U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL
BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
GENERAL AMERICAN ROYALTY, INC.
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(Name of Small Business Issuer in its charter)
Delaware 75-2468002
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(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
One Energy Square, 4925 Greenville Ave., Ste. 717, Dallas, TX 75206
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(Address of principal executive offices) (Zip Code)
Issuers' telephone number: 214-361-8535
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Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
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Securities to be registered under Section 12(g) of the Act:
Common Stock $0.001 par value
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(Title of class)
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(Title of class)
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TABLE OF CONTENTS
The Company.................................................... 1
Glossary....................................................... 1
Description of Business........................................ 3
Risks of Oil and Gas Activities................................ 10
Description of Property........................................ 12
Directors, Executive Officers and Significant Employees........ 13
Remuneration of Directors and Officers......................... 17
Security Ownership of Management and Certain Securityholders... 18
Interests of Management and Others in Certain Transactions..... 19
Description of Securities...................................... 20
Market Price of and Dividends on the Company's Common Equity
and Other Shareholder Matters............................. 21
Legal Proceedings.............................................. 22
Changes in and Disagreements with Accountants.................. 22
Recent Sales of Unregistered Securities........................ 22
Indemnification of Directors and Officers...................... 24
Financial Statements........................................... 24
Exhibits....................................................... 25
Signatures..................................................... 25
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PART I
THE COMPANY
History and Purpose. General American Royalty, Inc. (the "Company") is a
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Delaware corporation incorporated on December 28, 1992 as Hermes Capital
Management, Inc. It conducted no business activities under that name. On October
23, 1995 it changed its name to General American Royalty, Inc. It was organized
to engage in the following business activities:
o to acquire producing oil and gas royalty, overriding royalty and
mineral interests;
o to acquire nonproducing oil and gas royalty, overriding royalty, and
mineral interests;
o to purchase units of publicly traded royalty trusts; and
o to manage joint ventures with institutional investors to accomplish
the above purposes.
The Company was activated in late 1995 and 1996 through the purchase of
certain producing oil and gas interests in exchange for shares of Common Stock
of the Company, cash, and a promissory note and through the receipt of $433,129
as the net proceeds from a private sale of Common Stock and from a public
offering of shares of Common Stock and Callable Stock Purchase Warrants at $5
per unit, each unit consisting of 1 share of Common Stock and 1 Callable Common
Stock Purchase Warrant. See "Description of Securities." The offering was
conducted as a public offering, exempt from federal registration pursuant to the
provisions of Regulation D, Rule 504 (the "Rule 504 offering").
Purchasers of the units in the Rule 504 Offering hold 90,000 Callable
Common Stock Purchase Warrants, each warrant entitling the record owner to
purchase one share of the Company's Common Stock for $5. The warrants expire
April 30, 1997, unless their term is extended by the Company. The Company can
call in the Warrants on 15 days notice by issuing a written notice of call at
any time after the Company's Common Stock has traded at or above a $6.00 closing
bid or trade price for 10 consecutive trading days.
Address. The Company's address is One Energy Square, 4925 Greenville
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Avenue, Suite 717, Dallas, Texas, 75206. Its telephone number is 214-361-8535.
Its fax number is 214-361-7715.
GLOSSARY
The following is a glossary of some of the terms used herein.
Company. General American Royalty, Inc., a Delaware corporation.
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Horizontal Drilling. The drilling of a vertical wellbore until the
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producing horizon is reached, at which point the wellbore is drilled
horizontally to encounter more of the producing formation with the wellbore.
Mineral Fee. The estate in land which gives the owner thereof the right to
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enter upon the land and explore, drill, produce, mine or otherwise exploit the
minerals underlying such land.
Net Profits Interest. An interest created out of the working interest of an
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oil and gas lease which is determined after the deduction of the costs normally
associated with a working interest but is not assessable for costs in excess of
revenues.
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Oil and Gas Lease. An instrument by which a mineral fee owner grants to a
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lessee the right for a specific period of time to explore for oil and gas
underlying the lands covered by the lease, and if oil and gas are discovered
the right to produce any oil and gas so discovered generally for so long as
there is production in paying quantities from such lands.
Overriding Royalty. An interest created by the owner of the leasehold
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estate created by an oil and gas lease which gives its owner the right to
receive, free of costs of exploration and production, a specified percentage of
any oil and gas, or of the proceeds from the sale of any oil and gas, produced
under the lease attributable to the leasehold estate from which it is created.
An overriding royalty interest terminates when the underlying oil and gas lease
terminates.
Post Production Costs. Costs associated with the sale, marketing, treating
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and transportation of oil and gas after production. Examples are: treating of
oil or gas; compression, dehydration and transportation of gas; and trucking or
shipping of oil. Post production costs may in some instances be borne by the
royalty and overriding royalty owner.
Primary Term. The period of time (generally three or five years) during
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which an oil and gas lease may be kept alive by a lessee even though there is no
production by virtue of drilling operations on the lease and or by the payment
of delay rentals.
Royalty Interest. A specified percentage of any oil and gas produced, or of
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the proceeds from the sale of any oil and gas produced, free of the costs of
exploration and production. A royalty interest is normally the interest which
the owner of the mineral estate retains upon execution of an oil and gas lease,
but it may be created by the owner of the mineral fee by grant or reservation.
Term Mineral and Royalty Interests. Mineral or royalty interests which were
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granted or reserved for a specific period of time. Usually these interests are
for such period of time and for so long thereafter as oil and gas are produced
from the lands involved.
Working Interest. The interest acquired by a lessee under an oil and gas
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lease, also referred to as the leasehold estate. The owner of the working
interest has the exclusive right to exploit the oil and gas underlying the lands
covered by the oil and gas lease, and is required to bear all of the costs and
to assume all of the risks of operations conducted under such lease, including
all costs of drilling and operating any wells drilled on the land subject to
such lease.
3-D Seismic. A method of conducting seismographic surveys on a very close
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pattern to obtain significant amounts of geophysical data. The data is then
interpreted by the use of sophisticated computer programs. Three dimensional
models of the underlying rock formations are produced on the computer screen. It
is believed that 3-D seismic may prove to be more reliable than conventual
seismic data because of the quantity of data that can be gathered and processed.
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DESCRIPTION OF BUSINESS
In General. The Company has purchased and owns, and proposes to continue to
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purchase and own mineral fee, royalty and overriding royalty interests in
producing and nonproducing oil and gas properties, principally in the major oil
and gas basins and regions of the United States. The Company commenced acquiring
producing mineral royalties in April 1996 and by February 1997 had acquired
producing mineral royalty and overriding royalty interests in approximately 670
wells in New Mexico and Texas. See "Description of Properties."
Depending upon the ability of the Company to arrange for institutional
and private funding, the Company also plans to purchase units in one or more
publicly traded royalty trusts.
All of the Company's plans enumerated herein will depend not only upon
the Company's ability to attract private and public funding but will depend upon
the Company's compliance with the registration and the exemption from
registration requirements of the Securities and Exchange Commission under the
Securities Act of 1933, as amended, and with various state securities
commissions under applicable state securities laws.
Plan of Immediate Operations. The Company proposes to raise additional equity
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capital during the next 12 months for the acquisition of producing royalty and
mineral interests as follows:
o Equity offerings outside the U.S. pursuant to Regulation S of the
Securities and Exchange Commission.
o Completion of the Rule 504 Offering, which would raise a maximum of
$450,000 through exercise of its 90,000 Callable Common Stock Purchase
Warrants.
o A public equity offering registered with the Securities and Exchange
Commission for either common or preferred stock.
Advantages of Mineral and Royalty Ownership. The cost and risk advantages of
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ownership of mineral, royalty and overriding royalty interests compared to
working interests are considerable. A comparison between the two shows the
following advantages:
1. Low overhead. There are no drilling or lease operating expenses which
may periodically require large cash outlays for equipment or services.
The result is a more stable operating cash flow.
2. Minimum manpower is required to manage royalty interests. Corporate
overhead expenses for a mineral and royalty interests company are
considerably less than that of an exploration and production company
of comparable size. A sizeable company can be managed by a small staff
using the latest computer technology. The availability of excellent
computer software maximizes efficiency and minimizes management time.
Geological, geophysical or engineering work can be performed on a
contract basis as needed.
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3. In most states in which the Company intends to operate, minerals and
royalty interests are not subject to taxes until production is
established.
4. Minimum environmental risk is associated with minerals and royalty
interests.
5. Non-producing minerals and royalty interests may be purchased with the
intent of substantially increasing their value through their
development into drillable prospects. This is accomplished either
through industry activity or through the use of contract employees
(geologists, geophysicists and engineers). There are many experienced
and talented individuals who are available to create exploration ideas
to be packaged and presented to exploration companies for drilling.
This can be done with minimum overhead cost which would be recouped
through the sale of the drilling prospect, lease bonuses and revenue
from newly discovered production. There would be no drilling cost to
the Company.
6. Minerals and royalty interests are usually perpetual unless a term is
specifically stated in the deeds through which they are acquired.
Efforts will be made to purchase perpetual interests.
The Purchase of Royalty and Mineral Interests. The Company's management proposes
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that acquisitions at first will be located in producing wells and fields
generating income, or, in non-producing areas where imminent exploration
activity in the area could dramatically increase their value. Subsequent
acquisitions of minerals and royalty interests could be in areas offsetting
production (developmental drilling) or in trend areas which have a high
probability of being prospective for oil and gas yet would require geological
and geophysical development using modern 3-D seismic or horizontal drilling
technology to enhance their value through leasing (lease bonuses) and,
ultimately, production.
Source of Acquisitions. There are several sources from which these acquisitions
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can be made.
Major Oil Companies. The possibility of purchasing mineral and royalty
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interests from major oil companies exists due to restructuring presently
occurring within the industry. Such companies are divesting themselves of
domestic producing properties considered marginal by their standards. This
divestiture accomplishes several of their goals. It reduces overhead (salaries
and benefits); it creates needed capital, which in turn can be reinvested in
other projects (international) which provide a greater return on investment.
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Major oil companies also own substantial mineral and royalty interests
whose sale could be an excellent source for such capital. These mineral and
royalty interest properties are normally managed within the companies by a
small, low-profile department which is not an integral part of the companies'
overall plans or operations.
Institutions. Minerals and royalty interests now owned or managed by
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institutions such as banks, colleges or universities, trusts, etc., will also be
targeted for purchase. Such institutions are frequently in need of liquidity,
which a sale could provide.
Estates, Families and Individuals. Considerable mineral interests
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(large farms and ranches) are owned by estates, families and individuals.
Mineral interests are usually the first properties to be sold to pay debt, to
pay taxes to settle estates, etc. The interests available for sale can be
identified through the numerous local contacts (ranchers, lawyers, county
judges, county clerks, abstractors, sheriffs, etc.) which the Company's
management has established through years of association.
Private Royalty Companies. There are numerous private royalty
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and mineral interest companies which own interests in producing and
nonproducing properties. The owners of these private royalty companies may need
liquidity and may be interested in exchanging stock with the Company or selling
for cash.
Current Exploration Areas. Prime targeted areas are those which are very
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active in exploration and drilling and lend themselves to the use of 3-D seismic
and horizontal drilling technology. Such areas include the Cotton Valley Reef
play in East Texas, and the extension of the play as it is projected to continue
through East Texas into Louisiana; the Austin Chalk play in East Texas and
Louisiana, the most active play in the continental United States, with over 60
drilling rigs currently operating; the South Texas Lobo Gas play; and the
Lodgepole play in North Dakota, plus other areas in the traditional oil and gas
producing basins which currently have exploration activity or the potential for
future exploration activity, particularly with the application of new
technologies to these proven producing areas.
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A Primer on Oil and Gas Interests and, Particularly, Royalty Interests.
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Interests in Land; Surface Rights and Mineral Rights. The fee simple
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estate in land may be divided into two separate real property estates, the
surface fee and the mineral fee. The owner of the surface fee has the right to
use and possess the surface of the ground, while the owner of the mineral fee
owns and has the right to extract the minerals situated beneath the surface
estate. The mineral fee owner may create a royalty interest out of his mineral
interest by conveying or reserving a royalty interest or by granting an oil and
gas lease. The Company anticipates that much of its royalty interest acquisition
efforts will be directed toward acquiring mineral and royalty interests from
persons who have no interest in the surface fee. Certain states, such as
Louisiana, have enacted legislation causing ownership of a mineral fee which has
been severed from the surface fee for a specified period of time to revert to
the owner of the surface fee unless oil and gas is being produced from such
lands.
Oil and Gas Leases: The Working Interest and The Royalty Interest. Oil
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and gas operations generally are conducted pursuant to oil and gas leases
granted by the mineral fee owner to a third party. By executing an oil and gas
lease, the mineral fee owner grants the lessee the right for a specified period
of time to explore for and produce any oil and gas underlying the lands covered
by the lease. The interest acquired by the lessee is called a "working
interest," and the owner of the working interest portion of an oil and gas lease
is required to bear all of its costs and to assume all of the risks of any
operations conducted under the lease, including all costs of drilling and
operating any wells drilled pursuant to the lease. In consideration for his
execution of an oil and gas lease, the owner of the mineral fee will receive an
additional cash payment, called a lease bonus, and a royalty interest.
Oil and Gas Leases: Terms. Most oil and gas leases have a stated term
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(generally referred to as the primary term) of from one year to ten years and
expire at the end of the stated term unless oil or gas production has been
established on the lease. If production has been established on a lease, the
lease will continue in existence, at least with respect to the production
surrounding each producing well on the lease, until the well ceases to produce
in paying quantities. Upon the termination of an oil and gas lease, the right to
recover any unproduced oil and gas underlying the leased lands reverts to the
mineral fee owner who may then explore for such oil and gas for his own account
or lease the property to a new lessee.
Overriding Royalty Interests. The working interest owner under a lease
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may create an overriding royalty interest in his working interest in the lease.
An overriding royalty is similar to a royalty interest in that the owner of an
overriding royalty is entitled to receive free of exploration and production
costs a specified percentage of any oil and gas produced from the lease
attributable to the working interest from which it is created. However, unlike a
royalty interest, which is attributable to the ownership of a portion of the
mineral fee, an overriding royalty interest is simply a charge upon the working
interest from which it is created and will terminate concurrently with the
termination of the working interest.
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Purchase of Minerals and Royalty Interests. While the Company will
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acquire mineral fee, royalty and overriding royalty interests in established
wells when such interest can be purchased upon satisfactory terms, the Company
will also purchase mineral fee, royalty and overriding royalty interests in
recently drilled wells with little or no production history. The Company will
also purchase mineral fee, royalty and overriding royalty interests under
non-producing leases in active exploration areas where the Company believes it
is likely wells will be drilled in the near future. The purchase of mineral fee,
royalty and overridingroyalty interests in leases without an established
production history involves a greater degree of risk to the Company, because
estimates of oil and gas reserves in place based upon little production history
are less reliable than estimates based upon longer production history. Reserve
estimates in the first years following the commencement of production frequently
vary significantly from year to year, and there are no assurances that the
initial reserve estimates used by the Company to evaluate interests in newly
drilled wells will prove to be accurate.
Valuing Mineral and Royalty Interests. The manner in which the purchase
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price for mineral fee, royalty and overriding royalty interests is determined
varies from area to area and seller to seller. Mineral fee, royalty and
overriding royalty interests involving numerous prospects each with relatively
minor amounts of production are generally sold without benefit of engineering
estimates of the recoverable reserves attributable to such interests, and the
purchase price is frequently based upon some multiple of the average monthly
production for some recent period (e.g., 36 to 60 times the average monthly
production for the preceding six-month period). In the case of sales involving
relatively large amount of reserves, the parties will obtain engineering
estimates of the recoverable reserves and the cash flow anticipated to be
realized therefrom, and the purchase price will be negotiated on the basis of
such estimates. The purchase price paid for reserves is dependent upon the rate
of return which is desired on the investment and the parties' evaluation of the
degree of risk that the estimate of the recoverable reserves will prove to be
incorrect. The identity of the producing formation, its characteristics in a
particular well (e.g. porosity, permeability, oil and gas in place, water
saturation and reservoir pressure), the type of natural energy drive operating
in the field, and the general area in which the lease is located are all
important factors in the evaluation of a mineral fee, royalty or overriding
royalty interest. The Company's policy is to obtain assistance from qualified
petroleum reservoir engineers or geologists in evaluating, prior to purchase,
the oil and gas interests proposed to be purchased by the Company. Since the
interests the Company intends to purchase are noncostbearing and nonpossessory
interests, the information from the operator may not be available for use in the
evaluation of the interests which the Company seeks to purchase.
Financing the Purchase of Minerals and Royalty Interests. The terms of
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purchase of mineral fee, royalty, and overriding royalty interests range from
the entire purchase price being paid in a single installment at closing, to
seller financing with the seller agreeing to accept a note from the purchaser as
part of the purchase price, to bank financing where a portion of the purchase
price is borrowed from a bank or other institutional lender. The ability to use
bank financing for the purchase of oil and gas property interests depends upon
numerous factors, including the general credit worthiness of the purchaser, the
amount of estimated proved recoverable reserves attributable to the
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interests being purchased and the production history and data available with
respect to the wells on the subject lands and in the surrounding area. The
Company was recently organized with limited resources and there are no
assurances that the Company will be able to obtain seller financing or bank
financing for its purchases of mineral fee, royalty and overriding royalty
interests.
Formation of Drilling and Spacing Units. To avoid the drilling of
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unnecessary wells, to achieve the maximum recovery of oil and gas in place, and
to protect correlative rights among mineral interest owners, mineral interests
are often pooled, unitized or communitized, either voluntarily or by order of a
state regulatory commission. The most common form of communitization is the
formation of a unit to pool the mineral interest ownership for the drilling of a
single well. This type of unit is often referred to as a drilling and spacing
unit. Such units generally follow the normal well-spacing pattern in a
particular field, and may range from a size of ten acres or less to a size of
640 acres or more, depending upon a number of factors including the area
determined to be efficiently drained by a well producing from a particular
reservoir. If royalty interests are communitized, the royalty payable with
respect to oil and gas produced from a well completed on such unit may be
allocated among the royalty owners whose mineral interests are included within
the boundaries of the drilling and spacing unit for the well, generally in
proportion to the number of royalty acres owned by each.
Title to Interests. On material acquisitions of mineral fee, royalty
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or overriding royalty interests it will be the Company's general practice to
first have the title to such interest examined by a landman or an attorney. All
such mineral interests acquired by the Company are evidenced by written
conveyances, which are duly filed in the applicable records of the county or
parish in which such mineral interests are located. In some instance the Company
may acquire indirect ownership in a mineral or royalty interest through a
partnership. Generally, the Company will not make on site inspections of the
properties in which it acquires an interest.
The Company's Position in the Industry. The Company does not know of a public
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royalty company in the United States that is active in the acquisition of
royalties and mineral interests. While there are other public entities that
could be classified as royalty companies, none is active in the acquisition of
additional royalty interests in oil and gas properties. Most other publicly-held
companies that formerly engaged in the business of accumulating royalty
interests in oil and gas properties are no longer in business. Although
successful, those companies have either been acquired or reorganized as
self-liquidating trusts whose ownership units were distributed to the
shareholders. Examples of such companies are the Sabine Royalty Trust, which was
created in 1983 by Sabine Corporation as a publicly-held trust, the Permian
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Basin Royalty Trust and the San Juan Basin Royalty Trust created by Southland
Royalty Co. in 1980.
Employees. The Company has 3 full-time employees and no part-time employees.
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Compliance with Environmental Regulations. The cost of compliance with
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governmental provisions regulating the discharge of materials into the
environment is a cost that is borne by the working interest owners of oil and
gas wells. The Company, by limiting its activities to the acquisition of
non-working interest royalty and mineral interests, will bear none of these
costs. There is some risk of eventual liability under environmental regulations,
which risk can occur where royalty interests which convert to a possessory
interest are involved. In those instances, activities can result in liability
under federal, state and local environmental regulations for activities
involving, among other things, water pollution and hazardous waste
transportation, storage and disposal. Such liability can attach not only to the
operator of record of a well, but also to other parties that may be deemed to be
current or prior operators or owners of possessory interest in a property.
RISKS OF OIL AND GAS ACTIVITIES
The Company intends to purchase non-cost bearing mineral and royalty interests;
however, risks in the oil business still exist. Even though a royalty interest
is not cost bearing, the underlying working interest must remain profitable for
the operator to continue to produce oil and gas. Therefore, certain risks in the
oil business incurred by the operator such as dry holes, operating hazards,
product prices and environmental risks may have a direct effect on the mineral
and royalty owner. Due to conditions beyond the control of the Company, a
significant portion of the reserves and cash flow from the properties to be
acquired may not be achieved.
Acquisition Risks; Uncertainty of Reserve Estimates. The Company's property
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acquisition activities will be based in part on available geological,
geophysical, production and engineering data, the extent, quality and
reliability of which varies. Geological, geophysical and engineering data
obtained by an operator of an oil and gas property may not be available for use
in evaluating mineral and royalty interests. Oil and gas reserve estimates and
the discounted present value estimates associated therewith are based on
numerous engineering, geological and operational assumptions that generally are
derived from limited data. Common assumptions include such matters as the areal
extent and average thickness of a particular reservoir, the average porosity and
permeability of the reservoir, the anticipated future production from existing
and future wells, future development and production costs and the ultimate
hydrocarbon recovery percentage. As a result, oil and gas reserve estimates and
the discounted present value estimates associated therewith are frequently
revised in subsequent periods to reflect production data obtained after the date
of the original estimate. If reserve estimates are inaccurate, production rates
may decline more rapidly than anticipated and future production revenues may be
less than anticipated. Moreover, significant downward revisions of reserve
estimates may adversely affect the Company's borrowing power or have an adverse
impact on other financing arrangements. The inherent uncertainty of the
Company's reserve estimates increases the relative risk of economic success of
the Company.
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Interests in Non-Producing Properties. The Company not only will purchase
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producing mineral fee, royalty and overriding royalty interests but similar
non-producing oil and gas interests. The purchase of interests in non-producing
properties involves a greater degree of risk than does the purchase of interests
in producing properties, because there is no assurance that any wells will ever
be drilled on such properties or, if drilled, that they will produce oil or gas
in commercial quantities. However, it is intended that a majority of the oil and
gas interests purchased by the Company will be producing.
Not an Oil and Gas Exploration Company. The principal purpose of the Company is
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to acquire mineral fee, royalty, overriding royalty interests and net profits
interests in oil and gas properties and not to actively explore for oil and gas
on these properties. The value of mineral fee, royalty and overriding royalty
interests presently held or to be acquired are dependent upon the ability of the
owner of the exploration rights (i) to discover and produce oil or gas in
amounts that will be commercially profitable, and (ii) if oil or gas is being
produced, to continue to produce it in paying quantities. Responsibility for the
conduct of operations upon properties in which the Company will own an interest
will be vested in third party "operators," over whom the Company will have no
control. Mineral and royalty interests may terminate after a specific term of
years, unless the interest is producing oil and gas. Therefore, if oil and gas
is not being produced at the end of the term, the mineral or royalty interest
may terminate, or if the term has expired, the interest may terminate upon
cessation of production, and any mineral or royalty interest so terminating
would have no further value. Further, an overriding royalty interest is entirely
dependent upon the continuation of the lease or concession from which it is
created; therefore, if the owners of the lease do not conduct exploratory
activities prior to expiration of the lease, any overriding royalty interest
with respect to such property would be worthless.
Oil and Gas Markets. Oil and gas prices can be extremely volatile and are
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subject to substantial seasonal, political and other fluctuations. As a result,
the prices at which oil and gas produced for the Company may be sold is
uncertain and it is possible that under some market conditions the production
and sale of oil and gas from some or all of the Company's properties may not be
economical. In most instances, the production from the Company's royalty
interests will be marketed by the operator, and the Company will have no control
over the marketing or sale of production. The availability of a ready market for
oil and gas and the prices obtained for such oil and gas depend upon numerous
factors beyond the control of the Company, including competition from other oil
and gas producers and national and international economic and political
developments. In addition, the marketability of natural gas production depends
upon the availability and capacity of gas gathering systems and pipelines.
Competition and Markets. The oil and gas business is highly competitive and has
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few barriers to entry. The Company will be competing with other oil and gas
companies and investment partnerships in the search for, and obtaining of,
desirable proved producing royalty and mineral interests. Many of the Company's
competitors are larger than the Company and have substantially greater access to
capital and technical resources than does the Company and may, therefore, have a
significant competitive advantage. Many of the Company's competitors are capable
of making a greater investment in a given area than is the Company, although
large and small companies alike are subject to the economics of cost
effectiveness. It can be expected that prices for oil and gas will continue to
fluctuate, depending upon a number of conditions over which the Company has no
control, including actions taken by the Organization of Petroleum Exporting
Countries ("OPEC"), turmoil in the Middle East, and the price of alternative
fuels. The prices at which the Company's oil and gas production will be sold
will have a substantial effect on its earnings (if any) and its results of
operations.
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DESCRIPTION OF PROPERTY
The Company owns small mineral, royalty and overriding royalty
interests in approximately 670 oil and gas wells located in two counties in New
Mexico and eleven counties in Texas. These interests were acquired in four
transactions during fiscal year 1996.
Basin Fruitland Coal Field - San Juan County, New Mexico. This is a
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2.5% overriding royalty interest in 9 wells and a 1.25% overriding royalty
interest in 3 wells. The interests cover the rights to the Fruitland Coal
formation only. The wells are operated by Marathon Oil Company, have produced a
total of approximately 8.5 BCF of gas through 1995, and at October 31, 1996 had
an estimated 13 BCF of gross recoverable gas reserves remaining to be recovered
under the 12 wells. Monthly production from the 12 wells is approximately
200,000 MCF of gas. As of February 1997, monthly income after severance taxes to
the interest of the Company was approximately $9,000.
Alta Mesa Gas Field - Brooks County, Texas. This is a 0.333 percent
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overriding royalty interest in 16 producing wells and a 0.005 percent overriding
royalty interest in 5 producing wells located in the South Texas Alta Mesa gas
field. Production depths range from 1,100 foot depth gas sands to the Vicksburg
sands at depths in excess of 7,000 feet. Gross remaining reserves at October 31,
1996 were estimated to be 20.0 billion cubic feet of gas and 424,000 barrels of
condensate. Remaining life of the wells is estimated to be in excess of fifteen
years. As of January 1997 monthly income after severance taxes to the interest
of the Company is approximately $3,500.
North Wilton Strawn Waterflood Unit - Young County, Texas. This is a
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3.125 percent overriding royalty interest in the 3-well North Wilton Strawn
Waterflood Unit in Young County, Texas. At October 31, 1996, estimated gross
remaining reserves of 42,000 barrels of oil are to be recovered over an
estimated sixteen year life. As of January 1997 monthly income after severance
taxes to the interest of the Company is approximately $300.
Dumraese Estate Purchase - Lea County, New Mexico and Bexar, Brooks,
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Colorado, DeWitt, Duval, Jim Wells, Lavaca, Starr and Stephens Counties, Texas.
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Effective August 1, 1996, the Company purchased a package of small mineral,
royalty and overriding royalty interests in over 635 producing oil and gas wells
located in numerous oil and gas fields in New Mexico and Texas. The properties
range from large unitized waterfloods to single low rate producing wells. As of
January 1997, monthly income after severance taxes to the interest of the
Company is approximately $4,700.
The Company's Offices. The Company leases 2,345 square feet of office space at
- ----------------------
One Energy Square, 4925 Greenville Avenue, Suite 717, Dallas, Texas, 75206. The
three-year lease expires November 30, 1999. Monthly rent currently is $2,833.
11
<PAGE>
DIRECTORS, EXECUTIVE OFFICERS AND
SIGNIFICANT EMPLOYEES
Set forth below are the identities of the directors, executive officers
and significant employees of the Company and a brief account of their business
experience, especially during the last 5 years, including their principal
occupations and employment during that period and the names and principal
businesses of any corporations or organizations in which such occupations and
employments were carried on. All offices with the Company have been held since
1996 and expire in April 1998.
Person Office
------ ------
Ben C. Burkett, II, 61 Chairman of the Board of
Directors
James F. Smith, 60 President, Chief Executive
Officer and Director
James E. Mitschke, 55 Vice President and Director
Sam Nicholson, 49 Secretary and Treasurer
Daniel M. Vines, 41 Director
Malcolm E. Wilson, Jr., 71 Director
Bill L. Bledsoe, 61 Director
J. Donald Hill, 64 Director
Douglas Weedon, 61 Director
George E. Green, 61 Director
C. B. Harrison, Jr.,52 General Counsel
Ben C. Burkett, II. Mr. Burkett has more than 35 years experience in
-------------------
corporate finance, primarily with large, publicly-held independent oil
companies. From 1966 to 1970 he was the Assistant to President Boone Pickens and
the Director of Corporate Finance of Mesa Petroleum Company in Amarillo, Texas.
From 1970 until 1980 he was a cofounder, vice president, chief financial officer
and director of Lear Petroleum Corporation in Dallas. In his positions with
Mesa, Mr. Burkett assisted Mr. Pickens in originating and implementing public
securities offerings and mergers and acquisitions. In his positions with Lear,
Mr. Burkett managed all of Lear's financial affairs including its commercial and
investment bank relations, corporate finance, merger and acquisitions, private
and public securities offerings, accounting and administration. During Mr.
Burkett's 10 years with Lear, Lear grew from 6 employees to over 200, its
revenue grew from $100,000 to $100 million, and its net income increased to $6.3
million resulting in a listing of Lear on the New York Stock Exchange. Earlier
in his career, Mr. Burkett was the assistant to the chief financial officer and
was the assistant treasurer of Shamrock Oil and Gas Corporation in Amarillo,
Texas. Prior to that, he was an oil, gas and chemical industry analyst and
investment banker associated with Dominick & Dominick in New York City. Mr.
Burkett studied petroleum engineering and business administration at the
University of Texas in Austin where he received a bachelors degree with majors
in finance and accounting. He received a master of business administration
degree in finance and accounting from New York University. From 1980 to present,
Mr. Burkett has been a private investor and a corporate finance consultant in
Dallas.
James F. Smith. Mr.Smith received a Bachelor of Business Administration
--------------
degree in 1958 from Southern Methodist University and attended the Graduate
School of Business Administration during 1959-1960 at the University of Texas at
Austin.
After leaving college he embarked on a career in the oil and gas
business, in partnership with his father. He was also active in the ownership of
several banks and savings and loan associations from 1960 through 1968. Mr.
Smith has been engaged in the domestic oil and gas industry for over 30 years,
his companies having drilled over 400 wells during this period. He has completed
three initial public offerings for companies of which he wasa founder and an
executive officer, which were PetroDynamics, Inc. in 1968, Toltec Oil & Gas,
Inc. in 1979 and Toltec Royalty Corporation in 1980.Toltec Royalty Corporation
was sold to an American Stock Exchange company in 1982. Toltec Oil & Gas, Inc.
was merged with a public company in 1983 which later became Coda Energy, Inc.
Both PetroDynamics and Toltec Royalty were active in the acquisition and
ownership of oil and gas royalty interests.
12
<PAGE>
From 1990 until 1993 Mr. Smith was president of National Ice Cream Co.
in Dallas, Texas. In January of 1995, Mr. Smith started the process of founding
General American Royalty, Inc.
James E. Mitschke. Mr. Mitschke is a petroleum landman with more than
-----------------
23 years experience in the oil and gas industry. He has been employed during
this period as a landman for several companies, all based in Dallas, Texas,
which include Hunt Energy Corporation, Wessely Energy Corporation, and Murchison
Exploration Company. His positions with these companies have ranged from area
land manager to vice president-land. He is a member of the American Association
of Professional Landmen and served as the chairman of its industry affairs
committee, 1980-81 and as a director, 1981-82. He has been a member of the
Dallas Association of Petroleum Landmen for a number of years and was its
president in 1979 and served on its board of directors from 1978-80. Mr.
Mitschke has a bachelor of arts degree from Southwestern Oklahoma State
University in Weatherford, Oklahoma.
Sam E. Nicholson. Mr.Nicholson received his Bachelor of Business
----------------
Administration in accounting from the University of Texas at Arlington, in 1978.
In 1984 he became a Certified Public Accountant in the State of Texas. Mr.
Nicholson has over 14 years experience in the oil and gas industry. From 1992 to
1993 he was self-employed as a practicing accountant primarily for the oil and
gas industry. From 1993 to 1995 he served as the controller for Superior Energy
Co., Inc. in Dallas, Texas. In 1995 he joined the Company as an officer and
principal financial officer.
Mr. Nicholson is a member of the American Institute of Certified Public
Accountants and the Texas Society of Certified Public Accountants.
Daniel M.Vines. Mr.Vines is the principal shareholder and chief executive
--------------
officer of Sabine Texican Pipeline Company, a Texas corporation that is a
natural gas, intrastate, pipeline and marketing company engaged in the business
of purchasing, gathering, marketing and transporting natural gas. Mr. Vines also
serves as the executive vice president and a director of Lufkin Creosoteing Co.,
Inc., which is the second largest wood preservative company in Texas and whose
clientele is composed of most of the major utility companies in Texas. He also
is a shareholder and chairman of the board of directors of Trenton Sales, Inc.,
a chemical trading and marketing company. Mr. Vines graduated from Stephen F.
Austin State University in 1978 with a degree in forestry.
13
<PAGE>
Malcolm E. Wilson, Jr. Mr. Wilson is a professional petroleum
------------------------
geologist with considerable experience as a chief executive officer of an
independent oil company. From 1948 to 1975 he was employed as a geologist with
General American Oil Company of Texas where, prior to his resignation in January
1975, he was Vice President of Geology. During 1975 and 1976 he was a Petroleum
Consultant to Baruch-Foster Corporation, May Petroleum Company, and Republic
Production Company of Texas. From 1977 until February 1991 he was the President
and Chief Executive Officer of Baruch- Foster Corporation and all its
subsidiaries. In February 1991, such company was merged with another oil
company, and Mr. Wilson, since that time, has managed his personal investments,
which are primarily mineral, royalty and overriding royalty interests, and he
has served as a Petroleum Consultant. Mr. Wilson has considerable experience as
a geologist and has either personally geologically mapped prospects or
supervised the geological and geophysical mapping for the companies and clients
with which he was associated in many of the major oil and gas fields in
Louisiana, Texas, Oklahoma, New Mexico, Mississippi, Alabama, the Rocky
Mountain, the Gulf of Mexico, and some foreign countries.
Bill L. Bledsoe. Mr. Bledsoe received a Bachelor of Science degree from
----------------
the University of North Texas (Denton) in 1957.
Mr. Bledsoe has 35 years of experience in the general management of
domestic and international oil and gas exploration and production. From 1960
through 1965 he served in the land department of Texaco, Inc. in New Orleans and
Shreveport, Louisiana. From 1965 to 1979 he served the various organizations of
H. L. Hunt in a number of management capacities worldwide, being Assistant Land
Manager of Placid Company, Vice President/Land Manager of Hunt Energy
Corporation, General Manager of Hunt International Petroleum Corporation and
President of Pursue Energy Corporation, among others. From 1979 to the present
he has owned and served as President of Bledsoe Energy Corporation and Bledsoe
Petro Corporation, both of Dallas, Texas and which are exploration and
production companies, operating approximately 300 wells in Texas, Oklahoma and
New Mexico.
J. Donald Hill. Mr. Hill is the Chairman and Chief Executive Officer of
--------------
Excel Technology, Inc., a company which is based in Long Island, New York. Excel
Technology, Inc. trades on NASDAQ under the symbol XLTC.
Mr. Hill has extensive experience in investment banking, having served
as a General Partner of Loeb, Rhoades & Company from 1966 to 1977 and Vice
Chairman of First Affiliated Securities, Inc. from 1978 to 1988. From 1988 to
1990 he was Director of Corporate Finance at Weeden & Company, an investment
banking firm and member of the New York Stock Exchange. During 1991 he was
the Chief Executive Officer of Medstone International, Inc., a company
engaged in shock wave therapy devices. He served as President and Chief
Financial Officer of a subsidiary of Excel Technology, Inc., Excel/Quantronix,
from November, 1992 until becoming Chief Executive Officer of Excel Technology,
Inc. in 1995.
14
<PAGE>
Douglas Weedon. Mr. Weedon was employed by Republic National Bank of
---------------
Dallas from 1958 until 1974 and was elected an officer in 1961. From 1974 until
1986 he served as President and Chief Executive Officer of Republic Money
Orders, Inc., with annual sales exceeding $4 billion. Since 1986 Mr. Weedon has
served as President of Cougar Enterprises, Inc., a public company engaged in oil
and gas activities, and as president of two diversified marketing organizations.
In 1993, he became President and a principal of Inland Acceptance Company. Under
state reimbursement programs, Inland provides funding for eligible claims for
petroleum contaminated sites. Mr. Weedon is a graduate of Southern Methodist
University and Southwestern Graduate School of Banking at S.M.U.
George Green. Mr. Green received a Bachelor of Business Administration
------------
degree from the University of Texas at Austin in 1958, majoring in corporate
finance, with a minor in stock market theory and pricing. From 1961 until 1979
he was a stock and commodities broker. From 1979 until the present he has served
as the owner and operator of George E. Green Investments, which manages
family-owned assets including oil and gas production.
C.B. Harrison, Jr. Mr.Harrison is an attorney in Dallas, Texas practicing
-----------------
primarily in the area of oil and gas law. He is also engaged in the oil and gas
business in Dallas and is an officer and director of Unigas Company, Inc., MHM
Oil Company, MHM Pipeline Company and Fox Operating. Mr. Harrison was formerly a
director of Toltec Royalty Corporation and Toltec Oil & Gas, Inc. and a director
and president of Intramerican Oil and Minerals, Inc. In addition he is a
graduate of the University of Texas School of Law and a member of the Texas Bar
Association. He is a member of the American Association of Petroleum Landmen and
is a Certified Professional Landsman.
REMUNERATION OF DIRECTORS AND OFFICERS
Set forth below is the aggregate annual remuneration during fiscal year
1996 of the only officer or director who received remuneration, and of the
officers and directors as a group.
Name of Individual
or Capacities in Which
Identity of Group Remuneration was Received Remuneration
- ----------------- ------------------------- ------------
Sam E. Nicholson Secretary and Treasurer $6,500
Officers and
directors as a group
(10 persons) Secretary and Treasurer $6,500
15
<PAGE>
Proposed future payments. All remuneration payments now being made and proposed
- ------------------------
to be made in the future, pursuant to any ongoing plan or arrangement, to any of
the persons in the group described above are as follows:
Monthly
Person Capacity Remuneration
- ------ -------- ------------
Ben C. Burkett, II Chairman of the Board $2,500
James F. Smith President 2,500
Sam E. Nicholson Secretary and Treasurer 2,500
SECURITY OWNERSHIP OF MANAGEMENT
AND CERTAIN SECURITYHOLDERS
As of February 15, 1997, set forth below are the numbers of shares and
the percentage of outstanding shares of Common Stock of the Company held of
record by each of the 3 highest paid persons who are officers and directors of
the Company, by all officers and directors as a group, and by each shareholder
who owns more than 10 percent of any class of the Company's securities,
including those shares subject to outstanding options or warrants:
Title of Name and Address Amount Percent
Class of Owner Owned of Class
----- -------- ----- --------
Common Stock Ben C. Burkett, II 40,000 4.4%
4925 Greenville Ave. Ste 717
Dallas, TX 75206
Common Stock James F. Smith(1)(2) 40,000 4.4%
4925 Greenville Ave. Ste 717
Dallas, TX 75206
Common Stock Sam E. Nicholson 10,000 1.1%
4925 Greenville Ave. Ste 717
Dallas, TX 75206
Common Stock Sammie S. Smith(2) 105,000 11.5%
4925 Greenville Ave. Ste 717
Dallas, TX 75206
Common Stock Lawrence E. Steinberg 100,000 11.0%
5420 LBJ Freeway, Ste 540
Dallas, TX 75240
Title of Name and Address Amount Percent
Class of Owner Owned of Class
----- -------- ----- --------
Common Stock Officers and Directors
as a group (10 persons) 250,000 27.5%
- ----------------------------
(1) Of these shares, 10,000 are held of record by Mr. Smith and 15,000 are held
of record by each of two trusts of which Mr. Smith is the trustee. One
trust is for the benefit of Mr. Smith's children, and the other trust is
for the benefit of the Company's employees.
(2) Mr. and Mrs. Smith are husband and wife. They each disavow any beneficial
interest in the shares held of record or beneficially by the other.
16
<PAGE>
INTERESTS OF MANAGEMENT AND OTHERS
IN CERTAIN TRANSACTIONS
Eagle Equity Oil & Gas L.P. ("Eagle Equity"), an entity under the
control of Lawrence E. Steinberg, on July 24, 1996 loaned $140,000 to the
Company. The loan was due on September 23, 1996, provided for interest at 12
percent a year, and was collateralized by the properties in the Basin Fruitland
Coal Field, San Juan County, New Mexico purchased by the Company from the
proceeds of the loan (see "Description of Property"). The principal of the loan
was reduced to $40,000 by August 31, 1996 from the proceeds of the sale of
securities by the Company in the Regulation D, Rule 504 public offering (see
"The Company - History and Purpose").
On August 13, 1996 Eagle Equity loaned an additional $130,000 to
the Company. The loan was due October 14, 1996, provided for interest at 12
percent a year, and was collateralized by the oil and gas properties in the
Basin Fruitland Coal Field, the Alta Mesa Gas Field in Brooks County, Texas and
the North Wilton Strawn Waterflood Unit in Young County, Texas (see "Description
of Properties") and a life insurance policy on the president of the Company.
The loans from Eagle Equity were paid off in January 1997 from the
proceeds of a bank loan made to the Company.
Mr. Lawrence E. Steinberg, who controls Eagle Equity Oil & Gas L.P.,
contemporaneously with the transactions described above, purchased 110,000
shares of Common Stock of the Company for $1,000 from James F. Smith, president
and a director of the Company. He holds 30,000 of these shares in his name and
35,000 in each of two trusts for his children and 10,000 shares are held by
Michael A. Hershman, Chief Financial Officer of Eagle Equity.
DESCRIPTION OF SECURITIES
The Company is authorized to issue 20 million shares of Common Stock,
$0.01 par value, and 5 million shares of Preferred Stock. The presently
outstanding shares of Common Stock are fully paid and nonassessable. There are
no shares of Preferred Stock issued and outstanding.
Common Stock. There are presently outstanding 910,000 shares of Common Stock.
- ------------
Voting Rights. Holders of shares of Common Stock are entitled to one
--------------
vote per share on all matters submitted to a vote of the shareholders. Shares of
Common Stock do not have cumulative voting rights; accordingly, the holders of a
majority of the shareholder votes eligible to vote and voting for the election
of the Board of Directors can elect all members of the Board of Directors.
Dividend Rights. Holders of record of shares of Common Stock are
----------------
entitled to receive dividends when and if declared by the Board of Directors out
of funds of the Company legally available therefor.
Liquidation Rights. Upon any liquidation, dissolution or winding up of
------------------
the Company, holders of shares of Common Stock are entitled to receive pro rata
all of the assets of the Company available for distribution to shareholders
after distributions are made to the holders of the Company's Preferred Stock.
Preemptive Rights. Holders of Common Stock do not have any preemptive
-----------------
rights to subscribe for or to purchase any stock, obligations or other
securities of the Company.
Registrar and Transfer Agent. The Company's registrar and transfer agent
----------------------------
is Securities Transfer Corporation, 16910 Dallas Parkway, Suite 100, Dallas,
Texas 75248.
17
<PAGE>
Dissenters' Rights. Under current Delaware law, a shareholder is
-------------------
afforded dissenters' rights which, if properly exercised, may require the
Company to purchase his shares. Dissenters' rights commonly arise in
extraordinary transactions such as mergers, consolidations, reorganizations,
substantial asset sales, liquidating distributions, and certain amendments to
the Company's certificate of incorporation.
The Warrants. There are presently outstanding 90,000 Callable Common Stock
- -------------
Purchase Warrants.
Each Warrant is transferrable, but only to residents of the State of
New York or the District of Columbia and to "accredited investors" in the State
of Colorado,and entitles the record owner to purchase one share of the Company's
Common Stock for $5.00. The Warrants expire April 30, 1997. The Company may call
the Warrants on 15 days notice by issuing a written notice of call at any time
after the Company's Common Stock has traded at or above a $6.00 closing bid or
trade price for 10 consecutive trading days. Exercise of a Warrant is effected
by written notification of such exercise and delivery of the $5.00-a-share
exercise price either to the Company or to a member firm of the National
Association of Securities Dealers.
Preferred Stock. The Company is also authorized to issue 5 million
shares of Preferred Stock. There is no preferred stock outstanding.
The Preferred Stock or any series thereof shall have such designations,
preferences and relative, participating, optional or special rights and
qualifications, limitations or restrictions thereof as shall be expressed in the
resolution or resolutions providing for the issue of such stock adopted by the
board of directors and may be made dependent upon facts ascertainable outside
such resolution or resolutions of the board of directors, provided that the
manner in which such facts shall operate upon such designations, preferences,
rights and qualifications, limitations or restrictions of such class or series
of stock is clearly and expressly set forth in the resolution or resolutions
providing for the issuance of such stock by the board of directors.
PART II
MARKET PRICE OF AND DIVIDENDS ON THE COMPANY'S
COMMON EQUITY AND OTHER SHAREHOLDER MATTERS
Market Information. The Company's Common Stock trades on the NASD OTC Bulletin
- -------------------
Board. Its symbol is TROY.
The range of high and low bid information for the Common Stock since
trading began in February 1997 is as follows:
1997 High Low
---- ---- ---
Feb. - present 6 5 1/2
The source of the above bid information is Quotran. The quotations
reflect inter-dealer prices, without retail mark-up, mark-down or commission and
may not represent actual transactions.
18
<PAGE>
Holders. The approximate number of holders of record of the Common Stock is 85.
- -------
Dividends. There have been no dividends declared on the Common Stock. Although
- ---------
there are no restrictions on the Company's ability to declare and pay dividends
(assuming earnings), the Company does not presently propose topay dividends but,
rather, to employ any earnings for the acquisition of mineral or royalty
interests.
LEGAL PROCEEDINGS
Neither the Company nor its property is a party to any pending legal
proceeding, nor is the Company aware of any contemplated legal proceeding by any
governmental authority against either the Company or its property.
CHANGES IN AND DISAGREEMENTS
WITH ACCOUNTANTS
None.
RECENT SALES OF UNREGISTERED SECURITIES
During the past three years, the Company sold securities of the Company
without registering the securities under the Securities Act of 1933 as follows:
Regulation D, Rule 506 offering. During late 1995 and early 1996 the Company
- ---------------------------------
sold shares of Common Stock to the Company's officers and directors, other
organizers of the Company, sellers of oil and gas interests, and oil and gas
investors. The number of shares sold for cash and for services are set forth
below. The type and amount of consideration received by the Company for services
is described in the footnotes. No underwriting commissions or discounts were
paid.
Class of No. of Total Cash Value of NonCash
Persons Shares Price Considerations
- ------- ------ ---------- --------------
Officers and 325,000(1) $3,000 $285
Directors
Other organizers 118,000(2) 0 $118
Securities
Law Counsel 40,000(3) 0 $40
Investors 5,000 $250 0
Sellers of oil
and gas properties
to Company 57,000(4) 0 $57,000
- -----------------------------
19
<PAGE>
1. Of these shares, 285,000 were sold in October 1995 to 10 officer- and
director-organizers of the Company for organizational services rendered
valued nominally at $0.001 a share, the par value of the stock.
2. These shares were sold in October 1995 to two organizers of the Company
for organizational services rendered valued nominally at $0.001 a
share, the par value of the stock, which two organizers subsequently
were not elected directors or officers of the Company.
3. These shares were sold in October 1995 to the Company's securities law
counsel for legal services rendered valued nominally at $0.001 a share,
the par value of the stock. This counsel later received an aggregate of
$9,177.60 in cash fees for legal services rendered.
4. Of these shares, 30,000 were issued in July 1996 as part of the
$230,000 purchase price of the Company's Basin Fruitland Coal Field
properties in San Juan County, New Mexico. The 30,000 shares were
valued at $1 a share. Cash consideration of $200,000 was also paid in
the purchase of the properties. See "Description of Properties - Basin
Fruitland Coal Field - San Juan County, New Mexico." An additional
27,000 shares were issued in August 1996 as part of the $157,000
purchase price of the Company's Alta Mesa Gas Field properties in
Brooks County, Texas and the North Wilton Strawn Waterflood Unit
property in Young County, Texas. The 27,000 shares were valued at $1 a
share. Cash consideration of $130,000 was also paid in the purchase of
the properties. See "Description of Properties - Alta Mesa Gas Field -
Brooks County, Texas; North Wilton Strawn Waterflood Unit in Young
County, Texas."
There were no more than 35 "non-accredited investors" in the above
group, and all of the persons were deemed to be "sophisticated investors" by the
Company.
Regulation D, Rule 504 Offering. From July 1996 to November 1996, the Company
- -------------------------------
sold 90,000 units of securities for $450,000. Each unit was sold for $5.00 and
consisted of one share of Common Stock and one Callable Common Stock Purchase
Warrant (see "Description of Securities"). The units were sold in a public
offering conducted in the State of New York, the District of Columbia and
outside the U.S. to non-U.S. persons.
Costs incurred in connection with the stock offering included legal,
accounting, financial public relations, and printing costs totaling $60,089. No
commissions were paid.
There have been no sales of securities by the Company during the 12
months preceding this offering that were made in reliance on Section 3(b) of the
Securities Act or in violation of Section 5 of the Securities Act. Should all
90,000 Callable Common Stock Purchase Warrants held by the purchasers of the
units be exercised, a total of $900,000 in securities will have been sold by the
Company in this offering conducted pursuant to the exemption from registration
provided by Regulation D, Rule 504.
20
<PAGE>
INDEMNIFICATION OF DIRECTORS
AND OFFICERS
Pursuant to the General Corporation Law of the State of Delaware, under
most circumstances the Company's officers and directors may not be held liable
to the Company or its shareholders for errors in judgment or other acts or
omissions in the conduct of the Company's business unless such errors in
judgment, acts or omissions constitute fraud, gross negligence or malfeasance.
PART F/S
FINANCIAL STATEMENTS
Set forth below are the audited financial statements of the Company as
of October 31, 1996 and for the fiscal year ended October 31, 1996 and the
report of Coopers & Lybrand L.L.P., independent accountants, with respect to
such financial statements, and the unaudited financial statements of the Company
as of January 31, 1997 and for the three month periods ended January 31, 1997
and 1996.
Index to Financial Statements Page
- ----------------------------- ----
Report of Independent Accountants ............................. F-1
Balance Sheet as of October 31, 1996 .......................... F-2
Statement of Operations for the Year
Ended October 31, 1996 ............................... F-3
Statement of Stockholders' Equity for
the Year Ended October 31, 1996 ...................... F-4
Statement of Cash Flows for the Year
Ended October 31, 1996 ............................... F-5
Notes to Financial Statements ................................. F-6
Balance Sheet as of January 31, 1997 (unaudited) .............. F-10
Statements of Operations for the 3 month periods ended
January 31, 1996 and 1997 (unaudited)................. F-11
Statements of Cash Flows for the 3 month periods ended
January 31, 1996 and 1997 (unaudited) ................ F-12
Notes to Unaudited Financial Statements ....................... F-13
21
<PAGE>
Report of Independent Accountants
To the Board of Directors
General American Royalty, Inc.:
We have audited the accompanying balance sheet of General American Royalty, Inc.
as of October 31, 1996 and the related statements of operations, stockholders'
equity and cash flows for the year then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of General American Royalty, Inc.
as of October 31, 1996, and the results of its operations and cash flows for the
year then ended, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Dallas, Texas
November 30, 1996,
except as to the information
presented in Note 6, for which
the date is January 21, 1997
F-1
<PAGE>
GENERAL AMERICAN ROYALTY, INC.
BALANCE SHEET
October 31, 1996
ASSETS
Current assets:
Cash $ 37,916
Accounts recivable, oil and gas 29,608
Accounts receivable-officers 3,135
Accounts receivable-other 1,650
Prepaid expenses 2,834
---------
Total current assets 75,143
Royalty interests in oil and gas properties, less
accumulated depletion of $21,381 545,815
Other assets, net of amortization of $100 3,929
----------
Total Assets $ 624,887
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 10,022
Accounts payable-shareholder 3,000
Notes payable to shareholder, current portion 33,333
----------
Total current liabilities 46,355
Notes payable to shareholder 136,667
----------
Total liabilities 183,022
----------
Stockholders' equity:
Common stock, $.001 par value, 20,000,000 shares
authorized, 910,000 shares issued and outstanding 910
Preferred stock, $.001 par value, 5,000,000
shares authorized, no shares issued or outstanding -
Additional paid-in capital 489,219
Accumulated deficit (48,264)
-----------
Total stockholders'equity 441,865
-----------
Total liabilities and stockholders'
equity $ 624,887
===========
The accompanying notes are an integral part of the financial statements.
F-2
<PAGE>
GENERAL AMERICAN ROYALTY, INC.
STATEMENT OF OPERATIONS
for the year ended October 31, 1996
Revenues:
Oil and gas royalty income, net of severance and
ad valorem taxes $ 50,035
----------
Cost and expenses:
General and administrative expense 71,814
Depletion and amortization expense 21,481
Interest expense 5,004
----------
98,299
----------
Net Loss $ (48,264)
==========
Net loss per common share $ (0.06)
==========
Weighted average number of common shares outstanding 766,356
==========
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
GENERAL AMERICAN ROYALTY, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
for the year ended October 31, 1996
<TABLE>
<CAPTION>
<S> <C>
Common Stock Additional Total
------------- Paid - In Accumulated Stockholders'
Shares Amount Capital Deficit Equity
------- --------- --------- ----------- --------------
Balance at October 31, 1995 - - - - -
Sale of Common stock 763,000 763 42,455 - 43,218
Common stock issued for oil
and gas interests 57,000 57 56,943 - 57,000
Offering of common stock
and other warrants
net of offering costs 90,000 90 389,821 - 389,911
Net loss - - - (48,264) (48,264)
--------- ------ ---------- --------- ---------
Balance at October 31, 1996 910,000 910 489,219 (48,264) 441,865
========= ====== ========== ========= =========
</TABLE>
The accompanying notes are an integral part of the finacial statements
F-4
<PAGE>
GENERAL AMERICAN ROYALTY, INC.
STATEMENTS OF CASH FLOWS
for the year ended October 31, 1996
Cash flows from operating activities:
Net Loss $ (48,264)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depletion and amortization 21,481
Increase in accounts receivable (34,393)
Increase in prepaid expenses (2,834)
Increase in accounts payable 13,022
Noncash payment of stock for services 508
Increase in other assets (4,029)
------------
Net cash used in operating activities (54,509)
------------
Cash flows from investing activities:
Purchase of royalty interests (510,196)
------------
Net cash used in investing activities (510,196)
------------
Cash flows from financing activities:
Issuance of common stock 432,621
Increase in notes payable 170,000
------------
Net cash provided by financing activities 602,621
------------
Net increase in cash 37,916
Cash at beginning of year -
------------
Cash at end of year $ 37,916
============
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
GENERAL AMERICAN ROYALTY, INC.
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies:
------------------------------------------
General American Royalty, Inc. ("Company") was incorporated on December 28, 1992
in the state of Delaware as Hermes Capital Management, Inc. and was inactive
until it changed its name on October 23, 1995 to General American Royalty, Inc.
The Company is engaged in the business of acquiring and managing producing oil
and gas royalty, overriding royalty and mineral interests in Texas and New
Mexico.
Royalty Interests in Oil and Gas Properties
- --------------------------------------------
Costs of acquiring interests in producing royalty interests, including
evaluation costs, are capitalized and depleted over a 10-year life using the
straight line method.
Income Taxes
- ------------
The Company follows Statement of Financial Standards No. 109, "Accounting for
Income Taxes," which requires the recognition of deferred tax assets and
liabilities based on the difference between the fiancial statement and the tax
basis of assets and liabilities using enacted tax rates in effect in the years
in which the differences are expected to reverse.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
F-6
<PAGE>
GENERAL AMERICAN ROYALTY, INC.
NOTES TO FINANCIAL STATEMENTS, Continued
2. Notes Payable:
-------------
The Company has $170,000 in notes payable to a shareholder. The notes bear
interest at 12% and are due on November 30, 1996. Notes are collateralized by
mortgages and deeds of trust on certain oil and gas royalty and mineral
interests and by life insurance policies covering the president of the Company
(see Note 6).
3. Related Party Transactions:
--------------------------
As of October 31, 1996 the Company has accounts receivable for travel advances
due from one officer of approximately $3,100 and a payable to one shareholder of
$3,000.
4. Equity Transactions:
-------------------
The Company closed its initial offering of common stock and warrants on October
31, 1996. The offering consisted of the sale of 90,000 units at $5.00 per unit.
Each unit consisted of one share of common stock ($.001 par value) and one stock
purchase warrant entitling the holder to one share of common stock of the
Company at a purchase price of $5.00. The Company can call in the warrants on 15
days notice, if not exercised by the holder prior to the expiration of a 15-day
notice period, should the Company's common stock trade at or above $6.00
reported closing bid or trade price for 10 consecutive trading days. Costs
incurred in connection with the stock offering totaling $60,089 have been
recorded as a reduction of additional paid-in capital. The warrants expire on
April 30, 1997.
The Company purchased two royalty interests for cash and 57,000 shares of common
stock valued at $1.00 per share.
F-7
<PAGE>
GENERAL AMERICAN ROYALTY, INC.
NOTES TO FINANCIAL STATEMENTS, Continued
5. Income Taxes:
------------
A reconciliation of income tax benefit computed at the federal
statutory rate and the Company's income tax provision of $0 for the year ended
October 31, 1996 is as follows:
Pretax loss at statutory rate $ (16,410)
State taxes (1,158)
Meals and entertainment 1,024
Key man life insurance 131
Deferred tax asset valuation allowance 16,413
------------
$ 0
============
The Company's deferred income tax balance at October 31, 1996 consisted of the
following:
Deferred tax assets:
Net operating loss carrforward $ 16,413
Valuation allowance (16,413)
------------
Net deferred income tax asset $ 0
============
The Company has a net operating loss carryforward of approximately $48,000,
which will expire in 2011. None of the benefit of the net operating loss has
been recognized in the financial statements.
6. Subsequent Event:
----------------
On January 21, 1997, the Company entered into a $200,000 financing arrangement
with State Bank & Trust Company, Dallas. The Company has collateralized the loan
with mortgages and deeds of trust on certain royalty interests in oil and gas
properties.
F-8
<PAGE>
GENERAL AMERICAN ROYALTY, INC.
NOTES TO FINANCIAL STATEMENTS, Continued
The loan is payable in monthly installments of $6,667 commencing June 21, 1997
and a final payment of unpaid principal on January 21, 1998, and bears interest
at a fluctuating rate per annum equal to 2% in excess of the corporate prime
rate of interest published in the Wall Street Journal. Interest is payable
monthly commencing on February 21, 1997.
The majority of the loan proceeds will be used to repay the shareholder notes
payable of $170,000 (see Note 2).
Management anticipates that the remainder of the loan proceeds combined with
monthly royalty income amounts and proceeds from exercises of stock purchase
warrants, will be sufficient to meet its operating requirement.
7. Supplemental Oil and Gas Information(Unaudited):
-----------------------------------------------
Reserve Quantities
------------------
Information regarding estimates of the proved oil and gas reserves
attributable to the Company are based on reports prepared by J.W. Cunningham,
Inc. and John Burns, independent petroleum engineering consultants. Estimates
were prepared in accordance with Statement of Financial Accounting Standards No.
69 and the guidelines established by the Securities and Exchange Commission.
Oil and gas reserve quantities (all located in the United States) are
estimates based on information available at the time of their preparation. Such
estimates are subject to change as additional information becomes available.
Reserves actually recovered, and the timing of production of those reserves, may
differ substantially from original estimates.
Estimated quantities of proved developed reserves of oil and gas as of
October 31, 1996 were as follows (in thousands):
Oil(barrels) 11
=======
Gas (Mcf) 422
=======
F-9
<PAGE>
GENERAL AMERICAN ROYALTY, INC.
BALANCE SHEET
January 31, 1997
(Unaudited)
ASSETS
Current assets:
Cash $ 28,650
Accounts receivable-oil & gas 41,526
Accounts receivable-officers 4,559
Accounts receivable-other 1,650
Prepaid expenses 368
------------
Total Current Assets 82,626
Equipment, less accumulated depreciation of $48 1,077
Royalty interests in oil and gas properties,
less accumulated depletion of $35,561 531,635
Other assets, net of amortization of $490 9,777
------------
Total Assets $ 619,242
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 32,544
Accounts payable-shareholder 3,000
Note payable 200,000
------------
Total Liabilities 235,544
------------
Stockholders' equity:
Common stock, $.001 par value, 20,000,000 share
authorized 910,000 issued and outstanding 910
Preferred stock, $.001 par value, 4,000,000 shares
authorized, no shares issued or outstanding
Additional paid-in capital 489,219
Accumulated deficit (106,431)
------------
Total stockholders' equity 383,698
------------
Total liabilities and stockholders' equity $ 619,242
============
The accompanying notes are an integral part of the financial statements.
F-10
<PAGE>
GENERAL AMERICAN ROYALTY, INC.
STATEMENT OF OPERATIONS
for the three month period ended January 31, 1997 and 1996
(Unaudited)
Three Months Ended
January 31,
-----------------------------
1997 1996
---- ----
Revenues:
Oil and gas royalty income, net of
severance and ad valorem taxes $ 45,350 $ -
--------- ----------
Cost and expenses:
General and administrative 84,122 9,416
Depreciation, depletion and amortization 14,253 25
Interest Expense 5,142 -
--------- -----------
Total Cost and expense $ 103,517 $ 9,441
--------- -----------
Net loss $ (58,167) $ (9,441)
========= ===========
Net loss per common share (.06) (.01)
========= ===========
Weighted average number of
common shares outstanding 910,000 732,359
========= ===========
The accompanying notes are an integral part of the financial statements.
F-11
<PAGE>
GENERAL AMERICAN ROYALTY, INC.
STATEMENTS OF CASH FLOWS
for the three month period ended January 31, 1997 and 1996
(Unaudited)
Three Months Ended
January 31,
--------------------------
1997 1996
---- ----
Cash flows from operating activities:
Net loss $ (58,167) $ (9,441)
Adjustments to reconcile net loss to net
cash used in operating activities
Depreciation, depletion and amortization 14,253 25
Increase in accounts receivable (13,342) (17,500)
Decrease in prepaid expenses 2466 (1,000)
Noncash payment of stock for services 508
Increase in accounts payable 22,522 2,197
Increase in other assets (5,873) (2,649)
---------- --------
Net cash used in operating activities (38,141) (27,860)
---------- --------
Cash flows from investing activities:
Purchase of equipment (1,125) -
---------- --------
Net cash used in investing activities (1,125) 0
---------- --------
Cash flows from financing activities:
Issuance of common stock 32,710
Increase in notes payable 200,000
Decrease in notes payable (170,000) -
---------- --------
Net cash provided by financing activities 30,000 32,710
---------- --------
Net decrease in cash (9,266) 4,850
Cash at beginning of period 37,916 0
---------- ---------
Cash at end of period $ 28,650 $ 4,850
========== =========
The accompanying notes are an integral part of the financial statements.
F-12
<PAGE>
GENERAL AMERICAN ROYALTY, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. Summary of Significant Accounting Policies:
-------------------------------------------
General American Royalty, Inc. ("Company") was incorporated on December 28, 1992
in the state of Delaware as Hermes Capital Management, Inc. and was inactive
until it changed its name on October 23, 1995 to General American Royalty, Inc.
the Company is engaged in the business of acquiring and managing producing oil
and gas royalty, overriding royalty and mineral interests in Texas and New
Mexico.
Financial Statement Presentation
- --------------------------------
The accompanying unaudited financial statements reflect the financial position
and the results of operations and cash flows of General American Royalty, Inc.
("Company") as of January 31, 1997 and for the three months ended January 31,
1997 and 1996. The financial statements have been prepared in conformity with
generally accepted accounting principles and contain such adjustments as
management feels necessary to present fairly, in all material aspects, the
financial position of the Company.
Royalty Interests in Oil and Gas Properties
- -------------------------------------------
Costs of acquiring interests in producing royalty interests, including
evaluation costs, are capitalized and depleted over a 10-year life using the
straight line method.
Income Taxes
- ------------
The Company follows Statement of Financial Standards No. 109, "Accounting for
Income Taxes," which requires the recognition of deferred tax assets and
liabilities based on the difference between the fiancial statement and the tax
basis of assets and liabilities using enacted tax rates in effect in the years
in which the differences are expected to reverse.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
F-13
<PAGE>
GENERAL AMERICAN ROYALTY, INC.
NOTES TO FINANCIAL STATEMENTS, INC.
(Unaudited)
2. Note Payable
------------
On January 31, 1997, the Company entered into a $200,000 financing agreement
with State Bank & Trust Company, Dallas. The Company has collateralized the loan
with mortgages and deeds of trust on certain royalty interests in oil and gas
properties.
The loan is payable in monthly installments of $6,667 commencing June 21, 1997
and a final payment of unpaid principal on January 21, 1998, and bears interest
at a fluctuating rate per annum equal to 2% in excess of the prime rate of
interest published in the Wall Street Journal. Interest is payable monthly
commencing on February 21, 1997.
3. Related Party Transactions:
--------------------------
As of January 31, 1997, the Company has accounts receivable for travel advances
due from one officer of approximately $4,559 and a payable to one shareholder of
$3,000.
4. Income Taxes:
------------
The Company has net loss carry forwards which will begin to expire in 2011. None
of the benefit of the net operating loss has been recognized in the financial
statements.
F-14
<PAGE>
EXHIBITS
Index to Exhibits. The following exhibits are included as part of this
-----------------
registration statement:
Exhibit Number Description of Exhibit
- -------------- ----------------------
2 Articles of Incorporation, as
amended, and Bylaws of the
Company, all as presently in
effect.
3 Copy of Warrant Certificate
10 Consent of Coopers & Lybrand
L.L.P.
SIGNATURES
In accordance with Section 12 of the Securities Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
GENERAL AMERICAN ROYALTY, INC.
March 26, 1997 By: /s/ James F. Smith
--------------------------
James F. Smith, President
27
<PAGE>
Exhibit 2
State of Delaware
Office of the Secreatry of State
I, Michael Ratchford, Secretary of State of the State of Delaware, do
hereby certify the attached is a true and correct copy of the certificate of
incorporation of "Hermes Capital Management, Inc." filed in this office on the
twenty-eight day of December, A.D. 1992, at 12 o'clock p.m.
A certified copy of this certificate has been forwarded to New Castle
County recorder of deeds for recording.
/s/ Michael Ratchford
[ Seal ] -----------------------------------------
Michael Ratchford, Secretary of State
Authentication: #3720963
722363126 Date: 12/28/1992
<PAGE>
CERTIFICATE OF INCORPORATION
OF
HERMES CAPITAL MANAGEMENT, INC.
The undersigned, acting as incorporator of a corporation under the General
Corporation Law of the State of Delaware, does hereby adopt the following
Certificate of Incorporation for such corporation.
ARTICLE ONE
The name of the corporation is:
HERMES CAPITAL MANAGEMENT, INC.
ARTICLE TWO
The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange St., in the City of Wilmington, New Castle
County, Delaware. The name of its registered agent at such address is the
Corporation Trust Company.
ARTICLE THREE
The nature of the business or purposes to be conducted or promoted is to
engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of Delaware.
ARTICLE FOUR
The total number of shares of stock which the corporation shall have
authority to issue is 10,000 shares, with a par value of $0.01 each. All such
shares shall be of one class and designated common stock.
ARTICLE FIVE
The board of directors is authorized to make, alter, or repeal the bylaws
of the corporation. Election of directors need not be by ballot.
ARTICLE SIX
The name and mailing address of the person who is to serve as the sole
director until the first annual meeting of stockholders or until his successor
is elected and duly qualified is:
Name Address
------- ---------
C.B. Harrison, Jr. 13101 Preston Road, Suite 400
Dallas, Texas 75240-5230
ARTICLE SEVEN
The corporation expressly elects to not be governed by the restrictions
contained in section 203 of the General Corporation Law of Delaware regarding
business combinations with interested stockholders.
<PAGE>
ARTICLE EIGHT
Whenever with respect to any action to be taken by the shareholders of the
corporation, any provision of the General Corporation Law of Delaware would
require the vote or concurrence of the holders of shares having more than a
majority of the votes entitled to be cast thereon, or of any class or series
therof, only the vote or concurrence of the holders of shares or of any class or
series thereof, having a majority of the votes entitled to be cast thereon,
shall be required with respect to any such action.
ARITLCE NINE
No director of this corporation shall be liable to the corporation for
monetary damages for an act or omission occurring in the director's capacity as
a director, except to the extent the statutes of the State of Delaware expressly
provide that the director's liability may not be eliminated or limited. Any
repeal or amendment of this paragraph that increases the liablity of a director
shall be prospective only, and shall not adversely affect any limitation on the
personal liablity of a director of the corporation existing at the time of such
repeal or amendment.
ARTICLE TEN
The corporation reserves the right to amend and repeal any provision
contained in this Certificate of Incorporation in the manner prescribed by the
laws of the State of Delaware. All rights herein conferred are granted subject
to this reservation.
ARTICLE ELEVEN
The name and mailing address of the incorporator is:
Cliff Blount
Clark, Thomas, Winters & Newton
P.O. Box 1148
Austin, Texas 78767
The undersigned, being the incorporator hereinabove named, for the purpose
of forming a corporation pursuant to the General Corporation Law of Delaware,
does make this certificate, hereby delcaring and certifying that this is his act
and deed, and the facts herein stated are true and, accordingly, he has executed
this Certificate of Incorporation this the 23rd day of December, 1992.
/s/ Cliff Blount
-------------------------------
Cliff Blount
2
<PAGE>
State of Delaware
Office of the Secretary of State
I, Edward J. Freel, Secretary of State of the State of Delaware, do hereby
certify the attached is a true and correct copy of the certificate of amendment
of "Hermes Captial Management, Inc..", changing its name from "Hermes Capital
Management, Inc." to "General American Royalty, Inc.", filed in this office on
the twenty-third day of October, A.D. 1995, at 10 o'clock a.m.
A certified copy of this certificate has been forwarded to the New Castle
County recorder of Deeds for recording.
[SEAL] /s/ Edward J. Freel
-----------------------------------
Edward J. Freel, Secretary of State
2320431 8100 Authentication: 7683513
950243001 Date: 10-23-95
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
HERMES CAPITAL MANAGEMENT CORPORATION, a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST. That at a meeting of the Board of Directors of HERMES CAPITAL
MANAGEMENT CORPORATION resolutions were duly adopted setting forth a proposed
amendment to the Certificate of Incorporation of said corporation, delcaring
said amendment to be advisable and calling a meeting of the stockholders of said
corporation for consideration thereof. The resolution setting forth the proposed
amendments is as follows:
"Resolved, That the Certificate of Incorporation of the corporation be
amended by changing the Article One thereof so that, as amended said Article
shall be and read as follows:
"The name of the corporation is GENERAL AMERICAN ROYALTY, INC."
SECOND. That thereafter, pursuant to resolution of its Board of Directors,
a special meeting of the stockholders of said corporation was duly called and
held upon notice in accordance with Section 222 of the General Corporation Law
of the State of Delaware at which meeting the necessary number of shares as
required by statute were voted in favor of the amendment.
THIRD. That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITHNESS WHEREOF, said HERMES CAPITAL MANAGEMENT CORPORATION has caused
this certificate to be signed by C.B. HARRISON, JR., its President who was
authorized to make this certificate, this 9th day of October, 1995.
/s/ C. B. Harrison, Jr.
------------------------------
C.B. HARRISON, JR.
President
CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION, Page Solo
- -------------------------------------------------------------------
<PAGE>
State of Delaware
Office of the Secretary of State
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT
OF "GENERAL AMERICAN ROYALTY, INC.", FILED IN THIS OFFICE ON THE THIRTIETH DAY
OF OCTOBER, A.D. 1996, AT 4:30 O'CLOCK P.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEEDS FOR RECORDING.
[SEAL]
/s/ Edward J. Freel
------------------------------
Edward J. Freel, Secretary of State
2320431 8100 Authentication: 817226
960316842 Date: 10-31-96
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
GENERAL AMERICAN ROYALTY, INC.
General American Royalty, Inc., a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of General American
Royalty, Inc. resolutions were adopted setting forth a proposed amendment to the
Certificate of Incorporation of said corporation, declaring said amendment to be
advisable and calling a meeting of the stockholders of said corporation for
consideration thereof. The resolution setting forth the proposed amendments is
as follows:
RESOLVED, that the Certificate of Incorporation of the Corporation be
amended by changing the Article Four thereof so that, as amended said Article
shall be and read as follows:
FOURTH: Capital Stock. The Corporation is authorized to issue two
--------------
classes of stock, both of which shall be voting. One class of stock shall be
Common Stock, par value $.001. The second class of stock shall be Preferred
Stock, par value $0.001. The Preferred Stock , or any series thereof, shall have
such designations, preferences and relative, participating, optional or other
special rights and qualifications, limitations or restrictions thereof as shall
be expressed in the resolution or resolutions providing for the issue of such
stock adopted by the board of directors and may be made dependent upon facts
ascertainable outside such resolution or resolutions of the board of directors,
provided that the manner in which such facts shall operate upon such
designations, preferences, rights and qualifications, limitations or
restrictions of such class or series of stock is clearly and expressly set forth
in the resolution or resolutions providing for the issuance of such stock by the
board of directors.
The total number of shares of stock of each class which the Corporation
shall have authority to issue and the par value of each share of each class of
stock are as follows:
No. of
Par Authorized
Class Value Shares Total
- ------ --------- -------------- ----------------
Common $0.001 20,000,000 $20,000
Preferred $0.001 5,000,000 $ 5,000
---------- ------
Totals: 25,000,000 $25,000
SECOND: That thereafter, pursuant to resolution of its Board of Directors,
a special meeting of the stockholders of said corporation was duly called and
held upon notice in accordance with Section 222 of the General Corporation Law
of the State of Delaware at which meeting the necessary number of shares as
required by statute were voted in favor of the amendment.
<PAGE>
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, said General American Royalty, Inc. has caused this
certificate to be signed by James F. Smith, its President, who was authorized to
make this certificate, this 30th day of October, 1996
/s/ James F. Smith
-------------------------
James F. Smith, President
2
<PAGE>
BYLAWS OF
GENERAL AMERICAN ROYALTY, INC.
A DELAWARE CORPORATION
As Adopted by
Its Board of Directors On
the 28th day of December, 1992
<PAGE>
BYLAWS OF
GENERAL AMERICAN ROYALTY, INC.
A DELAWARE CORPORATION
Table of Contents
-----------------
ARTICLE I
OFFICES
-------
Section l. Registered Office ............................................. 1
- --------- -----------------
Section 2. Other Offices.................................................. 1
- --------- -------------
ARTICLE II
MEETINGS OF STOCKHOLDERS
------------------------
Section 1. Meetings of Stockholders for Election of Directors ........... 1
- --------- --------------------------------------------------
Section 2. Annual Meetings of Stockholders ............................... 1
- --------- -------------------------------
Section 3. Written Notice of Annual Meetings.............................. 1
- --------- ---------------------------------
Section 4. Stock Ledger .................................................. 1
- --------- ------------
ARTICLE II
MEETINGS OF STOCKHOLDERS, Cont'd.
---------------------------------
Section 5. Special Meetings of Stockholders .............................. 2
- --------- --------------------------------
Section 6. Written Notice of Special Meetings ............................ 2
- --------- ----------------------------------
Section 7. Business Transacted at Special Meetings ....................... 2
- --------- ---------------------------------------
Section 8. Majority Vote by Proxy ........................................ 2
- --------- ----------------------
Section 9. Quorum ........................................................ 2
- --------- ------
Section 10. One Vote Per Person ........................................... 3
- ---------- -------------------
Section 11. Action Without Meeting ........................................ 3
- ---------- ----------------------
ARTICLE III
DIRECTORS
---------
Section 1. Number ...................................................... 3
- ---------- ------
Section 2. Removal and Resignation ...................................... 3
- ---------- -----------------------
Section 3. Vacancies .................................................... 3
- ---------- ---------
Section 4. ............................................................. 4
- ----------
Section 5. Annual Meeting ............................................... 4
- ---------- --------------
Section 6. Regular Meetings ............................................. 4
- ---------- ----------------
Section 7. Special Meetings ............................................. 4
- ---------- ----------------
Section 8. Transaction of Business ...................................... 4
- ---------- -----------------------
Section 9. Action by Written Consent .................................... 4
- ---------- -------------------------
Section 10. Telephonic Communication ..................................... 5
- ---------- ------------------------
Section 11. Committees ................................................... 5
- ---------- ----------
Section 13. Compensation.................................................. 5
- ---------- ------------
2
<PAGE>
ARTICLE IV
NOTICES
-------
Section 1. Delivery ...................................................... 6
- --------- --------
Section 2. Waiver ........................................................ 6
- --------- ------
ARTICLE V
OFFICERS
--------
Section 1. Generally ................................................... 6
- ---------- ---------
Section 2. Compensation ................................................ 6
- ---------- ------------
Section 3. Term ......................................................... 6
- ---------- ----
Section 4. President .................................................... 6
- ---------- ---------
Section 5. Vice President ............................................... 7
- ---------- --------------
Section 6. Secretary ................................................... 7
- ---------- ---------
Section 7. Assistant Secretary .......................................... 7
- ---------- -------------------
Section 8. Treasurer .................................................. 7
- ---------- ---------
Section 9. Assistant Treasurer ......................................... 8
- ---------- -------------------
ARTICLE VI
CERTIFICATE OF STOCK
--------------------
Section 1. Issuance of Certificate ...................................... 8
- ---------- -----------------------
Section 2. Lost Certificates ........................................... 8
- ---------- -----------------
Section 3. Transfer of Stock ............................................ 9
- ---------- -----------------
Section 4. Fixing Record Date ........................................... 9
- ---------- ------------------
Section 5. Registered Stockholders ..................................... 9
- ---------- -----------------------
3
<PAGE>
ARTICLE VII
DIVIDENDS
---------
Section 1. Generally ................................................... 9
---------- ---------
Section 2. Reserves .................................................... 9
---------- --------
ARTICLE VIII
MISCELLANEOUS
-------------
Section 1. Annual Statement ............................................. 10
- ---------- ----------------
Section 2. Checks ....................................................... 10
- ---------- ------
Section 3. Fiscal Year .................................................. 10
- ---------- -----------
Section 4. Seal ........................................................ 10
- ---------- ----
Section 5. Indemnification .............................................. 10
- ---------- ---------------
Section 6. Amendments ................................................... 10
- ---------- ----------
4
<PAGE>
BYLAWS OF
GENERAL AMERICAN ROYALTY, INC.
A DELAWARE CORPORATION
ARTICLE I
OFFICES
-------
Section 1. Registered Office. The registered office shall be in the
----------------------------
City of Wilmington, County of New Castle, State of Delaware.
Section 2. Other Offices. The corporation may also have offices at
-------------------------
suchother places both within and without the State of Delaware as the board of
directors may determine from time to time or the business of the corporation may
require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
------------------------
Section 1. Meetings of Stockholders for Election of Directors.
------------------------------------------------------------------
All meetings of the stockholders for the election of directors shall be held at
such place as may be fixed from time to time by the board of directors, or at
such other place either within or without the State of Delaware as shall be
designated from time to time by the board of directors and stated in the notice
of the meeting. Meetings of stockholders for any other purpose may be held at
such time and place, within or without the State of Delaware, as shall be stated
in the notice of the meeting or in a duly executed waiver of notice thereof.
Section 2. Annual Meetings of Stockholders. Annual meetings of
-----------------------------------------------
stockholders, commencing with the year 1993, shall be held on such date and time
as shall be designated from time to time by the board of directors and stated in
the notice of the meeting, at which they shall elect by a plurality vote of the
board of directors, and transact such other business as may properly be brought
before the meeting.
Section 3. Written Notice of Annual Meetings. Written notice of the
----------------------------------------------
annual meeting stating the place, date, and hour of the meeting shall be given
to each stockholder entitled to vote at such meeting not less than ten (10) or
more than sixty (60) days before the date of the meeting.
Section 4. Stock Ledger. The officer who has charge of the stock ledger
-----------------------
of the corporation shall prepare and make, at least ten days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
5
<PAGE>
Section 5. Special Meetings of Stockholders. Special meetings of the
---------------------------------------------
stockholders, for any purpose or purposes, unless otherwise prescribed by
statute or by the certificate of incorporation, may be called by the president
and shall be called by the president or secretary at the request in writing of a
majority of the board of directors, or at the request in writing of stockholders
owning a majority in amount of the entire capital stock of the corporation
issued and outstanding and entitled to vote. Such request shall state the
purpose or purposes of the proposed meeting.
Section 6. Written Notice of Special Meetings. Written notice of a
------------------------------------------------
special meeting stating the place, date and hour of the meeting and the purpose
or purposes for which the meeting is called, shall be given not less than ten
(10) nor more than sixty (60) days before the date of the meeting, to each
stockholder entitled to vote at such meeting.
Section 7. Business Transacted at Special Meetings. Business transacted
--------------------------------------------------
at any special meeting of stockholders shall be limited to the purposes stated
in the notice.
Section 8. Majority Vote by Proxy. The holders of a majority of the
-----------------------------------
stock issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business except as otherwise provided by
statute or by the certificate of incorporation. If, however, such quorum shall
not be present or represented at any meeting of the stockholders, the
stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum shall be present or
represented. At such adjourned meeting at which a quorum shall be present or
represented any business may be transacted which might have been transacted at
the meeting as originally notified. If at the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
Section 9. Quorum. When a quorum is present at any meeting, the vote of
-----------------
the holders of a majority of the stock having voting power present in person
or represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the statutes
or if the certificate of incorporation, a different vote is required in which
case such express provision shall govern and control the decision of such
question.
6
<PAGE>
Section 10. One Vote Per Person. Unless otherwise provided in the
---------------------------------
certificate of incorporation each stockholder shall at every meeting of the
stockholders be entitled to one vote in person or by proxy for each share of the
capital stock having voting power held by such stockholder, but no proxy shall
be noted on after three (3) years from its date, unless the proxy provides for a
longer period.
Section 11. Action Without Meeting. Unless otherwise provided in
--------------------------------------
the-certificate of incorporation, any action required to be taken at any annual
or special meeting of stockholders of the corporation, or any action which may
be taken at any annual or special meeting of such stockholders, may be taken
without a meeting, without prior notice and without a vote, if a consent in
writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize to take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Prompt notice of the taking of
the corporation action without a meeting by less than unanimous written consent
shall be given to those stockholders who have not consented in writing.
ARTICLE III
DIRECTORS
---------
Section 1. Number. The number of directors which shall constitute the
-----------------
whole board shall be one (1). The directors shall be elected at the annual
meeting of the stockholders, except as provided in Section 2 of this Article,
and each director elected shall hold office until his successor is elected and
qualified or until his earlier resignation or removal. Directors need not be
stockholders.
Section 2. Removal and Resignation. Unless otherwise restricted by the
----------------------------------
certificate of incorporation or by law, any director or the entire board of
directors may be removed, with or without cause by the holders of a majority of
shares entitled to vote at an election of directors. Any director may resign at
any time upon written notice to the corporation.
7
<PAGE>
Section 3. Vacancies. Vacancies and newly created directorships
----------------------
resulting from any increase in the authorized number of directors may be filled
by a majority of the directors then in office, though less than a quorum, or by
a sole remaining director, and the directors so chosen shall hold office until
the next annual election and until their successors are duly elected and shall
qualify, unless sooner displaced. If there are not directors in office, then an
election of directors may be held in the manner provided by statute. If, at the
time of filling any vacancy of any newly created directorship, the directors
then in of f ice shall constitute less than a majority of the whole board (as
constituted immediately prior to any such increase) , the Court of Chancery may,
upon application of any stockholder or stockholders holding at least ten percent
of the total number of the shares at the time outstanding having the right to
vote for such directors, summarily order an election to be held to fill any such
vacancies or newly created directorships, or to replace the directors chosen by
the directors then in office.
Section 4. The business of the corporation shall be managed by or under
----------
the direction of its board of directors which may exercise all such powers of
the corporation and do all such lawful acts and things as are not by statute or
by the certificate of incorporation or by these bylaws directed or required to
be exercised or done by the stockholders.
Section 5. Annual Meeting. Each newly elected board of directors shall
-------------------------
hold an annual meeting following the annual meeting of the stockholders as shall
be specified in a notice given as hereinafter provided for special meetings of
the board of directors, or as shall be specified in a written waiver signed by
all of the directors.
Section 6. Regular Meetings. Regular meetings of the board of directors
---------------------------
may be held without notice at such time and at such place as shall from time to
time be determined by the board.
Section 7. Special meetings. Special meetings of the board may be
------------------------------
called by the president on one (1) days notice to each director, either
personally or by mail or by telegram; special meetings shall be called by the
president or secretary in like manner and on like notice on the written request
of two directors unless the board consists of only one director; in which case
special meetings shall be called by the sole director.
8
<PAGE>
Section 8. Transaction of Business. At all meetings of the board of
-------------------------------------
directors, a majority of directors shall constitute a quorum for the transaction
of business and the act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the board of directors, except as
may otherwise be specifically provided by statute or by the certificate of
incorporation. If a quorum shall not be present at any meeting of the board of
directors, the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present.
Section 9. Action by Written Consent. Unless otherwise restricted by
------------------------------------
the certificate of incorporation or these bylaws, any action required or
permitted to be taken at any meeting of the board of directors or of any
committee thereof may be taken without a meeting, if all members of the board or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the board of directors or
committee.
Section 10. Telephonic Communication. Unless otherwise restricted by
-------------------------------------
the certificate of incorporation or these bylaws, members of the board of
directors, or any committee designated by the board of directors, may
participate in a meeting of the board of directors, or any committee, by means
of telephone conference or similar communications equipment by means of which
all persons participating in the meeting can hear each other, and such
participation in a meeting shall constitute presence in person at the meeting.
Section 11. Committees. The board of directors may, by resolution,
----------------------
passed by a majority of the whole board, designate one or more committees, each
committee to consist of one or more of the directors of the corporation. The
board may designate one or more directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the
committee. Any such committee, to the extent provided in the resolution of the
board of directors, shall have and may exercise all the powers and authority of
the board of directors in the management of the business and affairs of the
corporation, and may authorize the seal of the corporation to be affixed to all
papers which may require it; but no such committee shall have the power or
authority to (a) authorize the amending of the certificate of incorporation; (b)
adopt an agreement of merger or consolidation; (c) recommend to the stockholders
the sale, lease, or exchange of all or substantially all of the corporation's
property and assets; (d) recommend to the stockholders a dissolution of the
corporation or a revocation of a dissolution; (e) amend the bylaws of the
corporation; or (f) unless the certificate of incorporation expressly so
provides, declare a dividend or authorize the issuance of stock. Such committee
or committees shall have such name or names as may be determined from time to
time by resolution adopted by the board of directors. Each committee shall keep
regular minutes of its meetings and report the same to the board of directors
when required.
9
<PAGE>
Section 13. Compensation. Unless otherwise restricted by the
---------------------------
certificate of incorporation or these bylaws, the board of directors shall have
the authority to fix the compensation of directors. The directors may be paid
for their expenses, if any, of attendance at each meeting of the board of
directors and may be paid a fixed sum for attendance at each meeting of the
board of directors or a stated salary as director. No such payment shall
preclude any director from serving the corporation in any other capacity and
receiving compensation therefor. Members of special or standing committees may
be allowed like compensation for attending committee meetings.
ARTICLE IV
NOTICES
-------
Section 1. Delivery. Whenever, under the provisions of the statutes, of
-------------------
the certificate of incorporation, or these bylaws, notice is required to be
given to any director or stockholder, it shall not be construed to mean personal
notice, but such notice may be given in writing, by certified or registered
mail, addressed to such director or stockholder, at his address as it appears on
the records of the corporation, with postage thereon prepaid, and such notice
shall be deemed to be given three (3) business days following the time when the
same shall be deposited in the United States mail. Notice to directors may also
be given by telegram and will be deemed to be given on the day the telegram is
sent. If a director or stockholder has provided a facsimile telephone number,
notice may be given by facsimile transfer and shall be deemed to be delivered
when confirmation of delivery is received.
Section 2. Waiver. Whenever any notice is required to be given under
------------------
the provisions of the statutes or of the certificate of incorporation or of
these bylaws, a waiver thereof in writing, signed by the person or persons
entitled to said notice, whether before or after the time stated therein, shall
be deemed equivalent thereto.
ARTICLE V
OFFICERS
--------
Section 1. Generally. The officers of the corporation shall be chosen
--------------------
by the board of directors and shall be a president, a vice-president, a
secretary and a treasurer. The board of directors may also choose additional
vice-presidents, and one or more assistant secretaries and assistant treasurers.
Any number of offices may be held by the same person, unless the certificate of
incorporation or these bylaws otherwise provide.
Section 2. Compensation. The salaries of all officers and agents of
------------------------
the corporation shall be fixed by the board of directors.
10
<PAGE>
Section 3. Term. The officers of the corporation shall hold office
---------------
until their successors are chosen and qualify. Any officer elected or appointed
by the board of directors may be removed at any time by the affirmative vote of
a majority of the board of directors. Any vacancy occurring in any office of the
corporation shall be filled by the board of directors.
Section 4.President. The president shall be the chief executive officer
-------------------
of the corporation, preside at all meetings of the stockholders and the board of
directors, have general and active management of the business of the
corporation, and see that all orders and resolutions of the board of directors
are carried into effect. The president shall execute bonds, mortgages, and other
contracts requiring a seal, under the seal of the corporation, except where
required or permitted by law to be otherwise signed and executed and except
where the signing and execution thereof shall be expressly delegated by the
board of directors to some other officer or agent of the corporation.
Section 5. Vice President. In the absence of the president, or in the
-------------------------
event of his inability or refusal to act, the vice president (or in the event
there be more than one vice-president, the vice-presidents in the order
designated by the directors, or in the absence of any designation, then in the
order of their election) shall perform the duties of the president, and when so
acting, shall have all the powers of and be subject to all the restrictions upon
the president. The vice-presidents shall perform such other duties and have such
other powers as the board of directors may from time to time prescribe.
Section 6. Secretary. The secretary shall attend all meetings of the
---------------------
board of directors and all meetings of the stockholders and record all the
proceedings of the meetings of the corporation and of the board of directors in
a book to be kept for that purpose and shall perform like duties for the
standing committees when required. The secretary shall give, or cause to be
given, notice of all meetings of the stockholders and special meetings of the
board of directors, and shall perform such other duties as may be prescribed by
the board of directors or president, under whose supervision he shall be. The
secretary shall have custody of the corporate seal of the corporation and he, or
an assistant secretary, shall have authority to affix the same to any instrument
requiring it and when so affixed, it may be attested by his signature or by the
signature of such assistant secretary. The board of directors may give general
authority to any other officer to affix the seal of the corporation and to
attest the affixing by his signature.
11
<PAGE>
Section 7. Assistant Secretary. The assistant secretary, if any, (or
-------------------------------
if there be more than one, the assistant secretaries in the order determined by
the board of directors, or if there be no such determination, then in the order
of their election) shall, in the absence of the secretary or in the event of his
inability or refusal to act, perform the duties and exercise the powers of the
secretary and shall perform such other duties and have such other powers as the
board of directors may from time to time prescribe.
Section 8. Treasurer. The treasurer shall have the custody of the
---------------------
corporate funds and securities and shall keep full and accurate accounts of all
receipts and disbursements in books belonging to the corporation and shall
deposit all monies and other valuable effects in the name and to the credit of
the corporation in such depositories as may be designated by the board of
directors. The treasurer shall disburse the funds of the corporation as may be
ordered by the board of directors, taking proper vouchers for such
disbursements, and shall render to the president and the board of directors, at
its regular meetings, or when the board of directors so requires, an account of
all his transactions as treasurer and of the financial condition of the
corporation. If required by the board of directors, the treasurer shall give the
corporation a bond (which shall be renewed every six years) in such sum and with
such surety or sureties as shall be satisfactory to the board of directors for
the faithful performance of the duties of his office and for the restoration to
the corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the corporation.
Section 9. Assistant Treasurer. The assistant treasurer (or if there
-------------------------------
shall be more than one, the assistant treasurers in the order determined by the
board of directors, or if there be no such determination, then in the order of
their election) shall, in the absence of the treasurer or in the event of his
inability or refusal to act, perform the duties and exercise the powers of the
treasurer and shall perform such other duties and have such other powers as the
board of directors may from time to time prescribe.
ARTICLE VI
CERTIFICATE OF STOCK
--------------------
Section 1. Issuance of Certificate. Every holder of stock in the
--------------------------------------
corporation shall be entitled to have a certificate, signed by, or in the name
of the corporation by, the chairman or vice-chairman of the board of directors,
or the president or a vice-president and the treasurer or an assistant
treasurer, or the secretary or an assistant secretary of the corporation,
certifying the number of shares owned by the shareholder in the corporation.
12
<PAGE>
Any of or all the signatures on the certificate may be facsimile. In
case any officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate is issued, it may
be issued by the corporation with the same effect as if he were such officer,
transfer agent or registrar at the date of issue.
Section 2. Lost Certificates. The board of directors may direct a
------------------------------
new certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing the issuance of a new certificate, the board of directors may, in
its discretion and as a condition precedent to the issuance thereof, require the
owner of the lost, stolen, or destroyed certificate, or his legal
representative, to advertise the same in such manner as it shall require, and/or
to give the corporation a bond in such sum, or other security in such form, as
it may direct as indemnity against any claim that may be made against the
corporation with respect to the certificate claimed to have been lost, stolen,
or destroyed.
Section 3. Transfer of Stock. Upon surrender to the corporation or the
----------------------------
transfer agent of the corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignation or authority to
transfer, it shall be the duty of the corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
Section 4. Fixing Record Date. In order that the corporation may
---------------------------------
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the board of directors may fix, in
advance, a record date, which shall not be more than sixty nor less than ten
days before the date of such meeting, nor more than sixty days prior to any
other action. A determination of stockholders of record entitled to notice of or
to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the board of directors may fix a new record
date for the adjourned meeting.
Section 5. Registered Stockholders. The corporation shall be entitled
-----------------------------------
to recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner, and to hold
liable for calls and assessments a person registered on its books as the owner
of shares, and shall not be bound to recognize any equitable or other claim to
or interest in such share or shares on the part of any other person, whether or
not it shall have express or other notice thereof, except as otherwise provided
by the laws of Delaware.
13
<PAGE>
ARTICLE VII
DIVIDENDS
---------
Section 1. Generally. Dividends upon the capital stock of the
----------------------
corporation, subject to the provisions of the certificate of incorporation, if
any, may be declared by the board of directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in property, or in
shares of the capital stock, subject to the provisions of the certificate of
incorporation.
Section 2. Reserves. Before payment of any dividend, there may be set
-------------------
aside out of any funds of the corporation available for dividends such sum or
sums as the directors from time to time, in their absolute discretion, think
proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the corporation, or
for such other purpose as the directors shall think conducive to the interest of
the corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
ARTICLE VIII
MISCELLANEOUS
-------------
Section 1. Annual Statement. The board of directors shall present at
----------------------------
each annual meeting, and at any special meeting of the stockholders when called
for by vote of the stockholders, a full and clear statement of the business and
condition of the corporation.
Section 2. Checks. All checks for demands for money and notes of the
------------------
corporation shall be signed by such officer or officers or such other person or
persons as the board of directors may from time to time designate.
Section 3. Fiscal Year. The fiscal year of the corporation shall be
----------------------
fixed by resolution of the board of directors.
Section 4. Seal. The corporate seal, if the directors deem it advisable
---------------
for the corporation to acquire a seal, shall have inscribed thereon the name of
the corporation, the year of its organization and the words "Corporate Seal."
The seal may be used by causing it or a facsimile thereof to be impressed or
affixed or reproduced or otherwise.
14
<PAGE>
Section 5. Indemnification. The corporation shall indemnify its
---------------------------
officers, directors, employees, and agents to the fullest extent permitted by
the General Corporation Law of the State of Delaware.
Section 6. Amendments. These bylaws may be altered, amended or repealed
---------------------
or new bylaws may be adopted by the stockholders or by the board of directors,
when such power is conferred upon the board of directors by the certificate of
incorporation, at any regular meeting of the stockholders or of the board of
directors or at any special meeting of the stockholders or of the board of
directors if notice of such alteration, amendment, repeal or adoption of new
bylaws be contained in the notice of such special meeting. If the power to
adopt, amend, or repeal bylaws is conferred upon the board of directors by the
certificate of incorporation, it shall not divest or limit the power of the
stockholders to adopt, amend, or repeal bylaws.
15
<PAGE>
Exhibit 3
CUSIP 368772 11 7
WARRANT CERTIFICATE
GENERAL AMERICAN ROYALTY, INC..
Void (unless extended) after 5:00 p.m., central standard time, on April 30, 1997
This Warrant Certificate certifies that
, or registered assigns, is the registered holder of
Warrants (the "Warrants") expiring April 30, 1997, to purchase shares of Common
Stock $0.01 par value per share, of General American Royalty, Inc., a Delaware
corporation (the "Company"). Each Warrant entitles the holder to purchase from
the Company on or after the date hereof and on or before the close of business
on April 30, 1997 (the "Termination Date"), one fully paid and nonassessable
share of Common Stock, $0.01 par value per share, of the Company (the "Shares" )
at the exercise price (the "Exercise Price") of $5.00 payable in lawful money
of the United States of American upon surrender of this Warrant Certificate and
payment of the Exercise Price at 16910 Dallas Parkway, Suite 100, Dallas, TX
75248, or at such other place as the Company may designate by notice to the
holder, but only subject to the conditions set forth herein.
The Company can call in the Warrants on 15 days notice, if not exercised by the
holder prior to the expiration of the 15-day notice period, should the Company's
Common Stock trade at or above $6.00 repoRted closing bid or trade price for 10
consecutive trading days. See the reverse hereof and such further provisions
shall for all purpose have the same effect as though fully set forth at this
place.
This Warrant Certificate shall not be valid unless countersigned by the Warrant
Agent, as such term used in the Warrant Agreement.
WITNESS the facsimile seal of the Company and the Facsimile signatures of its
duly authorized officers.
DATE
/s/ James F. Smith
- ---------------------------
James F. Smith Countersigned:
President [SEAL] SECURITIES TRANSFER CORPORATION
P.O. Box 701629
Dallas, Texas 75370
/s/ Sammie S. Smith
- ------------------------
Sammie S. Smith
Secretary By:
------------------------------------
Transfer Agent-Authorized Signature
<PAGE>
Exhibit 10
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form 10-SB of our
report dated November 30, 1996, except as to the information presented in Note
6, for which the date is January 21, 1997, on our audit of the financial
statements of General American Royalty, Inc.
/s/ COOPERS & LYBRAND L.L.P.
------------------------------
COOPERS & LYBRAND L.L.P.
Dallas, Texas
March 26, 1997
