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Gold/Mining/Energy : Harken Energy Corporation (HEC) -- Ignore unavailable to you. Want to Upgrade?

To: Zeev Hed who wrote (3193)	7/12/1998 12:20:00 PM
From: SDR-SI	Read Replies (1) \| Respond to of 5504

Zeev and all: My naive review of prior SEC filings, annual reports, etc. has created the possibly mistaken idea in my mind that over the past few years, HEC has been a master in the use of convertible financings to move it from one stage to another. One gets the impression that most of the financings have been called or converted BY THE COMPANY at times most favorable to the company, its stockholders and probably even to the convertible investors as well. The S-3 for 6/26/98 indicates, in my laymen's reading, that in June of 1998 (long after the existence of the $15MM and $37MM "floorless" financings were well known) the company entered a financing deal with some theoretically skilled and sophisticated investors in the amount of $85MM, in which the redemtion/conversion terms of these "1998 Notes" (the $85MM) appear to be: The Holders (at THEIR sole option) can convert at any time for $6.50 per share. If they do so before 11/26/98 they can do so for $6.31/share. HEC can (at ITS sole option) FORCE conversion any time after 5/26/99 if the stock is over $8.125 average over any 30 day period following 5/26/98. HEC (at ITS sole option) can pay off the notes in cash at par any time after 5/26/02. The only "floorless" part of this indenture provides that HEC (at ITS(!!!) option and NOT the option of the Holders) may, after 11/26/02 decide to FORCE redemption of 50% of the notes for stock by paying a 10% premium over the amount due (principal and interest) divided by the stock price; and then on 11/26/03, again only at the option of HEC, FORCE redemption of all of the remaining notes and accrued interest at a similar 10% premium. The premium goes to 15% if the aggregate market value of the company is less than $500MM average over the preceding 30 day period. Unless I am reading this all wrong, which is possible, it does not appear to me that the investors in this most recent financing have ANY ability to force the company to convert in a way that a "death spiral" would either benefit them or result therefrom, unless on 11/26/02 or later, the COMPANY knows that it won't be worth the cash to pay off the remaining notes and would just as soon go "down the drain" paying with stock. At that point the stock would be worthless anyway. If the prior financings ($37MM and $15MM) are indicators that the company is desperate and "on the skids" and "back to the wall", why would these theoretically sophisticated investors give the company more than 1 1/2 times as much money on terms clearly favorable to and controllable by the company?? Could it be that these investors don't really see the prior two "floorless" financings as such a dire problem?? Could it be that they are more knowledgeable about the real day-to-day, month-to-month cash requirements than we are?? Could it be that their examination of the company's financing, development opportunities and operations, makes them believe that the "death spiral" possibilities inherent in the prior financings are a real, but low probability event?? Could it be that this low probability event meets their criteria of "admissable risk"?? Could it be that their analysis and study of HEC's use of convertibles and its ability to use them to steadily move the company forward have given them confidence enough in its abilities to balance risk vs. dilution vs. working capital requirements?? Could it be that they have great confidence in the ability of HEC's management?? OR Could it be that they have just put up $85MM (an amount with which HEC could probably take out big pieces of the prior financings), without ever really having looked at the company's financial and risk structure?? My limited ability to read, understand and analyze the SEC filing keeps making me feel that at the time that we began a very alarming discussion of potential doom resulting from financings that were known months before, and the details of which would have to have been totally disclosed to the $85MM investors, these investors gave the company a financial vote of confidence by putting up $85MM of their money on terms controllable by HEC, which would only be extra-beneficial to them if the company was successful and the stock moved upward (IMHO). Am I wrong about the above?? If I am, please help me to better understand where we are?? Steve