UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT
UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 For
the quarterly period ended June 30, 1997
Commission file number 0-19767
THE HOME-STAKE ROYALTY CORPORATION
(Exact name of small business issuer as specified in its charter)
Oklahoma 73-0288040
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
15 East 5th Street, Suite 2800
Tulsa, Oklahoma 74103
(Address of principal executive offices)
(918) 583-0178
Registrant's telephone number
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for 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 | |
The number of shares outstanding of the Registrants's common stock, all of
which comprise a single class with $40 par value, as of July 31, 1997, the
latest practicable date, was 69,808.
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THE HOME-STAKE ROYALTY CORPORATION
FORM 10-QSB
JUNE 30, 1997
TABLE OF CONTENTS
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets ........................................ 4
Condensed Statements of Income and Retained
Earnings for the Six Months ended June 30, 1997................ 5
Condensed Statements of Income and Retained
Earnings for the Three Months ended June 30, 1997.............. 6
Condensed Statements of Cash Flow ............................... 7
Notes to Condensed Financial Statements ......................... 8
Item 2. Management's Discussion and Analysis ............................ 9
PART II - OTHER INFORMATION
Item 1. Legal Proceedings ............................................... 12
Item 2. Changes in Securities ........................................... 12
Item 3. Defaults upon Senior Securities ................................. 12
Item 4. Submission of Matters to a Vote of Security Holders ............. 12
Item 5. Other Information ............................................... 12
Item 6. Exhibits and Reports on Form 8-K ................................ 12
SIGNATURES .............................................................. 13
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PART I - FINANCIAL INFORMATION
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<PAGE>
THE HOME-STAKE ROYALTY CORPORATION
CONDENSED BALANCE SHEETS
(Unaudited)
ASSETS
June 30, December 31,
1997 1996
---- ----
Current assets:
Cash......................................... $ 727,181 $ 626,864
Accounts receivable.......................... 707,408 1,469,877
Receivable from affiliate.................... 17,679 66,213
Prepaid expenses............................. 168,272 255,957
------------ -------------
Total current assets..................... 1,620,540 2,418,911
Investments (Note 2)........................... 3,699,162 3,592,495
Property and equipment, at cost:............... 24,141,927 25,235,245
Less accumulated depreciation,
depletion and amortization................ 15,716,548 16,437,277
------------ -------------
Net property and equipment............... 8,425,379 8,797,968
Other assets................................... 24,119 24,119
------------ -------------
$ 13,769,200 $ 14,833,493
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities..... $ 602,247 $ 1,514,282
Dividends declared........................... 62,827 62,827
Income taxes payable......................... 137,738 75,198
Bonus Payable................................ 24,200 20,253
Current note payable (Note 3)................ -- 964,260
------------ -------------
Total current liabilities................. 827,012 2,636,820
Long-term note payable (Note 3)................ -- 401,775
Deferred income taxes.......................... 955,006 773,200
Contingencies (Note 4)
Stockholders' equity:
Preferred stock, $1 par value -
200,000 shares authorized; none issued
Common stock, $40 par value -
100,000 shares authorized and issued....... 4,000,000 4,000,000
Additional paid-in capital................... 6,000,000 6,000,000
Retained earnings............................ 5,351,346 4,385,862
------------ -------------
15,351,346 14,385,862
Less treasury stock, at cost - 30,192 shares. 3,364,164 3,364,164
------------ -------------
Total stockholders' equity................ 11,987,182 11,021,698
------------ -------------
$ 13,769,200 $ 14,833,493
============ =============
See accompanying notes.
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THE HOME-STAKE ROYALTY CORPORATION
CONDENSED STATEMENTS OF INCOME
AND RETAINED EARNINGS
Six months ended June 30, 1997 and 1996
(Unaudited)
1997 1996
---- ----
Revenues:
Oil sales.................................... $ 2,294,048 $ 2,298,046
Gas sales.................................... 1,525,891 1,193,469
Lease bonuses and rentals.................... 49,378 11,352
Interest and dividends....................... 19,617 31,249
Gain on sales of assets...................... 99,708 2,768
Income from equity affiliates................ 271,139 134,713
Other........................................ 91,827 96,114
----------- -------------
4,351,608 3,767,711
Costs and expenses:
Lease operating expenses..................... 778,957 1,037,094
Production taxes............................. 306,053 305,624
Depreciation, depletion and amortization..... 676,166 702,786
Dry hole costs............................... 370,747 46,420
Condemned and abandoned properties........... 46,515 (5,081)
General and administrative expense........... 539,933 468,630
Interest expense............................. 36,086 135,697
Property, franchise and other taxes.......... 87,197 65,459
----------- -------------
2,841,654 2,756,629
Income before provision for income taxes....... 1,509,954 1,011,082
Provision for income taxes:
Current...................................... 237,010 153,300
Deferred..................................... 181,806 93,512
----------- -------------
418,816 246,812
----------- -------------
Net income..................................... 1,091,138 764,270
Retained earnings at beginning of period....... 4,385,862 2,855,837
Cash dividends ($1.80 per share - 1997,
$2.70 per share - 1996).................. (125,654) (188,482)
----------- -------------
Retained earnings at end of period............. $ 5,351,346 $ 3,431,625
=========== ============
Weighted average number of common
shares outstanding....................... 69,808 69,808
====== ======
Net income per common share.................... $15.63 $10.95
====== ======
See accompanying notes.
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<PAGE>
THE HOME-STAKE ROYALTY CORPORATION
CONDENSED STATEMENTS OF INCOME
AND RETAINED EARNINGS
Three months ended June 30, 1997 and 1996
(Unaudited)
1997 1996
---- ----
Revenues:
Oil sales.................................... $ 991,715 $ 1,251,758
Gas sales.................................... 590,205 621,912
Lease bonuses and rentals.................... 28,552 8,592
Interest and dividends....................... 10,087 22,666
Gain on sales of assets...................... -- 2,864
Income from equity affiliates................ 80,839 66,390
Other........................................ 40,421 58,393
----------- -------------
1,741,819 2,032,575
Costs and expenses:
Lease operating expenses..................... 327,988 531,922
Production taxes............................. 121,076 172,579
Depreciation, depletion and amortization..... 338,083 351,393
Dry hole costs............................... 182,645 44,089
Condemned and abandoned properties........... 19,317 1,862
General and administrative expense........... 281,189 219,824
Interest expense............................. 9,353 65,809
Property, franchise and other taxes.......... 54,754 36,754
----------- -------------
1,334,405 1,424,232
Income before provision for income taxes....... 407,414 608,343
Provision for income taxes:
Current...................................... 80,965 96,950
Deferred..................................... 2,780 62,253
----------- -------------
83,745 159,203
----------- -------------
Net income..................................... 323,669 449,140
Retained earnings at beginning of period....... 5,090,504 3,076,726
Cash dividends ($ .90 per share - 1997,
$1.35 per share - 1996)................... (62,827) (94,241)
----------- -------------
Retained earnings at end of period............. $ 5,351,346 $ 3,431,625
=========== =============
Weighted average number of common
shares outstanding........................ 69,808 69,808
====== ======
Net income per common share.................... $ 4.64 $ 6.43
====== ======
See accompanying notes.
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THE HOME-STAKE ROYALTY CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
For the six months ended June 30, 1997 and 1996
(Unaudited)
1997 1996
---- ----
Operating activities:
Oil and gas sales, net of production......... $ 3,634,659 $ 3,113,619
Lease bonuses and rentals.................... 49,378 11,352
Interest and dividends....................... 19,617 31,249
Other........................................ 91,827 96,114
------------ -------------
3,795,481 3,252,334
Cash paid to suppliers and employees......... 1,354,813 1,654,398
Interest expense............................. 36,086 135,697
Property, franchise and other taxes.......... 87,197 65,459
Income taxes paid............................ 174,470 5,734
------------ -------------
1,652,566 1,861,288
------------ -------------
Net cash provided by operating activities... 2,142,915 1,391,046
Investing activities:
Proceeds from sales of
property and equipment.................... 329,391 16,808
Acquisition of property and equipment........ (908,835) (148,517)
Dividends from equity affiliates............. 30,337 42,614
------------ -------------
Net cash used in investing activities...... (549,107) (89,095)
Financing activities:
Note payments................................ (1,366,035) (482,130)
Cash dividends paid.......................... (127,456) (191,309)
------------ -------------
Net cash used in financing activities...... (1,493,491) (673,439)
------------ -------------
Net increase in cash........................... 100,317 628,512
Cash at beginning of period.................... 626,864 564,875
------------ -------------
Cash at end of period.......................... $ 727,181 $ 1,193,387
============ =============
See accompanying notes.
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<PAGE>
THE HOME-STAKE ROYALTY CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - General
The unaudited financial information provided in this report includes all normal
recurring adjustments which are, in the opinion of management, necessary to
fairly present the financial position, result of operations and cash flows of
the Company. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been omitted or condensed. The Company believes that the
disclosures herein are adequate to make the information presented not
misleading; however, these financial statements should be read in conjunction
with the audited financial statements and related notes thereto included in the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1996.
The results for interim periods are not necessarily indicative of trends or of
results to be expected for the full year.
Note 2 - Summarized financial information of equity investees
Summarized income statement information for the six months ended June 30, 1997
and 1996 for The Home-Stake Oil & Gas Company ("HSOG") and Alden Pipeline
Company is presented below:
1997 1996
---- ----
Income Statement data:
Revenues..................... $ 4,027,653 $ 3,600,334
Income before income taxes... 1,256,381 749,024
Net income (1)............... 941,663 499,636
(1) Includes $165,989 and $120,010 in 1997 and 1996, respectively, attributable
to the equity earnings of the Company recorded by HSOG.
During the first quarter of 1997, the Company sold its interest in the N.E.
Alden Field, including Alden Pipeline Company. This sale was effective January
1, 1997. Accordingly, 1997 information presented above does not include amounts
attributable to the operations of Alden Pipeline Company; amounts included for
1996 operations are not material to the totals shown.
Note 3 - Note payable
On May 31, 1997 the Company paid-off its bank note payable which was due May 1,
1998. The Company has a line of credit in the amount of $700,000 available until
May 1, 1998, which provides for monthly payments of interest on the outstanding
borrowings at bank prime. There is no balance currently under this line, however
the Company has issued a letter of credit in the amount of $60,000 which is
guaranteed by this line.
The note payable and line of credit described above are collateralized by
certain of the Company's producing properties.
Note 4 - Contingencies
The Company is involved in various other legal actions arising in the normal
course of business. In the opinion of management, the Company's liabilities, if
any, in these matters will not have a material effect on the Company's financial
position or the results of operations.
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<PAGE>
Item 2. Management's discussion and Analysis.
Results of Operations - First six months of 1997 compared with first six months
of 1996
Net income for the first six months increased $326,868 from $764,270 in 1996 to
$1,091,138 in 1997. The principal reasons for this increase are as follows:
Oil sales decreased $3,998 as a result of a decrease in production volumes of
6,859 barrels, partially offset by an increase in the average price of oil from
$18.96 per barrel in 1996 to $20.06 per barrel in 1997. The decrease in
production volumes was primarily a result of property dispositions during 1996
and early 1997.
Gas sales increased $332,422 (28%) due to an increase in the average gas price
per mcf from $1.94 in 1996 to $2.44 in 1997, coupled with an increase in
production volumes from 614,133 mcf in 1996 to 624,695 mcf in 1997.
Lease rentals and bonuses increased $38,026 due to higher leasing activity in
1997 than in 1996.
Interest income decreased $11,632 from 1996 which included an $11,400 discount
related to the prepayment of certain production taxes in the state of Montana.
Gain on sales of assets increased $96,940 in 1997 following the Company's sale
of their interest in the N.E. Alden Field. There were no comparable sales in
1996.
Income from equity affiliates increased $136,426 in 1997. The Company's
principal equity investee, The Home-Stake Oil & Gas Company, reported net income
of $941,663 in 1997 and $509,661 in the same period of 1996. In addition, the
Company's ownership in The Home-Stake Oil & Gas Company increased from 31.7% to
33.9% in November, 1996.
Lease operating expenses decreased $258,137 (25%) in 1996. This increase is
principally attributable to environmental remediation expenses in 1996
associated with a waterflood property in which the Company has a 9% working
interest, coupled with an insurance reimbursement in 1997 of certain of such
costs of approximately $145,250
Dry hole costs increased $324,327 in 1997 due the greater incidence of dry
holes. In 1996 there were 3 dry holes (.18 net) drilled at an average gross cost
of $257,900 per well; in 1997 there were 6 dry holes (.86 net) drilled at an
average gross cost of $431,100 per well.
Condemned and abandoned property expense increased $51,596. 1996 expense was a
net credit of $5,081, primarily the result of salvage credits of $12,488
received on a property abandoned during the first quarter. 1997 expense was also
higher due to the abandonment of acreage costs associated with six dry holes in
1997, compared to two in 1996.
General and administrative expense increased $71,303 (15%). This increase is
primarily associated with the addition of certain full-time and contract
employees in late 1996 and early 1997. Such personnel were added in anticipation
of an increase in the Company's exploration activities.
Interest expense decreased $99,611 in 1997, reflecting the Company's lower
average borrowings.
Results of Operations - Second quarter 1997 compared with second quarter 1996
Net income for the second quarter decreased $125,471 from $449,140 in 1996 to
$323,669 in 1997. The principal reasons for this decrease are as follows:
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Oil sales decreased 21% ($260,043) due to lower average oil prices which
decreased from $20.23 per barrel in 1996 to $18.50 per barrel in 1997, coupled
with a decrease in production volumes from 61,886 barrels to 53,620 barrels.
Gas sales decreased $31,707 (5%) due to lower average prices which decreased
from $2.00 per mcf in 1996 to $1.82 per mcf in 1997, partially offset by an
increase in production volumes from 310,374 mcf to 324,807 mcf.
Income from equity affiliates increased $14,449 in 1997. The Company's principal
equity investee, The Home-Stake Oil & Gas Company, reported net income of
$285,329 in 1997 and $263,027 in the same period of 1996. The Company's
ownership in The Home-Stake Oil & Gas Company increased from 17.1% to 19.3% in
November, 1996.
Lease operating expenses decreased $203,934 (38%) in 1996. This increase is
principally attributable to environmental remediation expenses in 1996
associated with a waterflood property in which the Company has a 9% working
interest, coupled with an insurance reimbursement in 1997 of certain of such
costs of approximately $145,250
Production taxes decreased $51,503 as a result of lower production values
described above.
Dry hole costs increased $138,556 in 1997 due the greater incidence of dry
holes. In 1996 there was 1 dry hole (.06 net) drilled; in 1997 there were 4 dry
holes (.57 net) drilled.
Condemned and abandoned property expense increased $17,455. 1997 expense was
higher due to the abandonment of acreage costs associated with the 4 dry holes
in 1997, compared to only 1 in 1996.
General and administrative expense increased $61,365. This increase is primarily
associated with the addition of certain full-time and contract employees in late
1996 and early 1997. Such personnel were added in anticipation of an increase in
the Company's exploration activities.
Interest expense decreased $56,456 in 1997, reflecting the Company's lower
average borrowings.
Financial Condition and Liquidity
The Company's operating activities have traditionally been self-financed through
internally generated cash flows. The principal uses of cash flows have been to
fund the Company's exploration and production activities and for the payment of
dividends to stockholders. The use of borrowed funds has generally been limited
to the acquisition of producing oil & gas properties where future revenues from
such purchases are expected to fund the debt.
The Company has an exploration and development budget for 1997 of $1.7 million.
The Company has spent approximately $816,000 in the first two quarters of 1997
and has current commitments of approximately $1 million for the remainder of the
year. In addition, the Company is actively pursuing opportunities for the
acquisition of producing properties whenever possible.
The Company has a revolving line-of-credit with Bank IV Oklahoma, N.A. in the
amount of $700,000 which expires May 1, 1998. There is no balance currently
under this line, however the Company has issued letters of credit in the amount
of $60,000 which are also guaranteed by this line.
Product prices have decreased approximately 20% for oil and 45% for gas since
the first of the year. Despite these decreases, the Company expects to finance
its budgeted 1997 operations and drilling through internally generated cash
flows.
Statement of Financial Accounting Standards No. 128, Earning Per Share will
become effective for periods ending after December 15, 1997. Adoption of this
statement will not have a material effect on the Company's result of operations.
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Forward-looking Statements
This Management's Discussion and Analysis of Results of Operations and Financial
Condition contains certain statements which are not historical in nature and are
considered "forward looking statements", including statements concerning the
Company's anticipated capital expenditures, cash flows, financial condition and
liquidity. These forward looking statements are based on current expectations,
estimates and assumptions of management and are subject to certain risks and
uncertainties. Actual results and developments man differ materially from what
is expressed in the forward looking statements as a result of changes in the
prices of oil or gas, operating expenses, federal and state regulations and
other factors beyond the control of the Company.
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<PAGE>
Part II. Other Information
Item 1. Legal Proceedings.
There is a complete discussion of legal proceedings in the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1996
(the "Form 10-KSB"). Since the date of that report there have been no
material changes in the status of such matters.
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.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
The following documents are included as exhibits to this Form
10-QSB.
Exhibit
Number Description
10.1 Third Amendment and Modification Agreement to Loan Agreement
dated May 1, 1997 to the Third Amended and Restated Loan
Agreement dated March 29, 1995 between the Company and
Boatmen's National Bank of Oklahoman(formerly known as Bank
IV Oklahoma, N.A.).
27 Financial Data Schedule
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended June
30, 1997.
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Signatures
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
The Home-Stake Royalty Corporation
(Registrant)
Date: August 11, 1997 By: /s/ Robert C. Simpson
-----------------------------
Robert C. Simpson
Chairman of the Board, C.E.O.,
President and Treasurer
Date: August 11, 1997 By: /s/ Chris K. Corcoran
-----------------------------
Chris K. Corcoran
Executive Vice President,
Chief Financial Officer and
Corporate Secretary
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THIRD AMENDMENT AND MODIFICATION AGREEMENT TO LOAN AGREEMENT
This Third Amendment and Modification Agreement to Loan Agreement (the
"Agreement") is effective as of the 1st day of May, 1997 in Tulsa, Oklahoma, by
and between THE HOME-STAKE ROYALTY CORPORATION, an Oklahoma corporation
("Borrower"), whose mailing address, principal place of business and chief
executive offices are at 2800 First National Tower, Tulsa, Oklahoma, and
BOATMEN'S NATIONAL BANK OF OKLAHOMA, formerly known as BANK IV Oklahoma, N.A., a
national banking association (the "Bank"), whose address is 515 South Boulder
(or P.O. Box 2360, 74101), Tulsa, Oklahoma 74103.
R E C I T A L S
A. Borrower and the Bank previously made, executed and entered into that
certain Third Amended and Restated Loan Agreement dated as of the 29th day of
March, 1995 (the "Original Loan Agreement"), as amended by that First Amendment
and Modification Agreement to Loan Agreement dated May 1, 1996 (the "First
Modification") and that Second Amendment and Modification Agreement to Loan
Agreement dated as of July 22, 1996 (the "Second Modification") (the Original
Loan Agreement as amended by the First Modification and the Second Modification,
is hereinafter referred to as the "Loan Agreement") which described and defined
a financing arrangement wherein the Borrower was entitled to borrow and the Bank
agreed to lend (i) up to the principal amount of $700,000.00, in the form of a
revolving line of credit as evidenced by that certain Promissory Note (the
"Revolving Note") dated July 22, 1996 in the face amount of $700,000.00, and
(ii) the principal amount of $3,133,845.00 in the form of a term loan, as
evidenced by that certain Promissory Note (the "Term Note") dated as of May 1,
1996 in the face amount of $3,133,845.00. As of the date hereof, there is
outstanding the principal amount of $321,420.00 under the Term Note and no
principal is outstanding under the Revolving Note in addition to interest
accrued in accordance with the terms thereof. (Except as specifically defined
herein, all capitalized terms used herein shall have the same meaning as set
forth in the Loan Agreement.)
B. Repayment of the Term Note and Revolving Note, along with any and all
other Indebtedness of Borrower to the Bank, is secured by a first priority
security interest in and to the Collateral as defined in the Loan Agreement and
the Security Instruments.
C. Borrower has requested that the Bank renew and extend the maturity of
the Revolving Note and Term Note to May 1, 1998 and September 1, 1997,
respectively, and modify certain covenants as provided herein and the Bank is
willing to do so subject to the terms and conditions set forth herein, and in
connection therewith, the parties desire to amend and modify the Loan Agreement
and other Loan Documents as set forth herein.
NOW, THEREFORE, in consideration of the foregoing recitals, the conditions,
covenants, representations and warranties set forth herein, and for other good
and valuable consideration, the receipt, sufficiency and adequacy of which are
hereby acknowledged, the parties hereby mutually agree as follows:
1
<PAGE>
1. Renewal Revolving Note. Concurrently with the execution of this
Agreement, Borrower shall execute and deliver to the Bank that certain Extended,
Modified and Renewed Promissory Note (the "Renewal Revolving Note") of even date
herewith in the face amount of $700,000.00 due and payable at maturity on May 1,
1998, such Renewal Revolving Note to be in the form as shown in Exhibit "A"
attached hereto and made a part hereof, thereby evidencing Borrower's obligation
to repay advances under the Revolving Loan and thereby amending and modifying,
but not extinguishing the indebtedness of, the Revolving Note. All references in
the Loan Agreement and the Loan Documents to the term "Revolving Note" shall be
amended throughout to be deemed to refer to the Renewal Revolving Note and all
references in the Loan Agreement and the Loan Documents to the term "Revolving
Loan" shall be deemed amended throughout to refer to the loan evidenced by the
Renewal Revolving Note.
2. Renewal Term Note. Concurrently with the execution of this Agreement,
Borrower shall execute and deliver to the Bank that certain Extended, Modified
and Renewed Promissory Note (the "Renewal Term Note") of even date herewith in
the face amount of $321,420.00 due and payable at maturity on September 1, 1997,
such Renewal Term Note to be in the form as shown in Exhibit "B" attached hereto
and made a part hereof, thereby evidencing Borrower's obligation to repay the
Term Loan and thereby amending and modifying, but not extinguishing the
indebtedness of, the Term Note. All references in the Loan Agreement and the
Loan Documents to the term "Term Note" shall be amended throughout to be deemed
to refer to the Renewal Term Note and all references in the Loan Agreement and
the Loan Documents to the term "Term Loan" shall be deemed amended throughout to
refer to the loan evidenced by the Renewal Term Note. All references in the Loan
Agreement and the Loan Documents to the "Term Note" shall be amended throughout
to be deemed to refer to the Renewal Term Note and all references in the Loan
Agreement and the Loan Documents to the term "Term Loan" shall be deemed amended
throughout to refer to the loan evidenced by the Renewal Term Note. All
references in the Loan Agreement and the Loan Documents to the term "Notes"
shall be amended throughout to be deemed to refer to the Renewal Term Note and
the Renewal Revolving Note.
3. Line of Credit Commitment. The last sentence of paragraph 2.3 of the
Loan Agreement is hereby amended in its entirety to read as follows:
This commitment shall expire, unless earlier terminated at 2:00 p.m.,
Tulsa, Oklahoma time on May 1, 1998.
4. Ratification of Mortgage and Security Interests. Borrower hereby
ratifies, confirms and reaffirms all security interests, liens and other
encumbrances created under the Loan Agreement, the Security Instruments, this
Agreement, and all other Loan Documents as security for repayment of Borrower's
Indebtedness (as that term is defined in Paragraph 3.6 of the Loan Agreement, as
amended and modified by this Agreement to contemplate the matters provided
therein or herein) and all other unreleased security agreements, mortgages and
deeds of trust in favor of the Bank, all of
2
<PAGE>
which shall continue in full force and effect and with the same priority as
security for repayment and satisfaction of the Indebtedness and all extensions,
modifications and renewals thereof, including but not limited to the Renewal
Term Note and the Renewal Revolving Note.
5. Modification, Ratification, Representations and Warranties. The terms
and provisions of the Loan Agreement and all other Loan Documents executed in
connection therewith shall be deemed amended, modified, and changed throughout
so as to reflect consistently the matters provided herein. As extended, amended,
modified, renewed or changed consistent herewith, the terms and provisions of
the Loan Agreement and all other Loan Documents shall remain in full force and
effect and Borrower hereby ratifies, reaffirms and reasserts, as of the date
hereof except as specifically amended herein, all covenants, representations,
warranties, agreements and statements contained therein. Further, and in
addition to the representations, warranties and covenants hereby ratified and
reaffirmed, Borrower, as applicable, certifies, covenants, represents, and
warrants to and with the Bank as follows:
a. Borrower is validly organized and existing and in good standing
under and by virtue of the laws of the State of Oklahoma and Borrower is
duly qualified to do business and is in good standing in every state and
jurisdiction in which it does or will do business.
b. The execution and delivery of this Agreement and all other
documents to be executed and delivered by Borrower to the Bank pursuant
hereto, and the due observance and performance by Borrower of its terms,
provisions and covenants are within Borrower's powers, have been duly
authorized, will not contravene or violate any law or term or provision of
Borrower's Certificate of Incorporation or By-laws or any corporate
resolution of its shareholders or directors and will not contravene,
violate or constitute a default under any contract, indenture, agreement or
undertaking to which Borrower is a party or by the terms of which Borrower
or any of its property or assets is bound.
c. Borrower's financial statements dated as of December 31, 1996,
copies of which have been furnished to the Bank, have been prepared in
conformity with GAAP, show all material liabilities, direct and contingent
(to the extent required by GAAP to be reflected therein), and fairly
present the financial condition of Borrower as of such date and the results
of its operations for the period then ended, and since such date there has
been no material adverse change in the business, financial condition or
operations of Borrower.
d. The Collateral is free of title defects, subject to no lien of any
kind except liens in favor of the Bank or otherwise permitted by the Loan
Agreement.
3
<PAGE>
e. Except as set forth on Exhibit "C" attached hereto and made a part
hereof, there is no action, suit, investigation or proceeding threatened or
pending before any Tribunal against or affecting the Borrower or any
properties or rights of the Borrower or any claim thereof which if
adversely determined, would result in a liability of greater than
$100,000.00, or would otherwise result in any material adverse change in
the business or condition, financial or otherwise, of the Borrower.
Further, the Borrower is not in default with respect to any judgment,
order, writ, injunction, decree, rule or regulation of any Tribunal, the
default of which would materially impair the ability of the Borrower to
carry on its business substantially as now conduct. Exhibit "G" to the Loan
Agreement is hereby amended consistent herewith.
6. Obligations Unaffected. Except as otherwise specified herein, the terms
and conditions hereof shall in no manner impair, limit, restrict or otherwise
affect the obligations of Borrower to the Bank pursuant to and as evidenced by
the Loan Documents. As a material inducement to the Bank to execute and deliver
this Agreement, Borrower hereby acknowledges that there are no claims or offsets
against, or defenses or counterclaims to, the terms or provisions of the
obligations created or evidenced by the Loan Documents, including but not
limited to the Renewal Term Note and the Renewal Revolving Note. In the event of
a conflict between the terms and conditions of this Agreement and the terms and
conditions of the other Loan Documents, the terms and conditions of this
Agreement shall control.
7. "Loan Documents" and "Loan Agreement". The term "Loan Documents" as used
in the Loan Agreement shall be interpreted to include this Agreement, the
Renewal Revolving Note, the Renewal Term Note and all of the other documents
heretofore or hereafter creating, evidencing, securing and/or relating to the
Secured Obligations of Borrower to the Bank as contemplated or referenced
herein. The term "Loan Agreement" as may be used in any of the Loan Documents
shall be interpreted to mean the Loan Agreement, together with and as modified
by this Agreement. The term "Secured Obligations" as used in the Loan Agreement
or any other Loan Documents shall be interpreted to include the Renewal Term
Note and the Renewal Revolving Note in addition to all other obligations
described therein.
8. Bank's legal Fees, Costs and Expenses. In consideration of and as a
condition precedent to the Bank's agreement to the execution, amendments and
modifications described herein, Borrower agrees to and shall pay promptly all
fees, including but not limited to the Bank's attorneys' fees, expenses and
charges with respect to and in connection with this Agreement and all other
documents contemplated hereby, including but not limited to, recording and
filing fees, and fees and expenses of counsel employed by the Bank in connection
with the documentation and closing of the transactions, amendments and
modifications contemplated hereby, and Borrower hereby agrees to pay promptly
all hereafter incurred fees, including but not limited to attorneys' fees,
expenses and charges of the Bank which are incidental to the enforcement,
defense, amendment, modification, extension, renewal or change of the Loan
Agreement, this Agreement or any other Loan Documents.
4
<PAGE>
9. Separability. If any provision of this Agreement and the other Loan
Documents is held invalid or unenforceable for any reason, such invalidity or
unenforceability shall not affect the other provisions hereof, and this
Agreement and the other Loan Documents shall be construed and enforced as if
such provision had not been included herein.
10. Binding Effect. Except as otherwise expressly provided herein, this
Agreement will remain in effect until all of Borrower's obligations to Bank
under this Agreement have been fully discharged. This Agreement shall be binding
upon Borrower and its successors and assigns, and shall inure to the benefit of
the Bank, its successors and assigns.
11. Headings. The headings used herein are for convenience and
administrative purposes only and do not constitute substantive matters to be
considered in construing the terms and provisions of this Agreement.
12. Governing Law. This Agreement shall be governed and interpreted in
accordance with the laws of the State of Oklahoma.
IN WITNESS WHEREOF, this Agreement has been duly executed by the parties as
of the day and year first above written.
THE HOME-STAKE ROYALTY CORPORATION,
an Oklahoma corporation
By: /s/ Chris K. Corcoran
-------------------------------------------
Chris K. Corcoran, Executive Vice-President
"BORROWER"
BOATMEN'S NATIONAL BANK OF
OKLAHOMA, formerly known as
BANK IV Oklahoma, N.A., a
national banking association
By: /s/ Robert O. Laird
-------------------------------------------
Robert O. Laird, Vice President
"BANK"
5
<PAGE>
EXHIBIT "A"
EXTENDED, MODIFIED AND RENEWED PROMISSORY NOTE
(Renewal Revolving Note)
$700,000.00 Tulsa, Oklahoma
May 1, 1997
1. FOR VALUE RECEIVED the undersigned, THE HOME-STAKE ROYALTY CORPORATION,
an Oklahoma corporation ("Maker"), promises to pay to the order of BOATMEN'S
NATIONAL BANK OF OKLAHOMA, formerly known as BANK IV OKLAHOMA, N.A., a national
banking association ("Payee"), the principal amount of this Note or such amount
thereof as shall be advanced and outstanding, together with interest on the
unpaid balance of such amount at the rate hereinafter set forth. This Note is
issued pursuant to that certain Third Amended and Restated Loan Agreement (the
"Original Loan Agreement") dated March 29, 1995 as amended by that certain First
Amendment and Modification Agreement to Loan Agreement (the "First Amendment")
dated May 1, 1996, that certain Second Amendment and Modification Agreement to
Loan Agreement (the "Second Amendment") dated July 22, 1996 and that Third
Amendment and Modification Agreement to Loan Agreement (the "Third Amendment")
of even date herewith (the Original Loan Agreement as amended by the First
Amendment, the Second Amendment and the Third Amendment being referred to as the
"Loan Agreement") by and between Payee, as Lender, and Maker as Borrower, and is
subject to the provisions therein set forth. The obligations represented by this
Note are secured by the Loan Documents described in the Loan Agreement.
2. Principal Amount. SEVEN HUNDRED THOUSAND AND NO/100 DOLLARS
($700,000.00).
3. Payments. All accrued interest on the unpaid balance of this Note is due
and payable on the first day of each calendar month, commencing June 1, 1997 and
continuing on the first day of each month thereafter until May 1, 1998, at which
time all principal and accrued and unpaid interest shall be due and payable to
Payee in full. Interest on this Note shall accrue from the date of the first
advance under this Note and any payment shall be applied first to the payment of
interest then due and second to the reduction of unpaid principal.
4. Interest Rate. Interest shall accrue on the outstanding principal
balance at the "Prime Rate" minus one percent (-1%) per annum. The term "Prime
Rate" means that rate of interest computed as an average of corporate loan rates
quoted by a certain number of the nation's largest banks, as announced from time
to time in the Wall Street Journal, Southwest Edition as the "prime rate". The
Prime Rate shall be adjusted daily as announced, calculated on the basis of a
year of 360 days and a month of 30 days. Changes in the rate charged on this
Note are effective, without notice, on the same day as the effective change in
the Prime Rate as established from time to time. In any case where a payment of
principal and/or interest on this Note, or any part thereof, is due on a day on
which the Bank is not open for normal banking business, the undersigned shall be
entitled to delay such payments until the next succeeding business day, but
interest shall continue to accrue until the payment is in fact made.
-1-
<PAGE>
5. Interest Rate After Maturity. Matured and unpaid principal, whether by
acceleration or otherwise, shall bear interest at the Prime Rate plus five
percent (5%) per annum.
6. Prepayment Penalties. This Note may be prepaid, in whole or in part, at
any time, without premium or penalty.
7. Default. If the principal or any installment of interest due upon this
Note is not paid as and when the same becomes due and payable (whether by
demand, extension, acceleration or otherwise), or any party now or hereafter
liable (directly or indirectly) for payment of this Note makes an assignment for
benefit of creditors, has an order for relief entered under the United States
Bankruptcy Code, as amended, seeks the benefits of any other bankruptcy,
insolvency or reorganization law, or becomes insolvent, or any receiver, trustee
or like officer is appointed to take custody, possession or control of any
property of any such party, or upon the occurrence of any event of default under
the Loan Agreement or any other Loan Documents, the holder hereof may, after the
expiration of any grace or notice period as provided in the Loan Agreement,
without further notice and without presentment or demand for payment, declare
all of the unpaid balance hereof to be immediately due and payable. Such right
of acceleration is cumulative and in addition to any other right or rights of
acceleration under the Loan Agreement and any other writing now or hereafter
evidencing or securing payment of any of the indebtedness evidenced hereby.
8. Costs and Attorneys' Fees. If this Note is placed in the hands of an
attorney for collection, or suit is brought on same, or the same is collected
through Bankruptcy or other judicial proceeding, or the Payee is required to
defend the priority of the security, then the undersigned shall pay all of
Payee's reasonable costs and expenses including but not limited to a reasonable
amount as attorneys' fees.
9. Waivers. Maker and any party which may be or become liable for the
payment of any sums of money payable on this Note (including any surety,
endorser or guarantor) severally waive presentment and demand for payment,
protest, notice of protest and nonpayment, and notice of the intention to
accelerate, and agree that their liability on this Note shall not be affected by
any renewal or extension in the time of payment hereof, by any indulgences or by
any release or change in any security for the payment of this Note, regardless
of the number of such renewals, extensions, indulgences, releases or changes.
10. Right of Offset. Any indebtedness due from holder hereof to the
undersigned or any party hereto including, but without limitation, any deposits
or credit balances due from holder, is pledged to secure payment of this Note
and any other obligation to holder of the undersigned or any party hereto, and
may at any time while the whole or any part of such obligation remains unpaid,
either before or after maturity hereof, be appropriated, held or applied toward
the payment of this Note or any other obligation to holder of the undersigned or
any party hereto.
-2-
<PAGE>
11. Governing Law. This Note has been executed and delivered in Tulsa
County, Oklahoma and shall be governed by and construed according to the laws of
the State of Oklahoma.
12. Extension. This Note extends, modifies and renews (but does not
extinguish the indebtedness represented by) that certain Promissory Note dated
July 22, 1996 by the undersigned in favor of the Payee in the face amount of
$700,000.00.
THE HOME-STAKE ROYALTY CORPORATION
an Oklahoma corporation
By:___________________________________________
Chris K. Corcoran, Executive Vice-President
-3-
<PAGE>
EXHIBIT "B"
EXTENDED, RENEWED AND MODIFIED PROMISSORY NOTE
(Renewal Term Note)
$321,420.00 Tulsa, Oklahoma
May 1, 1997
1. FOR VALUE RECEIVED the undersigned, THE HOME-STAKE ROYALTY CORPORATION,
an Oklahoma corporation ("Maker"), promises to pay to the order of BOATMEN'S
NATIONAL BANK OF OKLAHOMA, formerly known as BANK IV OKLAHOMA, N.A., a national
banking association ("Payee"), the principal amount of this Note or such amount
thereof as shall be outstanding, together with interest on the unpaid balance of
such amount at the rate hereinafter set forth. This Note is issued pursuant to
that certain Third Amended and Restated Loan Agreement (the "Original Loan
Agreement") dated March 29, 1995, as amended by that certain First Amendment and
Modification Agreement to Loan Agreement (the "First Amendment") dated May 1,
1996, that certain Second Amendment and Modification Agreement to Loan Agreement
(the "Second Amendment") dated July 22, 1996 and that Third Amendment and
Modification Agreement to Loan Agreement (the "Third Amendment") of even date
herewith (the Original Loan Agreement as amended by the First Amendment, the
Second Amendment and the Third Amendment being referred to as the "Loan
Agreement") by and between Payee, as Lender, and Maker as Borrower, and is
subject to the provisions therein set forth. The obligations represented by this
Note are secured by the Loan Documents described in the Loan Agreement.
2. Principal Amount. THREE HUNDRED TWENTY-ONE THOUSAND FOUR HUNDRED TWENTY
AND NO/100 DOLLARS ($321,420.00).
3. Payments. All accrued interest on the unpaid balance of this Note
together with principal payments of $80,355.00 each are due and payable on the
first day of each calendar month, commencing June 1, 1997 and continuing on the
first day of each month thereafter until September 1, 1997, at which time all
principal and accrued and unpaid interest shall be due and payable to Payee in
full. Interest on this Note shall accrue from the date of this Note and any
payment shall be applied first to the payment of interest then due and second to
the reduction of unpaid principal.
4. Interest Rate. Interest shall accrue on the outstanding principal
balance at the "Prime Rate" minus one-half percent (-1/2%) per annum. The term
"Prime Rate" means that rate of interest computed as an average of corporate
loan rates quoted by a certain number of the nation's largest banks, as
announced from time to time in the Wall Street Journal, Southwest Edition as the
"prime rate". The Prime Rate shall be adjusted daily as announced, calculated on
the basis of a year of 360 days and a month of 30 days. Changes in the rate
charged on this Note are effective, without notice, on the same day as the
effective change in the Prime Rate as established from time to time. In any case
where a payment of principal and/or interest on this Note, or any part thereof,
is due on a day on which the Bank is not open for normal banking business, the
undersigned shall be entitled to delay such payments until the next succeeding
business day, but interest shall continue to accrue until the payment is in fact
made.
-1-
<PAGE>
5. Interest Rate After Maturity. Matured and unpaid principal, whether by
acceleration or otherwise, shall bear interest at the Prime Rate plus five
percent (5%) per annum.
6. Prepayment Penalties. This Note may be prepaid, in whole or in part, at
any time, without premium or penalty.
7. Default. If the principal or any installment of interest due upon this
Note is not paid as and when the same becomes due and payable (whether by
demand, extension, acceleration or otherwise), or any party now or hereafter
liable (directly or indirectly) for payment of this Note makes an assignment for
benefit of creditors, has an order for relief entered under the United States
Bankruptcy Code, as amended, seeks the benefits of any other bankruptcy,
insolvency or reorganization law, or becomes insolvent, or any receiver, trustee
or like officer is appointed to take custody, possession or control of any
property of any such party, or upon the occurrence of any event of default under
the Loan Agreement or any other Loan Documents, the holder hereof may, after the
expiration of any grace or notice period as provided in the Loan Agreement,
without further notice and without presentment or demand for payment, declare
all of the unpaid balance hereof to be immediately due and payable. Such right
of acceleration is cumulative and in addition to any other right or rights of
acceleration under the Agreement and any other writing now or hereafter
evidencing or securing payment of any of the indebtedness evidenced hereby.
8. Costs and Attorneys' Fees. If this Note is placed in the hands of an
attorney for collection, or suit is brought on same, or the same is collected
through Probate, Bankruptcy or other judicial proceeding, or Payee is required
to defend the priority of the security, then the undersigned shall pay all of
Payee's reasonable costs and expenses including but not limited to a reasonable
amount as attorneys' fees.
9. Waivers. Maker and any party which may be or become liable for the
payment of any sums of money payable on this Note (including any surety,
endorser or guarantor) severally waive presentment and demand for payment,
protest, notice of protest and nonpayment, and notice of the intention to
accelerate, and agree that their liability on this note shall not be affected by
any renewal or extension in the time of payment hereof, by any indulgences or by
any release or change in any security for the payment of this note, regardless
of the number of such renewals, extensions, indulgences, releases or changes.
10. Right of Offset. Any indebtedness due from holder hereof to the
undersigned or any party hereto including, but without limitation, any deposits
or credit balances due from holder, is pledged to secure payment of this Note
and any other obligation to holder of the undersigned or any party hereto, and
may at any time while the whole or any part of such obligation remains unpaid,
either before or after maturity hereof, be appropriated, held or applied toward
the payment of this Note or any other obligation to holder of the undersigned or
any party hereto.
-2-
<PAGE>
11. Governing Law. This Note has been executed and delivered in Tulsa
County, Oklahoma and shall be governed by and construed according to the laws of
the State of Oklahoma.
12. Extension. This Note extends, modifies and renews (but does not
extinguish the indebtedness represented by) that certain Promissory Note dated
July 22, 1996 by the undersigned in favor of the Payee in the face amount of
$321,420.00.
THE HOME-STAKE ROYALTY CORPORATION,
an Oklahoma corporation
By:___________________________________________
Chris K. Corcoran, Executive Vice-President
-3-
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<S> <C>
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 727,181
<SECURITIES> 0
<RECEIVABLES> 707,408
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,620,540
<PP&E> 24,141,927
<DEPRECIATION> 15,716,548
<TOTAL-ASSETS> 13,769,200
<CURRENT-LIABILITIES> 827,012
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0
0
<COMMON> 4,000,000
<OTHER-SE> 6,000,000
<TOTAL-LIABILITY-AND-EQUITY> 13,769,200
<SALES> 3,869,317
<TOTAL-REVENUES> 4,351,608
<CGS> 0
<TOTAL-COSTS> 1,085,010
<OTHER-EXPENSES> 417,262
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