As filed with the Securities and Exchange Commission on November 15, 1995
Registration No. 33-62851
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
AMENDMENT NO. 1 TO
FORM S-3
Registration Statement
Under
The Securities Act of 1933
NATIONAL ENERGY GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 58-1922764
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
-----------------
4925 Greenville Avenue, Suite 1400, Dallas, Texas 75206
(214) 692-9211
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
Miles D. Bender
President and
Chief Executive Officer
National Energy Group, Inc.
4925 Greenville Avenue, Suite 1400
Dallas, Texas 75206
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box: /X/
<PAGE>
Prospectus National Energy Group, Inc.
4,714,811 Shares of Class A Common Stock
Of the 4,714,811 shares (the "Shares") of Class A Common Stock, $.01 par
value ("Common Stock") of National Energy Group, Inc., a Delaware corporation
(the "Company") offered hereby, 1,584,811 shares are being offered by certain
Selling Stockholders (as defined herein) of the Company, 2,000,000 shares are
to be offered for resale upon the conversion of the outstanding shares of the
Company's 10 1/2% Cumulative Convertible Preferred Stock, Series C ("Series C")
by the holders thereof ("Preferred Holders"), an additional 630,000 shares are
to be offered for resale upon the conversion of an additional 12,600 shares of
Series C which may be issued as dividends upon the outstanding shares of Series
C, 300,000 shares are to be offered for resale upon the exercise of a warrant
(the "Warrant") held by a warrant holder (the "Warrant Holder") and 200,000
shares are to be offered for resale upon the exercise of warrants (the "Oak
Hill Warrants") held by warrant holders (the "Oak Hill Warrant Holders"). See
"Selling Stockholders". The Shares will be sold by the Selling Stockholders
and, upon conversion of the Series C and the dividends thereon and/or exercise
of the Warrant and/or the Oak Hill Warrants, by the Preferred Holders, Warrant
Holder and/or the Oak Hill Warrant Holders, from time to time at the then
prevailing market prices or otherwise.
Effective September 1, 1995, the Company's Common Stock began trading on
the NASDAQ National Market System. The Common Stock had previously traded on
the NASDAQ Small Cap Market. The Company's symbol is "NEGX". On November 10,
1995, the closing last sales price for the Company's Common Stock was $3.03.
The Company will receive no portion of the proceeds of the sale of the
Shares offered hereby and will bear the expenses incident to their
registration.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
===============================================================================
Price to Proceeds
Public (1) to Selling Stockholders(1)(2)
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Per Share of Class A $ 3.03 $ 3.03
Maximum Offering $14,285,877 $14,285,877
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(1)Assumes that the shares of Class A are sold at $3.03 (the average of the high
and low sales prices as of November 10, 1995) and that all shares offered
hereby are sold.
(2) Before deducting expenses of the offering, estimated at $16,993 which are
payable by the Company.
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AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES VARIOUS RISKS. SEE
"RISK FACTORS" ON PAGES 8-13.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
<PAGE>
SOLICITATION OF AN OFFER TO BUY SHARES IN ANY JURISDICTION TO ANY PERSON TO
WHOM SUCH OFFER OR SOLICITATION IS UNLAWFUL.
The date of this Prospectus is November 15, 1995.
<PAGE>
AVAILABLE INFORMATION
The Registrant is a reporting company and therefore files reports and
other information with the Securities and Exchange Commission (the
"Commission"). Reports and other information filed by the Registrant may be
inspected and copied at the public reference facilities of the Commission in
Washington, D.C. and copies of such material can be obtained from the Public
Reference Section of the Commission, Washington, D.C. 20549 at prescribed
rates.
The Company has filed with the Commission a Registration Statement on Form
S-3 (herein, together will all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the securities offered hereby. As permitted
by the rules and regulations of the Commission, this Prospectus omits certain
information, exhibits and undertakings contained in the Registration Statement.
For further information with respect to the Company and the securities offered
hereby, reference is made to the Registration Statement, including the exhibits
thereto and the documents incorporated by reference therein. Statements
contained in this Prospectus as to the contents of any contract or other
document are not necessarily complete, and in each instance reference is made
to the copy of such contract or document filed or incorporated by reference as
an exhibit to the Registration Statement, each such statement being qualified
in all respects by such reference.
INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE
Incorporated by reference in this Prospectus as of the date of filing, and
subject in each case to information contained in this Prospectus, are the
following documents filed by the Company with the Commission pursuant to the
Securities Exchange Act of 1934 (the "Exchange Act"):
(i) Annual Report on Form 10-KSB for the fiscal year ended December 31,
1994;
(ii) Quarterly Report on Form 10-QSB for the quarter ended March 31,
1995;
(iii) Quarterly Report on Form 10-QSB for the quarter ended June 30, 1995;
(iv) Quarterly Report on Form 10-QSB for the quarter ended September 30,
1995;
(v) Current Report on Form 8-K dated June 30, 1995, and Amendment No. 1
thereto on Form 8-K/A dated June 30, 1995; and
(vi) Proxy Statement, dated April 26, 1995, for the Company's 1995
Annual Meeting.
In addition, all documents subsequently filed by the Company pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Prospectus and prior to the termination of the offering of Common Stock made
hereby shall be deemed to be
2
<PAGE>
incorporated by reference into this Prospectus and to be a part hereof from the
date of filing of such documents. Any statement contained herein or in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for the purposes of this Prospectus to the
extent that a statement contained herein or in any subsequently filed document
which 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 Prospectus.
The Company will provide without charge to each person to whom a copy of
this Prospectus is delivered, upon oral or written request of such person, a
copy of any and all of the documents incorporated by reference herein (other
than exhibits and schedules to such documents, unless such exhibits or
schedules are specifically incorporated by reference into such documents). Such
requests should be directed to Sandra Woods, Assistant Secretary, National
Energy Group, Inc., 4925 Greenville Avenue, Suite 1400, Dallas, Texas 75206 or
by telephone at (214) 692-9211.
---------------------------------------
As used in this Prospectus, the term "mcf" shall mean thousand cubic feet,
and the term "boe" shall mean barrels of oil equivalent (converting six mcf of
natural gas to one barrel of oil). The term "Standardized Measure" shall
mean the estimated future net cash flows from proved oil and gas reserves
computed using prices and costs, at the dates indicated, after income taxes
and discounted at 10%. The term "PV 10%" shall mean the discounted future
net cash flows for proved oil and gas reserves computed on the same basis
as the Standardized Measure, but without deducting income taxes, which is not
in accordance with generally accepted accounting principles. PV 10% is an
important financial measure for evaluating the relative significance of oil
and gas properties and acquisitions, but should not be construed as an
alternative to the Standardized Measure (as determined in accordance with
generally accepted accounting principles).
3
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the detailed
information and financial statements incorporated by reference in the
Registration Statement of which this Prospectus is a part.
The Company
National Energy Group, Inc. (the "Company") was incorporated under the
laws of the state of Delaware on November 20, 1990. Effective June 11, 1991,
Big Piney Oil and Gas Company ("Big Piney") and VP Oil, Inc. ("VP") merged with
and into the Company.
The Company is engaged in oil and gas exploration, production and
development. At December 31, 1994, the Company's net proved developed and
undeveloped reserves consisted of 5,155,741 barrels of oil and 13,380,474 mcf
of gas; of such amounts, 1,532,470 barrels of oil and 9,205,784 mcf are proved
developed reserves. At December 31, 1994, the Standardized Measure of the
Company's oil and gas reserves was $20,839,503. The PV 10% of the Company's
oil and gas reserves at such date was $27,445,044. At November 10, 1995, the
Company managed or had interests in 204 producing wells. The Company is act-
vely pursuing various strategies for increasing the Company's oil and gas re-
serves and production. The various strategies for increasing reserves and
production include the development of the Goldsmith Adobe Unit in Ector
County, Texas ("GAU"), the acquisition of producing oil and gas properties
and companies with oil and gas production, the enhancement and exploitation
of the Company's other existing properties and limited exploratory drilling.
The Company's executive offices are located at 4925 Greenville Avenue,
Suite 1400, Dallas, Texas 75206, and the Company's phone number is (214)
692-9211.
Recent Developments
In June 1995, the Company completed the acquisition of producing gas
properties in the Oak Hill Field in Rusk County, Texas ("Oak Hill") from Sierra
1994 I Limited Partnership ("Sierra"). The acquisition follows the purchase of
a producing oil and gas property in the Mustang Island Field in offshore Nueces
County, Texas ("Mustang") from Sierra Mineral Development, L.C. and LLOG
Production Company (the Company assumed Sierra Mineral Development, L.C.'s
contractual rights and obligations with LLOG).
Collectively, the Oak Hill and Mustang interests have proved reserves with
a present value discounted at 10% (PV 10) of approximately $14,500,000 and such
properties are estimated to contain nearly 25 billion cubic feet of gas
equivalent. Collectively, the Oak Hill and Mustang interests are currently
producing at an aggregate rate of approximately 4 million cubic feet of gas and
90 barrels of oil per day. The Company will operate both properties.
4
<PAGE>
The Company based the consideration given for the Oak Hill acquisition on
the value of the acquired reserves, cash flow from the acquired working
interest and development
opportunities in the Oak Hill Field. The consideration paid by the Company to
Sierra for the Oak Hill acquisition consisted of $7,200,000 in cash, 612,311
shares of the Company's Common Stock and Warrants to purchase 200,000 shares of
Common Stock at a price per share of $2.00. The cash portion of the acquisition
was funded primarily by the Company's new reducing, revolving credit facility
with Bank One, Texas, N.A. ("Bank One") (see below). The consideration given
for the acquisition of the Mustang interests consisted of $900,000 in cash and
352,500 shares of the Company's Common Stock. The Company based the
consideration given for the Mustang acquisition on the value of the acquired
reserves, cash flow from the acquired interests and development opportunities
in the Mustang Island Field. The Company funded the Mustang acquisition with
available cash.
In addition, in June 1995, the Company completed the acquisition of
producing oil and gas properties in Eddy County, New Mexico from Enron Oil and
Gas Company ("Enron"), pursuant to a Purchase and Sale Agreement dated as of
March 29, 1995 between the Company and Enron. The acquisition consists of six
gas wells and two oil wells, which contain approximately 4 billion cubic feet
of gas equivalent. The Company will be the operator of a majority of the
properties. The consideration given for the acquisition was $2,119,295 in cash.
The Company based the consideration given for the acquisition on the value of
acquired reserves and cash flow from the acquired properties. This acquisition
was funded by the Company's new credit facility with Bank One and available
cash.
In June 1995, the Company consummated a $33,000,000 reducing revolving
line of credit facility (the "Facility") with Bank One, Texas, N.A. ("Bank
One"). The initial funding was $15,500,000, of which $12,500,000 was drawn
upon. The initial advance was used to purchase the Oak Hill and Enron
properties described above, to pay off the Company's credit facility with Texas
Gas Fund I and for closing fees. In the future, the Facility will be used for
the further development of the Goldsmith Adobe Unit (GAU) in Ector County,
Texas and for acquisitions and limited exploration.
The Facility consists of two parts: a Revolving Note of up to $30,000,000,
with an interest rate of prime plus 1% (subject to reduction in certain
circumstances) or LIBOR plus 3.75% (subject to reduction in certain
circumstances), and an Advance Note of up to $3,000,000 (primarily for the
development of GAU) at a rate of prime plus 4%. Payments of interest and
principal will be made monthly. The Facility is secured by all of the Company's
principal oil and gas properties, related equipment, oil and gas inventory and
related revenues. Prepayments are allowed at any time.
The Revolving Note has a maturity date of June 30, 1999 and the Advance
Note has a maturity date of June 30, 1996. Payment of the Advance Note is
subordinated to payment of the Revolving Note. Beginning July 31, 1995, the
Company is required to make monthly payments of $175,000 (which amount can be
redetermined semi-annually by Bank One). The Facility contains restrictive and
affirmative covenants and maintenance of required financial ratios.
5
<PAGE>
In addition, on June 15, 1995, the Company consummated the sale of
$4,000,000 of the Company's 10 1/2% Cumulative Convertible Preferred Stock,
Series C ("Series C"), which was privately placed with affiliates of Kayne,
Anderson Investment Management, Inc. of Los Angeles, California. Forty
thousand shares of Series C were sold by the Company at $100.00 per share,
and the Series C is convertible into shares of the Company's Common Stock at
a conversion price of $2.00 per share of Common Stock.
The Series C has a liquidation and dividend preference over the Common
Stock, and is parity stock to the previously issued 10% Cumulative Convertible
Preferred Stock, Series B ("Series B"). The Series C has a 10 1/2% dividend,
payable semi-annually. The Company has the option to make dividend payments in
Series C; after the sixth such payment, the holders of the Series C have the
option to receive additional dividends in Series C or to accrue such dividends
in cash. If the Company makes four dividend payments in Series C, the holders
of the Series C (voting as a class with other affected series of preferred
stock with similar voting rights) have the right to appoint one-third of the
members of the Company's Board of Directors; provided, however, that if the
holders of Series B are presently entitled to a similar right, then the holders
of Series C shall have no such right until the right of the holders of Series B
terminates. The Series C is not redeemable by the Company for two years;
between two years and three years from June 14, 1995, the Series C is
redeemable at $110.00 per share and, thereafter, at $100.00 per share, plus
accrued and unpaid dividends. No shares of Series B shall be redeemed by the
Company unless and until all outstanding shares of Series C have been redeemed
by the Company. The holders of the Series C have the right to appoint one
member to the Company's Board of Directors while the Series C is outstanding.
The holders of Series C are entitled to one vote for each share as to
matters upon which by law they are entitled to vote as a class, and the
approval of a majority of the holders of Series C, voting separately as a
class, is required to make changes to the Company's Certificate of
Incorporation or By-Laws which adversely affect the Series C, to authorize or
issue additional shares of Series C or to issue preferred stock equal to or
senior to the Series C as to dividends or liquidation, or, subject to certain
exceptions, to effect an extraordinary transaction that requires a vote of the
Company stockholders. As a result, a class vote of the holders of Series C, as
well as the Series B, would be required for the Company to merge or be acquired
and may therefore delay, defer, or prevent a change in control of the Company.
Proceeds from the offering of Series C will be used to develop the
Company's GAU property in Ector County, Texas, and to recomplete, enhance and
exploit certain of the Company's other selected properties. The proceeds also
are to be used for the acquisition of producing properties or companies, or the
securities of such companies, and for limited exploration drilling.
6
<PAGE>
The Offering
A total of 4,714,811 shares of Common Stock are offered by this
Prospectus, with 1,584,811 shares being offered by certain Selling Stockholders
of the Company, 2,000,000 shares to be offered for resale upon the conversion
of the Company's Series C by the Preferred Holders, an additional 630,000
shares to be offered for resale upon the conversion of an additional 12,600
shares of Series C which may be issued as dividends upon the outstanding shares
of Series C, 300,000 shares to be offered for resale upon the exercise of the
Warrant by the Warrant Holder and 200,000 shares to be offered for resale upon
the exercise of the Oak Hill Warrants by the Oak Hill Warrant Holders. See
"Selling Stockholders". The Shares will be sold from time to time by the
Selling Stockholders, and upon the conversion of the Preferred Stock and the
dividends thereon and/or exercise of the Warrant and/or the Oak Hill Warrants,
by the Preferred Holders, Warrant Holder and Oak Hill Warrant Holders, as
determined by each such Selling Stockholder, each such Preferred Holder, the
Warrant Holder and each such Oak Hill Warrant Holder, respectively, at the then
current market prices or otherwise. The Company will not receive any proceeds
from the sale of shares of Common Stock by the Selling Stockholders, Preferred
Holders, Warrant Holder or the Oak Hill Warrant Holders.
Effective September 1, 1995, the Company's Common Stock began trading on
the NASDAQ National Market System. The Common Stock had previously traded on
the NASDAQ Small Cap Market. The Company's symbol is "NEGX". On November 10,
1995, the last sales price for the Company's Common Stock was $3.03.
7
<PAGE>
RISK FACTORS
An investment in the Common Stock offered hereby involves various risks.
Investors should consider carefully all of the information set forth in
this Prospectus and the documents incorporated by reference herein and, in
particular, the following risk factors which have increased the risk associated
with, and may otherwise adversely affect the value of, the Common Stock
registered hereunder.
Nature of the Company's Business.
- --------------------------------
The Company is engaged in one industry segment: oil and natural gas
exploration, production and development. In recent years, prices for oil and
gas have been depressed. In addition, the oil and gas business is subject to
various economic and political factors and the significant dependence of the
United States and other countries on foreign oil. Therefore, oil and gas prices
appear dependent, to a significant degree, on the actions of major foreign
crude oil producers and governments and other factors beyond the Company's
control. As a result of such factors and the accompanying unstable market
conditions, future prices for oil and gas are unpredictable. Any significant
decline in the prices of oil or gas will have a material and adverse effect on
the Company's operating results.
Potential Dilution.
- ------------------
It should be noted that purchasers of Common Stock, upon becoming
stockholders of the Company, may be subject to significant dilution of their
proportionate ownership of the Company. On November 10, 1995, there were
11,872,625 shares of Common Stock outstanding. The Company currently has
567,200 shares of Common Stock reserved for issuance pursuant to existing
options and warrants (other than the Warrant and the Oak Hill Warrants) to
purchase Common Stock. In addition, if all of the shares of the Company's
Series B and Series C are converted to Common Stock, an additional 5,230,769
shares of Common Stock will be issued, and if the Warrant and Oak Hill Warrants
are exercised in their entirety, an additional 500,000 shares of Common Stock
will be issued. These issuances will reduce the proportionate ownership in the
Company of purchasers of the Common Stock offered hereby. In addition, if the
Company exercises its option to make six dividend payments on the Series B and
the Series C in shares of Series B and Series C instead of cash, then the
Company will issue 25,100 additional shares of Series B and Series C,
collectively, which shares would be convertible into 1,544,615 shares of Common
Stock. Additionally, shares of Series B and Series C, which would be
convertible into additional shares of Common Stock, may be issuable as
dividends upon such 25,100 shares of Series B and Series C. Furthermore, the
holders of the Series B and Series C have the option to continue to receive
dividends on the Series B and Series C in shares of Series B and Series C,
respectively, after the sixth dividend payment in shares of Series B or Series
C, which dividends would result in the issuance of additional shares of Series
B or Series C, which in turn would be convertible into additional shares of
Common Stock.
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<PAGE>
In addition, the Company may issue up to 10% of its outstanding shares of
Common Stock pursuant to its 1992 Stock Option Plan. As of November 10, 1995,
no options to purchase shares were outstanding pursuant to the 1992 Stock
Option Plan (the "Plan"). Although the Company has no current plans to issue
more options pursuant to the Plan, the Company has issued options outside of
the Plan.
It should be noted that the Company's stated objective is to grow through
the acquisition of oil and gas producing properties and companies with oil and
gas production. Thus, further issuances of Common Stock and preferred stock in
connection with acquisitions can be expected, and such issuances will dilute
the proportional ownership of the Company held by Common Stock stockholders.
Issuances of authorized but unissued shares of Common Stock and preferred stock
could even change control of the Company. Furthermore, the Company will
generally not seek further authorization for the issuance of Common Stock and
preferred stock in acquisitions from the Company's stockholders prior to such
issuances.
Delay of Change in Control.
- --------------------------
An issuance of Common Stock, which could be effected without stockholder
approval, could also be used as an anti-takeover device by the Company by
making it more difficult for anyone to acquire control of the Company. Such an
issuance would permit the Company to dilute both the stock ownership of a
stockholder seeking control of the Company and the voting power of all other
stockholders. With respect to the preferred stock, the Board could use its
authority to make such designations and to issue preferred stock in a manner
that would create impediments to or otherwise discourage persons attempting to
gain control of the Company. Certain issuances of preferred stock could also
seriously dilute the proportionate ownership of the Company held by the
Company's Common Stock stockholders (in particular, subject to the NASDAQ Stock
Market Shareholder Voting Rights Rule, the Board can authorize preferred stock
with voting rights greater than one vote per share) and could even change
control of the Company.
Viability of the Company; Development and Production Risks.
- ----------------------------------------------------------
Oil and gas reserves are depleting assets by their nature, and revenues
generated by oil and gas production will decline in the absence of
acquisitions, improvements to producing properties, successful exploration or
increases in the prices of oil and gas. It is anticipated that the Company will
seek to make acquisitions of oil and gas companies or production and continue
to rework, reenter and complete wells in an effort to replace reserves. If such
efforts are unsuccessful, the Company's results of operations and financial
condition will be materially and adversely affected. Furthermore, there can be
no assurance that the Company will be successful in acquiring properties and/or
companies because successful acquisitions are subject to the availability of
satisfactory acquisition candidates and cash and credit facilities to the
Company, the relative costs of acquisitions as compared to drilling and the
market demand for oil and gas. Furthermore, the Company's business strategy
assumes that major integrated oil companies and independent oil companies will
continue to divest many of their domestic oil and natural gas properties. There
can be no assurance that such divestitures will continue or that the Company
will be able to acquire
9
<PAGE>
such properties with acceptable rates of return. In addition, the Company could
be under severe financial pressures if prices for oil and gas decline
substantially from present levels.
In addition, a substantial portion of the Company's oil and gas reserves
are proved undeveloped reserves. Successful development of such reserves cannot
be assured. Additional drilling will be necessary in future years both to
maintain production levels and to define the extent and recoverability of
existing reserves. There is no assurance that present oil and gas wells of the
Company will continue to produce at current or anticipated rates of production,
that development drilling will be successful, that production of oil and gas
will commence when expected, that there will be favorable markets for oil and
gas which may be produced in the future or that production rates achieved in
early periods can be maintained.
The Company's results of operations and cash flow will be significantly
affected by the outcome of its planned development of the GAU. For information
on the Company's GAU development plan, see "- Need for Additional Capital"
below. If the GAU development plan is not successful, the Company's results of
operations and financial condition will be materially and adversely affected.
Development of the GAU involves all of the risks inherent in oil and gas
exploration and development described above and in " -Risk of Future Oil and
Gas Exploration" below.
In addition, the Company recently acquired oil and gas properties in the
Oak Hill and Mustang Island Fields and oil and gas properties from Enron. See
"Prospectus Summary - Recent Developments". In particular, the Company's
results of operations and cash flow will be significantly affected by the
outcome of the development of the Oak Hill and Mustang properties. A portion of
the development costs for the Oak Hill and Mustang properties is expected to be
funded by existing working capital and additional advances under the Facility
with Bank One. To the extent the Company uses borrowed funds to develop the Oak
Hill and Mustang properties, the Company's interest expense will increase. The
Company's depreciation, amortization and depletion costs will increase as the
Oak Hill and Mustang properties are developed, but the Company expects such
increases to be in proportion to the Company's other such costs. Due to the
greater depths of the expected drilling in the Oak Hill Field, the Company's
development costs for the Oak Hill property are expected to be somewhat higher
than the average development costs for the Company's other properties. The
development of the Oak Hill and Mustang properties involves all of the risks
inherent in oil and gas exploration and development described above and in "-
Risk of Future Oil and Gas Exploration" below and such development may or may
not be successful. If the development of the Oak Hill and Mustang properties is
unsuccessful, development costs will exceed revenues resulting from such
development and the Company's results of operations and cash flow will be
adversely affected.
Need for Additional Capital.
- ---------------------------
The Company's ability to develop its principal property, the GAU, and to
otherwise expand its reserve base through acquisition and development, is
dependent upon the Company's ability to obtain the necessary capital. In
particular, the Company will need funding of approximately $15,000,000 over the
next four years to develop the GAU in
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<PAGE>
accordance with the Company's plan. Although the Company has entered into the
Facility with Bank One, there is no assurance that Bank One will make
additional advances under the Facility or that the Company will be able to
otherwise raise sufficient capital to implement its development plan for the
GAU or any other property, or to replace oil and gas reserves as they are
produced.
Recent Operating Losses.
- -----------------------
The Company has incurred losses from operations for the past four years
and had an accumulated deficit of $2,921,861 at September 30, 1995, which
deficit includes a deficit from the Company's predecessor companies. No
assurance can be made that the Company will operate profitably in the future.
The likelihood of future profitability of the Company must be considered in
light of the problems, expenses, difficulties, complications and delays
frequently encountered in connection with the oil and gas exploration,
development and production business in which the Company is engaged.
Risk of Future Oil and Gas Exploration.
- --------------------------------------
To the extent the Company engages, directly or indirectly, in exploratory
and other drilling activities in the future, it will be subject to certain
risks inherent in this phase of the oil and gas business. Exploration for oil
and gas is a speculative business and, therefore, involves a high degree of
risk. No proven techniques exist with which to predict whether the drilling of
a particular well will result in the discovery of oil and/or gas in commercial
quantities. There can therefore be no assurance that the drilling of any wells
will result in production in commercial quantities, or that production will be
profitable. Moreover, once a well is drilled and completed, the completion may
still fail to produce a commercial well for various geological or mechanical
reasons. Abandonment of a well may result in the loss of both drilling and
completion costs, which will then be non-recoverable. Also, there exist several
natural hazards in the drilling of oil and gas wells, such as unusual or
unexpected formation pressure, infiltration of salt water, swelling of the
formation, lost fluid circulation, or other unanticipated conditions, which
could adversely affect profitability even in the event of a successful well.
Dependence on Management.
- ------------------------
The Company is dependent on the judgment, experience and expertise of its
current Management, particularly with respect to its development activities and
the acquisition of properties and/or companies. In particular, Miles D. Bender
is under no contractual obligation to serve in his present positions, and the
Company has no "key man" life insurance policy on Mr. Bender. The loss of
members of current Management could materially and adversely affect the Company
and its business, operations and prospects.
Limitation on Accuracy of Reserve Estimates.
- -------------------------------------------
This Prospectus contains and/or incorporates by reference, estimates of
reserves and of future net revenue which have been prepared by petroleum
engineers. Estimates of reserves and of future net revenue prepared by
different petroleum engineers may vary
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<PAGE>
substantially depending, in part, on the assumptions made and may be subject
to adjustment in the future. The actual amounts of production, revenue,
taxes, development expenditures, operating expenses, and quantities of
recoverable oil and gas reserves to be encountered may vary substantially
from the engineers' estimates. Oil and gas reserve estimates are necessarily
inexact and involve matters of subjective engineering judgment. In addition,
any estimates of future net revenue and the present value thereof are based
on price and cost assumptions made by the Company which only represent its
best estimate. If these estimates of quantities, prices and costs prove
inaccurate, the Company is unsuccessful in expanding its oil and gas reserves
base with its capital expenditure program, and/or declines in and instability
of oil and gas prices occur, then write-downs in the capitalized costs
associated with the Company's oil and gas assets may be required.
Competition.
- -----------
The oil and gas industry is intensely competitive in all of its phases,
particularly with respect to the acquisition of desirable producing oil and gas
properties and oil and gas
companies with production. The Company, which is a minor competitive factor in
the industry, encounters strong competition from major oil companies, large
independent oil and gas concerns, and individual producers and operators, most
of which have financial resources, staffs, facilities and experience
substantially greater than those of the Company. Furthermore, in times of high
drilling activity, exploration for and production of oil and gas may be
affected by the availability of equipment, labor and supplies and by
competition for drilling rigs. The Company cannot predict the effect these
factors will have on its operations. The Company owns no drilling rigs, and it
is anticipated that its drilling will be conducted by third parties.
Furthermore, the oil and gas industry also competes with other industries in
supplying the energy and fuel requirements of industrial, commercial and
individual consumers.
Sale of Shares.
- --------------
Sales of substantial amounts of Common Stock in the public market
following this Offering could adversely affect the market price for the Common
Stock. In particular, sales of Shares registered hereunder by the Selling
Stockholders may significantly and adversely affect the prevailing market price
for Common Stock, and if any of the Company's other principal stockholders were
to sell a significant number of their shares, the prevailing market price of
the Common Stock may also be significantly and adversely affected. For more
information on the sale of the Shares offered hereby, see "Plan of
Distribution".
Governmental Regulation and Environmental Matters.
- -------------------------------------------------
In general, the exploration and production activities of the Company are
subject to certain existing laws and regulations relating to environmental
quality and pollution control, prevention of waste, the conservation of natural
gas and oil, permits for drilling, drilling bonds, spacing of wells,
unitization and pooling, taxes and various other matters. Such laws and
regulations may substantially increase the costs of equipping and carrying on
production activities and may prevent or delay the commencement or continuance
of a given operation. Many jurisdictions have at various times imposed
limitations on the production of gas and
12
<PAGE>
oil by restricting the rate of flow for gas and oil wells below their actual
capacity to produce.
In addition, many states have raised state taxes on energy sources and
additional increases may occur. The existence of environmental regulations has
had no material effect on methods of development of oil and gas properties
owned by the Company to date, and the cost of such compliance has not been
material to date. The Company does not believe that its environmental risks are
materially different from those of comparable companies in the oil and gas
industry. Nevertheless, no assurance can be given that environmental laws will
not, in the future, result in curtailment of production or material increases
in the cost of production, development or exploration or otherwise adversely
affect the Company's operations and financial condition.
Control by Management.
- ---------------------
The executive officers and directors of the Company collectively own
21.2% of the Company's currently outstanding Common Stock. As a result,
until the conversion of the
Series B and Series C, management will in all likelihood control the Company by
virtue of their voting power and ownership of voting stock and will in all
likelihood be able to determine the outcome of elections of the Company's
directors. The Company, however, needs, subject to certain exceptions, approval
of a majority of the outstanding shares of each of the Series B and Series C to
effect extraordinary actions which require the consent of the Company's
stockholders.
In addition, one of the Company's directors, Robert V. Sinnott, is the
representative of the holders of the Series B and Series C. If all 52,500 shares
of Series B and all 40,000 shares of Series C were converted into 5,230,769
shares of Common Stock (and assuming no additional shares of Common Stock are
issued), then the holders of Series B and Series C would hold 30.6% of the then
outstanding shares of Common Stock. If such holders were to vote such shares of
Common Stock in accordance with the Board of Director's recommendations, then
management of the Company would exercise control over the Company.
13
<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of 1,584,811 shares of Common Stock
registered hereunder by the Selling Stockholders will be received by the
Selling Stockholders, and the Company will not receive any portion of such
proceeds. The net proceeds from the sale of 3,130,000 additional shares of
Common Stock, if and when the Preferred Stock and the dividends thereon and/or
the Warrant and/or the Oak Hill Warrants are converted and/or exercised, will
be received by the Preferred Holders, Warrant Holder and Oak Hill Warrant
Holders, respectively, and the Company will not receive any portion of such
proceeds. The Company will use the proceeds from the exercise, if any, of the
Warrant and the Oak Hill Warrants for general corporate purposes and to enhance
and exploit the Company's existing properties, at the time of such exercises.
If the Warrant and Oak Hill Warrants are exercised in full, the Company will
receive $887,500 in proceeds.
14
<PAGE>
SELLING STOCKHOLDERS
Bligh Petroleum, Inc., a Texas corporation ("Bligh"), Texas Gas Fund I, a
Texas general partnership ("Gas Fund"), Energy Capital Investment Company PLC,
("Energy Capital"), Sierra Mineral Development, L.C., a Texas limited liability
company ("Sierra"), EnCap Equity 1994 Limited Partnership, a Texas limited
partnership ("EnCap"), and Sierra Mineral 1994 Partnership, a Texas partnership
("Sierra 1994") are the Selling Stockholders hereunder (the "Selling
Stockholders").
Bligh acquired the 520,000 shares of Common Stock it is registering
hereunder pursuant to the Company's acquisition of an interest in the GAU from
Bligh on December 31, 1993. Gas Fund was issued the 100,000 shares of Common
Stock it is registering hereunder to reduce their Net Profits Interest in the
GAU. Sierra acquired the 327,500 shares of Common Stock it is registering
hereunder pursuant to the Company's acquisition of the Mustang Island Field in
offshore Nueces County, Texas from Sierra and LLOG Production Company in April
1995 (the "Mustang Acquisition"). Sierra 1994 acquired the 459,233 shares of
Common Stock it is registering hereunder pursuant to the Company's acquisition
of the Oak Hill Field in Rusk County, Texas from Sierra 1994 (the "Oak Hill
Acquisition"). Energy Capital acquired 9,381 and 57,440 of the shares of Common
Stock it is registering hereunder from the Mustang Island Acquisition and Oak
Hill Acquisition, respectively. EnCap acquired the 15,619 shares and 95,638
shares of Common Stock it is registering hereunder from the Mustang Island
Acquisition and Oak Hill Acquisition, respectively.
On June 15, 1995, Arbco Associates L.P., Offense Group Associates L.P.,
Kayne, Anderson Nontraditional Investments L.P, and Opportunity Associates
L.P. (collectively, the "Preferred Holders")
acquired 40,000 shares of Series C which convert into 720,000, 600,000, 560,000
and 120,000 shares of Common Stock, respectively. If all of the shares of
Series B and Series C were converted into Common Stock there would be, as of
November 10, 1995, 17,103,394 shares of Common Stock outstanding, and the
following entities would hold the following percentages of Common Stock: Arbco
Associates L.P. - 11.0%; Offense Group Associates L.P. - 9.2%; Kayne, Anderson
Nontraditional Investments L.P. - 8.6%; and Opportunity Associates L.P. -1.8%.
If the Company makes dividend payments on the Series B and Series C with shares
of Series B and Series C, and such shares are converted into shares of Common
Stock, the percentage ownership of the Company's Common Stock held by
the Preferred Holders would increase. See "Risk Factors - Potential Dilution".
Robert V. Sinnott is Senior Vice President and Senior Investment Officer
of Kayne Anderson Investment Management, Inc. ("KAIM") and was appointed to
the Company's Board of Directors on June 3, 1994, pursuant to the right of
the holders of the Series B to appoint one member to the Company's Board. The
holders of Series C have the right to appoint an additional member to the
Company's Board and have appointed Elwood Schafer. KAIM and Richard A. Kayne,
KAIM's President, Chief Executive Officer and Director have shared dispositive
and voting power over the shares of Series B and Series C, and the shares of
Common Stock into which the Series B and Series C convert, through the
Preferred Holders. The shares of Common Stock described in this paragraph and
the second and third succeeding paragraphs are not included in the Selling
Stockholders table below because such shares are not yet outstanding as the
Preferred
15
<PAGE>
Holders, Warrant Holder and Oak Hill Warrant Holders have not yet converted
the Preferred Stock, Warrant and Oak Hill Warrants.
The Series C was acquired from the Company for an aggregate cash
consideration of $4,000,000. Proceeds from the Series C will be used to develop
the Company's GAU property in Ector County, Texas, and to recomplete, enhance
and exploit certain of the Company's other selected properties. The proceeds
will also be used for the acquisition of producing properties or companies, or
the securities of such companies, and for limited exploration drilling.
Gaines Berland, Inc. (the "Warrant Holder") was issued a Warrant
(the "Warrant") during 1994, to purchase up to 300,000 shares of Common Stock
at $1.625 per share pursuant to a financial consultancy agreement. One third
of the Warrant (to purchase up to 100,000 shares) is currently exercisable
and remains exercisable until July 31, 1997. One third of the Warrant (to
purchase up to 100,000 shares) is currently exercisable and remains and
remains exercisable until July 31, 1998. The final one third of the Warrant
(to purchase up to 100,000 shares) will vest on July 31, 1996 and remain
exercisable until July 31, 1999. If the agreement is terminated prior to the
vesting of the final one third of the Warrant, such one third will be
canceled by the Company.
In June 1995, in connection with the Oak Hill Acquisition, and as part of
the consideration for such acquisition, the Company issued a warrant to
purchase an aggregate 200,000 shares of Common Stock at $2.00 per share (the
"Oak Hill Warrants"), which consists of a warrant to purchase 37,523 shares
issued to Energy Capital, a warrant to purchase 62,477 shares issued to EnCap
and a warrant to purchase 100,000 shares issued to Sierra 1994 (collectively,
Energy Capital, EnCap and Sierra 1994 are sometimes referred to herin as the
"Oak Hill Warrant Holders"). The Oak Hill Warrants are exercisable until June
30, 1998.
The following table sets forth, as of November 10, 1995, the name and
address of each Selling Stockholder, their respective current beneficial
stockholdings and the number of shares that are being offered hereby by each
such stockholder, and their respective stockholdings after the offering.
<TABLE>
Holdings Prior to Sale Holdings After Sale(1)
<CAPTION>
% of % of
Outstanding Shares Outstandg
No. of Common to be No. of Common
Shares(2) Stock(2) Sold(1) Shares Stock
--------- ---- --------- --- ---------
<S> <C> <C> <C> <C> <C>
Bligh Petroleum, Inc. 520,000 4.4% 520,000 0 0%
400 N. St. Paul
Suite 1400
Dallas, TX 75201
Sierra Mineral 1994 459,233 3.9% 459,233 0 0%
Partnership
1201 Louisiana
Suite 3125
Houston, TX 77002
16
<PAGE>
Sierra Mineral Development 327,500 2.8% 327,500 0 0%
L.C.
1201 Louisiana
Suite 3125
Houston, TX 77002
EnCap Equity 1994 111,257 (3) 111,257 0 0%
Limited Partnership
1100 Louisiana
Suite 3150
Houston, TX 77002
Texas Gas Fund I 100,000 (3) 100,000 0 0%
1100 Louisiana
Suite 3125
Houston, TX 77002
Energy Capital Investment 66,821 (3) 66,821 0 0%
Company PLC
1100 Louisiana
Suite 3125
Houston, TX 77002
- -------------------------- --------- ----- --------- --- ---------
Total 1,584,811 13.4% 1,584,811 0 0%
</TABLE>
(1) Assumes all of the Shares offered hereby are sold by such shareholders. See
"Plan of Distribution".
(2) Based upon 11,872,625 shares of Common Stock outstanding as of November
10, 1995. The percentages do not reflect the conversion of the Series B
and/or the Series C, and/or the exercise of the Warrant or the Oak Hill
Warrants, which are described in the paragraphs preceding the table, or the
issuance of shares of Series B and Series C as dividends on the Series B
and Series C, respectively.
(3) Less than 1%.
17
<PAGE>
PLAN OF DISTRIBUTION
The shares of Common Stock of the Company owned by each Selling
Stockholder, and the shares of Common Stock to be offered for resale by the
Preferred Holders, Warrant Holder and the Oak Hill Warrant Holders, upon
conversion of the Series C and the dividends thereon and exercise of the
Warrant and/or Oak Hill Warrants, and included in this Prospectus may be
offered and sold by such Selling Stockholder, Preferred Holder, Warrant Holder
or Oak Hill Warrant Holder from time to time, as determined by such Selling
Stockholder, Preferred Holder, Warrant Holder or Oak Hill Warrant Holder, at
any time while the Registration Statement, of which this Prospectus is a part,
is effective. The Company will not receive any proceeds from the sales of such
shares of Common Stock. All expenses related to the registration of the Shares
hereunder will be borne by the Company.
Each Selling Stockholder, Preferred Holder, Warrant Holder or Oak Hill
Warrant Holder may from time to time elect to sell shares in the
over-the-counter market, and in other market transactions or to sell shares
directly in negotiated transactions, at prices and on terms related to the
respective then-current market prices or otherwise. Such shares may be offered
or sold with or without the participation of underwriters, brokers or dealers.
Each Selling Stockholder, Preferred Holder, Warrant Holder or Oak Hill Warrant
Holder may also from time to time offer shares to underwriters, brokers or
dealers, who may receive underwriting discounts, concessions or commissions
from such Selling Stockholder, Preferred Holder, Warrant Holder or Oak Hill
Warrant Holder and/or the purchasers of shares for whom they act as agent or to
whom they sell as principal or both (which discounts, concessions or
commissions will not exceed those customary in the types of transactions
involved). Such offers or sales may be made: by a block trade in which a broker
or dealer, engaged for the purpose, will attempt to sell the shares as agent,
but may position and resell a portion of the block as principal, to facilitate
the transaction; by purchase by a broker or dealer as principal and resale by
such broker or dealer for its own account; by ordinary brokerage transactions
or transactions in which the broker solicits purchasers; or otherwise. In
effecting sales, brokers or dealers engaged by the Selling Stockholders,
Preferred Holders, Warrant Holder or Oak Hill Warrant Holders may arrange for
other brokers or dealers to participate, who in turn may receive underwriting
discounts, concessions or commissions. In addition, any shares of Common Stock
held by the Selling Stockholders, Preferred Holders, Warrant Holder or Oak Hill
Warrant Holders that qualify for sale pursuant to Rule 144 under the Securities
Act of 1933 (the "Act") may be sold under Rule 144 rather that pursuant to the
Registration Statement of which this Prospectus is a part.
Each Selling Stockholder, Preferred Holder, Warrant Holder or Oak Hill
Warrant Holder and any brokers or dealers who participate in the distribution
of shares of Common Stock of the Company may be deemed to be "underwriters" as
defined in the Act, and the excess of the price received over the amount paid
for such shares and any discounts, commissions or concessions received by any
such brokers or dealers may be deemed to underwriting compensation, discounts
or commissions under the Act.
18
<PAGE>
At the time each Selling Stockholder, Preferred Holder, Warrant Holder or
Oak Hill Warrant Holder makes a particular offer of shares of Common Stock,
such Selling Stockholder, Preferred Holder, Warrant Holder or Oak Hill Warrant
Holder will provide the Company with information, to the extent required,
sufficient to prepare a supplement to this Prospectus which will set forth the
aggregate amount of shares being offered and the terms of the offering,
including the name or names of any underwriters, brokers or dealers, any
discounts, commissions and other items constituting compensation from such
Selling Stockholder, Preferred Holder, Warrant Holder or Oak Hill Warrant
Holder and any discounts, commissions or concessions allowed or reallowed or
paid to dealers.
Through the Series B and Series C, the Preferred Holders currently have
the right to appoint two members to the Company's Board of Directors. Robert
V. Sinnot currently serves as a member of the Board of Directors and Elwood
Shafer has been appointed to the Board by the Preferred Holders.
19
<PAGE>
DESCRIPTION OF SECURITIES
The authorized capital stock of the Company consists of 50,000,000 shares
of Class A Common Stock, par value $.01 per share ("Common Stock"), 200,000
shares of Class B Common Stock, par value $.01 per share ("Class B") and
1,000,000 shares of Preferred Stock, par value $1.00 per share ("Preferred
Stock"). Shares of Common Stock only are offered by this Prospectus.
The following summary description of the Company's capital stock is not
intended to be complete and is subject to, and is qualified in its entirety by
reference to, the Company's Certificate of Incorporation, as amended, and the
Certificate of Designations of National Energy Group, Inc. of 10% Cumulative
Convertible Preferred Stock, Series B (the "Series B Certificate of
Designation") and the Certificate of Designations of National Energy Group,
Inc. of 10 1/2% Cumulative Convertible Preferred Stock, Series C ("Series C
Certificate of Designation") incorporated by reference as exhibits to the
Registration Statement of which this Prospectus forms a part.
Description of Class A Common Stock.
- -----------------------------------
At November 10, 1995, the Company had 11,872,625 shares of Common Stock
outstanding. Holders of Common Stock are entitled to one vote for each share
held of record on all matters voted on by stockholders. The shares of the
capital stock of the Company do not have cumulative voting rights, which means
that the holders of more than 50% of the shares of the capital stock voting for
the election of Directors can elect all of the Directors to be elected by
holders of the capital stock, in which event the holders of the remaining
shares of capital stock will not be able to elect any Director. Subject to the
Company's Facility with Bank One and the rights of the holders of the Series B
and Series C, holders of Common Stock would be entitled to receive dividends
when, as, and if declared by the Board of Directors out of funds of the Company
legally available for the payment of dividends. The Facility, however,
prohibits the payment of dividends or other distributions on the Common Stock
and limits the dividends on the Series B and Series C and, under the terms of
the Series B and Series C, no dividend or distribution may be paid on the
Common Stock unless all accrued and unpaid dividends on the Series B and Series
C, respectively, have been paid. Upon any liquidation, dissolution or
winding-up of the affairs of the Company, holders of Common Stock would be
entitled to receive, pro-rata all of the assets of the Company available for
distribution to stockholders after payment of any liquidation preference of the
Series B and Series C and any other preferred stock that may be issued and
outstanding at the time. Holders of Common Stock have no subscription,
redemption, sinking fund, conversion or preemptive rights.
Description of Class B Common Stock.
- -----------------------------------
At November 10, 1995, the Company had no shares of Class B outstanding.
All of the Class B has been converted into Common Stock and by the terms of
Class B, cannot be reissued. Management of the Company plans to recommend to
the Company's stockholders, at the next Annual Meeting of Stockholders, that
the Company's Certificate of Incorporation be amended to eliminate the Class B.
20
<PAGE>
Description of Preferred Stock.
- ------------------------------
The Company's Certificate of Incorporation creates the preferred stock and
authorizes the Board of Directors of the Company to designate by resolution the
relative rights, preferences and limitations, and the number of shares, of each
series thereof. The Board of Directors has the authority to create terms for
the preferred stock so that, upon issuance, the preferred stock may seriously
dilute the holders of Common Stock and possibly even change control of the
Company. See "Risk Factors - Potential Dilution; Delay of Change in Control".
The Company currently has two outstanding series of Preferred Stock: Series B
and Series C.
52,500 shares of Series B were issued and outstanding as of November 10,
1995. The Series B is convertible into shares of Common Stock at a conversion
price of $1.625 per share of Common Stock. The Series B has a liquidation and
dividend preference over Common Stock. The Series B has a 10% dividend, payable
semi-annually. The Company has the option to make dividend payments in shares
of Series B; after the sixth such payment, the holders of the Series B have the
option to receive additional dividends in shares of Series B or to accrue such
dividends in cash. If the Company makes four dividend payments in shares of
Series B, the holders of the Series B have the right to appoint one-third of
the members of the Company's Board of Directors. The Series B is redeemable by
the Company between one year and three years from June 3, 1994 at $110.00 per
share and, thereafter, at $100.00 per share, plus accrued and unpaid dividends;
provided, however, that the Company cannot redeem any shares of the Series B
unless and until all outstanding shares of the Series C have been redeemed by
the Company. The holders of Series B have the right to appoint one member to
the Company's Board of Directors while the Series B is outstanding.
Dividends on the Series B are required to be paid before any dividends are
paid on Common Stock. The holders of Series B are entitled to one vote for each
share as to matters upon which by law they are entitled to vote as a class, and
the approval of a majority of the Series B, voting separately as a class, is
required to make changes to the Company's Certificate of Incorporation or
By-Laws which adversely affect the Series B, to authorize or issue additional
shares of Series B or to issue preferred stock equal to or senior to the Series
B as to dividends or liquidation, or, subject to certain exceptions, to effect
an extraordinary transaction that requires a vote of the Company's
stockholders. As a result, a class vote of the holders of Series B would be
required for the Company to merge or be acquired and may therefore delay,
deter, or prevent a change in control of the Company.
40,000 shares of Series C were issued and outstanding as of November 10,
1995. The Series C is convertible into shares of Common Stock at a conversion
price of $2.00 per share of Common Stock. The Series C has a liquidation and
dividend preference over Common Stock and it is parity stock to the previously
issued Series B. The Series C has a 10 1/2% dividend, payable semi-annually.
The Company has the option to make dividend payments in shares of Series C;
after the sixth such payment, the holders of the Series C have the option to
receive additional dividends in shares of Series C or to accrue such dividends
in cash. If the Company makes four dividend payments in shares of Series C, the
holders of the Series C (voting as a class with other affected series of
preferred stock with similar
21
<PAGE>
voting rights) have the right to appoint one-third of the members of the
Company's Board of Directors; provided, however, that if the holders of Series
B are presently entitled to a similar right, then the holders of the Series C
shall have no such right until the right of the holders of Series B terminates.
The Series C is not redeemable by the Company for two years; between two years
and three years from June 14, 1995, the Series C is redeemable at $110.00 per
share and, thereafter, at $100.00 per share, plus accrued and unpaid dividends.
No shares of Series B shall be redeemed by the Company unless and until all
outstanding shares of Series C have been redeemed by the Company. The holders
of Series C have the right to appoint one member to the Company's Board of
Directors while the Series C is outstanding.
Dividends on the Series C are required to be paid before dividends can be
paid on the Common Stock. The holders of Series C are entitled to one vote for
each share as to matters upon which by law they are entitled to vote as a
class, and the approval of a majority of the Series C, voting separately as a
class, is required to make changes to the Company's Certificate of
Incorporation or By-Laws which adversely affect the Series C, to authorize or
issue additional shares of Series C or to issue preferred stock equal to or
senior to the Series C as to dividends or liquidation, or, subject to certain
exceptions, to effect an extraordinary transaction that requires a vote of the
Company's stockholders. As a result, a class vote of the holders of Series C,
as well as the Series B, would be required for the Company to merge or be
acquired and may therefore delay, deter, or prevent a change in control of the
Company.
LEGAL MATTERS
Randall A. Carter, who is General Counsel and Secretary of the Company, is
handling certain legal matters for the Company concerning this registration. At
November 10, 1995, Mr. Carter owned 149,882 shares of Common Stock and held
options to purchase 15,000 shares of Common Stock.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
The Company's Certificate of Incorporation and By-Laws provide that the
Company shall indemnify, to the fullest extent authorized by law, any person
made or threatened to be made a party to any action, suit or proceeding,
whether criminal, civil, administrative or investigative, by reason of the fact
that such person or such person's testator or intestate is or was a Director,
officer, employee or agent of the Company or serves or served at the request of
the Company any other enterprise as a Director, officer, employee or agent.
The Company has agreed to indemnify the officers and Directors of the
Company against any and all damages to which such indemnified individuals may
become subject, pursuant to any securities, corporate or other laws, which
damages arise in connection with this Registration Statement or any amendment
thereto, or from the inaccuracy or omission of any information in connection
with this Prospectus and related Registration Statement. In the event that the
foregoing indemnity is unavailable or insufficient, then the indemnifying party
shall contribute to amounts paid or payable by the indemnified party in
22
<PAGE>
respect to the damages of the indemnified party in such proportion as is
appropriate to reflect the relative fault of the indemnified and indemnifying
parties.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to Directors, officers and controlling
persons of the Company pursuant to the foregoing provisions, or otherwise, the
Company has been advised that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Company of expenses incurred or paid by a
director, officer or controlling person of the Company in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
EXPERTS
The financial statements of the Company appearing in its Annual Report
(Form 10-KSB) for the year ended December 31, 1994 and the statements of
operating revenues and direct operating expenses of the Mustang Island
Interest, the Oak Hill Interest and the Enron Interest appearing in the
Company's Form 8-K/A No. 1 dated June 30, 1995, have been audited by Ernst &
Young LLP, independent auditors, as set forth in their reports thereon included
therein and incorporated herein by reference. Such financial statements and
statements of operating revenues and direct operating expenses are incorporated
herein by reference in reliance upon such reports given upon the authority of
such firm as experts in accounting and auditing.
Information incorporated by reference in this Prospectus relating to the
Company's estimated proved oil and natural gas reserves at December 31, 1994,
the related estimated calculations of future net cash flows and the net present
value thereof have been derived from an independent petroleum engineering
report prepared by Roebuck & Associates of Dallas, Texas. Such information has
been incorporated by reference herein in reliance on such firm as experts in
petroleum engineering.
23
<PAGE>
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
Item
- ----
Filing Fee - Securities and Exchange Commission $6,243
*Blue Sky Filing fees 1,000
Printing 0
*Legal Fees 4,250
*Accounting Fees and Expenses 3,000
Miscellaneous 2,500
-------
Total $16,993
*Estimate
The Company is paying the expenses of the offering.
Item 15. Indemnification of Directors and Officers.
The Company's Certificate of Incorporation and By-Laws provide that the
Company shall indemnify, to the fullest extent authorized by law, any person
made or threatened to be made a party to any action, suit or proceeding,
whether criminal, civil, administrative or investigative, by reason of the fact
that such person or such person's testator or intestate is or was a Director,
officer, employee or agent of the Company or serves or served at the request of
the Company any other enterprise as a Director, officer, employee or agent.
The Company is incorporated in Delaware, and the General Corporation Law
of Delaware ("Delaware Law") provides that the Company may provide the
indemnification provided in the preceding paragraph against expenses (including
attorney's fee), judgments, fines and amounts paid in settlement actually and
reasonably incurred by the Director, officer, employee or agent in connection
with an action, suit or proceeding if he/she acted in good faith and in a
manner he/she reasonably believed to be in or not opposed to the best interests
of the Company, and with respect to any criminal action or proceeding, he/she
had no reasonable cause to believe his/her conduct was unlawful. According to
Delaware Law, the Company may also indemnify a Director, officer, employee or
agent against threatened, pending or completed actions or suits by or in the
right of the Company, against expenses (including attorney's fees) actually and
reasonably incurred by him/her in connection with the defense or settlement of
such action or suit if he/she acted in good faith and in a manner he/she
reasonably believed to be in or not opposed to the best interests of the
Company; provided that no indemnification shall be made with respect to any
claim as to which such person shall have been adjudged to be liable to the
Company unless the appropriate court determines such person is fairly and
reasonably entitled to an indemnity. Under Delaware Law, the Company may also
pay expenses incurred by officers and Directors (and employees and agents if
the Board of Directors deems appropriate) in
24
<PAGE>
connection with a suit or proceeding in advance of the final disposition of
such suit or proceeding, if the Director or officer undertakes to repay such
amount if it is ultimately determined that he/she is not entitled to such
indemnification. Under Delaware Law, the Company may also purchase and maintain
insurance for officers, Director, employees or agents against any liability
related to their capacity or status, whether or not the Company would have the
power to indemnify such person under Delaware Law. The Company, however, has
not purchased such insurance.
The Company has agreed to indemnify the officers and Directors of the
Company against any and all damages to which such indemnified individuals may
become subject, pursuant to any securities, corporate or other laws, which
damages arise in connection with this Registration Statement or any amendment
thereto, or from the inaccuracy or omission of any information in connection
with this Prospectus and related Registration Statement. In the event that the
foregoing indemnity is unavailable or insufficient, then the indemnifying party
shall contribute to amounts paid or payable by the indemnified party in respect
to the damages of the indemnified party in such proportion as is appropriate to
reflect the relative fault of the indemnified and indemnifying parties.
Item 16. Exhibits.
The following is a list of all of the exhibits filed or incorporated by
reference as part of this Registration Statement:
(b) Exhibits
--------
Exhibit
No. Description and Incorporation By Reference
------- ------------------------------------------
4.1 Instrument defining the Rights of Class A Common Stock.*
4.2 Certificate of Designations of National Energy Group, Inc. of
10% Cumulative Convertible Preferred Stock, Series B.**
4.3 Certificate of Designations of National Energy Group, Inc. of
10 1/2% Cumulative Convertible Preferred Stock, Series C.***
5.1 Opinion of Randall A. Carter, General Counsel, re legality.****
23.1 Consent of Randall A. Carter, General Counsel, of the Company.*****
23.2 Consent of Ernst & Young LLP.*******
23.3 Consent of Roebuck & Associates.****
24.1 Power of Attorney.******
- -------------------------------------------------------------------------------
25
<PAGE>
* Incorporated by reference to the Company's Registration Statement on
Form S-3 (No. 33-81172), dated July 27, 1994.
** Incorporated by reference to the Company's Current Report on Form 8-K,
dated June 17, 1994.
*** Incorporated by reference to the Company's Current Report on Form
8-K, dated June 30, 1995.
**** Previously filed with the Registration Statement which this
Amendment No. 1 amends
***** Included in Exhibit 5.1.
****** Previously filed on the signature page, page 28 of the Registration
Statement which this Amendment No. 1 amends.
******* Filed herewith.
26
<PAGE>
Item 17. Undertakings.
1. Rule 415 Offering.
-----------------
The undersigned Registrant hereby undertakes:
a. To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement to
include any additional or changed material information on the plan
of distribution; and
b. That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall
be treated as a new registration statement of the securities
offered, and the offering of the securities at that time shall
be treated as the initial bona fide offering;
c. To remove from registration by means of a post-effective amendment
any of the securities which remain unsold at the termination of
the offering.
2. Request for Acceleration of Effective Date.
------------------------------------------
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act"), may be permitted to Directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a Director, officer
or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such officer, Director or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
27
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment No. 1
to Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Dallas, State of Texas, on
November 15, 1995.
NATIONAL ENERGY GROUP, INC.
By: /s/ Miles D. Bender
--------------------------------------
Miles D. Bender
President and Chief Executive Officer
By: /s/ Robert A. Imel
--------------------------------------
By: /s/ Melissa H. Rutledge
--------------------------------------
Melissa H. Rutledge
Controller and
Chief Accounting Officer
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to Registration Statement has been signed by the following
persons in the capacities and on the dates indicated.
Signature Capacity Date
--------- -------- ----
By: /s/ Miles D. Bender November 15, 1995
-------------------------- President,
Miles D. Bender Chief Executive Officer,
Director and Treasurer
By: /s/ * November 15, 1995
-------------------------- Chairman of the Board
George B. McCullough and Director
By: /s/ * November 15, 1995
-------------------------- Chairman, Executive
Norman C. Miller Committee and Director
<PAGE>
Signature Title Date
--------- ----- ----
By: /s/ * November 15, 1995
-------------------------- Director
Robert H. Kite
By: /s/ * November 15, 1995
-------------------------- Director
George N. McDonald
By: November 15, 1995
-------------------------- Director
Robert V. Sinnott
- ------------------------------------------------------------------------------
* By Miles D. Bender, Attorney-in-Fact.
<PAGE>
Exhibit 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
incorporation by reference of our report dated March 15, 1995 with respect to
the financial statements of National Energy Group, Inc. included in its Annual
Report (Form 10-KSB) for the year ended December 31, 1994, and our reports
dated September 12, 1995 with respect to the statements of operating revenues
and direct operating expenses of the Mustang Island Interest, the Oak Hill
Interest and the Enron Interest appearing in the Company's Current Report (Form
8-K/A No. 1) dated June 30, 1995, in the Registration Statement (Form S-3) and
related Prospectus of National Energy Group, Inc. dated November 14, 1995.
ERNST & YOUNG LLP
Dallas, Texas
November 14, 1995
<PAGE>
