred to above).
The number of outstanding Rights is also subject to adjustment in the
event of a stock dividend on the Common Stock payable in shares of Common Stock
or subdivisions, consolidations or combinations of the Common Stock occurring,
in any such case, prior to the Distribution Date.
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Shares of Series E Preferred Stock purchasable upon exercise of the
Rights will not be redeemable. Each share of Series E Preferred Stock will be
entitled, when, as and if declared, to a minimum preferential quarterly
dividend payment of $10.00 per share but will be entitled to an aggregate
dividend of 1,000 times the dividend declared per share of Common Stock. In the
event of liquidation, dissolution or winding up of the Company, the holders of
the Series E Preferred Stock will be entitled to a minimum preferential
liquidation payment of $1,000.00 per share (plus any accrued but unpaid
dividends) but will be entitled to an aggregate payment of 1,000 times the
payment made per share of Common Stock. Each share of Series E Preferred Stock
will have 1,000 votes, voting together with the Common Stock. Finally, in the
event of any merger, consolidation or other transaction in which outstanding
shares of Common Stock are converted or exchanged, each share of Series E
Preferred Stock will be entitled to receive 1,000 times the amount received per
share of Common Stock. These rights are protected by customary antidilution
provisions.
Because of the nature of the Series E Preferred Stock's dividend,
liquidation and voting rights, the value of the one one-thousandth interest in
a share of Series E Preferred Stock purchasable upon exercise of each Right
should approximate the value of one share of Common Stock.
In the event that any person or group of affiliated or associated
persons becomes an Acquiring Person, each holder of a Right, other than Rights
beneficially owned by the Acquiring Person (which will thereupon become void),
will thereafter have the right to receive upon exercise of a Right that number
of shares of Common Stock having a market value of two times the exercise price
of the Right.
In the event that, after a person or group has become an Acquiring
Person, the Company is acquired in a merger or other business combination
transaction or 50% or more of its consolidated assets or earning power are
sold, proper provisions will be made so that each holder of a Right (other than
Rights beneficially owned by an Acquiring Person which will have become void)
will thereafter have the right to receive upon the exercise of a Right that
number of shares of common stock of the person with whom the Company has
engaged in the foregoing transaction (or its parent) which at the time of such
transaction have a market value of two times the exercise price of the Right.
At any time after any person or group becomes an Acquiring Person and
prior to the earlier of one of the events described in the previous paragraph
or the acquisition by such Acquiring Person of 50% or more of the outstanding
shares of Common Stock, the Board of Directors of the Company may exchange the
Rights (other than Rights owned by such Acquiring Person which will have become
void), in whole or in part, for shares of Common Stock or Series E Preferred
Stock (or a series of the Company's preferred stock having equivalent rights,
preferences and privileges), at an exchange ratio of one share of Common Stock,
or a fractional share of Series E Preferred Stock (or other preferred stock)
equivalent in value thereto, per Right.
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractional shares of Series E Preferred Stock or Common
Stock will be issued (other than fractions of Series E Preferred Stock which
are integral multiples of one one-thousandth of a share of Series E Preferred
Stock, which may, at the election of the Company, be evidenced by depositary
receipts), and in lieu thereof an adjustment in cash will be made based on the
current market price of the Series E Preferred Stock or the Common Stock.
At any time prior to the time an Acquiring Person becomes such, the
Board of Directors of the Company may redeem the Rights in whole, but not in
part, at a price of $0.01 per Right (the "Redemption Price"). The redemption of
the Rights may be made effective at such time, on such basis and with such
conditions as the Board of Directors in its sole discretion may establish.
Immediately upon any redemption of the Rights, the right to exercise the Rights
will terminate and the only right of the holders of Rights will be to receive
the Redemption Price.
For so long as the Rights are then redeemable, the Company may, except
with respect to the redemption price, amend the Rights Agreement in any manner.
After the Rights are no longer redeemable, the Company may, except with respect
to the redemption price, amend the Rights Agreement in any manner that does not
adversely affect the interests of holders of the Rights.
Until a Right is exercised or exchanged, the holder thereof, as such,
will have no rights as a stockholder of the Company, including, without
limitation, the right to vote or to receive dividends.
The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire the Company
in certain circumstances. Accordingly, the existence of the Rights may deter
certain acquirors from making takeover proposals or tender offers. The Rights
should not interfere with any merger or other business combination approved by
the Board of Directors of the Company since the Board of Directors may, at its
option, at any time prior to the time an Acquiring Person becomes such, redeem
all but not less than all the then outstanding Rights at $0.01 per Right.
For the purposes of the Rights Agreement, the Board of Directors has
established the Series E Preferred Stock with 175,000 authorized shares, none
of which were outstanding as of the date of this Offering Circular, from the
shares of preferred stock the
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Board of Directors is authorized pursuant to the Company's Certificate of
Incorporation to establish and issue by resolution without any further
stockholder approval. Shares of the Series E Preferred Stock may be purchased
pursuant to the terms and conditions of the Rights Agreement. Rights and
privileges of the Series E Preferred Stock are set forth in the form of
Certificate of Designation which is included as an Exhibit to the Rights
Agreement that is an Exhibit to the Current Report on Form 8-K of the Company
dated April 6, 1998. The foregoing description of the Rights does not purport
to be complete and is qualified in its entirety by reference to the Rights
Agreement.
Series F Preferred
In April 1998, resolutions were adopted and filed to authorize the
issuance of up to 15,000 shares of Series F Convertible Preferred Stock (the
"Series F Preferred"). As of January 1999, all of the shares of this Series F
Preferred had been redeemed fully by the Company, and no Series F Preferred
shares were outstanding as the date of this Offering Circular.
Series G Preferred
For a description of the terms of the Preferred Stock, see the
Certificate of Designation of the Preferred Stock attached hereto as Appendix
A.
PRIVATE WARRANTS
The Company has issued certain private warrants (the "Private
Warrants") as compensation for services rendered in connection with several
transactions. At November 1999, the Company had outstanding: (a) 1,120,000
Series 97A Warrants exercisable at a price of $5.00 per share; (b) 200,000
Series 98B Warrants exercisable at a price of $6.50 per share; (c) 200,000
Series 98C Warrants exercisable at a price of $3.50 per share; and (d)
2,336,066 Series 99A Warrants exercisable at a price of $2.50 per share. The
Series 98B Warrants referred to above were issued to RP&C International, Inc.
in connection with the sale of the Notes on May 26, 1998. See "Notes to
Consolidated Financial Statements" contained in the Annual Report and the
Quarterly Reports. The Company has also agreed to issue to RP&C International,
Inc. 200,000 Series 99B Warrants exercisable at market price in connection with
the closing of this Exchange Offer. See "The Exchange Offer -- Solicitation of
Tenders; Expenses."
DELAWARE LAW WITH RESPECT TO BUSINESS COMBINATIONS
Harken is subject to the "business combination" statute of the DGCL.
Section 203 of the DGCL prohibits a publicly held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an "interested stockholder," unless (a) prior to such date the board of
directors of the corporation approved either the "business combination" or the
transaction which resulted in the stockholder becoming an "interested
stockholder," (b) upon consummation of the transaction which resulted in the
stockholder becoming an "interested stockholder," the "interested stockholder"
owned at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced, excluding for purposes of determining the
number of shares outstanding those shares owned (i) by persons who are
directors and also officers and (ii) employee stock plans in which employee
participants do not have the right to determine confidentially whether shares
held subject to the plan will be tendered in a tender or exchange offer, or (c)
on or subsequent to such date the "business combination" is approved by the
board of directors and authorized at an annual or special meeting of
stockholders by the affirmative vote of at least 66% of the outstanding voting
stock which is not owned by the "interested stockholder." A "business
combination" includes mergers, stock or asset sales and other transactions
resulting in a financial benefit to the "interested stockholders." An
"interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years, did own) 15% or more of the
corporation's voting stock.
RIGHTS PLAN
On April 6, 1998, the Company's Board of Directors adopted a
Stockholder Rights Plan in which Rights were distributed as a dividend at the
rate of one Right for each share of common stock, par value $0.01 per share, of
the Company held by stockholders of record, as of the close of business on
April 17, 1998. The Rights trade in tandem with the Common Stock unless there
is an event which triggers the Rights Plan making them exercisable. Once
becoming exercisable, the Rights will trade separate from the common stock and
may be exchanged under the terms of the Rights Plan for preferred stock or
other securities as may be determined by the Board at that time. The Rights
Plan is designed to deter certain types of unfair takeover tactics and to
prevent an acquiror from gaining control of the Company without offering a fair
price to all of the Company's stockholders. The Rights will expire on April 6,
2008. The Rights will be exercisable only if a person or group acquires
beneficial ownership of 15% or more of the Company's common stock or commences
a tender or exchange offer to acquire a total of 15% or more of the Common
Stock. See "-- Preferred Stock -- Series E."
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<PAGE> 47
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock and the
Preferred Stock is ChaseMellon Shareholder Services, and the address is 2323
Bryan Street, Suite 2300, Dallas, Texas 75201.
REPORTS TO STOCKHOLDERS
The Company furnishes its stockholders with annual reports containing
audited financial statements and such other periodic reports as the Company may
determine to be appropriate or as may be required by law. Copies of any such
recent reports are available upon request from the Solicitation Agent or the
Company.
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<PAGE> 48
SELLING RESTRICTIONS
The Exchange Consideration and the Conversion Shares have not been
registered under the Securities Act and may not be offered or sold within the
U.S. or to, or for the account or benefit of, U.S. persons except in certain
transactions exempt from the registration requirements of the Securities Act or
pursuant to an effective registration statement. The Company has agreed to file
at the earliest practicable date and in any event not later than ninety (90)
days from the first date of issuance of the Exchange Consideration, a
registration statement with the Commission on an appropriate form to permit
resales of the Common Stock Consideration and the Conversion Shares in the U.S.
markets and to use its best efforts to maintain the effectiveness of such
registration statement until such time as an exemption from registration to
permit sales of the Conversion Shares in the U.S. markets without restrictions
under the Securities Act is available. The Company has not filed and does not
intend to file a registration statement with respect to the Preferred Stock
Consideration. Holders should contact their own legal advisors before
effectuating any resales of the foregoing securities. Terms used in this
paragraph have the meanings given to them by Regulation S under the Securities
Act.
Each Noteholder tendering Notes for exchange pursuant to the Exchange
Offer will be required to certify, and will be deemed to have represented and
agreed, as follows:
(1) it is not a "U.S. person" (as defined in Regulation S), and
it is acquiring the Exchange Consideration, and if the
Exchange Consideration is converted, the Conversion Shares
for its own account or for an account with respect to which
it exercises sole investment discretion and not for the
account or benefit of any U.S. person;
(2) it acknowledges that the Exchange Consideration and the
Conversion Shares have not been registered under the
Securities Act and may not be offered or sold within the
United States or to, or for the account or benefit of, U.S.
persons except as permitted below;
(3) it understands and agrees that the Exchange Consideration is
being offered only in a transaction not involving any public
offering within the meaning of the Securities Act and that
the Exchange Consideration and the Conversion Shares are
"restricted securities" as that term is defined in Rule 144
promulgated under the Securities Act;
(4) it understands and agrees that (A) if it decides to resell,
pledge, or otherwise transfer the Exchange Consideration or
Conversion Shares on which the legend described below appears
prior to the end of the one year Distribution Compliance
Period, the Preferred Stock Consideration, and the Common
Stock Consideration and the Conversion Shares may be resold,
pledged or transferred only (i) to the Company, (ii) so long
as such securities are eligible for resale pursuant to Rule
144A, to a person whom the seller reasonably believes is a
QUIB that purchases for its own account or for the account of
a QUIB to whom notice is given that the resale, pledge or
transfer is being made in reliance on Rule 144A, (iii)
pursuant to offers and sales that occur outside the United
States in a transaction meeting the requirements of Rule 904
of Regulation S under the Securities Act, in each case in
accordance with any applicable securities laws of the United
States, or (iv) pursuant to an effective registration
statement, in each case in accordance with any applicable
securities laws of any state of the United States; and (B) it
will, and each subsequent holder is required to, notify the
purchaser of such securities from it of the resale
restrictions referred to in (A) above, if then applicable;
(5) it understands and agrees that (A) if within two years after
the date of original issuance of the Exchange Consideration
or if within three months after it ceases to be an affiliate
(within the meaning of Rule 144 under the Securities Act) of
the Company, it decides to resell, pledge or otherwise
transfer the Exchange Consideration or upon conversion
thereof, the Conversion Shares, as the case may be, on which
the legend described below appears, such securities may be
resold, pledged or transferred only (i) to the Company, (ii)
so long as such securities are eligible for resale pursuant
to Rule 144A, to a person whom the seller reasonably believes
is a QUIB that purchases for its own account or for the
account of a QUIB to whom notice is given that the resale,
pledge or transfer is being made in reliance on Rule 144A,
(iii) pursuant to offers and sales that occur outside the
United States in a transaction meeting the requirements of
Rule 904 of Regulation S under the Securities Act, (iv)
pursuant to an exemption from the registration requirements
of the Securities Act provided by Rule 144 (if applicable)
under the Securities Act, or (v) 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; and (B) it will, and each
subsequent holder is required to, notify the purchaser of
such securities from it of the resale restrictions referred
to in (A) above, if then applicable;
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<PAGE> 49
(6) it understands and agrees that during such time as such
restrictions are applicable prior to any transfer of the
Common Stock Consideration and the Conversion Shares, each
proposed transferee will be required to execute and deliver
to the transfer agent an investor letter in the form attached
to this Offering Circular as Appendix B acknowledging and
agreeing to the selling restrictions on the Exchange
Consideration and the Conversion Shares during such time as
such restrictions are applicable and that such investor
letter shall be a condition precedent to any transfer of such
Common Stock Consideration or Conversion Shares;
(7) it understands and agrees that hedging transactions in the
Exchange Consideration or the Conversion Shares are
prohibited by Regulation S, unless permitted by the
Securities Act;
(8) it understands that the Company has neither any obligation
nor intention to file a registration statement in respect of
the Preferred Stock;
(9) it understands that the Preferred Stock Consideration will
bear the following legend:
"THESE SHARES OF PREFERRED STOCK AND THE SHARES OF COMMON STOCK
ISSUABLE ON CONVERSION OF THESE SHARES OF PREFERRED STOCK (THE "CONVERSION
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,
BY PURCHASING THESE SHARES, AGREES FOR THE BENEFIT OF THE COMPANY THAT THESE
SHARES AND THE CONVERSION SHARES MAY NOT BE RESOLD, PLEDGED OR OTHERWISE
TRANSFERRED, EXCEPT AS FOLLOWS.
PRIOR TO THE FIRST ANNIVERSARY OF THE ISSUANCE OF THESE SHARES OF
PREFERRED STOCK, THESE SHARES OF PREFERRED STOCK MAY NOT BE SO TRANSFERRED
OTHER THAN (1) TO THE COMPANY, (2) SO LONG AS THESE 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
INVESTOR 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, 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 OR THE UNITED STATES.
AFTER THE FIRST ANNIVERSARY AND PRIOR TO THE SECOND ANNIVERSARY OF THE
ISSUANCE OF THESE SHARES OF PREFERRED STOCK, THESE SHARES MAY NOT BE SO
TRANSFERRED OTHER THAN (1) TO THE COMPANY, (2) SO LONG AS THESE SHARES ARE
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 OR THE UNITED STATES.
IF THE HOLDER OF THESE 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 THESE SHARES OF PREFERRED STOCK OR
THE CONVERSION 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, AS
AMENDED."
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<PAGE> 50
(10) it understands that the Common Stock Consideration and the
Conversion Shares will bear the following legend:
"THESE 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, BY PURCHASING THESE SHARES, AGREES FOR THE BENEFIT OF THE
COMPANY THAT THESE SHARES MAY NOT BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED,
EXCEPT AS FOLLOWS.
PRIOR TO THE FIRST ANNIVERSARY OF THE ISSUANCE OF THESE SHARES (OR THE
ISSUANCE OF THE PREFERRED STOCK, IF SUCH SHARES WERE FORMERLY UNDERLYING SHARES
OF PREFERRED STOCK), THESE SHARES MAY NOT BE SO TRANSFERRED OTHER THAN (1) TO
THE COMPANY, (2) SO LONG AS THESE 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 INVESTOR 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,
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 OR THE UNITED STATES.
AFTER THE FIRST ANNIVERSARY AND PRIOR TO THE SECOND ANNIVERSARY OF THE
ISSUANCE OF THESE SHARES (OR THE ISSUANCE OF THE PREFERRED STOCK, IF SUCH
SHARES WERE FORMERLY UNDERLYING SHARES OF PREFERRED STOCK), THESE SHARES MAY
NOT BE SO TRANSFERRED OTHER THAN (1) TO THE COMPANY, (2) SO LONG AS THESE
SHARES ARE 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 OR THE UNITED STATES.
IF THE HOLDER OF THESE 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 THESE 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, AS
AMENDED."
(11) it (i) has such knowledge and experience in financial and
business matters as to be capable of evaluating the merits
and risks of its prospective investment in the Exchange
Consideration and the Conversion Shares and (ii) has the
ability to bear the economic risks of its prospective
investment and can afford the complete loss of such
investment;
(12) it has received a copy of the Offering Circular relating to
the offering, understands that any decision to subscribe for
the Exchange Consideration must be made only on the basis of
the Offering Circular, acknowledges that it has had access to
such financial and other information, and has been afforded
the opportunity to ask questions of the Company and receive
answers thereto, as it deemed necessary in connection with
its decision to exchange the Notes for the Exchange
Consideration and makes its subscription subject to and on
the basis of the provisions and terms of such Offering
Circular;
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<PAGE> 51
(13) it understands that the Company and others will rely upon the
truth and accuracy of the foregoing acknowledgments,
representations and agreements and agrees that if any of the
acknowledgments, representations and warranties deemed to
have been made by it by its purchase of the Exchange
Consideration are no longer accurate, it shall promptly
notify the Company. If it is acquiring the Exchange
Consideration as a fiduciary or agent for one or more
investor accounts, it represents that it has full power to
make the foregoing acknowledgments, representations and
agreements on behalf of such account; and
(14) it will, if requested by the Company, deliver to the Company,
a certificate which will confirm the matters referred to in
these representations to the satisfaction of the Company,
acting reasonably.
IF THE COMPANY FAILS TO REGISTER THE COMMON STOCK CONSIDERATION AND
THE CONVERSION SHARES OR FAILS TO MAINTAIN THE EFFECTIVENESS OF THE
REGISTRATION STATEMENT WITH RESPECT TO THE COMMON STOCK CONSIDERATION AND THE
CONVERSION SHARES, THEN ANY SHARES WHICH ARE NOT SO REGISTERED WILL CONTINUE TO
BE SUBJECT TO THE TRANSFER RESTRICTIONS DESCRIBED ABOVE.
The Company may, in its discretion, revise the selling restrictions on
the Exchange Consideration and/or the Conversion Shares if the Commission
should, subsequent to the date of this Offering Circular, give advice or
interpretations respecting such restrictions imposed by Regulation S or Rule
144 or should the Commission amend Regulation S or Rule 144 respecting such
restrictions.
The Exchange Consideration is subject to U.S. tax law requirements and
may not be offered, sold or delivered within the U.S. or its possessions or to
a U.S. person, except in certain transactions permitted by U.S. tax
regulations. Terms used in this paragraph have the meanings given to them by
the Code (as defined herein) and regulations thereunder.
Each distributor has represented and agreed that (a) it has not
offered or sold and, prior to the expiry of the period of six months from the
Closing Date will not offer or sell any Exchange Consideration to persons in
the United Kingdom, by means of any document, other than to persons whose
ordinary activities involve them in acquiring, holding, managing or disposing
of investments (as principal or agent) for the purposes of their businesses or
otherwise in circumstances which have not resulted and will not result in an
offer to the public in the United Kingdom within the meaning of the Public
Offers of Securities Regulations 1995; (b) it has complied and will comply with
all applicable provisions of the Financial Services Act 1986 with respect to
anything done by it in relation to the Exchange Consideration in, from or
otherwise involving the United Kingdom; and (c) it has only issued or passed on
and will only issue or pass on in the United Kingdom any document it received
by it in connection with the issue of the Exchange Consideration to a person
who is a kind of person described in Article 11(3) of the Financial Services
Act 1986 (Investment Advertisements) (Exemptions) Order 1996, as amended, or is
a person to whom such document may otherwise lawfully be issued or passed on.
No action has been or will be taken that would permit a public
offering of the Exchange Consideration or the possession or distribution of
this Offering Circular or any other offering material relating to the Exchange
Consideration in any country or jurisdiction where action for that purpose is
required. Accordingly, the Exchange Consideration may not be offered or sold,
directly or indirectly, and neither this Offering Circular nor any circular,
prospectus, form of application, advertisement or other offering material
relating to the Exchange Consideration may be distributed in or from or
published in any country or jurisdiction, except under circumstances that will
result in compliance with any applicable laws and regulations.
THE COMPANY DOES NOT INTEND TO FILE A REGISTRATION STATEMENT IN THE
UNITED STATES CONCERNING ANY RESALE OF THE PREFERRED STOCK. THEREFORE, THE
ABILITY TO RESELL SUCH SHARES WILL DEPEND SOLELY UPON THE AVAILABILITY OF AN
EXEMPTION FROM REGISTRATION.
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<PAGE> 52
DEFINITION OF U.S. PERSON UNDER REGULATION S
"U.S. person" means:
(i) Any natural person resident in the United States;
(ii) Any partnership or corporation organized or incorporated
under the laws of the United States;
(iii) Any estate of which any executor or administrator is a U.S.
person;
(iv) Any trust of which any trustee is a U.S. person;
(v) Any agency or branch of a foreign entity located in the
United States;
(vi) Any non-discretionary account or similar account (other than
an estate or trust) held by a dealer or other fiduciary for
the benefit or account of a U.S. person;
(vii) Any discretionary account or similar account (other than an
estate or trust) held by a dealer or other fiduciary
organized, incorporated, or (if an individual) resident in
the United States; and
(viii) Any partnership or corporation if:
(A) organized or incorporated under the laws of any
foreign jurisdiction; and
(B) formed by a U.S. person principally for the purpose
of investing in securities not registered under the
Act, unless it is organized or incorporated, and
owned, by accredited investors (as defined in Rule
501(a) of the Securities Act) who are not natural
persons, estates or trusts.
The following are not "U.S. persons":
(i) Any discretionary account or similar account (other than an
estate or trust) held for the benefit or account of a
non-U.S. person by a dealer or other professional fiduciary
organized, incorporated, or (if an individual) resident in
the United States;
(ii) Any estate of which any professional fiduciary acting as
executor or administrator is a U.S. person if:
(A) An executor or administrator of the estate who is not
a U.S. person has sole or shared investment
discretion with respect to the assets of the estate;
and
(B) The estate is governed by foreign law;
(iii) Any trust of which any professional fiduciary acting as
trustee is a U.S. person, if a trustee who is not a U.S.
person has sole or shared investment discretion with respect
to the trust assets, and no beneficiary of the trust (and no
settlor if the trust is revocable) is a U.S. person;
(iv) An employee benefit plan established and administered in
accordance with the law of a country other than the United
States and customary practices and documentation of such
country;
(v) Any agency or branch of a U.S. person located outside the
United States if:
(A) The agency or branch operates for valid business
reasons; and
(B) The agency or branch is engaged in the business of
insurance or banking and is subject to substantive
insurance or banking regulation, respectively, in the
jurisdiction where located; and
(vi) The International Monetary Fund, the International Bank for
Reconstruction and Development, the Inter-American
Development Bank, the Asian Development Bank, the African
Development Bank, the United Nations, and their agencies,
affiliates and pension plans, and any other similar
international organizations, their agencies, affiliates and
pension plans.
"United States" means the United States of America, its territories and
possessions, any State of the United States, and the District of Columbia.
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GLOBAL PREFERRED STOCK CERTIFICATES; BOOK ENTRY
The Preferred Stock will be represented initially by a single,
temporary global Preferred Stock certificate (the "Temporary Global
Certificate") in fully registered form and will be deposited with or on behalf
of The Depository Trust Company as depository ("DTC") and registered in the
name of DTC or its nominee. On or shortly after the Closing Date, the DTC
accounts for Euroclear and Cedelbank will be credited with the appropriate
amounts of Preferred Stock as requested by the Agent Member Banks, and the
interests in the Preferred Stock so credited will be held by Euroclear and
Cedelbank on behalf of such Agent Member Banks. On or after the first
anniversary of the Closing Date, upon certification as to non-U.S. person or
QUIB beneficial ownership, the Company will deposit a single, permanent global
Preferred Stock certificate (the "Global Certificate") in fully registered form
with or on behalf of DTC and registered in the name of DTC or its nominee to
replace the Temporary Global Certificate. The Temporary Global Certificate will
then be cancelled. Except as described herein, Preferred Stock certificates
will not be issued in exchange for beneficial interests in such Global
Certificates.
Upon the issuance of the Temporary Global Certificate and the Global
Certificate (the "Global Certificates"), DTC or its custodian will credit, on
its internal system, the individual beneficial interests represented by such
Global Certificates, to the accounts of persons who have accounts with such
depositary. Such accounts initially will be designated by or on behalf of HSBC
Bank USA, which, in turn, will credit the DTC accounts of Euroclear and
Cedelbank as described above. Ownership of beneficial interests in the Global
Certificates will be limited to persons who have accounts with DTC
("participants") or persons who hold interests through participants. Ownership
of beneficial interests in the Global Certificates will be shown on, and the
transfer of that ownership will be effected only through, records maintained by
DTC or its nominee (with respect to interests of participants) and the records
of participants (with respect to interests of persons other than participants).
So long as DTC, or its nominee, is the registered owner or holder of
the Global Certificates, DTC or such nominee, as the case may be, will be
considered the sole owner or holder of the Preferred Stock represented by such
Global Certificates for all purposes under the Certificate of Designation and
the Preferred Stock. No beneficial owner of an interest in the Global
Certificates will be able to transfer that interest except in accordance with
DTC's applicable procedures, in addition to those provided for under the
Certificate of Designation.
Payments and other distributions with respect to the Preferred Stock,
whether in cash or in Common Stock, will be made to DTC or its nominee, as the
case may be, as the registered owner thereof. The Company will not have any
responsibility or liability for any aspect of the records relating to or
payments or other distributions made on account of beneficial ownership
interests in the Global Certificates or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests.
The Company expects that DTC or its nominee, upon receipt of any
payments made with respect to the Global Certificates, will credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the amount of such Global Certificates as
shown on the records of DTC or its nominee. The Company also expects that
payments by participants to owners of beneficial interests in such Global
Certificates held through such participants will be governed by standing
instructions and customary practices, as is now the case with securities held
for the accounts of customers registered in the names of nominees for such
customers. Such payments will be the responsibility of such participants.
The Company understands that DTC will take any action permitted to be
taken by a holder of Preferred Stock (including the presentation of the
Conversion Notice in the form attached to the Certificate of Designation as
Exhibit A) only at the direction of one or more participants to whose account
the interests in the Global Certificates are credited and only in respect of
such portion of the aggregate interest in the Preferred Stock as to which such
participant or participants has or have given such direction. In order to
exercise a conversion right, the holder of each share of Preferred Stock to be
converted must comply with the procedures for conversion as provided by DTC and
the DTC participant holding the Preferred Stock on behalf of the holder. Each
such holder must also give written notice to the Company in the form of the
Conversion Notice. Such Conversion Notice must also state the name or names
(with address) in which the shares of Conversion Shares shall be issued.
Beneficial owners will have no direct voting rights with respect to
the Preferred Stock. DTC alone, as registered owner of the Preferred Stock,
will have voting rights associated with the Preferred Stock in accordance with
its standard procedures. Further, as described herein, the rights of the
beneficial owners of the Preferred Stock, including, without limitation, the
right of beneficial owners to receive notice, are in certain cases subject to
and dependent on the actions and procedures of and agreements and arrangements
among DTC and the DTC participants. Beneficial owners of Preferred Stock are
advised to clarify and confirm such actions, procedures, agreements and
arrangements directly with the applicable DTC participants.
Transfers between participants in DTC will be effected in the ordinary
way in accordance with DTC rules and will be settled in same-day funds.
The Company understands that DTC is a limited purpose trust company
organized under the laws of the State of New York, a "banking organization"
within the meaning of New York Banking Law, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the Uniform Commercial
Code and a "Clearing Agency" registered pursuant to the provisions
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<PAGE> 54
of Section 17A of the Exchange Act. DTC was created to hold securities for its
participants and facilitate the clearance and settlement of securities
transactions between participants through electronic book-entry changes in
accounts of its participants. Indirect access to the DTC system is available to
others such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a participant, either directly or
indirectly ("indirect participants").
Although DTC is expected to follow the foregoing procedures in order
to facilitate transfers of interests in the Global Certificates among
participants of DTC, it is under no obligation to perform or continue to
perform such procedures, and such procedures may be discontinued at any time.
The Company will not have any responsibility for the performance by DTC or its
respective participants or indirect participants of its or their respective
obligations under the rules and procedures governing their operations.
If DTC is at any time unwilling or unable to continue as a depositary
for the Global Certificates and a successor depositary is not appointed by us
within 90 days, the Company will issue certificated Preferred Stock in exchange
for the Global Certificates, which will bear the applicable legend referred to
under the heading "Selling Restrictions."
In addition to any required Publication Notice, so long as a
book-entry system is used for the Preferred Stock, the Company will send any
notice of redemption or other notices with respect to the Preferred Stock only
to DTC. Any failure of DTC to advise any DTC participant, or of any DTC
participant or indirect participant to notify the beneficial owner, of any such
notices and their contents or effect will not affect the validity of the
redemption of the Preferred Stock called for redemption or of any other action
premised on such notice. The Company will not have any responsibility or
obligation to DTC participants, or the persons for whom DTC participants act as
nominees, with respect to the payments on the Preferred Stock or the providing
of notice to DTC participants, indirect participants or beneficial owners.
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APPENDIX A
CERTIFICATE OF DESIGNATIONS
OF
SERIES G CONVERTIBLE PREFERRED STOCK
OF
HARKEN ENERGY CORPORATION
Harken Energy Corporation, a Delaware corporation, DOES HEREBY
CERTIFY:
That, pursuant to the authority conferred upon the Board of Directors
of said corporation by virtue of its certificate of incorporation as amended
and in accordance with Section 151 of the General Corporation Law of the State
of Delaware (the "DGCL"), said Board of Directors has duly adopted a resolution
by unanimous consent providing for the issuance of a series of preferred stock,
par value $1.00 per share, designated as Series G Convertible Preferred Stock,
which resolution reads as follows:
"BE IT RESOLVED, that the Board of Directors (the "BOARD OF
DIRECTORS") of Harken Energy Corporation (the "CORPORATION") hereby authorizes
the issuance of a series of preferred stock and fixes its designation, powers,
preferences and relative, participating, optional or other special rights, and
qualifications, limitations and restrictions thereof, as follows:
Section 1. Designation. The distinctive serial designation of said
series shall be "SERIES G CONVERTIBLE PREFERRED STOCK" (hereinafter called
"SERIES G PREFERRED STOCK"). Each share of Series G Preferred Stock shall be
identical in all respects with all other shares of Series G Preferred Stock.
Section 2. Number of Shares. The number of authorized shares of Series
G Preferred Stock shall be, in aggregate, 4,500,000 shares. The number of
authorized shares of Series G Preferred Stock may be increased or reduced by
the Board of Directors of the Corporation by the filing of a certificate
pursuant to the provisions of the DGCL stating that the change has been so
authorized. When shares of Series G Preferred Stock are purchased or otherwise
acquired by the Corporation or converted into Common Stock, par value $0.01 per
share, of the Corporation (the "COMMON STOCK"), the Corporation shall take all
necessary action to cause the shares of Series G Preferred Stock so purchased
or acquired to be canceled and reverted to authorized but unissued shares of
Series G Preferred Stock undesignated as to series.
Section 3. Rank. The Series G Preferred Stock shall, with respect to
dividend rights and rights on liquidation, winding-up and dissolution, rank (i)
junior to all claims of creditors, including holders of the Corporation's
outstanding debt securities, (ii) junior to all claims of creditors of the
Corporation's Subsidiaries (as defined in Section 13 below), (iii) senior to
all classes of Common Stock and to each other class of preferred stock
established hereafter by the Board of Directors of the Corporation, the terms
of which expressly provide that it ranks junior to the Series G Preferred Stock
as to dividend rights and rights on liquidation, winding-up and dissolution of
the Corporation (collectively referred to, together with all classes of common
stock of the Corporation, as "JUNIOR STOCK"), and (iv) on a parity with each
other class of preferred stock established hereafter by the Board of Directors
of the Corporation the terms of which expressly provide that such class or
series shall rank on a parity with the Series G Preferred Stock as to dividend
rights and rights on liquidation, winding-up and dissolution (collectively
referred to as "PARITY STOCK"). The Corporation will not authorize the issuance
of any amount of any class of preferred stock by the Board of Directors the
terms of which expressly provide that such class or series shall rank senior to
the Series G Preferred Stock as to dividend rights and/or rights on
liquidation, winding-up and dissolution without the approval of the holders
owning a majority of the shares of such Preferred Stock then outstanding. The
Corporation may authorize the issuance of any amount of Parity Stock (which may
provide for the payment of dividends in additional shares of Parity Stock in
lieu of cash dividends) without the approval of the holders of the Series G
Preferred Stock.
Section 4. Dividends.
(a) From November 26, 1999 until and including March 31, 2004, the
holders of record, as of the Record Date therefor, of the outstanding shares of
Series G Preferred Stock shall be entitled to receive, when, as and if declared
by the Board of Directors of the Corporation, out of funds legally available
therefor, dividends on the Series G Preferred Stock at an annual rate equal to
$0.50 per share (equivalent to 5% annually), payable semi-annually in arrears
in cash or, at the option of the Corporation, in shares of the Corporation's
Common Stock. If and when the Corporation shall elect from time to time to pay
such dividends in shares of Common Stock, such shares will be valued, for the
purpose of calculating the number of shares to be issued in payment
<PAGE> 56
of such dividend, at 95% of the average of the Market Price (as defined in
Section 13 below) thereof over the twenty-five (25) consecutive Stock Exchange
Business Days (as defined in Section 13 below) prior to the Dividend Payment
Date (the "COMMON STOCK VALUATION METHOD"); provided, however, that the
Corporation may elect to pay such dividends in shares of the Corporation's
Common Stock only if such shares of Common Stock would be Freely Tradeable (as
defined in Section 13 below) upon issuance by the Corporation. After March 31,
2004, the holders of record, as of the Record Date therefor, of the then
outstanding shares of Series G Preferred Stock shall be entitled to receive,
when, as and if declared by the Board of Directors of the Corporation, out of
funds legally available therefor, dividends on the Series G Preferred Stock at
an annual rate equal to $0.75 per share (equivalent to 7.5% annually), payable
semi-annually in arrears in cash or, at the option of the Corporation, in
shares of the Corporation's Common Stock, which shares of Common Stock will be
valued pursuant to the Common Stock Valuation Method as provided in the
immediately preceding sentence and subject to the proviso provided in the
immediately preceding sentence.
(b) All dividends shall be cumulative, whether or not earned or
declared, from and including November 26, 1999 and shall be payable
semi-annually in arrears, when, as and if declared by the Board of Directors.
Such dividends will be payable on November 26 and May 26 of each year (a
"DIVIDEND PAYMENT DATE"), commencing on May 26, 2000; provided, however, that
if a Dividend Payment Date is not a Stock Exchange Business Day, then the
dividend shall be payable on the first immediately succeeding Stock Exchange
Business Day. Dividends shall be paid to the holders of record of the Series G
Preferred Stock as their names appear on the stock transfer records of the
Corporation on the date designated by the Board of Directors ("RECORD DATE"),
provided, however, that such Record Date may not precede the date upon which
the resolution fixing the Record Date is adopted, and which Record Date may not
be more than sixty (60) days prior to the Dividend Payment Date. The amount of
the dividends payable on the Series G Preferred Stock for each semi-annual
dividend period shall be computed by dividing by two (2) the annual rate per
share set forth in subsection (a) above. Dividends shall be computed on the
basis of a 360-day year of twelve 30-day months.
(c) Dividends shall be paid without reduction for any withholding tax.
No dividends may be declared or paid or funds set apart for the payment of
dividends on any Parity Stock for any period unless full cumulative dividends
shall have been or contemporaneously are declared and paid in full or declared
and a sum in cash or Freely Tradeable shares of Common Stock sufficient for such
payment set apart for such payment on the Series G Preferred Stock. If full
dividends are not so paid, the Series G Preferred Stock shall share dividends
pro rata with the Parity Stock. No dividends may be paid or set apart for such
payment on Junior Stock (except dividends on Junior Stock payable in additional
shares of Junior Stock) and no Junior Stock or Parity Stock may be repurchased
or otherwise retired for value nor may funds be set apart for payment with
respect thereto, if cumulative dividends have not been paid in full on the
Series G Preferred Stock in cash or shares of Common Stock; provided, however,
that the Corporation may repurchase Junior Stock (i) in the open market from
time to time as and to the extent permitted by Rule 10b-18 promulgated under the
Securities Exchange Act of 1934, as amended (240 C.F.R. Section 10b-18), or
corresponding rule from time to time in effect, and (ii) in a private purchase
from time to time so long as such repurchase does not exceed five percent (5%)
of the then outstanding shares of Junior Stock. Dividends on account of arrears
for any unpaid dividends for any past dividend period may be declared and paid
at any time without reference to any regular Dividend Payment Date, to holders
of record on a date not more than forty-five (45) calendar days prior to the
payment thereof, as may be fixed by the Board of Directors of the Corporation.
No interest shall be payable with respect to any dividend payment that may be in
arrears. Except as provided above, so long as any shares of the Series G
Preferred Stock are outstanding, the Corporation shall not make payment on
account of the purchase or other retirement of any Parity Stock or Junior Stock,
and shall not permit any corporation or other entity directly or indirectly
controlled by the Corporation to purchase any Parity Stock, Junior Stock or any
warrants, rights, calls or options unless full cumulative dividends determined
to be in accordance herewith on the Series G Preferred Stock have been paid (or
are deemed paid) in full.
Section 5. Preference on Liquidation.
(a) Upon any voluntary or involuntary liquidation, dissolution or
winding-up of the Corporation, holders of Series G Preferred Stock shall be
entitled to be paid, out of the assets of the Corporation available for
distribution to stockholders, the liquidation preference of $10.00 per share of
Series G Preferred Stock, plus, without duplication, an amount in cash equal to
all cumulated and unpaid dividends thereon to the date fixed for liquidation,
dissolution or winding-up (including an amount equal to a prorated dividend for
the period from the last Dividend Payment Date to the date fixed for
liquidation, dissolution or winding-up), before any distribution is made on any
Junior Stock, including, without limitation, any class of common stock of the
Corporation.
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(b) If, upon any voluntary or involuntary liquidation, dissolution or
winding-up of the Corporation, the amounts payable with respect to the Series G
Preferred Stock and all Parity Stock are not paid in full, then the assets of
the Corporation available for distribution among the holders of the Series G
Preferred Stock and any Parity Stock shall bear to each other the same ratio
that the full amounts payable on liquidation, dissolution or winding-up of the
Corporation to the holders of shares of Series G Preferred Stock and any Parity
Stock bear to each other.
(c) After payment of the full amount of the liquidation preference and
cumulated and unpaid dividends to which they are entitled, the holders of
shares of Series G Preferred Stock shall not be entitled to any further
participation in any distribution of assets of the Corporation.
(d) Neither the sale, conveyance, exchange or transfer (for cash,
shares of stock, securities or other consolidation) of all or substantially all
of the property or assets of the Corporation nor the consolidation or merger of
the Corporation with one or more entities shall be deemed to be or constitute a
liquidation, dissolution or winding-up of the Corporation.
(e) Notice of any payment to the holders of Series G Preferred Stock
as a result of the liquidation, dissolution or winding-up of the Corporation,
stating the payment date or dates when and the place or places where the
amounts distributable in such circumstances shall be payable, shall be given
not more than sixty (60) but not less than thirty (30) days prior to any
payment date stated therein, to the holders of shares of Series G Preferred
Stock as provided in Section 11 herein.
Section 6. Voting. The holders of Series G Preferred Stock shall have
no voting rights except as required by law and except as otherwise provided in
Section 3 above. In exercising any voting rights, each outstanding share of
Series G Preferred Stock shall be entitled to one vote.
Section 7. Conversion Rights. Each holder of shares of Series G
Preferred Stock shall have the right ("CONVERSION RIGHT"), subject as provided
herein and to any applicable laws and regulations, at any time and from time to
time at the holder's option to convert each share of Series G Preferred Stock
into shares of Common Stock at a conversion price (subject to adjustment as
described in Section 8 below) of $3.00 per share of underlying Common Stock
(the "CONVERSION PRICE") for each $10.00 liquidation value per share of Series
G Preferred Stock (i.e., a conversion ratio of 3.333 shares of Common Stock to
one share of Series G Preferred Stock). Subject to the provisions of the DGCL,
no fractional shares of Common Stock shall be issued upon conversion but, the
number of shares shall be rounded up or down to the nearest whole number.
(a) The amount of the accrued and unpaid dividends which have been
earned on the Series G Preferred Stock delivered for conversion as specified
herein (computed to the end of the day on which the shares are converted),
shall be promptly sent to the holder thereof by means of check or other means
provided by the Corporation, if the dividend is in cash, or if the dividend is
payable in stock, by the means selected by the Corporation.
(b) While the Series G Preferred Stock is represented by single global
Preferred Stock certificate in fully registered form deposited with or on
behalf of DTC and registered in the name of DTC or its nominee, in order to
exercise the conversion right, the holder of each share of Series G Preferred
Stock to be converted shall comply with the procedures for conversion as
provided by DTC and the DTC participant holding the Series G Preferred Stock on
behalf of the holder and shall give written notice to the Corporation in the
form of Exhibit A attached hereto. Such notice shall also state the name or
names (with address) in which the shares of Common Stock which shall be
issuable upon such conversion shall be issued. Each share surrendered for
conversion shall, unless the shares issuable on conversion are to be issued in
the same name as the name in which such shares of Series G Preferred Stock is
registered, be duly endorsed by, or accompanied by, instruments of transfer (in
each case, in form reasonably satisfactory to the Corporation), duly executed
by the holder or such holder's duly authorized attorney-in-fact.
If the Series G Preferred Stock is in registered form as fully
certificated shares, in order to exercise the conversion right, the holder of
each share of Series G Preferred Stock to be converted shall surrender that
certificate representing such shares, duly endorsed or assigned to the
Corporation or in blank, at the office of the transfer agent for the Series G
Preferred Stock and shall give written notice to the Corporation in the form of
Exhibit A attached hereto. Such notice shall also state the name or names (with
address) in which the shares of Common Stock which shall be issuable upon such
conversion shall be issued. Each share surrendered for conversion shall, unless
the shares issuable on conversion are to be issued in the same name as the name
in which such shares of the Series G Preferred Stock is registered, be duly
endorsed by, or accompanied by, instruments of transfer (in each case, in form
reasonably satisfactory to the Corporation), duly executed by the holder or
such holder's duly authorized attorney-in-fact.
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(c) As promptly as practicable after the surrender of certificates for
shares of the Series G Preferred Stock for conversion and the receipt of such
notice, as aforesaid, the Corporation shall issue and shall deliver to such
holder, or on such holder's written order, a certificate or certificates for
the number of shares of Common Stock issuable upon the conversion of such
shares of the Series G Preferred Stock in accordance with the provisions of
this Section 7. Each conversion with respect to such shares of the Series G
Preferred Stock shall be deemed to have been effected immediately prior to the
close of business on the date on which the certificates for shares of the
Series G Preferred Stock shall have been surrendered and such notice shall have
been received by the Corporation as aforesaid, and the Person or Persons
entitled to receive the Common Stock issuable upon such conversion shall be
deemed for all purposes to be the record holder or holders of such Common Stock
upon that date.
(d) If a holder converts shares of the Series G Preferred Stock, the
Corporation shall pay any and all documentary, stamp or similar issue or
transfer tax payable in respect of the issue or delivery of the shares of the
Series G Preferred Stock (or any other securities issued on account thereof
pursuant hereto) or Common Stock upon the conversion; provided, however, the
Corporation shall not be required to pay any such tax that may be payable
because any such shares are issued at the request of the holder in a name other
than the name of the holder. In the event that the shares are to be issued in a
name other than that of the holder, the holder shall provide funds necessary to
pay any and all of the foregoing taxes, if any shall be applicable.
(e) The Corporation shall reserve out of its authorized but unissued
Common Stock or its Common Stock held in treasury enough shares of Common Stock
to permit the conversion of all of the outstanding shares of the Series G
Preferred Stock. The Corporation shall from time to time, in accordance with
the DGCL, increase the authorized amount of its Common Stock if at any time the
authorized amount of its Common Stock remaining unissued shall not be
sufficient to permit the conversion of all shares of the Series G Preferred
Stock at the time outstanding. If any shares of Common Stock required to be
reserved for issuance upon conversion of shares of the Series G Preferred Stock
hereunder require, in addition to the undertaking contained in Section 8(m),
registration with or approval of any governmental authority under any federal
or state law before the shares may be issued upon conversion, the Corporation
shall in good faith and as expeditiously as possible endeavor to cause the
shares to be so registered or approved. All shares of Common Stock delivered
upon conversion of the shares of the Series G Preferred Stock will, upon
delivery, be duly authorized and validly issued, fully paid and nonassessable,
free from all taxes, liens and charges with respect to the issue thereof.
(f) The Company will have the option, upon the approval of the Board
of Directors, at any time and from time to time, to reduce the Conversion Price
on a permanent or temporary basis.
Section 8. Conversion Price Adjustments. In the event the Corporation
issues shares of its Common Stock at a price less than the Conversion Price in
effect at the opening of business on the day following such issuance and such
price shall be less than the Market Price (as defined in Section 13 below) on
the date of issuance of such Common Stock, then the Conversion Price shall be
adjusted as provided below; provided, however, that the Conversion Price shall
not be adjusted if such issuance of Common Stock at a price less than the then
effective Conversion Price was made (i) pursuant to the Corporation's 5% Senior
Convertible Notes Due 2003 (the "NOTES"); (ii) pursuant to conversion of any
securities of the Corporation (including any warrants); (iii) pursuant to any
plan adopted by the Corporation for the purchase of stock in connection with
any employee or director compensation, stock option, or benefit plan of the
Corporation or any of its Subsidiaries, whether now in effect or hereafter
created or amended; (iv) pursuant to any compensation arrangement approved by
the Board of Directors of the Corporation with any director, officer or
employee or proposed director, officer or employee of the Corporation or any
Subsidiary; (v) where the shares are issued for a consideration other than cash
(including in connection with an acquisition of assets, stock, or a business)
and the Board of Directors of the Corporation determines in good faith that
such transaction is fair from a financial point of view and in the best
interests of the Corporation; (vi) where the Market Price of the shares
issuable is not readily determinable and the Board of Directors has determined
in good faith the Market Price of such shares so issued for purposes of
determining if an adjustment is required in this Section 8; and (vii) where the
number of shares of Common Stock pursuant to such issuance shall not exceed two
percent (2%) of the number of shares of Common Stock into which the Series G
Preferred Stock is then convertible.
(a) Dividends or Distributions of Common Stock. In case the
Corporation shall pay or make a dividend or other distribution on its Common
Stock exclusively in Common Stock (other than a dividend as provided in Section
4(a) hereof or a distribution of such Common Stock pursuant to Section 10
hereof) or shall pay or make a dividend or other distribution on any other
class of capital stock of the Corporation 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
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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 8(a), the number of shares of Common Stock at
any time outstanding shall not include shares held in the treasury of the
Corporation.
(b) Dividends or Distributions of Rights, Warrants or Options to
Purchase Common Stock. In case the Corporation 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 purchase shares of Common
Stock at a price per share less than the Market Price per share (determined as
provided in Section 8(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 (determined as provided in Section 8(g)) 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 Section 8(b), the number of shares of Common Stock at
any time outstanding shall not include shares held in the treasury of the
Corporation. The Corporation shall not issue any rights, warrants or options in
respect of shares of Common Stock held in the treasury of the Corporation.
(c) Dividends or Distributions in Cash. In case the Corporation 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 8(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 Corporation'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 Corporation 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 Section 8(f) has been made, exceeds five percent
(5%) of the product of the Market Price per share (determined as provided in
Section 8(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 Section 8(c) by a fraction of which the numerator shall be
the Market Price per share (determined as provided Section 8(g)) of the Common
Stock on the 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 Section 8(d), in case the Corporation 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 8(b), any dividend or
distribution paid exclusively in cash and any dividend or distribution referred
to in Section 8(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 Section 8(d) by a fraction of which the numerator shall be
the Market Price per share (determined as provided in Section 8(g)) 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 Corporation'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 Section 8(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 Section 8(g). For purposes
of this Section 8(d), any dividend or distribution that includes shares of
Common Stock or rights, warrants or options to subscribe
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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 Section 8(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 8(a) or
(b)), except (i) the Reference Date of such dividend or distribution as defined
in this Section 8(d) shall 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 8(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 8(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 Corporation 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 Corporation'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 Corporation'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
Corporation 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 Section 8(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 8(e) has been made, exceeds
five percent (5%) of the product of the Market Price per share (determined as
provided in Section 8(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 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 8(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 Section 8(g) and Section 8(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 Section 8(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,
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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 8(c) or (d), whose determination shall be conclusive
and described in a resolution of the Corporation'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 Common Stock. For the purpose of any computation under Section 8(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 Corporation 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 Section 8(g), 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 Corporation may
make such reductions in the Conversion Price, in addition to those required by
Section 8(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 Section 8(i) are not
required to be made shall be carried forward and taken into account in any
subsequent adjustment.
(j) Certificate of Adjustment and Notice. Whenever the Conversion
Price is adjusted as herein provided, the Corporation shall promptly file with
the transfer agent or Conversion Agent, as applicable, for the Series G
Preferred Stock a certificate of an officer of the Corporation setting forth
the Conversion Price after the adjustment and setting forth a brief statement
of the facts requiring such adjustment and a computation thereof. The
Corporation shall promptly cause a notice of the adjusted Conversion Price be
given to the holders of shares of the Series G Preferred Stock as provided in
Section 11 herein.
(k) Deferral in Issuance of Stock Certificates. In any case in which
this Section provides that an adjustment shall become effective immediately
after a Record Date for an event and the date fixed for such adjustment
pursuant to this Section 8(k) occurs after such Record Date but before the
occurrence of such event, the Corporation may defer until the actual occurrence
of such event issuing to the holder of any shares of the Series G Preferred
Stock converted after such Record Date and before the occurrence of such event
the additional shares of Common Stock issuable upon such conversion by reason
of the adjustment required by such event over and above the Common Stock
issuable upon such conversion before giving effect to such adjustment.
(l) Adjustment in Conversion Price in Case of Certain Events. In case
the Corporation shall take any action affecting the Common Stock, other than
actions described in Section 7 or this Section 8, which in the opinion of the
Board of Directors would materially adversely affect the conversion right of
the holders of the shares of the Series G Preferred Stock, the Conversion Price
may be adjusted, to the extent permitted by law, in such manner, if any, and at
such time, as the Board of Directors may determine to be equitable in the
circumstances; provided, however, that in no event shall the Board of Directors
be required to take any such action.
(m) Registration of Conversion Shares and Adjustment of Conversion
Price if the Common Stock is not Registered. The Corporation shall file a
registration statement on Form S-3 (or such other form as the Corporation may
determine is appropriate) at the earliest practicable date, but in any event
prior to ninety (90) days following the issuance of the Series G Preferred
Stock in
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connection with Exchange Offer (as defined in Section 13 below) ("CLOSING
DATE") in respect of all the Common Stock that may be issuable at any time upon
the conversion of the Series G Preferred Stock ("CONVERSION SHARES") issued in
exchange for the Notes in connection with the Exchange Offer. The Corporation
shall use its best efforts to cause the Commission to declare such registration
statement (and any necessary amendments thereto) effective. The Corporation
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
either issued or that may be issued are Freely Tradable (as defined in Section
13 below) in the United States. If such registration statement is not declared
effective by the Commission within six (6) months of the Closing Date or the
Conversion Shares are not otherwise Freely Tradeable, the Conversion Price in
effect at that time shall be reduced by 5%. The Conversion Price in effect from
time to time will continue to be reduced by 5% for each successive six (6)
month period that such registration statement is not declared effective as
described above or the Conversion Shares are not otherwise Freely Tradeable.
Section 9. Optional Conversion by Corporation. The Corporation may, at
its option, cause all of the outstanding Series G Preferred Stock to be
converted into shares of Common Stock at the Conversion Price at any time and
from time to time after December 1, 2000, if the average of the Market Prices
of the Common Stock over the Stock Exchange Business Days in any twenty (20)
consecutive trading day period ending not more than five days prior to the
giving of the notice referred to below equaled or exceeded $3.75. The
Corporation shall give thirty (30) days notice as provided in Section 11 hereof
that it has met the criteria for conversion pursuant to this Section 9 not less
than thirty (30) calendar days of having met such criteria. Upon any optional
conversion of any Series G Preferred Stock by the Corporation, payment shall be
made by the Corporation in either cash or Freely Tradeable shares of Common
Stock valued at the average Market Price referred to above for dividends
accrued but unpaid up to the conversion date. If the Corporation elects to
convert less than all of the Series G Preferred Stock, the Corporation shall
select which shares of Series G Preferred Stock to convert at random or such
other method as it shall deem fair and appropriate. Upon the giving of the
notice referred to above, the Corporation shall be bound to convert the Series
G Preferred Stock as to which notice has been provided, provided that such
shares of Common Stock are Freely Tradeable.
The amount of the accrued and unpaid dividends (whether or not earned
or declared) on the Series G Preferred Stock that have been converted by the
Corporation as provided in Section 9 (computed to the day on which the shares
are converted) shall be promptly sent to the holder thereof by means of check
or other means provided by the Corporation, if the dividend is in cash, or if
the dividend is payable in stock, by the means selected by the Corporation.
Section 10. Optional Redemption by Corporation.
(a) Optional Redemption. The Corporation shall have the option to
redeem all of the Series G Preferred Stock in cash at any time, unless the
holder thereof shall have converted such stock into Common Stock pursuant to
Section 7 prior to the Redemption Date, at a redemption value ("REDEMPTION
VALUE") equal to the sum of (i) $10.00 per share and (ii) accrued and unpaid
dividends (whether or not earned or declared) payable in cash or Freely
Tradeable Common Stock valued at the Market Price on the date of notice of such
redemption (including an amount equal to a prorated dividend from the
immediately proceeding Dividend Payment Date to the redemption date).
(b) Procedures for Redemption.
(i) In case of redemption of less than all shares of Series G
Preferred Stock at the time outstanding, the shares to be redeemed
shall be selected pro rata, at random, or by lot or a method that
complies with the requirements of any national stock exchange on which
Series G Preferred Stock is listed as determined by the Board of
Directors in its sole discretion.
(ii) Notice of any redemption shall be given as provided in
Section 11 by or on behalf of the Corporation not less than thirty
(30) days prior to the date of redemption hereof; provided, however,
that such notice of redemption may be a conditional notice of
redemption which may condition the redemption to being subject to the
prior conversion of the Series G Preferred Stock before the redemption
date; and provided further, that no failure to give such notice or any
defect therein or in the transmission or mailing thereof shall affect
the validity of the proceedings for the redemption of any shares of
Series G Preferred Stock except as to the holder to whom the
Corporation has failed to give notice or except as to the holder to
whom notice was defective. In addition to any information required by
law, such notice shall state: such redemption is being made pursuant
to the optional redemption provisions hereof; the date of redemption;
the Redemption Value; the number of shares of Series G Preferred Stock
to be redeemed and, if less than all shares held by such holder are to
be redeemed, the
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number of such shares to be redeemed; the place or places where
certificates for such issued shares are to be surrendered for payment
of the Redemption Value; and that dividends on the shares to be
redeemed shall cease to accrue on the date of redemption. Upon the
expiry of the notice so given, except with respect to the conditions
specified above, the Corporation shall become obligated to redeem at
the time of redemption specified thereon all shares called for
redemption.
(iii) If notice has been given in accordance with Section
10(b)(ii) above and provided that on or before the date of redemption
specified in such notice, all funds necessary for such redemption
shall have been set aside by the Corporation, separate and apart from
its other funds in trust for the pro rata benefit of the holders of
the shares so called for redemption, so as to be, and to continue to
be available therefor, then, from and after the date of redemption,
dividends on the shares of the Series G Preferred Stock so called for
redemption shall cease to accrue, and said shares shall no longer be
deemed to be outstanding and shall not have the status of shares of
Series G Preferred Stock, and all rights of the holders thereof as
shareholders of the Corporation (except the right to receive from the
Corporation the Redemption Value) shall cease. Upon surrender, in
accordance with said notice, of the certificates for any issued shares
so redeemed (properly endorsed or assigned for transfer, if the
Corporation shall so require and the notice shall so state), such
shares shall be redeemed by the Corporation at the Redemption Value by
mailing a check to such holder's last registered address listed on the
stock transfer records of the Corporation, or as otherwise agreed by
the holders of Series G Preferred Stock and the Corporation. In case
fewer than all the shares represented by any such certificate are
redeemed, a new certificate or certificates shall be issued
representing the unredeemed shares without cost to the holder thereof.
(iv) Any funds deposited with a bank or trust corporation for
the purpose of redeeming Series G Preferred Stock shall be irrevocable
except that: the Corporation shall be entitled to receive from such
bank or trust company the interest or other earnings, if any, earned
on any money so deposited in trust, and the holders of any shares
redeemed shall have no claim to such interest or other earnings; and
any balance of monies so deposited by the Corporation and unclaimed by
the holders of the Series G Preferred Stock entitled thereto at the
expiration of two years from the applicable date of redemption shall
be repaid, together with any interest or other earnings earned
thereon, to the Corporation, and after any such repayment, the holders
of the shares entitled to the funds so repaid to the Corporation shall
look only to the Corporation for payment without interest or other
earnings.
(v) No Series G Preferred Stock may be redeemed except with
funds legally available for the payment of the Redemption Value.
(vi) Notwithstanding the foregoing provisions of this Section
10, unless the full cumulative dividends, if any, on all outstanding
shares of Series G Preferred Stock shall have been paid or
contemporaneously are declared and paid, none of the shares of Series
G Preferred Stock shall be redeemed unless all outstanding shares of
Series G Preferred Stock are simultaneously redeemed.
(vii) Holders of Series G Preferred Stock shall retain the
conversion rights described in Section 7 hereof until the date of any
redemption of the shares of Series G Preferred Stock in accordance
with this Section 10.
(c) Redemption by Conversion. In addition to the rights of conversion
pursuant to Section 9 hereof, on or after June 1, 2004, the Corporation may
further elect, in any six month period, to redeem up to 50% of the outstanding
Series G Preferred Stock in accordance with this Section 10(c) by requiring
their immediate conversion pursuant to the terms of this Section 10(c) (the
"REDEMPTION BY CONVERSION OPTION"). The Conversion Price for purposes of this
Section 10(c) shall be a price per share equal to the average Market Price of
the Common Stock during the twenty (20) consecutive Stock Exchange Business
Days ending not more than five (5) Stock Exchange Business days prior to the
date notice is given by the Corporation concerning its exercise of this
Redemption by Conversion Option, subject to appropriate adjustments to account
for the effects of dividends, distributions, stock splits, recapitalizations
and similar events. If the Market Capitalization of the Corporation is less
than or equal to $300 million on the date the notice by the Corporation of its
exercise of this Redemption by Conversion Option is given, then each share of
Series G Preferred Stock will be redeemed for the number of shares of Common
Stock equal to 120% of the Redemption Value. If the Market Capitalization of
the Corporation is more than $300 million on the date the notice by the
Corporation of its exercise of this Redemption by Conversion Option is given,
then each share of Series G Preferred Stock will be redeemed for the number of
shares of Common Stock equal to 115% of the Redemption Value. The amount of
the accrued and unpaid dividends (whether or not earned or declared) accrued
by the Series G Preferred Stock delivered for conversion as specified above
(computed to the end of the day
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the Series G Preferred Stock is so converted) shall be sent to the holder
thereof by means of check or other means established by the Corporation, if the
dividend is in cash, or if the dividend is in Freely Tradeable shares of Common
Stock, by such means as selected by the Corporation.
Section 11. Notice. Where this Certificate of Designations provides
for notice of any event to the holders of the Series G Preferred Stock by the
Corporation or any other Person, such notice shall be sufficiently given
(unless otherwise herein specifically provided) if published in the Authorized
Newspapers.
Section 12. General Provisions Relating to the Series G Preferred
Stock.
The Series G Preferred Stock shall be initially registered so as to
participate in a securities depositary system with the DTC (the "DTC SYSTEM").
The Series G Preferred Stock will be represented initially by single, temporary
global Preferred Stock certificate in fully registered form and will be
deposited with or on behalf of DTC and registered in the name of DTC or its
nominee. On or after the one year from the Closing Date, upon certification as
to non-U.S. person or a "qualified institutional buyer" (a "QUIB") (as defined
in Rule 144A of the Securities Act of 1933, as amended (the "SECURITIES ACT"))
beneficial ownership, the Company will deposit a single, permanent global
Preferred Stock certificate in fully registered form with or on behalf of DTC
and registered in the name of DTC or its nominee to replace the temporary
global certificate. The temporary global certificate will then be cancelled.
The Corporation is authorized to execute and deliver such letters to or
agreements with DTC as shall be necessary to effectuate the DTC System,
including a representation letter in the form or forms required by DTC (the
"REPRESENTATION LETTER"). DTC may exercise the rights of a holder of Series G
Preferred Stock only in accordance with the terms hereof applicable to the
exercise of such rights. Notwithstanding any other provision of this
Certificate of Designations to the contrary, so long as the Series G Preferred
Stock is registered in the name of DTC, or its nominee, all payments of
dividends and other distributions, exercise of voting rights, exercise of
conversion rights, redemptions, and notices with respect to such Series G
Preferred Stock shall be governed in the manner provided in the Representation
Letter.
Section 13. Certain Definitions.
"Alternative Stock Exchange" means any other national or regional
stock exchange or quotation service such as the Nasdaq Market System or any
similar quotation service maintained by the National Quotation Bureau or any
successor thereto.
"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 Corporation 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
Corporation, impracticable to make any publication of any notice required by
this Certificate of Designations in the manner herein provided, such
publication or other notice in lieu thereof which is made by the Corporation in
the exercise of its reasonable discretion shall constitute a sufficient
publication of such notice.
"Capital Stock" of any Person means the Common Stock or preferred
stock of such Person. Unless otherwise stated herein or the context otherwise
requires, "Capital Stock" means Capital Stock of the Corporation.
"Commission" means the Securities and Exchange Commission.
"Common Stock Valuation Method" has the meaning given to it in Section
4(a) hereof.
"Conversion Agent" means any Person (including the Corporation acting
as Conversion Agent) authorized by the Corporation to effect conversions of the
Series G Preferred Stock on behalf of the Corporation.
"Dividend Payment Date" has the meaning given to it in Section 4(b)
hereof.
"DTC" means The Depository Trust Company.
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"Exchange Offer" means the offer by the Corporation to exchange its
Notes for either shares of its Common Stock or shares of the Series G Preferred
Stock pursuant to the terms and conditions contained in the Corporations's
Offering Circular dated November 25, 1999, and the Letter of Transmittal
relating thereto.
"Freely Tradable" means, with respect to the Common Stock issuable
upon the conversion of or the payment of a dividend upon the Series G Preferred
Stock, 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 pursuant to an effective registration statement then in
effect or pursuant to an exemption applicable to all of such shares of Common
Stock issuable upon the conversion of or the payment of a dividend upon the
Series G Preferred Stock. For purposes of determining whether such securities
are Freely Tradable, it shall be assumed that no affiliate of the issuer has
ever held such securities from and after their issuance.
"Group" means the Corporation and all its Principal Subsidiaries.
"Market Capitalization" means, on any date, the average, over the
thirty (30) calendar day period commencing thirty-five (35) calendar days prior
to such date, of the product of the Market Price of the Common Stock and the
number of shares of Common Stock of the Corporation 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 equity
securities of the Corporation or any other Person, spin-offs of subsidiaries,
mergers in which the Corporation or a Principal Subsidiary is a constituent
party, and similar events.
"Market Price" means the closing sales price on the American Stock
Exchange or any Alternative Stock Exchange on any Stock Exchange Business Day,
provided, however, Market Price for the purposes of the adjustment of the
Conversion Price shall have the meaning specified in Section 8(g) hereof.
"Notes" means the Corporation's 5% Senior Convertible Notes Due 2003.
"Person" means any individual, corporation, partnership, association,
trust or other entity or organization, including a government or political
subdivision or any agency or instrumentality thereof.
"Principal Subsidiary" means a Subsidiary of either the Corporation or
any Principal 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 Corporation which immediately
prior to such transfer is a Principal 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) shall include, for the avoidance of doubt, Harken Exploration
Corporation, Harken Energy West Texas, Inc., Harken Southwest Corporation,
Search Acquisition Corp., and Harken de Colombia, Ltd.
"Property" means any kind of property or asset, whether real,
personal, mixed, or tangible or intangible, and any interest therein.
"Record Date" has the meaning given to it in Section 4(b) hereof.
"Regulation S" means Regulation S under the Securities Act as in
effect on the date of the filing of this Certificate or as such Regulation my
hereafter be amended.
"Series G Preferred Stock" means the Corporation's Series G
Convertible Preferred Stock, $1.00 par value.
"Stock Exchange Business Day" means as any day (other than a Saturday
or Sunday) on which the American Stock Exchange or the Alternative Stock
Exchange, as the case may be, is open for business.
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"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 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 Corporation or one or more of its Subsidiaries."
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
duly executed on its behalf by its undersigned Vice President and Secretary
this ___ day of December, 1999.
HARKEN ENERGY CORPORATION,
a Delaware corporation
By:
------------------------------
Name: Larry E. Cummings
Title: Vice President and Secretary
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EXHIBIT A
HOLDER'S CONVERSION NOTICE
To: Harken Energy Corporation
To: [Conversion Agent]
The undersigned holder of the Series G Convertible Preferred Stock,
par value U.S. $1.00 (the "Preferred Stock") of Harken Energy Corporation (the
"Corporation") in the aggregate liquidation preference value of U.S. $10.00
irrevocably exercises the option to convert such Preferred Stock into shares of
Common Stock of the Corporation, par value U.S. $0.01 (the "Common Stock"), in
accordance with the terms of the Certificate of Designations relating to the
issuance by the Corporation of the Preferred Stock and directs that the Common
Stock issuable and deliverable upon such conversion be issued and delivered to
the undersigned in the name and at the address set forth below.
If the Common Stock is not Freely Tradeable at the date hereof, the
undersigned holder hereby certifies to the Corporation that it:
(1)(a) is not a U.S. person (as defined in Regulation S under the U.S.
Securities Act of 1933, as amended (the "Securities Act")), and is not
acquiring the Common Stock for the account or benefit of any U.S. person, (b)
is a "qualified institutional buyer" (a "QUIB") (as defined in Rule 144A of the
Securities Act) that is acquiring the Common Stock for its own account or for
the account of a QUIB to whom notice is given that the resale, pledge, or
transfer is being in reliance on Rule 144A, or (c) is acquiring the Common
Stock in a transaction exempt from the registration requirements of the
Securities Act; and
(2) acknowledges that the Common Stock has not been registered under
the Securities Act and are "restricted securities" within the meaning of the
Securities Act; and
(3) understands and agrees that if within two years after the date of
the original issuance of the Preferred Stock or within three months after it
ceases to be an affiliate (within the meaning of Rule 144 under the Securities
Act) of the Corporation, upon conversion thereof the Common Stock may be
resold, pledged, or transferred only (i) to the Corporation, (ii) so long as
such securities are eligible for resale pursuant to Rule 144A, to a person whom
the seller reasonably believes is a QUIB that purchases for its own account or
for the account of a QUIB to whom notice is given that the resale, pledge, or
transfer is being in reliance on Rule 144A, (iii) pursuant to offers and sales
that occur outside of the United States in a transaction meeting the
requirements of Rule 904 of Regulation S under the Securities Act, (iv)
pursuant to an exemption from the registration requirements of the Securities
Act provided by Rule 144 (if applicable) under the Securities Act, or (v)
pursuant to an effective registration statement under the Securities Act, in
each case in accordance with any applicable securities law of any state of the
United States; and
(4) it understands that the certificates representing the Common Stock
will bear a restrictive legend describing the foregoing restriction on
transfer, unless otherwise agreed by the Corporation.
If the Common Stock is to be issued in the name of a person other than
the undersigned or a nominee of the undersigned, the undersigned will pay all
transfer taxes payable with respect thereto and is delivering herewith a
certificate in proper form that the applicable restrictions on transfer have
been complied with.
All terms not otherwise defined herein shall have the respective
meanings set forth in the Certificate of Designations relating to the Preferred
Stock.
* * * * *
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DATE: -------------------------------
------------------------------ Name of Holder
-------------------------------
Signature(s) of Holder
Address for Delivery of Shares:
-------------------------------
-------------------------------
-------------------------------
-------------------------------
Name for Registration of Shares
(if different than Holder):
-------------------------------
A-14
<PAGE> 69
APPENDIX B
FORM OF INVESTOR LETTER(1)
Harken Energy Corporation
16285 Park Ten Place
Suite 600
Houston, Texas 77084
Attention: Secretary
Dear Sir or Madam:
The undersigned hereby certifies, acknowledges, represents and agrees
to Harken Energy Corporation (the "Company") as follows with respect to its
acquisition of the Common Stock of the Company, $0.01 par value per share (the
"Common Stock"):
(1) it is not a "U.S. person" (as defined in Regulation S), and
it is acquiring the Common Stock for its own account or for
an account with respect to which it exercises sole investment
discretion and not for the account or benefit of any U.S.
person;
(2) it acknowledges that the Common Stock has not been registered
under the Securities Act and may not be offered or sold
within the United States or to, or for the account or benefit
of, U.S. persons except as permitted below;
(3) it understands and agrees that the Common Stock is being
offered only in a transaction not involving any public
offering within the meaning of the Securities Act and that
the Common Stock constitutes "restricted securities" as that
term is defined in Rule 144 promulgated under the Securities
Act;
(4) it understands and agrees that (A) if it decides to resell,
pledge, or otherwise transfer the Common Stock on which the
legend described below appears prior to the end of the one
year Distribution Compliance Period the Common Stock may be
resold, pledged or transferred only (i) to the Company, (ii)
so long as such securities are eligible for resale pursuant
to Rule 144A, to a person whom the seller reasonably believes
is a QUIB that purchases for its own account or for the
account of a QUIB to whom notice is given that the resale,
pledge or transfer is being made in reliance on Rule 144A,
(iii) pursuant to offers and sales that occur outside the
United States in a transaction meeting the requirements of
Rule 904 of Regulation S under the Securities Act, in each
case in accordance with any applicable securities laws of the
United States, or (iv) pursuant to an effective registration
statement, in each case in accordance with any applicable
securities laws of any state of the United States; and (B) it
will, and each subsequent holder is required to, notify the
purchaser of such securities from it of the resale
restrictions referred to in (A) above, if then applicable;
(5) it understands and agrees that (A) if within two years after
the date of original issuance of the Common Stock or if
within three months after it ceases to be an affiliate
(within the meaning of Rule 144 under the Securities Act) of
the Company, it decides to resell, pledge or otherwise
transfer the Common Stock on which the legend described below
appears, such securities may be resold, pledged or
transferred only (i) to the Company, (ii) so long as such
securities are eligible for resale pursuant to Rule 144A, to
a person whom the seller reasonably believes is a QUIB that
purchases for its own account or for the account of a QUIB to
whom notice is given that the resale, pledge or transfer is
being made in reliance on Rule 144A, (iii) pursuant to offers
and sales that occur outside the United States in a
transaction meeting the requirements of Rule 904 of
Regulation S under the Securities Act, (iv) pursuant to an
exemption from the registration requirements of the
Securities Act provided by Rule 144 (if applicable) under the
Securities Act, or (v) 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; and (B) it will, and each subsequent
holder is required to, notify the purchaser of such
securities from it of the resale restrictions referred to in
(A) above, if then applicable;
- ----------------------
(1) To be executed if the Common Stock described herein is not Freely Tradeable.
<PAGE> 70
(6) it understands and agrees that during such time as such
restrictions are applicable prior to any transfer of the
Common Stock, each proposed transferee will be required to
execute and deliver to the transfer agent an investor letter
in the form attached to the Offering Circular as Appendix B
acknowledging and agreeing to the selling restrictions on the
Common Stock during such time as such restrictions are
applicable and that such investor letter shall be a condition
precedent to any transfer of such Common Stock;
(7) it understands and agrees that hedging transactions in the
Common Stock are prohibited by Regulation S, unless permitted
by the Securities Act;
(8) it understands that the Common Stock will bear the following
legend:
"THESE 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, BY PURCHASING THESE SHARES, AGREES FOR THE BENEFIT OF THE
COMPANY THAT THESE SHARES MAY NOT BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED,
EXCEPT AS FOLLOWS.
PRIOR TO THE FIRST ANNIVERSARY OF THE ISSUANCE OF THESE SHARES, THESE
SHARES MAY NOT BE SO TRANSFERRED OTHER THAN (1) TO THE COMPANY, (2) SO LONG AS
THESE 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 INVESTOR 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, 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 OR THE UNITED
STATES.
AFTER THE FIRST ANNIVERSARY AND PRIOR TO THE SECOND ANNIVERSARY OF THE
ISSUANCE OF THESE SHARES, THESE SHARES MAY NOT BE SO TRANSFERRED OTHER THAN (1)
TO THE COMPANY, (2) SO LONG AS THESE SHARES ARE 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 OR THE UNITED STATES.
IF THE HOLDER OF THESE 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 THESE 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, AS
AMENDED."
(9) it (i) has such knowledge and experience in financial and
business matters as to be capable of evaluating the merits
and risks of its prospective investment in the Common Stock
and (ii) has the ability to bear the economic risks of its
prospective investment and can afford the complete loss of
such investment;
(10) it acknowledges that it has had access to such financial and
other information, and has been afforded the opportunity to
ask questions of the Company and receive answers thereto, as
it deemed necessary in connection with its decision to
acquire the Common Stock;
B-2
<PAGE> 71
(11) it understands that the Company and others will rely upon the
truth and accuracy of the foregoing acknowledgments,
representations and agreements and agrees that if any of the
acknowledgments, representations and warranties deemed to
have been made by it by its purchase of the Common Stock are
no longer accurate, it shall promptly notify the Company. If
it is acquiring the Common Stock as a fiduciary or agent for
one or more investor accounts, it represents that it has full
power to make the foregoing acknowledgments, representations
and agreements on behalf of such account; and
(12) it will, if requested by the Company, deliver to the Company,
a certificate which will confirm the matters referred to in
these representations to the satisfaction of the Company,
acting reasonably.
Capitalized terms used in this letter but not defined in this letter
have the meaning given to them in the Offering Circular dated November 25,
1999.
Signed: Date:
- ----------------------------------- -----------------------------
B-3
<PAGE> 72
The Exchange Agent:
HSBC BANK PLC
MARINER HOUSE
PEPYS STREET
LONDON EC3N 4DA
(44171) 260-7801 TELEPHONE
BY FACSIMILE: BY REGISTERED OR CERTIFIED MAIL:
ATTN: THE MANAGER, ATTN: THE MANAGER,
HSBC ISSUER SERVICES OPERATIONS HSBC ISSUER SERVICES OPERATIONS
MARINER HOUSE MARINER HOUSE
PEPYS STREET PEPYS STREET
LONDON EC3N 4DA LONDON EC3N 4DA
FACSIMILE: (44171) 260-8932 CONFIRM BY TELEPHONE:
(44171) 260-7801
FACSIMILE COPY TO:
RP&C INTERNATIONAL, INC.
56 GREEN STREET
LONDON W1Y 3RH
ENGLAND
FACSIMILE: (44171) 499-2893
ATTN: RICHARD BORG
Any questions and requests for assistance or additional copies of this Offering
Circular, the Letter of Transmittal or other information concerning the Company
may be directed to the Solicitation Agent or the Exchange Agent at the
telephone numbers and addresses listed on this page. You may also contact your
local broker, dealer, commercial bank or trust company for assistance
concerning the Exchange Offer.
The Solicitation Agent:
RP&C INTERNATIONAL
56 GREEN STREET
LONDON W1Y 3RH
ENGLAND
TELEPHONE: (44171)-491-2434
The Transfer Agent and Registrar for the Common Stock:
CHASEMELLON SHAREHOLDER SERVICES
2323 BRYAN STREET
SUITE 2300
DALLAS, TEXAS 75201
Common Depository and Principal Paying and Conversion Agent
and Authentication Agent for the Preferred Stock:
HSBC BANK PLC
MARINER HOUSE
PEPYS STREET
LONDON EC3N 4DA
(44171) 260-7801 TELEPHONE
(44171) 260-8932 FAX
The Company:
HARKEN ENERGY CORPORATION
16285 PARK TEN PLACE, SUITE 600
HOUSTON, TEXAS 77084
(281) 717-1300
<PAGE> 1
LETTER OF TRANSMITTAL
To Tender for Exchange
5% Senior Convertible Notes Due May 26, 2003
of
HARKEN ENERGY CORPORATION
Pursuant to the Offering Circular dated November 25, 1999
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., GREENWICH MEAN TIME, ON DECEMBER
15, 1999 (THE "EXPIRATION DATE"), UNLESS THE EXCHANGE OFFER IS EXTENDED, IN
WHICH CASE THE TERM "EXPIRATION DATE" SHALL MEAN THE LATEST DATE AND TIME TO
WHICH THE EXCHANGE OFFER IS EXTENDED. TENDERS MAY BE WITHDRAWN AT ANY TIME PRIOR
TO 5:00 P.M., GREENWICH MEAN TIME, ON THE EXPIRATION DATE. THEREAFTER, SUCH
TENDERS ARE IRREVOCABLE, EXCEPT THAT THEY MAY BE WITHDRAWN AFTER THE EXPIRATION
OF 40 BUSINESS DAYS FROM THE COMMENCEMENT OF THE EXCHANGE OFFER UNLESS ACCEPTED
FOR EXCHANGE PRIOR TO THAT DATE.
THE EXCHANGE AGENT IS:
HSBC Bank plc
BY FACSIMILE: BY REGISTERED OR CERTIFIED MAIL:
Issuer Services Issuer Services
Attn: The Manager, Attn: The Manager,
HSBC Issuer Services Operations HSBC Issuer Services Operations
Mariner House Mariner House
Pepys Street Pepys Street
London EC3N 4DA London EC3N 4DA
Facsimile: (44171) 260-8932 CONFIRM BY TELEPHONE:
(44171) 260-7801
FACSIMILE COPY TO:
RP&C International, Inc.
56 Green Street
London W1Y 3RH
England
Facsimile: (44171) 499-2893
Attn: Richard Borg
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF INSTRUCTIONS TO A FACSIMILE NUMBER OTHER THAN THE ONE LISTED
ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS CONTAINED IN THIS
LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL
IS COMPLETED. IN ORDER TO ACCEPT THIS EXCHANGE OFFER, EACH AGENT MEMBER BANK (AS
DEFINED BELOW) EFFECTUATING AN EXCHANGE ON BEHALF OF A HOLDER MUST EXECUTE AND
DELIVER A COPY OF THIS LETTER OF TRANSMITTAL.
The undersigned acknowledges receipt of the Offering Circular dated
November 25, 1999 (the "Offering Circular") of Harken Energy Corporation (the
"Company") and this Letter of Transmittal (the "Letter of Transmittal"), which
together constitute the Company's offer (the "Exchange Offer") to accept for
exchange up to the maximum amount set forth in the Offering Circular each
$10,000 principal amount of its 5% Senior Convertible Notes Due May 26, 2003
(the "Notes") into either (i) 4,000 shares of its Common Stock (the "Common
Stock"), $0.01 par value per share (the "Common Stock Consideration"), or (ii)
1,000 shares of its Series G Convertible Preferred Stock (the "Preferred
Stock"), $1.00 par value per share and $10.00 liquidation preference per share
(the "Preferred Stock Consideration" and, together with the Common Stock
Consideration, the "Exchange Consideration"), at the election of the holder of
the Notes, in each case validly tendered on or prior to the Expiration Date and
not properly withdrawn. The Company has the right to increase the principal
amount of Notes for which it may accept tenders thereof as described in the
Offering Circular. Recipients of the Offering Circular should read the Offering
Circular and the documents incorporated by reference therein in detail.
ChaseMellon Shareholder Services will act as transfer agent and registrar of the
Common Stock to be issued
<PAGE> 2
on exchange of the Notes (the "Transfer Agent"). Capitalized terms used but not
defined in this letter have the meaning given to them in the Offering Circular.
THE EXCHANGE OFFER IS AVAILABLE ONLY TO HOLDERS OF NOTES WHO ARE NOT
"U.S. PERSONS" (AS DEFINED IN REGULATION S UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT")). HOLDERS OF NOTES WHO ARE U.S. PERSONS ARE
INELIGIBLE TO PARTICIPATE IN THE EXCHANGE OFFER.
The undersigned hereby tenders the Notes described in the box entitled
"Amount Tendered" below pursuant to the terms and conditions described in the
Offering Circular and this Letter of Transmittal. The undersigned represents
that it is an Agent Member Bank (as defined below), and thus has the authority
to take the action described in this Letter of Transmittal.
This Letter of Transmittal is to be used to exchange Notes for
Preferred Stock or Common Stock, as the case may be, pursuant to the procedures
described in the section of the Offering Circular entitled "The Exchange Offer
- -- How to Tender."
The Company is under no obligation to exchange Notes for the Exchange
Consideration for holders which are organized, resident or domiciled in any
jurisdiction where this Exchange Offer would not comply with or would otherwise
violate or conflict with applicable law, rule or regulation. The Company
reserves the right, upon receipt of this Letter of Transmittal or any other
documents contemplated hereby to not accept any exchange of Notes for the
Exchange Consideration if the Company subsequently determines that the Exchange
Offer would be unlawful in such jurisdiction. The Company believes that the
Exchange Offer complies with applicable law, rule and regulation for holders
which are organized, resident or domiciled in Switzerland and Luxembourg.
In order to properly complete this Letter of Transmittal, an exchanging
beneficial owner of Notes must cause the agent member bank (the "Agent Member
Bank") which is reflected as the holder of the Notes in the Euroclear System or
Cedelbank, societe anonyme, to (i) complete the box entitled "Amount Tendered,"
(ii) complete the box entitled "Issuance Instructions," and (iii) sign the
Letter of Transmittal by completing the box entitled "Sign Here." Each
exchanging holder of Notes should carefully read the detailed instructions below
prior to completing the Letter of Transmittal.
Owners of Notes who wish to tender Notes for exchange must cause the
Agent Member Bank to complete columns (1), (2) and (3) in the box below entitled
"Amount Tendered," complete the box entitled "Issuance Instructions" set forth
below for each person to be a record holder of Common Stock Consideration and
sign and complete the box entitled "Sign Here."
The Preferred Stock will be represented initially by a single,
temporary global Preferred Stock certificate (the "Temporary Global
Certificate") in fully registered form and will be deposited with or on behalf
of The Depository Trust Company as depository ("DTC") and registered in the name
of DTC or its nominee. On or shortly after the Closing Date, the DTC accounts
for Euroclear and Cedelbank will be credited with the appropriate amounts of
Preferred Stock as requested by the Agent Member Banks, and the interests in the
Preferred Stock so credited will be held by Euroclear and Cedelbank on behalf of
such Agent Member Banks. On or after the first anniversary of the Closing Date,
upon certification as to non-U.S. person or QUIB beneficial ownership, the
Company will deposit a single, permanent global Preferred Stock certificate (the
"Global Certificate") in fully registered form with or on behalf of DTC and
registered in the name of DTC or its nominee to replace the Temporary Global
Certificate. The Temporary Global Certificate will then be cancelled. Except as
described herein, Preferred Stock certificates will not be issued in exchange
for beneficial interests in such Global Certificates.
Upon the issuance of the Temporary Global Certificate and the Global
Certificate (the "Global Certificates"), DTC or its custodian will credit, on
its internal system, the respective beneficial interests represented by such
Global Certificates, to the accounts of persons who have accounts with such
depositary. Such accounts initially will be designated by or on behalf of HSBC
Bank USA, which, in turn, will credit the DTC accounts of Euroclear and
Cedelbank as described above. Ownership of beneficial interests in the Global
Certificates will be limited to persons who have accounts with DTC
("participants") or persons who hold interests through participants. Ownership
of beneficial interests in the Global Certificates will be shown on, and the
transfer of that ownership will be effected only through, records maintained by
DTC or its nominee (with respect to interests of participants) and the records
of participants (with respect to interests of persons other than participants).
2
<PAGE> 3
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
AMOUNT TENDERED
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(1) (2) (3)
Name and Address of Holder of Notes Aggregate Aggregate
and Account Number of Agent Member Bank at Principal Amount Principal Amount
Euroclear or Cedelbank in Which Notes are Held Tendered for Tendered for
and in Whose Account the Preferred Stock Preferred Stock Common Stock
(if an Election is Made in Column 2) Consideration Consideration (must be in
Should be Credited (must be in integral integral
multiples of multiples of
U.S. $10,000) U.S. $10,000)
- -------------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------
-----------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note: Each principal amount of $10,000 of Notes tendered under column (2) will
be exchanged for 1,000 shares of Preferred Stock. Each principal amount of
$10,000 of Notes tendered under column (3) will be exchanged for 4,000 shares of
Common Stock. Please fill out the information contained in "Issuance
Instructions" for each person that has elected under column (3) above to be a
record holder of the Common Stock Consideration.
- --------------------------------------------------------------------------------
ISSUANCE INSTRUCTIONS
(See Instructions 5,6 and 7)
- --------------------------------------------------------------------------------
Issue the stock certificates representing the Common Stock Consideration to:
Name
------------------------------------------------------------------------
(Please Print)
Address
------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Include Zip Code)
- --------------------------------------------------------------------------------
(Number of Shares)
(i.e., the Principal Amount in column (3) x 0.4)
ATTACH ADDITIONAL ISSUANCE INSTRUCTIONS IF NECESSARY.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SIGN HERE
- --------------------------------------------------------------------------------
(Signature(s))*
Date: , 1999
------------------------------------------------
*Must be signed by an Agent Member Bank (See Instruction 5). Please print
and provide the following additional information:
Name of Agent Member Bank:
Contact Person at Agent Member Bank:
--------------------------------------------
Area Code and Telephone No. of Agent Member Bank: ( )
--- -------------------------
3
<PAGE> 4
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Pursuant to the exchange offer by Harken Energy Corporation upon the terms
and subject to the conditions set forth in the Offering Circular and this Letter
of Transmittal, which together constitute the Exchange Offer, to accept for
exchange up to the maximum amount set forth in the Offering Circular each
$10,000 principal amount of the Notes into either (i) 4,000 shares of the Common
Stock or (ii) 1,000 shares of the Preferred Stock, at the election of the holder
of the Notes, validly tendered on or prior to the Expiration Date and not
properly withdrawn, the signatory hereby tenders to the Company for exchange the
Notes indicated above and makes the election to receive the Common Stock
Consideration or the Preferred Stock Consideration as indicated above. The
signatory understands that the obligation of the Company to consummate the
Exchange Offer is subject to several conditions as set forth in the Offering
Circular under "Terms of the Exchange Offer -- Certain Conditions of the
Exchange Offer."
By executing this Letter of Transmittal and subject to and effective upon
acceptance for exchange of the Notes tendered for exchange herewith, the
signatory (i) acknowledges on behalf of itself and any beneficial owners of
Notes on whose behalf it is acting that the signatory has received and reviewed
the Offering Circular and this Letter of Transmittal, (ii) acknowledges and
agrees on behalf of itself and any beneficial owners of Notes on whose behalf it
is acting that the Company shall have fully performed all of its obligations
under that certain Trust Indenture dated as of May 26, 1998, between the Company
and Marine Midland Bank (the "Trustee"), and (iii) will have irrevocably sold,
assigned and transferred to the Company, all right, title and interest in, to
and under all of the Notes tendered for exchange hereby. In addition, the
undersigned on behalf of itself and any beneficial owners of Notes on whose
behalf it is acting hereby appoints HSBC Bank plc (the "Exchange Agent") as the
true and lawful agent and attorney-in-fact (with full knowledge that the
Exchange Agent also acts as agent of the Company) of such holder of Notes with
respect to such Notes, with full power of substitution, to effectuate a transfer
of such Notes with the Euroclear System ("Euroclear") and Cedelbank, societe
anonyme ("Cedelbank") and on the books of the Company or the Trustee, as the
case may be, to (i) receive all benefits and otherwise exercise all rights and
incidents of ownership with respect to such Notes, all in accordance with the
terms of the Exchange Offer and (ii) to deliver any and all evidence of transfer
and authenticity necessary to effectuate a transfer and cancellation of the
ownership of such Notes. The power of attorney granted in this paragraph shall
be deemed to be irrevocable and coupled with an interest.
The signatory hereby represents and warrants that (i) it has full power
and authority to tender, exchange, assign and transfer the Notes and (ii) when
such Notes are accepted for exchange by the Company, the Company will acquire
good and marketable title thereto, free and clear of all liens, restrictions,
charges and encumbrances and not subject to any adverse claims. The signatory
will, upon receipt, execute and deliver any additional documents deemed by the
Exchange Agent or the Company to be necessary or desirable to complete the
exchange, assignment and transfer of the Notes tendered for exchange hereby.
The signatory hereby further represents to the Company that (i) the
Preferred Stock or Common Stock, as the case may be, to be acquired in exchange
for the Notes tendered hereby by any owner(s) of such Notes in connection with
the Exchange Offer will be acquired in the ordinary course of business of the
owner of such Notes and (ii) the owner(s) of such Notes and the signatory are
not engaging and do not intend to engage in the distribution of the Preferred
Stock or the Common Stock and has no arrangement or understanding with any
person to participate in the distribution of the Preferred Stock or the Common
Stock.
The signatory further represents to the Company (i) that it is not a U.S.
citizen or resident or (ii) that it is a foreign corporation, partnership,
estate or trust.
The signatory acknowledges that for purposes of the Exchange Offer, the
Company will be deemed to have accepted for exchange, and to have exchanged,
validly tendered Notes, if, as and when the Company gives oral or written notice
thereof to the Exchange Agent. Tenders of Notes for exchange may be withdrawn at
any time prior to 5:00 p.m., Greenwich Mean Time, on December 15, 1999, as such
date may be extended as provided in the Offering Circular (the "Expiration
Date"). Thereafter, such tenders are irrevocable, except that they may be
withdrawn after the expiration of 40 business days from the commencement of the
Exchange Offer unless accepted for exchange prior to that date.
4
<PAGE> 5
The signatory acknowledges that the Company's acceptance of Notes validly
tendered for exchange pursuant to any one of the procedures described in the
section of the Offering Circular entitled "The Exchange Offer" and in the
instructions hereto will constitute a binding agreement among the signatory and
the Company upon the terms and subject to the conditions of the Exchange Offer.
Please notify the Transfer Agent to issue the stock certificates
representing the Common Stock issued in exchange for the Notes accepted for
exchange in the name(s) of the person(s) indicated under "Issuance
Instructions."
In order to validly tender Notes for exchange, this Letter of Transmittal
must be completed, executed and delivered.
Except as stated in the Offering Circular, all authority conferred or
agreed to be conferred by the signatory and any beneficial owner under the
signatory shall survive the death or incapacity of the signatory and of any
beneficial owner under the signatory, as applicable, and any obligation of the
signatory and of any beneficial owner under the signatory shall be binding upon
the heirs, personal representatives, successors and assigns of the signatory and
of any beneficial owner under the signatory. Except as otherwise stated in the
Offering Circular, this tender for exchange of Notes is irrevocable.
REPRESENTATIONS AND CERTIFICATIONS CONCERNING REGULATION S
The signatory, on behalf of the beneficial owners exchanging Notes
pursuant to this Letter of Transmittal (the "Beneficial Owners"), hereby
represents, agrees and certifies as follows:
(1) none of the Beneficial Owners is a "U.S. person" (as defined in
Regulation S), and none of the Beneficial Owners is acquiring the
Exchange Consideration, and if the Exchange Consideration is
converted, the Conversion Shares for its own account or for an
account with respect to which it exercises sole investment
discretion and not for the account or benefit of any U.S. person;
(2) each of the Beneficial Owners acknowledges that the Exchange
Consideration and the Conversion Shares have not been registered
under the Securities Act and may not be offered or sold within the
United States or to, or for the account or benefit of, U.S. persons
except as permitted below;
(3) each of the Beneficial Owners understands and agrees that the
Exchange Consideration is being offered only in a transaction not
involving any public offering within the meaning of the Securities
Act and that the Exchange Consideration and the Conversion Shares
are "restricted securities" as that term is defined in Rule 144
promulgated under the Securities Act;
(4) each of the Beneficial Owners understands and agrees that (A) if
such Beneficial Owner decides to resell, pledge, or otherwise
transfer the Exchange Consideration or Conversion Shares on which
the legend described below appears prior to the end of the one year
Distribution Compliance Period, the Preferred Stock Consideration,
and the Common Stock Consideration and the Conversion Shares may be
resold, pledged or transferred only (i) to the Company, (ii) so long
as such securities are eligible for resale pursuant to Rule 144A, to
a person whom the seller reasonably believes is a qualified
institutional investor within the meaning of Rule 144A (a "QUIB")
that purchases for its own account or for the account of a QUIB to
whom notice is given that the resale, pledge or transfer is being
made in reliance on Rule 144A, (iii) pursuant to offers and sales
that occur outside the United States in a transaction meeting the
requirements of Rule 904 of Regulation S under the Securities Act,
in each case in accordance with any applicable securities laws of
the United States, or (iv) pursuant to an effective registration
statement; and (B) such Beneficial Owner will, and each subsequent
holder is required to, notify the purchaser of such securities from
it of the resale restrictions referred to in (A) above, if then
applicable;
(5) each Beneficial Owner understands and agrees that (A) if within two
years after the date of original issuance of the Exchange
Consideration or if within three months after such Beneficial Owner
ceases to be an affiliate (within the meaning of Rule 144 under the
Securities Act) of the Company, such Beneficial Owner decides to
resell, pledge or otherwise transfer the Exchange Consideration or
upon conversion thereof, the Conversion Shares, as the case may be,
on which the legend described below appears, such securities may be
resold, pledged or transferred only (i) to the Company, (ii) so long
as such securities are eligible for resale pursuant to Rule 144A, to
a person whom the seller reasonably believes is a QUIB that
purchases for its own account or for the account of a QUIB to whom
notice is given that the resale, pledge or transfer is being made in
reliance on Rule 144A, (iii) pursuant to offers and sales that occur
outside the United States in a transaction meeting the requirements
of Rule 904 of Regulation S under the Securities Act, (iv) pursuant
to an exemption from the registration requirements of the Securities
Act provided by Rule 144 (if applicable)
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under the Securities Act, or (v) 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; and (B) such Beneficial Owner will, and each
subsequent holder is required to, notify the purchaser of such
securities from it of the resale restrictions referred to in (A)
above, if then applicable;
(6) each Beneficial Owner understands and agrees that during such time
as such restrictions are applicable prior to any transfer of the
Common Stock Consideration and the Conversion Shares, each proposed
transferee will be required to execute and deliver to the Transfer
Agent an investor letter in the form attached to the Offering
Circular as Appendix B acknowledging and agreeing to the selling
restrictions on the Exchange Consideration and the Conversion Shares
during such time as such restrictions are applicable and that such
investor letter shall be a condition precedent to any transfer of
such Common Stock Consideration or Conversion Shares;
(7) each Beneficial Owner understands and agrees that hedging
transactions in the Exchange Consideration or the Conversion Shares
are prohibited by Regulation S, unless permitted by the Securities
Act;
(8) each Beneficial Owner understands that the Company has neither any
obligation nor intention to file a registration statement in respect
of the Preferred Stock;
(9) each Beneficial Owner understands that the Preferred Stock
Consideration will bear the following legend:
"THESE SHARES OF PREFERRED STOCK AND THE SHARES OF COMMON STOCK ISSUABLE
ON CONVERSION OF THESE SHARES OF PREFERRED STOCK (THE "CONVERSION 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, BY
PURCHASING THESE SHARES, AGREES FOR THE BENEFIT OF THE COMPANY THAT THESE SHARES
AND THE CONVERSION SHARES MAY NOT BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED,
EXCEPT AS FOLLOWS.
PRIOR TO THE FIRST ANNIVERSARY OF THE ISSUANCE OF THESE SHARES OF
PREFERRED STOCK, THESE SHARES OF PREFERRED STOCK MAY NOT BE SO TRANSFERRED OTHER
THAN (1) TO THE COMPANY, (2) SO LONG AS THESE 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 INVESTOR 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, 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 OR THE UNITED STATES.
AFTER THE FIRST ANNIVERSARY AND PRIOR TO THE SECOND ANNIVERSARY OF THE
ISSUANCE OF THESE SHARES OF PREFERRED STOCK, THESE SHARES MAY NOT BE SO
TRANSFERRED OTHER THAN (1) TO THE COMPANY, (2) SO LONG AS THESE SHARES ARE
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 OR THE UNITED STATES.
IF THE HOLDER OF THESE 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 THESE SHARES OF PREFERRED STOCK OR THE
CONVERSION SHARES MAY BE CONDUCTED, UNLESS IN COMPLIANCE WITH THE SECURITIES
ACT.
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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, AS
AMENDED."
(10) each Beneficial Owner understands that the Common Stock
Consideration and the Conversion Shares will bear the following
legend:
"THESE 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, BY PURCHASING THESE SHARES, AGREES FOR THE BENEFIT OF THE COMPANY
THAT THESE SHARES MAY NOT BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, EXCEPT AS
FOLLOWS.
PRIOR TO THE FIRST ANNIVERSARY OF THE ISSUANCE OF THESE SHARES (OR THE
ISSUANCE OF THE PREFERRED STOCK, IF SUCH SHARES WERE FORMERLY UNDERLYING SHARES
OF PREFERRED STOCK), THESE SHARES MAY NOT BE SO TRANSFERRED OTHER THAN (1) TO
THE COMPANY, (2) SO LONG AS THESE 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 INVESTOR 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, 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 OR THE
UNITED STATES.
AFTER THE FIRST ANNIVERSARY AND PRIOR TO THE SECOND ANNIVERSARY OF THE
ISSUANCE OF THESE SHARES (OR THE ISSUANCE OF THE PREFERRED STOCK, IF SUCH SHARES
WERE FORMERLY UNDERLYING SHARES OF PREFERRED STOCK), THESE SHARES MAY NOT BE SO
TRANSFERRED OTHER THAN (1) TO THE COMPANY, (2) SO LONG AS THESE SHARES ARE
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 OR THE UNITED STATES.
IF THE HOLDER OF THESE 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 THESE 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, AS
AMENDED."
(11) each Beneficial Owner (i) has such knowledge and experience in
financial and business matters as to be capable of evaluating the
merits and risks of its prospective investment in the Exchange
Consideration and the Conversion Shares and (ii) has the ability to
bear the economic risks of its prospective investment and can afford
the complete loss of such investment;
(12) each Beneficial Owner has received a copy of the Offering Circular
relating to the offering, understands that any decision to subscribe
for the Exchange Consideration must be made only on the basis of the
Offering Circular, acknowledges that such Beneficial Owner has had
access to such financial and other information, and has been
afforded the opportunity to ask questions of the Company and receive
answers thereto, as it
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<PAGE> 8
deemed necessary in connection with its decision to exchange the
Notes for the Exchange Consideration and makes its subscription
subject to and on the basis of the provisions and terms of such
Offering Circular;
(13) each Beneficial Owner understands that the Company and others will
rely upon the truth and accuracy of the foregoing acknowledgments,
representations and agreements and agrees that if any of the
acknowledgments, representations and warranties deemed to have been
made by it by its purchase of the Exchange Consideration are no
longer accurate, it shall promptly notify the Company. If such
Beneficial Owner is acquiring the Exchange Consideration as a
fiduciary or agent for one or more investor accounts, it represents
that it has full power to make the foregoing acknowledgments,
representations and agreements on behalf of such account; and
(14) each Beneficial Owner will, if requested by the Company, deliver to
the Company, a certificate which will confirm the matters referred
to in these representations to the satisfaction of the Company,
acting reasonably.
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<PAGE> 9
INSTRUCTIONS
Forming Part of the Terms and Conditions of the Exchange Offer
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND NOTES. This Letter of Transmittal
is to be completed by an Agent Member Bank of Euroclear or Cedelbank on behalf
of all beneficial owners of Notes wishing to accept the Exchange Offer
hereunder.
No alternative, conditional or contingent tenders will be accepted. All
tendering holders of Notes, by execution of this Letter of Transmittal (or
facsimile hereof, if applicable), waive any right to receive notice of the
acceptance of their Notes for exchange.
2. INADEQUATE SPACE. If the space provided in the box entitled "Amount Tendered"
or "Issuance Instructions" above is inadequate, additional information should be
listed on a separate signed schedule affixed hereto.
3. WITHDRAWALS. A tender of Notes may be withdrawn at any time prior to 5:00
p.m., Greenwich Mean Time, on the Expiration Date by delivery of a written or an
electronic transmission notice of withdrawal to the Exchange Agent at the
address set forth on the cover of this Letter of Transmittal. Thereafter, such
tenders are irrevocable, except that they may be withdrawn after the expiration
of 40 business days from the commencement of the Exchange Offer unless accepted
for exchange prior to that date. To be effective, a notice of withdrawal of
Notes must (i) specify the name of the person who tendered the Notes to be
withdrawn (the "Depositor"), (ii) identify the Notes to be withdrawn (including
the aggregate principal amount of such Notes), (iii) be signed in the same
manner as the original signature on the Letter of Transmittal by which such
Notes were tendered and further instructions from beneficial owner(s), and (iv)
be received by the Exchange Agent prior to 5:00 p.m., Greenwich Mean Time, on
the Expiration Date. Withdrawals of tenders of Notes may not be rescinded, and
any Notes withdrawn will thereafter be deemed not validly tendered for purposes
of the Exchange Offer, and no Exchange Consideration will be issued with respect
thereto unless the Notes so withdrawn are validly retendered. Properly withdrawn
Notes may be retendered by following one of the procedures described in the
section of the Offering Circular entitled "The Exchange Offer -- How to Tender"
at any time prior to 5:00 p.m., Greenwich Mean Time, on the Expiration Date.
4. PARTIAL TENDERS. Tenders of Notes will be accepted only in integral multiples
of U.S. $10,000 principal amount. Tendering persons or entities may tender less
than all of the Notes held by such party provided they appropriately indicate
this fact on the Letter of Transmittal. Absent such an indication, the Exchange
Agent may rely on a Letter of Transmittal as representing a tender of all Notes
held by such party.
5. SIGNATURES ON THIS LETTER OF TRANSMITTAL AND POWERS OF ATTORNEY.
(a) By execution hereof, the signatory executing this Letter of
Transmittal hereby represents that it is an Agent Member Bank.
(b) By execution hereof, the Agent Member Bank represents that the
beneficial owner(s) has authorized the signatory to make the representations and
warranties contained in this Letter of Transmittal, including but not limited
to, the representations that (i) the beneficial owner(s) is acquiring the
Exchange Consideration in the ordinary course of business of the beneficial
owner(s) and (ii) the beneficial owner(s) is not participating, does not intend
to participate, and has no arrangement or understanding with any person to
participate, in the distribution of the Preferred Stock or the Common Stock.
6. TRANSFER TAXES. Except as set forth in this Instruction 6, the Company will
pay all transfer taxes, if any, applicable to the transfer and exchange of Notes
pursuant to the Exchange Offer. If Common Stock Consideration is to be issued in
the name of, any person other than the beneficial owner(s) of the Notes tendered
or such person's Agent Member Bank, or if a transfer tax is imposed for any
reason other than the exchange of Notes pursuant to the Exchange Offer, and
satisfactory evidence of payment of such taxes or exemptions from taxes
therefrom is not submitted with this Letter of Transmittal, the amount of any
transfer taxes payable on account of any such transfer will be imposed on and
payable by the beneficial owner(s) of Common Stock Consideration prior to the
issuance of the Common Stock.
7. IRREGULARITIES. All questions as to the form of documents and the validity,
eligibility (including time of receipt), acceptance and withdrawal of Notes will
be determined by the Company, in its sole discretion, whose determination shall
be final and binding. The Company reserves the absolute right to reject any or
all tenders for exchange of any particular Notes that are not in proper form, or
the acceptance of which would, in the opinion of the Company (or its counsel),
be
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<PAGE> 10
unlawful. The Company reserves the absolute right to waive any defect,
irregularity or condition of tender for exchange with regard to any particular
Notes. The Company's interpretation of the terms of, and conditions to, the
Exchange Offer (including the instructions herein) will be final and binding.
Unless waived, any defects or irregularities in connection with the Exchange
Offer must be cured within such time as the Company shall determine. Neither the
Company, the Exchange Agent nor any other person shall be under any duty to give
notice of any defects or irregularities in Notes tendered for exchange, nor
shall any of them incur any liability for failure to give such notice. A tender
of Notes will not be deemed to have been made until all defects and
irregularities with respect to such tender have been cured or waived.
8. WAIVER OF CONDITIONS. The Company reserves the absolute right to waive, amend
or modify any of the specified conditions described in the Offering Circular in
the case of any Notes tendered, except as otherwise provided in the Offering
Circular.
9. REQUESTS FOR INFORMATION OR ADDITIONAL COPIES. Requests for information or
for additional copies of the Offering Circular and this Letter of Transmittal
may be directed to the Exchange Agent at the address or telephone number set
forth on the cover of this Letter of Transmittal.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR A FACSIMILE THEREOF, IF
APPLICABLE) AND ALL OTHER REQUIRED DOCUMENTS MUST BE RECEIVED BY THE EXCHANGE
AGENT PRIOR TO 5:00 P.M., GREENWICH MEAN TIME, ON THE EXPIRATION DATE.
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EXHIBIT 99(a)(3)
HARKEN ENERGY CORPORATION
NOTICE OF EXCHANGE OFFER
OFFER TO EXCHANGE
5% SENIOR CONVERTIBLE NOTES DUE MAY 26, 2003
FOR
4,000 SHARES OF ITS COMMON STOCK
OR
1,000 SHARES OF ITS SERIES G CONVERTIBLE PREFERRED STOCK
NOVEMBER 25, 1999
NOTICE IS HEREBY GIVEN that Harken Energy Corporation (the "Company")
(AMEX: HEC) is offering to accept for exchange up to the maximum amount
described below each $10,000 principal amount of its 5% Senior Convertible
Notes Due May 26, 2003 (the "Notes") for either (i) 4,000 shares of its Common
Stock (the "Common Stock"), $0.01 par value per share (the "Common Stock
Consideration"), or (ii) 1,000 shares of its Series G Convertible Preferred
Stock (the "Preferred Stock"), $1.00 par value per share (the "Preferred Stock
Consideration" and, together with the Common Stock Consideration, the "Exchange
Consideration"), at the election of the holder of the Notes (the "Exchange
Offer"). Neither the Preferred Stock nor the Common Stock has been registered
under the United States Securities Act of 1933 and may not be offered or sold
in the United States (or to a U.S. person) absent registration or an applicable
exemption from the registration requirements. The Preferred Stock will have a
liquidation preference of US $10.00 per share. The Exchange Offer is available
only to holders of Notes who are not "U.S. persons" (as defined in Regulation S
under the United States Securities Act of 1933, as amended (the "Securities
Act")) and will expire at 5:00 Greenwich Mean Time, on December 15, 1999,
unless extended by the Company.
SUMMARY OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
The Notes may be offered for exchange in minimum denominations of U.S. $10,000
each and integral multiples thereof. The Company will only exchange up to (i)
6,000,000 shares of Common Stock and (ii) 2,700,000 shares of Preferred Stock
in connection with the Exchange Offer; however, the Company may elect, in its
sole discretion, to (a) increase the amount of the Common Stock up to
10,000,000 shares (the "Common Stock Election") and/or (b) increase the amount
of Preferred Stock up to 4,500,000 (the "Preferred Stock Election" and,
together with the Common Stock Election, the "Elections"). Therefore, the
Company will only exchange up to $42,000,000 aggregate principal amount of
Notes (or up to $70,000,000 aggregate principal amount of Notes if the Company
makes both of the Elections ). Each share of Preferred Stock will be
convertible into shares of the Common Stock at a conversion price of US $ 3.00
per share, as compared to an effective conversion price of US $6.50 for the
Notes. The shares of Preferred Stock will have a liquidation preference of $
10.00 per share. Holders of Notes accepted for exchange will receive the
regular interest payment to become due and payable on November 26. The Holders
of the Notes accepted for exchange will have the right to withdraw such Notes
until the expiration date of the Exchange Offer, which withdrawal right may
extended under certain circumstances as required by certain United States
regulations.
Full details of the Exchange Offer are contained in the Offering Circular dated
November 25, 1999 (the "Offering Circular") and the accompanying Letter of
Transmittal.
PROCEDURES FOR TENDERING
All of the Notes are currently represented by a temporary global note on
deposit with HSBC Bank plc, as nominee for Morgan Guaranty Trust Company of New
York, Brussels office, as operator of the Euroclear System ("Euroclear") and
Cedelbank("Cedelbank"). Any beneficial holder of the Notes desiring to tender
all or any portion of such Notes must request the agent member bank which is
reflected as the holder of the Notes in Euroclear or with Cedelbank to
effectuate the transaction on its behalf. In addition, the agent member bank
must complete and sign the Letter of Transmittal or a facsimile thereof on
behalf of each beneficial owner(s) of the Notes, in accordance with the
instructions in the Letter of Transmittal and any other required documents.
Copies of the Offering Circular and the Letter of Transmittal may be obtained
from the Exchange Agent at the address above, and the Luxembourg Paying Agent,
Kredietbank S.A. Luxembourgeoise, 43 Boulevard Royal, L-2955 Luxembourg.
