THE HOME-STAKE OIL & GAS COMPANY
                        KEY EMPLOYEE INCENTIVE BONUS PLAN
                  (Amended and Restated as of January 1, 1998)

In order to attract and retain  competent  professional  personnel to manage the
affairs of the  companies,  the Boards of Directors of The  Home-Stake Oil & Gas
Company  (the  "Company")  and  The  Home-Stake  Royalty  Corporation   ("HSRC")
originally  adopted a Key Employee  Incentive Bonus Plan (KEIB).  As a result of
the  merger of HSRC with and into the  Company,  the KEIB has been  amended  and
restated as follows:

Key  employee  bonuses  will be paid  based  upon a  combination  of  individual
performance and long-term  corporate reserve growth. The individual  performance
portion of the bonus will be determined in the following  manner.  Each eligible
employee will receive a "position  factor" (PF). In addition,  each will receive
an annual  "performance  rating" (PFR) for his/her work during the year.  (These
ratings will be  determined  by the  Company's  President  for all key employees
except the Chief Executive Officer and/or  President.  His/their ratings will be
determined by the  Compensation  Committee of the Board of Directors each year).
The  performance  portion of the annual bonus will be the PF times the PFR times
15% of the annual salary.

The reserve  portion of the annual bonus will be the PF times the "percentage of
reserves restored" (%RR) times 15% of the annual salary. The %RR will be the sum
of the  total  equivalent  barrels  of oil  (with  gas  converted  to oil @ 6:1)
discovered and acquired  during the year,  divided by the equivalent  barrels of
oil produced during the year.

Total bonus per key employee  will be the sum of the  performance  bonus and the
reserve  bonus.  If the total of all  bonuses  exceeds  the KEIB Fund,  then all
bonuses will be reduced proportionally based on total calculated bonuses.

A "KEIB Fund" shall be the "CAP",  or maximum of the sum of the total of all key
employee  bonuses  paid in one  year,  and  shall be  equal  to 3% of "net  cash
provided by operating  activities"  (determined  without regard to bonuses) less
any repayments of debt.  Such amounts will be determined  from the Statements of
Cash  Flows  which  appears  as  a  part  of  the  Company's  audited  financial
statements.

This is a two part plan designed to provide the key employees with a bonus based
upon i)  his/her  performance  during the year,  and ii) the amount of  reserves
restored during the year. The formula is as follows:

                    KEIB....... =   Performance Bonus + Reserve Bonus
       Performance Bonus....... =   Annual Salary paid in year x PF x PFR x 15%
          Reserves Bonus....... =   Annual Salary paid in year x PF x %RR x 15%

                    Example - Calculation of Bonus Fund "CAP"

         Net cash provided by operating activities..............    $6,000,000
         Less debt payments.....................................       800,000
                                                                   -----------
         Net....................................................    $5,200,000

         Key Employee Incentive Bonus Fund @ 3%.................    $  156,000
                                                                    ==========


<PAGE>


                                KEIB EXPLANATIONS


Postion Factor (PF) - This factor is reviewed  annually and is based upon i) job
significance in relation to reserve restoration,  ii) past performance, and iii)
longevity in position.

                                     EXAMPLE

                  Employee A....................................    .90
                  Employee B....................................    .90
                  Employee C....................................   1.00
                  Employee D....................................    .95
                  Employee E....................................   1.00
                  Employee F....................................   1.00
                  Employee G....................................    .85
                  Employee H....................................   1.00

Performance Rating (PFR) - This is an evaluation of the individual's performance
throughout the year shown as a percent, as follows:

     25% - Fair performance (the individual did his/her job).

     50% - Good  performance  (the  individual  did more  than was  required  by
his/her job).

     85% to 100% - Outstanding  (never  needed  day-to-day  supervision  and was
exemplary in his/her daily job execution).

Percentage of Reserves  Restored (%RR) - Total  equivalent  barrels of oil (with
gas  converted  to oil @ 6:1)  discovered  and  acquired,  divided  by the total
equivalent barrels of oil produced during the year.

Fund  Limitation - Example in the event the  calculated  bonuses exceed the KEIB
Fund.

                                   Calculated       Adjusted
            Name        Bonus      Adjustment         Bonus

        Employee A      $ 30,000       $(1,429)       $ 28,571
        Employee B        20,000          (952)         19,048
        Employee C        14,000          (667)         13,333
        Employee D        15,000          (714)         14,286
        Employee E        11,000          (524)         10,476
        Employee F        12,000          (571)         11,429
        Employee G        10,000          (476)          9,524
        Employee H        14,000          (667)         13,333
                        --------      --------        --------
                        $126,000       $ 6,000        $120,000
                        ========      ========        ========


        KEIB Fund Limitation:                         $120,000



<PAGE>