As filed with the Securities and Exchange Commission on February 14, 2000.
Registration No. 000-27563
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, $.001 par value
(Title of class)
<PAGE>
TABLE OF CONTENTS
Page
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....13
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
2
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
BUSINESS AND RECENT DEVELOPMENTS
Since the completion in 1996 of the sale (see below, this Item 1,
"History") of a majority of the oil and gas producing properties of 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. As more specifically described below, the Company
continues to pursue hydrocarbon production and mineral lease acquisitions, as
well as prospect development.
On March 22, 1999 the Company entered into an agreement with DBX
Geophysical Corporation whereby during the term of the agreement (which is for a
minimum period of 12 months and thereafter dependent on the term of any
leasehold interest acquired) the Company has the exclusive right to acquire a
license to data and the exclusive right to acquire all leasehold interests and
any other interest in oil, gas, and other mineral, or the revenues arising
therefrom which are attributable to lands located within an identified area in
Dawson County, Texas (collectively, the "DBX Data"). On June 21, 1999 the
Company entered into an agreement, with an unspecified term, with Ivy Oil
Company LLC ("Ivy") and Trek Oil and Gas, Inc. ("Trek" and together with Ivy and
the Company, the "Parties") by which the Company supplied the DBX Data and
receives in return a one third interest in the development of certain prospects
in Dawson County, Texas (the "Parties' Agreement"). As a result of the work
performed under this agreement, the Company is now pursuing a re-entry project
in Dawson County, Texas. Collectively, the Parties now have taken several
mineral leases totaling 482.5 net acres underlying the identified area in the
DBX Data, acquired equipment, including service equipment, down-hole equipment
and a cased well bore to a depth of 12,000 feet.
Furthermore, the Company currently retains consultants for the purpose
of evaluating mineral lease acquisitions in Houston County, Texas, and
production purchases in the Los Angeles basin. As a result of this relationship,
viable business opportunities in the gulf-coast region have been identified;
but, no substantial steps have been made to take advantage of such
opportunities.
In 1998 the Company considered the acquisition or development of
numerous businesses, and these efforts resulted in the transactions hereinafter
described. On March 18, 1999, the Company, which was formerly a wholly owned
subsidiary of Saratoga Resources, Inc., a Delaware Corporation (the
"Predecessor"), entered into a one year consulting agreement with Trek, 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 the Louisiana gulf coast region. Under this agreement,
the Company provides advisory services related to interpretation of seismic data
and receives
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compensation for its expertise in the form of a working interest and/or
royalties of up to 33% generated from identified prospects. Trek is not entitled
to any fees or participation rights under this agreement. Any compensation to
Trek under this agreement will result from the split of revenues, if any,
between the parties. Trek is employed by the Company as a consultant to help
interpret seismic data and the Company has not assigned any rights in the data
to Trek.
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 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 LEI's lenders 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
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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.)
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.
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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.
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 the Predecessor was a holding company, the Eye Care
Acquisition had no effect on the daily operations of such business. Furthermore,
as a result of the Eye Care Acquisition, the Company became the successor of the
Predecessor. 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 (negotiated down from an original amount of $150,000), with no other
assets or liabilities. Because the Predecessor did not have the needed cash to
meet this requirement, the Company distributed a note in the amount of $130,000
prior to the Eye Care Acquisition.
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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
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, 9,739.5 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 OptiCare shares are indirectly owned by the Company as a
result of LEI's Pre-Eye Care Acquisition (see below, this Item 1, "Business and
Recent Developments") ownership of 150,000 shares of the Predecessor (the
"Parent Stock"). LEI acquired the Parent Stock as consideration for oil and gas
operations transferred to the Company. As a preliminary step to the Eye Care
Acquisition, the stock of the Predecessors was split so that each share was
exchanged for .06493 shares (a reverse stock split). The OptiCare shares have
been informally pledged as collateral on $100,000 of debt of the Predecessor
associated with the Eye Care Acquisition, $20,000 of which has been paid off.
With regard to such debt, there is no written agreement and according to the
terms of the oral agreement the debt is to be paid over a period of one year, if
necessary, at the sole discretion of the Company management, through liquidation
of the OptiCare shares. 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.
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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 (which does not apply to the Company prior to the
effective date of this Registration Statement). 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.
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. The Company also maintains a small
informal office in Houston, Texas at no charge and with no lease at the home of
Kevin Smith, who is on the Company's Board of Directors.
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.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
NAME OF BENEFICIAL
OWNER PERCENT CLASS OF STOCK SHARES PERCENT(1)
Thomas F. Cooke Common 2,420,4222 69.8%
Kevin M. Smith Common 238,2953 6.9%
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All executive officers and Common 2,558,717 76.7%
directors as a group (2 persons)
</TABLE>
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.
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.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Name Position Age Term of Office
---- -------- --- --------------
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:
THOMAS F. COOKE, CHAIRMAN OF THE BOARD, CHIEF EXECUTIVE OFFICER, PRESIDENT,
TREASURER AND SECRETARY, age 50, was one of the co-founders of the Company 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 of the Predecessor on April 3, 1996.
KEVIN M. SMITH, DIRECTOR, age 54, has in excess of 30 years experience as
an exploration geophysicist and joined the Company's Board of Directors in 1997.
In 1977, after ten years with Amoco
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Production, Mr. Smith joined R. Brewer and Company, a geophysical
consulting firm. Since 1984 Mr. Smith's work experience has been exclusively
devoted to his own geophysical consulting firm (Kevin M. Smith, Inc.) which Mr.
Smith 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. Neither the Company nor the Predecessor has paid any other plan
or non-plan compensation to executives in any fiscal year covered by the tables.
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.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Name and Fiscal Salary/
Principal Position Entity Year Ended Annual Compensation
Thomas Cooke, CEO Company 1999 $120,000
Thomas Cooke, CEO Predecessor 1998 $120,000
Thomas Cooke, CEO Predecessor 1997 $120,0001
Thomas Cooke, CEO Predecessor 1996 $116,5002
</TABLE>
1 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 f rom prior years or (ii) interest payment
on any deferred salary.
2 Includes $60,000 which was earned in fiscal year 1996, but deferred
and paid to Mr. Cooke in fiscal year 1997.
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.
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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.
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. However, 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 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;
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(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.
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
Company is in the process of trying to be listed on the OTC Bulletin Board, but
has not yet been listed. Thus, there is currently no bid information on the
Company.
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 well as
information available for 1999, prior to the Eye Care Acquisition, 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.
Year Ended December 31, 1997 High Low
- ---------------------------------------
First Quarter $0.281 $0.094
Second Quarter 0.219 0.094
Third Quarter 0.219 0.094
Fourth Quarter 1.125 0.063
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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
Year Ended December 31, 1999
- ---------------------------------------
First Quarter 1.0625 0.0625
Second Quarter 5.000 0.0625
Third Quarter4 2.000 0.5625
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.
(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.
- --------
(4) Highs and Lows are for the Predecessor prior to the close of the Eye Care
Acquisition
13
<PAGE>
(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 disagreements if
not resolved to the satisfaction 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
relationship between the Predecessor and the Company, the
Company has selected Ernst & Young LLP as its independent
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 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
14
<PAGE>
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
10 Material Contract(3)
16 Letter on changes in certifying account
21 Subsidiaries of the Registrant
27 Financial Data Schedule
<PAGE>
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: /s/ Thomas F. Cooke Date: February 15, 2000
- ------------------------
Thomas F. Cooke
Chief Executive Officer
- ------------
(3) Confidential portions of this document have been redacted and have been
separately filed with the Commission.
15
<PAGE>
Saratoga Resources, Inc. (A Texas Corporation) and Related Oil and Gas
Exploration Subsidiaries of Saratoga Resources, Inc. (A Delaware Corporation)
Nine months ended September 30, 1999
Table of Contents
Part 1. Financial Information (unaudited)
Combined Balance Sheets as of September 30, 1999 and December 31, 1998.......F-2
Combined Statements of Operations
for the Three and Nine months ended September 30, 1999 and 1998...........F-3
Combined Statements of Cash Flows
for the Nine months ended September 30, 1999 and 1998.....................F-4
Notes to Combined Financial Statements.......................................F-5
F-1
<PAGE>
Saratoga Resources, Inc. (A Texas Corporation) and Related Oil and Gas
Exploration Subsidiaries of Saratoga Resources, Inc. (A Delaware Corporation)
Combined Balance Sheets
(in thousands, except share data)
<TABLE>
<CAPTION>
<S> <C> <C>
September 30 December 31
1999 1998
-------------------------------------
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 6 $ 289
Marketable securities 11 11
Opticare stock - Lobo Energy 185 -
Investment in Saratoga Holdings - 1
-------------------------------------
Total current assets 202 301
Equipment, net of accumulated depreciation 27 36
-------------------------------------
Total assets $ 229 $ 337
=====================================
Liabilities and stockholders' equity Current liabilities:
Accounts payable and accrued liabilities $ 29 $ 10
Current maturities of debt 5 5
-------------------------------------
Total current liabilities 34 15
Long-term debt, net of current portion 92 16
Stockholders' equity:
Preferred stock, $.001 par value; 100,000 shares authorized - -
Common stock, $.001 par value; 100,000,000 shares
authorized, 3,465,292 shares issued and outstanding at
September 30, 1999 and December 31, 1998 3 3
Additional paid-in capital 2,490 2,490
Accumulated deficit (2,463) (2,158)
Treasury stock, at cost (2) (2)
Other comprehensive income (loss) 75 (27)
-------------------------------------
Total stockholders' equity 103 306
-------------------------------------
Total liabilities and stockholders' equity $ 229 $ 337
=====================================
</TABLE>
See accompanying notes.
F-2
<PAGE>
Saratoga Resources, Inc. (A Texas Corporation) and Related Oil and Gas
Exploration Subsidiaries of Saratoga Resources, Inc. (A Delaware Corporation)
Combined Statements of Operations
(in thousands, except share data)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
September 30 September 30
1999 1998 1999 1998
----------------------------- -----------------------------
(unaudited) (unaudited)
Revenues:
Gain on sale of marketable securities $ - $ - $ - $ 21
Interest income - 4 1 16
----------------------------- -----------------------------
- 4 1 37
Costs and expenses:
Depreciation 4 3 9 8
General and administrative 119 75 302 264
------------------------------------------------------------
123 78 311 272
Loss before income taxes (123) (74) (310) (235)
Income tax benefit - - - -
----------------------------- -----------------------------
Net loss $ (123) $ (74) $ (310) $ (235)
============================= =============================
Basic and diluted loss per share $ (.04) $ (.02) $ (.09) $ (.07)
Weighted-average number of common shares
outstanding 3,466 3,466 3,466 3,466
============================= =============================
Total comprehensive loss $ (16) $ (74) $ (208) $ (235)
============================= =============================
</TABLE>
See accompanying notes.
F-3
<PAGE>
Saratoga Resources, Inc. (A Texas Corporation) and Related Oil and Gas
Exploration Subsidiaries of Saratoga Resources, Inc. (A Delaware Corporation)
Combined Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
<S> <C> <C>
Nine Months ended
September 30
1999 1998
--------------------------------
(unaudited)
Operating activities
Net loss $ (310) $ (235)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation 9 8
Changes in operating assets and liabilities:
Accounts payable and accrued liabilities 19 (10)
--------------------------------
Net cash used in operating activities (282) (237)
--------------------------------
Investing activities
Sale of marketable securities 9 -
Other asset additions (37) (34)
--------------------------------
Net cash used in investing activities 6 (34)
--------------------------------
Financing activities
Contributed capital (83) -
Proceed (payments) on borrowings 76 (2)
--------------------------------
Net cash used in financing activities (7) (2)
--------------------------------
Net decrease in cash and cash equivalents (283) (273)
Cash and cash equivalents at beginning of period 289 666
--------------------------------
Cash and cash equivalents at end of period $ 6 $ 393
================================
</TABLE>
See accompanying notes.
F-4
<PAGE>
Saratoga Resources, Inc. (A Texas Corporation) and Related Oil and Gas
Exploration Subsidiaries of Saratoga Resources, Inc. (A Delaware Corporation)
Notes to Combined Financial Statements
(Unaudited)
Nine months ended September 30, 1999
1. Company Background
On August 14, 1999, Saratoga Resources, Inc. ("Predecessor"), a Delaware
corporation, merged 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 was merged with two wholly-owned, newly organized
subsidiaries of the Predecessor in an all-stock transaction by the Predecessor
issuing 97.5% of the Predecessor's common stock to the stockholders of OptiCare
and Prime.
The Prime merger was accounted for as a reverse acquisition by Prime of
Saratoga, a subsidiary of the Predecessor, at book value with no adjustments
reflected to historical values. The Predecessor's merger with OptiCare was
accounted for by the purchase method of accounting with the excess of purchase
price over the estimated fair value of the assets acquired recorded as goodwill.
To satisfy certain conditions of the Prime/OptiCare merger, the Predecessor
contributed substantially all of its assets (other than approximately 92% of the
capital stock of Saratoga Holdings I, Inc., a Texas corporation ("SHI"), and
approximately $130,000 in cash) to Saratoga Resources, a Texas corporation
("Saratoga-Texas"), which was a wholly-owned subsidiary of the Predecessor. The
Predecessor then distributed to the stockholders of the Predecessor, 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.
Saratoga-Texas continues its operations in the energy industry, utilizing its
database for oil and gas prosper evaluation and development. Saratoga-Texas has
its own separate management, control and incentive structure.
The Predecessor 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.
F-5
<PAGE>
Saratoga Resources, Inc. (A Texas Corporation) and Related Oil and Gas
Exploration Subsidiaries of Saratoga Resources, Inc. (A Delaware Corporation)
Notes to Combined Financial Statements (continued)
(Unaudited)
1. Company Background (continued)
The Predecessor filed a registration statement on Form SB-2 with the Securities
and Exchange Commission (SEC) under the Securities Act of 1933 to register the
spin-off of approximately 92% of the common stock of its wholly owned
subsidiary, SHI, to the stockholders of the Predecessor on a one-for-one basis.
The remaining balance was contributed to Saratoga-Texas.
2. Basis of Presentation and Significant Accounting Policies
The accompanying unaudited combined financial statements are those of
Saratoga-Texas 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 nine month
period ended September 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 represents deconsolidated information which has been derived
from the audited financial statements of the Predecessor 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 of the Predecessor (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.
F-6
<PAGE>
Saratoga Resources, Inc. (A Texas Corporation) and Related Oil and Gas
Exploration Subsidiaries of Saratoga Resources, Inc. (A Delaware Corporation)
Notes to Combined Financial Statements (continued)
(Unaudited)
3. Comprehensive Loss
Effective January 1, 1998, the Predecessor 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>
<S> <C> <C> <C> <C>
Three Months ended Nine Months ended
September 30 September 30,
1999 1998 1999 1998
---------------------------- ----------------------------
Net loss $ (123) $ (74) $ (310) $ (235)
Unrealized gain on marketable securities 107 - 102 -
---------------------------- -----------------------------
Total comprehensive loss $ (16) $ (74) $ (208) $ (235)
============================ =============================
</TABLE>
4. Income Taxes
The management of Saratoga-Texas has determined that a valuation allowance
should be applied against the deferred tax assets related to the net operating
losses of Saratoga-Texas due to uncertainty regarding the assets' realizability.
The difference between the tax benefit recorded for the nine months ended
September 30, 1999 and the benefit calculated at the federal statutory rate is
primarily due to the valuation allowance applied against the deferred tax
assets.
F-8
<PAGE>
Exhibit Index
The following exhibits are filed herewith:
Exhibit No. Description
3(i) Restated Articles of Incorporation (with Amendments)*
3(ii) Bylaws*
10 Material Contract *Confidential Treatment has been
requested for certain portions of this Exhibit.
16 Letter on changes in certifying account*
21 Subsidiaries of the Registrant*
27 Financial Data Schedule
- ----------------
* Previously filed.
Confidential Treatment Requested Confidential portions of this document
have been redacted and have been separately filed with the Commission.
December __, 1999
Saratoga Resources, Inc., a Texas Corporation
2000 S. Dairy Ashford, Suite 410
Houston, Texas 77077
Attention: Tom Cooke
Re: GEOPHYSICAL/GEOLOGICAL DATA REVIEW AGREEMENT
Gentlemen:
Reference is made to the discussions regarding Saratoga Resources,
Inc.'s a Texas Corporation ("Saratoga") engagement of Trek Oil and Gas, Inc.
("Consultant") to perform the following ("Services"): identify and develop
opportunities to explore for, exploit and produce, oil, gas and other minerals
with the Project Area, as defined below ("Prospects"). In the performance of the
Services, Consultant shall review, evaluate, analyze and where applicable
reprocess certain geophysical and geological data and information compiled by
Saratoga including but not limited to, seismic lines and records; shotpoint
maps, velocity surveys, geophysical and geological interpretations, well logs
and and other similar or related geophysical and geological data and/or
information ("Data"). Pursuant thereto, Saratoga and Consultant, on behalf of
themselves and their respective successors and assigns, agree as follows:
I.
ENGAGEMENT
Saratoga hereby engages Consultant to provide the Services on a
non-exclusive basis in consideration of, and in accordance with, the further
considerations and covenants of Saratoga and Consultant set forth herein. As
used herein, the term "Project Area" means those ONSHORE areas which are
identified on the program list and attached as Exhibit "A" hereto.
II.
PROSPECT GENERATION
Consultant will assign certain of its employees or representatives to
perform the Services at Trek's offices, during Trek's normal business hours, in
an effort to identify and develop Prospects within the Project Area for
recommendation to Saratoga, subject to the following:
A. Saratgoa and Consultant shall keep all such interpreted data strictly
confidential for as long as this Agreement remains in effect. Saratoga
agrees to allow Consultant the right to maintain copies of shot point base
maps and tapes and seismic lines in Consultant's offices for any Prospect
generated or in the process of being generated by Consultant.
B. As a result of performing the Services, Consultant may determine, as a
matter of its reasonable judgment, that it is necessary or appropriate to
acquire additional seismic data with respect to one or more potential
Prospects. In such circumstances, Consultant may (but shall not be obliged
to attempt to obtain additional seismic data from third parties covering
portions of the Project Area without the necessity of giving notice to, or
receiving approval from, Saratoga; provided that (1) any additional seismic
data obtained by the Consultant pursuant to this Section II.B. shall be at
the Consultant's sole cost and expense, subject to reimbursement by
Saratoga solely upon the conditions, and limited to the extent, provided in
Section III of this Agreement; (2) any additional seismic data acquired by
Consultant from third parties shall be retained by Consultant in accordance
with any applicable license, confidentiality or other agreements; (3) any
charges related to paper copies, tape or film reproduction shall be an
expense of consultant.
III.
PROSPECT PROPOSALS
If Consultant identifies or develops any Prospects during the term of
this Agreement, Consultant shall submit a recommendation to Saratoga by means of
a formal presentation to appropriate Saratoga personnel which shall include,
without limitation, an outline of the Prospect Area, maps, plats, logs, copies,
reproductions, additional seismic data acquired or purchased by Consultant
provided in II.B. above, written memoranda and all other appropriate materials
relating to the identification, costs attributed to prospects development,
time-tables, exploration and development, of the Prospect and designation of an
area of mutual interest ("AMI") to the extent reasonably necessary to promote
the orderly development of, and protect the interests of Saratoga and Consultant
in, a Prospect ("Prospect Analysis"). In all cases, Consultant or its designee
shall act as Operator of the Prospect.
A. Saratoga shall have thirty (30) days ("Election Period") in which to
evaluate the Prospect provided that the Election Period shall not begin
until Consultant has delivered, and Saratoga has received, written notice
that the Election Period has begun which shall be no earlier than the
formal presentation data of the Prospect Analysis. Any Prospect which
Saratoga accepts shall be referred to as a "Approved Prospect" and any
Prospect which Saratoga rejects shall be referred to as a "Rejected
Prospect." If Saratoga fails or refuses to provide written notice to
Consultant accepting a Prospect on or before the end of the applicable
Election Period, Saratoga shall be deemed to have rejected that Prospect.
B. During or after the Election Period, Saratoga, or Consultant on behalf of
Saratoga, may other third parties the opportunity to acquire all or a
portion of its rights to participate in operations on a Prospect, subject
to all of the terms, conditions and covenants of this Agreement.
C. All operations contemplated by a Prospect Analysis would be conducted in
accordance with the terms and provisions of an operating agreement
governing the Prospect in the form attached as Exhibit "B" hereto, to
obtain access to the necessary rights, titles and interest in the acreage
included in the Prospect or AMI, if applicable ("Operating Agreement").
D. Regardless of its election to accept or reject a Prospect, Saratoga shall
be assigned an overriding royalty interest equal to one percent (1.0%) of
eight-eighths (8/8ths) in leases or interests owned and/or acquired by
Consultant or its agents pursuant to this Agreement (the "Prospect
Override"). The Prospect Override shall only be applicable to leases or
interests in which Consultant, its assigns, agents or designees have a net
revenue ownership interest greater than 75%, proportionally reduced to the
interest originally acquired and shall not be applicable to acreage or
interests owned by third parties whether or not such interests are pooled
with leases or interests owned or acquired by Consultant. The Prospect
Override shall apply to the interest as acquired by, through or under
Consultant and shall not be subject to any additional burdens,
encumbrances, or promotes placed upon it by Consultant in such leases or
interests covering the Prospect or AMI ("Prospect Override"). Such Prospect
Override shall be proportionally reduced to the working interest originally
acquired of Consultant and/or its assigns. The Prospect Override shall be
in addition to any other interests Saratoga may participate in, earn or
acquire in an Approved Prospect. If the NRI acquired is equal to or less
than 75% then a mutually agreeable substitute compensation will be assigned
to Saratoga and be based on a 3.0% carried working interest of the interest
originally acquired to sales point.
E. As compensation for the Services, Consultant shall own (1) each Prospect
Analysis exclusively for a period of 2 years from the date of formal
presentation to Saratoga and (2) all rights, titles and interests, if any,
which may hereafter be acquired subject to (a) Saratoga's Prospect Override
and (b) election to approve and participate in operations conducted on and
obtain working interest in Leases covering acreage in, an Approved
Prospect.
IV.
APPROVED PROSPECTS
Upon acceptance of a Prospect Analysis from Consultant ("Approved
Prospect"), Saratoga shall participate in all operations on the Prospect to the
extent of, and be entitled to earn and/or acquire up to a thirty-three and
one-third percent (33.33%) of eight-eighths (8/8ths) working interest,
proportionally reduced to the aggregate interest acquired by Consultant,
Saratoga or third parties acquiring an interest by, through or under Saratoga as
may be applicable, in the Prospect of AMI, if applicable and subject to the
burdens mentioned in this agreement. Within twenty (20) days of receipt of an
invoice from Consultant, Saratoga shall reimburse thirty-three and one-third
percent (33.33%) of eight-eighths (8/8ths) of Consultant's actual aggregate
costs attributable to generating the Prospect (excluding the monthly overhead by
Consultant, if any, obtaining access to the necessary rights, titles or
interests in leases covering acreage with in the Prospect or AMI, if applicable,
or other actions undertaken or costs incurred by, the Consultant with respect to
the Prospect and shall bear thirty-three and one-third percent (33.33%) of
eight-eighths (8/8ths) of all future costs and liabilities, subject to the
Operating Agreement. Despite anything to the contrary in this Agreement or
otherwise, failure by Saratoga to timely reimburse Consultant as provided herein
shall be an automatic election not to participate for a working interest in the
Prospect. In the event that Saratoga accepts a Prospect on behalf of a third
party, Saratoga's acceptance shall disclose the identity of, and the
consideration paid by, the third party and Saratoga's acceptance shall be
subject to the following additional conditions:
A. Consultant shall have a preferential right to acquire the working interest
offered to a third party on the same terms offered by the third party for a
period of five (5) days after Consultant's receipt of notice of Saratoga's
acceptance.
B. If Consultant fails or refuses to exercise its preferential right to
acquire Saratoga's interest within the period specified in Section III.A
above, then Saratoga shall assign all or part of its rights, titles, and
interests in the Prospect to the third party subject to this Agreement.
Thereafter, Saratoga's assignee shall be vested with certain rights, duties
and obligations related to the Prospect as described in this Agreement
provided that Saratoga was in compliance with all provisions of this
Agreement at the time of the assignment to assignee.
V.
REJECTED PROSPECTS
Upon rejection of a Prospect Analysis ("Rejected Prospect"), Consultant
may (but shall be under no obligation to) proceed with operations to explore and
develop the Prospect without further notice to, or approval by, Saratoga
provided that (1) any and all undertakings, activities or operations
attributable, or in any way related, to a Rejected Prospect, shall be at
Consultant's sole risk, cost and expense, and (2) after Project Payout,
Saratoga's Prospect Override shall automatically increase to three percent (3%)
of eight-eighths (8/8ths) proportionally reduced to the entire interest acquired
by Consultant in the leases covering the Prospect or the AMI, as applicable and
shall be no greater than a multiple of 3 to the override originally assigned
Saratoga. For purposes hereof, Project Payout shall mean that point in time when
the proceeds Consultant has actually received from production of all wells
located with the Prospect or AMI, if applicable, (after subtracting the
royalties paid to the Lessor(s) under the lease(s), Saratoga's Prospect
Override, transportation charges, third party processing or handling fees and
any taxes) equal all costs incurred by Consultant including, but not limited to
existing seismic data purchases, new seismic data acquisition including the
costs of permitting, acquisition, damages, brokerage and processing and all
costs incurred by Consultant for leases, lease brokerage, title curative,
location preparation, damages drilling, completing and equipping all wells
thereon, reworking, constructing and installing all platforms, caissons,
production equipment, processing facilities and pipelines associated therewith,
and operating and maintaining those wells and facilities. All costs included in
this Article shall be reasonable and adequately documented. Saratoga agrees that
for a period of one (1) year following the termination of this Agreement, it
shall not acquire an interest in any Rejected Prospect either along or in
conjunction with others, except for the Project Override, and have no further
claim or right to the rejected prospected, and its surrounding AMI.
VI.
LEASE ACQUISITION AND MAINTENANCE
Prior to Saratoga committing to participate as to its proportionate
interest in an Approved Prospect and/or as to any Rejected Prospect(s) as
elsewhere herein provided, Consultant, its agents, successors or assigns, may in
its sole discretion, seek to acquire oil, gas and mineral leases, mineral
interests or other oil and gas rights ("Leases") whether by purchase; farmin,
farmout, option acreage contribution, or otherwise in such prospects generated
by Consultant in accordance with this Agreement. The acquisition of such leases
and the terms, conditions and maintenance thereof shall be solely within the
discretion of Consultant. If and until such time as Consultant and Saratoga
become joint working interest owners as elsewhere herein provided Consultant
shall have no duty or obligation to maintain any leases in force and effect
whether by payment of delay rentals, shut-in royalty payments; operations or
otherwise. Further, it is agreed and understood that prior to the parties
becoming joint working interest owners hereby, Saratoga or any third party
acting on behalf of Saratoga shall not acquire any oil and gas leases, mineral
leases, or other rights within any Prospect generated by Consultant in
accordance with this Agreement or any Areas of Mutual Interest established under
the Joint Operating Agreement attached hereto as Exhibit "C." Consultant shall
not commence or cause to be commenced any drilling activity of any nature on any
Leases acquired hereunder until the elections have been made by Saratoga or any
third party as provided in Article III.A. above.
VII.
CONFIDENTIALITY
As between Saratoga and Consultant, all the Data shall remain the
property of, and be owned by, Saratoga. Consultant shall not provide the Data,
including copies or extracts thereof, to third parties without the prior written
consent of Saratoga. Notwithstanding the foregoing, Saratoga and Consultant
agree:
A. In the event Saratoga should receive notice that Consultant has abrogated
the terms of an applicable license or other agreement, Consultant shall not
utilize the affected Data covered by that license or other agreement
thereafter and shall return to Saratoga's personnel the affected Data,
including copies or extracts thereof and any work product prepared by or
for Consultant therefrom, which may have previously been utilized by
Consultant in performing the Services hereunder.
B. Consultant understands and hereby acknowledges that neither Saratoga nor
any of its employees, agents or representatives makes any representation or
warranty as to the accuracy or completeness of the Data, and Consultant
agrees that Saratoga shall not be held liable in any way to Consultant, its
representatives or any other person as a result of Consultant's review of
or reliance upon any of the Data. Consultant shall further fully defend,
protect, indemnify and hold Saratoga, its officers, employees,
representatives, and agents harmless from and against any and all claims,
demands, suits, and causes of action of every kind and character, relating
to, or arising out of, or in any way incidental to the use, review and
reliance on the Data. This indemnity shall apply, without limitation, to
any liability imposed upon any party indemnified hereunder as a result of
any statute, rule, regulation or theory of strict liability.
C. Consultant shall have the right to show Saratoga's proprietary data
pertinent to a Prospect to third parties with Saratoga's written
authorization which shall not be unreasonably withheld.
D. The provisions of this Article VII shall survive as long as Consultant or
its assigns, heirs or successors maintain any leases within the AMI which
are subject to this Agreement.
VIII.
ASSIGNABILITY
Consultant shall not assign this Agreement, or its obligation to
provide the Services, to any third party without the written consent of
Saratoga. In the event that Consultant is able to generate one or more Prospects
and obtain access to the necessary rights, titles and interests in the acreage
included in a Prospect or AMI, if applicable, Consultant, Saratoga or such third
parties as may participate in the Prospect through Consultant or Saratoga shall
enter into an Operating Agreement, and thereafter those parties may assign an
interest in their respective rights in the Prospect or AMI, if applicable,
subject to the provisions of the Operating Agreement. Consultant, shall not
include in any Operating Agreement entered into by Contractor terms, conditions
or provisions that favor Consultant to the detriment of Saratoga.
IX.
OTHER AGREEMENTS
This Agreement is specifically subject to that certain Seismic Data
Licensing Agreement dated the 30th day of January, 1998, by and between Seitel
Data, Ltd., Saratoga Resources, Inc., and Lobo Energy, Inc. In the event there
is a conflict between the terms of this agreement and the terms of the Seismic
Licensing Agreement, the terms of the Seismic Licensing Agreement will control.
X.
TERM
This Agreement shall be for a term of one year from the date hereof
unless extended by mutual agreement. Notwithstanding the foregoing, either party
may terminate this Agreement upon thirty (30) days written notice to the other
party beginning ninety days after the effective date of this Agreement. Either
Party may terminate this Agreement immediately in the event of any material
breach hereof.
XI.
NOTICES
Any notice or other communication hereunder between the parties hereto
shall be in writing and shall be deemed to have been given only upon receipt
thereof. The address of each party for such purpose shall be:
Saratoga Resources, Inc.
301 Congress, #1550
Austin, Texas 78701
Tel. (512) 478-5717
Fax (512) 478-5733
Trek Oil and Gas Inc.
811 Dallas, Suite 1035
Houston, Texas 77002
Tel. (713) 652-4040
Fax:
Each party may change their address by delivering their new address to the other
party.
XII.
BUSINESS OPPORTUNITIES
Saratoga and Consultant expressly reserve the right to develop or
participate in additional businesses or business opportunities as may be
presented to, or discovered by, either during the term hereof, including,
without limitation, conducting or participating in operations for the
exploration and development of oil and gas except as provided in Section V
herein. Without limiting the generality of the foregoing, Saratoga and
Consultant hereby acknowledge:
A. Each party is actively engaged in various aspects of the oil and gas
business, and anticipate conducting, or participating in, activities to
generate, explore and develop opportunities similar to those contemplated
by this Agreement pursuant to existing agreements and relationships, which
(1) each party has disclosed to the reasonable satisfaction of the other,
(2) neither party's interests should be impaired, restricted or otherwise
affected hereby, and (3) may be conducted simultaneously with those
contemplated hereby. Consultant, to the extent Consultant believes
reasonable or necessary, may pursue opportunities with third parties within
the Project Area except where such actions would foreseeably result in the
damage to, or loss of, a Prospect or AMI, if applicable, generated pursuant
to this Agreement.
B. As a result of participating in opportunities similar to those set forth
herein, each party acknowledges that the successful generation, exploration
and development of any Prospect pursuant to this Agreement is subject to
numerous risks and may be influenced by numerous factors beyond either
party's control. In addition to the customary risks of conducting
exploratory or development operations on, and obtaining production of oil
and gas in paying quantities from, leases owned by a party at the time an
exploration project is agreed upon, Saratoga and Consultant acknowledge
that there is no assurance that access to the necessary rights, titles and
interests in acreage included in any Prospect or AMI, if applicable, can be
obtained. Consequently, neither party shall have any obligation to the
other pursuant to this Agreement, in the event Consultant is unable to
generate, or to obtain oil and gas production from, any Prospects in the
Project Area.
XIII.
RELATIONSHIP OF THE PARTIES
This Agreement is not intended to create, and shall not be construed to
create, a relationship or partnership, joint venture or an association for
profit between or among the parties hereto, it being understood that Consultant
is an independent contractor and is not to be deemed an agent of Saratoga.
XIV.
GOVERNING LAW
This Agreement and all matters pertaining hereto shall be governed and
determined by the law of the State of Texas.
XV.
INTEGRATION
This Agreement constitutes the entire agreement of the parties and
supersedes all prior agreements, understandings, conversations or other
correspondence concerning the subject matter hereof.
This Agreement shall not be amended, except by written instrument
executed by both parties hereto.
If the foregoing correctly sets forth the agreement and understandings
between the parties, please execute both copies and return one to the attention
of the undersigned whereupon this proposal shall constitute our agreement as to
the matters herein set forth.
Very truly yours,
SARATOGA RESOURCES, INC.
By: /s/ Thomas F. Cooke
- ------------------------
Thomas F. Cooke
President
ACCEPTED AND AGREED TO THIS 19th day of March, 1999.
TREK OIL AND GAS, INC.
By: /s/ Mike S. Mount
- -----------------------
Mike S. Mount
Vice President
ACCEPTED AND AGREED TO THIS 19th day of March, 1999.
Exhibit "A" Contract Area List
Seismic Data Programs
<PAGE>
EXHIBIT "A"
SEISMIC DATA PROGRAMS
Confidential material redacted and filed separately with the commission.
<PAGE>
EXHIBIT "B"
A Standard Form A.A.P.L. Form 610 Model Form Operating Agreement 1982 will serve
as Exhibit B.
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