\n Section 8.9. Restricted Securities………………………………………………………..33
\n Section 8.10. Legend……………………………………………………………………..33
\n Section 8.11. Continuing Representations and Warranties………………………………………33<\/p>\nARTICLE IX Miscellaneous…………………………………………………………………………….34
\n Section 9.1. Assignment by Harken Colombia…………………………………………………34
\n Section 9.2. Assignment by Investors………………………………………………………34
\n Section 9.3. Commitment Fees……………………………………………………………..34
\n Section 9.4. Adjustments for Consolidation, Merger, Sale of Assets,
\n Reorganization, etc………………………………………………………….35
\n Section 9.5. Indemnification……………………………………………………………..35
\n Section 9.6. Public Announcements…………………………………………………………36
\n Section 9.7. Brokers…………………………………………………………………….36
\n Section 9.8. Notices…………………………………………………………………….36
\n Section 9.9. Waivers and Amendments……………………………………………………….37
\n Section 9.10. Governing Law……………………………………………………………….37
\n Section 9.11. Binding Effect; No Assignment; No Third Party Benefit……………………………37
\n Section 9.12. Entire Agreement…………………………………………………………….38
\n Section 9.13. Severability………………………………………………………………..38
\n Section 9.14. United States Dollars………………………………………………………..38
\n Section 9.15. Survival of Representations and Warranties……………………………………..38
\n Section 9.16. Rights as Stockholder………………………………………………………..38
\n Section 9.17. Counterparts………………………………………………………………..38
\n Section 9.18. Arbitration…………………………………………………………………38
\n Section 9.19. Consent to Jurisdiction………………………………………………………39
\n Section 9.20. Guaranty of Owner……………………………………………………………39
\n Section 9.21. Further Assurances…………………………………………………………..39
\n Section 9.22. No Partnership………………………………………………………………40
\n Section 9.23. Expenses……………………………………………………………………40
\n<\/c><\/c><\/s><\/table>\n
-iii-<\/p>\n
5
\n DEVELOPMENT FINANCE AGREEMENT<\/p>\n
THIS DEVELOPMENT FINANCE AGREEMENT (this “Agreement”) is made as of the
\n17th day of October, 1997, by and among HARKEN ENERGY CORPORATION, a Delaware
\ncorporation (herein called “Owner”), and ENCAP ENERGY CAPITAL FUND III, L.P., a
\nTexas limited partnership, ENCAP ENERGY CAPITAL FUND III-B, L.P., a Texas
\nlimited partnership, BOCP ENERGY PARTNERS, L.P., a Texas limited partnership,
\nand ENERGY CAPITAL INVESTMENT COMPANY PLC, an English investment company (herein
\ncollectively called “Investors”). In consideration of the mutual covenants and
\nagreements contained herein, the parties hereto hereby agree 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 the
\nfollowing terms has the meaning given it in this Section 1.1 or in the sections
\nor subsections referred to below:<\/p>\n
“Account” shall have the meaning assigned to it in Section 3.2.<\/p>\n
“Advances” 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, through
\nthe 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 per annum which is equal to the lesser
\nof (a) a rate which is two percent (2%) above the prime rate of interest of
\nWells Fargo and Company, as announced or published by such bank from time to
\ntime or a similar rate of interest if a prime rate is not announced or published
\nby such bank (adjusted from time to time to reflect any changes in such rate
\ndetermined hereunder), or (b) the maximum rate from time to time permitted by
\napplicable 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<\/p>\n
6
\nagreement attached thereto and all modifications, amendments and\/or supplements
\nheretofore or hereafter made with respect to such Association Contract or
\noperating 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” shall
\nmean and include, effective as of the Effective Date on a retroactive basis,
\nthat portion of the lands covered by the Cambulos Association Contract which are
\nincluded within the Commercial Field surrounding the Initial Cambulos A Well or
\nany 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
“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” shall
\nmean and include, effective as of the Effective Date on a retroactive basis,
\nthat portion of the lands covered by the Cambulos Association Contract which are
\nincluded within the Commercial Field surrounding the Initial Cambulos B Well or
\nany 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
“Commercial Field” shall mean a commercial field designated or accepted
\nby Ecopetrol, or, in the absence of such a designation or acceptance by
\nEcopetrol, 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-<\/p>\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, or shares of any class or classes of capital stock of Owner
\nresulting from any reclassification or reclassifications thereof.<\/p>\n
For purposes of this Agreement, the “Current Market Price” of the
\nCommon Shares on any date shall be deemed to be the average of the daily closing
\nprices for the Common Shares for the 10 Trading Days immediately preceding the
\nday in question. The closing price for each such Trading Day shall be the
\nclosing sales price on the principal national stock exchange or stock market on
\nwhich the Common Shares are then listed, or, if not reported for such exchange
\nor market, on the composite tape, or, in case no such sale takes place on such
\nTrading Day, the average of the reported closing bid and asked quotations on
\nsuch exchange or market, or, if the Common Shares are not listed on any national
\nstock exchange or stock market, or no such quotations are available, the average
\nof the high bid and low asked quotations in the over-the-counter market as
\nreported by the National Association of Securities Dealers’ Automated Quotations
\nSystem or a similar organization. Such closing prices shall be appropriately
\nadjusted to take into account any stock split, reverse stock split or stock
\ndividend with respect to the Common Shares that occurs within such 10-Trading
\nDay period.<\/p>\n
“Designated Percentage” shall mean the percentage set forth opposite
\neach Investor’s name on Annex I hereto, subject to reduction upon Exchange(s) as
\nprovided for in Sections 4.4 and 5.5.<\/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
“Environmental Laws” shall have the meaning assigned to it in Section
\n7.20.<\/p>\n
“Exchange” shall mean the exchange of all or part of the Net Profits
\nInterest for (a) Common Shares or cash pursuant to Investors’ Option as provided
\nfor in Article IV or (b) Common Shares or cash pursuant to Owner’s Option as
\nprovided for in Article V.<\/p>\n
“Exchange Date” shall have the respective meanings assigned to it in
\nSections 4.1 and 5.1.<\/p>\n
“Exchange Period” shall mean the period from and including the first
\nanniversary of the Effective Date to and including the third anniversary of the
\nEffective Date.<\/p>\n
“Foreign Investor” shall mean Energy Capital Investment Company PLC, an
\nEnglish investment company, and its successors and permitted assigns.<\/p>\n
-3-<\/p>\n
8
\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, (d) any court or
\nany governmental department, commission, board, bureau, agency or other
\ninstrumentality of Colombia or of any political subdivision of Colombia, and (e)
\nin the case of the representations, warranties and covenants of the Foreign
\nInvestor, the jurisdiction of organization of the Foreign Investor or any
\npolitical subdivision of such jurisdiction or any court or any governmental
\ndepartment, commission, board, bureau, agency or other instrumentality of such
\njurisdiction or political subdivision thereof.<\/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 Islands
\ncorporation and wholly owned subsidiary of Owner, and\/or, when appropriate, its
\nbranch established in Santa Fe de Bogota, D.C., Colombia, and its successors and
\npermitted assigns.<\/p>\n
“Initial Bocachico Prospect Area” shall have the meaning assigned to it
\nin 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 or
\nits 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 or
\nits 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
“Investors” shall mean EnCap Energy Capital Fund III, L.P., a Texas
\nlimited partnership, EnCap Energy Capital Fund III-B, L.P., a Texas limited
\npartnership, BOCP Energy Partners, L.P., a Texas limited partnership, and Energy
\nCapital Investment Company PLC, an English investment company, and their
\nrespective successors and permitted assigns.<\/p>\n
“Investors’ Option” shall have the meaning assigned to it in Article
\nIV.<\/p>\n
-4-
\n 9<\/p>\n
“Law” shall mean any applicable statute, law, ordinance, regulation,
\nrule, ruling, order, restriction, requirement, writ, injunction, decree or other
\nofficial 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 Option” shall have the meaning assigned to it in Article V.<\/p>\n
“Owner’s SEC Filings” shall have the meaning assigned to it in
\nSection 7.9.<\/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, a
\ntrust and\/or any other entity.<\/p>\n
“Pollutants” shall have the meaning assigned to it in Section 7.20.<\/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
“Registration Rights Agreement” shall mean the Registration Rights
\nAgreement dated the Effective Date between Owner and Investors, entered into in
\nconnection with this Agreement.<\/p>\n
“Releases” shall have the meaning assigned to it in Section 7.20.<\/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
-5-<\/p>\n
10
\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 the
\nEffective 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 the
\nSubject 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) deducted, paid in kind or otherwise taken
\nout of Harken Colombia’s share of such oil, gas or other minerals and delivered
\nto another person as reimbursement to such person for oil, gas or other
\nminerals of such other person (i) which were previously taken by Harken
\nColombia relating to the Prospect and (ii) the Gross Proceeds of which were
\ncredited to the related Account or otherwise accrued to the benefit of
\nInvestors in accordance with the provisions of Section 3.3, or (c) any
\nhydrocarbons attributable to the interest of Ecopetrol as provided for under
\nthe terms of the 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 Contract,
\nthe areal extent of the related Prospect under the Association Contract may be
\nreduced and\/or the percentage interest of Harken Colombia and its successors and
\nassigns in the oil, gas and mineral production thereunder may be reduced, and in
\neach such case the “Subject Interests” relating to such Prospect shall be
\nreduced to the same extent as the areal extent of such Prospect under the
\nAssociation Contract and\/or the interest of Harken Colombia and its successors
\nand assigns thereunder is so reduced. No reduction shall occur, however, in the
\nSubject Interests as a result of any sale, exchange, transfer or other
\ndisposition of all or any portion of the Subject Interests or the related
\nAssociation Contract by Harken Colombia, and in such event all credits and
\ndebits to the Prospect’s Account under Article III shall be made as if no such
\nsale, exchange, transfer or other disposition had occurred and Harken Colombia
\nwas still the owner of all of the Association Contract and the Subject
\nInterests.<\/p>\n
“Trading Day” shall mean any day on which the principal securities
\nexchange or quotation system on which the Common Shares are then listed is open
\nfor trading on a regular basis.<\/p>\n
“Unexchanged Advances” shall mean, with respect to an Investor, the
\namount of the Advance made by such Investor hereunder that has not been the
\nsubject of an Exchange.<\/p>\n
Section 1.2. References and Titles. All references in this Agreement to
\narticles, sections, subsections and other<\/p>\n
-6-
\n 11
\nsubdivisions refer to the articles, sections, subsections and other subdivisions
\nof this Agreement unless expressly provided otherwise. Titles appearing at the
\nbeginning of any subdivisions are for convenience only and do not constitute any
\npart of such subdivisions and shall be disregarded in construing the language
\ncontained in such subdivisions. The words “this Agreement”, “this instrument”,
\n“herein”, “hereof”, “hereby”, “hereunder” and words of similar import refer to
\nthis Agreement as a whole and not to any particular subdivision unless expressly
\nso limited. 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 include
\nany other gender, and words in the singular form shall be construed to include
\nthe plural and vice versa, unless the context otherwise requires.<\/p>\n
ARTICLE II<\/p>\n
Advancement of Capital<\/p>\n
Section 2.1. Advances. Each 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 set
\nforth opposite such Investor’s name on Annex I hereto (herein collectively
\ncalled the “Advances”). Each such Advance shall be made to Owner by wire
\ntransfer of the full amount of such Advance in immediately available funds to a
\nbank account designated by Owner. The Commitment is not in the nature of a loan
\nto any party or a direct ownership interest in Harken Colombia, an Association
\nContract or any Subject Interests. Instead, the Commitment and all Advances
\nthereof shall constitute consideration for the right to receive payments
\nmeasured by the Accounts provided for in Article III, the right to exchange or
\nhave exchanged the Net Profits Interest for Common Shares or cash pursuant to
\nArticles IV and V and the other rights and benefits provided by this Agreement.<\/p>\n
Section 2.2. Use of Proceeds. Owner shall use all funds from Advances
\nto finance (a) geological, geophysical and engineering operations and studies of
\neach Prospect, (b) the drilling, completing and equipping or abandonment of one
\nwell and related facilities on each Prospect and (c) other related exploitation
\nof the Prospects, in each case solely in respect of the Subject Interests. Prior
\nto drilling any wells pursuant to this Agreement, Owner shall fix and determine,
\nand promptly after such determination shall advise Investors in writing of, (a)
\nthe initial areal extent of the lands covered by the Bocachico Prospect, which
\nlands shall be located within the boundaries of the lands covered by the
\nBocachico Association Contract (the “Initial Bocachico Prospect Area”), (b) the
\ninitial areal extent of the lands covered by the Cambulos A Prospect, which
\nlands shall be located within the boundaries of the lands covered by the
\nCambulos Association Contract (the “Initial Cambulos A Prospect Area”), and (c)
\nthe initial areal extent of the lands covered by the Cambulos B Prospect, which
\nlands shall be located within the boundaries of the lands covered by the
\nCambulos Association Contract (the “Initial Cambulos B Prospect Area”);
\nprovided, however, that the Cambulos A Prospect and the Cambulos B Prospect
\nshall be<\/p>\n
-7-
\n 12
\nseparate exploratory prospects and shall not overlap. The initial Prospects
\nshall be as set forth on the plats attached hereto as Exhibit 2.2–Bocachico
\nProspect, Exhibit 2.2– Cambulos A Prospect and Exhibit 2.2–Cambulos B
\nProspect, respectively; provided, however, Owner has the absolute right to
\nsubstitute for any of these initial Prospects an alternate prospect at any time
\nprior to spudding the Initial Well on a Prospect by giving Investors notice of
\nsuch change and of such alternate Prospect. Unless changed by Owner as provided
\nabove, the initial Prospects set forth on Exhibits 2.2–Bocachico Prospect,
\n2.2–Cambulos A Prospect and 2.2–Cambulos B Prospect shall comply with the
\nrequirements of the second sentence above. Owner hereby represents, warrants and
\ncovenants to Investors that Owner will drill one well on each Prospect within
\nthree years of the Effective Date. Each Initial Well shall be drilled on a
\nturnkey basis. Prior to drilling any Initial Well, Owner shall deliver to
\nInvestors for their information a copy of Owner’s internal authority for
\nexpenditure (a.f.e.) for such Initial Well. Owner shall give prompt written
\nnotice to Investors of the commencement of drilling and the completing and
\nequipping or abandonment, as the case may be, of each Initial Well. Owner shall
\nalso furnish to Investors such other public information regarding each Initial
\nWell and the progress of drilling thereof as Investors may from time to time
\nreasonably request in accordance with the notice provisions of Section 9.8.<\/p>\n
ARTICLE III<\/p>\n
Net Profits Interest<\/p>\n
Section 3.1. Net Profits Interest. In consideration for the payment by
\nInvestors to Owner of the Advances, Investors shall have the rights provided for
\nin this Article III and elsewhere in this Agreement with respect to the
\nAccounts, including without limitation the rights to receive payments from Owner
\nmeasured by each Account pursuant to Section 3.7 (all of such rights are herein
\ncollectively called the “Net Profits Interest”). The Net Profits Interest is
\nintended to provide to Investors substantially the same economic benefit as if
\neach Investor was the owner of a direct net profits interest in each Association
\nContract to the extent it relates to the Designated Percentage of the related
\nSubject Interests and on the terms otherwise provided for herein; provided,
\nhowever, that no rights or interest of any nature whatsoever in an Association
\nContract, any Subject Interests or Harken Colombia are intended to be, or are
\nhereby, assigned or conveyed to Investors, it being understood and agreed that
\nthe Net Profits Interest is solely a contractual obligation of Owner as
\nexpressed in this Agreement.<\/p>\n
Section 3.2. Establishment. Owner shall establish and maintain a
\nseparate bookkeeping account for each Prospect (herein called an “Account”) in
\naccordance 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 respect
\nto each sale or other disposition of Subject Hydrocarbons attributable to a
\nProspect, the Account for such<\/p>\n
-8-
\n 13
\nProspect shall be credited with the gross proceeds from the sale of such Subject
\nHydrocarbons. The amount of gross proceeds (herein called “Gross Proceeds”) to
\nbe credited to an Account with respect to any sale or disposition of Subject
\nHydrocarbons shall be subject to the following:<\/p>\n
(a) Gross Proceeds shall include all consideration received,
\n directly or indirectly, by Harken Colombia or any Affiliate for sales
\n or other dispositions of (i) Subject Hydrocarbons, or (ii) if any
\n Subject Hydrocarbons are Processed by or for the benefit of Harken
\n Colombia or any Affiliate before sale or disposition, the products of
\n such Subject Hydrocarbons after such Processing;<\/p>\n
(b) If any proceeds are withheld from Harken Colombia or an
\n Affiliate by a Non-Affiliate for any reason (other than at the request
\n of Harken Colombia or any Affiliate or due to Harken Colombia’s or an
\n Affiliate’s negligence or willful misconduct), such proceeds shall not
\n be considered to be Gross Proceeds until such proceeds are actually
\n received by Harken Colombia or an Affiliate; provided, however, that
\n Gross Proceeds shall include any interest, penalty or other amount that
\n is derived from the sale of Subject Hydrocarbons or the proceeds
\n thereof when and if received;<\/p>\n
(c) Gross Proceeds shall not include any amounts for Subject
\n Hydrocarbons unavoidably lost in production or used by Harken Colombia
\n or any Affiliate in conformity with good oil field practices for
\n drilling and production operations (including without limitation gas
\n injection, fuel, secondary or tertiary recovery, pressure maintenance,
\n repressuring or recycling, Processing and transportation) conducted
\n solely for the purpose of producing Subject Hydrocarbons from the
\n 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 Harken
\n Colombia or any Affiliate outside of the related Subject Interests and
\n for purposes not primarily associated with, or primarily for the
\n benefit of, the related Subject Interests or the production, Processing
\n or marketing of Subject Hydrocarbons, Gross Proceeds shall include the
\n then current market value at the wellhead of such Subject Hydrocarbons;<\/p>\n
(e) Gross Proceeds shall include all proceeds (or, if the
\n consideration received is other than cash, the then current market
\n value of such non-cash consideration) attributable to Subject Interests
\n which are received by Harken Colombia or any Affiliate from the sale,
\n after the Effective Date, of any materials, supplies, equipment and
\n other personal property or fixtures, or any part thereof or interest
\n therein, located on or used in connection with the Subject Interests or
\n any Subject Hydrocarbons;<\/p>\n
(f) Gross Proceeds shall include all proceeds attributable
\n to Subject Interests of all insurance received by Harken Colombia or
\n any Affiliate the cost of which is charged to the Account, directly or
\n indirectly;<\/p>\n
-9-
\n 14
\n (g) Gross Proceeds shall include all proceeds attributable
\n to Subject Interests of all judgments and claims received by Harken
\n Colombia or any Affiliate for any loss or damage which occurs after the
\n Effective Date with respect to Harken Colombia’s or any Affiliate’s
\n interest in the Subject Interests, any materials, supplies, equipment
\n or other personal property or fixtures located on or used in connection
\n with any of the Subject Interests, or any Subject Hydrocarbons;<\/p>\n
(h) Gross Proceeds shall include all payments, including
\n advance payments, under take-or-pay and similar provisions of
\n Production Sales Contracts;<\/p>\n
(i) Gross Proceeds shall include any amounts received by
\n 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
(j) Gross Proceeds shall include all other monies and things
\n of value which are received by Harken Colombia or any Affiliate by
\n 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 Subject
\n Interests or any Subject Hydrocarbons the cost of which was charged
\n 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 Harken
\nColombia as operator under the applicable Association Contract or operating
\nagreement now or hereafter in force covering any of the Subject Interests to
\nreimburse or compensate Harken Colombia as operator for costs incurred or
\nservices performed for the account or benefit of such third parties, (ii) any
\namounts received by Harken Colombia upon any sale or other disposition in
\naccordance with Section 9.1 of any portion of the applicable Association
\nContract or Subject Interests, or (iii) any amounts received by Harken Colombia
\nas reimbursement by Ecopetrol of Direct Exploration Costs provided for under the
\napplicable 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 expressly
\n permitted in subsection (x) below) which are attributable solely to the
\n related Subject Interests (i.e., the Subject Interests relating to the
\n Prospect for which the Account was established) after the Effective
\n Date for exploring, developing, operating, producing, reworking,
\n maintaining and restoring the related Subject Interests, including
\n without limitation any direct costs (and those indirect costs expressly
\n permitted in subsection (x) below) after the Effective Date<\/p>\n
-10-
\n 15
\n for (i) geological and geophysical operations and studies (and related
\n computer processing and modeling) with respect to the related Subject
\n Interests and drilling, completing, testing, equipping, plugging back,
\n reworking, recompleting and plugging and abandoning any wells on the
\n related Subject Interests, (ii) constructing, maintaining and operating
\n any gathering facilities, tanks and other production, delivery and
\n transportation facilities on or for use in connection with the related
\n Subject Interests, (iii) Processing any Subject Hydrocarbons
\n attributable to the Prospect for which the Account was established and
\n acquiring, constructing, operating and maintaining any facility, plant,
\n equipment or pipeline for Processing any such Subject Hydrocarbons,
\n (iv) secondary recovery, pressure maintenance, repressuring, recycling
\n and other operations conducted for the purpose of enhancing production
\n of such Subject Hydrocarbons, (v) wages, salaries, fringe benefits and
\n expenses of officers, employees and contract personnel, consultants and
\n professionals necessary or appropriate for operating, producing and
\n maintaining the related Subject Interests, (vi) local offices, camps,
\n warehouses, housing and other facilities paid for by Harken Colombia,
\n relocation of employees and their families, travel, telephone, training
\n of Colombian personnel, rental and use or damage to the real and
\n personal property of others, community relations, protection, peaceful
\n operations and similar matters, and otherwise doing business in
\n Colombia, (vii) insurance, (viii) payments made in cash as compensation
\n for or in settlement of any Subject Hydrocarbons taken by Harken
\n Colombia at levels greater than Harken Colombia’s interest in the
\n related Subject Interests, (ix) royalties required to be paid pursuant
\n to the applicable Association Contract or any applicable Law and other
\n charges and payments required under the applicable Association Contract
\n and (x) general, administrative and overhead expenses incurred by
\n Harken Colombia which are necessary or appropriate to support the
\n activities described in this subsection and fairly allocated to the
\n related Subject Interests; provided, however, that the debits made to
\n the Account pursuant to this subsection with respect to any Subject
\n Interest shall be made in accordance with customary industry practices
\n and applicable accounting 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, sales
\n and use, value-added and like taxes based on or relating to the related
\n Subject Interests, the sale or production of the Subject Hydrocarbons
\n attributable to the Prospect for which the Account was established, or
\n the proceeds, value or income therefrom, (ii) Colombian production,
\n severance, excise and other taxes assessed against, and\/or measured by,
\n the production of (or the proceeds or value of production of) such
\n Subject Hydrocarbons, and (iii) Colombian ad valorem and other taxes
\n assessed against or attributable to the related Subject Interests or
\n any Processing or other equipment or property located on or related to
\n the related Subject Interests; provided, however, that if any such
\n taxes relate to the related Subject Interests and to other property
\n owned by Harken Colombia or to such Subject Hydrocarbons and to other
\n production of Harken<\/p>\n
-11-
\n 16
\n Colombia, such taxes shall be allocated to the related Subject
\n Interests or such Subject Hydrocarbons and debited hereunder on a
\n proportionate or other equitable basis in accordance with applicable
\n accounting, tax and industry standards;<\/p>\n
(c) Amounts attributable to currency conversions, exchange
\n control obligations and similar costs and losses with respect to
\n 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 to
\n Investors pursuant to Section 3.7 (excluding in each case any costs for
\n currency hedges, swaps and similar instruments); and any such amounts
\n shall be calculated or determined in a manner consistent with the
\n treatment of such amounts on the books of Owner for financial reporting
\n 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 properties
\n owned by Harken Columbia besides the Subject Interests, then an
\n allocation of such interest shall be made to the Subject Interests
\n based upon the portion of the Indebtedness that was utilized for the
\n 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 after
\n the Effective Date with respect to the related Subject 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 Investors
\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 of the
\n Advances paid to Owner which would otherwise be charged or debited to
\n the Accounts under Section 3.4 shall not be charged or debited to the
\n Accounts and shall be borne solely by Owner and<\/p>\n
-12-
\n 17
\n Harken Colombia (i.e., the first $25,000,000 of costs and expenses
\n that would otherwise be charged or debited to the Accounts under
\n Section 3.4 shall not be so charged or debited and shall be borne
\n solely by Owner and Harken Colombia); and<\/p>\n
(ii) in no event shall any costs and expenses of drilling
\n and completing the Initial Wells, constructing and completing
\n associated facilities and hooking the Initial Wells up to a pipeline or
\n pipelines, so as to make the Initial Wells capable of production, in
\n excess of an aggregate of $25,000,000 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 $25,000,000 shall be borne
\n solely by Owner and Harken Colombia.<\/p>\n
(b) Upon the reconfiguration of the areal extent of a Prospect to
\ncorrespond 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 and fully
\nreflect the reconfiguration of the Prospect as if such Prospect had always
\nincluded the Commercial Field, and an appropriate accounting and payment shall
\nbe made to Investors 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 which
\nare actually received by Harken Colombia during a calendar quarter up to and
\nincluding the last day of such calendar quarter shall be credited to the Account
\nas of the last day of such calendar quarter; provided that any such credits
\nwhich do not (and will not) result from credits given by or payments from third
\nparties shall be credited to the Account as of the last day of the calendar
\nquarter in which they arise. For each Account, the total net profits realized
\nfrom the Subject Interests relating to the Account (or the total net losses, as
\nthe case may be) shall be determined after the applications and calculations
\nprovided for above have been made by Owner. Subject to the provisions of Section
\n3.7, Investors shall participate in the Designated Percentage of the net profits
\nderived from the Subject Interests relating to the Account, as provided in this
\nAgreement, only after and while all debits properly debited against the Account
\nshall have been offset by credits to the Account and a credit balance shall
\nexist in the Account.<\/p>\n
Section 3.7. Payments. On or before 60 days after the end of each
\ncalendar quarter, Owner shall furnish to Investors detailed statement(s)
\ncovering each Account clearly reflecting the condition of each Account as of the
\nclose 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<\/p>\n
-13-
\n 18
\nquarter and clearly reflecting the quantities of Subject Hydrocarbons produced
\nfrom the Subject Interests relating to such Account during the quarter covered
\nby such statement. Any deficit reflected by any such statement shall be carried
\nforward for the next and succeeding months until such deficit has been wiped out
\nand liquidated. In case a net profit is reflected by any such statement, payment
\nto Investors in U.S. dollars of the Designated Percentage of the amount of such
\nnet profit shall be enclosed with the statement rendered to Investors (or, if
\nrequested at any time by an Investor, paid by bank wire transfer to such bank
\nand account designated in writing by such Investor); provided, however, that (a)
\nOwner may elect to cause Harken Colombia (instead of Owner) to make any payment
\nrequired under this Section to Investors in U.S. dollars, (b) any payment to
\nInvestors under this Section shall be reduced by any costs or losses from
\ncurrency conversions, compliance with exchange control obligations, withholding
\nobligations and remittance and other taxes which are properly chargeable to the
\nAccount pursuant to Section 3.4(b) or (c) and (i) are incurred by Harken
\nColombia in connection with such payment to Investors or any payment of an
\namount equivalent to such payment by Harken Colombia to Owner (provided that
\nthis clause (a) (i) shall not operate to permit any double charge to the Account
\nwith respect to such costs or losses) or (ii) in the event such payment is made
\nby Owner from its U.S. funds without any equivalent payment by Harken Colombia
\nto Owner, would have been so incurred at such time if Harken Colombia had paid
\nto Owner an amount equivalent to such payment, and (c) Owner may retain up to
\none-third of Investors’ share of any such net profit in the event and to the
\nextent that the debits that Owner reasonably projects will be charged to the
\nAccount during the next three months will exceed the credits that Owner
\nreasonably projects will be made to the Account during such three-month period
\nand apply such retained amount to the payment of Investors’ share of such
\ndebits. Any such retained amount that is subsequently determined to be
\nunnecessary for the payment of Investors’ share of such debits shall be paid
\npromptly to Investors. In the event any amount is deducted from any payment
\npursuant to subsection (a), (b) or (c) above, such amount shall not thereafter
\nbe charged to the Account to the extent it would cause any direct or indirect
\ndouble charge to the Account or the Investors for such amount.<\/p>\n
Section 3.8. Overpayments and Underpayments. If at any time Owner
\ninadvertently pays Investors more or less than the amount then due with respect
\nto an Account, the amount or amounts otherwise payable with respect to such
\nAccount for any subsequent period or periods shall be reduced or increased by
\nsuch overpayment or underpayment, plus an amount equal to interest (computed at
\nthe Agreed Rate) on the unrecovered balance of such overpayment or underpayment
\nduring the period of such overpayment or underpayment; provided, however, that
\nif the amount of any such overpayment or underpayment exceeds $5,000, the party
\nowing such amount shall promptly pay such amount (together with the interest on
\nsuch amount as calculated above) to the other party.<\/p>\n
Section 3.9. Prudent Operator Standard. Harken Colombia (subject to the
\nterms and provisions of the applicable Association Contract and any applicable
\noperating agreements) shall have exclusive charge, management and control of all
\noperations to be conducted on the Subject<\/p>\n
-14-
\n 19
\nInterests and may take any and all actions which a reasonably prudent operator
\nwould deem necessary or advisable in the management, operation and control
\nthereof. Harken Colombia shall operate and maintain the Subject Interests as
\nwould a prudent operator under similar circumstances in accordance with good oil
\nfield practices. 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 any,
\nas to which Harken Colombia hereafter may not be the operator, Harken Colombia
\nshall take all such action and exercise all such rights and remedies as are
\nreasonably available to Harken Colombia to cause the operator to so maintain and
\noperate such Subject Interests (provided that Harken Colombia shall never be
\nobligated to pay any costs or expenses attributable to any interest other than
\nthe Subject Interests and all royalties related thereto).<\/p>\n
Section 3.10. Sales of Subject Hydrocarbons. Harken Colombia shall
\nmarket or cause to be marketed, subject to the terms of the applicable
\nAssociation Contract, the Subject Hydrocarbons in accordance with reasonable and
\nprudent business judgment and sound oil field practices and on such terms and
\nconditions as Harken Colombia shall determine to be in the best interests of
\nInvestors; 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 all
\nrelevant 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 Non-
\nAffiliates 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 the
\nsame or similar locations.<\/p>\n
Section 3.11. Insurance. Harken Colombia shall obtain or cause to be
\nobtained (and maintain or cause to be maintained during the economic life of the
\nSubject Interests) insurance coverage relating to the ownership, operation and
\nmaintenance of the Subject Interests, the cost of which shall be charged against
\nthe related Account, in such amounts, with provisions for such deductible
\namounts and for such purposes as Harken Colombia shall determine to be
\nappropriate (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 its
\nAffiliates may perform services and furnish supplies and equipment with respect
\nto the Subject Interests, provided that the amount of compensation, price or
\nrental that can be charged to the related<\/p>\n
-15-
\n 20
\nAccount therefor must be no less favorable to the Account than would be the
\ncompensation, price or rental payable to Non-Affiliates in the area engaged in
\nthe business of rendering comparable services or selling or leasing comparable
\nequipment and supplies which could reasonably be made available to the Subject
\nInterests.<\/p>\n
Section 3.13. Government Regulation. All obligations of Owner and
\nHarken Colombia under this Article III shall be subject to and limited by (a)
\nall applicable Laws and (b) the applicable Association Contract as it may be
\nmodified, amended and\/or supplemented from time to time; provided, that Owner
\nand Harken Colombia shall act in good faith with respect to the interests of
\nInvestors and in accordance with the best interests of Investors under this
\nAgreement as reasonably determined by Owner and Harken Colombia. Where the price
\nat which Subject Hydrocarbons are sold is limited by applicable Laws, the price
\nso permitted to be paid for Subject Hydrocarbons shall be controlling if lower
\nthan prices established in Production Sales Contracts or required hereunder.<\/p>\n
Section 3.14. Abandonments. After the Effective Date, Harken Colombia
\nshall have the right without the consent of Investors to release, surrender
\nand\/or abandon its interest in the Subject Interests and\/or any Association
\nContract, or any part thereof, or interest therein, in order to comply with the
\nrelinquishment provisions of the applicable Association Contract, even though
\nthe effect of such release, surrender or abandonment may be to affect adversely
\nthe Net Profits Interest. In the event of any relinquishment of acreage under an
\nAssociation Contract, Harken Colombia shall have the exclusive authority to
\ndetermine the acreage to be relinquished, which may be acreage within the
\nSubject Interests or acreage outside the Subject Interests or both; provided,
\nthat, in taking any of the actions described in this Section 3.14, Harken
\nColombia shall act in good faith with respect to the interests of Investors and
\nin accordance with the best interests of Investors under this Agreement as
\nreasonably determined by Harken Colombia.<\/p>\n
Section 3.15. Pooling and Unitization. Without the prior written
\nconsent of Investors, 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 or
\nto amend and\/or reconfigure the same to include additional acreage or substances
\nor to exclude acreage or substances). If any of the Subject Interests are pooled
\nor unitized in any manner, the Net Profits Interest insofar as it affects such
\nSubject Interests shall be considered to be pooled and unitized, and in any such
\nevent the Net Profits Interest shall apply to (and the term “Subject
\nHydrocarbons” shall include) the production which accrues to such Subject
\nInterests under and by virtue of such pooling and unitization arrangements and
\nthe applicable Account shall be computed giving consideration to such production
\nand costs, expenses, charges and credits attributable to such Subject Interests.<\/p>\n
-16-
\n 21
\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 be
\n 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 (i.e.,
\n during a recoupment period) or permanently forfeited to the parties
\n participating in such operations, or electing not to abandon such well,
\n then the costs and proceeds attributable to such forfeited interest
\n shall not, for the period of such forfeiture (which may be a continuous
\n and permanent period), be debited or credited to the applicable Account
\n and such forfeited interest shall not, for the period of such
\n forfeiture, be subject to the Net Profits Interest.<\/p>\n
(b) If Harken Colombia elects to be a participating party to
\n such a drilling, deepening, plugging back, reworking, sidetracking or
\n completing (or other) operation, or elects to be a non-abandoning party
\n with respect to such a well, and any other party or parties have
\n elected not to participate in such operation (or have elected to
\n abandon such well) with the result that (pursuant to an Association
\n Contract or operating agreement or other agreement or requirement)
\n Harken Colombia becomes entitled to receive, either temporarily (i.e.,
\n through a period of recoupment) or permanently, interests belonging to
\n such other party or parties, the costs and proceeds attributable to
\n such non-participating parties’ interests to which Harken Colombia
\n becomes so entitled shall not be debited and credited to the applicable
\n Account and instead shall be for the account of Harken Colombia.<\/p>\n
Section 3.17. No Personal Liability; Indemnification. Notwithstanding
\nanything to the contrary contained in this Agreement, Investors shall never
\npersonally be responsible for payment of any part of the costs, expenses or
\nliabilities incurred in connection with the exploring, developing, operating,
\nowning and\/or maintaining of the Subject Interests or an Association Contract
\n(including without limitation, any costs, expenses or liabilities related to
\ndamage to or remediation of the environment, including any of the same arising
\nout of ownership of an interest in property), and Owner agrees to indemnify and
\nhold Investors harmless from and against all such costs, expenses and
\nliabilities (with such indemnity to also cover all costs and expenses of
\nInvestors, including reasonable legal fees and expenses, which are incurred
\nincident to the matters indemnified against); provided, however, all such costs,
\nexpenses and liabilities shall, to the extent the same relate to periods after
\nthe Effective Date, nevertheless be charged against the applicable Account if
\nsuch costs, expenses and liabilities are expressly permitted elsewhere in this
\nAgreement to be charged to such Account. THE FOREGOING INDEMNIFICATIONS<\/p>\n
-17-
\n 22
\nSHALL EXTEND TO INVESTORS AND THEIR RESPECTIVE SUCCESSORS AND PERMITTED ASSIGNS,
\nALL THEIR RESPECTIVE AFFILIATES AND ALL THEIR RESPECTIVE OFFICERS, DIRECTORS,
\nAGENTS, ATTORNEYS, REPRESENTATIVES AND EMPLOYEES. THE FOREGOING INDEMNITIES
\nSHALL APPLY WHETHER OR NOT ARISING OUT OF THE SOLE, JOINT OR CONCURRENT
\nNEGLIGENCE, FAULT OR STRICT LIABILITY OF INVESTORS OR ANY OTHER PERSON OR ENTITY
\nINDEMNIFIED HEREUNDER AND SHALL APPLY, WITHOUT LIMITATION, TO ANY LIABILITY
\nIMPOSED UPON ANY PERSON INDEMNIFIED HEREUNDER AS A RESULT OF ANY STATUTE, RULE,
\nREGULATION, THEORY OF STRICT LIABILITY OR OTHERWISE. THE PROVISIONS OF THIS
\nSECTION 3.17 SHALL SURVIVE THE TERMINATION OF THIS AGREEMENT.<\/p>\n
Section 3.18. Access to Books and Records. In addition to any reports
\nand information specifically required by the terms of this Agreement, Owner
\nagrees to furnish to Investors full information pertaining to the Prospects (or
\npotential Prospects) or the ownership, operation and maintenance of the Subject
\nInterests, at all reasonable times, and in such form, as Investors may
\nreasonably request. Owner and Harken Colombia will permit representatives
\ndesignated by Investors, including independent accountants, agents, attorneys,
\nand other persons, to inspect Owner’s and Harken Colombia’s respective books and
\nrecords pertaining to the Subject Interests and each Account (and to make copies
\nand photocopies from such records and to write down and record such information
\nas such representatives may request), and each of Owner and Harken Colombia
\nshall permit Investors and their designated representatives reasonably to
\ninvestigate and verify the accuracy of information furnished by it to Investors
\nhereunder or in connection herewith and to discuss all such matters with their
\nofficers, employees and representatives. If for any reason Harken Colombia is
\nunable to provide to Investors the information, access to information and
\ninspection rights referred to in the immediately preceding sentences of this
\nSection 3.18, Owner shall cause such information, access to information and
\ninspection rights to be provided to Investors. During the period commencing on
\nthe Effective Date and ending on the date of expiration of the Exchange Period,
\nOwner shall deliver to Investors copies of all definitive public reports, proxy
\nstatements or other public statements filed by Owner with the SEC pursuant to
\nthe Securities Exchange Act of 1934, as amended, in each case promptly after
\nsuch reports and statements are so filed; provided, however, that in no event
\nshall Owner be required under this Section 3.18 to deliver any such documents to
\nInvestors after an Exchange involving the exchange of 100% of the then
\nUnexchanged Advances of all Investors.<\/p>\n
ARTICLE IV<\/p>\n
Investors Exchange<\/p>\n
Owner hereby grants to Investors the option (herein called the
\n“Investors’ Option”) to exchange all or part of Investors’ interest in the Net
\nProfits Interest (based on Investors’ Unexchanged Advances) for Common Shares on
\nthe following terms and conditions (herein called “Exchange”):<\/p>\n
Section 4.1. Exercise of Investors’ Option. The Investors’ Option can
\nonly be exercised by the delivery to Owner within the Exchange Period of a
\nwritten notice from Investors stating that Investors thereby elect to exercise
\nthe Investors’ Option and specifying the amount of<\/p>\n
-18-
\n 23
\nUnexchanged Advances that each Investor desires to exchange for Common Shares.
\nThe total Unexchanged Advances to be exchanged in any such Exchange shall be
\nallocated among Investors in the proportion that the respective Advance
\nCommitments set forth opposite their names on Annex I hereto bear to
\n$25,000,000. Investors may exercise the Investors’ Option at any time and from
\ntime to time during the Exchange Period, provided, however, that each exercise
\nby Investors of the Investors’ Option must be for the exchange of either (a) at
\nleast $10,000,000 of Unexchanged Advances in the aggregate for all Investors or
\n(b) 100% of the then remaining Unexchanged Advances of all Investors. Each such
\nexercise shall be irrevocable. Upon termination of the Exchange Period, the
\nInvestors’ Option shall terminate and Investors shall have no further right or
\noption to exchange Investors’ interest in the Net Profits Interest for Common
\nShares pursuant to the Investors’ Option. For purposes of this Article IV, the
\nterm “Exchange Date” shall mean, with respect to any Exchange pursuant to this
\nArticle IV, the date of delivery to Owner of Investors’ notice of such Exchange
\npursuant to this Section 4.1.<\/p>\n
Section 4.2. Number of Common Shares. The aggregate number of Common
\nShares to be issued to each Investor upon an Exchange pursuant to this Article
\nIV shall be determined pursuant to the following formula:<\/p>\n
CS = AV \/ CMP<\/p>\n
where, for purposes of this Article IV:<\/p>\n
“CS” shall mean the aggregate number of Common Shares to be
\n issued to such Investor upon such Exchange.<\/p>\n
“AV” shall mean the remainder of (a) the Unexchanged Advances
\n that such Investor desires to exchange for Common Shares
\n pursuant to such Exchange, as specified in Investors’ notice
\n of such Exchange pursuant to Section 4.1, minus (b) the
\n aggregate amount of the payments received by such Investor
\n through the Exchange Date pursuant to Section 3.7 that have
\n not been the subject of a deduction under this formula in
\n connection with a previous Exchange made by Investors,
\n together with an amount equal to interest on the positive
\n balance of such remainder as it exists from time to time
\n during the period commencing on the Business Day next
\n following the Effective Date and ending on and including the
\n Exchange Date at the rate of fifteen percent (15%) per
\n annum, compounded monthly on the first day of each calendar
\n month.<\/p>\n
“CMP” shall mean the Current Market Price per share of the Common
\n Shares as of the Exchange Date.<\/p>\n
The number of Common Shares determined pursuant to such formula shall be rounded
\nup or down to the next whole number, and no fractional Common Shares shall be
\nissued.<\/p>\n
-19-
\n 24
\n Section 4.3. Issuance of Common Shares. The closing and consummation of
\nany Exchange pursuant to this Article IV shall occur not later than three
\nBusiness Days following the Exchange Date of such Exchange. At such closing,
\nOwner shall issue and deliver to Investors the number of Common Shares required
\nfor such Exchange pursuant to Section 4.2.<\/p>\n
Section 4.4. Reduction of Designated Percentage. Provided closing of
\nsuch Exchange has occurred pursuant to Section 4.3, as of the Exchange Date of
\neach Exchange pursuant to this Article IV, the Designated Percentage then in
\neffect of each Investor shall be reduced by subtracting therefrom the product of
\n(a) such Designated Percentage and (b) the quotient obtained by dividing (i) the
\nUnexchanged Advances of such Investor that are the subject of such Exchange
\n(i.e., the total amount of Unexchanged Advances specified for exchange by such
\nInvestor in Investors’ notice of such Exchange pursuant to Section 4.1) by (ii)
\nthe total Advance Commitment set forth opposite such Investor’s name on Annex I
\nhereto. All payments with respect to periods from and after the Exchange Date of
\nsuch Exchange made by Harken Colombia to such Investor pursuant to Section 3.7
\nshall be made based on the Designated Percentage of such Investor as reduced for
\nsuch Exchange in accordance with this Section, subject to further reduction of
\nsuch percentage as provided in this Agreement; provided, however, that, if the
\nDesignated Percentage of such Investor has been reduced to zero as a result of
\nsuch Exchange, such Investor’s interest in the Net Profits Interest shall
\nterminate effective as of the Exchange Date of such Exchange and no payments
\nshall thereafter be made to such Investor with respect to the Net Profits
\nInterest pursuant to Section 3.7 or otherwise other than payments with respect
\nto periods prior to such Exchange Date.<\/p>\n
Section 4.5. Owner’s Cash Option. Notwithstanding anything to the
\ncontrary contained in this Article IV, Owner shall have the option to pay cash
\nto Investors upon any Exchange pursuant to this Article IV in lieu of issuing
\nCommon Shares. If, in connection with such an Exchange, Owner determines to pay
\ncash in lieu of issuing Common Shares, it must pay cash to all Investors. The
\naggregate amount of cash to be paid to each Investor upon such Exchange shall be
\nequal to such Investor’s AV for such Exchange. Such payment shall be made to
\nInvestors at the closing of such Exchange by wire transfer in immediately
\navailable funds to a bank account or accounts designated by Investors.<\/p>\n
ARTICLE V<\/p>\n
Owner Exchange<\/p>\n
Investors hereby grant to Owner the option (herein called the “Owner’s
\nOption”) to exchange, on a one-time basis, all (or all of the remaining amount)
\nof Investors’ interest in the Net Profits Interest (based on the then remaining
\nUnexchanged Advances of Investors) for Common Shares or cash on the following
\nterms and conditions (herein also called “Exchange”):<\/p>\n
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\n 25
\n Section 5.1. Exercise of Owner’s Option. The Owner’s Option can only be
\nexercised by the delivery within the Exchange Period to Investors of a written
\nnotice from Owner stating that Owner thereby elects to exercise the Owner’s
\nOption and specifying whether such Exchange will be made for Common Shares or
\ncash. Any such exercise shall be irrevocable. Owner may make an Exchange
\npursuant to this Article V solely for Common Shares or solely for cash but not
\nfor a combination of Common Shares and cash (i.e., all Investors shall receive
\nin such Exchange the same type of consideration). Upon termination of the
\nExchange Period, the Owner’s Option shall terminate and Owner shall have no
\nfurther right or option to exchange Investors’ interest in the Net Profits
\nInterest for Common Shares or cash pursuant to the Owner’s Option. For purposes
\nof this Article V, the term “Exchange Date” shall mean, with respect to any
\nExchange pursuant to this Article V, the date of delivery to Investors of
\nOwner’s notice of such Exchange pursuant to this Section 5.1.<\/p>\n
Section 5.2. Number of Common Shares. The aggregate number of Common
\nShares to be issued to each Investor upon an Exchange pursuant to this Article V
\n(if such Exchange involves the delivery to Investors of Common Shares) shall be
\ndetermined pursuant to the following formula:<\/p>\n
CS = AV \/ CMP<\/p>\n
where, for purposes of this Article V:<\/p>\n
“CS” shall mean the aggregate number of Common Shares to be
\n issued to such Investor upon such Exchange.<\/p>\n
“AV” shall mean the remainder of (a) the Unexchanged Advances
\n that such Investor is exchanging pursuant to such Exchange
\n minus (b) the aggregate amount of the payments received by
\n such Investor through the Exchange Date pursuant to Section
\n 3.7 that have not been the subject of a deduction under the
\n formula set forth in Section 4.2 in connection with a
\n previous Exchange pursuant to Article IV, together with an
\n amount equal to interest on the positive balance of such
\n remainder as it exists from time to time during the period
\n commencing on the Business Day next following the Effective
\n Date and ending on and including the Exchange Date at the
\n rate of twenty-five percent (25%) per annum, compounded
\n monthly on the first day of each calendar month.<\/p>\n
“CMP” shall mean the Current Market Price per share of the Common
\n Shares as of the Exchange Date.<\/p>\n
The number of Common Shares determined pursuant to such formula shall be rounded
\nup or down to the next whole number, and no fractional Common Shares shall be
\nissued.<\/p>\n
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\n 26
\n Section 5.3. Amount of Cash. The aggregate amount of cash to be paid to
\neach Investor upon an Exchange pursuant to this Article V (if such Exchange
\ninvolves the payment to Investors of cash) shall be equal to such Investor’s AV
\nfor such Exchange.<\/p>\n
Section 5.4. Issuance of Common Shares and Payment of Cash. The closing
\nand consummation of any Exchange pursuant to this Article V shall occur not
\nlater than three Business Days following the Exchange Date of such Exchange. At
\nsuch closing, Owner shall issue and deliver to Investors the number of Common
\nShares or pay or cause to be paid to Investors the amount of cash required for
\nsuch Exchange pursuant to Section 5.2 or 5.3. Such cash payment shall be made by
\nwire transfer in immediately available funds to a bank account or accounts
\ndesignated by Investors.<\/p>\n
Section 5.5. Elimination of Designated Percentage. Provided closing of
\nsuch Exchange has occurred pursuant to Section 5.4, as of the Exchange Date of
\nan Exchange pursuant to this Article V, the Designated Percentage then in effect
\nof Investors shall be reduced to zero, and the interest of Investors in the Net
\nProfits Interest shall terminate and no payments shall thereafter be made to
\nInvestors with respect to the Net Profits Interest pursuant to Section 3.7 or
\notherwise other than payments with respect to periods prior to such Exchange
\nDate.<\/p>\n
ARTICLE VI<\/p>\n
Issuance of Additional Common Shares<\/p>\n
As additional consideration for the Commitment, Owner hereby agrees to
\nissue additional Common Shares to Investors on the following terms and
\nconditions:<\/p>\n
Section 6.1. Issuance of Additional Shares.<\/p>\n
(a) Provided an Exchange for Common Shares has occurred pursuant to
\nthis Agreement, if, as of the Deficiency Determination Date, the Realized
\nProceeds with respect to an Investor’s Exchange Shares are less than the
\nInvested Amount with respect to such Exchange Shares, then, within five Business
\nDays after the Deficiency Determination Date, Owner shall issue and deliver to
\nsuch Investor additional Common Shares in an amount equal to A divided by B,
\nwhere “A” is equal to the Deficiency Amount with respect to such Exchange
\nShares, and where “B” is equal to the Current Market Price per share of the
\nCommon Shares as of the Deficiency Determination Date. The number of additional
\nCommon Shares determined pursuant to such formula shall be rounded up or down to
\nthe next whole number, and no fractional Common Shares shall be issued.<\/p>\n
(b) Notwithstanding the foregoing, provided Owner complies with all its
\nobligations under the Registration Rights Agreement, an Investor shall not be
\nentitled to receive any<\/p>\n
-22-
\n 27
\nadditional Common Shares pursuant to Section 6.1(a) unless each Exchange Share
\nissued to such Investor is sold by such Investor prior to the end of the Selling
\nPeriod applicable to such Exchange Share. Each Investor shall use its reasonable
\nbest efforts to sell its Exchange Shares in an orderly manner designed not to
\nmaterially disrupt the public market for the Common Shares; provided, however,
\nthat public sales by Investors, on a combined basis, of up to an aggregate of
\n100,000 Exchange Shares per Trading Day shall not be subject to such manner of
\nsale restriction.<\/p>\n
(c) If the combined public sales by Investors of Exchange Shares in any
\none Trading Day exceeds an aggregate of 100,000 shares, then (i) the Realized
\nProceeds with respect to the Exchange Shares sold on such Trading Day in excess
\nof 100,000 shares which are sold by an Investor at a price per share (prior to
\nany commissions, fees or costs) less than the Current Market Price at which such
\nExchange Shares were issued to such Investor and (ii) that portion of such
\nInvestor’s Invested Amount that is attributable to such Exchange Shares, shall
\nnot be taken into account in determining the number of additional Common Shares
\nissuable to such Investor pursuant to Section 6.1(a).<\/p>\n
Section 6.2. Certain Definitions. As used in this Article VI:<\/p>\n
(a) “Deficiency Amount” shall mean, with respect to an Investor’s
\nExchange Shares, A minus B, where “A” is equal to the Invested Amount with
\nrespect to such Exchange Shares, and where “B” is equal to the Realized Proceeds
\nwith respect to such Exchange Shares.<\/p>\n
(b) “Deficiency Determination Date” shall mean the later of (i) the
\nBusiness Day next following the expiration of the Selling Period applicable to
\nthe Common Shares issued pursuant to the last Exchange involving the issuance of
\nCommon Shares under this Agreement and (ii) the Business Day next following the
\nexpiration of the Exchange Period; provided, however, that (iii) upon an
\nExchange pursuant to Article IV or V resulting in the exchange for Common Shares
\nof 100% of the then Unexchanged Advances of all Investors, the Deficiency
\nDetermination Date shall mean the Business Day next following the expiration of
\nthe Selling Period applicable to the Common Shares issued pursuant to such
\nExchange and (iv) upon an Exchange pursuant to Article IV or V resulting in the
\nexchange for cash of 100% of the then Unexchanged Advances of all Investors, the
\nDeficiency Determination Date shall mean the later of (A) the Business Day
\nspecified in clause (i) of this definition and (B) the Business Day next
\nfollowing the closing of the Exchange for cash that is the subject of this
\nclause (iv). Notwithstanding the foregoing, if the Selling Period applicable to
\nCommon Shares issued pursuant to any Exchange (a “Prior Exchange”) that occurred
\nprior to an Exchange referred to in clause (i) or (iii) of the immediately
\npreceding sentence (the “Final Exchange”) extends beyond the Selling Period
\napplicable to the Common Shares issued pursuant to the Final Exchange, then the
\nSelling Period referred to in clause (i) and (iii) of the immediately preceding
\nsentence shall mean the latest Selling Period applicable to Common Shares issued
\npursuant to a Prior Exchange.<\/p>\n
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\n 28
\n (c) “Exchange Shares” shall mean all Common Shares issued to an
\nInvestor as a result of Exchanges pursuant to this Agreement.<\/p>\n
(d) “Invested Amount” shall mean, with respect to an Investor’s
\nExchange Shares, the aggregate amount of such Investor’s AV (as defined in
\nArticles IV and V) for all Exchanges pursuant to which such Exchange Shares were
\nissued; provided, however, that if Owner, in accordance with Section 3(b) of the
\nRegistration Rights Agreement, postpones the filing of a Securities Act
\nregistration statement with respect to the Exchange Shares issued to an Investor
\npursuant to an Exchange, then, for purposes of determining such Investor’s
\nInvested Amount, such Investor’s AV for such Exchange shall be calculated so
\nthat the amount of interest included in the calculation of such AV is determined
\nfor the period ending on and including the date of filing of such Securities Act
\nregistration statement.<\/p>\n
(e) “Realized Proceeds” shall mean, with respect to an Investor’s
\nExchange Shares, the aggregate gross proceeds actually received by such Investor
\n(prior to any commissions, fees or costs) from the sale or sales of such
\nExchange Shares.<\/p>\n
(f) “Selling Period” shall mean, with respect to the Common Shares
\nissued to Investors pursuant to an Exchange, the period of 120 Trading Days
\nfollowing the date the Securities Act registration statement covering such
\nCommon Shares filed by Owner pursuant to the Registration Rights Agreement first
\nbecame effective; provided, however, that if the quotient obtained by dividing
\n(x) the total number of Common Shares issued pursuant to such Exchange by (y)
\n120, is greater than 100,000, then such 120-Trading Day period shall be extended
\nto equal the number of Trading Days (rounded up to the next whole number)
\ndetermined by dividing (x) the total number of Common Shares issued pursuant to
\nsuch Exchange by (y) 100,000; and provided, further, that the Selling Period
\nshall be subject to further extension as provided in Section 5 of the
\nRegistration Rights Agreement. If the Selling Period applicable to Common Shares
\nissued pursuant to an Exchange (a “Later Exchange”) overlaps with the Selling
\nPeriod applicable to Common Shares issued pursuant to a prior Exchange (a “Prior
\nExchange”), the calculation called for by the first proviso contained in the
\nimmediately preceding sentence with respect to the Common Shares issued pursuant
\nto the Later Exchange shall be made by taking into account under each clause (x)
\nof such proviso, in addition to the Common Shares issued pursuant to the Later
\nExchange, the number of Common Shares issued pursuant to the Prior Exchange that
\nremain unsold by Investors at the commencement of the Selling Period applicable
\nto the Common Shares issued pursuant to the Later Exchange. Notwithstanding the
\nforegoing, in no event shall the Selling Period applicable to the Common Shares
\nissued to Investors pursuant to an Exchange extend beyond the closing date of
\nthe sale of the last of such Common Shares to be sold by Investors. Investors
\nshall notify Owner when such last sale occurs.<\/p>\n
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\n 29
\n ARTICLE VII<\/p>\n
Owner Representations, Warranties and Covenants<\/p>\n
Owner hereby represents and warrants to and covenants with Investors as
\nfollows:<\/p>\n
Section 7.1. 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 7.2. Qualification to do Business. Owner is duly qualified to
\ndo business as a foreign corporation and in good standing in each jurisdiction
\nin which its ownership of property or the conduct of its business requires such
\nqualification, except jurisdictions in which the failure so to qualify would not
\nhave a material adverse effect on Owner’s business, properties, financial
\ncondition or results of operations.<\/p>\n
Section 7.3. Charter, Bylaws, Etc.. Owner has caused to be delivered to
\nInvestors true, correct and complete copies of the charter and bylaws of Owner
\nas now in effect and the minutes of all meetings of Owner’s Board of Directors
\n(and all consents in lieu of such meetings) at which action was taken concerning
\nthe execution and delivery of this Agreement and the Registration Rights
\nAgreement.<\/p>\n
Section 7.4. Capitalization. The authorized capital stock of Owner
\nconsists of 125,000,000 Common Shares, of which 117,725,284 are issued and
\noutstanding, and 10,000,000 shares of preferred stock, par value $1.00 per
\nshare, none of which is outstanding. Owner has 22,822,236 Common Shares reserved
\nfor issuance upon exercise of stock options, warrants and other rights to
\nacquire Common Shares and holds zero Common Shares as treasury shares. All of
\nthe outstanding shares of capital stock of Owner are duly authorized, validly
\nissued, fully paid, nonassessable and free of preemptive rights, with no
\npersonal liability attaching to the ownership thereof.<\/p>\n
Section 7.5. Finders’ Fees. No broker or finder has acted on behalf of
\nOwner or Harken Colombia in connection with this Agreement or the transactions
\ncontemplated herein.<\/p>\n
Section 7.6. Authority of Owner. Owner has the corporate power to enter
\ninto, and be bound by the terms and conditions of, this Agreement and the
\nRegistration Rights Agreement and to carry out its obligations hereunder and
\nthereunder, and the execution and delivery by Owner of this Agreement and the
\nRegistration Rights Agreement and the performance by Owner of its obligations
\nhereunder and thereunder have been duly authorized by all necessary corporate
\naction of Owner. This Agreement has been duly executed and delivered by Owner
\nand constitutes, and each other agreement or document executed or to be executed
\nby Owner in<\/p>\n
-25-
\n 30
\nconnection with the transactions contemplated hereby has been, or when executed,
\nwill be, duly executed and delivered by Owner and constitutes, or when executed
\nand delivered will constitute, a valid and legally binding obligation of Owner
\nenforceable against Owner in accordance with their respective terms, except to
\nthe extent enforcement may be limited (a) by applicable bankruptcy, insolvency,
\nmoratorium, reorganization or similar laws from time to time in effect which
\naffect creditors’ rights generally, (b) by legal and equitable limitations on
\nthe availability of equitable remedies, including without limitation specific
\nperformance against Owner under or by virtue of this Agreement and (c) by public
\npolicy considerations with respect to the rights of indemnification under the
\nRegistration Rights Agreement. Section 7.7. Non-Contravention. The execution,
\ndelivery and performance of this Agreement and the Registration Rights Agreement
\nby Owner, and the issuance of Common Shares by Owner in accordance with this
\nAgreement, will not (a) conflict with or result in a violation of any provision
\nof Owner’s charter or bylaws, (b) conflict with or result in a violation of any
\nprovision of, or constitute (with or without the giving of notice or the passage
\nof time or both) a default under, or give rise (with or without the giving of
\nnotice or the passage of time or both) to any right of termination,
\ncancellation, or acceleration under, any bond, debenture, note, mortgage,
\nindenture, lease, agreement or other instrument or obligation to which Owner is
\na party or by which Owner or any of its properties or assets may be bound, which
\nconflict, violation, default, termination, cancellation or acceleration could
\nreasonably have a material adverse effect on Owner’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 Owner, or
\n(d) result in a violation by Owner of any Law or any judgment, order, decree,
\nrule or regulation of any Governmental Authority to which Owner is subject;
\nprovided, however, that no such representations or warranties are made by Owner
\nwith respect to compliance with any foreign securities laws or with respect to
\nany Association Contract (it being understood that representations and
\nwarranties with respect to the Association Contracts are being made by Owner
\nunder Section 7.12).<\/p>\n
Section 7.8. Governmental Consents. Except for (a) those that have been
\nduly obtained, (b) routine filings and orders that may be required under
\nRegulation D promulgated under the Securities Act or under any applicable state
\nsecurities or Blue Sky laws in connection with the future issuance of Common
\nShares pursuant to Articles IV, V and VI, and the approval by the American Stock
\nExchange of the listing of such Common Shares on such exchange (which Owner will
\nobtain prior to the issuance of such shares), and (c) those required under the
\nSecurities Act and any applicable state securities or Blue Sky laws in
\nconnection with the performance by Owner of its obligations under the
\nRegistration Rights Agreement, no consent, order, approval or authorization of,
\nor declaration, filing, or registration with, any Governmental Authority is
\nrequired to be obtained or made by Owner in connection with the execution,
\ndelivery or performance by Owner of this Agreement or the Registration Rights
\nAgreement; provided, however, that no such representations or warranties are
\nmade by Owner with respect to compliance with any foreign securities laws.<\/p>\n
-26-
\n 31
\n Section 7.9. Reports and Financial Statements of Owner. Owner has
\nheretofore delivered to Investors true and complete copies of all definitive
\nForm 10-K annual reports, Form 10-Q quarterly reports and proxy statements filed
\nby Owner with the SEC from and after January 1, 1996 (herein collectively called
\n“Owner’s SEC Filings”). As of their respective dates, Owner’s SEC Filings did
\nnot contain any untrue statement of a material fact or omit to state a material
\nfact required to be stated therein or necessary to make the statements therein,
\nin light of the circumstances under which they were made, not misleading. Owner
\ndoes not have any debts, liabilities, or obligations, whether accrued,
\ncontingent, unasserted or otherwise, and whether due or to become due, which are
\nnot reflected in the financial statements contained in Owner’s SEC Filings and
\nwould be required to be so reflected under generally accepted accounting
\nprinciples, except those incurred in the ordinary course of business since the
\ndate of the most recent audited financial statements contained in Owner’s SEC
\nFilings. Since such date and except as otherwise disclosed in Owner’s SEC
\nFilings, Owner has conducted its business in the ordinary course consistent with
\npast practice and there has not been any material adverse change in the
\nbusiness, properties, financial condition or results of operations of Owner or
\nin its relationship with lenders, suppliers, customers, employees or others,
\nwhether such changes have occurred in the ordinary course of business or
\notherwise.<\/p>\n
Section 7.10. Disclosure. All written information provided by Owner and
\nits officers, directors, agents, representatives and employees to Investors in
\nconnection with this Agreement which is not part of Owner’s SEC Filings has been
\nprepared in good faith by Owner and does not contain any untrue statement of a
\nmaterial fact or, considered in its entirety along with Owner’s SEC Filings,
\nomit to state therein a material fact (other than those facts generally
\nrecognized to be industry risks normally associated with the oil and gas
\nbusiness) necessary to make the statements made therein not misleading. Owner
\ndoes not know of any facts (other than those facts generally recognized to be
\nindustry risks normally associated with the oil and gas business) related to its
\nbusiness, properties, financial condition or results of operations or the
\npotential Prospects which have not been disclosed orally or in writing to
\nInvestors and which presently or will materially and adversely affect such
\nbusiness, properties, financial condition, results of operations or potential
\nProspects or the ability of Owner to perform its obligations under this
\nAgreement or the Registration Rights Agreement.<\/p>\n
Section 7.11. Owner’s Common Shares. The Common Shares issuable to
\nInvestors pursuant to this Agreement have been, or when issued hereunder, will
\nhave been, duly authorized for issuance pursuant hereto and, when issued and
\ndelivered by Owner pursuant hereto, will be validly issued, fully paid and
\nnon-assessable and will be free and clear of any claim, lien, pledge, option,
\ncharge, security interest or encumbrance of any nature whatsoever created by
\nOwner. The issuance of Common Shares under this Agreement is not subject to any
\npreemptive rights. Owner shall, prior to the issuance of Common Shares pursuant
\nto this Agreement, cause such Common Shares to be listed on each securities
\nexchange or quotation system on which outstanding Common Shares are then listed.<\/p>\n
-27-
\n 32
\n Section 7.12. Association Contracts. English translations of the main
\nbody of, and the operating agreement attached as an exhibit to, each Association
\nContract in force as of the date hereof have been furnished by Owner to
\nInvestors. Each of such translations is a fair and reasonable translation of the
\noriginal document constituting part of the Association Contract. Any and all
\namendments to an Association Contract in force as of the date hereof of which
\nEnglish translations were not furnished by Owner to Investors do not contain any
\nprovisions that could adversely affect the rights and interests of Investors
\nunder this Agreement. Each Association Contract is in full force and effect as
\nof the date hereof. Harken Colombia is in compliance in all material respects
\nwith its obligations under or relating to each Association Contract in force as
\nof the date hereof, and, to the best knowledge of Owner and Harken Colombia
\nafter due inquiry, no other party to an Association Contract is presently in
\ndefault thereunder. The execution, delivery and performance of this Agreement by
\nOwner, and the performance of this Agreement by Harken Colombia, will not breach
\nor result in a violation of any provision of an Association Contract in force as
\nof the date hereof. Exhibit A-1 hereto contains an accurate description of the
\nareal extent of the lands covered by the Bocachico Association Contract (which
\nlands are designated as the Bocachico Block on such Exhibit A-1) as of the date
\nhereof. Exhibit A-2 hereto contains an accurate description of the areal extent
\nof the lands covered by the Cambulos Association Contract (which lands are
\ndesignated as the Cambulos Block on such Exhibit A-2) as of the date hereof.
\nOwner agrees to furnish to Investors written English translations of any and all
\namendments made to any Association Contract or related operating agreement after
\nthe Effective Date as promptly as practicable after each such amendment is made.<\/p>\n
Section 7.13. Ownership of Harken Colombia. All of the issued and
\noutstanding 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, warrants
\nor other rights to purchase, agreements or other obligations to issue or other
\nrights to convert any obligations into shares of capital stock or ownership
\ninterests in Harken Colombia are outstanding.<\/p>\n
Section 7.14. Certain Tax Matters. All amounts payable under this
\nAgreement shall be free of Colombian taxes, and Owner shall hold Investors
\nharmless from, and indemnify Investors on an after tax basis against, any and
\nall Colombian taxes arising due to the transactions contemplated hereby, other
\nthan any Colombian taxes that would not have been incurred but for activities of
\nInvestors in Colombia unrelated to the transactions contemplated hereby, it
\nbeing further understood and agreed, however, that it shall be permissible for
\ntaxes incurred by Harken Colombia in connection with its operations to be taken
\ninto account for purposes of calculation of the Net Profits Interest as provided
\nin this Agreement.<\/p>\n
Section 7.15. Absence of Bankruptcy Proceedings. There are no
\nbankruptcy, reorganization or arrangement proceedings pending against, being
\ncontemplated by or, to the knowledge of Owner, threatened against Owner or
\nHarken Colombia.<\/p>\n
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\n 33
\n Section 7.16. Offering. Subject to the accuracy of Investors’
\nrepresentations in Sections 8.6 and 8.8, the offer, sale, and issuance of the
\nCommon Shares as contemplated by this Agreement are and will be exempt from the
\nregistration requirements of the Securities Act and the securities laws of any
\nstate having jurisdiction with respect to the transactions contemplated by this
\nAgreement, and neither Owner nor anyone acting on its behalf has taken or will
\ntake any action that would cause the loss of such exemption.<\/p>\n
Section 7.17. No Defaults. Neither Owner nor Harken Colombia is (a) in
\nviolation of any provision of its charter or bylaws, (b) in breach, violation or
\ndefault, in any material respect, of or under any material contract, lease,
\ncommitment or instrument to which it is a party or by which it is bound or to
\nwhich any of its properties or assets are subject, and no event has occurred
\nwhich (whether with or without notice, lapse of time or the happening or
\noccurrence of any other event) would constitute such a breach, violation or
\ndefault or (c) in material violation of any Law.<\/p>\n
Section 7.18. Litigation. There is no action, suit, proceeding or
\ninvestigation pending or, to the knowledge of Owner, threatened against or
\naffecting Owner or Harken Colombia or any properties or rights of any of them by
\nor before any Governmental Authority that (a) relates to or challenges the
\nlegality of this Agreement, the Registration Rights Agreement or any Association
\nContract, (b) would reasonably be expected to have a material adverse effect
\nupon the business, properties, financial condition or results of operations of
\nOwner or Harken Colombia (except as disclosed in Owner’s SEC Filings) or (c)
\nwould reasonably be expected to impair the ability of Owner or Harken Colombia
\nto perform fully on a timely basis any obligations that it has, or any actions
\nspecified to be taken by it, under this Agreement, the Registration Rights
\nAgreement or any Association Contract.<\/p>\n
Section 7.19. Compliance with Laws. Owner and Harken Colombia are in
\ncompliance in all material respects with all Laws in all jurisdictions in which
\nOwner or Harken Colombia is presently doing business and where the failure to
\neffect such compliance would reasonably be expected to have a material adverse
\neffect upon the business, properties, financial condition or results of
\noperations of Owner or Harken Colombia.<\/p>\n
Section 7.20. Compliance with Environmental Laws. The business and
\nproperties of Owner and Harken Colombia have been operated in compliance with
\nall applicable Laws relating to pollution or protection of the environment,
\nincluding, without limitation, any Law relating to emissions, discharges,
\nreleases or threatened releases (“Releases”) of chemicals, pollutants,
\ncontaminants, wastes, petroleum or petroleum products, toxic substances or
\nhazardous substances (“Pollutants”) (collectively, “Environmental Laws”), for
\nwhich noncompliance would have a material adverse effect upon the business,
\nproperties, financial condition or result of operations of Owner or Harken
\nColombia. Except as disclosed in Owner’s SEC Filings, neither Owner nor Harken
\nColombia has received any written communication, whether from a Governmental<\/p>\n
-29-
\n 34
\nAuthority, citizens’ group, landowner, employee or otherwise, nor, to the
\nknowledge of Owner, has Owner or Harken Colombia received any oral communication
\nfrom a Governmental Authority, alleging that (a) Owner or Harken Colombia is not
\nin compliance with any Environmental Law applicable to it and its business and
\nproperties or (b) any employee or third party has suffered bodily injury or
\nproperty damage as a result of one or more Releases of Pollutants arising out of
\nor resulting from the operations of Owner, Harken Colombia or prior owners and
\noperators of their business or properties, which allegation, if true, would have
\na material adverse effect upon the business, properties, financial condition or
\nresult of operations of Owner or Harken Colombia. Except as disclosed in Owner’s
\nSEC Filings, neither Owner nor Harken Colombia has any material obligation to
\nremediate, repair or replace any property, whether real or personal, owned by
\nOwner, Harken Colombia or any third party, as a result of one or more Releases
\nof Pollutants arising out of or resulting from the operations of Owner, Harken
\nColombia or prior owners and operators of their business or properties.<\/p>\n
Section 7.21. Harken Colombia Organization and Corporate Authority.
\nHarken Colombia is a corporation duly incorporated, validly existing and in good
\nstanding under the laws of the jurisdiction of its incorporation, with corporate
\npower and authority to carry on its business as now conducted and to own, lease
\nand operate all properties and assets now owned, leased or operated by it.<\/p>\n
Section 7.22. Harken Colombia Qualification to do Business. Harken
\nColombia is duly qualified to do business as a foreign corporation and in good
\nstanding in each jurisdiction in which its ownership of property or the conduct
\nof its business requires such qualification, except jurisdictions in which the
\nfailure so to qualify would not have a material adverse effect on Harken
\nColombia’s business, properties, financial condition or results of operations.<\/p>\n
Section 7.23. Harken Colombia Charter and Bylaws. Owner has caused to
\nbe delivered to Investors true, correct and complete copies of the charter and
\nbylaws of Harken Colombia as now in effect.<\/p>\n
Section 7.24. Harken Colombia Non-Contravention. The performance of
\nthis Agreement by Owner, or the performance by Harken Colombia of the actions to
\nbe taken by it under this Agreement, will not (a) conflict with or result in a
\nviolation of any provision of Harken Colombia’s charter or bylaws, (b) conflict
\nwith or result in a violation of any provision of, or constitute (with or
\nwithout the giving of notice or the passage of time or both) a default under, or
\ngive rise (with or without the giving of notice or the passage of time or both)
\nto any right of termination, cancellation, or acceleration under, any bond,
\ndebenture, note, mortgage, indenture, lease, agreement or other instrument or
\nobligation to which Harken Colombia is a party or by which Harken Colombia or
\nany of its properties or assets may be bound, which conflict, violation,
\ndefault, termination, cancellation or acceleration could reasonably have a
\nmaterial adverse effect on Harken Colombia’s business, properties, financial
\ncondition or results of operations, (c) result in the creation or imposition of
\nany lien or incumbrance upon the properties or assets of Harken Colombia, or (d)
\nresult in a violation by Harken Colombia of any Law or any judgment, order,
\ndecree, rule or regulation of any Governmental Authority to which Harken
\nColombia is subject;<\/p>\n
-30-
\n 35
\nprovided, however, that no such representations or warranties are made by Owner
\nwith respect to compliance with any foreign securities laws or with respect to
\nany Association Contract (it being understood that representations and
\nwarranties with respect to the Association Contracts are being made by Owner
\nunder Section 7.12).<\/p>\n
Section 7.25. Harken Colombia Governmental Consents. Except for those
\nthat have been duly obtained, no consent, order, approval or authorization of,
\nor declaration, filing, or registration with, any Governmental Authority is
\nrequired to be obtained or made by Harken Colombia in connection with the
\nperformance by Owner of this Agreement or the performance by Harken Columbia of
\nthe actions to be taken by it under this Agreement; provided, however, that no
\nsuch representations or warranties are made by Owner with respect to compliance
\nwith any foreign securities laws.<\/p>\n
Section 7.26. Harken Colombia Disclosure. Owner, either directly or
\nindirectly through its subsidiary, Harken Colombia, does not know of any facts
\n(other than those facts generally recognized to be industry risks normally
\nassociated with the oil and gas business) related to the potential Prospects or
\nthe Subject Interests which have not been disclosed orally or in writing to
\nInvestors and which presently or will materially and adversely affect a
\npotential Prospect, any Subject Interests or the ability of Harken Colombia to
\nperform this Agreement.<\/p>\n
Section 7.27. Continuing Representations and Warranties. The
\nrepresentations, warranties and covenants of Owner made in Sections 7.1, 7.2,
\n7.5, 7.6, 7.7, 7.10, 7.11, 7.12, 7.13, 7.16, 7.21, 7.22, 7.24, 7.26 and this
\nSection 7.27 shall remain true and accurate after the Effective Date and until
\nthe termination of the Exchange Period or any later closing and consummation of
\nany transaction pursuant to Article IV, V or VI, and the representations,
\nwarranties and covenants of Owner made in Section 7.14 shall remain true and
\naccurate without limitation of time, and Owner shall not take any action nor
\npermit any action to be taken which would cause any of such representations,
\nwarranties and covenants to become untrue, inaccurate or breached. Owner
\nacknowledges and agrees that Investors may rely on this Section in connection
\nwith any exercise of Investors’ Option or Owner’s Option and agrees to take all
\naction in connection therewith required to cause Investors’ representations and
\nwarranties contained in Section 8.7 to be true and correct at the time of any
\nsuch exercise.<\/p>\n
-31-
\n 36
\n ARTICLE VIII<\/p>\n
Investors Representations, Warranties and Covenants<\/p>\n
Each Investor hereby severally represents and warrants to and covenants
\nwith Owner as follows:<\/p>\n
Section 8.1. Organization and Partnership or Corporate Authority. In
\nthe case of Investors other than the Foreign Investor, such Investor is a
\nlimited partnership duly organized, validly existing and in good standing under
\nthe laws of the State of Texas, with partnership 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. In the case of the Foreign Investor,
\nthe Foreign Investor is an English investment company duly organized, validly
\nexisting and in good standing under the laws of the jurisdiction of its
\norganization, with investment company power and authority to carry on its
\nbusiness as now conducted and to own, lease and operate all properties and
\nassets now owned, leased or operated by it.<\/p>\n
Section 8.2. Finders’ Fees. No broker or finder has acted on behalf of
\nInvestor in connection with this Agreement or the transactions contemplated
\nherein.<\/p>\n
Section 8.3. Authority of Investor. Investor has the partnership (or,
\nin the case of the Foreign Investor, investment company) power to enter into,
\nand be bound by the terms and conditions of, this Agreement and the Registration
\nRights Agreement and to carry out its obligations hereunder and thereunder, and
\nthe execution and delivery by Investor of this Agreement and the Registration
\nRights Agreement and the performance by Investor of its obligations hereunder
\nand thereunder have been duly authorized by all necessary partnership (or, in
\nthe case of the Foreign Investor, investment company) action of Investor. This
\nAgreement has been duly executed and delivered by Investor and constitutes, and
\neach other agreement or document executed or to be executed by Investor in
\nconnection with the transactions contemplated hereby has been, or when executed,
\nwill be, duly executed and delivered by Investor and constitutes, or when
\nexecuted and delivered will constitute, a valid and legally binding obligation
\nof Investor enforceable against Investor in accordance with their respective
\nterms, except to the extent enforcement may be limited (a) by applicable
\nbankruptcy, insolvency, moratorium, reorganization or similar laws from time to
\ntime in effect which affect creditors’ rights generally, (b) by legal and
\nequitable limitations on the availability of equitable remedies, including
\nwithout limitations specific performance against Investor under or by virtue of
\nthis Agreement and (c) by public policy considerations with respect to the
\nrights of indemnification under the Registration Rights Agreement.<\/p>\n
Section 8.4. Non-Contravention. The execution, delivery and performance
\nof this Agreement and the Registration Rights Agreement by Investor will not (a)
\nconflict with or result in a violation of any provision of Investor’s limited
\npartnership agreement (or, in the case of the<\/p>\n
-32-<\/p>\n
37
\nForeign Investor, investment company organizational documents), (b) conflict
\nwith or result in a violation of any provision of, or constitute (with or
\nwithout the giving of notice or the passage of time or both) a default under, or
\ngive rise (with or without the giving of notice or the passage of time or both)
\nto any right of termination, cancellation, or acceleration under, any bond,
\ndebenture, note, mortgage, indenture, lease, agreement or other instrument or
\nobligation to which Investor is a party or by which it or any of its properties
\nor assets may be bound, which conflict, violation, default, termination,
\ncancellation, or acceleration would have a material adverse effect on the
\nability of Investor to perform its obligations hereunder, (c) result in the
\ncreation or imposition of any lien or incumbrance upon the properties or assets
\nof Investor, which lien or incumbrance would have a material adverse effect on
\nthe ability of Investor to perform its obligations hereunder, or (d) result in a
\nviolation by Investor of any Law or any judgment, order, decree, rule or
\nregulation of any Governmental Authority to which Investor is subject; provided,
\nhowever, that no such representations or warranties are made by Investor with
\nrespect to compliance with any foreign securities laws.<\/p>\n
Section 8.5. Governmental Consents. Except for those that have been
\nduly obtained, no consent, order, approval or authorization of, or declaration,
\nfiling, or registration with, any Governmental Authority is required to be
\nobtained or made by Investor in connection with the execution, delivery or
\nperformance by Investor of this Agreement; provided, however, that no such
\nrepresentations or warranties are made by Investor with respect to compliance
\nwith any foreign securities laws.<\/p>\n
Section 8.6. Investment Intent. Upon issuance pursuant to this
\nAgreement, Investor will acquire the Common Shares for its own account for
\ninvestment and not with a view to, or for sale or other disposition in
\nconnection with, any distribution of all or any part of the Common Shares,
\nexcept (a) in an offering covered by a registration statement filed with the SEC
\nunder the Securities Act covering the Common Shares or (b) pursuant to an
\napplicable exemption under the Securities Act.<\/p>\n
Section 8.7. Disclosure of Information. Investor represents that it has
\nhad an opportunity to ask questions of and receive answers from Owner regarding
\nOwner and Harken Colombia, their respective businesses, properties, financial
\nconditions, operations and plans of business, the Common Shares, and the Subject
\nInterests and all matters relating thereto.<\/p>\n
Section 8.8. Accredited Investor and Experience. Investor acknowledges
\nthat it is an Accredited Investor within the meaning of Regulation D under the
\nSecurities Act, can bear the economic risk of the investment in the Net Profits
\nInterest and any investment in Common Shares and has such knowledge and
\nexperience in financial and business matters that it is capable of evaluating
\nthe merits and risks of the investment in the Net Profits Interest and any
\ninvestment in Common Shares. Investor represents that it has not been organized
\nfor the purpose of acquiring the Net Profits Interest or any Common Shares.<\/p>\n
-33-
\n 38
\n Section 8.9. Restricted Securities. Investor understands that any
\nCommon Shares that are issued pursuant to this Agreement will not have been
\nregistered pursuant to the Securities Act, any other federal securities law, any
\napplicable foreign securities law or any applicable state securities or Blue Sky
\nlaw, that such shares will be characterized as “restricted securities” under the
\nUnited 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 8.10. Legend. Investor understands and agrees that the
\ncertificates representing any Common Shares issued pursuant to this Agreement
\nshall each conspicuously set forth on the face or back thereof a legend in
\nsubstantially the following form:<\/p>\n
“THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT
\n BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
\n AMENDED, AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED
\n UNLESS SUCH SHARES ARE FIRST REGISTERED UNDER SUCH
\n ACT OR UNLESS AN EXEMPTION FROM SUCH REGISTRATION IS
\n AVAILABLE.”<\/p>\n
Section 8.11. Continuing Representations and Warranties. Except for a
\nchange of law over which Investor has no control (and Investor shall immediately
\nnotify Owner when Investor learns of such occurrence), the representations,
\nwarranties and covenants of Investor made in Sections 8.3, 8.6, 8.7, 8.8, 8.9
\nand 8.10 shall remain true and accurate after the Effective Date and until
\ntermination of the Exchange Period or any later closing and consummation of any
\nExchange made pursuant to Article IV or V (provided, with respect to those in
\nSection 8.7, Owner meets its obligations under Section 7.27), and Investor shall
\nnot take any action nor permit any action to be taken which would cause any of
\nsuch representations, warranties and covenants to become untrue, inaccurate or
\nbreached. Investor acknowledges and agrees that Owner may rely on this Section
\nin connection with any issuance of Common Shares pursuant to this Agreement.<\/p>\n
ARTICLE IX<\/p>\n
Miscellaneous<\/p>\n
Section 9.1. Assignment by Harken Colombia. Harken Colombia may at any time
\nassign, sell, transfer, convey, mortgage or pledge all or any portion of any
\nAssociation Contract or the Subject Interests; provided, that Owner shall remain
\nfully liable to perform all of their respective duties and obligations
\nhereunder, including, without limitation, the obligations of Owner to provide
\naccess to information relating to the Subject Interests as set forth in Section
\n3.18 and to issue Common Shares or pay cash to Investors pursuant to an Exchange
\nor pursuant to Article VI.<\/p>\n
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\n 39
\n Section 9.2. Assignment by Investors. Notwithstanding any other
\nprovision of this Agreement, each Investor shall have the right, without the
\nprior consent of Owner, to assign or otherwise transfer all or any part of its
\nrights and obligations hereunder to an affiliate of such Investor for so long as
\nsuch assignee shall remain an affiliate of such Investor and provided that such
\nInvestor shall remain personally obligated for its duties and obligations
\nhereunder. For the purposes of this Section 9.2, the term “affiliate of such
\nInvestor” shall mean any person directly or indirectly controlling, controlled
\nby or under common control with such Investor, with the concept of control in
\nsuch context meaning the possession of the power to direct or cause the
\ndirection of the management and policies of another, through the ownership of
\nvoting securities, by contract or otherwise. Any assignees pursuant to a
\npermitted assignment under this Section 9.2 must execute a written
\nacknowledgment, in form and substance satisfactory to Owner, that such assignees
\nhave become parties to this Agreement as if they had been original signatory
\nparties hereto and that they agree to be bound by all the terms and provisions
\nhereof. Except as expressly provided above in this Section 9.2, Investors shall
\nnot assign, sell, transfer, convey, mortgage or pledge all or any part of the
\nNet Profits Interest or create a security interest therein without the prior
\nwritten consent of Owner.<\/p>\n
Section 9.3. Commitment Fees. Concurrently (except as provided in
\nclause (b)) with the payment by Investors to Owner of the Advances pursuant to
\nSection 2.1, and as additional compensation for the Commitment, Owner shall (a)
\npay to EnCap Investments L.C. a cash fee of $500,000 by wire transfer of
\nimmediately available funds and (b) issue and deliver to Investors, immediately
\nupon receipt of listing approval by the American Stock Exchange, an aggregate of
\n150,000 Common Shares, as follows: 65,293 Common Shares to EnCap Energy Capital
\nFund III, L.P.; 46,616 Common Shares to EnCap Energy Capital Fund III-B, L.P.;
\n15,591 Common Shares to BOCP Energy Partners, L.P.; and 22,500 Common Shares to
\nEnergy Capital Investment Company PLC. It is expressly acknowledged by the
\nparties hereto that the representations, warranties and covenants made in
\nArticles VII and VIII with respect to the Common Shares issued pursuant to this
\nAgreement, including without limitation the representations and warranties made
\nin Sections 8.9 and 8.10, apply to the Common Shares issued pursuant to this
\nSection 9.3.<\/p>\n
Section 9.4. Adjustments for Consolidation, Merger, Sale of Assets,
\nReorganization, etc. In case Owner after the Effective Date (a) shall
\nconsolidate with or merge into any other person and shall not be the continuing
\nor surviving corporation of such consolidation or merger, or (b) shall permit
\nany other person to consolidate with or merge into Owner and Owner shall be the
\ncontinuing or surviving person but, in connection with such consolidation or
\nmerger, the Common Shares shall be changed into or exchanged for stock or other
\nsecurities of any other person or cash or any other property, or (c) shall
\ntransfer all or substantially all of its properties or assets to any other
\nperson, or (d) shall effect a capital reorganization or reclassification of the
\nCommon Shares (other than a subdivision or combination of the outstanding Common
\nShares into a greater or lesser number of Common Shares), then, and in the case
\nof each such transaction, proper provision shall be made so that, upon the basis
\nand the terms and in the manner provided in this Agreement, Investors upon an
\nExchange for Common Shares at any time after the<\/p>\n
-35-
\n 40
\nconsummation of such transaction, shall be entitled to receive, in lieu of the
\nCommon Shares issuable upon such Exchange prior to such consummation, the amount
\nof securities, cash or other property to which Investors would actually have
\nbeen entitled as a stockholder upon such consummation if such Exchange had
\noccurred immediately prior thereto; provided, however, that if the transaction
\ndescribed in clauses (a) through (d) hereof provides an election to receive
\ncash, securities or property, Investors shall, within 10 Business Days following
\nwritten request from Owner, notify Owner of the election Investors would have
\nmade had they been stockholders of Owner, which notice shall govern the
\nconsideration to be received upon Exchange, and if no such notice is received
\nwithin such 10 Business Days, Owner in its discretion may determine the
\nconsideration to which Investors are entitled as if Investors had made any of
\nsuch elections. The provisions of this Section 9.4 shall apply mutatis mutandis
\nto the issuance of Common Shares pursuant to Article VI.<\/p>\n
Section 9.5. Indemnification.<\/p>\n
(a) Owner agrees to indemnify and hold harmless, on an after
\n tax basis, Investors and their directors, officers, employees, agents,
\n partners, shareholders and affiliates from and against any and all
\n claims, 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 under
\n this Section 9.5(a) shall survive the termination of this Agreement.<\/p>\n
(b) Each Investor severally agrees to indemnify and hold
\n harmless Owner and Harken Colombia and their respective directors,
\n officers, employees, agents, partners, shareholders and Affiliates from
\n and 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 such Investor contained in this Agreement. The obligations
\n of Investors under this Section 9.5(b) shall survive the termination of
\n this Agreement.<\/p>\n
Section 9.6. Public Announcements. Except as set forth in the following
\nsentence, the parties to this Agreement agree that prior to making any public
\nannouncement or statement with respect to the transactions contemplated by this
\nAgreement, the party desiring to make such public announcement or statement
\nshall consult with the other parties and exercise reasonable efforts to (a)
\nagree upon the text of a joint public announcement or statement to be made by
\nall the parties or (b) obtain approval of the other parties to the text of a
\npublic announcement or statement to be<\/p>\n
-36-
\n 41
\nmade solely by Owner or Investors, as the case may be. Nothing contained in this
\nSection shall be construed to require any party to obtain approval of the other
\nparties to disclose information with respect to any disclosure (a) required by
\napplicable Law or by any applicable rules, regulations or orders of any
\nGovernmental Authority having jurisdiction or (b) necessary to comply with
\ndisclosure requirements of any applicable stock exchange.<\/p>\n
Section 9.7. Brokers. Without limiting the parties’ respective
\nrepresentations in Sections 7.5 and 8.2, each party agrees to indemnify and hold
\nthe others harmless from and against any claim for a brokerage or finder’s fee
\nor commission in connection with this Agreement or the transactions contemplated
\nby this Agreement to the extent such claim arises from or is attributable to the
\nactions of such indemnifying party.<\/p>\n
Section 9.8. Notices. All notices, requests, demands, consents and
\nother communications required or permitted to be given or made hereunder shall
\nbe in writing and shall be deemed to have been duly given or made if delivered
\npersonally, or sent by a nationally recognized overnight delivery service or by
\ntelecopy or similar facsimile transmission, or mailed by prepaid registered or
\ncertified mail, return receipt requested, to the other parties at the respective
\naddress set forth below (or to such other address as a party shall designate for
\nitself by written notice given or made in accordance herewith):<\/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
-37-<\/p>\n
42<\/p>\n
(b) if to Investors, at:<\/p>\n
c\/o EnCap Investments L.C.
\n 1100 Louisiana Street
\n Suite 3150
\n Houston, Texas 77002
\n Telecopy: (713) 659-6130
\n Attention: Gary R. Petersen, Managing Director<\/p>\n
with a copy to:<\/p>\n
Michael K. Pierce
\n Thompson & Knight, P.C.
\n 1700 Texas Commerce Tower
\n 600 Travis
\n Houston, Texas 77002
\n Telecopy: (713) 217-2828<\/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
Section 9.9. Waivers and Amendments. This Agreement may be amended or
\nsupplemented only by a written instrument signed by the parties hereto. The
\nterms of this Agreement may be waived only by a written instrument signed by the
\nparty waiving compliance. No delay on the part of any party in exercising any
\nright, power or privilege hereunder shall operate as a waiver thereof, nor shall
\nany waiver on the part of any party of any such right, power or privilege, or
\nany single or partial exercise of any such right, power or privilege, preclude
\nany further exercise thereof or the exercise of any other such right, power or
\nprivilege. The rights and remedies herein provided are cumulative and are not
\nexclusive of any rights or remedies that any party may otherwise have at law or
\nin equity.<\/p>\n
Section 9.10. Governing Law. 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 9.11. Binding Effect; No Assignment; No Third Party Benefit.
\nThis Agreement shall be binding upon and inure to the benefit of the parties and
\ntheir respective successors and permitted assigns. Unless otherwise expressly
\nprovided herein, no rights or obligations under this<\/p>\n
-38-
\n 43
\nAgreement are assignable. Except as expressly provided in Sections 3.17, 9.3 and
\n9.5, nothing in this Agreement, whether expressed or implied, is intended to
\nconfer any rights or remedies under or by reason of this Agreement on any person
\nother than the parties to this Agreement and their respective successors and
\npermitted assigns.<\/p>\n
Section 9.12. Entire Agreement. This Agreement and the Registration
\nRights Agreement constitute the full and complete agreement of the parties
\nhereto with respect to the subject matter hereof, and supersede all previous
\noral and written and all contemporaneous oral negotiations, commitments,
\nwritings and understandings.<\/p>\n
Section 9.13. 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 9.14. United States Dollars. All references in this Agreement
\nto dollar amounts are to United States dollars.<\/p>\n
Section 9.15. 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 9.16. Rights as Stockholder. No adjustment shall be made for
\ndividends on any Common Shares issued upon an Exchange. An Investor shall have
\nnone of the rights of a stockholder of Owner until Common Shares are actually
\nissued to it.<\/p>\n
Section 9.17. Counterparts. This Agreement may be executed in one or
\nmore counterparts (and separately by each party hereto), each of which shall be
\nan original and all of which shall constitute but one and the same document.<\/p>\n
Section 9.18. Arbitration. Owner and Investors agree to submit to final
\nand binding arbitration any and all disputes, claims, and\/or disagreements
\nconcerning the interpretation or application of this Agreement or the
\nRegistration Rights Agreement. Any dispute, claim, and\/or disagreement subject
\nto arbitration pursuant to the terms of this Section shall be resolved by
\narbitration in Dallas, Texas by three arbitrators in accordance with the
\nCommercial Arbitration Rules of the American Arbitration Association or any
\nsuccessor organization (the “Association”) then in effect. Within 10 days of the
\ninitiation of an arbitration hereunder, Owner will designate one arbitrator and
\nInvestors will designate one arbitrator, in accordance with the Association’s
\nrules. The appointed arbitrators will appoint a neutral arbitrator in the manner
\nprescribed in the Association’s rules. Owner and Investors agree that the
\ndecision of the three arbitrators selected hereunder will be final and binding
\non all parties. A judgment on the award rendered by the arbitrator may be
\nentered in any court having jurisdiction, or application may be made to such
\ncourt for judicial acceptance of the award and an order of enforcement, as the
\ncase may be.<\/p>\n
-39-<\/p>\n
44
\n Section 9.19. Consent to Jurisdiction. Subject to the provisions of
\nSection 9.18, Owner and Investors 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 or the Registration Rights Agreement
\nmay be commenced in the Court of the State of Texas for Dallas County, or in the
\nUnited States District Court for the Northern District of Texas, and Owner and
\nInvestors consent and submit in advance to such jurisdiction and agree that
\nvenue will be proper in such courts on any such matter. Owner and Investors each
\nhereby waives personal service of process and agrees that a summons and
\ncomplaint commencing an action or proceeding in any such court shall be properly
\nserved and shall confer personal jurisdiction if served by registered or
\ncertified mail to it. The choice of forum set forth in this Section shall not be
\ndeemed to preclude the enforcement of any judgment obtained in such forum, or
\nthe taking of any action under this Agreement or the Registration Rights
\nAgreement to enforce the same, in any appropriate jurisdiction.<\/p>\n
Section 9.20. Guaranty of Owner. Owner agrees to cause Harken Colombia
\nto take the actions specified to be taken by Harken Colombia under, and to cause
\nHarken Colombia to otherwise act in accordance with the provisions of, this
\nAgreement. Furthermore, Owner hereby irrevocably, absolutely and unconditionally
\nguarantees, as principal and not as surety (this being a guarantee of payment
\nand not of collection), to and for the benefit of Investors, prompt and complete
\npayment and performance by Harken Colombia of any and all obligations of or
\nactions specified to be taken by Harken Colombia under or arising out of or in
\nconnection with this Agreement, including any liabilities arising from a failure
\nby Harken Colombia to take any actions specified to be taken by it under this
\nAgreement (the “Obligations”), and agrees to pay any and all expenses (including
\nreasonable counsel fees and expenses) which may be paid or incurred by Investors
\nin collecting any or all of the Obligations and\/or enforcing their rights under
\nthis Agreement. The obligations of Owner hereunder shall not be (i) subject to
\nany reduction, limitation, impairment or termination for any reason, including
\nany claim of waiver, release, surrender, alteration or compromise, and shall not
\nbe subject to any set-off, counterclaim or recoupment whatsoever, or (ii)
\nconditioned or contingent upon the pursuit by Investors or any other person at
\nany time of any right or remedy against Harken Colombia or any other person
\nwhich may become liable in respect of all or any part of the Obligations or
\nagainst any collateral or security or guarantee therefor or right of set-off
\nwith respect thereto. Owner shall not exercise any rights it may acquire by way
\nof subrogation under this Section, whether acquired by any payment made
\nhereunder, by any set-off or application of funds of Owner by Investors or
\notherwise, until (i) the payment in full of the Obligations and (ii) the payment
\nof all other expenses to be paid by Owner pursuant hereto.<\/p>\n
Section 9.21. Further Assurances. At any closing of any Exchange
\npursuant to Article IV or V, Investors shall execute and deliver to Owner such
\nacknowledgments of receipt of the Common Shares or cash delivered to Investors
\nat such closing as may be reasonably requested by Owner to carry out the intent
\nand purposes of this Agreement.<\/p>\n
-40-
\n 45
\n Section 9.22. No Partnership. The parties hereto do not intend by
\nentering 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 9.23. Expenses. All out-of-pocket fees and expenses (including
\nlegal fees and expenses) incurred by Investors in connection with the
\nnegotiation, preparation and execution of this Agreement and the Registration
\nRights Agreement shall be paid or reimbursed to Investors by Owner promptly upon
\nthe submission to Owner of reasonably itemized statements therefor; provided,
\nhowever, that Owner shall not be required to pay (whether directly or by
\nreimbursement) pursuant to this Section 9.23 more than $10,000 in the aggregate.<\/p>\n
-41-<\/p>\n
46
\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: \/s\/ Larry E. Cummings
\n ——————————
\n Name: Larry E. Cummings
\n Title: Vice President and Secretary<\/p>\n
ENCAP ENERGY CAPITAL FUND III, L.P.<\/p>\n
By: EnCap Investments L.C., General Partner<\/p>\n
By: \/s\/ Gary R. Petersen
\n ——————————
\n Name: Gary R. Petersen
\n Title: Managing Director<\/p>\n
ENCAP ENERGY CAPITAL FUND III-B, L.P.<\/p>\n
By: EnCap Investments L.C., General Partner<\/p>\n
By: \/s\/ Gary R. Petersen
\n ——————————
\n Name: Gary R. Petersen
\n Title: Managing Director<\/p>\n
BOCP ENERGY PARTNERS, L.P.<\/p>\n
By: EnCap Investments L.C., Manager<\/p>\n
By: \/s\/ Gary R. Petersen
\n ——————————
\n Name: Gary R. Petersen
\n Title: Managing Director<\/p>\n
ENERGY CAPITAL INVESTMENT COMPANY
\n PLC<\/p>\n
By: \/s\/ Gary R. Petersen
\n ——————————
\n Name: Gary R. Petersen
\n Title: Director<\/p>\n
-42-<\/p>\n
47
\n ANNEX I<\/p>\n
\n\n Designated Advance
\nInvestor Percentage Commitment
\n——– ———- ———-
\n
\nEnCap Energy Capital Fund III, L.P………………………. 0.7500% $ 3,750,000.00
\nEnCap Energy Capital Fund III-B, L.P…………………….. 2.1765% $ 10,882,225.00
\nBOCP Energy Partners, L.P………………………………. 1.5538% $ 7,769,275.00
\nEnergy Capital Investment Company PLC……………………. 0.5197% $ 2,598,500.00
\n —————– —————-
\n Totals……………………………………….. 5.0000% $ 25,000,000.00
\n ================= =================
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