SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------------
FORM 10-KSB/A NO. 1
FILED PURSUANT TO SECTION 12, 13 or 15(d) of
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report: April 29, 1996
NATIONAL ENERGY GROUP, INC.
(Name of small business issuer in its charter)
Delaware 58-1922764
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
4925 Greenville Ave., Ste. 1400, Dallas, TX 75206
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (214) 692-9211
The following is substituted in lieu of Item 9 as it appears in the
original of the Annual Report on Form 10-KSB for the year ended December 31,
1995.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS, COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The following table lists the names, ages and present position with
the Company for all of the Company's directors and executive officers:
Name Age Present Position with the Company (1)
- ---- --- ---------------------------------
George B. McCullough 71 Chairman of the Board of Directors
Norman C. Miller 76 Director and Chairman of the Executive Committee
Miles D. Bender 59 President, Chief Executive Officer, Treasurer
and Director
Robert H. Kite 41 Director
George N. McDonald 62 Director
Robert V. Sinnott 46 Director
Elwood W. Schafer 68 Director
R. Thomas Fetters, Jr. 56 Senior Vice President-Offshore Operations
and Exploration
William T. Jones 50 Vice President-Production and Engineering
Randall A. Carter 35 General Counsel and Secretary
Robert A. Imel 37 Chief Financial Officer
Melissa H. Rutledge 30 Controller and Chief Accounting Officer
- -------------------------------------------------------------------------
(1) Messrs. McCullough, Miller, Bender, Kite, and McDonald have been Directors
of the Company since December 17, 1990. Mr. Sinnott was appointed to the Board
of Directors on June 3, 1994 and Mr. Schafer was appointed to the Board of
Directors effective September 26, 1995. Pursuant to the terms of the Series B
Preferred Stock and the Series C Preferred Stock, the holders of a majority of
the outstanding shares of each of the Series B Preferred Stock and Series C
Preferred Stock have the right to appoint one member to the Company's Board of
Directors at all times. Directors of the
2
<PAGE>
Company generally serve for a term of one year (until the next annual meeting
of stockholders) and until their successors are duly elected and qualified, or
until their death, resignation or removal.
The executive officers of the Company are elected annually at the first
meeting of the Company's Board of Directors held after each annual meeting of
stockholders. Each executive officer will hold office until the first meeting
of the Board after the annual meeting of stockholders next succeeding his or
her election and until his successor is duly elected and qualified, or until
his death or resignation or until he shall have been removed in the manner
provided in the Company's By-Laws.
BIOGRAPHICAL INFORMATION. Set forth below is certain information
concerning the Directors and executive officers of the Company.
GEORGE B. MCCULLOUGH. Effective December 17, 1990, Mr. McCullough was
appointed Chairman of the Board of Directors of the Company. From July 20,
1990 to June 11, 1991, Mr. McCullough was a Director of Big Piney Oil and Gas
Company ("Big Piney"). From October 1986 to June 11, 1991, Mr. McCullough
served as Chairman of the Board of Directors of VP Oil, Inc. ("VP"). From 1948
to 1986, Mr. McCullough worked for Exxon Corporation ("Exxon"). Mr. McCullough
was elected as a Vice President of Exxon in 1980. He was responsible for all
employee relations for the Company. Mr. McCullough holds B.A. and M.B.A.
degrees from Tulane University.
NORMAN C. MILLER. Effective December 17, 1990, Mr. Miller was appointed a
Director of and to the office of Chairman of the Executive Committee of the
Company. Mr. Miller had been a Director of Big Piney and Chairman of its
Executive Committee from July 20, 1990 until June 11, 1991. From September
1988 to June 11, 1991, Mr. Miller had been a Director of and Chairman of the
Executive Committee of VP. Mr. Miller was President and CEO of Delhi
International Oil Corporation from 1974 to 1981. Delhi was listed on the
American Stock Exchange and had operations in the United States, Australia,
Canada, Columbia, Guatemala and Panama. Mr. Miller was a Director of Woodbine
Petroleum, a public company, from 1983 to 1985. He received his B.S. degree in
Geology from the University of Oklahoma in 1947.
MILES D. BENDER. Since December 17, 1990, Mr. Bender has been President,
Chief Executive Officer, Treasurer and a Director of the Company. From July
20, 1990 to June 11, 1991, Mr. Bender served as President, Chief Executive
Officer, Treasurer and a Director of Big Piney. Mr. Bender was President,
Chief Executive Officer, Treasurer and a Director of VP from its inception in
July, 1986 until June 11, 1991. He was also President and a Director of Tierra
Energy, Inc., from 1984 until 1990. From 1981 to 1984, he was general partner
of Rio Colorado Mining, Ltd., which was engaged in the minerals and natural
resources businesses. From 1970 to 1980, Mr. Bender was President and Chairman
of the Board of Syncom Incorporated ("Syncom"), a publicly-held company that
manufactured magnetic computer supplies. Syncom was listed on the Boston Stock
Exchange. Mr. Bender received his B.A. degree from and attended law school at
the University of Buffalo, and attended the advanced management program of
Harvard University Business School.
3
<PAGE>
ROBERT H. KITE. Effective December 17, 1990, Mr. Kite was appointed a
Director of the Company. From November 1987 until June 11, 1991, Mr. Kite
served as a Director of VP. Since 1980, Mr. Kite has been Chief Operating
Officer of KFT, Ltd., a family-owned company with operations which include
land holdings, industrial and commercial developments, and equity and
commodity investments. He has also been Chief Executive Officer of Roamin'
Korp., Inc. since 1982, which is engaged in the businesses of construction,
recording, mining and equity investments. Mr. Kite graduated from Southern
Methodist University in 1977 with a B.S. degree in Psychology and Political
Science. Mr. Kite is currently serving as a member of the Board of Directors
of the FBI Citizens Academy in Phoenix.
GEORGE N. MCDONALD. Effective December 17, 1990, Mr. McDonald was
appointed a Director of the Company. For more than five years prior to June
11, 1991, Mr. McDonald was a Director of Big Piney, and, from 1982 to July 20,
1990, he served as Vice President of Big Piney. From July 20, 1990 until June
11, 1991, Mr. McDonald was a Director of VP. From 1973 to present, Mr.
McDonald has been the President and Owner of Canyon Courts, Inc. From 1985 to
present, Mr. McDonald has also been a Director of Ion Laser Technology, Inc.
Mr. McDonald was also President of Ion Laser Technology from 1985 to 1988,
Chairman of the Board from 1985 to 1992 and Secretary from 1990 to 1992. Since
1988, Mr. McDonald has also been President/Owner of Medical Alignment Systems.
From 1960 to 1972, Mr. McDonald was an account executive with Merrill Lynch,
Pierce, Fenner and Smith, Inc. and certain predecessor firms. Mr. McDonald
holds B.S. and M.B.A. degrees from the University of Utah.
ROBERT V. SINNOTT. Effective June 3, 1994, Mr. Sinnott was appointed a
Director of the Company. Mr. Sinnott has been Senior Vice President and Senior
Investment Officer of Kayne, Anderson Investment Management, Inc. since 1992.
From 1986 to 1992, Mr. Sinnott was Vice President and Senior Securities
Officer of Citicorp. From 1981 to 1986, Mr. Sinnott was Director of Corporate
Finance at United Energy Resources. From 1976 to 1981, he was Vice President
at Bank of America. Mr. Sinnott received a Bachelor of Arts from the
University of Virginia in 1971, and in 1976, a MBA from the Graduate School of
Business Administration at Harvard University. Mr. Sinnott is on the Board of
Directors of Glacier Water Services, an AMEX-listed vended water company, as
well as KA Industries, a privately-owned specialty bakery and Plains
Resources, Inc., an oil and gas company.
ELWOOD W. SCHAFER. Effective September 26, 1995, Mr. Schafer was
appointed a Director of the Company. Mr. Schafer has been a consultant to
Kayne, Anderson Investment Management, Inc. since January 1993. Mr Schafer was
Managing Director and Chief Petroleum Engineer of Chemical Bank from December
1991 (when Chemical Bank and Manufacturers Hanover Trust merged) until July
1992. From 1974 until December 1991, Mr. Schafer worked for Manufacturers
Hanover Trust and reached the position of Managing Director and Chief
Petroleum Engineer. Mr Schafer was Vice President and head of the oil
department at the Bank of New York from 1970 until he joined Manufacturers
Hanover Trust. From 1955 to 1970, Mr. Schafer worked at General American Oil
Company. Prior to that he spent four years with Core Labs doing Rocky
Mountain
4
<PAGE>
well-site geology. Mr Schafer graduated from University of Illinois
with a B.S. in geology in 1950.
R. THOMAS FETTERS, JR. Mr. Fetters was appointed Senior Vice
President-Offshore Operations and Exploration effective September 18, 1995.
Mr. Fetters has 30 years of exploration, production and management experience,
both domestic and foreign. Mr. Fetters was President and Chief Operating
Officer of XCL Exploration and Production, Inc. and XCL-China Ltd. (both
wholly owned subsidiaries of XCL Ltd., formerly The Exploration Company of
Louisiana, Inc.), from February 1990 until September 1995. From March 1989 to
February 1990 Mr. Fetters held the position of Chairman of Independent Energy
Corporation which was acquired by The Exploration Company of Louisiana. From
May 1983 to March 1989, Mr. Fetters served as President and Chief Executive
Officer of CNG Producing Company in New Orleans and, from August 1966 to May
1983, held various positions, from Geologist to Exploration Manager with
several divisions of Exxon, primarily in the Gulf Coast region and offshore
Gulf of Mexico of the U.S., and in Malaysia and Australia. At Exxon USA, Mr.
Fetters held the positions of Division Manager of Production Research and
Exploration Planning Manager. Mr. Fetters holds B.S. and M.S. degrees in
geology from the University of Tennessee.
RANDALL A. CARTER. Effective December 17, 1990, Mr. Carter was appointed
General Counsel and Secretary of the Company. From July 20, 1990 to June 11,
1991, Mr. Carter was Vice President, General Counsel, Secretary and a Director
of Big Piney. Mr. Carter was also General Counsel of VP from June, 1990 to
June 11, 1991. From July 1993 to the present, Mr. Carter has also been
President and owner of BeneFactor Funding Corp., a factoring company. From
October 1991 to March 1993 (when Mr. Carter sold the firm), Mr. Carter was
President and owner of Mutual Funds Corporation, a National Association of
Securities Dealers, Inc. member firm. From 1988 to 1989, Mr. Carter was Vice
President and General Counsel of Wichita River Oil Corporation, an American
Stock Exchange listed oil and gas company. From 1987 to 1988, Mr. Carter was
Vice President/Investment Banking of Stern Brothers & Co. From 1984 to 1987,
Mr. Carter was an attorney at Sullivan & Cromwell in New York, N.Y. Mr. Carter
received a J.D. degree from the University of Virginia School of Law in 1984.
ROBERT A. IMEL. Effective September 8, 1993, Mr. Imel was appointed Chief
Financial Officer of the Company. From March 1991 to August 1993, Mr. Imel was
President and Chief Financial Officer of Murexco Petroleum, Inc., Dallas,
Texas. In addition, from March 1988 to February 1991, Mr. Imel served as Vice
President and Chief Financial Officer of Phoenix Operating Company in Dallas.
From September 1984 until February 1988, Mr. Imel was Vice President and Chief
Financial Officer of Murexco Petroleum, Inc. and from February 1983 to August
1984 he was Controller of Atlas Energy Corporation in Dallas. He was Senior
Accountant with Peat, Marwick, Mitchell & Co. in Dallas from June 1980 until
January 1983. Mr. Imel received his B.S. degree in Accounting and Finance from
Oklahoma State University and is currently licensed as a CPA in the State of
Texas.
WILLIAM T. JONES. Since July 1994, Mr. Jones has been Vice President -
Production and Engineering of the Company. From April 1991 to July 1994, Mr.
Jones was Chief Operating Officer for Ard Drilling Company in Abilene, Texas.
From July 1989 to April 1991, Mr. Jones was Senior Petroleum Engineer for
Snyder Oil Company in Fort Worth, Texas. Mr. Jones also worked at Shell Oil
Company as an Engineer from June 1968 to May 1973. Mr. Jones received a B.S.
in Petroleum Engineering from Mississippi State University.
MELISSA H. RUTLEDGE. Effective August 15, 1994, Ms. Rutledge was
appointed Controller and Chief Accounting Officer of the Company. From
September 1991 to August 1994, Ms. Rutledge was a Senior Auditor for Ernst &
Young, LLP in Dallas. Ms. Rutledge received her B.S. degree in Accounting
from Texas Tech University and is currently licensed as a CPA in the State of
Texas.
SECTION 16 REPORTING
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and Directors, and persons who own more than 10% of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
(the "SEC") and the National Association of Securities Dealers, Inc. Officers,
Directors, and greater than 10% stockholders are also required by SEC
regulations to furnish the Company with copies of all Section 16(a) forms
they file.
Based solely on its review of copies of such forms received by it, the
Company believes that, during the period January 1, 1995 to December 31, 1995,
all filing requirements applicable to its officers, Directors and greater than
10% beneficial owners were complied with. In February 1996, each of the
following filed one Form 4 late (the forms were due in January 1996) and each
Form 4 covered one transaction: George B. McCullough, Norman C. Miller, Miles
D. Bender, Robert H. Kite, George N. McDonald, Robert V. Sinnott, Robert A.
Imel, William T. Jones and Melissa H. Rutledge. In addition, in February 1996,
R. Thomas Fetters, Jr. and Elwood W. Schafer each filed one Form 3 late (they
were due in December 1995) and each Form 3 reported one transaction.
6
<PAGE>
The following is substituted in lieu of Item 10 as it appears in the
original of the Annual Report on Form 10-KSB for the year ended December 31,
1995.
ITEM 10. EXECUTIVE COMPENSATION
----------------------
The following tables set forth the cash compensation received by the
Company's Chief Executive Officer, Chief Financial Officer and Vice
President-Production & Engineering during the fiscal years ended December 31,
1995, 1994 and 1993, and aggregate option/SAR exercises during the last fiscal
year and year end option/SAR values.
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Long Term Compensation
--------------------------------------------------
Annual Compensation Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other
Name Annual Restricted All Other
and Compen- Stock LTIP Compen-
Principal sation Award(s) Options/ Payouts sation
Position Year Salary($) Bonus($) ($) ($) SARs(#) $ $
- --------- ---- --------- -------- ------- ---------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Miles D. Bender 1995 181,250 50,000 -- -- 200,000 -- 78,971
President & 1994 139,583 15,000 -- 3,871(2) -- -- --
Chief Executive 1993 123,456 -- -- -- -- -- --
Officer
Robert A. Imel 1995 101,670 10,000 -- 13,000 110,000 -- --
Chief Financial 1994 86,292 -- -- 21,575(2) -- -- --
Officer(1) 1993 45,319 -- -- -- -- -- --
William T. Jones 1995 99,000 10,000 -- -- 110,000 -- --
Vice President,
Production &
Engineering
</TABLE>
(1) Mr. Imel is currently employed by the Company on a contract basis. Mr.
Imel began working with the Company in September 1993.
(2) At December 31, 1995, Mr. Bender held 247,500 shares of restricted Class A
Common Stock, with a value of $804,375.00; and at December 31, 1995, Mr. Imel
held 80,500 shares of restricted Class A Common Stock, with a value of
$261,625.00, and at December 31, 1995, Mr. Jones held 50,000 shares of
restricted Class A Common Stock, with a value of $162,500.00.
7
<PAGE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
(a) (b) (c) (d) (e)
Number of
Securities % of Total
Options/ Granted to
SARS Employees in Exercise or Base Expiration
Name Grant (#) Fiscal Year Price ($/Sh) Date
- ---------------------- ---------- ------------ ---------------- -----------
Miles D. Bender 100,000(1) 13% 1.625 January 4,
1999
100,000(2) 13% 3.25 December 1,
2000
Robert A. Imel 60,000(1) 8% 1.625 January 4,
1999
50,000(2) 7% 3.25 December 1,
2000
William T. Jones 60,000(1) 8% 1.625 January 4,
1999
50,000(2) 7% 3.25 December 1,
2000
(1) These option grants became 100% exercisable on January 4, 1996.
(2) These option grants are 50% exercisable on December 1, 1996 and 100%
exercisable on December 1, 1997.
8
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
(a) (b) (c) (d) (e)
Value of
Number of Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs
Shares at FY-End (#) at FY-End ($)
Acquired
On Value Exercisable/ Exercisable/
Name Exercise(#) Realized($) Unexercisable Unexercisable
- ---------------- ----------- ----------- ------------- -------------
Miles D. Bender -- -- 100,000 $325,000
Exercisable Exercisable
150,000 $487,500
Unexercisable Unexercisable
Robert A. Imel 25,000 15,625 30,000 $97,500
Exercisable Exercisable
80,000 $260,000
Unexercisabe Unexercisable
William T. Jones -- -- 30,000 $97,500
Exercisabe Exercisable
80,000 $260,000
Unexercisable Unexercisable
Mr. Bender and Mr. Jones did not exercise any options or SARs during the
fiscal year ended December 31, 1994.
The Company does not have a long-term incentive plan. Therefore, the
table on long-term incentive plan awards is omitted from this Proxy Statement.
COMPENSATION OF DIRECTORS.
The Company compensates non-employee Board members in the amount of
$500.00 for each official Board meeting and $500.00 for each Board committee
meeting unless such committee meeting is held at the time of, or in
conjunction with, an official Board meeting. During the fiscal year ended
December 31, 1995 the Directors received an aggregate of $6,500 in such
compensation. During the fiscal year ended December 31, 1994, the Directors
received an aggregate of $7,000 in such compensation.
During 1995, the Directors received options to purchase Common Stock for
services rendered to the Company. The number of options granted were as
follows:
George McCullough -- 20,000 and 30,000 at an exercise price of $1.625
and $3.25, respectively;
Norman Miller -- 20,000 and 30,000 at an exercise price of $1.625
and $3.25, respectively;
Robert Kite -- 20,000 and 15,000 at an exercise price of $1.625
and $3.25, respectively;
George McDonald -- 20,000 and 15,000 at an exercise price of $1.625
and $3.25, respectively;
Elwood Schafer -- 15,000 at an exercise price of $3.25;
Robert Sinnott -- 20,000 and 15,000 at an exercise price of $1.625
and $3.25, respectively.
During 1994, the Directors received grants of restricted Class B Common
Stock for services
9
<PAGE>
rendered to the Company. The values of the stock awarded were as follows:
Miles D. Bender - $3,871.25, George B. McCullough - $3,871.25, Norman C.
Miller - $ 3,871.25, Robert H. Kite - $3,871.25, and George N. McDonald -
$2,241.25.
Mr. Norman Miller received $22,500 in 1995 for work performed for the
Company. In 1994, Mr. Miller received a bonus of $5,000 for work on Company
matters and effective November 11, 1994, Mr. Miller began to receive $500 for
each day he works on Company matters.
In addition, the Company pays other incidental compensation to executive
officers and Directors from time to time, consisting primarily of
reimbursement for travel and entertainment expenses on behalf of the Company.
STOCK OPTIONS.
During 1992, the Company's Board of Directors and stockholders approved
the Company's 1992 Stock Option Plan (the "Plan"). Awards may be granted to
key employees or non-employee directors of the Company. Awards may consist of
options to purchase shares of Common Stock or stock appreciation rights
(SARs) or a combination thereof. The aggregate number of shares that the
Company may issue under the Plan will not, at the time of the grant, exceed an
amount equal to 10% of the number of then-outstanding shares of Common Stock.
Furthermore, no more than 30% of the shares of Common Stock for which awards
may be granted under the Plan may be granted to the Company's directors, and
no one director may be granted awards covering more than 75,000 shares of
Common Stock. No more than 50% of the shares of Common Stock for which awards
may be granted under the Plan may be granted to officers of the Company who
are not directors, and no one officer who is not a director may be granted
awards covering more than 125,000 shares. The exercise price of an option or
SAR may not be less than the fair market value of Common Stock on the date of
grant. Payment due to the Company upon the exercise of any option may be made
in cash or in shares of Common Stock or a combination thereof. All options
granted under the Plan expire no later than the tenth anniversary of the date
of grant. As of April 17, 1996, options to purchase 15,000 shares of Common
Stock had been granted pursuant to the Plan. The Company plans to submit a
new stock option plan to its stockholders for approval at the next
stockholders meeting and to terminate the 1992 Stock Option Plan at such
time.
During 1994, the Company issued an option to purchase 20,000 shares to
Melissa Rutledge, the Company's Controller. The Company also issued 17,500
shares to Robert Imel, the Company's Chief Financial Officer.
During 1995, the Company issued options to purchase 200,000 shares to
Miles Bender, the Company's President, and options to purchase 110,000 shares
to Robert Imel, the Company's Chief Financial Officer, options to purchase
50,000 shares to R. Thomas Fetters, the Company Senior Vice President -
Offshore Operations and Exploration, options to purchase 110,000 shares of
stock to William Jones, the Company's Vice President - Production and
Engineering, options to purchase 35,000 shares to Melissa Rutledge, the
Company's Controller and Chief Accounting Officer.
Options to purchase 925,200 shares of Common Stock were outstanding as of
April 17, 1996, at exercise prices from $.625 to $3.25. During 1995, Randall
A. Carter, General Counsel and Secretary; exercised options to purchase 15,000
shares at $.625 per share and options to purchase 7,500 shares at
10
<PAGE>
$1.625 per share. During 1995, Robert A. Imel, Chief Financial Officer,
exercised options to purchase 25,000 shares at $.625 per share. During January
1996, Mr. Carter exercised options to purchase 7,500 shares at $1.625 per
share. During April of 1996, George N. McDonald, a Director, exercised options
to purchase 20,000 shares at $.625 per share and options to purchase 20,000
shares at $1.625 per share. On March 7, 1994, Mr. Hughes (a former director)
exercised an option to purchase 20,000 shares at an exercise price of $.625
per share.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
In January 1996, the Company executed employment agreements
(the "Employment Agreements") with Miles D. Bender, President and
Chief Executive Officer, R. Thomas Fetters, Jr., Senior Vice
President-Offshore Operations and Exploration, William T. Jones,
Vice President-Production and Engineering, and Melissa H.
Rutledge, Controller and Chief Accounting Officer. In addition,
in January 1996, the Company executed similar agreements (the
"Officer Agreements") with Robert A. Imel, Chief Financial
Officer and Randall A. Carter, General Counsel and Secretary.
The Employment Agreements and Officer Agreements each have a
rolling three-year term (so that at any time during the term of
such agreements there is a remaining term of three years, but in
no event beyond the time the executive and/or officer reaches age
65); and therefore, have a term of three years from the effective
date of a change in control.
The Employment and Officer Agreements define change in
control to have occurred when (i) a person, entity or group
becomes the beneficial owner of a majority of the securities of
the Company ordinarily having the right to vote for election of
directors, (ii) during any consecutive two year period, the
Directors at the beginning of the period, (together with
Directors approved by a vote of 66 2/3% of such initial directors
plus directors previously approved by such 66 2/3% margin) cease
to constitute a majority of the Company's Board of Directors,
(iii) any sale, lease, exchange or transfer of all, or
substantially all, of the Company's assets occurs or (iv) a
merger or consolidation occurs with the effect that any person,
entity or group, or the stockholders thereof, become the owner of
securities of the surviving corporation representing a majority
of the voting power of such surviving corporation for the
election of directors. The Company's proposed merger with
Alexander Energy Corporation is specifically excluded from the
definition of change in control .
The Employment and Officer Agreements provide for a three
year employment period during which the executive and/or officer
receives for each year (i) 100% of the average of the executives
annual base salary at the time in question and of the executives
annual base salary for each of the preceding two years (for
Messrs. Imel and Carter, this clause (i) is 100% of the average
of gross cash compensation for each of the last three years) and
(ii) 100% of the average of the bonuses paid to the executive
and/or officer for each of the preceding three fiscal years. If
the executive and/or officer is discharged without cause or
resigns for "good reason" after a change in control then, in lieu
of the compensation described in the preceding sentence, the
executive and/or officer is entitled to a lump sum cash severance
payment equal to three times the sum of (i) the executives annual
base salary then in effect (or, for Messrs. Carter and Imel, the
average of gross cash compensation for each of the three previous
years), (ii) the average of cash bonuses for each of the three
previous years and (ii) the average of fully-vested Company
contributions to retirement plans for such executive and/or
officer for each of the three preceding years. In addition, at
such time, all options and all other retirement or pension
contributions or benefits shall become fully vested and
11
<PAGE>
shall remain fully exercisable for 360 days.
If the payments to an executive and/or officer, however,
would result in an "excess parachute payment" as defined in
Section 280C of the Internal Revenue Code (the "Code"), then
such payments will be reduced to the minimum extent necessary so
that no portion of such payments constitute an excess parachute
payment. If any amount paid to an executive and/or officer is
determined to be subject to the excise tax imposed by Section
4999 of the Code, the Company will pay such executive and/or
officer an additional cash amount so such person receives, net of
such tax, the amount such person would have received without such
tax.
Pursuant to the Employment and Officer Agreements, the
surviving corporation can discharge the executive and/or officer
for cause only if such person has willfully breached or
habitually neglected his or her duties, or has been convicted of
a felony. An executive and/or officer can resign for "good
reason" under the Employment and Officer Agreements if he or she
is assigned less significant responsibilities after a change in
control, cash compensation is reduced, the surviving corporation
takes actions with the purpose or intent and effect of inducing
the executive and/or officers resignation; or the surviving
corporation declines to extend the term of the Employment or
Officer Agreement.
12
<PAGE>
The following is substituted in lieu of Item 11 as it
appears in the original of the Annual Report on Form 10-KSB for
the year ended December 31, 1995.
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
----------------------------------------------------
MANAGEMENT
----------
The following table sets forth the total number of shares of
the Company's Common Stock and Preferred Stock beneficially
owned by (a) each person who, to the knowledge of the Company, is
the beneficial owner of 5% or more of the outstanding shares of a
class of the Company's Capital Stock, (b) each of the Company's
present Directors and officers and certain other parties, and (c)
the Directors and officers of the Company as a group, all as
reported by each such person, and as of April 17, 1996. Except
as otherwise indicated, ownership of shares by the persons named
below includes sole voting and investment power held by such
persons.
Amount
and Nature
Name and Address of of Beneficial Percent of
Beneficial Owner Ownership Class (1)
- ------------------- ------------- ----------
Common Stock
------------
Richard A. Kayne 5,230,769 (2) 30.2%
1800 Ave of Stars, Ste. 1424
Los Angeles, California 90067
Kayne, Anderson 5,230,769 (2) 30.2%
Investment Mgmt, Inc.
1800 Ave of Stars, Ste. 1424
Los Angeles, California 90067
Miles D. Bender 1,298,144 (3) 10.6%
4925 Greenville Ave., Ste. 1400
Dallas, Texas 75206
High River Limited Partnership 1,040,000 (4) 8.6%
90 South Bedford Road
Mount Kisco, NY 10549
George B. McCullough 391,852 (5) 3.2%
6510 Pauma Dr.
Houston, Texas 77069
Robert H. Kite 369,455 (6) 3.0%
2722 N. 7th Street
Phoenix, Arizona 85006
Norman C. Miller 324,860 (7) 2.7%
P. O. Box 1566
Griffin, Georgia 30224
13
<PAGE>
Robert A. Imel 165,500 (8) 1.4%
4925 Greenville Ave, Ste 1400
Dallas, TX 75206
Randall A. Carter 164,882 (9) 1.4%
234 Columbine, Suite 240
Denver, Colorado 80206
George N. McDonald 123,023 (10) 1.0%
3656 Macintosh Lane
Salt Lake City, Utah 84121
William T. Jones 110,000 (11) (17)
4925 Greenville Ave, Ste 1400
Dallas, TX 75206
Melissa H. Rutledge 30,000 (12) (17)
4925 Greenville Ave, Ste 1400
Dallas, TX 75206
Robert V. Sinnott 20,000 (13) (17)
1800 Ave of Stars, Ste. 1424
Los Angeles, California 90067
Elwood W. Schafer 2,000 (14) (17)
7018 Blackwood Drive
Dallas, TX 75231
R. Thomas Fetters, Jr. 0 (15) (17)
4925 Greenville Ave, Ste 1400
Dallas, TX 75206
All Directors and Officers
as a group (twelve people) 2,999,716 (16) 24.0%
Series B Preferred Stock
------------------------
Richard A. Kayne 52,500 (18) 100%
1800 Ave of Stars, Ste. 1424
Los Angeles, CA 90067
Kayne, Anderson 52,500 (18) 100%
Investment Mgmt., Inc.
1800 Ave of Stars, Ste. 1424
Los Angeles, CA 90067
Arbco Associates L.P. 18,900 (18) 36.0%
1800 Ave of Stars, Ste. 1424
Los Angeles, CA 90067
14
<PAGE>
Offense Group Associates L.P. 15,750 (18) 30.0%
1800 Ave of Stars, Ste. 1424
Los Angeles, California 90067
Kayne, Anderson Nontraditional 14,700 (18) 28.0%
Investments, L.P.
1800 Ave of Stars, Ste. 1424
Los Angeles, California 90067
Opportunity Associates L.P. 3,150 (18) 6.0%
1800 Ave of Stars, Ste. 1424
Los Angeles, California 90067
All Directors and Officers 0 0.0%
as a Group (twelve people)
Series C Preferred Stock
------------------------
Richard A. Kayne 40,000 (19) 100%
1800 Ave of Stars, Ste. 1424
Los Angeles, CA 90067
Kayne, Anderson 40,000 (19) 100%
Investment Mgmt., Inc.
1800 Ave of Stars, Ste. 1424
Los Angeles, CA 90067
Arbco Associates L.P. 14,400 (19) 36.0%
1800 Ave of Stars, Ste. 1424
Los Angeles, CA 90067
Offense Group Associates L.P. 12,000 (19) 30.0%
1800 Ave of Stars, Ste. 1424
Los Angeles, California 90067
Kayne, Anderson Nontraditional 11,200 (19) 28.0%
Investments, L.P.
1800 Ave of Stars, Ste. 1424
Los Angeles, California 90067
Opportunity Associates L.P. 2,400 (19) 6.0%
1800 Ave of Stars, Ste. 1424
Los Angeles, California 90067
All Directors and Officers 0 0.0%
as a Group (twelve people)
- ---------------------------------------
(1) Based upon the 12,096,532 shares of issued and outstanding
Common Stock and 52,500 shares of issued and outstanding Series
B Preferred Stock and 40,000 shares of issued and outstanding
Series C Preferred Stock, as of April 17, 1996; for each person
or group, pursuant to Item 403 of Regulation S-B, the
percentages, are calculated on the basis of the amount of
outstanding securities of the particular class plus any
securities that such person or group has the right to acquire
within 60 days pursuant to options, warrants, conversion
privileges or other rights.
(2) Richard A. Kayne is President, Chief Executive Officer and
Director of Kayne, Anderson Investment Management, Inc. ("KAIM"),
a registered investment advisor, and of Kayne, Anderson & Co.
Inc. a registered broker/dealer ("KACO"). Mr. Kayne
15
<PAGE>
and KAIM have shared dispositive and voting power through four
other entities for 52,500 shares of Series B Preferred Stock,
which may be converted at any time into 3,230,769 shares of
Common Stock, and 40,000 shares of Series C Preferred Stock,
which may be converted at any time into 2,000,000 shares of
Common Stock. The percentage ownership figure in the table
assumes that all shares of Series B and Series C Preferred Stock
are converted and 5,230,769 shares of Common Stock are issued,
and such shares are added to the shares of Common Stock
outstanding as of April 17, 1996. For additional information on
the record ownership of the Series B and Series C Preferred Stock
and the shares of Common Stock into which they convert, see
footnote (18) below. Mr. Kayne disclaims beneficial ownership of
the Series B and Series C by the four investment partnerships in
excess of the amount attributable to him by nature of his direct
interest as a limited or general partner and by nature of his
indirect interest in KAIM's interest in the investment
partnership. KAIM and L.P. disclaim beneficial ownership of the
Series B and Series C held by the four investment partnerships in
excess of the amount attributable to them by nature of their
percentage interest in the investment partnership. Mr. Robert V.
Sinnott is Senior Vice President and Senior Investment Officer of
KAIM and is also a Director of the Company; Mr. Sinnott, however,
does not have dispositive or voting power over the 52,500 shares
of Series B Preferred Stock or the 40,000 shares of Series C
Preferred Stock or the 5,230,769 shares of Common Stock into
which such shares of Series B and C Preferred Stock convert.
(3) Mr. Bender's shares include the following: 1,148,144 shares
held directly by Mr. Bender as of April 17, 1996 and options to
purchase 150,000 shares; does not include options to purchase
100,000 shares which are not yet exercisable.
(4) High River Limited Partnership ("High River") is a Delaware
limited partnership. Riverdale Investors Corp., Inc.
("Riverdale") is a Delaware corporation and is the general
partner of High River. Mr. Carl C. Icahn is the sole
stockholder and a director of Riverdale. Riverdale's principal
business address is 90 South Bedford Road, Mount Kisco, New York
10549 and Mr. Icahn's principal business address is c/o Icahn
Associates Corp., 114 West 47th Street, 19th Floor, New York, New
York 10036. Riverdale and Mr. Icahn, by virtue of their
relationships to High River, may be deemed to beneficially own
(as that term is defined in Rule 13d-3 under the Securities
Exchange Act of 1934) the shares which High River directly
beneficially owns. Each of Riverdale and Mr. Icahn disclaims
beneficial ownership of such shares for all other purposes.
(5) Includes 351,852 shares held directly by Mr. McCullough and
options to purchase 40,000 shares; does not include options to
purchase 30,000 shares which are not yet exercisable. The
figures in the table do not include 5,405 shares owned by Mr.
McCullough's sons, for which Mr. McCullough disclaims beneficial
ownership. Mr. McCullough is Chairman of the Board of Directors
of the Company.
(6) Robert H. Kite, a Director of the Company, is Chief
Operating Officer and 29.0% beneficial owner of KFT, Ltd. and may
be deemed to be the beneficial owner of shares held by KFT, Ltd.
KFT, Ltd. holds 176,297 shares and Mr. Kite holds 153,158 shares
directly. The share figure in the table also includes options to
purchase 40,000 shares, but does not include options to purchase
15,000 shares which are not yet exercisable.
(7) Mr. Miller owns 234,860 shares directly, and 50,000 shares
through Incorp, Inc., of which Mr. Miller is owner. Includes
options to purchase 40,000 shares but does not include options to
purchase 30,000 shares which are not yet exercisable. Mr. Miller
is a Director and Chairman of the Executive Committee of the
Company.
(8) Includes 105,500 shares held directly by Mr. Imel and
options to purchase 60,000 shares; does not include options to
purchase 50,000 shares which are not yet exercisable. Mr. Imel
is Chief Financial Officer of the Company.
(9) Includes 164,882 shares held directly by Mr. Carter; does
not include options to purchase 20,000 shares which are not yet
exercisable. Mr. Carter is General Counsel and Secretary of the
Company.
(10) Includes 123,023 shares held directly by Mr. McDonald,
does not include options to purchase 15,000 shares which are not
yet exercisable. Mr. McDonald is a Director of the Company.
(11) Includes 50,000 shares held directly by Mr. Jones and
options to purchase 60,000 shares; does not include options to
purchase 50,000 shares which are not yet exercisable. Mr. Jones
is Vice President-Production & Engineering of the Company.
(12) Includes 10,000 shares held directly by Ms. Rutledge
and options to purchase 20,000 shares; does not include options
to purchase 10,000 shares which are not yet exercisable. Ms.
Rutledge is Controller and Chief Accounting Officer of the
Company
16
<PAGE>
(13) Includes options to purchase 20,000 shares held by Mr.
Sinnott; does not include options to purchase 15,000 shares which
are not yet exercisable. Mr. Sinnott is a Director of the
Company and is Senior Vice President and Senior Investment
Officer of KAIM. See footnote (2) above, footnotes (14), (18)
and (19) below, and "Certain Relationships and Related
Transactions" below.
(14) Includes 2,000 shares held directly by Mr. Schafer;
does not include options to purchase 15,000 shares which are not
yet exercisable. Mr. Schafer is a Director of the Company, and
is a consultant to KAIM. See footnotes (2) and (13) above,
footnotes (18) and (19) below and "Certain Relationships and
Related Transactions" below.
(15) Does not include options to purchase 50,000 shares
which are not yet exercisable. Mr. Fetters is Senior Vice
President-Offshore Operations and Exploration.
(16) Includes a total of 2,569,716 shares held directly or
indirectly by the officers and Directors and options to purchase
430,000 shares.
(17) Less than 1%
(18) For information on Richard A. Kayne("KAIM and L.P."), see
footnote (2) above. Arbco Associates L.P. has shared dispositive
and voting power with Mr. Kayne and KAIM of 18,900 shares of
Series B Preferred Stock ("Series B"), which converts into
1,163,077 shares of Common Stock (or 7.6% of the Company's Common
Stock, assuming all of the Series B is converted). Offense Group
Associates has shared dispositive and voting power with Mr. Kayne
and KAIM for 15,750 shares of Series B, which converts into
969,231 shares of Common Stock (or 6.3% of the Company's Common
Stock, assuming all Series B is converted). Kayne, Anderson
Non-Traditional Investments has shared dispositive and voting
power with Mr. Kayne and KAIM for 14,700 shares of Series B,
which converts into 904,615 shares of Common Stock (or 5.9% of
the Company's Common Stock, assuming all of the Series B is
converted). Opportunity Associates L.P. has shared dispositive
and voting power with Mr. Kayne and KAIM of 3,150 shares of
Series B, which converts into 193,846 shares of Common Stock.
(19) For information on Richard A. Kayne("KAIM and L.P."), see
footnote (2) above. Arbco Associates L.P. has shared dispositive
and voting power with Mr. Kayne and KAIM of 14,400 shares of
Series C Preferred Stock, which converts into 720,000 shares of
Common Stock (or 5.1% of the Company's Common Stock, assuming all
of the Series C is converted and the Series B is not converted).
Offense Group Associates has shared dispositive and voting power
with Mr. Kayne and KAIM for 12,000 shares of Series C, which
converts into 600,000 shares of Common Stock. Kayne, Anderson
Non-Traditional Investments has shared dispositive and voting
power with Mr. Kayne and KAIM for 11,200 shares of Series C,
which converts into 560,000 shares of Common Stock. Opportunity
Associates L.P. has shared dispositive and voting power with Mr.
Kayne and KAIM of 2,400 shares of Series C, which converts into
120,000 shares of Common Stock.
ABSENCE OF CHANGE IN CONTROL
There was no change in control of the Company as a result of
the Company's sales of $4,000,000 of 10 1/2% Cumulative
Convertible Preferred Stock, Series C and $5,000,000 of 10%
Cumulative Convertible Preferred Stock, Series B. The holders
of Series B and Series C Preferred Stock do not have the right
to appoint a majority of the Company's Board of Directors. If
and when the shares of Series B and Series C Preferred Stock are
converted to Common Stock, the holders of Series B and Series C
Preferred will have a significant stock holding, but not a
majority of the issued and outstanding shares of Common Stock.
See "Security Ownership of Certain Beneficial Owners and
Management" above.
17
<PAGE>
The following is substituted in lieu of Item 12 as it
appears in the original of the Annual Report on Form 10-KSB for
the year ended December 31, 1995.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
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 (the "Series C") which was privately
placed with investment partnerships associated with Kayne,
Anderson Investment Management, Inc. ("KAIM") of Los Angeles,
California (the "Purchasers"). 40,000 shares of Series C were
sold by the Company at $100.00 per share, and the Series C is
convertible into shares of the Common Stock at a conversion price
of $2.00 per share of Common Stock. The Purchasers own all of
the Company's currently outstanding Series C. The Purchasers
were Arbco Associates L.P, which purchased 14,400 shares of
Series C, or 36.0% of the Series C; Offense Group Associates
L.P., which purchased 12,000 shares of Series C, or 30.0% of the
Series C; Kayne, Anderson Nontraditional Investments L.P., which
purchased 11,200 shares of Series C or 28.0% of the Series C and
Opportunity Associates L.P., which purchased 2,400 shares of
Series C or 6.0% of the Series C. For more information on the
Purchasers, see "Security Ownership of Certain Beneficial Owners
and Management" and footnotes 2, 18 and 19 thereto.
The shares of the Company's Common Stock which may be
issued upon conversion of the Series C have been registered by
the Company.
Additionally, Elwood Schafer, a consultant to KAIM, was
appointed to the Board of Directors of the Company pursuant to
the Purchaser's right to appoint one member of the Company's
Board of Directors. Mr. Schafer does not have dispositive or
voting power over the 40,000 shares of Series C, the 52,500
shares of Series B or any shares of Common Stock into which the
Series B or Series C are convertible. See footnotes 2, 18 and 19
to the table under "Security Ownership of Certain Beneficial
Owners and Management".
On June 3, 1994, the Company consummated the sale of
$5,000,000 of the Company's 10% Cumulative Convertible Preferred
Stock, Series B (the "Series B") which was privately placed with
the Purchasers. San Jacinto Securities, Inc. of Dallas, Texas
acted as agent for the placement. 50,000 shares of Series B were
sold by the Company at $100.00 per share, and the Series B is
convertible into shares of the Common Stock at a conversion price
of $1.625 per share of Common Stock. The Purchasers own all of
the Company's currently outstanding Series B. The Purchasers
were Arbco Associates L.P., which purchased 18,000 shares of
Series B, or 36.0% of the Series B; Offense Group Associates
L.P., which purchased 15,000 shares of Series B, or 30.0% of the
Series B; Kayne, Anderson Nontraditional Investments L.P., which
purchased 14,000 shares of Series B, or 28.0% of the Series B and
Opportunity Associates L.P., which purchased 3,000 shares of
Series B, or 6.0% of the Series B. For more information on the
Purchasers, see "Security Ownership of Certain Beneficial Owners
and Management" and footnotes 2, 18 and 19 thereto.
18
<PAGE>
The Purchasers acquired an additional 2,500 shares of Series
B pursuant to a dividend effective December 3, 1994. The Series
B has a 10% dividend with semi-annual payments. The next
dividend date is June 3, 1996. The Company expects to pay the
next dividend in cash.
In connection with the offering, San Jacinto Securities,
Inc. received a commission of $450,000 in cash. The Company also
issued warrants to purchase 307,692 shares of Common Stock at a
price of $1.625 per share to three designees of San Jacinto
Securities (Kenneth R. Etheredge received a warrant to purchase
150,000 shares and is President, a Director and 36.0% owner of
San Jacinto Securities, Inc.; Bruce E. Lazier received a warrant
to purchase 150,000 shares and is employed by San Jacinto
Securities, Inc. and Gloria K. Berry received a warrant to
purchase 7,692 shares and is Vice President, a Director and an
8.0% owner of San Jacinto Securities, Inc.).
The shares of the Company's Common Stock which may be issued
upon conversion of the Series B and/or exercise of the Warrants
described in the preceding paragraph have been registered by the
Company.
Additionally, in June 1994, Robert V. Sinnott, Senior Vice
President and Senior Investment Officer of KAIM was appointed to
the Board of Directors of the Company pursuant to the Purchaser's
right to appoint one member of the Company's Board of Directors.
Mr. Sinnott does not have dispositive or voting power over the
52,500 shares of Series B, the 40,000 shares of Series C, or any
shares of Common Stock into which the Series B or Series C are
convertible. See footnotes 2, 18 and 19 to the table under
"Security Ownership of Certain Beneficial Owners and Management".
If the Purchasers were to convert the Series B and Series C
into Common Stock, the Purchasers would hold 5,230,769 shares of
Common Stock, or 30.2% of the then outstanding shares of Common
Stock (based upon 12,096,532 shares of Common Stock outstanding
on April 17, 1996, plus the 5,230,769 shares from the conversion
and assuming no other shares of Common Stock are issued). If
the Company makes dividend payments in shares of Series B and
Series C and if the Purchasers were to convert such shares of
Series B and Series C into shares of Common Stock, the
Purchaser's percentage ownership of Common Stock would increase.
During the year ended December 31, 1995, the Company sold
$4,618,136 of oil and gas, or 59% of the Company's total oil and
gas sales, to Plains Marketing and Transportation, Inc.
("Plains"). During the year ended December 31, 1994, the Company
sold $1,614,711 of oil and gas, or 51.1% of its total oil and gas
sales, to Plains. Robert V. Sinnott is a Director of both the
Company and Plains Resources, Inc., which is the parent company
of Plains. For information on the ownership of the Company's
securities by KAIM and investment partnerships associated with
KAIM, see the table, and footnotes 2, 18 and 19 thereto under
"Security Ownership of Certain Beneficial Owners and Management".
KAIM and investment partnerships associated with KAIM, and other
accounts managed by affiliates of KAIM, own on a fully diluted
basis, 2,751,173 shares of Common Stock of Plains Resources,
Inc., or approximately 18.6% of the issued and outstanding shares
of Common Stock of Plains Resources, Inc. The Company has
agreements with Plains pursuant to which Plains purchases oil
produced from the major oil-producing properties which the
Company operates, at West Texas Intermediate posted prices plus a
small premium. If the agreements
19
<PAGE>
continue in 1996, sales to Plains will account for a significant
percentage of the Company's total oil and gas sales in 1996.
Effective June 9, 1995, 129,644 outstanding shares of the
Company's Class B Common Stock, $.01 par value, Series 3, 4 and 5
(the "Class B") were converted into 1,296,440 shares of Common
Stock pursuant to the terms of the Class B, which terms provided
for ten shares of Common Stock to be exchanged for each converted
share of Class B. The following number of shares of Common Stock
were issued to the following executive officers and directors
pursuant to the conversion of the Class B: Miles D. Bender,
President, Chief Executive Officer and Director - 615,570, George
B. McCullough, Chairman of the Board of Directors - 104,460,
Norman C. Miller, Chairman of the Executive Committee and a
Director - 104,460, Robert H. Kite, a Director - 104,460, Randall
A. Carter, General Counsel and Secretary - 93,490, George N.
McDonald, a Director - 55,920, Robert A. Imel, Chief Financial
Officer - 50,000, William T. Jones, Vice President - Production
and Engineering - 50,000, Melissa H. Rutledge, Controller and
Chief Accounting Officer - 10,000.
Some of the shares of Class B which were converted into
Common Stock had been issued to executive officers and directors
effective August 15, 1994. The following executive officers and
directors received the following number of shares of Class B
during August 1994: George B. McCullough - 4,750 shares, Norman
C. Miller - 4,750 shares, Robert H. Kite - 4,750 shares, Miles D.
Bender - 4,750 shares, George N. McDonald - 2,750 shares, Robert
A. Imel - 5,000 - shares, William T. Jones - 5,000 shares,
Randall A. Carter - 4,000 shares, Melissa H. Rutledge - 1,000
shares.
Pursuant to the Bligh Acquisition in December 1993, the
Company acquired a 63.8% working interest in the Goldsmith Adobe
Unit ("GAU") from Bligh Petroleum, Inc. ("Bligh"). In connection
with the Bligh Acquisition, the Company borrowed funds from three
Directors in the form of subordinated notes, and sold Common
Stock to two Directors (one of which is also an officer). The
Company borrowed the following amounts from the following
Directors of the Company: $100,000 - George B. McCullough;
$80,000 - KFT Ltd., which is 29.0% owned by Robert H. Kite; and
$50,000 - Norman C. Miller. The Company issued subordinated
notes to reflect these borrowings. In April 1994, KFT Ltd.
converted $30,000 in principal amount of its subordinated note
into 48,000 shares of Common Stock. In June 1994, KFT Ltd.
converted an additional $38,750 of its subordinated note into
62,000 shares of Common Stock, Mr. McCullough converted $62,500
of his subordinated note into 100,000 shares of Common Stock and
the remaining $37,500 was paid in cash. Also in June 1994, Mr.
Miller converted the full $50,000 principal amount of his
subordinated note into 80,000 shares of Common Stock. In July
1994, the remaining $11,250 owed to KFT, Ltd. was paid in cash.
In addition, in connection with the Bligh Acquisition, the
Company issued 792,000 shares of Common Stock at a purchase price
of $.625 per share. Robert H. Kite, Director, bought 32,000
shares, for a total purchase price of $20,000. Miles D. Bender,
President and Chief Executive Officer of the Company and a
Director, subscribed for 200,000 shares, for a total purchase
price of $125,000, and completed his transaction in April 1994.
20
<PAGE>
The following is substituted in lieu of Item 13(a)(1) as it
appears in the original of the Annual Report on Form 10-KSB for
the year ended December 31, 1995.
21
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this amendment to be
signed on its behalf by the undersigned thereunto duly
authorized.
NATIONAL ENERGY GROUP, INC.
(Registrant)
By: /s/ Miles D. Bender
_______________________________
Miles D. Bender
President and
Chief Executive Officer
DATE: April 29, 1996
22
National Energy Group, Inc.
Index to Financial Statements
Page
Report of Independent Auditors F-2
Financial Statements:
Balance Sheets at December 31, 1995 and 1994 F-3
Statements of Operations for the Years Ended
December 31, 1995 and 1994 F-5
Statements of Cash Flows for the Years Ended
December 31, 1995 and 1994 F-6
Statements of Changes in Stockholders' Equity for
the Years Ended December 31, 1995 and 1994 F-7
Notes to Financial Statements F-9
F-1
<PAGE>
Report of Independent Auditors
The Board of Directors
National Energy Group, Inc.
We have audited the accompanying balance sheets of National
Energy Group, Inc., as of December 31, 1995 and 1994, and
the related statements of operations, changes in
stockholders' equity, and cash flows 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 financial statements referred to above
present fairly, in all material respects, the financial
position of National Energy Group, Inc., at 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.
Ernst & Young LLP
Dallas, Texas
March 27, 1996
F-2
National Energy Group, Inc.
Balance Sheets
December 31,
1995 1994
------------ ----------
Assets
Current assets:
Cash and cash equivalents $ 6,076,199 $2,593,645
Marketable securities 1,824,724 1,182,150
Accounts receivable - oil and gas sales 1,407,349 344,972
Accounts receivable - joint interest and other 262,619 543,771
Accounts receivable - related parties - 23,999
Other 335,751 267,731
------------ ----------
Total current assets 9,906,642 4,956,268
Property and equipment:
Oil and gas properties, at cost (full cost
method) 38,201,307 15,284,453
Furniture, fixtures, and equipment 372,395 329,445
------------ ----------
38,573,702 15,613,898
Accumulated depreciation, depletion, and
amortization 5,602,571 2,501,047
------------ ----------
Net property and equipment 32,971,131 13,112,851
Other assets 613,593 677,056
------------ ----------
Total assets $43,491,366 $18,746,175
============ ===========
See accompanying notes.
F-3
<PAGE>
December 31,
1995 1994
------------ ----------
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable - trade $ 3,630,603 820,377
Accounts payable - revenue and other 984,299 495,178
Accounts payable - broker margin 978,656 -
Accrued interest 128,938 79,917
Note payable and current portion of long-
term debt 6,500,000 -
------------ ----------
Total current liabilities 12,222,496 1,395,472
Long-term debt, less current portion 13,475,000 6,000,000
Other long-term liabilities 19,303 23,189
Stockholders' equity:
Convertible preferred stock, $1.00 par:
Authorized shares - 1,000,000
Series B:
Authorized shares - 100,000
Issued shares - 52,500
Aggregate liquidation preference - $5,250,000 52,500 52,500
Series C:
Authorized shares - 80,000
Issued shares - 40,000
Aggregate liquidation preference - $4,000,000 40,000 -
Class A common stock $.01 par value:
Authorized shares - 50,000,000
Issued shares - 11,880,125 and 8,875,892 at
December 31, 1995 and 1994, respectively 118,801 88,778
Class B common stock $.01 par value:
Authorized convertible shares - 200,000
Issued shares - 129,644 at December 31, 1994 - 1,296
Common stock issuable under asset acquisition
agreement - 136,035
Additional paid-in capital 21,485,224 13,626,117
Unrealized gain (loss) on marketable securities,
net (247,492) 136,285
Deficit (3,674,466) (2,713,497)
------------ ----------
Total stockholders' equity 17,774,567 11,327,514
------------ ----------
Total liabilities and stockholders' equity $43,491,366 $18,746,175
============ ==========
F-4
<PAGE>
National Energy Group, Inc.
Statements of Operations
Year ended December 31,
1995 1994
------------ ----------
Revenue:
Oil and gas sales $ 7,858,316 $3,158,716
Costs and expenses:
Lease operating 1,732,124 1,207,251
Oil and gas production taxes 415,867 176,320
Depreciation, depletion, and amortization 3,149,464 1,029,986
General and administrative 1,634,429 826,459
------------ ----------
6,931,884 3,240,016
Operating income (loss) 926,432 (81,300)
Interest expense (1,032,096) (517,086)
Interest income and other, net 90,875 109,017
Gain on sale of marketable securities 220,582 -
------------ ----------
Income (loss) before income taxes 205,793 (489,369)
Provision for income taxes - -
------------ ----------
Income (loss) before extraordinary item 205,793 (489,369)
Extraordinary loss on early extinguishments
of debt (431,762) (121,917)
------------ ----------
Net loss $ (225,969) $ (611,286)
============ ==========
Loss per common share:
Loss before extraordinary item $ (.05) $ (0.09)
============ ==========
Net loss $ (.09) $ (0.10)
============ ==========
Weighted average number of common and
common equivalent shares outstanding 10,701,635 8,476,821
============ ==========
See accompanying notes.
F-5
<PAGE>
National Energy Group, Inc.
Statements of Cash Flows
Year ended December 31,
1995 1994
------------ ----------
Operating Activities
Net loss $ (225,969) $ (611,286)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation, depletion and amortization 3,149,464 1,029,986
Amortization of loan costs 21,060 19,114
Amortization of deferred compensation 39,809 41,694
Extraordinary loss on early extinguishment
of debt 431,762 121,917
Common stock and warrants issued for services 104,614 64,290
Changes in operating assets and liabilities:
Accounts receivable (784,668) (217,192)
Accounts receivable from related parties 23,999 -
Other current assets (108,615) (101,530)
Accounts payable and accrued liabilities 425,626 26,299
------------ ----------
Net cash provided by operating activities 3,077,082 373,292
------------ ----------
Investing Activities
Purchases of marketable securities (2,917,659) (1,081,041)
Proceeds from sale of marketable securities 1,891,308 35,176
Proceeds from broker margin 978,656 -
Purchases of furniture, fixtures, and equipment (42,950) (48,632)
Oil and gas acquisition, exploration, and
development expenditures (16,912,919) (2,849,508)
Proceeds from sales of oil and gas properties 69,306 90,500
Purchases of long-term assets and other (11,963) 41,471
------------ ----------
Net cash used in investing activities (16,946,221) (3,812,034)
------------ ----------
Financing Activities
Proceeds from issuance of long-term debt, net 17,514,077 5,691,366
Proceeds from issuance of note payable 3,000,000 -
Repayments of long-term debt (6,875,000) (4,200,000)
Repayments of other long-term liabilities - (77,571)
Proceeds from exercise of stock options & warrants 467,987 35,938
Proceeds from issuance of Series B Preferred
Stock, net - 4,436,372
Proceeds from issuance of Series C Preferred
Stock, net 3,980,343 -
Preferred stock dividends (735,000) (14,705)
Payments for redemption of fractional shares (714) (477)
------------ ----------
Net cash provided by financing activities 17,351,693 5,870,923
------------ ----------
Increase in cash and cash equivalents 3,482,554 2,432,181
Cash and cash equivalents at beginning of period 2,593,645 161,464
------------ ----------
Cash and cash equivalents at end of period $ 6,076,199 2,593,645
============ ==========
Supplemental Cash Flow Information
Interest paid in cash $ 983,075 $ 457,949
============ ==========
See accompanying notes.
F-6
<PAGE>
<TABLE>
National Energy Group, Inc.
Statements of Changes in Stockholders' Equity
Years ended December 31, 1995 and 1994
<CAPTION>
Series B Series C Class A Class B
Preferred Stock Preferred Stock Common Stock Common Stock
--------------- --------------- -------------------- --------------------
Shares Amount Shares Amount Shares Amount Shares Amount
------- ------ ------- ------ ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 - $ - $ - - 7,752,838 $ 77,528 91,894 $ 919
Common stock issued upon exercise of
options - - - - 62,500 625 - -
Common stock issued or issuable under
asset acquisition agreements - - - - 200,000 2,000 - -
Issuance of Series B Preferred Stock 50,000 50,000 - - - - - -
Common stock issued for services - - - - 22,500 225 37,750 377
Common stock issued upon conversion of
Series A Preferred Stock - - - - 425,000 4,250 - -
Common stock issued on conversion
of long-term debt - - - - 415,054 4,151 - -
Unrealized gain on marketable securities - - - - - - - -
Dividends on Series A Preferred Stock - - - - - - - -
Dividends on Series B Preferred Stock 2,500 2,500 - - - - - -
Net loss - - - - - - - -
------- ------ ------ ------ ---------- -------- ---------- --------
Balance at December 31, 1994 52,500 52,500 - - 8,877,892 88,779 129,644 1,296
Common stock issued upon exercise
of options and warrants - - - - 327,992 3,280 - -
Common stock issued under asset
acquisition agreement - - - - 300,000 3,000 - -
Common stock and warrants issued for
services - - - - 13,000 130 - -
Common stock issued upon conversion
of Class B Common Stock - - - - 1,296,440 12,964 (129,644) (1,296)
Common stock and warrants issued to
acquire interests in oil and gas
properties - - - - 1,064,801 10,648 - -
Issuance of Series C Preferred Stock - - 40,000 40,000 - - - -
Dividends on Series B Preferred Stock - - - - - - - -
Dividends on Series C Preferred Stock - - - - - - - -
Unrealized loss on marketable securities - - - - - - - -
Net loss - - - - - - - -
------- ------ ------ ------ ---------- -------- ---------- --------
Balance at December 31, 1995 52,500 $52,500 40,000 $40,000 11,880,125 $118,801 - $ -
======= ======= ===== ======= ========== ======== ========== ========
F-7
<PAGE>
<CAPTION>
Common Stock Unrealized
Issuable Gain (Loss)
Under Asset Additional on Available- Total
Acquisition Paid-in for-sale Stockholder's
Agreement Capital Securities Deficit Equity
------------ ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993 $ 97,910 $ 7,980,992 $ - $(1,837,506) $ 6,319,843
Common stock issued upon exercise of
options - 35,313 - - 35,938
Common stock issued or issuable under
asset acquisition agreements 38,125 123,000 - - 163,125
Issuance of Series B Preferred Stock - 4,386,372 - - 4,436,372
Common stock issued for services - 51,908 - - 52,510
Common stock issued upon conversion of
Series A Preferred Stock - 420.720 - - 424,970
Common stock issued on conversion
of long-term debt - 380,311 - - 384,462
Unrealized gain on marketable securities - - 136,285 - 136,285
Dividends on Series A Preferred Stock - - - (14,705) (14,705)
Dividends on Series B Preferred Stock - 247,500 - (250,000) -
Net loss - - - (611,286) (611,286)
------------ ----------- ------------- ------------ -------------
Balance at December 31, 1994 136,035 13,626,116 136,285 (2,713,497) 11,327,514
Common stock issued upon exercise
of options and warrants - 464,707 - - 467,987
Common stock issued under asset
acquisition agreement (136,035) 133,035 - - -
Common stock and warrants issued for
services - 79,203 - - 79,333
Common stock issued upon conversion
of Class B Common Stock - (11,668) - - -
Common stock and warrants issued to
acquire interests in oil and gas
properties - 3,269,003 - - 3,279,651
Issuance of Series C Preferred Stock - 3,924,828 - - 3,964,828
Dividends on Series B Preferred Stock - - - (525,000) (525,000)
Dividends on Series C Preferred Stock - - - (210,000) (210,000)
Unrealized loss on marketable securities - - (383,777) - (383,777)
Net loss - - - (225,969) (225,969)
------------ ----------- ------------- ------------ -------------
Balance at December 31, 1995 $ - $21,485,224 $ (247,492) $(3,674,466) $ 17,774,567
============ =========== ============= ============ =============
</TABLE>
See accompanying notes.
F-8
<PAGE>
National Energy Group, Inc.
Notes to Financial Statements
December 31, 1995
1. Significant Accounting Policies
Organization and Business
National Energy Group, Inc. (the "Company") was incorporated
under the laws of the State of Delaware on November 20,
1990. The Company is engaged in the acquisition,
development, and production of crude oil and natural gas.
Accounting Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results
could differ from these estimates.
Cash and Cash Equivalents
Cash and cash equivalents include demand deposits and money-
market investments with maturities of three months or less
when purchased. At December 31, 1995 all cash and cash
equivalents were invested with Bank One, Texas, N.A. ("Bank
One").
Marketable Securities
The Company's marketable securities are classified as
available-for-sale. Available-for-sale securities are
carried at fair value, with the unrealized gains and losses,
net of tax, reported as a separate component of
stockholders' equity. Realized gains and losses and declines
in value judged to be other-than-temporary are included in
interest income. The cost of securities sold is based on the
specific identification method.
The marketable securities are comprised of other independent
oil and gas companies. The common stock of one oil and gas
company accounted for 62% and 86% of the estimated fair
market value of the total marketable securities held at
December 31, 1995 and 1994, respectively.
F-9
<PAGE>
National Energy Group, Inc.
Notes to Financial Statements (continued)
1. Significant Accounting Policies (continued)
The following is a summary of available-for-sale securities
at December 31, 1995 and 1994:
December 31, 1995
----------------------------------------------
Gross Gross
Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
---------- ---------- ---------- ----------
Common stocks $2,072,216 $1,026 $248,518 $1,824,724
========== ========== ========== ==========
December 31, 1994
----------------------------------------------
Gross Gross
Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
---------- ---------- ---------- ----------
Common stocks $1,045,864 $138,178 $ 1,893 $1,182,149
========== ========== ========== ==========
During the years ended December 31, 1995 and 1994, available-
for-sale securities with a fair value at the date of sale of
$2,111,890 and $51,156, respectively, were sold. The gross
realized gains on such sales totaled $224,443 and $14,954,
respectively. The gross realized losses on such sales
totaled $3,861 during 1995, and there were no realized
losses during 1994.
Accounts Receivable
The Company sells crude oil and natural gas to various
customers. In addition, the Company participates with other
parties in the operation of crude oil and natural gas wells.
Substantially all of the Company's accounts receivable are
due from either purchasers of crude oil and natural gas or
participants in crude oil and natural gas wells for which
the Company serves as the operator. Generally, operators of
crude oil and natural gas properties have the right to
offset future revenues against unpaid charges related to
operated wells. Crude oil and natural gas sales are
generally unsecured.
Natural Gas Production Imbalances
The Company accounts for natural gas production imbalances
using the sales method.
F-10
<PAGE>
National Energy Group, Inc.
Notes to Financial Statements (continued)
1. Significant Accounting Policies (continued)
Crude Oil and Natural Gas Properties
The Company utilizes the full cost method of accounting for
its crude oil and natural gas properties. Under the full
cost method, all productive and nonproductive costs incurred
in connection with the acquisition, exploration, and
development of crude oil and natural gas reserves are
capitalized and amortized on the units-of-production method
based upon total proved reserves. The costs of unproven
properties are excluded from the amortization calculation
until the individual properties are evaluated and a
determination is made as to whether reserves exist.
Capitalized costs are limited to the aggregate of the
present value of future net reserves plus the lower of cost
or fair market value of unproved properties. Conveyances of
properties, including gains or losses on abandonments of
properties, are treated as adjustments to the cost of crude
oil and natural gas properties, with no gain or loss
recognized. The Company does not believe that future costs
related to dismantlement, site restoration, and abandonment
costs, net of estimated salvage values, will have a
significant effect on its results of operations or financial
position because the salvage value of equipment and related
facilities should approximate or exceed any future
expenditures for dismantlement, restoration, or abandonment.
The Company has not incurred any net expenditures for costs
of this nature during the last two years.
The Company has capitalized internal costs of $141,516 and
$158,961 for the years ended December 31, 1995 and 1994,
respectively. Such capitalized costs include salaries and
related benefits of individuals directly involved in the
Company's acquisition, exploration and development
activities based on percentage of their time devoted to such
activities.
Furniture, Fixtures, and Equipment
Furniture, fixtures, and equipment are recorded at cost and
are depreciated over their estimated useful lives using the
straight-line method.
Maintenance and repairs are charged against income when
incurred; and renewals and betterments, which extend the
useful lives of furniture, fixtures, and equipment, are
capitalized.
F11
<PAGE>
National Energy Group, Inc.
Notes to Financial Statements (continued)
1. Significant Accounting Policies (continued)
Overhead Reimbursement Fees
Fees from overhead charges billed to working interest owners
of $136,943 and $157,845, for the years ended December 31,
1995 and 1994, respectively, have been classified as a
reduction of general and administrative expenses in the
accompanying statements of operations.
Income Taxes
The Company uses the liability method in accounting for
income taxes. Under the liability method, deferred tax
assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and
laws that will be in effect when the differences are
expected to reverse.
Earnings (Loss) Per Share
Primary earnings (loss) per common and common equivalent
share data is computed by dividing net income (loss),
adjusted for preferred stock dividend requirements of
$735,000 in 1995 and $264,705 in 1994, by the weighted
average number of common and common equivalent shares
outstanding during each period. Shares issuable upon
exercise of options and warrants are included in the
computation of earnings per common and common equivalent
share to the extent that they are dilutive. Fully diluted
earnings (loss) per share computations also assume the
conversion of the Company's preferred stock (Note 5) if such
conversion has a dilutive effect.
For the years ended December 31, 1995 and 1994, neither the
common equivalent shares nor the assumed conversion of the
preferred stock had a dilutive effect on the loss per share
calculations. Accordingly, the loss per share calculations
for such periods are based on the weighted average number of
common shares outstanding during each year.
Natural Gas Hedging Activities
In December 1995, the Company began hedging natural gas
prices through the use of commodity price swap agreements,
in an effort to reduce the effects of the volatility of the
price of natural gas on the Company's operations. These
agreements involve the receipt of fixed-price amounts in
exchange for variable payments based on NYMEX prices and
specific volumes. In connection with the commodity price
swap agreements,
F-12
<PAGE>
National Energy Group, Inc.
Notes to Financial Statements (continued)
1. Significant Accounting Policies (continued)
the Company may also enter into basis swap agreements to
reduce the effects of unusual fluctuations between prices
actually received at the well head and NYMEX prices.
Through the use of commodity price and basis swap agreements
the Company can fix the price to be received for specified
volumes of production to the commodity swap price less the
basis swap price. The differential to be paid or received
under the swap agreement is accrued in the month of the
related production and recognized as an adjustment to oil
and gas sales. The Company does not hold or issue financial
instruments for trading purposes.
New Accounting Pronouncement
In October 1995, the Financial Accounting Standards Board
("FASB") issued its statement No. 123, "Accounting for Stock
Based Compensation" ("FAS 123") which establishes an
alternative method of accounting for stock based
compensation to the method set forth in Accounting
Principles Board Opinion No. 25 ("APB 25"). FAS 123
encourages, but does not require, adoption of a fair value
based method of accounting for stock options and similar
equity instruments granted to employees. The Company will
continue to account for such grants under the provisions of
APB 25 and will adopt the disclosure provisions of FAS 123
in the first quarter of 1996. Accordingly, adoption of FAS
123 will not affect the Company's financial statements for
the year ended December 31, 1995.
Reclassifications
Certain previously reported amounts have been reclassified
to conform with the 1995 presentation.
2. Acquisitions of Oil and Gas Properties
During 1994, the Company acquired an additional 17.0%
working interest in the Goldsmith Adobe Unit ("GAU"). Such
interests were acquired for $584,095 in cash. The Company is
the operator of the GAU and holds a 91.8% working interest
in the GAU.
In April 1995, the Company purchased a 100% working interest
(77% net revenue interest) in State of Texas Lease No. 69153
and the State Tract 901-S Field, Nueces County, Texas
("Mustang Island") for $900,000 in cash and 352,500 shares
of Class A Common Stock ("Common Stock"). The cash portion
of the acquisition was funded from available cash.
F-13
<PAGE>
National Energy Group, Inc.
Notes to Financial Statements (continued)
2. Acquisitions of Oil and Gas Properties (continued)
In June 1995, the Company completed the acquisition of
producing gas properties in the Oak Hill Field in Rusk
County, Texas ("Oak Hill"). The consideration paid by the
Company for Oak Hill consisted of $7,200,000 in cash,
612,311 shares of 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 borrowings under the
Company's credit facility with Bank One, Texas, N.A. ("Bank
One"). See Note 3.
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 (the
"Enron Properties") for $2,119,295 in cash. This acquisition
was funded by borrowings under the credit facility with Bank
One and available cash.
The following pro forma data presents the results of the
Company for the years ended December 31, 1995 and 1994, as
if the acquisition of Mustang Island, Oak Hill and the Enron
Properties had occurred on January 1, 1994. The pro forma
results of operations are presented for comparative purposes
only and are not necessarily indicative of the results which
would have been obtained had the acquisitions been
consummated as presented. The following data reflect pro
forma adjustments for the oil and gas revenues, production
costs, and depreciation and depletion related to the
properties and additional interest on borrowed funds.
Pro Forma
Year ended December 31
(Unaudited)
1995 1994
---------- ----------
Revenues $9,253,803 $5,051,222
========== ==========
Loss before extraordinary item $ (73) $ (573,522)
========== ==========
Loss before extraordinary item
per common share $(.06) $(.06)
========== ==========
F-14
<PAGE>
National Energy Group, Inc.
Notes to Financial Statements (continued)
3. Note Payable and Long-Term Debt
Note payable and long-term debt consists of the following:
December 31
1995 1994
----------- ----------
Bank One credit facility $19,975,000 $ -
Gas Fund credit facility - 6,000,000
----------- ----------
19,975,000 6,000,000
Less current maturities:
Advance Note 3,000,000 -
Current portion of Revolving Note 3,500,000 -
----------- ----------
$13,475,000 $6,000,000
=========== ==========
In June 1995, the Company consummated a $33,000,000 reducing
revolving line of credit facility (the "Facility") with Bank
One. The initial advance under the Facility of $12,500,000
was used to pay off the Company's credit facility with Texas
Gas Fund I, to purchase Oak Hill and the Enron Properties
(Note 2), and for closing fees. Subsequent advances have
been used for development of the GAU, other acquisitions of
oil and gas properties (Note 2), and exploration activities.
The Facility consists of a Revolving Note of up to
$30,000,000, subject to a borrowing base, and an Advance
Note of up to $3,000,000 (primarily for the development of
GAU). Interest on the Revolving Note is at a rate of prime
plus 1% (subject to reduction in certain circumstances) or
LIBOR plus 3.75% (subject to reduction in certain
circumstances), at the Company's option. Interest on the
Advance Note is at a rate of prime plus 4%. Payments of
interest and principal are made monthly. The Facility is
secured by all of the Company's principal oil and gas
properties and related equipment, oil and gas inventory, and
related receivables. Prepayments are allowed at any time. At
December 31, 1995, the Company had $16,975,000 outstanding
under the Revolving Note and $3,000,000 outstanding under
the Advance Note.
The Revolving Note has a maturity date of June 30, 1999, and
the Advance Note has a maturity date of June 30, 1996. The
Company's ability to borrow under the Revolving Note is
dependent upon the reserve value of its oil and gas
properties. At December 31, 1995, the borrowing base was
$17.0 million. The borrowing base is subject to adjustment
quarterly based on the reserve value. Bank One has
substantial discretion in determining the reserve value and
borrowing base. In addition, the borrowing base is reduced
monthly by an amount redetermined semiannually by Bank One.
The amount of such automatic
F-15
<PAGE>
National Energy Group, Inc.
Notes to Financial Statements (continued)
3. Note Payable and Long-Term Debt (continued)
reduction was $175,000 per month for the period July 31,
1995 through January 31, 1996. Effective February 1, 1996
the amount of the monthly reduction was adjusted to
$256,000. If the amount outstanding under the Revolving Note
exceeds the borrowing base, the Company is required to repay
such excess. In January 1996, the Company repaid $3.5
million of borrowings outstanding under the Revolving Note.
As a result, the Company does not expect to be required to
make additional principal payments on the Revolving Note
during 1996.
The Facility contains restrictive and affirmative covenants,
and maintenance of required financial ratios. In addition,
the Company cannot pay any dividends on or redeem common
stock. However, cash dividends on and redemptions of
preferred stock are allowed, so long as no event of default,
as defined, has occurred and is continuing or would occur as
a result of such payment. At December 31, 1995, the Company
was not in violation of any covenants of the Facility.
Borrowings of $6,000,000 were outstanding at December 31,
1994, under the credit facility with Texas Gas Fund I.
Proceeds from the Texas Gas Fund I facility were used to
repay the Company's previous loan with Bank One which
resulted in an extraordinary charge of $121,917, or $.01 per
common share, in 1994. Borrowings under the Texas Gas Fund I
facility were repaid using proceeds from the Facility,
resulting in an extraordinary charge of $431,762 or $.04 per
common share, in 1995.
Effective June 9, 1994, the full principal amount and
accrued interest on the 8.5% subordinated notes payable,
which were issued in connection with the acquisition of
certain oil and gas assets from TriSearch, Inc. in April
1992, were converted into 125,054 shares of Common Stock.
In connection with the acquisition of the GAU working
interest in December 1993, the Company borrowed $230,000
from three directors in the form of 10% subordinated notes.
During 1994, $181,250 principal amount of the subordinated
notes were converted into 290,000 shares of Common Stock and
the remaining $48,750 principal amount was retired for cash.
The carrying value of the Company's note payable and long-
term debt approximates their fair values.
F-16
<PAGE>
National Energy Group, Inc.
Notes to Financial Statements (continued)
4. Lease
The Company leases office space under an operating lease.
Rental expense charged to operations was approximately
$100,493 and $80,132 during the years ended December 31,
1995 and 1994, respectively. Minimum lease payments under
future operating lease commitments at December 31, 1995, are
as follows:
1996 $147,792
1997 156,551
1998 53,491
--------
$357,834
========
5. Stockholders' Equity
Capital Stock
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 ("Class B"), par value $.01 per share; and 1,000,000
shares of convertible preferred stock par value $1.00 per
share. The 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 Class B. No shares of
Class B were outstanding at December 31, 1995.
Preferred Stock
On June 3, 1994, the Company consummated the sale of
$5,000,000 of the Company's 10% Cumulative Convertible
Preferred Stock, Series B ("Series B"). Fifty thousand
shares of Series B were sold by the Company at $100.00 per
share. The Series B is convertible into shares of Common
Stock at a conversion price of $1.625 per share. The Series
B has a liquidation and dividend preference over the Common
Stock. The Series B has a 10% dividend, payable semi-
annually. The Company has the option to make six dividend
payments in shares of Series B; after the sixth such
payment, the holders of 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 Series B have
the right to appoint one-third of the members of the
Company's Board of Directors. The Series B would be
redeemable by the Company, until June 3, 1997, 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 Series B unless and
until all outstanding shares of the Series C have been
redeemed by
F-17
<PAGE>
National Energy Group, Inc.
Notes to Financial Statements (continued)
5. Stockholders' Equity (continued)
the Company. As a result, no shares of Series B can be
redeemed before June 14, 1997. The holders of Series B
currently have the right to appoint one member to the
Company's Board of Directors. The Series B requires that
dividends be paid on the Series B 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.
In June 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"). Forty thousand shares of
Series C were sold by the Company at $100.00 per share. The
Series C is convertible into shares of Common Stock at a
conversion price of $2.00 per share.
The Series C has a liquidation and dividend preference over
the Common Stock, and 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
six dividend payments in shares of Series C; after the sixth
such payment, the holders of 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
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
redeemable by the Company between June 14, 1997 and June 14,
1998, at $110.00 per share and, thereafter, at $100.00 per
share, plus accrued and unpaid dividends. No shares of
Series B may be redeemed until all the shares of Series C
have been redeemed. The holders of the Series C currently
have the right to appoint one member to the Company's Board
of Directors.
F-18
<PAGE>
National Energy Group, Inc.
Notes to Financial Statements (continued)
5. Stockholders' Equity (continued)
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 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.
Common Stock
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 Common Stock do not have
cumulative voting rights, which means that the holders of
more than 50% of the shares of the Common Stock voting for
the election of the directors can elect all of the directors
to be elected by holders of the Common Stock, in which event
the holders of the remaining shares of Common Stock will not
be able to elect any director. Upon any liquidation,
dissolution, or winding-up of the affairs of the Company,
holders of the 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 any Preferred Stock that may be
issued and outstanding at the time. Holders of the Common
Stock have no subscription, redemption, sinking fund, or
preemptive rights.
The Class B was entitled to special conversion rights. In
June 1995, as a result of the Company's proven crude oil and
natural gas reserves reaching a value in excess of
$25,000,000, the 129,644 shares of Class B common stock
which were outstanding at December 31, 1994, were converted
into 1,296,440 shares of Common Stock, in accordance with
the terms of the Class B. Under the terms of the Class B,
such shares cannot be reissued.
In connection with the repayment of borrowings under the
Texas Gas Fund I credit facility, the Company issued 100,000
shares of Common Stock to reduce a net profits interest in
the GAU held by Texas Gas Fund I.
F-19
<PAGE>
National Energy Group, Inc.
Notes to Financial Statements (continued)
5. Stockholders' Equity (continued)
Common Stock issuable under asset acquisition agreement at
December 31, 1994, represents additional consideration
related to asset acquisition agreements. In January 1995,
300,000 shares of Common Stock were issued in satisfaction
of this obligation.
Warrants
In June 1994, in connection with the sale of the Series B
Preferred Stock, the Company issued warrants to purchase
307,692 shares of Common Stock at a price of $1.625 per
share. During 1995, 255,492 of these warrants were
exercised. These warrants expire June 3, 1997.
In 1995, the Company granted warrants to purchase 300,000
shares of Common Stock at a price of $1.625 per share,
pursuant to a consulting agreement. The first 100,000
warrants were exercisable immediately and expire July 31,
1997, the next 100,000 became exercisable on July 31, 1995
and expire July 31, 1998, and the remaining 100,000 become
exercisable on July 31, 1996 and expire July 31, 1999. The
estimated fair value of the warrants was deferred at the
date of grant and is being charged to general and
administrative expenses over the vesting period.
In June 1995, in connection with the acquisition of Oak Hill
(Note 2), the Company issued warrants to purchase 200,000
shares of Common Stock at a price of $2.00 per share. These
warrants will become exercisable on June 28, 1996 and expire
June 30, 1998.
The following table summarizes warrants outstanding at
December 31, 1995:
Number of Shares Expiration Warrants Exercise
Under Warrant Date Exercisable Price
---------------- ------------- ----------- --------
52,200 June 3, 1997 52,200 $1.625
100,000 July 31, 1997 100,000 $1.625
100,000 July 31, 1998 100,000 $1.625
100,000 July 31, 1999 - $1.625
200,000 June 30, 1998 - $2.00
---------------- ------------- ----------- --------
552,200 252,200
================ ===========
F-20
<PAGE>
National Energy Group, Inc.
Notes to Financial Statements (continued)
5. Stockholders' Equity (continued)
Stock Options
During 1992, the Company's Board of Directors and
stockholders approved the Company's 1992 Stock Option Plan
(the "Plan"). Awards may be granted to key employees or
nonemployee directors of the Company. Awards may consist of
options to purchase shares of Common Stock or stock
appreciation rights ("SARs") or a combination thereof. The
aggregate number of shares that the Company may issue under
the Plan will not, at the time of the grant, exceed an
amount equal to 10% of the number of then-outstanding shares
of Common Stock. Furthermore, no more than 30% of the shares
of Common Stock for which awards may be granted under the
Plan may be granted to the Company's directors, and no one
director may be granted awards covering more than 75,000
shares of Common Stock. No more than 50% of the shares of
Common Stock for which awards may be granted under the Plan
may be granted to officers of the Company who are not
directors, and no one officer who is not a director may be
granted awards covering more than 125,000 shares. The
exercise price of an option or SAR may not be less than the
fair market value of Common Stock on the date of grant. All
options granted under the Plan expire no later than the
tenth anniversary of the date of grant. At December 31,
1995, 15,000 options had been granted pursuant to the Plan.
At present, the Company does not plan to issue further
options under the Plan.
In addition, during 1995 and 1994, the Company's Board of
Directors issued options to purchase 765,000 and 40,000
shares of Common Stock, respectively, to certain officers
and directors. These options were issued outside of the
Plan.
Option transactions are summarized below:
Number of Option
Shares Price Range
--------- ---------------
Outstanding (297,500 options
exercisable) at December 31, 1993 297,500 $ .50 - $1.06
Granted 40,000 $1.625
Canceled (35,000) $ .625 - $1.06
Exercised (62,500) $ .50 - $ .625
--------- ---------------
Outstanding (200,000 options
exercisable) at December 31, 1994 240,000 $ .625 - $1.625
Granted 765,000 $1.625 - $2.875
Exercised (72,500) $ .625 - $1.625
--------- ---------------
Outstanding (347,500 options
exercisable) at December 31, 1995 932,500 $ .625 - $2.875
========= ===============
F-21
<PAGE>
National Energy Group, Inc.
Notes to Financial Statements (continued)
6. Income Taxes
The reconciliation of income taxes computed at the U.S.
federal statutory tax rates to the benefit for income taxes
on the income (loss) before extraordinary item is as
follows:
Year ended
December 31
1995 1994
--------- ---------
Income tax (benefit) at statutory rate $ 69,970 $(166,385)
Utilization of net operating loss
carryforward (69,970) -
Benefit of net operating loss not
recognized - 166,385
--------- ---------
$ - $ -
========= =========
The computation of the net deferred tax (liability) follows:
December 31
1995 1994
--------- ---------
Deferred tax liabilities:
Property and equipment $(198,790) $(357,330)
Other (8,378) (14,677)
Deferred tax assets:
Net operating loss carryforward 823,319 915,268
Other - 6,499
--------- ---------
616,151 549,760
Less valuation allowance (616,151) (549,760)
--------- ---------
$ - $ -
========= =========
At December 31, 1995, the Company had net operating loss
carryforwards available for federal income tax purposes of
approximately $2,333,000, which expire beginning in the year
2003. As a result of an asset acquisition in April 1992,
utilization of $1,356,000 of the net operating loss
carryforward for income tax purposes is restricted to
approximately $160,000 per year because of a change in
ownership, as defined by the Tax Reform Act of 1986.
F-22
<PAGE>
National Energy Group, Inc.
Notes to Financial Statements (continued)
7. Gas Hedging Activities and Commitments
While the use of hedging arrangements limits the downside
risk of adverse price movements, it may also limit future
gains from favorable movements. All hedging is accomplished
pursuant to swap agreements based upon standard forms. The
Company addresses market risk by selecting instruments whose
value fluctuations correlate strongly with the underlying
commodity being hedged. Credit risk related to hedging
activities is managed by requiring minimum credit standards
for counterparties, periodic settlements, and mark to market
valuations. The Company has not been required to provide
collateral relating to its hedging activities.
In December 1995, the Company had entered into various swap
agreements to fix the selling prices for natural gas at a
weighted average NYMEX price of $2.805 per Mcf for 225,000
Mcf of natural gas to be produced during 1996. The Company
closed the positions prior to December 31, 1995, resulting
in a deferred gain of approximately $70,875 which will be
recognized in 1996.
Subsequent to December 31, 1995 and as of March 25, 1996,
the Company has entered into additional swap agreements to
fix selling prices for natural gas at a weighted average
NYMEX price of $2.19 per Mcf for 1,300,000 Mcf of natural
gas to be produced during 1996. In addition, the Company
entered into a basis swap agreement with a basis
differential of $.205 covering 800,000 Mcf of natural gas to
be produced during 1996.
8. Crude Oil and Natural Gas Producing Activities
Capitalized costs relating to crude oil and natural gas
producing activities and related accumulated depreciation,
depletion, and amortization are summarized as follows:
December 31
1995 1994
----------- -----------
Proved crude oil and natural gas
properties $37,493,394 $15,284,453
Unproved crude oil and natural gas
properties 707,913 -
Accumulated depreciation, depletion,
and amortization (5,366,293) (2,320,378)
----------- -----------
$32,835,014 $12,964,075
=========== ===========
The unproven properties are excluded from the amortization
base and consist primarily of acreage, acquisition costs,
and related geological and geophysical costs. These costs
are expected to be evaluated during the Company's 1996
drilling program.
F-23
<PAGE>
National Energy Group, Inc.
Notes to Financial Statements (continued)
8. Crude Oil and Natural Gas Producing Activities (continued)
Costs incurred in crude oil and natural gas producing
activities for the years ended December 31, 1995 and 1994,
are as follows:
Year ended December 31
1995 1994
----------- ----------
Acquisitions of properties:
Proved $13,657,383 $1,153,548
Unproved $ 707,913 $ 134,512
Exploration costs $ 73,034 $ 130,182
Development costs $ 8,595,363 $2,006,183
Amortization rate per equivalent
barrel $5.97 $4.20
Depletion, depreciation and amortization increased $351,964
for the fourth quarter of 1995 due to downward revisions in
estimated proved reserves at December 31, 1995.
Revenues from individual customers exceed 10% of total crude
oil and natural gas sales are as follows:
Year ended December 31
1995 1994
----------- ----------
Plains Marketing and Transportation $ 4,618,136 $1,614,711
Energy Source, Inc. $ 870,285 -
GPM Natural Gas Corporation - $ 553,613
The Company believes that the loss of these customers would
not have a significant impact on the Company's results of
operations or financial condition.
9. Supplementary Crude Oil and Natural Gas Reserve
Information (Unaudited)
The Company has interests in crude oil and natural gas
properties that are principally located in Texas, Oklahoma,
New Mexico, Wyoming and offshore Texas. The Company does not
own or lease any crude oil and natural gas properties
outside the United States.
The Company retains independent engineering firms to provide
annual year-end estimates of the Company's future net
recoverable crude oil, natural gas, and natural gas liquids
reserves. Estimated proved net recoverable reserves as shown
below include only those quantities that can be expected to
be commercially recoverable at prices and costs in
F-24
<PAGE>
National Energy Group, Inc.
Notes to Financial Statements (continued)
9. Supplementary Crude Oil and Natural Gas Reserve
Information (Unaudited) (continued)
effect at the balance sheet dates under existing regulatory
practices and with conventional equipment and operating
methods. Proved developed reserves represent only those
reserves expected to be recovered through existing wells.
Proved undeveloped reserves include those reserves expected
to be recovered from new wells on undrilled acreage or from
existing wells on which a relatively major expenditure is
required for recompletion.
Net quantities of proved developed and undeveloped reserves
of natural gas and crude oil, including condensate and
natural gas liquids, are summarized as follows:
Natural
Crude Gas
Oil (Thousand
(Barrels) Cubic Feet)
--------- ----------
December 31, 1993 3,721,084 11,047,393
Purchase of reserves in place 1,035,137 1,858,271
Extensions and discoveries 906,526 1,996,771
Revisions of previous estimates (387,840) (879,838)
Production (115,642) (620,843)
Sales of reserves in place (3,524) (21,280)
--------- ----------
December 31, 1994 5,155,741 13,380,474
Purchase of reserves in place 190,063 25,785,458
Revisions of previous estimates (1,141,288) (6,453,623)
Production (283,440) (1,752,990)
Sales of reserves in place - (90,207)
--------- ----------
December 31, 1995 3,921,076 30,869,112
========= ==========
Proved developed reserves:
December 31, 1993 1,641,800 8,781,785
December 31, 1994 1,532,470 9,205,784
December 31, 1995 1,632,404 13,304,031
The Company's principal properties are the GAU and Oak Hill,
both of which are located onshore in Texas, and Mustang
Island located in offshore Nueces County, Texas.
F-25
<PAGE>
National Energy Group, Inc.
Notes to Financial Statements (continued)
9. Supplementary Crude Oil and Natural Gas Reserve
Information (Unaudited) (continued)
As of December 31, 1995 and 1994, the Company's net interest
in the proved reserves of the GAU was approximately
4,167,000 BOE and 5,422,000 BOE, respectively. As of
December 31, 1995, the Company's net interests in the proved
reserves of Oak Hill and Mustang Island were 3,342,632 BOE
and 721,313 BOE, respectively.
The following is a summary of a standardized measure of
discounted net cash flows related to the Company's proved
crude oil and natural gas reserves. For these calculations,
estimated future cash flows from estimated future production
of proved reserves were computed using crude oil and natural
gas prices as of the end of each period presented. Future
development and production costs attributable to the proved
reserves were estimated assuming that existing conditions
would continue over the economic lives of the individual
leases and costs were not escalated for the future.
Estimated future income tax expenses were calculated by
applying future statutory tax rates (based on the current
tax law adjusted for permanent differences and tax credits)
to the estimated future pretax net cash flows related to
proved crude oil and natural gas reserves, less the tax
basis of the properties involved.
The Company cautions against using this data to determine
the fair value of its crude oil and natural gas properties.
To obtain the best estimate of fair value of the crude oil
and natural gas properties, forecasts of future economic
conditions, varying discount rates, and consideration of
other than proved reserves would have to be incorporated
into the calculation. In addition, there are significant
uncertainties inherent in estimating quantities of proved
reserves and in projecting rates of production that impair
the usefulness of the data.
The standardized measure of discounted future net cash flows
relating to proved crude oil and natural gas reserves are
summarized as follows:
December 31
1995 1994
------------ ------------
Future cash inflows $132,218,400 $107,208,656
Future production and development (71,109,500) (55,049,902)
Future income tax expenses (7,123,405) (12,687,965)
------------ ------------
Future net cash flows 53,985,495 39,470,789
10% annual discount for estimated
timing of cash flows (21,858,394) (18,631,286)
------------ ------------
Standardized measure of discounted
future net cash flows $32,127,101 $ 20,839,503
============ ============
F-26
<PAGE>
National Energy Group, Inc.
Notes to Financial Statements (continued)
9. Supplementary Crude Oil and Natural Gas Reserve
Information (Unaudited) (continued)
The following are the principal sources of change in the
standardized measure of discounted future net cash flows:
Year ended December 31
1995 1994
----------- -----------
Sales and transfers of crude oil and
natural gas produced, net of
production costs (5,710,325) (1,775,145)
Net changes in prices and production
costs 14,654,096 14,785,630
Changes in estimated future
development costs (3,291,037) 1,738,982
Development costs incurred during the
period and changes in estimated
future development costs (11,886,400) (119,443)
----------- -----------
Purchases of reserves in place 15,455,400 3,414,926
Sales of reserves in place (97,210) (30,585)
Extensions and discoveries, less
related costs - 4,605,206
Revisions of previous quantity
estimates (8,871,208) (1,985,978)
Accretion of discount 2,744,504 1,439,950
Net change in income taxes 5,564,560 (6,952,217)
Changes in production rates (timing)
and other (565,819) (4,221,647)
----------- -----------
Net change $11,287,598 $9,160,697
=========== ===========
During recent years, there have been significant
fluctuations in the prices paid for crude oil in the world
markets. This situation has had a destabilizing effect on
crude oil posted prices in the United States, including the
posted prices paid by purchasers of the Company's crude oil.
The net weighted average prices of crude oil and natural gas
at December 31, 1995 and 1994 used in the above table were
$18.71 and $16.59 per barrel of crude oil, respectively, and
$1.91 and $1.62 per thousand cubic feet of natural gas,
respectively.
10. Legal Proceedings and Claims
On August 31, 1995, R.E. Steakley and N.M. Steakley filed a
lawsuit in the District Court of Harris County, Texas,
against Amoco Production Company, Phillips Petroleum
Company, the Company and others. The lawsuit alleges certain
environmental claims and related tortuous and contractual
claims. The plaintiffs seek unspecified damages which
include remediation and various tortuous and contractual
damages.
F-27
<PAGE>
National Energy Group, Inc.
Notes to Financial Statements (continued)
10. Legal Proceedings (continued)
The Company believes that it is operating in compliance with
applicable environmental laws and regulations and believes,
based on the advice of counsel, that the ultimate resolution
of the lawsuit will not have a material effect on the
Company's financial condition or results of operations.
11. Proposed Merger
On December 29, 1995, the Company and Alexander Energy
Corporation ("Alexander") signed a letter of intent
providing for the merger of Alexander and the Company. The
letter of intent was subject to, among other conditions, the
execution of a definitive merger agreement by February 15,
1996. On February 15, 1996, the Company and Alexander
extended the time to sign a definitive merger agreement to
April 10, 1996. On March 25, 1996, the Company and
Alexander modified the terms of the letter of intent to
reduce the original exchange ratio from 1.8 to 1.7 shares of
the Company's Common Stock for each share of Alexander
common stock. The proposed merger between the Company and
Alexander is subject to the execution of a definitive
purchase agreement, satisfactory due diligence and other
material conditions. Therefore, the merger may or may not
be consummated.
F-28
<PAGE>
