Table
of Contents
As filed with the Securities and Exchange Commission on December
8, 2010
Registration No. 333-170218
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
Amendment No. 1 to
Form S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
HKN, Inc.
(Exact
name of Registrant as specified in its charter)
Delaware
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95-2841597
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(State
or other jurisdiction of incorporation or organization)
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(I.R.S.
Employer Identification No.)
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180 State
Street, Suite 200
Southlake,
Texas 76092
Telephone:
(817) 424-2424
(Address,
including Zip Code, and Telephone Number,
including
Area Code, of Registrants Principal Executive Offices)
Anna
Williams
Senior Vice
President and Chief Financial Officer
HKN, Inc.
180 State
Street, Suite 200
Southlake,
Texas 76092
Telephone:
(817) 424-2424
(Name,
Address, Including Zip Code, and Telephone Number,
Including
Area Code, of Agent for Service)
Copy to:
Bruce H.
Hallett
Hallett &
Perrin
2001
Bryan Street, Suite 3900
Dallas,
Texas 75201
Telephone: (214) 922-4120
Approximate date of
commencement of proposed sale to the public:
As soon as practicable after this registration statement becomes
effective.
If the only securities being
registered on this Form are being offered pursuant to dividend or interest
reinvestment plans, check the following box.
o
If any of the securities being
registered on this Form are to be offered on a delayed or continuous basis
pursuant to Rule 415 under the Securities Act of 1933, other than
securities offered only in connection with dividend or interest reinvestment
plans, check the following box.
o
If this form is filed to register
additional securities for an offering pursuant to Rule 462(b) under
the Securities Act, please check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.
o
If this form is a post-effective
amendment filed pursuant to Rule 462(c) under the Securities Act,
check the following box and list the Securities Act registration statement
number of the earlier effective registration statement for the same
offering.
o
If this form is a registration
statement pursuant to General Instruction I.D. or a post-effective amendment
thereto that shall become effective upon filing with the Commission pursuant to
Rule 462(e) under the Securities Act, check the following
box.
o
If this form is a post-effective
amendment to a registration statement filed pursuant to General Instruction
I.D. filed to register additional securities or additional classes of
securities pursuant to Rule 413(b) under the Securities Act, check
the following box.
o
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer, and smaller reporting company in
Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated
filer
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Accelerated filer
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Non-accelerated filer
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Smaller reporting
company
x
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(Do not check if a smaller
reporting company)
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CALCULATION
OF REGISTRATION FEE
Title of Each Class of Securities to be
Registered
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Amount to be Registered
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Proposed Maximum
Offering Price Per Share
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Proposed Maximum
Aggregate Offering
Price
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Amount of
Registration Fee
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Non-transferrable subscription rights, each to purchase
one share of common stock, $0.01 par value (1)
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Common Stock, par value $0.01 per share (2)
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7,500,000 shares
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$
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2.00
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$
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15,000,000
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(3)
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$
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1,069.50
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(4)
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(1)
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Each share of common stock, par
value $0.01 per share, includes a right, upon the occurrence of certain
events, to purchase one-thousandth of a share of Series E Junior
Participating Preferred Stock at a price of $35.
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(2)
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The subscription rights are being
issued without consideration. Pursuant to Rule 457(g), no
separate registration fee is payable with respect to the subscription rights
being offered hereby since the subscription rights are being registered in
the same registration statement as the securities to be offered pursuant
thereto.
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(3)
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Represents the aggregate gross
proceeds from the exercise of the maximum number of rights that may be issued.
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(4)
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Previously paid.
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The Registrant
hereby amends this Registration Statement on such date or dates as may be
necessary to delay its effective date until the Registrant shall file a further
amendment which specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
Table of
Contents
THE
INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THESE
SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY THESE SECURITIES BE
ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION BECOMES EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO
SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES
IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT
TO COMPLETION, DATED DECEMBER 8, 2010
PROSPECTUS
HKN, Inc.
Up to
7,500,000 Shares of Common Stock Issuable Upon Exercise of Rights
to Subscribe
for Such Shares at $2.00 per Share
We
are distributing at no charge to holders of our common stock non-transferable
subscription rights to purchase shares of our common stock. You will receive 0.74805
of a subscription right for every share of common stock owned at the close of
business on January 5, 2011, subject to adjustments to eliminate
fractional rights. We are distributing subscription rights exercisable for up
to an aggregate of 7,500,000 shares of our common stock.
Each whole subscription right will
entitle you, as a holder of our common stock, to purchase one share of our
common stock at a subscription price of $2.00 per share. Subscribers who
exercise their rights in full may also over-subscribe for additional shares,
subject to certain limitations, to the extent additional shares are available.
The subscription rights will expire if they are not exercised by
5:00 p.m., Eastern Time, on January 27, 2011, unless extended. We are
not requiring a minimum subscription to complete the rights offering.
You should carefully consider
whether to exercise your subscription rights before the expiration of the
rights offering. All exercises of subscription rights are irrevocable. Our
board of directors is making no recommendation regarding your exercise of the
subscription rights.
The
shares are being offered directly by us without the services of an underwriter
or selling agent. Shares of our common stock are traded on the NYSE Amex under
the symbol HKN. On December 3, 2010, the closing sales price for our common
stock was $3.40
per share. We urge you to obtain a current market price
for the shares of our common stock before making any determination with respect
to the exercise of your rights.
Exercising the
rights and investing in our common stock involves a high degree of risk. We
urge you to carefully read the section entitled Risk Factors beginning on
page 11 of this prospectus, the section entitled Risk Factors in our
Annual Report on Form 10-K for the year ended December 31, 2009, and
all other information included or incorporated herein by reference in this
prospectus in its entirety before you decide whether to exercise your rights.
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Per Share
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Aggregate
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Subscription
Price
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$
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2.00
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$
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15,000,000
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Estimated
Expenses
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$
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0.03
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220,000
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Net
Proceeds to Us
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$
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1.97
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$
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14,780,000
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Neither the
Securities and Exchange Commission nor any state securities commission has
approved or disapproved of these securities or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
As a result of the terms of this
offering, stockholders who do not fully exercise their rights will own, upon
completion of this offering, a smaller proportional interest in us than
otherwise would be the case had they fully exercised their rights. See Risk
Factors Risks associated with the rights offering and market conditions
If you do not exercise your rights in full in the rights offering, you will
suffer significant dilution in your percentage ownership of the Company in
this prospectus for more information.
The
date of this prospectus is December 8, 2010
Table of Contents
FORWARD-LOOKING
STATEMENTS
This prospectus includes or
incorporates forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended and Section 21E
of the Exchange Act, regarding, among other things, our financial condition and
business strategy. We based these forward-looking statements on our current
expectations and projections about future events. All statements, other than
statements of historical facts, included in this prospectus regarding the
prospects of our industry and our prospects, plans, financial position, and
business strategy may constitute forward-looking statements. In addition, forward-looking statements
generally can be identified by the use of forward-looking terminology such as may,
will, expect, intend, estimate, anticipate, plan, foresee, believe,
or continue, or the negatives of these terms or variations of them or similar
terminology. Although we believe that the expectations reflected in these
forward-looking statements are reasonable, we can give no assurance that these
expectations will prove to be correct.
Important factors that could cause actual results to differ materially
from our expectations are disclosed in this prospectus, including in
conjunction with the forward-looking statements included in this prospectus and
under Risk Factors. All subsequent written and oral forward-looking
statements attributable to us or persons acting on our behalf are expressly
qualified in their entirety by the cautionary statements included in this
document. These forward-looking statements speak only as of the date of this
prospectus. We will not update these statements except as may be required by
applicable securities laws.
ABOUT THIS
PROSPECTUS
Unless otherwise stated or the
context otherwise requires, the terms we, us, our, and the Company
refer to HKN, Inc. and its consolidated subsidiaries.
You should rely only on the
information contained or incorporated by reference in this prospectus. We have
not authorized anyone to provide you with additional or different information.
If anyone provides you with additional, different, or inconsistent information,
you should not rely on it. We are not making an offer to sell securities in any
jurisdiction in which the offer or sale is not permitted. You should assume
that the information in this prospectus is accurate only as of the date on the
front cover of this prospectus, and any information we have incorporated by
reference is accurate only as of the date of the document incorporated by
reference, in each case, regardless of the time of delivery of this prospectus
or any exercise of the rights. Our business, financial condition, results of
operations, and prospects may have changed since that date.
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QUESTIONS AND ANSWERS RELATING TO THE RIGHTS OFFERING
The following are
examples of what we anticipate will be common questions about the rights
offering. The answers are based on
selected
information from this prospectus and the documents
incorporated by reference herein. The
following questions and answers do not contain all of the information that may
be important to you and may not address all of the questions that you may have
about the rights offering. This
prospectus and the documents incorporated by reference herein contain more
detailed descriptions of the terms and conditions of the rights offering and
provide additional information about us and our business, including potential
risks related to the rights offering, our common stock and our business.
Exercising the
rights and investing in our common stock involves risks. We urge you to carefully read the section
entitled Risk Factors beginning on page 11 of this prospectus, the
section entitled Risk Factors in our Annual Report on Form 10-K for the
year ended December 31, 2009, and all other information included or
incorporated herein by reference in this prospectus in its entirety before you
decide whether to exercise your rights.
What is a rights
offering?
A
rights offering is a distribution of subscription rights on a
pro rata
basis to all stockholders of a
company. We are distributing to holders of our common stock as of the close of
business on January 5, 2011, the eligibility date, at no charge,
subscription rights to purchase shares of our common stock. You will receive 0.74805 of a subscription
right for every share of our common stock you owned at the close of business on
the eligibility date, subject to adjustments to eliminate fractional
rights. The subscription rights will be
evidenced by rights certificates.
What is a right?
Each whole right gives our
stockholders the opportunity to purchase one share of our common stock for $2.00
per share and carries with it a basic subscription privilege and an
over-subscription privilege, as described below.
Will fractional subscription rights be
issued?
No. We will not issue
fractional subscription rights or cash in lieu of fractional rights. Fractional
subscription rights will be rounded down to the nearest whole number to ensure
that we offer no more than 7,500,000 shares of common stock in the rights
offering.
How many shares may
I purchase if I exercise my rights?
We
are granting to you, as a stockholder of record on the eligibility date, 0.74805
of a subscription right subject to adjustments to eliminate fractional rights.
Each whole right includes (i) a basic subscription privilege that entitles
the holder to subscribe to purchase shares of common stock (the basic
subscription privilege) and (ii) an over-subscription privilege that
entitles the holder, if such holder exercises its basic subscription privilege
in full, to subscribe to purchase shares of common stock that our other
shareholders do not purchase through the exercise of their basic subscription
rights (the over-subscription privilege). We determined the ratio of rights
you will receive per share by dividing $15 million by the subscription price of
$2.00 to determine the number of shares to be issued in the rights offering and
then dividing that number of shares by the number of shares projected to be
outstanding on the eligibility date. You
may exercise any number of your subscription rights, or you may choose not to
exercise any subscription rights.
If
you hold your shares in street name through a broker, bank, or other nominee
who uses the services of the Depository Trust Company, or DTC, then DTC
will issue 0.74805 of a right to your nominee for every share of our common
stock you own at the eligibility date, subject to adjustments to eliminate
fractional rights. Each whole right can
then be used to purchase one share of common stock for $2.00 per share.
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What is the basic
subscription privilege?
The
basic subscription privilege of each whole right entitles you to purchase one
share of our common stock at the subscription price of $2.00 per share. For
example, if you owned 1,000 shares of common stock on the eligibility date and
you were granted 0.74805 of a right for every share you owned at that time,
then you would have the right to purchase 748 shares of common stock for $2.00
per share.
What is the over-subscription
privilege?
The over-subscription privilege of
each right entitles you, if you have fully exercised your basic subscription
privilege, to subscribe for additional shares of our common stock (up to the
number of unsubscribed shares) at the same subscription price per share on a
pro rata
basis if any shares are not
purchased by other holders of subscription rights under their basic
subscription privileges as of January 27, 2011 (the Expiration Date).
Pro rata
means in proportion to the number
of shares of our common stock that all subscription rights holders who have
fully exercised their basic subscription privileges on their common stock
holdings have purchased pursuant to the basic-subscription privilege.
What if there is an
insufficient number of shares to satisfy the over-subscription requests?
If there is an insufficient number
of shares of our common stock available to fully satisfy the over-subscription
requests of rights holders, subscription rights holders who exercised their
over-subscription privilege will receive the available shares
pro rata
based on the number of shares
each subscription rights holder has subscribed for under the basic subscription
privilege. Any excess subscription payments will be returned, without interest
or deduction, promptly after completion of the rights offering.
Why are we
conducting the rights offering?
We are conducting the rights
offering to raise up to $15 million in equity capital. We plan to use the net proceeds of the rights
offering to acquire or invest in energy-based businesses, securities, working
interests and other oil, natural gas and energy-related investments,
properties, products and technologies, and for general corporate purposes. A
rights offering provides our stockholders the opportunity to participate in
this transaction on a
pro rata
basis
and, if all stockholders exercise their rights, avoid dilution of their
ownership interest in the Company.
How was the
subscription price of $2.00 per share determined?
A special committee of our Board of
Directors (the Special Committee) determined the subscription price after
considering, among other things, (i) the opinion delivered to the Special
Committee by its financial advisor, The BVA Group, LLC., indicating that the
financial terms of the rights offering are fair from a financial point of view
to our stockholders taken as a whole; (ii) the likely cost of capital from
other sources; and (iii) the price at which our stockholders might be
willing to participate in the rights offering.
The $2.00 subscription price is not intended to bear any relationship to
the book value of our assets or our past operations, cash flows, losses,
financial condition, net worth, or any other established criteria used to value
securities. You should not consider the subscription price to be an indication
of the fair value of the common stock to be offered in the rights offering.
Am I required to
exercise all of the rights I receive in the rights offering?
No. You may exercise any number
of your rights, or you may choose not to exercise any rights. If you do not
exercise any rights, the number of shares of our common stock you own will not
change. However, because 7,500,000 shares of our common stock will be
issued if the rights offering is fully subscribed, if you do not exercise your
rights, your percentage ownership will be diluted after the completion of the
rights offering.
How soon must I act
to exercise my rights?
The rights may be exercised
beginning on January 13, 2011 through the expiration date, which is January 27,
2011, at 5:00 p.m., Eastern Time, unless extended by the Special
Committee. If you elect to exercise any rights,
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the subscription agent must actually
receive all required documents and payments from you or your broker or nominee
at or before the expiration date.
May I transfer
my rights?
No. You may not sell or
transfer the subscription rights because they are non-transferable.
Are there any
conditions to the completion of the rights offering?
We are not requiring a minimum
subscription to complete the rights offering.
However, the closing of the rights offering is conditioned upon, among
other requirements, our stockholders having approved the issuance of shares of
our common stock in this rights offering, and other customary conditions. See The Rights Offering Conditions to
the Rights Offering.
Are there any
backstop purchasers?
No.
Obtaining the commitment of a backstop purchaser would generally ensure that,
subject to the consummation of the rights offering, we would receive aggregate
gross proceeds of $15 million.
However, our Board of Directors believed that any backstop purchaser
would have required us to pay a significant fee for such commitment and may
have also required additional conditions or covenants that may have been
adverse to our stockholders.
Can the board of
directors cancel, terminate, amend, or extend the rights offering?
Generally, we may not cancel or
terminate the rights offering, nor may we amend the terms of the rights
offering unless the closing conditions for the rights offering are not
satisfied. The Special Committee may extend the time for exercising
subscription rights.
Has our Board of
Directors made a recommendation to our stockholders regarding the exercise of
rights under the rights offering?
No. Neither our Board of
Directors nor the Special Committee has made, nor will they make, any recommendation
to stockholders regarding the exercise of rights under the rights offering. You
should make an independent investment decision about whether or not to exercise
your rights. Stockholders who exercise rights risk investment loss on new money
invested. We cannot assure you that the
market price for our common stock will remain above the subscription price or
that anyone purchasing shares at the subscription price will be able to sell
those shares in the future at the same price or a higher price. If you do not exercise your rights, you will
lose any value represented by your rights, and if you do not exercise your
rights in full, your percentage ownership interest in the Company will be
diluted. For more information on the
risks of participating in the rights offering, see the section of this
prospectus entitled Risk Factors.
You should not view the vote by any
member of our Board of Directors as advice that the exercise of the
subscription rights is in your best interests.
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How do I exercise
my rights? What forms and payment are required to purchase the shares of common
stock?
If you wish to participate in the
rights offering, you must take the following steps, unless your shares are held
by a broker, bank, or other nominee:
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deliver payment to the
subscription agent using the methods outlined in this prospectus; and
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deliver a properly completed
subscription rights certificate to the subscription agent before
5:00 p.m., Eastern Time, on January 27, 2011, unless extended.
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If you send a payment that is
insufficient to purchase the number of shares you requested, or if the number
of shares you requested is not specified in the subscription rights
certificate, the payment received will be applied to exercise your basic subscription
privilege. Unless you have specified the number of shares you wish to purchase
upon exercise of your over-subscription privilege, any payment in excess of
that required to exercise your basic subscription privilege will be refunded. If the payment exceeds the subscription price
for the full exercise of the basic and over-subscription privileges (to the
extent specified by you), the excess will be refunded. You will not receive interest on any payments
refunded to you under the rights offering.
If I exercise my
rights, when will I receive my new shares?
We will issue the shares for which
subscriptions pursuant to the basic subscription privilege and the
over-subscription privilege have been properly received promptly following the
later of the expiration date or the satisfaction or waiver of the closing
conditions described in this prospectus, if we have received a properly
completed and executed rights certificate, together with payment of the
subscription price for each share of common stock subscribed for pursuant to
the basic subscription privilege and over-subscription privilege (and after all
pro rata
allocations and
adjustments have been completed with respect to the over-subscription
privilege).
After I send in my
payment and rights certificate, may I change or cancel my exercise of rights?
No. All exercises of
subscription rights are irrevocable. You should not exercise your rights unless
you are certain that you wish to purchase additional shares of our common stock
at a price of $2.00 per share.
What should I do if
I want to participate in the rights offering, but my shares are held in the
name of my broker, bank, or other nominee?
If you hold your shares of our
common stock in the name of a broker, bank, or other nominee, then your broker,
bank, or other nominee is the record holder of the shares you own. The record
holder must exercise the rights on your behalf for the shares of common stock
you wish to purchase.
If you wish to participate in the
rights offering and purchase shares of common stock, please promptly contact
the record holder of your shares. We
will ask your broker, bank, or other nominee to notify you of the rights
offering. You should complete and return
to your record holder the form entitled Beneficial Owner Election Form. You should receive this form from your record
holder with the other rights offering materials.
What should I do if
I want to participate in the rights offering, but I am a stockholder with a
foreign address?
Subscription rights certificates
will not be mailed to foreign stockholders whose address of record is outside
the United States, or is an Army Post Office (APO) address or Fleet Post Office
(FPO). If you are a foreign stockholder, you will be sent written
notice of this offering. The subscription agent will hold your
subscription rights, subject to you making satisfactory arrangements with the
subscription agent for the exercise of your subscription rights, and follow
your instructions for the exercise of the subscription rights if such
instructions are received by the subscription agent at or before 11:00 a.m.,
New York City time, on January 24, 2011, three business days prior to the
expiration date (or, if this offering is extended, on or before three business
days prior to the
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extended expiration
date). If no instructions are received by the subscription agent by
that time, your subscription rights will expire without any payment to you of
those unexercised subscription rights.
How much money will
the Company receive from the rights offering?
While the rights offering has no
minimum purchase requirement, if it is completed and fully subscribed, the
Company will receive $15 million to acquire or invest in energy-related
businesses, securities, working interests and other oil, natural gas and
energy-related investments, properties, products and technologies, and for
general corporate purposes. See Use of
Proceeds.
Have any
stockholders indicated that they will exercise their rights?
No. Lyford Investments Enterprises Ltd. (Lyford)
and UniPureEnergy Acquisition Ltd. (UEA), which beneficially own
approximately 31.77% and 12.01%, respectively, of our outstanding common stock
as of the date of this filing, have notified the Company that they intend to
vote all of their shares of common stock in favor of the proposal to conduct
the rights offering at the special meeting of stockholders to be held to
consider such proposal. Mr. Alan Quasha, Chairman of the Board of the
Company, is the son of Phyllis Quasha, who is deemed a beneficial owner of
Lyford and UEA, but Mr. Quasha disclaims any beneficial ownership of these
shares. Neither stockholder has advised the Company of whether, and to what
extent, it will exercise its rights.
Are there risks in
exercising my subscription rights?
Yes.
The exercise of your subscription rights involves risks. Exercising your
subscription rights means buying additional shares of our common stock and
should be considered as carefully as you would consider any other equity
investment. You should carefully read
the section entitled Risk Factors beginning on page 11 of this
prospectus and the section entitled Risk Factors in our Annual Report on
Form 10-K for the year ended December 31, 2009, and all other
information included or incorporated herein by reference in this prospectus in
its entirety before you decide whether to exercise your rights.
How many shares of
common stock will be outstanding after the rights offering?
As
of November 30, 2010, we had 10,026,024 shares of common stock issued and
outstanding. Assuming full participation
by stockholders, upon completion of the rights offering, we will have 17,526,024 shares
of common stock outstanding after the closing of the rights offering.
What fees or
charges apply if I purchase shares of common stock?
We are not charging any fee or sales
commission to issue rights to you or to issue shares to you if you exercise
your rights. If you exercise your rights
through the record holder of your shares, you are responsible for paying any
fees your record holder may charge you.
What are the U.S.
federal income tax consequences of exercising rights?
A holder will not recognize income,
gain, or loss for U.S. federal income tax purposes in connection with the
receipt or exercise of subscription rights in the rights offering. You should consult your tax advisor as to the
particular consequences to you of the rights offering. For a detailed discussion, see the section of
this prospectus entitled Material Federal Income Tax Consequences to United
States Persons.
To whom should I
send my forms and payment?
If your shares are held in the name
of a broker, bank, or other nominee, then you should send your payment and
rights certificate to that record holder in accordance with the instructions
you receive from that record holder. If
you are the record holder, then you should send your subscription documents and
rights certificate by hand delivery, first class mail, or courier service to:
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If delivering by mail:
American Stock
Transfer & Trust Co., LLC
Attn: Reorganization
Department
P.O. Box 2042
New York, New York
10272-2042
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If delivering by hand or
overnight courier:
American Stock
Transfer & Trust Co., LLC
Operations Center
Attn: Reorganization
Department
6201 15th Avenue
Brooklyn, New York 11219
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Your payment of the subscription
price must be made in United States dollars for the full number of shares of
common stock for which you are subscribing by either:
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cashiers or certified check drawn
upon a United States bank payable to the subscription agent at the address
set forth above; or
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wire transfer of immediately
available funds, to the subscription account maintained by the subscription
agent
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The rights agent
will not accept non-certified checks drawn on personal or business accounts.
The rights agent will accept payment only by certified check, cashiers check,
or wire transfer of funds.
You are solely responsible for
completing delivery to the subscription agent of your subscription documents
and payment. We urge you to allow
sufficient time for delivery of your subscription materials to the subscription
agent.
Whom should I
contact if I have other questions?
If you have other questions or need
assistance, please contact the information agent, Morrow & Co., LLC at
(800) 607-0088 or HKN.info@morrowco.com.
For a more complete description of the rights offering, see The Rights
Offering beginning on page 20.
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SUMMARY
This summary
highlights information contained elsewhere in this prospectus or incorporated
by reference therein. This summary is
not complete and may not contain all of the information that you should
consider before deciding whether or not you should exercise your rights. You should read the entire prospectus
carefully, including the section entitled Risk Factors beginning on page 11
of this prospectus and the section entitled Risk Factors in our Annual Report
on Form 10-K for the year ended December 31, 2009, and all other
information included or incorporated herein by reference in this prospectus in
its entirety before you decide whether to exercise your rights.
HKN, Inc.
Our business strategy is focused on
enhancing value for our stockholders through the development of a well-balanced
portfolio of energy-based assets. Currently, the majority of the
value of our assets is derived from our ownership in Gulf Coast oil and gas
properties, our ownership in certain publicly-traded common shares of Global
Energy Development PLC, our investment in BriteWater International LLC and in
our coalbed methane prospects in Indiana and Ohio. We consider these
assets to be strategic for us, and our objective is to build the value of these
properties by:
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Monitoring and reducing operating
costs
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·
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Reducing operational,
environmental, financial and third-party dependency risks
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·
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Pursuing possibilities for
expanding our footprint in these areas
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·
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Performing economic upgrades and
improvements
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We are also seeking to identify
further investment opportunities in undervalued energy-based assets or
companies which could provide future value for our stockholders.
We were incorporated in 1973 in the
State of California and reincorporated in 1979 in the State of Delaware. Our
corporate offices are located at 180 State Street, Suite 200, Southlake,
Texas 76092. Our telephone number is (817) 424-2424, and our web site is
accessed at www.hkninc.com. We make available, free of charge, on our website,
our Code of Business Conduct and Ethics, Code of Ethics for Senior Financial
Officers, Audit Committee Charter and Nominating and Corporate Governance
Committee Charter as well as our Annual Report on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K and all amendments
to those reports as soon as is reasonably practical after such materials are
electronically filed with, or furnished to, the Securities and Exchange
Commission (SEC).
Consolidated
Financial Data
(unaudited
in thousands, except per share amounts)
The
following selected consolidated financial data of the Company, for each of the
fiscal years in the three-year period ended December 31, 2009, have been
derived from our audited consolidated financial statements. The following selected consolidated financial
data for each of the nine-month periods ended September 30, 2009 and 2010
have been derived from the Companys unaudited condensed consolidated financial
statements included in the Companys Quarterly Reports on Form 10-Q for
the quarters ended September 30, 2009 and 2010 and are not necessarily
indicative of the results for the remainder of the fiscal year or any future
period. We believe that the unaudited condensed consolidated financial data
reflects all normal and recurring adjustments necessary for a fair presentation
of the results for the interim periods presented. This information is only a
summary and should be read in conjunction with financial statements and the
notes thereto incorporated by reference into this prospectus and the Managements
Discussion and Analysis of Financial Condition and Results of Operations
section contained in our Annual Report on Form 10-K for the fiscal year
ended December 31, 2009 and our Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 2010.
7
Table of
Contents
HKN, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except for share and per share amounts)
|
|
Year Ended December 31,
|
|
Nine Months Ended September 30,
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
2010
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues and other:
|
|
|
|
|
|
|
|
|
|
|
|
Oil and gas operations
|
|
$
|
10,185
|
|
$
|
22,206
|
|
$
|
20,419
|
|
$
|
8,414
|
|
$
|
7,452
|
|
Trading revenues (losses), net
|
|
|
|
(4,344
|
)
|
680
|
|
|
|
|
|
Interest and other income
|
|
2,153
|
|
2,401
|
|
3,199
|
|
1,213
|
|
1,746
|
|
|
|
12,338
|
|
20,263
|
|
24,298
|
|
9,627
|
|
9,198
|
|
Costs and Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Oil and gas operating expenses
|
|
8,591
|
|
10,801
|
|
8,648
|
|
5,313
|
|
5,981
|
|
General and administrative expenses
|
|
3,197
|
|
5,281
|
|
5,950
|
|
2,392
|
|
2,023
|
|
Provision (benefit) for doubtful accounts
|
|
183
|
|
41
|
|
(106
|
)
|
(21
|
)
|
222
|
|
Depreciation, depletion, amortization and accretion
|
|
3,524
|
|
5,224
|
|
6,107
|
|
2,300
|
|
2,736
|
|
Equity in losses (gains) of Spitfire
|
|
225
|
|
(196
|
)
|
50
|
|
20
|
|
173
|
|
Gain on sale of investment
|
|
(30
|
)
|
|
|
|
|
(1,887
|
)
|
(23
|
)
|
Impairment of facilities
|
|
|
|
97
|
|
|
|
|
|
|
|
Impairment of investment in Spitfire
|
|
|
|
4,618
|
|
|
|
|
|
|
|
Full cost impairment
|
|
|
|
19,906
|
|
|
|
|
|
|
|
Interest expense and other losses
|
|
33
|
|
121
|
|
390
|
|
64
|
|
17
|
|
|
|
15,723
|
|
45,893
|
|
21,039
|
|
8,181
|
|
11,129
|
|
Income (loss) from continuing operations before
income taxes
|
|
$
|
(3,385
|
)
|
$
|
(25,630
|
)
|
$
|
3,259
|
|
$
|
1,446
|
|
$
|
(1,931
|
)
|
Income tax expense (benefit)
|
|
(40
|
)
|
275
|
|
30
|
|
|
|
(40
|
)
|
Income (loss) from continuing operations
|
|
$
|
(3,345
|
)
|
$
|
(25,905
|
)
|
$
|
3,229
|
|
$
|
1,446
|
|
$
|
(1,891
|
)
|
Loss from discontinued operations, net of taxes
|
|
|
|
(1,049
|
)
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(3,345
|
)
|
$
|
(26,954
|
)
|
$
|
3,229
|
|
$
|
1,446
|
|
$
|
(1,891
|
)
|
Net loss attributable to noncontrolling interests
|
|
295
|
|
|
|
|
|
476
|
|
160
|
|
Net loss from discontinued operations attributable to
noncontrolling interests
|
|
|
|
208
|
|
|
|
|
|
|
|
Net income (loss) attributable to HKN, Inc.
|
|
$
|
(3,050
|
)
|
$
|
(26,746
|
)
|
$
|
3,229
|
|
$
|
1,922
|
|
$
|
(1,731
|
)
|
Accrual of dividends related to preferred stock
|
|
(280
|
)
|
(305
|
)
|
(217
|
)
|
(12
|
)
|
(242
|
)
|
Payments of dividends and modification of preferred
stock
|
|
(139
|
)
|
(57
|
)
|
(47
|
)
|
8
|
|
(113
|
)
|
Net income (loss) attributed to common stock
|
|
$
|
(3,469
|
)
|
$
|
(27,108
|
)
|
$
|
2,965
|
|
$
|
1,918
|
|
$
|
(2,086
|
)
|
Basic and diluted net income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share from continuing
operations
|
|
$
|
(0.37
|
)
|
$
|
(2.74
|
)
|
$
|
0.30
|
|
$
|
0.20
|
|
$
|
(0.23
|
)
|
Net loss per common share from discontinued
operations
|
|
|
|
(0.09
|
)
|
|
|
|
|
|
|
Net income (loss) per common share
|
|
$
|
(0.37
|
)
|
$
|
(2.83
|
)
|
$
|
0.30
|
|
$
|
0.20
|
|
$
|
(0.23
|
)
|
Weighted average common shares outstanding
|
|
9,269,565
|
|
9,587,952
|
|
9,799,332
|
|
9,579,462
|
|
9,165,322
|
|
Reasons for the
Rights Offering
We are pursuing the rights offering
to enhance our financial flexibility and provide funds for us to acquire or
invest in energy-related businesses, securities, working interests and other oil,
natural gas and energy-related investments, properties, products and
technologies, and for general corporate purposes.
Prior to approving the rights
offering, our Board of Directors carefully considered our current and expected
liquidity requirements in light of our expected results of operations, current
market conditions, and business and capital-raising opportunities, as well as
the dilution of the ownership percentage of the current holders of our common
stock that may be caused by the rights offering if they do not exercise their
rights in full.
After weighing the factors discussed
above and the effect of the $15 million in additional capital, before
expenses, that may be generated by the sale of all shares pursuant to the
rights offering, the Special Committee and our Board of Directors determined
that the rights offering is in the best interests of the Company and its
stockholders. Although we believe that the rights offering will strengthen our
financial condition, neither our Board of Directors nor the Special Committee
is making any recommendation as to whether you should exercise your
subscription rights.
8
Table of
Contents
Description of The
Rights Offering
Securities offered
|
|
We are distributing to you, at no
charge, 0.74805 of a non-transferable subscription right for every share of
our common stock that you owned on the eligibility date, either as a holder
of record or, in the case of shares held of record by brokers, banks, or
other nominees, on your behalf, as a beneficial owner of such shares, subject
to adjustments to eliminate fractional rights.
|
Basic subscription privilege
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Each whole right gives you the opportunity
to purchase one share of our common stock for $2.00 per share.
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Over-subscription privilege
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|
If you elect to exercise your
basic subscription privilege in full, you may also subscribe for additional
shares (up to the number of unsubscribed shares) at the same subscription
price per share. If an insufficient number of shares are available to fully
satisfy over-subscription requests, the available shares will be distributed
proportionately among rights holders who exercised their over subscription
privilege based on the number of shares each rights holder subscribed for
under the basic subscription privilege. The subscription agent will return
any excess payments by mail without interest or deduction promptly after
completion of the rights offering.
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Eligibility date
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Close of business on
January 5, 2011.
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Expiration date
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5:00 p.m., Eastern Time, on
January 27, 2011, unless extended by the Special Committee. Any rights
not exercised at or before that time will expire without any payment to the
holders of those unexercised rights.
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Subscription price
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$2.00 per share, payable in
immediately available funds.
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Use of proceeds
|
|
The net proceeds to us from the
sale of all of our shares of common stock offered in the rights offering, assuming
full participation, are estimated to be approximately $14.8
million, after deducting estimated
offering expenses of approximately $220 thousand. We plan to use the net
proceeds of the rights offering to acquire or invest in energy-related
businesses, securities, working interests and other oil, natural gas and
energy-related investments, properties, products and technologies, and for
general corporate purposes.
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Transferability of rights
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The subscription rights are not
transferable.
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No board recommendation
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Neither our Board of Directors nor
the Special Committee makes any recommendation to you about whether you
should exercise any rights. You are urged to make an independent investment
decision about whether to exercise your rights based on your own assessment
of our business and the rights offering. Please see the section of this
prospectus entitled Risk Factors for a discussion of some of the risks
involved in investing in our common stock.
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No revocation
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If you exercise any of your
rights, you will not be permitted to revoke or change the exercise or request
a refund of monies paid.
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U.S. federal income tax
considerations
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|
A holder will not recognize
income, gain, or loss for Federal income tax purposes in connection with the
receipt or exercise of subscription rights in the rights offering. You should
consult your tax advisor as to the
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9
Table of Contents
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particular consequences to you of
the rights offering. For a detailed discussion, see Material Federal Income
Tax Consequences to United States Persons.
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Extension, cancellation, and
amendment
|
|
The period for exercising your
subscription rights may be extended by the Special Committee. We may not
cancel or terminate the rights offering, nor may we amend the terms of the
rights offering unless certain closing conditions of the rights offering are
not satisfied, including the approval of our stockholders of the issuance of
shares in the rights offering, as required by the NYSE Amex rules.
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Procedure for exercising rights
|
|
If you are the record holder of
shares of our common stock, to exercise your rights you must complete the
rights certificate and deliver it to the subscription agent, American Stock
Transfer & Trust Co., LLC, together with full payment for all the
subscription rights (pursuant to both the basic subscription privilege and
the over-subscription privilege) you elect to exercise. The subscription
agent must receive the proper forms and payments on or before the expiration
of the rights offering. You may deliver the documents and payments by mail or
commercial courier, and you may make payments by wire transfer of immediately
available funds. If regular mail is used for this purpose, we recommend using
registered mail, properly insured, with return receipt requested. If you are
a beneficial owner of shares of our common stock, you should instruct your
broker, bank, or nominee in accordance with the procedures described in the
section of this prospectus entitled The Rights Offering Beneficial
Owners.
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Subscription agent
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American Stock Transfer &
Trust Co., LLC
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Information agent
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Morrow & Co., LLC
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Questions
|
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Questions regarding the rights
offering should be directed to the information agent, at (800) 607-0088 or
HKN.info@morrowco.com
|
Shares outstanding before
the rights offering
|
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10,026,024 shares as of November 30,
2010.
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|
|
|
Shares outstanding after completion of the rights offering
|
|
Up to 17,526,024 shares of
our common stock will be outstanding immediately after completion of the
rights offering, assuming full participation in the rights offering.
|
Issuance of our common stock
|
|
If you purchase shares of common
stock pursuant to the basic subscription privilege or the over-subscription
privilege, we will issue certificates representing those shares to you or the
DTC on your behalf, as the case may be, promptly after the completion of the
rights offering.
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Risk factors
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Stockholders considering
exercising their subscription rights should consider the risk factors
described in the section of this prospectus entitled Risk Factors.
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Expenses
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We will bear the expenses relating
to the rights offering.
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NYSE Amex trading symbol
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Shares of our common stock are
currently listed on the NYSE Amex under the symbol HKN, and the shares to be
issued in connection with the rights offering will be eligible for trading on
the NYSE Amex.
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10
Table of Contents
The Special Meeting
of Our Stockholders
We
intend to call a special meeting of our stockholders to be held on January 12,
2011, to consider the approval of the issuance of shares of our common stock in
the rights offering, as required by the NYSE Amex rules. Lyford and UEA, which
beneficially own approximately 31.77% and 12.01%, respectively of our
outstanding common stock, have notified the Company that they intend to vote
all of their shares of common stock in favor of the rights offering proposal at
the special meeting.
RISK FACTORS
We wish to caution you that there
are risks and uncertainties that could cause our actual results to be
materially different from those indicated by forward-looking statements that we
make from time to time in filings with the SEC, news releases, reports, proxy
statements, registration statements and other written communications, as well as
oral forward-looking statements made from time to time by our representatives.
These risks and uncertainties include, but are not limited to, the risks
described below. Because of the following factors, as well as other variables
affecting our operating results, past financial performance may not be a
reliable indicator of future performance, and historical trends should not be
used to anticipate results or trends in future periods. We do not assume any
obligation to update forward-looking statements.
Risks Associated
with Our Business
Oil and gas price
fluctuations in the market may adversely affect the results of our operations.
Our profitability, cash flows and
the carrying value of our oil and natural gas properties are highly dependent
upon the market prices of oil and natural gas. Substantially all of our sales
of oil and natural gas are made in the spot market, or pursuant to contracts
based on spot market prices, and not pursuant to long-term, fixed-price
contracts. Accordingly, the prices received for our oil and natural
gas production are dependent upon numerous factors beyond our control. These
factors include the level of consumer product demand, governmental regulations
and taxes, the price and availability of alternative fuels, the level of foreign
imports of oil and natural gas and the overall economic
environment. Historically, the oil and natural gas markets have
proven cyclical and volatile as a result of factors that are beyond our
control. Any additional declines in oil and natural gas prices or
any other unfavorable market conditions could have a material adverse effect on
our financial condition and on the carrying value of our proved reserves.
Our future success
depends on our ability to find, develop and produce oil and gas reserves.
As is generally the case, our
producing properties in the Gulf of Mexico and the onshore Gulf Coast often
have high initial production rates which are followed by steep declines. To
maintain production levels, we must locate and develop or acquire new oil and
gas reserves to replace those depleted by production. Without successful
exploration or acquisition activities, our reserves, production and revenues
will decline. We may be unable to find, develop or produce additional reserves
at an acceptable cost. In addition, substantial capital is required to replace
and grow reserves. If lower oil and gas prices or operating constraints or
production difficulties result in our cash flow from operations being less than
expected, we may be unable to expend the capital necessary to locate and
develop or acquire new oil and gas reserves.
Actual quantities
of recoverable oil and gas reserves and future cash flows from those reserves
most likely will vary from our estimates.
Estimating accumulations of oil and
gas is complex. The process relies on interpretations of available geological,
geophysical, engineering and production data. The extent, quality and
reliability of this data can vary. The process also requires certain economic
assumptions, some of which are mandated by the SEC, such as oil and gas prices,
drilling and operating expenses, capital expenditures, taxes and availability
of funds. The accuracy of a reserve estimate is a function of:
11
Table of Contents
·
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the quality and quantity of
available data;
|
|
|
|
·
|
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the interpretation of that data;
|
|
|
|
·
|
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the accuracy of various mandated
economic assumptions; and
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|
·
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the judgment of the persons
preparing the estimate.
|
Estimates of proved reserves
prepared by others might differ materially from our estimates. Actual quantities of recoverable oil and gas
reserves, future production, oil and gas prices, revenues, taxes, development
expenditures and operating expenses most likely will vary from our
estimates. Any significant variance
could materially affect the quantities and net present value of our reserves. In addition, we may adjust estimates of
proved reserves to reflect production history, results of exploration and
development and prevailing oil and gas prices. Our reserves also may be
susceptible to drainage by operators on adjacent properties.
You should not assume that the
present value of future net cash flows is the current market value of our
estimated proved oil and gas reserves.
In accordance with reserve disclosure requirements, we calculate the
estimated discounted future net cash flows from proved reserves using 12 month
average prices and costs. Actual future
prices and costs may be materially higher or lower than the prices and costs we
used.
Our operations
require significant expenditures of capital that may not be recovered.
We require significant expenditures
of capital in order to locate and develop producing properties and to drill
exploratory and exploitation wells. In conducting exploration,
exploitation and development activities from a particular well, the presence of
unanticipated pressure or irregularities in formations, miscalculations or
accidents may cause our exploration, exploitation, development and production
activities to be unsuccessful, potentially resulting in abandonment of the
well. This could result in a total loss of our
investment. In addition, the cost and timing of drilling, completing
and operating wells is difficult to predict.
Compliance with, or
breach of, environmental laws can be costly and could limit our operations.
Our operations are subject to
numerous and frequently changing laws and regulations governing the discharge
of materials into the environment or otherwise relating to environmental
protection. We own or lease, and have in the past owned or leased,
properties that have been used for the exploration and production of oil and
gas and these properties and the wastes disposed on these properties may be
subject to the Comprehensive Environmental Response, Compensation and Liability
Act, the Oil Pollution Act of 1990, the Resource Conservation and Recovery Act,
the Federal Water Pollution Control Act and analogous state
laws. Under such laws, we could be required to remove or remediate
previously released wastes or property contamination. Laws and
regulations protecting the environment have generally become more stringent and
may, in some cases, impose strict liability for environmental
damage. Strict liability means that we may be held liable for damage
without regard to whether we were negligent or otherwise at
fault. Environmental laws and regulations may expose us to liability
for the conduct of or conditions caused by others or for acts that were in
compliance with all applicable laws at the time they were
performed. Failure to comply with these laws and regulations may
result in the imposition of administrative, civil and criminal penalties.
Although we believe that our
operations are in substantial compliance with existing requirements of
governmental bodies, our ability to conduct continued operations is subject to
satisfying applicable regulatory and permitting controls. Our current permits and
authorizations and ability to get future permits and authorizations may be
susceptible on a going forward basis, to increased scrutiny, greater complexity
resulting in increased costs, or delays in receiving appropriate
authorizations.
12
Table
of Contents
We are dependent on
other operators who influence our productivity.
We have limited influence over the
nature and timing of exploration and development on oil and natural gas
properties we do not operate, including limited control over the maintenance of
both safety and environmental standards. In 2009, approximately 46%
of our production and 37% of our reserves were from our non-operated
properties. The operators of those properties may:
·
|
|
refuse to initiate exploration or
development projects,
|
|
|
|
·
|
|
initiate exploration or
development projects on a slower schedule than we prefer; or
|
|
|
|
·
|
|
drill more wells or build more
facilities on a project than we can adequately fund, which may limit our
participation in those projects or limit our percentage of the revenues from
those projects.
|
The occurrence of any of the
foregoing events could have a material adverse effect on our anticipated
exploration and development activities.
Our working
interest owners may face cash flow and liquidity concerns.
If oil and natural gas prices
decline, many of our working interest owners could experience liquidity and
cash flow problems. These problems may lead to their attempting to
delay the pace of drilling or project development in order to conserve
cash. Any such delay could be detrimental to our
projects. Some working interest owners may be unwilling or unable to
pay their share of the project costs as they become due. A working
interest owner may declare bankruptcy and refuse or be unable to pay its share
of the project costs, and we would be obligated to pay that working interest
owners share of the project costs.
The oil and
gas we produce may not be readily marketable at the time of production.
Crude oil, natural gas, condensate
and other oil and gas products are generally sold to other oil and gas
companies, government agencies and other industries. The
availability of ready markets for oil and gas that we might discover and the
prices obtained for such oil and gas depend on many factors beyond our control,
including:
·
|
|
the extent of local production and
imports of oil and gas,
|
|
|
|
·
|
|
the proximity and capacity of
pipelines and other transportation facilities,
|
|
|
|
·
|
|
fluctuating demand for oil and
gas,
|
|
|
|
·
|
|
the marketing of competitive
fuels, and
|
|
|
|
·
|
|
the effects of governmental
regulation of oil and gas production and sales.
|
Natural gas associated with oil
production is often not marketable due to demand or transportation limitations
and is often flared at the producing well site. Pipeline facilities
do not exist in certain areas of exploration and, therefore, any actual sales
of discovered oil and gas might be delayed for extended periods until such
facilities are constructed.
We may encounter
operating hazards that may result in substantial losses.
We are subject to operating hazards
normally associated with the exploration and production of oil and gas,
including hurricanes, blowouts, explosions, oil spills, cratering, pollution,
earthquakes, labor disruptions and fires. The occurrence of any such
operating hazards could result in substantial losses to us due to injury or
loss of
13
Table of Contents
life and damage to or destruction of
oil and gas wells, formations, production facilities or other
properties. We maintain insurance coverage limiting financial loss
resulting from certain of these operating hazards. We do not
maintain full insurance coverage for all matters that may adversely affect our
operations, including war, terrorism, nuclear reactions, government fines,
treatment of waste, blowout expenses, wind damage and business
interruptions. Losses and liabilities arising from uninsured or
underinsured events could reduce our revenues or increase our costs. There can
be no assurance that any insurance will be adequate to cover losses or
liabilities associated with operational hazards. We cannot predict
the continued availability of insurance, or its availability at premium levels
that justify its purchase.
Oil and gas wells
particularly in certain regions of the United States could be hindered by
hurricanes, earthquakes and other weather-related operating risks.
Our operations in the Texas and
Louisiana Gulf Coast area are subject to risks from hurricanes and other
natural disasters. Damage caused by wind, hurricanes, earthquakes or other
operating hazards could result in substantial losses to us. In the past, our
oil and gas operations have been affected by tropical storms and hurricanes on
occasion resulting in additional costs and reduced oil and gas volumes during
those periods.
We face strong
competition from larger oil and gas companies, which could result in adverse
effects on our business.
The exploration and production
business is highly competitive. Many of our competitors have
substantially larger financial resources, staffs and facilities. Our
competitors in the United States include numerous major oil and gas exploration
and production companies. Our investment in Global Energy
Development PLC may be affected as a result of the competition faced in
Colombia, Peru and Panama.
Our operations are
subject to various litigation that could have an adverse effect on our
business.
From time to time we are a defendant
in various litigation matters. The
nature of our operations expose us to further possible litigation claims in the
future. There is risk that any matter in
litigation could be adversely decided against us regardless of our belief,
opinion and position, which could have a material adverse effect on our
financial condition and results of operations.
Litigation is highly costly and the costs associated with defending
litigation could also have a material adverse effect on our financial
condition.
We may be affected
by global climate change or by legal, regulatory, or market responses to such
change.
The growing political and scientific
sentiment is that increased concentrations of carbon dioxide and other
greenhouse gases in the atmosphere are influencing global weather
patterns. Changing weather patterns,
along with the increased frequency or duration of extreme weather conditions,
could impact the availability or increase the cost to produce our products. Additionally, the sale of our products can be
impacted by weather conditions.
Concern over climate change,
including global warming, has led to legislative and regulatory initiatives
directed at limiting the greenhouse gas emissions. For example, proposals that would impose
mandatory requirements on greenhouse gas emissions continue to be considered by
policy makers in the territories we operate.
Laws enacted that directly or indirectly affect our oil and gas
production could impact our business and financial results.
14
Table of Contents
Risk factors
associated with our financial condition
We have a history
of losses and may suffer losses in the future.
We reported a net loss of
approximately $3.3 million and $27 million for the years ended December 31,
2009 and 2008, respectively. We have reported net losses in three of the last
five fiscal years. Our ability to generate net income is strongly
affected by, among other factors, the market price of crude oil and natural
gas. During 2008, we recorded a write-down of the carrying value of
our oil and gas properties of approximately $19.9 million which was primarily
due to the significant decline in the market price of crude oil and natural gas
at December 31, 2008. We had no such write-down in 2009; however, we may
report losses in the future.
Consequently, future losses may adversely affect our business,
prospects, financial condition, results of operations and cash flows.
If estimated
discounted future net cash flows decrease, we may be required to take
write-downs.
We periodically review the carrying
value of our oil and gas properties under applicable full-cost accounting
rules. These rules require a
write-down of the carrying value of oil and gas properties if the carrying
value exceeds the applicable estimated discounted future net cash flows from
proved oil and gas reserves. Given the
volatility of oil and gas prices, it is reasonably possible that the estimated
discounted future net cash flows could change in the near term. If oil and gas prices decline in the future,
even if only for a short period of time, it is possible that write-downs of oil
and gas properties could occur. Whether
we will be required to take such a charge will depend on the average prices for
oil and gas during the period and the effect of reserve additions or revisions,
property sales and capital expenditures during such quarter.
Our financial
condition may suffer if estimates of our oil and gas reserve information are
adjusted, and fluctuations in oil and gas prices and other factors affect our
oil and gas reserves.
Our oil and gas reserve information
is based upon criteria prepared in accordance with Financial Accounting
Standards Boards Accounting Standards Codification 932,
Extractive Activities- Oil and Gas
(ASC
932) and the Securities and Exchange Commissions Final Rule,
Modernization of the Oil and Gas Reporting
Requirements
, and reflects only estimates of the accumulation of oil
and gas and the economic recoverability of those volumes. Our future
production, revenues and expenditures with respect to such oil and gas reserves
could be different from estimates, and any material differences may negatively
affect our business, financial condition and results of operations.
Petroleum engineering is a
subjective process of estimating underground accumulations of oil and gas that
cannot be measured in an exact manner.
Estimates of economically recoverable oil and gas reserves and of future
net cash flows necessarily depend upon a number of variable factors and
assumptions.
Because all reserve estimates are to
some degree subjective, each of the following items may prove to differ
materially from that assumed in estimating reserves:
·
|
|
the quantities of oil and gas that
are ultimately recovered,
|
|
|
|
·
|
|
the production and operating costs
incurred,
|
|
|
|
·
|
|
the amount and timing of future
development expenditures, and
|
|
|
|
·
|
|
future oil and gas sales prices.
|
Furthermore, different reserve
engineers may make different estimates of reserves and cash flow based on the
same available data.
15
Table of Contents
The estimated discounted future net
cash flows described in our Annual Report on Form 10-K for the year ended December 31,
2009 should not be considered as the current market value of the estimated oil
and gas reserves attributable to our properties from proved reserves. Such
estimates are prepared in compliance with the ASC 932, and the Securities and
Exchange Commissions Final Rule,
Modernization
of the Oil and Gas Reporting Requirements,
and, as such, are based
on average prices and costs as of the date of the estimate, while future prices
and costs may be materially higher or lower. These standards require
that we report our oil and natural gas reserves using a 12-month average price,
calculated as the unweighted arithmetic average of the first-day-of-the-month
price for each month within the 12-month period prior to the end of the
reporting period, unless prices are defined by contractual arrangements,
excluding escalations based upon future conditions. Using lower values in
forecasting reserves will result in a shorter life being given to producing oil
and natural gas properties because such properties, as their production levels
are estimated to decline, will reach an uneconomic limit, with lower prices, at
an earlier date. There can be no assurance that a decrease in oil
and gas prices or other differences in our estimates of its reserve will not
adversely affect our financial condition and results of operations.
If the market value
of our investments in Global Energy Development PLC (Global) continues to
decrease, the value of our common stock could be negatively impacted.
At
September 30, 2010, we held an investment in Global through our ownership
of approximately 34% of their outstanding ordinary shares. This
investment represents a substantial part of our balance sheet. The market value
of Globals common shares has decreased during 2010, and there can be no
assurance that their common stock will improve in the future. A potential decrease in the value of their
common stock could adversely affect our financial statements and the value of
our common stock.
We may suffer
losses on our investments from exchange rate fluctuations.
We account for our investment in
Global using the U.S. dollar as the functional currency. The shares
of common stock associated with our investment in Global is denominated in
British sterling pounds. We could suffer losses in our investment if
the value of the British sterling pound were to drop relative to the value of
the U.S. dollar. Any substantial currency fluctuations could create
a material adverse effect on the value of our investments.
Two of our
shareholders cumulatively own a significant amount of our common stock and may
exercise significant control over us.
As
of the date of this filing, Lyford and UEA beneficially owned 31.77% and 12.01%,
respectively, of the combined voting power of our outstanding common
stock. Lyford is in a position to
significantly influence decisions with respect to:
·
|
|
our direction and policies,
including the election and removal of directors,
|
|
|
|
·
|
|
mergers or other business
combinations,
|
|
|
|
·
|
|
the acquisition or disposition of
our assets,
|
|
|
|
·
|
|
future issuances of our common
stock or other securities,
|
|
|
|
·
|
|
our incurrence of debt, and
|
|
|
|
·
|
|
the payment of dividends, if any,
on our common stock, and amendments to our certificate of incorporation and
bylaws.
|
Lyford and UEAs concentration of
ownership could also have the effect of delaying, deferring or preventing a
future change of control.
16
Table of Contents
Risks associated
with the rights offering and market conditions
Our stock price is
volatile and may decline before or after the subscription rights expire.
Our stock price has been and is
highly volatile, and we believe this volatility is due to, among other things:
·
|
|
commodity prices of oil and
natural gas,
|
|
|
|
·
|
|
the volatility of the market in
general,
|
|
|
|
·
|
|
the results of our drilling,
|
|
|
|
·
|
|
current expectations of our future
financial performance.
|
We cannot assure you that the public
trading market price of our common stock will not decline after you elect to
exercise your rights. If that occurs, you may have committed to buy shares of
common stock in the rights offering at a price greater than the prevailing
market price and could have an immediate unrealized loss. Moreover, we cannot assure you that,
following the exercise of your rights, you will be able to sell your common
stock at a price equal to or greater than the subscription price, and you may
lose all or part of your investment in our common stock. Until shares are
delivered to you, you will not be able to sell the shares of our common stock
that you purchase in the rights offering.
Certificates representing shares of our common stock purchased pursuant
to the basic subscription privilege and over-subscription privilege will be
delivered promptly after completion of the rights offering and after all
pro rata
allocations and adjustments have
been completed. We will not pay you
interest on funds delivered to the subscription agent pursuant to the exercise
of rights.
If you do not
exercise your rights in full in the rights offering, you will suffer
significant dilution in your percentage ownership of the Company.
If you do not exercise any rights in
the rights offering, the number of shares of our common stock that you own will
not change. However, because up to 7,500,000 shares of our common stock will be
issued if the rights offering is completed, if you do not exercise your rights
in full, your percentage ownership will be diluted after completion of the
rights offering.
The subscription
price determined for the rights offering is not an indication of the fair value
of our common stock.
The Special Committee determined the
subscription price after considering, among other things, (i) the opinion
delivered to the Special Committee by its financial advisor, The BVA Group,
LLC., indicating that the financial terms of the rights offering are fair from
a financial point of view to our stockholders taken as a whole; (ii) the
likely cost of capital from other sources and (iii) the price at which our
stockholders might be willing to participate in the rights offering. The subscription price for a subscription
right is $2.00 per share. The
subscription price is not intended to bear any relationship to the book value
of our assets or our past operations, cash flows, losses, financial condition,
net worth, or any other established criteria used to value securities. You should not consider the subscription
price to be an indication of the fair value of the common stock to be offered
in the rights offering. After the date
of this prospectus, our common stock may trade at prices above or below the
subscription price.
You should note that we
purchased 35,000 treasury shares during November 2010 at a price of $4.48 per
share which represented a premium to the subscription price of $2.00 per share.
You may not revoke
your subscription exercise and could be committed to buying shares above the
prevailing market price.
Once
you exercise your subscription rights, you may not revoke the exercise of such
rights. The public trading market price of our common stock may decline before
the subscription rights expire. If you
exercise your subscription rights and, afterwards, the public trading market
price of our common stock decreases below the subscription price, you will have
committed to buy shares of our common stock at a price above the prevailing
17
Table of Contents
market price. Our common stock is traded on the NYSE Amex
under the symbol HKN, and the last reported sales price of our common stock on
the NYSE Amex on December 3, 2010, was $3.40
per
share. Moreover, you may be unable to sell your shares of common stock at a
price equal to or greater than the subscription price you paid for such shares.
If you do not act
promptly and follow the subscription instructions, your exercise of
subscription rights may be rejected.
Stockholders who desire to purchase
shares in the rights offering must act promptly to ensure that all required
forms and payments are actually received by the subscription agent before January 27,
2011, the expiration date of the rights offering, unless extended. If you are a beneficial owner of shares, you
must act promptly to ensure that your broker, bank, or other nominee acts for
you and that all required forms and payments are actually received by the
subscription agent before the expiration date of the rights offering. We will
not be responsible if your broker, bank, or nominee fails to ensure that all
required forms and payments are actually received by the subscription agent
before the expiration date of the rights offering. If you fail to complete and sign the required
subscription forms, send an incorrect payment amount or otherwise fail to
follow the subscription procedures that apply to your exercise in the rights
offering, the subscription agent may, depending on the circumstances, reject
your subscription or accept it only to the extent of the payment received. Neither we nor our subscription agent
undertakes to contact you concerning an incomplete or incorrect subscription
form or payment, nor are we under any obligation to correct such forms or
payment. We have the sole discretion to
determine whether a subscription exercise properly follows the subscription
procedures.
Significant sales
of our common stock, or the perception that significant sales may occur in the
future, could adversely affect the market price for our common stock.
The sale of substantial amounts of
our common stock could adversely affect the price of these securities. Sales of
substantial amounts of our common stock in the public market, and the
availability of shares for future sale, including the shares of our common
stock to be issued in the rights offering could adversely affect the prevailing
market price of our common stock and could cause the market price of our common
stock to remain low for a substantial time.
We cannot foresee the impact of such potential sales on the market, but
it is possible that if a significant percentage of such available shares were
attempted to be sold within a short period of time, the market for our shares
and would be adversely affected. It is also unclear whether or not the market
for our common stock could absorb a large number of attempted sales in a short
period of time, regardless of the price at which they might be offered. Even if a substantial number of sales do not
occur within a short period of time, the mere existence of this market
overhang could have a negative impact on the market for our common stock and
our ability to raise additional capital.
We have issued
shares of preferred stock with greater rights than our common stock and may
issue additional shares of preferred stock in the future.
We are permitted under our restated
certificate of incorporation to issue up to 1.0 million shares of preferred
stock. We can issue shares of our preferred stock in one or more
series and can set the terms of the preferred stock without seeking any further
approval from our
common
stockholders. Any preferred stock that we issue may rank ahead of
our common stock in terms of dividend priority or liquidation premiums and may
have greater voting rights than our common stock. At September 30,
2010, we had outstanding 1,000 shares of Series G1 Preferred and 1,000
shares of Series G2 Preferred.
These shares of preferred stock have rights senior to our common stock
with respect to dividends and liquidation.
18
Table of Contents
USE OF PROCEEDS
The net proceeds to us from the sale
of all of our shares of common stock offered in the rights offering, assuming
full participation, are estimated to be approximately $14.8
million, after deducting estimated
offering expenses of approximately $220 thousand. We plan to use the net
proceeds of the rights offering to acquire or invest in energy-related
businesses, securities, working interests and other oil, natural gas and
energy-related investments, properties, products and technologies, and for
general corporate purposes.
DETERMINATION OF SUBSCRIPTION PRICE
The Special Committee determined the
subscription price after considering, among other things, (i) the opinion
delivered to the Special Committee by its financial advisor, The BVA Group,
LLC, indicating that the financial terms of the rights offering are fair from a
financial point of view to our stockholders taken as a whole; (ii) the
likely cost of capital from other sources; and (iii) the price at which
our stockholders might be willing to participate in the rights offering. The $2.00 subscription price is not intended
to bear any relationship to the book value of our assets or our past operations,
cash flows, losses, financial condition, net worth, or any other established
criteria used to value securities. You should not consider the subscription
price to be an indication of the fair value of the common stock to be offered
in the rights offering.
CAPITALIZATION
The
following table describes capitalization as of September 30, 2010,
(i) on an actual basis, and (ii) on an as adjusted basis to give
effect to the sale of all 7,500,000 shares offered in the rights offering
at a price of $2.00 per share. As adjusted balances are subject to change based
upon final participation in the rights offering.
|
|
As of Septmber 30, 2010 (unaudited, in
thousands except share amounts)
|
|
|
|
Actual
|
|
Pro Forma
|
|
|
|
|
|
|
|
Long
Term Debt
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
Shareholders
Equity:
|
|
|
|
|
|
|
|
|
|
|
|
Series G1
Preferred Stock, $1.00 par value; $100 thousand liquidation value 700,000
shares authorized; 1,000 shares outstanding
|
|
1
|
|
1
|
|
Series G2 Preferred
Stock, $1.00 par value; $100 thousand liquidation value 100,000 shares
authorized; 1,000 shares outstanding
|
|
1
|
|
1
|
|
Common stock, $0.01 par
value; 24,000,000 shares authorized; 10,061,024 and 17,561,024 shares issued
pro forma, respectively
|
|
101
|
|
176
|
(1)
|
Additional paid-in capital
|
|
439,131
|
|
453,836
|
|
Accumulated deficit
|
|
(386,724
|
)
|
(386,724
|
)
|
Accumulated other comprehensive
income
|
|
2,057
|
|
2,057
|
|
Total HKN, Inc.
Stockholders Equity
|
|
$
|
54,567
|
|
$
|
69,347
|
|
(1) Change
includes the 7.5 million shares to be issued upon the successful completion of
the rights offering.
19
Table
of Contents
THE RIGHTS OFFERING
The Rights
We are distributing to the record
holders of our common stock as of January 5, 2011, non-transferable
subscription rights to purchase shares of our common stock at a subscription
price of $2.00 per share. The
subscription rights will entitle the holders of those rights to purchase shares
of common stock for an aggregate purchase price of $15 million. See below for additional information
regarding subscription by DTC participants and stockholders who hold their
shares in street name with DTC participants.
You
will receive 0.74805 of a subscription right for every share of our common
stock you own at the close of business on the eligibility date, subject to
adjustments to eliminate fractional rights. Each whole right includes (i) a
basic subscription privilege that entitles the holder to subscribe to purchase
one share of common stock and (ii) an over-subscription privilege that
entitles the holder, if such holder exercises its basic subscription privilege
in full, to subscribe to purchase additional shares of common stock up to the
number of unsubscribed shares, on a pro rata basis. If a sufficient number of
shares of our common stock are unavailable to fully satisfy the
over-subscription privilege requests, the available shares of common stock will
be sold
pro rata
to subscription
rights holders who exercised their basic subscription privilege based on the
number of shares each subscription rights holder subscribed for under the basic
subscription privilege.
We intend to keep the rights
offering open until January 27, 2011, unless the Special Committee, in its
sole discretion, extends such time.
Reasons for the
Rights Offering
We are pursuing the rights offering
to enhance our financial flexibility and provide funds for us to acquire or
invest in energy-related businesses, securities, working interests and other
oil, natural gas and energy-related investments, properties, products and
technologies, and for general corporate purposes.
Prior to approving the rights
offering, our Board of Directors carefully considered our current and expected
liquidity requirements in light of our expected results of operations, current
market conditions, and business and capital-raising opportunities, as well as
the dilution of the ownership percentage of the current holders of our common
stock that may be caused by the rights offering if they do not exercise their
rights in full.
After weighing the factors discussed
above and the effect of the $15 million in additional capital, before
expenses, that may be generated by the sale of all shares pursuant to the
rights offering, the Special Committee and our Board of Directors determined
that the rights offering is in the best interests of the Company and its
stockholders. Although we believe that
the rights offering will strengthen our financial condition, neither our Board
of Directors nor the Special Committee is making any recommendation as to
whether you should exercise your subscription rights.
Expiration of the
Rights Offering and Extensions, Amendments, and Termination
You may exercise your subscription
rights at any time before 5:00 p.m., Eastern Time, on January 27,
2011, the expiration date of the rights offering, unless extended by the
Special Committee.
Subject to the foregoing, we will
extend the duration of the rights offering as required by applicable law. We may choose to extend it if we decide that
changes in the market price of our common stock warrant an extension or if we
decide to give holders of rights more time to exercise their subscription
rights in the rights offering. We may
extend the expiration date of the rights offering by giving oral or written
notice to the subscription agent and information agent on or before the
scheduled expiration date. If we elect
to extend the expiration of the rights offering, we will issue a press release
announcing such extension no later than 9:00 a.m., Eastern Time, on the
next business day after the most recently announced expiration date.
20
Table
of Contents
If you do not exercise your
subscription rights before the expiration date of the rights offering, your
unexercised subscription rights will be null and void and will have no
value. We will not be obligated to honor
your exercise of subscription rights if the subscription agent receives the
documents and payment for the subscription price relating to your exercise
after the rights offering expires, regardless of when you transmitted the
documents.
Subscription
Privileges
Your subscription rights entitle you
to a basic subscription privilege and an over-subscription privilege.
Basic Subscription Privilege.
The
basic subscription privilege of each whole right entitles you to purchase one
share of our common stock at the subscription price of $2.00 per share. You will receive 0.74805 of a subscription
right for every share of our common stock you owned at the close of business on
the eligibility date, subject to adjustments to eliminate fractional
rights. You are not required to exercise
all of your rights under the basic subscription privilege unless you wish to
purchase shares under your over-subscription privilege. We will deliver to the
holders of record who validly exercise their rights under the basic
subscription privilege and make payment of the subscription price in full,
certificates representing the shares purchased with their basic subscription
privilege, or, if you hold your shares in book-entry form and validly exercise
your rights under the basic subscription privilege, we will credit your account
with such shares, in each case promptly following the later of the expiration
of the rights offering or the satisfaction or waiver of the closing conditions
described in this prospectus (and after all
pro
rata
allocations and adjustments have been completed with respect to
the over-subscription).
All rights issued to a stockholder
of record who would, in our opinion, be required to obtain prior clearance or
approval from any state, federal, or non-U.S. regulatory authority for the
ownership or exercise of rights or the ownership of additional shares are null
and void and may not be held or exercised by any such holder.
Over-Subscription
Privilege.
In
addition to your basic subscription privilege, you may subscribe for additional
shares of our common stock (up to the number of unsubscribed shares), upon
delivery of the required documents and payment of the subscription price of
$2.00 per share, before the expiration of the rights offering. You may only exercise your over-subscription
privilege if you exercised your basic subscription privilege in full, including
payment of the subscription price therefore, and other holders of subscription
rights do not exercise their basic subscription privileges in full. We will deliver to the holders of record who
purchase shares in the rights offering certificates representing the shares
purchased with their over-subscription privilege, or, if you hold your shares
in book-entry form and validly exercise your rights under the over-subscription
privilege, we will credit your account with such shares, promptly following the
later of the expiration of the rights offering or the satisfaction or waiver of
the closing conditions described in this prospectus (and after all
pro rata
allocations and adjustments have
been completed with respect to the over-subscription).
Pro Rata
Allocation.
If
there are not enough shares of our common stock to satisfy all subscriptions
made under the over-subscription privilege, we will allocate the remaining
shares of our common stock
pro rata
,
among those holders who exercised their over-subscription privileges. Pro rata
means in proportion to the number of shares of our common stock that you and
the other subscription rights holders have subscribed for under the basic
subscription privilege.
Full Exercise of
Basic Subscription Privilege.
You
may exercise your over-subscription privilege only if you exercise your basic
subscription privilege in full. To
determine if you have fully exercised your basic subscription privilege, we
will consider only the basic subscription privilege held by you in the same
capacity. For example, suppose that you
were granted subscription rights for shares of our common stock that you own
individually and shares of our common stock that you own collectively with your
spouse. If you wish to exercise your
over-subscription privilege with respect to the subscription rights you own
individually, but not with respect to the subscription rights you own collectively
with your spouse, you only need to fully exercise your basic subscription
privilege with respect to your individually owned subscription rights. You do
not have to subscribe for any shares under the basic subscription privilege
owned collectively with your spouse to exercise your individual
over-subscription privilege.
21
Table
of Contents
When you complete the portion of
your subscription documents to exercise your over-subscription privilege, you
will be representing and certifying that you have fully exercised your basic
subscription privilege as to shares of our common stock that you hold in that
capacity. You must exercise your
over-subscription privilege at the same time you exercise your basic
subscription privilege in full. In
exercising the over-subscription privilege, you must pay the full subscription
price for all the shares you are electing to purchase.
Return of Excess
Payment.
If
you exercised your over-subscription privilege and are allocated less than all
of the shares of our common stock for which you wished to subscribe, your
excess payment for shares that were not allocated to you will be returned to
you by mail, without interest or deduction, promptly after completion of the
rights offering.
Non-Transferability
of Subscription Rights
The subscription rights granted to
you are non-transferable and, therefore, you may not sell, transfer or assign
your subscription rights to anyone. The subscription rights will not be listed
for trading on the NYSE Amex or any other stock exchange or market.
Conditions to the
Rights Offering
The completion of the rights
offering is subject to closing conditions, including:
·
|
|
the registration statement
relating to the rights offering shall have been declared effective by the SEC
and shall continue to be effective and no stop order shall have been entered
by the SEC with respect thereto;
|
|
|
|
·
|
|
all material governmental and third-party
notifications, filings, consents, waivers and approvals required for the
consummation of the rights offering shall have been made or received;
|
|
|
|
·
|
|
no action shall have been taken,
no statute, rule, regulation, or order shall have been enacted, adopted, or
issued by any federal, state, or foreign governmental or regulatory
authority, and no judgment, injunction, decree or order of any federal, state
or foreign court shall have been issued that, in each case, prohibits the
implementation of the rights offering and the issuance and sale of our common
stock in the rights offering or materially impairs the benefit of
implementation thereof, and no action or proceeding by or before any federal,
state, or foreign governmental or regulatory authority shall be pending or
threatened wherein an adverse judgment, decree, or order would be reasonably
likely to result in the prohibition of or material impairment of the benefits
of the implementation of the rights offering and the issuance and sale of our
common stock in the rights offering;
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·
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stockholder approval for the
rights offering and the issuance of shares of our common stock in the rights
offering shall have been received; and
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|
·
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|
the shares of our common stock to
be issued in the rights offering shall have been approved for listing on the
NYSE Amex, subject to official notice of issuance.
|
Lyford
and UEA, which beneficially own approximately 31.77% and 12.01%, respectively
of our outstanding common stock, have notified the Company that they intend to
vote all of their shares of common stock in favor of the proposal to consider
the rights offering at the special meeting of stockholders to be called
therefore by us.
Regulatory
Limitations
All rights issued to a stockholder
of record who would, in our opinion, be required to obtain prior clearance or
approval from any state, federal, or non-U.S. regulatory authority for the
ownership or exercise of rights or the ownership of additional shares are null
and void and may not be held or exercised by any such holder. We are not
22
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undertaking to advise you of any
such required clearance or approval or to pay any expenses incurred in seeking
such clearance or approval.
We reserve the right to refuse to
issue shares of our common stock to any stockholder of record who would, in our
opinion, be required to obtain prior clearance or approval from any state,
federal, or non-U.S. regulatory authority to own or control such shares
if, at the time shares are to be issued upon payment therefore, such holder has
not obtained such clearance or approval.
We are not offering or selling, or
soliciting any purchase of, shares in any state or other jurisdiction in which
this offering is not permitted. We reserve the right to delay the commencement
of this offering in certain states or other jurisdictions if necessary to
comply with local laws. We may elect not to offer shares to residents of any
state or other jurisdiction whose laws would require a change in this offering
in order to carry out this offering in such state or jurisdiction.
Method of
Subscription Exercise of Rights
If you are a record holder of shares
of our common stock, you may exercise your subscription rights by delivering
the following to the subscription agent, at or before 5:00 p.m., Eastern
Time, on January 27, 2011, the expiration date of the rights offering,
unless the Special Committee extends the rights offering in its sole
discretion:
·
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Your properly completed and
executed subscription documents with any required signature guarantees or
other supplemental documentation; and
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·
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Your full subscription price
payment for each share subscribed for under your subscription privileges.
|
If you are a beneficial owner of
shares of our common stock whose shares are registered in the name of a broker,
bank, or other nominee, you should instruct your broker, bank, or other nominee
to exercise your rights and deliver all documents and payment on your behalf
before 5:00 p.m., Eastern Time, on January 27, 2011, the expiration
date of the rights offering, unless extended.
Your subscription rights will not be
considered exercised unless the subscription agent receives from you, your
broker, custodian, or nominee, as the case may be, all of the required
documents and your full subscription price payment before 5:00 p.m.,
Eastern Time, on January 27, 2011, the expiration date of the rights
offering, unless extended.
Method of Payment
Your payment of the subscription
price must be made in United States dollars for the full number of shares of
common stock for which you are subscribing by either:
·
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|
cashiers or certified check drawn
upon a United States bank payable to the subscription agent at the address
set forth below in Delivery of Subscription Method and Payment; or
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·
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wire transfer of immediately
available funds, to the subscription account maintained by the subscription
agent
|
For wire transfer of funds, please
ensure that the wire instructions include the identity of the subscriber paying
the subscription price and subscription rights certificate number. Send your
subscription rights certificate via overnight courier to be delivered on the
next business day following the day of the wire transfer to the subscription
agent. You are responsible for any wire transfer fees.
The rights agent
will not accept non-certified checks drawn on personal or business accounts.
The rights agent will accept payment only by certified check, cashiers check,
or wire transfer of funds.
23
Table of Contents
Receipt of Payment
Your payment will be considered
received by the subscription agent only upon:
·
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|
Receipt by the subscription agent
of any cashiers or certified check drawn upon a United States bank payable
to the subscription agent; or
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·
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Receipt of collected funds in the
subscription account designated above.
|
Delivery of
Subscription Materials and Payment
You should deliver your subscription
rights certificate to the subscription agent by one of the methods described
below:
If delivering by mail:
American Stock
Transfer & Trust Co., LLC
Attn: Reorganization
Department
P.O. Box 2042
New York, New York
10272-2042
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|
If delivering by hand or
overnight courier:
American Stock
Transfer & Trust Co., LLC
Operations Center
Attn: Reorganization
Department
6201 15th Avenue
Brooklyn, New York 11219
|
Your delivery to an address or by
any method other than as set forth above will not constitute valid delivery.
Your payment of the subscription
price must be made in accordance with the requirements set forth above in Method
of Payment.
Calculation of
Subscription Rights Exercised
If you do not indicate the number of
subscription rights being exercised, or if you do not forward full payment of
the total subscription price payment for the number of subscription rights that
you indicate are being exercised, then you will be deemed to have exercised
your basic subscription privilege with respect to the maximum number of
subscription rights that may be exercised with the aggregate subscription price
payment you delivered to the subscription agent. Unless you have specified the
number of shares you wish to purchase upon exercise of your over-subscription
privilege, any payment in excess of that required to exercise your basic
subscription privilege will be refunded. If we do not apply your full
subscription price payment to your purchase of shares of our common stock, we
or the subscription agent will return the excess amount to you by mail, without
interest or deduction, promptly after completion of the rights offering and
after all
pro rata
allocations
and adjustments have been completed.
Your Funds Will Be Held
by the Subscription Agent until Shares of Our Common Stock Are Issued
The subscription agent will hold
your payment of the subscription price in a segregated account with other
payments received from other subscription rights holders until we issue your
shares upon completion of the rights offering, and after all
pro rata
allocations and adjustments have
been completed and upon payment of the subscription price for such shares.
Medallion Guarantee
May Be Required
Your signature on each subscription rights
certificate must be guaranteed by an eligible institution, such as a member
firm of a registered national securities exchange or a member of the National
Association of Securities Dealers, Inc., or a commercial bank or trust
company having an office or correspondent in the United States, subject to
standards and procedures adopted by the subscription agent, unless:
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·
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Your subscription rights
certificate provides that shares are to be delivered to you as record holder
of those subscription rights; or
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·
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You are an eligible institution.
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An eligible institution is a financial
institution, which term includes most commercial banks, savings and loan
associations, and brokerage houses, that is a participant in any of the
following:
·
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the Securities Transfer Agents
Medallion Program;
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·
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the New York Stock
Exchange, Inc. Medallion Signature Program; or
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·
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the Stock Exchanges Medallion
Program.
|
Notice to Brokers
and Nominees
If you are a broker, a trustee, or a
depositary for securities who holds shares of our common stock for the account
of others on January 5, 2011, the eligibility date, you should notify the
respective beneficial owners of such shares of the rights offering as soon as
possible to find out their intentions with respect to exercising their
subscription rights. You should obtain instructions from the beneficial owner
with respect to their subscription rights, as set forth in the instructions we
have provided to you for your distribution to beneficial owners. If the
beneficial owner so instructs, you should complete the appropriate subscription
rights certificates and submit them to the subscription agent with the proper
payment. If you hold shares of our common stock for the account(s) of more
than one beneficial owner, you may exercise the number of subscription rights
to which all such beneficial owners in the aggregate otherwise would have been
entitled had they been direct record holders of our common stock on the
eligibility date, provided that you, as a nominee record holder, make a proper
showing to the subscription agent by submitting the form entitled Nominee
Holder Certification that was provided to you with your rights offering
materials. If you did not receive this form, you should contact the
subscription agent to request a copy.
Beneficial Owners
If you are a beneficial owner of
shares of our common stock or will receive your subscription rights through a
broker, bank, or other nominee, we will ask your broker, bank, or other nominee
to notify you of the rights offering. If you wish to exercise your subscription
rights, you will need to have your broker, bank, or other nominee act for you.
If you hold certificates of our common stock directly and would prefer to have
your broker, bank, or other nominee act for you, you should contact your
nominee and request it to effect the transactions for you. To indicate your decision
with respect to your subscription rights, you should complete and return to
your broker, bank, or other nominee the form entitled Beneficial Owners
Election Form. You should receive this form from your broker, bank, or other
nominee with the other rights offering materials. If you wish to obtain a
separate subscription rights certificate, you should contact the nominee as
soon as possible and request that a separate subscription rights certificate be
issued to you. You should contact your broker, bank, or other nominee if you do
not receive this form, but you believe you are entitled to participate in the
rights offering. We are not responsible if you do not receive the form from
your broker, bank, or nominee or if you receive it without sufficient time to
respond.
Instructions for
Completing Your Subscription Rights Certificate
You should read and follow the
instructions accompanying the subscription rights certificates carefully. You
are responsible for the method of delivery of your subscription rights
certificate(s) with your subscription price payment to the subscription
agent. If you send your subscription rights certificate(s) and
subscription price payment by mail, we recommend that you send them by
registered mail, properly insured, with return receipt requested. You should
allow a sufficient number of days to ensure delivery to the subscription agent
prior to the time the rights
25
Table of Contents
offering expires. You must pay, or
arrange for payment, by means of a certified or cashiers check or a wire
transfer of immediately available funds. Personal checks will not be accepted.
Determinations
Regarding the Exercise of Your Subscription Rights
We will decide, in our sole
discretion, all questions concerning the timeliness, validity, form, and
eligibility of the exercise of your subscription rights. Any such
determinations by us will be final and binding. We, in our sole discretion, may
waive, in any particular instance, any defect or irregularity or permit, in any
particular instance, a defect or irregularity to be corrected within such time
as we may determine. We will not be required to make uniform determinations in
all cases. We may reject the exercise of any of your subscription rights
because of any defect or irregularity. We will not accept any exercise of
subscription rights until all irregularities have been waived by us or cured by
you within such time as we decide, in our sole discretion.
Neither we, the subscription agent
nor the information agent will be under any duty to notify you of any defect or
irregularity in connection with your submission of subscription rights
certificates, and we will not be liable for failure to notify you of any defect
or irregularity. We reserve the right to reject your exercise of subscription
rights if we determine that your exercise is not in accordance with the terms
of the rights offering or in proper form. We will also not accept the exercise
of your subscription rights if our issuance of shares of our common stock to
you could be deemed unlawful under applicable law.
Material Federal
Income Tax Consequences to United States Persons
A holder will not recognize income,
gain, or loss for Federal income tax purposes in connection with the receipt or
exercise of subscription rights in the rights offering. You should consult your
tax advisor as to the particular consequences to you of the rights offering. For
a detailed discussion, see Material Federal Income Tax Consequences to United
States Persons.
Questions about
Exercising Subscription Rights
If you have any questions or require
assistance regarding the method of exercising your subscription rights or
requests for additional copies of this document or the Instructions for Use of
HKN, Inc. Subscription Rights Certificates, you should contact the
information agent at the address and telephone number set forth under Questions
and Answers relating to the Rights Offering included elsewhere in this
prospectus.
Subscription Agent
and Information Agent
We have appointed American Stock
Transfer & Trust Co., LLC to act as subscription agent and Morrow &
Co., LLC
to act as information
agent for the rights offering. You should direct any questions or requests for
assistance concerning the method of subscribing for the shares of common stock
or for additional copies of this prospectus to the information agent.
Expenses
We will pay all fees charged by the
subscription agent and the information agent. You are responsible for paying
any other commissions, fees, taxes, or other expenses incurred in connection
with the exercise of the rights. Neither we nor the subscription agent will pay
such expenses.
No Revocation
Once you have exercised your
subscription privileges, you may not revoke your exercise. Subscription rights
not exercised before the expiration date of the rights offering will expire and
will have no value.
26
Table of Contents
Procedures for DTC
Participants
We expect that the exercise of your
basic subscription privilege and your over-subscription privilege may be made
through the facilities of DTC. If your subscription rights are held of record
through DTC or you are a stockholder holding you shares in street name with
DTC participants, you may exercise your basic subscription privilege and your
over-subscription privilege by instructing DTC to transfer your subscription
rights from your account to the account of the subscription agent, together
with certification as to the aggregate number of subscription rights you are
exercising and the number of shares of our common stock you are subscribing for
under your basic subscription privilege and your over-subscription privilege,
if any, and your subscription price payment for each share of our common stock
that you subscribed for pursuant to your basic subscription privilege and your
over-subscription privilege.
Subscription Price
The subscription price is $2.00 per
share. For more information with respect to how the subscription price was
determined, see Questions and Answers relating to the Rights Offering
How was the subscription price of $2.00 per share determined included
elsewhere in this prospectus.
Foreign
Stockholders
Subscription rights certificates
will not be mailed to foreign stockholders whose address of record is outside
the United States, or is an Army Post Office (APO) address or Fleet Post Office
(FPO). If you are a foreign stockholder, you will be sent written
notice of this offering. The subscription agent will hold your
subscription rights, subject to you making satisfactory arrangements with the
subscription agent for the exercise of your subscription rights, and follow
your instructions for the exercise of the subscription rights if such
instructions are received by the subscription agent at or before 11:00 a.m.,
New York City time, on January 24, 2011, three business days prior to the
expiration date (or, if this offering is extended, on or before three business
days prior to the extended expiration date). If no instructions are
received by the subscription agent by that time, your subscription rights will
expire worthless without any payment to you of those unexercised subscription
rights.
No Board
Recommendation
An investment in shares of our
common stock must be made according to each investors evaluation of his own
best interests and after considering all of the information herein, including
the risks set forth in the section of this prospectus entitled Risk Factors.
Neither we, the Special Committee, nor our Board of Directors makes any
recommendation to subscription rights holders regarding whether they should
exercise or sell their subscription rights.
Shares of Common
Stock Outstanding after the Rights Offering
We
will issue 7,500,000 shares of common stock in the rights offering and,
based on the 10,026,024 shares of our common stock outstanding as of November 30,
2010, 17,526,024 shares of our common stock will be issued and outstanding
following the rights offering.
Dilutive Effects of
the Rights Offering
If a stockholder does not exercise
any rights in the rights offering, the number of shares of our common stock
that such stockholder will own will not change. However, because up to
7,500,000 shares of our common stock will be issued if the rights offering is
completed, if a stockholder does not exercise its rights under the basic
subscription privilege in full, its percentage ownership will be diluted after
the rights offering. See also Risk Factors Risks Related to the Rights
Offering.
27
Table of Contents
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
TO UNITED STATES PERSONS
The following discussion is a
summary of the material Federal income tax consequences of the rights offering
to holders of our common stock. This discussion assumes that the holders of our
common stock hold such common stock as a capital asset for Federal income tax
purposes. This discussion is based on the Internal Revenue Code of 1986, as
amended (the Code), Treasury regulations promulgated thereunder, Internal
Revenue Service rulings and pronouncements, and judicial decisions in effect on
the date hereof, all of which are subject to change (possibly with retroactive
effect) and to differing interpretations. This discussion applies only to
holders that are United States persons (as defined in the Code) and does not
address all aspects of Federal income taxation that may be relevant to holders
in light of their particular circumstances or to holders who may be subject to
special tax treatment under the Code, including, without limitation, holders
who are dealers in securities or foreign currency, insurance companies,
tax-exempt organizations, banks, financial institutions, or broker-dealers,
holders who hold our common stock as part of a hedge, straddle, conversion, or
other risk reduction transaction, or holders who acquired our common stock
pursuant to the exercise of compensatory stock options or otherwise as
compensation.
We have not sought, and will not
seek, an opinion of counsel or a ruling from the Internal Revenue Service
regarding the Federal income tax consequences of the rights offering or the
related share issuance. The following summary does not address the tax
consequences of the rights offering or the related share issuance under
foreign, state, local or other tax laws. ACCORDINGLY, EACH HOLDER OF OUR COMMON
STOCK SHOULD CONSULT ITS TAX ADVISOR WITH RESPECT TO THE PARTICULAR TAX
CONSEQUENCES OF THE RIGHTS OFFERING AND THE RELATED SHARE ISSUANCE TO SUCH
HOLDER.
The Federal income tax consequences
to a United States person that is a holder of our common stock of the receipt
and exercise of subscription rights under the rights offering are as follows:
1. A holder will not recognize
taxable income for Federal income tax purposes in connection with the receipt
of subscription rights in the rights offering.
2. Except as provided in the
following sentence, a holders tax basis in the subscription rights received in
the rights offering will be zero. If either (i) the fair market value of
the subscription rights on the date such subscription rights are distributed is
at least 15% of the fair market value on such date of the common stock with
respect to which the subscription rights are received or (ii) the holder
elects, in its Federal income tax return for the taxable year in which the
subscription rights are received, to allocate part of its tax basis in such
common stock to the subscription rights, then upon exercise of the subscription
rights, the holders tax basis in the common stock will be allocated between
the common stock and the subscription rights in proportion to their respective
fair market values on the date the subscription rights are distributed. A
holders holding period for the subscription rights received in the rights
offering will include the holders holding period for the common stock with
respect to which the subscription rights were received.
3. A holder that allows the
subscription rights received in the rights offering to expire will not
recognize any gain or loss, and the tax basis in the common stock owned by such
holder with respect to which such subscription rights were distributed will
equal the tax basis in such common stock immediately before the receipt of the
subscription rights in the rights offering.
4. A holder will not recognize any
gain or loss upon the exercise of the subscription rights received in the
rights offering. The tax basis in the common stock acquired through exercise of
the subscription rights will equal the sum of the subscription price for the
common stock and the holders tax basis, if any, in the rights as described
above. The holding period for the common stock acquired through exercise of the
subscription rights should begin on the date the subscription rights are
exercised.
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Table of Contents
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
From
March 1991 until June 2007, our common stock was listed on the
American Stock Exchange and traded under the symbol HEC. In June 2007, the
trading symbol of our common stock was changed to the symbol HKN. The American
Stock Exchange was acquired by NYSE Euronext during 2008 and renamed NYSE Amex.
Our common stock is currently traded on this exchange under the symbol
HKN. At November 30, 2010, there were approximately 754 holders of
record of our common stock.
The following table sets forth, for
the periods indicated, the reported high and low closing sales prices of our
common stock on the NYSE Amex.
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Prices
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High
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Low
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2008
|
First Quarter
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$
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9.02
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|
$
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7.61
|
|
|
Second Quarter
|
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13.10
|
|
8.38
|
|
|
Third Quarter
|
|
11.55
|
|
7.85
|
|
|
Fourth Quarter
|
|
8.35
|
|
2.39
|
|
2009
|
First Quarter
|
|
$
|
3.19
|
|
$
|
1.48
|
|
|
Second Quarter
|
|
2.75
|
|
1.40
|
|
|
Third Quarter
|
|
3.09
|
|
2.15
|
|
|
Fourth Quarter
|
|
3.90
|
|
2.91
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2010
|
First Quarter
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$
|
3.72
|
|
$
|
2.90
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|
|
Second Quarter
|
|
5.72
|
|
2.91
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|
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Third Quarter
|
|
3.65
|
|
2.80
|
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Fourth Quarter (through December
3, 2010)
|
|
4.20
|
|
3.40
|
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We have not paid any cash dividends
on common stock since our organization, and we do not contemplate that any cash
dividends will be paid on shares of our common stock in the foreseeable future.
Dividends may not be paid to holders of common stock prior to all dividend
obligations related to our outstanding Series G1 Preferred Stock and Series G2
Preferred Stock being satisfied.
DESCRIPTION OF CAPITAL STOCK
The following is a summary of the
material terms of our capital stock. You are strongly encouraged, however, to
read our restated certificate of incorporation, bylaws, and other agreements,
copies of which are available from us upon request or may be found on our
website at
www.hkninc.com
. The information on our website is
not, and should not be, considered part of this prospectus, is not incorporated
by reference into this document, and should not be relied upon in connection
with making any investment decision with respect to our common stock.
General Matters
Our restated certificate of incorporation
provides that we are authorized to issue 24,000,000 shares of common
stock, par value $0.01 per share, and 1,000,000 shares of undesignated
preferred stock, par value $0.01 per share.
As
of November 30, 2010, we had outstanding 10,026,024 shares of common
stock held by 754 stockholders of record. We also had 2,000 shares of preferred
stock outstanding. We have no equity compensation plans. There are no shares
currently authorized for issuance related to equity compensation.
29
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Contents
Common Stock
Shares of our common stock have the
following rights, preferences, and privileges:
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Voting rights.
Each outstanding share of common stock
entitles its holder to one vote on all matters submitted to a vote of our
stockholders, including the election of directors. There are no cumulative
voting rights. Generally, all matters to be voted on by stockholders must be
approved by a majority of the votes entitled to be cast by all shares of
common stock present or represented by proxy.
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·
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Dividends.
Holders of common stock are entitled to
receive dividends as, when, and if dividends are declared by our board of
directors out of assets or funds legally available for the payment of
dividends.
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·
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Liquidation.
In the event of a liquidation, dissolution, or
winding up of our affairs, whether voluntary or involuntary, after payment of
our liabilities and obligations to creditors, our remaining assets will be
distributed ratably among the holders of shares of common stock on a per
share basis.
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|
·
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Rights and
preferences.
Our
common stock has no preemptive, redemption, conversion, or subscription
rights. The rights, powers, preferences, and privileges of holders of our
common stock are subject to, and may be adversely affected by, the rights of
the holders of shares of any series of preferred stock that we may designate
and issue in the future.
|
Preferred Stock
Our restated certificate of
incorporation provides that the Board of Directors has the authority, without
action by the stockholders, to designate and issue up to 1,000,000 shares
of preferred stock in one or more classes or series and to fix for each class
or series the powers, rights, preferences, and privileges of each series of
preferred stock, including dividend rights, conversion rights, voting rights,
terms of redemption, liquidation preferences, and the number of shares
constituting any class or series, which may be greater than the rights of the
holders of the common stock. Any issuance of shares of preferred stock could
adversely affect the voting power of holders of common stock. The likelihood
that the holders will receive dividend payments and payments upon liquidation
could have the effect of delaying, deferring, or preventing a change in
control. Although we have no present plans to issue any shares of preferred
stock, we currently have two different series of preferred stock outstanding:
Series G1
Convertible Preferred Stock -
Our
Series G1 Convertible Preferred Stock (the Series G1 Preferred),
which was issued in 2000, has a liquidation value of $100 per share, is
non-voting, and is convertible at the holders option into our common stock at
a conversion price of $280.00 per share. At December 31, 2009
and 2008, there were 1,000 shares and 1,600 shares, respectively, of Series G1
Preferred issued and outstanding.
The Series G1 Preferred holders
shall be entitled to receive dividends at an annual rate equal to $8.00 per
share when, as and if declared by our Board of Directors. All dividends on the Series G1
Preferred are cumulative and payable semi-annually in arrears on June 30
and December 30. At our option, dividends may also be payable in our
common stock valued at $280.00 per share. The Series G1 Preferred dividend
and liquidation rights shall rank junior to all claims of creditors, but senior
to our common stockholders and to any subsequent series of our preferred stock,
unless otherwise provided, except for the Series G2 Preferred, which shall
rank equal to the Series G1 Preferred.
During 2009, we redeemed 600 shares of
our Series G1 Preferred with a liquidation value of $100 per share for
$5,000 in cash. In addition, we paid approximately $2,000 in accrued dividends
on these shares.
Series G2
Convertible Preferred Stock
- Our Series G2 Preferred Stock (Series G2 Preferred), which was
issued in 2000, has a liquidation value of $100 per share, is non-voting, and
is convertible at the holders option into our common stock at a conversion
price of $67.20 per share. The Series G2 Preferred is also
convertible by us into shares of our common stock if for any period of twenty
consecutive calendar days the average of the closing prices
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of our common stock during such
period shall have equaled or exceeded $84.00 per share. At December 31,
2009 and 2008, there were 1,000 shares of Series G2 Preferred issued and
outstanding.
The Series G2 Preferred holders
shall be entitled to receive dividends at an annual rate equal to $8.00 per
share when, as and if declared by our Board of Directors. All dividends on the Series G2
Preferred are cumulative and payable semi-annually in arrears on June 30
and December 30. At our option, dividends may also be payable in our
common stock at $67.20 per share of our common stock. The Series G2
Preferred dividend and liquidation rights shall rank junior to all claims of
creditors but senior to our common stockholders and to any subsequent series of
our preferred stock, unless otherwise provided. The Series G2 Preferred
shall rank equal to the Series G1 Preferred.
Anti-Takeover
Effects of Certain Provisions of Our Certificate of Incorporation and Bylaws
Our restated certificate of
incorporation and bylaws contain provisions that are intended to enhance the
likelihood of continuity and stability in the composition of the board of
directors and that may have the effect of delaying, deferring, or preventing a
future takeover or change in control of our company unless the takeover or
change in control is approved by our Board of Directors. These provisions
include the following:
Advance notice
procedures for stockholder proposals.
Our
bylaws establish an advance notice procedure for stockholder proposals to be
brought before an annual meeting of our stockholders, including proposed
nominations of persons for election to our board. Stockholders at our annual
meeting may only consider proposals or nominations specified in the notice of
meeting or brought before the meeting by or at the direction of our board or by
a stockholder who was a stockholder of record on the eligibility date for the
meeting, who is entitled to vote at the meeting and who has given to our
secretary timely written notice, in proper form, of the stockholders intention
to bring that business before the meeting.
Removal of
Directors; Board of Directors Vacancies.
Our
restated certificate of incorporation and bylaws provide that members of our
Board of Directors may not be removed without cause. Our bylaws further provide
that only our Board of Directors may fill vacant directorships, except in
limited circumstances. These provisions would prevent a stockholder from
gaining control of our Board of Directors by removing incumbent directors and
filling the resulting vacancies with such stockholders own nominees.
Amendment of
certificate of incorporation and bylaws.
The
General Corporation Law of the State of Delaware (the DGCL) provides
generally that the affirmative vote of a majority of the outstanding shares
entitled to vote is required to amend or repeal a corporations certificate of
incorporation or bylaws, unless the certificate of incorporation requires a
greater percentage. Our amended and restated certificate of incorporation generally
requires the approval of the holders of at least two-thirds of the voting power
of the issued and outstanding shares of our capital stock entitled to vote in
connection with the election of directors to amend any provisions of our
certificate of incorporation described in this section. Our amended and
restated bylaws provide that a majority of our board of directors or, in most
cases, the holders of at least a majority of the voting power of the issued and
outstanding shares of our capital stock entitled to vote thereon have the power
to amend or repeal our bylaws, except that the affirmative vote of holders of
at least two-thirds of the voting power of the issued and outstanding shares of
our capital stock entitled to vote thereon shall be required to amend or repeal
certain provisions of our bylaws. In addition, our amended and restated
certificate of incorporation grants our board of directors the authority to
amend and repeal our bylaws without a stockholder vote in any manner not
inconsistent with the laws of the State of Delaware or our certificate of
incorporation.
Stockholder Rights
Plan.
In
April 1998, we adopted a rights agreement (the Rights Agreement) whereby
a dividend of one preferred share purchase right (a Right) was paid for each
outstanding share of our common stock. The Rights will be
exercisable only if a person acquires beneficial ownership of 15% or more of
our common stock (an Acquiring Person), or commences a tender offer which
would result in beneficial ownership of 15% or more of such stock. When they
become exercisable, each Right entitles the registered holder to purchase from
us one one-thousandth of one share of Series E Junior Participating
Preferred Stock (Series E Preferred Stock), at a price of $35.00 per one
one-thousandth of a share of Series E Preferred Stock, subject to
adjustment under certain circumstances. Upon the occurrence of certain events
specified in the Rights Agreement, each holder of a Right
31
Table of Contents
(other than an Acquiring Person)
will have the right to purchase, at the Rights then current exercise price,
shares of our common stock having a value of twice the Rights exercise
price. In addition, if, after a person becomes an Acquiring Person,
we are involved in a merger or other business combination transaction with
another person in which we are not the surviving corporation, or under certain
other circumstances, each Right will entitle its holder to purchase, at the
Rights then current exercise price, shares of common stock of the other person
having a value of twice the Rights exercise price. In 2008, we amended the
Rights Agreement to extend the expiration of the Rights from April 6, 2008
to April 6, 2018. We will generally be entitled to redeem the Rights in
whole, but not in part, at $.01 per Right, subject to adjustment. No
Rights were exercisable under the Rights Agreement at September 30, 2010.
The terms of the Rights generally may be amended by us without the approval of
the holders of the Rights prior to the public announcement by us or an
Acquiring Person that a person has become an Acquiring Person.
The foregoing items could discourage
potential acquisition proposals and could delay or prevent a change in control.
These provisions are intended to enhance the likelihood of continuity and
stability in the composition of our Board of Directors and in the policies
formulated by our Board of Directors and to discourage certain types of
transactions that may involve an actual or threatened change of control. These
provisions are designed to reduce our vulnerability to an unsolicited
acquisition proposal. The provisions also are intended to discourage certain
tactics that may be used in proxy fights. However, such provisions could have
the effect of discouraging others from making tender offers for our shares,
and, as a consequence, they also may inhibit fluctuations in the market price
of the common stock that could result from actual or rumored takeover attempts.
Such provisions also may have the effect of preventing changes in our
management or delaying or preventing a transaction that might benefit you or
other minority stockholders.
Limitations on
Liability and Indemnification of Officers and Directors
Our restated certificate of
incorporation and amended and restated by-laws provide indemnification for our
directors and officers to the fullest extent permitted by the DGCL. We have
entered into indemnification agreements with each of our directors that are, in
some cases, broader than the specific indemnification provisions contained
under Delaware law. In addition, as permitted by Delaware law, our amended and
restated certificate of incorporation includes provisions that eliminate the
personal liability of our directors for monetary damages resulting from
breaches of certain fiduciary duties as a director. The effect of this
provision is to restrict our rights and the rights of our stockholders in
derivative suits to recover monetary damages against a director for breach of
fiduciary duties as a director, except that a director will be personally
liable for:
·
|
|
any breach of his or her duty of
loyalty to us or our stockholders;
|
|
|
|
·
|
|
acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law;
|
|
|
|
·
|
|
any transaction from which the
director derived an improper personal benefit; or
|
|
|
|
·
|
|
improper distributions to
stockholders.
|
These provisions may not be held to
be enforceable for violations of the federal securities laws of the United
States.
Transfer Agent and
Registrar
The transfer agent and registrar for
our common stock is American Stock Transfer & Trust Co., LLC and its
telephone number is 800-937-5449.
32
Table of
Contents
PLAN OF DISTRIBUTION
On or about January 13, 2011, we
will distribute the rights, rights certificates, and copies of this prospectus
to individuals who owned shares of common stock on January 5, 2011. If you wish to exercise your rights and
purchase shares of common stock, you should complete the rights certificate and
return it to the subscription agent, American Stock Transfer & Trust
Company, at the following address:
If delivering by mail:
|
|
If delivering by hand or
overnight courier:
|
American Stock Transfer
& Trust Co., LLC
|
|
American Stock Transfer
& Trust Co., LLC
|
Attn: Reorganization
Department
|
|
Operations Center
|
P.O. Box 2042
|
|
Attn: Reorganization Department
|
New York, New York
10272-2042
|
|
6201 15th Avenue
|
|
|
Brooklyn, New York 11219
|
Your payment of the subscription
price must be made in United States dollars for the full number of shares of
common stock for which you are subscribing by either:
·
|
|
cashiers or certified check drawn
upon a United States bank payable to the subscription agent at the address
set forth above; or
|
·
|
|
wire transfer of immediately
available funds, to the subscription account maintained by the subscription
agent
|
For wire transfer of funds, please
ensure that the wire instructions include the identity of the subscriber paying
the subscription price and the subscription rights certificate number. Send
your subscription rights certificate via overnight courier to be delivered on
the next business day following the day of the wire transfer to the
subscription agent. You are responsible for any wire transfer fees.
If you have any questions, you
should contact the information agent, Morrow & Co., LLC, at (800) 607-0088
or HKN.info@morrowco.com.
Other than as described herein, we
do not know of any existing agreements between any stockholder, broker, dealer,
underwriter, or agent relating to the sale or distribution of the underlying
common stock.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the information
reporting requirements of the Securities Exchange Act of 1934, as amended (the Exchange
Act), and, in accordance with these requirements, we are required to file
periodic reports and other information with the United States Securities and
Exchange Commission (the SEC). The reports and other information filed by us
with the SEC may be inspected and copied at the public reference facilities
maintained by the SEC as described below.
You may copy and inspect any
materials that we file with the SEC at the SECs Public Reference Room at
100 F Street, N.E., Washington, D.C. Please call the SEC at
1-800-SEC-0330 for further information about the operation of the public
reference rooms. The SEC also maintains an internet website at
http://www.sec.gov
that contains our filed
reports, proxy and information statements, and other information that we file
electronically with the SEC. Additionally, we make these filings available,
free of charge, on our website at
www.hkninc.com
as soon as reasonably practicable after we electronically file such
materials with, or furnish them to, the SEC. The information on our website,
other than these filings, is not, and should not be, considered part of this
prospectus, is not incorporated by reference into this document, and should not
be relied upon in connection with making any investment decision with respect
to our common stock.
33
Table
of Contents
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
We disclose important information to
you by referring you to documents that we have previously filed with the SEC or
documents that we will file with the SEC in the future. The information
incorporated by reference is considered to be part of this prospectus.
Information in documents that we file later with the SEC will automatically
update and supersede information in this prospectus. We incorporate by
reference into this prospectus the documents listed below, and any future
filings made by us with the SEC under Section 13(a), 13(c), 14, or 15(d)
or the Exchange Act until we close this offering, including all filings made
after the date of the initial registration statement and prior to the
effectiveness of the registration statement. We hereby incorporate by reference
the following documents; provided, however, that we are not incorporating any
information contained in any Current Report on Form 8-K that is furnished
but not filed with the SEC:
·
|
|
Our Annual Report on Form 10-K for the fiscal year ended December 31, 2009;
|
·
|
|
Our Quarterly Reports on
Form 10-Q for the fiscal quarters ended March 31, 2010, June 30,
2010 and September 30, 2010;
|
·
|
|
Our Current Reports on
Form 8-K filed with the SEC on August 23, 2010 and September 16,
2010; and
|
|
|
|
·
|
|
The description of the Companys
capital stock contained in its Registration Statement on Form 8-A (File
No. 1-10262) filed with the SEC on April 7, 1998 (as amended on April 4,
2008).
|
Any statement contained in a
document incorporated or deemed to be incorporated by reference in this
prospectus is modified or superseded for purposes of the prospectus to the
extent that a statement contained in this prospectus or in any other
subsequently filed document that also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any statement so
modified or superseded does not, except as so modified or superseded,
constitute a part of this prospectus.
We will provide without charge to
each person, including any beneficial owner, to whom this prospectus is
delivered, upon written or oral request, a copy of any or all of the foregoing
documents incorporated herein by reference (other than exhibits unless such
exhibits are specifically incorporated by reference in such documents).
Requests for such documents should be made to us at the following address or
telephone number:
HKN, Inc.
180
State Street, Suite 200
Southlake,
Texas 76092
Telephone:
(817) 424-2424
Attention: Anna Williams, Senior Vice President and
Chief Financial Officer
LEGAL MATTERS
The validity of the subscription
rights and the shares of common stock issuable upon exercise of the
subscription rights will be passed upon for us by Hallett & Perrin, Dallas,
Texas.
EXPERTS
The consolidated financial
statements of HKN, Inc. and the Companys internal control over financial
reporting (which is included in Managements Report on Internal Control over
Financial Reporting) which are incorporated in this prospectus by reference to
the Annual Report on Form 10-K of HKN, Inc. for the year ended
December 31, 2009 have been audited by Hein & Associates LLP,
independent registered public accounting firm, as stated in their reports
appearing in our Annual Report on Form 10-K for the year ended December 31,
2009 and have been so included in reliance upon the reports of such firm given
upon their authority as experts in accounting and auditing.
34
Table of
Contents
Certain estimates of our oil and gas
natural gas reserves and related information incorporated by reference in this
prospectus by reference to the Annual Report on Form 10-K of HKN, Inc. for the
year ended December 31, 2009 have been so incorporated in reliance on the
reports of CREST Engineering Services, Inc. and Collarini Associates. All such
information has been so incorporated by reference in reliance upon the
authority of CREST Engineering Services, Inc. and Collarini Associates as
experts in these matters.
35
Table
of Contents
HKN, INC.
Rights to
Purchase
up to 7,500,000 Shares of Common Stock
at $2.00 per Share
PROSPECTUS
December
8, 2010
Table of Contents
PART II
INFORMATION
NOT REQUIRED IN PROSPECTUS
Item 14.
|
Other
Expenses of Issuance and Distribution.
|
The expenses relating to the
registration, issuance, and distribution of the securities registered hereby
will be borne by the registrant. Such expenses are estimated to be as follows:
SEC Registration Fee
|
|
$
|
1,095
|
|
Printing
and Distribution Costs
|
|
55,020
|
|
Listing
Fee
|
|
65,000
|
|
Legal
Fees and Valuation Services
|
|
38,000
|
|
Subscription
Agent Fees and Expenses
|
|
40,800
|
|
Information
Agent Fees and Expenses
|
|
7,000
|
|
Miscellaneous
|
|
13,085
|
|
Total
|
|
$
|
220,000
|
|
Item 15.
|
Indemnification
of Directors and Officers.
|
Section 145 of the Delaware
General Corporation Law (the DGCL) provides, in summary, that directors and
officers of Delaware corporations are entitled, under certain circumstances, to
be indemnified against all expenses and liabilities (including attorneys fees)
incurred by them as a result of suits brought against them in their capacity as
directors or officers if they acted in good faith and in a manner they
reasonably believed to be in or not opposed to the companys best interests
and, with respect to any criminal action or proceeding, if they had no
reasonable cause to believe their conduct was unlawful; provided that no
indemnification may be made against expenses in respect of any claim, issue, or
matter as to which they shall have been adjudged to be liable to us, unless and
only to the extent that the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability
but in view of all the circumstances of the case, they are fairly and
reasonably entitled to indemnity for such expenses as the court shall deem
proper. Any such indemnification may be made by us only as authorized in each
specific case upon a determination by the stockholders, disinterested
directors, or independent legal counsel that indemnification is proper because
the indemnitee has met the applicable standard of conduct.
Section 102(b)(7) of the DGCL
permits a corporation to provide in its certificate of incorporation that a
director of the corporation shall not be personally liable to the corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director except for liability for any breach of the directors duty of loyalty
to the corporation or its stockholders, for acts or omissions not in good faith
or that involve intentional misconduct or a knowing violation of law, for
unlawful payments of dividends, or unlawful stock repurchases, redemptions, or
other distributions, or for any transaction from which the director derived an
improper personal benefit.
The companys restated certificate
of incorporation and by-laws provide that the company shall indemnify its
directors and officers to the fullest extent permitted by law and that no
director shall be liable for monetary damages to the company or its
stockholders for any breach of fiduciary duty, except to the extent provided by
applicable law. The company has entered into indemnification agreements with
its directors. The indemnification agreements provide indemnification to the
companys directors under certain circumstances for acts or omissions that may
not be covered by directors and officers liability insurance and may, in some
cases, be broader than the specific indemnification provisions contained under
Delaware law. The company currently maintains liability insurance for its
directors and officers.
II-1
Table of Contents
Item 16.
|
List
of Exhibits.
|
The Exhibits to this registration
statement are listed in the Index to Exhibits.
The undersigned registrant hereby
undertakes:
(a) The undersigned registrant
hereby undertakes that, for purposes of determining any liability under the
Securities Act of 1933, each filing of the registrants annual report pursuant
to Section 13(a) or Section 15(d) of the Securities Exchange Act of
1934 (and, where applicable, each filing of an employee benefit plans annual
report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial
bona fide
offering thereof.
(b) Insofar as indemnification
for liabilities arising under the Securities Act of 1933 may be permitted
to directors, officers and controlling persons of the registrant pursuant to
the foregoing provisions, or otherwise, the registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
II-2
Table
of Contents
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, the registrant certifies
that it has reasonable grounds to believe that it meets all of the requirements
for filing on Form S-3 and has duly caused this registration statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Southlake, State of Texas, on December 8, 2010.
|
|
HKN, Inc.
|
|
|
|
|
|
|
By:
|
/s/ Anna M. Williams
|
|
|
Anna M. Williams
|
|
|
Senior Vice President and Chief
Financial Officer
|
POWER OF
ATTORNEY
The undersigned directors and
officers of HKN, Inc. hereby constitute and appoint Anna M. Williams with full
power to act and with full power of substitution and resubstitution, our true
and lawful attorney-in-facts and agents with full power to execute in our name
and behalf in the capacities indicated below any and all amendments (including
post-effective amendments and amendments thereto) to this Registration
Statement and to file the same, with all exhibits and other documents relating
thereto and any registration statement relating to any offering made pursuant
to this Registration Statement that is to be effective upon filing pursuant to
Rule 462(b) under the Securities Act with the Securities and Exchange
Commission and hereby ratify and confirm all that such attorneys-in-fact or his
substitute shall lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the
Securities Act of 1933, this Registration Statement has been signed by the
following persons in the capacities and on the dates indicated:
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/ Mikel D. Faulkner
|
|
President, Chief Executive
Officer, and
|
|
December 8, 2010
|
Mikel D. Faulkner
|
|
Director (principal executive
officer)
|
|
|
|
|
|
|
|
/s/ Anna M. Williams
|
|
Senior Vice President and Chief
Financial
|
|
December 8, 2010
|
Anna M. Williams
|
|
Officer (principal financial and
accounting officer)
|
|
|
|
|
|
|
|
/s/ Michael M. Ameen *
|
|
Director
|
|
December 8, 2010
|
Michael M. Ameen
|
|
|
|
|
|
|
|
|
|
/s/ J. William Petty *
|
|
Director
|
|
December 8, 2010
|
J. William Petty
|
|
|
|
|
|
|
|
|
|
/s/ Alan G. Quasha *
|
|
Director
|
|
December 8, 2010
|
Alan G. Quasha
|
|
|
|
|
|
|
|
|
|
/s/ H.A. Smith *
|
|
Director
|
|
December 8, 2010
|
H.A. Smith
|
|
|
|
|
|
|
|
|
|
/s/ Anna M. Williams
|
|
|
|
|
* By: Anna M. Williams,
Attorney in-fact
|
|
|
|
|
II-3
Table
of Contents
EXHIBIT INDEX
4.1
|
|
Form of certificate representing
shares of HKN, Inc. common stock, par value $.01 per share (filed as Exhibit
4.1 to HKNs Form 10-Q dated August 7, 2007, File No. 1-10262, and
incorporated by reference herein)
|
|
|
|
4.2
|
|
Rights Agreement, dated as of
April 6, 1998, by and between Harken Energy Corporation and ChaseMellon
Shareholder Services L.L.C., as Rights Agent (filed as Exhibit 4 to Harkens
Current Report on Form 8-K dated April 7, 1998, file No. 1-10262, and
incorporated by reference herein)
|
|
|
|
4.3
|
|
Amendment to Rights Agreement by
and between Harken Energy Corporation and American Stock Transfer and Trust
Company (successor to Mellon Investor Services LLC, (formerly known as
ChaseMellon Shareholder Services L.L.C.), as Rights Agent, dated June 18,
2002 (filed as Exhibit 4.11 to Harkens Quarterly Report on Form 10-Q for the
period ended September 30, 2002, File No. 1-10262, and incorporated by
reference herein)
|
|
|
|
4.4
|
|
Amendment to Rights Agreement by
and between Harken Energy Corporation and American Stock Transfer and Trust
Company (successor to Mellon Investor Services LLC, (formerly known as
ChaseMellon Shareholder Services L.L.C.), as Rights Agent, dated August 27,
2002 (filed as Exhibit 4.12 to Harkens Quarterly Report on Form 10-Q for the
period ended September 30, 2002, File No. 1-10262, and incorporated by
reference herein)
|
|
|
|
4.5
|
|
Certificate of Designations of
Series E Junior Participating Preferred Stock (filed as Exhibit A to Exhibit
4 to Harkens Current Report on Form 8-K dated April 7, 1998, file
No. 1-10262, and incorporated by reference herein)
|
|
|
|
4.6
|
|
Certificate of Increase of Series
E Junior Participating Preferred Stock of Harken Energy Corporation (filed as
Exhibit 4.6 to Harkens Annual Report on Form 10-K for the fiscal year ended
December 31, 2002, File No. 1-10262, and incorporated by reference herein)
|
|
|
|
4.7
|
|
Certificate of Designations of
Series G1 Convertible Preferred Stock (filed as Exhibit 3.7 to Harkens
Current Report on Form 8-K dated February 13, 2003, File No. 1-10262, and
incorporated by reference herein)
|
|
|
|
4.8
|
|
Certificate of Increase of Series
G1 Convertible Preferred Stock of Harken Energy
Corporation (filed as Exhibit 3.8 to Harkens Current Report on Form 8-K
dated February 13, 2003, File No. 1-10262, and incorporated by reference
herein)
|
|
|
|
4.9
|
|
Certificate of Designations of
Series G2 Convertible Preferred Stock (filed as Exhibit 4.10 to Harkens
Annual Report on Form 10-K, as amended, for the fiscal year ended December
31, 2001, File No. 1-10262, and incorporated by reference herein)
|
|
|
|
4.10
|
|
Certificate of Designations of
Series M Cumulative Convertible Preferred Stock (filed as Exhibit 4.1 to
Harkens Current Report on Form 8-K dated October 8, 2004, File No. 1-10262,
and incorporated by reference herein)
|
|
|
|
4.11
|
|
Amendment to Rights Agreement by
and between HKN, Inc. and American Stock Transfer and Trust Company, as
Rights Agent, dated April 4, 2008 (filed as Exhibit 4.1 to HKNs
current report on Form 8-K dated April 4, 2008, file
No. 1-10262, and incorporated by reference herein)
|
4.12
|
|
Amendment to Rights Agreement by
and between Harken Energy Corporation and American Stock Transfer and Trust
Co., LLC (successor to Mellon Investor Services, LLC, (formerly known as
ChaseMellon Shareholder Services, L.L.C.), as Rights Agent, dated October 26,
2010. (filed as Exhibit 4.12 to HKNs Form S-3 dated October 29. 2010, file
No. 333-170218, and incorporated by reference herein)
|
|
|
|
4.13
|
|
Form of HKN, Inc. Non-Transferable
Subscription Rights Certificate (filed as Exhibit 4.13 to HKNs Form S-3
dated October 29, 2010, file No. 333-170218 and incorporated by reference
herein)
|
II-4
Table of Contents
*4.14
|
|
Form of Subscription Agent
Agreement, dated as of October 2010, by and between HKN, Inc. and American
Stock Transfer & Trust Company.
|
|
|
|
5.1
|
|
Opinion of Hallett & Perrin (filed
as Exhibit 5.1 to HKNs Form S-3 dated October 29, 2010, file No. 333-170218
and incorporated by reference herein)
|
*23.1
|
|
Consent of Independent Registered
Public Accounting Firm Hein & Associates, LLP
|
*23.2
|
|
Consent of Collarini & Associates
(Independent Reserve Engineers)
|
*23.3
|
|
Consent of CREST Engineering
Services (Independent Reserve Engineers)
|
23.4
|
|
Consent of Hallett & Perrin
(included as part of Exhibit 5.1)
|
*24
|
|
Powers of Attorney (included on
the signature page to this Registration Statement)
|
|
|
|
*99.1
|
|
Form of Instruction as to Use of
HKN, Inc. Non-Transferable Subscription Rights Certificates
|
|
|
|
*99.2
|
|
Form of Letter to Stockholders Who
Are Record Holders
|
|
|
|
*99.3
|
|
Form of Letter to Nominee Holders
Whose Clients Are Beneficial Holders
|
*99.4
|
|
Form of Letter to Clients of
Nominee Holders
|
|
|
|
99.5
|
|
Form of Nominee Holder
Certification (filed as Exhibit 99.5 to HKNs Form S-3 dated October 29,
2010, file No. 333-170218 and incorporated by reference herein)
|
|
|
|
99.6
|
|
Form of Beneficial Owner Election (filed
as Exhibit 99.6 to HKNs Form S-3 dated October 29. 2010, file No. 333-170218
and incorporated by reference herein)
|
II-5
Grafico Azioni Hkn, Inc. (AMEX:HKN)
Storico
Da Mag 2024 a Giu 2024
Grafico Azioni Hkn, Inc. (AMEX:HKN)
Storico
Da Giu 2023 a Giu 2024