As filed with the Securities and Exchange Commission on February 3, 1999
Commission File Number 333-68213
SECURITIES AND EXCHANGE COMMISSION
450 FIFTH STREET N.W.
WASHINGTON, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 1 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 78701
(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
Jenkens & Gilchrist, A Professional Corporation
2200 One American Center
600 Congress Avenue
Austin, Texas 78701
(512) 499-3821
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]
CALCULATION OF REGISTRATION FEE
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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
-------------------------------------------------- ---------- ----------- -------------- ----------------
Shares of Common Stock Offered for Cash 100,000 $0.003 $300 $0.0834
Common Stock Offered as Dividend Shares 3,465,292 $0.003 $10,395.88** $2.89
======================================================== ================ ================ =============== ================
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Total 3,565,292 $10,695.88** $2.97
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*Arbitrary price as no trading market is contemplated.
** Calculated only for purposes of calculating the Registration Fee.
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, acting
pursuant to said Section 8(a), determines.
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PRELIMINARY PROSPECTUS DATED FEBRUARY 3, 1999, SUBJECT TO COMPLETION
SARATOGA HOLDINGS I, INC.
3,565,292 SHARES OF COMMON STOCK
Saratoga Resources, Inc., a Delaware corporation (the "Parent"),
intends to spin off its wholly-owned subsidiary, Saratoga Holdings I, Inc., a
Texas corporation ("Saratoga Holdings"), by distributing 3,465,292 shares of the
common stock of Saratoga Holdings, as a dividend to all holders of the Parent's
stock on ____________ , 1999. The Parent will distribute one dividend share for
each share of the Parent's common stock. The Parent's shareholders will not be
charged for the dividend shares and neither Saratoga Holdings nor the Parent
will receive any proceeds from this distribution. If any of the Parent's
shareholders reside in states which do not provide a readily available exemption
for the distribution, the Parent may pay this dividend in cash instead of
shares, at a rate of $.003 per share.
In addition, after the dividend distribution is complete, Saratoga
Holdings proposes to sell 100,000 shares of its common stock to the public at a
price of $0.003 per share. Saratoga Holdings is selling these shares in an
effort to satisfy one of the listing requirements of Nasdaq and certain
exchanges. These shares will be sold by Saratoga Holdings beginning on the date
that the dividend distribution is complete and ending on ____________, 1999. The
minimum purchase requirement per new investor is 350 shares at an aggregate
purchase price of $1.05. Saratoga Holdings does not intend to place any money
received from the sale of these shares into any escrow, trust or similar
account.
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 6.
------------------
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.
PROCEEDS TO
PRICE TO THE PUBLIC SARATOGA HOLDINGS
Per Share.......... $0.003 $0.003
Per Dividend Share. $0.000 $0.000
TOTAL.............. - $300.000
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 February __, 1999
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TABLE OF CONTENTS
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PROSPECTUS SUMMARY INFORMATION....................................................................................4
THE COMPANY.......................................................................................................4
THE OFFERING......................................................................................................4
RISK FACTORS......................................................................................................5
Lack of Operating History................................................................................5
Insufficiency of Capital; Dependence on Parent...........................................................5
Quality of Accounts Receivable...........................................................................5
Collections Made by Third Party..........................................................................5
No Escrow................................................................................................6
Conflict of Interest of the President....................................................................6
Control by Inside Shareholder............................................................................6
Only One Employee has Experience ........................................................................6
Loss of Services of Mr. Cooke............................................................................6
We are Relying on a Third Party for Compliance with Federal and State Regulations........................6
No Licenses..............................................................................................7
Absence of Trading Market................................................................................7
Regulation of Low Priced Stock...........................................................................7
Restrictions on Sales....................................................................................8
We Cannot Predict the Effect of Resales of our Securities on the Price of the Common Stock...............8
No Insurance.............................................................................................8
Competition for Accounts Receivable......................................................................8
The Year 2000 Issue Could Adversely Effect the Business..................................................9
No Dividends.............................................................................................9
Taxation of the Dividend.................................................................................9
FORWARD-LOOKING INFORMATION.......................................................................................9
THE COMPANY......................................................................................................10
INFORMATION CONCERNING THE PARENT ...............................................................................10
USE OF PROCEEDS..................................................................................................11
FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION..............................................................11
Federal Income Tax Consequences to Shareholders.........................................................11
DETERMINATION OF OFFERING PRICE..................................................................................12
PLAN OF DISTRIBUTION.............................................................................................13
Introduction............................................................................................13
Method of Distribution and Subsequent Trading...........................................................13
DIVIDENDS........................................................................................................14
CAPITALIZATION...................................................................................................14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION.............................................................................................15
Liquidity...............................................................................................15
The Year Two Thousand...................................................................................16
THE BUSINESS.....................................................................................................16
The Industry............................................................................................17
Business Strategy.......................................................................................17
Research and Development Activities.....................................................................18
Compliance with Environmental Laws......................................................................18
Competition for Accounts Receivable.....................................................................18
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Customers and Suppliers.................................................................................19
Government Regulation...................................................................................19
Employees...............................................................................................19
Properties..............................................................................................19
WHERE YOU CAN GET MORE INFORMATION...............................................................................20
MANAGEMENT.......................................................................................................20
Directors and Executive Officers........................................................................20
Compensation of Directors and Executive Officers........................................................21
PRINCIPAL SHAREHOLDERS...........................................................................................21
Ownership of the Parent's Common Stock..................................................................21
Ownership of the Common Stock of Saratoga Holdings......................................................22
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...................................................................23
DESCRIPTION OF SECURITIES........................................................................................23
Common Stock............................................................................................24
Preferred Stock.........................................................................................24
Anti-Takeover Provisions................................................................................24
Indemnification of Officers and Directors; Limitation of Director Liability.............................25
SHARES ELIGIBLE FOR FUTURE SALE..................................................................................25
TRANSFER AGENT...................................................................................................26
LEGAL MATTERS....................................................................................................27
EXPERTS ........................................................................................................27
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 our company,
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 certain information (including
financial statements and notes thereto) contained in this prospectus and is
qualified in its entirety by the more detailed information appearing elsewhere
herein.
THE COMPANY
Saratoga Holdings I, Inc., a Texas corporation, was incorporated under
the laws of the State of Texas on October 29, 1998 by Saratoga Resources, Inc.,
with a view toward the sale of the shares and 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. With respect to its first portfolio acquired in November, 1998,
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.
Since the date of its incorporation Saratoga Holdings has conducted minimal
business activity other than organizational activities and the purchase of the
portfolio of accounts receivable. 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 For Cash 100,000 shares
Common Stock Offered as Dividend Shares 3,465,292 shares(1)
Common Stock Outstanding After Offering 3,866,667 shares
- -----------------------------------
(1) Saratoga Holdings may pay the dividend in cash instead of shares of
common stock in any state which does not exempt the transfer of the
dividend shares.
Saratoga Holdings intends to use the cash proceeds from the offering of
the 100,000 shares to offset the costs of this offering or for general working
capital purposes.
The offering of the 100,000 shares is subject to prior sale, acceptance
by Saratoga Holdings, approval of legal matters by counsel and other conditions.
Saratoga Holdings reserves the right to withdraw, cancel or modify this offering
and to reject any order in whole or in part. It will sell the 100,000 shares on
a first come, first served basis. If orders exceed 100,000 shares, all excess
subscriptions will be returned without interest and without any deduction for
commissions or expenses.
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The offering is not contingent upon the sale of a minimum number of shares,
however, the minimum purchase requirement per new investor is 350 shares.
RISK FACTORS
The common stock of Saratoga Holdings should be considered an
investment involving a high degree of risk. Factors which holders and
prospective purchasers of common stock should weigh carefully include the
following.
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 "The Company" and "The Business."
INSUFFICIENCY OF CAPITAL; DEPENDENCE ON PARENT
Without the loan and administrative support from the 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. 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 note 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."
QUALITY OF ACCOUNTS RECEIVABLE
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
"The Company" and "The Business."
COLLECTIONS MADE BY 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 "The
Company," "The Business" and "Risk Factors - Conflict of Interest of the
President."
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NO ESCROW
Funds received by Saratoga Holdings for the 100,000 shares will not be
placed in any escrow account. While we do not anticipate accepting any
subscriptions in excess of offers for the 100,000 shares, if we did, we would
return the amount of any excess subscription to the subscriber as soon as
possible. Because there will not be an escrow account, you will be relying upon
us rather than an unrelated third party to return the money to you.
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."
CONTROL BY INSIDE SHAREHOLDER
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
57% of our common stock and will also control an additional 301,375 shares held
by the Parent and 150,000 shares held by the Parent's wholly-owned subsidiaries.
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."
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.
WE ARE 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
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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. This third party
collection company 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 the 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.
NO LICENSES
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.
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."
REGULATION OF LOW PRICED 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
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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 prior to sale.
In addition, because the "penny stock" rules will probably apply to
our shares, investors in this offering will probably 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 less
than $5.00 per share or with an exercise price of less than $5.00 per share,
subject to certain exceptions. The penny stock rules require a broker-dealer to
deliver a standardized risk disclosure document prepared by the commission, to
provide the customer with 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, to make a special written determination that the penny
stock is a suitable investment for the purchaser and receive the purchaser's
written agreement to the transaction. These requirements will probably reduce
the level of trading activity in the secondary market for the stock. Because our
securities most likely will be subject to the existing or proposed regulations
on penny stocks, the market liquidity for our securities will probably be
severely and adversely affected because of the limit on the ability of
broker/dealers to sell our securities.
RESTRICTIONS ON SALES
Persons who are deemed "affiliates" of Saratoga Holdings under the
rules and regulations of the Securities Exchange Commission may not sell shares
of Saratoga Holdings' common stock they receive upon distribution of the
dividend unless their shares are sold in compliance 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. To the knowledge of the Parent and Saratoga Holdings, there
is no shareholder other than Mr. Cooke, Mr. Kevin Smith, a director of the
Parent, and Mr. Johnson, the President of Saratoga Holdings, who may be deemed
an affiliate 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."
NO INSURANCE
We currently do not carry any insurance, but instead rely on general
liability insurance carried by the company we have retained to collect the
receivables. If we suffered a liability beyond the limits of or outside the
scope of that company's insurance coverage, it could have an adverse effect on
our business. Saratoga Holdings anticipates that it will acquire general
liability insurance if at any time it undertakes activities not covered by that
insurance.
COMPETITION FOR 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. There are
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numerous companies specializing in the purchase of accounts receivable that have
substantially greater resources and broader geographic coverage than Saratoga
Holdings. See "Competition."
If we decided to expand our business into the accounts receivable
management business, we 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 we
do. 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.
THE YEAR 2000 ISSUE COULD ADVERSELY EFFECT THE BUSINESS
If certain 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."
NO 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."
TAXATION OF 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 the Parent 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 operation or financial condition
or include other "forward-looking information." Those statement 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
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o our ability to purchase additional portfolios of past due
accounts receivable
o the effect of changing economic conditions
o our ability to attract and retain quality 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 actual results or changes in
assumptions or other factors that could affect forward looking
statements.
THE COMPANY
Saratoga Holdings was organized in October 1998. It has no operations
or assets other than, as of November 12, 1998, a portfolio of accounts
receivable with a face value of $223,907.05 for which it paid approximately
$10,300 in cash. See "Management's Discussion and Analysis of Financial
Condition and Results of Operation" and "The Business."
Saratoga Holdings is the wholly owned subsidiary of Saratoga Resources,
Inc., a Delaware corporation. The Parent 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
The Parent is a Delaware Corporation whose main focus was 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. Pursuant to 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 certain oil and gas related
assets, including seismic information. At September 30, 1998, the Parent
employed two full 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.
The Parent is a public company and had 3,465,292 shares of common stock
outstanding as of December 31, 1997. As of that date, it had at least 1,374
stockholders.
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USE OF PROCEEDS
Saratoga Holdings will not receive any proceeds relating to the
distribution of the dividend shares. However, Saratoga Holdings anticipates that
it will receive a maximum of $300 in proceeds from the sale of 100,000 shares of
its common stock, assuming an offering price of $0.003 per share. Saratoga
Holdings anticipates that any proceeds will be applied to pay offering expenses,
including legal, accounting and printing, and for general working capital
purposes. However, the proceeds will not be sufficient to cover much of these
costs. Saratoga Holdings is not attempting to raise additional money in this
offering because the purpose of the offering is not to raise capital but instead
it is to increase the number of persons holding 100 shares or more to satisfy
one of the listing requirements of Nasdaq and certain exchanges. See "Risk
Factors - Insufficiency of Capital" and "Management Discussion and Analysis of
Financial Condition and Results of Operation."
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 the
Parent's shareholders. However, it is not intended to be a complete discussion
of all potential tax effects that might be relevant to the distribution of
Saratoga Holdings' shares. It also is limited to domestic non-corporate
shareholders. It may not be applicable to certain classes of taxpayers,
including, without limitation, 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 may
significantly modify the statements made in this description. Any changes or
interpretations may or may not be retroactive and could affect the tax
consequences described herein. EACH SHAREHOLDER IS URGED TO CONSULT WITH HIS OR
HER OWN TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES TO THE HOLDER OF THE
DISTRIBUTION OF SARATOGA HOLDINGS' SHARES, INCLUDING THE APPLICABILITY AND
EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS, AND OF CHANGE IN THE APPLICABLE
LAWS.
FEDERAL INCOME TAX CONSEQUENCES TO SHAREHOLDERS
The Parent has not requested nor does it intend to request a ruling from
the Internal Revenue Service as to 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 to
which Section 301 applies.
The amount of the distribution for purposes of Section 301 of the code
is equal to the fair market value of Saratoga Holdings' common stock on the date
of the distribution. Since Saratoga Holdings is a development stage company and
has minimal operations, it is not expected to have earnings or profits as of the
date of the distribution. Furthermore, because there is no current public market
for Saratoga Holdings' common stock, the fair market value of the shares and
hence the amount of the distribution will probably be minimal on the date of
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.
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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, 1997, 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, 1998. 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%.
A shareholder's tax basis in the 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 common stock will generally begin on the day
following the date of the distribution.
The foregoing sets forth the opinion of the Parent's management. The
Parent will report the amount of the distribution to the Internal Revenue
Service based on the net book value of Saratoga Holdings on the date of
distribution. The Internal Revenue Service is not bound thereby and no assurance
exists that it will concur with the position of management regarding the value
of the stock or the other matters set forth in this discussion. Specifically, it
is possible that the Internal Revenue Service may assert that a substantially
higher fair market value existed for the Saratoga Holdings common stock on the
date of distribution. If the Internal Revenue Service were to successfully
assert that a substantially higher value should be placed on the amount of the
distribution, the taxation of the transaction to the Parent and its stockholders
would be based on the higher value. In this event, 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 stockholders of the Parent would be taxed on the amount so determined for
the distribution as a dividend to the extent of any current year or accumulated
earnings and profits of the Parent and would recognize gain on the balance of
the distribution to the extent it exceeded their adjusted basis in Saratoga
Holdings' shares owned by them.
EACH SHAREHOLDER IS URGED TO CONSULT WITH HIS OR HER OWN TAX ADVISOR AS
TO THE PARTICULAR TAX CONSEQUENCES TO THE HOLDER OF THE DISTRIBUTION OF SARATOGA
HOLDINGS' SHARES, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR
FOREIGN TAX LAWS, AND OF CHANGE IN THE APPLICABLE LAWS.
DETERMINATION OF OFFERING PRICE
There is no market for trading Saratoga Holdings' securities. The
initial public offering price of the shares has been arbitrarily determined by
Saratoga Holdings and does not bear any relationship to any valuation of the
assets, book value or prospective earnings. However, the per share offering
price is equal to the price paid by the Parent for all of the common stock of
Saratoga Holdings that is currently outstanding.
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PLAN OF DISTRIBUTION
INTRODUCTION
On or about October 29, 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 has determined that it would be beneficial to spin off 3,465,292
of those shares in order to pursue strategic alternatives and to position
Saratoga Holdings for future growth. Saratoga Holdings' management has
determined that this transaction has the greatest potential for enhancing the
competitive position of the business and thereby enhancing overall stockholder
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. The terms of
the distribution were arbitrarily determined and bear no relation to assets or
any other criteria.
In addition, after the completion of the distribution, Saratoga
Holdings intends to offer an additional 100,000 authorized but unissued shares
for sale to new investors.
It is expected that Saratoga Holdings will expend a total of
approximately $________ for legal fees, printing, organization costs and other
costs involved in the distribution of the dividend shares to the stockholders of
the Parent and the sale of the additional 100,000 shares.
METHOD OF DISTRIBUTION AND SUBSEQUENT TRADING
No underwriters are involved or are expected to be involved in the
offer or sale of the shares or the distribution of the dividend shares. The
100,000 shares are offered to the public for cash on a first come, first served
basis, and will be sold by Mr. Thomas F. Cooke who is an officer and director of
Saratoga Holdings. No selling commissions will be paid to Mr. Cooke in
connection with the sale of any of the shares. There minimum subscription is 350
shares, however there is no minimum number of shares to be sold for cash. Funds
received from subscriptions for these shares will not be placed into escrow, but
rather will be held by Saratoga Holdings. Mr. Cooke does not intend to accept
subscriptions for more than 100,000 shares. However, if Saratoga Holdings
unintentionally receives additional subscriptions, it will return the full
amount of the funds received with those excess subscriptions, without interest,
to the subscribers promptly. See "Risk Factors - No Escrow."
The dividend shares are being distributed by the Parent as a dividend
in exchange for no consideration. Certificates representing dividend shares will
be distributed on ____________, 1999 or as soon thereafter as reasonably
possible to holders of Saratoga common stock of record on _____________, 1999.
The dividend will be distributed on the basis of one share of Saratoga Holdings'
common stock for each one share of issued and outstanding common stock of the
Parent. It is anticipated that certificates representing fractional shares will
not be issued. No exchange of shares, payment or other action by holders of the
Parent's common stock will be required.
The distribution would result in there being about 1,374 shareholders
of Saratoga Holdings if all of the dividend shares were distributed. However,
Saratoga Holdings anticipates that is will pay cash instead of shares in several
states, including California, Colorado, Georgia, Iowa, Pennsylvania and Utah
because those states may not have exemptions from registration for the offering.
Saratoga Holdings has not applied to register this offering in any state. If a
particular state does not have an exemption for the offering, Saratoga Holdings
will probably distribute cash instead of shares in that state. No shares of
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Saratoga Holdings may be traded in any state until after Saratoga Holdings
complies with all of the state's securities laws. There is no assurance that any
shares of Saratoga Holdings will be eligible for sale or resale in any
jurisdiction.
A copy of this prospectus is being mailed to each holder of record of
the Parent's common stock on _____________, 1999 together with stock
certificates representing the dividend shares. Copies of this prospectus are
also being mailed 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
the common stock will develop within the foreseeable future. Moreover, there can
be no assurance that any trading market will develop at any time. See "Risk
Factors --Absence of Trading Market."
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 and as adjusted to reflect the results of this offering,
assuming all 100,000 of the shares are sold.
<TABLE>
<CAPTION>
AS OF
NOVEMBER 12, 1998
-------------------------
ACTUAL AS ADJUSTED
------ -----------
<S> <C>
Debt ................................................. $ 0.00$ 0.00
Stockholder'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,
and 3,866,667 issued and outstanding as adjusted ..... $ 3,766.66$ 3,866.67
Additional paid in capital ........................... $ 7,533.33$ 7,733.33
Total Stockholder's Equity .................. $ 11,300.00$ 11,600.00
</TABLE>
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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, much of which
relates to past due credit card obligations.
Saratoga Holdings purchased the portfolio of receivables without
recourse which means that the seller of the receivables will not be obligated to
pay Saratoga Holdings any amount if it is unable to collect 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, Saratoga
Resources may not have any remedy or recourse against the seller.
Effective November 12, 1998, Saratoga Holdings entered into a service
agreement pursuant to which it has transferred the receivables to a debt
collection company for collection. 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 in the amount of 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 almost 20% of the face value of the portfolio, which would be approximately
$44,000 of its current portfolio of receivables. After deducting commissions and
expenses, Saratoga Holdings should receive approximately $31,000, provided,
however, that no assurance can be given that any of the accounts will be
collected. 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 the original cost of the receivables. For
example, if 60% of the accounts in the portfolio remain uncollected after six
months, Saratoga Holdings anticipates that it would be able to sell those
remaining accounts for approximately $2,500.
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. It hopes that it will be able
to collect a sufficient amount from the portfolio to reinvest the net revenues
in a new portfolio approximately every four months. Saratoga Holdings may
purchase any 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.
LIQUIDITY
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
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has entered into a note with Saratoga Holdings effective November 12,
1998 which provides 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. If
Saratoga Holdings does not become profitable, the debt will be treated 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. Therefore, Saratoga Holdings currently does not anticipate
seeking any other loan financing at this time.
THE YEAR TWO THOUSAND
Saratoga Holdings, like many companies, faces the Year 2000 Issue. This
is a result of computer programs being written using two digits rather than four
(for example, "98" for 1998) to define the applicable year. Any programs that
have time-sensitive software may recognize a date using "00" 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 they were purchased 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 portfolio of accounts
receivable. 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 these 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.
THE BUSINESS
Saratoga Holdings was organized in October 1998. It is in the business
of collecting past-due accounts receivables. It has no operations or assets
other than, as of November 12, 1998, a portfolio of receivable with an aggregate
unpaid balance of $223,907.05 for which it paid approximately $10,300 in cash.
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 them in exchange for a commission. 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.
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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 pay the purchaser any
amount 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 receivables are uncollectible, 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 portfolio is analyzed and scored to determine the
collectibility of each account, based upon factors
such as demographics and credit ratings.
o Each account is sent 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.
o The letters are followed with phone calls in which
the collection company attempts to negotiate a
settlement of the debt for a percentage of the amount
owed.
o Some of the accounts may be referred 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 If an account has completed the collection cycle, and
collection efforts have not been successful, it may
be sold for approximately one-third to one-half of
its 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:
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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. However, 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.
RESEARCH AND DEVELOPMENT ACTIVITIES
Saratoga Holdings did not spend any material amount on research or
development activities during the past two years.
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
18
<PAGE>
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. See "Risk Factors - Competition for
Accounts Receivable."
CUSTOMERS AND SUPPLIERS
Saratoga Holdings does not provide goods or services. However, Saratoga
Holdings is currently dependent upon it 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 is collecting the
receivables 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 the
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 there are no plans for office facilities in the future.
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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.
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 investment 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.
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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. 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.
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 until their successors are elected and qualified.
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.
PRINCIPAL SHAREHOLDERS
Prior to the distribution of the dividend shares and the sale of the
shares, the Parent owns 100% of the issued and outstanding common stock of
Saratoga Holdings. After the distribution of the dividend shares and sale of the
shares, the Parent will own approximately 7.8%.
OWNERSHIP OF THE PARENT'S COMMON STOCK
The following table sets forth certain information regarding the
beneficial ownership of the 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.
21
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES
OF BENEFICIAL OWNER OF THE PARENT PERCENT BENEFICIALLY OWNED
------------------- ------------- --------------------------
<S> <C> <C>
Thomas F. Cooke 2,220,422(1) 57%
301 Congress Avenue, Suite 1550
Austin, Texas 78701
All Officers and Directors 2,220,422 57%
of Saratoga Holdings
as a Group
- ------------------
(1) Includes 109,148 shares of common stock beneficially owned by June Cooke, the spouse of Mr.
Cooke.
</TABLE>
OWNERSHIP OF THE COMMON STOCK OF SARATOGA HOLDINGS
The following table sets forth certain information regarding the
beneficial ownership of the common stock of Saratoga Holdings as adjusted to
reflect the distribution of the dividend shares and the sale of the 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.
<TABLE>
<CAPTION>
NAME AND ADDRESS
OF BENEFICIAL OWNER NUMBER OF SHARES PERCENT BENEFICIALLY OWNED
------------------- ---------------- --------------------------
<S> <C> <C>
Thomas F. Cooke 2,220,422(1) 57%
301 Congress Avenue, Suite 1550
Austin, Texas 78701
Randall B. Johnson 25,000(2) *
308 West Seventh Street, Suite A
Georgetown, TX 78626
Kevin M. Smith 238,295(3) 6.3%
2000 Dairy Ashford, Suite 410
Houston, Texas 77077
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
All Officers and Directors 2,245,422 58%
as a Group
- ----------------------
</TABLE>
* Less than 1%
(1) Includes 109,148 shares of common stock beneficially owned by June
Cooke, the spouse of Mr. Cooke.
(2) Consists of immediately exercisable options to purchase 25,000 shares
of common stock.
(3) Includes 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.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Cooke and Mr. Johnson may be considered promoters 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 the Parent. 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 pursuant to 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 had previously purchased the receivables in June
1998 for a purchase price of $9,750.
In addition, Saratoga Holdings entered into that certain services
agreement also dated November 12, 1998 with Premium Recoveries pursuant to which
Premium Recoveries has agreed to use its reasonable efforts to 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 the common stock for $0.50.
DESCRIPTION OF SECURITIES
The authorized capital stock of Saratoga Holdings consists of
100,000,000 of common stock, $0.001 par value and 100,000 shares of undesignated
preferred stock, $0.001 par value.
23
<PAGE>
COMMON STOCK
The holders of 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
Certain provisions 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.
Pursuant to Saratoga Holdings's 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
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
24
<PAGE>
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
stockholders.
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 may be permitted to directors, officers and controlling persons of Saratoga
Holdings pursuant to 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 Act and is,
therefore, unenforceable.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, Saratoga Holdings will have
outstanding 3,866,667 shares of common stock. The 3,465,292 dividend shares
distributed to the holders of the Parent's common stock and the 100,000 shares
sold in the offering will be freely tradeable in the public market without
restriction or further registration under the Securities Act, 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 301,375 outstanding
shares of common stock of Saratoga Holdings to be held by the Parent following
this offering are deemed to 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 restricted shares will be available for resale in the public
market commencing on or about November 12, 1999, subject to certain volume and
other restrictions under Rule 144.
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
25
<PAGE>
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 certain 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 pursuant to 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 57% of the common stock of Saratoga Holdings after
the distribution and the offering will be held 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, these shares will be marketable under Rule
144(k) 90 days 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 pursuant to 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 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.
TRANSFER AGENT
The Transfer Agent for the common stock is ChaseMellon Shareholder
Services.
26
<PAGE>
LEGAL MATTERS
Jenkens & Gilchrist, A Professional Corporation, 600 Congress Avenue,
Suite 2200, Austin, Texas 78701 has acted as legal counsel to Saratoga 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.
27
<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
<TABLE>
<CAPTION>
<S> <C>
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
=======
</TABLE>
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.
Saratoga Holdings is also offering 100,000 shares of common
stock to the public on a best efforts basis, at $0.003 per
share.
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.
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.
F-4
<PAGE>
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
II-1
<PAGE>
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.
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 and the sale of
the 100,000 shares. Of the total $__________, in estimated expenses, the Parent,
as the selling shareholder, has agreed to pay $_________ of such expenses.
Securities and Exchange Commission Registration Fee...................$ 2.97
Printing and Engraving................................................$ ____.00
Fees of Transfer Agent................................................$ ____.00
Legal Fees and Expenses...............................................$ ____.00
Accountant's Fees and Expenses........................................$ ____.00
Miscellaneous.........................................................$ .00
----------
$ .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.
1. On November 12, 1998, Saratoga Holdings issued 3,766,667 shares of common
stock to the Parent for a total cash price of $11,300. This transaction was
exempt from the registration requirements of the Securities Act pursuant to
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 the
Parent.
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 transaction was exempt from the
registration requirements of the Securities Act pursuant to 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.
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,
II-2
<PAGE>
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.
*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;
(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 pursuant to 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, 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 (the "Act") may be permitted to directors, officers
and controlling persons of the small business issuer pursuant to 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 Act 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 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 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 2nd day of February,
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
registration statement has been signed below by the following persons in the
capacities and on the dates indicated.
/s/ RANDALL B. JOHNSON President February 2, 1999
Randall B. Johnson
/s/ THOMAS F. COOKE Chief Executive Officer, February 2, 1999
Thomas F. Cooke Secretary and Director
(Principal Accounting
and Financial Officer)
II-4
EXHIBIT 10.4
REVOLVING PROMISSORY NOTE
$40,000 AUSTIN, TEXAS NOVEMBER 12, 1998
For value received, Saratoga Holdings I, Inc., a Texas corporation, (the
"MAKER"), promises to pay to the order of Saratoga Resources, Inc., a Texas
corporation (the "PAYEE"), at 301 Congress Avenue, Suite 1550, Austin, Texas
78701 (or at such other place as the Payee may hereafter direct), the lesser of
the following: (i) the principal sum of FORTY THOUSAND DOLLARS ($40,000), or
(ii) the aggregate unpaid principal amount of all unpaid loans made to the Maker
by the Payee, together with interest, under the terms of this Revolving
Promissory Note (the "LOANS") whichever is less, on or before April 11, 2000
(the "MATURITY DATE").
Interest (computed on the basis of the actual number of days elapsed over
a year of 360 days) shall be calculated from the date of this Note on the unpaid
principal amount of the Loans from the date or dates of any advance thereof at
the rate of 10% per annum and shall be due and payable on the Maturity Date.
From and after an Event of Default, and unless and until such Event of Default
is waived or otherwise ceases to exist, interest on the unpaid principal amount
of the Loans shall be calculated at a rate of 18% per annum.
So long as there are no outstanding Events of Default, the Maker may
borrow, prepay and reborrow under this Note until the Maturity Date. The Maker
hereby authorizes the Payee to endorse the attached Schedule of Loans, all Loans
made to the Maker by the Payee and all payments of principal in respect of such
Loans, which endorsement shall, in the absence of manifest error, be conclusive
as to the outstanding principal amount of such Loans. The Payee shall have the
right at any time and from time to time to prepay in whole or in part the
principal and interest due under this Note without premium or penalty. All
prepayments shall be applied first to accrued interest, and the balance, if any,
to the unpaid principal.
If any one or more of the following events ("EVENTS OF DEFAULT") shall
occur then, and at any time thereafter, the holder of this Note may, at its
option without demand or notice to the Maker which the Maker expressly waives,
declare the outstanding principal and accrued interest owing under this Note to
be immediately due and payable, whereupon the entire unpaid principal and
accrued interest of this Note shall forthwith become due and payable.
(a) If the Maker fails to pay this Note when the same shall become
due and payable which has not been cured within 5 days of receipt by Maker
of written notice thereof.
(b) If Maker (i) applies for or consents to the appointment of a
receiver, trustee, custodian, intervenor or liquidator of it or of all or
a substantial part of its assets, (ii) files a voluntary petition in
bankruptcy, admits in writing that it is unable to pay its debts as they
become due or generally does not pay its debts as they become due, (iii)
makes a general assignment for the benefit of creditors, (iv) files a
petition or answer seeking reorganization or an arrangement with creditors
or to take advantage of any bankruptcy
1
<PAGE>
or insolvency laws, (v) files an answer admitting the material allegations
of, or consents to, or defaults in answering, a petition filed against it
in any bankruptcy, reorganization or insolvency proceeding, or (vi) takes
corporate action for the purpose of effecting any of the foregoing.
(c) If an involuntary petition or complaint is filed against the
Maker seeking bankruptcy or reorganization or the appointment of a
receiver, custodian, trustee, intervenor or liquidator of it, or of all or
substantially all of its assets, and such petition or complaint is not
dismissed within 60 days of the filing thereof; or an order, order for
relief, judgment or decree is entered by any court of competent
jurisdiction or other competent authority approving a petition or
complaint seeking reorganization of it or appointing a receiver,
custodian, trustee, intervenor or liquidator of it, or of all or
substantially all of its assets.
In no event shall the interest contracted for, charged or received on this
Note ever exceed the Maximum Lawful Rate. The term "Maximum Lawful Rate", as
used in this Note, means the highest rate permitted by applicable law.
If the payment to be made on this Note becomes due on a day other than a
Business Day such payment may be made on the next succeeding Business Day. The
term "Business Day," shall mean any day of the year on which the banks of the
State of Texas are open to the public for conducting regular business.
This Note shall be governed by and construed in accordance with the
applicable laws of the United States of America and the laws of the State of
Texas.
The Maker waives presentment for payment, notice of demand, demand, and
notice of protest and of dishonor, diligence in collecting and the bringing of
suit against any other party, and agrees to all renewals, extensions, partial
payments, releases, subordinations and substitutions of security, in whole or in
part, with or without notice, before or after the Maturity Date. The failure by
the Payee to exercise any of its rights, remedies, recourses, or powers upon the
occurrence of one or more of the Events of Default shall not constitute a waiver
of the right to exercise the same or any other right, remedy, recourse, or power
at any subsequent time in respect to the same or any other of the Events of
Default.
Any notices or demands required to be given to the Maker hereunder shall
be deemed effective if in writing when personally delivered to the Maker or if
mailed by certified mail, return receipt requested to the Maker's most recent
address indicated on the Payee's records, then on the day of the mailing
thereof.
As used herein, the term "Payee" shall include the successors and assigns
of the Payee and any subsequent owner and holder of this Note.
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<PAGE>
Neither the enumeration of any Events of Default herein nor any other
provision hereof shall in any way limit or impair the right of the Payee to
demand payment hereof at any time in accordance with any demand provision
hereof.
THIS NOTE REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT
BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
MAKER:
SARATOGA HOLDINGS I, INC.,
a Texas corporation
By:/s/ THOMAS F. COOKE
-------------------------------
Thomas F. Cooke,
Chief Executive Officer
PAYEE:
SARATOGA RESOURCES, INC.,
a Texas corporation
By:/s/ THOMAS F. COOKE
-------------------------------
Thomas F. Cooke, President
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<PAGE>
Grid Page 1 of _____
SCHEDULE OF LOANS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
===============================================================================================
| | Principal | Notation | Date of | Amount of | Notation
| Date of Loan | Amount of | Made By | Payment | Payment | Made By
| | Loan | | | |
===============================================================================================
| | | | | | |
|-----------------|---------------|--------------|--------------|---------------|-------------|
| | | | | | |
|-----------------|---------------|--------------|--------------|---------------|-------------|
| | | | | | |
|-----------------|---------------|--------------|--------------|---------------|-------------|
| | | | | | |
|-----------------|---------------|--------------|--------------|---------------|-------------|
| | | | | | |
|-----------------|---------------|--------------|--------------|---------------|-------------|
| | | | | | |
|-----------------|---------------|--------------|--------------|---------------|-------------|
| | | | | | |
|-----------------|---------------|--------------|--------------|---------------|-------------|
| | | | | | |
|-----------------|---------------|--------------|--------------|---------------|-------------|
| | | | | | |
|-----------------|---------------|--------------|--------------|---------------|-------------|
| | | | | | |
|-----------------|---------------|--------------|--------------|---------------|-------------|
| | | | | | |
|-----------------|---------------|--------------|--------------|---------------|-------------|
| | | | | | |
|-----------------|---------------|--------------|--------------|---------------|-------------|
| | | | | | |
===============================================================================================
</TABLE>
This is the attached Schedule of Loans and Payments of
Principal referred to in and attached to
the Revolving Promissory Note dated November 22, 1998, made by
Saratoga Holdings I, Inc.,
a Texas corporation, and payable to the order of Saratoga
Resources, Inc., a Texas
corporation, and it may be supplemented by additional similar
pages as necessary.
4
EXHIBIT 10.5
COMPROMISE AND SETTLEMENT AGREEMENT
THIS COMPROMISE AND SETTLEMENT AGREEMENT (this "Agreement") is
entered into effective as of May 7, 1996, by and among Saratoga Resources, Inc.,
a Texas corporation ("Saratoga Texas"), Saratoga Resources, Inc., a Delaware
corporation ("Saratoga Delaware"), Lobo Operating Inc., a Texas corporation
("LOI"), Lobo Energy Inc., a Texas corporation ("LEI"), (Saratoga Texas,
Saratoga Delaware, LOI and LEI sometimes collectively referred to herein as the
"Saratoga Companies"), Thomas F. Cooke, Joseph T. Kaminski, Randall F. Dryer,
(the "Shareholders"; the Saratoga Companies and the Shareholders sometimes
collectively referred to herein as the "Saratoga Parties") and Internationale
Nederlanden (U.S.) Capital Corporation, a Delaware corporation ("ING");
WITNESSETH:
A. Saratoga Texas, Saratoga Delaware, LEI and ING are parties
to that certain Credit Agreement dated as of March 30, 1995 (as heretofore
amended or modified, the "Credit Agreement"), pursuant to which ING extended
credit to Saratoga Texas in accordance with the terms therein. As of the date
hereof the sum of $13,765,721.23 principal plus accrued unpaid interest is owed
under the Credit Agreement.
B. The Shareholders are directors and principal shareholders
of Saratoga Delaware.
C. All obligations under the Credit Agreement and the Loan
Documents (the "Secured Obligations") are secured by perfected, first priority
liens on and security interests in the real and personal property of the
Saratoga Companies (collectively the "Collateral"). The Saratoga Companies are
in default under the Credit Agreement. All of the Secured Obligations are past
due and are due and payable in full.
D. Pursuant to the terms and provisions of the Deed of Trust,
Mortgage, Assignment, Security Agreement, Fixture Filing and Financing Statement
(the "Deed of Trust") dated March 30, 1995, by Saratoga Texas, which secures the
Secured Obligations, the Substitute Trustee appointed under the Deed of Trust
has given Notice of Substitute Trustee Sale of the property encumbered by such
Deed of Trust (the "Foreclosure Properties") to take place at or within three
(3) hours after 10:00 o'clock a.m., local time, on Tuesday, May 7, 1996 (the
"Foreclosure Sale"), as more particularly described in such notice, which
notice, has been posted at the appropriate location at the courthouses located
in the counties in Texas in which the properties covered by the Deed of Trust
are located.
E. The Saratoga Companies have alleged certain claims and
causes of action against ING and Internationale Nederlanden (U.S.) Securities
Corporation in that certain action (the "Action") No. C96-399-D3 in the District
Court of Webb County, Texas, 341st Judicial District (the "Asserted Claims").
ING denies any liability for the Asserted Claims.
F. The Saratoga Companies have failed to pay when due various
obligations and liabilities to others. As a result, mechanic's and materialmen's
liens and mineral contractors' liens have been filed against property of
Saratoga Texas and suits for collection of debts have been filed against the
Saratoga Companies.
G. Contemporaneously with this Agreement, PrimeEnergy
Corporation, a Delaware corporation ("PrimeEnergy") and ING have entered into
that certain Purchase and Sale Agreement dated of even date herewith (the
"Purchase Agreement") pursuant to which, if ING is the high bidder at the
Foreclosure Sale and acquires the Foreclosure Property, PrimeEnergy has agreed
to purchase, and ING has agreed to sell, the Foreclosure Properties and certain
other properties as more particularly described on Exhibit A to the Assignment,
Conveyance and Bill of Sale attached hereto as Exhibit I (the "Interests"). The
Purchase Agreement contemplates and is conditioned upon this Agreement and the
purchase of the Foreclosure Properties by ING at the Foreclosure Sale.
H. A true and correct copy of the Purchase Agreement is
attached hereto. The consideration payable by PrimeEnergy under the Purchase
Agreement is as follows ("Sale Proceeds"):
(i) the payment of the aggregate sum of $7,180,000
subject to adjustment resulting from the allocation
of revenues and expenses as a result of the
operations, based upon the effective date of the
purchase and sale, for purposes of such adjustment,
on January 1, 1996; and
(ii) the Conveyance of a Production Payment and Net
Profits Overriding Royalty Interests (the "NPI") out
of the Interests, as provided for in the Purchase
Agreement; and
I. In the absence of a compromise and settlement of the
Secured Obligations and of the Asserted Claims, the Saratoga Companies would
likely have pursued the Asserted Claims and been the subject of a voluntary or
involuntary case under the United States Bankruptcy Code, and the parties have
voluntarily entered into this Agreement to buy peace.
J. The Saratoga Parties and ING desire to enter into this
Agreement to (i) compromise and settle the Asserted Claims, (ii) to permit the
sale of the Foreclosure Properties pursuant to the Notice, (iii) to provide for
certain payments by ING after the sale and (iv) to release the Saratoga Parties
from liability for the Secured Obligations, liens and security interests
provided herein and (v) to provide further assurances to PrimeEnergy regarding
the assets to be sold pursuant to the Purchase Agreement and to provide for an
allocation of revenues and expenses attributable to the Interests based on a
January 1, 1996 effective date.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and agreements contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged and
confessed, the parties hereby contract, covenant and agree as follows:
2
1. DEFINITIONS. As used in this Agreement, in addition to the
terms defined elsewhere in this Agreement, and the following terms shall have
the meanings specified below:
"EXCLUDED ASSETS" means the Assets described in the Partial
Release attached as Exhibit II.
"LOAN DOCUMENTS" means the Credit Agreement, the Deed of Trust
and all guaranties, deeds of trust, mortgages, assignments, security agreements,
pledges, financing statements and other agreement documents or instruments
guaranteeing, securing or benefiting the Secured Obligation.
"PERSON" means an individual, corporation, partnership,
limited liability company, association, joint stock company, trust or trustee
thereof, estate or executor thereof, unincorporated organization or joint
venture, court or governmental unit or any agency or subdivision thereof, or any
other legally recognizable entity.
"SALE DOCUMENTS" means the documents and instruments attached
as Exhibits I, II, III, IV, V, VI and VIII.
"TRANSACTION DOCUMENTS" means this Agreement, the Mutual
Release, the Sale Documents, the Disbursement Agreement, and the documents and
instruments to be delivered pursuant hereto.
2. ACKNOWLEDGMENTS AND AGREEMENTS BY THE SARATOGA PARTIES. The
Saratoga Parties hereby acknowledge, covenant and agree that:
(a) The Foreclosure Properties under the Deed of Trust are
subject to a valid, perfected, first priority lien and security interest in
favor of ING.
(b) The Saratoga Parties shall permit the Foreclosure Sale
without any adverse interference or disruption, and shall not take any action,
whether before, during or after the Foreclosure Sale, including filing,
commencing, or prosecuting any suits, action, lawsuit, litigation, proceeding or
motion for temporary restraining order with regard to the Foreclosure Sale in
any action, litigation or otherwise, or otherwise seeking to rescind the
Foreclosure Sale, have the Foreclosure Sale declared void or set aside, or
questioning the validity of the Foreclosure Sale or any subsequent sale of the
Interests by ING.
(c) The Saratoga Parties will properly (and promptly after
requested) execute and deliver to ING, or to Prime Energy, as the buyer of the
Foreclosure Property from ING to the extent requested by ING, the Sale Documents
and all documents, conveyances, deeds, assignments, transfers, bills of sale and
letters in lieu necessary to fully transfer title and deliver possession of the
Interests and divest the Saratoga Parties of any right, title or interest in and
to the Interests. The Saratoga Parties will convey to ING or to PrimeEnergy, to
the extent requested by ING, all of the other assets owned by the Saratoga
Companies on the date hereof excluding the Excluded Assets. The Saratoga Parties
shall not take any action at any time in contravention of the Sale Documents,
including, without limitation, the filing, presentation or commencement of
3
any suit, action, proceeding or lawsuit or litigation requesting a declaration,
finding or order rescinding the Sale Documents, declaring the Sale Documents
void, setting aside the Sale Documents or otherwise questioning the validity of
or seeking any redress with respect to the Sale Documents.
(d) The Saratoga Parties agree that (i) the execution and
delivery of the documents by Saratoga as provided under this Section 2, (ii) the
execution and delivery of the Disbursement Agreement, (iii) the execution and
delivery of the Mutual Release and (iv) the payment under section 4(a) shall
take place simultaneously and are conditioned upon each other.
(e) The Saratoga Parties will immediately cause the Action and
all their claims against ING and Internationale Nederlanden (U.S.) Securities
Corporation (collectively, the "ING Parties") to be dismissed with prejudice.
(f) The ING Parties have entered into the Transaction
Documents in order to avoid the inconvenience and expense of litigation and have
not admitted any liability in respect to the Alleged Claims or any other
liability of any kind or character.
(g) No Saratoga Party or ING shall take any action in
contravention of the terms of the Disbursement Agreement or which otherwise
might affect the actions of the Trustee under the Disbursement Agreement in
carrying out the provisions of the Disbursement Agreement. Without limiting the
generality of the foregoing, no Saratoga Party shall (i) acquire, enter into any
agreement regarding, or advise or consult with a holder thereof regarding any
Liability (as referred to below) or any claim which is in any manner derivative
of or related to any Liability, or (ii) for a period of 180 days after the date
of this Agreement have any communication with any holder of any Liability or any
claim which is derivative of or related to a Liability except communication
permitted under the terms of the Disbursement Agreement.
3. ACKNOWLEDGMENTS AND AGREEMENTS BY ING. ING hereby
acknowledges and agrees that:
(a) ING shall apply the Sale Proceeds in accordance with
Section 4 of this Agreement. ING hereby releases any and all right, title,
interest and claim it may have in respect of (i) the cash to be released to the
Saratoga Parties under Section 4(a) and (ii) all of the Excluded Assets.
ING will execute a release of its liens and security in the Excluded Assets.
(b) The Saratoga Parties have entered into the Settlement
Documents in order to avoid the inconvenience and expense of litigation.
(c) ING agrees to bid at least $9,200,000 of the Secured
Obligations to acquire the Foreclosure Properties at the Foreclosure Sale. If
ING's bid is exceeded by a higher cash bid, ING will apply the proceeds as
provided in Section 4. If ING acquires the Foreclosure Properties at the
Foreclosure Sale, ING agrees to consummate the sale to PrimeEnergy under the
Purchase Agreement.
4
4. APPLICATION OF CASH PROCEEDS RECEIVED BY ING. Upon receipt
by ING of the Cash Proceeds in immediately available funds (or if another party
acquires the Foreclosure Property at the Foreclosure Sale, upon receipt of the
cash proceeds in immediately available funds):
(a) ING shall pay to the Saratoga Parties $1,500,000 pursuant
to a certain Escrow Agreement in the form attached hereto as Exhibit III.
(b) ING agrees to fund amounts from time to time to the
Trustee under the Disbursement Agreement up to the Schedule 1 Amount and the
Schedule 2 Amount as provided in the Disbursement Agreement executed by ING
contemporaneously with this Agreement, a copy of which is attached hereto as
Exhibit A (the "Disbursement Agreement"). The amounts so funded are remitted to
the Trustee, subject to the terms of the Disbursement Agreement, to settle and
finally satisfy the specific outstanding obligations of the Saratoga Parties
described on Schedules 1 and 2 to the Disbursement Agreement (the
"Liabilities"). The remaining amounts of the Disbursement Accounts will be
retained by ING free of the obligations under the Disbursement Agreement at the
time and in the amount provided in the Disbursement Agreement.
(c) ING shall retain the balance which exceeds the amounts in
Sections 4(a) and 4(b).
(d) None of the Saratoga Companies shall be liable for the
repayment of any of the Secured Obligations remaining after the Foreclosure Sale
and after the transfers under Section 2, other than out of or from liens on and
security interests in any other remaining, non-released assets and property
owned by the Saratoga Companies as of the date hereof; provided, however, that
nothing herein shall prejudice the right of ING to recover any damages or costs
(including reasonable attorney's fees) incurred by ING or PrimeEnergy, or an
express third party beneficiary of this Agreement, as a result of the breach of
any representation, warranty or covenant contained in this Agreement, the Sale
Documents or any other Transaction Document.
(e) The Saratoga Parties agree that (i) the execution and
delivery of the documents by Saratoga as provided under Section 2, (ii) the
execution and delivery of the Disbursement Agreement, (iii) the execution and
delivery of the Mutual Release and (iv) the payment under paragraph 4(a) shall
take place simultaneously and are conditioned upon each other.
5. NPI. As part of the consideration being paid by PrimeEnergy
for the Interests, PrimeEnergy is conveying the NPI to ING. The Saratoga Parties
hereby release any and all right, title, interest and claim they may have to the
NPI.
6. MUTUAL RELEASES. The Saratoga Parties and ING hereby agree,
as an essential consideration for the transactions contemplated by the
Settlement Documents, to enter into the Mutual Release in the form of Exhibit B
attached hereto (the "Mutual Release").
7. REPRESENTATION AND WARRANTIES BY THE SARATOGA PARTIES. Each
of the Saratoga Parties hereby represents and warrants with respect to itself to
ING that:
5
(a) Each Saratoga Company is duly organized, validly existing
and in good standing under the laws of its state of organization, having all
corporate powers required to carry on its business and enter into and carry out
the transactions contemplated hereby. Each Saratoga Company has taken all
corporate action necessary to authorize the execution and delivery by it of the
Transaction Documents to which it is a party and to authorize the consummation
of the transactions contemplated thereby and the performance of its obligations
thereunder.
(b) The execution and delivery by each of the Saratoga Parties
of the Transaction Documents to which it is a party, the performance of its
obligations under such Transaction Documents, and the consummation of the
transactions contemplated by the various Transaction Documents, do not and will
not (i) conflict with any provision of (1) any domestic law, statute, rule or
regulation, (2) the articles or certificate of incorporation, bylaws, or
charter, of any Saratoga Company, or (3) to the best of its knowledge, any
agreement, judgment, license, order or permit applicable to or binding upon any
Saratoga Party, or (ii) result in any lien upon any assets or properties of any
Saratoga Party except as expressly contemplated in the Transaction Documents.
Except as expressly contemplated in the Transaction Documents no consent,
approval, authorization or order of, and no notice to or filing with, any court
or governmental authority or third party is required in connection with the
execution, delivery or performance by any Saratoga Party of any Transaction
Document or to consummate any transactions contemplated by the Transaction
Documents.
(c) This Agreement is, and the other Transaction Documents
when duly executed and delivered will be, legal, valid and binding obligations
of each Saratoga Party which is a party thereto, enforceable in accordance with
their terms except as such enforcement may be limited by bankruptcy, insolvency
or similar laws of general application relating to the enforcement of creditors'
rights.
(d) None of the Saratoga Companies owns any interest in any
Person other than Saratoga Delaware's interests in Saratoga Texas, LEI and LOI
and Saratoga Texas' 65% general partner interest in Kaminski Partnership 90-I.
The only asset owned by the Kaminski Partnership 90-I is an interest in the
Hemphill Field. Each Shareholder, as to himself alone, represents that no
payment or transfer of assets of any kind or type has been made since May 1,
1995 by any of the Saratoga Companies to or for the benefit of such Shareholder
or any Insider with respect to that Shareholder, as that term is used in the
United States Bankruptcy Code, except salaries and reimbursement of expenses to
officers, directors and employees of the Saratoga Companies consistent with the
salaries and the policies on expense reimbursement in effect immediately prior
to May 1, 1995.
(e) The Saratoga Companies have made a full, complete and
accurate disclosure to ING and PrimeEnergy of, and have transferred to ING, or
to PrimeEnergy by virtue or through the documents attached hereto, all cash,
cash equivalents, undeposited checks or negotiable instruments, prepaid
expenses, deposits, refunds or assets readily convertible to cash now owned by
any of the Saratoga Companies (the "Closing Date Cash"). There are no assets of
any Saratoga Company not otherwise disclosed to ING and PrimeEnergy. Any Closing
Date Cash which may
6
hereafter come into the possession of any Saratoga Company shall be immediately
transferred to ING or to PrimeEnergy, pursuant to the amounts attached hereto.
(f) None of the Shareholders have any interest in PrimeEnergy
or in any affiliate of PrimeEnergy or otherwise has received, or has any
expectation to receive, any personal benefit from the Purchase Agreement or the
transactions contemplated by the Purchase Agreement other than from pursuant to
this Agreement and their respective interests as Shareholders of Saratoga
Delaware.
(g) The Reconciliation Statement regarding deposits and other
accounts and outstanding checks, wire transfers and other debits and credits is
true, accurate and complete in all respects.
(h) The Foreclosure Sale has not and is not enjoined or
restrained and will not be enjoined or restrained by any of the Saratoga Parties
by any order, decree, judgment or other ruling of any court and is not otherwise
barred or stayed by any proceeding of any type and none of the Saratoga Parties
will commence any action, proceeding, lawsuit or litigation seeking such an
order or proceeding.
8. REPRESENTATION AND WARRANTIES BY ING. ING hereby represents
and warrants to the Saratoga Parties that
(a) ING is duly organized, validly existing and in good
standing under the laws of its state of organization, having all corporate
powers to enter into and carry out the transactions contemplated hereby. ING has
taken all corporate action necessary to authorize the execution and delivery by
it of the Transaction Documents to which it is a party and to authorize the
consummation of the transactions contemplated thereby and the performance of its
obligations thereunder.
(b) This Agreement is, and the other Transaction Documents to
which it is a party, when duly executed and delivered will be, legal, valid and
binding obligations of ING, enforceable in accordance with their terms except as
such enforcement may be limited by bankruptcy, insolvency or similar laws of
general application relating to the enforcement of creditors' rights.
9. MODIFICATION; SEVERABILITY. This Agreement may be amended
or modified only in writing signed by each Saratoga Party and ING. If any
provision of this Agreement shall for any reason be held to violate applicable
law, and so much of said Agreement is or is deemed to be unenforceable, then the
invalidity of such specific provision herein shall not be held to invalidate any
other provision herein, and all such other provisions shall remain force and
effect.
10. CONFIDENTIALITY.
(a) Each party hereto acknowledges that the terms of the
Transaction Documents are confidential and non-public in nature. Each party
hereto will keep in confidence all terms herein or in any other Transaction
Document and will not permit any other Person to make any
7
copy, photocopy or photograph here from or to write down or record any
information with respect hereto. Notwithstanding the foregoing, each party
hereto may disclose any such information (i) to its attorneys and accountants
who would ordinarily have access to such information in the normal course of
performance of their duties, in confidence in accordance with such Party's
normal customary practices, (ii) to another party hereto, (iii) Michelle
Maynard, counsel to certain working interest owners or (iv) subject to paragraph
(b), to such third parties to comply with a mandatory and valid requirement of
(A) any law, ordinance, or regulatory authority, (B) any order, decree,
judgment, subpoena, notice of discovery or similar request or testimony, or
pleading issued, filed, served or purposed on its face to be issued, filed or
served (x) by or under authority of any court, tribunal, arbitration board or
similar entity or (y) in connection with any proceedings, case or matter
tribunal, arbitration board, or any governmental agency, commission, authority,
board or similar entity.
(b) If any Party determines that any disclosure is or may be
required under clause (iii) of the preceding paragraph (a), the disclosing party
shall give notice of the proposed disclosure to the other parties to this
Agreement, and shall, to the extent it may be done without violation of law,
rule, regulation or court order, contest the disclosure, and shall in any event,
limit the nature and extent of disclosure to such disclosure that such Party is
advised by its counsel is minimally necessary to so comply.
(c) No Party will disparage the creditworthiness of any other
Party to this Agreement from and after this date.
(d) In the event that ING has heretofore filed a report or
reports with any Credit Reporting agency concerning the Saratoga Parties, ING
will file a follow-up report with such agency or agencies indicating that the
Saratoga Companies have discharged the indebtedness due ING, and are now in good
standing.
(e) No Saratoga Party will issue any press release or other
public announcement regarding the transactions contemplated by the Transaction
Documents until the recording of the Trustee's Deeds and the conveyances
contemplated by this Agreement in each applicable county.
11. ARBITRATION.
(a) As used in this section:
(i) "AAA" means the American Arbitration
Association (or any successor thereto),
(ii) "Claims" means all claims by either
party hereto against the other with respect to (A)
the Transaction Documents (including among others any
claims with respect to the interpretation or validity
of any of the Transaction Documents, the existence or
scope of any duties owed thereunder, whether or not
any such duties have been performed or breached in
any circumstances, or the extent or enforcement of
any property rights created thereunder or subject
thereto; (B) any claim, whether in tort, for breach
of
8
contract, for breach of implied duties, under any
statute or otherwise arising at law or in equity,
which is related in any manner to the subject matter
of the Transaction Documents, and
(iii) "Disputed Matters" means all Claims,
all defenses against any Claims, and all
controversies relating thereto.
(b) If either one or more of the Saratoga Parties
(the "Claiming Saratoga Party") or ING ever desires to assert a Claim against
the other, the party asserting such Claim will give written notice thereof to
the other party. During the thirty day period following receipt of such notice
by the other party, both parties will discuss such Claim and the validity
thereof. If the parties hereto cannot come to agreement about such Claim by the
end of such thirty day period (as such period may be extended by mutual
agreement), then within fifteen days after the end of such period either party
may by written notice to the other invoke the arbitration provisions of this
Agreement, whereupon the Claiming Saratoga Party and ING shall submit such Claim
and all Disputed Matters in any way related thereto to arbitration under the
procedures in the next following subsection (c).
(c) All Disputed Matters shall be resolved by
arbitration conducted by three arbitrators in accordance with this Section 6.9
and, to the extent not in conflict herewith, the Commercial Arbitration Rules of
the AAA then in effect. Each such arbitrator must be independent and impartial.
Within ten days after the sending and receipt of a notice invoking arbitration
as provided in subsection (b) above, each of the Saratoga Claiming Party and ING
shall specify (by notice to the other) the name and address of an arbitrator
appointed by it. At the end of such ten days, if one party has made a
specification of its appointed arbitrator but has not received notice of a
similar specification by the other party, then the party which has made a
specification shall give notice to the other party that it has not received a
specification from the other party. If the other party does not act to specify
its arbitrator within an additional seven days after the giving of such notice,
the party who has made its specification may appoint the second arbitrator in
place of the party who has failed to do so. Within fifteen days after the first
two arbitrators have been appointed, they shall select the third arbitrator. If
a third arbitrator has not been selected within such period, either party hereto
may petition the Administrative Judge presiding over the State District Courts
of Dallas County, Texas to appoint such third arbitrator, whereupon such judge
(or any person designated by such judge to make such appointment) may make such
appointment unless the first two arbitrators have come to agreement on the third
arbitrator. Consistent with the expedited nature of arbitration, each party
will, upon the written request of the other party, provide the other with copies
of documents relevant to the issues raised by the Disputed Matter. Other
discovery may be ordered by the arbitrators to the extent they deem relevant and
appropriate, and any dispute regarding discovery, including disputes as to the
need thereof or the relevance or scope thereof, shall be determined by the
arbitrators, whose determination shall be conclusive. The Saratoga Claiming
Party and ING shall proceed expeditiously with any such arbitration and shall
conclude all proceedings thereunder, including any hearing, in order to allow a
decision based on applicable law to be rendered within ninety days after the
appointment of the third arbitrator. The decision of any two such arbitrators on
the issues before them shall be final, and any award or order so decided may be
enforced in any court
9
having personal jurisdiction over the party against whom enforcement is sought.
Each Party shall bear its own expenses, including attorneys' fees and expenses
of arbitration, in connection with any such arbitration. Although the foregoing
arbitrations shall be conducted under the rules of the AAA, the AAA itself shall
not conduct such arbitrations, nor shall such arbitrations be considered under
the auspices of the AAA, nor shall any fee be due the AAA. The arbitrators shall
honor the election by the Saratoga Claiming Party and ING of the laws of the
State of Texas as set out in the various Transaction Documents, provided that
each arbitration proceeding shall also be subject to the United States
Arbitration Act, 9 U.S.C., Chapter 1, ss.ss. 1 et seq, to the extent applicable.
The arbitrators are not empowered to award punitive or exemplary damages on any
Claim and EACH SARATOGA CLAIMING PARTY AND ING HEREBY IRREVOCABLY WAIVES ANY
RIGHT IT MAY HAVE TO RECOVER PUNITIVE OR EXEMPLARY DAMAGES ON ANY CLAIM.
(d) All applicable statutes of limitations and
defenses based on the passage of time shall be tolled during the period in which
arbitration has been invoked as set forth in this section (but not during any
period prior to such invocation of arbitration). Each Saratoga Claiming Party
and ING is required to continue to perform its obligations under the Transaction
Documents pending final resolution of any Disputed Matter.
12. NOTICES. All requests or other communications required or
permitted to be given pursuant to this Agreement shall be deemed sufficiently
given when telefaxed and confirmed or delivered personally during regular
business hours and before 5:00 p.m. during a business day to the appropriate
location described below, or three (3) days after posting thereof by United
States first-class, registered or certified mail, return receipt requested, with
postage and fees prepaid and addressed as follows:
If to PrimeEnergy: 1 Landmark Square, 11th Floor
Stamford, Connecticut 06901
Attention: Charles E. Drimal, Jr.
Phone No. (203) 358-5700
Fax No. (203) 358-5783
If to Saratoga 1155 Dairy Ashford, Suite 600
Companies: Houston, Texas 77079
Attention: Thomas F. Cooke, Chairman
Phone No. 713/531-0022
Fax No. 713/531-0023
10
If to ING: Internationale Nederlanden (U.S.)
Capital Corporation
135 East 57th Street
New York, NY 10022-1500
Attention: Peter Y. Clinton
Phone No. 212/446-1514
Fax No. 212/832-3616
Any party hereto may designate a different address for
subsequent notices or communications at any time by furnishing written notice to
the other parties hereto in the manner described above.
13. ATTORNEYS' FEES. If any legal action, arbitration
proceeding, or other action or proceeding is brought for the enforcement of this
Agreement, or because of any alleged dispute, breach, or default in connection
with any of the provisions of this Agreement, the successful or prevailing party
hereto (whether or not such prevailing party is the defendant in such action or
proceeding) shall be entitled to recover reasonable attorneys' fees and other
costs incurred in that action or proceeding in addition to any other remedies to
which he or it may be entitled under this Agreement, at law or equity. The
rights and remedies granted herein are cumulative and not exclusive of any other
right or remedy granted herein or provided in equity or by law.
14. ENTIRE AGREEMENT. THIS AGREEMENT, TOGETHER WITH THE OTHER
TRANSACTION DOCUMENTS, COLLECTIVELY SET FORTH THE ENTIRE AGREEMENT AMONG THE
PARTIES HERETO WITH RESPECT TO THE SUBJECT MATTER HEREOF. NO OTHER
REPRESENTATIONS HAVE BEEN MADE OR RELIED UPON BY ANY OF THE PARTIES HERETO IN
CONNECTION WITH THE MATTERS SET FORTH HEREIN. EACH PARTY HERETO ACKNOWLEDGES
THAT (I) ALL REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS THAT IT HAS
RELIED UPON OR WILL RELY UPON IN ENTERING INTO THIS AGREEMENT ARE CONTAINED IN
THIS AGREEMENT AND THE OTHER TRANSACTION DOCUMENTS, AND (II) IT IS NOT RELYING
UPON ANY OTHER REPRESENTATION, WARRANTY, COVENANT, AGREEMENT, PROMISE OR
INDUCEMENT WHATSOEVER. THERE ARE NO ORAL AGREEMENTS BETWEEN OR AMONG THE PARTIES
HERETO.
15. GOVERNING LAW; JURISDICTION. The laws of the United States
and the internal laws of the State of Texas shall govern this Agreement and the
performance of the transactions by the Parties hereto.
16. HEADINGS; COUNTERPARTS. Headings in this Agreement are for
convenience only and shall not affect the interpretation hereof. This Agreement
may be executed in multiple counterparts, each of which shall have the force and
effect of an original, and all of which together shall constitute one and the
same agreement.
11
IN WITNESS WHEREOF, this Agreement has been executed as of the
date first written above.
SARATOGA RESOURCES, INC.,
a Texas corporation
By: _______________________
Thomas F. Cooke
Chairman and Chief
Operating Officer
SARATOGA RESOURCES, INC.,
a Delaware corporation
By: _______________________
Thomas F. Cooke
Chairman and Chief
Executive Officer
INTERNATIONALE NEDERLANDEN (U.S.)
CAPITAL CORP.
By: _______________________
Peter Y. Clinton
Vice President
LOBO OPERATING, INC.
By: _______________________
Thomas F. Cooke
Chairman and Chief
Operating Officer
12
LOBO ENERGY, INC.
By: _______________________
Thomas F. Cooke
Chairman and Chief
Operating Officer
_______________________
THOMAS F. COOKE
_______________________
JOSEPH T. KAMINSKI
_______________________
RANDALL F. DRYER
13
SCHEDULE OF EXHIBITS
Exhibit I Assignment, Conveyance and Bill of Sale by Saratoga Texas, LOI
and LEI
Exhibit II Partial Release by ING
Exhibit III Escrow Agreement
Exhibit IV Assignment and Bill of Sale by Saratoga Delaware
Exhibit V Resignation, Assignment, Bill of Sale and Agreement by
Saratoga Texas, LOI and LEI
Exhibit VI Agreement by Saratoga Delaware
Exhibit VII Agreement regarding Interests by Saratoga Texas, Saratoga
Delaware, LOI, LEI
Exhibit VIII Assignment of Bank Accounts and Agreement by Saratoga
Delaware, Saratoga Texas, LOI and LEI
Exhibit A Disbursement Agreement
Exhibit B Mutual Release
14
EXHIBIT 10.6
PURCHASE AND SALE AGREEMENT
This Purchase and Sale Agreement (hereinafter called "this Agreement")
is made and entered into this 7th day of May, 1996, between INTERNATIONALE
NEDERLANDEN (U.S.) CAPITAL CORPORATION, a Delaware corporation (hereinafter
called "Seller"), and PRIMEENERGY CORPORATION, a Delaware corporation
(hereinafter called "Buyer"), with reference to the following circumstances:
Certain properties (the "Foreclosure Properties") are currently subject
to a Notice of Substitute Trustee's Sale (the "Sale"), a copy of which is
attached hereto.
Seller has entered into a Compromise and Settlement Agreement (the
"Settlement Agreement") with Saratoga Resources, Inc., a Texas corporation
("Saratoga Texas"), Saratoga Resources, Inc., a Delaware corporation ("Saratoga
Delaware"), LOBO Energy, Inc., a Texas Corporation ("LEI") and LOBO Operating,
Inc., a Texas corporation ("LOI") (the "Saratoga Companies") pursuant to which
the Saratoga Companies have agreed to not enjoin, restrain or otherwise prevent
the sale and, in the event that the Seller acquires the property at the sale, to
deliver to Seller, or to Buyer as Seller's transferee various documents
confirming the transfer, or transferring, properties and assets as more
particularly described in Exhibit A thereto, which include, but are not limited
to, the Foreclosure Properties, (the Foreclosure Properties and such other
assets, interests, and properties to be conveyed pursuant to the Settlement
Agreement herein collectively called the "Interests").
In the event that Seller acquires the Foreclosure Properties, Seller
desires to sell and Buyer desires to purchase, all of Seller's right, title,
estate and interest in and to Interests, including the Foreclosure Properties,
subject to the satisfaction of the conditions precedent set forth in this
Agreement.
In consideration of the foregoing premises, the following terms,
agreements, covenants, and conditions, and for the purpose of prescribing the
terms and conditions of the purchase and sale of the Interests, Seller and Buyer
agree as follows:
Section 1. SALE OF INTERESTS; PURCHASE PRICE; AGREED VALUE. At the
closing provided for at Section 2 of this Agreement (hereinafter called the
"Closing"), Seller, subject to the terms and conditions of this Agreement, will
sell, convey, and deliver the Foreclosure Properties and the other Interests to
Buyer, and Buyer will purchase and accept delivery of the Foreclosure Properties
and the other Interests from Seller, for Seven Million One Hundred Eighty
Thousand Dollars ($7,180,000) (hereinafter called the "Base Price"), subject to
the adjustments made in connection with the allocation of revenues and expenses
among Seller and Buyer as a result of the deemed "Effective Date" considerations
all as more particularly described at Section 2 of this
-1-
Agreement, and in further consideration of Buyer's execution and delivery at the
Closing (or promptly thereafter) of that certain Conveyance of Production
Payment and Net Profit Overriding Royalty Interest (hereinafter called the
"Conveyance") from Buyer, as grantor, to Seller (hereinafter called the
"Purchase Price").
Section 2. CLOSING; EFFECTIVE DATE ALLOCATION. The purchase and sale of
the Interests shall be held and consummated promptly following the acquisition
of the Foreclosure Properties, and contemporaneously with the delivery of
documents under the Settlement Agreement (hereinafter called the "Closing
Date"). In the event that Seller does not acquire the Foreclosure Properties at
the sale and the other Interests pursuant to the Settlement Agreement, this
Agreement will terminate. The purchase and sale of the Interests shall be
effective for purposes of adjustment to the purchase price as of January 1, 1996
(the "Effective Date"). The computation of the adjustments shall be made as if
Seller had owned the Interests on the Effective Date even though the Interests
are acquired by Seller on the Closing Date. All revenues, proceeds, receipts,
and income ("Revenues") attributable to production from the Wells and the sale
of the Properties prior to the Effective Date shall belong to Seller.
Conversely, all Revenues attributable to production from the Wells, the sale of
the Properties or otherwise attributable to the Interests on or after the
Effective Date, including, without limitation, all production of oil, gas, and
other hydrocarbons attributable to the Interests which was in tanks, storage
containers, or other facilities ("Production") on or after the Effective Date
awaiting delivery to the purchaser of same, shall belong to Buyer. All joint
interest billings related to the use or operation of the Interests prior to the
Effective Date ("Expenses") shall be the sole obligation of Seller. Conversely,
all joint interest billings related to the use or operation of the Interests on
or after the Effective Date shall be the sole obligation of Buyer; provided,
however, that Seller shall be solely responsible for each Expense incurred on or
after the Effective Date which is payable to any person or entity (other than an
unrelated third party or parties for services performed or materials furnished
with respect to the use, ownership or operation of the Interests from and after
the Effective Date, but prior to the Closing Date) if Seller has not delivered
an itemized documentation of such Expense to Buyer before the Closing Date. Any
party hereto that owes a sum of money to the other party hereto pursuant to the
terms of this Agreement shall promptly pay to the other party such sum. In no
event will the aggregate adjustment to the Base Price for the amount payable by
Seller under this Section 2 exceed $372,000, such adjustment will be calculated
in accordance with Exhibit B.
Section 3. INDEMNITY. PrimeEnergy hereby agrees to indemnify, defend
and hold harmless, ING from and against any loss, expense, liability, claims,
damage, penalties, fines, actions judgments, settlements or disbursements
arising out of or based upon ING's ownership of any of the Interests.
Section 4. REPRESENTATIONS AND WARRANTIES OF SELLER. Seller represents
and warrants to Buyer as of the date hereof, and Seller will represent and
warrant to Buyer as of the Closing Date, as follows:
-2-
(a) ORGANIZATION; QUALIFICATION; AUTHORIZATION. Seller is and
until the date of Closing shall continue to be a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
This Agreement constitutes the valid and binding agreement of Seller enforceable
against Seller in accordance with its terms. All requisite corporate action
necessary to close the transactions contemplated by this Agreement has been
taken by Seller, and Seller has obtained all requisite consents and
authorizations necessary to close such transactions.
Section 5. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer represents
and warrants to Seller as of the date hereof, and Buyer will represent and
warrant to Seller on the Closing Date, as follows:
(a) ORGANIZATION; QUALIFICATION; AGREEMENT AUTHORIZED AND
VALID. Buyer is and until the Closing Date shall continue to be a corporation
validly existing and in good standing under the laws of the state of its
incorporation. This Agreement has been duly authorized, executed and delivered
by Buyer, and all instruments required hereunder to be delivered by Buyer at the
Closing shall be duly authorized, executed and delivered by Buyer. All requisite
corporate action by Buyer necessary to close the transactions contemplated by
this Agreement has been taken. This Agreement constitutes the valid and binding
agreement of Buyer enforceable against Buyer in accordance with its terms.
(b) BROKERS AND FINDERS. Buyer has incurred no liability,
contingent or otherwise, for broker's or finder's fees with respect to this
transaction for which Seller shall have any responsibility whatsoever.
Section 6. INDEPENDENT INVESTIGATION. Buyer acknowledges that in
entering into this Agreement and consummating the transactions contemplated
hereby that it has conducted or it will conduct an independent investigation and
evaluation of the Interests, and that Buyer's decision to consummate the
purchase of the Interests are based solely upon Buyer's independent
investigation and evaluation of the Interests.
Section 7. FURTHER ASSURANCES. Upon delivery of the Purchase Price by
Buyer to Seller and subject to the terms of this Agreement, Seller shall convey
all of Seller's right, title and interest including lien rights, if any, in the
Foreclosure Property to Buyer at the Closing by delivering to Buyer a fully and
properly executed and acknowledged Conveyance in the form attached hereto as
Exhibit C. In addition and from time to time (whether at or after Closing), as
and when reasonably requested by Buyer or its successors or assigns, Seller will
execute, acknowledge and deliver all such additional deeds, releases,
assignments, division orders, transfer orders, letters in lieu of transfer
orders, bills of sale, instruments, files, records, documents and books in
Seller's possession or under Seller's control, and take such other action as
Buyer may reasonably deem necessary or desirable in order to more effectively
convey and transfer to Buyer the Interests, and Seller will assist Buyer in the
collection or reduction to possession of the Interests.
-3-
Section 8. CONDITIONS TO OBLIGATIONS OF BUYER. The obligation of Buyer
to consummate the transactions provided for in this Agreement for Buyer's
consummation shall be subject to the satisfaction of each of the following
conditions as of the Closing Date, subject to the right of Buyer to waive any
one or more of such conditions:
(a) OPINION OF COUNSEL. Counsel of the Saratoga Companies
shall have furnished Seller and Buyer such counsel's written opinion (in form
and substance satisfactory to Seller and Buyer) in the form attached to the
Settlement Agreement.
(b) PERFORMANCE OF THIS AGREEMENT. Seller shall have had its
bid accepted as the highest bid pursuant to the Sale and receive a duly executed
and acknowledged Substitute Trustee Deed covering the Foreclosure Properties.
(c) NO LITIGATION. No suit, action, proceeding, investigation,
injunction, inquiry or request for information by any governmental body or
authority, or private party shall have been instituted or threatened which
questions or reasonably appears to portend subsequent questioning of the
validity or legality of this Agreement or the transactions contemplated by this
Agreement.
(d) SETTLEMENT AGREEMENT. The Saratoga Parties and ING shall
have entered into the Settlement Agreement and the Saratoga Parties shall have
delivered to Buyer the Sale Documents contemplated thereby.
(e) ING RELEASE. Seller shall have secured and deliver to
Buyer at the Closing a properly executed and acknowledged assignment in
recordable form of the liens, security interests, and assignments of production
upon the Interests arising from Sellers' mortgages, deeds of trust and other
lien instruments with ING, with respect to any interest not discharged by the
Sale, which shall be in a form satisfactory to Buyer.
(f) SELLER/ING MUTUAL RELEASE. Seller, ING and Buyer shall
have delivered one to the other at the Closing a properly executed mutual
release of claims in a form satisfactory to Buyer.
(g) OPERATIONS. Buyer, in its good faith judgment, shall have
received the requisite number of agreements and approvals, in form and substance
satisfactory to Buyer, from non-operating working interest participants in the
Saratoga Operated Wells to ensure that Buyer will succeed Saratoga as the duly
designated and appointed operator of the Saratoga Operated Wells from and after
the Closing.
(h) OTHER AGREEMENTS. Buyer shall have received (i) a properly
executed resignation and assignment, in form and substance satisfactory to
Buyer, from LOI resigning as operator of the LOI Operated Wells and transferring
all interest in such operations to Buyer, (ii) a properly executed Shareholders'
Agreement, in form and substance satisfactory to Buyer, from
-4-
Thomas F. Cooke, Joseph T. Kaminski and Randall F. Dryer to Buyer, and (iii) a
properly executed acknowledgment, representation and warranty from Saratoga
Delaware that it has no right, title, interest or claim in and to any asset or
property included within the Interests, whether or not such asset or property is
set forth at Exhibit A attached hereto.
Section 9. CONDITIONS TO OBLIGATIONS OF SELLER. The obligations of
Seller to consummate the transactions provided for in this Agreement for
Seller's consummation shall be subject to the satisfaction of each of the
following conditions as of the Closing Date, subject to the right of Seller to
waive any one or more of such conditions:
(a) REPRESENTATIONS AND WARRANTIES OF BUYER. The
representations and warranties of Buyer contained in this Agreement shall be
true and correct in all material respects.
(b) PERFORMANCE OF THIS AGREEMENT. Buyer shall have duly
performed or complied with all material obligations to be performed or complied
with by Buyer under the terms of this Agreement on or prior to the Closing Date.
(c) NO LITIGATION. No suit or action, investigation, inquiry
or request for information by any government body or authority, or private party
shall have been instituted or threatened which questions or reasonably appears
to portend subsequent questioning of the validity or legality of this Agreement
or the transactions contemplated by this Agreement.
Section 10. TERMINATION. Anything in this Agreement to the contrary
notwithstanding, this Agreement may be terminated by either of the parties on
the Closing Date if any of the conditions precedent to such party's obligations
at Closing have not been satisfied or waived on or prior to the Closing Date.
Such termination shall be without waiver of and shall not be construed to limit
the legal or equitable remedies of the terminating party.
Section 11. EXPENSES; SALES TAXES. Except as otherwise provided in this
Agreement, each party hereto will bear and pay its own expenses of negotiating
and consummating the transactions contemplated by this Agreement. Buyer shall be
responsible for remitting to the applicable governmental taxing authority all
sales taxes resulting from the sale contemplated by this Agreement. Such taxes
shall be Buyer's sole responsibility. Seller and Buyer shall cooperate with one
another with respect to the timely filing of a sales tax return or other
filings, if required by applicable law, with all applicable governmental
authorities.
Section 12. DTPA WAIVER. AS RESPECTS ANY AND ALL INTERESTS SITUATED IN
THE STATE OF TEXAS, BUYER HEREBY WAIVES THE PROVISIONS OF THE TEXAS DECEPTIVE
TRADE PRACTICES-CONSUMER PROTECTION ACT, CHAPTER 17, SUBCHAPTER E, SECTIONS
17.41-17.63 INCLUSIVE, TEXAS BUSINESS AND COMMERCE CODE, EXCEPT SECTION 17.555,
WHICH IS NOT WAIVED. IN ORDER TO EVIDENCE ITS ABILITY TO GRANT SUCH WAIVER AND
TO ESTABLISH BUYER'S SOPHISTICATION AS A PURCHASER OF OIL AND GAS
-5-
PROPERTIES, BUYER HEREBY REPRESENTS AND WARRANTS TO SELLER THAT BUYER (A) IS IN
THE BUSINESS OF SEEKING OR ACQUIRING, BY PURCHASE OR LEASE, MINERALS, GOODS OR
SERVICES FOR COMMERCIAL OR BUSINESS USE, (B) HAS ASSETS OF $1,000,000 OR MORE
ACCORDING TO BUYER'S MOST RECENT FINANCIAL STATEMENT PREPARED IN ACCORDANCE WITH
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES, (C) HAS KNOWLEDGE AND EXPERIENCE IN
FINANCIAL AND BUSINESS MATTERS THAT ENABLE IT TO EVALUATE THE MERITS AND RISKS
OF THE TRANSACTIONS CONTEMPLATED HEREBY, (D) IS NOT IN A SIGNIFICANTLY DISPARATE
BARGAINING POSITION, (E) IS AN EXPERIENCED AND KNOWLEDGEABLE INVESTOR IN THE OIL
AND GAS BUSINESS AND IS CAPABLE OF INDEPENDENTLY EVALUATING THE MERITS AND RISKS
OF THE INVESTMENT CONTEMPLATED BY THE AGREEMENT, (F) HAS ENGAGED OR EMPLOYED THE
SERVICES OF INDEPENDENT COUNSEL AND PROFESSIONALS TO ADVISE IT AS IT DEEMS
NECESSARY IN CONNECTION WITH THIS AGREEMENT, (G) HAS MADE ITS OWN ASSUMPTIONS
REGARDING THE RECOVERABILITY, QUANTITY, VALUE AND PRICES OF THE OIL AND GAS
RESERVES INCLUDED IN THE INTERESTS, (H) IS PURCHASING THE INTERESTS IN THE
ORDINARY COURSE OF ITS BUSINESS FOR INVESTMENT PURPOSES AND NOT FOR PURPOSES OF
FURTHER RESALE, DISTRIBUTION OR TRANSFER IN VIOLATION OF THE SECURITIES ACT OF
1933 OR THE RULES AND REGULATIONS THEREUNDER OR [ANY OTHER APPLICABLE SECURITIES
LAWS OF THE UNITED STATES OR ANY APPLICABLE STATE BLUE SKY LAWS AND (I) HAS THE
FUNDS AND FINANCIAL CAPABILITY TO DELIVER TO SELLER THE PURCHASE PRICE AT THE
CLOSING.
Section 13. NOTICES. All communications required or permitted under
this Agreement shall be in writing and any communication or delivery hereunder
shall be deemed to have been duly made if actually delivered, or if mailed by
registered or certified mail, postage prepaid, addressed as set forth below,
shall be deemed to have been duly made on the date received. Either party may,
by written notice so delivered to the other, change the address to which
delivery shall thereafter be made.
-6-
(a) Notices to Seller:
Internationale Nederlanden (U.S.)
Capital Corporation
135 East 57th Street
New York, New York 10022-1500
Attn: Peter Y. Clinton
(b) Notices to Buyer:
PrimeEnergy Corporation
1 Landmark Square, 11th Floor
Stamford, Connecticut 06901
Attn: Charles E. Drimal, Jr., President
Section 14. BINDING EFFECT. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns. Buyer may not assign all or any portion of its rights or obligations
under this Agreement without Seller's prior written consent thereto.
Section 15. COUNTERPARTS. This Agreement may be executed in any number
of counterparts, which taken together shall constitute one and the same
instrument and each of which shall be considered an original for all purposes.
Section 16. EXPENSES; ATTORNEYS' FEES. Except as otherwise provided in
this Agreement, each party hereto will bear and pay its own expenses of
negotiating and consummating the transactions contemplated by this Agreement.
The prevailing party in any lawsuit or litigation concerning the construction or
interpretation of this Agreement or the breach by the other party of any
provision of this Agreement shall be entitled to such party's reasonable
attorneys' fees and court costs.
Section 17. HEADINGS. The headings contained in this Agreement are for
convenient reference only and shall not in any way affect the meaning or
interpretation of this Agreement.
Section 18. SUPERSEDING EFFECT. This Agreement supersedes any prior
agreement and understanding between the parties with respect to the subject
matter of this Agreement.
Section 19. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Texas applicable to
contracts made and performed entirely therein.
-7-
Section 20. WAIVERS. No party's rights under this Agreement will be
deemed waived except by a writing signed by such party. Without limitation, the
occurrence of the Closing shall not be deemed a waiver of any party's 'rights
except its right to refuse to close.
Section 21. EXHIBITS AND SCHEDULES. The exhibits and schedules referred
to herein are attached hereto and by this reference made a part hereof.
Section 22. ANNOUNCEMENTS. Seller and Buyer shall consult with each
other with regard to all press releases and other announcements issued on or
prior to the Closing Date concerning this Agreement or the transactions
contemplated by this Agreement and, except as may be required by applicable laws
or the applicable rules and regulations of any governmental body or stock
exchange, neither Buyer nor Seller shall issue any such press release or other
publicity without the prior written consent of the other party.
Section 23. PARTIAL INVALIDITY. In the event any provision of this
Agreement is determined to be invalid or unenforceable, then the remainder of
this Agreement shall not be affected thereby.
Section 24. SPECIFIC PERFORMANCE. In addition to all other remedies, at
law or in equity, to which either party may be entitled, Seller and Buyer shall
each be entitled to specific performance of this Agreement, because the remedies
provided at law for any breach of this Agreement are inadequate and damages in
respect of any such breach will be difficult or impossible to determine.
IN WITNESS WHEREOF, the parties have executed or caused this Agreement
to be executed by an officer thereunto duly authorized as of the day and year
first above written.
"SELLER"
INTERNATIONAL NEDERLANDEN (U.S.)
CAPITAL CORPORATION, a Delaware corporation
ATTEST:
___________________ By: _______________________
Assistant Secretary Peter Y. Clinton
Vice President
-8-
"BUYER"
PRIMEENERGY CORPORATION
ATTEST:
___________________ By: _________________________
Secretary Charles E. Drimal, Jr.
President
-9-
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
February 3, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM BALANCE SHEETS AS OF NOVEMBER 12, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> NOV-12-1998
<CASH> 1,000
<SECURITIES> 0
<RECEIVABLES> 10,300
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 11,300
<PP&E> 0
<DEPRECIATION> 0
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0
0
<COMMON> 3,767
<OTHER-SE> 7,533
<TOTAL-LIABILITY-AND-EQUITY> 11,300
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<INCOME-TAX> 0
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<DISCONTINUED> 0
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<EPS-DILUTED> 0
</TABLE>
