<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------------------
RULE 13E-3
TRANSACTION STATEMENT
(Pursuant to
Section 13(e) of the Securities Exchange Act of 1934)
AMENDMENT NO. 2
---------------------------------------
TGX CORPORATION
(Name of the Issuer)
---------------------------------------
TGX CORPORATION
JEFFREY E. SUSSKIND
LARRY H. CARPENTER
(Name of Persons Filing Statement)
---------------------------------------
COMMON STOCK, $.01 PAR VALUE 8724244106
SERIES A SENIOR PREFERRED STOCK, $1 PAR VALUE 87242405000
(Title of Class of Securities) (Cusip Number of
Class of Securities)
---------------------------------------
LARRY H. CARPENTER
CHAIRMAN OF THE BOARD
PRESIDENT AND CHIEF EXECUTIVE OFFICER
222 PENNBRIGHT, SUITE 200
HOUSTON, TEXAS 77090
(713) 872-0500
(Name, address and telephone number of person
authorized to receive notices and communications
on behalf of Persons Filing Statement)
---------------------------------------
COPIES TO:
ARTHUR S. BERNER, ESQ.
WINSTEAD SECHREST & MINICK P.C.
910 TRAVIS, SUITE 1700
HOUSTON, TEXAS 77002
(713) 650-2729
This statement is filed in connection with (check the appropriate box):
a. [X] The filing of solicitation materials or an information statement
subject to Regulation 14A [17 CFR 240.14a-1 to 240.14b-1], Regulation
14C [17 CFR 240.14c-1 to 240.14c-101] or Rule 13e-3(c) [(S) 240.13e-
3(c)] under the Securities Exchange Act of 1934.
b. [X] The filing of a registration statement under the Securities Act
of 1933.
c. [ ] A tender offer.
d. [ ] None of the above.
Check the following box if the soliciting materials or information statement
referred to in checking box (a) are preliminary copies: [ ]
<PAGE>
TGX CORPORATION
---------------------------------------
SCHEDULE 13E-3/A-2
CROSS-REFERENCE SHEET
---------------------------------------
The information contained in the Proxy Statement/Prospectus (the "Proxy
Statement/Prospectus") of Amendment No. 1 to the Form S-4 Registration Statement
filed by GeoStrat Resources, Inc. with the Securities and Exchange Commission is
hereby expressly incorporated by reference in this Schedule 13E-3/A-2. The
following cross-reference sheet is supplied pursuant to General Instruction F to
Schedule 13E-3 and shows the location in the Proxy Statement/Prospectus of the
information required to be included in response to the Items of the Schedule
13E-3 in connection with the Rule 13e-3 transaction.
<TABLE>
<CAPTION>
LOCATION AND CAPTION
ITEM IN SCHEDULE 13E-3 IN PROXY STATEMENT/PROSPECTUS
- ------------------------------------------------ ---------------------------------------------------------------
<S> <C>
ITEM 1 - ISSUER AND CLASS OF SECURITY SUBJECT
TO THE TRANSACTION
(a)......................................... Outside Front Cover Page of Proxy Statement/Prospectus
(b)......................................... Outside Front Cover Page of Proxy Statement/Prospectus;
Market Price Information
(c), (d).................................... Market Price Information
(e)......................................... *
(f)......................................... Employment Agreements; Executive Compensation
ITEM 2 - IDENTITY AND BACKGROUND The persons filing this statement are TGX Corporation (the
"Issuer"), the issuer of the common stock and the Series A
Senior Preferred Stock which are the subject of this
transaction, Mr. Jeffrey E. Susskind and Mr. Larry H. Carpenter.
(a) - (d), (g).............................. Proposals 2 and (a)--Election of Directors; Executive
Officers
(e), (f).................................... To the best of the knowledge of the undersigned, none of
the persons with respect to whom information is provided
in response to this Item was during the last five years
(i) convicted in a criminal proceeding (excluding traffic
violations or similar misdemeanors) or (ii) a party to a civil
proceeding of a judicial or administrative body of
competent jurisdiction and as a result of such proceeding
was or is subject to a judgment, decree or final order
enjoining further violations of, or prohibiting activities
subject to, federal or state securities laws or finding any
violation of such laws.
</TABLE>
- ------------
* The item is inapplicable or the answer is negative.
<PAGE>
<TABLE>
<CAPTION>
LOCATION AND CAPTION
ITEM IN SCHEDULE 13E-3 IN PROXY STATEMENT/PROSPECTUS
- ------------------------------------------------ ---------------------------------------------------------------
<S> <C>
ITEM 3 - PAST CONTACTS, TRANSACTIONS OR
NEGOTIATIONS
(a)........................................... *
(b)........................................... *
ITEM 4 - TERMS OF THE TRANSACTION
(a)........................................... Proposal 1 -- The Merger -- The Merger Agreement;
-- Conditions to Merger; -- Exchange of Certificates;
Appendix "A" to Proxy Statement/Prospectus: Agreement
of Merger
(b)........................................... Special Factors; Proposal 1 -- The Merger -- Interests of Certain Persons in
the Merger
Item 5 - Plans or Proposals of the Issuer or
Affiliate
(a) - (g)..................................... *
ITEM 6 - SOURCE AND AMOUNTS OF FUNDS OR
OTHER CONTRIBUTIONS
(a)........................................... *
(b)........................................... The Meetings
(c)........................................... *
(d)........................................... *
ITEM 7 - PURPOSE(S), ALTERNATIVES, REASONS AND
EFFECTS
(a) - (c)...................................... Special Factors; Summary -- Reasons for Merger; Proposal 1 -- The Merger
-- Background and Reasons for the Merger
(d)............................................ Special Factors; Proposal 1 -- The Merger -- Background and Reasons for
the Merger; -- Certain Federal Income Tax Considerations;
-- Accounting Treatment; -- Appraisal Rights
ITEM 8 - FAIRNESS OF THE TRANSACTION
(a), (b)...................................... Special Factors; Summary -- Recommendation of Board; -- Opinion of
Appraisal and Valuation Firm; -- Limitations on Opinion of
Appraisal and Valuation Firm; Proposal 1 -- The Merger--
Background and Reasons for the Merger;-- Recommendation
of Board; -- Opinion of Valuation and Appraisal Firm
</TABLE>
- ------------
* The item is inapplicable or the answer is negative.
2
<PAGE>
<TABLE>
<CAPTION>
LOCATION AND CAPTION
ITEM IN SCHEDULE 13E-3 IN PROXY STATEMENT/PROSPECTUS
- ------------------------------------------------ ---------------------------------------------------------------
<S> <C>
(c)........................................... Special Factors; The Meetings -- Vote Required.
(d)........................................... Special Factors
(e)........................................... Special Factors; Summary -- Recommendation of Board; Proposal 1 -- The
Merger -- Recommendation of Board
(f)........................................... *
ITEM 9 - REPORTS, OPINIONS, APPRAISALS AND
CERTAIN NEGOTIATIONS
(a), (b)...................................... Special Factors; Proposal 1 -- The Merger -- Opinion of Appraisal and
Valuation Firm; Appendix "D" to Proxy
Statement/Prospectus: Opinion of American Appraisal
Associates, Inc.
(c)........................................... Special Factors
ITEM 10 - INTEREST IN SECURITIES OF THE ISSUER
(a)........................................... Special Factors; Summary -- Vote Required; -- Recommendation of Board;
The Meetings -- Record Date; Stockholders Entitled to
Vote; -- Quorum; Vote Required; Certain Stock Owned by
Principal Stockholders and Management
(b)........................................... *
ITEM 11 - CONTRACTS, ARRANGEMENTS OR
UNDERSTANDINGS WITH RESPECT TO THE ISSUER'S *
SECURITIES.....................................
ITEM 12 - PRESENT INTENTION AND
RECOMMENDATION OF CERTAIN PERSONS WITH
REGARD TO THE TRANSACTION
(a), (b)...................................... Special Factors; The Meetings -- Quorum; Vote Required; Proposal 1 -- The
Merger -- Background and Reasons for the Merger;
-- Recommendation of Board; -- Interests of Certain
Persons in the Merger
</TABLE>
- ------------
* The item is inapplicable or the answer is negative.
3
<PAGE>
<TABLE>
<CAPTION>
LOCATION AND CAPTION
ITEM IN SCHEDULE 13E-3 IN PROXY STATEMENT/PROSPECTUS
- ------------------------------------------------ ---------------------------------------------------------------
<S> <C>
ITEM 13 - OTHER PROVISIONS OF THE TRANSACTION
(a)........................................... Summary -- Appraisal Rights; Proposal 1 -- The Merger
-- Appraisal Rights; Appendix "E" to Proxy
Statement/Prospectus: Section 262 of Delaware General
Corporation Law
(b)........................................... *
(c)........................................... *
ITEM 14 - FINANCIAL INFORMATION
(a)........................................... Summary -- Summary Financial Data; Financial Statements
(b)........................................... Financial Statements -- Unaudited Pro Forma Summary
Condensed Combined Financial Information
ITEM 15 - PERSONS AND ASSETS EMPLOYED,
RETAINED OR UTILIZED
(a), (b)...................................... Special Factors; Summary -- Opinion of Appraisal and Valuation Firm; The
Meetings -- Solicitation, Voting and Revocability of
Proxies; Date and Place of Meetings; Proposal 1 -- The
Merger -- Opinion of Appraisal and Valuation Firm
ITEM 16 - ADDITIONAL INFORMATION................ See text of the Proxy Statement/Prospectus
ITEM 17 - MATERIAL TO BE FILED AS EXHIBITS
(a)........................................... *
(b)........................................... Exhibit (b)-1: Report of American Appraisal Associates, Inc. to Board of
Directors - TGX Corporation
Exhibit (b)-2: Opinion of American Appraisal Associates, Inc. (incorporated
by reference to Appendix "D" to the Proxy Statement/Prospectus)
(c)........................................... *
(d)........................................... Exhibit (d): Letter to Stockholders; Notice of Special
Meetings of Stockholders; Proxy Statement/Prospectus;
Form of Proxy for Special Meetings of Stockholders
(incorporated by reference to GeoStrat Resources, Inc.
Form S-4 Registration Statement Amendment No. 1 filed with the
Commission on September 20, 1996)
(e)........................................... Exhibit (e): Section 262 of Delaware General Corporation
Law (incorporated by reference to Appendix "E" to the
Proxy Statement/Prospectus)
(f)........................................... *
</TABLE>
- ------------
* The item is inapplicable or the answer is negative.
4
<PAGE>
SIGNATURE
After due inquiry and to the best of my knowledge and belief. I certify that
the information set forth in this statement is true, complete and correct.
Dated: September 20, 1996 /s/ Larry H. Carpenter
__________________________________________
Larry H. Carpenter
Chairman of the Board, President and
Chief Executive Officer
/s/ Jeffrey E. Susskind, Director
__________________________________________
Jeffrey E. Susskind, Director
TGX Corporation
/s/ Larry H. Carpenter
__________________________________________
Larry H. Carpenter, Chairman of the
Board, President and Chief Executive
Officer
5
<PAGE>
CLIENT: BOARD OF DIRECTORS - TGX CORPORATION
PROPERTY: TGX CORPORATION
FAIRNESS OPINION
CONTRACT: 030816
<TABLE>
<CAPTION>
CORRELATION AND CONCLUSION
--------------------------
(Thousands Of Dollars)
Plus: Plus: Less:
Excess Tax Benefit Adjusted Redemption Value for
Business Less: Working Net Operating Equity Value of Old Preferred
Approach Enterprise Debt Equity Capital Tax Loss Value Senior Preferred and Common
- -------- ---------- ----- ------ ------- ------------- -------- ---------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Guideline Company 7,300 0 7,300 1,100 1,400 9,800 134,721 (124,921)
Transaction 7,100 0 7,100 1,100 1,400 9,600 134,721 (125,121)
Discounted Cash Flow 7,900 0 7,900 1,100 1,400 10,400 134,721 (124,321)
Net Asset Value 10,745 0 10,745 na na 10,745 134,721 (123,976)
Liquidation 7,501 0 7,501 na na 7,501 134,721 (127,220)
</TABLE>
Conclusion:
Old Preferred and Common do not have any realizable value.
Senior Preferred Shareholders' will not realize their redemption value;
the issue for the fairness is whether the shareholders will be better
off, the same, or worse if the merger takes place.
Net Asset Value: Business Enterprise = Total Assets less Current Liabilities
Total Assets $13,045
Current Liabilities $ 2,300
-------
BEV $10,745
Liquidation Value: Business Enterprise = Total Assets less Current Liabilities
Total Assets $ 9,801
Current Liabilities $ 2,300
-------
BEV $ 7,501
<PAGE>
TGX CORPORATION AND SUBSIDIARIES
030816
FAIRNESS OPINION
TGX CORPORATION
FINANCIALS USED IN ESTIMATING VALUE
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
Adjusted Latest Twelve
Year Ended Months Ended Recasted Recasted
December 31, May 31, 1996 Budget 1997 Budget
------------ ------------- ----------- -----------
1995 1996
<S> <C> <C> <C> <C>
REVENUES
Oil and natural gas sales $ 3,611 $ 4,103 $ 4,441 $ 4,612
Natural gas gathering 245 235 $184 $160
Equity earnings in Comite Field Plant Venture 449 539 $398 $534
Gain on property sales 68 213 $0 $0
Other, net 224 105 $14 $0
--------- --------- --------- ---------
4,597 5,195 5,037 5,306
COSTS AND EXPENSES
Operating expenses 1,905 2,033 1,816 1,645
Depletion, depreciation and amortization 973 1,074 898 1,134
Exploration costs 69 35 500 500
General and administrative expenses 2,582 2,720 1,944 1,943
Interest expense 142 138 77 77
--------- --------- --------- ---------
5,671 6,000 5,235 5,299
INCOME (LOSS) BEFORE INCOME TAXES AND
EXTRAORDINARY GAIN (1,074) (805) (198) 8
Income tax expense (benefit) (163) (163) 0 0
INCOME (LOSS) BEFORE EXTRAORDINARY GAIN (911) (642) (198) 8
Extraordinary Gain 93 0 0 0
NET INCOME (LOSS) (818) (642) (198) 8
Preferred stock dividends (12,308) (12,142) (13,163) (14,449)
Accretion of Senior Preferred redemption value (5,045) (5,527) (6,147) (7,613)
NET LOSS APPLICABLE TO COMMON STOCK ($18,171) ($18,311) ($19,508) ($22,054)
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) (818) ($642) ($198) $8
Adjustments to reconcile net loss before
extraordinary gain to cash provided by
operating activities:
Depletion, depreciation and amortization 973 1,074 898 1,134
Amortization of debt transaction costs and
stock compensation 79 64 80 78
Distributions in excess of equity earnings 139 111 184 185
Non-cash recovery of affiliate receivable 0 0
Extraordinary gain (93) 0 0 0
Changes in operating assets and liabilities: (193) 0
Decrease(increase) in accounts receivable 65 (181)
Decrease in accounts due from/to affiliates, net 256 82
Decrease in other current assets 9 (41)
Decrease in accounts payable and accrued liabilities (162) (992)
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 448 (525) 534 1,405
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,128) (1,246) (1,000) 1,500
Proceeds from disposal of assets 68 68 0 0
Decrease (increase) in other assets 0 (13) 0 0
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (1,060) (1,191) (1,000) 1,500
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of long-term debt and notes payable (1,601) (1,873)
Advances pursuant to revolving credit facility 850 1,050
Debt transaction costs and other (35) (35)
Decrease in affiliate accounts receivable 0 0
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (786) (858)
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,398) (2,574)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 676 960
CASH AND CASH EQUIVALENTS AT END OF PERIOD ($722) ($1,614)
</TABLE>
<PAGE>
TGX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited) (In Thousands) 06/18/96
<TABLE>
<CAPTION>
May 31, December 31,
1996 1995
- ---------------------------------------------------- ---------- ------------
<S> <C> <C>
ASSETS:
Current Assets
Cash - Unrestricted $ 2,496 $ 292
Cash - Restricted 35 92
Accounts Receivable, Net 1,144 1,141
Accounts Receivable from Affiliates 6
Prepaid Expenses 182 51
- ---------------------------------------------------- ---------- ------------
Total Current Assets 3,857 1,582
- ---------------------------------------------------- ---------- ------------
Property, Plant & Equipment
Oil & Natural Gas Properties (Successful Efforts) 11,632 11,340
Gas Processing Facilities, Capital Leases & Other 245 203
- ---------------------------------------------------- ---------- ------------
Total Property, Plant & Equipment 11,877 11,543
Less: Accumulated Depletion, Depreciation
and Amortization 4,525 4,132
- ---------------------------------------------------- ---------- ------------
Net Property, Plant and Equipment 7,352 7,411
- ---------------------------------------------------- ---------- ------------
Other Assets
Accounts Receivable from Affiliates
Investment in Comite Field Plant Venture 725 739
Other 30 59
- ---------------------------------------------------- ---------- ------------
Total Other Assets 755 798
- ---------------------------------------------------- ---------- ------------
Total Assets $11,964 $ 9,791
==================================================== ========== ============
</TABLE>
<PAGE>
TGX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited) (In Thousands) 06/18/96
<TABLE>
<CAPTION>
MAY 31, DECEMBER 31,
1996 1995
- --------------------------------------------------------- ---------- ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities Generally Not Subject To Compromise
Accounts Payable $ 98 $ 555
Accounts Payable to Affiliates
Undistributed Oil & Gas Revenue 1,329 1,152
Accrued Interest
Notes Payable
Current Maturities, Long-term Debt
Other Liabilities 1,106 1,646
- --------------------------------------------------------- ---------- ------------
Total Current Liabilities 2,533 3,353
- --------------------------------------------------------- ---------- ------------
Long-term Debt, less Current Maturities
Bank Debt 500
- --------------------------------------------------------- ---------- ------------
Total 500
- --------------------------------------------------------- ---------- ------------
Total Liabilities 2,533 3,853
- --------------------------------------------------------- ---------- ------------
Senior Preferred Stock 69,500 61,737
- --------------------------------------------------------- ---------- ------------
Stockholders' Equity
Old Preferred Stock 469 458
Common Stock 290 290
Additional Paid-in Capital 1,523 1,422
Retained Earnings (Deficit) (62,351) (57,969)
- --------------------------------------------------------- ---------- ------------
Total Stockholders' Equity (60,069) (55,799)
- --------------------------------------------------------- ---------- ------------
Total Liabilities and Stockholders' Equity $ 11,964 $ 9,791
========================================================= ========== ============
</TABLE>
<PAGE>
CLIENT: BOARD OF DIRECTORS - TGX CORPORATION
PROPERTY: TGX CORPORATION
FAIRNESS OPINION
CONTRACT: 030816
<TABLE>
<CAPTION>
Guideline Company Approach
--------------------------
(Thousands of Dollars)
LATEST FISCAL YEAR LATEST TWELVE MONTHS
------------------ --------------------
Multiples RANGE MEDIAN RANGE MEDIAN
- --------- ----- ------ ----- ------
<S> <C> <C> <C> <C>
EBDITA 2.6 - 13.9 9.0 2.6 - 82.2 7.5
EBIT 12.7 - 84.6 41.5 12.0 - 65.8 20.3
DFCF 2.6 - 21.5 9.0 2.6 - 139.9 7.5
Price to
NAV .47 - 2.15 1.40
10 PV .19 - 1.05 0.52
Increase in product prices appears to be the primary difference in multiples
</TABLE>
<TABLE>
<CAPTION>
TGX LATEST FISCAL LATEST TWELVE
Earnings YEAR MONTHS
- -------- ------------- -------------
<S> <C> <C>
EBDITA $120 $471
EBIT ($932) ($667)
DFCF $259 $582
NAV $5,938
10 PV $11,804
</TABLE>
<TABLE>
<CAPTION>
Indicated Values using Median Multiples Indicated
Indicated Value Premium Indicated
Earnings Multiples Value Weight Minority for Control Value
-------- --------- --------- ------ --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Latest Fiscal Year
EBDITA $120 9.00 $1,080 0.00%
EBIT ($932) 41.50 nm,f 0.00%
DFCF $259 9.00 $2,331 0.00%
Latest Twelve Months
EBDITA $471 7.50 $3,533 25.00% $883
EBIT ($667) 20.30 nm,f
DFCF $582 7.50 $4,365 25.00% $1,091
NAV $5,938 1.40 $8,313 25.00% $2,078
10 PV $11,804 0.52 $6,138 25.00% $1,535
------
$5,587 30.00% $7,263
</TABLE>
- ------------------------------------------------------------------
Debt Free Cash Flow: LFY LTM
EBDITA 120 471
Plus
Distributions in excess of equity earnings 139 111
--- ---
259 582
<PAGE>
TGX
030816
Fairness Opinion
<TABLE>
<CAPTION>
Comparative Companies
Oil & Gas Net Asset Market Value Price to Price to
Company Total Assets Properties 10 PV Value Value (NAV) Equity NAV 10 PV Value
- ------- ------------ ---------- ----------- ----------- ------------ -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
ABRAXAS $85,067,358 $74,475,683 $87,159,919 $37,062,806 $45,200,000 121.96% 51.86%
AMERAC(a) 11,194,000 20,614,000 14,051,000 5,994,000 10,400,000 173.51% 74.02%
BASIC EARTH SCIENCE (a) 3,149,000 2,625,000 4,725,000 1,902,000 900,000 47.32% 19.05%
HALLADOR (a) 11,926,000 7,444,000 10,000,000 4,637,000 5,000,000 107.83% 50.00%
MIDDLE BAY 8,984,752 7,828,000 10,411,000 2,501,219 3,600,000 143.93% 34.58%
MIDLAND 14,123,352 9,887,998 17,687,654 7,648,032 15,700,000 205.28% 88.76%
NATIONAL ENERGY 43,491,366 32,971,131 36,278,000 17,774,567 38,300,000 215.48% 105.57%
Average $25,419,404 $22,263,687 $25,758,939 $11,074,232 $17,014,286 145.04% 60.55%
Median $11,926,000 $ 9,887,998 $14,051,000 $ 5,994,000 $10,400,000 143.93% 51.86%
TGX $ 9,791,000 $ 7,411,000 $11,804,000 $ 5,938,000
</TABLE>
<TABLE>
<CAPTION>
Number of Wells
Oil Gas
Company Gross Net Gross Net States Wells are located
- ------- ---------------------- ---------------------------- ------------------------
<S> <C> <C> <C> <C> <C>
ABRAXAS 306 144.4 110 51.5 TX,ND,MA,NM,WY,AL
AMERAC 19 10 19 6.7 CO,KA,TX,UT,WY, offshore LA
BASIC EARTH SCIENCE 115 67.12 20 4.3 CO,KA,LA,MA,NM,ND,OK,TX,WY
HALLADOR 80 51 12 7.62 CA
MIDDLE BAY 604 98 28.26 14.52 AL,AR,LA,WY,TX,MI,OK,NM,MS
MIDLAND 172 108.6 19 10.2 TX,IL,OK,CO,ND
NATIONAL ENERGY 128 99.36 76 29.01 TX,OK,NM,WY
TGX 56 17 93 14 AK,LA,OK,TX
(a) Stock is not actively traded; very little volume.
</TABLE>
<PAGE>
TGX
30816
Fairness Opinion
<TABLE>
<CAPTION>
Valuation Parameters for the Prudential Securities E&P Companies
----------------------------------------------------------------
Stock Price Price/Cash Flow Price/Earnings Price to
Company Symbol 04/29/96 1996E 1997E 1996E 1997E Net Asset Value
- ------- ------ -------- ----- ----- ----- ----- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Anadarko Petroleum APC $59.00 69.4 35.4 14.6 10.0 190.0%
Apache Corp APA $29.50 44.4 25.4 6.4 5.4 142.0%
Burlington Resources BR $38.00 44.6 45.1 10.0 9.6 136.0%
Chesapeake Energy CHK $68.13 63.3 27.5 13.6 7.1 671.0%
Devon Energy DVN $25.75 25.7 22.4 7.4 6.5 145.0%
Enron Oil & Gas EOG $27.13 30.2 23.5 10.1 9.1 209.0%
Louisiana Land & Expl. LLX $54.63 34.5 40.3 5.9 6.3 137.0%
Noble Affiliates NBL $35.88 31.7 33.7 6.1 6.7 175.0%
Oryx Energy ORX $16.25 14.1 15.5 3.2 3.1 98.0%
Pogo Producing PPP $36.38 70.1 31.4 11.3 9.2 181.0%
Santa Fe Energy Res. SFR $12.25 25.4 24.2 4.8 4.2 135.0%
Union Pacific Res. UPR $27.88 26.5 20.1 7.9 6.9 188.0%
Union Texas Petrol. UTH $19.50 15.1 15.0 4.9 4.9 81.0%
Average 38.1 27.7 8.2 6.8 191.4%
Median 31.7 25.4 7.4 6.7 145.0%
Source: Anadarko Petroleum - Company Report, prepared by Prudential Bache Securities, Inc., 4/30/96
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CLIENT: BOARD OF DIRECTORS-TGX CORPORATION
PROPERTY: TGX CORPORATION
FAIRNESS OPINION
CONTRACT: 030816
====================================================================================================================================
INCOME APPROACH
EQUITY VALUATION
====================================================================================================================================
Table 2
Terminal Terminal Value
Terminal Value Calculation growth rate Factor Value 15.75%
-------- ---------- ----------
$ $ $
<S> <C> <C> <C> <C>
Capitalized Final Year DFNCF
at WACC less g g= 5.0% 1,821 16,943 2,324
expenses g= 4.0%
VALUATION SUMMARY
P.V. OF DISCOUNTED
INTERIM TERMINAL INDICATED
CASH FLOWS VALUE VALUE
-------------- ------------ -----------
$ $ $
Based on:
Capitalized Final Year DFNCF
at WACC less g 5,564 2,324 7,888
-----------
INDICATED INVESTED CAPITAL VALUE: 7,888
LESS LONG-TERM DEBT: 0
-----------
INDICATED EQUITY VALUE: 7,888
PLUS EXCESS WORKING CAPITAL: 1,094
ROUNDED TO $9,000 THOUSANDS
=====================
NOTES:
Projections include management budgets for 1996 and 1997 and AAA's extrapolation thereafter.
Depreciation grown at 4% after 1997
Capital Expenditures set equal to depreciation; consistent with comparative companies and subject historically
Working capital based on discussions with management, comparative companies and TGX's historical experience
As of May 31, 1996
Current Assets $3,857
Current Liabilities $2,533
------
Working Capital $1,324
Normal Working Capital
as a percent of revenues 5.0%
1995 Revenues $4,597
Normal Working Capital $230 1995 Revenues X 5%
Excess Working Capital $1,094 Actual-Normal
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Client: BOARD OF DIRECTORS - TGX CORPORATION
Property: TGX CORPORATION
FAIRNESS OPINION
Contract: 030816 17-Jul-96 03:10 PM
==================================================================================================================================
INCOME APPROACH
EQUITY VALUATION
==================================================================================================================================
Calculation Of Interim Cash Flows Table 1
($ Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------
For the Years Ending Projected
Dec. 31, 1996 - 2000 Period 1 Period 2 Period 3 Period 4 Period 5 Period 6 Period 7
Number of Months 7 12 12 12 12 12 12
------------------------------------------------------------------------------------
Projected Sales 5,037 5,306 5,571 5,850 6,142 6,449 6,772
Cost of Goods Sold
Operating Expenses 1,816 1,645 1,711 1,779 1,850 1,924 2,001
Exploration Costs 500 500 0 0 0 0 0
------------------------------------------------------------------------------------
Gross Margin 2,721 3,161 3,861 4,071 4,292 4,525 4,771
General and Administrative expenses 1,944 1,943 2,021 2,102 2,186 2,273 2,364
------------------------------------------------------------------------------------
EBDITAD 777 1,218 1,840 1,969 2,106 2,252 2,407
Depletion, Depreciation & Amortization 898 1,134 1,179 1,227 1,276 1,327 1,380
------------------------------------------------------------------------------------
EBIT (121) 84 660 743 831 925 1,027
Estimated Taxes @ 34.0% 0 0 0 0 0 0 0
------------------------------------------------------------------------------------
Debt-Free Net Income (121) 84 660 743 831 925 1,027
Add:
Depletion, Depreciation & Amortization 898 1,134 1,179 1,227 1,276 1,327 1,380
Distributions in excess of equity earnings 184 185 194 204 214 225 236
Less:
Capital Expenditures 1,000 1,500 1,179 1,227 1,276 1,327 1,380
Working Capital Requirements @ 5.0% 22 13 13 14 15 15 16
------------------------------------------------------------------------------------
Debt-Free Net Cash Flow (61) (110) 841 933 1,030 1,135 1,247
------------------------------------------------------------------------------------
Partial Period Adjustment 0.58 1.00 1.00 1.00 1.00 1.00 1.00
------------------------------------------------------------------------------------
Adjusted Debt Free Net Cash Flow (36) (110) 841 933 1,030 1,135 1,247
------------------------------------------------------------------------------------
Discount Period 0.29 1.08 2.08 3.08 4.08 5.08 6.08
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
Factor @ WACC 15.75% 0.9582 0.8535 0.7373 0.6370 0.5503 0.4754 0.4108
------------------------------------------------------------------------------------
Present Value (34) (94) 620 594 567 540 512
Present Value of Interim Cash Flows 5,564 Thousand
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------
For the Years Ending
Dec. 31, 1996 - 2000 Period 8 Period 9 Period 10 Period 11 Period 12 Period 13 Period 14
Number of Months 12 12 12 12 12 12 12
------------------------------------------------------------------------------------
Projected Sales 7,111 7,466 7,839 8,231 8,643 9,075 9,529
Cost of Goods Sold
Operating Expenses 2,081 2,165 2,251 2,341 2,435 2,532 2,634
Exploration Costs 0 0 0 0 0 0 0
------------------------------------------------------------------------------------
Gross Margin 5,029 5,301 5,588 5,890 6,208 6,543 6,895
General and Administrative expenses 2,459 2,557 2,659 2,765 2,876 2,991 3,111
------------------------------------------------------------------------------------
EBDITAD 2,571 2,745 2,929 3,125 3,332 3,551 3,784
Depletion, Depreciation & Amortization 1,435 1,492 1,552 1,614 1,679 1,746 1,816
------------------------------------------------------------------------------------
EBIT 1,136 1,252 1,377 1,510 1,653 1,806 1,969
Estimated Taxes @ 34.0% 0 0 0 0 0 0 0
------------------------------------------------------------------------------------
Debt-Free Net Income 1,136 1,252 1,377 1,510 1,653 1,806 1,969
Add:
Depletion, Depreciation & Amortization 1,435 1,492 1,552 1,614 1,679 1,746 1,816
Distributions in excess of equity earnings 248 260 273 287 301 316 332
Less:
Capital Expenditures 1,435 1,492 1,552 1,614 1,679 1,746 1,816
Working Capital Requirements @ 5.0% 17 18 19 20 21 22 23
------------------------------------------------------------------------------------
Debt-Free Net Cash Flow 1,367 1,495 1,632 1,778 1,934 2,101 2,278
------------------------------------------------------------------------------------
Partial Period Adjustment 1.00 1.00 1.00 1.00 1.00 1.00 1.00
------------------------------------------------------------------------------------
Adjusted Debt Free Net Cash Flow 1,367 1,495 1,632 1,778 1,934 2,101 2,278
------------------------------------------------------------------------------------
Discount Period 7.08 8.08 9.08 10.08 11.08 12.08 13.08
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
Factor @ WACC 15.75% 0.3549 0.3066 0.2649 0.2288 0.1977 0.1708 0.1475
------------------------------------------------------------------------------------
Present Value 485 458 432 407 382 359 336
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
--------------------------------
5-YR
For the Years Ending CAGR
Dec. 31, 1996 - 2000 Perpetuity (Per 1-5)
Number of Months 0 (b)
--------------------------------
Projected Sales 10,005 5.1%
Cost of Goods Sold
Operating Expenses 2,739 0.5%
Exploration Costs 0 NM
--------------------------------
Gross Margin 7,266 12.1%
--------------------------------
General and Administrative expenses 3,111 3.0%
--------------------------------
EBDITAD 4,155 28.3%
Depletion, Depreciation & Amortization 1,888 9.2%
--------------------------------
EBIT 2,267 ERR
Estimated Taxes @ 34.0% 771 ERR
--------------------------------
Debt-Free Net Income 1,496 ERR
Add:
Depletion, Depreciation & Amortization 1,888 9.2%
Distributions in excess of equity earnings 349 3.9%
Less:
Capital Expenditures 1,888 6.3%
Working Capital Requirements @ 5.0% 24 NM
--------------------------------
Debt-Free Net Cash Flow 1,821 ERR
Partial Period Adjustment
Adjusted Debt Free Net Cash Flow
Discount Period
Factor @ WACC 15.75%
Present Value
Present value of Interim Cash Flows 5,564 thousand
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CLIENT: BOARD OF DIRECTORS-TGX CORPORATION APPRAISAL DATE: 7/1/96
PROPERTY: TGX CORPORATION FILENAME: DCF.WK1
FAIRNESS OPINION
CONTRACT: 030816 17-JUL-96 03.10 PM
====================================================================================================================================
INCOME APPROACH
EQUITY VALUATION
====================================================================================================================================
Table 3
<S> <C> <C> <C> <C> <C> <C> <C> <C>
----------------------------------------------------------------------------------------------
Common
For the Years Ending Size
Dec. 31, 1996-2000 Projected
Number of Months Period 1 Period 2 Period 3 Period 4 Period 5 Period 6 Period 7 Period 8
----------------------------------------------------------------------------------------------
Projected Sales 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of Goods Sold
Operating Expenses 36.1% 31.0% 30.7% 30.4% 30.1% 29.8% 29.6% 29.3%
Exploration Costs 9.9% 9.4% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
----------------------------------------------------------------------------------------------
Gross Margin 54.0% 59.6% 69.3% 69.6% 69.9% 70.2% 70.4% 70.7%
General and Administrative expenses 38.6% 36.6% 36.3% 35.9% 35.6% 35.2% 34.9% 34.6%
----------------------------------------------------------------------------------------------
EBDITAD 15.4% 23.0% 33.0% 33.7% 34.3% 34.9% 35.5% 36.2%
Depletion, Depreciation & Amortization 17.8% 21.4% 21.2% 21.0% 20.8% 20.6% 20.4% 20.2%
----------------------------------------------------------------------------------------------
EBIT (2.4)% 1.6% 11.9% 12.7% 13.5% 14.3% 15.2% 16.0%
Estimated Taxes @ 34% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
----------------------------------------------------------------------------------------------
Debt-Free Net Income (2.4)% 1.6% 11.9% 12.7% 13.5% 14.3% 15.2% 16.0%
Add:
Depletion, Depreciation & Amortization 17.8% 21.4% 21.2% 21.0% 20.8% 20.6% 20.4% 20.2%
Distributions in excess of equity
earnings 3.7% 3.5% 3.5% 3.5% 3.5% 3.5% 3.5% 3.5%
Less:
Capital Expenditures 19.9% 28.3% 21.2% 21.0% 20.8% 20.6% 20.4% 20.2%
Working Capital
Requirements @ 5.0% 0.4% 0.3% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2%
----------------------------------------------------------------------------------------------
Debt-Free Cash Flow (1.2)% (2.1)% 15.1% 15.9% 16.8% 17.6% 18.4% 19.2%
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
----------------------------------------------------------------------------------------------
For the Years Ending
Dec. 31, 1996-2000
Number of Months Period 9 Period 10 Period 11 Period 12 Period 13 Period 14 Perpetuity
---------------------------------------------------------------------------------------
Projected Sales 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of Goods Sold
Operating Expenses 29.0% 28.7% 28.4% 28.2% 27.9% 27.6% 27.4%
Exploration Costs 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
---------------------------------------------------------------------------------------
Gross Margin 71.0% 71.3% 71.6% 71.8% 72.1% 72.4% 72.6%
General and Administrative expenses 34.2% 33.9% 33.6% 33.3% 33.0% 32.6% 31.1%
---------------------------------------------------------------------------------------
EBDITAD 36.8% 37.4% 38.0% 38.5% 39.1% 39.7% 41.5%
Depletion, Depreciation & Amortization 20.0% 19.8% 19.6% 19.4% 19.2% 19.1% 18.9%
---------------------------------------------------------------------------------------
EBIT 16.8% 17.6% 18.4% 19.1% 19.9% 20.7% 22.7%
Estimated Taxes @ 34% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 7.7%
---------------------------------------------------------------------------------------
Debt-Free Net Income 16.8% 17.6% 18.4% 19.1% 19.9% 20.7% 15.0%
Add:
Depletion, Depreciation & Amortization 20.0% 19.8% 19.6% 19.4% 19.2% 19.1% 18.9%
Distributions in excess of equity
earnings 3.5% 3.5% 3.5% 3.5% 3.5% 3.5% 3.5%
Less:
Capital Expenditures 20.0% 19.8% 19.6% 19.4% 19.2% 19.1% 18.9%
Working Capital
Requirements @ 5.0% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2%
---------------------------------------------------------------------------------------
Debt-Free Cash Flow 20.0% 20.8% 21.6% 22.4% 23.1% 23.9% 18.2%
</TABLE>
<PAGE>
CLIENT: BOARD OF DIRECTORS - TGX CORPORATION
PROPERTY: TGX CORPORATION
FAIRNESS OPINION
CONTRACT: 030816 17-Jul-96 11:50 PM
<TABLE>
<CAPTION>
================================================================================
GUIDELINE TRANSACTION METHOD
EQUITY VALUATION
================================================================================
VALUATION SUMMARY
- ---------------------------- ------------------------------------------------
Invested LT Concluded Value
Approach Detailed Capital Debt Equity Weights Weighted
in Table Value Value Conclusion
- ---------------------------- ------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PRICE:REVENUES 1 $15,585.0 $15,585.0 0.0% $0.0
PRICE:EBITDA 2 $ 7,065.0 $ 7,065.0 100.0% $7,065.0
------
100.0%
Indicated Equity Value: $7,065
------
ROUNDED TO: $7,100 THOUSAND
======
Latest Twelve Months and Latest Fiscal Year earnings examined due to
TGX restructuring over the past two years.
Latest Twelve Months used to estimate value.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CLIENT: BOARD OF DIRECTORS-TGX CORPORATION
PROPERTY: TGX CORPORATION
FAIRNESS OPINION 17-JUL-96 11:50 PM
CONTRACT: 030816
====================================================================================================================================
GUIDELINE TRANSACTION METHOD
INVESTED CAPITAL VALUATION
====================================================================================================================================
Table 1
PRICE-TO-REVENUE
PRICE:REVENUE MULTIPLES
-----------------------------------
5-YEAR 3-YEAR LATEST CONCLUDED
GUIDELINE TRANSACTION AVERAGE AVERAGE FISCAL YEAR WEIGHTS
- ----------------------------------- --------------------------------------- ------------
<S> <C> <C> <C> <C>
Brock Exploration Corp. 2.3 2.4 2.2 20.0%
Plains Petroleum Co. 5.7 5.4 5.4 20.0%
Red Eagle Resources Corp. 1.4 1.5 2.9 20.0%
Samson Energy Co., L.P. 3.2 2.8 3.0 20.0%
Tide West Oil Co. 2.8 1.8 1.6 20.0%
------------
100.0%
MULTIPLES TIMES WEIGHTS
---------------------------------------
5-YEAR 3-YEAR LATEST
AVERAGE AVERAGE FISCAL YEAR
----------------------------------------
Brock Exploration Corp. 0.5 0.5 0.4
Plains Petroleum Co. 1.1 1.1 1.1
Red Eagle Resources Corp. 0.3 0.3 0.6
Samson Energy Co., L.P. 0.6 0.6 0.6
Tide West Oil Co. 0.6 0.4 0.3
----------------------------------------
Sum of Weighted Multiples 3.1 2.8 3.0
Percent of Weight Used 100.0% 100.0% 100.0%
----------------------------------------
WEIGHTED MULTIPLE 3.1 2.8 3.0
FACTORED SUBJECT
INDICATED BY COMPANY INDICATED CONCLUDED WEIGHTED
EARNINGS LEVEL MULTIPLE 100.0% REVENUES VALUE WEIGHTS CONCLUSION
- ------------------------------------------------------------------------------------------------------------------------------------
5-Year Average 1991-1995 3.1 3.1 NM 0.0% $0.0
Latest Twelve Months 3.0 3.0 $5,195 $15,585.0 100.0% $15,585.0
Latest Fiscal Year-1995 3.0 3.0 $4,597 $13,791.0 0.0% $0.0
----------
Sum of Weighted Streams: $15,585.0
Percent of Total Weight Used: 100.0%
----------
INDICATED INVESTED CAPITAL: $15,585.0
==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CLIENT: BOARD OF DIRECTORS-TGX CORPORATION
PROPERTY: TGX CORPORATION
FAIRNESS OPINION 17-JUL-96 11:50 PM
CONTRACT: 030816
====================================================================================================================================
GUIDELINE TRANSACTION METHOD
INVESTED CAPITAL VALUATION
====================================================================================================================================
Table 2
PRICE-TO-EBDITA
PRICE:EBDITA MULTIPLES
-----------------------------------------------------------
5-YEAR 3-YEAR LATEST 0 0 CONCLUDED
GUIDELINE TRANSACTION AVERAGE AVERAGE FISCAL YEAR 0 0 WEIGHTS
- ----------------------------------- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Brock Exploration Corp. 4.3 20.0%
Plains Petroleum Co. 27.5 20.0%
Red Eagle Resources Corp. 3.8 20.0%
Samson Energy Co., L.P. 25.3 20.0%
Tide West Oil Co. 14.0 20.0%
------------
100.0%
MULTIPLES TIMES WEIGHTS
-----------------------------------------------------------
5-YEAR 3-YEAR LATEST 0 0
AVERAGE AVERAGE FISCAL YEAR 0 0
-----------------------------------------------------------
Brock Exploration Corp. 0.0 0.0 0.9 0.0 0.0
Plains Petroleum Co. 0.0 0.0 5.5 0.0 0.0
Red Eagle Resources Corp. 0.0 0.0 0.8 0.0 0.0
Samson Energy Co., L.P. 0.0 0.0 5.1 0.0 0.0
Tide West Oil Co. 0.0 0.0 2.8 0.0 0.0
-----------------------------------------------------------
Sum of Weighted Multiples 0.0 0.0 15.0 0.0 0.0
Percent of Weight Used 0.0% 0.0% 100.0% 0.0 0.0
-----------------------------------------------------------
WEIGHTED MULTIPLE 0.0 0.0 15.0 0.0 0.0
FACTORED SUBJECT
INDICATED BY COMPANY INDICATED CONCLUDED WEIGHTED
EARNINGS LEVEL MULTIPLE 100.0% EARNINGS VALUE WEIGHTS CONCLUSION
- ------------------------------------------------------------------------------------------------------------------------------------
5-Year Average 1991-1995 0.0 0.0 NM 0.0% $0.0
Latest Twelve Months 15.0 15.0 $471.0 $7,065.0 100.0% $7,065.0
Latest Fiscal Year-1995 15.0 15.0 $120.0 $1,800.0 0.0% $0.0
----------
Sum of Weighted Streams: $7,065.0
Percent of Total Weight Used: 100.0%
----------
INDICATED INVESTED CAPITAL: $7,065.0
==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TGX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Thousands of Dollars)
<S> <C> <C> <C>
May 31, 1996 Fair Market Liquidation
(Unaudited) Value Estimate
- -----------------------------------------------------------------------------------------------------------------------------------
Assets
Current Assets
Cash 2,531 2,531 2,531
Accounts Receivables Net (a) 1,144 915 572
Prepaid Expenses (b) 182 55 18
Total Current Assets 3,857 3,501 3,121
Property, Plant & Equipment
Oil & Natural Gas Properties (c) 11,632
Gathering System & Other (d) 245
Total Property, Plant & Equipment 11,877
Less: Accumulated Depletion, 4,525
Depreciation and Amortization
Net Property, Plant and Equipment (e) 7,352 8,150 5,705
Other Assets
Investment in Comite Field Plant Venture (f) 725 1,394 975
Other (g) 30 0 0
Total Other Assets 755 1,394 975
Total Assets 11,964 13,045 9,801
- ------------------------------------------------------------------------------------------------------------------------------------
1
</TABLE>
<PAGE>
TGX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited - In Thousands of Dollars)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
May 31, 1996 Fair Market Liquidation
Value Estimate
- -----------------------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current Liabilities
Accounts Payable 98 98 98
Undistributed Oil & Gas Revenue (h) 1,329 1,329 1,329
Other Liabilities (i) 1,106 873 873
Total Current Liabilities 2,533 2,300 2,300
Long-term Debt 0 0 0
Total Liabilities 2,533 2,300 2,300
Senior Preferred Stock (j) 69,500 134,721 134,721
Stockholders' Equity
Old Preferred Stock 469
Common Stock 290
Additional Paid-in Capital 1,523
Retained Earnings (Deficit) (62,351)
Total Stockholders' Equity (60,069) (123,976) (127,220)
Total Liabilities and Stockholders' Equity 11,964 13,045 9,801
- ------------------------------------------------------------------------------------------------------------------------------------
2
</TABLE>
<PAGE>
TGX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited - In Thousands of Dollars)
FOOTNOTES:
a. Amount includes a $320k allowance for doubtfull accounts; management
believes that the Net amount is collectable. FMV based on 80% realized
value and Liquidation based on 50% realized value.
b. Includes Prepaid Rent, Prepaid Insurance, Prepaid Drilling and
Miscellaneous; management believes that except for Prepaid Drilling (sunk
cost) all other items have value. FMV based on 30% realized value and
Liquidation based on 10% realized value.
c. Includes Comite Field Gathering System with a Fresh Start Value of $594k
(fully amortized), Oil and Gas Reserves and Operating Assets.
d. Includes Furniture and Fixtures and Roger Mills Gathering System (Fresh
Start Value of $60k).
e. Represents AAA's estimated market value for reserves of $7,321k and
management's estimated value for Gathering Systems of $829k. Furniture and
Equipment is assumed to be covered in rounding. Liquidation value based on
70% of market value.
f. Management's estimate of Comite Plant Equity Interest. Liquidation value
based on 70% of market value.
g. Unamortized portion of Bank One loan facility costs
h. Includes Revenue clearing, Post sale revenues, Production taxes, Oil and
Gas Suspense amounts, Gas balancing, current revenue payable, accrued
liability for writeoffs, and undeliverable revenue checks. These are all
true liabilities.
i. Includes Louisiana franchise/severance taxes, accrued liabilities, Oil and
gas suspense amounts and Production taxes. The latter two are pre-petition
claims that have not been pursued and are expected to be writing-down;
legal opinion has not been given on the matter; true liability is estimated
at 10% of face amount ($330k). Accrued liabilities includes $100k for
taxes related to the NFG settlement. Management has revised the amount to
$164k.
j. Current liability including redemption amount and accrued dividends is
$134,721k; redeemable on January 21, 2002, if funds are available.
3
<PAGE>
<TABLE>
<CAPTION>
CLIENT: BOARD OF DIRECTORS OF TGX
PROPERTY: TGX-FAIRNESS OPINION DISCOUNT RATE DEVELOPMENT
-------------------------
VALUATION DATE=JULY 1, 1996 PERCENT IN
CAPITAL WEIGHTED
COST STRUCTURE COST
---------------------------------------
<S> <C> <C> <C>
Equity (CAPM) 23.96% 59.8% 14.3%
Debt (Tax-effected Baa Bonds) 5.52% 40.2% 2.2%
Weighted Average Cost of
Capital= 100.0% 16.5%
CONCLUDED RATE 16.50%
========
- ------------------------------------------------------------------------------------------------------------------------------------
COMPARABLE COMPANIES
- --------------------
Shares Market Onesoure
LTD Otsd Price Value Database
(mm,s) % (mm,s) per share Equity % Total
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AGRAXAS PETROLEUM CORP AXAS 29.6 39.7% 6.7 6.71 45.0 60.3% 74.6 (0.60)
AMERAC ENERGY CORP 3AENC 16.9 62.1% 24.0 0.43 10.3 37.9% 27.2 (2.60)
BASIC EARTH SCIENCE SYSTEMS 3BSIC 0.8 44.5% 16.6 0.06 1.0 55.5% 1.8 1.00
HALLADOR PETROLEUM CO. 3HPCO 6.7 7.7% 71.0 1.13 80.2 92.3% 86.9 (1.60)
MIDDLE BAY OIL CO., INC. MBOC 4.8 57.7% 1.3 2.71 3.5 42.3% 8.3 1.80
MIDLAND RESOURCES INC. MRIX 5.8 26.9% 4.4 3.58 15.8 73.1% 21.6 (0.50)
NATIONAL ENERGY GROUP, INC. NEGX 28.8 42.9% 12.1 3.17 38.4 57.1% 67.2 0.00
Average 40.2% 59.8% (0.36)
Median 42.9% 57.1%
- ------------------------------------------------------------------------------------------------------------------------------------
COST OF EQUITY: BUILT-UP METHOD
- --------------- ---------------
Rates derived from 1996 Ibbotson Study of annual returns
Arithmetic means (1926-1995)
Risk Free Rate of Return 7.08%
Long Term Treasury Bonds
Equity Risk Premium na
Small Stock Premium 16.88%
Beta= na
Additional Equity Risk 0.00%
Cost of Equity 23.96%
============
- -----------------------------------------------------------------------------
COST OF DEBT:
- -------------
Corporate Baa bonds 8.36%
Additional Risk 0.00%
Tax Rate 34.0% effective rates are low for comparatives and TGX historically; depletion
contributes to the lower rate, federal rate is used as a proxy for an
effective rate
Tax-effected Cost of Debt 5.52%
============
- -----------------------------------------------------------------------------
FEDERAL RESERVE OF ST LOUIS SELECTED YIELDS AND INTEREST RATES:
DATE: June 28, 1996
Instrument Rate
- ---------- ----
Prime Rate 8.25%
1 year Treasury Bills 5.47%
Intermediate Treasury Notes 6.86%
Long Term Treasury Bonds 7.08%
Corp. Aaa 7.66%
Corp. Baa 8.36%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Client: BOARD OF DIRECTORS - TGX CORPORATION
Property: TGX CORPORATION
FAIRNESS OPINION
Contract: 030816
<TABLE>
<CAPTION>
Net Operating Loss Analysis
---------------------------
(Thousands of Dollars)
<S> <C>
Total amount of NOL Available to be used in 1995 $19,530
Built in Gain Exclusion - expected to expire in the early part of 1997 8,181
-------
Remaining NOL Available 11,349
Annual Limitation due to change in control from Bankruptcy
Value of TGX Corporation at change of ownership $19,254
Long-term tax exempt rate 6.39%
-------
Annual Limitation $ 1,230
</TABLE>
<TABLE>
<CAPTION>
For Years Ending
Dec. 31, 1996 - 2000 Projected
Number of Months Period 1 Period 2 Period 3 Period 4 Period 5 Period 6 Period 7
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
EBIT (121) 84 660 743 831 925 1,027
NOL available beginning of period 11,349
NOL utilized 0 84 660 743 831 925 1,027
NOL available end of period 11,349 11,265 10,604 9,862 9,031 8,106 7,079
Tax rate 34.00%
Tax benefit from NOL 0 29 225 252 282 315 349
Present Value Factor 0.9582 0.8535 0.7373 0.6370 0.5503 0.4754 0.4108
Present Value 0 24 166 161 155 150 143
Total Present Value $ 1,413
</TABLE>
<TABLE>
<CAPTION>
For Years Ending
Dec. 31, 1996 - 2000 Projected
Number of Months Period 8 Period 9 Period 10 Period 11 Period 12 Period 13 Period 14
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
EBIT 1,136 1,252 1,377 1,510 1,653 1,806 1,969
NOL utilized 1,136 1,230 1,230 1,230 1,230 1,022 0
NOL available end of period 5,943 4,713 3,482 2,252 1,022 (0) (0)
Tax benefit from NOL 386 418 418 418 418 347 0
Present Value Factor 0.3549 0.3066 0.2649 0.2288 0.1977 0.1708 0.1475
Present Value 137 128 111 96 83 59 0
Note: Alternative Minimum Tax would reduce benefit of NOL; present value of taxes paid today for AMT would be an offset for
future taxes payable, so it is really a present value offset.
For the analysis AMT were not incorporated, this will only make the analysis more conservative, for the fairness opinion.
</TABLE>
<PAGE>
Client: BOARD OF DIRECTORS - TGX CORPORATION
Property: TGX CORPORATION
FAIRNESS OPINION
Contract: 030816
WORKING CAPITAL ANALYSIS
------------------------
Working capital based on discussions with management, comparative companies and
TGX's historical experience
As of May 31, 1996
Current Assets $3,857
Current Liabilities $2,533
------
Working Capital $1,324
Normal Working Capital
as a percent of revenues 5.0%
1995 Revenues $4,597
Normal Working Capital $230 1995 Revenues X 5%
Excess Working Capital $1,094 Actual - Normal
Round $1,100
