\n Exhibit A-1 Bocachico Block
\n Exhibit A-2 Cambulos Block
\n<\/c><\/s><\/table>\n -iv-
\n 5<\/p>\n
DEVELOPMENT FINANCE AGREEMENT<\/p>\n
THIS DEVELOPMENT FINANCE AGREEMENT (this “Agreement”) is made as of
\nthe 24th day of December, 1997, by and between HARKEN ENERGY CORPORATION, a
\nDelaware corporation (herein called “Owner”), and HARKEN CAPITAL CORPORATION, a
\nDelaware corporation (herein called “Investor”). In consideration of the
\nmutual covenants and agreements contained herein, the parties hereto hereby
\nagree as follows:<\/p>\n
ARTICLE I<\/p>\n
Definitions and References<\/p>\n
Section 1.1. Defined Terms. As used in this Agreement, each of
\nthe following terms has the meaning given it in this Section 1.1 or in the
\nsections or subsections referred to below:<\/p>\n
“Account” shall have the meaning assigned to it in Section 3.2.<\/p>\n
“Advance” shall have the meaning assigned to it in Section 2.1.<\/p>\n
“Affiliate” shall mean any person directly or indirectly controlling,
\ncontrolled by or under common control with Owner and\/or Harken Colombia, with
\nthe concept of control in such context meaning the possession of the power to
\ndirect or cause the direction of the management and policies of another,
\nthrough the ownership of voting securities, by contract or otherwise, it being
\nunderstood and agreed for the purposes of this Agreement that Owner and Harken
\nColombia are Affiliates of one another.<\/p>\n
“Agreed Rate” shall mean a rate of interest per annum which is equal
\nto the lesser of (a) a rate which is two percent (2%) above the prime rate of
\ninterest of Wells Fargo and Company, as announced or published by such bank
\nfrom time to time or a similar rate if a prime rate is not announced or
\npublished by such bank (adjusted from time to time to reflect any changes in
\nsuch rate determined hereunder), or (b) the maximum rate from time to time
\npermitted by applicable law.<\/p>\n
“Association Contract” shall mean (a) with respect to the Bocachico
\nProspect, the Bocachico Association Contract, and (b) with respect to the
\nCambulos A Prospect and the Cambulos B Prospect, the Cambulos Association
\nContract.<\/p>\n
“Bocachico Association Contract” shall mean that certain Bocachico
\nAssociation Contract executed January 6, 1994, between Ecopetrol and Harken
\nColombia, together with the operating agreement attached thereto and all
\nmodifications, amendments and\/or<\/p>\n
6
\nsupplements heretofore or hereafter made with respect to such Association
\nContract or operating agreement.<\/p>\n
“Bocachico Prospect” shall mean the Initial Bocachico Prospect Area;
\nprovided, however, that, upon establishment of a Commercial Field, as described
\nbelow, resulting from a productive Initial Well drilled on the Bocachico
\nProspect under the terms of this Agreement, the term “Bocachico Prospect” shall
\nmean and include, effective as of the Effective Date on a retroactive basis,
\nthat portion of the lands covered by the Bocachico Association Contract which
\nare included within the Commercial Field surrounding the Initial Bocachico Well
\nor any other wells drilled by Owner or its Affiliates to explore for or develop
\nhydrocarbons that are part of a common source of supply.<\/p>\n
“Business Day” shall mean any day other than a Saturday, a Sunday or a
\nday in which banks in the State of Texas are closed.<\/p>\n
“Cambulos A Prospect” shall mean the Initial Cambulos A Prospect Area;
\nprovided, however, that, upon establishment of a Commercial Field, as described
\nbelow, resulting from a productive Initial Well drilled on the Cambulos A
\nProspect under the terms of this Agreement, the term “Cambulos A Prospect”
\nshall mean and include, effective as of the Effective Date on a retroactive
\nbasis, that portion of the lands covered by the Cambulos Association Contract
\nwhich are included within the Commercial Field surrounding the Initial Cambulos
\nA Well or any other wells drilled by Owner or its Affiliates to explore for or
\ndevelop hydrocarbons that are part of a common source of supply.<\/p>\n
“Cambulos Association Contract” shall mean that certain Cambulos
\nAssociation Contract effective November 17, 1995, between Ecopetrol and Harken
\nColombia, together with the operating agreement attached thereto and all
\nmodifications, amendments and\/or supplements heretofore or hereafter made with
\nrespect to such Association Contract or operating agreement.<\/p>\n
“Cambulos B Prospect” shall mean the Initial Cambulos B Prospect Area;
\nprovided, however, that, upon establishment of a Commercial Field, as described
\nbelow, resulting from a productive Initial Well drilled on the Cambulos B
\nProspect under the terms of this Agreement, the term “Cambulos B Prospect”
\nshall mean and include, effective as of the Effective Date on a retroactive
\nbasis, that portion of the lands covered by the Cambulos Association Contract
\nwhich are included within the Commercial Field surrounding the Initial Cambulos
\nB Well or any other wells drilled by Owner or its Affiliates to explore for or
\ndevelop hydrocarbons that are part of a common source of supply.<\/p>\n
“Commercial Field” shall mean a commercial field designated or
\naccepted by Ecopetrol, or, in the absence of such a designation or acceptance
\nby Ecopetrol, by Harken Colombia or its Affiliates, pursuant to an Association
\nContract. A Commercial Field shall be deemed established for purposes of this
\nAgreement upon such designation or acceptance.<\/p>\n
-2-
\n 7
\n “Commitment” shall have the meaning assigned to it in Section 2.1.<\/p>\n
“Common Shares” shall mean shares of the Common Stock, par value $.01
\nper share, of Owner.<\/p>\n
“Designated Percentage” shall mean 1.4%.<\/p>\n
“Ecopetrol” shall mean Empresa Colombiana de Petroleos, an industrial
\nand commercial company owned by the Republic of Colombia.<\/p>\n
“Effective Date” shall mean the date of this Agreement.<\/p>\n
“Governmental Authority” shall mean (a) the United States of America
\nor any state within the United States of America, (b) Colombia or any political
\nsubdivision of Colombia, (c) any court or any governmental department,
\ncommission, board, bureau, agency or other instrumentality of the United States
\nof America or of any state within the United States of America, and (d) any
\ncourt or any governmental department, commission, board, bureau, agency or
\nother instrumentality of Colombia or of any political subdivision of Colombia.<\/p>\n
“Gross Proceeds” shall have the meaning assigned to it in Section 3.3.<\/p>\n
“Harken Colombia” shall mean Harken de Colombia, Ltd., a Cayman
\nIslands corporation and wholly owned subsidiary of Owner, and\/or, when
\nappropriate, its branch established in Santa Fe de Bogota, D.C., Colombia, and
\nits successors and permitted assigns.<\/p>\n
“Initial Bocachico Prospect Area” shall have the meaning assigned to
\nit in Section 2.2.<\/p>\n
“Initial Bocachico Well” shall mean the first well drilled by Owner or
\nits Affiliates on the Bocachico Prospect.<\/p>\n
“Initial Cambulos A Prospect Area” shall have the meaning assigned to
\nit in Section 2.2.<\/p>\n
“Initial Cambulos A Well” shall mean the first well drilled by Owner
\nor its Affiliates on the Cambulos A Prospect.<\/p>\n
“Initial Cambulos B Prospect Area” shall have the meaning assigned to
\nit in Section 2.2.<\/p>\n
“Initial Cambulos B Well” shall mean the first well drilled by Owner
\nor its Affiliates on the Cambulos B Prospect.<\/p>\n
“Initial Wells” shall mean the Initial Bocachico Well, the Initial
\nCambulos A Well and the Initial Cambulos B Well.<\/p>\n
-3-
\n 8
\n “Investor” shall mean Harken Capital Corporation, a Delaware
\ncorporation, and its successors and permitted assigns.<\/p>\n
“Law” shall mean any applicable statute, law, ordinance, regulation,
\nrule, ruling, order, restriction, requirement, writ, injunction, decree or
\nother official act of or by any Governmental Authority.<\/p>\n
“Non-Affiliate” shall mean, with respect to Owner and Harken Colombia,
\nany person who is not an Affiliate of Owner or Harken Colombia.<\/p>\n
“Net Profits Interest” shall have the meaning assigned to it in
\nSection 3.1.<\/p>\n
“Owner” shall mean Harken Energy Corporation, a Delaware corporation,
\nand its successors and permitted assigns.<\/p>\n
“Owner’s SEC Filings” shall have the meaning assigned to it in Section
\n4.7.<\/p>\n
A “person” shall mean an individual, an estate, a corporation, a
\npartnership, a joint venture, a limited liability company, an association, a
\njoint stock company, a government or any department or agency of a government,
\na trust and\/or any other entity.<\/p>\n
“Processing” shall mean the manufacture, fractionation, refining or
\nother treating or transportation of Subject Hydrocarbons prior to their sale or
\ndisposition, and “Processed” shall have the meaning correlative to the
\nforegoing.<\/p>\n
“Production Sales Contracts” shall mean all contracts, agreements and
\narrangements for the sale or disposition of Subject Hydrocarbons that may be
\nproduced from or attributable to Subject Interests, whether presently existing
\nor hereafter created.<\/p>\n
The Bocachico Prospect, the Cambulos A Prospect and the Cambulos B
\nProspect are herein collectively called the “Prospects” and sometimes
\nindividually called a “Prospect”.<\/p>\n
“SEC” shall mean the Securities and Exchange Commission.<\/p>\n
“Securities Act” shall mean the Securities Act of 1933, as amended.<\/p>\n
“Subject Hydrocarbons” shall mean (except to the extent otherwise
\nexpressly provided in this Agreement), with respect to each Prospect, all oil,
\ngas and other minerals in and under and that may be produced, from and after
\nthe Effective Date, from the lands and depths covered by and\/or included in the
\nSubject Interests relating to such Prospect. There shall not be included in
\nthe Subject Hydrocarbons any oil, gas or other minerals (a) attributable to
\nroyalties or other similar obligations deducted or paid in kind to or for the
\nbenefit of third parties pursuant to the related Association Contract or
\npursuant to any applicable Law, (b)<\/p>\n
-4-
\n 9
\ndeducted, paid in kind or otherwise taken out of Harken Colombia’s share of
\nsuch oil, gas or other minerals and delivered to another person as
\nreimbursement to such person for oil, gas or other minerals of such other
\nperson (i) which were previously taken by Harken Colombia relating to the
\nProspect and (ii) the Gross Proceeds of which were credited to the related
\nAccount or otherwise accrued to the benefit of Investor in accordance with the
\nprovisions of Section 3.3, or (c) attributable to the interest of Ecopetrol as
\nprovided for under the terms of the related Association Contract.<\/p>\n
“Subject Interests” shall mean (a) with respect to the Bocachico
\nProspect, the interest of Harken Colombia and its successors and assigns in the
\nBocachico Association Contract to the extent such interest covers and is
\nattributable to the Bocachico Prospect, (b) with respect to the Cambulos A
\nProspect, the interest of Harken Colombia and its successors and assigns in the
\nCambulos Association Contract to the extent such interest covers and is
\nattributable to the Cambulos A Prospect, and (c) with respect to the Cambulos B
\nProspect, the interest of Harken Colombia and its successors and assigns in the
\nCambulos Association Contract to the extent such interest covers and is
\nattributable to the Cambulos B Prospect. As provided in an Association
\nContract, the areal extent of the related Prospect under the Association
\nContract may be reduced and\/or the percentage interest of Harken Colombia and
\nits successors and assigns in the oil, gas and mineral production thereunder
\nmay be reduced, and in each such case the “Subject Interests” relating to such
\nProspect shall be reduced to the same extent as the areal extent of such
\nProspect under the Association Contract and\/or the interest of Harken Colombia
\nand its successors and assigns thereunder is so reduced. No reduction shall
\noccur, however, in the Subject Interests as a result of any sale, exchange,
\ntransfer or other disposition of all or any portion of the Subject Interests or
\nthe related Association Contract by Harken Colombia, and in such event all
\ncredits and debits to the Prospect’s Account under Article III shall be made as
\nif no such sale, exchange, transfer or other disposition had occurred and
\nHarken Colombia was still the owner of all of the Association Contract and the
\nSubject Interests.<\/p>\n
Section 1.2. References and Titles. All references in this
\nAgreement to articles, sections, subsections and other subdivisions refer to
\nthe articles, sections, subsections and other subdivisions of this Agreement
\nunless expressly provided otherwise. Titles appearing at the beginning of any
\nsubdivisions are for convenience only and do not constitute any part of such
\nsubdivisions and shall be disregarded in construing the language contained in
\nsuch subdivisions. The words “this Agreement”, “this instrument”, “herein”,
\n“hereof”, “hereby”, “hereunder” and words of similar import refer to this
\nAgreement as a whole and not to any particular subdivision unless expressly so
\nlimited. The phrases “this Section” and “this subsection” and similar phrases
\nrefer only to the sections or subsections hereof in which such phrases occur.
\nPronouns in masculine, feminine and neuter genders shall be construed to
\ninclude any other gender, and words in the singular form shall be construed to
\ninclude the plural and vice versa, unless the context otherwise requires.<\/p>\n
-5-
\n 10
\n ARTICLE II<\/p>\n
Advancement of Capital<\/p>\n
Section 2.1. Advance. Investor unconditionally and irrevocably
\nagrees and commits (herein collectively called the “Commitment”) to advance to
\nOwner, on the Business Day next following the Effective Date, the amount of
\nSeven Million Dollars ($7,000,000) (herein called the “Advance”). The Advance
\nshall be made to Owner by wire transfer of the full amount of the Advance in
\nimmediately available funds to a bank account designated by Owner. The
\nCommitment is not in the nature of a loan to any party or a direct ownership
\ninterest in Harken Colombia, an Association Contract or any Subject Interests.
\nInstead, the Commitment and the Advance thereof shall constitute consideration
\nfor the right to receive payments measured by the Accounts provided for in
\nArticle III and the other rights and benefits provided by this Agreement.<\/p>\n
Section 2.2. Use of Proceeds. Owner shall use all funds from
\nthe Advance to finance (a) geological, geophysical and engineering operations
\nand studies of each Prospect, (b) the drilling, completing and equipping or
\nabandonment of one well and related facilities on each Prospect and (c) other
\nrelated exploitation of the Prospects, in each case solely in respect of the
\nSubject Interests. Prior to drilling any wells pursuant to this Agreement,
\nOwner shall fix and determine, and promptly after such determination shall
\nadvise Investor in writing of, (a) the initial areal extent of the lands
\ncovered by the Bocachico Prospect, which lands shall be located within the
\nboundaries of the lands covered by the Bocachico Association Contract (the
\n“Initial Bocachico Prospect Area”), (b) the initial areal extent of the lands
\ncovered by the Cambulos A Prospect, which lands shall be located within the
\nboundaries of the lands covered by the Cambulos Association Contract (the
\n“Initial Cambulos A Prospect Area”), and (c) the initial areal extent of the
\nlands covered by the Cambulos B Prospect, which lands shall be located within
\nthe boundaries of the lands covered by the Cambulos Association Contract (the
\n“Initial Cambulos B Prospect Area”); provided, however, that the Cambulos A
\nProspect and the Cambulos B Prospect shall be separate exploratory prospects
\nand shall not overlap. Owner hereby represents, warrants and covenants to
\nInvestor that Owner will drill one well on each Prospect within three years of
\nthe Effective Date. Each Initial Well shall be drilled on a turnkey basis.
\nPrior to drilling any Initial Well, Owner shall deliver to Investor for its
\ninformation a copy of Owner’s internal authority for expenditure (a.f.e.) for
\nsuch Initial Well. Owner shall give prompt written notice to Investor of the
\ncommencement of drilling and the completing and equipping or abandonment, as
\nthe case may be, of each Initial Well. Owner shall also furnish to Investor
\nsuch other public information regarding each Initial Well and the progress of
\ndrilling thereof as Investor may from time to time reasonably request in
\naccordance with the notice provisions of Section 6.7.<\/p>\n
-6-
\n 11
\n ARTICLE III<\/p>\n
Net Profits Interest<\/p>\n
Section 3.1. Net Profits Interest. In consideration for the
\npayment by Investor to Owner of the Advance, Investor shall have the rights
\nprovided for in this Article III and elsewhere in this Agreement with respect
\nto the Accounts, including without limitation the rights to receive payments
\nfrom Owner measured by each Account pursuant to Section 3.7 (all of such rights
\nare herein collectively called the “Net Profits Interest”). The Net Profits
\nInterest is intended to provide to Investor substantially the same economic
\nbenefit as if Investor was the owner of a direct net profits interest in each
\nAssociation Contract to the extent it relates to the Designated Percentage of
\nthe related Subject Interests and on the terms otherwise provided for herein;
\nprovided, however, that no rights or interest of any nature whatsoever in an
\nAssociation Contract, any Subject Interests or Harken Colombia are intended to
\nbe, or are hereby, assigned or conveyed to Investor, it being understood and
\nagreed that the Net Profits Interest is solely a contractual obligation of
\nOwner as expressed in this Agreement.<\/p>\n
Section 3.2. Establishment. Owner shall establish and maintain
\na separate bookkeeping account for each Prospect (herein called an “Account”)
\nin accordance with sound, accurate and comprehensive accounting practices and
\nconsistent with the various provisions of this Agreement and at all times shall
\nkeep true and correct books and records with respect thereto.<\/p>\n
Section 3.3. Credits. Except as otherwise provided herein, with
\nrespect to each sale or other disposition of Subject Hydrocarbons attributable
\nto a Prospect, the Account for such Prospect shall be credited with the gross
\nproceeds from the sale of such Subject Hydrocarbons. The amount of gross
\nproceeds (herein called “Gross Proceeds”) to be credited to an Account with
\nrespect to any sale or disposition of Subject Hydrocarbons shall be subject to
\nthe following:<\/p>\n
(a) Gross Proceeds shall include all consideration
\n received, directly or indirectly, by Harken Colombia or any Affiliate
\n for sales or other dispositions of (i) Subject Hydrocarbons, or (ii)
\n if any Subject Hydrocarbons are Processed by or for the benefit of
\n Harken Colombia or any Affiliate before sale or disposition, the
\n products of such Subject Hydrocarbons after such Processing;<\/p>\n
(b) If any proceeds are withheld from Harken Colombia
\n or an Affiliate by a Non-Affiliate for any reason (other than at the
\n request of Harken Colombia or any Affiliate or due to Harken
\n Colombia’s or an Affiliate’s negligence or willful misconduct), such
\n proceeds shall not be considered to be Gross Proceeds until such
\n proceeds are actually received by Harken Colombia or an Affiliate;
\n provided, however, that Gross Proceeds shall include any interest,
\n penalty or other amount that is derived from the sale of Subject
\n Hydrocarbons or the proceeds thereof when and if received;<\/p>\n
-7-
\n 12
\n (c) Gross Proceeds shall not include any amounts for
\n Subject Hydrocarbons unavoidably lost in production or used by Harken
\n Colombia or any Affiliate in conformity with good oil field practices
\n for drilling and production operations (including without limitation
\n gas injection, fuel, secondary or tertiary recovery, pressure
\n maintenance, repressuring or recycling, Processing and transportation)
\n conducted solely for the purpose of producing Subject Hydrocarbons
\n from the related Subject Interests, but only so long as such Subject
\n Hydrocarbons are so used;<\/p>\n
(d) In the event Subject Hydrocarbons are used by
\n Harken Colombia or any Affiliate outside of the related Subject
\n Interests and for purposes not primarily associated with, or primarily
\n for the benefit of, the related Subject Interests or the production,
\n Processing or marketing of Subject Hydrocarbons, Gross Proceeds shall
\n include the then current market value at the wellhead of such Subject
\n Hydrocarbons;<\/p>\n
(e) Gross Proceeds shall include all proceeds (or, if
\n the consideration received is other than cash, the then current market
\n value of such non-cash consideration) attributable to Subject
\n Interests which are received by Harken Colombia or any Affiliate from
\n the sale, after the Effective Date, of any materials, supplies,
\n equipment and other personal property or fixtures, or any part thereof
\n or interest therein, located on or used in connection with the Subject
\n Interests or any Subject Hydrocarbons;<\/p>\n
(f) Gross Proceeds shall include all proceeds
\n attributable to Subject Interests of all insurance received by Harken
\n Colombia or any Affiliate the cost of which is charged to the Account,
\n directly or indirectly;<\/p>\n
(g) Gross Proceeds shall include all proceeds
\n attributable to Subject Interests of all judgments and claims received
\n by Harken Colombia or any Affiliate for any loss or damage which
\n occurs after the Effective Date with respect to Harken Colombia’s or
\n any Affiliate’s interest in the Subject Interests, any materials,
\n supplies, equipment or other personal property or fixtures located on
\n or used in connection with any of the Subject Interests, or any
\n Subject Hydrocarbons;<\/p>\n
(h) Gross Proceeds shall include all payments,
\n including advance payments, under take-or-pay and similar provisions
\n of Production Sales Contracts;<\/p>\n
(i) Gross Proceeds shall include any amounts received
\n by Harken Colombia or any Affiliate from production of Subject
\n Hydrocarbons at levels greater than Harken Colombia’s interest in the
\n Subject Interests and shall include any payments received by Harken
\n Colombia from joint interest owners as settlement for production of
\n Subject Hydrocarbons at levels less than Harken Colombia’s interest in
\n the Subject Interests or any Subject Hydrocarbons; and<\/p>\n
-8-
\n 13
\n (j) Gross Proceeds shall include all other monies and
\n things of value which are received by Harken Colombia or any Affiliate
\n by virtue of the ownership after the Effective Date of the Subject
\n Interests and\/or any materials, supplies, equipment and other personal
\n property and fixtures located on or used in connection with the
\n Subject Interests or any Subject Hydrocarbons the cost of which was
\n charged against the Account;<\/p>\n
provided that this Section 3.3 shall not operate to provide any credits on
\naccount of (i) any amounts paid by third parties (including Ecopetrol) to
\nHarken Colombia as operator under the applicable Association Contract or
\noperating agreement now or hereafter in force covering any of the Subject
\nInterests to reimburse or compensate Harken Colombia as operator for costs
\nincurred or services performed for the account or benefit of such third
\nparties, (ii) any amounts received by Harken Colombia upon any sale or other
\ndisposition in accordance with Section 6.1 of any portion of the applicable
\nAssociation Contract or Subject Interests, or (iii) any amounts received by
\nHarken Colombia as reimbursement by Ecopetrol of Direct Exploration Costs
\nprovided for under the applicable Association Contract.<\/p>\n
Section 3.4. Debits. Except as otherwise provided herein, each
\nAccount shall be debited with the following:<\/p>\n
(a) All direct costs (and those indirect costs
\n expressly permitted in subsection (x) below) which are attributable
\n solely to the related Subject Interests (i.e., the Subject Interests
\n relating to the Prospect for which the Account was established) after
\n the Effective Date for exploring, developing, operating, producing,
\n reworking, maintaining and restoring the related Subject Interests,
\n including without limitation any direct costs (and those indirect
\n costs expressly permitted in subsection (x) below) after the Effective
\n Date for (i) geological and geophysical operations and studies (and
\n related computer processing and modeling) with respect to the related
\n Subject Interests and drilling, completing, testing, equipping,
\n plugging back, reworking, recompleting and plugging and abandoning any
\n wells on the related Subject Interests, (ii) constructing, maintaining
\n and operating any gathering facilities, tanks and other production,
\n delivery and transportation facilities on or for use in connection
\n with the related Subject Interests, (iii) Processing any Subject
\n Hydrocarbons attributable to the Prospect for which the Account was
\n established and acquiring, constructing, operating and maintaining any
\n facility, plant, equipment or pipeline for Processing any such Subject
\n Hydrocarbons, (iv) secondary recovery, pressure maintenance,
\n repressuring, recycling and other operations conducted for the purpose
\n of enhancing production of such Subject Hydrocarbons, (v) wages,
\n salaries, fringe benefits and expenses of officers, employees and
\n contract personnel, consultants and professionals necessary or
\n appropriate for operating, producing and maintaining the related
\n Subject Interests, (vi) local offices, camps, warehouses, housing and
\n other facilities paid for by Harken Colombia, relocation of employees
\n and their families, travel, telephone, training of Colombian
\n personnel, rental and use or damage to the real and personal property
\n of others,<\/p>\n
-9-
\n 14
\n community relations, protection, peaceful operations and similar
\n matters, and otherwise doing business in Colombia, (vii) insurance,
\n (viii) payments made in cash as compensation for or in settlement of
\n any Subject Hydrocarbons taken by Harken Colombia at levels greater
\n than Harken Colombia’s interest in the related Subject Interests, (ix)
\n royalties required to be paid pursuant to the applicable Association
\n Contract or any applicable Law and other charges and payments required
\n under the applicable Association Contract and (x) general,
\n administrative and overhead expenses incurred by Harken Colombia which
\n are necessary or appropriate to support the activities described in
\n this subsection and fairly allocated to the related Subject Interests;
\n provided, however, that the debits made to the Account pursuant to
\n this subsection with respect to any Subject Interest shall be made in
\n accordance with customary industry practices and applicable accounting
\n standards;<\/p>\n
(b) All Colombian taxes and similar charges incurred by
\n Harken Colombia with respect to the ownership of the related Subject
\n Interests for periods after the Effective Date, including without
\n limitation (i) Colombian income, transfer, franchise, occupation,
\n sales and use, value-added and like taxes based on or relating to the
\n related Subject Interests, the sale or production of the Subject
\n Hydrocarbons attributable to the Prospect for which the Account was
\n established, or the proceeds, value or income therefrom, (ii)
\n Colombian production, severance, excise and other taxes assessed
\n against, and\/or measured by, the production of (or the proceeds or
\n value of production of) such Subject Hydrocarbons, and (iii) Colombian
\n ad valorem and other taxes assessed against or attributable to the
\n related Subject Interests or any Processing or other equipment or
\n property located on or related to the related Subject Interests;
\n provided, however, that if any such taxes relate to the related
\n Subject Interests and to other property owned by Harken Colombia or to
\n such Subject Hydrocarbons and to other production of Harken Colombia,
\n such taxes shall be allocated to the related Subject Interests or such
\n Subject Hydrocarbons and debited hereunder on a proportionate or other
\n equitable basis in accordance with applicable accounting, tax and
\n industry standards;<\/p>\n
(c) Amounts attributable to currency conversions,
\n exchange control obligations and similar costs and losses with respect
\n to currencies used to pay expenses charged to the Account, currencies
\n credited to the Account or currencies paid by Harken Colombia to Owner
\n for the purpose (directly, indirectly or accrued) of making payments
\n to Investor pursuant to Section 3.7 (excluding in each case any costs
\n for currency hedges, swaps and similar instruments); and any such
\n amounts shall be calculated or determined in a manner consistent with
\n the treatment of such amounts on the books of Owner for financial
\n reporting to governmental entities;<\/p>\n
(d) All interest payments on any indebtedness of Harken
\n Colombia or any Affiliate incurred after the Effective Date for the
\n benefit of the Subject Interests (provided that if any such
\n indebtedness shall be incurred for the benefit of other<\/p>\n
-10-
\n 15
\n properties owned by Harken Colombia besides the Subject Interests,
\n then an allocation of such interest shall be made to the Subject
\n Interests based upon the portion of the indebtedness that was utilized
\n for the benefit of the Subject Interests); and<\/p>\n
(e) Except as otherwise provided elsewhere in this
\n Agreement, all other reasonable, direct expenditures attributable to
\n the related Subject Interests paid or incurred by Harken Colombia
\n after the Effective Date with respect to the related Subject
\n Interests;<\/p>\n
provided that this Section 3.4 shall not operate to permit any debits (i) by
\nduplication or on account of any amount which has also been used to reduce the
\namount of the Subject Hydrocarbons, Gross Proceeds and\/or payments to Investor
\npursuant to Section 3.7 or has otherwise not been included therein (including,
\nby way of example and without limitation, royalties, production, severance,
\nexcise and other taxes and any other amounts deducted, withheld or paid by any
\nother person), (ii) on account of any expenses and any penalties, interest or
\nother similar charges which result from the failure of Harken Colombia to
\nproperly discharge all costs and expenses (including taxes) of developing,
\noperating and maintaining the related Subject Interests and (iii) excluded
\npursuant to Section 3.5.<\/p>\n
Section 3.5. Additional Account Matters.<\/p>\n
(a) Notwithstanding the provisions of Section 3.4 (or any other
\nprovision of this Agreement) which may appear to the contrary, with respect to
\nthe Accounts taken as a whole:<\/p>\n
(i) costs and expenses equaling the aggregate amount
\n of the Advance paid to Owner which would otherwise be charged or
\n debited to the Accounts under Section 3.4 shall not be charged or
\n debited to the Accounts and shall be borne solely by Owner and Harken
\n Colombia (i.e., the first $7,000,000 of costs and expenses that would
\n otherwise be charged or debited to the Accounts under Section 3.4
\n shall not be so charged or debited and shall be borne solely by Owner
\n and Harken Colombia); and<\/p>\n
(ii) in no event shall any costs and expenses of
\n drilling and completing the Initial Wells, constructing and completing
\n associated facilities and hooking the Initial Wells up to a pipeline
\n or pipelines, so as to make the Initial Wells capable of production,
\n in excess of an aggregate of $7,000,000 be charged or debited to the
\n Accounts, it being agreed and understood by Owner that any such costs
\n and expenses in excess of an aggregate of $7,000,000 shall be borne
\n solely by Owner and Harken Colombia.<\/p>\n
(b) Upon the reconfiguration of the areal extent of a Prospect
\nto correspond to a Commercial Field established under the related Association
\nContract, as provided in the respective definitions of the Prospects in Section
\n1.1, the net profits realized from the related Subject Interests shall be
\nrecomputed, retroactive to the Effective Date, to take into account<\/p>\n
-11-
\n 16
\nand fully reflect the reconfiguration of the Prospect as if such Prospect had
\nalways included the Commercial Field, and an appropriate accounting and payment
\nshall be made to Investor with respect to the recomputed net profits in the
\nProspect’s Account.<\/p>\n
Section 3.6. Accounting. All debits to an Account which are
\nattributable to costs and expenses paid by Harken Colombia during a calendar
\nquarter up to and including the last day of such calendar quarter shall be
\ndebited against the Account as of the last day of such calendar quarter;
\nprovided that any such debits which do not (and will not) result from payments
\nto third parties or to Harken Colombia shall be debited against the Account as
\nof the last day of the calendar quarter in which they arise. After such debits
\nhave been so made for a given calendar quarter, all credits to the Account
\nwhich are actually received by Harken Colombia during a calendar quarter up to
\nand including the last day of such calendar quarter shall be credited to the
\nAccount as of the last day of such calendar quarter; provided that any such
\ncredits which do not (and will not) result from credits given by or payments
\nfrom third parties shall be credited to the Account as of the last day of the
\ncalendar quarter in which they arise. For each Account, the total net profits
\nrealized from the Subject Interests relating to the Account (or the total net
\nlosses, as the case may be) shall be determined after the applications and
\ncalculations provided for above have been made by Owner. Subject to the
\nprovisions of Section 3.7, Investor shall participate in the Designated
\nPercentage of the net profits derived from the Subject Interests relating to
\nthe Account, as provided in this Agreement, only after and while all debits
\nproperly debited against the Account shall have been offset by credits to the
\nAccount and a credit balance shall exist in the Account.<\/p>\n
Section 3.7. Payments. On or before 60 days after the end of
\neach calendar quarter, Owner shall furnish to Investor detailed statement(s)
\ncovering each Account clearly reflecting the condition of each Account as of
\nthe close of business on the last day of such calendar quarter, and clearly
\nreflecting those items which gave rise to debits and credits to each Account
\nduring such quarter and clearly reflecting the quantities of Subject
\nHydrocarbons produced from the Subject Interests relating to such Account
\nduring the quarter covered by such statement. Any deficit reflected by any
\nsuch statement shall be carried forward for the next and succeeding months
\nuntil such deficit has been wiped out and liquidated. In case a net profit is
\nreflected by any such statement, payment to Investor in U.S. dollars of the
\nDesignated Percentage of the amount of such net profit shall be enclosed with
\nthe statement rendered to Investor (or, if requested at any time by Investor,
\npaid by bank wire transfer to such bank and account designated in writing by
\nInvestor); provided, however, that (a) Owner may elect to cause Harken Colombia
\n(instead of Owner) to make any payment required under this Section to Investor
\nin U.S. dollars, (b) any payment to Investor under this Section shall be
\nreduced by any costs or losses from currency conversions, compliance with
\nexchange control obligations, withholding obligations and remittance and other
\ntaxes which are properly chargeable to the Account pursuant to Section 3.4(b)
\nor (c) and (i) are incurred by Harken Colombia in connection with such payment
\nto Investor or any payment of an amount equivalent to such payment by Harken
\nColombia to Owner (provided that this clause (a) (i) shall not operate to
\npermit any double charge to the Account with respect to such costs or losses)
\nor (ii) in the<\/p>\n
-12-
\n 17
\nevent such payment is made by Owner from its U.S. funds without any equivalent
\npayment by Harken Colombia to Owner, would have been so incurred at such time
\nif Harken Colombia had paid to Owner an amount equivalent to such payment, and
\n(c) Owner may retain up to one-third of Investor’s share of any such net profit
\nin the event and to the extent that the debits that Owner reasonably projects
\nwill be charged to the Account during the next three months will exceed the
\ncredits that Owner reasonably projects will be made to the Account during such
\nthree-month period and apply such retained amount to the payment of Investor’s
\nshare of such debits. Any such retained amount that is subsequently determined
\nto be unnecessary for the payment of Investor’s share of such debits shall be
\npaid promptly to Investor. In the event any amount is deducted from any
\npayment pursuant to subsection (a), (b) or (c) above, such amount shall not
\nthereafter be charged to the Account to the extent it would cause any direct or
\nindirect double charge to the Account or Investor for such amount.<\/p>\n
Section 3.8. Overpayments and Underpayments. If at any time
\nOwner inadvertently pays Investor more or less than the amount then due with
\nrespect to an Account, the amount or amounts otherwise payable with respect to
\nsuch Account for any subsequent period or periods shall be reduced or increased
\nby such overpayment or underpayment, plus an amount equal to interest (computed
\nat the Agreed Rate) on the unrecovered balance of such overpayment or
\nunderpayment during the period of such overpayment or underpayment; provided,
\nhowever, that if the amount of any such overpayment or underpayment exceeds
\n$5,000, the party owing such amount shall promptly pay such amount (together
\nwith interest on such amount as calculated above) to the other party.<\/p>\n
Section 3.9. Prudent Operator Standard. Harken Colombia
\n(subject to the terms and provisions of the applicable Association Contract and
\nany applicable operating agreements) shall have exclusive charge, management
\nand control of all operations to be conducted on the Subject Interests and may
\ntake any and all actions which a reasonably prudent operator would deem
\nnecessary or advisable in the management, operation and control thereof.
\nHarken Colombia shall operate and maintain the Subject Interests as would a
\nprudent operator under similar circumstances in accordance with good oil field
\npractices. Harken Colombia shall promptly (and, unless the same are being
\ncontested in good faith and by appropriate proceedings, before the same are
\ndelinquent) pay or cause to be paid all costs and expenses (including without
\nlimitation all taxes and all costs, expenses and liabilities for labor,
\nmaterials and equipment incurred in connection with the Subject Interests and
\nall obligations to the holders of interests affecting the Subject Interests)
\nincurred from and after the Effective Date in developing, operating and
\nmaintaining the Subject Interests. As to those of the Subject Interests, if
\nany, as to which Harken Colombia hereafter may not be the operator, Harken
\nColombia shall take all such action and exercise all such rights and remedies
\nas are reasonably available to Harken Colombia to cause the operator to so
\nmaintain and operate such Subject Interests (provided that Harken Colombia
\nshall never be obligated to pay any costs or expenses attributable to any
\ninterest other than the Subject Interests and all royalties related thereto).<\/p>\n
-13-
\n 18
\n Section 3.10. Sales of Subject Hydrocarbons. Harken Colombia
\nshall market or cause to be marketed, subject to the terms of the applicable
\nAssociation Contract, the Subject Hydrocarbons in accordance with reasonable
\nand prudent business judgment and sound oil field practices and on such terms
\nand conditions as Harken Colombia shall determine to be in the best interests
\nof Investor; provided, however, that all such sales of Subject Hydrocarbons (a)
\nshall be upon terms and conditions which are the best terms and conditions
\navailable as determined in good faith by Harken Colombia taking into account
\nall relevant circumstances, including without limitation, price, quality of
\nproduction, access to markets or lack thereof, minimum purchase guarantees,
\nidentity of purchaser and length of commitment, and (b) shall be made to
\nNon-Affiliates of Owner or Harken Colombia, except that sales of Subject
\nHydrocarbons may be made to an Affiliate of Owner or Harken Colombia that is
\nowned in part by a Governmental Authority and that owns or operates a pipeline
\nor other Processing facility if the price paid by such Affiliate is no less
\nfavorable to Harken Colombia than the prices then being paid by a Non-Affiliate
\nfor oil, gas and\/or minerals which are of comparable type and quality and in
\nthe same or similar locations.<\/p>\n
Section 3.11. Insurance. Harken Colombia shall obtain or cause
\nto be obtained (and maintain or cause to be maintained during the economic life
\nof the Subject Interests) insurance coverage relating to the ownership,
\noperation and maintenance of the Subject Interests, the cost of which shall be
\ncharged against the related Account, in such amounts, with provisions for such
\ndeductible amounts and for such purposes as Harken Colombia shall determine to
\nbe appropriate (and, because of cost, availability and other factors, Harken
\nColombia may determine not to acquire any such insurance).<\/p>\n
Section 3.12. Contracts with Affiliates. Harken Colombia and\/or
\nits Affiliates may perform services and furnish supplies and equipment with
\nrespect to the Subject Interests, provided that the amount of compensation,
\nprice or rental that can be charged to the related Account therefor must be no
\nless favorable to the Account than would be the compensation, price or rental
\npayable to Non-Affiliates in the area engaged in the business of rendering
\ncomparable services or selling or leasing comparable equipment and supplies
\nwhich could reasonably be made available to the Subject Interests.<\/p>\n
Section 3.13. Government Regulation. All obligations of Owner
\nand Harken Colombia under this Article III shall be subject to and limited by
\n(a) all applicable Laws and (b) the applicable Association Contract as it may
\nbe modified, amended and\/or supplemented from time to time; provided, that
\nOwner and Harken Colombia shall act in good faith with respect to the interests
\nof Investor and in accordance with the best interests of Investor under this
\nAgreement as reasonably determined by Owner and Harken Colombia. Where the
\nprice at which Subject Hydrocarbons are sold is limited by applicable Laws, the
\nprice so permitted to be paid for Subject Hydrocarbons shall be controlling if
\nlower than prices established in Production Sales Contracts or required
\nhereunder.<\/p>\n
-14-
\n 19
\n Section 3.14. Abandonments. After the Effective Date, Harken
\nColombia shall have the right without the consent of Investor to release,
\nsurrender and\/or abandon its interest in the Subject Interests and\/or any
\nAssociation Contract, or any part thereof, or interest therein, in order to
\ncomply with the relinquishment provisions of the applicable Association
\nContract, even though the effect of such release, surrender or abandonment may
\nbe to affect adversely the Net Profits Interest. In the event of any
\nrelinquishment of acreage under an Association Contract, Harken Colombia shall
\nhave the exclusive authority to determine the acreage to be relinquished, which
\nmay be acreage within the Subject Interests or acreage outside the Subject
\nInterests or both; provided, that, in taking any of the actions described in
\nthis Section 3.14, Harken Colombia shall act in good faith with respect to the
\ninterests of Investor and in accordance with the best interests of Investor
\nunder this Agreement as reasonably determined by Harken Colombia.<\/p>\n
Section 3.15. Pooling and Unitization. Without the prior written
\nconsent of Investor, Harken Colombia shall have the right and power to unitize,
\npool or combine the lands covered by the Subject Interests, or any portion or
\nportions thereof, as to oil, gas and\/or other minerals, with any other land or
\ncontract or contracts so as to create one or more unitized areas (or, with
\nrespect to unitized or pooled areas theretofore created, to dissolve the same
\nor to amend and\/or reconfigure the same to include additional acreage or
\nsubstances or to exclude acreage or substances). If any of the Subject
\nInterests are pooled or unitized in any manner, the Net Profits Interest
\ninsofar as it affects such Subject Interests shall be considered to be pooled
\nand unitized, and in any such event the Net Profits Interest shall apply to
\n(and the term “Subject Hydrocarbons” shall include) the production which
\naccrues to such Subject Interests under and by virtue of such pooling and
\nunitization arrangements and the applicable Account shall be computed giving
\nconsideration to such production and costs, expenses, charges and credits
\nattributable to such Subject Interests.<\/p>\n
Section 3.16. Non-consent Operations.<\/p>\n
(a) If Harken Colombia elects to be a non-participating
\n party (whether pursuant to an Association Contract or operating
\n agreement or other agreement or requirement) with respect to any
\n drilling, deepening, plugging back, reworking, sidetracking or
\n completion (or other) operation on any Subject Interest or elects to
\n be an abandoning party with respect to a well located on any Subject
\n Interest, the consequence of which election is that Harken Colombia’s
\n interest in such Subject Interest or part thereof is temporarily
\n (i.e., during a recoupment period) or permanently forfeited to the
\n parties participating in such operations, or electing not to abandon
\n such well, then the costs and proceeds attributable to such forfeited
\n interest shall not, for the period of such forfeiture (which may be a
\n continuous and permanent period), be debited or credited to the
\n applicable Account and such forfeited interest shall not, for the
\n period of such forfeiture, be subject to the Net Profits Interest.<\/p>\n
-15-
\n 20
\n (b) If Harken Colombia elects to be a participating
\n party to such a drilling, deepening, plugging back, reworking,
\n sidetracking or completing (or other) operation, or elects to be a
\n non-abandoning party with respect to such a well, and any other party
\n or parties have elected not to participate in such operation (or have
\n elected to abandon such well) with the result that (pursuant to an
\n Association Contract or operating agreement or other agreement or
\n requirement) Harken Colombia becomes entitled to receive, either
\n temporarily (i.e., through a period of recoupment) or permanently,
\n interests belonging to such other party or parties, the costs and
\n proceeds attributable to such non-participating parties’ interests to
\n which Harken Colombia becomes so entitled shall not be debited and
\n credited to the applicable Account and instead shall be for the
\n account of Harken Colombia.<\/p>\n
Section 3.17. No Personal Liability; Indemnification.
\nNotwithstanding anything to the contrary contained in this Agreement, Investor
\nshall never personally be responsible for payment of any part of the costs,
\nexpenses or liabilities incurred in connection with the exploring, developing,
\noperating, owning and\/or maintaining of the Subject Interests or an Association
\nContract (including without limitation, any costs, expenses or liabilities
\nrelated to damage to or remediation of the environment, including any of the
\nsame arising out of ownership of an interest in property), and Owner agrees to
\nindemnify and hold Investor harmless from and against all such costs, expenses
\nand liabilities (with such indemnity to also cover all costs and expenses of
\nInvestor, including reasonable legal fees and expenses, which are incurred
\nincident to the matters indemnified against); provided, however, all such
\ncosts, expenses and liabilities shall, to the extent the same relate to periods
\nafter the Effective Date, nevertheless be charged against the applicable
\nAccount if such costs, expenses and liabilities are expressly permitted
\nelsewhere in this Agreement to be charged to such Account. The foregoing
\nindemnifications shall extend to Investor and its successors and permitted
\nassigns, all their respective affiliates and all their respective officers,
\ndirectors, agents, attorneys, representatives and employees. THE FOREGOING
\nINDEMNITIES SHALL APPLY WHETHER OR NOT ARISING OUT OF THE SOLE, JOINT OR
\nCONCURRENT NEGLIGENCE, FAULT OR STRICT LIABILITY OF INVESTOR OR ANY OTHER
\nPERSON OR ENTITY INDEMNIFIED HEREUNDER AND SHALL APPLY, WITHOUT LIMITATION, TO
\nANY LIABILITY IMPOSED UPON ANY PERSON INDEMNIFIED HEREUNDER AS A RESULT OF ANY
\nSTATUTE, RULE, REGULATION, THEORY OF STRICT LIABILITY OR OTHERWISE. THE
\nPROVISIONS OF THIS SECTION 3.17 SHALL SURVIVE THE TERMINATION OF THIS AGREEMENT
\nAND SHALL CONTINUE IN EFFECT FOR A PERIOD OF THREE YEARS THEREAFTER, AT WHICH
\nTIME SUCH PROVISIONS SHALL TERMINATE.<\/p>\n
Section 3.18. Access to Books and Records. In addition to any
\nreports and information specifically required by the terms of this Agreement,
\nOwner agrees to furnish to Investor full information pertaining to the
\nProspects (or potential Prospects) or the ownership, operation and maintenance
\nof the Subject Interests, at all reasonable times, and in such form, as
\nInvestor may reasonably request. Owner and Harken Colombia will permit
\nrepresentatives designated by Investor, including independent accountants,
\nagents, attorneys, and other persons, to inspect Owner’s and Harken Colombia’s
\nrespective books and records pertaining to<\/p>\n
-16-
\n 21
\nthe Subject Interests and each Account (and to make copies and photocopies from
\nsuch records and to write down and record such information as such
\nrepresentatives may request), and each of Owner and Harken Colombia shall
\npermit Investor and its designated representatives reasonably to investigate
\nand verify the accuracy of information furnished by it to Investor hereunder or
\nin connection herewith and to discuss all such matters with their officers,
\nemployees and representatives. If for any reason Harken Colombia is unable to
\nprovide to Investor the information, access to information and inspection
\nrights referred to in the immediately preceding sentences of this Section 3.18,
\nOwner shall cause such information, access to information and inspection rights
\nto be provided to Investor.<\/p>\n
ARTICLE IV<\/p>\n
Owner Representations, Warranties and Covenants<\/p>\n
Owner hereby represents and warrants to and covenants with Investor as
\nfollows:<\/p>\n
Section 4.1. Organization and Corporate Authority. Owner is a
\ncorporation duly incorporated, validly existing and in good standing under the
\nlaws of the jurisdiction of its incorporation, with corporate power and
\nauthority to carry on its business as now conducted and to own, lease and
\noperate all properties and assets now owned, leased or operated by it.<\/p>\n
Section 4.2. Qualification to do Business. Owner is duly
\nqualified to do business as a foreign corporation and in good standing in each
\njurisdiction in which its ownership of property or the conduct of its business
\nrequires such qualification, except jurisdictions in which the failure so to
\nqualify would not have a material adverse effect on Owner’s business,
\nproperties, financial condition or results of operations.<\/p>\n
Section 4.3. Finders’ Fees. No broker or finder has acted on
\nbehalf of Owner or Harken Colombia in connection with this Agreement or the
\ntransactions contemplated herein.<\/p>\n
Section 4.4. Authority of Owner. Owner has the corporate power
\nto enter into, and be bound by the terms and conditions of, this Agreement and
\nto carry out its obligations hereunder, and the execution and delivery by Owner
\nof this Agreement and the performance by Owner of its obligations hereunder
\nhave been duly authorized by all necessary corporate action of Owner. This
\nAgreement has been duly executed and delivered by Owner and constitutes, and
\neach other agreement or document executed or to be executed by Owner in
\nconnection with the transactions contemplated hereby has been, or when
\nexecuted, will be, duly executed and delivered by Owner and constitutes, or
\nwhen executed and delivered will constitute, a valid and legally binding
\nobligation of Owner enforceable against Owner in accordance with their
\nrespective terms, except to the extent enforcement may be limited (a) by
\napplicable bankruptcy, insolvency, moratorium, reorganization or similar laws
\nfrom time to time in effect which affect creditors’ rights generally, and (b)
\nby legal and equitable limitations<\/p>\n
-17-
\n 22
\non the availability of equitable remedies, including without limitation
\nspecific performance against Owner under or by virtue of this Agreement.<\/p>\n
Section 4.5. Non-Contravention. The execution, delivery and
\nperformance of this Agreement by Owner will not (a) conflict with or result in
\na violation of any provision of Owner’s charter or bylaws, (b) conflict with or
\nresult in a violation of any provision of, or constitute (with or without the
\ngiving of notice or the passage of time or both) a default under, or give rise
\n(with or without the giving of notice or the passage of time or both) to any
\nright of termination, cancellation, or acceleration under, any bond, debenture,
\nnote, mortgage, indenture, lease, agreement or other instrument or obligation
\nto which Owner is a party or by which Owner or any of its properties or assets
\nmay be bound, which conflict, violation, default, termination, cancellation or
\nacceleration could reasonably have a material adverse effect on Owner’s
\nbusiness, properties, financial condition or results of operations, (c) result
\nin the creation or imposition of any lien or incumbrance upon the properties or
\nassets of Owner, or (d) result in a violation by Owner of any Law or any
\njudgment, order, decree, rule or regulation of any Governmental Authority to
\nwhich Owner is subject; provided, however, that no such representations or
\nwarranties are made by Owner with respect to compliance with any foreign
\nsecurities laws or with respect to any Association Contract (it being
\nunderstood that representations and warranties with respect to the Association
\nContracts are being made by Owner under Section 4.10).<\/p>\n
Section 4.6. Governmental Consents. Except for (a) those that
\nhave been duly obtained, and (b) the approval by the American Stock Exchange of
\nthe listing on such exchange of the Common Shares issuable pursuant to Section
\n6.3 (which Owner will obtain prior to the issuance of such shares), no consent,
\norder, approval or authorization of, or declaration, filing, or registration
\nwith, any Governmental Authority is required to be obtained or made by Owner in
\nconnection with the execution, delivery or performance by Owner of this
\nAgreement; provided, however, that no such representations or warranties are
\nmade by Owner with respect to compliance with any foreign securities laws.<\/p>\n
Section 4.7. Reports and Financial Statements of Owner. Owner
\nhas heretofore delivered to Investor true and complete copies of all definitive
\nForm 10-K annual reports, Form 10-Q quarterly reports and proxy statements
\nfiled by Owner with the SEC from and after January 1, 1997 (herein collectively
\ncalled “Owner’s SEC Filings”). As of their respective dates, Owner’s SEC
\nFilings did not contain any untrue statement of a material fact or omit to
\nstate a material fact required to be stated therein or necessary to make the
\nstatements therein, in light of the circumstances under which they were made,
\nnot misleading. Owner does not have any debts, liabilities, or obligations,
\nwhether accrued, contingent, unasserted or otherwise, and whether due or to
\nbecome due, which are not reflected in the financial statements contained in
\nOwner’s SEC Filings and would be required to be so reflected under generally
\naccepted accounting principles, except those incurred in the ordinary course of
\nbusiness since the date of the most recent audited financial statements
\ncontained in Owner’s SEC Filings. Since such date and except as otherwise
\ndisclosed in Owner’s SEC Filings,<\/p>\n
-18-
\n 23
\nOwner has conducted its business in the ordinary course consistent with past
\npractice and there has not been any material adverse change in the business,
\nproperties, financial condition or results of operations of Owner or in its
\nrelationship with lenders, suppliers, customers, employees or others, whether
\nsuch changes have occurred in the ordinary course of business or otherwise.<\/p>\n
Section 4.8. Disclosure. All written information provided by
\nOwner and its officers, directors, agents, representatives and employees to
\nInvestor in connection with this Agreement which is not part of Owner’s SEC
\nFilings has been prepared in good faith by Owner and does not contain any
\nuntrue statement of a material fact or, considered in its entirety along with
\nOwner’s SEC Filings, omit to state therein a material fact (other than those
\nfacts generally recognized to be industry risks normally associated with the
\noil and gas business) necessary to make the statements made therein not
\nmisleading. Owner does not know of any facts (other than those facts generally
\nrecognized to be industry risks normally associated with the oil and gas
\nbusiness) related to its business, properties, financial condition or results
\nof operations or the potential Prospects which have not been disclosed orally
\nor in writing to Investor and which presently or will materially and adversely
\naffect such business, properties, financial condition, results of operations or
\npotential Prospects or the ability of Owner to perform its obligations under
\nthis Agreement.<\/p>\n
Section 4.9. Owner’s Common Shares. The Common Shares issuable
\npursuant to Section 6.3 have been, or when issued hereunder, will have been,
\nduly authorized for issuance pursuant hereto and, when issued and delivered by
\nOwner pursuant hereto, will be validly issued, fully paid and non-assessable
\nand will be free and clear of any claim, lien, pledge, option, charge, security
\ninterest or encumbrance of any nature whatsoever created by Owner. The
\nissuance of Common Shares under this Agreement is not subject to any preemptive
\nrights. Owner shall, prior to the issuance of Common Shares pursuant to this
\nAgreement, cause such Common Shares to be listed on each securities exchange or
\nquotation system on which outstanding Common Shares are then listed.<\/p>\n
Section 4.10. Association Contracts. English translations of the
\nmain body of, and the operating agreement attached as an exhibit to, each
\nAssociation Contract in force as of the date hereof have been furnished by
\nOwner to Investor. Each of such translations is a fair and reasonable
\ntranslation of the original document constituting part of the Association
\nContract. Any and all amendments to an Association Contract in force as of the
\ndate hereof of which English translations were not furnished by Owner to
\nInvestor do not contain any provisions that could adversely affect the rights
\nand interests of Investor under this Agreement. Each Association Contract is
\nin full force and effect as of the date hereof. Harken Colombia is in
\ncompliance in all material respects with its obligations under or relating to
\neach Association Contract in force as of the date hereof, and, to the best
\nknowledge of Owner and Harken Colombia after due inquiry, no other party to an
\nAssociation Contract is presently in default thereunder. The execution,
\ndelivery and performance of this Agreement by Owner, and the performance of
\nthis Agreement by Harken Colombia, will not breach or result in a violation of<\/p>\n
-19-
\n 24
\nany provision of an Association Contract in force as of the date hereof.
\nExhibit A-1 hereto contains an accurate description of the areal extent of the
\nlands covered by the Bocachico Association Contract (which lands are designated
\nas the Bocachico Block on such Exhibit A-1) as of the date hereof. Exhibit A-2
\nhereto contains an accurate description of the areal extent of the lands
\ncovered by the Cambulos Association Contract (which lands are designated as the
\nCambulos Block on such Exhibit A-2) as of the date hereof. Owner agrees to
\nfurnish to Investor written English translations of any and all amendments made
\nto any Association Contract or related operating agreement after the Effective
\nDate as promptly as practicable after each such amendment is made.<\/p>\n
Section 4.11. Ownership of Harken Colombia. All of the issued
\nand outstanding shares of capital stock of Harken Colombia have been duly and
\nvalidly issued, are fully paid and nonassessable and are owned by Owner, free
\nand clear of all liens, encumbrances, equities or claims. No options,
\nwarrants or other rights to purchase, agreements or other obligations to issue
\nor other rights to convert any obligations into shares of capital stock or
\nownership interests in Harken Colombia are outstanding.<\/p>\n
Section 4.12. Certain Tax Matters. All amounts payable under
\nthis Agreement shall be free of Colombian taxes, and Owner shall hold Investor
\nharmless from, and indemnify Investor against, any and all Colombian taxes
\narising due to the transactions contemplated hereby, other than any Colombian
\ntaxes that would not have been incurred but for activities of Investor in
\nColombia unrelated to the transactions contemplated hereby, it being further
\nunderstood and agreed, however, that it shall be permissible for taxes incurred
\nby Harken Colombia in connection with its operations to be taken into account
\nfor purposes of calculation of the Net Profits Interest as provided in this
\nAgreement.<\/p>\n
Section 4.13. No Defaults. Neither Owner nor Harken Colombia is
\n(a) in violation of any provision of its charter or bylaws, (b) in breach,
\nviolation or default, in any material respect, of or under any material
\ncontract, lease, commitment or instrument to which it is a party or by which it
\nis bound or to which any of its properties or assets are subject, and no event
\nhas occurred which (whether with or without notice, lapse of time or the
\nhappening or occurrence of any other event) would constitute such a breach,
\nviolation or default or (c) in material violation of any Law.<\/p>\n
Section 4.14. Litigation. There is no action, suit, proceeding
\nor investigation pending or, to the knowledge of Owner, threatened against or
\naffecting Owner or Harken Colombia or any properties or rights of any of them
\nby or before any Governmental Authority that (a) relates to or challenges the
\nlegality of this Agreement or any Association Contract, (b) would reasonably be
\nexpected to have a material adverse effect upon the business, properties,
\nfinancial condition or results of operations of Owner or Harken Colombia
\n(except as disclosed in Owner’s SEC Filings) or (c) would reasonably be
\nexpected to impair the ability of Owner or Harken Colombia to perform fully on
\na timely basis any obligations that it has, or any actions specified to be
\ntaken by it, under this Agreement or any Association Contract.<\/p>\n
-20-
\n 25
\n Section 4.15. Compliance with Laws. Owner and Harken Colombia
\nare in compliance in all material respects with all Laws in all jurisdictions
\nin which Owner or Harken Colombia is presently doing business and where the
\nfailure to effect such compliance would reasonably be expected to have a
\nmaterial adverse effect upon the business, properties, financial condition or
\nresults of operations of Owner or Harken Colombia.<\/p>\n
Section 4.16. Harken Colombia Organization and Corporate
\nAuthority. Harken Colombia is a corporation duly incorporated, validly
\nexisting and in good standing under the laws of the jurisdiction of its
\nincorporation, with corporate power and authority to carry on its business as
\nnow conducted and to own, lease and operate all properties and assets now
\nowned, leased or operated by it.<\/p>\n
Section 4.17. Harken Colombia Qualification to do Business.
\nHarken Colombia is duly qualified to do business as a foreign corporation and
\nin good standing in each jurisdiction in which its ownership of property or the
\nconduct of its business requires such qualification, except jurisdictions in
\nwhich the failure so to qualify would not have a material adverse effect on
\nHarken Colombia’s business, properties, financial condition or results of
\noperations.<\/p>\n
Section 4.18. Harken Colombia Non-Contravention. The performance
\nof this Agreement by Owner, and the performance by Harken Colombia of the
\nactions to be taken by it under this Agreement, will not (a) conflict with or
\nresult in a violation of any provision of Harken Colombia’s charter or bylaws,
\n(b) conflict with or result in a violation of any provision of, or constitute
\n(with or without the giving of notice or the passage of time or both) a default
\nunder, or give rise (with or without the giving of notice or the passage of
\ntime or both) to any right of termination, cancellation, or acceleration under,
\nany bond, debenture, note, mortgage, indenture, lease, agreement or other
\ninstrument or obligation to which Harken Colombia is a party or by which Harken
\nColombia or any of its properties or assets may be bound, which conflict,
\nviolation, default, termination, cancellation or acceleration could reasonably
\nhave a material adverse effect on Harken Colombia’s business, properties,
\nfinancial condition or results of operations, (c) result in the creation or
\nimposition of any lien or incumbrance upon the properties or assets of Harken
\nColombia, or (d) result in a violation by Harken Colombia of any Law or any
\njudgment, order, decree, rule or regulation of any Governmental Authority to
\nwhich Harken Colombia is subject; provided, however, that no such
\nrepresentations or warranties are made by Owner with respect to compliance with
\nany foreign securities laws or with respect to any Association Contract (it
\nbeing understood that representations and warranties with respect to the
\nAssociation Contracts are being made by Owner under Section 4.10).<\/p>\n
Section 4.19. Harken Colombia Governmental Consents. Except for
\nthose that have been duly obtained, no consent, order, approval or
\nauthorization of, or declaration, filing, or registration with, any
\nGovernmental Authority is required to be obtained or made by Harken Colombia in
\nconnection with the performance by Owner of this Agreement or the performance
\nby Harken Colombia of the actions to be taken by it under this Agreement;
\nprovided,<\/p>\n
-21-
\n 26
\nhowever, that no such representations or warranties are made by Owner with
\nrespect to compliance with any foreign securities laws.<\/p>\n
Section 4.20. Harken Colombia Disclosure. Owner, either directly
\nor indirectly through its subsidiary, Harken Colombia, does not know of any
\nfacts (other than those facts generally recognized to be industry risks
\nnormally associated with the oil and gas business) related to the potential
\nProspects or the Subject Interests which have not been disclosed orally or in
\nwriting to Investor and which presently or will materially and adversely affect
\na potential Prospect, any Subject Interests or the ability of Harken Colombia
\nto perform this Agreement.<\/p>\n
ARTICLE V<\/p>\n
Investor Representations, Warranties and Covenants<\/p>\n
Investor hereby represents and warrants to and covenants with Owner as
\nfollows:<\/p>\n
Section 5.1. Organization and Corporate Authority. Investor is
\na corporation duly organized, validly existing and in good standing under the
\nlaws of the State of Delaware, with corporate power and authority to carry on
\nits business as now conducted and to own, lease and operate all properties and
\nassets now owned, leased or operated by it.<\/p>\n
Section 5.2. Finders’ Fees. No broker or finder has acted on
\nbehalf of Investor in connection with this Agreement or the transactions
\ncontemplated herein.<\/p>\n
Section 5.3. Authority of Investor. Investor has the corporate
\npower to enter into, and be bound by the terms and conditions of, this
\nAgreement and to carry out its obligations hereunder, and the execution and
\ndelivery by Investor of this Agreement and the performance by Investor of its
\nobligations hereunder have been duly authorized by all necessary corporate
\naction of Investor. This Agreement has been duly executed and delivered by
\nInvestor and constitutes, and each other agreement or document executed or to
\nbe executed by Investor in connection with the transactions contemplated hereby
\nhas been, or when executed, will be, duly executed and delivered by Investor
\nand constitutes, or when executed and delivered will constitute, a valid and
\nlegally binding obligation of Investor enforceable against Investor in
\naccordance with their respective terms, except to the extent enforcement may be
\nlimited (a) by applicable bankruptcy, insolvency, moratorium, reorganization or
\nsimilar laws from time to time in effect which affect creditors’ rights
\ngenerally and (b) by legal and equitable limitations on the availability of
\nequitable remedies, including without limitations specific performance against
\nInvestor under or by virtue of this Agreement.<\/p>\n
Section 5.4. Non-Contravention. The execution, delivery and
\nperformance of this Agreement by Investor will not (a) conflict with or result
\nin a violation of any provision of Investor’s charter or bylaws, (b) conflict
\nwith or result in a violation of any provision of, or<\/p>\n
-22-
\n 27
\nconstitute (with or without the giving of notice or the passage of time or
\nboth) a default under, or give rise (with or without the giving of notice or
\nthe passage of time or both) to any right of termination, cancellation, or
\nacceleration under, any bond, debenture, note, mortgage, indenture, lease,
\nagreement or other instrument or obligation to which Investor is a party or by
\nwhich it or any of its properties or assets may be bound, which conflict,
\nviolation, default, termination, cancellation, or acceleration would have a
\nmaterial adverse effect on the ability of Investor to perform its obligations
\nhereunder, (c) result in the creation or imposition of any lien or incumbrance
\nupon the properties or assets of Investor, which lien or incumbrance would have
\na material adverse effect on the ability of Investor to perform its obligations
\nhereunder, or (d) result in a violation by Investor of any Law or any judgment,
\norder, decree, rule or regulation of any Governmental Authority to which
\nInvestor is subject; provided, however, that no such representations or
\nwarranties are made by Investor with respect to compliance with any foreign
\nsecurities laws.<\/p>\n
Section 5.5. Governmental Consents. Except for those that have
\nbeen duly obtained, no consent, order, approval or authorization of, or
\ndeclaration, filing, or registration with, any Governmental Authority is
\nrequired to be obtained or made by Investor in connection with the execution,
\ndelivery or performance by Investor of this Agreement; provided, however, that
\nno such representations or warranties are made by Investor with respect to
\ncompliance with any foreign securities laws.<\/p>\n
Section 5.6. Investment Intent. Upon issuance pursuant to this
\nAgreement, the stockholders of Investor will acquire the Common Shares issuable
\npursuant to Section 6.3 for their own account for investment and not with a
\nview to, or for sale or other disposition in connection with, any distribution
\nof all or any part of the Common Shares, except (a) in an offering covered by a
\nregistration statement filed with the SEC under the Securities Act covering the
\nCommon Shares or (b) pursuant to an applicable exemption under the Securities
\nAct.<\/p>\n
Section 5.7. Disclosure of Information. Investor represents
\nthat it has had an opportunity to ask questions of and receive answers from
\nOwner regarding Owner and Harken Colombia, their respective businesses,
\nproperties, financial conditions, operations and plans of business, the Common
\nShares, and the Subject Interests and all matters relating thereto.<\/p>\n
Section 5.8. Accredited Investor and Experience. Investor
\nacknowledges that it, and each of its stockholders, is an Accredited Investor
\nwithin the meaning of Regulation D under the Securities Act, can bear the
\neconomic risk of the investment in the Net Profits Interest and any investment
\nin Common Shares and has such knowledge and experience in financial and
\nbusiness matters that it is capable of evaluating the merits and risks of the
\ninvestment in the Net Profits Interest and any investment in Common Shares.<\/p>\n
Section 5.9. Restricted Securities. Investor and its
\nstockholders understand that the Common Shares that are issued pursuant to this
\nAgreement will not have been registered<\/p>\n
-23-
\n 28
\npursuant to the Securities Act, any other federal securities law, any
\napplicable foreign securities law or any applicable state securities or Blue
\nSky law, that such shares will be characterized as “restricted securities”
\nunder the United States securities laws and that under such laws and applicable
\nregulations such shares cannot be sold or otherwise disposed of without
\nregistration under the Securities Act or an exemption therefrom.<\/p>\n
Section 5.10. Legend. Investor and its stockholders understand
\nand agree that the certificates representing the Common Shares issued pursuant
\nto this Agreement shall each conspicuously set forth on the face or back
\nthereof a legend in substantially the following form:<\/p>\n
“THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
\n REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND
\n MAY NOT BE SOLD OR OTHERWISE TRANSFERRED UNLESS SUCH SHARES
\n ARE FIRST REGISTERED UNDER SUCH ACT OR UNLESS AN EXEMPTION
\n FROM SUCH REGISTRATION IS AVAILABLE.”<\/p>\n
ARTICLE VI<\/p>\n
Miscellaneous<\/p>\n
Section 6.1. Assignment by Harken Colombia. Harken Colombia may
\nat any time assign, sell, transfer, convey, mortgage or pledge all or any
\nportion of any Association Contract or the Subject Interests; provided, that
\nOwner shall remain fully liable to perform all of their respective duties and
\nobligations hereunder, including, without limitation, the obligations of Owner
\nto provide access to information relating to the Subject Interests as set forth
\nin Section 3.18.<\/p>\n
Section 6.2. Assignment by Investor. Investor shall not assign,
\nsell, transfer, convey, mortgage or pledge all or any part of the Net Profits
\nInterest or its rights and obligations hereunder or create a security interest
\ntherein without the prior written consent of Owner.<\/p>\n
Section 6.3. Commitment Fees. Concurrently (except as provided
\nin clause (b)) with the payment by Investor to Owner of the Advance pursuant to
\nSection 2.1, and as additional compensation for the Commitment, Owner shall (a)
\npay to Rauscher Pierce & Clark Limited a cash fee of $175,000 by wire transfer
\nof immediately available funds and (b) issue and deliver to the stockholders of
\nInvestor, immediately upon receipt of listing approval by the American Stock
\nExchange, an aggregate of 42,000 Common Shares, as follows: 18,000 Common
\nShares to Sidro S.A.; 12,000 Common Shares to Lambertine Holdings Ltd.; and
\n12,000 Common Shares to Rauscher Pierce & Clark (Guernsey) Ltd. It is
\nexpressly<\/p>\n
-24-
\n 29
\nacknowledged by the parties hereto that the representations, warranties and
\ncovenants made in Article V with respect to the Common Shares issued pursuant
\nto this Agreement, including without limitation the representations and
\nwarranties made in Sections 5.9 and 5.10, apply to the Common Shares issued
\npursuant to this Section 6.3.<\/p>\n
Section 6.4. Indemnification.<\/p>\n
(a) Owner agrees to indemnify and hold harmless
\n Investor and its directors, officers, employees, agents, partners,
\n shareholders and affiliates from and against any and all claims,
\n damages, losses, liabilities, penalties and expenses (including
\n without limitation reasonable fees and disbursements of counsel) that
\n may be incurred by or asserted against any such person, in each case
\n arising out of or in connection with or by reason of any breach of any
\n representation, warranty, covenant or agreement of Owner contained in
\n this Agreement or any failure of Harken Colombia to take any actions
\n specified to be taken by it under, or to otherwise act in accordance
\n with the provisions of, this Agreement. The obligations of Owner
\n under this Section 6.4(a) shall survive the termination of this
\n Agreement.<\/p>\n
(b) Investor agrees to indemnify and hold harmless
\n Owner and Harken Colombia and their respective directors, officers,
\n employees, agents, partners, shareholders and Affiliates from and
\n against any and all claims, damages, losses, liabilities, penalties
\n and expenses (including without limitation reasonable fees and
\n disbursements of counsel) that may be incurred by or asserted against
\n any such person, in each case arising out of or in connection with or
\n by reason of any breach of any representation, warranty, covenant or
\n agreement of Investor contained in this Agreement. The obligations of
\n Investor under this Section 6.4(b) shall survive the termination of
\n this Agreement.<\/p>\n
Section 6.5. Public Announcements. Except as set forth in the
\nfollowing sentence, the parties to this Agreement agree that prior to making
\nany public announcement or statement with respect to the transactions
\ncontemplated by this Agreement, the party desiring to make such public
\nannouncement or statement shall consult with the other party and exercise
\nreasonable efforts to (a) agree upon the text of a joint public announcement or
\nstatement to be made by the parties or (b) obtain approval of the other party
\nto the text of a public announcement or statement to be made solely by Owner or
\nInvestor, as the case may be. Nothing contained in this Section shall be
\nconstrued to require any party to obtain approval of the other party to
\ndisclose information with respect to any disclosure (a) required by applicable
\nLaw or by any applicable rules, regulations or orders of any Governmental
\nAuthority having jurisdiction or (b) necessary to comply with disclosure
\nrequirements of any applicable stock exchange. Owner agrees that, prior to
\nmaking any public announcement or statement with respect to the transactions
\ncontemplated by this Agreement that names any stockholder or stockholders of
\nInvestor, Owner will notify such stockholder or stockholders and furnish it or
\nthem with a copy of the text of the proposed public announcement or statement.<\/p>\n
-25-
\n 30
\n Section 6.6. Brokers. Without limiting the parties’ respective
\nrepresentations in Sections 4.3 and 5.2, each party agrees to indemnify and
\nhold the others harmless from and against any claim for a brokerage or finder’s
\nfee or commission in connection with this Agreement or the transactions
\ncontemplated by this Agreement to the extent such claim arises from or is
\nattributable to the actions of such indemnifying party.<\/p>\n
Section 6.7. Notices. All notices, requests, demands, consents
\nand other communications required or permitted to be given or made hereunder
\nshall be in writing and shall be deemed to have been duly given or made if
\ndelivered personally, or sent by a nationally recognized overnight delivery
\nservice or by telecopy or similar facsimile transmission, or mailed by prepaid
\nregistered or certified mail, return receipt requested, to the other party at
\nthe respective address set forth below (or to such other address as a party
\nshall designate for itself by written notice given or made in accordance
\nherewith):<\/p>\n
(a) if to Owner, at:<\/p>\n
Harken Energy Corporation
\n MacArthur Center II
\n 5605 N. MacArthur Blvd., Suite 400
\n Irving, Texas 75038
\n Telephone: (972)753-6900
\n Telecopy: (972) 753-6963
\n Attention: Mr. Bruce N. Huff, Senior Vice President and
\n Mr. Larry E. Cummings, Vice President and
\n General Counsel<\/p>\n
(b) if to Investor or any stockholder of Investor, at:<\/p>\n
Rauscher Pierce & Clark Limited
\n 56 Green Street
\n London W1Y 3RH
\n Telephone: 0171 491 2434
\n Telecopy: 0171 491 9081
\n Attention: David P. Quint<\/p>\n
Any such notice, request, demand, consent or other communication shall
\nbe deemed delivered and given or made on the third Business Day after the date
\nof mailing, if mailed by registered or certified mail, or on the first Business
\nDay after the date of transmittal, if sent by overnight delivery service or by
\ntelecopy or similar facsimile transmission (provided such telecopy or
\ntransmission is followed promptly by the mailing of the original of such
\nnotice), or on the date of delivery, if delivered personally.<\/p>\n
-26-
\n 31
\n Section 6.8. Waivers and Amendments. This Agreement may be
\namended or supplemented only by a written instrument signed by the parties
\nhereto. The terms of this Agreement may be waived only by a written instrument
\nsigned by the party waiving compliance. No delay on the part of any party in
\nexercising any right, power or privilege hereunder shall operate as a waiver
\nthereof, nor shall any waiver on the part of any party of any such right, power
\nor privilege, or any single or partial exercise of any such right, power or
\nprivilege, preclude any further exercise thereof or the exercise of any other
\nsuch right, power or privilege. The rights and remedies herein provided are
\ncumulative and are not exclusive of any rights or remedies that any party may
\notherwise have at law or in equity.<\/p>\n
Section 6.9. Governing Law. This Agreement and all actions,
\nproceedings or matters arising out of this Agreement shall be governed by, and
\nconstrued and enforced in accordance with, the laws of the State of Texas,
\nwithout regard to the principles of conflicts of laws.<\/p>\n
Section 6.10. Binding Effect; No Assignment; No Third Party
\nBenefit. This Agreement shall be binding upon and inure to the benefit of the
\nparties and their respective successors and permitted assigns. Unless
\notherwise expressly provided herein, no rights or obligations under this
\nAgreement are assignable. Except as expressly provided in Sections 3.17, 6.3
\nand 6.4, nothing in this Agreement, whether expressed or implied, is intended
\nto confer any rights or remedies under or by reason of this Agreement on any
\nperson other than the parties to this Agreement and their respective successors
\nand permitted assigns.<\/p>\n
Section 6.11. Entire Agreement. This Agreement constitutes the
\nfull and complete agreement of the parties hereto with respect to the subject
\nmatter hereof, and supersede all previous oral and written and all
\ncontemporaneous oral negotiations, commitments, writings and understandings.<\/p>\n
Section 6.12. Severability. Every provision of this Agreement is
\nintended to be severable. If any term or provision hereof is determined to be
\ninvalid, illegal, or unenforceable for any reason whatsoever, such invalidity,
\nillegality, or unenforceability shall not affect the validity, legality and
\nenforceability of the remainder of this Agreement.<\/p>\n
Section 6.13. United States Dollars. All references in this
\nAgreement to dollar amounts are to United States dollars.<\/p>\n
Section 6.14. Survival of Representations and Warranties. The
\nrepresentations and warranties of the parties made herein shall survive the
\nexecution and delivery of this Agreement.<\/p>\n
Section 6.15. Counterparts. This Agreement may be executed in
\none or more counterparts (and separately by each party hereto), each of which
\nshall be an original and all of which shall constitute but one and the same
\ndocument.<\/p>\n
-27-
\n 32
\n Section 6.16. Arbitration. Owner and Investor agree to submit to
\nfinal and binding arbitration any and all disputes, claims, and\/or
\ndisagreements concerning the interpretation or application of this Agreement.
\nAny dispute, claim, and\/or disagreement subject to arbitration pursuant to the
\nterms of this Section shall be resolved by arbitration in New York, New York by
\nthree arbitrators in accordance with the Commercial Arbitration Rules of the
\nAmerican Arbitration Association or any successor organization (the
\n“Association”) then in effect. Within 10 days of the initiation of an
\narbitration hereunder, Owner will designate one arbitrator and the stockholders
\nof Investor, acting together, will designate one arbitrator, in accordance with
\nthe Association’s rules. The appointed arbitrators will appoint a neutral
\narbitrator in the manner prescribed in the Association’s rules. Owner and
\nInvestor agree that the decision of the three arbitrators selected hereunder
\nwill be final and binding on all parties. A judgment on the award rendered by
\nthe arbitrator may be entered in any court having jurisdiction, or application
\nmay be made to such court for judicial acceptance of the award and an order of
\nenforcement, as the case may be.<\/p>\n
Section 6.17. Consent to Jurisdiction. Subject to the provisions
\nof Section 6.16, Owner and Investor agree that, in addition to any other courts
\nthat may have jurisdiction under applicable laws, any action or proceeding to
\nenforce or arising out of this Agreement may be commenced in the Court of the
\nState of Texas for Dallas County, or in the United States District Court for
\nthe Northern District of Texas, and Owner and Investor consent and submit in
\nadvance to such jurisdiction and agree that venue will be proper in such courts
\non any such matter. Owner and Investor each hereby waives personal service of
\nprocess and agrees that a summons and complaint commencing an action or
\nproceeding in any such court shall be properly served and shall confer personal
\njurisdiction if served by registered or certified mail to it. The choice of
\nforum set forth in this Section shall not be deemed to preclude the enforcement
\nof any judgment obtained in such forum, or the taking of any action under this
\nAgreement to enforce the same, in any appropriate jurisdiction.<\/p>\n
Section 6.18. Guaranty of Owner. Owner agrees to cause Harken
\nColombia to take the actions specified to be taken by Harken Colombia under,
\nand to cause Harken Colombia to otherwise act in accordance with the provisions
\nof, this Agreement. Furthermore, Owner hereby irrevocably, absolutely and
\nunconditionally guarantees, as principal and not as surety (this being a
\nguarantee of payment and not of collection), to and for the benefit of
\nInvestor, prompt and complete payment and performance by Harken Colombia of any
\nand all obligations of or actions specified to be taken by Harken Colombia
\nunder or arising out of or in connection with this Agreement, including any
\nliabilities arising from a failure by Harken Colombia to take any actions
\nspecified to be taken by it under this Agreement (the “Obligations”), and
\nagrees to pay any and all expenses (including reasonable counsel fees and
\nexpenses) which may be paid or incurred by Investor in collecting any or all of
\nthe Obligations and\/or enforcing their rights under this Agreement. The
\nobligations of Owner hereunder shall not be (i) subject to any reduction,
\nlimitation, impairment or termination for any reason, including any claim of
\nwaiver, release, surrender, alteration or compromise, and shall not be subject
\nto any set-off, counterclaim or recoupment whatsoever, or (ii) conditioned or<\/p>\n
-28-
\n 33
\ncontingent upon the pursuit by Investor or any other person at any time of any
\nright or remedy against Harken Colombia or any other person which may become
\nliable in respect of all or any part of the Obligations or against any
\ncollateral or security or guarantee therefor or right of set-off with respect
\nthereto. Owner shall not exercise any rights it may acquire by way of
\nsubrogation under this Section, whether acquired by any payment made hereunder,
\nby any set-off or application of funds of Owner by Investor or otherwise, until
\n(i) the payment in full of the Obligations and (ii) the payment of all other
\nexpenses to be paid by Owner pursuant hereto.<\/p>\n
Section 6.19. No Partnership. The parties hereto do not intend
\nby entering into this Agreement to form a partnership, joint venture or similar
\narrangement for tax purposes or otherwise and shall not take any action
\ninconsistent with the foregoing statement of intent.<\/p>\n
Section 6.20. Expenses. All fees and expenses (including legal
\nfees and expenses) incurred by a party hereto in connection with the
\nnegotiation, preparation and execution of this Agreement shall be the
\nresponsibility of such party.<\/p>\n
IN WITNESS WHEREOF, the parties have caused this Agreement to be
\nexecuted by the respective officers hereunto duly authorized as of the date
\nfirst above written.<\/p>\n
HARKEN ENERGY CORPORATION<\/p>\n
By:
\n ———————————–
\n Name: Larry E. Cummings
\n Title: Vice President and Secretary<\/p>\n
HARKEN CAPITAL CORPORATION<\/p>\n
By:
\n ————————————
\n Name: Larry E. Cummings
\n Title: Vice President and Secretary<\/p>\n
-29-
\n 34
\n EXHIBIT A-1<\/p>\n
BOCACHICO BLOCK<\/p>\n
35
\n EXHIBIT A-2<\/p>\n
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