- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
AMONG
HARKEN ENERGY CORPORATION
SEARCH ACQUISITION CORP.
AND
SEARCH EXPLORATION, INC.
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TABLE OF CONTENTS
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ARTICLE I
THE MERGER
SECTION 1.01 The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.02 The Closing; Effective Time. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.03 Effect of the Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 1.04 Certificate of Incorporation; By-Laws. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 1.05 Directors and Officers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 1.06 Conversion of Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 1.07 Conversion of Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 1.08 Exchange of Eastern Shelf Overriding Royalty. . . . . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 1.09 Exchange. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 1.10 Contingent Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
SECTION 1.11 Appraisal Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 1.12 Stock Transfer Books. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 1.13 Adjustments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 1.14 Fractional Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 1.15 Unexchanged Search Warrants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SEARCH
SECTION 2.01 Organization and Qualifications; Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 2.02 Certificate of Incorporation and By-Laws. . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 2.03 Capitalization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 2.04 Authority Relative to this Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 2.05 No Conflict; Required Filings and Consents. . . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 2.06 Compliance; Permits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 2.07 Securities and Exchange Commission Filing; Financial Statements. . . . . . . . . . . . . . . . 15
SECTION 2.08 Undisclosed Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 2.09 Properties and Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 2.10 Absence of Certain Changes or Events. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 2.11 Absence of Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 2.12 Registration Statement; Proxy Statement/Prospectus. . . . . . . . . . . . . . . . . . . . . . 19
SECTION 2.13 Investment Bankers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 2.14 Board Recommendation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 2.15 Warrants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
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SECTION 2.16 Disposition of Harken Common Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 2.17 ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 2.18 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 2.19 Change in Control. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 2.20 Material Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 2.21 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 2.22 Banks; Attorneys-in-fact. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 2.23 Amendment to Stock Options. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 2.24 Documentation Regarding Partnerships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 2.25 Ownership of Harken Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 2.26 Not Investment Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 2.27 No Intercorporate Indebtedness. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF HARKEN AND MERGER SUB
SECTION 3.01 Organization and Qualifications; Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 3.02 Certificate of Incorporation and By-Laws. . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 3.03 Capitalization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 3.04 Authority Relative to this Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 3.05 No Conflict; Required Filings and Consents. . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 3.06 Compliance; Permits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 3.07 SEC Filings; Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 3.08 Absence of Certain Changes or Events. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 3.09 Absence of Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 3.10 Registration Statement; Proxy Statement/Prospectus. . . . . . . . . . . . . . . . . . . . . . 27
SECTION 3.11 Investment Bankers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 3.12 Board Approval. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 3.13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 3.14 Control of Merger Sub. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 3.15 No Plan or Intention to Reacquire Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 3.16 No Plan or Intention to Merge, Sell or Otherwise Dispose of Search. . . . . . . . . . . . . . 28
SECTION 3.17 No Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 3.18 Historic Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 3.19 Ownership of Search Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 3.20 Not Investment Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 3.21 No Prior Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
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ARTICLE IV
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 4.01 Conduct of Business by Search Pending the Merger. . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 4.02 Conduct of Business by Harken and Merger Sub Pending the Merger. . . . . . . . . . . . . . . . 31
SECTION 4.03 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.01 Proxy Statement/Prospectus; Registration Statement. . . . . . . . . . . . . . . . . . . . . . 32
SECTION 5.02 Meeting of Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 5.03 Access to Information; Confidentiality. . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 5.04 No Solicitations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 5.05 Consents; Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
SECTION 5.06 Agreements of Affiliates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
SECTION 5.07 Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
SECTION 5.08 Indemnification of Directors and Officers . . . . . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 5.09 Taxability of Transaction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 5.10 Notice of Developments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 5.11 Further Action. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 5.12 Public Announcements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 5.13 Director Nominee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 5.14 Fees and Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 5.15 Major Transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 5.16 Assignment of Eastern Shelf Overriding Royalty. . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 5.17 Partnership Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
ARTICLE VI
CONDITIONS OF MERGER
SECTION 6.01 Conditions to Obligation of Each Party to Effect the Merger. . . . . . . . . . . . . . . . . . 38
SECTION 6.02 Additional Conditions to Obligations of Harken and Merger Sub. . . . . . . . . . . . . . . . . 39
SECTION 6.03 Additional Conditions to Obligation of Search. . . . . . . . . . . . . . . . . . . . . . . . . 40
ARTICLE VII
SEARCH WARRANTS
SECTION 7.01 Warrant Exchange Offer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 7.02 Unexchanged Search Warrants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 7.03 Warrant Holders Participation in Contingent Shares. . . . . . . . . . . . . . . . . . . . . . 42
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ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.01 Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 8.02 Effect of Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
SECTION 8.03 Amendment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 8.04 Extension; Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
ARTICLE IX
MAXIMUM HARKEN SHARES TO BE ISSUED
SECTION 9.01 Maximum Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 9.02 Excess Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 9.03 Timing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
ARTICLE X
GENERAL PROVISIONS
SECTION 10.01 Non-Survival of Representations, Warranties and Agreements. . . . . . . . . . . . . . . . . . 45
SECTION 10.02 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 10.03 Certain Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 10.04 Material Adverse Effect. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
SECTION 10.05 Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 10.06 Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 10.07 Construction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 10.08 Specific Performance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 10.09 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 10.10 Assignment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 10.11 Parties in Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 10.12 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
SECTION 10.13 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
SECTION 10.14 Plan of Reorganization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
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SCHEDULE OF EXHIBITS
Exhibit "A" - Balance Sheet Date Statements
Exhibit "B-1" - Developed Oil and Gas Leases and Wells,
Working Interests and Net Revenue Interests
Exhibit "B-2" - Other Material Assets
Exhibit "C" - Reserve Report as of July 1, 1994
Exhibit "D" - Undeveloped Properties, Working Interests and
Stipulated Values
Exhibit "E-1" - Form of Affiliate Letter
Exhibit "E-2" - Form of Affiliate Agreement
Exhibit "F" - Schedule of Holders of Eastern Shelf Override
Exhibit "G-1" - Schedule of Warrant Exchange
Exhibit "G-2" - Form of Harken Warrant Agreement
Exhibit "H-1" - Promissory Note issued to Concorde
Exhibit "H-2" - Promissory Note issued to EnCap
Exhibit "H-3" - Promissory Note issued to Langston
Exhibit "I" - Search Partnerships and Partners
Exhibit "J" - Note Holder Exchange
Exhibit "K" - Major Transactions of Search
Exhibit "L" - Royalty Assignment Agreement
Exhibit "M" - Provision in Certificate of Incorporation of
Merger Sub
Exhibit "N" - Form of Indemnification Agreement
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Exhibit "O" - Search Disclosure Schedule
Exhibit "P" - Harken Disclosure Schedule
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of November 8, 1994 (the
"Agreement") among HARKEN ENERGY CORPORATION, a Delaware corporation
("Harken"), SEARCH ACQUISITION CORP., a Delaware corporation and a wholly-owned
subsidiary of Harken ("Merger Sub"), and SEARCH EXPLORATION, INC., a Delaware
corporation ("Search").
WHEREAS, upon the terms and subject to the conditions of this
Agreement and in accordance with the General Corporation Law of the State of
Delaware ("Delaware Law"), Merger Sub will merge with and into Search;
WHEREAS, the Board of Directors of Search has (i) determined that the
Merger (as defined in Section 1.01 hereof) is fair to the holders of Search
Shares (as defined in Section 1.06 hereof) and in the best interests of such
stockholders and (ii) approved and adopted this Agreement and the transactions
contemplated hereby and recommended approval and adoption of this Agreement by
the stockholders of Search; and
WHEREAS, the Board of Directors of Harken has determined that the
Merger is fair to and in the best interests of its stockholders;
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements herein contained, and intending to be legally bound
hereby, Harken, Merger Sub and Search hereby agree as follows:
ARTICLE I
THE MERGER
SECTION 1.01 The Merger. Upon the terms and subject to the conditions
set forth in this Agreement, and in accordance with Delaware Law, at the
Effective Time (as defined in Section 1.02 hereof) Search and Merger Sub shall
consummate a merger (the "Merger") in which Search shall be merged with and
into Merger Sub and the separate corporate existence of Search shall cease and
Merger Sub shall be the surviving corporation. The corporation surviving the
Merger is sometimes hereinafter referred to as the "Surviving Corporation."
SECTION 1.02 The Closing; Effective Time. Subject to the terms and
conditions of this Agreement, the closing of the Merger (the "Closing") shall
take place (a) at the offices of Harken located at 2505 N. Highway 360, Suite
800, Grand Prairie, Texas 75050, at 10:00 a.m., local time, on the first
business day immediately following the day on which the last to be fulfilled or
waived of the conditions set forth in Article VI shall be fulfilled or waived
in accordance herewith or (b) at such other time, date or place as Harken and
Search may agree. The date on which the Closing occurs is hereinafter referred
to as the "Closing Date."
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The parties hereto shall cause a Certificate of Merger meeting the
requirements of Delaware Law to be properly executed and filed in accordance
with Delaware Law on the Closing Date. The Merger shall become effective at
the time of filing of the Certificate of Merger with the Secretary of State of
the State of Delaware in accordance with Delaware Law or at such later time
which the parties hereto shall have agreed upon and designated in such filing
as the effective time of the Merger (the "Effective Time").
SECTION 1.03 Effect of the Merger. At the Effective Time, the effect
of the Merger shall be as provided in the applicable provisions of Delaware
Law. Without limiting the generality of the foregoing, and subject thereto, at
the Effective Time, except as otherwise provided herein, all the property,
rights, privileges, powers and franchises of Search and Merger Sub shall vest
in the Surviving Corporation, and all debts, liabilities and duties of Search
and Merger Sub shall become the debts, liabilities and duties of the Surviving
Corporation.
SECTION 1.04 Certificate of Incorporation; By-Laws.
(a) The Certificate of Incorporation of Merger Sub, as in effect
immediately prior to the Effective Time, shall be the Certificate of
Incorporation of the Surviving Corporation until thereafter amended as provided
by Delaware Law.
(b) The By-Laws of Merger Sub, as in effect immediately prior to
the Effective Time, shall be the By-Laws of the Surviving Corporation until
thereafter amended as provided by Delaware Law, the Certificate of
Incorporation of the Surviving Corporation, and such By-Laws.
SECTION 1.05 Directors and Officers. The directors of Merger Sub
serving immediately prior to the Effective Time shall be the directors of the
Surviving Corporation as of the Effective Time, and the officers of Merger Sub
serving immediately prior to the Effective Time shall be the officers of the
Surviving Corporation as of the Effective Time, in each case until their
respective successors are duly elected or appointed and qualified in accordance
with applicable law.
SECTION 1.06 Conversion of Stock. At the Effective Time:
(a) Each share of Common Stock, $.05 par value, of Search then
issued and outstanding (the "Search Common Stock") (other than Appraisal Shares
(as defined and to the extent provided in Section 1.11(b) hereof)) shall, by
virtue of the Merger and without any action on the part of the holder thereof,
be converted into and represent the right to receive and shall be exchangeable
for, as provided in Section 1.09 hereof, a share (or shares or a fraction
thereof) of the common stock, $.01 par value per share, of Harken (the "Harken
Common Stock") equal to the Exchange Ratio (as defined in Section 10.03
hereof). In addition, the holder of a share of Search Common Stock then issued
and outstanding (other than Appraisal Shares) shall be entitled to receive from
Harken, under certain conditions, shares of Harken Common Stock as provided in
Section 1.10 hereof.
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(b) Each share of Preferred Stock, $.001 par value, of Search then
issued and outstanding (the "Search Preferred Stock") (other than Appraisal
Shares (to the extent provided in Section 1.11(b) hereof)) shall, by virtue of
the Merger and without any action on the part of the holder thereof, be
convertible into and represent the right to receive and shall be exchangeable
for, as provided in Section 1.09 hereof, a share (or shares or a fraction
thereof) of Harken Common Stock equal to the Preferred Exchange Ratio (as
defined in Section 10.03 hereof).
(c) Each share of Search Common Stock and/or Search Preferred
Stock (such Search Common Stock and Search Preferred Stock being hereinafter
collectively referred to as the "Search Shares") then held in the treasury of
Search, if any, shall, by virtue of the Merger, be cancelled without payment of
any consideration therefore and without any conversion thereof.
SECTION 1.07 Conversion of Notes. At the Effective Time, each of the
Concorde Note, EnCap Note, and Langston Note (each of which is described in
Section 5.07 hereof and hereinafter collectively referred to as the "Notes")
shall, pursuant to its terms, be converted into and represent the right to
receive and shall be exchangeable for the number of whole shares of Harken
Common Stock determined by dividing the principal amount of each Note by the
Strike Price (as defined in Section 10.03 hereof) as provided in Section 1.09
hereof. In addition, the holders of the Concorde Note and EnCap Note shall be
entitled to receive from Harken, under certain conditions, shares of Harken
Common Stock as provided in Section 1.10 hereof. Exhibit "J," attached hereto,
sets forth a schedule of the holders of such Notes, the amount of such Notes
and the number of shares of Harken Common Stock to be issued hereunder to each
holder of such Notes.
SECTION 1.08 Exchange of Eastern Shelf Overriding Royalty. At the
Effective Time, the Royalty Holders (as defined in Section 5.16 hereof), shall
have the right to receive, under certain conditions, shares of Harken Common
Stock as provided in Section 1.10 hereof pursuant to the terms of the Royalty
Assignment Agreement (as defined in Section 5.16 hereof).
SECTION 1.09 Exchange.
(a) Pursuant to an agreement to be entered into on or before the
Effective Time among Harken, Search and an exchange agent (the "Exchange
Agent") to be chosen by Harken, the Exchange Agent will distribute the Harken
Common Stock issued pursuant to Sections 1.06 and 1.07 hereof. Except as
otherwise provided in this Agreement, upon surrender to the Exchange Agent of
the Letter of Transmittal (provided by the Exchange Agent to the holders of the
Search Shares and the Notes promptly after the Effective Time for such
purpose), duly completed and validly executed in accordance with the
instructions thereto accompanied by the certificates that, immediately prior to
the Effective Time shall have evidenced Search Shares and the Notes to be
exchanged pursuant to the Merger (the "Search Certificates") and such other
documents as may be requested, Harken shall cause to be distributed to the
person in whose name such Search Certificates shall have been registered
certificates registered in the name of such person representing the number of
whole shares of Harken Common Stock into which any shares
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previously represented by the Search Certificates shall have been converted at
the Effective Time, and a letter from Harken to the holders of the Search
Common Stock, the Concorde Note and the EnCap Note, setting forth the right of
such holder's to receive, under certain conditions, additional shares of Harken
Common Stock pursuant to the terms of Section 1.10 hereof (the "Stock
Consideration"). No fractional shares of Harken Common Stock shall be issued
or delivered pursuant to this Section 1.09 and Section 1.08. Should any holder
of the Search Shares or the Notes be entitled to a fractional share interest in
Harken Common Stock pursuant to this Section 1.09 and Section 1.08, Harken
shall deliver to such holder that number of shares of Harken Common Stock to
which such holder is entitled rounded up to the nearest whole number. Until
surrendered as contemplated by the preceding sentence, each certificate that
immediately prior to the Effective Time shall have represented any Search
Shares or the Notes shall be deemed at and after the Effective Time to
represent only the right to receive upon such surrender the certificates
representing Harken Common Stock and, as applicable, the right to receive,
under certain conditions, additional shares of Harken Common Stock. Search
Certificates surrendered for exchange by any person constituting an "affiliate"
of Search for purposes of Rule 145(c) under the Securities Act of 1933, as
amended (the "Securities Act"), shall not be exchanged until Harken has
received a written agreement from such person as provided in Section 5.06
hereof.
(b) No holder of any unsurrendered certificates representing
Search Shares or the Notes shall be entitled to any rights as a stockholder of
Harken until his certificates shall be surrendered and exchanged for Harken
Common Stock as provided herein. No dividends or other distributions declared
after the Effective Time with respect to Harken Common Stock and payable to the
holders of record thereof after the Effective Time shall be paid to the holder
of any unsurrendered Search Certificates with respect to which the shares of
Harken Common Stock may be issued in the Merger until such Search Certificates
shall be surrendered and exchanged as provided herein. Subject to the effect
of applicable laws, following surrender of any Search Certificate, there shall
be paid to the holder of such certificate representing whole shares of Harken
Common Stock issued in exchange therefor, without interest, (i) at the time of
such surrender, the amount of dividends or other distributions with a record
date after the Effective Time theretofore payable with respect to such whole
shares of Harken Common Stock and not paid, less the amount of any withholding
taxes which may be required thereon, and (ii) at the appropriate payment date,
the amount of dividends or other distributions with a record date after the
Effective Time but prior to surrender and a payment date subsequent to
surrender payable with respect to such whole shares of Harken Common Stock,
less the amount of any withholding taxes which may be required thereon.
(c) If the Harken Common Stock is to be issued to a person other
than the person in whose name a Search Certificate is registered, it shall be a
condition to such payment or issuance that the Search Certificate so
surrendered shall be properly endorsed or shall be otherwise in proper form for
transfer and that the person requesting such payment or issuance shall have
paid any transfer and other taxes required by reason of such payment or
issuance in a name other than that of the registered holder of the Search
Certificate surrendered or shall have established to the satisfaction of Harken
or the Exchange Agent that such tax either has been paid or is not payable.
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(d) All rights to receive the Stock Consideration into which
Search Shares and the Notes shall have been converted pursuant to this Article
I shall be deemed to have been paid or issued in full satisfaction of all
rights pertaining to such Search Shares and the Notes.
(e) Neither the Exchange Agent, Harken nor any party hereto shall
be liable to a holder of Search Shares or the Notes for any amount properly
paid to a public official pursuant to any applicable property, escheat or
similar law.
(f) In the event any Search Certificates shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming such Search Certificate to be lost, stolen or destroyed, Exchange
Agent will issue in exchange for such lost, stolen or destroyed Search
Certificate the Stock Consideration deliverable in respect thereof as
determined in accordance with this Article I. When authorizing such issue of
the Stock Consideration in exchange therefore the Exchange Agent shall, as a
condition precedent to the issuance thereof, require the owner of such lost,
stolen or destroyed Search Certificate to give Harken a bond in such sum as the
Exchange Agent reasonably determines to be appropriate as indemnity against any
claim that may be made against Harken or the Surviving Corporation with respect
to the Search Certificate alleged to have lost, stolen or destroyed.
(g) No interest shall be paid or accrued on any portion of the
Stock Consideration.
SECTION 1.10 Contingent Shares.
(a) Additional shares of Harken Common Stock (the "Contingent
Shares") shall be distributed by Harken to the parties described in Section
1.10(d) hereof (the "Rights Holders") to the extent the Valuation (as
hereinafter defined) of the group of undeveloped leases and properties
described on Exhibit "D" attached hereto (the "Undeveloped Properties") as of
June 30, 1996 (the "Valuation Date") exceeds the aggregate of the stipulated
values set forth on Exhibit "D" attached hereto (the "Stipulated Value").
(b) Harken will cause a reserve report (the "Report") covering the
Undeveloped Properties to be prepared by Dupont, Gaffney Cline, or such other
independent petroleum engineer. Such Report will be prepared based on an SEC
Case (as defined below) and will calculate a valuation (the "Valuation") of
these Undeveloped Properties as of the Valuation Date in accordance with this
Section 1.10(b) hereof. The Valuation shall be further adjusted based upon the
product of eighty percent (80%) multiplied by the present value of future net
cash flows before income taxes (the product of such amounts is hereinafter
referred to as the "Present Value") of Harken's or its affiliate's interest as
of the Valuation Date in the proved reserves of the Undeveloped Properties, as
established by the Report. The Present Value will be further adjusted (as so
adjusted, the "Adjusted Present Value") for geological risks based upon reserve
categories of the Undeveloped Properties as of the Valuation Date as set out
below:
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0% reduction for proved developed producing reserves.
20% reduction for proved developed non-producing reserves.
40% reduction for proved undeveloped reserves.
The Valuation shall equal the Adjusted Present Value: (i) plus 100% of
the market value of any proceeds (including notes or securities) received by
Harken or any of its affiliates from any prospect sales, farmouts, or joint
venture arrangements of or with respect to any of the Undeveloped Properties or
any other consideration received upon the disposition of an oil and gas
interest in the Undeveloped Properties plus 80% of the net revenue (calculated
before income taxes and after deduction of lease operating expenses) from sales
of oil and/or gas produced from such Undeveloped Properties during the
Development Period; (ii) less 100% of any direct costs, direct expenses, and
direct charges (in each case not associated with oil or gas production and
which are not otherwise taken into account in the Report) incurred or accrued
by Harken or its affiliates with respect to the Undeveloped Properties for the
period of time from the Effective Time to the Valuation Date (the "Development
Period"), including an appropriate amount of "overhead," which is hereby
stipulated to be $180,000; (iii) less 100% of the Stipulated Value; (iv) less
100% of the Reserve Deficiency set forth in Section 1.10(i) hereof; and (v)
less 100% of the Adverse Consequences set forth in Section 1.10(j) hereof. The
above calculation shall be made without any duplication of additions or charges
and with respect to clauses (i) and (ii) above shall be made using an accrual
method of accounting.
For purposes of this Section 1.10, "SEC Case" means the present value
of estimated future net revenues, before taxes, of the specified reserves or
property, determined in all material respects in accordance with the rules and
regulations of the Securities Exchange Commission (the "SEC") using prices and
costs in effect on the Valuation Date.
(c) The number of Contingent Shares to be issued shall equal the
quotient of the Valuation divided by the average closing sales price of Harken
Common Stock for the 90 days immediately preceding the Valuation Date (the
"Contingent Share Price").
(d) The Contingent Shares, and a letter from the chief financial
officer of Harken describing the calculations made in determining the number of
Contingent Shares, shall be distributed on or about September 30, 1996 (the
"Settlement Date") as follows:
(i) Two percent (2%) of the Contingent Shares shall be
distributed to Concorde Financial Corporation ("Concorde").
(ii) Two percent (2%) of the Contingent Shares shall be
distributed to EnCap Investments L.C. ("EnCap").
(iii) That number of Contingent Shares equal to the
quotient of the Value of the Eastern Shelf Properties (as hereinafter defined)
divided by the Contingent Share Price shall be distributed to the Royalty
Holders which Contingent Shares shall be distributed among the Royalty
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<PAGE> 14
Holders in proportion to the interest in the Eastern Shelf Properties (as
defined in Section 5.16 hereof) conveyed by a Royalty Holder and the interest
in the Eastern Shelf Properties conveyed by all Royalty Holders. For purposes
of this Section 1.10(d) "Value of the Eastern Shelf Properties" shall mean the
amount equal to a two percent overriding royalty interest in the Eastern Shelf
Properties as determined in the Report.
(iv) The remainder of the Contingent Shares shall be
distributed to the Record Holders, with each such Record Holder receiving that
fraction of such Contingent Shares as equal to the quotient of the number of
shares of Harken Common Stock into which such holders' Search Shares or the
Langston Note were converted at the Effective Time (not including Contingent
Shares) plus the number of shares, if any, of Harken Common Stock received by
the Record Holder upon the exercise of Harken Warrants (as defined in Section
7.01 hereof) or Unexchanged Search Warrants divided by the number of shares of
Harken Common Stock into which all Record Holders' Search Shares and the
Langston Note were converted at the Effective Time (not including Contingent
Shares) plus the number of shares of Harken Common Stock received upon the
exercise of all Harken Warrants or Unexchanged Search Warrants.
For purposes of this Section 1.10, "Record Holder" shall mean a holder
of record of Search Common Stock, or the Unexchanged Search Warrants at the
Effective Time or a holder of Search Warrants that were exchanged for Harken
Warrants at the Effective Time.
(e) As soon as practicable after the date all Unliquidated Losses
(as defined in Section 1.10(j) hereof) have become liquidated losses,
liabilities, damages, fees or expenses actually suffered or incurred by Harken,
Harken shall determine the amount, if any, that the Unliquidated Losses exceed
such liquidated amount actually suffered or incurred by Harken (the "Excess
Amount"). Harken shall then distribute to the Rights Holders (excluding the
Royalty Holders), in accordance with the provisions of Sections 1.10(d) and
1.10(h) hereof, the number of additional Contingent Shares equal to the
quotient of the Excess Amount divided by the Contingent Share Price (the "Final
Settlement Date").
(f) During the Development Period, Harken shall, through Merger
Sub, as its wholly-owned subsidiary, own, hold and manage the Undeveloped
Properties. Harken may sell, farmout, develop or otherwise deal in these
Undeveloped Properties during the Development Period in a manner which, in its
judgment, optimizes the full potential of these properties under the
circumstances then existing. During the Development Period, Harken will cause
a maximum of $600,000 (the "Development Amount") to be expended in the further
exploration and/or development of the Undeveloped Properties as described in
the development plan set forth in Exhibit "D". In the event that an
insufficient number of the wells drilled on the Undeveloped Properties during
the Development Period are determined to be commercial to warrant to Harken the
prudent expenditure of the full Development Amount or otherwise which would
justify further development and expenditures to a reasonable, prudent operator,
then Harken shall not be required nor obligated to cause any additional minimum
investments to be made on such Undeveloped Properties even if the Development
Amount has not yet been expended in full.
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During the Development Period, Harken shall cause all production of
oil and gas from the Undeveloped Properties to be sold to non-affiliates
pursuant to bona fide contracts providing for the highest price reasonably
attainable through good faith negotiations as of the date of each such
contract.
(g) As soon as practicable, but in any event within 90 days, after
June 30, 1995 and December 31, 1995, Harken will provide to the Rights Holders
a interim report regarding the status of development and production activities
on the Undeveloped Properties.
(h) On the Settlement Date (and on the Final Settlement Date),
Harken shall deliver to each of the Rights Holders, at the addresses of the
Rights Holders as they appear on the stock records of Search at the Effective
Time (or, in the case of Concorde, EnCap or the Royalty Holders, at such
address as may be specified in writing after the date hereof by Concorde, EnCap
and the Royalty Holders, respectively) or at such other addresses as Rights
Holders shall provide to Harken by written notice, certificates representing
the number of shares of Harken Common Stock payable to such Rights Holder
pursuant to this Section 1.10. No fractional shares of Harken Common Stock
shall be issued or delivered pursuant to this Section 1.10. Should any Rights
Holder be entitled to a fractional share interest in Harken Common Stock
pursuant to this Section 1.10, Harken shall deliver to such Rights Holder that
number of shares of Harken Common Stock to which such Rights Holder is entitled
rounded up to the nearest whole number. In the event of any stock split, stock
dividend, reclassification, merger, or consolidation occurring on or after 90
days immediately preceding the Valuation Date, the number of shares of Harken
Common Stock distributable to the Rights Holders in accordance with this
Section 1.10 shall be appropriately adjusted to accord the equitable benefit of
such changes to the Rights Holders. Dividends and other distributions with
respect to Harken Common Stock declared after the Settlement Date and payable
to the holders of record thereof after the Settlement Date shall be payable to
the Rights Holders with respect to the shares of Harken Common Stock to be
delivered pursuant to this Section 1.10; provided, however, no such payment
shall be made unless and until a certificate representing the Contingent Shares
shall have been delivered to the Rights Holders. No dividends payable to
holders of record of shares of Harken Common Stock prior to the Settlement Date
shall be paid to the Rights Holders with respect to such Contingent Shares.
The right of each Right Holder to receive shares of Harken Common Stock
pursuant to this Agreement may not be assigned or transferred in any manner
whatsoever except by operation of law or by will.
(i) The reserve report dated as of July 1, 1994 is attached hereto
as Exhibit "C" covering and evaluating each of the leases, wells and prospects
of Search and its subsidiaries (the "Reserve Report"). If the aggregate value
of the oil and gas reserves attributed to all of such properties pursuant to a
subsequent reserve report to be prepared as of December 31, 1994 (the
"Subsequent Report") is less in value than the aggregate value of all of such
properties as set forth in the Reserve Report after giving credit for actual
production from such properties for the period of time from July 1, 1994 to
December 31, 1994 (the "Reserve Deficiency"), the Valuation shall be adjusted
by such Reserve Deficiency as set forth in Section 1.10(b) hereof. The
Subsequent Report will be prepared by a reserve engineering firm known in the
oil and gas industry and
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<PAGE> 16
chosen by Harken in good faith, based upon the same pricing and substantially
the same parameters and criteria as used in the properties of the Reserve
Report. The parties hereby agree that either or both parties current reserve
engineers, Dupont and Gaffney Cline, are deemed to be acceptable for
preparation of the Subsequent Report.
(j) In the event Search breaches any of its representations,
warranties and covenants contained in this Agreement, subject to an applicable
survival period pursuant to Section 10.01 hereof, then Harken, as provided in
Section 1.10(b) hereof and this Section 1.10(j), may deduct from the amount of
the Valuation, if any, the entirety of any Adverse Consequences (as defined
below) resulting from, arising out of, relating to, or caused by such breach;
provided, however, that no amount shall be deducted from the Valuation until
Harken has suffered Adverse Consequences by reason of all such breaches equal
to or in excess of $100,000 (at which point the entire amount of such Adverse
Consequences will be deducted relating back to the first dollar). Solely for
purposes of this Section 1.10 and in calculating the amount of the Adverse
Consequences, any representation, warranty or covenant made by Search in this
Agreement shall be read and interpreted as if the qualification stated therein
with respect to materiality or Material Adverse Effect were not contained
therein.
As used in this Section 1.10, "Adverse Consequences" means (a) the
amount of any and all liquidated losses, liabilities or damages (including
reasonable amounts paid in settlement) actually suffered or incurred by Harken
as a result of a breach by Search of any of its representations, warranties or
covenants contained in this Agreement; (b) the amount of any and all
unliquidated losses, liabilities or damages as reasonably estimated in good
faith by Harken to be suffered or incurred by Harken as a result of a breach by
Search of any of its representations, warranties or covenants contained in this
Agreement; and (c) all reasonable fees and expenses, including attorneys' fees
and court costs, actually incurred by Harken or reasonably estimated in good
faith by Harken to be incurred in connection with any claim, action, suit,
proceeding or demand relating to a breach by Search of any of its
representations, warranties or covenants. As a condition precedent to its
ability to make an adjustment to the Valuation for Adverse Consequences
relating to any loss, liability or damage actually suffered or incurred or
estimated to be suffered or incurred by Harken as contemplated by the preceding
provisions and which arises by virtue of a claim, action, suit, proceeding or
demand of a third party, Harken must have used commercially reasonable efforts
to defend against or otherwise challenge the merits of such claim, action,
suit, proceeding or demand. The amount of unliquidated losses, liabilities,
damages, fees and expenses reasonably estimated in good faith by Harken shall
hereinafter be referred to as "Unliquidated Losses."
(k) The number of Contingent Shares to be issued pursuant to this
Section 1.10 is subject to the Maximum Share Limit as set forth in Article IX
hereof.
(l) The parties hereto agree that Harken's obligation to issue
Contingent Shares is conditional in nature, and Harken may never make any
additional payments beyond those shares
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<PAGE> 17
of Harken Common Stock issued as of the Effective Time or upon the exercise of
the Harken Warrants or the Unexchanged Search Warrants.
SECTION 1.11 Appraisal Shares.
(a) Search shall give Harken (i) prompt notice of any threat or
actual assertions of appraisal rights received by Search from any of its
stockholders ("Search Stockholders") who may be attempting to exercise their
right to receive payment of the "fair value" of these Search Shares in
accordance with Delaware Law, as well as any withdrawals of any such
assertions, and any other instruments served pursuant to Delaware Law and
received by Search or any of its affiliates, subsidiaries, officers, directors
or agents and (ii) the opportunity to direct with the consent of Search all
negotiations and proceedings with respect to assertions of appraisal rights
under Delaware Law. Search shall not, except with the prior written consent of
Harken, make any payment with respect to any assertions of appraisal rights or
settle any such assertions.
(b) In the event any Search Stockholder(s) give notice that they
intend to exercise appraisal rights and such number of Search Shares dissenting
does not exceed 5% of the outstanding Search Shares then in such event such
Search Shares that are outstanding immediately prior to the Effective Time and
that are held by stockholders who have not voted in favor of the Merger or
consented thereto in writing and who shall have properly exercised their right
of appraisal and receive payment of the "fair value" of his Search Shares in
accordance with Delaware Law (collectively, the "Appraisal Shares") shall not
be converted into or represent the right to receive the Stock Consideration,
except that any Appraisal Shares held by stockholders who shall have failed to
perfect or shall have effectively withdrawn or lost their rights of appraisal
under Delaware Law shall thereupon be deemed to have been converted into and to
have become exchangeable for, as of the Effective Time, the right to receive
the Stock Consideration, as determined in accordance with Section 1.06 hereof
upon surrender of the certificate or certificates formerly representing such
Search Shares.
SECTION 1.12 Stock Transfer Books. At the Effective Time, the stock
transfer books of Search shall be closed and there shall be no further
registration of transfers of shares of Search Shares and the Search Warrants
thereafter on the records of Search. From and after the Effective Time, the
holders of certificates evidencing ownership of Search Shares or the Notes
outstanding immediately prior to the Effective Time shall cease to have any
rights with respect to such shares or the notes except as otherwise provided
herein or by law.
SECTION 1.13 Adjustments. If, between the date of this Agreement and
the Effective Time, the outstanding shares of Harken Common Stock shall have
been changed into a different number of shares or a different class by reason
of any recapitalization, reorganization, or any split-up or combination, or a
stock dividend or distribution thereon shall be declared with a record date
within said period, or for any other reason except for those enumerated in
Sections 4.02(b)(iii) and (iv) hereof, the number and class of shares of Harken
Common Stock to be issued
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and delivered at the Effective Time in exchange for each outstanding share of
the Search Shares shall be proportionately adjusted.
SECTION 1.14 Fractional Shares. No fractional share of Harken Common
Stock shall be issued in the Merger. The total number of shares of Harken
Common Stock that any person shall have a right to receive under this Agreement
will be rounded up to the nearest whole share of Harken Common Stock.
SECTION 1.15 Unexchanged Search Warrants. Search Warrants (as
defined in Section 2.03 hereof) outstanding at the Effective Time and which
have not been tendered pursuant to Article VII (the "Unexchanged Search
Warrants") shall remain outstanding and shall be exercisable pursuant to their
terms following the Effective Time; provided, however, that if the Unexchanged
Search Warrants do not contain express provisions regarding the exercise price
and the type and number of securities such warrant is exercisable for after the
Merger, the Unexchanged Search Warrants shall be treated in the following
manner:
At the Effective Time, such Unexchanged Search Warrants shall be
exercisable upon the same terms and conditions as the applicable
Search Warrant except that each such Unexchanged Search Warrant shall
be exercisable for that whole number of shares of Harken Common Stock
equal to the product of the number of shares of Search Common Stock
covered by the Unexchanged Search Warrant immediately prior to the
Effective Time multiplied by the Exchange Ratio rounded up to the
nearest whole number of shares of Harken Common Stock, and the per
share exercise price for the shares of Harken Common Stock issuable
upon the exercise of such Unexchanged Search Warrant shall be equal to
the quotient determined by dividing the exercise price per share of
Search Common Stock specified for such Unexchanged Search Warrant
under the applicable agreement immediately prior to the Effective Time
by the Exchange Ratio rounding the resulting exercise price down to
the nearest whole cent. In addition, a Record Holder of an
Unexchanged Search Warrant who has exercised such warrant in whole or
in part shall have the right to receive Contingent Shares, if any, as
set forth in Section 1.10 hereof.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SEARCH
Search hereby represents and warrants to Harken and Merger Sub as
follows:
SECTION 2.01 Organization and Qualifications; Subsidiaries. Each of
Search and each of its subsidiaries is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation and has the requisite corporate power and authority and is in
possession of all franchises, grants, authorizations, licenses, permits,
easements,
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consents, certificates, approvals, and orders ("Approvals") necessary to own,
lease and operate its properties and to carry on its business as it is now
being conducted, except where the failure to be so organized, existing and in
good standing or to have such power, authority and Approvals would not,
individually or in the aggregate, have a Material Adverse Effect (as defined
below). Neither Search nor any subsidiary has received any notice of
proceedings relating to the revocation or modification of any such Approvals.
Each of Search and each of its subsidiaries is duly qualified or licensed as a
foreign corporation to do business, and is in good standing, in each
jurisdiction where the character of its properties owned, leased or operated by
it or the nature of its activities makes such qualification or licensing
necessary, except for such failures to be so duly qualified or licensed and in
good standing that would not, either individually or in the aggregate, have a
Material Adverse Effect. When used in connection with Search or any of its
subsidiaries, the term "Material Adverse Effect" means any change or effect
that is or is reasonably likely to be materially adverse to the business,
operations, properties (including intangible properties), condition (financial
or otherwise), assets or liabilities (including contingent liabilities) of
Search and its subsidiaries taken as a whole or which would reasonably be
expected to have an adverse financial statement impact to Search and its
subsidiaries taken as a whole of $100,000 or more. A true and complete
schedule listing of all of Search's and all of its subsidiaries, together with
the jurisdiction of incorporation of each, the percentage of each subsidiary's
outstanding capital stock owned by Search or another Search subsidiary, the
capitalization and outstanding shares of each, is set forth in the Disclosure
Schedule prepared by Search attached hereto as Exhibit "O"(the "Search
Disclosure Schedule"). Except for such subsidiaries and as set forth in the
Search Distribution Schedule, Search does not directly or indirectly own any
majority equity or similar interest in, or any interest convertible into or
exchangeable or exercisable for, any equity or similar interest in, any
corporation, partnership, joint venture or other business association or
entity, other than partnerships which are entered into in the ordinary course
of business.
SECTION 2.02 Certificate of Incorporation and By-Laws. Search has
heretofore furnished to Harken a complete and correct copy of the Certificate
of Incorporation and the By-Laws, each as amended to date, of Search and each
of its subsidiaries. Such Certificate of Incorporation, By-Laws and the
equivalent organizational documents of each of its subsidiaries are in full
force and effect. Neither Search nor any of its subsidiaries is in violation
of any of the provisions of its Certificate of Incorporation or By-Laws or
equivalent organizational documents.
SECTION 2.03 Capitalization. The authorized capital stock of Search
consists of 20,000,000 shares of Search Common Stock and 5,000,000 shares of
Search Preferred Stock. As of the date hereof, (i) 3,690,632 shares of Search
Common Stock are issued and outstanding, all of which are validly issued, fully
paid and non-assessable and free of preemptive rights with no personal
liability attaching to the ownership thereof; (ii) 575,000 shares of Search
Preferred Stock are issued and outstanding, all of which are validly issued,
fully paid and non-assessable, all dividends due thereunder are fully paid
through the date hereof, and such Search Preferred Stock is free of preemptive
rights with no personal liability attaching to the ownership thereof; (iii) no
shares of the Search Shares are held in the treasury of Search; (iv) other than
an aggregate total of 989,000 shares of Search Common Stock reserved for
issuance upon the exercise of outstanding
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stock purchase options and warrants (the "Search Warrants"), Search has no
other shares reserved for issuance; and (v) other than the stock purchase
options and warrants pursuant to the exercise of which the holders thereof can
currently acquire shares of Search Common Stock all of which are disclosed in
the Search Disclosure Schedule, and the issued and outstanding Search Preferred
Stock, there are no other options, warrants, or other rights, agreements,
arrangements or commitments of any character relating to the issued or unissued
capital stock of Search or any of its subsidiaries or obligating Search or any
of its subsidiaries to issue or sell any shares of capital stock of, or any
securities convertible into or evidencing the right to purchase any shares of
capital stock of, or other equity interests in, Search or any of its
subsidiaries. All of the Search Common Stock subject to issuance as aforesaid,
upon issuance on the terms and conditions specified in the instruments pursuant
to which they are issuable, shall be duly authorized, validly issued, fully
paid and non-assessable. There are no obligations, contingent or otherwise, of
Search or any of its subsidiaries to repurchase, redeem or otherwise acquire
any Search Shares or the common stock of any subsidiary to repurchase, redeem
or otherwise acquire any Search Shares or the common stock of any subsidiary or
to provide funds to or make any investment (in the form of a loan, capital
contribution or otherwise) in any such subsidiary or any other entity,
including agreements entered into in the ordinary course of business. Each of
the outstanding shares of capital stock of each of Search's subsidiaries is
duly authorized, validly issued, fully paid and non-assessable, and such shares
owned by Search or another subsidiary are owned free and clear of all security
interests, liens, claims, pledges, agreements, limitations in Search's voting
rights, charges or other encumbrances of any nature whatsoever.
SECTION 2.04 Authority Relative to this Agreement. Search has the
requisite corporate power and authority to execute and deliver this Agreement,
and to carry out its obligations hereunder and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by Search
and the consummation by Search of the transactions contemplated hereby have
been duly and validly authorized by all necessary corporate action and no other
corporate proceedings on the part of Search are necessary to authorize this
Agreement or to consummate the transactions so contemplated (other than, with
respect to the Merger, the approval and adoption of this Agreement and the
Merger by the stockholders of Search, in accordance with Delaware Law and
Search's Certificate of Incorporation and By-Laws). This Agreement has been
duly and validly executed and delivered by Search and, assuming the due
authorization, execution and delivery by Harken and Merger Sub, constitutes the
legal, valid and binding obligation of Search, enforceable in accordance with
its terms.
SECTION 2.05 No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by Search does
not, and the performance of this Agreement by Search shall not, (i) conflict
with or violate the Certificate of Incorporation or By-Laws or equivalent
organizational documents of Search or any of its subsidiaries, (ii) conflict
with or violate any law, rule, regulation, order, judgment or decree applicable
to Search or any of its subsidiaries, or by which its or any of their
respective properties is bound or affected, except for any such conflicts or
violations that would not, individually or in
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the aggregate, have a Material Adverse Effect, or (iii) result in any breach of
or constitute a default (or an event that with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, or result in the creation of a lien
or encumbrance on any of the properties or assets of Search or any of its
subsidiaries pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which Search or any of its subsidiaries is a party or by which Search or any
of its subsidiaries or its or any of their respective properties is bound or
affected, except for any such breaches, defaults or other occurrences that
would not, individually or in the aggregate, have a Material Adverse Effect.
(b) The execution and delivery of this Agreement by Search does
not, and the performance of this Agreement by Search shall not, require any
consent, approval, authorization or permit of, or filing with or notification
to, any governmental or regulatory authority, domestic or foreign, except (i)
for applicable requirements, if any, of the Securities Act, the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), state securities laws
("Blue Sky Laws"), the National Association of Securities Dealers Automated
Quotations System, and the rules and regulations thereunder, and the filing and
recordation of appropriate merger or other documents as required by Delaware
Law and (ii) where the failure to obtain such consents, approvals,
authorizations or permits or to make such filings or notifications, would not
prevent or delay consummation of the Merger, or otherwise prevent Search from
performing its obligations under this Agreement, and would not have a Material
Adverse Effect.
SECTION 2.06 Compliance; Permits. Except as disclosed in the Search
Disclosure Schedule, (a) neither Search nor any of its subsidiaries is in
conflict with, or in default or violation of, (i) any law, rule, regulation,
order, judgment or decree applicable to Search or any of its subsidiaries or by
which its or any of their respective properties is bound or affected, or (ii)
any note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation to which Search or any of
its subsidiaries is a party or by which Search or any of its subsidiaries or
its or any of their respective properties is bound or affected, nor has Search
or any of its subsidiaries received and not finally resolved any complaint,
citation or notice of a conflict with or a default or violation of any of the
foregoing nor, are any threatened, except for any such conflicts, defaults or
violations which would not, individually or in the aggregate, have a Material
Adverse Effect.
(b) Search and its subsidiaries hold all permits, licenses,
variances exemptions, orders and approvals from governmental authorities which
are material to the operation of the business of Search and its subsidiaries
taken as a whole (collectively, the "Search Permits"). Search and its
subsidiaries are in compliance with the terms of Search Permits, except where
the failure to so comply would not have a Material Adverse Effect.
SECTION 2.07 Securities and Exchange Commission Filing; Financial
Statements. Search has filed all forms, reports and documents required to be
filed with the SEC since January 1, 1990, and has heretofore delivered or made
available to Harken, in the form filed with the SEC,
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(i) its Annual Reports on Form 10-K for the fiscal years ended December 31,
1991, 1992 and 1993, respectively, (ii) its Quarterly Reports on Form 10-Q for
the periods ended March 31, 1994 and June 30, 1994, (iii) all proxy statements
relating to Search's meetings of stockholders (whether annual or special) held
since January 1, 1991, (iv) all Form 8-K's filed by Search with the SEC since
January 1, 1991, (v) all other reports or registration statements filed by
Search with the SEC since January 1, 1991 and (vi) all amendments and
supplements to all such reports and registration statements filed by Search
with the SEC since January 1, 1991 (collectively, the "Search SEC Reports").
The Search Disclosure Schedule lists all Search SEC Reports that have been
provided to Harken prior to the date hereof. Except as set forth in the Search
Disclosure Schedule, to the best knowledge and belief of Search, the Search SEC
Reports (i) were prepared in substantial compliance with the requirements of
the Securities Act or the Exchange Act, as the case may be, and with all of the
rules and regulations thereunder, and (ii) did not at the time they were filed
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. None of Search's subsidiaries is required to file any forms,
reports or other documents with the SEC, or any state securities authority,
except documents that may be filed with regard to the liquidation of the Search
Partnerships (as defined in Section 6.02(m) hereof).
(b) Except as set forth in the Search Disclosure Schedule, each of
the consolidated financial statements (including, in each case, any related
notes thereto) contained in Search SEC Reports and each of the consolidated
financial statements for the periods ended March 31, 1994 and June 30, 1994,
has been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods involved (except as may be
indicated in the notes thereto) and each fairly presents the consolidated
financial position of Search and its subsidiaries as of the respective dates
thereof and the consolidated results of its operations and changes in financial
position for the periods indicated, except for the omission of footnotes in the
unaudited interim financial statements and except that the unaudited interim
financial statements were or are subject to normal and recurring year-end
adjustments which were not or are not expected to be material in amount. The
consolidated financial statements provided by Search for periods subsequent to
June 30, 1994, shall comply with the foregoing standards.
SECTION 2.08 Undisclosed Liabilities. Except as and to the extent
set forth on the consolidated balance sheet of Search and its subsidiaries as
of June 30, 1994 (the "Balance Sheet Date"), including the notes thereto (the
"Search Balance Sheet"), neither Search nor any of its subsidiaries has any
liabilities or obligations of any nature (whether accrued, absolute, contingent
or otherwise) that would be required to be reflected on a balance sheet, or in
the notes thereto, prepared in accordance with generally accepted accounting
principles, except (i) for liabilities or obligations incurred in the ordinary
course of business since the Balance Sheet Date, that would not, individually
or in the aggregate, have a Material Adverse Effect, (ii) as otherwise
reflected in the Search SEC Reports filed with the SEC since the Balance Sheet
Date, or (iii) as specified in the Search Disclosure Schedule.
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SECTION 2.09 Properties and Assets. Except as set forth in the
Search Disclosure Schedule and except to the extent that the failure of any one
or more of the following representations or warranties would not individually
or in the aggregate have a Material Adverse Effect:
(a) Title to Property. Except as set forth in the Search
Disclosure Schedule:
(i) Search and/or its subsidiaries have Good
Title (as defined in Section 10.03 hereof) to the Oil and Gas Interests (as
defined in Section 10.03 hereof).
(ii) Except for Permitted Encumbrances (as defined
in Section 10.03 hereof), the Oil and Gas Interests reflected in the Reserve
Report entitles Search and/or its subsidiaries to receive not less than the
undivided interests set forth in such engineering report of all oil and gas
produced, saved and sold from a particular property and the portion of the
costs and expenses of operation and development of such property which is borne
or to be borne by Search or its subsidiaries is not greater than the undivided
interests set forth in such engineering report.
(iii) Except for Permitted Encumbrances, Search
and/or its subsidiaries have good and marketable title to such portion of the
assets of Search or its subsidiaries (other than the Oil and Gas Interests) and
other properties included or reflected on the financial statements for Search's
accounting periods prepared as of the Balance Sheet Date (attached hereto as
Exhibit "A", the "Balance Sheet Date Statements"), which assets and properties
are set forth and described on Exhibit "B-2" attached hereto.
(b) Oil and Gas Interests of Search and its Subsidiaries.
Except as set forth in the Search Disclosure Schedule:
(i) Neither Search nor any of its subsidiaries
has been advised by any operator, lessor or any other party of any material
default under any such oil and gas leases which default has not heretofore been
cured in all material respects.
(ii) To the best knowledge of Search and its
subsidiaries all proper and timely payments (including but not limited to
royalties, delay rentals and shut-in royalties), due under the oil and gas
leases giving rise to the Oil and Gas Interests have been timely made and paid
by the operator(s) of each such lease or well.
(iii) Search and/or its subsidiaries are entitled
to be paid, and are being paid, in all material respects, its percentage of net
revenue interests included in the Oil and Gas Interests without suspense and
without indemnity other than those customarily found in the industry.
(c) Wells. Except as set forth in the Search Disclosure
schedule:
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(i) All of the wells included in the Oil and Gas
Interests and which are described on Exhibit "B-1" hereto of Search and/or its
subsidiaries have been drilled and completed within the boundaries of such Oil
and Gas Interests or within the limits otherwise permitted by contract, pooling
or unit agreement, lease instrument and by law.
(ii) All drilling and completion of the wells in
such Oil and Gas Interests and all development and operations on such Oil and
Gas Interests have been conducted in material compliance with all applicable
laws, ordinances, rules, regulations and permits, and judgments, orders and
decrees of any court or governmental body or agency.
(iii) Except as may be reflected in the Reserve
Report, no well included in such Oil and Gas Interests is subject to material
penalties on allowables because of any overproduction (legal or illegal) which
would prevent the full legal and regular allowable (including maximum
permissible tolerance) as prescribed by any court or federal, state or local
governmental body or agency to be assigned to any such well.
(d) Refund. Except as included or reflected on the
Balance Sheet Date Statements as of June 30, 1994 or as set forth in the Search
Disclosure Schedule:
(i) Neither Search nor any of its subsidiaries is
obligated by virtue of a prepayment arrangement under any gas contract
containing a "take or pay" or similar provision, a production payment or any
other arrangement to deliver any material amount of gas or oil attributable to
the Oil and Gas Interests at some future time without then or thereafter
receiving full payment therefor.
(ii) Neither Search nor any of its subsidiaries
has received any funds or payments from purchasers of production of gas under
gas contracts which are subject to a potential material refund.
(e) Operation of Assets. Since the acquisition of Oil
and Gas Interests by Search and/or its subsidiaries, the Oil and Gas Interests
have been administered and maintained by Search directly or through its
subsidiaries in a reasonable manner and in accordance with generally prevailing
standards of the oil and gas industry. Neither Search nor any of its
subsidiaries are named nor act as the operator of any Oil and Gas Interests or
other leases or properties.
(f) Environmental Matters. (i)(A) Search and each of its
subsidiaries is in material compliance with all applicable foreign, federal
(including but not limited to the Clean Water Act, the Oil Pollution Act, the
Resource Conservation and Recovery Act, the Clean Air Act, the Comprehensive
Environmental Response Compensation and Liability Act, the Occupational Safety
and Health Act and the Hazardous Materials Transportation Act), state and local
laws and regulations and common law relating to pollution or protection of
human health or the environment (including, without limitation, ambient air,
surface water, ground water, land
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surface or subsurface strata (collectively, "Environmental Laws")), except for
non-compliance that individually or in the aggregate would not have a Material
Adverse Effect, which compliance includes, but is not limited to, the
possession by Search and its subsidiaries of all material permits and other
governmental authorizations required under applicable Environmental Laws, and
compliance with the terms and conditions thereof and compliance with
notification, reporting and registration provisions under applicable
Environmental Laws; and (B) neither Search nor any of its subsidiaries has
received notice of, or, to the knowledge of Search, is the subject of, any
action, cause of action, claim, investigation, demand or notice by any person
or entity alleging liability under or non-compliance with any Environmental Law
(an "Environmental Claim") that individually or in the aggregate would have a
Material Adverse Effect.
(ii) There are no Environmental Claims which individually or
in the aggregate would have a Material Adverse Effect that are pending or, to
the knowledge of Search, threatened against Search or any of its subsidiaries
or, to the knowledge of Search, against any person or entity whose liability
for any Environmental Claim Search or any of its subsidiaries has or may have
retained or assumed either contractually or by operation of law.
(iii) To the knowledge of Search, there are no circumstances
that could form the basis for an Environmental Claim against Search or any of
its subsidiaries, or against any person or entity whose liability for any
Environmental Claim Search or any of its subsidiaries has or may have retained
or assumed either contractually or by operation of law, which individually or
in the aggregate would have a Material Adverse Effect.
SECTION 2.10 Absence of Certain Changes or Events. Since June 30,
1994, except as disclosed in the Search Disclosure Schedule or in the Search
SEC Reports filed since that date to the date of this Agreement or as otherwise
contemplated by this Agreement, Search and its subsidiaries have conducted
their business only in the ordinary course and in a manner consistent with past
practice and, since such date, there has not been (i) any change in the
financial condition, results of operations or business of Search or any of its
subsidiaries having a Material Adverse Effect, (ii) any damage, destruction or
loss (whether or not covered by insurance) with respect to any assets of Search
or any of its subsidiaries having a Material Adverse Effect, (iii) any change
by Search in its accounting methods, principles or practices, (iv) any
reevaluation by Search, which is material taken as a whole, of any of its
assets, including, without limitation, writing down the value of inventory or
writing off notes or accounts receivable other than in the ordinary course of
business, (v) any entry by Search or any of its subsidiaries into any
commitment or transactions material to Search and its subsidiaries taken as a
whole, (vi) any declaration, setting aside or payment of any dividends or
distributions in respect of shares of Search Common Stock or any redemption,
purchase or other acquisition of any of its securities or any of the securities
of any subsidiary, (vii) any increase in or establishment of any bonus,
insurance, severance, deferred compensation, pension, retirement, profit
sharing, stock option (including, without limitation, the granting of stock
options, stock appreciation rights, performance awards, or restricted stock
awards), stock purchase or other employee benefit plan, or any other increase
in the compensation payable or to become payable to any officers or key
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employees of Search or any of its subsidiaries, (viii) any contract, lease,
commitment or loan outstanding where Search or any of its subsidiaries was a
party that involved or related to any officer or director of Search or any of
its subsidiaries, (ix) any increase or addition in the obligations, liabilities
and/or accounts payable of Search, or (x) any reduction, loss or material
decline in the value of its assets including, without limitation, monthly
production of oil and gas from Search's properties, wells and leases.
SECTION 2.11 Absence of Litigation. The Search Disclosure Schedule
contains a list of all claims, actions, proceedings or investigations pending
or, to the best knowledge of Search, threatened against Search or any of its
subsidiaries, before any court, arbitrator or administrative, governmental or
regulatory authority or body, domestic or foreign, that, individually or in the
aggregate, would have a Material Adverse Effect. As of the date hereof,
neither Search nor any of its subsidiaries nor any of their properties is
subject to any order, writ, judgment, injunction, decree, determination or
award having a Material Adverse Effect. Since June 30, 1994, and except as set
forth in the Search Disclosure Schedule, there has been no event, action or
other development in connection with any claim, action, proceeding, or
investigation pending or to the best knowledge of Search threatened against
Search or any of its subsidiaries or any properties or rights of Search or any
of its subsidiaries, individually or in the aggregate, having a Material
Adverse Effect.
SECTION 2.12 Registration Statement; Proxy Statement/Prospectus.
The information supplied by Search for inclusion in the Registration Statement
(as defined in Section 3.10 hereof) shall not at the time the Registration
Statement is declared effective contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary
in order to make the statements therein, in the light of the circumstances
under which they were made, not misleading. The information supplied by Search
for inclusion in the proxy statement/prospectus to be sent to the stockholders
of Search in connection with the meeting of Search's stockholders to consider
the approval and adoption of this Agreement and the Merger (the "Search
Stockholders' Meeting") (such proxy statement/prospectus as amended or
supplemented is referred to herein as the "Proxy Statement"), shall not, at the
date the Proxy Statement (or any amendment thereof or supplement thereto) is
first mailed to stockholders, at the time of Search Stockholders' Meeting, and
at the Effective Time, contain any untrue statements of material fact, or omit
to state any material fact required to be stated therein or necessary in order
to make the statements made therein, in the light of the circumstances under
which they are made, not misleading; or omit to state any material fact
necessary to correct any statement in any earlier communication with respect to
the solicitation of proxies for Search Stockholders' Meeting which has become
false or misleading. If at any time prior to the Effective Time any event
relating to Search, any of its subsidiaries, or any of its respective
affiliated, officers or directors should be discovered by Search which should
be set forth in an amendment to the Registration Statement or a supplement to
the Proxy Statement, Search shall promptly inform Harken and Merger Sub.
Notwithstanding the foregoing, Search makes no representation or warranty with
respect to any information supplied by Harken which is contained in any of the
foregoing documents. The Proxy
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Statement shall comply in all material respects as to form and substance with
the requirements of the Exchange Act and the rules and regulations thereunder.
SECTION 2.13 Investment Bankers. No broker, finder, advisor,
consultant, or investment banker, except for EnCap, Concorde and Principal
Financial Securities, Inc. ("Principal"), are entitled to any consulting,
brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of Search. Search has received the oral opinion of Principal on the
date of this Agreement to the effect that the consideration to be received by
the common stockholders of Search as a result of the Agreement is fair, from a
financial point of view, to the common stockholders of Search.
SECTION 2.14 Board Recommendation. The Board of Directors of Search
has, by resolutions duly adopted by the requisite vote of directors present at
a meeting of such Board duly called and held on November 7, 1994, determined
that the Merger, in accordance with the terms of this Agreement, is in the best
interests of Search and its stockholders, approved and adopted this Agreement
and the transactions contemplated hereby and recommended approval and adoption
of this Agreement by the stockholders of Search.
SECTION 2.15 Warrants. At the Effective Time, except for the Search
Warrants (as described in Section 2.03 hereof), there will be no outstanding
options, warrants, or other agreements, arrangements or other derivative
securities under which the holder thereof would have the right to acquire
Search Common Stock, Search Preferred Stock or the capital stock of any of its
subsidiaries.
SECTION 2.16 Disposition of Harken Common Stock. Search has no
knowledge that any Search stockholders nor any of the other parties whom will
acquire shares of Harken Common Stock, as contemplated under this Agreement,
have the present intention of disposing of such Harken Common Stock.
SECTION 2.17 ERISA.
(a) Except as set forth in the Search Disclosure
Schedule, Search currently has none and has never had, in the past, any
employee benefit plan (including, without limitation, any "employee benefit
plan," as defined in Section 3(3) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA")), nor any bonus, pension, profit sharing,
deferred compensation, incentive compensation, stock ownership, stock purchase,
stock option, phantom stock, retirement, vacation, severance, disability, death
benefit, hospitalization, insurance or other plan, arrangement or understanding
(whether or not legally binding), maintained or contributed to by Search or any
of its subsidiaries.
(b) Neither Search nor any of its subsidiaries is a party
to any collective bargaining agreement.
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(c) Neither Search nor any of its subsidiaries has any
obligation for retiree health, medical or life insurance benefits under any
plan referred to in this Section 2.17(a) other than (a) deferred compensation
benefits accrued as liabilities on the consolidated financial statements of
Search and its subsidiaries, or (b) benefits the full cost of which are borne
by the current or former employee (or his beneficiary).
SECTION 2.18 Taxes. Search and each of its subsidiaries have duly
filed all material U.S. federal, state, local and foreign tax returns required
to be filed by it in any capacity, and Search has duly paid, caused to be paid
or made adequate provision for the payment of all Taxes (as hereinafter
defined) shown to be payable on such returns in respect of the periods covered
by such returns and has made and recorded in the Balance Sheet Date Statements
adequate provision for payment of all Taxes anticipated to be payable in
respect of all calendar periods since the periods covered by such returns.
Except as provided in the Search Disclosure Schedule, no U.S. federal income
tax return ever filed by Search or any of its subsidiaries has ever been
audited by the Internal Revenue Service (the "IRS"). Except as disclosed in
the Search Disclosure Schedule, all deficiencies and assessments asserted as a
result of any examinations or other audits by U.S. federal, state, local or
foreign taxing authorities have been paid, fully settled or adequately provided
for in the financial statements contained in the Search SEC Reports, and no
issue or claim has been asserted for Taxes by any taxing authority for any
prior period, the adverse determination of which would result in a deficiency
which would have a Material Adverse Effect, other than those heretofore paid or
provided for. Except as set forth in the Search Disclosure Schedule, there are
no outstanding agreements or waivers extending the statutory period of
limitation applicable to any U.S. federal, state, local or foreign income tax
return of Search or its subsidiaries. Except as set forth in the Search
Disclosure Schedule, neither Search nor any of its subsidiaries is a party to
any agreement, contract or arrangement that would result, separately or in the
aggregate, in the payment of any "excess parachute payment" within the meaning
of Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"),
and the Merger will not be a factor causing any payments to be made by Search,
Harken or any subsidiaries of either which payments are not deductible (in
whole or in part) pursuant to Section 280G of the Code. For purposes of this
Agreement, "Taxes" shall mean all taxes, fees, levies, duties, charges or other
assessments imposed by any federal, state, county, local or foreign government,
taxing authority, subdivision or agency thereof, including interest, penalties,
additions to tax or additional amounts thereto.
SECTION 2.19 Change in Control. Except as set forth in the Search
Disclosure Schedule, neither Search nor any of its subsidiaries is a party to
any contract, agreement or understanding which contains a "change in control,"
"potential change in control" or similar provision. Except as set forth in the
Search Disclosure Schedule or as set forth in this Agreement, the consummation
of the transactions contemplated by this Agreement will not (either alone or
upon the occurrence of any additional acts or events) result in any payment
(whether of severance pay or otherwise) becoming due from Search or any of its
subsidiaries to any person.
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SECTION 2.20 Material Contracts. The Search Disclosure Schedule sets
forth a complete and accurate list of all contracts, agreements and instruments
(including any amendments hereto), other than oil and gas leases, to which
Search or any of its subsidiaries is a party or by which any of them or any of
their properties or assets may be bound which (a) is material to the oil and
gas business conducted by Search and its subsidiaries to which Search or any of
its subsidiaries is a party or by which they or their respective assets are
bound or subject or (b) provide for payments in any one year by or to Search or
any of its subsidiaries in excess of $10,000. Except as set forth in the
Search Disclosure Schedule, each of such contracts, agreements and instruments
is valid and binding and in full force and effect and, to the best knowledge of
Search, there has not occurred any default by any party thereto which remains
unremedied as of the date hereof.
SECTION 2.21 Insurance. The Search Disclosure Schedule lists all
policies of title, asset, fire, hazard, casualty, liability, life, worker's
compensation and other forms of insurance of any kind owned or held by Search
or any of its subsidiaries. All such policies: (a) are with insurance
companies believed by Search to be financially capable and reputable; (b) are
in full force and effect; (c) are sufficient for compliance by Search or its
subsidiaries in all material respects with all requirements of law and of all
material agreements to which Search or any of its subsidiaries is a party; (d)
are, to Search's knowledge, valid and outstanding policies enforceable against
the insurer; (e) provide insurance coverage against all risks normally insured
against in accordance with generally prevailing practices in the oil and gas
industry; and (f) provide that they will remain in full force and effect
through the respective dates set forth in the Search Disclosure Schedule,
subject to payment of required premiums thereunder.
SECTION 2.22 Banks; Attorneys-in-fact. The Search Disclosure
Schedule sets forth a complete list showing the name of each bank or other
financial institution in which Search or any of its subsidiaries has accounts
(including a list of the names of all persons currently authorized to draw
thereon or to have access thereto). Such list also shows the name of each
person holding a power of attorney and any other power or authority under which
another party may obligate or commit Search, its subsidiaries, or any of their
assets in any manner or form.
SECTION 2.23 Amendment to Stock Options. The Stock Option Agreement
between Search and Dr. Gary Wood dated March 3, 1994 to purchase 25,000 shares
of Search Common Stock has been amended to terminate on June 30, 1996.
SECTION 2.24 Documentation Regarding Partnerships. Search has
delivered to Harken copies of all materials and documents previously sent or
delivered to the partners of any of the Search Partnerships in connection with
either the acquisition by Search or any of its subsidiaries of partnership
interests in the Search Partnerships or the liquidation of the Search
Partnerships.
SECTION 2.25 Ownership of Harken Stock. Search does not own, nor has
it owned during the past five years, any shares of the stock of Harken.
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SECTION 2.26 Not Investment Company. Neither Search nor any of its
subsidiaries is a investment company as defined in Sections 368(a)(2)(F)(iii)
and (iv) of the Code.
SECTION 2.27 No Intercorporate Indebtedness. There is no
intercorporate indebtedness existing between Search and Harken that was issued,
acquired or will be settled at a discount.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF HARKEN AND MERGER SUB
Harken and Merger Sub hereby, jointly and severally, represent and
warrant to Search that:
SECTION 3.01 Organization and Qualifications; Subsidiaries. Each of
Harken and each of its subsidiaries is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation and has the requisite corporate power and authority and is in
possession of all Approvals necessary to own, lease and operate its properties
and to carry on its business as it is now being conducted, except where the
failure to be so organized, existing and in good standing or to have such
power, authority and Approvals would not, individually or in the aggregate,
have a Material Adverse Effect (as defined below). Neither Harken nor any
subsidiary has received any notice of proceedings relating to the revocation or
modification of any such Approvals. Each of Harken and each of its
subsidiaries is duly qualified or licensed as a foreign corporation to do
business, and is in good standing, in each jurisdiction where the character of
its properties owned, leased or operated by it or the nature of its activities
makes such qualification or licensing necessary, except for such failures to be
so duly qualified or licensed and in good standing that would not, either
individually or in the aggregate, have a Material Adverse Effect. When used in
connection with Harken or Merger Sub, the term "Material Adverse Effect" means
any change or effect that is or is reasonably likely to be materially adverse
to the business, operations, properties (including intangible properties),
condition (financial or otherwise), assets or liabilities (including contingent
liabilities) of Harken and its subsidiaries taken as a whole. The Disclosure
Schedule prepared by Harken attached hereto as Exhibit "P" (the "Harken
Disclosure Schedule") lists all of Harken's subsidiaries.
SECTION 3.02 Certificate of Incorporation and By-Laws. Harken has
heretofore furnished to Search a complete and correct copy of the Certificate
of Incorporation and the By-Laws, each as amended to date, of Harken and Merger
Sub. Each of Harken's and Merger Sub's Certificate of Incorporation, By-Laws
and the equivalent organizational documents of each of its subsidiaries are in
full force and effect. Neither Harken nor any of its subsidiaries is in
violation of any of the provisions of its respective Certificate of
Incorporation or By-Laws.
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SECTION 3.03 Capitalization.
(a) The authorized capital stock of Harken consists of (i)
100,000,000 shares of Harken Common Stock of which, as of the date hereof,
59,482,853 shares were issued and outstanding, 5,983,655 shares are held in
treasury, 6,425,534 shares are reserved for issuance pursuant to (A)
outstanding options under Harken's stock option plans, (B) the conversion terms
of Harken's Series C Convertible Preferred Stock and (C) the terms set forth in
the Harken Disclosure Schedule; and (ii) 10,000,000 shares of preferred stock
of which, as of the date hereof, 186,760 shares of Harken's Series C
Convertible Preferred Stock were issued and outstanding. The authorized
capital stock of Merger Sub consists of 10,000 shares of common stock, par
value $.10 per share, 1,000 shares of which, as of the date hereof, are issued
and outstanding. All of the outstanding shares of Harken's and Merger Sub's
respective capital stock have been duly authorized and validly issued and are
fully paid and non-assessable and are free of preemptive rights with no
personal liability attaching to the ownership thereof. Except as set forth in
this Section 3.03, as of the date hereof, there are no options, warrants or
other rights, agreements, arrangements or commitments of any character relating
to the issued or unissued capital stock of Harken or any of its subsidiaries or
obligating Harken or any of its subsidiaries to issue or sell any shares of
capital stock of, or any securities convertible into or evidencing the right to
purchase any shares of capital stock of, or other equity interests in, Harken
or any of its subsidiaries. There are no obligations, contingent or otherwise,
of Harken or any of its subsidiaries to repurchase, redeem or otherwise acquire
any shares of Harken Common Stock or the capital stock of any subsidiary of
Harken. Each of the outstanding shares of capital stock of each of Harken's
subsidiaries is duly authorized, validly issued, fully paid, and non-
assessable, and such shares owned by Harken or another subsidiary are owned
free and clear of all security interests, liens, claims, pledges, agreements,
limitations in Harken's voting rights, charges, or other encumbrances of any
nature whatsoever.
(b) The shares of Harken Common Stock to be issued as of the
Effective Time, the Contingent Shares, if any, issued on the Settlement Date
and the Final Settlement Date and upon exercise of the Harken Warrants and the
Unexchanged Search Warrants in accordance with their terms, the shares of
Harken Common Stock issued thereunder, will, upon their issuance, be duly
authorized, validly issued, fully paid and non-assessable, and free of any
preemptive rights with no personal liability attached to the ownership thereof.
SECTION 3.04 Authority Relative to this Agreement. Each of Harken
and Merger Sub has the requisite corporate power and authority to execute and
deliver this Agreement and to carry out its obligations hereunder and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement by Harken and Merger Sub and the consummation by Harken and
Merger Sub of the transactions contemplated hereby have been duly and validly
authorized by all necessary corporate action on the part of Harken and Merger
Sub and no other corporate proceedings on the part of Harken or Merger Sub are
necessary to authorize this Agreement or to consummate the transactions so
contemplated. This Agreement has been duly and validly executed and delivered
by Harken and Merger Sub and assuming the due
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authorization, execution and delivery by Search, constitutes the legal, valid
and binding obligation of each of Harken and Merger Sub, enforceable in
accordance with its terms.
SECTION 3.05 No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by Harken and
Merger Sub do not, and the performance of this Agreement by Harken and Merger
Sub shall not, (i) conflict with or violate the Certificate of Incorporation or
By-Laws of Harken, Merger Sub, or any of Harken's subsidiaries (ii) conflict
with or violate any law, rule, regulation, order, judgment or decree applicable
to Harken, any of its subsidiaries, or Merger Sub or by which any of their
respective properties are bound or affected, except for any such conflicts or
violations that would not, individually or in the aggregate, have a Material
Adverse Effect, or (iii) result in any breach of or constitute a default (or an
event which with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or encumbrance on any of
the properties or assets of Harken, or any of its subsidiaries, or Merger Sub
pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation to which Harken,
or any of its subsidiaries, or Merger Sub is a party or by which Harken, or any
of its subsidiaries, or Merger Sub or any of their respective properties are
bound or affected, except for any such breaches, defaults or other occurrences
that would not, individually or in the aggregate, have a Material Adverse
Effect.
(b) The execution and delivery of this Agreement by Harken and
Merger Sub do not, and the performance of this Agreement by Harken and Merger
Sub shall not, require any consent, approval, authorization or permit of, or
filing with or notification to, any governmental or regulatory authority,
domestic or foreign, except (i) for applicable requirements, if any, of the
Securities Act, the Exchange Act, Blue Sky Laws, the American Stock Exchange
and the rules and regulations thereunder, and the filing and recordation of
appropriate merger or other documents as required by Delaware Law and (ii)
where the failure to obtain such consents, approvals, authorizations or
permits, or to make such filings or notifications, would not prevent or delay
consummation of the Merger, or otherwise prevent Harken or Merger Sub from
performing their respective obligations under this Agreement, and would not
have a Material Adverse Effect.
SECTION 3.06 Compliance; Permits.
(a) Neither Harken nor any of its subsidiaries is in conflict
with, or in default or violation of, (i) any law, rule, regulation, order,
judgment or decree applicable to Harken or any of its subsidiaries or by which
its or any of their respective properties is bound or affected, or (ii) any
note, bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which Harken or any of its
subsidiaries is a party or by which Harken or any of its
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subsidiaries or any of its or any of their respective properties is bound or
affected, nor, except as disclosed in the Harken Disclosure Schedule, has
Harken or any of its subsidiaries received and not finally resolved any
complaint, citation or notice of a conflict with or a default or violation of
any of the foregoing nor, to the best of Harken's knowledge, are any
threatened, except for any such conflicts, defaults or violations which would
not, individually or in the aggregate, have a Material Adverse Effect.
(b) Harken and its subsidiaries hold all permits, licenses,
variances, exemptions, orders and approvals from governmental authorities which
are material to the operation of the business of Harken and its subsidiaries
taken as a whole (collectively, the "Harken Permits"). Harken and its
subsidiaries are in compliance with the terms of the Harken Permits, except
where the failure to so comply would not have a Material Adverse Effect.
SECTION 3.07 SEC Filings; Financial Statements.
(a) Harken has filed all forms, reports and documents required to
be filed with the SEC since January 1, 1989, and has heretofore delivered or
made available to Search, in the form filed with the SEC, (i) its Annual
Reports on Form 10-K for the fiscal years ended December 31, 1991, 1992 and
1993, respectively, (ii) its Quarterly Reports on Form 10-Q for the periods
ended March 31, 1994 and June 30, 1994, (iii) all proxy statements relating to
Harken's meetings of stockholders (whether annual or special) held since
January 1, 1991, (iv) all Form 8-K's filed by Harken with the SEC since January
1, 1991, (v) all other reports or registration statements filed by Harken with
the SEC since January 1, 1991 and (vi) all amendments and supplements to all
such reports and registration statements filed by Harken with the SEC since
January 1, 1991 (collectively, the "Harken SEC Reports"). The Harken
Disclosure Schedule lists all Harken SEC Reports which have been provided to
Search prior to the date hereof. To the best knowledge and belief of Harken,
the Harken SEC Reports (i) were prepared in substantial compliance with the
requirements of the Securities Act or the Exchange Act, as the case may be, and
(ii) did not at the time they were filed contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. None of Harken's
subsidiaries is required to file any forms, reports or other documents with the
SEC or any state securities authority.
(b) Each of the consolidated financial statements (including, in
each case, any related notes thereto) contained in the Harken SEC Reports has
been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods involved (except as may be
indicated in the notes thereto) and each fairly presents the consolidated
financial position of Harken and its subsidiaries as of the respective dates
thereof and the consolidated results of its operations and changes in financial
position for the periods indicated, except for the omission of certain
footnotes in the unaudited interim financial statements and except that the
unaudited interim financial statements were or are subject to normal and
recurring year-end adjustments, which were not or are not expected to be
material in amount.
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(c) Except as and to the extent set forth on the consolidated
balance sheet of Harken and its subsidiaries as at the Balance Sheet Date,
including the notes thereto (the "Harken Balance Sheet"), neither Harken nor
any of its subsidiaries has any liabilities or obligations of any nature
(whether accrued, absolute, contingent or otherwise), which would be required
to be reflected on a balance sheet, or in the notes thereto, prepared in
accordance with generally accepted accounting principles, except (i) for
liabilities or obligations incurred in the ordinary course of business since
the Balance Sheet Date that would not, individually or in the aggregate, have a
Material Adverse Effect, (ii) as otherwise reflected in the Harken SEC Reports
filed with the SEC since the Balance Sheet Date, or (iii) as specified in the
Harken Disclosure Schedule.
SECTION 3.08 Absence of Certain Changes or Events. Since June 30,
1994, except as disclosed in the Harken Disclosure Statement or in the Harken
SEC Reports filed since that date to the date of this Agreement, Harken and its
subsidiaries have conducted their businesses only in the ordinary course and in
a manner consistent with past practice and, since such date, there has not been
(i) any change in the financial condition, results of operations or business of
Harken or any of its subsidiaries having a Material Adverse Effect, (ii) any
damage, destruction or loss (whether or not covered by insurance) with respect
to any assets of Harken or any of its subsidiaries having a Material Adverse
Effect, (iii) any change by Harken in its accounting methods, principles or
practices, or (iv) any re-evaluation by Harken, which is material taken as a
whole, of any of its assets, including, without limitation, writing down the
value of inventory or writing off notes or accounts receivable other than in
the ordinary course of business.
SECTION 3.09 Absence of Litigation. The Harken Disclosure Schedule
contains a list of all claims, actions, proceedings or investigations pending
or, to the best knowledge of Harken, threatened against Harken or any of its
subsidiaries, or any properties or rights of Harken or any of its subsidiaries,
before any court, arbitrator or administrative, governmental or regulatory
authority or body, domestic or foreign, which could have a Material Adverse
Effect on Harken or any of its subsidiaries. As of the date hereof, neither
Harken nor any of its subsidiaries nor any of their properties is subject to
any order, writ, judgment, injunction, decree, determination or award having a
Material Adverse Effect. Since June 30, 1994, there has been no event, action
or other development in connection with any claim, action, proceeding or
investigation pending or to the best knowledge of Harken threatened against
Harken, any of its subsidiaries, or any properties or rights of Harken or any
of its subsidiaries, individually or in the aggregate, having a Material
Adverse Effect.
SECTION 3.10 Registration Statement; Proxy Statement/Prospectus.
The information supplied by Harken for inclusion in the registration statement
of Harken pursuant to which the shares of Harken Common Stock to be issued as
of the Effective Time, the Contingent Shares, the Harken Warrants, and the
shares of Harken Common Stock issuable pursuant to the exercise of the Harken
Warrants and the Unexchanged Search Warrants will be registered with the SEC
(the "Registration Statement") shall not, at the time the Registration
Statement (including any amendments or supplements thereto) is declared
effective by the SEC, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or
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necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. The information
supplied by Harken for inclusion in the Proxy Statement shall not, on the date
the Proxy Statement is first mailed to stockholders, at the time of Search's
Stockholders Meeting and at the Effective Time contain any untrue statements of
material fact, or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. If at any time prior
to the Effective Time any event relating to Harken, Merger Sub or any of their
respective affiliates, officers or directors should be discovered by Harken or
Merger Sub which should be set forth in an amendment to the Registration
Statement or a supplement to the Proxy Statement, Harken or Merger Sub will
promptly inform Search. Notwithstanding the foregoing, Harken and Merger Sub
make no representation or warranty with respect to any information supplied by
Search which is contained in any of the foregoing documents. The Registration
Statement and Proxy Statement shall comply in all material respects as to form
and substance with the requirements of the Securities Act, the Exchange Act and
the rules and regulations thereunder.
SECTION 3.11 Investment Bankers. No broker, finder, advisor,
consultant, or investment banker is entitled to any consulting, brokerage,
finder's or other fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
Harken.
SECTION 3.12 Board Approval. The Board of Directors of Harken has,
by resolutions duly adopted by the requisite vote of directors present at a
meeting of such Board duly called and held on September 30, 1994, determined
that the Merger in accordance with the terms of this Agreement, is fair to and
in the best interests of its stockholders.
SECTION 3.13 . Merger Sub will acquire at least ninety percent (90%)
of the fair market value of Search's net assets and at least seventy percent
(70%) of the fair market value of Search's gross assets in Merger. For
purposes of this representation, amounts paid by Search to dissenters, amounts
paid by Search to stockholders who receive cash or other property, amounts used
by Search to pay reorganization expenses, and all redemptions and distributions
(except for regular, normal dividends) made by Search will be included as
assets of Search immediately prior to the Merger.
SECTION 3.14 Control of Merger Sub. Prior to the Merger, Harken will
be in control of Merger Sub within the meaning of Section 368(c) of the Code.
Following the Merger, Merger Sub will not issue additional shares of its stock
that will result in Harken losing control of Merger Sub within the meaning of
Section 368(c) of the Code. No stock of Merger Sub will be issued in the
Merger.
SECTION 3.15 No Plan or Intention to Reacquire Stock. Harken has no
current plan or intention to reacquire any shares of Harken Common Stock issued
at the Effective Time.
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SECTION 3.16 No Plan or Intention to Merge, Sell or Otherwise Dispose
of Search. Harken has no current plan or intention after the Merger to
liquidate Merger Sub; to merge Merger Sub with or into another corporation; to
sell or otherwise dispose of the stock of Merger Sub; or to cause Merger Sub to
sell or otherwise dispose of any of its assets or of any of the assets acquired
from Search, except for dispositions made in the ordinary course of business,
dispositions contemplated by this Agreement or transfers described in Section
368(a)(2)(C) of the Code.
SECTION 3.17 No Liabilities. Merger Sub will have no liabilities
prior to the Merger. There is no intercorporate indebtedness existing between
Harken and Search or between Merger Sub and Search that was issued, acquired or
will be settled at a discount.
SECTION 3.18 Historic Business. Following the Merger, Merger Sub
will continue the historic business of Search or use a significant portion of
Search's historic business assets in a business.
SECTION 3.19 Ownership of Search Stock. Harken does not own, nor has
it owned during the past five years, any shares of the stock of Search.
SECTION 3.20 Not Investment Company. Harken and Merger Sub are not
investment companies as defined in Sections 368(a)(2)(F)(iii) and (iv) of the
Code.
SECTION 3.21 No Prior Business. Merger Sub has not conducted any
business prior to the Merger, except such business as may be necessary for
Merger Sub to engage in the Merger.
ARTICLE IV
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 4.01 Conduct of Business by Search Pending the Merger.
Except as disclosed in the Search Disclosure Schedule or as contemplated in
this Agreement, Search covenants and agrees that, between the date of this
Agreement and the Effective Time, unless Harken shall otherwise agree, which
agreement shall not be unreasonably withheld, Search shall conduct business and
shall cause the businesses of its subsidiaries, to be conducted only in, and
Search shall not, take any action except in, the ordinary course of business
and in a manner consistent with past practice, and Search shall use
commercially reasonable efforts to preserve substantially intact the business
organization of Search and its subsidiaries, to keep available the services of
the present officers, employees and consultants of Search and its subsidiaries
and to preserve the present relationships of Search and its subsidiaries with
customers, suppliers, partners, investors, operators and other persons with
which Search and its subsidiaries have significant business relations. By way
of amplification and not limitation, except as disclosed in the Search
Disclosure Schedule and as contemplated in this Agreement, neither Search nor
any of its subsidiaries shall, between the date of this Agreement and the
Effective Time, directly or indirectly do, or propose
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to do, any of the following without the prior written consent of Harken, which
consent shall not be unreasonably withheld:
(a) amend or otherwise change its Certificate of Incorporation or
By-Laws or equivalent organizational documents;
(b) issue, sell, pledge, dispose of or encumber, or authorize the
issuance, sale, pledge, disposition or encumbrance of, any shares of capital
stock of any class, or any options, warrants, convertible securities or other
rights of any kind to acquire any shares of capital stock, or any other
ownership interest, of Search, any of its subsidiaries, or affiliates (except
for sales of Search Common Stock pursuant to the valid exercise for cash of any
of the existing Search Warrants);
(c) sell, assign, transfer, hypothecate, pledge, mortgage, or in
any other manner transfer or dispose of any of its properties, leases or assets
(other than oil and gas production in the normal course of business);
(d) declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise, with respect to
any of its capital stock except dividends payable on the preferred stock of
Search for the period ending September 30, 1994 and December 31, 994;
(e) reclassify, combine, split, subdivide or redeem, purchase or
otherwise acquire, directly or indirectly, any of its capital stock;
(f) (i) acquire (by merger, consolidation, or acquisition of stock
or assets) any corporation, partnership or other business organization or
division thereof; (ii) incur any indebtedness for borrowed money or issue any
debt securities or assume, guarantee or endorse or otherwise as an
accommodation become responsible for, the obligations of any person, or make
any loans or advances, except in the ordinary course of business consistent
with past practice; (iii) enter into or agree to amend, modify, extend,
terminate or in any way change any of the terms, conditions or provisions of
any of the Material Contracts; (iv) enter into or amend any other contract,
agreement, commitment, or arrangement other than in the ordinary course of
business; (v) the settlement of claims not exceeding $10,000 for fair value,
and the payment of existing debts to banks, affiliated, vendors, joint
venturers, or stockholders which have been previously disclosed to Harken; or
(vi) except as set forth in the Search Disclosure Schedule, authorize or incur
any capital expenditures which are individually or, in the aggregate, in excess
of $10,000 for Search and any of its subsidiaries taken as a whole;
(g) increase the compensation or fees payable or to become payable
to its directors, officers or employees, or grant any severance or termination
pay, warrants or stock options to, or enter into any employment, severance or
other agreement with any director, officer or other employee of Search or any
of its subsidiaries, or establish, adopt, enter into or amend any collective
bargaining, bonus, profit sharing, thrift, compensation, stock option,
restricted stock, pension, retirement, deferred compensation, employment,
termination, severance or other plan,
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agreement, trust, fund, policy or arrangement for the benefit of any current or
former directors, officers or employees, except for the termination of
consulting and other agreements with former officers and directors of Search
and its subsidiaries;
(h) take any action other than in the ordinary course of business
and in a manner consistent with past prudent practice (none of which actions
shall be unreasonable or unusual) with respect to accounting policies or
procedures (including, without limitation, procedures with respect to the
payment of accounts payable and collection of accounts receivable);
(i) make any tax election or settle or compromise any material
federal, state, local or foreign incom