UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT
UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
Commission file number 0-19766
HOME-STAKE OIL & GAS COMPANY
(Exact name of small business issuer as specified 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)
(918) 583-0178
(Registrant's telephone number)
Check whether the issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the Registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes X No
The number of shares outstanding of the Registrant's common stock, all
of which comprise a single class with $ .01 par value, as of November 8, 1999,
the latest practicable date, was 4,273,827.
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HOME-STAKE OIL & GAS COMPANY
FORM 10-QSB
SEPTEMBER 30, 1999
TABLE OF CONTENTS
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets - September 30, 1999
and December 31, 1998......................................... 4
Condensed Statements of Income and Retained
Earnings - nine months ended September 30, 1999 and 1998 ..... 5
Condensed Statements of Operations and Retained
Earnings - three months ended September 30, 1999 and 1998..... 6
Condensed Statements of Cash Flows - nine months ended
September 30, 1999 and 1998 .................................. 7
Notes to Condensed Financial Statements ........................ 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations .......................... 10
PART II - OTHER INFORMATION
Item 1. Legal Proceedings .............................................. 14
Item 2. Changes in Securities .......................................... 14
Item 3. Defaults upon Senior Securities ................................ 14
Item 4. Submission of Matters to a Vote of Security Holders ............ 14
Item 5. Other Information .............................................. 14
Item 6. Exhibits and Reports on Form 8-K ............................... 14
SIGNATURES ................................................................ 15
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
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HOME-STAKE OIL & GAS COMPANY
CONDENSED BALANCE SHEETS
(Unaudited)
ASSETS
September 30, December 31,
1999 1998
---- ----
Current assets:
Cash and cash equivalents..................... $ 117,704 $ 212,031
Accounts receivable........................... 1,174,573 1,476,995
Prepaid expenses.............................. 290,604 238,253
------------ ------------
Total current assets................... 1,582,881 1,927,279
Property and equipment, at cost:....... 48,894,983 48,080,346
Less accumulated depreciation,
depletion and amortization...... 26,232,449 24,727,189
------------ ------------
Net property and equipment............. 22,662,534 23,353,157
Other assets........................... 245,165 237,781
------------ ------------
$ 24,490,580 $ 25,518,217
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities...... $ 870,034 $ 897,720
Income taxes payable.......................... 211,679 -
Current note payable (Note 3)................. 1,320,000 1,945,000
------------ ------------
Total current liabilities.............. 2,401,713 2,842,720
Long-term note payable (Note 3)................. 2,200,000 4,290,000
Deferred income taxes........................... 3,250,637 2,914,813
Stockholders' equity:
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 shares issued..................... 45,174 45,174
Additional paid-in capital.................... 15,460,621 15,460,621
Retained earnings............................. 2,440,491 1,272,945
------------ ------------
17,946,286 16,778,740
Less treasury stock, at cost - 243,536 shares. (1,308,056) (1,308,056)
Total stockholders' equity............. 16,638,230 15,470,684
------------ ------------
$ 24,490,580 $ 25,518,217
============ ============
See accompanying notes.
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HOME-STAKE OIL & GAS COMPANY
CONDENSED STATEMENTS OF INCOME
AND RETAINED EARNINGS
Nine months ended September 30, 1999 and 1998
(Unaudited)
1999 1998
---- ----
Revenues:
Oil and gas sales............................. $ 7,813,713 $ 7,473,959
Gain on sales of assets....................... 187,147 28,342
Other income.................................. 183,785 247,188
------------ ------------
8,184,645 7,749,489
Costs and expenses:
Production.................................... 2,245,257 2,481,057
Exploration................................... 66,148 574,857
General and administrative.................... 1,211,130 1,778,646
Depreciation, depletion and amortization...... 2,152,361 2,410,359
Interest...................................... 313,369 256,856
Property and other taxes...................... 183,958 218,683
------------ ------------
6,172,223 7,742,458
------------ ------------
Income before provision for income taxes........ 2,012,422 29,031
Provision for (benefit from) income taxes:
Current....................................... 252,622 78,545
Deferred...................................... 335,824 (57,151)
------------ ------------
588,446 21,394
------------ ------------
Net income...................................... 1,423,976 7,637
Retained earnings at beginning of year.......... 1,272,945 6,359,862
Cash dividends ($ .06 per share)................ (256,430) (269,419)
============ ============
Retained earnings at end of period.............. $ 2,440,491 $ 6,098,080
============ ============
Weighted average number of common shares
outstanding:
Basic......................................... 4,273,827 4,517,877
============ ============
Diluted....................................... 4,273,827 4,671,127
============ ============
Net income per common share:
Basic......................................... $ .33 $ .00
===== =====
Diluted....................................... $ .33 $ .00
===== =====
See accompanying notes.
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HOME-STAKE OIL & GAS COMPANY
CONDENSED STATEMENTS OF OPERATIONS
AND RETAINED EARNINGS
Three months ended September 30, 1999 and 1998
(Unaudited)
1999 1998
---- ----
Revenues:
Oil and gas sales............................. $ 3,287,603 $ 2,358,282
Gain on sales of assets....................... 143,011 14,216
Other income.................................. 56,151 87,760
------------ ------------
3,486,765 2,460,258
Costs and expenses:
Production.................................... 723,291 809,023
Exploration................................... 12,393 421,571
General and administrative.................... 380,239 484,916
Depreciation, depletion and amortization...... 704,161 986,559
Interest...................................... 94,658 124,895
Property and other taxes...................... 68,738 95,294
------------ ------------
1,983,480 2,922,258
------------ ------------
Income (loss) before provision for income taxes. 1,503,285 (462,000)
Provision for (benefit from) income taxes:
Current....................................... 188,266 (37,815)
Deferred...................................... 269,596 (88,118)
------------ ------------
457,862 (125,933)
------------ ------------
Net income (loss)............................... 1,045,423 (336,067)
Retained earnings at beginning of period........ 1,480,545 6,522,871
Cash dividends ($ .02 per share)................ (85,477) (88,724)
============ ============
Retained earnings at end of period.............. $ 2,440,491 $ 6,098,080
============ ============
Weighted average number of common shares
outstanding:
Basic......................................... 4,273,827 4,503,840
============ ============
Diluted....................................... 4,273,827 4,659,090
============ ============
Net income (loss) per common share:
Basic......................................... $ .24 $(.07)
===== ======
Diluted....................................... $ .24 $(.07)
===== ======
See accompanying notes.
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HOME-STAKE OIL & GAS COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
Nine months ended September 30, 1999 and 1998
(Unaudited)
1999 1998
---- ----
Operating activities:
Oil and gas sales, net of production taxes.... $ 7,351,549 $ 7,451,190
Other......................................... 183,785 247,188
------------ ------------
7,535,334 7,698,378
Cash paid to suppliers and employees.......... 2,998,453 4,196,546
Interest paid................................. 313,369 256,856
Property and other taxes...................... 183,958 218,683
Income taxes paid (refunds received).......... (285,144) 284,678
------------ ------------
3,237,636 4,956,763
------------ ------------
Net cash provided by operating activities... 4,297,698 2,741,615
Investing activities:
Proceeds from sales of property and equipment. 559,575 118,453
Acquisition of property and equipment......... (1,981,423) (8,975,424)
------------ ------------
Net cash used in investing activities....... (1,421,848) (8,856,971)
Financing activities:
Loan proceeds................................. 735,000 6,600,000
Note payments................................. (3,450,000) (660,000)
Purchase of treasury stock.................... - (651,076)
Cash dividends paid........................... (255,177) (263,469)
------------ ------------
Net cash provided by (used in)
financing activities....................... (2,970,177) 5,025,455
------------ ------------
Net decrease in cash and cash equivalents....... (94,327) (1,089,901)
Cash and cash equivalents at beginning of year.. 212,031 1,507,782
------------ ------------
Cash and cash equivalents at end of period...... $ 117,704 $ 417,881
============ ============
See accompanying notes.
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HOME-STAKE OIL & GAS COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Description of business
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, New Mexico and Texas.
Note 1 - General
The unaudited financial information provided in this report includes all normal
recurring adjustments which are, in the opinion of management, necessary to
fairly present the financial position, results of operations and cash flows of
the Company. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been omitted or condensed. The Company believes that the
disclosures herein are adequate to make the information presented not
misleading; however, these financial statements should be read in conjunction
with the audited financial statements and related notes thereto included in the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1998.
The results for interim periods are not necessarily indicative of trends or of
results to be expected for the full year.
Note 2 - Net income per share
In accordance with Statement of Financial Accounting Standards No. 128, "Earning
per Share", net income per common share is computed using two calculations;
basic net income per share and diluted income per share. Basic net income per
share is calculated based on the weighted-average shares outstanding during the
period. Diluted net income per share includes the dilutive effect of stock
options. Options to purchase 275,650 shares of common stock at an exercise price
of $4.50 per share were outstanding at September 30, 1999, but were not included
in the computation of diluted net income per share as their inclusion would be
anti-dilutive.
Note 3 - Note payable
Notes payable at September 30, 1999 consisted of the following balances:
Bank note due May 1, 2001, requiring monthly principal
payments of $110,000, plus interest at prime
less 1/2% (73/4% at September 30, 1999)................... $ 3,520,000
Less current portion........................................... 1,320,000
------------
$ 2,200,000
============
On November 8, 1999, the Company executed a new credit facility that provides
for a term loan due September 30, 2002 in the amount of $3.4 million and
requires monthly principal payments of $100,000, plus interest at bank prime
less 3/4%. Proceeds from this note will be used to retire the bank loan
described above. In addition, the new credit facility provides for a revolving
term line of credit in the amount of $5 million, available until November 30,
2000 and provides for monthly payments of interest at bank prime less 1%. In
connection with this line of credit, the Company will pay a commitment fee of
three-eights of one per cent (3/8%) per annum on the unused portion of the line.
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HOME-STAKE OIL & GAS COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note 4 - Contingencies
The Company is involved in various 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.
Note 5 - Stockholders Equity
On November 4, 1999, the Board of Directors granted qualified stock options in
varying amounts to all employees totaling 177,686 shares. Such options are fully
vested, have an option price of $5 per share and expire 10 years after the date
of grant.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Results of Operations - First nine months of 1999 compared with first nine
months of 1998
Net income for the nine months ended September 30 increased $1,416,339 from
$7,637 in 1998 to $1,423,976 in 1999. The principal reasons for this increase
are as follows:
Oil sales increased $429,974 (12%) in 1999. The Company's average oil price
increased from $12.65 per barrel in 1998 to $15.24 per barrel in 1999. This
increase is partially offset by a decrease in oil production from 286,651
barrels in 1998 to 266,048 barrels in 1999. The decrease in production volumes
is primarily attributable to natural depletion of existing reserves.
Gas sales decreased 2% ($77,457), primarily due to the decrease in the average
gas price which decreased from $2.07 in 1998 to $1.88 in 1999. Gas production
increased from 1,812,713 mcf in 1998 to 1,954,893 mcf in 1999, primarily as a
result of the additional production provided by certain producing gas properties
(the "Bass Properties") which were purchased from Sid R. Bass, Inc. et al on
March 31, 1998.
Gains on sales of assets increased $158,805. During 1999, the Company sold its
small, non-operated interest in a Montana oil field at a gain of approximately
$142,000.
Production expenses decreased $235,800, due primarily to lower lease operating
expenses resulting from a lower incidence of repairs and maintenance expenses.
This decrease was partially offset by an increase in production taxes of
$103,744, the result of higher product sales described above.
Exploration costs decreased $508,709 in 1999. Dry hole costs decreased $431,082
in 1999 due to a lower incidence of dry holes. Condemned and abandoned property
expense decreased $77,627.
General and administrative expenses decreased $567,516, from $1,778,646 in 1998
to $1,211,130 in 1999. The primary reasons for this decrease are lower personnel
and related costs. 1998 expense also includes approximately $62,800 attributable
to the merger of The Home-Stake Royalty Corporation with and into the Company,
whereas 1999 includes no such expense.
Depreciation, depletion and amortization decreased $257,998. In the fourth
quarter of 1998, the Company recorded year-end impairment adjustments of
$4,775,867 to the carrying values of certain of its properties due to the
significant decreases in the average prices of crude oil and natural gas. These
decreases lowered the amortizable value of such properties, having the effect of
decreasing future rates of amortization.
Interest expense increased $56,513 in 1999. In 1998 the Company had no
outstanding bank debt until March 31 when it borrowed $6.6 million to finance
the purchase of the Bass Properties. During 1999 the Company has paid interest
on bank debt during the entire nine month period.
Results of Operations - Third quarter 1999 compared with third quarter 1998
Net income for the third quarter increased $1,045,423 from a loss of $336,067 in
1998 to income of $1,381,490 in 1999. The principal reasons for this increase
are as follows:
Oil sales increased $786,680 (79%). This increase is primarily attributable to
the increase in average oil prices from $10.70 in 1998 to $19.92 in 1999. This
increase was partially offset by the decrease in the Company's oil production
from 93,630 barrels in 1998 to 89,780 barrels in 1999. This decrease in volumes
is primarily attributable to the natural depletion of existing reserves.
Gas sales increased 11% ($147,537), primarily due to the increase in the average
price of natural gas from $1.87 in 1998 to $2.27 in 1999. Gas production
decreased from 704,240 mcf in 1998 to 646,639 mcf in 1999.
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Gains on sales of assets increased $128,795. During 1999, the Company sold its
small, non-operated interest in a Montana oil field at a gain of approximately
$142,000.
Production expenses decreased $85,732, due principally to a decrease of $178,118
in lease operating expenses, primarily resulting from a lower incidence of
repairs and maintenance expenses. This decrease was partially offset by an
increase in production taxes of $92,386, the result of higher product sales
described above.
Exploration costs decreased $409,178 in 1999. Dry hole costs decreased $351,650
in 1999 due to a lower incidence of dry holes. Condemned and abandoned property
expense decreased $57,528.
General and administrative expenses decreased $104,677, from $484,916 in 1998 to
$380,239 in 1999. The primary reason for this decrease are lower personnel and
related costs.
Depreciation, depletion and amortization decreased $282,398. In the fourth
quarter of 1998, the Company recorded year-end impairment adjustments of
$4,775,867 to the carrying values of many of its properties due to the
significant decreases in the average prices of crude oil and natural gas. These
decreases lowered the amortizable value of such properties, having the effect of
decreasing future rates of amortization.
Interest expense decreased $30,237 in 1999. Expense in 1998 included interest on
the March 31, 1998 bank loan wherein the Company borrowed $6.6 million to
finance the purchase of the Bass Properties. Since that time, the Company has
made monthly payments which have lowered the outstanding balance and related
interest.
Financial Condition and Liquidity
The Company's operating activities have traditionally been self-financed through
internally generated cash flows. The principal use of cash flows has generally
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.
The Company's capital budget for 1999, excluding acquisitions, is $1.2 million.
During the first nine months of the year the Company had capital expenditures of
approximately $1.9 million, which includes $ .9 million associated with various
acquisitions described hereafter. In addition, the Company has current drilling
commitments for 1999 of approximately $550,000 and 2000 commitments of
approximately $464,000. The Company is also continuing to actively pursue
opportunities for the acquisition of producing properties whenever possible. In
April 1999, the Company acquired interests in two producing gas properties at a
cost of $632,500 and exercised its preferential purchase right to acquire
additional interest in a producing oil well operated by the Company. Cost for
this additional interest was approximately $184,000. In addition, in June the
Company acquired an additional interest in another producing well it operates at
a cost of $56,000. In connection with these acquisitions, the Company borrowed
$735,000 under its revolving line-of-credit with the bank, all of which has now
been repaid.
The Company expects to finance its remaining 1999 operations and drilling
through internally generated cash flows. In addition, the Company has a $5
million line of credit described below. There is no outstanding loans against
this line of credit.
On November 8, 1999, the Company executed a new credit facility that provides
for a term loan due September 30, 2002 in the amount of $3.4 million and
requires monthly principal payments of $100,000, plus interest at bank prime
less 3/4%. Proceeds from this note will be used to retire the prior bank loan
described in Note 3 on page 8 to this Form 10Q-SB. In addition, the new credit
facility provides for a revolving term line of credit in the amount of $5
million, available until November 30, 2000 and provides for monthly payments of
interest at bank prime less 1%. In connection with this line of credit, the
Company will pay a commitment fee of three-eights of one per cent (3/8%) per
annum on the unused portion of the line.
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Year 2000 Readiness
The Company began addressing the impact of Year 2000 (Y2K) on its operations in
mid 1997. This problem exists for certain computer systems due to the use of a
two digit year in most computer software. If left unchanged, beginning on
January 1, 2000, those computers would interpret the year as 1900 instead of
2000. Although the primary affects of this problem will be related to computer
systems, the problem has the potential of affecting other office equipment such
as copiers, facsimile machines, telephone system, postage metering equipment and
any other equipment or devices which might contain date-dependent embedded
computer processor chips.
The Company has already completed the modification of all in-house generated
computer software to make it Y2K compliant. This includes all phases of the
Company's financial and property accounting systems. Each individual computer
processor has been evaluated and determined to be Y2K compliant. All office
equipment including copiers, facsimile machines, phone system and postage
metering equipment has also been found to be Y2K compliant.
Most of the field equipment used by the Company does not contain date-dependent
embedded computer processors. Those that do have been evaluated for Y2K
compliancy. In addition, to the best of the Company's knowledge, all of this
equipment allows for manual operation of the electronic system in case of a
power or internal system failure thus permitting the Company to bypass any
problem which might occur.
The Company has requested compliancy information from major third-party
suppliers, field equipment manufacturers and other companies from whom it
receives revenues. All third party vendor responses to-date have indicated that
they anticipate total compliance of all critical systems prior to the end of the
year. As for those few vendors who have not yet responded, the Company has
requested that they respond as soon as possible.
All Y2K compliance modifications and confirmations have been or will be done by
existing Company personnel in the ordinary performance of their duties, without
incurring the expense of outside consultants or additional employees. The
Company is unable to estimate its internal costs associated with its Y2K
readiness efforts.
The Company's contingency plans include the complete backup of all computer
systems and data at December 31, 1999 and the possibility of manual over-rides
of any affected field operations. Services of any major outside third-party that
indicates expected non-compliance at year-end will be moved to compliant service
providers wherever possible.
The Company believes the most likely worst-case scenario would involve limited
failures by third party vendors and is making every effort to ensure compliance
with third party vendors. The Company does not expect any significant disruption
in its operations or business activities. However, the Company's operations are
part of an industry that is heavily dependent on an interconnected network of
companies and transportation facilities that are beyond the control of the
Company and which could be adversely affected by Y2K problems. In a recent
survey by the oil and gas working group of the President's Council on Year 2000
Conversion, 94% of the 1,000 responding companies reported that they would be
Y2K ready by September 30, 1999. Given the nature of the Company's activities
and reliance on outside third-parties, the Company cannot guarantee that some
Y2K problems will not arise. If Y2K problems do arise, there is no assurance
that such problems might not have a material adverse impact on the Company's
financial condition or results of operations.
The above information is designated as "Year 2000 Readiness Disclosure" pursuant
to the Year 2000 Information and Readiness Disclosure Act, Public Law No.
105-271, 1998. The Year 2000 Readiness Disclosure Act does not insulate the
Company from liability under the Federal securities laws with respect to
disclosures relating to Y2K information.
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.
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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 anticipated costs of wells to be drilled, future
capital expenditures (including the amount and nature thereof), anticipated date
of repayment of bank debt, Y2K readiness 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
developments may differ materially from those expressed in the forward-looking
statements. The Company assumes no obligation to update publicly any
forward-looking statements, whether as a result of new information, future
events or otherwise.
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Part II. Other Information
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
The Company today announced that it will explore various strategic
alternatives to maximize shareholder value and improve shareholder
liquidity. Robert C. Simpson, President, reports "our Company's
performance for 1999 has shown a remarkable improvement over that of
1998 with improvements in our development drilling programs and net
income and with significant reductions in expenses and corporate
debt. Nonetheless, the price of our common stock price, which trades
on the NASDAQ small cap market, has not reacted positively to this
performance. I believe this is partially caused by many of our larger
shareholders not desiring to trade their stock, resulting in very low
trading volumes which produces a questionable reflection of the true
value of our common stock." Accordingly, the Company will explore
various strategic alternatives and may engage an investment banking
firm to assist it.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
The following documents are included as exhibits to this Form 10-QSB.
Exhibit
Number Description
10.1 Special Loan Agreement dated November 8, 1999 between the
Company and Bank of Oklahoma N.A.
27 Financial Data Schedule.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended
September 30, 1999.
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Signatures
In accordance with the requirements of the Exchange Act , the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Home-Stake Oil & Gas Company
(Registrant)
Date: November 11, 1999 By: /s/ Robert C. Simpson
--------------------------------------------
Robert C. Simpson
Chairman of the Board, C.E.O.
and President
Date: November 11, 1999 By: /s/ Chris K. Corcoran
--------------------------------------------
Chris K. Corcoran
Executive Vice President,
Chief Financial Officer and
Corporate Secretary
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SPECIAL LOAN AGREEMENT
This Agreement is made and entered into as of November 8, 1999, between
HOME-STAKE OIL & GAS COMPANY, an Oklahoma corporation (the "Borrower"), and BANK
OF OKLAHOMA, NATIONAL ASSOCIATION, a national banking association (the "Bank");
WHEREAS, the Borrower has applied to the Bank to obtain two separate loans
described as follows:
a) a "Term Loan" in the principal sum of $3,400,000.00 to be evidenced by the
promissory note of the Borrower in such amount to be payable to the order
of the Bank in 33 consecutive monthly installments of principal, each in
the amount of $100,000.00, due and payable on the last day of each month,
commencing December 31, 1999, and a final installment due September 30,
2002, in the amount of all remaining unpaid principal, together with
interest on the unpaid balances of principal at an annual rate of interest
equal from day to day to three-fourths of one percent per annum less than
that annual rate of interest from time to time established and announced by
Chase Manhattan Bank of New York, New York ("Chase Bank") as its prime rate
of interest (the "Chase Prime Rate");
b) a "Revolving Credit Loan" to be evidenced by the promissory note of the
Borrower in the principal amount of Five Million Dollars ($5,000,000.00)
payable to the order of the Bank on November 30, 2000, and bearing
interest, payable monthly on the last day of each month, commencing
December 31, 1999, and at maturity on November 30, 2000, at an annual rate
of interest equal from day to day to one percent per annum less than the
Chase Bank Prime Rate; and
c) the promissory note evidencing the Term Loan is referred to herein as the
"Term Note" and the promissory note evidencing the Revolving Credit Loan is
referred to herein as the "Revolving Credit Note." Each reference herein to
the Term Loan, the Revolving Credit Loan, the Term Note or the Revolving
Credit Note shall include a reference to each renewal, extension, deferral,
rearrangement, substitution and change in form thereof or in the terms
thereof which may be from time to time and for and upon any term or terms
effected by agreement between the Borrower and the Bank; and
-1-
<PAGE>
WHEREAS, the Borrower and the Bank have agreed upon the above described
terms of each Note and each Loan and additional representations, covenants,
warranties and agreements set forth herein.
NOW, THEREFORE, in consideration of the mutual representations, covenants
and undertakings stated herein the Borrower and the Bank represent, warrant,
covenant and agree to and with each other as more fully hereinafter stated.
I. Representations of the Borrower
1.1 Due Organization and Corporate Capacity. The Borrower is a corporation
duly organized and existing under and by virtue of the laws of the State of
Oklahoma and its corporate charter and franchise is in good standing and
unimpaired in the State of Oklahoma. The governing documents of the Borrower
authorize the Borrower to conduct all the business and transactions currently
conducted and transacted by it and the execution by the Borrower of this
Agreement, the above described promissory notes and all other documents to be
executed by the Borrower in connection with the Loans do not and will not
violate, contravene or be otherwise prohibited by any term or provision of the
Articles or Certificate of Incorporation or By-laws of the Corporation.
1.2 Due Authorization. The execution of this Agreement and the Notes, when
executed on behalf of the Borrower by its Chairman of the Board, President and
Chief Executive Officer are and shall be, when executed, within authority
clearly established by the governing body of the Borrower and the execution of
such documents (collectively the "Loan Documents") on behalf of the Borrower and
its due observance of, compliance with and performance of the terms, provisions
and undertakings stated and to be stated therein do not and will not violate or
contravene any term or provisions of any of the Borrower's governing documents
or constitute a breach of or default under any term or provision of any
indenture, encumbrance or other undertaking by which the Borrower or any of its
properties are bound.
1.3 Financial Statements. All of the financial statements of the Borrower
furnished by it to the Bank in connection with its application for the Loans
are, as of the respective dates thereof and in respect of the periods covered
thereby, substantially true and correct and were prepared in accordance with
generally accepted principles of accounting. Such statements do not contain any
-2-
<PAGE>
materially false or misleading information nor omit or fail to state any
material fact(s) required to be stated in order to make any of such statements
not materially false or misleading.
II. Use of Loan Proceeds
2.1 Term Loan Proceeds. The proceeds of the Term Loan are intended to be
applied by having the Bank purchase from Bank of America, N.A. the loans
heretofore made by it and its predecessors to the Borrower and secured by
mortgage and deed of trust indentures and security interests covering oil and
gas properties of the Borrower. Such loans will be purchased by the Bank from
Bank of America, N.A. for the amount of unpaid principal and accrued interest
and unpaid charges, if any, in respect thereof, and will be without recourse
upon Bank of America, N.A. which shall assign to the Bank all promissory notes
of the Borrower presently payable to that Bank and all mortgages, deeds of trust
and other documents creating or evidencing any security interests created by the
Borrower. The Borrower agrees with the Bank that upon acquisition of such
documents by the Bank from Bank of America, N.A. that the Notes of the Borrower
evidencing the Term Loan and the Revolving Credit Loan shall be deemed to be
fully secured by such liens and security interests created or purportedly
created by the loan documents to be obtained by the Bank from Bank of America,
N.A.
Subsequent to the acquisition by the Bank of the above referenced loan
documents held by Bank of America, N.A. the Borrower will execute appropriate
documents with the Bank to confirm to the Bank that the Notes became secured by
such Bank of America, N.A. loan documents as and when the same were acquired by
the Bank. This may be deemed necessary or appropriate by counsel for the Bank to
require the recording and filing of supplemental mortgage, deed of trust and
related documents at the expense of the Borrower, in which event the Borrower
shall execute and deliver to the Bank such documents and agreements as may be
reasonably required as hereinafter provided.
2.2 The Revolving Credit Loan. The Loan evidenced by the Revolving Credit
Note is primarily intended to provide funding for the Borrower to acquire
additional oil and gas properties and for general working capital purposes.
a) In addition to the interest required to be paid upon the Revolving
Credit Note the Borrower hereby agrees to pay to the Bank a "standby
fee" computed upon the amounts to which the Borrower has not utilized
-3-
<PAGE>
this credit at an annual rate of interest equal to three-eighths
(3/8ths) of one percent per annum. Within ten days following the close
of each quarter-annual period the Bank will invoice the Borrower for
the amount of such fee which shall be based upon the average daily
amount of the available Revolving Credit not utilized by the Borrower
over each day of the quarter-annual period.
b) The Borrower shall not be entitled to receive any advance of funds
under the Revolving Credit at any time if, at such time there shall
have occurred and remained unremedied any event which would, of itself
or but for the giving of any notice or lapse of any time, constitute a
default or event of default under the terms of the Term Loan Note, the
Revolving Credit Note, this Loan Agreement or any supplement hereto or
expressed in any extension, deferral, modification, substitution or
replacement of either or both of the Notes.
c) During the term of the Revolving Credit Loan the Borrower shall be
entitled to obtain letters of credit to be issued by the Bank for the
account of the Borrower as advances under the Revolving Credit Loan
and for each such letter of credit the Borrower shall pay to the Bank,
at the time of issue, a fee in an amount equal to two percent of the
maximum amount of credit stated in the letter of credit. The amount of
each letter of credit, when issued, shall reduce the amount of the
Revolving Credit available under the Revolving Credit Loan so long as
such letter of credit is outstanding and, for purposes of the 3/8th of
one percent stand-by fee applicable to the utilized portion of the
Revolving Credit Loan, such fee shall not be applicable to the
outstanding amount of each letter of credit.
III. Bank of America Loan Documents
3.1 It is understood and agreed between the Borrower and the Bank that in
purchasing the obligations of the Borrower to Bank of America, N.A. by the Bank
the purpose of such procedure is to capture the lien and security interest
priorities to which the mortgages, deeds of trust and security agreements
(herein the "BA Indentures") are entitled and to consolidate, amend and
supplement such indentures to substitute the obligations and indebtedness of the
-4-
<PAGE>
Borrower to the Bank in respect of the Term Loan and the Revolving Credit Loan
and any related obligations of the Borrower in respect thereof. The documents to
be executed for such purpose may substitute different events and occurrences
which may constitute events of default under the BA Indentures. Notwithstanding
any delay in the execution of such documents the Borrower agrees that the Term
Loan and Revolving Credit Loan shall be secured by the liens and security
interests of the BA Indentures immediately upon the purchase by the Bank of
indebtedness secured by such indentures.
IV. Affirmative Covenants of Borrower
The Borrower covenants and agrees with the Bank that for so long as any
indebtedness of the Borrower in respect of the Term Loan or the Revolving Credit
Loan or any extension, renewal, rearrangement or other form of any such
indebtedness shall remain outstanding and unpaid:
4.1 The Borrower will promptly advise the Bank in writing of the occurrence
of any material adverse change in the financial condition of the Borrower, and
any proposals or program to be effected by the Borrower in respect thereof.
4.2 The Borrower will promptly advise the Bank in writing of any pending or
threatened claim or litigation asserted against the Borrower which, if
successfully prosecuted, would have a material adverse effect upon the financial
condition of the Borrower materially and adversely affecting the anticipated
operations of the Borrower.
4.3 Within forty-five days following the close of each quarter-annual
fiscal year of the Borrower the Borrower will furnish to the Bank the following
financial statements concerning the financial conditions of the Borrower, as of
the close of such fiscal period and the results of its operations for such
period, in each case certified by a senior financial officer of the Borrower to
have been prepared in accordance with generally accepted principles of
accounting:
a) a Balance Sheet or Statement of assets and liabilities as of the close
of such period;
b) a Statement of Profit and Loss or of Income and Expense for such
period;
c) a statement of changes in capital accounts as a result of operations
during such period; and
d) any other similar or relevant financial statements customarily
prepared for the Borrower pertaining to its operations and
transactions during such fiscal period.
-5-
<PAGE>
4.4 The Borrower will at all times maintain a net worth, determined in
accordance with generally accepted principles of accounting, of not less than
fourteen million dollars.
4.5 Within ninety days following the close of each fiscal year of the
Borrower the Borrower will furnish to the Bank financial statements of the
Borrower equivalent to those specified in Section 4.3 each of which shall be
certified by a reputable and independent certified public accountant or firm of
such accountants to have been prepared in accordance with generally accepted
principles of accounting.
V. Negative Covenants of Borrower
The Borrower covenants and agrees that for so long as any indebtedness of
the Borrower in respect of the Term Loan or the Revolving Credit Loan or any
extension, renewal, rearrangement or other form of any such indebtedness shall
remain outstanding and unpaid:
5.1 The Borrower will not create or suffer to be created or to exist any
mortgage, deed of trust, security agreement or like encumbrance to become
effective upon any oil or gas properties of the Borrower not theretofore and at
the time thereof subject to mortgages, deeds of trust and security agreements
granted to the Bank to secure the payment of any indebtedness evidencing the
Term Loan, Revolving Credit Loan or any extension, renewal, continuation or
rearrangement thereof unless the Borrower shall have advised the Bank in writing
of the intention of the Borrower to create or suffer to exist such mortgage,
deed of trust, security agreement or like encumbrance and the Bank shall have
consented thereto in writing.
5.2 Except as provided in the Shareholders' Rights Agreement of the Bank,
as amended through February 10, 1995 (copies of which have been delivered to the
Bank and which have not been modified or amended, as of the date hereof) the
Borrower will not declare, pay (except as provided below) or become obligated to
declare or pay any dividend on any class of its capital stock now or hereafter
outstanding, make any distribution of cash or property to holders of any shares
of such stock, or redeem, retire, purchase or otherwise acquire, directly or
indirectly, any shares of any class of its capital stock now or hereafter
-6-
<PAGE>
outstanding; provided, however, that if no Event of Default or Default shall
then exist, notwithstanding the above, the Borrower may declare and pay
dividends upon its outstanding shares of capital stock not in any fiscal year to
exceed fifteen percent (15%) of its net cash from operations, less scheduled
payments upon indebtedness to the Bank. For purposes of this Agreement "net cash
from operations" shall mean gross income (net of production taxes) paid minus
cash paid to suppliers in the normal course of business.
5.3 Except with prior written approval of the Bank the Borrower will not
incur, or become obligated to incur, any Funded Indebtedness in excess of
$500,000.00. For the purpose of this Agreement "Funded Indebtedness" shall mean
indebtedness evidenced by any bond(s), debenture(s) or promissory note(s) or
like or similar undertakings but shall not include indebtedness for operating
expenses incurred in the ordinary course of business and payable according to
customary trade terms or income, ad valorem, excise or similar taxes paid prior
to becoming delinquent. Funded Indebtedness shall not include the Term Loan,
Revolving Credit Loan or any other indebtedness which may become due to the
Bank.
5.4 The Borrower shall provide to the Bank on or before March 15 of each
year an engineering report prepared by an engineer or firm of engineers
acceptable to the Bank and in form and content acceptable to the Bank, on all
major producing oil and gas leases, royalties and minerals owned by the
Borrower, including but not limited to all of the Mortgaged Properties. Such
engineering report shall evaluate the proved producing oil and gas reserves
attributable to the Borrower's interest in the Mortgaged Property and other oil
and gas properties owned by Borrower, together with a forecast of the rates of
production therefrom and expenses attributable thereto and the estimated cash
flow to the Borrower from such production for the estimated economic life of
such property.
VI. Events of Default, Remedies
If at any time when any indebtedness evidenced by the Term Note or the
Revolving Credit Note shall remain outstanding and unpaid any one or more of the
following events shall occur:
a) The Borrower should fail to make any payment of principal or interest
upon any indebtedness evidenced by the Term Note or the Revolving
Credit Note as and when the same shall become due and payable.
b) Any representation of the Borrower stated in this Loan Agreement
should prove or be determined to be materially false and misleading or
to have omitted any statement of fact necessary to be stated in order
to make any representation not materially false or misleading and such
matter should not be remedied within thirty days after the Bank shall
have notified the Borrower in writing of such misrepresentation.
-7-
<PAGE>
c) The Borrower shall have failed to keep, observe or comply with any
term or provision of this Agreement, including any amendment and
supplement hereto, and such default shall continue unremedied for a
period of thirty days after the Bank shall have notified the Borrower
in writing of such default. This provision shall not be interpreted to
require any opportunity to remedy any default under paragraph 6.1
hereinabove or paragraphs 6.4 or 6.5 hereof.
d) The Borrower should make any assignment for the benefit of creditors
or to institute any proceeding under the Bankruptcy Code seeking or
consenting to any relief afforded by such Code or any chapter or
provision thereof or should fail to consent to the filing of any
involuntary petition under the Bankruptcy Code or any chapter thereof.
e) Any involuntary proceeding should be filed against the Borrower by any
person or entity under the Bankruptcy Code seeking any relief in
respect of any claim or claims against the Borrower and such
proceeding should not be stayed or dismissed within thirty days
thereafter.
f) Any judgment in excess of $250,000.00 should be obtained by any person
or entity against the Borrower in any court of competent jurisdiction
and should not be stayed or released within thirty days thereafter or
should become final and no longer appealable.
g) Any event should occur which would, of itself or with lapse of any
time or giving of any notice, authorize any person or entity to
accelerate the payment of any indebtedness of the Borrower in excess
of $250,000.00 or to exercise any remedy for collection of any such
indebtedness or claim in respect thereof and such default should not
be remedied within thirty days after the Bank shall have notified the
Borrower of such occurrence. This paragraph shall apply to any default
or right of acceleration which would authorize Bank of America, N.A.
to exercise any remedy under any BA Indenture prior to the time such
indenture and the indebtedness secured thereby is transferred to the
Bank.
-8-
<PAGE>
h) If the Borrower should fail to reimburse the Bank the amount of any
drawing honored by it under any letter of credit issued by it for the
account of the Borrower. Notwithstanding this provision the Bank shall
be entitled, at its option, to charge the amount of any such drawing
as an amount drawn by the Borrower as an advance of loan funds under
the Revolving Credit Loan.
i) Upon the occurrence of any default or event of default specified in
the foregoing subparagraphs, the Bank shall be entitled to accelerate
the maturity of the indebtedness referred to in this Agreement and to
exercise any right(s) and remedy(ies) available at law or in equity to
collect such indebtedness.
VII. Miscellaneous
7.1 Governing Law. This Agreement, each of the Notes and any further loan
documents which may or shall be executed by the Borrower and the Bank in
connection with the Term Note and the Revolving Credit Note shall be interpreted
in accordance with and governed by the laws of the State of Oklahoma.
7.2 Bank Loan Expenses. The Borrower will promptly reimburse the Bank for
the reasonable attorney fees of Conner & Winters, A Professional Corporation, in
connection with the preparation of this Loan Agreement and any Supplements or
amendments to be executed with the acquisition by the Bank of the BA Indentures
and any amendments or supplements thereto and hereto to adopt such indentures to
secure the indebtedness of the Borrower to the Bank identified in this Loan
Agreement. If it shall be deemed necessary or otherwise required to so adopt
such indentures that any documents be prepared and filed or recorded in any
public filing office or recording office the Borrower will promptly reimburse
the Bank for all reasonable expenses incurred by it for such purpose.
7.3 The terms, provisions, agreements on the part of the Borrower and the
Bank under this Agreement, the notes and any documents supplementary thereto
shall be binding upon and shall inure to the benefit of each party hereto and
their respective successors and assigns.
IN WITNESS WHEREOF, the Borrower and the Bank have executed this Agreement
as of the date and year first hereinabove mentioned in multiple counterparts,
each of which shall constitute an original copy hereof.
-9-
<PAGE>
HOME-STAKE OIL & GAS COMPANY
By /s/ Robert C. Simpson
------------------------------------------
Robert C. Simpson, Chairman of the Board,
President and Chief Executive Officer
BANK OF OKLAHOMA, NATIONAL
ASSOCIATION
By /s/ W. L. Morris
------------------------------------------
W.L. Morris, Vice President
-10-
<PAGE>
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<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-END> Sep-30-1999
<CASH> 117,704
<SECURITIES> 0
<RECEIVABLES> 1,174,573
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,582,881
<PP&E> 48,894,983
<DEPRECIATION> 26,232,449
<TOTAL-ASSETS> 24,490,580
<CURRENT-LIABILITIES> 2,401,713
<BONDS> 2,200,000
0
0
<COMMON> 45,174
<OTHER-SE> 15,460,621
<TOTAL-LIABILITY-AND-EQUITY> 24,490,580
<SALES> 7,813,713
<TOTAL-REVENUES> 8,184,645
<CGS> 0
<TOTAL-COSTS> 2,245,257
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<INTEREST-EXPENSE> 313,369
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<INCOME-TAX> 588,446
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<NET-INCOME> 1,423,976
<EPS-BASIC> .33
<EPS-DILUTED> .33
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