As filed with the Securities and Exchange Commission on March 18, 1999
Commission File Number 33-68213
SECURITIES AND EXCHANGE COMMISSION
450 FIFTH STREET N.W.
WASHINGTON, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 2 TO
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
SARATOGA HOLDINGS I, INC.
(Exact name of Registrant as specified in charter)
TEXAS 74-2896910
(State of incorporation) (Primary Standard Industrial (IRS Employer
Classification Code Number) Identification No.)
Thomas F. Cooke
301 Congress Avenue, Suite 1550
Austin, Texas 7870
(512) 478-5717
(Address and telephone number of principal executive offices and
principal place of business or intended principal place of business. Name,
address and telephone number or agent for service.)
Please send copies of all communications to:
J. Rowland Cook
Carol Bellon
Jenkens & Gilchrist, A Professional Corporation
2200 One American Center
600 Congress Avenue
Austin, Texas 78701
(512) 499-3821
Fax: (512) 404-3520
THE SHARES WILL BE SOLD TO THE PUBLIC AS SOON AS REASONABLY POSSIBLE
AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
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]
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CALCULATION OF REGISTRATION FEE
================================================================================================================
Proposed Proposed
maximum maximum
Amount to be offering price aggregate Amount of
Title of each class of securities to be registered registered per share.* offering price registration fee
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Common Stock Offered as Dividend Shares 3,465,292 $0.003 $10,395.88 **$2.89
================================================================================================================
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* Arbitrary price as no trading market is contemplated.
**Calculated only for purposes of determining the Registration Fee; $2.97
previously paid.
The registrant hereby amends this registration statement as necessary to delay
its effective date until the registrant files a further amendment, which
specifically states that this registration statement will become effective in
accordance with Section 8(a) of the Securities Act of 1933 or until the
registration statement becomes effective on a date that the Commission
determines.
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PRELIMINARY PROSPECTUS DATED MARCH 18, 1999, SUBJECT TO COMPLETION
SARATOGA HOLDINGS I, INC.
3,465,292 SHARES OF COMMON STOCK
Saratoga Resources, Inc., a Delaware corporation, intends to spin off
its wholly-owned subsidiary, Saratoga Holdings I, Inc., a Texas corporation, by
distributing as a dividend to its own stockholders, one share of the common
stock of Saratoga Holdings for each share of the parent's stock. However,
because California, Georgia, Iowa, Pennsylvania and Utah do not appear to
provide an exemption from registration for the distribution of the common stock,
the parent will pay the dividend in cash to stockholders who reside in those
states at a rate of $0.003 per share. The parent's stockholders will not be
charged for the dividend shares and neither Saratoga Holdings nor the parent
will receive any proceeds from this distribution.
Prior to this offering, there has been no public market for the common
stock.
WE URGE YOU TO READ THIS PROSPECTUS CAREFULLY SINCE IT CONTAINS
INFORMATION THAT IS IMPORTANT TO YOU. ALSO, PAY PARTICULAR ATTENTION TO THE
"RISK FACTORS" BEGINNING ON PAGE 5.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATOR HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The information in this prospectus is not complete and may be changed.
We may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
The date of this prospectus is March __, 1999
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TABLE OF CONTENTS
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PROSPECTUS SUMMARY INFORMATION...............................................................4
SARATOGA HOLDINGS ...........................................................................4
THE OFFERING.................................................................................4
RISK FACTORS.................................................................................5
Lack of Operating History............................................................5
Insufficiency of Capital ............................................................5
Our Accounts Receivable may not be Collectible.......................................5
Saratoga Holdings is not a Licensed Debt Collection Company .........................5
Our Success in Collecting Accounts Receivable is Dependent upon a Third Party........5
Conflict of Interest of the President................................................6
One Shareholder will Control the Policies and Procedures of Saratoga Holdings........6
Only One Employee has Experience ....................................................6
Loss of Services of Mr. Cooke........................................................6
Saratoga Holdings is Relying on a Third Party for Compliance with Federal and
State Regulations...................................................................6
Absence of Trading Market............................................................7
Regulations Affecting the Price and Marketability of Saratoga Holdings Stock ........7
Restrictions on Sales by Affiliates..................................................7
We Cannot Predict the Effect of Resales of our Securities on the Price of the
Common Stock........................................................................7
Saratoga Holdings Does Not Have Insurance............................................7
There is Substantial Competition for the Purchase of Accounts Receivable.............8
The Year 2000 Issue Could Adversely Effect the Business..............................8
Saratoga Holdings Probably Will Not Pay Any Cash Dividends...........................8
Stockholders of the Parent May be Taxed on the Dividend..............................8
FORWARD-LOOKING INFORMATION..................................................................8
SARATOGA HOLDINGS............................................................................9
INFORMATION CONCERNING THE PARENT ...........................................................9
USE OF PROCEEDS.............................................................................10
FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION.........................................10
Federal Income Tax Consequences ....................................................10
DETERMINATION OF OFFERING PRICE.............................................................11
PLAN OF DISTRIBUTION........................................................................11
Introduction........................................................................11
Method of Distribution and Subsequent Trading.......................................12
Regulations Affecting the Price and Marketability of Saratoga Holdings Stock .......12
DIVIDENDS...................................................................................13
CAPITALIZATION..............................................................................13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION........................................................................14
Liquidity...........................................................................15
The Year Two Thousand...............................................................15
THE BUSINESS................................................................................16
The Industry........................................................................16
Business Strategy...................................................................17
Research and Development Activities.................................................17
Compliance with Environmental Laws..................................................18
Competition for Accounts Receivable.................................................18
Customers and Suppliers.............................................................18
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Government Regulation...............................................................18
Employees...........................................................................19
Properties..........................................................................19
WHERE YOU CAN GET MORE INFORMATION..........................................................19
MANAGEMENT..................................................................................20
Directors and Executive Officers....................................................20
Compensation of Directors and Executive Officers....................................20
PRINCIPAL SHAREHOLDERS......................................................................21
Ownership of the Common Stock of Saratoga Holdings..................................21
Ownership of the Parent's Common Stock..............................................22
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..............................................22
DESCRIPTION OF SECURITIES...................................................................23
Common Stock........................................................................23
Preferred Stock.....................................................................23
Anti-Takeover Provisions............................................................23
Indemnification of Officers and Directors; Limitation of Director Liability.........24
SHARES ELIGIBLE FOR FUTURE SALE.............................................................24
TRANSFER AGENT..............................................................................26
LEGAL MATTERS...............................................................................26
EXPERTS ....................................................................................26
INDEX TO FINANCIAL STATEMENTS..............................................................F-1
INDEPENDENT AUDITOR'S REPORT...............................................................F-2
BALANCE SHEET..............................................................................F-3
NOTES TO FINANCIAL STATEMENTS..............................................................F-4
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Dealer Prospectus Delivery Obligation
Until ___________, 1999, all dealers that effect transactions in these
securities, whether or not participating in this offering, may be required to
deliver a prospectus. This is in addition to the dealers' obligation to deliver
a prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
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PROSPECTUS SUMMARY INFORMATION
Please read all of this prospectus carefully. It describes Saratoga
Holdings, its finances and products. Federal and state securities laws require
that we include in this prospectus all important information that investors will
need to make an investment decision. You should rely only on the information
contained in this prospectus to make your investment decision. We have not
authorized anyone to provide you with information that is different from what is
contained in this prospectus. The following is a summary of some of the
information contained in this prospectus. However, you should not rely on the
summary but should also read the more detailed information in this prospectus.
SARATOGA HOLDINGS
Saratoga Resources, Inc. incorporated Saratoga Holdings I, Inc. under
the laws of the State of Texas on October 29, 1998 with a view toward the
distribution of the dividend shares as described in this prospectus. Saratoga
Holdings is in the business of purchasing portfolios of accounts receivable at a
discount and of collecting receivables or reselling them in the same or in
differently configured portfolios. Saratoga Holdings is not a licensed debt
collection agency, and thus has retained a third party to collect those accounts
in exchange for a commission equal to 30% of the amount collected. Saratoga
Holdings had no predecessors and no history prior to its date of organization.
Saratoga Holdings' present address is c/o Saratoga Resources, Inc., 301 Congress
Avenue, Suite 1550, Austin, Texas 78701, telephone:
(512) 478-5717.
THE OFFERING
Type of Security Offered Common Stock, $0.001 par value per
share
Number of Outstanding Shares 3,766,667 shares
Common Stock Offered as Dividend Shares 3,465,292 shares
Common Stock Outstanding After Offering 3,766,667 shares
The parent had 3,465,292 shares outstanding as of March 15, 1999. It
will distribute shares of Saratoga Holdings common stock to all of its
stockholders except those residing in California, Georgia, Iowa, Pennsylvania
and Utah. Instead of 7,366 shares of Saratoga Holdings' common stock, the parent
will pay stockholders in those states cash in the aggregate amount of
approximately $22.10 or $0.003 per share.
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RISK FACTORS
You should consider the common stock of Saratoga Holdings to be an
investment involving a high degree of risk. You should read this entire
prospectus and carefully consider the risk involved with this investment,
including the following factors.
LACK OF OPERATING HISTORY
Because of our lack of operating history, there is no assurance that
Saratoga Holdings will be successful or that the stock of Saratoga Holdings will
have any value. Saratoga Holdings was organized in October 1998 and did not
begin operations until after it purchased accounts receivable on November 12,
1998. See "Saratoga Holdings" and "The Business."
INSUFFICIENCY OF CAPITAL
Without the loan and administrative support from its parent, Saratoga
Holdings does not have sufficient capital to conduct the business and presently
has no other credit facilities or identifiable sources of additional capital at
this time. As a result, Saratoga Holdings' independent accountants have issued a
going concern opinion. Saratoga Holdings had initial assets totaling $11,300, of
which approximately $10,300 was spent to acquire accounts receivables. The only
other current source of capital is a revolving loan from a subsidiary of the
parent to cover expenses up to $40,000 during the first 18 months of operations.
Although Thomas F. Cooke will control the management of both the parent and
Saratoga Holdings immediately after this offering, he has advised both companies
that he plans to treat them as separate, independent entities. See "Management's
Discussion and Analysis of Financial Condition Liquidity."
OUR ACCOUNTS RECEIVABLE MAY NOT BE COLLECTIBLE
There is no assurance that we will be able to collect our receivables
which is our only source of revenue. On November 12, 1998, we acquired 149
accounts receivable having an aggregate unpaid balance of $223,907.05 in
exchange for a purchase price of $10,299.72. We purchased the receivables
without recourse which means that the seller of the receivables will not be
obligated to us for any amount if we are unable to collect any or all of the
them. In addition, the seller did not provide Saratoga Holdings with any
representations as to the character, accuracy or sufficiency of the information
provided to us about the receivables. Therefore, even if the receivables are
uncollectible, we may not have any remedy or recourse against the seller. See
"Saratoga Holdings" and "The Business."
SARATOGA HOLDINGS IS NOT A LICENSED DEBT COLLECTION COMPANY
Saratoga Holdings does not have any license to operate as a debt
collection company. Instead of obtaining the necessary licenses, it has
transferred its accounts receivable to a licensed debt collection company for
collection. There is no assurance that Saratoga Holdings would be able to obtain
the necessary licenses to operate as a debt collection company. Therefore, it
may always be necessary for it to rely upon a third party to collect its
accounts. See "The Business -- Government Regulation."
OUR SUCCESS IN COLLECTING ACCOUNTS RECEIVABLE IS DEPENDENT UPON A THIRD PARTY
Our success in collecting the accounts receivable is largely dependent
upon the efforts of a third party debt collection company that is affiliated
with Mr. Johnson, the President of Saratoga Holdings. Saratoga Holdings has
entered into a service agreement that provides that the collection company will
use reasonable efforts to collect the receivables and authorizes it to settle
any of the receivables for 50% or more of the outstanding balance. In exchange
for the services provided under the service agreement, the collections company
is entitled to retain 30% of the amount collected as a commission. See "Saratoga
Holdings," "The Business" and "Risk Factors -- Conflict of Interest of the
President."
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CONFLICT OF INTEREST OF THE PRESIDENT
Randall Johnson, the president of Saratoga Holdings, is also a
shareholder, officer and director of both the company that sold the receivables
to Saratoga Holdings and of the company we have retained to collect the
receivables. We may purchase additional receivables from the same company and
may retain the same collection company to collect any or all of those additional
receivables. Because of Mr. Johnson's conflict of interest, the purchase of the
receivables by Saratoga Holdings and the agreement with the collection company
to collect the accounts receivable may benefit the seller and the collection
company at the expense of Saratoga Holdings. See "Risk Factors -- Only One
Employee has Experience" and "Certain Relationships and Related Transactions."
ONE SHAREHOLDER WILL CONTROL THE POLICIES AND PROCEDURES OF SARATOGA HOLDINGS
Mr. Thomas F. Cooke, both individually and as the sole director of
Saratoga Holdings, will control Saratoga Holdings' policies and procedures both
before and after the offering. After the sale of the shares and the distribution
of the dividend shares, Thomas F. Cooke, the sole director, chief executive
officer and secretary of Saratoga Holdings, will be the owner of approximately
59% of our common stock and will also control an additional 308,741 shares held
by the parent and 150,000 shares held by the parent's wholly-owned subsidiaries.
See "Principal Shareholders."
ONLY ONE EMPLOYEE HAS EXPERIENCE
Mr. Johnson is the sole employee of Saratoga Holdings who has any
experience with respect to our business. The loss of the services of Mr. Johnson
could have a material adverse effect on the business. If Mr. Johnson resigned
and we could not find a replacement for him, we could be forced to rely on
outside advisors. However, because Saratoga Holdings has extremely limited
funds, it is unlikely that it would be able to afford to pay any outside
consultant. In addition, Mr. Johnson is not employed by Saratoga Holdings on a
full time basis. We estimate that he will devote approximately one-third of his
time to the affairs of Saratoga Holdings, including the collection of the
receivables. See "Rick Factors -Conflict of Interest of the President" and
"Management."
LOSS OF SERVICES OF MR. COOKE
The success of our business is dependent upon the services of Mr. Thomas
F. Cooke, the sole director, chief executive officer, secretary and treasurer of
Saratoga Holdings. If Mr. Cooke were to resign, Saratoga Holdings would probably
not be successful.
SARATOGA HOLDINGS IS RELYING ON A THIRD PARTY FOR COMPLIANCE WITH FEDERAL AND
STATE REGULATIONS
We are relying on the third party that is collecting our accounts
receivable to comply with all federal and state regulations affecting the
business. This includes compliance with various federal and state statutes,
including the Federal Fair Debt Collection Practices Act which establishes
specific guidelines and procedures which debt collectors must follow in
communicating with consumer debtors, including the time, place and manner of
communications. It also includes compliance with the Fair Credit Reporting Act
which regulates the consumer credit reporting industry and which may impose
liability on Saratoga Holdings to the extent that the adverse credit information
reported on a consumer to a credit bureau is false or inaccurate. The debt
collection business is also subject to state regulation. Saratoga Holdings is
not licensed as a debt collection company and does not anticipate applying for
any license. Instead, Saratoga Holdings is relying upon an unaffiliated third
party to collect its receivables. If the collection company fails to comply with
applicable statutes and regulations, that could have a material adverse effect
on Saratoga Holdings. See "The Business -- Government Regulation."
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ABSENCE OF TRADING MARKET
There is currently no market for trading Saratoga Holdings' common stock
and no assurance that a market will ever develop or, if established, will be
maintained. Saratoga Holdings common stock does not now, and may never qualify
for listing on the Nasdaq SmallCap Market(SM) or any securities exchange. In the
absence of an over-the-counter market in Saratoga Holdings' common stock, or
listing on an exchange, holders of the common stock will be unable to sell their
shares through normal brokerage channels and may be unable to determine the
value of their securities accurately. Consequently, selling our shares will
probably be more difficult because, for example, smaller quantities of shares
could be bought and sold, and transactions could be delayed. Saratoga Holdings
has not had any discussions with any market makers regarding participation as a
market maker for these securities. See "Description of Securities" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
REGULATIONS MAY MAKE IT MORE DIFFICULT TO SELL OUR SHARES
Because of the low price of our common stock and the fact that it is not
listed on The Nasdaq SmallCap Market(SM) or any exchange, the shares may be
subject to a number of regulations which may affect the price of the shares and
your ability to sell the shares in the secondary market. See "Regulations
Affecting the Price and Marketability of Saratoga Holdings Stock."
RESTRICTIONS ON SALES BY AFFILIATES
If you are an affiliate of Saratoga Holdings under the rules and
regulations of the Securities and Exchange Commission you may not sell shares of
Saratoga Holdings' common stock unless you comply with Rule 144 or another
exemption from registration. You will be deemed an affiliate if you are an
officer or director of Saratoga Holdings or if you beneficially own 5% or more
of its securities. Saratoga Holdings believes that the only shareholders who may
be affiliates are Mr. Cooke, Mr. Kevin Smith, a director of the parent, and Mr.
Johnson, the president of Saratoga Holdings. See "Management" and "Principal
Shareholders."
WE CANNOT PREDICT THE EFFECT OF RESALES OF OUR SECURITIES ON THE PRICE OF THE
COMMON STOCK
We are unable to predict the effect that sales made under Rule 144 or
otherwise, may have on the then prevailing market price of our common stock. It
is likely that market sales of large amounts of the shares offered in this
prospectus or other shares of Saratoga Holdings (or the potential for those
sales even if they do not actually occur), will have the effect of depressing
the market price of our common stock.
See "Description of Securities -- Shares Eligible for Future Sale."
SARATOGA HOLDINGS DOES NOT HAVE INSURANCE
Saratoga Holdings currently does not carry any insurance, but instead
relies on general liability insurance carried by the company it has retained to
collect the receivables. If Saratoga Holdings suffered a liability beyond the
limits of or outside the scope of the collection company's insurance coverage,
it could have an adverse effect on our business.
THERE IS SUBSTANTIAL COMPETITION FOR THE PURCHASE OF ACCOUNTS RECEIVABLE
We compete with other debt collection companies and wholesalers of
accounts receivable for the purchase of quality accounts receivable. Competition
for the purchase of accounts receivable is significant. Various industry sources
list as many as 300 purchasers of bad debt in the United States.
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There are numerous companies specializing in the purchase of accounts receivable
that have substantially greater resources and broader geographic coverage than
Saratoga Holdings. See "The Business -Competition for Accounts Receivable."
If we decided to expand our business into the accounts receivable
management business, we would encounter significant competition. See "The
Business -- Competition For Accounts Receivable."
THE YEAR 2000 ISSUE COULD ADVERSELY EFFECT THE BUSINESS
If various third parties, including any company collecting our accounts
receivable, do not successfully achieve year 2000 compliance, Saratoga Holdings'
business and results of operations could be adversely affected, resulting from,
among other things, Saratoga Holdings' inability to properly exchange and/or
receive data. In addition, if our transfer agent does not achieve year 2000
compliance, that would have an adverse effect on your ability to trade the
common stock. See "Management's Discussion and Analysis of Financial Condition
and Results of Operation -- The Year Two Thousand."
SARATOGA HOLDINGS PROBABLY WILL NOT PAY ANY CASH DIVIDENDS
We intend to retain any earnings we receive to fund the operation and
expansion of our business. We do not anticipate paying cash dividends on our
shares in the foreseeable future. See "Description of Securities -- Common
Stock" and "Dividend Policy."
STOCKHOLDERS OF THE PARENT MAY BE TAXED ON THE DIVIDEND
There is a risk that the stockholders of the parent may be taxed on the
dividend. The parent will report the amount of the dividend distribution to the
Internal Revenue Service based on the net book value of Saratoga Holdings on the
date of the distribution. However, the Internal Revenue Service may disagree and
attribute a substantially higher fair market value to the common stock. If it
did so, the tax impact on the stockholders of Saratoga Resources would increase
significantly and would not be minimal.
See "Federal Income Tax Consequences of the Distribution."
FORWARD-LOOKING INFORMATION
Some of the statements contained in this prospectus, relate to future
expectations, contain projections of results of operations or financial
conditions or include other forward-looking information. Those statements are
subject to known and unknown risks, uncertainties and other factors that could
cause the actual results to differ materially from those contemplated by the
statements. The forward-looking information is based on various factors and
assumptions. Important factors that may cause actual results to differ from
projections include, for example,
o the success or failure of our efforts to implement our business
strategy
o our ability to collect or resell the receivables on favorable
terms
o our ability to purchase additional portfolios of past due
accounts receivable
o our ability to engage other collection companies to collect our
receivables
o the effect of changing economic conditions
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o our ability to attract and retain qualified employees
o other risks which may be described in our future filings with
the SEC, however we do not promise to update forward-looking
information to reflect, for example, actual results or changes
in assumptions.
SARATOGA HOLDINGS
Saratoga Resources, Inc. incorporated Saratoga Holdings I, Inc. under
the laws of the State of Texas on October 29, 1998 with a view toward beginning
a new debt collection business and making the distribution of the dividend
shares as described in this prospectus. Saratoga Holdings is in the business of
purchasing portfolios of accounts receivable at a discount and of collecting
receivables or reselling them in the same or in differently configured
portfolios. As of November 12, 1998, its total assets consisted of one portfolio
of accounts receivable with a face value of $223,907.05 for which it paid
approximately $10,300 in cash. With respect to this first portfolio, Saratoga
Holdings has retained a third party to collect those accounts in exchange for a
commission equal to 30% of the amount collected. Saratoga Holdings had no
predecessors and no history prior to its date of organization. See "Management's
Discussion and Analysis of Financial Condition and Results of Operation" and
"The Business."
Saratoga Holdings is a wholly owned subsidiary of Saratoga Resources,
Inc., a Delaware corporation. The parent of Saratoga Holdings is in the business
of oil and gas which is separate and distinct from Saratoga Holdings' business.
The purpose of the spin-off of Saratoga Holdings is to separate the two
businesses so that over time the management of each of the businesses will be
able to focus solely on its own business. Another purpose of the spin-off is to
provide employees of Saratoga Holdings with stock-based incentives which are
tied solely to Saratoga Holdings. In addition, Saratoga Holdings hopes to
enhance access to financing by enabling the financial community to focus on
Saratoga Holdings.
INFORMATION CONCERNING THE PARENT
Saratoga Resources is a Delaware corporation whose main focus is the
development of and exploration for oil and natural gas reserves, primarily in
the Gulf Coast area of the United States. The parent conducts all of its
operations through its subsidiaries, Saratoga Resources, Inc., a Texas
corporation, Lobo Energy, Inc., a Texas corporation, and Lobo Operating, Inc., a
Texas corporation. In 1996, the parent and its subsidiaries entered into a
Compromise and Settlement Agreement providing for the foreclosure sale of all of
its assets. Under the terms of that agreement, all of the parent's material
liabilities were settled. The parent's principal asset at the time of the
completion of the sale consisted of approximately $1,500,000 in cash which has
been available for the pursuit of new business opportunities or for other
corporate purposes. The parent and its subsidiaries, as of September 30, 1998,
had approximately $393,000 in cash and $70,000 in oil and gas related assets,
including seismic information. At September 30, 1998, the parent employed two
part-time employees, including Thomas F. Cooke who serves as the chief executive
officer and an office manager. The parent through its subsidiaries is generating
prospects for oil and gas exploration and development through the use of its
extensive database of seismic information and well log information. In addition,
it is evaluating acquisition and merger opportunities in the oil and gas
industry as well as other industries.
Saratoga Resources is a public company and had 3,465,292 shares of
common stock outstanding as of December 31, 1998. As of that date, it had at
least 1,374 stockholders.
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USE OF PROCEEDS
Neither Saratoga Holdings nor its sole shareholder will receive any
proceeds from this offering.
FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION
The following discussion is a summary of the material U.S. federal
income tax consequences of the distribution of Saratoga Holdings' shares to its
parent's stockholders. However, it is not a complete discussion of all potential
tax effects that might be relevant to the distribution. It also is limited to
domestic non-corporate stockholders. It may not apply to some classes of
taxpayers, including corporations, nonresident aliens, insurance companies,
tax-exempt organizations, financial institutions, securities dealers, and
broker-dealers. Taxpayers in any of these or similar categories should consult
their own tax advisors regarding the tax consequences of the distribution.
The following summary is based on laws, regulations, rulings, practice
and judicial decisions in effect at the date of this registration statement.
Legislative, regulatory, or interpretive changes, or future court decisions or
interpretations may or may not be retroactive and could affect the tax
consequences described herein. PLEASE CONSULT WITH YOUR OWN TAX ADVISOR AS TO
THE TAX CONSEQUENCES TO YOU OF THE DISTRIBUTION OF SARATOGA HOLDINGS' SHARES.
FEDERAL INCOME TAX CONSEQUENCES
The parent does not intend to request a ruling from the Internal Revenue
Service regarding the federal income tax consequences of the distribution.
However, based on the facts of the proposed transaction, it is the opinion of
management of the parent that the transaction will not qualify as a tax free
spin off under Section 355 of the Internal Revenue Code of 1986. Rather, the
parent will report the transaction as a taxable distribution.
The amount of the distribution for tax purposes is equal to the fair
market value of Saratoga Holdings' common stock on the date of the distribution.
The net book value of Saratoga Holdings on the date of the distribution is
expected to be approximately $0.003 per share. This is the amount that the
parent intends to report as the taxable value of the distribution per share.
Holders of the parent's common stock will be taxed on the distribution
as a dividend to the extent of the parent's consolidated current and accumulated
earnings and profits, computed as of the close of the tax year in which the
distribution occurs. For the year ended December 31, 1998, the parent had no
accumulated consolidated earnings and profits. The parent does not anticipate
having any current consolidated earnings and profits for the year ending
December 31, 1999. Thus, no portion of the distribution should be taxed as an
ordinary dividend.
Instead, the distribution should first reduce a shareholder's adjusted
basis in the common stock of the parent, but not below zero. If the amount of
the distribution would have the effect of reducing a shareholder's adjusted
basis in his common stock of the parent below zero, the excess will be treated
as a gain from the sale or exchange of property. If the common stock of the
parent is a capital asset in the hands of the shareholder, the gain will be a
capital gain, either long-term or short-term depending upon whether the
shareholder held the parent's common stock for more than 12 months. The maximum
federal income tax rate on long-term capital gains is 20%, while the maximum
federal income tax rate on short-term capital gains is 39.6%.
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A shareholder's tax basis in the Saratoga Holdings common stock received
in the distribution will equal the fair market value of the common stock on the
date of the distribution. The holding period for measuring a shareholder's gain
or loss on a subsequent sale of the Saratoga Holdings common stock will
generally begin on the day following the date of the distribution.
The foregoing statements are the opinion of the parent's management. The
Internal Revenue Service is not bound by and may not agree with the position of
management regarding the value of the Saratoga Holdings common stock or the
other matters discussed above. If the Internal Revenue Service were to
successfully assert that a substantially higher value should be placed on the
amount of the distribution, the tax impact would increase significantly and
would not be minimal. The parent would recognize gain to the extent the value
placed on the amount of the distribution exceeded its adjusted basis in the
stock which approximates the net book value of Saratoga Holdings. The
shareholders of the parent would be taxed on the amount determined for the
distribution as a dividend to the extent of any current year or accumulated
earnings and profits of the parent, including any gain recognized by the parent
on the distribution of the Saratoga Holdings common stock, and would recognize
gain on the balance of the distribution to the extent it exceeded their adjusted
basis in shares of the parent owned by them.
AS A SHAREHOLDER OF THE PARENT YOU ARE URGED TO CONSULT WITH A TAX
ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO YOU OF THE DISTRIBUTION,
INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS,
AND OF ANY CHANGE IN THE LAWS.
DETERMINATION OF OFFERING PRICE
There is no market for trading Saratoga Holdings' securities. The net
book value of Saratoga Holdings on the date of the distribution is expected to
be approximately $0.003 per share which is the price that the parent paid for
all of the common stock of Saratoga Holdings that is currently outstanding.
PLAN OF DISTRIBUTION
INTRODUCTION
In October, 1998, the parent purchased 3,766,667 shares of common stock
from Saratoga Holdings for $11,300 in cash. The board of directors of the parent
believes that it will be beneficial to spin off approximately 3,465,292 of those
shares in order to pursue strategic alternatives and to position Saratoga
Holdings for future growth. Saratoga Holdings' management believes that this
transaction has the greatest potential for enhancing the competitive position of
the business and thereby enhancing overall shareholder value. The board of
directors of the parent has declared a stock dividend, and has authorized the
distribution of the dividend shares subject to the effectiveness of the
registration statement covering the shares.
It is expected that Saratoga Holdings will expend a total of
approximately $26,003 for legal fees, printing, organization costs and other
costs involved in the distribution of the dividend shares to the shareholders of
the parent.
METHOD OF DISTRIBUTION AND SUBSEQUENT TRADING
No underwriters are involved or are expected to be involved in the
offering. The parent will distribute the common stock of Saratoga Holdings to
its shareholders as a dividend for no consideration. It
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intends to mail certificates representing the dividend shares on or about
____________, 1999 or as soon thereafter as reasonably possible to holders of
Saratoga common stock of record on _____________, 1999. It will distribute the
dividend on the basis of one share of Saratoga Holdings' common stock for each
one share of its own issued and outstanding common stock. It does not anticipate
issuing certificates for fractional shares. The parent will not require the
holders of the parent's common stock to make any payment or take any other
action in connection with the dividend shares.
There would be approximately 1,374 shareholders of Saratoga Holdings if
the parent distributed Saratoga Holdings' shares to all of the parent's
shareholders. However, because Saratoga Holdings will distribute cash instead of
shares to those shareholders who reside in California, Georgia, Iowa,
Pennsylvania and Utah, Saratoga Holdings believes that there will be
approximately 1,112 shareholders of Saratoga Holdings after the distribution.
Saratoga Holdings has not applied to register this offering in any state. If any
other state does not have an exemption for the offering, Saratoga Holdings
probably will distribute cash instead of shares in that state as well. No shares
of Saratoga Holdings may be traded in any state until after Saratoga Holdings
complies with all of the state's securities laws. In addition, there is no
assurance that any shares of Saratoga Holdings will be eligible for sale or
resale in any jurisdiction.
The parent or Saratoga Holdings will mail a copy of this prospectus to
each holder of record of the parent's common stock on _____________, 1999
together with stock certificates representing the dividend shares or cash, as
applicable. Saratoga Holdings will also mail copies of this prospectus to
brokers and dealers who are known to trade or make a market in the parent's
common stock and to other brokers and dealers who may reasonably be expected in
the future to trade or make a market in Saratoga Holdings' common stock.
However, Saratoga Holdings does not anticipate that an active market for its
common stock will develop within the foreseeable future. Moreover, there can be
no assurance that any trading market will develop at any time.
REGULATIONS AFFECTING THE PRICE AND MARKETABILITY OF SARATOGA HOLDINGS STOCK
Because of the low price of our common stock and the fact that it is not
listed on The Nasdaq SmallCap Market(SM) or any exchange, the shares may be
subject to a number of regulations which may affect the price of the shares and
your ability to sell the shares in the secondary market.
For example, Rule 15g-9 under the Securities Exchange Act may affect the
ability of broker-dealers to sell the shares and may affect your ability to sell
the common stock in the secondary market. Rule 15g-9 generally applies to shares
that are not listed on The Nasdaq SmallCap Market(SM) or any stock exchange. The
rule imposes additional sales practice requirements on broker-dealers that sell
low-priced securities to persons other than established customers and
institutional accredited investors. For transactions covered by this rule, a
broker-dealer must make a special suitability determination for the purchaser
and have received the purchaser's written consent to the transaction.
In addition, because the penny stock rules probably will apply to our
shares, investors in this offering probably will find it more difficult to sell
their securities. The Securities and Exchange Commission's regulations define a
penny stock to be any equity security that has a market price or exercise price
of less than $5.00 per share, subject to some exceptions. The penny stock rules
require a broker-dealer to deliver a standardized risk disclosure document
prepared by the Securities and Exchange Commission, to provide the customer with
additional information including current bid and offer quotations for the penny
stock, the compensation of the broker-dealer and its salesperson in the
transaction, monthly account statements showing the market value of each penny
stock held in the customer's account, and to make a special written
determination that the penny stock is a suitable investment for the purchaser
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and receive the purchaser's written agreement to the transaction. These
requirements probably will reduce the level of trading activity in the secondary
market for the common stock and may severely and adversely affect the ability of
broker-dealers to sell our securities.
DIVIDENDS
Saratoga Holdings has not paid any dividends on its common stock and
does not anticipate paying any dividends in the foreseeable future.
CAPITALIZATION
The following table shows the capitalization of Saratoga Holdings as of
November 12, 1998. The offering will not result in any changes to the
capitalization.
As of
NOVEMBER 12, 1998
-----------------
Debt $ 0.00
Shareholder's Equity
Preferred stock, $0.001 par value, 100,000
shares authorized, none issued or outstanding --
Common stock, $0.001 par value, 100,000,000
shares authorized, 3,766,667
issued and outstanding $ 3,766.66
Additional paid in capital $ 7,533.33
Total Shareholder's Equity $11,300.00
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
Saratoga Holdings has no operations or assets other than, as of November
12, 1998, a portfolio of accounts receivable with an aggregate unpaid balance of
$223,907.05 for which it paid approximately $10,300 in cash. The majority of the
accounts receivable represent consumer debt, mostly relating to past due credit
card obligations.
Effective November 12, 1998, Saratoga Holdings entered into a service
agreement under which it has engaged a debt collection company to collect the
receivables. The service agreement authorizes the collection company to settle
any of the receivables transferred for collection for 50% or more of the
outstanding balance. In exchange for the services provided under the service
agreement, the collection company is entitled to retain a commission equal to
30% of the amount collected.
Based upon the experience of its president, who is also an officer and
director of the seller of the portfolio and of the collection company, Saratoga
Holdings believes that total revenues from the collection of a portfolio should
be approximately 20% to 40% of the face value of the portfolio, depending upon
the quality of the portfolio and the success of collection efforts. This would
result in potential collections of approximately $44,000 to $88,000 of its
current portfolio of receivables. After deducting commissions and expenses,
Saratoga Holdings should receive approximately $31,000 to $61,000, provided,
however, no assurance can be given that these accounts will be collected to this
extent. After four to six months of collection efforts, Saratoga Holdings
intends to sell the balance of the portfolio and anticipates that it may be able
to do so for approximately half of its original cost of the uncollected
receivables.
Saratoga Holdings intends to apply a substantial portion of any amounts
recovered from the collection of the receivables (after payment of the
commissions) to purchase additional receivables. We hope that we will be able to
collect a sufficient amount from the portfolio to reinvest the net revenues in a
new portfolio approximately every four to six months. Saratoga Holdings may
purchase additional receivables from the same seller or from other sellers which
include the following:
o the 50 largest banks in the United States;
o other credit agencies and lenders; and
o large wholesalers of accounts receivable that purchase
receivables from lenders.
Saratoga Holdings uses several criteria to select accounts for purchase
in an effort to determine the overall collectibility of the accounts. These
criteria include age, collection experience, and the demographics of the
package. Saratoga Holdings looks for portfolios that are predominately comprised
of accounts with the following characteristics:
o they are less than three years in default;
o they previously have not been placed with a collection
agency; and
o they represent debts originating in states whose
populations generally have higher personal incomes and
less restrictive debt collection laws.
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LIQUIDITY
Because Saratoga Holdings has limited cash, its independent accountants
believe there is substantial doubt about its ability to continue as a going
concern. However, Saratoga Holdings believes that it will be able to meet its
obligations because its only material expenses (other than commissions which
will be paid out of collections) are legal and accounting and, after this
registration statement becomes effective, reporting expenses. A wholly owned
subsidiary of the parent has agreed to provide a revolving line of credit to
Saratoga Holdings up to a maximum of $40,000 at an interest rate of 10% per year
to cover these legal, accounting and reporting expenses for the first 18 months
of operations. The terms of the line of credit are set forth in a note dated
effective November 12, 1998. If Saratoga Holdings does not become profitable,
the lender intends to treat the debt as a capital contribution.
Saratoga Holdings hopes that it will be able to support some of its
operations though the collection of accounts receivable. It hopes to begin to
realize revenues from the collection efforts of the collection company as early
as March 1999. In addition to revenues, Saratoga Holdings may attempt to borrow
money to use toward the purchase of additional receivables. Saratoga Holdings
would offer the accounts receivables purchased with the proceeds of the loan as
collateral for the loan.
THE YEAR TWO THOUSAND
Saratoga Holdings, like many companies, faces the Year 2000 issue. Many
computer programs use two digits rather than four (for example, "98" for 1998)
to define dates. As a result, any programs that have time-sensitive software may
recognize a date using "00" for the year 2000 as the year 1900 rather than the
year 2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things a temporary inability
to process transactions or engage in other normal business activities.
Saratoga Holdings does not own or operate any computer systems. However,
it uses the computer hardware and software of the parent for general accounting
and business purposes. The parent believes that its computer systems and
software are Year 2000 compliant because it purchased them within the past two
years. However, the parent is in the process of seeking assurances of this fact
from its hardware and software vendors. If any of these systems are not Year
2000 compliant, the parent will modify or replace portions of its hardware and
software prior to the end of this year.
In addition, Saratoga Holdings has gathered information about the Year
2000 compliance status of various third parties, including its transfer agent
and the company that it has retained to collect its current portfolio of
accounts receivable. The collection company has reported to Saratoga Holdings
that it is Year 2000 compliant and the transfer agent has represented that it is
in the process of becoming Year 2000 compliant. To date, Saratoga Holdings is
not aware of any third party with a Year 2000 Issue that would materially impact
its results of operations, liquidity, or capital resources. However, Saratoga
Holdings has no means of ensuring that all third parties will be Year 2000
ready.
Because Saratoga Holdings does not have any of its own computer hardware
or software, Saratoga Holdings believes that there will be no material cost
involved in its Year 2000 compliance efforts. For that same reason, Saratoga
Holdings has no contingency plans in place.
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THE BUSINESS
Saratoga Holdings is in the business of collecting past-due accounts
receivables. Saratoga Holdings intends to grow its business by reinvesting a
substantial portion of the net revenues it receives from the collections in the
purchase of additional receivables.
Saratoga Holdings currently is not licensed as a debt collection company
and does not collect receivables directly. Instead, it has retained a debt
collection company to collect the accounts in exchange for a commission.
Saratoga Holdings has chosen not to become licensed because of the significant
cost associated with that process. It believes that outsourcing those services,
on a competitive basis, is the most fiscally sound approach until it is in a
position to purchase a significantly higher volume of accounts receivable.
Saratoga Holdings will choose collection agencies on a case-by-case basis and
will exclude interested officers and directors from the decision making process.
Saratoga Holdings has a contract with Premium Recoveries for the collection of
its current portfolio. However, Premium Recoveries does not have any agreement
with Saratoga Holdings regarding the collection of any other portfolios.
THE INDUSTRY
The debt collection industry is possible because lenders, including
banks and other credit agencies, create portfolios of past due accounts
receivable from loans which have not been repaid. These past due receivables may
be placed with a collection company, or they may be sold at a discount from
their face value. The face value of the receivables is the total principal
balance of the portfolio of receivables on the date that it was charged off or
sold by the originator. The face value does not include interest which has
accrued since the receivables were charged off. The price of a portfolio of
receivables is determined by the age of the portfolio and by how many times it
has been placed for collection. The age of receivables may range from 180 days
since the date of the last payment by the debtor to five to seven years since
the date of last payment by the debtor. Generally, the price of 180 day old
receivables that have not been placed for collection is approximately 10 cents
on the principal dollar. The price for five to seven year old receivables that
have been placed for collection three or more times may be as little as one-half
cent on the principal dollar.
Receivables are typically purchased without recourse which means that
the seller of the receivables will not be obligated to the purchaser if the
purchaser is unable to collect the debt. In addition, the sellers typically do
not provide purchasers with any representations as to the character, accuracy or
sufficiency of the information provided to a purchaser about the receivables.
Therefore, even if the purchaser cannot collect the receivables, the purchaser
may not have any remedy or recourse against the seller.
Generally, collection companies spend approximately four to six months
attempting to collect a portfolio of receivables. The portfolio collection
process includes the following steps.
o The collection company will analyze and score the portfolio to
determine the collectibility of each account, based upon factors
such as demographics and credit ratings.
o The collection company will send each account a letter stating
that all payments and correspondence should be directed to the
collection agency. By federal law, the letter must contain
specific information regarding the type of debt and the balance
due, and a statement that the letter is an attempt to collect the
debt.
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o The collection company follows up the letter with phone calls in
which the collection company attempts to negotiate a settlement
of the debt for a percentage of the amount owed.
o The collection company may refer some of the accounts to
collection attorneys who may file a lawsuit. Once a judgment is
rendered in a case, the debtor's assets are identified and
attached, or, in some states, wages may be garnished.
o After the collection company has completed the collection cycle,
and assuming collection efforts as to a particular account have
not been successful, the collection company may sell those
uncollected accounts for approximately one-third to one-half of
the account's original purchase price.
BUSINESS STRATEGY
Saratoga Holdings current strategy is to grow its business by
reinvesting a substantial portion of its net revenues into the purchase of
additional accounts receivable. However, Saratoga Holdings anticipates that it
may expand its operations in several ways, including the following:
o it may participate with other entities in buying large portfolios
of past-due receivables and enter into arrangements with other
companies for the collection and servicing of accounts;
o it may form separate entities, such as limited partnerships,
through which to raise funds for the purchase of portfolios, and
to engage in the collection of portfolios directly or by
contracting this function to third parties;
o it may acquire portfolios of delinquent receivables and
subdivide receivables into two or more separate portfolios to be
sold or retained for collection;
o it may pursue merger and acquisition opportunities in the
receivables collection or other industries, or enter into
strategic alliances with third parties to further expand Saratoga
Holdings' revenue base.
Saratoga Holdings has a large number of authorized but unissued shares
and could use those shares as a vehicle to achieve a reverse acquisition without
being required to obtain shareholder approval of the transaction, however, at
this time, Saratoga Holdings does not have any agreements or understandings with
respect to any merger, acquisition or other business combination.
Mr. Thomas Cooke would be central in any efforts Saratoga Holdings makes
to expand its business and in some cases might be in a position to negotiate a
finders' fee or other compensation for those services. Mr. Cooke has represented
to Saratoga Holdings that he will not negotiate any finders' fees, consulting
fees or other special compensation in connection with any efforts he makes to
achieve a business combination. Saratoga Holdings does not intend to rely on
outside business consultants other than collection companies.
RESEARCH AND DEVELOPMENT ACTIVITIES
Saratoga Holdings did not spend any material amount on research or
development activities during the past two years.
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COMPLIANCE WITH ENVIRONMENTAL LAWS
Saratoga Holdings does not believe that it will incur any material cost
relating to efforts to comply with environmental laws.
COMPETITION FOR ACCOUNTS RECEIVABLE
Saratoga Holdings competes with other debt collection companies and with
wholesalers of accounts receivable industry for the purchase of accounts
receivable. Competition for the purchase of accounts receivable is significant.
Various industry sources list as many as 300 purchasers of bad debt in the
United States. There are numerous companies specializing in the purchase of
accounts receivable that have substantially greater resources and broader
geographic coverage than Saratoga Holdings.
If Saratoga Holdings decided to expand its business into the accounts
receivable management business, it would encounter significant competition. The
accounts receivable management industry includes more than 6,500 service
providers, including large national corporations in addition to many regional
and local firms. Most if not all of these companies have substantially greater
resources, offer more diversified services and operate in broader geographic
areas than Saratoga Holdings. More importantly, these companies have greater
resources with which to purchase accounts receivable. In addition, in many
instances, the accounts receivable collection services are performed in-house.
CUSTOMERS AND SUPPLIERS
Saratoga Holdings does not provide goods or services. However, Saratoga
Holdings is currently dependent upon its relationship with The Premium Group,
Inc. as a source of accounts receivable and the services of Premium Recoveries,
Inc. for collection of accounts receivable. Saratoga Holdings does not have any
ongoing contractual commitment from The Premium Group to supply any additional
accounts receivable. Its agreement with Premium Recoveries, Inc. for the
collection of accounts receivable extends for a period of 12 months until
November 11, 1999. After that time, it automatically renews on a month to month
basis and therefore may be canceled by either party upon 30 days written notice.
If its relationship with Premium Recoveries, Inc. were not renewed or were
canceled, Saratoga Holdings would search for another debt collection company to
replace Premium Recoveries, Inc. Saratoga Holdings does not anticipate
collecting accounts receivable directly unless it acquired a licensed debt
collection company through a business combination.
GOVERNMENT REGULATION
The accounts receivable industry is regulated under various federal and
state statutes. Saratoga Holdings is not licensed as a debt collection company.
Instead of applying for any licenses, Saratoga Holdings has retained a licensed
debt collection company to collect its receivables in exchange for a commission.
Saratoga Holdings is relying upon the debt collection company to comply with
numerous federal and state laws and regulations. These include the Federal Fair
Debt Collection Practices Act which establishes specific guidelines and
procedures which debt collectors must follow in communicating with consumer
debtors, including the time, place and manner of communications. It also
includes the Fair Credit Reporting Act which regulates the consumer credit
reporting industry and which may impose liability on Saratoga Holdings to the
extent that the adverse credit information reported on a consumer to a credit
bureau is false or inaccurate.
The debt collection business is also subject to state regulation.
Saratoga Holdings is not licensed as a debt collection company and does not
anticipate applying for any license. The company that presently is
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collecting the receivables for Saratoga Holdings is licensed as a debt
collection company and has agreed that it will comply with all state and federal
laws in connection with its collection of Saratoga Holdings' accounts
receivable. If the collection company fails to comply with applicable statutes
and regulations, that could have a material adverse effect on Saratoga Holdings.
There can be no assurance that additional federal or state legislation, or
changes in regulatory implementation, would not limit the activities of debt
collection companies in the future or significantly increase the cost of
regulatory compliance.
EMPLOYEES
Saratoga Holdings currently has two employees, neither of which is full
time.
PROPERTIES
Saratoga Holdings has no property or office of its own. It is utilizing,
without charge, the address and telephone number of the parent as its office.
Currently Saratoga Holdings has no plans for office facilities in the future.
WHERE YOU CAN GET MORE INFORMATION
If you want more information, write or call us at:
Saratoga Holdings I, Inc.
c/o Saratoga Resources, Inc.,
301 Congress Avenue, Suite 1550
Austin, Texas 78701
Telephone: (512) 478-5717
Our fiscal year ends on December 31. We do not presently file reports or
any other information with the Securities and Exchange Commission, however, we
intend to furnish our shareholders annual reports containing audited financial
statements and other appropriate reports. In addition, we intend to become a
reporting company and file annual, quarterly and current reports, proxy
statement or other information with the SEC. You may read and copy any reports,
statements or other information we file at the SEC's public reference room in
Washington D.C. You can request copies of these documents, upon payment of a
duplicating fee by writing to the SEC. You may obtain information on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Our
SEC filings are also available to the public on the SEC Internet site at
http://www.sec.gov.
This prospectus contains information concerning Saratoga Holdings as of
December 31, 1998 unless another date is specified. The delivery of this
prospectus at any time does not constitute a representation that the information
contained in it is correct as of any other date, and the delivery of this
prospectus shall not imply that there has not been a change in the business or
affairs of Saratoga Holdings since that date. No dealer, salesman or other
person has been authorized to furnish information or to make any representations
other than what is set forth in this prospectus. You should not rely on any
information or representation other than the information set forth in this
prospectus.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of Saratoga Holdings and their
respective ages and positions are as follows:
NAME AGE POSITION
---- --- --------
Randall B. Johnson 50 President
Thomas F. Cooke 50 Chief Executive Officer,
Secretary and Director
RANDALL B. JOHNSON has served as president of Saratoga Holdings since
its formation on October 29, 1998. In addition, since 1992, Mr. Johnson has
served as the managing partner of Capital Analysis Partners, which, from 1992
through 1995 was in the business of making venture capital investments ranging
in size from $100,000 to over $5,000,000. In 1994, Capital Analysis Partners
became involved in the accounts receivable management business. In 1997, it
changed its name to CAP Ventures and in 1998 to The Premium Group. Mr. Johnson
continues to serve as the managing partner of The Premium Group. In addition,
since August, 1998, Mr. Johnson has served as the vice president of Premium
Recoveries, Inc., a commercial collection agency located in Austin, Texas and a
subsidiary of The Premium Group.
THOMAS F. COOKE is the sole director, chief executive officer and the
secretary of Saratoga Holdings. Mr. Cooke has held these positions with Saratoga
Holdings since its formation on October 29, 1998. Mr. Cooke was one of the
co-founders of the parent in 1990. He also has been a self employed independent
oil and gas producer for the past 16 years. Mr. Cooke has served as a director
and chairman of the board of the parent since September of 1993, and as chief
executive officer since April 1996. Mr. Cooke also served as chief operating
officer of the parent from 1993 to 1996. Mr. Cooke's employment by the parent
was on a full-time basis prior to the formation of Saratoga Holdings. Mr. Cooke
now divides his time between the two corporations. Mr. Cooke is also a principal
shareholder of the parent.
Both Mr. Johnson and Mr. Cooke may be deemed a parent or promoter of
Saratoga Holdings as those terms are defined in the Rules and Regulations
promulgated under the Securities Act of 1933.
Each officer holds office for a term expiring at the next annual meeting
of shareholders and upon the election and qualification of his successors.
Officers serve at the pleasure of the board of directors of Saratoga Holdings.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
Saratoga Holdings has paid no remuneration to its director or officers,
other than as provided in the following paragraph, and does not anticipate the
payment of remuneration, other than as provided below, until the board of
directors determines otherwise.
Saratoga Holdings has granted Mr. Johnson a three-year option to
purchase 25,000 shares of Saratoga Holdings's common stock at an exercise price
of $0.50 per share. There are no other outstanding options or warrants to
purchase shares of Saratoga Holdings's common stock.
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PRINCIPAL SHAREHOLDERS
Prior to the distribution of the dividend shares, the parent owns 100%
of the issued and outstanding common stock of Saratoga Holdings. After the
distribution of the dividend shares, the parent will own approximately 8.4%.
OWNERSHIP OF THE COMMON STOCK OF SARATOGA HOLDINGS
The following table sets forth information regarding the beneficial
ownership of the common stock of Saratoga Holdings as adjusted to reflect the
distribution of the dividend shares by the following:
o each director of Saratoga Holdings,
o each named executive officer of Saratoga Holdings,
o each person known or believed to own beneficially 5% or more of
the common stock, and
o all directors and executive officers as a group.
Unless otherwise indicated, each person will have sole voting and dispositive
power with respect to his or her shares. Shares of common stock that are not
outstanding but that can be acquired by a person within 60 days upon exercise of
an option or similar right are included in the number of shares beneficially
owned and in computing the percentage for such person but are not included in
the number of shares beneficially owned and in computing the percentage for any
other person. The information in this table assumes that Saratoga Holdings will
have 3,766,667 shares outstanding after the offering.
NAME AND ADDRESS
OF BENEFICIAL OWNER NUMBER OF SHARES PERCENT BENEFICIALLY OWNED
------------------- ---------------- --------------------------
Thomas F. Cooke 2,679,163 71.1%
301 Congress Avenue, Suite 1550
Austin, Texas 78701
Randall B. Johnson 25,000 >1%
308 West Seventh Street, Suite A
Georgetown, Texas 78626
Kevin M. Smith 238,295 6.3%
2000 Dairy Ashford, Suite 410
Houston, Texas 77077
Saratoga Resources, Inc. 458,741 12.2%
301 Congress Avenue, Suite 1550
Austin, Texas 78701
All Officers and Directors 3,401,199 89.7%
as a Group
- -----------------
Shares of Saratoga Holdings held by Mr. Cooke include 109,148 shares of
common stock beneficially owned by June Cooke, the spouse of Mr. Cooke, and
308,741 shares owned by Saratoga Resources, a company controlled by Mr. Cooke
and 150,000 shares held by wholly owned subsidiaries of Saratoga Resources.
Shares owned by Saratoga Resources include 150,000 shares held by its wholly
owned subsidiaries. All shares of Saratoga Holdings held by Mr. Johnson are in
the form of immediately exercisable options to purchase 25,000 shares of common
stock.
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Shares of Saratoga Holdings held by Mr. Smith include 20,000 shares of common
stock beneficially owned by Sandra Smith, the spouse of Mr. Smith. Mr. Smith is
a director of the parent but not of Saratoga Holdings.
OWNERSHIP OF THE PARENT'S COMMON STOCK
The following table sets forth information regarding the beneficial
ownership of the 3,465,292 issued and outstanding shares of common stock of the
parent by the following:
o each director of Saratoga Holdings,
o each named executive officer of Saratoga Holdings, and
o all directors and executive officers as a group.
NAME AND ADDRESS
OF BENEFICIAL OWNER NUMBER OF SHARES PERCENT BENEFICIALLY OWNED
------------------- ---------------- --------------------------
Thomas F. Cooke 2,220,422 64.1%
301 Congress Avenue, Suite 1550
Austin, Texas 78701
All Officers and Directors 2,220,422 64.1%
of Saratoga Holdings
as a Group
- ------------------
Shares of the parent held by Mr. Cooke include 109,148 shares of common
stock beneficially owned by June Cooke, the spouse of Mr. Cooke.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Cooke and Mr. Johnson may be considered to be promoters of Saratoga
Holdings for purposes of the securities laws. A promoter includes anyone who
takes initiative in founding or organizing a business.
Saratoga Holdings is a wholly owned subsidiary of Saratoga Resources.
Mr. Thomas Cooke, the chief executive officer, secretary and sole director of
Saratoga Holdings is also the president and holder of a majority of the shares
of the parent. The parent purchased 3,766,667 shares of Saratoga Holdings on or
about November 12, 1998 at a price of $0.003 per share.
Mr. Randall B. Johnson, the president of Saratoga Holdings is also the
managing partner, an officer, director and a shareholder of The Premium Group
and Premium Recoveries, Inc. Saratoga Holdings purchased the receivables for
approximately $10,300 in cash from The Premium Group under the terms of a
Purchase Agreement dated November 12, 1998 between Saratoga Holdings and Premium
Group. At that time, the portfolio of receivables had a face value of
$223,907.05. The Premium Group previously had purchased the receivables in June
1998 for a purchase price of $9,750.
In addition, Saratoga Holdings entered into a services agreement also
dated November 12, 1998 with Premium Recoveries under which Premium Recoveries
has agreed to use its reasonable efforts to
22
<PAGE>
collect the receivables in exchange for a commission equal to 30% of the amount
collected. Saratoga Holdings believes that the 30% commission is standard in the
industry.
In addition, Saratoga Holdings has granted to Mr. Johnson a three-year
option to purchase 25,000 shares of its common stock for $0.50 per share.
DESCRIPTION OF SECURITIES
The authorized capital stock of Saratoga Holdings consists of
100,000,000 shares of common stock, $0.001 par value, and 100,000 shares of
undesignated preferred stock, $0.001 par value.
COMMON STOCK
The holders of Saratoga Holdings' common stock are entitled to one vote
per share on all matters submitted to a vote of shareholders voting with the
holders of Saratoga Holdings's preferred stock as a single class, except where
class voting is required by the Texas Business Corporation Act or by a
Certificate of Designation adopted by the Board of Directors. Cumulative voting
in the election of directors is prohibited. Accordingly, the holders of a
majority of the combined number of outstanding shares of common stock and
Saratoga Holdings's preferred stock entitled to vote in any election of
directors may elect all of the directors standing for election.
Holders of common stock are entitled to receive ratably such dividends,
if any, as may be declared by the Board of Directors out of funds legally
available therefor, subject to any preferential dividend rights of outstanding
preferred stock. Upon a liquidation, dissolution or winding up of Saratoga
Holdings, the holders of common stock are entitled to receive ratably the net
assets of Saratoga Holdings available after the payment of all debts and other
liabilities and subject to the prior rights of any outstanding preferred stock.
The holders of common stock have no preemptive, subscription, redemption or
conversion rights. The outstanding shares of common stock are, and the shares
issued in the offering will be, when issued and paid for, fully paid and
nonassessable.
PREFERRED STOCK
There are 100,000 shares of undesignated preferred stock authorized and
no shares of preferred stock issued or outstanding.
ANTI-TAKEOVER PROVISIONS
Some of Saratoga Holdings' Articles of Incorporation and Bylaws, and the
indemnification agreements with directors and officers of Saratoga Holdings may
be deemed to have an anti-takeover effect and may delay, defer or prevent a
tender offer or takeover attempt that a shareholder might consider to be in that
shareholder's best interest, including attempts that might result in a premium
over the market price for the shares held by shareholders.
Under the terms of Saratoga Holdings' Articles of Incorporation,
Saratoga Holdings' Board of Directors may issue additional shares of common
stock or establish one or more series of preferred stock having the number of
shares, designations, relative voting rights, dividend rates, liquidation and
other rights, preferences and limitations that the Board of Directors fixes
without shareholder approval. Any additional issuance of common stock or
designation of rights, preferences, privileges and limitations with respect to
preferred stock could have the effect of impeding or discouraging the
acquisition of control of
23
<PAGE>
Saratoga Holdings by means of a merger, tender offer, proxy contest or
otherwise, and thereby protect the continuity of Saratoga Holdings's management.
Specifically, if, in the due exercise of its fiduciary obligations, the Board of
Directors were to determine that a takeover proposal was not in Saratoga
Holdings' best interest, shares could be issued by the Board of Directors
without shareholder approval in one or more transactions that might prevent or
render more difficult or costly the completion of the takeover transactions by
diluting the voting or other rights of the proposed acquiror or insurgent
shareholder group, by putting a substantial voting lock in institutional or
other hands that might undertake to support the position of the incumbent Board
of Directors, by effecting an acquisition that might complicate or preclude the
takeover, or otherwise. Saratoga Holdings' Articles of Incorporation and Bylaws
provide that special meetings of shareholders generally can be called only by
the President or Board of Directors or 10% or more of the voting shareholders.
INDEMNIFICATION OF OFFICERS AND DIRECTORS; LIMITATION OF DIRECTOR LIABILITY
Saratoga Holdings has entered or proposes to enter into indemnification
agreements with all of its directors and executive officers, which, among other
things, indemnify directors of Saratoga Holdings against liability arising from
shareholder claims of a breach of duty by a director if a director votes against
a transaction that would result in a change of control of Saratoga Holdings.
Saratoga Holdings' Articles of Incorporation also provide that its directors
shall not be liable for monetary damages caused by an act or omission occurring
in their capacity as directors. This provision does not eliminate the duty of
care, and, in appropriate circumstances, equitable remedies such as injunctive
or other forms of non-monetary relief will remain available under Texas law as
provided in Section 2.02-1 of the Texas Business Corporation Act. In addition,
each director will continue to be subject to liability for breach of the
director's duty of loyalty to Saratoga Holdings, for acts or omissions not in
good faith or involving intentional misconduct, for knowing violations of law,
for actions leading to improper personal benefit to a director and for payment
of dividends or acts or omissions for which a director is made expressly liable
by applicable statute. The limitations on liability provided for in Saratoga
Holdings' Articles of Incorporation do not restrict the availability of
non-monetary remedies and do not affect a director's responsibilities under any
other law, such as the federal securities laws or state or federal environmental
laws. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
Saratoga Holdings under the foregoing provisions, or otherwise, Saratoga
Holdings has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, Saratoga Holdings will have outstanding
3,766,667 shares of common stock. The dividend shares distributed to the holders
of the parent's common stock will not be "restricted securities" under Rule 144
and therefore will be freely tradeable in the public market without restriction
or further registration under the Securities Act of 1933, except for any shares
acquired by affiliates of Saratoga Holdings as that term is defined in Rule 144
promulgated under the Securities Act. The remaining 308,741 outstanding shares
of common stock of Saratoga Holdings to be retained by the parent following this
offering will be restricted securities within the meaning of Rule 144 and may be
publicly resold only if registered under the Securities Act or sold in
accordance with an eligible exemption from registration, such as Rule 144. All
of the parent's restricted shares will be available for resale in the public
market commencing on or about November 12, 1999, subject to volume and other
restrictions under Rule 144.
24
<PAGE>
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are required to be aggregated), including an affiliate of Saratoga
Holdings, who beneficially owns restricted securities acquired from Saratoga
Holdings or an affiliate of Saratoga Holdings at least one year prior to the
sale is entitled to sell within any three-month period a number of shares that
does not exceed the greater of the following:
o 1% of the then outstanding shares of common stock, and
o the average weekly reported trading volume of the common stock
during the four calendar weeks immediately preceding the date on
which notice of such sale is filed with the Securities and
Exchange Commission, provided manner of sale and notice
requirements and requirements as to the availability of current
public information concerning Saratoga Holdings are satisfied.
Under Rule 144(k), a person who has not been an affiliate of Saratoga Holdings
for a period of three months preceding a sale of securities by him, and who
beneficially owns restricted securities acquired from Saratoga Holdings or an
affiliate of Saratoga Holdings at least two years prior to the sale, would be
entitled to sell the shares without regard to volume limitations, manner of sale
provisions, notification requirements or requirements as to the availability of
current public information concerning Saratoga Holdings.
Shares held by persons who are deemed to be affiliates of Saratoga
Holdings, including any shares acquired by affiliates in the offering, are
subject to volume limitations, manner of sale provisions, notification
requirements and requirements as to the availability of current public
information concerning Saratoga Holdings, regardless of how long the shares have
been owned or how they were reacquired. In addition, the sale of any restricted
securities beneficially owned by an affiliate of Saratoga Holdings and not
registered in this offering is subject to the one-year holding requirement of
Rule 144. As defined in Rule 144, an affiliate of an issuer is a person that
directly or indirectly through the use of one or more intermediaries, controls,
or is controlled by, or is under common control with, such issuer. Approximately
71.1% of the common stock of Saratoga Holdings after the distribution will be
beneficially owned by Mr. Cooke, an affiliate of Saratoga Holdings. These shares
will be regarded as unrestricted shares held by an affiliate and therefor
subject to the provisions of Rule 144, other than the holding period requirement
of Rule 144(d). If Mr. Cooke ceases to be an affiliate of Saratoga Holdings, his
shares would be marketable under Rule 144(k) three months thereafter.
Saratoga Holdings has outstanding non-statutory options to purchase an
aggregate of 25,000 shares of common stock, all of which are exercisable as of
the date of this prospectus. Shares of common stock issued upon exercise of
options may be subject to Rule 144.
Prior to the offering, there has been no public market for the common
stock, and no prediction can be made as to the effect, if any, that the sale of
shares or the availability of shares for sale will have on the market price
prevailing from time to time. Nevertheless, sales of substantial amounts of the
common stock in the public market could adversely affect prevailing market
prices and the ability of Saratoga Holdings to raise equity capital in the
future.
Saratoga Resources currently holds all of the issued and outstanding
common stock of Saratoga Holdings. Saratoga Holdings has not paid or declared
any cash dividends with respect to its common stock.
25
<PAGE>
TRANSFER AGENT
The Transfer Agent for the common stock is ChaseMellon Shareholder
Services.
LEGAL MATTERS
Jenkens & Gilchrist, A Professional Corporation, 600 Congress Avenue,
Suite 2200, Austin, Texas 78701 has acted as legal counsel to Saratoga Resources
and Saratoga Holdings in connection with this prospectus and related matters.
EXPERTS
The financial statements of Saratoga Holdings included in this
prospectus have been examined by Hein + Associates, LLP, Certified Public
Accountants, and are included in reliance upon the authority of that firm as
experts in accounting and auditing.
26
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT...........................F-2
BALANCE SHEET...............................................................F-3
NOTES TO THE FINANCIAL STATEMENTS...........................................F-4
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Saratoga Holdings I, Inc.
301 Congress, Suite 1550
Austin, Texas 78701
We have audited the balance sheet of Saratoga Holdings I, Inc. as of November
12, 1998. This financial statement is the responsibility of Saratoga Holdings'
management. Our responsibility is to express an opinion on this financial
statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the balance sheet is free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the balance sheet. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall balance sheet presentation. We believe that our audit
of the balance sheet provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Saratoga Holdings I, Inc. as of
November 12, 1998 in conformity with generally accepted accounting principles.
Saratoga Holdings had no operating activities prior to November 12, 1998 and has
limited cash and working capital as of that date. These matters raise
substantial doubt about its ability to continue as a going concern. Management's
plans in regards to these matters are discussed in Note 7 to the balance sheet.
HEIN + ASSOCIATES, LLP
Houston, Texas
November 20, 1998
F-2
<PAGE>
SARATOGA HOLDINGS I, INC.
BALANCE SHEET
November 12, 1998
ASSETS
ASSETS
Current Assets - Cash.......................................$ 1,000
Investment in past due trade receivable..................... $10,300
TOTAL ASSETS ....................................................... $11,300
LIABILITIES AND STOCKHOLDER EQUITY
STOCKHOLDERS EQUITY
Preferred stock, par value $.001
100,000 shares authorized, none outstanding.......... ------
Common stock par value $.001
100,000,000 shares authorized
3,766,667 shares issued and outstanding.............. 3,766
Additional paid in capital.................................. 7,533
(Deficit) accumulated during the
development stage........................................... -0-
------
TOTAL STOCKHOLDERS EQUITY........................................... $11,300
------
The accompanying notes are an integral part of this financial statement.
F-3
<PAGE>
SARATOGA HOLDINGS I, INC.
(A WHOLLY OWNED SUBSIDIARY)
NOTES TO FINANCIAL STATEMENT
Note 1: ORGANIZATION AND NATURE OF OPERATIONS
Saratoga Holdings I, Inc., a Texas corporation, is a wholly owned
subsidiary of Saratoga Resources, Inc. As of November 12, 1998,
Saratoga Holdings has no operations other than those related to a
portfolio of past due account receivables purchased on November
12, 1998.
On November 12, 1998, Saratoga Resources, Inc., the parent
company of Saratoga Holdings I, Inc., purchased 3,766,667 shares
of Saratoga Holdings I, Inc.'s common stock for $11,300. It is
the intention of Saratoga Resources, Inc. to register 3,465,292
of those shares with the Securities and Exchange Commission and
to distribute them to the stockholders of Saratoga Resources,
Inc. in the form of a dividend.
Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ACCOUNTING POLICIES
Saratoga Holdings I, Inc.'s accounting policies conform to
generally accepted accounting principles. Significant policies
followed are described below.
ACCOUNTING ESTIMATES
Preparation of Saratoga Holdings's financial statements in
conformity with generally accepted accounting principles requires
Saratoga Holdings's management to make estimates, and assumptions
that affect the amounts reported in this financial statement.
Actual results could differ from those estimates.
Note 3: INVESTMENT IN PAST DUE ACCOUNT RECEIVABLES
On November 12, 1998, Saratoga Holdings acquired a portfolio of
past due account receivables for approximately $10,300. These
receivables represent amounts previously due various major retail
businesses arising from the sale of various consumer products.
The face amount of these receivables totals $223,907. The
ultimate collection of these receivables will depend on a variety
of factors, many of which are outside Saratoga Holdings's
control.
Note 4: PREFERRED STOCK
Saratoga Holdings may issue preferred stock in one or more series
which will have such designations, preferences, limitations and
relative rights as authorized by the Board of Directors.
F-4
<PAGE>
Note 5: STOCK OPTIONS
Saratoga Holdings issued an option to an officer to acquire
25,000 shares of its common stock at $0.50 per share. The option,
which was unexercised as of November 12, 1998, expires in 2001.
Note 6: RELATED PARTY TRANSACTIONS
Randall Johnson, the President of Saratoga Holdings, is also a
shareholder, officer and director of both the company that sold
the receivables to Saratoga Holdings and of the company that
Saratoga Holdings has hired to collect the receivables. The
seller of the receivables acquired the receivables in June 1998
for $9,750 and sold them to Saratoga Holdings in November 1998
for $10,300 which Mr. Cooke determined to be the fair market
price. Saratoga Holdings may purchase additional receivables from
the same company or other companies and may retain the same
company or other companies to collect any additional receivables.
Because of Mr. Johnson's conflict of interest, the purchase of
the receivables by Saratoga Holdings and the agreement with the
collection company to collect the receivable may benefit the
seller and the collections company at the expense of Saratoga
Holdings.
Note 7: LIQUIDITY; DEPENDENCE ON PARENT COMPANY
Saratoga Holdings currently does not have any expenses other than
legal, accounting, and commissions which will be paid out of
collections of the accounts receivable. Once Saratoga Holdings
becomes a reporting company, it will also have reporting
expenses. A wholly owned subsidiary of the parent has agreed to
pay Saratoga Holdings' legal, accounting and reporting expenses
up to $40,000 for the first 18 months of Saratoga Holdings'
operations subject to repayment if Saratoga Holdings becomes
profitable. This agreement is documented by a note dated
effective November 12, 1998 which provides for interest at the
rate of 10% per annum. In addition, Saratoga Holdings hopes that
it will be able to support some of its operations though the
collection of accounts receivable.
F-5
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant has authority under Articles 2.02(A)(16) and 2.02-1 of
the Texas Business Corporation Act to indemnify its directors and officers to
the extent provided for in that statute. The Registrant's articles of
incorporation and bylaws allow indemnification of directors and officers to the
full extent permitted by those provisions of the Act. The Act provides in part
that a corporation may indemnify a director or officer or other person who was,
is, or is threatened to be made a named defendant or respondent in a proceeding
because the person is or was a director, officer, employee or agent of the
corporation, if it is determined that
o the person conducted himself in good faith;
o reasonably believed, in the case of conduct in his official
capacity as a director or officer of the corporation, that his
conduct was in the corporation's best interests, and, in all
other cases, that his conduct was at least not opposed to the
corporation's best interest; and
o in the case of any criminal proceeding, had no reasonable cause
to believe that his conduct was unlawful.
A corporation may indemnify a person under the Act against judgments,
penalties (including excise and similar taxes), fines, settlement, and
reasonable expenses actually incurred by the person in connection with the
proceeding. If the person is found liable to the corporation or is found liable
on the basis that personal benefit was improperly received by the person, the
indemnification is limited to reasonable expenses actually incurred by the
person in connection with the proceeding, and shall not be made in respect of
any proceeding in which the person shall have been found liable for willful or
intentional misconduct in the performance of his duty to the corporation. A
corporation may also pay or reimburse expenses incurred by a person in
connection with his appearance as a witness or other participation in a
proceeding at a time when he is not a named defendant or respondent in the
proceeding.
Reference is also made to the articles of incorporation, which limit or
eliminate a director's liability for monetary damages to the registrant or its
shareholders for acts or omissions in the director's capacity as a director,
except that the articles of incorporation do not eliminate the liability of a
director for
o a breach of the director's duty of loyalty to the registrant or
its shareholders,
o an act or omission not in good faith that constitutes a breach of
duty of the director to the registrant or an act or omission that
involves intentional misconduct or a knowing violation of the
law,
o a transaction from which a director received an improper benefit,
whether or not the benefit resulted from an action taken within
the scope of the director's office, or
o an act or omission for which the liability of a director is
expressly provided for by an applicable statute. The registrant's
Bylaws further provide that the registrant shall indemnify its
officers and directors to the fullest extent permitted by law.
II-1
<PAGE>
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Following are the estimated expenses which will be incurred by Saratoga
Holdings with respect to the distribution of the dividend shares. Saratoga
Resources has agreed to pay all of these expenses.
Securities and Exchange Commission Registration Fee................$ 3.00
Printing and Engraving.............................................$ 2,500.00
Fees of Transfer Agent.............................................$ 500.00
Legal Fees and Expenses............................................$ 20,000.00
Accountant's Fees and Expenses.....................................$ 3,000.00
Miscellaneous......................................................$ 00.00
-------------
$26,003.00
=============
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
Since inception, the registrant has sold the following securities which
were not registered under the Securities Act of 1933.
1. On November 12, 1998, Saratoga Holdings issued 3,766,667 shares of common
stock to Saratoga Resources for a total cash price of $11,300. This transaction
was exempt from the registration requirements of the Securities Act under
Section 4(2) of the Securities Act because it was a sale that did not involve a
public offering, but rather involved the formation of the corporation by
Saratoga Resources.
There was no solicitation or advertising involved in this issuance.
2. Also on November 12, 1998, Saratoga Holdings granted a three-year option to
its president to acquire 25,000 shares of Saratoga Holdings' common stock at an
exercise price of $0.50 per share. This option agreement is filed as Exhibit
10.7. This transaction was exempt from the registration requirements of the
Securities Act under Section 4(2) and Rule 701 because it was an issuance of an
option to one employee of Saratoga Holdings and because the purpose of the
issuance was compensation. The option which serves as a compensation plan is
filed as Exhibit 10.7.
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
3.1 Articles of Incorporation
3.2 Bylaws
*5.1 Opinion of Jenkens & Gilchrist, a Professional Corporation
10.1 Purchase and Sale Agreement dated effective November 12, 1998
between Saratoga Holdings and The Premium Group
10.2 Service Agreement dated as of November 12, 1998 between Saratoga
Holdings and Premium Recoveries, Inc.
*10.3 Form of Indemnification Agreement
10.4 Revolving Promissory Note dated as of November 12, 1998 between
Saratoga Holdings and Saratoga Resources, Inc., a Texas
corporation
10.5 Compromise and Settlement Agreement dated May 7, 1996 between
Saratoga Resources, a Delaware corporation, Saratoga Resources,
Inc., a Texas corporation, Lobo Energy, Inc., a Texas
corporation, Lobo Operating, Inc., a Texas corporation, and
Internationale Nederlanden (U.S.) Capital Corporation
10.6 Purchase and Sale Agreement dated May 7, 1996, by and between
Internationale Nederlanden (U.S.) Capital Corporation and Prime
Energy Corporation
II-2
<PAGE>
10.7 Non-Qualified Stock Option Award Agreement for Employee dated
effective November 12, 1998
*23.01 Consent of Jenkens & Gilchrist, a Professional Corporation -
Contained in Exhibit 5.1
23.02 Consent of Hein + Associates, LLP
27 Financial Data Schedule
* To be filed by amendment.
ITEM 28. UNDERTAKINGS
The undersigned registrant hereby undertakes:
A. To file, during any period in which it offers or sells
securities, a post-effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the information in
the registration statement; and notwithstanding the forgoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any deviation
from the low or high end of the estimated maximum offering range may be
reflected in the form of prospects filed with the Commission under Rule 424(b)
if, in the aggregate, the changes in the volume and price represent no more than
a 20% change in the maximum aggregate offering price set forth in the
"Calculations of Registration Fee" table in the effective registration
statement.
(iii) Include any additional or changed material information on
the plan of distribution.
B. For determining liability under the Securities Act of 1933,
treat each post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time to be the
initial bona fide offering.
C. File a post-effective amendment to remove from registration
any of the securities that remain unsold at the end of the offering.
D. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the small business issuer under the foregoing provisions or
otherwise, the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the small business issuer of expenses incurred or paid by a
director, officer or controlling person of the small business issuer in the
successful defense of any action, suit, or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the small business issuer will, unless in the opinion of its counsel
the matter has been settled by a 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 of 1933 and will be
governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
In accordance with 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 SB-2 and authorized this pre-effective
amendment to registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Austin and State of Texas
on the 18th day of March, 1999.
SARATOGA HOLDINGS I, INC.
By:/s/ RANDALL B. JOHNSON
Randall B. Johnson, President
In accordance with the requirements of the Securities Act of 1933, this
pre-effective amendment to registration statement has been signed below by the
following persons in the capacities and on the dates indicated.
/s/ RANDALL B. JOHNSON President March 18, 1999
Randall B. Johnson
/s/ THOMAS F. COOKE Chief Executive Officer, Secretary March 18, 1999
Thomas F. Cooke and Director (Principal Accounting
and Financial Officer)
II-4
<PAGE>
SARATOGA HOLDINGS I, INC.
NON-QUALIFIED STOCK OPTION AWARD AGREEMENT
FOR EMPLOYEE
PART I
OPTIONEE: Randall B. Johnson
GRANT DATE: November 12, 1998
AGGREGATE NUMBER OF OPTION SHARES: 25,000
EXERCISE PRICE PER SHARE: $0.50
VESTING SCHEDULE: All Option Shares are fully vested and
immediately exercisable.
Part II of this Agreement is attached hereto and incorporated herein for
all purposes.
EXECUTED to be effective as of the Grant Date set forth above.
SARATOGA HOLDINGS I, INC.
By:/s/THOMAS F. COOKE
Thomas F. Cooke, Chief Executive Offier
OPTIONEE
/s/RANDALL B. JOHNSON
Randall B. Johnson
Address:
29005 OAKLAND HILLS DRIVE
GEORGETOWN, TEXAS 78628
Part I - Page 1
<PAGE>
PART II
This Non-Qualified Stock Option Award Agreement (this "AGREEMENT") is
made and entered into by and between Saratoga Holdings I, Inc., a Texas
corporation (the "COMPANY"), and the optionee named on PART I ("OPTIONEE"), as
of the date set forth on PART I (the "GRANT DATE").
RECITALS:
The Company desires to provide an incentive for key employees,
consultants and directors of the Company or its Subsidiaries to remain in the
service of the Company or its Subsidiaries, to extend to them the opportunity to
acquire a proprietary interest in the Company so that they will apply their best
efforts for the benefit of the Company and its Subsidiaries, and to aid the
Company in attracting able persons to enter the service of the Company and its
Subsidiaries;
NOW, THEREFORE, in consideration of the mutual covenants and conditions
set forth in this Agreement and for other good and valuable consideration, the
Company and Optionee agree as follows:
1. GRANT OF THE OPTION. The Company hereby grants to Optionee the right
and option (the "OPTION") to purchase the aggregate number of shares set forth
on PART I (such number being subject to adjustment as provided below and as
provided in paragraph 9) of common stock, $0.001 par value per share, of the
Company (the "SHARES") on the terms and conditions set forth in this Agreement.
The Option awarded under this Agreement may be exercised in whole or in part and
from time to time, subject to the terms and conditions of this Agreement. The
Option granted under this Agreement is not intended to qualify as an "incentive
stock option" under Section 422 of the Code.
2. EXERCISE PRICE. The price at which Optionee shall be entitled to
purchase the Shares covered by the Option shall be the price per Share set forth
on PART I subject to adjustment as provided in paragraph 9.
3. VESTING AND TERM OF THE OPTION.
(a) GENERAL. The right to exercise the Option shall vest in the
hands of Optionee in accordance with the provisions of PART I. Shares which
shall have vested shall be referred to as "VESTED SHARES." Shares which shall
not have vested shall be referred to as "NONVESTED SHARES." The respective
numbers of Vested and Nonvested Shares shall adjust proportionately in
accordance with any adjustments to the number of Shares pursuant to paragraph 9.
In addition, Shares may become Vested Shares in accordance with paragraph 7. In
general, Nonvested Shares may become Vested Shares only if Optionee has been
continuously employed as a full-time employee of the Company or any Subsidiary
from the Grant Date to and including the last date of the month with respect to
which such Shares may vest pursuant to PART I.
Part II - Page 2
<PAGE>
(b) EXERCISABLE FOR VESTED SHARES ONLY. Subject to the relevant
provisions and limitations contained herein, Optionee may exercise the Option to
purchase some or all of the Vested Shares. In no event shall Optionee be
entitled to exercise the Option with respect to Nonvested Shares or a fraction
of a Vested Share.
(c) EXPIRATION. Notwithstanding any other provision contained
herein to the contrary, the unexercised portion of the Option, if any, will
automatically and without notice terminate upon the earlier of (i) three years
following the Grant Date, or (ii) the date determined pursuant to paragraph 7.
The Option will cease to be exercisable with respect to a Share when Optionee
purchases the Share.
4. METHOD OF EXERCISING OPTION. Optionee may exercise the Option at any
time prior to the termination of the Option with respect to all or any part of
the Vested Shares. Subject to the terms and conditions of this Agreement, the
Option may be exercised by timely delivery to the Company of a written notice in
the form attached hereto as EXHIBIT A (the "EXERCISE NOTICE"), which Exercise
Notice shall be effective, subject to the requirements of this Agreement, on the
date received by the Company. The Exercise Notice shall state Optionee's
election to exercise the Option, the number of Vested Shares in respect of which
an election to exercise has been made, the method of payment elected (see
paragraph 5), the exact name or names in which the Vested Shares then being
purchased will be registered and the social security number of Optionee. The
Exercise Notice must be signed by Optionee and must be accompanied by payment of
the aggregate Exercise Price of the Vested Shares then being purchased,
determined in accordance with paragraph 2. If the Option must be exercised by a
person or persons other than Optionee pursuant to paragraph 7, the Exercise
Notice must be signed by such other person or persons and must be accompanied by
proof acceptable to the Company of the legal right of such person or persons to
exercise the Option. If the Option is exercised by a person other than Optionee,
the Vested Shares issued upon such exercise shall be subject to the limitations
applicable to such Vested Shares in the hands of Optionee. All Vested Shares
delivered by the Company upon exercise of the Option as provided in this
Agreement shall be fully paid and nonassessable upon delivery. Unless the Vested
Shares issued upon the exercise of the Option are then the subject of a
registration statement effective under the Securities Act (and, if required,
there is available for delivery a prospectus meeting the requirements of Section
10(a)(3) of the Securities Act), the delivery of the Exercise Notice shall be
deemed to be the making by the person delivering such Exercise Notice of the
representations, acknowledgments and agreements which would be contained in the
Investment Letter referred to in paragraph 10.
5. METHOD OF PAYMENT FOR OPTIONS. Unless otherwise permitted by the
Board of Directors, the full Exercise Price for the Vested Shares purchased upon
the exercise of the Option (i.e., the number of Vested Shares being purchased
multiplied by the Exercise Price per Share) must be made in cash. The Company
will accept payment by cashier's check or by personal check, provided that if
such personal check is returned for insufficient funds, payment for the Shares
and for any applicable taxes required to be withheld by the Company shall be
deemed not to have occurred. In addition, the Option shall not be deemed to be
exercised until Optionee has provided payment for any withholding taxes which
may be due with respect to such exercise.
Part II - Page 3
<PAGE>
6. DELIVERY OF SHARES. No Shares shall be delivered to Optionee upon
exercise of the Option until (i) the Exercise Price for such Shares being
purchased is paid in full in the manner provided in this Agreement; (ii) all the
applicable taxes required to be withheld have been paid or withheld in full;
(iii) approval of any governmental authority required in connection with the
Option, or the issuance of Shares pursuant to this Agreement has been received
by the Company; and (iv) if required by the Board of Directors, Optionee has
delivered to the Company an Investment Letter in form and content satisfactory
to the Company as provided in paragraph 10.
7. TERMINATION OF EMPLOYMENT. If Optionee's employment relationship with
the Company is terminated for any reason other than (a) Optionee's death or (b)
Optionee's Disability as defined below, then any and all Options held pursuant
to this Agreement as of the date of the termination that are not yet exercisable
(or for which restrictions have not lapsed) shall become null and void as of the
date of such termination; provided, however, that the portion, if any, of such
Options that are exercisable as of the date of termination shall be exercisable
for a period of the lesser of (a) the remainder of the term of the Option or (b)
the date which is 30 days after the date of termination. Any portion of an
Option not exercised upon the expiration of the lesser of the period specified
above shall be null and void unless Optionee dies during such period, in which
case the provisions of paragraph 7(a) shall govern.
(a) DEATH. Upon the death of Optionee, any and all Options held
by Optionee pursuant to this Agreement that are not yet exercisable (or for
which restrictions have not lapsed) as of the date of Optionee's death shall
become exercisable as provided below and any restrictions shall immediately
lapse as of the date of death; provided, however, that the Options held by
Optionee as of the date of death shall be exercisable by that Optionee's legal
representatives, heirs, legatees, or distributees for a period of 120 days
following the date of Optionee's death. Any portion of an Option not exercised
upon the expiration of such period shall be null and void. Except as expressly
provided in this paragraph, no Option held by an Optionee shall be exercisable
after the death of that Optionee.
(b) DISABILITY. If Optionee's employment relationship is
terminated by reason of Optionee's Disability, then the portion, if any, of any
and all Options held by Optionee that are not yet exercisable (or for which
restrictions have not lapsed) as of the date of that termination for Disability
shall become exercisable as provided below and any restrictions shall
immediately lapse as of the date of termination; provided, however, that the
Options held by Optionee as of the date of that termination shall be exercisable
by Optionee, his guardian or his legal representative for a period of one year
following the date of such termination. Any portion of an Option not exercised
upon the expiration of such period shall be null and void unless Optionee dies
during such period, in which event the provisions of paragraph 7(a) shall
govern. For purposes of this Agreement, "Disability" shall have the meaning
given it in the employment agreement of Optionee; provided, however, that if
Optionee has no employment agreement addressing such issue, "Disability" shall
mean, as determined by the Board of Directors in the sole discretion exercised
in good faith of the Board of Directors, a physical or mental impairment of
sufficient severity that either Optionee is unable to continue performing the
duties he performed before such impairment or Optionee's condition entitles him
to disability benefits under any insurance or
Part II - Page 4
<PAGE>
employee benefit plan of the Company or its Subsidiaries and that impairment or
condition is cited by the Company as the reason for termination of Optionee's
employment.
8. NONTRANSFERABILITY.
(a) This Option shall not be transferable by Optionee other than
by will or pursuant to the applicable laws of descent and distribution, and (ii)
except as provided in paragraph 7, this Option shall be exercisable only by
Optionee during his or her lifetime and while an employee of the Company.
(b) If Optionee attempts or purports to transfer, assign, pledge
or hypothecate this Option, or any rights and privileges in connection herewith,
in any way, whether by operation of law or otherwise, except as expressly
permitted by this paragraph, this Agreement and the Option granted hereunder
will automatically terminate and the Option will thereafter be null and void.
9. ADJUSTMENTS. If there is any change in the capital structure of the
Company through merger, consolidation, reorganization, recapitalization, stock
dividend, stock split, combination of shares or similar event (a
"RESTRUCTURING"), the rights of Optionee shall be adjusted accordingly, i.e.,
the number of Shares exercisable hereunder shall be increased proportionately,
and the price (including Exercise Price) for each Share shall be reduced
proportionately, without changing the aggregate purchase price or value as to
which outstanding Options remain exercisable or subject to restrictions. Nothing
in this Agreement shall affect in any way the right or power of the Company to
make or authorize any Restructuring.
10. SECURITIES ACT. The Company will not be required to deliver any
Shares pursuant to the exercise of all or any part of the Option if, in the
reasonable opinion of counsel for the Company, such issuance would violate the
Securities Act or any other applicable federal or state securities laws or
regulations. The Board of Directors may require that Optionee, prior to the
issuance of any such Shares pursuant to exercise of the Option, sign and deliver
to the Company a written statement (an "INVESTMENT LETTER") stating that (a)
Optionee is purchasing the Shares for his own account and not with a view to, or
for sale in connection with, any distribution thereof, he has no present or
contemplated agreement, undertaking, arrangement, obligation, indebtedness or
commitment providing for the disposition thereof and he does not currently have
any reason to anticipate a change in the foregoing; (b) Optionee understands
that the Shares have not been registered under the Securities Act or any
applicable state securities laws or regulations and, therefore, cannot be
offered or resold unless the Shares are so registered or an applicable exemption
from registration is available; and (c) Optionee agrees that the certificates
representing the Shares may bear a legend to the effect set forth in clause (b)
above. The Investment Letter must be in form and substance acceptable to the
Company in its reasonable discretion.
11. NOTICE. All notices required or permitted under this Agreement,
including an Exercise Notice, must be in writing and personally delivered or
sent by mail and shall be deemed to be delivered on the date on which actually
received by the Company properly addressed to the person who is to receive it.
An Exercise Notice shall be effective when actually received by the
Part II - Page 5
<PAGE>
Company, in writing and in conformance with this Agreement. Until changed in
accordance herewith, the Company and Optionee specify their respective addresses
as set forth below:
Company: Saratoga Holdings I, Inc.
301 Congress Avenue, Suite 1550
Austin, Texas 78701
Attention: Chief Executive Officer
Optionee: As indicated on PART I hereto.
12. INFORMATION CONFIDENTIAL. As partial consideration for the granting
of this Option, Optionee agrees that he will keep confidential all information
and knowledge that he has relating to the Options granted hereunder; provided,
however, that such information may be disclosed as required by law and may be
given in confidence to Optionee's spouse, tax and financial advisors, or a
financial institution to the extent that such information is necessary to obtain
a loan.
13. ADMINISTRATION. The decisions of the Board of Directors with respect
to this Agreement shall be final and binding upon Optionee.
14. ARBITRATION. Any legal or equitable claims or disputes arising out
of or in connection with the employment, or the termination of employment, of
Optionee by the Company (other than a suit for injunctive relief) will be
resolved exclusively by binding arbitration. This Agreement applies to the
following allegations, disputes, and claims for relief, but is not limited to
those listed: wrongful discharge under statutory law and common law; employment
discrimination based on federal, state, or local statute, ordinance, or
governmental regulation; retaliatory discharge or other action; compensation
disputes; tortious conduct; contractual violations (although no contractual
relationship, other than at will employment and this Agreement and agreement to
arbitrate, is hereby created); ERISA violations; and other statutory and common
law claims and disputes.
The arbitration proceedings shall be conducted in Austin, Texas in
accordance with the Employment Dispute Resolution Rules ("EDR RULES") of the
American Arbitration Association ("AAA") in effect at the time a demand for
arbitration is made. Optionee is entitled to representation by an attorney
throughout the proceedings at his own expense; however, the Company agrees not
to use an attorney in the arbitration hearing if Optionee agrees to the same.
One arbitrator shall be used and shall be chosen by mutual agreement of
the parties. If, within 30 days after Optionee notifies the Company of an
arbitrable dispute, no arbitrator has been chosen, an arbitrator shall be chosen
from a list or lists of proposed arbitrators submitted by the AAA pursuant to
its EDR Rules, except that (i) the number of preemptory strikes shall not be
limited, and (ii) if the parties fail to select an arbitrator from one or more
lists, AAA shall not have the power to appoint the arbitrator but shall continue
to submit lists until the arbitrator has been selected. The arbitrator shall
coordinate, and limit as appropriate, all pre-arbitral discovery, which shall
include document production, information requests, and depositions. The
arbitrator shall issue a written decision and award stating the reasons
therefor. The decision and award shall
Part II - Page 6
<PAGE>
be final and binding on both parties, their heirs, executors, administrators,
successors, and assigns. The costs and expenses of the arbitration shall be
borne evenly by the parties.
15. CONTINUATION OF EMPLOYMENT. This Agreement shall not be construed to
confer upon Optionee any right to continue in the employ of the Company or its
Subsidiaries and shall not limit the right of the Company or its Subsidiaries,
in their sole discretion, to terminate the employment of Optionee at any time,
with or without cause except to the extent otherwise provided in an Employment
Agreement. Except to the extent otherwise provided in an Employment Agreement
between Optionee and the Company, (i) the parties' employment relationship is at
will, and no other inference is to be drawn from this Agreement; and (ii) either
party may terminate the employment relationship at any time for any or no
reason. Any further agreement abrogating the at will relationship must be in
writing and signed by both Optionee and the Company.
16. RIGHT TO REPURCHASE. The receipt by Optionee of Shares upon his
exercise of Options shall be subject to the following terms and conditions:
(a) RESTRICTION ON TRANSFER. Optionee shall not sell, exchange,
transfer, assign, encumber, or otherwise dispose of any of the Shares to any
person, corporation, partnership, joint venture, trust or other entity without
the prior written consent of the Board of Directors of the Company. Any
transferee shall take the Shares subject to the terms and provisions of this
paragraph 16, and shall, as a condition to the transfer of the Shares, sign a
Joinder Agreement attached as EXHIBIT B agreeing to be bound by the provisions
of this paragraph 16.
(b) GRANT OF REPURCHASE RIGHT. The Company (or its assigns) is
hereby granted the right (the "REPURCHASE RIGHT@), exercisable upon the death,
total physical or mental disability of Optionee, or upon the termination of
Optionee's employment with the Company, to repurchase at the Purchase Price (as
hereinafter defined) all or any portion of the Shares; and of any other
securities in the Company owned by Optionee (all of such shares and other
securities being referred to as "Shares" for purposes of this Section 16).
(i) EXERCISE OF REPURCHASE RIGHT. The Repurchase Right
shall be exercisable by written notice delivered by the Company (or its assigns)
to the Owner (as defined in paragraph 16(c)) prior to the expiration of the
60-day period commencing on the death, total physical or mental disability of
Optionee or the termination of Optionee's employment with the Company. The
notice shall indicate the number of Shares to be repurchased and the date on
which the repurchase is to be effected, such date to be not more than 30 days
after the date of notice. To the extent one or more certificates representing
Shares may have been previously delivered to the Owner, then Owner shall, prior
to the close of business on the date specified for the repurchase, deliver to
the Secretary of the Company the certificates representing the Shares to be
repurchased, each certificate to be properly endorsed for transfer. The Company
(or its assigns) shall, concurrently with the receipt of such stock
certificates, pay to Owner in cash or cash equivalents (including the
cancellation of any purchase-money indebtedness), an amount equal to the
Purchase Price.
Part II - Page 7
<PAGE>
(ii) TERMINATION OF REPURCHASE RIGHT. The Repurchase
Right shall terminate with respect to any Shares for which the Repurchase Right
is not timely exercised under paragraph 16(b)(i). In addition, the Repurchase
Right shall terminate on the consummation by the Company of an initial public
offering.
(c) DEFINITION OF OWNER. For purposes of paragraph 22 of this
Agreement, the term "OWNER" shall include Optionee and all subsequent holders of
the Shares who derive their chain of ownership through a permitted transfer from
Optionee in accordance with paragraph 16(a).
(d) AGREEMENT APPLICABLE TO COMMUNITY INTERESTS. Any right or
interest of a spouse of an Owner in Shares, whether such right or interest is
created by law (including community property laws) or otherwise, shall for all
purposes hereof be included in, deemed a part of and bound by the same terms
hereof as the Shares to which such right or interest relates or appertains, and
any action taken, offer made or purchase right exercisable hereunder with
reference to Shares owned by an Owner shall be applicable to any right or
interest which the spouse of such Owner may have or be entitled to have therein.
(e) PURCHASE OF SPOUSE'S INTEREST IN SHARES. In the event of the
death of an Owner's spouse, or the divorce of an Owner and his or her spouse,
such Owner shall have the right to purchase all or any part of the Shares to
which such spouse (or the estate of such spouse) is or may be entitled at a
purchase price equal to the Purchase Price. Such purchase shall be effected on
the following terms and conditions:
(i) The Owner's right to purchase his or her spouse's
interest in the Shares shall continue for a period of 30 days from the date of
entry of the divorce decree or from the date of qualification of the personal
representative of the spouse in the event of death, as the case may be, and
shall be considered exercised by such Owner when written notice of such exercise
has been delivered or mailed, properly addressed, to such spouse or the personal
representative of such spouse.
(ii) If the Owner shall fail to exercise his or her right
in its entirety in the manner and time prescribed, then the spouse or the
personal representative of the spouse, as the case may be, shall so notify the
Company in writing, which notice shall state the address of such spouse or
personal representative and the number of Shares owned by such spouse or the
estate of such spouse. Thereupon the Company shall have the right to purchase
all Shares not purchased by such Owner for a period of 60 days following the
receipt by the Company of such notice. The purchase right shall be exercisable
by the Company in the manner set forth in paragraph 16(b) of this Agreement.
(iii) The purchase right set forth in this paragraph 16(e)
shall terminate with respect to any Shares for which the purchase right is not
timely exercised under paragraph 16(e)(i) and (ii). In addition, the purchase
right shall terminate on the consummation by the Company of an IPO.
Part II - Page 8
<PAGE>
(f) DEFINITION OF PURCHASE PRICE; PAYMENT. The "PURCHASE PRICE"
as used herein shall refer to the fair market value of the Shares as determined
by the Board of Directors of the Company.
17. PROPRIETARY INFORMATION. In consideration of the Company's grant of
this Option and the Company's agreement to provide Optionee with confidential
information of the Company, Optionee agrees to keep confidential and not to use
or to disclose to others at any time during the term of this Agreement or after
its termination, except as expressly consented to in writing by the Company or
required by law, any secrets or confidential technology or proprietary
information of the Company, including, without limitation, any customer list,
marketing plans or materials, or other trade secrets of the Company, or any
matter or thing ascertained by Optionee through Optionee's affiliation with the
Company, the use or disclosure of which matter or thing might reasonably be
construed to be contrary to the best interests of the Company or to give any
other party a competitive advantage to the Company. Optionee further agrees that
should Optionee leave the employment of the Company, Optionee will neither take
nor retain, without prior written authorization from the Company, any documents
pertaining to the Company (other than paycheck stubs, benefit information, offer
letters, or other materials pertaining to his salary or benefits with the
Company). Without limiting the generality of the foregoing, Optionee agrees that
he will not retain, use or disclose any papers, customer lists, marketing
materials or information, books, records, files, or other documents, copies
thereof, or notes or other materials derived therefrom, or other confidential
information of any kind belonging to the Company pertaining to the Company's
business, sales, financial condition, or products. Without limiting other
possible remedies to the Company for the breach of this covenant, Optionee
agrees that injunctive or other equitable relief shall be available to enforce
this covenant, such relief to be without the necessity of posting a bond, cash,
or otherwise. Optionee further agrees that if any restriction contained in this
paragraph is held by any court to be unenforceable or unreasonable, a lesser
restriction shall be enforced in its place and remaining restrictions contained
herein shall be enforced independently of each other. Optionee's obligations
under this paragraph apply to all confidential information of the Company as
well as to any and all confidential information relating to the Company's
Subsidiaries and Affiliates.
18. NO OBLIGATION TO EXERCISE. Optionee shall have no obligation to
exercise any Option granted by this Agreement.
19. GOVERNING LAW; CONSTRUCTION. THIS AGREEMENT SHALL BE GOVERNED BY THE
LAWS OF THE STATE OF TEXAS WITHOUT REGARD TO CHOICE OF LAW AND CONFLICTS OF LAW
PRINCIPLES. Titles and headings are for case of reference only and shall not be
considered in construing this Agreement. Pronouns shall be deemed to include the
masculine, feminine, neuter, singular and plural as the context may require.
References to paragraphs and exhibits are to paragraphs and Exhibits of this
Agreement unless otherwise indicated. All such Exhibits are incorporated in this
Agreement by reference and are a part hereof.
20. AMENDMENTS. This Agreement may be amended only by a written
agreement executed by the Company and Optionee.
Part II - Page 9
<PAGE>
21. NO RIGHTS AS A SHAREHOLDER. Optionee shall not by virtue of this
Agreement, have any rights as a shareholder until the date of the issuance to
Optionee of Shares pursuant to a valid Exercise Notice.
* * * * *
Part II - Page 10
<PAGE>
EXHIBIT A
EXERCISE NOTICE
Notice is hereby given to the Company of Optionee's election to exercise
Options as follows:
Name of Optionee (please print):
Optionee's Social Security Number:
A. Number of Vested Shares to be exercised:
B. Exercise Price per Share: $________________
C. Method of payment (check one): Cash
--------
_______ Other-
as authorized by
Company as
follows:
-----------------
D. Exercise Price tendered herewith: (A x B) $________________
E. Market Price per share on date of Exercise: $________________
F. Difference Between Market Price and Exercise Price $________________
(E - B):
G. Total Difference (F x A): $________________
H. Withholding Tax Rate: 28%*
I. Amount of Tax withholding tendered herewith (G x H):
$________________
J. Total Amount Due on Exercise (D + I): $________________
*UPON EXERCISE OF OPTIONS, THE COMPANY MAY COLLECT 28% WITHHOLDING TAX (OR THE
THEN APPLICABLE AMOUNT) OF THE DIFFERENCE BETWEEN THE MARKET VALUE OF THE OPTION
SHARES ON THE DAY OF THE EXERCISE LESS THE PRICE (THE "DIFFERENCE"). THIS
DIFFERENCE REPRESENTS ADDITIONAL COMPENSATION TO OPTIONEE AND THIS AMOUNT WILL
BE INCLUDED ON THE W-2 WAGE STATEMENT ISSUED TO OPTIONEE FOLLOWING THE END OF
THE YEAR.
<PAGE>
Exact name(s) for Share certificate(s):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Date:_______________________
--------------------------------------------------
Signature of Optionee
PLEASE COMPLETE AND SIGN THIS NOTICE AND RETURN IT TO:
Saratoga Holdings I, Inc.
301 Congress Avenue, Suite 1550
Austin, Texas 78701
Attention: Chief Executive Officer
<PAGE>
EXHIBIT B
JOINDER AGREEMENT
For good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the undersigned, by execution of this Joinder
Agreement, agrees to become a party to the Non-Qualified Stock Option Award
Agreement dated as of November 12, 1998, by and between Saratoga Holdings I,
Inc., a Texas corporation (the "COMPANY"), and Randall B. Johnson, Optionee
thereunder (the "AGREEMENT"), a copy of which is attached hereto as EXHIBIT A to
the extent and as provided by this Joinder Agreement. The undersigned
acknowledges that by his execution of this Joinder Agreement he will become a
party to the Agreement for purposes of paragraph 16 (and only with respect to
such paragraph), such paragraph providing for the Company's repurchase right
with respect to Shares issued on exercise of Options granted in the Agreement.
The undersigned represents and warrants that he has read and consents to, agrees
to be bound by, the repurchase right provisions of the Agreement.
EXECUTED to be effective the _____ day of __________________, ______.
________________________________________
Name:___________________________________
SPOUSAL CONSENT
I, spouse of _____________________, have read and am aware of,
understand and fully consent and agree to the provisions of the Agreement
attached hereto and its binding effect upon any interest, community or
otherwise, I may own now or hereafter in any Shares, and agree that the
termination of my marriage to ___________________ for any reason shall not have
the effect of removing any Shares otherwise subject to the Agreement from the
coverage thereof. I hereby evidence such awareness, understanding, consent and
agreement by joining in the Agreement and by executing this Joinder Agreement
below.
________________________________________
Signature of Spouse
Printed Name:___________________________
Address:________________________________
EXHIBIT 23.02
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in this Registration Statement of our report dated
November 20, 1998 relating to the financial statements of Saratoga Holdings I,
Inc. and to the reference to our Firm under the caption, "Experts", in this
Registration Statement and related Prospectus.
/s/ HEIN + ASSOCIATES LLP
HEIN + ASSOCIATES LLP
Houston, Texas
March 18, 1999
