SARATOGA RESOURCES INC, PRE 14A, 1996-08-19

SARATOGA RESOURCES INC
PRE 14A, 1996-08-19
CRUDE PETROLEUM & NATURAL GAS

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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934

Filed by the Registrant [x]
Filed by a Party other than Registrant [ ]

Check the appropriate box:
[x] Preliminary Proxy Statement
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12

SARATOGA RESOURCES, INC.
(Name of Registrant as Specified In Its Charter)

SARATOGA RESOURCES, INC.
(Name of Person(s) Filing Proxy Statement)

Payment of Filing Fee (Check the appropriate box):
[x] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2).

[_] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).

[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.

(1) Title of each class of securities to which transaction
applies: N/A

(2) Aggregate number of securities to which transaction applies:
N/A

(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11: N/A

(4) Proposed maximum aggregate value of transaction: N/A

(5) Total fee paid: N/A

[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.

(1) Amount Previously Paid: N/A

(2) Form, Schedule or Registration Statement No.: N/A

(3) Filing Party: N/A

(4) Date Filed: N/A
<PAGE>
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD SEPTEMBER 14, 1996

To the Shareholders of
SARATOGA RESOURCES, INC.:

Notice is hereby given that the 1996 Annual Meeting of Shareholders of
Saratoga Resources, Inc. (the "Company") will be held at the Westwood Country
Club, 3808 West 35th Street, Austin, Texas 78703, on Saturday, September 14,
1996 at 1:30 p.m. Austin time, and any adjournment thereof, for the following
purposes:

(1) To elect three directors;

(2) To ratify and confirm the May 7, 1996 Agreements
(Foreclosure Sale; Compromise and Settlement Agreement and related
documents; the "Agreements"), by and among the Company (and its
subsidiaries), Internationale Nederlanden (U.S.) Capital Corporation,
and PrimeEnergy Corporation;

(3) To authorize the proposed amendment of the By-laws
providing for the indemnification of the Company's directors, officers,
employees and agents to the fullest extent allowed under the laws of
the State of Delaware;

(4) To approve payment by the Company of all attorneys' fees
and expenses relative to the defense of Mr. Thomas F. Cooke and Mr.
Randall F. Dryer, as defendants in their individual and representative
capacities on behalf of the Company, in that certain lawsuit currently
pending in Harris County, Texas: 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;

(5) To approve and ratify reimbursement by the Company to Mr.
Thomas F. Cooke for all travel and living expenses incurred by Mr.
Cooke and related to his services as Chairman of the Board of
Directors, Chief Executive Officer and Chief Operating Officer of the
Company during 1995 and thus far incurred in 1996, and which may
hereafter be incurred while serving in any such representative capacity
on behalf of the Company, subject to standard procedures for
verification of expenses and review and approval by the Board of
Directors;

(6) To authorize the Board of Directors to evaluate and decide
on a business plan going forward, to include any of the following
possible alternatives: (i) rebuilding the management team and
continuing in the oil and gas business; (ii) entering into a business
combination with one or more businesses at the discretion of the Board
of Directors; or (iii) any other potential alternative which the Board
of Directors may deem to be in the best interest of the Company and its
shareholders, including but not limited to (a) the sale of one or more
subsidiaries, (b) a divisive reorganization of the Company pursuant
to which the Company or a subsidiary would register the issuance and
sale of any securities to be issued in such reorganization or (c) the
sale and liquidation of all hard assets of the Company and disposition
to the shareholders; and to take such proper actions as may be
necessary to accomplish same; and

(7) To transact such other matters of business as may properly
come before the meeting or any adjournment thereof.

The Board recommends election of the nominees for directors named in
the accompanying Proxy Statement, approval of the May 7, 1996 Agreements, the
authorization of the proposed amendment to the By-laws, the approval of payment
of all attorneys' fees and expenses relative to the defense of Mr. Thomas F.
Cooke and Mr. Randall F. Dryer, the approval of reimbursement by the Company to
Mr. Thomas F. Cooke for expenses he has incurred and continues to incur while
serving in representative capacities on behalf of the Company, and the
authorization to proceed with an evaluation and decision on a business plan
going forward for the Company.
<PAGE>
Page 2

Shareholders of record at the close of business on July 19, 1996 are
entitled to notice of and to vote at the meeting. All shareholders are cordially
invited and urged to attend the meeting. Your vote is important. Regardless of
whether you expect to attend the meeting, we request that you sign, date and
return the accompanying proxy card in the enclosed self-addressed postage paid
envelope and thus ensure that your shares of the Company Common Stock will be
represented at the Annual Meeting if you are unable to attend.

When a proxy is returned properly executed, the shares represented
thereby will be voted in accordance with the indicated instructions. However, if
no choice has been specified, the shares will be voted in favor of the
proposals. You may still attend and vote in person at the meeting if you wish,
even though you may have submitted your proxy prior to the meeting. The By-laws
of the Company require that the holders of a majority of the outstanding shares
of Common Stock of the Company entitled to vote be represented in person or by
proxy at the meeting in order to constitute a quorum for the transaction of
business. Accordingly, it is important that your shares be represented at the
meeting in person or by proxy.

Your support for the Company is greatly appreciated.

By Order of the Board of Directors

Thomas F. Cooke, CHAIRMAN OF THE BOARD,
CHIEF EXECUTIVE OFFICER AND
CHIEF OPERATING OFFICER

August , 1996
<PAGE>
SARATOGA RESOURCES, INC.
2000 DAIRY ASHFORD SOUTH, SUITE 410
HOUSTON, TEXAS 77077

PROXY STATEMENT

1996 ANNUAL MEETING OF SHAREHOLDERS
OF SARATOGA RESOURCES, INC.

SOLICITATION, EXERCISE AND REVOCATION OF PROXIES

The accompanying proxy is solicited on behalf of the Board of Directors
(the "Board") of Saratoga Resources, Inc. (the "Company"), to be voted at the
1996 Annual Meeting of Shareholders of the Company (the "Annual Meeting"). The
Annual Meeting will be held at the time and place and for the purposes set forth
in the foregoing Notice. In addition to the original solicitation by mail,
certain regular employees of the Company may solicit proxies by telephone or
telecopy or in person. The Company does not intend to retain specially engaged
employees or solicitors for proxy solicitation purposes. All expenses of this
solicitation, including the costs of preparing and mailing this Proxy Statement
and the reimbursement of brokerage firms and other nominees for their reasonable
expenses in forwarding proxy materials to the beneficial owners of shares, will
be borne by the Company. You may vote in person at the Annual Meeting, if you
wish, even though you have previously mailed in your proxy. This Proxy Statement
and the accompanying proxy are being mailed to shareholders beginning on or
about August , 1996.

All duly executed proxies will be voted in accordance with the
instructions thereon. Shareholders who execute proxies, however, retain the
right to revoke them at any time before they are voted. The revocation of a
proxy will not be effective until written notice thereof has been given to the
Secretary of the Company, unless the shareholder granting such proxy votes in
person at the Annual Meeting.

VOTING OF SECURITIES

The record date for the determination of shareholders entitled to vote
at the Annual Meeting is July 19, 1996. As of such date, the Company had
outstanding 6,809,400 shares of Common Stock, $.001 par value per share (the
"Common Stock"). The Common Stock is the only class of stock of the Company
outstanding and entitled to vote at the Annual Meeting. Each shareholder is
entitled to one vote for each share of Common Stock held. All votes on the
proposals set forth below will be taken by ballot. For purposes of the votes on
all proposals set forth below, the holders of a majority of the shares entitled
to vote, represented in person or by proxy, will constitute a quorum at the
Annual Meeting. The shareholders present at the Annual Meeting may continue to
transact business until adjournment, notwithstanding the subsequent withdrawal
of enough shareholders to leave less than a quorum or the refusal of any
shareholder present in person or by proxy to vote or participate in the Annual
Meeting.
<PAGE>
SECURITY OWNERSHIP

The following table sets forth certain information regarding the
beneficial ownership, as of the close of business on July 19, 1996, of shares of
the Common Stock by each person who is known to the Company to be a beneficial
owner of 5% or more of the Common Stock, each current director and nominee for
director, each executive officer named in the Summary Compensation Table
hereinafter set forth, and all current directors and executive officers of the
Company as a group. The Common Stock is the only class of voting securities
outstanding. Unless otherwise indicated, each person or entity set forth in the
table has sole investment and voting power with respect to all shares shown as
beneficially owned, subject to community property laws, where applicable. Shares
are owned beneficially and of record, unless otherwise specified.

SHARES BENEFICIALLY OWNED
NUMBER PERCENT
BENEFICIAL OWNER(1)
Joseph T. Kaminski(2) ............................. 2,565,371 37.67%
Thomas F. Cooke(3) ................................ 2,211,274 32.47%
Dryer Family Limited Partnership(4) ............... 920,737 13.52%
Kevin M. Smith(5) ................................. 218,295 3.21%
All executive officers and directors
as a group (3 persons) .......................... 5,697,382 83.66%

(1) The address for all executive officers and directors (except for Joseph
T. Kaminski) is 2000 Dairy Ashford South, Suite 410, Houston, Texas
77077.

(2) Joseph T. Kaminski currently serves as a director of the Company. His
address is 531 Hidden Harbor, Houston, Texas 77079. His shareholdings
include 100,000 shares purchasable under warrants exercisable within 60
days and expire if not exercised by May 11, 1999.

(3) Thomas F. Cooke currently serves as a Chairman of the Board of
Directors of the Company and is a nominee for election to the Board of
Directors as further set forth herein. Mr. Cooke also serves as Chief
Executive Officer and Chief Operating Officer of the Company. His
shareholdings include 100,000 shares purchasable under warrants
exercisable within 60 days and expire if not exercised by May 11, 1999.

(4) Dryer Family Limited Partnership is a Texas limited partnership whose
General Partner is Randall F. Dryer. Mr. Dryer currently serves as a
director of the Company and is a nominee for election to the Board of
Directors as further set forth herein. His shareholdings include 50,000
shares purchasable under warrants exercisable within 60 days and expire
if not exercised by May 11, 1999.

(5) Kevin M. Smith is a nominee for election to the Board of Directors as
further set forth herein. His address is 14003 Cherry Mound, Houston,
Texas 77077.

ELECTION OF DIRECTORS
(PROPOSAL 1)

GENERAL INFORMATION

Three directors are proposed to be elected at the Annual Meeting. Two of
the three proposed directors currently serve as directors of the Company. Each
director will serve until the next annual meeting of shareholders or until a
successor is elected and has qualified. The Board currently consists of three
directors.

The persons named in the accompanying proxy may act with discretionary
authority to vote for a new management nominee should any nominee named in this
Proxy Statement become unavailable for election, although management is unaware
of circumstances likely to render any nominee unavailable for election. Unless
the shareholder has specified otherwise, the persons named in the accompanying
proxy will vote such shareholder's shares of Common Stock in favor of the
nominees listed below.

BOARD RECOMMENDATION

The Board believes that the election of the persons listed below as
directors of the Company is in the best interest of the Company and its
shareholders. The Board therefore recommends a FOR vote for the nominees and it
is intended that the proxies not marked to the contrary will be so voted.

The Certificate of Incorporation of the Company does not permit
cumulative voting. A plurality of the votes of the holders of the outstanding
shares of Common Stock of the Company represented at a meeting at which a quorum
is present may elect directors.

NOMINEES FOR DIRECTOR

Set forth below is certain information concerning the nominees for
election as directors of the Company at the Annual Meeting, including the
business experience of each during the past five years, and the age of each
nominee on July 19, 1996.

THOMAS F. COOKE, age 47, was one of the co-founders of Saratoga Resources, Inc.
in 1990. Mr. Cooke has been a self employed independent oil and gas producer for
the last 16 years. Mr. Cooke has served as a director since September of 1993,
and as Chairman of the Board and Chief Operating Officer. In April of 1996, Mr.
Cooke also assumed the duties of Chief Executive Officer. Mr. Cooke is an
Explorer Member of the Texas Independent Producers and Royalty Owners
Association and serves as Director and Chairman of the North American Energy
Issues Committee. Mr. Cooke is also a principal shareholder of the Company. See
also "SECURITY OWNERSHIP".

RANDALL F. DRYER, M.D., age 43, became a member of the Board of Directors and
has served continuously as a director for the Company since January of 1994. Dr.
Dryer has been in private medical practice, specializing in spinal surgery for
over ten years and serves on the Medical Advisory Board of U.S. Medical, Inc. He
is actively involved with the Texas Independent Producers and Royalty Owners
Association. Dr. Dryer is also a principal shareholder of the Company. See also
"SECURITY OWNERSHIP".

KEVIN M. SMITH, age 50, has over 20 years of experience in the oil and gas
industry as an exploration geophysicist. Mr. Smith was with Amoco Production
Company for 10 years, and in 1984 formed his own geophysical consulting firm.
Mr. Smith is a member of the Society of Geophysicists, American Association of
Geologists, Houston Geophysical Society, and the Texas Independent Producers and
Royalty Owners Association. In July of 1990, he joined the Company as Vice
President of Exploration. See also "SECURITY OWNERSHIP".

CERTAIN TRANSACTIONS

As of December 31, 1994 and September 30, 1994 the Company had an
account receivable due from Kaminski 90-1 Joint Venture ("Kaminski 90-1"), of
which Joseph T. Kaminski, a director and shareholder of the Company, was the
joint venture manager. Kaminski 90-1 is the owner of a portion of the mineral
leases in several wells owned and operated by the Company and is billed its
share of the operating expenses to these properties. The balance due at December
31, 1994 and September 30, 1994 amounted to $78,000 and $59,917, respectively.
At December 31, 1995, the outstanding balance of $107,240 was written off as
uncollectible.

LEGAL PROCEEDINGS

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, and other claims. This

lawsuit involves the assignment of certain seismic data and seismic license
agreements by Kaminski to the Company in exchange for the forgiveness of
$320,000 in debt owed by the Company to Kaminski, and the issuance of additional
Common Stock of the Company to Kaminski. The lawsuit further alleges intentional
and negligent misrepresentation of oil and gas reserves by Kaminski while
serving as President and Chief Executive Officer of the Company. Actual and
exemplary damages are being sought from Kaminski.

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, libel per se, and other claims on the
part of Cooke and Dryer individually and as directors of the Company. This
lawsuit involves further allegations of mismanagement and waste of corporate
assets by Cooke and Dryer. Kaminski had requested the Court to remove Cooke and
Dryer as directors and to appoint a receiver to conduct the affairs of the
Company and preserve the assets of the Company, which request has been denied by
the Court. Actual and exemplary damages are being sought from Cooke and Dryer.
With respect to an "Agreement" dated effective May 31, 1996 (the "Voting
Agreement") which had been circulated by Cooke to certain shareholders of the
Company whereby shareholders signing said Voting Agreement were agreeing to
remove Kaminski as director of the Company, the Court has declared such Voting
Agreement to be void and unenforceable, and has further ordered that all
shareholders signing said Voting Agreement be informed of the Court's ruling
with respect to same. Additionally, the Court has ordered that the Company may
not pay the attorneys' fees for Cooke or Dryer in this or any other lawsuit,
unless otherwise provided under Delaware law.

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, and a
Supplemental Temporary Injunction Order dated July 23, 1996.

COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

Pursuant to Section 16(a) of the Exchange Act and Commission
Regulations, the Company's directors, executive officers, and shareholders who
own more than ten percent of the Company's Common Stock are required from time
to time to file reports of stock ownership or changes in ownership with the
Commission and to furnish the Company with copies of all such reports they may
file. [To be completed.]

BOARD COMMITTEES

The Board of Directors has not established an Audit Committee, a
Nominating Committee or a Compensation Committee. The functions typically
associated with such committees are performed by the full board. During the
Company's 1995 fiscal year (the year ended December 31, 1995), the Board held
six (6) meetings in person or by telephone conference. Each director during the
1995 fiscal year attended no fewer than 75% of the total number of meetings of
the Board.

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 during the fiscal
years ended December 31, 1995 and 1994. 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 Company's executives in any fiscal year covered by the
tables.

SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
----------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------- ------ -------
OTHER
NAME ANNUAL RESTRICTED ALL OTHER
AND FISCAL COMPEN- STOCK LTIP COMPEN-
PRINCIPAL YEAR SATION AWARD(S) OPTIONS/ PAYOUTS SATION
POSITION ENDED SALARY($) BONUS($) ($) ($) SARS(#) ($) ($)
- -------- ----- --------- -------- --------- ------- -------- ------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CEO
Kaminski,
Joseph (1)
Dec. 31 (2) .................... 1995 $107,100 None None None None None None
Oct. - Dec. 31 ................. 1994 30,000 None $2,100 None None None None
Sept. 30 ....................... 1994 39,760 None None None None None None

COO
Cooke,
Thomas
Dec. 31 ........................ 1995 $106,000 None None None None None None
Oct. - Dec. 31 ................. 1994 30,000 None None None None None None
Sept.30 ........................ 1994 39,715 None None None None None None
</TABLE>
(3)

(1) Mr. Kaminski received no cash, property or stock compensation for the first
three months of fiscal 1994 during which time a compensation amount of $2,100
per month was imputed in accordance with generally accepted accounting
principles (SAB 2B). His compensation for the remainder of the fiscal year 1994
was $10,000 per month. He received $2,100 in rental income from the Company. He
received $68,276 in common stock (34,138 shares) valued at $2.00 per share and
the remainder in cash. This table does not include 100,000 stock warrants at an
exercisable price of $1.60 per share, exercisable immediately and expiring May
11, 1999. These warrants were granted in connection with the guarantee of the
Company's debt to Hunter Petroleum, Inc. and not in connection with his services
as an officer.

(2) $52,000 plus interest, in deferred compensation and expenses is claimed by
Mr. Kaminski (See "Kaminski Lawsuit" at "Legal Proceedings") .

(3) None of the other executive officers of the Company had aggregate salary and
bonus in excess of $100,000 for the fiscal years indicated.

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.

INDEPENDENT PUBLIC ACCOUNTANTS

The Company has not selected and is making no recommendation at this
time with respect to an independent public accountant. The Company believes that
at such time as the business plan going forward has been decided upon and
implemented as further discussed herein it will be in a better position to
select an appropriate independent public accountant.

Hein + Associates LLP, a certified public accounting firm headquartered
in Houston, Texas served as the Company's independent public accountant in
preparing the Company's Form 10-KSB (Annual Report) filed with the Securities
and Exchange Commission for the year ended December 31, 1995. It is anticipated
that a representative of Hein + Associates LLP will be present at the Annual
Meeting, and that such representative will be available to respond

to any appropriate questions.

By approval of the Board of Directors effective as of June 10, 1996, the
Company (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 was occasioned after careful consideration
by the Company, and as further explained under "Background" hereinbelow. The
Company had not at that time obtained an audit for the fiscal year ended
December 31, 1995, because, until the establishment of the Disbursement Account
(as described below under Proposal 2) by ING and the payment of various amounts
owed to third parties by the Company under the Agreements, 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 (as defined
below) 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 Proposal 2 below, under the terms and
provisions of the Agreements, 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 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 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.

RATIFICATION AND CONFIRMATION OF THE MAY 7, 1996 "AGREEMENTS"
(PROPOSAL 2)

The Board has unanimously approved the May 7, 1996 "Agreements" and has
requested that this matter be submitted to the shareholders for approval and
ratification.

SUMMARY OF AGREEMENTS. On May 7, 1996, the Company entered into an
Agreement and related documents (the "Agreements") 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 and Saratoga-Texas, 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", PrimeEnergy Corporation, a Delaware corporation
("PrimeEnergy"), and Internationale Nederlanden (U.S.) Capital Corporation, a
Delaware corporation ("ING").

The Agreements provided for a Foreclosure Sale of virtually all 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 (collectively 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 for cash consideration 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 under
that certain Disbursement Agreement dated May 7, 1996 (the "Disbursement
Agreement"), of which approximately $4,000,000 was set aside for the settlement
of outstanding vendor debt and other related liabilities of the Saratoga
Companies, and $1,500,000 was paid to the Company. Upon the settlement of all
such debt and liabilities, the Company anticipates it will have no material debt
or liabilities going forward, other than those incurred since May 7, 1996, in
the ordinary course of business. As a result, its principal asset consisted of
approximately $1,500,000 in cash which is available for the pursuit of new
business opportunities or for other proper corporate purposes.

BACKGROUND. On March 30, 1995, the Company, Saratoga-Texas, LEI and ING
entered into a Credit Agreement ("the Credit Agreement") to facilitate the
settlement of a lawsuit brought by Peter P. Pickup ("Pickup") against the
Company and ING, and fund the acquisition by Saratoga-Texas of the LEI assets
previously owned by 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,
develop the Properties and potentially acquire additional properties. The
private placement efforts were not successful. 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
and ING Securities.

Unable to meet its financial obligations under the Credit Agreement, the
Company regularly received notices of default from ING during the period from
approximately October 1995 to April 1996, 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 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 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 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 Agreements.

Pursuant to the Agreements, Cooke, Kaminski, Dryer and PrimeEnergy
entered into a Proxy/Stockholders' Agreement dated May 7, 1996 (the "Proxy
Agreement"), whereby Cooke, Kaminski and Dryer (the "Stockholders") granted to
PrimeEnergy an irrevocable proxy to vote the shares owned by the Stockholders
for the sole purpose of ratifying and confirming the Agreements. PrimeEnergy has
filed a Schedule 13D with the Securities and Exchange Commission evidencing the
5,434,732 shares of the Common Stock of the Company bound to said Proxy
Agreement. The shares subject to the Proxy Agreement represent approximately 81
percent of the outstanding shares of the Common Stock of the Company.

Management believes that no material difference in the rights of the
shareholders of the Company has occurred as a result of the Agreements.

As a result of the Agreements, a gain of approximately $12.5 million was
realized by the Company. No tax liability was generated, however the Company's
net operating loss and other tax attributes were eliminated.

Audited financial statements reflecting the Company's financial
situation at the end of 1995 are included in the Company's Annual Report (Form
10-KSB) for the year ended December 31, 1995, and unaudited pro forma financial
statements reflecting the Agreements are included in the Company's Quarterly
Report (Form 10-QSB) for the quarter ended June 30, 1996, copies of each of
which are being provided to each shareholder of record along with this Proxy
Statement.

BOARD RECOMMENDATION

The Board believes that the May 7, 1996 "Agreements" were in the best
interest of the Company and its shareholders. The Board therefore recommends a
vote FOR ratification and confirmation of the May 7, 1996 "Agreements" and it is
intended that the proxies not marked to the contrary will be so voted.

The affirmative vote of a majority of the outstanding shares of Common
Stock of the Company represented at a meeting at which a quorum is present is
required for ratification and approval of the May 7, 1996 "Agreements".

APPROVAL OF AMENDMENT TO BY-LAWS TO PROVIDE FOR INDEMNIFICATION
OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS
(PROPOSAL 3)

The Board has recommended for approval by the shareholders that the
By-Laws of the Company be amended to provide for the indemnification of
directors, officers, employees and agents of the Company as is normally afforded
to such persons under the laws of the state of its domicile. IN THE EVENT OF
APPROVAL, IT IS THE INTENT TO APPLY THE PROVISIONS OF SAID AMENDMENT
RETROACTIVELY. HOWEVER, THE PROVISIONS OF THE PROPOSED AMENDMENT, IF APPROVED,
SHALL NOT APPLY TO COOKE, KAMINSKI OR DRYER IN THE PRESENT "COMPANY LAWSUIT" OR
THE "KAMINSKI LAWSUIT".

BACKGROUND. The current By-laws of the Company do not contain specific
provisions for the indemnification of its directors, officers, employees and
agents. Currently, Article X of the By-laws which is entitled "INDEMNIFICATION"
refers to a provision in the Certificate of Incorporation of the Corporation
which does not address the subject of indemnification. The Board believes that
it is in the best interest of the Company and its shareholders that the By-laws
be amended to provide for such indemnification so that experienced and capable
persons will be willing to serve as officers, directors, employees or agents of
the Company, to accept positions of responsibility and make good faith decisions
without fear of undue penalty, and being secure with the knowledge that the
Company will bear their expenses in resisting unjustified claims.

TEXT OF PROPOSED AMENDMENT.
Set forth below is the text of the proposed Amendment:

ARTICLE X

INDEMNIFICATION

(i) The Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgment, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.

(ii) The Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the Corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable to the Corporation unless and only to the extent that
the Court of Chancery or the court in which such action or suit was

brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the Court of
Chancery or such other court shall deem proper.

(iii) To the extent that a director, officer, employee or agent of
the Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (i) and (ii) hereof, or in
defense of any claim, issue or matter therein, he shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection therewith.

(iv) Any indemnification under subsections (i) and (ii) hereof
(unless ordered by a court) shall be made by the Corporation only as authorized
in the specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in subsections (i) and (ii) hereof.
Such determination shall be made (i) by a majority vote of the directors who are
not parties to such action, suit or proceeding, even though less than a quorum,
or (2) if there are no such directors, or if such directors so direct, by
independent legal counsel in a written opinion, or (3) by the stockholders.

(v) Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
the Corporation as authorized herein. Such expenses (including attorneys' fees)
incurred by other employees and agents may be so paid upon such terms and
conditions, if any, as the board of directors deems appropriate.

(vi) The indemnification and advancement of expenses provided by,
or granted pursuant to, the other subsections of this section shall not be
deemed exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office.

(vii) The Corporation shall have the power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
him and incurred by him in any such capacity, or arising out of his status as
such, whether or not the Corporation would have the power to indemnify him
against such lability under this section.

(viii) For purposes of this section, references to "the
Corporation" shall include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a constituent) absorbed in
a consolidation or merger which, if its separate existence had continued, would
have had the power and authority to indemnify its directors, officers, and
employees and agents, so that any person who is or was a director, officer,
employee or agent of such constituent corporation, or is or was serving at the
request of such constituent corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, shall stand in the same position under this section with respect to
the resulting or surviving corporation as he would have with respect to such
constituent corporation if its separate existence had continued.

(ix) For purposes of this section, references to "other
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on a person with respect to any employee
benefit plan; and references to "serving at the request of the Corporation"
shall include any service as a director, officer, employee or agent of the
Corporation which imposes duties on, or involves services by, such director,
officer, employee, or agent with respect to an employee benefit plan, its
participants or beneficiaries; and a person who acted in good faith and in a
manner he reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit

plan shall be deemed to have acted in a manner "not opposed to the best
interests of the Corporation" as referred to in this section.

(x) The indemnification and advancement of expenses provided by, or
granted pursuant to, this section shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such person.

(xi) The Court of Chancery of the State of Delaware is hereby
vested with exclusive jurisdiction to hear and determine all actions for
advancement of expenses or indemnification brought under this section or under
any bylaw, agreement, vote of stockholders or disinterested directors, or
otherwise. The Court of Chancery of the State of Delaware may summarily
determine the Corporation's obligation to advance expenses (including attorneys'
fees).

BOARD RECOMMENDATION

The Board believes that the proposed Amendment of Article X of the
By-laws of the Company is in the best interest of the Company and its
shareholders. The Board therefore recommends a vote FOR approval of the proposed
Amendment of Article X of the By-laws and it is intended that the proxies not
marked to the contrary will be so voted.

The affirmative vote of a majority of the outstanding shares of Common
Stock of the Company represented at a meeting at which a quorum is present is
required for approval of the proposed Amendment of Article X of the Bylaws of
the Company. IN THE EVENT OF APPROVAL, IT IS THE INTENT TO APPLY THE PROVISIONS
OF SAID AMENDMENT RETROACTIVELY. HOWEVER, THE PROVISIONS OF THE PROPOSED
AMENDMENT, IF APPROVED, SHALL NOT APPLY TO COOKE, KAMINSKI OR DRYER IN THE
PRESENT "COMPANY LAWSUIT" OR THE "KAMINSKI LAWSUIT".

APPROVAL OF PAYMENT OF LEGAL EXPENSES
ON BEHALF OF COOKE AND DRYER
(PROPOSAL 4)

The Board has requested that the following matter be submitted for
consideration by the shareholders: that the Company pay all attorney's fees and
expenses relative to the defense of Mr. Thomas F. Cooke and Mr. Randall F. Dryer
(both of whom currently serve as directors of the Company), as defendants in
their individual and representative capacities on behalf of the Company, in that
certain lawsuit currently pending in Harris County, Texas under 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. In the event that Cooke and Dryer (or either one of them) are
ultimately found to be liable to the Company for any acts alleged in the
"Kaminski Lawsuit", the party or parties (Cooke and/or Dryer) found to be liable
will be required under Delaware law to reimburse the Company for any such
advance payments of attorneys' fees and expenses made by the Company on their
behalf.

BACKGROUND. 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, libel per se, and
other claims on the part of Cooke and Dryer individually and as directors of the
Company. This lawsuit involves further allegations of mismanagement and waste of
corporate assets by Cooke and Dryer. Kaminski had requested the Court to remove
Cooke and Dryer as directors and to appoint a receiver to conduct the affairs of
the Company and preserve the assets of the Company, which request has been
denied by the Court. Actual and exemplary damages are being sought from Cooke
and Dryer. With respect to the Voting Agreement which had been circulated by
Cooke to certain shareholders of the Company whereby

shareholders signing the Voting Agreement were agreeing to remove Kaminski as
director of the Company, the Court has declared such Voting Agreement to be void
and unenforceable, and has further ordered that all shareholders signing said
Voting Agreement be informed of the Court's ruling with respect to same.
Additionally, the Court has ordered that the Company may not pay the attorneys'
fees for Cooke or Dryer in this or any other lawsuit, unless otherwise provided
under Delaware law.

Cooke and Dryer are being represented in the "Kaminski Lawsuit" by the
law firm of Minton, Burton, Foster & Collins, 1100 Guadalupe, Austin, Texas.
Currently, attorneys' fees and expenses incurred by Cooke and Dryer in the
"Kaminski Lawsuit" total approximately $19,500. Approval of the Proposal will
obligate the Company to pay such amounts along with future attorneys' fees and
expenses which could be significant.

Under Delaware law (Section 145 of the Delaware General Corporation
Law), directors, officers, employees and agents of a corporation are entitled to
indemnification (see Proposal 3).

BOARD RECOMMENDATION

The Board has recommended for approval by the shareholders the payment
of all attorneys' fees and expenses relative to the defense of Cooke and Dryer
in the "Kaminski Lawsuit", and the Board believes that it is in the best
interest of the Company and its shareholders in that the Company and its
shareholders will benefit if Cooke and Dryer are able to continue to act as
directors and manage the Company without the burden of paying such attorneys'
fees and expenses. Cooke and Dryer, constituting two out of the three members of
the Board of Directors, have a material personal interest in the Proposal and
believe that it is in the best interest of the Company and its shareholders.
Kaminski, the remaining member of the Board of Directors and plaintiff in the
"Kaminski Lawsuit", does not believe that this Proposal is in the best interest
of the Company and its shareholders.

The Board therefore recommends a vote FOR approval of the proposal and
it is intended that the proxies not marked to the contrary will be so voted. IN
THE EVENT THAT COOKE AND DRYER (OR EITHER ONE OF THEM) ARE ULTIMATELY FOUND TO
BE LIABLE TO THE COMPANY FOR ANY ACTS ALLEGED IN THE "KAMINSKI LAWSUIT", THE
PARTY OR PARTIES (COOKE AND/OR DRYER) FOUND TO BE LIABLE WILL BE REQUIRED UNDER
DELAWARE LAW TO REIMBURSE THE COMPANY FOR ANY SUCH ADVANCE PAYMENTS OF
ATTORNEYS' FEES AND EXPENSES MADE BY THE COMPANY ON THEIR BEHALF.

The affirmative vote of a majority of the outstanding shares of Common
Stock of the Company represented at a meeting at which a quorum is present is
required for approval of the Proposal.

APPROVAL OF REIMBURSEMENT OF TRAVEL AND LIVING EXPENSES OF COOKE
(PROPOSAL 5)

The Board has requested that the following matter be submitted for
consideration by the shareholders: that the shareholders ratify and approve the
payment and reimbursement of travel and living expenses incurred by Cooke and
related to his services as Chairman of the Board of Directors, Chief Executive
Officer and Chief Operating Officer of the Company during 1995, and thus far
incurred in 1996, and which may hereafter be incurred while serving in any such
representative capacity on behalf of the Company, subject to standard procedures
for verification of expenses and review and approval by the Board of Directors.
Cooke incurred $25,570 in such related expenses during 1995, and thus far in
1996 has incurred $4,522 in such related expenses.

BACKGROUND. In the past, the Company has maintained a small office in
Austin, Texas for use by Cooke on behalf of the Company, Cooke being a resident
of Austin. A majority, however, of all business on behalf of the Company has
historically been conducted in Houston, Texas where the Company's corporate
office is located. Since May of 1994, Cooke has had to increase the amount of
time spent in Houston, Texas for business purposes on behalf

of the Company. As a result, in 1995 the office lease in Austin was terminated
and the Company entered into a lease for a corporate apartment in Houston. Cooke
commuted on weekends between Austin and Houston extensively during 1995 and in
1996, and utilized the corporate apartment on weekdays while in Houston until
termination of the lease in 1996.

BOARD RECOMMENDATION

The Board has recommended for approval by the shareholders the
ratification and approval of the payment and reimbursement of travel and living
expenses incurred by Cooke and related to his services as Chairman of the Board
of Directors, Chief Executive Officer and Chief Operating Officer of the Company
during 1995, and thus far incurred in 1996, and which may be hereafter incurred
while serving in such representative capacity on behalf of the Company, subject
to standard procedures of verification of expenses and review and approval by
the Board of Directors, and the Board believes that it is in the best interest
of the Company and its shareholders in that such travel and living expenses were
necessary and incident to Cooke's performance of duties as Chairman, Chief
Executive Officer and Chief Operating Officer on behalf of the Company.

This matter is not a matter which is normally required to be submitted
to the shareholders for a vote. Normally expenses incurred by Cooke would be
submitted for approval by Kaminski as part of the Company's normal procedure for
approval of expenses. The present Board, which consists of Cooke, Dryer and
Kaminski, is empowered to approve such expenses as a normal item of business.
One of the matters alleged in the "Kaminski Lawsuit" is that Cooke breached his
fiduciary duty to the Company by submitting personal expenses of himself and his
wife for payment by the Company. Cooke, has a material personal interest in the
Proposal. Cooke and Dryer, constituting two out of the three members and a
majority of the Board of Directors, believe that the Proposal is in the best
interest of the Company and its shareholders in that such travel and living
expenses were necessary and incident to Cooke's performance of duties as
Chairman, Chief Executive Officer and Chief Operating Officer on behalf of the
Company. Kaminski, the remaining member of the Board of Directors and plaintiff
in the "Kaminski Lawsuit", does not believe that this Proposal is in the best
interest of the Company and its shareholders.

The Board therefore recommends a vote FOR approval of the proposal and
it is intended that the proxies not marked to the contrary will be so voted. IN
THE EVENT THE SHAREHOLDERS SHOULD NOT VOTE FOR APPROVAL OF THIS PROPOSAL, COOKE
HAS AGREED TO REIMBURSE THE COMPANY FOR ANY PRIOR PAYMENTS MADE TO HIM BY THE
COMPANY FOR SUCH EXPENSES.

AUTHORIZATION TO PROCEED WITH A BUSINESS PLAN
(PROPOSAL 6)

The Board has recommended for approval by the shareholders that the
Board be authorized to evaluate and decide on a business plan going forward, to
include any of the following possible alternatives: (i) rebuilding the
management team and continuing in the oil and gas business; (ii) entering into a
business combination with one or more businesses at the discretion of the Board
of Directors; or (iii) any other potential alternative which the Board of
Directors may deem to be in the best interest of the Company and its
shareholders, including but not limited to (a) the sale of one or more
subsidiaries, (b) a divisive reorganization of the Company pursuant to which
the Company or a subsidiary would register the issuance and sale of any
securities to be issued in such reorganization or (c) the sale and liquidation
of all hard assets of the Company and disposition to the shareholders; and to
take such proper actions as may be necessary to accomplish same. It is quite
likely that any material transaction will require approval by the shareholders
pursuant to Delaware law, and in such event, the Board will call for a Special
Meeting of the shareholders to obtain such approval.

While the Board is not making any specific recommendation at this time
for approval by the shareholders, the Board believes that it should have a clear
mandate from the shareholders authorizing the Board to exercise its best
business judgment in evaluating and deciding on a business plan for the Company
going forward. At this time the Board

does not know what plan will ultimately be decided upon. However, at such time
as the Board has completed its evaluation process and has made a determination
on a business plan going forward, it is quite likely that any material
transaction will require approval by the shareholders pursuant to Delaware law,
and in such event, the Board will call for a Special Meeting of the shareholders
to obtain such approval. The Board therefore recommends a vote FOR approval of
the Proposal and it is intended that the proxies not marked to the contrary will
be so voted.

The affirmative vote of a majority of the outstanding shares of Common
Stock of the Company represented at a meeting at which a quorum is present is
required for approval of the Proposal.

OTHER BUSINESS

Management knows of no business to be brought before the meeting other
than the Proposals 1 through 6 set forth herein. If any other proposals properly
come before the meeting, it is intended that the shares represented by proxies
shall be voted in accordance with the judgment of the person or persons
exercising the authority conferred by the proxies.

SHAREHOLDER PROPOSALS

Proposals by shareholders intended to be presented at the 1997 Annual
Meeting of Shareholders must be received by the Company on or before March 21,
1997, to be included in the Proxy Statement and proxy for that meeting. The
mailing address of the Company for submission of any such proposal is given on
the first page of this Proxy Statement.

IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. THEREFORE,
SHAREHOLDERS ARE REQUESTED TO SIGN, DATE AND RETURN THE PROXY CARD AS SOON AS
POSSIBLE, WHETHER OR NOT THEY EXPECT TO ATTEND THE 1996 ANNUAL MEETING IN
PERSON.

By Order of the Board of Directors

Keith B. Werner
SECRETARY

14
SARATOGA RESOURCES, INC.
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS SEPTEMBER 14, 1996

The undersigned hereby appoints Thomas F. Cooke, Randall F. Dryer and
Kevin M. Smith, or any one or more of them, with full power of substitution, the
attorneys and proxies of the undersigned to vote the shares of common stock of
Saratoga Resources, Inc., a Delaware corporation (the "Company"), held of record
by the undersigned at the close of business on July 19, 1996, at the annual
meeting of shareholders of the Company to be held at the Westwood Country Club,
3808 West 35th Street, Austin, Texas 78703, on Saturday, September 14, 1996 at
1:30 p.m. Austin time, and at any adjournment thereof , as follows:

GENERAL INSTRUCTIONS: Place a mark in the appropriate marked space(s), print
your name, sign and date this proxy where indicated, and return it to the
Company promptly.

Proposal:

(1) Election of three directors: Thomas F. Cooke, Randall F. Dryer and
Kevin M. Smith

[_] FOR (except as withheld below) [_] WITHHOLD VOTE

SPECIAL INSTRUCTIONS: To withhold authority to vote for any individual nominee,
place a mark adjacent to "WITHHOLD VOTE" and write that nominee's name on the
following line: ______________________________

(2) Ratification and confirmation of the May 7, 1996 "Agreements"