SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
Commission file number 0-19766
THE HOME-STAKE OIL & GAS COMPANY
(Name of small business issuer in its charter)
Oklahoma 73-0288030
(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) (Zip Code)
Issuer's telephone number: (918) 583-0178
Securities registered under Section 12(b) of the Act: None
Securities registered under Section 12(g) of the Act:
Common Stock, par value $0.01 per share
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act 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
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of the Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10- KSB. |_|
State issuer's revenues for its most recent fiscal year: $8,070,518
As of March 26, 1998, 4,517,363 shares of the Registrant's Common Stock
were outstanding. As of March 26, 1998, the aggregate market value of the voting
stock held by non-affiliates of the Registrant was $16,576,296 based on the last
reported trading price reported on the Over-the-Counter Bulletin Board.
(Officers and directors of the Registrant, and holders of more than 10% of the
outstanding common stock, are considered affiliates for purposes of this
calculation.)
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held June 1, 1998, are incorporated by reference into Part
III of this Form 10-KSB.
Transitional Small Business Disclosure Format (Check one) Yes No X
<PAGE>
THE HOME-STAKE OIL & GAS COMPANY
FORM 10-KSB
YEAR ENDED DECEMBER 31, 1997
TABLE OF CONTENTS
Page
PART I
Item 1. Description of Business..................................... 1
Item 2. Description of Property..................................... 5
Item 3. Legal Proceedings........................................... 11
Item 4. Submission of Matters to a Vote of Security Holders......... 11
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.... 12
Item 6. Management's Discussion and Analysis........................ 13
Item 7. Financial Statements........................................ 16
Item 8. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure...................... 16
PART III
Item 9. Directors, Executive Officers and Compliance with
Section 16(a)of the Exchange Act............................ 16
Item 10. Executive Compensation...................................... 16
Item 11. Security Ownership of Certain Beneficial
Owners and Management....................................... 16
Item 12. Certain Relationships and Related Transactions.............. 16
Item 13. Exhibits and Reports on Form 8-K............................ 17
Signatures ............................................................ 18
Index to Financial Statements........................................... F-1
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PART I
Item 1., Description of Business, and Item 2., Description of Property, include
certain statements which are not historical fact, but are "forward looking
statements". These forward looking statements are based on current expectations,
estimates, assumptions and beliefs of management; and words such as "expects",
"believes", "anticipates", "intends", "plans" and similar expressions are
intended to identify such forward looking statements. The Home-Stake Oil & Gas
Company (the "Company" or "HSOG") does not undertake to update, revise or
correct forward looking information. Readers are cautioned that such forward
looking statements should be read in conjunction with the Company's disclosures
under the heading "Forward Looking Statements", included on page 15 hereof.
ITEM 1. DESCRIPTION OF BUSINESS
General
The Company is actively engaged in the acquisition, exploration, development and
production of oil and gas properties. Its principal geographic operating areas
lie within the states of Oklahoma, Montana, Wyoming, Louisiana and Texas.
The Company was incorporated in the State of Oklahoma in 1917. The Company's
principal business activity from the date of its incorporation through the early
1950's was the acquisition and leasing of oil and gas mineral interests.
Accordingly, the Company's revenues were primarily from royalty interests in oil
and gas production from the mineral interests in properties leased to others. In
the 1950's the Company began participating as a working interest partner in the
acquisition and drilling of oil and gas properties, primarily drilled and
operated by industry partners. The Company also originated and participated in
the drilling of a few of its own prospects and discovered several significant
oil fields in south central Kansas during the 1950's. Beginning in 1985, the
Company developed an exploration staff to generate, sell and drill its own
prospects. The Company now also serves as operator for 50 producing wells.
In the mid-1970's the Company revised its business strategy to pursue a program
to increase its revenues generated from the ownership of working interests in
oil and gas properties relative to its revenues generated from royalty interests
(resulting from the ownership and leasing of oil and gas mineral interests). The
Company increased its relative investment in drilling ventures developed and
sold by other industry partners and in the oil and gas properties that it
acquired. In 1977, the Company received approximately 70% of its revenues from
royalty interests, whereas, in 1997, approximately 30% of its revenues were from
royalty interests.
At December 31, 1997, the Company had estimated proved reserves of 18,540,196
Mcf of natural gas and 4,470,192 barrels of oil. Natural gas reserves
constituted approximately 41% of the Company's reserves based on an "oil
equivalent" basis (converting each six Mcf of natural gas to a barrel of oil,
representing the estimated relative energy content of oil and natural gas).
Merger
Effective December 31, 1997, The Home-Stake Royalty Corporation ("HSRC") was
merged with and into the Company (the "Merger"). Over the past 40 years, the
Company and HSRC were operated as essentially a single company. For most of this
period the Company and HSRC (the "Companies"), split administrative costs evenly
and generally participated jointly in acquisition and exploration activities on
an equal basis. However, the differences in financial condition and liquidity of
the two companies eventually resulted in a change in the participation
arrangement between the Companies. Effective January 1, 1996, HSRC's
participation interest in new drilling ventures, acquisitions and other
investments was increased to 60% and the Company's was reduced to 40%. HSRC
owned 33.9% of the Company at the time of the Merger and the Company owned 19.3%
of HSRC. The Companies shared the same employees and members of the Board of
Directors. There were approximately 200 holders of the Company's common stock
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and approximately 300 holders of HSRC's common stock, with approximately 90
persons owning shares in both companies.
The Merger has been accounted for as a purchase, with HSOG deemed to be the
purchased entity for accounting purposes. Under the purchase method of
accounting, the cost of the assets and liabilities acquired is allocated based
on their fair value, with the operations of the acquired entity included with
those of the acquiring entity from the date of acquisition. Accordingly, the
historical tables and other information included in this report for periods
prior to 1997 reflect such information for HSRC and do not include historical
amounts for HSOG. Information for activities during 1997 is also for HSRC only;
whereas, information as of December 31, 1997, includes the combined amounts for
HSRC and HSOG (i.e. the merged entity).
Partnership
The Company serves as general partner of H-S Royalty, Ltd., an Oklahoma limited
partnership (the "Partnership") formed in 1982. The Partnership was formed for
the purpose of distributing to stockholders a 3/16th royalty interest in certain
jointly owned mineral interests in properties, which were nonproducing at the
time of formation of the Partnership, located in ten states. Management of the
Company distributed the royalty interests to allow stockholders to realize a
portion of the direct economic benefits that result from the commercial
production and sale of oil and gas, as well as the maximization of certain
income tax benefits attributable to oil and gas producing activities. In
connection with the administration of the Partnership, the Company receives a
monthly administrative management fee of $500.
Competition
Competition in the oil and gas industry is intense. In seeking to obtain
desirable producing properties, new leases and exploration prospects, the
Company faces competition from both major and independent oil and gas companies,
as well as from numerous individuals and income and drilling programs. Many of
these competitors have financial and other resources substantially in excess of
those available to the Company.
Increases in worldwide energy production capability have brought about
substantial surpluses in energy supplies in recent years. This, in turn, has
resulted in substantial competition for markets historically served by domestic
natural gas sources both with alternate sources of energy, such as residual fuel
oil, and among domestic gas suppliers. Changes in government regulations
relating to the production, transportation and marketing of natural gas have
also resulted in significant changes in the historical marketing patterns of the
industry. Generally, these changes have resulted in the abandonment by many
pipelines of long-term contracts for the purchase of natural gas, the
development by gas producers of their own marketing programs to take advantage
of new regulations requiring pipelines to transport gas for regulated fees, and
the reliance on short-term sales contracts priced at spot market prices.
In light of these developments, many producers, including the Company, have
accepted oil prices that may differ from area "posted prices" in order to sell
their production. Also, gas prices, which were once effectively determined by
government regulations, are now largely established by competition. Competitors
in this market include other producers, gas pipelines and their affiliated
marketing companies, independent marketers, and providers of alternate energy
supplies, such as residual fuel oil.
Marketing
The Company's gas production from properties in which it owns working interests
is sold primarily on the spot market with a variety of purchasers, including
intrastate and interstate pipeline companies, their marketing affiliates,
independent marketing companies and other companies who have the ability to move
gas under firm transportation agreements. Gas produced from properties in which
the Company owns royalty interests is marketed and sold by owners of the
leasehold interests in such properties. Substantially all of the Company's crude
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oil and condensate production is sold at posted prices under short-term
contracts, as is customary in the industry.
Seasonality
The results of operations of the Company are subject to seasonal fluctuations in
the price for natural gas. Natural gas prices have been generally higher in the
fourth and first quarters. Due to these seasonal fluctuations, results of
operations for individual quarterly periods may not be indicative of results
which may be realized on an annual basis.
Regulation
General
The oil and gas industry is extensively regulated by federal, state and local
authorities. Legislation affecting the oil and gas industry is under constant
review for amendment or expansion. Numerous departments and agencies, both
federal and state, have issued rules and regulations binding on the oil and gas
industry and its individual members, some of which carry substantial penalties
for the failure to comply. The regulatory burden on the oil and gas industry
increases its cost of doing business and, consequently, affects its
profitability. Inasmuch as such laws and regulations are frequently amended or
reinterpreted, the Company is unable to predict the future cost or impact of
complying with such regulations.
Exploration and Production
Exploration and production operations of the Company are subject to various
types of regulation at the federal, state and local levels. Such regulation
includes requiring permits for the drilling of wells, maintaining bonding
requirements in order to drill or operate wells, and regulating the location of
wells, the method of drilling and casing wells, the surface use and restoration
of properties upon which wells are drilled and the plugging and abandoning of
wells. The Company's operations are also subject to various conservation
matters. These include the regulation of the size of drilling and spacing units
or proration units and the density of wells which may be drilled and the
unitization or pooling of oil and gas properties. In this regard, some states
allow the forced pooling or integration of tracts to facilitate exploration
while other states rely on voluntary pooling of lands and leases. State
conservation laws establish maximum rates of production from oil and gas wells,
generally prohibit the venting or flaring of gas and impose certain requirements
regarding the ratability of production. In addition, Oklahoma and Texas have
adopted limits on gas production that attempt to match production with market
demand. The effect of these regulations is to limit the amounts of oil and gas
the Company can produce from their wells, and to limit the number of wells or
the locations at which the Company can drill.
Sales and Transportation
Federal legislation and regulatory controls have historically affected the price
of the gas produced by the Company and the manner in which such production is
marketed. However, due to the deregulation provisions of the Natural Gas Policy
Act of 1978, the Natural Gas Wellhead Decontrol Act of 1989 and regulations
promulgated by the Federal Regulatory Commission ("FERC"), the price of
virtually all gas produced by producers not affiliated with interstate pipelines
has been deregulated. As a result, most of the Company's gas production is no
longer subject to price regulation. Gas which has been removed from price
regulation is subject only to that price contractually agreed upon between the
producer and purchaser. Market determined prices for deregulated natural gas
fluctuate in response to market pressures.
The FERC regulates interstate natural gas transportation rates and service
conditions, which affects the marketing of gas produced by the Company, as well
as the revenues received from sales of such production. Since the mid- 1980s,
the FERC has issued a series of orders culminating in Order Nos. 636, 636-A and
636-B ("Order 636"), that have significantly altered the marketing and
transportation of gas. Order 636 mandates a fundamental restructuring of
interstate pipeline sales and transportation service, including the unbundling
by interstate pipelines of the sales, transportation, storage and other
components of the city-gate sales services such pipelines previously performed.
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One of the FERC's purposes in issuing the orders is to increase competition
within all phases of the gas industry. Order 636 and subsequent FERC orders on
rehearing have been appealed and are pending judicial review. Because the orders
may be modified as a result of the appeals, it is difficult to predict the
ultimate impact of the orders on the Company and its natural gas marketing
efforts. Generally, Order 636 has eliminated or substantially reduced the
interstate pipelines' traditional role as wholesalers of natural gas and has
substantially increased competition and volatility in natural gas markets. While
significant regulatory uncertainty remains, Order 636 may ultimately enhance the
ability of producers such as the Company to market and transport their gas
directly to end-users and local distribution companies, although it may also
subject producers to greater competition and the more restrictive pipeline
imbalance tolerances and greater associated penalties for violation of such
tolerances.
Sales of oil and natural gas liquids by the Company are not regulated and are
made at market prices. The price the Company receives from the sale of these
products is affected by the cost of transporting the products to market.
Effective as of January 1, 1995, the FERC implemented regulations establishing
an indexing system for transportation rates for oil pipelines, which, generally,
would index such rates to inflation, subject to certain conditions and
limitations. These regulations could increase the cost of transporting oil and
natural gas liquids by pipeline, although the most recent adjustment generally
decreased rates. These regulations are subject to pending petitions for judicial
review. The Company is not able to predict with certainty what effect, if any,
these regulations will have on its operations, however, the regulations may,
over time, tend to increase transportation costs or reduce wellhead prices for
oil and natural gas liquids.
Operational Hazards and Insurance
The operations of the Company are subject to all risks inherent in the
exploration for, and development and production of, oil and gas, including such
natural hazards as blowouts, cratering and fires, which could result in damage
or injury to, or destruction of, drilling rigs and equipment, formations,
producing facilities or other property, or could result in personal injury, loss
of life or pollution of the environment. Any such event could result in
substantial cost to the Company which could have an adverse effect upon the
financial condition of the Company to the extent it is not fully insured against
such risk. The Company carries insurance against certain of these risks but, in
accordance with standard industry practice, is not fully insured for all risks,
either because such insurance is unavailable or because it elects not to obtain
insurance coverage because of cost. Although such operational risks and hazards
may to some extent be minimized, no combination of experience, knowledge and
scientific evaluation can eliminate the risk of investment or assure a profit to
any company engaged in oil and gas operations.
Environmental Matters
Operations of the Company are subject to numerous and constantly changing
federal, state and local laws and regulations governing the discharge of
materials into the environment or otherwise relating to environmental
protection. These laws and regulations may require the acquisition of certain
permits, restrict or prohibit certain types, quantities and concentration of
substances that can be released into the environment in connection with drilling
and production, restrict or prohibit drilling activities that could impact
wetlands, endangered or threatened species or other protected natural resources
and impose substantial liabilities for pollution resulting from the Company's
operations. Such laws and regulations may substantially increase the cost of
exploring for, developing or producing oil and gas and may prevent or delay the
commencement or continuation of a given project. In the opinion of the Company's
management, the Company is in substantial compliance with current applicable
environmental laws and regulations and it is not anticipated that the Company
will be required in the near future to expend amounts that are material in the
aggregate to its overall operations by reason of environmental laws and
regulations. Nevertheless, changes in existing environmental laws and
regulations or in the interpretations thereof could have a significant impact on
the operating costs of the Company, as well as the oil and gas industry in
general. For instance, legislation has been proposed in Congress from time to
time that would reclassify certain oil and gas production wastes as "hazardous
wastes", which reclassification would make exploration and production wastes
subject to much more stringent and costly handling, disposal and clean-up
requirements. State initiatives to further regulate the disposal of oil and gas
wastes and naturally occurring radioactive materials are also pending in certain
states and these various initiatives could have a similar impact on the Company.
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The Comprehensive Environmental Response, Compensation, and Liability Act
("CERCLA"), also known as "Superfund" law, imposes liability, without regard to
fault or the legality of the original conduct, on certain classes of persons
that are considered to have contributed to the release of a "hazardous
substance" into the environment. These persons include the owner or operator of
the disposal site where the release occurred and companies that disposed or
arranged for the disposal of the hazardous substances found at the site. Persons
who are or were responsible for releases of hazardous substances under CERCLA
may be subject to joint and several liability for the costs of cleaning up the
hazardous substances that have been released into the environment and for
damages to natural resources, and it is not uncommon for neighboring landowners
and other third parties to file claims for personal injury and property damage
allegedly caused by the hazardous substances released into the environment. The
Company is only able to directly control the operations of those wells with
respect to which it acts as operator. Notwithstanding the Company's lack of
control over wells operated by others, the failure of an operator of a well in
which the Company owns a working interest to comply with applicable
environmental regulations may, in certain circumstances, be attributed to the
Company. As of the date of this report, the Company has no material commitments
for capital expenditures to comply with existing environmental requirements.
Employees
At December 31, 1997, the Company employed 17 persons whose functions are
associated with management, operations and mineral management, engineering,
geology, land and gas contract administration, accounting and financial
planning, and administration and data processing. In addition, the Company has
two consulting geologists on retainer to develop oil and gas prospects for the
Company. The Company considers its relations with its employees to be excellent.
ITEM 2. DESCRIPTION OF PROPERTY
General
The Company owns interests in 1,525 producing properties, including both working
interests and royalty interests, located in 16 states. (For further details
regarding these properties, see "Producing Wells" included elsewhere herein.)
The Company is engaged in leasing of its minerals as well as the exploration,
production and sale of natural gas, condensate and crude oil from its
properties.
The Company has an extensive ownership of nonproducing perpetual minerals
located in 16 states, including North Dakota, Oklahoma, Michigan, Montana,
Mississippi and Texas. Such ownership comprises 3,291 properties covering 92,517
net acres. The Company may from time-to-time participate in exploration
activities on certain of these properties, but generally leases them to others,
retaining a royalty interest in whatever production may be derived therefrom,
thereby eliminating the risk in the exploration of such properties. At the
present time, there are approximately 40 properties leased to others for such
exploration comprising 1,209 net acres.
In addition, the Company owns a leasehold interest in 125 nonproducing
properties comprising 8,082 net acres. These properties have varying lease
terms, with most expiring in the next five years. These leasehold interests are
located in eleven states, including Texas, Oklahoma and Montana.
Acquisitions
During 1997, the Company completed one small acquisition of producing and
nonproducing mineral interests. On March 5, 1998, the Company entered into an
agreement with Sid R. Bass, Inc. et al to purchase 18 non-operated producing gas
properties for a purchase price of $6,685,000, subject to certain adjustments
for operations subsequent to January 1, 1998. This purchase includes estimated
proved reserves of 6.4 Bcf of natural gas at December 31, 1997, and is scheduled
to close on March 31, 1998. This acquisition is payable in cash and will be
financed by the Company's new credit facility described in Financial Condition
and Liquidity on page 14 hereof.
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Current Activities
The Company's exploration and development activities generally have been located
in the states of Oklahoma (Anadarko Basin), Montana and Texas. In 1997, the
majority of the Company's activities were located in the Anadarko and Permian
Basins of Oklahoma, Texas and Montana. Most recent drilling has been
developmental in nature (80% in 1997 and 85% in 1996) on both oil and gas
properties. In 1997, there were 11 oil wells and 14 gas wells drilled; in 1996
there were five oil wells and 14 gas wells drilled.
During 1998, the Company's drilling activities will continue to be primarily
developmental in nature. The Company is presently committed to participate in
the drilling (or completion) of 23 (3.9 net) wells in 1998. The Company expects
to operate nine (2.6 net) of these wells. In 1998, the Company has budgeted $5
million for drilling activities, of which approximately $2.7 million has been
committed. The primary area of focus during the next 12 to 18 months will
continue to be developmental drilling in the Anadarko Basin of Oklahoma and in
the Permian Basin of Texas and New Mexico. In addition, the Company plans to
continue to pursue an exploratory oil prospect in Montana and participate with
its minerals in Michigan and Mississippi prospects proposed by other operators.
The Company remains active in the property acquisition market. In 1997, the
Company reviewed 63 property sales packages and submitted bids on six of these
packages, containing nine groups of properties. The Company was successful in
acquiring one group of properties. Through March 27, 1998, the Company has
reviewed 17 sales packages.
During 1995, the Company acquired approximately 440 net acres of leases in the
Lodgepole "play" in North Dakota at a cost of $170,000. The Lodgepole area has
generated a great deal of interest in the oil and gas industry and it is
expected that new drilling will continue in this area. In February, 1996 and
November, 1997, the Company executed permits to allow 3-D seismic work on
certain of these leases; and in March, 1998, received a request to acquire 80
acres on one of the leases. There are no present plans by the Company to
initiate exploration in this area in the near future; however, it is the
Company's intention to participate with its leased acreage in wells proposed by
others.
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Drilling Activity
During the periods indicated, the Company drilled or participated in the
drilling of the following exploratory and development wells:
Years ended December 31,
1997 1996 1995
================== ================ =============== ==================
Gross Net Gross Net Gross Net
Exploratory:
Productive....... 0 .00 1 .17 0 .00
Nonproductive.... 5 .82 2 .29 2 .44
-- ---- -- --- -- ---
Total.......... 5 .82 3 .46 2 .44
== ==== == === == ====
Development:
Productive....... 14 .50 13 .26 13 .41
Nonproductive.... 6 .75 3 .48 3 .19
--- ----- -- ---- -- ---
Total.......... 20 1.25 16 .74 16 .60
== ==== == === == ===
Total:
Productive....... 14 .50 14 .43 13 .41
Nonproductive.... 11 1.57 5 .77 5 .63
--- ---- -- ---- -- ----
Total......... 25 2.07 19 1.20 18 1.04
=== ==== == ==== == ====
================== ================ =============== ==================
The above well information excludes wells in which the Company has only
a royalty or mineral interest.
At December 31, 1997, the Company was participating in the drilling of four (.71
net) wells. All four of these wells have been completed, resulting in two oil
wells and two gas wells. In addition, the Company participated in one additional
well (.06 net) subsequent to year-end which resulted in a dry hole.
Operating Activities
The Company operates 50 producing wells and 7 service wells located in ten
separate fields, which includes one waterflood consisting of 9 producing wells
and 7 service wells. In addition, the Company has a non-operator working
interest ownership in approximately 260 other producing properties.
The Company operates wells in two fields in Dawson County, Montana. The
operations in the Glendive Field consist of 13 producing wells and four
saltwater disposal wells. The Gas City Field is unitized for secondary recovery
operations and consists of nine producing wells and three water injection wells.
Production is primarily from the Red River formation of Ordovician age in both
of these fields.
Operations in the Golden Trend Field in Grady and McClain counties in Oklahoma
consist of 16 producing wells completed in four formations of Pennsylvanian and
Ordovician age rock.
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Northwestern Oklahoma operations consist of five producing wells in the Vici
Field in Ellis County. Production is from Pennsylvanian age rock.
The Company's operations in the Anadarko Basin of Eastern Oklahoma consists of
five producing gas wells located in the Hartshorne South and Kinta Fields in
Latimer County and the Ti North and Ashland Fields in Pittsburg County.
Another of the Company's producing fields is the West Cement Field in Caddo
County, Oklahoma. At present, there is one producing well completed in the
Medrano formation of Pennsylvania age rock.
The Company also operates one well in the Champmon Strawn Field in Gaines
County, Texas.
Producing Wells
The following table sets forth certain information relating to the Company's
producing properties. Because the Company owns the mineral interests in numerous
producing wells, it does not have current information on the numbers of wells
drilled by the owners of the leasehold interests for these properties.
Accordingly, the Company keeps track of its royalty interests on a
property-by-property rather than a well-by-well basis, and the following table
sets forth the number of properties upon which there are one or more producing
wells. Net wells refers to the total number of wells in which the Company has an
interest, multiplied by the Company's working interest percentage in the wells.
Producing Wells as of December 31, 1997
------------------------------------------------------------------------
Gross Net
Working interests - Oil.............. 118 29
Gas.............. 195 21
Royalty interests - Oil.............. 728 (1)
Gas.............. 484 (1)
============================ ================= =========== ==========
(1) The term "net wells" is not applicable to a royalty interest since
the Company has no working interest in the applicable well.
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Acreage
As previously noted, the Company owns an interest in 1,525 producing properties,
including royalty interests in 1,212 properties (comprising approximately 28,117
net acres) and working interests in 313 properties (comprising 14,223 net
acres). The following table sets forth the Company's gross and net oil and gas
leasehold acreage as of December 31, 1997.
Acreage as of December 31, 1997
------------------------------------------------------------------------
Gross Net
Developed Acreage:
Leasehold.................. 67,171 12,760
Mineral.................... 299,518 29,580
Undeveloped Acreage:
Leasehold.................. 24,813 8,082
Mineral.................... 632,522 92,517
----------- --------
Total Acreage 1,024,024 142,939
========== ========
========================================================================
Proved Reserves
The following table reflects the proved reserves and proved developed producing
reserves, the future net revenues and the present value of future net revenues
from such reserves of the Company at December 31, 1997 as estimated by the
Company. The quantities of the Company's proved reserves of oil and natural gas
presented below, representing developed and undeveloped reserves, include only
those amounts which the Company reasonably expects to recover in the future from
known oil and gas reservoirs under existing economic and operating conditions.
Proved developed producing reserves are limited to those quantities which are
recoverable commercially from existing wells at current prices and costs, under
existing regulatory practices and with existing technology. Accordingly, any
changes in prices, operating and developmental costs, regulations, technology or
other factors could significantly increase or decrease estimates of the
Company's proved developed producing reserves. The Company's proved undeveloped
reserves include only those quantities which the Company reasonably expects to
recover from the drilling of new wells based on geological evidence from
directly offsetting wells. The risks of recovering these reserves are higher
from both geological and mechanical perspectives than the risks of recovering
developed reserves. The estimates of the Company's proved reserves do not
include proved undeveloped reserves attributable to the Company's royalty
interests (this information is not available to the Company) or outside operated
working interests (quantities are not considered material to the Company's
proved reserves). Furthermore, the reserve estimates do not include reserves
whose estimates of recoverability are less precise, commonly referred to as
"probable" or "possible" reserves. The Company has no reserves outside the
continental United States.
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Proved Oil and Gas Reserves at December 31, 1997
----------------------------------------------------------------------------
Present Value
Oil Gas Future Net of Future
(Bbls) (Mcf) Revenues Net Revenues(1)
---------- ---------- ------------ ---------------
Proved reserves....... 4,470,192 18,540,196 $ 80,335,832 $ 42,900,768
Proved developed
producing reserves.. 4,386,132 15,902,988 $ 73,865,498 $ 40,801,719
============================================================================
(1) Present value of future net revenues before deducting the impact of
federal and state income taxes (discounted at 10%).
The future net revenues are determined by using estimated quantities of proved
reserves and proved developed producing reserves and the periods in which they
are expected to be developed and produced based on December 31, 1997 economic
conditions. The estimated future production is priced based on the actual prices
in effect at December 31, 1997, except where fixed and determinable price
escalations are provided by contract. The resulting estimated future gross
revenues are reduced by estimated future costs to develop and produce the proved
reserves based on December 31, 1997 cost levels, but not for debt service,
general and administrative expense and income taxes. For additional information
concerning the discounted future net revenues to be derived from these reserves
and the disclosure of the standardized measure information in accordance with
the provisions of Statement of Financial Accounting Standards No. 69, see
"Supplementary Information on Oil and Gas Producing Activities (unaudited)" at
page F-16 herein.
The reserve data set forth in this report represents only estimates. Reserve
engineering is a subjective process of estimating underground accumulations of
crude oil and natural gas that cannot be measured in an exact manner. The
accuracy of any reserve estimate is a function of the quality of available data
and of engineering and geological interpretation and judgment. As a result,
estimates of different engineers may vary. In addition, results of drilling,
testing and production subsequent to the date of an estimate may justify
revision of such estimate. Accordingly, reserve estimates often differ from the
quantities of crude oil and natural gas that are ultimately recovered. The
meaningfulness of such estimates is highly dependent upon the accuracy of the
assumptions upon which they were based.
Oil and Gas Production, Sales Prices and Production Costs
The following table sets forth information with respect to production and
average product prices attributable to the Company's royalty interests and
working interests in producing properties, and, with respect to properties in
which the Company owns a working interest, the production costs (including
production taxes and transportation charges) per equivalent barrel of oil
produced for the periods indicated.
-10-
<PAGE>
Royalty Interests
1997 1996 1995
---------- ---------- ----------
Production:
Oil (Bbls)................... 55,014 57,137 64,500
Gas (Mcf).................... 376,703 393,114 372,291
Average Sales Prices:
Oil (per Bbl)................ $18.97 $20.13 $16.51
Gas (per Mcf)................ 2.52 2.12 1.48
================================ ========== ========== ==========
Working Interests
1997 1996 1995
---------- ---------- ----------
Production:
Oil (Bbls)................... 155,983 182,388 165,221
Gas (Mcf).................... 831,761 864,916 942,016
Average Sales Prices:
Oil (per Bbl)................ $18.74 $20.16 $16.01
Gas (per Mcf)................ 2.33 1.97 1.39
Average direct operating
costs per barrel of
oil equivalent (1)........... $6.51 $9.03 $6.13
================================ ========== ========== ==========
(1) Barrels of oil equivalent are determined using the ratio of
six Mcf of gas to one barrel of crude oil, condensate or
natural gas liquids. See Item 6., Management's Discussion
and Analysis, for further discussion of these costs.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various minor 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, results of operations or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A Special Meeting of the stockholders of the Company was held on December 11,
1997 for the purpose of 1) considering a proposal to merge the Company with The
Home-Stake Royalty Corporation (including a recapitalization of the Company and
a common stock split on a 30-for-1 basis), 2) considering certain proposals to
amend the HSOG Certificate of Incorporation, and 3) considering a proposal to
adopt the HSOG 1997 Incentive Stock Plan.
Proposal #1 - Adoption of the Agreement of Merger (and the related
recapitalization of the Company and the common stock split)
whereby The Home-Stake Royalty Corporation was to be merged
into the Company (For - 64,521, Against - 0 and Abstain -
0).
Proposal #2a - Amend the Company's Certificate of Incorporation to provide
for perpetual existence of the Company (For - 64,386,
Against - 0 and Abstain - 145).
-11-
<PAGE>
Proposal #2b - Amend the Company's Certificate of Incorporation to expand
the business purpose of the Company (For - 64,490, Against -
0 and Abstain - 131).
Proposal #2c - Amend the Company's Certificate of Incorporation to
authorize the Company's Board to establish the number of
directors of the Company (For 62,490, Against - 1,896 and
Abstain - 145).
Proposal #2d - Amend the Company's Certificate of Incorporation to
eliminate the supermajority vote to approve any merger,
consolidation or sale of a substantial portion of the assets
of the Company or change the number of directors of the
Company (For - 64,226, Against - 14 and Abstain - 291).
Proposal #2e - Amend the Company's Certificate of Incorporation to limit
the personal liability of directors for certain acts or
omissions (For - 63,381, Against - 715 and Abstain - 435).
Proposal #2f - Amend the Company's Certificate of Incorporation to
authorize the Company's Board to adopt, repeal or amend the
Bylaws of the Company (For - 62,490, Against - 1,896 and
Abstain - 145).
Proposal #2g - Amend the Company's Certificate of Incorporation to
authorize the indemnification of officers, directors,
employees and agents of the Company under certain
circumstances (For - 64,171, Against - 215 and Abstain -
145).
Proposal #2h - Amend the Company's Certificate of Incorporation to provide
that the Company shall be governed by the provisions of the
Oklahoma General Corporation Act (For - 64,336, Against - 50
and Abstain - 145).
Proposal #3 - Adoption of the Company's 1997 Incentive Stock Plan (For -
62,576, Against - 1,766 and Abstain - 189).
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
As of December 31, 1997, the Company had approximately 425 holders of record of
its common stock. During 1997, the common stock was listed in the "pink sheets"
published by the National Quotation Bureau. Trades in the stock were sporadic or
limited and, accordingly, there was no established public trading market for the
Company's common stock as defined in Item 201(a)(1) of SEC Regulation S-B.
Beginning on February 12, 1998, trading of the Company's stock, reflecting the
effects of the Merger and related common stock split, began on the
Over-the-Counter Bulletin Board. Since that time, there has been reported
trading of a total of 6,000 shares, at prices ranging from $4.50 per share to
$6.25 per share.
-12-
<PAGE>
The following table sets forth the per share amount of cash dividends declared
and paid by the Company (HSRC) on their common stock during the periods
indicated (restated to reflect the Merger and common stock split).
Cash Dividends
Declared and Paid Per
Share of
Year ended December 31, Common Stock
===================================== =====================
1997:
First Quarter $ .02
Second Quarter .02
Third Quarter .02
Fourth Quarter .00
1996:
First Quarter $ .03
Second Quarter .02
Third Quarter .02
Fourth Quarter .02
===================================== ========
The Company has historically paid quarterly cash dividends to its stockholders.
The Company's Board of Directors has adopted a dividend policy that provides for
the payment of quarterly dividends, dependent on numerous factors, including
future earnings, anticipated capital requirements, the financial condition and
prospects of the Company, and such other factors as the Board may deem relevant.
In addition, future dividends may be restricted pursuant to the terms of the
loan agreement between the Company and NationsBank, N.A. See "Management's
Discussion and Analysis" below for a description of these restrictions.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion should be read in conjunction with the Company's
financial statements and notes thereto included elsewhere herein.
Results of Operations
Net income for 1997 increased 17% from $1,844,161 in 1996 to $2,162,482 in 1997.
The factors contributing to this increase are as follows:
Oil sales decreased $860,104 (18%) primarily as a result of a decrease in the
average sales price per barrel from $20.16 in 1996 to $18.80 in 1997, coupled
with a decrease in production of 28,527 barrels. The decrease in production was
attributable to the sales of producing properties described below.
Gas sales increased 14% ($353,272) as a result of an increase in the average
sales price from $2.02 per Mcf in 1996 to $2.39 per Mcf in 1997, partially
offset by a 4% decrease in production.
Income from equity affiliates increased by $144,718. In 1997 the Company's
equity investee, reported net income of $1,825,749 compared to $1,437,674 in
1996.
Gains on sales of assets increased 93% ($156,808) in 1997. The Company had two
major property sales in 1997. In March, the Company sold its interest in its
Alden Field properties at a gain of $99,600. In October, the Company sold its
interest in the Countyline Unit for a gain of $194,900.
Production expenses decreased 33%. Lease operating expenses decreased $943,515
(39%) due primarily to the sales of the Alden Field properties and Countyline
Unit. 1997 expense included $103,000 associated with these properties and 1996
-13-
<PAGE>
expense included $1,056,638. In 1996, the Company incurred certain non-recurring
costs on the Countyline Unit in the settlement of claims by surface owners and
the remediation of saltwater contamination. Production taxes decreased $78,057
as a result of the lower oil and gas sales described above.
Exploration expenses increased $602,874. Dry hole costs increased 438%
($578,067) in 1997. In 1997, there were 11 dry holes drilled (1.57 net) at an
average cost of $452,256 per net well; in 1996, there were 5 dry holes (.45 net)
drilled at an average cost of $293,278 per net well. Condemned and abandoned
property expense increased $24,807 (45%) due to the abandonment of leasehold
costs associated with the dry holes drilled during the year.
General and administrative expense increased $361,968 (46%) in 1997. During
1997, the Company incurred expenses of $122,400 in connection with the Merger
and salaries increased $101,000 in connection with the personnel additions made
in the engineering and geology departments. 1996 expense included a credit in
the amount of $82,500, representing the reimbursement of legal expenses from the
Company's Directors' and Officers' Liability Insurance carrier. This amount was
received in settlement of a suit the Company brought against the carrier for
recovery of certain costs incurred by the Company in the successful defense of
the Company's directors in a lawsuit in 1991.
Interest expense decreased $210,094, reflecting the retirement of the Company's
debt during the year.
The Company's effective tax rate varies significantly from year to year, due
principally to the significant effects of statutory depletion which is largely
independent of pre-tax income. In addition, a portion of net income is
attributable to income from the Company's equity investee, for which there is no
corresponding income tax provision required. For additional information
attributable to each of these factors, see Note 5 to the Consolidated Financial
Statements on page F-13.
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 and gas properties where future revenues
from such purchases are expected to fund the debt.
In 1997, the Company spent $1.9 million for exploration and development
activities and $9,300 on acquisitions. The Company has budgeted $5 million for
exploration and development activities in 1998, of which approximately $2.7
million has been committed.
The working capital deficit at December 31, 1996 became a surplus of $1.8
million at December 31, 1997 due primarily to the retirement of the Company's
debt during the year and the cash that was added by the Merger. The Company's
working capital and internally generated cash flows from operations are expected
to finance the budgeted 1998 exploration and development activities. In
addition, the Company's line of credit described below extends into 1999.
Again in 1997, the Company aggressively applied cash flows to the retirement of
its bank note. Note payments were $1,366,035, which was $401,775 over the
required monthly payments. As a result, the Company's bank note was retired
early, on May 31, 1997. The Company has a bank 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. In connection with this
line of credit, the Company has issued a letter of credit in the amount of
$120,000, which is guaranteed by this line, and pays a commitment fee of
one-half of one percent (1/2%) per annum on the unused portion of the line.
On March 31, 1998, the Company is scheduled to execute a new credit facility
with its bank to finance the acquisition of producing gas properties described
in Acquisition on page 5 hereof. In addition, this arrangement will provide a
revolving term line of credit in the amount of $5,000,000, which will extend
until May 1, 1999. This credit facility will include certain covenants which
require, among other things, that the Company maintain (i) a ratio of cash flow
-14-
<PAGE>
(defined in the loan agreement to be income before income taxes plus
depreciation, depletion and amortization) to current maturities of long-term
debt of more than 1.75 to 1.0, (ii) a ratio of total liabilities to
stockholders' equity of not more than 1.0 to 1.0, and (iii) a minimum net worth
of not less than $20,000,000. In addition, the Company's annual cash dividends
will be limited to the lesser of $550,000 or net income.
In 1997, the Company's average direct operating costs per barrel of oil
equivalent decreased 28% to $6.51. This decrease is primarily the result of the
sale of the Alden Field properties and the Countyline Unit, described above. The
Alden Field properties were sold effective December 31, 1996. The Countyline
Unit was sold effective July 31, 1997. Excluding the Countyline Unit, average
direct operating costs per barrel of oil equivalent for the Company in 1997 was
$6.44.
Average direct operating costs per barrel of oil equivalent are dependent upon
several factors, including principally the nature of a company's operations. For
example, gas properties are generally more economical to operate than oil
properties. Likewise, oil wells in a form of primary recovery (flowing or
pumping) are more economical to operate than oil wells in a form of secondary
recovery, such as waterfloods. The Company has large interests in two
waterfloods and one water-drive operation. These properties contributed
approximately 43% of the total working interest barrels of oil equivalent
production in 1997, but were responsible for approximately 74% of the direct
operating costs. Excluding these waterflood properties, the Company's direct
operating costs per barrel of oil equivalent in 1997 was $3.40.
The Company believes it will fully realize its deferred tax assets and,
accordingly, no valuation allowances have been provided. In management's
opinion, the deferred tax assets will be realized as reductions in future income
taxes payable or by utilizing available tax planning strategies. Uncertainties
that may affect the ultimate realization of these assets include future product
prices, costs and tax rates. Therefore, the Company will periodically review
these factors and determine whether a valuation allowance has become necessary.
The Company does not expect its costs of addressing the "Year 2000" problem to
be significant. Nor is this problem expected to cause any disruption in the
operations or business activities of the Company.
Inflation
In recent years inflation has not had a significant impact on the Company's
operations or financial condition. The general economic pressures limiting oil
and gas prices in recent years have generally been accompanied by corresponding
downward pressure on costs to develop and operate oil and gas properties as well
as the costs of drilling and completing wells. The impact of inflation on the
Company in the future will depend on the relative increases, if any, in the
selling price of oil and gas and in the Company's operating, development and
drilling costs.
Forward Looking Statements
Certain statements included in this report which are not historical facts are
"forward looking statements", including statements with respect to oil and gas
reserves, the number and location of wells to be drilled, future capital
expenditures (including the amount and nature thereof), anticipated date of
repayment of bank debt, extension of existing line of credit and other such
matters. These forward looking statements are based on current expectations,
estimates, assumptions and beliefs of management; and words such as "expects",
"believes", "anticipates", "intends", "plans" and similar expressions are
intended to identify such forward looking statements. These forward looking
statements involve risks and uncertainties, including, but not limited to:
dependence upon the prices for oil and natural gas which prices are subject to
significant fluctuations in response to relatively minor changes in supply and
demand for such products, market uncertainty, political conditions in oil
producing regions, domestic and foreign government regulations, the price and
availability of alternative fuels and a variety of other factors; competition in
the acquisition of oil and gas properties and the development, production and
marketing of oil and natural gas; operating hazards typically associated with
the exploration, development, production and transportation of oil and natural
gas; federal, state and local laws relating to the exploration, development,
production and marketing of oil and natural gas, including environmental and
safety matters; changes in laws and regulations; and other factors, most of
which are beyond the control of the Company. Accordingly, actual results and
-15-
<PAGE>
developments may differ materially from those expressed in the forward looking
statements.
ITEM 7. FINANCIAL STATEMENTS
The information required by this Item begins at page F-1 following page 18
hereof.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There has been no change in accountants and no disagreements on any matters of
accounting principles or practices, financial statement disclosures, or auditing
scope or procedures.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS AND COMPLIANCE WITH SECTION 16(a) OF THE
EXCHANGE ACT
The information required by this Item is incorporated by reference from sections
of the Company's definitive Proxy Statement for its 1998 Annual Meeting of
Stockholders (the "Proxy Statement") entitled "Election of Directors",
"Executive Officers of the Company" and "Section 16(a) Beneficial Ownership
Reporting Compliance".
ITEM 10. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference from the
section of the Proxy Statement entitled "Executive Compensation".
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference from the
section of the Proxy Statement entitled "Principal Stockholders and Security
Ownership of Management".
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference from the
section of the Proxy Statement entitled "Certain Relationships and Related
Transactions".
-16-
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
The following documents are included as exhibits to this Form 10-KSB. Those
exhibits below incorporated by reference herein are indicated as such by the
information supplied in the parenthetical thereafter. If no parenthetical
appears after an exhibit, such exhibit is filed herewith.
Exhibit
Number Description
3.1 Amended and Restated Certificate of Incorporation of the Company.
3.2 Bylaws of the Company, as amended.
4.1 Rights Agreement and Indenture dated as of May 2, 1994, between
the Company and The Fourth National Bank of Tulsa (now known as
NationsBank, N.A.) (Filed as Exhibit 4.1 to the Company's
Registration Statement on Form 10, Registration No. 0-19766).
*10.1 Amended and Restated Home-Stake Oil & Gas Company Key Employee
Incentive Bonus Plan.
*10.2 Amended and Restated Employment Agreement by and between Robert C.
Simpson and the Company dated February 5, 1998.
*10.3 Amended and Restated Home-Stake Oil & Gas Company Change in
Control Severance Pay Plan.
*10.4 The Home-Stake Oil & Gas Company 1997 Incentive Stock Plan.
*10.5 Form of Indemnity Agreement between the Company and each Director,
dated May 14, 1996 (Filed as Exhibit 10.1 to the Company's
Quarterly Report of Form 10-QSB for the quarter ended June 30,
1996).
10.6 Third Amended and Restated Loan Agreement dated March 29, 1995
between the Company and Bank IV Oklahoma, N.A. (Filed as Exhibit
10.9 to the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1994).
10.7 First Amendment and Modification to Loan Agreement dated May 1,
1996 to the Third Amended and Restated Loan Agreement dated March
29, 1995 between the Company and Bank IV Oklahoma, N.A. (Filed as
Exhibit 10.2 to the Company's Quarterly Report of Form 10-QSB for
the quarter ended June 30, 1996)
27 Financial Data Schedule.
* Management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the fourth quarter of the fiscal
year ended December 31, 1997.
-17-
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant has
caused this Form 10-KSB to be signed on its behalf by the undersigned, thereunto
duly authorized.
THE HOME-STAKE OIL & GAS COMPANY
Date: March 30, 1998 By: /s/ Robert C. Simpson
--------------------------------
Robert C. Simpson
Chairman of the Board,
Chief Executive Officer
and President
Pursuant to the requirements of the Exchange Act, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
/s/ Robert C. Simpson Director, Chairman of the Board, March 30, 1998
- -------------------------- Chief Executive Officer and
President
(Principal Executive Officer)
/s/ Chris K. Corcoran Director, Executive Vice President, March 30, 1998
- -------------------------- Chief Financial Officer
Chris K. Corcoran (Principal Financial and
Accounting Officer)
/s/ L.W. Allegood Director March 30, 1998
- --------------------------
L.W. Allegood
/s/ Larry F. Grindstaff Director March 30, 1998
- --------------------------
Larry F. Grindstaff
/s/ Ronald O. Gutman Director March 30, 1998
- --------------------------
Ronald O. Gutman
/s/ Joseph J. McCain, Jr. Director March 30, 1998
- --------------------------
Joseph J. McCain, Jr.
/s/ I. Wistar Morris, III Director March 30, 1998
- --------------------------
I. Wistar Morris, III
-18-
<PAGE>
THE HOME-STAKE OIL & GAS COMPANY
INDEX TO FINANCIAL STATEMENTS
Covered by Report of Independent Auditors
Report of Independent Auditors.............................................F-2
Balance Sheets as of December 31, 1997 and 1996............................F-3
Statements of Income and Retained Earnings for the years
ended December 31, 1997 and 1996.........................................F-4
Statements of Cash Flows for the years ended December 31, 1997 and 1996....F-5
Notes to Financial Statements..............................................F-6
Not Covered by Report of Independent Auditors
Supplementary Information on Oil and Gas Producing Activities for
the years ended December 31, 1997 and 1996 (unaudited)...................F-16
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders
The Home-Stake Oil & Gas Company
We have audited the accompanying financial statements of The Home-Stake Oil &
Gas Company listed in the accompanying index to financial statements (Item 7).
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements listed in the accompanying index to
financial statements (Item 7) present fairly, in all material respects, the
financial position of The Home-Stake Oil & Gas Company at December 31, 1997 and
1996, and the results of its operations and its cash flows for the years then
ended in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Tulsa, Oklahoma
March 23, 1998
F-2
<PAGE>
THE HOME-STAKE OIL & GAS COMPANY
BALANCE SHEETS
December 31, 1997 and 1996
ASSETS
1997 1996
---- ----
Current assets:
Cash and cash equivalents........................ $ 1,507,782 $ 626,864
Accounts receivable.............................. 1,730,114 1,469,877
Receivable from affiliate........................ - 66,213
Prepaid expenses................................. 188,461 255,957
------------ ------------
Total current assets...................... 3,426,357 2,418,911
Investments (Note 3)............................... - 3,592,495
Property and equipment, at cost:
Producing oil and gas leases (working interests). 29,138,034 21,063,614
Producing oil and gas royalties.................. 9,075,949 2,842,116
Nonproducing oil and gas properties.............. 1,841,049 837,271
Office equipment and other....................... 569,172 492,244
------------ -------------
40,624,204 25,235,245
Less accumulated depreciation,
depletion and amortization.................... 15,613,520 16,437,277
------------ ------------
Net property and equipment............. 25,010,684 8,797,968
Other assets....................................... 246,918 24,119
------------ ------------
$ 28,683,959 $ 14,833,493
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities......... $ 1,517,932 $ 1,534,535
Dividends declared............................... - 62,827
Income taxes payable............................. 92,822 75,198
Current note payable (Note 4).................... - 964,260
------------ ------------
Total current liabilities................. 1,610,754 2,636,820
Long-term note payable (Note 4).................... - 401,775
Deferred income taxes (Note 5)..................... 5,207,548 773,200
Stockholders' equity (Note 8):
Preferred stock, $1 par value -
2,000,000 shares authorized;
none issued
Common stock, $ .01 par value -
12,000,000 shares authorized,
4,517,363 share issued in 1997 and
4,866,000 shares issued in 1996............... 45,174 48,660
Additional paid-in capital....................... 15,460,621 9,951,340
Retained earnings................................ 6,359,862 4,385,862
------------ ------------
21,865,657 14,385,862
Less treasury stock, at cost - 1,469,143 shares.. - 3,364,164
------------ ------------
Total stockholders' equity................ 21,865,657 11,021,698
------------ ------------
$ 28,683,959 $14,833,493
============ ============
See accompanying notes.
F-3
<PAGE>
THE HOME-STAKE OIL & GAS COMPANY
STATEMENTS OF INCOME AND RETAINED EARNINGS
Years ended December 31, 1997 and 1996
1997 1996
---- ----
Revenues:
Oil and gas sales............................. $ 6,857,072 $ 7,363,904
Income from equity affiliates................. 534,690 389,972
Gain on sales of assets....................... 325,472 168,664
Other income.................................. 353,284 290,924
------------ ------------
8,070,518 8,213,464
Costs and expenses:
Production.................................... 2,054,149 3,075,721
Exploration................................... 790,517 187,643
General and administrative.................... 1,143,448 781,480
Depreciation, depletion and amortization...... 1,015,466 1,351,335
Interest...................................... 39,598 249,692
Property and other taxes...................... 126,567 110,736
------------ ------------
5,169,745 5,756,607
Income before provision for income taxes........... 2,900,773 2,456,857
Provision for income taxes (Note 5):
Current....................................... 448,214 327,634
Deferred...................................... 290,077 285,062
------------ ------------
738,291 612,696
------------ ------------
Net income......................................... 2,162,482 1,844,161
Retained earnings at beginning of year............. 4,385,862 2,855,837
Cash dividends ($ .06 per share - 1997,
$ .09 per share - 1996)....................... (188,482) (314,136)
------------ ------------
Retained earnings at end of year................... $ 6,359,862 $ 4,385,862
============ ============
Weighted average number of shares outstanding...... 3,396,857 3,396,857
========= =========
Basic net income per share of common stock......... $ .64 $ .54
===== =====
See accompanying notes.
F-4
<PAGE>
THE HOME-STAKE OIL & GAS COMPANY
STATEMENTS OF CASH FLOWS
Years ended December 31, 1997 and 1996
1997 1996
---- ----
Operating activities:
Oil and gas sales, net of production taxes....... $ 6,439,737 $ 6,600,732
Other............................................ 353,284 290,924
------------ -----------
6,793,021 6,891,656
Cash paid to suppliers and employees............. 3,964,129 3,595,153
Interest paid.................................... 39,598 249,692
Property and other taxes......................... 126,567 110,736
Income taxes paid................................ 389,982 224,756
------------ -----------
4,520,276 4,180,337
Net cash provided by operating activities...... 2,272,745 2,711,319
Investing activities:
Proceeds from sales of property and equipment.... 1,718,211 362,260
Acquisition of property and equipment............ (1,903,505) (523,073)
Acquisition of investments....................... - (202,558)
Dividends from equity affiliate.................. 60,674 71,022
------------ ------------
Net cash used in investing activities.......... (124,620) (292,349)
Financing activities:
Note payments.................................... (1,366,035) (2,008,875)
Cash dividends paid.............................. (262,563) (348,106)
------------ ------------
Net cash used in financing activities.......... (1,628,598) (2,356,981)
------------ ------------
Net increase in cash............................... 519,527 61,989
Cash acquired in merger............................ 361,391 -
Cash and cash equivalents at beginning of year..... 626,864 564,875
------------ ------------
Cash and cash equivalents at end of year........... 1,507,782 $ 626,864
============ ============
Reconciliation of net income to net cash
provided by operating activities:
Net income......................................... $ 2,162,482 $ 1,844,161
Reconciling adjustments:
Depreciation, depletion and amortization......... 1,015,466 1,351,335
Gain on sales of assets.......................... (325,472) (168,664)
Income from equity affiliates.................... (534,690) (389,972)
Dry hole costs and condemned and abandoned
properties..................................... 790,517 187,643
Deferred income taxes............................ 290,077 285,062
Changes in other assets and liabilities:
Accounts receivable............................ (875,831) (316,570)
Prepaid expenses and other assets.............. 18,629 (114,062)
Accounts payable............................... (317,723) (7,908)
Other liabilities.............................. 49,290 40,294
------------ ------------
Net cash provided by operating activities.......... $ 2,272,745 $ 2,711,319
============ ============
See accompanying notes.
F-5
<PAGE>
THE HOME-STAKE OIL & GAS COMPANY
NOTES TO FINANCIAL STATEMENTS
Description of business
The Home-Stake Oil & Gas Company ("HSOG" or the "Company") is an "independent
oil and gas producer" actively engaged in the acquisition, exploration,
development and production of oil and gas properties. Oil and gas exploration
and production activities are subject to numerous risks inherent in the
business. These include the volatility of oil and gas prices, environmental
concerns and governmental regulations, general business risks and hazards
involving the acquisition and operation of oil and gas properties, the ability
to continue to find new reserves to replace those being depleted and the highly
competitive nature of the business. Its principal geographic operating areas lie
within the states of Oklahoma, Montana and Texas.
Note 1 - Summary of significant accounting policies
Merger
As further described in Note 2 below, on December 31, 1997, The Home-Stake
Royalty Corporation ("HSRC") was merged with and into the Company. This
transaction was accounted for by the purchase method of accounting for business
combinations. The merged companies adopted the name of HSOG, which was deemed to
be the purchased entity for accounting purposes since the former HSRC
stockholders received approximately 61% of the merged entity's common stock.
Accordingly, the balance sheet at December 31, 1996 and the statements of income
and retained earnings and statements of cash flows for the years ended December
31, 1997 and 1996, have been restated to reflect the historical financial
position and operations of HSRC prior to the merger. The balance sheet at
December 31, 1997, reflects the assets and liabilities of the merged entity, as
described in Note 2 below.
Basis of Presentation
The financial statements include the accounts of the Company and, in 1996, its
wholly owned subsidiary Alden Gas Gathering Company. The principal assets of
Alden Gas Gathering Company were sold in 1997 and the subsidiary was dissolved.
The equity method of accounting is used when the Company has a 20% to 50%
interest in other companies. Under the equity method, original investments are
recorded at cost and adjusted by the Company's share of undistributed earnings
or losses of these companies. Dividends and distributions are credited against
the investment when received.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principals requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and revenues and expenses during the reporting period.
Actual results could differ from those estimates.
One of the most significant estimates made by the Company involves its oil and
gas reserves. The Company amortizes its costs of producing properties on the
unit-of-production method over the estimated remaining reserves of the Company.
Since estimates of remaining oil and gas reserves are highly subjective and
subject to constantly changing conditions, most of which are beyond the control
of the Company, it is reasonably possible that the Company's estimates will
change over time, affecting the rates of amortization. In addition, in assessing
whether any impairment to the carrying values of producing properties has
occurred, these same estimates of oil and gas reserves are used. Consequently
impairment adjustments to the carrying values are reasonably possible.
Fair Value of Financial Instruments
The carrying amounts for cash and cash equivalents and notes payable reported in
the balance sheets approximate fair value.
F-6
<PAGE>
THE HOME-STAKE OIL & GAS COMPANY
NOTES TO FINANCIAL STATEMENTS - (Continued)
Note 1 - Summary of significant accounting policies (continued)
Cash and cash equivalents
The Company includes certificates of deposit and money market funds in cash and
cash equivalents since such amounts are readily convertible into known amounts
of cash.
Credit risks
The Company sells its oil and gas production directly or indirectly to numerous
oil refiners and pipeline companies without collateral. In addition, the Company
has numerous working interest owners to whom it grants credit on wells in which
it serves as operator. Substantially all of these owners are industry partners
or individuals who invest in oil and gas drilling ventures. The Company believes
its credits risks are limited due to the nature of its business and partner base
and has not incurred any significant losses in connection therewith.
Environmental costs
Environmental liabilities, which historically have not been material, are
recognized when it is probable that a loss has been incurred and the amount of
that loss is reasonably estimable. Environmental liabilities, when accrued, are
based upon estimates of expected future costs without discounting. At December
31, 1997 there are no such costs accrued.
Property and equipment
The Company follows the successful efforts method of accounting for its oil and
gas operations. Costs of productive oil or gas wells, as well as costs of
acquiring producing and nonproducing oil and gas properties, are capitalized.
Exploratory costs, annual delay rentals and exploratory dry holes are expensed.
Depreciation, depletion and amortization of producing properties are provided on
the unit-of-production method based on estimates of proved reserves.
Depreciation of other property and equipment is provided on straight-line or
accelerated methods over estimated useful lives. Impairment of producing
properties is measured based on their discounted estimated future net cash flows
and is included in depreciation, depletion and amortization, when required.
Nonproducing oil and gas properties include both perpetual mineral rights and
term leasehold interests. The perpetual mineral rights are written-off when
unsuccessful exploration information is obtained. The Company does not maintain
an extensive inventory of nonproducing leasehold interests, rather such
interests are acquired in connection with specific drilling objectives. Such
nonproducing leasehold interests are written-off or reserved as warranted by
drilling results.
Renewals and betterments are capitalized; maintenance and repairs are charged to
expense. Replacement of individual items of lease equipment are capitalized.
When leases or other assets are sold or retired, the cost and related
accumulated depreciation, depletion and amortization are eliminated from the
accounts and the resulting gain or loss is recognized in income. The Company's
historical experience has been that the salvage value of equipment on property
abandonments is sufficient to cover the costs of dismantlement and site
restoration. Therefore, the Company does not accrue such costs and salvage value
is not considered in calculating property amortization.
F-7
<PAGE>
THE HOME-STAKE OIL & GAS COMPANY
NOTES TO FINANCIAL STATEMENTS - (Continued)
Note 1 - Summary of significant accounting policies (continued)
Oil and gas sales
The Company sells most of its crude oil and natural gas concurrent with
production and does not store significant volumes for future sales. Revenue is
recognized on the "sales method" when oil and gas are sold. Under this method,
the Company may "sell" more or less than its proportionate share of gas
production in a given period, creating an imbalance position. However, an asset
or liability is recorded only to the extent that the Company's imbalance
position in a property cannot be recouped from remaining reserves. The Company's
net imbalance positions at December 31, 1997 and 1996 were not material.
Derivatives
The Company does not utilize financial or commodity derivative instruments to
hedge its market risks.
Income taxes
Certain income and expense items are recorded in one year in the financial
statements and are reported in a different year in the income tax return. Such
items generally include tax credit carryforwards, intangible drilling and
development costs, depreciation and depletion. The tax effects associated with
these differences are recorded in these financial statements and described as
"deferred income taxes".
Note 2 - Merger and Pro Forma Financial Information
As discussed in Note 1, on December 31, 1997, HSRC was merged with and into the
Company, with HSOG deemed to be the purchased entity for accounting purposes. In
connection with this transaction, the Company issued 2,742,203 shares of common
stock to former stockholders of HSRC. In accordance with the Merger Agreement,
holders of common stock of HSOG received 30 shares of new HSOG common stock for
each share of stock held prior to the merger, holders of HSRC common stock
received 48.66 shares of new HSOG common stock for each share of stock held
prior to the merger, and all treasury shares and shares owned by each company in
the other were canceled. (Also see Note 8.)
Since there was no established public trading market for the Company's common
stock at December 31, 1997, the purchase price was determined based upon the
fair values of HSOG's assets and liabilities. The current assets and liabilities
of HSOG were valued at historical cost, which approximates fair value. The fair
values of property and equipment were based on (i) the estimated future
discounted net cash flows of HSOG's producing oil and gas properties as of
December 31, 1997, after giving effect to deferred income taxes; (ii) an
independent appraisal of HSOG's nonproducing minerals as of December 31, 1997;
and (iii) historical cost of nonproducing oil and gas leases and office
equipment and other, which approximates fair value. No oil and gas properties
were deemed to have been impaired and no goodwill was recorded in connection
with this transaction.
F-8
<PAGE>
THE HOME-STAKE OIL & GAS COMPANY
NOTES TO FINANCIAL STATEMENTS - (Continued)
Note 2 - Merger and Pro Forma Financial Information (continued)
The allocation of the purchase price of HSOG included in the balance sheet at
December 31, 1997 is summarized as follows:
Current assets..................................... $ 933,865
Property and equipment:
Producing oil and gas leases..................... 10,154,056
Producing royalty interests...................... 6,235,349
Nonproducing oil and gas properties.............. 823,817
Office equipment and other....................... 45,818
Other assets....................................... 123,063
Current liabilities................................ (1,449,456)
Deferred income taxes.............................. (4,144,271)
-----------
$12,722,241
===========
Estimated proved reserves of the producing properties acquired totaled 2,226,892
barrels of oil and 8,973,426 mcf of natural gas.
F-9
<PAGE>
THE HOME-STAKE OIL & GAS COMPANY
NOTES TO FINANCIAL STATEMENTS - (Continued)
Note 2 - Merger and Pro Forma Financial Information (continued)
Pro Forma Information (unaudited)
Since the merger of the Company and HSRC was accounted for by the purchase
method of accounting, the accompanying 1997 and 1996 statements of income and
retained earnings do not include any revenues or expenses of the former HSOG.
Following is summarized pro forma 1997 and 1996 information, assuming the
acquisition had occurred on January 1, 1996. This pro forma information reflects
the combined historical amounts for the two companies, adjusted to eliminate the
income and amortization of each company related to its ownership in the other,
and the increases in depreciation, depletion and amortization and income taxes
related to the merger.
1997 1996
---- ----
Revenues:
Oil and gas sales................................ $ 13,344,522 $ 14,458,162
Other............................................ 1,303,239 824,483
------------ ------------
14,647,761 15,282,645
Costs and expenses:
Production....................................... 4,044,742 6,166,465
Exploration...................................... 1,351,996 343,378
General and administrative expense............... 2,289,280 1,554,810
Depreciation, depletion and amortization......... 2,552,615 3,154,717
Interest expense................................. 276,139 702,185
Property and other taxes......................... 231,957 213,049
------------ ------------
10,746,729 12,134,604
Income before income tax........................... 3,901,032 3,148,041
Income tax expense................................. 1,351,961 1,018,110
------------ ------------
Net income......................................... $ 2,549,071 $ 2,129,931
============ ============
Weighted average number of shares outstanding...... 4,517,363 4,517,363
========= =========
Basic net income per share......................... $ .56 $ .47
===== =====
Note 3 - Related party transactions and investments
Prior to their merger on December 31, 1997, both HSOG and HSRC were under common
management, with both frequently participating jointly in the acquisition of
mineral and leasehold interests and in exploration and development activities.
Each company generally owned an equal interest in the oil and gas properties in
which they jointly participated, however such interests sometime varied. Only
HSRC, however, served as operator on properties that were not operated by
outside parties.
F-10
<PAGE>
THE HOME-STAKE OIL & GAS COMPANY
NOTES TO FINANCIAL STATEMENTS - (Continued)
Note 3 - Related party transactions and investments (continued)
In accordance with oil and gas industry practice, the oil and gas ventures in
which both companies participated were considered to be joint, but separate. For
those properties operated by outside parties, each Company was generally billed
separately for their share of operating and drilling costs and separately
reimbursed the operator for such costs. For properties operated by HSRC, HSOG
was billed for such costs monthly.
Payroll costs for personnel were paid by HSRC, with HSOG reimbursing one-half
share of such costs. For substantially all other general and administrative
costs, each Company separately paid for its one-half share.
For the two years ended December 31, HSRC paid or billed HSOG the following
amounts:
1997 1996
---- ----
Paid:
Oil and gas sales, net of production taxes....... $ 394,759 $ 451,941
Billed:
Property and equipment........................... 473,352 82,838
Lease operating expenses......................... 686,450 818,886
Payroll costs.................................... 583,320 494,243
All revenues and expenses described above were paid by the respective company in
cash on a monthly basis.
At December 31, 1996, HSRC owned 33.9% of the outstanding common stock of HSOG
and accounted for its investment in HSOG using the equity method. At December
31, 1996, HSOG owned 19.3% of the outstanding common stock of HSRC. In
connection with the merger described in Note 2, this cross ownership was
canceled.
At December 31, 1996, investments consisted of the following:
The Home-Stake Oil & Gas Company (owned by HSRC)... $ 3,538,454
Alden Pipeline Company............................. 54,041
------------
$ 3,592,495
============
The Company received dividends totaling $60,674 and $71,023 for these
investments in 1997 and 1996, respectively.
F-11
<PAGE>
THE HOME-STAKE OIL & GAS COMPANY
NOTES TO FINANCIAL STATEMENTS - (Continued)
Note 3 - Related party transactions and investments (continued)
Summarized combined financial information for HSOG and Alden Pipeline Company,
in 1996 only and for which amounts are not material, is presented below:
Years ended December 31,
1997 1996
Income statement data:
Revenues........................................ $ 7,457,014 $ 7,759,424
Income before income taxes...................... 2,485,651 1,858,854
Net income (1).................................. 1,825,749 1,417,738
December 31,
1996
Balance sheet data:
Current assets.............................................. $ 1,576,125
Property and equipment (net)................................ 8,735,493
Other assets................................................ 2,756,922
Current liabilities......................................... 2,299,840
Noncurrent liabilities...................................... 3,131,206
Equity...................................................... 7,637,494
(1) Includes $345,080 and $273,108 in 1997 and 1996, respectively,
attributable to the equity earnings of the HSRC recorded by HSOG.
Note 4 - Note payable
Note payable at December 31, 1996 consisted of the following balances:
Prime rate bank note due May 1, 1998, requiring monthly principal
payments of $80,355, plus interest............................. $ 1,366,035
Less current portion............................................. 964,260
------------
$ 401,775
============
The Company has a bank 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 less one percent. In connection with this line of
credit, the Company has issued a letter of credit in the amount of $120,000,
which is guaranteed by this line, and pays a commitment fee of one-half of one
percent (1/2%) per annum on the unused portion of the line.
The Company's credit facilities include certain loan covenants which require,
among other things, that the Company maintain certain financial ratios and
minimum net worth requirements. In addition, the Company's annual cash dividends
are limited to the lesser of $365,000 or net income.
In connection with the acquisition of certain producing gas properties described
in Note 9, the Company has negotiated a new credit facility with its bank which,
when executed, will provide for borrowings of $6.6 million, payable $110,000
monthly, plus interest at prime less 1/2 %, beginning May 1, 1998. In addition,
this arrangement will provide the Company with a one-year bank line of credit in
the amount of $5 million, with interest at prime less 1%. This facility will
limit annual cash dividends to the lesser of $550,000 or net income. This credit
facility is expected to be executed on or about March 31, 1998.
F-12
<PAGE>
THE HOME-STAKE OIL & GAS COMPANY
NOTES TO FINANCIAL STATEMENTS - (Continued)
Note 5 - Income taxes
Deferred income taxes represent the net tax effects associated with temporary
differences in the net book values of certain assets and liabilities for
financial reporting and income tax purposes. Significant components of the
Company's deferred income tax liabilities and assets at December 31, are as
follows:
1997 1996
---- ----
Deferred tax liabilities:
Intangible drilling costs........................ $ 1,867,311 $ 588,931
Excess of tax over book depreciation............. 705,219 192,065
Leasehold costs.................................. 2,934,635 202,542
------------ ------------
5,507,165 983,538
Deferred tax assets:
Alternative minimum tax credit carryforwards..... 241,611 173,242
Deferred compensation accrual.................... 19,556 14,667
Other (net)...................................... 38,450 22,429
------------ ------------
299,617 210,338
------------ ------------
Net deferred tax liability......................... $ 5,207,548 $ 773,200
============ ============
The reconciliation of the income tax provision to the "expected" provision
computed at the statutory federal income tax rate is as follows:
1997 1996
---- ----
Computed "expected" provision...................... $ 986,263 $ 835,331
Excess statutory depletion......................... (188,966) (101,828)
Income from equity affiliates...................... (181,795) (135,927)
Other.............................................. 122,789 15,120
------------ ------------
Provision for income taxes......................... $ 738,291 $ 612,696
============ ============
At December 31, 1997, the Company had nonexpiring alternative minimum tax credit
carryforwards of approximately $241,600 available to reduce future federal
income taxes, the benefits of which have been recognized in these financial
statements.
Note 6 - Benefit plans
The Company has a 401(k) Profit Sharing Plan covering substantially all the
Company's employees that have completed one year of service and provides for a
mandatory Company contribution equal to 3% of the employee's compensation and an
additional matching Company contribution of up to 3%. Company contributions to
the Plan were $24,322 and $22,288 in 1997 and 1996, respectively.
Note 7 - Commitments and contingencies
The Company has a non-cancelable operating lease covering its office space
through December 30, 2000. This lease provides for annual rental payments of
$111,816, subject to an annual expense adjustment.
The Company is involved in various legal actions arising in the normal course of
business. In the opinion of management and legal counsel, the Company's
liabilities, if any, in these matters will not have a material effect on the
Company's financial position, results of operations or cash flows.
F-13
<PAGE>
THE HOME-STAKE OIL & GAS COMPANY
NOTES TO FINANCIAL STATEMENTS - (Continued)
Note 8 - Stockholders' Equity
Common Stock
On December 11, 1997, the stockholders of HSOG approved an amendment to the
Company's Certificate of Incorporation which changed the par value of the
Company's common stock to $ .01 per share and increased the number of authorized
shares of common stock from 100,000 to 12,000,000. In conjunction with these
amendments, the stockholders also approved the merger of HSRC with and into
HSOG, as described in Note 2. As a part of the merger, the common stock each
company owned in the other, and all treasury shares, were canceled. Holders of
HSRC common stock received 48.66 shares of new HSOG common stock for each share
of HSRC owned, resulting in the issuance of 2,742,203 shares. Holders of HSOG
common stock received 30 shares of new HSOG common stock for each share of HSOG
formerly owned, resulting in the issuance of 1,775,160 shares. The Company's
1996 balance sheet has been restated to reflect the change in the par value of
the Company's common stock, the increased number of shares authorized and the
48.66 exchange ratio described above. All references to the number of shares and
per share amounts reflect the historical shares of HSRC, adjusted for the 48.66
exchange ratio.
Preferred Stock
The Company is authorized to issue up to 2,000,000 shares of Preferred Stock at
the discretion of the Board of Directors. This stock is commonly referred to as
"blank check" stock, with the Board of Directors having the authority to
determine voting rights, dividend rights, preferences, etc.
Incentive Stock Plan
On December 11, 1997, the stockholders approved the adoption of The Home-Stake
Oil & Gas Company 1997 Incentive Stock Plan (the "Stock Plan") which became
effective on December 31, 1997. There are a total of 451,736 shares of common
stock authorized and reserved under the Stock Plan. The number of shares
reserved for issuance under the Stock Plan automatically increases as necessary
so that, when added to the number of shares subject to stock options granted or
awarded under the Stock Plan, the total number of shares reserved will equal 10%
of the issued and outstanding shares of the Company.
At December 31, 1997 there were no options outstanding. On February 12, 1998,
the Board of Directors granted qualified stock options in varying amounts to all
employees totaling 155,250 shares. Such options vest over a 5-year period and
have an option price of $4.50 per share. In addition, there were non-qualified
options issued to all outside directors in the aggregate amount of 100,000
shares that are exercisable immediately, at an option price of $4.50 per share.
Shareholder Rights Plan
On May 29, 1991, the Company adopted a Rights Plan and distributed to its
shareholders one Right for each outstanding share of common stock. Each Right
entitles the holder to purchase one-tenth of an additional share of common stock
from the Company and acquire a note payable from the Company to the holder or,
under certain circumstances, purchase the stock of an acquiring company. Upon
the occurrence of certain specified events related to a change in control of the
Company, each holder of a Right (other than a potential acquiror) will have the
right to acquire, upon exercise, shares of the Company's common stock at
one-half of the then current market price. The Rights expire January 1, 2000 and
are exercisable only if a person or group acquires 15% or more of the Company's
common stock or commences a tender offer that would result in a person or group
acquiring 15% or more of the Company's common stock. The Rights are redeemable
in whole, but not in part, at a price of $.01 per Right, payable in cash or
stock.
F-14
<PAGE>
THE HOME-STAKE OIL & GAS COMPANY
NOTES TO FINANCIAL STATEMENTS - (Continued)
Note 9 - Subsequent Events (unaudited as to reserve quantities)
On March 5, 1998 the Company entered into an agreement to purchase certain
producing gas properties for a purchase price of $6,685,000, subject to certain
adjustments for operations subsequent to January 1, 1998. This purchase includes
estimated proved reserves of 6.4 Bcf of gas. This acquisition will be financed
under the new credit facility described in Note 4 and will be secured by certain
of the Company's producing properties. This acquisition is expected to close on
or about March 31, 1998.
F-15
<PAGE>
THE HOME-STAKE OIL & GAS COMPANY
SUPPLEMENTARY INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES (unaudited)
Estimated quantities of proved oil and gas reserves
Changes in estimated proved oil and gas reserve quantities are summarized as
follows:
1997 1996
---------------------- -----------------------
Oil Gas Oil Gas
(Bbls) (Mcf) (Bbls) (Mcf)
Proved developed and undeveloped:
Beginning of year............ 2,432,711 8,835,929 2,757,425 9,956,399
Revisions of previous
estimates.................. 187,009 1,625,539 (184,463) (525,793)
Purchases of reserves
in-place................... 894 2,896 15,891 479,378
Extensions, discoveries and
other additions............ 42,710 542,950 99,368 516,241
Added by merger.............. 2,226,892 8,973,426 - -
Sales of reserves in-place... (209,027) (232,080) (15,985) (332,266)
Production................... (210,997) (1,208,464) (239,525) (1,258,030)
---------- ---------- ---------- ----------
End of year.................. 4,470,192 18,540,196 2,432,711 8,835,929
========== ========== ========== ==========
Proved developed producing:
Beginning of year............. 2,380,522 7,369,964 2,686,118 8,453,229
========== ========== ========== ==========
End of year................... 4,386,132 15,902,988 2,380,522 7,369,964
========== ========== ========== ==========
The Company's share of net proved oil and gas reserves of HSOG, accounted for on
the equity method in 1996 (see Note 3 to the Financial Statements), were 808,161
barrels of oil and 2,881,865 mcf of gas at December 31, 1996.
The estimates of oil and gas reserves were prepared by Company employees and do
not include proved undeveloped reserves attributable to either royalty interests
(information is not available) or outside operated working interests (quantities
are not considered significant to total Company proved reserves). Furthermore,
these estimates do not include reserves whose estimates or recoverability are
less precise, commonly referred to as "probable" or "possible" reserves. The
Company has no reserves outside the continental United States.
Standardized measure of discounted future net cash flows
In accordance with the requirements of Statement of Financial Accounting
Standards No. 69 ("SFAS No. 69") presented below are projections of future net
oil and gas cash flows (sales less production taxes, operating expenses, certain
development costs and estimated income taxes) and related present values of
proved oil and gas reserves. As required by SFAS No. 69, these projections are
based on end of period prices and costs, held constant for all future periods.
Present values of the future net oil and gas cash flows were calculated using a
10% discount factor as required. While this information was developed with
reasonable care and disclosed in good faith, it is emphasized that some of the
data are necessarily imprecise and represent only approximate amounts because of
the subjective judgments involved in developing such information. Accordingly,
this information may not represent the present financial condition of the
Company or its expected future results. This information does not include any
amounts applicable to "probable" or "possible" reserves which may become proved
in the future.
F-16
<PAGE>
THE HOME-STAKE OIL & GAS COMPANY
SUPPLEMENTARY INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES (unaudited)
Although these disclosures have been prepared in accordance with SFAS No. 69,
this information does not purport to present the fair market value of the
Company's oil and gas properties or a fair estimate of the present value of
future cash flows expected to be obtained from their production. The reserve
estimates, while carefully made, may be significantly revised based on future
events. In addition, estimates of the timing of production, actual prices
realized and related production costs and taxes may also vary significantly from
those used in these calculations.
1997 1996
---- ----
Future net cash flows:
Oil and gas sales................................ $130,251,202 $ 78,855,048
Lease operating expenses......................... (39,352,926) (23,802,053)
Production taxes................................. (9,916,302) (6,147,291)
Development costs................................ (646,142) (474,842)
Income taxes..................................... (20,500,870) (12,305,138)
------------ ------------
59,834,962 36,125,724
Less discount to present value
at 10% rate............................. (26,643,527) (15,133,629)
------------ ------------
Standardized measure of discounted
future net cash flows......................... $ 33,191,435 $ 20,992,095
============ ============
The Company's share of the standardized measure of discounted future net cash
flows of HSOG, accounted for on the equity method in 1996, was $6,819,163 at
December 31, 1996.
The following information summarizes the principal changes in the standardized
measure of discounted future net cash flows.
1997 1996
---- ----
Beginning of year.................................. $ 20,992,095 $ 14,213,715
Sales of oil and gas, net of production costs...... (4,802,923) (4,288,183)
Net changes in prices and production costs......... (4,410,247) 10,716,647
Extensions and discoveries......................... 772,995 1,303,483
Purchases of reserves-in-place..................... 8,314 573,138
Added by merger.................................... 16,198,548 -
Sales of reserves-in-place......................... (1,530,374) (438,724)
Revisions of previous quantity estimates........... 2,686,262 (2,022,227)
Net change in income taxes......................... 1,638,638 (2,169,336)
Other (net)........................................ (461,083) 1,682,210
Accretion of discount.............................. 2,099,210 1,421,372
------------ ------------
End of year........................................ $ 33,191,435 $ 20,992,095
============ ============
F-17
<PAGE>
THE HOME-STAKE OIL & GAS COMPANY
SUPPLEMENTARY INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES (unaudited)
Costs incurred
Costs incurred in oil and gas producing activities include:
1997 1996
---- ----
Acquisition costs - proved properties.............. $ 3,486 $ 327,008
Acquisition costs - unproved properties............ 646,496 137,518
Exploration costs.................................. 432,250 400,468
Development costs.................................. 837,628 87,181
------------ ------------
$1,919,860 $ 952,175
============ ============
The Company's share of costs incurred in oil and gas producing activities of
HSOG in 1996, which was accounted for on the equity method, was $236,588.
Acquisition costs for proved and unproved properties related to the merger were
$16,389,405 and $823,817, respectively.
F-18
<PAGE>
INDEX TO EXHIBITS
The following documents are included as exhibits to this Form 10-KSB. Those
exhibits below incorporated by reference herein are indicated as such by the
information supplied in the parenthetical thereafter. If no parenthetical
appears after an exhibit, such exhibit is filed herewith.
Number Description
3.1 Amended and Restated Certificate of Incorporation of the Company.
3.2 Bylaws of the Company, as amended.
4.1 Rights Agreement and Indenture dated as of May 2, 1994, between the
Company and The Fourth National Bank of Tulsa (now known as
NationsBank, N.A.) (Filed as Exhibit 4.1 to the Company's Registration
Statement on Form 10, Registration No. 0-19766).
*10.1 Amended and Restated Home-Stake Oil & Gas Company Key Employee
Incentive Bonus Plan.
*10.2 Amended and Restated Employment Agreement by and between Robert C.
Simpson and the Company dated February 5, 1998.
*10.3 Amended and Restated Home-Stake Oil & Gas Company Change in Control
Severance Pay Plan.
*10.4 The Home-Stake Oil & Gas Company 1997 Incentive Stock Plan.
*10.5 Form of Indemnity Agreement between the Company and each Director,
dated May 14, 1996 (Filed as Exhibit 10.1 to the Company's Quarterly
Report of Form 10-QSB for the quarter ended June 30, 1996).
10.6 Third Amended and Restated Loan Agreement dated March 29, 1995 between
the Company and Bank IV Oklahoma, N.A. (Filed as Exhibit 10.9 to the
Company's Annual Report on Form 10- KSB for the year ended December
31, 1994).
10.7 First Amendment and Modification to Loan Agreement dated May 1, 1996
to the Third Amended and Restated Loan Agreement dated March 29, 1995
between the Company and Bank IV Oklahoma, N.A. (Filed as Exhibit 10.2
to the Company's Quarterly Report of Form 10-QSB for the quarter ended
June 30, 1996)
27 Financial Data Schedule.
<PAGE>
RESTATED AND AMENDED
CERTIFICATE OF INCORPORATION
OF
THE HOME-STAKE OIL & GAS COMPANY
To: The Secretary of State of the State of Oklahoma
State Capitol Building
Oklahoma City, Oklahoma 73105
The undersigned Oklahoma corporation, for the purpose of adopting an
amended and restated Certificate of Incorporation pursuant to section 1080 of
the Oklahoma General Corporation Act, hereby states that:
1. The name of the corporation is The Home-Stake Oil & Gas Company (the
"Corporation").
2. The date the Corporation's original Certificate of Incorporation was
filed was March 12, 1917, and the Certificate of Incorporation was last amended
on June 29, 1994.
3. The Certificate of Incorporation of this Corporation is hereby restated
and amended to read in its entirety as follows:
ARTICLE ONE
The name of the Corporation is The Home-Stake Oil & Gas Company.
ARTICLE TWO
The address of the Corporation's registered agent and office in the State
of Oklahoma is 15 E. 5th Street, Suite 2800, Tulsa, Oklahoma 74103, and its
registered agent's name is Robert C. Simpson.
ARTICLE THREE
The Corporation shall have perpetual existence.
ARTICLE FOUR
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the Oklahoma General Corporation
Act.
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<PAGE>
ARTICLE FIVE
The aggregate number of shares of all classes of capital stock which the
Corporation has authority to issue is 14,000,000, of which 12,000,000 shares
shall be Common Stock, with a par value of $0.01 per share, and 2,000,000 shares
shall be Preferred Stock, with a par value of $1.00 per share.
The designations and the preferences, conversion and other rights, voting
powers, restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption of the shares of each class of stock are as follows:
Preferred Stock
The Preferred stock may be issued from time to time by the Board of
Directors as shares of one or more series. The description of shares of
each series of Preferred Stock, including any preferences, conversion and
other rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms and conditions of redemption shall be as set forth
in resolutions adopted by the Board of Directors and in a Certificate of
Designations filed as required by law from time to time prior to the
issuance of any shares of such series.
The Board of Directors is expressly authorized, prior to issuance, by
adopting resolutions providing for the issuance of, or providing for a
change in the number of shares of any particular series of Preferred Stock
and, if and to the extent from time to time required by law, by filing a
Certificate of Designations to set or change the number of shares to be
included in each series of Preferred Stock and to set or change in any one
or more respects the designations, preferences, conversion or other rights,
voting powers, restrictions, limitations as to dividends, qualifications or
terms and conditions of redemption relating to the shares of each such
series. Notwithstanding the foregoing, the Board of Directors shall not be
authorized to change the right of the Common Stock of the Corporation to
vote one vote per share on all matters submitted for shareholder action.
The authority of the Board of Directors with respect to each series of
Preferred Stock shall include, but not be limited to, setting or changing
the following:
(a) the distinctive serial designation of such series and the
number of shares constituting such series (provided that the aggregate
number of shares constituting all series of Preferred Stock shall not
exceed 2,000,000);
(b) the annual dividend rate on shares of such series, whether
dividends shall be cumulative and, if so, from which date or dates;
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<PAGE>
(c) whether the shares of such series shall be redeemable and, if
so, the terms and conditions of such redemption, including the date or
dates upon and after which such shares shall be redeemable, and the
amount per share payable in case of redemption, which amount may vary
under different conditions and at different redemption dates;
(d) the obligation, if any, of the Corporation to retire shares
of such series pursuant to a sinking fund;
(e) whether shares of such series shall be convertible into, or
exchangeable for, shares of stock of any other class or classes and,
if so, the terms and conditions of such conversion or exchange,
including the price or prices or the rate or rates of conversion or
exchange and the terms of adjustment, if any;
(f) whether the shares of such series shall have voting rights,
in addition to the voting rights provided by law, and, if so, the
terms of such voting rights;
(g) the rights of the shares of such series in the event of
voluntary or involuntary liquidation, dissolution or winding-up of the
Corporation; and
(h) any other relative rights, powers, preferences,
qualifications, limitations or restrictions thereof relating to such
series.
The shares of Preferred Stock of any one series shall be identical
with each other in all respects as to the dates from and after which
dividends thereon shall cumulate, if cumulative.
Common Stock
Subject to all of the rights of the Preferred Stock as expressly
provided herein, by law or by the Board of Directors pursuant to this
Article Five, the Common Stock of the Corporation shall possess all such
rights and privileges as are afforded to capital stock by applicable law in
the absence of any express grant of rights or privileges herein, including,
by not limited to, the following rights and privileges:
(a) dividends may be declared and paid or set apart for payment upon
the Common Stock out of any assets or funds of the Corporation legally
available for the payment of dividends;
(b) the holders of Common Stock shall have the right to vote for the
election of directors and on all other matters requiring shareholder
action, each share being entitled to one vote; and
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<PAGE>
(c) upon the voluntary or involuntary liquidation, dissolution or
winding-up of the Corporation, the net assets of the Corporation shall be
distributed pro rata to the holders of the Common Stock in accordance with
their respective rights and interests.
ARTICLE SIX
The amount of stated capital which the Corporation shall have is
$2,120,000.
ARTICLE SEVEN
[Intentionally omitted.]
ARTICLE EIGHT
The business of the Corporation shall be managed under the direction of a
Board of Directors. The number of directors constituting the entire Board of
Directors shall be not less than three (3) directors, nor more than fifteen (15)
directors, the exact number within such limits to be determined from time to
time by resolution adopted by the affirmative vote of a majority of the entire
Board of Directors; provided however, that the number of directors shall not be
reduced so as to shorten the term of any director at that time in office; and
provided further, that the number of directors constituting the entire Board of
Directors shall be seven (7) until otherwise fixed by a majority of the entire
Board of Directors.
ARTICLE NINE
To the fullest extent permitted by the Oklahoma General Corporation Act as
the same exists on the date hereof or may hereafter be amended, a director of
the Corporation shall not be liable to the Corporation or its shareholders for
monetary damages for breach of fiduciary duty as a director. No amendment to or
repeal of this Article shall apply to or have any effect on the liability or
alleged liability of any director of the Corporation for or with respect to any
acts or omissions of such director occurring prior to such amendment or repeal.
ARTICLE TEN
Any action which may be or is required to be taken at an annual or special
meeting of the shareholders of the Corporation may be taken without a meeting,
without prior notice and without a vote, only if all of the shareholders of the
Corporation entitled to vote thereon consent to such action in writing.
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<PAGE>
ARTICLE ELEVEN
1. As used in this Article:
(a) "Acquiring Person" means a Person who makes or proposes to
make, or Persons acting as a "group" as defined in Section 13(d)(3) of
the Securities Exchange Act of 1934, as amended, who make or propose
to make a Control Share Acquisition; provided, however, that
"Acquiring Person" does not include the Corporation;
(b) "Affiliate" means a Person who directly or indirectly
controls the Corporation. For purposes of this Article, "control"
means the possession, direct or indirect, of the power to direct or
cause the direction of the management and policies of the Corporation,
whether through the ownership of Shares, by contract, or otherwise.
Beneficial Ownership of ten percent (10%) or more of All Voting Power
of the Corporation by a Person, except by a Person holding such voting
power in good faith as an agent, bank, broker, nominee, custodian or
trustee for one or more beneficial owners who do not individually or
as a group control the Corporation, creates a presumption that such
Person controls the Corporation;
(c) "All Voting Power" means the aggregate voting power that the
Shareholders of the Corporation would have in the election of
directors generally but for this Article;
(d) "Beneficial Ownership" shall have the same meaning ascribed
to such term by Rule 13d-3 under the Securities Exchange Act of 1934,
as amended;
(e) "Competing Control Share Acquisition" means a Control Share
Acquisition or proposed Control Share Acquisition that is the subject
of an acquiring person statement delivered to the Corporation pursuant
to Section 2 of this Article not less than twenty-five (25) days prior
to the scheduled annual or special meeting date which has been or is
required to be established pursuant to such Section with respect to a
pending Control Share Acquisition;
(f) "Control Share Acquisition" means the acquisition by any
Person of ownership of, or the power to direct the exercise of voting
power with respect to, Control Shares. "Control Share Acquisition"
does not include acquisition of any Control Shares if such acquisition
is made in good faith and not for the purpose of circumventing this
Article in any of the following circumstances:
(1) In the ordinary course of business by a Person for the
benefit of others when such Person is able to exercise or direct
the exercise of votes of such acquired Shares only after
requesting further instruction from others;
(2) Before the adoption of this Article;
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<PAGE>
(3) Pursuant to a contract entered into before the adoption
of this Article;
(4) Pursuant to the laws of descent and distribution;
(5) Pursuant to the satisfaction of a pledge or other
security interest;
(6) Pursuant to a merger, consolidation, or acquisition of
Shares effected in compliance with the Oklahoma General
Corporation Act, if the Corporation is a party to the agreement
of merger, consolidation, or acquisition of Shares;
(7) By a donee receiving Shares pursuant to an inter vivos
gift;
(8) An increase in voting power resulting from any action
taken by the Corporation, provided the Person whose voting power
is thereby affected is not an Affiliate of the Corporation;
(9) Pursuant to the solicitation of proxies subject to
Regulation 14A under the Securities Exchange Act of 1934, as
amended, or in case the Corporation is not subject to such
Regulation 14A, the solicitation of proxies in accordance with
the laws of the State of Oklahoma;
(10) Pursuant to a transfer between or among Immediate
Family Members, or between or among persons under direct common
control;
(11) From any Person whose previous acquisition of Shares
would have constituted a Control Share Acquisition but for
subsections (1) through (10) above and (12) below, provided the
acquisition does not result in the Acquiring Person holding
voting power within a higher range of voting power than that of
the Person from whom the Control Shares were acquired; or
(12) By a Person of additional Shares within the range of
voting power for which such Person has received approval pursuant
to Section 5 of this Article or within the range of voting power
resulting from Shares acquired in a transaction described in
subsections (1) through (11) above;
(g) "Control Shares" means Shares that, but for this Article,
would have voting power, when added to all other Shares, whether owned
of record or through Beneficial Ownership by an Acquiring Person or in
respect to which such Acquiring Person may exercise or direct the
exercise of voting power, that would increase the voting power of, and
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<PAGE>
entitle such Acquiring Person immediately after acquisition of such
Shares, directly or indirectly, to exercise or direct the exercise of
the voting power of the Corporation in the election of directors within
any of the following ranges of voting power:
(1) One-fifth (1/5) or more but less than one-third (1/3) of
All Voting Power;
(2) One-third (1/3) or more but less than a majority of All
Voting Power; or
(3) A majority or more of All Voting Power;
(h) "Immediate Family Member" means any relative or spouse of a
Person, or any relative of such spouse, who has the same home as such
Person;
(i) "Interested Shares" means the Shares in respect of which any
of the following Persons may exercise or direct the exercise, as of
the applicable record date, of the voting power of the Corporation in
the election of directors other than solely by the authority of a
revocable proxy:
(1) The Acquiring Person;
(2) Any officer of the Corporation; or
(3) Any employee of the Corporation who is also a director
of the Corporation;
(j) "Noninterested Shares" means all Shares other than Interested
Shares.
(k) "Person" means any individual, corporation, partnership,
unincorporated association or other entity;
(l) The "Shareholders" means the owners of the Shares; and
(m) "Shares" means shares of capital stock of the Corporation
entitled to vote on any matter pursuant to the Oklahoma General
Corporation Act, the By-Laws of the Corporation or this Certificate of
Incorporation.
2. Any Acquiring Person who proposes to make a Control Share
Acquisition may, at such Person's election, and any Acquiring Person who
has made a Control Share Acquisition shall, deliver an acquiring person
statement ("Acquiring Person Statement") to the Corporation at its
registered office in Tulsa, Oklahoma. The Acquiring Person Statement must
set forth the following:
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(a) The identity of the Acquiring Person;
(b) A statement that the Acquiring Person Statement is given
pursuant to this Article;
(c) The number of Shares owned, directly or indirectly, by the
Acquiring Person, the acquisition date(s) thereof and the
price(s) at which such Shares were acquired;
(d) The voting power to which the Acquiring Person, but for this
Article, would be entitled;
(e) A form of resolution (the "Resolution") to be considered by
the Shareholders pursuant to this Article; and
(f) If the Control Share Acquisition has not yet occurred,
(1) a description in reasonable detail of the terms of the
proposed Control Share Acquisition, and
(2) representations of the Acquiring Person, together with a
statement in reasonable detail of the facts upon which they are
based, that the proposed Control Share Acquisition, if
consummated, will not be contrary to law, and that the Acquiring
Person has the financial capacity to make the proposed Control
Share Acquisition.
3. (a) If at the time of delivery of an Acquiring Person Statement,
the Acquiring Person requests a special meeting of the Shareholders
and gives an undertaking to pay the Corporation's expenses of the
special meeting, within ten (10) days thereafter the directors of the
Corporation shall call a special meeting of the Shareholders for the
purpose of considering the voting rights to be accorded the shares
acquired in a Control Share Acquisition.
(b) Unless the Acquiring Person agrees in writing to another
date, the special meeting of Shareholders shall be held within fifty
(50) days after receipt by the Corporation of the request.
(c) If no request is made, the voting rights to be accorded the
shares acquired in the Control Share Acquisition shall be presented to
the next special or annual meeting of Shareholders.
(d) If the Acquiring Person so requests in writing at the time of
delivery of the Acquiring Person Statement, the special meeting shall
not be held sooner than thirty (30) days after receipt by the
Corporation of the Acquiring Person Statement.
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<PAGE>
4. (a) If a special meeting of Shareholders is requested as provided
in Section 3 of this Article, notice of the special meeting shall be
given as promptly as reasonably practicable by the Corporation to all
Shareholders of record as of the record date set for the meeting,
whether or not they are entitled to vote at the meeting.
(b) Notice of the special or annual meeting of Shareholders at
which the voting rights are to be considered must include or be
accompanied by both of the following:
(1) A copy of the Acquiring Person Statement; and
(2) A statement by the Board of Directors of the Corporation
of its position or recommendation, or that it is taking no
position or making no recommendation, with respect to the
proposed Control Share Acquisition.
5. (a) All votes cast for or against the Resolution contained in the
Acquiring Person Statement must be identified as Noninterested Shares.
To be approved, the Resolution must receive the affirmative vote of a
majority of All Voting Power excluding all Interested Shares. If the
Resolution is not approved, the Acquiring Person, not sooner than
twelve (12) months after disapproval of the Resolution, may present a
new resolution for a vote of the Shareholders in accordance with
Sections 3 and 4 of this Article at any subsequent meeting of
Shareholders.
(b) A proxy relating to a meeting of Shareholders to be held
pursuant to Section 3 of this Article shall be solicited separately
from the offer to purchase or solicitation of an offer to sell shares
of the Corporation.
6. After a Control Share Acquisition occurs, Control Shares of
the Acquiring Person have only the following voting rights:
(a) Subject to the provisions of subsections (b) through (d)
below, the voting power of Control Shares having voting power of
one-fifth (1/5) or more of All Voting Power is reduced to zero unless
the Shareholders of the Corporation approve a resolution, pursuant to
the procedures set forth in Sections 3, 4 and 5 of this Article,
according such Control Shares the same voting rights as they had
before they became Control Shares;
(b) Except as provided in Section 5(a) of this Article, the
voting power of Control Shares representing voting power of less than
one-fifth (1/5) of All Voting Power is not affected by this Article;
(c) If Control Shares of the Acquiring Person previously have
been accorded, pursuant to the procedures set forth in Sections 3, 4
and 5 of this Article, the same voting rights they had before they
became Control Shares, or if such Control Shares were acquired in a
transaction excluded from the definition of "Control Share
Acquisition", then only the voting power of Control Shares acquired in
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<PAGE>
a subsequent Control Share Acquisition by such Acquiring Person within
a higher range of voting power shall be reduced to zero; and
(d) The voting rights of Control Shares are restored to those
accorded such Shares prior to the Control Share Acquisition in any of
the following circumstances:
(1) If, by reason of subsequent issuances of Shares or other
transactions by the Corporation, the voting power of those
Control Shares is reduced to a range of voting power for which
approval has been granted or is not required; or
(2) Upon transfer to a Person other than an Acquiring
Person; or
(3) The expiration of three (3) years after the date of a
vote of the Shareholders, pursuant to Section 5 of this Article,
failing to approve the Resolution according voting rights to
those Control Shares; or
(4) If the Resolution receives the affirmative votes
of a majority of All Voting Power, excluding all Interested
Shares, pursuant to Section 5 of this Article.
7. (a) In the event that a Competing Control Share Acquisition is
made or proposed, the Corporation shall, at the option of the
Acquiring Person making the Competing Control Share Acquisition, call
for a vote of the Shareholders to consider the resolution relating to
the voting rights of the Competing Control Share Acquisition at the
same meeting that has been or is to be called to consider the voting
rights of the pending Control Share Acquisition. In the event the
Acquiring Person making the Competing Control Share Acquisition does
not elect in writing to have the resolution relating to the voting
rights of the Competing Control Share Acquisition considered at the
same meeting, any vote shall be held as provided in this Article,
except that in such case no vote shall be called on the Competing
Control Share Acquisition prior to the earlier of the vote on the
Resolution relating to voting rights of the pending Control Share
Acquisition or fifty-one (51) days after receipt by the Corporation of
the request for a meeting by the Acquiring Person making the pending
Control Share Acquisition.
(b) If more than one resolution relating to a Control Share
Acquisition is to be considered at any meeting or at meetings
scheduled for or occurring on the same day, all such resolutions
relating to the voting rights of Acquiring Persons shall be considered
by the Shareholders in the order in which the initial Acquiring Person
Statements relating to such Control Share Acquisitions were delivered
to the Corporation. However, no resolution approved by the
Shareholders shall become effective until midnight of the date on
which the respective Shareholder approval occurs.
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<PAGE>
(c) If resolutions relating to two (2) or more Control Share
Acquisitions are subject to shareholder vote pursuant to this Article,
shares held by an Acquiring Person are considered Interested Shares
only for purposes of a vote on a resolution relating to a Control
Share Acquisition by that same Acquiring Person.
8. (a) In the event Control Shares acquired in a Control Share
Acquisition are accorded full voting rights and the Acquiring Person
has acquired Control Shares with a majority of All Voting Power, all
Shareholders of the Corporation shall have dissenters' rights. (b) As
soon as practicable after such events have occurred, the Board of
Directors shall cause a notice to be sent to all Shareholders advising
them of the facts and that they have dissenters' rights to receive the
fair value of their Shares pursuant to Section 1091 of the Oklahoma
General Corporation Act, as amended from time to time.
(c) As used in this Section 8, "fair value" means a value not
less than the highest price paid per share by the Acquiring Person in
the Control Share Acquisition.
9. Should any conflict arise between the provisions of this Article
and the provisions of the Oklahoma General Corporation Act or other laws,
the provisions of this Article shall control to the extent permitted by
law.
ARTICLE TWELVE
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors of the Corporation is expressly authorized to adopt,
amend or repeal the Bylaws of the Corporation.
ARTICLE THIRTEEN
The Corporation may, as determined by the Board of Directors of the
Corporation, indemnify and advance expenses to a director, officer, employee or
agent to the maximum extent permitted by and in accordance with Section 1031 of
the Oklahoma General Corporation Act as the same exists on the date hereof or
may hereafter be amended.
ARTICLE FOURTEEN
All rights, privileges, immunities, restrictions, penalties, duties,
obligations and liabilities of the Corporation and of the shareholders of the
Corporation shall be governed solely by the Oklahoma General Corporation Act as
the same exists on the date hereof or may hereafter be amended."
4. This Restated and Amended Certificate of Incorporation contains
amendments to the Certificate of Incorporation which required the approval of
the shareholders of the Corporation.
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<PAGE>
5. The amendments to the Certificate of Incorporation were set forth in a
resolution duly adopted by the Board of Directors which declared the adoption of
the amendments to the Certificate of Incorporation to be advisable and which
ordered that the amendments to the Certificate of Incorporation be considered by
the shareholders of the Corporation entitled to vote thereon.
6. The amendments to the Certificate of Incorporation were duly adopted by
the affirmative vote of the holders of all of the requisite number of shares of
issued and outstanding shares of the Corporation's common stock at a Special
Meeting of the shareholders of the Corporation held on December 11, 1997. Such
approval by the Corporation shareholders was sufficient to adopt and approve the
amendments to the Certificate of Incorporation.
IN WITNESS WHEREOF, The Home-Stake Oil & Gas Company has caused this
Restated and Amended Certificate of Incorporation to be signed by its Chief
Executive Officer and President, who hereby verifies that the statements
contained herein are true and accurate to the best of his knowledge and belief,
and duly attested by its Secretary this 7th day of January, 1998.
The Home-Stake Oil & Gas Company
By: /s/ Robert C. Simpson
--------------------------------
Robert C. Simpson
Chief Executive Officer and President
ATTEST:
By: /s/ Chris K. Corcoran
-----------------------------
Its Secretary
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<PAGE>
AMENDED AND RESTATED
BYLAWS
OF
THE HOME-STAKE OIL & GAS COMPANY
(an Oklahoma corporation)
Effective: February 5, 1998
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<PAGE>
TABLE OF CONTENTS
AMENDED AND RESTATED
BYLAWS OF
THE HOME-STAKE OIL & GAS COMPANY
(an Oklahoma corporation)
Article or
Section Caption Page
I Offices and Fiscal Year.........................................5
1.01 Registered Office..........................................5
1.02 Other Offices..............................................5
1.03 Fiscal Year................................................5
II Meetings of Shareholders........................................5
2.01 Place of Meeting...........................................5
2.02 Annual Meeting.............................................5
2.03 Business at Annual Meeting.................................6
2.04 Special Meetings...........................................6
2.05 Notice of Meetings.........................................6
2.06 Quorum, Manner of Acting and Adjournment...................6
2.07 Organization...............................................7
2.08 Voting; Proxies............................................7
2.09 Action by Shareholders in Lieu of Meeting..................7
2.10 Voting Lists...............................................7
III Board of Directors..............................................8
3.01 Powers.....................................................8
3.02 Number and Term of Office..................................8
3.03 Nominations................................................8
3.04 Resignations...............................................9
3.05 Vacancies and Newly-Created Directorships..................9
3.06 Organization...............................................9
3.07 Place of Meeting...........................................9
3.08 Organization Meeting.......................................9
3.09 Regular Meetings...........................................9
3.10 Special Meetings...........................................9
3.11 Conference Telephone Meetings..............................9
3.12 Quorum, Manner of Acting and Adjournment..................10
3.13 Committees................................................10
3.14 Consent of Directors in Lieu of Meeting...................10
3.15 Presumption of Assent.....................................11
3.16 Compensation of Directors.................................11
3.17 Holders of Preferred Stock................................11
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Article or
Section Caption Page
IV Notices - Waivers..............................................11
4.01 Notice, What Constitutes..................................11
4.02 Waivers of Notice.........................................11
V Officers.......................................................12
5.01 Number, Qualifications and Designation....................12
5.02 Election and Term of Office...............................12
5.03 Other Officers, Committees and Agents.....................12
5.04 Chairman of the Board and Vice Chairman...................12
5.05 President.................................................12
5.06 Vice Presidents...........................................13
5.07 Secretary and Assistant Secretaries.......................13
5.08 Treasurer and Assistant Treasurers........................13
5.09 Officers' Bonds...........................................13
5.10 Compensation..............................................13
5.11 Action with Respect to Securities of Other Corporations...13
VI Capital Stock..................................................14
6.01 Issuance..................................................14
6.02 Regulations Regarding Certificates........................14
6.03 Stock Certificates........................................14
6.04 Lost, Stolen, Destroyed or Mutilated Certificates.........14
6.05 Record Holder of Shares...................................14
6.06 Determination of Shareholders of Record for
Voting at Meetings........................................15
6.07 Determination of Shareholders of Record for
Dividends and Distributions...............................15
6.08 Determination of Shareholders of Record for
Written Consent...........................................15
VII Indemnification of Directors, Officers and Other
Authorized Representatives.....................................16
7.01 Indemnification of Authorized Representatives in
Third Party Proceedings...................................16
7.02 Indemnification of Authorized Representatives in
Corporate Proceedings.....................................16
7.03 Mandatory Indemnification of Authorized Representatives...16
7.04 Determination of Entitlement to Indemnification...........16
7.05 Burden of Proof...........................................17
7.06 Advancing Expenses........................................17
7.07 Employee Benefit Plans....................................17
7.08 Persons Other Than Authorized Representatives.............17
7.09 Scope of Article..........................................17
7.10 Reliance on Provisions....................................17
7.11 Insurance.................................................17
7.12 Rights Continue...........................................18
7.13 References to Corporation.................................18
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Article or
Section Caption Page
VIII General Provisions.............................................18
8.01 Dividends.................................................18
8.02 Annual Statements.........................................18
8.03 Contracts.................................................18
8.04 Checks....................................................18
8.05 Corporate Seal............................................18
8.06 Lien on Shares of Capital Stock For Indebtedness
to the Corporation........................................19
8.07 Amendment of Bylaws.......................................19
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<PAGE>
AMENDED AND RESTATED
BYLAWS
OF
THE HOME-STAKE OIL & GAS COMPANY
(an Oklahoma corporation)
ARTICLE I
Offices and Fiscal Year
SECTION 1.01. Registered Office. The registered office of the
corporation shall be 15 East 5th Street, Suite 2800, in the City of Tulsa,
County of Tulsa, State of Oklahoma 74103, until otherwise established by a vote
of a majority of the Board of Directors in office, and a statement of such
change is filed in the manner provided by statute.
SECTION 1.02. Other Offices. The corporation may also have offices at
such other places within or without the State of Oklahoma as the Board of
Directors may from time to time determine or the business of the corporation
requires.
SECTION 1.03. Fiscal Year. The fiscal year of the corporation shall end
on December 31 of each year unless otherwise fixed by resolution of the Board of
Directors.
ARTICLE II
Meetings of Shareholders
SECTION 2.01. Place of Meeting. All meetings of the Shareholders of the
corporation shall be held at the registered office of the corporation or at the
principal office of the corporation or at such other place within or without the
State of Oklahoma as shall be designated by the Board of Directors in the notice
of such meeting.
SECTION 2.02. Annual Meeting. An annual meeting of the Shareholders of
the corporation, for the election of Directors to succeed those whose terms
expire and for the transaction of such other business as may properly come
before the meeting, shall be held in each year on the third Monday in May
(commencing in 1998) at 9:00 a.m. or at such other date and time as may be
established by the Board of Directors. If such day is a legal holiday, the
annual meeting shall be held on the following business day.
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SECTION 2.03. Business at Annual Meeting. No business may be transacted
at an annual meeting of Shareholders other than business that is (a) specified
in the notice of meeting (or any supplement thereto) given by or at the
direction of the Board of Directors (or any duly authorized committee thereof),
(b) otherwise properly brought before the annual meeting by or at the direction
of the Board of Directors (or any duly authorized committee thereof) or (c)
otherwise properly brought before the annual meeting by any Shareholder of the
corporation who is entitled to vote at such annual meeting in accordance with
the following procedures. In addition to any other applicable requirements, for
business to be properly brought before an annual meeting by a Shareholder, such
Shareholder must have given written notice thereof to the Secretary of the
corporation not less than 60 days prior to the anniversary date of the
immediately preceding annual meeting of Shareholders; provided, however, that if
the annual meeting is called for a date that is not within 30 days before or
after such anniversary date, notice by the Shareholder must be given not later
than the 10th day following the day on which such notice of the date of the
annual meeting was mailed or public disclosure of the date of the annual meeting
was made, whichever first occurs. A Shareholder's notice to the Secretary must
set forth the name and record address of such Shareholder, the number and type
of shares of stock of the corporation which are beneficially owned by such
Shareholder, and as to each matter such Shareholder proposes to bring before the
annual meeting: (x) a brief description of the business desired to be brought
before the annual meeting and the reasons for conducting such business at the
annual meeting, (y) a description of all arrangements or understandings between
such Shareholder and any other person or persons (including their names) in
connection with the proposal of such business by such Shareholder and any
material interest of such Shareholder in such business and (z) a representation
that such Shareholder intends to appear in person or by proxy at the annual
meeting to bring such business before the meeting. The corporation shall not be
obligated to include in its proxy materials any business proposed by a
Shareholder. If the Chairman of the annual meeting determines that business was
not brought before the annual meeting by a Shareholder in accordance with the
foregoing procedures, such business shall not be transacted.
SECTION 2.04. Special Meetings. Special meetings of the Shareholders of
the corporation may be called at any time by the President, Chairman of the
Board, if any, or a majority of the Board of Directors, for any purpose or
purposes for which meetings may be lawfully called. At any time, upon written
request of any person or persons who have duly called a special meeting, which
written request shall state the purpose or purposes of the meeting, it shall be
the duty of the President to fix the date of the meeting to be held at such date
and time as the President may fix, not less than ten (10) nor more than sixty
(60) days after the receipt of the request, and to give due notice thereof. If
the President shall neglect or refuse to fix the time and date of such meeting
and give notice thereof, the person or persons calling the meeting may do so.
SECTION 2.05. Notice of Meetings. Written notice of the place, date and
hour of every meeting of the Shareholders, whether annual or special, shall be
given by the Chairman of the Board, the President, a Vice President, the
Secretary or an Assistant Secretary of the corporation to each Shareholder
having voting power with respect to the business to be transacted at such
meeting, not less than ten (10) nor more than sixty (60) days before the date of
the meeting. Each notice of a special meeting shall state the purpose or
purposes for which the meeting is being called. Any meeting at which all
Shareholders having voting power with respect to the business to be transacted
thereat are present, either in person or by proxy, shall be a valid meeting for
the transaction of business, notwithstanding that notice has not been given as
hereinabove provided.
SECTION 2.06. Quorum, Manner of Acting and Adjournment. The holders of
a majority of the stock issued and outstanding (not including treasury shares)
and entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the Shareholders for the transaction of
busi ness except as otherwise provided by statute, by the certificate of
incorporation or by these bylaws. If, however, such quorum shall not be present
or represented at any meeting of the Shareholders, the Shareholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall
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be present or represented. At any such adjourned meeting at which a quorum shall
be present or represented, any business may be transacted which might have been
transacted at the meeting as originally notified. If the adjournment is for more
than thirty (30) days or if after the adjournment a new record date is fixed for
the adjourned meeting, a notice of the adjourned meeting shall be given to each
Shareholder of record having voting power with respect to the business to be
transacted at such meeting. When a quorum is present at any meeting, the vote of
the holders of the majority of the stock having voting power with respect to a
question present in person or represented by proxy shall decide any such
question brought before such meeting, unless the question is one upon which, by
express provision of the applicable statute or these bylaws, a different vote is
required, in which case such express provision shall govern and control the
decision on such question. Except upon those questions governed by the aforesaid
express provisions, the Shareholders present in person or by proxy at a duly
organized meeting can continue to do business until adjournment, notwithstanding
withdrawal of enough Shareholders to leave less than a quorum.
SECTION 2.07. Organization. At every meeting of the Shareholders, the
President or, in the absence of the President, one of the following persons
present in the order stated: Chairman of the Board, if any, a chairman
designated by the Board of Directors, or a chairman chosen by the Shareholders,
shall act as chairman, and the Secretary or, in his absence, an Assistant
Secretary or a person appointed by the chairman of the meeting, shall act as
secretary of the meeting.
SECTION 2.08. Voting; Proxies. Except as provided in the certificate of
incorporation or in a resolution adopted by the Board of Directors pursuant to
Section 1032 of the Oklahoma General Corporation Act and subject to Section 1058
of such Act, each Shareholder shall at every meeting of the Shareholders be
entitled to one vote in person or by proxy for each share of capital stock
having voting power held by such Shareholder. No proxy shall be voted after
three years from its date, unless the proxy provides for a longer period. Each
proxy shall be executed in writing by the Shareholder or by his duly authorized
attorney-in-fact and filed with the Secretary of the corporation or the
secretary of the meeting prior to being voted. A proxy, unless coupled with an
interest, shall be revocable at will, notwithstanding any other agreement or any
provision in the proxy to the contrary, but the revocation of a proxy shall not
be effective until notice thereof has been given to the Secretary of the
corporation. A duly executed proxy shall be irrevocable if it states that it is
irrevocable and if, and only as long as, it is coupled with an interest
sufficient in law to support an irrevocable power. A proxy may be made
irrevocable regardless of whether the interest with which it is coupled is an
interest in the stock itself or an interest in the corporation generally. A
proxy shall not be revoked by the death or incapacity of the maker unless,
before the vote is counted or the authority is exercised, written notice of such
death or incapacity is given to the Secretary of the corporation.
SECTION 2.09. Action by Shareholders in Lieu of Meeting. Any action
which may be or is required to be taken at an annual or special meeting of the
Shareholders of the corporation may be taken without a meeting, without prior
notice and without a vote, only if all of the Shareholders of the corporation
entitled to vote thereon consent to such action in writing.
SECTION 2.10. Voting Lists. The officer who has charge of the stock
ledger of the corporation shall prepare and make, at least ten (10) days before
every meeting of Shareholders, a complete list of the Shareholders entitled to
vote at the meeting. The list shall be arranged in alphabetical order and show
the address of each Shareholder and the number of shares registered in the name
of each Shareholder. Such list shall be open to the examination of any
Shareholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least ten (10) days prior to the meeting either at a
place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not so specified, at the place
where the meeting is to be held. The list shall also be produced and kept at the
time and place of the meeting during the whole time thereof and may be inspected
by any Shareholder who is present.
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ARTICLE III
Board of Directors
SECTION 3.01. Powers. The Board of Directors shall have full power to
manage the business and affairs of the corporation; and all powers of the
corporation, except those specifically reserved or granted to the Shareholders
by statute, the certificate of incorporation or these bylaws, are hereby granted
to and vested in the Board of Directors.
SECTION 3.02. Number and Term of Office. The number of Directors
constituting the entire Board of Directors shall be not less than three (3)
Directors, nor more than fifteen (15) Directors, the exact number within such
limits to be determined from time to time by resolution adopted by the
affirmative vote of a majority of the entire Board of Directors, provided
however, that the number of Directors shall not be reduced so as to shorten the
term of any Director at that time in office, and provided further, that the
number of Directors constituting the entire Board of Directors shall be seven
(7) until otherwise fixed by a majority of the entire Board of Directors. All
Directors of the corporation shall be natural persons of full age. Directors
need not be residents of Oklahoma but must be Shareholders of the corporation.
The Board of Directors shall be divided into three classes, designated Class I,
Class II and Class III. All classes shall be as nearly equal in number as
possible, and no class shall include less than one Director. At each annual
meeting of Shareholders, Directors to replace those whose terms expire at such
annual meeting shall be elected to hold office until the third succeeding annual
meeting. Each Director shall hold office until the expiration of that Director's
term and until that Director's successor is elected and qualifies or until that
Director's earlier death, resignation or removal. If the number of Directors is
changed in accordance with the terms of the certificate of incorporation and
these bylaws, any increase or decrease shall be apportioned among the classes so
as to maintain the number of Directors in each class as nearly equal in number
as possible.
SECTION 3.03. Nominations. Nominations of candidates for election as
Directors of the corporation at any meeting of the Shareholders at which
election of one or more Directors shall be held (an "Election Meeting") may be
made by or at the direction of the Board of Directors or by any Shareholder
entitled to vote at such Election Meeting, in accordance with the following
procedures. Nominations made by or at the direction of the Board of Directors
may be made at any time. At the request of the Secretary of the corporation,
each proposed nominee shall provide the corporation with such information
concerning the proposed nominee as is required under the rules of the Securities
and Exchange Commission, to be included in the corporation's proxy statement
soliciting proxies for the nominee's election as a Director. Nominations, other
than those made by or at the direction of the Board of Directors, shall be made
pursuant to timely notice in writing to the Secretary of the corporation. Not
less than 60 days prior to the date of the Election Meeting any Shareholder who
intends to make a nomination at the Election Meeting shall deliver a notice to
the Secretary of the corporation setting forth (a) the name and record address
of such Shareholder, (b) the number and type of shares of stock of the
corporation which are beneficially owned by such Shareholder, (c) the name, age,
business address and residence address of each nominee proposed in such notice,
(d) the principal occupation or employment of each such nominee, (e) the number
and type of shares of stock of the corporation which are beneficially owned by
each such nominee, (f) such other information concerning each such nominee as
would be required under the rules of the Securities and Exchange Commission, in
a proxy statement soliciting proxies for the election of such nominees, (g) a
description of all arrangements or understandings between such Shareholder and
any other person or persons (including their names) in connection with the
nomination of each such nominee and any material interest of such Shareholder in
each such nomination and (h) a representation that such Shareholder intends to
appear in person or by proxy at the Election Meeting to nominate each such
nominee. Such notice shall include a signed consent of each such nominee to
serve as a Director of the corporation, if elected. The corporation shall not be
obligated to include in its proxy materials any person who is nominated by a
Shareholder as a candidate for election as a Director. In the event that a
person who is validly designated as a nominee in accordance with this section
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shall thereafter become unable or unwilling to stand for election to the Board
of Directors, the Board of Directors may designate a substitute nominee. If the
Chairman of the Election Meeting determines that a nomination was not made in
accordance with the foregoing procedures, such nomination shall be void.
SECTION 3.04. Resignations. Any Director of the corporation may resign
at any time by giving written notice to the President or the Secretary of the
corporation. Resignations shall become effective upon receipt or at such later
time as shall be specified therein and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
SECTION 3.05. Vacancies and Newly-Created Directorships. Any vacancies
in the Board of Directors for any reason, and any directorships resulting from
any increase in the number of Directors, may be filled by the Board of
Directors, acting by a majority of the Directors then in office, although less
than a quorum, and any Director so chosen shall hold office until the next
election of the class for which such Director shall have been chosen and until
such Director's successor shall be elected and shall qualify. If at any time, by
reason of death or resignation or other cause, the corporation should have no
Directors in office, then an election of Directors may be held by the
Shareholders or in the manner provided by statute.
SECTION 3.06. Organization. At every meeting of the Board of Directors,
the Chairman of the Board, if any, or, in the case of a vacancy in the office or
absence of the Chairman of the Board, the President or, in his absence, a
chairman chosen by a majority of the Directors present, shall preside, and the
Secretary or, in his absence, an Assistant Secretary or any person appointed by
the chairman of the meeting, shall act as secretary of the meeting.
SECTION 3.07. Place of Meeting. The Board of Directors may hold its
meetings, both regular and special, at such place or places within or without
the State of Oklahoma as the Board of Directors may from time to time appoint,
or as may be designated in the notice calling the meeting.
SECTION 3.08. Organization Meeting. The first meeting of each
newly-elected Board of Directors shall, unless otherwise specified by the
President of the corporation, be held immediately after, and at the same place
as, the annual meeting of Shareholders. Notice of such meeting to the
newly-elected Directors shall not be necessary in order legally to constitute
the meeting, provided a quorum shall be present.
SECTION 3.09. Regular Meetings. Regular meetings of the Board of
Directors may be held without notice at such time and place as shall be
designated from time to time by resolution of the Board of Directors. If the
date fixed for any such regular meeting be a legal holiday under the laws of the
State where such meeting is to be held, then the same shall be held on the next
succeeding business day, not a Saturday, or at such other time as may be
determined by resolution of the Board of Directors. At such meetings, the
Directors shall transact such business as may properly be brought before the
meeting.
SECTION 3.10. Special Meetings. Special meetings of the Board of
Directors shall be held whenever called by the Chairman of the Board, if any,
the President or by two or more of the Directors. Notice of each such meeting
shall be given to each Director by telephone, telegram, facsimile, in writing or
in person at least 24 hours (in the case of notice by telephone or in person) or
48 hours (in the case of notice by telegram or facsimile) or five days (in the
case of notice by mail) before the time at which the meeting is to be held. Each
such notice shall state the time, place and purpose of the meeting to be so
held. Except as otherwise specifically provided in these bylaws, no notice of
the objects or purposes of any special meeting of the Board of Directors need be
given, and, unless otherwise indicated in the notice thereof, any and all
business may be transacted at any such special meeting.
SECTION 3.11. Conference Telephone Meetings. One or more Directors may
participate in a meeting of the Board, or of a committee of the Board, by means
of conference telephone or similar
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communications equipment by means of which all persons participating in the
meeting can hear each other. Participation in a meeting pursuant to this section
shall constitute presence in person at such meeting.
SECTION 3.12. Quorum, Manner of Acting and Adjournment. At all meetings
of the Board a majority of the Directors shall constitute a quorum for the
transaction of business. The vote of a majority of the Directors present at any
meeting at which there is a quorum shall be the act of the Board of Directors,
except on additions, amendments, repeal or any changes whatsoever in these
bylaws, with respect to any of which the affirmative votes of at least a
majority of the members of the Board of Directors shall be necessary for the
adoption of such changes and except as may be otherwise specifically provided by
statute or by the certificate of incorporation. If a quorum shall not be present
at any meeting of the Board of Directors, the Directors present thereat may
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present.
SECTION 3.13. Committees. The Board of Directors may, by resolution
adopted by a majority of the whole Board, designate an executive committee and
one or more other committees, each committee to consist of one or more Directors
of the corporation. The Board may designate one or more Directors as alternate
members of any committee, who may replace any absent or disqualified member at
any meeting of the committee. In the absence or disqualification of a member,
and the alternate or alternates, if any, designated for such member, of any
committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another Director to act at the meeting in the place of any
such absent or disqualified member. A majority of the members of any committee,
as at the time constituted, shall be necessary to constitute a quorum thereof,
and the act of a majority of the members of any committee who are present at any
meeting thereof at which a quorum is present shall be the act of such committee.
Any vacancy in any committee shall be filled by a vote of a majority of the
Directors at the time in office.
Any such committee to the extent provided in the resolution
establishing such committee shall have and may exercise all the power and
authority of the Board of Directors in the management of the business and
affairs of the corporation, except that no such committee shall have the
authority of the Board of Directors in reference to amending the certificate of
incorporation, approving a plan of merger or consolidation (other than a merger
contemplated by Section 1083 of the Oklahoma General Corporation Act),
recommending to the Shareholders the sale, lease or exchange of all or
substantially all of the property and assets of the corporation, recommending to
the Shareholders a voluntary dissolution of the corporation or a revocation
thereof, amending, altering or repealing these bylaws or adopting new bylaws for
the corporation, filling vacancies in the Board of Directors or any such
committee, filling any Directorship to be filled by reason of an increase in the
number of Directors, electing or removing officers or members of any such
committee, fixing the compensation of any member of such committee, or altering
or repealing any resolution of the Board of Directors which provides for any of
the foregoing or which by its terms provides that it shall not be so amendable
or repealable; and no such committee shall have the power or authority to
declare a dividend or to authorize the issuance of shares of the corporation.
Such committee or committees shall have such name or names as may be determined
from time to time by resolution adopted by the Board of Directors. Each
committee so formed shall fix the time and place of its meetings and its own
rules of procedure and shall keep regular minutes of its meetings and report
from time to time to the Board of Directors.
SECTION 3.14. Consent of Directors in Lieu of Meeting. Unless otherwise
restricted by the certificate of incorporation or these bylaws, any action
required or permitted to be taken at any meeting of the Board of Directors or of
any committee thereof may be taken without a meeting, if all members of the
Board or the Committee consent thereto in writing, and the writing or writings
are filed with the minutes of proceedings of the Board or the Committee.
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SECTION 3.15. Presumption of Assent. A Director who is present at a
meeting of the Board of Directors at which action on any corporate matter is
taken shall be presumed to have assented to the action unless his dissent shall
be entered in the minutes of the meeting or unless he shall file his written
dissent to such action with the person acting as Secretary of the meeting before
the adjournment thereof or unless he shall forward such dissent by registered
mail to the Secretary of the corporation immediately after the adjournment of
the meeting. Such right to dissent shall not apply to a Director who voted in
favor of such action.
SECTION 3.16. Compensation of Directors. Unless otherwise restricted by
the certificate of incorporation, the Board of Directors shall have the
authority to fix the compensation of Directors. The Directors may be paid their
expenses, if any, of attendance at each meeting of the Board of Directors and
may be paid a fixed sum for attendance at each meeting of the Board of Directors
or a stated salary as Director. No such payment shall preclude any Director from
serving the corporation in any other capacity and receiving compensation
therefor. Members of special or standing committees may be allowed like
compensation for attending committee meetings.
SECTION 3.17. Holders of Preferred Stock. Notwithstanding the
foregoing, whenever the holders of any one or more classes or series of
Preferred Stock issued by the corporation shall have the right, voting
separately by class or series, to elect Directors at an annual or special
meeting of Shareholders, the election, term of office, filling of vacancies and
other features of such directorships shall be governed by the terms of the
certificate of incorporation applicable thereto (including the resolutions
adopted by the Board of Directors pursuant to Article FIVE of the certificate of
incorporation), and such Directors so elected shall not be divided into classes
pursuant to these bylaws unless expressly provided by such terms.
ARTICLE IV
Notices - Waivers
SECTION 4.01. Notice, What Constitutes. Whenever, under the provisions
of the statutes of Oklahoma or the certificate of incorporation or of these
bylaws, notice is required to be given to any Director or Shareholder, it may be
given in writing, by (i) mail or nationally recognized commercial delivery
service, addressed to such Director or Shareholder, at his address as it appears
on the records of the corporation, with postage or other charges thereon
prepaid, or (ii) confirmed facsimile, addressed to such Director or Shareholder,
at his facsimile number as it appears on the records of the corporation. Notice
given in accordance with this provision shall be deemed to be given at the time
when the same shall be deposited in the United States mail or with such a
delivery service or transmitted by via confirmed facsimile. Notice to Directors
of special meetings must be given in accordance with Section 3.10 of Article III
hereof.
SECTION 4.02. Waivers of Notice. Whenever any notice is required to be
given under the provisions of the certificate of incorporation, these bylaws, or
by statute, a waiver thereof in writing, signed by the person or persons
entitled to such notice, whether before or after the time stated therein, shall
be deemed equivalent to the giving of such notice. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the
Shareholders, Directors, or members of a committee of Directors need be
specified in any written waiver of notice of such meeting unless so required by
the certificate or incorporation or these bylaws. Attendance by a person, either
in person or by proxy, at any meeting, shall constitute a waiver of notice of
such meeting, except where a person attends a meeting for the express purpose of
objecting to the transaction of any business because the meeting was not
lawfully called or convened.
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ARTICLE V
Officers
SECTION 5.01. Number, Qualifications and Designation. The officers of
the corporation shall be chosen by the Board of Directors and shall be a
President, Secretary and such other officers as may be elected in accordance
with the provisions of Section 5.03 of this Article. One person may hold more
than one office. Officers may be, but need not be, Directors or Shareholders of
the corporation.
SECTION 5.02. Election and Term of Office. The officers of the
corporation, except those elected by delegated authority pursuant to Section
5.03 of this Article, shall be elected by the Board of Directors, and each such
officer shall hold his office at the pleasure of the Board of Directors and
until his successor shall have been elected and shall qualify, or until his
earlier death, resignation or removal. Any officer may resign at any time upon
written notice to the corporation or may be removed, with or without cause, by
the Board of Directors.
SECTION 5.03. Other Officers, Committees and Agents. The Board of
Directors may from time to time elect such other officers, including without
limitation a Chairman of the Board of Directors, a Vice Chairman of the Board of
Directors, a Treasurer and one or more Vice Presidents, Assistant Secretaries
and Assistant Treasurers, and appoint such committees, employees and other
agents as it deems necessary, who shall hold their offices for such terms and
shall exercise such powers and perform such duties as are provided in these
bylaws, or as the Board of Directors may from time to time determine. The Board
of Directors may delegate to any officer or committee the power to elect
subordinate officers and to retain or appoint employees or other agents, or
committees thereof, and to prescribe the authority and duties of such
subordinate officers, committees, employees or other agents.
SECTION 5.04. Chairman of the Board and Vice Chairman. The Chairman of
the Board of Directors, if any, shall preside at all meetings of the Board of
Directors. He may sign, with the Secretary or any other proper officer of the
corporation, thereunto authorized by the Board of Directors, and deliver on
behalf of the corporation any deeds, mortgages, bonds, contracts, powers of
attorney, and other instruments which the Board of Directors has authorized to
be executed, except in cases where the signing and execution thereof shall be
expressly delegated by the Board of Directors or by these bylaws to some other
officer or agent of the corporation or shall be required by law to be otherwise
signed or executed, and he shall perform such other duties as may be prescribed
by the Board of Directors from time to time. The Vice Chairman, if any, shall,
at the request of the Chairman or in his absence or disability, perform the
duties and exercise the powers of the Chairman, and shall perform such other
duties as the Board of Directors shall prescribe.
SECTION 5.05. President. Unless otherwise designated by the Board of
Directors, the President shall be the chief executive and chief operating
officer of the corporation and shall have general charge and active management
of the business, properties and operations of the corporation and shall see that
all orders and resolutions of the Board of Directors are carried into effect. He
shall preside at all meetings of the Shareholders and, if there is no Chairman
or Vice Chairman of the Board, or in their absence, all meetings of the Board of
Directors. He shall possess the power to execute and acknowledge, in the name
and under the seal of the corporation, deeds, mortgages, bonds, contracts,
certificates and other instruments authorized by the Board of Directors, except
as may be otherwise provided or required by law, and except as may be expressly
delegated by the Board of Directors, or by these bylaws. He may employ all
agents and employees of the corporation and may discharge any such agent or
employee, and, in general, shall perform all duties incident to the office of
President, and such other duties as from time to time may be assigned to him by
the Board of Directors.
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SECTION 5.06. Vice Presidents. Any Vice President shall, at the request
of the President or in his absence or disability, perform the duties and
exercise the powers of the President and such other duties as may from time to
time be assigned by the Board of Directors or by the President. At the
discretion of the Board of Directors, one or more Vice Presidents may be
designated as an Executive Vice President or Senior Vice President.
SECTION 5.07. Secretary and Assistant Secretaries. Unless otherwise
directed by the Board of Directors, the Secretary shall attend all meetings of
the Shareholders and of the Board of Directors and shall record the proceedings
of the Shareholders and of the Directors and of committees of the Board in a
book or books to be kept for that purpose; see that notices are given and
records and reports properly kept and filed by the corporation as required by
law; be the custodian of the seal of the corporation and see that it is affixed
to all documents to be executed on behalf of the corporation under its seal;
and, in general, perform all duties incident to the office of Secretary, and
such other duties as may from time to time be assigned to him by the Board of
Directors or the President. Any Assistant Secretary shall, at the request of the
Secretary or in his absence or disability, perform the duties and exercise the
powers of the Secretary and shall perform such other duties as the Board of
Directors or the President shall prescribe.
SECTION 5.08. Treasurer and Assistant Treasurers. The Treasurer, if any
and unless otherwise designated by the Board of Directors, shall be the chief
financial officer of the corporation. The Treasurer shall have or provide for
the custody of the funds or other property of the corporation; whenever so
required by the Board of Directors, shall render an account showing his
transactions as Treasurer and the financial condition of the corporation; and,
in general, shall discharge such other duties as may from time to time be
assigned to him by the Board of Directors or the President. Any Assistant
Treasurer shall, at the request of the Treasurer or in his absence or
disability, perform the duties and exercise the powers of the Treasurer and
shall perform such other duties as the Board of Directors or the President shall
prescribe. If no Treasurer is elected, the President or such other officer
designated by the Board of Directors shall have the authority and perform the
duties of the Treasurer.
SECTION 5.09. Officers' Bonds. No officer of the corporation need
provide a bond to guarantee the faithful discharge of his duties unless the
Board of Directors shall by resolution so require a bond in which event such
officer shall give the corporation a bond (which shall be renewed if and as
required) in such sum and with such surety or sureties as shall be satisfactory
to the Board of Directors for the faithful performance of the duties of his
office.
SECTION 5.10. Compensation. The compensation of the officers and agents
of the corporation elected by the Board of Directors shall be fixed from time to
time by the Board of Directors. Any employment contract, whether for an officer,
agent or employee, if expressly approved or specifically authorized by the Board
of Directors, may fix a term of employment, and any such contract, but only if
so approved or authorized, shall be valid and binding upon the corporation in
accordance with the terms thereof; provided, however, this provision shall not
limit or restrict in any way the right of the corporation at any time in its
discretion (which right is hereby expressly reserved) to remove from office,
discharge or terminate the employment or otherwise dispense with the services of
any such officer, agent or employee, as provided in these bylaws, prior to the
expiration of the term of employment under any such contract, provided only that
the corporation shall not thereby be relieved of any continuing liability for
salary or other compensation provided for in such contract.
SECTION 5.11. Action with Respect to Securities of Other Corporations.
Unless otherwise directed by the Board of Directors, the Chairman of the Board
of Directors, if any, the President or any Vice President of the corporation
shall have power to vote and otherwise act on behalf of the corporation, in
person or by proxy, at any meeting of security holders, or with respect to any
action of security holders, of any other corporation in which the corporation
may hold securities and shall have power to exercise any and all rights
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and powers which the corporation may possess by reason of its ownership of
securities in such other corporation.
ARTICLE VI
Capital Stock
SECTION 6.01. Issuance. The Directors may, at any time and from time to
time, if all of the shares of capital stock which the corporation is authorized
by the certificate of incorporation to issue have not been issued, subscribed
for, or otherwise committed to be issued, issue or take subscriptions for
additional shares of its capital stock up to the amount authorized in the
certificate of incorporation. Unless otherwise provided by the certificate of
incorporation or these bylaws, the Board of Directors may provide by resolution
that some or all of any or all classes and series of the shares of capital stock
of the corporation shall be uncertificated shares, provided that such resolution
shall not apply to shares represented by a certificate until such certificate is
surrendered to the corporation. The stock certificates of the corporation shall
be numbered and registered in the stock ledger and transfer books of the
corporation as they are issued. The Board of Directors may also appoint one or
more transfer agents and/or registrars for its stock of any class or classes and
for the transfer and registration of certificates representing the same and may
require stock certificates to be countersigned by one or more of them. They
shall be signed by the Chairman or Vice Chairman of the Board of Directors or
the President or a Vice President and attested by the Secretary or an Assistant
Secretary or the Treasurer or an Assistant Treasurer, and shall bear the
corporate seal, which may be a facsimile, engraved or printed. Any or all of the
signatures upon such certificate may be a facsimile, engraved or printed. In
case any officer, transfer agent or registrar who has signed, or whose facsimile
signature has been placed upon, any share certificate shall have ceased to be
such officer, transfer agent or registrar, before the certificate is issued, it
may be issued with the same effect as if he were such officer, transfer agent or
registrar at the date of its issue.
SECTION 6.02. Regulations Regarding Certificates. Except as otherwise
provided by law, the Board of Directors shall have the power and authority to
make all such rules and regulations as it may deem expedient concerning the
issuance, transfer and registration or the replacement of certificates for
shares of capital stock of the corporation.
SECTION 6.03. Stock Certificates. Stock certificates of the corporation
shall be in such form as is provided by statute and approved by the Board of
Directors. The stock record books and the blank stock certificate books shall be
kept by the Secretary of the corporation or by any agency designated by the
Board of Directors for that purpose.
SECTION 6.04. Lost, Stolen, Destroyed or Mutilated Certificates. The
President or, at his direction, a Vice President may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the corporation alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen or destroyed. When authorizing such
issue of a new certificate or certificates, the President or such Vice President
may, in his discretion and as a condition precedent to the issuance thereof,
require the owner of such lost, stolen or destroyed certificate or certificates,
or his legal representative, to give the corporation a bond in such sum as the
President or such Vice President may direct as indemnity against any claim that
may be made against the corporation with respect to the certificate alleged to
have been lost, stolen or destroyed.
SECTION 6.05. Record Holder of Shares. The corporation shall be
entitled to recognize the exclusive right of a person registered on its books as
the owner of shares to receive dividends, and to vote as such owner, and to hold
liable for calls and assessments a person registered on its books as the owner
of shares, and shall not be bound to recognize any equitable or other claim to
or interest in such share or
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shares on the part of any other person, whether or not it shall have express or
other notice thereof, except as otherwise provided by the laws of Oklahoma.
Shares standing in the name of a deceased person may be voted by his
administrator, or executor, either in person or by proxy. Shares standing in the
name of a guardian, conservator, or trustee may be voted by such fiduciary,
either in person or by proxy. Shares standing in the name of a receiver may be
voted by such receiver, and shares held by or under the control of a receiver
may be voted by such receiver without the transfer thereof into his name if
authority to do so be contained in an appropriate order of the Court by which
such receiver was appointed.
SECTION 6.06. Determination of Shareholders of Record for Voting at
Meetings. In order that the corporation may determine the Shareholders entitled
to notice of or to vote at any meeting of Shareholders or any adjournment
thereof, or for the purpose of any other lawful action, the Board of Directors
may fix, in advance, a record date, which shall not be more than sixty (60) nor
less than ten (10) days before the date of such meeting, nor more than sixty
(60) days prior to any other action. If no record date is fixed by the Board of
Directors, the record date for determining Shareholders entitled to notice of or
to vote at a meeting of Shareholders shall be at the close of business on the
day next preceding the day on which notice is given, or, if notice is waived, at
the close of business on the day next preceding the day on which the meeting is
held. A determination of Shareholders of record entitled to notice of or to vote
at a meeting of Shareholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
SECTION 6.07. Determination of Shareholders of Record for Dividends and
Distributions. In order that the corporation may determine the Shareholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the Shareholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, the Board of Directors may fix a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted, and which record date shall be not
more than sixty (60) days prior to such action. If no record date is fixed, the
record date for determining Shareholders for any such purpose shall be at the
close of business on the day on which the Board of Directors adopts the
resolution relating thereto.
SECTION 6.08. Determination of Shareholders of Record for Written
Consent. In order that the corporation may determine the Shareholders entitled
to consent to corporate action in writing without a meeting, the Board of
Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors, and which date shall not be more than ten (10) days after the date
upon which the resolution fixing the record date is adopted by the Board of
Directors. If no record date has been fixed by the Board of Directors, the
record date for determining Shareholders entitled to consent to corporate action
in writing without a meeting, when no prior action by the Board of Directors is
required by statute, shall be the first date on which a signed written consent
setting forth the action taken or proposed to be taken is delivered to the
corporation by delivery to its registered office in Oklahoma, its principal
place of business, or an officer or agent of the corporation having custody of
the book in which proceedings of meetings of Shareholders are recorded. Delivery
made to a corporation's registered office shall be by hand or by certified or
registered mail, return receipt requested. If no record date has been fixed by
the Board of Directors, when prior action by the Board of Directors is required
by statute, the record date for determining Shareholders entitled to consent to
corporate action in writing without a meeting shall be at the close of business
on the day on which the Board of Directors adopts the resolution taking such
prior action.
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ARTICLE VII
Indemnification of Directors, Officers and
Other Authorized Representatives
SECTION 7.01. Indemnification of Authorized Representatives in Third
Party Proceedings. The corporation shall indemnify any person who was or is an
"authorized representative" of the corporation (which shall mean for purposes of
this Article VII a Director, Officer, employee or agent of the corporation, or a
person serving at the request of the corporation as a Director, Officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise) and who was or is a "party" (which shall include for purposes
of this Article VII the giving of testimony or similar involvement) or is
threatened to be made a party to any "third party proceeding" (which shall mean
for purposes of this Article VII 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 such person was or is an authorized representative of the corporation,
against expenses (which shall include for purposes of this Article VII
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such third party
proceeding if such person acted in good faith and in a manner such person
reasonably believed to be in, or not opposed to, the best interests of the
corporation and, with respect to any criminal third party proceeding, had no
reasonable cause to believe such conduct was unlawful. The termination of any
third party proceeding by judgment, order, settlement, indictment, conviction or
upon a plea of nolo contendere or its equivalent, shall not of itself create a
presumption that the authorized representative did not act in good faith and in
a manner which such person reasonably believed to be in or not opposed to, the
best interests of the corporation, or, with respect to any criminal third party
proceeding, did not have reasonable cause to believe that such conduct was
unlawful.
SECTION 7.02. Indemnification of Authorized Representatives in
Corporate Proceedings. The corporation shall indemnify any person who was or is
an authorized representative of the corporation and who was or is a party or is
threatened to be made a party to any "corporate proceeding" (which shall mean
for purposes of this Article VII any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor or
investigative proceeding by the corporation) by reason of the fact that such
person was or is an authorized representative of the corporation, against
expenses (including attorneys' fees) actually and reasonably incurred by such
person in connection with the defense or settlement of such corporate proceeding
if such person acted in good faith and in a manner reasonably believed to be in,
or not opposed to, the best interests of the corporation, 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 a district court or the court in which such
corporate proceeding was pending shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such authorized representative is fairly and reasonably entitled to indemnity
for such expenses which the district court or such other court shall deem
proper.
SECTION 7.03. Mandatory Indemnification of Authorized Representatives.
To the extent that an authorized representative of the corporation has been
successful on the merits or otherwise in defense of any third party or corporate
proceeding referred to in Sections 7.01 or 7.02 above or in defense of any
claim, issue or matter therein, such person shall be indemnified against
expenses, including attorneys' fees, actually and reasonably incurred by such
person in connection therewith.
SECTION 7.04. Determination of Entitlement to Indemnification. Any
indemnification under Section 7.01, 7.02 or 7.03 of this Article VII (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 authorized
representative is proper in the circumstances because such person has met the
applicable standard of conduct set forth in Section 7.01, 7.02 or 7.03 of this
Article VII. Such determination shall be made:
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(1) By the Board of Directors by a majority of a quorum consisting
of Directors who were not parties to such action, suit or
proceeding; or
(2) If such a quorum is not obtainable, or, even if obtainable a
quorum of disinterested Directors so directs, by independent
legal counsel in a written opinion; or
(3) By the Shareholders.
SECTION 7.05. Burden of Proof. In the event a claim for indemnification
by an authorized representative is denied by the corporation (except for a claim
by a person described in Section 7.08 hereof), the corporation shall, in any
subsequent legal proceedings relating to such denial, have the burden of proving
that indemnification was not required under Section 7.01, 7.02 or 7.03 of these
bylaws without regard to Section 7.04 hereof or under any other agreement or
undertaking between the corporation and the authorized representative or was not
permitted under applicable law.
SECTION 7.06. Advancing Expenses. Expenses incurred by an Officer or
Director in defending a third party or corporate proceeding shall be paid by the
corporation in advance of the final disposition of such third party or corporate
proceeding upon receipt of an undertaking by or on behalf of such Officer or
Director to repay such amount if it shall ultimately be determined that such
person is not entitled to be indemnified by the corporation as authorized in
this Article VII. Such expenses incurred by other employees and agents may be so
paid upon such terms and conditions, if any, as the Board of Directors deems
appropriate.
SECTION 7.07. Employee Benefit Plans. For purposes of this Article VII,
the corporation shall be deemed to have requested an authorized representative
to serve an employee benefit plan where the performance by such person of duties
to the corporation also imposes duties on, or otherwise involves services by,
such person to the plan or participants or beneficiaries of the plan; excise
taxes assessed on an authorized representative with respect to an employee
benefit plan pursuant to applicable law shall be included within the meaning of
"fines"; and action taken or omitted by such person with respect to an employee
benefit plan in the performance of duties for a purpose reasonably believed to
be in the interest of the participants and beneficiaries of the plan shall be
deemed to be for a purpose which is not opposed to the best interests of the
corporation.
SECTION 7.08. Persons Other Than Authorized Representatives. The
corporation may, but is not required to, indemnify any person who is not also an
authorized representative if the determining group as specified in Section 7.04
(1), (2) or (3) determines that such indemnification is proper in the specific
case.
SECTION 7.09. Scope of Article. The indemnification of and advancement
of expenses to authorized representatives, as authorized by this Article VII,
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 Shareholders or disinterested Directors or otherwise, both as
to action in an official capacity and as to action in another capacity while
holding such office.
SECTION 7.10. Reliance on Provisions. Each person who shall act as an
authorized representative of the corporation shall be deemed to be doing so in
reliance upon rights of indemnification provided by this Article VII, and the
provisions of this Article VII shall be deemed a contract between the
corporation and the authorized representative.
SECTION 7.11. Insurance. The corporation shall have the power to, but
shall not be obligated to, purchase and maintain insurance on behalf of any
person who is or was an authorized representative of the corporation, or is or
was serving at the request of the corporation as an authorized representative or
agent of another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against such person and incurred by
such person in any such capacity, or arising out of such person's status as
such,
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whether or not the corporation would have the power to indemnify such person
against such liability under the provisions of this Article VII.
SECTION 7.12. Rights Continue. The indemnification and advancement of
expenses provided by or granted pursuant to this Article VII, unless otherwise
provided when authorized or ratified, shall continue as to a person who has
ceased to be an authorized representative and shall inure to the benefit of the
heirs, executors and administrators of such a person.
SECTION 7.13. References to Corporation. For purposes of this Article
VII, references to "the corporation" shall be deemed to include all constituent
corporations absorbed in a consolidation or merger as well as the resulting or
surviving corporation so that any person who is or was a Director, Officer,
employee or agent of such a 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 enterprise
shall stand in the same position under the provisions of this Article VII with
respect to the resulting or surviving corporation in the same capacity.
ARTICLE VIII
General Provisions
SECTION 8.01. Dividends. Subject to the provisions of the certificate
of incorporation, if any, dividends upon the capital stock of the corporation
may be declared by the Board of Directors at any regular or special meeting, in
accordance with law. Dividends may be paid in cash, in property, or in shares of
the capital stock of the corporation, subject to the provisions of the
certificate of incorporation. Before payment of any dividend, there may be set
aside out of any funds of the corporation available for dividends such sum or
sums as the Board of Directors from time to time, in its absolute discretion,
thinks proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the corporation, or
for such other purpose as the Board of Directors shall think conducive to the
interest of the corporation, and the Board of Directors may modify or abolish
any such reserve in the manner in which it was created.
SECTION 8.02. Annual Statements. The Board of Directors shall present
at each annual meeting, and at any special meeting of the Shareholders when
called for by vote of the Shareholders, a full and clear statement of the
business and condition of the corporation.
SECTION 8.03. Contracts. The Chairman of the Board of Directors, the
President or a Vice President of the corporation shall sign, in the name and on
behalf of the corporation, all deeds, bonds, contracts, mortgages and other
instruments, the execution of which shall be authorized by the Board of
Directors; provided, however, that the Board of Directors may authorize any
other officer or officers or any agent or agents to sign in the name and on
behalf of the corporation, any such deed, bond, contract, mortgage or other
instrument. Such authority may be general or confined to specific instances.
SECTION 8.04. Checks. All checks, notes, bills of exchange or other
orders in writing shall be signed by such person or persons as the Board of
Directors may from time to time designate.
SECTION 8.05. Corporate Seal. The corporate seal shall have inscribed
thereon the name of the corporation and the state of its incorporation. The seal
may be used by causing it or a facsimile thereof to be impressed or affixed or
otherwise reproduced.
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SECTION 8.06. Lien on Shares of Capital Stock For Indebtedness to the
Corporation. The corporation shall have a lien upon all shares of capital stock
issued and outstanding for any indebtedness of the owner to the corporation and
no transfer of any certificate for shares shall be made on the books of the
corporation until such indebtedness of the owner or transferor has been paid,
unless specifically authorized by the Board of Directors.
SECTION 8.07. Amendment of Bylaws. These bylaws may be altered, amended
or repealed or new bylaws may be adopted by the Shareholders or by the Board of
Directors, when such power is conferred upon the Board of Directors by the
certificate of incorporation, at any regular or special meeting of the
Shareholders or of the Board of Directors, if notice of such alteration,
amendment, repeal or adoption of new bylaws be contained in the notice of such
special meeting.
Chris K. Corcoran, Secretary of The Home-Stake Oil & Gas Company,
hereby certifies that the foregoing Amended and Restated Bylaws were unanimously
approved and adopted by the Board of Directors of The Home-Stake Oil & Gas
Company at a quarterly meeting of the Board held on February 5, 1998.
/s/Chris K. Corcoran
------------------------
Chris K. Corcoran
Secretary
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THE HOME-STAKE OIL & GAS COMPANY
KEY EMPLOYEE INCENTIVE BONUS PLAN
(Amended and Restated as of January 1, 1998)
In order to attract and retain competent professional personnel to manage the
affairs of the companies, the Boards of Directors of The Home-Stake Oil & Gas
Company (the "Company") and The Home-Stake Royalty Corporation ("HSRC")
originally adopted a Key Employee Incentive Bonus Plan (KEIB). As a result of
the merger of HSRC with and into the Company, the KEIB has been amended and
restated as follows:
Key employee bonuses will be paid based upon a combination of individual
performance and long-term corporate reserve growth. The individual performance
portion of the bonus will be determined in the following manner. Each eligible
employee will receive a "position factor" (PF). In addition, each will receive
an annual "performance rating" (PFR) for his/her work during the year. (These
ratings will be determined by the Company's President for all key employees
except the Chief Executive Officer and/or President. His/their ratings will be
determined by the Compensation Committee of the Board of Directors each year).
The performance portion of the annual bonus will be the PF times the PFR times
15% of the annual salary.
The reserve portion of the annual bonus will be the PF times the "percentage of
reserves restored" (%RR) times 15% of the annual salary. The %RR will be the sum
of the total equivalent barrels of oil (with gas converted to oil @ 6:1)
discovered and acquired during the year, divided by the equivalent barrels of
oil produced during the year.
Total bonus per key employee will be the sum of the performance bonus and the
reserve bonus. If the total of all bonuses exceeds the KEIB Fund, then all
bonuses will be reduced proportionally based on total calculated bonuses.
A "KEIB Fund" shall be the "CAP", or maximum of the sum of the total of all key
employee bonuses paid in one year, and shall be equal to 3% of "net cash
provided by operating activities" (determined without regard to bonuses) less
any repayments of debt. Such amounts will be determined from the Statements of
Cash Flows which appears as a part of the Company's audited financial
statements.
This is a two part plan designed to provide the key employees with a bonus based
upon i) his/her performance during the year, and ii) the amount of reserves
restored during the year. The formula is as follows:
KEIB....... = Performance Bonus + Reserve Bonus
Performance Bonus....... = Annual Salary paid in year x PF x PFR x 15%
Reserves Bonus....... = Annual Salary paid in year x PF x %RR x 15%
Example - Calculation of Bonus Fund "CAP"
Net cash provided by operating activities.............. $6,000,000
Less debt payments..................................... 800,000
-----------
Net.................................................... $5,200,000
Key Employee Incentive Bonus Fund @ 3%................. $ 156,000
==========
<PAGE>
KEIB EXPLANATIONS
Postion Factor (PF) - This factor is reviewed annually and is based upon i) job
significance in relation to reserve restoration, ii) past performance, and iii)
longevity in position.
EXAMPLE
Employee A.................................... .90
Employee B.................................... .90
Employee C.................................... 1.00
Employee D.................................... .95
Employee E.................................... 1.00
Employee F.................................... 1.00
Employee G.................................... .85
Employee H.................................... 1.00
Performance Rating (PFR) - This is an evaluation of the individual's performance
throughout the year shown as a percent, as follows:
25% - Fair performance (the individual did his/her job).
50% - Good performance (the individual did more than was required by
his/her job).
85% to 100% - Outstanding (never needed day-to-day supervision and was
exemplary in his/her daily job execution).
Percentage of Reserves Restored (%RR) - Total equivalent barrels of oil (with
gas converted to oil @ 6:1) discovered and acquired, divided by the total
equivalent barrels of oil produced during the year.
Fund Limitation - Example in the event the calculated bonuses exceed the KEIB
Fund.
Calculated Adjusted
Name Bonus Adjustment Bonus
Employee A $ 30,000 $(1,429) $ 28,571
Employee B 20,000 (952) 19,048
Employee C 14,000 (667) 13,333
Employee D 15,000 (714) 14,286
Employee E 11,000 (524) 10,476
Employee F 12,000 (571) 11,429
Employee G 10,000 (476) 9,524
Employee H 14,000 (667) 13,333
-------- -------- --------
$126,000 $ 6,000 $120,000
======== ======== ========
KEIB Fund Limitation: $120,000
<PAGE>
- ------------------------------------------------------------------------------
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
Between
The Home-Stake Oil & Gas Company
and
Robert C. Simpson
Effective as of February 5, 1998
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<PAGE>
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
This Amended and Restated Employment Agreement (this "Agreement") is
amended and restated effective this 5th day of February, 1998, by and among The
Home-Stake Oil & Gas Company, an Oklahoma corporation (the "Company"), and
Robert C. Simpson (the "Executive").
WITNESSETH:
WHEREAS, on October 23, 1991, the Company and the Executive executed an
Employment Agreement (the "Original Employment Agreement"), effective as of
November 15, 1991; and
WHEREAS, the Company and the Executive desire to change certain terms
and provisions of the Original Employment Agreement and to amend and restate the
same;
NOW THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties do hereby amend and restate the Original Employment
Agreement to read as follows:
1. Introduction. The Executive is currently the Chief Executive
Officer, President and Treasurer of the Company. The Company believes that
retaining the Executive's services as an employee of the Company and the benefit
of his business experience are of material importance. The Company desires to
encourage the Executive to continue in the employ of the Company for the benefit
of the Company and its stockholders. Therefore, the Company and the Executive
intend by this Agreement to specify the terms and conditions of the Executive's
employment relationship with the Company.
2. Employment. The Company hereby employs the Executive and the
Executive hereby accepts employment with the Company upon the terms and subject
to the conditions set forth herein.
3. Term. This Agreement shall commence on the effective date of this
Agreement and shall continue until terminated.
4. Duties and Responsibilities.
(a) The Executive shall serve the Company as Chief Executive
Officer, President and Treasurer and shall perform, faithfully and
diligently, the services and functions relating to such offices.
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(b) The Executive shall devote such of his entire time,
attention, energies and business efforts to his duties as an executive
of the Company as are reasonably necessary to carry out his duties
specified in Section 4(a). The Executive shall not engage in any other
business activity (regardless of whether such business activity is
pursued for gain, profit or other pecuniary advantage) if such business
activity would impair the Executive's ability to carry out his duties
hereunder. This Section 4(b), however, shall not be construed to
prevent the Executive from (i) investing his personal assets as a
passive investor in such form or manner as will not contravene the best
interests of the Company, (ii) participating in various charitable
efforts, or (iii) serving as a director or member of a committee of any
organization when such position has previously been approved in writing
by the Board of Directors.
5. Compensation and other Employee Benefits.
As compensation for his services under the terms of this
Agreement:
(a) the Executive shall be paid an annual salary of
not less than $150,000, payable in accordance with the then
current payroll policies of the Company. Such annual salary is
herein referred to as the "Base Salary". The Base Salary shall
be reviewed annually by the Board of Directors and shall be
subject to increase in the sole discretion of the Board of
Directors.
(b) subject to the right of the Company to amend or
terminate any employee and/or group or executive benefit plan,
the Executive shall be entitled to receive the following
employee benefits:
(i) The Executive shall have the right to
participate in all current or future employee and/or
group benefit plans of the Company that are available
to its salaried employees generally (including,
without limitation, disability, accident, medical,
life insurance, parking and hospitalization plans);
(ii) The Executive shall have the right to
participate in all current executive benefit plans of
the Company, including but not limited to the
Company's Key Employee Incentive Bonus Plan and The
Home-Stake Oil & Gas Company Profit Sharing 401(k)
Plan, all in accordance with the Company's regular
practices with respect to its executive officers;
(iii) The Executive shall be entitled to
reimbursement from the Company for reasonable
out-of-pocket expenses incurred by him in the course
of the performance of his duties hereunder;
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(iv) In order to promote the interests of
the Company, the Executive shall be entitled to
reimbursement from the Company for all monthly dues
incurred by him in connection with his membership in
Southern Hills Country Club;
(v) The Executive shall have the right to
participate in any Company oil, gas or mineral
property acquisition in accordance with the Company's
policy as it may exist from time to time regarding
employee participation in such acquisitions;
(vi) The Executive shall be entitled to such
vacation, holidays and other paid or unpaid leaves of
absence as are consistent with the Company's normal
policies or as are otherwise approved by the Board of
Directors; and
(vii) The Executive shall be entitled to the
use of an automobile with the costs thereof,
including acquisition cost of up to $30,000,
insurance, license tag and maintenance (excluding
gas) to be borne by the Company. In the event the
Executive's employment with the Company is terminated
for any reason, he shall have the right to purchase
the Company automobile he is then using for the
lesser of its then book value after depreciation as
shown on the books and records of the Company or its
fair market value.
6. Termination of Employment.
(a) Due Cause. Nothing herein shall prevent the Company from
terminating the Executive for "Due Cause" (as hereinafter defined), in
which event the Executive shall be entitled to receive his Base Salary
on a pro rata basis to the date of termination. In the event of such
termination for Due Cause, all other rights and benefits the Executive
may have under the employee and/or group or executive benefit plans and
programs of the Company, generally, shall be determined in accordance
with the terms and conditions of such plans and programs. The term "Due
Cause" shall mean (i) the Executive has committed a willful criminal
act, such as embezzlement, against the Company intending to enrich
himself at the expense of the Company, (ii) the Executive has engaged
in conduct that has caused serious injury, monetary or otherwise, to
the Company as evidenced by a binding and final judgment, order or
decree of a court or administrative agency of competent jurisdiction in
effect after exhaustion of all rights of appeal of the action, suit or
proceeding, (iii) the Executive, in carrying out his duties hereunder,
has been guilty of gross neglect or gross misconduct, resulting in
either case in material harm to the Company, or (iv) the Executive
fails to carry out his duties in gross dereliction of duty and, after
receiving notice to such effect from the Board of Directors, the
Executive fails to cure the existing problem within 30 days.
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(b) Death. In the event of the death of the Executive, this
Agreement [other than this Section 6(b)] shall terminate on the date of
death and the estate of the Executive shall be entitled to (i) the
Executive's Base Salary through the end of the month in which he died,
(ii) a cash payment equal to the pro rata portion (calculated through
the end of the month in which he died) of the annual bonus, if any, due
the Executive in respect of the calendar year in which his death
occurs, and (iii) a continuation, for one year, of the Executive's most
recent Base Salary. In the event of such termination due to death, all
other rights and benefits the Executive (or his estate) may have under
the employee and/or group or executive benefit plans and programs of
the Company, generally, as permitted by law, shall be determined in
accordance with the terms and conditions of such plans and programs.
(c) Disability.
(1) For purposes of this Agreement, "Disability"
shall mean the inability or incapacity of the Executive for
six months to perform the duties and responsibilities related
to the job or position with the Company described in Section
4(a), and "the date on which the Disability occurs" shall mean
the first day following such six month period. Such inability
or incapacity shall be documented to the reasonable
satisfaction of the Board of Directors by appropriate
correspondence from registered physicians reasonably
satisfactory to the Board of Directors.
(2) In the event the Executive suffers a Disability,
this Agreement (other than this Section 6(c) and Sections 7
and 8) shall terminate on the date on which the Disability
occurs and the Executive shall be entitled to (i) his Base
Salary through the end of the month in which his employment is
terminated due to the Disability, (ii) a cash payment equal to
the pro rata portion (calculated through the end of the month
in which his employment is terminated due to Disability) of
the annual bonus, if any, due the Executive in respect of the
calendar year in which his Disability occurs, and (iii) a
continuation, for one year, of the Executive's most recent
Base Salary.
(d) Voluntary Termination. The Executive may voluntarily
terminate his employment under this Agreement at any time by providing
at least 90 days' prior written notice to the Company. In such event,
the Executive shall be entitled to receive his Base Salary until the
date his employment terminates and all other rights and benefits the
Executive may have under the employee and/or group or executive benefit
plans and programs of the Company, generally, shall be determined in
accordance with the terms and conditions of such plans and programs.
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(e) Constructive Termination.
(1) If the Company (i) terminates the employment of
the Executive other than for Due Cause or because of a
Disability, (ii) materially changes the Executive's function,
duties, or responsibilities, which change would cause the
Executive's position with the Company to become of less
dignity, responsibility, importance or scope than the position
and responsibilities held by the Executive immediately prior
to such change, (iii) decreases the Executive's Base Salary
below the level provided for by the terms of Section 5(a) or
reduces the employee benefits and perquisites below the level
provided for by the terms of Section 5(b) (other than as a
result of any amendment or termination of any employee and/or
group or executive benefit plan, which amendment or
termination is applicable to all executives of the Company),
or (iv) fails prior to the effectiveness of any succession
(whether direct or indirect, by purchase, merger,
consolidation or otherwise) to cause any successor to all or
substantially all of the business and/or assets of the Company
to expressly assume and agree to perform this Agreement in the
same manner and to the same extent that the Company would be
required to perform if no such succession had taken place,
then any such action by the Company, unless consented to in
writing by the Executive, shall be deemed to be a constructive
termination by the Company of the Executive's employment
("Constructive Termination").
(2) In the event of a Constructive Termination, this
Agreement (other than this Section 6(e) and Sections 7 and 8)
shall terminate on the date of Constructive Termination and
the Executive shall be entitled to (i) his Base Salary through
the end of the month in which the Constructive Termination
occurs, (ii) an amount equal to twice the Executive's most
recent Base Salary, and (iii) an amount equal to the sum of
the annual bonuses paid the Executive in each of the three
calendar years prior to the calendar year in which the
Constructive Termination occurs divided by three.
(3) Any amount payable to the Executive pursuant to
section 6(e)(2)(i) above shall be paid on the last day of the
month in which the Constructive Termination occurs. Any
amounts payable to the Executive pursuant to Sections
6(e)(2)(ii) or 6(e)(2)(iii) above shall be paid in one cash
payment within 30 days after the Constructive Termination
occurs.
(f) Termination from Change in Control.
(1) In the event any of the following occurs with
respect to the Company: (i) any individual, corporation,
partnership, group, association or other entity or "person",
as such term is defined in Section 14(d) of the Securities
Exchange Act of 1934 (the "Exchange Act"), is or becomes the
"beneficial owner" (as defined
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in Rule 13d-3 of the General Rules and Regulations under the
Exchange Act), directly or indirectly, of outstanding
securities of the Company having fifty percent (50%) or more
of the voting power of all classes of securities of the
Company having the right to vote at elections of directors,
(ii) the membership of the Board of Directors of the Company
is changed as a result of a contested election for Directors
so that the nominees for Directors in such election designated
by the then existing Board of Directors of the Company
together with the members of the existing Board of Directors
previously proposed by Management but not up for re-election
fail to constitute a majority of the persons comprising the
Board of Directors following such election, or (iii) merger,
liquidation, dissolution, consolidation, reorganization or
reverse stock split (as a result of any of which there is a
material change in the control of the Company), then any such
event shall be deemed to be a "Change in Control." In the
event a Constructive Termination occurs during or after a
Change in Control, a "Termination from Change in Control"
shall be deemed to have occurred.
(2) In the event of a Termination from Change in
Control, then, in lieu of the amount provided in Section
6(e)(2)(ii) above, the Executive shall be entitled to an
amount equal to three times the Executive's most recent Base
Salary. Such amount shall be paid in one cash payment within
30 days after the Termination from Change in Control shall
have occurred.
7. Effect of Death after Disability, Constructive Termination or
Termination from Change in Control. In the event of the death of the Executive
following Disability, Constructive Termination, or Termination from Change in
Control, any amounts owed pursuant to Sections 6(c)(2), 6(e)(2) and 6(f)(2) to
the Executive prior to his death shall continue to be owing and shall be paid to
the estate of the Executive.
8. Continuation of Rights under Plans. In the event of the Executive's
Disability, all rights and benefits the Executive may have under the employee
and/or group or executive benefit plans and programs of the Company, generally,
as permitted by law, shall be determined in accordance with the terms and
conditions of such plans and programs as though the Executive were still an
employee of the Company until the end of the period of continuation of the Base
Salary.
9. Notices. All notices, requests, demands and other communications
given under or by reason of this Agreement shall be in writing and shall be
deemed sufficiently given if delivered in person, sent by certified mail (return
receipt requested), postage prepaid, or delivered by a recognized commercial
courier to the following addresses (or to such other address as a party may
specify by notice pursuant to this provision):
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(a) To the Company:
The Home-Stake Oil & Gas Company
15 East 5th Street, Suite 2800
Tulsa, Oklahoma 74103
Attention: Mr. Chris K. Corcoran
Executive Vice President
(b) To the Executive:
Robert C. Simpson
4717 S. Wheeling Ave.
Tulsa, Oklahoma 74105
10. Controlling Law and Performability. The execution, validity,
interpretation and performance of this Agreement shall be governed by and
construed in accordance with the laws of the State of Oklahoma.
11. Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled by arbitration in Tulsa,
Oklahoma. In the proceeding, the Executive shall select one arbitrator, the
Company shall select one arbitrator and the two arbitrators so selected shall
select a third arbitrator. The decision of a majority of the arbitrators shall
be binding on the Executive and the Company. Should one party fail to select an
arbitrator within five days after notice of the appointment of an arbitrator by
the other party or should the two arbitrators selected by the Executive and the
Company fail to select an arbitrator within ten days after the date of the
appointment of the last of such two arbitrators, any person sitting as a Judge
of the United States District Court for the Northern District of Oklahoma, upon
application of the Executive or the Company, shall appoint an arbitrator to fill
such space with the same force and effect as though such arbitrator had been
appointed in accordance with the second sentence of this Section 11. Any
arbitration proceeding pursuant to this Section 11 shall be conducted in
accordance with the rules of the American Arbitration Association. Judgment may
be entered on the arbitrators' award in any court having jurisdiction.
12. Expenses. The Company shall pay or reimburse the Executive (or his
estate, as the case may be) for all costs and expenses (including arbitration
and court costs and attorneys fees) incurred by the Executive as a result of any
successful claim, action or proceeding arising out of, or challenging the
validity, advisability or enforceability of, this Agreement or any provision
hereof.
13. Entire Agreement and Amendments. This Agreement contains the entire
agreement of the Executive and the Company relating to the matters contained
herein and supersedes all prior agreements and understandings, oral or written,
between the Executive and the Company with
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respect to the subject matter hereof. This Agreement may be changed only by an
agreement in writing signed by the party against whom enforcement of any waiver,
change, modification, extension or discharge is sought.
14. Separability. If any provision of this Agreement is rendered or
declared illegal or unenforceable by reason of any existing or subsequently
enacted legislation or by the decision of any arbitrator or by decree of a court
of last resort, the Executive and the Company shall promptly meet and negotiate
substitute provisions for those rendered or declared illegal or unenforceable to
preserve the original intent of this Agreement to the extent legally possible,
but all other provisions of this Agreement shall remain in full force and
effect.
15. Effect of Agreement. This Agreement shall be binding upon the
Executive and his heirs, executors, administrators, legal representatives and
assigns and upon the Company and its respective successors and assigns. Failure
of the Company prior to the effectiveness of any succession (whether direct or
indirect, by purchase, assignment, merger, consolidation or otherwise) to cause
any successor to all or substantially all of the business and/or assets of the
Company to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform if
no such succession had taken place, shall entitle the Executive to certain
compensation from the Company as set forth in Section 6 of this Agreement.
16. Waiver of Breach. The waiver by either party to this Agreement of a
breach of any provision of this Agreement by the other party shall not operate
or be construed as a waiver by such party of any subsequent breach by such other
party.
IN WITNESS WHEREOF, the Executive and the Company have executed this
Agreement on the date first above written.
"EXECUTIVE" "COMPANY"
THE HOME-STAKE OIL & GAS COMPANY
/s/ Robert C. Simpson By /s/ Chris K. Corcoran
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Robert C. Simpson Chris K. Corcoran
Executive Vice President
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AMENDED AND RESTATED
CHANGE IN CONTROL
SEVERANCE PAY PLAN
OF THE HOME-STAKE OIL & GAS COMPANY
Amended and Restated effective the 5th day of February, 1998
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THIS AMENDED AND RESTATED CHANGE IN CONTROL SEVERANCE PAY PLAN OF THE
HOME-STAKE OIL & GAS COMPANY (the "Plan") amended and restated effective this
5th day of February, 1998, by THE HOME-STAKE OIL & GAS COMPANY (the "Company").
WITNESSETH:
WHEREAS, the Company adopted The Home-Stake Oil & Gas Company Change in
Control Severance Pay Plan (the "Original Plan") effective as of March 1, 1992;
and
WHEREAS, the Company adopted the Original Plan in recognition of the
possibility that the stock or assets of the Company may be acquired by an
unrelated entity, and that such possibility, and the uncertainty which it may
raise for the employees of the Company, could result in the departure or
distraction of employees of the Company to the detriment of the Company and its
shareholders; and
WHEREAS, the Board of Directors of the Company adopted the Original Plan to
encourage the continued attention and dedication of the employees of the Company
to their duties without distraction in the face of potential changes in control
of the Company; and
WHEREAS, the Company continues to desire to provide for severance pay in
the event of such change of control, pursuant to the terms and provisions of the
Plan; and
WHEREAS, in Section 5.6 of ARTICLE V of the Original Plan, the Company
reserved the right to modify or amend the Plan or any provision thereof at any
time; provided, however, that no such change should decrease any accrued benefit
after the occurrence of a Change in Control, as defined in the Original Plan;
and
WHEREAS, no such Change in Control has occurred; and
WHEREAS, the Company desires to change certain terms and provisions of the
Original Plan and to amend and restate the same;
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NOW THEREFORE, in consideration of the premises and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Company hereby amends and restates the Original Plan to read as follows:
ARTICLE I
DEFINITIONS
1.1. "Change in Control" shall mean that (A) all or substantially all of
the assets of the Company are sold, transferred, assigned to, or otherwise
acquired by any entity (or entities) which is unrelated to the ownership of the
Company; or (B) all or substantially all of the stock of the Company is sold,
transferred, assigned to, or otherwise acquired by any entity (or entities)
which is unrelated to the ownership of the Company, including, but not limited
to, a transfer by operation of law in a merger, consolidation or acquisition
involving the Company. The determination of whether (i) there is a transfer of
substantially all of the assets or stock of the Company and (ii) whether the
acquiring entity (or entities) is unrelated to the ownership of the Company
shall be within the sole discretion of the Board of Directors of the Company. A
Change in Control does not occur in the event that the Company makes a reduction
in the size of its Employee staff.
1.2. "Code" shall mean the Internal Revenue Code of 1986, as amended, and
successor tax laws.
1.3. "Committee" shall mean the persons designated by the Board of
Directors of the Company as the Administrative Committee for the Plan pursuant
to paragraph 4.1 of ARTICLE IV hereof.
1.4. "Company" shall mean The Home-Stake Oil & Gas Company, its successors
and assigns.
1.5. "Eligible Employee" shall mean any Employee, other than Robert C.
Simpson, who is receiving Salary for personal services rendered to the Company
(or who would be receiving such renumeration except for a Leave of Absence).
1.6. "Employee" shall mean any full-time, common law employee of the
Company and shall not include persons engaged as independent contractors.
1.7. "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended, and regulations issued pursuant thereto.
1.8. "Involuntary Termination of Employment" means the termination of an
Eligible Employee's employment with the Company, unless such termination of
employment is due to (a) death; (b) voluntary termination of employment by the
Eligible Employee; (c) total disability; or (d) the failure of the Eligible
Employee to satisfactorily perform his employment services or to comply with the
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policies and procedures of the Company, determined within the sole discretion of
the Committee, which failure existed immediately prior to the effective date of
a Change in Control. In addition, an Involuntary Termination of Employment does
not occur when (A) an Eligible Employee receives, but fails to accept, a
"reasonable alternative employment offer" from the unrelated entity that
acquires all or substantially all of the assets or stock of the Company or (B)
an Eligible Employee receives and accepts a "reasonable alternative employment
offer" and such employment with the acquiring entity continues for a period of
twelve (12) months from the date of commencement of such employment. A
"reasonable alternative employment offer" is an offer of employment by the
acquiring entity at a Salary equal to or greater than ninety percent (90%) of
the Salary of the Eligible Employee with the Company (determined immediately
prior to a Change in Control) and either (i) the distance between the location
of the Eligible Employee's employment with the Company and the location of the
employment offered by the acquiring entity is less than fifty (50) miles, or
(ii) the offer of employment from the acquiring entity includes a reasonable
transfer allowance (irrespective of whether such allowance is paid by the
Company or the acquiring entity). The determination of whether there is a
reasonable transfer allowance shall be within the sole discretion of the Board
of Directors of the Company.
1.9. "Leave of Absence" shall mean any absence authorized by the Company
under its standard personnel practices, provided that all persons under similar
circumstances shall be treated alike in the granting of such authorized Leave of
Absence.
1.10. "Plan" shall mean this Change in Control Severance Pay Plan as herein
set forth and as it may be further amended from time to time.
1.11. "Plan Administrator" shall mean the Chairman of the Administrative
Committee.
1.12. "Salary" shall mean the total salary which an Employee is paid or
entitled to be paid during any calendar year for the performance of duties for
the Company, determined immediately prior to a Change in Control. Salary shall
not include any retirement, bonus or fringe benefit amounts received by or paid
to or for the benefit of an Employee.
1.13. "Year of Vesting Service" shall mean a twelve-consecutive month
period of service with the Company, as determined under paragraph 1.44 of
ARTICLE I of The Home-Stake Oil & Gas Company Profit Sharing 401(k) Plan, as
amended from time to time. A copy of such paragraph 1.44 is attached hereto and
made a part hereof as Exhibit B.
ARTICLE II
SEVERANCE PAY CONDITION
2.1. Severance Pay Condition. Eligible Employees who sustain an Involuntary
Termination of Employment by reason of a Change in Control of the Company shall
be entitled to severance pay pursuant to the Plan. It is acknowledged that there
may be different dates on which Eligible Employees become entitled to severance
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pay under the Plan due to different dates of Involuntary Termination of
Employment.
ARTICLE III
SEVERANCE PAYMENT
3.1. Severance Pay. Eligible Employees who qualify for severance payment
pursuant to paragraph 2.1 of ARTICLE II hereof shall receive a cash payment of
severance pay in a single lump sum payment no later than the date of such
Eligible Employee's next regular Salary payment period (determined as if no
Involuntary Termination of Employment or Change in Control had occurred)
following such Involuntary Termination of Employment.
3.2. One Payment Only. In no event shall any Eligible Employee be entitled
to more than one (1) severance payment under the terms of the Plan.
3.3. Amount of Severance Pay. The following schedule, together with the
provisions of paragraphs 3.4 and 3.5 of this ARTICLE III, shall be used to
determine the amount of Salary to be received by an Eligible Employee who
qualifies for severance pay under paragraph 2.1 of ARTICLE II hereof, based on
the Eligible Employee's Years of Vesting Service with the Company at the time of
an Involuntary Termination of Employment.
Years of Vesting Service Severance Pay Amount
------------------------- ------------------------------------
Less than five (5) years One-half (1/2) month's Salary
for each Year of Vesting Service but
no less than one (1) month's Salary
Five (5) years or more One (1) month's Salary
for each Year of Vesting Service
3.4. Additional Severance Pay for Department Managers. The Department
Managers listed in Exhibit A attached hereto and made a part hereof shall, in
addition to the severance pay provided under paragraph 3.3 of this ARTICLE III,
receive one (1) year's Salary as additional severance pay.
3.5. Minimum and Maximum Severance Pay. Notwithstanding the other
provisions of this ARTICLE III, the minimum amount of the severance payment
pursuant to the Plan shall be one (1) month's Salary and the maximum amount
shall be the lesser of (A) three (3) years' Salary or (B) One Dollar ($1.00)
less than the amount which would cause an Eligible Employee to be subject to the
excise tax imposed by Section 4999 of the Code. The Committee shall determine in
good faith whether any reduction in severance pay is required hereunder by
reason of the provisions of Sections 4999 and 280G of the Code and such
determination shall be conclusive and binding on the affected Eligible Employee.
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To the extent that any payments are received under this Plan which would cause
an Eligible Employee to be subject to the excise tax imposed by Section 4999 of
the Code, the Eligible Employee shall immediately repay such excess to the
Company upon notice that such excess amount has been paid.
ARTICLE IV
ADMINISTRATION
4.1. Administrative Committee. The Board of Directors of the Company shall
appoint a Committee for the administration of the Plan consisting of one or more
persons. Any Committee member may, but need not, be a Director, officer or
Employee of the Company and each shall serve until his successor shall be
appointed in like manner. Any member of the Committee may resign by delivering
his written resignation to the Board of Directors of the Company. The Board of
Directors may remove any member of the Committee at any time.
4.2. Powers and Duties. The Committee shall be the "Named Fiduciary" of the
Plan and generally shall be responsible for the management, operation,
interpretation and administration of the Plan. The Committee shall:
(a) Establish procedures for allocation of responsibilities of the
Plan which are not allocated herein;
(b) Determine the names of those Employees who are eligible to
participate and such other matters as may be necessary to enable payment
under the Plan;
(c) Construe all terms, provisions, conditions and limitations of the
Plan;
(d) Correct any defect, supply any omission or reconcile any
inconsistency that may appear in the Plan, in such manner and to such
extent as it shall deem expedient to carry the Plan into effect for the
greatest benefit of all interested parties;
(e) Determine the amount, manner and time of payment of any benefits
hereunder and prescribe procedures to be followed by Eligible Employees to
obtain benefits; and
(f) Perform such other functions and take such other actions as may be
required by the Plan or as may be necessary or advisable to accomplish the
purposes of the Plan.
The Company shall furnish the Committee with all data and information available
which the Committee may reasonably require in order to perform its functions
hereunder. The Committee may rely without question upon any such data or
information furnished by the Company.
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4.3. Agents. The Committee may appoint a Secretary who may, but need not,
be a member of the Committee, and may employ such agents for clerical and other
services, and such counsel, accountants and other professional advisors as may
be required for the purpose of administering the Plan. The Committee may rely on
all tables, valuations, reports, certificates and opinions furnished by its
agents.
4.4. Procedures. A majority of the Committee members shall constitute a
quorum for the transaction of business. No action shall be taken except upon a
majority vote of the Committee. An individual shall not vote or decide upon any
matter relating solely to himself or vote in any case in which his individual
right or claim to any benefit under the Plan is particularly involved. In any
case in which a Committee member is so disqualified to act, and the remaining
members cannot agree on an issue, the Board of Directors of the Company shall
appoint a temporary substitute member to exercise all of the powers of the
disqualified member concerning the matter in which he is disqualified.
4.5. Plan Administrator. The Chairman of the Administrative Committee shall
serve as Plan Administrator for the Plan and shall:
(a) Communicate decisions, instructions and other information to
Employees;
(b) File and distribute all reports, disclosures, Plan registrations,
Summary Plan descriptions and other information required to be filed or
distributed by law or by the terms of the Plan;
(c) Have such other duties as are imposed by the Plan; and
(d) Be the agent for service of legal process with respect to the
Plan.
4.6. Claims Procedure. In the event that any Employee or beneficiary claims
to be entitled to benefits under the Plan and the Committee determines that such
claim should be denied in whole or in part, the Committee shall, in writing,
notify such claimant within ninety (90) days of receipt of such claim that his
claim has been denied, setting forth the specific reasons for such denial. Such
notification shall be written in a manner reasonably expected to be understood
by such Employee or beneficiary and shall set forth the pertinent sections of
the Plan relied on, and where appropriate, an explanation of how the claimant
can obtain review of such denial.
Within sixty (60) days after the mailing or delivery by the Committee of
such notice, such claimant may request, by mailing or delivery of written notice
to the Committee, a review and/or hearing by the Committee of the decision
denying the claim. If the claimant fails to request such a review and/or hearing
within such sixty (60) day period, it shall be conclusively determined for all
purposes of this Plan that the denial of such claim by the Committee is correct.
If such claimant requests a hearing within such sixty (60) day period, the
Committee shall designate a time (which time shall not be less than seven (7)
nor more than sixty (60) days from the date of such claimant's notice to the
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Committee) and a place for such hearing, and shall promptly notify such claimant
of such time and place. A claimant or his authorized representative shall be
entitled to inspect all pertinent Plan documents and to submit issues and
comments in writing. If only a review is requested, the claimant shall have
sixty (60) days after filing a request for review to submit additional written
material in support of the claim. After such review and/or hearing, the
Committee shall promptly determine whether such denial of the claim was correct
and shall notify such claimant in writing of its determination within sixty (60)
days after such review and/or hearing or after receipt of any additional
information submitted. If such determination is favorable to the claimant, it
shall be binding and conclusive. If such determination is adverse to such
claimant, it shall be binding and conclusive unless the claimant notifies the
Committee within ninety (90) days after the mailing or delivery to claimant by
the Committee of its determination that he intends to institute legal
proceedings challenging the determination of the Committee, and actually
institutes such legal proceedings within one hundred eighty (180) days after
such mailing or delivery.
4.7. Indemnification. The Company shall indemnify each Committee member
against any liability or loss sustained by reason of any act or failure to act
made in good faith, including, but not limited to, those in reliance on
certificates, reports, tables, opinions or other communications from any Company
or agents chosen by the Committee in good faith. Such indemnification shall
include attorneys' fees and other costs and expenses reasonably incurred in
defense of any action brought by reason of any such act or failure to act.
ARTICLE V
MISCELLANEOUS
5.1. Unfunded Plan. The obligations of the Company under this Plan may be
funded through contributions to a trust or otherwise, but such obligations are
not required to be funded under this Plan. Nothing contained in this Plan shall
be interpreted to grant to any Employee, any right, title or interest in any
property of the Company.
5.2. Impact on Other Employee Benefits. This Plan shall not be construed to
impact or cause the denial of any benefits to which any Employee may be entitled
under any other welfare or benefit plan of the Company; provided, however, that
all payments under this Plan shall be in lieu of any payments under the
Company's Key Employee Incentive Bonus Plan.
5.3. No Offsets. Except as otherwise provided in paragraph 5.2 of this
ARTICLE V, no payment under this Plan shall be offset by payments pursuant to
any other welfare or benefit plan of the Company.
5.4. Impact on Compensation Under Other Employee Benefit Plans. Severance
payments made to an Eligible Employee under this Plan shall not be includible as
salary or compensation for purposes of determining the amount of employee
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benefits under any other retirement, pension, profit-sharing or welfare benefit
plans of the Company.
5.5. Employment After Receipt of Severance Pay. In the event that an
Eligible Employee receives a severance payment under this Plan and, within six
(6) months of the date of a Change in Control, receives a "reasonable
alternative employment offer," within the meaning of paragraph 1.8 of ARTICLE I
hereof, then such Eligible Employee shall immediately repay the severance
payment to the Company.
5.6. Reservation of Right. The Company expects to continue the Plan
indefinitely, but nevertheless reserves the right to modify or amend the Plan or
any provision hereof at any time; provided, however that, after a Change in
Control, no modification or amendment hereof shall in any way decrease any
accrued benefit.
5.7. Exclusive Benefit. The Plan has been created for the exclusive benefit
of the Employees and their beneficiaries.
5.8. Governing Law. The construction, validity and administration of the
Plan shall be governed by ERISA and the Code, and regulations issued thereunder,
and to the extent not so governed, by the laws of the State of Oklahoma.
5.9. No Assignment. The right to receive payment of any benefits under the
Plan shall not be transferred, assigned or pledged, except by beneficiary
designation, by will, under the laws of decent and distribution, or as may be
otherwise required by law.
5.10. Taxes. The Company shall withhold from any payment due under the Plan
any taxes required to be withheld under applicable Federal, state or local tax
laws or regulations.
5.11. Severability. If any provision of this Plan is found, held or deemed
to be void, unlawful or unenforceable under any applicable statute or other
controlling law, the remainder of the Plan shall continue in full force and
effect.
5.12. Designation of Beneficiary. Each Employee shall, from time to time,
designate any person or persons to whom his Plan benefits shall be paid if he
dies before receipt of all of such benefits; provided, however that, if an
Employee designates a person other than his surviving spouse, such spouse shall
be required to consent in writing to such beneficiary designation before such
designation shall be valid and effective.
5.13. Headings and Subheadings. The headings and subheadings of the Plan
are for reference only. In the event of a conflict between a heading or
subheading and the content of an article or paragraph, the content shall
control.
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5.14. Gender. The masculine, as used herein, shall be deemed to include the
feminine and the singular to include the plural, except where the context
requires a different construction.
IN WITNESS WHEREOF, the Company has caused the Plan to be executed the day
and year first above written.
THE HOME-STAKE OIL & GAS COMPANY
By /s/ Robert C. Simpson
------------------------------------
President
ATTEST:
By: /s/ Chris K. Corcoran
-----------------------------
Secretary
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EXHIBIT A
TO THE HOME-STAKE OIL & GAS COMPANY
CHANGE IN CONTROL
SEVERANCE PAY PLAN
The "Department Managers" shall be the following Eligible Employees:
Chris Corcoran
Mike Evans
Gary Fisher
Howard Gray
Debra D. Langley
Barbara Courtney Long
Larry S. Tarwater
<PAGE>
EXHIBIT B
THE AMENDED AND RESTATED CHANGE IN CONTROL
SEVERANCE PAY PLAN OF
THE HOME-STAKE OIL & GAS COMPANY
------------------------------------------------------------------
Paragraph 1.44 of The Home-Stake Oil & Gas Company 401(k) Profit Sharing
Plan, as amended, provides as follows:
"1.44 Year of Vesting Service. "Year of Vesting Service" means each
twelve (12) consecutive month period commencing on the date as of which an
Employee is first credited with an Hour of Service or commencing on an
anniversary thereof, during which an Employee completes at least 1,000
Hours of Service. However, if an Employee does not complete at least 1,000
Hours of Service in the first such period, a Year of Vesting Service will
be any Plan Year during which an Employee completes at least 1,000 Hours of
Service starting with the Plan Year which begins immediately after the
Employee's date of hire (the "Eligibility Computation Period").
Years of Vesting Service before such Break in Service will be
disregarded until the Employee completes a Year of Vesting Service after
such Break in Service. If such Employee does not have five (5) consecutive
one-year Breaks of Service, both the pre-break and post-break service will
count in vesting both the pre-break and post-break account balances. If
such Employee has five (5) or more consecutive one-year Breaks in Service,
both the pre-break and post-break service will count in vesting the
post-break account balances if either:
(a) such Employee has any nonforfeitable interest in his account
balances attributable to Employer contributions at the time of such Break
in Service, or
(b) upon returning to service the number of consecutive one year
Breaks in Service is less than the number of Years of Vesting Service."
<PAGE>
THE HOME-STAKE OIL & GAS COMPANY
1997 INCENTIVE STOCK PLAN
1. Preamble.
The Home-Stake Oil & Gas Company, an Oklahoma corporation ("HSOG"), hereby
establishes The Home-Stake Oil & Gas Company 1997 Incentive Stock Plan (the
"Plan) as a means whereby HSOG may, through awards of stock options and
restricted stock:
(a) provide Officers, Directors and key employees who have substantial
responsibilities for the direction and management of HSOG and its
Subsidiaries, as well as consultants to HSOG, with additional incentive to
promote the success of the businesses of HSOG and its Subsidiaries;
(b) enable such employees to acquire equity interests in HSOG; and
(c) enable HSOG to attract and retain the services of key employees
upon whose judgment and effort the successful conduct of its operations is
largely dependent.
Except as specifically provided herein, the provisions of the Plan do not
apply to or affect any option, stock appreciation right, or stock heretofore or
hereafter granted under any other stock or stock option plan of HSOG or any
Subsidiary, and all such options, stock appreciation rights or stock continue to
be governed by and subject to the applicable provisions of the plan or agreement
under which they were granted.
2. Definitions.
2.01 "Administrator" shall mean that person designated by the Board from
time to time to administrator the Awards made under the Plan, which
designation shall be communicated to the Participants in writing.
2.02 "Award" shall mean a grant of an Option or the award of Restricted
Stock under the Plan.
2.03 "Award Agreement" shall mean an agreement between HSOG and a
Participant which evidences the grant of an Option and/or the award of
Restricted Stock to a Participant and sets forth the terms and conditions
of such Option and/or Restricted Stock.
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<PAGE>
2.04 "Board" or "Board of Directors" means the board of directors of HSOG.
2.05 "Change in Control" means the occurrence of any one of the following
events:
(a) Any individual, entity or group (within the meaning of Section
13(d)(3) or 14(d)(7) of the Exchange Act, except the Participant, his
affiliates and associates, HSOG, or any corporation, partnership, trust or
other entity controlled by HSOG (a "Subsidiary"), or any employee benefit
plan of HSOG or of any Subsidiary (each such individual, entity or group
shall hereinafter be referred to as a "Person"))becomes the beneficial
owner (within the meaning of Rule 13d-3 promulgated under the Exchange Act)
of 20% or more of either (i) the then outstanding shares of common stock of
HSOG (the "Outstanding Company Common Stock" or (ii) the combined voting
power of the then outstanding voting securities of HSOG entitled to vote
generally in the election of directors (the "Company Voting Securities"),
in either case; or
(b) Individuals who, as of the beginning of any twenty-four month
period, constitute the Board (the "Incumbent Board") cease for any reason
to constitute at least a majority of the Board, provided that any
individual becoming a director subsequent to the beginning of such period
whose election or nomination for election by HSOG's shareholders was
approved by a vote of at least a majority of the directors then comprising
the Incumbent Board shall be considered as though such individual were a
member of the Incumbent Board, but excluding for this purpose any such
individual whose initial assumption of office is in connection with an
actual or threatened election contest relating to the election of the
directors of HSOG (as such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act); or
(c) Consummation by HSOG of a reorganization, merger or consolidation
(a "Business Combination"), in each case, with respect to which all or
substantially all of the individuals and entities who were the respective
beneficial owners of the outstanding Company Common Stock and Company
voting securities immediately prior to such Business Combination do not,
immediately following such Business Combination, beneficially own, directly
or indirectly, more than 50% of, respectively, the then outstanding shares
of common stock and the combined voting power of the then outstanding
voting securities entitled to vote generally in the election of directors,
as the case may be, of the corporation resulting from such Business
Combination in substantially the same proportion as their ownership
immediately prior to such Business Combination of the Outstanding Company
Common Stock and Company Voting Securities, as the case may be; or
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<PAGE>
(d) (i) Consummation of a complete liquidation or dissolution of HSOG
or (ii) sale or other disposition of all or substantially all of the assets
of HSOG other than to a corporation with respect to which, following such
sale or disposition, more than 50% of, respectively, the then outstanding
shares of common stock and the combined voting power of the then
outstanding voting securities entitled to vote generally in the election of
directors of such corporation is then owned beneficially, directly or
indirectly, by all or substantially all of the individuals and entities who
were the beneficial owners, respectively, of the Outstanding Company Common
Stock and Company Voting Securities, as the case may be, immediately prior
to such sale or disposition.
2.06 "Code" means the Internal Revenue Code of 1986, as it exists now and
as it may be amended from time to time.
2.07 "Common Stock" means the common stock of HSOG, $.01 par value per
share.
2.08 "Company" means The Home-Stake Oil & Gas Company, an Oklahoma
corporation, and any successor thereto.
2.09 "Director(s)" means a member or members of the Board.
2.10 "Disability" means being unable to engage in any substantial gainful
activity by reason of any medically determinable physical or mental
impairment which can be expected to result in death or which has lasted or
can be expected to last for a continuous period of not less than 12 months.
2.11 "Exchange Act" means the Securities Exchange Act of 1934, as it exists
now or from time to time may hereafter be amended.
2.12 "Fair Market Value" means for the relevant day:
(a) If shares of Common Stock are listed or admitted to unlisted
trading privileges on any national or regional securities exchange, the
last reported sale price, regular way, on the composite tape of that
exchange on the day Fair Market Value is to be determined;
(b) If the Common Stock is not listed or admitted to unlisted trading
privileges as provided in paragraph (a), and if sales prices for shares of
Common Stock are reported by the National Market System of the National
Association of Securities Dealers Automated Quotation System ("NASDAQ
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<PAGE>
System"), then the last sale price for Common Stock reported as of the
close of business on the day Fair Market Value is to be determined, or if
no such sale takes place on that day, the average of the high bid and low
asked prices so reported; if Common Stock is not traded on that day, the
next preceding day on which such stock was traded; or
(c) If trading of the Common Stock is not reported by the NASDAQ
System or on a stock exchange, Fair Market Value will be determined by the
Board in its discretion based upon the best available data.
2.13 "Incentive Stock Option" or "ISO" means an Option that complies with
the terms and conditions set forth in Section 422 of the Code and is
designated as an ISO at the time of its grant.
2.14 "Officer" means a corporate officer of HSOG or any Subsidiary or
affiliate of HSOG.
2.15 "Option" means the right of a Participant to purchase a specified
number of shares of Common Stock, subject to the terms and conditions of
the Plan.
2.16 "Option Date" means the date upon which an Option is granted, or
Restricted Stock is awarded, to a Participant under the Plan.
2.17 "Option Price" means the price per share at which an Option may be
exercised.
2.18 "Participant" means an individual, or to the extent permitted as
contemplated at Section 5 hereof, the account of an individual, to whom an
Option or Restricted Stock has been granted under the Plan.
2.19 "Plan" means The Home-Stake Oil & Gas Company 1997 Incentive Stock
Plan herein and as from time to time amended.
2.20 "Restricted Stock" means Common Stock awarded to a Participant
pursuant to the Plan and subject to the restrictions contained or
authorized in Section 7 hereof.
2.21 "Securities Act" means the Securities Act of 1933, as it exists now or
from time to time may hereinafter be amended.
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<PAGE>
2.22 "Stock Split means the 30-for-1 split of the issued and outstanding
shares of Common Stock to be effected pursuant to amendments to HSOG's
Certificate of Incorporation in connection with the proposed merger of The
Home-Stake Royalty Corporation into HSOG, which amendments also provide for
an increase in the number of HSOG's authorized shares of Common Stock. Such
merger has been approved by the Board of Directors on the same date as this
Plan, and such Stock Split and increase in authorized shares will become
effective upon the effective date of such merger.
2.23 "Subsidiary" means any corporation or other entity of which the
majority voting power or equity interest is owned directly or indirectly by
HSOG.
2.24 "Termination of Employment" means:
(a) with respect to an employee, when the employee's employment
relationship with HSOG and all of its Subsidiaries is terminated,
regardless of any severance arrangements. A transfer from HSOG to a
Subsidiary or affiliate of HSOG or a Subsidiary, or vice versa is not a
termination of employment for purposes of the Plan;
(b) with respect to a consultant, when the consultant's consulting
relationship with HSOG is terminated either due to the termination of any
consulting agreement, or otherwise, regardless of the fact that no
employment relationship exists; or
(c) with respect to an Officer or Director, when such individual is no
longer serving as an Officer or Director of HSOG, as a consultant to or
employee of HSOG and any of its Subsidiaries.
2.25 Rules of Construction.
(a) Governing Law. The construction and operation of the Plan are
governed by the laws of the State of Oklahoma.
(b) Undefined Terms. Unless the context requires another meaning, any
term not specifically defined in the Plan has the meaning given to it by
the Code.
(c) Headings. All headings in the Plan are for reference only and are
not to be utilized in construing the Plan.
(d) Gender. Unless clearly appropriate, all nouns of either gender
refer indifferently to persons of either gender.
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<PAGE>
(e) Singular and Plural. Unless clearly inappropriate, singular terms
refer also to the plural and vice versa.
(f) Severability. If any provision of the Plan is determined to be
illegal or invalid for any reason, the remaining provisions shall continue
in full force and effect and shall be construed and enforced as if the
illegal or invalid provision did not exist, unless the continuance of the
Plan in such circumstances is not consistent with its purposes.
3. Stock Subject to the Plan.
Four Hundred Fifty-One Thousand Seven Hundred and Thirty-Six (451,736)
shares of HSOG's Common Stock (or such greater or lesser number of shares that
equals ten percent (10%) of the issued and outstanding shares of Common Stock
after giving effect to the Stock Split and the merger of The Home-Stake Royalty
Corporation with the Company) have been reserved for issuance under this Plan.
Such shares of Common Stock may be newly issued shares or shares from the
Company's Treasury. Such number of shares available under this Plan shall be
increased automatically without further action by the Board of Directors or
shareholders of the Company to that number which, when added to the number of
shares subject to Options granted under this Plan and any other stock plan(s) of
the Company equals ten percent (10%) of the issued and outstanding shares of
Common Stock at such time(s) after the effective date of the Stock Split as the
Company issues additional shares of Common Stock (excluding for purposes of
determining the number of shares available under this Plan and the time(s) of
such automatic increases all shares of Common Stock issued pursuant to this Plan
and any other stock plan(s) of the Company and all shares of Common Stock in the
Company's Treasury). Options may be: (a) Incentive Stock Options, (b) other
forms of statutory stock options, or (c) nonstatutory (non-qualified) options.
4. Administration.
The Plan shall be administered by the Board. In addition to any other
powers set forth in the Plan, the Board has the exclusive authority:
(a) to construe and interpret the Plan, and to remedy any ambiguities
or inconsistencies therein;
(b) to establish, amend and rescind appropriate rules and regulations
relating to the Plan;
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<PAGE>
(c) subject to the express provisions of the Plan, to determine the
individuals who will receive Awards of Options and/or Restricted Stock, the
times when they will receive them, the number of shares to be subject to
each Award and the Option Price, payment terms, payment method, and
expiration date applicable to each Award;
(d) to contest on behalf of HSOG or Participants, at the expense of
HSOG, any ruling or decision on any matter relating to the Plan or to any
Awards of Options and/or Restricted Stock;
(e) generally, to administer the Plan, and to take all such steps and
make all such determinations in connection with the Plan and the Awards of
Options and/or Restricted Stock as it may deem necessary or advisable;
(f) to determine the form in which tax withholding under Section 14 of
the Plan will be made; and
(g) to amend the Plan or any Option or Restricted Stock granted or
awarded hereunder as may be necessary in order for any business combination
involving HSOG to qualify for pooling-of-interest treatment under APB No.
16.
5. Eligible Participants.
Subject to the provisions of the Plan, the persons who shall be eligible to
participate in the Plan and be granted Awards shall be those persons who are
Officers, Directors, key employees and consultants of HSOG or any Subsidiary who
shall be in a position, in the opinion of the Board, to make contributions to
the growth, management, protection, and success of HSOG and its Subsidiaries. Of
those persons described in the preceding sentence, the Board may, from time to
time, select persons to be granted Awards and shall determine the terms and
conditions with respect thereto. In making any such selection and in determining
the form of the Award, the Board may give consideration to the functions and
responsibilities of the person, to the person's contributions to HSOG and its
Subsidiaries, the value of the individual's service to HSOG and its Subsidiaries
and such other factors deemed relevant by the Board. In the event and to the
extent authorized by the United States Departments of Treasury and Labor, The
Home-Stake Companies 401(k) Plan account of an employee of HSOG or a Subsidiary
may also be a Participant, the Board may grant Options to such account and, to
the extent such account is a Participant, the Options in such an account shall
be subject to all of the terms and provisions of the Plan as if the Options had
been granted to the individual for whom the account is maintained.
-7-
<PAGE>
6. Terms and Conditions of Options.
The Board may, in its discretion, grant Options to any Participant under
the Plan. Each Option shall be evidenced by a written agreement between HSOG and
the Participant. Unless the Board at the time of grant specifically designates
Options granted under the Plan as Incentive Stock Options, all Options granted
under the Plan shall be non-statutory options. Each Option agreement, in such
form as is approved by the Board, shall be subject to the following express
terms and conditions and to such other terms and conditions, not inconsistent
with the Plan as the Board may deem appropriate:
(a) Option Period. Each Option granted under the Plan shall be for
such period as is established by the Board, except that each ISO shall
expire no later than ten years after the Option Date. Where Options are
exercisable in installments, the right to purchase any shares shall be
cumulative, so that when the right to purchase any shares has matured, such
shares may be purchased thereafter until the expiration of the Option. The
Board shall have the power to accelerate the exercisability of installments
for any Option granted under the Plan.
(b) Option Price. At the time when the Option is granted, the Board
will fix the Option Price; provided, however, that except as provided
herein at Section 6(c)(i), the Option Price shall be no less than the Fair
Market Value on the Option Date.
(c) Other Option Provisions. The form of Option authorized by the Plan
may contain such other provisions as the Board may from time to time
determine, including:
(i) "Discounted Options" which may be granted to any Participant.
A "Discounted Option" is an Option having an Option Price per
share (i) less than the Fair Market Value at the Option Date
provided such Option Price shall not be less than 50% of the Fair
Market Value at the Option Date, or (ii) in the case of
Directors, equal to the Fair Market Value at the Option Date,
less the amount of salary or Director's fees elected (at least
six months before the commencement of the calendar or fiscal year
with respect to which such fees will be earned) by a Director to
be received in the form of Options (the "deferred amount")
divided by the number of shares subject to the Option. Discounted
Options shall not be forfeitable under any provision of the Plan
and shall be exercisable until the third anniversary of the
Participant's Termination of Employment;
(ii) "Reload Options" which may be granted only to Directors and
employees of HSOG or a Subsidiary. A "Reload Option" is an Option
automatically granted to a Participant pursuant to the terms of
an Award Agreement upon the delivery (actual, constructive or by
attestation) of shares of Common Stock to pay any required
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<PAGE>
withholding tax in respect of the exercise of an Option (the
"delivered shares"). Such Reload Option entitles the Participant
to purchase (at an option price equal to the Fair Market Value at
the time of such delivery) a number of shares of Common Stock
equal to the number of delivered shares. Reload Options shall be
subject to all of the terms of the Plan and the Award Agreement
in respect to which they are granted, including the Option Period
for the Option exercised by delivery of the delivered shares, and
shall not be exercisable before the earlier of one year after
their grant or the day before the expiration of such Option
Period. In the discretion of the Board, Reload Options granted on
the exercise of ISO's may be ISO's or non-qualified options.
(d) Incentive Stock Options. ISO's may only be granted to employees of
HSOG or of a Subsidiary. No more than Four Hundred Fifty-One Thousand Seven
Hundred and Thirty-Six (451,736) shares of HSOG's Common Stock (as adjusted
to reflect the Stock Split) may be issued upon the exercise of ISO's
granted under this Plan and no ISO may be granted under the Plan after the
tenth anniversary of the date the Plan is approved by the shareholders of
HSOG. The aggregate Fair Market Value (determined as of the Option Date of
the ISO) of the Common Stock with respect to which ISO's are first
exercisable by a Company or Subsidiary employee during any calendar year
under all Option plans of HSOG shall not exceed $100,000. An ISO granted to
an employee who, at the time the ISO is granted, owns Common Stock
possessing more than ten percent (10%) of the total combined voting power
of all classes of capital stock of HSOG or a Subsidiary thereof shall have
an exercise price equal to not less than 110 percent (110%) of the Fair
Market Value on the Option Date. Notwithstanding any other provision of
this Plan, an ISO shall not be transferable or assignable otherwise than by
will or the laws of descent and distribution. Any Participant who disposes
of shares acquired upon the exercise of an ISO either (i) within two years
after the Option Date of the Option under which the shares were acquired or
(ii) within one year after the acquisition of such shares shall notify HSOG
of such disposition and of the amount realized. Failure by a Participant to
so notify HSOG of such a disposition of shares shall entitle HSOG to treat
the shares of Common Stock issued to such Participant as void ab initio or
to recover from the Participant the greater of the value of the shares
disposed of as of the date of disposition or the value of the shares
disposed of as of the date HSOG learns of such disposition from either (ii)
any amounts due to such Participant from HSOG or a Subsidiary, or (ii)
otherwise. HSOG may, at its discretion, place a legend noting the possible
consequences of a Participant's failure to provide such disposition notice
on shares of Common Stock delivered upon the exercise of an ISO.
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<PAGE>
(e) No person shall have any rights of a shareholder with respect to
any shares to be delivered upon the exercise of an Option until such time
as such Option is validly exercised.
7. Terms and Conditions of Restricted Stock Awards.
The Board, in its discretion, may grant Restricted Stock to any Participant
under the Plan, the purchase price of which shall be established by the Board,
which purchase price may be financed by HSOG on terms established by the Board.
Each grant of Restricted Stock shall be evidenced by an Award Agreement between
HSOG and the Participant. All shares of Common Stock awarded to Participants
under the Plan as Restricted Stock shall be subject to the following express
terms and conditions and to such other terms and conditions, not inconsistent
with the Plan, as the Board shall deem appropriate:
(a) Restrictions on Transfer. Shares of Restricted Stock awarded to
Participants shall contain such restrictions on transfer as the Board may
determine in its sole discretion. Except as permitted under Section 12 of
the Plan, shares of Restricted Stock awarded to Participants may not be
sold or transferred before such restrictions on transfer lapse, and may
only be pledged to HSOG or any Subsidiary to satisfy any obligations that
the Participant may have to HSOG or the Subsidiary with respect to the
acquisition of such shares of Restricted Stock. Subject to the provisions
of subparagraphs (b) and (c) below and any other restrictions imposed by
law, the certificates for any shares of Restricted Stock the restrictions
on which have lapsed will be transferred to the Participant or, in the
event of his death, to the beneficiary or beneficiaries designated by
writing filed by the Participant with the Board for such purpose or, if
none, to his estate. Delivery of shares in accordance with the preceding
sentence shall be made within the 30-day period after such restrictions
shall lapse.
(b) Certificates Deposited With Company. Each certificate issued in
respect of shares of Restricted Stock awarded under the Plan shall be
registered in the name of the Participant and deposited with HSOG. Each
such certificate shall bear the following (or a similar) legend:
"The transferability of this certificate and the shares of stock
represented hereby are subject to the terms and conditions (including
forfeiture) relating to Restricted Stock contained in The Home-Stake
Oil & Gas Company 1997 Incentive Stock Plan and an agreement entered
into between the registered owner and The Home-Stake Oil & Gas
Company. Copies of such Plan and agreement are on file at the
principal office of The Home-Stake Oil & Gas Company."
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<PAGE>
(c) Shareholder Rights. Subject to the foregoing restrictions, each
Participant shall have all the rights of a shareholder with respect to his
shares of Restricted Stock including, but not limited to, the right to vote
such shares.
(d) Dividends. On each Common Stock dividend payment date, each
Participant shall receive an amount equal to the dividend paid on that date
on a share of Common Stock, multiplied by his number of shares of
Restricted Stock.
8. Manner of Exercise of Options; Deferral of Receipt of Shares.
(a) To exercise an Option in whole or in part, a Participant (or,
after his death, his executor or administrator) or his assignee (as
contemplated at Section 12 hereof) must give written notice to the
Administrator, stating the number of shares with respect to which he
intends to exercise the Option. HSOG will issue the shares with respect to
which the Option is exercised upon payment in full of the Option Price. The
Option Price may be paid (i) in cash, (ii) in shares of Common Stock held
by the Participant, his executor, administrator, or assignee, and having an
aggregate Fair Market Value, as determined as of the close of business on
the day on which such Option is exercised, equal to the Option Price, (iii)
if permitted by the Board, a promissory note in the amount of the Option
Price, which note shall provide for full personal liability of the maker
and shall contain such other terms and provisions as the Board may
determine, including without limitation the right to repay the note
partially or wholly with Common Stock, (iv) if authorized by the Board in
the Award Agreement for the Option being exercised, by delivery of
irrevocable instructions to a broker to promptly deliver to HSOG the amount
of sale or loan proceeds necessary to pay for all Common Stock acquired
through such exercise and any tax withholding obligations resulting from
such exercise, (v) if authorized by the Board in the Award Agreement for
the Option being exercised, by the withholding by HSOG, pursuant to a
written election delivered by the Participant, his executor, administrator,
or assignee, to the Administrator on or prior to the date of exercise, from
the shares of Common Stock issuable upon any exercise of the Option that
number of shares having a Fair Market Value as of the close of business on
the day on which such Option is exercised equal to such Option Price, (vi)
by constructive delivery ("attestation") of shares of Common Stock held by
the Participant, his executor, administrator, or assignee, and having an
aggregate Fair Market Value, as determined as of the close of business on
the day of exercise, equal to the Option Price effected through providing
HSOG with a notarized statement on or before the day of exercise attesting
to the number of shares owned by the Participant, his executor,
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<PAGE>
administrator, or assignee, that will serve as the Option Price payment
shares, or (vii) as authorized by the Board in the Award Agreement for the
Option being exercised, by a combination of such methods. The Option Price
may also be paid in shares of Common Stock which were received by the
Participant, his executor, administrator, or assignee, upon the exercise of
one or more Options or as an award of Restricted Stock under the Plan;
provided, however, that in the event shares of Restricted Stock are
tendered as consideration for the exercise of an Option, a number of the
shares issued upon the exercise of said Option, equal to the number of
shares of Restricted Stock used as consideration therefor, shall be subject
to the same restrictions as the Restricted Stock so submitted were at the
time of their submission plus any additional restrictions that may be
imposed by the Board.
(b) A Participant (but not his executor, administrator or assignee)
may elect to defer the receipt of a portion of the shares of Common Stock
(the "Deferred Shares") deliverable upon the exercise of a non-qualified
Option provided such Participant (i) delivers to the Board a written
election (a "Deferral Election") to defer the receipt of shares of Common
Stock, in such form and with such terms as the Board determines, no later
than six months before the date of exercise of an Option as to which the
receipt of a portion of the shares of Common Stock is to be deferred, (ii)
pays the Option Price payable upon such exercise by delivery, or by
attestation, to HSOG of shares of Common Stock as provided at Section 8(a)
hereof, and (iii) is employed by HSOG or a Subsidiary at the time of
exercise of such Option. Only the number of shares otherwise deliverable
upon exercise of a non-qualified Option in excess of the number of shares
of Common Stock delivered in payment of the Option Price upon any exercise
of such Option shall be Deferred Shares. Any such Deferral Election shall
be revocable only upon the delivery of a superseding Deferral Election for
the shares subject to a Deferral Election. Upon the exercise of an Option
subject to a Deferral Election, that number of shares of Common Stock
which, but for such Deferral Election, would be deliverable upon such
exercise shall be issued to HSOG for the benefit of the Participant and
credited to a bookkeeping account (a "Unit Account") in the name of the
Participant. Each Participant's Unit Account will be credited with all
non-cash property either distributed in respect of any Deferred Shares,
credited to such account or into which any Deferred Shares credited to such
Unit Account are converted. All cash distributed in respect of a
Participant's Deferred Shares or into which a Participant's Deferred Shares
are converted shall be delivered to such Participant as soon as is
reasonably practical after such distribution or conversion. No Participant
shall be entitled to vote the Deferred Shares and instead such shares shall
be voted by the Secretary of HSOG on behalf of such Participant on all
matters on which the holders of Common Stock are entitled to vote in the
same manner as a majority of the shares of Common Stock are voted.
-12-
<PAGE>
9. Vesting.
A Participant may not exercise an Option until it has become vested. The
portion of an Option Award that is vested depends upon the vesting restrictions,
if any, established by the Board for such Option at the time of its grant and
the period that has elapsed since the Option Date.
10. Change in Control.
Notwithstanding the provisions of Sections 6 and 7 or anything contained in
a Participant's agreement to the contrary, upon a Change in Control, all Options
and/or Restricted Stock shall be subject to the following:
(a) The restrictions and limitations applicable to any Options shall
lapse, and such Options shall become free of all restrictions and become
fully vested to the full extent of the original grant.
(b) HSOG shall have the right to acquire from Participants their
vested Options for which the value, as established in the Change in
Control, of the Common Stock issuable upon exercise thereof is greater than
the Option Price by payment of the amount by which the price per share of
Common Stock, as established in the Change in Control, exceeds the Option
Price; and
(c) All Restricted Stock shall become free of all restrictions and be
fully vested and transferable.
11. Adjustments to Reflect Changes in Capital Structure.
If there is any change in the corporate structure or shares of HSOG, the
Board of Directors may, in its discretion, make any adjustments necessary to
prevent accretion, or to protect against dilution, in the number and kind of
shares authorized by the Plan and, with respect to outstanding Options and/or
Restricted Stock, in the number and kind of shares covered thereby and in the
applicable Option Price. For the purpose of this Section 11, a change in the
corporate structure or shares of HSOG includes, without limitation, any change
resulting from a recapitalization, stock split, stock dividend, consolidation,
rights offering, spin-off, reorganization, or liquidation and any transaction in
which shares of Common Stock are changed into or exchanged for a different
number or kind of shares of stock or other securities of HSOG or another
corporation.
-13-
<PAGE>
12. Non-Transferability of Options and Restricted Stock; Limited Exception to
Transfer Restrictions.
(a) Unless otherwise expressly provided in this Section 12, by
applicable law or by any Award Agreement, as the same may be amended,
evidencing the grant or award of Restricted Stock or Options: Awards are
non-transferable and shall not be subject in any manner to sale, transfer,
anticipation, alienation, assignment, pledge, encumbrance or charge; Awards
shall be exercised only by the person to whom such Awards were granted or
awarded (a "Recipient"); and amounts payable or shares issuable pursuant to
Awards shall be delivered only to or for the account of a Recipient.
(b) Except as precluded by any applicable law, the Board may permit
Awards to be transferred to and exercised by and paid to certain persons or
entities related to the Recipient, including, but not limited to members of
the Recipient's immediate family (parents, grandparents, children,
grandchildren, spouse, siblings), charitable institutions, or trusts or
other entities whose beneficiaries or beneficial owners are members of the
Recipient's immediate family and/or charitable institutions, or to such
other persons or entities as may be approved by the Board, pursuant to such
conditions and procedures as the Board may establish. Any permitted
transfer shall be subject to the condition that the Board receive evidence
satisfactory to it that the transfer is being made for estate and/or tax
planning purposes on a gratuitous or donative basis and without
consideration other than nominal consideration.
(c) The exercise and transfer restrictions in this Section 12 shall
not apply to:
(i) transfers to HSOG;
(ii) the designation of a beneficiary to receive benefits in the
event of the Recipient's death or, if the Recipient has died,
transfers to or exercise by the Recipient's beneficiary, or, in the
absence of a validly designated beneficiary, transfers by will or the
laws of descent and distribution;
(iii) transfers pursuant to a domestic relations order;
(iv) if the Recipient has suffered a disability, permitted
transfers or exercises on behalf of the Recipient by his or her legal
representative; or
(v) the authorization by the Board of "cashless exercise"
procedures with third parties who provide financing for the purpose of
(or who otherwise facilitate) the exercise of Awards consistent with
applicable laws and the express authorization of the Board.
-14-
<PAGE>
(d) In the event of a transfer of an Award pursuant to Subsection (b)
or (c) of this Section 12, the Recipient will remain liable for any taxes
(including withholding and social security taxes) due upon or as a
consequence of the exercise of or lapse of any restrictions in respect of
an Award and neither HSOG nor the Board shall have any obligation to
provide notice to a transferee of any event or information that has, will
or could in any way affect an Award or its exercise.
13. Rights as Shareholder.
No person shall have any rights of a shareholder as to shares of Common
Stock subject to an Award under the Plan until, after proper exercise of the
Award or other action required, such shares shall have been recorded on HSOG's
official shareholder records as having been issued or transferred. Upon exercise
of the Award or any portion thereof, HSOG will have thirty (30) days in which to
issue the shares, and the Participant will not be treated as a shareholder for
any purpose whatsoever prior to such issuance. No adjustment shall be made for
cash dividends or other rights for which the record date is prior to the date
such shares are recorded as issued or transferred in HSOG's official shareholder
records, except as provided herein or in an Agreement.
14. Withholding Tax.
Upon the exercise of an Option, or the lapse of restrictions on Restricted
Stock, requiring tax withholding, the Participant will be required to pay to
HSOG for remittance to the appropriate taxing authorities an amount necessary to
satisfy the employee's portion of federal, state and local taxes, if any,
incurred by reason of the exercise of an Option or the lapse of such
restrictions. A Participant may elect to have any tax withholding obligation
incurred upon the exercise of or lapse of restrictions in respect of an Award
satisfied by payment of cash by the Participant, by the withholding of cash
otherwise due the Participant, or, except in the case of ISO's, by the
withholding of shares of Common Stock issuable upon such occurrence and having
an aggregate Fair Market Value on the day prior to the day of exercise or lapse
sufficient to satisfy the applicable tax withholding requirement; provided,
however, that if the Participant elects to have shares of Common Stock withheld
from the shares deliverable upon such exercise or lapse, a Participant's
election must be delivered to the Administrator in writing on or prior to the
date of exercise of the Options or lapse of restrictions with respect to
Restricted Stock.
15. Termination of Employment.
In the event of a Participant's Termination of Employment, the following
rules shall apply:
-15-
<PAGE>
(a) Resignation in order to assume employment, approved by HSOG's
Chief Executive Officer, with a governmental, charitable or educational
institution, or business entity affiliated with HSOG:
When a Participant resigns to assume employment, approved by HSOG's
Chief Executive Officer, with a governmental, charitable or educational
institution, or business entity in which HSOG has an equity interest, the
Board may (i) authorize the continuation of Options granted or Restricted
Stock awarded prior to termination as if the Participant were still
employed by HSOG and (ii) permit the exercise of such Options or lapse of
restrictions in respect of Restricted Stock during periods after such
Termination of Employment, but not beyond the original expiration date of
the Option. Such actions will not be authorized to the extent they would
cause outstanding ISOs to be considered to have been modified for purposes
of Section 424(h) of the Code. Unless the Board determines otherwise,
termination of such approved employment, except to rejoin HSOG or accept
other employment which would qualify under this paragraph (a), or
divestiture by HSOG of its equity interest in such business entity, shall
be treated as a termination of employment pursuant to paragraph (b), (c) or
(d) of this Section 15.
(b) Termination of Employment for any reason other than death,
disability or resignation for approved employment pursuant to paragraph (a)
above:
Any Option or Restricted Stock shall expire forthwith; provided,
however, that with the approval of the Board evidenced by a writing signed
by an executive officer of HSOG other than the Participant, unvested
Options may be accelerated to vest immediately, any Options exercisable at
the time of such termination may be exercised up to a date after such
termination that is determined by the Board, but not exceeding five years
from the date of such termination and not beyond the date the Option
otherwise would have expired in accordance with the Award Agreement
evidencing such Option and/or the restrictions on Restricted Stock may be
eliminated so that such Restricted Stock is free of such restrictions at
the time of Termination of Employment and not forfeited upon such
Termination of Employment.
(c) Death of a Participant:
A Participant's estate or beneficiaries shall have a period up to the
later of one year after the Participant's death or the expiration date
specified in the Award Agreement within which to exercise the Option;
provided, however, in the case of ISO's, the Participant's estate or
beneficiaries may exercise an Option only until the expiration date
specified in the Award Agreement. Any Option may be immediately exercised
in full by the Participant's estate or beneficiaries. In the event the
Participant's estate is closed with exercisable Options then unexercised,
the rights under this paragraph shall pass by will or the laws of descent
and distribution. In the case of Restricted Stock, the restrictions on such
Restricted Stock shall be deemed to have lapsed immediately before such
Participant's death.
(d) Disability of a Participant:
In the event of a Participant's Disability during employment, the
Participant, or his or her guardian or legal representative shall have a
period up to the expiration date specified in the Award Agreement within
which to exercise the Option; provided, however, in the case of ISO's, the
Participant, or his or her guardian or legal representative shall have a
period up to the earlier of the expiration date or one year after the
Participant's Termination of Employment within which to exercise the
Option. In the case of Restricted Stock, the restrictions on such
Restricted Stock shall be deemed to have lapsed immediately before the
Termination of Employment of such Participant.
-16-
<PAGE>
16. Cancellation of Option Grants and Restricted Stock.
(a) After Termination of Employment. If there is a Termination of
Employment with respect to a Participant for any reason other than death,
and, pursuant to paragraph (a), (b) or (d) of Section 15, one or more
Options have not yet expired or the restrictions pertaining to Restricted
Stock have not lapsed, the Board, in its sole discretion, which may be
delegated to the Chief Executive Officer of HSOG or to the Chairman of the
Board, may cancel any such Options at any time prior to the exercise
thereof or declare forfeited any such Restricted Stock before the related
restrictions lapse unless the following conditions are met:
(i) The Participant shall not render services for any
organization or engage directly or indirectly in any business which,
in the judgment of the Chief Executive Officer of HSOG, is or becomes
competitive with HSOG, or which is or becomes otherwise prejudicial to
or in conflict with the interests of HSOG. The judgment of the Chief
Executive Officer shall be based on the Participant's positions and
responsibilities while employed by HSOG, the Participant's
post-employment responsibilities and position with the other
organization or business, the extent of past, current and potential
competition or conflict between HSOG and the other organization or
business, the effect on HSOG's customers, suppliers and competitors of
the Participant's assuming the post-employment position, and such
other considerations as are deemed relevant given the applicable facts
and circum stances. The Participant shall be free, however, to
purchase as an investment or otherwise, stock or other securities of
such organization or business so long as such stock or securities are
listed upon a recognized securities exchange or traded
over-the-counter, and such investment does not represent a substantial
investment to the Participant or a greater than five percent (5%)
equity interest in the organization or business.
(ii) The Participant shall not, without prior written
authorization from HSOG, disclose to anyone outside HSOG, or use in
other than HSOG's business, any confidential information or material
relating to the business of HSOG, acquired by the Participant either
prior to or after such Participant's Termination of Employment.
(b) Before Termination of Employment. The Board, in its sole
discretion, which may be delegated to the Chief Executive Officer of HSOG
or to the Chairman of the Board, may cancel any Options held by a person or
reduce the number thereof at any time prior to the exercise thereof or
declare forfeited a part or all of any shares of Restricted Stock awarded
to a Participant under the following circumstances:
(i) The Participant's conduct either in connection with his or
her employment by HSOG or otherwise is deemed inimical to the
interests of HSOG.
(ii) The Participant's employment responsibilities with HSOG are
reduced or altered and the Board determines that the Participant would
not have been granted the Options or awarded the shares of Restricted
Stock, or such number of Options or shares of Restricted Stock, had
the Participant's employment responsibilities been at the reduced or
altered level at the time of the grant or award of such Options or
shares of Restricted Stock.
-17-
<PAGE>
17. No Right To Employment.
Participation in the Plan will not give any Participant a right to be
retained as an employee of HSOG or any Subsidiary, or any right or claim to any
benefit under the Plan, unless the right or claim has specifically accrued under
the Plan.
18. Amendment of the Plan.
Except as provided in this Section 18, the Board of Directors may amend,
modify, suspend or discontinue this Plan for the purpose of meeting any changes
in legal requirements or for any other purpose permitted by law. Except for any
adjustments pursuant to Section 11, the Board of Directors may not (a) increase
the maximum number of shares that may be issued under the Plan, except with the
approval of the shareholders of HSOG, (b) decrease the exercise price with
respect to any Option previously granted, or (c) delegate the administration of
this Plan to any committee.The Board may from time to time amend or revise the
terms of the Plan in whole or in part and may without limitation, adopt any
amendment deemed necessary.
19. Notice.
Any written notice to HSOG required by any of the provisions of the Plan
shall be addressed to the Administrator, if so required under the Plan, and
otherwise to the Chairman of the Board or to the Chief Executive Officer of
HSOG, and shall become effective when it is received by the office of such
Administrator, Chairman or the Chief Executive Officer.
20. Company Benefit and Compensation Plans.
Nothing contained in the Plan shall prevent any Participant prior to death,
or the Participant's dependents or beneficiaries after the Participant's death,
from receiving, in addition to any Options or Restricted Stock provided for
under the Plan, any salary, incentive or perfor mance plan Awards, payments
under a Company retirement plan or other benefits that may be otherwise payable
or distributable to such Participant, or to the Participant's dependents or
beneficiaries under any other plan or policy of HSOG or otherwise. To the extent
permitted by law, grants of Options or awards of Restricted Stock under the Plan
may be made in combination with, or as alternatives to, grants, awards or
payments under other Company plans.
21. Representations and Warranties.
No person shall at any time have a right to be selected as a Participant in
the Plan, nor having been selected as a Participant for one Award to be selected
as a Participant for any other Award, and no person shall have any authority to
enter into any agreement assuring such selection or making any warranty or
representation with respect thereto. A Participant shall have no rights to or
interest in any Option or Restricted Stock except as set forth herein.
-18-
<PAGE>
22. Unfunded Plan.
Insofar as it provides for grants of Options and awards of Restricted
Stock, the Plan shall be unfunded. Although bookkeeping accounts may be
established with respect to Participants who are or may become entitled to
Common Stock under the Plan, any such accounts shall be used merely as a
bookkeeping convenience. HSOG shall not be required to segregate any assets that
may at any time be represented by Common Stock, nor shall the Plan be construed
as providing for such segregation, nor shall HSOG nor the Board be deemed to be
a trustee of any Common Stock issuable or deliverable under the Plan. Any
liability of HSOG to a Participant with respect to a grant of Options or award
of Restricted Stock under the Plan shall be based solely upon any contractual
obligations that may be created by the Plan or an Award Agreement; no such
obligation of HSOG shall be deemed to be secured by any pledge or other
encumbrance on any property of HSOG. Neither HSOG nor the Board shall be
required to give any security or bond for the performance of any obligation that
may be created by the Plan.
23. Shareholder Approval.
Continuance of the Plan, and the validity of any Options granted or
Restricted Stock awarded under the Plan, shall be subject to approval by the
shareholders of HSOG of the Plan within 12 months after the date the Plan is
adopted by the Board.
24. Conditions Upon Issuance of Shares.
An Option shall not be exercisable, a share of Common Stock shall not be
issued pursuant to the exercise of an Option, and restrictions on Restricted
Stock awarded shall not lapse until such time as the Plan has been approved by
the shareholders of HSOG and unless the Award of Restricted Stock, exercise of
such Option and the issuance and delivery of such share pursuant thereto shall
comply with all relevant provisions of law, including, without limitation, the
Securities Act, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the shares of
Common Stock may then be listed, and shall be further subject to the approval of
counsel for HSOG with respect to such compliance. As a condition to the exercise
of an Option, HSOG may require the person exercising such Option to represent
and warrant at the time of any such exercise that the Common Stock is being
purchased only for investment and without any present intention to sell or
distribute such shares if, in the opinion of counsel for HSOG, such a
representation is required by any of the aforementioned relevant provisions of
law.
25. Effective Date and Termination of Plan.
25.1 Effective Date. The Plan is effective as of the of the date of its
adoption by the Board of Directors, subject to its approval by the shareholders
of HSOG, pursuant to Section 23.
-19-
<PAGE>
25.2 Termination of the Plan. The Board may terminate the Plan at any time
with respect to any shares that are not then subject to Options or Restricted
Stock. Termination of the Plan will not affect the rights and obligations of any
Participant with respect to Options or Restricted Stock awarded before
termination.
* * * * *
The undersigned, being the duly elected Secretary of The Home-Stake Oil &
Gas Company, does hereby certify that the foregoing The Home-Stake Oil & Gas
Company 1997 Incentive Stock Plan was approved by the Board of Directors as of
August 14, 1997 and by the shareholders of HSOG on December 11, 1997.
/s/ Chris K. Corcoran
---------------------------------------
Secretary
-20-
<PAGE>
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<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-END> Dec-31-1997
<CASH> 1,507,782
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<RECEIVABLES> 1,730,114
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0
0
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