As filed with the Securities and Exchange Commission on October 6, 1999.
Registration No. 0-
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL
BUSINESS ISSUERS Under Section 12(b) or (g) of the
Securities Exchange Act of 1934
--------------------------------
SARATOGA RESOURCES, INC.
(Name of small business issuer in its charter)
TEXAS 76-0314489
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
301 CONGRESS AVENUE, SUITE 1550
AUSTIN, TEXAS 78701
(512) 478-5717
(Address, including zip code, and telephone number,
including area code, of Issuer's principal executive offices)
--------------------------------
Securities to be registered under Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of class)
--------------------------------
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<TABLE>
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TABLE OF CONTENTS
PAGE
<S> <C>
PART I .........................................................................................................3
ITEM 1. DESCRIPTION OF BUSINESS.........................................................................3
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.......................................................................7
ITEM 3. DESCRIPTION OF PROPERTY.........................................................................8
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT......................................................................................9
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
................................................................................................9
ITEM 6. EXECUTIVE COMPENSATION.........................................................................11
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................................................12
ITEM 8. DESCRIPTION OF SECURITIES......................................................................12
General ......................................................................................12
Common Stock...................................................................................12
Preferred Stock................................................................................12
PART II ........................................................................................................13
ITEM 1. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
...............................................................................................14
ITEM 2. LEGAL PROCEEDINGS..............................................................................14
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE ......................................................................14
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES........................................................15
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS......................................................15
PART F/S FINANCIAL STATEMENTS...........................................................................15
PART III. INDEX TO EXHIBITS..............................................................................16
</TABLE>
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
BUSINESS AND RECENT DEVELOPMENTS
Since the completion in 1996 of the sale of a majority of the oil and
gas producing Saratoga Resources Inc., a Texas Corporation (the "Company") the
Company had been in the process of pursuing various potential business
opportunities, while continuing its oil and gas efforts. In this regard, the
Company recently entered into a purchase and sale agreement for the acquisition
of certain oil and gas properties for a purchase price of $27.5 million. The
Company was ultimately unsuccessful in consummating the acquisition, but was
awarded a $400,000 transaction break-up fee. The Company continues to pursue
hydrocarbon production and mineral lease acquisitions, as well as prospect
development. The Company retains consultants for the purpose of evaluating
mineral lease acquisitions in Houston County, Texas, and production purchases in
the Los Angeles basin. Additionally, the Company retains a
geological/geophysical firm to utilize the Company data to identify exploration
and development prospects. In 1998 the Company considered the acquisition or
development of numerous businesses, and these efforts resulted in the
transactions hereinafter described.
On March 27, 1998, the Company, which was formerly a wholly owned
subsidiary of Saratoga Resources, Inc., a Delaware Corporation (the
"Predecessor"), entered into a consulting agreement with an independent oil and
gas exploration company to utilize the Company's extensive seismic and well log
data for the identification of oil and gas exploration and development
prospects. In this regard, the Company is now pursuing a re-entry project in
Dawson County, Texas. On March 18, 1999, the Company entered into a second
agreement with the same company to evaluate opportunities in the Louisiana
Cretaceous shelf and extended the 1998 agreement. Under these agreements, the
Company provides advisory services and receives compensation in the form of a
working interest and/or royalties of up to 33% generated from identified
prospects.
On August 14, 1999 the Predecessor, then the shell company parent of
the Company, closed merger agreements with each of PrimeVision Health, Inc., a
Delaware corporation ("Prime"), which is a vertically integrated vision services
company, and OptiCare Eye Health Centers, Inc., a Connecticut corporation
("OptiCare"), which is a provider of consulting, administrative and other
support services to ophthalmology and optometry eye care centers located in
Connecticut. Pursuant to the merger agreements, the Predecessor acquired Prime
and OptiCare in an all-stock transaction by issuance to the shareholders of
OptiCare and Prime shares of the Predecessor's Common Stock constituting 97.5%
of the outstanding Common Stock of the Predecessor (the "Eye Care Acquisition").
In a related transaction, the Company was spun off by the Predecessor to
continue its prior business operations.
In the spin-off, the Predecessor, which was then the 100% owning parent
entity of the Company, made an in-kind distribution of all of the Company's
issued and outstanding stock to the shareholders of the Predecessor. The
distribution was made on the basis of one share
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of the Company's common stock, for each share of the Predecessor's stock. The
record date for the spin-off was August 9, 1999, resulting in the distribution
of 3,465,292 shares of the Company's common stock.
HISTORY
The Company was incorporated in Texas on July 25, 1990 under the name
Saratoga Resources, Inc. It became a wholly-owned subsidiary of the Predecessor
in 1993.
On May 25, 1994, the Company established a new lending relationship
with Internationale Nederlanden (U.S.) Capital Corporation, a Delaware
corporation ("ING"), by executing a credit agreement and related documents (the
"Pre-existing Credit Agreement"). As of that date, the Company used the various
credit facilities that were provided by ING (i) to acquire 57.15% of the
outstanding Common Stock of Lobo Energy, Inc., a Texas corporation ("LEI"), (ii)
pay off all debt associated with those properties at the time of acquisition,
(iii) retire all credit facilities at BankOne, (iv) develop existing oil and gas
properties, and (v) provide general working capital. The Company paid a purchase
price of $6,000,375 for the LEI Common Stock.
On March 31, 1995, the Company and ING entered into a new credit
agreement (the "Credit Agreement") to refinance the existing debt to ING, to
purchase the remaining LEI Common Stock and provide additional money for
acquisitions of additional properties. On that date, the Company acquired the
remaining 42.85% of the Common Stock of LEI from Mr. Peter P. Pickup ("Pickup").
As a result of this acquisition, the Company owned and controlled 100% of the
Common Stock outstanding of LEI. Concurrently with the purchase of the LEI
Common Stock, LEI assigned to the Company all of LEI's oil and gas assets. The
total purchase price paid by the Company was $5,401,000. The Company also
refinanced $2,411,000 in debt due ING allocable to LEI and its properties.
On May 7, 1996, the Company entered into an agreement (the
"ING-P/Energy Agreement") by and among the Predecessor, the Company, Lobo
Operating, Inc., a Texas corporation ("LOI"), and LEI (the Predecessor, the
Company, LOI and LEI, its direct or indirect subsidiaries being sometimes
collectively referred to herein as the "Saratoga Companies"), Thomas F. Cooke
("Cooke"), Joseph T. Kaminski ("Kaminski"), Randall F. Dryer ("Dryer") (the
Saratoga Companies, Cooke, Kaminski and Dryer sometimes referred to herein as
the "Saratoga Parties"), Prime Energy Corporation, a Delaware corporation
("P/Energy"), and ING. (Prime Energy Corporation has no affiliation with
PrimeVision Health, Inc., referred to elsewhere herein.)
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The ING-P/Energy Agreement provided for a sale of virtually all of the
assets (the "Interests") of the Company, LOI and LEI (the Company, LOI and LEI
sometimes collectively referred to herein as the "Saratoga Entities") to ING
pursuant to ING's rights under that certain Credit Agreement and related
documents (collectively the "Credit Agreement") dated March 30, 1995, by and
among the Predecessor, the Company, LEI and ING. Upon consummation of the
ING-P/Energy Agreement on May 7, 1996, at which ING was the highest bidder, ING
concurrently sold the Interests to P/Energy for cash consideration of $7,180,000
and additional consideration as provided in the agreement. The cash proceeds
from the sale were applied to the settlement of outstanding vendor debt and
other related liabilities of the Saratoga Companies, and $1,500,000 was paid to
the Predecessor.
The Predecessor, the Company, LEI and ING entered into the Credit
Agreement to facilitate the acquisition by the Company of the LEI assets
previously owned by Pickup. Under the terms of the Credit Agreement, ING
established two credit facilities in favor of the Company in the combined
maximum principal amount of $19,000,000, subject to the borrowing base
limitations set forth therein. All oil and gas properties (the "Properties")
owned by the Saratoga Entities were pledged as collateral under the Credit
Agreement and all obligations to ING were also guaranteed by the Predecessor and
all of its subsidiaries. Funds obtained from these credit facilities were
anticipated to be used for the development of the Properties by the Company.
Subsequent to entering into the Credit Agreement, the Predecessor
engaged Internationale Nederlanden (U.S.) Securities Corporation ("ING
Securities"), a subsidiary of ING, to assist the Predecessor in a private
placement of Predecessor stock. The private placement efforts were not
successful and additional funds necessary for the development of the Properties
were not provided by ING.
The failure of the private placement efforts combined with the shortage
of funds for the development of its Properties placed the Company in a severe
financial crisis. In an attempt to salvage the maximum value of the Saratoga
Companies for the benefit of the other creditors, the Predecessor and its
shareholders spent several months examining and pursuing various alternatives
with respect to (i) the possible refinancing and/or restructuring of the debt of
the Saratoga Companies, (ii) the sale of the Saratoga Companies or their
underlying assets, and (iii) the prosecution or settlement of certain potential
claims against ING.
Facing what the Company believed to be an eminent foreclosure action by
ING which would restrict the Company's objectives and its ability to consummate
negotiations with P/Energy, in April of 1996, the Saratoga Companies filed a
lawsuit against ING and ING Securities, the principal relief sought therein
being injunctive relief from the threatened foreclosure. Subsequently, the
Company and ING entered into discussions in an attempt to reach a final
resolution of ING's rights under the Credit Agreement and the Predecessor's
asserted claims. In reviewing its options, the Company believed that the sale of
assets pursuant to the ING-P/Energy Agreement, consummated as described above on
May 7, 1996, would leave the Company in a better financial position than a
contested foreclosure sale by ING.
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EMPLOYEES
On October 5, 1999 the Company employed two full time employees
consisting of one executive officer (the Chief Executive Officer) and an office
manager.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Since the consummation of the ING-P/Energy Agreement (see Item 1,
History"), management of the Company has sought new business opportunities
through acquisitions and through use of the Company's database and expertise in
the oil and gas business, with a view to enhancing shareholder value. Results of
operations should be evaluated in light of the Company's being in a period of
transition, in which management is seeking to develop new businesses that will
ultimately generate earnings and otherwise enhance shareholder value.
Prior to the closing of the Eye Care Acquisition in August, 1999, the
Company was one of four direct, wholly-owned subsidiaries of the Predecessor.
The four subsidiaries were the Company, LOI, LEI and Saratoga Holdings I, Inc.,
a Texas Corporation ("Holdings"). Concurrent with or immediately prior to the
closing of the Eye Care Acquisition, the Predecessor (i) transferred all of the
issued and outstanding stock of LOI and LEI to the Company, causing LOI and LEI
to become direct, wholly-owned subsidiaries of the Company; (ii) spun off the
stock of the Company to the shareholders of the Predecessor; and (iii) spun off
all but 301,375 shares (or approximately 9% of the total number of shares) of
the issued and outstanding stock of Holdings to the shareholder of the
Predecessor; those shares in Holdings which were not spun off were transferred
to the Company. As a result of these transactions, the Company became the
successor of the Predecessor's business. Accordingly, the consolidated financial
condition and history of the Company is essentially the same as that of the
Predecessor, except for (y) the spin-off of Holdings and (z) the requirement
that the Predecessor, upon the closing of the Eye Care Acquisition, was required
to have approximately $130,000 in cash, with no other assets or liabilities.
RESULTS OF OPERATIONS
Revenues. Total revenues for fiscal 1998 were $39,000, as compared to
$35,000 for fiscal 1997.
Costs and Expenses. Cost and expenses were reduced in 1998 as a result
of determined cost control efforts of management. Costs and expenses for fiscal
1998 totaled approximately $363,000, compared to $462,000 for fiscal 1997.
Net Loss. Consolidated net loss was approximately $324,000 in 1998,
compared to a net loss of $118,000, an increase of approximately $206,000. In
fiscal 1997, the Predecessor had a non-recurring gain of approximately $309,000
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that was attributable to the settlement of litigation with a former officer and
shareholder. Excluding the effect of such non-recurring gain, the Predecessor's
net loss in 1998 would be $103,000 less than the net loss in 1997, which
management attributes to its cost control efforts.
LIQUIDITY AND CAPITAL RESOURCES
The Company's assets as of October 5, 1999 consist of 301,375 shares of
Holdings, 150,000 shares of OptiCare, 100% of the stock of both LOI and LEI,
furniture fixtures and equipment necessary to continue the business, seismic
data and cash. The 150,000 shares of OptiCare have been informally pledged as
collateral on $100,000 of debt associated with the Eye Care Acquisition, $20,000
of which has been paid off. The Company believes that its assets will be
sufficient to conduct its business for the next 12 months. Management believes
that its cost control efforts will enable the Company to continue its operations
for the next 12 months without additional cash.
YEAR 2000 ISSUE
The Company utilizes software and related technologies that may be
affected by the Year 2000 problem, which is common to most businesses. The
Company is addressing the effect of the potential Year 2000 problem on all its
critical systems and with all of its critical vendors, customers and clients. At
this time, critical information systems throughout the Company are Year 2000
compliant. No extra costs were incurred in obtaining this compliance. Management
has determined that no critical business areas will be adversely affected by
Year 2000 issues, but the Company continues to work with its vendors, customers
and others to ensure a smooth transition. Based on the foregoing, management
does not consider any contingency plan to be necessary, and management believes
that any costs and risks related to Year 2000 compliance will not have a
material adverse impact on the liquidity or financial position of the Company.
If the Company hereafter engages in acquisitions or business combinations,
management will address possible new Year 2000 problems related to such
transactions at the time of such transactions.
FORWARD-LOOKING STATEMENTS
Statements contained herein that relate to the Company's future
performance, including without limitation statements with respect to the
Company's anticipated results for any portion of 1999, shall be deemed forward
looking statements within the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. A number of factors affecting the Company's
business and operations could cause actual results to differ materially from
those contemplated by the forward looking statements. Those factors include, but
are not limited to, demand and competition for the Company's products and
services, changes in the requirements of clients and customers, and changes in
general economic conditions that may affect demand for the Company's products
and services or otherwise affect results of operations or the value of the
Company's assets. The forward-looking statements that are included in this
report were prepared by management and have not been audited by, examined by,
compiled by or subjected to agreed-upon procedures by independent accountants,
and no third party has independently verified or reviewed such statements.
Readers of this report should consider these facts in evaluating the information
and are cautioned not to place undue reliance on the forward-looking statements
contained herein.
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ITEM 3. DESCRIPTION OF PROPERTY
The Company maintains an office in Austin, Texas, on a month-to-month
basis at a current rate of $2,175 per month.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth information concerning the shares of the
Company's stock beneficially owned by each director of the Company and all
directors and officers as a group and each holder of over five percent of any
class of outstanding stock as of October 5, 1999.
The mailing address for all officers and directors is 301 Congress Avenue, Suite
1550, Austin, Texas 78701.
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<CAPTION>
NAME OF BENEFICIAL
OWNER PERCENT CLASS OF STOCK SHARES PERCENT(1)
- ------------------ -------------- ------ ----------
<S> <C> <C> <C>
Thomas F. Cooke Common 2,420,422(2) 69.8%
Kevin M. Smith Common 238,295(3) 6.9%
All executive officers and Common 2,558,717 76.7%
directors as a group (2 persons)
<FN>
1 Based on 3,465,292 shares currently outstanding, as the result of a 34.65292 to 1 stock split (i.e., 34.65292
shares were issued in exchange for each 1 share outstanding) effective August 9, 1999 with respect to the
100,000 shares of Common Stock previously outstanding.
2 Includes 109,148 shares held by June Cooke, Mr. Cooke's spouse, of which Mr. Cooke disclaims beneficial
ownership.
3 Includes 20,000 shares held by Sandra Smith, Mr. Smith's spouse, of which Mr. Smith disclaims beneficial
ownership.
</FN>
</TABLE>
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS
Executive officers of the Company and its wholly owned subsidiaries
serve at the pleasure of the Board of Directors and are elected annually at a
meeting of the Board of Directors. Set forth are the directors and executive
officers as of October 5, 1999.
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<TABLE>
<CAPTION>
Name Position Age Term of Office
---- -------- --- --------------
<S> <C> <C> <C>
Thomas F. Cooke Chairman of the Board, Chief Executive 50 1 yr.
Officer, President, Treasurer and Secretary
Kevin M. Smith Director 54 1 yr.
</TABLE>
BIOGRAPHICAL INFORMATION
As of October 5, 1999, the following provides information as to
each executive officer and director of the Company, including age, principal
occupation and business experience during the last five years:
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THOMAS F. COOKE, CHAIRMAN OF THE BOARD, CHIEF EXECUTIVE OFFICER, PRESIDENT,
TREASURER AND SECRETARY, age 50, was one of the co-founders of Saratoga
Resources, Inc. in 1990. Mr. Cooke has been a self employed independent oil and
gas producer for the last 17 years. The Predecessor acquired the Company in
September 1993, at which time Mr. Cooke was elected Chairman of the Board and
Chief Operating Officer of the Predecessor, and the sole officer and director of
the Company. Mr. Cooke is a member of the Texas Independent Producer and Royalty
Owner Association and serves as Director and Chairman of the North American
Energy Issues Committee. Mr. Cooke replaced Joseph T. Kaminski as Chief
Executive Officer on April 3, 1996.
KEVIN M. SMITH, DIRECTOR, age 54, has in excess of 30 years experience as an
exploration geophysicist. In 1977, after ten years with Amoco Production, Mr.
Smith joined R. Brewer and Company, a geophysical consulting firm. In 1984, he
formed his own geophysical consulting firm (Kevin M. Smith, Inc.), which he
continues to operate. Mr. Smith completed three years of undergraduate work at
the University of Texas in 1966 and received a Bachelor of Science degree with a
dual major of Geology and Geophysics at the University of Houston in 1967. He
also did post graduate studies in Geology and Geophysics at the University of
Houston. Mr. Smith has written professional papers on innovative uses of
geophysics in horizontal drilling projects.
ITEM 6. EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth all cash
compensation paid, distributed or accrued for services, including salary and
bonus amounts rendered in all capacities, for the Company and Predecessor, as
indicated, during the fiscal years ended, or ending, December 31, 1999, 1998,
1997, and 1996. All other tables required to be reported have been omitted as
there has been no compensation awarded to, earned by or paid to any of the
Predecessor's executives in any fiscal year covered by the tables.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Name and Fiscal Salary/
Principal Position Entity Year Ended Annual Compensation
- ------------------ ------ ---------- -------------------
<S> <C> <C> <C>
Thomas Cooke, CEO Company 1999 $120,000
Thomas Cooke, CEO Predecessor 1998 $120,000
Thomas Cooke, CEO Predecessor 1997
$120,000(1)
Thomas Cooke, CEO Predecessor 1996
$116,500(2)
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<FN>
4 During fiscal years 1996 and 1997, the Predecessor deferred portions of
salary due to Mr. Cooke, which were paid in full later in 1997,
together with $8,048 in interest. The salary information set forth in
the Summary Compensation Table for 1997 does not include (1) cash paid
in 1997 for salary deferred from prior years or (ii) interest payment
on any deferred salary.
5 Includes $60,000 which was earned in fiscal year 1996, but deferred and
paid to Mr. Cooke in fiscal year 1997.
</FN>
</TABLE>
DIRECTOR COMPENSATION
Directors of the company currently serve without any compensation for
their services, either in the form of monetary compensation, stock or stock
options.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Effective May 17, 1997, the Predecessor purchased 870,737 shares of
the Predecessor's Common Stock and all Special Options from Dr. Randall F.
Dryer, who resigned as a Director of the Predecessor effective as of the same
date. The total purchase price for the Common Stock and the options was
$175,000.
Mr. Kaminski assigned Special Options back to the Predecessor as part
of the settlement agreement dated March 10, 1997. Such assignment was part of
the transaction wherein the Predecessor, Cooke, Dryer and Dryer, Ltd. and
Kaminski settled a lawsuit among Mr. Kaminski, the Predecessor and certain other
parties.
Mr. Cooke may be deemed a parent of the Company by reason of his beneficial
ownership of approximately 70% of the Company's outstanding voting stock.
ITEM 8. DESCRIPTION OF SECURITIES
GENERAL
The total number of shares of all classes of capital stock which the
Company has the authority to issue is 100,100,000 of which (a) 100,000,000
shares are designated as Common Stock, par value $0.001 per share, and (b)
100,000 shares are designated as Preferred Stock par value $0.001 per share.
COMMON STOCK
Each share of Common Stock of the Company has identical rights and
privileges in every respect. The holders of shares of Common Stock are entitled
to vote upon all matters submitted to a vote of the shareholders of the Company
and are entitled to one vote for each share of Common Stock held. Subject to the
prior rights and preferences applicable to shares of the Preferred Stock , the
holders of shares of the Common Stock are entitled to receive such dividends
(payable in cash, stock, or otherwise) as may be declared thereon by the
Company's Board of Directors.
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PREFERRED STOCK
There is currently no separate series of Preferred Stock designated.
However, shares of the Preferred Stock may be issued from time to time in one or
more series. Except as limited by the Company's Articles of Incorporation, the
shares of each series shall have such designations, preferences, limitations,
and relative rights, including voting rights, as shall be provided in a
resolution or resolutions providing for the issue of such series adopted by the
Company's Board of Directors. In general, the Board of Directors is authorized
to establish and designate series of the Preferred Stock , to fix the number of
shares constituting each series, and to fix the designations and the
preferences, limitations, and relative rights, including voting rights, of the
shares of each series and the variations of the relative rights and preferences
as between series, and to increase and to decrease the number of shares
constituting each series. The relative powers, rights, preferences, and
limitations may vary between and among series of Preferred Stock in any and all
respects so long as all shares of the same series are identical in all respects.
The authority of the Board of Directors with respect to each series includes the
authority to determine the following:
(a) the rate or rates and the times at which dividends on the
shares of such series shall be paid, the periods in respect of which
dividends are payable, the conditions upon such dividends, the
relationship and preferences, if any, of such dividends to dividends
payable on any other class or series of shares, whether or not such
dividends shall be cumulative, partially cumulative, or noncumulative;
(b) whether or not the shares of such series shall be
redeemable or subject to repurchase at the option of the Company;
(c) the rights of the holders of shares of such series in the
event of the voluntary or involuntary liquidation, dissolution, or
winding up of the Company and the relationship or preference, if any,
of such rights to rights of holders of stock of any other class or
series;
(d) whether or not the shares of such series shall have voting
powers and, if such shares shall have such voting powers, the terms and
conditions thereof;
(e) whether or not a sinking fund shall be provided for with
regard to the redemption of the shares of such series;
(f) whether or not the shares of such series, at the option of
either the Company or the holder or upon the happening of a specified
event, shall be convertible into stock of any other class or series;
(g) whether or not the shares of such series, at the option of
either the Company or the holder or upon the happening of a specified
event, shall be exchangeable for securities, indebtedness, or property
of the Company.
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PART II
ITEM 1. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
The Company's stock is not currently listed on any stock exchange.
The Predecessor's stock was not listed on any stock exchange but was
from time to time reported by NASD on the OTC Bulletin Board under the symbol
"SRIK." The range of high and low bid information for the shares of the
Predecessor's stock for the last two complete fiscal years, as reported by the
National Quotation Bureau, is set forth below. Such quotations represent prices
between dealers, do not include retail markup, markdown or commission, and may
not represent actual transactions.
High Low
Year Ended December 31, 1997
- ---------------------------------------
First Quarter $0.281 $0.094
Second Quarter 0.219 0.094
Third Quarter 0.219 0.094
Fourth Quarter 1.125 0.063
Year Ended December 31, 1998
- ---------------------------------------
First Quarter 0.188 0.188
Second Quarter 1.125 0.188
Third Quarter 0.250 0.250
Fourth Quarter 0.250 0.063
As of October 5, 1999, 3,465,292 shares of the Company's Common Stock
were issued and outstanding and held by approximately 1,350 holders of record.
Neither the Company nor the Predecessor has ever paid cash dividends
and the Company does not intend to do so for the foreseeable future. Future
earnings, if any, will be used to support the Company's growth. Any future
determination as to the payment of dividends on the stock will be at the
discretion of the Board of Directors and will depend upon the Company's
operating results, financial condition, capital requirements, restrictions
imposed by lenders, if any, and such other factors as the Board of Directors may
deem relevant.
ITEM 2. LEGAL PROCEEDINGS
None.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
(a) Previous independent accountants.
(i) On March 29, 1999, the Board of Directors of
the Predecessor determined not to engage
Hein and Associates ("Hein") to audit the
Predecessor's consolidated financial
statements as of and for the year ended
December 31, 1998.
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(ii) The reports of Hein on the consolidated
financial statements of the Registrant as of
and for the years ended December 31, 1997
and 1996 contained no adverse opinion or
disclaimer of opinion and were not qualified
or modified as to uncertainty, audit scope
or accounting principal.
(iii) The management of the Company requested that
Hein furnish it with a letter addressed to
the Securities and Exchange Commission
stating whether or not it agrees with the
above statements which was filed with the
Securities and Exchange Commission. Hein did
provide such a letter, a copy of which is
attached as Exhibit 16.
(iv) In connection with Hein's audits as of and
for the years ended December 31, 1997 and
1996 and through March 29, 1999, there have
been no disagreements with Hein on any
matter of accounting principles or
practices, financial statement disclosure,
or auditing scope or procedure, which dis-
agreements if not resolved to the satisfac-
tion of Hein would have caused them to make
reference thereto in their reports on the
consolidated financial statements as of and
for the years ended December 31, 1997 and
1996.
(b) New independent accountants. On March 29, 1999 the
Board of Directors of the Predecessor formally
approved the appointment of Ernst & Young LLP as its
independent accountant to audit the Predecessor's
consolidated financial statements as of and for the
year ended December 31, 1998. In view of the rela-
tionship between the Predecessor and the Company, the
Company has selected Ernst & Young LLP as its indep-
endent auditors.
(c) Other. The decision to change independent accounts
was approved by the Board of Directors of the
Predecessor. The Predecessor did not have an audit
committee.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
None.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Pursuant to the Restated Articles of Incorporation, the
Company indemnifies any person who was, is, or is threatened to be made a named
defendant or respondent in a proceeding
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because the person (i) is or was a director or officer of the Company or (ii)
while a director or officer of the Company, is or was serving at the request of
the Company as a director, officer, partner, venturer, proprietor, trustee,
employee, agent, or similar functionary of another foreign or domestic
corporation, partnership, joint venture, sole proprietorship, trust, employee
benefit plan, or other enterprise, to the fullest extent that a corporation may
grant indemnification to a director under the Texas Business Corporation Act, as
the same exists or may hereafter be amended.
PART F/S FINANCIAL STATEMENTS
Prior to the closing of the Eye Care Acquisition in August, 1999, the
Company was one of four direct, wholly-owned subsidiaries of the Predecessor.
The four subsidiaries were the Company, LOI, LEI and Holdings. Concurrent with
or immediately prior to the closing of the Eye Care Acquisition, the Predecessor
(i) transferred all of the issued and outstanding stock of LOI and LEI to the
Company, causing LOI and LEI to become direct, wholly-owned subsidiaries of the
Company; (ii) spun off the stock of the Company to the shareholders of the
Predecessor; and (iii) spun off all but 301,375 shares (or approximately 9% of
the total number of shares) of the issued and outstanding stock of Holdings to
the shareholder of the Predecessor; those shares in Holdings which were not spun
off were transferred to the Company. As a result of these transactions, the
Company became the successor of the Predecessor's business. Thus, the
consolidated financial condition and history of the Company is essentially the
same as that of the Predecessor, except for (y) the spin-off of Holdings and (z)
the requirement that the Predecessor, upon the closing of the Eye Care
Acquisition, was required to have approximately $130,000 in cash, with no other
assets or liabilities. Accordingly, pursuant to Item 310 of Regulation S-B, it
is the Financials of the Predecessor which are attached hereto.
See the Index to Financial Statements appearing at page F-1 hereof.
PART III. INDEX TO EXHIBITS
The following Exhibits are filed herewith:
Exhibit No. Description
- ----------- -----------
3(i) Restated Articles of Incorporation
(With Amendments)
3(ii) Bylaws
16 Letter on changes in certifying
account
21 Subsidiaries of the Registrant
27 Financial Data Schedule
SIGNATURE
In accordance with Section 12 of the Securities Act of 1934, the
Company caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
SARATOGA RESOURCES, INC.
By: Date: __________, 1999
------------------------------------------
Thomas F. Cooke
Chief Executive Officer
15
<PAGE>
<TABLE>
<CAPTION>
Saratoga Resources, Inc. and Subsidiaries
Six Months Ended June 30, 1999
Table of Contents
<S> <C>
Part 1. Financial Information (unaudited)
Consolidated Balance Sheets as of June 30, 1999 and December 31, 1998....................................3
Consolidated Statements of Operations
for the three and six months ended June 30, 1999 and 1998.............................................4
Consolidated Statements of Cash Flows
for the six months ended June 30, 1999 and 1998.......................................................5
Notes to Consolidated Financial Statements...............................................................6
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Saratoga Resources, Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands, except share data)
JUNE 30 December 31
1999 1998
----------------- ------------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 96 $ 290
Marketable securities 6 11
Investment in past due accounts receivable 9 10
--------- ---------
Total current assets 111 311
Equipment, net of accumulated depreciation 31 36
--------- ---------
Total assets $ 142 $ 347
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:
Accounts payable and accrued liabilities $ - $ 10
Current maturities of debt 5 5
--------- ---------
Total current liabilities 5 15
Long-term debt, net of current portion 13 16
Stockholders' equity:
Preferred stock, $.001 par value; 5,000,000 shares
authorized - -
Common stock, $.001 par value; 50,000,000 shares
authorized, 3,465,292 shares issued and outstanding at
June 30, 1999 and December 31, 1998 3 3
Additional paid-in capital 2,490 2,490
Accumulated deficit (2,335) (2,148)
Treasury stock, at cost (2) (2)
Other comprehensive loss (32) (27)
--------- ---------
Total stockholders' equity 124 316
--------- ---------
Total liabilities and stockholders' equity $ 142 $ 347
========= =========
</TABLE>
See accompanying notes.
3
<PAGE>
<TABLE>
<CAPTION>
Saratoga Resources, Inc. and Subsidiaries
Consolidated Statements of Operations
(in thousands, except share data)
THREE MONTHS ENDED Six Months Ended
JUNE 30 June 30
1999 1998 1999 1998
-------------- -------------- -------------- --------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues:
Gain on sale of marketable securities $ - $ - $ - $ 21
Interest income - 5 1 12
-------------- -------------- -------------- --------------
- 5 1 33
Costs and expenses:
Depreciation 3 2 5 4
General and administrative 92 96 183 191
-------------- -------------- -------------- --------------
95 98 188 195
Loss before income taxes (95) (93) (187) (162)
Income tax benefit - - - -
-------------- -------------- -------------- --------------
Net loss $ (95) $ (93) $ (187) $ (162)
============== ============== ============== ==============
Basic and diluted loss per share $ (.03) $ (.03) $ (.05) $ (.05)
Weighted-average number of common
shares outstanding 3,466 3,466 3,466 3,466
============== ============== ============== ==============
Total comprehensive loss $ (102) $ (93) $ (192) $ (162)
============== ============== ============== ==============
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
<CAPTION>
Saratoga Resources, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
SIX MONTHS ENDED
JUNE 30
1999 1998
---------------- ----------------
(unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (187) $ (162)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation 5 4
Changes in operating assets and liabilities:
Investment in past due accounts receivable 1 -
---------------- ----------------
Accounts payable and accrued liabilities (10) (13)
---------------- ----------------
Net cash used in operating activities (191) (171)
---------------- ----------------
INVESTING ACTIVITIES
Purchase of equipment - (17)
---------------- ----------------
Net cash used in investing activities - (17)
---------------- ----------------
FINANCING ACTIVITIES
Payments on borrowings (3) (1)
---------------- ----------------
Net cash used in financing activities (3) (1)
---------------- ----------------
Net decrease in cash and cash equivalents (194) (189)
Cash and cash equivalents at beginning of period 290 666
---------------- ----------------
Cash and cash equivalents at end of period $ 96 $ 477
================ ================
</TABLE>
See accompanying notes.
1
<PAGE>
Saratoga Resources, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(Unaudited)
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited consolidated financial statements are those of the
Company and its subsidiaries, all of which are wholly owned, and have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Regulation
S-B. Accordingly, they do not include all of the information and notes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation for the periods indicated
have been included. Operating results for the six month period ended June 30,
1999 are not necessarily indicative of the results that may be expected for the
year ending December 31, 1999. The Balance Sheet at December 31, 1998 has been
derived from the audited financial statements at that date, but does not include
all of the information and notes required by generally accepted accounting
principles for complete financial statements. The accompanying financial
statements should be read in conjunction with the audited consolidated financial
statements (including the notes thereto) for the year ended December 31, 1998.
Certain amounts shown in the 1998 financial statements have been reclassified to
conform to the 1999 presentation.
2. COMPREHENSIVE LOSS
Effective January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, Reporting Comprehensive Income, which requires disclosure of
total non-stockholder changes in equity in interim periods and additional
disclosures of the components of non-stockholder changes in equity on an annual
basis. Total comprehensive loss was as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED Six Months ended
JUNE 30 June 30,
1999 1998 1999 1998
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net loss $ (95) $ (93) $(187) $(162)
Unrealized loss on marketable securities (7) - (5) -
-------------- -------------- -------------- --------------
Total comprehensive loss $ (102) $ (93) $(192) $(162)
============== ============== ============= ==============
</TABLE>
2
<PAGE>
Saratoga Resources, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(Unaudited)
3. INCOME TAXES
The Company has determined that a valuation allowance should be applied against
the deferred tax assets related to the net operating losses of the Company due
to uncertainty regarding the assets' realizability. The difference between the
tax benefit recorded for the six months ended June 30, 1999 and the benefit
calculated at the federal statutory rate is primarily due to the valuation
allowance applied against the deferred tax assets.
4. PENDING TRANSACTIONS
On April 12, 1999 the Company entered into an agreement and plan of merger with
OptiCare Eye Health Centers, Inc. (OptiCare), a provider of consulting,
administrative and other support services to optometry and ophthalmology eyecare
centers located in Connecticut, and with PrimeVision Health, Inc. (Prime), a
vertically integrated vision services company, whereby each of those companies
would be merged with two wholly-owned, newly organized subsidiaries of the
Company in an all-stock transaction by the Company issuing 97.5% of the
Company's common stock to the stockholders of OptiCare and Prime.
The Prime merger will be accounted for as a reverse acquisition by Prime of
Saratoga, a subsidiary of the Company, at book value with no adjustments
reflected to historical values. The Company's merger with OptiCare will be
accounted for by the purchase method of accounting with the excess of purchase
price over the estimated fair value of the assets acquired being recorded as
goodwill.
To satisfy certain conditions of the Prime/OptiCare merger, the Company proposes
to contribute substantially all of its assets (other than approximately 92% of
the capital stock of Saratoga Holdings I, Inc., a Texas corporation ("SHI"), and
approximately $150,000 in cash) to Saratoga Resources, a Texas corporation
("Saratoga-Texas"), which is a wholly-owned subsidiary of the Company. The
Company will then distribute to the stockholders of the Company, prior to the
effective time of the Prime/OptiCare merger, the following:
(i) all the capital stock of Saratoga-Texas, and
(ii) the capital stock of SHI not held by Saratoga-Texas.
3
<PAGE>
Saratoga Resources, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(Unaudited)
4. PENDING TRANSACTIONS (CONTINUED)
Saratoga-Texas will continue its operations in the energy industry, utilizing
its database for oil and gas prosper evaluation and development. Saratoga-Texas
will have its own separate management, control and incentive structure.
The Company has filed a registration statement on Form S-4 with the Securities
and Exchange Commission to register up to 8,800,000 shares of its common stock
to be issued to the former securities holders of Prime and OptiCare in the
Prime/OptiCare merger. The registration statement was declared effective by the
Commission as of July 30, 1999.
The Company has called a special meeting of stockholders for August 10, 1999, to
vote upon the proposals necessary to authorize the Company to carry out the
Prime/OptiCare merger. The spin-off of Saratoga-Texas will not be effected
unless the Prime/OptiCare merger is effected.
The Company has filed a registration statement on Form SB-2 with the Securities
and Exchange Commission (SEC) under the Securities Act of 1933 to register the
proposed spin-off of approximately 92% of the common stock of its wholly owned
subsidiary, SHI, to the stockholders of the Company on a one-for-one basis. The
remaining balance will be contributed to SaratogaTexas.
4
<PAGE>
<TABLE>
<CAPTION>
Saratoga Resources, Inc. and Subsidiaries
Audited Consolidated Financial Statements
Index to Financial Statements
-----------------------------
<S> <C>
Report of Independent Auditors.........................................................................F-2
---
Consolidated Balance Sheets as of December 31, 1997 and 1998...........................................F-4
---
Consolidated Statements of Operations
for the years ended December 31, 1997 and 1998......................................................F-5
---
Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1997 and 1998......................................................F-6
---
Consolidated Statements of Cash Flows
for the years ended December 31, 1997 and 1998......................................................F-7
---
Notes to Consolidated Financial Statements.............................................................F-9
---
</TABLE>
F-1
<PAGE>
Report of Independent Auditors
Board of Directors
Saratoga Resources, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheet of Saratoga
Resources, Inc. and Subsidiaries as of December 31, 1998, and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements 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 financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Saratoga Resources, Inc. and Subsidiaries at December 31, 1998, and the
consolidated results of their operations and their cash flows for the year then
ended in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Austin, Texas
March 31, 1999
F-2
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors and Stockholders
Saratoga Resources, Inc.
Austin, Texas
We have audited the accompanying consolidated balance sheet of Saratoga
Resources, Inc. and subsidiaries as of December 31, 1997, and the related
consolidated statements of operations, changes in stockholders' equity
(deficit), and cash flows for the year then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements 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 financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Saratoga Resources,
Inc. and subsidiaries as of December 31, 1997, and the results of their
operations and their cash flows for the year then ended, in conformity with
generally accepted accounting principles.
/s/ Hein & Associates LLP
Houston, Texas
January 15, 1998
F-3
<PAGE>
<TABLE>
<CAPTION>
Saratoga Resources, Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands, except per share amounts)
DECEMBER 31
1997 1998
----------------- ------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 666 $ 290
Marketable securities - 11
Trade receivables, less allowance for doubtful accounts of
$23 at December 31, 1997 and 1998 - -
Investment in past due accounts receivable - 10
----------------- ------------------
Total current assets 666 311
----------------- ------------------
Equipment, net of accumulated depreciation 44 36
----------------- ------------------
Total assets $ 710 $ 347
================= ==================
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:
Accounts payable and accrued liabilities $ 2 $ 10
Accrued legal 16 -
Current maturities of debt 4 5
----------------- ------------------
Total current liabilities 22 15
----------------- ------------------
Long-term debt, net of current portion 21 16
Stockholders' equity:
Preferred stock, $.001 par value; 5,000,000 shares
authorized - -
Common Stock, $.001 par value; 50,000,000 shares
authorized, 3,465,292 shares issued and outstanding at
December 31, 1997 and 1998 3 3
Additional paid-in capital 2,490 2,490
Accumulated deficit (1,824) (2,148)
Treasury stock, at cost (2) (2)
Other comprehensive loss - (27)
----------------- ------------------
Total stockholders' equity 667 316
----------------- ------------------
Total liabilities and stockholders' equity $ 710 $ 347
================= ==================
</TABLE>
See accompanying notes.
F-4
<PAGE>
<TABLE>
<CAPTION>
Saratoga Resources, Inc. and Subsidiaries
Consolidated Statements of Operations
(in thousands, except per share amounts)
YEARS ENDED DECEMBER 31
1997 1998
----------------- ------------------
<S> <C> <C>
Revenues:
Gain on sale of marketable securities $ - $ 19
Interest income 31 19
Other 4 1
----------------- ------------------
35 39
Costs and expenses:
Depreciation 7 11
General and administrative 446 350
Loss on marketable securities - 1
Interest expense 9 1
----------------- ------------------
462 363
Gain arising from settlement of lawsuit 309 -
----------------- ------------------
Loss before income taxes (118) (324)
Income tax benefit - -
----------------- ------------------
Net loss $ (118) $ (324)
================= ==================
Basic and diluted loss per share: $ (.03) $ (.09)
================= ==================
Weighted-average number of common shares outstanding 4,260 3,465
================= ==================
</TABLE>
See accompanying notes.
F-5
<PAGE>
<TABLE>
<CAPTION>
Saratoga Resources, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity
(in thousands)
COMMON STOCK Additional Other Total
------------------- Paid-in Accumulated Treasury Comprehensive Stockholders'
SHARES Amount Capital Deficit Stock Loss Equity
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1996 6,809 $ 7 $ 2,909 $(1,706) $(2) $ - $1,208
Acquisition of stock arising
from settlement of lawsuit (2,465) (3) (244) - - - (247)
Purchase of stock arising from
settlement of lawsuit (8) - (1) - - - (1)
Purchase of stock from former
directo (871) (1) (174) - - - (175)
Net loss - - - (118) - - (118)
----------------------------------------------------------------------------
Balances at December 31, 1997 3,465 3 2,490 (1,824) (2) - 667
Net loss - - - (324) - - (324)
Unrealized loss on marketable
securities - - - - - (27) (27)
----------------------------------------------------------------------------
Comprehensive loss - - - - - - (351)
----------------------------------------------------------------------------
Balances at December 31, 1998 3,465 $ 3 $ 2,490 $(2,148) $(2) $(27) $ 316
============================================================================
</TABLE>
See accompanying notes.
F-6
<PAGE>
<TABLE>
<CAPTION>
Saratoga Resources, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
YEARS ENDED DECEMBER 31
1997 1998
------------------ -------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $(118) $(324)
Adjustment to reconcile net loss to net cash used in operating
activities:
Realized gain on sale of marketable securities, net - (18)
Depreciation 7 11
Provision for doubtful accounts 23 -
Gain arising from settlement of lawsuit (309) -
Changes in operating assets and liabilities:
Trade receivables 52 -
Investment in past due accounts receivable - (10)
Accounts payable and accrued liabilities (154) 8
Accrued legal (3) (16)
------------------ ------------------
Net cash used in operating activities (502) (349)
------------------ -------------------
INVESTING ACTIVITIES
Purchase of equipment (5) (3)
Purchase of marketable securities - (62)
Sale of marketable securities - 42
------------------ -------------------
Net cash used in investing activities (5) (23)
------------------ -------------------
</TABLE>
F-7
<PAGE>
<TABLE>
<CAPTION>
Saratoga Resources, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (continued)
(in thousands)
YEARS ENDED DECEMBER 31
1997 1998
------------------ -------------------
<S> <C> <C>
Financing activities
Purchase of stock from former director $ (175) $ -
Purchase of stock in settlement of lawsuit (1) -
Payments on borrowings (1) (4)
------------------ -------------------
Net cash used in financing activities (177) (4)
------------------ -------------------
Net decrease in cash and cash equivalents (684) (376)
Cash and cash equivalents at beginning of year 1,350 666
------------------ -------------------
Cash and cash equivalents at end of year $ 666 $ 290
================== ===================
Supplemental cash flow information:
Cash paid for interest $ 9 $ 1
Cash paid for income taxes $ - $ -
Equipment acquired with long-term debt $ 26 $ -
</TABLE>
See accompanying notes.
F-8
<PAGE>
Saratoga Resources, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. Organization and Summary of Significant Accounting Policies
ORGANIZATION
Saratoga Resources, Inc., a Delaware corporation, (the "Company", "Saratoga" or
the "Registrant") had traditionally been engaged in oil and gas exploration and
development of properties located in far southwest and east Texas and in
Louisiana.
During 1997 the Company entered into a purchase and sale agreement for the
acquisition of certain oil and gas properties for a purchase price of $27.5
million. The Company was ultimately unsuccessful in consummating the
acquisition, but was awarded a $400,000 break-up fee, which has been recorded as
a reduction of general and administrative expenses during 1997.
USE OF ESTIMATES
The preparation of the Company's consolidated financial statements in accordance
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from these
estimates.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of the
Company and all of its wholly-owned and majority-owned subsidiaries. All
significant intercompany accounts and transactions are eliminated in
consolidation.
CASH AND CASH EQUIVALENTS
The Company considers all investments with maturities of ninety days or less
when purchased to be cash equivalents.
F-9
<PAGE>
Saratoga Resources, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
MARKETABLE SECURITIES
All marketable securities are classified as available-for-sale and are available
to support current operations or to take advantage of other investment
opportunities. These securities are stated at estimated fair value based upon
market quotes. Unrealized gains and losses, net of tax, are computed on the
basis of specific identification and are included as a separate component of
stockholders' equity. Realized gains, realized losses, and declines in value,
judged to be other-thantemporary, are included in Other Income. The cost of
securities sold is based on the specific identification method and interest
earned is included in Interest Income.
INVESTMENT IN PAST DUE ACCOUNTS RECEIVABLE
On November 12, 1998, the Company's wholly owned subsidiary Saratoga Holdings I,
Inc. acquired a portfolio of past due accounts receivable for approximately
$10,300 and recorded it at cost. 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 the Company's control. Any collections will reduce the asset
balance until it is $-0-, with any remaining collections recorded as revenue.
EQUIPMENT
Equipment is recorded at cost less accumulated depreciation. Depreciation of
equipment is computed using the straight-line basis over the five year estimated
useful life of the assets.
Ordinary maintenance and repairs are charged to expense, and expenditures which
extend the physical or economic life of the assets are capitalized. Gains or
losses on disposition of assets are recognized in income and the related assets
and accumulated depreciation accounts are adjusted accordingly.
F-10
<PAGE>
Saratoga Resources, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards (SFAS) No. 109, Accounting for Income Taxes. This statement
prescribes the use of the liability method whereby deferred tax asset and
liability account balances are determined based on differences between financial
reporting and tax bases of assets and liabilities and are measured using the
enacted tax rates and laws that will be in effect when the differences are
expected to reverse.
LOSS PER SHARE
The Company follows the provisions of SFAS No. 128, Earnings Per Share. Basic
net loss per share is computed by dividing net loss available to common
stockholders by the weighted average number of common shares outstanding during
the period. Diluted net loss per share is calculated using the weighted average
number of outstanding shares of Common Stock plus dilutive common stock
equivalents. Diluted net loss per share has not been presented as the effect of
the assumed exercise of warrants is antidilutive due to the Company's net loss.
As such, the numerator and the denominator used in computing both basic and
diluted pro forma net loss per share allocable to holders of common stock are
equal.
COMPREHENSIVE LOSS
Effective January 1, 1998, the Company adopted SFAS No. 130, Reporting
Comprehensive Income, which requires disclosure of total non-stockholder changes
in equity in interim periods and additional disclosures of the components of
non-stockholder changes in equity on an annual basis.
Total comprehensive loss was as follows (in thousands):
YEARS ENDED DECEMBER 31,
1997 1998
------------------ -----------------
Net loss $(118) $(324)
Unrealized loss on marketable securities - (27)
Comprehensive loss $(118) $(351)
================== =================
F-11
<PAGE>
Saratoga Resources, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SEGMENTS
In 1997, the Financial Accounting Standards Board issued SFAS No. 131,
Disclosures About Segments of an Enterprise and Related Information, which
establishes reporting standards for a company's operating segments in annual
financial statements and the reporting of selected information about operating
segments in financial statements. The adoption of SFAS No. 131 had no effect on
the disclosure of segment information as the Company continues to consider its
business activities as a single segment.
CONCENTRATIONS OF CREDIT RISK
The Company maintains in a single bank deposits which exceed the amount of
federal deposit insurance available. Management believes the possibility of loss
on these deposits is minimal.
RECLASSIFICATIONS
Certain reclassifications have been made in prior year amounts to conform to the
current year's presentation.
2. EQUIPMENT
Equipment consists of the following (in thousands):
DECEMBER 31
1997 1998
------------------ ------------------
Office equipment $22 $25
Automobile 31 31
------------------ ------------------
53 56
Less accumulated depreciation 9 20
------------------ ------------------
$44 $36
================== ==================
F-12
<PAGE>
Saratoga Resources, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. LONG-TERM DEBT
As of December 31, 1998, long-term debt consisted of a note payable to a bank
due in monthly installments of $564, including interest at 10%. The note payable
is due August 27, 2002 and is collateralized by an automobile.
Future maturities of the long-term debt as of December 31, 1998 are as follows:
$5,000 in 1999; $6,000 in 2000; $6,000 in 2001; and $4,000 in 2002.
4. LEASE OBLIGATIONS
At December 31, 1998 the Company maintains an office in Austin, Texas on a
month-to-month basis at a current rate of $2,175 per month. The Company also
leases an office in Houston, Texas from a director of the Company on a
month-to-month basis at no charge.
5. INCOME TAXES
As of December 31, 1998, the Company had federal net operating loss
carryforwards of approximately $420,000. The net operating losses will expire
beginning in 2012, if not utilized.
Utilization of the net operating losses may be subject to a substantial annual
limitation due to the "change in ownership" provisions of the Internal Revenue
Code of 1986. The annual limitation, if applicable, may result in the expiration
of net operating losses.
F-13
<PAGE>
Saratoga Resources, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. INCOME TAXES (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred taxes for the years ended December 31, 1997 and 1998 are
as follows:
1997 1998
------------------ -----------------
Deferred tax liabilities:
Depreciable assets $ - $ (717)
------------------ -----------------
Total deferred tax liabilities - (717)
Deferred tax assets:
Tax carryforwards 40,000 155,414
Accrual to cash adjustment - 3,700
----------------- -----------------
Total deferred tax assets 40,000 159,114
----------------- -----------------
Net deferred tax assets before
valuation allowance 40,000 158,397
Valuation allowance for deferred tax assets (40,000) (158,397)
----------------- -----------------
Net deferred tax assets (liabilities) $ - $ -
================= =================
The Company has established valuation allowances equal to the net deferred tax
assets due to uncertainties regarding their realization. The valuation allowance
increased by approximately $118,000 during the year ended December 31, 1998 due
to net operating losses which were not benefited.
The reconciliation of income tax attributable to continuing operations at the
U.S. federal statutory tax rates to income tax expense is:
1997 1998
------------------ -----------------
Pre-tax book income 34.0% 34.0%
State taxes (net of federal benefit) - 3.0%
Permanent items and other - (0.4)%
Application of valuation allowance (34.0)% (36.6)%
------------------ -----------------
Comprehensive loss $(118) $(351)
================== =================
F-14
<PAGE>
Saratoga Resources, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. LITIGATION
From May, 1996 to May, 1997, the Company was involved in litigation with Joseph
T. Kaminski ("Kaminski"), a former executive officer and director of the
Company. As previously reported by the Company in a report filed with the
Securities and Exchange Commission, the most recent of which was Form 8-K (filed
March 14, 1997), the Company and two of its directors, Thomas F. Cooke and
Randall F. Dryer, entered into a settlement agreement and full and final release
(the "settlement agreement") dated March 10, 1997 with Kaminski, in full
settlement of all matters concerning the lawsuits.
Pursuant to the terms of the settlement agreement, Kaminski transferred all of
his equity interest in the Company, consisting of 2,465,371 shares of common
stock and 100,000 stock warrants, to the Company and forgave amounts owed him by
the Company of $62,000. As a result of this settlement, the Company recorded a
gain of $309,000. Kaminski also agreed to sell to the Company 8,000 shares of
the Company's common stock held in trust in exchange for approximately $1,000.
Both the Company and Kaminski agreed to release and discharge any and all claims
or causes of action of every nature existing between the parties.
Accordingly, all claims and counterclaims by and against the Company and its two
directors Thomas F. Cooke and Randall F. Dryer have been dismissed, and there is
no pending litigation against the Company or its directors at December 1997 or
1998.
7. STOCKHOLDERS' EQUITY
Preferred stock may be issued from time to time in one or more series. Prior to
each issuance, the Board of Directors is authorized to determine the number of
shares, relative powers, preferences, rights and qualifications, limitations or
restrictions of all shares of such series. Shares of any series of preferred
stock which have been acquired by the Company or which, if convertible or
exchangeable, have been converted into or exchanged for shares of authorized and
unissued shares of stock of another class, would have the status of authorized
and unissued shares of preferred stock, subject to the conditions adopted by the
Board of Directors of the Company.
The Company issued warrants to a former consultant to purchase 6,667 shares of
common stock for an exercise price of 120% of the share price that is offered to
the public in any public offering. These warrants were issued in December, 1993
and have no expiration date. The Company issued warrants to the Company's
Chairman to purchase 100,000 shares of common stock for an exercise price of
$1.60 per share. These warrants were issued in December, 1994 and expire in May,
1999.
F-15
<PAGE>
Saratoga Resources, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8. PENDING TRANSACTIONS
On December 22, 1998 the Company entered into letters of intent with PrimeVision
Health, Inc., a vertically integrated vision services company, and OptiCare Eye
Health Centers, Inc., a provider of consulting, administrative and other support
services to optometry eyecare centers located in Connecticut, whereby the
Company would acquire Prime and OptiCare in an all-stock transaction by issuing
97.5% of the Company's common stock to the shareholders of Prime and OptiCare.
However, the Company has not yet entered into a formal binding agreement for
these acquisitions.
As contemplated by the Prime Vision/OptiCare merger, Saratoga-Delaware proposes
to contribute substantially all of its assets to Saratoga-Texas, its
wholly-owned subsidiary. Saratoga-Texas will continue its operations in the
energy industry, utilizing its database for oil and gas prospect evaluation and
development. Saratoga-Delaware then proposes to spin-off all of the stock to
Saratoga-Texas to the current stockholders of Saratoga-Delaware on a one-for-one
basis to provide Saratoga-Texas with its own separate management, control and
incentive structure.
Saratoga-Delaware formed Saratoga Holdings in November 1998 as a wholly-owned
subsidiary, and has caused it to commence operations in the business of
acquiring, reselling, managing and collecting portfolios of delinquent and
defaulted accounts receivable. Saratoga-Delaware has filed a registration
statement with the Securities and Exchange Commission under the Securities Act
of 1933 to register the proposed spin-off of approximately 90% of the common
stock of Saratoga Holdings to the stockholders of Saratoga-Delaware on a
one-for-one basis. The remaining 10% will be contributed to Saratoga-Texas.
F-16
<PAGE>
EXHIBIT INDEX
The following exhibits are filed herewith:
Exhibit No. Description
- ----------- -----------
3(i) Restated Articles of Incorporation
3(ii) Bylaws
16 Letter on changes in certifying account
21 Subsidiaries of the Registrant
27 Financial Data Schedule
SARATOGA RESOURCES, INC.
EXHIBIT 3(I)
Restated Articles of Incorporation (With Amendments)
<PAGE>
RESTATED ARTICLES OF INCORPORATION
OF
SARATOGA RESOURCES, INC.
(WITH AMENDMENTS)
Pursuant to the provisions of the Texas Business Corporation Act,
Saratoga Resources, Inc., a Texas corporation (the "Corporation"), hereby adopts
these Restated Articles of Incorporation (the "Restated Articles"), which
accurately reflect the original Articles of Incorporation and all amendments
thereto that are in effect to date (collectively, the "Original Articles") and
as further amended by such Restated Articles as hereinafter set forth and which
contain no other change in any provision thereof.
ARTICLE I
---------
The name of the Corporation is Saratoga Resources, Inc.
ARTICLE II
----------
The Original Articles of the Corporation are amended by these Restated
Articles as follows: (a) ARTICLE IV is amended and restated in its entirety to
increase the number of authorized shares of Common Stock, provide for blank
check Preferred Stock and to change the par value of shares; (b) ARTICLE V is
amended and restated to deny preemptive rights; (c) ARTICLE VI is amended and
restated to address commencement of business upon receipt of consideration for
its shares; (d) ARTICLE VII is amended and restated to deny cumulative voting;
(e) ARTICLE VIII is amended and restated to address interested directors; (f)
ARTICLE IX is amended and restated to set forth indemnification provisions; (g)
ARTICLE X is amended and restated to provide for majority voting on all matters;
(h) ARTICLE XI is amended and restated to change the Corporation's registered
agent and registered office address; (i) ARTICLE XII is amended and restated to
reflect the current directors of the Corporation; (j) a new ARTICLE THIRTEEN is
added to address director liability; and (k) a new ARTICLE FOURTEEN is added to
provide for action by less than unanimous consent of shareholders.
ARTICLE III
-----------
Each such amendment and addition made by these Restated Articles has
been effected in conformity with the provisions of the Texas Business
Corporation Act, and these Restated Articles and each such amendment made by
these Restated Articles were duly adopted and approved by the Board of Directors
of the Corporation as of August 5, 1999.
ARTICLE IV
----------
The number of shares of capital stock of the Corporation outstanding
and entitled to vote at the time of such adoption was 100,000 shares of Common
Stock, $0.01 par value per share.
1
<PAGE>
ARTICLE V
---------
The holder of all of the issued and outstanding shares of Common Stock
of the Corporation entitled to vote on the foregoing amendments approved and
adopted such amendments by written consent dated August 5, 1999.
ARTICLE VI
----------
Each share of Common Stock, $0.01 par value per share, issued and
outstanding immediately prior to effecting the change in par value, will be
automatically converted into one share of Common Stock, $0.001 par value per
share, upon effecting the change in par value.
ARTICLE VII
-----------
Due to the change in par value of Common Stock of the Corporation from
$0.01 par value per share to $0.001 par value per share, the stated capital of
the Corporation shall be changed from $1,000 to $100.
ARTICLE VIII
------------
The Original Articles are hereby superseded by the following Restated
Articles, which accurately copy the entire text thereof as amended as set forth
above:
2
<PAGE>
RESTATED ARTICLES OF INCORPORATION
OF
SARATOGA RESOURCES, INC.
ARTICLE ONE
-----------
The name of the Corporation is Saratoga Resources, Inc.
ARTICLE TWO
-----------
The period of duration of the Corporation is perpetual.
ARTICLE THREE
-------------
The purpose for which the Corporation is organized is to engage in the
transaction of any and all lawful businesses for which corporations may be
incorporated under the Texas Business Corporation Act.
ARTICLE FOUR
------------
The total number of shares of all classes of capital stock which the
Corporation shall have authority to issue is 100,100,000 of which (a)
100,000,000 shares shall be designated as Common Stock, par value $0.001 per
share, and (b) 100,000 shares shall be designated as Preferred Stock, par value
$0.001 per share.
The following is a statement of the designations, preferences,
limitations, and relative rights, including voting rights, in respect of the
classes of stock of the Corporation and of the authority with respect thereto
expressly vested in the Board of Directors of the Corporation:
COMMON STOCK
(1) Each share of Common Stock of the Corporation shall have identical
rights and privileges in every respect. The holders of shares of Common Stock
shall be entitled to vote upon all matters submitted to a vote of the
shareholders of the Corporation and shall be entitled to one vote for each share
of Common Stock held.
(2) Subject to the prior rights and preferences, if any, applicable to
shares of the Preferred Stock or any series thereof, the holders of shares of
the Common Stock shall be entitled to receive such dividends (payable in cash,
stock, or otherwise) as may be declared thereon by the Board of Directors at any
time and from time to time out of any funds of the Corporation legally available
therefor.
(3) In the event of any voluntary or involuntary liquidation,
dissolution, or winding-up of the Corporation, after distribution in full of the
preferential amounts, if any, to be distributed
3
<PAGE>
to the holders of shares of the Preferred Stock or any series thereof, the
holders of shares of the Common Stock shall be entitled to receive all of the
remaining assets of the Corporation available for distribution to its
shareholders, ratably in proportion to the number of shares of the Common Stock
held by them. A liquidation, dissolution, or winding-up of the Corporation, as
such terms are used in this Paragraph (3), shall not be deemed to be occasioned
by or to include any merger of the Corporation with or into one or more
corporations or other entities, any acquisition or exchange of the outstanding
shares of one or more classes or series of the Corporation, or any sale, lease,
exchange, or other disposition of all or a part of the assets of the
Corporation.
PREFERRED STOCK
(4) Shares of the Preferred Stock may be issued from time to time in
one or more series, the shares of each series to have such designations,
preferences, limitations, and relative rights, including voting rights, as shall
be stated and expressed herein or in a resolution or resolutions providing for
the issue of such series adopted by the Board of Directors of the Corporation.
Each such series of Preferred Stock shall be designated so as to distinguish the
shares thereof from the shares of all other series and classes. The Board of
Directors of the Corporation is hereby expressly authorized, subject to the
limitations provided by law, to establish and designate series of the Preferred
Stock, to fix the number of shares constituting each series, and to fix the
designations and the preferences, limitations, and relative rights, including
voting rights, of the shares of each series and the variations of the relative
rights and preferences as between series, and to increase and to decrease the
number of shares constituting each series, provided that the Board of Directors
may not decrease the number of shares within a series to less than the number of
shares within such series that are then issued. The relative powers, rights,
preferences, and limitations may vary between and among series of Preferred
Stock in any and all respects so long as all shares of the same series are
identical in all respects, except that shares of any such series issued at
different times may have different dates from which dividends thereon cumulate.
The authority of the Board of Directors of the Corporation with respect to each
series shall include, but shall not be limited to, the authority to determine
the following:
(a) The designation of such series;
(b) The number of shares initially constituting such series;
(c) The rate or rates and the times at which dividends on the
shares of such series shall be paid, the periods in respect of which
dividends are payable, the conditions upon such dividends, the
relationship and preferences, if any, of such dividends to dividends
payable on any other class or series of shares, whether or not such
dividends shall be cumulative, partially cumulative, or noncumulative,
if such dividends shall be cumulative or partially cumulative, the date
or dates from and after which, and the amounts in which, they shall
accumulate, whether such dividends shall be share dividends, cash or
other dividends, or any combination thereof, and if such dividends
shall include share dividends, whether such share dividends shall be
payable in shares of the same or any other class or series of shares of
the Corporation (whether now or hereafter
4
<PAGE>
authorized), or any combination thereof and the other terms and
conditions, if any, applicable to dividends on shares of such series;
(d) Whether or not the shares of such series shall be
redeemable or subject to repurchase at the option of the Corporation or
the holder thereof or upon the happening of a specified event, if such
shares shall be redeemable, the terms and conditions of such
redemption, including but not limited to the date or dates upon or
after which such shares shall be redeemable, the amount per share which
shall be payable upon such redemption, which amount may vary under
different conditions and at different redemption dates, and whether
such amount shall be payable in cash, property, or rights, including
securities of the Corporation or another corporation;
(e) The rights of the holders of shares of such series (which
may vary depending upon the circumstances or nature of such
liquidation, dissolution, or winding up) in the event of the voluntary
or involuntary liquidation, dissolution, or winding up of the
Corporation and the relationship or preference, if any, of such rights
to rights of holders of stock of any other class or series. A
liquidation, dissolution, or winding up of the Corporation, as such
terms are used in this subparagraph (e), shall not be deemed to be
occasioned by or to include any merger of the Corporation with or into
one or more corporations or other entities, any acquisition or exchange
of the outstanding shares of one or more classes or series of the
Corporation, or any sale, lease, exchange, or other disposition of all
or a part of the assets of the Corporation;
(f) Whether or not the shares of such series shall have voting
powers and, if such shares shall have such voting powers, the terms and
conditions thereof, including, but not limited to, the right of the
holders of such shares to vote as a separate class either alone or with
the holders of shares of one or more other classes or series of stock
and the right to have more (or less) than one vote per share; provided,
however, that the right to cumulate votes for the election of directors
is expressly denied and prohibited;
(g) Whether or not a sinking fund shall be provided for the
redemption of the shares of such series and, if such a sinking fund
shall be provided, the terms and conditions thereof;
(h) Whether or not a purchase fund shall be provided for the
shares of such series and, if such a purchase fund shall be provided,
the terms and conditions thereof;
(i) Whether or not the shares of such series, at the option of
either the Corporation or the holder or upon the happening of a
specified event, shall be convertible into stock of any other class or
series and, if such shares shall be so convertible, the terms and
conditions of conversion, including, but not limited to, any provision
for the adjustment of the conversion rate or the conversion price;
(j) Whether or not the shares of such series, at the option of
either the Corporation or the holder or upon the happening of a
specified event, shall be
5
<PAGE>
exchangeable for securities, indebtedness, or property of the
Corporation and, if such shares shall be so exchangeable, the terms and
conditions of exchange, including, but not limited to, any provision
for the adjustment of the exchange rate or the exchange price; and
(k) Any other preferences, limitations, and relative rights as
shall not be inconsistent with the provisions of this Article Four or
the limitations provided by law.
(5) Except as otherwise required by law or in any resolution of the
Board of Directors creating any series of Preferred Stock, the holders of shares
of Preferred Stock and all series thereof who are entitled to vote shall vote
together with the holders of shares of Common Stock, and not separately by
class.
ARTICLE FIVE
------------
No holder of any shares of capital stock of the Corporation, whether
now or hereafter authorized, shall, as such holder, have any preemptive or
preferential right to receive, purchase, or subscribe to (a) any unissued or
treasury shares of any class of stock (whether now or hereafter authorized) of
the Corporation, (b) any obligations, evidences of indebtedness, or other
securities of the Corporation convertible into or exchangeable for, or carrying
or accompanied by any rights to receive, purchase, or subscribe to, any such
unissued or treasury shares, (c) any right of subscription to or to receive, or
any warrant or option for the purchase of, any of the foregoing securities, or
(d) any other securities that may be issued or sold by the Corporation.
ARTICLE SIX
-----------
The Corporation will not commence business until it has received for
the issuance of its shares consideration of the value of at least $1,000.00.
ARTICLE SEVEN
-------------
Cumulative voting for the election of directors is expressly denied and
prohibited.
ARTICLE EIGHT
-------------
No contract or transaction between the Corporation and one or more of
its directors or officers, or between the Corporation and any other corporation,
partnership, association, or other organization in which one or more of its
directors or officers are directors or officers or have a financial interest,
shall be void or voidable solely for this reason, solely because the director or
officer is present at or participates in the meeting of the Board of Directors
or committee thereof which authorizes the contract or transaction, or solely
because his or their votes are counted for such purpose, if:
(a) The material facts as to his relationship or interest
and as to the contract or transaction are disclosed or are known to the
Board of Directors or the committee, and the
6
<PAGE>
Board of Directors or committee in good faith authorizes the contract
or transaction by the affirmative vote of a majority of the
disinterested directors, even though the disinterested directors be
less than a quorum; or
(b) The material facts as to his relationship or interest and
as to the contract or transaction are disclosed or are known to the
shareholders entitled to vote thereon, and the contract or transaction
is specifically approved in good faith by vote of the shareholders; or
(c) The contract or transaction is fair as to the Corporation
as of the time it is authorized, approved, or ratified by the Board of
Directors, a committee thereof, or the shareholders.
Common or interested directors may be counted in determining the presence of a
quorum at a meeting of the Board of Directors or of a committee which authorizes
the contract or transaction.
This provision shall not be construed to invalidate a contract or
transaction which would be valid in the absence of this provision or to subject
any director or officer to any liability that he would not be subject to in the
absence of this provision.
ARTICLE NINE
------------
The Corporation shall indemnify any person who was, is, or is threatened to be
made a named defendant or respondent in a proceeding (as hereinafter defined)
because the person (i) is or was a director or officer of the Corporation or
(ii) while a director or officer of the Corporation, is or was serving at the
request of the Corporation as a director, officer, partner, venturer,
proprietor, trustee, employee, agent, or similar functionary of another foreign
or domestic corporation, partnership, joint venture, sole proprietorship, trust,
employee benefit plan, or other enterprise, to the fullest extent that a
corporation may grant indemnification to a director under the Texas Business
Corporation Act, as the same exists or may hereafter be amended.
Such right shall be a contract right and as such shall run to the
benefit of any director or officer who is elected and accepts the position of
director or officer of the Corporation or elects to continue to serve as a
director or officer of the Corporation while this Article Nine is in effect. Any
repeal or amendment of this Article Nine shall be prospective only and shall not
limit the rights of any such director or officer or the obligations of the
Corporation with respect to any claim arising from or related to the services of
such director or officer in any of the foregoing capacities prior to any such
repeal or amendment of this Article Nine. Such right shall include the right to
be paid or reimbursed by the Corporation for expenses incurred in defending any
such proceeding in advance of its final disposition to the maximum extent
permitted under the Texas Business Corporation Act, as the same exists or may
hereafter be amended. If a claim for indemnification or advancement of expenses
hereunder is not paid in full by the Corporation within ninety days after a
written claim has been received by the Corporation, the claimant may at any time
thereafter bring suit against the Corporation to recover the unpaid amount of
the claim, and if successful in whole or in part, the claimant shall be entitled
to be paid also the expenses of prosecuting such claim. It shall be a defense to
any such action that such indemnification or advancement of costs of defense are
not permitted under the Texas Business Corporation Act, but
7
<PAGE>
the burden of proving such defense shall be on the Corporation. Neither the
failure of the Corporation (including its Board of Directors or any committee
thereof, special legal counsel, or shareholders) to have made its determination
prior to the commencement of such action that indemnification of, or advancement
of costs of defense to, the claimant is permissible in the circumstances nor an
actual determination by the Corporation (including its Board of Directors or any
committee thereof, special legal counsel, or shareholders) that such
indemnification or advancement is not permissible, shall be a defense to the
action or create a presumption that such indemnification or advancement is not
permissible. In the event of the death of any person having a right of
indemnification under the foregoing provisions, such right shall inure to the
benefit of his heirs, executors, administrators, and personal representatives.
The rights conferred above shall not be exclusive of any other right which any
person may have or hereafter acquire under any statute, bylaw, resolution of
shareholders or directors, agreement, or otherwise.
The Corporation may additionally indemnify any person covered by the
grant of mandatory indemnification contained above to such further extent as is
permitted by law and may indemnify any other person to the fullest extent
permitted by law.
To the extent permitted by then applicable law, the grant of mandatory
indemnification to any person pursuant to this Article Nine shall extend to
proceedings involving the negligence of such person.
As used herein, the term "proceeding" means any threatened, pending, or
completed action, suit, or proceeding, whether civil, criminal, administrative,
arbitrative, or investigative, any appeal in such an action, suit, or
proceeding, and any inquiry or investigation that could lead to such an action,
suit, or proceeding.
ARTICLE TEN
-----------
Any action of the Corporation which, under the provisions of the Texas
Business Corporation Act or any other applicable law, is required to be
authorized or approved by the holders of any specified fraction which is in
excess of one-half or any specified percentage which is in excess of 50% of the
outstanding shares (or of any class or series thereof) of the Corporation shall,
notwithstanding any law, be deemed effectively and properly authorized or
approved if authorized or approved by the vote of the holders of more than 50%
of the outstanding shares entitled to vote thereon (or, if the holders of any
class or series of the Corporation's shares shall be entitled by the Texas
Business Corporation Act or any other applicable law to vote thereon separately
as a class, by the vote of the holders of more than 50% of the outstanding
shares of each such class or series). Without limiting the generality of the
foregoing, the foregoing provisions of this Article Ten shall be applicable to
any required shareholder authorization or approval of: (a) any amendment to the
Articles of Incorporation; (b) any plan of merger, share exchange, or
reorganization involving the Corporation; (c) any sale, lease, exchange, or
other disposition of all, or substantially all, the property and assets of the
Corporation; and (d) any voluntary dissolution of the Corporation.
8
<PAGE>
Directors of the Corporation shall be elected by a plurality of the
votes cast by the holders of shares entitled to vote in the election of
directors of the Corporation at a meeting of shareholders at which a quorum is
present.
Except as otherwise provided in this Article Ten or as otherwise
required by the Texas Business Corporation Act or other applicable law, with
respect to any matter, the affirmative vote of the holders of a majority of the
Corporation's shares entitled to vote on that matter and represented in person
or by proxy at a meeting of shareholders at which a quorum is present shall be
the act of the shareholders.
Nothing contained in this Article Ten is intended to require
shareholder authorization or approval of any action of the Corporation
whatsoever unless such approval is specifically required by the other provisions
of the Articles of Incorporation, the bylaws of the Corporation, or by the Texas
Business Corporation Act or other applicable law.
ARTICLE ELEVEN
--------------
The street address of the registered office of the Corporation is 301
Congress Avenue, Suite 1550, Austin, Texas 78701, and the name of its registered
agent at such address is Thomas F. Cooke.
ARTICLE TWELVE
--------------
The number of directors constituting the Board of Directors is two and
the name and address of each person who is to serve as director until the next
annual meeting of shareholders and until such director's successor is elected
and qualified or, if earlier, until such director's death, resignation, or
removal as director, are as follows:
NAME ADDRESS
---- -------
Thomas F. Cooke 301 Congress Avenue, Suite 1550
Austin, Texas 78701
Kevin M. Smith 301 Congress Avenue, Suite 1500
Austin, Texas 78701
ARTICLE THIRTEEN
----------------
To the fullest extent permitted by applicable law, a director of the
Corporation shall not be liable to the Corporation or its shareholders for
monetary damages for an act or omission in the director's capacity as a
director, except that this Article Thirteen does not eliminate or limit the
liability of a director of the Corporation to the extent the director is found
liable for:
(a) a breach of the director's duty of loyalty to the Corpora-
tion or its shareholders;
9
<PAGE>
(b) an act or omission not in good faith that constitutes a
breach of duty of the director to the Corporation or an act or omission
that involves intentional misconduct or a knowing violation of the law;
(c) a transaction from which the director received an improper
benefit, whether or not the benefit resulted from an action taken
within the scope of the director's office; or
(d) an act or omission for which the liability of a director
is expressly provided by an applicable statute.
Any repeal or amendment of this Article Thirteen by the shareholders of
the Corporation shall be prospective only and shall not adversely affect any
limitation on the personal liability of a director of the Corporation arising
from an act or omission occurring prior to the time of such repeal or amendment.
In addition to the circumstances in which a director of the Corporation is not
personally liable as set forth in the foregoing provisions of this Article
Thirteen, a director shall not be liable to the Corporation or its shareholders
to such further extent as permitted by any law hereafter enacted, including
without limitation any subsequent amendment to the Texas Miscellaneous
Corporation Laws Act or the Texas Business Corporation Act.
ARTICLE FOURTEEN
----------------
Any action which may be taken, or which is required by law or the
Articles of Incorporation or bylaws of the Corporation to be taken, at any
annual or special meeting of shareholders may be taken without a meeting,
without prior notice, and without a vote, if a consent or consents in writing,
setting forth the action so taken, shall have been signed by the holder or
holders of shares having not less than the minimum number of votes that would be
necessary to take such action at a meeting at which the holders of all shares
entitled to vote on the action were present and voted.
EXECUTED as of this 5th day of August, 1999.
/s/ Thomas F. Cooke
----------------------------------------
Thomas F. Cooke, Chief Executive Officer
10
AMENDED AND RESTATED BYLAWS
OF
SARATOGA RESOURCES, INC.
OCTOBER 5, 1999
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
Page
----
<S> <C>
PREAMBLE
ARTICLE ONE: OFFICES
1.01 Registered Office and Agent........................................................................ 1
1.02 Other Offices...................................................................................... 1
ARTICLE TWO: SHAREHOLDERS
2.01 Annual Meetings.................................................................................... 1
2.02 Special Meetings................................................................................... 1
2.03 Place of Meetings.................................................................................. 2
2.04 Notice............................................................................................. 2
2.05 Voting List........................................................................................ 2
2.06 Voting of Shares................................................................................... 2
2.07 Quorum............................................................................................. 2
2.08 Majority Vote; Withdrawal of Quorum................................................................ 3
2.09 Method of Voting; Proxies.......................................................................... 3
2.10 Closing of Transfer Books; Record Date............................................................. 3
2.11 Officers Duties at Meeting......................................................................... 4
ARTICLE THREE: DIRECTORS
3.01 Management......................................................................................... 4
3.02 Number; Election; Term; Qualification.............................................................. 4
3.03 Changes in Number.................................................................................. 4
3.04 Removal............................................................................................. 4
3.05 Vacancies........................................................................................... 4
3.06 Place of Meetings.................................................................................. 5
3.07 First Meeting...................................................................................... 5
3.08 Regular Meetings................................................................................... 5
3.09 Special Meetings; Notice........................................................................... 5
3.10 Quorum; Majority Vote.............................................................................. 5
3.11 Procedure; Minutes.................................................................................. 5
3.12 Presumption of Assent............................................................................... 5
3.13 Compensation....................................................................................... 6
ARTICLE FOUR: COMMITTEES
4.01 Designation........................................................................................ 6
4.02 Number; Qualification; Term........................................................................ 6
4.03 Authority.......................................................................................... 6
4.04 Committee Changes; Removal......................................................................... 7
4.05 Regular Meetings................................................................................... 7
4.06 Special Meetings................................................................................... 7
4.07 Quorum; Majority Vote.............................................................................. 7
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4.08 Minutes............................................................................................. 7
4.09 Compensation........................................................................................ 7
4.10 Responsibility...................................................................................... 7
ARTICLE FIVE: GENERAL PROVISIONS RELATING TO MEETINGS
5.01 Notice............................................................................................. 8
5.02 Waiver of Notice.................................................................................... 8
5.03 Telephone and Similar Meetings...................................................................... 8
5.04 Action Without Meeting.............................................................................. 8
ARTICLE SIX: OFFICERS AND OTHER AGENTS
6.01 Number; Titles; Election; Term; Qualification....................................................... 9
6.02 Removal............................................................................................. 9
6.03 Vacancies........................................................................................... 9
6.04 Authority........................................................................................... 9
6.05 Compensation........................................................................................ 9
6.06 Chairman of the Board............................................................................... 9
6.07 President........................................................................................... 9
6.08 Vice Presidents.................................................................................... 10
6.09 Treasurer.......................................................................................... 10
6.10 Assistant Treasurers............................................................................... 10
6.11 Secretary.......................................................................................... 10
6.12 Assistant Secretaries.............................................................................. 10
ARTICLE SEVEN: CERTIFICATES AND SHAREHOLDERS
7.01 Certificated and Uncertificated Shares............................................................. 11
7.02 Certificates for Certificated Shares............................................................... 11
7.03 Issuance........................................................................................... 11
7.04 Consideration for Shares........................................................................... 11
7.05 Lost, Stolen, or Destroyed Certificates............................................................ 12
7.06 Transfer of Shares................................................................................. 12
7.07 Registered Shareholders............................................................................ 13
7.08 Legends............................................................................................ 13
7.09 Regulations........................................................................................ 13
ARTICLE EIGHT: MISCELLANEOUS PROVISIONS
8.01 Dividends.......................................................................................... 13
8.02 Reserves........................................................................................... 13
8.03 Books and Records.................................................................................. 13
8.04 Fiscal Year........................................................................................ 13
8.05 Seal............................................................................................... 13
8.06 Attestation by the Secretary....................................................................... 14
8.07 Resignation........................................................................................ 14
8.08 Securities of Other Corporations................................................................... 14
8.09 Amendment of Bylaws................................................................................ 14
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8.10 Invalid Provisions................................................................................. 14
8.11 Headings; Table of Contents........................................................................ 14
</TABLE>
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AMENDED AND RESTATED BYLAWS
OF
SARAGOTA RESOURCES, INC.
A Texas Corporation
PREAMBLE
These amended and restated bylaws (these "bylaws") are subject to, and
governed by, the Texas Business Corporation Act and the articles of
incorporation of Saratoga Resources, Inc. (the "Corporation"). In the event of a
direct conflict between the provisions of these bylaws and the mandatory
provisions of the Texas Business Corporation Act or the provisions of the
articles of incorporation of the Corporation, such provisions of the Texas
Business Corporation Act or the articles of incorporation of the Corporation, as
the case may be, will be controlling.
ARTICLE ONE: OFFICES
1.01 Registered Office and Agent. The registered office and registered
agent of the Corporation shall be as designated from time to time by the
appropriate filing by the Corporation in the office of the Secretary of State of
Texas.
1.02 Other Offices. The Corporation may also have offices at such other
places, both within and without the State of Texas, as the board of directors
may from time to time determine or the business of the Corporation may require.
ARTICLE TWO: SHAREHOLDERS
2.01 Annual Meetings. An annual meeting of shareholders of the
Corporation shall be held during each calendar year on such date and at such
time as shall be designated from time to time by the board of directors and
stated in the notice of the meeting, if not a legal holiday in the place where
the meeting is to be held, and, if a legal holiday in such place, then on the
next business day following, at the time specified in the notice of the meeting.
At such meeting, the shareholders shall elect directors and transact such other
business as may properly be brought before the meeting.
2.02 Special Meetings. A special meeting of the shareholders may be
called at any time by the president, the board of directors, or the holders of
not less than ten percent of all shares entitled to vote at such meeting. Only
business within the purpose or purposes described in the notice of special
meeting may be conducted at such special meeting.
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2.03 Place of Meetings. The annual meeting of shareholders may be held
at any place within or without the State of Texas designated by the board of
directors. Special meetings of shareholders may be held at any place within or
without the State of Texas designated by the person or persons calling such
special meeting as provided in Section 2.02 above. Meetings of shareholders
shall be held at the principal office of the Corporation unless another place is
designated for meetings in the manner provided herein.
2.04 Notice. Except as otherwise provided by law, written or printed
notice stating the place, day, and hour of each meeting of the shareholders and,
in case of a special meeting, the purpose or purposes for which the meeting is
called, shall be delivered not less than ten nor more than sixty days before the
date of the meeting by or at the direction of the president, the secretary, or
the person calling the meeting, to each shareholder of record entitled to vote
at such meeting.
2.05 Voting List. At least ten days before each meeting of
shareholders, the secretary shall prepare a complete list of shareholders
entitled to vote at such meeting, arranged in alphabetical order, including the
address of each shareholder and the number of voting shares held by each
shareholder. For a period of ten days prior to such meeting, such list shall be
kept on file at the registered office of the Corporation and shall be subject to
inspection by any shareholder during usual business hours. Such list shall be
produced at such meeting, and at all times during such meeting shall be subject
to inspection by any shareholder. The original stock transfer books shall be
prima facie evidence as to who are the shareholders entitled to examine such
list.
2.06 Voting of Shares. Treasury shares, shares of the Corporation's own
stock owned by another corporation the majority of the voting stock of which is
owned or controlled by the Corporation, and shares of the Corporation's own
stock held by the Corporation in a fiduciary capacity shall not be shares
entitled to vote or to be counted in determining the total number of outstanding
shares. Shares standing in the name of another domestic or foreign corporation
of any type or kind may be voted by such officer, agent, or proxy as the bylaws
of such corporation may authorize or, in the absence of such authorization, as
the board of directors of such corporation may determine. Shares held by an
administrator, executor, guardian, or conservator may be voted by him, either in
person or by proxy, without transfer of such shares into his name so long as
such shares form a part of the estate served by him and are in the possession of
such estate. Shares held by a trustee may be voted by him, either in person or
by proxy, only after the shares have been transferred into his name as trustee.
Shares standing in the name of a receiver may be voted by such receiver, and
shares held by or under the control of a receiver may be voted by such receiver
without transfer of such shares into his name if authority to do so is contained
in the court order by which such receiver was appointed. A shareholder whose
shares are pledged shall be entitled to vote such shares until they have been
transferred into the name of the pledgee, and thereafter, the pledgee shall be
entitled to vote such shares.
2.07 Quorum. The holders of a majority of the outstanding shares
entitled to vote, present in person or represented by proxy, shall constitute a
quorum at any meeting of shareholders, except as otherwise provided by law, the
articles of incorporation, or these bylaws. If a quorum shall not be present or
represented at any meeting of shareholders, a majority of the shareholders
entitled to vote at the meeting, who are present in person or represented by
proxy,
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may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present or represented. At
any reconvening of an adjourned meeting at which a quorum shall be present or
represented by proxy, any business may be transacted which could have been
transacted at the original meeting, if a quorum had been present or represented.
2.08 Majority Vote; Withdrawal of Quorum. If a quorum is present in
person or represented by proxy at any meeting, the vote of the holders of a
majority of the outstanding shares entitled to vote, present in person or
represented by proxy, shall decide any question brought before such meeting,
unless the question is one on which, by express provision of law, the articles
of incorporation, or these bylaws, a different vote is required, in which event
such express provision shall govern and control the decision of such question.
The shareholders present at a duly convened meeting may continue to transact
business until adjournment, notwithstanding any withdrawal of shareholders which
may leave less than a quorum remaining.
2.09 Method of Voting; Proxies. Every shareholder of record shall be
entitled at every meeting of shareholders to one vote on each matter submitted
to a vote, for every share standing in his name on the original stock transfer
books of the Corporation except to the extent that the voting rights of the
shares of any class or classes are limited or denied by the articles of
incorporation. Such stock transfer books shall be prima facie evidence as to the
identity of shareholders entitled to vote. At any meeting of shareholders, every
shareholder having the right to vote may vote either in person or by a proxy
executed in writing by the shareholder or by his duly authorized
attorney-in-fact. Each such proxy shall be filed with the secretary of the
Corporation before, or at the time of, the meeting. No proxy shall be valid
after eleven months from the date of its execution, unless otherwise provided in
the proxy. If no date is stated on a proxy, such proxy shall be presumed to have
been executed on the date of the meeting at which it is to be voted. Each proxy
shall be revocable unless the proxy form conspicuously states that the proxy is
irrevocable and the proxy is coupled with an interest.
2.10 Closing of Transfer Books; Record Date. For the purpose of
determining shareholders entitled to notice of, or to vote at, any meeting of
shareholders or any reconvening thereof, or entitled to receive a distribution
(other than a distribution involving a purchase or redemption by the Corporation
of any of its own shares) or a share dividend, or in order to make a
determination of shareholders for any other proper purpose, the board of
directors may provide that the stock transfer books of the Corporation shall be
closed for a stated period but not to exceed in any event sixty days. If the
stock transfer books are closed for the purpose of determining shareholders
entitled to notice of, or to vote at, a meeting of shareholders, such books
shall be closed for at least ten days immediately preceding such meeting. In
lieu of closing the stock transfer books, the board of directors may fix in
advance a date as the record date for any such determination of shareholders,
such date in any case to be not more than sixty days and, in case of a meeting
of shareholders, not less than ten days prior to the date on which the
particular action requiring such determination of shareholders is to be taken.
If the stock transfer books are not closed and if no record date is fixed for
the determination of shareholders entitled to notice of, or to vote at, a
meeting of shareholders or entitled to receive a distribution (other than a
distribution involving a purchase or redemption by the Corporation of any of its
own shares) or
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a share dividend, the date on which the notice of the meeting is mailed or the
date on which the resolution of the board of directors declaring such
distribution or share dividend is adopted, as the case may be, shall be the
record date for such determination of shareholders.
2.11 Officers Duties at Meetings. The president shall preside at, and
the secretary shall prepare minutes of, each meeting of shareholders, and in the
absence of either such officer, his duties shall be performed by some person or
persons elected by the vote of the holders of a majority of the outstanding
shares entitled to vote, present in person or represented by proxy.
ARTICLE THREE: DIRECTORS
3.01 Management. The business and property of the Corporation shall be
managed by the board of directors, and subject to the restrictions imposed by
law, the articles of incorporation, or these bylaws, the board of directors may
exercise all the powers of the Corporation.
3.02 Number; Election; Term; Qualification. The number of directors
which shall constitute the board of directors shall be not less than one. The
first board of directors shall consist of the number of directors named in the
articles of incorporation. Thereafter, the number of directors which shall
constitute the entire board of directors shall be determined by resolution of
the board of directors at any meeting thereof or by the shareholders at any
meeting thereof, but shall never be less than one. At each annual meeting of
shareholders, directors shall be elected to hold office until the next annual
meeting of shareholders and until their successors are elected and qualified. No
director need be a shareholder, a resident of the State of Texas, or a citizen
of the United States.
3.03 Changes in Number. No decrease in the number of directors
constituting the entire board of directors shall have the effect of shortening
the term of any incumbent director. Any directorship to be filled by reason of
an increase in the number of directors may be filled by (i) the shareholders at
any annual or special meeting of shareholders called for that purpose or (ii)
the board of directors for a term of office continuing only until the next
election of one or more directors by the shareholders; provided that the board
of directors may not fill more than two such directorships during the period
between any two successive annual meetings of shareholders. Notwithstanding the
foregoing, whenever the holders of any class or series of shares are entitled to
elect one or more directors by the provisions of the articles of incorporation,
any newly created directorship(s) of such class or series to be filled by reason
of an increase in the number of such directors may be filled by the affirmative
vote of a majority of the directors elected by such class or series then in
office or by a sole remaining director so elected or by the vote of the holders
of the outstanding shares of such class or series, and such directorship(s)
shall not in any case be filled by the vote of the remaining directors or by the
holders of the outstanding shares of the Corporation as a whole unless otherwise
provided in the articles of incorporation.
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3.04 Removal. At any meeting of shareholders called expressly for that
purpose, any director or the entire board of directors may be removed, with or
without cause, by a vote of the holders of a majority of the shares then
entitled to vote on the election of directors.
3.05 Vacancies. Any vacancy occurring in the board of directors may be
filled by (i) the shareholders at any annual or special meeting of shareholders
called for that purpose or (ii) the affirmative vote of a majority of the
remaining directors though less than a quorum of the board of directors. A
director elected to fill a vacancy shall be elected to serve for the unexpired
term of his predecessor in office. Notwithstanding the foregoing, whenever the
holders of any class or series of shares are entitled to elect one or more
directors by the provisions of the articles of incorporation, any vacancies in
such directorship(s) may be filled by the affirmative vote of a majority of the
directors elected by such class or series then in office or by a sole remaining
director so elected or by the vote of the holders of the outstanding shares of
such class or series, and such directorship(s) shall not in any case be filled
by the vote of the remaining directors or the holders of the outstanding shares
of the Corporation as a whole unless otherwise provided in the articles of
incorporation.
3.06 Place of Meetings. The board of directors may hold its meetings
and may have an office and keep the books of the Corporation, except as
otherwise provided by law, in such place or places within or without the State
of Texas as the board of directors may from time to time determine.
3.07 First Meeting. Each newly elected board of directors may hold its
first meeting for the purpose of organization and the transaction of business,
if a quorum is present, immediately after and at the same place as the annual
meeting of shareholders, and notice of such meeting shall not be necessary.
3.08 Regular Meetings. Regular meetings of the board of directors may
be held without notice at such times and places as may be designated from time
to time by resolution of the board of directors and communicated to all
directors.
3.09 Special Meetings; Notice. Special meetings of the board of
directors shall be held whenever called by the president or by any director. The
person calling any special meeting shall cause notice of such special meeting,
including therein the time and place of such special meeting, to be given to
each director at least two days before such special meeting. Neither the
business to be transacted at, nor the purpose of, any special meeting of the
board of directors need be specified in the notice or waiver of notice of any
special meeting.
3.10 Quorum; Majority Vote. At all meetings of the board of directors,
a majority of the directors, fixed in the manner provided in these bylaws, shall
constitute a quorum for the transaction of business. If a quorum is not present
at a meeting, a majority of the directors present may adjourn the meeting from
time to time, without notice other than an announcement at the meeting, until a
quorum is present. The act of a majority of the directors present at a meeting
at which a quorum is in attendance shall be the act of the board of directors,
unless the act of a greater number is required by law, the articles of
incorporation, or these bylaws.
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3.11 Procedure; Minutes. At meetings of the board of directors,
business shall be transacted in such order as the board of directors may
determine from time to time. The board of directors shall appoint at each
meeting a person to preside at the meeting and a person to act as secretary of
the meeting. The secretary of the meeting shall prepare minutes of the meeting
which shall be delivered to the secretary of the Corporation for placement in
the minute books of the Corporation.
3.12 Presumption of Assent. A director of the Corporation who is
present at any meeting of the board of directors at which action on any matter
is taken shall be presumed to have assented to the action unless his dissent
shall be entered in the minutes of the meeting or unless he shall file his
written dissent to such action with the person acting as secretary of the
meeting before the adjournment thereof or shall forward any dissent by certified
or registered mail to the secretary of the Corporation immediately after the
adjournment of the meeting. Such right to dissent shall not apply to a director
who voted in favor of such action.
3.13 Compensation. Directors, in their capacity as directors, may
receive, by resolution of the board of directors, a fixed sum and expenses of
attendance, if any, for attending meetings of the board of directors or a stated
salary. No director shall be precluded from serving the Corporation in any other
capacity or receiving compensation therefor.
ARTICLE FOUR: COMMITTEES
4.01 Designation. The board of directors may, by resolution adopted by
a majority of the entire board of directors, designate executive and other
committees.
4.02 Number; Qualification; Term. Each committee shall consist of one
or more directors appointed by resolution adopted by a majority of the entire
board of directors. The number of committee members may be increased or
decreased from time to time by resolution adopted by a majority of the entire
board of directors. Each committee member shall serve as such until the earliest
of (i) the expiration of his term as director, (ii) his resignation as a
committee member or as a director, or (iii) his removal, as a committee member
or as a director.
4.03 Authority. Each committee, to the extent expressly provided in the
resolution establishing such committee, shall have and may exercise all of the
authority of the board of directors in the management of the business and
property of the Corporation, including, without limitation, the power and
authority to declare a dividend and to authorize the issuance of shares of the
Corporation. Notwithstanding the foregoing, however, no committee shall have the
authority of the board of directors in reference to:
(a) amending the articles of incorporation;
(b) approving a plan of merger or consolidation;
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(c) recommending to the shareholders the sale, lease, or
exchange of all or substantially all of the property
and assets of the Corporation otherwise than in the
usual and regular course of its business;
(d) recommending to the shareholders a voluntary disso-
lution of the Corporation or a revocation thereof;
(e) amending, altering, or repealing these bylaws or
adopting new bylaws;
(f) filling vacancies in the board of directors or of any
committee;
(g) filling any directorship to be filled by reason of an
increase in the number of directors;
(h) electing or removing officers or committee members;
(i) fixing the compensation of any committee member; or
(j) altering or repealing any resolution of the board of
directors which by its terms provides that it shall
not be amendable or repealable.
4.04 Committee Changes; Removal. The board of directors shall have the
power at any time to fill vacancies in, to change the membership of, and to
discharge any committee. However, a committee member may be removed by the board
of directors, only if, in the judgment of the board of directors, the best
interests of the Corporation will be served thereby.
4.05 Regular Meetings. Regular meetings of any committee may be held
without notice at such time and place as may be designated from time to time by
the committee and communicated to all members thereof.
4.06 Special Meetings. Special meetings of any committee may be held
whenever called by any committee member. The committee member calling any
special meeting shall cause notice of such special meeting, including therein
the time and place of such special meeting, to be given to each committee member
at least two days before such special meeting. Neither the business to be
transacted at, nor the purpose of, any special meeting of any committee need be
specified in the notice or waiver of notice of any special meeting.
4.07 Quorum; Majority Vote. At meetings of any committee, a majority of
the number of members designated by the board of directors shall constitute a
quorum for the transaction of business. If a quorum is not present at a meeting
of any committee, a majority of the members present may adjourn the meeting from
time to time, without notice other than an announcement at the meeting, until a
quorum is present. The act of a majority of the members present at any meeting
at which a quorum is in attendance shall be the act of a committee, unless the
act of a greater number is required by law, the articles of incorporation, or
these bylaws.
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4.08 Minutes. Each committee shall cause minutes of its proceedings to
be prepared and shall report the same to the board of directors upon the request
of the board of directors. The minutes of the proceedings of each committee
shall be delivered to the secretary of the Corporation for placement in the
minute books of the Corporation.
4.09 Compensation. Committee members may, by resolution of the board of
directors, be allowed a fixed sum and expenses of attendance, if any, for
attending any committee meetings or a stated salary.
4.10 Responsibility. The designation of any committee and the
delegation of authority to it shall not operate to relieve the board of
directors or any director of any responsibility imposed upon it or such director
by law.
ARTICLE FIVE: GENERAL PROVISIONS RELATING TO MEETINGS
5.01 Notice. Whenever by law, the articles of incorporation, or these
bylaws, notice is required to be given to any committee member, director, or
shareholder and no provision is made as to how such notice shall be given, it
shall be construed to mean that any such notice may be given (a) in person, (b)
in writing, by mail, postage prepaid, addressed to such committee member,
director, or shareholder at his address as it appears on the books of the
Corporation or, in the case of a shareholder, the stock transfer records of the
Corporation, or (c) by any other method permitted by law. Any notice required or
permitted to be given by mail shall be deemed to be delivered and given at the
time when the same is deposited in the United States mail, postage prepaid, and
addressed as aforesaid. Any notice required or permitted to be given by
telegram, telex, cable, telecopier, or similar means shall be deemed to be
delivered and given at the time transmitted with all charges prepaid and
addressed as aforesaid.
5.02 Waiver of Notice. Whenever by law, the articles of incorporation,
or these bylaws, any notice is required to be given to any committee member,
shareholder, or director of the Corporation, a waiver thereof in writing signed
by the person or persons entitled to such notice, whether before or after the
time notice should have been given, shall be equivalent to the giving of such
notice. Attendance of a committee member, shareholder, or director at a meeting
shall constitute a waiver of notice of such meeting, except where such person
attends for the express purpose of objecting to the transaction of any business
on the ground that the meeting is not lawfully called or convened.
5.03 Telephone and Similar Meetings. Shareholders, directors, or
committee members may participate in and hold a meeting by means of a conference
telephone or similar communications equipment by means of which persons
participating in the meeting can hear each other. Participation in such a
meeting shall constitute presence in person at such meeting, except where a
person participates in the meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.
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5.04 Action Without Meeting. Any action which may be taken, or is
required by law, the articles of incorporation, or these bylaws to be taken, at
a meeting of shareholders, the directors, or any committee members may be taken
without a meeting if a consent in writing, setting forth the action so taken,
shall be signed by all of the shareholders, directors, or committee members, as
the case may be, entitled to vote with respect to the subject matter thereof,
and such consent shall have the same force and effect, as of the date stated
therein, as a unanimous vote of such shareholders, directors, or committee
members, as the case may be, and may be stated as such in any document filed
with the Secretary of State of Texas or in any certificate or other document
delivered to any person. The consent may be in one or more counterparts so long
as each shareholder, director, or committee member signs one of the
counterparts. The signed consent shall be placed in the minute books of the
Corporation.
ARTICLE SIX: OFFICERS AND OTHER AGENTS
6.01 Number; Titles; Election; Term; Qualification. The officers of the
Corporation shall be a president and secretary, and if the board of directors
determines appropriate, one or more vice presidents (and, in the case of each
vice president, with such descriptive title, if any, as the board of directors
shall determine), and a treasurer. The Corporation may also have a chairman of
the board, one or more assistant treasurers, one or more assistant secretaries,
and such other officers and such agents as the board of directors may from time
to time elect or appoint. The board of directors shall elect a president and
secretary and such other officers as it deems appropriate at its first meeting
at which a quorum shall be present after the annual meeting of shareholders or
whenever a vacancy exists. The board of directors then, or from time to time,
may also elect or appoint one or more other officers or agents as it shall deem
advisable. Each officer and agent shall hold office for the term for which he is
elected or appointed and until his successor has been elected or appointed and
qualified. Any person may hold any number of offices. No officer or agent need
be a shareholder, a director, a resident of the State of Texas, or a citizen of
the United States.
6.02 Removal. Any officer or agent elected or appointed by the board of
directors may be removed by the board of directors whenever in its judgment the
best interest of the Corporation will be served thereby, but such removal shall
be without prejudice to the contract rights, if any, of the person so removed.
Election or appointment of an officer or agent shall not of itself create
contract rights.
6.03 Vacancies. Any vacancy occurring in any office of the Corporation
may be filled by the board of directors.
6.04 Authority. Officers shall have such authority and perform such
duties in the management of the Corporation as are provided in these bylaws or
as may be determined by resolution of the board of directors not inconsistent
with these bylaws.
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6.05 Compensation. The compensation, if any, of officers and agents
shall be fixed from time to time by the board of directors; provided, that the
board of directors may by resolution delegate to any one or more officers of the
Corporation the authority to fix such compensation.
6.06 Chairman of the Board. The chairman of the board shall have such
powers and duties as may be prescribed by the board of directors.
6.07 President. Unless and to the extent that such powers and duties
are expressly delegated to a chairman of the board by the board of directors,
the president shall be the chief executive officer of the Corporation and,
subject to the supervision of the board of directors, shall have general
management and control of the business and property of the Corporation in the
ordinary course of its business with all such powers with respect to such
general management and control as may be reasonably incident to such
responsibilities, including, but not limited to, the power to employ, discharge,
or suspend employees and agents of the Corporation, to fix the compensation of
employees and agents, and to suspend, with or without cause, any officer of the
Corporation pending final action by the board of directors with respect to
continued suspension, removal, or reinstatement of such officer. The president
may, without limitation, agree upon and execute all division and transfer
orders, bonds, contracts, and other obligations in the name of the Corporation.
6.08 Vice Presidents. Each vice president shall have such powers and
duties as may be prescribed by the board of directors or as may be delegated
from time to time by the president and (in the order as designated by the board
of directors, or in the absence of such designation, as determined by the length
of time each has held the office of vice president continuously) shall exercise
the powers of the president during that officer's absence or inability to act.
As between the Corporation and third parties, any action taken by a vice
president in the performance of the duties of the president shall be conclusive
evidence of the absence or inability to act of the president at the time such
action was taken.
6.09 Treasurer. The treasurer shall have custody of the Corporation's
funds and securities, shall keep full and accurate accounts of receipts and
disbursements, and shall deposit all moneys and valuable effects in the name and
to the credit of the Corporation in such depository or depositories as may be
designated by the board of directors. The treasurer shall audit all payrolls and
vouchers of the Corporation, receive, audit, and consolidate all operating and
financial statements of the Corporation and its various departments, shall
supervise the accounting and auditing practices of the Corporation, and shall
have charge of matters relating to taxation. Additionally, the treasurer shall
have the power to endorse for deposit, collection, or otherwise all checks,
drafts, notes, bills of exchange, and other commercial paper payable to the
Corporation and to give proper receipts and discharges for all payments to the
Corporation. The treasurer shall perform such other duties as may be prescribed
by the board of directors or as may be delegated from time to time by the
president.
6.10 Assistant Treasurers. Each assistant treasurer shall have such
powers and duties as may be prescribed by the board of directors or as may be
delegated from time to time by the
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president. The assistant treasurers (in the order as designated by the board of
directors or, in the absence of such designation, as determined by the length of
time each has held the office of assistant treasurer continuously) shall
exercise the powers of the treasurer during that officer's absence or inability
to act. As between the Corporation and third parties, any action taken by an
assistant treasurer in the performance of the duties of the treasurer shall be
conclusive evidence of the absence or inability to act of the treasurer at the
time such action was taken.
6.11 Secretary. The secretary shall maintain minutes of all meetings of
the board of directors, of any committee, and of the shareholders or consents in
lieu of such minutes in the Corporation's minute books, and shall cause notice
of such meetings to be given when requested by any person authorized to call
such meetings. The secretary may sign with the president, in the name of the
Corporation, all contracts of the Corporation and affix the seal of the
Corporation thereto. The secretary shall have charge of the certificate books,
stock transfer books, stock ledgers, and such other stock books and papers as
the board of directors may direct, all of which shall at all reasonable times be
open to inspection by any director at the office of the Corporation during
business hours. The secretary shall perform such other duties as may be
prescribed by the board of directors or as may be delegated from time to time by
the president.
6.12 Assistant Secretaries. Each assistant secretary shall have such
powers and duties as may be prescribed by the board of directors or as may be
delegated from time to time by the president. The assistant secretaries (in the
order designated by the board of directors or, in the absence of such
designation, as determined by the length of time each has held the office of
assistant secretary continuously) shall exercise the powers of the secretary
during that officer's absence or inability to act. As between the Corporation
and third parties, any action taken by an assistant secretary in the performance
of the duties of the secretary shall be conclusive evidence of the absence or
inability to act of the secretary at the time such action was taken.
ARTICLE SEVEN: CERTIFICATES AND SHAREHOLDERS
7.01 Certificated and Uncertificated Shares. The shares of the
Corporation may be either certificated shares or uncertificated shares. As used
herein, the term "certificated shares" means shares represented by instruments
in bearer or registered form, and the term "uncertificated shares" means shares
not represented by instruments and the transfers of which are registered upon
books maintained for that purpose by or on behalf of the Corporation.
7.02 Certificates for Certificated Shares. The certificates
representing certificated shares of stock of the Corporation shall be in such
form as shall be approved by the board of directors in conformity with law. The
certificates shall be consecutively numbered, shall be entered as they are
issued in the books of the Corporation or in the records of the Corporation's
designated transfer agent, if any, and shall state upon the face thereof: (a)
that the Corporation is organized under the laws of the State of Texas; (b) the
name of the person to whom issued; (c) the number and class of shares and the
designation of the series, if any, which such certificate represents; (d) the
par value of each share represented by such certificate, or a statement that the
shares are
11
<PAGE>
without par value; and (e) such other matters as may be required by law. The
certificates shall be signed by the president or any vice president and also by
the secretary, an assistant secretary, or any other officer; however, the
signatures of any of such officers may be facsimiles. The certificates may be
sealed with the seal of the Corporation or a facsimile thereof.
7.03 Issuance. Shares with or without par value may be issued for such
consideration and to such persons as the board of directors may from time to
time determine, except in the case of shares with par value the consideration
must be at least equal to the par value of such shares. Shares may not be issued
until the full amount of the consideration has been paid. After the issuance of
uncertificated shares, the Corporation or the transfer agent of the Corporation
shall send to the registered owner of such uncertificated shares a written
notice containing the information required to be stated on certificates
representing shares of stock as set forth in Section 7.02 above and such
additional information as may be required by Article 2.19 of the Texas Business
Corporation Act as currently in effect and as the same may be amended from time
to time hereafter.
7.04 Consideration for Shares. The consideration for the issuance of
shares shall consist of money paid, labor done (including services actually
performed for the Corporation), or property (tangible or intangible) actually
received. Neither promissory notes nor the promise of future services shall
constitute payment or part payment for the issuance of shares. In the absence of
fraud in the transaction, the judgment of the board of directors as to the value
of consideration received shall be conclusive. When consideration, fixed as
provided by law, has been paid, the shares shall be deemed to have been issued
and shall be considered fully paid and nonassessable. The consideration received
for shares shall be allocated by the board of directors, in accordance with law,
between stated capital and capital surplus accounts.
7.05 Lost, Stolen, or Destroyed Certificates. The Corporation shall
issue a new certificate or certificates in place of any certificate representing
shares previously issued if the registered owner of the certificate:
(a) Claim. Makes proof by affidavit, in form and
substance satisfactory to the board of directors,
that a previously issued certificate representing
shares has been lost, destroyed, or stolen;
(b) Timely Request. Requests the issuance of a new
certificate before the Corporation has notice that
the certificate has been acquired by a purchaser for
value in good faith and without notice of an adverse
claim;
(c) Bond. Delivers to the Corporation a bond in such
form, with such surety or sureties, and with such
fixed or open penalty, as the board of directors may
direct, in its discretion, to indemnify the
Corporation (and its transfer agent and registrar, if
any) against any claim that may be made on account of
the alleged loss, destruction, or theft of the
certificate; and
12
<PAGE>
(d) Other Requirements. Satisfies any other reasonable
requirements imposed by the board of directors.
7.06 Transfer of Shares. Shares of stock of the Corporation shall be
transferable only on the books of the Corporation by the shareholders thereof in
person or by their duly authorized attorneys or legal representatives. With
respect to certificated shares, upon surrender to the Corporation or the
transfer agent of the Corporation for transfer of a certificate representing
shares duly endorsed and accompanied by any reasonable assurances that such
endorsements are genuine and effective as the Corporation may require and after
compliance with any applicable law relating to the collection of taxes, the
Corporation or its transfer agent shall, if it has no notice of an adverse claim
or if it has discharged any duty with respect to any adverse claim, issue one or
more new certificates to the person entitled thereto, cancel the old
certificate, and record the transaction upon its books. With respect to
uncertificated shares, upon delivery to the Corporation or the transfer agent of
the Corporation of an instruction originated by an appropriate person (as
prescribed by ss.8.107 of the Texas Uniform Commercial Code as currently in
effect and as the same may be amended from time to time hereafter) and
accompanied by any reasonable assurances that such instruction is genuine and
effective as the Corporation may require and after compliance with any
applicable law relating to the collection of taxes, the Corporation or its
transfer agent shall, if it has no notice of an adverse claim or has discharged
any duty with respect to any adverse claim, record the transaction upon its
books, and shall send to the new registered owner of such uncertificated shares,
and, if the shares have been transferred subject to a registered pledge, to the
registered pledgee, a written notice containing the information required to be
stated on certificates representing shares of stock set forth in Section 7.02
above and such additional information as may be required by Article 2.19 of the
Texas Business Corporation Act as currently in effect and as the same may be
amended from time to time hereafter.
7.07 Registered Shareholders. The Corporation shall be entitled to
treat the shareholder of record as the shareholder in fact of any shares and,
accordingly, shall not be bound to recognize any equitable or other claim to or
interest in such shares on the part of any other person, whether or not it shall
have actual or other notice thereof, except as otherwise provided by law.
7.08 Legends. The board of directors shall cause an appropriate legend
to be placed on certificates representing shares of stock as may be deemed
necessary or desirable by the board of directors in order for the Corporation to
comply with applicable federal or state securities or other laws.
7.09 Regulations. The board of directors shall have the power and
authority to make all such rules and regulations as it may deem expedient
concerning the issue, transfer, registration, or replacement of certificates
representing shares of stock of the Corporation.
13
<PAGE>
ARTICLE EIGHT: MISCELLANEOUS PROVISIONS
8.01 Dividends. Subject to provisions of applicable statutes and the
articles of incorporation, dividends may be declared by and at the discretion of
the board of directors at any meeting and may be paid in cash, in property, or
in shares of stock of the Corporation.
8.02 Reserves. The board of directors may create out of funds of the
Corporation legally available therefor such reserve or reserves out of the
Corporation's surplus as the board of directors from time to time, in its
discretion, considers proper to provide for contingencies, to equalize
dividends, to repair or maintain any property of the Corporation, or for such
other purpose as the board of directors shall consider beneficial to the
Corporation. The board of directors may modify or abolish any such reserve.
8.03 Books and Records. The Corporation shall keep correct and complete
books and records of account, shall keep minutes of the proceedings of its
shareholders, board of directors, and any committee, and shall keep at its
registered office or principal place of business, or at the office of its
transfer agent or registrar, a record of its shareholders, giving the names and
addresses of all shareholders and the number and class of the shares held by
each shareholder.
8.04 Fiscal Year. The fiscal year of the Corporation shall be fixed by
the board of directors; provided, that if such fiscal year is not fixed by the
board of directors and the board of directors does not defer its determination
of the fiscal year, the fiscal year shall be the calendar year.
8.05 Seal. The seal, if any, of the Corporation shall be in such form
as may be approved from time to time by the board of directors. If the board of
directors approves a seal, the affixation of such seal shall not be required to
create a valid and binding obligation against the Corporation.
8.06 Attestation by the Secretary. With respect to any deed, deed of
trust, mortgage, or other instrument executed by the Corporation through its
duly authorized officer or officers, the attestation to such execution by the
secretary of the Corporation shall not be necessary to constitute such deed,
deed of trust, mortgage, or other instrument a valid and binding obligation
against the Corporation unless the resolutions, if any, of the board of
directors authorizing such execution expressly state that such attestation is
necessary.
8.07 Resignation. Any director, committee member, officer, or agent may
resign by so stating at any meeting of the board of directors or by giving
written notice to the board of directors, the president, or the secretary. Such
resignation shall take effect at the time specified in the statement at the
board of directors' meeting or in the written notice, but in no event may the
effective time of such resignation be prior to the time such statement is made
or such notice is given. If no effective time is specified in the resignation,
the resignation shall be effective immediately. Unless a resignation specifies
otherwise, it shall be effective without being accepted.
14
<PAGE>
8.08 Securities of Other Corporations. The president or any vice
president of the Corporation shall have the power and authority to transfer,
endorse for transfer, vote, consent, or take any other action with respect to
any securities of another issuer which may be held or owned by the Corporation
and to make, execute, and deliver any waiver, proxy, or consent with respect to
any such securities.
8.09 Amendment of Bylaws. The power to amend or repeal these bylaws or
to adopt new bylaws is vested in the board of directors, but is subject to the
right of the shareholders to amend or repeal these bylaws or to adopt new
bylaws.
8.10 Invalid Provisions. If any part of these bylaws is held invalid or
inoperative for any reason, the remaining parts, so far as is possible and
reasonable, shall remain valid and operative.
8.11 Headings; Table of Contents. The headings and table of contents
used in these bylaws are for convenience only and do not constitute matter to be
construed in the interpretation of these bylaws.
The undersigned, the secretary of the Corporation, hereby certifies
that the foregoing bylaws were adopted by the board of directors of the
Corporation as of October 5, 1999.
/s/ Thomas F. Cooke
---------------------------
Thomas F. Cooke, Secretary
15
SARATOGA RESOURCES, INC.
EXHIBIT 16
Letter on Changes in Certifying Account
<PAGE>
October 4, 1999
Securities and Exchange Commission
Washington, D.C. 20549
We are previously principal accountants for Saratoga Resources, Inc., a Delaware
corporation ("Saratoga-Delaware"), and on January 15, 1998, we reported on the
consolidated financial statements of Saratoga Resources, Inc. and subsidiaries
as of December 31, 1997 and 1996 and for the years then ended. On March 29,
1999, our appointment as principal accountants of Saratoga-Delaware was
terminated. We have read the Saratoga Resources, Inc., a Texas corporation (the
"Successor"), statements included under Part II, Item 4 of its Form 10-SB dated
October 5, 1999, and we agree with such statements, except that we are not in a
position to agree or disagree with the statement that the change was approved by
the Board of Directors.
Respectfully,
/s/ Hein & Associates LLP
- ---------------------------
Hein & Associates LLP
Certified Public Accountants
SARATOGA RESOURCES, INC.
EXHIBIT 21
Subsidiaries of the Registrant
Each of the following corporations is a wholly owned subsidiary of the
Registrant:
1. Lobo Operating, Inc., a Texas Corporation.
2. Lobo Energy, Inc., a Texas Corporation.
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Financial Data Schedule for Saratoga Resources, Inc.
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<NAME> Saratoga Resources, Inc.
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1,000
<CASH> 290
<SECURITIES> 11
<RECEIVABLES> 33
<ALLOWANCES> (23)
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<CURRENT-ASSETS> 311
<PP&E> 56
<DEPRECIATION> (20)
<TOTAL-ASSETS> 347
<CURRENT-LIABILITIES> 15
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0
0
<COMMON> 3
<OTHER-SE> 313
<TOTAL-LIABILITY-AND-EQUITY> 347
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<OTHER-EXPENSES> 362
<LOSS-PROVISION> (323)
<INTEREST-EXPENSE> 1
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<INCOME-TAX> 0
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