UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT
UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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 July 31, 1999, the
latest practicable date, was 4,273,827.
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HOME-STAKE OIL & GAS COMPANY
FORM 10-QSB
JUNE 30, 1999
TABLE OF CONTENTS
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets -
June 30, 1999 and December 31, 1998...................... 4
Condensed Statements of Income and Retained
Earnings - six months ended June 30, 1999 and 1998 ...... 5
Condensed Statements of Income and Retained
Earnings - three months ended June 30, 1999 and 1998 .... 6
Condensed Statements of Cash Flows -
six months ended June 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 ........................................... 13
Item 2. Changes in Securities ....................................... 13
Item 3. Defaults upon Senior Securities ............................. 13
Item 4. Submission of Matters to a Vote of Security Holders ......... 13
Item 5. Other Information ........................................... 13
Item 6. Exhibits and Reports on Form 8-K ............................ 13
SIGNATURES ............................................................. 14
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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
June 30, December 31,
1999 1998
---- ----
Current assets:
Cash and cash equivalents...................... $ 1,100 $ 212,031
Accounts receivable............................ 1,472,325 1,476,995
Prepaid expenses............................... 305,074 238,253
------------ ------------
Total current assets.................... 1,778,499 1,927,279
Property and equipment, at cost:................. 49,236,336 48,080,346
Less accumulated depreciation,
depletion and amortization.................. 25,946,566 24,727,189
------------ ------------
Net property and equipment.............. 23,289,770 23,353,157
Other assets..................................... 242,776 237,781
------------ ------------
$ 25,311,045 $ 25,518,217
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities....... $ 963,288 $ 897,720
Income taxes payable........................... 23,432 -
Current note payable (Note 3).................. 2,255,000 1,945,000
------------ ------------
Total current liabilities............... 3,241,720 2,842,720
Long-term note payable (Note 3).................. 3,410,000 4,290,000
Deferred income taxes............................ 2,981,041 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.............................. 1,480,545 1,272,945
------------ ------------
16,986,340 16,778,740
Less treasury stock, at cost - 243,536 shares.. (1,308,056) (1,308,056)
------------ ------------
Total stockholders' equity.............. 15,678,284 15,470,684
------------ ------------
$ 25,311,045 $ 25,518,217
============ ============
See accompanying notes.
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HOME-STAKE OIL & GAS COMPANY
CONDENSED STATEMENTS OF INCOME
AND RETAINED EARNINGS
Six months ended June 30, 1999 and 1998
(Unaudited)
1999 1998
---- ----
Revenues:
Oil and gas sales.............................. $ 4,526,110 $ 5,115,677
Gain on sales of assets........................ 44,136 14,126
Other income................................... 127,634 159,428
------------ ------------
4,697,880 5,289,231
Costs and expenses:
Production..................................... 1,521,966 1,672,034
Exploration.................................... 53,755 153,286
General and administrative..................... 830,891 1,293,730
Depreciation, depletion and amortization....... 1,448,200 1,423,800
Interest....................................... 218,711 131,961
Property and other taxes....................... 115,220 123,389
------------ ------------
4,188,743 4,798,200
Income before provision for income taxes......... 509,137 491,031
Provision for income taxes:
Current........................................ 64,356 116,360
Deferred....................................... 66,228 30,967
------------ ------------
130,584 147,327
------------ ------------
Net income....................................... 378,553 343,704
Retained earnings at beginning of year........... 1,272,945 6,359,862
Cash dividends ($ .04 per share)................. (170,953) (180,695)
------------ ------------
Retained earnings at end of period............... $ 1,480,545 $ 6,522,871
============ ============
Weighted average number of common
shares outstanding:
Basic.......................................... 4,273,827 4,517,363
========== ==========
Diluted........................................ 4,273,827 4,772,613
========== ==========
Net income per common share:
Basic.......................................... $ .09 $ .08
===== =====
Diluted........................................ $ .09 $ .07
===== =====
See accompanying notes.
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HOME-STAKE OIL & GAS COMPANY
CONDENSED STATEMENTS OF INCOME
AND RETAINED EARNINGS
Three months ended June 30, 1999 and 1998
(Unaudited)
1999 1998
---- ----
Revenues:
Oil and gas sales.............................. $ 2,358,538 $ 2,790,758
Gain on sales of assets........................ 40,811 14,126
Other income................................... 51,220 63,440
------------ ------------
2,450,569 2,868,324
Costs and expenses:
Production..................................... 788,761 758,901
Exploration.................................... 29,802 129,727
General and administrative..................... 375,029 657,161
Depreciation, depletion and amortization....... 677,400 746,800
Interest....................................... 105,606 130,374
Property and other taxes....................... 59,318 72,567
------------ ------------
2,035,916 2,495,530
Income before provision for income taxes......... 414,653 372,794
Provision for income taxes:
Current........................................ 51,666 111,072
Deferred....................................... 60,395 7,641
------------ ------------
112,061 118,713
------------ ------------
Net income....................................... 302,592 254,081
Retained earnings at beginning of period......... 1,263,429 6,359,138
Cash dividends ($ .02 per share)................. (85,476) (90,348)
------------ ------------
Retained earnings at end of period............... $ 1,480,545 $ 6,522,871
============ ============
Weighted average number of common shares
outstanding:
Basic.......................................... 4,273,827 4,517,363
========== ==========
Diluted........................................ 4,273,827 4,772,613
========== ==========
Net income per common share:
Basic.......................................... $ .07 $ .06
===== =====
Diluted........................................ $ .07 $ .05
===== =====
See accompanying notes.
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HOME-STAKE OIL & GAS COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
Six months ended June 30, 1999 and 1998
(Unaudited)
1999 1998
---- ----
Operating activities:
Oil and gas sales, net of production taxes..... $ 4,296,882 $ 5,068,684
Other.......................................... 127,634 159,428
------------ ------------
4,424,516 5,228,112
Cash paid to suppliers and employees........... 1,986,931 3,425,486
Interest paid.................................. 218,711 131,961
Property and other taxes....................... 115,220 123,389
Income taxes paid.............................. - 219,483
------------ ------------
2,320,862 3,900,319
------------ ------------
Net cash provided by operating activities.... 2,103,654 1,327,793
Investing activities:
Proceeds from sales of property and equipment.. 77,975 36,261
Acquisition of property and equipment.......... (1,653,054) (7,979,279)
------------ ------------
Net cash used in investing activities........ (1,575,079) (7,943,018)
Financing activities:
Loan proceeds.................................. 735,000 6,600,000
Note payments.................................. (1,305,000) (330,000)
Cash dividends paid............................ (169,506) (174,608)
------------ ------------
Net cash provided by (used in)
financing activities................... (739,506) 6,095,392
------------ ------------
Net decrease in cash and cash equivalents........ (210,931) (519,833)
Cash and cash equivalents at beginning of year... 212,031 1,507,782
------------ ------------
Cash and cash equivalents at end of period....... $ 1,100 $ 987,949
============ ============
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 June 30, 1999, but were not included in
the computation of diluted net income per share as their inclusion would be
anti-dilutive.
Note 3 - Notes payable
Notes payable at June 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%
(7 1/4% at June 30, 1999)..................................... $ 4,730,000
Bank note due May 1, 2000, requiring monthly payments of
interest at prime less 1% (6 3/4% at June 30, 1999) .......... 935,000
------------
5,665,000
Less current portion............................................ 2,255,000
------------
$ 3,410,000
The Company has a revolving term line-of-credit in the amount of $5,000,000
available until May 1, 2000 which provides for monthly payments of interest on
the outstanding borrowings at bank prime less 1%. At June 30, 1999, the Company
had $935,000 borrowed under this line-of-credit. In connection with this line of
credit, the Company pays a commitment fee of one-half of one per cent (1/2%) 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.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Results of Operations - First six months of 1999 compared with first six months
of 1998
Net income for the six months ended June 30 increased $34,849 (10%) from
$343,704 in 1998 to $378,553 in 1999. The principal reasons for this increase
are as follows:
Oil sales decreased $356,706 (14%) in 1999. The Company's oil production
decreased from 193,021 barrels in 1998 to 176,268 barrels in 1999. In addition,
the average price of crude oil decreased from $13.59 per barrel in 1998 to
$12.86 per barrel in 1999. The decreased production volume is primarily
attributable to natural depletion of existing reserves.
Gas sales decreased 9% ($224,995), primarily due to lower average gas prices
which decreased from $2.20 per mcf in 1998 to $1.69 per mcf in 1999. Gas
production, however, increased from 1,108,473 mcf in 1998 to 1,308,254 mcf in
1999, primarily as a result of the additional production provided by certain
producing gas properties (the "Bass Properties") purchased from Sid R. Bass,
Inc. et al. on March 31, 1998.
Production expenses decreased $150,068, due primarily to a $161,426 decrease in
lease operating expenses resulting from a lower incidence of repairs and
maintenance expenses in 1999.
Exploration costs decreased $99,531 in 1999. Dry hole costs decreased $79,432 in
1999 due to a lower incidence of dry holes. Condemned and abandoned property
expense decreased $20,099.
General and administrative expenses decreased $462,839, from $1,293,730 in 1998
to $830,891 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.
Interest expense increased $86,750 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 six month period.
Results of Operations - Second quarter 1999 compared with second quarter 1998
Net income for the second quarter increased $48,511 (19%) from $254,081 in 1998
to $302,592 in 1999. The principal reasons for this increase are as follows:
Oil sales decreased $99,665 (7%). The Company's oil production decreased from
106,289 barrels in 1998 to 84,255 barrels in 1999. This decrease in volumes was
partially offset by an increase in the average oil price from $13.42 per barrel
in 1998 to $15.75 per barrel in 1999. The decreased production volume is
primarily attributable to natural depletion of existing reserves.
Gas sales decreased 25% ($327,843), primarily due to lower natural gas prices
which decreased from $2.35 per mcf in 1998 to $1.70 per mcf in 1999. This
decrease was partially offset by higher natural gas production which increased
from 567,869 mcf in 1998 to 594,640 mcf in 1999, primarily as a result of the
additional production provided by the Bass Properties.
Exploration costs decreased $99,925 in 1999. Dry hole costs decreased $87,473 in
1999 due to a lower incidence of dry holes. Condemned and abandoned property
expense decreased $12,452.
General and administrative expenses decreased $282,132 (43%), from $657,161 in
1998 to $375,029 in 1999. The primary reasons for this decrease are lower
personnel and related costs. 1998 expense also includes approximately $29,600
attributable to the merger of The Home-Stake Royalty Corporation with and into
the Company, whereas 1999 includes no such expense.
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Interest expense decreased $24,768 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 exploration budget for 1999 is $1.2 million. During the
first six months of 1999, the Company had exploration expenditures of
approximately $600,000 and has remaining drilling commitments for 1999 of
approximately $800,000. 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 their 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.
The working capital deficit at June 30, 1999 was $1.5 million. Product prices
were severely depressed during most of the first quarter, but began a gradual
increase in late March. There is no certainty as to whether these increases will
continue or prices may again drop to their previous low levels. However, the
Company's working capital and internally generated cash flows are expected to be
sufficient to finance the Company's note payments and budgeted 1999 exploration
and development activities. In July 1999, the Company sold its working interest
in an outside operated Montana oil field and five other Company operated
producing wells in Ellis County, Oklahoma. Proceeds from these sales was
approximately $480,000. In late July and early August the Company made
discretionary note payments in the amount of $500,000 on its line-of credit
borrowings. Outstanding borrowings under this $5 million revolving
line-of-credit totaled $435,000 at August 10, 1999. The unused balance is
available to fund needed activities.
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.
Certain pieces of field equipment used by the Company might contain
date-dependent embedded computer processors. This equipment is currently being
evaluated for Y2K compliancy. 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 is in the process of requesting 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 vendors who have not yet responded, the
Company has requested that they respond as soon as possible.
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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.
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.
The Annual Meeting of the Company's stockholders was held in the
offices of the Company on May 24, 1999 for the purpose of electing
three directors whose terms were expiring. The nominees for Director
were Chris K. Corcoran, Ronald O. Gutman and I Wistar Morris, III. The
nominees proposed by management were reelected for terms expiring in
2002. Mr. Corcoran and Mr. Gutman each received 2,849,393 votes for
and 439 votes were withheld. Mr. Morris received 2,849,314 votes for
and 518 votes were withheld. The continuing Directors are L. W.
Allegood, Larry F. Grindstaff, James L. Houghton, Joseph J. McCain,
Jr. and Robert C. Simpson.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
The following documents are included as exhibits to this Form 10-QSB.
Exhibit
Number Description
10 First Amendment and Modification Agreement to Amended and
Restated Loan Agreement, dated May 1, 1999 between the
Company and NationsBank, N.A.
27 Financial Data Schedule.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended June
30, 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: August 10, 1999 By: /s/ Robert C. Simpson
------------------------------------------
Robert C. Simpson
Chairman of the Board, C.E.O.
and President
Date: August 10, 1999 By: /s/ Chris K. Corcoran
------------------------------------------
Chris K. Corcoran
Executive Vice President,
Chief Financial Officer and
Corporate Secretary
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INDEX OF EXHIBITS
The following documents are included as exhibits to this Form 10-QSB.
Exhibit
Number Description
10 First Amendment and Modification Agreement to Amended and
Restated Loan Agreement, dated May 1, 1999 between the
Company and NationsBank, N.A.
27 Financial Data Schedule.
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FIRST AMENDMENT AND MODIFICATION AGREEMENT
TO AMENDED AND RESTATED LOAN AGREEMENT
This First Amendment and Modification Agreement to Amended and Restated
Loan Agreement (the "Agreement") is executed as of the 1st day of May, 1999 in
Tulsa, Oklahoma, by and between HOME-STAKE OIL & GAS COMPANY an Oklahoma
corporation (formerly known as The Home-Stake Oil & Gas Company) ("Borrower")
and NATIONSBANK, N.A., a national banking association (the "Bank").
R E C I T A L S
A. Borrower has had and currently has a financing arrangement with the
Lender as currently set forth and provided under that certain Amended and
Restated Loan Agreement dated as of March 31, 1998 made, executed and entered
into between Borrower and Lender (the "Loan Agreement").
B. Borrower's indebtedness to the Lender as provided under the Loan
Agreement is currently evidenced by the following promissory notes, each of
which represents a renewal and extension of a prior note:
(1) that certain Promissory Note (the "Term Note") dated March 31,
1998 in the original principal amount of $6,600,000, the principal balance
of which is $4,950,000.00 as of the date hereof, interest having been paid
to date; and
(2) that certain Promissory Note (the "Revolving Note") dated March
31, 1998 in the original principal amount of $5,000,000.00, the principal
balance of which is $825,000.00 as of the date hereof, interest having been
paid to date.
C. Repayment of the Notes, together with all other obligations of Borrower
to the Bank, is secured by a first priority security interest in and to
Borrower's Collateral as defined in the Loan Agreement and Security Agreement.
D. Borrower has requested that the Bank extended the maturity of the
Revolving Loan and the Term Note and the Bank is willing to do so subject to the
terms and conditions set forth herein, and in connection therewith, the parties
desire to amend and modify the Loan Agreement and other Loan Documents as set
forth herein.
NOW, THEREFORE, in consideration of the foregoing recitals, the conditions,
covenants, representations and warranties set forth herein, and for other good
and valuable consideration, the receipt, sufficiency and adequacy of which are
hereby acknowledged, the parties hereby mutually agree as follows:
1. Line of Credit Commitment. The last sentence of Paragraph 2.3 of the Loan
Agreement is hereby amended in its entirety to read as follows:
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This commitment shall expire, unless earlier terminated at 2:00 p.m. Tulsa,
Oklahoma, time on May 1, 2000, unless the Lender and Borrower agree to an
extension hereof; provided however, that nothing herein shall constitute an
agreement on the part of the Lender to grant an extension hereof.
2. Renewal Note. Concurrently with the execution of this Agreement, Borrower
shall execute and deliver to the Bank that certain Promissory Note (the "Renewal
Revolving Note") of an even date herewith in the face amount of $5,000,000.00 in
the form as shown in Exhibit "A" attached hereto and made a part hereof, thereby
evidencing Borrower's obligation to repay advances under the Revolving Loan and
thereby amending and modifying, but not extinguishing the indebtedness of, the
Revolving Note. All references in the Loan Agreement and the Loan Documents to
the term "Revolving Note" shall be amended throughout to be deemed to refer to
the Renewal Revolving Note and all references in the Loan Agreement and the Loan
Documents to the term "Revolving Loan" shall be deemed amended throughout to
refer to the loan evidenced by the Renewal Revolving Note.
3. Renewal Term Note. Concurrently with the execution of this Agreement,
Borrower shall execute and deliver to the Bank that certain Promissory Note (the
"Renewal Term Note") of an even date herewith in the face amount of
$4,950,000.00 in the form as shown in Exhibit "B" attached hereto and made a
part hereof, thereby evidencing Borrower's obligation to repay advances under
the Term Loan and thereby amending and modifying, but not extinguishing the
indebtedness of, the Term Note. All references in the Loan Agreement and the
Loan Documents to the term "Term Note" shall be amended throughout to be deemed
to refer to the Renewal Term Note and all references in the Loan Agreement and
the Loan Documents to the term "Term Loan" shall be deemed amended throughout to
refer to the loan evidenced by the Renewal Term Note. Further all references in
the Loan Agreement and the other Loan Documents to the term "Notes" shall be
amended throughout to refer collectively to the "Renewal Term Note and the
Renewal Revolving Note and all references to the term "Loans"shall mean
collectively the loans evidenced by the Renewal Term Note and the Renewal
Revolving Note.
4. Ratification of Security Interests/Additional Collateral. Borrower hereby
ratifies, confirms and reaffirms all security interests, liens and other
encumbrances created under the Loan Agreement, the Mortgage and all other Loan
Documents as security for repayment of Borrower's Indebtedness (as that term is
defined in the Loan Agreement) and all other unreleased security agreements,
mortgages and deeds of trust in favor of the Bank, all of which shall continue
in full force and effect and with the same priority as security for repayment
and satisfaction of the Indebtedness, and all extensions, modifications and
renewals thereof, including but not limited to the Renewal Revolving Note and
Renewal Term Note. Further, as a condition precedent to the execution hereof by
the Lender, Borrower shall make, execute and deliver to the Lender such
Amendments to Mortgages or Deeds of Trust in form and substance acceptable to
the Lender whereby the Security Instruments shall be amended throughout
consistent herewith.
5. Net Worth. Paragraph 5.17 of the Loan Agreement is hereby amended to read as
follows:
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<PAGE>
5.17 Net Worth. The Borrower shall not permit its Nets Worth to be
less than $15,000,000.00 at any time prior to the payment of the
Indebtedness in full.
6. Year 2000. The Borrower has (i) initiated a review and assessment of all
areas within its business and operations (including those affected by major
suppliers and vendors) that could be adversely affected by the "Year 2000
Problem" (that is, the risk that computer applications used by the Borrower (or
its major suppliers and vendors) may be unable to recognize and perform properly
date-sensitive functions involving certain dates prior to and any date after
December 31, 1999), (ii) developed a plan and timeline for addressing the Year
2000 Problem on a timely basis, and (iii) to date, implemented that plan in
accordance with that timetable. The Borrower reasonably believes that all
computer applications (including those of its major suppliers and vendors) that
are material to its business and operations will on a timely basis be able to
perform properly date-sensitive functions for all dates before and after January
1, 2000 (that is, be "Year 2000 compliant"), except to the extent that a failure
to do so could not reasonably be expected to have material adverse effect. The
Borrower will promptly notify the Lender in the event the Borrower discovers or
determines that any computer application (including those of its major suppliers
and vendors) that is material to its business and operations will not be Year
2000 compliant on a timely basis, except to the extent that such failure could
not reasonably be expected to have a material adverse effect.
7. Modification, Ratification, Representations and Warranties. The terms and
provisions of the Loan Agreement and all other Loan Documents executed in
connection therewith shall be deemed amended, modified, and changed through so
as to reflect consistently the matters provided herein. As extended, amended,
modified, renewed or changed consistent herewith, the terms and provisions of
the Loan Agreement and all other Loan Documents shall remain in full force and
effect and the Borrower hereby ratifies, reaffirms and reasserts as of the date
hereof all covenants, representations, warranties, agreements and statements
contained therein. Further, and in addition to the representations, warranties
and covenants hereby ratified and reaffirmed, Borrower certifies, covenants,
represents, and warrants to and with the Bank as follows:
a. Borrower is validly organized and existing and in good standing
under and by virtue of the laws of the State of Oklahoma and Borrower
is duly qualified to do business and is in good standing in every state
and jurisdiction in which it does or will do business.
b. The execution and delivery of this Agreement and all other documents
to be executed and delivered by Borrower to the Bank pursuant hereto,
and the due observance and performance by Borrower of its terms,
provisions and covenants are within Borrower's powers, have been duly
authorized, will not contravene or violate any law or term or provision
of Borrower's Articles of Incorporation or By-laws or any corporate
resolution of its shareholders or directors and will not contravene,
violate or constitute a default under any contract, indenture,
agreement or undertaking to which Borrower is a party or by the terms
of which Borrower or any of its property or assets is bound.
-3-
<PAGE>
c. The Certificate of Officers dated as of March 1, 1998 made, executed
and delivered by Borrower to the Bank continues to be in full force and
effect and none of the resolutions attached thereto have been amended,
modified or repealed in any respect and all such resolutions are in
full force and effect as of the date hereof and the Articles of
Incorporation and Bylaws of the Borrower, copies of which were attached
to such Certificate, have not been modified, amended or changed as of
the date hereof, and are in full force and effect in all respects as of
the date hereof.
d. Borrower's financial statements dated as of December 31, 1998 copies
of which have been furnished to the Bank, have been prepared in
conformity with GAAP, show all material liabilities, direct and
contingent, and fairly present the financial condition of the Borrower
as of such date and the results of their operations for the period then
ended, and since such date there has been no material adverse change in
the business, financial condition or operations of the Borrower.
e. The Borrower has full power, authority and legal right to own and
operate the properties which it now owns and operates and to carry on
the lines of business in which it is now engaged, and the Borrower has
good title to the Collateral free of all Title Defects, subject to no
Lien of any kind except Liens in favor of the Lender or otherwise
permitted by this Agreement. The Borrower has full power, authority and
legal right to execute and deliver and to perform and observe the
provisions of this Agreement and the other Loan Documents.
f. With respect to the Mortgaged Property, Borrower is entitled to not
less than that portion of the net revenue interest as is set forth
opposite the name of such property on Exhibit "C" attached hereto and
made a part hereof and payments are being received from purchasers of
production with respect to said interests and no such payments are
subject to any suspension.
8. Obligations Unaffected. Except as otherwise specified herein, the terms and
conditions hereof shall in no manner impair, limit, restrict or otherwise affect
the obligations of the Borrower to the Bank pursuant to and as evidenced by the
Loan Documents. As a material inducement to the Bank to execute and deliver this
Agreement, Borrower hereby acknowledges that there are no claims or offsets
against, or defenses or counterclaims to, the terms or provisions of the
obligations created or evidenced by the Loan Documents, including but not
limited to the Renewal Revolving Note or Renewal Term Note. In the event of a
conflict between the terms and conditions of this Agreement and the terms and
conditions of the other Loan Documents, the terms and conditions of this
Agreement shall control.
9. "Loan Documents" and "Loan Agreement". The term "Loan Documents" as used in
the Loan Agreement shall be interpreted to include this Agreement, the Renewal
Revolving Note, the Renewal Term Note and all of the other documents heretofore
or hereafter creating, evidencing, securing and/or relating to the Indebtedness
of the Borrower to the Bank as contemplated or referenced herein.
-4-
<PAGE>
The term "Loan Agreement" as may be used in any of the Loan Documents shall be
interpreted to mean the Loan Agreement, together with and as modified by this
Agreement. The term "Indebtedness" as used in the Loan Agreement or any other
Loan Documents shall be interpreted to include the Renewal Revolving Note and
the Renewal Term Note in addition to all other obligations described therein.
10. Bank's legal Fees, Costs and Expenses. In consideration of and as a
condition precedent to the Bank's agreement to the execution, amendments and
modifications described herein, Borrower agrees to and shall pay promptly all
fees, including but not limited to the Bank's attorneys' fees, expenses and
charges with respect to and in connection with this Agreement and all other
documents contemplated hereby, including but not limited to, recording and
filing fees, and fees and expenses of counsel employed by the Bank in connection
with the documentation and closing of the transactions, amendments and
modifications contemplated hereby, and the Borrower hereby agrees to pay
promptly all hereafter incurred fees, including but not limited to attorneys'
fees, expenses and charges of the Bank which are incidental to the enforcement,
defense, amendment, modification, extension, renewal or change of the Loan
Agreement, this Agreement or any other Loan Documents.
11. Separability. If any provision of this Agreement and the other Loan
Documents is held invalid or unenforceable for any reason, such invalidity or
unenforceability shall not affect the other provisions hereof, and this
Agreement and the other Loan Documents shall be construed and enforced as if
such provision had not been included herein.
12. Binding Effect. Except as otherwise expressly provided herein, this
Agreement will remain in effect until all of Borrower's obligations to Bank
under this Agreement have been fully discharged. This Agreement shall be binding
upon Borrower, its successors and assigns, as applicable, and shall inure to the
benefit of the Bank, its successors and assigns.
13. Headings. The headings used herein are for convenience and administrative
purposes only and do not constitute substantive matters to be considered in
construing the terms and provisions of this Agreement.
14. Governing Law. This Agreement shall be governed and interpreted in
accordance with the laws of the State of Oklahoma.
15. ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES HERETO
INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THIS
INSTRUMENT, AGREEMENT OR DOCUMENT AND ANY OTHER LOAN DOCUMENTS OR ANY RELATED
INSTRUMENTS, AGREEMENTS OR DOCUMENTS, INCLUDING ANY CLAIM BASED ON OR ARISING
FROM AN ALLEGED TORT, SHALL BE DETERMINED BY BINDING ARBITRATION IN ACCORDANCE
WITH THE FEDERAL ARBITRATION ACT (OR IF NOT APPLICABLE, THE APPLICABLE STATE
LAW), THE RULES OF PRACTICE AND PROCEDURE FOR THE ARBITRATION OF COMMERCIAL
DISPUTES OF J.A.M.S./ENDISPUTE OR ANY SUCCESSOR THEREOF ("J.A.M.S.") AND THE
-5-
<PAGE>
"SPECIAL RULES" SET FORTH BELOW, IN THE EVENT OF ANY INCONSISTENCY, THE SPECIAL
RULES SHALL CONTROL. JUDGMENT UPON ANY ARBITRATION AWARD MAY BE ENTERED IN ANY
COURT HAVING JURISDICTION. ANY PARTY TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT
MAY BRING AN ACTION, INCLUDING A SUMMARY OR EXPEDITED PROCEEDING, TO COMPEL
ARBITRATION OF ANY CONTROVERSY OR CLAIM TO WHICH THIS AGREEMENT APPLIES IN ANY
COURT HAVING JURISDICTION OVER SUCH ACTION.
A. SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN THE COUNTY OF ANY
BORROWER'S DOMICILE AT THE TIME OF THE EXECUTION OF THIS INSTRUMENT, AGREEMENT
OR DOCUMENT AND ADMINISTERED BY J.A.M.S. WHO WILL APPOINT AN ARBITRATOR; IF
J.A.M.S. IS UNABLE OR LEGALLY PRECLUDED FROM ADMINISTERING THE ARBITRATION, THEN
THE AMERICAN ARBITRATION ASSOCIATION WILL SERVE. ALL ARBITRATION HEARINGS WILL
BE COMMENCED WITHIN 90 DAYS OF THE DEMAND FOR ARBITRATION; FURTHER THE
ARBITRATOR SHALL ONLY, UPON A SHOWING OF CAUSE, BE PERMITTED TO EXTEND THE
COMMENCEMENT OF SUCH HEARING FOR UP TO AN ADDITIONAL 60 DAYS.
B. RESERVATION OF RIGHTS. NOTHING IN THIS ARBITRATION PROVISION SHALL BE
DEEMED TO (I) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES OF
LIMITATIONS OR REPOSE AND ANY WAIVERS CONTAINED IN THIS INSTRUMENT, AGREEMENT OR
DOCUMENT; OR (II) BE A WAIVER BY BANK OF THE PROTECTION AFFORDED TO IT BY 12
U.S.C. SEC. 91 OR ANY SUBSTANTIALLY EQUIVALENT STATE LAW; OR (III) LIMIT THE
RIGHT OF BANK HERETO (A) TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT LIMITED
TO) SETOFF OR (B) TO FORECLOSE AGAINST ANY REAL OR PERSONAL PROPERTIES
COLLATERAL, OR (C) TO OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES SUCH
AS (BUT NOT LIMITED TO) INJUNCTIVE RELIEF, WRIT OF POSSESSION OR THE APPOINTMENT
OF A RECEIVER. BANK MAY EXERCISE SUCH SELF HELP RIGHTS, FORECLOSE UPON SUCH
PROPERTY OR OBTAIN SUCH PROVISIONAL OR ANCILLARY REMEDIES BEFORE, DURING OR
AFTER THE PENDENCY OF ANY ARBITRATION PROCEEDING BROUGHT PURSUANT TO THIS
INSTRUMENT, AGREEMENT OR DOCUMENT. NEITHER THIS EXERCISE OF SELF HELP REMEDIES
NOR THE INSTITUTION OR MAINTENANCE OF AN ACTION FOR FORECLOSURE OR PROVISIONAL
OR ANCILLARY REMEDIES SHALL CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY,
INCLUDING THE CLAIMANT IN ANY SUCH ACTION, TO ARBITRATE THE MERITS OF THE
CONTROVERSY OR CLAIM OCCASIONING RESORT TO SUCH REMEDIES.
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<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed by the parties as
of the day and year first above written.
HOME-STAKE OIL & GAS COMPANY
an Oklahoma corporation,
By: /s/ Chris K. Corcoran
Chris K. Corcoran, Executive Vice President
-----------------------------------------------------
"Borrower"
NATIONSBANK, N.A., a national banking association
By: /s/ Robert O. Laird
Robert O. Laird, Vice President
-----------------------------------------------------
"Bank"
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<PAGE>
INDEX OF EXHIBITS
Exhibit A - $5,000,000.00 Promissory Note - Renewal Revolving Note
Exhibit B - $4,950,000.00 Promissory Note - Renewal Term Note
Exhibit C - Net Revenue Interest *
- -------------------------------------
* Omitted. Registrant agrees to furnish supplementally a copy of any such
omitted Exhibits to the Securities and Exchange Commission upon its request.
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<PAGE>
EXHIBIT "A"
PROMISSORY NOTE
(RENEWAL REVOLVING NOTE)
$5,000,000.00 May 1, 1999
1. FOR VALUE RECEIVED the undersigned, HOME-STAKE OIL & GAS COMPANY, an Oklahoma
corporation, promises to pay to the order of NATIONSBANK, N.A. an Oklahoma
corporation ("Payee") the principal amount of this Note or such amount thereof
as shall be advanced and outstanding, together with interest on the unpaid
balance of such amount at the rate hereinafter set forth. This Note is issued
pursuant to that certain Amended and Restated Loan Agreement (the "Original
Agreement") dated as of March 31, 1998 as amended by that certain First
Amendment and Modification Agreement (the "First Amendment") of even date
herewith, by and between Payee, as Lender, and Maker as Borrower, and is subject
to the provisions therein set forth. The Original Agreement as amended by the
First Amendment thereto and as the same may be further amended and modified is
hereinafter referred to as the "Agreement". The obligations represented by this
Note are secured by the Loan Documents described in the Agreement.
2. Principal Amount. FIVE MILLION AND NO/100 DOLLARS ($5,000,000.00).
3. Payments. All accrued interest on the unpaid balance of this Note is due and
payable on the first day of each calendar month, commencing June 1, 1999 and
continuing on the first day of each month thereafter until May 1, 2000, at which
time all principal and accrued and unpaid interest shall be due and payable to
Payee in full. Interest on this Note shall accrue from the date of the first
advance under this Note and any payment shall be applied first to the payment of
interest then due and second to the reduction of unpaid principal.
4. Interest Rate. Interest shall accrue on the outstanding principal balance at
the "Prime Rate" minus one percent (1.00%) per annum. The term "Prime Rate"
means that rate of interest computed as an average of corporate loan rates
quoted by a certain number of the nation's largest banks, as announced from time
to time in the Wall Street Journal, Southwest Edition as the "prime rate". The
Prime Rate shall be adjusted daily as announced, calculated on the basis of a
year of 360 days and a month of 30 days. Changes in the rate charged on this
Note are effective, without notice, on the same day as the effective change in
the Prime Rate as established from time to time. In any case where a payment of
principal and/or interest on this Note, or any part thereof, is due on a day on
which the Bank is not open for normal banking business, the undersigned shall be
entitled to delay such payments until the next succeeding business day, but
interest shall continue to accrue until the payment is in fact made.
5. Interest Rate After Maturity. Matured and unpaid principal, whether by
acceleration or otherwise, shall bear interest at the Prime Rate plus five
percent (5%).
6. Prepayment Penalties. This Note may be prepaid, in whole or in part, at any
time, without premium or penalty.
7. Default. If the principal or any installment of interest due upon this Note
is not paid as and when the same becomes due and payable (whether by demand,
extension, acceleration or otherwise), or any party now or hereafter liable
(directly or indirectly) for payment of this Note makes an assignment for
benefit of creditors, has an order for relief entered under the United States
Bankruptcy Code, as amended, seeks the benefits of any other bankruptcy,
-9-
<PAGE>
insolvency or reorganization law, or becomes insolvent, or any receiver, trustee
or like officer is appointed to take custody, possession or control of any
property of any such party, or upon the occurrence of any event of default under
the Agreement or any other Loan Documents, the holder hereof may, without notice
and without presentment or demand for payment, declare all of the unpaid balance
hereof to be immediately due and payable. Such right of acceleration is
cumulative and in addition to any other right or rights of acceleration under
the Agreement and any other writing now or hereafter evidencing or securing
payment of any of the indebtedness evidenced hereby.
8. Costs and Attorneys' Fees. If this Note is placed in the hands of an attorney
for collection, or suit is brought on same, or the same is collected through
Probate, Bankruptcy or other judicial proceeding, or Payee is required to defend
the priority of the security, then the undersigned shall pay all of Payee's
reasonable costs and expenses including but not limited to a reasonable amount
as attorneys' fees.
9. Waivers. Maker and any party which may be or become liable for the payment of
any sums of money payable on this Note (including any surety, endorser or
guarantor) severally waive presentment and demand for payment, protest, notice
of protest and nonpayment, and notice of the intention to accelerate, and agree
that their liability on this note shall not be affected by any renewal or
extension in the time of payment hereof, by any indulgences or by any release or
change in any security for the payment of this note, regardless of the number of
such renewals, extensions, indulgences, releases or changes.
10. Right of Offset. Any indebtedness due from holder hereof to the undersigned
or any party hereto including, but without limitation, any deposits or credit
balances due from holder, is pledged to secure payment of this Note and any
other obligation to holder of the undersigned or any party hereto, and may at
any time while the whole or any part of such obligation remains unpaid, either
before or after maturity hereof, be appropriated, held or applied toward the
payment of this Note or any other obligation to holder of the undersigned or any
party hereto.
11. Renewal. This Note is an amendment, modification, extension and renewal (but
not an extinguishment of) that certain Promissory Note dated as of March 31,
1998 in the face amount of $5,000,000.00 made by the undersigned in favor of
Maker.
12. ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES HERETO
INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THIS
INSTRUMENT, AGREEMENT OR DOCUMENT AND ANY OTHER LOAN DOCUMENTS OR ANY RELATED
INSTRUMENTS, AGREEMENTS OR DOCUMENTS, INCLUDING ANY CLAIM BASED ON OR ARISING
FROM AN ALLEGED TORT, SHALL BE DETERMINED BY BINDING ARBITRATION IN ACCORDANCE
WITH THE FEDERAL ARBITRATION ACT (OR IF NOT APPLICABLE, THE APPLICABLE STATE
LAW), THE RULES OF PRACTICE AND PROCEDURE FOR THE ARBITRATION OF COMMERCIAL
DISPUTES OF J.A.M.S./ENDISPUTE OR ANY SUCCESSOR THEREOF ("J.A.M.S.") AND THE
"SPECIAL RULES" SET FORTH BELOW, IN THE EVENT OF ANY INCONSISTENCY, THE SPECIAL
RULES SHALL CONTROL. JUDGMENT UPON ANY ARBITRATION AWARD MAY BE ENTERED IN ANY
COURT HAVING JURISDICTION. ANY PARTY TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT
MAY BRING AN ACTION, INCLUDING A SUMMARY OR EXPEDITED PROCEEDING, TO COMPEL
ARBITRATION OF ANY CONTROVERSY OR CLAIM TO WHICH THIS AGREEMENT APPLIES IN ANY
COURT HAVING JURISDICTION OVER SUCH ACTION.
-10-
<PAGE>
A. SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN THE COUNTY OF ANY
BORROWER'S DOMICILE AT THE TIME OF THE EXECUTION OF THIS INSTRUMENT, AGREEMENT
OR DOCUMENT AND ADMINISTERED BY J.A.M.S. WHO WILL APPOINT AN ARBITRATOR; IF
J.A.M.S. IS UNABLE OR LEGALLY PRECLUDED FROM ADMINISTERING THE ARBITRATION, THEN
THE AMERICAN ARBITRATION ASSOCIATION WILL SERVE. ALL ARBITRATION HEARINGS WILL
BE COMMENCED WITHIN 90 DAYS OF THE DEMAND FOR ARBITRATION; FURTHER THE
ARBITRATOR SHALL ONLY, UPON A SHOWING OF CAUSE, BE PERMITTED TO EXTEND THE
COMMENCEMENT OF SUCH HEARING FOR UP TO AN ADDITIONAL 60 DAYS.
B. RESERVATION OF RIGHTS. NOTHING IN THIS ARBITRATION PROVISION SHALL BE
DEEMED TO (I) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES OF
LIMITATIONS OR REPOSE AND ANY WAIVERS CONTAINED IN THIS INSTRUMENT, AGREEMENT OR
DOCUMENT; OR (II) BE A WAIVER BY BANK OF THE PROTECTION AFFORDED TO IT BY 12
U.S.C. SEC. 91 OR ANY SUBSTANTIALLY EQUIVALENT STATE LAW; OR (III) LIMIT THE
RIGHT OF BANK HERETO (A) TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT LIMITED
TO) SETOFF OR (B) TO FORECLOSE AGAINST ANY REAL OR PERSONAL PROPERTIES
COLLATERAL, OR (C) TO OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES SUCH
AS (BUT NOT LIMITED TO) INJUNCTIVE RELIEF, WRIT OF POSSESSION OR THE APPOINTMENT
OF A RECEIVER. BANK MAY EXERCISE SUCH SELF HELP RIGHTS, FORECLOSE UPON SUCH
PROPERTY OR OBTAIN SUCH PROVISIONAL OR ANCILLARY REMEDIES BEFORE, DURING OR
AFTER THE PENDENCY OF ANY ARBITRATION PROCEEDING BROUGHT PURSUANT TO THIS
INSTRUMENT, AGREEMENT OR DOCUMENT. NEITHER THIS EXERCISE OF SELF HELP REMEDIES
NOR THE INSTITUTION OR MAINTENANCE OF AN ACTION FOR FORECLOSURE OR PROVISIONAL
OR ANCILLARY REMEDIES SHALL CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY,
INCLUDING THE CLAIMANT IN ANY SUCH ACTION, TO ARBITRATE THE MERITS OF THE
CONTROVERSY OR CLAIM OCCASIONING RESORT TO SUCH REMEDIES.
13. Governing Law. This Note has been executed and delivered in Tulsa County,
Oklahoma and shall be governed by and construed according to the laws of the
State of Oklahoma.
HOME-STAKE OIL & GAS COMPANY,
an Oklahoma corporation
By:
----------------------------------------------
Chris K. Corcoran, Executive Vice President
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<PAGE>
EXHIBIT "B"
PROMISSORY NOTE
(RENEWAL TERM NOTE)
$4,950,000.00 May 1, 1999
1. FOR VALUE RECEIVED the undersigned, HOME-STAKE OIL & GAS COMPANY, an Oklahoma
corporation, promises to pay to the order of NATIONSBANK, N.A., an Oklahoma
corporation ("Payee") the principal amount of this Note or such amount thereof
as shall be advanced and outstanding, together with interest on the unpaid
balance of such amount at the rate hereinafter set forth. This Note is issued
pursuant to that certain Amended and Restated Loan Agreement (the "Original
Agreement") dated as of March 31, 1998 as amended by that certain First
Amendment and Modification Agreement (the "First Amendment") of even date
herewith, by and between Payee, as Lender, and Maker as Borrower, and is subject
to the provisions therein set forth. The Original Agreement as amended by the
First Amendment thereto and as the same may be further amended and modified is
hereinafter referred to as the "Agreement". The obligations represented by this
Note are secured by the Loan Documents described in the Agreement.
2. Principal Amount. FOUR MILLION NINE HUNDRED FIFTY THOUSAND AND NO/100 DOLLARS
($5,060,000.00).
3. Payments. Principal hall be due and payable in monthly installments each in
the amount of One Hundred Ten Thousand and no/100 Dollars ($110,000.00) plus a
payment of all unpaid interest accrued hereunder, said principal and interest to
be due and payable monthly, commencing June 1, 1999 and continuing on the first
(1st) day of each month thereafter until May 1, 2001 at which time all principal
and accrued and unpaid interest shall be due and payable to Payee in full.
Interest on this Note shall accrue from the date of the first advance under this
Note and any payment shall be applied first to the payment of interest then due
and second to the reduction of unpaid principal.
4. Interest Rate. Interest shall accrue on the outstanding principal balance at
the "Prime Rate" minus one-half percent (.50%) per annum. The term "Prime Rate"
means that rate of interest computed as an average of corporate loan rates
quoted by a certain number of the nation's largest banks, as announced from time
to time in the Wall Street Journal, Southwest Edition as the "prime rate". The
Prime Rate shall be adjusted daily as announced, calculated on the basis of a
year of 360 days and a month of 30 days. Changes in the rate charged on this
Note are effective, without notice, on the same day as the effective change in
the Prime Rate as established from time to time. In any case where a payment of
principal and/or interest on this Note, or any part thereof, is due on a day on
which the Bank is not open for normal banking business, the undersigned shall be
entitled to delay such payments until the next succeeding business day, but
interest shall continue to accrue until the payment is in fact made.
5. Interest Rate After Maturity. Matured and unpaid principal, whether by
acceleration or otherwise, shall bear interest at the Prime Rate plus five
percent (5%) per annum.
6. Prepayment Penalties. This Note may be prepaid, in whole or in part, at any
time, without premium or penalty.
7. Default. If the principal or any installment of interest due upon this Note
is not paid as and when the same becomes due and payable (whether by demand,
extension, acceleration or otherwise), or any party now or hereafter liable
-12-
<PAGE>
(directly or indirectly) for payment of this Note makes an assignment for
benefit of creditors, has an order for relief entered under the United States
Bankruptcy Code, as amended, seeks the benefits of any other bankruptcy,
insolvency or reorganization law, or becomes insolvent, or any receiver, trustee
or like officer is appointed to take custody, possession or control of any
property of any such party, or upon the occurrence of any event of default under
the Agreement or any other Loan Documents, the holder hereof may, after the
expiration of any grace or notice period as provided in the Loan Agreement,
without further notice and without presentment or demand for payment, declare
all of the unpaid balance hereof to be immediately due and payable. Such right
of acceleration is cumulative and in addition to any other right or rights of
acceleration under the Agreement and any other writing now or hereafter
evidencing or securing payment of any of the indebtedness evidenced hereby.
8. Costs and Attorneys' Fees. If this Note is placed in the hands of an attorney
for collection, or suit is brought on same, or the same is collected through
Probate, Bankruptcy or other judicial proceeding, or Payee is required to defend
the priority of the security, then the undersigned shall pay all of Payee's
reasonable costs and expenses including but not limited to a reasonable amount
as attorneys' fees.
9. Waivers. Maker and any party which may be or become liable for the payment of
any sums of money payable on this Note (including any surety, endorser or
guarantor) severally waive presentment and demand for payment, protest, notice
of protest and nonpayment, and notice of the intention to accelerate, and agree
that their liability on this note shall not be affected by any renewal or
extension in the time of payment hereof, by any indulgences or by any release or
change in any security for the payment of this note, regardless of the number of
such renewals, extensions, indulgences, releases or changes.
10. Right of Offset. Any indebtedness due from holder hereof to the undersigned
or any party hereto including, but without limitation, any deposits or credit
balances due from holder, is pledged to secure payment of this Note and any
other obligation to holder of the undersigned or any party hereto, and may at
any time while the whole or any part of such obligation remains unpaid, either
before or after maturity hereof, be appropriated, held or applied toward the
payment of this Note or any other obligation to holder of the undersigned or any
party hereto.
11. Renewal. This Note is an amendment, modification, extension and renewal (but
not an extinguishment of) that certain Promissory Note in the face amount of
$6,600,000.00 dated as of March 31, 1998 made by the undersigned in favor of
Maker.
12. ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES HERETO
INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THIS
INSTRUMENT, AGREEMENT OR DOCUMENT AND ANY OTHER LOAN DOCUMENTS OR ANY RELATED
INSTRUMENTS, AGREEMENTS OR DOCUMENTS, INCLUDING ANY CLAIM BASED ON OR ARISING
FROM AN ALLEGED TORT, SHALL BE DETERMINED BY BINDING ARBITRATION IN ACCORDANCE
WITH THE FEDERAL ARBITRATION ACT (OR IF NOT APPLICABLE, THE APPLICABLE STATE
LAW), THE RULES OF PRACTICE AND PROCEDURE FOR THE ARBITRATION OF COMMERCIAL
DISPUTES OF J.A.M.S./ENDISPUTE OR ANY SUCCESSOR THEREOF ("J.A.M.S.") AND THE
"SPECIAL RULES" SET FORTH BELOW, IN THE EVENT OF ANY INCONSISTENCY, THE SPECIAL
RULES SHALL CONTROL. JUDGMENT UPON ANY ARBITRATION AWARD MAY BE ENTERED IN ANY
COURT HAVING JURISDICTION. ANY PARTY TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT
-13-
<PAGE>
MAY BRING AN ACTION, INCLUDING A SUMMARY OR EXPEDITED PROCEEDING, TO COMPEL
ARBITRATION OF ANY CONTROVERSY OR CLAIM TO WHICH THIS AGREEMENT APPLIES IN ANY
COURT HAVING JURISDICTION OVER SUCH ACTION.
A. SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN THE COUNTY OF ANY
BORROWER'S DOMICILE AT THE TIME OF THE EXECUTION OF THIS INSTRUMENT, AGREEMENT
OR DOCUMENT AND ADMINISTERED BY J.A.M.S. WHO WILL APPOINT AN ARBITRATOR; IF
J.A.M.S. IS UNABLE OR LEGALLY PRECLUDED FROM ADMINISTERING THE ARBITRATION, THEN
THE AMERICAN ARBITRATION ASSOCIATION WILL SERVE. ALL ARBITRATION HEARINGS WILL
BE COMMENCED WITHIN 90 DAYS OF THE DEMAND FOR ARBITRATION; FURTHER THE
ARBITRATOR SHALL ONLY, UPON A SHOWING OF CAUSE, BE PERMITTED TO EXTEND THE
COMMENCEMENT OF SUCH HEARING FOR UP TO AN ADDITIONAL 60 DAYS.
B. RESERVATION OF RIGHTS. NOTHING IN THIS ARBITRATION PROVISION SHALL BE
DEEMED TO (I) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES OF
LIMITATIONS OR REPOSE AND ANY WAIVERS CONTAINED IN THIS INSTRUMENT, AGREEMENT OR
DOCUMENT; OR (II) BE A WAIVER BY BANK OF THE PROTECTION AFFORDED TO IT BY 12
U.S.C. SEC. 91 OR ANY SUBSTANTIALLY EQUIVALENT STATE LAW; OR (III) LIMIT THE
RIGHT OF BANK HERETO (A) TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT LIMITED
TO) SETOFF OR (B) TO FORECLOSE AGAINST ANY REAL OR PERSONAL PROPERTIES
COLLATERAL, OR (C) OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES SUCH AS
(BUT NOT LIMITED TO) INJUNCTIVE RELIEF, WRIT OF POSSESSION OR THE APPOINTMENT OF
A RECEIVER. BANK MAY EXERCISE SUCH SELF HELP RIGHTS, FORECLOSE UPON SUCH
PROPERTY OR OBTAIN SUCH PROVISIONAL OR ANCILLARY REMEDIES BEFORE, DURING OR
AFTER THE PENDENCY OF ANY ARBITRATION PROCEEDING BROUGHT PURSUANT TO THIS
INSTRUMENT, AGREEMENT OR DOCUMENT. NEITHER THIS EXERCISE OF SELF HELP REMEDIES
NOR THE INSTITUTION OR MAINTENANCE OF AN ACTION FOR FORECLOSURE OR PROVISIONAL
OR ANCILLARY REMEDIES SHALL CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY,
INCLUDING THE CLAIMANT IN ANY SUCH ACTION, TO ARBITRATE THE MERITS OF THE
CONTROVERSY OR CLAIM OCCASIONING RESORT TO SUCH REMEDIES.
13. Governing Law. This Note has been executed and delivered in Tulsa County,
Oklahoma and shall be governed by and construed according to the laws of the
State of Oklahoma.
HOME-STAKE OIL & GAS COMPANY,
an Oklahoma corporation
By:
---------------------------------------------------
Chris K. Corcoran, Executive Vice President
-14-
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,100
<SECURITIES> 0
<RECEIVABLES> 1,472,325
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,778,499
<PP&E> 49,236,336
<DEPRECIATION> 25,946,566
<TOTAL-ASSETS> 25,311,045
<CURRENT-LIABILITIES> 3,241,720
<BONDS> 3,410,000
0
0
<COMMON> 45,174
<OTHER-SE> 15,460,621
<TOTAL-LIABILITY-AND-EQUITY> 25,311,045
<SALES> 4,526,110
<TOTAL-REVENUES> 4,697,880
<CGS> 0
<TOTAL-COSTS> 1,521,966
<OTHER-EXPENSES> 53,755
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 218,711
<INCOME-PRETAX> 509,137
<INCOME-TAX> 130,584
<INCOME-CONTINUING> 378,553
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 378,553
<EPS-BASIC> .09
<EPS-DILUTED> .09
</TABLE>
