SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF
THE SECURITIES EXCHANGE ACT OF 1934
[X] Filed by the Registrant
[_] Filed by a Party other than the Registrant
Check the appropriate box:
[X] Preliminary Proxy Statement
[_] Confidential, for Use of the
Commission Only (as permitted by Rule 14a - 6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Under Rule 14a-12
HARKEN ENERGY CORPORATION
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(Name of Registrant as Specified in its Charter)
________________________________________________________________________________
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
____________________________________________________________________
(2) Aggregate number of securities to which transaction applies:
____________________________________________________________________
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how it
was determined):
____________________________________________________________________
(4) Proposed maximum aggregate value of transaction:
____________________________________________________________________
(5) Total fee paid:
____________________________________________________________________
[_] Fee paid previously with preliminary materials.
___________________________________________________________________________
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
___________________________________________________________________________
(1) Amount previously paid:
___________________________________________________________________________
(2) Form, Schedule or Registration Statement No.:
___________________________________________________________________________
(3) Filing Party:
___________________________________________________________________________
(4) Date Filed:
___________________________________________________________________________
HARKEN
Energy Corporation
580 Westlake Park Boulevard, Suite 600
Houston, Texas 77079
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
to be held , 2002
Notice is hereby given that the Annual Meeting of Stockholders (the "Annual
Meeting") of Harken Energy Corporation, a Delaware corporation ("Harken"), will
be held at [___________________], Houston, Texas on , 2002 at 5:00
p.m. local time for the following purposes:
(1) To approve a $10 million underwritten Rights Offering of Harken Common
Stock and the issuance of such number of shares of Harken Common Stock
as may be necessary to accomplish such Rights Offering;
(2) To approve the redemption of up to $20 million principal amount of
Harken's 5% European Notes due May 2003 (the "5% European Notes") and
the issuance of such number of shares of Harken Common Stock as may be
necessary to accomplish such redemption; and
(3) To elect three Class C Directors of Harken to hold office in
accordance with Harken's Certificate of Incorporation until the 2005
Annual Meeting of Stockholders and until their respective successors
are duly elected and qualified.
Your Board of Directors recommends that you vote in favor of each of the
proposals described in this Proxy Statement.
The Board of Directors has fixed the close of business on _________ __,
2002 as the date of record for determining the stockholders entitled to notice
of and to vote, either in person or by proxy, at the Annual Meeting and any
adjournment or postponement thereof.
Harken's Annual Report to Shareholders, a Proxy Statement containing
information relating to the matters to be acted upon at the Annual Meeting, a
form of Proxy, and a letter to the stockholders from the Chairman of the Board
accompany this Notice.
You are cordially invited to attend the Annual Meeting. Whether or not you
plan to attend, you are urged to date, sign and promptly return your proxy so
that your shares may be voted in accordance with your wishes and in order that
the presence of a quorum may be assured. Your vote is important. The giving of a
proxy does not affect your right to revoke it later or vote your shares in
person if you should attend the Annual Meeting.
If you plan to attend the Annual Meeting, please note that this is a
stockholders' meeting and attendance will be limited to stockholders of Harken
or their qualified representative. Each stockholder may be asked to present
valid picture identification, such as a driver's license or passport.
Stockholders holding stock in brokerage accounts ("street name" holders) will
not need to bring a copy of a brokerage statement reflecting stock ownership as
of the Record Date. Qualified representatives of a stockholder must have
identification as well as a properly executed and guaranteed proxy from the
stockholder they are representing. Cameras, recording devices and other
electronic devices will not be permitted at the Annual Meeting.
By Order of the Board of Directors
/s/ A. WAYNE HENNECKE
A. Wayne Hennecke, Secretary
Houston Texas
__________,2002
HARKEN
Energy Corporation
580 Westlake Park Boulevard, Suite 600
Houston, Texas 77079
ANNUAL MEETING OF STOCKHOLDERS
to be held , 2002
SOLICITATION OF PROXIES
The accompanying proxy is solicited on behalf of the Board of Directors of
Harken Energy Corporation, a Delaware corporation ("Harken"), in connection with
the Annual Meeting of Stockholders (the "Annual Meeting"), which will be held at
[_____________________], Houston, Texas, on , 2002 at 5:00 p.m. local
time, and at any adjournments or postponements thereof, for the purposes set
forth in the accompanying notice. This Proxy Statement and the accompanying
Proxy was first mailed to stockholders of record on or about __________, 2002.
RECORD DATE AND VOTING SECURITIES
The Board of Directors has fixed the close of business on _________ __,
2002 as the record date for determining the holders of common stock, $.01 par
value per share, of Harken ("Common Stock") entitled to notice of and to vote,
either in person or by proxy, at the Annual Meeting. The shares of Common Stock
are the only shares of capital stock entitled to vote at the Annual Meeting. On
, 2002, Harken had __________ shares of Common Stock outstanding.
RECOMMENDATIONS OF THE BOARD
Unless a stockholder gives other instructions on the proxy card, the
persons named as proxy holders on the proxy card will vote in accordance with
the recommendation of the Board of Directors. The Board's recommendation is set
forth together with the description of each item in this Proxy Statement. In
summary the Board recommends a vote:
.. FOR a $10 million underwritten Rights Offering of Harken Common Stock and
the issuance of such number of shares of Harken Common Stock as may be
necessary to accomplish such Rights Offering;
.. FOR the redemption of up to $20 million principal amount of Harken's 5%
European Notes and the issuance of such number of shares of Harken Common
Stock as may be necessary to accomplish such redemption; and
.. FOR the election of the three nominees named in this Proxy Statement as the
Class C Directors of Harken to hold office in accordance with Harken's
Certificate of Incorporation until the 2005 Annual Meeting of Stockholders
and until their respective successors are duly elected and qualified.
Please note that under certain circumstances, Harken may not have a
sufficient number of shares authorized to consummate the Rights Offering and/or
to redeem the 5% European Notes.
Please also note that, with respect to Item One above, stockholders are
only being asked to approve the Rights Offering and are not being asked to take
any action at this time with respect to
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the Rights Offering. A vote in favor of Item One will not obligate any
stockholder to purchase shares in the Rights Offering. The Rights Offering will
be offered in a separate mailing to the stockholders, as discussed further in
this Proxy Statement.
QUORUM AND VOTING
The presence, in person or represented by proxy, of the holders of a
majority of the outstanding shares of Common Stock entitled to vote at the
Annual Meeting is necessary to constitute a quorum at the Annual Meeting.
Abstentions and broker non-votes are counted for purposes of determining whether
a quorum is present. If a quorum is not present or represented by proxy, the
stockholders entitled to vote thereat, present in person or represented by
proxy, have the power to adjourn the meeting from time to time, without notice
other than an announcement at the meeting until a quorum is present or
represented. At any such adjourned meeting at which a quorum is present or
represented, any business may be transacted that might have been transacted at
the meeting as originally called.
The affirmative vote of a plurality of the votes cast at the meeting is
required for the election of directors. A properly executed proxy marked
"Withhold Authority" with respect to the election of one or more directors will
not be voted with respect to the director or directors indicated, although it
will be counted for the purpose of determining whether there is a quorum.
Abstentions and broker non-votes will have no effect on the election of nominees
to the Board of Directors.
In the election of Directors, each holder of Common Stock, upon giving
proper notice, will be entitled to cumulate his, her or its votes by voting the
total number of shares of Common Stock held by such stockholder at the close of
business on the Record Date multiplied by the number of Directors to be elected,
as such stockholder may see fit. Any holder of Common Stock who intends to
cumulate his, her or its votes is required to give written notice of such
intention to the Secretary of Harken on or before thirty days preceding the
election at which such holder intends to cumulate his, her or its votes. Notice
may be given on the Proxy, if done so in a timely manner. All holders of Common
Stock, including holders of proxies, may cumulate their votes if any holder has
given such written notice. Discretionary authority to cumulate votes is being
solicited only in the event an individual shareholder first elects to cumulate
his, her or its votes.
The affirmative vote of a majority of the shares having voting power
present, in person or represented by proxy, at the Annual Meeting is required to
approve the Rights Offering and the proposed redemptions of 5% European Notes
(Items One and Two). Abstentions will have the same effect as votes against
these proposals. Broker non-votes will not be considered as votes against these
proposals.
Delaware law does not afford our stockholders the opportunity to dissent
from the actions described in these proposals and receive value for their Common
Stock.
PROXY SOLICITATION
The expense of the solicitation of proxies will be borne by Harken.
Solicitation of proxies may be made in person or by mail, telephone or telegraph
by directors, executive officers and other employees of Harken. Harken will
request banking institutions, brokerage firms, custodians, nominees and
fiduciaries to forward solicitation material to the beneficial owners of Common
Stock held of record by such persons, and Harken will reimburse such entities
for their reasonable out-of-pocket expenses. Harken has retained the services of
Morrow & Co. to solicit proxies by mail, telephone, telegraph or personal
contact. The estimated cost, if any, of the professional solicitation will be
approximately $40,000 (including out-of-pocket expenses). If you have any
questions prior to the Annual Meeting, or need further assistance, please call
our proxy solicitor, Morrow & Co., at 1-800-607-0088. Brokerage firms and banks
should call 1-212-754-8000.
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REVOCATION OF PROXY
Any stockholder returning the accompanying proxy may revoke such proxy at
any time prior to its exercise (a) by giving written notice to the Secretary of
Harken of such revocation; (b) by voting in person at the meeting; or (c) by
executing and delivering to the Secretary of Harken a later dated proxy.
OWNERSHIP OF COMMON STOCK
Security Ownership of Certain Beneficial Owners
As of August 14, 2002, the only persons known by Harken to beneficially own
five percent (5%) or more of the outstanding shares of Common Stock were:
Name Shares Percent Ownership
----------------------------------- ----------------------- --------------------
Michael B. Rohlfs, Attorney in Fact
for Traco International, N.V. 1,234,033 5.09%
5N762 Burr Road
St. Charles, Illinois 60175
Robert Anderson 2,000,000 8.53%
Ch. 7 Trustee for Benz Energy, Inc.
Century Plaza, Suite 412
911 NW Loop 281
Longview, Texas 75604
Security Ownership of Directors and Management
The following table sets forth information regarding the number of shares
of Common Stock beneficially owned by each Director, each named executive
officer, and all of Harken's Directors and executive officers as a group as of
August 14, 2002:
Number of Shares
Name Beneficially Owned Percent of Class
----------------------------------- ----------------------- --------------------
Michael M. Ameen, Jr. 23,100 (1) (2)
Larry G. Akers 3,500 (3) (2)
Marvin M. Chronister 0 (2)
James W. Denny, III 20,500 (4) (2)
Mikel D. Faulkner 431,625 (5) 1.84%
James H. Frizell 18,000 (2)
Bruce N. Huff 171,125 (6) (2)
Dr. J. William Petty 11,000 (7) (2)
Guillermo Sanchez 9,751 (8) (2)
H. A. Smith 27,930 (9) (2)
Stephen C. Voss 163,625 (10) (2)
All Directors and Executive Officers
as a group (11 persons) 880,156 (11) 3.7%
________________________________________
(1) Includes 20,000 shares issuable within 60 days upon exercise of
options issued by Harken.
(2) Less than one percent (1%)
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(3) Includes 2,500 shares issuable within 60 days upon exercise of options
issued by Harken.
(4) Includes 17,500 shares issuable within 60 days upon exercise of
options issued by Harken.
(5) Includes 355,625 shares issuable within 60 days upon exercise of
options issued by Harken.
(6) Includes 168,625 shares issuable within 60 days upon exercise of
options issued by Harken.
(7) Includes 2,500 shares issuable within 60 days upon exercise of options
issued by Harken.
(8) Includes 7,800 shares issuable within 60 days upon exercise of options
issued by Harken.
(9) Includes 20,000 shares issuable within 60 days upon exercise of
options issued by Harken.
(10) Includes 162,625 shares issuable within 60 days upon exercise of
options issued by Harken.
(11) Includes 757,175 shares issuable within 60 days upon exercise of
options issued by Harken.
ITEM ONE: THE RIGHTS OFFERING
The Board of Directors is submitting for stockholder approval, and
recommends that the stockholders approve, a $10 million underwritten Rights
Offering of Common Stock (the "Rights Offering") and, in accordance with Section
713 of the American Stock Exchange Listing Standards, Policies and Procedures
(the "AMEX Rules"), the issuance of such number of shares of Common Stock as may
be necessary to accomplish the Rights Offering.
The Rights Offering
The Rights Offering is intended to raise $10,000,000 (the "Subscription
Amount") for Harken by distributing to each holder of Harken's Common Stock, as
of the record date for the Rights Offering, subscription rights (the "Rights")
to purchase shares of Harken Common Stock. The subscription price (the
"Subscription Price") in the Rights Offering will be 70% of the "Current Market
Price" (as defined below) of Common Stock. In addition, the holders of Harken
convertible preferred stock will have the right to participate in the Rights
Offering based on the number of shares of Common Stock such holders would
receive if such holders converted their preferred stock into shares of Common
Stock.
The "Current Market Price" of Common Stock for the purpose of the Rights
Offering will be the average of the closing prices of Common Stock on the
American Stock Exchange for the five trading days immediately preceding the
commencement of the Rights Offering, but will be no greater than $0.50 per share
and no less than $0.15 per share. Although the exact number of shares to be
issued in connection with the Rights Offering depends upon the Current Market
Price at the time the Rights Offering commences, the minimum number of shares
that will be issued is approximately 28.6 million and the maximum number of
shares that will be issued is approximately 95.2 million. Given the large number
of shares to be issued in connection with the Rights Offering, the Rights
Offering could result in substantial dilution of the existing Harken
stockholders who do not participate in the Rights Offering. Further, depending
upon the results of the Rights Offering, the number of new shares to be issued
could result in a change of control of Harken. In addition, the stockholders may
be subject to substantial dilution as a result of redemption of a portion of the
5% European Notes. See "Item Two."
Harken has entered into an agreement with Lyford Investments Enterprises
Ltd. ("Lyford") to serve as the underwriter of the Rights Offering. Lyford has
agreed to purchase at the Subscription Price any of the underlying shares of
Common Stock that are not purchased by the stockholders in the Rights Offering
(the "Unsubscribed Shares"). As compensation to Lyford for its commitment,
Harken will pay to Lyford an amount equal to 6% (the "Standby Commitment Fee")
of the aggregate offering price of the aggregate number of shares of Common
Stock issuable upon exercise of the Rights (i.e., an aggregate fee
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of $600,000). Such fee shall be payable on September 18, 2002, and shall be
payable in 1,714,286 shares of Common Stock, with each such share being
attributed a value equal to the average of the closing prices of Common Stock on
the American Stock Exchange for the five trading days immediately preceding
September 6, 2002. Lyford has indicated to management of Harken that it intends
to vote all of its shares of Harken Common Stock (which as of the date of this
Proxy Statement is ______________, representing __% of the outstanding shares
entitled to vote at the Annual Meeting) in favor of Item One, as well as to vote
in favor of all of the other proposals in this Proxy Statement. As a result of
the agreement with Lyford, if none of Harken's common or preferred stockholders
elect to exercise their Rights to purchase shares of Harken Common Stock, and
depending upon the Current Market Price used in the Rights Offering, Lyford
could own up to 81% of Harken's common shares outstanding.
Harken will notify Lyford if the Rights Offering will not occur, was not
approved by the stockholders, or was otherwise terminated. In such event, the
agreement with Lyford will terminate (except for certain sections). In such
event, Lyford will be entitled to retain one-half (1/2) of the Standby
Commitment Fee shares. Within thirty (30) days from the termination date, Lyford
will either (i) return the other one-half (1/2) of the Standby Commitment Fee
shares to Harken, or (ii) retain the other one-half (1/2) of the Standby
Commitment Fee shares and remit to Harken $300,000.
Harken anticipates commencing the Rights Offering on , 2002. In
connection with the Rights Offering, Harken has filed a Registration Statement
on Form S-3 with the Securities and Exchange Commission. The Registration
Statement, which has not yet been declared effective by the Commission,
describes in more detail the terms of the Rights Offering. We encourage you to
read it carefully.
Harken intends to use the proceeds of the Rights Offering for the following
purposes: to repay a $5 million loan made by Lyford to Harken during 2002 that
is evidenced by a 10% promissory note (the "Lyford Note"), which is due by its
terms in 2005, but must be prepaid upon completion of the Rights Offering; to
reduce Harken's convertible debt that matures next year and/or to reduce other
debt; and for other corporate purposes.
Reasons for Approving the Rights Offering
Under Section 713 of the AMEX Rules, issuers whose securities are listed on
the American Stock Exchange, the exchange on which Harken's Common Stock is
listed, are required to obtain stockholder approval, prior to listing on the
exchange securities issued in connection with a transaction, other than a public
offering, involving the sale, issuance, or potential issuance by the company of
common stock equal to 20 percent or more of presently outstanding stock for less
than the greater of book or market value of the stock.
As of August 14, 2002, Harken had outstanding 23,430,807 shares of Common
Stock. Although the exact number of shares to be issued in connection with the
Rights Offering depends upon the Current Market Price at the time the Rights
Offering commences, the minimum number of shares that will be issued is
approximately 28.6 million and the maximum number of shares that will be issued
is approximately 95.2 million. Because the Rights Offering would result in the
issuance of a number of shares that is greater than 20% of the currently
outstanding shares of Common Stock, the AMEX Rules require stockholder approval
as a condition to listing such additional shares on the American Stock Exchange.
The Board of Directors believes that the Rights Offering is in the best
interest of Harken and its stockholders. The Rights Offering will, if
consummated, permit Harken's then-current stockholders an opportunity to
purchase additional shares of Common Stock at a 30% discount to the Current
Market Price of Common Stock at the time the Rights Offering commences. In
addition, it will generate $10 million in additional capital for Harken. As
described above, these proceeds are intended, among other things, to be used to
reduce a portion of Harken's debt balances. To the extent Harken is unable to
repurchase its 5% European Notes and Benz Convertible Notes Due 2003 (the "Benz
Notes") prior to maturity, it will have to
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pay such notes in cash, redeem the notes by converting them into Common Stock,
and/or otherwise restructure the notes. There can be no assurance that Harken
would be successful in restructuring its obligations under the then-outstanding
notes, have sufficient authorized shares to redeem such notes, or would have
available sufficient funds to pay such notes in cash upon maturity.
Stockholders are being asked to approve the Rights Offering and the
issuance of shares of Common Stock necessary to accomplish the Rights Offering.
Stockholders are not being asked to decide at this time whether or not to
exercise their Rights in the Rights Offering. A vote in favor of the Rights
Offering will not obligate any stockholder to purchase shares in the Rights
Offering.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ISSUANCE OF SHARES OF
COMMON STOCK IN CONNECTION WITH THE RIGHTS OFFERING.
Vote Required
The proposal to approve the Rights Offering and the issuance of shares of
Common Stock in connection with the Rights Offering requires the affirmative
vote of a majority of the shares having voting power present, in person or
represented by proxy, at the Annual Meeting. Abstentions will have the same
effect as votes against the proposal. Broker non-votes will not be considered as
votes against the proposal.
ITEM TWO: REDEMPTION OF 5% EUROPEAN NOTES
Background
On May 26, 1998, Harken issued to qualified purchasers a total of $85
million in 5% European Notes which mature on May 26, 2003. Harken management has
actively pursued, and continues to pursue, negotiated transactions to repurchase
or exchange the 5% European Notes in advance of their maturity next year. Since
the filing of Harken's quarterly report on Form 10-Q for the second quarter of
2002, Harken has continued to reduce the balance of the 5% European Notes
through exchanges, repurchases, and other applicable forms of restructurings
such that as of the date of this Proxy Statement, Harken has repurchased or
exchanged approximately $51,900,000 of the 5% European Notes, leaving
approximately $33,100,000 of the 5% European Notes issued and outstanding. The
5% European Notes Trust Indenture was previously filed with the Securities and
Exchange Commission as Exhibit 10.1 to the Form 10-Q for the quarter ended June
30, 1998.
The 5% European Notes were issued primarily to raise funds to further
Harken's exploration and development operations in Colombia, South America. Due
to the risks involved in such operations, Harken negotiated redemption features
for the 5% European Notes to allow Harken to redeem the notes by converting them
into Common Stock. Beginning November 26, 2002, Harken may redeem up to 50% of
the 5% European Notes in exchange for shares of Common Stock at a defined
conversion price, as discussed below, based on an average market price of Common
Stock. On May 26, 2003, Harken may similarly redeem all remaining 5% European
Notes for shares of Common Stock.
If Harken elects to redeem the 5% European Notes for shares of Common
Stock, each note will be redeemed for a number of shares of Common Stock equal
to 115% of the principal value of the note to be redeemed, plus accrued and
unpaid interest thereon, divided by the average market price of the stock over
the 30 calendar days immediately preceding the date of the notice of the
redemption. The number of shares that might be issued to redeem the 5% European
Notes will vary significantly depending upon the average market price of Common
Stock over the 30 days preceding the redemption notice, and the amount of the 5%
European Notes to be redeemed. For example, if 5% European Notes had been
converted on August 14, 2002, with an estimated conversion price of $.30, for
every $1,000,000 of the 5% European Notes converted at this price, Harken would
have been required to issue to the noteholders approximately 3.8 million shares
of Common Stock. Thus, if Harken redeemed $20 million principal amount of the 5%
European Notes at this price, Harken would be required to issue approximately 76
million shares of its Common Stock. In addition, if the entire $33,100,000 of
outstanding 5% European Notes were redeemed at this price, Harken would be
required to issue approximately 127 million shares of its Common Stock. Such a
large issuance of shares in connection with the redemptions of the 5% European
Notes would result
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in substantial dilution of the existing Harken common stock. Further, the number
of new shares to be issued could result in a change of control of Harken. In
addition, if a stockholder does not participate in the Rights Offering, he could
be further diluted. See "Item One".
Reasons for Approving the Redemption of the 5% European Notes
The Board of Directors is seeking stockholder approval of the
redemption of up to $20 million principal amount of the 5% European Notes and,
under Section 713 of the AMEX Rules, the issuance of such number of shares of
Common Stock as may be necessary to redeem up to $20 million principal amount of
the 5% European Notes.
As of August 14, 2002, Harken had outstanding 23,430,807 shares
of Common Stock. Although the exact number of shares to be issued in connection
with redemptions of the 5% European Notes will depend upon the amount of notes
to be redeemed and the average market price of Harken Common Stock at the time
of the redemptions, at present market prices, even the redemption of a small
amount of the notes would result in the issuance of a number of shares that is
greater than 20% of the currently outstanding shares of Common Stock.
Consequently, the AMEX Rules require stockholder approval as a condition to
listing such additional shares on the American Stock Exchange.
By seeking stockholder approval to issue shares to redeem up to
$20 million principal amount of the 5% European Notes, however, Harken is
neither obligating itself to redeem the maximum dollar amount of notes nor to
issue any particular number of shares. Harken will continue to effect such
exchanges, repurchases, redemptions and other restructurings of the 5% European
Notes as it deems most beneficial to Harken and its stockholders, which could
result in a remaining principal amount outstanding to be redeemed that is less
than $20 million.
The Board of Directors believes, however, that it is in the best
interests of Harken and its stockholders to take advantage of the redemption
provisions of the 5% European Notes and to issue shares of Common Stock to
redeem up to $20 million principal amount of the 5% European Notes. Harken will
continue to seek to reduce the balance of the 5% European Notes through
exchanges, repurchases, redemptions and other applicable forms of
restructurings. Redeeming such Notes for shares of Common Stock will decrease
Harken's debt, which will in turn increase Harken's net asset base and could
position Harken for increased growth opportunities.
Without stockholder approval of this Item, due to Harken's
current market price, Harken will be unable to redeem for stock any significant
amount of the 5% European Notes without violating Section 713 of the AMEX Rules.
Given the current market price of the Common Stock as of the date of this Proxy
Statement and the current number of Common shares outstanding, Harken would only
be able to redeem pursuant to the redemption provisions of the 5% European Notes
approximately $1.3 million of the 5% European Notes before the number of shares
to be issued would require stockholder approval under the AMEX Rules. If the
stockholders do not approve this Item, Harken's alternatives would be to:
. Redeem or repurchase notes for cash, or repay the notes at maturity.
There can be no assurance that Harken would have available sufficient
funds to pay the notes in cash upon maturity, or to otherwise redeem
or repurchase notes for cash.
. Exchange notes for other securities (such as debt instruments or
preferred stock) or property. Harken may not be successful in
exchanging notes for other securities or property.
. Otherwise restructure the notes. Harken may not be successful in
restructuring its obligations under the notes.
. Effect redemptions despite the absence of stockholder approval to
issue shares. As discussed above, stockholder approval would be
required under Section 713 of the AMEX Rules in order for Harken to
redeem any significant amount of the 5% European Notes. If stockholder
approval is not obtained, Harken could be subject to potential
delisting of its Common Stock from the American Stock Exchange if it
redeems such notes in an amount that violates the AMEX Rules.
If Harken is not successful in any of these alternatives, Harken
would be in danger of defaulting
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under the notes if they could not be timely redeemed.
The Board of Directors is seeking stockholder approval of the
issuance of shares pursuant to the redemption of up to $20 million of the 5%
European Notes in order to comply with the AMEX Rules. If this Item is not
approved by the stockholders, however, Harken may determine to proceed with the
redemption of $20 million or more of the notes without such approval if the
Board determines that effecting such transactions are in the best interest of
Harken and its stockholders. Also, even if stockholder approval is obtained,
redemption of up to $20 million of the 5% European Notes may result in an
issuance of shares that is in excess of the amount of shares currently
authorized for issuance. In addition, any remaining outstanding principal
balance could also require additional stockholder approval in order to be
redeemed for shares of Harken Common Stock. There can be no assurance that
Harken could receive the required stockholder approval to redeem the entire
amount of the outstanding notes. If required stockholder approvals are not
obtained, Harken could be subject to potential delisting of its Common Stock
from the American Stock Exchange.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ISSUANCE OF SUCH
NUMBER OF SHARES OF COMMON STOCK AS ARE NECESSARY TO REDEEM UP TO $20 MILLION
PRINCIPAL AMOUNT OF THE 5% EUROPEAN NOTES.
Vote Required
The proposal to approve the redemption of up to $20 million
principal amount of 5% European Notes and the issuances of additional shares in
connection with the redemption of up to $20 million principal amount of the 5%
European Notes requires the affirmative vote of a majority of the shares having
voting power present, in person or represented by proxy, at the Annual Meeting.
Abstentions will have the same effect as votes against the proposal. Broker
non-votes will not be considered as votes against these proposals.
ITEM THREE: ELECTION OF DIRECTORS
The number of directors constituting the full Board of Directors
of Harken has been established as nine (9) in accordance with Harken's Bylaws.
The Certificate of Incorporation provides that the Board of Directors be divided
into Classes A, B and C, with staggered terms of three (3) years each. There are
presently nine (9) members serving on the Board of Directors. Three Class C
Directors will be elected at the Annual Meeting to hold office until the 2005
Annual Meeting of Stockholders and until their respective successors are duly
elected and qualified.
Nominees for Election as Class C Directors:
Name, Age and Business Experience Director Since
-------------------------------------------------------------------------------- --------------
Stephen C. Voss (Age - 53) - Managing Director of Global Energy Development PLC 1997
("Global") since January 2002; Vice Chairman of the Board of Harken from May
2000 to November 2001; from September 1998 to May 15, 2000 he served as
Executive Vice President and Chief Operating Officer of Harken, and from 1990 to
September 1998 as Senior Vice President of Harken.
Marvin M. Chronister (Age - 51) - From August 1990 to May 2002 he served as a 2002
Director of Corporate Finance with Deloitte & Touche LLP; from December 1988 to
August 1990 he served as an investment banker with Kidder Peabody, and from
February 1987 to December 1988 he served with Merrill Lynch.
James H. Frizell (Age - 75) - From 1985 to 1987 and from 1989 to the present, 2001
Mr. Frizell has acted as an independent petroleum consultant. From
8
1987 to 1989, he served as a Vice President of Pike Petroleum Corporation. From
1983 to 1985, he served as a Vice President of Valero Producing Company. From
1981 to 1983, he served as Vice President-Exploration and Senior Vice President
at Freeport-McMoran.
Each of the nominees for election as directors has agreed to serve if
elected. Harken knows of no reason why any of the nominees for election as
directors would be unable to serve. Should any of the nominees be unable to
serve, all proxies returned to Harken will be voted in accordance with the best
judgment of the persons named as proxies except where a contrary instruction is
given.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RE-ELECTION OF MESSRS.
VOSS, CHRONISTER, AND FRIZELL TO THE BOARD OF DIRECTORS.
Vote Required to be Elected as a Director
To be elected a Director, each nominee must receive the affirmative
vote of a plurality of the votes duly cast at the Annual Meeting. Abstentions
and broker non-votes will have no effect on the election of nominees to the
Board of Directors.
Directors Continuing in Office:
Name, Age and Business Experience Director Since Term Expires
-------------------------------------------------------------------------------- -------------- ------------
Mikel D. Faulkner (Age - 53) - Chairman of the Board of Harken since February 1982 2003
1991; CEO of Harken since 1982, and President of Harken from 1982 until February
1993. Effective May 31, 2001, Mr. Faulkner also became the Chairman of the Board
of Directors of Global.
Bruce N. Huff (Age - 52) - President and Chief Operating Officer of Harken since 1996 2003
March 1998 and Chief Financial Officer from February 1999 to June 2000; Senior
Vice President and Chief Financial Officer of Harken from 1990 to March 1998.
Larry G. Akers (Age - 64) - From 1996 to the present, Mr. Akers has acted as an
independent energy advisor/consultant. From 1978 to 1988, he served as Chairman, 2000 2004
President and CEO of ESCO Energy, Inc. From 1969 to 1978, Mr. Akers served as
exploration and development manager for Laclede Gas.
Michael M. Ameen, Jr. (Age - 78) - From 1989 to 1999, Mr. Ameen served as a part 1994 2004
time consultant to Harken with regard to Middle Eastern exploration projects;
Independent Consultant on Middle East Affairs for the past twelve years;
Director of American Near East Refugee Aid (a charitable organization); Past
director of Amideast (a charitable organization); Past director of Middle East
Institute; Past director of International College in Beirut, Lebanon; Past vice
president of government relations and director of Washington office of Aramco;
Past president of Mobil Middle East Development Corporation; and Member, Energy
Intelligence Group International Advisory Board.
Dr. J. William Petty (Age - 60) - Professor of Finance and the W.W. Caruth 2000 2003
Chairholder of Entrepreneurship at Baylor
9
University from 1990 to the present; Served as dean of the Business School at
Abilene Christian University from 1979 to 1990; served as a subject matter
expert on a best-practices study by the American Productivity and Quality Center
on the topic of shareholder value based management; served on a research team
for the Australian Department of Industry to study the feasibility of
establishing a public equity market for small and medium-sized enterprises in
Australia.
H. A. Smith (Age - 65) - From June 1991 to the present, Mr. Smith has served as 1997 2004
a consultant to Smith International Inc., an oil field service company;
previously Mr. Smith served as Vice President Customer Relations for Smith
International, Inc.
DIRECTORS' MEETINGS AND COMMITTEES
During 2001, the Board of Directors held six (6) meetings, which
included three (3) regularly scheduled meetings and three (3) special meetings.
The Board of Directors also acted by unanimous written consent twelve (12)
times. During 2001, each current member of the Board of Directors attended or
acted upon at least seventy-five percent (75%) of the total number of meetings
of the Board of Directors and Committees on which he served.
The Board of Directors has standing Audit, Compensation, Nominating,
and Corporate Governance Committees, which are described below.
Audit Committee. The Audit Committee is currently comprised of Messrs.
Petty, Smith, and Ameen. During 2001, the Audit Committee was comprised of
Messrs. Smith and Petty and Gary B. Wood, a former director. The functions of
the Audit Committee and its activities, including review of the financial
statements of Harken and receipt of reports and other communications from
Harken's independent auditors, are described below under the heading Report of
the Audit Committee. During 2001 the Audit Committee held five (5) meetings.
Compensation Committee. The Compensation Committee is currently
comprised of Messrs. Frizell, Akers and Petty. During 2001, the Compensation
Committee was comprised of Messrs. Ameen and Akers and Robert Gerrity, a former
director. The Compensation Committee is responsible for making and setting
compensation for the chief executive officer of Harken; however, at December 31,
2001, the full Board of Directors adopted the Report on Chief Executive
Compensation which appears on page 15. During 2001, the Compensation Committee
held one (1) meeting.
Nominating Committee. The Nominating Committee is comprised of Messrs.
Smith and Ameen. During 2001, the Nominating Committee was comprised of Messrs.
Ameen and Gary B. Wood, a former director. The Nominating Committee considers
nominations for the Board of Directors, develops and reviews background
information for candidates, and makes recommendations to the Board of Directors
with respect to candidates for directors proposed by shareholders. Any
shareholder wishing to recommend a candidate for consideration by the Board can
do so in writing to the Secretary of Harken at its corporate offices in Houston,
Texas, giving the candidate's name, biographical data and qualifications. Any
such recommendation must be submitted before the deadline for receipt of
shareholder proposals and must be accompanied by a written statement from the
individual of his or her consent to be named as a candidate and, if nominated
and elected, to serve as a director. The Nominating Committee did not hold any
meetings during 2001.
Corporate Governance Committee. The Corporate Governance Committee was
formed in March 2002 and is comprised of Messrs. Ameen and Petty. The Corporate
Governance Committee considers issues that arise from time to time with respect
to the directors' and officers' duties and responsibilities to Harken and makes
recommendations regarding such issues to the whole Board of Directors.
10
COMPENSATION OF DIRECTORS
In 2001, each non-employee Director of Harken received an annual
retainer of $20,000 plus $2,000 for attendance at each regular meeting. In
addition, Directors serving on Committees received $4,000 for chairmanship and
$1,000 per Committee meeting attended. Except for the compensation described in
the preceding two sentences, non-employee Directors did not receive any
additional fees for meetings attended.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On October 21, 1997, Harken loaned Stephen C. Voss, a director of
Harken, $80,000 at an interest rate of 7% per annum. Such loan is secured by
options to purchase Common Stock of Harken granted to Mr. Voss. As of August 14,
2002, the outstanding principal balance of such loan was $80,000, and such loan
is payable on demand.
In May 2002, Harken entered into an agreement to forgive the repayment
of a short-term loan in the amount of $64,000 to Larry E. Cummings, who was then
an Executive Vice President and General Counsel of Harken. In June 2002, Mr.
Cummings resigned as an officer of Harken due to health reasons.
EXECUTIVE OFFICERS OF HARKEN
The officers of Harken are elected annually by the Board of Directors
following each Annual Meeting of Stockholders, or as soon thereafter as
practicable. Each officer holds office until the earlier of such time as his or
her successor is duly elected and qualified, or his or her death, resignation or
removal from office. Any officer elected or appointed by the Board of Directors
may be removed by the Board of Directors whenever, in its judgment, the best
interests of Harken will be served thereby, but such removal will be without
prejudice to the contract rights, if any, of the person so removed.
The executive officers of Harken, their ages and positions held with
Harken and their business experience for the past five years are listed below.
Name Age Position Held with Harken
-------------------- ------ ----------------------------------------------------------------
Mikel D. Faulkner 53 Chairman of the Board of Directors and Chief Executive Officer
Bruce N. Huff 52 President, Chief Operating Officer
James W. Denny, III 54 Executive Vice President - Operations
Anna M. Williams 32 Executive Vice President - Finance and Chief Financial Officer
Richard O. Cottle 46 Senior Vice President - Production
A. Wayne Hennecke 43 Senior Vice President - Finance and Secretary
Mikel D. Faulkner has served as Chairman of the Board of Harken since
February 1991 and Chief Executive Officer of Harken since 1982. Mr. Faulkner
previously served as President of Harken between 1982 and 1993.
Bruce N. Huff has served as a Director of Harken since August 1996. Mr.
Huff has served as President and Chief Operating Officer of Harken since March
1998. Mr. Huff had previously served as Senior Vice President and Chief
Financial Officer since 1990.
James W. Denny, III has served as Executive Vice President - Operations
since October 1999. From 1998 to October 1999, Mr. Denny served as Senior
Engineer/Operations Manager for XPLOR Energy, Inc. From 1995 to 1998, Mr. Denny
served as Vice President, Operations & Exploration for Polaris Exploration
Corporation.
11
Anna M. Williams has served as Executive Vice President - Finance and
Chief Financial Officer since June 2001. Ms. Williams has served as Senior Vice
President - Finance and Chief Financial Officer since June 2000 and as Vice
President - International Finance since from 1998 to 2000 and as International
Finance Manager from 1996 to 1998.
Richard O. Cottle has served as Senior Vice President - Operations
since January 2000. Since joining Harken in 1994, Mr. Cottle has served as Vice
President of Operations and as Operations Manager for Harken Southwest
Corporation, a wholly-owned subsidiary of Harken.
Wayne Hennecke has been employed with Harken since 1988. Mr. Hennecke
has served as Senior Vice President - Finance and Secretary of Harken since June
2002. Mr. Hennecke has served as Senior Vice President - Finance and Chief
Accounting Officer of Harken since June 2001 and as Treasurer since June 1995,
and had previously served as Vice President-Finance and Chief Financial Officer
of Harken from April 1998 to December 1998.
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth certain information regarding the
compensation paid during fiscal years 2001, 2000, and 1999 to Harken's Chief
Executive Officer and Harken's four most highly compensated executive officers
other than the Chief Executive Officer (the "named executive officers"). With
respect to the Chief Executive Officer, please see the Report on Chief Executive
Compensation on page 15 below.
SUMMARY COMPENSATION
-----------------------------------------------------------------------------------------------------------------------
Annual Compensation Long Term Compensation
-----------------------------------------------------------------------------------------------------------------------
Securities
Underlying
Name and Principal Fiscal Other Annual All Other Options/SARs Other
Position Year Salary Bonus Compensation Compensation (#) Compensation
-----------------------------------------------------------------------------------------------------------------------
Mikel D. Faulkner 2001 $ 301,442(1) $ 2,414 $ 5,356(2) $ 2,983(3) -- --
Chairman and Chief 2000 $ 255,000 $ 25,000 $ 1,915(4) $ 10,858(5) 200,000 --
Executive Officer 1999 $ 264,808(6) $ 84,904 $ 2,616(4) $ 10,000(7) 73,000 --
-----------------------------------------------------------------------------------------------------------------------
Bruce N. Huff 2001 $ 229,327(8) $ 31,013 $ 13,351(9) $ 2,983(3) -- --
President and Chief 2000 $ 213,750(10) $ 17,700 $ 39,112(11) $ 10,858(5) 95,000 --
Operating Officer 1999 $ 206,250(12) $ 55,000 $ 7,875(4) $ 60,725(13) 46,000 --
-----------------------------------------------------------------------------------------------------------------------
Stephen C. Voss 2001 $ 223,269(14) $ 25,000 $ 22,800(15) $ 2,983(3) -- --
Vice Chairman 2000 $ 205,000 $ 10,347 $ 30,936(16) $ 10,858(5) -- --
1999 $ 195,000 $ 55,000 $ 12,000(4) $ 10,000(7) 46,000 --
-----------------------------------------------------------------------------------------------------------------------
James W. Denny, III 2001 $ 175,000 $ 521 $ 16,400(17) $ 2,970(18) -- --
Executive Vice 2000 $ 151,442 $ 30,000 $ 3,000(4) $ 10,789(19) 60,000 --
President 1999 -- -- -- -- -- --
-----------------------------------------------------------------------------------------------------------------------
Guillermo Sanchez 2001 $ 189,909(20) $ 25,000 -- $ 3,654(21) -- --
President of Harken 2000 $ 176,640 -- -- $ 11,143(22) -- --
International, Ltd. 1999 $ 169,399(23) $ 11,500 -- $ 10,000(7) 16,000 --
-----------------------------------------------------------------------------------------------------------------------
(1) Includes $16,442 for unused vacation time.
(2) Includes $556 relating to use of company car and $4,800 club
allowance.
(3) Includes $2,625 of 401(k) matching and $358 in group term life
premiums.
(4) Relating to use of company car.
12
(5) Includes $10,500 of 401(k) matching and $358 in group term life premiums.
(6) Includes $9,808 for unused vacation time.
(7) Relates to 401(k) matching.
(8) Includes $4,327 for unused vacation time.
(9) Includes $8,551 relating to use of company car and $4,800 club allowance.
(10) Includes $3,750 for unused vacation time.
(11) Includes $13,745 relating to use of a company car and debt forgiveness in
the amount of $25,367.
(12) Includes $11,250 for unused vacation time.
(13) Includes $10,000 relating to 401(k) matching and $50,725 relating to
relocation expenses.
(14) Includes $8,269 for unused vacation time.
(15) Includes $18,000 relating to use of company car and $4,800 club allowance.
(16) Includes $15,716 relating to use of company car and debt forgiveness in
the amount of $15,220.
(17) Includes $11,600 relating to use of company car and $4,800 club allowance.
(18) Includes $2,625 of 401(k) matching and $345 in group term life premiums.
(19) Includes $10,500 of 401(k) matching and $289 in group term life premiums.
(20) Includes $7,034 for unused vacation time.
(21) Includes $2,625 of 401(k) matching and $1,029 in group term life premiums.
(22) Includes $10,500 of 401(k) matching and $643 in group tem life premiums.
(23) Includes $6,394 for unused vacation time.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
There were no grants of options nor stock appreciation rights made to any of
Harken's executive officers during the last fiscal year.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION/SAR VALUES
-------------------------------------------------------------------------------------------------------------------
Number of Number of Securities
Shares/SARs Underlying Unexercised Value of Unexercised
Acquired on Value Option/SARs at Fiscal Year In-the-Money Options/SARs
Exercise Realized End at Fiscal Year End /(1)/
=================================================================================================== ===============
Name Exercisable Unexercisable Exercisable Unexercisable
-------------------------------------------------------------------------------------------------------------------
Mikel D. Faulkner -- -- 349,375 195,250 $ -- $ --
-------------------------------------------------------------------------------------------------------------------
Bruce N. Huff -- -- 164,625 99,375 $ -- $ --
-------------------------------------------------------------------------------------------------------------------
Stephen C. Voss -- -- 158,625 84,375 $ -- $ --
-------------------------------------------------------------------------------------------------------------------
James W. Denny, III -- -- 17,500 47,500 $ -- $ --
-------------------------------------------------------------------------------------------------------------------
Guillermo Sanchez -- -- 78,000 18,000 $ -- $ --
(1) The closing price for the Common Stock as reported on the American Stock
Exchange as of December 31, 2001 was $1.23. Value was calculated on the
basis of the difference between the option exercise price and such closing
price multiplied by the number of shares of Common Stock underlying the
option.
CHANGE-IN-CONTROL ARRANGEMENTS
On April 1, 2002 (but effective as of December 30, 1999), Harken and Mikel
D. Faulkner entered into that certain Amended and Restated Agreement Regarding
Compensation in the Event of Change in Control (the "Change in Control
Agreement") which provides that in the event of a "Change in Control" of Harken,
Harken shall pay to Mr. Faulkner within thirty days' of such event, in addition
to any other payments owing to Mr. Faulkner, a cash payment equal to thirty (30)
times Mr. Faulkner's regular monthly salary which was last paid prior to the
month in which such Change in Control event occurred.
A "Change in Control" is defined as including: the sale of all or
substantially all of the assets of
13
Harken; a transaction which results in more than fifty percent (50%) of the
voting stock of Harken being owned by a person or party other than who owned or
held such shares prior to such transaction; a "person" or "group" (within the
meaning of Sections 13(d) or 14(d)(2) of the Securities Exchange Act of 1934),
being or becoming the beneficial owner of more than fifty percent (50%) of the
voting stock of Harken outstanding; the liquidation or dissolution of Harken;
any other event or series of events that results in a change or right to change
a majority of the members of Harken's Board of Directors; and any event which
causes the triggering of or a Change in Control to occur under Harken's
Stockholder Rights Plan. Under Harken's Stockholder Rights Plan, a triggering
event occurs whenever any person (other than an employee stock option plan)
becomes the beneficial owner of 15% or more of the shares of Common Stock then
outstanding.
Mr. Faulkner has waived the application of the "Change in Control"
provisions of the Change in Control Agreement in connection with past capital
restructuring transactions of Harken, and Mr. Faulkner intends to waive the
application of such provisions for the Rights Offering and the restructuring of
Harken's 5% European Notes as described in this Proxy Statement.
On June 17, 2002, Harken entered into a Severance Agreement with Bruce N.
Huff providing that in the event Mr. Huff is involuntarily terminated by Harken
during the term of the Severance Agreement, Harken will pay Mr. Huff, in
addition to any other payments owing to Mr. Huff, an amount equal to 9 months'
salary (which salary shall be deemed to be the greater of Mr. Huff's salary at
the time of termination or his salary as of June 17, 2002). The term of the
Severance Agreement expires on June 17, 2003.
On June 17, 2002, Harken entered into a Severance Agreement with James W.
Denny III providing that in the event Mr. Denny is involuntarily terminated by
Harken during the term of the Severance Agreement, Harken will pay Mr. Denny, in
addition to any other payments owing to Mr. Denny, an amount equal to 9 months'
salary (which salary shall be deemed to be the greater of Mr. Denny's salary at
the time of termination or his salary as of June 17, 2002). The term of the
Severance Agreement expires on June 17, 2003.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 2001, the Board of Directors, sitting in lieu of a Compensation
Committee, participated in all deliberations concerning executive compensation
(except that members of the Board of Directors who were also officers did not
participate in deliberations concerning the compensation of the "named executive
officers"). The members of the Board participating in such deliberations were
Mikel D. Faulkner, Chairman of the Board and Chief Executive Officer, Bruce N.
Huff, President and Chief Operating Officer, Stephen C. Voss, Managing Director
of Global, Larry G. Akers, Michael M. Ameen, Jr., James H. Frizell, Dr. J.
William Petty, and H. A. Smith. No executive officer of Harken served as a
member of the board of directors or the compensation committee of any entity
that has one or more executive officers serving on Harken's Board of Directors
or Compensation Committee. As described above under "Certain Relationships and
Related Transactions," on October 21, 1997, Harken loaned Stephen C. Voss, a
director of Harken, $80,000 at an interest rate of 7% per annum. Such loan is
secured by options to purchase Common Stock of Harken granted to Mr. Voss. As of
August 14, 2002, the outstanding principal balance of such loan was $80,000, and
such loan is payable on demand.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires Harken's Directors and Executive Officers, and any
persons who own more than ten percent of a registered class of Harken's equity
securities, to file with the SEC initial reports of ownership and reports of
changes in ownership of common stock and other equity securities of Harken.
Directors, executive officers and greater than ten percent stockholders are
required by SEC regulations to furnish Harken with copies of all Section 16(a)
forms they file. Based solely on its review of the copies of such forms and
written representations from certain reporting persons, Harken believes that all
filing requirements applicable to its Directors and Executive Officers have been
complied with during 2001.
14
AUDIT COMMITTEE REPORT
The following Report of the Audit Committee does not constitute soliciting
material and should not be deemed filed or incorporated by reference into any
other Harken filing under the Securities Act of 1933 or the Securities Exchange
Act of 1934, except to the extent Harken specifically incorporates this Report
by reference therein.
[Insert date]
To the Board of Directors of Harken Energy Corporation:
The Audit Committee of the Board of Directors, which is composed of three
independent non-employee directors, reviews and discusses with Harken's auditors
and management Harken's audited financial statements. During 2000, the Audit
Committee developed a charter, which was approved by the full Board on June 13,
2000. The complete text of the charter, which reflects standards set forth in
SEC regulations and American Stock Exchange rules, was reproduced in the
appendix to last year's proxy statement.
The Audit Committee has implemented procedures to ensure that during the
course of each fiscal year it devotes the attention that it deems necessary or
appropriate to each of the matters assigned to it under its Charter. The Audit
Committee has reviewed and discussed with management Harken's audited financial
statements as of and for the year ended December 31, 2001. It has discussed with
the independent auditors the matters required to be discussed by Statement on
Auditing Standards No. 61, Communication with Audit Committees, as amended, by
the Auditing Standards Board of the American Institute of Certified Public
Accountants.
We have received and reviewed the written disclosures and the letter from
the independent auditors required by Independence Standard No. 1, Independence
Discussions with Audit Committees, as amended, by the Independence Standards
Board, and have discussed with the auditors the auditors' independence.
Based on the reviews and discussions referred to above, we recommend to the
Board of Directors that the financial statements referred to above be included
in Harken's Annual Report on Form 10-K for the year ended December 31, 2001.
By: Dr. J. William Petty
H.A. Smith
Michael M. Ameen, Jr.
REPORT ON CHIEF EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors develops and oversees
Harken's compensation strategy. The strategy is implemented through policies
designed to support the achievement of Harken's business objectives and the
enhancement of stockholder value. The Compensation Committee reviews the annual
compensation package on an ongoing basis throughout the year. Harken's
compensation policies and programs are designed to align the annual compensation
with the annual and long-term performance of Harken and to maintain a
significant portion of that total compensation at risk, tied primarily to the
creation of stockholder value. On December 31, 2001, the Board of Directors (the
"Board"), sitting in lieu of the Compensation Committee, adopted this Report on
Chief Executive Compensation.
The Compensation Committee annually reviews and sets the base salary of the
Chief Executive Officer ("CEO"). In establishing annual compensation for the
CEO, the Compensation Committee takes
15
into consideration many factors in making a determination of aggregate
compensation. In adopting this Report, the Board, acting in lieu of the
Compensation Committee, took into account for 2001 the following factors: (i)
the financial results of Harken during the prior year; (ii) the performance of
the Common Stock in the public market; (iii) compensation of chief executive
officers employed by companies comparable to Harken; (iv) the achievements of
management in completing significant projects during the year; (v) Harken's
performance during the past year as compared to its peer companies in the oil
and gas industry; (vi) the impact that the dramatic fluctuations in the prices
of crude oil and natural gas have had on the Company during this past year; and
(vii) management's dedication and commitment in support of Harken. The Board
exercised its judgment based upon the above criteria and did not apply a
specific formula or assign a weight to each factor considered.
In setting the CEO's compensation for 2001, the Board took note of the fact
that Harken achieved significant success in 2001 toward implementing its overall
business strategy and accomplishing goals that had been set by the Board. Harken
completed certain key objectives which enhanced Harken's domestic oil and gas
reserve base and consolidated its areas of emphasis of operations in the
domestic United States. No cash bonus, other than certain minor compensation
allowance items, was granted to the CEO during 2001. The CEO's base salary was
increased by $30,000 in 2001 compared to his base salary for 2000.
Harken's long-term incentive compensation consists of Harken's Stock Option
Plans. The Compensation Committee views the granting of stock options and
restricted stock awards as a significant method of aligning management's
long-term interests with those of the stockholders. The Compensation Committee
encourages executives, individually and collectively, to maintain a long-term
ownership position in Harken's Common Stock. The Board, sitting in lieu of the
Compensation Committee, did not grant to the CEO any additional stock options
during 2001.
Federal Income Tax Considerations
In 1993, the Internal Revenue Code was amended to place a $1.0 million cap
on the deductibility on compensation paid to individual executives of publicly
held corporations. The Board took this into account, however, upon review of the
available regulations and interpretations, decided that it would not make the
deductibility of Harken's compensation for federal income tax purposes a
criterion to be used in establishing compensation of the named executives during
the present review cycle. The Board took into consideration the belief that the
current compensation levels of the CEO would not be subject to the cap. The
Board continues to recognize that compensation should meet standards of
reasonableness and necessity, which have been part of the Internal Revenue Code
for many years.
By: Mikel D. Faulkner
Bruce N. Huff
Stephen C. Voss
Larry G. Akers
Michael M. Ameen
James H. Frizell
Dr. J. William Petty
H. A. Smith
PERFORMANCE OF THE COMMON STOCK
The following performance graph shall not be deemed incorporated by
reference by any general statement incorporating by reference the proxy
statement into any filing under the Securities Act of 1933 or the Securities
Exchange Act of 1934, except to the extent that Harken specifically incorporates
this information by reference, and shall not otherwise be deemed filed under
such Acts.
The graph below compares the cumulative total stockholder return on the
Common Stock for the last five fiscal years with the cumulative total return on
the S&P 500 Index and the Dow Jones Secondary Oils Stock Index over the same
period (assuming the investment of $100 in the Common Stock, the S&P
16
500 Index and the Dow Jones Secondary Oils Stock Index on December 31, 1996 and
reinvestment of all dividends).
[GRAPH]
Comparison of Cumulative Total Return
Assumes Initial Investment of $100 December 1996
1996 1997 1998 1999 2000 2001
---- ---- ---- ---- ---- ----
Harken Energy Corp. $100 $233 $ 67 $ 27 $ 11 $ 4
S&P 500 Index 100 105 71 89 126 121
Dow Jones Secondary Oils Stock 100 133 171 208 189 166
Index
INDEPENDENT PUBLIC ACCOUNTANTS
On August 28, 2001, Harken dismissed Arthur Andersen LLP ("Arthur
Andersen") as Harken's independent accountants. Harken engaged Ernst & Young LLP
("Ernst & Young") as its new independent accountants. The decision to change
Harken's independent accountants was made by Harken's Audit Committee of the
Board of Directors. A representative of Ernst and Young LLP will be invited to
attend the Annual Meeting and to make a statement if such representative desires
to do so, and, if in attendance, will be available to respond to appropriate
questions.
Arthur Andersen's reports on Harken's consolidated financial statements for
the years ended December 31, 2000 and 1999 did not contain an adverse opinion or
disclaimer of opinion, nor were such reports qualified or modified as to
uncertainty, audit scope, or accounting principles.
During the two years ended December 31, 2000 and the subsequent interim
period preceding the decision to change independent accountants, there were no
disagreements with Arthur Andersen on any matters of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure, which
disagreement(s), if not resolved to the satisfaction of Arthur Andersen, would
have caused the former accountant to make a reference to the subject matter of
the disagreement(s) in connection with its reports covering such periods.
During the two years ended December 31, 2000 and the subsequent interim
period preceding the decision to change independent accountants, there were no
"reportable events" (hereinafter defined) requiring disclosure pursuant to Item
304 (a) (1) (v) of Regulation S-K. As used herein, the term
17
"reportable events" means any of the items listed in paragraphs (a) (1) (v) (A)
- (D) of Item 304 of Regulation S-K.
Effective September 5, 2001, Harken engaged Ernst & Young as its
independent accountants. During the two years ended December 31, 2000 and the
subsequent interim period preceding the decision to change independent
accountants, neither Harken nor anyone on its behalf consulted Ernst & Young
regarding either the application of accounting principles to a specified
transaction, either completed or proposed, or the type of audit opinion that
might be rendered on Harken's consolidated financial statements, nor has Ernst &
Young provided to Harken a written report or oral advice regarding such
principles or audit opinion.
Harken requested and obtained a letter from Arthur Andersen addressed to
the Securities and Exchange Commission stating that it agrees with the above
statements.
Fees Incurred Paid to Ernst & Young LLP
In addition to performing the audit of Harken's consolidated financial
statements, Ernst & Young LLP, provided various other services during 2001. The
aggregate fees billed for 2001 for each of the following categories of services
are set forth below:
Audit Fees (1) ........................... $ 186,900
Audit Related Fees (2) $ 97,645
Financial Information Systems Design And
Implementation Fees (3) ................ $ 0
All Other Fees (4) ....................... $ 719,152
________
(1) "Audit fees" includes audit and review of Harken's 2001 financial
statements.
(2) "Audit Related Fees" relates to statutory audit work performed as well
as registration statement post-audit review work.
(3) Ernst & Young LLP provided no services related to financial
information systems design and implementation during 2001.
(4) "All other fees" includes fees for: (i) U.K. professional costs
related to Global's application for listing on the Alternative
Investment Market of the London Stock Exchange, and (ii) tax planning
and the preparation of tax returns of the company and/or its
subsidiaries.
On September __, 2002, the Audit Committee reviewed the non-audit services
provided to Harken by Ernst & Young LLP and concluded that such services are
compatible with the maintenance of that firm's independence in the conduct of
its auditing functions for Harken.
STOCKHOLDER PROPOSALS FOR 2003 ANNUAL MEETING
Under the SEC's proxy rules, stockholder proposals that meet certain
conditions may be included in Harken's proxy statement and form of proxy for a
particular annual meeting. Stockholders that intend to present a proposal at
Harken's 2003 Annual Meeting of Stockholders must send the proposal to Harken so
that it is received at Harken's principal executive offices no later than
December 31, 2002 to be considered for inclusion in the proxy statement and form
of proxy related to the 2003 Annual Meeting of Stockholders. Stockholders that
have an intention to present a proposal that will not be included in the proxy
statement and the form of proxy, must give notice to Harken no later than March
15, 2003 of the specific intention to do so. Any and all such proposals and
notices should be sent to the attention of the Secretary of Harken. Any and all
such proposals must comply with applicable Securities and Exchange Commission
regulations in order to be included in Harken's proxy materials or to be
presented at the Annual Meeting.
FINANCIAL AND OTHER INFORMATION
The financial statements of Harken have been included as part of the Annual
Report of Harken
18
enclosed with this Proxy Statement. The financial statements and notes thereto,
as well as Management's Discussion and Analysis of Financial Condition and
Results of Operations, Quantitative and Qualitative Disclosures About Market
Risk, and Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure, from the following forms are incorporated by reference:
Form 10-K for the year ended December 31, 2001, Form 10-Q for the quarters ended
March 31, 2002 and June 30, 2002, as amended. In addition, a representative of
Ernst & Young LLP is expected to be present at the Annual Meeting with the
opportunity to make a statement if he desires to do so and to be available to
respond to appropriate questions from stockholders.
Harken will provide to each person solicited, without charge except for
exhibits, upon request in writing, a copy of its Annual Report on Form 10-K and
its quarterly reports on Form 10-Q for the quarters ended March 31, 2002 and
June 30, 2002, as amended, including the financial statements and financial
statement schedules, as filed with the Securities and Exchange Commission for
the year ended December 31, 2001. Requests should be directed to the Secretary,
Harken Energy Corporation, 580 Westlake Park Blvd., Suite 600, Houston, Texas
77079, (281) 504-4000.
By Order of the Board of Directors
/s/ A. WAYNE HENNECKE
-------------------------------------------
A. Wayne Hennecke,
Secretary
Houston, Texas
________, 2002
19
HARKEN ENERGY CORPORATION
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD , 2002
The undersigned hereby (1) acknowledges receipt of the Notice of Annual
Meeting of Stockholders of Harken Energy Corporation ("Harken") to be held
, 2002, and (2) constitutes and appoints A. Wayne Hennecke and Anna
M. Williams, and each of them, attorneys and proxies of the undersigned, with
full power of substitution to each, for and in the name, place, and stead of the
undersigned, to vote, and to act in accordance with the instructions set forth
below, with respect to all of the shares of Common Stock of Harken standing in
the name of the undersigned or with respect to which the undersigned is entitled
to vote and act at that meeting and at any meetings to which that meeting is
adjourned. In their discretion, the proxies may vote upon such other matters as
may properly come before the meeting.
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS ONE, TWO AND THREE.
1. PROPOSAL ONE: Approve a $10 million underwritten Rights Offering of
Harken Common Stock and the issuance of such number of shares of
Harken Common Stock necessary to accomplish the Rights Offering.
[_] FOR [_] AGAINST [_] ABSTAIN
2. PROPOSAL TWO: Approve the redemption of up to $20 million principal
amount of Harken's 5% European Notes and the issuance of such number
of shares of Harken Common Stock necessary to redeem up to $20 million
principal amount of such Notes.
[_] FOR [_] AGAINST [_] ABSTAIN
3. PROPOSAL THREE: Election of three Class C directors of Harken, to hold
office in accordance with Harken's Certificate of Incorporation until
the 2005 Annual Meeting of Stockholders.
Nominees: Stephen C. Voss, Marvin M. Chronister, and James H. Frizell.
[_] FOR each of the nominees listed above, [_] WITHHOLD AUTHORITY to vote
except marked to the
contrary below
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY ONE NOMINEE,
WRITE THE NAME OF SUCH NOMINEE IN THE SPACE PROVIDED BELOW.)
The undersigned stockholder(s) authorizes the proxies to transact such
other business as may properly come before the Annual Meeting or any
adjournment(s) thereof.
You are encouraged to specify your choices by marking the appropriate
boxes, but you need not mark any boxes if you wish to vote in accordance with
the Board of Directors' recommendations. This Proxy will be voted as specified.
If no specification is made this Proxy will be voted FOR the proposals. Your
shares cannot be voted unless you sign and return this card.
---------------- ----------------- ------------
(Signature) (Signature) (Date)
NOTE: PLEASE SIGN EXACTLY AS NAME APPEARS HEREON, JOINT OWNERS SHOULD EACH SIGN.
WHEN SIGNING AS ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE
GIVE FULL TITLE AS SUCH.