CROSS TIMBERS OIL CO, SC 13E4, 1996-08-12

CROSS TIMBERS OIL CO
SC 13E4, 1996-08-12
CRUDE PETROLEUM & NATURAL GAS

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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SCHEDULE 13E-4

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ISSUER TENDER OFFER STATEMENT
(PURSUANT TO SECTION 13(E)(1) OF
THE SECURITIES EXCHANGE ACT OF 1934)

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CROSS TIMBERS OIL COMPANY
(NAME OF ISSUER)

CROSS TIMBERS OIL COMPANY
(NAME OF PERSON FILING STATEMENT)

COMMON STOCK, PAR VALUE $.01 227573 10 2
(TITLE OF CLASS OF SECURITIES) (CUSIP NUMBER OF CLASS OF
SECURITIES)

LOUIS G. BALDWIN COPY TO:
SENIOR VICE PRESIDENT AND CHIEF THOMAS W. BRIGGS, ESQ.
FINANCIAL OFFICER KELLY, HART & HALLMAN, P.C.
CROSS TIMBERS OIL COMPANY 201 MAIN STREET, SUITE 2500
810 HOUSTON STREET FORT WORTH, TEXAS 76102
FORT WORTH, TEXAS 76102 (817) 332-2500
(817) 870-2800
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSONS
AUTHORIZED TO RECEIVE NOTICES AND COMMUNICATIONS
ON BEHALF OF THE PERSON FILING STATEMENT)

AUGUST 12, 1996
(DATE TENDER OFFER FIRST PUBLISHED, SENT OR GIVEN TO SECURITY HOLDERS)

CALCULATION OF FILING FEE

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AMOUNT
TRANSACTION VALUATION* OF FILING FEE
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<S> <C>
$58,953,125 $11,791
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</TABLE>
* For purposes of calculating the fee only. The market value of the Common
Stock proposed to be acquired was established by multiplying the average of
21 1/2 and 21 3/8 (the high and low sale prices on August 8, 1996) by
2,750,000, the maximum number of shares of Common Stock which the Company
has offered to acquire. The amount of the filing fee, calculated in
accordance with Regulation 240.0-11 of the Securities Exchange Act of 1934,
equals 1/50 of one percent of the value of the securities to be acquired.

[_] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the Form
or Schedule and the date of its filing.

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ITEM 1. SECURITY AND ISSUER.

Preliminary Note: References in this Statement to the "Offering Circular" are
to the Offering Circular dated August 12, 1996, filed herewith as Exhibit 99.1
and made a part hereof.

(a) The name of the issuer is Cross Timbers Oil Company, a Delaware
corporation (the "Issuer"), and the address of its principal executive office
is 810 Houston Street, Fort Worth, Texas 76102.

(b) As of August 1, 1996, the Issuer had 17,810,730 shares of its common
stock, par value $.01 per share (the "Common Stock"), outstanding. The Issuer
is offering to purchase up to 2,750,000 shares of its outstanding Common Stock
by exchanging its Series A Convertible Preferred Stock, par value $.01 per
share (the "Preferred Stock"), for each share of Common Stock validly tendered,
upon the terms and subject to the conditions set forth in the Offering Circular
and related Letter of Transmittal, a copy of which is filed herewith as Exhibit
99.2 and incorporated by reference herein. The information set forth in the
Offering Circular on the Cover Page and under the captions "Summary," "The
Offer--Terms of the Offer; Number of Shares of Common Stock; Proration," and
"Description of Series A Preferred Stock and Common Stock," is hereby
incorporated by reference herein. No Common Stock is to be purchased from any
officer, director or affiliate of the Issuer.

(c) The information set forth in the Offering Circular under the captions
"Price Range of Common Stock and Dividend Policy," "The Offer--Effect of the
Offer on the Market for the Common Stock; NYSE Listing; Registration Under the
Exchange Act" and "The Offer--Listing of the Series A Preferred Stock" is
hereby incorporated by reference herein.

(d) Not Applicable.

ITEM 2. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.

(a) The information set forth in the Offering Circular on the Cover Page and
under the captions "The Offer--Terms of the Offer; Number of Shares of Common
Stock; Proration" and "Description of Series A Preferred Stock and Common
Stock" is hereby incorporated by reference herein.

(b) Not Applicable.

ITEM 3. PURPOSE OF THE TENDER OFFER AND PLANS AND PROPOSALS OF THE ISSUER OR
AFFILIATE.

The information set forth in the Offering Circular under the caption "Purpose
of the Offer" in the Offering Circular is incorporated herein by reference.

Other than as described in this Item, the Issuer presently has no plans or
proposals which relate to or would result in any of the matters listed in Items
3(a) through 3(j) of Schedule 13E-4. Reference is made to the information under
the captions "The Offer--Effect of the Offer on the Market for the Common
Stock; NYSE Listing; Registration Under the Exchange Act," "The Offer--Listing
of the Series A Preferred Stock" and "Description of Series A Preferred Stock
and Common Stock--Repurchase Program" in the Offering Circular, which
information is hereby incorporated by reference herein.

ITEM 4. INTEREST IN SECURITIES OF THE ISSUER.

Except as set forth in the Offering Circular under the caption "Description
of Series A Preferred Stock and Common Stock--Repurchase Program," which
information is incorporated herein by reference, neither the Issuer nor, to the
best of its knowledge, any of the other persons covered by Item 4 of Schedule
13E-4 has effected any transaction in the Common Stock during the 40 business
days preceding the date of the Offering Circular.

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ITEM. 5. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO THE ISSUER'S SECURITIES.

Except as set forth in the Offering Circular under the caption "Purpose of
the Offer," which is incorporated herein by reference, there are no contracts,
arrangements, understandings or relationships relating, directly or indirectly,
to the Offer (whether or not legally enforceable) between the Issuer, any of
its executive officers or directors, and any person, with respect to any
securities of the Issuer (including, but not limited to, any contract,
arrangement, understanding or relationship concerning the transfer or the
voting of any such securities, joint ventures, loan or option arrangements,
puts or calls, guaranties of loans, guaranties against loss, or the giving or
withholding of proxies, consents or authorizations).

ITEM 6. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.

As stated in the Offering Circular, the Issuer will not make any payments to
brokers, dealers or other persons for soliciting or recommending acceptances of
the Offer.

The information appearing in the Offering Circular under the captions "The
Offer--Exchange Agent," "The Offer--Information Agent," "The Offer--Financial
Advisor" and "The Offer--Solicitation of Tenders; Expenses" is incorporated
herein by reference.

ITEM. 7. FINANCIAL INFORMATION.

(a)

(1) Information required by this item is included on pages 24 through 43,
inclusive, of the Issuer's Annual Report on Form 10-K for the year ended
December 31, 1995. Such information, which is filed herewith, is
incorporated herein by reference.

(2) Information required by this item is included on pages 3 through 8,
inclusive, of the Issuer's Report on Form 10-Q for the Quarter Ended March
31, 1996 and on pages 3 through 8, inclusive, of the Issuer's Report on
Form 10-Q for the Quarter Ended June 30, 1996. Such information, which is
filed herewith, is incorporated herein by reference.

(3) Information required by this item is included on page 7 of the
Offering Circular and is incorporated herein by reference.

(4) Information required by this item is included on page 7 of the
Offering Circular and is incorporated herein by reference.

(b)

(1) Not Applicable.

(2) Information required by this item is included on page 7 of the
Offering Circular and is incorporated herein by reference.

(3) Information required by this item is included on page 7 of the
Offering Circular and is incorporated herein by reference.

ITEM 8. ADDITIONAL INFORMATION.

(a) Not Applicable.

(b) Not Applicable.

(c) The information appearing in the Offering Circular under the caption "The
Offer--Effect of the Offer on the Market for the Common Stock; NYSE Listing;
Registration Under the Exchange Act" is incorporated herein by reference.

(d) Not Applicable.

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(e) The Offering Circular and the Letter of Transmittal, each of which is
filed as an exhibit hereto, are incorporated herein in their entirety.

ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.

8. --Opinion of Kelly, Hart & Hallman, P.C., addressed to the Issuer

99.1 --Form of Offering Circular dated August 12, 1996

99.2 --Form of Letter of Transmittal

99.3 --Form of Letter to Stockholders from the Chairman and Chief Executive
Officer of the Issuer

99.4 --Form of Letter to Securities Dealers, Commercial Banks, Trust
Companies and Other Nominees

99.5 --Form of Letter to Clients

99.6 --Form of Notice of Guaranteed Delivery

99.7 --Press release issued August 12, 1996

99.8 --Form of Tombstone Advertisement

99.9 --Form of Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9

99.10 --Pages 24 through 43, inclusive, of the Issuer's Annual Report on Form
10-K for the year ended December 31, 1995

99.11 --Pages 3 through 8, inclusive, of the Issuer's Report on Form 10-Q for
the Quarter Ended March 31, 1996

99.12 --Pages 3 through 8, inclusive, of the Issuer's Report on Form 10-Q for
the Quarter Ended June 30, 1996.

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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.

CROSS TIMBERS OIL COMPANY
August 12, 1996
/s/ Louis G. Baldwin
By: _________________________________
Louis G. Baldwin
Senior Vice President and Chief
Financial Officer

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EXHIBIT 8

KELLY, HART & HALLMAN
201 MAIN STREET, SUITE 2500
FORT WORTH, TEXAS 76102

August 12, 1996

Cross Timbers Oil Company
810 Houston Street, Suite 2000
Fort Worth, Texas 76102

Re: Cross Timbers Oil Company Offer to Exchange Up to 2,750,000 Shares of
its Common Stock for Shares of its Series A Convertible Preferred
Stock

Gentlemen:

You have requested this tax opinion with respect to the accuracy of
disclosures relating to certain of the anticipated U.S. federal income tax
consequences in connection with the offer by Cross Timbers Oil Company, a
Delaware corporation (the "Company"), upon the terms and subject to the
conditions set forth in the Offering Circular, to issue shares of its Series A
Convertible Preferred Stock, par value $.01 per share (the "Series A Preferred
Stock"), for up to 2,750,000 shares of its Common Stock, par value $.01 per
share (the "Common Stock"), validly tendered and not properly withdrawn, equal
to the Exchange Ratio (as defined in the Offering Circular), all as described in
the Offering Circular of the Company dated August 12, 1996.

Our opinion is based on and conditioned upon the initial and continuing
accuracy of the factual matters set forth in the Offering Circular.

Based upon our review of the Offering Circular it is our opinion that the
discussion set forth in the Offering Circular under the heading "Certain Federal
Income Tax Consequences" accurately sets forth the material federal income tax
consequences of (i) the exchange of shares of Common Stock for shares of Series
A Preferred Stock pursuant to the Offering Circular, and (ii) the ownership and
disposition of shares of the Series A Preferred Stock and Common Stock. Further,
based upon certain representations provided to us by the Company and upon which
we specifically relied on in rendering this opinion, we have concluded that (a)
the exchange of shares of Common Stock for shares of Series A Preferred Stock
pursuant to the Offering Circular qualifies as a tax-free (except for cash
received in lieu of fractional shares) reorganization within the meaning of
Section 368(a)(1)(E) of the Internal Revenue Code of 1986, as amended (the
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August 12, 1996
Page 2

"Code"), and (b) under applicable U.S. Treasury Department regulations, the
shares of Series A Preferred Stock received by a stockholder pursuant to the
Offering Circular should not be "Section 306 stock" if the stockholder would
have met any of the tests of Section 302(b) of the Code (discussed in the
Offering Circular under "Certain Federal Income Tax Consequences -- The Section
302(b) Tests") had the Company distributed cash instead of shares of Series A
Preferred Stock.

Our opinion is based upon various statutory provisions, regulations
promulgated or proposed thereunder and interpretations thereof by the Internal
Revenue Service and the courts having jurisdiction over such matters, as of the
present date. All of the above is subject to change with prospective or
retroactive effect, and our opinion may be rendered inaccurate or inapplicable
by any such change.

We hereby consent to the filing of this opinion as an exhibit to the
Company's Schedule 13E-4 and to all references to us in the Offering Circular as
filed herewith or as subsequently amended or supplemented.

Respectfully submitted,

/s/ Kelly, Hart & Hallman

KELLY, HART & HALLMAN
(a Professional Corporation)

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EXHIBIT 99.1
OFFERING CIRCULAR

CROSS TIMBERS OIL COMPANY

[LOGO] OFFER TO EXCHANGE

SHARES OF ITS

SERIES A CONVERTIBLE PREFERRED STOCK

FOR

UP TO 2,750,000 SHARES OF ITS COMMON STOCK

THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00
MIDNIGHT, NEW YORK CITY TIME, ON SEPTEMBER 9, 1996, UNLESS THE OFFER IS
EXTENDED (THE "EXPIRATION DATE"). COMMON STOCK TENDERED PURSUANT TO THE
OFFER MAY BE WITHDRAWN AT ANY TIME PRIOR TO THE EXPIRATION DATE.

Cross Timbers Oil Company, a Delaware corporation (the "Company"), hereby
offers, upon the terms and subject to the conditions set forth herein and in
the related Letter of Transmittal (collectively, the "Offer"), to issue shares
of its Series A Convertible Preferred Stock, par value $.01 per share (the
"Series A Preferred Stock"), for up to 2,750,000 shares of its Common Stock,
par value $.01 per share (the "Common Stock"), validly tendered on or prior to
the Expiration Date and not properly withdrawn. Each share of Common Stock
validly tendered on or prior to the Expiration Date and not properly withdrawn
will be entitled to receive .86 shares of Series A Preferred Stock.

THE OFFER IS NOT CONDITIONED UPON ANY MINIMUM NUMBER OF SHARES OF COMMON
STOCK BEING TENDERED.

The Series A Preferred Stock will have a liquidation preference of $25.00
per share, and will be entitled to receive, when, as and if declared from
funds legally available therefor, cumulative cash dividends at an annual rate
of $1.5625 per share payable quarterly in arrears. The Series A Preferred
Stock will have no stated maturity and no sinking fund. The Series A Preferred
Stock is not redeemable through October 15, 1999. It may be redeemed, in whole
or in part, by the Company at $26.09 per share, if redeemed on or before
October 15, 2000 (but only under certain circumstances), and thereafter
unconditionally at prices declining ratably annually to $25.00 per share after
October 15, 2006, plus dividends accrued and unpaid to the redemption date.
The Series A Preferred Stock is convertible at the option of the holder at any
time, unless previously redeemed, into shares of Common Stock at a rate of
.961538 shares of Common Stock for each share of Series A Preferred Stock,
subject to adjustment in certain events. See "Description of Series A
Preferred Stock and Common Stock--Series A Preferred Stock."

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The date of this Offering Circular is August 12, 1996.
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IMPORTANT

Any stockholder desiring to tender all or any portion of his shares of
Common Stock should either (1) complete and sign the Letter of Transmittal or
a facsimile thereof in accordance with the instructions in the Letter of
Transmittal and mail or deliver it together with his stock certificate(s) and
any other required documents to the Exchange Agent or tender such shares of
Common Stock pursuant to the procedure for book-entry transfer set forth in
this Offering Circular under "The Offer--How to Tender" or (2) request his
broker, dealer, commercial bank, trust company or other nominee to effect the
transaction for him. A stockholder whose shares of Common Stock are registered
in the name of a broker, dealer, commercial bank, trust company or other
nominee must contact such broker, dealer, commercial bank, trust company or
other nominee to tender such shares of Common Stock. A stockholder who desires
to tender shares of Common Stock and whose certificates for such shares of
Common Stock are not immediately available, or who cannot comply with the
procedure for book-entry transfer on a timely basis, may tender his shares of
Common Stock by following the procedure for guaranteed delivery set forth in
this Offering Circular under "The Offer--How to Tender."

Questions and requests for assistance may be directed to the Exchange Agent
or the Information Agent at their respective addresses and telephone numbers
set forth on the back cover of this Offering Circular. Requests for additional
copies of this Offering Circular and the Letter of Transmittal may be directed
to the Exchange Agent, the Information Agent or to brokers, dealers,
commercial banks or trust companies.

The Offer is being made by the Company in reliance on the exemption from the
requirements of the Securities Act of 1933, as amended (the "Securities Act"),
afforded by Section 3(a)(9) thereof. The Company will not pay any commission
or other remuneration to any broker, dealer, salesman or other person for
soliciting tenders of the Common Stock. The Exchange Agent and the Information
Agent will assist stockholders in obtaining copies of the materials relating
to the Offer. Regular employees of the Company may solicit tenders from
holders of Common Stock, but they will not receive additional compensation
therefor.

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THE OFFER OTHER THAN THOSE CONTAINED IN
THIS OFFERING CIRCULAR. IF GIVEN OR MADE, THE INFORMATION OR REPRESENTATIONS
SHOULD NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THE
DELIVERY OF THIS OFFERING CIRCULAR SHALL NOT, UNDER ANY CIRCUMSTANCES, IMPLY
THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.

NEITHER THIS TRANSACTION NOR THE SECURITIES OFFERED HEREBY HAVE BEEN
APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE
COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF THIS TRANSACTION OR UPON THE
ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY
REPRESENTATION TO THE CONTRARY IS UNLAWFUL.

THIS OFFERING CIRCULAR DOES NOT CONSTITUTE AN OFFER TO ANY PERSON IN ANY
JURISDICTION IN WHICH THAT OFFER WOULD BE UNLAWFUL, AND THE COMPANY WILL NOT
ACCEPT TENDERS FROM STOCKHOLDERS IN ANY JURISDICTION IN WHICH SUCH ACCEPTANCE
WOULD NOT BE IN COMPLIANCE WITH THE SECURITIES OR BLUE SKY LAWS OF SUCH
JURISDICTION.
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TABLE OF CONTENTS

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PAGE
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Available Information..................................................... 1
Incorporation of Certain Documents by Reference........................... 1
Summary................................................................... 2
The Company............................................................... 5
Price Range of Common Stock and Dividend Policy........................... 5
Summary Financial Information............................................. 7
Capitalization............................................................ 8
Purpose of the Offer...................................................... 9
The Offer................................................................. 9
Terms of the Offer; Number of Shares of Common Stock; Proration......... 9
Effect of the Offer on the Market for the Common Stock; NYSE Listing;
Registration Under the Exchange Act.................................... 10
Listing of the Series A Preferred Stock................................. 10
Expiration and Extension of Tender Period; Termination; Amendment....... 11
Certain Conditions of the Offer......................................... 11
Cash in Lieu of Fractional Shares of Series A Preferred Stock........... 12
How to Tender........................................................... 12
Terms and Conditions of the Letter of Transmittal....................... 15
Withdrawal Rights....................................................... 15
Acceptance of Tenders................................................... 16
Exchange Agent.......................................................... 16
Information Agent....................................................... 16
Financial Advisor....................................................... 17
Solicitation of Tenders; Expenses....................................... 17
Certain Federal Income Tax Consequences................................... 18
Exchange of Shares of Common Stock for Shares of Series A Preferred
Stock.................................................................. 18
Ownership and Disposition of the Shares of Series A Preferred Stock and
Common Stock........................................................... 20
Description of Series A Preferred Stock and Common Stock ................. 23
Authorized Capital Stock................................................ 23
Series A Preferred Stock................................................ 23
Common Stock............................................................ 26
Certain Anti-Takeover Provisions........................................ 26
Repurchase Program...................................................... 28
Certain Purchases of Common Stock......................................... S-1
</TABLE>
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AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended ("Exchange Act"), and in accordance therewith
files reports, proxy statements and other information with the Securities and
Exchange Commission (the "Commission"). Such reports, proxy statements and
other information filed by the Company can be inspected and copied at the
public reference facilities of the Commission, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, as well as the following Regional
Offices: 7 World Trade Center, New York, New York 10048; and Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-
2511. Copies can be obtained by mail at prescribed rates. Requests for copies
should be directed to the Commission's Public Reference Section, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. In addition, reports,
proxy statements and other information concerning the Company can be inspected
and copied at the offices of the New York Stock Exchange, Inc., 20 Broad
Street, New York, New York 10005.

The Company has filed with the Commission an Issuer Tender Offer Statement
on Schedule 13E-4 under the Exchange Act furnishing certain additional
information with respect to the Offer. Such Schedule 13E-4 and any amendments
thereto, including exhibits (collectively, the "Schedule 13E-4"), may be
inspected without charge at the offices of the Commission, the addresses of
which are set forth above, and copies may be obtained therefrom at prescribed
rates.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents heretofore filed by the Company with the Commission
pursuant to the Exchange Act are incorporated herein by reference:

(a) The Company's Annual Report on Form 10-K for the year ended December
31, 1995;

(b) The Company's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1996 and June 30, 1996;

(d) The description of the Company's Common Stock contained in the
Company's Registration Statement on Form 8-A dated April 8, 1993, as
amended by Amendment No. 1 thereto dated June 15, 1995; and

(e) The description of the Company's Series A Preferred Stock contained
in the Company's Registration Statement on Form 8-A dated August 12, 1996.

All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Offering Circular and
prior to the termination of the Offer shall be deemed to be incorporated by
reference into this Offering Circular and to be a part hereof from the date of
filing of such documents. Any statement contained in a document incorporated
or deemed to be incorporated by reference herein shall be deemed to be
modified or superseded for purposes of this Offering Circular to the extent
that a statement contained herein or in any other subsequently filed document
which also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of
this Offering Circular.

ANY PERSON RECEIVING A COPY OF THIS OFFERING CIRCULAR MAY OBTAIN WITHOUT
CHARGE, UPON WRITTEN OR ORAL REQUEST, A COPY OF ANY OF THE DOCUMENTS
INCORPORATED BY A REFERENCE HEREIN, EXCEPT FOR THE EXHIBITS TO SUCH DOCUMENTS
(UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE INTO SUCH
DOCUMENTS). REQUESTS SHOULD BE ADDRESSED TO CROSS TIMBERS OIL COMPANY, 810
HOUSTON STREET, SUITE 2000, FORT WORTH, TEXAS 76102, ATTENTION: INVESTOR
RELATIONS, (817) 870-2800.

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SUMMARY

The following is a summary of certain items of the Offer and certain of the
other information contained in this Offering Circular. It is not intended to be
complete and is qualified in its entirety by the more detailed information
contained elsewhere, or incorporated by reference, in this Offering Circular.

THE COMPANY

The Company is engaged in the acquisition, exploitation and development of
producing oil and gas properties and the marketing and transportation of oil
and natural gas. The primary components of the Company's business strategy are
acquiring operated oil and gas properties, increasing production and reserves
through careful management of operations and through exploitation and
development, and acquiring facilities associated with the Company's properties
to gather, process, transport and market hydrocarbons. The Company's oil and
gas operations are concentrated in the Hugoton Field of Kansas and Oklahoma,
the Permian Basin of West Texas and New Mexico, in major producing basins in
western Oklahoma and in the Green River Basin of Wyoming.

PURPOSE OF THE OFFER

The Company is undertaking the Offer in order to allow each stockholder the
opportunity to restructure his investment in the Company in line with his
personal investment objectives. By means of the Offer, the Company is giving
stockholders the choice of (i) liquidating (in whole or in part depending on
the number of shares of Common Stock tendered) their investment in the Common
Stock while maintaining an investment in the Company as holders of the Series A
Preferred Stock (and thus realizing higher current income from dividends than
is expected to be paid on the Common Stock), (ii) retaining all their shares of
Common Stock, thus increasing such stockholders' proportionate interest in the
common equity of the Company following completion of the Offer, or (iii) some
combination of (i) and (ii).

THE OFFER

Exchange Ratio.............. .86 shares of Series A Preferred Stock for each
share of Common Stock (the ""Exchange Ratio'').

Expiration Date............. 12:00 midnight, New York City time, on September
9, 1996, unless extended.

Number of Shares............ Subject to the terms and conditions of the Offer,
up to 2,750,000 shares of Common Stock will be
accepted if duly tendered and not withdrawn prior
to the Expiration Date. The Offer is not condi-
tioned upon any minimum number of shares being
tendered.

Series A Preferred Stock.... The Series A Preferred Stock will bear cumulative
annual dividends of $1.5625 per share, payable
quarterly out of funds legally available therefor
on each January 15, April 15, July 15 and October
15, commencing January 15, 1997, when, as and if
declared by the Company's Board of Directors.
Dividends will accrue from the date of issuance,
and the Series A Preferred Stock will have a liq-
uidation preference of $25.00 per share, plus ac-
crued and unpaid dividends. Except as otherwise
required by law, the holder of each share of Se-
ries A Preferred Stock will be entitled to the
number of votes equal to the number of shares of
Common Stock into which such share of Series A
Preferred Stock could be converted at the record

2
<PAGE>

date for determination of the stockholders enti-
tled to vote on such matters, such votes to be
counted together with all other shares of capital
stock of the Company having general voting power
and not separately as a class or series. Each
share of Series A Preferred Stock will be con-
vertible at any time, unless previously redeemed,
into Common Stock at a rate of .961538 shares of
Common Stock for each share of Series A Preferred
Stock, subject to adjustment in certain events.
The Series A Preferred Stock is not redeemable
through October 15, 1999. Thereafter, until Octo-
ber 15, 2000, the Series A Preferred Stock may be
redeemed only if the closing price per share of
Common Stock equals 150% of the then prevailing
conversion price ($25.00 divided by the conver-
sion ratio) per share for a total of 20 trading
days during any period of 30 successive trading
days ending within three days before the notice
of redemption. The redemption price for the 12
months ending October 15, 2000 is $26.09 per
share, and declines ratably annually to $25.00
per share after October 15, 2006, in each case
plus accrued and unpaid dividends.

Common Stock................ There are 100,000,000 authorized shares of Common
Stock, of which 17,810,730 shares were outstand-
ing as of August 1, 1996.

Trading and Market Price.... The Common Stock is presently traded on the New
York Stock Exchange ("NYSE"). On August 9, 1996,
the last sales price for the Common Stock re-
ported on the New York Stock Exchange Composite
Tape was $20 7/8. See "Price Range of Common
Stock and Dividend Policy".

Federal Income Tax Kelly, Hart & Hallman, P.C., counsel to the Com-
Consequences............... pany, has concluded (among other federal income
tax matters) that (i) the exchange of shares of
Common Stock for shares of Series A Preferred
Stock pursuant to the Offer qualifies as a tax-
free (except for cash received in lieu of frac-
tional shares) reorganization within the meaning
of Section 368(a)(1)(E) of the Internal Revenue
Code of 1986, as amended, and (ii) under applica-
ble U.S. Treasury Department regulations, the
shares of Series A Preferred Stock received by a
stockholder pursuant to the Offer should not be
"Section 306 stock" if the stockholder would have
met any of the tests of Section 302(b) of the In-
ternal Revenue Code of 1986, as amended, had the
Company distributed cash instead of shares of Se-
ries A Preferred Stock. The federal income tax
consequences regarding the exchange, ownership
and disposition of the shares of Series A Pre-
ferred Stock and Common Stock are set forth under
"Certain Federal Income Tax Consequences".

3
<PAGE>

Conditions of the Offer..... The Company's obligation to consummate the Offer
is subject to certain conditions, including the
absence of a significant decline in the stock
price or the business, operations or condition of
the Company. See "The Offer--Certain Conditions
of the Offer".

Withdrawal Rights........... Tenders may be withdrawn (i) at any time prior to
the Expiration Date and (ii) if not yet accepted
for exchange, at any time after October 7, 1996.
See "The Offer--Withdrawal Rights".

How to Tender............... Tendering stockholders must either (i) complete
and sign a Letter of Transmittal, have their sig-
natures guaranteed if required, forward the Let-
ter of Transmittal and any other required docu-
ments to the Exchange Agent at one of the ad-
dresses set forth on the back cover of this Of-
fering Circular and either deliver the certifi-
cates representing the tendered shares to the Ex-
change Agent or tender such shares pursuant to
the procedures for book-entry transfer or (ii)
request a broker, dealer, bank, trust company or
other nominee to effect the transaction for them.
Holders of shares of Common Stock registered in
the name of a broker, dealer, bank, trust company
or other nominee must contact such institution to
tender their shares of Common Stock. Certificates
for shares of Common Stock may be physically de-
livered, but physical delivery is not required if
a confirmation of a book-entry transfer of such
shares to the Exchange Agent's account at a book-
entry transfer facility is delivered in a timely
fashion. Certain provisions have also been made
for holders whose stock certificates are not
readily available or who cannot comply with the
procedure for book-entry transfer on a timely ba-
sis. Questions regarding how to tender and re-
quests for information should be directed to the
Exchange Agent or the Information Agent. See "The
Offer--How to Tender".

Acceptance of Tenders....... Subject to the terms and conditions of the Offer,
including the reservation of certain rights by
the Company, shares of Common Stock validly ten-
dered will be accepted on or promptly after the
Expiration Date. Subject to such terms and condi-
tions, certificates for shares of Series A Pre-
ferred Stock to be issued in exchange for prop-
erly tendered shares of the Common Stock will be
mailed by the Exchange Agent promptly after ac-
ceptance of the tendered shares, together with
cash in lieu of any fractional shares of Series A
Preferred Stock. Although the Company does not
presently intend to do so, if it modifies the
terms of the Offer, such modified terms will be
available to all holders of shares of Common
Stock, whether or not their shares have been ten-
dered prior to such modification. Any material
modification will be disclosed in accordance with
the applicable rules of the Commission and, if
required, the Offer will be extended to permit
stockholders adequate time to consider such modi-
fication. See "The Offer--Acceptance of Tenders".

Exchange Agent.............. ChaseMellon Shareholder Services, L.L.C.

Information Agent........... ChaseMellon Shareholder Services, L.L.C.

4
<PAGE>

THE COMPANY

The Company is engaged in the acquisition, exploitation and development of
producing oil and gas properties and the marketing and transportation of oil
and natural gas. The Company closed the initial public offering of its Common
Stock in May 1993 and succeeded to the business and operations of Cross
Timbers Oil Company, L.P., a Delaware limited partnership operating as an
independent oil and gas company (the "Partnership"). The Partnership was
organized in February 1991 to acquire the business and operations of six
limited partnerships and two corporations under common control that were
founded between 1986 and 1989. The Company was organized in 1990 to act as the
managing general partner of the Partnership and ultimately to acquire the
business and properties of the Partnership. In October 1993, the Company
issued $74,750,000 principal amount of 5 1/4% Convertible Subordinated Notes
due November 1, 2003. The notes are listed on the NYSE under the symbol
"XTO03." In August 1995, the Company completed a secondary offering of
2,250,000 shares of Common Stock.

During 1991, the Company and its predecessors formed Cross Timbers Royalty
Trust (the "Royalty Trust") by contributing net profits interests in certain
of their producing properties to the Royalty Trust in exchange for 6,000,000
units of beneficial interest (the "Trust Units"). The Company makes monthly
net profits payments to the Royalty Trust based on revenue received and costs
disbursed for the properties from which the net profits interests were carved.
The Trust Units are listed on the NYSE under the symbol "CRT."

The Company's principal executive offices are located at 810 Houston Street,
Fort Worth, Texas 76102 and its telephone number is (817) 870-2800.

The Company is incorporated in Delaware. Detailed information regarding the
Company and its business is contained in the documents referred to under the
caption "Incorporation of Certain Documents by Reference."

PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY

The Common Stock is listed on the NYSE under the symbol "XTO." The following
table sets forth, for the periods indicated, the high and low prices of the
Common Stock reported on the New York Stock Exchange Composite Tape.

<TABLE>
<CAPTION>
SALES PRICE
--------------- DIVIDEND
LOW HIGH DECLARED
------- ------- --------
<S> <C> <C> <C>
1994:
First Quarter................................... $12 1/2 $15 $0.075
Second Quarter.................................. $13 3/4 $15 3/8 $0.075
Third Quarter................................... $13 3/4 $15 1/4 $0.075
Fourth Quarter.................................. $14 $16 5/8 $0.075
1995:
First Quarter................................... $13 1/4 $15 $0.075
Second Quarter.................................. $13 3/4 $17 1/4 $0.075
Third Quarter................................... $13 3/8 $16 $0.075
Fourth Quarter.................................. $14 1/8 $18 1/8 $0.075
1996:
First Quarter................................... $15 5/8 $18 3/4 $0.075
Second Quarter.................................. $17 $25 3/4 $0.075
Third Quarter (through August 9, 1996).......... $20 7/8 $28 $0.075
</TABLE>

The closing price of the Common Stock on the NYSE on August 9, 1996, was $20
7/8. As of August 8, 1996, the Company had approximately 149 stockholders of
record.

5
<PAGE>

The Company currently pays quarterly cash dividends of $0.075 per common
share, or a total of $5.4 million annually. The determination of the amount of
future dividends, if any, to be declared and paid is in the sole discretion of
the Company's Board of Directors and will depend on the Company's financial
condition, earnings and funds from operations, the level of its capital
expenditures, dividend restrictions in its financing agreements, its future
business prospects and other matters as the Board of Directors deems relevant.
Furthermore, the Company's Revolving Credit Agreement generally restricts the
amount of dividends to 25% of net cash flow from operations for the latest
four consecutive quarterly periods.

6
<PAGE>

SUMMARY FINANCIAL INFORMATION

The following table sets forth data regarding the Company's consolidated
operating results and financial position. This data should be read in
conjunction with Management's Discussion and Analysis of Financial Condition
and Results of Operations and the Consolidated Financial Statements
incorporated by reference to the Company's 1995 Annual Report on Form 10-K,
the Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
1995 and the Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1996. Copies of such documents are available as described in
"Incorporation of Certain Documents by Reference".
<TABLE>
<CAPTION>
PRO FORMA(A)
-------------------------
SIX MONTHS
YEAR ENDED ENDED YEAR SIX MONTHS
DECEMBER 31, JUNE 30, ENDED ENDED
----------------- ----------------- DECEMBER 31, JUNE 30,
1994 1995 1995 1996 1995 1996
-------- -------- -------- -------- ------------ ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND RATIOS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA
Total Revenues.......... $ 96,275 $112,905 $ 52,155 $ 72,816 $112,905 $ 72,816
======== ======== ======== ======== ======== ========
Net income (loss) before
extraordinary item..... $ 3,048 $(11,194) $ 2,406 $ 6,478 $(11,194) $ 6,478
======== ======== ======== ======== ======== ========
Net income (loss)....... $ 3,048 $(10,538)(b) $ 2,406 $ 6,478 $(10,538) $ 6,478
Preferred dividends..... -- -- -- -- 3,695 1,848
-------- -------- -------- -------- -------- --------
Net income (loss)
available for common
shareholders........... $ 3,048 $(10,538) $ 2,406 $ 6,478 $(14,233) $ 4,630
======== ======== ======== ======== ======== ========
Net income (loss) per
common share
Before extraordinary
item.................. $ 0.19 $ (0.66)(b) $ 0.15 $ 0.35 $ (1.05) $ 0.30
Extraordinary item..... -- 0.04 -- -- 0.05 --
-------- -------- -------- -------- -------- --------
After extraordinary
item.................. $ 0.19 $ (0.62) $ 0.15 $ 0.35 $ (1.00) $ 0.30
======== ======== ======== ======== ======== ========
Weighted average common
shares outstanding..... 15,924 16,921 15,928 18,349 14,171 15,599
======== ======== ======== ======== ======== ========
Ratio of earnings to
fixed charges(c)....... 1.5 -- (d) 1.7 2.2
======== ======== ======== ========
Ratio of earnings to
fixed charges and
preferred dividend
requirements........... -- (d) 1.8
======== ========
CONSOLIDATED BALANCE
SHEET DATA (AT END OF
PERIOD):
Total assets............ $292,451 $402,675 $308,342 $401,776 $402,675 $401,776
Long-term debt.......... $142,750 $238,475 $159,750 $236,721 $238,475 $236,721
Stockholders' equity.... $113,333 $130,700 $113,785 $122,806 $130,125 $122,231
Common shares
outstanding............ 15,925 18,385 15,957 17,904 17,909 (e) 17,428 (e)
Book value per common
share.................. $ 7.12 $ 7.11 $ 7.13 $ 6.86 $ 7.27 $ 7.01
</TABLE>
- --------
(a) As if the Offer had been consummated at the beginning of each period,
assuming that 2,750,000 common shares were exchanged for 2,365,000 shares
of Series A Preferred Stock and that expenses of the Offer total $575,000.
(b) Includes the effect of a $20.3 million pre-tax, non-cash impairment charge
recorded upon adoption of Statement of Financial Accounting Standards No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of.
(c) For purposes of calculating this ratio, earnings include income (loss)
from continuing operations before income tax and fixed charges. Fixed
charges include interest expense and the portion of rentals (calculated as
one-third) considered to be representative of the interest factor.
(d) Because of the charge in (b) above, fixed charges exceeded earnings by
$16.4 million and pro forma fixed charges and preferred dividend
requirements exceeded earnings by $20.1 million. Excluding the effect of
this charge, the ratio of earnings to fixed charges is 1.3 and the pro
forma ratio of earnings to fixed charges and preferred dividend
requirements is 1.0.
(e) Includes 2,274,000 common shares, based on a conversion rate of .961538
common shares for each share of Series A Preferred Stock.

7
<PAGE>

CAPITALIZATION

The following table sets forth, as of June 30, 1996, the capitalization of
the Company and the adjusted pro forma capitalization of the Company giving
effect to the Offer.

<TABLE>
<CAPTION>
JUNE 30, 1996
----------------------
ACTUAL PRO FORMA(A)
-------- ------------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt:
Senior Debt........................................... $173,000 $173,000
Convertible Subordinated Notes........................ 63,721 63,721
-------- --------
Total Long-Term debt................................ 236,721 236,721
-------- --------
Stockholders' equity:
Series A Preferred Stock, $.01 par value, no shares
issued before the Offer and 2,365,000 shares issued
after the Offer...................................... -- 59,125
Common Stock, $.01 par value, 18,767,811 shares issued
before the Offer and 16,017,811 shares issued after
the Offer............................................ 188 160
Additional paid-in capital............................ 162,940 103,268
Treasury stock (863,653 shares)....................... (19,144) (19,144)
Unrealized gain on investment in equity securities.... 694 694
Retained earnings (deficit)........................... (21,872) (21,872)
-------- --------
Total Stockholders' Equity.......................... 122,806 122,231
-------- --------
Total Capitalization.............................. $359,527 $358,952
======== ========
</TABLE>
- --------
(a) Includes pro forma adjustments for the effect of the Offer, assuming that
the Offer is fully subscribed and that expenses of the Offer total
$575,000.

8
<PAGE>

PURPOSE OF THE OFFER

The Company is undertaking the Offer in order to allow each stockholder the
opportunity to restructure his investment in the Company in line with his
personal investment objectives. By means of the Offer, the Company is giving
stockholders the choice of (i) liquidating (in whole or in part depending on
the number of shares of Common Stock tendered) their investment in the Common
Stock while maintaining an investment in the Company as holders of Series A
Preferred Stock (and thus realizing higher current income from dividends than
is expected to be paid on the Common Stock), (ii) retaining all their shares
of Common Stock, thus increasing such stockholders' proportionate interest in
the common equity of the Company following completion of the Offer, or (iii)
some combination of (i) and (ii).

Any shares of Common Stock acquired by the Company pursuant to the Offer
will be cancelled and retired and will resume the status of authorized but
unissued Common Stock and will be available for future reissuance. Such Common
Stock would be available for use by the Company, without further stockholder
authorization (except as required by applicable law), for general or other
corporate purposes, including stock splits or dividends, acquisitions, sales
to a third party or parties, or issuance of rights or warrants to purchase
Common Stock. Except for the grant of stock options or the issuance of Common
Stock pursuant to existing employee stock option plans, the Company has no
present commitment to use any authorized but unissued Common Stock, or Common
Stock held as treasury shares, for any such purpose.

THE BOARD OF DIRECTORS OF THE COMPANY HAS APPROVED THE MAKING OF THE OFFER
BUT IS NOT MAKING ANY RECOMMENDATION TO STOCKHOLDERS AS TO WHETHER OR NOT TO
TENDER COMMON STOCK. EACH STOCKHOLDER MUST MAKE HIS OWN DECISION WHETHER OR
NOT TO TENDER SHARES OF COMMON STOCK, AND, IF SO, HOW MANY SHARES OF COMMON
STOCK TO TENDER.

THE OFFER

TERMS OF THE OFFER; NUMBER OF SHARES OF COMMON STOCK; PRORATION

The Company has adopted a plan of recapitalization for Federal income tax
purposes and pursuant to such plan hereby offers, upon the terms and
conditions set forth herein and in the related Letter of Transmittal, to issue
shares of its Series A Preferred Stock for up to 2,750,000 shares of Common
Stock at the Exchange Ratio. On August 1, 1996 there were 17,810,730 shares of
Common Stock outstanding. The Offer is not conditioned upon any minimum number
of shares of the Common Stock being tendered.

THE OFFER WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON THE
EXPIRATION DATE. See "Expiration and Extension of Tender Period; Termination;
Amendment".

Stockholders who wish to exchange shares of Common Stock for shares of
Series A Preferred Stock and who validly tender certificates of Common Stock
to the Exchange Agent or validly tender shares of Common Stock by complying
with the book-entry transfer procedures described below and, in each case, who
furnish the Letter of Transmittal and any other required documents to the
Exchange Agent, will have certificates for shares of Series A Preferred Stock
mailed to them by ChaseMellon Shareholder Services, L.L.C., as Exchange Agent,
promptly after tender is accepted by the Company, together with cash in lieu
of fractional shares of Series A Preferred Stock. Subject to the terms and
conditions of the Offer, properly tendered shares of Common Stock will be
accepted on or promptly after the Expiration Date. Subject to the applicable
rules of the Commission, the Company, however, reserves the right to delay
acceptance of tendered shares upon the occurrence of any of the conditions set
forth below under the caption "Certain Conditions of the Offer". The Company
confirms that its reservation of the right to delay acceptance of tendered
shares is subject to the provisions of Rules 13e-4(f)(5) and 14e-1(c) under
the Exchange Act, which require that a tender offeror pay the consideration
offered or return the tendered securities promptly after the termination or
withdrawal of a tender offer.

9
<PAGE>

The Company shall not be obligated to accept for exchange more than
2,750,000 shares of Common Stock. In the case of oversubscription, Common
Stock properly tendered and not withdrawn will be accepted on a pro rata
basis, in conformity with Rule 13e-4 of the Exchange Act. All Common Stock
validly tendered for exchange and not withdrawn prior to the Expiration Date
by persons who owned of record in the aggregate 99 or fewer shares of Common
Stock, and who validly tendered all their shares of Common Stock prior to the
Expiration Date, will be accepted before proration, if any, of the exchange of
other tendered shares of Common Stock. Partial tenders will not qualify for
this preference, and it is not available to holders who owned of record in the
aggregate 100 or more shares of Common Stock, even though such holders have
separate stock certificates for fewer than 100 shares of Common Stock.

In the event of proration, because of the difficulty of determining the
precise number of shares of Common Stock validly tendered and not withdrawn,
the Company does not expect to be able to announce the final proration factor
until at least five NYSE trading days after the Expiration Date.

This Offering Circular and the related Letter of Transmittal will be mailed
to record holders of Common Stock and will be furnished to brokers, banks and
similar persons whose names, or the names of whose nominees, appear on the
stockholder list or, if applicable, who are listed as participants in a
clearing agency's position listing for subsequent transmittal to beneficial
owners of Common Stock.

EFFECT OF THE OFFER ON THE MARKET FOR THE COMMON STOCK; NYSE LISTING;
REGISTRATION UNDER THE EXCHANGE ACT.

The Common Stock is currently listed on the NYSE. The exchange of the Common
Stock pursuant to the Offer will reduce the number of shares of Common Stock
that might otherwise trade publicly and will reduce the number of holders of
Common Stock. Nonetheless, following the Offer, the Company expects that there
will still be more than a sufficient number of shares of Common Stock
outstanding to assure a trading market for the shares of Common Stock. Based
upon the large number of shares of Common Stock that will remain outstanding,
and the expected number of holders of Common Stock following the Offer, the
Company expects that the Common Stock will continue to qualify for listing on
the NYSE.

Shares of the Common Stock are "margin securities" under the rules of the
Federal Reserve Board, which has the effect, among other things, of allowing
brokers to extend credit on the collateral of such Common Stock. The Company
expects that, following the Offer, the Common Stock will continue to
constitute "margin securities" for purposes of the Federal Reserve Board's
margin regulations.

The Common Stock is registered under the Exchange Act, which requires, among
other things, that the Company furnish certain information to its stockholders
and to the Commission and comply with the Commission's proxy rules in
connection with meetings of the Company's stockholders. The Company expects
that, after the Offer, the Common Stock will continue to be registered under
the Exchange Act.

LISTING OF THE SERIES A PREFERRED STOCK

In general, persons other than affiliates of the Company whose tender of
shares of Common Stock is accepted will receive unrestricted and freely
transferrable shares of Series A Preferred Stock. The Company intends to apply
for listing on the NYSE of the Series A Preferred Stock. There can be no
assurance that the Series A Preferred Stock will be admitted for trading on
the NYSE or that even if initially listed, the NYSE will not delist the Series
A Preferred Stock in the future if it does not meet the listing requirements
of the NYSE. If the Series A Preferred Stock is not listed for trading on the
NYSE, the Company will seek to have the Series A Preferred Stock listed on
another national securities exchange or to have quotations of market prices of
the Series A Preferred Stock reported on a national quotations system. There
is no assurance that such listing or reporting can be achieved, and failure to
obtain such listing or reporting may adversely affect the market value and
liquidity of the Series A Preferred Stock.

10
<PAGE>

EXPIRATION AND EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT

The Offer will expire at 12:00 midnight, New York City time, on the
Expiration Date. The Company expressly reserves the right, in its sole
discretion, at any time and from time to time, and regardless of whether or
not any of the events set forth under "The Offer--Certain Conditions of the
Offer" have occurred or are deemed by the Company to have occurred, to extend
the period of time during which the Offer is open and thereby delay acceptance
of the tender of Common Stock by giving oral or written notice of such
extension to the Exchange Agent and making a public announcement thereof.
During any such extension, all Common Stock previously tendered and not
exchanged or withdrawn will remain subject to the Offer, except to the extent
that such Common Stock may be withdrawn. The Company also expressly reserves
the right, in its sole discretion, to terminate the Offer and not accept for
exchange any Common Stock not theretofore accepted for exchange or, subject to
applicable law, to postpone the exchange of Common Stock upon the occurrence
of any of the conditions specified in this Offering Circular by giving oral or
written notice of such termination to the Exchange Agent and making a public
announcement thereof. The Company's reservation of the right to delay the
exchange of Common Stock which it has accepted for payment is limited by Rules
13e-4(f)(2) and 13e-4(f)(5) promulgated under the Exchange Act. Rule 13e-
4(f)(2) requires that the Company permit Common Stock tendered pursuant to the
Offer to be withdrawn (i) at any time during the period the Offer remains open
and (ii) if not yet accepted for exchange, after the expiration of 40 business
days from commencement of the Offer. Rule 13e-4(f)(5) requires that the
Company pay the consideration offered or return the Common Stock tendered
promptly after termination or withdrawal of a tender offer. Subject to
compliance with applicable law, the Company further reserves the right, in its
sole discretion, and regardless of whether or not any of the events set forth
under "The Offer--Certain Conditions of the Offer" have occurred or are deemed
by the Company to have occurred, to amend the Offer in any respect (including
without limitation by decreasing or increasing the value of the consideration
offered in exchange for Common Stock tendered pursuant to the Offer or by
decreasing or increasing the number of shares of Common Stock being sought in
the Offer) or to waive the limitation on the maximum number of shares of
Common Stock to be exchanged pursuant to the Offer. Amendments to the Offer
may be made at any time and from time to time effected by public announcement
thereof, such announcement, in the case of an extension, to be issued no later
than 9:00 a.m., New York City time, on the next business day after the
previously scheduled Expiration Date. Any public announcement made pursuant to
the Offer will be disseminated promptly to stockholders in a manner reasonably
designed to inform stockholders of such change. Without limiting the manner in
which the Company may choose to make a public announcement, except as required
by applicable law, the Company will have no obligation to publish, advertise
or otherwise communicate any such public announcement other than by making a
release to the Dow Jones News Service.

If (i) the Company increases or decreases the value of the consideration
offered in exchange for Common Stock, or the Company increases the number of
shares of Common Stock being sought by an amount exceeding 2% of the
outstanding shares of Common Stock (356,214 shares of Common Stock as of
August 1, 1996), or the Company decreases the number of shares of Common Stock
being sought, and (ii) the Offer is scheduled to expire earlier than the tenth
business day from the date that notice of such increase or decrease is first
published, sent or given, the Offer will be extended until such tenth business
day. For purposes of the Offer, a "business day" means any day other than a
Saturday, Sunday or federal holiday, and consists of the time period from
12:01 a.m. through midnight, New York City time. If the Company otherwise
materially changes the terms of the Offer or the information concerning the
Offer, or if it waives a material condition of the Offer, the Company will
extend the Offer to the extent required by Rules 13e-4(d)(2) and 13e-4(e)(2)
promulgated under the Exchange Act. These rules require that the minimum
period during which a tender offer must remain open following material changes
in the terms of the offer or material information concerning the offer (other
than a change in price or a change in the percentage of securities sought)
will depend on the facts and circumstances, including the relative materiality
of such terms or information.

CERTAIN CONDITIONS OF THE OFFER

Notwithstanding any other provisions of the Offer, or any extension of the
Offer, the Company will not be required to issue shares of Series A Preferred
Stock in respect of any properly tendered shares of Common Stock not accepted
and may terminate the Offer (by oral or written notice to the Exchange Agent
and by timely public

11
<PAGE>

announcement communicated, unless otherwise required by applicable law or
regulation, by making a release to the Dow Jones News Service) and, subject to
compliance with the applicable rules of the Commission, delay the acceptance
of the tendered shares if any of the following events shall have occurred (or
shall have been determined by the Company to have occurred) and which in the
Company's sole judgment in any such case makes it inadvisable to proceed with
the Offer:

(a) Any action or proceeding, order, decree or injunction shall have been
taken or threatened, instituted or pending, or any statute, rule,
regulation, judgment, order, stay, decree or injunction shall have been
sought, promulgated, enacted, entered, enforced or deemed applicable to the
Offer or the Company taken as a whole, by or before any court or
governmental, regulatory or administrative authority or agency or tribunal,
which (i) challenges the making of the Offer, the acquisition of Common
Stock or issuance of Series A Preferred Stock pursuant to the Offer or
might directly or indirectly prohibit, prevent, restrict or delay
consummation of the Offer, or (ii) materially adversely affects the
business, operations, condition (financial or otherwise), results of
operations, prospects, assets, liabilities, working capital or reserves of
the Company taken as a whole, or otherwise materially impairs in any way
the contemplated future conduct of the business of the Company taken as a
whole.

(b) There shall have occurred (i) the declaration of any banking
moratorium or suspension of payments in respect of banks in the United
States, (ii) any general suspension of trading in, or limitation on prices
for, securities on any national securities exchange or in the over-the-
counter market, (iii) the commencement of a war, armed hostilities or any
other national or international crisis directly or indirectly involving the
United States, (iv) any limitation (whether or not mandatory) by any
government or governmental, regulatory or administrative agency or
authority on, or any event which in the Company's sole judgment might
adversely affect, the extension of credit by banks or other lending
institutions in the United States, (v) any significant decline in the
market price of the shares of Common Stock or any change in the general
political, market, economic or financial conditions in the United States or
abroad that has a material adverse effect on the ability to obtain
financing generally or on the trading in the shares of Common Stock or (vi)
in the case of any of the foregoing existing at the time of the
commencement of the Offer, a material acceleration or worsening thereof.

(c) There shall have occurred any event that has resulted, or may in the
sole judgment of the Company result, in an actual or threatened change in
the business, operations, condition (financial or otherwise), results of
operations, prospects, assets, liabilities, working capital or reserves of
the Company taken as a whole.

The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company in its sole discretion regardless of the circumstances
(including any action or inaction by the Company) giving rise to any such
conditions, or may be waived by the Company, in its sole discretion, in whole
or in part at any time. The failure by the Company at any time to exercise its
rights under any of the foregoing conditions shall not be deemed a waiver of
any such right; the waiver of any such right with respect to particular facts
and other circumstances shall not be deemed a waiver with respect to any other
facts and circumstances; and each such right shall be deemed an ongoing right
which may be asserted at any time or from time to time. Any determination by
the Company concerning the events described above shall be final and binding
on all parties.

CASH IN LIEU OF FRACTIONAL SHARES OF SERIES A PREFERRED STOCK

No certificates representing a fraction of a share of Series A Preferred
Stock will be issued pursuant to the Offer. In lieu thereof, each tendering
stockholder who would otherwise be entitled to a fractional share of Series A
Preferred Stock will receive cash in an amount equal to such fraction
(expressed as a decimal and rounded to the nearest 0.01 of a share) times
$25.00.

HOW TO TENDER

A STOCKHOLDER MAY TENDER SHARES OF THE COMMON STOCK BY (A) PROPERLY
COMPLETING AND SIGNING THE LETTER OF TRANSMITTAL OR A FACSIMILE THEREOF (ALL
REFERENCES IN THIS OFFERING CIRCULAR TO THE LETTER OF

12
<PAGE>

TRANSMITTAL SHALL BE DEEMED TO INCLUDE A FACSIMILE THEREOF) AND DELIVERING THE
SAME, TOGETHER WITH THE CERTIFICATES REPRESENTING THE SHARES OF COMMON STOCK
BEING TENDERED (OR A CONFIRMATION OF A BOOK-ENTRY TRANSFER OF SUCH SHARES INTO
THE EXCHANGE AGENT'S ACCOUNT AT THE DEPOSITORY TRUST COMPANY OR ANY OTHER
PARTICIPATING BOOK-ENTRY TRANSFER FACILITY AT WHICH THE EXCHANGE AGENT HAS
ESTABLISHED AN ACCOUNT WITH RESPECT TO THE SHARES OF COMMON STOCK), TO THE
EXCHANGE AGENT ON OR PRIOR TO THE EXPIRATION DATE, OR (B) REQUESTING A BROKER,
DEALER, BANK, TRUST COMPANY OR OTHER NOMINEE TO EFFECT THE TRANSACTION FOR
SUCH STOCKHOLDER PRIOR TO THE EXPIRATION DATE.

If tendered shares are registered in the name of the signer of the Letter of
Transmittal and the shares of Series A Preferred Stock to be issued in
exchange therefor are to be issued in the name of the registered holder and
delivered to the address appearing on the Company's stock transfer books, the
signature of such signer need not be guaranteed. If shares of Series A
Preferred Stock are to be issued in the name of a person other than the
registered holder of the shares of Common Stock tendered, the tendered
certificates must be endorsed or accompanied by stock powers or written
instruments of transfer in form satisfactory to the Company and duly executed
by the registered owner, and the signature on the endorsement or stock power
must be guaranteed by a bank, broker, dealer, credit union, savings
association or other entity that is a member in good standing of a recognized
Medallion Program approved by The Securities Transfer Association, Inc. (any
of the foregoing hereinafter referred to as an "Eligible Institution"). If the
shares of Series A Preferred Stock are to be delivered to an address other
than that of the registered holder appearing on the Company's stock transfer
books, the signature in the Letter of Transmittal must be guaranteed by an
Eligible Institution.

The Exchange Agent will establish an account with respect to the shares of
Common Stock at The Depository Trust Company, the Pacific Securities
Depository Trust Company and the Philadelphia Depository Trust Company
(individually a "Book-Entry Facility" and collectively the "Book-Entry
Facilities") within two business days after the date of this Offering
Circular, and any financial institution which is a participant in a Book-Entry
Facility may make book-entry delivery of the shares by causing such Book-Entry
Facility to transfer such shares into the Exchange Agent's account in
accordance with such Book-Entry Facility's procedure for such transfer.
Although delivery of shares may be effected through book-entry transfer into
the Exchange Agent's account at a Book-Entry Facility, the Letter of
Transmittal, with any required signature guarantees and any other required
documents, must in any case be transmitted to and received by the Exchange
Agent on or prior to the Expiration Date at one of its addresses set forth
below under "Exchange Agent" or on the back cover of this Offering Circular,
or the guaranteed delivery procedure described below must be complied with.
Delivery of documents to a Book-Entry Facility does not constitute delivery to
the Exchange Agent. All references in this Offering Circular to deposit or
delivery of shares shall be deemed to include a Book-Entry Facility's book-
entry delivery method.

THE METHOD OF DELIVERY OF SHARES OF COMMON STOCK AND ALL OTHER DOCUMENTS,
INCLUDING DELIVERY THROUGH A BOOK-ENTRY FACILITY, IS AT THE ELECTION AND RISK
OF THE STOCKHOLDER. IF SENT BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL,
RETURN RECEIPT REQUESTED, BE USED, AND PROPER INSURANCE BE OBTAINED.

TO PREVENT BACKUP FEDERAL INCOME TAX WITHHOLDING WITH RESPECT TO CASH
RECEIVED IN LIEU OF FRACTIONAL SHARES OF SERIES A PREFERRED STOCK, A
STOCKHOLDER MUST PROVIDE THE EXCHANGE AGENT WITH HIS OR HER CORRECT TAXPAYER
IDENTIFICATION NUMBER AND CERTIFY WHETHER SUCH STOCKHOLDER IS SUBJECT TO
BACKUP WITHHOLDING OF FEDERAL INCOME TAX BY COMPLETING THE SUBSTITUTE FORM W-9
INCLUDED IN THE LETTER OF TRANSMITTAL. CERTAIN STOCKHOLDERS (INCLUDING, AMONG
OTHERS, ALL CORPORATIONS AND CERTAIN FOREIGN INDIVIDUALS) ARE NOT SUBJECT TO
THESE BACKUP WITHHOLDING AND REPORTING REQUIREMENTS. IN ORDER FOR A FOREIGN
INDIVIDUAL TO QUALIFY AS AN

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<PAGE>

EXEMPT RECIPIENT, THE STOCKHOLDER MUST SUBMIT A FORM W-8, SIGNED UNDER
PENALTIES OF PERJURY, ATTESTING TO THAT INDIVIDUAL'S EXEMPT STATUS. SEE
"CERTAIN FEDERAL INCOME TAX CONSEQUENCES--OWNERSHIP AND DISPOSITION OF THE
SHARES OF SERIES A PREFERRED STOCK AND COMMON STOCK--BACK-UP WITHHOLDING".

If a stockholder desires to tender shares of Common Stock pursuant to the
Offer and such stockholder's certificates for such shares are not immediately
available or time will not permit all of the above documents to reach the
Exchange Agent prior to the Expiration Date, or such stockholder cannot
complete the procedure for book-entry transfer on a timely basis, such tender
may be effected if the following conditions are satisfied:

(a) such tenders are made by or through an Eligible Institution;

(b) a properly completed and duly executed Notice of Guaranteed Delivery,
in substantially the form provided by the Company, is received by the
Exchange Agent as provided below on or prior to the Expiration Date; and

(c) the certificates for all tendered shares, in proper form for transfer
(or confirmation of book-entry transfer of such shares into the Exchange
Agent's account at a Book-Entry Facility as described above), together with
a properly completed and duly executed Letter of Transmittal and all other
documents required by the Letter of Transmittal are received by the
Exchange Agent within three NYSE trading days after the date of execution
of such Notice of Guaranteed Delivery.

The Notice of Guaranteed Delivery may be delivered by hand or transmitted by
facsimile transmission or mail to the Exchange Agent and must include a
guarantee by an Eligible Institution in the form set forth in such Notice of
Guaranteed Delivery.

A tender will be deemed to have been received as of the date when the
tendering stockholder's duly signed Letter of Transmittal accompanied by
certificates (or a timely confirmation received of a book-entry transfer of
such shares into the Exchange Agent's account at a Book-Entry Facility) or a
Notice of Guaranteed Delivery from an Eligible Institution is received by the
Exchange Agent. Issuances of shares of Series A Preferred Stock in exchange
for shares of Common Stock tendered pursuant to a Notice of Guaranteed
Delivery by an Eligible Institution, together with cash in lieu of fractional
shares of Series A Preferred Stock, will be made only against deposit of the
Letter of Transmittal (and any other required documents) and the tendered
certificates (or a timely confirmation received of a book-entry transfer of
such shares into the Exchange Agent's account at a Book-Entry Facility) with
the Exchange Agent.

Any whole number of shares of Common Stock may be tendered. Tendering
stockholders may tender less than all of the shares represented by the
certificates they hold provided they appropriately indicate this fact on the
Letter of Transmittal accompanying the tendered Common Stock certificates.
Tenders of fractional shares will not be accepted.

With respect to tenders of Common Stock, the Company reserves full
discretion to determine whether the documentation is complete and generally to
determine all questions as to tenders, including the date of receipt of a
tender, the propriety of execution of any document, and other questions as to
the validity, form, eligibility or acceptability of any tender. The Company
reserves the right to reject any tender not in proper form or otherwise not
valid or the acceptance for exchange of which may, in the opinion of the
Company's counsel, be unlawful or to waive any irregularities or conditions,
and the Company's interpretation of the terms and conditions of the Offer
(including the instructions on the Letter of Transmittal) will be final. The
Company shall not be obligated to give notice of any defects or irregularities
in tenders and shall not incur any liability for failure to give any such
notice. Shares of Common Stock shall not be deemed to have been duly or
validly tendered unless and until all defects and irregularities have been
cured or waived. Any proxy granted with respect to the shares tendered for
exchange shall be automatically revoked when the tender is accepted by the
Company. Certificates

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<PAGE>

for all improperly tendered shares, as well as balance certificates
representing shares in excess of those tendered for exchange, will be returned
(unless irregularities and defects are timely cured or waived), without cost
to the tendering stockholder (or, in the case of shares delivered by book-
entry transfer within a Book-Entry Facility, will be credited to the account
maintained within such Book-Entry Facility by the participant in the Book-
Entry Facility who delivered such shares), promptly after the Expiration Date.

TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL

The Letter of Transmittal contains, among other things, certain terms and
conditions, which are summarized below and are part of the Offer.

Shares of Common Stock tendered in exchange for shares of Series A Preferred
Stock (or a timely confirmation of a book-entry transfer of such shares into
the Exchange Agent's account at a Book-Entry Facility) must be received by the
Exchange Agent, with the Letter of Transmittal and any other required
documents by 12:00 midnight, New York City time, on or prior to the Expiration
Date, or within the time periods set forth above in "How to Tender" pursuant
to a Notice of Guaranteed Delivery from an Eligible Institution. The party
tendering the shares for exchange (the "Holder") sells, assigns and transfers
the shares to the Company and irrevocably constitutes and appoints the
Exchange Agent as the Holder's agent and attorney-in-fact to cause the shares
to be transferred and exchanged. The Holder warrants that it has full power
and authority to tender, exchange, sell, assign and transfer the shares of
Common Stock and to acquire the shares of Series A Preferred Stock issuable
upon the exchange of such tendered shares, that the Company will acquire good
and unencumbered title to the tendered shares, free and clear of all liens,
restrictions, charges and encumbrances, and that the shares of Common Stock
tendered for exchange are not subject to any adverse claims or proxies when
accepted by the Company. The Holder also warrants that it will, upon request,
execute and deliver any additional documents deemed by the Company or the
Exchange Agent to be necessary or desirable to complete the exchange, sale,
assignment and transfer of the tendered shares. All authority conferred or
agreed to be conferred in the Letter of Transmittal by the Holder will survive
the death or incapacity of the Holder and any obligation of the Holder shall
be binding upon the heirs, personal representatives, successors and assigns of
such Holder.

Signature(s) on the Letter of Transmittal will be required to be guaranteed
and endorsement(s) on the certificates being tendered will be required as set
forth above in "How to Tender". All questions as to the validity, form,
eligibility (including time of receipt) and acceptability of any tender will
be determined by the Company, in its sole discretion, and such determination
will be final and binding. Unless waived by the Company, irregularities and
defects must be cured by the Expiration Date. The Company will pay all stock
transfer taxes applicable to the transfer and exchange of shares of the Common
Stock tendered unless shares are transferred to a third party.

WITHDRAWAL RIGHTS

All tenders may be withdrawn (i) at any time prior to the Expiration Date or
(ii) if not yet accepted for exchange, after October 7, 1996. To be effective,
a notice of withdrawal must be timely received by the Exchange Agent at one of
its addresses set forth below under "Exchange Agent" and on the back cover of
this Offering Circular. Any notice of withdrawal must specify the person named
in the Letter of Transmittal as having tendered the number of shares of Common
Stock to be withdrawn and the name of the registered holder of such shares. If
the shares of Common Stock have been physically delivered to the Exchange
Agent, the tendering stockholder must also submit the serial number shown on
the particular certificate(s) to be withdrawn. If the shares of Common Stock
have been delivered pursuant to the book-entry procedures set forth above
under "How to Tender", any notice of withdrawal must specify the name and
number of the participant's account at the Book-Entry Facility to be credited
with the withdrawn shares. The Exchange Agent will return the properly
withdrawn shares of Common Stock as soon as practicable following receipt of
notice of withdrawal. All questions as to the validity, including time of
receipt, of notices of withdrawals will be determined by the Company, and such
determination will be final and binding on all parties.

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<PAGE>

ACCEPTANCE OF TENDERS

Subject to the terms and conditions of the Offer, shares of Common Stock
tendered (either physically or through book-entry delivery as described in
"How to Tender") with a properly executed Letter of Transmittal and all other
required documentation, and not withdrawn, will be accepted on or promptly
after the Expiration Date. Subject to such terms and conditions, delivery of
certificates of shares of Series A Preferred Stock to be issued in exchange
for properly tendered shares of Common Stock will be made by the Exchange
Agent promptly after acceptance of the tendered shares, together with cash in
lieu of any fractional shares of Series A Preferred Stock. Acceptance of
tendered shares will be effected by the delivery of a notice to that effect by
the Company to the Exchange Agent. Subject to the applicable rules of the
Commission, the Company, however, reserves the right to delay acceptance of
tendered shares upon the occurrence of any of the conditions set forth above
under the caption "Certain Conditions of the Offer". The Company confirms that
its reservation of the right to delay acceptance of tendered shares is subject
to the provisions of Rules 13e-4(f)(5) and 14e-1(c) under the Exchange Act,
which require that a tender offeror pay the consideration offered or return
the tendered securities promptly after the termination or withdrawal of a
tender offer.

Although the Company does not presently intend to do so, if it modifies the
terms of the Offer, such modified terms will be available to all holders of
Common Stock, whether or not their shares have been tendered prior to such
modification. Any material modification will be disclosed in accordance with
the applicable rules of the Commission and, if required, the Offer will be
extended to permit stockholders adequate time to consider such modification.

The tender of shares pursuant to any one of the procedures set forth in "How
to Tender" will constitute an agreement between the tendering stockholder and
the Company upon the terms and subject to the conditions of the Offer.

EXCHANGE AGENT

ChaseMellon Shareholder Services, L.L.C. has been appointed as Exchange
Agent for the Offer. Letters of Transmittal must be addressed to the Exchange
Agent as follows:

Facsimile Transmission Telephone Number:
(201) 329-8936

Facsimile Confirmation Number:
(201) 296-4209

Mailing Address: Overnight/Hand Deliveries:
P.O. Box 817 120 Broadway
Midtown Station 13th Floor
New York, New York 10018 New York, New York 10271
Attention: Reorganization Department Attention: Reorganization Department

Delivery to other than the above addresses will not constitute valid
delivery.

INFORMATION AGENT

ChaseMellon Shareholder Services, L.L.C. has agreed to act as Information
Agent in connection with the Exchange, and may be contacted at the following
addresses and telephone numbers:

450 West 33rd Street--15th Floor
New York, New York 10001
toll free: 1-800-953-2594

Banks and Brokerage Firms please call (212) 946-7712

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<PAGE>

FINANCIAL ADVISOR

The Company has retained Merrill Lynch & Co. ("Merrill Lynch"), an
investment banking firm, as its financial advisor in connection with the
Offer. Merrill Lynch has rendered advice to the Company in connection with the
Offer. Merrill Lynch has not been retained to solicit any tenders pursuant to
the Offer or to render any opinion as to the fairness of the Offer to the
Company or to the holders of the Common Stock or Series A Preferred Stock. For
its services as financial advisor, Merrill Lynch is entitled to receive a
fixed fee of $200,000 in cash, regardless of whether or not the Offer is
consummated. In addition, Merrill Lynch is entitled to be reimbursed for
certain out-of-pocket expenses. The Company has agreed to indemnify Merrill
Lynch against certain losses, claims, damages and liabilities, including
liabilities under federal securities laws, to which Merrill Lynch may become
subject in connection with its services to the Company as financial advisor.
Merrill Lynch has provided investment banking services to the Company from
time to time.

SOLICITATION OF TENDERS; EXPENSES

The Company will not make any payments to brokers, dealers or other persons
for soliciting or recommending acceptances of the Offer. The Company will,
however, pay the Exchange Agent and the Information Agent reasonable and
customary fees for their services and will reimburse them for their reasonable
out-of-pocket expenses in connection therewith. The Company will also pay
brokerage houses and other custodians, nominees and fiduciaries the reasonable
out-of-pocket expenses incurred by them in forwarding copies of this Offering
Circular and related documents to the beneficial owners of the Common Stock
and in handling or forwarding tenders for their customers.

No person has been authorized to give any information or to make any
representations in connection with the Offer other than those contained in
this Offering Circular. If given or made, such information or representations
should not be relied upon as having been authorized by the Company. Neither
the delivery of this Offering Circular nor any exchange made hereunder shall,
under any circumstances, create any implication that there has been no change
in the affairs of the Company since the respective dates as of which
information is given herein. This Offering Circular does not constitute an
offer to exchange, or a solicitation of an offer to exchange, any securities
other than the securities covered by the Offering Circular by the Company or
any other person, nor does it constitute an offer to exchange or a
solicitation of an offer to exchange such securities by the Company, or any
such other person in any jurisdiction in which or to any person to whom it is
unlawful to make any such offer or solicitation. In any jurisdiction the laws
of which require the offer to be made by a licensed broker or dealer, the
offer is being made on behalf of the Company by one or more registered brokers
or dealers licensed under the laws of such jurisdiction.

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<PAGE>

CERTAIN FEDERAL INCOME TAX CONSEQUENCES

In the opinion of Kelly, Hart & Hallman, P.C., counsel to the Company
("Counsel"), the following discussion accurately sets forth the material
federal income tax consequences of (i) the exchange of shares of Common Stock
for shares of Series A Preferred Stock pursuant to the Offer, and (ii) the
ownership and disposition of shares of the Series A Preferred Stock and Common
Stock. Based upon certain representations provided to Counsel by the Company
and upon which Counsel specifically relied in rendering such opinion, Counsel
has concluded that (a) the exchange of shares of Common Stock for shares of
Series A Preferred Stock pursuant to the Offer qualifies as a tax-free (except
for cash received in lieu of fractional shares) reorganization within the
meaning of Section 368(a)(1)(E) of the Internal Revenue Code of 1986, as
amended (the "Code"), and (b) under applicable U.S. Treasury Department
regulations (the "Regulations"), the shares of Series A Preferred Stock
received by a stockholder pursuant to the Offer should not be "Section 306
stock" if the stockholder would have met any of the tests of Section 302(b) of
the Code (discussed below under "--The Section 302(b) Tests") had the Company
distributed cash instead of shares of Series A Preferred Stock. There can be
no assurances that the Internal Revenue Service (the "Service") will take a
similar view as to any of the tax consequences described below. The Company
has not sought, nor does it intend to seek, a ruling from the Service that its
position as reflected in the following discussion will be accepted by the
Service.

An opinion of Counsel is not binding on the Service or the courts. In
addition, the opinion of Counsel is based on current law and certain
representations as to factual matters made by the Company which, if incorrect
in certain material respects, would adversely affect the conclusions reached
by Counsel in its opinion.

The following discussion is a summary of certain federal income tax
consequences relevant to (i) the exchange of shares of Common Stock for shares
of Series A Preferred Stock pursuant to the Offer, and (ii) the ownership and
disposition of shares of the Series A Preferred Stock and Common Stock, but
does not purport to be a complete analysis of all the potential tax effects
thereof. The discussion is based upon the Code, Regulations, and Service
rulings and judicial decisions now in effect, all of which are subject to
change at any time by legislative, judicial or administrative action. No
information is provided herein with respect to estate and gift or foreign tax
consequences. This information is directed to offerees who will hold the
shares of Series A Preferred Stock and Common Stock as "capital assets" within
the meaning of Section 1221 of the Code. In addition, this discussion does not
address the tax consequences to certain holders as to whom special rules apply
(including life insurance companies, tax-exempt organizations, banks and
dealers in securities). EACH OFFEREE SHOULD CONSULT HIS OWN TAX ADVISOR
CONCERNING THE TAX CONSEQUENCES TO HIM OF THE EXCHANGE OF SHARES OF COMMON
STOCK FOR SHARES OF SERIES A PREFERRED STOCK PURSUANT TO THE OFFER, AND OF THE
OWNERSHIP AND DISPOSITION OF SUCH SHARES.

EXCHANGE OF SHARES OF COMMON STOCK FOR SHARES OF SERIES A PREFERRED STOCK

Tax Consequences of the Exchange to the Tendering Stockholder. The exchange
of shares of Common Stock for shares of Series A Preferred Stock pursuant to
the Offer will qualify as a recapitalization, and therefore, a reorganization
within the meaning of Section 368(a)(1)(E) of the Code. Consequently, a
tendering stockholder will not recognize gain or loss on the exchange of
shares of Common Stock solely for shares of Series A Preferred Stock. A
tendering stockholder will, however, recognize gain (but not loss) to the
extent of any cash received in lieu of fractional shares.

Any cash received in lieu of fractional shares will be subject to tax either
as capital gain or as a dividend, depending on whether the exchange has the
effect of a distribution of a dividend to such stockholder within the meaning
of Section 356(a)(2) of the Code. The standards of Section 302 of the Code
(discussed below under "--The Section 302(b) Tests") are to be applied for
purposes of determining whether the exchange has the effect of a dividend to a
particular stockholder. If, as to a particular stockholder, the exchange is
treated as a "sale or exchange" and not as the payment of a dividend, any gain
recognized by such stockholder will be capital gain if the shares of Common
Stock exchanged were held as capital assets on the date of the exchange. If,
as to a particular stockholder, the exchange is treated as having the effect
of a dividend, any gain recognized by such stockholder will be treated as
ordinary income.

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<PAGE>

Tax Consequences of the Exchange to the Company. No gain or loss will be
recognized to the Company upon its receipt of shares of Common Stock in
exchange for shares of Series A Preferred Stock pursuant to the Offer.

The Section 302(b) Tests. Under Section 302(b) of the Code, an exchange of
shares of Common Stock for shares of Series A Preferred Stock and cash in lieu
of fractional shares pursuant to the Offer will not be treated as having the
effect of a dividend if the receipt of cash (i) is "substantially
disproportionate" with respect to the stockholder, (ii) is "not essentially
equivalent to a dividend" with respect to the stockholder, or (iii) results in
a complete termination of the stockholder's interest in the Company. In
determining whether any of the tests under Section 302(b) of the Code are
satisfied, a stockholder must take into account not only shares of Common
Stock and Series A Preferred Stock that are actually owned by such
stockholder, but also shares of Common Stock and Series A Preferred Stock that
are constructively owned by such stockholder within the meaning of Section 318
of the Code as modified by Section 302(c) of the Code. Under Section 318 of
the Code, a stockholder may constructively own shares actually owned, and in
some cases constructively owned, by certain related individuals and certain
entities in which the stockholder has an interest and shares which such
stockholder has the right to acquire by exercise of an option or by conversion
of a convertible debenture.

In applying the tests of Section 302(b) of the Code, all steps which are
considered for federal income tax purposes as part of an integrated plan
should be considered together. A stockholder's disposition or acquisition of
shares of Common Stock or Series A Preferred Stock occurring contemporaneously
with exchanges pursuant to the Offer (including sales of shares of Common
Stock or Series A Preferred Stock in the market) may be taken into account in
determining whether any of the tests of Section 302(b) of the Code are
satisfied as to that stockholder.

The receipt of cash in lieu of fractional shares pursuant to the Offer will
be "substantially disproportionate" with respect to a stockholder if (i) the
percentage of the outstanding shares of Common Stock and Series A Preferred
Stock actually and constructively owned by the stockholder immediately
following the exchange of shares of Common Stock (treating shares of Common
Stock acquired by the Company pursuant to the Offer as not outstanding), is
less than (ii) eighty percent (80%) of the percentage of the outstanding
shares of Common Stock actually and constructively owned by the stockholder
immediately before the exchange of shares of Common Stock pursuant to the
Offer. In addition, the stockholder's ownership of shares of Common Stock
after and before the exchange must meet the eighty percent (80%) requirement.
It is the position of the Service that unissued stock which that stockholder
(or persons related to such stockholder within the meaning of Section 318 of
the Code) may acquire from the Company upon exercise of options is to be
treated as outstanding in the hands of such stockholder, but unissued stock
which may be acquired by another stockholder upon exercise of options is not
considered outstanding.

If a stockholder fails to satisfy the "substantially disproportionate" test,
such stockholder may nevertheless satisfy the "not essentially equivalent to a
dividend" test. Whether the receipt of cash in lieu of fractional shares by a
stockholder will be "not essentially equivalent to a dividend" depends on the
individual stockholder's facts and circumstances, but in any case requires a
"meaningful reduction" in the stockholder's proportionate interest in the
Company. The Service has indicated in published and private rulings that any
actual reduction in the proportionate interest of a small minority stockholder
in a publicly held corporation may constitute such a "meaningful reduction" if
such stockholder exercises no control over corporate affairs. The application
of the "meaningful reduction" standard to a particular exchanging stockholder
cannot be predicted with certainty, however, because the standard requires
consideration of all of the facts of circumstances of the transaction.

The receipt of cash in lieu of fractional shares pursuant to the Offer will
not be treated as having the effect of a dividend if the receipt of cash
results in a "complete termination of interest" with respect to a stockholder;
that is, if a stockholder completely terminates his ownership of stock in the
Company (including, except as provided in Section 302(c)(2) of the Code, stock
which he is considered to own constructively pursuant to Section 318 of the
Code). No stockholder will be able to satisfy the complete termination of
interest test by virtue of exchanges pursuant to the Offer alone, as each
exchanging stockholder will receive shares of Series A

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<PAGE>

Preferred Stock. Subsequent sales of shares of Common Stock and Series A
Preferred Stock in the market, however, might be taken into account in
determining whether a stockholder satisfies this test.

Treatment of Series A Preferred Stock. A stockholder's initial tax basis for
the shares of Series A Preferred Stock received pursuant to the Offer will be
equal to the basis of the shares of Common Stock surrendered in exchange
therefor, increased by the amount of any gain recognized on the exchange and
decreased by the amount of cash received. The holding period of the shares of
Series A Preferred Stock will include the holding period during which the
shares of Common Stock surrendered in exchange therefor were held by the
stockholder, provided that the shares of Common Stock were held as capital
assets on the date of the exchange.

Section 306(c)(1)(B) of the Code treats stock, other than common stock,
received in certain reorganizations (including a recapitalization such as the
Offer) as "Section 306 stock" if the effect of the transaction was
substantially the same as the receipt of a stock dividend. If stock is Section
306 stock, the disposition or redemption of such stock may result in all or a
portion of the proceeds of such disposition being treated as ordinary income
without regard to the stockholder's basis in its shares, and may not recognize
any loss therefrom.

The Regulations promulgated under Section 306 of the Code provide that the
"effect of a dividend" limitation is applied using a "cash substitution" test:
if cash had been distributed in lieu of the preferred stock and the cash would
have been treated as a dividend, then the stock is Section 306 stock. Counsel
has concluded that under applicable Regulations, the shares of Series A
Preferred Stock received by a stockholder pursuant to the Offer should not be
Section 306 stock if the stockholder would have met any of the tests of
Section 302(b) of the Code (discussed above under "--The Section 302(b)
Tests") had the Company distributed cash instead of shares of Series A
Preferred Stock. The determination of whether any of the tests of Section
302(b) of the Code would have been met will depend on the facts and
circumstances in each case, including the fair market value of the shares of
Series A Preferred Stock issued in exchange for shares of Common Stock and the
constructive stock ownership of each stockholder under Section 318 of the
Code. Therefore, whether any Series A Preferred Stock received by a
stockholder constitutes Section 306 stock cannot be determined until the
consummation of the Offer. Even if the Series A Preferred Stock is Section 306
stock, ordinary income treatment under Section 306 of the Code may be avoided
if, in (or in conjunction with) any such disposition or redemption, the
stockholder disposes of his entire equity interest in the Company (taking into
account the constructive ownership rules of Section 318 of the Code). See "--
The Section 302(b) Tests," above. EACH STOCKHOLDER SHOULD CONSULT HIS OWN TAX
ADVISOR AS TO THE POSSIBLE APPLICATION OF SECTION 306 OF THE CODE TO THE
SERIES A PREFERRED STOCK.

OWNERSHIP AND DISPOSITION OF THE SHARES OF SERIES A PREFERRED STOCK AND COMMON
STOCK

Dividends on Shares of Series A Preferred Stock or Common Stock. Dividends
paid on the shares of Series A Preferred Stock or Common Stock will be taxable
as ordinary income to the extent of current and accumulated earnings and
profits of the Company. Dividends paid to corporate holders of the shares of
Series A Preferred Stock or Common Stock out of such earnings and profits
generally will qualify for the dividends received deduction allowable to
corporations subject to the various limitations imposed on such deduction.
Further, Section 1059 of the Code, generally requiring a corporate stockholder
to reduce its basis in stock by the nontaxed portion of any "extraordinary
dividend," may be applicable to dividends paid by the Company on shares of
Series A Preferred Stock or Common Stock.

To the extent, if any, that a distribution on Series A Preferred Stock or
Common Stock which would otherwise constitute a dividend for federal income
tax purposes exceeds the current and accumulated earnings and profits of the
Company, such amount will be treated as a nontaxable return of capital that
will reduce a holder's basis in its shares of Series A Preferred Stock or
Common Stock. The reduction in basis will increase any gain, or reduce any
loss, realized by the holder on any subsequent sale, redemption or other
disposition of its shares of Series A Preferred Stock or Common Stock. Any
such distribution in excess of a holder's adjusted basis in its shares of
Series A Preferred Stock or Common Stock will be treated as a gain from the
sale or exchange of such stock and will be short-term or long-term capital
gain, depending on the holding period for the

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<PAGE>

shares of Series A Preferred Stock. See "--Dispositions of Shares of Series A
Preferred Stock or Common Stock," below.

Redemption. A redemption of shares of Series A Preferred Stock for cash will
be treated as a taxable dividend, nontaxable recovery of basis or an amount
received in exchange for the shares of Series A Preferred Stock pursuant to
the rules described under "--Dividends on Shares of Series A Preferred Stock
or Common Stock," above, unless the redemption is treated as a "sale or
exchange" under Section 302 of the Code as described above under "--The
Section 302(b) Tests." If any of the tests under Section 302 of the Code are
met, the redemption of the shares of Series A Preferred Stock for cash would
be treated as a "sale or exchange" for tax purposes. Under certain
circumstances, a stockholder that receives Section 306 stock will be required
to recognize as dividend income, in the case of a redemption of such stock,
all or a portion of the proceeds received by such stockholder from such
redemption, without regard to the stockholder's tax basis in such shares, and
may not recognize any loss therefrom. See "--Treatment of Series A Preferred
Stock," above.

If, under the foregoing rules, a redemption of shares of Series A Preferred
Stock is treated as a "sale or exchange," rather than as a dividend, the
holder would have taxable gain or loss equal to the difference between the
amount realized and the holder's adjusted tax basis in the shares of Series A
Preferred Stock. For these purposes, the amount realized will be measured by
the amount of cash received.

If a redemption of the shares of Series A Preferred Stock is treated as a
distribution taxable as a dividend, the amount of the distribution will be
measured by the amount of cash received. The amount of the distribution will
not be reduced by the stockholder's tax basis in the shares of Series A
Preferred Stock. The stockholder's tax basis in the redeemed shares will be
transferred to any remaining stockholdings in the Company. If the stockholder
does not retain any stock ownership in the Company, such basis may be entirely
lost. A distribution to a corporate stockholder in redemption of the shares
that is treated as a dividend may also be considered an "extraordinary
dividend" under Section 1059 of the Code. See "--Dividends on Shares of Series
A Preferred Stock or Common Stock," above.

Redemption Premium on Shares of Series A Preferred Stock. Under Section 305
of the Code and applicable Regulations, if the redemption price of redeemable
preferred stock exceeds its issue price and part (or all) of such excess is
considered an unreasonable redemption premium, the entire amount of such
excess may be treated as distributed over the period during which such
redeemable preferred stock cannot be redeemed. The amount treated as
distributed each year would be determined on a constant yield to maturity
basis that would result in the allocation of a lesser amount of distributions
to the early years and a greater amount to the later years of such period. Any
such constructive distribution would be classified as a dividend, non-taxable
recovery of basis or an amount received in exchange for the shares of Series A
Preferred Stock pursuant to the rules summarized under "--Dividends on Shares
of Series A Preferred Stock or Common Stock," above. A premium is considered
to be reasonable if it is in the nature of a penalty for a premature
redemption and if such premium does not exceed the amount which the issuer
would be required to pay for such redemption under market conditions existing
at the time of issuance of the Series A Preferred Stock. The Company believes
that the redemption premium on the Series A Preferred Stock is a reasonable
premium, although no assurance can be given that it will be so considered by
the Service or a court.

Dispositions of Shares of Series A Preferred Stock or Common
Stock. Generally, any sale or other disposition of the shares of Series A
Preferred Stock or Common Stock will be a taxable event and will result in
capital gain or loss if the shares of Series A Preferred Stock or Common Stock
are held as a capital asset at the time of the sale or other disposition. The
amount of such gain or loss will generally be the difference between the
adjusted basis of the shares of Series A Preferred Stock or Common Stock on
the date of the sale or other disposition and the cash and fair market value
of the property received. Such gain or loss will be long-term gain or loss if
the shares of Series A Preferred Stock or Common Stock are held for more than
one year. Under certain circumstances, a stockholder that receives Section 306
stock will be required to recognize as ordinary income, in the case of a
taxable disposition of such stock, all or a portion of the proceeds received
by such stockholder

21
<PAGE>

from such disposition, without regard to the stockholder's tax basis in such
shares, and may not recognize any loss therefrom. See "--Treatment of Series A
Preferred Stock," above.

Conversion of Shares of Series A Preferred Stock into Common Stock. In
general, no gain or loss will be recognized for federal income tax purposes on
conversion of the shares of Series A Preferred Stock solely into shares of
Common Stock. If dividends on the shares of Series A Preferred Stock were in
arrears at the time of conversion, however, a portion of the shares of Common
Stock received in exchange for the shares of Series A Preferred Stock could be
viewed under Section 305(c) of the Code as a taxable stock dividend. In
general, the tax basis for shares of Common Stock received on conversion will
be equal to the tax basis of the shares of Series A Preferred Stock
surrendered therefor. The holding period of the shares of Common Stock will
include the holding period of such shares of Series A Preferred Stock.

Adjustment of Conversion Price. Section 305 of the Code and the Regulations
thereunder treat holders of convertible preferred stock as having received a
constructive distribution, taxable as described in "--Dividends on Shares of
Series A Preferred Stock or Common Stock" above, due to certain adjustments in
conversion ratios. The conversion rates of the Series A Preferred Stock are
subject to adjustment under certain circumstances. Any adjustment increasing
the number of shares of Common Stock into which the shares of Series A
Preferred Stock can be converted could cause the holders thereof to be viewed
under Section 305 of the Code as receiving a deemed distribution taxable as a
dividend, as described in "--Dividends on Shares of Series A Preferred Stock
or Common Stock" above, whether or not such holders exercise their conversion
rights.

Backup Withholding. Under the backup withholding provisions of the Code and
applicable Regulations, a holder of shares of Series A Preferred Stock or
Common Stock may be subject to back-up withholding at a rate of thirty-one
percent (31%) with respect to dividends or interest paid, original issue
discount accrued with respect to, or proceeds received from a sale, exchange
or redemption of, shares of Series A Preferred Stock or Common Stock, as the
case may be. The payor will be required to deduct and withhold a tax if (i)
the payee fails to furnish a taxpayer identification number ("TIN") to the
payor or establish an exemption from backup withholding, (ii) the Service
notifies the payor that the TIN furnished by the payee is incorrect, (iii)
there has been a notified payee underreporting with respect to interest,
dividends or original issue discount described in Section 3406(c) of the Code,
or (iv) there has been a failure of the payee to certify under the penalty of
perjury that the payee is not subject to withholding under Section
3406(a)(1)(C) of the Code. Backup withholding will not be required if such
holder (a) is a corporation or comes within certain other exempt categories
and when required demonstrates this fact or (b) provides a taxpayer
identification number, certifies as to no loss of exemption from backup
withholding, and otherwise complies with applicable requirements of the backup
withholding rules.

State and Local Income Taxes. Holders of shares of Series A Preferred Stock
or Common Stock may be liable for state and local income taxes with respect to
dividends or interest paid, original issue discount accrued with respect to,
or gain from the sale, exchange or redemption of shares of Series A Preferred
Stock or Common Stock, as the case may be. Many states and localities do not
allow corporations a deduction analogous to the federal dividends received
deduction. EACH OFFEREE IS ADVISED TO CONSULT HIS OWN TAX ADVISOR AS TO THE
STATE, LOCAL AND OTHER TAX CONSEQUENCES OF ACQUIRING, HOLDING AND DISPOSING OF
SHARES OF SERIES A PREFERRED STOCK OR COMMON STOCK.

22
<PAGE>

DESCRIPTION OF SERIES A PREFERRED STOCK AND COMMON STOCK

AUTHORIZED CAPITAL STOCK

The authorized capital stock of the Company consists of 100,000,000 shares
of Common Stock, par value $.01 per share, and 25,000,000 shares of preferred
stock, par value $.01 per share. The following summary description of the
Series A Preferred Stock and Common Stock is qualified in its entirety by
reference to the Company's Restated Certificate of Incorporation and the
Certificate of Designations governing the Series A Preferred Stock, a copy of
which has been filed as an exhibit to the Company's Schedule 13E-4 filed with
the Commission in connection with the Offer.

SERIES A PREFERRED STOCK

The Series A Preferred Stock has been authorized as a new series of
preferred stock, consisting of up to 2,365,000 shares. The Company's Restated
Certificate of Incorporation authorizes the Company to issue, without any
action on the part of its stockholders, an aggregate of 25,000,000 shares of
preferred stock, par value $.01 per share ("Preferred Stock"). The Board of
Directors of the Company (the "Board of Directors") has authority to divide
the Preferred Stock into one or more series and has broad authority to fix and
determine the relative rights and preferences, including the voting rights, of
the shares of each series. No other shares of Preferred Stock will be issued
and outstanding until the Series A Preferred Stock is issued.

Dividends. Holders of shares of Series A Preferred Stock will be entitled to
receive, when, as and if declared by the Board of Directors out of funds
legally available therefor, cash dividends at an annual rate of $1.5625 per
share, payable quarterly in arrears on January 15, April 15, July 15 and
October 15 of each year, beginning January 15, 1997, except that if any such
date is a Saturday, Sunday or legal holiday then such dividend shall be
payable on the next day that is not a Saturday, Sunday or legal holiday.
Dividends will accrue and be cumulative from the date of first issuance of the
Series A Preferred Stock and will be payable to holders of record as they
appear on the stock transfer books on such record dates as are fixed by the
Board of Directors.

The Series A Preferred Stock will be junior as to dividends to any series or
class of stock hereafter issued that ranks senior as to dividends to the
Series A Preferred Stock ("Senior Dividend Stock"), and if at any time the
Company has failed to pay or declare and set apart for payment accrued and
unpaid dividends on any Senior Dividend Stock, the Company may not pay any
dividend on the Series A Preferred Stock. The Series A Preferred Stock will
have priority as to dividends over the Common Stock and any other series or
class of the Company's stock hereafter issued that ranks junior as to
dividends to the Series A Preferred Stock ("Junior Dividend Stock"), and no
dividend (other than dividends payable solely in Common Stock or any other
series or class of stock hereafter issued which ranks junior as to dividends
and as to liquidation rights to the Series A Preferred Stock) may be paid on,
and no purchase, redemption or other acquisition may be made of any Junior
Dividend Stock unless all accrued and unpaid dividends on the Series A
Preferred Stock, including the full dividend for the then-current quarterly
dividend period, have been paid or declared and set apart for payment. The
Company may not pay dividends on any class or series of stock having parity
with the Series A Preferred Stock as to dividends ("Parity Dividend Stock")
unless it has paid or declared and set apart for payment or contemporaneously
pays or declares and sets apart for payment all accrued and unpaid dividends
for all prior periods on the Series A Preferred Stock and may not pay
dividends on the Series A Preferred Stock unless it has paid or declared and
set apart for payment or contemporaneously pays or declares and sets apart for
payment all accrued and unpaid dividends for all prior periods on the Parity
Dividend Stock. Whenever all accrued dividends are not paid in full on the
Series A Preferred Stock or any Parity Dividend Stock, all dividends declared
on the Series A Preferred Stock and such Parity Dividend Stock will be
declared and made pro rata so that the amount of dividends declared per share
on the Series A Preferred Stock and such Parity Dividend Stock will bear the
same ratio that accrued and unpaid dividends per share on the Series A
Preferred Stock and such Parity Dividend Stock bear to each other.

The amount of dividends payable per share of Series A Preferred Stock for
each quarterly dividend period will be computed by dividing the annual
dividend amount by four. The amount of dividends payable for the

23
<PAGE>

initial dividend period and for any period shorter than a full quarterly
dividend period will be computed on the basis of a 360-day year of twelve 30-
day months. No interest will be payable in respect of any dividend payment on
the Series A Preferred Stock which may be in arrears.

Under Delaware law, the Company may declare and pay dividends or make other
distributions on its capital stock only out of surplus, as defined in the
Delaware General Corporation Law (the "DGCL"), or, in case there is no such
surplus, out of its net profits for the fiscal year in which the dividend or
distribution is declared and/or the preceding fiscal year. No dividends or
distributions may be declared, paid or made if the Company is or would be
rendered insolvent by virtue of such dividend or distribution, or if such
declaration, payment or distribution would contravene the Company's Restated
Certificate of Incorporation.

The Company's credit agreement with Morgan Guaranty Trust Company of New
York, NationsBank of Texas, N.A., Texas Commerce Bank National Association,
The First National Bank of Boston, Wells Fargo Bank, N.A., CIBC, Inc. and
Overton Bank and Trust, N.A. (collectively, the "Banks"), among other things,
limits certain payments, including dividends and distributions on capital
stock and advances and investments in unrestricted subsidiaries (as defined),
to 25% of net cash flow, as defined, for the latest four consecutive quarterly
periods. Such agreement also requires the Company to maintain certain levels
of working capital and contains other covenants that could restrict the
payment of dividends under certain conditions.

Liquidation Rights. In the case of the voluntary or involuntary liquidation,
dissolution or winding up of the Company, holders of shares of Series A
Preferred Stock are entitled to receive the liquidation preference of $25.00
per share, plus an amount equal to any accrued and unpaid dividends to the
payment date, before any payment or distribution is made to the holders of
Common Stock or any other series or class of stock hereafter issued that ranks
junior as to liquidation rights to the Series A Preferred Stock, but the
holders of the shares of the Series A Preferred Stock will not be entitled to
receive the liquidation preference of such shares until the liquidation
preference of any other series or class of stock hereafter issued that ranks
senior as to liquidation rights to the Series A Preferred Stock ("Senior
Liquidation Stock") has been paid in full. The holders of Series A Preferred
Stock and all series or classes of stock hereafter issued that rank on a
parity as to liquidation rights with the Series A Preferred Stock are entitled
to share ratably, in accordance with the respective preferential amounts
payable on such stock, in any distribution (after payment of the liquidation
preference of the Senior Liquidation Stock) which is not sufficient to pay in
full the aggregate of the amount payable thereon. After payment in full of the
liquidation preference of the shares of the Series A Preferred Stock, the
holders of such shares will not be entitled to any further participation in
any distribution of assets by the Company. Neither a consolidation or merger
of the Company with another corporation nor a sale or transfer of all or part
of the Company's assets for cash, securities or other property will be
considered a liquidation, dissolution or winding up of the Company.

Voting Rights. Except as otherwise required by law, the holder of each share
of Series A Preferred Stock will be entitled to the number of votes equal to
the number of shares of Common Stock into which such share of Series A
Preferred Stock could be converted at the record date for determination of the
stockholders entitled to vote on such matters, such votes to be counted
together with all other shares of capital stock of the Company having general
voting power and not separately as a class or series. Holders of Series A
Preferred Stock will be entitled to receive the same notice of any
stockholders' meeting as is provided to holders of Common Stock. Fractional
votes by the holders of Series A Preferred Stock will not, however, be
permitted, and any fractional voting rights will (after aggregating all shares
into which shares of Series A Preferred Stock held by each holder could be
converted) be rounded to the nearest whole number. The Company will, or will
cause its transfer agent or registrar to, transmit to the registered holders
of the Series A Preferred Stock all reports and communications from the
Company that are generally mailed to holders of its Common Stock.

Redemption at Option of Company. The Series A Preferred Stock may not be
redeemed through October 15, 1999. For the 12-month period ending October 15,
2000, the Series A Preferred Stock may be redeemed by the Company only if at
the date on which notice of redemption is given the closing price per share of
Common Stock, as determined in accordance with the Certificate of
Designations, for any 20 trading days

24
<PAGE>

within a period of 30 successive trading days ending within three days of the
date of such notice, shall have equaled or exceeded 150% of the then
prevailing conversion price ($25.00 divided by the conversion ratio) for the
Series A Preferred Stock. With respect to redemptions occurring through
October 15, 2000, and redemptions after October 15, 2000, the Series A
Preferred Stock may be redeemed by the Company, at its option, in whole or in
part at any time, if redeemed during the 12-month period ending October 15 of
any year specified below, at the following redemption prices:

<TABLE>
<CAPTION>
PRICE
YEAR PER SHARE
- ---- ---------
<S> <C>
2000.................... $26.09
2001.................... $25.78
2002.................... $25.63
</TABLE>
<TABLE>
<CAPTION>
PRICE
YEAR PER SHARE
---- ---------
<S> <C>
2003.................... $25.47
2004.................... $25.31
2005.................... $25.16
</TABLE>

and thereafter at $25.00 per share, plus in each case accrued and unpaid
dividends to the redemption date.

If fewer than all the outstanding shares of Series A Preferred Stock are to
be redeemed, the Company will select those shares to be redeemed pro rata or
by lot or in such other manner as the Board of Directors may determine. There
is no mandatory redemption or sinking fund obligation with respect to the
Series A Preferred Stock. In the event that the Company has failed to pay
accrued and unpaid dividends on the Series A Preferred Stock, it may not
redeem any of the then-outstanding shares of the Series A Preferred Stock
until all such accrued and unpaid dividends have been paid in full.

Notice of redemption will be mailed at least 20 days but not more than 60
days before the redemption date to each holder of record of shares of Series A
Preferred Stock to be redeemed at the address shown on the stock transfer
books of the Company. After the redemption date, dividends will cease to
accrue on the shares of Series A Preferred Stock called for redemption and all
rights of the holders of such shares will terminate, except the right to
receive the redemption price without interest.

Conversion Rights. The holder of any shares of Series A Preferred Stock will
have the right, at the holder's option, to convert any or all such shares into
Common Stock at any time at a rate (subject to adjustment as described below)
of .961538 shares of Common Stock for each share of Series A Preferred Stock,
except that if the Series A Preferred Stock is called for redemption, the
conversion right will terminate at the close of business on the date fixed for
redemption with respect to any redemption occurring on or before the third
business day after October 15, 1999, and, with respect to any redemption
occurring thereafter, on the third business day prior to the date fixed for
redemption. No payment or adjustment will be made upon any conversion of any
share of Series A Preferred Stock on account of any dividends on the Common
Stock issued upon conversion, and the holder will lose any right to payment of
dividends on the shares surrendered for conversion. No fractional shares of
Common Stock will be issued upon conversion but, in lieu thereof, an
appropriate amount will be paid in cash based on the last reported sale price
for the shares of Common Stock on the day of conversion.

The conversion rate will be subject to adjustment in certain events
including: the issuance of stock as a dividend on the Common Stock;
subdivisions or combinations of the Common Stock; the issuance to all holders
of Common Stock of certain rights or warrants (expiring within 45 days after
the record date for determining stockholders entitled to receive them) to
subscribe for or purchase Common Stock at a less than current market price; or
the distribution to all holders of Common Stock of evidences of indebtedness,
cash (excluding ordinary cash dividends paid out of retained earnings), other
assets or rights or warrants to subscribe for or purchase any securities
(other than those referred to above). No adjustment of the conversion rate
will be required to be made until cumulative adjustments amount to 1% or more
of the conversion rate as last adjusted; however, any adjustment not made is
carried forward.

The Company from time to time may increase the conversion rate by any amount
for any period of at least 20 days, in which case the Company shall give at
least 15 days' notice of such increase. The Company may, at

25
<PAGE>

its option, make such increases in the conversion rate, in addition to those
set forth above, as the Board of Directors deems advisable to avoid or
diminish any income tax to holders of Common Stock resulting from any dividend
or distribution of stock (or rights to acquire stock) or from any event
treated as such for income tax purposes. See "Certain Federal Income Tax
Consequences--Adjustment of Conversion Price."

In case of any reclassification of the Common Stock, any consolidation of
the Company with, or merger of the Company into, any other person, any merger
of any person into the Company (other than a merger which does not result in
reclassification, conversion, exchange or cancellation of the outstanding
shares of Common Stock), any sale or transfer of all or substantially all of
the assets of the Company or any compulsory share exchange whereby the Common
Stock is converted into other securities, cash or other property, then
provision shall be made such that the holder of each share of Series A
Preferred Stock then outstanding shall have the right thereafter, during the
period such share of Series A Preferred Stock shall be convertible, to convert
such share only into the kind and amount of securities, cash and other
property receivable upon such reclassification, consolidation, merger, sale,
transfer or share exchange by a holder of the number of shares of Common Stock
into which such share of Series A Preferred Stock might have been converted
immediately prior to such reclassification, consolidation, merger, sale,
transfer or share exchange.

Other Provisions. The shares of Series A Preferred Stock, when issued, will
be duly and validly issued, fully paid and nonassessable.

The holders of shares of Series A Preferred Stock have no preemptive rights
with respect to any securities of the Company.

COMMON STOCK

The Company has 100,000,000 authorized shares of Common Stock. Such shares
may be issued by resolution of the Board of Directors in one or more classes
or series with such relative rights and preferences as set by the adopting
resolution, including such preferences, voting, dividend, liquidation,
redemption and conversion rights, designations and other terms and conditions
as the Board of Directors, in its discretion, may determine.

Holders of the issued and outstanding Common Stock are entitled to receive
dividends if declared by the Board of Directors out of funds legally available
therefor. Additionally, such shares of Common Stock have equal voting rights
on the basis of one vote per share on all matters to be voted upon by
stockholders. Cumulative voting for the election of directors is not
permitted, and the outstanding shares of Common Stock have no preemptive,
conversion, sinking fund or redemption provisions and are not liable for
further call or assessment. As no capital stock with prior rights upon
liquidation or distribution has been issued, each share of the outstanding
Common Stock is entitled to share on a pro rata basis in any assets available
for distribution to the holders of the Company's equity securities upon
liquidation.

The Transfer Agent and Registrar for the Common Stock is ChaseMellon
Shareholder Services, L.L.C.

CERTAIN ANTI-TAKEOVER PROVISIONS

The Company's Restated Certificate of Incorporation and Bylaws and Delaware
law contain several provisions that may make the acquisition of control of the
Company by means of a tender offer, open market purchases, a proxy fight or
otherwise more difficult. Many of the following provisions contain
requirements for a vote of 80% or more of the Company's stockholders.

The Company is a Delaware corporation and is subject to Section 203 of the
DGCL. In general, Section 203 prevents an "interested stockholder" (defined
generally as a person owning 15% or more of a corporation's

26
<PAGE>

outstanding voting stock) from engaging in a "business combination" (as
defined) with a Delaware corporation for three years following the date such
person became an interested stockholder unless (i) before such person became
an interested stockholder, the board of directors of the corporation approved
the transaction in which the interested stockholder became an interested
stockholder or approved the business combination; (ii) upon consummation of
the transaction that resulted in the interested stockholder's becoming an
interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced (excluding stock held by directors who are also officers of the
corporation and by employee stock plans that do not provide employees with the
rights to determine confidentially whether shares held subject to the plan
will be tendered in a tender or exchange offer); or (iii) following the
transaction in which such person became an interested stockholder, the
business combination is approved by the board of directors of the corporation
and authorized at a meeting of stockholders by the affirmative vote of the
holders of two-thirds of the outstanding voting stock of the corporation not
owned by the interested stockholder. Under Section 203, the restrictions
described above also do not apply to certain business combinations proposed by
an interested stockholder following the announcement or notification of one of
certain extraordinary transactions involving the corporation and a person who
had not been an interested stockholder during the previous three years or who
became an interested stockholder with the approval of a majority of the
corporation's directors, if such extraordinary transaction is approved or not
opposed by a majority of the directors who were directors prior to any
person's becoming an interested stockholder during the previous three years or
who were recommended for election or elected to succeed such directors by a
majority of such directors.

The Company's Bylaws have divided the Board of Directors into three classes
of directors serving staggered three-year terms. As a result, approximately
one-third of the Board of Directors is elected each year. The classification
of directors has the effect of making it more difficult for stockholders of
the Company to change the composition of the Board of Directors in a
relatively short period of time. At least two annual meetings of stockholders,
instead of one, will generally be required to effect a change in a majority of
the directors of the Board of Directors.

The Company's Restated Certificate of Incorporation provides that the number
of directors shall be not less than three nor more than twenty-one, the exact
number to be fixed from time to time by (i) the Board of Directors or (ii) the
affirmative vote of 80% or more of the voting power of the shares of the
Company. Accordingly, the incumbent members of the Board of Directors could
prevent any stockholder from obtaining majority representation on the
Company's Board of Directors by enlarging the size of the Board of Directors
and filling the new directorships with their own nominees.

The Company's Bylaws provide that special meetings of stockholders may be
called only by the Chairman of the Board of Directors, the Chief Executive
Officer, the President, the Board of Directors or by the written order of a
majority of the directors. The Company's Restated Certificate of Incorporation
provides that the affirmative vote of stockholders owning 80% or more of the
voting power of all the shares of the Company issued and outstanding and
entitled to vote shall be required to call a special meeting of stockholders.
Accordingly, holders of a significant percentage of the outstanding capital
stock of the Company may not be able to request a special meeting of the
stockholders.

The Company's Restated Certificate of Incorporation contains provisions
requiring the affirmative vote of the holders of at least 80% of the voting
stock to amend the provisions relating to the election and number of directors
described above. The Company's Restated Certificate of Incorporation also
contains provisions requiring the affirmative vote of holders of at least 80%
of the voting stock to amend the provisions relating to special meetings of
stockholders. These provisions will make it more difficult for stockholders to
make changes in the Company's Restated Certificate of Incorporation or Bylaws,
including changes designed to facilitate the exercise of control over the
Company. In addition, such requirements will enable the holders of a minority
of stock to prevent the holders of a majority of such stock from amending
certain provisions of the Company's Restated Certificate of Incorporation and
Bylaws. The requirements for such vote may be difficult to obtain, since at
least 80% of the voting stock must be present or represented by proxy at any
meeting at which any such amendment is proposed and must vote in favor of such
amendment.

27
<PAGE>

REPURCHASE PROGRAM

In May, 1996 the Board of Directors authorized the purchase from time to
time of up to 2,000,000 shares of Common Stock at management's discretion in
open market purchases. The Company has purchased approximately 639,390 shares
of Common Stock from such date through the date of this Offering Circular. No
such shares of Common Stock will be purchased by the Company during the
pendency of the Offer or until ten business days following the expiration or
termination of the Offer.

Except as set forth in Schedule I to this Offering Circular, based upon the
Company's records and upon information provided to the Company by its
directors, executive officers and affiliates, neither the Company nor any of
its subsidiaries nor, to the best of the Company's knowledge, any of the
directors or executive officers of the Company or its subsidiaries nor any
associates of any of the foregoing has effected any transactions in the Common
Stock during the 40 business day period prior to the date hereof.

28
<PAGE>

SCHEDULE I

COMPANY PURCHASES OF COMMON STOCK(A)

<TABLE>
<CAPTION>
DATE NUMBER OF SHARES PRICE PER SHARE
---- ---------------- ---------------
<S> <C> <C>
June 20, 1996 9,900 $22.50
June 21, 1996 83,400 22.50
June 24, 1996 2,300 22.50
June 27, 1996 6,000 24.00
July 24, 1996 50,000 21.50
July 25, 1996 17,900 21.995
July 26, 1996 35,800 22.00
July 30, 1996 15,000 22.00
August 2, 1996 6,590 22.00
August 5, 1996 4,000 21.984
</TABLE>
- --------
(a) All purchases were made for cash on the open market on the NYSE.

STOCK OPTION EXERCISES(A)

<TABLE>
<CAPTION>
DIRECTOR OR OFFICER DATE NO. OF SHARES PRICE PER SHARE
------------------- ------------- ------------- ---------------
<S> <C> <C> <C>
Bob R. Simpson June 28, 1996 60,000 $11.96
Steffen E. Palko June 28, 1996 60,000 11.96
4,000 16.875
Louis G. Baldwin June 28, 1996 18,000 11.96
3,500 13.00
800 16.875
Keith A. Hutton June 28, 1996 7,000 11.96
1,000 13.00
Bennie G. Kniffen June 28, 1996 700 16.875
Kenneth F. Staab June 28, 1996 18,000 11.96
3,500 13.00
800 16.875
Vaughn O. Vennerberg II June 28, 1996 8,300 11.96
700 13.00
</TABLE>
- --------
(a) In addition to the stock options, each individual exercised tandem stock
appreciation rights equal to two times the difference between the market
price of the Common Stock on the date of exercise and the exercise price
of such right (equal to the exercise price of the corresponding option).

On July 1, 1996, J. Richard Seeds, a director of the Company, was granted an
option to purchase 1,000 shares of Common Stock at a price per share of
$24.5625.

In addition, on July 1, 1996, 3,848 shares of Common Stock were sold at a
price per share of $24.75 from the Company 401(k) plan account of Larry
McDonald, an executive officer of the Company.

S-1
<PAGE>

Facsimile copies of the Letter of Transmittal will be accepted. The Letter
of Transmittal, stock certificates and other required documents should be sent
or delivered by each stockholder or his broker, dealer, commercial bank, trust
company or other nominees to the Exchange Agent at one of its addresses set
forth below.

The Exchange Agent is:

CHASEMELLON SHAREHOLDER SERVICES, L.L.C.

Facsimile Transmission Telephone Number:
(201) 329-8936

Facsimile Confirmation Number:
(201) 296-4209

Mailing Address: Overnight/Hand Deliveries:
P. O. Box 817 120 Broadway
Midtown Station 13th Floor
New York, New York 10018 New York, New York 10271
Attention: Reorganization Department Attention: Reorganization Department

Any questions and requests for assistance or additional copies of this
Offering Circular, the Letter of Transmittal and the Notice of Guaranteed
Delivery may be directed to the Information Agent at the telephone numbers and
addresses below. You may also contact your local broker, dealer, commercial
bank or trust company for assistance concerning the Offer.

The Information Agent for the Offer is:

CHASEMELLON SHAREHOLDER SERVICES, L.L.C.

450 West 33rd Street-15th Floor
New York, New York 10001
Toll Free (800) 953-2594

Banks and Brokerage Firms please call (212) 946-7712

<PAGE>

EXHIBIT 99.2
THE OFFER WILL EXPIRE AT 12:00 MIDNIGHT
NEW YORK CITY TIME, ON SEPTEMBER 9, 1996 UNLESS EXTENDED

LETTER OF TRANSMITTAL

TO ACCOMPANY SHARES OF
COMMON STOCK OF

CROSS TIMBERS OIL COMPANY

TENDERED PURSUANT TO THE OFFERING CIRCULAR
DATED AUGUST 12, 1996

(PLEASE READ THE INSTRUCTIONS CAREFULLY)

IMPORTANT: THIS LETTER OF TRANSMITTAL (OR A FACSIMILE HEREOF) AND ALL OTHER
DOCUMENTS AND INSTRUMENTS REQUIRED HEREBY SHOULD BE SENT OR DELIVERED TO THE
EXCHANGE AGENT AT ONE OF THE ADDRESSES SET FORTH BELOW. TENDERS MUST BE
RECEIVED BY THE EXCHANGE AGENT PRIOR TO 12:00 MIDNIGHT, NEW YORK CITY TIME, ON
MONDAY, SEPTEMBER 9, 1996, UNLESS THE OFFER IS EXTENDED (THE "EXPIRATION
DATE").

The Exchange Agent

CHASEMELLON SHAREHOLDER SERVICES, L.L.C.

Facsimile Transmission Telephone Number:
(201) 329-8936
Facsimile Confirmation Number:
(201) 296-4209

Mailing Address: Overnight/Hand Deliveries:

P. O. Box 817 120 Broadway
Midtown Station 13th Floor
New York, New York 10018 New York, New York 10271
Attention: Reorganization Department Attention: Reorganization Department

DELIVERY TO ANY ADDRESS OTHER THAN AS SET FORTH HEREIN WILL NOT CONSTITUTE
VALID DELIVERY.

THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ
CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.

This Letter of Transmittal is to be completed by holders of shares of Common
Stock (as defined below) only (a) if certificates for such shares are to be
forwarded herewith or (b) if delivery of such shares is to be made by book-
entry transfer to the account maintained by the Exchange Agent at The
Depository Trust Company ("DTC"), the Pacific Securities Depository Trust
Company ("PSDTC") or the Philadelphia Depository Trust Company ("PHILADEP")
(collectively, the "Book-Entry Facilities") pursuant to the procedures set
forth under the caption "The Offer--How to Tender" in the Offering Circular
(as defined below). Delivery of documents to a Book-Entry Facility does not
constitute delivery to the Exchange Agent.

Holders of shares whose certificates are not immediately available or who
cannot deliver their certificates or deliver confirmation of the book-entry
transfer of their shares into the Exchange Agent's account at a Book-Entry
Facility and all other documents required hereby to the Exchange Agent on or
prior to the Expiration Date must tender their shares pursuant to the
guaranteed delivery procedure set forth under the caption "The Offer--How to
Tender" in the Offering Circular. See Instruction 2 herein.
<PAGE>

(BOXES BELOW TO BE CHECKED BY ELIGIBLE INSTITUTIONS ONLY.)

[_]CHECK HERE IF TENDERED SHARES OF THE COMMON STOCK ARE BEING DELIVERED BY
BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT
WITH THE BOOK-ENTRY FACILITY SPECIFIED BELOW AND COMPLETE THE FOLLOWING:

Name of Tendering Institution: _____________________________________________

Account Number: ____________________________________________________________

[_] DTC [_] PSDTC [_] PHILADEP (check one)

Transaction Code Number ____________________________________________________

[_]CHECK HERE AND ENCLOSE A PHOTOCOPY OF THE NOTICE OF GUARANTEED DELIVERY IF
TENDERED SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED
DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE FOLLOWING:

Name(s) of Registered Owner(s) _____________________________________________

Date of Execution of Notice of Guaranteed Delivery _________________________

Name of Institution which Guaranteed Delivery ______________________________

IF DELIVERED BY BOOK-ENTRY TRANSFER:

Name of Tendering Institution: _____________________________________________

Account Number: ____________________________________________________________

[_] DTC [_] PSDTC [_] PHILADEP (check one)
- --------------------------------------------------------------------------------
DESCRIPTION OF SHARES TENDERED
- --------------------------------------------------------------------------------
IF BLANK, PLEASE PRINT
NAME AND ADDRESS OF CERTIFICATE(S) TENDERED
REGISTERED HOLDER (ATTACH ADDITIONAL SIGNED LIST IF NECESSARY)
- --------------------------------------------------------------------------------
TOTAL NUMBER
OF SHARES NUMBER OF
CERTIFICATE REPRESENTED BY SHARES
NUMBER(S)* CERTIFICATE(S)* TENDERED**
__________________________________________________
__________________________________________________
__________________________________________________
__________________________________________________
__________________________________________________
__________________________________________________
TOTAL SHARES
- --------------------------------------------------------------------------------
* Need not be completed by Book-Entry Stockholders.
** All Shares tendered by certificates surrendered shall be deemed
tendered unless a lesser number is specified in this column. See
Instruction 4.
- --------------------------------------------------------------------------------
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY

[_]CHECK HERE IF YOU CANNOT LOCATE YOUR CERTIFICATE(S) AND REQUIRE ASSISTANCE
IN REPLACING THEM. THE EXCHANGE AGENT WILL CONTACT YOU DIRECTLY WITH
REPLACEMENT INSTRUCTIONS. (SEE INSTRUCTION 9.)
<PAGE>

Ladies and Gentlemen:

Pursuant to the terms and subject to the conditions of the Offer (as
described below) of Cross Timbers Oil Company, a Delaware corporation (the
"Company"), to holders of the Company's common stock, par value $.01 per share
(the "Common Stock"), as set forth in the Offering Circular dated August 12,
1996 (the "Offering Circular") and this Letter of Transmittal (which, together
with the Offering Circular, constitute the "Offer"), receipt of which are
hereby acknowledged, the signer of this Letter of Transmittal (the "Holder")
hereby accepts the Offer and tenders the shares of the Common Stock listed on
this Letter of Transmittal in exchange for .86 shares of the Company's Series
A Convertible Preferred Stock, par value $.01 per share (the "Series A
Preferred Stock"), for each share of Common Stock tendered and accepted. No
fractional shares of Series A Preferred Stock will be issued. Stockholders
will receive cash for each fraction of a share of Series A Preferred Stock to
which they would otherwise be entitled, based upon an assumed valuation of
$25.00 per share.

The Company shall not be obligated to accept for exchange more than
2,750,000 shares of Common Stock. In the case of oversubscription, Common
Stock properly tendered and not withdrawn will be accepted on a pro rata
basis, in conformity with Rule 13e-4 of the General Rules and Regulations
under the Securities Exchange Act of 1934, as amended. All Common Stock
validly tendered for exchange and not withdrawn prior to the Expiration Date
by persons who owned of record in the aggregate 99 or fewer shares of Common
Stock, and who validly tendered all their shares of Common Stock prior to the
Expiration Date, will be accepted before proration, if any, of the exchange of
other tendered shares of Common Stock. Partial tenders will not qualify for
this preference, and it is not available to holders who owned of record in the
aggregate 100 or more shares of Common Stock, even though such holders have
separate stock certificates for fewer than 100 shares of Common Stock.

Accordingly, subject to, and effective upon, acceptance for exchange of the
shares of Common Stock tendered herewith in accordance with the terms and
conditions of the Offer, the Holder hereby sells, assigns and transfers to the
Company all right, title and interest in and to all of the shares of Common
Stock that are being tendered for exchange hereby and hereby irrevocably
constitutes and appoints the Exchange Agent the true and lawful agent and
attorney-in-fact of the Holder with respect to such shares, with full power of
substitution (such power of attorney being deemed to be an irrevocable power
coupled with an interest), to (i) deliver certificates for shares of Common
Stock tendered hereby or transfer ownership of such shares on the account
books maintained by any Book-Entry Facility together, in either such case,
with the accompanying evidences of transfer and authority, to the Company upon
the receipt by the Exchange Agent, as the Holder's agent, of the consideration
therefor pursuant to the Offer, (ii) present such shares for registration and
transfer on the books of the Company and (iii) receive all benefits and
otherwise exercise all rights of beneficial ownership of such shares.

THE HOLDER HEREBY REPRESENTS AND WARRANTS THAT THE HOLDER HAS FULL POWER AND
AUTHORITY TO TENDER, EXCHANGE, SELL, ASSIGN AND TRANSFER THE SHARES OF COMMON
STOCK TENDERED HEREBY AND TO ACQUIRE THE SHARES OF SERIES A PREFERRED STOCK
ISSUABLE UPON THE EXCHANGE OF SUCH TENDERED SHARES, THAT THE COMPANY WILL
ACQUIRE GOOD AND UNENCUMBERED TITLE TO SUCH TENDERED SHARES, FREE AND CLEAR OF
ALL LIENS, RESTRICTIONS, CHARGES AND ENCUMBRANCES, AND THAT THE SHARES OF
COMMON STOCK TENDERED HEREBY ARE NOT SUBJECT TO ANY ADVERSE CLAIM OR PROXIES
WHEN THE SAME ARE ACCEPTED BY THE COMPANY. THE HOLDER WILL, UPON REQUEST,
EXECUTE AND DELIVER ANY ADDITIONAL DOCUMENTS DEEMED BY THE COMPANY OR THE
EXCHANGE AGENT TO BE NECESSARY OR DESIRABLE TO COMPLETE THE EXCHANGE, SALE,
ASSIGNMENT AND TRANSFER OF THE SHARES OF COMMON STOCK TENDERED HEREBY.

All authority herein conferred or agreed to be conferred in this Letter of
Transmittal shall survive the death or incapacity of the Holder and any
obligation of the Holder hereunder shall be binding upon the heirs, personal
representatives, successors and assigns of the Holder. Except as stated in the
Offering Circular, this tender is irrevocable.
<PAGE>

A tender of shares pursuant to the procedures described in the Offering
Circular and in the instructions hereto will constitute the Holder's acceptance
of the terms and conditions of the Offer and a binding agreement between the
tendering stockholder and the Company upon the terms and subject to the
conditions of the Offer. The Holder recognizes that, under certain
circumstances set forth in the Offering Circular, the Company may not be
required to accept any of the shares of Common Stock tendered for exchange
hereby. Unless otherwise indicated in the box entitled "Special Issuance
Instructions", the Holder hereby directs that the certificates for the Series A
Preferred Stock, any certificates for any shares of Common Stock not exchanged
and/or any check to be issued for cash in lieu of fractional shares of Series A
Preferred Stock be issued in the name of the Holder. The Holder understands
that holders who tender shares of the Common Stock by book-entry transfer
("Book-Entry Stockholders") may request that any shares of the Common Stock not
exchanged will be returned by crediting the account maintained by DTC, PSDTC or
PHILADEP, as such Book-Entry Stockholder may designate, by making an
appropriate entry under "Special Issuance Instructions". Unless otherwise
indicated in the box entitled "Special Delivery Instructions", the Holder
hereby directs that the certificates for the Series A Preferred Stock, any
certificates for any shares of the Common Stock not exchanged and/or any check
to be issued for cash in lieu of fractional shares of Series A Preferred Stock
be mailed to the person at the address shown in the box entitled "Description
of Shares Tendered". The Holder recognizes that the Company has no obligation
pursuant to the Special Issuance Instructions to transfer any shares of Common
Stock from the name(s) of the registered holder(s) thereof if the Company does
not accept for exchange any of the shares so tendered.
________________________________________________________________________________
STOCKHOLDER SIGN HERE
(PLEASE COMPLETE SUBSTITUTE FORM W-9 AT THE BACK OF THIS LETTER OF TRANSMITTAL)
(NOTE: SIGNATURE(S) MUST BE GUARANTEED IF REQUIRED BY INSTRUCTIONS 1 OR 5)
...................................................................
...................................................................
(SIGNATURE(S) OF OWNER(S))

Dated ______________, 1996 Holder's Telephone Number_____________

(Must be signed by registered holder(s) exactly as name(s) appear(s)
on stock certificated(s) or by person(s) authorized to become
registered holder(s) by certificates and documents transmitted herewith.
If signature is by an attorney, executor, administrator, trustee or
guardian or others acting in a fiduciary capacity, please set forth full
title and see Instruction 5.)

SIGNATURE(S) GUARANTEED
(SEE INSTRUCTIONS 1 AND 5)

(Firm--Please Print) .............................................

(Authorized Signature) ...........................................

Date .............................................................
________________________________________________________________________________
<PAGE>

SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1, 2, 4, 5, 6 AND (SEE INSTRUCTIONS 1, 4, 5, 6 AND 7)
7)

To be completed ONLY if certifi-
To be completed ONLY if certifi- cates for shares of Series A Pre-
cates for shares of Series A Pre- ferred Stock, certificates for
ferred Stock, certificates for shares of Common Stock not ex-
shares of Common Stock not ex- changed and/or cash in lieu of
changed and/or cash in lieu of fractional shares of Series A Pre-
fractional shares of Series A Pre- ferred Stock are to be sent to
ferred Stock are to be issued in someone other than the Holder or
the name of and mailed to a bene- to the Holder at an address other
ficial owner other than the Holder than that shown above.
or if shares of Common Stock ten-
dered by book-entry transfer which
are not exchanged are to be re-
turned by credit to an account
maintained by DTC, PSDTC or
PHILADEP other than that desig-
nated above.

Mail certificates to:
___________________________________
NAME--(PLEASE PRINT)
___________________________________
(ADDRESS)
___________________________________

(INCLUDE ZIP CODE)
Issue certificates to: ___________________________________
___________________________________ (TAX IDENTIFICATION OR SOCIAL
NAME--(PLEASE PRINT) SECURITY NO.)
___________________________________
(ADDRESS)
___________________________________
(INCLUDE ZIP CODE)
___________________________________
(TAX IDENTIFICATION OR SOCIAL
SECURITY NO.)

[_] Credit unexchanged shares of
Common Stock tendered by book-en-
try transfer to the DTC, PSDTC or
PHILADEP account set forth below:
Name of Account Party _____________
Account Number _________________ at
[_] DTC [_] PSDTC or [_] PHILADEP
(check one)
<PAGE>

INSTRUCTIONS

FORMING PART OF THE TERMS AND CONDITIONS
OF THE OFFER.

1. GUARANTEE OF SIGNATURES. Except as otherwise provided below, signatures
on this Letter of Transmittal must be guaranteed by a bank, broker, dealer,
credit union, savings association or other entity that is a member in good
standing of a recognized Medallion Program approved by The Securities Transfer
Association, Inc. (an "Eligible Institution"), unless the Common Stock
tendered hereby is tendered (i) by the registered holder (which term, for
purposes of this document, shall include any participant in a Book-Entry
Transfer Facility whose name appears on a security position listing as the
owner of Common Stock) of such Common Stock who has completed neither the box
labeled "Special Issuance Instructions" nor the box labeled "Special Delivery
Instructions" herein or (ii) for the account of an Eligible Institution. See
Instruction 5. If the certificates representing the tendered Common Stock are
registered in the name of a person other than the signer of this Letter of
Transmittal, or if payment is to be made or delivered to, or certificates
evidencing the unexchanged Common Stock are to be issued or returned to, a
person other than the registered owner, then the certificates representing the
tendered Common Stock must be endorsed or accompanied by duly executed stock
powers, in either case signed exactly as the name or names of the registered
owner or owners appear on such certificates or stock powers guaranteed by an
Eligible Institution as provided herein. See Instruction 5.

2. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES. In order to
participate in the Offer and receive Series A Preferred Stock, a stockholder
must properly complete and duly execute (with signatures guaranteed if
required by Instructions 1 or 5) the Letter of Transmittal (or a facsimile
thereof) and mail or deliver it, together with the certificate(s) representing
the shares of Common Stock to be tendered for exchange (or the Exchange Agent
must receive a timely confirmation of a book-entry transfer into the Exchange
Agent's account at a Book-Entry Facility) and any other required documents, to
the Exchange Agent. The Exchange Agent must receive the foregoing documents
and instruments on or prior to the Expiration Date. Delivery of documents to a
Book-Entry Facility does not constitute delivery to the Exchange Agent.

If a stockholder desires to tender shares of Common Stock pursuant to the
Offer and such stockholder's certificate(s) for such shares are not
immediately available, or if the procedure for book-entry transfer cannot be
completed on a timely basis, or such stockholder cannot deliver the
certificate(s) and all other required documents to the Exchange Agent prior to
the Expiration Date, such shares may be tendered if all of the following
guaranteed delivery procedures are complied with: (i) such tenders are made by
or through an Eligible Institution; (ii) a properly completed and duly
executed Notice of Guaranteed Delivery, in substantially the form provided by
the Company, is received by the Exchange Agent on or prior to the Expiration
Date, and (iii) the certificates for all tendered shares, in proper form for
transfer (or confirmation of book-entry transfer of such shares into the
Exchange Agent's account at a Book-Entry Facility as described in the Offering
Circular), together with a properly completed and duly executed Letter of
Transmittal and all other documents required by this Letter of Transmittal,
are received by the Exchange Agent within three New York Stock Exchange, Inc.
trading days after the date of execution of such Notice of Guaranteed
Delivery, all as provided under the caption "The Offer--How to Tender" in the
Offering Circular.

All questions as to the validity, form, eligibility (including time of
receipt) and acceptability of shares of the Common Stock tendered will be
determined by the Company, in its sole discretion, and such determinations
will be final and binding. The Company reserves the right to reject any and
all tenders determined by it not to be in proper form or otherwise not valid
or the acceptance for exchange of which may, in the opinion of the Company's
counsel, be unlawful. The Company's interpretation of the terms and conditions
of the Offer (including the Letter of Transmittal and Instructions thereto)
will also be final and binding. The Company and the Exchange Agent are not
under any duty to give notification of any irregularities or defects and shall
not incur any liability for failure to give any such notification. Tenders
will not be deemed to have been made until such irregularities or defects have
been cured or waived. Any tender (including the Letter of Transmittal and
stock certificates) that is not properly completed and executed, and as to
which irregularities or defects are not cured or waived, will be returned by
the Exchange Agent to the tendering stockholder promptly after the Expiration
Date (or, in the case of shares delivered by book-entry transfer within a
Book-Entry Facility, the tendered shares will be credited to the account
maintained within such Book-Entry Facility by the participant and the Book-
Entry Facility which delivered such shares).
<PAGE>

THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL, THE CERTIFICATES FOR
SHARES OF COMMON STOCK AND ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY
THROUGH A BOOK-ENTRY FACILITY, IS AT THE ELECTION AND RISK OF THE TENDERING
STOCKHOLDER AND, EXCEPT AS OTHERWISE PROVIDED IN THIS INSTRUCTION 2, THE
DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE EXCHANGE
AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL, WITH RETURN RECEIPT REQUESTED,
PROPERLY INSURED, IS RECOMMENDED.

No alternative, conditional or contingent tenders will be accepted. All
tendering stockholders, by execution of this Letter of Transmittal or
facsimile thereof, waive any rights to receive any notice of the acceptance of
their tender.

3. INADEQUATE SPACE. If the space provided herein is inadequate, the
certificate numbers and the numbers of shares should be listed on a separate
signed schedule attached hereto.

4. PARTIAL TENDERS (NOT APPLICABLE TO BOOK-ENTRY STOCKHOLDERS). If fewer
than all the shares evidenced by any certificate submitted are to be tendered,
the number of shares which are to be tendered should be stated in the box
entitled "Number of Shares Tendered". New certificate(s) for the remainder of
the shares which are evidenced by old certificate(s) will be sent to the
registered holder of the certificate(s) tendered, unless otherwise provided by
checking the appropriate box on the Letter of Transmittal, as soon as
practicable after the tender has been accepted. All shares represented by
certificates listed are deemed to have been tendered unless otherwise
indicated.

5. SIGNATURES ON LETTER OF TRANSMITTAL, STOCK POWERS AND ENDORSEMENTS. If
this Letter of Transmittal is signed by the registered holder of the
certificate(s) tendered hereby, the signature must correspond exactly with the
name as written on the face of the certificate(s) without alteration,
enlargement or any change whatsoever.

If the shares of Common Stock tendered hereby are owned of record by two or
more joint owners, all such owners must sign this Letter of Transmittal.

If any tendered shares of Common Stock are registered in different names on
several certificates, it will be necessary to complete, sign and submit as
many separate Letters of Transmittal as there are different registrations of
certificates.

When this Letter of Transmittal is signed by the registered holder(s) of the
certificate(s) listed and transmitted hereby, no endorsement of certificates
or separate stock powers are required. If, however, any certificates of shares
of Series A Preferred Stock or any certificates for shares of Common Stock not
tendered are to be issued to a person other than the registered holder, then
endorsement of certificates transmitted hereby or separate stock powers are
required. Signatures on any such certificate(s) or stock powers must be
guaranteed by an Eligible Institution. If this Letter of Transmittal is signed
by a person other than the registered holder of the certificate(s) listed,
such certificate(s) must be endorsed or accompanied by appropriate stock
powers, in either case signed exactly as the name or names of the registered
holder or holders appear on the certificate(s). Signatures on such
certificate(s) or stock powers must be guaranteed by an Eligible Institution.

If this Letter of Transmittal or any certificate(s) or stock powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and proper evidence
satisfactory to the Company of their authority so to act must be submitted.
Signatures on any such certificate(s) or stock powers must be guaranteed by an
Eligible Institution.

6. DELIVERY OF SERIES A PREFERRED STOCK. Delivery of Series A Preferred
Stock and/or any check to be issued for cash in lieu of fractional shares of
Series A Preferred Stock will be made promptly after the Expiration Date for
all shares of the Common Stock properly tendered and accepted for exchange by
the Company. The Series A Preferred Stock and/or any check to be issued for
cash in lieu of fractional shares of Series A Preferred Stock will be issued
in the name of the registered holder(s) of the Common Stock and mailed to him
or her, unless otherwise provided in the appropriate box on this Letter of
Transmittal. In the case of tenders by Notice of Guaranteed Delivery, Series A
Preferred Stock and/or any check to be issued for cash in lieu of fractional
shares of Series A Preferred Stock will not be delivered until the Letter of
Transmittal, the certificate(s) representing tendered shares relating to such
Notice of Guaranteed Delivery (or a timely confirmation of a book-entry
transfer of such shares into the Exchange Agent's account at a Book-Entry
Facility) and all other required documents have been received by the Exchange
Agent.
<PAGE>

7. STOCK TRANSFER TAXES. The Company will pay all stock transfer taxes, if
any, applicable to the exchange of shares tendered and accepted pursuant to
the Offer. If, however, issuance of Series A Preferred Stock is to be made to,
or (in circumstances permitted hereby) if shares not tendered are to be
registered in the name of any person other than the registered holder, or if
tendered certificates are registered in the name of any person other than the
person(s) signing this Letter of Transmittal, the amount of any stock transfer
taxes (whether imposed on the registered holder or such person) payable on
account of the transfer must be paid to the Company or the Exchange Agent (or
the transferee must establish to the satisfaction of the Company the such
taxes have been paid or need not be paid) before the Series A Preferred Stock
will be issued.

EXCEPT AS PROVIDED IN THIS INSTRUCTION 7, IT WILL NOT BE NECESSARY FOR
TRANSFER TAX STAMPS TO BE AFFIXED TO THE CERTIFICATES LISTED IN THIS LETTER OF
TRANSMITTAL.

8. WAIVER OF CONDITIONS. Subject to limitations set forth in the Offering
Circular, the conditions of the Offer may be waived by the Company, in whole
or in part, at any time or from time to time, in the Company's sole discretion
in the case of any shares of Common Stock tendered.

9. LOST, DESTROYED OR STOLEN CERTIFICATES. If the certificate(s) has (have)
been lost, stolen or destroyed, check the box on the front of this Letter of
Transmittal and send the Letter of Transmittal to the Exchange Agent. In such
event, the Exchange Agent will forward an Affidavit of Loss and Bond of
Indemnity requiring a 2% premium and a $50.00 service charge. You are urged to
properly complete and return documents immediately.

10. REQUESTS FOR ADDITIONAL COPIES. Questions and requests for additional
copies of the Offering Circular and this Letter of Transmittal may be directed
to the Information Agent at the address and telephone numbers set forth on the
back cover of the Offering Circular.

11. SUBSTITUTE FORM W-9. Each tendering stockholder is required to provide
the Exchange Agent with a correct Taxpayer Identification Number ("TIN"),
generally the stockholder's social security or federal employer identification
number, on Substitute Form W-9 enclosed herewith. If a stockholder fails to
provide a TIN to the Exchange Agent, such stockholder may be subject to a $50
penalty imposed by the Internal Revenue Service. In addition, payments of cash
in lieu of fractional shares of Series A Preferred Stock that are made to such
stockholder with respect to Common Stock accepted pursuant to the Offer may be
subject to backup withholding of 31%. The "Certificate of Awaiting Taxpayer
Identification Number" should be completed if the tendering stockholder has
not been issued a TIN and has applied for a number or intends to apply for a
number in the near future. If such certificate is completed and the Exchange
Agent is not provided with a TIN within 60 days, the Exchange Agent will
withhold 31% of all payments of cash thereafter until a TIN is provided to the
Exchange Agent. The stockholder is required to give the Exchange Agent the
social security number or employer identification number of the record owner
of the Common Stock or of the last transferee appearing on the stock powers
attached to, or endorsed on, the Common Stock. If the Common Stock is in more
than one name or is not in the name of the actual owner, consult the enclosed
Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9 for additional guidance on which number to report.

IMPORTANT: THIS LETTER OF TRANSMITTAL OR A FACSIMILE COPY HEREOF (TOGETHER
WITH COMMON STOCK CERTIFICATES OR CONFIRMATION OF BOOK-ENTRY TRANSFER AND ALL
OTHER REQUIRED DOCUMENTS) OR THE NOTICE OF GUARANTEED DELIVERY MUST BE
RECEIVED BY THE EXCHANGE AGENT ON OR PRIOR TO THE EXPIRATION DATE.

IMPORTANT TAX INFORMATION

Certain stockholders (including, among others, all corporations and certain
foreign individuals) are not subject to backup withholding. In order for a
foreign individual to qualify as an exempt recipient, that stockholder must
submit a Form W-8, signed under penalties of perjury, attesting to that
individual's exempt status. A Form W-8 can be obtained from the Exchange
Agent. See the enclosed Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9 for additional instructions.

Backup withholding is not an additional tax. Rather, the tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained from the Internal Revenue Service.
<PAGE>

TO BE COMPLETED BY ALL TENDERING STOCKHOLDERS

PAYER'S NAME: CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
- --------------------------------------------------------------------------------
Name as shown on account (if joint account, list first and circle
the name of the person or entity whose number you enter below)
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
City, State and Zip Code
- --------------------------------------------------------------------------------
TAXPAYER IDENTIFICATION NUMBER--FOR ALL ACCOUNTS

SUBSTITUTE Enter your taxpayer identification number in
FORM W-9 the appropriate box. For most individuals,
DEPARTMENT OF this is your social security number. If you
THE TREASURY do not have a number, see the enclosed
INTERNAL Guidelines.
REVENUE SERVICE
Note: if the account is in more than one
REQUEST FOR TAXPAYER name, see the chart in the enclosed Guide-
IDENTIFICATION NUMBER lines on which number enter.
AND CERTIFICATION
---------------------------------
Social Security Number
or
Employer Identification Number:
---------------------------------
- --------------------------------------------------------------------------------
CERTIFICATION.--Under the penalties of perjury, I certify that:

(1) The number shown on this form is my correct Taxpayer Identification Number
(or I am waiting for a number to be issued to me), and

(2) I am not subject to backup withholding because: (a) I am exempt from backup
withholding, or (b) I have not been notified by the Internal Revenue
Service ("IRS") that I am subject to backup withholding as a result of a
failure to report all interest or dividends, or (c) the IRS has notified me
that I am no longer subject to backup withholding.

CERTIFICATION INSTRUCTIONS.--You must cross out item (2) above if you have been
notified by the IRS that you are currently subject to backup withholding
because of underreporting interest or dividends on your tax return. However, if
after being notified by the IRS that you were subject to backup withholding you
received another notification from the IRS that you are no longer subject to
backup withholding, do not cross out item (2).

Signature __________________________________________________ Date _____________
(For joint names, only the person whose TIN is shown should sign)
-------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF
TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL
DETAILS.

YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU WROTE "APPLIED FOR" IN
THE SPACE FOR THE TIN ON SUBSTITUTE FORM W-9.

<PAGE>

- --------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER

I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (a) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service or Social Security Administration Office or (b) I
intend to mail or deliver an application in the near future. I understand
that if I do not provide a taxpayer identification number within 60 days,
31% of all reportable payments made to me thereafter will be withheld until
I provide a number.
___________________________________________________ ______________________
Signature Date

- --------------------------------------------------------------------------------
The Information Agent for the Offer is:

CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
450 West 33rd Street--15th Floor
New York, New York 10001
Toll Free (800) 953-2594
Banks and Brokerage Firms please call (212) 946-7712

<PAGE>

EXHIBIT 99.3

[FORM OF LETTERHEAD]

August 12, 1996

Dear Stockholder:

Cross Timbers Oil Company is offering you the opportunity to exchange, on a
tax-free basis, shares of Common Stock for shares of the Company's new Series
A Convertible Preferred Stock. Each share of Common Stock accepted in this
Offer will be exchanged for .86 shares of the new Preferred Stock.

This Offer is for up to 2,750,000 shares of the Company's Common Stock
(approximately 15% of the currently outstanding shares). The Series A
Preferred Stock will pay an annual dividend of $l.5625 per share and will be
convertible into .961538 shares of Common Stock. You may tender all or any
portion of your Common Stock.

The purpose of this Offer is to allow you, should you desire, to earn a
higher dividend while participating in the Company's growth through the right
to convert back to Common Stock. Should you choose instead to retain your
Common Stock, you will increase your proportionate interest in the common
equity of the Company. The Company benefits from the Offer by furthering its
objective of increasing cash flow and reserves per Common Share.

Tax counsel to the Company has concluded that the exchange qualifies as a
tax-free reorganization under the Internal Revenue Code of 1986 (except for
cash received in lieu of fractional shares). There are additional tax issues
which may affect tendering stockholders which are discussed fully in the
Offering Circular and as a result, offerees should consult their own tax
advisor concerning all tax consequences.

The Offer is being made to all the Company's stockholders. If the Offer is
oversubscribed, tendered stock will be prorated, and all unpurchased shares
will be returned. The Offer, proration period and withdrawal rights will
expire at midnight, New York City time, on September 9, 1996 unless the Offer
is extended.

The Board of Directors of the Company has approved the making of the Offer
but is not making any recommendation to stockholders as to whether or not to
tender Common Stock. Each holder of Common Stock must make his own decision
whether or not to tender his shares and, if so, how many shares to tender.

The Offer is explained in detail in the enclosed Offering Circular and
Letter of Transmittal. If you decide to tender all or part of your shares, the
instructions on how to do this are contained in the enclosed materials.
Questions and requests for assistance with respect to the mechanics of the
Offer may be directed to our Information Agent, ChaseMellon Stockholder
Services, L.L.C., toll free at 800-953-2594.

Sincerely,

Bob R. Simpson
Chairman of the Board and
Chief Executive Officer

<PAGE>

EXHIBIT 99.4
CROSS TIMBERS OIL COMPANY

OFFER TO EXCHANGE SHARES OF ITS SERIES A CONVERTIBLE PREFERRED STOCK FOR UP TO
2,750,000 SHARES OF ITS COMMON STOCK

To Securities Dealers, Commercial Banks, Trust Companies and Other Nominees:

Cross Timbers Oil Company (the "Company") is offering, upon the terms and
subject to the conditions set forth in the enclosed Offering Circular dated
August 12, 1996 (the "Offering Circular") and the enclosed Letter of
Transmittal (the "Letter of Transmittal" and, together with the Offering
Circular, the "Offer"), to issue shares of its Series A Convertible Preferred
Stock, par value $.01 per share (the "Series A Preferred Stock"), in exchange
for up to 2,750,000 shares of its common stock, par value $.01 per share (the
"Common Stock").

We are asking you to contact your clients for whom you hold shares of the
Common Stock registered in your name or in the name of your nominee or who
hold shares of the Common Stock registered in their own names.

Enclosed are sets of Offer material, consisting of the following:

1. The Offering Circular.

2. The Letter of Transmittal for your use and for the information of your
clients.

3. A Letter to Stockholders from the Chairman and Chief Executive Officer
of the Company.

4. Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9.

5. A form of letter which may be sent to your clients for whose account
you hold shares of the Common Stock registered in your name or the name of
your nominee, with space provided for obtaining such client's instructions
with regard to the Offer.

6. The Notice of Guaranteed Delivery to be used to accept the Offer if
certificates for shares are not immediately available or if the procedure
for book-entry transfer cannot be completed on a timely basis.

Please forward this material as soon as possible to your beneficial holders.
The Company will not pay any fees or commissions to any broker, dealer or
other person for soliciting tenders of shares of the Common Stock pursuant to
the Offer. You will be reimbursed by the Company for customary mailing and
handling expenses incurred by you in forwarding any of the enclosed materials
for your clients. The Company will pay all transfer taxes, if any, applicable
to the transfer and exchange of shares of Common Stock, except as otherwise
provided in Instruction 7 of the Letter of Transmittal.

Your prompt action is requested. The Offer will expire at 12:00 midnight,
New York City time, on September 9, 1996, unless extended.

To participate in the Offer, stock certificates for shares of the Common
Stock and a duly executed and properly completed Letter of Transmittal or
facsimile thereof, together with any other required documents, must be
delivered to the Exchange Agent as indicated in the Offering Circular.
Alternatively, in lieu of delivery of stock certificates, a stockholder may
tender by causing a transfer of his shares of the Common Stock to the Exchange
Agent's account at The Depository Trust Company or any other participating
book-entry transfer facility at which the Exchange Agent has established an
account with respect to the shares of the Common Stock.

If stockholders wish to tender, but it is impracticable for them to forward
their stock certificates prior to the expiration of the Offer, a tender may be
effected by following the guaranteed delivery procedures described in the
Offering Circular under "The Offer--How to Tender."
<PAGE>

Your solicitation of tenders of shares of the Common Stock will constitute
your representation to the Company that (i) in connection with such
solicitation, you have complied with the applicable requirements of the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, any applicable state securities or blue sky law, and the applicable
rules and regulations thereunder, (ii) if a foreign broker or dealer, you have
conformed to the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. in making solicitations and (iii) in soliciting
tenders of such shares, you have not used any solicitation materials other than
those furnished by the Company.

The Offer is not being made to, nor will tenders be accepted from or on
behalf of, holders of shares of Common Stock residing in any jurisdiction in
which the making of the Offer or the acceptance thereof would not be in
compliance with the laws of such jurisdiction.

Additional copies of the enclosed material may be obtained from ChaseMellon
Shareholder Services, L.L.C., the Information Agent, at (800) 953-2594. Banks
and brokerage firms should contact the Information Agent at (212) 946-7712.

Very truly yours,

CROSS TIMBERS OIL COMPANY

NOTHING HEREIN OR THE IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY
PERSON AS AN AGENT OF THE COMPANY OR THE EXCHANGE AGENT, OR AUTHORIZE YOU OR
ANY OTHER PERSON TO MAKE ANY STATEMENTS OR USE ANY MATERIAL ON BEHALF OF EITHER
OF THEM WITH RESPECT TO THE OFFER, EXCEPT FOR THE MATERIAL ENCLOSED HEREWITH
AND THE STATEMENTS EXPRESSLY MADE IN THE OFFERING CIRCULAR OR THE LETTER OF
TRANSMITTAL.

<PAGE>

EXHIBIT 99.5
CROSS TIMBERS OIL COMPANY

OFFER TO EXCHANGE SHARES OF
SERIES A CONVERTIBLE PREFERRED STOCK
FOR UP TO 2,750,000 SHARES OF ITS
COMMON STOCK

THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00
MIDNIGHT, NEW YORK CITY TIME, ON MONDAY, SEPTEMBER 9, 1996, UNLESS EXTENDED.

To our clients:

Enclosed for your consideration are the Offering Circular dated August 12,
1996 (the "Offering Circular") and the related Letter of Transmittal (which,
together with any amendments or supplements thereto, constitute the "Offer")
in connection with the offer by Cross Timbers Oil Company, a Delaware
corporation (the "Company"), to issue shares of its Series A Convertible
Preferred Stock, par value $.01 per share (the "Series A Preferred Stock"), in
exchange for up to 2,750,000 shares of its common stock, par value $.01 per
share (the "Common Stock"), upon the terms and conditions set forth in the
Offer. We are the holder of record of shares of Common Stock held for your
account. A tender of such shares can be made only by us as the holder of
record and pursuant to your instructions. THE LETTER OF TRANSMITTAL IS
FURNISHED TO YOU FOR YOUR INFORMATION ONLY AND CANNOT BE USED BY YOU TO TENDER
SHARES HELD BY US FOR YOUR ACCOUNT.

EACH STOCKHOLDER SHOULD MAKE HIS OWN DECISION WHETHER TO TENDER SHARES OF
COMMON STOCK, AND, IF SO, HOW MANY SHARES TO TENDER.

We request instructions as to whether you wish us to tender any or all of
the shares of Common Stock held by us for your account, upon the terms and
subject to the conditions set forth in the Offer.

Please note carefully the following:

1. The Company's Board of Directors has approved the making of the Offer
but has made no recommendation to stockholders as to whether or not to
tender their shares of Common Stock in the Offer.

2. The Offer is being made for up to 2,750,000 shares of the outstanding
Common Stock (15% of such shares based on shares outstanding at August 1,
1996). If the number of shares validly tendered prior to the Expiration
Date (as defined in the Offering Circular) and not withdrawn is greater
than 2,750,000, the Company will, upon the terms and subject to the
conditions of the Offer, accept for purchase all shares of Common Stock
properly tendered and not withdrawn before the Expiration Date on a pro
rata basis (with adjustments to avoid purchases of fractional Shares).

3. The Offer is not conditioned upon any minimum number of shares of
Common Stock being tendered.

4. The Offer, proration period and withdrawal rights will expire at 12:00
midnight, New York City time, Monday, September 9, 1996, unless extended.

5. Any brokerage fees, commissions or stock transfer taxes applicable to
the sale of shares of Common Stock to the Company pursuant to the Offer
will be paid by the Company, except as otherwise provided in Instruction 7
of the Letter of Transmittal.

If you wish to have us tender any or all of your shares of Common Stock,
please so instruct us by completing, executing, detaching and returning to us
the attached instruction form. An envelope to return your instructions to us
is enclosed. If you authorize tender of your shares of Common Stock, all such
shares will be tendered unless otherwise specified on the attached instruction
form.

YOUR INSTRUCTIONS SHOULD BE FORWARDED TO US IN AMPLE TIME TO PERMIT US TO
SUBMIT A TENDER ON YOUR BEHALF BY THE EXPIRATION OF THE OFFER. THE OFFER,
PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK
CITY TIME, ON MONDAY, SEPTEMBER 9, 1996, UNLESS THE COMPANY EXTENDS THE OFFER.

The Offer is not being made to, nor will tenders be accepted from or on
behalf of, stockholders in any jurisdiction in which the making of the Offer
or acceptance thereof would not be in compliance with the laws of such
jurisdiction.
<PAGE>

INSTRUCTIONS WITH RESPECT TO OFFER TO EXCHANGE
SHARES OF SERIES A CONVERTIBLE PREFERRED STOCK
FOR UP TO 2,750,000 SHARES OF THE COMMON STOCK
OF
CROSS TIMBERS OIL COMPANY

The undersigned acknowledge(s) receipt of your letter, the enclosed Offering
Circular dated August 12, 1996 and the related Letter of Transmittal in
connection with the offer by Cross Timbers Oil Company, a Delaware corporation,
to issue shares of its Series A Convertible Preferred Stock, par value $.01 per
share, in exchange for up to 2,750,000 shares of its common stock, par value
$.01 per share (the "Common Stock").

This will instruct you to tender the number of shares of Common Stock
indicated below held by you for the account of the undersigned, upon the terms
and subject to the conditions set forth in the Offering Circular and the
related Letter of Transmittal.

Number of shares of Common Stock to Be Tendered: Shares*

Account Number:

Dated: , 1996

* Unless otherwise indicated, it will be assumed that all shares held by us for
your account are to be tendered.

SIGN HERE

_____________________________________ _____________________________________
Signature(s)

_____________________________________ _____________________________________

_____________________________________ _____________________________________
Please print name(s) and address(es) here.

<PAGE>

EXHIBIT 99.6
NOTICE OF GUARANTEED DELIVERY

FOR

TENDER OF SHARES OF COMMON STOCK

CROSS TIMBERS OIL COMPANY

This form or one substantially equivalent to that set forth below must be
used to accept the Offer (as defined below) if certificates for shares of the
common stock, par value $.01 per share (the "Common Stock"), of Cross Timbers
Oil Company, a Delaware corporation, are not immediately available, or the
procedure for book-entry transfer cannot be completed on a timely basis, or a
shareholder cannot deliver the certificate(s) and all other required documents
to the Exchange Agent prior to the Expiration Date (as defined in the Offering
Circular referred to below). Such form must be delivered by hand or sent by
facsimile transmission or mail to the Exchange Agent, and must be received by
the Exchange Agent on or prior to the Expiration Date. See "The Offer--How to
Tender" in the Offering Circular.

The Exchange Agent:

CHASEMELLON SHAREHOLDER SERVICES, L.L.C.

Facsimile Transmission Telephone Number:
(201) 329-8936
Facsimile Confirmation Number:
(201) 296-4209

Mailing Address: Overnight/Hand Deliveries:

P. O. Box 817 120 Broadway
Midtown Station 13th Floor
New York, New York 10018 New York, New York 10271
Attention: Reorganization Department Attention: Reorganization
Department

DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE OTHER THAN AS SET FORTH ABOVE
DOES NOT CONSTITUTE A VALID DELIVERY.
<PAGE>

Gentlemen:

The undersigned hereby tenders to Cross Timbers Oil Company, a Delaware
corporation, upon the terms and subject to the conditions set forth in the
Offering Circular dated August 12, 1996 (the "Offering Circular") and the
related Letter of Transmittal (which together constitute the "Offer"), receipt
of both of which is hereby acknowledged, the number of shares of Common Stock
set forth below, pursuant to the guaranteed delivery procedures set forth in
the Offering Circular under the caption "The Offer--How to Tender".

Number of Shares: Name(s) of Record Holders(s):

_____________________________________ _____________________________________

Certificate Nos. _____________________________________
(if available):
Please Print Address(es) Here:
_____________________________________
_____________________________________
_____________________________________
_____________________________________

Check ONE box if shares will be _____________________________________
tendered by book-entry transfer: Area Code and Telephone Number

[_] The Depository Trust Company _____________________________________

[_] Pacific Securities Depository Trust _____________________________________
Company
_____________________________________
[_] Philadelphia Depository Trust Company Signature(s)

Account Number ______________________ Dated: ________________________, 1996

GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)

The undersigned, broker, dealer, credit union, savings association or other
entity that is a member in good standing of a recognized Medallion Program
approved by The Securities Transfer Association, Inc., guarantees that the
undersigned will deliver to the Exchange Agent the certificates representing
the shares tendered hereby in proper form for transfer, or timely confirmation
of book-entry transfer of such shares into the Exchange Agent's account at The
Depository Trust Company, the Pacific Securities Depository Trust Company or
the Philadelphia Depository Trust Company, together, in each case, with a
properly completed and duly executed Letter of Transmittal (or manually signed
facsimile thereof) with any required signature guarantees and any other
required documents, all within three New York Stock Exchange, Inc. trading days
after the date hereof.

_____________________________________ _____________________________________
(Address) (Name of Firm)

_____________________________________ _____________________________________
(Area Code and Telephone Number) (Authorized Signature)

Dated: ________________________, 1996

The institution which completes this form must communicate the guarantee to
the Exchange Agent and must deliver the Letter of Transmittal and certificates
for Common Stock to the Exchange Agent within the time period shown herein.
Failure to do so could result in a financial loss to such institution.

DO NOT SEND SHARE CERTIFICATES
WITH THIS FORM.
SHARE CERTIFICATES SHOULD BE SENT
WITH YOUR LETTER OF TRANSMITTAL.

<PAGE>

EXHIBIT 99.7

NUMBER: 96-16

CROSS TIMBERS OIL ANNOUNCES EXCHANGE OFFER:
NEW SERIES A CONVERTIBLE PREFERRED STOCK FOR COMMON SHARES

FORT WORTH, TX (AUGUST 12, 1996) - Cross Timbers Oil Company (NYSE-XTO)
announced today that its Board of Directors has authorized an offer to exchange
shares of the Company's new Series A Convertible Preferred Stock for up to
2,750,000 shares of the Company's Common Stock. Each share of Common Stock
accepted in the offer will be exchanged for .86 shares of the new Preferred
Stock.

The offer is expected to qualify as a tax-free reorganization under the
Internal Revenue Code of 1986 (except for cash received in lieu of fractional
shares). The offer commences today and will expire at midnight, New York City
time, on September 9, 1996, unless extended.

The 2,365,000 shares of Preferred Stock to be issued in the offer will have
a liquidation preference of $25.00 per share, and will pay dividends at an
annual rate of $1.5625 per share. The Preferred Stock also will be convertible
at any time into .961538 shares of Common Stock.

"The purpose of this offer," said Bob R. Simpson, Chairman and Chief
Executive Officer, "is to allow each stockholder the opportunity to restructure
his investment in the Company in line with personal investment objectives.
Shareholders who accept the Offer will exchange their investment in the Common
Stock for an investment in the Preferred Stock, which will pay a higher dividend
rate." Simpson added, "The exchange of Common Stock for Preferred Stock also
furthers the Company's goal of increasing cash flow and reserves per Common
Share."

The exchange offer will be subject to various terms and conditions
described in offering materials to be distributed to shareholders later this
week.

The Board of Directors of the Company has approved the offer but is not
making any recommendation to stockholders as to whether to tender Common Stock.
Each shareholder should decide whether to tender shares, and if so, how many.

(more)
<PAGE>

PAGE 2
CROSS TIMBERS OIL - ANNOUNCES EXCHANGE OFFER

ChaseMellon Shareholder Services, L.L.C., is serving as the Information
Agent and Exchange Agent for the Offer. Requests for further information about
the Offer may be directed to ChaseMellon at 800-953-2594.

Cross Timbers Oil Company, one of the nation's fastest growing
independents, is engaged in the acquisition, exploitation and development of
quality, long-lived producing oil and gas properties. The firm, whose
predecessor companies were established in 1986, completed its initial public
offering in May 1993. Its properties are concentrated in Texas, Oklahoma,
Kansas, New Mexico and Wyoming.

CONTACT: LOUIS G. BALDWIN
SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
CROSS TIMBERS OIL COMPANY
817/870-2800

<PAGE>

EXHIBIT 99.8
This announcement is neither an offer to purchase or exchange, nor a
solicitation of an offer to sell or exchange, any securities. The Offer
is made solely by the Offering Circular dated August 12, 1996 and the
related Letter of Transmittal. The Offer is not being made to, and
tenders will not be accepted from, holders of shares of the
Common Stock in any jurisdiction in which the making or
acceptance thereof would not be in compliance with the laws
of such jurisdiction.

NOTICE OF EXCHANGE OFFER BY

CROSS TIMBERS OIL COMPANY

SERIES A CONVERTIBLE PREFERRED STOCK

FOR

UP TO 2,750,000 SHARES

OF ITS COMMON STOCK

Cross Timbers Oil Company (the "Company") is offering, upon the terms and
subject to the conditions set forth in its Offering Circular dated August 12,
1996 and the related Letter of Transmittal (together, the "Offer"), to issue
shares of its Series A Convertible Preferred Stock, par value $.01 per share
("Series A Preferred Stock"), in exchange for up to 2,750,000 shares of its
Common Stock, par value $.01 per share (the "Common Stock"), validly tendered
on or prior to the Expiration Date and not properly withdrawn. Each share of
Common Stock validly tendered on or prior to the Expiration Date (as specified
below) and not properly withdrawn will be entitled to receive .86 shares of
Series A Preferred Stock.

THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00
MIDNIGHT, NEW YORK CITY TIME, ON SEPTEMBER 9, 1996, UNLESS THE OFFER IS
EXTENDED.

The Company's obligation to accept shares of Common Stock for exchange
pursuant to the Offer is subject to certain conditions set forth in the
Offering Circular under the caption "The Offer--Certain Conditions to the
Offer." THE OFFER IS NOT CONDITIONED UPON ANY MINIMUM NUMBER OF SHARES OF
COMMON STOCK BEING TENDERED.

The purpose of the Offer is to allow each stockholder the opportunity to
restructure his investment in the Company in line with his personal investment
objectives. By means of the Offer, the Company is giving stockholders the
choice of (i) liquidating (in whole or in part depending on the number of
shares of Common Stock tendered) their investment in the Common Stock while
maintaining an investment in the Company as holders of the Series A Preferred
Stock (and thus realizing higher current income from dividends than is
expected to be paid on the Common Stock), (ii) retaining all their shares of
Common Stock, thus increasing such stockholders' proportionate interest in the
common equity of the Company following completion of the Offer or (iii) some
combination of (i) and (ii).

THE BOARD OF DIRECTORS OF THE COMPANY HAS APPROVED THE MAKING OF THE OFFER
BUT IS NOT MAKING ANY RECOMMENDATION TO STOCKHOLDERS AS TO WHETHER OR NOT TO
TENDER COMMON STOCK. EACH HOLDER OF COMMON STOCK MUST MAKE HIS OWN DECISION
WHETHER OR NOT TO TENDER SHARES OF COMMON STOCK, AND IF SO, HOW MANY SHARES OF
COMMON STOCK TO TENDER.
<PAGE>

Subject to the terms and conditions of the Offer, the Company will accept for
exchange, and issue shares of Series A Preferred Stock in exchange for, shares
of Common Stock properly tendered on or prior to the Expiration Date. The term
"Expiration Date" means 12:00 midnight, New York City time, on September 9,
1996, unless the Company, in its sole discretion, notifies the Exchange Agent
referred to in the Offering Circular that the period of the Offer has been
extended, in which case the term "Expiration Date" means the latest time and
date on which the Offer as so extended will expire. If the Offer is
oversubscribed, shares of Common Stock tendered prior to the Expiration Date
and not withdrawn will be subject to proration. The proration period also
expires on the Expiration Date.

Stockholders who wish to exchange shares of Common Stock for shares of Series
A Preferred Stock and who validly tender certificates of Common Stock to the
Exchange Agent (or validly tender shares of Common Stock by effecting a book-
entry transfer of such shares into the Exchange Agent's account with respect to
the shares of Common Stock at a participating book-entry transfer facility)
and, in each case, who furnish the Letter of Transmittal and any other required
documents to the Exchange Agent, will have certificates for shares of Series A
Preferred Stock mailed to them by the Exchange Agent promptly after tender is
accepted by the Company, together with cash in lieu of fractional shares of
Series A Preferred Stock. Subject to the terms and conditions of the Offer,
properly tendered shares of Common Stock will be accepted on or promptly after
the Expiration Date. Subject to the applicable rules of the Securities and
Exchange Commission, the Company, however, reserves the right to delay
acceptance of tendered shares upon the occurrence of any of the conditions set
forth in the Offering Circular under the caption "The Offer--Certain Conditions
of the Offer."

The Company will not be obligated to accept for exchange more than 2,750,000
shares of Common Stock. In the case of oversubscription, Common Stock properly
tendered and not withdrawn will be accepted on a pro rata basis, in conformity
with Rule 13e-4 of the Securities Exchange Act. All Common Stock validly
tendered for exchange and not withdrawn prior to the Expiration Date by persons
who owned of record in the aggregate 99 or fewer shares of Common Stock, and
who validly tendered all their shares of Common Stock prior to the Expiration
Date, will be accepted before proration, if any, of the exchange of other
tendered shares of Common Stock. In the event of proration, because of the
difficulty of determining the precise number of shares of Common Stock validly
tendered and not withdrawn, the Company does not expect to be able to announce
the final proration factor until at least five NYSE trading days after the
Expiration Date.

Tenders of shares of the Common Stock are irrevocable except that tendered
shares may be withdrawn (i) at any time prior to the Expiration Date or (ii) if
not yet accepted for exchange, at any time after October 7, 1996. To be
effective, notice of withdrawal must be timely received by the Exchange Agent
at one of its addresses set forth in the Offering Circular. Any notice of
withdrawal must specify the person named in the Letter of Transmittal as having
tendered the number of shares of Common Stock to be withdrawn and the name of
the registered holder of such shares. If the shares of Common Stock have been
physically delivered to the Exchange Agent, the tendering stockholder must also
submit the serial number shown on the particular certificate(s) to be
withdrawn. If the shares of Common Stock have been delivered pursuant to the
book-entry procedures set forth above, any notice of withdrawal must specify
the name and number of the participant's account at the book-entry transfer
facility to be credited with the withdrawn shares. The Exchange Agent will
return the properly withdrawn shares of Common Stock as soon as practicable
following receipt of notice of withdrawal. All questions as to the validity,
including time of receipt, of notices of withdrawals will be determined by the
Company, whose determination shall be final and binding.

The information required to be disclosed by Rule 13e-4(d)(1) of the General
Rules and Regulations under the Securities Exchange Act of 1934, as amended, is
contained in the Offering Circular and is incorporated herein by reference.

The Offer is being made by the Company in reliance on the exemption from the
registration requirements of the Securities Act of 1933, as amended, afforded
by Section 3(a)(9) thereof. The Company, therefore, will not pay any commission
or other remuneration to any broker, dealer, salesman or other person for
soliciting tenders of shares of Common Stock.

2
<PAGE>

THE OFFERING CIRCULAR AND LETTER OF TRANSMITTAL CONTAIN IMPORTANT INFORMATION
WHICH SHOULD BE READ BEFORE ANY DECISION IS MADE WITH RESPECT TO THE OFFER.
Requests for copies of the Offering Circular and the Letter of Transmittal may
be directed to the Information Agent as set forth below and copies will be
furnished promptly at the Company's expense. The Offering Circular and the
Letter of Transmittal have been mailed to record holders of shares of Common
Stock and will be furnished to brokers, banks and similar persons whose names
or the names of whose nominees appear on the list of holders of shares of
Common Stock for subsequent transmittal to beneficial owners of shares of
Common Stock.

The Information Agent for the Offer is:

CHASEMELLON SHAREHOLDER SERVICES, L.L.C.

450 WEST 33RD STREET--15TH FLOOR NEW YORK, NEW YORK 10001 TOLL FREE (800) 953-
2594

Banks and Brokerage Firms please call (212) 946-7712

<PAGE>

EXHIBIT 99.9
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9

GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE
PAYER.-- Social Security numbers have nine digits separated by two hyphens:
i.e. 000-00-0000. Employer identification numbers have nine digits separated by
only one hyphen: i.e. 00-0000000. The table below will help determine the
number to give the payer.

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

<TABLE>
<CAPTION>
GIVE THE
SOCIAL SECURITY
FOR THIS TYPE OF ACCOUNT: NUMBER OF--
- --------------------------------------------
<S> <C>
1. An individual's account The individual

2. Two or more individuals The actual owner
(joint account) of the account
or, if combined
funds, any one
of the
individuals/1/

3. Husband and wife (joint The actual owner
account) of the account
or, if joint
funds, either
person/1/

4. Custodian account of The minor/2/
minor
(Uniform Gift to Minors
Act)

5. Adult and minor (joint The adult or, if
account) the minor is the
only
contributor, the
minor/1/

6. Account in the name of The ward, minor,
guardian or committee or incompetent
for a designated ward, person/3/
minor, or incompetent
person

7.a The usual revocable The grantor-
savings trust account trustee/1/
(grantor is also
trustee)
b So-called trust The actual
account that is not owner/1/
legal or valid trust
under State law

8. Sole proprietorship The owner/4/
account
- --------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
GIVE THE EMPLOYER
IDENTIFICATION
FOR THIS TYPE OF ACCOUNT: NUMBER OF--
---
<S> <C>
9. A valid trust, estate, Legal entity (do
or pension trust not furnish the
identifying
number of the
personal
representative
or trustee
unless the legal
entity itself is
not designated
in the account
title.)/5/

10. Corporate account The corporation

11. Religious, charitable, The organization
or educational
organization account

12. Partnership account The partnership
held in the name of the
business

13. Association, club, or The organization
other tax-exempt
organization

14. A broker or registered The broker or
nominee nominee

15. Account with the The public
Department of entity
Agriculture in the name
of a public entity
(such as a state or
local government,
school district, or
prison) that receives
agricultural program
payments
---
</TABLE>

/1/List first and circle the name of the person whose number you furnish.
/2/Circle the minor's name and furnish the minor's social security number.
/3/Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number.
/4/Show the name of the owner.
/5/List first and circle the name of the legal trust, estate, or pension trust.

NOTE: If no name is circled when there is more than one name, the number will
be considered to be that of the first name listed.
<PAGE>

GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
PAGE 2
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card, or
Form SS-4, Application for Employer Identification Number, at the local office
of the Social Security Administration or the Internal Revenue Service and
apply for a number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on ALL payments include
the following:
. A corporation.
. A financial institution.
. An organization exempt from tax under section 501(a), or an individual
retirement plan.
. The United States or any agency or instrumentality thereof.
. A State, the District of Columbia, a possession of the United States, or
any subdivision or instrumentality thereof.
. A foreign government, a political subdivision of a foreign government, or
any agency or instrumentality thereof.
. An international organization or any agency, or instrumentality thereof.
. A registered dealer in securities or commodities registered in the United
States or a possession of the United States.
. A real estate investment trust.
. A common trust fund operated by a bank under section 584(a).
. An exempt charitable remainder trust, or a non-exempt trust described in
section 4947(a)(1).
. An entity registered at all times under the Investment Company Act of
1940.
. A foreign central bank of issue.
Payments of dividends and patronage dividends not generally subject to backup
withholding include the following:
. Payments to nonresident aliens subject to withholding under section 1441.
. Payments to partnerships not engaged in a trade or business in the United
States and which have at least one nonresident partner.
. Payments of patronage dividends where the amount received is not paid in
money.
. Payments made by certain foreign organizations.
. Payments made to a nominee.
Payments of interest not generally subject to backup withholding include the
following:
. Payments of interest on obligations issued by individuals. NOTE: You may
be subject to backup withholding if this interest is $600 or more and is
paid in the course of the payer's trade or business and you have not
provided your correct taxpayer identification number to the payer.
. Payments of tax-exempt interest (including exempt-interest dividends under
section 852).
. Payments described in section 6049(b)(5) to nonresident aliens.
. Payments on tax-free covenant bonds under section 1451.
. Payments made by certain foreign organizations.
. Payments made to a nominee.
Exempt payees described above should file Form W-9 to avoid possible erroneous
backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR TAXPAYER
IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, AND RETURN IT
TO THE PAYER. IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRONAGE DIVIDENDS,
ALSO SIGN AND DATE THE FORM.
Certain payments other than interest, dividends, and patronage dividends,
that are not subject to information reporting are also not subject to backup
withholding. For details, see the regulations under sections 6041, 6041A(a),
6045, and 6050A.
PRIVACY ACT NOTICE.--Section 6109 requires most recipients of dividend,
interest, or other payments to give taxpayer identification numbers to payers
who must report the payments to the IRS. The IRS uses the numbers for
identification purposes. Payers must be given the numbers whether or not
recipients are required to file tax returns. Payers must generally withhold
31% of taxable interest, dividend, and certain other payments to a payee who
does not furnish a taxpayer identification number to a payer. Certain
penalties may also apply.

PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.--If you
fail to furnish your taxpayer identification number to a payer, you are
subject to a penalty of $50 for each such failure unless your failure is due
to reasonable cause and not to willful neglect.
(2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING.--If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION.--Falsifying certifications or
affirmations may subject you to criminal penalties including fines and/or
imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE
SERVICE.

<PAGE>

CROSS TIMBERS OIL COMPANY EXHIBIT 99.10
CONSOLIDATED BALANCE SHEETS
____________________________

(in thousands)

<TABLE>
<CAPTION> December 31
---------------------
1995 1994
--------- ---------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents..................................................... $ 2,212 $ 7,838
Accounts receivable, net (Note 6)............................................. 27,582 15,604
Inventory..................................................................... - 1,544
Deferred income tax benefit (Note 3).......................................... 1,661 1,286
Other current assets.......................................................... 1,282 664
-------- --------
Total Current Assets....................................................... 32,737 26,936
-------- --------

Property and Equipment, at cost --
successful efforts method (Notes 1 and 2):
Producing properties.......................................................... 493,800 365,841
Undeveloped properties........................................................ 1,939 1,598
Gas plant, gathering and other................................................ 48,064 11,948
-------- --------
Total Property and Equipment................................................ 543,803 379,387
Accumulated depreciation, depletion and amortization.......................... (179,329) (134,832)
-------- --------
Net Property and Equipment................................................. 364,474 244,555
-------- --------
Investment in Equity Securities, at market value............................... - 15,065
-------- --------
Other Assets .................................................................. 5,464 5,895
-------- --------
TOTAL ASSETS .................................................................. $402,675 $292,451
======== ========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
Accounts payable and accrued liabilities..................................... $ 25,314 $ 24,263
Payable to Royalty Trust (Note 1)............................................ 1,890 1,861
Accrued stock incentive compensation (Note 8)................................ 3,881 2,398
-------- --------
Total Current Liabilities............................................... 31,085 28,522
-------- --------
Long-term Debt (Note 2)........................................................ 238,475 142,750
-------- --------
Deferred Income Taxes Payable (Note 3)......................................... 2,382 7,696
-------- --------
Other Long-term Liabilities.................................................... 33 150
-------- --------

Commitments and Contingencies (Note 4)

Stockholders' Equity (Note 5):
Preferred stock ($.01 par value, 25,000,000 shares authorized, none issued).. - -
Common stock ($.01 par value, 100,000,000 shares authorized,
18,415,257 and 15,925,545 shares issued).................................. 184 159
Additional paid-in capital................................................... 156,670 123,253
Treasury stock (30,516 and 758 shares)....................................... (528) (11)
Unrealized loss on investment in equity securities........................... - (115)
Retained earnings (deficit).................................................. (25,626) (9,953)
-------- --------
Total Stockholders' Equity.............................................. 130,700 113,333
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY..................................... $402,675 $292,451
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.

24
<PAGE>

CROSS TIMBERS OIL COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
- -------------------------------------------------------------------------------
(in thousands, except per share data)
<TABLE>
<CAPTION>

YEAR ENDED DECEMBER 31
---------------------------
1995 1994 1993
-------- ------- -------
<S> <C> <C> <C>
REVENUES

Oil.......................................... $ 60,349 $53,324 $39,747
Gas.......................................... 40,543 38,389 34,649
Gas gathering, processing and marketing...... 7,091 4,274 3,717
Other........................................ 4,922 288 69
-------- ------- -------

Total Revenues............................... 112,905 96,275 78,182
-------- ------- -------
EXPENSES.....................................

Production................................... 35,338 32,368 29,223
Taxes on production and property............. 8,646 8,586 6,706
Depreciation, depletion and amortization..... 36,892 31,709 25,108
Impairment (Note 1).......................... 20,280 - -
General and administrative (Notes 5 and 8)... 13,156 8,532 9,863
Gas gathering and processing................. 2,528 1,646 1,492
Interest, net................................ 12,523 8,034 5,464
Trust development costs...................... 561 622 695
-------- ------- -------

Total Expenses............................... 129,924 91,497 78,551
-------- ------- -------

INCOME (LOSS) BEFORE INCOME TAX
AND EXTRAORDINARY ITEM...................... (17,019) 4,778 (369)

Income Tax (Note 3).......................... (5,825) 1,730 3,643
-------- ------- -------
NET INCOME (LOSS) BEFORE EXTRAORDINARY ITEM.. (11,194) 3,048 (4,012)

EXTRAORDINARY ITEM (Note 1).................. 656 - -
-------- ------- -------
NET INCOME (LOSS)............................ $(10,538) $ 3,048 $(4,012)
======== ======= =======

NET INCOME (LOSS) PER COMMON SHARE (Note 1)
Before extraordinary item................... $(0.66) $0.19 $(0.28)
======== ======= =======
After extraordinary item.................... $(0.62) $0.19 $(0.28)
======== ======= =======

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING... 16,921 15,924 14,525
======== ======= =======
PRO FORMA INFORMATION (Note 3)

Income (Loss) Before Income Tax............... $ (369)
Pro Forma Income Tax Expense (Benefit)........ (118)
-------
Pro Forma Net Income (Loss)................... $ (251)
=======
Pro Forma Net Income (Loss) per Common Share.. $ (0.02)
=======

</TABLE>

See accompanying notes to consolidated financial statements.

25
<PAGE>

CROSS TIMBERS OIL COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
(in thousands)
(Note 7)

<TABLE>
<CAPTION>
Year Ended December 31
--------------------------------
1995 1994 1993
--------- -------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES

Net income (loss)...................................................... $ (10,538) $ 3,048 $ (4,012)
Adjustments to reconcile net income (loss) to net cash.................
provided by operating activities:.....................................
Depreciation, depletion and amortization............................. 36,892 31,709 25,108
Impairment........................................................... 20,280 - -
Performance share and restricted stock compensation.................. 2,945 - 664
Stock appreciation right compensation................................ 1,447 706 1,729
Deferred income tax.................................................. (6,023) 1,662 3,643
Loss (gain) from sale of properties and equity securities............ (4,520) 122 594
Extraordinary item................................................... (656) - -
Other non-cash items................................................. 612 569 199
Changes in working capital (a)....................................... (7,501) 4,477 4,284
--------- -------- ---------
CASH PROVIDED BY OPERATING ACTIVITIES.................................. 32,938 42,293 32,209
--------- -------- ---------
INVESTING ACTIVITIES

Sale of equity securities.............................................. 16,923 - -
Investment in equity securities........................................ (123) (15,239) -
Sale of property and equipment......................................... 13,095 2,102 442
Property acquisitions.................................................. (131,342) (28,100) (87,064)
Development costs...................................................... (19,296) (19,550) (16,984)
Gas plant, gathering and other additions............................... (39,673) (1,958) (1,180)
--------- -------- ---------
CASH USED BY INVESTING ACTIVITIES...................................... (160,416) (62,745) (104,786)
--------- -------- ---------
FINANCING ACTIVITIES

Proceeds from long-term debt........................................... 193,000 57,000 163,014
Payments on long-term debt............................................. (96,040) (26,000) (133,000)
Proceeds from sale of common stock, net................................ 29,450 - 43,614
Dividends.............................................................. (4,951) (4,777) (3,296)
Proceeds on exercise of stock options.................................. 744 20 -
Purchase of treasury stock............................................. (351) (11) -
--------- -------- ---------
CASH PROVIDED BY FINANCING ACTIVITIES.................................. 121,852 26,232 70,332
--------- -------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS....................... (5,626) 5,780 (2,245)

CASH AND CASH EQUIVALENTS, JANUARY 1................................... 7,838 2,058 4,303
--------- -------- ---------
CASH AND CASH EQUIVALENTS, DECEMBER 31................................. $ 2,212 $ 7,838 $ 2,058
========= ======== =========

(a) CHANGES IN WORKING CAPITAL
Accounts receivable............................................... $ (9,365) $ 2,186 $ 266
Inventory......................................................... 1,544 (440) (992)
Other current assets.............................................. (581) 8 (275)
Accounts payable, accrued liabilities and payable to
Royalty Trust.................................................... 901 2,723 5,285
--------- -------- ---------
DECREASE (INCREASE) IN WORKING CAPITAL............................. $ (7,501) $ 4,477 $ 4,284
========= ======== =========

</TABLE>
See accompanying notes to consolidated financial statements.

26
<PAGE>
CROSS TIMBERS OIL COMPANY
CONSOLIDATED STATEMENTS OF OWNERS' EQUITY
- --------------------------------------------------------------------------------

(in thousands)
(Note 5)

SHARES OF
COMMON STOCK STOCKHOLDERS' EQUITY
--------------- -----------------------------------
ADDITIONAL RETAINED
IN COMMON PAID-IN TREASURY EARNINGS PARTNERS'
ISSUED TREASURY STOCK CAPITAL STOCK (DEFICIT) CAPITAL
------ -------- ------ -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES, DECEMBER 31, 1992..... - - $ - $ 71 $ - $ (119) $ 76,104

Vesting of restricted units..... - - - - - - 2,667
Merger of Partnership
and Company.................. 12,091 - 121 78,253 - - (78,374)
Issuance of restricted stock.... 133 - 1 1,332 - - -
Initial public offering
of common stock.............. 3,700 - 37 43,577 - - -
Dividends/distributions
($0.30 per share/unit)........ - - - - - (3,583) (907)
Net income (loss)............... - - - - - (4,522) 510
------ -------- ------ -------- -------- -------- --------

BALANCES, DECEMBER 31, 1993..... 15,924 - 159 123,233 - (8,224) -

Stock option exercises.......... 2 1 - 20 (11) - -
Dividends ($0.30 per share)..... - - - - - (4,777) -
Net income...................... - - - - - 3,048 -
------ -------- ------ -------- -------- -------- --------

BALANCES, DECEMBER 31, 1994..... 15,926 1 159 123,253 (11) (9,953) -

Sale of common stock............ 2,250 - 22 29,428 - - -
Issuance of performance shares.. 164 - 1 2,944 - - -
Stock option exercises.......... 75 30 2 1,045 (517) - -
Dividends ($0.30 per share)..... - - - - - (5,135) -
Net income...................... - - - - - (10,538) -
------ -------- ------ -------- -------- -------- --------

BALANCES, DECEMBER 31, 1995..... 18,415 31 $ 184 $156,670 $ (528) $(25,626) $ -
====== ======== ====== ======== ======== ======== ========

</TABLE>

See accompanying notes to consolidated financial statements.

27
<PAGE>

CROSS TIMBERS OIL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Cross Timbers Oil Company, a Delaware corporation, was organized in
October 1990 to ultimately acquire the business and properties of Cross Timbers
Oil Company, L.P. ("Partnership"). The Partnership was formed to combine in
February 1991 the oil and gas operations of six predecessor partnerships and two
corporations that had been created from 1986 through 1989. On May 18, 1993,
Cross Timbers Oil Company effectively merged with the Partnership ("Merger"),
immediately followed by Cross Timbers Oil Company's initial public offering.
See Note 5.

As used herein, the term "Company" refers to Cross Timbers Oil Company
and the Partnership for their respective periods of existence. The 1993
financial statements of these entities have been combined in a manner similar to
the pooling-of-interests method for periods prior to the Merger and include the
consolidation with wholly owned subsidiary corporations. For periods after
1993, the consolidated financial statements include the financial statements of
the Company and its wholly owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in the combination and
consolidation. In preparing the accompanying financial statements, management
has made certain estimates and assumptions that may differ from actual results.
Certain amounts presented in prior period financial statements have been
reclassified for consistency with current period presentation.

The Company is an independent oil and gas company with production
concentrated in Texas, Oklahoma, Kansas and New Mexico. Directly and through
its wholly owned subsidiaries, the Company also gathers, processes and markets
gas, transports and markets oil and conducts other activities directly related
to the oil and gas producing industry.

Property and Equipment

The Company follows the successful efforts method of accounting,
capitalizing costs of successful exploratory wells and expensing costs of
unsuccessful exploratory wells. All developmental costs are capitalized. The
Company generally pursues acquisition and development of proved reserves as
opposed to exploration activities. Most of the property costs reflected on the
accompanying consolidated balance sheets are from purchases of producing
properties from other oil and gas companies since 1986.

Depreciation, depletion and amortization of producing properties is
computed on the unit-of-production method based on estimated proved oil and gas
reserves. Gas plant, gathering and other property and equipment are generally
depreciated using the straight-line method over their estimated useful lives
which range from 3 to 40 years. Repairs and maintenance are expensed, while
renewals and betterments are generally capitalized.

Effective October 1, 1995, the Company adopted 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. Based generally on a
field-level assessment, producing properties were written down to estimated fair
value when their net basis exceeded estimated direct future net cash flows from
such properties. The Company's resulting impairment provision was $20,280,000
before income tax. After initial adoption of SFAS No. 121, the Company must
assess impairment of long-lived assets whenever events or changes in
circumstances indicate that the net basis of the asset may not be recoverable.
Prior to adoption of SFAS No. 121, no impairment of producing properties was
required, based on a total Company assessment using undiscounted estimated
future net cash flows. Because there are no individually significant
undeveloped properties, impairment of undeveloped properties is assessed and
amortized on an aggregate basis.

Cross Timbers Royalty Trust

The Company makes monthly net profits payments to Cross Timbers
Royalty Trust ("Royalty Trust") based on revenues and costs related to
properties from which net profits interests were carved. For financial
reporting purposes, the Company reduces oil and gas revenues and taxes on
production for amounts allocated to the Royalty Trust. The Royalty Trust's
portion of development costs are expensed as trust development costs in the

28
<PAGE>

accompanying consolidated statements of operations. Net profits payments to the
Royalty Trust are generally based on revenues received and costs disbursed in
the prior month.

Cash and Cash Equivalents

Cash equivalents are considered to be all highly liquid investments
having an original maturity of three months or less.

Inventory

Inventory is natural gas purchased and stored for subsequent
resale, recorded at the lower of cost or market.

Investment in Equity Securities

The Company owned 6.6% of Plains Petroleum Company, a publicly traded
independent oil and gas producer, on December 31, 1994. This investment was
reported at market value and classified as available-for-sale securities, as
opposed to trading securities, in accordance with SFAS No. 115, Accounting for
Certain Investments in Debt and Equity Securities. Accordingly, the related
unrealized loss on investment at December 31, 1994, net of deferred income
taxes, is excluded from earnings and is reported as a separate component of
stockholders' equity. This investment was sold during 1995 with a realized gain
of $1.6 million.

Other Assets

Other assets include goodwill recorded upon purchase of subsidiaries,
deferred debt costs and organization costs that are amortized over periods of
15, 10 and 5 years, respectively. Other assets are presented net of accumulated
amortization of $3,431,000 and $2,651,000 at December 31, 1995 and 1994,
respectively.

Derivatives

The Company uses derivatives on a limited basis to hedge interest rate
and product price risks, as opposed to their use for trading purposes. Amounts
receivable or payable under interest swap agreements are recorded as adjustments
to interest expense. Gains and losses on commodity futures contracts are
recognized in oil and gas revenues when the hedged transaction occurs. Cash
flows related to derivative transactions are included in operating activities.

Production Imbalances

The Company uses the entitlement method of accounting for gas sales,
based on the Company's net revenue interest in production. Accordingly, revenue
is deferred when gas deliveries exceed the Company's net revenue interest, while
revenue is accrued for under-deliveries. Production imbalances are generally
recorded at the estimated sales price in effect at the time of production. The
Company recorded a net receivable of $2,018,000 at December 31, 1995 for a net
underproduced balancing position of 662,000 Mcf of natural gas and 5,600,000 Mcf
of carbon dioxide, and a net accrued liability of $1,230,000 at December 31,
1994 for a net overproduced balancing position of 732,000 Mcf of natural gas.

Oil and Gas and Other Revenues

Oil revenue includes sales of oil and condensate. Gas revenue
includes sales of natural gas and natural gas liquids produced by the Company.
Other revenues include gain/loss from sale of equity securities and from sale of
properties. During 1995, the Company realized gains on sale of properties of
$2,960,000 and on sale of equity securities of $1,560,000. During 1994 and
1993, the Company realized losses on sales of properties of $122,000 and
$594,000, respectively. Gas sales to two purchasers in 1994 were approximately
16% and 13% of total 1994 revenues. There were no sales to a single purchaser
that exceeded 10% of total revenues in 1995 or 1993.

Gas Gathering, Processing and Marketing Revenues

Gas produced by the Company and third parties is marketed by the
Company to brokers, local distribution companies and end-users. Gas gathering
and marketing revenues are recognized in the month of delivery based on customer
nominations. Gas processing and marketing revenues are recorded net of cost of
gas sold of $30 million, $23.9 million and $34.4 million for 1995, 1994 and
1993, respectively. These amounts are net of intercompany eliminations.

29
<PAGE>

Interest Expense

Interest expense includes amortization of capitalized debt costs and
is presented net of interest income of $399,000, $255,000 and $148,000 for the
years ended December 31, 1995, 1994 and 1993, respectively.

Income Tax

In conjunction with the Merger on May 18, 1993, the Company adopted
SFAS No. 109, Accounting for Income Taxes, which provides for determining and
recording deferred income tax assets or liabilities based on temporary
differences between the financial statement carrying amounts and tax bases of
assets and liabilities using enacted tax rates (Note 3). For periods prior to
May 18, 1993, income tax expense in the Company's financial statements reflects
only the income taxes attributable to taxable subsidiary corporations.

Extraordinary Item

During 1995, the Company recognized an extraordinary gain of $656,000
(net of income tax of $338,000), or $0.04 per common share, upon the purchase
and early retirement of a portion of the Company's 5 1/4% convertible
subordinated notes (Note 2).

Net Income per Common Share

After the Merger on May 18, 1993, net income (loss) and pro forma net
income (loss) (Note 3) per common share are based on weighted average common
stock outstanding. Prior to the Merger, net income (loss) and pro forma net
income (loss) per common share are based on total common units, restricted units
(Note 5) and other common unit equivalents outstanding. Potential exercise of
stock options has not been recognized in the weighted average common share
calculation because their effect is either antidilutive or less than 3%
dilutive.

2. LONG-TERM DEBT

The Company's long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
December 31
------------------
1995 1994
-------- --------
<S> <C> <C>
Senior debt-
Bank debt under revolving credit agreements................. $172,000 $ 68,000

Subordinated debt-
5 1/4% convertible subordinated notes due November 1, 2003.. 66,475 74,750
-------- --------
Total long-term debt.......................................... $238,475 $142,750
======== ========
</TABLE>

Long-term debt maturing in each of the five years following December 31,
1995 is as follows: no maturities in 1996 or 1997, $31.1 million in 1998, $37.5
million in 1999 and $36.3 million in 2000.

Senior Debt

On June 15, 1995, the Company refinanced its previous bank debt with
borrowings from commercial banks under the Revolving Credit Agreement ("loan
agreement"). Total borrowing commitments under the loan agreement were $236
million at December 31, 1995. The loan agreement provides for a revolving
facility with scheduled reductions of borrowing commitment on each June 30 and
December 31. As of June 30, 1996 and December 31, 1996, the borrowing
commitment will be reduced to $223.2 million and $210.3 million, respectively.
Borrowings under the loan agreement mature on June 30, 2002, but may be prepaid
at any time without penalty. The Company periodically renegotiates the loan
agreement to increase the borrowing commitment and extend the revolving
facility.

The Company is required to maintain a specified current ratio as well as
certain cash flow-to-debt and production ratios based on a reserve report
prepared by independent engineers. The loan agreement also places restrictions
on additional indebtedness, liens, sale of properties and certain other assets.
The banks may require payments based on a specified percentage of net revenue
(as defined in the loan agreement) if material changes occur in the production
profile or nature of oil and gas reserves, or if the cash flow and production
ratios are not met. The

30
<PAGE>

loan agreement also limits dividends and treasury stock purchases to 25% of cash
flow from operations for the latest four consecutive quarterly periods.

The loan agreement provides the option of borrowing at floating interest
rates based on the prime rate or at fixed rates for periods of up to six months
based on certificate of deposit rates or London Interbank Offered Rates
("LIBOR"). Borrowings under the loan agreement at December 31, 1995 were based
on LIBOR rates with a maturity of 30 days and accrued at the applicable LIBOR
rate plus 1%. Interest is paid at maturity, or quarterly if the term is for a
period of 90 days or more. The Company also incurs a commitment fee of 3/8% on
unused borrowing commitments.

The weighted average interest rate on senior debt was 7.0% at December
31, 1995, and was 7.1%, 5.4% and 4.4% during 1995, 1994 and 1993, respectively.
Including the effect of interest rate swap agreements (Note 6), the Company's
weighted average interest rate on such borrowings at December 31, 1995 was 6.9%.

Subordinated Debt

On October 27, 1993, the Company sold $74.8 million in 5 1/4%
convertible subordinated notes at par in a public offering. Net proceeds from
the sale were used to reduce outstanding balances under bank loan agreements.
The notes are due on November 1, 2003 and are convertible at any time prior to
maturity into common stock at a conversion price of $23.125 per share. The notes
are redeemable at the option of the Company beginning November 2, 1996 at
specified redemption prices. Interest is payable each May 1 and November 1.

In 1995, the Board of Directors authorized the purchase and retirement
of up to $10 million principal amount of the notes. As of December 31, 1995,
$8.3 million principal amount had been purchased, resulting in an extraordinary
gain of $656,000 (Note 1). An additional $1.7 million principal amount was
purchased in February 1996 at a nominal gain. These note purchases were
primarily funded by bank borrowings under the loan agreement. The Board of
Directors subsequently authorized the purchase of an additional $5 million
principal amount of the notes.

3. INCOME TAX

Upon the Merger on May 18, 1993, all income of the Company became
taxable as a corporation. Pro forma information in the 1993 consolidated
statements of operations reflects the income tax expense (benefit), net income
(loss) and net income (loss) per common share as if all prior Partnership income
had been subject to corporate federal income tax, exclusive of the effects of
recording the Company's net deferred tax liabilities upon the Merger.

The effective income tax rate for the Company (before extraordinary
item) was different than the statutory federal income tax rate for the following
reasons (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
------- ------ ------
<S> <C> <C> <C>
Income tax expense (benefit) at the
federal statutory rate of 34%.................... $(5,786) $1,625 $ (125)
Deferred tax liabilities recorded upon the Merger... - - 3,973
Partnership income not directly
subject to income tax............................ - - (211)
Other............................................... (39) 105 6
------- ------ ------
Income tax expense (benefit)........................ $(5,825) $1,730 $3,643
======= ====== ======

Components of income tax expense (benefit) before extraordinary item are as follows (in thousands):

1995 1994 1993
------- ------ ------

Current income tax.................................. $ 198 $ 68 $ -
Deferred income tax recorded upon the Merger........ - - 3,973
Deferred income tax expense (benefit)............... (3,221) 5,209 2,368
Net operating loss carryforward..................... (2,802) (3,547) (2,698)
------- ------ ------
Income tax expense (benefit)........................ $(5,825) $1,730 $3,643
======= ====== ======
</TABLE>

31
<PAGE>

Deferred tax assets and liabilities are the result of temporary
differences between the financial statement carrying values and tax bases of
assets and liabilities. The Company's net deferred tax liabilities are recorded
as a current asset of $1,661,000 and a long-term liability of $2,382,000 at
December 31, 1995, and a current asset of $1,286,000 and a long-term liability
of $7,696,000 at December 31, 1994. Significant components of net deferred tax
liabilities are (in thousands):

<TABLE>
<CAPTION>
December 31
----------------
1995 1994
------- -------
<S> <C> <C>

Deferred tax liabilities:
Intangible development costs............................................. $14,253 $11,975
Tax depletion and depreciation in excess of financial statement amounts.. 885 4,283
Other.................................................................... 824 740
------- -------
Total deferred tax liabilities...................................... 15,962 16,998
------- -------
Deferred tax assets:
Net operating loss carryforwards......................................... 8,871 6,065
Trust development expenses............................................... 3,442 3,251
Accrued stock appreciation right and performance share compensation...... 2,288 828
Other.................................................................... 640 444
------- -------
Total deferred tax assets........................................... 15,241 10,588
------- -------
Net deferred tax liabilities............................................... $ 721 $ 6,410
======= =======
</TABLE>

As of December 31, 1995, the Company has estimated tax loss carryforwards
of approximately $26 million that are scheduled to expire in 2008 through 2010.

4. COMMITMENTS AND CONTINGENCIES

Leases

The Company leases offices, vehicles and certain other equipment in its
primary locations under non-cancelable operating leases. See also Note 12. As
of December 31, 1995, minimum future lease payments for all non-cancelable lease
agreements were as follows (in thousands):
<TABLE>
<CAPTION>

<S> <C>
1996................... $ 912
1997................... 818
1998................... 728
1999................... 670
2000................... 582
Remaining.............. 1,388
------
$5,098
======
</TABLE>

Amounts incurred by the Company under operating leases (including
renewable monthly leases) were $1,912,000, $1,558,000 and $1,388,000 in 1995,
1994 and 1993, respectively.

Employment Agreements

Three executive officers have entered into year-to-year employment
agreements with the Company. The agreements are automatically renewed each
year-end unless terminated by either party upon thirty days notice prior to each
December 31. Under these agreements, each of the officers receives a minimum
annual salary of $300,000 and is entitled to participate in any incentive
compensation programs administered by the Board of Directors. The agreements
also provide that, in the event the officer terminates his employment for good
reason, as defined in the agreement, the officer will receive severance pay
equal to the amount that would have been paid under the agreement had it not
been terminated. If such termination follows a change in control of the
Company, the officer is entitled to a lump-sum payment of three times his most
recent annual compensation.

32
<PAGE>

Sales Contracts

The Company sells approximately 10,000 Mcf of gas per day to a single
purchaser under a ten-year contract that began August 1, 1995. From August 1995
through July 1998 ("initial period"), the contract price is equal to a monthly
natural gas index for deliveries in Oklahoma plus $.35 per Mcf. For December
1995, the initial period contract price was $2.24 per Mcf. From August 1998
through July 2005 ("final period"), the contract price is approximately 10% of
the month's average NYMEX futures contract for West Texas Intermediate crude
oil, adjusted for the point of physical delivery. For December 1995, the final
period contract price would have been $1.68 per Mcf, assuming delivery in
Oklahoma. The Company's spot price for December 1995 deliveries in Oklahoma was
$1.87 per Mcf.

The Company has entered contracts with three purchasers to sell a total
of 55,000 Mcf of gas per day for the first three months of 1996 at a weighted
average wellhead sales price of $1.89 per Mcf. The Company has also agreed to
sell 35,000 Mcf per day from April through October 1996 and 20,000 Mcf per day
in November and December 1996 with a $0.29 weighted average delivery point
differential ("basis"). The NYMEX price from which such basis will be deducted
has not yet been set by the Company.

Since August 1991, the Company has sold gas to a cogeneration facility
under a take-or-pay contract that expires in September 2004. The Company has
committed to sell between 1,460,000 and 1,825,000 Mcf of gas annually under this
contract, subject to certain modifications, at a price based on a composite
energy cost index. Since the Company generally purchases such gas at spot
prices, there is exposure to loss during months of rapidly increasing gas
prices. The Company recognized a net profit (loss) on this contract of
$453,000, $178,000 and ($87,000) during 1995, 1994 and 1993, respectively.

Other

In May 1993, the Company entered into a registration rights agreement
with holders of 9.3 million shares of common stock that could not be resold
except pursuant to registration with the Securities and Exchange Commission or
an exemption from such registration. Under certain conditions, holders of at
least 5% of the unregistered shares can require that the Company use its best
efforts to register and sell these shares in a public offering. The Company has
agreed to pay all costs of such registration. Following the August 1995 public
offering of common stock (Note 5), 7.1 million shares remain subject to such
registration rights.

To date, the Company's expenditures to comply with environmental or
safety regulations have not been significant and are not expected to be
significant in the future. However, developments such as new regulations,
enforcement policies or claims for damages could result in significant future
costs.

The Company and certain of its subsidiaries are involved in various
lawsuits and certain governmental proceedings arising in the ordinary course of
business. Company management and legal counsel believe that these claims will
not have a material effect on the Company's financial position, liquidity or
operations.

See also Note 6.

5. EQUITY

For general information regarding the organization of the Company and
the Partnership, see Note 1.

Restricted Units/ Stock and Performance Shares

The Partnership issued 400,000 restricted common units ("restricted
units") to three officers in February 1991. In February 1993, restrictions on
two-thirds of the restricted units expired, resulting in a transfer to equity of
$2.7 million from the related accrued compensation liability. As a part of the
Merger, the remaining one-third of the restricted units was exchanged for
133,333 restricted shares of common stock of the Company ("restricted stock"),
the restrictions on which expired February 15, 1994. Such restricted
units/stock, including a related tax liability reimbursement to the officers,
resulted in total compensation expense for financial reporting purposes of
approximately $6 million, $664,000 of which was recognized in 1993. No related
compensation expense was recognized after 1993. During 1995, the Company issued
164,250 performance shares (Note 8).

33
<PAGE>

Merger and Public Offerings of Common Stock

To effect the Merger, 12,223,879 common units (including 133,333 restricted
units) were converted into 12,223,879 shares of common stock on May 18, 1993.
Immediately following the Merger, the Company completed its initial public
offering of 6,670,000 shares of common stock, of which 3,700,000 shares were
sold by the Company and 2,970,000 were sold by stockholders. Net proceeds from
the offering of $43.6 million were used to reduce long-term debt.

In August 1995, the Company completed a public offering of 4,362,775 shares
of common stock, of which 2,250,000 shares were sold by the Company and
2,112,775 shares were sold by stockholders. Net proceeds from the offering of
$29.5 million were used to partially fund the Santa Fe Acquisition (Note 9).

Treasury Stock

The Board of Directors has authorized the Company to purchase up to 55,000
shares of common stock acquired by employees upon exercise of stock options
(Note 8). Such purchases are authorized only to provide employees sufficient
funds, in addition to SAR proceeds, to exercise their stock options and pay
related income tax. The Company purchased 20,218 and 758 treasury shares during
1995 and 1994, respectively. Also held in treasury are 9,540 shares of common
stock delivered as payment for the option price upon exercise of stock options.

Distributions and Dividends

The Partnership distributed $0.075 per common unit in March 1993.
Following the Merger, the Company has declared quarterly dividends of $0.075 per
common share beginning with the quarter ended June 30, 1993. See Note 2
regarding restrictions on dividends.

Convertible Debt

The Company's subordinated notes are convertible at the option of the
holder at any time prior to maturity into common stock at a conversion price of
$23.125 per share (Note 2).

6. FINANCIAL INSTRUMENTS

Interest Rate Swap Agreements

During 1992, the Company entered a series of interest rate swap agreements
to hedge exposure to interest rate fluctuations on variable-rate debt. The last
of these agreements terminates in September 1996. Settlements of net amounts
due are made semiannually, based on LIBOR rates (Note 2). The Company's senior
debt borrowings have been based on LIBOR rates throughout the terms of these
swap agreements. As of December 31, 1995, the Company has effectively fixed its
interest rate at 6.7% on a total notional principal balance of $17.5 million
until September 1996. As of December 31, 1994, the fixed interest rate under
the swap agreements was 6.4% on a total notional principal balance of $35
million.

In October 1995, the Company committed to enter interest rate swap
agreements if interest rates declined to specified levels on January 16, 1996.
On that date, this commitment was effectively rolled into a new commitment to
enter two swap agreements (with notional principal balances of $50 million each
for 7 and 10-year terms beginning April 17, 1996) if LIBOR rates decline to a
strike rate of approximately 5.9% on April 17, 1996. The Company received net
premium proceeds of $500,000 as consideration for entering this commitment. If
LIBOR rates are at or below such strike rate on April 17, 1996, the swap
agreements will commence, effectively fixing the Company's interest rate at
approximately 6.8% on bank debt of $100 million over the terms of the
agreements. Such fixed interest rate includes the effect of amortizing the
$500,000 premium proceeds over the terms of the agreements. If LIBOR rates are
above the strike rate on April 17, 1996, the commitment period will expire and
the Company will recognize the premium proceeds as income.

Commodity Futures Contracts

The Company periodically enters into futures contracts to hedge its
exposure to price fluctuations on crude oil and natural gas sales. The Company
did not have any outstanding futures contracts at December 31, 1995. At
December 31, 1994, the Company had outstanding futures contracts covering sales
of 600,000 Mcf of natural gas in February and March 1995 at prices ranging from
$1.97 to $2.10 per Mcf, to hedge its natural gas inventory

34
<PAGE>

position at year-end. The Company did not have any other significant hedging
activity from 1993 through 1995. See Note 4.

Fair Value

Because of their short-term maturity, the fair value of cash and cash
equivalents, accounts receivable and accounts payable approximates their
carrying values at December 31, 1995 and 1994. The following are estimated fair
values and carrying values of the Company's other financial instruments (none of
which are held or issued for trading purposes) at these dates (in thousands):
<TABLE>
<CAPTION>
Asset (Liability)
----------------------------------------------
December 31, 1995 December 31, 1994
---------------------- ----------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>

Investment in equity securities.. $ - $ - $ 15,065 $ 15,065
Long-term debt................... $(238,475) $(234,487) $(142,750) $(127,426)
Interest rate swap agreements.... $ - $ 41 $ - $ 1,088
Futures contracts................ $ - $ - $ - $ 182
</TABLE>

The above fair values were estimated based on: investment in equity
securities- quoted market price; long-term debt- the Company's bank borrowings
approximate the carrying value because of short-term interest rate maturities,
while the fair value of subordinated notes is estimated to be ($62.5 million)
and ($59.4 million) at December 31, 1995 and 1994 based on a current market
quote; interest rate swap agreements- the present value of estimated future cash
flows; futures contracts- quoted market price. Such estimated fair values are
not necessarily representative of amounts that could be realized or settled, nor
do they consider the tax consequences of realization or settlement.

Concentrations of Credit Risk

Although the Company's cash equivalents and derivative financial
instruments are exposed to the risk of credit loss, the Company does not believe
such risk to be significant. Cash equivalents are high-grade, short-term
securities, placed with highly rated financial institutions. Most of the
Company's receivables are from a broad and diverse group of energy companies
and, accordingly, do not represent a significant credit risk. The Company's gas
marketing activities generate receivables from customers including pipeline
companies, local distribution companies and end-users in various industries.
Letters of credit or other appropriate security are obtained as considered
necessary to limit risk of loss. The Company recorded an allowance for
collectibility of all accounts receivable of $650,000 and $425,000 at December
31, 1995 and 1994, respectively.

7. SUPPLEMENTAL CASH FLOW INFORMATION

The consolidated statements of cash flows exclude the following non-cash
equity transactions and distributions (Notes 5 and 8):

- Conversion of 12,223,879 common/ restricted units into 12,223,879 shares
of common/ restricted stock on May 18, 1993
- Grants of 164,250 performance shares to key employees and nonemployee
directors in 1995
- Receipt of 9,540 shares of common stock for the option price of
exercised stock options in 1995

Interest payments during 1995, 1994 and 1993 totaled $12,202,000,
$7,910,000 and $5,231,000, respectively. Income tax payments during 1995, 1994
and 1993 totaled $541,000, $28,000 and $121,000, respectively.

35
<PAGE>

8. EMPLOYEE BENEFIT PLANS

401(k) Plan

The Company sponsors a 401(k) benefit plan that allows employees to
contribute and defer a portion of their wages. Employee contributions (up to 8%
of wages) are matched by the Company. Employee contributions vest immediately
while the Company's matching contributions vest 100% after three years of
service. All full-time employees over 21 years of age and with at least three
months service with the Company may participate. Company contributions under
the plan were $814,000, $675,000 and $583,000 in 1995, 1994 and 1993,
respectively.

1991 Stock Incentive Plan

A total of 450,000 incentive units ("Units") have been granted to
directors, officers and other key employees under the 1991 Stock Incentive Plan
("1991 Plan"). One-third of the Units become exercisable on each of the first
three anniversaries of the grant date and no Units are exercisable following the
tenth anniversary. Units consist of a stock option ("Option") and a stock
appreciation right ("SAR"). An Option provides the right to purchase one share
of common stock at the exercise price, which generally is the market price at
the date the Unit is granted. A SAR entitles the recipient to a payment equal
to twice the excess of the market price of one share of common stock on the date
the Option is exercised over the exercise price.

General and administrative expense includes stock incentive compensation
related to SARs of $2.3 million, $700,000 and $1.7 million for 1995, 1994 and
1993, respectively. With the exception of $800,000 and $10,000 in SAR payments
in 1995 and 1994, such stock incentive compensation was non-cash.

1994 Stock Incentive Plan

Under the 1994 Stock Incentive Plan ("1994 Plan"), an aggregate of 800,000
shares of common stock are available to be issued to directors, officers and
other key employees pursuant to grants of Options or performance shares of
common stock ("performance shares"). Options vest and become exercisable at
dates specified when granted by the compensation committee ("the Committee") of
the Board of Directors. No option, however, is exercisable prior to six months
or after ten years from its grant date. Performance shares are subject to
restrictions determined by the Committee and may be subject to forfeiture if
performance targets established by the Committee are not met. Otherwise,
holders of performance shares generally have all the voting, dividend and other
rights of other stockholders.

During 1995, the Company issued to key employees 158,250 performance shares
that vest in two equal amounts when the common stock price reaches $21 and $24.
The Company recognized compensation expense of $2,848,000 in 1995 related to
these performance share grants. Subject to vesting requirements, performance
share compensation of $712,000 will be recorded in subsequent years. The
Company also issued in 1995 a total of 6,000 performance shares with immediate
vesting to nonemployee directors as compensation for their services.

In order to encourage exercise of Units granted under the 1991 Plan, the
Committee granted 1.25 Options under the 1994 Plan to employees for each Unit
held under the 1991 Plan. These Options, totaling 543,765, were granted in
August 1994 at an exercise price of $14.94, the market price of common stock on
the grant date. For each Unit exercised, 1.25 Options vest and become
exercisable under the 1994 Plan. Each employee's unvested Options generally
terminate, however, if vested Units have not been exercised within 90 days
following a consecutive five-day period when the market price of common stock
equals or exceeds the target price established by the Committee. Such target
price is $17.50 for Units with exercise prices of $11.96 and $13.00, and is
$18.50 for all other Units. The consecutive five-day period ended on January 4,
1996 for the target price of $17.50; accordingly, as of that date, 319,339 Units
granted under the 1991 Plan must be exercised by April 3, 1996 in order to
prevent forfeiture of 399,174 Options under the 1994 Plan. For most remaining
Units, however, this deadline has been extended to December 31, 1996, since
exercise of such Units before April 4, 1996 would result in violation of federal
securities laws.

36
<PAGE>

Unit/ Option Activity

The following summarizes Unit and Option activity and balances from 1993
through 1995:
<TABLE>
<CAPTION>

Weighted Average 1991 Plan 1994 Plan
Unit/Option Incentive Stock
Price Units Options
---------------- ---------- ----------
<S> <C> <C> <C>

Outstanding at December 31, 1992.. $11.96 378,300 -
Grants........................... 14.25 71,700 -
------- -------

Outstanding at December 31, 1993.. $12.33 450,000 -
Grants........................... 14.94 - 550,765
Exercises........................ 12.01 (1,666) -
Forfeitures...................... 14.53 (1,000) (4,250)
------- -------

Outstanding at December 31, 1994.. $13.76 447,334 546,515
Grants........................... 16.58 - 78,750
Exercises........................ 12.05 (75,462) -
Forfeitures...................... 14.73 (401) (3,376)
------- -------

Outstanding at December 31, 1995.. $14.11 371,471 621,889
======= =======

Exercisable at December 31, 1995.. $12.83 348,306 94,336
======= =======

Available for grant............... - 1,401 13,861
======= =======

</TABLE>
9. ACQUISITIONS

At the end of March 1995, the Company acquired predominantly gas-producing
properties in Kansas, Oklahoma and Texas from Apache Corporation for $20 million
and in northwestern Oklahoma from Meridian Oil, Inc. and certain of its
affiliates for $4.1 million. During the second quarter of 1995, the Company
completed other acquisitions totaling approximately $7 million. These
acquisitions were primarily financed with bank debt under the Company's
revolving credit agreements (Note 2).

On August 1, 1995, the Company acquired gas-producing properties and a
related gathering system and gas processing plant from Santa Fe Minerals, Inc.
("Santa Fe Acquisition"). The properties consist primarily of operated
interests in the Hugoton Field of Kansas and Oklahoma. Of the $123 million
adjusted purchase price, $94 million was allocated to producing properties and
$29 million was allocated to gas gathering and processing facilities. The Santa
Fe Acquisition was primarily financed by borrowings under the Company's loan
agreement (Note 2) and proceeds from the August 1995 common stock offering (Note
5) and asset sales.

These acquisitions have been recorded using the purchase method of
accounting. The following presents unaudited pro forma results of operations
for the years ended December 31, 1995 and 1994 as if these acquisitions (net of
related dispositions) and the August 1995 common stock offering had been
consummated as of January 1, 1994. These pro forma results are not necessarily
indicative of future results.

37
<PAGE>

(in thousands, except per share data) Pro Forma (Unaudited)
--------------------
1995 1994
-------- --------
<C> <C>

Revenues..................................... $125,347 $125,635
======== ========
Income (loss) before income tax
and extraordinary item................... $(20,093) $ 3,510
======== ========
Net income (loss) before extraordinary item.. $(13,223) $ 2,211
======== ========
Net income (loss)............................ $(12,567) $ 2,211
======== ========
Net income (loss) per common share:
Before extraordinary item................ $ (0.73) $ 0.12
======== ========
After extraordinary item................. $ (0.69) $ 0.12
======== ========
Weighted average common shares outstanding... 18,212 18,174
======== ========
</TABLE>

10.
QUARTERLY FINANCIAL DATA (Unaudited)

The following are summarized quarterly financial data for the years ended
December 31, 1995 and 1994 (in thousands, except per share data):
<TABLE>
<CAPTION>
Quarter
------------------------------------
1st 2nd 3rd 4th (a)
------- ------- ------- --------
<S> <C> <C> <C> <C>
1995
---------------------------------------
Revenues............................. $24,219 $27,936 $28,066 $ 32,684
Gross profit (b)..................... $ 5,627 $ 7,903 $ 5,603 $(10,473)
Net income (loss):
Before extraordinary item.......... $ 1,463 $ 943 $ 1,211 $(14,811)
After extraordinary item........... $ 1,463 $ 943 $ 1,820 $(14,764)
Net income (loss) per common share:
Before extraordinary item.......... $ 0.09 $ 0.06 $ 0.07 $ (0.81)
After extraordinary item........... $ 0.09 $ 0.06 $ 0.10 $ (0.81)
Average shares outstanding........... 15,925 15,931 17,518 18,284

1994
---------------------------------------
Revenues............................. $22,608 $24,021 $25,287 $ 24,359
Gross profit (b)..................... $ 3,191 $ 5,079 $ 6,714 $ 6,360
Net income (loss).................... $ (444) $ 773 $ 1,520 $ 1,199
Net income (loss)
per common share................... $ (0.03) $ 0.05 $ 0.10 $ 0.08
Average shares outstanding........... 15,924 15,924 15,924 15,924

</TABLE>
(a) Fourth quarter 1995 results include a pre-tax impairment charge of $20.3
million upon adoption of SFAS No. 121 (Note 1), and $2.9 million for
performance share compensation and $2.6 million for stock appreciation
right compensation (Note 8).
(b) Revenues less expenses, other than general and administrative, net
interest expense and income tax.

38
<PAGE>

11. SUPPLEMENTARY FINANCIAL INFORMATION FOR OIL AND GAS PRODUCING ACTIVITIES
(Unaudited)

All of the Company's operations are directly related to oil and gas
producing activities located in the United States.

Costs Incurred Related to Oil and Gas Producing Activities

The following table summarizes costs incurred whether such costs are
capitalized or expensed for financial reporting purposes (in thousands):
<TABLE>
<CAPTION>

1995 1994 1993
-------- ------- --------
<S> <C> <C> <C>

Acquisition (including undeveloped properties).. $131,342 $28,100 $ 87,064
Exploitation and development.................... 20,797 21,668 18,891
Exploration..................................... 264 158 571
-------- ------- --------
Total........................................... $152,403 $49,926 $106,526
======== ======= ========

</TABLE>
Proved Reserves

Independent petroleum engineers have estimated the Company's proved oil
and gas reserves, all of which are located in the United States. Proved reserves
are the estimated quantities that geologic 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
the quantities expected to be recovered through existing wells with existing
equipment and operating methods. Due to the inherent uncertainties and the
limited nature of reservoir data, such estimates are subject to change as
additional information becomes available. The reserves actually recovered and
the timing of production of these reserves may be substantially different from
the original estimate. Revisions result primarily from new information obtained
from development drilling and production history and from changes in economic
factors.

Standardized Measure

The standardized measure of discounted future net cash flows
("standardized measure") and changes in such cash flows are prepared using
assumptions required by the Financial Accounting Standards Board. Such
assumptions include the use of year-end prices for oil and gas and year-end
costs for estimated future development and production expenditures to produce
year-end estimated proved reserves. Discounted future net cash flows are
calculated using a 10% rate. Estimated future income taxes are calculated by
applying year-end statutory rates to future pre-tax net cash flows, less the tax
basis of related assets and applicable tax credits.

The standardized measure does not represent management's estimate of the
Company's future cash flows or the value of proved oil and gas reserves.
Probable and possible reserves, which may become proved in the future, are
excluded from the calculations. Furthermore, year-end prices used to determine
the standardized measure of discounted cash flows, are influenced by seasonal
demand and other factors and may not be the most representative in estimating
future revenues or reserve data.

39
<PAGE>
<TABLE>
<CAPTION>

Oil Gas
(Bbls) (Mcf)
--------- ---------
PROVED RESERVES (in thousands)
<S> <C> <C>
December 31, 1992....................................... 16,666 172,199
Revisions............................................. (3,306) (6,025)
Extensions, additions and discoveries................. 287 7,670
Production............................................ (2,543) (18,710)
Purchases in place.................................... 10,009 14,050
Sales in place........................................ (31) (65)
--------- ---------

December 31, 1993....................................... 21,082 169,119
Revisions............................................. 8,357 1,278
Extensions, additions and discoveries................. 3,981 25,735
Production............................................ (3,466) (21,236)
Purchases in place.................................... 3,763 4,336
Sales in place........................................ (136) (2,171)
--------- ---------

December 31, 1994....................................... 33,581 177,061
Revisions............................................. 1,314 4,507
Extensions, additions and discoveries................. 6,378 41,899
Production............................................ (3,532) (28,619)
Purchases in place.................................... 3,056 170,711
Sales in place........................................ (809) (7,489)
--------- ---------

December 31, 1995....................................... 39,988 358,070
========= =========
PROVED DEVELOPED RESERVES

December 31, 1992....................................... 14,321 157,752
========= =========

December 31, 1993....................................... 17,122 161,240
========= =========

December 31, 1994....................................... 26,948 164,169
========= =========

December 31, 1995....................................... 28,946 320,230
========= =========

December 31
STANDARDIZED MEASURE OF DISCOUNTED FUTURE -----------------------------------
NET CASH FLOWS RELATING TO PROVED RESERVE 1995 1994 1993
---------- --------- ---------
(in thousands)

Future cash inflows.......................... $1,322,345 $ 822,805 $ 579,219
Future costs:................................
Production................................. (536,831) (378,431) (250,779)
Development................................ (72,607) (38,246) (19,196)
---------- --------- ---------
Future net cash flows before income tax...... 712,907 406,128 309,244
Future income tax............................ (131,019) (61,537) (31,392)
---------- --------- ---------
Future net cash flows........................ 581,888 344,591 277,852
10% annual discount.......................... (246,732) (131,445) (104,558)
---------- --------- ---------
Standardized measure (a)..................... $ 335,156 $ 213,146 $ 173,294
========== ========= =========
</TABLE>
(a) Before income tax, the standardized measure (or discounted present value
of future net cash flows) was $405,706,000, $247,946,000, and $189,968,000
at December 31, 1995, 1994 and 1993, respectively.

40
<PAGE>

CHANGES IN STANDARDIZED MEASURE OF
DISCOUNTED FUTURE NET CASH FLOWS 1995 1994 1993
-------- -------- --------
<TABLE>
<CAPTION>
<S> <C> <C> <C>
(in thousands)

Standardized measure, January 1........ $213,146 $173,294 $207,415
-------- -------- --------
Revisions:.............................
Prices and costs..................... 67,528 8,461 (48,676)
Quantity estimates................... 8,709 49,337 3,451
Accretion of discount................ 22,242 16,872 18,745
Future development costs............. (41,416) (31,849) (6,750)
Income tax........................... (36,109) (18,126) (16,674)
Production rates and other........... (2,682) 683 (2,132)
-------- -------- --------
Net revisions....................... 18,272 25,378 (52,036)
Extensions, additions and discoveries.. 44,135 31,268 8,235
Production............................. (56,909) (50,760) (38,467)
Development costs...................... 16,616 16,791 12,721
Purchases in place (a)................. 106,137 18,249 35,506
Sales in place......................... (6,241) (1,074) (80)
-------- -------- --------
Net change.......................... 122,010 39,852 (34,121)
-------- -------- --------

Standardized measure, December 31...... $335,156 $213,146 $173,294
======== ======== ========
</TABLE>
(a) Based on the year-end present value (at year-end prices and costs) plus
the cash flow received from such properties during the year, rather than
the estimated present value at the date of acquisition.

Year-end oil prices used in the estimation of proved reserves and
calculation of the standardized measure were $18.00, $16.00, $12.50 and $18.00
per Bbl at December 31, 1995, 1994, 1993 and 1992, respectively. Year-end
average gas prices were $1.68, $1.66, $1.97 and $1.98 per Mcf at December 31,
1995, 1994, 1993 and 1992. Price and cost revisions are primarily the net
result of changes in year-end prices, based on beginning of year reserve
estimates. Quantity estimate revisions during 1994 are primarily the result of
the higher year-end 1994 oil price and the reduction of operating expenses on
the Prentice Northeast Unit, allowing oil reserves to be produced at December
31, 1994 that were uneconomic to produce at the year-end 1993 oil price of
$12.50 per barrel.

12. SUBSEQUENT EVENT (Unaudited)

In March 1996, the Company sold its gas processing plant and related
gathering system (acquired in August 1995 - Note 9) for $28 million and entered
an agreement to lease the facility from the buyers for an initial term of eight
years at annual rentals of $4 million, and with fixed renewal options for an
additional 13 years. If the lessor decides to sell the facility at the end of
the initial term or any renewal period, the lessor must first offer to sell it
to the Company. Additionally, the Company has a right of first refusal of any
third party offers to buy the facility after the initial term. This transaction
will be recorded as a sale and operating leaseback, with no gain or loss on the
sale. Proceeds of the sale will be used to reduce borrowings under the loan
agreement (Note 2).

41
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders of
Cross Timbers Oil Company

We have audited the accompanying consolidated balance sheets of Cross Timbers
Oil Company and its subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of operations, cash flows and owners' equity for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company as of
December 31, 1995 and 1994, and the results of its operations and its cash flows
for the years then ended, in conformity with generally accepted accounting
principles.

As described in Note 1, effective October 1, 1995, the Company adopted Statement
of Financial Accounting Standards No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of.

ARTHUR ANDERSEN LLP

Fort Worth, Texas
February 5, 1996

42
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders of
Cross Timbers Oil Company

We have audited the accompanying consolidated statements of operations, cash
flows and owners' equity of Cross Timbers Oil Company and its subsidiaries and
its predecessors ("Company"- see Note 1) for the year ended December 31, 1993.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the results of the Company's operations and cash flows for
the year ended December 31, 1993, in conformity with generally accepted
accounting principles.

DELOITTE & TOUCHE LLP

Fort Worth, Texas
February 12, 1994

<PAGE>
EXHIBIT 99.11

P A R T I. F I N A N C I A L I N F O R M A T I O N

CROSS TIMBERS OIL COMPANY
Consolidated Balance Sheets
- --------------------------------------------------------------------------------

(in thousands)

<TABLE>
<CAPTION>
March 31, 1996 December 31,
(Unaudited) 1995
-------------- -----------
<S> <C> <C>
ASSETS

Current Assets:
Cash and cash equivalents................................................... $ 5,290 $ 2,212
Accounts receivable, net.................................................... 28,602 27,582
Deferred income tax benefit................................................. 1,560 1,661
Other current assets........................................................ 708 1,282
-------- ---------
Total Current Assets...................................................... 36,160 32,737
-------- ---------
Property and Equipment, at cost - successful efforts method:
Producing properties........................................................ 498,400 493,800
Undeveloped properties...................................................... 1,939 1,939
Gas gathering and other..................................................... 20,185 48,064
-------- ---------
Total Property and Equipment.............................................. 520,524 543,803
Accumulated depreciation, depletion
and amortization........................................................... (185,181) (179,329)
-------- ---------
Net Property and Equipment................................................ 335,343 364,474
-------- ---------
Investment in Equity Securities, at market value.................................. 14,258 -
-------- ---------
Other Assets...................................................................... 5,034 5,464
-------- ---------
TOTAL ASSETS...................................................................... $390,795 $ 402,675
======== =========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
Accounts payable and accrued liabilities..................................... $ 27,320 $ 25,314
Payable to Royalty Trust..................................................... 1,996 1,890
Accrued stock incentive compensation......................................... 3,135 3,881
-------- --------
Total Current Liabilities.................................................. 32,451 31,085
-------- --------
Long-term Debt (Note 2)............................................................ 221,750 238,475
-------- --------
Deferred Income Tax................................................................ 3,542 2,382
-------- --------
Other Long-term Liabilities........................................................ 13 33
-------- --------
Stockholders' Equity:
Preferred stock ($.01 par value, 25,000,000 shares authorized, none issued).. - -
Common stock ($.01 par value, 100,000,000 shares authorized,
18,462,654 and 18,415,257 shares issued).................................... 185 184
Additional paid-in capital................................................... 157,307 156,670
Treasury stock (52,224 and 30,516 shares).................................... (914) (528)
Unrealized gain (loss) on investment in equity securities.................... (1,203) -
Retained earnings (deficit).................................................. (22,336) (25,626)
-------- --------
Total Stockholders' Equity................................................. 133,039 130,700
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY......................................... $390,795 $402,675
======== ========

</TABLE>

See Accompanying Notes to Consolidated Financial Statements.

3
<PAGE>

CROSS TIMBERS OIL COMPANY
Consolidated Statements of Operations (Unaudited)
- -------------------------------------------------------------------------------

(in thousands, except per share data)

<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1996 1995
------- -------
<S> <C> <C>
REVENUES
Oil....................................... $16,303 $14,630
Gas....................................... 15,610 8,234
Gas gathering, processing and marketing... 3,853 1,152
Other..................................... 315 203
------- -------
Total Revenues............................ 36,081 24,219
------- -------

EXPENSES
Production................................ 9,666 7,708
Taxes on production and property.......... 2,753 2,215
Depreciation, depletion and amortization.. 9,101 7,995
General and administrative................ 2,560 1,145
Gas gathering and processing.............. 891 542
Interest, net............................. 3,951 2,241
Trust development costs................... 188 132
------- -------
Total Expenses............................ 29,110 21,978
------- -------
INCOME BEFORE INCOME TAX........................ 6,971 2,241
------- -------
INCOME TAX
Current................................... 419 -
Deferred.................................. 1,881 778
------- -------
Total Income Tax Expense.................. 2,300 778
------- -------
NET INCOME...................................... $ 4,671 $ 1,463
======= =======
NET INCOME PER COMMON SHARE $0.25 $0.09
===== =====
DIVIDENDS PER COMMON SHARE $0.075 $0.075
====== ======
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 18,401 15,925
====== ======
</TABLE>

See Accompanying Notes to Consolidated Financial Statements.

4
<PAGE>

CROSS TIMBERS OIL COMPANY
Consolidated Statements of Cash Flows (Unaudited)

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

(in thousands)
(Note 4)

<TABLE>
<CAPTION>
Three Months Ended March 31,
---------------------------
1996 1995
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net income.................................................... $ 4,671 $ 1,463
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization.................... 9,101 7,995
Stock incentive compensation................................ (746) (818)
Deferred income tax......................................... 1,881 778
(Gain) loss from property sales............................. (61) (9)
Other non-cash items........................................ 376 102
Changes in working capital (a).............................. 1,639 (2,110)
-------- --------
Cash Provided by Operating Activities......................... 16,861 7,401
-------- --------
INVESTING ACTIVITIES
Sale of property and equipment................................ 28,294 96
Property acquisitions......................................... (3,072) (26,573)
Development costs............................................. (3,493) (3,903)
Investment in equity securities............................... (16,080) (30)
Gas gathering and other additions............................. (1,521) (1,146)
-------- --------
Cash Provided (Used) by Investing Activities.................. 4,128 (31,556)
-------- --------
FINANCING ACTIVITIES
Long-term debt proceeds....................................... 21,000 25,000
Long-term debt payments....................................... (37,725) (2,000)
Dividends..................................................... (1,379) (1,194)
Stock option exercise proceeds................................ 418 -
Treasury stock purchases...................................... (225) -
-------- --------
Cash Provided (Used) by Financing Activities.................. (17,911) 21,806
-------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............... 3,078 (2,349)
Cash and Cash Equivalents, Beginning of Period................. 2,212 7,838
-------- --------
Cash and Cash Equivalents, End of Period....................... $ 5,290 $ 5,489
======== ========
(a) Changes in Working Capital
Accounts receivable......................................... $ (1,045) $ 562
Other current assets........................................ 574 1,550
Accounts payable, accrued liabilities and payable to
Royalty Trust.............................................. 2,110 (4,222)
-------- --------
Decrease (Increase) in Working Capital....................... $ 1,639 $ (2,110)
======== ========
</TABLE>

See Accompanying Notes to Consolidated Financial Statements.

5
<PAGE>

CROSS TIMBERS OIL COMPANY
Notes to Consolidated Financial Statements

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

1. Interim Financial Statements

The accompanying consolidated financial statements of Cross Timbers Oil
Company ("the Company"), with the exception of the consolidated balance sheet at
December 31, 1995, have not been audited by independent public accountants. In
the opinion of the Company's management, the accompanying financial statements
reflect all adjustments necessary to present fairly the financial position at
March 31, 1996 and the results of operations and cash flows of the Company for
the three months ended March 31, 1996 and 1995. All such adjustments are of a
normal recurring nature. The results for interim periods are not necessarily
indicative of annual results.

Certain disclosures have been condensed or omitted from these financial
statements. Accordingly, these financial statements should be read with the
Company's consolidated financial statements included in the Company's 1995
annual report on Form 10-K.

2. Long-term Debt

During the quarter ended March 31, 1996, long-term debt decreased $16.7
million to $221.8 million. The net decrease resulted primarily from the
application of proceeds from the sale of its processing plant and gathering
system (Note 3), partially offset by additional debt to fund security purchases.
Total borrowing commitments under the bank loan agreement were $227 million at
March 31, 1996, with unused capacity of $70 million. The Company also purchased
$1.7 million principal amount of its 5 1/4% convertible subordinated notes at a
gain of $60,000 during the quarter. The Board of Directors has authorized the
purchase of an additional $5 million principal amount of these notes.

There are no maturities of long-term debt in 1996 and 1997. Maturities
for the three following years are $20 million in 1998, $36.7 million in 1999,
and $35.5 million in 2000.

3. Commitments

In March 1996, the Company sold its gas processing plant and related
gathering system (acquired in August 1995) for $28 million and agreed to lease
the facility from the buyers for an initial term of eight years at annual
rentals of $4 million, and with fixed renewal options for an additional 13
years. If the lessor decides to sell the facility at the end of the initial
term or any renewal period, the lessor must first offer to sell it to the
Company. The Company has a right of first refusal of any third party offers to
buy the facility after the initial term. This transaction was recorded as a
sale and an operating lease, with no gain or loss on the sale. Proceeds of the
sale were used to reduce borrowings under the loan agreement (Note 2).

On January 16, 1996, the Company committed with a bank to enter into two
swap agreements (with notional principal balances of $50 million each for 7 and
10 year terms beginning April 17, 1996) if LIBOR rates declined to a strike rate
of approximately 5.9% on April 17, 1996. The commitments expired unexercised on
April 17. The Company received $500,000 as consideration for this commitment
and the Company will recognize the proceeds as income in the quarter ended June
30, 1996.

In April 1996, the Company purchased a price floor for 125,000 barrels
of May 1996 production. The price floor, obtained at a cost of $89,000,
effectively gives the Company a minimum oil price of $20.60 on approximately 40%
of its projected May 1996 oil production.

6
<PAGE>

4. Supplemental Cash Flow Information

The following are total interest and income tax payments during each of
the periods (in thousands):

<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1996 1995
-------------- ------------
<S> <C> <C>

Interest.... $2,940 $1,160
Income tax.. - -
</TABLE>

5. Stock Incentive Plans

During the three months ended March 31, 1996, 47,397 stock incentive
units granted under the 1991 Stock Incentive Plan ("Units") were exercised at a
weighted average exercise price of $12.21. As a result of these exercises, the
Company received proceeds of $579,000 (including 9,095 shares of common stock
valued at $161,000), issued 47,397 shares of common stock, paid stock
appreciation right compensation of $528,000 and purchased 12,613 treasury shares
for $225,000. As of March 31, 1996, 301,000 Units were exercisable at a
weighted average exercise price of $12.26.

6. Acquisitions

At the end of March 1995, the Company acquired predominantly gas-
producing properties in Kansas, Oklahoma and Texas from Apache Corporation for
$20 million and in northwestern Oklahoma from Meridian Oil, Inc. and certain of
it affiliates for $4.1 million. During the second quarter of 1995, the Company
completed other acquisitions totaling approximately $7 million. These
acquisitions were primarily financed with bank debt under the Company's
revolving credit agreements.

On August 1, 1995, the Company acquired gas-producing properties and a
related gathering system and gas processing plant from Santa Fe Minerals, Inc.
("Santa Fe Acquisition"). The properties consist primarily of operated
interests in the Hugoton Field of Kansas and Oklahoma. Of the $123 million
adjusted purchase price, $94 million was allocated to producing properties and
$29 million was allocated to gas gathering and processing facilities. The Santa
Fe Acquisition was primarily financed by borrowings under the Company's loan
agreement (Note 2), proceeds from the August 1995 common stock offering, and
asset sales.

These acquisitions have been recorded using the purchase method of
accounting. The following presents unaudited pro forma results of operations
for the three months ended March 31, 1995, as if these acquisitions (net of
related dispositions) and the August 1995 common stock offering had been
consummated as of January 1, 1995. These pro forma results are not necessarily
indicative of future results.

<TABLE>
<CAPTION>
(in thousands, except per share data) Pro Forma
(Unaudited)
-----------
<S> <C>
Revenues.................................... $31,155
=======
Income before income tax.................... $ 623
=======
Net income.................................. $ 395
=======
Net income per common share................. $ .02
=======
Weighted average common shares outstanding.. 17,675
=======
</TABLE>

7
<PAGE>

7. Subsequent Event

In May 1996, the Company agreed to acquire primarily gas-producing
properties in the Green River Basin of southwestern Wyoming from an undisclosed
party. The Company's internal engineers estimate the proved gas reserves for
these properties to be 81 billion cubic feet. The preliminary purchase price is
$40 million effective April 1, 1996 and is scheduled for closing near July 1,
1996. The Company will fund the acquisition with bank debt and cash flow from
operations. Certain of the properties are subject to the customary consents by
third parties.

<PAGE>
EXHIBIT 99.12

P A R T I. F I N A N C I A L I N F O R M A T I O N
CROSS TIMBERS OIL COMPANY
CONSOLIDATED BALANCE SHEETS
- -------------------------------------------------------------------------------
(in thousands)
<TABLE>
<CAPTION>
JUNE 30,
1996 DECEMBER 31,
(Unaudited) 1995
----------- ------------
<S> <C> <C>
ASSETS

Current Assets:
Cash and cash equivalents....................................... $ 1,849 $ 2,212
Accounts receivable, net........................................ 25,700 27,582
Inventory....................................................... 664 -
Deferred income tax benefit..................................... 478 1,661
Other current assets............................................ 1,471 1,282
-------- --------
Total Current Assets.......................................... 30,162 32,737
-------- --------
Property and Equipment, at cost - successful efforts method:
Producing properties............................................ 520,007 493,800
Undeveloped properties.......................................... 1,973 1,939
Gas gathering and other......................................... 21,339 48,064
-------- --------
Total Property and Equipment.................................. 543,319 543,803
Accumulated depreciation, depletion and amortization............ (193,657) (179,329)
-------- --------
Net Property and Equipment................................... 349,662 364,474
-------- --------
Investment in Equity Securities, at market value...................... 17,145 -
-------- --------
Other Assets.......................................................... 4,807 5,464
-------- --------
TOTAL ASSETS.......................................................... $401,776 $402,675
======== ========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
Accounts payable and accrued liabilities........................ $ 35,869 $ 25,314
Payable to Royalty Trust........................................ 2,198 1,890
Accrued stock incentive compensation............................ 491 3,881
-------- --------
Total Current Liabilities..................................... 38,558 31,085
-------- --------
Long-term Debt (Note 2)............................................... 236,721 238,475
-------- --------
Deferred Income Tax................................................... 3,691 2,382
-------- --------
Other Long-term Liabilities........................................... - 33
-------- --------
Commitments and Contingencies (Note 3)

Stockholders' Equity:
Preferred stock ($.01 par value, 25,000,000 shares authorized,
none issued)................................................... - -
Common stock ($.01 par value, 100,000,000 shares authorized,
18,767,811 and 18,415,257 shares issued)....................... 188 184
Additional paid-in capital...................................... 162,940 156,670
Treasury stock (863,653 and 30,516 shares)...................... (19,144) (528)
Unrealized gain on investment in equity securities.............. 694 -
Retained earnings (deficit)..................................... (21,872) (25,626)
-------- --------
Total Stockholders' Equity.................................... 122,806 130,700
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $401,776 $402,675
======== ========

See Accompanying Notes to Consolidated Financial Statements.

3
</TABLE>
<PAGE>

CROSS TIMBERS OIL COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
- -------------------------------------------------------------------------------
(in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ------------------
1996 1995 1996 1995
-------- ------- -------- -------
<S> <C> <C> <C> <C>
REVENUES
Oil....................................... $18,544 $15,511 $34,847 $30,141
Gas....................................... 15,423 8,876 31,033 17,110
Gas gathering, processing and marketing... 2,387 1,054 6,240 2,206
Other..................................... 381 2,495 696 2,698
------- ------- ------- -------
Total Revenues............................ 36,735 27,936 72,816 52,155
------- ------- ------- -------
EXPENSES
Production................................ 9,503 8,745 19,169 16,453
Taxes on production and property.......... 2,710 2,385 5,463 4,600
Depreciation, depletion and amortization.. 8,746 8,246 17,847 16,241
General and administrative................ 7,100 3,859 9,660 5,004
Gas gathering and processing.............. 1,887 501 2,778 1,043
Interest expense, net..................... 3,590 2,711 7,541 4,952
Trust development costs................... 283 156 471 288
------- ------- ------- -------
Total Expenses............................ 33,819 26,603 62,929 48,581
------- ------- ------- -------

INCOME BEFORE INCOME TAX........................ 2,916 1,333 9,887 3,574
------- ------- ------- -------
INCOME TAX
Current................................... (340) - 79 -
Deferred.................................. 1,449 390 3,330 1,168
------- ------- ------- -------
Total Income Tax Expense (Benefit)........ 1,109 390 3,409 1,168
------- ------- ------- -------
NET INCOME...................................... $ 1,807 $ 943 $ 6,478 $ 2,406
======= ======= ======= =======
NET INCOME PER COMMON SHARE..................... $ 0.10 $ 0.06 $ 0.35 $ 0.15
======= ======= ======= =======
DIVIDENDS PER COMMON SHARE...................... $ 0.075 $ 0.075 $ 0.15 $ 0.15
======= ======= ======= =======
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING............................. 18,298 15,931 18,349 15,928
======= ======= ======= =======

See Accompanying Notes to Consolidated Financial Statements.

4
</TABLE>
<PAGE>

CROSS TIMBERS OIL COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
- -------------------------------------------------------------------------------
(in thousands)
(Note 4)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------
1996 1995
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES

Net income............................................................ $ 6,478 $ 2,406
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization............................ 17,847 16,241
Stock appreciation right compensation............................... (3,390) 427
Performance share compensation...................................... 712 -
Deferred income tax................................................. 3,330 1,168
Gain from sale of property and equity securities.................... (91) (2,392)
Other non-cash items................................................ 453 147
Changes in working capital (a)........................................ 4,164 (3,446)
-------- --------
CASH PROVIDED BY OPERATING ACTIVITIES................................. 29,503 14,551
-------- --------

INVESTING ACTIVITIES

Sale of equity securities............................................. - 16,920
Sale of property and equipment........................................ 28,327 3,011
Property acquisitions................................................. (9,656) (38,930)
Development costs..................................................... (11,073) (10,407)
Investment in equity securities....................................... (16,093) (123)
Gas gathering and other additions..................................... (2,676) (2,129)
-------- --------
CASH USED BY INVESTING ACTIVITIES..................................... (11,171) (31,658)
-------- --------

FINANCING ACTIVITIES

Proceeds from long-term debt.......................................... 46,000 49,000
Payments on long-term debt............................................ (47,700) (32,000)
Dividends............................................................. (2,759) (2,389)
Proceeds from exercise of stock options............................... 818 388
Purchase of treasury stock............................................ (15,054) (164)
-------- --------
CASH PROVIDED (USED) BY FINANCING ACTIVITIES.......................... (18,695) 14,835
-------- --------
DECREASE IN CASH AND CASH EQUIVALENTS.................................. (363) (2,272)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD......................... 2,212 7,838
-------- --------

CASH AND CASH EQUIVALENTS, END OF PERIOD............................... $ 1,849 $ 5,566
======== ========

(a)CHANGES IN WORKING CAPITAL
Accounts receivable................................................. $ 1,832 $ (1,449)
Inventory........................................................... (664) 1,494
Other current assets................................................ (189) (207)
Accounts payable, accrued liabilities and payable to Royalty Trust.. 3,185 (3,284)
-------- --------
(INCREASE) DECREASE IN WORKING CAPITAL............................... $ 4,164 $ (3,446)
======== ========

See Accompanying Notes to Consolidated Financial Statements.
5
</TABLE>
<PAGE>

CROSS TIMBERS OIL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------

1. INTERIM FINANCIAL STATEMENTS

The accompanying consolidated financial statements of Cross Timbers Oil
Company ("the Company"), with the exception of the consolidated balance sheet at
December 31, 1995, have not been audited by independent accountants. In the
opinion of the Company's management, the accompanying financial statements
reflect all adjustments necessary to present fairly the financial position at
June 30, 1996, the results of operations for the three and six-month periods
ended June 30, 1996 and 1995 and the cash flows for the six-month periods ended
June 30, 1996 and 1995. All such adjustments are of a normal recurring nature.
The results for interim periods are not necessarily indicative of annual
results.

2. LONG-TERM DEBT

As of June 30, 1996, outstanding bank debt was $173 million, compared
with borrowing commitments under the bank loan agreement of $220 million and
unused capacity of $47 million. In July 1996, the Company borrowed an
additional $36 million to partially fund the Enserch Acquisition (Note 6).
Borrowing commitments under the bank loan agreement were increased to $240
million after the closing of this acquisition. As of December 31, 1996 and June
30, 1997, borrowing commitments will be reduced to $230 million and $215
million, respectively.

Outstanding subordinated note debt was $63.7 million at June 30, 1996.
During the first six months of 1996, the Company purchased $2.8 million
principal amount of the notes at a loss of $20,000. The Board of Directors has
authorized the purchase of an additional $4 million principal amount of these
notes.

The following are maturities of long-term debt after closing of the
Enserch Acquisition: no maturities in 1996, $17 million in 1997, $31 million in
1998, $34 million in 1999 and $38 million in 2000.

3. COMMITMENTS AND CONTINGENCIES

Leases

In March 1996, the Company sold the Tyrone gas processing plant and
related gathering system (acquired in August 1995) for $28 million and agreed to
lease the facility from the buyers for an initial term of eight years at annual
rentals of $4 million, and with fixed renewal options for an additional 13
years. If the lessor decides to sell the facility at the end of the initial
term or any renewal period, the lessor must first offer to sell it to the
Company. The Company has a right of first refusal of any third party offers to
buy the facility after the initial term. This transaction was recorded as a
sale and an operating lease, with no gain or loss on the sale. Proceeds of the
sale were used to reduce borrowings under the bank loan agreement (Note 2).

Other

In January 1996, the Company committed with a bank to enter into two
interest rate swap agreements if LIBOR rates declined to specified strike rates
on April 17, 1996. The Company received $500,000 as consideration for this
commitment that expired unexercised on April 17, resulting in recognition of
such proceeds as other income in the quarter ended June 30, 1996.

6
<PAGE>
In June 1996, Holshouser v. Cross Timbers Oil Company, a class action
lawsuit, was filed in the District Court of Major County, Oklahoma. The action
was filed on behalf of all parties who, at any time since June 1991, have
allegedly had production or other costs deducted by the Company from royalties
paid on gas produced in Oklahoma when the royalty is based upon a specified
percentage of the proceeds received from the gas sold. The plaintiff alleges
that such deductions are a breach of the Company's contractual obligations to
the class and is seeking to recover an unspecified amount of damages as a result
of the alleged breach. Management cannot determine at this time the potential
liability of this claim, but intends to vigorously defend the action.

4. SUPPLEMENTAL CASH FLOW INFORMATION

The following are total interest and income tax payments during each of
the periods (in thousands):
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
1996 1995
------------ -----------
<S> <C> <C>

Interest.... $7,212 $5,028
Income tax.. 6 160
</TABLE>

5. STOCK INCENTIVE PLANS

During the six months ended June 30, 1996, 346,553 stock incentive units
granted under the 1991 Stock Incentive Plan ("Units") were exercised at a
weighted average exercise price of $12.22. As a result of these exercises, the
Company received proceeds of $4.2 million (including 149,191 shares of common
stock valued at $3.4 million), issued 346,553 shares of common stock, paid stock
appreciation right compensation of $7.1 million, purchased 21,950 treasury
shares for $400,000 and withheld 104,746 treasury shares valued at $2.5 million
for employee payroll taxes. Related stock appreciation right compensation
expense for the six months ended June 30, 1996 was $3.7 million, which is
included in general and administrative expense in the consolidated statement of
operations. As of June 30, 1996, 17,183 Units were exercisable at a weighted
average exercise price of $13.57.

In May and June 1996, 158,250 performance shares that were granted in
November 1995 under the 1994 Stock Incentive Plan ("1994 Plan") became fully
vested. The Company recognized compensation expense related to these
performance shares of $700,000 during the first six months of 1996 and $2.8
million in the fourth quarter of 1995. Upon vesting, 47,150 treasury shares
with a value of $1 million were withheld by the Company for employee payroll
taxes.

In May 1996, the stockholders approved an increase in the number of
shares available for grant under the 1994 Plan from 800,000 to 1,000,000.
During the first six months of 1996, 134,000 stock options were granted to
employees and 6,000 fully vested performance shares were granted to non-employee
directors under the 1994 Plan.

6. ACQUISITIONS

At the end of March 1995, the Company acquired predominantly gas-
producing properties in Kansas, Oklahoma and Texas from Apache Corporation for
$20 million and in northwestern Oklahoma from Meridian Oil, Inc. and certain of
it affiliates for $4.1 million. During the second quarter of 1995, the Company
completed other acquisitions totaling approximately $7 million. These
acquisitions were primarily financed with bank debt under the Company's
revolving credit agreements.

7
<PAGE>
$94 million was allocated to producing properties and $29 million was allocated
to gas gathering and processing facilities. The Santa Fe Acquisition was
primarily financed by borrowings under the Company's loan agreement, proceeds
from the 1995 common stock offering, and asset sales.

On July 19, 1996, the Company acquired primarily gas-producing
properties in the Green River Basin of southwestern Wyoming from Enserch
Exploration ("Enserch Acquisition"). The Company's internal engineers estimate
the proved gas reserves for these properties to be 81 billion cubic feet. The
preliminary purchase price of $40 million will be reduced by an estimated $1.5
million for net revenues from the April 1, 1996 effective date of the
acquisition through the closing date of July 19. The Company funded the
acquisition with bank debt (Note 2) and cash flow from operations. A $3 million
deposit for this acquisition is included in producing properties in the
consolidated balance sheet at June 30, 1996.

Acquisitions are accounted for under the purchase method of accounting.
The following presents pro forma results of operations for the six months ended
June 30, 1995 and the year ended December 31, 1995 as if these acquisitions (net
of related dispositions) and the 1995 common stock offering had been consummated
as of January 1, 1995. Pro forma results of operations for the six months ended
June 30, 1996 are not currently available. These pro forma results are not
necessarily indicative of future results.
<TABLE>
<CAPTION>
Pro Forma (Unaudited)
----------------------------
Six Months Year Ended
(in thousands, except per share data) Ended June 30, December 31,
1995 1995
-------------- ------------
<S> <C> <C>
Revenues..................................... $66,163 $131,491
======= ========
Income (loss) before income tax
and extraordinary item.................. $ 18 $(21,085)
======= ========

Net income (loss) before extraordinary item.. $ 12 $(13,878)
======= ========

Net income (loss)............................ $ 12 $(13,222)
======= ========

Net income (loss) per common share:
Before extraordinary item............... $ 0.00 $ (0.76)
======= ========
After extraordinary item................ $ 0.00 $ (0.73)
======= ========

Weighted average common shares outstanding... 18,178 18,212
======= ========

8
</TABLE>