As filed with the Securities and Exchange Commission on January 28, 2003
Registration No. 333-99579
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 2
to
Form S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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Harken Energy Corporation
(Exact name of registrant as specified in its charter)
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Delaware 580 WestLake Park 95-2841597
(State or other Boulevard, Suite 600 (IRS Employer
jurisdiction of Houston, Texas 77079 Identification Number)
incorporation or (281) 504-4000
organization)
(Address, including zip code, and telephone number including area code, of
registrant's principal executive offices)
A. Wayne Hennecke
Senior Vice President--Finance and Secretary
Harken Energy Corporation
580 WestLake Park Boulevard, Suite 600
Houston, Texas 77079
(281) 504-4000
(Name and address, including zip code, and telephone number including area
code, of agent for service)
Copy to:
Amar Budarapu
Baker & McKenzie
2001 Ross Avenue, Suite 2300
Dallas, Texas 75201
(214) 978-3000
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Approximate date of commencement of proposed sale of securities to the
public: As soon as practicable after the effective date of this Registration
Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the Registration Statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to said Section 8(a), may determine.
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The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and we are not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED JANUARY 28, 2003
PROSPECTUS
Up to Shares of Common Stock
(And Subscription Rights to Acquire Such Shares)
[LOGO] HARKEN
Energy Corporation
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We are distributing to holders of our common stock, Series G1 preferred
stock and Series G2 preferred stock, at no charge, nontransferable subscription
rights to purchase shares of our common stock. These shares of common stock
include preferred stock purchase rights attached to such common stock under our
stockholder rights plan. You will receive one subscription right for each share
of common stock you own (or in the case of the Series G1 preferred stock and
Series G2 preferred stock, one subscription right for each share of common
stock issuable upon conversion) at the close of business on January 30, 2003.
We are distributing subscription rights exercisable for up to
shares of our common stock.
Each subscription right will entitle you to purchase shares of our
common stock at a subscription price of $ per right (or $ per
share). The subscription rights will expire if they are not exercised by 5:00
p.m., New York City time, on , 2003, unless this offering period is
extended by us in our sole discretion. You should carefully consider whether to
exercise your subscription rights before this expiration date. All exercises of
subscription rights are irrevocable. Our board of directors is making no
recommendation regarding your exercise of the subscription rights. The
subscription rights may not be sold or transferred except under the very
limited circumstances described in this prospectus.
If any shares of common stock offered in the rights offering remain
unsubscribed after the rights offering, Lyford Investments Enterprises Ltd., a
creditor of ours, has agreed, subject to certain conditions, to purchase all
such shares at the subscription price pursuant to a standby purchase agreement.
Depending on the number of subscriptions we receive from stockholders, the
rights offering could result in a change in control of Harken because of this
standby commitment of Lyford.
Shares of our common stock are traded on the American Stock Exchange under
the symbol "HEC." On , 2003, the closing sales price for our common
stock was $ per share. We expect that the shares of common stock issued
in the rights offering will also be listed on the American Stock Exchange under
the same symbol.
The exercise of your subscription rights for shares of our common stock
involves risks. You should carefully consider the risk factors beginning on
page of this prospectus before exercising your subscription rights.
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Price to Underwriting Discounts Proceeds to
Public and Commissions the Company(1)
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Per share $ (2) N/A $
Total.... $ N/A $
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(1) Before deducting expenses of the rights offering payable by the company,
estimated to be $400,000.
(2) This represents the subscription price for purchase of a share of common
stock upon exercise of the subscription rights.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
The date of this prospectus is , 2003.
QUESTIONS AND ANSWERS ABOUT THE RIGHTS OFFERING...... 3
RISK FACTORS......................................... 9
OUR COMPANY.......................................... 24
USE OF PROCEEDS...................................... 24
CAPITALIZATION....................................... 25
THE RIGHTS OFFERING.................................. 26
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES 37
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY...... 39
DESCRIPTION OF CAPITAL STOCK......................... 39
PLAN OF DISTRIBUTION................................. 43
LEGAL MATTERS........................................ 45
EXPERTS.............................................. 45
WHERE YOU CAN FIND MORE INFORMATION.................. 45
FORWARD-LOOKING STATEMENTS........................... 47
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You should rely only on the information in this prospectus and the
additional information described under the heading "Where You Can Find More
Information." We have not authorized any other person to provide you with
different information. If anyone provides you with different or inconsistent
information, you should not rely on it. We are not making an offer to sell
these securities in any jurisdiction where the offer or sale is not permitted.
You should assume that the information in this prospectus and the additional
information described under the heading "Where You Can Find More Information"
were accurate on the date on the front cover of the prospectus only. Our
business, financial condition, results of operations and prospects may have
changed since that date.
2
QUESTIONS AND ANSWERS ABOUT THE RIGHTS OFFERING
This section highlights information contained elsewhere or incorporated by
reference in this prospectus. This section does not contain all of the
important information that you should consider before exercising your
subscription rights and investing in our common stock. You should read this
entire prospectus carefully.
Q: What is the rights offering?
A: We are distributing to holders of our common stock, Series G1 preferred
stock and Series G2 preferred stock, at no charge, nontransferable
subscription rights to purchase shares of our common stock. You will receive
one subscription right for each share of common stock you own (or in the
case of the Series G1 preferred stock and Series G2 preferred stock, one
subscription right for each share of common stock issuable upon conversion)
at the close of business on January 30, 2003, the record date. The
subscription rights will be evidenced by rights certificates.
Q: What is a subscription right?
A: Each subscription right is a right to purchase shares of our common
stock. When you "exercise" a subscription right, you choose to purchase
shares of common stock that the subscription right entitles you to purchase.
You may exercise any number of your subscription rights, or you may choose
not to exercise any subscription rights. We will not distribute any
fractional shares, but will round up the aggregate number of shares you are
entitled to receive to the nearest whole number.
Q: What is the subscription price?
A: The subscription price for a subscription right is $ per right (or
$ per share). The per share price equals 70% of the current market
price of our common stock determined by averaging the closing price of our
common stock on the American Stock Exchange for the five trading days ending
on , 2003.
In establishing the subscription price, our board of directors considered:
. strategic alternatives for capital raising,
. the market price of our common stock,
. our negotiations with Lyford as standby purchaser,
. the pricing of similar transactions,
. the amount of proceeds desired,
. our business prospects, and
. general conditions in the securities markets.
See "The Rights Offering--Determination of Subscription Price" on page
.
Q: Where will the shares of common stock issued in the rights offering be
listed?
A: Our common stock is traded on the American Stock Exchange under the symbol
"HEC." We expect that the shares of common stock issued in the rights
offering will also be listed on the American Stock Exchange under the same
symbol. On September 12, 2002, the last trading day prior to our public
announcement of the rights offering, the closing price of our common stock
on the American Stock Exchange was $0.31 per share. On , 2003, the
last trading day before the date of this prospectus, the closing price of
our common stock on the American Stock Exchange was $ per share. See
"Price Range of Common Stock and Dividend Policy" on page .
3
Q: How long will the rights offering last?
A: You will be able to exercise your subscription rights only during a limited
period. If you do not exercise your subscription rights before 5:00 p.m.,
New York City time, on , 2003, your subscription rights will expire.
We may, in our sole discretion, decide to extend the rights offering from
time to time, with such extension not to exceed 30 business days. See "The
Rights Offering--Expiration Date, Extensions and Termination" on page .
Q: Why are we engaging in a rights offering?
A: We are making this rights offering in order to raise $10 million in new
capital to be used as follows:
. to repay a $5 million loan, and accrued interest, made by Lyford
Investments Enterprises Ltd. (referred to as Lyford) to us during 2002
that is evidenced by promissory notes with an annual interest rate of 10%
(referred to as the Lyford Notes), and
. to reduce a portion of our debt that matures next year and/or other
indebtedness or
. as additional working capital for our business.
Our board of directors believes that the rights offering will ultimately
strengthen our financial condition through generating additional cash,
reducing our indebtedness and increasing our stockholders' equity. [This
rights offering was approved by a vote of our stockholders at our Annual
Stockholders Meeting on January 29, 2003.] See "Use of Proceeds" on page ,
"Capitalization" on page and "The Rights Offering--Reasons for the Rights
Offering" on page . However, our board of directors is not making any
recommendation as to whether you should exercise your subscription rights.
You should decide whether to exercise your subscription rights based upon
your own assessment of your best interests.
Q: How much money will we receive from the rights offering?
A: If we sell all the shares being offered, we will receive gross proceeds of
$10 million. We are offering shares in the rights offering with no minimum
purchase requirement. As a result, there is no assurance we will be able to
sell all of the shares being offered. However, Lyford has agreed, subject to
certain conditions, to purchase all unsubscribed shares of common stock in
the rights offering at the subscription price to provide us with gross
proceeds of $10 million. Accordingly, even if Lyford is the only participant
in the rights offering, we expect to receive gross proceeds of $10 million.
See "Use of Proceeds" on page and "The Rights Offering--Standby
Commitment of Lyford" on page .
Q: Am I required to subscribe in the rights offering?
A: No.
Q: What happens if I choose not to exercise my subscription rights?
A: You will retain the current number of shares of common stock held directly
by you (or indirectly by virtue of options, warrants and convertible
preferred stock) even if you do not exercise your subscription rights. If
you choose not to exercise your subscription rights, then the percentage of
the common stock held directly by you (or indirectly by virtue of
convertible preferred stock) will decrease because Lyford has agreed,
subject to certain conditions, to act as a standby purchaser to purchase any
unsubscribed shares. However, even if common stockholders choose to exercise
their subscription rights in full, their percentage ownership of our common
stock could still decrease because we are also providing subscription rights
to holders of our convertible preferred stock. The magnitude of the
reduction of your percentage ownership will depend upon the extent to which
you subscribe in the rights offering.
4
Q: How do I exercise my subscription rights?
A: You must properly complete the attached subscription certificate and deliver
it, along with the subscription price for the shares you are subscribing, to
American Stock Transfer & Trust Company, the Subscription Agent, before 5:00
p.m., New York City time, on , 2003. The address for the Subscription
Agent is on page . See "The Rights Offering--Delivery of Subscription
Materials and Payment" on page .
Q: What should I do if I want to participate in the rights offering but my
shares are held in the name of my broker, custodian bank or other nominee?
A: If you hold shares of our common stock through a broker, custodian bank or
other nominee, we will ask your broker, custodian bank or other nominee to
notify you of the rights offering. If you wish to exercise your subscription
rights, you will need to have your broker, custodian bank or other nominee
act for you. To indicate your decision, you should complete and return to
your broker, custodian bank or other nominee the form entitled "Beneficial
Owner Election Form." You should receive this form from your broker,
custodian bank or other nominee with the other rights offering materials.
You should contact your broker, custodian bank or other nominee if you
believe you are entitled to participate in the rights offering but you have
not received this form.
Q: Will I be charged a sales commission or a fee by Harken if I exercise my
subscription rights?
A: No. We will not charge you a brokerage commission or a fee for exercising
your subscription rights. However, if you exercise your subscription rights
through a broker or nominee, you will be responsible for any fees charged by
your broker or nominee.
Q: Are there risks in exercising my subscription rights?
A: Yes. The exercise of your subscription rights involves risks. Exercising
your subscription rights means buying additional shares of our common stock
and should be considered as carefully as you would consider any other equity
investment. Among other things, you should carefully consider the risks
described under the heading "Risk Factors," beginning on page .
Q: May I transfer my subscription rights if I do not want to purchase any
shares?
A: No. Should you choose not to exercise your subscription rights, you may not
sell, give away or otherwise transfer your subscription rights. However,
subscription rights will be transferable to affiliates of the recipient and
by operation of law (for example, upon death of the recipient).
Q: Is there an over-subscription privilege?
A: No. There is no right to subscribe for additional shares of our common stock
unclaimed by other holders of subscription rights.
Q: After I exercise my subscription rights, can I change my mind and cancel my
purchase?
A: No. Once you send in your subscription certificate and payment you cannot
revoke the exercise of your subscription rights, even if you later learn
information about Harken that you consider to be unfavorable and even if the
market price of our common stock is below the subscription price. You should
not exercise your subscription rights unless you are certain that you wish
to purchase additional shares of our common stock at the subscription price.
See "The Rights Offering--No Revocation" on page .
5
Q: What is the role of Lyford in this offering?
A: If any shares of common stock offered in the rights offering remain
unsubscribed after the rights offering, Lyford has agreed, subject to
certain conditions, to purchase all such shares at the subscription price
pursuant to a standby purchase agreement. We refer to the commitment of
Lyford to purchase shares of common stock as the "Standby Commitment." For a
more complete description of the role of Lyford in the rights offering, see
"The Rights Offering--Standby Commitment of Lyford" on page and "Plan of
Distribution" on page .
Q: How many shares will Lyford own after the offering?
A: If no stockholders other than Lyford exercise their subscription rights,
Lyford will purchase up to shares of our common stock in the offering
pursuant to its subscription rights received as a stockholder and its
Standby Commitment. This amount does not include 1,714,286 shares that
Lyford received as a fee for its Standby Commitment. See "The Rights
Offering--Standby Purchase Agreement" on page . In that case, Lyford's
ownership interest could be approximately %, and the ownership interest
of the remaining outstanding stockholders could decrease to approximately
%.
Depending on the number of subscriptions we receive from stockholders, the
rights offering could result in a change in control of Harken because of
Lyford's Standby Commitment. See "Risk Factors" on page .
Q: Are there any conditions to Lyford's Standby Commitment?
A: Yes. The obligation of Lyford to exercise its Standby Commitment will be
subject to a number of conditions. In the event Lyford does not close its
Standby Commitment, we intend to still consummate the rights offering. For a
more detailed description of the conditions to Lyford's Standby Commitment,
see "The Rights Offering--Standby Purchase Agreement" on page .
Q: Is Lyford receiving any compensation for its Standby Commitment?
A. Yes. As compensation to Lyford for its Standby Commitment, we issued
1,714,286 shares of common stock to Lyford (referred to as the Standby
Commitment Fee).
In purchasing all unsubscribed shares of common stock in the rights
offering, Lyford is entitled to offset an amount to satisfy the Lyford
Notes, and accrued interest, without any further action or approval from
Harken. Even if Lyford does not close its Standby Commitment, we are
required to use 60% of the proceeds of the rights offering to repay the
Lyford Notes within 30 days of our receipt of such proceeds. See "Use of
Proceeds" on page .
Q: Can the board of directors withdraw the rights offering?
A: Yes. The board of directors may decide to withdraw the rights offering at
any time for any reason. If we withdraw the rights offering, any money
received from subscribing stockholders will be refunded promptly, without
interest. See "The Rights Offering--Withdrawal and Amendment" on page .
Q: If the rights offering is not completed, will my subscription payment be
refunded to me?
A: Yes. The Subscription Agent will hold all funds it receives in a segregated
bank account until completion of the rights offering. If the rights offering
is not completed, the Subscription Agent will return promptly, without
interest, all subscription payments.
Q: What is the board of directors' recommendation regarding the rights offering?
A: Our board of directors is not making any recommendation as to whether you
should exercise your subscription rights. You are urged to make your
decision based on your own assessment of the rights offering and Harken.
6
Q: How many shares will be outstanding after the rights offering?
A: As of , 2003, we had approximately [ ] million shares issued and
outstanding. We expect to issue up to shares in the rights offering.
After the rights offering, we anticipate that we will have shares of
common stock outstanding. Your ownership percentage of our common stock will
likely decrease as a result of the rights offering because we are also
providing subscription rights to holders of our convertible preferred stock.
After the rights offering, we may issue additional shares of common stock
pursuant to convertible securities or to redeem our existing convertible
notes. Any such issuance will cause further dilution in your ownership
percentage of our common stock. In addition, depending on the number of
subscriptions we receive from stockholders, the rights offering could result
in a change in control of Harken because of the Standby Commitment of
Lyford. See "Risk Factors" on page .
Q: What are the United States federal income tax consequences of exercising my
subscription rights as a holder of common stock, Series G1 preferred stock
or Series G2 preferred stock?
A: A holder of common stock generally should not recognize income or loss for
federal income tax purposes in connection with the receipt or exercise of
subscription rights in the rights offering. A holder of Series G1 or G2
preferred stock should recognize dividend income for federal income tax
purposes in connection with the receipt of subscription rights in the rights
offering. However, a holder of Series G1 or G2 preferred stock should not
recognize income or loss for federal income tax purposes in connection with
the exercise of the subscription rights. We urge you to consult your own tax
advisor with respect to the particular tax consequences of the rights
offering or the related share issuance to you. See "Certain United States
Federal Income Tax Consequences" on page .
Q: When will I receive certificates for the shares purchased in the rights
offering?
A: We will issue certificates representing shares purchased in the rights
offering to you or to the Depository Trust Company on your behalf, as the
case may be, as soon as practicable after the expiration of the rights
offering.
Q: What should I do if I have other questions or need assistance?
A: If you have other questions or need assistance, please contact Morrow & Co.,
Inc., the Information Agent for the rights offering, or American Stock
Transfer & Trust Company, the Subscription Agent, at the following addresses
and telephone numbers:
The Information Agent:
Morrow & Co., Inc.
445 Park Avenue, 5/th/ Floor
New York, N.Y. 10022
E-mail: harken.info@morrowco.com
Telephone for Stockholders: (800) 607-0088
Telephone for Banks and Brokerage Firms: (800) 654-2468
or
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The Subscription Agent:
American Stock Transfer & Trust Company
Attention: Subscription Agent
59 Maiden Lane, Plaza Level
New York, N.Y. 10038
Telephone: (800) 937-5449
Our principal offices are located at 580 WestLake Park Boulevard, Suite 600,
Houston, Texas 77079.
For a more complete description of the rights offering, see "The Rights
Offering" beginning on page .
8
RISK FACTORS
The exercise of your subscription rights for shares of our common stock
involves a high degree of risk. Prior to making an investment decision, you
should carefully consider all of the information in this prospectus and
evaluate the following risk factors.
Unless the context otherwise requires, references to "Harken," "we," "us,"
or "our Company" refer to Harken Energy Corporation and its subsidiaries.
Risks relating to this rights offering:
The proceeds from the rights offering will not be sufficient to repay our
outstanding debt obligations and there is no assurance that we will obtain
sufficient funds prior to such debts' maturity dates.
Our principal outstanding debt maturing this year consists of approximately
$[29] million principal amount of our 5% Senior Convertible Notes due May 26,
2003 (referred to as the 5% European Notes) and $5.7 million principal amount
of our 5% Convertible Notes due November 26, 2003 (referred to as the Benz
Notes). If the rights offering is consummated, it will result in gross proceeds
of less than $5 million after repaying the Lyford Notes. This amount of
proceeds is not sufficient to repay our outstanding debt obligations, including
the 5% European Notes and the Benz Notes. We do not have sufficient funds to
pay such debt obligations in cash upon maturity and there is no assurance we
will obtain such funds prior to maturity. To the extent we are unable to pay
the notes in cash upon maturity, we will have to redeem the notes by issuing
common stock and/or otherwise restructure the notes. There can be no assurance
that we would be successful in restructuring our obligations under the
then-outstanding notes or have sufficient authorized shares to redeem such
notes.
The subscription price is not an indication of the value of Harken, and you may
not be able to sell shares purchased upon the exercise of your subscription
rights at a price equal to or greater than the subscription price.
The subscription price does not necessarily bear any relationship to the
book value of our assets, operations, cash flows, earnings, financial condition
or any other established criteria for value. As a result, you should not
consider the subscription price as an indication of the current value of Harken
or our common stock. We cannot assure you that you will be able to sell shares
purchased in this offering at a price equal to or greater than the subscription
price.
The rights offering may cause the price of our common stock to decrease
immediately, and this decrease may continue.
The subscription price equals 70% of the current market price of our common
stock determined by averaging the closing price of our common stock on the
American Stock Exchange for the five trading days ending on , 2003.
This discount, along with the number of shares we propose to issue and
ultimately will issue if the rights offering is completed, may result in an
immediate decrease in the market value of the common stock. This decrease may
continue after the completion of the rights offering.
The rights offering may result in a change in control of Harken.
If no stockholders other than Lyford exercise their subscription rights,
Lyford will purchase shares in the offering. This amount does not
include 1,714,286 shares that Lyford received as a fee for its Standby
Commitment. See "The Rights Offering--Standby Purchase Agreement." In that
case, Lyford's ownership interest would be approximately %, and the
ownership interest of the remaining stockholders would decrease to
approximately %. Even if some stockholders other than Lyford exercise
their subscription rights, Lyford could still purchase enough shares to
increase its ownership interest to over 50%. As a result,
9
Lyford may have the voting power to control the election of our board of
directors and the approval of other matters presented for consideration by our
stockholders, which could include mergers, acquisitions, amendments to our
charter and various corporate governance actions.
As a holder of common stock, you may suffer significant dilution of your
percentage ownership of our common stock.
If you do not exercise your subscription rights and shares are purchased by
other stockholders in the rights offering or by Lyford, your proportionate
voting and ownership interest will be reduced and the percentage that your
original shares represent of our expanded equity after exercise of the
subscription rights will be diluted. For example, if you own 500,000 shares of
common stock before the rights offering, or approximately 2.1% of Harken's
equity, and you exercise none of your subscription rights while all other
subscription rights are exercised by other stockholders, then your percentage
ownership would be reduced to approximately %. Even if our common
stockholders choose to exercise their subscription rights in full, their
percentage ownership of our common stock could still decrease because we are
also providing subscription rights to holders of our convertible preferred
stock. The magnitude of the reduction of your percentage ownership will depend
upon the extent to which you subscribe in the rights offering. In addition, we
may be required to issue approximately million shares of common stock
pursuant to securities exercisable or exchangeable, or convertible into, shares
of common stock assuming a market price of $. per share. These securities
have anti-dilution or other provisions of adjustment to their exercise price or
number of shares which will be automatically triggered by the rights offering.
We may also issue shares of common stock to redeem our existing convertible
notes. Any such issuances may further dilute your ownership percentage.
The subscription rights are not transferable and there is no market for the
subscription rights.
You may not sell, give away or otherwise transfer your subscription rights.
The subscription rights are only transferable to your affiliates and by
operation of law. Because the subscription rights are non-transferable, there
is no market or other means for you to directly realize any value associated
with the subscription rights. You must exercise the subscription rights and
acquire additional shares of our common stock to realize any value.
If you exercise your subscription rights, you may be unable to sell any shares
you purchase at a profit and your ability to sell may be delayed by the time
required to deliver the stock certificates.
The public trading market price of our common stock may decline after you
elect to exercise your subscription rights. If that occurs, you will have
committed to buy shares of common stock at a price above the prevailing market
price and you will have an immediate unrealized loss. Moreover, we cannot
assure you that following the exercise of subscription rights you will be able
to sell your shares of common stock at a price equal to or greater than the
subscription price. Until shares are delivered upon expiration of the rights
offering, you may not be able to sell the shares of our common stock that you
purchase in the rights offering. Certificates representing shares of our common
stock purchased will be delivered as soon as practicable after expiration of
the rights offering. We will not pay you interest on any funds delivered to the
Subscription Agent pursuant to the exercise of subscription rights.
You may not revoke your exercise of subscription rights and we may cancel the
rights offering.
Once you exercise your subscription rights, you may not revoke the exercise.
We may close the rights offering even if less than all of the shares that we
are offering are actually purchased. We may unilaterally withdraw or terminate
this rights offering in our discretion until the time the share certificates
are actually distributed. If we elect to withdraw or terminate the rights
offering, neither we nor the Subscription Agent will have any obligation with
respect to the subscription rights except to return, without interest or
penalty, any subscription payments.
10
You will incur immediate and likely substantial net asset dilution.
Regardless of whether you exercise your subscription rights to purchase
shares of our common stock, you will incur immediate and likely substantial
dilution between the net book value per share of common stock after the
offering and the subscription price. On a pro forma basis after taking into
account the effect of the rights offering and the Standby Commitment (but prior
to any use of the proceeds other than the repayment of the $5 million principal
amount of the Lyford Notes and accrued interest thereon) our book value per
share as of September 30, 2002 would be as follows:
Net Tangible Book Value Per Share
Pro Forma
-------------------------------------------
Pro Forma
Assuming Rights
Historical As As Offering at
Reported Adjusted(1) Subscription Price
------------- ----------- ------------------
Book value of Harken (in thousands).......................... $ 10,404 $-- $ (2)
Number of shares of common stock outstanding................. 24,885,404 -- (3)
Net tangible book value per common share..................... $ 0.42 $-- $ (4)
Increase/decrease in net tangible book value per common share $ -- $-- $
Dilution per common share to purchasing stockholders......... $ -- $-- $
--------
(1) Includes adjustments for the (i) issuance of $4,070,000 in principal amount
of 5% European Notes due 2003 exchanged for $4,070,000 principal amount of
7% Notes due 2007, (ii) issuance of common stock as payment of accrued
preferred stock dividends, (iii) refinancing of existing credit facility
due 2003 with new credit facility due 2005, (iv) repurchase of preferred
stock and (v) exchange of shares of subsidiary for equity securities.
(2) Pro forma book value calculations assume $10 million gross offering
proceeds prior to reduction for debt balances other than the Lyford loan
balance, and accrued interest, required to be paid and $400,000 in offering
expenses. Book value amounts could increase if cash proceeds are used to
repurchase debt at a discount from face value.
(3) Pro forma common stock outstanding includes shares issuable in the
rights offering.
(4) Pro forma net tangible book value per share will decrease substantially in
the event we issue shares of common stock pursuant to outstanding
convertible securities or redeem our existing convertible notes.
United States federal income tax consequences are uncertain.
In general, holders of common stock should not recognize income or loss for
federal income tax purposes in connection with the receipt or exercise of
subscription rights in the rights offering. Holders of Series G1 or Series G2
preferred stock should, however, recognize dividend income on the receipt of
the subscription rights. Because these issues are subject to some uncertainty
and because we have not sought, and will not seek, an opinion of counsel or a
ruling from the Internal Revenue Service regarding any tax consequences of the
rights offering or the related share issuances under foreign, federal, state or
local tax laws, we urge you to consult your own tax advisor with respect to the
particular tax consequences of the rights offering or the related share
issuances to you.
To exercise your subscription rights, you need to act promptly and follow
subscription instructions.
If you desire to purchase shares in this rights offering, you must act
promptly to ensure that all required forms and payments are actually received
by the Subscription Agent prior to , 2003, the expiration date. If you
fail to complete and sign the required subscription forms, send an incorrect
payment amount, or otherwise fail to follow the subscription procedures that
apply to your desired transaction, the we may, depending on the circumstances,
reject your subscription or accept it to the extent of the payment received. If
your exercise is rejected, your payment of the exercise price will be promptly
returned. Neither we nor our Subscription Agent undertakes to contact you
concerning, or attempt to correct, an incomplete or incorrect subscription form
or
11
payment. We have the sole discretion to determine whether a subscription
exercise properly follows the subscription procedures and to decide all
questions as to the validity, form and eligibility (including times of receipt
and beneficial ownership). Alternative, conditional or contingent subscriptions
will not be accepted. We reserve the absolute right to reject any subscriptions
not properly submitted. In addition, we may reject any subscription if the
acceptance of the subscription would be unlawful. We also may waive any
irregularities (or conditions) in the subscription. If you are given notice of
a defect in your subscription, you will have five business days after the
giving of notice to correct it. You will not, however, be allowed to cure any
defect later than 5:00 p.m., New York City time, on , 2003. We are not
obligated to give you notification of defects in your subscription. We will not
consider an exercise to be made until all defects have been cured or waived.
Risks associated with our financial condition:
If we do not continue to meet the listing requirements of the American Stock
Exchange, our common stock could be delisted.
The American Stock Exchange requires companies to fulfill certain
requirements in order for their shares to continue to be listed. The securities
of a company may be considered for delisting if the company fails to meet
certain financial thresholds, including if the company has stockholders' equity
of less than $6 million and has sustained losses from continuing operations
and/or net losses in its five most recent fiscal years. As of September 30,
2002, our stockholders' equity was $10.4 million and, as discussed below, we
have sustained losses in each of our last five fiscal years. There can be no
assurance that our stockholders' equity will not be reduced or that we will not
report additional losses in the future. If these aspects of our financial
condition do not improve, our common stock (including shares of common stock
issued in the rights offering) may be considered for delisting.
If our common stock is delisted from the American Stock Exchange for any
reason and we are deemed not to have used our "best efforts" to maintain such
listing, we will be in default under our 5% European Notes and, as a result of
cross-default provisions, our other debt obligations. Any default under our
debt agreements will result in a majority of our debt obligations becoming due
in full. We do not have sufficient funds to pay our debt obligations in cash
and there is no assurance we will obtain such funds if such debt became due
which would result in a material adverse effect on our financial position and
results of operations. The potential delisting of our common stock could
adversely affect our ability to raise capital in the future by issuing common
stock or securities convertible into common stock.
We have a history of losses and may suffer losses in the future.
We have reported losses in each of the last five fiscal years, including a
net loss of $41,023,000 for the year ended December 31, 2001 that was primarily
caused by the writedown of our oil and gas properties and the impairment of our
investment in Costa Rica. We have also reported a loss of $5.2 million for the
nine months ended September 30, 2002. We have reported cumulative net losses of
approximately $263 million over the last five fiscal years. Our ability to
generate net income is strongly affected by, among other factors, our ability
to successfully drill our undeveloped reserves as well as the market price of
crude oil and natural gas. During the fourth quarter of 2000, we recorded a
writedown of our oil and gas properties of approximately $156 million primarily
due to a significant reduction in our proved undeveloped reserves in Colombia
following the drilling of a non-productive well. If we are unsuccessful in
drilling productive wells or the market price of crude oil and natural gas
declines, we may report additional losses in the future. Consequently, future
losses may adversely affect our business, prospects, financial condition,
results of operations and cash flows.
If we cannot obtain stockholder approval for the issuance of shares of common
stock to redeem certain of our existing convertible notes and we are unable to
pay cash at maturity, we could be subject to potential delisting of our common
stock from the American Stock Exchange.
Currently, we do not have sufficient funds to pay our existing convertible
notes in cash upon maturity, or to otherwise redeem or repurchase these notes.
[We have obtained stockholder approval for the issuance of shares
12
of common stock to redeem up to $20 million principal amount of the 5% European
Notes at our Annual Stockholders Meeting held on January 29, 2003.] Although
the exact number of shares to be issued in connection with redemptions of the
approximately $[29] million principal amount of the 5% European Notes due May
26, 2003 will depend upon the amount of notes to be redeemed for common stock
and the average market price of our common stock at the time of the
redemptions, at present market prices even the redemption for common stock of a
small amount of the notes would result in the issuance of a number of shares
that is greater than 20% of our currently outstanding shares of common stock.
Consequently, the rules of the American Stock Exchange require stockholder
approval as a condition to listing such additional shares on that exchange. If
we have over $20 million of the 5% European Notes outstanding, the redemption
of the remaining principal balance could likewise require stockholder approval.
We are also pursuing negotiated transactions to repurchase or exchange the
approximately $5.7 million principal amount of the Benz Notes that also mature
in 2003. The redemption for shares of common stock of the Benz Notes may also
require additional stockholder approval.
If we do not obtain required stockholder approvals and issue an amount of
shares requiring approval, our common stock could be subject to potential
delisting from the American Stock Exchange. See also "--If we do not continue
to meet the listing requirements of the American Stock Exchange, our common
stock could be delisted."
We may have an insufficient number of authorized shares of common stock to
redeem certain of our existing convertible notes, which would cause us to
restructure the notes or to pay for the notes at maturity--neither of which we
may be able to accomplish.
We currently have 225 million shares of common stock authorized for
issuance. As of January 30, 2003, approximately million shares were
outstanding and million shares were reserved for issuance. Assuming the
maximum amount of shares are issued in our proposed rights offering, there will
be remaining million shares of common stock available for issuance. See
"--Risks associated with market conditions--We may issue additional shares of
common stock pursuant to a rights offering that may dilute the value of our
common stock, adversely affect the market price of our common stock and result
in a change in control of Harken."
Even if stockholder approval is obtained under the rules of the American
Stock Exchange for the issuance of shares of common stock to redeem the 5%
European Notes and the Benz Notes, the redemption of these notes may result in
an issuance of shares that is in excess of the amount of shares currently
authorized for issuance. In such event, we would have to obtain stockholder
approval to increase our authorized common stock before we could redeem all
such notes. Absent such stockholder approval, we would have to otherwise
restructure the then-outstanding notes or pay cash at maturity. We cannot
assure you that, in such an event, we would be successful in restructuring our
obligations under the then-outstanding notes. We currently do not have
sufficient funds to pay such notes in cash upon maturity and it is unlikely
that we will have such funds prior to maturity.
Assuming a market price of $0.20 per share for our common stock, the table
below reflects the number of shares of common stock required to be issued in
order to redeem our existing convertible notes coming due this year:
Shares of
Common
Stock to be
Amount Issued in
Indebtedness Outstanding Redemption Maturity Date
------------ ------------ ----------- -----------------
5% European Notes $[29,030,000] 166,922,300 May 26, 2003
Benz Notes....... $ 5,668,708 32,595,071 November 26, 2003
13
Our financial condition may suffer if estimates of our oil and gas reserve
information are adjusted, and fluctuations in oil and gas prices and other
factors affect our oil and gas reserves.
Our oil and gas reserve information is based upon criteria mandated by the
Securities and Exchange Commission (referred to as the SEC), and reflects only
estimates of the accumulation of oil and gas and the economic recoverability of
those volumes. Our future production, revenues and expenditures with respect to
such oil and gas reserves will likely be different from estimates, and any
material differences may negatively affect our business, financial condition
and results of operations.
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 prove to differ materially from those assumed in estimating
reserves:
. the quantities of oil and gas that are ultimately recovered,
. the production and operating costs incurred,
. the amount and timing of future development expenditures, and
. future oil and gas sales prices.
Furthermore, different reserve engineers may make different estimates of
reserves and cash flow based on the same available data.
The estimated discounted future net cash flows described in our annual
report on Form 10-K for the year ended December 31, 2001, as amended,
incorporated by reference herein, should not be considered as the current
market value of the estimated oil and gas reserves attributable to our
properties from proved reserves. Such estimates are based on prices and costs
as of the date of the estimate, in accordance with SEC requirements, while
future prices and costs may be materially higher or lower. In addition, such
reserves do not reflect the impact of sales of producing properties consummated
during 2002.
For example, prices in effect for oil and natural gas at December 31, 2001
were significantly lower than the average prices a year earlier. The SEC
requires that we report our oil and natural gas reserves using the price as of
the last day of the year, and accordingly, the value of our oil and natural gas
reserves as reported in our annual report on Form 10-K for the fiscal year
ended December 31, 2001, as amended, is significantly lower than the prior
year. Using lower values in forecasting reserves will result in a shorter life
being given to producing oil and natural gas properties because such
properties, as their production levels are estimated to decline, will reach an
uneconomic limit, with lower prices, at an earlier date. There can be no
assurance that a decrease in oil and gas prices or other differences in our
estimates of our reserve will not adversely affect our financial condition and
results of operations.
We may require future waivers and amendments to our bank credit facility
covenant requirements.
Our bank credit facility with Guaranty Bank, FSB requires certain of
Harken's subsidiaries (referred to as the Borrowers), to maintain certain
financial covenant ratios and requirements, as calculated on a quarterly basis.
The Guaranty Bank facility requires the Borrowers to maintain a maximum
liability to equity ratio (as defined in the agreement) of not more than 1.0 to
1.0, a current ratio (as defined in the agreement) of not less than 1.0 to 1.0,
and a debt service coverage ratio (as defined in the agreement) of not less
than 1.25 to 1.0. In addition, the agreement requires that general and
administrative expenses of the Borrowers must not exceed 30% of the Borrowers'
net revenue for the quarter ended December 31, 2002, and 25% for each quarter
thereafter. The Guaranty Bank facility matures on December 6, 2005.
14
If Harken or the Borrowers are not in compliance with their bank financial
covenant ratios or requirements in the future and are unable to obtain a waiver
or amendment to the Guaranty Bank facility requirements, the bank credit
facility would be in default and callable by Guaranty Bank. In addition, due to
cross-default provisions in Harken's indentures for its 5% European Notes, 7%
Senior Convertible Notes due 2007 (referred to as the 7% Notes) and Benz Notes,
a majority of our debt obligations would become due in full if any debt is in
default. Expectations of future operating results and continued compliance with
financial covenants cannot be assured and our lenders' actions are not
controllable by us. If our projections of future operating results are not
achieved and future waivers or amendments of the Guaranty Bank facility are not
received and our debt is placed in default, we could experience a material
adverse impact on our financial position and results of operations.
If estimated discounted future net cash flows decrease, we may be required to
take additional writedowns.
We periodically review the carrying value of our oil and gas properties
under applicable full-cost accounting rules. These rules require a writedown of
the carrying value of oil and gas properties if the carrying value exceeds the
applicable estimated discounted future net cash flows from proved oil and gas
reserves. Given the volatility of oil and gas prices, it is reasonably possible
that the estimated discounted future net cash flows could change in the near
term. If oil and gas prices decline in the future, even if only for a short
period of time, it is possible that additional writedowns of oil and gas
properties could occur. Whether we 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, property sales and capital expenditures
during such quarter.
Because of oil and gas prices as of December 31, 2001, the net evaluated
capitalized costs related to our domestic oil and gas properties exceeded the
domestic cost ceiling which resulted in a non-cash writedown of our domestic
oil and gas properties of approximately $14.4 million. Similarly, as of
December 31, 2001, the net evaluated capital costs related to our Colombian oil
properties also exceeded the Colombian cost ceiling, resulting in a non-cash
writedown of our Colombian oil properties of approximately $4.3 million.
Risks associated with market conditions:
Our stock price is volatile and the value of any investment in our common stock
may fluctuate.
Our stock price has been and is highly volatile, and we believe this
volatility is due to, among other things:
. the results of our drilling,
. current expectations of our future revenue and earnings growth rates,
. commodity prices of oil and natural gas,
. the progress and ultimate success of our capital plan, including our
actions with respect to our 5% European Notes, and
. the volatility of the market in general.
For example, the common stock price has fluctuated from a high of $15 per
share to a low of $0.16 per share over the last three years ending December 31,
2002. This volatility may affect the market value of our common stock in the
future. See "Price Range of Common Stock and Dividend Policy" on page .
Future sales of our common stock pursuant to outstanding registration
statements may affect the market price of our common stock.
There are currently several registration statements with respect to our
common stock that are or will become effective, pursuant to which certain of
our stockholders may sell up to an aggregate of 41.1 million shares of common
stock. Any such sale of stock may also decrease the market price of our common
stock.
15
We may issue additional shares of common stock that may dilute the value of our
common stock and adversely affect the market price of our common stock.
In addition to the shares of common stock that may be issued in the
rights offering, we may issue additional shares of common stock in the
following scenarios:
. approximately 1.5 million shares of common stock may be required to be
issued pursuant to our stock options,
. approximately 6.3 million shares of common stock may be issued pursuant
to other securities exercisable or exchangeable, or convertible into,
shares of common stock,
. approximately 32.6 million shares of common stock may be issued in
connection with the redemption of the Benz Notes maturing on November 26,
2003 (assuming the market price of our common stock is $0.20 per share),
. over [166.9] million shares of common stock may be issued in connection
with the redemption of the 5% European Notes maturing on May 26, 2003
(assuming the market price of our common stock is $0.20 per share),
. over [22.9] million shares of common stock may be issued in connection
with the conversion of the 7% Notes maturing in 2007 (using the current
conversion rate of $0.50 per share), and
. a significant number of additional shares of common stock may be issued
for financing or other purposes.
A large issuance of shares of common stock in any or all of the above
scenarios will decrease the ownership percentage of current outstanding
stockholders and will likely result in a decrease in the market price of our
common stock. Any large issuance will also likely result in a change in control
of Harken.
In addition, we may elect to issue a significant number of additional shares
of common stock for financing or other purposes, which could result in a
decrease in the market price of our common stock.
If we redeem our existing convertible notes with shares of common stock, you
will suffer a significant dilution of your ownership percentage and a decrease
in the market value of our common stock and the redemptions will likely result
in a change in control of Harken.
Any redemptions of our existing convertible notes involving a large issuance
of shares will result in a substantial dilution of your ownership percentage of
our common stock and a decrease in the market value of our common stock. The
number of new shares to be issued will also likely result in a change in
control of Harken and, depending on the ownership of the notes, a small group
of stockholders could control the election of the board of directors and the
approval of other matters presented for consideration by the stockholders,
which could include mergers, acquisitions, amendments to our charter and
various corporate governance actions. You will also incur immediate and likely
substantial net asset dilution.
The rights offering will trigger anti-dilution adjustments to the conversion
prices of certain of our existing convertible notes.
The rights offering will trigger anti-dilution adjustments to the conversion
prices of our 5% European Notes, Benz Notes and 7% Notes. Assuming the maximum
amount of shares are issued in the rights offering, the conversion prices will
be reduced to approximately $ per share (as compared to $65 per share)
for the 5% European Notes, approximately $ per share (as compared to $65
per share) for the Benz Notes and approximately $ per share (as compared
to $0.50 per share) for the 7% Notes.
16
We have issued shares of preferred stock with greater rights than our common
stock and may issue additional shares of preferred stock in the future.
We are permitted under our charter to issue up to 10 million shares of
preferred stock. We can issue shares of our preferred stock in one or more
series and can set the terms of the preferred stock without seeking any further
approval from our common stockholders. Any preferred stock that we issue may
rank ahead of our common stock in terms of dividend priority or liquidation
premiums and may have greater voting rights than our common stock. As of
January 30, 2003, we had outstanding 402,688 shares of Series G1 preferred
stock and 93,150 shares of Series G2 preferred stock. These shares of preferred
stock have rights senior to our common stock with respect to dividends and
liquidation. In addition, such preferred stock may be converted into shares of
common stock, which could dilute the value of common stock to current
stockholders and could adversely affect the market price of our common stock.
Each share of Series G1 preferred stock and Series G2 preferred stock may be
converted into shares of common stock at conversion prices of $12.50 and $3.00
per share of common stock, respectively, for each $100.00 liquidation value of
a share of such preferred stock plus the amount of any accrued and unpaid
dividends.
Our domestic operating strategic plan includes the acquisition of additional
reserves through business combinations.
Our domestic operations have shifted from primarily an exploration and
development focus to an acquisition growth strategy, with a reduced emphasis on
exploration. We are seeking additional acquisition opportunities to expand our
domestic operations and increase our oil and gas reserves in North America. We
may not be able to consummate future acquisitions on favorable terms.
Additionally, any such future transactions may not achieve favorable financial
results.
Future business combinations may also involve the issuance of shares of our
common stock, which could have a dilutive effect on your percentage ownership
as a stockholder. We may not have a sufficient number of authorized shares to
issue in any such business combinations and we may need to obtain stockholder
approval to authorize additional shares for issuance. If Lyford becomes a
majority stockholder as a result of its Standby Commitment, it may be able to
control the approval of such an issuance. Further, the use of shares in
business combinations will reduce the number of shares available for the
redemption of existing convertible notes.
In addition, acquisitions may require substantial financial expenditures
that will need to be financed through cash flow from operations or future debt
and equity offerings by us and we may not be able to acquire companies or oil
and gas properties using our equity as currency. In the case of cash
acquisitions, we may not be able to generate sufficient cash flow from
operations or obtain debt or equity financing sufficient to fund future
acquisitions of reserves.
Risks associated with our operations:
Oil and gas price fluctuations in the market may adversely affect the results
of our operations.
The results of our operations are highly dependent upon the prices received
for our oil and natural gas production. Substantially all of our sales of oil
and natural gas are made in the spot market, or pursuant to contracts based on
spot market prices, and not pursuant to long-term, fixed-price contracts.
Accordingly, the prices received for our oil and natural gas production are
dependent upon numerous factors beyond our control. These factors include the
level of consumer product demand, governmental regulations and taxes, the price
and availability of alternative fuels, the level of foreign imports of oil and
natural gas and the overall economic environment. Significant declines in
prices for oil and natural gas could have a material adverse effect on our
financial condition, results of operations and quantities of reserves
recoverable on an economic basis. Any significant decline in prices of oil or
gas could have a material adverse effect on our financial condition and results
of operations. Recently, the price of oil and natural gas has been volatile.
For example, during 2001, the price for a barrel (bbl) of oil ranged from a
high of $29.25 to a low of $14.25 and the price for a thousand cubic
17
feet (Mcf) of gas ranged from a high of $10.53 to a low of $1.74. During 2002,
the price for a bbl of oil ranged from a high of $29.50 to a low of $14.75 and
the price for a Mcf of gas ranged from a high of $5.32 to a low of $1.98.
Our operations require significant expenditures of capital that may not be
recovered.
We require significant expenditures of capital in order to locate and
acquire producing properties and to drill exploratory wells. In conducting
exploration and development activities from a particular well, the presence of
unanticipated pressure or irregularities in formations, miscalculations or
accidents may cause our exploration, development and production activities to
be unsuccessful, potentially resulting in abandoning the well. This could
result in a total loss of our investment. In addition, the cost and timing of
drilling, completing and operating wells is difficult to predict.
The oil and gas we produce may not be readily marketable at the time of
production.
Crude oil, natural gas, condensate and other oil and gas products are
generally sold to other oil and gas companies, government agencies and other
industries. The availability of ready markets for oil and gas that we might
discover and the prices obtained for such oil and gas depend on many factors
beyond our control, including:
. the extent of local production and imports of oil and gas,
. the proximity and capacity of pipelines and other transportation
facilities,
. fluctuating demand for oil and gas,
. the marketing of competitive fuels, and
. the effects of governmental regulation of oil and gas production and
sales.
Natural gas associated with oil production is often not marketable due to
demand or transportation limitations and is often flared at the producing well
site. Pipeline facilities do not exist in certain areas of exploration and,
therefore, any actual sales of discovered oil and gas might be delayed for
extended periods until such facilities are constructed.
We may encounter operating hazards that may result in substantial losses.
We are subject to operating hazards normally associated with the exploration
and production of oil and gas, including blowouts, explosions, oil spills,
cratering, pollution, earthquakes, labor disruptions and fires. The occurrence
of any such operating hazards could result in substantial losses to our Company
due to injury or loss of life and damage to or destruction of oil and gas
wells, formations, production facilities or other properties. We maintain
insurance coverage limiting financial loss resulting from certain of these
operating hazards. We do not maintain full insurance coverage for all matters
that may adversely affect our operations, including war, terrorism, nuclear
reactions, government fines, treatment of waste, blowout expenses and business
interruptions. Losses and liabilities arising from uninsured or underinsured
events could reduce our revenues or increase our costs. There can be no
assurance that any insurance will be adequate to cover losses or liabilities
associated with operational hazards. We cannot predict the continued
availability of insurance, or its availability at premium levels that justify
its purchase.
Drilling oil and gas wells particularly in certain regions of the United States
and foreign countries could be hindered by hurricanes, earthquakes and other
weather-related operating risks.
Our operations in the Louisiana wetlands, the onshore regions of Texas and
in Colombia, Costa Rica, Peru and Panama are subject to risks from hurricanes
and other natural disasters. Damage caused by hurricanes, earthquakes or other
operating hazards could result in substantial losses to our Company. We are not
covered by
18
insurance for any business interruption resulting from such events and, upon
the occurrence of a natural disaster, this lack of coverage could have a
material adverse effect on our financial position and results of operations.
We face strong competition from larger oil and gas companies, which could
result in adverse effects on our business.
The exploration and production business is highly competitive. Many of our
competitors have substantially larger financial resources, staffs and
facilities. Our competitors in the United States include numerous major oil and
gas exploration and production companies and in Colombia, Peru and Panama
include such major oil and gas companies as BP Amoco, Exxon/Mobil,
Texaco/Shell, Conoco/Phillips and Arco. These major oil and gas companies are
often better positioned to obtain the rights to exploratory acreage that we
compete for.
Our operations are subject to various litigation that could have an adverse
effect on our business.
Presently, various Harken subsidiaries are defendants in various litigation
matters. The nature of Harken's and its subsidiaries' operations also expose us
to further possible litigation claims in the future. For example, we are
currently a party to the following pending proceedings:
. In September 1997, D. E. Rice and Karen Rice, as Trustees for the Rice
Family Living Trust (collectively referred to as Rice) filed a lawsuit
against Harken Exploration Company, a wholly-owned subsidiary of Harken,
in Texas state court. Rice claims damages in an amount of $40 million
from Harken Exploration Company's alleged spills on Rice's property.
. In December 1999, 420 Energy Investment, Inc. and ERI Investments, Inc.
(collectively referred to as 420 Energy) filed a lawsuit against XPLOR
Energy, Inc., a wholly-owned subsidiary of Harken (referred to as XPLOR),
in Delaware state court. 420 Energy alleges that they are entitled to
appraisal and payment of the fair value of their common stock in XPLOR as
of the date XPLOR merged with Harken.
. In August 2001, a new lawsuit was filed by New West Resources, Inc.
(referred to as New West), a former XPLOR stockholder, against XPLOR,
Harken and other defendants in Texas state court. New West claims that it
lost its $6 million investment in XPLOR as a result of misrepresentations
by XPLOR and breach of fiduciary duties by certain XPLOR directors.
. In December 2002, Black Point Limited (referred to as BP) filed a lawsuit
against Global Energy Development PLC, a subsidiary of Harken, in
Illinois federal court. BP alleges that Global Energy Development PLC,
aided and abetted by officers of Harken, fraudulently induced BP to spend
time and money locating prospective business partners in the People's
Republic of China. BP seeks breach of contract damages of $1.5 million
from Global Energy Development PLC, that amount being BP's projected
success fee on an unconsummated $20 million investment by a Chinese
partner.
There is risk that any matter in litigation could be adversely decided
against Harken or its subsidiaries, regardless of their belief, opinion and
position, which could have a material adverse effect on Harken's financial
condition and results of operations. Litigation is highly costly and the costs
associated with defending litigation could also have a material adverse effect
on Harken's financial condition. For further detail concerning our pending
litigation, please see our quarterly report on Form 10-Q for the period ended
September 30, 2002 and our current report on Form 8-K dated December 10, 2002.
Compliance with, or breach of, environmental laws can be costly and could limit
our operations.
Our operations are subject to numerous and frequently changing laws and
regulations governing the discharge of materials into the environment or
otherwise relating to environmental protection. We own or lease, and have in
the past owned or leased, properties that have been used for the exploration
and production of oil and gas and these properties and the wastes disposed on
these properties may be subject to the Comprehensive
19
Environmental Response, Compensation and Liability Act, the Oil Pollution Act
of 1990, the Resource Conservation and Recovery Act, the Federal Water
Pollution Control Act and analogous state laws. Under such laws, we could be
required to remove or remediate previously released wastes or property
contamination.
Laws and regulations protecting the environment have generally become more
stringent and, may in some cases, impose "strict liability" for environmental
damage. Strict liability means that we may be held liable for damage without
regard to whether we were negligent or otherwise at fault. Environmental laws
and regulations may expose us to liability for the conduct of or conditions
caused by others or for acts that were in compliance with all applicable laws
at the time they were performed. Failure to comply with these laws and
regulations may result in the imposition of administrative, civil and criminal
penalties.
While we believe that our operations are in substantial compliance with
existing requirements of governmental bodies, our ability to conduct continued
operations is subject to satisfying applicable regulatory and permitting
controls. Our current permits and authorizations and ability to get future
permits and authorizations, particularly in foreign countries, may be
susceptible, on a going forward basis, to increased scrutiny, greater
complexity resulting in increased costs, or delays in receiving appropriate
authorizations. In particular, we have experienced and may continue to
experience delays in obtaining permits and authorization in Colombia necessary
for our operations. In addition, recent judicial and political developments in
Costa Rica have significantly and adversely affected our ability to acquire
necessary environmental permits and severely limit the opportunity for future
oil and gas exploration in Costa Rica. These developments have fully impaired
our investment through our subsidiary, Global Energy Development PLC, in
certain onshore and offshore properties on the Caribbean side of Costa Rica, as
reflected on our consolidated balance sheet contained in our annual report on
Form 10-K, as amended, for the year ended December 31, 2001.
We are required to obtain an environmental permit or approval from the
governments in Colombia, Costa Rica, Peru and Panama prior to conducting
seismic operations, drilling a well or constructing a pipeline in such foreign
locations. Our operations in foreign countries have been delayed in the past
and could be delayed in the future through the process of obtaining an
environmental permit. Compliance with these laws and regulations may increase
our costs of operations, as well as further restrict our foreign operations.
Costa Rica has implemented policies and laws with a high level of attention
to the protection of its ecological areas and environment. As a result, the
operations of our indirect subsidiary, Harken Costa Rica Holdings, in Costa
Rica are subject to much greater control, scrutiny and restrictions than are
usually encountered in international exploration operations. Due to such
additional regulations and requirements in Costa Rica, as well as recent
rulings by Costa Rica government agencies, Harken Costa Rica Holdings will
likely not be able to continue operations in Costa Rica for the foreseeable
future.
Our foreign operations involve substantial costs and are subject to certain
risks because the oil and gas industries in such countries are less developed.
The oil and gas industries in Colombia, Costa Rica, Peru and Panama are not
as developed as the oil and gas industry in the United States. As a result, our
drilling and development operations in many instances take longer to complete
and often cost more than similar operations in the United States. The
availability of technical expertise, specific equipment and supplies is more
limited in Colombia, Costa Rica, Peru and Panama than in the United States. We
expect that such factors will continue to subject us to economic and operating
risks not experienced in our domestic operations.
We follow the full cost method of accounting for exploration and development
of oil and gas reserves in which all of our acquisition, exploration and
development costs are capitalized. Costs related to the acquisition, holding
and initial exploration of oil and gas associated with our contracts in
countries with no proved reserves are initially capitalized, including internal
costs directly identified with acquisition, exploration and development
activities. If we abandon all exploration efforts in a country where no proved
reserves are assigned, all
20
acquisition and exploration costs associated with the country are expensed.
From time to time, we make assessments as to whether our investment within a
country is impaired and whether exploration activities within a country will be
abandoned based on our analysis of drilling results, seismic data and other
information we believe to be relevant. Due to the unpredictable nature of
exploration drilling activities, the amount and timing of impairment expenses
are difficult to predict.
If we fail to comply with the terms of certain contracts related to our foreign
operations, we could lose our rights under each of those contracts.
The terms of each of the Colombia Association Contracts, the Costa Rica
Contract, the Peruvian Technical Evaluation Agreement and the Panamanian
Technical Evaluation Agreement require that we perform certain activities, such
as seismic interpretations and the drilling of required wells, in accordance
with those contracts and agreements. Our failure to timely perform those
activities as required could result in the loss of our rights under a
particular contract, which would likely result in a significant loss to our
Company. As of December 31, 2002, we were in compliance with the requirements
of each of the Colombia Association Contracts, the Costa Rica Contract, the
Peruvian Technical Evaluation Agreement and the Panamanian Technical Evaluation
Agreement. For further detail concerning these contracts and agreements, please
see "Liquidity and Capital Resources" contained in Part II, Item 7,
Management's Discussion and Analysis of Financial Conditions and Results of
Operations in our annual report on Form 10-K, as amended, for the year ended
December 31, 2001.
We require significant additional financing for our foreign operations, which
financing may not be available.
We anticipate that full development of our existing and future oil and gas
discoveries and prospects in Colombia, Costa Rica, Peru and Panama may take
several years and require significant additional capital expenditures. If we
are unable to timely obtain adequate funds to finance these investments, our
ability to develop oil and gas reserves in these countries may be severely
limited or substantially delayed. Such limitations or delay would likely result
in substantial losses for our Company.
We anticipate that amounts required to fund our foreign activities will be
funded from our existing cash balances, asset sales, stock issuances,
production payments, operating cash flows and from joint venture partners. We
estimate a cost of $2.5 million in 2003 for the completion of a well in
Colombia required to be drilled by us pursuant to the Cajaro Association
Contract with Empresa Colombia de Petroleos. The exact usage of other future
funding sources is unknown at this time and we cannot assure you that we will
have adequate funds available to finance our foreign operations.
Our foreign operations are subject to political, economic and other
uncertainties.
We currently conduct significant operations in Colombia, Costa Rica, Peru
and Panama and may also conduct operations in other foreign countries in the
future. At December 31, 2001, approximately 35% of our proved reserves and 26%
of our consolidated revenues were related to Global Energy Development PLC's
Colombian operations. Exploration and production operations in foreign
countries are subject to political, economic and other uncertainties, including:
. the risk of war, revolution, border disputes, expropriation,
renegotiation or modification of existing contracts, import, export and
transportation regulations and tariffs resulting in loss of revenue,
property and equipment,
. taxation policies, including royalty and tax increases and retroactive
tax claims,
. exchange controls, currency fluctuations and other uncertainties arising
out of foreign government sovereignty over international operations,
. laws and policies of the United States affecting foreign trade, taxation
and investment, and
21
. the possibility of being subjected to the 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 certain 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, laws or regulations 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. Any such activity could result in a
significant loss to our Company.
Guerrilla activity in Colombia could disrupt or delay our operations, and we
are concerned about safeguarding our operations and personnel in Colombia.
Colombia's 37-year armed conflict between the government and leftist
guerrilla groups has escalated in recent years. The current government's quest
for peace was unsuccessful. The breakdown of peace negotiations has resulted in
increased military action by the Colombian government directed against the
rebel groups operating in Colombia. Unless the parties determine to return to
peace negotiations, the military confrontation with the rebel groups is
expected to continue. Also, the increased activity of right-wing paramilitary
groups, formed in opposition to the left-wing FARC and ELN groups, has
contributed to the escalation in violence. The increase in violence has
affected business interests in Colombia. Targeting such enterprises as symbols
of foreign exploitation, particularly in the North of the country, the rebel
groups have attempted to hamper production of hydrocarbons. The cumulative
effect of escalation in the armed conflict and the resulting unstable political
and security situation has led to increased risks and costs and the downgrading
of Colombia's country risk rating. Our oil and gas operations are in areas
outside guerrilla control and with the exception of its increased security
requirements, our operations continue mostly unaffected, although from time to
time, guerilla activity in Colombia has delayed our projects there. This
guerilla activity has increased over the last few years, causing delays in the
development of our fields in Colombia. Guerilla activity, such as road
blockades, has also from time to time slowed our deployment of workers in the
field and affected our operations. In addition, guerillas could attempt to
disrupt the flow of our production through pipelines. In addition to these
security issues, we have also become the subject of media focus in Colombia
that may further compromise our security position in the country.
We cannot assure you that attempts to reduce or prevent guerilla activity
will be successful or that guerilla activity will not disrupt our operations in
the future. We also cannot assure you that we can maintain the safety of our
operations and personnel in Colombia or that this violence will not affect our
operations in the future. Continued or heightened security concerns in Colombia
could also result in a significant loss to our Company.
The United States government may impose economic or trade sanctions on Colombia
that could result in a significant loss to our Company.
Colombia is among several nations whose progress in stemming the production
and transit of illegal drugs is subject to annual certification by the
President of the United States. Although Colombia was so certified in 2002,
there can be no assurance that, in the future, Colombia will receive
certification or a national interest waiver. The failure to receive
certification or a national interest waiver may result in any of the following:
. all bilateral aid, except anti-narcotics and humanitarian aid, would be
suspended,
. the Export-Import Bank of the United States and the Overseas Private
Investment Corporation would not approve financing for new projects in
Colombia,
. United States representatives at multilateral lending institutions would
be required to vote against all loan requests from Colombia, although
such votes would not constitute vetoes, and
. the President of the United States and Congress would retain the right to
apply future trade sanctions.
Each of these consequences could result in adverse economic consequences in
Colombia and could further heighten the political and economic risks associated
with our operations there. Any changes in the holders of
22
significant government offices could have adverse consequences on our
relationship with the Colombian national oil company and the Colombian
government's ability to control guerrilla activities and could exacerbate the
factors relating to our foreign operations discussed above.
Any sanctions imposed on Colombia by the United States government could
threaten our ability to obtain necessary financing to develop the Colombian
properties or cause Colombia to retaliate against us, including by
nationalizing our Colombian assets. Accordingly, the imposition of the
foregoing economic and trade sanctions on Colombia would likely result in a
substantial loss to our Company and a decrease in the price of our common
stock. We cannot assure you that the United States will not impose sanctions on
Colombia in the future or predict the effect in Colombia that these sanctions
might cause.
We may suffer losses from exchange rate fluctuations.
We account for our Colombian, Costa Rican, Peruvian and Panamanian
operations using the U.S. dollar as the functional currency. The costs
associated with our exploration efforts in Colombia, Costa Rica, Peru and
Panama have typically been denominated in U.S. dollars. We expect that a
substantial portion of our future Colombian revenues may be denominated in
Colombian pesos. To the extent that the amount of our revenues denominated in
Colombian pesos is greater than the amount of costs denominated in Colombian
pesos, we could suffer a loss if the value of the Colombian peso were to drop
relative to the value of the U.S. dollar. Any substantial currency fluctuations
could have a material adverse effect on our results of operations and in recent
years the value of the Colombian peso relative to the U.S. dollar has declined.
For example, the average exchange rate for the Colombian peso into U.S. dollars
for December 2002 was 0.000355, as compared to an average of 0.000434 for
December 2001 and 0.000456 for December 2000.
Risk relating to Arthur Andersen LLP's lack of consent:
Representatives of Arthur Andersen are not available to consent to the
inclusion of their report on the financial statements of Harken in this
prospectus, and you will not be able to recover against Arthur Andersen under
Section 11 of the Securities Act of 1933, as amended.
Arthur Andersen was our independent accountant for our consolidated
financial statements for the two years ended December 31, 2000. Representatives
for Arthur Andersen are not available to provide the consent required for the
inclusion of their report on those financial statements incorporated in this
prospectus, and we have dispensed with the requirement to file their consent in
reliance upon Rule 437a of the Securities Act of 1933, as amended. Because
Arthur Andersen has not consented to the inclusion of their report in this
prospectus, you will not be able to recover against Arthur Andersen under
Section 11 of the Securities Act of 1933, as amended, for any false or
misleading statements of a material fact contained in the financial statements
audited by Arthur Andersen that are incorporated by reference or any omissions
to state a material fact required to be stated therein. Any claims against
Arthur Andersen related to any such false or misleading statements and
omissions may be limited.
23
OUR COMPANY
Our company explores for, develops and produces oil and gas both
domestically and internationally. Our domestic operations are primarily located
in the onshore and offshore Gulf Coast regions of South Texas and Louisiana, in
portions of West Texas and the Texas Panhandle. Our international operations
are primarily concentrated in Colombia, Costa Rica, Peru and Panama. For a more
detailed description of the business of our Company, see our annual report on
Form 10-K for the year ended December 31, 2001, as amended, which is
incorporated herein by reference.
Our company was incorporated in 1973 in the State of California and
reincorporated in 1979 in the State of Delaware. Our principal offices are
located at 580 WestLake Park Boulevard, Suite 600, Houston, Texas 77079, and
our telephone number is (281) 504-4000.
USE OF PROCEEDS
The maximum net proceeds to us from the sale of our common stock in this
rights offering and the Standby Commitment are estimated to be approximately
$9.6 million after deducting estimated offering expenses allocable to and
payable by Harken.
We are required to use the proceeds of the rights offering and the Standby
Commitment to fully repay a $5 million loan, and accrued interest, made to us
by Lyford during 2002 that is evidenced by the Lyford Notes with an annual
interest rate of 10%, which are due by their terms in 2005 but must be prepaid
upon completion of the rights offering and the Standby Commitment. The proceeds
of the Lyford Notes were used by us for repurchasing certain 5% European Notes
and Benz Notes and for working capital purposes. In purchasing shares pursuant
to its Standby Commitment, Lyford is entitled to offset the purchase amount to
satisfy this loan without any further action or approval from Harken.
We intend to use the remaining estimated $4.6 million of net proceeds to
reduce a portion of the indebtedness described below or as additional working
capital for our business:
Current Interest
Indebtedness Balance Rate Maturity Date
------------ ------------ -------- -----------------
5% European Notes............ $[29,030,000] 5% May 26, 2003
Benz Notes................... $ 5,668,707 5% November 26, 2003
Guaranty Bank Credit Facility $ 5,886,000 4.15% December 6, 2005
If Lyford does not close its Standby Commitment and we consummate the rights
offering, we are required to use 60% of the proceeds of the rights offering to
repay the Lyford Notes within 30 days of our receipt of such proceeds. Any
remaining proceeds will be used to reduce a portion of the indebtedness set
forth above or for additional working capital.
See "Risk Factors--Risks relating to this rights offering--The proceeds from
the rights offering will not be sufficient to repay our outstanding debt
obligations and there is no assurance that we will obtain sufficient funds
prior to such debts' maturity dates" on page .
24
CAPITALIZATION
The following table shows our capitalization as of September 30, 2002 on a
historical basis and as adjusted to give effect to certain transactions
described in footnote (1) below. The table also includes our capitalization on
a pro forma basis assuming the completion of the rights offering and the
Standby Commitment and the use of the net proceeds for the repayment of the
Lyford Notes but prior to the use of the remaining proceeds. See "Use of
Proceeds."
Pro Forma
for Rights Offering
-------------------------
Historical As
Reported Adjustments(1) As Adjusted Adjustments Pro Forma
------------- -------------- ------------- ----------- -------------
Current liabilities..................... $ 46,834,000 (4,070,000) 36,477,000 $ 36,477,000
(6,287,000)
Long-term debt:
Convertible notes payable........... $ 12,525,000 4,070,000 16,595,000 $ 16,595,000
New bank credit facility............ -- 5,986,000 5,986,000 5,986,000
Investor term loan (Lyford)......... 5,000,000 -- 5,000,000 (5,000,000) --
Accrued preferred stock dividends... 6,395,000 [(6,395,000)] -- --
Other long-term obligations......... 5,414,000 -- 5,414,000 5,414,000
------------- ------------- -------------
Total long-term debt............. 29,334,000 [3,661,000] 32,995,000 27,995,000
------------- ------------- -------------
Minority interest in consolidated
subsidiary............................. 1,915,000 1,590,000 3,505,000 3,505,000
------------- ------------- -------------
Stockholders' equity:
Series G1 preferred stock........... 404,000 (1,000) 403,000 403,000
Series G2 preferred stock........... 93,000 -- 93,000 93,000
Common stock........................ 254,000 7,000 261,000 [952,000] 1,213,000
Additional paid-in capital.......... 388,780,000 6,376,000 395,156,000 [8,648,000] 403,804,000
Accumulated deficit................. (377,371,000) -- (377,371,000) (377,371,000)
Accumulated other comprehensive
income............................. (315,000) (315,000) (315,000)
Treasury stock, at cost............. (1,441,000) -- (1,441,000) (1,441,000)
------------- ------------- -------------
Total stockholders' equity....... 10,404,000 6,382,000 16,786,000 9,600,000 26,386,000
------------- ------------- -------------
Total capitalization.................... $ [88,487,000] $ [89,763,000] $ 94,363,000
------------- ------------- -------------
--------
(1) Adjustments for the (i) issuance of $4,070,000 in principal amount of 5%
European Notes due 2003 exchanged for $4,070,000 principal amount of 7%
Notes due 2007, (ii) issuance of common stock as payment of accrued
preferred stock dividends, (iii) refinancing of existing credit facility
due 2003 with new credit facility due 2005, (iv) repurchase of preferred
stock, and (v) exchange of shares of subsidiary for equity securities.
25
THE RIGHTS OFFERING
Before exercising any subscription rights, you should read carefully the
information set forth under "Risk Factors" beginning on page of this
prospectus.
Subscription Rights
We are distributing to the holders of record of our common stock, Series G1
preferred stock and Series G2 preferred stock on January 30, 2003, at no
charge, one nontransferable subscription right for each share of our common
stock they own (or, in the case of the Series G1 preferred stock and Series G2
preferred stock, one subscription right for each share of common stock issuable
upon conversion). The subscription rights will be evidenced by rights
certificates. Each subscription right will entitle the holder to purchase
shares of our common stock. You are not required to exercise any or all
of your subscription rights.
If, pursuant to your exercise of your subscription rights, the number of
shares of common stock you are entitled to receive would result in your receipt
of fractional shares, the aggregate number of shares issued to you will be
rounded up to the nearest whole number.
Subscription Price
The subscription price for a subscription right is $ per right (or
$ per share). The per share price equals 70% of our current market price
of our common stock determined by averaging the closing price of our common
stock on the American Stock Exchange for the five trading days ending on
, 2003.
Determination of Subscription Price
Our board of directors set all of the terms and conditions of the rights
offering, including the subscription price. In establishing the subscription
price, our board of directors considered the following factors:
. strategic alternatives for capital raising,
. the market price of our common stock,
. our negotiations with Lyford as standby purchaser,
. the pricing of similar transactions,
. the amount of proceeds desired,
. our business prospects, and
. general conditions in the securities markets.
We determined the 30% discount to our current market price during
negotiations with Lyford for their Standby Commitment and after taking into
account the preceding factors. The subscription price does not necessarily bear
any relationship to our past or expected future results of operations, cash
flows, current financial condition, or any other established criteria for
value. No change will be made to the cash subscription price by reason of
changes in the trading price of our common stock prior to the closing of the
rights offering.
We did not seek or obtain any opinion of financial advisors or investment
bankers in establishing the subscription price for the offering. You should not
consider the subscription price as an indication of the value of Harken or our
common stock. We cannot assure you that you will be able to sell shares
purchased during this offering at a price equal to or greater than the
subscription price. On , 2003, the closing sale price of our common
stock was $ per share. See "Risk Factors" on page .
26
Expiration Date, Extensions and Termination
You may exercise your subscription right at any time before 5:00 p.m., New
York City time, on , 2003, the expiration date for the rights offering.
However, we may extend the offering period for exercising your subscription
rights from time to time in our sole discretion, with such extension not to
exceed 30 business days. If you do not exercise your subscription rights before
the expiration date, your unexercised subscription rights will be null and
void. We will not be obligated to honor your exercise of subscription rights if
the Subscription Agent receives the documents relating to your exercise after
the rights offering expires, regardless of when you transmitted the documents,
except when you have timely transmitted the documents under the guaranteed
delivery procedures described below.
We have the sole discretion to extend the expiration date from time to time
by giving oral or written notice to the Subscription Agent on or before the
scheduled expiration date. If we elect to extend the expiration of the rights
offering, we will issue a press release announcing the extension no later than
9:00 a.m., New York City time, on the next business day after the most recently
announced expiration date.
We may unilaterally terminate or withdraw the rights offering until the time
the share certificates are actually distributed.
Reasons for the Rights Offering
In approving the rights offering and recommending the rights offering to our
stockholders, our board of directors carefully considered our need for
additional capital and several alternative capital raising methods. We have
already utilized some of these alternatives, including the sale of certain of
Harken's producing domestic properties, the entering into additional long-term
borrowing agreements and the sale of portions of our ownership interest in our
subsidiary, Global Energy Development PLC. The board of directors also
considered the potential change in control caused by the Standby Commitment of
Lyford and the dilution of the ownership percentage of our current common
stockholders caused by the rights offering. While the ownership percentage of
our current common stockholders will decrease because holders of convertible
preferred stock will also receive subscription rights, the board of directors
considered that the magnitude of this dilution would be subject to, and
dependent upon, the decision of each common stockholder whether to subscribe
for additional shares of our common stock in the rights offering. In addition,
the board of directors considered that the rights offering would only occur if
a majority of our stockholders approved the transaction. Even if some
stockholders other than Lyford exercise their rights, Lyford could still obtain
a majority ownership interest pursuant to its Standby Commitment. As a result,
Lyford may have the voting power to control the election of our board of
directors and the approval of other matters presented for consideration by our
stockholders, which could include mergers, acquisitions, amendments to our
charter and various corporate governance actions. Our board of directors
further considered that the rights offering was approved by a vote of our
stockholders on January 29, 2003.
After weighing the factors discussed above and the effect of the rights
offering of generating $10 million in additional capital for us, the board of
directors believes that the rights offering is the best alternative for capital
raising and is in the best interests of our Company and our stockholders. As
described in "Use of Proceeds" on page , the proceeds of the rights
offering are intended to be used to repay the Lyford Notes, and to reduce a
portion of our debt that matures next year and/or other indebtedness or to
generate additional working capital for our business. To the extent we are
unable to reduce our indebtedness due next year prior to its maturity, we will
have to pay such notes in cash, redeem the notes by converting them into common
stock and/or otherwise restructure the notes. There can be no assurance that we
would be successful in restructuring its obligations under the then-outstanding
notes, have sufficient authorized shares to redeem such notes, or would have
available sufficient funds to pay such notes in cash upon maturity. See "Risk
Factors" on page .
Our board of directors believes that the rights offering will ultimately
strengthen our financial condition through generating additional cash, reducing
our indebtedness, and increasing our stockholders' equity. See "Use
27
of Proceeds" on page and "Capitalization" on page . However, our board of
directors is not making any recommendation as to whether you should exercise
your subscription rights.
Standby Commitment of Lyford
On September 6, 2002, we entered into a standby purchase agreement with
Lyford that defines our rights and obligations, and the rights and obligations
of Lyford, with respect to Lyford's Standby Commitment. This agreement was
amended on November 22, 2002. The following description of the standby purchase
agreement does not purport to be complete. A copy of the standby purchase
agreement, as amended, has been filed as an exhibit to the registration
statement (File No. 333-99579) of which this prospectus forms a part. We urge
you to carefully read that entire agreement, as amended.
The principal of Lyford is Phyllis Quasha, who's son, Alan G. Quasha, is a
former member of our board of directors and the former Chairman of Harken.
Since Mr. Quasha's resignation from our board of directors in 1994, Mr. Quasha
continued to be a stockholder of Harken for a period of time. Prior to entering
into the standby purchase agreement, Lyford and its affiliates owned no shares
of our common stock. However an affiliate of Lyford purchased shares in our
subsidiary, Global Energy Development PLC, during that subsidiary's March 2002
offering at the offering price. These shares are listed on the AIM Exchange in
London. Harken proposed the standby purchase agreement to Lyford in early
summer 2002 and such negotiations were finalized during September 2002. Lyford
agreed to enter into the standby purchase agreement after considering: (i) the
Lyford Notes, plus accrued interest, must be prepaid from proceeds from sales
of our common stock, including the proceeds from the rights offering and the
Standby Commitment; (ii) its existing investment in Global Energy Development
PLC; and (iii) the additional common stock to be received as a Standby
Commitment Fee.
The standby purchase agreement obligates us to sell, and requires Lyford to
subscribe for and purchase from us, a number of shares of common stock equal to
the Shortfall divided by the subscription price per share. The "Shortfall" is
the amount by which $10,000,000 exceeds the aggregate subscription price to be
paid by our stockholders who subscribe for and purchase shares in the offering.
As compensation to Lyford for its Standby Commitment, we paid Lyford a
Standby Commitment Fee of $600,000 by issuing 1,714,286 shares of common stock
to Lyford (the "Standby Commitment Fee Shares"), with each such share being
attributed a value of $0.35. We have also paid Lyford $50,000 in cash for its
legal fees in connection with this offering.
We will notify Lyford if the rights offering will not occur, was not
approved by the stockholders or was terminated by us. In such an event, the
standby purchase agreement will terminate, except for certain provisions
regarding indemnification and Lyford's right to retain one-half of the Standby
Commitment Fee Shares. Within 30 days from the termination date, Lyford will
either (i) return the other half of the Standby Commitment Fee Shares to us, or
(ii) retain all of the Standby Commitment Fee Shares and remit to us $300,000.
If Lyford does not close its Standby Commitment due to our not satisfying
certain of the conditions precedent and we have not terminated the rights
offering, Lyford is entitled to retain the entire Standby Commitment Fee.
The obligation of Lyford to exercise its Standby Commitment will be subject
to the following conditions:
. the registration statement, of which this prospectus forms a part, must
be declared effective, and no stop order suspending the effectiveness of
the registration statement has been issued and no proceedings for that
purpose have been instituted or threatened,
. we have provided a certificate to Lyford, certifying, among other things,
that:
. our representations and warranties in the standby purchase agreement
were true on the date we signed the agreement and are true on the
closing date of the Standby Commitment,
28
. we have complied with all the agreements and satisfied all the
conditions on our part to be performed or satisfied at or prior to the
execution of the agreement or the closing date of the Standby
Commitment, as applicable,
. there is no stop order in effect (or, to our knowledge, threatened)
with respect to the registration statement, and
. there has been no material adverse change in our (and our
subsidiaries') condition (financial or other), earnings, business,
business prospects or properties, whether or not arising from
transactions in the ordinary course of business,
. there has not been any change, or any development involving a prospective
change, in or affecting our business (including the results of operations
or management) or our properties (including our subsidiaries) the effect
of which is, in the reasonable judgment of Lyford, so material and
adverse as to make it impractical or inadvisable to proceed with the
offering or the delivery of the common stock,
. we must mail the subscription certificates for the rights in a timely
fashion,
. we must advise Lyford from time to time as to the number of shares
subscribed for and the number of unsubscribed shares, along with any
other information requested by Lyford, and
. trading in the common stock has not been suspended by the SEC or the
American Stock Exchange, or trading in securities generally on the
American Stock Exchange has not been suspended or limited.
In the event that Lyford does not close its Standby Commitment, we intend to
still consummate the rights offering.
Under the terms of the standby purchase agreement, we agreed to indemnify
Lyford and its members against claims and liabilities arising out of or based
upon any untrue statement or alleged untrue statement of any material fact
contained in this prospectus, the registration statement of which it forms a
part, any amendment or supplement thereto, or claims and liabilities arising
out of the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading. We also agreed to reimburse Lyford and its members for any legal or
other expenses reasonably incurred by them in connection with investigating or
defending any such actions or claims asserting liabilities against them.
On July 15, 2002 and August 29, 2002, we borrowed an aggregate principal
amount of $5 million from Lyford in exchange for the issuance of the Lyford
Notes. The Lyford Notes provided that the principal was to be repaid in two
installments, consisting of a payment of $3 million due on July 15, 2005 and a
payment of $2 million due on August 29, 2005. Interest on the Lyford Notes was
paid quarterly, at the rate of 10% per annum, beginning December 15, 2002 and
is to continue until all principal and interest was paid in full. The Lyford
Notes are unsecured. Under the terms of the Lyford Notes, we are generally
required to use 60% of the proceeds of any sale of our common stock for cash,
to repay the Lyford Notes within 30 days after our receipt of such proceeds.
Upon the consummation of the rights offering and the Standby Commitment, we are
required to repay to Lyford the entire unpaid principal and accrued interest
due under the Lyford Notes pursuant to Lyford's Standby Commitment. In
purchasing shares pursuant to its Standby Commitment, Lyford is entitled to
offset an amount to satisfy the Lyford Notes without any further subsequent
action or approval from Harken. Even if Lyford does not close its Standby
Commitment, we are required to use 60% of the proceeds of the rights offering
to repay the Lyford Notes within 30 days of our receipt of such proceeds.
In connection with the Lyford Notes, Lyford received warrants to purchase
7,000,000 shares of our subsidiary, Global Energy Development PLC, at a price
of 50 pence per share. These warrants expire in 2005. As of January 30, 2003,
Lyford owned 1,714,286 shares of our common stock, and affiliates of Lyford do
not own any shares of our common stock.
Depending on the total amount of shares purchased in the offering by our
stockholders, Lyford may purchase up to all of the shares of our common stock
available in this offering pursuant to its subscription rights
29
received as a stockholder and its Standby Commitment. If our other stockholders
purchase all of the shares offered for sale, Lyford will not purchase any
shares pursuant to its Standby Commitment (other than pursuant to the rights
that Lyford may exercise as a stockholder) and could own up to % of the
common stock outstanding. If no stockholders other than Lyford exercise their
subscription rights, Lyford will purchase up to shares in the offering.
This amount does not include the Standby Commitment Fee Shares. In that case,
Lyford's ownership interest could be approximately %, and the ownership
interest of the outstanding remaining stockholders could decrease to
approximately %. Even if some stockholders other than Lyford exercise
their rights, Lyford could still obtain a majority ownership interest pursuant
to its Standby Commitment. As a result, Lyford may have the voting power to
control the election of our board of directors and the approval of other
matters presented for consideration by the stockholders, which could include
mergers, acquisitions, amendments to our charter and various corporate
governance actions.
Lyford has advised us that it does not intend to resell any shares of common
stock, including any shares acquired in the rights offering and the Standby
Commitment, but rather intends to retain such shares for investment purposes.
Lyford has advised us that it does not currently have any plans or proposals
with respect to any extraordinary corporate transactions involving Harken or
any sale of its assets or any change in our board of directors, management,
capitalization, dividend policy, charter or bylaws, or any other change in our
business or corporate structure or with respect to the delisting or
deregistration of any of our securities. Lyford has also advised us, however,
that any determination to retain its interest in Harken will be subject to the
continuing evaluation by the individual members of Lyford of pertinent factors
related to its investment in Harken. Depending upon the continuing assessment
of these factors from time to time, Lyford may change its present intentions
and may determine to acquire additional shares of common stock (by means of
open market or privately negotiated purchases or otherwise) or to dispose of
some or all of the shares of common stock or warrants held by Lyford and its
partners. See "Plan of Distribution" on page .
Non-transferability of the Subscription Rights
Except in the limited circumstances described below, only you may exercise
your subscription rights. You may not sell, give away or otherwise transfer
your subscription rights.
Notwithstanding the foregoing, you may transfer your subscription rights to
any of your affiliates and your subscription rights also may be transferred by
operation of law; for example, a transfer of subscription rights to the estate
of the recipient upon the death of the recipient would be permitted. If the
subscription rights are transferred as permitted, evidence satisfactory to us
that the transfer was proper must be received by us prior to the expiration
date of the rights offering.
Withdrawal and Amendment
We reserve the right to withdraw or terminate this rights offering at any
time for any reason. In the event that this offering is withdrawn or
terminated, all funds received from subscriptions by stockholders will be
returned. Interest will not be payable on any returned funds.
We reserve the right to amend the terms of this rights offering. If we make
an amendment that we consider significant, we will:
. mail notice of the amendment to all stockholders of record as of the
record date;
. extend the expiration date by at least 10 days; and
. offer all subscribers no less than 10 days to revoke any subscription
already submitted.
The extension of the expiration date will not, in and of itself, be treated
as a significant amendment for these purposes.
30
Method of Subscription--Exercise of Subscription Rights
You may exercise your subscription rights by delivering the following to the
Subscription Agent, at or prior to 5:00 p.m., New York City time, on ,
2003, the date on which the subscription rights expire:
. your properly completed and executed rights certificate with any required
signature guarantees or other supplemental documentation; and
. your full subscription price payment for each share subscribed for under
your subscription right.
Certificates for Shares of Common Stock
As soon as practicable after the expiration of the rights offering and the
valid exercise of subscription rights, the Subscription Agent will mail to each
exercising subscription rights holder certificates representing shares of our
common stock purchased pursuant to the subscription right.
Method of Payment
Payment for the shares must be made by check or bank draft (cashier's check)
drawn upon a United States bank or a money order payable to "American Stock
Transfer & Trust Company, as Subscription Agent" or by wire transfer of
immediately available funds to the account maintained by the Subscription Agent
at the JP Morgan Chase, ABA #021000021, Account No. 323-113060. In the case of
persons acquiring shares at an aggregate subscription price of $1,000,000 or
more, an alternative payment method may be arranged with the Subscription Agent
and approved by us.
Any wire transfer of funds should clearly indicate the identity of the
subscriber who is paying the subscription price by the wire transfer. Payment
will be deemed to have been received by the Subscription Agent only upon:
. receipt and clearance of any uncertified check,
. receipt by the Subscription Agent of any certified check or bank draft
drawn upon a United States bank, any money order or any funds transferred
by wire transfers, or
. receipt of good funds in the Subscription Agent's account designated
above.
Please note that funds paid by uncertified personal check may take at least
five business days to clear. Accordingly, if you wish to pay by means of an
uncertified personal check, we urge you to make payment sufficiently in advance
of the expiration date of the rights offering to ensure that the Subscription
Agent receives cleared funds before that date. We also urge you to consider
payment by means of a certified or cashier's check or money order.
Delivery of Subscription Materials and Payment
You should deliver your rights certificate and payment of the subscription
price or, if applicable, notices of guaranteed delivery, to the Subscription
Agent by mail, by hand or by overnight courier to:
American Stock Transfer & Trust Company
Attention: Rights Agent
59 Maiden Lane, Plaza Level
New York, N.Y. 10038
The Subscription Agent's telephone number is (800) 937-5449 and its
facsimile number is (718) 234-5001.
Your delivery to an address other than the address set forth above will not
constitute valid delivery.
31
Guaranteed Delivery Procedures
If you wish to exercise your subscription rights, but you do not have
sufficient time to deliver the rights certificate evidencing your subscription
rights to the Subscription Agent on or before the time your subscription rights
expire, you may exercise your subscription rights by the following guaranteed
delivery procedures:
. deliver your subscription price payment in full for each share you
subscribed for under your subscription rights in the manner set forth
under "--Delivery of Subscription Materials and Payment" on page to
the Subscription Agent on or prior to the expiration date,
. deliver the form entitled "Notice of Guaranteed Delivery," substantially
in the form provided with the "Instructions as to Use of Harken Energy
Corporation Rights Certificates" distributed with your rights
certificates at or prior to the expiration date, and
. deliver the properly completed rights certificate evidencing your
subscription rights being exercised and the related nominee holder
certification, if applicable, with any required signatures guaranteed, to
the Subscription Agent within three business days following the date of
your Notice of Guaranteed Delivery.
Your Notice of Guaranteed Delivery must be delivered in substantially the
same form provided with the Instructions as to Use of Harken Energy Corporation
Rights Certificates, which will be distributed to you with your rights
certificate. Your Notice of Guaranteed Delivery must come from an eligible
institution, or other eligible guarantee institutions which are members of, or
participants in, a signature guarantee program acceptable to the Subscription
Agent.
In your Notice of Guaranteed Delivery, you must state:
. your name,
. the number of subscription rights represented by your rights certificates
and the number of shares of our common stock you are subscribing for
under your subscription right, and
. your guarantee that you will deliver to the Subscription Agent any rights
certificates evidencing the subscription rights you are exercising within
three business days following the date the Subscription Agent receives
your Notice of Guaranteed Delivery.
You may deliver your Notice of Guaranteed Delivery to the Subscription Agent
in the same manner as your rights certificates at the address set forth above
under "--Delivery of Subscription Materials and Payment" on page . You may
alternatively transmit your Notice of Guaranteed Delivery to the Subscription
Agent by facsimile transmission (Facsimile No.: (718) 234-5001). To confirm
facsimile deliveries, you may call (718) 921-8237.
The Information Agent will send you additional copies of the form of Notice
of Guaranteed Delivery if you need them. Please call (800) 607-0088 (for
stockholders) and (800) 654-2468 (for banks and brokerage firms) to request any
copies of the form of Notice of Guaranteed Delivery. Morrow & Co., Inc.
No Revocation
Once you have exercised your subscription rights, you may not revoke your
exercise. Subscription rights not exercised prior to the expiration date of
the rights offering will expire.
Calculation of Subscription Rights Exercised
If you do not indicate the number of subscription rights being exercised, or
do not forward full payment of the total subscription price for the number of
subscription rights that you indicate are being exercised, then you will be
deemed to have exercised your subscription right with respect to the maximum
number of subscription
32
rights that may be exercised with the aggregate subscription price payment you
delivered to the Subscription Agent. If we do not apply your full subscription
price payment to your purchase of shares of our common stock, we will return
the excess amount to you by mail without interest or deduction as soon as
practicable after the expiration date of the rights offering.
Your Funds Will be Held by the Subscription Agent Until Shares of Common Stock
are Issued
The Subscription Agent will hold your payment of the subscription price
payment in a segregated account with JP Morgan Chase with other payments
received from other rights holders until we issue your shares to you. If the
rights offering is not completed, the Subscription Agent will return promptly,
without interest, all subscription payments.
Signature Guarantee May be Required
Your signature on each rights certificate must be guaranteed by an eligible
institution such as a member firm of a registered national securities exchange
or a member of the National Association of Securities Dealers, Inc., or from a
commercial bank or trust company having an office or correspondent in the
United States, subject to standards and procedures adopted by the Subscription
Agent, unless:
. your rights certificate provides that shares are to be delivered to you
as record holder of those subscription rights, or
. you are an eligible institution.
Notice to Beneficial Holders
If you are a broker, a trustee or a depositary for securities who holds
shares of our common stock for the account of others at the close of business
on January 30, 2003, the record date for the rights offering, you should notify
the respective beneficial owners of such shares of the rights offering as soon
as possible to find out their intentions with respect to exercising their
subscription rights. You should obtain instructions from the beneficial owner
with respect to the subscription rights, as set forth in the instructions we
have provided to you for your distribution to beneficial owners. If the
beneficial owner so instructs, you should complete the appropriate rights
certificates and submit them to the Subscription Agent with the proper payment.
If you hold shares of our common stock for the account(s) of more than one
beneficial owner, you may exercise the number of subscription rights to which
all such beneficial owners in the aggregate otherwise would have been entitled
had they been direct record holders of our common stock on the record date for
the rights offering, provided that, you, as a nominee record holder, make a
proper showing to the Subscription Agent by submitting the form entitled
"Nominee Holder Certification" which we will provide to you with your rights
offering materials.
Beneficial Owners
If you are a beneficial owner of shares of our common stock or will receive
your subscription rights through a broker, custodian bank or other nominee, we
will ask your broker, custodian bank or other nominee to notify you of this
rights offering. If you wish to exercise your subscription rights, you will
need to have your broker, custodian bank or other nominee act for you. If you
hold certificates of our common stock directly and would prefer to have your
broker, custodian bank or other nominee exercise your subscription rights, you
should contact your nominee and request it to effect the transaction for you.
To indicate your decision with respect to your subscription rights, you should
complete and return to your broker, custodian bank or other nominee the form
entitled "Beneficial Owners Election Form." You should receive this form from
your broker, custodian bank or other nominee with the other rights offering
materials. If you wish to obtain a separate rights certificate, you should
contact the nominee as soon as possible and request that a separate rights
certificate be issued to you.
33
Instructions for Completing your Rights Certificate(s)
You should read and follow the instructions accompanying the rights
certificate(s) carefully.
If you want to exercise your subscription rights, you should send your
rights certificate(s) with your subscription price payment to the Subscription
Agent. Do not send your rights certificate(s) or subscription price payment to
us.
You are responsible for the method of delivery of your rights certificate(s)
with your subscription price payment to the Subscription Agent. If you send
your rights certificate(s) and subscription price payment by mail, we recommend
that you send them by registered mail, properly insured, with return receipt
requested. You should allow a sufficient number of days to ensure delivery to
the Subscription Agent prior to the time the rights offering expires.
Determinations Regarding the Exercise of your Subscription Rights
We will decide all questions concerning the timeliness, validity, form and
eligibility of your exercise of your subscription rights and our determinations
will be final and binding. We, in our sole discretion, may waive any defect or
irregularity, or permit a defect or irregularity to be corrected within such
time as we may determine. We may reject the exercise of any of your
subscription rights because of any defect or irregularity. We will not receive
or accept any subscription until all irregularities have been waived by us or
cured by you within such time as we decide, in our sole discretion.
Neither we nor the Subscription Agent will be under any duty to notify you
of any defect or irregularity in connection with your submission of rights
certificates, and we will not be liable for failure to notify you of any defect
or irregularity. We reserve the right to reject your exercise of subscription
rights if your exercise is not in accordance with the terms of the rights
offering or in proper form. We will also not accept your exercise of
subscription rights if our issuance of shares of our common stock to you could
be deemed unlawful under applicable law or is materially burdensome to us.
If you are given notice of a defect in your subscription, you will have five
business days after the giving of notice to correct it. You will not, however,
be allowed to cure any defect later than 5:00 p.m., New York City time, on
, 2003. We will not consider an exercise to be made until all defects
have been cured or waived.
Regulatory Limitation
We will not be required to issue to you shares of common stock pursuant to
the rights offering if, in our opinion, you would be required to obtain prior
clearance or approval from any state or federal regulatory authorities to own
or control such shares if, at the time the subscription rights expire, you have
not obtained such clearance or approval.
Procedures for DTC Participants
We expect that your exercise of your subscription rights may be made through
the facilities of the Depository Trust Company, or DTC. If your subscription
rights are held of record through DTC, you may exercise your subscription
rights by instructing DTC to transfer your subscription rights from your
account to the account of the Subscription Agent, together with certification
as to the aggregate number of subscription rights you are exercising and the
number of shares of our common stock you are subscribing for, and your
subscription price payment for each share you subscribed for pursuant to your
subscription rights.
34
Foreign or Other Stockholders Located Outside the United States
Rights certificates will be mailed to rights holders whose addresses are
outside the United States or who have an Army Post Office or Fleet Post Office
address. To exercise such subscription rights, you must notify the Subscription
Agent, and take all other steps that are necessary to exercise your
subscription rights, on or prior to the expiration date of the rights offering.
If the procedures set forth in the preceding sentence are not followed prior to
the expiration date, your subscription rights will expire.
No Board Recommendation
An investment in shares of our common stock must be made according to each
investor's evaluation of its own best interests. Accordingly, our board of
directors makes no recommendation to rights holders regarding whether they
should exercise their rights.
Shares of Common Stock Outstanding after the Rights Offering
Upon the issuance of the shares of common stock offered in the rights
offering and the Standby Commitment, shares of common stock will be
issued and outstanding. This would represent an approximate % increase in
the number of outstanding shares of common stock. Because we are providing
rights to holders of our preferred convertible stock, the ownership percentage
of common stock that you hold will likely decrease as a result of the rights
offering even if you fully exercise your subscription rights. See "Risk
Factors" on page .
Effects of Rights Offering on our Stock Option Plans and Other Convertible
Securities
As of January 30, 2003, there were outstanding options to purchase
approximately 1.5 million shares of common stock issued or committed to be
issued pursuant to stock options granted by Harken. None of the outstanding
options have anti-dilution or other provisions of adjustment to exercise price
or number of shares which will be automatically triggered by the rights
offering. Each outstanding and unexercised option will remain unchanged and
will be exercisable for the same number of shares of common stock and at the
same exercise price as before the rights offering. Further, we may be required
to issue approximately million shares of common stock pursuant to
securities exercisable or convertible into shares of common stock assuming a
market price of $. per share. These securities have anti-dilution or
other provisions of adjustment to exercise price or number of shares which will
be automatically triggered by the rights offering.
Other Matters
We are not making this rights offering in any state or other jurisdiction in
which it is unlawful to do so, nor are we selling or accepting any offers to
purchase any shares of our common stock from rights holders who are residents
of those states or other jurisdictions. We may delay the commencement of the
rights offering in those states or other jurisdictions, or change the terms of
the rights offering, in order to comply with the securities law requirements of
those states or other jurisdictions. We may decline to make modifications to
the terms of the rights offering requested by those states or other
jurisdictions, in which case, if you are a resident in those states or
jurisdictions you will not be eligible to participate in the rights offering.
Fees and Expenses
We will pay all fees charged by the Information Agent and the Subscription
Agent. You are responsible for paying any other commissions, fees, taxes or
other expenses incurred in connection with the exercise of the subscription
rights. Neither Harken, the Information Agent nor the Subscription Agent will
pay such expenses.
35
Issuance of Stock Certificates
Stock certificates for shares purchased in this rights offering will be
issued as soon as practicable after the expiration date. Our Subscription
Agent, American Stock Transfer & Trust Company, will deliver subscription
payments to us only after consummation of this rights offering and the issuance
of stock certificates to our stockholders that exercised rights. Unless you
instruct otherwise in your subscription certificate form, shares purchased by
the exercise of subscription rights will be registered in the name of the
person exercising the rights.
Information Agent
We have appointed Morrow & Co., Inc. as Information Agent for the rights
offering. We will pay the fees and certain expenses of the Information Agent,
which we estimate will total $10,000. Under certain circumstances, we may
indemnify the Information Agent from certain liabilities that may arise in
connection with the rights offering.
Subscription Agent
We have appointed American Stock Transfer & Trust Company as Subscription
Agent for the rights offering. We will pay the fees and certain expenses of the
Subscription Agent, which we estimate will total $30,000. Under certain
circumstances, we may indemnify the Subscription Agent from certain liabilities
that may arise in connection with the rights offering.
Important
Please carefully read the instructions accompanying the subscription
certificate and follow those instructions in detail. Do not send subscription
certificates directly to us. You are responsible for choosing the payment and
delivery method for your subscription certificate, and you bear the risks
associated with such delivery. If you choose to deliver your subscription
certificate and payment by mail, we recommend that you use registered mail,
properly insured, with return receipt requested. We also recommend that you
allow a sufficient number of days to ensure delivery to the Subscription Agent
and clearance of payment prior to , 2003. Because uncertified personal
checks may take at least five business days to clear, we strongly urge you to
pay, or arrange for payment, by means of certified or cashier's check or money
order.
If You Have Questions
If you have questions or need assistance concerning the procedure for
exercising subscription rights, or if you would like additional copies of this
prospectus, the Instructions as to the Use of Rights Certificates or the Notice
of Guaranteed Delivery, you should contact the Information Agent or the
Subscription Agent at the following addresses and telephone numbers:
The Information Agent:
Morrow & Co., Inc.
445 Park Avenue, 5/th/ Floor
New York, N.Y. 10022
E-mail: harken.info@morrowco.com
Telephone for Stockholders: (800) 607-0088
Telephone for Banks and Brokerage Firms: (800) 654-2468
or
36
The Subscription Agent:
American Stock Transfer & Trust Company
Attention: Rights Agent
59 Maiden Lane, Plaza Level
New York, N.Y. 10038
Telephone: (800) 937-5449
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a summary of certain U.S. federal income tax
consequences of the rights offering to holders of common stock, Series G1
preferred stock and Series G2 preferred stock who hold such stock as a capital
asset for federal income tax purposes. This discussion is based on laws,
regulations, rulings and decisions in effect on the date of this prospectus,
all of which are subject to change (possibly with retroactive effect) and to
differing interpretations. This discussion applies only to holders who are U.S.
persons, which is defined as a citizen or resident of the United States, a
domestic partnership, a domestic corporation, any estate (other than a foreign
estate), and any trust so long as a court within the United States is able to
exercise primary supervision over the administration of the trust and one or
more U.S. persons have the authority to control all substantial decisions of
the trust. Generally, for federal income tax purposes an estate is classified
as a "foreign estate" based on the location of the estate assets, the country
of the estate's domiciliary administration, and the nationality and residency
of the domiciliary personal representative.
This discussion does not address all aspects of federal income taxation that
may be relevant to holders in light of their particular circumstances or to
holders who may be subject to special tax treatment under the Internal Revenue
Code of 1986, as amended, including holders of options or warrants, holders who
are dealers in securities or foreign currency, foreign persons (defined as all
persons other than U.S. persons), insurance companies, tax-exempt
organizations, banks, financial institutions, broker-dealers, holders who hold
stock as part of a hedge, straddle, conversion or other risk reduction
transaction, or who acquired stock pursuant to the exercise of compensatory
stock options or warrants or otherwise as compensation.
We have not sought, and will not seek, an opinion of counsel or a ruling
from the Internal Revenue Service regarding the federal income tax consequences
of the rights offering or the related share issuance. The following summary
does not address the tax consequences of the rights offering or the related
share issuance under foreign, state, or local tax laws. Accordingly, we urge
each holder of our common stock, Series G1 preferred stock and Series G2
preferred stock to consult his own tax advisor with respect to the particular
tax consequences of the rights offering or the related share issuance to such
holder.
Holders of Common Stock
The federal income tax consequences to a holder of common stock on the
receipt of subscription rights under the rights offering should be as follows:
. A holder should not recognize taxable income for federal income tax
purposes in connection with the receipt of subscription rights in the
rights offering.
. Except as provided in the following sentence, the tax basis of the
subscription rights received by a holder in the rights offering should be
zero. If either (a) the fair market value of the subscription rights on
the date such subscription rights are distributed is equal to 15% or
greater of the fair market value on such date of the common stock with
respect to which the subscription rights are received or (b) the holder
irrevocably elects, by attaching a statement to its federal income tax
return for the taxable year in which the subscription rights are
received, to allocate part of the tax basis of such common stock to the
subscription rights, then upon exercise of the subscription rights, the
holder's tax basis in the common
37
stock should be allocated between the common stock and the subscription
rights in proportion to their respective fair market values on the date
the subscription rights are distributed. A holder's holding period for
the subscription rights received in the rights offering should include
the holder's holding period for the common stock with respect to which
the subscription rights were received.
. A holder who allows the subscription rights received in the rights
offering to expire should not recognize any gain or loss, and the tax
basis of the common stock owned by such holder with respect to which such
subscription rights were distributed should be equal to the tax basis of
such common stock immediately before the receipt of the subscription
rights in the rights offering.
. A holder should not recognize any gain or loss upon the exercise of the
subscription rights received in the rights offering.
. The tax basis of the common stock acquired through exercise of the
subscription rights should equal the sum of the subscription price for
the common stock and the holder's tax basis, if any, in the subscription
rights as described above.
. The holding period for the common stock acquired through exercise of the
subscription rights should begin on the date the subscription rights are
exercised.
Holders of Series G1 Preferred Stock and Series G2 Preferred Stock
The federal income tax consequences to a holder of Series G1 or Series G2
preferred stock on the receipt of subscription rights under the rights offering
should be as follows:
. A holder should be treated as receiving a distribution in an amount equal
to the fair market value of the subscription rights that it receives.
. To the extent that the distribution is made out of the Company's
earnings and profits, it will be a taxable dividend to the holder. If
amount of the distribution received by the holder exceeds the holder's
proportionate share of the Company's earnings and profits, the excess
will reduce the holder's tax basis in the stock that it holds, and to
the extent that the excess is greater than the holder's tax basis in
its stock, it will be treated as gain from the sale of the stock. If
the holder has held the stock for more than one (1) year, the gain
should be treated as long-term capital gain.
. A holder's tax basis in the subscription rights that it receives should
equal the fair market value of the subscription rights on the date of the
distribution.
. The holder's holding period in the subscription rights should begin on
the date of the distribution.
. A holder who allows the subscription rights received in the rights
offering to expire should generally recognize a taxable loss. Such loss
will be a capital loss if the common stock to which the subscription
rights relate would have been a capital asset in the hands of such
holder. In the case of individual holders, if such capital loss is
incurred in the same taxable year as the rights offering, it may be used
to offset any capital gains or ordinary income recognized upon the
distribution of the subscription rights; provided, however, in the case
of ordinary income, an individual holder may only offset up to $3,000 of
ordinary income against capital losses within a taxable year.
. A holder should not recognize any gain or loss upon the exercise of the
subscription rights received in the rights offering.
. The tax basis of the common stock acquired through exercise of the
subscription rights should equal the sum of the subscription price for
the common stock and the holder's tax basis in the subscription rights as
described above.
. The holding period for the common stock acquired through exercise of the
subscription rights should begin on the date the subscription rights are
exercised.
38
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
Price Range of Common Stock
Since March 18, 1991, Harken common stock has been listed on the American
Stock Exchange and traded under the symbol "HEC." On September 12, 2002, the
last trading day prior to our public announcement of the proposed rights
offering, the closing price of our common stock on the American Stock Exchange
was $0.31 per share. On January 30, 2003, the record date for the rights
offering, the closing price of our common stock on the American Stock Exchange
was $ per share. On , 2003, the last trading day prior to the date
of this prospectus, the closing price of common stock on the American Stock
Exchange was $ per share.
The following table sets forth, for the periods indicated, the reported high
and low closing sales prices of Harken common stock on the American Stock
Exchange Composite Tape, as restated for the effect of the one-for-ten reverse
stock split effected on November 7, 2000.
Prices
------------
Year Quarter Ended High Low
---- ------------- ------ -----
2000 March 31......................... $15.00 $6.25
June 30.......................... 10.00 5.63
September 30..................... 9.38 6.25
December 31...................... 6.88 2.38
2001 March 31......................... $ 6.97 $3.05
June 30.......................... 3.59 2.27
September 30..................... 2.39 1.50
December 31...................... 1.75 0.86
2002 March 31......................... $ 1.28 $0.88
June 30.......................... 0.90 0.36
September 30..................... 0.47 0.25
December 31...................... 0.30 0.16
2003 March 31 (through , 2003) $ $
Dividends
Harken has not paid any cash dividends on common stock since its
organization and it is not contemplated that any cash dividends will be paid on
shares of common stock in the foreseeable future.
DESCRIPTION OF CAPITAL STOCK
Common Stock
Our Certificate of Incorporation (as amended, the "Certificate of
Incorporation") authorizes the issuance of 225,000,000 shares of common stock,
par value $0.01 per share. As of January 30, 2003, there were shares of
common stock issued and held of record by approximately 3,600 stockholders. As
of such date, there were 595,400 shares of common stock held in the treasury.
Our annual meetings of stockholders are held on the third Monday in June of
each year at 2:00 p.m., Central Standard Time (or on the next secular day if a
legal holiday), unless another day or hour is named in the notice of the annual
meeting. Special meetings of our stockholders may be called by the chairman of
our board of directors, our president or our secretary at the written request
of a majority of the board of directors or stockholders owning at least 10% of
our entire capital stock issued and outstanding and entitled to vote. The
holders of a majority of the our stock issued and outstanding and entitled to
vote, present in person or represented by proxy, constitute a quorum at all
meetings of stockholders, unless otherwise specified in our certificate of
incorporation, as amended, or the General Corporation Law of the State of
Delaware.
39
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 number of directors constituting the full board of directors of Harken
has been established as nine, in accordance with our 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 2003, 2004 and 2005, respectively. Each of the Class A, B and C
directorships consists of three positions. As noted above, the holders of
common stock are entitled to cumulate their votes in the election of directors
by voting the total number of shares of common stock held by them multiplied by
the number of directors to be elected. Because our 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 our 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 our affairs, holders of
common stock are entitled to receive pro rata all of our assets 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.
Authorized Preferred Stock
Series G1 Preferred Stock
On August 25, 2000, our board of directors approved the authorization and
issuance of up to 700,000 shares of a new series of convertible preferred
stock. The Series G1 Convertible Preferred Stock (the "Series G1 Preferred"),
169,315 shares of which were issued in October 2000 and 325,150 shares of which
were issued in May 2001, has a liquidation value of $100 per share, and is
convertible at the holder's option into common stock at a conversion price of
$12.50 per share, subject to adjustment in certain circumstances (the "Series
G1 Preferred Conversion Price"). As of January 30, 2003, there were 402,688
shares of Series G1 Preferred outstanding. The Series G1 Preferred is also
convertible by us into shares of common stock if for any period of twenty
consecutive trading days, the average of the closing prices of common stock
during such period has equaled or exceeded the Target Price. The Target Price
is initially defined as the Series G1 Preferred Conversion Price multiplied by
110% (or $13.75 per share of common stock) and is reduced by an additional
$1.10 per share on each anniversary of the closing date, but not less than a
minimum Target Price of $8.10 per share of common stock. The holders of Series
G1 Preferred have no voting rights except as required by law, in which case
they are entitled to one vote per share, and there are no preemptive rights
associated with the Series G1 Preferred.
The Series G1 Preferred holders shall be entitled to receive dividends at an
annual rate equal to $8 per share when, as and if declared by our board of
directors. All dividends on the Series G1 Preferred are cumulative and payable
semi-annually in arrears, payable on June 30 and December 30. At our option,
dividends may also be payable in common stock at $12.50 per share of our common
stock. We also may redeem the Series G1 Preferred
40
in whole or in part for cash at any time at $100 per share plus any accrued and
unpaid dividends. In addition, on or after June 1, 2004, we may further elect,
in any six-month period, to redeem up to 50% of the outstanding Series G1
Preferred with shares of common stock valued at an average market price, and
using a redemption value of the Series G1 Preferred that includes a 5% to 10%
premium based on our market capitalization at the time of redemption.
Series G2 Preferred Stock
In July 2001, we issued 95,800 shares of its Series G2 Convertible Preferred
Stock (the "Series G2 Preferred"), in exchange for our 5% European Notes due
May 26, 2003, in the face amount of $9,580,000. Our board of directors approved
the authorization and issuance of up to 400,000 shares of Series G2 Preferred,
which has a liquidation value of $100 per share, and is convertible at the
holder's option into common stock at a conversion price of $3.00 per share,
subject to adjustment in certain circumstances (the "Series G2 Preferred
Conversion Price"). As of January 30, 2003 there were 93,150 shares of Series
G2 Preferred outstanding. The Series G2 Preferred is also convertible by us
into shares of our common stock if for any period of twenty consecutive
calendar days, the average of the closing prices of our common stock during
such period shall have equaled or exceeded $3.75 per share. The holders of
Series G2 Preferred have no voting rights except as required by law, in which
case they are entitled to one vote per share, and there are no preemptive
rights associated with the Series G2 Preferred.
The Series G2 Preferred holders shall be entitled to receive dividends at an
annual rate equal to $8 per share when, as and if declared by our board of
directors. All dividends on the Series G2 Preferred are cumulative and payable
semi-annually in arrears, payable on June 30 and December 30. At our option,
dividends may also be payable in common stock at $3.00 per share of our common
stock. We may also redeem the Series G2 Preferred in whole or in part for cash
at any time at $100 per share plus any accrued and unpaid dividends. In
addition, on or after June 1, 2004, we may further elect, in any six month
period, to redeem up to 50% of the outstanding Series G2 Preferred with shares
of common stock valued at an average market price, and using a redemption value
of the Series G2 Preferred that includes a 5% to 10% premium based on our
market capitalization at the time of redemption.
Series E Junior Participating Preferred Stock
On April 6, 1998, for purposes of the Rights Agreement (discussed below),
our board of directors approved the authorization and issuance of up to 175,000
shares of Series E Junior Participating Preferred Stock, par value $1 per share
(the "Series E Preferred Stock"). There were no shares of Series E Preferred
Stock outstanding on the date of this prospectus.
Each share of Series E Preferred Stock will be entitled to a minimum
preferential quarterly dividend payment of $10 per share and will be entitled
to an aggregate dividend of 1,000 times the dividend declared per share of our
common stock. In the event of a liquidation, dissolution or winding up of
Harken, the holders of the Series E Preferred Stock will be entitled to a
minimum preferential liquidation payment of $1,000 per share (plus any accrued
but unpaid dividends) and will be entitled to an aggregate payment of 1,000
times the payment made per share of our common stock. Each share of Series E
Preferred Stock will have 1,000 votes and will vote together with the common
stock. In the event of any merger, consolidation or other transaction in which
outstanding shares of our 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
anti-dilution 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.
Shares of the Series E Preferred Stock may be purchased pursuant to the
terms and conditions of the Rights Agreement.
41
Rights Plan
On April 6, 1998, our board of directors adopted a stockholder rights plan
and 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
to our stockholders of record on that date. For each share of common stock
received by a stockholder in this rights offering, the stockholder will also
receive one Right. Each Right entitles the holder to purchase from us one
one-thousandth of a share of Series E Preferred Stock at a price of $35.00,
subject to adjustment as set forth in the Rights Agreement (defined below). The
Rights will expire on April 6, 2008.
The Rights will be exercisable only if a person or group (an "Acquiring
Person") acquires beneficial ownership of 15% or more of our common stock (with
certain exceptions) or commences a tender or exchange offer to acquire a total
of 15% or more of our common stock. These Rights have certain anti-takeover
effects and may cause substantial dilution to any such person or group that
attempts to acquire Harken. Accordingly, the existence of the Rights may deter
certain acquirors from making takeover proposals or tender offers. However, the
Rights should not interfere with any merger or other business combination
approved by our board of directors since the board of directors may, at its
option, at any time prior to the Rights becoming exercisable, redeem all but
not less than all the then outstanding Rights at $0.01 per Right.
The exercise price of the Rights, the number and kind of securities for
which the Rights are exercisable, and the number of Rights are subject to
adjustment in certain circumstances, including the following scenarios:
. In the event that Harken 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 Harken 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 Harken
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 Harken'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.
The Rights trade in tandem with our common stock on the American Stock
Exchange until they become exercisable. Once becoming exercisable, the Rights
will trade separately 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 our board of directors at that time.
The description and terms of the Rights are set forth in a Rights Agreement,
dated April 6, 1998, as amended, between Harken and American Stock Transfer &
Trust Company, as successor rights agent (the "Rights Agreement"). For so long
as the Rights are redeemable, Harken may amend the Rights Agreement in any
manner except with respect to the redemption price. After the Rights are no
longer redeemable, Harken 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.
A copy of the Rights Agreement is filed as an exhibit to our Current Report
on Form 8-K dated April 6, 1998, which is incorporated by reference to this
prospectus. The rights and privileges of the Series E Preferred Stock are set
forth in the form of Certificate of Designation which is an exhibit to the
Rights Agreement.
42
Our board of directors has amended the Rights Agreement to allow for an
exemption from the definition of "Acquiring Person" for persons who become
holders of 15% or more of our common stock as a result of (i) holding the 5%
European Notes or the Benz Notes or any shares issued upon conversion, exchange
or redemption of such notes and (ii) rights to subscribe or the purchase of
common stock in connection with the rights offering and the Standby Commitment;
until such person, while the beneficial holder of 15% or more of our common
stock becomes the beneficial owner of additional shares of common stock
consisting of 1% or more of the then outstanding shares of common stock. These
amendments to the Rights Agreement are filed as exhibits to the registration
statement of which this prospectus forms a part.
The foregoing description of the Rights does not purport to be complete. We
urge you to carefully read the Rights Agreement, as amended, and the
Certificate of Designation for the Series E Preferred Stock in their entirety.
Transfer Agent and Registrar
The transfer agent and registrar for the common stock is American Stock
Transfer & Trust Company, and its address is 59 Maiden Lane, Plaza Level, New
York, New York 10038.
Reports to Stockholders
Harken furnishes its stockholders with annual reports containing audited
financial statements and such other periodic reports as Harken may determine to
be appropriate or as may be required by law. Copies of any such recent reports
are available upon request from the Information Agent. See "Where You Can Find
More Information" on page .
PLAN OF DISTRIBUTION
We are offering shares of our common stock directly to you pursuant to this
rights offering. We have not employed any brokers, dealers or underwriters
(other than arranging the Standby Commitment of Lyford) in connection with the
solicitation or exercise of subscription rights in this rights offering and no
commissions, fees or discounts will be paid in connection with it. Certain of
our officers and other employees may solicit responses from you, but such
officers and other employees will not receive any commissions or compensation
for such services other than their normal employment compensation.
If any shares of common stock remain unsubscribed after the rights offering,
Lyford has agreed to purchase, subject to certain conditions, all such shares
at the subscription price pursuant to its Standby Commitment. Depending on the
total amount of shares purchased in the offering by our stockholders other than
Lyford, Lyford may purchase up to shares of our common stock pursuant to
its subscription rights received as a stockholder and its Standby Commitment.
The principal of Lyford is Phyllis Quasha, who's son, Alan G. Quasha, is a
former member of our board of directors and the former Chairman of Harken.
Since Mr. Quasha's resignation from our board of directors in 1994, Mr. Quasha
continued to be a stockholder of Harken for a period of time. Prior to entering
into the standby purchase agreement, Lyford and its affiliates owned no shares
of our common stock. However an affiliate of Lyford purchased shares in our
subsidiary, Global Energy Development PLC, during that subsidiary's March 2002
offering at the offering price. For additional details regarding Lyford's
Standby Commitment. See "The Rights Offering--Standby Commitment of Lyford" on
page .
Lyford has advised us that it does not intend to resell any shares of common
stock acquired in the rights offering and the Standby Commitment, but rather
intends to retain such shares for investment purposes. Lyford has advised us
that it does not currently have any plans or proposals with respect to any
extraordinary corporate transactions involving Harken or any sale of its assets
or any change in its board of directors, management, capitalization, dividend
policy, charter or bylaws, or any other change in its business or corporate
structure or
43
with respect to the delisting or deregistration of any of its securities.
Lyford has also advised us, however, that any determination to retain its
interest in Harken will be subject to the continuing evaluation by the
individual members of Lyford of pertinent factors related to its investment in
us. Depending upon the continuing assessment of these factors from time to
time, Lyford may change its present intentions and may determine to acquire
additional shares of common stock (by means of open market or privately
negotiated purchases or otherwise) or to dispose of some or all of the shares
of common stock or warrants held by Lyford and its partners.
On July 15, 2002 and August 29, 2002, we borrowed an aggregate principal
amount of $5,000,000 from Lyford in exchange for the issuance of the Lyford
Notes. The Lyford Notes provided that the principal was to be repaid in two
installments, consisting of a payment of $3,000,000 due on July 15, 2005 and a
payment of $2,000,000 due on August 29, 2005. Interest on the promissory notes
was paid quarterly, at the rate of 10% per annum, beginning December 15, 2002
and is to continue until all principal and interest was paid in full. The
Lyford Notes are unsecured. Under the terms of the Lyford Notes, we are
generally required to use 60% of the proceeds of any sale of our common stock
for cash, to repay the Lyford Notes within 30 days after our receipt of such
proceeds. Upon the consummation of this offering and the Standby Commitment, we
are required to repay to Lyford the entire unpaid principal and accrued
interest due under both the promissory notes pursuant to Lyford's Standby
Commitment. In purchasing shares pursuant to its Standby Commitment, Lyford is
entitled to offset an amount to satisfy the Lyford Notes without any further
subsequent action or approval from Harken. Even if Lyford does not close its
Standby Commitment, we are required to use 60% of the proceeds of the rights
offering to repay the Lyford Notes within 30 days of our receipt of such
proceeds. See "The Rights Offering--Standby Commitment of Lyford" on page
.
In connection with the Lyford Notes, Lyford has warrants to purchase
7,000,000 shares of our subsidiary, Global Energy Development PLC, at a price
of 50 pence per share. These warrants expire in 2005. As of December 2, 2002,
2002, Lyford owned 1,714,286 shares of our common stock, and affiliates of
Lyford do not own any shares of our common stock.
We have agreed to indemnify Lyford against certain liabilities incurred in
connection with the offering, including liabilities under the Securities Act of
1933, as amended.
As compensation to Lyford for its Standby Commitment, we paid Lyford a
Standby Commitment Fee of $600,000 by issuing to Lyford the Standby Commitment
Fee Shares, with each such share being attributed a value of $0.35. We have
also paid Lyford $50,000 in cash for its legal fees in connection with this
offering.
We will notify Lyford if the rights offering will not occur, was not
approved by the stockholders or was terminated by us. In such an event, the
standby purchase agreement will terminate (except for certain sections). In
such event, Lyford will be entitled to retain one-half of the Standby
Commitment Fee Shares. Within 30 days from the termination date, Lyford will
either (i) return the other half of the Standby Commitment Fee Shares to us, or
(ii) retain all of the Standby Commitment Fee Shares and remit to us $300,000.
If Lyford does not close its Standby Commitment due to our not satisfying
certain of the conditions precedent and we have not terminated the rights
offering, Lyford is entitled to retain the entire Standby Commitment Fee.
We will pay Morrow & Co., the Information Agent, a fee of $5,000 plus
expenses, and American Stock Transfer & Trust Company, the Subscription Agent,
a fee of $25,000 plus expenses, for their services in connection with this
rights offering. We also have agreed to indemnify under certain circumstances
the Information Agent and the Subscription Agent from any liability they may
incur in connection with this rights offering.
We expect that shares of our common stock received through the exercise of
subscription rights will be traded on the American Stock Exchange under the
symbol "HEC," the same symbol our currently outstanding shares of common stock
now trade.
44
LEGAL MATTERS
The legality of the common stock offered hereby will be passed upon by the
law firm of Baker & McKenzie, Dallas, Texas. The description in this prospectus
of the U.S. federal income tax consequence of the rights offering will be
passed upon by the law firm of Haynes and Boone, LLP. Fort Worth, Texas.
EXPERTS
The consolidated financial statements of Harken Energy Corporation, as
amended, at December 31, 2001 and for the year then ended appearing in Harken
Energy Corporation's Annual Report on Amendment No. 1 to Form 10-K/A for the
year ended December 31, 2001, have been audited by Ernst & Young LLP,
independent auditors, and at December 31, 2000, and for each of the two years
in the period ended December 31, 2000, by Arthur Andersen LLP, independent
auditors, as set forth in their respective reports thereon included therein and
incorporated herein by reference. Such consolidated financial statements are
incorporated herein by reference in reliance upon such reports given on the
authority of such firms as experts in accounting and auditing.
Our oil and gas reserves in the United States have been reviewed by our
independent reserve engineers, Netherland, Sewell & Associates, Inc., as stated
in their report thereon. Harken's disclosures of its domestic oil and gas
reserves included in its Amendment No. 1 to Form 10-K/A for the year ending
December 31, 2001, have been presented in reliance upon the authority of such
firm as experts in petroleum engineering.
Our oil and gas reserves in Colombia have been reviewed by our independent
reserve engineers, Ryder Scott Company, as stated in their report thereon.
Harken's disclosures of its oil and gas reserves in Colombia included in its
Amendment No. 1 to Form 10-K/A for the year ending December 31, 2001, have been
presented in reliance upon the authority of such firm as experts in petroleum
engineering.
We have not been able to obtain, after reasonable efforts, the written
consent of Arthur Andersen LLP to us naming it in this prospectus as having
certified our consolidated financial statements for the two years ended
December 31, 2000, as required by Section 7 of the Securities Act. Accordingly,
Arthur Andersen will not have any liability under Section 11 of the Securities
Act of 1933 for any false and misleading statements and omissions contained in
this prospectus, including the financial statements incorporated by reference,
and any claims against Arthur Andersen related to any such false and misleading
statements and omissions may be limited.
WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements, and other information with the SEC. Such
reports, proxy statements and other information concerning our Company can be
read and copied at the SEC's public reference room at 450 Fifth Street, NW,
Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference room. The SEC maintains an Internet site at
http://www.sec.gov that contains reports, proxy statements and other
information regarding issuers that file information electronically, including
our Company. Our common stock is listed on the American Stock Exchange. These
reports, proxy statements and other information can also be read and copied at
the offices of the American Stock Exchange at 86 Trinity Place, New York, New
York 10006.
The SEC allows us to "incorporate by reference" the information we file with
the SEC. This permits us to disclose important information to you by
referencing these filed documents. Any information referenced this way is
considered part of this prospectus, and any information filed with the SEC
after the date on the cover of this prospectus will automatically be deemed to
update and supercede this information. We incorporate by reference
45
the documents listed below and any future filings made by us with the SEC under
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act of 1934, as amended,
until all of the securities described in this prospectus are sold:
. our annual report on Form 10-K for the year ended December 31, 2001, as
amended, filed with the SEC on March 29, 2002 and December 20, 2002,
. our quarterly report on Form 10-Q for the quarter ended March 31, 2002,
as amended, filed with the SEC on May 15, 2002 and December 20, 2002,
. our quarterly report on Form 10-Q for the quarter ended June 30, 2002, as
amended, filed with the SEC on August 14, 2002 and December 20, 2002,
. our quarterly report on Form 10-Q for the quarter ended September 30,
2002, filed with the SEC on November 14,2002,
. our proxy statement dated December 20, 2002, filed with the SEC on
December 20, 2002,
. our current report on Form 8-K dated August 14, 2002, filed with the SEC
on August 14, 2002,
. our current report on Form 8-K dated December 6, 2002, filed with the SEC
on December 10, 2002,
. our current report on Form 8-K dated December 10, 2002, filed with the
SEC on December 20, 2002,
. the description of our common stock contained in our registration
statement on Form 8-A, filed with the SEC on June 1, 1989, including all
amendments and reports filed for the purpose of updating such
description, and
. the description of our preferred stock purchase rights as contained in
our registration statement on Form 8-A, filed with the SEC on April 7,
1998, including all amendments and reports filed for the purpose of
updating such description.
This prospectus is part of a registration statement filed with the SEC. This
prospectus does not contain all the information contained in the registration
statement. The full registration statement can be obtained from the SEC. This
prospectus contains a general description of our Company and the securities
being offered for sale. You should read this prospectus together with the
additional information incorporated by reference.
You can request a copy of any document incorporated by reference in this
prospectus, at no cost, by writing or telephoning us at the following:
Harken Energy Corporation
580 WestLake Park Boulevard, Suite 600
Houston, Texas 77079
Attention: A. Wayne Hennecke
Telephone: (281) 504-4000
46
FORWARD-LOOKING STATEMENTS
We believe that certain statements contained or incorporated by reference in
this prospectus are "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995 and are considered
prospective. The following statements are or may constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act
of 1995:
. statements before, after or including the words "may," "will," "could,"
"should," "believe," "expect," "future," "potential," "anticipate,"
"intend," "plan," "estimate" or "continue" or the negative or other
variations of these words, and
. other statements about matters that are not historical facts.
We may be unable to achieve the future results covered by the
forward-looking statements. The statements are subject to risks, uncertainties
and other factors that could cause actual results to differ materially from the
future results that the statements express or imply. See "Risk Factors" on page
9. Please do not put undue reliance on these forward-looking statements, which
speak only as of the date of this prospectus.
47
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The expenses in connection with the registration of the shares of common
stock covered by this prospectus are set forth in the following table. All
amounts except the registration fee are estimated:
Securities and Exchange Commission registration fee $ 920
American Stock Exchange listing fee................ 22,500
Printing and engraving expenses.................... 25,000
Accounting fees and expenses....................... 75,000
Legal fees and expenses............................ 200,000
Subscription Agent fees and expenses............... 30,000
Information Agent fees and expenses................ 10,000
Miscellaneous...................................... 10,000
--------
Total........................................... $373,420
========
Item 15. Indemnification of Directors and Officers.
Under Section 145 of the General Corporation Law of the State of Delaware
("Delaware Law"), a Delaware corporation may indemnify its directors, officers,
employees and agents against expenses (including attorneys' fees), judgments,
fines and settlements in nonderivative suits, actually and reasonably incurred
by them in connection with the defense of any action, suit or proceeding in
which they or any of them were or are made parties or are threatened to be made
parties by reason of their serving or having served in such capacity. Delaware
law, however, provides that such person must have acted in good faith and in a
manner they reasonably believed to be in or not opposed to the best interests
of the corporation, and in the case of a criminal action, such person must have
had no reasonable cause to believe his or her conduct was unlawful. Section 145
further provides that in connection with the defense or settlement of any
action by or in the right of the corporation, a Delaware corporation may
indemnify its directors and officers against expenses actually and reasonably
incurred by them if, in connection with the matters in issue, they acted in
good faith, in a manner they reasonably believed to be in or not opposed to the
best interests of the corporation, except that no indemnification may be made
with respect to any claim, issue or matter as to which such person has been
adjudged liable for negligence or misconduct unless the Court of Chancery or
the court in which such action or suit is brought approves such
indemnification. Section 145 further permits a Delaware corporation to grant
its directors and officers additional rights of indemnification through bylaw
provisions and otherwise, and to purchase indemnity insurance on behalf of its
directors and officers. Indemnification is mandatory to the extent a claim,
issue or matter has been successfully defended.
Article Ten of our certificate of incorporation and Article VII of our
bylaws provide, in general, that we shall indemnify our directors and officers
under certain of the circumstances defined in Section 145. We have entered into
agreements with each member of our board of directors pursuant to which it will
advance to each director costs of litigation in accordance with the
indemnification provisions of our Certificate of Incorporation and bylaws.
II-1
Item 16. Exhibits.
4.1 --Form of certificate representing shares of Harken common stock, par value $.01 per share (filed as
Exhibit 1 to Harken's Registration Statement on Form 8-A, File No. 0-9207, filed with the SEC on
June 1, 1989 and incorporated by reference herein).
4.2 --Certificate of Designations, Powers, Preferences and Rights of Series A Cumulative Convertible
Preferred Stock, $1.00 par value, of Harken Energy Corporation (filed as Exhibit 4.1 to Harken's
Annual Report on Form 10-K for the fiscal year ended December 31, 1989, File No. 0-9207, and
incorporated by reference herein).
4.3 --Certificate of Designations, Powers, Preferences and Rights of Series B Cumulative Convertible
Preferred Stock, $1.00 par value, of Harken Energy Corporation (filed as Exhibit 4.2 to Harken's
Annual Report on Form 10-K for the fiscal year ended December 31, 1989, File No. 0-9207, and
incorporated by reference herein).
4.4 --Certificate of the Designations, Powers, Preferences and Rights of Series C Cumulative Convertible
Preferred Stock, $1.00 par value of Harken Energy Corporation (filed as Exhibit 4.3 to Harken's
Annual Report on Form 10-K for fiscal year ended December 31, 1989, File No. 0-9207, and
incorporated by reference herein).
4.5 --Certificate of the Designations of Series D Preferred Stock, $1.00 par value of Harken Energy
Corporation (filed as Exhibit 4.3 to Harken's Quarterly Report on Form 10-Q for the fiscal quarter
ended September 30, 1995, File No. 0-9207, and incorporated by reference herein).
4.6 --Rights Agreement, dated as of April 6, 1999, by and between Harken Energy Corporation and
ChaseMellon Shareholder Services L.L.C., as Rights Agent (filed as Exhibit 4 to Harken's Current
Report on Form 8-K dated April 7, 1999, File No. 0-9207, and incorporated by reference herein).
4.7 --Amendment to Rights Agreement of April 6, 1999 by and between Harken Energy Corporation and
American Stock Transfer and Trust Company, dated June 18, 2002 (filed as Exhibit 4.11 to
Harken's Quarterly Report on Form 10-Q for the period ended September 30, 2002, File No.
0-9207, and incorporated by reference herein).
4.8 --Amendment to Rights Agreement of April 6, 1999 by and between Harken Energy Corporation and
American Stock Transfer and Trust Company, dated August 27, 2002 (filed as Exhibit 4.12 to
Harken's Quarterly Report on Form 10-Q for the period ended September 30, 2002, File No.
0-9207, and incorporated by reference herein).
4.9 --Certificate of Designations of Series E Junior Participating Preferred Stock (filed as Exhibit B to
Exhibit 4 to Harken's Current Report on Form 8-K dated April 7, 1999, File No. 0-9207, and
incorporated by reference herein).
4.10 --Certificate of Designations, Preferences and Rights of Series F Convertible Preferred Stock (filed as
Exhibit 4.8 to Harken's Quarterly Report on Form 10-Q for the period ended June 30, 1998, File
No. 0-9207, and incorporated by reference herein).
4.11 --Certificate of Designations, Preferences and Rights of Series G1 Convertible Preferred Stock (filed
as Exhibit 4.9 to Harken's Annual Report on Form 10-K for the fiscal year ended December 31,
2000, File No. 0-9207, and incorporated by reference herein).
4.12 --Certificate of Designations of Series G2 Convertible Preferred Stock (filed as Exhibit 4.10 to
Harken's Annual Report on Form 10-K for the fiscal year ended December 31, 2001, File No.
0-9207, and incorporated by reference herein).
4.13* --Form of Rights Certificate.
5.1+ --Opinion of Baker & McKenzie.
10.1 --Waiver of Change in Control Payment, dated December 10, 2002, by and between Mikel D.
Faulkner and Harken Energy Corporation (filed as Exhibit 10.1 to Harken's Current Report on Form
8-K dated December 10, 2002, File No. 001-10262 and incorporated by reference herein).
II-2
23.1* --Consent of Ernst & Young LLP.
23.2* --Consent of Ryder Scott Company.
23.3* --Consent of Netherland, Sewell & Associates, Inc.
23.4+ --Consent of Baker & McKenzie (included in opinion filed as Exhibit 5.1).
23.5* --Consent of Haynes and Boone, LLP.
24.1+ --Powers of Attorney.
99.1* --Form of Instructions as to Use of Rights Certificates.
99.2* --Form of Notice of Guaranteed Delivery for Rights Certificate.
99.3* --Form of Letter to Security Holders Who Are Record Holders.
99.4* --Form of Letter to Securities Dealers, Commercial Banks, Trust Companies and Other Nominees.
99.5* --Form of Letter to Clients of Security Holders Who Are Beneficial Holders.
99.6* --Form of Nominee Holder Certification Form.
99.7* --Substitute Form W-9 for Use with the Rights Offering.
99.8* --Form of Beneficial Owner Election Form.
99.9+ --Standby Purchase Agreement, dated September 6, 2002, between Harken Energy Corporation and
Lyford Investments Enterprises Ltd.
99.10+ --Amendment No. 1 to Standby Purchase Agreement of September 6, 2002 between Harken Energy
Corporation and Lyford Investments Enterprises Ltd., dated November 22, 2002.
99.11* --Form of Subscription Agency Agreement between Harken Energy Corporation and American
Stock Transfer & Trust Company, Inc.
99.12* --Form of Information Agent Agreement between Harken Energy Corporation and Morrow & Co.,
Inc.
--------
+ Filed previously
* Filed herewith
Item 17. Undertakings.
(a) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act
of 1934) that is incorporated by reference in the Registration Statement shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(b) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of
II-3
prospectus filed with the SEC pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration statement;
provided, however, that paragraphs b(1)(i) and b(2)(ii) above do not apply if
the information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the SEC
by the registrant pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 that are incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that, in the opinion of the SEC, such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Houston, State of Texas, on this 28th day of
January, 2003.
HARKEN ENERGY CORPORATION
*
-----------------------------
Mikel D. Faulkner,
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
* Chairman of the Board and January 28, 2003
----------------------------- Chief Executive Officer
Mikel D. Faulkner (Principal Executive
Officer)
* President, Chief Operating January 28, 2003
----------------------------- Officer and Director
Bruce N. Huff
* Vice Chairman and Director January 28, 2003
-----------------------------
Stephen C. Voss
* Director January 28, 2003
-----------------------------
J. William Petty
* Director January 28, 2003
-----------------------------
Michael M. Ameen, Jr.
* Director January 28, 2003
-----------------------------
Hobart A. Smith
* Director January 28, 2003
-----------------------------
Larry Akers
* Director January 28, 2003
-----------------------------
James H. Frizell
* Director January 28, 2003
-----------------------------
Marvin M. Chronister
/s/ Anna M. Williams Executive Vice January 28, 2003
----------------------------- President--Finance and
Anna M. Williams Chief Financial Officer
(Principal Financial
Officer)
II-5
* Anna M. Williams, by signing her name
hereto, does hereby sign this
registration statement on behalf of
Harken Energy Corporation and each of the
above-named officers and directors of
such company pursuant to powers of
attorney, executed on behalf of the
Company and each officer and director.
/s/ Anna M. Williams
------------------------------------------
Anna M. Williams, Attorney-in-Fact
II-6
INDEX TO EXHIBITS
4.1 --Form of certificate representing shares of Harken common stock, par value $.01 per share (filed as
Exhibit 1 to Harken's Registration Statement on Form 8-A, File No. 0-9207, filed with the SEC on
June 1, 1989 and incorporated by reference herein).
4.2 --Certificate of Designations, Powers, Preferences and Rights of Series A Cumulative Convertible
Preferred Stock, $1.00 par value, of Harken Energy Corporation (filed as Exhibit 4.1 to Harken's
Annual Report on Form 10-K for the fiscal year ended December 31, 1989, File No. 0-9207, and
incorporated by reference herein).
4.3 --Certificate of Designations, Powers, Preferences and Rights of Series B Cumulative Convertible
Preferred Stock, $1.00 par value, of Harken Energy Corporation (filed as Exhibit 4.2 to Harken's
Annual Report on Form 10-K for the fiscal year ended December 31, 1989, File No. 0-9207, and
incorporated by reference herein).
4.4 --Certificate of the Designations, Powers, Preferences and Rights of Series C Cumulative Convertible
Preferred Stock, $1.00 par value of Harken Energy Corporation (filed as Exhibit 4.3 to Harken's
Annual Report on Form 10-K for fiscal year ended December 31, 1989, File No. 0-9207, and
incorporated by reference herein).
4.5 --Certificate of the Designations of Series D Preferred Stock, $1.00 par value of Harken Energy
Corporation (filed as Exhibit 4.3 to Harken's Quarterly Report on Form 10-Q for the fiscal quarter
ended September 30, 1995, File No. 0-9207, and incorporated by reference herein).
4.6 --Rights Agreement, dated as of April 6, 1999, by and between Harken Energy Corporation and
ChaseMellon Shareholder Services L.L.C., as Rights Agent (filed as Exhibit 4 to Harken's Current
Report on Form 8-K dated April 7, 1999, File No. 0-9207, and incorporated by reference herein).
4.7 --Amendment to Rights Agreement of April 6, 1999 by and between Harken Energy Corporation and
American Stock Transfer and Trust Company, dated June 18, 2002 (filed as Exhibit 4.11 to
Harken's Quarterly Report on Form 10-Q for the period ended September 30, 2002, File No.
0-9207, and incorporated by reference herein).
4.8 --Amendment to Rights Agreement of April 6, 1999 by and between Harken Energy Corporation and
American Stock Transfer and Trust Company, dated August 27, 2002 (filed as Exhibit 4.12 to
Harken's Quarterly Report on Form 10-Q for the period ended September 30, 2002, File No.
0-9207, and incorporated by reference herein).
4.9 --Certificate of Designations of Series E Junior Participating Preferred Stock (filed as Exhibit B to
Exhibit 4 to Harken's Current Report on Form 8-K dated April 7, 1999, File No. 0-9207, and
incorporated by reference herein).
4.10 --Certificate of Designations, Preferences and Rights of Series F Convertible Preferred Stock (filed as
Exhibit 4.8 to Harken's Quarterly Report on Form 10-Q for the period ended June 30, 1998, File
No. 0-9207, and incorporated by reference herein).
4.11 --Certificate of Designations, Preferences and Rights of Series G1 Convertible Preferred Stock (filed
as Exhibit 4.9 to Harken's Annual Report on Form 10-K for the fiscal year ended December 31,
2000, File No. 0-9207, and incorporated by reference herein).
4.12 --Certificate of Designations of Series G2 Convertible Preferred Stock (filed as Exhibit 4.10 to
Harken's Annual Report on Form 10-K for the fiscal year ended December 31, 2001, File No.
0-9207, and incorporated by reference herein).
4.13* --Form of Rights Certificate.
5.1+ --Opinion of Baker & McKenzie.
1
10.1 --Waiver of Change in Control Payment, dated December 10, 2002, by and between Mikel D.
Faulkner and Harken Energy Corporation (filed as Exhibit 10.1 to Harken's Current Report on
Form 8-K dated December 10, 2002, File No. 001-10262 and incorporated by reference herein).
23.1* --Consent of Ernst & Young LLP.
23.2* --Consent of Ryder Scott Company.
23.3* --Consent of Netherland, Sewell & Associates, Inc.
23.4+ --Consent of Baker & McKenzie (included in opinion filed as Exhibit 5.1).
23.5* --Consent of Haynes and Boone, LLP.
24.1+ --Powers of Attorney.
99.1* --Form of Instructions as to Use of Rights Certificates.
99.2* --Form of Notice of Guaranteed Delivery for Rights Certificate.
99.3* --Form of Letter to Security Holders Who Are Record Holders.
99.4* --Form of Letter to Securities Dealers, Commercial Banks, Trust Companies and Other Nominees.
99.5* --Form of Letter to Clients of Security Holders Who Are Beneficial Holders.
99.6* --Form of Nominee Holder Certification Form.
99.7* --Substitute Form W-9 for Use with the Rights Offering.
99.8* --Form of Beneficial Owner Election Form.
99.9+ --Standby Purchase Agreement, dated September 6, 2002, between Harken Energy Corporation and
Lyford Investments Enterprises Ltd.
99.10+ --Amendment No. 1 to Standby Purchase Agreement of September 6, 2002 between Harken Energy
Corporation and Lyford Investments Enterprises Ltd., dated November 22, 2002.
99.11* --Form of Subscription Agency Agreement between Harken Energy Corporation and American
Stock Transfer & Trust Company, Inc.
99.12* --Form of Information Agent Agreement between Harken Energy Corporation and Morrow & Co.,
Inc.
--------
+ Filed previously
* Filed herewith
2