AMENDED BALANCE SHEET AND PRO FORMA-STATEMENT GIVING EFFECT TO A LOAN FOR $15,925,000 OF WHICH $11,925,000 IS FOR DEBT PAYMENT AND ACQUISITION OF INTEREST AND $4,000,000 FOR WORKING CAPITAL

ADDENDA A. TERMS AND CONDITIONS FOR APPROVAL OF A DIRECT LBE LOAN TO BE MADE TO TEXMASS PETROLEUM CO., DALLAS, TEX., UNDER ITS APPLICATION NO. LBE 2192, DATED MARCH 30, 1949, AS AMENDED BY Letter Dated JUNE 7, 1949

1. Note.-Note to be in the amount of $15,925,000.

2. Maturity.-Maturity of the note to be on or before 10 years from date. 3. Repayment.-Repayment of note, both principal and interest, to be made on or before 10 years from the date of the note out of proceeds derived from assignment of oil and/or gas payments, as hereinafter provided.

4. Collateral.-Loan to be secured by the following:

(a) First lien covering leasehold interest in and to all oil and gas properties, other real estate owned, buildings, machinery, and lease equipment (including automotive equipment) now owned by applicant (including Investors' interests) and located in Kansas, Oklahoma, New Mexico, Texas, and Louisiana, and such other like properties that may be acquired, as set out and described in paragraph A under the heading "Collateral offered" in examiner's report.

(b) First lien covering leasehold interests, buildings, and equipment to be acquired and transferred to the applicant company from Petroleum Reserves Corporation, Swiss Oil Co., Midway Oils, Inc., Investors' interests, and National Cooperative Refinery Association, as set out under paragraph B under the heading "Collateral offered" in agency examiner's report and located in Texas, Oklahoma, Louisiana, and California.

(c) Assignment of 100 percent of the gross proceeds derived from the sale of all oil and gas produced, saved, and sold from the leasehold estates and interest in the properties described under paragraphs (a) and (b) under the heading "Collateral offered" in agency examiner's report, said assignment to be supported by a side agreement of the applicant and Reconstruction Finance Corporation that 50 percent of such proceeds are to be immediately applied first to accrued interest and balance to principal of the loan, 10 percent to be held by RFC and deposited in a cash collateral account to be released to the borrower as necessary for rehabilitation and/or operational purposes at the discretion of the Agency Manager and the remaining 40 percent less amount required for monthly tax deposits as provided by paragraph 10 hereof, to be immediately released to the applicant for operational purposes.

5. Disbursement.-(a) Amount of loan proceeds of not in excess of $11,925,000 approved for purpose of debt payments and acquisition of property as provided under "Purposes of loan" in agency examiner's report, as amended by agency examiner's pro forma statement, to be disbursed only upon satisfactory evidence that the properties offered as collateral security to the loan will be free and clear of all indebtedness other than RFC.

(b) Disbursement of that portion of loan proceeds provided for payment of unsecured debts to be made only against invoices or certified statements satisfactory to agency manager and agency counsel that such debts are valid and bona fide operational obligations.

(c) Of the amount approved for working capital of $4,000,000, not more than $500,000 to be disbursed as needed for reconditioning and rehabilitation of present wells, upon satisfactory evidence that the funds are needed and will be used for this purpose. The remaining portion of working capital to be disbursed as needed from time to time for the drilling of proven locations only, and then only upon report from a competent engineer, showing to the satisfaction of the trustees, as hereinafter provided, and RFC that satisfactory results have been obtained as a result of the expenditure of such funds for drilling purposes.

6. Voting trust.—All of applicant's common stock to be placed in a voting trust for the life of the RFC loan, and such stock to be held by three individuals, acceptable to RFC, and such voting trust agreement to be in form and substance satisfactory to agency manager and agency counsel.

7. Management.—Management of the company and its operations shall be satisfactory to Reconstruction Finance Corporation. Prior to any disbursement on loan, RFC to be furnished written agreements in form and substance satisfactory to agency manager and agency counsel of Arthur Kincaid, proposed chairman of the board, and E. H. Hatcher, proposed president of the company, that they will take over and assume full operational management of the company and will devote 100 percent of their time to the affairs of the business without salary and/or compensation for services rendered.

8. Engineer reports and services.-A competent and qualified petroleum engineer to be employed by the applicant company at its own expense, who shall make

available to RFC at all times and as requested such reports and information as may be required, pertaining to the operation of the properties. Prior to disbursement on loan, RFC to be furnished detailed reports with respect to the properties offered as collateral to the loan by a competent petroleum engineer and/or engineers satisfactory to RFC, showing a net reserve valuation of not less than $41,000,000.

9. Salaries. Salary of Morris A. Porter, secretary of applicant company, shall be limited to $7,200 per year, and salaries of all other officers, directors, and/or employees, superintendent's salary and/or trustees' fees, shall be subject to prior approval of RFC.

10. Tax-deposit agreement.-Tax-deposit agreement to be furnished to provide for regular monthly deposits of one-twelfth of the required amount necessary to pay property taxes with respect to the collateral security to the loan, and such deposits to be made from borrower's own funds out of its 40 percent of the assignment of the proceeds derived from the sale of oil and/or gas, etc.

11. Insurance.-Borrower to furnish hazard insurance in such amounts and with such companies as may be required by agency manager, and premium receipt evidencing payment of not less than the first year's premium.

12. Audit reports. Prior to any disbursement on loan, RFC to be furnished complete, detailed audit reports of applicant company, Petroleum Reserve Corporation, Swiss Oil Co., and Midway Oils, Inc., as of a current date, showing the financial condition of each to be substantially the same as represented in the application.

Such other terms and conditions, not inconsistent with the foregoing, as may be imposed by agency manager.

No disbursement of funds will be made by Reconstruction Finance Corporation, on account of the loan referred to herein, unless borrower fully complies with all the terms and conditions hereof and, unless, in the opinion of the Reconstruction Finance Corporation, there has been no substantial adverse change in borrower's financial condition, organization, operations, business prospects, fixed properties, or personnel since the date of the last financial statement submitted by borrower to Reconstruction Finance Corporation.

AGENCY EXAMINER'S SECOND SUPPLEMENTAL REPORT ON APPLICATION FOR A
LOAN TO BUSINESS ENTERPRISE

Applicant: Texmass Petroleum Co., Mercantile Bank Bldg., Dallas, Tex.
Agency No.: LBE-2192.

Date of application: March 30, 1949.

Date of original report: June 8, 1949.

Date first supplemental report: June 24, 1949.

Date of this report: September 12, 1949.

Established: October 23, 1946.

The original application dated March 30, 1949, formally presented by this applicant was on the basis of a request for loan of $22,500,000, of which $18,500,000 would be used for debt payment and acquisition of oil interests and $4,000,000 for working capital.

The original application was amended by letter dated June 7, 1949, reducing the original request to $18,950,000, of which $14,950,000 would be used for debt payment and liquidation of oil interests, and $4,000,000 for working capital.

On the basis of the first amended application, the undersigned examiner prepared a supplemental report showing the change in the purposes of the loan to conform with the amended application.

On the basis of the first amended application, it did not appear that a loan for $18,950,000 could be approved on the basis submitted; and on June 22, 1949, the advisory committee and agency manager felt, however, that a loan could be recommended for $15,925,000 by reduction of debt payment of $3,025,000, and, accordingly a new pro forma statement was prepared on that basis, together with terms and conditions, for approval of a direct loan for $15,925,000, and the appli

cation, examiner's reports, and all other supporting data went forward to the Washington office for appropriate action where it is now pending.

The applicant, through its attorneys, Johnson, Bohannon & Prescott, Dallas, Tex., has submitted a second amended proposal whereby the pending loan is to be considered on the basis of an immediate participating loan with the RFC making and servicing the loan. The amount now requested is $15,638,513. Of that amount, it is now proposed that $848,928 would be used to pay notes payable: $10,585,507 mortgages payable; $1,004,078 accounts payable; $1,700,000 for acquisition of properties, and $1,500,000 for working capital, with a secondary commitment from RFC to the effect that if satisfactory results are obtained the additional $2,500,000 would be advanced for working capital during the next 4 years.

In order to properly support the borrower's amended request, it was requested that we be furnished, in addition to the information covered by the amended application, a current balance sheet statement in order that a proforma statement could be prepared giving effect to the amended proposal. However, Mr. Morris Porter, Secretary of the Texmass Petroleum Co., stated that a corrected consolidated balance sheet statement would be very difficult at this time since the petroleum reserve corporation was now in the process of having its books audited. However, he stated that if it were necessary to have such statement, an attempt would be made to furnish the statement at the earliest possible date. Due to the essence of time, this could not be furnished in order to include this report. New schedules, however, as to purposes of loan and collateral offered have been prepared to support the amended application.

Bank participation. It is now proposed if the loan can be favorably considered on the basis of the amended application that the following will participate in the loan on an immediate basis:

It will be observed from the above schedule that the total indebtedness of the participants amounts to $9,722,155, and the aggregate amount of participation in the loan is $4,861,079, which represents 50 percent of the participants' indebtedness, and also represents 31 percent of the proposed loan.