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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) MAY 7, 1996
SARATOGA RESOURCES, INC.
(Exact Name of registrant as specified in its charter)
DELAWARE 0-11498 76-0453392
(State or jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
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2000 DAIRY ASHFORD, SUITE 410, HOUSTON, TX 77077
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (713) 531-0022
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
DESCRIPTION OF THE TRANSACTION
On May 7, 1996, Saratoga Resources, Inc., a Delaware corporation (the
"Company" or the "Registrant") entered into an Agreement and related documents
(the "Agreement") by and among the Company, Saratoga Resources, Inc., a Texas
corporation ("Saratoga Texas"), Lobo Operating, Inc., a Texas corporation
("LOI"), Lobo Energy, Inc., a Texas corporation ("LEI"), (the Company, Saratoga
Texas, LOI and LEI 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"), PrimeEnergy Corporation, a
Delaware corporation ("Prime"), and Internationale Nederlanden (U.S.)
Capital Corporation, a Delaware corporation ("ING").
The Agreement provided for a Foreclosure Sale of a majority of the
assets (the "Interests") of Saratoga Texas, LOI and LEI (Saratoga Texas, 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 (the "Credit Agreement") dated March 30, 1995, by and among the
Company, Saratoga Texas, LEI and ING. Upon completion of the Foreclosure Sale on
May 7, 1996, at which ING was the highest bidder, ING concurrently sold the
Interests to PrimeEnergy Corporation, a Delaware corporation ("PrimeEnergy"),
for cash consideration in the amount of $7,180,000 and additional consideration
as provided in that certain Purchase and Sale Agreement dated May 7, 1996, by
and between ING and PrimeEnergy.
Upon receipt of the cash proceeds from the sale of the Interests by ING
to PrimeEnergy, ING deposited approximately $5,500,000 with the Trustee, of
which approximately $4,000,000 was set aside under that certain Disbursement
Agreement dated May 7, 1996, for the settlement of outstanding vendor debt and
other related liabilities of the Saratoga Companies . Upon the settlement of all
such liabilities, the Company anticipates that there will be no liabilities
going forward, other than those incurred since May 7, 1996, in the ordinary
course of business.
BACKGROUND SUMMARY RELATED TO THE TRANSACTION
The Company, Saratoga Texas, LEI and ING entered into the Credit
Agreement to facilitate the acquisition by Saratoga Texas of the LEI assets
previously owned by Peter P. Pickup. Under the terms of the Credit Agreement,
ING established two credit facilities in favor of Saratoga Texas 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 Company 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 Company engaged
Internationale Nederlanden (U.S.) Securities Corporation ("ING Securities"), a
subsidiary of ING, to assist the Company in a private placement of Company
stock. It was anticipated that funds raised from such private placement would
enable the Company to meet its financial obligations under the Credit Agreement.
The private placement efforts were not successful, with no private placement of
Company stock being accomplished. Additionally, funds necessary for the
development of the Properties were not provided by ING under the Credit
Agreement.
The failure of the private placement efforts combined with the lack of
availability of funds necessary 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 "Other
Creditors") and the Company and its shareholders, the Saratoga Companies 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.
Unable to meet its financial obligations under the Credit Agreement, the Company
received notices of default from ING, whereupon ING threatened to foreclose its
perfected first lien security interests in the Properties and Interests. At the
same time the Company was receiving notices of default from ING, the Company was
attempting to negotiate a transaction with PrimeEnergy involving either a merger
of the two entities or a sale of the assets of the Saratoga Entities to
PrimeEnergy. The situation with ING obviously complicated the Company's efforts
with PrimeEnergy, as it had with other companies with which the Company had been
involved in similar negotiations.
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 PrimeEnergy, in April of 1996, the Saratoga Companies filed an
Original Petition and Application for Injunctive Relief against ING and ING
Securities, C96-399-D3 in the 341st Judicial District Court of Webb County,
Texas . 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 Company's asserted claims .
In reviewing its options, the Company believed that the proceeds from a
contested foreclosure by ING would be substantially less than the debt owed ING
under the Credit Agreement, and that the Saratoga Companies would have no, or
virtually no, assets, the Other Creditors of the Saratoga Companies would not be
paid, and the stock of the Company would be worthless. Accordingly, exercising
its best business judgment, the Company determined that the best (and in all
probability the only) alternative available to the Saratoga Companies to
preserve value for the Other Creditors, the Company and its shareholders was to
consent, on its own behalf and as sole shareholder (directly or indirectly) of
the Saratoga Entities, to the compromise and settlement of the claims against
ING and ING Securities, and in connection therewith, the foreclosure by ING with
respect to all of the assets of the Saratoga Entities, all in accordance with
the terms and provisions of the Agreement dated May 7, 1996.
The Board of Directors of the Company is in the process of
re-evaluating its business plan going forward. Among the alternatives being
considered are: (i) re-building the management team and continuing in the oil
and gas business; (ii) entering into a business combination with one or more
businesses, some of which are oil and gas companies and the remainder of which
are in unrelated businesses; and (iii) various other potential alternatives. The
Company has already begun a search for suitable business combination
candidates.The Board intends to carefully evaluate all such alternatives before
making a final recommendation of a business plan to the shareholders.
The Company is required to hold a meeting of the shareholders as soon
as practicable to ratify certain of the transactions set forth above. To hold
such a meeting, the Company will be required to file with the Securities and
Exchange Commission a proxy statement and mail such proxy statement to the
shareholders in definitive form. It is required that the proxy statement be
accompanied or preceded by an annual report including the Company's audited
financial statements for the year ended December 31, 1995, which will be
completed as soon as practicable. It is anticipated that, to the extent the
Board has approved any material change in its business plan, such change will be
submitted to the shareholders for approval or ratification.
ITEM 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT
COMPLIANCE WITH ITEM 304(a) OF REGULATION S-K, SECTION 229.304(a)
By approval of the Board of Directors effective as of June 10, 1996,
the Company has (i) retained the services of Hein + Associates LLP, 5075
Westheimer, Suite 970, Houston, Texas 77056, as principal accountant and auditor
for the purpose of auditing the Company's financial statements and (ii)
dismissed Ernst & Young LLP. Previously, Ernst & Young LLP served as the
Company's principal accountant and auditor. This change has been occasioned
after careful consideration by the Company, and as further explained under
"Background" hereinbelow.
The Company has not obtained an audit for the fiscal year ended
December 31, 1995, because, until the establishment of the Disbursement Account
by ING and the payment of various amounts owed to third parties by the Company
under the Agreement, the Company did not have the funds necessary to pay for a
completion of the audit.
A copy of the "Independent Auditor's Report" (the "Report") dated
May 2, 1995, which was prepared by Ernst & Young LLP, was included in the
Company's Form 10-KSB for the fiscal period from October 1, 1994 to December 31,
1994. The Report expressed doubt about the Company's ability to continue as a
going concern based upon several factors as outlined in the Report: (i) the
Company had incurred an operating loss for the transition period October 1 to
December 31, 1994 and the year ended September 30, 1994 (ii) the Company had a
working capital deficiency for said periods (iii) the Company projected an
operating loss for the twelve months ending December 31, 1995, and (iv) the
Company was not in compliance with certain covenants under a Credit Agreement
with its principal lender.
For the prior audited periods and subsequent unaudited periods, the
Company is not aware of any material disagreements or reportable events with
Ernst & Young LLP regarding accounting principles or practices, financial
statement disclosure, or auditing scope or procedure.
BACKGROUND
As set forth in Item 2 hereof, under the terms and provisions of the
Agreement, a majority of the assets of the Saratoga Entities were ultimately
acquired by PrimeEnergy on May 7, 1996. As a result, the Company has no, or
virtually no, assets other than approximately $1,500,000 out of the $5,500,000
originally deposited by ING into Escrow. This represents a significant change
for the Company. Previously, the Company had been actively engaged in the
production and development of oil and gas properties. As such, the Company had
been able to financially support the retention of Ernst & Young LLP as its
principal accountant and auditor. Hein + Associates LLP has agreed to perform
the audit for substantially lower fees than Ernst & Young LLP. Presently, the
Company is in a position which requires it to make efficient use of its reduced
financial resources in an attempt to maintain the Company as a viable business
entity going forward.
Accordingly, the Company has determined that the cost required to continue to
retain the services of such a large public accounting firm as Ernst & Young, LLP
as the Company's principal accountant and auditor, giving due consideration to
the Company's current financial and business affairs, would not be the most
prudent use of Company assets.
ITEM 5. OTHER EVENTS
PENDING LITIGATION
On May 13, 1996, the Company, along with two of its three directors,
Thomas F. Cooke ("Cooke") and Randall F. Dryer ("Dryer"), filed a lawsuit (the
"Company Lawsuit"), as amended, against the remaining director, Joseph T.
Kaminski ("Kaminski") [Cause No. 96-05540, Saratoga Resources, Inc., Thomas F.
Cooke and Randall F. Dryer v. Joseph T. Kaminski, 261st Judicial District Court,
Travis County, Texas]. The Company has filed this lawsuit against Kaminski
alleging fraud, breach of fiduciary duty, intentional and negligent
misrepresentation.
On May 13, 1996, at the same time the "Company Lawsuit" was being
filed, Cooke and Dryer advised Kaminski that Kaminski was being terminated as
President of Saratoga, Kaminski having previously been terminated as Chief
Executive Officer of Saratoga by the Board of Directors on April 3, 1996. By
action of the Board of Directors on May 21, 1996, Kaminski was dismissed for
cause as President of Saratoga and its subsidiaries.
On May 15, 1996, Kaminski filed a lawsuit (the "Kaminski Lawsuit"), as
amended, against Cooke, Dryer, Dryer, Ltd. and the Company [Cause No. 96-24469,
Joseph T. Kaminski v. Thomas F. Cooke, Randall F. Dryer, Saratoga Resources,
Inc., and Dryer, Ltd., a Texas Family Partnership, 113th Judicial District
Court, Harris County, Texas]. Kaminski has filed this lawsuit individually and
derivatively as a shareholder of the Company and has alleged fraud, breach of
fiduciary duty, gross negligence, slander and libel per se on the part of Cooke
and Dryer individually and as directors of the Company.
The Company continues to conduct its affairs in the ordinary course of
business pursuant to the terms and provisions of an Agreed Temporary Injunction
presented to the Court in the "Kaminski Lawsuit" on May 20, 1996.
The "Company Lawsuit" and "Kaminski Lawsuit" are both in the early
stages of development. While management of the Company believes at this time
that neither lawsuit will have a material adverse effect on the Company, it is
too early to make an accurate evaluation of potentially adverse effects, if any.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial statements of businesses acquired: NONE
(b) Pro forma financial information:
It would be impracticable for the Company to provide the required pro
forma statements with this filing. The Company intends to file such statements
by way of an amendment of this Form 8-K, such amendment anticipated to be filed
with the Commission on or before August 15, 1996.
(c) Exhibits:
Documents filed as part of this report:
(1) Compromise and Settlement Agreement dated May 7,
1996, by and between Saratoga Resources, Inc., a
Delaware corporation, Saratoga Resources, Inc., a
Texas corporation, Lobo Operating, Inc., a Texas
corporation, Lobo Energy, Inc., a Texas corporation,
Thomas F. Cooke, Joseph T. Kaminski, Randall F.
Dryer, and Internationale Nederlanden (U.S.) Capital
Corporation.
(2) Purchase and Sale Agreement dated May 7, 1996, by and
between Internationale Nederlanden (U.S.) Capital
Corporation and PrimeEnergy Corporation.
(3) Assignment and Bill of Sale dated May 7, 1996, by and
between Saratoga Resources, Inc., a Delaware
corporation and PrimeEnergy Corporation.
(4) Letter dated June 10, 1996, from Ernst & Young LLP.
(5) Letter dated June 15, 1996, from Ernst & Young LLP.
SIGNATURES
Pursuant to the Requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Saratoga Resources, Inc.
Date: ___________________ _________________________
Thomas F. Cooke
Chairman & CEO
COMPROMISE AND SETTLEMENT AGREEMENT
THIS COMPROMISE AND SETTLEMENT AGREEMENT (this "Agreement") is
entered into effective as of May 7, 1996, by and among Saratoga Resources, Inc.,
a Texas corporation ("Saratoga Texas"), Saratoga Resources, Inc., a Delaware
corporation ("Saratoga Delaware"), Lobo Operating Inc., a Texas corporation
("LOI"), Lobo Energy Inc., a Texas corporation ("LEI"), (Saratoga Texas,
Saratoga Delaware, LOI and LEI sometimes collectively referred to herein as the
"Saratoga Companies"), Thomas F. Cooke, Joseph T. Kaminski, Randall F. Dryer,
(the "Shareholders"; the Saratoga Companies and the Shareholders sometimes
collectively referred to herein as the "Saratoga Parties") and Internationale
Nederlanden (U.S.) Capital Corporation, a Delaware corporation ("ING");
WITNESSETH:
A. Saratoga Texas, Saratoga Delaware, LEI and ING are parties
to that certain Credit Agreement dated as of March 30, 1995 (as heretofore
amended or modified, the "Credit Agreement"), pursuant to which ING extended
credit to Saratoga Texas in accordance with the terms therein. As of the date
hereof the sum of $13,765,721.23 principal plus accrued unpaid interest is owed
under the Credit Agreement.
B. The Shareholders are directors and principal shareholders
of Saratoga Delaware.
C. All obligations under the Credit Agreement and the Loan
Documents (the "Secured Obligations") are secured by perfected, first priority
liens on and security interests in the real and personal property of the
Saratoga Companies (collectively the "Collateral"). The Saratoga Companies are
in default under the Credit Agreement. All of the Secured Obligations are past
due and are due and payable in full.
D. Pursuant to the terms and provisions of the Deed of Trust,
Mortgage, Assignment, Security Agreement, Fixture Filing and Financing Statement
(the "Deed of Trust") dated March 30, 1995, by Saratoga Texas, which secures the
Secured Obligations, the Substitute Trustee appointed under the Deed of Trust
has given Notice of Substitute Trustee Sale of the property encumbered by such
Deed of Trust (the "Foreclosure Properties") to take place at or within three
(3) hours after 10:00 o'clock a.m., local time, on Tuesday, May 7, 1996 (the
"Foreclosure Sale"), as more particularly described in such notice, which
notice, has been posted at the appropriate location at the courthouses located
in the counties in Texas in which the properties covered by the Deed of Trust
are located.
E. The Saratoga Companies have alleged certain claims and
causes of action against ING and Internationale Nederlanden (U.S.) Securities
Corporation in that certain action (the "Action") No. C96-399-D3 in the District
Court of Webb County, Texas, 341st Judicial District (the "Asserted Claims").
ING denies any liability for the Asserted Claims.
F. The Saratoga Companies have failed to pay when due various
obligations and liabilities to others. As a result, mechanic's and materialmen's
liens and mineral contractors' liens have been filed against property of
Saratoga Texas and suits for collection of debts have been filed against the
Saratoga Companies.
G. Contemporaneously with this Agreement, PrimeEnergy
Corporation, a Delaware corporation ("PrimeEnergy") and ING have entered into
that certain Purchase and Sale Agreement dated of even date herewith (the
"Purchase Agreement") pursuant to which, if ING is the high bidder at the
Foreclosure Sale and acquires the Foreclosure Property, PrimeEnergy has agreed
to purchase, and ING has agreed to sell, the Foreclosure Properties and certain
other properties as more particularly described on Exhibit A to the Assignment,
Conveyance and Bill of Sale attached hereto as Exhibit I (the "Interests"). The
Purchase Agreement contemplates and is conditioned upon this Agreement and the
purchase of the Foreclosure Properties by ING at the Foreclosure Sale.
H. A true and correct copy of the Purchase Agreement is
attached hereto. The consideration payable by PrimeEnergy under the Purchase
Agreement is as follows ("Sale Proceeds"):
(i) the payment of the aggregate sum of $7,180,000
subject to adjustment resulting from the allocation
of revenues and expenses as a result of the
operations, based upon the effective date of the
purchase and sale, for purposes of such adjustment,
on January 1, 1996; and
(ii) the Conveyance of a Production Payment and Net
Profits Overriding Royalty Interests (the "NPI") out
of the Interests, as provided for in the Purchase
Agreement; and
I. In the absence of a compromise and settlement of the
Secured Obligations and of the Asserted Claims, the Saratoga Companies would
likely have pursued the Asserted Claims and been the subject of a voluntary or
involuntary case under the United States Bankruptcy Code, and the parties have
voluntarily entered into this Agreement to buy peace.
J. The Saratoga Parties and ING desire to enter into this
Agreement to (i) compromise and settle the Asserted Claims, (ii) to permit the
sale of the Foreclosure Properties pursuant to the Notice, (iii) to provide for
certain payments by ING after the sale and (iv) to release the Saratoga Parties
from liability for the Secured Obligations, liens and security interests
provided herein and (v) to provide further assurances to PrimeEnergy regarding
the assets to be sold pursuant to the Purchase Agreement and to provide for an
allocation of revenues and expenses attributable to the Interests based on a
January 1, 1996 effective date.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and agreements contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged and
confessed, the parties hereby contract, covenant and agree as follows:
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1. DEFINITIONS. As used in this Agreement, in addition to the
terms defined elsewhere in this Agreement, and the following terms shall have
the meanings specified below:
"EXCLUDED ASSETS" means the Assets described in the Partial
Release attached as Exhibit II.
"LOAN DOCUMENTS" means the Credit Agreement, the Deed of Trust
and all guaranties, deeds of trust, mortgages, assignments, security agreements,
pledges, financing statements and other agreement documents or instruments
guaranteeing, securing or benefiting the Secured Obligation.
"PERSON" means an individual, corporation, partnership,
limited liability company, association, joint stock company, trust or trustee
thereof, estate or executor thereof, unincorporated organization or joint
venture, court or governmental unit or any agency or subdivision thereof, or any
other legally recognizable entity.
"SALE DOCUMENTS" means the documents and instruments attached
as Exhibits I, II, III, IV, V, VI and VIII.
"TRANSACTION DOCUMENTS" means this Agreement, the Mutual
Release, the Sale Documents, the Disbursement Agreement, and the documents and
instruments to be delivered pursuant hereto.
2. ACKNOWLEDGMENTS AND AGREEMENTS BY THE SARATOGA PARTIES. The
Saratoga Parties hereby acknowledge, covenant and agree that:
(a) The Foreclosure Properties under the Deed of Trust are
subject to a valid, perfected, first priority lien and security interest in
favor of ING.
(b) The Saratoga Parties shall permit the Foreclosure Sale
without any adverse interference or disruption, and shall not take any action,
whether before, during or after the Foreclosure Sale, including filing,
commencing, or prosecuting any suits, action, lawsuit, litigation, proceeding or
motion for temporary restraining order with regard to the Foreclosure Sale in
any action, litigation or otherwise, or otherwise seeking to rescind the
Foreclosure Sale, have the Foreclosure Sale declared void or set aside, or
questioning the validity of the Foreclosure Sale or any subsequent sale of the
Interests by ING.
(c) The Saratoga Parties will properly (and promptly after
requested) execute and deliver to ING, or to Prime Energy, as the buyer of the
Foreclosure Property from ING to the extent requested by ING, the Sale Documents
and all documents, conveyances, deeds, assignments, transfers, bills of sale and
letters in lieu necessary to fully transfer title and deliver possession of the
Interests and divest the Saratoga Parties of any right, title or interest in and
to the Interests. The Saratoga Parties will convey to ING or to PrimeEnergy, to
the extent requested by ING, all of the other assets owned by the Saratoga
Companies on the date hereof excluding the Excluded Assets. The Saratoga Parties
shall not take any action at any time in contravention of the Sale Documents,
including, without limitation, the filing, presentation or commencement of
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any suit, action, proceeding or lawsuit or litigation requesting a declaration,
finding or order rescinding the Sale Documents, declaring the Sale Documents
void, setting aside the Sale Documents or otherwise questioning the validity of
or seeking any redress with respect to the Sale Documents.
(d) The Saratoga Parties agree that (i) the execution and
delivery of the documents by Saratoga as provided under this Section 2, (ii) the
execution and delivery of the Disbursement Agreement, (iii) the execution and
delivery of the Mutual Release and (iv) the payment under section 4(a) shall
take place simultaneously and are conditioned upon each other.
(e) The Saratoga Parties will immediately cause the Action and
all their claims against ING and Internationale Nederlanden (U.S.) Securities
Corporation (collectively, the "ING Parties") to be dismissed with prejudice.
(f) The ING Parties have entered into the Transaction
Documents in order to avoid the inconvenience and expense of litigation and have
not admitted any liability in respect to the Alleged Claims or any other
liability of any kind or character.
(g) No Saratoga Party or ING shall take any action in
contravention of the terms of the Disbursement Agreement or which otherwise
might affect the actions of the Trustee under the Disbursement Agreement in
carrying out the provisions of the Disbursement Agreement. Without limiting the
generality of the foregoing, no Saratoga Party shall (i) acquire, enter into any
agreement regarding, or advise or consult with a holder thereof regarding any
Liability (as referred to below) or any claim which is in any manner derivative
of or related to any Liability, or (ii) for a period of 180 days after the date
of this Agreement have any communication with any holder of any Liability or any
claim which is derivative of or related to a Liability except communication
permitted under the terms of the Disbursement Agreement.
3. ACKNOWLEDGMENTS AND AGREEMENTS BY ING. ING hereby
acknowledges and agrees that:
(a) ING shall apply the Sale Proceeds in accordance with
Section 4 of this Agreement. ING hereby releases any and all right, title,
interest and claim it may have in respect of (i) the cash to be released to the
Saratoga Parties under Section 4(a) and (ii) all of the Excluded Assets.
ING will execute a release of its liens and security in the Excluded Assets.
(b) The Saratoga Parties have entered into the Settlement
Documents in order to avoid the inconvenience and expense of litigation.
(c) ING agrees to bid at least $9,200,000 of the Secured
Obligations to acquire the Foreclosure Properties at the Foreclosure Sale. If
ING's bid is exceeded by a higher cash bid, ING will apply the proceeds as
provided in Section 4. If ING acquires the Foreclosure Properties at the
Foreclosure Sale, ING agrees to consummate the sale to PrimeEnergy under the
Purchase Agreement.
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4. APPLICATION OF CASH PROCEEDS RECEIVED BY ING. Upon receipt
by ING of the Cash Proceeds in immediately available funds (or if another party
acquires the Foreclosure Property at the Foreclosure Sale, upon receipt of the
cash proceeds in immediately available funds):
(a) ING shall pay to the Saratoga Parties $1,500,000 pursuant
to a certain Escrow Agreement in the form attached hereto as Exhibit III.
(b) ING agrees to fund amounts from time to time to the
Trustee under the Disbursement Agreement up to the Schedule 1 Amount and the
Schedule 2 Amount as provided in the Disbursement Agreement executed by ING
contemporaneously with this Agreement, a copy of which is attached hereto as
Exhibit A (the "Disbursement Agreement"). The amounts so funded are remitted to
the Trustee, subject to the terms of the Disbursement Agreement, to settle and
finally satisfy the specific outstanding obligations of the Saratoga Parties
described on Schedules 1 and 2 to the Disbursement Agreement (the
"Liabilities"). The remaining amounts of the Disbursement Accounts will be
retained by ING free of the obligations under the Disbursement Agreement at the
time and in the amount provided in the Disbursement Agreement.
(c) ING shall retain the balance which exceeds the amounts in
Sections 4(a) and 4(b).
(d) None of the Saratoga Companies shall be liable for the
repayment of any of the Secured Obligations remaining after the Foreclosure Sale
and after the transfers under Section 2, other than out of or from liens on and
security interests in any other remaining, non-released assets and property
owned by the Saratoga Companies as of the date hereof; provided, however, that
nothing herein shall prejudice the right of ING to recover any damages or costs
(including reasonable attorney's fees) incurred by ING or PrimeEnergy, or an
express third party beneficiary of this Agreement, as a result of the breach of
any representation, warranty or covenant contained in this Agreement, the Sale
Documents or any other Transaction Document.
(e) The Saratoga Parties agree that (i) the execution and
delivery of the documents by Saratoga as provided under Section 2, (ii) the
execution and delivery of the Disbursement Agreement, (iii) the execution and
delivery of the Mutual Release and (iv) the payment under paragraph 4(a) shall
take place simultaneously and are conditioned upon each other.
5. NPI. As part of the consideration being paid by PrimeEnergy
for the Interests, PrimeEnergy is conveying the NPI to ING. The Saratoga Parties
hereby release any and all right, title, interest and claim they may have to the
NPI.
6. MUTUAL RELEASES. The Saratoga Parties and ING hereby agree,
as an essential consideration for the transactions contemplated by the
Settlement Documents, to enter into the Mutual Release in the form of Exhibit B
attached hereto (the "Mutual Release").
7. REPRESENTATION AND WARRANTIES BY THE SARATOGA PARTIES. Each
of the Saratoga Parties hereby represents and warrants with respect to itself to
ING that:
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(a) Each Saratoga Company is duly organized, validly existing
and in good standing under the laws of its state of organization, having all
corporate powers required to carry on its business and enter into and carry out
the transactions contemplated hereby. Each Saratoga Company has taken all
corporate action necessary to authorize the execution and delivery by it of the
Transaction Documents to which it is a party and to authorize the consummation
of the transactions contemplated thereby and the performance of its obligations
thereunder.
(b) The execution and delivery by each of the Saratoga Parties
of the Transaction Documents to which it is a party, the performance of its
obligations under such Transaction Documents, and the consummation of the
transactions contemplated by the various Transaction Documents, do not and will
not (i) conflict with any provision of (1) any domestic law, statute, rule or
regulation, (2) the articles or certificate of incorporation, bylaws, or
charter, of any Saratoga Company, or (3) to the best of its knowledge, any
agreement, judgment, license, order or permit applicable to or binding upon any
Saratoga Party, or (ii) result in any lien upon any assets or properties of any
Saratoga Party except as expressly contemplated in the Transaction Documents.
Except as expressly contemplated in the Transaction Documents no consent,
approval, authorization or order of, and no notice to or filing with, any court
or governmental authority or third party is required in connection with the
execution, delivery or performance by any Saratoga Party of any Transaction
Document or to consummate any transactions contemplated by the Transaction
Documents.
(c) This Agreement is, and the other Transaction Documents
when duly executed and delivered will be, legal, valid and binding obligations
of each Saratoga Party which is a party thereto, enforceable in accordance with
their terms except as such enforcement may be limited by bankruptcy, insolvency
or similar laws of general application relating to the enforcement of creditors'
rights.
(d) None of the Saratoga Companies owns any interest in any
Person other than Saratoga Delaware's interests in Saratoga Texas, LEI and LOI
and Saratoga Texas' 65% general partner interest in Kaminski Partnership 90-I.
The only asset owned by the Kaminski Partnership 90-I is an interest in the
Hemphill Field. Each Shareholder, as to himself alone, represents that no
payment or transfer of assets of any kind or type has been made since May 1,
1995 by any of the Saratoga Companies to or for the benefit of such Shareholder
or any Insider with respect to that Shareholder, as that term is used in the
United States Bankruptcy Code, except salaries and reimbursement of expenses to
officers, directors and employees of the Saratoga Companies consistent with the
salaries and the policies on expense reimbursement in effect immediately prior
to May 1, 1995.
(e) The Saratoga Companies have made a full, complete and
accurate disclosure to ING and PrimeEnergy of, and have transferred to ING, or
to PrimeEnergy by virtue or through the documents attached hereto, all cash,
cash equivalents, undeposited checks or negotiable instruments, prepaid
expenses, deposits, refunds or assets readily convertible to cash now owned by
any of the Saratoga Companies (the "Closing Date Cash"). There are no assets of
any Saratoga Company not otherwise disclosed to ING and PrimeEnergy. Any Closing
Date Cash which may
6
hereafter come into the possession of any Saratoga Company shall be immediately
transferred to ING or to PrimeEnergy, pursuant to the amounts attached hereto.
(f) None of the Shareholders have any interest in PrimeEnergy
or in any affiliate of PrimeEnergy or otherwise has received, or has any
expectation to receive, any personal benefit from the Purchase Agreement or the
transactions contemplated by the Purchase Agreement other than from pursuant to
this Agreement and their respective interests as Shareholders of Saratoga
Delaware.
(g) The Reconciliation Statement regarding deposits and other
accounts and outstanding checks, wire transfers and other debits and credits is
true, accurate and complete in all respects.
(h) The Foreclosure Sale has not and is not enjoined or
restrained and will not be enjoined or restrained by any of the Saratoga Parties
by any order, decree, judgment or other ruling of any court and is not otherwise
barred or stayed by any proceeding of any type and none of the Saratoga Parties
will commence any action, proceeding, lawsuit or litigation seeking such an
order or proceeding.
8. REPRESENTATION AND WARRANTIES BY ING. ING hereby represents
and warrants to the Saratoga Parties that
(a) ING is duly organized, validly existing and in good
standing under the laws of its state of organization, having all corporate
powers to enter into and carry out the transactions contemplated hereby. ING has
taken all corporate action necessary to authorize the execution and delivery by
it of the Transaction Documents to which it is a party and to authorize the
consummation of the transactions contemplated thereby and the performance of its
obligations thereunder.
(b) This Agreement is, and the other Transaction Documents to
which it is a party, when duly executed and delivered will be, legal, valid and
binding obligations of ING, enforceable in accordance with their terms except as
such enforcement may be limited by bankruptcy, insolvency or similar laws of
general application relating to the enforcement of creditors' rights.
9. MODIFICATION; SEVERABILITY. This Agreement may be amended
or modified only in writing signed by each Saratoga Party and ING. If any
provision of this Agreement shall for any reason be held to violate applicable
law, and so much of said Agreement is or is deemed to be unenforceable, then the
invalidity of such specific provision herein shall not be held to invalidate any
other provision herein, and all such other provisions shall remain force and
effect.
10. CONFIDENTIALITY.
(a) Each party hereto acknowledges that the terms of the
Transaction Documents are confidential and non-public in nature. Each party
hereto will keep in confidence all terms herein or in any other Transaction
Document and will not permit any other Person to make any
7
copy, photocopy or photograph here from or to write down or record any
information with respect hereto. Notwithstanding the foregoing, each party
hereto may disclose any such information (i) to its attorneys and accountants
who would ordinarily have access to such information in the normal course of
performance of their duties, in confidence in accordance with such Party's
normal customary practices, (ii) to another party hereto, (iii) Michelle
Maynard, counsel to certain working interest owners or (iv) subject to paragraph
(b), to such third parties to comply with a mandatory and valid requirement of
(A) any law, ordinance, or regulatory authority, (B) any order, decree,
judgment, subpoena, notice of discovery or similar request or testimony, or
pleading issued, filed, served or purposed on its face to be issued, filed or
served (x) by or under authority of any court, tribunal, arbitration board or
similar entity or (y) in connection with any proceedings, case or matter
tribunal, arbitration board, or any governmental agency, commission, authority,
board or similar entity.
(b) If any Party determines that any disclosure is or may be
required under clause (iii) of the preceding paragraph (a), the disclosing party
shall give notice of the proposed disclosure to the other parties to this
Agreement, and shall, to the extent it may be done without violation of law,
rule, regulation or court order, contest the disclosure, and shall in any event,
limit the nature and extent of disclosure to such disclosure that such Party is
advised by its counsel is minimally necessary to so comply.
(c) No Party will disparage the creditworthiness of any other
Party to this Agreement from and after this date.
(d) In the event that ING has heretofore filed a report or
reports with any Credit Reporting agency concerning the Saratoga Parties, ING
will file a follow-up report with such agency or agencies indicating that the
Saratoga Companies have discharged the indebtedness due ING, and are now in good
standing.
(e) No Saratoga Party will issue any press release or other
public announcement regarding the transactions contemplated by the Transaction
Documents until the recording of the Trustee's Deeds and the conveyances
contemplated by this Agreement in each applicable county.
11. ARBITRATION.
(a) As used in this section:
(i) "AAA" means the American Arbitration
Association (or any successor thereto),
(ii) "Claims" means all claims by either
party hereto against the other with respect to (A)
the Transaction Documents (including among others any
claims with respect to the interpretation or validity
of any of the Transaction Documents, the existence or
scope of any duties owed thereunder, whether or not
any such duties have been performed or breached in
any circumstances, or the extent or enforcement of
any property rights created thereunder or subject
thereto; (B) any claim, whether in tort, for breach
of
8
contract, for breach of implied duties, under any
statute or otherwise arising at law or in equity,
which is related in any manner to the subject matter
of the Transaction Documents, and
(iii) "Disputed Matters" means all Claims,
all defenses against any Claims, and all
controversies relating thereto.
(b) If either one or more of the Saratoga Parties
(the "Claiming Saratoga Party") or ING ever desires to assert a Claim against
the other, the party asserting such Claim will give written notice thereof to
the other party. During the thirty day period following receipt of such notice
by the other party, both parties will discuss such Claim and the validity
thereof. If the parties hereto cannot come to agreement about such Claim by the
end of such thirty day period (as such period may be extended by mutual
agreement), then within fifteen days after the end of such period either party
may by written notice to the other invoke the arbitration provisions of this
Agreement, whereupon the Claiming Saratoga Party and ING shall submit such Claim
and all Disputed Matters in any way related thereto to arbitration under the
procedures in the next following subsection (c).
(c) All Disputed Matters shall be resolved by
arbitration conducted by three arbitrators in accordance with this Section 6.9
and, to the extent not in conflict herewith, the Commercial Arbitration Rules of
the AAA then in effect. Each such arbitrator must be independent and impartial.
Within ten days after the sending and receipt of a notice invoking arbitration
as provided in subsection (b) above, each of the Saratoga Claiming Party and ING
shall specify (by notice to the other) the name and address of an arbitrator
appointed by it. At the end of such ten days, if one party has made a
specification of its appointed arbitrator but has not received notice of a
similar specification by the other party, then the party which has made a
specification shall give notice to the other party that it has not received a
specification from the other party. If the other party does not act to specify
its arbitrator within an additional seven days after the giving of such notice,
the party who has made its specification may appoint the second arbitrator in
place of the party who has failed to do so. Within fifteen days after the first
two arbitrators have been appointed, they shall select the third arbitrator. If
a third arbitrator has not been selected within such period, either party hereto
may petition the Administrative Judge presiding over the State District Courts
of Dallas County, Texas to appoint such third arbitrator, whereupon such judge
(or any person designated by such judge to make such appointment) may make such
appointment unless the first two arbitrators have come to agreement on the third
arbitrator. Consistent with the expedited nature of arbitration, each party
will, upon the written request of the other party, provide the other with copies
of documents relevant to the issues raised by the Disputed Matter. Other
discovery may be ordered by the arbitrators to the extent they deem relevant and
appropriate, and any dispute regarding discovery, including disputes as to the
need thereof or the relevance or scope thereof, shall be determined by the
arbitrators, whose determination shall be conclusive. The Saratoga Claiming
Party and ING shall proceed expeditiously with any such arbitration and shall
conclude all proceedings thereunder, including any hearing, in order to allow a
decision based on applicable law to be rendered within ninety days after the
appointment of the third arbitrator. The decision of any two such arbitrators on
the issues before them shall be final, and any award or order so decided may be
enforced in any court
9
having personal jurisdiction over the party against whom enforcement is sought.
Each Party shall bear its own expenses, including attorneys' fees and expenses
of arbitration, in connection with any such arbitration. Although the foregoing
arbitrations shall be conducted under the rules of the AAA, the AAA itself shall
not conduct such arbitrations, nor shall such arbitrations be considered under
the auspices of the AAA, nor shall any fee be due the AAA. The arbitrators shall
honor the election by the Saratoga Claiming Party and ING of the laws of the
State of Texas as set out in the various Transaction Documents, provided that
each arbitration proceeding shall also be subject to the United States
Arbitration Act, 9 U.S.C., Chapter 1, ss.ss. 1 et seq, to the extent applicable.
The arbitrators are not empowered to award punitive or exemplary damages on any
Claim and EACH SARATOGA CLAIMING PARTY AND ING HEREBY IRREVOCABLY WAIVES ANY
RIGHT IT MAY HAVE TO RECOVER PUNITIVE OR EXEMPLARY DAMAGES ON ANY CLAIM.
(d) All applicable statutes of limitations and
defenses based on the passage of time shall be tolled during the period in which
arbitration has been invoked as set forth in this section (but not during any
period prior to such invocation of arbitration). Each Saratoga Claiming Party
and ING is required to continue to perform its obligations under the Transaction
Documents pending final resolution of any Disputed Matter.
12. NOTICES. All requests or other communications required or
permitted to be given pursuant to this Agreement shall be deemed sufficiently
given when telefaxed and confirmed or delivered personally during regular
business hours and before 5:00 p.m. during a business day to the appropriate
location described below, or three (3) days after posting thereof by United
States first-class, registered or certified mail, return receipt requested, with
postage and fees prepaid and addressed as follows:
If to PrimeEnergy: 1 Landmark Square, 11th Floor
Stamford, Connecticut 06901
Attention: Charles E. Drimal, Jr.
Phone No. (203) 358-5700
Fax No. (203) 358-5783
If to Saratoga 1155 Dairy Ashford, Suite 600
Companies: Houston, Texas 77079
Attention: Thomas F. Cooke, Chairman
Phone No. 713/531-0022
Fax No. 713/531-0023
10
If to ING: Internationale Nederlanden (U.S.)
Capital Corporation
135 East 57th Street
New York, NY 10022-1500
Attention: Peter Y. Clinton
Phone No. 212/446-1514
Fax No. 212/832-3616
Any party hereto may designate a different address for
subsequent notices or communications at any time by furnishing written notice to
the other parties hereto in the manner described above.
13. ATTORNEYS' FEES. If any legal action, arbitration
proceeding, or other action or proceeding is brought for the enforcement of this
Agreement, or because of any alleged dispute, breach, or default in connection
with any of the provisions of this Agreement, the successful or prevailing party
hereto (whether or not such prevailing party is the defendant in such action or
proceeding) shall be entitled to recover reasonable attorneys' fees and other
costs incurred in that action or proceeding in addition to any other remedies to
which he or it may be entitled under this Agreement, at law or equity. The
rights and remedies granted herein are cumulative and not exclusive of any other
right or remedy granted herein or provided in equity or by law.
14. ENTIRE AGREEMENT. THIS AGREEMENT, TOGETHER WITH THE OTHER
TRANSACTION DOCUMENTS, COLLECTIVELY SET FORTH THE ENTIRE AGREEMENT AMONG THE
PARTIES HERETO WITH RESPECT TO THE SUBJECT MATTER HEREOF. NO OTHER
REPRESENTATIONS HAVE BEEN MADE OR RELIED UPON BY ANY OF THE PARTIES HERETO IN
CONNECTION WITH THE MATTERS SET FORTH HEREIN. EACH PARTY HERETO ACKNOWLEDGES
THAT (I) ALL REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS THAT IT HAS
RELIED UPON OR WILL RELY UPON IN ENTERING INTO THIS AGREEMENT ARE CONTAINED IN
THIS AGREEMENT AND THE OTHER TRANSACTION DOCUMENTS, AND (II) IT IS NOT RELYING
UPON ANY OTHER REPRESENTATION, WARRANTY, COVENANT, AGREEMENT, PROMISE OR
INDUCEMENT WHATSOEVER. THERE ARE NO ORAL AGREEMENTS BETWEEN OR AMONG THE PARTIES
HERETO.
15. GOVERNING LAW; JURISDICTION. The laws of the United States
and the internal laws of the State of Texas shall govern this Agreement and the
performance of the transactions by the Parties hereto.
16. HEADINGS; COUNTERPARTS. Headings in this Agreement are for
convenience only and shall not affect the interpretation hereof. This Agreement
may be executed in multiple counterparts, each of which shall have the force and
effect of an original, and all of which together shall constitute one and the
same agreement.
11
IN WITNESS WHEREOF, this Agreement has been executed as of the
date first written above.
SARATOGA RESOURCES, INC.,
a Texas corporation
By: _______________________
Thomas F. Cooke
Chairman and Chief
Operating Officer
SARATOGA RESOURCES, INC.,
a Delaware corporation
By: _______________________
Thomas F. Cooke
Chairman and Chief
Executive Officer
INTERNATIONALE NEDERLANDEN (U.S.)
CAPITAL CORP.
By: _______________________
Peter Y. Clinton
Vice President
LOBO OPERATING, INC.
By: _______________________
Thomas F. Cooke
Chairman and Chief
Operating Officer
12
LOBO ENERGY, INC.
By: _______________________
Thomas F. Cooke
Chairman and Chief
Operating Officer
_______________________
THOMAS F. COOKE
_______________________
JOSEPH T. KAMINSKI
_______________________
RANDALL F. DRYER
13
SCHEDULE OF EXHIBITS
Exhibit I Assignment, Conveyance and Bill of Sale by Saratoga Texas, LOI
and LEI
Exhibit II Partial Release by ING
Exhibit III Escrow Agreement
Exhibit IV Assignment and Bill of Sale by Saratoga Delaware
Exhibit V Resignation, Assignment, Bill of Sale and Agreement by
Saratoga Texas, LOI and LEI
Exhibit VI Agreement by Saratoga Delaware
Exhibit VII Agreement regarding Interests by Saratoga Texas, Saratoga
Delaware, LOI, LEI
Exhibit VIII Assignment of Bank Accounts and Agreement by Saratoga
Delaware, Saratoga Texas, LOI and LEI
Exhibit A Disbursement Agreement
Exhibit B Mutual Release
14
PURCHASE AND SALE AGREEMENT
This Purchase and Sale Agreement (hereinafter called "this Agreement")
is made and entered into this 7th day of May, 1996, between INTERNATIONALE
NEDERLANDEN (U.S.) CAPITAL CORPORATION, a Delaware corporation (hereinafter
called "Seller"), and PRIMEENERGY CORPORATION, a Delaware corporation
(hereinafter called "Buyer"), with reference to the following circumstances:
Certain properties (the "Foreclosure Properties") are currently subject
to a Notice of Substitute Trustee's Sale (the "Sale"), a copy of which is
attached hereto.
Seller has entered into a Compromise and Settlement Agreement (the
"Settlement Agreement") with Saratoga Resources, Inc., a Texas corporation
("Saratoga Texas"), Saratoga Resources, Inc., a Delaware corporation ("Saratoga
Delaware"), LOBO Energy, Inc., a Texas Corporation ("LEI") and LOBO Operating,
Inc., a Texas corporation ("LOI") (the "Saratoga Companies") pursuant to which
the Saratoga Companies have agreed to not enjoin, restrain or otherwise prevent
the sale and, in the event that the Seller acquires the property at the sale, to
deliver to Seller, or to Buyer as Seller's transferee various documents
confirming the transfer, or transferring, properties and assets as more
particularly described in Exhibit A thereto, which include, but are not limited
to, the Foreclosure Properties, (the Foreclosure Properties and such other
assets, interests, and properties to be conveyed pursuant to the Settlement
Agreement herein collectively called the "Interests").
In the event that Seller acquires the Foreclosure Properties, Seller
desires to sell and Buyer desires to purchase, all of Seller's right, title,
estate and interest in and to Interests, including the Foreclosure Properties,
subject to the satisfaction of the conditions precedent set forth in this
Agreement.
In consideration of the foregoing premises, the following terms,
agreements, covenants, and conditions, and for the purpose of prescribing the
terms and conditions of the purchase and sale of the Interests, Seller and Buyer
agree as follows:
Section 1. SALE OF INTERESTS; PURCHASE PRICE; AGREED VALUE. At the
closing provided for at Section 2 of this Agreement (hereinafter called the
"Closing"), Seller, subject to the terms and conditions of this Agreement, will
sell, convey, and deliver the Foreclosure Properties and the other Interests to
Buyer, and Buyer will purchase and accept delivery of the Foreclosure Properties
and the other Interests from Seller, for Seven Million One Hundred Eighty
Thousand Dollars ($7,180,000) (hereinafter called the "Base Price"), subject to
the adjustments made in connection with the allocation of revenues and expenses
among Seller and Buyer as a result of the deemed "Effective Date" considerations
all as more particularly described at Section 2 of this
-1-
Agreement, and in further consideration of Buyer's execution and delivery at the
Closing (or promptly thereafter) of that certain Conveyance of Production
Payment and Net Profit Overriding Royalty Interest (hereinafter called the
"Conveyance") from Buyer, as grantor, to Seller (hereinafter called the
"Purchase Price").
Section 2. CLOSING; EFFECTIVE DATE ALLOCATION. The purchase and sale of
the Interests shall be held and consummated promptly following the acquisition
of the Foreclosure Properties, and contemporaneously with the delivery of
documents under the Settlement Agreement (hereinafter called the "Closing
Date"). In the event that Seller does not acquire the Foreclosure Properties at
the sale and the other Interests pursuant to the Settlement Agreement, this
Agreement will terminate. The purchase and sale of the Interests shall be
effective for purposes of adjustment to the purchase price as of January 1, 1996
(the "Effective Date"). The computation of the adjustments shall be made as if
Seller had owned the Interests on the Effective Date even though the Interests
are acquired by Seller on the Closing Date. All revenues, proceeds, receipts,
and income ("Revenues") attributable to production from the Wells and the sale
of the Properties prior to the Effective Date shall belong to Seller.
Conversely, all Revenues attributable to production from the Wells, the sale of
the Properties or otherwise attributable to the Interests on or after the
Effective Date, including, without limitation, all production of oil, gas, and
other hydrocarbons attributable to the Interests which was in tanks, storage
containers, or other facilities ("Production") on or after the Effective Date
awaiting delivery to the purchaser of same, shall belong to Buyer. All joint
interest billings related to the use or operation of the Interests prior to the
Effective Date ("Expenses") shall be the sole obligation of Seller. Conversely,
all joint interest billings related to the use or operation of the Interests on
or after the Effective Date shall be the sole obligation of Buyer; provided,
however, that Seller shall be solely responsible for each Expense incurred on or
after the Effective Date which is payable to any person or entity (other than an
unrelated third party or parties for services performed or materials furnished
with respect to the use, ownership or operation of the Interests from and after
the Effective Date, but prior to the Closing Date) if Seller has not delivered
an itemized documentation of such Expense to Buyer before the Closing Date. Any
party hereto that owes a sum of money to the other party hereto pursuant to the
terms of this Agreement shall promptly pay to the other party such sum. In no
event will the aggregate adjustment to the Base Price for the amount payable by
Seller under this Section 2 exceed $372,000, such adjustment will be calculated
in accordance with Exhibit B.
Section 3. INDEMNITY. PrimeEnergy hereby agrees to indemnify, defend
and hold harmless, ING from and against any loss, expense, liability, claims,
damage, penalties, fines, actions judgments, settlements or disbursements
arising out of or based upon ING's ownership of any of the Interests.
Section 4. REPRESENTATIONS AND WARRANTIES OF SELLER. Seller represents
and warrants to Buyer as of the date hereof, and Seller will represent and
warrant to Buyer as of the Closing Date, as follows:
-2-
(a) ORGANIZATION; QUALIFICATION; AUTHORIZATION. Seller is and
until the date of Closing shall continue to be a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
This Agreement constitutes the valid and binding agreement of Seller enforceable
against Seller in accordance with its terms. All requisite corporate action
necessary to close the transactions contemplated by this Agreement has been
taken by Seller, and Seller has obtained all requisite consents and
authorizations necessary to close such transactions.
Section 5. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer represents
and warrants to Seller as of the date hereof, and Buyer will represent and
warrant to Seller on the Closing Date, as follows:
(a) ORGANIZATION; QUALIFICATION; AGREEMENT AUTHORIZED AND
VALID. Buyer is and until the Closing Date shall continue to be a corporation
validly existing and in good standing under the laws of the state of its
incorporation. This Agreement has been duly authorized, executed and delivered
by Buyer, and all instruments required hereunder to be delivered by Buyer at the
Closing shall be duly authorized, executed and delivered by Buyer. All requisite
corporate action by Buyer necessary to close the transactions contemplated by
this Agreement has been taken. This Agreement constitutes the valid and binding
agreement of Buyer enforceable against Buyer in accordance with its terms.
(b) BROKERS AND FINDERS. Buyer has incurred no liability,
contingent or otherwise, for broker's or finder's fees with respect to this
transaction for which Seller shall have any responsibility whatsoever.
Section 6. INDEPENDENT INVESTIGATION. Buyer acknowledges that in
entering into this Agreement and consummating the transactions contemplated
hereby that it has conducted or it will conduct an independent investigation and
evaluation of the Interests, and that Buyer's decision to consummate the
purchase of the Interests are based solely upon Buyer's independent
investigation and evaluation of the Interests.
Section 7. FURTHER ASSURANCES. Upon delivery of the Purchase Price by
Buyer to Seller and subject to the terms of this Agreement, Seller shall convey
all of Seller's right, title and interest including lien rights, if any, in the
Foreclosure Property to Buyer at the Closing by delivering to Buyer a fully and
properly executed and acknowledged Conveyance in the form attached hereto as
Exhibit C. In addition and from time to time (whether at or after Closing), as
and when reasonably requested by Buyer or its successors or assigns, Seller will
execute, acknowledge and deliver all such additional deeds, releases,
assignments, division orders, transfer orders, letters in lieu of transfer
orders, bills of sale, instruments, files, records, documents and books in
Seller's possession or under Seller's control, and take such other action as
Buyer may reasonably deem necessary or desirable in order to more effectively
convey and transfer to Buyer the Interests, and Seller will assist Buyer in the
collection or reduction to possession of the Interests.
-3-
Section 8. CONDITIONS TO OBLIGATIONS OF BUYER. The obligation of Buyer
to consummate the transactions provided for in this Agreement for Buyer's
consummation shall be subject to the satisfaction of each of the following
conditions as of the Closing Date, subject to the right of Buyer to waive any
one or more of such conditions:
(a) OPINION OF COUNSEL. Counsel of the Saratoga Companies
shall have furnished Seller and Buyer such counsel's written opinion (in form
and substance satisfactory to Seller and Buyer) in the form attached to the
Settlement Agreement.
(b) PERFORMANCE OF THIS AGREEMENT. Seller shall have had its
bid accepted as the highest bid pursuant to the Sale and receive a duly executed
and acknowledged Substitute Trustee Deed covering the Foreclosure Properties.
(c) NO LITIGATION. No suit, action, proceeding, investigation,
injunction, inquiry or request for information by any governmental body or
authority, or private party shall have been instituted or threatened which
questions or reasonably appears to portend subsequent questioning of the
validity or legality of this Agreement or the transactions contemplated by this
Agreement.
(d) SETTLEMENT AGREEMENT. The Saratoga Parties and ING shall
have entered into the Settlement Agreement and the Saratoga Parties shall have
delivered to Buyer the Sale Documents contemplated thereby.
(e) ING RELEASE. Seller shall have secured and deliver to
Buyer at the Closing a properly executed and acknowledged assignment in
recordable form of the liens, security interests, and assignments of production
upon the Interests arising from Sellers' mortgages, deeds of trust and other
lien instruments with ING, with respect to any interest not discharged by the
Sale, which shall be in a form satisfactory to Buyer.
(f) SELLER/ING MUTUAL RELEASE. Seller, ING and Buyer shall
have delivered one to the other at the Closing a properly executed mutual
release of claims in a form satisfactory to Buyer.
(g) OPERATIONS. Buyer, in its good faith judgment, shall have
received the requisite number of agreements and approvals, in form and substance
satisfactory to Buyer, from non-operating working interest participants in the
Saratoga Operated Wells to ensure that Buyer will succeed Saratoga as the duly
designated and appointed operator of the Saratoga Operated Wells from and after
the Closing.
(h) OTHER AGREEMENTS. Buyer shall have received (i) a properly
executed resignation and assignment, in form and substance satisfactory to
Buyer, from LOI resigning as operator of the LOI Operated Wells and transferring
all interest in such operations to Buyer, (ii) a properly executed Shareholders'
Agreement, in form and substance satisfactory to Buyer, from
-4-
Thomas F. Cooke, Joseph T. Kaminski and Randall F. Dryer to Buyer, and (iii) a
properly executed acknowledgment, representation and warranty from Saratoga
Delaware that it has no right, title, interest or claim in and to any asset or
property included within the Interests, whether or not such asset or property is
set forth at Exhibit A attached hereto.
Section 9. CONDITIONS TO OBLIGATIONS OF SELLER. The obligations of
Seller to consummate the transactions provided for in this Agreement for
Seller's consummation shall be subject to the satisfaction of each of the
following conditions as of the Closing Date, subject to the right of Seller to
waive any one or more of such conditions:
(a) REPRESENTATIONS AND WARRANTIES OF BUYER. The
representations and warranties of Buyer contained in this Agreement shall be
true and correct in all material respects.
(b) PERFORMANCE OF THIS AGREEMENT. Buyer shall have duly
performed or complied with all material obligations to be performed or complied
with by Buyer under the terms of this Agreement on or prior to the Closing Date.
(c) NO LITIGATION. No suit or action, investigation, inquiry
or request for information by any government body or authority, or private party
shall have been instituted or threatened which questions or reasonably appears
to portend subsequent questioning of the validity or legality of this Agreement
or the transactions contemplated by this Agreement.
Section 10. TERMINATION. Anything in this Agreement to the contrary
notwithstanding, this Agreement may be terminated by either of the parties on
the Closing Date if any of the conditions precedent to such party's obligations
at Closing have not been satisfied or waived on or prior to the Closing Date.
Such termination shall be without waiver of and shall not be construed to limit
the legal or equitable remedies of the terminating party.
Section 11. EXPENSES; SALES TAXES. Except as otherwise provided in this
Agreement, each party hereto will bear and pay its own expenses of negotiating
and consummating the transactions contemplated by this Agreement. Buyer shall be
responsible for remitting to the applicable governmental taxing authority all
sales taxes resulting from the sale contemplated by this Agreement. Such taxes
shall be Buyer's sole responsibility. Seller and Buyer shall cooperate with one
another with respect to the timely filing of a sales tax return or other
filings, if required by applicable law, with all applicable governmental
authorities.
Section 12. DTPA WAIVER. AS RESPECTS ANY AND ALL INTERESTS SITUATED IN
THE STATE OF TEXAS, BUYER HEREBY WAIVES THE PROVISIONS OF THE TEXAS DECEPTIVE
TRADE PRACTICES-CONSUMER PROTECTION ACT, CHAPTER 17, SUBCHAPTER E, SECTIONS
17.41-17.63 INCLUSIVE, TEXAS BUSINESS AND COMMERCE CODE, EXCEPT SECTION 17.555,
WHICH IS NOT WAIVED. IN ORDER TO EVIDENCE ITS ABILITY TO GRANT SUCH WAIVER AND
TO ESTABLISH BUYER'S SOPHISTICATION AS A PURCHASER OF OIL AND GAS
-5-
PROPERTIES, BUYER HEREBY REPRESENTS AND WARRANTS TO SELLER THAT BUYER (A) IS IN
THE BUSINESS OF SEEKING OR ACQUIRING, BY PURCHASE OR LEASE, MINERALS, GOODS OR
SERVICES FOR COMMERCIAL OR BUSINESS USE, (B) HAS ASSETS OF $1,000,000 OR MORE
ACCORDING TO BUYER'S MOST RECENT FINANCIAL STATEMENT PREPARED IN ACCORDANCE WITH
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES, (C) HAS KNOWLEDGE AND EXPERIENCE IN
FINANCIAL AND BUSINESS MATTERS THAT ENABLE IT TO EVALUATE THE MERITS AND RISKS
OF THE TRANSACTIONS CONTEMPLATED HEREBY, (D) IS NOT IN A SIGNIFICANTLY DISPARATE
BARGAINING POSITION, (E) IS AN EXPERIENCED AND KNOWLEDGEABLE INVESTOR IN THE OIL
AND GAS BUSINESS AND IS CAPABLE OF INDEPENDENTLY EVALUATING THE MERITS AND RISKS
OF THE INVESTMENT CONTEMPLATED BY THE AGREEMENT, (F) HAS ENGAGED OR EMPLOYED THE
SERVICES OF INDEPENDENT COUNSEL AND PROFESSIONALS TO ADVISE IT AS IT DEEMS
NECESSARY IN CONNECTION WITH THIS AGREEMENT, (G) HAS MADE ITS OWN ASSUMPTIONS
REGARDING THE RECOVERABILITY, QUANTITY, VALUE AND PRICES OF THE OIL AND GAS
RESERVES INCLUDED IN THE INTERESTS, (H) IS PURCHASING THE INTERESTS IN THE
ORDINARY COURSE OF ITS BUSINESS FOR INVESTMENT PURPOSES AND NOT FOR PURPOSES OF
FURTHER RESALE, DISTRIBUTION OR TRANSFER IN VIOLATION OF THE SECURITIES ACT OF
1933 OR THE RULES AND REGULATIONS THEREUNDER OR [ANY OTHER APPLICABLE SECURITIES
LAWS OF THE UNITED STATES OR ANY APPLICABLE STATE BLUE SKY LAWS AND (I) HAS THE
FUNDS AND FINANCIAL CAPABILITY TO DELIVER TO SELLER THE PURCHASE PRICE AT THE
CLOSING.
Section 13. NOTICES. All communications required or permitted under
this Agreement shall be in writing and any communication or delivery hereunder
shall be deemed to have been duly made if actually delivered, or if mailed by
registered or certified mail, postage prepaid, addressed as set forth below,
shall be deemed to have been duly made on the date received. Either party may,
by written notice so delivered to the other, change the address to which
delivery shall thereafter be made.
-6-
(a) Notices to Seller:
Internationale Nederlanden (U.S.)
Capital Corporation
135 East 57th Street
New York, New York 10022-1500
Attn: Peter Y. Clinton
(b) Notices to Buyer:
PrimeEnergy Corporation
1 Landmark Square, 11th Floor
Stamford, Connecticut 06901
Attn: Charles E. Drimal, Jr., President
Section 14. BINDING EFFECT. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns. Buyer may not assign all or any portion of its rights or obligations
under this Agreement without Seller's prior written consent thereto.
Section 15. COUNTERPARTS. This Agreement may be executed in any number
of counterparts, which taken together shall constitute one and the same
instrument and each of which shall be considered an original for all purposes.
Section 16. EXPENSES; ATTORNEYS' FEES. Except as otherwise provided in
this Agreement, each party hereto will bear and pay its own expenses of
negotiating and consummating the transactions contemplated by this Agreement.
The prevailing party in any lawsuit or litigation concerning the construction or
interpretation of this Agreement or the breach by the other party of any
provision of this Agreement shall be entitled to such party's reasonable
attorneys' fees and court costs.
Section 17. HEADINGS. The headings contained in this Agreement are for
convenient reference only and shall not in any way affect the meaning or
interpretation of this Agreement.
Section 18. SUPERSEDING EFFECT. This Agreement supersedes any prior
agreement and understanding between the parties with respect to the subject
matter of this Agreement.
Section 19. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Texas applicable to
contracts made and performed entirely therein.
-7-
Section 20. WAIVERS. No party's rights under this Agreement will be
deemed waived except by a writing signed by such party. Without limitation, the
occurrence of the Closing shall not be deemed a waiver of any party's 'rights
except its right to refuse to close.
Section 21. EXHIBITS AND SCHEDULES. The exhibits and schedules referred
to herein are attached hereto and by this reference made a part hereof.
Section 22. ANNOUNCEMENTS. Seller and Buyer shall consult with each
other with regard to all press releases and other announcements issued on or
prior to the Closing Date concerning this Agreement or the transactions
contemplated by this Agreement and, except as may be required by applicable laws
or the applicable rules and regulations of any governmental body or stock
exchange, neither Buyer nor Seller shall issue any such press release or other
publicity without the prior written consent of the other party.
Section 23. PARTIAL INVALIDITY. In the event any provision of this
Agreement is determined to be invalid or unenforceable, then the remainder of
this Agreement shall not be affected thereby.
Section 24. SPECIFIC PERFORMANCE. In addition to all other remedies, at
law or in equity, to which either party may be entitled, Seller and Buyer shall
each be entitled to specific performance of this Agreement, because the remedies
provided at law for any breach of this Agreement are inadequate and damages in
respect of any such breach will be difficult or impossible to determine.
IN WITNESS WHEREOF, the parties have executed or caused this Agreement
to be executed by an officer thereunto duly authorized as of the day and year
first above written.
"SELLER"
INTERNATIONAL NEDERLANDEN (U.S.)
CAPITAL CORPORATION, a Delaware corporation
ATTEST:
___________________ By: _______________________
Assistant Secretary Peter Y. Clinton
Vice President
-8-
"BUYER"
PRIMEENERGY CORPORATION
ATTEST:
___________________ By: _________________________
Secretary Charles E. Drimal, Jr.
President
-9-
ASSIGNMENT AND BILL OF SALE
For and in consideration of Ten Dollars ($10.00) and other
good and valuable considerations, the receipt and sufficiency of which are
hereby acknowledged, Saratoga Resources, Inc., a Delaware corporation ("Saratoga
Delaware") having an address at 1155 Dairy Ashford, Suite 600, Houston, Texas
77079, does hereby sell, assign, convey, and transfer all of Assignor 's right,
title, estate and interest in and to the following rights, assets, properties
and interests, and all rights attendant thereto (hereinafter individually and
collectively referred to as the "Accounts"):
all accounts receivable, security deposits, prepayments,
refunds, rights to refunds, and rebates in favor of, owing to,
or possessed or controlled by Assignor
unto PrimeEnergy Corporation, a Delaware corporation (hereinafter called
"Assignee").
This Assignment and Bill of Sale is made without warranty or
representation of any kind, express or implied.
This Assignment and Bill of Sale is being delivered by
Assignor to further effectuate the purposes and effect of that certain
Compromise and Settlement Agreement dated this even date between Assignor,
Internationale Nederlanden (U.S.) Capital Corporation and others. Assignor, as
and when reasonably requested by Assignee (or its successors and assigns), will
properly execute, acknowledge and deliver all such additional deeds,
assignments, bills of sale, instruments, files, documents, releases, computer
discs and other computer data in Assignor's possession or under its control in
order to more effectively convey and transfer the Accounts to Assignee. Assignor
will assist Assignee in the collection or reduction to possession of the
Accounts.
TO HAVE AND TO HOLD the Accounts unto Assignee, Assignee's
successors and assigns, forever.
This Assignment and Bill of Sale may be executed in any number
of counterparts, each of which shall be considered an original for all purposes.
This Assignment and Bill of Sale is executed and delivered as
of this ___ day of May, 1996, but shall be effective for all purposes as of
January 1, 1996.
1
"ASSIGNOR"
"SARATOGA DELAWARE
ATTEST: SARATOGA RESOURCES, INC.
By:
Secretary Thomas F. Cooke
Chairman and Chief Executive Officer
2
ERNST & YOUNG LLP
June 10, 1996
Mr. Thomas F. Cooke
Chairman
Saratoga Resources, Inc.
1155 Dairy Ashford, Suite 600
Houston, TX 77079
Dear Mr. Cooke:
This is to confirm that the client-auditor relationship between Saratoga
Resources, Inc. (Commission File Number 0-11498) and Ernst & Young LLP has
ceased.
Very truly yours,
ERNST & YOUNG LLP
Copy to Office of the Chief Accountants
SECPS Letter File
Securities and Exchange Commission
Mail Stop 9-5
450 Fifth Street, N.W.
Washington, DC 20549
ERNST & YOUNG LLP
July 15, 1996
Securities and Exchange Commission
450 Fifth Street, Northwest
Washington, DC 20549
Gentlemen:
We have read Item 4 of Form 8-K dated May 7, 1996, which we received on July 15,
1996, of Saratoga Resources, Inc. and are in agreement with the statements
contained in the third and fourth paragraphs of Item 4 on page 5 therein. We
have no basis to agree or disagree with other statements of the registrant
contained therein.
Ernst & Young LLP
Houston, Texas
