<PAGE> 1
As filed with the Securities and Exchange Commission on February 2, 1995
Registration No. 33-56829
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
____________________
HARKEN ENERGY CORPORATION
(Exact name of registrant as specified in its charter)
____________________
DELAWARE 95-2841597
(State or other jurisdiction of (I.R.S. employer identification number)
incorporation or organization)
HARKEN ENERGY CORPORATION
5605 NORTH MACARTHUR, SUITE 400
IRVING, TEXAS 75038
(214) 753-6900
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
________________________________
copy to:
LARRY E. CUMMINGS HAYNES AND BOONE, L.L.P.
VICE PRESIDENT, SECRETARY 1300 BURNETT PLAZA
AND GENERAL COUNSEL 801 CHERRY STREET
HARKEN ENERGY CORPORATION FORT WORTH, TEXAS 76102
5605 NORTH MACARTHUR, SUITE 400 ATTN: WILLIAM D. GREENHILL
IRVING, TEXAS 75038 (817) 347-6600
(214) 753-6900
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
________________________________
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
From time to time after the effective date of this Registration Statement.
________________________________
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box: [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box: [x]
<TABLE>
<CAPTION>
=============================================================================================================================
Title of each class of Amount to be Proposed maximum Proposed maximum Amount of
securities to be registered registered offering price per aggregate offering registration fee
unit(1) price(1)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $0.01 960,000 $1.94 $1,862,400 $642.16
per share
=============================================================================================================================
</TABLE>
___________
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) based on the average of the high and low prices
reported on the American Stock Exchange on December 12, 1994.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE> 2
CROSS REFERENCE SHEET
BETWEEN ITEMS OF FORM S-3 AND THE PROSPECTUS
<TABLE>
<CAPTION>
Item
No. Prospectus Caption or Page
------ --------------------------------------------
<S> <C> <C>
1 Forepart of the Registration Statement Facing Page; Cross-Reference Sheet;
and Outside Front Cover Page of Outside Front Cover Page of Prospectus
Prospectus
2 Inside Front and Outside Back Cover Pages Inside Front and Outside Back Cover
of Prospectus Pages of Prospectus
3 Summary Information, Risk Factors and Outside Front Cover Page of Prospectus;
Ratio of Earnings to Fixed Charges Investment Considerations
4 Use of Proceeds Use of Proceeds
5 Determination of Offering Price *
6 Dilution *
7 Selling Security Holders Selling Stockholders
8 Plan of Distribution Plan of Distribution
9 Description of Securities to be *
Registered
10 Interests of Named Experts and Counsel *
11 Material Changes *
12 Incorporation of Certain Information by Inside Front Cover Page of Prospectus
Reference
13 Disclosure of Commission Position on *
Indemnification for Securities Act
Liabilities
</TABLE>
_________________
* Not Applicable
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED FEBRUARY 2, 1995
PROSPECTUS
960,000 Shares
HARKEN ENERGY CORPORATION
Common Stock
(par value $0.01 per share)
____________________
The 960,000 shares ("Shares") of common stock, par value $0.01 per
share ("Common Stock"), of Harken Energy Corporation, a Delaware corporation
("Harken"), offered hereby are being sold by the holders thereof (the "Selling
Stockholders"). See "SELLING STOCKHOLDERS." Harken will not receive any part
of the proceeds from the sale of the Shares by the Selling Stockholders.
The Selling Stockholders may sell the Shares from time to time
directly or indirectly, through agents designated from time to time, in one or
more open market transactions, including block trades, on the American Stock
Exchange, in negotiated transactions or in a combination of any such methods of
sale or through dealers or underwriters also to be designated, on terms to be
determined at the time of sale. To the extent required, the specific Shares to
be sold, the name of the Selling Stockholders, purchase price, public offering
price, the name of any such agent, dealer or underwriter, and any applicable
commission or discount with respect to a particular offer will be set forth in
an accompanying prospectus supplement. The aggregate proceeds to the Selling
Stockholders from sales of the Shares will be the purchase price of the Shares
sold less the aggregate agents' commissions and underwriters' discounts, if
any, and other expenses of issuance and distribution. All of the registration
expenses of this offering will be paid for by Harken. See "PLAN OF
DISTRIBUTION."
The Selling Stockholders and any broker-dealers, agents or
underwriters that participate with the Selling Stockholders in the distribution
of any of the Shares may be deemed to be "underwriters" within the meaning of
the Securities Act of 1933, as amended (the "Securities Act"), and any
commission received by them and any profit on the resale of the Shares
purchased by them may be deemed to be underwriting commissions or discounts
under the Securities Act. See "PLAN OF DISTRIBUTION" for indemnification
arrangements.
The Common Stock, including the Shares, is listed on the American
Stock Exchange. On January 31, 1995, the closing sales price of the Common
Stock as reported on the American Stock Exchange was $1 7/8 per share.
<PAGE> 4
PROSPECTIVE INVESTORS SHOULD CONSIDER AND REVIEW THE INFORMATION UNDER
THE CAPTION "INVESTMENT CONSIDERATIONS" IN CONNECTION WITH THEIR DECISION
CONCERNING THE PURCHASE OF THE SECURITIES OFFERED HEREBY.
____________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
____________________
The date of this Prospectus is ___________, 1995.
2
<PAGE> 5
AVAILABLE INFORMATION
Harken is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended ("Exchange Act"), and in accordance therewith
files reports, proxy statements and other information with the Securities and
Exchange Commission (the "Commission"), which can be inspected and copied at
the public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Judiciary Plaza, Room 1024, Washington, D.C. 20549, and at the
following regional offices of the Commission: Chicago Regional Office, 500 W.
Madison Street, Suite 1400, Chicago, Illinois 60661; and New York Regional
Office, 7 World Trade Center, New York, New York 10048. Copies of such
material can be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549 at prescribed
rates. In addition, the Common Stock is listed on the American Stock Exchange,
and such reports, proxy statements and other information concerning Harken may
be inspected at the offices of the American Stock Exchange, 86 Trinity Place,
New York, New York 10006.
Harken has filed with the Commission a Registration Statement
("Registration Statement") under the Securities Act with respect to the
securities offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the Commission. For
further information with respect to Harken and such securities, reference is
made to such Registration Statement and to the exhibits thereto.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents which have been filed with the Commission are
incorporated herein by reference:
(1) Harken's Annual Report on Form 10-K for the fiscal year ended
December 31, 1993;
(2) Harken's Quarterly Report on Form 10-Q for the fiscal period
ended March 31, 1994;
(3) Harken's Quarterly Report on Form 10-Q for the fiscal period
ended June 30, 1994;
(4) Harken's Quarterly Report on Form 10-Q for the fiscal period
ended September 30, 1994;
(5) Proxy Statement for the Annual Meeting of Stockholders of
Harken held June 3, 1994;
3
<PAGE> 6
(6) Description of the Common Stock contained in Harken's
Registration Statements filed under Section 12 of the Exchange
Act, including Form 8-A dated March 13, 1991;
(7) Current Report on Form 8-K of Harken dated November 4, 1994,
reporting the acquisition of additional interest in Four
Corners Properties; and
(8) Form 8-K/A of Harken dated January 3, 1995, amending the Form
8-K dated November 4, 1994.
All documents filed by Harken pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior
to the termination of the offering made hereby shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from the
date of the filing of such documents. Any statement contained in this
Prospectus, in a supplement to this Prospectus or in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any subsequently filed supplement to this Prospectus or
in any document that also is or is deemed to be incorporated by reference
herein modifies or supersedes such statement. Any statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
Harken hereby undertakes to provide without charge to each person to
whom a copy of this Prospectus has been delivered, on the written or oral
request of any such person, a copy of any or all of the documents referred to
above which have been or may be incorporated in this Prospectus by reference,
other than exhibits to such documents unless such exhibits are specifically
incorporated by reference in such documents. Written or oral requests for such
copies should be directed to Larry E. Cummings, Vice President, Secretary and
General Counsel, Harken Energy Corporation, 5605 North MacArthur, Suite 400,
Irving, Texas 75038 (Telephone: 214/753-6900).
____________________
4
<PAGE> 7
BUSINESS OF HARKEN
General
Harken is engaged in oil and gas exploration, development and
production operations both domestically and internationally through its various
wholly-owned subsidiaries and joint venture investments. Harken's domestic
operations primarily consist of the oil and gas exploration and production
operations of its wholly-owned subsidiary, Harken Southwest Corporation
("HSW"), which was formerly known as Chuska Energy Corporation. Harken's
international operations include two exclusive Colombian Association Contracts
between Harken's wholly-owned subsidiary, Harken de Colombia, Ltd., and Empresa
Colombiana de Petroleos, as well as a production sharing agreement between
Harken's wholly- owned subsidiary, Harken Bahrain Oil Company, and the Bahrain
National Oil Company. Harken's international operations currently consist
solely of exploration activities, however, management is continuing to pursue
international opportunities in all areas of Harken's operations, including
oilfield services and oil and gas exploration and development. Harken
considers that the opportunities to profitably deploy Harken's expertise and
assets internationally are generally greater than those available domestically.
Harken was incorporated in 1973 in the State of California and
reincorporated in 1979 in the State of Delaware. Harken's principal offices
are located at 5605 North MacArthur, Suite 400, Irving, Texas 75038 and its
telephone number is (214) 753-6900.
Recent Developments
Search Acquisition. On November 8, 1994, Harken and its wholly-owned
subsidiary, Search Acquisition Corp. ("Acq. Sub."), entered into an Agreement
and Plan of Merger (the "Merger Agreement") with Search Exploration, Inc.
("Search"), a publicly held Delaware corporation. Search is primarily engaged
in the business of participating in oil and gas prospect ventures and in
related exploration activities. If the proposed merger ("Merger") is
consummated, Harken anticipates that Search, as a wholly-owned subsidiary,
would continue to pursue its present domestic oil and gas operations.
Under the terms of the Merger Agreement, certain contingencies must be
satisfied by Search, unless waived by Harken, prior to the consummation of the
Merger. Such contingencies include the requirement that Search shall have
terminated three private limited partnerships of which a wholly-owned
subsidiary of Search, McCullough Energy Corp ("McCullough"), serves as the
managing general partner. The plan proposed by Search and McCullough to
5
<PAGE> 8
terminate these partnerships must receive 100% approval by all of the other
limited and general partners of each of these partnerships. Assuming the
successful termination of these limited partnerships, Search must then submit
the proposed merger to its stockholders for their approval and receive the
affirmative vote of a majority of such stockholders. Unless the Merger is
completed by March 31, 1995, or unless such date is extended by the mutual
agreement of the parties, either Harken or Search may terminate the Merger
Agreement.
In the event that the Merger is completed then, upon closing, Search
will merge into Acq. Sub. with Acq. Sub. being the surviving entity. Each
share of Search common stock, $.05 par value (the "Search Common Stock") then
outstanding will be exchanged for shares of Harken's Common Stock based upon
the Exchange Ratio (as defined below). Each share of Search preferred stock,
$.001 par value (the "Search Preferred Stock") then outstanding will be
exchanged for shares of Harken's Common Stock based upon the Preferred Exchange
Ratio (as defined below). In addition, certain outstanding notes issued by
Search to third parties will be exchanged in the Merger for the number of
shares of Harken's Common Stock equal to the face amount of such notes divided
by the Strike Price (as defined below).
In addition, certain parties, including the holders of Search Common
Stock, the note holders and the holders of certain overriding royalty interests
who agree to reassign these interests to Search, may be entitled to
subsequently receive additional shares of Harken's Common Stock based upon the
subsequently determined value of certain undeveloped properties of Search.
Under the Merger Agreement, certain identified undeveloped properties of Search
will be valued by an independent petroleum engineer as of June 30, 1996 (the
"Valuation Date"). These parties may be entitled to receive such additional
shares of Harken's Common Stock based upon an increase in the value of these
undeveloped properties as of such Valuation Date.
The Merger Agreement provides, however, that Harken is not required in
any event to issue more than a maximum of eleven million shares of its Common
Stock, which will constitute less than 20% of its outstanding Common Stock, in
connection with all exchanges and transactions contemplated by the Merger
Agreement. The Merger Agreement does provide that in the event the undeveloped
properties of Search are valued as of the Valuation Date at an amount which
would provide for greater than eleven million shares of Harken's Common Stock
being issued in such transactions in the aggregate, then Harken may at its
option either pay such excess valuation in cash or obtain the approval of the
holders of Harken's Common Stock to issue additional shares of Common Stock in
excess of 20% of its outstanding shares of Common Stock.
6
<PAGE> 9
As of the execution date of the Merger Agreement, Search had
outstanding 3,690,632 shares of Search Common Stock and 575,000 shares of
Search Preferred Stock. The "Exchange Ratio" as provided in the Merger
Agreement is determined by dividing $.8099 by the Strike Price and the
"Preferred Exchange Ratio" is determined by dividing $1.00 by the Strike Price.
The "Strike Price" is defined as the average of the closing prices of a share
of Harken's Common Stock on the American Stock Exchange (as reported by the
Wall Street Journal or, if not reported thereby, by another authoritative
source) over the 30 days immediately preceding the date that is five trading
days prior to the closing of the Merger; provided, however, that in no event
shall the Strike Price be an amount which is (i) greater than $2.366 or (ii)
less than $1.274.
See "UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS" for
certain additional information regarding the Merger.
Colombian Activities. On December 14, 1994 Harken entered into its
third Association Contract with Ecopetrol covering a tract of land of
approximately 10,000 acres in size referred to as the Playero Contract Area.
This area is located in the Llanos Basin of Colombia and lies adjacent to
Harken's Alcaravan Contract Area. On December 20, 1994, Harken awarded a
contract to Perforaciones El Dorado, S.A. ("El Dorado") to drill the Alcaravan
#1 well in the Llanos Basin of Colombia. El Dorado is a Colombian drilling
contractor with significant experience in the oil producing basins of Colombia.
The drilling of the Alcaravan #1 well is currently scheduled to begin in early
February 1995 and will be drilled to a projected approximate depth of 10,500
feet to test for commercial quantities of oil in the oil prone zones prevalent
in the Llanos basin: the Carbonera, Mirador, Guadalupe and the basal
cretaceous formations. Harken will hold a 50% interest in the Alcaravan #1
well.
On January 19, 1995, Harken notified Ecopetrol, the National Oil
Company of Colombia, of Harken's commitment to drill a well on its Bocachico
Association Contract Area and thereby extended the contract into its second
year. Harken currently anticipates that a well site will be selected and
drilling will commence by mid-1995. The Bocachico area is located in
Colombia's Middle Magdelena Basin.
CHAP Interest. In October 1994 Harken purchased an approximate
additional 20% participating interest in properties which it currently
operates, through the CHAP joint venture, in the Paradox Basin, thus increasing
its and one of its subsidiary's total combined interest in CHAP to
approximately 70%. Harken acquired this additional participating interest from
the Selling Stockholders. Each CHAP co-venturer, in proportion to its
respective participating interest, pays its share of the costs and expenses and
receives its share of revenues; thus, as a result of the acquisition, Harken
and its subsidiary's proportionate share in such costs, expenses,
7
<PAGE> 10
and revenues increased by approximately 20% with respect to CHAP. The
acquisition also included the Selling Stockholders' interests in certain oil
and gas leases relating to exploration acreage and development drilling
locations and increased Harken's ownership interest in the Aneth Gas Plant, all
located in the Paradox Basin.
UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed financial
statements give effect to the Merger under the purchase method of accounting.
The pro forma combined condensed balance sheet gives effect to the Merger as if
it had been consummated as of September 30, 1994. The pro forma combined
condensed statements of operations for the nine month periods ended September
30, 1994 for Harken and Search, for the year ended December 31, 1993 for Harken
and Search, give effect to the Merger as if it had occurred as of January 1,
1993.
These statements have been prepared from the historical consolidated
financial statements of Harken and Search and should be read in conjunction
with such statements and the related notes contained in each company's Annual
Report on Form 10-K for the year ended December 31, 1993 for Harken and Search,
and Quarterly Report on Form 10-Q for the period ended September 30, 1994.
The pro forma data are presented for illustrative purposes only and
are not necessarily indicative of the financial position or operating results
that would have occurred had the Merger been consummated at the dates
indicated, nor are they indicative of future financial position or operating
results.
8
<PAGE> 11
HARKEN ENERGY CORPORATION AND SEARCH EXPLORATION, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
September 30, 1994
<TABLE>
<CAPTION>
Harken Search
Energy Exploration Pro Forma
ASSETS Corporation Historical Adjustments Pro Forma
- ------------------------------------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS
Cash, temporary investments, and notes $3,140,000 ($9,000) (1) $117,000 $3,648,000
(6) 400,000
Accounts receivable, net 376,000 48,000 (1) 144,000 568,000
Accounts receivable from former
subsidiaries 984,000 0 (1) 6,000 990,000
Prepaid expenses and other 315,000 0 (1) 65,000 380,000
Marketable equity securities 931,000 0 931,000
----------- ----------- ----------- -----------
Total current assets 5,746,000 39,000 732,000 6,517,000
PROPERTY AND EQUIPMENT, NET 18,395,000 2,883,000 (1) 3,663,000 23,603,000
(2) (378,000)
(3) (1,966,000)
(5) 964,000
(6) (400,000)
(7) 442,000
INVESTMENTS IN FORMER SUBSIDIARIES 8,459,000 0 8,459,000
NOTES RECEIVABLE FROM RELATED PARTIES
INCLUDING INTEREST 464,000 0 464,000
OTHER ASSETS 885,000 0 (1) 14,000 899,000
----------- ----------- ----------- -----------
Total assets $33,949,000 $2,922,000 $3,071,000 $39,942,000
=========== =========== ========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Trade payables $274,000 $286,000 $560,000
Accrued liabilities and other 2,238,000 0 (1) 470,000 2,545,000
(2) (378,000)
(5) 215,000
Revenues and royalties payable 1,279,000 0 (1) 43,000 1,322,000
Notes payable and current maturities 900,000 25,000 (7) 133,000 1,058,000
----------- ----------- ----------- -----------
Total current liabilities 4,691,000 311,000 483,000 5,485,000
COMMITMENTS AND CONTINGENCIES
DEFERRED REVENUE, net of current portion 77,000 0 77,000
NOTES PAYABLE-LONG-TERM 0 0 (7) 309,000 309,000
REDEEMABLE PREFERRED STOCK 1,868,000 575,000 (5) (575,000) 1,868,000
STOCKHOLDERS' EQUITY:
Common stock 654,000 185,000 (1) 10,000 684,000
(5) (185,000)
(5) 20,000
Additional paid-in capital 131,052,000 4,400,000 (1) 3,486,000 135,912,000
(3) (1,966,000)
(5) (4,400,000)
(5) 3,340,000
Retained deficit (83,636,000) (2,549,000) (5) 2,549,000 (83,636,000)
Treasury stock (20,757,000) 0 (20,757,000)
----------- ----------- ----------- -----------
Total stockholders' equity 27,313,000 2,036,000 2,854,000 32,203,000
----------- ----------- ----------- -----------
Total liabilities and
stockholders' equity $33,949,000 $2,922,000 $3,071,000 $39,942,000
=========== =========== ========== ===========
</TABLE>
9
<PAGE> 12
HARKEN ENERGY CORPORATION AND SEARCH EXPLORATION, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
For the Nine Months Ended September 30, 1994
<TABLE>
<CAPTION>
Harken Search
Energy Exploration Pro Forma
Corporation Historical Adjustments Pro Forma
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
REVENUES:
- --------
Oil and gas operations $2,817,000 $416,000 (1) $1,035,000 $4,339,000
(5) 71,000
Interest income 67,000 22,000 (1) 2,000 91,000
Other income 562,000 0 (1) 37,000 599,000
----------- ----------- ---------- -----------
3,446,000 438,000 1,145,000 5,029,000
COSTS AND EXPENSES:
- ------------------
Oil and gas operating expenses 991,000 208,000 (1) 337,000 1,571,000
(5) 35,000
General and administrative expenses, net 2,372,000 536,000 (1) 96,000 3,004,000
Depreciation and amortization 1,444,000 90,000 (1) 416,000 1,816,000
(4) (324,000)
(5) 190,000
Provision for asset impairments 0 3,063,000 (5) (3,063,000) 0
Interest expense and other 68,000 0 68,000
----------- ----------- ----------- -----------
4,875,000 3,897,000 (2,313,000) 6,459,000
----------- ----------- ----------- -----------
Net income (loss) before
income taxes (1,429,000) (3,459,000) 3,458,000 (1,430,000)
INCOME TAX EXPENSE (BENEFIT) 0 (223,000) (5) 223,000 0
----------- ----------- ----------- -----------
Income (loss) from
continuing operations $(1,429,000) $(3,236,000) $3,235,000 $(1,430,000)
=========== =========== =========== ===========
NET INCOME (LOSS) PER SHARE
- ---------------------------
ATTRIBUTABLE TO COMMON STOCK:
- ----------------------------
Loss from continuing operations ($0.03) ($0.02)
=========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING
59,482,853 62,411,340
=========== ===========
</TABLE>
10
<PAGE> 13
HARKEN ENERGY CORPORATION AND SEARCH EXPLORATION, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
For the Fiscal Year Ended December 31, 1993
<TABLE>
<CAPTION>
Harken Search
Energy Exploration Pro Forma
Corporation Historical Adjustments Pro Forma
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
REVENUES:
- --------
Oil and gas operations $4,970,000 $1,057,000 (1) $2,135,000 $8,293,000
(5) 131,000 --
Management fee income 300,000 0 300,000
Interest income 225,000 44,000 (1) 4,000 273,000
Other income 1,106,000 0 (1) 53,000 1,159,000
----------- ----------- ---------- -----------
6,601,000 1,101,000 2,323,000 10,025,000
COSTS AND EXPENSES:
- ------------------
Oil and gas operating expenses 1,825,000 286,000 (1) 676,000 2,825,000
(5) 38,000
General and administrative expenses, net 3,179,000 788,000 (1) 199,000 4,166,000
Depreciation and amortization 2,571,000 670,000 (1) 1,136,000 3,288,000
(4) (837,000)
(5) (252,000)
Provision for asset impairments 726,000 462,000 (5) (462,000) 726,000
Loss on sale of investments 0 108,000 (5) (108,000) 0
Interest expense and other 97,000 27,000 (1) 13,000 137,000
----------- ----------- ---------- -----------
8,398,000 2,341,000 403,000 11,142,000
----------- ----------- ---------- -----------
Net income (loss) before
income taxes (1,797,000) (1,240,000) 1,920,000 (1,117,000)
INCOME TAX EXPENSE (BENEFIT) 0 (335,000) (5) 335,000 0
----------- ----------- ---------- -----------
Net income (loss) from
continuing operations ($1,797,000) ($905,000) $1,585,000 ($1,117,000)
=========== =========== ========== ===========
NET INCOME (LOSS) PER SHARE
- ---------------------------
ATTRIBUTABLE TO COMMON STOCK:
- ----------------------------
Net income (loss) from continuing
operations ($0.03) ($0.02)
=========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING 58,392,901 61,321,388
=========== ===========
</TABLE>
11
<PAGE> 14
NOTES TO THE UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL STATEMENTS
1. Pro Forma Adjustments
(1) Pro forma entry to reflect the acquired interest in the CHAP
Venture (represents 20.35625% of CHAP Venture historical
balances).
(2) Pro forma entry to eliminate certain CHAP Venture liabilities
which were retained by the sellers. Harken increased its
interest in all CHAP Venture liabilities with the exception of
certain accrued operational and environmental claims related
to CHAP Venture operations which were retained and indemnified
by the sellers.
(3) Pro forma entry to reflect the value related to the issuance
of 960,000 shares of restricted Harken Common Stock, and to
record the corresponding adjustment to the purchase price of
the acquired interest in CHAP Venture oil and gas properties.
In accordance with the Concession and Lease Purchase
Agreement, the sellers retained certain distributions related
to the reduction in CHAP Venture's interest in the Aneth gas
plant.
(4) Pro forma entry to adjust historical CHAP Venture depreciation
and depletion expense to the depreciation and depletion
calculated on a consolidated basis.
(5) Pro forma entry to record acquisition of Search in exchange
for Harken Common Stock. Such adjustments utilize the market
value of Harken Common Stock over the most recent 30 days to
calculate the number of shares of Harken Common Stock to be
issued according to the Merger Agreement.
(6) Pro forma entry to record sale for cash of Search's Provident
City prospect, which occurred in November, 1994.
(7) Pro forma entry to record acquisition of Search's non-owned
interest in operated partnerships in exchange for three-year,
ten percent (10%) notes payable.
2. Federal Income Tax Consequences of the Merger
The pro forma combined condensed financial statements assume that the
Merger qualifies as a "tax free" reorganization for U.S. federal income tax
purposes.
12
<PAGE> 15
INVESTMENT CONSIDERATIONS
The following matters should be considered with all other information
contained and incorporated by reference in this Prospectus in evaluating an
investment in the Common Stock.
Losses From Continuing Operations
Harken reported losses from continuing operations for the fiscal years
ended December 31, 1991 and 1993, and the first nine months of 1994, in the
amounts of $12,606,000, $5,494,000 and $1,650,000, respectively. While the
reasons for most of these annual losses, as explained below, are nonrecurring,
there can be no assurance that Harken will not continue to report losses,
including future losses from other nonrecurring items.
During 1991, Harken's contract drilling and well servicing operations
contributed losses of $8,193,000. Harken included in these results for the
quarter ended December 31, 1991, a one-time, non-cash charge against earnings
of $7.1 million in order to decrease the carrying value of certain of its
drilling rigs and related domestic assets, pursuant to the decision to attempt
to sell certain of these assets which are not suitable for the pursuit of
international drilling opportunities. The above mentioned charge resulted in a
carrying value equal to the estimated selling price, or salvage value of these
assets.
The net loss for 1993 was primarily a result of certain non-cash
charges relating to non-recurring asset valuation write-downs. Such unusual
non-cash charges totalled $3.8 million. In January 1994, Harken made the
decision to liquidate its remaining drilling rigs and related assets and apply
the proceeds primarily to its international exploration efforts. As a result
of this decision, Harken recognized a non-cash charge of $3.1 million during
the fourth quarter of 1993 in order to write-down the carrying value of the
drilling rigs and related assets to estimated liquidation value. Additionally,
during 1993, Harken's depreciation and amortization expenses increased by
approximately $1.8 million due primarily to the acquisition of HSW in February
1993. HSW's oil and gas properties accounted for approximately $1.4 million of
this increase.
The net losses experienced by Harken during the first nine months of
1994 are primarily related to decreases in revenues due to reductions in
product price and volume and certain shut-down costs associated with the
discontinuation of its well service activities previously conducted by Supreme
Well Service Company, a Harken wholly-owned subsidiary.
13
<PAGE> 16
Effect of Sales of Common Stock and Other Events on Market Price
As of November 1, 1994, there were 60,442,853 shares of Common Stock
outstanding. Harken, on behalf of the Selling Stockholders, is registering for
sale 960,000 shares of Common Stock pursuant to the Registration Statement of
which this Prospectus is a part. Harken has no knowledge of the proposed plan
of distribution of the Shares other than as described in this Prospectus. See
"PLAN OF DISTRIBUTION." If the Merger (see "Recent Developments - Search
Acquisition") is consummated, up to an aggregate maximum of 11 million shares
of Harken's Common Stock may be issued at various times following the closing
thereof. Assuming a Strike Price calculated for Harken's Common Stock at the
time of closing as provided under the Merger Agreement of $2.00 per share,
Harken expects that up to approximately 2,002,021 of such shares will be issued
upon consummation of the Merger and be freely tradeable immediately as a result
of such shares being registered under applicable securities laws, except for a
portion of the shares held by affiliates as described below. Regarding the
remainder of such 11 million shares which may be issued under this transaction,
the shares of Harken Common Stock to be issued in the Merger and the shares
issuable upon an exercise of the Harken Warrants (herein so called) issued in
the Merger in exchange for the Search Warrants (herein so called) will be
subject to adjustment on June 30, 1996 in the event the valuation of certain
Search undeveloped oil and gas properties increases during the period from the
effective date of the Merger to June 30, 1996. These shares of Common Stock to
be issued as a result of a valuation increase, if any, will be distributed by
September 30, 1996. Additionally, any shares of Common Stock issuable upon the
exercise of Search Warrants which were not exchanged in the Merger will be
issued not later than November 14, 1998; provided the holder of the unexchanged
Search Warrant exercises it prior to such date. If exercised prior to its
termination date, the unexchanged Search Warrant will be entitled to be
exercisable for additional shares of Common Stock due to the June 30, 1996
valuation increase, if any. There is no assurance that these undeveloped
properties will result in any increase in value and thereby give rise to
additional shares of Harken's Common Stock being issued or for the holders of
the Search Warrants to either exchange their Search Warrants for Harken
Warrants or, if so exchanged, to exercise such Harken Warrants, before their
expiration on June 30, 1996. Shares of Harken's Common Stock acquired by
"affiliates" (as that term is defined in the Securities Act) of Search at the
time the Merger is submitted to a vote of its stockholders may be sold by them
only in transactions permitted by the resale provisions of Rule 145 promulgated
under the Securities Act (or Rule 144 in case such persons become affiliates of
Harken) or as otherwise permitted under the Securities Act. Harken estimates
that up to approximately 32.23% of the shares of its Common Stock which can be
issued in this transaction may be acquired by affiliates of Search based upon
an assumed Strike Price of $2.00 per share for Harken's Common Stock and
further upon the assumption of full acceptance by the affiliates of Search of
the Warrant Exchange Offer and subsequent exercise of the Harken Warrants
issued in such exchange. There can be no assurance that the sale of the Shares
by the Selling Stockholders or the shares of Common Stock to be issued in
connection with the Merger will not have a material adverse effect on the then
prevailing market price of the Common Stock. The closing price of a share of
Harken's Common Stock on the American Stock Exchange on January 31, 1995, was
$1 7/8.
14
<PAGE> 17
Preferred Stock Authorized for Issuance
Harken has available for issuance 10 million shares of preferred
stock, par value $1.00 per share. The Board of Directors is authorized to
provide for the issuance of such preferred stock in one or more series and to
set the designations, preferences, powers and relative participating, optional
or other rights and restrictions thereof. Presently, Harken has three series
of preferred stock authorized, of which only one has any shares currently
outstanding. Such shares have certain preferences over the shares of Common
Stock with respect to the payment of dividends and upon liquidation,
dissolution, winding-up and in certain instances, voting. The Board of
Directors of Harken also may authorize other series of preferred stock in the
future that have similar as well as other preferences over the shares of Common
Stock.
Factors Related to International Operations
Harken conducts international operations presently and anticipates
that it will conduct significant international operations in the future.
Foreign properties, operations or investments may be adversely affected by
local political and economic developments, exchange controls, currency
fluctuations, royalty and tax increases, retroactive tax claims, renegotiation
of contracts with governmental entities, expropriation, import and export
regulations and other foreign laws or policies governing operations of
foreign-based companies, as well as by laws and policies of the United States
affecting foreign trade, taxation and investment. In addition, as certain of
Harken's operations are governed by foreign laws, in the event of a dispute,
Harken may be subject to the exclusive jurisdiction of foreign courts or may
not be successful in subjecting foreign persons to the jurisdiction of courts
in the United States. Harken may also be hindered or prevented from enforcing
its rights with respect to a governmental instrumentality because of the
doctrine of sovereign immunity. Exploration and production activities in areas
outside the United States are also subject to the risks inherent in foreign
operations, including loss of revenue, property and equipment as a result of
hazards such as expropriation, nationalization, war, insurrection and other
political risks.
Regarding Harken's activities in Colombia, management anticipates that
full development of reserves that may be found in the Alcaravan and Playero
areas of the Llanos Basin and the Bocachico area of the Middle Magdelena Basin
may take several years and may require extensive production facilities which
could require significant additional capital expenditures. The ultimate amount
of such expenditures cannot be presently predicted. Harken anticipates that
amounts required to fund international activities, including those in Colombia,
will be funded from existing cash balances, asset sales, stock issuances,
operating cash flows and potentially from industry partners; however, there can
be no assurances that industry
15
<PAGE> 18
partners can be obtained to fund such international activities, nor that Harken
will have adequate funds available to it to fund its international activities
without participation from industry partners. While pipelines presently
connect the major producing fields in Colombia to export facilities and various
refineries, Harken anticipates that additional pipeline capacity will likely be
needed in the future. Guerilla activity in Colombia has in the past disrupted
the operation of certain oil and gas projects of some foreign-based companies.
Harken does not anticipate that future guerilla activity will have a material
impact on Harken's eventual exploration and development of the Alcaravan,
Bocachico and Playero areas. However, there can be no assurance that such
activity will not occur or have such an impact.
Price Volatility
The revenues generated by Harken are highly dependent upon the prices
of oil and gas. Fluctuations in the energy market make it difficult to
estimate future prices of oil and natural gas. Fluctuations in energy prices
are caused by a number of factors, including regional, domestic and
international demand, energy legislation, federal or state taxes (if any) on
sales of crude oil and natural gas, production guidelines established by the
Organization of Petroleum Exporting Countries, and the relative abundance of
supplies of alternative fuel such as coal. Additionally, changing
international economic and political conditions may have a dramatic impact upon
crude oil and natural gas prices. Many of these factors are beyond the control
of Harken.
Business Risks
Harken must continually acquire or explore for and develop new oil and
gas reserves to replace those being depleted by production. Without successful
drilling or acquisition ventures, Harken's assets, properties and revenues will
decline over time. To the extent Harken engages in drilling activities, such
activities carry the risk that no commercially viable oil or gas production
will be obtained. The cost of drilling, completing and operating wells is
often uncertain. Moreover, drilling may be curtailed, delayed or canceled as a
result of many factors, including title problems, weather conditions, shortages
of or delays in delivery of equipment, as well as the financial instability of
well operators, major working interest owners and drilling and well servicing
companies. The availability of a ready market for Harken's oil and gas depends
on numerous factors beyond its control, including the demand for and supply of
oil and gas, the proximity of Harken's natural gas reserves to pipelines, the
capacity of such pipelines, fluctuation in seasonal demand, the effects of
inclement weather, and government regulation. New gas wells may be shut-in for
lack of a market until a gas pipeline or gathering system with available
capacity is extended into the area.
16
<PAGE> 19
In February 1994, the Navajo Nation issued a moratorium on future oil
and gas development agreements and exploration on lands situated within the
Aneth Chapter of the Navajo Reservation, which is an area that includes much of
HSW's undeveloped acreage. It is unknown what effect, if any, this moratorium
will have on HSW's operations.
Operating Hazards and Uninsured Risks
The operations of Harken are subject to the inherent risks normally
associated with exploration for and production of oil and gas, including
blowouts, cratering, pollution and fires, each of which could result in damage
to or destruction of oil and gas wells or production facilities or damage to
persons and property. As is common in the oil and gas industry, Harken is not
fully insured against certain of these risks, either because insurance is not
available or because Harken has elected to self-insure due to high premium
costs. The occurrence of a significant event not fully insured against could
have a material adverse effect on Harken's financial condition.
Environmental Regulation
The activities of Harken are subject to various Navajo, federal,
state, and local laws and regulations covering the discharge of material into
the environment or otherwise relating to protection of the environment. In
particular, Harken's oil and gas exploration, development, production, its
activities in connection with storage and transportation of liquid hydrocarbons
and its use of facilities for treating, processing, recovering, or otherwise
handling hydrocarbons and wastes therefrom are subject to stringent
environmental regulation by governmental authorities. In addition to these
domestic laws and regulations, Harken's international operations are subject to
the laws, regulations and governmental approvals of each foreign country in
which it conducts activities including, but not limited to, environmental laws
and regulations governing oil and gas operations. Such domestic and foreign
laws and regulations have increased the costs of planning, designing, drilling,
installing, operating and abandoning Harken's oil and gas wells and other
facilities.
The Aneth Gas Plant facility, of which HSW is a co-owner, was in
operation for many years prior to HSW's becoming an owner. The operations at
the Aneth Gas Plant previously used open, unlined drip pits for storage of
various waste products. The plant owners have replaced all of the open ground
pits currently being used with steel tanks. The plant owners are currently in
the process of closing the open ground pits.
Texaco, the plant's operator, received a letter from the EPA dated
July 2, 1991 and a subsequent letter dated June 8, 1992, in which the EPA
requested certain information in order to determine if there had been at the
Aneth Gas Plant the
17
<PAGE> 20
release of hazardous substances to the environment. Texaco has advised HSW
that certain information was supplied to the EPA pursuant to this request.
Subsequently, core samples in and around certain pit areas were taken by the
EPA and Texaco jointly. The EPA has responded to the initial sampling of the
drip pits and Texaco is now planning the next phase of required evaluation.
Texaco had indicated to HSW that it believes that some of these pits
may require reclamation or remediation. In the event such action should or
must be taken, the plant owners, including HSW, will seek contractual
indemnification from the previous owner of the Aneth Gas Plant for the costs
incurred in the reclamation and remediation process. At this time, however, it
is impossible for HSW to determine or estimate the costs of the cleanup at the
Aneth Gas Plant or if the prior owner will indemnify the present owners,
including HSW, for such costs.
Harken has expended significant resources, both financial and
managerial, to comply with environmental regulations and permitting
requirements and anticipates that it will continue to do so in the future.
Although Harken believes that its respective operations and facilities are in
general compliance with applicable environmental laws and regulations, risks of
substantial costs and liabilities are inherent in oil and gas operations, and
there can be no assurance that significant costs and liabilities will not be
incurred in the future. Moreover, it is possible that other developments, such
as increasingly strict environmental laws, regulations and enforcement policies
thereunder, and claims for damages to property, employees, other persons and
the environment resulting from Harken's operations, could result in substantial
costs and liabilities in the future.
Imprecise Nature of Reserve Estimates
Reserve estimates are imprecise and may be expected to change as
additional information becomes available. Furthermore, estimates of oil and
gas reserves, of necessity, are projections based on engineering data, and
there are uncertainties inherent in the interpretation of such data as well as
the projection of future rates of production and the timing of development
expenditures. Reserve engineering is a subjective process of estimating
underground accumulations of oil and gas that cannot be measured in an exact
way, and the accuracy of any reserve estimate is a function of the quality of
available data and of engineering and geological interpretation and judgment.
18
<PAGE> 21
Competitive Factors in Oil and Gas Industry
The oil and gas industry is competitive in all its phases.
Competition is particularly intense respecting the acquisition of desirable
producing properties and the sale of oil and natural gas production. Harken's
competitors in oil and gas exploration, development and production, include
major oil companies and numerous independent oil and gas companies, and
individual producers and operators. Many of Harken's competitors possess and
employ financial and personnel resources substantially greater than those which
are available to Harken, and may, therefore, be able to pay greater amounts for
desirable leases and to define, evaluate, bid for and purchase a greater number
of producing prospects than the financial or personnel resources of Harken will
permit.
Regulatory Items
The production of oil and gas is subject to extensive Navajo, federal
and state laws, rules, orders and regulations governing a wide variety of
matters, including the drilling and spacing of wells, allowable rates of
production, prevention of waste and pollution and protection of the
environment. In addition to the direct costs borne in complying with such
regulations, operations and revenues may be impacted to the extent that certain
regulations limit oil and gas production to below economic levels. Although
the particular regulations applicable in each state in which operations are
conducted vary, such regulations are generally designed to ensure that oil and
gas operations are carried out in a safe and efficient manner and to ensure
that similarly-situated operators are provided with reasonable opportunities to
produce their respective fair shares of available oil and gas reserves.
However, since these regulations generally apply to all oil and gas producers,
management of Harken believes that these regulations should not put Harken at a
material disadvantage to other oil and gas producers.
Certain sales, transportation, and resales of natural gas by Harken
are subject to Navajo, federal and state laws and regulations, including, but
not limited to, The Natural Gas Act of 1938, as amended ("NGA"), the Natural
Gas Policy Act of 1978, as amended ("NGPA") and regulations promulgated by the
Federal Energy Regulatory Commission ("FERC") under the NGA, the NGPA and other
statutes. The provisions of the NGA and NGPA, as well as the regulations
thereunder, are complex, and can affect all who produce, resell, transport,
purchase or consume natural gas.
Although recent FERC transportation regulations do not directly apply
to Harken because they are not engaged in rendering jurisdictional
transportation services, these regulations do affect the operations of Harken
by virtue of the need to deliver its gas production to markets served by
interstate or intrastate pipelines.
19
<PAGE> 22
In most instances, interstate pipelines represent the only available method of
accomplishing such transportation.
In addition to these domestic laws and regulations, Harken's
international operations are subject to the laws, regulations and governmental
approvals of each foreign country in which it conducts activities including,
but not limited to, environmental laws and regulations governing oil and gas
operations.
USE OF PROCEEDS
Harken will not receive any part of the proceeds from the sale of
Shares by the Selling Stockholders.
SELLING STOCKHOLDERS
This Prospectus covers offers from time to time by the Selling
Stockholders of the respective shares of Common Stock owned by each Selling
Stockholder. Set forth below is the name of each Selling Stockholder, the
number of shares of Common Stock owned of record by each Selling Stockholder as
of January 31, 1995, the number of shares of Common Stock which may be offered
by the Selling Stockholder pursuant to this Prospectus, and the number of
shares of Common Stock and percentage of the class of Common Stock to be owned
by each Selling Stockholder upon completion of the offering if all Shares are
sold. Any or all of the Shares listed below may be offered for sale by the
Selling Stockholders from time to time.
20
<PAGE> 23
<TABLE>
<CAPTION>
Shares Shares
Owned Prior Shares Owned After Percent of Class
to the Registered the After the
Selling Stockholder Offering Hereunder Offering(1) Offering
------------------- ----------- ---------- ----------- ----------------
<S> <C> <C> <C> <C>
C.A.B. Resources, Inc. 121,712 121,712 -0- - 0-
Crusader, Inc. 578,130 578,130 -0- - 0-
Australian 260,158 260,158 -0- - 0-
Hydrocarbon, Inc.
</TABLE>
_________________
(1) Assumes no other disposition or acquisition of Common Stock and all
Shares included herein are sold.
PLAN OF DISTRIBUTION
Any or all of the Shares may be sold from time to time to purchasers
directly by the Selling Stockholders in one or more open market transactions,
including block trades on the American Stock Exchange, in negotiated
transactions or in a combination of any such methods of sale. Alternatively,
the Selling Stockholders may from time to time offer the Shares through
underwriters, dealers or agents, who may receive compensation in the form of
underwriting discounts, concessions or commissions from the Selling
Stockholders or the purchasers of the Shares for whom they may act as agent.
The Selling Stockholders and any such underwriters, dealers or agents that
participate in the distribution of the Shares may be deemed to be underwriters,
and any profit on the sale of the Shares by them and any discounts, commissions
or concessions received by any such underwriters, dealers or agents might be
deemed to be underwriting discounts and commissions under the Securities Act.
At the time a particular offer of the Shares is made, to the extent required, a
Prospectus Supplement will be distributed that will set forth the aggregate
amount of Shares being offered and the terms of the offering, including the
name or names of any underwriters, dealers or agents, any discounts,
commissions and other items constituting compensation from the Selling
Stockholders and any discounts, commissions or concessions allowed or reallowed
or paid to dealers, including the proposed selling price to the public. Harken
will not receive any of the proceeds from the sale by the Selling Stockholders
of the Shares offered hereby. All of the registration expenses of the offering
will be paid by Harken.
21
<PAGE> 24
The Shares may be sold from time to time in one or more transactions
at a fixed offering price, which may be changed, or at varying prices
determined at the time of sale or at negotiated prices.
Harken has agreed to indemnify in certain circumstances the Selling
Stockholders and any underwriter, selling brokers, dealer managers or similar
persons who participate in the distribution of the Shares, if any, and certain
persons related to the foregoing persons, against certain liabilities,
including liabilities under the Securities Act. The Selling Stockholders have
agreed to indemnify in certain circumstances Harken and certain persons related
to Harken against certain liabilities, including liabilities under the
Securities Act.
In order to comply with certain states' securities laws, if
applicable, the Shares will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states the
Shares may not be sold unless the Shares have been registered or qualified for
sale in such state or an exemption from registration or qualification is
available and is complied with.
LEGAL MATTERS
The validity of the Shares will be passed upon for Harken by Larry E.
Cummings, Vice President, General Counsel and Secretary of Harken.
EXPERTS
The (i) consolidated financial statements and schedules of Harken
included in Harken's Annual Report on Form 10-K for the fiscal year ended
December 31, 1993, and (ii) financial statements of the CHAP Venture as of
December 31, 1993, included in Harken's Amendment to Application or Report on
Form 8-K/A dated January 3, 1995, each of which are incorporated by reference
in this Registration Statement of which this Prospectus forms a part, have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their reports with respect thereto, and are incorporated by reference herein in
reliance upon the authority of said firm as experts in accounting and auditing
in giving said reports.
22
<PAGE> 25
<TABLE>
<S> <C>
------------------------------------------------ ------------------------------------------------
No dealer, salesperson or any other
individual has been authorized to give any
information or to make any representation not
contained or incorporated by reference in this
Prospectus and, if given or made, such
information or representation must not be
relied upon as having been authorized by Harken 960,000 Shares
or any Selling Stockholder. This Prospectus
does not constitute an offer to sell or a
solicitation of an offer to buy any of the
securities offered hereby in any jurisdiction HARKEN ENERGY CORPORATION
to any person to whom it is unlawful to make
such offer or solicitation in such
jurisdiction. Neither the delivery of this
Prospectus nor any sale made hereunder shall, COMMON STOCK
under any circumstances, create any implication
that the information herein is correct as of
any time subsequent to the date hereof or that
there has been no change in the affairs of
Harken since such date.
---------------
TABLE OF CONTENTS
Page
--------------------
Available Information . . . . 3
Incorporation of Certain
Documents by Reference . . . 3 P R O S P E C T U S
Business of Harken . . . . . . 5
Unaudited Pro Forma
--------------------
Combined Condensed
Financial Statements . . . . 8
Investment Considerations . . . 13
Use of Proceeds . . . . . . . . 20
Selling Stockholders . . . . . 20
Plan of Distribution . . . . . 21
Legal Matters . . . . . . . . . 22 _____________, 1995
Experts . . . . . . . . . . . . 22
------------------------------------------------ ------------------------------------------------
</TABLE>
<PAGE> 26
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The estimated expenses (other than underwriting discounts and commissions) in
connection with the offering described in this Registration Statement are as
follows:
<TABLE>
<S> <C>
SEC Registration Fee . . . . . . . . . . . . $ 642.16
AMEX Listing Fee . . . . . . . . . . . . . . 17,500.00
Printing and Engraving Expenses . . . . . . -
Accounting Fees and Expenses . . . . . . . . 10,000.00
Legal Fees and Expenses . . . . . . . . . . 10,000.00
Blue Sky Fees and Expenses . . . . . . . . . -
Miscellaneous . . . . . . . . . . . . . . . 1,000.00
----------
Total . . . . . . . . . . . . . . . . . $39,142.16
==========
</TABLE>
All of the foregoing expenses will be paid by Harken.
Item 15. Indemnification of Directors and Officers.
Section 145 of the General Corporation Law of the State of Delaware
provides generally and in pertinent part that a Delaware corporation may
indemnify its directors and officers against expenses, judgments, fines and
settlements actually and reasonably incurred by them in connection with any
civil, criminal, administrative, or investigative suit or action except actions
by or in the right of the corporation if, in connection with the matters in
issue, they acted in good faith and in a manner they reasonably believed to be
in or not opposed to the best interests of the corporation, and in connection
with any criminal suit or proceeding, if in connection with the matters in
issue, they had no reasonable cause to believe their conduct was unlawful.
Section 145 further provides that in connection with the defense or settlement
of any action by or in the right of the corporation, a Delaware corporation may
indemnify its directors and officers against expenses actually and reasonably
incurred by them if, in connection with the matters in issue, they acted in
good faith, in a manner they reasonably believed to be in or not opposed to the
best interests of the corporation, except that no indemnification may be made
with respect to any claim, issue or matter as to which such person has been
adjudged liable for negligence or misconduct unless the Court of Chancery or
the court in which such action or suit is brought approves such
indemnification. Section 145 further permits a Delaware corporation to grant
its directors and officers additional rights of
II-1
<PAGE> 27
indemnification through bylaw provisions and otherwise, and to purchase
indemnity insurance on behalf of its directors and officers.
Article Ten of the Registrant's Certificate of Incorporation and
Article VII of the Registrant's bylaws provide, in general, that the Registrant
shall indemnify its directors and officers under certain of the circumstances
defined in Section 145. The Registrant has entered into agreements with each
member of its Board of Directors pursuant to which it will advance to each
director costs of litigation in accordance with the indemnification provisions
of the Registrant's Certificate of Incorporation and bylaws.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended (the "Securities Act") may be permitted to
directors, officers or persons controlling the Registrant pursuant to the
foregoing provisions, the Registrant has been informed that in the opinion of
the SEC such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
Item 16. Exhibits.
*2.1 - Agreement and Plan of Merger dated November 8, 1994, between
Harken Energy Corporation, Search Acquisition Corp. and
Search Exploration, Inc.
4.1 - Certificate of Incorporation of Harken Energy Corporation,
as amended (incorporated by reference as Exhibit 3.1 to
Harken Energy Corporation's Annual Report on Form 10-K for
fiscal year ended December 31, 1989)
4.2 - Amendment to the Certificate of Incorporation of Harken
Energy Corporation (incorporated by reference as Exhibit
28.8 to the Registration Statement on Form S-1, as amended,
of E-Z Serve Corporation and Tejas Power Corporation --
Registration No. 33-37141); Amendment dated February 28,
1991, to the Certificate of Incorporation of Harken
(incorporated by reference as Exhibit 3 to Harken's
Quarterly Report on Form 10-Q for the quarter ended March
31, 1991); Amendment dated July 8, 1991, to Harken's
Certificate of Incorporation (incorporated by reference as
Exhibit 3 to Harken's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1991); and Amendment dated June 30,
1992, to Harken's Certificate of Incorporation (incorporated
by reference as Exhibit 3 to Harken's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1992)
II-2
<PAGE> 28
4.3 - Bylaws of Harken Energy Corporation, as amended
(incorporated by reference as Exhibit 3.2 to Harken Energy
Corporation's Annual Report on Form 10-K for fiscal year
ended December 31, 1989)
4.4 - Certificate of the Designations, Powers, Preferences and
Rights of Series C Cumulative Convertible Preferred Stock,
$1.00 par value of Harken Energy Corporation (incorporated
by reference as Exhibit 4.3 to Harken Energy Corporation's
Annual Report on Form 10-K for fiscal year ended December
31, 1989)
*5.1 - Opinion of Larry E. Cummings, General Counsel of Harken
Energy Corporation
*23.1 - Consent of Arthur Andersen LLP
*23.2 - Consent of Larry E. Cummings (included in opinion filed as
Exhibit 5.1)
+24.1 - Powers of Attorney.
99.1 - Form of Concession and Lease Purchase Agreement dated as of
October 20, 1994 and effective as of August 1, 1994, by and
among C.A.B. Resources, Inc., Crusader, Inc., Australian
Hydrocarbons, Inc. and Harken Energy Corporation
(incorporated by reference as an exhibit to Harken's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1994).
_____________
* Filed herewith.
+ Previously filed.
Item 17. Undertakings.
(a) The undersigned Registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act, each filing of
the Registrant's Annual Report pursuant to Section 13(a) or Section 15(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act") (and,
where applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Exchange Act) that is incorporated by
reference in the Registration Statement shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
II-3
<PAGE> 29
(b) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales
are being made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the
Registration Statement (or the most recent
post-effective amendment thereto) which,
individually or in the aggregate, represent a
fundamental change in the information set forth in
the Registration Statement;
(iii) To include any material information with respect to
the plan of distribution not previously disclosed
in the Registration Statement or any material
change to such information in the Registration
Statement;
provided, however, that paragraphs (i) and (ii) above do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the Registrant pursuant to
Section 13 or Section 15(d) of the Exchange Act that are incorporated by
reference in the Registration Statement.
(2) That, for the purpose of determining any liability
under the Securities Act, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a
post-effective amendment any of the securities being registered which remain
unsold at the termination of the offering.
(c) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the provisions described under Item 15 above, or
otherwise, the Registrant has been advised that, in the opinion of the
Commission, such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of
II-4
<PAGE> 30
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
II-5
<PAGE> 31
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Amendment No. 1 to Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Irving, State of Texas,
on January 31, 1995.
HARKEN ENERGY CORPORATION
*
----------------------------------
Mikel D. Faulkner, Chairman of the
Board and Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
------------------------------------ --------------------------- ----------------
<S> <C> <C>
* Chairman of the Board and January 31, 1995
------------------------------------ Chief Executive Officer
Mikel D. Faulkner (Principal Executive Officer)
* President and Director January 31, 1995
------------------------------------
Richard H. Schroeder
* Senior Vice President and January 31, 1995
------------------------------------ Chief Financial Officer
Bruce N. Huff (Principal Accounting
Officer and Principal
Financial Officer)
* Director January 31, 1995
------------------------------------
Michael M. Ameen, Jr.
</TABLE>
II-6
<PAGE> 32
<TABLE>
<S> <C> <C>
* Director January 31, 1995
------------------------------------
Michael R. Eisenson
* Director January 31, 1995
------------------------------------
Edwin C. Kettenbrink, Jr.
* Director January 31, 1995
------------------------------------
Talat M. Othman
* Director January 31, 1995
------------------------------------
Donald W. Raymond
</TABLE>
*Larry E. Cummings, by signing his name hereto, does hereby sign this Amendment
No. 1 to Registration Statement on behalf of Harken Energy Corporation and each
of the above-named officers and directors of such Company pursuant to powers of
attorney, executed on behalf of the Company by each officer and director.
/s/ Larry E. Cummings
Larry E. Cummings,
Attorney-in-Fact
II-7
<PAGE> 33
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Sequentially
Numbered
Exhibit No. Exhibit Page
----------- ------------------------------------------------------------- ------------
<S> <C> <C>
*2.1 Agreement and Plan of Merger dated November 8, 1994, between
Harken Energy Corporation, Search Acquisition Corp. and
Search Exploration, Inc.
4.1 Certificate of Incorporation of Harken Energy Corporation,
as amended (incorporated by reference as Exhibit 3.1 to
Harken Energy Corporation's Annual Report on Form 10-K for
fiscal year ended December 31, 1989)
4.2 Amendment to the Certificate of Incorporation of Harken
Energy Corporation (incorporated by reference as Exhibit
28.8 to the Registration Statement on Form S-1, as amended,
of E-Z Serve Corporation and Tejas Power Corporation --
Registration No. 33-37141); Amendment dated February 28,
1991, to the Certificate of Incorporation of Harken
(incorporated by reference as Exhibit 3 to Harken's
Quarterly Report on Form 10-Q for the quarter ended
March 31, 1991); Amendment dated July 8, 1991, to Harken's
Certificate of Incorporation (incorporated by reference as
Exhibit 3 to Harken's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1991); and Amendment dated June 30,
1992, to Harken's Certificate of Incorporation (incorporated
by reference as Exhibit 3 to Harken's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1992)
4.3 Bylaws of Harken Energy Corporation, as amended
(incorporated by reference as Exhibit 3.2 to Harken Energy
Corporation's Annual Report on Form 10-K for fiscal year
ended December 31, 1989)
4.4 Certificate of the Designations, Powers, Preferences and
Rights of Series C Cumulative Convertible Preferred Stock,
$1.00 par value of Harken Energy Corporation (incorporated
by reference as Exhibit 4.3 to Harken Energy Corporation's
Annual Report on Form 10-K for fiscal year ended
December 31, 1989)
*5.1 Opinion of Larry E. Cummings, General Counsel of Harken
Energy Corporation
*23.1 Consent of Arthur Andersen LLP
*23.2 Consent of Larry E. Cummings (included in opinion filed as
Exhibit 5.1)
+24.1 Powers of Attorney
99.1 Form of Concession and Lease Purchase Agreement dated as of
October 20, 1994 and effective as of August 1, 1994, by and
among C.A.B. Resources, Inc., Crusader, Inc., Australian
Hydrocarbons, Inc. and Harken Energy Corporation
(incorporated by reference as an exhibit to Harken's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1994)
</TABLE>
____________________
* Filed herewith.
+ Previously filed.
<PAGE> 1
EXHIBIT 2.1
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
AMONG
HARKEN ENERGY CORPORATION
SEARCH ACQUISITION CORP.
AND
SEARCH EXPLORATION, INC.
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
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
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C>
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
</TABLE>
(ii)
<PAGE> 4
<TABLE>
<S> <C>
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
</TABLE>
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<PAGE> 5
<TABLE>
<S> <C>
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
</TABLE>
(iv)
<PAGE> 6
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
(v)
<PAGE> 7
Exhibit "O" - Search Disclosure Schedule
Exhibit "P" - Harken Disclosure Schedule
(vi)
<PAGE> 8
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."
<PAGE> 9
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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<PAGE> 10
(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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<PAGE> 11
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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<PAGE> 12
(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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<PAGE> 13
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
6
<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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<PAGE> 15
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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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 income tax liability; or
(j) pay, discharge or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than as contemplated in the Balance Sheet Date Statements or
the payment, discharge or satisfaction in the ordinary course of business and
consistent with past practice of liabilities reflected or reserved against, in
the financial statements of Search or incurred in the ordinary course of
business and consistent with past practice.
SECTION 4.02 Conduct of Business by Harken and Merger Sub Pending the
Merger. Except as contemplated by this Agreement or as otherwise disclosed in
the Harken Disclosure Schedule, Harken and/or its subsidiaries, as the case may
be, shall not, between the date of this Agreement and the Effective Time,
directly or indirectly do, or propose to do, any of the following without the
prior written consent of Search:
(a) amend or otherwise change its Certificate of Incorporation or
By- Laws;
(b) issue or sell, pledge, dispose of, encumber, or authorize the
issuance or sale of, any shares of capital stock of any class, or any options,
warrants, convertible securities, or any rights of any kind to acquire shares
of capital stock of Harken or any of its subsidiaries, except for (i) the
issuance of Harken Common Stock pursuant to the transactions contemplated
hereunder, (ii) the issuance of the Harken Warrants in the Exchange Offer (as
defined in Section 7.01 hereof), (iii) the issuance of a maximum of 6,425,534
shares of Harken Common Stock currently reserved for issuance under Section
3.03 hereof, (iv) the issuance and sale of capital stock for fair value as
determined by the Board of Directors of Harken, and (v) transactions relating
to indebtedness incurred or to be incurred by Harken or any of its
subsidiaries;
(c) reclassify, combine, split, or subdivide, directly or
indirectly, any of its capital stock; or
(d) Merger Sub shall not conduct any business other than such
business as may be necessary to prepare the Merger Sub to engage in the
transactions contemplated hereunder.
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SECTION 4.03 Insurance. Through the Effective Time, Search and
Harken will each maintain in full force and effect either all of their policies
of insurance which were in effect on June 30, 1994 or insurance comparable to
the coverage afforded by such policies.
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.01 Proxy Statement/Prospectus; Registration Statement.
(a) As promptly as practicable after the execution of this
Agreement, Search and Harken shall prepare and file with the SEC and any other
appropriate regulatory authority, a registration statement on SEC Form S-4, or
on such other form as shall be appropriate ("Form S-4"), containing a proxy
statement/prospectus relating to the approval of the Merger and the
transactions contemplated hereby by the stockholders of Search and the
registration under the Securities Act of 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. Harken and Search shall
each use all commercially reasonable efforts to cause the Form S-4 to become
effective as soon thereafter as practicable. Subject to the applicable
fiduciary duties of directors of Search, as determined by such directors after
consultation with independent counsel, the Proxy Statement shall include the
recommendation of the Board of Directors of Search in favor of the Merger. The
Board of Directors of Search shall submit the Merger on the basis that it be
approved by a majority of the voting power of the holders of the Search Common
Stock and the holders of Search Preferred Stock voting separately as a class.
(b) Harken shall use all commercially reasonable efforts to keep
effective and maintain from Closing until July 17, 1996 the Registration
Statement or such other registration statement under the Securities Act as
Harken may select covering the sale of the shares of Harken Common Stock
issuable upon the exercise of the Harken Warrants and the Unexchanged Search
Warrants, and from time to time during such period shall amend or supplement
the prospectus used in connection therewith to the extent necessary in order to
comply with applicable law.
(c) Harken and Search shall make all necessary filings with
respect to the Merger under the Securities Act and the Exchange Act and the
rules and regulations thereunder, under applicable Blue Sky or similar
securities laws, under applicable foreign securities laws, rules and
regulations and under any rules and regulations of any stock exchange and shall
use all commercially reasonable efforts to obtain required approvals and
clearances with respect thereto. Search shall make all necessary filings with
any exchange upon which the Search Common Stock shall be listed.
SECTION 5.02 Meeting of Stockholders.
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(a) Search shall promptly after the date hereof take all action
necessary in accordance with Delaware Law, any exchange upon which the Search
Common Stock may be listed, and its Certificate of Incorporation and By-Laws to
convene the Search Stockholders' Meeting for the purpose of voting on this
Agreement and the Merger; provided, however, that Search will have no
obligation to hold such meeting prior to the effective date of the Registration
Statement. Subject to the applicable fiduciary duties of the Board of
Directors of Search, Search will, through its Board of Directors, recommend to
its stockholders approval of this Agreement and the Merger and shall use
commercially reasonable efforts to solicit from stockholders of Search proxies
in favor of the Merger and shall take any and all other actions necessary or
advisable to secure the vote or consent of stockholders required by Delaware
Law to effect the Merger.
(b) Harken shall promptly after the date hereof take all action
necessary to cause the Harken Common Stock to be issued as of the Effective
Time, the Contingent Shares, and the shares of Harken Common Stock issued
pursuant to the exercise of the Harken Warrants and the Unexchanged Search
Warrants to be approved for listing on the American Stock Exchange prior to the
Effective Time. In addition, Harken shall take all action necessary to cause
the Contingent Shares to be approved for listing on the American Stock Exchange
prior to the Settlement Date.
SECTION 5.03 Access to Information; Confidentiality.
(a) From the date hereof to the Effective Time, each of Search,
Harken and Merger Sub shall, and shall cause their respective subsidiaries,
affiliates, officers, directors, employees, auditors and agents to, afford the
officers, employees and agents of one another complete access at all reasonable
times to one another's officers, employees, agents, properties, offices, plants
and other facilities and to all books and records, including the audit work
papers of their respective certified public accountants, and shall furnish one
another with all financial, operating and other data and information generated
in the ordinary course of business as each, through its officers, employees or
agents, may reasonably request; provided, however, that no party shall be
required to provide access or furnish information which it is prohibited by law
or contract to provide or furnish. Harken and Search further agree to furnish
to Harken, Merger Sub, and to Search, respectively, and to use their
commercially reasonable efforts to cause their respective independent certified
public accountants to furnish, copies of all tax returns, and of all work
papers, audit work papers, and background materials used in the preparation of
such tax returns by Harken, Search, or their respective accountants.
(b) Each of Harken, Merger Sub and Search shall, and shall cause
their respective affiliates and their respective officers, directors, employees
and agents to, hold in strict confidence all data and information obtained by
them from one another or their respective subsidiaries, affiliates, directors,
officers, employees and agents (unless such information is or becomes readily
ascertainable from public or published information or trade sources or public
disclosure or such information is required to be disclosed by law or in the
Registration Statement or Proxy Statement) and shall ensure that such officers,
directors, employees and agents do not disclose such
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information to others without the prior written consent of Search, Harken or
Merger Sub, as the case may be.
(c) In the event of the termination of this Agreement, Search,
Harken and Merger Sub shall, and shall cause their respective affiliates,
officers, directors, employees and agents to, (i) return promptly every
document furnished to them by one another or any of their respective
subsidiaries, affiliates, officers, directors, employees and agents in
connection with the transactions contemplated hereby and any copies thereof,
and shall cause others to whom such documents may have been furnished promptly
to return such documents and any copies thereof any of them may have made,
other than documents filed with the SEC or otherwise publicly available, and
(ii) retain in confidence all documents created by them from any data,
information or document furnished by Search, Harken or Merger Sub, as the case
may be, or any of their respective subsidiaries, affiliates, officers,
directors, employees and agents in connection with the transactions
contemplated hereby and any copies thereof, and shall cause others to whom such
documents may have been furnished promptly to destroy the same and any copies
thereof, other than documents created from data, information or documents filed
with the SEC or otherwise publicly available.
(d) No investigation pursuant to this Section 5.03 shall affect
any representations or warranties of the parties herein or the conditions to
the obligations of the parties hereto.
SECTION 5.04 No Solicitations. From and after the date hereof,
Search will not, and will not authorize or permit any of its officers,
directors, employees, agents and other representatives or those of any of its
subsidiaries (collectively, "Search Representatives") to, directly or
indirectly, solicit, initiate or encourage (including by way of furnishing
information) any prospective buyer or the making of any proposal which
constitutes or may reasonably be expected to lead to, an Acquisition
Transaction (as defined herein) from any person, or engage in any discussions
or negotiations relating thereto or accept any Acquisition Transaction;
provided, however, that, notwithstanding any other provision of this Agreement,
(i) Search may engage in discussions or negotiations with a third party who
(without any solicitation, initiation, encouragement, discussion or
negotiation, directly of indirectly, by or with Search or any Search
Representatives after the date of this Agreement) seeks to initiate such
discussions or negotiations and may furnish such third party information
concerning Search and its business, properties and assets, (ii) Search's Board
of Directors may take and disclose to Search's stockholders a position
contemplated by Rule 14(e)-2(a) promulgated under the Exchange Act and (iii)
following receipt of an Acquisition Transaction that is financially superior to
the Merger and reasonably capable of being financed (as determined in each case
in good faith by Search's Board of Directors after consultation with Search's
financial advisors), the Board of Directors of Search may withdraw, modify or
not make its recommendation referred to in Section 5.02 hereof or terminate
this Agreement in accordance with Section 8.01(d) hereof, but in each case
referred to in the foregoing clauses (i) through (iii) only to the extent that
the Board of Directors of Search shall conclude in good faith after consulting
with Search's outside counsel that such action is necessary in order for the
Board of Directors of Search to act in a manner which is consistent with its
fiduciary
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obligations under applicable law. Search shall immediately cease and cause to
be terminated any existing solicitation, initiation, encouragement, activity,
discussion or negotiation with any parties conducted heretofore by Search or
any Search Representatives with respect to any Acquisition Transaction. Search
will promptly notify Harken of any such discussions or negotiations, requests
for such information or the receipt of any Acquisition Transaction, including
the identity of the person or group engaging in such discussions or
negotiations, requesting such information or making such Acquisition
Transaction and the material terms and conditions of any Acquisition
Transaction. As used in this Agreement, "Acquisition Transaction" shall mean
any proposal or offer, other than a proposal or offer by Harken or any of its
affiliates, for a tender or exchange offer, a merger, consolidation or other
business combination involving Search or any subsidiary or division of Search
or any proposal to acquire in any manner an equity interest in, or significant
assets of, Search or any of its subsidiaries or divisions.
SECTION 5.05 Consents; Approvals. Search and Harken shall use all
commercially reasonable efforts to obtain all consents, waivers, approvals,
authorizations or orders (including, without limitation, all United States and
foreign governmental and regulatory rulings and approvals), and Search and
Harken shall make all filings (including, without limitation, all filings with
United States and foreign governmental or regulatory agencies) required in
connection with the authorization, execution and delivery of this Agreement by
Search and Harken and the consummation by them of the transactions contemplated
hereby. Search and Harken shall furnish all information required to be
included in the Proxy Statement and the Registration Statement, and the
American Stock Exchange Listing Application, or for any application or other
filing to be made pursuant to the rules and regulations of any United States or
foreign governmental body in connection with the transactions contemplated by
this Agreement.
SECTION 5.06 Agreements of Affiliates. Search shall deliver to
Harken, prior to the date the Registration Statement becomes effective under
the Securities Act, a letter (the "Affiliate Letter"), in the form attached
hereto as Exhibit "E-1," identifying all persons who are, at the record date
for the Search Stockholders' Meeting, "affiliates" of Search for purposes of
Rule 145 under the Securities Act. Search shall use commercially reasonable
efforts to cause each person who is identified as an "affiliate" in the
Affiliate Letter to deliver to Harken, prior to the Effective Time, a written
agreement (an "Affiliate Agreement") in the form attached hereto as Exhibit
"E-2." Harken shall be entitled to place legends as specified in such
Affiliate Agreements on the certificates evidencing any Harken Common Stock to
be received by such affiliates pursuant to the terms of this Agreement, and to
issue appropriate stop transfer instructions to the transfer agent for the
Harken Common Stock, consistent with the terms of such Affiliate Agreements.
SECTION 5.07 Notes. Prior to the Closing, Search shall enter into
agreements with each of Concorde, EnCap and Joseph F. Langston to amend,
effective as of the Effective Time, the Letter Agreement dated January 10, 1994
between Search and Concorde (the "Concorde Agreement"), the Letter Agreement
dated December 20, 1993 between Search and EnCap (the "EnCap Agreement") and
the Employment Agreement dated July 1, 1991 between Search and Mr. Langston
(the "Employment Agreement"), pursuant to which amendments Search shall issue a
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demand, unsecured, non-interest bearing promissory note to (a) evidence the
amount payable to Concorde by Search at the Closing under the Concorde
Agreement in the form attached hereto as Exhibit "H-1" (the "Concorde Note");
(b) evidence the amount payable to EnCap at the Closing by Search under the
EnCap Agreement in the form attached hereto as Exhibit "H-2" (the "EnCap
Note"); and (c) evidence the full settlement of any amounts payable to Joseph
F. Langston under the Employment Agreement, reduced by the amount of any salary
paid to Mr. Langston by Search prior to the Effective Time in the form attached
hereto as Exhibit "H-3" (the "Langston Note"). Each of the Concorde Note,
EnCap Note and the Langston Note shall provide that at the Effective Time it
will be converted automatically into and represent the right to receive shares
of Harken Common Stock, as provided in Section 1.07 hereof.
SECTION 5.08 Indemnification of Directors and Officers. (a) From
and after the Closing, Harken shall cause the Surviving Corporation to, and the
Surviving Corporation shall, keep in effect a provision in its Certificate of
Incorporation, substantially in the form of Exhibit "M," providing for the
exculpation of liability for, and the indemnification of, each person who is
now or ever has been an officer, director, employee, trustee or agent of Search
and/or any of its Subsidiaries (as identified on Schedule 5.08 attached hereto
the "Agent Indemnified Parties") to the fullest extent permitted under
applicable law, which provision shall not (i) be contradicted by, or in
conflict with , any other term or provision of such Certificate of
Incorporation, or (ii) be amended or repealed except as required by applicable
law or except to make changes permitted by law that would enlarge an Agent
Indemnified Parties' right of indemnification, until the lapse of the time
period provided for in Section 11 of the indemnification agreements to be
entered into pursuant to Section 5.08 (c) below.
(b) The rights of each Agent Indemnified Party hereunder shall be
in addition to any other rights such Agent Indemnified Party may have under the
Certificate of Incorporation or Bylaws of the Surviving Corporation as the
surviving entity to the Merger, under Delaware Law or otherwise. The Merger
Sub shall deliver a true and complete copy of its Certificate of Incorporation
and Bylaws to Search prior to the Closing.
(c) At the Closing, Harken and Surviving Corporation each agree to
enter into indemnification agreements, substantially in the form of Exhibit
"N," with each of the Agent Indemnified Parties.
(d) The provisions of this Section 5.08 shall survive the
consummation of the Merger and are expressly intended to benefit each of the
Agent Indemnified Parties.
SECTION 5.09 Taxability of Transaction. Harken and Search agree to
treat the Merger as a reorganization under Section 368(a)(1) of the Code. In
addition, Harken and Search agree to treat Section 483 of the Code and the
regulations thereunder and not Section 1273 of the Code and the regulations
thereunder as being applicable to compute the amount of interest, if any, that
will be treated as income to the current stockholders of Search and deductible
by Harken upon such stockholders' receipt of Contingent Shares. Harken agrees
to use commercially reasonable efforts to maintain the position upon any audit
or administrative proceeding with the IRS that
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Section 483 of the Code, rather than Section 1273 of the Code, is applicable to
impute interest income to the current stockholders upon the issuance to them of
the Contingent Shares. Search agrees that either its legal counsel (or a firm
of certified public accountants retained by it) shall render an opinion with
regard to the material tax consequences of the transactions hereunder to the
holders of Search Shares and the Search Warrants, which opinion shall be filed
as an exhibit to the Registration Statement as required by Item 601(b)(8) of
Regulation S-K of the Securities Act.
SECTION 5.10 Notice of Developments. Search shall give prompt notice
to Harken, and Harken shall give prompt notice to Search, of (a) the
occurrence, or non-occurrence, of any event the occurrence or non-occurrence of
which would be likely to cause any representation or warranty contained in this
Agreement to be untrue or inaccurate and (b) any failure of Search, Harken or
Merger Sub, as the case may be, to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it hereunder;
provided, however, that the delivery of any notice pursuant to this Section
5.10 shall not limit or otherwise affect the remedies available hereunder to
the party receiving such notice.
SECTION 5.11 Further Action. Upon the terms and subject to the
conditions hereof, each of the parties hereto shall (a) promptly make its
respective filings, and thereafter make any other required submissions, and (b)
use commercially reasonable efforts to take, or cause to be taken, all
appropriate action, and to do or cause to be done, all things necessary, proper
or advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated by this Agreement, including, without
limitation, using all commercially reasonable efforts to obtain all licenses,
permits, consents, approvals, authorizations, qualifications and orders of
governmental authorities and parties to contracts with Search and Harken and
their subsidiaries as are necessary for the consummation of the transactions
contemplated by this Agreement and to fulfill the conditions to the Merger. In
case at any time after the Effective Time any further action is necessary or
desirable to carry out the purposes of this Agreement, the proper officers and
directors of each party to this Agreement shall use commercially reasonable
efforts to take all such necessary action.
SECTION 5.12 Public Announcements. Harken and Search shall consult
with each other before issuing any press release or otherwise making any public
statements with respect to the Merger and shall not issue any such press
release or make any such public statement prior to such consultation, except as
may be required by law or any listing agreement with a national securities
exchange.
SECTION 5.13 Director Nominee. After the Effective Time, Harken's
Board of Directors will nominate and elect Dr. Gary Wood as a Director of
Harken to serve in such position through Harken's Annual Stockholders meeting
to be held on or about June 1996.
SECTION 5.14 Fees and Expenses. Whether or not the Merger is
consummated, all costs and expenses incurred in connection with this Agreement
and the transactions contemplated hereby
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shall be paid by the party incurring the expenses, except that expenses
incurred in connection with the preparation of the Registration Statement and
the printing and mailing of the Proxy Statement shall be shared equally by
Search and Harken.
SECTION 5.15 Major Transactions. Described on Exhibit "K" attached
hereto, are the material terms of certain transactions (the "Major
Transactions") which Search has represented to Harken have been negotiated and
agreed to between all parties necessary to each of such transactions and which
will be documented and fully and finally closed by Search prior to the
Effective Time. The parties recognize and agree that the timely closing and
completion of each of these Major Transactions prior to the Effective Time is
of material importance in connection with the Merger.
SECTION 5.16 Assignment of Eastern Shelf Overriding Royalty. Prior
to the Closing, Search shall acquire the overriding royalty interests in the
Eastern Shelf Properties (as defined in Exhibit "F" attached hereto) by
entering into the Royalty Assignment Agreement with each of the holders (the
"Royalty Holders") of such royalty interests (the "Eastern Shelf Overriding
Royalty Interests"), a form of which agreement is attached hereto as Exhibit
"L" (the "Royalty Assignment Agreement").
SECTION 5.17 Partnership Documents. Search will deliver to Harken
full and complete copies of any and all documentation and correspondence it or
any of its subsidiaries proposes to send to any of the Partners of any of the
Search Partnerships, prior to such items being sent. Harken shall have the
right to review, comment on and approve all such documents and correspondence,
which approval Harken will not unreasonably withhold.
ARTICLE VI
CONDITIONS OF MERGER
SECTION 6.01 Conditions to Obligation of Each Party to Effect the
Merger. The respective obligations of each party to effect the Merger shall be
subject to the satisfaction at or prior to the Effective Time of the following
conditions:
(a) Effectiveness of the Registration Statement. The Registration
Statement shall have been declared effective. No stop order suspending the
effectiveness of the Registration Statement shall have been issued by the SEC
and no proceedings for that purpose shall, on or prior to the Effective Time,
have been initiated or, to the knowledge of Harken or Search, threatened by the
SEC;
(b) Stockholder Approval. This Agreement and the Merger shall
have been approved and adopted by (i) the requisite vote of the holders of
Search Common Stock (which shall be the
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minimum required by Delaware Law or the Certificate of Incorporation and Bylaws
of Search) and (ii) the holders of 100% of the outstanding Search Preferred
Stock;
(c) AMEX Listing. The shares of Harken Common Stock issuable at
the Effective Time, the Contingent Shares and the shares of Harken Common Stock
issuable pursuant to the exercise of the Harken Warrants or Unexchanged Search
Warrants shall have been approved for listing on the American Stock Exchange
upon official notice of issuance; and
(d) No Order. No United States or state governmental authority or
other agency or commission or United States or state court of competent
jurisdiction shall have enacted, issued, promulgated, enforced or entered any
statute, rule, regulation, executive order, decree, injunction or other order
(whether temporary, preliminary or permanent) which is in effect restricting,
preventing or prohibiting consummation of the transactions contemplated by this
Agreement.
SECTION 6.02 Additional Conditions to Obligations of Harken and
Merger Sub. The obligations of Harken and Merger Sub to effect the Merger are
also subject to the following conditions:
(a) Representations and Warranties. The representations and
warranties of Search contained in this Agreement shall be true and correct in
all material respects on the date hereof and on and as of the Effective Time,
except for changes contemplated by this Agreement, and except for those
representations and warranties which address matters only as of a particular
date (which shall remain true and correct as of such date), with the same force
and effect as if made on and as of the Effective Time, and Harken and Merger
Sub shall have received a certificate of the President and Chief Financial
Officer of Search to that effect;
(b) Agreements and Covenants. Search shall have performed or
complied in all material respects with all agreements and covenants required by
this Agreement to be performed or complied with by it on or prior to the
Effective Time, including but not limited to the Major Transactions;
(c) Consents Obtained. All material consents, waivers, approvals,
authorizations or orders required to be obtained, and all filings required to
be made, by Search for the authorization, execution and delivery of this
Agreement and the consummation by it of the transactions contemplated hereby
shall have been obtained and made by Search;
(d) No Challenge. There shall not be any actual or threatened
action, proceeding or investigation before any court or administrative agency
or by any government agency or any other person (i) challenging, or seeking
material damages by reason of consummation of the transactions contemplated by
this Agreement, or (ii) seeking to restrain, prohibit or limit the exercise of
full rights of ownership or operation by Harken or its subsidiaries of all or
any portion of the business or assets of Search, in either case having a
Material Adverse Effect on Search or Harken;
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(e) Affiliate Agreements. Harken shall have received from the
chief executive officer of Search the Affiliate Letter and from each person who
is identified in the Affiliate Letter as an "affiliate" of Search, an Affiliate
Agreement;
(f) Amendment of Agreements. The Employment Agreement, Concorde
Agreement and the EnCap Agreement shall have been amended by the mutual written
agreement of the parties thereto, effective as of the Effective Time as
described in Section 5.07 hereof;
(g) Other Agreements. Except as listed on the Search Disclosure
Schedule, all agreements between Search and any of Search's officers or
directors shall have been terminated by the mutual written agreement of the
parties thereto, effective as of the Effective Time;
(h) Material Adverse Effect. No fact, event or condition
(financial or otherwise) shall have occurred with respect to Search and its
subsidiaries taken as a whole having, in the aggregate, a Material Adverse
Effect as defined in Section 2.01 hereof on Search and its subsidiaries;
(i) Dissenting Votes. The holders of not more than five percent
(5%) of the outstanding Search Shares shall have exercised their appraisal
rights, if any, in accordance with Delaware Law;
(j) Reconveyance of Overriding Royalty Interests. Search shall
have obtained and made available for filing, if necessary, such assignments and
other evidences of transfer as are reasonably necessary in such form as may be
acceptable to Harken covering the reconveyance in full to Search of the Eastern
Shelf Overriding Royalty Interests; and
(k) Liquidation of Search Partnerships. The partnerships listed
on Exhibit "I" (the "Search Partnerships") shall have been liquidated pursuant
to the terms of their respective partnership agreements and on the terms and
conditions and with such agreements as are acceptable to Harken. Exhibit "I"
sets forth the disposition of each of the general and limited partnership
interests in each of the Search Partnerships. Harken shall have received from
Stead & Sughroue, L.L.C., an opinion in the form and substance satisfactory to
Harken, that (i) the Search Partnerships have been liquidated and dissolved in
accordance with the terms of each of the partnership agreements and applicable
laws, and (ii) if Search or any of its subsidiaries acquired any of the
partnership interests of any of the Search Partnerships, that the acquisition
of such interests was in accordance with the terms of each of the partnership
agreements and applicable laws.
SECTION 6.03 Additional Conditions to Obligation of Search. The
obligation of Search to effect the Merger is also subject to the following
conditions:
(a) Representations and Warranties. The representations and
warranties of Harken and Merger Sub contained in this Agreement shall be true
and correct in all material respects on the
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date hereof and on and as of the Effective Time, except for changes
contemplated by this Agreement and except for those representations and
warranties which address matters only as of a particular date (which shall
remain true and correct as of such date) with the same force and effect as if
made on and as of the Effective Time, and Search shall have received a
certificate of the President and Chief Financial Officer of Harken to that
effect;
(b) Agreements and Covenants. Harken and Merger Sub shall have
performed or complied in all material respects with all agreements and
covenants required by this Agreement to be performed or complied with by them
on or prior to the Effective Time;
(c) Consents Obtained. All material consents, waivers, approvals,
authorizations or orders required to be obtained, and all filings required to
be made, by Harken and Merger Sub for the authorization, execution and delivery
of this Agreement and the consummation by them of the transactions contemplated
hereby shall have been obtained and made by Harken and Merger Sub;
(d) No Challenge. There shall not be any actual or threatened
action, proceeding or investigation before any court or administrative agency
or by any government agency or any other person (i) challenging, or seeking
material damages by reason of consummation of the transactions contemplated by
this Agreement, or (ii) seeking to restrain, prohibit or limit the exercise of
full rights of ownership or operation by Harken or its subsidiaries of all or
any portion of the business or assets of Search, in either case having a
Material Adverse Effect on Search or Harken;
(e) Opinion of Investment Banker. Principal shall have delivered
a written opinion to the Board of Directors of Search, in form reasonably
satisfactory to Search, confirming, as of the date of the Proxy Statement, its
opinion referred to in Section 2.13 hereof; and
(f) Material Adverse Effect. No fact, event or condition
(financial or otherwise) shall have occurred with respect to Harken and its
subsidiaries taken as a whole having, in the aggregate, a Material Adverse
Effect on Harken and its subsidiaries.
(g) Legal Opinion. Search shall have received a letter, in a form
reasonably satisfactory to Search, entitling Search to rely upon the opinion
rendered by legal counsel of Harken filed as an exhibit to the Registration
Statement pursuant to Item 601(b)(5) of Regulation S-K of the Securities Act.
(h) Tax Opinion. Search shall have received an opinion rendered
by its legal counsel (or by a firm of certified public accountants retained by
it) with regard to the taxability of the transactions hereunder to the holders
of Search Shares and the Search Warrants.
ARTICLE VII
SEARCH WARRANTS
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SECTION 7.01 Warrant Exchange Offer. Prior to Closing, Harken will
offer (the "Exchange Offer") to each of the current holders of the Search
Warrants to exchange their Search Warrants for new warrants issued by Harken to
acquire shares of Harken Common Stock, a form of which is attached hereto as
Exhibit "G-2" ("Harken Warrants"), according to the exchange schedule set out
in Exhibit "G-1" attached hereto. Exhibit "G-1" sets forth the name of each
holder of a Search Warrant and the maximum number of shares of Search Common
Stock issuable upon exercise of Search Warrants held by such holder and the
maximum number of shares of Harken Common Stock issuable upon exercise of the
Harken Warrants which will be received upon tender of the Search Warrants
pursuant to the Exchange Offer and identifies each such warrant which was
issued to employees as compensation. The Harken Warrants issued in the
Exchange Offer will be effective as of the Effective Time with a term to expire
on June 30, 1996 and will be initially exercisable at $1.82 per share. The
consummation of the Exchange Offer is conditional upon the consummation of the
Merger.
SECTION 7.02 Unexchanged Search Warrants. Each of the Unexchanged
Search Warrants that is not tendered in the Exchange Offer shall represent the
right to purchase Harken Common Stock as set forth in Section 1.15 hereof.
SECTION 7.03 Warrant Holders Participation in Contingent Shares. The
holders of Harken Warrants and Unexchanged Search Warrants shall be entitled to
receive, under certain conditions, Contingent Shares as set forth in Section
1.10 hereof.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.01 Termination. This Agreement may be terminated and the
Merger contemplated hereby may be abandoned at any time prior to the Effective
Time, notwithstanding approval thereof by the stockholders of Search:
(a) By mutual written consent duly authorized by the Boards of
Directors of Harken and Search; or
(b) By either Harken or Search if the Merger shall not have been
consummated at the earlier of March 31, 1995, or before ninety (90) days
following the declaration of the effectiveness of the Registration Statement by
the SEC, or such later date as may be agreed to in writing by the parties;
provided, however that the right to terminate this Agreement under this Section
8.01(b) shall not be available to any party whose willful failure to fulfill
any material obligation under this Agreement has been the cause of, or resulted
in, the failure of the Effective Time to occur on or before such date; or
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<PAGE> 50
(c) By either Harken or Search if a court of competent
jurisdiction or governmental, regulatory or administrative agency or commission
shall have issued an order, decree or ruling or taken any other action, in each
case permanently restraining, enjoining or otherwise prohibiting the
transactions contemplated by this Agreement, and such order, decree, ruling or
other action shall have become final and nonappealable; or
(d) By either Harken or Search if the Board of Directors of Search
shall have approved or recommended any Acquisition Transaction in accordance
with Section 5.04 hereof; or
(e) By Harken if the Board of Directors of Search shall have
withdrawn, modified or amended in any manner adverse to Harken its approval of
or recommendation in favor of the Merger due to a Material Adverse Effect to
Harken; or
(f) By Harken if Search breaches in any material respect any of
its agreements or covenants contained herein, or if any representation or
warranty of Search shall be or shall have become untrue, in either case such
that the conditions set forth in Section 6.02(a) or Section 6.02(b) hereof
would not be satisfied, and such breach is not waived or cured within 10 days
after written notice from Harken; or
(g) By either Harken or Search if Search's stockholders do not
approve the Merger at a meeting of stockholders (or any adjournments thereof)
duly called and held for such purpose; or
(h) By Search if Harken breaches any of its agreements or
covenants contained herein or if any representation or warranty of Harken shall
be or shall have become untrue, in either case such that conditions set forth
in Section 6.03(a) or Section 6.03(b) hereof would not be satisfied, and such
breach is not waived or cured within 10 days after written notice from Search;
or
(i) By Search if the Form S-4 has not been initially filed by
Harken with the SEC within 21 days after the conditions set forth in Section
6.02(k) have been fulfilled.
SECTION 8.02 Effect of Termination.
(a) In the event of the termination of this Agreement pursuant to
Section 8.01 hereof, this Agreement shall forthwith become void and there shall
be no liability on the part of any party hereto or its affiliates, directors,
officers or stockholders, other than the provisions of Section 5.03, this
Section 8.02 and Section 10.01 hereof. Nothing contained in this Section 8.02
shall prejudice the ability of a party from asserting all rights and remedies
that such party may have against any other party by reason of any breach or
violation of this Agreement occurring prior to such termination, including,
without limitation, the right to pursue any remedy at law or equity and to
recover all attorney's fees incurred in connection therewith.
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<PAGE> 51
(b) If Harken or Search terminates this Agreement pursuant to
Sections 8.01(d), Search shall pay Harken a cash fee equal to all of Harken's
out-of-pocket expenses (including the fees and expenses of its legal counsel)
plus $800,000 by wire transfer of immediately available funds to an account
designated by Harken.
(c) If Harken or Search terminates this Agreement pursuant to
Sections 8.01(e), Search shall pay Harken a cash fee equal to all of Harken's
out-of-pocket expenses (including the fees and expenses of its legal counsel)
plus $150,000 by wire transfer of immediately available funds to an account
designated by Harken.
SECTION 8.03 Amendment. This Agreement may be amended by the mutual
action taken by or on behalf of their respective Boards of Directors at any
time prior to the Effective Time; provided, however, that, after approval of
the Merger by the stockholders of Search, no amendment may be made which by law
requires further approval by such stockholders without such further approval.
This Agreement may not be amended except by an instrument in writing signed by
each of the parties hereto.
SECTION 8.04 Extension; Waiver. At any time prior to the Effective
Time, any party hereto may (a) extend the time for the performance of any of
the obligations or other acts of the other parties hereto, (b) waive any
inaccuracies in the representations and warranties of the other parties
contained herein or in any document delivered pursuant hereto and (c) waive
compliance by the other parties with any of the agreements or conditions
contained herein. Any such extension or waiver shall be valid if set forth in
an instrument in writing signed by the party or parties to be bound thereby.
Except as provided in this Agreement, no action taken pursuant to this
Agreement, including, without limitation, any investigation by or on behalf of
any party, shall be deemed to constitute a waiver by the party taking such
action of compliance with any representations, warranties, covenants or
agreements contained in this Agreement. The waiver by any party hereto of a
breach of any provision hereunder shall not operate or be construed as a waiver
of any prior or subsequent breach of the same or any other provision hereunder.
ARTICLE IX
MAXIMUM HARKEN SHARES TO BE ISSUED
SECTION 9.01 Maximum Shares. Notwithstanding any other provisions,
terms or other matters set forth or referenced in this Agreement, Harken shall
not be required nor obligated to issue any portion of the Contingent Shares as
provided in Section 1.10 hereof which when added to all other shares of Harken
Common Stock called for to be issued or reserved for issuance hereunder and in
all related transactions to the Merger, would exceed a maximum amount of eleven
million (11,000,000) shares (the "Maximum Share Limit") of Harken Common Stock.
There shall be included for purposes of determining the number of
Contingent Shares which may be issued within the Maximum Share Limit all shares
issued in exchange for Search
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<PAGE> 52
Shares, in exchange for the Notes, and all shares issued or reserved for
issuance for the Harken Warrants and the Unexchanged Search Warrants.
SECTION 9.02 Excess Shares. In the event the calculation of the
Contingent Shares under Section 1.10 hereof when added to the aggregate total
of all other shares of Harken Common Stock to be issued or reserved for
issuance under this Merger and the other transactions which are directly
related to it, exceed the Maximum Share Limit, then in such event Harken shall
within 30 days after the Settlement Date or the Final Settlement Date, as may
be applicable, elect at its sole option:
(a) to pay the amount in cash of the number of such Contingent
Shares which exceed the Maximum Share Limit times the Contingent Share Price to
the parties entitled to receive the same, provided, however, that the cash
received by the holders of Search Shares shall in no event exceed 50% of the
aggregate consideration received by such holders at the Effective Time and on
the Settlement Date (and the Final Settlement Date, if applicable); or
(b) to obtain the consent and approval from its stockholders to
issue additional shares of Harken Common Stock in excess of the Maximum Share
Limit.
SECTION 9.03 Timing. In the event Harken elects to pursue the
alternative to pay cash as set forth in Section 9.02(a) above, Harken will use
commercially reasonable efforts to make such payments within 45 days after the
Settlement Date or the Final Settlement Date, as may be applicable. In the
event Harken elects to pursue the alternative to pay in additional shares as
set forth in Section 9.02(b) above or in the event the cash alternative is not
available because of the above limitations placed upon the amount thereof then,
Harken will use commercially reasonable efforts to obtain the necessary consent
and approval from its stockholders so as to issue such additional shares within
six months after the Settlement Date or the Final Settlement Date, as may be
applicable. Pending such additional authorizations or other actions necessary,
Harken shall issue that portion of the Contingent Shares up to the Maximum
Share Limit on the Settlement Date. In the event Harken elects to obtain the
approval of its stockholders to issue additional shares in excess of the
Maximum Share Limit and fails to obtain such approval, Harken will pay cash
pursuant to Section 9.02(a) above.
ARTICLE X
GENERAL PROVISIONS
SECTION 10.01 Non-Survival of Representations, Warranties and
Agreements. The representations, warranties and agreements in this Agreement
shall terminate at the Effective Time or upon the termination of this Agreement
pursuant to Section 8.01, as the case may be, provided, however, that (a) the
provisions of Articles I, II, V and X, Sections 3.10, and the agreements
delivered pursuant to this Agreement if not otherwise provided shall survive
the Effective Time until the Settlement Date, provided, however, that Article I
and Sections 3.13 through 3.21 shall
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<PAGE> 53
survive until the Final Settlement Date and Section 5.08 shall survive until
the lapse of the time period described in Section 5.08(a) hereof, and (b) the
provisions of Section 8.02 and this Article X shall survive the termination of
this Agreement and the representations, warranties and agreements in this
Agreement shall survive any such termination for the purposes of a party
asserting all of its rights and remedies as contemplated by Section 8.02(a).
SECTION 10.02 Notices. All notices and other communications given or
made pursuant hereto shall be in writing and shall be deemed to have been duly
given or made as of the date delivered or mailed if delivered personally or
mailed by registered or certified mail (postage prepaid, return receipt
requested) to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice):
(a) If to Harken or Merger Sub:
Harken Energy Corporation
2505 North Highway 360, Suite 800
Grand Prairie, Texas 75050
Attention: Larry E. Cummings, General Counsel
With a copy to:
Baker & McKenzie
4500 Trammell Crow Center
2001 Ross Avenue
Dallas, Texas 75201
Attention: John D. Curtis, Esq.
(b) If to Search:
Search Exploration, Inc.
1500 Three Lincoln Centre
5430 LBJ Freeway
Dallas, Texas 75240
Attention: Joseph F. Langston, Jr.
With copy to:
Johnson & Wortley, P.C.
100 Founders Square
900 Jackson Street
Dallas, Texas 75202
Attention: Michael D. Wortley, Esq.
SECTION 10.03 Certain Definitions. For purposes of this Agreement,
the term:
(a) "affiliate" means a person that directly or indirectly,
through one or more intermediaries, controls, is controlled by, or is under
common control with, the first mentioned
46
<PAGE> 54
person; including, without limitation, any partnership or joint venture in
which the first mentioned person (either alone, or through or together with any
other subsidiary) has, directly or indirectly, an interest of 5% or more;
(b) "business day" means any day other than a day on which banks
in Dallas, Texas, are required or authorized to be closed;
(c) "control" (including the terms "controlled by and under common
control with") means the possession, directly or indirectly or as trustee or
executor, of the power to direct or cause the direction of the management or
policies of a person, whether through the ownership of stock, as trustee or
executor, by contract or credit arrangement or otherwise;
(d) "Exchange Ratio" means the number (rounded to the nearest
ten-thousandth) obtained by dividing (i) $.8099 by (ii) the Strike Price;
(e) "Good Title" means subject to Permitted Encumbrances good and
defensible title which is (i) evidenced by an instrument or instruments filed
of record in accordance with the conveyance and recording laws of the
applicable jurisdiction and is sufficient against competing claims of bona fide
purchasers for value without notice and (ii) free and clear of all liens,
security interest, claims, infringements and other burdens of encumbrances,
other than such liens, security interests, claims, infringements and other
burdens or encumbrances that a reasonably prudent purchaser of oil and gas
properties would accept in light of the value of the property affected, the
improbability of assertion of the defect or irregularity or the degree of
difficulty or the cost of performing curative work;
(f) "Oil and Gas Interests" means the properties referenced under
Exhibits "B-1" and "D" hereof, which constitute as to Search and its
subsidiaries all interests in and rights in respect of oil, gas, mineral, and
related properties and assets of any kind and nature, direct or indirect,
including working interests, royalties, overriding royalties, production
payments, net profits interests, other nonworking interests and nonoperating
interests, contract rights, debt instruments, and equity interests in joint
ventures, partnerships, corporations and other entities, including but not
limited to common and preferred stock, debentures, bonds and other securities
of every kind and nature and unrelated assets coincidentally acquired in
connection with the acquisition of the foregoing assets; all interests in and
rights in respect of oil, gas and other minerals and hydrocarbons or revenues
therefrom and all contracts in connection therewith and claims and rights
thereto (including but not limited to all oil and gas leases and interests
thereunder, surface interests, fee interests, reversionary interests,
royalties, overriding royalties, reservations and concessions), all easements,
rights of way, licenses, permits, leases and other interests associated with
appurtenant to or necessary for the operation of any of the foregoing, and all
interests in equipment and machinery (including but not limited to well
equipment and machinery), oil and gas transmission or storage facilities
(including but not limited to tanks, tank batteries, pipelines and gathering
systems), camps, water plants, electric plants, gasoline and gas processing
plants,
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<PAGE> 55
refineries and other tangible personal property and fixtures associated with,
appurtenant to or necessary for the operation of any of the foregoing;
(g) "Preferred Exchange Ratio" means the number (rounded to the
nearest ten-thousandth) obtained by dividing (i) $1.00 by (ii) the Strike
Price;
(h) "Permitted Encumbrances" means (i) inchoate mechanics',
materialman's warehouseman's and carrier's liens and other similar liens
arising by operation of law or statute in the ordinary course of a party's
business for obligations which are not delinquent and which will be paid or
discharged in the ordinary course of such party's business for obligations
which are not delinquent and which will be paid or discharged in the ordinary
course of such party's business; (ii) liens arising under joint operating
agreements for obligations which are not delinquent and which will be paid or
discharged in the ordinary course of a party's business; (iii) liens for Taxes,
assessments, and similar governmental charges incurred and not delinquent; (iv)
easements, servitudes, rights-of-way and other rights which do not materially
interfere with the use of a property; (v) liens arising pursuant to Section
9.319 of the Texas Business and Commerce Code and all other similar liens
created by operation of law to secure a party's obligations as a purchaser of
oil and gas; (vi) liens constituting pledges or deposits made in the ordinary
course of a party's business to secure obligations under compulsory workmen's
compensation, unemployment insurance, social security, or other similar laws;
(vii) liens retained in any oil and gas lease in favor of the party granting
such lease; (viii) preferential rights to purchase and third-party consents
which would be activated by the Merger contemplated by this Agreement; (ix) all
rights to consent by, required notices to, filings with, or other actions by,
governmental entities in connection with the Closing if such are customarily
obtained subsequent to the Closing; and (x) Oil and Gas Interests of Search and
its subsidiaries, with respect to which Search and its subsidiaries own and
hold only beneficial or equitable title pursuant to a valid and enforceable
written agreement between such party and a non-affiliated third party or
parties and pursuant to which record or legal title is held by such
non-affiliated third party or parties for the benefit of Search or its
subsidiary;
(i) "Person" means an individual, corporation, partnership,
association, trust, unincorporated organization, other entity or group (as
defined in Section 13(d)(3) of the Exchange Act);
(j) "Strike Price" means the average of the closing sales prices
of a share of Harken Common Stock on the American Stock Exchange (as reported
by the Wall Street Journal or, if not reported thereby, by another
authoritative source) over the 30 days immediately preceding the date that is
five trading days prior to the Closing Date; provided, however, that in no
event shall the Strike Price be an amount which is (i) greater then $2.366 or
(ii) less than $1.274; and
(k) "Subsidiary" or "Subsidiaries" of Search, the Surviving
Corporation, Harken or any other person means the entities listed in Section
3.01 of the Search Disclosure Schedule and the Harken Disclosure Schedule,
respectively, and includes any corporation, partnership, joint
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<PAGE> 56
venture or other legal entity of which Search, the Surviving Corporation,
Harken or such other person, as the case may be, (either alone or through or
together with any other subsidiary) owns, directly or indirectly, more than 50%
of the stock or other equity interests the holders of which are generally
entitled to vote for the election of the board of directors or other governing
body of such corporation or other legal entity.
SECTION 10.04 Material Adverse Effect. Notwithstanding anything to
the contrary herein, any change, effect, fact, event or condition which
adversely affects the oil and gas industry generally, such as a decline in the
price of oil or natural gas generally, shall not be considered in determining
whether a Material Adverse Effect has occurred with respect to Search or
Harken.
SECTION 10.05 Headings. The headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 10.06 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of
law, or public policy, all other conditions and provisions of this Agreement
shall nevertheless remain in full force and effect so long as the economic or
legal substance of the transactions contemplated hereby is not affected in any
manner adverse to any party. Furthermore, in lieu of such illegal, invalid or
unenforceable provision, there shall be added automatically as a part of this
Agreement a provision as similar in terms to such illegal, invalid or
unenforceable provision as may be possible and be legal, valid and enforceable.
SECTION 10.07 Construction. This Agreement and any documents or
instruments delivered pursuant hereto shall be construed without regard to the
identity of the person who drafted the various provisions of the same.
SECTION 10.08 Specific Performance. The parties hereto agree that if
any of the provisions of this Agreement were not performed in accordance with
their specific terms or were otherwise breached, irreparable damage would
occur, no adequate remedy at law would exist and damages would be difficult to
determine, and that the parties shall be entitled to specific performance of
the terms hereof, in addition to any other remedy at law or equity. The rights
and remedies provided for in this Agreement are cumulative, and not exclusive
of, any rights or remedies otherwise available.
SECTION 10.09 Entire Agreement. This Agreement (together with the
Exhibits and Schedules) constitutes the entire agreement and supersedes all
prior agreements and undertakings (other than the Confidentiality Agreement
between Harken and Search, which shall survive), both written and oral, among
the parties, or any of them, with respect to the subject matter hereof and,
except as otherwise expressly provided herein, are not intended to confer upon
any other person any rights or remedies hereunder.
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<PAGE> 57
SECTION 10.10 Assignment. This Agreement and all the provisions
hereof shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and assigns. Neither this Agreement nor any of the
rights hereunder shall be assigned by any of the parties hereto without the
prior written consent of the other parties, provided that no such assignment
shall release the assigning party from its obligations hereunder.
SECTION 10.11 Parties in Interest. This Agreement shall be binding
upon and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to or shall confer upon any other
person any right, benefit or remedy of any nature whatsoever under or by reason
of this Agreement, other than Section 5.08 (which is intended to be for the
benefit of the indemnified parties and may be enforced by such indemnified
parties).
SECTION 10.12 Governing Law. This Agreement shall be governed by,
and construed in accordance with, the laws of the State of Delaware, regardless
of the laws that might otherwise govern under applicable principles of
conflicts of laws thereof.
SECTION 10.13 Counterparts. This Agreement may be executed in one or
more counterparts, and by the different parties hereto in separate
counterparts, each of which when executed shall be deemed to be an original but
all of which taken together shall constitute one and the same agreement.
SECTION 10.14 Plan of Reorganization. This Agreement constitutes a
plan or reorganization within the meaning of Section 368 of the Code and
Treasury Regulation Section 1.368-2(d) among Harken, Search, Merger Sub and the
stockholders of Search.
IN WITNESS WHEREOF, Harken, Merger Sub and Search have caused this
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.
HARKEN ENERGY CORPORATION
By:_____________________________________
Richard H. Schroeder, President
SEARCH ACQUISITION CORP.
By:_____________________________________
Richard H. Schroeder, President
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<PAGE> 58
SEARCH EXPLORATION, INC.
By:_____________________________________
Joseph F. Langston, Jr.
Chairman of the Board
51
<PAGE> 59
AGREEMENT AND PLAN OF MERGER
EXHIBIT "E-1"
AFFILIATE LETTER
Harken Energy Corporation
2505 North Highway 360, Suite 800
Grand Prairie, Texas 75050
Gentlemen:
Pursuant to Section 5.06 of the Agreement and Plan of Merger dated as of
October ___, 1994 (the "Agreement"), among Harken Energy Corporation, a
Delaware corporation ("Harken"), Search Acquisition Corporation, a Delaware
corporation ("Acquisition Corp."), and Search Exploration, Inc., a Delaware
corporation ("SEI"), SEI hereby identifies the following persons as the only
persons who are, at the record date for its stockholders meeting to approve the
Agreement, "affiliates" of SEI for purposes of Rule 145 of the General Rules
and Regulations promulgated under the Securities Act of 1933, as amended:
<TABLE>
<CAPTION>
Name Position
---- --------
<S> <C>
Joseph F. Langston President/CEO
Dr. Gary B. Wood Secretary/Board of Directors
James O. O'Donnell Board of Directors
M. Michael Witte Chairman, MEI/Board of Directors
J. Robert Dobbins Board of Directors
</TABLE>
Dated and effective __________________, 1994.
Very truly yours,
SEARCH EXPLORATION, INC.
By:_____________________________________
Joseph F. Langston, Jr. ,
Chairman
E-1-1
<PAGE> 60
AGREEMENT AND PLAN OF MERGER
EXHIBIT "E-2"
AFFILIATE AGREEMENT
Harken Energy Corporation
2505 North Highway 360, Suite 800
Grand Prairie, Texas 75050
Dear Sirs:
I have been advised that as of the date of this letter I may be deemed
to be an "affiliate" of Search Exploration, Inc., a Delaware corporation
("Search"), as the term "affiliate" is defined for purposes of paragraphs (c)
and (d) of Rule 145 of the rules and regulations (the "Rules and Regulations")
of the Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933, as amended (the "Act"). Pursuant to the terms of the
Agreement and Plan of Merger dated as of October ______, 1994 (the
"Agreement"), between Harken Energy Corporation, a Delaware corporation
("Harken"), Search Acquisition Corporation, a Delaware corporation and a wholly
owned subsidiary of Harken ("Merger Sub"), and Search, Search will be merged
with and into Merger Sub (the "Merger").
In connection with transactions contemplated by the Agreement, I may
receive shares of Common Stock, par value $.01 per share (the "Common Stock"),
of Harken, the right to receive additional shares of Common Stock, if any,
under certain conditions set forth in the Agreement, or warrants issued by
Harken exercisable for Common Stock (the "Harken Securities").
I represent, warrant and covenant to Harken that in the event I
receive any Harken Securities as a result of the Merger:
A. I shall not make any sale, transfer of other
disposition of the Harken Securities in violation of the Act or the
Rules and Regulations.
B. I have carefully read this letter and the Agreement
and discussed the requirements of such documents and other applicable
limitations upon my ability to sell, transfer or otherwise dispose of
the Harken Securities to the extent I felt necessary, with my counsel
or counsel for Search.
C. I have been advised that the issuance of Harken
Securities to me in connection with the transactions contemplated by
the Agreement has been registered with the Commission under the Act on
a Registration Statement on Form S-4. However, I have also been
advised that, since at the time the Merger and the Agreement was
submitted for
E-2-1
<PAGE> 61
a vote of the stockholders of Search, I may be deemed to have been an
affiliate of Search and the distribution by me of the Harken
Securities has not been registered under the Act, I may not sell,
transfer or otherwise dispose of the Harken Securities issued to me in
connection with the transactions contemplated by the Agreement unless
(i) such sale, transfer or other disposition has been registered under
the Act, (ii) such sale, transfer or other disposition is made in
conformity with Rule 145 promulgated by the Commission under the Act,
or (iii) in the opinion of counsel reasonably acceptable to Harken, or
a "no action" letter obtained by the undersigned from the staff of the
Commission, such sale, transfer or other disposition is otherwise
exempt from registration under the Act.
D. I understand that Harken is under no obligation to
register the sale, transfer or other disposition of the Harken
Securities by me or on my behalf under the Act or to take any other
action necessary in order to make compliance with an exemption from
such registration available.
E. I also understand that stop transfer instructions
will be given to Harken's transfer agents with respect to the Harken
Securities and that there will be placed on the certificates for the
Harken Securities issued to me, or any substitutions therefor; a
legend stating in substance:
"THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A
TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES
ACT OF 1933 APPLIES. THE SHARES REPRESENTED BY THIS
CERTIFICATE MAY ONLY BE TRANSFERRED IN ACCORDANCE WITH THE
TERMS OF AN AGREEMENT DATED _______________, 1994 BETWEEN THE
REGISTERED HOLDER HEREOF AND HARKEN ENERGY CORPORATION, A COPY
OF WHICH AGREEMENT IS ON FILE AT THE PRINCIPLE OFFICES OF
HARKEN ENERGY CORPORATION."
F. I also understand that unless the transfer by me of
my Harken Securities has been registered under the Act or is a sale
made in conformity with the provisions of Rule 145, Harken reserves
the right to put the following legend on the certificates issued to my
transferee:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND WERE ACQUIRED
FROM A PERSON WHO RECEIVED SUCH SHARES IN A TRANSACTION TO
WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF 1933
APPLIES. THE SHARES HAVE BEEN ACQUIRED BY THE HOLDER NOT WITH
A VIEW TO, OR FOR RESALE IN CONNECTION WITH, ANY DISTRIBUTION
THEREOF WITHIN THE MEANING OF THE SECURITIES ACT OF 1933 AND
MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT IN
ACCORDANCE
E-2-2
<PAGE> 62
WITH AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT OF 1933."
It is understood and agreed that the legends set forth in paragraphs E
and F above shall be removed by delivery of substitute certificates without
such legend if such legend is not required for purposes of the Act or this
Agreement. It is understood and agreed that such legends and the stop orders
referred to above will be removed if (i) two years shall have elapsed from the
date the undersigned acquired the Harken Securities in connection with the
Merger and the provisions of Rule 145(d)(2) are then available to the
undersigned, (ii) three years shall have elapsed from the date the undersigned
acquired the Harken Securities in connection with the Merger and the provisions
of Rule 145(d)(3) are then applicable to the undersigned or (iii) Harken has
received either an opinion of counsel, which opinion and counsel shall be
reasonably satisfactory to Harken, or a "no action" letter obtained by the
undersigned from the staff of the Commission, to the effect that the
restrictions imposed by Rule 145 under the Act no longer apply to the
undersigned. Prior to any transfer of any of the Shares, I will give written
notice to Harken of my intention to effect such offer, sale or transfer,
describing the proposed transaction in sufficient detail to enable Harken and
its counsel to determine that the proposed transaction will not violate the
Act.
Execution of this letter should not be considered an admission on my
part that I am an "affiliate" of Search as described in the first paragraph of
this letter or as a waiver of any rights I may have to object to any claim that
I am such an affiliate on or after the date of this letter.
Very truly yours,
___________________________________
Name
Accepted this _____ day of
_________________, 1994 by
HARKEN ENERGY CORPORATION
By:_________________________________
Larry E. Cummings, Secretary
E-2-3
<PAGE> 63
AGREEMENT AND PLAN OF MERGER
EXHIBIT "G-2"
FORM OF HARKEN WARRANT AGREEMENT
WARRANT NO. 94-____________
Warrant to Purchase
________ Shares
(subject to adjustment)
of Common Stock of
Harken Energy Corporation
Void after 3:00 p.m.
Dallas, Texas
June 30, 1996
HARKEN ENERGY CORPORATION
Stock Purchase Warrant
THIS IS TO CERTIFY THAT, for value received, ____________________________
(the "Holder"), whose address is _____________________________, upon due
exercise of this Warrant, is entitled to purchase from Harken Energy
Corporation, a Delaware corporation (the "Company"), at any time after
___________________, 1994, and before 3:00 P.M., Dallas, Texas local time, on
June 30, 1996 (the "Expiration Date"), all or any part of _____________ shares
(the "Shares") of fully paid and non-assessable common stock, par value $.01
per share (the "Common Stock"), of the Company, at a purchase price of $______
per share (the "Strike Price"), both the Strike Price and number of shares
being subject to possible adjustment as provided below.
This Warrant is issued pursuant to Article VII of an Agreement and
Plan of Merger dated as of October ___, 1994 (the "Agreement") among the
Company, Search Exploration, Inc., a Delaware corporation, and Search
Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of the
Company.
1. Exercise of Warrant.
(a) Subject to subsection 1(b) below, the Holder may
exercise this Warrant in whole or in part at any time, but only in such
multiples as are required to permit the issuance by the Company of one or more
full shares of Common Stock of the Company, by surrender of this Warrant with
the Form of Subscription attached hereto duly executed, to the Company at or
prior to 3:00 P.M. Dallas, Texas local time on the Expiration Date, together
with payment of the Strike
G-2-1
<PAGE> 64
Price for each of the Shares into which the Warrant is exercised. Payment for
the Shares to be purchased upon exercise of this Warrant may be made by the
delivery of a certified or cashier's check payable to the Company for the
aggregate Strike Price of the Shares to be purchased. In case of the exercise
of this Warrant in part only prior to the Expiration Date, the Company will
deliver to the Holder a new Warrant of like tenor in the name of the Holder
evidencing the right to purchase the number of shares as to which this Warrant
has not been exercised.
(b) The Warrant may not be exercised by the Holder
unless, at the time of exercise, (1) there is either (i) a registration
statement or prospectus covering the Common Stock of the Company, that is
effective under (A) the Act, and (B) the securities laws of the state of the
address of record of such Holder, or (ii) an exemption available from
registration for the Warrant exercise and issuance of Common Stock of the
Company in the opinion of counsel to the Company, and (2) such exercise and
issuance would otherwise be in compliance with applicable law in the opinion of
counsel to the Company. The Warrant may not be, directly or indirectly,
transferred to, or exercised by, any person in any state where such transfer or
exercise would violate any law, including securities law, of such state in the
opinion of counsel to the Company. Legends as required by applicable federal
and state laws may be placed on the certificates representing the Shares. The
Holder and the Company agree to execute such documents and instruments as
counsel for the Company reasonably deems necessary to effect compliance of the
issuance of this Warrant and any Shares issued upon exercise hereof with
applicable federal and state securities laws.
2. Stock Dividends, Reclassification, Reorganization,
Anti-Dilution Provisions, Etc.
This Warrant is subject to the following further provisions:
(a) In case, prior to the expiration of this Warrant by
exercise or by its terms, the Company issues any shares of its Common Stock as
a stock dividend or divides the number of shares, then, in either of such
cases, the Strike Price per share of the Shares purchasable pursuant to this
Warrant in effect at the time of such action will be proportionately reduced
and the number of Shares at that time purchasable pursuant to this Warrant
shall be proportionately increased; and conversely, in the event the Company
shall combine such shares of its Common Stock into a smaller number of shares,
then, and in such event, the Strike Price per share of the Shares purchasable
pursuant to this Warrant in effect at the time of such action shall be
proportionately increased and the number of Shares at that time purchasable
pursuant to this Warrant shall be proportionately decreased.
(b) In case, prior to the expiration of this Warrant by
exercise or by its terms, the Company is recapitalized by reclassifying its
outstanding Common Stock into stock with a different par value or by changing
its outstanding Common Stock with par value to stock without par value, or the
Company or a successor corporation consolidates or merges with or conveys all
or substantially all of its or of any successor corporation's property and
assets to any other corporation or corporations (any such corporation being
included within the meaning of the term "successor corporation" in the event of
any consolidation or merger of any such corporation with,
G-2-2
<PAGE> 65
or the sale of all or substantially all of the property of any such corporation
to, another corporation or corporations), the Holder of this Warrant may
thereafter purchase, upon the terms and conditions and during the time
specified in this Warrant, in lieu of the Shares theretofore purchasable upon
the exercise of this Warrant, the kind and amount of shares of stock and other
securities receivable upon such recapitalization or consolidation, merger, or
conveyance by a Holder of the number of shares of Common Stock which the holder
of this Warrant might have purchased, immediately prior to such
recapitalization or consolidation, merger, or conveyance.
(c) Upon the occurrence of each event requiring an
adjustment of the Strike Price and/or of the number of Shares purchasable
pursuant to this Warrant in accordance with, and as required by, the terms of
subdivision (a) of this Section 2, the Company shall forthwith employ a firm of
certified public accountants (who may be the regular accountants for the
Company) who shall compute the adjusted Strike Price and the adjusted number of
Shares purchasable at such adjusted Strike Price by reason of such event in
accordance with the provisions of subdivision (a) and shall prepare a
certificate setting forth such adjusted Strike Price and the adjusted number of
Shares and showing in detail the facts upon which such conclusions are based,
including a statement of the consideration received or to be received by the
Company for any additional shares of Common Stock issued or sold or deemed to
have been issued or sold and of the number of shares of Common Stock
outstanding or deemed to be outstanding. The Company shall mail forthwith to
the holder of this Warrant a copy of such certificate, and thereafter said
certificate shall be conclusive and shall be binding upon such holder unless
contested by such holder by written notice to the Company within ten (10) days
after receipt of the certificate of the public accountants by such holder.
(d) In case:
(i) of any classification, reclassification, or
other reorganization of the capital stock of the Company, consolidation, or
merger of the Company with or into another corporation, or conveyance of all or
substantially all of the assets of the Company; or
(ii) of the voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, and in any such case, the Company shall mail to the holder of this
Warrant a brief statement of the event giving rise to such effect and a
description thereof.
(e) In case the Company at any time while this Warrant
remains unexpired and unexercised, sells all or substantially all of its
property or dissolves, liquidates, or winds up its affairs, the holder of this
Warrant may thereafter receive upon exercise hereof in lieu of each share of
Common Stock of the kind and amount of any securities or assets as may be
issuable, distributable, or payable upon any such sale, dissolution,
liquidation, or winding up with respect to each share of Common Stock of the
Company.
G-2-3
<PAGE> 66
3. Non-transferability. This Warrant may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent and distribution. This Warrant is exercisable,
during the lifetime of the Holder, only by the Holder. Any attempted
assignment, transfer, pledge, hypothecation, or other encumbrance of this
Warrant contrary to the provisions hereof, any execution, attachment, or
similar process upon this Warrant, will be null, void, and of no effect.
4. Warrant Holder Not Stockholder. This Warrant does not confer
upon the Holder any right whatsoever as a stockholder of the Company.
5. Loss, Theft, Destruction, or Mutilation. Upon receipt by the
Company of evidence satisfactory to it (in the exercise of its reasonable
discretion) of the ownership of and the loss, theft, destruction, or
mutilation of this Warrant and (in the case of loss, theft, or destruction) of
indemnity satisfactory to it (in the exercise of its reasonable discretion),
and (in the case of mutilation) upon surrender and cancellation thereof, the
Company will execute and deliver, in lieu thereof, a new Warrant of like tenor.
6. Mailing of Notices, etc. All notices and other communications
from the Company to the Holder of this Warrant shall be mailed by first-class
mail, postage prepaid, to the address of the Holder set forth above or such
other address as may be furnished to the Company in writing by the Holder of
this Warrant. All notices from the Holder of this Warrant to the Company shall
be mailed to the Company by first-class mail, postage prepaid at P.O. Drawer
612007, Dallas, Texas 75261.
7. Law Governing. This Warrant shall be construed and enforced
in accordance with and governed by the laws of the State of Delaware.
IN WITNESS WHEREOF, the Company has caused this Warrant to be
executed, sealed, and delivered, in its name by its duly authorized officers.
HARKEN ENERGY CORPORATION
By: _____________________________
Dated: _________________, 1994
G-2-4
<PAGE> 67
FORM OF SUBSCRIPTION
(To be signed only upon exercise of Warrant)
TO: Harken Energy Corporation
P.O. Drawer 612007
Dallas, Texas 75261
The undersigned, the Holder of the within Warrant numbered 94
_____, hereby irrevocably elects to exercise the purchase rights represented by
said Warrant for, and to purchase thereunder, __________ shares of Common Stock
of the Company, and herewith makes payment of $__________ therefore, and
requests that the certificates for such shares be issued in the name of and be
delivered to_____________________________________, whose address is
_____________________________________________, and if such shares do not
constitute all of the shares purchasable hereunder, that a new Warrant of like
tenor for the balance of the shares purchasable hereunder be delivered to the
undersigned.
Date: _______________________ ______________________________________
(Signature must conform in all respect
to name of holder as specified on the
face of the Warrant.)
(Print Name)
______________________________________
Signature Guaranteed By:
____________________________________
G-2-5
<PAGE> 68
AGREEMENT AND PLAN OF MERGER
EXHIBIT "N"
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (this "Agreement") is made and entered
into as of this _____ day of _____________, 1994, by and between Harken Energy
Corporation, a Delaware corporation ("Harken"), Search Acquisition Corp., a
Delaware corporation and wholly owned subsidiary of Harken (the "Company"), and
__________________________________, a ________________ resident ("Indemnitee").
RECITALS:
A. The Company was the surviving corporation of a merger with
Search Exploration Inc., a Delaware corporation ("Search"), pursuant to that
certain Agreement and Plan of Merger dated as of October ___, 1994, (the
"Merger Agreement"), by and among Harken, the Company and Search (the
"Merger").
B. McCulloch Energy, Inc., a Texas corporation ("McCulloch") was
a wholly owned subsidiary of Search prior to the Merger and as a result of the
Merger is now a wholly owned subsidiary of the Company.
C. Indemnitee has in the past served at the direction of one or
more Search and/or McCulloch (collectively, and together with the Company and
any other resulting or constituent "corporation" within the meaning of Section
145(h) of the Delaware General Corporation Law, the "Constituent Entities"), as
an officer, director or otherwise.
D. The Certificate of Incorporation of the Company requires the
Company to indemnify the officers, directors and other key employees of all
Constituent Entities to the fullest extent permitted by law and the Company
desires to maintain and clarify its obligation to protect the officers,
directors and other key employees of the Constituent Entities.
AGREEMENTS:
NOW, THEREFORE, in consideration of the foregoing premises, the
covenants contained in this Agreement, ten dollars paid in hand and other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Company, Harken and Indemnitee hereby covenant and agree as
follows:
N-1
<PAGE> 69
1. Certain Definitions.
(a) Claim: any threatened, pending, or completed action,
suit or proceeding (including, without limitation, securities laws actions,
suits, and proceedings), or any inquiry or investigation (including discovery),
whether conducted by the Company or any other Person, that Indemnitee in good
faith believes might lead to the institution of any action, suit or proceeding,
whether civil, criminal, administrative, investigative, or other.
(b) Expenses: all costs, expenses (including attorneys'
and expert witnesses' fees), and obligations paid or incurred in connection
with investigation, defending (including affirmative defenses and
counterclaims), or participating in (including on appeal), or preparing to
defend, or participate in, any Claim relating to any Indemnifiable Event.
(c) Indemnifiable Event: any event or occurrence related
to the fact that Indemnitee is or was a director, officer, employee, agent, or
fiduciary of a Constituent Entity, or is or was serving at the request of a
Constituent Entity as a director, officer, employee, trustee, agent, or
fiduciary of another corporation, partnership, joint venture, employee benefit
plan, trust, or other enterprise, or by reason of any thing done or not done by
Indemnitee in any such capacity. For purposes of this Agreement, the Company
agrees that Indemnitee's service (including, without limitation, such services
rendered in connection with the Merger and the transaction contemplated
thereby) on behalf of or with respect to any Constituent Entity shall be deemed
to be at the request of the Company.
(d) Person: any person or entity of any nature
whatsoever, specifically including an individual, a firm, a company, a
corporation, a limited liability company, a partnership, a trust, or other
entity.
(e) Special Counsel: special, independent counsel
selected by the Company and approved by Indemnitee (which approval shall not be
unreasonably withheld), and who has not otherwise performed services for the
Company or for Indemnitee within the last three years (other than as Special
Counsel under this Agreement or similar agreements).
2. Basic Indemnification and Expense Reimbursement Arrangement.
(a) In the event Indemnitee was, is, or becomes a party
to or other participant in, or is threatened to be made a party to or other
participant in, a Claim by reason of (or arising in part out of) an
Indemnifiable Event, the Company shall indemnify Indemnitee to the fullest
extent permitted by law as soon as practicable but in any event no later than
60 days after written demand is presented to the Company, against any and all
Expenses, judgments, fines, penalties, and amounts paid in settlement
(including all interest, assessments, and other charges paid or payable in
connection with or in respect of such Expenses, judgments, fines, penalties, or
amounts paid in settlement) of or with respect to that Claim. Notwithstanding
the foregoing, the obligations of the Company under this Section 2(a) shall be
subject to the condition that Special Counsel shall not have determined, in a
written opinion to the Company and Indemnitee, that Indemnitee would not be
permitted to be indemnified under this Agreement as construed by applicable
law. Nothing contained in this
N-2
<PAGE> 70
Agreement shall require any determination under this Section 2(a) to be made by
Special Counsel prior to the disposition or conclusion of the Claim against the
Indemnitee; provided, however, that Expense Advances shall continue to be made
by the Company pursuant to and to the extent required by the provisions of
Section 2(b).
(b) If so requested by Indemnitee, the Company shall pay
any and all Expenses incurred by Indemnitee (or, if applicable, reimburse
Indemnitee for any and all Expenses incurred by Indemnitee and previously paid
by Indemnitee) within two business days after such request (an "Expense
Advance"). The Company shall be obligated to make or pay an Expense Advance in
advance of the final disposition or conclusion of any Claim. In connection
with any request for an Expense Advance, if requested by the Company,
Indemnitee or Indemnitee's counsel shall submit an affidavit stating that the
Expenses incurred were reasonable. Any dispute as to the reasonableness of any
Expense shall not delay an Expense Advance by the Company, and the Company
agrees that any such dispute shall be resolved only upon the disposition or
conclusion of the underlying Claim against the Indemnitee. If, when, and to
the extent that Special Counsel determines that Indemnitee would not be
permitted to be indemnified with respect to a Claim under applicable law, the
Company shall be entitled to be reimbursed by Indemnitee and Indemnitee hereby
agrees to reimburse the Company without interest (which agreement shall be an
unsecured obligation of Indemnitee) for all related Expense Advances
theretofore made or paid by the Company. Any determination by Special Counsel
hereunder shall be conclusive and binding on the Company and Indemnitee.
(c) The Company agrees that, until it shall receive
written opinion of Special Counsel so directing, it shall not deny any
indemnification payments (and Expense Advances shall continue to be paid by the
Company pursuant to Section 2(b)) that Indemnitee requests or demands under
this Agreement or any other agreement or law now or hereafter in effect
relating to Claims for Indemnifiable Events. The Company further agrees not to
request or seek reimbursement from Indemnitee of any related Expense Advances
unless, with respect to a denied indemnification payment, Special Counsel has
rendered its written opinion to the Company and Indemnitee that the Company
would not be permitted under applicable law to pay Indemnitee such
indemnification payment. The Company agrees to pay the reasonable fees of
Special Counsel referred to in this Section 2 and to indemnify fully Special
Counsel against any and all expenses (including attorneys' fees), claim,
liabilities, and damages arising out of or relating to this Agreement or
Special Counsel's engagement pursuant hereto.
3. Indemnification for Additional Expenses. The Company shall
indemnify Indemnitee against any and all costs and expenses (including
reasonable attorneys' and expert witnesses' fees) and, if requested by
Indemnitee, shall (within 60 days of that request) advance those costs and
expenses to Indemnitee, that are incurred by Indemnitee in connection with any
claim asserted against or action brought by Indemnitee for (i) indemnification
or advance payment of Expenses by the Company under this Agreement or any other
agreement or provision of the Company's Certificate of Incorporation or By-laws
now or hereafter in effect relating to Claims for Indemnifiable Events or (ii)
recovery under any directors' and officers' liability insurance policies
maintained by the Company, regardless of whether Indemnitee ultimately is
determined to be entitled to that indemnification, advance expense payment, or
insurance recovery, as the case may be.
N-3
<PAGE> 71
4. Partial Indemnity. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of the Expenses, judgments, fines, penalties, and amounts paid in
settlement of a Claim but not, however, for all of the total amount thereof,
the Company shall nevertheless indemnify Indemnitee for the portion thereof to
which Indemnitee is entitled. Moreover, notwithstanding any other provision of
this Agreement, to the extent that Indemnitee has been successful on the merits
or otherwise in defense of any or all Claims relating in whole or in part to an
Indemnifiable Event or in defense of any issue or matter therein, including
dismissal without prejudice, Indemnitee shall be indemnified against all
Expenses incurred in connection therewith.
5. Burden of Proof. In connection with any determination by
Special Counsel or otherwise as to whether Indemnitee is entitled to be
indemnified under any provision of this Agreement, the burden of proof shall be
on the Company to establish that Indemnitee is not so entitled.
6. No Presumption. For purposes of this Agreement, the
termination of any claim, action, suit, or proceeding, by judgment, order,
settlement (whether with or without court approval), or conviction, or upon a
plea of nolo contendere, or its equivalent, shall not create a presumption that
Indemnitee did not meet any particular standard of conduct or have any
particular belief or that a court has determined that indemnification is not
permitted by applicable law.
7. Non-exclusivity. The rights of indemnitee hereunder shall be
in addition to any other rights Indemnitee may have under the Company's By-laws
or Certificate of Incorporation or the Delaware General Corporation Law or
otherwise.
8. Liability Insurance. Except as otherwise agreed to by the
Company and Indemnitee in a written agreement, to the extent the Company
maintains an insurance policy or policies providing directors' and officers'
liability insurance, Indemnitee shall be covered by that policy or those
policies, in accordance with its or their terms, to the maximum extent of the
coverage available for any Company director or officer.
9. Guaranty. Harken hereby unconditionally guarantees the prompt
payment of all obligations of the Company arising hereunder; provided that
Harken's guaranty obligations hereunder shall terminate at such time as the
Company has advanced or paid pursuant to the indemnity provided herein
(together with the aggregate amount advanced or paid by the Company pursuant to
the indemnity provided for in the other Indemnification Agreements entered into
in connection with the Merger) an amount equal to the value of the shares of
common stock, $.01 par value, of Harken based on the Strike Price (as defined
in the Merger Agreement) issued at the Effective Time in exchange for the
Search Common Stock and Search Preferred Stock (as defined in the Merger
Agreement) and will not include, without limitation, any value attributable to
the Contingent Shares (as defined in the Merger Agreement).
10. Period of Limitations. No legal action shall be brought and
no cause of action shall be asserted by or on behalf of a Constituent Entity or
any affiliate of a Constituent Entity against Indemnitee or Indemnitee's
spouse, heirs, executors, or personal or legal representatives after the
N-4
<PAGE> 72
expiration of three years from the date of accrual of that cause of action, and
any claim or cause of action of a Constituent Entity or their affiliates shall
be extinguished and deemed released unless asserted by the timely filing of a
legal action within that three-year period; provided, however, that, if any
shorter period of limitations is otherwise applicable to any such cause of
action, the shorter period shall govern.
11. Indemnification Term. Harken's indemnification guaranty
hereunder shall continue in full force and effect from the date hereof until
the latter of (i) the fifth anniversary of the date of this Agreement (the
"Claims Date"), or (ii) the date on which any and all Claims existing as of
the Claims Date against Indemnitee for which Indemnitee has given Harken
notice (whether by virtue of the Merger or otherwise) have been finally
resolved and all obligations of the Company hereunder to Indemnitee with
respect to such Claims have been satisfied.
12. Amendments. No supplement, modification, or amendment of this
Agreement shall be binding unless executed in writing by both of the parties
hereto. No waiver of any of the provisions of this Agreement shall be deemed
or shall constitute a waiver of any other provisions hereof (whether or not
similar) nor shall that waiver constitute a continuing waiver. During the term
of this Agreement, the Company agrees to keep in effect a provision in its
Certificate of Incorporation providing for the exculpation of liability for,
and the indemnification of, Indemnitee to the fullest extent permitted under
applicable law, which provision shall not be amended or repealed except as
required by applicable law or except to make changes permitted by law that
would enlarge Indemnitee's right of indemnification.
13. Subrogation. In the event of payment under this Agreement,
the Company shall be subrogated to the extent of that payment to all of the
rights of recovery of Indemnitee, who shall execute all papers required and
shall do everything that may be necessary to secure those rights, including the
execution of the documents necessary to enable the Company effectively to bring
suit to enforce those rights.
14. No Duplication of Payments. The Company shall not be liable
under this Agreement to make any payment in connection with any claim made
against Indemnitee to the extent Indemnitee has otherwise actually received
payment (under any insurance policy, provision of the Company's Certificate of
Incorporation or By-laws, or otherwise) of the amounts otherwise Indemnifiable
hereunder.
15. Binding Effect. This Agreement shall be binding upon and
inure to the benefit of and be enforceable by the parties hereto and their
respective successors, assigns (including any direct or indirect successor by
purchase, merger, consolidation, or otherwise to all or substantially all of
the business or assets of the Company), spouses, heirs, and personal and legal
representatives. This Agreement shall continue in effect regardless of whether
Indemnitee continues to serve as an officer or director of the Company or
another enterprise at the Company's request.
16. Severability. If any provision of this Agreement is held to
be illegal, invalid, or unenforceable under present or future laws effective
during the terms hereof, that provision shall be fully severable; this
Agreement shall be construed and enforced as if that illegal, invalid, or
N-5
<PAGE> 73
unenforceable provision had never comprised a part hereof; and the remaining
provisions shall remain in full force and effect and shall not be affected by
the illegal, invalid or unenforceable provision or by its severance from this
Agreement. Furthermore, in lieu of this illegal, invalid, or unenforceable
provision, there shall be added automatically as a part of this Agreement a
provision as similar in terms to the illegal, invalid or unenforceable
provision as may be possible and be legal, valid and enforceable.
17. Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of Delaware
applicable to contracts made and to be performed in that state without giving
effect to the principles of conflicts of laws.
18. Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
19. Notices. Whenever this Agreement requires or permits notice
to be given by one party to the other, such notice must be in writing to be
effective and shall be deemed delivered and received by the party to whom it is
sent upon actual receipt (by any means) of such notice. Receipt of a notice by
any officer of the Company shall be deemed receipt of such notice by the
Company.
20. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but in making proof
hereof it shall not be necessary to produce or account for more than one such
counterpart.
N-6
<PAGE> 74
EXECUTED as of the date first written above.
SEARCH ACQUISITION CORP.
By:_____________________________________
Name:
Title:
HARKEN ENERGY CORPORATION
By:_____________________________________
Name:
Title:
________________________________________
____________________________, Indemnitee
N-7
<PAGE> 1
EXHIBIT 5.1
[HARKEN ENERGY CORPORATION LETTERHEAD]
February 1, 1995
Harken Energy Corporation
5605 North MacArthur, Suite 400
Irving, Texas 75038
Re: Registration on Form S-3 of 960,000 Shares of the Common Stock
of Harken Energy Corporation; Registration No. 33-56829
Gentlemen:
This opinion is rendered in connection with the registration and sale
by certain selling stockholders under the Securities Act of 1933, as amended
(the "Securities Act"), of 960,000 shares (the "Shares") of the common stock,
par value $.01 per share (the "Common Stock"), of Harken Energy Corporation, a
Delaware corporation (the "Company"). The Shares are being registered under
the Securities Act pursuant to a Registration Statement on Form S-3 (as amended
at the time it is declared effective by the Securities and Exchange Commission
being referred to herein as the "Registration Statement"). In connection with
the opinions expressed below, I have examined and relied upon the Company's
Certificate of Incorporation, as amended, the Bylaws, and records of corporate
proceedings with respect to the authorization, issuance, and sale of the Shares
to the selling stockholders, and have made such other investigation as I have
deemed necessary for the purposes of this opinion.
Based on the foregoing, and having due regard for such legal
considerations as I have deemed relevant, I am of the opinion that:
1. The Company is a corporation duly incorporated, validly
existing, and in good standing as a corporation under the laws
of the State of Delaware.
2. The Shares have been validly issued and are fully paid and
non-assessable.
I hereby consent to the filing of this opinion with the Securities and
Exchange Commission as an Exhibit to the Registration Statement and to the use
of my name where ever contained therein and in the Prospectus constituting a
part thereof.
Sincerely,
/s/ Larry E. Cummings
Larry E. Cummings
General Counsel
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement on Form S-3 (File No. 33-56829), as
amended February 2, 1995, of our report dated March 15, 1994, included in Harken
Energy Corporation's Form 10-K for the year ended December 31, 1993, and of our
report dated December 22, 1994, on the financial statements of the CHAP Venture
included in the Form 8-K/A dated January 3, 1995, of Harken Energy Corporation
and to all references to our Firm included in this registration statement.
/s/Arthur Anderson LLP
ARTHUR ANDERSON LLP
Dallas, Texas
February 2, 1995
