GEOSTRAT RESOURCES INC, S-4/A, 1996-09-20

GEOSTRAT RESOURCES INC
S-4/A, 1996-09-20
OIL & GAS FIELD EXPLORATION SERVICES

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 20, 1996

REGISTRATION NO. 333-10729
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

----------------

AMENDMENT NO. 1

TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

----------------

GEOSTRAT RESOURCES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

----------------

DELAWARE 1330 76-0507664
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NO.) IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)

222 PENNBRIGHT, SUITE 200, HOUSTON, TEXAS 77090
(713) 872-0500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

----------------

LARRY H. CARPENTER
CHAIRMAN OF THE BOARD
PRESIDENT AND CHIEF EXECUTIVE OFFICER
222 PENNBRIGHT, SUITE 200
HOUSTON, TEXAS 77090
(713) 872-0500
(NAME, ADDRESS INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)

----------------

COPIES TO:
ARTHUR S. BERNER, ESQ.
WINSTEAD SECHREST & MINICK P.C.
910 TRAVIS, SUITE 1700
HOUSTON, TEXAS 77002
(713) 650-2729

Approximate date of commencement of proposed sale to the public: AS SOON AS
PRACTICABLE AFTER THE REGISTRATION STATEMENT BECOMES EFFECTIVE AND ALL OTHER
CONDITIONS PURSUANT TO THE MERGER AGREEMENT DESCRIBED IN THE ENCLOSED PROXY
STATEMENT/PROSPECTUS HAVE BEEN SATISFIED OR WAIVED.

If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]

----------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.

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- -------------------------------------------------------------------------------
<PAGE>

PRELIMINARY PROXY--FOR INFORMATION OF THE SECURITIES AND EXCHANGE COMMISSION
ONLY

TGX CORPORATION
222 PENNBRIGHT, SUITE 200
HOUSTON, TEXAS 77090

September , 1996

TO THE STOCKHOLDERS OF TGX CORPORATION:

You are cordially invited to attend a special meeting of the stockholders
(the "Meeting") of TGX Corporation to be held on October , 1996 at the Four
Seasons Hotel, 1300 Lamar Street, Houston, Texas, commencing at 10:00 a.m.
local time.

Accompanying this letter is a Proxy Statement/Prospectus which explains in
detail the matters to be considered at the Meeting. Because of the complexity
of the Proxy Statement/Prospectus, I wanted to provide you with some
background information and a summary of some of the matters discussed therein.

As you may recall, in January 1992, TGX Corporation ("TGX" or the "Company")
had its Amended Plan of Reorganization (the "Plan") confirmed by the Louisiana
Bankruptcy Court. In October of 1992, the Plan was deemed to be substantially
consummated. Pursuant to the Plan, creditors of TGX received shares of the
Company's Series A Senior Preferred Stock (the "Senior Preferred Stock"). The
Senior Preferred Stock is entitled to receive cumulative dividends at a rate
of 10% per year of its liquidation preference of $10.00 per share and is
redeemable on or before January 21, 2002 in an amount equal to its liquidation
preference plus accrued but unpaid dividends. Redemption of the 8,788,571
shares of Senior Preferred Stock issued and outstanding would require an
aggregate payment of $87,886,000, if all accrued dividends had been paid. No
dividends have, however, been paid to the holders of the Senior Preferred
Stock to date. Thus, redemption at this time of the Senior Preferred Stock
would require an additional payment of approximately $46,831,000. The Plan
further provided that although the holders of the Company's common stock would
retain their shares, they would have significantly less voting power to
influence decisions or elect directors. The Plan accomplished this by
providing that holders of Senior Preferred Stock had, except in certain
limited circumstances, 95% of the combined voting power of the Senior
Preferred Stock, certain other outstanding preferred stock and the common
stock.

The Plan provided that the holders of the common stock would retain their
shares primarily to preserve their interest in a potential recovery from
continuing litigation (the "NFG Litigation") by the Company against National
Fuel Gas Distribution Company ("NFG"). At the time the Plan was confirmed it
was hoped that the recovery from the NFG Litigation might be sufficient to
redeem the Senior Preferred Stock and provide value for the Company's common
stockholders. The NFG Litigation has, however, recently been settled, and the
Company, after payments to other non-affiliated parties entitled to share in
the settlement, will retain approximately $3.5 million from such settlement.
The proceeds are, therefore, clearly insufficient to redeem the Senior
Preferred Stock, much less to provide further value to the Company's common
stockholders.

Following consummation of the Plan, the Company restructured its debt (and
now has almost no debt), sold off certain significant assets, and has become
more efficient as an operating oil and gas company. Despite these activities,
as described in the Proxy Statement/Prospectus, neither the Company's book
value at June 30, 1996, estimated to be approximately $9,370,000, including
the proceeds to the Company from the settlement of the NFG Litigation, nor its
revenues, considered either singly or together, are sufficient to redeem the
Senior Preferred Stock, and in the opinion of the Company's Board of Directors
the holders of the Company's common stock and other classes of preferred stock
have no equity value in TGX on an ongoing basis.

To meet the economic and industry demands faced by the Company and to
provide the Company with the flexibility, and its stockholders with the
liquidity, which will be required in the future, the Company believes it
should reduce its preferred stock obligations and obtain the opportunity to
increase its capital.

It is my belief, and the belief of the Board of Directors, that the
proposals set forth in the attached Proxy Statement/Prospectus present the
best opportunity to greatly improve the Company's financial affairs and to
position the Company for the challenging environment in which it now operates.
Of course, I can give no assurances we will be successful in that endeavor.
<PAGE>

As described in the accompanying Proxy Statement/Prospectus, stockholders of
the Company will be asked at the Meeting to consider and vote upon a proposed
merger (the "Merger") with a newly formed subsidiary of the Company, GeoStrat
Resources, Inc. ("GeoStrat"), whereby the Senior Preferred Stock will be
exchanged for shares of common stock of GeoStrat at a rate (the "Exchange
Ratio") of one-half share of GeoStrat common stock for each share of TGX
Senior Preferred Stock, and the currently outstanding common stock and other
preferred stock of the Company would be eliminated. Pursuant to the terms of
the Agreement of Merger, current holders of the Senior Preferred Stock would
become holders of shares of common stock of GeoStrat and all rights to accrued
and unpaid dividends would be cancelled without payment of any additional
consideration. The transaction was structured in this manner in order to (a)
reflect the fact that only holders of Senior Preferred Stock have any existing
economic interest in the on-going business of TGX, and (b) to permit GeoStrat
to better access the capital markets without the significant hindrance of a
large accumulating dividend and an obligation to redeem the TGX Senior
Preferred Stock in the foreseeable future.

PLEASE NOTE, that as a result of the transactions described in the
accompanying Proxy Statement/Prospectus, current holders of TGX Common Stock
and classes of TGX Preferred Stock, other than Senior Preferred Stock, will
receive no shares of GeoStrat nor any other consideration for their TGX
securities.

Upon approval of the Agreement of Merger, the Merger will be consummated
promptly. These actions will significantly improve the Company's current
capital and liquidity positions and provide the Company with greater operating
flexibility in the future. Current holders of TGX Common Stock or TGX
Preferred Stock, other than Senior Preferred Stock, will not have any
liquidity since their shares will be eliminated. GeoStrat has applied to have
the GeoStrat Common Stock listed on the Nasdaq-Small Cap System, but, to date,
GeoStrat's application has not been acted upon and there can be no assurances
that GeoStrat Common Stock will be listed on the Nasdaq-Small Cap System.

The foregoing transactions are more fully described in the accompanying
Proxy Statement/Prospectus.

The Board of Directors has obtained an opinion of American Appraisal
Associates, Inc. stating that in such firm's opinion, the Merger is fair to
the Company's Stockholders from a financial point of view. Based on the
receipt of such opinion, as well as the Board of Directors' own independent
analysis of the Company's financial position, the Board of Directors has
unanimously approved the Agreement of Merger and the Merger. The Board of
Directors recommends that you vote FOR such proposal. However, in view of
their holdings of Senior Preferred Stock, the TGX Board of Directors might be
deemed to have a conflict of interest with respect to the transactions
described in the accompanying Proxy Statement/Prospectus.

If the Merger is not approved, stockholders will be asked at the Meeting to
elect Larry H. Carpenter, Jeffrey E. Susskind and David H. Scheiber (the
"Nominees") to the board of directors of the Company (the "Board").

If the Merger is approved, immediately after the Merger is effective, the
stockholders of GeoStrat (previously the holders of TGX's Senior Preferred
Stock) will meet to elect the Nominees as directors of GeoStrat. GeoStrat
stockholders will also be asked to approve GeoStrat's 1996 Flexible Incentive
Plan, authorizing the possible issuance of 450,000 shares of the common stock
of GeoStrat to certain employees, nonemployee directors and others. The
proposal relating to the Flexible Incentive Plan is conditional upon approval
of the Merger and will not be implemented if the Merger is not approved by
TGX's stockholders.

The Board recommends that you vote FOR each Nominee and FOR the proposal to
adopt the GeoStrat 1996 Flexible Incentive Plan.

Each stockholder of the Company (whether owning preferred stock or common
stock) on September 2, 1996 is entitled to receive notice of and to vote at
the Meeting and is invited to attend the Meeting. Whether or not you intend to
be present at the Meeting, your vote is very important and we urge you to
review the Proxy Statement/Prospectus carefully and to complete, date, sign
and promptly return the enclosed Proxy Card. Your
<PAGE>

Board of Directors recommends you vote "FOR" the adoption and approval of the
Merger Agreement and the Merger.

I and the rest of your Board of Directors look forward to seeing you at the
Meeting.

Very truly yours, on behalf of the
Board of Directors,

Larry H. Carpenter
Chairman of the Board, President
and Chief Executive Officer

PLEASE COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD.
<PAGE>

PRELIMINARY PROXY--FOR INFORMATION OF THE SECURITIES AND EXCHANGE COMMISSION
ONLY

TGX CORPORATION GEOSTRAT RESOURCES, INC.
222 PENNBRIGHT, SUITE 200 222 PENNBRIGHT, SUITE 200
HOUSTON, TEXAS 77090 HOUSTON, TEXAS 77090

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NOTICE OF SPECIAL MEETINGS OF STOCKHOLDERS

TO BE HELD OCTOBER , 1996

TO THE STOCKHOLDERS OF TGX CORPORATION:

Notice is hereby given that a special meeting of the stockholders (the
"Meeting") of TGX Corporation, a Delaware corporation ("TGX"), will be held at
the Four Seasons Hotel, 1300 Lamar Street, Houston, Texas on October , 1996
at 10:00 a.m. local time, for the following purposes:

1. To consider and act upon the proposed merger (the "Merger") of TGX with
and into GeoStrat Resources, Inc. ("GeoStrat"), a Delaware corporation
and currently a wholly-owned subsidiary of TGX;

2. To elect Larry H. Carpenter, David H. Scheiber and Jeffrey E. Susskind
to the board of directors of TGX;

3. To transact such other business as may properly come before the meeting
or any adjournment thereof.

If the Merger is approved, immediately after the Merger is effected, the
stockholders of GeoStrat will hold a special meeting (the "GeoStrat Special
Meeting") at the same location for the following purposes:

(a) To elect Larry H. Carpenter, David H. Scheiber and Jeffrey E. Susskind
to the board of directors of GeoStrat;

(b) To consider and act upon a proposal to approve the GeoStrat 1996
Flexible Incentive Plan authorizing the possible issuance of 450,000
shares of common stock of GeoStrat to certain parties; and

The GeoStrat Special Meeting and Proposals (a), (b), (c) and (d) are
conditioned upon approval by the TGX stockholders of Proposal 1 and will not
be implemented if Proposal 1 is not approved by TGX's stockholders.

The stock transfer books will not be closed. Stockholders of record as of
the close of business on September 2, 1996 are entitled to notice of, and to
vote at, the Meeting and the GeoStrat Special Meeting or any adjournment
thereof, notwithstanding any transfer of stock on the books of TGX after such
record date.

You are cordially invited to attend the meeting in person. YOU ARE URGED TO
COMPLETE, DATE, AND SIGN THE ENCLOSED PROXY AND TO RETURN IT PROMPTLY IN THE
ENCLOSED ENVELOPE, WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING.

By Order of the Board of Directors

Larry H. Carpenter
Chairman of the Board, President
and Chief Executive Officer
Houston, Texas
September , 1996
<PAGE>

PRELIMINARY PROXY--FOR INFORMATION OF THE SECURITIES AND EXCHANGE COMMISSION
ONLY

TGX CORPORATION GEOSTRAT RESOURCES, INC.
222 PENNBRIGHT, SUITE 200 222 PENNBRIGHT, SUITE 200
HOUSTON, TEXAS 77090 HOUSTON, TEXAS 77090

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PROXY STATEMENT PROXY STATEMENT/PROSPECTUS

-------------------------------- ---------------------------------

SPECIAL MEETING OF STOCKHOLDERS RELATING TO A SPECIAL MEETING OF
STOCKHOLDERS AND THE ISSUANCE OF
OCTOBER , 1996 4,394,285 SHARES
OF GEOSTRAT COMMON STOCK

This Proxy Statement and Prospectus (the "Proxy Statement/Prospectus") is
being furnished to the stockholders of TGX Corporation, a Delaware corporation
("TGX" or the "Company"), in connection with the solicitation of proxies by
the board of directors of TGX (the "Board") for use at a special meeting of
stockholders (the "Meeting") of TGX to be held on October , 1996 at 10:00
a.m., local time, at the Four Seasons Hotel, 1300 Lamar Street, Houston,
Texas, or at any adjournment thereof.

This Proxy Statement/Prospectus and proxy and the accompanying Notice of
Special Meeting is first being mailed to stockholders on or about September
, 1996. The cost of soliciting proxies will be borne by TGX. The
Board has fixed September 2, 1996, as the record date (the "Record Date") for
determination of stockholders entitled to receive notice of and to vote at the
Meeting. On the Record Date, there were (i) 8,788,571 shares of the Company's
Series A Preferred Stock, par value $1.00 per share ("Senior Preferred Stock"),
outstanding and entitled to vote; (ii) 471,500 shares of the Company's
Cumulative Convertible Preferred Stock, par value $1.00 per share ("Old
Preferred Stock"), outstanding and entitled to vote; and (iii) 24,955,807
shares of the Company's Common Stock, par value $.01 per share ("Common
Stock"), outstanding and entitled to vote. Pursuant to the Company's
Certificate of Incorporation and By-laws, the holders of Senior Preferred
Stock, in the aggregate, have 95% of the voting power of all classes of TGX
equity securities. Thus, each holder of Senior Preferred Stock will be entitled
to 54.971 votes for each share owned, and each holder of Old Preferred Stock
and Common Stock will be entitled to one vote for each share owned. Holders of
the Senior Preferred Stock, Old Preferred Stock and Common Stock are entitled
to vote as one class on the proposed Merger and the election of the TGX
directors. Officers and directors of TGX own 2,042,796 shares of Senior
Preferred Stock, giving them, in the aggregate, 22.1% of the aggregate voting
power of all classes entitled to vote on the proposals set forth herein.

At the Meeting, holders of the outstanding shares of Senior Preferred Stock,
Old Preferred Stock and Common Stock of TGX are being asked to consider and
adopt the Agreement of Merger (the "Merger Agreement") between TGX and
GeoStrat Resources, Inc. ("GeoStrat"), a newly-formed Delaware corporation and
currently a wholly-owned subsidiary of TGX, pursuant to which TGX will merge
(the "Merger") with and into GeoStrat, and to elect the directors of TGX. A
copy of the Merger Agreement is attached as Appendix "A" hereto. Upon
consummation of the Merger, each outstanding share of Senior Preferred Stock
will be automatically converted into one-half share of common stock, par value
$.01 per share (the "New Common Stock" or the "GeoStrat Common Stock"), of
GeoStrat, and each outstanding share of Common Stock and Old Preferred Stock
will automatically be cancelled. If the Merger is approved, Messrs. Susskind
and Carpenter will own 19.4% and 3.4%, respectively, of the GeoStrat Common
Stock, all officers and directors of the Company, as a group, will own 23.2%
of the GeoStrat Common Stock and, to the current knowledge of GeoStrat, the
only other 5% holders of the GeoStrat Common Stock would be The AIF-Lion Group
and Gaylon E. and Gloria A. T. Simmons who would own 20.7% and 6.5%
respectively. PLEASE NOTE, that as a result of the transactions described in
this Proxy Statement/Prospectus, current holders of TGX Common Stock and

1
<PAGE>

Old Preferred Stock will receive no shares of GeoStrat nor any other
consideration for their TGX securities. Therefore, in view of their holdings
of Senior Preferred Stock, the TGX Board of Directors might be deemed to have
a conflict of interest with respect to the transactions described in the
accompanying Proxy Statement/Prospectus.

If the Merger is approved, immediately after the Merger is effected, at the
GeoStrat Special Meeting holders of New Common Stock will vote upon the
election of directors of GeoStrat and to consider and approve the GeoStrat
1996 Flexible Incentive Plan. Only holders of New Common Stock (the former
holders of TGX Senior Preferred Stock) will be entitled to vote for the
GeoStrat Board and the GeoStrat 1996 Flexible Incentive Plan.

The Merger is intended to be a tax free reorganization. See "The Merger--
Certain Federal Income Tax Considerations" below. The full text of the Merger
Agreement, the Certificate of Incorporation of GeoStrat (the "GeoStrat
Certificate") and the Bylaws of GeoStrat (the "GeoStrat Bylaws") are set forth
in Appendices "A", "B", and "C" hereto, respectively. This Proxy
Statement/Prospectus constitutes a proxy statement for the Meeting and for the
GeoStrat Special Meeting and also constitutes a prospectus of GeoStrat with
respect to the shares of New Common Stock to be issued in the Merger.

THE SHARES OF GEOSTRAT COMMON STOCK TO BE OFFERED PURSUANT TO THIS PROXY
STATEMENT/PROSPECTUS HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

REFERENCE IS MADE TO "SPECIAL FACTORS" BEGINNING ON PAGE 7 HEREOF FOR A MORE
COMPLETE DESCRIPTION OF THE REASONS FOR THE MERGER AND OTHER INFORMATION
CONCERNING THE MERGER.

FOR A DISCUSSION OF CERTAIN RISKS ASSOCIATED WITH AN INVESTMENT IN THE
GEOSTRAT COMMON STOCK, SEE "RISK FACTORS" BEGINNING ON PAGE 18.

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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS IN CONNECTION
WITH THE OFFERING AND SOLICITATION MADE HEREBY, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO PURCHASE, THE SECURITIES OFFERED BY
THIS PROXY STATEMENT/PROSPECTUS, OR THE SOLICITATION OF A PROXY, IN ANY
JURISDICTION OR FROM ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR ANY
DISTRIBUTION OF THE SECURITIES OFFERED PURSUANT TO THIS PROXY
STATEMENT/PROSPECTUS SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION CONTAINED HEREIN SINCE THE
DATE HEREOF.

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THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS SEPTEMBER , 1996.

----------------

2
<PAGE>

AVAILABLE INFORMATION

This Proxy Statement/Prospectus constitutes a part of a Registration
Statement on Form S-4 filed by GeoStrat with the Securities and Exchange
Commission (the "SEC") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the common stock to be issued as described
herein. This Proxy Statement/Prospectus does not contain all of the
information contained in the Registration Statement, and the exhibits and
schedules thereto. For further information with respect to GeoStrat and the
common stock of GeoStrat, reference is made to the Registration Statement,
including the exhibits and schedules thereto, which may be inspected at the
SEC's offices without charge or copies of which may be obtained from the SEC
upon payment of prescribed fees. Statements contained in this Proxy
Statement/Prospectus as to the contents of any document filed as an exhibit to
the Registration Statement are not necessarily complete, but such statements
concerning the provisions of certain documents accurately describe the
material aspects of such documents. In each instance reference is hereby made
to the copy of such document filed as an exhibit to the Registration Statement
for the complete version of each of such documents.

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). In accordance with the
Exchange Act, the Company files periodic reports and other information with
the SEC. Such periodic reports and other information filed by the Company with
the SEC may be inspected and copied at the Public Reference Section of the SEC
at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
and the Regional Offices of the SEC at Seven World Trade Center, 13th Floor,
New York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511. Copies of such materials may also be
obtained from the Public Reference Section of the SEC, at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.

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3
<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
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<S> <C>
AVAILABLE INFORMATION..................................................... 3
SPECIAL FACTORS........................................................... 7
Purposes of Merger...................................................... 7
Alternatives Considered................................................. 7
Reasons for Structure and Timing of Transaction......................... 7
Effects of Transaction.................................................. 8
Fairness of Transaction................................................. 9
Opinion of Appraisal and Valuation Firm................................. 10
SUMMARY................................................................... 12
Date, Time and Place of Meetings........................................ 12
Record Date............................................................. 12
Matters to be Considered at Meeting..................................... 12
Risk Factors............................................................ 13
Vote Required........................................................... 13
Recommendation of Board................................................. 14
Conflict of Interest.................................................... 14
Market for TGX Stock.................................................... 14
The Companies........................................................... 14
Reasons for Merger...................................................... 15
Opinion of Appraisal and Valuation Firm................................. 15
Limitations on Opinion of Appraisal and Valuation Firm.................. 15
Appraisal Rights........................................................ 15
Tax Considerations...................................................... 16
Surrender of Certificates............................................... 16
Summary Financial Data.................................................. 16
RISK FACTORS.............................................................. 18
Volatility of Oil, Gas and Natural Gas Liquid Prices.................... 18
Estimates of Oil and Gas Reserves....................................... 18
Acquisition and Development of Reserves................................. 18
Future Capital Needs.................................................... 19
Operating Hazards and Uninsured Risks................................... 19
Competition and Marketing............................................... 19
Environmental and Other Regulation...................................... 20
Forward-Looking Statements.............................................. 20
Principal Stockholders.................................................. 21
Financial Reorganization................................................ 21
Absence of Public Market................................................ 21
No Anticipated Dividends................................................ 21
Preferred Stock......................................................... 22
THE MEETINGS.............................................................. 23
Solicitation, Voting and Revocability of Proxies; Date and Place of
Meetings............................................................... 23
Purposes of Meeting..................................................... 23
Record Date; Stockholders Entitled to Vote.............................. 24
Quorum; Vote Required................................................... 25
PROPOSAL 1--THE MERGER.................................................... 25
The Merger Agreement.................................................... 25
Background and Reasons for the Merger................................... 26
Recommendation of Board................................................. 28
</TABLE>

4
<PAGE>

TABLE OF CONTENTS

(Continued)

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Opinion of Appraisal and Valuation Firm................................. 28
Conditions to Merger.................................................... 31
Exchange of Certificates................................................ 31
Interests of Certain Persons in the Merger.............................. 32
Certain Federal Income Tax Considerations............................... 32
Accounting Treatment.................................................... 33
Appraisal Rights........................................................ 33
DESCRIPTION OF GEOSTRAT SECURITIES........................................ 34
Common Stock............................................................ 34
Preferred Stock......................................................... 35
COMPARATIVE RIGHTS OF STOCKHOLDERS........................................ 35
General................................................................. 35
Dividends............................................................... 36
Voting Rights........................................................... 36
Amendment............................................................... 36
Redemption/Conversion................................................... 36
Liquidation............................................................. 36
Unissued Shares......................................................... 37
BUSINESS AND PROPERTIES OF THE COMPANY.................................... 38
General................................................................. 38
Business Strategy....................................................... 38
Bank Indebtedness....................................................... 39
Administrative Claims................................................... 40
NFG Litigation.......................................................... 41
Fresh Start Reporting................................................... 44
Reorganization Proceeding............................................... 45
Properties.............................................................. 47
Competition, Markets and Other External Factors......................... 50
Regulation.............................................................. 51
Employees............................................................... 52
Legal Proceedings....................................................... 52
MARKET PRICE INFORMATION.................................................. 53
SELECTED CONSOLIDATED FINANCIAL INFORMATION............................... 55
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS............................................................... 56
Six Months Ended June 30, 1996 and 1995................................. 56
Results of Operations................................................... 56
FINANCIAL CONDITION....................................................... 59
LIQUIDITY AND CAPITAL RESOURCES........................................... 59
Years Ended December 31, 1995 and 1994.................................. 60
PROPOSALS 2 AND (a)--ELECTION OF DIRECTORS................................ 66
EXECUTIVE OFFICERS........................................................ 68
EMPLOYMENT AGREEMENTS..................................................... 68
EXECUTIVE COMPENSATION.................................................... 69
Summary Compensation Table.............................................. 69
</TABLE>

5
<PAGE>

TABLE OF CONTENTS

(Continued)

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Compensation Committee Interlocks and Insider Participation.............. 69
Report On Executive Compensation......................................... 69
Stock Based Compensation................................................. 71
CERTAIN STOCK OWNED BY PRINCIPAL STOCKHOLDERS AND MANAGEMENT............... 71
PROPOSAL (b)--GEOSTRAT 1996 FLEXIBLE INCENTIVE PLAN........................ 72
General.................................................................. 72
Available Shares......................................................... 73
Persons Eligible to Participate.......................................... 73
Administration........................................................... 73
Types of Awards.......................................................... 73
Payment for Awards....................................................... 75
Amendment and Termination................................................ 75
OTHER MATTERS.............................................................. 76
INDEPENDENT ACCOUNTANTS.................................................... 76
STOCKHOLDER'S PROPOSALS.................................................... 76
LEGAL MATTERS.............................................................. 76
EXPERTS.................................................................... 77
INDEX TO FINANCIAL STATEMENTS.............................................. F-1
APPENDIX A: AGREEMENT OF MERGER............................................ A-1
APPENDIX B: CERTIFICATE OF INCORPORATION OF GEOSTRAT RESOURCES, INC........ B-1
APPENDIX C: BYLAWS OF GEOSTRAT RESOURCES, INC.............................. C-1
APPENDIX D: OPINION OF FINANCIAL ADVISOR................................... D-1
APPENDIX E: SECTION 262 OF DELAWARE GENERAL CORPORATION LAW................ E-1
APPENDIX F: GEOSTRAT 1996 FLEXIBLE INCENTIVE PLAN.......................... FF-1
</TABLE>

6
<PAGE>

SPECIAL FACTORS

The information contained in this section briefly summarizes certain
information further described in greater detail in this Proxy
Statement/Prospectus and the Appendices hereto. The information set forth in
this section is necessarily incomplete and is qualified in its entirety by
reference to the more detailed information and financial statements, including
the notes thereto, contained in this Proxy Statement/Prospectus and the
Appendices hereto. Stockholders are urged to read carefully all of such
material. Certain capitalized terms used in this section are defined in the
"Summary."

PURPOSES OF MERGER

The merger transaction (the "Merger") described in this Proxy
Statement/Prospectus is proposed by the Board of Directors of TGX (the "Board")
as a means to help position TGX (1) to meet the economic and industry demands
presently being placed on the Company as a result of the need to have
significantly greater capital than the Company presently can gain access to in
order to drill exploratory and development wells, to acquire leasehold
interests, and to operate producing wells and oil and gas fields; (2) to create
the flexibility and liquidity required for the future stability and growth of
the Company by permitting its successor GeoStrat Resources, Inc. ("GeoStrat"),
a corporation organized by TGX solely for the purpose of carrying out the terms
of the Merger, to seek additional equity financing through the potential sale
of common shares without the hindrance of a significant and substantial
preferred stock preference and dividend having priority over the common shares
(although no assurance can be given that GeoStrat would be able to sell such
additional shares of common stock or whether such a sale, if made, would
significantly enhance the stability and growth of GeoStrat); (3) to advance the
strategic objectives of the Company by allowing its successor GeoStrat to raise
additional capital and therefore to increase GeoStrat's acquisition of
leasehold interests and its participation in drilling exploratory and
development wells; and (4) to enhance value for the TGX Senior Preferred
stockholders, the only TGX securityholders which will have a continuing
interest in GeoStrat, by providing the possibility of a more readily available
public market and the opportunity to seek additional capital, thereby expanding
the ability of its successor GeoStrat to conduct further oil and gas
exploration and development. See "Summary--Reasons for Merger" and "Proposal
1--The Merger--Background and Reasons for the Merger."

ALTERNATIVES CONSIDERED

The Board analyzed various alternatives by which it might achieve the
purposes set forth above. These alternatives included the sale of common stock
of the Company, merger with one or more companies (preferably one whose
securities were publicly traded) whereby the Company would receive a premium
for its assets, a rights offering with existing stockholders, acquisition of
additional debt to conduct operations, and liquidation. The Board concluded
that it would be highly unlikely that additional common stock could be sold
because of the significant dividend arrearages and liquidation preference of
the Senior Preferred Stock, that the acquisition of additional debt for the
conduct of exploration would not be viable or represent the best use of the
Company's assets, that a rights offering to existing stockholders would neither
be successful nor justify the transactional costs required to accomplish it,
that a merger with one or more currently operating companies would be unlikely
to provide any benefit to the Company's common stockholders or provide a
premium for the holders of the Senior Preferred Stock and that liquidation
would not provide the greatest benefit for the holders of the Senior Preferred
Stock. See "Proposal 1--The Merger--Background and Reasons for the Merger."

REASONS FOR STRUCTURE AND TIMING OF TRANSACTION

Early in 1990, the Company filed a voluntary petition in the Louisiana
Federal Bankruptcy Court for reorganization. The Amended Plan of Reorganization
(the "Reorganization Plan") was confirmed in 1992 and pursuant thereto the
Company's secured indebtedness was restructured and certain claims were paid in
cash. Unsecured creditors received shares of the Senior Preferred Stock, which
pursuant to the terms of the Plan were

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entitled to cumulative dividends and were required to be redeemed in an amount
equal to the liquidation preference of $10.00 per share plus accrued but unpaid
dividends on or before January 21, 2002. Such Senior Preferred Stockholders
were entitled to 95% of the combined votes of all TGX security holders on such
matters as the Merger. Because it was considered possible that a resolution of
ongoing litigation (the "NFG Litigation") National Fuel Gas Distribution
Company after confirmation of the Reorganization Plan might result in a payment
to the Company sufficient, either by itself or together with a portion (but not
all) of the assets of the Company, to redeem the Senior Preferred Stock issued
in satisfaction of unsecured claims and that there would therefore remain some
value in the Company for those who before commencement of the reorganization
held equity interests in the Company, such holders of pre-reorganization equity
interests retained their interests upon consummation of the reorganization.

On April 12, 1996 the NFG Litigation was settled. After paying obligations
required to be paid out of the proceeds of the settlement, the Company received
approximately $3.5 million, a sum insufficient to redeem a significant amount
of the Senior Preferred Stock. Redemption of the Senior Preferred Stock would
currently require an aggregate payment of approximately $134,717,000. Neither
the book value of the Company (estimated at June 30, 1996 to be approximately
$9,370,000) nor its revenues, considered singly or together, are sufficient to
redeem a significant amount of the Senior Preferred Stock in accordance with
the terms thereof. Under these circumstances, moreover, neither the Common
Stock of the Company nor the Old Preferred Stock issued before the
reorganization has any current value and cannot, under any reasonably
foreseeable circumstances, be expected to have any value attributed to it in
the future, based on the Company's existing and reasonably foreseeable
operations. In addition, because a substantial recovery from the NFG Litigation
did not occur, the Company must eliminate its obligations with respect to the
Senior Preferred Stock so that it may explore other opportunities for raising
capital to conduct and increase the profitability of its operations. In light
of its consideration of the alternatives and the absence of current or
reasonably foreseeable prospective value in the Company's Common Stock and Old
Preferred Stock after taking into account the rights of the Senior Preferred
Stock, the Board has concluded that the transaction proposed in this Proxy
Statement/Prospectus offers the most reasonable opportunity for the Company to
continue its operations with any prospect of stability or growth. See
"Summary", "Proposal 1--Background and Reasons for the Merger" and "Business
and Properties of the Company."

EFFECTS OF TRANSACTION

Upon consummation of the Merger , GeoStrat as successor to the Company, will
have only common stock outstanding. Although the GeoStrat Articles provide
GeoStrat with the flexibility to issue preferred stock, there is no present
intention to issue such stock and GeoStrat will therefore neither be obligated
to pay the accrued but unpaid dividends of the Senior Preferred Stock or the
Old Preferred Stock nor be subject to any such existing obligation of its own.
The Merger will be recorded as a reorganization of related parties with carry-
over basis of assets and liabilities. The GeoStrat Common Stock will be
recorded at the historical-basis carrying value of the aggregate of the Old
Preferred Stock of the Company, the Common Stock of the Company and the initial
value ascribed to the Senior Preferred Stock of the Company upon issuance of
the shares thereof, as reflected in the accounting records of the Company on
the date of the exchange. Upon cancellation of the Old Preferred Stock and the
Senior Preferred Stock, all previously recorded accrued but unpaid dividends
will be credited to accumulated deficit. No gain or loss will be recognized for
accounting purposes upon consummation of the Merger. The costs of soliciting
proxies and effecting the Merger will be charged to expense as incurred. See
"Proposal 1--The Merger--The Merger Agreement," "--Accounting Treatment" and
"Description of GeoStrat Securities."

Under the Merger Agreement each outstanding share of Senior Preferred Stock
will, upon consummation of the Merger, be automatically converted into and
become a right to receive one-half share of GeoStrat Common Stock. All rights
with respect to accrued but unpaid dividends will cease and dividends will
cease to accrue with

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respect to shares of Senior Preferred Stock. Because there has been no trading
in the Senior Preferred Stock, the Board has estimated a fair value of $1.06
per share of the Senior Preferred Stock before consummation of the Merger and
the GeoStrat Common Stock after the consummation of the Merger by dividing the
book value of the Company by the number of shares of GeoStrat Common Stock that
will be outstanding upon consummation of the Merger. Each share of Old
Preferred Stock and of Common Stock will automatically be cancelled upon
consummation of the Merger, and the holders thereof will not receive any
consideration in respect of such cancellation. If the Merger qualifies as a
tax-free reorganization, as management of the Company believes, the Merger will
generally result in the following federal income tax consequences: (a) no gain
or loss will be recognized by the holders of the Senior Preferred Stock upon
receipt of the GeoStrat Common Stock solely in exchange for the Senior
Preferred Stock in the Merger (except to the extent of cash received as a
result of exercising dissenters' or appraisal rights or in lieu of fractional
shares); (b) the aggregate tax basis of the GeoStrat Common Stock so received
by the holders of the Senior Preferred Stock will be the same as the aggregate
tax basis of the Senior Preferred Stock surrendered in exchange therefor; (c)
the holding period of the GeoStrat Common Stock so received in the Merger will
include the holding period of the Senior Preferred Stock surrendered therefor,
if the Senior Preferred Stock so surrendered is held as a capital asset at the
time of the Merger; (d) a stockholder of the Company who exercises appraisal or
dissenters' rights under any applicable law with respect to shares of stock of
the Company and receives payment for such shares in cash or receives cash in
lieu of fractional shares will recognize gain or loss measured by the
difference between the amount of cash received and the stockholder's basis in
such shares; (e) holders of Common Stock and Old Preferred Stock of the Company
will realize a capital loss upon cancellation of such shares in the Merger
equal to their respective basis, if any, in such shares and (f) neither the
Company nor GeoStrat will recognize gain solely as a result of the Merger. See
"Proposal 1--The Merger--The Merger Agreement," "--Exchange of Certificates"
and "--Certain Federal Income Tax Considerations."

Mr. Jeffrey E. Susskind, a member of the Board, presently holds 1,702,796
shares of Senior Preferred Stock, or 19.4% of the outstanding Senior Preferred
Stock, and upon consummation of the Merger will hold 851,398 shares of GeoStrat
Common Stock, or 19.4% of the outstanding GeoStrat Common Stock, constituting
an interest of approximately 19.4% or $1,815,000 in the net book value of the
Company and 19.4% or $665,000 in the net pro forma income of the Company for
the six month period ended June 30, 1996. Mr. Larry H. Carpenter, chief
executive officer of the Company and a member of the Board, presently holds,
either directly or as a result of forfeitable stock grants, 300,000 shares of
Senior Preferred Stock, or 3.4% of the outstanding Senior Preferred Stock, and
upon consummation of the Merger will hold, either directly or as a result of
forfeitable stock grants, 150,000 shares of GeoStrat Common Stock, constituting
an interest of approximately 3.4% or $320,000 in the net book value of the
Company and 3.4% or $116,000 in the net pro forma income of the Company for the
six month period ended June 30, 1996. See "Proposal 1--The Merger--Interests of
Certain Persons in the Merger."

FAIRNESS OF TRANSACTION

The Board, including Mr. Susskind and Mr. Carpenter, unanimously believes
that the terms of the proposed Merger are fair to the unaffiliated security
holders. However, in view of their holdings of Senior Preferred Stock, there
may be a conflict of interest between the Board and the TGX Common and Old
Preferred Stockholders. Redemption of the Senior Preferred Stock, required
before any value can be ascribed to the Old Preferred Stock or the Common
Stock, would currently require an aggregate payment of approximately
$134,717,000, while the Board estimates the Company's book value at June 30,
1996 to be approximately $9,370,000. In view of the Company's annual revenues
and the continuing accrual of dividends on the Senior Preferred Stock, the
Board believes that it is extremely unlikely that the holders of the Common
Stock and Old Preferred Stock would ever obtain any value for such shares. In
addition to its estimate of the book value of the Company and its value as an
ongoing business, the Board reviewed and considered the opinion and analyses of
American Appraisal Associates, Inc., ("American Appraisal") engaged by the
Board to provide a fairness opinion with respect to the Merger, with respect to
the discounted net cash flow, the net asset value and the liquidation value of
the Company

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in arriving at the Board's belief as to the fairness of the Merger to its
stockholders. Under none of these estimates did it appear reasonably likely to
the Board that the shares of Common Stock or Old Preferred Stock had any value
or that there was a reasonably likelihood that a value in excess of the book
value of the Company could be obtained for the holders of the Senior Preferred
Stock. See "Summary--Recommendation of the Board," "--Opinion of Appraisal and
Valuation Firm," "Proposal 1--The Merger--Background and Reasons for the
Merger," "--Recommendation of Board" and "--Opinion of Appraisal and Valuation
Firm." The transaction is not structured so that approval of at least a
majority of unaffiliated security holders is required, nor has a majority of
directors who are not employees of the Company retained an unaffiliated
representative to act solely on behalf of unaffiliated security holders for the
purposes of negotiating the terms of the transaction or preparing a report
concerning the fairness of the transaction. The transaction has been
unanimously approved by the Board. See "Summary--Recommendation of Board" and
"Proposal 1--The Merger--Recommendation of Board."

OPINION OF APPRAISAL AND VALUATION FIRM

American Appraisal was engaged by TGX pursuant to an engagement letter dated
July 1, 1996 (the "Engagement Letter") to act as its financial adviser in
connection with the Merger. In connection with such engagement, TGX requested
American Appraisal to render an opinion as to the fairness, from a financial
point of view, of the Merger to TGX Stockholders.

American Appraisal is an internationally recognized firm engaged in the
valuation of businesses and securities in connection with mergers and
acquisitions, private placements, and evaluations for estate, corporate and
other purposes. TGX's Board of Directors selected American Appraisal as its
financial adviser because of their expertise, reputation and familiarity with
the oil and gas industry.

Pursuant to the terms of the Engagement Letter, American Appraisal was paid a
$10,000 retainer and, upon consummation of the Merger, will be entitled to an
additional fee from TGX of $20,000 plus out-of-pocket and other expenses. TGX
has also agreed to indemnify American Appraisal against certain liabilities,
including liabilities under the federal securities laws, and, if the Merger is
not consummated, to reimburse American Appraisal for reasonable expenses
incurred by them, including reasonable fees and disbursements of their counsel.

On August 22, 1996, in connection with the valuation of the Merger by TGX's
Board, American Appraisal rendered its oral opinion, subsequently confirmed in
writing, that, as of the date of such opinion, and subject to certain
assumptions, factors and limitations set forth in such written opinion, the
consideration to be received by the Stockholders of TGX was fair, from a
financial point of view.

American Appraisal's opinion addresses only the fairness of the terms of the
Merger, from a financial point of view, to the Stockholders of TGX and does not
constitute a recommendation to any TGX stockholder as to how to vote with
respect to the Merger.

In the course of rendering its opinion, American Appraisal, among other
things: (i) reviewed and analyzed historical operating and financial
information of TGX; (ii) reviewed and analyzed the historical trading volume
and public market prices of the Common Stock, and a private sale of the Senior
Preferred Stock; (iii) reviewed market capitalizations, price to earnings
ratios and other valuation measurements of publicly held companies, whose lines
of business were comparable to those of TGX; (iv) held discussions with TGX
senior management and (v) performed other financial studies, analyses and
investigations and other factors as were deemed necessary and appropriate for
purposes of the opinion expressed herein.

As part of its study, American Appraisal valued the TGX Preferred Stock and
Common Stock as of July 31, 1996. This valuation study was comprised of (i) a
present value analysis of the future net operating cash flow potential of the
Company's current oil and gas reserves, (ii) a study of the market prices of
publicly held

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companies and transaction prices of acquired companies, whose lines of business
are comparable to that of TGX and (iii) an analysis of the public market price
for TGX's publicly traded Common Stock and the terms of a private sale of
Senior Preferred Stock.

Discounted Net Cash Flow Analysis

Based on Company management-prepared projections for fiscal years 1996 and
1997 and a discount rate of 15.75%, American Appraisal estimated that the
present value of the Company's future net operating cash flow ranged from $10
million to $11 million.

Net Asset Value Analysis

The Company's balance sheet was restated to reflect current market value of
its assets and liabilities, such estimates provided by American Appraisal and
management (the latter provided an estimate of value for the Comite Field Plant
Venture and Gathering Systems). Based on this analysis, the net asset value of
the Company's Senior Preferred Stock ranged from $10 million to $11 million and
the Common Stock and the Old Preferred had no value.

Liquidation Value Analysis

American Appraisal restated TGX's balance sheet to reflect liquidation value
of assets and liabilities. Discounts were applied to the market values to
account for the negative impact on value of assets and liabilities attributed
to conditions surrounding the cessation of the Company's business operations
and subsequent liquidation of its assets and payment of liabilities. The
results of this analysis indicated that the liquidation value of the Senior
Preferred Stock ranged from $7 million to $8 million and the Common Stock had
no value.

Comparable Company and Acquisition Study

Public Market Price of Common and Preferred Stock

In the opinion of American Appraisal, the absence of meaningful stock price
quotations and trading activity of the Common Stock to a large extent reflected
(i) TGX's continued operating losses, (ii) the low probability of any growth in
earnings over the long term under the Company's current capital structure and
(iii) the extreme improbability of TGX's ability to redeem the Senior Preferred
Stock for any value greater than the estimated current net asset value of the
Company's total stockholders' equity (such value representing approximately 7%
to 8% of the current face value of the Preferred Stock).

American Appraisal's financial and valuation analysis resulted in the
following conclusions that affected the fairness of the Merger to the holders
of the Preferred Stock and the market value of the Common Stock.

(i) Removal of the Senior Preferred Stock redemption liability will
ensure the Company's ability to continue to operate as a going concern over
the long term and enhance its near and long term growth potential;

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(ii) The redemption value of the Senior Preferred Stock is no greater
than the net asset value of the Company, an amount that is currently
substantially below the amount of the redemption liability and is not
expected to materially change over the long term;

(iii) The senior preference position of the Senior Preferred Stock will,
to a large extent, be matched by the GeoStat Common Stock after the Merger;

(iv) The Old Preferred Stock and the TGX Common Stock each has no current
market value because of the senior position of the redemption liability of
the Senior Preferred Stock and is not expected to have any market value
over the long term;

(v) The GeoStat Common Stock will provide greater liquidity to the
holders of the Senior Preferred Stock.

The opinion of American Appraisal has been provided to the security holders
of the Company as Appendix "D" hereto. In addition, such opinion will be made
available during the regular business hours of the Company for inspection and
copying at 222 Pennbright, Suite 200, Houston, Texas 77090, the principal
executive offices of the Company, by any interested security holder or
representative of such security holder designated in writing. See "The Merger--
Opinion of Appraisal and Valuation Firm."

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SUMMARY

The following is a brief summary of certain information contained in this
Proxy Statement/ Prospectus and the Appendices hereto. This summary is
necessarily incomplete and is qualified in its entirety by reference to the
more detailed information and financial statements, including the notes
thereto, contained in this Proxy Statement/Prospectus and the Appendices
hereto. Stockholders are urged to read carefully all of such material. When
referring to matters expected to occur after the Merger is effected, the
"Company" refers to GeoStrat. Unless otherwise defined herein, capitalized
terms used in this Proxy Statement/Prospectus have the meanings ascribed to
them in this summary.

DATE, TIME AND PLACE OF MEETINGS

A special meeting of the stockholders of TGX, a Delaware corporation, will be
held on Monday, October , 1996 at 10:00 a.m. local time at the Four Seasons
Hotel, 1300 Lamar Street, Houston, Texas (the "Meeting"). See "The Meeting."

A special meeting (the "GeoStrat Special Meeting") of the stockholders of
GeoStrat, a Delaware corporation, will be held as soon, if ever, as the Merger,
described below, is effected at the same place as the Meeting.

RECORD DATE

Holders of record of the common stock, par value $.01 per share (the "Common
Stock"), the Series A Preferred Stock, par value $1.00 per share (the "Senior
Preferred Stock"), and the Cumulative Convertible Preferred Stock, par value
$1.00 per share (the "Old Preferred Stock" and together with the Senior
Preferred Stock, the "Preferred Stock") of TGX, on September 2, 1996 (the
"Record Date") are entitled to notice of and to vote at the Meeting. See "The
Meeting."

If the Merger is effected, holders of Senior Preferred Stock will become
holders of GeoStrat Common Stock, $.01 par value (the "New Common Stock" or the
"GeoStrat Common Stock"). Only holders of Senior Preferred Stock on the Record
Date who receive New Common Stock will be entitled to vote at the GeoStrat
Special Meeting.

MATTERS TO BE CONSIDERED AT MEETING

Merger. Holders of the Common Stock and the Preferred Stock will be asked at
the Meeting to adopt the Agreement of Merger (the "Merger Agreement") between
the Company and GeoStrat, a wholly-owned subsidiary of the Company, pursuant to
which TGX will merge (the "Merger") with and into GeoStrat, and GeoStrat will
continue the business of TGX under the name "GeoStrat Resources, Inc." See "The
Merger."

Election of Directors. At the Meeting, holders of the Common Stock and the
Preferred Stock will be asked to elect Larry H. Carpenter, David H. Scheiber
and Jeffrey E. Susskind (the "Nominees") to the board of directors of the
Company. See "Proposals 2 and (a)--Election of Directors."

At the GeoStrat Special Meeting, the holders of New Common Stock will be
asked to elect the Nominees to be the board of directors of GeoStrat. See
"Proposals 2 and (a)--Election of Directors."

Unless the context otherwise requires, as used herein, the term "the Board"
or "the Board of Directors" means the TGX Board until the Merger is effected,
and the GeoStrat Board thereafter.

Flexible Incentive Plan. At the GeoStrat Special Meeting, holders of New
Common Stock will also be asked to approve the GeoStrat 1996 Flexible Incentive
Plan (the "Flexible Incentive Plan") adopted by the

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Board, to be effective upon consummation of the Merger if the Merger Agreement
is adopted. The purpose of the Flexible Incentive Plan is to enable GeoStrat to
attract, motivate and retain highly qualified officers, employees, directors
and consultants by permitting GeoStrat to make awards recognizing the creation
of long-term value for the stockholders of GeoStrat. To accomplish this
purpose, the Flexible Incentive Plan provides that eligible persons may be
granted stock options, stock appreciation rights, restricted stock, performance
awards, performance stock, dividend equivalent rights or any combination
thereof. The aggregate number of shares of GeoStrat Common Stock that may be
issued (or with respect to which awards may be granted) under the Flexible
Incentive Plan may not exceed 450,000 shares. See "Proposal (b)--GeoStrat 1996
Flexible Incentive Plan."

RISK FACTORS

When evaluating the Merger Agreement, stockholders should be aware of certain
risk factors relating thereto. Such risk factors include those associated with
the existing operations and assets of TGX, which following the consummation of
the Merger will be continued by GeoStrat, and the lack of assurances as to a
market for the New Common Stock, or the market price of the New Common Stock.
See "Risk Factors."

VOTE REQUIRED

Pursuant to the Company's Certificate of Incorporation, holders of the Senior
Preferred Stock are entitled in the aggregate to vote 95% of the combined votes
of all TGX Stockholders. Therefore, such Senior Preferred Stockholders are
entitled to cast 54.971 votes per share, and holders of the Old Preferred Stock
and Common Stock are entitled to cast one vote per share with respect to
adoption of the Merger Agreement and the election of the TGX directors. The
Merger Agreement will be adopted by the stockholders if a majority of the votes
of holders of the outstanding Common Stock and Preferred Stock voting together
as one class are voted for such adoption. With respect to the five directors of
TGX to be elected by the holders of the Common Stock and the Preferred Stock
and the five directors of GeoStrat to be elected by holders of New Common Stock
(the previous holders of Senior Preferred Stock of TGX) if the Merger is
effected, the nominees who receive a plurality of the votes cast by such
holders will be elected.

Approval of the Flexible Incentive Plan (the "Plan") requires the affirmative
vote of a majority of the votes cast by the holders of shares of New Common
Stock (the previous holders of Senior Preferred Stock) voting in person or by
proxy and entitled to be voted thereon at the GeoStrat Special Meeting.
However, the Plan will not be implemented if the Merger is not approved.
Therefore, a vote against the Merger may be, in effect, a vote against the
Plan.

Broker nonvotes and abstentions will have the same effect as a vote AGAINST
adoption of the Merger Agreement. Because the election of directors and
approval of the Plan require a plurality and a majority, respectively, of the
votes cast by stockholders present in person or by proxy, broker nonvotes will
not affect the outcome of the election of directors or the approval of the
Plan. Abstentions, while not affecting the election of directors which requires
only a plurality of the votes cast by stockholders present in person or by
proxy, will have the same effect as a vote against approval of the Plan, which
require a majority of the votes cast by stockholders present in person or by
proxy. See "The Meeting -Quorum; Vote Required."

As of the Record Date, the directors and executive officers of TGX and their
affiliates, as a group, had the power to vote approximately 2,042,796 shares of
the Senior Preferred Stock, representing 112,295,073 votes, which is
approximately 22.1% of the votes that may be cast by the holders of all of the
outstanding securities of TGX as of the Record Date and 23.2% of the GeoStrat
votes that may be cast by the holders of GeoStrat Common Stock resulting from
the Merger as of the Record Date.

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RECOMMENDATION OF BOARD

The Board has determined that the terms of the proposed Merger are fair to
the common shareholders of TGX since, as described below, in the opinion of
American Appraisal, the independent appraisal and valuation firm which was
retained by the Board to review the fairness of the transaction to the TGX
Stockholders, such transaction is fair, from financial point of view to all of
the TGX Stockholders. In addition, in view of the Board's reasonable estimate
of the value of the Company, and the large preference amount which must be paid
to the Senior Preferred stockholders, together with the large preferred
dividends which are accruing each year, the Board believes that it is extremely
unlikely that the TGX Common stockholders will ever obtain any value for such
common shares. The Board believes that there is no alternative course of
action, including bankruptcy, reorganization, etc., which would render greater
value than zero to the TGX Common Stockholders or holders of the Old Preferred
Stock.

THE BOARD, THEREFORE, RECOMMENDS THAT THE HOLDERS OF THE PREFERRED STOCK AND
THE COMMON STOCK VOTE "FOR" THE NOMINEES TO THE BOARD. THE BOARD HAS
UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE FLEXIBLE INCENTIVE PLAN AND
UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" ADOPTION OF THE MERGER
AGREEMENT AND APPROVAL OF THE FLEXIBLE INCENTIVE PLAN. See "Proposal 1--The
Merger -- Recommendation of Board"; "Proposal (b)--GeoStrat 1996 Flexible
Incentive Plan". Messrs. Carpenter, Susskind and Scheiber, members of the
Board, together hold 22.9% of the outstanding shares of Senior Preferred Stock
and have indicated their intention to vote FOR each of the matters being
brought before the Meeting and the GeoStrat Special Meeting.

CONFLICT OF INTEREST

Because of the proposed elimination of the Old Preferred Stock, other than
Senior Preferred Stock, and the TGX Common Stock, which could, under certain
circumstances, provide an additional benefit to the current holders of TGX
Senior Preferred Stock, the Board of Directors, which owns, in the aggregate,
2,012,796 shares of TGX Senior Preferred Stock could be deemed to have a
conflict of interest in recommending the Merger.

MARKET FOR TGX STOCK

The TGX Senior Preferred Stock and Old Preferred Stock has not traded
publicly since their issuance, and the TGX Common Stock trades sporadically and
infrequently. The most recent reported trade of TGX Common Stock was at a price
of $.0002 per share. The Senior Preferred Stock has recently begun trading on
the Nasdaq Bulletin Board. See "Market Price Information."

THE COMPANIES

TGX. TGX is a domestic independent energy company engaged in oil and gas
exploration and production and also in intrastate natural gas gathering and
treating. At June 30, 1996 TGX had approximately 14 employees. The executive
offices of TGX are located at 222 Pennbright, Suite 200, Houston, Texas 77090
and its telephone number is (713) 872-0500. See "Business and Properties of the
Company."

GeoStrat. GeoStrat has been incorporated as a Delaware corporation and
wholly-owned subsidiary of TGX to accomplish the Merger. Following consummation
of the Merger, GeoStrat will conduct the operations of TGX as the surviving
corporation. GeoStrat's executive offices are located at 222 Pennbright, Suite
200, Houston, Texas 77090 and its telephone number is (713) 872-0500. GeoStrat
was organized solely for the purpose of this Merger, and prior to the
consummation of the Merger had no independent operations. If the Merger is
successfully consummated, GeoStrat will be engaged in the operations currently
engaged in by TGX.

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REASONS FOR MERGER

The Board believes that the proposed Merger will help to position the Company
(1) to meet the economic and industry demands presently being placed on TGX as
a result of the need to have significantly greater capital than TGX presently
has access to in order to drill exploratory and development wells, to acquire
leasehold interests, and to operate producing wells and oil and gas fields; (2)
to create the flexibility and liquidity required for the future stability and
growth of TGX by permitting GeoStrat to seek additional equity financing
through the possible sale of common shares without the hindrance of a
significant and substantial preferred stock preference and dividend having
priority to the common shares. GeoStrat can, of course, make no prediction or
assurances whether or not it, in fact, will be able to sell such additional
shares of common stock or, whether or not, if a sale is made, such sale will
significantly enhance GeoStrat's stability and growth; (3) to advance the
strategic objectives of TGX by allowing GeoStrat to raise additional capital
and, therefore, to increase its acquisition of leasehold interests and its
participation in drilling exploratory and development wells; and (4) to enhance
TGX Senior Preferred Stockholders' value, the only TGX Stockholders who will
have a continuing interest in GeoStat, by providing a more readily available
public market as well as by providing the opportunity to seek additional
capital and, thereby, to potentially grow GeoStrat's ability to conduct further
oil and gas exploration and development. See "Proposal 1--The Merger--
Background and Reasons for The Merger."

OPINION OF APPRAISAL AND VALUATION FIRM

American Appraisal is acting as a financial adviser to TGX in connection with
the Merger and has rendered an opinion to TGX's Board of Directors that the
consideration to be received by the TGX stockholders is fair, from a financial
point of view. American Appraisal has received a retainer fee and, upon
completion of the Merger, American Appraisal will receive certain fees for its
role as financial adviser to TGX in this transaction. The full text of the
opinion of American Appraisal is set forth as Appendix "D" to this Proxy
Statement/Prospectus. See "The Merger--Opinion of Appraisal and Valuation
Firm."

LIMITATIONS ON OPINION OF APPRAISAL AND VALUATION FIRM

In reviewing the opinion of American Appraisal, the Company's stockholders
should be alerted to the fact that American Appraisal, in rendering its
opinion, reviewed certain financial information concerning the Company and
certain internal financial and other information with respect to the business,
operations, and prospects of the Company. In addition, American Appraisal: (a)
reviewed the reported price and trading activities for the Company's common
stock and senior preferred stock; (b) compared certain financial and stock
market information for the Company with similar information for certain
selected companies whose securities are publicly traded; (c) reviewed the terms
of the Merger Agreement and the financial terms of the transaction; and (d)
performed such other studies and analyses, and considered such other factors,
as they deemed appropriate for the purposes of rendering its opinion. For
further information see "The Merger--Opinion of Appraisal and Valuation Firm."
American Appraisal confirmed its opinion within five days of the mailing of
this Proxy Statement/Prospectus. American Appraisal will further confirm its
opinion within five days of the Meeting.

APPRAISAL RIGHTS

Under the Delaware General Corporation Law, a holder of shares of the
Preferred Stock will have the right to demand appraisal of the fair value of
such shares by the Delaware Court of Chancery and payment therefor in
accordance with such determination. Each holder electing to demand appraisal
rights must deliver or cause to be delivered a written demand for appraisal of
such holder's shares before the taking of the vote on the Merger and must
comply with the other requirements of Section 262 of the Delaware General
Corporation Law, the full text of which is attached to this Proxy
Statement/Prospectus as Appendix "E". A holder's vote for adoption of the
Merger Agreement or delivery of a proxy in connection with the Meeting (unless
the proxy specifies a vote against or expressly abstains from the vote on
adoption of the Merger Agreement) will constitute a withdrawal of such holder's
demand for appraisal. A deviation from the detailed requirements of Section 262
may result in a forfeiture of appraisal rights.

16
<PAGE>

Holders of Common Stock do not have the right to demand appraisal rights as
Delaware law does not provide for such rights when shares are held of record by
more than 2,000 stockholders. On June 30, 1996, the Common Stock was held by
approximately 4,000 stockholders of record.

See "Proposal 1--The Merger--Appraisal Rights".

TAX CONSIDERATIONS

The Merger is expected to be a tax-free reorganization for Federal income tax
purposes, so that no gain or loss will be recognized by holders of TGX Senior
Preferred Stock on the exchange of such stock for GeoStrat Common Stock, except
to the extent that such shareholders receive cash upon exercise of appraisal or
dissenters' rights or for fractional shares. The Merger Agreement does not
require the parties to obtain a ruling from the Internal Revenue Service as to
the tax consequences of the Merger. Shareholders of TGX are urged to consult
their own tax advisors regarding the tax consequences of the Merger. Holders of
all other classes of TGX Preferred Stock and TGX Common Stock will realize a
capital loss upon cancellation of their shares in the Merger, equal to their
respective bases, if any, in such shares. See "The Merger--Certain Federal
Income Tax Considerations".

SURRENDER OF CERTIFICATES

American Stock Transfer & Trust Company will act as Exchange Agent for the
exchange of GeoStrat stock certificates for TGX stock certificates. Upon the
effectiveness of the Merger, TGX Senior Preferred Stockholders will receive
instructions for exchanging certificates.

PRO-FORMA INFORMATION

The following table provides information concerning the book value and income
(loss) per share of TGX Corporation and the pro-forma combined book value and
income (loss) per share after giving effect to the Merger.

<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, 1996 1995
---------------- ----------------
PRO PRO
HISTORICAL FORMA HISTORICAL FORMA
---------- ----- ---------- -----
<S> <C> <C> <C> <C>
Book value per share................... $(2.47) $2.13(1) $(2.24) $1.36(1)
Cash dividends per share............... -- -- -- --
Income (loss) per share from continuing
operations............................ (0.24) 0.78(1) (.68) 0.04(1)
</TABLE>
- --------
(1) Applies to GeoStrat Resources, Inc.

17
<PAGE>

SUMMARY FINANCIAL DATA

(THOUSANDS, EXCEPT PER SHARE DATA)

TGX CORPORATION

GEOSTRAT RESOURCES, INC.

PRO-FORMA(3)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED YEAR ENDED
JUNE 30, 1996 DECEMBER 31, 1995 DECEMBER 31, 1994
------------- ----------------- -----------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues................... $ 6,446 $ 4,597 $ 6,498
Gross profit............... 1,244 1,706 2,030
Net income (loss) before
extraordinary gain........ 3,431 195 (1,000)
Per share of common stock
amounts................... 0.78 0.04 (0.23)
Average common shares
outstanding............... 4,415 4,368 4,365
Capital expenditures....... 420 1,128 27
BALANCE SHEET DATA:
Working capital (deficit).. $ 1,260 $(1,771) $(1,482)
Property and equipment,
net....................... 7,364 7,411 7,257
Total assets............... 11,772 9,791 10,676
Long-term debt............. -- 500 1,150
Stockholders' equity....... 9,370 5,938 5,598
COMMON STOCK:
Shares outstanding at end
of period................. 4,394 4,426 4,365
</TABLE>
- --------
(1) Six months ended June 30, 1996 revenues includes $3.5 million of net
litigation settlement proceeds. (See Note 14). Effective December 1, 1993
TGX sold substantially all of its New York and Ohio properties to Belden &
Blake Corporation for $16.2 million and recorded in 1993 a provision for
loss on sale of assets of $12,415,000.
(2) See Notes 1, 3 and 14 of TGX's Notes to Consolidated Financial Statements.
(3) Gives pro forma effect to the Merger for the years ended December 31, 1995
and 1994 and for the six months ended June 30, 1996 assuming the Merger had
been consummated at the beginning of each of such periods. See "Unaudited
Pro Forma Summary Condensed Combined Financial Information."

18
<PAGE>

RISK FACTORS

Stockholders should carefully examine the entire Proxy Statement/Prospectus
and should give particular attention to the following risk factors.

VOLATILITY OF OIL, GAS AND NATURAL GAS LIQUID PRICES

The Company's revenues, profitability, cash flow, future growth and the
carrying value of its oil and gas properties are affected by changes in oil,
gas and natural gas liquid ("NGL") prices. The Company's ability to maintain
or increase its borrowing capacity and to obtain additional capital on
attractive terms is also substantially dependent upon such prices. Prices for
oil, gas and NGLs are subject to large fluctuations in response to relatively
minor changes in supply, market uncertainty and a variety of additional
factors beyond the control of the Company. These factors include weather
conditions in the United States, the condition of the United States economy,
the actions of the Organization of Petroleum Exporting Countries, governmental
regulation, political stability in the Middle East and elsewhere, foreign
supply of oil and gas, the price of foreign imports and the availability of
alternate fuel sources. In recent years, the natural gas industry has
experienced the adverse effects of domestic recessions, increased conservation
measures and mild winter weather. These events have generally led to lower
demand and a corresponding precipitous decrease in natural gas prices.
Although the current NYMEX natural gas contract price for the delivery month
of June 1996 is $2.36/MMBTU as compared to $1.75/MMBTU for the same period in
1995, this increase is primarily the result of an unusually cold winter in
1995-1996 and the corresponding decline in gas storage inventories. There can
be no assurance that current favorable prices will continue. Moreover, the
NYMEX natural gas futures price is only an indicator of price trends and may
not be indicative of prices ultimately realized at the wellhead. As of June
30, 1996, the per barrel posted price for West Texas Intermediate oil
production ("WTI"), the benchmark for domestic oil prices, was $19.50 compared
to $15.75 for the same date in 1995. Though oil prices are currently higher
than the prior year, the price continues to fluctuate significantly. Decreases
in the prices of oil, gas and NGLs have had, and could have in the future, an
adverse effect on the carrying value of the Company's proved reserves,
borrowing capacity, revenues, profitability and cash flow. Volatile oil and
gas prices make it difficult to estimate the value of producing properties for
acquisition and to budget for and project the return on development and
exploitation projects. In addition, unusually volatile prices often cause
disruption in the market for oil and gas producing properties as buyers and
sellers have difficulty agreeing on the value of properties.

ESTIMATES OF OIL AND GAS RESERVES

This Proxy Statement/Prospectus contains estimates of proved oil and gas
reserves and the future net cash flows attributable to those reserves prepared
by independent petroleum and geological engineers. There are numerous
uncertainties inherent in estimating quantities of proved oil and gas reserves
and cash flows attributable to such reserves, including factors beyond the
control of the Company and their engineers. Reserve engineering is a
subjective process of estimating underground accumulations of oil and gas that
cannot be measured in an exact manner. The accuracy of an estimate of
quantities of reserves, or of cash flows attributable to such reserves, is a
function of the available data, assumptions regarding future oil and gas
prices and expenditures for future development and exploitation activities,
and of engineering and geological interpretation and judgment. Additionally,
reserves and future cash flows may be subject to material downward or upward
revisions, based upon production history, development and exploration
activities and prices of oil and gas. Actual future production, revenue,
taxes, development expenditures, operating expenses, quantities of recoverable
reserves and the value of cash flows from such reserves may vary significantly
from the assumptions set forth herein. In addition, different reserve
engineers may make different estimates of reserves and cash flows based on the
same available data.

ACQUISITION AND DEVELOPMENT OF RESERVES

The Company's future success depends upon its ability to find, develop and
acquire additional crude oil and natural gas reserves that are economically
recoverable. Many of the Company's properties are characterized by a

19
<PAGE>

high initial production rate, followed by a steep decline in production. As a
result, the Company must locate and develop or acquire new oil and gas
reserves to replace those being depleted by production. This process is
capital intensive and, for the Company to maintain its asset base of oil and
gas reserves, the Company must reinvest a significant amount of cash flow from
operations in property acquisitions and development and exploration
activities. To the extent cash flow from operations is reduced and external
sources of capital become limited or unavailable, the Company's ability to
make the necessary capital investments to maintain or expand its asset base
would be impaired. Without such investment, the Company's oil and gas reserves
would decline. The Company is also subject to the risks inherent in acquiring
or developing economically recoverable oil and gas reserves, including the
need to invest a significant amount of cash flow in the identification and
acquisition of properties, the drilling and completing of wells and the
conduct of development operations. Except to the extent that the Company
acquires additional recoverable reserves or conducts successful exploration
and development programs, the proved reserves of the Company will decline over
time as they are produced. There can be no assurance that the Company will be
able to increase or replace reserves through acquisitions, exploration and
development at an acceptable cost. The successful acquisition of producing
properties requires an assessment of recoverable reserves, future oil and gas
prices and operating costs, potential environmental and other liabilities and
other factors. Such assessments are necessarily inexact and their accuracy
inherently uncertain. In addition, there can be no assurance that the
Company's exploration and development activities will result in any increases
in reserves. The Company's operations may be curtailed, delayed or cancelled
as a result of lack of adequate capital and other factors, such as title
problems, weather, compliance with governmental regulations or price controls,
mechanical difficulties or shortages or delays in the delivery of equipment.
Moreover, the costs of exploration and development may materially exceed
initial estimates.

FUTURE CAPITAL NEEDS

The Company makes, and will continue to make, substantial capital
expenditures for the acquisition, exploration, development and production of
oil and natural gas reserves and the acquisition and development of gas
processing and gas gathering facilities. The Company may seek out joint
venture partners to spread the risk and costs of such acquisitions and
development, use bank and institutional debt financing to fund a portion of
the costs of the facilities or properties or raise additional capital through
the sale of debt or equity securities. No assurance can be made that joint
venture partners or debt financing will be available to fund the Company's
acquisition or development of additional facilities or properties or that the
Company could obtain debt financing or equity capital on terms that the
Company would consider reasonable or, in the case of a sale of equity
securities, on terms that would not be dilutive to existing stockholders. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

OPERATING HAZARDS AND UNINSURED RISKS

The Company's operations are subject to the risks inherent in the oil and
gas industry, such as blowouts, cratering, explosions, uncontrollable flows of
crude oil, natural gas or well fluids, product spills, leaks, fires, pollution
and other environmental risks. These risks could result in substantial losses
to the Company due to injury and loss of life, severe damage to and
destruction of property and equipment, pollution and other environmental
damage and suspension of operations. The Company is not fully insured against
all risks incident to its business, and the occurrence of a significant event
not fully insured or indemnified against could materially and adversely affect
the Company's financial condition and results of operations.

COMPETITION AND MARKETING

The oil and natural gas industry is highly competitive both in the search
for and acquisition of oil and natural gas reserves and in the refining,
processing and marketing of petroleum products. Competitors include the major
and independent crude oil and natural gas companies, individual producers and
operators and major pipeline companies. Other sources of energy, such as coal
and nuclear power, also provide competition, and crude oil and natural gas are
subject to substantial competition from foreign sources. The availability of a
ready market,

20
<PAGE>

as well as the price received for natural gas produced and sold by the
Company, depends upon numerous factors beyond its control, including the
proximity of producing natural gas properties to pipelines, the capacity of
such pipelines, fluctuations in seasonal or overall demand, domestic
deliverability, government regulations, and competition from alternative forms
of energy. A trend has emerged recently among major natural gas marketing
companies toward consolidations and mergers, both among themselves and in the
form of strategic alliances with large producers or end-users. These
consolidations have tended to place control of both the supply and the market
in hands of a few industry participants. While specific ramifications of this
trend are difficult to predict, it will likely have an impact on the way
natural gas is bought and sold in the future and this impact could be
potentially more significant to the smaller independent producers such as the
Company.

ENVIRONMENTAL AND OTHER REGULATION

The Company's operations are subject to numerous laws and regulations
governing the discharge of materials into the environment or otherwise
relating to environmental protection. These laws and regulations require the
acquisition of a permit before drilling commences, restrict the types,
quantities and concentration of various substances that can be released into
the environment in connection with drilling and production activities, limit
or prohibit drilling activities on certain lands lying within wilderness,
wetlands and other protected areas, and impose substantial liabilities for
pollution resulting from the Company's operations. Moreover, the recent trend
toward stricter standards in environmental legislation and regulation is
likely to continue. For instance, legislation has been proposed in Congress
from time to time that would reclassify certain crude oil and natural gas
exploration and production wastes as "hazardous wastes" which would make the
reclassified wastes subject to much more stringent handling, disposal and
clean-up requirements. If such legislation were to be enacted, it could have a
significant impact on the operating costs of the Company, and on the oil and
gas industry in general. Initiatives to further regulate the disposal of crude
oil and natural gas wastes are also pending in certain states, and these
various initiatives could have a similar impact on the Company. Management
believes that the Company is in substantial compliance with current applicable
environmental laws and regulations, but the Company's operations could
nevertheless result in liability for personal injuries, property damage, oil
spills, discharge of hazardous materials, remediation and clean-up costs and
other environmental damages. The Company could also be liable for
environmental damages caused by previous property owners. As a result,
substantial liabilities to third parties or governmental entities may be
incurred, the payment of which could have a material adverse effect on the
Company's financial condition and results of operations. The Company maintains
insurance coverage for its operations, including coverage for sudden
environmental damages, but does not believe that insurance coverage for
environmental damages that occur over time is or will be available at a
reasonable cost. Moreover, the Company does not believe that insurance
coverage against the full potential liability that could be caused by sudden
environmental damages is available at a reasonable cost. Accordingly, the
Company may be subject to liability against which it cannot fully insure, but
which could have a material adverse effect on the Company. Oil and gas
operations are subject to extensive governmental regulation, which may be
changed from time to time in response to economic or political conditions. The
Oil Pollution Act of 1990 imposes a variety of regulations on "responsible
parties" related to the prevention of oil spills. The implementation of new or
the modification of existing environmental laws or regulations, including
regulations promulgated pursuant to the Oil Pollution Act of 1990, could have
a material adverse impact on the Company. See "Business and Properties of the
Company--Regulation."

FORWARD-LOOKING STATEMENTS

Stockholders are cautioned that all forward-looking statements involve risks
and uncertainties, including without limitation, statements about the costs of
exploring and developing new oil and natural gas reserves, the price for which
such reserves can be sold, the Company's attempts to reduce overhead and
eliminate non-core assets, environmental concerns affecting the drilling of
oil and natural gas wells, the effect of the Merger if consummated and general
market conditions, competition and pricing. Although the Company believes that
the assumptions underlying the forward-looking statements contained herein are
reasonable, any of the assumptions could be inaccurate, and there can
therefore be no assurance that the forward-looking statements included in this

21
<PAGE>

Proxy Statement/Prospectus will prove accurate. Because of the significant
uncertainties inherent in the forward-looking statements contained in this
Proxy Statement/Prospectus, the inclusion of such information should not be
regarded as a representation by the Company or any other person that the
objectives and plans of the Company will be achieved.

PRINCIPAL STOCKHOLDERS

Messrs. Carpenter, Susskind and Scheiber, together with The AIF-Lion Group,
own directly and indirectly in the aggregate 43.5% of the Senior Preferred
Stock and upon consummation of the Merger will own 43.5% of the New Common
Stock. Accordingly, upon consummation of the Merger, these principal
stockholders will be able to exercise substantial influence over the election
of the directors of GeoStrat and the management, operations and affairs of
GeoStrat, including the ability to exercise substantial influence to prevent
or cause a change in control of GeoStrat. These principal stockholders do not,
however, constitute a "group" under Rule 13d of the Exchange Act and have not
acted, nor have they indicated any intent to act, together in the voting of
such shares. Messrs. Carpenter, Susskind and Scheiber have indicated they
intend to vote FOR the Merger. See "Certain Stock Owned by Principal
Stockholders and Management."

FINANCIAL REORGANIZATION

The Company has undergone a financial reorganization under Chapter 11 of
Title 11 of the United States Bankruptcy Code and, although the Company
believes that consummation of the Merger will have a significantly beneficial
impact upon the finances of the Company, there can be no assurance that the
Company will not be compelled to reorganize under the protection of the United
States Bankruptcy Code in the future.

ABSENCE OF PUBLIC MARKET

The TGX Senior Preferred Stock is not listed on any exchange or Nasdaq and
has traded only infrequently and, in recent years, the TGX Common Stock has
traded sporadically. GeoStrat has been incorporated to accomplish the Merger,
and there has therefore been no established public market for the New Common
Stock, GeoStrat has made application to list its Common Stock on the Nasdaq-
Small Cap System, but such application has not been acted upon and there is no
assurance when, if ever, such application will be acted upon favorably.
Therefore, there can be no assurance that an active trading market for the New
Common Stock will develop or be sustained. Accordingly, it is not unlikely
that an investment in the New Common Stock will be illiquid. To the extent an
active trading market develops, the market price of the New Common Stock could
be subject to significant fluctuations in response to variations in quarterly
and yearly operating results, the success of GeoStrat's business strategy,
general trends in the oil and gas industry, competition, changes in federal
regulations affecting GeoStrat or the oil and gas industry and other factors.
In addition, the stock market in recent years has experienced extreme price
and volume fluctuations that have often been unrelated or disproportionate to
the operating performance of affected companies. These broad fluctuations may
adversely affect the market price, if any, of the New Common Stock.

NO ANTICIPATED DIVIDENDS

The Company, and, upon consummation of the Merger, GeoStrat, expects to
retain cash generated from future operations to support its cash needs and
does not anticipate the payment of any dividends on the Common Stock or the
New Common Stock for the foreseeable future. In addition, dividends or
distributions by TGX and GeoStrat may be restricted by currently existing
credit facilities or future bank and institutional debt financing. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." Upon consummation of the Merger, holders of the Senior Preferred
Stock will forfeit all accrued but unpaid dividends and upon conversion of the
Senior Preferred Stock into the New Common Stock such holders will lose all
dividend and liquidation preferences. See "Proposal 1--The Merger--The Merger
Agreement" below.

22
<PAGE>

PREFERRED STOCK

The Board has, and the board of directors of GeoStrat will have, the
authority to issue shares of preferred stock in one or more series and to fix
the rights and preferences of the shares of any such series without
shareholder approval. Any series of preferred stock is likely to be senior to
the Common Stock with respect to dividends, liquidation rights and possibly
voting rights. Neither the Company nor GeoStrat have any present plans to
issue any preferred stock. See "Description of GeoStrat Securities."

23
<PAGE>

THE MEETINGS

SOLICITATION, VOTING AND REVOCABILITY OF PROXIES; DATE AND PLACE OF MEETINGS

This Proxy Statement/Prospectus is being furnished to the holders of the
Common Stock and Preferred Stock in connection with the solicitation of
proxies by and on behalf of the boards of directors of TGX and GeoStrat for
use at a special meeting of TGX stockholders to be held at the Four Seasons
Hotel, 1300 Lamar Street, Houston, Texas on October , 1996, 10:00 a.m. local
time and the GeoStrat Special Meeting to be held immediately following the
effectiveness, if ever, of the Merger. In addition to solicitation by mail,
proxies may be solicited by directors, officers and employees of TGX in person
or by telephone, telegram or other means of communication. Such directors,
officers and employees will not receive any compensation in addition to their
regular salary, but may be reimbursed for reasonable out-of-pocket expenses in
connection with the solicitation. Arrangements will also be made with
custodians, nominees and fiduciaries, all of whom will be reimbursed for
reasonable expenses incurred in connection therewith.

All shares of Common Stock and Preferred Stock that are represented at the
Meeting by duly executed proxies will be voted in accordance with the
instructions indicated thereon. If the Merger is effected, proxies executed by
GeoStrat Common Stockholders (currently holders of TGX Senior Preferred Stock)
will be voted in accordance with the instructions indicated thereon. If a duly
executed TGX proxy is submitted and no voting instructions are indicated
thereon, such proxy will be voted "FOR" adoption of the Merger Agreement, and
"FOR" the election of the Nominees as directors of TGX. A duly executed
GeoStrat proxy which is submitted with no voting instructions will be voted
"FOR" the election of the Nominees as directors of GeoStrat. "FOR" approval of
the GeoStrat Flexible Incentive Plan.

The Board knows of no other matter to be presented at the Meeting, but if
any other matter is properly presented for consideration at the Meeting (or
any adjournments or postponements thereof), the persons named in the enclosed
form of proxy will have discretion to vote on such matters in accordance with
their best judgment.

A holder of Common Stock or Preferred Stock may revoke a previously
submitted proxy at any time before its exercise at the applicable Meeting or
GeoStrat Special Meeting by (i) filing with the corporate secretary at or
before the Meeting or the GeoStrat Special Meeting a written revocation
bearing a later date or a duly executed later-dated proxy relating to the same
shares or (ii) attending the Meeting or GeoStrat Special Meeting and voting in
person. Attendance at the Meeting or GeoStrat Special Meeting will not in and
of itself constitute a revocation of a proxy. Any written revocation or later-
dated proxy should be delivered at the Meeting or GeoStrat Special Meeting to
the corporate secretary of TGX or before the Meeting or GeoStrat Special
Meeting to TGX at 222 Pennbright, Suite 200, Houston, Texas 77090, Attention:
Corporate Secretary.

SENIOR PREFERRED STOCKHOLDERS ARE REQUESTED TO MARK, DATE AND SIGN BOTH THE
TGX PROXY AND THE GEOSTRAT PROXY.

Stockholders are requested to mark, date and sign the enclosed proxies and
return it promptly to TGX in the enclosed stamped, pre-addressed envelope.
Stockholders may vote in person at the Meeting or GeoStrat Special Meeting or
GeoStrat Special Meeting even if they have previously mailed a proxy.
STOCKHOLDERS SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR PROXY CARDS.

PURPOSES OF MEETING

At the Meeting, the stockholders of TGX will consider and vote upon
proposals to adopt the Merger Agreement and to elect the TGX directors. At the
GeoStrat Special Meeting, the GeoStrat common stockholders will consider and
vote upon proposals to elect directors and to approve the GeoStrat Flexible
Incentive Plan. At each of the Meeting or the GeoStrat Special Meeting, the
Company or GeoStrat will be authorized to transact such other business as may
properly come before the Meeting or GeoStrat Special Meeting or any
adjournments or postponements thereof.

24
<PAGE>

RECORD DATE; STOCKHOLDERS ENTITLED TO VOTE

The Board has fixed September 2, 1996 as the record date (the "Record Date")
for the determination of the stockholders of TGX and GeoStrat entitled to
notice of and to vote at the Meeting or the GeoStrat Special Meeting. Only
holders of record of Common Stock and Preferred Stock will be entitled to
notice of and to vote at the Meeting. The holders of the Senior Preferred
Stock are entitled to vote with the holders of the Old Preferred Stock and
Common Stock as a single class on any matter with respect to which such
holders are entitled to vote at the Meeting.

In accordance with the Amended Plan of Reorganization of TGX (see "Business
and Properties of the Company--Reorganization Proceeding") and the Amended and
Restated Certificate of Incorporation of TGX (the "TGX Certificate"), each
share of Old Preferred Stock and Common Stock is entitled to cast one vote per
share, exercisable in person or by properly executed proxy, with such votes in
the aggregate to constitute five percent of the total number of votes that may
be cast with respect to any matter on which the Common Stock, the Old
Preferred Stock and the Senior Preferred Stock are entitled to vote; the
holders of the Senior Preferred Stock are entitled to cast the remaining
ninety-five percent of the votes that may be cast at the Meeting. As of the
Record Date, there were 24,955,807 shares of Common Stock and 471,500 shares
of Old Preferred Stock outstanding and entitled to notice of and to vote at
the Meeting, and the holders thereof are entitled to cast a total of
25,427,307 votes, in person or by proxy, at the Meeting.

The number of votes to which each share of the Senior Preferred Stock is
entitled to cast at the Meeting is calculated on the basis that the holders of
Common Stock and Old Preferred Stock are entitled to cast five percent of the
total vote, and the holders of the Senior Preferred Stock are entitled to cast
ninety-five percent of the total vote. Thus, because each share of Common
Stock and Old Preferred Stock is entitled to one vote, five percent of the
total votes to be cast is equal to the number of shares of Common Stock and
Old Preferred Stock entitled to vote or .05x = 25,427,307, where x = the total
votes to be cast. The total number of votes entitled to be cast by the holders
of the Senior Preferred Stock, Old Preferred Stock and Common Stock therefore
equals 508,546,140. The shares of Senior Preferred Stock are entitled to cast
ninety-five percent of the total votes to be cast or .95 of 508,546,140. Thus,
the shares of the Senior Preferred Stock are entitled to cast 483,118,833
votes with respect to matters to be addressed at the Meeting. As of the Record
Date, there were 8,788,571 shares of Senior Preferred Stock outstanding and
entitled to notice of and vote at the Meeting. Each record holder of a share
of Senior Preferred Stock is therefore entitled to cast 54.971 votes per share
(rounded in accordance with the terms stated in the TGX Certificate), and each
record holder of a share of Old Preferred Stock and Common Stock is entitled
to cast one vote per share, exercisable in person or by properly executed
proxy, with respect to the election of directors, on the proposals to adopt
the Merger Agreement.

If the Merger is approved, holders of TGX Senior Preferred Stock will become
holders of New Common Stock. Only holders of New Common Stock will be entitled
to vote for the members of the GeoStrat board of directors, and to approve the
GeoStrat Flexible Incentive Plan and the GeoStrat Nonemployee Director Plan
and on each other matter properly submitted to a vote of the stockholders at
the GeoStrat Special Meeting.

As of the Record Date, directors and executive officers of TGX and their
affiliates had the power to vote approximately 2,042,796 shares of Senior
Preferred Stock and, therefore, to cast a total of 112,295,073 votes, or
approximately 23.2% of the outstanding shares of Senior Preferred Stock and
22.1% of the total TGX votes eligible to be cast at the Meeting and 23.2% of
the GeoStrat votes eligible to be cast at the GeoStrat Special Meeting.

After the Merger is effective, if ever, holders of GeoStrat Common Stock,
determined as of the Record Date, will be entitled to vote on those matters
coming before the GeoStrat Special Meeting. Assuming effectiveness of the
Merger, as of the Record Date, 4,394,285 shares of GeoStrat Common Stock would
be outstanding and eligible to vote at the GeoStrat Special Meeting.

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QUORUM; VOTE REQUIRED

The presence at the Meeting, in person or by properly executed proxy, of
holders of record of one-third of the shares of the Preferred Stock and Common
Stock outstanding as of the Record Date will constitute a quorum for the
transaction of business at the Meeting. The presence at the GeoStrat Special
Meeting, in person or by properly executed proxy, of holders of record of a
majority of the shares of GeoStrat Common Stock outstanding as of the Record
Date will constitute a quorum for the transaction of business at the GeoStrat
Special Meeting.

Abstentions and broker non-votes are each included in the determination of
the number of shares present and voting for purposes of determining the
presence of a quorum. Each is tabulated separately. A proxy submitted by a
stockholder may indicate that all or a portion of the shares represented by
such proxy are not being voted by such stockholder with respect to a
particular matter. This may occur, for example, when a broker is not permitted
to vote stock held in street name on certain matters in the absence of
instructions from the beneficial owner of the stock. The shares subject to any
such proxy that are not being voted with respect to a particular matter (the
"Nonvoted Shares") will be treated as shares not present and entitled to vote
on such matter, although such shares may be considered present and entitled to
vote for other purposes and will count for purposes of determining the
presence of a quorum. Shares voted to abstain as to a particular matter will
not be considered Nonvoted Shares. Approval of each matter specified in the
notice of the meeting (other than the proposal to adopt the Merger Agreement)
requires the affirmative vote of a majority, or in the case of election of
directors a plurality, of the votes entitled to be cast by the holders of
shares of Common Stock and Preferred Stock for TGX matters and New Common
Stock for GeoStrat matters present in person or by proxy and entitled to vote
on such matter. Accordingly, Nonvoted Shares with respect to such matters will
not affect the determination of whether such matters are approved or the
outcome of the election of directors. Approval of the proposal to adopt the
Merger Agreement requires the affirmative vote of a majority of the votes
which the holders of the outstanding TGX Common Stock and Preferred Stock are
entitled to cast. Thus, Nonvoted Shares with respect to the proposal to adopt
the Merger Agreement have the legal effect of votes against such proposal.
Because the proposal to adopt the Merger Agreement requires a majority of the
votes which holders of the outstanding stock are entitled to cast and the
proposals to approve the GeoStrat Flexible Incentive Plan require a majority
of all votes cast on each proposal by stockholders present in person or by
proxy, ABSTENTIONS will have the same effect as a vote AGAINST the matter.

The principal Senior Preferred Stockholders of the Company, who together
with the management of the Company (see "Certain Stock Owned by Principal
Stockholders and Management") own in the aggregate 50.5% of the Senior
Preferred Stock as of the Record Date and are entitled to cast 47.9% of the
votes represented by the outstanding securities of TGX as of the Record Date,
have indicated along with management that they intend to vote such shares to
elect Larry H. Carpenter, David H. Scheiber and Jeffrey E. Susskind (the
"Nominees") to the Board and to vote such shares in favor of the adoption of
the Merger Agreement. If the Merger is effected, they have indicated their
intent to vote their New Common Stock for the Nominees to be elected to the
GeoStrat Board and in favor of approval of the GeoStrat Flexible Incentive
Plan.

PROPOSAL 1--THE MERGER

THE MERGER AGREEMENT

The stockholders of TGX are being asked to consider and approve a proposal
to adopt the Merger Agreement attached hereto as Appendix "A" and incorporated
herein by reference. The Merger Agreement provides for the merger of TGX with
and into GeoStrat, with GeoStrat continuing as the surviving corporation.

Under the Merger Agreement, each outstanding share of Senior Preferred Stock
will be automatically converted into and become a right to receive one-half
share of New Common Stock, all rights with respect to accrued but unpaid
dividends will automatically cease and dividends will cease to accrue with
respect to shares of Senior Preferred Stock. Each share of Old Preferred Stock
and Common Stock will automatically be cancelled upon consummation of the
Merger. To the extent holders of the outstanding Old Preferred Stock and
Common

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Stock exercise appraisal rights with respect to their shares pursuant to the
Delaware General Corporation Law, such shares will continue to be subject to
such rights, but will not be deemed to be outstanding.

If the Merger Agreement is adopted by the stockholders and no action
restraining or prohibiting the Merger has been threatened, asserted or
instituted, TGX anticipates that the Merger will become effective following
the filing of a certificate of merger with the Secretary of State of Delaware.
The time of such effectiveness is referred to herein as the "Effective Time."
Such filing will be made as promptly as practicable after the Meeting. No
state or federal regulatory approvals are required in connection with the
consummation of the Merger.

BACKGROUND AND REASONS FOR THE MERGER

TGX was organized in 1980, and TGX and/or its predecessors have been in the
oil and gas business since the early 1970's. In 1974, Paragon Resources, Inc.,
a predecessor of TGX, and Iroquois Gas Corporation, a predecessor of National
Fuel Gas Distribution Corporation, executed a contract (the "NFG Contract")
for the sale and purchase of natural gas. In 1983, a decision of the New York
Public Service Commission, under whose jurisdiction the intrastate purchases
of National Fuel Gas Distribution Corporation ("NFG") fell, disapproved
contracts including pricing terms such as the one contained in the NFG
Contract. A dispute arose between TGX and NFG regarding the validity of the
NFG Contract and the price to be paid pursuant to the NFG contract, and
litigation between NFG and TGX (the "NFG Litigation") was commenced in
November 1984 to determine such validity. See "Business and Properties of the
Company--NFG Litigation."

On February 22, 1990, TGX filed a voluntary petition in the United States
Bankruptcy Court for the Western District of Louisiana (the "Bankruptcy
Court") for reorganization (the "Reorganization Proceeding") pursuant to
Chapter 11 of Title 11 of the United States Bankruptcy Code. During the
Reorganization Proceeding a plan of reorganization was negotiated and on
January 7, 1992, the Amended Plan of Reorganization (the "Reorganization
Plan") was confirmed by the Bankruptcy Court. The Bankruptcy Court's order of
substantial consummation of the Reorganization Plan became final and non-
appealable on October 2, 1992. Pursuant to the Reorganization Plan, the
Company's secured indebtedness was restructured, certain claims were paid in
cash and unsecured creditors received shares of Senior Preferred Stock in
satisfaction of their claims. See "Business and Properties of the Company--
Reorganization Proceeding."

The NFG Litigation continued to develop throughout the Reorganization
Proceeding, and it was considered possible that a resolution of the NFG
Litigation occurring after confirmation and substantial consummation of the
Reorganization Plan might result in a payment to the Company sufficient,
either in and of itself or together with a portion (but not all) of the
Company's assets, to redeem the Senior Preferred Stock to be issued in
satisfaction of unsecured claims pursuant to the Reorganization Plan. If the
resolution of the NFG Litigation were to result in a payment sufficient to
redeem the Senior Preferred Stock, there would remain in the Company some
value for those who, before commencement of the Reorganization Proceeding,
held equity interests in the Company. Thus, the Reorganization Plan provided
that the holders of the Old Preferred Stock and the Common Stock would retain
their shares upon consummation of the Reorganization Plan. See "Business and
Properties of the Company--Reorganization Proceeding."

Following substantial confirmation of the Reorganization Plan, the Company
was notified in 1993 that certain events of default had occurred and were
continuing under its restructured credit facility with the Bank of Montreal
("BMO"). The Company entered into a series of agreements with BMO and Bank One
pursuant to which the Company made a required payment to BMO from proceeds of
a sale of certain properties and a partial drawdown of a new credit facility
negotiated with Bank One, BMO released all of its liens on the Company's
properties except with respect to the NFG Litigation and $4,652,000 of the
outstanding debt was converted into a non-recourse note secured only by the
proceeds of the NFG Litigation. BMO assigned its rights, including the non-
recourse note, to a wholly-owned subsidiary, BMO Financial, Inc. ("BMOF"). See
"Business and Properties of the Company--Bank Indebtedness."

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<PAGE>

The Company also renegotiated certain notes which had been given in
satisfaction of certain administrative claims in the Reorganization
Proceeding. As a result of the renegotiation, the Company made a cash payment
of $455,000, issued 151,518 shares of the Senior Preferred Stock and issued a
non-recourse note in the principal amount of $90,000 to be payable out of the
Company's share of the proceeds, if any, to be received from the NFG
Litigation. See "Business and Properties of the Company -Administrative
Claims" and "--Reorganization Proceeding."

On April 12, 1996, TGX settled the NFG Litigation and received $7.2 million
as a settlement payment. In connection with the settlement, the BMOF loan was
deemed paid in full and TGX retained approximately $3.5 million after payments
to BMOF and other parties having an interest in the settlement.

Pursuant to the Reorganization Plan, the Senior Preferred Stock is entitled
to cumulative dividends and is redeemable in an amount equal to its
liquidation preference of $10.00 per share and accrued but unpaid dividends.
The Senior Preferred Stock is required to be redeemed out of funds legally
available for such redemption on or before January 21, 2002. To the extent TGX
is unable to redeem all of the Senior Preferred Stock on or before such date,
it is required to redeem as many shares of the Senior Preferred Stock as it
has funds legally available for such redemption and to continue such
redemption after January 21, 2002 whenever it has funds legally available
until all of the Senior Preferred Stock is redeemed. No dividends have been
paid to the holders of the Senior Preferred Stock to date, and accrued but
unpaid dividends on the Senior Preferred Stock currently total approximately
$46,831,000. Together with the liquidation preference with respect to the
outstanding 8,788,571 shares of Senior Preferred Stock in the amount of
approximately $87,886,000, redemption of the Senior Preferred Stock would
require an aggregate payment of approximately $134,717,000.

Neither the Company's book value, at June 30, 1996 estimated to be
approximately $9,370,000, including the proceeds to the Company of the
settlement of the NFG Litigation, nor its revenues, considered either singly
or together, are sufficient to redeem even a majority of the Senior Preferred
Stock in accordance with the terms set forth in the Reorganization Plan. See
"Business and Properties of the Company -Properties"; "Selected Financial
Data"; "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the Company's Consolidated Financial Statements.
Under these circumstances, neither the Common Stock nor the Old Preferred
Stock has any current value and cannot, under any reasonably foreseeable
circumstances, be expected to have any value attributed to it in the future,
based on the Company's existing and reasonably foreseeable operations.

In determining the fairness of the transaction to the various classes of TGX
security holders, the Board of Directors reviewed: (i) the current market
price of the TGX Common Stock, which trades sporadically and whose most recent
price was $.0002 per share, and the historical market price of TGX Common
Stock which was traded sporadically; (ii) the Company's net book value which
equals approximately $9,370,000 and which, as a result, did not provide any
value for classes of TGX Preferred Stock, other than TGX Senior Preferred
Stock or TGX Common Stock, since the redemption value of the TGX Senior
Preferred Stock, including accrued but unpaid dividends, is presently
$134,717,000 and the Senior Preferred Stock accumulates dividends at a rate of
10% compounded annually; (iii) the going concern value of TGX estimated at
approximately $11,000,000 and; (iv) TGX's liquidation value, which ranged from
$7 million to $8 million. The Board also considered the opinion of American
Appraisal as to the fairness of the transaction from a financial point of
view.

In reviewing the various factors, the Board did not give any special weight
to any one factor but determined, in considering each of the factors, that
only the TGX Senior Preferred Stock had any value. None of the potential
alternative transactions considered, or any of the other factors, indicated a
value in excess of the value or consideration offered to unaffiliated security
holders of TGX.

The Board has analyzed various alternatives for enhancing stockholder value,
meeting the economic and industry demands faced by the Company, creating the
flexibility and liquidity that will be required for the future stability and
growth of the Company and advancing the Company's strategic objectives. These
alternatives included: selling common stock of TGX; merging with one or more
companies whereby TGX would receive a premium for its assets, preferably with
a company whose securities were publicly traded; conducting a rights

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<PAGE>

offering with its current security holders; obtaining additional debt to be
used to conduct operations; and liquidating. The Board did not believe it was
possible to sell additional equity securities; did not believe that obtaining
debt for the conduct of exploration activities was either viable or the best
utilization of the Company's assets; did not believe that a rights offering to
its securities holders would be successful or would justify the transactional
costs required thereby; did not believe that it could successfully complete a
merger which would provide a premium for the Company's Senior Preferred
shareholders nor provide any benefit to the Company's common shareholders; and
did not believe liquidation would provide the greatest benefit for its Senior
Preferred shareholders. In making its determination, the Board reviewed
certain proposals that it had considered and deemed unacceptable, for the
possible business combination with unaffiliated parties, as well as informal
discussions with regional investment banking firms concerning the possible
sale of equity securities. In each of these alternatives, no value was to be
ascribed to the TGX Preferred Stockholders (other than Senior Preferred
Stockholders) or the TGX Common Stockholders. To enhance its opportunities as
a viable business, the Company must eliminate its obligations with respect to
the Senior Preferred Stock and thereby be freed to explore other opportunities
for raising capital to conduct and increase the profitability of its
operations, but the Company's existing assets and cash flow are not sufficient
both to redeem the Senior Preferred Stock, even in part, and to continue the
Company's operations. If the Merger is not approved, the Company may be unable
to compete successfully in obtaining additional resources needed to continue
its operations. AFTER CAREFUL CONSIDERATION AND THE RECEIPT OF THE OPINION OF
THE FINANCIAL ADVISOR, THE BOARD HAS DETERMINED THAT THE MERGER IS ADVISABLE
AND IN THE BEST INTERESTS OF THE STOCKHOLDERS OF TGX.

RECOMMENDATION OF BOARD

THE BOARD HAS UNANIMOUSLY ADOPTED THE MERGER AGREEMENT AND BELIEVES THAT ITS
ADOPTION IS IN THE BEST INTERESTS OF TGX AND ITS STOCKHOLDERS. ACCORDINGLY,
THE BOARD UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" ADOPTION OF
THE MERGER AGREEMENT. Three members of the Board, Messrs. Carpenter, Scheiber
and Susskind, together hold 22.9% of the outstanding Senior Preferred Stock
(see "Certain Stock Owned by Principal Stockholders and Management") and will,
therefore, be entitled to receive 22.9% of the New Common Stock upon
consummation of the Merger if the Merger Agreement is adopted.

OPINION OF APPRAISAL AND VALUATION FIRM

American Appraisal was engaged by TGX pursuant to the Engagement Letter to
act as its financial adviser in connection with the Merger. In connection with
such engagement, TGX requested American Appraisal to render an opinion as to
the fairness, from a financial point of view, of the Merger to TGX
Stockholders.

Pursuant to the terms of the Engagement Letter, American Appraisal was paid
a $10,000 retainer and, upon consummation of the Merger, will be entitled to
an additional fee from TGX of $20,000 plus out-of-pocket and other expenses.
TGX has also agreed to indemnify American Appraisal against certain
liabilities, including liabilities under the federal securities laws, and, if
the Merger is not consummated, to reimburse American Appraisal for reasonable
expenses incurred by them, including reasonable fees and disbursements of
their counsel.

On August 22, 1996, in connection with the valuation of the Merger by TGX's
Board of Directors, American Appraisal rendered its oral opinion, subsequently
confirmed in writing, that, as of the date of such opinion, and subject to
certain assumptions, factors and limitations set forth in such written
opinion, the consideration to be received by the Stockholders of TGX was fair,
from a financial point of view.

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<PAGE>

The full text of the American Appraisal opinion, which sets forth the
assumptions made, general procedures followed, other matters considered, and
the limitations on the review undertaken in writing such opinion, is included
as Appendix "D" to this Proxy Statement/Prospectus.

American Appraisal's opinion addresses only the fairness of the terms of the
Merger, from a financial point of view, to the Stockholders of TGX and does
not constitute a recommendation to any TGX stockholder as to how to vote with
respect to the Merger.

In the course of rendering its opinion, American Appraisal, among other
things:

(i) reviewed and analyzed historical operating and financial information of
TGX from (1) Forms 10-K and 10-KSB for TGX for the years ended December
31, 1991 through 1995, Forms 10-QSB for the quarters ended March 31,
1996 and June 30, 1996, and unaudited financial statements for the
period ended May 31, 1996, (2) Preliminary Proxy Statement (Schedule
14A), filed July 9, 1996 with the SEC, and (3) certain other publicly
available financial and operating information relating to TGX;

(ii) reviewed and analyzed the historical trading volume and public market
prices of the Common Stock, and a private sale of the Senior Preferred
Stock;

(iii) reviewed market capitalizations, price to earnings ratios and other
valuation measurements of publicly held companies, whose lines of
business were comparable to those of TGX;

(iv) held discussions with TGX senior management regarding (1) TGX's
operating history, financial condition, business outlook and business
strategy prior to the Merger and after the Merger as part of
GeoStrat's consolidated company; (2) TGX's need to raise capital in
order to ensure its ability to continue operating as a going concern
and to achieve its long term business goals, (3) TGX's need to
recapitalize and eliminate the Senior Preferred redemption liability
in order to raise capital and (4) the financial benefits of the Merger
to the Senior Preferred Stock shareholders, including the improved
liquidity to be gained from the ownership of New Common Stock; and

(v) performed other financial studies, analyses and investigations and
other factors as were deemed necessary and appropriate for purposes of
the opinion expressed herein.

As part of its study, American Appraisal valued the Preferred Stock and
Common Stock as of July 31, 1996. This valuation study was comprised of (i) a
present value analysis of the future net operating cash flow potential of the
Company's current oil and gas reserves, (ii) a study of the market prices of
publicly held companies and transaction prices of acquired companies, whose
lines of business are comparable to that of TGX and (iii) an analysis of the
public market price for TGX's publicly traded Common Stock and the terms of a
private sale of Senior Preferred Stock.

Discounted Net Cash Flow Analysis

Net Asset Value Analysis

The Company's balance sheet was restated to reflect current market value of
its assets and liabilities, such estimates provided by American Appraisal and
management (the latter provided an estimate of value for the Comite Field
Plant Venture and Gathering Systems). Based on this analysis, the net asset
value of the Company's Senior Preferred Stock ranged from $10 million to $11
million and the Common Stock and the Old Preferred had no value.

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Liquidation Value Analysis

Comparable Company and Acquisition Study

For the purpose of comparing operating and financial performance from a
valuation point of view, American Appraisal analyzed seven publicly held
companies whose lines of business are comparable to those of TGX and five
public or private companies whose lines of business were also comparable to
TGX but had been acquired or merged with other companies prior to the date
hereof. The selected publicly held companies were Agraxas Petroleum Corp.,
Amerac Energy Corp., Basic Earth Science Systems, Inc., Hallador Petroleum
Co., Middle Bay Oil Co., Inc., Midland Resources, Inc. and National Energy
Group, Inc. The selected acquired or merged companies were Brock Exploration
Corp., Plains Petroleum Co., Red Eagle Resources Corp., Sansum Energy Co., LP
and Tide West Oil Co. Based on this analysis, American Appraisal estimated
that the total value of the Company's stockholders' equity ranged from $9
million to $10 million and the Common Stock had no value.

Public Market Price of Common and Preferred Stock

In the opinion of American Appraisal, the absence of meaningful stock price
quotations and trading activity of the Common Stock to a large extent
reflected (i) TGX's continued operating losses, (ii) the low probability of
any growth in earnings over the long term under the Company's current capital
structure and (ii) the extreme improbability of TGX's ability to redeem the
Senior Preferred Stock for any value greater than the estimated current net
asset value of the Company's total stockholders' equity (such value
representing approximately 7% to 8% of the current face value of the Preferred
Stock).

(i) Removal of the Senior Preferred Stock redemption liability will ensure
the Company's ability to continue to operate as a going concern over
the long term and enhance its near and long term growth potential;

(ii) The redemption value of the Senior Preferred Stock is no greater than
the net asset value of the Company, an amount that is currently
substantially below the amount of the redemption liability and is not
expected to materially change over the long term;

(iii) The senior preference position of the Senior Preferred Stock will, to
a large extent, be matched by the New Common Stock after the Merger.

(iv) The other TGX Preferred Stock and the Common Stock each has no current
market value because of the senior position of the redemption
liability and is not expected to have any market value over the long
term.

(v) The New Common Stock will provide greater liquidity to the holders of
the Senior Preferred Stock;

In connection with its review, American Appraisal assumed and relied upon
the accuracy and completeness of the financial and other information used by
it in arriving at its opinion, without independent verification, and American
Appraisal did not assume any responsibility to independently verify any of
such information. American Appraisal further relied upon the assurances of the
TGX management that such management was not aware of any facts that would make
such information inaccurate or misleading in any material respect. American
Appraisal also relied upon the information provided by TGX's management
concerning the business, operations and strategic benefits and implications of
the Merger. American Appraisal assumed that the information concerning

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the prospects of TGX was reasonably prepared on bases reflecting the best
available estimates and judgments of such management as to the likely future
financial performance of TGX. American Appraisal expressed no view as to such
information or the assumptions on which it was based. American Appraisal did
not conduct any physical inspections of the properties or facilities of TGX
and did not make or obtain or assume any responsibility for making or
obtaining any valuation or appraisals of the assets or liabilities of TGX.
American Appraisal's opinion was based upon market, economic and other
conditions, as they existed, and could be evaluated as of the date of such
opinion. American Appraisal's opinion does not constitute an opinion or imply
any conclusion as to the likely trading range for GeoStrat's Common Stock
following consummation of the Merger. American Appraisal's opinion also does
not address the underlying business decision to effect the Merger or
constitute a recommendation to any TGX stockholder as to how to vote with
respect to the Merger.

The preparation of a fairness opinion involves various determinations as to
the most appropriate and relevant method of financial analysis and the
application of those methods to the particular circumstances, and therefore
such an opinion is not readily susceptible to summary description.
Furthermore, in arriving at its opinions, American Appraisal did not attribute
any particular weight to any analysis or factor considered by it, but rather
made qualitative judgments as to the significance and relevance of each
analysis and factor. Accordingly, American Appraisal believes that its
analyses must be considered as a whole and that considering any portion of
such analyses and other factors considered, without considering all analyses
and factors, could create a misleading or incomplete view of the process
underlying its opinion. In its analyses, American Appraisal made numerous
assumptions with respect to industry performance, general business and
economic conditions and other matters, many of which are beyond the control of
TGX. Any estimates contained in the American Appraisal analyses are not
necessarily indicative of actual values or predictive of future results or
values, which may be significantly more or less favorable than as set forth
therein.

CONDITIONS TO MERGER

The obligations of the Company and GeoStrat to consummate the Merger are
subject to the adoption of the Merger Agreement by the holders of the Senior
Preferred Stock, the Old Preferred Stock and the Common Stock. In addition,
the Company and GeoStrat are not required to consummate the Merger if any
action or proceeding by any governmental body or agency has been threatened,
asserted or instituted to restrain or prohibit the transactions contemplated
by the Merger Agreement.

EXCHANGE OF CERTIFICATES

After the Effective Time, each record holder at the Effective Time of a
certificate or certificates theretofore representing shares of issued and
outstanding Senior Preferred Stock will be provided with instructions and a
letter of transmittal relating to the exchange of certificates and will be
entitled, upon the surrender of such certificate or certificates to American
Stock Transfer & Trust Company (the "Exchange Agent"), promptly to receive in
exchange therefor a certificate or certificates representing the number of
whole shares of New Common Stock into which the shares of Senior Preferred
Stock previously represented by the certificate or certificates so surrendered
shall have been automatically converted. From and after the Effective Time,
until surrendered, each certificate theretofore representing shares of Senior
Preferred Stock will be deemed for all corporate purposes, other than payment
of dividends, to evidence the ownership of the number of whole shares of New
Common Stock into which such shares of Senior Preferred Stock shall have been
converted. Unless and until any such certificates shall be so surrendered, the
holder of such certificates will not be entitled to receive payment of any
dividends on such shares of New Common Stock payable to the holders thereof
after the Effective Time. Upon the surrender of certificates previously
representing shares of Senior Preferred Stock, the holder thereof will receive
certificates representing the number of whole shares of New Common Stock to
which such holder shall be entitled and the amount of any dividends or other
distributions that shall have been payable to holders of record of New Common
Stock on or after the Effective Time with respect to such shares of New Common
Stock, without interest. No fractional shares of New Common Stock will be
issued upon consummation of the Merger. The Board of Directors has determined
that fractional shares will be paid for at the rate of $2.13 per share, the

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estimated fair value for the New Common Stock based on the Board's estimate of
the Senior Preferred Stock's fair value. Since there was no trading in the
Senior Preferred Stock prior to the Merger, the Board estimated a fair value
by dividing the book value of the Company by the number of shares of GeoStrat
Common Stock to be outstanding after the Merger is consummated. On this basis,
the Board came to the conclusion that a reasonable estimate of value would be
$2.13 per share of GeoStrat. American Appraisal, reviewing the terms of this
offering, has concluded that the Board's approach to this estimate is
reasonable. All shares of New Common Stock into which shares of Senior
Preferred Stock shall have been converted pursuant to the Merger will be
deemed to be validly issued, fully paid and nonassessable and to have been
issued in full satisfaction of all rights pertaining to such shares of Senior
Preferred Stock.

INTERESTS OF CERTAIN PERSONS IN THE MERGER

Prior to the Merger, Mr. Jeffrey E. Susskind, a member of the Board of
Directors, held approximately 1,702,796 shares of Senior Preferred Stock, or
19.4% of the outstanding Senior Preferred Stock, and Mr. Carpenter held,
either directly or as a result of forfeitable stock grants, 300,000 shares of
Senior Preferred Stock or 3.4% of the outstanding Senior Preferred Stock. In
addition, Mr. Carpenter has an employment agreement with the Company which
entitles him to certain guaranteed salary, other benefits, and rights if his
employment is terminated. As a result, Messrs. Susskind and Carpenter may be
deemed to have a conflict of interest in recommending that the Merger be
consummated.

CERTAIN FEDERAL INCOME TAX CONSIDERATIONS

The following discussion summarizes the material Federal income tax
considerations of the Merger that are applicable to TGX or GeoStrat or are
generally applicable to holders of TGX stock. This discussion is based on
currently existing provisions of the Internal Revenue Code of 1986, as amended
(the "Code"), existing and proposed Treasury Regulations promulgated
thereunder, and current administrative rulings and court decisions, all of
which are subject to change. Any such change, which may or may not be
retroactive, could alter the tax consequences to TGX, GeoStrat, or the
stockholders of TGX as described herein and adversely impact TGX, GeoStrat, or
the stockholders of TGX.

The stockholders of TGX should be aware that this discussion does not deal
with all Federal income tax considerations that may be relevant to particular
stockholders of TGX in light of their particular circumstances, such as
stockholders who are dealers in securities, stockholders who are subject to
the alternative minimum tax provisions of the Code, foreign persons, and
stockholders who acquired their shares in compensatory transactions. In
addition, the following discussion does not address the tax consequences of
the Merger under foreign, state, or local tax laws or the tax consequences of
transactions effectuated prior to or after the Merger (whether or not such
transactions are in connection with the Merger). STOCKHOLDERS OF TGX ARE URGED
TO CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC CONSEQUENCES OF THE
MERGER AND ANY RELATED TRANSACTIONS, INCLUDING THE APPLICABLE FEDERAL, STATE,
LOCAL, AND FOREIGN TAX CONSEQUENCES TO THEM OF THE MERGER AND ANY RELATED
TRANSACTIONS IN THEIR PARTICULAR CIRCUMSTANCES.

The discussion below summarizes the Federal income tax consequences if the
Merger qualifies as a tax-free reorganization. Management of the Company
believes that the Merger will qualify as a tax-free reorganization, but
neither TGX nor GeoStrat has requested a ruling from the Internal Revenue
Service (the "IRS") with regard to any of the Federal income tax consequences
of the Merger or any related transactions, including particularly as to
whether the Merger will qualify as a tax-free reorganization under Section
368(a) of the Code (a "Reorganization"). No assurance can be given that the
IRS would concur in this conclusion or that this conclusion would be sustained
by a court if contested by the IRS.

A successful IRS challenge to the Reorganization status of the Merger would
result in each holder of TGX Senior Preferred Stock recognizing gain or loss
with respect to each share of TGX Senior Preferred Stock surrendered equal to
the difference between the stockholder's basis in such share and the fair
market value, as of

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the Effective Time, of the GeoStrat Common Stock received in exchange
therefor. In such event, the stockholders' aggregate basis in the GeoStrat
Common Stock so received would equal its fair market value, and the
stockholders' holding period for such stock would begin the day after the
Merger.

Subject to the limitations and qualifications referred to herein,
qualification of the Merger as a Reorganization will generally result in the
following consequences: (a) no gain or loss will be recognized by the holders
of TGX Senior Preferred Stock upon the receipt of GeoStrat Common Stock solely
in exchange for such TGX Senior Preferred Stock in the Merger (except to the
extent of cash received as a result of exercising dissenters' or appraisal
rights or in receipt for fractional shares); (b) the aggregate tax basis of
the GeoStrat Common Stock so received by the holders of TGX Senior Preferred
Stock in the Merger will be the same as the aggregate tax basis of the TGX
Senior Preferred Stock surrendered in exchange therefor; (c) the holding
period of the GeoStrat Common Stock so received in the Merger will include the
holding period of the TGX Senior Preferred Stock surrendered therefor,
provided that the TGX Senior Preferred Stock so surrendered is held as a
capital asset at the time of the Merger; (d) a stockholder of TGX who
exercises appraisal or dissenters' rights or receives cash in lieu of
fractional shares under any applicable law with respect to shares of TGX stock
and receives payment for such shares in cash will recognize gain or loss
measured by the difference between the amount of cash received and the
stockholder's basis in such shares; (e) holders of TGX Common Stock and Old
Preferred Stock will realize a capital loss upon cancellation of such shares
in the Merger equal to their respective basis, if any, in such shares; and (f)
neither TGX nor GeoStrat will recognize gain solely as a result of the Merger.

ACCOUNTING TREATMENT

The Merger will be recorded as a reorganization of related parties with
carry-over basis of assets and liabilities. The GeoStrat Common Stock will be
recorded at the historical-basis carrying value of the aggregate of TGX's
Preferred Stock, Common Stock and the initial value ascribed to the Senior
Preferred Stock upon their issuance, as reflected in TGX's accounting records
on the date of the exchange. Accordingly, upon cancellation, all previously
recorded Preferred Stock dividends and accretion will be credited to
accumulated deficit. No gain or loss will be recognized for accounting
purposes upon consummation of the Merger. The costs of soliciting proxies and
effecting the Merger will be charged to expense as incurred.

APPRAISAL RIGHTS

General. Under Section 262 of the Delaware General Corporation Law, if the
Merger Agreement is adopted and the Merger consummated, holders of the
Preferred Stock who exercise their appraisal rights in accordance with Section
262 will be entitled to an appraisal by the Delaware Court of Chancery of the
fair value of such holder's shares and payment therefor in accordance with
such determination. Delaware law does not provide for appraisal rights where
stock is held by more than 2,000 stockholders of record. TGX's Common Stock
was held by approximately 4,000 stockholders of record on the Record Date. The
following brief summary of Section 262 summarizes the procedures for demanding
statutory appraisal rights. This summary is qualified in its entirety by
reference to Section 262, a copy of the text of which is attached to this
Proxy Statement/Prospectus as Appendix "E". Any element of value arising from
the accomplishment or expectation of the Merger is excluded from the
determination of fair value. Reference herein to "appraisal rights" is a
general reference to a stockholder's right to obtain appraisal of the
stockholder's shares in accordance with Section 262. The Board of Directors
have determined that if holders of more than 10% of the Senior Preferred Stock
demand appraisal rights, they will not proceed with the Merger.

Who May Demand Appraisal. Each record holder of Preferred Stock may demand
appraisal and obtain payment of the fair value of such holder's shares by
following the procedures provided in Section 262 and summarized here. A
beneficial holder of Preferred Stock may demand appraisal as to the shares
held on the beneficial holder's behalf (i) if TGX receives the written consent
of the record holder of such shares to such demand for appraisal not later
than the time the beneficial holder demands appraisal rights or (ii) by
causing the

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record holder to demand appraisal with respect to such shares. In each such
case, the procedures provided in Section 262 and summarized below must be
followed.

Procedures. Each holder electing to demand appraisal rights must deliver to
TGX, before the taking of the vote on the Merger, a written demand for
appraisal of such holder's shares, specifying the identity of the holder and
that the holder intends by such demand to demand appraisal of such holder's
shares. A proxy or vote against the Merger does not constitute a demand for
appraisal. Within ten days after the Effective Time, GeoStrat will notify each
holder who has demanded appraisal rights and has not voted in favor of or
consented to the Merger that the Merger has become effective. A written demand
for appraisal may be withdrawn and the terms of the Merger accepted at any
time within sixty days after the Effective Time, but thereafter such demand
may be withdrawn only with the written approval of GeoStrat. Within 120 days
after the Effective Time, the holder upon written request is entitled to
receive from GeoStrat within ten days of such request a statement setting
forth the aggregate number of shares not voted in favor of the Merger and with
respect to which demands for appraisal have been received and the aggregate
number of holders of such shares. Any holder who has complied with the
requirements of Section 262 may, within 120 days after the Effective Time,
file a petition, with service of a copy thereof on GeoStrat, in the Delaware
Court of Chancery (the "Court") demanding a determination of the value of the
stock of all holders who demanded appraisal rights.

Court Proceedings. The Court will then conduct proceedings to determine the
holders entitled to appraisal rights and may require holders who have demanded
an appraisal and who hold stock represented by certificates to submit their
certificates to the Court for notation thereon of the pendency of the
appraisal proceedings. If any holder fails to comply, the Court may dismiss
the proceedings as to such holder. The Court will then appraise the shares,
taking into account all relevant factors. The Court in its discretion may,
upon application of any party to the proceeding, permit discovery or other
pretrial proceedings and proceed to trial upon the appraisal before a final
determination of the holder entitled to an appraisal. The Court may determine
all costs of the proceeding and may assess those costs on the parties as the
Court deems equitable in the circumstances. The Court may also, upon
application of a holder, order all or a portion of the expenses incurred by
such holder in connection with the appraisal proceeding to be charged pro rata
against the value of all the shares entitled to an appraisal.

If no petition for appraisal is filed with the Court within 120 days after
the Effective Time, or if a holder, within sixty days after the Effective Time
or subsequent to such period with the written approval of GeoStrat, delivers
to GeoStrat a written withdrawal of such holder's demand for an appraisal and
an acceptance of the Merger, then the right of such holder to an appraisal
ceases. No appraisal proceeding, once instituted, may be dismissed as to any
holder without the approval of the Court, which may be conditioned on such
terms as the Court deems just.

DESCRIPTION OF GEOSTRAT SECURITIES

COMMON STOCK

General. GeoStrat is currently authorized to issue 20,000,000 shares of
common stock, par value $.01 per share (as defined above, the "New Common
Stock"). No shares of New Common Stock will be issued before consummation of
the Merger. Shares of New Common Stock issued upon consummation of the Merger
will be fully paid and non-assessable.

Dividend Rights. The holders of New Common Stock are entitled to receive,
when and as declared by the Board of Directors of GeoStrat (the "GeoStrat
Board"), out of the assets of GeoStrat that are by law available therefor,
dividends payable either in cash, in property or in shares of stock, subject
to all rights of the New Preferred Stock (as defined below).

Voting Rights. Each holder of New Common Stock is entitled to one vote, in
person or by proxy, for each share of New Common Stock standing in the name of
such holder on the books of GeoStrat. Holders of shares of New Common Stock
have noncumulative voting rights, which means that the holders of more than
50% of

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the shares voting for the election of directors can elect all of the
directors, and in such event the holders of the remaining shares voting for
the election of directors will not be able to elect any directors. Except as
otherwise provided by law and subject to the voting rights conferred on New
Preferred Stock, if any, in any case where the holders of New Preferred Stock
possess voting rights, the New Common Stock and the New Preferred Stock vote
together as one class.

Rights upon Liquidation. Upon any dissolution, liquidation or winding up of
the affairs of GeoStrat, either voluntarily or involuntarily, the holders of
the New Common Stock are entitled, after payment or provision for payment of
the debts and other liabilities of GeoStrat and after payment in full to the
holders of New Preferred Stock, if any, to share ratably in the remaining
assets and funds of GeoStrat.

Miscellaneous. Holders of shares of the New Common Stock are not entitled to
preemptive rights. Shares of the New Common Stock are not convertible into the
shares of any other class of capital stock of GeoStrat.

PREFERRED STOCK

GeoStrat is authorized to issue 5,000,000 shares of preferred stock, $1.00
par value per share (the "New Preferred Stock"). No shares of New Preferred
Stock are currently outstanding or are contemplated being issued at the
current time. The GeoStrat Board is authorized to fix for each class or series
of preferred stock issued such voting powers, full or limited, or no voting
powers, and such distinctive designations, preferences and relative,
participating, optional or other special rights and such qualifications,
limitations or restrictions thereof as are stated in the resolution or
resolutions adopted by the GeoStrat Board providing for the issuance of such
class or series and as may be permitted by the General Corporation Law of
Delaware, including without limitation the authority to provide that any such
class or series may be (i) subject to redemption at such time or times and at
such price or prices; (ii) entitled to receive cumulative or non-cumulative
dividends at such rates, on such conditions and at such times, and payable in
preference to, or in such relation to, the dividends payable on any other
class or classes or any other series; (iii) entitled to such rights upon the
dissolution of, or upon any distribution of the assets of, GeoStrat; or (iv)
convertible into, or exchangeable for, shares of any other class or classes of
stock, or of any other series of the same or any other class or classes of
stock, of GeoStrat at such price or prices or at such rates of exchange and
with such adjustments; all as may be stated in such resolution or resolutions
issuing the class or series of New Preferred Stock. The GeoStrat Board has not
designated any series of New Preferred Stock and does not presently
contemplate the issuance of shares of New Preferred Stock.

COMPARATIVE RIGHTS OF STOCKHOLDERS

GENERAL

At the Effective Time, the holders of the Senior Preferred Stock of TGX will
become the holders of the New Common Stock of GeoStrat. At such time holders
of TGX Common Stock will have rights associated with prior TGX Common Stock
ownership eliminated. The rights of the stockholders of both TGX and GeoStrat
are governed by and subject to the provisions of the Delaware General
Corporation Law; the rights of holders of the Senior Preferred Stock, governed
before consummation of the Merger by the TGX Certificate and the Amended and
Restated Bylaws of TGX (the "TGX Bylaws"), will after consummation of the
Merger, as the holders of the New Common Stock, be governed by the GeoStrat
Certificate and the GeoStrat Bylaws. The following discussion summarizes the
material differences between the rights of holders of the Senior Preferred
Stock of TGX and holders of the New Common Stock of GeoStrat, based on a
comparison of the TGX Certificate, the TGX Bylaws, the GeoStrat Certificate
and the GeoStrat Bylaws. For additional information regarding the specific
rights of holders of the New Common Stock, see "Description of New Common
Stock" above. This summary does not purport to be complete and is qualified in
its entirety by reference to the Delaware General Corporation Law, the TGX
Certificate, the TGX Bylaws, the GeoStrat Certificate and the GeoStrat Bylaws.
However, the summary accurately describes the material terms of the capital
stock and the provisions of GeoStrat's Charter and Bylaws. Except as provided
below, the relevant provisions of the GeoStrat Certificate and the GeoStrat

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Bylaws are substantially similar to those of the TGX Certificate and the TGX
Bylaws. For holders of TGX Common Stock the following paragraphs do not
reflect comparative rights since their interests will be eliminated and they
will have no on-going interest in GeoStrat.

DIVIDENDS

Each share of New Common Stock is entitled to participate equally in
dividends when, as and if declared by the GeoStrat Board, subject to the
rights of any New Preferred Stock then outstanding. Shares of New Common Stock
do not have any preference rights in the payment of dividends.

Holders of the Senior Preferred Stock are entitled to receive cumulative
dividends at a rate per share of ten percent (10%) per year of such share's
liquidation preference of $10.00. The holders of the Senior Preferred Stock
are entitled to receive all accrued but unpaid dividends with respect to such
shares before any dividends may be paid or set apart with respect to the Old
Preferred Stock or Common Stock.

VOTING RIGHTS

Each share of New Common Stock is entitled to one vote on all matters on
which holders are entitled to vote under the Delaware General Corporation Law.
Holders of shares of New Common Stock do not have any cumulative rights.

Holders of the Senior Preferred Stock have sufficient votes per share to
exercise 95% of the voting power of the outstanding voting securities of TGX.
Upon consummation of the Merger, holders of the Senior Preferred Stock will
hold 100% of the New Common Stock and thus exercise 100% of the voting power
of the then outstanding voting securities of GeoStrat.

AMENDMENT

Any amendment, alteration or repeal of the statement of designation in the
TGX Certificate creating the Senior Preferred Stock that adversely affects the
preferences, special rights or powers of the holders of the Senior Preferred
Stock requires the consent of the holders of a majority of the Senior
Preferred Stock. Holders of the Senior Preferred Stock will, upon consummation
of the Merger, no longer have any rights to vote separately as a class of
Senior Preferred Stock, but will become the holders of a single class of
stock, the New Common Stock.

REDEMPTION/CONVERSION

The holders of the New Common Stock will not have any redemption rights or
any conversion rights. The holders of the Senior Preferred Stock will be
entitled to have their shares redeemed, on or before January 21, 2002 or as
soon thereafter as sufficient capital is legally available therefor to TGX, at
a price per share equal to the liquidation preference of $10.00, together with
all accrued but unpaid dividends thereon to the date of redemption.

LIQUIDATION

Upon any liquidation, dissolution or winding up of the affairs of GeoStrat,
whether voluntary or involuntary, the holders of the New Common Stock are
entitled to participate equally in the distribution of assets of GeoStrat,
after payment of liabilities and liquidation preferences of any outstanding
shares of New Preferred Stock.

Upon any liquidation, dissolution or winding up of the affairs of TGX,
whether voluntary or involuntary, the holders of the Senior Preferred Stock
are entitled to be paid the liquidation preference of $10.00 for each share of
the Senior Preferred Stock held by them, together with all accrued but unpaid
dividends thereon, before any distribution or payment may be made or set apart
for the holders of the Old Preferred Stock or Common Stock.

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UNISSUED SHARES

The GeoStrat Board is authorized, without action of its stockholders, to
issue up to 20,000,000 shares of New Common Stock, 4,394,285 of which will be
issued upon consummation of the Merger if the Merger Agreement is approved,
and up to 5,000,000 shares of New Preferred Stock in one or more series. The
GeoStrat Board is authorized to fix the rights, qualifications, preferences,
privileges, limitations or restrictions of each such series of New Preferred
Stock, including without limitation dividend rights, dividend rates, voting
rights, conversion rights, terms of redemption (including sinking fund
provisions) and liquidation preferences, without any further vote or action by
the holders of the New Common Stock. Actions by the GeoStrat Board to issue
any such shares could have an adverse effect on the voting power of the
existing holders of New Common Stock and could also have the effect of
delaying, deferring or preventing a change in control of GeoStrat. GeoStrat
currently does not intend to issue additional shares of New Common Stock or
shares of New Preferred Stock.

Each share is entitled to participate equally in dividends when, as and if
declared by the GeoStrat Board and in the distribution of assets of GeoStrat
upon liquidation after payment of liabilities and liquidation preferences of
any outstanding shares of New Preferred Stock.

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BUSINESS AND PROPERTIES OF THE COMPANY

GENERAL

TGX, formerly named Templeton Energy, Inc., is a Delaware corporation that
was organized in June 1980. TGX's executive offices are at 222 Pennbright,
Suite 200, Houston, Texas 77090 (telephone number 713/872-0500). TGX is a
domestic independent energy company engaged in the production of oil and
natural gas and in oil and natural gas exploration for its direct account and,
previously, beneficially through general and limited partnerships which were
sold to public and private investors. TGX is also engaged in intrastate
natural gas gathering and treating. TGX commenced operations on July 1, 1981
as the result of the consummation of an offer in which shares of its Common
Stock were issued in exchange for certain interests in developed and
undeveloped oil and natural gas properties held by various affiliated and
unaffiliated entities.

On December 5, 1985, TGX acquired Amarex, Inc. ("Amarex"), subsequently
renamed Temex Energy, Inc. ("Temex"), an oil and gas exploration company
operating primarily through general and limited partnerships (the "Amarex
Partnerships"), in exchange for the payment of approximately $52,000,000 in
cash and the issuance of 11,475,000 shares of Common Stock to former creditors
of Amarex. On August 8, 1988, Temex was merged with and into TGX. Following
this acquisition, TGX, as successor in interest to Temex, acted as general
partner of the Amarex Partnerships until the liquidation or dissolution of
such partnerships in 1994.

From November 1986 through August 1991, TGX, through its then wholly owned
subsidiary LEDCO, Inc. ("LEDCO"), was also engaged in natural gas marketing
and, to a limited degree, providing natural gas transportation services to
producers, local distribution companies and industrial end-users.

Effective August 31, 1991, TGX sold LEDCO to Ledco Acquisition Company,
Inc., a company wholly owned by Steinhardt Partners, L.P., a Delaware limited
partnership ("Steinhardt"), and related entities for $2.9 million and the
assignment to TGX by Steinhardt of $2.145 million principal amount of claims
related to TGX's Senior Subordinated Fixed Rate Notes ("Senior Subordinated
Notes").

On January 7, 1992, a Reorganization Plan was confirmed by the Bankruptcy
Court and the Plan became effective on January 21, 1992 (the "Effective
Date"). On October 2, 1992, the Bankruptcy Court's order of substantial
consummation regarding the Plan became final and non-appealable. For further
information concerning the Reorganization Plan, see "Reorganization
Proceeding" below.

BUSINESS STRATEGY

After substantial consummation of the Reorganization Plan, and in order to
maximize stockholder value, the Company embarked on a strategy of eliminating
non-core assets, reducing overhead and restructuring its debt. During 1993 and
1994, a substantial portion of management's efforts were engaged in
implementing the components of this business plan. Beginning in 1995, the
Company turned its focus to increasing its oil and gas revenues through a
limited number of acquisitions and the drilling of a small number of oil and
gas exploration and development wells.

In early 1993 the Company relocated and consolidated its offices in Houston,
Texas, thereby reducing expenses and began a program of downsizing, including
consideration of the outsourcing of certain financial and administrative
services. Following the office consolidation, the Company retained an
investment banker to conduct an extensive review of the Company's operations
and assets to determine the most appropriate means for implementing
management's strategy.

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<PAGE>

The Company's efforts also involved the restructuring and replacing of its
secured long-term debt with BMO, the renegotiation of its debt with certain
persons holding notes arising from administrative claims incurred during the
Reorganization Proceeding, and a program to liquidate and dissolve
substantially all the public and private oil and gas drilling and production
purchase programs for which the Company acted as a general partner. The
Company also implemented a program of selling assets which were either
believed not to be essential to the Company's long-term business strategy or
which could provide a significant immediate cash infusion to relieve debt
obligations and long term benefit by reducing overhead.

In furtherance of these strategies, in 1994, the Company completed the sale
of substantially all of its oil and gas properties in Ohio and New York to
Belden & Blake Corporation ("BBC") for approximately $16.2 million,
restructured its bank indebtedness as set forth under "Bank Indebtedness,"
liquidated 17 oil and gas partnerships and began the process of dissolving and
winding up an additional eight partnerships, which was completed in 1995, and
sold, to a third party, approximately 31 properties for $1,424,000 which
management believed were not essential to the Company's long-term business
strategy. During 1994, the Company was able to reduce the number of its
employees from 27 to 13, excluding contract personnel, and its general and
administrative expenses from $3,323,000 to $1,747,000.

In 1995, the Company's oil and gas activities focused on lower risk workover
operations, drilling development wells and acquiring producing oil and gas
properties. During this period, the Company participated in ten workovers at a
net cost to the Company of $274,000 and participated in drilling seven new
wells at a net cost of $372,000. Of the wells drilled, four were deemed
successful at a net cost of $303,000. Also, in 1995, the Company acquired
additional interests in certain of its operated producing properties and five
new producing wells at a total net acquisition cost of $771,000. As a result
of these activities and upward revision of previous estimates, the Company, in
1995, increased its total proved reserves by approximately 1,878,000
equivalent Mcf of gas (one barrel of oil equals six Mcf of gas) from year-end
1994, representing a 12% increase in equivalent year end Mcf reserves.

In 1996, the Company plans to continue to reduce its overhead and eliminate
additional noncore assets. The Company also plans to review growth
opportunities, consistent with its available capital, to determine if asset
growth can be attained through workover, drilling, acquisition or a
combination thereof, within the limits of the Company's financial resources.
As of June 30, 1996, the Company had positive working capital and had no
outstanding borrowings under its bank line of credit. In addition, Management
believes that its positive working capital and current credit facility, and
anticipated improving operating activity will provide the necessary cash flow
to support its ongoing business plans. Based, however, on the Company's
financial position and the inability to predict the success of any cost
reductions or the effect of the Merger, if the Merger Agreement is adopted,
the Company cannot currently determine if it will be able to successfully
implement its business plan and strategy.

BANK INDEBTEDNESS

Prior to the Reorganization Proceeding, BMO was TGX's principal secured
lender. At the time of the Chapter 11 filing, TGX owed $29.7 million to BMO
(the "Existing BMO Debt") which was secured by substantially all of TGX's
assets. TGX also guaranteed to BMO certain of the debt of LEDCO. Pursuant to
the Plan, TGX entered into an Amended and Restated Credit Agreement (the
"Amended Credit Agreement") under which the Existing BMO Debt was continued
and preserved, but was evidenced by new loans ("New BMO Loans") , in the
original aggregate principal amount of approximately $27 million which
continued to be secured by substantially all of TGX's assets. TGX also entered
into a revolving credit agreement for working capital or the issuance of
letters of credit in the maximum amount of $1,000,000. The guaranty of the
LEDCO debt was eliminated.

In early 1993, the Company was notified that events of default had occurred
under the Amended Credit Agreement which were not cured and, as a result, BMO
had the right to take certain actions under the Amended Credit Agreement,
including without limitation, the acceleration of all of the New BMO Loans.

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In January 1994, in conjunction with the Company's sale of certain assets to
BBC, as described under "Proved Oil and Natural Gas Reserves--Sale of New York
and Ohio Properties", the Company made a debt service payment of approximately
$14.3 million to BMO and entered into a limited forbearance agreement,
pursuant to which TGX was required to make a payment (the "Required Payment")
of $18 million plus accrued interest and fees less (i) the $14.3 million paid
to BMO and (ii) any amounts paid to BMO subsequent to January 1, 1994, that
were applied toward the Required Payment.

On July 13, 1994, TGX entered into a series of agreements with BMO and Bank
One, Texas, N.A. ("Bank One") whereby the New BMO Loans were restructured and
all BMO Events of Default resolved. Pursuant to the restructuring, Bank One
established a borrowing-based facility of $2,350,000 under which TGX
immediately borrowed $1,600,000, of which $1,452,000 was paid to BMO in
satisfaction of the remaining amount due of the Required Payment. The Bank One
facility bears interest at Bank One's stated rate plus 2% and is secured by
substantially all of TGX's oil and gas properties. The loan is repayable
through monthly principal reductions and matures on July 13, 1997. The
borrowing base is redetermined at a minimum of every six months or at Bank
One's discretion. The Bank One facility requires the maintenance of certain
financial ratios including a working capital ratio of 1 to 1, as defined, and
a tangible net worth of a minimum of $5,000,000 and other ratios. At June 30,
1996, the borrowing base was $2,200,000, the Company had no borrowings
outstanding, and was in compliance with all financial ratios and covenants.

Simultaneously with securing the Bank One facility and payment of the
Required Payment, BMO released all of its liens on the TGX's properties with
the exception of its lien on the NFG Litigation. As part of the loan
restructuring, BMO converted $4,652,000 of the New BMO Loans, including fees
and expenses, to a non-recourse note secured only by the NFG Litigation and
any proceeds that might be received therefrom. BMO assigned its rights to the
loan, security and TGX note, to BMO's wholly owned subsidiary, BMOF. Pursuant
to the July 13, 1994 agreement, after repayment of the outstanding BMOF loan
plus interest from NFG Litigation proceeds, if any, BMOF would, in certain
instances, after TGX received a sum equal to the amount paid to BMOF, be
entitled to receive up to fifty percent interest in certain additional
litigation proceeds. If NFG Litigation proceeds were insufficient to repay the
BMOF loan, plus applicable interest, TGX would have no further obligation for
such repayment. Since the BMOF loan has no recourse, the Company recognized an
extraordinary gain from debt forgiveness, net of related transaction costs, of
$4,160,000, in the third quarter of 1994. The BMOF loan matures on December
31, 1997, subject to each party having the right to extend the maturity date,
and bears interest at the rate of 10% per annum. However, until December 31,
1997, and for such further time as BMOF elected to extend the maturity date of
such loan, no cash payment for such interest would be required; instead, TGX
paid interest in kind through the issuance of additional notes to BMOF. As of
the date of the NFG settlement, interest pursuant to the BMOF loan totaled
$816,000.

On December 31, 1995, TGX and BMOF executed a First Amendment to the Second
Amended and Restated Credit Agreement ("BMOF Agreement"). Pursuant the BMOF
Agreement, TGX and BMOF would share equally any NFG Litigation proceeds up to
$8 million. BMOF would receive 100% of any proceeds in excess of $8 million
until the total received by BMOF equalled the New BMO Loans plus any accrued
interest. Thereafter, the Company would receive proceeds until the total it
received equalled the amount received by BMOF, and any additional NFG
Litigation proceeds will be shared equally by TGX and BMOF. The NFG Litigation
was settled on April 12, 1996, and, after payment to BMOF of $3.6 million, all
of the remaining obligations of TGX to BMOF were satisfied. See "--NFG
Litigation."

See Notes 3 and 14 of the Notes to Consolidated Financial Statements.

ADMINISTRATIVE CLAIMS

During the Reorganization Proceeding, TGX incurred, and claimants filed
applications for, approximately $7,131,000 in administrative fees and expenses
relating to the reorganization ("Administrative Claims"). TGX objected to
certain of the Administrative Claims and negotiated settlement amounts and
terms of payment with certain holders of Administrative Claims. As a result,
each of these administrative claimants, other than three

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designated administrative claimants whose administrative claims were satisfied
in a different manner, were entitled to receive a promissory note (the
"Administrative Notes") due December 31, 1994, in satisfaction of each
claimant's unpaid Administrative Claim. Such Administrative Notes were to be
issued upon the execution of releases in favor of the Company and others.
Substantially all persons entitled to Administrative Notes executed such
releases. See "Reorganization Proceeding--Overview of the Plan." The
Administrative Notes bore interest at a rate not to exceed 8% and were secured
with certain collateral (the "Consummation Collateral"). If the proceeds
related to the Consummation Collateral were not sufficient to satisfy the
Company's obligations under the Administrative Notes the Company's excess
operating funds, if any, would be applied toward the balances due. During late
1994 and early 1995, the Company renegotiated the terms of substantially all
of the Administrative Notes. As a result of negotiations and forfeitures,
Administrative Notes totaling approximately $1,126,000 in principal and
$253,000 in accrued interest charges were renegotiated with the Company making
cash payments of $455,000, issuing 151,518 shares of the Company's Senior
Preferred Stock and a $90,000 principal amount nonrecourse note payable out of
TGX's share of proceeds, if any, to be received from the NFG Litigation. As a
result of the Administrative Note renegotiations and administrative claim
forfeitures, the Company reflected an extraordinary net gain in 1995 and 1994
of $93,000 and $831,000, respectively, and all such notes and claims were
deemed settled as of year end 1995.

NFG LITIGATION

The NFG Contract was executed in 1974 between Paragon Resources, Inc.
("Paragon") and Iroquois Gas Corporation, predecessors of TGX and NFG, as
seller and buyer, respectively. In 1983, the New York State Public Service
Commission (the "PSC"), under whose jurisdiction NFG's intrastate gas
purchases fall, expressed dissatisfaction with the NFG Contract for among
other reasons the inclusion of a "three-pipeline escalator" ("3-PE") in its
pricing provision. The price formula was based on the average price charged
NFG by its three interstate pipeline suppliers. Pursuant to the 3-PE, the
contract price increased annually by the greater of (1) the increase in the
three pipeline average or (2) $0.02 per Mcf. The PSC, in its Opinion No. 83-26
("Opinion 83-26"), found 3-PE clauses to be unacceptable and "disapproved"
contracts containing such clauses.

A dispute arose between NFG and TGX as to whether the NFG Contract remained
in force after Opinion 83-26 and, if it did, what price the NFG Contract
prescribed starting in December, 1983 when Opinion 83-26 was issued. In
November 1984, NFG commenced an action in the United States District Court for
the Western District of New York (Civ. No. 84-1372E) (the "District Court")
seeking a declaration from the District Court of the rights and obligations of
the parties under the NFG Contract after Opinion 83-26. TGX counterclaimed for
damages claiming that NFG had breached the terms of the NFG Contract. The NFG
Litigation addressed, among other things, the validity of the NFG Contract,
the price for gas sold, and certain other claims relating to NFG's obligation
to take or pay for, even if not taken, gas dedicated to the NFG Contract. The
PSC intervened as a plaintiff in the District Court action. In March 1989, a
separate action for breach of contract was commenced by TGX against NFG in New
York's Supreme Court, County of Chautauqua (Index No. G-13357). This case was
stayed in 1989 on the grounds that the issues in this case are the same as
those in the District Court action.

Both NFG and the PSC took the position before the District Court that the
effect of Opinion 83-26 was to cancel the NFG Contract in its entirety. In
January 1991, the District Court declared that because Opinion 83-26 had
abrogated an essential term of the NFG Contract, it had voided the entire NFG
Contract.

In December 1991, the Court of Appeals for the Second Circuit (the "Second
Circuit") reversed the judgment of the District Court. The Second Circuit held
that the PSC had authority to review the NFG Contract under New York Public
Service Law but then addressed the issue of whether Opinion 83-26 impacted
solely upon the price term of the NFG Contract or whether it operated to
cancel the entire NFG Contract. The Second Circuit held that only the price
term had been rejected by the PSC but that such rejection did not void the
entire NFG Contract, which clearly envisioned potential governmental rulings
like Opinion 83-26. Therefore, the Second Circuit permitted TGX to continue to
deliver gas under the NFG Contract in the aftermath of Opinion

42
<PAGE>

83-26 at a price consistent with that Opinion. This left the issue of the
appropriate price under the NFG Contract once the 3-PE escalator was canceled.

In attempting to determine the appropriate NFG Contract price, the Second
Circuit held that TGX and NFG through their course of conduct had elected to
sell gas in accordance with the Natural Gas Policy Act ("NGPA"), 15 USC 3301
et seq., a federal statute that became effective in 1978, subjecting the NFG
Contract to federal regulation. The NGPA set maximum prices for various
categories of intrastate gas, which the producer could charge unless some
lower price were applicable pursuant to pre-NGPA contract. Based upon this
holding, when the Second Circuit remanded the case to the District Court for
further proceedings consistent with its decision, TGX took the position that
it was entitled to recover NGPA prices.

NFG interpreted the Second Circuit decision differently. It took the
position that the PSC imposed a ceiling on all future gas purchases under the
NFG Contract based on the price of No. 6 fuel oil and that the Second Circuit
endorsed this ceiling. Although the PSC did not rule on this issue, in a brief
to the District Court, the PSC stated that 90 percent of No. 6 fuel oil was
"the standard to which the Commission looked in 1983 to review the contract".

In the District Court, after the Second Circuit's remand, TGX took the
position that No. 6 fuel oil was a "ceiling" set by the PSC only in the sense
that the PSC in 1975 approved a type of price escalation clause in future gas
purchase agreements that contained a ceiling based on 90% of the 12-month
rolling average price of No. 6 fuel oil in National Fuel's service territory
(the "FPC escalator"). TGX further argued that the ceiling was never imposed
by the PSC on the NFG Contract or on any contracts that contained a 3-PE; it
was limited to contracts that contained the FPC escalator; the PSC refused to
impose a price cap based on the price of No. 6 fuel oil in Opinion 83-26; and
although the PSC could have set a maximum price for gas that was lower than
that provided in the NGPA, it never did so. TGX took the position that if, and
only if, New York State had enacted a state maximum price for gas would the
parties be bound thereby.

At the time of Opinion 83-26, prices measured under the 3-PE, the NGPA, the
No. 6 oil prices, and prices NFG paid for other local production were all in a
range within or near $4 to $5 per Mcf, where they converged much more closely
than today. By 1992, other local producer's prices and the oil price fell to
the $2 range, the NGPA limits climbed to the $6 and $7 ranges, and the 3-PE
price surpassed $8.

Although NFG took the position that there was a PSC ceiling, it also argued
that TGX was not entitled to receive any amount in excess of the amount TGX
had already received. Such prices paid by NFG were based on many different
theories including prices based upon other long-term contracts, spot prices,
weighted average cost of gas, etc.

On remand from the Second Circuit, in January 1993, the District Court
granted TGX's motion for partial summary judgment regarding the price to be
paid under the NFG Contract.

Based on the District Court's order, TGX concluded that from December 1983,
until at least January 1, 1993, the date price controls under the NGPA were
terminated, the price under the NFG Contract is equal to the lower of (i) the
applicable maximum lawful price for December 1983 and for each month
thereafter as established by the NGPA, subject to the escalations provided by
the NGPA, or (ii) the December 1983 permitted price under the NFG Contract of
approximately $4.41 per Mcf. The District Court's decision might be
interpreted such that the December 1983 permitted contract price would be
$4.41 per Mcf during the winter months and $4.01 per Mcf during the summer
months. The District Court did not address the impact, if any, of the
termination of the NGPA.

In response to NFG's request for clarification, the District Court stated in
July 1993 that its January ruling "did not determine the just and reasonable
price for the gas pursuant to (New York Public Service Law 1104(4), set a
contract price for the duration of the contract, resolve any defenses
presented by NFG, determine whether such obligation continues until the
present time or rule on any deregulation issues."

43
<PAGE>

NFG interpreted this subsequent decision as denying that a price had been
set. NFG further took the position that ultimately only the PSC has
jurisdiction to approve any price payable under the NFG Contract. TGX took the
position that the clarifying decision contained a reaffirmation of the prior
decision when it stated that:

"This Court's Memorandum and Order dated January 4, 1993 determined that an
obligation on NFG's part to pay for gas purchased pursuant to the [NFG
Contract] at the applicable NGPA ceiling price arose out of the conduct of
the parties after the NGPA became effective and that the PSC Order issued
December 20, 1983 did not relieve NFG of such obligation."

In December 1992, NFG filed a motion with the PSC requesting a hearing to
determine pricing issues related to the NFG Contract. Pursuant to this
request, the PSC ordered that a proceeding take place. After the submission of
substantial evidence and briefs, the Administrative Law Judge ("ALJ") assigned
by the PSC to hear this matter determined in a Recommended Decision issued in
November 1994 that the PSC should find that from December 20, 1983 through
November 1992 (the period of time at issue in the proceeding), the maximum
contract price that would be just and reasonable within the meaning of the
Public Service Law was $3.714 per Mcf of gas, which represented the weighted
average of the two applicable NGPA categorized maximum prices for December
1983. In this proceeding, the PSC staff took the position that the only
reasonable price would be the market price at the time of each sale of gas.

The ALJ's Recommended Decision along with the briefs of the parties were
submitted to the PSC for its review. Despite the fact that the PSC had ordered
the proceeding at NFG's request, in Opinion No. 95-5, issued in May 1995 (the
"PSC's 1995 Decision"), the PSC decided that the matter was not ripe for its
review because, in its view, there was currently no contract price in the
contract for the PSC to review. The PSC declined to endorse the $3.714 price
in the ALJ's Recommended Decision or any other price. The PSC determined that
NFG's requested hearing and the dealings after 1983 between NFG and TGX did
not constitute the type of filing appropriate for PSC review. The PSC stated
that it would not determine whether a price to be paid under the NFG Contract
was appropriate until such time that such price was finally agreed to by the
parties or determined by the District Court. The District Court would also
determine the continued validity of the NFG Contract.

The PSC left open the possibility that it might review the NFG Contract
after the completion of the District Court litigation. Thus, even if TGX
succeeded in the District Court action, it would have been possible that the
PSC would attempt to disapprove the contract price set by the District Court.
This issue had not yet been addressed by the District Court.

In September 1994, TGX amended and supplemented its counterclaims in the
District Court action to assert additional claims against NFG for breach and
repudiation of the NFG Contract and for punitive damages based upon NFG's bad
faith course of conduct towards TGX.

NFG raised various defenses against TGX's counterclaim in the District Court
action including claims that TGX itself repudiated and breached the contract
by its conduct; a claim that the assignment of the contract from Paragon to
TGX was not valid; procedural and jurisdictional defenses; defenses based upon
the Public Service Law; a claim that TGX failed to fix a price in good faith
after the issuance of Opinion 83-26; and a claim for setoffs for unspecified
damages to NFG's facilities.

The Magistrate Judge assigned to monitor pretrial discovery in the District
Court action issued a scheduling order pursuant to which the parties engaged
in costly documentary discovery into the allegations raised by the pleadings
in the litigation. Although the scheduling order anticipated that discovery
would be completed by September 1996, it would not have been possible to
predict when this litigation would come to an end given the possible appeals
and collateral PSC proceedings that could take place, nor would it have been
possible to predict the likely outcome of the litigation.

Subsequent to the PSC's 1995 Decision, NFG in 1995 brought a special
proceeding in the New York State Supreme Court, Albany County, seeking a
judgment annulling, as affected by an error of law, so much of the PSC's 1995
Decision as dismissed NFG's request for declaratory ruling that TGX's
wholesale charges for certain

44
<PAGE>

gas sold or delivered to NFG in the aftermath of Opinion 83-26 were consistent
with the Public Service Law 110(4) "just and reasonable charge" standard. TGX
intervened in this proceeding to protect its interests. This special
proceeding was dismissed by NFG in January, 1996 based upon the PSC's
agreement to represent that its articulated reasons for dismissing NFG's
petition should be understood as constituting an exercise of the PSC's
discretion under 204 of the State Administrative Procedure Act to decline to
entertain NFG's request for a declaratory ruling.

During its Reorganization Proceeding, TGX filed an adversary proceeding (the
"Turnover Proceeding") in the Bankruptcy Court to compel NFG to pay the amount
due to TGX pursuant to the provisions of the NFG Contract. Effective June 19,
1992, TGX and NFG entered into a partial settlement agreement, and, in
consideration of a payment of $2,940,000 (the "Payment") from NFG, TGX (i)
dismissed the Turnover Proceeding without prejudice (ii) released NFG (subject
to certain limitations) from any and all liability and affirmative claims for
relief alleged to arise from or based upon certain evidence presented by TGX
in the Turnover Proceeding, and (iii) reserved its rights regarding the
assumption or rejection of certain other relatively minor gas purchase
agreements with NFG. The Payment will be credited against any additional
amount which may be adjudged due TGX from NFG.

As part of its sale of substantially all of its oil and gas properties in
Ohio and New York to BBC in January 1994, TGX assigned the NFG Contract to BBC
effective December 1, 1993. TGX's assignment of the NFG Contract did not
include TGX's rights in its existing claims against NFG, any proceeds
therefrom, and TGX's rights, claims or causes of action, even if they had not
yet been asserted, that arose prior to the effective time of the assignment.

On April 12, 1996, a final settlement of the NFG Litigation was reached. In
return for a lump-sum payment to TGX, of which TGX will retain approximately
$3.5 million after payments to other parties entitled to participate in the
proceeds, a full release of all claims between the parties was executed.

See Notes 3 and 14 of the Notes to Consolidated Financial Statements.

FRESH START REPORTING

As a result of the substantial consummation of the Reorganization Plan and
due to (i) the reallocation of the voting rights of equity interests owners
and (ii) the reorganization value of TGX's assets being less than the total of
all of its post-petition liabilities and allowed claims, as of October 2,
1992, the effects of the Reorganization Proceeding were accounted for in
accordance with the fresh start reporting standards promulgated under the
American Institute of Certified Public Accountants Statement of Position 90-7
"Financial Reporting by Entities in Reorganization Under the Bankruptcy Code"
("SOP 90-7").

In conjunction with implementing fresh start reporting, the Company's
management determined a reorganization value ("RV') which attempted to
establish the fair market value of the Company as of the date of substantial
consummation of the Plan. Oil and gas property and other related asset values
were estimated by discounting future net revenues on the basis of actual, or
in some instances, assumed prices. Other assets were valued at their book
value. The value of the Company's Senior Preferred Stock, which was issued
pursuant to the Plan, was determined on the basis of the difference between
the RV of the Company's assets less the present value of liabilities and the
par value of preconsummation equity interests. For further information
concerning the method of calculating the RV, see Note 2 of the Notes to
Consolidated Financial Statements.

The RV was determined by management on the basis of its best judgment of
what it considered at the time to be the fair market value ("FMV') of the
Company's assets and liabilities, after reviewing relevant facts concerning
the price at which similar assets were being sold between willing buyers and
sellers. However, there can be no assurances that the RV and the FMV are
comparable and the difference between the Company's calculated RV and the FMV
may, in fact, be material.

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<PAGE>

In conjunction with the implementation of fresh start reporting, the Company
also implemented the successful efforts method, rather than the full cost
method, of accounting for oil and natural gas properties. In the opinion of
the Company's management, this accounting method was preferable since it would
result in a better matching of oil and natural gas revenue with the related
exploration and production cost and expense. See Note 1 of the Notes to
Consolidated Financial Statements.

REORGANIZATION PROCEEDING

Overview of the Plan. The following is a brief summary of certain
information regarding the Reorganization Plan. The summary is necessarily
incomplete and selective and is qualified in its entirety by reference to the
Plan, the full terms of which are hereby incorporated by reference.

Pursuant to the Reorganization Plan, the Company entered into the Amended
Credit Agreement with BMO, and, depending on the amount of the claim,
satisfied unsecured claims with cash or Senior Preferred Stock. See "Business
and Properties of the Company--Bank Indebtedness", and "--Unsecured Claims".
In addition, certain specified classes of claims were paid in cash, retained
or otherwise provided for. Administrative claimants holding allowed
Administrative Claims under the Reorganization Plan were paid in cash or had
their claims otherwise satisfied, and numerous executory contracts were
assumed or rejected by TGX. See "Business and Properties of the Company--
Administrative Claims." As of June 30, 1996, the aggregate balance of
prepetition obligations related to assumed executory contracts is
approximately $317,000, which is related to undistributed net oil and gas
revenues and which is in a "suspended pay" status.

As of the effective date of the Reorganization Plan, the preferred and
common stockholders selected a new Board of Directors (the "New Board")
comprised of eight individuals to serve until January 1995, or until their
successors were duly elected and qualified. The New Board consisted of five
members selected by holders of the Senior Preferred Stock (two of which were
designees of Steinhardt, and one of which could not be an affiliate of any
holder of the Senior Preferred Stock) and two members selected by holders of
the other classes of stock acting as one class. The remaining member of the
New Board was required to be the chief executive officer of the Company. In
January 1995 TGX amended the TGX Bylaws to provide for a Board of five
members. Two members subsequently resigned and the Board currently consists of
three members who will serve until their successors are duly elected and
qualified. When new directors are elected, the Reorganization Plan provides
that directors are to be elected without regard to class representation.
However, holders of Senior Preferred Stock have 95% of the voting power of TGX
and a plurality of such holders can, therefore, effectively elect all
directors. Also, in accordance with the TGX Certificate, two directors in
addition to the five directors presently required by the TGX Bylaws are to be
elected solely by the holders of the Senior Preferred Stock at the next annual
meeting following the failure to pay accumulated dividend arrearages in the
amount of six quarterly dividends until TGX has paid the accumulated dividend
arrearages on the Senior Preferred Stock. See "--Unsecured Claims"; "--Senior
Preferred Stock."

Administrative Expenses. During the Reorganization Proceeding, certain
claimants filed applications for Administrative Claims of approximately
$7,131,000 in administrative fees and expenses related to the Reorganization
Proceeding. Three of the large administrative claimants (the "Opposing
Administrative Claimants") agreed that in consideration for the satisfaction
in full of the balance of their Administrative Claims as of the date of
substantial consummation they would receive (i) a payment of $300,000 (ii)
55,000 shares of the Senior Preferred Stock and (iii) the conveyance of
approximately 29,400 acres of undeveloped land in Culberson and Hudspeth
Counties, Texas. For information concerning the payment of other
Administrative Claims see "Business and Properties of the Company -
Administrative Claims".

Unsecured Claims. Pursuant to the Reorganization Plan, the Company
designated the Senior Preferred Stock to be issued to holders of certain
classes of claims and retained its Old Preferred Stock and Common Stock. The
total number of shares of Senior Preferred Stock authorized is 10,000,000.

46
<PAGE>

Senior Preferred Stock. The Reorganization Plan provided for a total of
8,529,246 shares of Senior Preferred Stock to be issued to holders of certain
unsecured claims on the basis of one share of Senior Preferred Stock for every
$10 of certain finally allowed or otherwise agreed upon claims. The Senior
Preferred Stock entitles its holders to receive a 10% annual compounded cash
dividend, payable quarterly, provided however, that the payment of such
dividend does not violate Delaware law or certain covenants in the Company's
bank loan agreements. At any time after January 21, 1995, whenever quarterly
dividends payable on the Senior Preferred Stock are in arrears in an aggregate
amount equal to six full quarterly dividends (which need not be consecutive),
the number of directors of the Company is increased by two and such additional
directors are elected by the holders of the Senior Preferred Stock at the next
succeeding annual meeting of stockholders (and at each succeeding annual
meeting of stockholders thereafter until such right shall terminate as
provided pursuant to the Plan). The Company has not paid any of the quarterly
dividends required since the effective date of the Plan.

The Senior Preferred Stock was issued without registration under the
Securities Act of 1933, as amended (the "Securities Act") in reliance upon the
exemption from registration available under Section 1145 of the Bankruptcy
Code.

Holders of Senior Preferred Stock have a liquidation preference in the
amount of $10 per share, with the holders of Senior Preferred Stock having
priority over the liquidation preference afforded the holders of Old Preferred
Stock and Common Stock. At the option of the Company, the Senior Preferred
Stock is redeemable in whole or in part at any time at a price per share equal
to the liquidation preference amount per share, plus all accrued and unpaid
dividends through the date of redemption. The Company must redeem all
outstanding shares of the Senior Preferred Stock at the full redemption price
on or before ten years from the effective date of the Plan unless such
redemption would violate Delaware law, in which case the Company must redeem
the Senior Preferred Stock as soon as it is possible in accordance with
Delaware law.

Holders of Senior Preferred Stock have 95% of the voting rights of TGX with
the remaining 5% of voting rights being allocated collectively among holders
of the Old Preferred Stock and Common Stock (herein collectively called the
"Other Stock").

Junior Preferred Stock. Any claimants entitled to receive shares of Series B
Preferred Stock, par value $1.00 per share ("Junior Preferred Stock"), receive
one share of Junior Preferred Stock for every $10 of finally allowed claims.
To date, no claims to be satisfied by Junior Preferred Stock have been finally
allowed and the Company does not currently anticipate that any such claims
will be finally allowed.

Old Preferred Stock. The 471,500 shares of Old Preferred Stock, with a
liquidation preference of $10 per share, ranks junior in preference and
priority to Senior Preferred Stock. Subject to the prohibitions of Delaware
law and the Amended Credit Agreement, Old Preferred Stock receives dividends
at the rate of 9% per annum beginning on the Effective Date of the Plan,
payable annually on the first business day of January of each year, with such
dividends being paid in additional shares of Old Preferred Stock until the
Senior Preferred Stock is redeemed in full. Subsequent to their sale of LEDCO
to TGX, Gaylon D. Simmons and Gloria Annette Turner Simmons (collectively,
"Simmons"), the former owners of LEDCO, have been engaged in a series of
lawsuits against TGX and certain other parties. Pursuant to the Plan, Simmons
will not seek recoveries against the Company in this litigation. In addition,
any recoveries by Simmons from other parties, after a reduction for Simmons'
reasonable attorneys' fees and costs plus interest, will result in the
cancellation of securities issued to Simmons to the extent necessary to assure
that Simmons' treatment under the Plan does not result in a double recovery on
identical causes of action.

The Old Preferred Stock may be converted in whole, at any time, or in part,
from time to time, at the option of the holder thereof into fully paid and
non-assessable shares of Common Stock at the conversion rate of four shares of
Common Stock for each share of Old Preferred Stock.

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<PAGE>

Common Stock. The Company is authorized to issue 100,000,000 shares of
Common Stock, of which 24,955,807 shares were outstanding as of May 31, 1996.
All outstanding shares of the Common Stock are fully paid and non-assessable.

The holders of Common Stock are entitled to one vote per share upon all
matters presented to them. Pursuant to the Reorganization Plan, holders of
Common Stock are entitled, collectively with holders of Old Preferred Stock,
to 5% of the total voting power of the Company. The holders of Common Stock
are entitled to dividends in such amounts as may be declared from time to time
out of any funds legally available for such purposes. However, no dividends
are payable until all accrued dividends have been paid to the holders of the
Preferred Stock. In the event of liquidation, dissolution or winding up of the
affairs of the Company, whether voluntary or involuntary, after payment of
debts and liquidation preferences on preferred stock, all remaining assets, if
any, will be divided and distributed among the holders of Common Stock pro
rata according to the number of shares owned by them. The Common Stock does
not have preemptive rights and is not subject to redemption.

Jurisdiction of Bankruptcy Court. The Reorganization Plan provides that the
Bankruptcy Court retains jurisdiction after the confirmation date for certain
matters including, but not limited to, (i) modifying the Plan pursuant to the
Bankruptcy Code, (ii) assuring the performance by TGX under the Plan, (iii)
enforcing and interpreting the terms and conditions of the Plan, (iv) entering
into such orders, including injunctions, as are necessary to enforce the
title, rights and powers of TGX and to impose such limitations, restrictions,
terms and conditions of such title, rights and powers as the Bankruptcy Court
may deem necessary and, (v) deciding issues concerning federal tax reporting
and withholding which arise in connection with the confirmation of the Plan.

PROPERTIES

Oil and Gas Exploration and Production. The Company's principal post
bankruptcy activity, prior to 1995, was the production of oil and natural gas.
In 1995, the Company began a modest program of oil and natural gas exploration
and development drilling and property acquisition activities as allowed by its
financial condition. The Company continues to maintain a staff of professional
and support personnel required to manage its existing properties, including
one engineer, and three marketing and land personnel. In addition, the Company
engages petroleum geologists and engineers on a contract basis, as required.

Proved Oil and Natural Gas Reserves.

(a) General:

Estimating economically recoverable crude oil and natural gas reserves
and the future net revenues therefrom is not an exact science and is based
upon a number of variable factors, such as historical production of the
subject properties as compared with similar producing properties, and
assumptions such as the effects of regulation by governmental agencies,
future taxes, and development and other costs, all of which may vary
considerably from actual results. All such estimates are to some degree
speculative, and classifications of reserves are only attempts to define
the degree of speculation involved. For these reasons, estimates of
economically recoverable reserves of crude oil and natural gas attributable
to any particular group of properties, the classification and risk of
recovering such reserves, and estimates of the future net revenues expected
therefrom, prepared by different engineers or by the same engineers at
different times, may vary substantially.

Proved oil and natural gas reserves are the estimated quantities of crude
oil, natural gas and natural gas liquids which geological and engineering
data demonstrate with reasonable certainty to be recoverable in future
years from known reservoirs under existing economic and operating
conditions. Estimates with respect to proved undeveloped and proved
developed non-producing reserves that may be developed and produced in the
future are based upon volumetric calculations or upon analogy to similar
types of reservoirs. Later studies of the same reservoirs based upon
production history may result in variations, which may be substantial. The
actual production, revenues, severance and excise taxes, development costs,
and operating

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<PAGE>

expenditures with respect to the Company's reserves as reflected herein may
vary from estimates, and such variances may be material.

Based on the independent petroleum engineering report of Netherland,
Sewell & Associates, Inc., as of January 1, 1996, utilizing year end
product prices and costs held constant, the Company's proved oil and
natural gas reserve volumes, in thousand of barrels of oil ("MBbls") and
billion of cubic feet of gas ("Bcf"), and associated estimated future net
revenues, undiscounted and discounted at 10% ("PV 10"), are as follows
(dollars in thousands):

<TABLE>
<CAPTION>
1995 1994 1993
-------------------- -------------------- --------------------
OIL(MBBL) GAS(BCF) OIL(MBBL) GAS(BCF) OIL(MBBL) GAS(BCF)
------------ ------- ------------ ------- ------------ -------
<S> <C> <C> <C> <C> <C> <C>
Proved developed........ 465 9.7 444 7.8 525 9.1
Proved undeveloped...... 479 2.5 487 2.6 N/R N/R
------- ------- ------- ------ ------- -------
Total proved reserves... 944 12.2 931 10.4 525 9.1
======= ======= ======= ====== ======= =======
<CAPTION>
1995 1994 1993
-------------------- -------------------- --------------------
UNDISCOUNTED PV 10 UNDISCOUNTED PV 10 UNDISCOUNTED PV 10
------------ ------- ------------ ------- ------------ -------
<S> <C> <C> <C> <C> <C> <C>
Proved developed........ $13,831 $ 8,816 $ 9,571 $6,594 $16,078 $10,943
Proved undeveloped...... 7,054 2,988 5,243 2,213 N/R N/R
------- ------- ------- ------ ------- -------
Total proved reserves... $20,885 $11,804 $14,814 $8,807 $16,078 $10,943
======= ======= ======= ====== ======= =======
</TABLE>
- --------
N/R = Not Reported

As a result of TGX's debt restructuring (See "Bank Indebtedness") and
anticipated cash flow, TGX included proved undeveloped reserves for the
first time in preparing its 1994 report disclosures. The recognition of the
proved undeveloped reserves was reflected as 1994 extensions and
discoveries. The 1995 report disclosures continue to include proved
undeveloped reserves. Estimated future development costs associated with
proved developed non-producing and proved undeveloped reserves for 1995 and
1994 total $3.8 and $3.6 million, respectively. Production of those
reserves is dependent upon the Company's ability to fund such future
development costs, which are scheduled to be incurred over numerous years.
The 1993 reserve disclosure continues to be reported utilizing only proved
developed reserves. See Note 12 of the Notes to Consolidated Financial
Statements for a discussion of the calculation of the estimated future net
revenues on an undiscounted and discounted basis.

(b) Sale of New York and Ohio Properties:

In January 1994, but effective as of December 1, 1993, the Company sold
substantially all of its New York and Ohio properties (the "Sold
Properties") to BBC for $16.2 million. In conjunction with this
transaction, the Company assigned to BBC the Company's contract with NFG,
pursuant to which a substantial portion of the Company's natural gas
underlying the Sold Properties was marketed. The assignment of the NFG
Contract was made with certain reservations relating to the NFG Litigation.
At the time of the sale, BMO released its liens on the Sold Properties and
the proceeds from the sale were used to repay a substantial portion of the
Company's debt to BMO. See "Bank Indebtedness" above.

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<PAGE>

The table below sets forth an analysis of the change in the Company's
proved oil and natural gas reserves for the periods indicated. Reserves are
stated in thousands of barrels of oil and billions of cubic feet of natural
gas.

<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- -----------
OIL GAS OIL GAS OIL GAS
--- ---- --- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C>
Proved reserves:
Beginning of year....................... 931 10.4 525 9.1 980 72.2
Sales of reserves in place.............. (2) -- (37) (.5) (111) (62.0)
Purchases of reserves-in-place.......... 22 1.2 -- -- -- --
Extensions and discoveries.............. 1 0.1 487 2.6 -- --
Revisions of previous estimates......... 55 2.2 18 1.4 (257) 2.6
Production (1).......................... (63) (1.7) (62) (2.2) (87) (3.7)
--- ---- --- ---- ---- -----
End of year............................. 944 12.2 931 10.4 525 9.1
=== ==== === ==== ==== =====
Proved-developed reserves................. 465 9.7 444 7.8 525 9.1
=== ==== === ==== ==== =====
</TABLE>
- --------
(1) 1995 and 1994 includes .220 and .590 Bcf, respectively, of gas volumes
related to gas balancing collections.

As a result of TGX's debt restructuring (see "Bank Indebtedness") and
anticipated cash flow, TGX included proved undeveloped reserves for the first
time in preparing its 1994 report disclosures. The addition of the proved
undeveloped reserves is reflected as 1994 extensions and discoveries. The 1995
report disclosures continue to include proved undeveloped reserves. The 1993
reserve disclosure continues to be reported utilizing only proved developed
reserves.

Except for the data contained in filings with the Securities and Exchange
Commission ("SEC") and information furnished in conjunction with the
Reorganization Proceeding pursuant to the order of the Bankruptcy Court, the
Company has not filed information relating to estimates of its proved oil and
natural gas reserves with any federal agencies.

Oil and Gas Production. Information pertaining to the Company's oil and
natural gas production is set forth in the table.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
----------------------
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Oil sales volume (MBbls)................................ 63 62 87
Average price per barrel................................ $17.20 $15.24 $17.10
Natural gas sales volume (Bcf)(1)....................... 1.701 2.241 3.712
Average price per Mcf................................... $ 1.49 $ 1.72 $ 2.22
Equivalent Mcf (6:1).................................... 2,078 2,613 4,234
Lease operating expense per equivalent Mcf.............. $ 0.92 $ 1.06 $ 0.93
Net oil and natural gas revenues (in thousands):
Sales revenues........................................ $3,611 $4,802 $9,730
Lease operating expenses.............................. (1,905) (2,772) (3,935)
------ ------ ------
Net oil and natural gas revenues........................ $1,706 $2,030 $5,795
====== ====== ======
</TABLE>
- --------
(1) 1995 and 1994 includes .220 and .590 Bcf, respectively, of gas volumes and
$213,000 and $634,000, respectively, of natural gas revenues related to
gas balancing collections.

In 1995 as a result of the Company's improving financial condition, the
Company participated in one (net .07) successful and one (net .16)
unsuccessful exploration well and three (net .47) successful and two (net .30)

50
<PAGE>

unsuccessful development wells. The Company had a 50% success ratio regarding
exploration well activity and a 60% success ratio regarding development
drilling activity. Company net drilling costs for 1995 totaled $372,000 of
which $69,000 was expensed as unsuccessful exploration cost. The Company also
acquired five (net 1.55) additional wells and interest in existing operated
wells at a net cost of $771,000 and implemented workover operations on ten
(net 3.69) operated wells at a net cost of $274,000. Drilling, acquisition and
workover activity for 1995 resulted in a weighted average finding cost per
equivalent barrel of oil of $3.32. In 1994, the Company participated only in
the recompletion attempt of one (net .55) unsuccessful exploration well.
During 1993, the Company participated in no significant drilling or workover
operations.

Leasehold Acreage and Productive Wells. The following table sets forth the
Company's interest in undeveloped acreage, developed acreage and productive
wells in which it owns a working interest as of December 31, 1995.

<TABLE>
<CAPTION>
UNDEVELOPED DEVELOPED PRODUCTIVE
ACREAGE ACREAGE WELLS(1)
-------------- -------------- --------------
GROSS(2) NET(3) GROSS(2) NET(3) GROSS(2) NET(3)
-------- ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Arkansas........................ 50 31 2,760 977 41 15
Louisiana....................... 1,048 533 5,726 1,294 11 2
Oklahoma........................ 4,731 633 36,657 3,797 61 6
Texas........................... -- -- 9,835 1,102 24 4
Other States.................... -- -- 1,800 675 12 4
----- ----- ------ ----- --- ---
Total......................... 5,829 1,197 56,778 7,845 149 31
===== ===== ====== ===== === ===
</TABLE>
- --------
(1) Productive wells are wells capable of producing oil or natural gas.
(2) Gross represents the total number of acres or wells in which the Company
owns a working interest.
(3) Net represents the Company's proportionate working interest resulting from
its ownership in the gross acres or wells.

The following table provides, as of December 31 for each year presented
excluding Sold Properties for 1993 and 1994, and managed partnership wells
liquidated in 1995, additional information pertaining to the productive wells
in which the Company owns a working interest.

<TABLE>
<CAPTION>
GROSS(1) NET(2)
------------- -------------
OIL GAS TOTAL OIL GAS TOTAL
--- --- ----- --- --- -----
<S> <C> <C> <C> <C> <C> <C>
1993................................................ 72 93 165 18 14 32
1994................................................ 58 89 147 17 13 30
1995................................................ 56 93 149 17 14 31
</TABLE>
- --------
(1) Gross wells are the total number of wells in which the Company owns a
working interest.
(2) Net represents the Company's proportionate interest resulting from its
working interest ownership in each gross well.

Natural Gas Treating Plant. Through a joint venture, the Company owns a 35%
interest in a natural gas treating plant located in the Comite Field, East
Baton Rouge Parish, Louisiana. Natural gas from one well operated by the
Company and two wells operated by third parties is transported to the plant
where it is treated to satisfy pipeline specifications. The plant also
provides condensate handling and saltwater disposal facilities. The Company
receives cash distributions from the joint venture for its share of net cash
flow. In addition, the joint venture charges the Company for gas treating and
such charges are included in operating expenses. For information concerning
this treating plant, see Note 5 of the Notes to Consolidated Financial
Statements.

COMPETITION, MARKETS AND OTHER EXTERNAL FACTORS

Competition and Marketing--Oil and Natural Gas Industry. The oil and natural
gas industry is highly competitive both in the search for and acquisition of
oil and natural gas reserves and in the redefining, processing

51
<PAGE>

and marketing of petroleum products. Competitors include the major and
independent crude oil and natural gas companies, individual producers and
operators, and major pipeline companies. Other sources of energy, such as coal
and nuclear power, also provide competition, and crude oil and natural gas are
subject to substantial competition from foreign sources.

The price the Company receives for its oil production depends on many
variables over which it has no control, such as the world supply of, and
demand for, oil, the level of imports, and the political stability of foreign
governments. The influence exerted by these and other factors have caused
domestic oil prices to fluctuate dramatically.

The availability of a ready market as well as the price received for natural
gas produced and sold by the Company also depends upon numerous factors beyond
its control, including the proximity of producing natural gas properties to
pipelines, the capacity of such pipelines, fluctuations in seasonal or overall
demand, domestic deliverability, government regulations, and competition from
alternative forms of energy. A trend has emerged recently among major natural
gas marketing companies toward consolidation mergers, both amongst themselves
as well as in the form of strategic alliances with large producers or end-
users. These consolidations have the effect of putting control of the majority
of the supply and the market in hands of a few industry participants. The
longer term ramifications of this trend are difficult to foresee, but will
likely have an impact on the way natural gas is bought and sold in the future
and this impact could be potentially more significant to the smaller
independent producers such as the Company.

Major Companies. Information concerning sales to customers who accounted for
more than 10% of total revenues, the loss of any of which could have a
material adverse effect on the Company's operations if alternative customers
could not be found, is contained in Note 11 of the Notes to Consolidated
Financial Statements appearing elsewhere herein. As a result of the sale of
properties to BBC in 1993, the Company no longer makes any significant natural
gas sales to NFG.

Production and Development Hazards. Hazards such as unexpected formations,
blow-outs, cratering and fires are involved in crude oil and natural gas
drilling, production and development activities. Such hazards, as well as
adverse weather conditions, may hinder or delay drilling and development
operations. TGX attempts to obtain and maintain insurance coverage customary
in the crude oil and natural gas industry, but may be subject to liability for
pollution and other damages or may lose substantial portions of its properties
due to hazards against which it is impossible or impractical (due to
prohibitive premium requirements) to maintain insurance. Governmental
regulations relating to environmental matters could also increase TGX's cost
of production and development operations or require it to cease production and
development operations in certain areas.

REGULATION

Environmental Regulation. The drilling for, production, transportation and
storage of oil and natural gas and the operation and maintenance of natural
gas treating plants are subject to various federal and state laws and
regulations designed to protect the environment. Moreover, various state and
governmental agencies are considering, and some have adopted, other laws and
regulations regarding environmental control which could adversely affect the
business of the Company. Compliance with such legislation and regulations,
together with any penalties resulting from noncompliance therewith, may
increase the cost of the Company's operations or may affect the Company's
ability to complete, in a timely fashion, existing or future activities.
However, the Company does not believe that such regulations could materially
and adversely affect its financial condition or operations at the present
time.

State Regulation. All states in which the Company conducts oil and natural
gas production operations have statutory provisions regulating the drilling
for, production, transportation, storage and sale of oil and natural gas. Such
statutes, and the regulations promulgated in connection therewith, generally
are intended to prevent the waste of oil and natural gas and to protect
correlative rights and opportunities to produce oil and natural gas as

52
<PAGE>

between owners of interests in a common reservoir. Certain state regulatory
authorities also regulate the amount of oil and natural gas produced by
assigning allowable rates of production to each well or proration unit.

Federal Regulation. The Company's sale of its natural gas had historically
been regulated by the Federal Energy Regulatory Commission ("FERC") under the
authority of the Natural Gas Policy Act of 1978 ("NGPA"), which established
price controls for various classifications of gas. However, as a result of the
Wellhead Decontrol Act of 1989, all NGPA price controls were terminated as of
January 1, 1993. The Company believes that this has had little or no impact on
its natural gas sales, since its reserves were either previously deregulated,
or sold under contracts with alternate pricing.

The Company may conduct operations on federal oil and natural gas leases,
and such operations must comply with numerous regulatory restrictions and
requirements issued by the Mineral Management Service, including various
nondiscrimination statutes, and certain of such operations must be conducted
pursuant to appropriate permits issued by the Bureau of Land and Management.

EMPLOYEES

As of May 31, 1996, the Company employed 14 persons, none of whom are
represented by a labor union or collective bargaining agent. Also at May 31,
1996, the Company had engaged three persons on a temporary contract basis to
perform certain engineering and financial and administrative functions. The
Company considers its relations with its employees to be good and has
experienced no work stoppages associated with labor disputes or grievances.

LEGAL PROCEEDINGS

Reorganization Proceeding. For information concerning the Company's
Reorganization Proceeding, see "Reorganization Proceeding" above.

NFG Litigation. For information concerning the NFG Litigation and its
settlement, see "NFG Litigation" above.

Former Director Litigation. On May 31, 1995, the Company entered into a
Settlement Agreement among itself, Paragon Resources, Inc., J.C. Templeton,
W.M. Templeton and a number of other former directors of the Company, trusts
on behalf of members of the Templeton family and other entities pursuant to
which all lawsuits between and among the parties were dismissed with
prejudice. In consideration therefor, the Company received $325,000, an
assignment of certain oil and gas leases, and receipt of past due joint
operating expenses payable by certain of the defendants. The Company released
lis pendens against certain of the defendant's properties and conveyed to the
defendants an interest in certain properties to which they were entitled. The
parties to the litigation also conveyed to the Company any Common Stock or
Preferred Stock which they held.

Other. In August 1992, certain unleased mineral interest owners commenced a
legal action against TGX, as operator of certain wells, in the 19th Judicial
District Court for East Baton Rouge Parish, Louisiana (Case Number 383844,
Division "A"). The complaint alleges that revenues in excess of the reasonable
costs of drilling, completing, and operating certain wells had not been
properly credited to the interests of the unleased mineral interest owners. In
July 1995, in a separate action, certain royalty owners in the same wells
commenced a legal action alleging that TGX and other working interest owners
improperly profited under the terms of a Gas Gathering and Transportation
Agreement dated December 12, 1983. Both cases are in the discovery stage and
if settlement negotiations are not successful, TGX will vigorously defend
itself in the litigation.

In March 1994, a hearing was conducted in the Bankruptcy Court regarding the
final allowance of prepetition and administrative claims related to an
overriding royalty interest previously conveyed by TGX. During that hearing,
the parties stipulated that the finally allowed amount of claimant's
prepetition claim would be $600,000. That prepetition claim was fully
satisfied by the issuance of 60,000 shares of Senior Preferred

53
<PAGE>

Stock. The Company had previously estimated that prepetition claim in that
amount, and therefore it had been reflected in prior years' financial
statements. Subsequent to the March 1994 hearing, and after post-healing
motions from both TGX and the claimant, the Bankruptcy Court entered an order
on September 7, 1994 which determined that the claimant would be granted an
allowed administrative expense claim for unpaid overriding royalties arising
post-petition but prior to October 4, 1992 in the amount of $244,000. That
administrative claim, when finally allowed, was to be treated by the issuance
of an Administrative Note under the terms of the Reorganization Plan and is to
be payable under the terms of the Reorganization Plan. The Bankruptcy Court
further ruled that it would not exercise any jurisdiction over claims for
alleged unpaid overriding royalties arising subsequent to October 4, 1992. In
May 1996, TGX settled this litigation for payment of $400,000 and the return
to the Company of the 60,000 shares of Senior Preferred Stock previously
issued.

From time to time, in the normal course of business, the Company is a party
to various other litigation matters the outcome of which, to the extent not
otherwise provided for, should not have a material adverse effect on the
Company.

MARKET PRICE INFORMATION

The Company. As a result of TGX's Chapter 11 filing, in March 1991, the
National Association of Securities Dealers, Inc. (the "NASD") notified TGX
that it was terminating the inclusion of TGX's Common Stock on the Nasdaq
National Market System. Through June 1992, the Company's common stock price
continued to be reported on Nasdaq. Since July 1, 1992, neither the Common
Stock nor the Senior Preferred Stock has been included on the Nasdaq National
Market System. TGX's Common Stock is listed on the NASD's "bulletin board".
Application will be made to list the New Common Stock on the Nasdaq Small Cap
Market, but there can be no assurance as to such listing.

As of June 30, 1996, there were approximately 3,985 holders of record of the
Company's Common Stock, and 1,542 holders of record of the Senior Preferred
Stock. The following table sets forth bid prices reported by the National
Quotations Bureau, Inc., for the Company's Common Stock. Trading of the
Company's Common Stock is very sporadic. There is no market for the Senior
Preferred Stock. All quotations represent bid prices between dealers without
retail markup or markdown or commission and do not reflect actual
transactions.

<TABLE>
<CAPTION>
QUARTER ENDED HIGH LOW
------------- ----- -----
<S> <C> <C>
1996:
March 31.................................................... $ * $ *
June 30..................................................... .0002 .0002
1995:
March 31.................................................... $ .03 $.001
June 30..................................................... .005 .005
September 30................................................ .01 .01
December 31................................................. .01 .002
1994:
March 31.................................................... .001 .001
June 30..................................................... .001 .001
September 30................................................ .001 .001
December 31................................................. .01 .001
</TABLE>
- --------
* No reported trading activity for the period noted.

Holders of Senior Preferred Stock have a dividend and liquidation preference
over holders of other classes of preferred stock and the Common Stock. As of
May 31, 1996, the redemption value and accrued dividends related to the Senior
Preferred Stock were $87,886,000 and $45,636,000, respectively. The Senior
Preferred

54
<PAGE>

Stock dividends must be paid in full prior to paying any dividends for the
Common Stock. Under a liquidation scenario, after secured debt and other
liabilities have been paid or provided for, the Senior Preferred Stock
redemption value of $87,886,000 plus any accrued dividends must be paid in
full before any liquidating distributions are made to the holders of other
preferred stock or Common Stock.

The Company has not paid, and does not anticipate paying, any cash dividends
with respect to its Preferred Stock or Common Stock. The Company is prohibited
from paying dividends on its Common Stock at any time that it is in arrears in
paying dividends on any class of its preferred stock. The Company is currently
in arrears in making such payments.

On June 30, 1996, the closing bid and asked price per share of the Common
Stock, as reported by the National Quotations Bureau, Inc., was $.0002.
Trading of the Company's Common Stock is very sporadic.

The Senior Preferred Stock has not been traded, and therefore, the Company
cannot determine the market value, if any, therefor.

GeoStrat. There is no public trading market for the New Common Stock. There
are 1,000 shares of New Common Stock currently outstanding, all of which are
held of record and beneficially by TGX. All shares of New Common Stock held by
TGX will automatically be cancelled upon consummation of the Merger.

55
<PAGE>

SELECTED CONSOLIDATED FINANCIAL INFORMATION

(IN THOUSANDS, EXCEPT PER SHARE DATA)

The selected consolidated financial information presented below for, and as
of the end of, each of the years in the three-year period ended December 31,
1995 is derived from the consolidated financial statements of TGX, which have
been audited by Price Waterhouse LLP, independent accountants. The
consolidated financial statements as of and for the six-month periods ended
June 30, 1996 and 1995 have not been audited, but, in the opinion of
management, such financial information includes all adjustments (consisting
only of normal recurring adjustments) necessary for fair presentation. The
following selected consolidated financial information should be read in
conjunction with TGX's consolidated financial statements and related notes and
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations."

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
------------------ ----------------------------
1996 1995 1995 1994 1993
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues(1)(2)............. $ 6,446 $ 2,099 $ 4,597 $ 6,498 $ 10,997
Costs and expenses:
Operating and exploration
expenses................. 1,083 1,027 1,974 3,188 3,935
Depletion, depreciation
and amortization(3)...... 461 371 973 1,414 2,995
Provision for loss on sale
of assets(2)............. -- -- -- -- 12,415
General and administrative
expenses................. 1,253 582 1,476 1,747 3,323
Interest.................. 54 61 142 969 2,246
-------- -------- -------- -------- --------
Total costs and
expenses.............. 2,851 2,041 4,565 7,318 24,914
-------- -------- -------- -------- --------
Income (loss) before income
tax
expense and extraordinary
gain...................... 3,595 58 32 (820) (13,917)
Income tax expense
(benefit)................. 164 -- (163) 180 --
-------- -------- -------- -------- --------
Income (loss) before
extraordinary gain........ 3,431 58 195 (1,000) (13,917)
Extraordinary gain(3)...... -- 93 93 4,991 --
-------- -------- -------- -------- --------
Net income (loss).......... 3,431 151 288 3,991 (13,917)
Preferred stock dividends
and accretion of Senior
Preferred redemption
value..................... (9,392) (9,076) (17,353) (14,760) (13,034)
-------- -------- -------- -------- --------
Net loss applicable to
common stock.............. $ (5,961) $ (8,925) $(17,065) $(10,769) $(26,951)
======== ======== ======== ======== ========
Net loss per share of
common stock:
Before extraordinary gain. $ (0.24) $ (0.35) $ (0.68) $ (0.62) $ (1.06)
Extraordinary gain........ -- -- -- 0.20 --
-------- -------- -------- -------- --------
Net loss per share of
Common Stock............. $ (0.24) $ (0.35) $ (0.68) $ (0.42) $ (1.06)
======== ======== ======== ======== ========
Average common shares
outstanding............... 24,956 25,254 25,105 25,314 25,314
Cash dividends............. -- -- -- -- --
Capital expenditures....... $ 420 $ 178 $ 1,128 $ 27 $ 394
BALANCE SHEET DATA:
Working capital (deficit).. $ 1,260 $ (1,981) $ (1,771) $ (1,482) $ (9,209)
Property and equipment,
net....................... 7,364 7,064 7,411 7,257 9,404
Total assets............... 11,772 9,308 9,791 10,676 30,065
Long-term debt............. -- 200 500 1,150 --
Redeemable Senior Preferred
Stock..................... 70,996 53,569 61,737 44,602 30,013
Stockholders' equity
(deficit)................. (61,626) (47,795) (55,799) (39,004) (28,505)
</TABLE>
- --------
(1) Six months ended June 30, 1996 revenues includes $3.5 million of net
litigation settlement proceeds. See Note 14.
(2) Effective December 1, 1993 TGX sold substantially all of its New York and
Ohio properties to Belden & Blake Corporation for $16.2 million and
recorded in 1993 a provision for loss on sale of assets of $12.4 million.
(3) See Notes 1, 3 and 14 of TGX's Notes to Consolidated Financial Statements.

56
<PAGE>

MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

SIX MONTHS ENDED JUNE 30, 1996 ("1996") COMPARED TO JUNE 30, 1995 ("1995")

General. The following discussion provides information which management
believes is relevant to an understanding and assessment of the Company's
results of operations and financial condition, and those presently known
events, trends or uncertainties that are reasonably likely to have a material
impact on the Company's future results of operations or financial condition or
that are reasonably likely to cause the historical financial statements not to
be necessarily indicative of future operating results or financial condition.
It should be read in conjunction with the unaudited consolidated financial
statements and related notes appearing elsewhere herein.

RESULTS OF OPERATIONS

Consolidated revenues for the first half of 1996 totaled $6,446,000, up
$4,347,000 from 1995 consolidated revenues of $2,099,000. The substantial
revenue increase for 1996 is due to the receipt of net litigation settlement
proceeds of $3,500,000 related to the NFG Litigation and a $145,000 gain on
property sales, both non-recurring items, combined with improved results in
other areas as discussed below.

Total costs and expenses for 1996 were $2,851,000, up $810,000 or 40% over
total costs and expenses reported for the same period in 1995. Over half of
the 1996 expense increase is related to second quarter recognition in 1995 of
a $425,000 receivable allowance recoupment which decreased reported general
and administrative expense for the six month period of 1995.

Net income before income taxes and extraordinary gain in the first half of
1996 was $3,595,000, compared to income of $58,000 for 1995.

Revenues

Revenues from oil and natural gas sales for the 1996 period were $2,327,000,
up 40% or $665,000 over 1995 on improved volumes and prices. A summary of oil
and natural gas sales volumes and revenues for the respective periods follows:

Summary of Oil Volumes and Revenues

<TABLE>
<CAPTION>
1996 1995 CHANGE
------ ------ ------
<S> <C> <C> <C>
Oil revenues (in thousands)................................ $ 726 $ 561 29%
Oil sales volume (barrels)................................. 36,300 31,600 15%
Oil average sales price per barrel......................... $20.00 $17.75 13%
</TABLE>

Summary of Natural Gas Volumes and Revenue

<TABLE>
<CAPTION>
1996 1995 CHANGE
------ ------ ------
<S> <C> <C> <C>
Natural gas revenues (in thousands)........................ $1,601 $1,101 45%
Natural gas sales volume (Mmcf)............................ 776 748 4%
Natural gas average sales price per Mcf.................... $ 2.06 $ 1.47 40%
</TABLE>

On an equivalent unit basis (one barrel of oil equals six Mcf of natural gas
on a heating value basis), natural gas represents 78% of TGX's 1996 oil and
natural gas sales volumes and 69% of oil and natural gas revenues. Due to the
Company's production being heavily weighted toward gas, its revenues and cash
flow are significantly influenced by changes in gas prices. During the first
half of 1996, average gas prices increased to $2.06 or $0.59 per Mcf from the
1995 average price of $1.47. Current period oil prices were also higher than
the previous period

57
<PAGE>

by $2.25 per barrel. Higher oil and gas product prices contributed to an
increase in revenues for 1996 of $540,000. Oil and gas product prices continue
to be very volatile with gas futures prices for September delivery down from
current quarter end prices, but still up considerably from the same period
last year. Oil futures prices for September delivery, on the other hand, are
up both from current quarter end and the same period last year.

Natural gas sales volumes for 1996 were 776 Mmcf, up 4% from sales reported
in 1995 of 748 Mmcf which included non-recurring volumes related to imbalance
settlements and well payout adjustments of 101 Mmcf. Excluding 1995 gas
balancing and payout adjustment volumes, gas sales volumes for 1996 increased
by 129 Mmcf or 20%. The Company records gas revenues on the net sales method
and thus revenues are recorded when received or operations merit accrual.

Oil volumes for 1996 were 36,300 barrels, up 15% over 1995 volumes of 31,600
barrels which included non-recurring payout volume adjustments of 7,600
barrels. Excluding the non-recurring volumes recognized in 1995, oil volumes
for 1996 were up 12,300 barrels or 51% as compared to the same period in 1995.

The increase in 1996 oil and gas sales volumes resulted in additional 1996
revenues of $125,000 compared to those reported in 1995. The sales volume
increases for the first half of 1996 reflect the successful results of the
Company's acquisition, drilling and workover activity. The Company anticipates
further increases in production volumes and operating results during the
second half of 1996 as it continues to expand its capital program activities.

Natural gas gathering and equity earnings in Comite Field Plant Venture
revenues increased by 22% to a combined total of $417,000 in 1996 as compared
to $341,000 in 1995. This increase is primarily attributable to recoupment of
previously deferred treating fees and higher per Mcf contract treating fees.

As previously mentioned, on April 12, 1996 the Company entered into a
settlement agreement with NFG and the Public Service Commission of the State
of New York. Pursuant to the agreement, TGX received on April 19, 1996 $7.2
million from NFG and all parties to the settlement agreement dismissed all
claims and counterclaims against each other. Pursuant to amended credit
agreements with BMOF (See Notes 3 and 14), 50% of the settlement proceeds were
paid to BMOF in cancellation and full payment of the non-recourse secured
note. As a result of the NFG proceeds and $3.6 million BMOF payment and
$100,000 payment to another third party entitled to participate in the
proceeds, the Company retained $3.5 million of settlement proceeds and
recorded a corresponding one-time amount as net litigation settlement
revenues.

For 1996 the Company recorded property sales and other revenues of $202,000
as compared to 1995 revenues of $96,000. The increase in 1996 revenues is
primarily the result of the Company selling approximately 54 marginal wells
for net proceeds of $145,000. Included in 1995 revenues is approximately
$50,000 of gain recognized in the liquidation of various Company managed
limited partnerships. The limited partnership liquidations were completed in
late 1995.

Cost and Expenses

Consolidated costs and expenses for 1996 increased by $810,000 or 40% to
$2,851,000 as compared to $2,041,000 for 1995. The increase in expenses was
primarily due to higher 1996 operating and general and administrative expenses
and an increase in non-cash depletion, depreciation and amortization expense.

For 1996, total operating expenses increased $94,000 or 10% to $1,083,000 as
compared to $989,000 for 1995. Included in operating expenses are workover
costs, severance taxes and expenses for both pre and post wellhead production
costs. During 1995 the Company recognized $38,000 of costs related to
unsuccessful exploration activity. Thus far for 1996, the Company has not
incurred such costs.

Workover costs for 1996 and 1995 totaled $133,000 and $193,000,
respectively, and represent discretionary well production activities that are
implemented to enhance or increase production. A significant portion of the

58
<PAGE>

workover costs incurred are related to the Company's major field in Arkansas
and resulted in increases in production. Additional workovers are scheduled
for 1996.

Severance taxes for 1996 and 1995 were $121,000 and $37,000, respectively.
Severance taxes for 1995 reflect a favorable one-time adjustment related to a
first quarter pre-petition tax settlement of $42,000. The remaining increase
in severance taxes is related to increased sales volumes and prices.

Excluding workover costs and severance taxes, 1996 and 1995 operating
expenses totaled $829,000 and $759,000, respectively, for production costs
through the wellhead, as well as post production costs incurred beyond the
wellhead such as treating, marketing and transportation. Operating expenses
related directly to production for 1996 were $401,000 as compared to $417,000
for 1995. Production cost for 1996 increased, after excluding a 1995 one-time
well payout adjustment of $56,000, primarily due to additional wells acquired
in December 1995.

Post-production costs of $428,000 in 1996 increased approximately $99,000
compared to 1995 primarily as a result of the recognition in 1996 of
additional treating fees previously deferred pursuant to an agreement.

Depletion, depreciation, and amortization ("DD&A") expense in 1996 increased
$90,000 or 24% to $461,000 from $371,000 in 1995 due to increases in sales
volume and weighted average DD&A rate per equivalent Mcf. Equivalent Mcf sales
volumes for 1996 increased approximately 6% while the weighted average DD&A
rate for the current six months increased 10% to $0.45 per equivalent Mcf as
compared to 1995's rate of $0.41.

General and administrative expenses in 1996 increased by $671,000 or 115% to
$1,253,000 from $582,000 in 1995 due primarily to 1995 including benefits from
a litigation receivable recoupment and reimbursements from previously managed
limited partnerships. In the second quarter of 1995, the Company recognized a
receivable allowance recoupment of $425,000 in conjunction with litigation
settlement regarding affiliated receivables. During late 1995, the Company, as
part of its plan of divesting non-strategic assets, liquidated the remaining
eight managed limited partnerships. Thus, 1995 general and administrative
expense benefited from partnership expense reimbursements of approximately
$224,000. Excluding the 1995 receivable allowance recoupment and partnership
reimbursement benefits, 1996 general and administrative expenses were
relatively unchanged as compared to 1995.

Interest expense for 1996 and 1995 was relatively unchanged. Included in
both periods is $18,000 of amortization of credit facility establishment costs
which are being amortized over the initial term of the facility.

Due to tax loss carryforwards, the Company currently pays federal
alternative minimum income taxes only. In conjunction with the recognition of
the litigation settlement and related tax gain resulting from the final BMO
debt settlement, the Company has estimated and accrued alternative minimum
income taxes in 1996 of $164,000. The tax expense recognized represents an
effective tax rate of 4.6% on income before income taxes.

Pursuant to the terms of the Plan, dividends for the Senior Preferred Stock
are calculated at 10%, compounded annually and resulted in dividends for 1996
of $6,393,000 as compared to $6,616,000 for 1995. Dividends on the Old
Preferred Stock were $134,000 for 1996 and 1995.

The accretion of the Senior Preferred redemption value, a non-cash item, is
calculated based on the interest method. Accordingly, the amount of accretion
increased by 23% to $2,865,000 for 1996 as compared to $2,326,000 in 1995.

59
<PAGE>

FINANCIAL CONDITION

During the first half of 1996, the Company's capital expenditures totaled
$420,000 and were primarily related to development drilling activity. The
Company also incurred workover costs of $133,000. The positive results of
these expenditures are reflected in the increased sales volumes reported in
1996 and such activity should continue to benefit future operating results.

At June 30, 1996, the Company had positive working capital of $1,260,000
which represents an increase of $3,031,000 from the prior year end deficit.
The significant improvement in working capital is attributable to the $3.5
million of net litigation settlement proceeds received in April 1996 (See Note
2).

As a result of the litigation settlement proceeds, the Company retired in
April the $900,000 of Bank One credit facility borrowings then outstanding and
had no borrowings outstanding as of June 30, 1996. The borrowing base under
the credit facility at June 30, 1996 was $2,200,000 and is reduced monthly by
$50,000. The borrowing base is redetermined on a semi-annual basis or at any
time at Bank One's election. The credit facility is secured by substantially
all of the Company's assets and includes financial and default covenants
standard to the industry. The Bank One credit facility was initially repayable
over a 36 month period and any borrowings outstanding are due on July 13,
1997.

The Company has certain dividend and redemption obligations related to the
Senior Preferred shares. For financial reporting purposes, the Senior
Preferred shares have both debt and equity characteristics and, accordingly,
are not classified as a component of stockholders' equity. At June 30, 1996,
the Senior Preferred redemption value and accrued dividends were $87,886,000
and $46,831,000, respectively. These amounts, plus any additional accrued
dividends, must be satisfied before any value can be attributed to the holders
of Old Preferred and Common Stock.

At June 30, 1996, the Stockholders' deficit was $61,626,000. Due to the
dividend requirements for the Senior Preferred Stock and Old Preferred Stock
and accretion of the redemption value of Senior Preferred, under the current
capital structure, it is probable that the Company's Stockholders' equity will
remain a deficit for the foreseeable future.

LIQUIDITY AND CAPITAL RESOURCES

For 1996 to date, the Company's cash provided by operating activities was
$2,894,000 and included net litigation settlement proceeds of $3.5 million
(See Note 2). Also, included in cash provided by operating activities is
approximately $343,000 of proceeds received from the Company's 35% equity
investment in the Comite Plant Venture. The decrease in accounts payable and
accrued liabilities of $951,000 includes the payment of $400,000 in regards to
litigation settlement of a pre-petition administrative claim which had been
previously accrued. Primarily as a result of the litigation settlement, the
Company had a positive working capital of $1,260,000 at the end of the current
period.

The Bank One credit facility has a current borrowing base of approximately
$2.2 million with no borrowings outstanding. The Company has letter of credit
commitments totaling $60,000 outstanding under the credit facility resulting
in a quarter-end facility availability of $2.14 million. Though the borrowing
base is reduced monthly by $50,000 and all amounts borrowed are due July 13,
1997, the Company is currently negotiating an extension of the facility to
July 1999 and anticipates receiving final approval in the near future. As a
result of the Company's working capital position, improving operating results
and availability under the facility, capital resources are deemed sufficient
for current operating activities.

60
<PAGE>

other working interest owners who have sold more than their proportionate
share of natural gas production. On an aggregate net basis for certain natural
gas properties, it appears that the Company is in an under-produced status and
is currently recouping or attempting to settle its net under-produced status.
Any balancing recoupments or settlements, which will typically be over a
period of time, are not anticipated to be material to future operating
results.

Subject to the availability of cash flow for 1996, the Company's capital
expenditure budget will be substantially related to the development of proved
developed non-producing and undeveloped reserves or similar risk type
projects. The Company shall also continue to review its investment
opportunities, consistent with its available capital, to determine if asset
enhancement can be best obtained through either development of existing
Company reserves, drilling and/or acquisition.

YEARS ENDED DECEMBER 31, 1995 AND 1994

General. As a result of the Reorganization Proceeding, which was
substantially consummated on October 2, 1992, the Company is required to
present its financial statements pursuant to fresh start reporting standards,
and accordingly, the financial statements of the Reorganized Company are not
comparable to the financial statements of the Predecessor Company. However, in
the case of the statement of operations, the Company believes that comments
comparing calendar years are appropriate in order to provide a more meaningful
understanding of the Company's operations.

The following discussion provides information which management believes is
relevant to an understanding and assessment of the Company's results of
operations, financial condition, and those presently known events, trends or
uncertainties that are reasonably likely to have a material impact on the
Company's future results of operations or financial condition or that are
reasonably likely to cause the historical financial statements not to be
necessarily indicative of future operating results or financial condition. It
should be read in conjunction with the selected financial data appearing in
the preceding section and the consolidated financial statements and related
notes appearing elsewhere herein.

Results of Operations. A comparison of operating income for 1995 as compared
to 1994 is (amounts in thousands):

<TABLE>
<CAPTION>
1995 1994 CHANGE
------ ------ ------
<S> <C> <C> <C>
Oil and natural gas revenues....................... $3,611 $4,802 (25%)
Gas gathering and equity in treating revenues...... 694 727 (4%)
Gain on property sales, net, and other revenues.... 292 969 (70%)
Operating and exploration expenses................. (1,974) (3,188) (38%)
Depletion, depreciation and amortization........... (973) (1,414) (31%)
General and administrative expenses................ (1,476) (1,747) (16%)
------ ------
Operating income................................... $ 174 $ 149 (17%)
====== ====== =====
</TABLE>

Operating income for 1995 and 1994 was significantly impacted by
management's continuing efforts regarding cost reductions and revenue
collection accelerations. As a result, operating income for 1995 and 1994
benefited by collection of previously allowed for receivables of $425,000 and
$751,000, respectively, and gas balancing revenues, net of operating expenses
and production taxes, of $213,000 and $634,000, respectively. Operating
results for 1995 also included a prepetition tax settlement benefit, including
interest, of $251,000. Excluding receivable recoupments, gas balancing net
revenues and tax settlement, operating results for 1995 and 1994 would have
been a loss of $715,000 and $1,236,000, respectively.

Revenues. Consolidated revenues for 1995 declined by 29% or $1,901,000 to
$4,597,000 as compared to $6,498,000 for 1994. The decrease in consolidated
revenues was primarily the result of lower gas revenues and a decrease in
gains on property sales and other revenues. Oil and natural gas sale revenues
for 1995 decreased by

61
<PAGE>

$1,191,000 due to a decline in gas sales of $1,332,000, which was partially
offset by an increase in oil sales of $141,000. Property sales and other
revenues declined by $677,000.

The natural gas sales revenue decline of $1,332,000 is primarily the result
of lower sales volumes due to an anticipated decline in gas balancing
collections and a significant decline in the sales price received per Mcf.
Natural gas sales volume for 1995, including volumes associated with gas
balancing, declined by 24%, resulting in lower revenues of $930,000. Of the
volume decrease in gas revenues, 68% or $589,000 was directly the result of
lower gas balancing revenue collections. 1995 and 1994 natural gas sales
include gas balancing revenues of $220,000 and $809,000, respectively,
representing production volumes, net to the Company, of 220,000 and 590,000
Mcf. The Company records gas balancing revenues on the net sales method as
opposed to the entitlement method and thus revenues are recorded when received
or operations merit accrual. The decrease in 1995 gas balancing revenues and
volumes was anticipated due to the Company's collection efforts, which
primarily commenced in 1994, being now significantly completed. The decline in
gas sales volumes for 1995 was further impacted by the recognition of a lower
interest in one well in Arkansas resulting from conveyance of an interest due
to litigation settlement and volumetric gas balancing regarding a Company
operated well in Louisiana. The lower well interest and Louisiana balancing
settlement decreased 1995 sales volumes by approximately 175,000 Mcf.
Excluding gas balancing volumes and impact of the lower interest in the
Arkansas well, gas sales volumes for 1995 were relatively flat to 1994. For
1995, the natural gas price received, including gas balancing collections,
averaged $1.49 per Mcf as compared to 1994's average of $1.72 per Mcf. The 14%
decline in Mcf price received resulted in a decrease in 1995 revenues of
$402,000. Excluding gas balancing collection revenues, the average price
received per Mcf for 1995 and 1994 was $1.56 and $1.85, respectively.

The revenue decline resulting from natural gas was partially offset by
higher oil revenues of $141,000. The average oil price for 1995 was $17.20 as
compared to $15.24 for 1994, a 13% increase. The increase in oil price
resulted in $123,000 of additional 1995 oil revenues while a 2% increase in
oil sales volumes contributed $18,000 of additional revenues.

A summary of oil and natural gas sale volumes and revenues for the
respective years is:

Summary of Oil Volumes and Revenues

<TABLE>
<CAPTION>
1995 1994 CHANGE
------- ------ ------
<S> <C> <C> <C>
Oil revenues (in thousands).............................. $ 1,081 $ 940 15%
Oil sales volume (barrels)............................... 62,900 61,700 2%
Oil average price per barrel............................. $ 17.20 $15.24 13%

Summary of Natural Gas Volumes and Revenues

<CAPTION>
1995 1994 CHANGE
------- ------ ------
<S> <C> <C> <C>
Natural gas revenues (in thousands)...................... $ 2,530 $3,862 (34%)
Natural gas sales volume (Bcf)........................... 1.701 2.241 (24%)
Natural gas average sales price per Mcf.................. $ 1.49 $ 1.72 (13%)
</TABLE>

On an equivalent unit basis (one barrel of oil equals six Mcf of natural gas
on a heating value basis), natural gas for 1995 represented 82% of the
Company's oil and natural gas sales volumes and 70% of total oil and natural
gas revenues. Based on the January 1, 1996 independent reserve report, gas
production will continue to be the dominant production product and will
represent approximately 80% of the Company's future oil and natural gas
production volumes on an equivalent unit basis.

Natural gas gathering and treating revenues decreased by 4% or $33,000 to
$694,000 in 1995 as compared to $727,000 in 1994. This decrease is primarily
attributable to continued field production declines.

During 1994, the Company sold both nonstrategic producing wells and
undeveloped acreage for a total of $2,174,000, resulting in a net gain of
$766,000. This compares to 1995's sale of nonstrategic producing wells

62
<PAGE>

and other assets for $168,000, resulting in a net gain of $68,000. The
producing wells sold in 1994, for $1,424,000, represented the Company's
interest in certain partnerships, sold primarily effective February 1, 1994,
and yielded the entire 1994 gain of $766,000. The Company in 1994 also sold
nonstrategic undeveloped acreage in the New York area for $750,000 which
represented net book value. The 1994 sales were the result of the Company's
continuing effort to liquidate various private and public partnerships for
which it was managing general partner and nonstrategic assets. With the
liquidation of the remaining eight public partnerships in 1995, such
partnership liquidation effort is deemed completed, but the Company will
continue to evaluate the merit of sales of nonstrategic and marginally
profitable assets.

Other revenues. Other net revenues increased by 10% or $21,000 to $224,000
in 1995 as compared to $203,000 in 1994. Other revenues for 1995 consisted of
interest income of $163,000 related to a pre-petition franchise tax settlement
with the remaining balance being comprised primarily of bankruptcy preference
claim settlements. Other revenues for 1994 consisted of interest income of
$22,000 with the remaining balance representing various one-time suspense and
bankruptcy preference claim settlements. No additional settlements regarding
preference claims are anticipated in 1996.

Costs and Expenses. Consolidated costs and expenses decreased by $2,753,000
or 38% to $4,565,000 for 1995 as compared to $7,318,000 for 1994. This
decrease was due to declines in all expense categories, with significant
decreases in operating and exploration costs and interest expense.

Operating expenses for 1995 decreased $867,000 or 31% to $1,905,000 as
compared to $2,772,000 for 1994. Included in operating expenses for 1995 and
1994 is $202,000 and $141,000, respectively, of production taxes and $274,000
and $167,000, respectively, of workover costs. Workover costs represent
discretionary non-recurring well production activities that are implemented to
enhance or increase production. A significant portion of these costs are
related to the Company's major field in Arkansas and resulted in increases in
production. Additional workovers are scheduled for 1996. Operating expenses in
1994 included $174,000 of transportation costs related to a portion of the
$809,000 of gas balancing revenues recorded during the year and the
reclassification of approximately $260,000 of general and umbrella liability
insurance costs to operating expenses. Normal operating costs on an equivalent
Mcf basis, after excluding production taxes, workover costs and 1994 gas
balancing transportation and insurance adjustments, are $0.69 and $0.78 for
1995 and 1994, respectively.

Pursuant to successful efforts reporting, unsuccessful exploration costs are
expensed as opposed to capitalized. For 1995 such costs represented activity
on three gross wells at a net cost to the Company of $69,000. Exploration
costs for 1994 of $416,000 related primarily to the unsuccessful attempts
regarding the Starkey No. 1 located in Comite Field, East Baton Rouge Parish.

Depreciation, depletion and amortization ("DD&A") decreased by $441,000 or
31% due to lower sales volumes and a lower DD&A rate per equivalent Mcf sold.
During 1994, management determined that as a result of the Company's improving
financial condition, including expected cash flow for 1995 and beyond and its
borrowing capacity, that it could fund development of its proved undeveloped
and proved developed nonproducing reserves. These reserves, which previously
had not been booked because of the Company's inability to develop them, were
recorded. As a result of these changes in calculating DD&A, 1995 and 1994 DD&A
expense were decreased by $708,000 and $847,000, respectively. The weighted
average DD&A rate for 1995, on an equivalent Mcf basis, was $.48 as compared
to 1994's rate of $.50.

General and administrative expenses in 1995 decreased $271,000 or 16% to
$1,476,000 from $1,747,000 in 1994. This decrease was primarily the result of
lower franchise taxes and staff and related costs. Cost declines in these area
were partially offset by lower net partnership expense reimbursements and
unusually high 1994 receivable allowance recoupments.

The decline in franchise taxes was primarily due to the 1995 settlement of a
prepetition franchise tax claim resulting in reduction of previously accrued
costs of approximately $166,000. The Company also realized general

63
<PAGE>

and administrative savings in the area of staff costs due to staff reductions
related to property sales and outsourcing of certain accounting and
administrative functions. Net staff cost savings, after adjusting for
outsourcing expenses, for 1995 totaled approximately $358,000. Lower expenses
of approximately $208,000 were also realized in 1995 in the area of
professional fees.

The Company, in 1995, received as a settlement of litigation a combination
of cash and properties totaling approximately $425,000. The $325,000 of cash
and $100,000 of estimated fair market value of properties was deemed a
recoupment of previously allowed for receivables and thus was credited against
general and administrative expenses. In 1994, as a result of the liquidation
of various partnerships for which the Company was managing general partner,
the Company collected certain note and receivable amounts which had been fully
allowed for as doubtful accounts in prior years. As a result of the
partnership property sales and other collection efforts, the Company recorded
approximately $751,000 of net accounts receivable recoveries in 1994. As a
result of these major one-time collections, 1994 general and administrative
costs reflects a benefit, in excess of 1995 recoupments, of $291,000.

General and administrative expense reductions for 1995 were partially offset
by a decrease in managed partnership reimbursements. Partnership expense
reimbursements for 1995 and 1994 totaled $424,000 and $684,000, respectively,
with corresponding Company proportionate partnership expense of $25,000 and
$144,000, respectively. The net decrease in partnership reimbursements of
$141,000 was the result of the planned liquidation of all managed partnerships
which was completed in late 1995.

General and administrative costs, excluding partnership reimbursement
declines due to liquidation of such, receivable recoupments and franchise tax
settlement gains, actually declined during 1995 by approximately $492,000.

Interest expense decreased $827,000 or 85% in 1995 to $142,000 from $969,000
in 1994. This decrease is primarily attributable to lower average debt
outstanding and lower interest rates. During 1995, maximum bank borrowings
outstanding were $1,150,000 resulting in a year end balance of $500,000.
During 1994, borrowings outstanding peaked at $19,499,000. As a result of the
debt restructuring on July 13, 1994, the Company's per annum interest rate was
reduced from a high of 13% in 1994 to a floating bank rate plus two percent
which resulted in a weighted average rate of approximately 10.7% for 1995.
Also, included in 1995 and 1994 interest expense is $36,000 and $15,000,
respectively, of amortization of credit facility establishment costs. These
credit facility establishment fees are being amortized over the initial term
of the facility.

In conjunction with the recognition of tax gains on property sales and debt
restructuring, the Company estimated and accrued federal and state alternative
minimum income taxes in 1994 of $180,000. As a result of additional benefits
derived from the 1994 partnership liquidations and tax complexities therewith,
and the recognition of additional tax basis on sold and abandoned properties,
the Company was able to reduce the prior year accrual resulting in a tax
benefit for 1995 of $163,000.

Debt forgiveness for 1995 and 1994 resulted in the recognition of an
extraordinary gain of $93,000 and $4,991,000, respectively. The 1995 gain was
derived from Administrative Note settlements and claim forfeitures. The 1994
gain was comprised of bank debt restructuring ($4,160,000) (See "Business of
the Company--Bank Indebtedness") and the discounting of certain Administrative
Notes ($831,000) (See "Administrative Claims").

Financial Condition. In 1995, the Company's total capital expenditures were
$1,128,000. Capitalized costs for 1995 consisted of proved property
acquisition cost of $771,000, drilling cost of $303,000 and other
miscellaneous asset cost of $54,000. The Company also incurred workover and
dry-hole exploration costs of $274,000 and $69,000, respectively.

At December 31, 1995, the Company's working capital deficit was $1,771,000
which included $518,000 related to various pre-petition obligations. The
current deficit represents an increase in deficit of $289,000 from

64
<PAGE>

the prior year. Based on current borrowing availability and projected 1996
activity, capital resources are deemed sufficient for current operating needs.

The July 13, 1994 debt restructuring with BMO and establishment of a new
line of credit with Bank One significantly improved the Company's liquidity
while curing the BMO events of default. The Bank One credit facility's
borrowings outstanding as of December 31, 1995 totaled $500,000 with a
borrowing base of $2,500,000. The borrowing base is reduced monthly by
$50,000. Due to the excess of borrowing base over year end borrowings
outstanding and the current monthly facility reduction rate, no current
maturities for debt are reflected. The borrowing base is redetermined on a
semi-annual basis or at any time at Bank One's election. The Bank One credit
facility is secured by substantially all of the Company's assets and includes
financial and default covenants standard in the industry. Pursuant to the
terms of the Bank One credit agreement, the Company is required to maintain
certain financial ratios including a current ratio of 1 to 1 after excluding
certain liabilities and making other adjustments as allowed under the
facility. After making such current ratio adjustments, the Company at December
31, 1995 was in compliance with the current ratio and other financial ratios
and covenants of the credit facility. Though the Company has complied with all
covenant requirements to date, there can be no assurance that it will be able
to continue such compliance or that its borrowing base may not be
significantly reduced during future redeterminations which could result in
required principal reductions during 1996. The Bank One credit facility was
initially repayable in 36 month period and all borrowings outstanding are due
on July 13, 1997.

The Senior Preferred Stock has a liquidation preference value of $10 per
share and is redeemable in whole or in part at the option of the Company at
any time at a price per share equal to the liquidation preference amount per
share plus all accrued and unpaid dividends to the date of redemption. Subject
to Delaware law, the Company must redeem all outstanding shares of the Senior
Preferred Stock on or before January 21, 2002. The Senior Preferred Stock is
entitled to receive cumulative, compounded 10% annual dividends payable
quarterly. Payment of the dividends on the Senior Preferred Stock is mandatory
if sufficient surplus funds (after reasonable reserves for capital budget
items and working capital reserves for capital budget items and working
capital reserves) are legally available for such purpose. Until the Senior
Preferred Stock is fully redeemed, Old Preferred Stock receives dividends
payable in additional shares of Old Preferred Stock. For financial reporting
purposes, the Senior Preferred Stock has both debt and equity characteristics
and accordingly, it is not classified as a component of stockholders' equity.
At December 31, 1995, the Senior Preferred Stock redemption value and accrued
dividends were $88,514,000 and $40,421,000, respectively. These amounts plus
any additional accrued dividends must be satisfied before any value can be
attributed to the holders of Old Preferred Stock and Common Stock.

At December 31, 1995, the stockholders' deficit was $55,799,000. Due to the
dividend requirements for the Senior Preferred Stock and Old Preferred Stock
and accretion of the redemption value of Senior Preferred Stock, if the Merger
is not consummated, it is probable that the Company's stockholders' equity
will remain a deficit for the foreseeable future.

Liquidity and Capital Resources. For 1995, the Company's cash provided by
operating activities was $1,554,000 and included benefits derived from
receivable allowance recoupment of $425,000, state tax settlements, including
interest, of $251,000 and a decrease in prior year federal tax accrual of
$163,000. Included in cash provided by operating activities is cash received
of $588,000 from the Company's 35% equity investment in the Comite Field Plant
Venture.

The July 13, 1994 debt restructuring with BMO and establishment of a new
line of credit with Bank One significantly improved the Company's liquidity
while curing the BMO Events of Default. At December 31, 1995, the borrowing
base under the credit facility was $2,500,000, and the Company had borrowings
outstanding of $500,000 and letter of credit commitments of $25,000. Based on
the borrowing base and borrowings and commitments, the Company at year end had
availability under the facility of $1,975,000. Amounts borrowed under the line
of credit are due July 13, 1997.

65
<PAGE>

Pursuant to the terms of various agreements, the Company, as a working
interest owner, is responsible for marketing its share of natural gas
production from certain properties. If the Company is unable or unwilling to
market its share of natural gas production from a property, its under-produced
status is subject to balancing with other working interest owners who have
sold more than their proportionate share of natural gas production. On an
aggregate net basis for certain natural gas properties, it appears that the
Company is substantially under-produced and is conducting negotiations to
recoup or otherwise settle its net under-produced status. The Company received
approximately $213,000, net of expenses, as a result of such negotiations
during 1995. The Company can give no assurance as to its ability to recoup or
otherwise settle any additional net under-produced wells in the immediate
future. Any balancing recoupments or settlements, which will typically be over
a period of time, are not anticipated to be material to operating results.

The Company anticipates that continued development drilling and workovers
will maintain or increase current production volumes. In addition, the Company
is continually evaluating opportunities for acquisition of producing
properties and currently intends to pursue future production volume and
reserve base growth through acquisitions. The current cash balance, projected
cash flows from existing properties and borrowings available under the
Company's current line of credit and expected future credit facility increases
are considered adequate to fund future capital growth plans. Effective
implementation of the Company's development and acquisition plans is expected
to meet the Company's long-term operation and liquidity requirements.

During 1996, the Company will continue to review its investment
opportunities, consistent with its available capital, to determine if asset
enhancement can be best obtained through either development of existing proved
developed non-producing reserves, drilling and/or acquisition.

Inflation and Changes in Prices. The Company's revenues have been and will
continue to be affected by changes in oil and natural gas prices which have
been unstable. For management purposes, the Company assumes that oil and
natural gas prices will escalate at 5% per annum and that costs and expenses
will escalate at 4% per annum. The principal effects of inflation on the
Company relate to the costs required to drill, complete and operate oil and
natural gas properties. Such costs have also been on a general downward trend
since the early 1980's due primarily to the industry-wide decrease in drilling
activity.

66
<PAGE>

PROPOSALS 2 AND (A)--ELECTION OF DIRECTORS

The number of directors has been fixed by the Board at five, pursuant to the
TGX Bylaws. At the time the TGX Bylaws were amended, five persons were elected
to the Board. Two members of the Board have resigned, no new members have been
elected and thus two positions on the Board are currently vacant. At the
Meeting, shares of Common Stock, Old Preferred Stock and Senior Preferred
Stock represented by proxies will, unless otherwise specified, be voted for
the election of the five nominees named below. Each nominee will serve until
the next annual meeting of TGX or until their respective successors are duly
elected and qualified. All directors are to be elected by all of the
stockholders voting in accordance with the TGX Certificate. The shares held by
the holders of the Senior Preferred Stock are entitled pursuant to the TGX
Certificate to cast 95% of the votes to be cast by all stockholders, and the
holders of the Senior Preferred Stock have, therefore, sufficient voting power
to elect all directors of TGX.

The Board has nominated Larry H. Carpenter, David H. Scheiber and Jeffrey E.
Susskind (the "Nominees") for election as members of the Board. Messrs
Carpenter, Scheiber and Susskind currently serve as directors. Although the
Board does not contemplate that any of the Nominees will be unable to serve,
if such a situation arises before the Meeting takes place, the persons named
in the enclosed form of proxy will vote in accordance with their best judgment
for a substitute nominee.

If the Merger is effected, the Nominees will be nominees for directors of
GeoStrat.

For information regarding the proposed plan to provide employee and
nonemployee directors and officers of GeoStrat with increased equity ownership
in GeoStrat, see "Proposal (b)--1996 Flexible Incentive Plan" and "Proposal
(c)--GeoStrat 1996 Nonemployee Director Stock Option Plan."

The following table sets forth for each nominee his name, age, principal
occupation and employment for the past five years, offices held with TGX, the
date he first became a director, and the date of expiration of his current
term as director. Each of the directors may be contacted at the Company's
address set forth on the cover page of this Proxy Statement/Prospectus and
each is a citizen of the United States.

<TABLE>
<CAPTION>
POSITION, PRINCIPAL OCCUPATION, BUSINESS DIRECTOR TERM
NOMINEES AGE EXPERIENCE AND DIRECTORSHIPS HELD SINCE EXPIRES
-------- --- ---------------------------------------- -------- -------
<S> <C> <C> <C> <C>
Larry H. Carpenter...... 49 Chairman of the Board, President and Chief 1992 1996
Executive Officer of the Company since November
1992. From March 1992 he served as a consultant
to the Company until his election as President.
Prior thereto he was a senior executive with
Texas Oil & Gas Corporation, from 1977 through
September 1990, and thereafter was engaged as
an independent oil and gas consultant.
David H. Scheiber....... 38 Principal of Chesapeake Bay Investors, L.L.C., 1995 1996
an investment management company in Baltimore,
Md., since April, 1996. From September 1992 to
April, 1996, Mr. Scheiber was President of Cana
Capital, LLC, an investment banking and
financial services company located in Laguna
Niguel, California. From September 1991 to
August 1992, Mr. Scheiber was affiliated with
Monitor Company, Inc., a management consulting
firm headquartered in Boston, Massachusetts, as
manager of their bankruptcy practice.
Jeffrey E. Susskind..... 42 Principal of Strome, Susskind Investment 1992 1996
Management, L.P., an investment management
company in Santa Monica, California. Mr.
Susskind previously was an investment manager
with Kayne, Anderson & Co.
</TABLE>

67
<PAGE>

Only those directors who are not employees of the Company are entitled to
receive a fee, plus reimbursement for reasonable travel expenses incurred in
conjunction with meetings, with air fares not to exceed the rate for a full-
fare coach seat, for their services as directors. Under the Company's standard
arrangement for compensation of directors, directors receive a retainer fee of
$833 per month plus a meeting fee of $1,000 per day and $250 for each
telephone meeting. The monthly retainer fee is subject to forfeiture on a six-
month prospective basis if a director attends less than seventy-five percent
(75%) of the meetings. In addition, nonemployee directors will receive options
to purchase stock of the Company or, if the Merger is consummated, of GeoStrat
pursuant to the Nonemployee Director Plan. See "Nonemployee Director Plan."

Six meetings of the Board were held in the last fiscal year. No incumbent
director attended fewer than seventy-five percent (75%) of the meetings of the
Board held in the last fiscal year.

The Board has a standing Audit Committee which met once during the last
fiscal year. The Audit Committee consists of Messrs. Scheiber and Susskind.
The Audit Committee assists the Board in fulfilling its fiduciary
responsibilities with respect to the accounting policies and reporting
practices of the Company and the sufficiency of the audits of all Company
activities. It is the Board's agent in ensuring the integrity of financial
reports of the Company, and the adequacy of disclosures to shareholders. The
Audit Committee is the focal point for communication between the directors,
the independent auditors and management as their duties relate to financial
accounting, reporting, and controls.

While the Board did not have a standing Compensation Committee during the
last fiscal year, Messrs. Scheiber and Susskind, the nonemployee directors,
acted in such capacity during 1995. During the year the nonemployee directors
consulted with management regarding the compensation and benefits that are
provided to the directors, officers and employees of the Company. GeoStrat
anticipates forming a compensation committee which, among its other duties,
will also administer the Flexible Incentive Plan.

The Board has a standing Executive Committee which did not meet during the
last fiscal year. The Executive Committee is authorized to exercise all of the
powers of the Board of Directors except those not permitted by the General
Corporation Law of Delaware. The Executive Committee consists of Messrs.
Carpenter and Susskind.

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<PAGE>

EXECUTIVE OFFICERS

The following table provides information regarding the executive officers of
the Company. Pursuant to the TGX Bylaws, the officers serve at the discretion
of the Board and may be removed, with or without cause, at any time.

<TABLE>
<CAPTION>
OFFICER
NAME AGE SINCE POSITION
---- --- ------- --------
<S> <C> <C> <C>
Larry H. Carpenter....... 49 (1) (1)
Michael A. Gerlich....... 42 1994 Mr. Gerlich was elected Vice President and
Chief Financial Officer of the Company in
December, 1994. From January 1993 until
joining TGX, he owned and managed Chalk
Hill Resources, Inc., an independent oil
and gas investing and financial consulting
company. Prior thereto, he was Executive
Vice President from January 1989 to
December 1992 and Vice President of
Finance from May 1982 to December 1988 for
Trinity Resources, Inc., an independent
public oil and gas company.
</TABLE>
- --------
(1) See information as set forth under "Election of Directors."

EMPLOYMENT AGREEMENTS

Larry H. Carpenter, Chairman of the Board, President and Chief Executive
Officer of the Company, entered into an employment agreement (the "Employment
Agreement") with the Company in March 1992. Pursuant to the Employment
Agreement, for the period through November 1992, Mr. Carpenter acted as a
consultant to the Company and had an option to become a full-time employee,
President and member of the Board of Directors. In November 1992, Mr.
Carpenter exercised such option and, at that time, was elected President of
the Company and, pursuant to the Certificate of Incorporation, became a member
of the Board of Directors. Pursuant to the Employment Agreement, for a period
of three years ending March 30, 1995, Mr. Carpenter received compensation
equal to $175,000 per annum, plus discretionary bonuses as determined by the
Board of Directors. For 1993, the Board of Directors did not grant a
discretionary bonus. However, in February 1994, the Board of Directors granted
a bonus of $100,000 to Mr. Carpenter in connection with his efforts in
consummating the sale of the Company's New York and Ohio properties. In
addition, Mr. Carpenter in 1992 received 200,000 shares of Senior Preferred
Stock which vested over the term of the Employment Agreement. The Employment
Agreement also provided Mr. Carpenter with certain living expense allowances,
as well as benefits relating to moving expense, health and life insurance,
club membership and use of an automobile. On April 1, 1995, Mr. Carpenter and
the Company entered into an Employment Agreement covering a period of two
years ending March 31, 1997 ("New Employment Agreement"). The term of the New
Employment Agreement shall be automatically extended one additional year
unless notice is given 60 days before March 31, 1997 by the Company or Mr.
Carpenter requesting the term not be extended. Mr. Carpenter is to receive
compensation of $225,000 per annum, plus discretionary bonuses as determined
by the Board of Directors. In 1995 the Board of Directors granted a bonus of
$75,000 related to 1994 results and an additional bonus of $50,000 in 1996
related to 1995 results. In addition, Mr. Carpenter received 200,000 shares of
the Company's Senior Preferred Stock which vests over the initial term of the
New Employment Agreement. The New Employment Agreement also provides Mr.
Carpenter, at Company expense, benefits of health and life insurance. GeoStrat
will assume all liabilities under this Employment Agreement if the Merger is
consummated.

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<PAGE>

EXECUTIVE COMPENSATION

The following table sets forth certain information concerning the
compensation of the Chief Executive Officer of the Company, and of the
Company's most highly compensated executive officers (other than the CEO)
whose total annual salary and bonus exceeded $100,000, for each of the
Company's fiscal years ending December 31, 1995 and December 31, 1994. For
1994, other annual compensation for Mr. Carpenter includes reimbursement of
house and automobile expenses.

SUMMARY COMPENSATION TABLE(1)

<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS(1)
------------------------- ------------
(A) (B) (C) (D) (E) (F)
RESTRICTED
NAME AND PRINCIPAL SALARY STOCK ALL OTHER
POSITION YEAR ($)(2) BONUS ($) AWARDS (#) COMPENSATION ($)
------------------ ---- ------- --------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
Larry H. Carpenter...... 1995 209,000 125,000(4) 200,000(5) -0-
President & CEO 1994 175,000 100,000 --(6) -0-
Michael A. Gerlich...... 1995 107,000(3) 10,000(4) 30,000(7) -0-
Vice-President & CEO
</TABLE>
- --------
(1) The table above lists only the compensation of the CEO for 1994, as he was
the only employee who received in excess of $100,000 in total compensation
for that period.
(2) Includes perquisites and other benefits, unless the aggregate amount of
such does not exceed the lesser of either $50,000 or 10% of the total
annual salary and bonus reported for the named executive officer. See
"Employment Agreements."
(3) Includes amounts paid as a consultant to an officer.
(4) Of the bonus amount shown for Mr. Carpenter, $75,000 was granted in
regards to 1994 accomplishments and paid in 1995. The remaining $50,000 is
for 1995 accomplishments and was paid in January 1996. All of Mr.
Gerlich's bonus was granted and paid in January 1996.
(5) Of such award 100,000 are vested and the remaining 100,000 shares cease
being subject to forfeiture on April 1, 1997. As of December 31, 1995,
there was limited trading in the Senior Preferred Stock and, therefore,
the Company has utilized the price reflected in Schedule 13-D filed on May
8, 1995 of $0.20 for stock compensation recognition purposes.
(6) As of December 31, 1994, there was no trading in the Senior Preferred
Stock and, therefore, the Company was not able to determine a market value
for such stock. For stock compensation recognition purposes, the Company
valued these shares at $1.50 per share, based on an internal estimate of
Company net assets as of October 2, 1992 (fresh start reporting).
(7) Of such award, 15,000 shares cease to be subject to forfeiture on
September 27, 1996 and the remainder on September 27, 1997. As of December
31, 1995, there was limited trading in the Series A Senior Preferred Stock
and, therefore, the Company has utilized the price reflected in Schedule
13-D filed on May 8, 1995 of $0.20 for stock compensation recognition
purposes.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

No nonemployee director is or has been an officer or employee of TGX or any
of its subsidiaries or had any relationship requiring disclosure pursuant to
Item 404 of the SEC Regulation S-K. No executive officer of TGX served as a
member of the Compensation Committee (or other board committee performing
similar functions or, in the absence of any such committee, the entire board
of directors) of another corporation, any of whose executive officers served
on the TGX Compensation Committee. No executive officer of TGX served as a
director of another corporation, one of whose executive officers served on the
TGX Compensation Committee. No executive officer of TGX served as a member of
the compensation committee (or other board committee performing equivalent
functions or, in the absence of any such committee, the entire board of
directors) of another corporation, one of whose executive officers served as a
director of TGX.

REPORT ON EXECUTIVE COMPENSATION

We are pleased to present this report to stockholders on executive
compensation. This report summarizes the responsibilities of the Company's
nonemployee directors who act as a Compensation Committee (the

70
<PAGE>

"Committee") although the Company has not formally established such a
Committee. In establishing the compensation policy and objectives that guide
the development and administration of the executive compensation program, and
the basis on which the compensation for the Chief Executive Officer, corporate
officers and other key executives was determined for the fiscal year ended
December 31, 1995.

During the fiscal year, the Committee was comprised of the following Board
members, all of whom were non-employee directors of the Company: Jeffrey E.
Susskind, and David H. Scheiber. The Committee's responsibilities are to
oversee the development and administration of the compensation program for
corporate officers and subsidiary presidents, and administer the executive
incentive and stock option plans. During fiscal year 1995, the Committee also
reviewed market compensation trends for outside directors.

The objective of the executive compensation program is to create strong
financial incentive for corporate officers and managers to increase profits
and grow revenues. The following objectives guide the Committee in its
deliberations:

. Provide a competitive compensation program that enables the Company to
attract and retain key executives and Board members.

. Assure a strong relationship between the performance results of the
Company or subsidiary and the total compensation received.

. Balance both annual and longer performance objectives of the Company.

. Encourage executives to acquire and retain meaningful levels of equity
ownership in the Company.

. Work closely with the Chief Executive Officer to assure that the
compensation program supports the management style and culture of the
Company.

In addition to normal employee benefits, the executive total compensation
program includes base salary, annual cash bonus compensation, and longer term
stock based grants and awards.

Recent changes to the Internal Revenue Code (Section 162(m)) impose a
$1,000,000 limit, with certain exceptions, on the deductibility of
compensation paid to each of the five highest paid executives. In particular,
compensation that is determined to be "performance based" is exempt from this
limitation. To be "performance based," incentive payments must use
predetermined objective standards, limit the use of discretion in making
awards, and be certified by the Compensation Committee made up of "outside
directors." While the Committee intends to comply with the provisions of
Section 162(m) with respect to the longer term stock based incentives, it
believes that the use of discretion in evaluating the individual contributions
of corporate management is appropriate. As such, the Committee has taken no
action to comply with Section 162(m) with respect to annual incentive
payments. It is not anticipated that any executive will receive compensation
in excess of this limit during fiscal years 1995 or 1996. The Committee will
continue to monitor this situation and will take appropriate action if it is
warranted in the future.

The Chief Executive Officer, Mr. Larry H. Carpenter, participates in the
executive compensation program described in this report.

In establishing the total compensation program for Mr. Carpenter, the
Committee assessed the pay levels for CEOs in similar companies in the oil and
gas industry, the improvement in profit performance of the Company, and Mr.
Carpenter's efforts in seeking out growth opportunities for the Company,
supervising and managing the NFG Litigation and other litigation, and
controlling costs. For fiscal year 1995, Mr. Carpenter received a bonus
incentive award of $50,000.

Respectfully submitted,

Jeffrey E. Susskind
David H. Scheiber

71
<PAGE>

STOCK BASED COMPENSATION

Previously, the Company had adopted a key employee compensation package
which consisted of a Restricted Stock Plan, a Non-Qualified Stock Option Plan,
and an Incentive Stock Option Plan. Both the Non-Qualified Stock Option Plan
and the Incentive Stock Option Plan were terminated in 1991 pursuant to the
respective plan's provisions and no options under these plans can be issued or
are outstanding.

Shares of common stock under the Restricted Stock Plan were granted free of
charge to the recipient in consideration for services rendered. Grants made
under the plan are subject to forfeiture, based on a formula, in the event the
recipient leaves the employment of the Company within three, four or five
years after the date of grant. The market value of the Common Stock on the
date of grant was charged to expense over a five-year period, regardless of
whether or not the shares are ultimately earned by the employee. The Company
has reserved 89,333 shares of Common Stock for issuance under the plan. From
1991 through 1995, no shares of common stock were issued to vested
participants pursuant to the plan and no new grants will be issued under this
plan.

Non-qualified and incentive stock options were granted to selected key
employees at an exercise price equal to the market price of the shares of
common stock on the date of grant, and become exercisable over a five-year
period.

CERTAIN STOCK OWNED BY
PRINCIPAL STOCKHOLDERS AND MANAGEMENT

The following table sets forth certain information regarding each person
known by the Company owning or entitled to own as the beneficial owner, more
than five percent (5%) of the Company's outstanding Common Stock, Senior
Preferred Stock or Old Preferred Stock as of June 30, 1996:

<TABLE>
<CAPTION>
AMOUNT AND
NATURE PERCENT
NAME AND ADDRESS OF BENEFICIAL OF
OF BENEFICIAL OWNER CLASS OWNERSHIP CLASS
------------------- ---------------- ------------- -------
<S> <C> <C> <C>
Liberty National Bank and Trust Common 3,136,986(1) 12.6%
Company of Oklahoma City
Escrow Agent UA
November 18, 1985, Templeton
Energy,
Inc./Temex Energy, Inc. and Escrow
Agent for the benefit of certain
claimants of Amarex, Inc.
P.O. Box 25848
Oklahoma City, Oklahoma 73125
Gaylon E. Simmons and Senior Preferred 569,561 6.5%
Gloria Annette Turner Simmons Old Preferred 471,500 100%
905 East Main Street
Jonesboro, Louisiana 71251
Jeffrey and Janis Susskind Senior Preferred 1,702,796 19.4%
FBO The Susskind Family Trust
100 Wilshire Blvd., 15th Floor
Santa Monica, California 90401
The AIF-Lion Group Senior Preferred 1,823,000(2) 20.7%
c/o Apollo Advisors, L.P.
Two Manhattanville Road
Purchase, New York 10577
</TABLE>
- --------
(1) In connection with its acquisition of Amarex, Inc. which was consummated
on December 5, 1985, the Company issued 11,475,000 shares of Common Stock
into escrow with Liberty National Bank and Trust

72
<PAGE>

Company of Oklahoma City as escrow agent. Such shares are held by the
escrow agent for the benefit of various classes of creditors of Amarex and
its affiliates entitled to receive the shares under a Plan of
Reorganization confirmed in Amarex's bankruptcy proceeding, and the shares
have been and will continue to be distributed by the escrow agent from time
to time as the various creditors' claims are adjudicated and allowed by the
Bankruptcy Court. As of June 30, 1996, 3,136,986 shares remained in escrow.
Pursuant to the agreement governing the administration of the escrow
account, the escrow agent has agreed to cause the escrowed shares to be
voted at any annual or special stockholders' meeting in accordance with the
instructions of the Company.
(2) Such information has been supplied to the Company pursuant to Schedule 13D
filed with the Securities and Exchange Commission on December 31, 1994, by
AIF II, L.P., a Delaware limited partnership and Lion Advisors, L.P., a
Delaware limited partnership (collectively the "Reporting Persons"). Such
Reporting Persons may together constitute a "group" within the meaning of
Rule 13D-5 under the Securities Exchange Act of 1934, as amended.

The following table sets forth, as of June 30, 1996, the amount of the
Company's Common Stock or Senior Preferred Stock beneficially owned by each of
its directors, each executive officer named in the Summary Compensation Table,
and all directors and executive officers as a group, based upon information
obtained from such persons:

<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP
--------------------------------------
OPTIONS
EXERCISABLE PERCENT
NAME OF SOLE VOTING AND WITHIN 60 OF
INDIVIDUAL OR GROUP INVESTMENT POWER DAYS CLASS(1)
------------------- -------------------------- ----------- -------
<S> <C> <C> <C>
Larry H. Carpenter (2)... 300,000 Senior Preferred -0- 3.4%
David H. Scheiber........ 10,000 Senior Preferred -0- *
Jeffrey E. Susskind...... 1,702,796 Senior Preferred -0- 19.4%
Michael A. Gerlich....... 30,000 Senior Preferred -0- *
All Executive Officers
and Directors as a group
(4 persons)............. 2,042,796 Senior Preferred -0- 23.2%
</TABLE>
- --------
* Less than one percent.
(1) Unless otherwise indicated, the holders have sole voting and investment
powers.
(2) Of Mr. Carpenter's shares, 100,000 are subject to forfeiture pursuant to
the terms of his employment agreement. See "Employment Agreement".

PROPOSAL (B)--GEOSTRAT 1996 FLEXIBLE INCENTIVE PLAN

GENERAL

The GeoStrat Board approved the Flexible Incentive Plan to become effective
as of the consummation of the Merger if the Merger Agreement is adopted,
subject to the approval of the stockholders of the Company. A copy of the
Flexible Incentive Plan is attached hereto as Appendix "F". The description of
the Flexible Incentive Plan contained herein is not intended to be complete
and is qualified in its entirety by reference to Appendix "F", which contains
the complete text of the Flexible Incentive Plan.

The purposes of the Flexible Incentive Plan are to enable GeoStrat to
attract, motivate and retain highly talented officers, employees, non-employee
directors and consultants by enabling GeoStrat to make awards that recognize
the creation of long-term value for GeoStrat's stockholders and promote the
continued growth and success of GeoStrat. To accomplish this purpose, the
Flexible Incentive Plan provides for the granting to eligible persons of stock
options, stock appreciation rights, restricted stock, performance awards,
performance stock, dividend equivalent rights or any combination thereof.

73
<PAGE>

AVAILABLE SHARES

The aggregate number of shares of New Common Stock which may be issued under
the Flexible Incentive Plan (or with respect to which awards may be granted)
shall not exceed 450,000 shares. Shares issued under the Flexible Incentive
Plan may be either authorized and unissued New Common Stock or New Common
Stock held in or acquired for the treasury of GeoStrat. Any shares of New
Common Stock subject to a stock option or stock appreciation right that are
not issued before the expiration of such awards, or any restricted stock or
performance shares that are forfeited, will again be available for award under
the Flexible Incentive Plan. If shares of New Common Stock are delivered to
GeoStrat in payment of the exercise price with respect to any stock option
granted under the Flexible Incentive Plan, the number of shares available for
future awards under the Flexible Incentive Plan will be reduced only by the
net number of shares issued.

PERSONS ELIGIBLE TO PARTICIPATE

Eligibility for participation in the Flexible Incentive Plan is confined to
employees, non-employee directors and consultants of GeoStrat and its
subsidiaries, as determined by the Compensation Committee (the "Committee") in
its sole discretion.

ADMINISTRATION

The Committee will administer the Flexible Incentive Plan and has broad
powers under the Flexible Incentive Plan to, among other things, administer
and interpret the Flexible Incentive Plan, establish guidelines for the
Flexible Incentive Plan's operation, select persons to whom awards are to be
made under the Flexible Incentive Plan, determine the types, sizes and
combinations of awards to be granted under the Flexible Incentive Plan and
determine other terms and conditions of an award. In addition, except as set
forth below under "Amendment and Termination," the Committee also has the
power to modify or waive restrictions or limitations on the exercisability of
awards and to accelerate and extend existing awards. The Committee may also
determine whether, and to what extent and under what conditions to provide
loans to eligible participants to purchase New Common Stock under the Flexible
Incentive Plan. In addition, the Committee has the power to modify the terms
of existing awards, including, in the case of stock options, the exercise
price thereof.

TYPES OF AWARDS

The Flexible Incentive Plan provides for the grant of any or all of the
following types of awards: (1) stock options, including incentive stock
options and non-qualified stock options; (2) stock appreciation rights, either
in tandem with stock options or freestanding; (3) restricted stock awards; (4)
performance shares; (5) performance units; (6) dividend equivalent rights; and
(7) other stock-based awards. Each of these types of awards is discussed in
more detail below. Awards may be granted singly, in combination or in tandem,
as determined by the Committee. The specific amount of awards to be received
by or allocated to the officers or employees or any other participant under
the Flexible Incentive Plan is in the discretion of the Committee and is
therefore not determinable for future periods.

Stock Options. Under the Flexible Incentive Plan, the Committee may grant
awards in the form of options to purchase shares of the New Common Stock.
Options may be in the form of incentive stock options or nonqualified stock
options. The Committee will, with regard to each stock option, determine the
number of shares subject to the option, the term of the option (which, for
incentive stock options, shall not exceed ten years), the exercise price per
share of stock subject to the option (which, for incentive stock options, must
be not less than the fair market value of the New Common Stock at the time of
grant), the vesting schedule (if any) and the other material terms of the
option. Any option granted in the form of an incentive stock option must
satisfy the applicable requirements of Section 422 of the Internal Revenue
Code of 1986, as amended. Non-qualified stock

74
<PAGE>

options may have an exercise price that is less than fair market value (but
not less than the par value of the New Common Stock).

The option price upon exercise may, to the extent determined by the
Committee at or after the time of grant, be paid by a participant in cash, in
shares of New Common Stock owned by the participant, in shares of stock
awarded under the Plan, including restricted stock, by a reduction in the
number of shares of New Common Stock issuable upon the exercise of the option
or by other consideration. The Committee may offer to buy an option previously
granted on such terms and conditions as the Committee shall establish. Options
may, at the discretion of the Committee, provide for "reloads," whereby a new
option is granted for the same number of shares as the number of shares of New
Common Stock or restricted stock used by the participant to pay the option
price upon exercise.

Unless the Committee determines otherwise at the time of grant, the Flexible
Incentive Plan provides that upon termination of employment by reason of death
or disability, stock options, to the extent vested, will be exercisable for
one year or until the end of the option term, whichever is shorter. Unless the
Committee determines otherwise at the time of grant or thereafter, the
Flexible Incentive Plan provides that upon termination of employment for any
reason other than death or disability, stock options, to the extent vested,
will be exercisable for three months, or until the end of the option term,
whichever is shorter.

Stock Appreciation Rights ("SARs"). The Flexible Incentive Plan authorizes
the Committee to grant SARs either with a stock option ("Tandem SARs") or
independent of a stock option ("Non-Tandem SARs"). An SAR is a right to
receive a payment either in cash or New Common Stock, as the Committee may
determine, equal in value to the excess of the fair market value of a share of
New Common Stock on the date of exercise over the reference price per share of
New Common Stock established in connection with the grant of the SAR. The
reference price per share covered by an SAR will be the per share exercise
price of the related option in the case of a Tandem SAR and will be a
percentage designated by the Committee of the per share fair market value of
the New Common Stock on the date of grant (or any other date chosen by the
Committee) in the case of a Non-Tandem SAR.

A Tandem SAR may be granted at the time of the grant of the related stock
option or, if the related stock option is a non-qualified stock option, at any
time thereafter during the term of the stock option. A Tandem SAR generally
may be exercised only at the times and to the extent the related stock option
is exercisable. A Tandem SAR is exercised by surrendering the same portion of
the related option. A Tandem SAR expires upon the termination of the related
stock option.

A Non-Tandem SAR will be exercisable as provided by the Committee and will
have such other terms and conditions as the Committee may determine. A Non-
Tandem SAR may have a term of no longer than ten years from its date of grant.
A Non-Tandem SAR is subject to acceleration of vesting or immediate
termination in certain circumstances, in the same manner as discussed above in
the case of stock options.

The Committee is also authorized to grant "limited SARs," either as Tandem
SARs or Non-Tandem SARs. Limited SARs would become exercisable only upon the
occurrence of a "Change in Control" (as defined in the Flexible Incentive
Plan) or such other event as the Committee may designate at the time of grant
or thereafter.

Restricted Stock Awards. The Flexible Incentive Plan authorizes the
Committee to grant awards in the form of restricted shares of New Common
Stock. These awards may be in such amounts and subject to such terms and
conditions as the Committee may determine, including without limitation, the
price (if any) to be paid by the recipient, the time or times within which
such awards may be subject to forfeiture, the vesting schedule (which may be
based on service, performance or other factors) and rights to acceleration of
vesting (including whether non-vested shares are forfeited or vested upon
termination of employment). The Committee may award performance-based shares
of restricted stock by conditioning the grant, vesting or the release,
expiration or lapse of restrictions of such restricted stock, or the
acceleration of any of such conditions, upon the attainment of specified
performance goals or such other factors as the Committee may determine.

75
<PAGE>

Performance Shares. The Flexible Incentive Plan permits the granting of
"performance shares," consisting of the right to receive New Common Stock,
restricted stock or cash of an equivalent value, as the Committee may
determine, at the end of a specified performance period established by the
Committee. These awards may be in such number of shares and subject to such
additional terms and conditions as the Committee may determine, including
without limitation, the criteria to be used to determine the vesting of
performance shares and whether performance shares are forfeited or vest upon
termination of employment during the performance period. The Committee may
condition the grant of performance shares upon the attainment of specified
performance goals, such as the Company's achievement of certain earnings
levels or the Company's performance (or the performance of its stock) measured
against the performance of its competition, or such other facts as the
Committee may determine.

Performance Units. The Flexible Incentive Plan permits the granting of
"performance units," consisting of the right to receive a fixed dollar amount
payable in cash, New Common Stock or restricted stock, or any combination
thereof, as the Committee may determine, at the end of a performance cycle
established by the Committee. Except for the fact that the award is
denominated in dollars rather than shares, the provisions of the Flexible
Incentive Plan regarding performance units are substantially similar to those
regarding performance shares, as described above.

Dividend Equivalent Rights. The Committee may in its discretion provide that
any stock option, restricted stock, performance shares or units or other
stock-based awards under the Flexible Incentive Plan may earn dividend
equivalent rights. In respect of any such award which is outstanding on a
dividend record date for New Common Stock, the Committee may credit a
participant with an amount equal to the cash or stock dividends or other
distributions that would have been paid on the shares of New Common Stock
covered by such award if such covered shares had been issued and outstanding
on such dividend record date. The rules and procedures governing the crediting
of dividend equivalent rights, including the timing, form of payment and
payment contingencies thereof, shall be established by the Committee.

Other Stock-Based Awards. The Flexible Incentive Plan also permits other
awards of New Common Stock and other awards that are valued in whole or in
part by reference to, or are payable in cash or New Common Stock, or otherwise
based on New Common Stock. The terms and conditions of any such awards will be
determined by the Committee, including without limitation, the price, if any,
and the vesting schedule, if any. The Committee may provide for the grant of
New Common Stock under such an award upon the completion of a specified
performance period.

PAYMENT FOR AWARDS

The purchase price of any shares of New Common Stock purchased pursuant to
the exercise of an award granted under the Flexible Incentive Plan shall be
payable in full on the exercise date in cash, by check, by surrender to
GeoStrat of shares of New Common Stock of GeoStrat registered in the name of
the participant, by delivery to GeoStrat of such other lawful consideration as
the Committee may determine or by a combination of the foregoing. Any such
shares so surrendered shall be deemed to have a value per share equal to the
fair market value of a share of New Common Stock on such date.

AMENDMENT AND TERMINATION

The Committee may at any time, and from time to time, amend, in whole or in
part, any or all of the provisions of the Flexible Incentive Plan or suspend
or terminate it entirely, retroactively or otherwise; provided, however, that
unless otherwise required by law or specifically provided in the Flexible
Incentive Plan, the rights of a participant with respect to options or other
awards granted prior to such amendment, suspension or termination may not be
impaired without the consent of such participants; and, provided further, that
without the approval of the stockholders of GeoStrat, no amendment may be made
which would materially increase the aggregate number of shares of New Common
Stock that may be issued under the Flexible Incentive Plan; materially change
the definition of employees eligible to receive awards under the Flexible
Incentive Plan;

76
<PAGE>

decrease the minimum option price permitted under the Flexible Incentive Plan;
or increase the ten-year maximum option term permitted under the Plan.

No award or grant may be made under the Flexible Incentive Plan on or after
September 1, 2006 (the tenth anniversary of the effective date of the Plan).

The Flexible Incentive Plan is not subject to any provision of ERISA and is
not qualified under Section 401(a) of the Internal Revenue Code of 1986.

The Committee has not designated any persons to receive any awards under the
Flexible Incentive Plan.

THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE APPROVAL OF
THE 1996 FLEXIBLE INCENTIVE PLAN. YOUR PROXY WILL BE SO VOTED UNLESS YOU
SPECIFY OTHERWISE.

OTHER MATTERS

As of the date of this statement, the Board has no knowledge of any business
which will be presented for consideration at the meeting other than the
election of directors and the proposed merger of the Company. Should any other
matters be properly presented, it is intended that the enclosed proxy will be
voted in accordance with the best judgment of the persons voting the matter.

INDEPENDENT ACCOUNTANTS

Price Waterhouse LLP has been selected to serve as independent accountants
of the Company for the fiscal year ending December 31, 1996, and also served
as the principal accountants of the Company for the fiscal years ended
December 31, 1995 and 1994. Representatives of such firm are expected to be
present at the Meeting of Stockholders and the GeoStrat Special Meeting. They
will have the opportunity to make a statement if they desire to do so, and are
expected to be available to respond to appropriate questions.

STOCKHOLDER'S PROPOSALS

Proposals of stockholders to be presented at either the TGX or GeoStrat
Meeting of Stockholders to be held in 1997 must be received at the office of
the Secretary of the Company or GeoStrat no later than December 31, 1996 in
order to be included in the applicable proxy statement and form of proxy
relating to that meeting.

LEGAL MATTERS

The validity of the GeoStrat Common Stock offered hereby and certain other
matters in connection with the Merger will be passed upon for GeoStrat by its
counsel, Winstead Sechrest & Minick P.C., Houston, Texas.

77
<PAGE>

EXPERTS

The consolidated financial statements of TGX Corporation as of December 31,
1995 and 1994 and for each of the two years ended December 31, 1995 included in
this Registration Statement on Form S-4 have been so included in reliance on
the report of Price Waterhouse LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.

By Order of the Board of Directors

Larry H. Carpenter
President and Chief Executive
Officer

Houston, Texas
September , 1996

78
<PAGE>

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S> <C>
Report of Independent Accountants.......................................... F-2
Consolidated Balance Sheet................................................. F-3
Consolidated Statement of Operations....................................... F-4
Consolidated Statement of Cash Flows....................................... F-5
Notes to Consolidated Financial Statements................................. F-6
Unaudited Pro Forma Summary Condensed Combined Financial Information....... F-26
Unaudited Pro Forma Condensed Balance Sheet Data......................... F-26
Unaudited Pro Forma Condensed Statement of Operations Data............... F-26
Notes to Unaudited Pro Forma Condensed Combined Financial Information...... F-27
</TABLE>

F-1
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors
and Stockholders of TGX Corporation

In our opinion, the accompanying consolidated financial statements present
fairly, in all material respects, the financial position of TGX Corporation
and its subsidiaries (the Company) at December 31, 1995 and 1994, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.

Our original report on the accompanying consolidated financial statements
included an explanatory paragraph stating that there was substantial doubt
about the Company's ability to continue as a going concern. As a result of the
proceeds received from a litigation settlement and the effect of the
settlement on ongoing business operations as discussed in Note 14, substantial
doubt about the Company's ability to continue as a going concern has been
alleviated.

PRICE WATERHOUSE LLP

Houston, Texas
March 28, 1996, except as to
Note 14 which is as of April 22, 1996.

F-2
<PAGE>

TGX CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ------------------
ASSETS 1996 1995 1994
------ ---------- -------- --------
(THOUSANDS OF DOLLARS EXCEPT
FOR SHARE DATA)
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents.................... $ 2,497 $ 384 $ 676
Accounts receivable, net of allowance for
doubtful accounts of $320 (1996 and 1995)
and $373 (1994)............................. 1,023 1,141 1,206
Accounts receivable from affiliates--Note 10. -- 6 504
Other current assets......................... 142 51 60
-------- -------- --------
Total current assets....................... 3,662 1,582 2,446
-------- -------- --------
Property and equipment:
Oil and natural gas properties............... 11,709 11,340 10,407
Other property and equipment................. 254 203 157
Accumulated depletion, depreciation and
amortization................................ (4,599) (4,132) (3,307)
-------- -------- --------
Property and equipment, net................ 7,364 7,411 7,257
-------- -------- --------
Investment in Comite Field Plant Venture--Note
5............................................. 705 739 878
Other assets................................... 41 59 95
-------- -------- --------
Total other assets......................... 746 798 973
-------- -------- --------
TOTAL ASSETS................................... $ 11,772 $ 9,791 $ 10,676
======== ======== ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
<S> <C> <C> <C>
Current liabilities:
Accounts payable and accrued liabilities--
Note 6...................................... $ 2,402 $ 3,353 $ 3,515
Accounts payable to affiliates............... -- -- 242
Notes payable................................ -- -- 171
-------- -------- --------
Total current liabilities.................. 2,402 3,353 3,928
-------- -------- --------
Long-term debt--Note 3......................... -- 500 1,150
-------- -------- --------
Total liabilities.......................... 2,402 3,853 5,078
-------- -------- --------
Commitments and contingencies--Note 4
Redeemable Senior Preferred Stock, 8,788,571
(1996) and 8,851,360 (1995) and 8,729,470
(1994) issued; redemption value $87,886
(1996), $88,514 (1995) and $87,295 (1994)--
Note 7........................................ 70,996 61,737 44,602
-------- -------- --------
Stockholders' deficit--Note 8
9% Cumulative Convertible Preferred Stock,
300,000 shares issued plus 171,000 (1996),
158,000 (1995) and 131,000 (1994) shares to
be issued for dividends..................... 471 458 431
Common stock, 28,976,791 shares issued;
24,955,807 (1996), 24,956,033 (1995) and
25,313,533 (1994) outstanding............... 290 290 290
Additional paid-in capital................... 1,543 1,422 1,179
Accumulated deficit.......................... (63,930) (57,969) (40,904)
-------- -------- --------
Total stockholders' deficit................ (61,626) (55,799) (39,004)
-------- -------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT.... $ 11,772 $ 9,791 $ 10,676
======== ======== ========
</TABLE>

See accompanying notes to consolidated financial statements.

F-3
<PAGE>

TGX CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
---------------- ------------------
1996 1995 1995 1994
------- ------- -------- --------
(THOUSANDS OF DOLLARS EXCEPT PER
SHARE DATA)
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES
Oil and natural gas sales................ $ 2,327 $ 1,662 $ 3,611 $ 4,802
Natural gas gathering.................... 108 125 245 309
Equity earnings in Comite Field Plant
Venture................................. 309 216 449 418
Litigation settlement, net--Note 14...... 3,500 -- -- --
Gain on property sales................... 145 -- 68 766
Other, net............................... 57 96 224 203
------- ------- -------- --------
6,446 2,099 4,597 6,498
------- ------- -------- --------
COSTS AND EXPENSES
Operating expenses....................... 1,083 989 1,905 2,772
Depletion, depreciation and amortization. 461 371 973 1,414
Exploration costs........................ -- 38 69 416
General and administrative expenses...... 1,253 582 1,476 1,747
Interest................................. 54 61 142 969
------- ------- -------- --------
2,851 2,041 4,565 7,318
------- ------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES AND
EXTRAORDINARY GAIN...................... 3,595 58 32 (820)
Income tax expense (benefit)--Note 9..... 164 -- (163) 180
------- ------- -------- --------
INCOME (LOSS) BEFORE EXTRAORDINARY GAIN.. 3,431 58 195 (1,000)
Extraordinary gain--Note 3............... -- 93 93 4,991
------- ------- -------- --------
NET INCOME .............................. 3,431 151 288 3,991
Preferred stock dividends................ (6,527) (6,750) (12,308) (10,780)
Accretion of Senior Preferred redemption
value................................... (2,865) (2,326) (5,045) (3,980)
------- ------- -------- --------
NET LOSS APPLICABLE TO COMMON STOCK...... $(5,961) $(8,925) $(17,065) $(10,769)
======= ======= ======== ========
NET LOSS PER SHARE OF COMMON STOCK:
Before extraordinary gain.............. $ (0.24) $ (0.35) $ (0.68) $ (0.62)
Extraordinary gain..................... -- -- -- 0.20
------- ------- -------- --------
NET LOSS PER SHARE OF COMMON STOCK....... $ (0.24) $ (0.35) $ (0.68) $ (0.42)
======= ======= ======== ========
AVERAGE COMMON SHARES OUTSTANDING........ 24,956 25,254 25,105 25,314
======= ======= ======== ========
</TABLE>

See accompanying notes to consolidated financial statements.

F-4
<PAGE>

TGX CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
--------------- -----------------
1996 1995 1995 1994
------ ------- ------- --------
(THOUSANDS OF DOLLARS)
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income .............................. $3,431 $ 151 $ 288 $ 3,991
Adjustments to reconcile net income to
cash provided by operating activities:
Depletion, depreciation and
amortization........................... 461 371 973 1,414
Amortization of debt transaction costs
and stock
compensation........................... 31 50 79 114
Gain on property sales.................. (145) -- -- --
Distributions in excess of equity
earnings............................... 34 54 139 106
Non-cash recovery of affiliate
receivable............................. -- -- -- (381)
Recovery of accounts receivable loss
provisions............................. -- -- -- 751
Extraordinary gain...................... -- (93) (93) (4,991)
Changes in operating assets and
liabilities:
Decrease in accounts receivable........ 118 364 65 492
Decrease in accounts due from/to
affiliates, net....................... 6 141 256 40
Decrease (increase) in other current
assets................................ (91) (54) 9 15,216
Decrease in accounts payable and
accrued liabilities................... (951) (183) (162) (4,041)
------ ------- ------- --------
Net cash provided by operating activities.. 2,894 801 1,554 12,711
------ ------- ------- --------
Cash flows from investing activities:
Capital expenditures..................... (420) (178) (1,128) (27)
Proceeds from disposal of assets......... 145 -- 68 1,406
Decrease (increase) in other assets...... (6) 5 -- (146)
------ ------- ------- --------
Net cash provided by (used in) investing
activities.............................. (281) (173) (1,060) 1,233
------ ------- ------- --------
Cash flows from financing activities:
Principal payments of long-term debt and
notes payable........................... (900) (1,228) (1,601) (16,301)
Advances pursuant to revolving credit
facility................................ 400 200 850 1,975
Debt transaction costs and other......... -- -- (35) (262)
Decrease in affiliate accounts
receivable.............................. -- -- -- 100
------ ------- ------- --------
Net cash used in financing activities.... (500) (1,028) (786) (14,488)
------ ------- ------- --------
Net increase (decrease) in cash and cash
equivalents............................. 2,113 (400) (292) (544)
Cash and cash equivalents at beginning of
period.................................. 384 676 676 1,220
------ ------- ------- --------
Cash and cash equivalents at end of
period.................................. $2,497 $ 276 $ 384 $ 676
====== ======= ======= ========
Supplemental Disclosure of Non-Cash
Investing and Financing Activities:
Properties acquired through foreclosure
on affiliated
partnerships............................ $ -- $ -- $ -- $ 381
Forgiveness of bank debt and other notes
payable................................. $ -- $ 93 $ 93 $ 5,253
</TABLE>

See accompanying notes to consolidated financial statements.

F-5
<PAGE>

TGX CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Unaudited Financial Information

The unaudited financial information presented for the six-month periods
ended June 30, 1996 and 1995, reflects all adjustments (which were normal
recurring adjustments) which are, in the opinion of management, necessary for
a fair presentation. Insofar as amounts and information relate to June 30,
1996, and the six-month period then ended, such amounts and information are
unaudited.

Business and Reorganization Proceeding

TGX Corporation ("TGX") (collectively with its subsidiaries, the "Company"),
is a domestic independent energy company engaged in the production of oil and
natural gas. The Company is also engaged in intrastate natural gas gathering
and treating.

As discussed in Note 2, on February 22, 1990, TGX filed a voluntary petition
for reorganization pursuant to Chapter 11 of the Bankruptcy Code. TGX's then
wholly owned subsidiaries, LEDCO, TGX Finance Corporation, Diablo Farms, Inc.,
and Templeton Energy Income Corporation, did not file petitions for
reorganization under the Bankruptcy Code nor did any of the limited or general
partnerships for which TGX served as general partner. On January 7, 1992, the
Bankruptcy Court confirmed an Amended Plan of Reorganization (the "Plan") for
TGX and on October 2, 1992 an order of substantial consummation regarding the
Plan became final and nonappealable. Accordingly, the Company implemented
fresh start reporting as of October 2, 1992.

The consolidated financial statements have been prepared on a going concern
basis, which contemplates continuity of operations and realization of assets
and liquidation of liabilities in the ordinary course of business. See Note 14
below.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of
TGX and its subsidiaries. All significant intercompany accounts and
transactions have been eliminated. The Company accounts for its investments in
limited and general partnerships under the proportionate consolidation method.
Under this method, the Company's financial statements include its pro-rata
share of assets, liabilities, revenues, and expenses of the limited and
general partnerships in which it owns beneficial interests. At year end 1995,
all Company sponsored partnerships had been liquidated. The Company's 35%
investment in a natural gas treating plant is accounted for using the equity
method.

Oil and Natural Gas Properties

In conjunction with the implementation of fresh start reporting, as
described in Note 2, the Company also implemented the successful efforts
method of accounting for oil and natural gas operations. Under the successful
efforts method, capitalized costs relating to proved properties are amortized
using the unit-of-production method based on estimated proved developed
reserves. In 1994, management determined that as a result of the Company's
improving financial condition, including expected cash flow for 1995 and
beyond, it could fund development of its oil and gas reserves which had
previously not been classified as proved undeveloped. Accordingly, in 1994 the
Company treated these reserves as proved undeveloped for purposes of
accounting estimates and financial statement disclosure. As a result of
utilizing total proved reserves in the calculation, depletion, depreciation
and amortization for 1995 and 1994 was reduced by $708,000 and $847,000,
respectively.

F-6
<PAGE>

TGX CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The cost of unsuccessful exploration wells is charged to operations. If an
assessment indicates that an unproved property has been impaired, a loss is
recognized by providing a valuation allowance. Net capitalized costs in excess
of future net revenues, adjusted for tax effects, are charged to operations in
the year during which such excess occurs. Generally, a gain or loss is
recognized on the disposition of a property. The Company purchased certain
producing properties for $771,000 in 1995 with primarily an effective date of
December 1, 1995. This acquisition has been accounted for on a purchase basis
and all post effective date revenues and expenses for such acquisition were
included in 1995 results. Had the properties purchased been recorded at the
beginning of the reported periods, the impact on operating results would not
have been material.

In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
The Company adopted SFAS No. 121 in the fourth quarter of 1995. Under the
provisions of the new statement, if the net book value of an individual asset
is greater than its undiscounted future net cash flows, then the excess of the
net book value over the fair value is recognized as an impairment of the
asset. The adoption of SFAS No. 121 had no effect on the Company's 1995
financial statements.

Other Property and Equipment

Depreciation of other property and equipment is provided on the straight-
line method over the estimated useful lives of the related assets, which range
from 3 to 25 years.

Revenue Recognition

Revenue from the sale of crude oil is recognized upon the passage of title,
net of royalties. Revenue from natural gas production is recognized using the
sales method, net of royalties. Pursuant to the terms of various agreements,
the Company, as a working interest owner, is responsible for marketing its
share of natural gas production from certain properties. If the Company is
unable or unwilling to market its share of natural gas production from a
property, its under-produced status is subject to balancing with other working
interest owners who have sold more than their proportionate share of natural
gas production. On an aggregate net basis for certain natural gas properties,
it appears that the Company is in an under-produced status and is currently
recouping or attempting to settle its net under-produced status. Any balancing
recoupments or settlements, which will typically be over a period of time, are
not anticipated to be material to future operating results.

Cost and Expense Reimbursements

Pursuant to the provisions of the applicable agreements, the Company reduces
certain of its costs and expenses by reimbursements for certain administrative
and operating costs paid or incurred in connection with the administration and
supervision of certain oil and natural gas properties and limited and general
partnerships which are sponsored by the Company. During late 1995 all Company
sponsored partnerships were liquidated through third party sales.

Per Share Amounts

Per share amounts are determined by dividing net income or loss applicable
to Common Stock by the weighted average number of common shares outstanding
during the year. In 1995 and 1994, the dilutive effect, if any, of the assumed
conversion of preferred stock to common stock was considered for the
computation of fully diluted income or loss per common share and such assumed
conversion was not material to the computation. The assumed exercise of
outstanding stock options was not included in the computation of per share
amounts as their effect was not dilutive.

F-7
<PAGE>

TGX CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Cash and Cash Equivalents

Cash includes cash on-hand and cash in interest bearing accounts with
original maturities of 90 days or less.

Accounting Estimates

The preparation of the Company's financial statements in conformity with
generally accepted accounting principles requires the company to make certain
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities and the
periods in which certain items of revenue and expense are included. Actual
results may differ from such estimates.

Reclassifications

Certain amounts from prior years have been reclassified to conform to the
current year presentation.

2. REORGANIZATION PROCEEDING

On February 22, 1990, TGX filed a voluntary petition in the United States
Bankruptcy Court for the Western District of Louisiana, Shreveport Division
(the "Bankruptcy Court"), for reorganization pursuant to Chapter 11, Title 11
of the United States Code (the "Reorganization Proceeding"). During the
balance of 1990, all of 1991 and a portion of 1992, TGX operated as debtor-in-
possession, continuing in possession of its estate and the operation of its
business and management of its property. On January 7, 1992, the Bankruptcy
Court confirmed an Amended Plan of Reorganization ("Plan") for TGX, and the
confirmation order became effective on January 21, 1992 (the "Effective
Date"). On September 21, 1992, the Bankruptcy Court determined that the Plan
had been substantially consummated, and the Bankruptcy Court's order of
substantial consummation became final and nonappealable on October 2, 1992.

As a result of the substantial consummation of the Plan and due to (i) the
reallocation of the voting rights of equity interests owners and (ii) the
reorganization value of TGX's assets being less than the total of all post-
petition liabilities and allowed claims at October 2, 1992, the effects of the
Reorganization Proceeding were accounted for in accordance with the fresh
start reporting standards promulgated under the American Institute of
Certified Public Accountants Statement of Position 90-7 "Financial Reporting
by Entities in Reorganization Under the Bankruptcy Code".

In conjunction with implementing fresh start reporting, a reorganization
value ("RV") of the Company's assets and liabilities as of October 2, 1992 was
determined by management in the following manner:

The RV of proved oil and natural gas properties and other related assets
was determined based on future net revenues discounted to present value
utilizing a rate of 20%. For proved undeveloped properties, the RV was
determined to be 50% of discounted future net revenues. For the purpose of
calculating future net revenues of oil and natural gas properties, then
current oil and natural gas prices were escalated at five percent per annum
to certain maximum amounts and then current operating costs and expenses
were escalated at four percent per annum for the economic life of the
properties. The initial price for natural gas dedicated under the contract
(the "Contract") with National Fuel Gas Distribution Corporation ("NFG"),
which is currently a matter being litigated (See Note 14), was equal to 90%
of the rolling twelve month average price for No. 6 fuel oil in the
Buffalo, New York area (the "90% of No. 6 Fuel Oil Price"). The RV of oil
and natural gas properties also included $2,905,000 attributable to the
difference, plus interest, between the price that NFG paid since September
1984 and the 90% of No. 6 Fuel Oil Price.

Current assets and liabilities were recorded at book value which
approximates RV. Long-term liabilities were recorded at present values of
amounts to be paid and the pre-consummation stockholders' deficit was
adjusted to reflect the par value of pre-consummation equity interests.

F-8
<PAGE>

TGX CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The recorded value of the Series A Senior Preferred Stock (the "Senior
Preferred") to be issued pursuant to the Plan was determined based on the
difference between the RV of the Company's assets less the sum of (i) the
present value of liabilities plus (ii) the par value of pre-consummation
equity interests. The accretion of the difference between the recorded
value and the $10 per share redemption amount of the Senior Preferred will
be recorded as a reduction of income applicable to common stockholders over
a period of approximately 10 years.

The RV was determined by management on the basis of its best judgment of
what it considered to be the fair market value ("FMV") of the Company's assets
and liabilities at the time of the valuation, after reviewing relevant facts
concerning the price at which similar assets were being sold between willing
buyers and sellers. However, there can be no assurances that the RV and the
FMV are comparable and the difference between the Company's calculated RV and
the FMV may, in fact, be material.

Pursuant to the provisions of the Plan, TGX provided for (i) the payment in
full of its secured debt by the issuance of new notes pursuant to the terms of
a restructured credit agreement, (ii) the conversion of substantially all of
its unsecured debt into two different series of preferred stock, (iii) tax and
priority and certain other specified classes of claims and interests arising
from options for common stock being paid in cash, retained or otherwise
provided for, and (iv) administrative claims being paid in cash or otherwise
being satisfied.

Three of the large administrative claimants (the "Opposing Administrative
Claimants") agreed that in full satisfaction of the balance of their
administrative claims they would receive (i) a payment of $300,000 (ii) 55,000
shares of Senior Preferred and (iii) the conveyance of approximately 29,400
acres of undeveloped land in Culberson and Hudspeth Counties, Texas. In
satisfaction of their unpaid administrative claims, all other administrative
claimants received cash and/or were entitled to receive promissory notes due
December 31, 1994 which were secured by certain assets of the Company. Such
notes were to be issued upon the execution of releases in favor of the Company
and others. As set forth in Note 3 below administrative claimants received in
the aggregate $150,000 in partial repayment of their notes prior to September
30, 1994. Commencing in October 1994, the Company re-negotiated the terms of
the notes with certain administrative claimants and paid $389,000 in cash,
issued 141,518 shares of Senior Preferred and also issued its non-recourse
note in the amount of $90,000 payable out of proceeds from the NFG Litigation
described in Note 4 below, in full satisfaction of administrative notes with
an aggregate of $1,220,000 in principal and interest due at the time of
renegotiation. In early 1995, administrative notes with an aggregate of
$204,000 in principal and interest were settled by the payment of $111,000 and
issuance of 10,000 shares of Senior Preferred.

TGX was a party to numerous executory contracts which, pursuant to the
provisions of the Bankruptcy Code, could be assumed or rejected by TGX. If an
executory contract was assumed by TGX, all defaults related to the executory
contract were cured (generally, paid-in-full with cash). Currently, the
aggregate balance of pre-petition obligations related to assumed executory
contracts is approximately $317,000 and represents undistributed net oil and
gas revenues which is in a "suspended pay" status. If an executory contract
was rejected by TGX, all claims related to the executory contract were
satisfied pursuant to the terms of the Plan.

As of the Effective Date of the Plan, the preferred and common stockholders
selected a new Board of Directors (the "New Board") comprised of eight
individuals to serve until January 1995, or until their successors were duly
elected and qualified. The New Board consisted of five members selected by
holders of the Senior Preferred (two of which were designees of a significant
shareholder, and one of which could not be an affiliate of any holder of the
Senior Preferred) and two members selected by holders of the other classes of
stock acting as one class. The remaining member of the New Board was required
to be the chief executive officer of the Company. Subsequent to January 1995
the Company amended its by-laws to provide for a Board of five members.
Currently the Board consists of three members who will serve until their
successors are duly elected

F-9
<PAGE>

TGX CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

and qualified. When new directors are elected, the Plan provides that
directors are to be elected without regard to class representation. However,
holders of Senior Preferred have 95% of the voting power of the Company and a
plurality of such holders can, therefore, effectively elect all Directors. In
addition, to whatever number of directors is provided for in the Company's by-
laws, two additional directors are to be elected solely by the Senior
Preferred Stockholders until the Company has made up its dividend arrearages.

The Senior Preferred has a $10 per share redemption value and has a
provision for a 10% annual compounded cash dividend, payable quarterly,
provided however, that the payment of such dividend does not violate Delaware
law or certain loan covenants. The Company has not paid any of the dividends
since the Effective Date of the Plan and based on the current financial
position of the Company, does not expect to make any such dividend payments in
the near future. Subject to Delaware law, the Senior Preferred must be
redeemed no later than January 21, 2002.

3. LONG-TERM DEBT AND NOTES PAYABLE

As of June 30, 1996 and December 31, 1995 and 1994, the components of long-
term debt were:

<TABLE>
<CAPTION>
1996 1995 1994
----------- ---- ------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C>
Bank borrowings:
Revolving credit facility (secured).............. $ -- $500 $1,150
Less current maturities.......................... -- -- --
---- ---- ------
Long-term debt................................. $ -- $500 $1,150
==== ==== ======
</TABLE>

On July 13, 1994, the Company entered into a series of agreements with Bank
One, Texas N.A. ("Bank One") whereby the Company's then outstanding secured
debt with the Bank of Montreal ("BMO") was restructured and all existing BMO
events of default were resolved. Pursuant to the restructuring, Bank One
established a borrowing-based facility of $2,350,000 under which the Company
immediately borrowed $1,600,000 of which $1,452,000 was paid to BMO. The Bank
One facility bears interest at Bank One's stated rate plus two percent and for
1995 the actual interest rate, including the two percent, ranged from 10.5% to
11%. The Bank One facility is secured by substantially all of the Company's
oil and gas properties. The Bank One facility at December 31, 1995 had a
borrowing base of $2,500,000 and is redetermined every six months or at Bank
One's discretion. Under the current facility, the borrowings base is reduced
through monthly reductions of $50,000 and the loan matures on July 13, 1997.
Due to the excess of borrowing base over year end borrowings outstanding and
the current monthly facility reduction rate, no current maturities for debt
are reflected. The Bank One facility requires the maintenance of certain
financial ratios including a working capital ratio, after excluding certain
liabilities and other adjustments as allowed under the facility, of 1 to 1 and
a tangible net worth, including Senior Preferred stock, of a minimum of
$5,000,000, and other financial ratios.

Simultaneously with the securance of the Bank One facility, BMO released all
of its liens on the Company's properties with the exception of its lien on the
Company's litigation with NFG ("NFG Litigation"). See Note 4 below.

Prior to restructuring its debt through establishment of the Bank One
facility, the Company had been subject to the terms of an Amended and Restated
Credit Agreement (the "Amended Credit Agreement") with BMO which was entered
into in February 1992 and amended thereafter and which essentially continued
and preserved the prior revolving credit agreement. Effective December 31,
1992, the Company had been notified by BMO that an event of default had
occurred under the Amended Credit Agreement, and as a result, BMO had the
right to take certain actions under such Amended Credit Agreement including,
but not limited to, the acceleration of all of the then outstanding BMO
obligations.

F-10
<PAGE>

TGX CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

In January 1994, in conjunction with the Company's sale of certain assets to
Belden & Blake Corporation ("BBC"), the Company made a debt service payment of
approximately $14.3 million to BMO. As set forth above, in July 1994, in
connection with the series of agreements entered into between the Company and
Bank One, the Company paid approximately $1,452,000 to BMO and simultaneously
therewith, BMO released all of its liens on the Company's properties with the
exception of its lien on the Company's NFG Litigation. As part of the loan
restructuring, BMO converted $4,652,000 of its outstanding indebtedness to a
non-recourse note secured only by the NFG Litigation and any proceeds that
might be received therefrom. BMO has assigned its rights to the loan,
security, and the Company's note to BMO's wholly owned subsidiary, BMO
Financial, Inc. ("BMOF"). On December 31, 1995, the Company and BMOF executed
the first amendment to the credit agreement. Pursuant to the amended
agreement, TGX and BMOF will share equally any NFG Litigation proceeds up to
$8 million. BMOF shall receive 100% of any proceeds in excess of $8 million
until the total received by BMOF equals the $4,652,000 plus any accrued
interest. Thereafter, TGX will receive all funds until the proceeds it has
recovered equals the proceeds received by BMOF. Any additional NFG Litigation
proceeds available shall be shared equally by TGX and BMOF. If NFG Litigation
proceeds are insufficient to repay the BMOF loan, plus applicable interest,
the Company will have no further obligation for such repayment. Since the BMOF
loan has no recourse, the Company recognized an extraordinary gain from the
effective debt forgiveness, net of transaction expense of $492,000, of
$4,160,000 in 1994. The BMOF note matures on December 31, 1997, subject to
each party having the right to extend the maturity date and bears interest at
the rate of 10% per annum. However, until December 31, 1997, and for such
further time as BMOF elects to extend the maturity date of such loan, no cash
payment for such interest is required; instead, the Company will pay interest
in kind through the issuance of additional notes to BMOF. As of December 31,
1995, total accrued interest pursuant to the BMOF note was $683,000 of which
$449,000 has been paid through the issuance of additional notes to BMOF. See
Note 14 below.

During the Reorganization Proceeding, the Company incurred and claimants
filed applications for approximately $7,131,000 in administrative fees and
expenses relating to the reorganization ("Administrative Claims"). The Company
objected to certain of the Administrative Claims and negotiated settlement
amounts and terms of payment with certain holders of Administrative Claims. As
a result, administrative claimants, other than the Opposing Administrative
Claimants, upon execution of certain releases in favor of the Company and
others, were entitled to receive promissory notes (the "Administrative Notes")
due December 31, 1994, in satisfaction of each of their unpaid administrative
claim. Substantially all administrative claimants entitled to receive
Administrative Notes, perfected their claims by executing such releases. The
Administrative Notes bore interest at a rate not to exceed 8% and were secured
with certain collateral (the "Consummation Collateral"). If the proceeds
related to the Consummation Collateral were not sufficient to satisfy the
Company's obligations under the Administrative Notes the Company's excess
operating funds, if any, were to be applied toward the balances due. During
late 1994 and early 1995, the Company negotiated settlement with substantially
all of the Administrative Note holders. As a result of negotiated settlements
and forfeitures, Administrative Notes and Administrative Claims totaling
approximately $1,126,000 in principal and $253,000 in accrued interest were
renegotiated or forfeited with the Company making cash payments in the
aggregate of $455,000, issuing 151,518 shares of Senior Preferred Stock and
further issuing its non-recourse note in the aggregate amount of $90,000
payable out of proceeds received by the Company from the NFG Litigation, if
any, and all such notes and claims were deemed settled as of year end 1995.
The Company reflected an extraordinary net gain in 1995 and 1994 of $93,000
and $831,000, respectively, in conjunction with these settlements.

In summary, the Company reflected a total net extraordinary gain for 1995 of
$93,000 for Administrative Note forgiveness and for 1994 of $4,991,000 as the
result of net secured debt and Administrative Note forgiveness of $4,160,000
and $831,000, respectively.

Cash paid for interest during 1995 and 1994 totaled approximately $64,000
and $3,364,000, respectively.

F-11
<PAGE>

TGX CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

4. COMMITMENTS AND CONTINGENCIES

NFG Litigation

In 1974, predecessors of TGX as seller and NFG as buyer entered into a gas
purchase and sale contract (the "NFG Contract") which, in 1983, the New York
State Public Service Commission (the "PSC") determined, in its Opinion No. 83-
26 ("Opinion 83-26"), that the pricing provision was unacceptable.

A dispute arose between NFG and TGX as to whether the NFG Contract remained
in force after Opinion 83-26, and, if it did, what price the NFG Contract
prescribed starting in December, 1983. In November, 1984, NFG commenced an
action in the United States District Court for the Western District of New
York (Civ. No. 84-1372E) (the "District Court") seeking a declaration of the
rights and obligations of the parties under the NFG Contract after Opinion 83-
26. TGX counterclaimed for damages claiming that NFG had breached the terms of
the NFG Contract. The PSC intervened as a plaintiff in the District Court
action. In January, 1991, the District Court declared that because Opinion 83-
26 had abrogated an essential term of the NFG Contract, it had voided the
entire NFG Contract.

In December, 1991, the Federal Court of Appeals for the Second Circuit (the
"Second Circuit") reversed the judgment of the District Court and held that
the NFG Contract had not been voided. The Second Circuit permitted TGX to
continue to deliver gas under the NFG Contract, but left open the issue of the
appropriate price under the NFG Contract.

The Second Circuit remanded the case to the District Court for further
proceedings consistent with its decision, TGX took the position that it was
entitled to recover Natural Gas Policy Act ("NGPA") prices. NFG has taken the
position that the PSC imposed a ceiling on all future gas purchases under the
NFG Contract based on the price of No. 6 fuel oil.

On remand from the Second Circuit, in January 1993, the District Court
granted TGX's motion for partial summary judgment regarding the price to be
paid under the NFG Contract. Based on the District Court's order, TGX has
concluded that from December 1983, until at least January 1, 1993, the date
price controls under the NGPA were terminated, the price under the NFG
Contract is equal to the lower of (i) the applicable maximum lawful price for
December 1983 and for each month thereafter as established by the NGPA,
subject to the escalations provided by the NGPA, or (ii) the December 1983
permitted price under the NFG Contract of approximately $4.41 per Mcf. The
District Court's decision might be interpreted such that the December 1983
permitted contract price would be $4.41 per Mcf during the winter months and
$4.01 per Mcf during the summer months. The District Court did not address the
impact, if any, of the termination of the NGPA.

In response to NFG's request for clarification, the District Court stated in
July 1993 that its January ruling "did not determine the just and reasonable
price for the gas pursuant to [New York Public Law] 110(4), set a contract
price for the duration of the contract, resolve any defenses presented by NFG,
determine whether such obligation continues until the present time, or rule on
any deregulation issues."

In December 1992, NFG filed a motion with the PSC requesting a hearing to
determine pricing issues related to the NFG Contract. Pursuant to this
request, the PSC ordered that a proceeding take place. After the submission of
substantial evidence and briefs, the Administrative Law Judge ("ALJ") assigned
by the PSC to hear this matter determined in a Recommended Decision issued in
November, 1994 that the PSC should find that from December 20, 1983 through
November, 1992 (the period of time at issue in the proceeding), the maximum
contract price that would be just and reasonable within the meaning of the
Public Service Law was $3.714 per Mcf of gas, which represents the weighted
average of the two applicable NGPA categorized maximum prices for December
1983.

F-12
<PAGE>

TGX CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The ALJ's Recommended Decision along with briefs of the parties were
submitted to the PSC for its review. Despite the fact that the PSC had ordered
the proceeding at NFG's request, in Opinion No. 95-5, issued in May, 1995 (the
"PSC's 1995 Decision"), the PSC decided that the matter was not ripe for its
review because, in its view, there was currently no contract price in the NFG
Contract for the PSC to review. The PSC declined to endorse the $3.714 price
in the ALJ's Recommended Decision or any other price. The PSC determined that
NFG's requested hearing and the dealings after 1983 between NFG and TGX did
not constitute the type of filing appropriate for PSC review. The PSC stated
that it would not determine whether a price to be paid under the NFG Contract
was appropriate until such time as such price was finally agreed to by the
parties or determined by the District Court. The District Court would also
determine the continued validity of the NFG Contract. The PSC left open the
possibility that it might review the NFG Contract after the completion of the
District Court litigation.

In September, 1994, TGX amended and supplemented its counterclaims in the
District Court action to assert additional claims against NFG for breach and
repudiation of the NFG Contract and for punitive damages based upon NFG's bad
faith course of conduct towards TGX. NFG has raised various defenses against
TGX's counterclaim, including claims that TGX itself repudiated and breached
the NFG Contract by its conduct; a claim that the assignment of the NFG
Contract to TGX was not valid; procedural and jurisdictional defenses;
defenses based upon the Public Service Law; a claim that TGX failed to fix a
price in good faith after the issuance of Opinion 83-26; and a claim for
setoffs for unspecified damages to NFG's facilities.

The Magistrate Judge assigned to monitor pre-trial discovery in the District
Court action has issued a scheduling order pursuant to which the parties have
been engaged in costly documentary discovery into the allegations raised by
the pleadings in the District Court litigation. Although the current
scheduling order anticipates that discovery will be complete by September,
1996, it is not possible to predict when this litigation will come to an end
given the possible appeals and collateral PSC proceedings that may take place,
nor is it possible to predict the likely outcome of the litigation.

Subsequent to the PSC's 1995 Decision, NFG in 1995 brought a special
proceeding in the New York State Supreme Court, Albany County, seeking a
judgment annulling, as effected by an error of law, much of the PSC's 1995
Decision. TGX intervened in this proceeding to protect its interests. This
special proceeding was dismissed by NFG in January, 1996 based upon the PSC's
agreement to represent that its articulated reasons for dismissing NFG's
petition should be understood as constituting an exercise of the PSC's
discretion under 204 of the State Administrative Procedure Act to decline to
entertain NFG's request for a declaratory ruling.

During its Reorganization Proceeding, TGX filed an adversary proceeding (the
"Turnover Proceeding") in Bankruptcy Court to compel NFG to pay the amount due
to TGX pursuant to the provisions of the NFG Contract. Effective June 19,
1992, TGX and NFG entered into a partial settlement agreement, and, in
consideration of a payment of $2,940,000 (the "Payment) from NFG, TGX (i)
dismissed the Turnover Proceeding without prejudice (ii) released NFG (subject
to certain limitations) from any and all liability and affirmative claims for
relief alleged to arise from or based upon certain evidence presented by TGX
in the Turnover Proceeding, and (iii) reserved its rights regarding the
assumption or rejection of certain other relatively minor gas purchase
agreements with NFG. The Payment will be credited against any additional
amount which may be adjudged due TGX from NFG.

As part of its sale of substantially all of its oil and gas properties in
Ohio and New York to BBC in January 1994, TGX assigned the NFG Contract
effective December 1, 1993. TGX's assignment of the NFG Contract did not
include TGX's rights in its existing claims against NFG, any proceeds
therefrom, and TGX's rights, claims or causes of action, even if they had not
yet been asserted, that arose prior to the effective time of the assignment.

F-13
<PAGE>

TGX CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Other

In August 1992, certain unleased mineral interest owners commenced a legal
action against TGX, as operator of certain wells, in the 19th Judicial
District Court for East Baton Rouge Parish, Louisiana (Case Number 383844,
Division "A"). The complaint alleges that revenues in excess of the reasonable
costs of drilling, completing, and operating certain wells have not been
credited to the interests of the unleased mineral interest owners. In July
1995, certain royalty owners in the same wells commenced a separate legal
action alleging that TGX and other working interest owners improperly profited
under the terms of a Gas Gathering and Transportation Agreement dated December
12, 1983. Both cases are in the discovery stage and if settlement negotiations
are not successful, TGX will vigorously defend itself in the litigation. TGX
does not believe that the ultimate resolution of these matters will have a
material adverse effect on the financial condition or results of operations of
TGX.

In March, 1994, a hearing was conducted in the Bankruptcy Court regarding
the final allowance of pre-petition and administrative claims related to an
overriding royalty interest previously conveyed by TGX. During that hearing,
the parties stipulated that the finally allowed amount of the claimant's
prepetition claim would be $600,000. That prepetition claim has been fully
satisfied by the issuance of Senior Preferred. The Company had previously
estimated that prepetition claim in that amount, and therefore it had been
reflected in prior years' financial statements. Subsequent to the March 1994
hearing, and after post-hearing motions from both TGX and the Claimant, the
Bankruptcy Court entered an order on September 7, 1994 which determined that
the claimant would be granted an allowed administrative expense claim for
unpaid overriding royalties arising post-petition but prior to October 4, 1992
in the amount of $244,000. That administrative claim, when finally allowed, is
to be treated by the issuance of an Administrative Note under the terms of the
Plan, and is to be payable under the terms of the Plan. The Bankruptcy Court
further ruled that it would not exercise any jurisdiction over claims for
alleged unpaid overriding royalties arising subsequent to October 4, 1992. TGX
believes that the Bankruptcy Court erred in its determination of unpaid
overriding royalties, and has appealed the Bankruptcy Court's ruling to the
United States District Court for the Western District of Louisiana. That
appeal has been fully briefed, but no decision has been rendered.

On May 9, 1996, TGX entered into a settlement agreement regarding the final
allowance of pre-petition and administration claims related to an overriding
royalty interest. Under the agreement, TGX paid $400,000 as full settlement of
all claims and received 60,000 Senior Preferred Shares previously owned by the
settling party (Unaudited).

On May 31, 1995, the Company entered into a Settlement Agreement among
itself, Paragon Resources, Inc., J. C. Templeton, W. M. Templeton and a number
of other former directors of the Company, trusts on behalf of members of the
Templeton family and other entities pursuant to which all lawsuits between and
among the parties were dismissed with prejudice. In consideration therefore,
the Company received $325,000, an assignment of certain oil and gas leases,
and receipt of past due joint operating expenses payable by certain of the
defendants. The Company released lis pendens against certain of the
defendants' properties and conveyed to the defendants an interest in certain
properties to which they were entitled. The parties to the litigation also
conveyed to the Company any Common Stock or Preferred Stock which they held.

F-14
<PAGE>

TGX CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Leases

As of December 31, 1995, the Company's only lease commitment was for the
remaining term of its office lease for 1996 of $7,000.

Other

As of December 31, 1995, the Company had letters of credit outstanding of
$25,000 under the Bank One credit facility which reduced the Company's
availability under the facility. See Note 3 above.

5. INVESTMENT IN NATURAL GAS TREATING PLANT

In conjunction with the acquisition of Amarex, Inc. in 1985, the Company
acquired Amarex's 35% interest in the Comite Field Plant Venture (the
"Venture"), an Oklahoma general partnership formed in April 1982 for the
purpose of constructing and operating a natural gas treating plant to serve
the Comite Field in East Baton Rouge Parish, Louisiana. Natural gas produced
from wells operated by the Company and one other operator is transported to
the plant where contaminants are extracted to satisfy pipeline specifications.
In addition, the plant also provides condensate handling and saltwater
disposal facilities. The Company receives cash distributions from the Venture
for its share of net cash flow. In addition, the Venture charges the Company
for gas treating and such charges are included in operating expenses.

A summary of the Venture's unaudited financial position as of June 30, 1996
and December 31, 1995 and 1994, and the results of its operations for the six
month period and years then ended is:

<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C>
SUMMARY BALANCE SHEETS
Current assets............................................ $ 747 $ 667 $ 869
Net property and equipment................................ 1,492 1,701 2,169
------ ------ ------
$2,239 $2,368 $3,038
====== ====== ======
Current liabilities....................................... $ 183 $ 155 $ 380
Long-term debt............................................ 50 100 150
Partners' capital......................................... 2,006 2,113 2,508
------ ------ ------
$2,239 $2,368 $3,038
====== ====== ======
SUMMARY STATEMENTS OF EARNINGS
Fees earned............................................... $1,396 $2,448 $2,327
Operating expenses........................................ 515 1,131 1,142
------ ------ ------
Operating income.......................................... 881 1,317 1,185
Other income.............................................. -- 8 11
------ ------ ------
Net income................................................ $ 881 $1,325 $1,196
====== ====== ======
</TABLE>

F-15
<PAGE>

TGX CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

6. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

As of June 30, 1996 and December 31, 1995 and 1994, the primary components
of accounts payable and accrued liabilities were (in thousands):

<TABLE>
<CAPTION>
1996 1995 1994
----------- ------ ------
(UNAUDITED)
<S> <C> <C> <C>
Accounts payable...................................... $ 209 $ 555 $ 489
Undistributed net oil and natural gas revenue......... 1,182 1,152 1,069
Accrued interest and fees............................. -- -- 32
Accrued pre-petition liabilities...................... 403 518 934
Accrued operating and tax expenses.................... 248 312 252
Operation advances.................................... 17 159 --
Miscellaneous accruals................................ 343 657 739
------ ------ ------
$2,402 $3,353 $3,515
====== ====== ======
</TABLE>

7. REDEEMABLE SENIOR PREFERRED STOCK

The Company is authorized to issue 10,000,000 shares of Series A Redeemable
Senior Preferred Stock ("Senior Preferred") with a par value of $1 per share.
The Senior Preferred entitles its holders to receive a 10% annual compounded
cash dividend, payable quarterly, provided however, that the payment of such
dividend does not violate Delaware law or certain covenants in the Company's
bank loan agreements. The Company has not paid any of the quarterly dividends
required to date and based on the Company's current financial position does
not expect to make any such dividend payments in the near future. The Senior
Preferred have a liquidation preference of $10 per share and have priority
over the liquidation preference afforded the holders of Series B Preferred
Stock (the "Junior Preferred"), 9% Cumulative Convertible Preferred Stock (the
"Old Preferred") and Common Stock. The Senior Preferred are scheduled to be
redeemed on January 21, 2002 ("Redemption Date"). On a monthly basis, the
accretion of the difference between the recorded value and the redemption
amount of the Senior Preferred is reflected as a reduction of income
applicable to common stockholders. Since the Senior Preferred have both debt
and equity characteristics it is not classified as a component of equity.
Holders of Senior Preferred have 95% of the voting rights of the Company with
the remaining 5% of voting rights being allocated collectively among the
holders of the Junior Preferred, Old Preferred and Common Stock.

Pursuant to the Plan, the Company provided for a total of 8,529,246 shares
to be issued to holders of certain unsecured claims on the basis of one share
of Senior Preferred for every $10 of certain finally allowed or otherwise
agreed upon claim. During 1992, an additional 200,000 shares were issued to an
executive officer pursuant to a management agreement. In conjunction with
fresh start reporting, in 1992, the Senior Preferred was recorded at a value
of $11,046,000 which is $76,246,000 less than redemption value. In 1995, an
additional 250,000 shares were issued to certain executive officers and
128,110 canceled in conjunction with settlement of certain pre-petition
obligations, post-petition asset sale and litigation settlement. The Company
recorded in 1995 and 1994 $52,000 and $99,000, respectively, of stock
compensation expense related to the 1992 and 1995 management agreement and
executive officer stock issuances. Stock compensation expense is amortized
over the stock award forfeiture period of two years from grant date. For stock
compensation expense recognition purposes the 1992 award was valued at $1.50
per share, based on an internal estimate of Company net assets as of October
2, 1992 (fresh start reporting). The 1995 awards were valued based on a
reported 1995 Senior Preferred trade at $0.20 per share.

F-16
<PAGE>

TGX CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Since December 31, 1993, the components of the number of shares of the
Company's Senior Preferred and changes in associated values are as follows (in
thousands):

<TABLE>
<CAPTION>
NUMBER RECORDED
OF SHARES VALUE
--------- --------
<S> <C> <C>
Balance, December 31, 1993.................................. 8,729 $30,013
Accrued and unpaid dividends................................ -- 10,510
Accretion on redemption value and dividends................. -- 3,980
Amortization of compensation shares pursuant to
management agreement....................................... -- 99
----- -------
Balance, December 31, 1994.................................. 8,729 44,602
Accrued and unpaid dividends................................ -- 12,038
Accretion on redemption value and dividends................. -- 5,045
Amortization of compensation shares pursuant to
management agreement....................................... -- 35
Shares issued pursuant to management
option agreements.......................................... 250 17
Shares canceled............................................. (128) --
----- -------
Balance, December 31, 1995.................................. 8,851 61,737
Accrued and unpaid dividends (unaudited).................... -- 6,393
Accretion on redemption value and dividends (unaudited)..... -- 2,865
Amortization of compensation shares pursuant to
management agreement (unaudited)........................... -- 13
Shares canceled (unaudited)................................. (63) (12)
----- -------
Balance, June 30, 1996 (unaudited).......................... 8,788 $70,996
===== =======
</TABLE>

8. STOCKHOLDERS' EQUITY (DEFICIT)

Since December 31, 1993, the components of the number of shares of the
Company's stockholders' equity (deficit) and the changes therein are:

<TABLE>
<CAPTION>
OLD
PREFERRED COMMON TREASURY
STOCK STOCK STOCK
--------- ------ --------
(THOUSANDS OF SHARES)
<S> <C> <C> <C>
Balance, December 31, 1993........................... 404 25,314 3,663
Dividends on Old Preferred Stock..................... 27 -- --
--- ------ -----
Balance, December 31, 1994........................... 431 25,314 3,663
Dividends on Old Preferred Stock..................... 27 -- --
Shares surrendered................................... -- (358) 358
--- ------ -----
Balance, December 31, 1995........................... 458 24,956 4,021
Dividends on Old Preferred Stock (unaudited)......... 13 -- --
--- ------ -----
Balance, June 30, 1996 (unaudited)................... 471 24,956 4,021
=== ====== =====
</TABLE>

As a result of the Senior Preferred Stock liquidation and dividend
preference, no value was ascribed to common stock held in treasury.

F-17
<PAGE>

TGX CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Since December 31, 1993, the components of the Company's stockholders'
equity (deficit), and the changes therein are:

<TABLE>
<CAPTION>
OLD ADDITIONAL RETAINED
PREFERRED COMMON PAID-IN EARNINGS
STOCK STOCK CAPITAL (DEFICIT)
--------- ------ ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance, December 31, 1993............... $404 $290 $ 936 $(30,135)
Preferred dividends, payable with
additional shares of Old Preferred...... 27 -- 243 (270)
Dividends on Senior Preferred............ -- -- -- (10,510)
Accretion of Senior Preferred redemption
value................................... -- -- -- (3,980)
Net income............................... -- -- -- 3,991
---- ---- ------ --------
Balance, December 31, 1994............... 431 290 1,179 (40,904)
Preferred dividends, payable with
additional shares of Old Preferred...... 27 -- 243 (270)
Dividends on Senior Preferred............ -- -- -- (12,038)
Accretion of Senior Preferred redemption
value................................... -- -- -- (5,045)
Net income............................... -- -- -- 288
---- ---- ------ --------
Balance, December 31, 1995............... 458 290 1,422 (57,969)
---- ---- ------ --------
Preferred dividends payable with
additional shares of Old Preferred
(unaudited)............................. 13 -- 121 (134)
Dividends on Senior Preferred
(unaudited)............................. -- -- -- (6,393)
Accretion of Senior Preferred redemption
value (unaudited)....................... -- -- -- (2,865)
Net income (unaudited)................... -- -- -- 3,431
---- ---- ------ --------
Balance, June 30, 1996 (unaudited)....... $471 $290 $1,543 $(63,930)
==== ==== ====== ========
</TABLE>

Series B Preferred Stock

The Company is authorized to issue Series B Preferred Stock (the "Junior
Preferred") with a $1 par value and a liquidation preference of $10 per share,
which may be redeemed by the Company in whole or in part at any time at a
price per share equal to the liquidation preference amount per share, plus all
accrued and unpaid dividends through the date of redemption. The Junior
Preferred will be used to satisfy certain claims pursuant to the Plan that
have been finally allowed. To date, no claims to be satisfied with the Junior
Preferred have been allowed and the Company does not currently anticipate that
any such claims will be allowed.

Cumulative Convertible Preferred Stock

The Company is authorized to issue 10,000,000 shares of 9% Cumulative
Convertible Preferred Stock (the "Old Preferred") of which 300,000 shares are
outstanding. The Old preferred have a $1 par value and a liquidation
preference of $10 per share, convertible at any time at the rate of one Old
Preferred share for four shares of the Company's Common Stock. In addition,
158,000 shares of Old Preferred will be issued for accrued dividends. Until
the redemption value plus all accrued dividends attributable to Senior
Preferred are paid in full, dividends related to the Old Preferred will be
paid with additional shares of Old Preferred.

F-18
<PAGE>

TGX CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Common Stock

The Company is authorized to issue 100,000,000 shares of Common Stock, with
a $.01 par value, of which 24,956,033 were outstanding at December 31, 1995.
All outstanding shares of Common Stock are fully paid and non-assessable.

The holders of Common Stock are entitled to one vote per share upon all
matters presented to them. Pursuant to the Plan, holders of Common Stock are
entitled, collectively with holders of Junior Preferred and Old Preferred, to
5% of the total voting power of the Company. The holders of Common Stock are
entitled to dividends in such amounts as may be declared from time to time out
of any funds legally available for such purposes. However, no dividends are
payable until all accrued dividends have been paid to the preferred
stockholders. In the event of liquidation, dissolution or winding up of the
affairs of the Company, whether voluntary or involuntary, after payment of
debts and liquidation preferences on preferred stock, all remaining assets, if
any, will be divided and distributed among the holders of Common Stock pro
rata according to the number of shares owned by them. The Common Stock does
not have preemptive rights and is not subject to redemption.

Restricted Stock and Stock Option Plans

Previously, the Company had adopted a key employee compensation package
which consisted of a Restricted Stock Plan, a Non-Qualified Stock Option Plan,
and an Incentive Stock Option Plan. Both the Non-Qualified Stock Option Plan
and the Incentive Stock Option Plan were terminated in 1991 pursuant to the
respective plan's provisions and while options previously issued under the
Incentive Stock Option Plan are still valid, no new options under these plans
can be issued.

Information relating to stock options granted under both plans is as
follows:

<TABLE>
<CAPTION>
NON-QUALIFIED
PLAN INCENTIVE PLAN
---------------- ------------------
AVERAGE AVERAGE
---------------- ------------------
NUMBER EXERCISE NUMBER EXERCISE
OF PRICE OF PRICE
SHARES PER SHARE SHARES PER SHARE
------ --------- ------- ---------
<S> <C> <C> <C> <C>
Balance, December 31, 1993.................. -- -- 44,500 $1.17
Options cancelled or forfeited.............. -- -- (40,000) 1.15
--- --- ------- -----
Balance, December 31, 1994 and 1995......... -- -- 4,500 $1.33
=== === ======= =====
Options exercisable:
December 31, 1994 and 1995................ -- -- 4,500 $1.33
</TABLE>

F-19
<PAGE>

TGX CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

9. INCOME TAXES

The Company follows Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("Statement 109"), which requires recognition of
deferred tax assets and liabilities for the expected future tax consequences
of events that have been included in the financial statements or tax returns.
Under this method, deferred tax liabilities and assets are determined based on
the difference, if any, between the financial reporting and tax bases of
assets and liabilities using enacted tax rates in effect for the year in which
the differences are expected to reverse.

Long-term deferred tax assets (liabilities) are comprised of the following:

<TABLE>
<CAPTION>
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred Tax Assets:
Loss carryforwards................................... $11,062 $11,084
Alternative minimum tax credit carryforward and
other............................................... 6 150
Deferred Tax Liabilities:
Oil and gas properties............................... (2,571) (2,303)
------- -------
Net deferred tax asset................................. 8,497 8,931
Valuation allowance.................................... (8,497) (8,931)
------- -------
$ -- $ --
======= =======
</TABLE>

Income tax expense differs from the amounts computed by applying the
statutory federal rate as follows:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------
1995 1994
------ -----
<S> <C> <C>
Income taxes computed at statutory federal rate.......... 34.0% 34.0%
Net operating loss carryover not deductible (utilized) in
current period.......................................... (34.0) (34.0)
Alternative minimum tax and other........................ (130.4) 4.3
------ -----
(130.4%) 4.3%
====== =====
</TABLE>

Pursuant to the provisions of the Internal Revenue Code (the "Code"), a
corporation which undergoes a "change of ownership" is generally subject to an
annual limitation on the utilization of its loss carryovers. As a result of
the Reorganization Proceeding, on the Effective Date a "change of ownership"
for the Company occurred under the Code. Since the Reorganization Proceeding
was conducted pursuant to the Bankruptcy Code, the Company was eligible for an
exception (the "Bankruptcy Exception") to this general rule. In order to
maintain the Bankruptcy Exception, the Company could not have another "change
of ownership" within two years of the first change. If such a change did
occur, the Company's entire pre-"change of ownership" loss carryovers would be
eliminated. Due to the probability that a second "change of ownership" for tax
reporting

F-20
<PAGE>

TGX CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
purposes could occur, the Company elected out of the Bankruptcy Exception
regarding the utilization of its pre-"change of ownership" loss carryovers.

Since the Company has elected not to apply the Bankruptcy Exception, the
Company is limited in its utilization of the pre-"change of ownership" loss
carryovers. Based on the value of the Company as of the Effective Date, the
annual amount of the pre-"change of ownership" loss carryovers to be utilized
is limited to $1,230,000 but loss carryovers not fully utilized in the year
that they are available may be carried over and utilized in subsequent years,
subject to their expiration provisions. As of December 31, 1995, the Company
had pre-"change of ownership" net operating loss carryforwards of $3,648,000
which are available for use through 2006. These loss carryforwards may be
increased by any built-in gain exclusion recognized during the five year
period after the "change of ownership". The Company also had post-"change of
ownership" net operting loss carryforwards of $7,701,000 that expire in 2008
and are available without limitation.

The Company has certain investment tax credits which are also subject to the
"change of ownership" limitation. Due to the limitation and scheduled
expiration, it is unlikely that the Company will realize any future benefit
from such credits. The Company had depletion carryforwards, as of December 31,
1995, of $14,238,000 which are limited annually to 65% of taxable income.

10. RELATED PARTY TRANSACTIONS

Pursuant to the provisions of the applicable agreements and in its capacity
as general partner, the Company received recurring supervisory and
administrative fees, including reimbursement of certain general and
administrative costs, from certain partnerships. Supervisory and
administrative fees of $424,000 and $684,000 were received during 1995 and
1994, respectively. All partnerships for which the Company acted as general
partner were liquidated in late 1995 thus negating any future administrative
fees and reimbursement.

Since certain affiliated partnerships have not had sufficient cash flows to
repay their obligations, accounts and notes receivable from these affiliated
partnerships in which TGX is a general partner have been written off.
Accordingly, the Company applied 100% of the net revenues of the respective
partnerships to their obligations due to TGX until the partnerships were
liquidated in 1994. As a result of 1994 partnership liquidations, the Company
obtained additional direct interests in related oil and natural gas properties
having an estimated value of $381,000 and realized the recoupment of $751,000
in previous allowed for receivables and notes. As of December 31, 1995 and
1994, the Company had currently due from partnerships and affiliates $6,000
and $504,000, respectively.

Paragon Resources, Inc. ("Paragon") and certain of its affiliates were
owners of approximately 14% of the Company's outstanding Common Stock in 1994.
In the past, the Company had substantial transactions with Paragon including
the offering of interests and in the drilling of wells for partnerships. In
February 1992, the Company commenced a legal action regarding the collection
of amounts due to it from Paragon and certain of its affiliates. Due to the
uncertainty regarding the status of this litigation, the Company established
an allowance for all amounts due from Paragon and affiliates in excess of
$286,000. The allowance for affiliated receivables in 1994 was $2,027,000. In
1995, the litigation against Paragon and certain of its affiliates was
settled. As a result of the litigation settlement, the Company recognized an
allowance recoupment of $425,000 and offset the remaining allowance against
the outstanding receivables.

11. MAJOR CUSTOMERS

The Company's revenues are derived principally from uncollateralized sales
to customers in the oil and natural gas industry. The concentration of credit
risk is a single industry affects the Company's overall exposure to credit
risks since customers may be similarly affected by changes in economic and
other conditions.

F-21
<PAGE>

TGX CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Customers which accounted for greater than 10% of oil and gas sales are as
follows:

<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Lion Oil Company................................................ 22% 14%
Noram Energy Services Inc....................................... -- 12%
Princeton Natural Gas Company................................... 28% 15%
Transcontinental Gas Pipe Line Co............................... 26% --
</TABLE>

12. INFORMATION ON OIL AND GAS ACTIVITIES (UNAUDITED)

Following are supplemental unaudited disclosures relating to the Company's
oil and natural gas exploration and production activities.

Oil and Gas Related Costs and Operating Results

The following schedules present capitalized costs and costs incurred,
whether capitalized or expensed, and operating results for the periods then
ended.

<TABLE>
<CAPTION>
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Capitalized costs:
Proved properties..................................... $11,340 $10,407
Accumulated depletion and depreciation................ (4,062) (3,251)
------- -------
$ 7,278 $ 7,156
======= =======
Costs incurred:
Acquisition of properties:
Unproved.............................................. $ 18 $ --
Proved................................................ 718 --
Development(1)........................................ 338 404
------- -------
$ 1,074 $ 404
======= =======
Operating results(2):
Revenues.............................................. $ 3,611 $ 4,802
------- -------
Costs and expenses:
Production and exploration costs...................... 1,974 3,188
Depletion and depreciation............................ 951 1,099
------- -------
2,925 4,287
------- -------
Operating earnings before income taxes.................. 686 515
Income tax expense (benefit)............................ (163) 180
------- -------
Operating earnings...................................... $ 849 $ 335
======= =======
</TABLE>
- --------
(1) 1994 activity represents primarily properties received in settlement of
certain partnership notes and receivables.
(2) Excludes general and administrative and interest expense.

Proved Reserves

The following schedule presents estimates of proved oil and natural gas
reserves attributable to the Company, all of which are located in the United
States. Proved reserves are estimated quantities of oil and natural gas which
geological and engineering data demonstrate with reasonable certainty to be
recoverable in future years from known reservoirs under existing economic and
operating conditions. Proved developed reserves are

F-22
<PAGE>

TGX CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
those which are expected to be recovered through existing wells with existing
equipment and operating methods. Reserves are stated in thousands of barrels
of oil and billions of cubic feet of natural gas.

<TABLE>
<CAPTION>
1995 1994
--------- ---------
OIL GAS OIL GAS
--- ---- --- ----
<S> <C> <C> <C> <C>
Proved reserves:
Beginning of year................................. 931 10.4 525 9.1
Sales of reserves in place........................ (2) -- (37) (.5)
Purchases of reserves-in-place.................... 22 1.2 -- --
Extensions and discoveries........................ 1 0.1 487 2.6
Revisions of previous estimates................... 55 2.2 18 1.4
Production(1)..................................... (63) (1.7) (62) (2.2)
--- ---- --- ----
End of year....................................... 944 12.2 931 10.4
=== ==== === ====
Proved-developed reserves........................... 465 9.7 444 7.8
=== ==== === ====
</TABLE>
- --------
(1) 1995 and 1994 includes .220 and .590 Bcf, respectively, of gas volumes
related to gas balancing

As a result of TGX's debt restructuring and anticipated cash flow, TGX
included proved undeveloped reserves for the first time, in preparing its 1994
report disclosures. The addition of the proved undeveloped reserves was
reflected as 1994 extensions and discoveries. The 1995 report disclosure
continues to include proved undeveloped reserves.

Estimating economically recoverable crude oil and natural gas reserves and
the future net revenues therefrom is not an exact science and is based upon a
number of variable factors, such as historical production of the subject
properties as compared with similar producing properties, and assumptions such
as the effects of regulation by governmental agencies, future taxes, and
development and other costs, all of which may vary considerably from actual
results. All such estimates are to some degree speculative, and
classifications of reserves are only attempts to define the degree of
speculation involved. For these reasons, estimates of economically recoverable
reserves of crude oil and natural gas attributable to any particular group of
properties, the classification and risk of recovering such reserves, and
estimates of the future net revenues expected therefrom, prepared by different
engineers or by the same engineers at different times, may vary substantially.

Proved oil and natural gas reserves are the estimated quantities of crude
oil, natural gas and natural gas liquids which geological and engineering data
demonstrate with reasonable certainty to be recoverable in future years from
known reservoirs under existing economic and operating conditions. Estimates
with respect to proved undeveloped and proved developed non-producing reserves
that may be developed and produced in the future are based upon volumetric
calculations or upon analogy to similar types of reservoirs. Later studies of
the same reservoirs based upon production history may result in variations,
which may be substantial. The actual production, revenues, severance and
excise taxes, development costs, and operating expenditures with respect to
the Company's reserves as reflected herein may vary from estimates, and such
variances may be material.

Standardized Measure of Discounted Future Net Cash Flows

The following schedules present the standardized measure of estimated
discounted future net cash flows attributable to the Company's proved oil and
gas reserves ("Standardized Measure"), and an analysis of the changes in these
amounts and quantities for the periods indicated. For 1994, proved undeveloped
reserves were included as extensions and discoveries. The Standardized Measure
was computed on the basis of (a) contractual prices, including escalations for
natural gas, in effect at year end for oil and natural gas (b) the market
price for

F-23
<PAGE>

TGX CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
natural gas and the posted price for oil in effect at year end for the area in
the case of properties being commercially developed but not covered by
existing contracts, (c) estimated deliverability, which not only considers the
physical characteristics of the well or property, but also the amount and
timing of future production estimated to be taken by its purchasers, and (d)
where applicable, the premise that future prices and deliveries will be in
accordance with existing contractual terms which may require arbitration or
litigation to ultimately assure compliance. Estimated future production and
development costs are based on economic conditions at the respective year
ends. Estimated future development costs associated with proved developed non-
producing and proved undeveloped reserves for 1995 and 1994 total $3.8 and
$3.6 million, respectively. Production of those reserves is dependent upon the
Company's ability to fund such future development costs, which are scheduled
to be incurred over numerous years. Future income taxes, if any, are computed
by applying statutory income tax rates to the difference between the future
pre-tax cash flows and the tax basis of proved oil and gas properties, after
considering investment tax credits and depletion carryforwards and net
operating loss carryovers associated with these properties.

Since the Standardized Measure was prepared using the prevailing economic
conditions existing at each applicable year end, it is emphasized that such
conditions continually change, as evidenced by the fluctuations in oil and
natural gas prices during recent years. Accordingly, such information should
not serve as a basis in making any judgment on the potential value of the
Company's recoverable reserves, or in estimating future results of operations.
<TABLE>
<CAPTION>
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Future net cash flows:
Future revenues.......................................... $39,205 $29,092
------- -------
Future production costs.................................. 14,476 10,631
Future development costs................................. 3,844 3,647
------- -------
18,320 14,278
------- -------
Future pre-tax cash flows................................ 20,885 14,814
Future income taxes...................................... -- --
------- -------
$20,885 $14,814
======= =======
Standardized Measure, discounted at 10%:
Future pre-tax cash flows................................ $11,804 $ 8,807
Future net cash flows.................................... $11,804 $ 8,807
======= =======
Changes in Standardized Measure:
Standardized Measure, beginning of year................... $ 8,807 $10,943
------- -------
Sale of reserves-in-place.................................. (16) (1,042)
Purchases of reserves-in-place............................. 1,174 --
Extensions and discoveries................................. 188 2,213(1)
Revisions of previous quantity estimates................... 1,835 862
Changes in future development costs........................ (247) (2,310)
Net changes in prices and production costs................. 959 (3,715)
Sales of oil and natural gas produced, net of production
costs..................................................... (1,706) (2,030)
Accretion of discount...................................... 881 1,094
Changes in production rates and other, net................. (71) 2,792
------- -------
Net increase (decrease).................................... 2,997 (2,136)
------- -------
Standardized Measure, end of year.......................... $11,804 $ 8,807
======= =======
</TABLE>
- --------
(1) Reflects primarily the inclusion of proved undeveloped reserves which had
been excluded in prior year's reporting.

F-24
<PAGE>

TGX CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

13. INTERIM FINANCIAL DATA (UNAUDITED)

The unaudited interim results of operations, are summarized below (in
thousands of dollars except per share amounts):

<TABLE>
<CAPTION>
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
--------- -------- ------------- ------------
<S> <C> <C> <C> <C>
1995:
Revenues....................... $1,140 $ 956 $1,241 $1,260
Gross profit................... 529 144 327 706
Extraordinary gain (loss)...... 118 (25) -- --
Net loss applicable to common
stock......................... (4,300) (4,625) (4,609) (3,531)
Loss per common share.......... $(0.17) $(0.19) $(0.18) $(0.14)
1994:
Revenues....................... $1,487 $1,903 $1,645 $1,463
Gross profit................... 574 471 469 516
Extraordinary gain............. -- -- 4,288 703
Net income (loss) applicable to
common stock.................. (4,051) (3,402) 115 (3,431)
Loss per common share.......... $(0.16) $(0.13) $ 0.00 $(0.13)
</TABLE>

14. SUBSEQUENT EVENT

As of March 28, 1996, the accompanying consolidated financial statements had
been prepared assuming that the Company would continue as a going concern.
However, the Company has a substantial accumulated deficit and had a
significant working capital deficit that raised substantial doubts about its
ability to continue as a going concern. The financial statements did not
reflect any adjustments that might result from the outcome of this
uncertainty. Further, the Company planned to continue to reduce its overhead
and eliminate additional non-core assets. The Company also planned to review
growth opportunities, consistent with its available capital, to determine if
asset growth could be attained through workover, drilling, acquisition or a
combination thereof, within the limits of the Company's financial resources.

On April 12, 1996, TGX entered into a Settlement Agreement with NFG and the
Public Service Commission of the State of New York. Pursuant to the Settlement
Agreement, TGX received on April 19, 1996 $7,200,000 from NFG and all parties
to the Settlement Agreement have dismissed all claims and counterclaims
against each other. Pursuant to amended credit agreements with BMOF (See Note
3), 50% of the settlement proceeds were paid to BMOF in cancellation and full
payment of the non-recourse secured note. Pursuant to a BMOF agreement, BMOF
is to reimburse TGX for 50% of all taxes and royalties, which are not expected
to be significant, that may be due from such proceeds. As a result of the NFG
proceeds and BMOF payment and a payment to another party entitled to
participate in the proceeds, TGX retained $3,500,000 of settlement proceeds
and recorded a corresponding amount as net litigation settlement revenues in
April 1996. A portion of the NFG settlement proceeds was used to retire all of
TGX's then outstanding bank debt of $900,000 on April 22, 1996.

As of April 22, 1996 the Company had positive working capital and had no
outstanding borrowings under its bank line of credit. In addition, TGX is
undertaking steps to restructure its capital through a planned issuance of a
new class of common stock in exchange for the Senior Preferred Stock.
Management believes that its positive working capital and current credit
facility, and anticipated improving operating activity will provide the
necessary cash flow to support its ongoing business plans.

F-25
<PAGE>

UNAUDITED PRO FORMA SUMMARY
CONDENSED COMBINED FINANCIAL INFORMATION

The following summary pro forma condensed combined financial information
gives effect to the merger of TGX Corporation with and into GeoStrat
Resources, Inc., a wholly-owned subsidiary of TGX Corporation. This
information has been derived from the Consolidated Financial Statements of TGX
and should be read in conjunction with such statements and the related Notes
included elsewhere herein. The unaudited pro forma condensed combined
statements of operations for the years ended December 31, 1995 and 1994 and
for the six months ended June 30, 1996 assume that the Merger had been
consummated at the beginning of such periods. The unaudited pro forma
condensed combined balance sheet as of June 30, 1996 assumes that the Merger
had been consummated on June 30, 1996. The GeoStrat subsidiary did not conduct
any business prior to the effective time of this merger and therefore does not
have historical financial statement information. (In thousands, except for per
share data.)

<TABLE>
<CAPTION>
JUNE 30, 1996
-----------------------------
PRO
PRO FORMA FORMA
HISTORICAL ADJUSTMENT BALANCE
---------- ---------- -------
<S> <C> <C> <C>
BALANCE SHEET DATA
Current assets................................ $ 3,662 -- $ 3,662
Property and equipment, net................... 7,364 -- 7,364
Other assets.................................. 746 -- 746
-------- -------- -------
Total assets................................ $ 11,772 -- $11,772
======== ======== =======
Current liabilities........................... $ 2,402 -- $ 2,402
Long-term debt................................ -- -- --
Redeemable Senior Preferred Stock............. 70,996 $(70,996) --
Stockholders' equity (deficit):
9% Cumulative Preferred Stock................. 471 (471) --
Common Stock.................................. 290 (290) --
New Common Stock.............................. -- 44 44
Additional paid-in capital.................... 1,543 14,240 15,783
Accumulated deficit........................... (63,930) 57,473 (6,457)
-------- -------- -------
Total stockholders' equity (deficit)........ (61,626) 70,996 9,370
-------- -------- -------
Total liabilities and stockholders' equity
(deficit).................................. $ 11,772 $ -- $11,772
======== ======== =======
</TABLE>

<TABLE>
<CAPTION>
SIX MONTH PERIOD ENDED YEAR ENDED YEAR ENDED
JUNE 30, 1996 DECEMBER 31, 1995 DECEMBER 31, 1994
----------------------------- ----------------------------- -----------------------------
PRO PRO PRO
PRO FORMA FORMA PRO FORMA FORMA PRO FORMA FORMA
HISTORICAL ADJUSTMENT BALANCE HISTORICAL ADJUSTMENT BALANCE HISTORICAL ADJUSTMENT BALANCE
---------- ---------- ------- ---------- ---------- ------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA
Income (loss) before
extraordinary gain... $ 3,431 $3,431 $ 195 $ 195 $ (1,000) $(1,000)
Preferred Stock
dividends and Senior
Preferred accretion.. (9,392) 9,392 -- (17,353) 17,353 -- (14,760) 14,760 --
------- ------ ------ -------- ------- ----- -------- ------- -------
Net income (loss)
applicable to common
stock before
extraordinary gain... $(5,961) $9,392 $3,431 $(17,158) $17,353 $ 195 $(15,760) $14,760 $(1,000)
======= ====== ====== ======== ======= ===== ======== ======= =======
Net income (loss) per
share of common stock
before extraordinary
gain................. $ (0.24) -- $ 0.78 $ (0.68) -- $0.04 $ (0.62) -- $ (0.23)
======= ====== ====== ======== ======= ===== ======== ======= =======
Average common shares
outstanding.......... 24,956 4,415 25,105 4,368 25,314 4,365
======= ====== ======== ===== ======== =======
</TABLE>

See accompanying notes to unaudited pro forma condensed combined financial
information.

F-26
<PAGE>

NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION

General

The following unaudited pro forma condensed combined financial information
is presented to reflect the estimated impact on the historical Consolidated
Financial Statements of TGX, assuming the issuance of 4,394,285 shares of
GeoStrat Common Stock, in exchange for all of TGX's Senior Preferred Shares
and the cancellation of TGX's previously issued Preferred Stock and Common
Stock.

The unaudited pro forma condensed combined financial information gives
effect only to the adjustments set forth in the accompanying notes to
unaudited pro forma condensed combined financial statements. Unaudited pro
forma information is not necessarily indicative of the results of operations
or financial position which would have occurred had the Merger been
consummated on the dates indicated, nor is it necessarily indicative of the
Company's future results of operations or financial position.

Pro Forma Adjustments

The pro forma adjustments reflect the issuance of 4,394,285 common shares of
GeoStrat with a stated value of $0.01 ($44,000) to be issued to the holders of
the 8,788,571 shares of Senior Preferred Stock and the cancellation of all
previously issued Senior Preferred Stock ($70,996,000), TGX Common Stock
($290,000) and Old Preferred ($471,000). Accumulated deficit adjustment
represents reversal of post fresh start accrued Old Preferred Stock dividends
($1,012,000) and Senior Preferred dividend and accretion activity
($56,461,000). The paid-in capital adjustment represents the crediting of the
fresh start Senior Preferred Stock value ($11,046,000), pre-fresh start
accrued Senior Preferred dividends ($3,429,000), Old Preferred ($471,000) and
TGX Common Stock ($290,000) book value reduced by the issuance of New Common
Stock ($44,000) and post fresh start Old Preferred Stock dividends and other
reflected in current paid-in-capital balance ($952,000). Pro forma income
statement presentation reflects cancellation of Preferred Stock resulting in
an elimination of all previously reflected fresh start dividends and
accretion.

Expenses

The unaudited pro forma statement of operations data does not reflect the
expenses associated with the Merger which are estimated to be approximately
$200,000 to $250,000. The Merger expenses will be charged to expense as
incurred. Merger expenses consist primarily of professional fees, proxy
preparation and solicitation costs and stock issuance costs.

Litigation Settlement

On April 12, 1996, TGX entered into a Settlement Agreement with NFG and the
Public Service Commission of the State of New York. Pursuant to the Settlement
Agreement, TGX received on April 19, 1996, $7,200,000 from NFG and all parties
to the Settlement Agreement have dismissed all claims and counterclaims
against each other. Pursuant to amended credit agreements with BMOF, 50% of
the settlement proceeds were paid to BMOF in cancellation and full payment of
the non-recourse secured note. Pursuant to a BMOF agreement, BMOF is to
reimburse TGX for 50% of all taxes and royalties, which are not expected to be
significant, that may be due from such proceeds. As a result of the NFG
litigation settlement proceeds and $3.6 million BMOF payment and a $100,000
payment to another third party entitled to participate in the proceeds, TGX
retained $3.5 million of settlement proceeds and recorded a corresponding
amount as net litigation settlement revenues. A portion of the NFG settlement
proceeds was used to retire all of TGX's then outstanding bank debt of
$900,000.

F-27
<PAGE>

APPENDIX "A"

AGREEMENT OF MERGER

This Agreement of Merger (this "Agreement") is by and between GeoStrat
Resources, Inc., a Delaware corporation ("GRI"), and TGX Corporation, a
Delaware corporation ("TGX"), and evidences that, in consideration of the
mutual obligations and covenants set forth in this Agreement, GRI and TGX
agree as follows:

ARTICLE I.

Surviving Corporation, Name,
Articles of Incorporation, Bylaws,
Directors and Officers

A. GRI and TGX are sometimes hereinafter collectively referred to as the
"Constituent Corporations."

B. In accordance with the provisions of the Delaware General Corporation
Law, TGX will, at the Effective Time (as hereinafter defined), be merged with
and into GRI, and GRI will be the surviving corporation (the "Surviving
Corporation"). The merger of TGX into GRI is hereinafter referred to as the
"Merger." After the Merger, GRI will continue to exist under and to be
governed by the laws of the State of Delaware. Except as herein specifically
set forth, the identity, existence, purposes, powers, objectives, franchises,
privileges, rights and immunities of GRI will continue unaffected and
unimpaired by the Merger, and the corporate franchises, existence, assets,
liabilities and rights of TGX will be merged into GRI, which, as the Surviving
Corporation, will thereafter possess all the rights, privileges, immunities
and franchises, of a public as well as a private nature, of each of the
Constituent Corporations; and all property, real, personal and mixed, and all
debts due on whatever account, including subscriptions to shares, and all
other choses in action and every other interest of or belonging to or due to
each of the Constituent Corporations shall be deemed to be transferred to and
vested in the Surviving Corporation without further act or deed; and the title
to any real estate, or any interest therein, vested in either of the
Constituent Corporations shall not revert or be in any way impaired by reason
of the Merger. The separate existence and corporate organization of TGX,
except insofar as they may be continued by statute, will cease at the
Effective Time. The Merger of TGX into GRI is intended to satisfy the
requirements of Sections 368(a)(1)(A) and (E) of the Internal Revenue Code of
1986, as amended. The "Effective Time" shall be the time of filing of the
Articles of Merger with the Secretary of State of the State of Delaware.

C. At the Effective Time, the name of the Surviving Corporation shall be
"GeoStrat Resources, Inc."

D. The Certificate of Incorporation of GRI as in effect immediately prior to
the Effective Time will be the Certificate of Incorporation of the Surviving
Corporation, without change, other than to reflect the name of the Surviving
Corporation.

E. The Bylaws of GRI in effect immediately prior to the Effective Time will
be the Bylaws of the Surviving Corporation, without change.

F. The board of directors of TGX in office immediately prior to the
Effective Time will be the board of directors of the Surviving Corporation,
and unless they sooner resign or are removed, they will hold office from the
Effective Time until their respective successors are elected and qualify.

G. The officers of TGX in office immediately prior to the Effective Time
will be the officers of the Surviving Corporation, and unless they sooner
resign or are removed, they will hold their respective offices from the
Effective Time until their respective successors are elected or appointed.

A-1
<PAGE>

ARTICLE II.

Capitalization, Conversion and Exchange
of Capital Stock

A. At the Effective Time, without any action on the part of the stockholder
of TGX, each outstanding share of $0.01 par value per share Series A Senior
Preferred Stock of TGX (the "Senior Preferred Stock") will automatically be
converted into and become a right to receive one-half (1/2) share of common
stock, $0.01 par value per share, of the Surviving Corporation, and all rights
with respect to accrued but unpaid dividends on the Senior Preferred Stock
shall automatically cease at the Effective Time. The new certificates issued
to the stockholders of the Surviving Corporation will bear the name of the
Surviving Corporation.

B. At the Effective Time, without any action on the part of the stockholders
holding Common Stock of TGX, each outstanding share of $0.01 par value per
share Common Stock and any other class of preferred stock, except the Senior
Preferred Stock, of TGX will automatically be cancelled.

C. At the Effective Time, without any action on the part of the stockholder
of GRI, each outstanding share of $0.01 par value per share common stock of
GRI will automatically be cancelled.

D. If holders of the outstanding shares of TGX Senior Preferred Stock and
any other class of preferred stock exercise appraisal rights with respect to
their shares pursuant to the Delaware General Corporation Law, such shares
will continue to be subject to the rights of such holders under the Delaware
General Corporation Law, but will not be deemed to be outstanding.

ARTICLE III.

Conditions, Termination, and Effectiveness

A. This Agreement will be submitted to the stockholders of the Constituent
Corporations for their approval and adoption at meetings to be duly called and
held or by unanimous written consent of stockholders in lieu of such meetings.
The Constituent Corporations will proceed expeditiously and cooperate fully in
the procurement of any other consents and approvals, the taking of any other
action and the satisfaction of all other requirements prescribed by law or
otherwise necessary for the consummation of the Merger.

B. The respective obligations of each party to effect the merger shall be
subject to fulfillment at or prior to the Effective Time of each of the
following conditions:

(i) This Agreement and the Merger shall have been approved by the
stockholders of each of the Constituent Corporations in accordance with the
Delaware General Corporation Law; and

(ii) No action or proceeding by any governmental body or agency shall
have been threatened, asserted, or instituted to restrain or prohibit the
transactions contemplated by this Agreement.

C. Upon satisfaction of the conditions set forth in the preceding paragraph,
the appropriate officers of the Constituent Corporations will execute and
verify, and cause to be filed, a Certificate of Merger in accordance with the
Delaware General Corporation Law.

ARTICLE IV.

Miscellaneous

A. This Agreement may be executed in multiple counterparts, each of which
will be deemed an original and all of which together will constitute one
agreement.

A-2
<PAGE>

In order to evidence the foregoing, TGX and GRI have caused this Agreement to
be signed by the duly authorized officers as of the day of , 1996.

GEOSTRAT RESOURCES, INC.
a Delaware corporation

By:__________________________________
Name: Larry H. Carpenter
Title: President

TGX CORPORATION,
a Delaware corporation

By:__________________________________
Name: Larry H. Carpenter
Title: President

A-3
<PAGE>

APPENDIX "B"

CERTIFICATE OF INCORPORATION OF
GEOSTRAT RESOURCES, INC.

First: The name of the Corporation is GeoStrat Resources, Inc.

Second: The registered office of the Corporation in the State of Delaware is
located at 1013 Centre Road, Wilmington, Delaware 19805. The name and address
of its registered agent is Corporation Service Company.

Third: The nature of the business, objects and purposes to be transacted,
promoted or carried on by the Corporation are:

To engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware, and by such
statement all lawful acts and activities shall be within the purposes of
the corporation, except for express limitations, if any.

Fourth: The aggregate number of shares which the corporation has authority
to issue is Twenty Five Million (25,000,000) shares of One Cent ($0.01) par
value per share. Twenty Million (20,000,000) of such shares are designated as
Common Stock and shall have identical rights and privileges in every respect.
Five Million (5,000,000) of such shares are designated as Preferred Stock. The
shares of Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby expressly authorized to provide for
the issuance of all or any of the shares of the Preferred Stock in one or more
series, and to fix the number of shares and to determine or alter for each
such series, such voting powers, full or limited, or no voting powers, and
such designations, preferences, and relative participating, optional, or other
rights and such qualifications, limitations, or restrictions thereof, as shall
be stated and expressed in a resolution or resolutions adopted by the Board of
Directors providing for the issuance of such shares and as may be permitted by
the General Corporation Law of Delaware.

Fifth: No stockholder shall have any preemptive right to subscribe to an
additional issue of stock or to any security convertible into such stock or
carrying a right to subscribe to or acquire shares of the corporation is
hereby denied.

Sixth: Directors shall be elected by majority vote. No stockholder of the
corporation shall have the right to cumulate his votes in the election of
directors.

Seventh: The name and mailing address of the incorporator is

Name Mailing Address

Arthur S. Berner Winstead Sechrest & Minick
P.C.
910 Travis Street, Suite 1700
Houston, Texas 77002

Eighth: The corporation is to have perpetual existence.

Ninth: In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized:

(1) To make, alter or repeal the by-laws of the Corporation.

(2) To authorize and cause to be executed mortgages and liens upon the
real and personal property of the Corporation.

(3) To set apart out of any of the funds of the Corporation available for
dividends a reserve or reserves for any proper purpose and to abolish any
such reserve in the manner in which it was created.

B-1
<PAGE>

(4) By a majority of the whole Board of Directors, to designate one or
more committees, each committee to consist of one or more of the directors
of the Corporation. The Board of Directors 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 or in the by-laws of the
Corporation, shall have and may exercise the powers 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; provided, however, the by-laws may provide that in
the absence or disqualification of any member of such committee or
committees the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum,
may unanimously appoint another member of the Board of Directors to act at
the meeting in the place of any such absent or disqualified member.

(5) When and as authorized by the affirmative vote of the holders of a
majority of the stock issued and outstanding having voting power given at a
stockholders' meeting duly called upon such notice as is required by
statute, or when authorized by the written consent of the holders of a
majority of the voting stock issued and outstanding, to sell, lease or
exchange all or substantially all the property and assets of the
Corporation, including its goodwill and its corporate franchises, upon such
terms and conditions and for such consideration, which may consist in whole
or in part of money or property including securities of any other
corporation or corporations, as the Board of Directors shall deem expedient
and for the best interests of the Corporation.

Tenth: Meetings of stockholders may be held within or without the State of
Delaware, as the by-laws may provide. The books of the Corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the by-laws of the Corporation. Elections of
directors need not be by written ballot unless the by-laws of the Corporation
shall so provide.

Whenever the vote of stockholders at a meeting thereof is required or
permitted to be taken for or in connection with any corporate action, the
meeting and vote of stockholders may be dispensed with and such action may be
taken with the written consent of stockholders having not less than the
minimum percentage of the vote required by statute for the proposed corporate
action, provided that prompt notice shall be given to all stockholders of the
taking of corporate action without a meeting and by less than unanimous
consent.

Subject to the provisions of the General Corporation Law of Delaware, the
Certificate of Incorporation or by-laws for notice of meetings, and unless
otherwise restricted by this Certificate of Incorporation, stockholders may
participate in and hold a meeting by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in such meeting shall
constitute attendance and presence in person at such meeting, except where a
person participates in the meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.

Eleventh: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.

Twelfth: A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, as the same exists or hereafter may be amended, or (iv) for
any transaction from which the director derived an improper personal benefit.
If the Delaware General Corporation Law hereafter is amended to authorize the
further elimination or limitation on personal liability of directors, then the
liability of a director of the Corporation, in addition to the limitation on
personal liability provided herein, shall be limited to the fullest

B-2
<PAGE>

extent permitted by the amended Delaware General Corporation Law. Any repeal
or modification of this paragraph by the stockholders of the Corporation shall
be prospective only, and shall not adversely affect any limitation on the
personal liability of a director of the Corporation existing at the time of
such repeal or modification.

Thirteenth:

(i) Each person who was or is made a party or is threatened to be made a
party to or is involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a "proceeding"), by
reason of the fact that he or she, or a person of whom he or she is the legal
representative, is or was a director or officer, of the Corporation or is or
was serving at the request of the Corporation as a director, officer, employee
or agent of another corporation or of a partnership, joint venture, trust or
other enterprise, including service with respect to employee benefit plans,
whether the basis of such proceeding is alleged action in an official capacity
as a director, officer, employee or agent or in any other capacity while
serving as a director, officer, employee or agent shall be indemnified and
held harmless by the Corporation to the fullest extent authorized by the
Delaware General Corporation Law, as the same exists or may hereafter be
amended (but, in the case of any such amendment, only to the extent that such
amendment permits the Corporation to provide broader indemnification rights
than said law permitted the Corporation to provide prior to such amendment),
against all expense, liability and loss (including attorneys' fees, judgments,
fines, ERISA excise taxes or penalties and amounts paid or to be paid in
settlement) reasonably incurred or suffered by such person in connection
therewith and such indemnification shall continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of his or her heirs, executors and administrators: provided, however,
that except as provided in paragraph (b) hereof, the Corporation shall
indemnify any such person seeking indemnification in connection with a
proceeding (or part thereof) initiated by such person only if such proceeding
(or part thereof) was authorized by the board of directors of the Corporation.
The right to indemnification conferred in this Article Thirteenth shall be a
contract right and shall include the right to be paid by the Corporation the
expenses incurred in defending any such proceeding in advance of its final
disposition; provided, however, that, if the Delaware General Corporation Law
requires, the payment of such expenses incurred by a director or officer in
his or her capacity as a director or officer (and not in any other capacity in
which service was or is rendered by such person while a director or officer,
including, without limitation, service to an employee benefit plan) in advance
of the final disposition of a proceeding, shall be made only upon delivery to
the Corporation of an undertaking, by or on behalf of such director or
officer, to repay all amounts so advanced if it shall ultimately be determined
that such director or officer is not entitled to be indemnified under this
Article Thirteenth or otherwise. The Corporation may, by action of its Board
of Directors, provide indemnification to employees and agents of the
Corporation with the same scope and effect as the foregoing indemnification of
directors or officers.

(ii) If a claim under paragraph (i) of this Article Thirteenth is not paid
in full by the Corporation within thirty days after a written claim has been
received by the Corporation, the claimant may at any time thereafter bring
suit against the Corporation to recover the unpaid amount of the claim and, if
successful in whole or in part, the claimant shall be entitled to be paid also
the expense of prosecuting such claim. It shall be a defense to any such
action (other than an action brought to enforce a claim for expenses incurred
in defending any proceeding in advance of its final disposition where the
required undertaking, if any is required, has been tendered to the
Corporation) that the claimant has not met the standards of conduct which make
it permissible under the Delaware General Corporation Law for the Corporation
to indemnify the claimant for the amount claimed, but the burden of proving
such defense shall be on the Corporation. Neither the failure of the
Corporation (including its Board of Directors, independent legal counsel, or
its stockholders) to have made a determination prior to the commencement of
such action that indemnification of the claimant is proper in the
circumstances because he or she has met the applicable standard of conduct set
forth in the Delaware General Corporation Law, nor an actual determination by
the Corporation (including its Board of Directors, independent legal counsel,
or its stockholders) that the claimant has not met such applicable standard or
conduct, shall be a defense to the action or create a presumption that the
claimant has not met the applicable standard of conduct.

B-3
<PAGE>

(iii) The right to indemnification and the payment of expenses incurred in
defending a proceeding in advance of its final disposition conferred in this
Article Thirteenth shall not be exclusive of any other right which any person
may have or hereafter acquire under any statute, provision of the Certificate
of Incorporation, by-law, agreement, vote of stockholders or disinterested
directors or otherwise.

(iv) The Corporation may maintain insurance, at its expense, to protect
itself and any director, officer, employee or agent of the Corporation or
another corporation, partnership, joint venture, trust or other enterprise
against any such expense, liability or loss, whether or not the Corporation
would have the power to indemnify such person against such expense, liability
or loss under the Delaware General Corporation Law.

Fourteenth:

The names and mailing addresses of the directors, who shall serve until the
first annual meeting of the stockholders or until their successors are elected
and qualified are as follows:

<TABLE>
<CAPTION>
NAME MAILING ADDRESS
---- --------------------
<S> <C>
Larry H. Carpenter 222 Pennbright
Suite 200
Houston, Texas 77090
Jeffrey E. Susskind 222 Pennbright
Suite 200
Houston, Texas 77090
David H. Scheiber 222 Pennbright
Suite 200
Houston, Texas 77090
</TABLE>

The number of the directors of the corporation shall be as specified in, or
determined in the manner provided in the by-laws.

THE UNDERSIGNED, being the incorporator hereinbefore named, for the purpose
of forming a corporation pursuant to the General Corporation Law of the State
of Delaware, does make this Certificate, hereby declaring and certifying that
this is my act and deed and the facts herein stated are true, and accordingly
have hereunto set my hand this 27th day of June, 1996.

-------------------------------------
Arthur S. Berner

B-4
<PAGE>

APPENDIX "C"

BYLAWS

GEOSTRAT RESOURCES, INC.

----------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
ARTICLE I.--OFFICES
<C> <S> <C>
Section 1. Registered Office.......................................... C-1
Section 2. Other Offices.............................................. C-1

ARTICLE II.--MEETINGS OF STOCKHOLDERS

Section 1. Place of Meetings.......................................... C-1
Section 2. Annual Meeting............................................. C-1
Section 3. Special Meetings........................................... C-1
Section 4. Notice..................................................... C-1
Section 5. Voting List................................................ C-2
Section 6. Quorum..................................................... C-2
Section 7. Required Vote; Withdrawal Of Quorum........................ C-2
Section 8. Method of Voting; Proxies.................................. C-2
Section 9. Record Date................................................ C-3
Section 10. Action Without Meeting..................................... C-4
Section 11. Inspectors of Elections.................................... C-4

ARTICLE III.--DIRECTORS

Section 1. Management................................................. C-4
Section 2. Number; Election........................................... C-4
Section 3. Change in Number........................................... C-4
Section 4. Removal.................................................... C-4
Section 5. Vacancies and Newly Created Directorships.................. C-5
Section 6. Election of Directors; Cumulative Voting Prohibited........ C-5
Section 7. Place of Meetings.......................................... C-5
Section 8. First Meetings............................................. C-5
Section 9. Regular Meetings........................................... C-5
Section 10. Special Meetings........................................... C-5
Section 11. Quorum..................................................... C-5
Section 12. Action Without Meeting; Telephone Meetings................. C-5
Section 13. Chairman of the Board...................................... C-5
Section 14. Compensation............................................... C-6

ARTICLE IV.--COMMITTEES

Section 1. Designation................................................ C-6
Section 2. Number; Qualification; Term................................ C-6
Section 3. Authority.................................................. C-6
Section 4. Committee Changes; Removal................................. C-6
Section 5. Alternate Members of Committees............................ C-6
Section 6. Regular Meetings........................................... C-6
Section 7. Special Meetings........................................... C-6
Section 8. Quorum; Majority Vote...................................... C-6
Section 9. Minutes.................................................... C-6
Section 10. Compensation............................................... C-7
Section 11. Responsibility............................................. C-7
</TABLE>
<PAGE>

TABLE OF CONTENTS

(CONTINUED)

<TABLE>
<CAPTION>
PAGE
----
ARTICLE V.--NOTICES
<C> <S> <C>
Section 1. Method.................................................... C-7
Section 2. Waiver.................................................... C-7
Section 3. Exception to Notice Requirement........................... C-7

ARTICLE VI.--OFFICERS

Section 1. Officers.................................................. C-7
Section 2. Election.................................................. C-7
Section 3. Compensation.............................................. C-8
Section 4. Removal and Vacancies..................................... C-8
Section 5. President................................................. C-8
Section 6. Vice Presidents........................................... C-8
Section 7. Secretary................................................. C-8
Section 8. Assistant Secretaries..................................... C-8
Section 9. Treasurer................................................. C-8
Section 10. Assistant Treasurers...................................... C-8

ARTICLE VII.--CERTIFICATES REPRESENTING SHARES

Section 1. Certificates.............................................. C-9
Section 2. Legends................................................... C-9
Section 3. Lost Certificates......................................... C-9
Section 4. Transfer of Shares........................................ C-9
Section 5. Registered Stockholders................................... C-9

ARTICLE VIII.--GENERAL PROVISIONS

Section 1. Dividends................................................. C-9
Section 2. Reserves.................................................. C-9
Section 3. Checks.................................................... C-10
Section 4. Fiscal Year............................................... C-10
Section 5. Seal...................................................... C-10
Section 6. Indemnification........................................... C-10
Section 7. Transactions with Directors and Officers.................. C-10
Section 8. Amendments................................................ C-10
Section 9. Table of Contents; Holdings............................... C-10
</TABLE>
<PAGE>

BYLAWS

GEOSTRAT RESOURCES, INC.

(THE "CORPORATION")

ARTICLE I.

OFFICES

Section 1. Registered Office. The registered office of the Corporation shall
be at 1013 Centre Road, Wilmington, Delaware 19805.

Section 2. Other Offices. The Corporation may also have offices at such
other places, both within and without the State of Delaware, as the Board of
Directors may from time to time determine or the business of the Corporation
may require.

ARTICLE II.

MEETINGS OF STOCKHOLDERS

Section 1. Place of Meetings. Meetings of stockholders for all purposes may
be held at such time and place, either 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 Meeting. An annual meeting of stockholders of the
Corporation shall be held each calendar year on such date and at such time as
shall be designated from time to time by the Board of Directors and stated in
the notice of the meeting or in a duly executed waiver of notice of such
meeting. At such meeting, the stockholders shall elect directors and transact
such other business as may properly be brought before the meeting.

Section 3. Special Meetings. Special meetings of the stockholders, for any
purpose or purposes, unless otherwise prescribed by statute, the Certificate
of Incorporation or these Bylaws, may be called by the President, the Board of
Directors, or the holders of not less than ten percent (10%) of all shares
entitled to vote at the meetings. Business transacted at all special meetings
shall be confined to the purposes stated in the notice of the meeting.

Section 4. Notice. Written or printed notice stating the place, date, and
hour of each meeting of the stockholders and, in the case of a special
meeting, 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, either personally or by mail, by or at the direction of the
President, the Secretary, or the officer or person(s) calling the meeting, to
each stockholder of record entitled to vote at such meeting. If such notice is
to be sent by mail, it shall be directed to such stockholder at his address as
it appears on the records of the Corporation, unless he shall have filed with
the Secretary of the Corporation a written request that notices to him be
mailed to some other address, in which case it shall be directed to him at
such other address. Notice of any meeting of stockholders shall not be
required to be given to any stockholder who shall attend such meeting in
person or by proxy and shall not, at the beginning of such meeting, object to
the transaction of any business because the meeting is not lawfully called or
convened, or who shall, either before or after the meeting, submit a signed
waiver of notice, in person or by proxy.

C-1
<PAGE>

Section 5. Voting List. At least ten (10) days before each meeting of
stockholders, the Secretary or other officer of the Corporation who has charge
of the Corporation's stock ledger, either directly or through another officer
appointed by him or through a transfer agent appointed by the Board of
Directors, shall prepare 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 (10) 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 a duly executed waiver of notice of
such meeting or, if not so specified, at the place where the meeting is to be
held. Such list shall also be produced and kept at the time and place of the
meeting at all times during such meeting and may be inspected by any
stockholder who is present.

Section 6. Quorum. The holders of a majority of the outstanding shares
entitled to vote on a matter, present in person or represented by proxy, shall
constitute a quorum at any meeting of stockholders, except as otherwise
provided by statute, the Certificate of Incorporation or these Bylaws. If a
quorum shall not be present at any meeting of stockholders, the stockholders
entitled to vote thereat who are present, in person or by proxy, or, if no
stockholder entitled to vote is present, any officer of the Corporation, may
adjourn the meeting from time to time until a quorum shall be present. When a
meeting is adjourned to another time or place, notice need not be given of the
adjourned meeting if the time and place are announced at the meeting at which
the adjournment is taken. At any adjourned meeting at which a quorum shall be
present, any business may be transacted which might have been transacted at
the original meeting had a quorum been present; provided that, if the
adjournment is for more than thirty (30) days or if after 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
adjourned meeting.

Section 7. Required Vote; Withdrawal Of Quorum. When a quorum is present at
any meeting, the vote of the holders of at least a majority of the outstanding
shares entitled to vote who are present, in person or by proxy, shall decide
any question brought before the meeting, unless the question is one on which,
by express provision of statute, the Certificate of Incorporation or these
Bylaws, a different vote is required, in which case such express provision
shall govern and control the decision of the question. The stockholders
present at a duly constituted meeting may continue to transact business until
adjournment, notwithstanding the withdrawal of enough stockholders to leave
less than a quorum.

Section 8. Method of Voting; Proxies. (a) Each outstanding share, regardless
of class, shall be entitled to one vote on each matter submitted to a vote at
a meeting of stockholders, except to the extent that the voting rights of the
shares of any class or classes are limited, denied, increased or decreased by
the Certificate of Incorporation.

(b) Each stockholder entitled to vote at a meeting of stockholders or to
express consent or dissent to corporate action in writing without a meeting
may authorize another person or persons to act for him by proxy, but no such
proxy shall be voted or acted upon after three (3) years from its date, unless
the proxy provides for a longer period. Each proxy shall be filed with the
Secretary of the Corporation prior to or at the time of the meeting.

(c) Without limiting the manner in which a stockholder may authorize another
person or persons to act for him as proxy pursuant to subsection (b) of this
section, the following shall constitute a valid means by which a stockholder
may grant such authority:

(i) A stockholder may execute a writing authorizing another person or
persons to act for him as proxy. Execution may be accomplished by the
stockholder or by an authorized officer, director, employee or agent of the
stockholder signing such writing or causing such stockholder's signature to
be affixed to such writing by any reasonable means including, but not
limited to, by facsimile signature.

C-2
<PAGE>

(ii) A stockholder may authorize another person or persons to act for him
as proxy by transmitting or authorizing the transmission of a telegram,
cablegram, or other means of electronic transmission to the person who will
be the holder of the proxy or to a proxy solicitation firm, proxy support
service organization or like agent duly authorized by the person who will
be the holder of the proxy to receive such transmission, provided that any
such telegram, cablegram or other means of electronic transmission must
either set forth or be submitted with information from which it can be
determined that the telegram, cablegram or other electronic transmission
was authorized by the stockholder. If it is determined that such telegrams,
cablegrams or other electronic transmissions are valid, the inspectors or,
if there are no inspectors, such other persons making that determination
shall specify the information upon which they relied.

(d) Any copy, facsimile telecommunication or other reliable reproduction of
the writing or transmission created pursuant to subsection (c) of this section
may be substituted or used in lieu of the original writing or transmission for
any and all purposes for which the original writing or transmission could be
used, provided that such copy, facsimile telecommunication or other
reproduction shall be a complete reproduction of the entire original writing
or transmission.

(e) A duly executed proxy shall be irrevocable if it states that it is
irrevocable and if, and only as long as, it is coupled with an interest
sufficient in law to support an irrevocable power.

Section 9. Record Date. (a) 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, the Board of Directors may fix a record date,
which record date shall not precede the date upon which the resolution fixing
the record date is adopted by the Board of Directors, and which record date
shall not be more than sixty (60) nor less than ten (10) days before the date
of such meeting. If no record date is fixed by the Board of Directors, the
record date for determining stockholders entitled to notice of or to vote at a
meeting of stockholders shall be at the close of business on the day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held. 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.

(b) In order that the Corporation may determine the stockholders entitled to
consent to corporate action in writing without a meeting, the Board of
Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors, and which date shall not be more than ten (10) days after the date
upon which the resolution fixing the record date is adopted by the Board of
Directors. If no record date has been fixed by the Board of Directors, the
record date for determining stockholders entitled to consent to corporate
action in writing without a meeting, when no prior action by the Board of
Directors is required by statute or these Bylaws, shall be the first date on
which a signed written consent setting forth the action taken or proposed to
be taken is delivered to the Corporation by delivery to its registered office
in Delaware, its principal place of business, or an officer or agent of the
Corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Such delivery shall be by hand or by certified or
registered mail, return receipt requested. If no record date has been fixed by
the Board of Directors and prior action by the Board of Directors is required
by statute or these Bylaws, the record date for determining stockholders
entitled to consent to corporate action in writing without a meeting shall be
at the close of business on the day on which the Board of Directors adopts the
resolution taking such prior action.

(c) In order that the Corporation may determine the stockholders entitled to
receive payment of any dividend or other distribution or allotment of any
rights or the stockholders 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 a record date, which record date
shall not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than sixty (60) days prior to
such action. If no record date is fixed, the record date for determining
stockholders for any such purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto.

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Section 10. Action Without Meeting. (a) Any action required or permitted to
be taken at a meeting of the stockholders of the Corporation may be taken
without a meeting, without prior notice and without a vote, if a consent or
consents 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 or take such action at a meeting at which
all shares entitled to vote thereon were present and voted. Such consent or
consents shall be delivered to the Corporation at its registered office in
Delaware, its principal place of business, or an officer or agent of the
Corporation having custody of the book in which proceedings of stockholders'
meetings are recorded. Such delivery shall be by hand or by certified or
registered mail, return receipt requested.

(b) Every written consent shall bear the date of signature of each
stockholder who signs the written consent, and no consent shall be effective
to take the corporate action referred to therein unless, within sixty (60)
days of the earliest dated consent delivered in the manner required by this
section to the Corporation, written consents signed by a sufficient number of
stockholders to take action are delivered to the Corporation in the manner
required by this section.

Section 11. Inspectors of Elections. The Board of Directors may, in advance
of any meeting of stockholders, appoint one or more inspectors to act at such
meeting or any adjournment thereof. If any of the inspectors so appointed
shall fail to appear or act, the chairman of the meeting shall, or if
inspectors shall not have been appointed, the chairman of the meeting may,
appoint one or more inspectors. Each inspector, before entering upon the
discharge of his duties, shall take and sign an oath faithfully to execute the
duties of inspector at such meeting with strict impartiality and according to
the best of his ability. The inspectors shall determine the number of shares
of capital stock of the Corporation outstanding and the voting power of each,
the number of shares represented at the meeting, the existence of a quorum,
and the validity and effect of proxies and shall receive votes, ballots, or
consents, hear and determine all challenges and questions arising in
connection with the right to vote, count and tabulate all votes, ballots, or
consents, determine the results, and do such acts as are proper to conduct the
election or vote with fairness to all stockholders. On request of the chairman
of the meeting, the inspectors shall make a report in writing of any
challenge, request, or matter determined by them and shall execute a
certificate of any fact found by them. No director or candidate for the office
of director shall act as an inspector of an election of directors. Inspectors
need not be stockholders.

ARTICLE III.

DIRECTORS

Section 1. Management. The business and affairs of the Corporation shall be
managed by its Board of Directors who may exercise all such powers of the
Corporation and do all such lawful acts and things as are not by statute, the
Certificate of Incorporation or these Bylaws directed or required to be
exercised or done by the stockholders. The Board of Directors shall keep
regular minutes of its proceedings.

Section 2. Number; Election. The Board of Directors shall consist of no less
than one (1) nor more than fifteen (15) directors, who need not be
stockholders or residents of the State of Delaware. The directors shall be
elected at the annual meeting of the stockholders, except as hereinafter
provided, and each director elected shall hold office until his successor is
elected and qualified or until his earlier resignation or removal.

Section 3. Change in Number. The number of directors may be increased or
decreased from time to time by resolution adopted by the affirmative vote of a
majority of the Board of Directors, but no decrease shall have the effect of
shortening the term of any incumbent director.

Section 4. Removal. Any director may be removed, with or without cause, at
any annual or special meeting of stockholders, by the affirmative vote of the
holders of a majority of the shares represented in person or by proxy at such
meeting and entitled to vote for the election of such director, if notice of
the intention to act upon such matters shall have been given in the notice
calling such meeting.

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Section 5. Vacancies and Newly Created Directorships. 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,
although less than a quorum, or by a sole remaining director. Each director so
chosen shall hold office until the first annual meeting of stockholders held
after his election and until his successor is elected and qualified or until
his earlier resignation or removal. If at any time there are no directors in
office, an election of directors may be held in the manner provided by
statute. Except as otherwise provided in these Bylaws, when one or more
directors shall resign from the Board of Directors, effective at a future
date, a majority of the directors then in office, including those who have so
resigned, shall have the power to fill such vacancy or vacancies, the vote
thereon to take effect when such resignation or resignations shall become
effective, and each director so chosen shall hold office as provided in these
Bylaws with respect to the filling of other vacancies.

Section 6. Election of Directors; Cumulative Voting Prohibited. At every
election of directors, each stockholder shall have the right to vote in person
or by proxy the number of voting shares owned by him for as many persons as
there are directors to be elected and for whose election he has a right to
vote. Cumulative voting shall be prohibited.

Section 7. Place of Meetings. The directors of the Corporation may hold
their meetings, both regular and special, either within or without the State
of Delaware.

Section 8. First Meetings. The first meeting of each newly elected Board
shall be held without further notice immediately following the annual meeting
of stockholders, and at the same place, unless by unanimous consent of the
directors then elected and serving, such time or place shall be changed.

Section 9. Regular Meetings. Regular meetings of the Board of Directors may
be held without notice at such time and place as shall from time to time be
determined by the Board of Directors.

Section 10. Special Meetings. Special meetings of the Board of Directors may
be called by the President on three (3) days' notice to each director, either
personally or by mail or by telegram. Special meetings may be called in like
manner and on like notice on the written request of any one of the directors.
Except as may be otherwise expressly provided by statute, the Certificate of
Incorporation or these Bylaws, neither the business to be transacted at, nor
the purpose of, any special meeting need be specified in a notice or waiver of
notice.

Section 11. Quorum. At all meetings of the Board of Directors, the presence
of a majority of the directors shall be necessary and sufficient to constitute
a quorum for the transaction of business, and the vote of a majority of the
directors present at any meeting at which a quorum is present shall be the act
of the Board of Directors, except as may be otherwise specifically provided by
statute, or the Certificate of Incorporation or these Bylaws. If a quorum
shall not be present at any meeting 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 12. Action Without Meeting; Telephone Meetings. Any action required
or permitted to be taken at a meeting of the Board of Directors or of any
committee thereof may be taken without a meeting if a consent in writing,
setting forth the action so taken, is signed by all the members of the Board
of Directors or committee, as the case may be. Such consent shall have the
same force and effect as a unanimous vote at a meeting. Subject to applicable
notice provisions and unless otherwise restricted by the Certificate of
Incorporation, members of the Board of Directors, or any committee designated
by the Board of Directors, may participate in and hold a meeting by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and participation in
such meeting shall constitute presence in person at such meeting, except where
a person's participation is for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.

Section 13. Chairman of the Board. The Board of Directors may elect a
Chairman of the Board to preside at their meetings and to perform such other
duties as the Board of Directors may from time to time assign to him.

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Section 14. Compensation. Directors, as such, shall not receive any stated
salary for their services, but, by resolution of the Board of Directors, a
fixed sum and expenses of attendance, if any, may be allowed for attendance at
each regular or special meeting of the Board of Directors; provided, that
nothing herein contained shall be construed to preclude any director from
serving the Corporation in any other capacity and receiving compensation
therefor.

ARTICLE IV.

COMMITTEES

Section 1. Designation. The Board of Directors may, by resolution passed by
a majority of the entire Board of Directors, designate one or more committees.

Section 2. Number; Qualification; Term. Each committee shall consist of one
or more directors appointed by resolution adopted by a majority of the entire
Board of Directors. The number of committee members may be increased or
decreased from time to time by resolution adopted by a majority of the entire
Board of Directors. Each committee member shall serve as such until the
earliest of (i) the expiration of his term as director, (ii) his resignation
as a committee member or as a director, or (iii) his removal as a committee
member or as a director.

Section 3. Authority. Each committee, to the extent expressly provided in
the resolution of the Board of Directors establishing such committee, or these
Bylaws, shall have and may exercise all of the authority of the Board of
Directors in the management of the business and affairs of the Corporation
except to the extent expressly restricted by statute, the Certificate of
Incorporation or these Bylaws. Any executive committee created pursuant to the
provisions of this Article IV shall have the authority and power to declare a
dividend, to authorize the issuance of stock or to adopt a certificate of
ownership and merger pursuant to the General Corporation Law of Delaware.

Section 4. Committee Changes; Removal. The Board of Directors shall have the
power at any time to fill vacancies in, to change the membership of, and to
discharge any committee. The Board of Directors may remove any committee
member, at any time, with or without cause.

Section 5. Alternate Members of Committees. The Board of Directors may
designate one or more directors as alternate members of any committee. Any
such alternate member may replace any absent or disqualified member at any
meeting of the committee.

Section 6. Regular Meetings. Regular meetings of any committee may be held
without notice at such time and place as may be designated from time to time
by the committee and communicated to all members thereof.

Section 7. Special Meetings. Special meetings of any committee may be held
whenever called by any committee member. The committee member calling any
special meeting shall cause notice of such special meeting, including therein
the time and place of such special meeting, to be given to each committee
member at least two (2) days before such special meeting. Neither the business
to be transacted at, nor the purpose of, any special meeting of any committee
need be specified in the notice or waiver of notice of any special meeting.

Section 8. Quorum; Majority Vote. At meetings of any committee, a majority
of the number of members designated by the Board of Directors shall constitute
a quorum for the transaction of business. If a quorum is not present at a
meeting of any committee, a majority of the members present may adjourn the
meeting from time to time, without notice other than an announcement at the
meeting, until a quorum is present. The act of a majority of the members
present at any meeting at which a quorum is in attendance shall be the act of
a committee, unless the act of a greater number is required by law, the
Certificate of Incorporation or these Bylaws.

Section 9. Minutes. Each committee shall cause minutes of its proceedings to
be prepared and shall report the same to the Board of Directors upon the
request of the Board of Directors. The minutes of the proceedings of each
committee shall be delivered to the Secretary of the Corporation for placement
in the minute books of the Corporation.

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Section 10. Compensation. Committee members may, by resolution of the Board
of Directors, be allowed a fixed sum and expenses of attendance, if any, for
attending any committee meetings or a stated salary.

Section 11. Responsibility. The designation of any committee and the
delegation of authority to it shall not operate to relieve the Board of
Directors or any director of any responsibility imposed upon it or such
director by law.

ARTICLE V.

NOTICES

Section 1. Method. Whenever by statute, the Certificate of Incorporation, or
these Bylaws, notice is required to be given to any committee member,
director, or stockholder and no provision is made as to how such notice shall
be given, personal notice shall not be required, and any such notice may be
given (a) in writing, by mail, postage prepaid, addressed to such committee
member, director, or stockholder at his address as it appears on the books or
(in the case of a stockholder) the stock transfer records of the Corporation,
or (b) by any other method permitted by law (including but not limited to
overnight courier service, telegram, telex, or telefax). Any notice required
or permitted to be given by mail shall be deemed to be given when deposited in
the United States mail as aforesaid. Any notice required or permitted to be
given by overnight courier service shall be deemed to be given at the time
delivered to such service with all charges prepaid and addressed as aforesaid.
Any notice required or permitted to be given by telegram, telex, or telefax
shall be deemed to be delivered and given at the time transmitted with all
charges prepaid and addressed as aforesaid.

Section 2. Waiver. Whenever any notice is required to be given to any
stockholder, director, or committee member of the Corporation by statute, the
Certificate of Incorporation or these Bylaws, a written waiver thereof, signed
by the person or persons entitled to such notice, whether before or after the
time stated therein, shall be equivalent to notice. Attendance of a
stockholder, director, or committee member at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends for the
express purpose of objecting at the beginning of the meeting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.

Section 3. Exception to Notice Requirement. The giving of any notice
required under any provision of the General Corporation Law of Delaware, the
Certificate of Incorporation or these Bylaws shall not be required to be given
to any stockholder to whom (i) notice of two consecutive annual meetings, and
all notices of meetings or of the taking of action by written consent without
a meeting to such stockholder during the period between such two consecutive
annual meetings, or (ii) all, and at least two, payments (if sent by first
class mail) of dividends or interest on securities during a twelve-month
period, have been mailed addressed to such person at his address as shown on
the records of the Corporation and have been returned undeliverable. If any
such stockholder shall deliver to the Corporation a written notice setting
forth his then current address, the requirement that notice be given to such
stockholder shall be reinstated.

ARTICLE VI.

OFFICERS

Section 1. Officers. The officers of the Corporation shall be elected by the
directors and shall be a President and a Secretary. The Board of Directors may
also choose a Chairman of the Board, additional Vice Presidents and one or
more Assistant Secretaries and Assistant Treasurers. Any two or more offices
may be held by the same person.

Section 2. Election. The Board of Directors at its first meeting after each
annual meeting of stockholders shall elect the officers of the Corporation,
none of whom need be a member of the Board, a stockholder or a resident of the
State of Delaware. The Board of Directors may appoint such other officers and
agents as it shall

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deem necessary, who shall be appointed for such terms and shall exercise such
powers and perform such duties as shall be determined from time to time by the
Board of Directors.

Section 3. Compensation. The compensation of all officers and agents of the
Corporation shall be fixed by the Board of Directors.

Section 4. Removal and Vacancies. Each officer of the Corporation shall hold
office until his successor is elected and qualified or until his earlier
resignation or removal. Any officer or agent elected or appointed by the Board
of Directors may be removed either for or without cause by a majority of the
directors represented at a meeting of the Board of Directors at which a quorum
is represented, whenever in the judgment of the Board of Directors the best
interests of the Corporation will be served thereby, but such removal shall be
without prejudice to the contract rights, if any, of the person so removed. If
the office of any officer becomes vacant for any reason, the vacancy may be
filled by the Board of Directors.

Section 5. President. The President shall be the chief executive officer of
the Corporation. He shall preside at all meetings of the stockholders and the
Board of Directors unless the Board of Directors shall elect a Chairman of the
Board, in which event the President shall preside at Board meetings in the
absence of the Chairman of the Board. The President shall have general and
active management of the business and affairs of the Corporation, shall see
that all orders and resolutions of the Board are carried into effect, and
shall perform such other duties as the Board of Directors shall prescribe.

Section 6. Vice Presidents. Each Vice President shall have only such powers
and perform only such duties as the Board of Directors may from time to time
prescribe or as the President may from time to time delegate to him.

Section 7. Secretary. The Secretary shall attend all sessions of the Board
of Directors and all meetings of the stockholders and record all votes and the
minutes of all proceedings in a book to be kept for that purpose and shall
perform like duties for any committee when required. Except as otherwise
provided herein, 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. He shall keep in
safe custody the seal of the Corporation and, when authorized by the Board of
Directors, affix the same to any instrument requiring it, and, when so
affixed, it shall be attested by his signature or by the signature of the
Treasurer or an Assistant Secretary.

Section 8. Assistant Secretaries. Each Assistant Secretary shall have only
such powers and perform only such duties as the Board of Directors may from
time to time prescribe or as the President may from time to time delegate.

Section 9. Treasurer. The Treasurer shall have the custody of the corporate
funds and securities and shall keep full and accurate accounts of receipts and
disbursements of 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. He 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 directors, at the regular meetings of the Board of Directors, or
whenever they may require it, an account of all his transactions as Treasurer
and of the financial condition of the Corporation, and shall perform such
other duties as the Board of Directors may prescribe. If required by the Board
of Directors, he shall give the Corporation a bond in such form, 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 10. Assistant Treasurers. Each Assistant Treasurer shall have only
such powers and perform only such duties as the Board of Directors may from
time to time prescribe.

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ARTICLE VII.

CERTIFICATES REPRESENTING SHARES

Section 1. Certificates. The shares of the Corporation shall be represented
by certificates in such form as shall be determined by the Board of Directors.
Such certificates shall be consecutively numbered and shall be entered in the
books of the Corporation as they are issued. Each certificate shall state on
the face thereof the holder's name, the number and class of shares, and the
par value of such shares or a statement that such shares are without par
value. Each certificate shall be signed by the President or a Vice President
and by the Secretary or an Assistant Secretary and may be sealed with the seal
of the Corporation or a facsimile thereof. Any or all of the signatures on a
certificate may be facsimile.

Section 2. Legends. The Board of Directors shall have the power and
authority to provide that certificates representing shares of stock shall bear
such legends, including, without limitation, such legends as the Board of
Directors deems appropriate to assure that the Corporation does not become
liable for violations of federal or state securities laws or other applicable
law.

Section 3. Lost Certificates. The Corporation may issue a new certificate
representing shares in place of any certificate 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 to be
lost, stolen or destroyed. The Board of Directors, in its discretion and as a
condition precedent to the issuance thereof, may require the owner of such
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 form, in such sum, and with such surety or sureties
as it may direct as indemnity against any claim that may be made against the
Corporation with respect to the certificate alleged to have been lost, stolen
or destroyed.

Section 4. Transfer of Shares. Shares of stock shall be transferable only on
the books of the Corporation by the holder thereof in person or by his duly
authorized attorney. Upon surrender to the Corporation or the transfer agent
of the Corporation of a certificate representing shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the Corporation or the transfer agent 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 5. Registered Stockholders. The Corporation shall be entitled to
treat the holder of record of any share or shares of stock as the holder in
fact thereof, and, accordingly, shall not be bound to recognize any equitable
or other claim 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 law.

ARTICLE VIII.

GENERAL PROVISIONS

Section 1. Dividends. The directors, subject to any restrictions contained
in the Certificate of Incorporation, may declare dividends upon the shares of
the Corporation's capital stock. Dividends may be paid in cash, in property,
or in shares of the Corporation, subject to the provisions of the General
Corporation Law of Delaware and the Certificate of Incorporation.

Section 2. Reserves. By resolution of the Board of Directors, the directors
may set apart out of any of the funds of the Corporation such reserve or
reserves as the directors from time to time, in their discretion, think proper
to provide for contingencies, or to equalize dividends, or to repair or
maintain any property of the Corporation, or for such other purposes as the
directors shall think beneficial to the Corporation, and the directors may
modify or abolish any such reserve in the manner in which it was created.

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Section 3. Checks. All checks or 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 4. Fiscal Year. The fiscal year of the Corporation shall be fixed by
resolution of the Board of Directors.

Section 5. Seal. The corporate seal shall have inscribed thereon the name of
the Corporation. Said seal may be used by causing it or a facsimile thereof to
be impressed or affixed or reproduced or otherwise.

Section 6. Indemnification. The Corporation shall indemnify its directors,
officers, employees and agents to the fullest extent permitted by the General
Corporation Law of Delaware and the Certificate of Incorporation.

Section 7. Transactions with Directors and Officers. No contract or other
transaction between the Corporation and any other corporation and no other act
of the Corporation shall, in the absence of fraud, be invalidated or in any
way affected by the fact that any of the directors of the Corporation are
pecuniarily or otherwise interested in such contract, transaction or other
act, or are directors or officers of such other corporation. Any director of
the Corporation, individually, or any firm or corporation of which any such
director may be a member, may be a party to, or may be pecuniarily or
otherwise interested in, any contract or transaction of the Corporation;
provided, however, that the fact that the director, individually, or the firm
or corporation is so interested shall be disclosed or shall have been known to
the Board of Directors or a majority of such members thereof as shall be
present at any annual meeting or at any special meeting, called for that
purpose, of the Board of Directors at which action upon any contract or
transaction shall be taken. Any director of the Corporation who is so
interested may be counted in determining the existence of a quorum at any such
annual or special meeting of the Board of Directors which authorizes such
contract or transaction, and may vote thereat to authorize such contract or
transaction with like force and effect as if he were not such director or
officer of such other corporation or not so interested. Every director of the
Corporation is hereby relieved from any disability which might otherwise
prevent him from carrying out transactions with or contracting with the
Corporation for the benefit of himself or any firm, corporation, trust or
organization in which or with which he may be in anywise interested or
connected.

Section 8. Amendments. These Bylaws may be altered, amended, or repealed or
new bylaws may be adopted by the stockholders or by the Board of Directors at
any regular meeting of the stockholders or the Board of Directors, at any
special meeting of the stockholders or 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, or by written consent of the Board of
Directors or the stockholders without a meeting.

Section 9. Table of Contents; Headings. The Table of Contents and headings
used in these Bylaws have been inserted for convenience only and do not
constitute matters to be construed in interpretation.

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APPENDIX "D"

OPINION OF FINANCIAL ADVISOR

July 31, 1996

Board of Directors
TGX Corporation
222 Pennbright, Suite 200
Houston, Texas 77090

Dear Members of the Board:

The stockholders of TGX Corporation ("TGX" or the "Company") are being asked
to consider and adopt an Agreement of Merger between TGX and GeoStrat
Resources, Inc. ("GeoStrat"), a newly formed Delaware Corporation and wholly-
owned subsidiary of TGX, pursuant to which TGX will merge with and into
GeoStrat ("the Merger").

Under the terms of the Agreement of Merger, the following will occur:

. Each share of the Company's Series A Preferred Stock, par value $1.00 per
share ("Senior Preferred Stock") outstanding immediately prior to the
Merger will be automatically converted into and become a right to receive
one-half (1/2) share of GeoStrat common stock ("New Common Stock"); all
rights to accrued and unpaid dividends will automatically cease and
dividends will cease to accrue; and

. Each share of Old Preferred Stock and Common Stock of TGX ("Common
Stock") outstanding immediately prior to the Merger will automatically be
canceled upon consummation of Merger.

All fractional shares of New Common Stock that holders of TGX Senior Preferred
stock would be entitled to receive, in lieu thereof, an amount in cash
determined by multiplying $2.13 by the fraction of a share of GeoStrat common
stock to which such holder would otherwise have been entitled. The $2.13 is
based on TGX Corporation's book value on May 31, 1996 of $9,370,688 divided by
the number New Common Shares issued and outstanding, 4,394,285.

You have engaged us as your independent financial advisor to express an
opinion as to whether the terms of the proposed Merger are fair, from a
financial point of view, to the shareholders of TGX.

American Appraisal Associates, Inc. ("American Appraisal"), as part of its
financial advisory services, is regularly and continually engaged in the
valuation of businesses and securities in connection with corporate
restructures and reorganizations, mergers and acquisitions, private placements
and other corporate purposes. Prior to this engagement, American Appraisal had
not provided financial or valuation advice to TGX or to GeoStrat.

In connection with our analysis leading to the opinions set forth below, we
have, among other things:

(i) Reviewed and analyzed historical operating and financial information
of TGX from (1) Forms 10-K for TGX for the years ended December 31,
1995 through 1991, Form 10-Q for the quarter ended March 31, 1996, (2)
unaudited financial statements for period ended May 31, 1996, (3)
Preliminary Proxy Statement (Schedule 14A), filed July 9, 1996 with
the SEC, and (4) certain other publicly available financial and
operating information relating to TGX;

(ii) Reviewed and analyzed the historical trading volume and market prices
of TGX's publicly traded Common Stock, and a private transaction
relating to the Senior Preferred Stock;

(iii) Reviewed and analyzed internal operating and financial information
of TGX including near term operating forecasts and financial
projections prepared by TGX management;

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(iv) Reviewed market capitalizations, price to earnings ratios and other
valuation measurements of publicly held companies, whose lines of
business were comparable to those of TGX;

(v) Held discussions with TGX senior management regarding (1) TGX's
operating history, financial condition, business outlook and business
strategy prior to the Merger and after the Merger as part of
GeoStrat's consolidated company, (2) TGX's need to raise capital in
order to achieve its long term business goals, (3) TGX's need to
recapitalize and eliminate the Senior Preferred redemption liability
in order to raise capital, and (4) the financial benefits of the
Merger to Senior Preferred Stock shareholders including the enhanced
liquidity gained from the ownership of New Common Stock;

(vi) Independently valued the Senior Preferred Stock and Common Stock on a
going concern basis and in liquidation; and

(vii) Performed other financial studies, analyses and investigations and
other factors as we deemed necessary or appropriate for purposes of
the opinion expressed herein.

Based on the foregoing, we reached the following conclusions with respect to
the financial and valuation analysis of the Merger:

(i) Removal of the Senior Preferred Stock redemption liability will ensure
the Company's ability to achieve near and long term growth and other
business goals;

(ii) The redemption value of the Senior Preferred Stock is no greater than
the net asset value of the Company, an amount that is currently
substantially below the amount of the redemption liability and is not
expected to materially change over the long term;

(iii) The senior preference position of the Senior Preferred Stock will,
to a large extent, be matched by the New Common Stock after the
Merger

(iv) The Old Preferred and the Common Stock each has no current market
value because of the senior position of the redemption liability and
is not expected to have any market value over the long term

(v) The New Common Stock will provide greater liquidity to the holders of
the Senior Preferred Stock;

We have relied without independent verification upon the accuracy and
completeness of all of the financial and other information reviewed by us for
purposes of this opinion. With respect to the financial forecasts and
projections of TGX we examined, we have assumed that they have been reasonably
prepared on bases reflecting the best currently available estimates and
judgments of TGX management.

We were not authorized by the TGX's Board of Directors to solicit, nor have we
solicited, other potential merger candidates for TGX. We are not expressing
any opinion as to the consideration to be received by holders of TGX
securities who exercise their rights of an appraisal or as to the prices at
which the New Common Stock may trade in the public or other market following
the Merger. Our opinion is necessarily based on market, economic and other
conditions as they existed on, and can be evaluated as of, the date of this
letter.

Based upon, and subject to, the foregoing, it is our opinion that, as of the
date hereof, (i) the terms of the proposed Merger are fair, from a financial
point of view, to the stockholders of TGX.

Very truly yours,

AMERICAN APPRAISAL ASSOCIATES, INC.

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APPENDIX "E"

DELAWARE GENERAL CORPORATION LAW--(S) 262

APPRAISAL RIGHTS.--(a) Any stockholder of a corporation of this State who
holds shares of stock on the date of the making of a demand pursuant to
subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation,
who has otherwise complied with subsection (d) of this section and who has
neither voted in favor of the merger or consolidation nor consented thereto in
writing pursuant to (S) 228 of this title shall be entitled to an appraisal by
the Court of Chancery of the fair value of his shares of stock under the
circumstances described in subsections (b) and (c) of this section. As used in
this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the
words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.

(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to
be effected pursuant to (S) 251, 252, 254, 257, 258, 263 or 264 of this title:

(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock,
or depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a corporation as provided in subsections
(f) or (g) of (S) 251 of this title.

(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
(S)(S) 251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:

a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect
thereof;

b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock or depository receipts at the
effective date of the merger or consolidation will be either listed on
a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National
Association of Securities Dealers, Inc. or held or record by more than
2,000 holders;

c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or

d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a. b. and c. of this
paragraph.

(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under (S) 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.

(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all

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or substantially all of the assets of the corporation. If the certificate of
incorporation contains such a provision, the procedures of this section,
including those set forth in subsection (d) and (e) of this section, shall
apply as nearly as is practicable.

(d) Appraisal rights shall be perfected as follows:

(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are
available pursuant to subsections (b) or (c) hereof that appraisal rights
are available for any or all of the shares of the constituent corporations,
and shall include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of his shares shall deliver to the
corporation, before the taking of the vote on the merger or consolidation,
a written demand for appraisal of his shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or

(2) If the merger or consolidation was approved pursuant to (S) 228 or
(S) 253 of this title, the surviving or resulting corporation, either
before the effective date of the merger or consolidation or within 10 days
thereafter, shall notify each of the stockholders entitled to appraisal
rights of the effective date of the merger or consolidation and that
appraisal rights are available for any or all of the shares of the
constituent corporation, and shall include in such notice a copy of this
section. The notice shall be sent by certified or registered mail, return
receipt requested, addressed to the stockholder at his address as it
appears on the records of the corporation. Any stockholder entitled to
appraisal rights may, within 20 days after the date of mailing of the
notice, demand in writing from the surviving or resulting corporation the
appraisal of his shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of his shares.

(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied
with subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger
or consolidation, any stockholder shall have the right to withdraw his demand
for appraisal and to accept the terms offered upon the merger or
consolidation. Within 120 days after the effective date of the merger or
consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which
demands for appraisal have been received and the aggregate number of holders
of such shares. Such written statement shall be mailed to the stockholder
within 10 days after his written request for such a statement is received by
the surviving or resulting corporation or within 10 days after expiration of
the period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.

(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in

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Chancery, if so ordered by the Court, shall give notice of the time and place
fixed for the hearing of such petition by registered or certified mail to the
surviving or resulting corporation and to the stockholders shown on the list
at the addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publications as the Court deems advisable. The forms of the notices by mail
and by publication shall be approved by the Court, and the costs thereof shall
be borne by the surviving or resulting corporation.

(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled
to appraisal rights. The Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by certificates
to submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as
to such stockholder.

(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger
or consolidation, together with a fair rate of interest, if any, to be paid
upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors. In
determining the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding.
Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court
may, in its discretion, permit discovery or other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on
the list filed by the surviving or resulting corporation pursuant to
subsection (f) of this section and who has submitted his certificates of stock
to the Register in Chancery, if such is required, may participate fully in all
proceedings until it is finally determined that he is not entitled to
appraisal rights under this section.

(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as the
Court may direct. Payment shall be so made to each such stockholder, in the
case of holders of uncertificated stock forthwith, and the case of holders of
shares represented by certificates upon the surrender to the corporation of
the certificates representing such stock. The Court's decree may be enforced
as other decrees in the Court of Chancery may be enforced, whether such
surviving or resulting corporation be a corporation of this State or of any
state.

(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.

(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection
(d) of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation);
provided, however, that if no petition for an appraisal shall be filed within
the time provided in subsection (e) of this section, or if such stockholder
shall deliver to the surviving or resulting corporation a written withdrawal
of his demand for an appraisal and an acceptance of the merger or
consolidation, either within 60 days after the effective date of the merger or
consolidation as provided in subsection (e) of this section or thereafter with
the written approval of the corporation, then the right of such stockholder to
an appraisal shall cease.

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Notwithstanding the foregoing, no appraisal proceeding in the Court of
Chancery shall be dismissed as to any stockholder without the approval of the
Court, and such approval may be conditioned upon such terms as the Court deems
just.

(1) The shares of the surving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation.

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APPENDIX "F"

GEOSTRAT RESOURCES, INC.
1996 FLEXIBLE INCENTIVE PLAN

1. PURPOSE OF THE PLAN

The purposes of the GeoStrat Resources, Inc. 1996 Flexible Incentive Plan
(the "Plan") are to promote the interests of GeoStrat Resources, Inc.
(together with any successor thereto, the "Company") and its Shareholders by
enabling the Company to (i) attract, motivate and retain key employees and
consultants by offering such key employees and consultants performance-based
stock incentives and other equity interests in the Company and other incentive
awards that recognize the creation of value for the Shareholders of the
Company and promote the Company's long-term growth and success, and (ii) award
and retain highly qualified independent directors and allow them to develop a
sense of proprietorship and personal involvement in the development and
financial success of the Company. To achieve these purposes, eligible persons
may receive stock options, Stock Appreciation Rights, Restricted Stock,
Performance Awards, performance stock, Dividend Equivalent Rights and any
other Awards, or any combination thereof.

2. DEFINITIONS

As used in the Plan, the following terms shall have the meanings set forth
below unless the content otherwise requires:

2.1 "Award" shall mean the grant of a stock option, a Stock Appreciation
Right, a Restricted Stock, a Performance Award, performance stock, a Dividend
Equivalent Right or any other award under the Plan.

2.2 "Board" shall mean the Board of Directors of the Company, as the same
may be constituted from time to time.

2.3 "Change in Control" shall mean, after the effective date of the Plan,
(i) the occurrence of an event of a nature that would be required to be
reported in response to Item 1 or Item 2 of a Form 8-K Current Report of the
Company promulgated pursuant to Sections 13 and 15(d) of the Exchange Act;
provided that, without limitation, such a Change in Control shall be deemed to
have occurred if (a) any "person", as such term is used in Sections 13(d) and
14(d) of the Exchange Act (other than the Company, any trustee or other
fiduciary holding securities under any employee benefit plan of the Company,
or any company owned, directly or indirectly, by the Shareholders of the
Company in substantially the same proportions as their ownership of stock of
the Company), is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the Company
representing twenty-five percent (25%) or more of the combined voting power of
the Company's then outstanding securities or (b) during any period of two
consecutive years, individuals who at the beginning of such period constitute
the Board cease for any reason to constitute at least a majority thereof,
unless the election by the Board or the nomination for election by the
Company's Shareholders was approved by a vote of at least two-thirds (2/3) of
the directors then still in office who either were directors at the beginning
of the two-year period or whose election or nomination for election was
previously so approved; (ii) the Shareholders of the Company approve a merger
or consolidation of the Company with any other corporation, other than a
merger or consolidation that would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent (either
by remaining outstanding or by being converted into voting securities of the
surviving entity) more than eighty percent (80%) of the combined voting power
of the voting securities of the surviving entity outstanding immediately after
such merger or consolidation; provided, however, that a merger or
consolidation effected to implement a reorganization or recapitalization of
the Company, or a similar transaction (collectively, a "Reorganization"), in
which no "person" acquires more than twenty percent (20%) of the combined
voting power of the Company's then outstanding securities shall not constitute
a Change in Control of the Company; or (iii) the Shareholders of the Company
approve a plan of complete liquidation of the Company or an agreement for the
sale or disposition by the Company of all or substantially all of the
Company's assets.

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2.4 "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.

2.5 "Committee" shall mean the Stock Option and Compensation Committee, if
such a separate committee is appointed by the Board, or, until such time as a
separate committee is appointed, it shall mean the Board. If a separate
committee is appointed, the Committee be "non-employee directors" (as such
term is defined under Rule 16b-3 promulgated under the Exchange Act and any
successor thereunder promulgated during the duration of the Plan). The Board
may amend the Plan to modify the definition of Committee within the limits of
Rule 16b-3 to assure that the Plan is administered in compliance with Rule
16b-3. Initially, the Committee will consist of not less than two (2) members
of the Board who are appointed by, and serve at the pleasure of, the Board and
who are (i) "non-employee directors" within the meaning of Rule 16b-3 and (ii)
"outside directors," as required under Section 162(m) of the Code and such
Treasury Regulations as may be promulgated thereunder. The Board does not meet
the applicable requirements of Rule 16b-3.

2.6 "Common Stock" shall mean the Common Stock, $.01 par value per share, of
the Company.

2.7 "Designated Beneficiary" shall mean the beneficiary designated by a
Participant in a manner determined by the Committee, to exercise rights of the
Participant in the event of the Participant's death. In the absence of an
effective designation by a Participant the Designated Beneficiary shall be the
Participant's estate.

2.8 "Disability" shall mean permanent and total inability to engage in any
substantial gainful activity by reason of any medically determinable physical
or mental impairment which can be expected to result in death or which has
lasted or can be expected to last for a continuous period of not less than
twelve (12) months, as determined in the sole and absolute discretion of the
Committee.

2.9 "Dividend Equivalent Right" shall mean the right of the holder thereof
to receive credits based on the cash dividends that would have been paid on
the Shares specified in an Award granting Dividend Equivalent Rights if the
Shares subject to such Award were held by the person to whom the Award is
made.

2.10 "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.

2.11 "Fair Market Value" shall mean with respect to the Shares, as of any
date, (i) the last reported sales price on any stock exchange on which the
Common Stock is traded or, if not reported on such exchange, on the composite
tape, or, in case no such sale takes place on such day, the average of the
reported closing bid and asked quotations on such exchange; (ii) if the Common
Stock is not listed on a stock exchange or no such quotations are available,
the closing price of the Common Stock as reported by the National Market
System or Small Cap Market System of the National Association of Securities
Dealers, Inc., or, if no such quotations are available, the average of the
high bid and low asked quotations in the over-the-counter market as reported
by the National Quotation Bureau Incorporated, or similar organization; or
(iii) in the event that there shall be no public market for the Common Stock,
the fair market value of the Common Stock as determined (which determination
shall be conclusive) in good faith by the Committee, based upon the value of
the Company as a going concern, as if such Common Stock were publicly owned
stock, but without any discount with respect to minority ownership.

2.12 "Incentive Stock Option" shall mean any stock option awarded under the
Plan which qualifies as an "Incentive Stock Option" under Section 422 of the
Code or any successor provision.

2.13 "Non-Tandem Stock Appreciation Right" shall mean any Stock Appreciation
Right granted alone and not in connection with an Award which is a stock
option.

2.14 "Non-Qualified Stock Option" shall mean any stock option awarded under
the Plan that does not qualify as an Incentive Stock Option.

2.15 "Optionee" shall mean any person who has been granted a stock option
under the Plan and who has executed a written stock option agreement with the
Company reflecting the terms of such grant.

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2.16 "Performance Award" shall mean any Award hereunder of Shares, units or
rights based upon, payable in, or otherwise related to, Shares (including
Restricted Stock), or cash of an equivalent value, as die Committee may
determine, at the end of a specified performance period established by the
Committee.

2.17 "Plan" shall mean the GeoStrat Resources, Inc. 1996 Flexible Incentive
Plan set forth herein.

2.18 "Reload Option" shall mean a stock option as deemed in subsection
6.6(b) herein.

2.19 "Restricted Stock" shall mean any Award of Shares under the Plan that
are subject to restrictions or risk of forfeiture.

2.20 "Retirement" shall mean termination of employment other than discharge
for cause, after age 65 or on or before age 65 if pursuant to the terms of any
retirement plan maintained by the Company or any of its Subsidiaries in which
such person participates.

2.21 "Shares" shall mean shares of the Company's Common Stock and any shares
of capital stock or other securities of the Company hereafter issued or
issuable upon, in respect of or in substitution or exchange for such Shares.

2.22 "Stock Appreciation Right" shall mean the right of the holder thereof
to receive an amount in cash or Shares equal to the excess of the Fair Market
Value of a Share on the date of exercise over the Fair Market Value of a Share
on the date of the grant (or such other value as may be specified in the
agreement granting the Stock Appreciation Right).

2.23 "Subsidiary" shall mean a subsidiary corporation of the Company, as
defined in Section 424(f) of the Code.

2.24 "Tandem Stock Appreciation Right" shall mean a Stock Appreciation Right
granted in connection with an Award which is a stock option.

3. ADMINISTRATION OF THE PLAN

3.1 Committee. The Plan shall be administered and interpreted by the
Committee.

3.2 Awards. Subject to the provisions of the Plan and directions from the
Board, the Committee is authorized to:

(a) determine the persons to whom Awards are to be granted;

(b) determine the types and combinations of Awards to be granted, the
number of Shares to be covered by the Award, the pricing of the Award, the
time or times when the Award shall be granted and may be exercised, the
terms, performance criteria or other conditions, vesting periods or any
restrictions for an Award, any restrictions on Shares acquired pursuant to
the exercise of an Award and any other terms and conditions of an Award;

(d) prescribe, amend and rescind rules and regulations relating to the
Plan or make individual decisions as questions arise, or both;

(e) determine whether, to what extent and under what circumstances to
provide loans from the Company to participants to purchase Shares subject
to Awards under the Plan, and the terms and conditions of such loans;

(f) rely upon employees of the Company for such clerical and
recordkeeping duties as may be necessary in connection with the
administration of the Plan; and

(g) make all other determinations and take all other actions necessary or
advisable for the administration of the Plan.

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3.3 Procedures. A majority of the Committee members shall constitute a
quorum. All determinations of the Committee shall be made by a majority of its
members. All questions of interpretation and application of the Plan or
pertaining to any question of fact or Award granted hereunder shall be decided
by the Committee, whose decision shall be final, conclusive and binding upon
the Company and each other affected party.

4. SHARES SUBJECT TO PLAN

4.1 Limitations. The maximum number of Shares that may be issued with
respect to Awards under the Plan shall not exceed 450,000 unless such maximum
shall be increased or decreased by reason of changes in capitalization of the
Company as hereinafter provided. The Shares issued pursuant to the Plan may be
authorized but unissued Shares, or may be issued Shares which have been
reacquired by the Company.

4.2 Changes. To the extent that any Award under the Plan, or any stock
option or performance award granted under any prior incentive plan of the
Company, shall be forfeited, shall expire or shall be cancelled, in whole or
in part then the number of Shares covered by the Award or stock option so
forfeited, expired or cancelled may again be awarded pursuant to the
provisions of the Plan. In the event that Shares are delivered to the Company
in full or partial payment of the exercise price for the exercise of a stock
option granted under the Plan or any prior incentive plan of the Company, the
number of Shares available for future Awards under the Plan shall be reduced
only by the net number of Shares issued upon the exercise of the option.
Awards that may be satisfied either by the issuance of Shares or by cash or
other consideration shall, until the form of consideration to be paid is
finally determined, be counted against the maximum number of Shares that may
be issued under the Plan. If the Award is ultimately satisfied by the payment
of consideration other than Shares, as, for example, a stock option granted in
tandem with a Stock Appreciation Right that is settled by a cash payment of
the stock appreciation, such Shares may again be made the subject of an Award
under the Plan. Awards will not reduce the number of Shares that may be issued
pursuant to the Plan if the settlement of the Award will not require the
issuance of Shares, as, for example, a Stock Appreciation Right that can be
satisfied only by the payment of cash.

5. ELIGIBILITY

Eligibility for participation in the Plan shall be confined to key
employees, officers and directors of the Company, and consultants providing
services to the Company; provided, however, that Incentive Stock Options may
be granted only to employees of the Company. In making any determination as to
persons to whom Awards shall be granted, the type of Award, and/or the number
of Shares to be covered by the Award, the Committee shall consider the
position and responsibilities of the person, his or her importance to the
Company, the duties of such person, his or her past, present and potential
contributions to the growth and success of the Company, and such other factors
as the Committee shall deem relevant in connection with accomplishing the
purposes of the Plan.

6. STOCK OPTIONS

6.1 Grants. The Committee may grant stock options alone or in addition to
other Awards granted under the Plan to any eligible officer, director or other
key employee. Each person so selected shall be offered an option to purchase
the number of Shares determined by the Committee. The Committee shall specify
whether such option is an Incentive Stock Option or Non-Qualified Stock Option
and any other terms and conditions relating to such Award. To the extent that
any stock option does not qualify as an Incentive Stock Option (whether
because of its provisions or the time or manner of its exercise or otherwise),
such stock option or the portion thereof which does not qualify shall
constitute a separate Non-Qualified Stock Option. Each such person so selected
shall have a reasonable period of time within which to accept or reject the
offered option. Failure to accept within the period so fixed by the Committee
may be treated as a rejection. Each person who accepts an option shall enter
into a written agreement with the Company, in such form as the Committee may
prescribe, setting forth the terms and conditions of the option, consistent
with the provisions of the Plan. The Optionee and the Company shall enter

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into option agreements for Incentive Stock Options and Non-Qualified Stock
Options. At any time and from time to time, the Optionee and the Company may
agree to modify an option agreement so that an incentive Stock Option may be
converted to a Non-Qualified Stock Option.

The Committee may require that an Optionee meet certain conditions before
the option or a portion thereof may vest or be exercised, as, for example,
that the Optionee remain in the employ of the Company for a stated period or
periods of time before the option, or stated portions thereof, may vest or be
exercised.

6.2 Option Price. The option exercise price of the Shares covered by each
stock option shall be determined by the Committee; provided, however, that the
option exercise price of an Incentive Stock Option shall not be less than one
hundred percent (100%) of the Fair Market Value of Shares on the date of the
grant of such Incentive Stock Option.

6.3 Incentive Stock Options Limitations.

(a) In no event shall any person be granted Incentive Stock Options to the
extent that the Shares covered by any Incentive Stock Options (and any
incentive stock options granted under any other plans of the Company and its
Subsidiaries) that may be exercised for the first time by such person in any
calendar year have an aggregate Fair Market Value in excess of $100,000. For
this purpose, the Fair Market Value of the Shares shall be determined as of
the dates on which the Incentive Stock Options are granted. It is intended
that the limitation on Incentive Stock Options provided in this subsection
6.3(a) be the maximum limitation on options which may be considered Incentive
Stock Options under the Code.

(b) Notwithstanding anything herein to the contrary, in no event shall any
employee owning more than ten percent (10%) of the total combined voting power
of the Company or any Subsidiary be granted an Incentive Stock Option
hereunder unless the option exercise price shall be at least one hundred ten
percent (110%) of the Fair Market Value of the Shares subject to such
Incentive Stock Option at the time that the Incentive Stock Option is granted
and the term of such Incentive Stock Option shall not exceed five (5) years.

6.4 Option Term. Subject to subsection 6.3(b) hereof, the term of a stock
option shall be for such period of months or years from the date of its grant
as may be determined by the Committee; provided, however, that no Incentive
Stock Option shall be excisable later than ten (10) years from the date of its
grant. Furthermore, no Incentive Stock Option may be exercised unless, at the
time of such exercise, the Optionee is, and has been continuously since the
date of grant of his or her Incentive Stock Option, employed by the Company,
except that:

(a) An Incentive Stock Option may, to the extent vested, be exercised
within the period of three months after the date the Participant ceases to
be an employee of the Company (or within such lesser period as may be
specified in the applicable option agreement), provided that the option
agreement may designate a longer exercise period and that the exercise
after such three-month period shall be treated as the exercise of a Non-
Qualified Stock Option under the Plan;

(b) If the Optionee dies while in the employ of the Company, or within
three months after the Optionee ceases to be such an employee, the
Incentive Stock Option may, to the extent vested, be exercised by the
Optionee's Designated Beneficiary within the period of one year after the
date of death (or within such lesser period as may be specified in the
applicable option agreement); and

(c) If the Optionee ceases to be an employee of the Company by reason of
the Optionee's Disability, the Incentive Stock Option may be exercised
within the period of one year after the date of Disability (or within such
lesser period as maybe specified in the applicable option agreement).

6.5 Vesting of Stock Options.

(a) Each stock option granted hereunder may only be exercised to the extent
that the Optionee is vested in such option. Each stock option shall vest
separately in accordance with the option vesting schedule, if any, determined
by the Committee in its sole discretion, which will be incorporated in the
stock option agreement

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<PAGE>

entered into between the Company and each Optionee. The option vesting
schedule will be accelerated if, in the sole discretion of the Committee, the
Committee determines that acceleration of the option vesting schedule would be
desirable for the Company.

(b) In the event of the dissolution or liquidation of the Company, each
stock option granted under the Plan shall terminate as of a date to be fixed
by the Board; provided, however, that not less than thirty (30) days' written
notice of the date so fixed shall be given to each Optionee and each such
Optionee shall be fully vested in and shall have the right during such period
to exercise the option, even though such option would not otherwise be
exercisable under the option vesting schedule. At the end of such period, any
unexercised option shall terminate and be of no other effect.

(1) If there is no plan or agreement respecting the Reorganization, or if
such plan or agreement does not specifically provide for the change,
conversion or exchange of the Shares under outstanding and unexercised
stock options for other securities thin the provisions of subsection 6.5(b)
shall apply as if the Company had dissolved or been liquidated on the
effective date of the Reorganization; or

(2) If there is a plan or agreement respecting the Reorganization, and if
such plan or agreement specifically provides for the change, conversion or
exchange of the Shares under outstanding and unexercised stock options for
securities of another corporation, then the Board shall adjust the Shares
under such outstanding and unexercised stock options (and shall adjust the
Shares remaining under the Plan which are then available to be awarded
under the Plan, if such plan or agreement makes no specific provision
therefor) in a manner not inconsistent with the provisions of such plan or
agreement for the adjustment change, conversion or exchange of such Shares
and such options.

(3) In the event of a Change in Control of the Company, all stock options
and any associated Stock Appreciation Rights shall become fully vested and
immediately exercisable and the vesting of all performance-based stock
options shall be determined as if the performance period or cycle
applicable to such stock options had ended immediately upon such Change in
Control; provided, however, that if in the opinion of counsel to the
Company the immediate exercisability of options when taken into
consideration with all other "parachute payments" as defined in Section
280G of the Code, as amended, would result in an "excess parachute payment"
as defined in such section as well as an exercise tax imposed by Section
4999 of the Code, such options and any associated Stock Appreciation Rights
shall become fully vested and immediately exercisable, except as and to the
extent the Committee, in its sole discretion, shall otherwise determine,
and which determination by the Committee shall be based solely upon
maximizing the after-tax benefits to be received by any such Optionee.

6.6 Exercise of Stock Options.

(a) Stock options may be exercised as to Shares only in amounts and at
intervals of time specified in the written option agreement between the
Company and the Optionee. Each exercise of a stock option, or any part
thereof, shall be evidenced by a notice in writing to the Company. The
purchase price of the Shares as to which an option shall be exercised shall be
paid in full at the time of exercise, and may be paid to the Company either:

(1) in cash (including check, bank draft or money order); or

(2) by the delivery of Shares (whether previously owned or underlying the
option being exercised) having a Fair Market Value equal to the aggregate
option rate;

(3) by a combination of cash and Shares; or

(4) by other consideration deemed acceptable by the Committee in its sole
discretion.

(b) If an Optionee delivers Shares (including Shares of Restricted Stock)
already owned by him or her in full or partial payment of the exercise price
for any stock option granted under the Plan or any prior incentive plan of the
Company, or if the Optionee elects to have the Company reflect that number of
Shares out of the

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Shares being acquired through the exercise of the option having a Fair Market
Value equal to the exercise price of the stock option being exercised, the
Committee may authorize the automatic grant of a new option (a "Reload
Option") for that number of Shares as shall equal the number of already owned
Shares surrendered (including Shares of Restricted Stock) or newly acquired
Shares being retained in payment of the option exercise price of the
underlying stock option being exercised. The grant of a Reload Option will
become effective upon the exercise of the underlying stock option. The option
exercise price of the Reload Option shall be the Fair Market Value of a Share
on the effective date of the grant of the Reload Option. Each Reload Option
shall be exercisable no earlier than six (6) months from the date of its grant
and no later than the time when the underlying stock option being exercised
could be last exercised. The Committee may also specify additional terms,
conditions and restrictions for the Reload Option and the Shares to be
acquired upon the exercise thereof.

(c) The amount, as determined by the Committee, of any federal, state or
local tax required to be withheld by the Company due to the exercise of a
stock option shall be satisfied by payment by the Optionee to the Company of
the amount of such withholding obligation in cash or other consideration
acceptable to the Committee in its sole discretion, which payment method shall
be set forth in the agreement approved by the Committee relating to the grant
of the option or shall be otherwise approved by the Committee prior to the
exercise of the option.

(d) An Optionee shall not have any of the rights of a Shareholder of the
Company with respect to the Shares covered by a stock option except to the
extent that one or more certificates representing such Shares shall have been
delivered to the Optionee, or the Optionee has been determined to be a
Shareholder of record by the Company's transfer agent, upon due exercise of
the option.

6.7 Date of a Stock Option Grant. The granting of a stock option shall take
place only upon the execution and delivery by the Company and an optionee of
an option agreement. Neither any action taken by the Board nor anything
contained in the Plan or in any resolution adopted or to be adopted by the
Board or the Shareholders of the Company shall constitute the granting of a
stock option under the Plan.

7. STOCK APPRECIATION RIGHTS

7.1 Grants. The Committee may grant to any eligible employee either Non-
Tandem Stock Appreciation Rights or Tandem Stock Appreciation Rights. Stock
Appreciation Rights shall be subject to such terms and conditions as the
Committee shall impose. The grant of the Stock Appreciation Right may provide
that the holder may be paid for the value of the Stock Appreciation Right
either in cash or in Shares, or a combination thereof, at the discretion of
the Committee. In the event of the exercise of a Stock Appreciation Right
payable in Shares, the holder of the Stock Appreciation Right shall receive
that number of whole Shares of stock of the Company having an aggregate Fair
Market Value on the date of exercise equal to the value obtained by
multiplying (i) either (a) in the case of a Tandem Stock Appreciation Right,
the difference between the Fair Market Value of a Share on the date of
exercise over the per share exercise price of the related option, or (b) in
the case of a Non-Tandem Stock Appreciation Right the difference between the
Fair Market Value of a Share on the date of exercise over the Fair Market
Value on the date of the grant by (ii) the number of Shares as to which the
Stock Appreciation Right is exercised. However, notwithstanding the foregoing,
the Committee, in its sole discretion, may place a ceiling on the amount
payable upon exercise of a Stock Appreciation Right but any such limitation
shall be specified at the time that the Stock Appreciation Right is granted.

7.2 Exercisability. A Tandem Stock Appreciation Right may be granted at the
time of the grant of the related stock option or, if the related stock option
is a Non-Qualified Stock Option, at any time thereafter during the term of the
stock option. A Tandem Stock Appreciation Right granted in connection with an
Incentive Stock Option (i) may be exercised at, and only at, the times and to
the extent the related Incentive Plan Stock Option is exercisable, (ii)
expires upon the termination of the related Incentive Stock Option, (iii) may
not exceed 100% of the difference between the exercise price of the related
Incentive Stock Option and the market price of the Shares subject to the
related Incentive Stock Option at the time the Tandem Stock Appreciation Right
is exercised and (iv) may be exercised at, and only at, such times as the
market price of the Shares subject to the related Incentive Stock Option
exceeds the exercise price of the related Incentive Stock Option. The Tandem
Stock Appreciation Right may be transferred at, and only at, the times and to
the extent the related stock option

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<PAGE>

is transferable. If a Tandem Stock Appreciation Right is granted, there shall
be surrendered and cancelled from the related option at the time of exercise
of the Tandem Stock Appreciation Right, in lieu of exercise under the related
option, that number of Shares as shall equal the number of Shares as to which
the Tandem Stock Appreciation Right shall have been exercised.

7.3 Certain Limitations on Non-Tandem Stock, Appreciation Rights. A Non-
Tandem Stock Appreciation Right will be exercisable as provided by the
Committee and will have such other terms and conditions as the Committee may
determine, which terms and conditions shall be specified by the Committee
prior to the grant of such right. A Non-Tandem Stock Appreciation Right is
subject to acceleration of vesting or immediate termination in certain
circumstances in the same manner as stock options pursuant to subsections 6.4
and 6.5 of the Plan.

7.4 Limited Stock Appreciation Rights. The Committee is also authorized to
grant "limited stock appreciation rights," either as Tandem Stock Appreciation
Rights or Non-Tandem Stock Appreciation Rights. Limited stock appreciation
rights would become exercisable only upon the occurrence of a Change in
Control or such other event as the Committee may designate at the time of
grant or thereafter.

8. RESTRICTED STOCK

8.1 Grants. The Committee may grant Awards of Restricted Stock for no cash
consideration, for such minimum consideration as may be required by applicable
law, or for such other consideration as may be specified by the grant. The
terms and conditions of the Restricted Stock shall be specifically approved by
the Committee and set forth in the grant agreement. The Committee, in its sole
discretion, may specify any particular rights which the person to whom an
Award of Restricted Stock is made shall have in the Restricted Stock during
the restriction period and the restrictions applicable to the particular
Award, the vesting schedule (which may be based on service, performance or
other factors) and rights to acceleration of vesting (including, without
limitation, whether non-vested Shares are forfeited or vested upon termination
of employment). Further, the Committee may award performance-based Restricted
Stock by conditioning the grant, or vesting or such other factors, such as the
release, expiration or lapse of restrictions upon any such Award (including
the acceleration of any such conditions or terms) of such Restricted Stock
upon the attainment of specified performance goals or such other factors as
the Committee may determine. The Committee shall also determine when the
restrictions shall lapse or expire and the conditions, if any, under which the
Restricted Stock will be forfeited or sold back to the Company. Each Award of
Restricted Stock may have different restrictions and conditions. The
Committee, in its discretion, may prospectively change the restriction period
and the restrictions applicable to any particular Award of Restricted Stock.
Unless otherwise set forth in the Plan, Restricted Stock may not be disposed
of by the recipient until the restrictions specified in the Award expire.

8.2 Awards and Certificates. Any Restricted Stock issued hereunder may be
evidenced such manner as the Committee, in its sole discretion, shall deem
appropriate including, without limitation, book-entry registration or issuance
of a stock certificate or certificates. In the event any stock certificate is
issued in respect of Shares of Restricted Stock awarded hereunder, such
certificate shall bear an appropriate legend with respect to the restrictions
applicable to such Award. The Company may retain, at its option, the physical
custody of any stock certificate representing any awards of Restricted Stock
during the restriction period or require that the Restricted Stock be placed
in escrow or trust, along with a stock power endorsed in blank, until all
restrictions are removed or expire.

9. PERFORMANCE AWARDS

9.1 Grants. A Performance Award may consist of either or both, as the
Committee may determine, of (i) "Performance Shares" or the right to receive
Shares, Restricted Stock or cash of an equivalent value, or any combination
thereof as the Committee may determine, or (ii) "Performance Units," or the
right to receive a fixed dollar amount payable in cash, Common Stock,
Restricted Stock or any combination thereof, as the Committee may determine.
The Committee may grant Performance Awards to any eligible employee, for no
cash consideration, for such minimum consideration as may be required by
applicable law or for such other

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<PAGE>

consideration as may be specified at the time of the grant. The terms and
conditions of Performance Awards shall be specifically approved by the
Committee at or prior to the time of the grant and set forth in the grant
agreement. Such terms and conditions may include provisions establishing the
performance period, the performance criteria to be achieved during a
performance period the criteria used to determine vesting (including the
acceleration thereof), whether Performance Awards are forfeited or vest upon
termination of employment during a performance period and the maximum or
minimum settlement values. Each Performance Award shall have its own terms and
conditions, which shall be determined in the discretion of the Committee. If
the Committee determines, in its sole discretion, that the established
performance measures or objectives are no longer suitable because of a change
in the Company's business, operations, corporate structure or for other
reasons that the Committee deems satisfactory, the Committee may modify the
performance measures or objectives and/or the performance period.

9.2 Terms and Conditions. Performance Awards may be valued by reference to
the Fair Market Value of a Share or according to any formula or method deemed
appropriate by the Committee, in its sole discretion, including, but not
limited to, achievement of specific financial, production, sales, cost or
earnings performance objectives that the Committee believes to be relevant to
the Company's business and for remaining in the employ of the Company for a
specified period of time, or the Company's performance or the performance of
its Common Stock measured against the performance of the market the Company's
industry segment or its direct competitors. Performance Awards may be paid in
cash, Shares (including Restricted Stock) or other consideration, or any
combination thereof. If payable in Shares, the consideration for the issuance
of the Shares may be the achievement of the performance objective established
at the time of the grant of the Performance Award. Performance Awards may be
payable in a single payment or in installments and may be payable at a
specified date or dates or upon attaining the performance objective, all at
the Committee's discretion. The extent to which any applicable performance
objective has been achieved shall be conclusively determined by the Committee.

10. DIVIDEND EQUIVALENT RIGHTS

The Committee may grant a Dividend Equivalent Right either as a component of
another Award or as a separate Award, and, in general, each such holder of a
Dividend Equivalent Right that is outstanding on a dividend record date for
the Company's Common Stock shall be credited with an amount equal to the cash
or stock dividends or other distributions that would have been received had
the Shares covered by the Award been issued and outstanding on the dividend
record date. The terms and conditions of the Dividend Equivalent Right shall
be specified by the grant. Dividend equivalents credited to the holder of a
Dividend Equivalent Right may be paid currently or may be deemed to be
reinvested in additional Shares (which may thereafter accrue additional
Dividend Equivalent Rights). Any such reinvestment shall be at the Fair Market
Value at the time thereof. Dividend Equivalent Rights may be settled in cash
or Shares, or a combination thereof, in a single payment or in installments. A
Dividend Equivalent Right granted as a component of another Award may provide
that such Dividend Equivalent Right shall be settled upon exercise, settlement
or payment for or lapse of restrictions on such other Award, and that such
Dividend Equivalent Right shall expire or be forfeited or annulled under the
same conditions as such other Award. A Dividend Equivalent Right granted as a
component of another Award may also contain terms a conditions different from
such other Award.

11. OTHER AWARDS

The Committee may grant to any eligible employee other forms of Awards based
upon, payable in or otherwise related to, in whole or in part, Shares if the
Committee, in its sole discretion, determines that such other form of Award is
consistent with the purposes and restrictions of the Plan. The terms and
conditions of such other form of Award shall be specified by the grant
including, but not limited to, the price, if any, and the vesting schedule, if
any. Such Awards may be granted for no cash consideration, for such minimum
consideration as may be required by applicable law or for such other
consideration as may be specified by the grant.

12. COMPLIANCE WITH SECURITIES AND OTHER LAWS

In no event shall the Company be required to sell or issue Shares under any
Award if the sale or issuance thereof would constitute a violation of
applicable federal or state securities laws or regulations or a violation of

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<PAGE>

any other law or regulation of any governmental or regulatory agency or
authority or any national securities exchange. As a condition to any sale or
issuance of Shares, the Company may place legends on Shares, issue stop
transfer orders and require such agreements or undertakings as the Company may
deem necessary or advisable to assure compliance with any such laws or
regulations, including, if the Company or its counsel deems it appropriate,
representations from the person to whom an Award is granted that he or she is
acquiring the Shares solely for investment and not with a view to distribution
and that no distribution of the Shares will be made unless registered pursuant
to applicable federal and state securities laws, or in the opinion of counsel
of the Company, such registration is unnecessary.

13. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR REORGANIZATION

The value of an Award in Shares shall be adjusted from time to time as
follows:

(a) Subject to any required action by Shareholders, the number of Shares
covered by each outstanding Award, and the exercise price, shall be
proportionately adjusted for any increase or decrease in the number of
issued Shares of the Company resulting from a subdivision or consolidation
of Shares or the payment of a stock dividend (but only in Shares) or any
other increase or decrease in the number of Shares affected without receipt
of consideration by the Company.

(b) Subject to any required action by Shareholders, if the Company shall
be the surviving corporation in any Reorganization, merger or
consolidation, each outstanding Award shall pertain to and apply to the
securities to which a holder of the number of Shares subject to the Award
would have been entitled, and if a plan or agreement reflecting any such
event is in effect that specifically provides for the change, conversion or
exchange of Shares, then any adjustment to Shares relating to an Award
hereunder shall not be inconsistent with the terms of any such plan or
agreement.

(c) In the event of a change in the Shares of the Company as presently
constituted, which is limited to a change of par value into the same number
of Shares with a different par value or without par value, the Shares
resulting from any such change shall be deemed to be the Shares within the
meaning of the Plan.

To the extent that the foregoing adjustments relate to stock or securities
of the Company, such adjustments shall be made by the Board, whose
determination shall be final, binding and conclusive.

Except as hereinbefore expressly provided in the Plan, any person to whom an
Award is granted shall have no rights by reason of any subdivision or
consolidation of stock of any class or the payment of any stock dividend or
any other increase or decrease in the number of shares of stock of any class
or by reason of any dissolution, liquidation, reorganization, merger or
consolidation or spinoff of assets or stock of another corporation, and any
issue by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall not affect and no
adjustment by reason thereof shall be made with respect to, the number or
exercise price of Shares subject to an Award.

The grant of an Award pursuant to the Plan shall not affect in any way the
right or power of the Company to make adjustments, reclassifications,
Reorganizations or changes of its capital or business structure or to merge or
to consolidate or to dissolve, liquidate or sell or transfer all or any part
of its business or assets.

14. AMENDMENT OR TERMINATION OF THE PLAN

14.1 Amendment of the Plan. Notwithstanding anything contained in the Plan
to the contrary, all provisions of the Plan may at any time or from time to
time be modified or amended by the Board; provided, however, that no Award at
any time outstanding under the Plan may be modified, unpaired or cancelled
adversely to the holder of the Award without the consent of such holder; and
provided, further, that the Plan may not be amended without approval by the
holders of a majority of the Shares of the Company represented and voted at a
meeting of the Shareholders (a) to increase the maximum number of Shares
subject to Incentive Stock Options the Plan, (b) to modify the class of
employees eligible to receive Incentive Stock Options or (c) if such approval
is

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<PAGE>

otherwise necessary, to comply with Rule 16b-3 promulgated under the Exchange
Act as amended, or to comply with any other applicable laws, regulations or
listing requirements, or to qualify for an exemption or characterization that
is deemed desirable by the Board.

14.2 Termination of the Plan. The Board may suspend or terminate the Plan at
any time, and such suspension or termination may be retroactive or
prospective. However, no Award may be granted on or after the tenth
anniversary of the adoption of the Plan. Termination of the Plan shall not
impair or affect any Award previously granted hereunder and the rights of the
holder of the Award shall remain in effect until the Award has been exercised
in its entirety or has expired or otherwise has been terminated by the terms
of such Award.

15. AMENDMENTS AND ADJUSTMENTS TO AWARDS

The Committee may amend, modify or terminate any outstanding Award with the
Participants consent at any time prior to payment or exercise in any manner
not inconsistent with the terms of the Plan, including, without limitation,
(i) to change the date or dates as of which (A) an option becomes exercisable
or (B) a performance-based Award is deemed earned, (ii) to amend the terms of
any outstanding Award to provide an exercise price per share which is higher
or lower than the then current exercise price per share of such outstanding
Award or (iii) to cancel an Award and grant a new Award in substitution
therefor under such different terms and conditions as it determines in its
sole and complete discretion to be appropriate including, but not limited to,
having an exercise price per share which may be higher or lower than the
exercise price per share of the cancelled Award. The Committee is also
authorized to make adjustments in the terms and conditions of, and the
criteria included in, Awards in recognition of unusual or nonrecurring events
(including, without limitation, the events described in Section 13 hereof
affecting the Company, or the financial statements of the Company or any
Affiliate, or of changes in applicable laws, regulations or accounting
principles), whenever the Committee determines that such adjustments are
appropriate in order to prevent reduction or enlargement of the benefits or
potential benefits intended to be made available under the Plan. Any provision
of the Plan or any agreement regarding an Award to the contrary
notwithstanding, the Committee may cause any Award granted to be cancelled in
consideration of a cash payment or alternative Award made to the holder of
such cancelled Award equal in value to the Fair Market Value of such cancelled
Award. The determinations of value under this Section 15 shall be made by the
Committee in its sole discretion.

16. GENERAL PROVISIONS

16.1 No Limit on Other Compensation Arrangements. Nothing contained in the
Plan shall prevent the Company from adopting or continuing in effect other
compensation arrangements, and such arrangements may be either generally
applicable or applicable only in specific cases.

16.2 No Right to Employment. Nothing in the Plan or in any Award, nor the
grant of any Award, shall confer upon or be construed as giving any recipient
of an Award any right to remain in the employ of the Company. Further, the
Company may at any time dismiss a participant in the Plan from employment,
free from any liability or any claim under the Plan, unless otherwise
expressly provided in the Plan or in any Award agreement. No employee,
participant or other person shall have any claim to be granted any Award, and
there is no obligation for uniformity or treatment of employees, participants
or holders or beneficiaries of Awards.

16.3 GOVERNING LAW. THE VALIDITY, CONSTRUCTION AND EFFECT OF THE PLAN AND
ANY RULES AND REGULATIONS RELATING TO THE PLAN SHALL BE DETERMINED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE.

16.4 Severability. If any provision of the Plan or any Award is or becomes
or is deemed to be invalid, illegal or unenforceable in any jurisdiction or as
to any person or Award, or would disqualify the Plan or any Award under any
law deemed applicable by the Committee, such provision shall be construed or
deemed amended to conform to applicable laws, or if it cannot be construed or
deemed amended without in the sole determination of

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<PAGE>

the Committee, materially altering the intent of the Plan or the Award, such
provision shall be stricken as to such jurisdiction, person or Award and the
remainder of the Plan and any such Award shall remain in full force and
effect.

16.5 No Fractional Shares. No fractional Shares shall be issued or delivered
pursuant to the Plan or any Award, and the Committee shall determine whether
cash, other securities or other property shall be paid or transferred in lieu
of any fractional Shares or whether such fractional Shares or any rights
thereto shall be cancelled, terminated or otherwise eliminated.

16.6 Headings. Headings are given to the subsections of the Plan solely as a
convenience to facilitate reference. Such headings shall not be deemed in any
way material or relevant to the construction or interpretation of the Plan or
any provision thereof.

16.7 Effective Date. The Plan shall be effective as of the date of its
approval by the holders of a majority of the Shares of the Company represented
and voting at the next Annual or Special Meeting of Shareholders.

16.8 Non-Transferability of Incentive Stock Options. Incentive Stock Options
shall not be transferable otherwise than by will or the laws of descent and
distribution, and Incentive Stock Options may be exercised, during the
lifetime of the holder, only by the holder. Any attempted assignment,
transfer, pledge, hypothecation or other disposition of an Incentive Stock
Option contrary to the provisions hereof, or the levy of any execution,
attachment or similar process upon an Incentive Stock Option shall be null and
void and without effect.

17. NAMED EXECUTIVE OFFICERS

17.1 Applicability of Section 17. The provisions of this Section 17 shall
apply only to those executive officers (i) whose compensation is required to
be reported in the Company's proxy statement pursuant to Item 402(a)(3)(i) and
(ii) of Regulation S-K under the general rules and regulations under the
Exchange Act, as amended, and (ii) whose total compensation, including
estimated Awards, is determined by the Committee to possibly be subject to the
limitations on deductions imposed by Section 162(m) of the Code ("Named
Executive Officers"). In the event of any inconsistencies between this Section
17 and the other Plan provisions as they pertain to Named Executive Officers,
the provisions of this Section 17 shall control.

17.2 Establishment of Performance Goals. Awards for Named Executive
Officers, other than stock options and Stock Appreciation Rights, shall be
based on the attainment of certain performance goals. No later than the
earlier of (i) ninety (90) days after the commencement of the applicable
fiscal year or such other award period as may be established by the Committee
("Award Period") and (ii) the completion of twenty-five percent (25%) of such
Award Period, the Committee shall establish, in writing, the performance goals
applicable to each such Award for Named Executive Officers. At the time the
performance goals are established by the Committee, their outcome must be
substantially uncertain. In addition, the performance goal must state, in
terms of an objective formula or standard, the method for computing the amount
of compensation payable to the Named Executive Officer if the goal is
obtained. Such formula or standard shall be sufficiently objective so that a
third party with knowledge of the relevant performance results could calculate
the amount to be paid to the subject Named Executive Officer. The material
terms of the performance goals for Named Executive Officers and the
compensation payable thereunder shall be submitted to the Shareholders of the
Company for their review and approval. Shareholder approval shall be obtained
for such performance goals prior to any Award being paid to such Named
Executive Officer. If the Shareholders do not approve such performance goals,
no amount shall be paid to such Named Executive Officer for such applicable
Award Period under the Plan. The disclosure of the "material terms" of a
performance goal and the compensation payable thereunder shall be determined
under the guidelines set forth under Section 162(m) of the Code, and the
Treasury Regulations thereunder.

17.3 Components of Awards. Each Award of a Named Executive Officer, other
than stock options and Stock Appreciation Rights, shall be based on
performance goals which are sufficiently objective so that a third party

FF-12
<PAGE>

having knowledge of the relevant facts could determine whether the goal was
met. Except as provided in subsection 17.8 herein, performance measures which
may serve as determinants of Named Executive Officers Awards shall be limited
to the following measures: earnings per share; return on assets; return on
equity; return on capital; net profit after taxes; net profit before taxes;
economic value added; operating profits; stock price; market share; and sales
or expenses. Within ninety (90) days following the end of each Award Period,
the Committee shall certify in writing that the performance goals, and any
other material terms were satisfied. Thereafter, Awards shall be made for each
Named Executive Officer as determined by the Committee. The Awards may not
vary from the preestablished amount based on the level of achievement.

17.4 No Mid-Year Change in Awards. Except as provided in subsections 17.8
and 17.9 herein, each Named Executive Officers Awards shall be based
exclusively on the performance measures established by the Committee pursuant
to subsection 17.2.

17.5 No Partial Award Period Participation. A Named Executive Officer who
becomes eligible to participate in the Plan after performance goals have been
established in an Award Period pursuant to subsection 17.2 may not participate
in the Plan prior to the next succeeding Award Period, except with respect to
Awards which are stock options or Stock Appreciation Rights.

17.6 Performance Goals. Except as provided in subsection 17.8 herein,
performance goals shall not be changed following their establishment, and
Named Executive Officers shall not receive any payout, except with respect to
Awards which are stock options or Stock Appreciation Rights, when the minimum
performance goals are not met or exceeded.

17.7 Individual Performance and Discretionary Adjustments. Except as
provided in subsection 17.8 herein, subjective evaluations of individual
performance of Named Executive Officers shall not be reflected in their
Awards, other than Awards which are stock options or Stock Appreciation
Rights. The payment of such Awards shall be entirely dependent upon the
attainment of the preestablished performance goals.

17.8 Amendments. No amendment of the Plan with respect to any Named
Executive Officer may be made which would (i) increase the maximum amount that
can be paid to any one Participant under the Plan, (ii) change the specified
performance goal for payment of Awards, or (iii) modify the requirements as to
eligibility for participation in the Plan, unless the Company's Shareholders
have first approved such amendment in a manner which would permit the
deduction under Section 162(m) of the Code of such payment in the fiscal year
it is paid. The Committee shall amend this Section 17 and such other
provisions as it deems appropriate, to cause amounts payable to Named
Executive Officers to satisfy the requirements of Section 162(m) and the
Treasury Regulations promulgated thereunder.

17.9 Stock Options and Stock Appreciation Rights. Notwithstanding any
provision of the Plan (including the provisions of this Section 17) to the
contrary, the amount of compensation which a Named Executive Officer may
receive with respect to stock options and Stock Appreciation Rights which are
granted hereunder is based solely on an increase in the value of the
applicable Shares after the date of grant of such Award. Thus, no stock option
may be granted hereunder to a Named Executive Officer with an exercise price
less than the Fair Market Value of Shares on the date of grant. Furthermore,
the maximum number of Shares (or cash equivalent value) with respect to which
stock options or Stock Appreciation Rights may be granted hereunder to any
Named Executive Officer during any calendar year may not exceed 100,000
Shares, subject to adjustment as provided in Section 13 hereunder.

17.10 Maximum Amount of Compensation. The maximum amount of compensation
payable as an Award (other than an Award which is a stock option or Stock
Appreciation Right) to any Named Executive Officer during any calendar year
may not exceed $1,000,000.

FF-13
<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Reference is made to Section 102(b)(7) of the Delaware General Corporation
Law (the "DGCL"), which enables a corporation in its original certificate of
incorporation or an amendment thereto to eliminate or limit the personal
liability of a director to the corporation or its stockholders for monetary
damages for breach of the director's fiduciary duty, except (i) for any breach
of the director's duty of loyalty to the corporation or its stockholders, (ii)
for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the
DGCL (providing for liability of directors for unlawful payment of dividends
or unlawful stock purchases or redemptions), or (iv) for any transaction from
which the director derived an improper personal benefit. The Registrant's
Certificate of Incorporation contains provisions permitted by Section
102(b)(7) of the DGCL.

GeoStrat is incorporated under the laws of the State of Delaware. Section
145 of the DGCL ("Section 145") provides that a Delaware corporation may
indemnify any persons who are, or are threatened to be made, parties to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of such corporation), by reason of the fact that such person is or was
an officer, director, employee or agent of such corporation, or is or was
serving at the request of such corporation as a director, officer, employee or
agent of another corporation or enterprise. The indemnity may include expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such
action, suit or proceeding, provided such person acted in good faith and in a
manner he reasonably believed to be in or not opposed to the corporation's
best interests and, with respect to any criminal action or proceeding, had no
reasonable cause to believe that his conduct was unlawful. A Delaware
corporation may indemnify any persons who were or are parties or are
threatened to be made a party, to any threatened, pending or completed action
or suit by or in the right of the corporation by mason of the fact that such
person is or was a director, officer, employee or agent of such corporation,
or enterprise. The indemnity may include expenses (including attorneys' fees)
actually and reasonably incurred by such person in connection with the defense
or settlement of such action or suit, provided such person acted in good faith
and in a manner he reasonably believed to be in or not opposed to the
corporation's best interest except that no indemnification is permitted
without judicial approval if the officer is adjudged to be liable to the
corporation. Where an officer or director is successful on the merits or
otherwise in the defense of any action referred to above, the corporation must
indemnify him against the expenses which such officer or director has actually
and reasonably incurred.

Article Twelfth and Thirteenth of the GeoStrat Certificate of Incorporation
requires GeoStrat to indemnify its officers, directors, employees and agents
to the extent permitted under the DGCL. Article VIII of the GeoStrat Bylaws
provides that GeoStrat shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed action,
suit or proceeding, whether civil, criminal, administrative, or investigative
(other than an action by or in the right of GeoStrat) by reason of the fact
that he is or was a director, officer, employee or agent of GeoStrat, or is or
was serving at the request of GeoStrat as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best
interests of GeoStrat, and with respect to any criminal action or proceeding,
had no reasonable cause to believe his conduct was unlawful. The termination
of any action, suit, or proceeding by judgment, order, settlement, conviction
or upon a plea of nolo contendere or its equivalent, shall not, of itself,
create a presumption that the person did not act in good faith and in a manner
which he reasonably believed to be in or not opposed to the best interests of
GeoStrat, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.

II-1
<PAGE>

The GeoStrat Bylaws further provide that GeoStrat shall indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of GeoStrat to procure
a judgment in its favor by reason of the fact that he is or was a director,
officer, employee or agent of GeoStrat, or is or was serving at the request of
GeoStrat as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted
in good faith and in a manner he reasonably believed to be in or not opposed
to the best interests of GeoStrat and except that no indemnification shall be
made in respect of any claim, issue, or matter as to which such person shall
have been adjudged to be liable to GeoStrat unless and only to the extent that
the Delaware Court of Chancery or the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnify for such expenses which the
Delaware Court of Chancery of such other court shall deem proper.

The GeoStrat Bylaws also provide that to the extent that a director,
officer, employee or agent of GeoStrat has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to above, or
in defense of any claim, issue or matter therein, he shall be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred
by him in connection therewith.

The GeoStrat Bylaws further provide that any indemnification under the above
paragraphs (unless ordered by a court) shall be made by GeoStrat only as
authorized in the specific case upon a determination that indemnification of
the director, officer, employee or agent is proper int he circumstances
because he has met the applicable standard of conduct set forth in the above
paragraph. Such determination shall be made (i) by the Board of Directors by a
majority vote of a quorum consisting of directors who were not parties to such
action, suit or proceeding, or (ii) if such a quorum is not obtainable, or,
even if obtainable, if a quorum of disinterested directors so directs, by
independent legal counsel in a written opinion, or (iii) by the stockholders.
Notwithstanding the foregoing, a director, officer, employee or agent of
GeoStrat shall be able to contest any determination that the director,
officer, employee or agent has not met the applicable standard of conduct set
forth in the above paragraphs by petitioning a court of appropriate
jurisdiction.

The GeoStrat Bylaws also provide that expenses (including attorneys' fees)
incurred by an officer or director in defending or settling any civil,
criminal, administrative or investigative action, suit or proceeding may be
paid by GeoStrat in advance of the final disposition of such action, suit or
proceeding upon receipt of any undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined that he is
not entitled to be indemnified by GeoStrat as authorized in these paragraphs.
Such expenses incurred by other employees and agents may be so paid upon such
terms and conditions, if any, as the Board of Directors deems appropriate.

The GeoStrat Bylaws further provide that the indemnification and advancement
of expenses provided by, or granted pursuant to, the other sections of these
paragraphs shall not be deemed exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be entitled under any
bylaw, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office.

The GeoStrat Bylaws further provide that GeoStrat shall have the power to
purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of GeoStrat, or is or was serving at the
request of GeoStrat as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against any
liability asserted against him and incurred by him in any such capacity, or
arising out of his status as such, whether or not GeoStrat would have the
power to indemnify him against such liability under the provisions of these
paragraphs.

The indemnification and advancement of expenses provided by, or granted
pursuant to the GeoStrat Certificate of Incorporation, unless otherwise
provided when authorized or ratified, continue as to a person who

II-2
<PAGE>

has ceased to be a director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such a person.

The foregoing discussion is qualified in its entirety by reference to the
DGCL and the GeoStrat Certificate of Incorporation and GeoStrat Bylaws.

ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(A) EXHIBITS.

<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT
------- -------
<C> <S>
2.1 Agreement of Merger--Included as Appendix "A" hereto
3.1 Certificate of Incorporation of GeoStrat Resources, Inc. as filed
with the Delaware Secretary of State on July 1, 1996--Included as
Appendix "B" hereto
3.2 Bylaws of GeoStrat Resources, Inc.--Included as Appendix "C"
hereto
4 Specimen Common Stock Certificate, $.01 par value per share, of
GeoStrat Resources, Inc. --Previously filed
Opinion of Winstead Sechrest & Minick P.C. regarding legality--
5 Previously filed
23.1 Consent of Price Waterhouse LLP--Filed herewith
23.2 Consent of Winstead Sechrest & Minick P.C. (included in their
opinion filed as Exhibit 5)
24 Powers of Attorney (included on page II-5)
99 Forms of Proxy Cards
</TABLE>

(B) FINANCIAL STATEMENT SCHEDULES.

All schedules are omitted because the required information is included in
the Consolidated Financial Statements or the Notes thereto or is otherwise
inapplicable.

ITEM 22. UNDERTAKINGS

The undersigned Registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being made, a
post effective amendment to this Registration Statement:

(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;

(ii) To reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement; and

(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement;

provided, however, that paragraphs (i) and (ii) do not apply if the
Registration Statement is on Form S-3 or Form S-8, and the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed by the Registrant pursuant to section 13
or section 15(d) of the Securities Exchange Act of 1934 that are incorporated
by reference in the Registration Statement.

(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.

(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.

(4) That, for purposes of determining any liability under the Securities Act
of 1933, each filing of the Registrant's annual report pursuant to section
13(a) or section 15(d) of the Securities Exchange Act of 1934 (and,

II-3
<PAGE>

where applicable, each filing of an employee benefit plan's annual report
pursuant to section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the Registration Statement shall be deemed to be
a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.

(5) That prior to any public reoffering of the securities registered
hereunder through the use of a prospectus which is a part of this Registration
Statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the Registrant undertakes that such reoffering
prospectus will contain the information called for by Form S-4 with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of Form S-4.

(6) That every prospectus (i) that is filed pursuant to paragraph (5)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Act and is used in connection with an offering of
securities subject to Rule 415, will be filed as a part of an amendment to the
Registration Statement and will not be used until such amendment is effective,
and that, for purposes of determining any liability under the Securities Act
of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.

(7) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.

(8) To respond to requests for information that is incorporated by reference
into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this Form, within
one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of
the Registration Statement through the date of responding to the request.

(9) To supply by means of post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the Registration Statement when it
became effective.

II-4
<PAGE>

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-4 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED IN THE CITY OF HOUSTON, STATE OF TEXAS, ON THE 20TH DAY OF
SEPTEMBER, 1996.

GEOSTRAT RESOURCES, INC.

/s/ Larry H. Carpenter
By __________________________________
Larry H. Carpenter
Chairman of the Board/President and
Chief Executive Officer

EACH PERSON WHOSE SIGNATURE APPEARS BELOW CONSTITUTES AND APPOINTS LARRY H.
CARPENTER AND MICHAEL A. GERLICH, AND EACH OF THEM (WITH FULL POWER TO EACH OF
THEM TO ACT ALONE), HIS TRUE AND LAWFUL ATTORNEY-IN-FACT AND AGENT, WITH FULL
POWER OF SUBSTITUTION AND RESUBSTITUTION, FOR HIM AND IN HIS NAME, PLACE AND
STEAD, IN ANY AND ALL CAPACITIES TO SIGN ON HIS BEHALF INDIVIDUALLY AND IN
EACH CAPACITY STATED BELOW ANY AMENDMENT, (INCLUDING POST-EFFECTIVE
AMENDMENTS) TO THIS REGISTRATION STATEMENT AND ANY REGISTRATION STATEMENT
(INCLUDING ANY AMENDMENT THERETO) FOR THIS OFFERING THAT IS TO BE EFFECTIVE
UPON FILING PURSUANT TO RULE 462(B) UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND TO FILE THE SAME, WITH ALL EXHIBITS THERETO AND OTHER DOCUMENTS
IN CONNECTION THEREWITH WITH THE SECURITIES AND EXCHANGE COMMISSION, GRANTING
UNTO SAID ATTORNEYS-IN-FACT AND AGENTS, AND EACH OF THEM, FULL POWER AND
AUTHORITY TO DO AND PERFORM EACH AND EVERY ACT AND THING REQUISITE AND
NECESSARY TO BE DONE IN AND ABOUT THE PREMISES, AS FULLY TO ALL INTENTS AND
PURPOSES AS HE MIGHT OR COULD DO IN PERSON, HEREBY RATIFYING AND CONFIRMING
ALL THAT SAID ATTORNEYS-IN-FACT AND AGENTS AND EITHER OF THEM, OR THEIR
SUBSTITUTES, MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----

<S> <C> <C>
/s/ Larry H. Carpenter Chairman, President and September 20, 1996
____________________________________ Chief Executive Officer and
Larry H. Carpenter Director (Principal
Executive Officer)

/s/ Michael A. Gerlich Vice President and Chief September 20, 1996
____________________________________ Financial Officer
Michael A. Gerlich (Principal Financial
Officer)

/s/ David H. Scheiber Director September 20, 1996
____________________________________
David H. Scheiber

/s/ Jeffrey E. Susskind Director September 20, 1996
____________________________________
Jeffrey E. Susskind
</TABLE>

II-5

<PAGE>

EXHIBIT 23.1

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-4 of GeoStrat Resources, Inc. of our report
dated March 28, 1996, except as to Note 14 which is as of April 22, 1996,
relating to the financial statements of TGX Corporation, which appears in such
Prospectus. We also consent to the references to us under the headings
"Experts" and "Selected Consolidated Financial Information" in such
Prospectus. However, it should be noted that Price Waterhouse LLP has not
prepared or certified such "Selected Consolidated Financial Information".

Price Waterhouse LLP

Houston, Texas

September 20, 1996