SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
Commission file number 0-19766
HOME-STAKE OIL & GAS COMPANY
(Name of small business issuer in its charter)
Oklahoma 73-0288030
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
15 East 5th Street, Suite 2800
Tulsa, Oklahoma 74103
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (918) 583-0178
Securities registered under Section 12(b) of the Act: None
Securities registered under Section 12(g) of the Act:
Common Stock, par value $0.01 per share
Preferred Share Purchase Rights
Check whether the issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes X No
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of the Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. |_|
State issuer's revenues for its most recent fiscal year: $11,944,239
As of March 29, 2000, 4,353,827 shares of the Registrant's Common Stock
were outstanding. As of March 29, 2000, the aggregate market value of the voting
stock held by non-affiliates of the Registrant was $17,486,084 based on the last
reported trading price reported on the Nasdaq SmallCap Market. (Officers and
directors of the Registrant, and holders of more than 10% of the outstanding
common stock, are considered affiliates for purposes of this calculation.)
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held May 22, 2000, are incorporated by reference into Part
III of this Form 10-KSB.
Transitional Small Business Disclosure Format (Check one) Yes |_| No |X|
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HOME-STAKE OIL & GAS COMPANY
FORM 10-KSB
YEAR ENDED DECEMBER 31, 1999
TABLE OF CONTENTS
Page
PART I
Item 1. Description of Business......................................... 1
Item 2. Description of Property......................................... 5
Item 3. Legal Proceedings............................................... 10
Item 4. Submission of Matters to a Vote of Security Holders............. 11
PART II
Item 5. Market for Common Equity and Related Stockholder Matters........ 11
Item 6. Management's Discussion and Analysis............................ 12
Item 7. Financial Statements............................................ 15
Item 8. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.......................... 15
PART III
Item 9. Directors, Executive Officers and Compliance with Section 16(a)
of the Exchange Act............................................. 15
Item 10. Executive Compensation.......................................... 15
Item 11. Security Ownership of Certain Beneficial Owners and Management.. 15
Item 12. Certain Relationships and Related Transactions.................. 15
Item 13. Exhibits and Reports on Form 8-K................................ 16
Signatures ........................................................ 18
Index to Financial Statements............................................ F-1
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PART I
Item 1. Description of Business, Item 2. Description of Property, and Item 6.
Management's Discussion and Analysis, include certain statements which are not
historical fact, but are "forward looking statements". These forward looking
statements are based on current expectations, estimates, assumptions and beliefs
of management; and words such as "expects", "believes", "anticipates",
"intends", "plans" and similar expressions are intended to identify such forward
looking statements. Home-Stake Oil & Gas Company (the "Company" or "HSOG") does
not undertake to update, revise or correct forward looking information. Readers
are cautioned that such forward looking statements should be read in conjunction
with the Company's disclosures under the heading "Forward Looking Statements",
included on page 15 hereof.
ITEM 1. DESCRIPTION OF BUSINESS
General
The Company is actively engaged in the acquisition, exploration, development and
production of oil and gas properties. Its principal geographic operating areas
lie within the states of Oklahoma, Montana, New Mexico and Texas.
The Company was incorporated in the State of Oklahoma in 1917. The Company's
principal business activity from the date of its incorporation through the early
1950's was the acquisition and leasing of oil and gas mineral interests.
Accordingly, the Company's revenues were primarily from royalty interests in oil
and gas production from the mineral interests in properties leased to others. In
the 1950's the Company began participating as a working interest partner in the
acquisition and drilling of oil and gas properties, primarily drilled and
operated by industry partners. The Company also originated and participated in
the drilling of a few of its own prospects and discovered several significant
oil fields in south central Kansas during the 1950's. Beginning in 1985, the
Company developed an exploration staff to generate, sell and drill its own
prospects. The Company now also serves as operator for 49 producing wells.
In the mid-1970's the Company revised its business strategy to pursue a program
to increase its revenues generated from the ownership of working interests in
oil and gas properties relative to its revenues generated from royalty interests
(resulting from the ownership and leasing of oil and gas mineral interests). The
Company increased its relative investment in drilling ventures developed and
sold by other industry partners and in the oil and gas properties that it
acquired. In 1977, the Company received approximately 70% of its revenues from
royalty interests, whereas, in 1999, approximately 26% of its revenues were from
royalty interests.
At December 31, 1999, the Company had estimated proved reserves of 42,840,578
Mcf of natural gas and 5,650,452 barrels of oil. Natural gas reserves
constituted approximately 56% of the Company's reserves based on an "oil
equivalent" basis (converting each six Mcf of natural gas to a barrel of oil,
representing the estimated relative energy content of oil and natural gas).
Recent Developments
On February 29, 2000, the Company announced that it had engaged the investment
banking firm of Stephens Inc. to assist it in exploring various strategic
alternatives to maximize shareholder value and improve shareholder liquidity.
Merger
Effective December 31, 1997, The Home-Stake Royalty Corporation ("HSRC") was
merged with and into the Company (the "Merger"). The Merger was accounted for as
a purchase, with HSOG deemed to be the purchased entity for accounting purposes.
Under the purchase method of accounting, the cost of the assets and liabilities
acquired is allocated based on their fair value, with the operations of the
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acquired entity included with those of the acquiring entity from the date of
acquisition. Accordingly, the historical tables and other information included
in this report for activities during 1997 reflect such information for HSRC and
do not include historical amounts for HSOG. However, information as of December
31, 1999 and 1998 and for the years then ended, includes the combined amounts
for HSRC and HSOG (i.e. the merged entity).
Partnership
The Company serves as general partner of H-S Royalty, Ltd., an Oklahoma limited
partnership (the "Partnership") formed in 1982. The Partnership was formed for
the purpose of distributing to stockholders a 3/16th royalty interest, on a
20-year term basis, in 24,940 net mineral acres of nonproducing mineral
interests owned by the Company which are located in ten states. Management of
the Company distributed the royalty interests to allow stockholders to realize a
portion of the direct economic benefits that result from the commercial
production and sale of oil and gas, as well as the maximization of certain
income tax benefits attributable to oil and gas producing activities. In
connection with the administration of the Partnership, the Company receives a
monthly administrative management fee of $500.
On February 18, 2000, the Board of Directors of the Company voted, pursuant to
the terms of the Agreement of Limited Partnership, to terminate the Partnership,
effective May 31, 2000. An independent engineering firm has been contracted to
determine the fair market value of the assets of the Partnership. Upon receipt
of the appraisal, it is the intent of the Company to purchase the assets of the
Partnership at their appraised fair market value, pay all of the Partnership's
debts and all expenses incurred in connection with the termination of the
Partnership, and distribute the remaining funds to the Unit Holders and Limited
Partners, as provided in the Agreement of Limited Partnership. At December 31,
1999, the Partnership had estimated proved developed producing reserves of
79,724 Mcf of natural gas and 9,975 barrels of oil.
Competition
Competition in the oil and gas industry is intense. In seeking to obtain
desirable producing properties, new leases and exploration prospects, the
Company faces competition from both major and independent oil and gas companies,
as well as from numerous individuals and income and drilling programs. Many of
these competitors have financial and other resources substantially in excess of
those available to the Company. Alternate fuel sources, including heating oil
and other fossil fuels, also present competition.
Marketing
The Company's gas production from properties in which it owns working interests
is sold primarily on the spot market with a variety of purchasers, including
intrastate and interstate pipeline companies, their marketing affiliates,
independent marketing companies and other companies who have the ability to move
gas under firm transportation agreements. Gas produced from properties in which
the Company owns royalty interests is marketed and sold by owners of the
leasehold interests in such properties.
Substantially all of the Company's crude oil and condensate production is sold
at posted prices under short-term contracts, as is customary in the industry.
Seasonality
The results of operations of the Company are subject to seasonal fluctuations in
the price for natural gas. Natural gas prices have been generally higher in the
fourth and first quarters. Due to these seasonal fluctuations, results of
operations for individual quarterly periods may not be indicative of results
which may be realized on an annual basis.
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Regulation
General
The oil and gas industry is extensively regulated by federal, state and local
authorities. Legislation affecting the oil and gas industry is under constant
review for amendment or expansion. Numerous departments and agencies, both
federal and state, have issued rules and regulations binding on the oil and gas
industry and its individual members, some of which carry substantial penalties
for the failure to comply. The regulatory burden on the oil and gas industry
increases its cost of doing business and, consequently, affects its
profitability. Inasmuch as such laws and regulations are frequently amended or
reinterpreted, the Company is unable to predict the future cost or impact of
complying with such regulations.
Exploration and Production
Exploration and production operations of the Company are subject to various
types of regulation at the Federal, state, Indian and local levels. Such
regulation includes requiring permits for the drilling of wells, maintaining
bonding requirements in order to drill or operate wells, and regulating the
location of wells, the method of drilling and casing wells, the surface use and
restoration of properties upon which wells are drilled and the plugging and
abandoning of wells. The Company's operations are also subject to various
conservation matters. These include the regulation of the size of drilling and
spacing units or proration units and the density of wells which may be drilled
and the unitization or pooling of oil and gas properties. In this regard, some
states allow the forced pooling or integration of tracts to facilitate
exploration while other states rely on voluntary pooling of lands and leases.
State conservation laws establish maximum rates of production from oil and gas
wells, generally prohibit the venting or flaring of gas and impose certain
requirements regarding the ratability of production. In addition, some states
have adopted limits on gas production that attempt to match production with
market demand. The effect of these regulations is to limit the amounts of oil
and gas the Company can produce from their wells, and to limit the number of
wells or the locations at which the Company can drill.
Sales and Transportation
Federal legislation and regulatory controls have historically affected the price
of the gas produced by the Company and the manner in which such production is
marketed. However, due to the deregulation provisions of the Natural Gas Policy
Act of 1978, the Natural Gas Wellhead Decontrol Act of 1989 and regulations
promulgated by the Federal Regulatory Commission ("FERC"), the price of
virtually all gas produced by producers not affiliated with interstate pipelines
has been deregulated. As a result, most of the Company's gas production is no
longer subject to price regulation. Gas which has been removed from price
regulation is subject only to that price contractually agreed upon between the
producer and purchaser. Market determined prices for deregulated natural gas
fluctuate in response to market pressures.
The FERC regulates interstate natural gas transportation rates and service
conditions, which affects the marketing of gas produced by the Company, as well
as the revenues received from sales of such production. Since the mid-1980s, the
FERC has issued a series of orders culminating in Order Nos. 636, 636-A and
636-B ("Order 636"), that have significantly altered the marketing and
transportation of gas. Order 636 mandated a fundamental restructuring of
interstate pipeline sales and transportation service, including the unbundling
by interstate pipelines of the sales, transportation, storage and other
components of the city-gate sales services such pipelines previously performed.
One of the FERC's purposes in issuing the orders is to increase competition
within all phases of the gas industry. Generally, Order 636 has eliminated or
substantially reduced the interstate pipelines' traditional role as wholesalers
of natural gas and has substantially increased competition and volatility in
natural gas markets. While some regulatory uncertainty remains due to pending
appeals of individual pipeline's implementation of Order 636, Order 636 may
ultimately enhance the ability of producers such as the Company to market and
transport their gas directly to end-users and local distribution companies,
although it may also subject producers to greater competition and the more
restrictive pipeline imbalance tolerances and greater associated penalties for
violation of such tolerances.
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As a result of Order 636, many interstate gas pipelines have spun-off their
gathering systems, which systems for the most part are not subject to FERC
jurisdiction. This action could affect the cost of gathering gas. States are
reviewing whether to regulate such gathering systems. The Company is unable to
predict what impact, if any, such divesting and regulation may have.
Sales of oil and natural gas liquids by the Company are not regulated and are
made at market prices. The price the Company receives from the sale of these
products is affected by the cost of transporting the products to market.
Effective as of January 1, 1995, the FERC implemented regulations establishing
an indexing system for transportation rates for most oil pipelines, which,
generally, would index such rates to inflation, subject to certain conditions
and limitations. These regulations could increase the cost of transporting oil
and natural gas liquids by pipeline, although the most recent adjustment
generally decreased rates. The Company is not able to predict with certainty
what effect, if any, these regulations will have on its operations, however, the
regulations may, over time, tend to increase transportation costs or reduce
wellhead prices for oil and natural gas liquids.
Operational Hazards and Insurance
The operations of the Company are subject to all risks inherent in the
exploration for, and development and production of, oil and gas, including such
natural hazards as blowouts, cratering and fires, which could result in damage
or injury to, or destruction of, drilling rigs and equipment, formations,
producing facilities or other property, or could result in personal injury, loss
of life or pollution of the environment. Any such event could result in
substantial cost to the Company which could have an adverse effect upon the
financial condition of the Company to the extent it is not fully insured against
such risk. The Company carries insurance against certain of these risks but, in
accordance with standard industry practice, is not fully insured for all risks,
either because such insurance is unavailable or because it elects not to obtain
insurance coverage because of cost. Although such operational risks and hazards
may to some extent be minimized, no combination of experience, knowledge and
scientific evaluation can eliminate the risk of investment or assure a profit to
any company engaged in oil and gas operations.
Environmental Matters
Operations of the Company are subject to numerous and constantly changing
federal, state and local laws and regulations governing the discharge of
materials into the environment or otherwise relating to environmental
protection. These laws and regulations may require the acquisition of certain
permits, restrict or prohibit certain types, quantities and concentration of
substances that can be released into the environment in connection with drilling
and production, restrict or prohibit drilling activities that could impact
wetlands, endangered or threatened species or other protected natural resources
and impose substantial liabilities for pollution resulting from the Company's
operations. Such laws and regulations may substantially increase the cost of
exploring for, developing or producing oil and gas and may prevent or delay the
commencement or continuation of a given project. In the opinion of the Company's
management, the Company is in substantial compliance with current applicable
environmental laws and regulations and it is not anticipated that the Company
will be required in the near future to expend amounts that are material in the
aggregate to its overall operations by reason of environmental laws and
regulations. Nevertheless, changes in existing environmental laws and
regulations or in the interpretations thereof could have a significant impact on
the operating costs of the Company, as well as the oil and gas industry in
general. For instance, legislation has been proposed in Congress from time to
time that would reclassify certain oil and gas production wastes as "hazardous
wastes", which reclassification would make exploration and production wastes
subject to much more stringent and costly handling, disposal and clean-up
requirements. State initiatives to further regulate the disposal of oil and gas
wastes and naturally occurring radioactive materials are also pending in certain
states and these various initiatives could have a similar impact on the Company.
The Comprehensive Environmental Response, Compensation, and Liability Act
("CERCLA"), also known as "Superfund" law, imposes liability, without regard to
fault or the legality of the original conduct, on certain classes of persons
that are considered to have contributed to the release of a "hazardous
substance" into the environment. These persons include the owner or operator of
the disposal site where the release occurred and companies that disposed or
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arranged for the disposal of the hazardous substances found at the site. Persons
who are or were responsible for releases of hazardous substances under CERCLA
may be subject to joint and several liability for the costs of cleaning up the
hazardous substances that have been released into the environment and for
damages to natural resources, and it is not uncommon for neighboring landowners
and other third parties to file claims for personal injury and property damage
allegedly caused by the hazardous substances released into the environment. The
Company is only able to directly control the operations of those wells with
respect to which it acts as operator. Notwithstanding the Company's lack of
control over wells operated by others, the failure of an operator of a well in
which the Company owns a working interest to comply with applicable
environmental regulations may, in certain circumstances, be attributed to the
Company. As of the date of this report, the Company has no material commitments
for capital expenditures to comply with existing environmental requirements.
Employees
At December 31, 1999, the Company employed 10 persons whose functions are
associated with management, operations and mineral management, engineering,
geology, land and gas contract administration, accounting and financial
planning, and administration and data processing. The Company considers its
relations with its employees to be excellent.
ITEM 2. DESCRIPTION OF PROPERTY
General
The Company owns interests in 1,516 producing properties, including both working
interests and royalty interests, located in 15 states. (For further details
regarding these properties, see "Producing Wells" included elsewhere herein.)
The Company is engaged in leasing of its minerals as well as the exploration,
production and sale of natural gas, condensate and crude oil from its
properties.
The Company has an extensive ownership of nonproducing perpetual minerals
located in 16 states, including North Dakota, Oklahoma, Michigan, Texas, Montana
and Mississippi. Such ownership comprises 3,336 properties covering 93,651 net
acres. The Company may from time-to-time participate in exploration activities
on certain of these properties, but generally sell leases on them to others,
retaining a royalty interest in whatever production may be derived therefrom,
thereby eliminating the risk in the exploration of such properties. At the
present time, there are approximately 27 properties leased to others for such
exploration comprising 955 net acres.
In addition, the Company owns a leasehold interest in 135 nonproducing
properties comprising 9,022 net acres. These properties have varying lease
terms, with most expiring in the next five years. These leasehold interests are
located in ten states, including Montana, Oklahoma and Texas.
Current Activities
In 1999, the majority of the Company's drilling and development activities were
located in the Arkoma Basin of Oklahoma and the Permian Basin of Texas and New
Mexico. Most drilling the last few years has been developmental in nature (94%
in 1999 and 63% in 1998) on both oil and gas properties. In 1999, there were
nine oil wells and nine gas wells drilled; in 1998 there were nine oil wells and
15 gas wells drilled.
The primary focus of the Company's drilling and development activities during
the next 12 to 18 months will continue to be in the Arkoma Basin of Oklahoma and
the Permian Basin of New Mexico and Texas. During 2000, the Company's drilling
activities will continue to be primarily developmental in nature. The Company is
presently committed to participate in the drilling (or completion) of 16 (3.63
net) wells in 2000. The Company expects to operate six (2.72 net) of these
wells. In 2000, the Company has budgeted $5.5 million for drilling activities,
of which approximately $3 million has been committed.
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The Company also continues to seek out attractive property acquisitions and in
1999 acquired two producing properties at auction.
Drilling Activity
During the periods indicated, the Company drilled or participated in the
drilling of the following exploratory and development wells:
Years ended December 31,
1999 1998 1997*
Gross Net Gross Net Gross Net
----- ---- ----- ---- ----- ----
Exploratory:
Productive................... 1 .53 4 .50 0 .00
Nonproductive................ 0 .00 5 .59 5 .82
-- ---- -- ---- -- ---
Total...................... 1 .53 9 1.09 5 .82
== ==== == ==== == ===
Development:
Productive................... 16 2.51 14 2.25 14 .50
Nonproductive................ 1 .12 1 .18 6 .75
-- ---- -- ---- --- ----
Total...................... 17 2.63 15 2.43 20 1.25
== ==== == ==== == ====
Total:
Productive................... 17 3.04 18 2.75 14 .50
Nonproductive................ 1 .12 6 .77 11 1.57
--- ---- -- ---- -- ----
Total..................... 18 3.16 24 3.52 25 2.07
=== ==== === ==== == ====
The above well information excludes wells in which the Company has only a
royalty or mineral interest.
* 1997 information is that of The Home-Stake Royalty Corporation prior to the
merger, as explained on Page 1 of this Annual Report on Form 10-KSB.
At December 31, 1999, the Company was participating in the drilling of one (.25
net) well which was completed as a gas well producing 375 Mcf per day. In
addition, the Company participated in six (.18 net) additional wells subsequent
to year-end, two of which have been completed as producing oil wells and one as
a producing gas well. The other three wells are in various stages of completion.
Operating Activities
The Company operates 49 producing wells and seven service wells located in 10
separate fields, which includes one waterflood consisting of nine producing
wells and two service wells. In addition, the Company has a non-operator working
interest ownership in approximately 270 other producing properties.
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The Company operates wells in two fields in Dawson County, Montana. The
operations in the Glendive Field consist of 12 producing wells and four
saltwater disposal wells. The Gas City Field is unitized for secondary recovery
operations and consists of nine producing wells and two water injection wells.
Production is primarily from the Red River formation of Ordovician age in both
of these fields.
Operations in the Golden Trend Field in Grady and McClain counties in Oklahoma
consist of 17 producing wells completed in four formations of Pennsylvanian and
Ordovician age rock.
The Company's operations in the Arkoma Basin of Eastern Oklahoma consists of
five producing gas wells located in the Hartshorne South and Kinta Fields in
Latimer County and the Ti North and Ashland Fields in Pittsburg County.
Another of the Company's producing fields is the West Cement Field in Caddo
County, Oklahoma. At present, there is one producing well completed in the
Medrano formation of Pennsylvania age rock.
The Company also operates one producing well and one drilling well in the
Champmon Strawn Field in Gaines County, Texas and four wells and one drilling
well in the Eunice Dome Field in Lea County, New Mexico.
Producing Wells
The following table sets forth certain information relating to the Company's
producing properties. Because the Company owns the mineral interests in numerous
producing wells, it does not have current information on the numbers of wells
drilled by the owners of the leasehold interests for these properties.
Accordingly, the Company keeps track of its royalty interests on a
property-by-property rather than a well-by-well basis, and the following table
sets forth the number of properties upon which there are one or more producing
wells. Net wells refers to the total number of wells in which the Company has an
interest, multiplied by the Company's working interest percentage in the wells.
Producing Properties as of December 31, 1999
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Gross Net
----- ---
Working interests - Oil............................. 106 30
Gas............................. 215 22
Royalty interests - Oil............................. 696 (1)
Gas............................. 499 (1)
(1) The term "net wells" is not applicable to a royalty interest since the
Company has no working interest in the applicable well.
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Acreage
As previously noted, the Company owns an interest in 1,516 producing properties,
including royalty interests in 1,195 properties (comprising approximately 28,160
net acres) and working interests in 321 properties (comprising 15,100 net
acres). The following table sets forth the Company's gross and net oil and gas
leasehold acreage as of December 31, 1999.
Acreage as of December 31, 1999
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Gross Net
----- ---
Developed Acreage:
Leasehold.......................... 73,203 13,460
Mineral............................ 300,482 29,778
Undeveloped Acreage:
Leasehold.......................... 20,708 9,022
Mineral............................ 637,374 93,651
---------- ----------
Total Acreage 1,031,767 145,911
========== ==========
Proved Reserves
The following table reflects the proved reserves and proved developed producing
reserves, the future net revenues and the present value of future net revenues
from such reserves of the Company at December 31, 1999 as estimated by the
Company. The quantities of the Company's proved reserves of oil and natural gas
presented below, representing developed and undeveloped reserves, include only
those amounts which the Company reasonably expects to recover in the future from
known oil and gas reservoirs under existing economic and operating conditions.
Proved developed producing reserves are limited to those quantities which are
recoverable commercially from existing wells at current prices and costs, under
existing regulatory practices and with existing technology. Accordingly, any
changes in product prices, operating and developmental costs, regulations,
technology or other factors could significantly increase or decrease estimates
of the Company's proved developed producing reserves. The Company's proved
undeveloped reserves include only those quantities which the Company reasonably
expects to recover from the drilling of new wells based on geological evidence
from directly offsetting wells. The risks of recovering these reserves are
higher from both geological and mechanical perspectives than the risks of
recovering developed reserves. The estimates of the Company's proved reserves do
not include proved undeveloped reserves attributable to the Company's royalty
interests. Although the Company believes there are proved undeveloped reserves
associated with these royalty interests, it lacks the geological and geophysical
data necessary to evaluate such reserves. Furthermore, the reserve estimates do
not include reserves whose estimates of recoverability are less precise,
commonly referred to as "probable" or "possible" reserves. The Company has no
reserves outside the continental United States.
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Proved Oil and Gas Reserves at December 31, 1999
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Present Value
Oil Gas Future Net of Future
(Bbls) (Mcf) Revenues Net Revenues(1)
-------- ------- ---------- ------------
Proved reserves............. 5,650,452 42,840,578 $165,212,998 $ 85,055,731
Proved developed producing
reserves................. 3,845,810 25,446,938 $106,118,532 $ 59,251,409
============================ ========== ========== ============= ============
(1) Present value of future net revenues before deducting the impact of federal
and state income taxes (discounted at 10%).
The future net revenues are determined by using estimated quantities of proved
reserves and proved developed producing reserves and the periods in which they
are expected to be developed and produced based on December 31, 1999 economic
conditions. The estimated future production is priced based on the actual prices
in effect at December 31, 1999. The resulting estimated future gross revenues
are reduced by estimated future costs to develop and produce the proved reserves
based on December 31, 1999 cost levels, but not for debt service, general and
administrative expense and income taxes. For additional information concerning
the discounted future net revenues to be derived from these reserves and the
disclosure of the standardized measure information in accordance with the
provisions of Statement of Financial Accounting Standards No. 69, see
"Supplementary Information on Oil and Gas Producing Activities (unaudited)" at
page F-13 herein.
The reserve data set forth in this report represents only estimates. Reserve
engineering is a subjective process of estimating underground accumulations of
crude oil and natural gas that cannot be measured in an exact manner. The
accuracy of any reserve estimate is a function of the quality of available data
and of engineering and geological interpretation and judgment. As a result,
estimates of different engineers may vary. In addition, results of drilling,
testing and production subsequent to the date of an estimate may justify
revision of such estimate. Accordingly, reserve estimates often differ from the
quantities of crude oil and natural gas that are ultimately recovered. The
meaningfulness of such estimates is highly dependent upon the accuracy of the
assumptions upon which they were based. Estimates of the Company's proved
reserves have not been filed with, or included in reports to any Federal
authority or agency, other than the Securities and Exchange Commission.
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Oil and Gas Production, Sales Prices and Production Costs
The following table sets forth information with respect to production and
average product prices attributable to the Company's royalty interests and
working interests in producing properties, and, with respect to properties in
which the Company owns a working interest, the production costs (including
production taxes and transportation charges) per equivalent barrel of oil
produced for the periods indicated.
Royalty Interests
1999 1998 1997*
------------ ------------ ------------
Production:
Oil (Bbls)................. 92,434 104,536 55,014
Gas (Mcf).................. 627,088 642,773 376,703
Average Sales Prices:
Oil (per Bbl).............. $16.86 $12.14 $18.97
Gas (per Mcf).............. 2.16 2.04 2.52
============================== ============ ============ ============
Working Interests
1999 1998 1997*
------------ ------------ -------------
Production:
Oil (Bbls)................. 257,988 273,340 155,983
Gas (Mcf).................. 1,995,167 1,846,862 831,761
Average Sales Prices:
Oil (per Bbl).............. $16.95 $12.10 $18.74
Gas (per Mcf).............. 2.05 1.94 2.33
Average direct operating costs
per barrel of oil
equivalent(1).............. $5.13 $5.22 $6.51
(1) This item relates only to working interests since royalty owners are not
liable for operating costs. Barrels of oil equivalent are determined using
the ratio of six Mcf of gas to one barrel of crude oil, condensate or
natural gas liquids. See Item 6. Management's Discussion and Analysis, for
further discussion of these costs.
* 1997 information is that of The Home-Stake Royalty Corporation prior to the
merger, as explained on Page 1 of this Annual Report on Form 10-KSB.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various minor legal actions arising in the normal
course of business. In the opinion of management, the Company's liabilities, if
any, in these matters will not have a material effect on the Company's financial
position, results of operations or cash flows.
-10-
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to the Company's stockholders during the fourth
quarter of the fiscal year ended December 31, 1999.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
As of December 31, 1999, the Company had approximately 465 known holders of
record of its common stock . Prior to February 12, 1998, the Company's common
stock was listed in the "pink sheets" published by the National Quotation
Bureau. Trades were limited and, accordingly, there was no established public
trading market for the stock as defined in Item 201(a)(1) of SEC Regulation S-B.
On February 12, 1998 the Company's common stock began trading on the
Over-the-Counter Bulletin Board and on May 11, 1998, began trading on the Nasdaq
SmallCap Market under the symbol "HSOG". The table below reflects the high and
low sales prices per share for the Company's common stock as reported on either
the Over-the-Counter Bulletin Board or the Nasdaq SmallCap Market for the period
indicated.
1998
----
Quarter Low High
------- --- ----
First............................... $ 4.500 $ 6.250
Second.............................. $ 5.250 $ 8.000
Third............................... $ 5.375 $ 6.750
Fourth.............................. $ 4.625 $ 5.750
1999
----
First............................... $ 4.000 $ 5.000
Second.............................. $ 3.250 $ 4.500
Third............................... $ 4.125 $ 4.625
Fourth.............................. $ 4.625 $ 7.000
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<PAGE>
The following table sets forth the per share amount of cash dividends declared
and paid by the Company on its common stock during the periods indicated.
Cash Dividends
Declared and Paid
Per Share of
Common Stock
Years ended December 31, 1999 1998
First Quarter........................ $ .02 $ .02
Second Quarter....................... .02 .02
Third Quarter........................ .02 .02
Fourth Quarter....................... .03 .02
On February 18, 2000 the Company's Board of Directors increased the cash
dividend for the first quarter of 2000 to $ .035 per share. The Company has
historically paid quarterly cash dividends to its stockholders. The Company's
Board of Directors has adopted a dividend policy that provides for the payment
of quarterly dividends, dependent on numerous factors, including future
earnings, anticipated capital requirements, the financial condition and
prospects of the Company, and such other factors as the Board may deem relevant.
In addition, future dividends may be restricted pursuant to the terms of the
loan agreement between the Company and Bank of Oklahoma, N.A. See "Management's
Discussion and Analysis" below for a description of these restrictions.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion should be read in conjunction with the Company's
financial statements and notes thereto included elsewhere herein.
Results of Operations
Net income for 1999 increased to $2,374,632 from a loss of $4,732,213 in 1998.
The factors contributing to this increase in earnings are as follows:
Crude oil sales increased $1,355,750 (30%), primarily due to the increase in
crude oil prices. The average sales price per barrel increased 40% from $12.11
in 1998 to $16.93 in 1999. Production decreased 7% to 350,422 barrels due to
natural depletion of existing reserves and the loss of production on properties
sold, partially offset by production from new discoveries late in the year.
Natural gas sales increased 11% ($550,009) primarily due to the combination of
increased sales volumes and average sales prices. Natural gas sales volumes
increased 132,625 Mcf due primarily to higher production from discoveries and
acquisitions during 1999 and the last half of 1998. The average sales price of
the Company's natural gas increased 6% from $1.96 per Mcf in 1998 to $2.08 per
Mcf in 1999.
-12-
<PAGE>
Gains on sales of assets increased $201,786 in 1999. The Company had several
property sales in 1999, including its interest in the outside operated Pine Unit
on which it recorded a gain of $142,000. The Company had no significant property
sales in 1998.
Production expenses remained essentially unchanged. Lease operating expenses
deceased $226,483 (9%) due primarily to lower maintenance costs on several of
the Company's properties. This decrease was offset by higher production taxes
which increased $227,610 as a result of the higher crude oil and natural gas
sales described above.
Exploration expenses decreased $1,276,978. Dry hole costs decreased $706,438;
the Company participated in only one dry hole in 1999. Condemned and abandoned
property expenses were $570,540 lower in 1999. Prior year's expense included the
abandonment of certain nonproducing leasehold costs on acreage the Company was
unable to drill due to lower product prices.
General and administrative expense decreased 18% ($404,314) in 1999. This
decrease is primarily attributable to lower personnel related costs resulting
from personnel lay-offs in late 1998. In addition, 1998 expense included $62,771
in costs related to the merger of The Home-Stake Royalty Corporation with and
into the Company on December 31, 1997. There were no comparable costs in 1999.
Depreciation, depletion and amortization expense decreased $2,547,763. The
carrying values of the Company's properties (original costs reduced by
accumulated depreciation, depletion and amortization) are amortized over the
estimated property lives. In 1998, the Company recorded a significant impairment
adjustment in the carrying value of its producing oil and gas properties
recorded (described below). Accordingly, the future rates of amortization were
decreased, resulting in lower depreciation, depletion and amortization expense.
Impairment of producing oil and gas properties decreased $4,296,695 in 1999. The
carrying value of the Company's properties are assessed for possible impairment
whenever facts and circumstances indicate such amounts may not be recoverable,
based on estimated future net cash flows. During 1998, prices for crude oil and
natural gas decreased significantly. Accordingly, the estimated future cash
flows from producing properties decreased significantly in 1998. As a result, in
1998 the Company recorded an impairment adjustment in the carrying value of its
producing oil and gas properties in the amount of $4,775,867.
Financial Condition and Liquidity
The Company's operating activities have traditionally been self-financed through
internally generated cash flows. The principal uses of cash flows have been to
fund the Company's exploration and production activities and for the payment of
dividends to stockholders. The use of borrowed funds has generally been limited
to the acquisition of producing oil and gas properties where future revenues
from such purchases are expected to fund the debt.
In 1999, the Company spent $1.7 million for exploration and development
activities and $875,000 on acquisitions. The Company has budgeted $5.5 million
for exploration and development activities in 2000, of which approximately $3
million has been committed.
The working capital deficit at December 31, 1999 was approximately $700,000.
Despite this deficit, the Company's working capital and internally generated
cash flows from operations are expected to be sufficient to finance the
Company's note payments and budgeted 2000 exploration and development
activities. In addition, the Company's line of credit described below is
expected to be extended into 2001.
During 1999, the Company made note payments of $4,470,000, reducing its
outstanding bank debt to $2.5 million at year-end. On November 8, 1999, the
Company entered into a new credit facility with a different bank. The Company
borrowed $3.4 million (reduced to $2.5 million at December 31, 1999) under the
long-term loan provisions of that facility which requires monthly principal
payments of $100,000, plus interest at prime less 3/4% (7 3/4% at December 31,
1999). This credit facility also provides for a revolving term line-of-credit
until November 30, 2000, in the amount of $5 million, requiring monthly payments
of interest at prime less 1%. There are no amounts borrowed under this revolving
term line-of-credit. This credit facility includes certain covenants which
require, among other things, that the Company maintain a minimum net worth of
not less than $14 million. In addition, the Company's annual cash dividends are
limited to 15% of cash from operations, less scheduled note payments. In
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<PAGE>
connection with the line of credit, the Company pays a commitment fee of
three-eights of one percent (3/8%) per annum on the unused portion of the line.
Average direct operating costs per barrel of oil equivalent are dependent upon
several factors, including principally the nature of a company's operations. For
example, gas properties are generally more economical to operate than oil
properties. Likewise, oil wells in a form of primary recovery (flowing or
pumping) are more economical to operate than oil wells in a form of secondary
recovery, such as waterfloods. The Company has large interests in two
waterfloods and one water-drive operation. These properties contributed
approximately 32% of the total working interest barrels of oil equivalent
production in 1999 but were responsible for approximately 59% of the direct
operating costs. Excluding these waterflood properties, the Company's direct
operating costs per barrel of oil equivalent in 1999 was $3.10.
The Company projects future earnings and believes it will fully realize its
deferred tax assets and, accordingly, no valuation allowances have been
provided. In management's opinion, the deferred tax assets will be realized as
reductions in future income taxes payable or by utilizing available tax planning
strategies. Uncertainties that may affect the ultimate realization of these
assets include future product prices, costs and tax rates. Therefore, the
Company will periodically review these factors and determine whether a valuation
allowance has become necessary.
Year 2000 Readiness
The Company began addressing the impact of Year 2000 (Y2K) on its operations in
mid 1997. This problem existed 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 have interpreted the year as 1900 instead
of 2000. Although the primary affects of this problem were related to computer
systems, the problem had 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.
All Y2K compliance modifications and confirmations were 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 did not experience any significant adverse Year 2000 effects on its
systems and operations and does not expect any in the future.
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 location of wells to be drilled, future capital
expenditures (including the amount and nature thereof), anticipated date of
repayment of bank debt, extension of existing line of credit, Y2K readiness and
other such matters. These forward looking statements are based on current
-14-
<PAGE>
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.
ITEM 7. FINANCIAL STATEMENTS
The annual financial statements required by this Item begin at page F-1
following page 18 hereof.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There has been no change in accountants and no disagreements on any matters of
accounting principles or practices, financial statement disclosures, or auditing
scope or procedures.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS AND COMPLIANCE WITH SECTION 16(a) OF THE
EXCHANGE ACT
The information required by this Item is incorporated by reference from sections
of the Company's definitive Proxy Statement for its 2000 Annual Meeting of
Stockholders (the "Proxy Statement") entitled "Election of Directors",
"Executive Officers of the Company" and "Section 16(a) Beneficial Ownership
Reporting Compliance".
ITEM 10. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference from the
section of the Proxy Statement entitled "Executive Compensation".
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference from the
section of the Proxy Statement entitled "Principal Stockholders and Security
Ownership of Management".
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference from the
section of the Proxy Statement entitled "Certain Relationships and Related
Transactions".
-15-
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
The following documents are included as exhibits to this Form 10-KSB. Those
exhibits below incorporated by reference herein are indicated as such by the
information supplied in the parenthetical thereafter. If no parenthetical
appears after an exhibit, such exhibit is filed herewith.
Exhibit
Number Description
------ -----------
3.1 Amended and Restated Certificate of Incorporation of the Company
(filed as Exhibit 3.1 to the Company's Quarterly Report on Form 10-QSB
for the quarter ended June 30, 1998).
3.2 Bylaws of the Company, as amended (filed as Exhibit 3.2 to the
Company's Annual Report on Form 10- KSB for the year ended December
31, 1997).
4.1 Rights Agreement dated as of January 3, 2000, by and between the
Company and UMB Bank, N.A., as Rights Agent, (filed as Exhibit 4.1 to
the Company's Registration Statement on Form 8-A dated March 22,
2000).
4.2 Certificate of Designations of Series A Junior Participating Preferred
Stock of the Company.
*10.1 Amended and Restated Home-Stake Oil & Gas Company Key Employee
Incentive Bonus Plan (filed as Exhibit 10.1 to the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1997).
*10.2 Amended and Restated Employment Agreement by and between Robert C.
Simpson and the Company dated November 4, 1999.
*10.3 Employment Agreement by and between Chris K. Corcoran and the Company
dated November 4, 1999.
*10.4 Amended and Restated Home-Stake Oil & Gas Company Change in Control
Severance Pay Plan, dated November 4, 1999.
*10.5 Home-Stake Oil & Gas Company 1997 Incentive Stock Plan (filed as
Exhibit 10.4 to the Company's Annual Report on Form 10-KSB for the
year ended December 31, 1997).
*10.6 Amendment dated November 4, 1999 to the Home-Stake Oil & Gas Company
1997 Incentive Stock Plan.
*10.7 Form of Indemnity Agreement between the Company and each Director,
dated May 14, 1996 (filed as Exhibit 10.1 to the Company's Quarterly
Report on Form 10-QSB for the quarter ended June 30, 1996).
10.8 Special Loan Agreement dated November 8, 1999 between the Company and
Bank of Oklahoma, N.A. (filed as Exhibit 10.1 to the Company's
Quarterly Report on Form 10-QSB, for the quarter ended September 30,
1999).
10.9 First Amendment to Special Loan Agreement dated February 9, 2000
between the Company and Bank of Oklahoma, N.A.
23 Consent of Independent Auditors
27 Financial Data Schedule.
* Management contract or compensatory plan or arrangement.
-16-
<PAGE>
(b) Reports on Form 8-K:
A report on Form 8-K dated December 22, 1999, was filed during the fourth
quarter of the fiscal year ended December 31, 1999, reporting under Item
5 the Company's adoption of a new shareholder rights plan to replace the
Company's prior plan that expired on January 3, 2000.
-16-
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant has
caused this Form 10-KSB to be signed on its behalf by the undersigned, thereunto
duly authorized.
HOME-STAKE OIL & GAS COMPANY
Date: March 29, 2000 By: /s/ Robert C. Simpson
----------------------
Robert C. Simpson
Chairman of the Board, Chief Executive
Officer and President
Pursuant to the requirements of the Exchange Act, this report has been signed
below by the following persons on behalf of the Registrant and in the capacities
and on the dates indicated:
Signature Title Date
- ---------------------------- -------------------------------- --------------
/s/ Robert C. Simpson Director, Chairman of the Board, March 29, 2000
- ---------------------------- Chief Executive Officer and
Robert C. Simpson President
(Principal Executive Officer)
/s/ Chris K. Corcoran Director, Executive Vice March 29, 2000
- ---------------------------- President, and Chief Financial
Chris K. Corcoran Officer
(Principal Financial and
Accounting Officer)
/s/ L.W. Allegood Director March 29, 2000
- ----------------------------
L.W. Allegood
/s/ Larry F. Grindstaff Director March 29, 2000
- ----------------------------
Larry F. Grindstaff
/s/ Ronald O. Gutman Director March 29, 2000
- ----------------------------
Ronald O. Gutman
/s/ James L. Houghton Director March 29, 2000
- ----------------------------
James L. Houghton
/s/ Joseph J. McCain, Jr. Director March 29, 2000
- ----------------------------
Joseph J. McCain, Jr.
/s/ I. Wistar Morris, III Director March 29, 2000
- ----------------------------
I. Wistar Morris, III
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<PAGE>
HOME-STAKE OIL & GAS COMPANY
INDEX TO FINANCIAL STATEMENTS
Covered by Report of Independent Auditors
Report of Independent Auditors.................................... F-2
Balance Sheets as of December 31, 1999 and 1998................... F-3
Statements of Operations and Retained Earnings for the years
ended December 31, 1999 and 1998................................ F-4
Statements of Cash Flows for the years ended December 31,
1999 and 1998................................................... F-5
Notes to Financial Statements..................................... F-6
Not Covered by Report of Independent Auditors
Supplemental Information on Oil and Gas Producing Activities for
the years ended December 31, 1999 and 1998 (unaudited).......... F-12
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders
Home-Stake Oil & Gas Company
We have audited the accompanying financial statements of Home-Stake Oil & Gas
Company listed in the accompanying index to financial statements (Item 7). These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements listed in the accompanying index to
financial statements (Item 7) present fairly, in all material respects, the
financial position of Home-Stake Oil & Gas Company at December 31, 1999 and
1998, and the results of its operations and its cash flows for the years then
ended in conformity with accounting principles generally accepted in the United
States.
/s/ ERNST & YOUNG LLP
Tulsa, Oklahoma
March 24, 2000
F-2
<PAGE>
HOME-STAKE OIL & GAS COMPANY
BALANCE SHEETS
December 31, 1999 and 1998
ASSETS
1999 1998
---- ----
Current assets:
Cash and cash equivalents......................... $ 84,458 $ 212,031
Accounts receivable............................... 1,746,062 1,476,995
Prepaid expenses.................................. 140,810 238,253
------------ ------------
Total current assets....................... 1,971,330 1,927,279
Property and equipment, at cost:
Producing oil and gas leases (working interests).. 38,575,791 37,054,044
Producing oil and gas royalties................... 8,976,185 9,006,126
Nonproducing oil and gas properties............... 1,749,102 1,494,000
Office equipment and other........................ 520,160 526,176
------------ ------------
49,821,238 48,080,346
Less accumulated depreciation,
depletion and amortization..................... 26,856,930 24,727,189
------------ ------------
Net property and equipment................. 22,964,308 23,353,157
Other assets........................................ 247,382 237,781
------------ ------------
$ 25,183,020 $ 25,518,217
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities.......... $ 1,097,442 $ 897,720
Income taxes payable.............................. 368,353 -
Current notes payable (Note 2).................... 1,200,000 1,945,000
------------- ------------
Total current liabilities.................. 2,665,795 2,842,720
Long-term notes payable (Note 2).................... 1,300,000 4,290,000
Deferred income taxes (Note 3)...................... 3,362,953 2,914,813
Stockholders' equity (Note 6):
Preferred stock, $1 par value - 2,000,000
shares authorized; none issued
Common stock, $ .01 par value - 12,000,000
shares authorized, 4,597,363 shares
issued - 1999, 4,517,363 shares
issued - 1998............................ 45,974 45,174
Additional paid-in capital......................... 15,855,821 15,460,621
Retained earnings.................................. 3,260,533 1,272,945
------------ ------------
19,162,328 16,778,740
Less treasury stock, at cost - 243,536 shares...... (1,308,056) (1,308,056)
------------ ------------
Total stockholders' equity.................. 17,854,272 15,470,684
------------ ------------
$ 25,183,020 $ 25,518,217
See accompanying notes.
F-3
<PAGE>
HOME-STAKE OIL & GAS COMPANY
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
Years ended December 31, 1999 and 1998
1999 1998
---- ----
Revenues:
Oil and gas sales.............................. $ 11,498,813 $ 9,565,933
Gain on sales of assets........................ 211,733 9,947
Other income................................... 233,693 413,728
------------ ------------
11,944,239 9,989,608
Costs and expenses:
Production..................................... 3,236,123 3,234,996
Exploration.................................... 85,562 1,362,540
General and administrative....................... 1,832,871 2,237,185
Depreciation, depletion and amortization....... 2,343,931 4,891,694
Impairment of producing oil and gas properties... 479,172 4,775,867
Interest....................................... 378,751 375,800
Property and other taxes....................... 172,616 262,438
------------ ------------
8,529,026 17,140,520
Income (loss) before provision for income taxes..... 3,415,213 (7,150,912)
Provision for (benefit from) income taxes (Note 3):
Current........................................ 592,441 (125,964)
Deferred....................................... 448,140 (2,292,735)
------------ ------------
1,040,581 (2,418,699)
------------ ------------
Net income (loss)................................... 2,374,632 (4,732,213)
Retained earnings at beginning of year.............. 1,272,945 6,359,862
Cash dividends ($ .09 per share - 1999,
$ .08 per share - 1998).......................... (387,044) (354,704)
------------ ------------
Retained earnings at end of year.................... $ 3,260,533 $ 1,272,945
============ ============
Weighted average number of shares outstanding
Basic.......................................... 4,280,622 4,460,891
========= =========
Diluted........................................ 4,287,064 4,460,891
========= =========
Net income (loss) per common share -
basic and diluted.............................. $ .55 $(1.06)
===== ======
See accompanying notes.
F-4
<PAGE>
HOME-STAKE OIL & GAS COMPANY
STATEMENTS OF CASH FLOWS
Years ended December 31, 1999 and 1998
1999 1998
---- ----
Operating activities:
Oil and gas sales, net of production taxes........ $ 10,020,323 $ 9,562,002
Other............................................. 233,693 413,728
------------ ------------
10,254,016 9,975,730
Cash paid to suppliers and employees.............. 3,981,238 5,504,398
Interest paid..................................... 378,751 375,800
Property and other taxes.......................... 172,616 262,438
Income taxes paid (refunded)...................... (74,999) 265,945
------------ ------------
4,457,606 6,408,581
Net cash provided by operating activities....... 5,796,410 3,567,149
Investing activities:
Proceeds from sales of property and equipment..... 586,484 100,002
Acquisition of property and equipment............. (2,784,856) (9,540,604)
------------ ------------
Net cash used in investing activities........... (2,198,372) (9,440,602)
Financing activities:
Proceeds from notes payable....................... 735,000 7,225,000
Note payments..................................... (4,470,000) (990,000)
Proceeds from exercise of stock options........... 396,000 -
Purchase of treasury stock........................ - (1,308,056)
Cash dividends paid............................... (386,611) (349,242)
------------ ------------
Net cash provided by (used in)
financing activities........................... (3,725,611) 4,577,702
------------ ------------
Net decrease in cash................................ (127,573) (1,295,751)
Cash and cash equivalents at beginning of year...... 212,031 1,507,782
------------ ------------
Cash and cash equivalents at end of year............ $ 84,458 $ 212,031
============ ============
Reconciliation of net income (loss) to net cash
provided by operating activities:
Net income (loss)................................... $ 2,374,632 $ (4,732,213)
Reconciling adjustments:
Depreciation, depletion and amortization and
impairment..................................... 2,823,103 9,667,561
Gain on sales of assets........................... (211,733) (9,947)
Dry hole costs and condemned and
abandoned properties........................... 85,562 1,362,540
Deferred income taxes............................. 448,140 (2,292,735)
Changes in other assets and liabilities:
Accounts receivable............................. (39,420) (96,273)
Prepaid expenses and other assets............... 87,842 (40,655)
Accounts payable................................ (140,088) (198,288)
Other liabilities............................... 368,372 (92,841)
------------ ------------
Net cash provided by operating activities........... $5,796,410 $ 3,567,149
============ ============
See accompanying notes.
F-5
<PAGE>
HOME-STAKE OIL & GAS COMPANY
NOTES TO FINANCIAL STATEMENTS
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 - Summary of significant accounting policies
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principals requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and revenues and expenses during the reporting period.
Actual results could differ from those estimates.
One of the most significant estimates made by the Company involves its oil and
gas reserves. The Company amortizes its costs of producing properties on the
unit-of-production method over the estimated remaining reserves of the Company.
Since estimates of remaining oil and gas reserves are highly subjective and
subject to constantly changing conditions, most of which are beyond the control
of the Company, it is reasonably possible that the Company's estimates will
change over time, affecting the rates of amortization. In addition, in assessing
whether any impairment to the carrying values of producing properties has
occurred, similar estimates of oil and gas reserves are used. Consequently
impairment adjustments to the carrying values are reasonably possible.
Fair Value of Financial Instruments
The carrying amounts for cash and cash equivalents and notes payable reported in
the balance sheets approximate fair value.
Cash and cash equivalents
The Company includes certificates of deposit and money market funds in cash and
cash equivalents since such amounts are readily convertible into known amounts
of cash.
Credit risks
The Company sells its oil and gas production directly or indirectly to numerous
oil refiners and pipeline companies without collateral. In addition, the Company
has numerous working interest owners to whom it grants credit on wells in which
it serves as operator. Substantially all of these owners are industry partners
or individuals who invest in oil and gas drilling ventures. The Company believes
its credit risks are limited due to the nature of its business and partner base
and has not incurred any significant losses in connection therewith.
Environmental costs
Environmental liabilities, which historically have not been material, are
recognized when it is probable that a loss has been incurred and the amount of
that loss is reasonably estimable. Environmental liabilities, when accrued, are
based upon estimates of expected future costs without discounting. At December
31, 1999 there are no such costs accrued.
F-6
<PAGE>
HOME-STAKE OIL & GAS COMPANY
NOTES TO FINANCIAL STATEMENTS - (Continued)
Note 1 - Summary of significant accounting policies (continued)
Property and equipment
The Company follows the successful efforts method of accounting for its oil and
gas operations. Costs of productive oil or gas wells, as well as costs of
acquiring producing and nonproducing oil and gas properties, are capitalized.
Exploratory costs, annual delay rentals and exploratory dry holes are expensed.
Depreciation, depletion and amortization of producing properties are provided on
the unit-of-production method based on estimates of proved reserves.
Depreciation of other property and equipment is provided on straight-line or
accelerated methods over estimated useful lives.
Impairment of producing properties is measured based on their discounted
estimated future net cash flows. As a result of the significant decreases in the
average prices of crude oil and natural gas during 1998, the Company's estimated
future net cash flows at December 31, 1998 were reduced, resulting in an
impairment charge of $4,775,867 in 1998.
Nonproducing oil and gas properties include both perpetual mineral rights and
term leasehold interests. The perpetual mineral rights are written-off when
unsuccessful exploration information is obtained. The Company does not maintain
an extensive inventory of nonproducing leasehold interests, rather such
interests are acquired in connection with specific drilling objectives. Such
nonproducing leasehold interests are written-off or reserved as warranted by
drilling results.
Renewals and betterments are capitalized; maintenance and repairs are charged to
expense. Replacement of individual items of lease equipment are capitalized.
When leases or other assets are sold or retired, the cost and related
accumulated depreciation, depletion and amortization are eliminated from the
accounts and the resulting gain or loss is recognized in income. The Company's
historical experience has been that the salvage value of equipment on property
abandonments is sufficient to cover the costs of dismantlement and site
restoration. Therefore, the Company does not accrue such costs and salvage value
is not considered in calculating property amortization.
Oil and gas sales
The Company sells most of its crude oil and natural gas concurrent with
production and does not store significant volumes for future sales. Revenue is
recognized on the "sales method" when oil and gas are sold. Under this method,
the Company may "sell" more or less than its proportionate share of gas
production in a given period, creating an imbalance position. However, an asset
or liability is recorded only to the extent that the Company's imbalance
position in a property cannot be recouped from remaining reserves. The Company's
net imbalance positions at December 31, 1999 and 1998 were not material.
Derivatives
The Company does not utilize financial or commodity derivative instruments to
hedge its market risks.
Income taxes
Certain income and expense items are recorded in one year in the financial
statements and are reported in a different year in the income tax return. Such
items generally include tax credit carryforwards, intangible drilling and
development costs, depreciation and depletion. The tax effects associated with
these differences are recorded in these financial statements and described as
"deferred income taxes".
Net income (loss) per share
Basic net income (loss) per share is based on the weighted-average number of
common shares outstanding during the period. Diluted net income (loss) per share
includes the dilutive effect of stock options.
F-7
<PAGE>
HOME-STAKE OIL & GAS COMPANY
NOTES TO FINANCIAL STATEMENTS - (Continued)
Note 2 - Notes payable
Notes payable at December 31, 1999 and 1998 consisted of the following balances:
1999 1998
---- ----
Bank notes.............................. $ 2,500,000 $ 6,235,000
Less current portion.................. 1,200,000 1,945,000
----------- ----------
$ 1,300,000 $ 4,290,000
=========== ===========
During 1998, the Company entered into a credit facility with its bank that
provided long-term financing for the acquisition of properties and an operating
line-of-credit. The Company borrowed $6.6 million under the long-term loan that
required monthly principal payments of $110,000, plus interest at prime less
1/2% (7 1/4 % at December 31, 1998). This credit facility also provided for a
revolving term line-of-credit until May 1, 1999, in the amount of $5 million,
requiring monthly payments of interest at prime less 1% (6 3/4 % at December 31,
1998). The Company had $625,000 borrowed under this line of credit at December
31, 1998. In connection with this line-of-credit, the Company paid a commitment
fee of one-half of one percent (1/2%) per annum on the unused portion of the
line.
During 1999, the Company executed a new credit facility. The Company borrowed
$3.4 million under the long-term portion of the new credit facility that
requires monthly principal payments of $100,000, plus interest at prime less
3/4% (7 3/4 % at December 31, 1999). Proceeds from the new facility were used to
retire the previous bank loan. Under this new credit facility, the Company also
has a revolving term line-of-credit in the amount of $5 million available until
November 30, 2000, which provides for monthly payments of interest on the
outstanding borrowings at bank prime less 1%. At December 31, 1999, the Company
had no borrowings under this line. In connection with this line-of-credit, the
Company pays a commitment fee of three-eights of one percent (3/8%) per annum on
the unused portion of the line.
The Company's new credit facility, which is secured by certain of the Company's
producing properties, includes certain loan covenants which require, among other
things, that the Company maintain a minimum net worth of not less than $14
million. This facility also provides that annual cash dividends shall not exceed
15% of cash from operations, less scheduled note payments.
Note 3 - Income taxes
Deferred income taxes represent the net tax effects associated with temporary
differences in the net book values of certain assets and liabilities for
financial reporting and income tax purposes. Significant components of the
Company's deferred income tax liabilities and assets at December 31, are as
follows:
1999 1998
---- ----
Deferred tax liabilities:
Intangible drilling costs........................ $ 1,543,249 $ 1,520,505
Excess of tax over book depreciation............. 333,508 297,864
Leasehold costs.................................. 1,511,829 1,558,630
----------- -----------
3,388,586 3,376,999
Deferred tax assets:
Alternative minimum tax credit carryforwards..... - 281,756
Statutory depletion carryforwards................ - 138,610
Deferred compensation accrual.................... - 9,778
Other (net)...................................... 25,633 32,042
----------- -----------
25,633 462,186
----------- -----------
Net deferred tax liability......................... $ 3,362,953 $ 2,914,813
=========== ===========
F-8
<PAGE>
Note 3 - Income taxes (continued)
The reconciliation of the income tax provision to the "expected" provision
computed at the statutory federal income tax rate is as follows:
1999 1998
---- ----
Computed "expected" provision (benefit)......... $ 1,161,172 $(2,431,310)
Excess statutory depletion...................... (105,381) (149,363)
Other........................................... (15,210) 161,974
----------- -----------
Provision for (benefit from) income taxes....... $ 1,040,581 $(2,418,699)
=========== ===========
Note 4 - Benefit plans
The Company has a 401(k) Profit Sharing Plan covering substantially all the
Company's employees that have completed one year of service and provides for a
mandatory Company contribution equal to 3% of the employee's compensation and an
additional matching Company contribution of up to 3%. Company contributions to
the Plan were $44,570 and $51,496 in 1999 and 1998, respectively.
Note 5 - Commitments and contingencies
The Company has a non-cancelable operating lease covering its office space
through December 31, 2003. This lease provides for annual rental payments of
$125,592, subject to an annual expense adjustment.
The Company is involved in various legal actions arising in the normal course of
business. In the opinion of management and legal counsel, the Company's
liabilities, if any, in these matters will not have a material effect on the
Company's financial position, results of operations or cash flows.
Note 6 - Stockholders' Equity
Common Stock
The Company's Certificate of Incorporation authorizes the issuance of up to
12,000,000 shares of common stock, $.01 per share.
Preferred Stock
The Company is authorized to issue up to 2,000,000 shares of Preferred Stock at
the discretion of the Board of Directors. This stock is commonly referred to as
"blank check" stock, with the Board of Directors having the authority to
determine voting rights, dividend rights, preferences, etc.
F-9
<PAGE>
Note 6 - Stockholders' Equity (continued)
Shareholder Rights Plan
The Company has a Shareholder Rights Plan and has distributed to its
shareholders one "Right" for each outstanding share of common stock. The Rights
expire January 3, 2010 and are exercisable only if a person or group acquires
15% or more of the Company's common stock or commences a tender offer that would
result in a person or group acquiring 15% or more of the Company's common stock.
Each Right will entitle the holder to purchase one one-thousandth of a share of
a new series of junior participating preferred stock at an exercise price of
$22. If the Company is acquired in a merger or other business combination
transaction after a person has acquired 15% or more of the Company's common
stock, each Right will entitle its holder to purchase, at the exercise price, a
number of the acquiring company's common stock having a market value of twice
such price. In addition, if a person or group acquires 15% or more of the
Company's common stock, each Right will entitle its holder (other than such
person or group) to purchase, at the exercise price, a number of the Company's
common stock having a market value of twice such price. Prior to the acquisition
by a person or group of 15% or more of the Company's common stock, the Rights
are redeemable in whole, but not in part, at a price of $.01 per Right at the
option of the Company's Board of Directors.
Incentive Stock Plan
On December 11, 1997, the stockholders approved the adoption of the Home-Stake
Oil & Gas Company 1997 Incentive Stock Plan (the "Stock Plan") which became
effective on December 31, 1997. There are a total of 451,736 shares of common
stock authorized and reserved under the Stock Plan. The number of shares
reserved for issuance under the Stock Plan automatically increases as necessary
so that, when added to the number of shares subject to stock options granted or
awarded under the Stock Plan, the total number of shares reserved will equal 10%
of the issued and outstanding shares of the Company.
During 1999 and 1998, the Board of Directors granted stock options in varying
amounts to all employees at exercise prices ranging from $4.50 per share to
$5.00 per share, representing the market price of the common stock on the date
of grant. Certain of these options vested immediately, with the remainder
vesting over a 5-year period. These options all expire 10 years after the date
of grant. In addition, there were non-qualified options issued to all outside
directors in the aggregate amount of 120,000 shares that are exercisable
immediately, at an option price of $4.50 per share, representing the market
price of the common stock on the date of grant. Directors' options expire 5
years after the date of grant.
The following summary reflects the stock option activity and related
information:
1999 1998
-------------------- --------------------
Weighted- Weighted-
average average
Exercise Exercise
Options Price Options Price
------- --------- ------- ---------
Outstanding at January 1,...... 231,250 $ 4.50 - $ 0.00
Granted........................ 222,686 4.90 255,250 4.50
Exercised...................... (80,000) 4.95 - 0.00
Forfeited...................... (2,200) 4.50 (24,000 4.50
-------
Outstanding at December 31,.... 371,736 $ 4.64 231,250 $ 4.50
======== ====== ======== ======
Exercisable at December 31,.... 246,136 $ 4.71 105,250 $ 4.50
======== ====== ======== ======
Shares available for
future grants............. - 220,486
======== ========
F-10
<PAGE>
Note 6 - Stockholders' Equity (continued)
Incentive Stock Plan (continued)
The following table summarizes information about options outstanding at December
31, 1999:
Outstanding Options Exercisable
---------------------------- -----------
Exercise Price Remaining Life Options Options
- --------------------------------------------------------------------------------
$4.50 .......................... 6.23 266,050 140,450
$5.00 .......................... 9.83 105,686 105,686
----- --------
Total .......................... 7.16 371,736 246,136
======== ========
The Company follows the provisions of APB Opinion No. 25, "Accounting for Stock
Issued to Employees", in accounting for the Stock Plan. Accordingly, since the
exercise price of stock options are equal to the market price of the common
stock at the date of grant, no compensation expense is recorded. The following
table reflects the Company's pro forma operating results and earnings per share
in 1999 and 1998 had the fair value provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation", been
applied:
1999 1998
----- ----
Net income (loss):
As reported........................ $ 2,374,632 $ (4,732,213)
Pro forma.......................... 2,136,039 (4,876,818)
Net income (loss) per share - basic & diluted:
As reported........................ $ 0.55 $ (1.06)
Pro forma.......................... 0.50 (1.09)
The pro forma amounts shown above may not be representative of future results
since the estimated fair value of options is amortized to expense over the
vesting period.
The weighted average fair values of options at their date of grant during 1999
and 1998 were $1.73 and $1.62, respectively. The fair value of each option is
estimated as of the date of grant using the Black-Sholes option-pricing model
with the following weighted-average assumption used:
1999 1998
----- ----
Expected lives of options in years..... 5 5
Expected stock volatility.............. 39% 40%
Risk-free interest rate................ 6.0% 4.9%
Dividend yield......................... 2.1% 1.8%
F-11
<PAGE>
HOME-STAKE OIL & GAS COMPANY
SUPPLEMENTAL INFORMATION ON OIL & GAS PRODUCING ACTIVITIES
(unaudited)
Estimated quantities of proved oil and gas reserves
Changes in estimated proved oil and gas reserve quantities are summarized as
follows:
1999 1998
------ ------
Oil Gas Oil Gas
(Bbls) (Mcf) (Bbls) (Mcf)
------ ----- ------ -----
Proved developed and
undeveloped:
Beginning of year.......... 2,994,928 21,412,481 4,470,192 18,540,196
Revisions of previous
estimates................ 918,629 6,782,415 (1,231,355) (228,628)
Purchases of reserves
in-place................. 41,972 1,081,196 122,765 4,718,680
Extensions, discoveries
and other additions...... 1,438,144 9,045,430 11,202 872,003
Proved undeveloped
reserves added*.......... 703,523 7,483,003 - -
Sales of reserves in-place. (96,322) (341,692) - -
Production................. (350,422) (2,622,255) (377,876) (2,489,770)
---------- ---------- ---------- ----------
End of year................ 5,650,452 42,840,578 2,994,928 21,412,481
========== ========== ========== ==========
Proved developed producing:
Beginning of year........... 2,912,403 18,372,372 4,386,132 15,902,988
=========== ========== ========== ==========
End of year................. 3,845,810 25,446,938 2,912,403 18,372,372
=========== ========== ========== ==========
* During 1999 the Company reviewed all of its working interest properties
completed prior to 1999 and identified additional proved undeveloped
reserves not previously associated with those properties. Such reserves
were not previously thought to be significant and accordingly, had not been
extensively evaluated and quantified.
The estimates of oil and gas reserves were prepared by Company employees and do
not include proved undeveloped reserves attributable to royalty interests.
Although the Company believes there are proved undeveloped reserves associated
with its royalty interests, it lacks the geological and geophysical data
necessary to evaluate such reserves. Furthermore, these estimates do not include
reserves whose estimates or recoverability are less precise, commonly referred
to as "probable" or "possible" reserves. The Company has no reserves outside the
continental United States.
Standardized measure of discounted future net cash flows
In accordance with the requirements of Statement of Financial Accounting
Standards No. 69 ("SFAS No. 69") presented below are projections of future net
oil and gas cash flows (sales less production taxes, operating expenses, certain
development costs and estimated income taxes) and related present values of
proved oil and gas reserves. As required by SFAS No. 69, these projections are
based on end of period prices and costs, held constant for all future periods.
The reserve estimates and related standardized measure disclosures at December
31, 1999 are based on average oil prices of $21.47 per barrel and average
natural gas prices of $2.53 per Mcf. Present values of the future net oil and
gas cash flows were calculated using a 10% discount factor as required. While
this information was developed with reasonable care and disclosed in good faith,
it is emphasized that some of the data are necessarily imprecise and represent
only approximate amounts because of the subjective judgments involved in
developing such information. Accordingly, this information may not represent the
present financial condition of the Company or its expected future results. This
information does not include any amounts applicable to "probable" or "possible"
reserves which may become proved in the future. Although these disclosures have
been prepared in accordance with
F-12
<PAGE>
HOME-STAKE OIL & GAS COMPANY
SUPPLEMENTAL INFORMATION ON OIL & GAS PRODUCING ACTIVITIES
(unaudited)
SFAS No. 69, this information does not purport to present the fair market value
of the Company's oil and gas properties or a fair estimate of the present value
of future cash flows expected to be obtained from their production. The reserve
estimates, while carefully made, may be significantly revised based on future
events. In addition, estimates of the timing of production, actual prices
realized and related production costs and taxes may also vary significantly from
those used in these calculations.
1999 1998
---- ----
Future net cash flows:
Oil and gas sales................................ $229,558,260 $ 70,149,666
Lease operating expenses......................... (37,194,408) (19,006,610)
Production taxes................................. (17,080,759) (5,629,857)
Development costs................................ (10,070,095) (616,777)
Income taxes..................................... (47,502,448) (11,486,053)
------------ ------------
117,710,550 33,410,369
Less discount to present value at 10% rate.... (55,220,753) (11,673,440)
------------ ------------
Standardized measure of discounted future net
cash flows.................................... $ 62,489,797 $ 21,736,929
============ ============
The following information summarizes the principal changes in the standardized
measure of discounted future net cash flows.
1999 1998
---- ----
Beginning of year................................... $ 21,736,929 $ 33,191,435
Sales of oil and gas, net of production costs....... (8,145,525) (6,233,288)
Net changes in prices and production costs.......... 17,671,956 (12,766,121)
Extensions and discoveries.......................... 21,794,814 705,777
Proved undeveloped reserves added................... 13,798,291 -
Purchases of reserves-in-place...................... 459,889 4,301,677
Sales of reserves-in-place.......................... (1,188,827) -
Revisions of previous quantity estimates............ 14,951,980 (5,733,382)
Net change in income taxes.......................... (17,478,913) 4,082,167
Other (net)......................................... (3,284,490) 869,520
Accretion of discount............................... 2,173,693 3,319,144
------------ ------------
End of year......................................... $ 62,489,797 $ 21,736,929
============ ============
F-13
<PAGE>
HOME-STAKE OIL & GAS COMPANY
SUPPLEMENTAL INFORMATION ON OIL & GAS PRODUCING ACTIVITIES
(unaudited)
Costs incurred
Costs incurred in oil and gas producing activities include:
1999 1998
---- ----
Acquisition costs - proved properties............... $ 875,005 $ 6,442,989
Acquisition costs - unproved properties............. 332,215 360,186
Exploration costs................................... 423,899 604,095
Development costs................................... 1,248,018 2,016,424
------------ ------------
$ 2,879,137 $ 9,423,694
============ ============
F-14
<PAGE>
INDEX TO EXHIBITS
The following documents are included as exhibits to this Form 10-KSB. Those
exhibits below incorporated by reference herein are indicated as such by the
information supplied in the parenthetical thereafter. If no parenthetical
appears after an exhibit, such exhibit is filed herewith.
Number Description
------ -----------
3.1 Amended and Restated Certificate of Incorporation of the Company
(filed as Exhibit 3.1 to the Company's Quarterly Report on Form 10-QSB
for the quarter ended June 30, 1998).
3.2 Bylaws of the Company, as amended (filed as Exhibit 3.2 to the
Company's Annual Report on Form 10- KSB for the year ended December
31, 1997).
4.1 Rights Agreement dated as of January 3, 2000, by and between the
Company and UMB Bank, N.A., as Rights Agent, (filed as Exhibit 4.1 to
the Company's Registration Statement on Form 8-A dated March 22,
2000).
4.2 Certificate of Designations of Series A Junior Participating Preferred
Stock of the Company.
10.1 Amended and Restated Home-Stake Oil & Gas Company Key Employee
Incentive Bonus Plan (filed as Exhibit 10.1 to the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1997).
10.2 Amended and Restated Employment Agreement by and between Robert C.
Simpson and the Company dated November 4, 1999.
10.3 Amended and Restated Employment Agreement by and between Chris K.
Corcoran and the Company dated November 4, 1999.
10.4 Amended and Restated Home-Stake Oil & Gas Company Change in Control
Severance Pay Plan, dated November 4, 1999.
10.5 Home-Stake Oil & Gas Company 1997 Incentive Stock Plan (filed as
Exhibit 10.4 to the Company's Annual Report on Form 10-KSB for the
year ended December 31, 1997).
10.6 Amendment dated November 4, 1999 to the Home-Stake Oil & Gas Company
1997 Incentive Stock Plan.
10.7 Form of Indemnity Agreement between the Company and each Director,
dated May 14, 1996 (filed as Exhibit 10.1 to the Company's Quarterly
Report on Form 10-QSB for the quarter ended June 30, 1996).
10.8 Special Loan Agreement dated November 8, 1999 between the Company and
Bank of Oklahoma, N.A. (filed as Exhibit 10.1 to the Company's
Quarterly Report on Form 10-QSB, for the quarter ended September 30,
1999).
10.9 First Amendment to Special Loan Agreement dated February 9, 2000
between the Company and Bank of Oklahoma, N.A.
23 Consent of Independent Auditors.
27 Financial Data Schedule.
<PAGE>
Exhibit 4.2
Certificate of Designations
of
Series A Junior Participating Preferred Stock
of
Home-Stake Oil & Gas Company
(Pursuant to Section 1032 of the
Oklahoma General Corporation Act)
Home-Stake Oil & Gas Company, a corporation organized and existing under
the Oklahoma General Corporation Act (hereinafter called the "Corporation"), in
accordance with the provisions of Section 1007 thereof, DOES HEREBY CERTIFY:
That, pursuant to the authority granted to and vested in the Board of
Directors of the Corporation (hereinafter called the "Board of Directors") in
accordance with the provisions of the Restated and Amended Certificate of
Incorporation of the Corporation (hereinafter called the "Certificate of
Incorporation"), the following resolution was duly adopted by the Board of
Directors of the Corporation as required by Section 1032 of the Oklahoma General
Corporation Act at a meeting duly called and held on November 4, 1999:
RESOLVED, that, pursuant to the authority granted to and vested in the
Board of Directors in accordance with the provisions of the Certificate of
Incorporation, the Board of Directors hereby creates a series of Preferred
Stock, with a par value of $1.00 per share, of the Corporation and hereby
states the designation and number of shares, and fixes the relative rights,
preferences and limitations thereof (in addition to the provisions set
forth in the Certificate of Incorporation which are applicable to the
Preferred Stock of all classes and series) as follows:
Series A Junior Participating Preferred Stock
Section 1. Designation, Par Value and Amount. The shares of such series
shall be designated as "Series A Junior Participating Preferred Stock"
(hereinafter referred to as "Series A Preferred Stock"), the shares of such
series shall be with par value of $1.00 per share, and the number of shares
constituting such series shall be 12,000; provided, however, that, if more than
a total of 12,000 shares of Series A Preferred Stock shall be issuable upon the
exercise of Rights (the "Rights") issued pursuant to the Rights Agreement, dated
as of January 3, 2000, between the Corporation and UMB Bank, N.A., as Rights
Agent (as amended from time to time) (the "Rights Agreement"), the Board of
Directors, pursuant to Section 1032 of the Oklahoma General Corporation Act,
shall direct by resolution or resolutions that a certificate be properly
executed, acknowledged and filed providing for the total number of shares of
Series A Preferred Stock authorized to be issued to be increased (to the extent
that the Certificate of Incorporation then permits) to the largest number of
whole shares (rounded up to the nearest whole number) issuable upon exercise of
the Rights. Such number of shares of the Series A Preferred Stock may be
-1-
<PAGE>
increased or decreased by resolution of the Board of Directors; provided, that
no decrease shall reduce the number of shares of Series A Preferred Stock to a
number less than the number of shares then outstanding plus the number of shares
issuable upon exercise or conversion of outstanding rights, options or other
securities issued by the Corporation.
Section 2. Dividends and Distributions.
(A) Subject to the prior and superior rights of the holders of any
shares of any series of Preferred Stock ranking prior and superior to the
shares of Series A Preferred Stock with respect to dividends, the holders
of shares of Series A Preferred Stock, in preference to the holders of
shares of any class or series of stock of the Corporation ranking junior to
the Series A Preferred Stock in respect thereof, shall be entitled to
receive, when, as and if declared by the Board of Directors out of funds
legally available for the purpose, quarterly dividends payable in cash on
the first business day of January, April, July and October of each year
(each such date being referred to herein as a "Quarterly Dividend Payment
Date"), commencing on the first Quarterly Dividend Payment Date after the
first issuance of a share or fraction of a share of Series A Preferred
Stock, in an amount per share (rounded to the nearest cent) equal to the
greater of (a) $10.00 or (b) subject to the provision for adjustment
hereinafter set forth, 1,000 times the aggregate per share amount of all
cash dividends, and 1,000 times the aggregate per share amount (payable in
kind) of all non-cash dividends or other distributions (other than a
dividend payable in shares of Common Stock, par value $.01 per share, of
the Corporation (the "Common Stock") or a subdivision of the outstanding
shares of Common Stock, by reclassification or otherwise), declared on the
Common Stock since the immediately preceding Quarterly Dividend Payment
Date or, with respect to the first Quarterly Dividend Payment Date, since
the first issuance of any share or fraction of a share of Series A
Preferred Stock. In the event the Corporation shall at any time after the
record date for the initial distribution of the Rights pursuant to the
Rights Agreement (the "Rights Declaration Date") (i) declare or pay any
dividend on the Common Stock payable in shares of Common Stock, (ii)
subdivide the outstanding Common Stock, or (iii) combine the outstanding
Common Stock into a smaller number of shares, then, in each such case, the
amount to which holders of shares of Series A Preferred Stock were entitled
immediately prior to such event under clause (b) of the preceding sentence
shall be adjusted by multiplying such amount by a fraction, the numerator
of which is the number of shares of Common Stock outstanding immediately
after such event and the denominator of which is the number of shares of
Common Stock that were outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution on the
Series A Preferred Stock as provided in paragraph (A) of this Section 2
immediately after it declares a dividend or distribution on the Common
Stock (other than a dividend payable in shares of Common Stock or a
subdivision of the outstanding shares of Common Stock); provided, that, in
the event no dividend or distribution shall have been declared on the
-2-
<PAGE>
Common Stock during the period between any Quarterly Dividend Payment Date
and the next subsequent Quarterly Dividend Payment Date (or, with respect
to the first Quarterly Dividend Payment Date, the period between the first
issuance of any share or fraction of a share of Series A Preferred Stock
and such first Quarterly Dividend Payment Date), a dividend of $10.00 per
share on the Series A Preferred Stock shall nevertheless be payable on such
subsequent Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series A Preferred Stock from the Quarterly Dividend Payment Date
next preceding the date of issue of such shares of Series A Preferred
Stock, unless the date of issue of such shares is prior to the record date
for the first Quarterly Dividend Payment Date, in which case dividends on
such shares shall begin to accrue and be cumulative from the date of issue
of such shares, or unless the date of issue is a date after the record date
for the determination of holders of shares of Series A Preferred Stock
entitled to receive a quarterly dividend and on or before such Quarterly
Dividend Payment Date, in which case dividends shall begin to accrue and be
cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid
dividends shall not bear interest. Dividends paid on the shares of Series A
Preferred Stock in an amount less than the total amount of such dividends
at the time accrued and payable on such shares shall be allocated pro rata
on a share-by-share basis among all such shares at the time outstanding.
The Board of Directors may fix a record date for the determination of
holders of shares of Series A Preferred Stock entitled to receive payment
of a dividend or distribution declared thereon, which record date shall be
not more than 60 days prior to the date fixed for the payment thereof.
Section 3. Voting Rights. In addition to any other voting rights required
by law, the holders of shares of Series A Preferred Stock shall have the
following voting rights:
(A) Except as provided in paragraph (C) of this Section 3 and subject
to the provision for adjustment hereinafter set forth, each share of Series
A Preferred Stock shall entitle the holder thereof to 1,000 votes on all
matters submitted to a vote of the shareholders of the Corporation. In the
event the Corporation shall, at any time after the Rights Declaration Date
(i) declare or pay any dividend on the Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine
the outstanding Common Stock into a smaller number of shares, then in each
such case the number of votes per share to which holders of shares of
Series A Preferred Stock were entitled immediately prior to such event
shall be adjusted by multiplying such number by a fraction, the numerator
of which is the number of shares of Common Stock outstanding immediately
after such event and the denominator of which is the number of shares of
Common Stock that were outstanding immediately prior to such event.
(B) Except as otherwise provided herein or by law, the holders of
shares of Series A Preferred Stock and the holders of shares of Common
Stock shall vote together as one class on all matters submitted to a vote
of shareholders of the Corporation.
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(C) (i) If, on the date used to determine shareholders of record
for any meeting of shareholders for the election of directors, a
default in preference dividends (as defined in subparagraph (v) below)
on the Series A Preferred Stock shall exist, the holders of the Series
A Preferred Stock shall have the right, voting as a class as described
in subparagraph (ii) below, to elect two directors (in addition to the
directors elected by holders of Common Stock). Such right may be
exercised (a) at any meeting of shareholders for the election of
directors or (b) at a meeting of the holders of shares of Voting
Preferred Stock (as hereinafter defined), called for the purpose in
accordance with the Bylaws of the Corporation, until all such
cumulative dividends (referred to above) shall have been paid in full
or until non-cumulative dividends have been paid regularly for at
least one year.
(ii) The right of the holders of Series A Preferred Stock to
elect two directors, as described above, shall be exercised as a class
concurrently with the rights of holders of any other series of
Preferred Stock upon which voting rights to elect such directors have
been conferred and are then exercisable. The Series A Preferred Stock
and any additional series of Preferred Stock which the Corporation may
issue and which may provide for the right to vote with the foregoing
series of Preferred Stock are collectively referred to herein as
"Voting Preferred Stock."
(iii) Each director elected by the holders of shares of Voting
Preferred Stock shall be referred to herein as a "Preferred Director."
A Preferred Director so elected shall continue to serve as such
director for a term of one year, except that upon any termination of
the right of all of such holders to vote as a class for Preferred
Directors, the term of office of the Preferred Directors shall
terminate. Any Preferred Director may be removed by, and shall not be
removed except by, the vote of the holders of record of a majority of
the outstanding shares of Voting Preferred Stock then entitled to vote
for the election of directors, present (in person or by proxy) and
voting together as a single class (a) at a meeting of the
shareholders, or (b) at a meeting of the holders of shares of such
Voting Preferred Stock, called for the purpose in accordance with the
Bylaws of the Corporation, or (c) by written consent signed by the
holders of a majority of the then outstanding shares of Voting
Preferred Stock then entitled to vote for the election of directors,
taken together as a single class.
(iv) So long as a default in any preference dividends on the
Series A Preferred Stock shall exist or the holders of any other
series of Voting Preferred Stock shall be entitled to elect Preferred
Directors, (a) any vacancy in the office of a Preferred Director may
be filled (except as provided in the following clause (b)) by an
instrument in writing signed by the remaining Preferred Director and
filed with the Corporation and (b) in the case of the removal of any
Preferred Director, the vacancy may be filled by the vote or written
consent of the holders of a majority of the outstanding shares of
Voting Preferred Stock then entitled to vote for the election of
directors, present (in person or by proxy) and voting together as a
single class, at such time as the removal shall be effected. Each
director appointed as aforesaid by the remaining Preferred Director
shall be deemed, for all purposes hereof, to be a Preferred Director.
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Whenever (x) no default in preference dividends on the Series A
Preferred Stock shall exist and (y) the holders of other series of
Voting Preferred Stock shall no longer be entitled to elect such
Preferred Directors, then the number of directors constituting the
Board of Directors of the Corporation shall be reduced by two.
(v) For purposes hereof, a "default in preference dividends" on
the Series A Preferred Stock shall be deemed to have occurred whenever
the amount of cumulative and unpaid dividends on the Series A
Preferred Stock shall be equivalent to six full quarterly dividends or
more (whether or not consecutive), and, having so occurred, such
default shall be deemed to exist thereafter until, but only until, all
cumulative dividends on all shares of the Series A Preferred Stock
then outstanding shall have been paid through the last Quarterly
Dividend Payment Date or until, but only until, non-cumulative
dividends have been paid regularly for at least one year.
(D) Except as set forth herein (or as otherwise required by applicable
law), holders of Series A Preferred Stock shall have no general or special
voting rights and their consent shall not be required for taking any
corporate action.
Section 4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Preferred Stock as provided in Section 2 above are
in arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Series A Preferred
Stock outstanding shall have been paid in full, the Corporation shall not:
(i) declare or pay dividends, or make any other distributions, on
any shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred
Stock;
(ii) declare or pay dividends, or make any other distributions,
on any shares of stock ranking on a parity (either as to dividends or
upon liquidation, dissolution or winding up) with the Series A
Preferred Stock, except dividends paid ratably on the Series A
Preferred Stock and all such parity stock on which dividends are
payable or in arrears in proportion to the total amounts to which the
holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for value any
shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred
Stock; provided, that the Corporation may at any time redeem, purchase
or otherwise acquire shares of any such junior stock in exchange for
shares of any stock of the Corporation ranking junior (either as to
dividends or upon dissolution, liquidation or winding up) to the
Series A Preferred Stock; or
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(iv) redeem or purchase or otherwise acquire for consideration
any shares of Series A Preferred Stock, or any shares of stock ranking
on a parity (either as to dividends or upon liquidation, dissolution
or winding up) with the Series A Preferred Stock, except in accordance
with a purchase offer made in writing or by publication (as determined
by the Board of Directors) to all holders of such shares upon such
terms as the Board of Directors, after consideration of the respective
annual dividend rates and other relative rights and preferences of the
respective series and classes, shall determine in good faith will
result in fair and equitable treatment among the respective series or
classes.
(B) The Corporation shall not permit any subsidiary of the Corporation
to purchase or otherwise acquire for consideration any shares of stock of
the Corporation unless the Corporation could, under paragraph (A) of this
Section 4, purchase or otherwise acquire such shares at such time and in
such manner.
Section 5. Reacquired Shares. Any shares of Series A Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and cancelled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized but unissued shares of
Preferred Stock and may be reissued as part of a new series of Preferred Stock
subject to the conditions and restrictions on issuance set forth herein, in the
Certificate of Incorporation, in any other Certificate of Designations creating
a series of Preferred Stock or as otherwise required or permitted by law.
Section 6. Liquidation, Dissolution or Winding Up.
(A) Subject to the prior and superior rights of holders of any shares
of any series of Preferred Stock ranking prior and superior to the shares
of Series A Preferred Stock with respect to rights upon liquidation,
dissolution or winding up (voluntary or otherwise), upon any liquidation,
dissolution or winding up of the Corporation (voluntary or otherwise), no
distribution shall be made to the holders of shares of stock ranking junior
(either as to dividends or upon liquidation, dissolution or winding up) to
the Series A Preferred Stock unless, prior thereto, the holders of shares
of Series A Preferred Stock shall have received $1,000 per share, plus an
amount equal to accrued and unpaid dividends and distributions thereon,
whether or not declared, to the date of such payment (the "Series A
Liquidation Preference"). Following the payment of the full amount of the
Series A Liquidation Preference, no additional distributions shall be made
to the holders of shares of Series A Preferred Stock unless, prior thereto,
the holders of shares of Common Stock shall have received an amount per
share (the "Capital Adjustment") equal to the quotient obtained by dividing
(i) the Series A Liquidation Preference by (ii) 1,000 (as appropriately
adjusted as set forth in paragraph (C) of this Section 6) (such number in
clause (ii) being hereinafter referred to as the "Adjustment Number").
Following the payment of the full amount of the Series A Liquidation
Preference and the Capital Adjustment in respect of all outstanding shares
of Series A Preferred Stock and Common Stock, respectively, holders of
Series A Preferred Stock and holders of Common Stock shall receive their
ratable and proportionate share of the remaining assets to be distributed
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in the ratio of the Adjustment Number to 1 with respect to such Preferred
Stock and Common Stock, on a per share basis, respectively.
(B) In the event, however that there are not sufficient assets
available to permit payment in full of the Series A Liquidation Preference
and the liquidation preferences of all other series of Preferred Stock, if
any, which rank on a parity with the Series A Preferred Stock, then such
remaining assets shall be distributed ratably to the holders of Series A
Preferred Stock and the holders of such parity shares in proportion to
their respective liquidation preferences. In the event, however, that there
are not sufficient assets available to permit payment in full of the
Capital Adjustment, then such remaining assets shall be distributed ratably
to the holders of Common Stock.
(C) In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare or pay any dividend on the Common Stock
payable in shares of Common Stock, (ii) subdivide the outstanding Common
Stock, or (iii) combine the outstanding Common Stock into a smaller number
of shares, then in each such case the Adjustment Number in effect
immediately prior to such event shall be adjusted by multiplying such
Adjustment Number by a fraction, the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 7. Consolidation, Merger, Combination, etc. In case the Corporation
shall enter into any consolidation, merger, combination or other transaction in
which the shares of Common Stock are exchanged for or changed into other stock
or securities, cash and/or any other property, then in any such case the shares
of Series A Preferred Stock shall at the same time be similarly exchanged or
changed in an amount per share (subject to the provision for adjustment
hereinafter set forth) equal to 1,000 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of Common Stock is changed or exchanged.
In the event the Corporation shall at any time after the Rights Declaration Date
(i) declare or pay any dividend on the Common Stock payable in shares of Common
Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such case
the amount set forth in the preceding sentence with respect to the exchange or
change of shares of Series A Preferred Stock shall be adjusted by multiplying
such amount by a fraction, the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were outstanding immediately
prior to such event.
Section 8. No Redemption. The shares of Series A Preferred Stock shall not
be redeemable.
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Section 9. Ranking. The Series A Preferred Stock shall rank junior to all
other series of the Corporation's Preferred Stock as to the payment of dividends
and the distribution of assets, unless the terms of any such series shall
provide otherwise.
Section 10. Amendment. At any time that any shares of Series A Preferred
Stock are outstanding, the Certificate of Incorporation shall not be amended in
any manner which would materially alter or change the powers, preferences or
special rights of the Series A Preferred Stock so as to affect them adversely
without the affirmative vote of the holders of a majority or more of the
outstanding shares of Series A Preferred Stock, voting separately as a class.
Section 11. Fractional Shares. Series A Preferred Stock may be issued in
fractions of a share which shall entitle the holder, in proportion to such
holder's fractional shares, to exercise voting rights, to receive dividends, to
participate in distributions and to have the benefit of all other rights of
holders of Series A Preferred Stock.
IN WITNESS WHEREOF, this Certificate of Designations is executed on behalf
of the Corporation by a duly authorized officer this 22nd day of December, 1999.
HOME-STAKE OIL & GAS COMPANY
By: /s/ Chris K. Corcoran
------------------------
Chris K. Corcoran
Executive Vice President,
Chief Financial Officer and Secretary
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Exhibit 10.2
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
Between
Home-Stake Oil & Gas Company
and
Robert C. Simpson
Effective as of November 4, 1999
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<PAGE>
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
This Amended and Restated Employment Agreement (this "Agreement") is
amended and restated effective this 4th day of November, 1999, by and between
Home-Stake Oil & Gas Company, an Oklahoma corporation (the "Company"), and
Robert C. Simpson (the "Executive").
WITNESSETH:
WHEREAS, on October 23, 1991, the Company and the Executive executed an
Employment Agreement (the "Original Employment Agreement"), effective as of
November 15, 1991; and
WHEREAS, effective February 5, 1998, the Company and the Executive amended
and restated the Original Employment Agreement; and
WHEREAS, the Company and the Executive desire to further change certain
terms and provisions of the Original Employment Agreement and to again amend and
restate the same;
NOW THEREFORE, in consideration of the premises and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties do hereby amend and restate the Original Employment Agreement, as
previously amended and restated, to read as follows:
1. Introduction. The Executive is currently the Chief Executive Officer and
President of the Company. The Company believes that retaining the Executive's
services as an employee of the Company and the benefit of his business
experience are of material importance. The Company desires to encourage the
Executive to continue in the employ of the Company for the benefit of the
Company and its stockholders. Therefore, the Company and the Executive intend by
this Agreement to specify the terms and conditions of the Executive's employment
relationship with the Company.
2. Employment. The Company hereby employs the Executive and the Executive
hereby accepts employment with the Company upon the terms and subject to the
conditions set forth herein.
3. Term. This Agreement shall commence on the effective date of this
Agreement and shall continue until terminated.
4. Duties and Responsibilities.
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(a) The Executive shall serve the Company as Chief Executive
Officer and President and shall perform, faithfully and diligently,
the services and functions relating to such offices.
(b) The Executive shall devote such of his entire time,
attention, energies and business efforts to his duties as an executive
of the Company as are reasonably necessary to carry out his duties
specified in Section 4(a). The Executive shall not engage in any other
business activity (regardless of whether such business activity is
pursued for gain, profit or other pecuniary advantage) if such
business activity would impair the Executive's ability to carry out
his duties hereunder. This Section 4(b), however, shall not be
construed to prevent the Executive from (i) investing his personal
assets as a passive investor in such form or manner as will not
contravene the best interests of the Company, (ii) participating in
various charitable efforts, or (iii) serving as a director or member
of a committee of any organization when such position has previously
been approved in writing by the Board of Directors.
5. Compensation and other Employee Benefits.
As compensation for his services under the terms of this
Agreement:
(a) the Executive shall be paid an annual salary of not less
than $200,000, payable in accordance with the then current
payroll policies of the Company. Such annual salary is herein
referred to as the "Base Salary". The Base Salary shall be
reviewed annually by the Board of Directors and shall be subject
to increase in the sole discretion of the Board of Directors.
(b) subject to the right of the Company to amend or
terminate any employee and/or group or executive benefit plan,
the Executive shall be entitled to receive the following employee
benefits:
(i) The Executive shall have the right to participate
in all current or future employee and/or group benefit plans
of the Company that are available to its salaried employees
generally (including, without limitation, disability,
accident, medical, life insurance, parking and
hospitalization plans);
(ii) The Executive shall have the right to participate
in all current executive benefit plans of the Company,
including but not limited to the Company's Key Employee
Incentive Bonus Plan and Home-Stake Oil & Gas Company Profit
Sharing 401(k) Plan, all in accordance with the Company's
regular practices with respect to its executive officers;
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(iii) The Executive shall be entitled to reimbursement
from the Company for reasonable out-of-pocket expenses
incurred by him in the course of the performance of his
duties hereunder;
(iv) In order to promote the interests of the Company,
the Executive shall be entitled to reimbursement from the
Company for all monthly dues incurred by him in connection
with his membership in Southern Hills Country Club;
(v) The Executive shall have the right to participate
in any Company oil, gas or mineral property acquisition in
accordance with the Company's policy as it may exist from
time to time regarding employee participation in such
acquisitions;
(vi) The Executive shall be entitled to such vacation,
holidays and other paid or unpaid leaves of absence as are
consistent with the Company's normal policies or as are
otherwise approved by the Board of Directors; and
(vii) The Executive shall be entitled to the use of an
automobile with the costs thereof, including acquisition
cost of up to $30,000, insurance, license tag and
maintenance (excluding gas) to be borne by the Company. In
the event the Executive's employment with the Company is
terminated for any reason, he shall have the right to
purchase the Company automobile he is then using for the
lesser of its then book value after depreciation as shown on
the books and records of the Company or its fair market
value.
6. Termination of Employment.
(a) Due Cause. Nothing herein shall prevent the Company from
terminating the Executive for "Due Cause" (as hereinafter defined), in
which event the Executive shall be entitled to receive his Base Salary on a
pro rata basis to the date of termination. In the event of such termination
for Due Cause, all other rights and benefits the Executive may have under
the employee and/or group or executive benefit plans and programs of the
Company, generally, shall be determined in accordance with the terms and
conditions of such plans and programs. The term "Due Cause" shall mean (i)
the Executive has committed a willful criminal act, such as embezzlement,
against the Company intending to enrich himself at the expense of the
Company, (ii) the Executive has engaged in conduct that has caused serious
injury, monetary or otherwise, to the Company as evidenced by a binding and
final judgment, order or decree of a court or administrative agency of
competent jurisdiction in effect after exhaustion of all rights of appeal
of the action, suit or proceeding, (iii) the Executive, in carrying out his
duties hereunder, has been guilty of gross neglect or gross misconduct,
resulting in either case in material harm to the Company, or (iv) the
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Executive fails to carry out his duties in gross dereliction of duty and,
after receiving notice to such effect from the Board of Directors, the
Executive fails to cure the existing problem within 30 days.
(b) Death. In the event of the death of the Executive, this Agreement
[other than this Section 6(b)] shall terminate on the date of death and the
estate of the Executive shall be entitled to (i) the Executive's Base
Salary through the end of the month in which he died, (ii) a cash payment
equal to the pro rata portion (calculated through the end of the month in
which he died) of the annual bonus, if any, due the Executive in respect of
the calendar year in which his death occurs, and (iii) a continuation, for
one year, of the Executive's most recent Base Salary. In the event of such
termination due to death, all other rights and benefits the Executive (or
his estate) may have under the employee and/or group or executive benefit
plans and programs of the Company, generally, as permitted by law, shall be
determined in accordance with the terms and conditions of such plans and
programs.
(c) Disability.
(1) For purposes of this Agreement, "Disability" shall mean the
inability or incapacity of the Executive for six months to perform the
duties and responsibilities related to the job or position with the
Company described in Section 4(a), and "the date on which the
Disability occurs" shall mean the first day following such six month
period. Such inability or incapacity shall be documented to the
reasonable satisfaction of the Board of Directors by appropriate
correspondence from registered physicians reasonably satisfactory to
the Board of Directors.
(2) In the event the Executive suffers a Disability, this
Agreement (other than this Section 6(c) and Sections 8 and 9) shall
terminate on the date on which the Disability occurs and the Executive
shall be entitled to (i) his Base Salary through the end of the month
in which his employment is terminated due to the Disability, (ii) a
cash payment equal to the pro rata portion (calculated through the end
of the month in which his employment is terminated due to Disability)
of the annual bonus, if any, due the Executive in respect of the
calendar year in which his Disability occurs, and (iii) a
continuation, for one year, of the Executive's most recent Base
Salary.
(d) Voluntary Termination. The Executive may voluntarily terminate his
employment under this Agreement at any time by providing at least 90 days'
prior written notice to the Company. In such event, the Executive shall be
entitled to receive his Base Salary until the date his employment
terminates and all other rights and benefits the Executive may have under
the employee and/or group or executive benefit plans and programs of the
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Company, generally, shall be determined in accordance with the terms and
conditions of such plans and programs.
(e) Constructive Termination.
(1) If the Company (i) terminates the employment of the Executive
other than for Due Cause or because of a Disability, (ii) materially
changes the Executive's function, duties, or responsibilities, which
change would cause the Executive's position with the Company to become
of less dignity, responsibility, importance or scope than the position
and responsibilities held by the Executive immediately prior to such
change, or (iii) decreases the Executive's Base Salary below the level
provided for by the terms of Section 5(a) or reduces the employee
benefits and perquisites below the level provided for by the terms of
Section 5(b) (other than as a result of any amendment or termination
of any employee and/or group or executive benefit plan, which
amendment or termination is applicable to all executives of the
Company), then any such action by the Company, unless consented to in
writing by the Executive, shall be deemed to be a constructive
termination by the Company of the Executive's employment
("Constructive Termination").
(2) In the event of a Constructive Termination, this Agreement
(other than this Section 6(e) and Section 8) shall terminate on the
date of Constructive Termination and the Executive shall be entitled
to (i) his Base Salary through the end of the month in which the
Constructive Termination occurs, (ii) an amount equal to twice the
Executive's most recent Base Salary, and (iii) an amount equal to the
sum of the annual bonuses paid the Executive in each of the three
calendar years prior to the calendar year in which the Constructive
Termination occurs divided by three.
(3) Any amount payable to the Executive pursuant to section
6(e)(2)(i) above shall be paid on the last day of the month in which
the Constructive Termination occurs. Any amounts payable to the
Executive pursuant to Sections 6(e)(2)(ii) or 6(e)(2)(iii) above shall
be paid in one cash payment within 30 days after the Constructive
Termination occurs.
7. Change in Control.
(a) In the event any of the following occurs with respect to the
Company: (i) any individual, corporation, partnership, group, association
or other entity or "person", as such term is defined in Section 14(d) of
the Securities Exchange Act of 1934 (the "Exchange Act"), is or becomes the
"beneficial owner" (as defined in Rule 13d-3 of the General Rules and
Regulations under the Exchange Act), directly or indirectly, of outstanding
securities of the Company having fifty percent (50%) or more of the voting
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power of all classes of securities of the Company having the right to vote
at elections of directors, (ii) the membership of the Board of Directors of
the Company is changed as a result of a contested election for Directors so
that the nominees for Directors in such election designated by the then
existing Board of Directors of the Company together with the members of the
existing Board of Directors previously proposed by Management but not up
for re-election fail to constitute a majority of the persons comprising the
Board of Directors following such election, or (iii) merger, liquidation,
dissolution, consolidation, reorganization or reverse stock split (as a
result of any of which there is a material change in the control of the
Company), then any such event shall be deemed to be a "Change in Control."
(b) In the event of a Change in Control, this Agreement (other than
this Section 7) shall terminate on the date of a Change in Control and the
Executive shall be entitled to: (i) an amount equal to thirty-six (36)
times the highest monthly salary paid the Executive during the twelve month
period immediately preceding the date of a Change in Control, and (ii) an
amount equal to the sum of the annual bonuses paid the Executive in each of
the three calendar years prior to the calendar year in which a Change in
Control occurs. All amounts payable to the Executive pursuant to this
Section 7(b) shall be paid in one cash payment on or before the date of a
Change in Control and shall be in lieu of any amounts to which the
Executive may be entitled pursuant to Section 6(e).
8. Effect of Death after Disability or Constructive Termination. In the
event of the death of the Executive following Disability or Constructive
Termination, any amounts owed pursuant to Sections 6(c)(2) and 6(e)(2) to the
Executive prior to his death shall continue to be owing and shall be paid to the
estate of the Executive.
9. Continuation of Rights under Plans. In the event of the Executive's
Disability, all rights and benefits the Executive may have under the employee
and/or group or executive benefit plans and programs of the Company, generally,
as permitted by law, shall be determined in accordance with the terms and
conditions of such plans and programs as though the Executive were still an
employee of the Company until the end of the period of continuation of the Base
Salary.
10. Notices. All notices, requests, demands and other communications given
under or by reason of this Agreement shall be in writing and shall be deemed
sufficiently given if delivered in person, sent by certified mail (return
receipt requested), postage prepaid, or delivered by a recognized commercial
courier to the following addresses (or to such other address as a party may
specify by notice pursuant to this provision):
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(a) To the Company:
Home-Stake Oil & Gas Company
15 East 5th Street, Suite 2800
Tulsa, Oklahoma 74103
Attention: Mr. Chris K. Corcoran
Executive Vice President
(b) To the Executive:
Robert C. Simpson
4717 S. Wheeling Ave.
Tulsa, Oklahoma 74105
11. Controlling Law and Performability. The execution, validity,
interpretation and performance of this Agreement shall be governed by and
construed in accordance with the laws of the State of Oklahoma.
12. Arbitration. Any dispute or controversy arising under or in connection
with this Agreement shall be settled by arbitration in Tulsa, Oklahoma. In the
proceeding, the Executive shall select one arbitrator, the Company shall select
one arbitrator and the two arbitrators so selected shall select a third
arbitrator. The decision of a majority of the arbitrators shall be binding on
the Executive and the Company. Should one party fail to select an arbitrator
within five days after notice of the appointment of an arbitrator by the other
party or should the two arbitrators selected by the Executive and the Company
fail to select an arbitrator within ten days after the date of the appointment
of the last of such two arbitrators, any person sitting as a Judge of the United
States District Court for the Northern District of Oklahoma, upon application of
the Executive or the Company, shall appoint an arbitrator to fill such space
with the same force and effect as though such arbitrator had been appointed in
accordance with the second sentence of this Section 12. Any arbitration
proceeding pursuant to this Section 12 shall be conducted in accordance with the
rules of the American Arbitration Association. Judgment may be entered on the
arbitrators' award in any court having jurisdiction.
13. Expenses. The Company shall pay or reimburse the Executive (or his
estate, as the case may be) for all costs and expenses (including arbitration
and court costs and attorneys fees) incurred by the Executive as a result of any
successful claim, action or proceeding arising out of, or challenging the
validity, advisability or enforceability of, this Agreement or any provision
hereof.
14. Entire Agreement and Amendments. This Agreement contains the entire
agreement of the Executive and the Company relating to the matters contained
herein and supersedes all prior agreements and understandings, oral or written,
between the Executive and the Company with respect to the subject matter hereof.
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This Agreement may be changed only by an agreement in writing signed by the
party against whom enforcement of any waiver, change, modification, extension or
discharge is sought.
15. Separability. If any provision of this Agreement is rendered or
declared illegal or unenforceable by reason of any existing or subsequently
enacted legislation or by the decision of any arbitrator or by decree of a court
of last resort, the Executive and the Company shall promptly meet and negotiate
substitute provisions for those rendered or declared illegal or unenforceable to
preserve the original intent of this Agreement to the extent legally possible,
but all other provisions of this Agreement shall remain in full force and
effect.
16. Effect of Agreement. This Agreement shall be binding upon the Executive
and his heirs, executors, administrators, legal representatives and assigns and
upon the Company and its respective successors and assigns.
17. Waiver of Breach. The waiver by either party to this Agreement of a
breach of any provision of this Agreement by the other party shall not operate
or be construed as a waiver by such party of any subsequent breach by such other
party.
IN WITNESS WHEREOF, the Executive and the Company have executed this
Agreement on the date first above written.
"EXECUTIVE" "COMPANY"
HOME-STAKE OIL & GAS COMPANY
/s/ Robert C. Simpson By /s/ Chris K. Corcoran
- ----------------------------- ----------------------
Robert C. Simpson Chris K. Corcoran
Executive Vice President
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- ------------------------------------------------------------------------------
Exhibit 10.3
EMPLOYMENT AGREEMENT
Between
Home-Stake Oil & Gas Company
and
Chris K. Corcoran
Effective as of November 4, 1999
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<PAGE>
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is entered into this 30th day
of November, 1999, by and between Home-Stake Oil & Gas Company, an Oklahoma
corporation (the "Company"), and Chris K. Corcoran (the "Executive"), effective
as of November 4, 1999.
1. Introduction. The Executive is currently the Executive Vice President,
Chief Financial Officer and Secretary of the Company. The Company believes that
retaining the Executive's services as an employee of the Company and the benefit
of his business experience are of material importance. The Company desires to
encourage the Executive to continue in the employ of the Company for the benefit
of the Company and its stockholders. Therefore, the Company and the Executive
intend by this Agreement to specify the terms and conditions of the Executive's
employment relationship with the Company.
2. Employment. The Company hereby employs the Executive and the Executive
hereby accepts employment with the Company upon the terms and subject to the
conditions set forth herein.
3. Term. This Agreement shall commence on the effective date of this
Agreement and shall continue until terminated.
4. Duties and Responsibilities.
(a) The Executive shall serve the Company as Executive Vice President,
Chief Financial Officer and Secretary and shall perform, faithfully and
diligently, the services and functions relating to such offices.
(b) The Executive shall devote such of his entire time, attention,
energies and business efforts to his duties as an executive of the Company
as are reasonably necessary to carry out his duties specified in Section
4(a). The Executive shall not engage in any other business activity
(regardless of whether such business activity is pursued for gain, profit
or other pecuniary advantage) if such business activity would impair the
Executive's ability to carry out his duties hereunder. This Section 4(b),
however, shall not be construed to prevent the Executive from (i) investing
his personal assets as a passive investor in such form or manner as will
not contravene the best interests of the Company, (ii) participating in
various charitable efforts, or (iii) serving as a director or member of a
committee of any organization when such position has previously been
approved in writing by the Board of Directors.
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5. Compensation and other Employee Benefits.
As compensation for his services under the terms of this Agreement:
(a) the Executive shall be paid an annual salary of not less than
$150,000, payable in accordance with the then current payroll policies
of the Company. Such annual salary is herein referred to as the "Base
Salary". The Base Salary shall be reviewed annually by the Board of
Directors and shall be subject to increase in the sole discretion of
the Board of Directors.
(b) subject to the right of the Company to amend or terminate any
employee and/or group or executive benefit plan, the Executive shall
be entitled to receive the following employee benefits:
(i) The Executive shall have the right to participate in all
current or future employee and/or group benefit plans of the
Company that are available to its salaried employees generally
(including, without limitation, disability, accident, medical,
life insurance, parking and hospitalization plans);
(ii) The Executive shall have the right to participate in
all current executive benefit plans of the Company, including but
not limited to the Company's Key Employee Incentive Bonus Plan
and Home-Stake Oil & Gas Company Profit Sharing 401(k) Plan, all
in accordance with the Company's regular practices with respect
to its executive officers;
(iii) The Executive shall be entitled to reimbursement from
the Company for reasonable out-of-pocket expenses incurred by him
in the course of the performance of his duties hereunder;
(iv) The Executive shall have the right to participate in
any Company oil, gas or mineral property acquisition in
accordance with the Company's policy as it may exist from time to
time regarding employee participation in such acquisitions; and
(v) The Executive shall be entitled to such vacation,
holidays and other paid or unpaid leaves of absence as are
consistent with the Company's normal policies or as are otherwise
approved by the Board of Directors.
6. Termination of Employment.
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(a) Due Cause. Nothing herein shall prevent the Company from
terminating the Executive for "Due Cause" (as hereinafter defined), in
which event the Executive shall be entitled to receive his Base Salary on a
pro rata basis to the date of termination. In the event of such termination
for Due Cause, all other rights and benefits the Executive may have under
the employee and/or group or executive benefit plans and programs of the
Company, generally, shall be determined in accordance with the terms and
conditions of such plans and programs. The term "Due Cause" shall mean (i)
the Executive has committed a willful criminal act, such as embezzlement,
against the Company intending to enrich himself at the expense of the
Company, (ii) the Executive has engaged in conduct that has caused serious
injury, monetary or otherwise, to the Company as evidenced by a binding and
final judgment, order or decree of a court or administrative agency of
competent jurisdiction in effect after exhaustion of all rights of appeal
of the action, suit or proceeding, (iii) the Executive, in carrying out his
duties hereunder, has been guilty of gross neglect or gross misconduct,
resulting in either case in material harm to the Company, or (iv) the
Executive fails to carry out his duties in gross dereliction of duty and,
after receiving notice to such effect from the Board of Directors, the
Executive fails to cure the existing problem within 30 days.
(b) Death. In the event of the death of the Executive, this Agreement
[other than this Section 6(b)] shall terminate on the date of death and the
estate of the Executive shall be entitled to (i) the Executive's Base
Salary through the end of the month in which he died, (ii) a cash payment
equal to the pro rata portion (calculated through the end of the month in
which he died) of the annual bonus, if any, due the Executive in respect of
the calendar year in which his death occurs, and (iii) a continuation, for
one year, of the Executive's most recent Base Salary. In the event of such
termination due to death, all other rights and benefits the Executive (or
his estate) may have under the employee and/or group or executive benefit
plans and programs of the Company, generally, as permitted by law, shall be
determined in accordance with the terms and conditions of such plans and
programs.
(c) Disability.
(1) For purposes of this Agreement, "Disability" shall mean the
inability or incapacity of the Executive for six months to perform the
duties and responsibilities related to the job or position with the
Company described in Section 4(a), and "the date on which the
Disability occurs" shall mean the first day following such six month
period. Such inability or incapacity shall be documented to the
reasonable satisfaction of the Board of Directors by appropriate
correspondence from registered physicians reasonably satisfactory to
the Board of Directors.
(2) In the event the Executive suffers a Disability, this
Agreement (other than this Section 6(c) and Sections 8 and 9) shall
terminate on the date on which the Disability occurs and the Executive
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shall be entitled to (i) his Base Salary through the end of the month
in which his employment is terminated due to the Disability, (ii) a
cash payment equal to the pro rata portion (calculated through the end
of the month in which his employment is terminated due to Disability)
of the annual bonus, if any, due the Executive in respect of the
calendar year in which his Disability occurs, and (iii) a
continuation, for one year, of the Executive's most recent Base
Salary.
(d) Voluntary Termination. The Executive may voluntarily
terminate his employment under this Agreement at any time by providing
at least 90 days' prior written notice to the Company. In such event,
the Executive shall be entitled to receive his Base Salary until the
date his employment terminates and all other rights and benefits the
Executive may have under the employee and/or group or executive
benefit plans and programs of the Company, generally, shall be
determined in accordance with the terms and conditions of such plans
and programs.
(e) Constructive Termination.
(1) If the Company (i) terminates the employment of the
Executive other than for Due Cause or because of a Disability,
(ii) materially changes the Executive's function, duties, or
responsibilities, which change would cause the Executive's
position with the Company to become of less dignity,
responsibility, importance or scope than the position and
responsibilities held by the Executive immediately prior to such
change, or (iii) decreases the Executive's Base Salary below the
level provided for by the terms of Section 5(a) or reduces the
employee benefits and perquisites below the level provided for by
the terms of Section 5(b) (other than as a result of any
amendment or termination of any employee and/or group or
executive benefit plan, which amendment or termination is
applicable to all executives of the Company), then any such
action by the Company, unless consented to in writing by the
Executive, shall be deemed to be a constructive termination by
the Company of the Executive's employment ("Constructive
Termination").
(2) In the event of a Constructive Termination, this
Agreement (other than this Section 6(e) and Section 8) shall
terminate on the date of Constructive Termination and the
Executive shall be entitled to (i) his Base Salary through the
end of the month in which the Constructive Termination occurs,
(ii) an amount equal to twice the Executive's most recent Base
Salary, and (iii) an amount equal to the sum of the annual
bonuses paid the Executive in each of the three calendar years
prior to the calendar year in which the Constructive Termination
occurs divided by three.
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(3) Any amount payable to the Executive pursuant to section
6(e)(2)(i) above shall be paid on the last day of the month in
which the Constructive Termination occurs. Any amounts payable to
the Executive pursuant to Sections 6(e)(2)(ii) or 6(e)(2)(iii)
above shall be paid in one cash payment within 30 days after the
Constructive Termination occurs.
7. Change in Control.
(a) In the event any of the following occurs with respect to the
Company: (i) any individual, corporation, partnership, group, association
or other entity or "person", as such term is defined in Section 14(d) of
the Securities Exchange Act of 1934 (the "Exchange Act"), is or becomes the
"beneficial owner" (as defined in Rule 13d-3 of the General Rules and
Regulations under the Exchange Act), directly or indirectly, of outstanding
securities of the Company having fifty percent (50%) or more of the voting
power of all classes of securities of the Company having the right to vote
at elections of directors, (ii) the membership of the Board of Directors of
the Company is changed as a result of a contested election for Directors so
that the nominees for Directors in such election designated by the then
existing Board of Directors of the Company together with the members of the
existing Board of Directors previously proposed by Management but not up
for re-election fail to constitute a majority of the persons comprising the
Board of Directors following such election, or (iii) merger, liquidation,
dissolution, consolidation, reorganization or reverse stock split (as a
result of any of which there is a material change in the control of the
Company), then any such event shall be deemed to be a "Change in Control."
(b) In the event of a Change in Control, this Agreement (other than
this Section 7) shall terminate on the date of a Change in Control and the
Executive shall be entitled to: (i) an amount equal to thirty-six (36)
times the highest monthly salary paid the Executive during the twelve month
period immediately preceding the date of a Change in Control, and (ii) an
amount equal to the sum of the annual bonuses paid the Executive in each of
the three calendar years prior to the calendar year in which a Change in
Control occurs. All amounts payable to the Executive pursuant to this
Section 7(b) shall be paid in one cash payment on or before the date of a
Change in Control and shall be in lieu of any amounts to which the
Executive may be entitled pursuant to Section 6(e).
8. Effect of Death after Disability or Constructive Termination. In the
event of the death of the Executive following Disability or Constructive
Termination, any amounts owed pursuant to Sections 6(c)(2) and 6(e)(2) to the
Executive prior to his death shall continue to be owing and shall be paid to the
estate of the Executive.
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9. Continuation of Rights under Plans. In the event of the Executive's
Disability, all rights and benefits the Executive may have under the employee
and/or group or executive benefit plans and programs of the Company, generally,
as permitted by law, shall be determined in accordance with the terms and
conditions of such plans and programs as though the Executive were still an
employee of the Company until the end of the period of continuation of the Base
Salary.
10. Notices. All notices, requests, demands and other communications given
under or by reason of this Agreement shall be in writing and shall be deemed
sufficiently given if delivered in person, sent by certified mail (return
receipt requested), postage prepaid, or delivered by a recognized commercial
courier to the following addresses (or to such other address as a party may
specify by notice pursuant to this provision):
(a) To the Company:
Home-Stake Oil & Gas Company
15 East 5th Street, Suite 2800
Tulsa, Oklahoma 74103
Attention: Mr. Robert C. Simpson
President
(b) To the Executive:
Chris K. Corcoran
2728 S. Aspen Court
Broken Arrow, Oklahoma 74012
11. Controlling Law and Performability. The execution, validity,
interpretation and performance of this Agreement shall be governed by and
construed in accordance with the laws of the State of Oklahoma.
12. Arbitration. Any dispute or controversy arising under or in connection
with this Agreement shall be settled by arbitration in Tulsa, Oklahoma. In the
proceeding, the Executive shall select one arbitrator, the Company shall select
one arbitrator and the two arbitrators so selected shall select a third
arbitrator. The decision of a majority of the arbitrators shall be binding on
the Executive and the Company. Should one party fail to select an arbitrator
within five days after notice of the appointment of an arbitrator by the other
party or should the two arbitrators selected by the Executive and the Company
fail to select an arbitrator within ten days after the date of the appointment
of the last of such two arbitrators, any person sitting as a Judge of the United
States District Court for the Northern District of Oklahoma, upon application of
the Executive or the Company, shall appoint an arbitrator to fill such space
with the same force and effect as though such arbitrator had been appointed in
accordance with the second sentence of this Section 12. Any arbitration
proceeding pursuant to this Section 12 shall be conducted in accordance with the
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rules of the American Arbitration Association. Judgment may be entered on the
arbitrators' award in any court having jurisdiction.
13. Expenses. The Company shall pay or reimburse the Executive (or his
estate, as the case may be) for all costs and expenses (including arbitration
and court costs and attorneys fees) incurred by the Executive as a result of any
successful claim, action or proceeding arising out of, or challenging the
validity, advisability or enforceability of, this Agreement or any provision
hereof.
14. Entire Agreement and Amendments. This Agreement contains the entire
agreement of the Executive and the Company relating to the matters contained
herein and supersedes all prior agreements and understandings, oral or written,
between the Executive and the Company with respect to the subject matter hereof.
This Agreement may be changed only by an agreement in writing signed by the
party against whom enforcement of any waiver, change, modification, extension or
discharge is sought.
15. Separability. If any provision of this Agreement is rendered or
declared illegal or unenforceable by reason of any existing or subsequently
enacted legislation or by the decision of any arbitrator or by decree of a court
of last resort, the Executive and the Company shall promptly meet and negotiate
substitute provisions for those rendered or declared illegal or unenforceable to
preserve the original intent of this Agreement to the extent legally possible,
but all other provisions of this Agreement shall remain in full force and
effect.
16. Effect of Agreement. This Agreement shall be binding upon the Executive
and his heirs, executors, administrators, legal representatives and assigns and
upon the Company and its respective successors and assigns.
17. Waiver of Breach. The waiver by either party to this Agreement of a
breach of any provision of this Agreement by the other party shall not operate
or be construed as a waiver by such party of any subsequent breach by such other
party.
IN WITNESS WHEREOF, the Executive and the Company have executed this
Agreement on the date first above written.
"EXECUTIVE" "COMPANY"
HOME-STAKE OIL & GAS COMPANY
/s/ Chris K. Corcoran By /s/ Robert C. Simpson
- ------------------------- ----------------------
Chris K. Corcoran Robert C. Simpson
President
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Exhibit 10.4
AMENDED AND RESTATED
CHANGE IN CONTROL
SEVERANCE PAY PLAN
OF HOME-STAKE OIL & GAS COMPANY
Amended and Restated effective the 4th day of November, 1999
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THIS AMENDED AND RESTATED CHANGE IN CONTROL SEVERANCE PAY PLAN OF HOME-
STAKE OIL & GAS COMPANY (the "Plan") amended and restated effective this 4th day
of November, 1999, by HOME-STAKE OIL & GAS COMPANY (the "Company").
WITNESSETH:
WHEREAS, the Company adopted The Home-Stake Oil & Gas Company Change in
Control Severance Pay Plan (the "Original Plan") effective as of March 1, 1992;
and
WHEREAS, the Company adopted the Original Plan in recognition of the
possibility that the stock or assets of the Company may be acquired by an
unrelated entity, and that such possibility, and the uncertainty which it may
raise for the employees of the Company, could result in the departure or
distraction of employees of the Company to the detriment of the Company and its
shareholders; and
WHEREAS, the Board of Directors of the Company adopted the Original Plan to
encourage the continued attention and dedication of the employees of the Company
to their duties without distraction in the face of potential changes in control
of the Company; and
WHEREAS, the Company continues to desire to provide for severance pay in
the event of such change of control, pursuant to the terms and provisions of the
Plan; and
WHEREAS, in Section 5.6 of ARTICLE V of the Original Plan, the Company
reserved the right to modify or amend the Plan or any provision thereof at any
time; provided, however, that no such change should decrease any accrued benefit
after the occurrence of a Change in Control, as defined in the Original Plan;
and
WHEREAS, no such Change in Control has occurred; and
WHEREAS, effective February 5, 1998, the Company amended and restated the
Original Plan; and
WHEREAS, the Company desires to further change certain terms and provisions
of the Original Plan and to again amend and restate the same;
NOW THEREFORE, in consideration of the premises and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Company hereby amends and restates the Original Plan, as previously amended and
restated, to read as follows:
ARTICLE I
DEFINITIONS
1.1. "Change in Control" shall mean that (A) all or substantially all of
the assets of the Company are sold, transferred, assigned to, or otherwise
acquired by any entity (or entities) which is unrelated to the ownership of the
Company; or (B) all or substantially all of the stock of the Company is sold,
transferred, assigned to, or otherwise acquired by any entity (or entities)
which is unrelated to the ownership of the Company, including, but not limited
to, a transfer by operation of law in a merger, consolidation or acquisition
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involving the Company. The determination of whether (i) there is a transfer of
substantially all of the assets or stock of the Company and (ii) whether the
acquiring entity (or entities) is unrelated to the ownership of the Company
shall be within the sole discretion of the Board of Directors of the Company. A
Change in Control does not occur in the event that the Company makes a reduction
in the size of its Employee staff.
1.2. "Code" shall mean the Internal Revenue Code of 1986, as amended, and
successor tax laws.
1.3. "Committee" shall mean the persons designated by the Board of
Directors of the Company as the Administrative Committee for the Plan pursuant
to paragraph 4.1 of ARTICLE IV hereof.
1.4. "Company" shall mean Home-Stake Oil & Gas Company, its successors and
assigns.
1.5. "Eligible Employee" shall mean any Employee, other than Robert C.
Simpson and Chris K. Corcoran, who is receiving Salary for personal services
rendered to the Company (or who would be receiving such renumeration except for
a Leave of Absence).
1.6. "Employee" shall mean any full-time, common law employee of the
Company and shall not include persons engaged as independent contractors.
1.7. "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended, and regulations issued pursuant thereto.
1.8. "Leave of Absence" shall mean any absence authorized by the Company
under its standard personnel practices, provided that all persons under similar
circumstances shall be treated alike in the granting of such authorized Leave of
Absence.
1.9. "Plan" shall mean this Change in Control Severance Pay Plan as herein
set forth and as it may be further amended from time to time.
1.10. "Plan Administrator" shall mean the Chairman of the Administrative
Committee.
1.11. "Monthly Salary" shall mean the total salary which an Employee is
paid or entitled to be paid during any calendar month for the performance of
duties for the Company, determined immediately prior to a Change in Control.
Salary shall not include any retirement, bonus or fringe benefit amounts
received by or paid to or for the benefit of an Employee.
1.12. "Year of Vesting Service" shall mean a twelve-consecutive month
period of service with the Company commencing on the date on which an Eligible
Employee is first credited with an Hour of Service or commencing on an
anniversary thereof, during which an Eligible Employee completes at least 1,000
Hours of Service. However, if an Eligible Employee does not complete at least
1,000 Hours of Service in the first such period, a Year of Vesting Service will
be any calendar year during which an Eligible Employee completes at least 1,000
Hours of Service starting with the calendar year which begins immediately after
the Eligible Employee's date of hire. For purposes of this paragraph, "Hour of
Service" means an hour of employment by the Company (or any predecessor of the
Company) for which an Eligible Employee is entitled to payment for the
performance of services, including each hour during which no duties are
performed due to vacation, holiday, illness, incapacity (including disability),
layoff, jury duty, leave of absence, maternity or paternity, and each hour for
which back pay (irrespective of mitigation of damages) is either awarded or
agreed to by the Company.
ARTICLE II
SEVERANCE PAY CONDITION
2.1. Severance Pay Condition. Eligible Employees who are Employees of the
Company on the date of a Change in Control of the Company shall be entitled to
severance pay pursuant to the Plan.
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ARTICLE III
SEVERANCE PAYMENT
3.1. Severance Pay. Eligible Employees who qualify for severance payment
pursuant to paragraph 2.1 of ARTICLE II hereof shall receive a cash payment of
severance pay in a single lump sum payment on or before the date of a Change in
Control.
3.2. One Payment Only. In no event shall any Eligible Employee be entitled
to more than one (1) severance payment under the terms of the Plan.
3.3. Amount of Severance Pay. The following schedule, together with the
provisions of paragraphs 3.4 and 3.5 of this ARTICLE III, shall be used to
determine the amount of severance pay to be received by an Eligible Employee who
qualifies for severance pay under paragraph 2.1 of ARTICLE II hereof, based on
the Eligible Employee's Years of Vesting Service and any fraction thereof with
the Company at the time of a Change in Control.
Years of Vesting Service Severance Pay Amount
---------------------------- ------------------------------------
Less than five (5) years Three (3) times the Monthly Salary
Five (5) years or more One (1) times the Monthly Salary for
each Year of Vesting Service and a
pro-rata portion of one (1) Monthly
Salary for any fractional Year of
Vesting Service
3.4. Additional Severance Pay for Department Managers. The Department
Managers listed in Exhibit A attached hereto and made a part hereof shall, in
addition to the severance pay provided under paragraph 3.3 of this ARTICLE III,
receive twelve (12) times the Monthly Salary as additional severance pay.
3.5. Minimum and Maximum Severance Pay. Notwithstanding the other
provisions of this ARTICLE III, the minimum amount of the severance payment
pursuant to the Plan shall be three (3) times the Monthly Salary and the maximum
amount shall be the lesser of (A) thirty-six (36) times the Monthly Salary or
(B) One Dollar ($1.00) less than the amount which would cause an Eligible
Employee to be subject to the excise tax imposed by Section 4999 of the Code.
The Committee shall determine in good faith whether any reduction in severance
pay is required hereunder by reason of the provisions of Sections 4999 and 280G
of the Code and such determination shall be conclusive and binding on the
affected Eligible Employee. To the extent that any payments are received under
this Plan which would cause an Eligible Employee to be subject to the excise tax
imposed by Section 4999 of the Code, the Eligible Employee shall immediately
repay such excess to the Company upon notice that such excess amount has been
paid.
ARTICLE IV
ADMINISTRATION
4.1. Administrative Committee. The Board of Directors of the Company shall
appoint a Committee for the administration of the Plan consisting of one or more
persons. Any Committee member may, but need not, be a Director, officer or
Employee of the Company and each shall serve until his successor shall be
appointed in like manner. Any member of the Committee may resign by delivering
his written resignation to the Board of Directors of the Company. The Board of
Directors may remove any member of the Committee at any time.
4.2. Powers and Duties. The Committee shall be the "Named Fiduciary" of the
Plan and generally shall be responsible for the management, operation,
interpretation and administration of the Plan. The Committee shall:
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(a) Establish procedures for allocation of responsibilities of the
Plan which are not allocated herein;
(b) Determine the names of those Employees who are eligible to
participate and such other matters as may be necessary to enable payment
under the Plan;
(c) Construe all terms, provisions, conditions and limitations of the
Plan;
(d) Correct any defect, supply any omission or reconcile any
inconsistency that may appear in the Plan, in such manner and to such
extent as it shall deem expedient to carry the Plan into effect for the
greatest benefit of all interested parties;
(e) Determine the amount, manner and time of payment of any benefits
hereunder and prescribe procedures to be followed by Eligible Employees to
obtain benefits; and
(f) Perform such other functions and take such other actions as may be
required by the Plan or as may be necessary or advisable to accomplish the
purposes of the Plan.
The Company shall furnish the Committee with all data and information available
which the Committee may reasonably require in order to perform its functions
hereunder. The Committee may rely without question upon any such data or
information furnished by the Company.
4.3. Agents. The Committee may appoint a Secretary who may, but need not,
be a member of the Committee, and may employ such agents for clerical and other
services, and such counsel, accountants and other professional advisors as may
be required for the purpose of administering the Plan. The Committee may rely on
all tables, valuations, reports, certificates and opinions furnished by its
agents.
4.4. Procedures. A majority of the Committee members shall constitute a
quorum for the transaction of business. No action shall be taken except upon a
majority vote of the Committee. An individual shall not vote or decide upon any
matter relating solely to himself or vote in any case in which his individual
right or claim to any benefit under the Plan is particularly involved. In any
case in which a Committee member is so disqualified to act, and the remaining
members cannot agree on an issue, the Board of Directors of the Company shall
appoint a temporary substitute member to exercise all of the powers of the
disqualified member concerning the matter in which he is disqualified.
4.5. Plan Administrator. The Chairman of the Administrative Committee shall
serve as Plan Administrator for the Plan and shall:
(a) Communicate decisions, instructions and other information to
Employees;
(b) File and distribute all reports, disclosures, Plan registrations,
Summary Plan descriptions and other information required to be filed or
distributed by law or by the terms of the Plan;
(c) Have such other duties as are imposed by the Plan; and
(d) Be the agent for service of legal process with respect to the
Plan.
4.6. Claims Procedure. In the event that any Employee or beneficiary claims
to be entitled to benefits under the Plan and the Committee determines that such
claim should be denied in whole or in part, the Committee shall, in writing,
notify such claimant within ninety (90) days of receipt of such claim that his
claim has been denied, setting forth the specific reasons for such denial. Such
notification shall be written in a manner reasonably expected to be understood
by such Employee or beneficiary and shall set forth the pertinent sections of
the Plan relied on, and where appropriate, an explanation of how the claimant
can obtain review of such denial.
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Within sixty (60) days after the mailing or delivery by the Committee of
such notice, such claimant may request, by mailing or delivery of written notice
to the Committee, a review and/or hearing by the Committee of the decision
denying the claim. If the claimant fails to request such a review and/or hearing
within such sixty (60) day period, it shall be conclusively determined for all
purposes of this Plan that the denial of such claim by the Committee is correct.
If such claimant requests a hearing within such sixty (60) day period, the
Committee shall designate a time (which time shall not be less than seven (7)
nor more than sixty (60) days from the date of such claimant's notice to the
Committee) and a place for such hearing, and shall promptly notify such claimant
of such time and place. A claimant or his authorized representative shall be
entitled to inspect all pertinent Plan documents and to submit issues and
comments in writing. If only a review is requested, the claimant shall have
sixty (60) days after filing a request for review to submit additional written
material in support of the claim. After such review and/or hearing, the
Committee shall promptly determine whether such denial of the claim was correct
and shall notify such claimant in writing of its determination within sixty (60)
days after such review and/or hearing or after receipt of any additional
information submitted. If such determination is favorable to the claimant, it
shall be binding and conclusive. If such determination is adverse to such
claimant, it shall be binding and conclusive unless the claimant notifies the
Committee within ninety (90) days after the mailing or delivery to claimant by
the Committee of its determination that he intends to institute legal
proceedings challenging the determination of the Committee, and actually
institutes such legal proceedings within one hundred eighty (180) days after
such mailing or delivery.
4.7. Indemnification. The Company shall indemnify each Committee member
against any liability or loss sustained by reason of any act or failure to act
made in good faith, including, but not limited to, those in reliance on
certificates, reports, tables, opinions or other communications from any Company
or agents chosen by the Committee in good faith. Such indemnification shall
include attorneys' fees and other costs and expenses reasonably incurred in
defense of any action brought by reason of any such act or failure to act.
ARTICLE V
MISCELLANEOUS
5.1. Unfunded Plan. The obligations of the Company under this Plan may be
funded through contributions to a trust or otherwise, but such obligations are
not required to be funded under this Plan. Nothing contained in this Plan shall
be interpreted to grant to any Employee, any right, title or interest in any
property of the Company.
5.2. Impact on Other Employee Benefits. This Plan shall not be construed to
impact or cause the denial of any benefits to which any Employee may be entitled
under any other welfare or benefit plan of the Company; provided, however, that
all payments under this Plan shall be in lieu of any payments under the
Company's Key Employee Incentive Bonus Plan.
5.3. No Offsets. Except as otherwise provided in paragraph 5.2 of this
ARTICLE V, no payment under this Plan shall be offset by payments pursuant to
any other welfare or benefit plan of the Company.
5.4. Impact on Compensation Under Other Employee Benefit Plans. Severance
payments made to an Eligible Employee under this Plan shall not be includible as
salary or compensation for purposes of determining the amount of employee
benefits under any other retirement, pension, profit-sharing or welfare benefit
plans of the Company.
5.5. Reservation of Right. The Company expects to continue the Plan
indefinitely, but nevertheless reserves the right to modify or amend the Plan or
any provision hereof at any time; provided, however that, after a Change in
Control, no modification or amendment hereof shall in any way decrease any
accrued benefit.
5.6. Exclusive Benefit. The Plan has been created for the exclusive benefit
of the Employees and their beneficiaries.
-5-
<PAGE>
5.7. Governing Law. The construction, validity and administration of the
Plan shall be governed by ERISA and the Code, and regulations issued thereunder,
and to the extent not so governed, by the laws of the State of Oklahoma.
5.8. No Assignment. The right to receive payment of any benefits under the
Plan shall not be transferred, assigned or pledged, except by beneficiary
designation, by will, under the laws of decent and distribution, or as may be
otherwise required by law.
5.9. Taxes. The Company shall withhold from any payment due under the Plan
any taxes required to be withheld under applicable Federal, state or local tax
laws or regulations.
5.10. Severability. If any provision of this Plan is found, held or deemed
to be void, unlawful or unenforceable under any applicable statute or other
controlling law, the remainder of the Plan shall continue in full force and
effect.
5.11. Designation of Beneficiary. Each Employee shall, from time to time,
designate any person or persons to whom his Plan benefits shall be paid if he
dies before receipt of all of such benefits; provided, however that, if an
Employee designates a person other than his surviving spouse, such spouse shall
be required to consent in writing to such beneficiary designation before such
designation shall be valid and effective.
5.12. Headings and Subheadings. The headings and subheadings of the Plan
are for reference only. In the event of a conflict between a heading or
subheading and the content of an article or paragraph, the content shall
control.
5.13. Gender. The masculine, as used herein, shall be deemed to include the
feminine and the singular to include the plural, except where the context
requires a different construction.
IN WITNESS WHEREOF, the Company has caused the Plan to be executed the day
and year first above written.
HOME-STAKE OIL & GAS COMPANY
By /s/ Robert C. Simpson
----------------------------
ATTEST: President
/s/ Chris K. Corcoran
-----------------------
Secretary
-6-
<PAGE>
EXHIBIT A
TO HOME-STAKE OIL & GAS COMPANY
CHANGE IN CONTROL
SEVERANCE PAY PLAN
The "Department Managers" shall be the following Eligible Employees:
Barbara Courtney Long
Mike Evans
Gary Fisher
Debra D. Langley
Larry S. Tarwater
<PAGE>
Exhibit 10.6
AMENDMENT NO. 1 TO: THE HOME-STAKE OIL & GAS COMPANY
1997 INCENTIVE STOCK PLAN
November 4, 1999
To reflect a change to the name of the sponsor of The Home-Stake Oil &
Gas Company 1997 Incentive Stock Plan (the "Plan") and to clarify a provision of
the Plan, the Board of Directors of Home- Stake Oil & Gas Company (the
"Company") approved the following amendments to the Plan:
1. On June 8, 1998, the name of the Company was changed from The Home-Stake
Oil & Gas Company to Home-Stake Oil & Gas Company. Therefore, all
references in the Plan, including in the title of the Plan, to The
Home-Stake Oil & Gas Company are hereby revised to refer to Home-Stake Oil
& Gas Company or the Home-Stake Oil & Gas Company as the context and
grammar permit or require.
2. Paragraph (b) of Section 2.12 of the Plan, relating to the definition of
Fair Market Value of a share of the Common Stock, is hereby revised to read
in its entirety, as follows:
"(b) If the Common Stock is not listed or admitted to unlisted trading
privileges as provided in paragraph (a), and if sales prices for
shares of Common Stock are reported by the National Market System of
the National Association of Securities Dealers Automated Quotation
System ("NASDAQ System"), then the last sale price for Common Stock
reported as of the close of business on the day Fair Market Value is
to be determined, or if no such sale takes place on that day, the last
sale price for Common Stock reported as of the close of business on
the next preceding day on which such stock was traded; or"
3. In all other respects the Plan remains unchanged.
* * * * * * *
The undersigned, being the duly elected Secretary of Home-Stake Oil & Gas
Company, does hereby certify that the foregoing Amendment No. 1 to The
Home-Stake Oil & Gas Company 1997 Incentive Stock Plan was approved by the Board
of Directors of the Company on November 4, 1999.
/s/ Chris K. Corcoran
----------------------
Chris K. Corcoran
Secretary
<PAGE>
Exhibit 10.9
FIRST AMENDMENT TO
SPECIAL LOAN AGREEMENT
This First Amendment to Special Loan Agreement is made and entered into as
of February 7, 2000, between HOME-STAKE OIL & GAS COMPANY, an Oklahoma
corporation (the "Borrower"), and BANK OF OKLAHOMA, NATIONAL ASSOCIATION, a
national banking association (the "Bank").
Recitals
A. The Borrower and the Bank are parties to that certain Special Loan
Agreement dated November 8, 1999 (the "Loan Agreement").
B. On January 3, 2000, the Borrower executed a new shareholder rights plan
to replace its existing shareholder rights plan which expired on such date.
C. The parties hereto desire to amend the Loan Agreement to reflect the
adoption of the new shareholder rights plan.
Agreement
In consideration of the foregoing and other good and valuable
consideration, the Borrower and the Bank hereby agree as follows:
1. Paragraph 5.2 of the Loan Agreement is hereby amended to read as
follows:
"5.2 Except as provided in the Rights Agreement dated January 3, 2000,
between the Borrower and UMB Bank, N.A., (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 outstanding; provided, however,
that if no Event of Default or Default shall then exist, notwithstanding
-1-
<PAGE>
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." 2. Except as
amended hereby, the Loan Agreement shall remain in full force and effect as
written.
IN WITNESS WHEREOF, the Borrower and the Bank have executed this First
Amendment as of the day and year first above written.
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. Leo Morris
-----------------------
W.L. Morris, Vice President
-2-
<PAGE>
EXHIBIT 23
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 333- 90957) pertaining to the Home-Stake Oil & Gas Company 1997
Incentive Stock Plan of our report dated March 24, 2000, with respect to the
financial statements of Home-Stake Oil & Gas Company included in the Annual
Report (Form 10-KSB) for the year ended December 31, 1999.
/s/ Ernst & Young LLP
Tulsa, Oklahoma
March 24, 2000
- 1 -
<PAGE>
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<PERIOD-TYPE> 12-Mos
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-END> Dec-31-1999
<CASH> 84,458
<SECURITIES> 0
<RECEIVABLES> 1,746,062
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,971,330
<PP&E> 49,821,238
<DEPRECIATION> 26,856,930
<TOTAL-ASSETS> 25,183,020
<CURRENT-LIABILITIES> 2,665,795
<BONDS> 1,300,000
0
0
<COMMON> 45,974
<OTHER-SE> 15,855,821
<TOTAL-LIABILITY-AND-EQUITY> 25,183,020
<SALES> 11,498,813
<TOTAL-REVENUES> 11,944,239
<CGS> 0
<TOTAL-COSTS> 3,236,123
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<INCOME-CONTINUING> 2,374,632
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