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Raymond, it is getting tiring to respond to the same thing all the time. In the 10K it states quite succinctly:
In October and December 1997, Harken entered into two separate Development Finance Agreements with institutional
investors (collectively the "Institutional Investors"), pursuant to which the Institutional Investors provided $31.5 million (the
"Payment Amount") of net proceeds to Harken to finance the drilling of the initial wells on three unexplored oil and gas
prospects in the Middle Magdalena Basin of Colombia, $24.5 million of net proceeds was received in October 1997 and the
remaining $7 million of net proceeds was received in January 1998. In exchange, the Institutional Investors received the right to
receive future payments from Harken equal to 6.4% of the net profits that Harken Colombia may derive from the sale of oil and
gas produced from each of the three prospects if the planned drilling on the prospect is successful (the "Institutional
Participation"). Pursuant to the Development Finance Agreements, Harken is obligated to drill each of the three wells prior to
October 2000.
Pursuant to the Development Finance Agreements, the Institutional Investors have the right, for a period of two years beginning
in October 1998, to convert all or part of the Institutional Participation into shares of Common Stock. The number of shares of
Common Stock to be issued upon conversion of the Institutional Participation will be equal to the quotient of (i) the Payment
Amount (less any distributions made in respect of the Institutional Participation) plus an amount equal to 15% interest per
annum on the net Payment Amount compounded monthly (the "Invested Amount"), divided by (ii) the market price of the
Common Stock at the time of conversion. During the same two year period, Harken also has the right to
convert the Institutional Participation into shares of Common Stock with the number of shares of Common Stock to be issued
to be equal to the quotient of (i) the Payment Amount (less any distribution made in respect of the Institutional Participation)
plus an amount equal to 25% interest per annum on the net Payment Amount compounded monthly, divided by (ii) the market
price of Common Stock at the time of conversion. Harken can also elect to pay cash upon any conversion of the Institutional
Participation in lieu of issuing Common Stock. The Development Finance Agreements also provide for additional shares of
Common Stock to be issued by Harken in the event of a conversion to the extent that the Institutional Investors do not, under
certain circumstances, realize the Invested Amount from the sale of shares of Common Stock issued at the conversion.
At the present time, it is not known whether the Institutional Investors or Harken will exercise their rights to convert the
Institutional Interest into Common Stock, nor can Harken determine the number of shares of Common Stock which would be
required to be issued in the event that Harken or the Institutional Investors elect to convert the Institutional Participation into
shares of Common Stock.
The bold italic language is clear, it is a floorless with a premium of 15% if the investor chooses the timing of conversion and a premium of 25% if Harken chooses the timing of the conversion. Note, they get 6.4% of profit if any et perpetuum. Then they get 15% per annum before conversion if they time it and 25% per annum if HEC times it. That will certainly bring this chunk to at least my $35 MM of floorless, if not more (mind you interest is on a monthly rather than yearly basis).
You can research some other SEC forms to look at the specific conditions. I remember posting here, relative to the $15 MM floorless that shorting against the block was not only allowed but anticipated. The first time I saw such obvious clause in the financial instrument document.
Now can we put this to rest, we have $50 MM in floorless, period.
We have $90.6 MM in NPV as of 12/31/97 (or $.69/share), see the beginning paragraph of the same 10K, and we have about $111 MM in the bank and about $40 MM of 6/11/97 debenture convertible at a fixed price of $5 not yet converted (could have been shorted against the block when the stock was about $5/share). We also have some 130 MM shares, so I figure with the cash in the bank we have about $1.5/share of underlying assets. So you are paying $3/share for future hopes and are exposed to a death spiral if the floorless choose to optimize their returns (I would if I was in their place).
Zeev |
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