SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-11498
SARATOGA RESOURCES, INC.
(Exact name of small business issuer in its charter)
Delaware 76-0453392
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2000 Dairy Ashford South, Suite 410 Houston, Texas 77077
(Address of principal executive offices, including Zip Code)
(281) 531-0022
(Registrant's telephone number, including area code)
Check whether the registrant (1) filed all reports required to be
filed by Section 13 or 15 (d) of the Exchange Act during the past 12 months (or
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:
Check whether the registrant filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of August 12, 1997, there were 3,465,292 issued and outstanding
shares of Registrant's common stock, $.001 par value.
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SARATOGA RESOURCES, INC. FORM 10-QSB
SARATOGA RESOURCES, INC.
QUARTERLY REPORT ON FORM 10-QSB
INDEX
Page No.
PART I. Financial Information
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets -
June 30, 1997 and December 31, 1996 ......................... 3
Condensed Consolidated Statements of Operations -
Quarter ended June 30, 1997 and 1996 and
Six Months ended June 30, 1997 and 1996 ..................... 4
Condensed Consolidated Statements of Cash Flows -
Six Months ended June 30, 1997 and 1996 ..................... 5
Notes to Condensed Consolidated Financial Statements ........ 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ............... 6
PART II. Other Information .......................................... 10
Item 1. Legal Proceedings ........................................... 10
Item 2. Changes in Securities ....................................... 10
Item 6. Exhibits and Reports on Form 8-K ............................ 11
Signatures .................................................. 11
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SARATOGA RESOURCES, INC. FORM 10-QSB
SARATOGA RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS (Unaudited)
JUNE 30, 1997 DECEMBER 31, 1996
------------- -----------------
<S> <C> <C>
Current assets - cash .................................................................. $ 734 $ 1,350
Receivables:
Trade ....................................................................... 24 50
Other ........................................................................ -- 25
------- -------
24 75
Equipment, net of accumulated depreciation ............................................. 19 20
------- -------
Total Assets ........................................................................... $ 777 $ 1,445
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities .................................... $ 38 $ 218
Legal suspense .............................................................. 18 19
------- -------
Total current liabilities .............................................................. 56 237
Stockholders' Equity
Preferred stock, $.001 par value; 5,000,000 shares authorized
Common stock $.001 par value; 50,000,000 shares authorized,
6,809,400 shares issued and outstanding at December 31, 1996 and
3,465,292 shares issued and outstanding at June 30, 1997 ........................... 4 7
Additional paid-in capital ........................................................... 2,912 2,909
Accumulated deficit .................................................................. (2,017) (1,706)
Treasury stock, at cost .............................................................. (178) (2)
------- -------
Total stockholders' equity ............................................................. 721 1,208
Total Liabilities and Stockholders' Equity ............................................ $ 777 $ 1,445
======= =======
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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SARATOGA RESOURCES, INC. FORM 10-QSB
SARATOGA RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------ ------------------------
1997 1996 1997 1996
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Revenues:
Oil and Gas ............................................. $ -- $ -- $ -- $ 684
Other ................................................... 7 7 82 8
Gain on Foreclosure Sale ........................................... -- 12,201 -- 12,201
-------- ------- -------- -------
7 12,208 82 12,893
Costs and Expenses:
Production .............................................. -- 7 -- 278
Severance tax ........................................... -- -- -- 43
Depletion, depreciation and amortization ................ 1 -- 1 362
General and administration .............................. 241 231 393 499
Interest expense ........................................ -- 3 -- 437
-------- ------- -------- -------
242 241 394 1,619
-------- ------- -------- -------
Net income (loss) .................................................. $ (235) $11,967 $ (312) $11,274
======== ======= ======== =======
Net income (loss) per share ........................................ $ (.06) $ 1.79 $ (.06) $ 1.68
======== ======= ======== =======
Weighted average number of common
shares outstanding ................................................ 3,934 6,699 5,067 6,699
======== ======= ======== =======
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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SARATOGA RESOURCES, INC. FORM 10-QSB
SARATOGA RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------
1997 1996
------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ........................................................... $ (312) $ 11,274
Adjustments to reconcile net loss to net cash provided by (used in) operating
activities:
Depreciation, depletion and amortization .................................... 1 362
Amortization of debt discount ............................................... -- 23
Gain on Foreclosure Sale .................................................... -- (12,201)
Changes in operating assets and liabilities:
Decrease in accounts receivable ............................................. 51 1,046
Decrease in prepaid expenses ................................................ -- 21
(Decrease) in accounts payable & accrued liabilities ........................ (181) (21)
------- --------
Net cash provided by (used in) operating activities ............................ (441) 504
------- --------
Cash flows from investing activities:
Property and equipment additions ............................................ -- (38)
------- --------
Cash flows from financing activities:
Purchase of Treasury Stock .................................................. (175) 668
Payments on borrowings ...................................................... -- (79)
------- --------
Net cash provided (used) by financing activities ............................... (175) 589
------- --------
Net (decrease) increase in cash ................................................ (616) 1,055
Cash at beginning of period .................................................... 1,350 604
------- --------
Cash at end of period .......................................................... $ 734 $ 1,659
======= ========
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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SARATOGA RESOURCES, INC. FORM 10-QSB
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The consolidated financial statements included herein are those of the
Company and its subsidiaries, all of which are wholly owned. All significant
intercompany accounts and transactions have been eliminated in consolidation.
The accompanying financial information as of June 30, 1997 and for
the three and six month periods ended June 30, 1996 and 1997 was prepared by the
Company in compliance with the rules and regulations of the Securities and
Exchange Commission, without audit, and reflects all adjustments, consisting of
normal recurring accruals, deemed necessary by management to fairly present the
Company's financial position and results of operations.
These condensed consolidated financial statements should be read in
conjunction with the financial statements and the notes thereto included in the
Company's Annual Report to the Securities and Exchange Commission on Form 10-KSB
for the year ended December 31, 1996.
2. The foregoing interim results are not necessarily indicative of the results
of operations for the six months ending June 30, 1997.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
On March 30, 1995, the Company, Saratoga Resources, Inc., a Texas
corporation ("Saratoga-Texas"), Lobo Energy, Inc., a Texas corporation ("LEI")
and Internationale Nederlanden (U.S.) Capital Corporation ("ING") entered into a
Credit Agreement ("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 of
the oil and gas properties (the "Properties") owned by Saratoga-Texas, LEI and
Lobo Operating, Inc., a Texas corporation ("LOI") [Saratoga-Texas, LEI and LOI
being collectively referred to as 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. The Company and the "Saratoga Entities" are sometimes
collectively referred to as the "Saratoga Companies."
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
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SARATOGA RESOURCES, INC. FORM 10-QSB
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. 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 received notices of default from ING, whereupon ING threatened to
foreclose its perfected first lien security interests in the Properties and in a
majority of the assets of the Saratoga Entities (the "Interests"). At the same
time the Company was receiving notices of default from ING, the Company was
attempting to negotiate a transaction with PrimeEnergy Corporation, a Delaware
corporation ("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
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SARATOGA RESOURCES, INC. FORM 10-QSB
the terms and provisions of the Agreement dated May 7, 1996.
The Agreement provided for a Foreclosure Sale of a majority of the
assets (the "Interests") of the Saratoga Entities to ING pursuant to ING's
rights under the Credit Agreement. 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 $7,180,000 in cash 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 the Disbursement Agreement
for the settlement of outstanding vendor debt and other related liabilities of
the Saratoga Companies. Upon the settlement of all such debt and liabilities,
the Company anticipates that there will be no material debt or liabilities going
forward, other than those incurred since May 7, 1996, in the ordinary course of
business and certain liabilities with respect to prior matters which the Company
does not believe are material. The Company was paid the remaining $1,500,000 by
ING, which amount became available to pursue new business opportunities and for
other proper corporate purposes.
Since May 7, 1996, the Company has not been conducting historical oil
and gas operations. The Board of Directors of the Company has been, however, in
the process of reevaluating its business plan going forward.
From May of 1996 to March of 1997, the Company was involved in
litigation with Joseph T. Kaminski ("Kaminski"), a former executive officer and
director of the Company. This litigation, in the view of the Board of Directors,
effectively prevented the Company from pursuing any new opportunities. As
previously reported by the Company in its Quarterly Report to the Securities and
Exchange Commission on Form 10-QSB for the quarterly period ended March 31,
1997, the Company, Thomas F. Cooke ("Cooke"), Randall F. Dryer ("Dryer") and
Dryer, Ltd. entered into a Settlement Agreement and Full and Final Release (the
"Settlement Agreement") dated March 10, 1997, with Kaminski, in full settlement
of all matters concerning both the "Company Federal Lawsuit" and the "Kaminski
Lawsuit."
Pursuant to the terms of the Settlement Agreement, Kaminski
transferred all of his equity interests in the Company, consisting of 2,465,371
shares of common stock and 100,000 stock warrants, to the Company, and forgave
debt owned him by the Company of $50,000 plus interest. Kaminski also agreed to
sell to the Company 8,000 shares of the Company's common stock held in trust.
Both the Company and Kaminski agreed to release and discharge any and all claims
or causes of action of every nature existing between the parties.
Accordingly, all claims and counterclaims by and against the Company
and the two directors (Cooke and Dryer) have been dismissed, and there is no
other pending litigation against
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SARATOGA RESOURCES, INC. FORM 10-QSB
the Company or its officers or directors.
Additionally, and as a result of the Settlement Agreement the total
number of shares of common stock of the Company issued and outstanding was
reduced as of March 10, 1997 from 6,809,400 to 4,336,029, with 2,473,371 shares
then being held in treasury. (See also Part II, Item 5 - Other Information,
INFRA.)
RESULTS OF OPERATIONS
REVENUES. As a result of the Foreclosure Sale of the oil and gas
interests, there has been no oil and gas revenue received during the quarter
ended June 30, 1997. Oil and gas revenues for the six months ended June 30, 1996
were $684,000 as compared to no oil and gas revenues for the same period in
1997. Other revenues included $18,000 in interest income and $62,000 from the
settlement of a lawsuit received during the six month period ended June 30,
1997.
COSTS AND EXPENSES. Costs and expenses were reduced significantly in
1996 as the result of the sale of the oil and gas properties. For the six months
ended June 30, 1997, costs and expenses totaled $394,000 as compared to
$1,619,000 for the same period in 1996. The $394,000 in six months costs and
expenses is allocated as follows: $148,000 in deferred salaries paid to Cooke,
the Chief Executive Officer, $159,864 in legal and professional fees primarily
related to the litigation with Kaminski, and the remaining $86,136 consisting of
depreciation costs and general and administrative costs. Costs and expenses for
the second quarter of 1997 were $242,000 as compared to $241,000 for the same
period in 1996. The $242,000 in costs and expenses for the second quarter is
allocated as follows: $124,000 in deferred salaries, with the remaining $118,000
being allocated to legal and professional fees and general and administrative
costs.
NET INCOME (LOSS). Net loss for the six month period ended June 30,
1997 was ($312,000) as compared to net income of $11,274,000 for the six months
ended June 30, 1996. Net income (loss) per share for the respective periods are
($.06) as compared to $1.68.
Net loss for the quarter ended June 30, 1997 was ($235,000) as
compared to net income of $11,967,000 for the quarter ended June 30, 1996. Net
income (loss) per share for the respective periods are ($.06) as compared to
$1.79.
The difference in net income is due to a significant increase in net
revenue in 1996 as a result of the Foreclosure Sale and the forgiveness of debt
by ING.
TAXES. As a result of the Foreclosure Sale and the forgiveness of
debt by ING, the Company recorded an extraordinary gain of $12,066,000 with no
attendant tax liability in 1996.
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SARATOGA RESOURCES, INC. FORM 10-QSB
LIQUIDITY AND CAPITAL RESOURCES
The Company's assets at December 31, 1996 consist almost entirely of
cash in the amount of $1,350,000, and $734,000 in cash at June 30, 1997. With
the successful conclusion to the litigation with Kaminski, and the reimbursement
of all deferred past salary and reinstitutement of full salary to Cooke, the
Company believes that its current cash balance will be sufficient to conduct its
business for the foreseeable future.
CURRENT EVENTS
While the Company received some preliminary proposals regarding
potential business opportunities, the litigation involving the Company and its
then current directors had made it difficult to pursue any opportunities until
resolution of such litigation. Now that such litigation has been successfully
resolved, the Company's principal business is investigating various
opportunities and attempting to determine whether the pursuit of any of them is
in the best interest of the Company and its shareholders. The Company is
exploring a variety of opportunities including, but not limited to, a business
combination, sale of the Company, reconstitution of its oil and gas business or
one or more wholly-unrelated businesses, and various other opportunities. At
such time as the Board has completed its evaluation process and has made a
determination on a business plan going forward, it is likely that any material
transaction will require the approval by the shareholders pursuant to Delaware
law and, in such event (shareholder approval is necessary), the Board will call
for a Special Meeting of the shareholders to obtain such approval.
PART II. - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS - None
ITEM 2. CHANGES IN SECURITIES - None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES - None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - None
ITEM 5. OTHER INFORMATION
On May 17, 1997 Randall F. Dryer resigned as a Director of the
Company. The remaining Directors of the Company are Thomas F. Cooke (Chairman)
and Kevin M. Smith.
Effective with Dr. Dryer's resignation, the Company purchased the
shares of common stock of the Company ("stock") then owned by Dryer, Ltd.
(870,737 shares) and warrants held by Dr. Dryer to purchase 50,000 shares of
stock, all for the total sum of $175,000.
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SARATOGA RESOURCES, INC. FORM 10-QSB
As a result of this stock purchase by the Company, the total number
of shares of common stock of the Company issued and outstanding is 3,465,292,
with 3,344,108 shares now being held as treasury shares.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS.
NO. EXHIBIT DESCRIPTION
(10) MATERIAL CONTRACTS
10.1 Stock Purchase and Transfer Agreement dated May 17,
1997, by and among the Company, Randall F. Dryer, and
Dryer, Ltd.
(27) FINANCIAL DATA SCHEDULE
(B) REPORTS ON FORM 8-K - None
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.
By: \S\ Thomas F. Cooke
Chairman of the Board
Chief Executive Officer and
Principal Accounting and Financial Officer
Date: August 14, 1997
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SARATOGA RESOURCES, INC. FORM 10-QSB
Exhibit 10.1
STOCK PURCHASE AND TRANSFER AGREEMENT
This Stock Purchase and Transfer Agreement dated effective as of May
17, 1997, by and between Saratoga Resources, Inc., 2000 Dairy Ashford South,
Suite 410, Houston, Texas 77077, a Delaware corporation (the "Company"), Randall
F. Dryer, 3801 Balcones, Austin, Texas 78731 ("Dryer"), and Dryer, Ltd., 3801
Balcones, Austin, Texas 78731, a Texas Family Partnership ("Dryer, Ltd.").
WITNESSETH
WHEREAS, Dryer currently serves as Director of the Company, and
together with Dryer, Ltd. own a significant equity interest in the Company as
further set forth herein; and
WHEREAS, Dryer desires to concentrate more of his time and efforts in
his medical practice and to resign as a Director of the Company; and
WHEREAS, the Company, Dryer and Dryer, Ltd. have agreed that it is in
the best interest of the Company that, in conjunction with Dryer's resignation
as a Director of the Company, the Company purchase the shares of Company common
stock and warrants to purchase Company common stock now owned by Dryer and
Dryer, Ltd.; and
WHEREAS, the parties hereto desire to set forth their understanding
and representations in order to effect the transaction;
NOW THEREFORE, in consideration of the foregoing and of the terms and
conditions herein contained, the Company, Dryer and Dryer, Ltd. hereby agree as
follows:
1. OWNERSHIP OF STOCK.
(A) Dryer, Ltd. hereby represents and warrants that it is the legal
record and beneficial owner of 870,737 shares of Company common stock, that
being all of the debt or equity interest owned or controlled, beneficially or of
record, by Dryer, Ltd., in the Company or any of its subsidiaries or affiliates
(hereinafter collectively referred to as the "Stock"). Dryer, Ltd. represents
and warrants that it owns the Stock free and clear of all liens, claims or
encumbrances, and that it has full right, power and authority to transfer the
Stock hereunder and to make the representations, warranties and agreements
regarding the Stock contained herein.
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SARATOGA RESOURCES, INC. FORM 10-QSB
(B) Dryer hereby represents and warrants that he is the legal record
and beneficial owner of warrants to purchase 50,000 shares of Company common
stock, that being all of the debt or equity interest owned or controlled,
beneficially or of record, by Dryer, in the Company or any of its subsidiaries
or affiliates (hereinafter collectively referred to as the "Stock"). Dryer
represents and warrants that he owns the Stock free and clear of all liens,
claims or encumbrances, and that he has full right, power and authority to
transfer the Stock hereunder and to make the representations, warranties and
agreements regarding the Stock contained herein.
2. TRANSFER OF STOCK. Dryer and Dryer, Ltd. hereby jointly and
severally assign, transfer and convey to the Company, and the Company accepts
from Dryer and Dryer, Ltd., all right, title and interest in and to the Stock.
Dryer and Dryer, Ltd. contemporaneously herewith shall surrender all
certificates or other evidences of the Stock, duly endorsed for transfer, and
execute such stock powers or other instrument of transfer as may be deemed
necessary or advisable by the Company fully and effectively to transfer the
Stock to the Company under the terms and conditions hereof.
3. PAYMENT. In consideration for the transfer of Stock as above
provided, the Company agrees to pay the sum of One Hundred Seventy-Five Thousand
and No/100 Dollars ($175,000), by cashier's check payable to Dryer, Ltd.
4. ACCESS TO DOCUMENTS. Dryer and Dryer, Ltd. acknowledge and agree
that each has been furnished a copy of and has thoroughly and carefully reviewed
the following documents with respect to the Company and its actual and proposed
business and affairs (such documents being collectively referred to as the
"Company documents"):
(a) Forms 10-K of the Company for the fiscal years ended October 31,
1994, December 31, 1995 and December 31, 1996, and any other 10-Ks, filed with
the Securities and Exchange Commission "SEC') under the Securities Exchange Act
of 1934, as amended (the "Exchange Act");
(b) Form 10-Q of the Company for the fiscal quarter ended March 31,
1997;
(c) All Forms 8-K of the Company filed by it reporting certain
significant events in any of fiscal years 1994 through 1996, and since the last
fiscal year end to the date hereof; and
(d) any other filings of the Company with the SEC in the last three
years.
5. REPRESENTATIONS AND WARRANTIES. Dryer and Dryer, Ltd. each hereby
separately acknowledges, represents and warrants to, and agrees with the Company
as follows:
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SARATOGA RESOURCES, INC. FORM 10-QSB
(a) He (or it) understands the information contained in the Company
documents and has had access to the same kind of information which would be
available in a registration statement filed by the Company under the Securities
Act of 1933, as amended (the "Securities Act"), and all other information
requested by him (or it) in order to make an informed decision with respect to
the transfer of the Stock to the Company;
(b) all documents, records and books pertaining to the transfer,
assignment and conveyance of the Stock hereby have been produced and made
available to his (or its) satisfaction for inspection by him (or it), his (or
its) attorney, accountant or other representative advising him (or it) in this
transaction (hereinafter collectively referred to as "advisors");
(c) he (or it) and his (or its) advisors have had a reasonable
opportunity to ask questions of and receive answers from representatives of the
Company concerning the business and prospects of the Company, the Stock and the
transfer effected hereby, and all such questions have been answered to his (or
its) full satisfaction;
(d) no oral or written representations have been made other than as
stated in this Agreement, and no oral or written information furnished to Dryer,
Dryer, Ltd. or his (or its) advisors in connection with the transfer of the
Stock hereunder were in any way inconsistent with the information stated in this
Agreement or the Company documents;
(e) he (or it) has, or together with his (or its) advisors they have,
such knowledge and experience in financial, tax and business matters so as to
enable Dryer (or Dryer, Ltd.) to utilize the information made available to them
in connection with the transfer of the Stock hereby, to evaluate the merits and
risks of a disposition of the Stock and to make an informed decision with
respect thereto;
(f) he (or it) is not relying on the Company with respect to the tax
and other economic considerations of the transfer of the Stock, and he (or it)
has relied on the advice of and consulted with his (or its) own advisors with
respect thereto;
(g) he (or it) acknowledges and understands by signing this Agreement
that this Agreement covers any and all rights to the Stock of the Company which
Dryer or Dryer, Ltd. presently owns, and that the consideration paid by Cooke
for the transfer of all such rights in the Stock hereunder is fair and adequate
and all that he (or it) is ever entitled to receive; that he (or it) will not in
the future request any additional consideration from the Company, or its
subsidiaries, affiliates or successors; that the Company intends to consummate
an acquisition, enter into a merger or consolidation or otherwise enter into a
similar material transaction as soon as practicable (all of the foregoing
collectively "a Fundamental Corporate Transaction"); that although the Company
has been exploring a variety of Fundamental Corporate Transactions, including
the potential Midcon Offshore bankruptcy transaction, which have all been
disclosed to Dryer and Dryer, Ltd., the Company has not yet entered into any
such Fundamental Corporate
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SARATOGA RESOURCES, INC. FORM 10-QSB
Transaction, but intends to do so as soon as practicable; that at such time as
any Fundamental Corporate Transaction is effected, it is likely that the value
of the Stock would be affected and that such effect may be material, and that he
(or it) will not be entitled to participate in any such material change in
value, if any, resulting from such Fundamental Corporate Transaction by reason
of entering into this Agreement and consummation of the transactions set forth
herein;
(h) the representations, warranties and agreements of Dryer and
Dryer, Ltd. contained herein shall survive the execution and delivery of this
Agreement and the Settlement Agreement, and the transfer of the Stock;
(i) the Company is relying on these representations and warranties of
Dryer and Dryer, Ltd. in its decision to enter into this Agreement and to accept
transfer of the Stock from Dryer and Dryer, Ltd. hereby, and that the Company
would not accept the transfer of the Stock from Dryer and Dryer, Ltd. but for
the representations and warranties of Dryer and Dryer, Ltd. made herein.
6. AUTHORITY. Dryer represents and warrants that he has full right,
power and authority to convey, assign and transfer the Stock pursuant to the
terms of this Agreement, both individually on his own behalf and as General
Partner on behalf of Dryer, Ltd., and that any execution of this Agreement by
his wife, if any, conveys the only other potential claim of ownership or control
of the Stock by any other party. The parties executing this Agreement on behalf
of the Company have full power and authority to bind the Company to this
Agreement.
7. INDEMNIFICATION. Dryer and Dryer, Ltd. each separately agrees to
indemnify and hold harmless the Company and its officers, directors, employees,
agents, affiliates and counsel against any and all loss, liability, claim,
damage and expense whatsoever (including, but not limited to, any and all
expenses reasonably incurred in investigating, preparing, or defending against
any litigation commenced or threatened or any claim whatsoever) arising out of
or based upon any false representation or warranty or breach or failure by Dryer
or Dryer, Ltd. respectively, to comply with any covenant or agreement made by
Dryer or Dryer, Ltd. herein, or in any other document furnished by Dryer or
Dryer, Ltd. to the Company.
8. RELEASE. Dryer and Dryer, Ltd. each hereby separately releases,
acquits and discharges the Company, including its officers, directors, agents,
attorneys, heirs, successors, representatives and assigns, from any and all
claims or causes of action of every nature, whether known or unknown, existing
between the parties as of the date of this Agreement. However, this release does
not cover any possible claims by or against the parties to this Agreement for
breach of the terms of this Agreement or to enforce any covenant in this
Agreement.
9. NON-WAIVER. Failure on the part of a party in any one or more
instance to enforce any of its rights which arise in connection with this
Agreement, or to insist upon the strict performance of any of the terms,
conditions or covenants of this Agreement, shall not be
<PAGE>
Page 16 of 17
SARATOGA RESOURCES, INC. FORM 10-QSB
construed as a waiver or relinquishment for the future of any such rights,
terms, conditions or covenants. No waiver of any condition of this Agreement
shall be valid unless it is in writing, and executed by the party against whom
such waiver is sought to be enforced.
10. NOTICES. All notices, requests, deliveries, payments, demands and
other communications which are required or permitted to be given under this
Agreement shall be in writing and shall be either delivered personally or sent
by registered or certified mail, return receipt requested, postage prepaid, to
the parties at their respective addresses as shall have been specified by notice
in writing to the other.
11. SEVERABILITY. If any provision of this Agreement shall for any
reason be held to violate applicable law, and so much of said Agreement is held
unenforceable, then the invalidity of such specific provisions herein shall not
be held to invalidate any other provision of this Agreement, which shall remain
in full force and effect.
12. ENTIRE AGREEMENT. This Agreement, together with any other
documents contemplated hereby and thereby, collectively set forth the entire
agreement among the parties with respect to the subject matter hereof.
13. MODIFICATION. Neither this Agreement nor any provisions hereof
shall be waived, modified, discharged or terminated except by an instrument in
writing signed by the party against whom any such waiver, modification,
discharge or termination is sought.
14. ASSIGNMENT. No party to this Agreement shall have the right to
transfer or assign, in whole or in part, its rights and obligations hereunder
without the prior written consent of the other parties.
15. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Texas.
16. HEADINGS. Headings in this Agreement are for convenience only and
shall not affect the interpretation of this Agreement.
17. COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall have the force and effect of an original, and
all of which shall constitute one and the same agreement.
18. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit
of and be binding upon the parties and their respective successors and assigns,
but this provision shall in no way alter the restrictions set forth herein
relating to assignment by the parties.
<PAGE>
Page 17 of 17
SARATOGA RESOURCES, INC. FORM 10-QSB
IN WITNESS WHEREOF, the parties hereto have signed this Agreement as
of the day and year first above written.
SARATOGA RESOURCES, INC.
By: \S\ Thomas F. Cooke, Director
Chairman of the Board
\S\ Randall F. Dryer,
Individually
DRYER, LTD.
By: \S\ Randall F. Dryer,
General Partner
The undersigned, the spouse of Randall F. Dryer, is fully aware of,
understands, and fully consents and agrees to the provisions of this Stock
Purchase and Transfer Agreement, and its binding effect upon any community or
other property interests that she may own, and her awareness, understanding,
consent and agreement is evidenced by her execution hereof. The undersigned, the
spouse of Randall F. Dryer, additionally joins in the execution hereof in order
to sell, assign and transfer unto the Company all of her respective right, title
and interest, legal or beneficial, if any, in the Stock.
Name: Tandy Dryer
\S\ Tandy Dryer
Spouse of Randall F. Dryer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF SARATOGA RESOURSES, INC.
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997 AS CONTAINED IN THE 10-QSB AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1997
<CASH> 734
<SECURITIES> 0
<RECEIVABLES> 24
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 758
<PP&E> 22
<DEPRECIATION> (3)
<TOTAL-ASSETS> 777
<CURRENT-LIABILITIES> 56
<BONDS> 0
0
0
<COMMON> 4
<OTHER-SE> 717
<TOTAL-LIABILITY-AND-EQUITY> 777
<SALES> 0
<TOTAL-REVENUES> 7
<CGS> 0
<TOTAL-COSTS> 242
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (235)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (235)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> (.06)
</TABLE>
