To all who may be interested:
The following is offered as a summary of my personal understanding of the status of the major HEC financings remaining open after the conversions for which the S-3's dated 5/19/99, 5/25/99 and 5/28/99 were filed. The summary results from my personal review again today of the three recent S-3's, the Y/E 12/98 10-K and the 1Q99 10-Q and other prior documents. I offer the following not as definitive information, but as my own interpretation of what I have read and reviewed. I would, therefore, appreciate any corrections or additions to the information below, in hope of further refining my understanding of where HEC's financing and capitalization stand at the present time.
It appears to me that at the end of the first quarter of 1999, there were four Development Finance Agreements (DFAs) that remained open:
Rio Negro DFA (10/95 - $3.5MM) 75% of which has been previously disposed of and the 25% of which that remains open now constitutes a 10% Net Profits Interest (NPI) in the Rio Negro prospect. None of the recent S-3's deal with this DFA.
EnCap DFA (10/97 - $25MM) 40% of which was apparently disposed of by the conversion of NPI to the stock represented by the 6,481,512 shares registered in the 5/28/99 S-3 and 60% of which apparently still remains open as a 3% NPI on three Middle Magdalena prospects (1 Bocachico plus two Cambulos).
European DFA (12/97 - $7MM) all of which has apparently been disposed of by the conversion of NPI to the stock represented by the 1,908,639 Sidro shares registered in the 5/19/99 S-3 and by an additional 1,121,738 to be registered by another Europoean DFA participant in an apparently soon-to-be filed additional S-3.
Faisal DFA (3/98 - $3MM) 2/3 of which has apparently been disposed of by the conversion of NPI to the stock represented by the 1,316,829 Crescent shares registered in the 5/25/99 S-3 and 1/3 of which apparently still remains open as a .2% NPI in the same three prospects as those supporting EnCap's interest.
In addition, it appears that there is only one of the "European Convertible Notes" still open, the $85MM 5% European Notes which contain a conversion provision with partially "floorless" characteristics and which is summarized starting on Page 14 of the Q/E 3/99 10-Q as follows:
> > > 5% European Notes -- On May 26, 1998, Harken issued to qualified
purchasers a total of $85 million in 5% Senior Convertible Notes (the "5%
European Notes") which mature on May 26, 2003. In connection with the sale and
issuance of the 5% European Notes, Harken paid approximately $4,256,000 from the
5% European Notes proceeds for commissions and issuance costs. Interest incurred
on these notes is payable semi-annually in May and November of each year to
maturity or until the 5% European Notes are converted. Such 5% European Notes
are convertible into shares of Harken common stock at an initial conversion
price of $6.50 per share, subject to adjustment in certain circumstances ("the
5% European Note Conversion Price"). The Trust Indenture provided for a 3
percent premium on the number of shares of Harken common stock issuable on
conversion to holders of the 5% European Notes who converted prior to November
25, 1998. None of the bondholders have exercised their conversion option as of
May 10, 1999. The 5% European Notes are also convertible by Harken into shares
of Harken common stock after May 26, 1999, if for any period of thirty
consecutive days commencing on or after May 26, 1998, the average of the closing
prices of Harken common stock for each trading day during such thirty-day period
shall have equaled or exceeded 125% of the 5% European Note Conversion Price (or
$8.125 per share of Harken common stock). The 5% European Notes may be redeemed
for cash, at Harken's option, at par, in whole or in part, at any time after May 26, 2002,
upon not less than 30 days notice to the holders. In addition, beginning November 26,
2002, Harken may redeem up to 50% of the 5% European Notes in exchange for
shares of Harken common stock at a defined conversion price based on an average
market price of Harken common stock. Beginning May 26, 2003, Harken may
similarly redeem all remaining 5% European Notes. The 5% European Notes are
listed on the Luxembourg Stock Exchange. < < <
It should be noted that the shares registered in the three May S-3's and the one S-3 which is apparently to follow were all issued in connection with NPI conversions that took place in the second quarter and, therefore, are apparently not reflected in the calculations of fully diluted earnings in the quarterly figures. They will, however, have to reflect in future per share data.
Additionally, the following caution regarding potential further dilution is contained in the Risk Factors section of each of the S-3's:
> > >HARKEN MAY ISSUE ADDITIONAL SHARES OF COMMON STOCK
WHICH MAY DILUTE THE VALUE OF HARKEN COMMON STOCK TO CURRENT
STOCKHOLDERS AND MAY ADVERSELY AFFECT THE MARKET PRICE OF
HARKEN'S COMMON STOCK
Harken may be required to issue up to approximately 26 million shares of
common stock as a result of its outstanding warrants, stock options, and
convertible notes. If Harken issues additional shares, it could result in
significant dilution in your ownership position in Harken. In addition, the
issuance of a significant number of additional shares of common stock could have
an adverse effect on the market price of the common stock. < < <
I again caution that the summary items above are the results of my personal review of the documents and should not be considered definitive, but as a submission for discussion. I again solicit comments, corrections and criticisms thereon to help me refine my understanding of the company's position.
Best wishes to all for a good holiday weekend.
Steve
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