As filed with the Securities and Exchange Commission on March 6, 1996
Registration No. 33-
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-3
Registration Statement
Under
The Securities Act of 1933
NATIONAL ENERGY GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 58-1922764
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
-------------------
4925 Greenville Avenue, Suite 1400, Dallas, Texas 75206
(214) 692-9211
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
Miles D. Bender
President and
Chief Executive Officer
National Energy Group, Inc.
4925 Greenville Avenue, Suite 1400
Dallas, Texas 75206
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
- --------------------------------------------------------------------------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: /X/
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
Proposed Proposed
Title of each maximum maximum
class of offering aggregate Amount of
securities to Amount to be price per offering registration
be registered registered share price fee
Class A Common 3,613,533 $2.75 (1) $9,937,216 (1) $3,427 (1)
Stock shares
- -------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee and
based on the high and low sales prices, as reported by the National Association
of Securities Dealers, Inc. on March 4, 1996.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
<PAGE>
Subject to Completion, dated March 6, 1996
Prospectus National Energy Group, Inc.
3,613,533 Shares of Class A Common Stock
Of the 3,613,533 shares (the "Shares") of Class A Common Stock, $.01 par
value ("Common Stock") of National Energy Group, Inc., a Delaware corporation
(the "Company") offered hereby, 2,688,533 shares are being offered by certain
Selling Stockholders (as defined herein) of the Company, and 925,000 shares are
to be offered for resale upon the exercise of options (the "Options") held by
certain officers, directors and employees of the Company (the "Option
Holders"). See "Selling Stockholders". The Shares will be sold by the Selling
Stockholders and, upon exercise of the Options, by the Option Holders, from
time to time at the then prevailing market prices or otherwise.
Since September 1, 1995, the Company's Common Stock has been trading on
the NASDAQ National Market System. The Common Stock previously traded on the
NASDAQ Small Cap Market. The Company's symbol is "NEGX". On March 4, 1996, the
closing last sales price for the Company's Common Stock was $2.63.
The Company will receive no portion of the proceeds of the sale of the
Shares offered hereby and will bear the expenses incident to their
registration.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- -------------------------------------------------------------------------------
Price to Proceeds
Public (1) to Selling
Stockholders(1)(2)
- -------------------------------------------------------------------------------
Per Share of Class A $ 2.75 $2.75
Maximum Offering $ 9,937,216 $9,937,216
- -------------------------------------------------------------------------------
(1) Assumes that the shares of Class A are sold at $2.75 (the average of the
high and low sales prices as of March 4, 1996) and that all shares offered
hereby are sold.
(2) Before deducting expenses of the offering, estimated at $10,701 which are
payable by the Company.
- -------------------------------------------------------------------------------
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES VARIOUS RISKS. SEE
"RISK FACTORS" ON PAGES 9-14.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY SHARES IN ANY JURISDICTION TO ANY PERSON TO
WHOM SUCH OFFER OR SOLICITATION IS UNLAWFUL.
The date of this Prospectus is March 6, 1996.
<PAGE>
AVAILABLE INFORMATION
The Registrant is a reporting company and therefore files reports and
other information with the Securities and Exchange Commission (the
"Commission"). Reports and other information filed by the Registrant may be
inspected and copied at the public reference facilities of the Commission in
Washington, D.C. and copies of such material can be obtained from the Public
Reference Section of the Commission, Washington, D.C. 20549 at prescribed
rates.
The Company has filed with the Commission a Registration Statement on Form
S-3 (herein, together will all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the securities offered hereby. As permitted
by the rules and regulations of the Commission, this Prospectus omits certain
information, exhibits and undertakings contained in the Registration Statement.
For further information with respect to the Company and the securities offered
hereby, reference is made to the Registration Statement, including the exhibits
thereto and the documents incorporated by reference therein. Statements
contained in this Prospectus as to the contents of any contract or other
document are not necessarily complete, and in each instance reference is made
to the copy of such contract or document filed or incorporated by reference as
an exhibit to the Registration Statement, each such statement being qualified
in all respects by such reference.
INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE
Incorporated by reference in this Prospectus as of the date of filing, and
subject in each case to information contained in this Prospectus, are the
following documents filed by the Company with the Commission pursuant to the
Securities Exchange Act of 1934 (the "Exchange Act"):
(i) Annual Report on Form 10-KSB for the fiscal year ended December
31, 1994;
(ii) Quarterly Report on Form 10-QSB for the quarter ended March 31,
1995;
(iii) Quarterly Report on Form 10-QSB for the quarter ended June 30,
1995;
(iv) Quarterly Report on Form 10-QSB for the quarter ended September
30, 1995;
(v) Current Report on Form 8-K dated June 30, 1995, and Amendment
No. 1 thereto on Form 8-K/A dated June 30, 1995; and
(vi) Proxy Statement, dated April 26, 1995, for the Company's 1995
Annual Meeting.
In addition, all documents subsequently filed by the Company pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Prospectus and prior to the termination of the offering of Common Stock made
hereby shall be deemed to be incorporated by reference into this Prospectus and
to be a part hereof from the date of filing of such documents. Any statement
contained herein or in a document incorporated or deemed to be incorporated by
reference herein
2
<PAGE>
shall be deemed to be modified or superseded for the purposes of this
Prospectus to the extent that a statement contained herein or in any
subsequently filed document which is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom a copy of
this Prospectus is delivered, upon oral or written request of such person, a
copy of any and all of the documents incorporated by reference herein (other
than exhibits and schedules to such documents, unless such exhibits or
schedules are specifically incorporated by reference into such documents). Such
requests should be directed to Joyce Fielder, Assistant Secretary, National
Energy Group, Inc., 4925 Greenville Avenue, Suite 1400, Dallas, Texas 75206 or
by telephone at (214) 692-9211.
----------------------------
As used in this Prospectus, the term "mcf" shall mean thousand cubic feet,
and the term "boe" shall mean barrels of oil equivalent (converting six mcf of
natural gas to one barrel of oil). The term "Standardized Measure" shall mean
the estimated future net cash flows from proved oil and gas reserves computed
using prices and costs, at the dates indicated, after income taxes and
discounted at 10%. The term "PV 10%" shall mean the discounted future net cash
flows for proved oil and gas reserves computed on the same basis as the
Standardized Measure, but without deducting income taxes, which is not in
accordance with generally accepted accounting principles. PV 10% is an
important financial measure for evaluating the relative significance of oil and
gas properties and acquisitions, but should not be construed as an alternative
to the Standardized Measure (as determined in accordance with generally
accepted accounting principles).
3
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the detailed
information and financial statements incorporated by reference in the
Registration Statement of which this Prospectus is a part.
The Company
National Energy Group, Inc. (the "Company") was incorporated under the
laws of the state of Delaware on November 20, 1990. Effective June 11, 1991,
Big Piney Oil and Gas Company ("Big Piney") and VP Oil, Inc. ("VP") merged with
and into the Company.
The Company is engaged in oil and gas exploration, production and
development. At December 31, 1995, the Company's net proved developed and
undeveloped reserves consisted of 3,921,076 barrels of oil and 30,869,112 mcf
of gas; of such amounts, 1,632,404 barrels of oil and 29,919,516 mcf are
proved developed reserves. At December 31, 1995, the Standardized Measure of
the Company's oil and gas reserves was $31,751,125. The PV 10% of the Company's
oil and gas reserves at such date was $36,278,600. At March 4, 1996, the
Company owned, managed or had interests in 200 producing wells. The Company is
actively pursuing various strategies for increasing the Company's oil and gas
reserves and production. The various strategies for increasing reserves and
production include the development of the Goldsmith Adobe Unit in Ector County,
Texas ("GAU"), the acquisition of producing oil and gas properties and
companies with oil and gas production, the enhancement and exploitation of the
Company's other existing properties and limited exploratory drilling.
The Company's executive offices are located at 4925 Greenville Avenue,
Suite 1400, Dallas, Texas 75206, and the Company's phone number is (214)
692-9211.
Recent Developments
On December 29, 1995, the Company and Alexander Energy Corporation
("Alexander") signed a Letter of Intent providing for a 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.
The merger between the Company and Alexander is therefore subject to the
execution of a definitive merger agreement, satisfactory due diligence and
other material conditions. Therefore, the merger may or may not be consummated.
In February 1996, the Company completed the acquisition of two oil and gas
wells on one lease, and interests in five other leases, and a related
production platform and equipment in the Mustang Island Field in offshore
Nueces County, Texas (see also below) from UMC Petroleum Corporation (the "UMC
Acquisition"). The acquired interests have proved reserves with a present
4
<PAGE>
value discounted at 10% (PV10) of approximately $1,600,000. The Company will
operate the properties. The Company based the consideration given for the UMC
Acquisition on the value of acquired reserves, cash flow from the acquired
interests and development opportunities in the Mustang Island Field. The
Company paid UMC Petroleum Corporation $1,500,000 cash. The acquisition was
funded primarily through the Facility (as defined below).
In January 1996, the Company completed the acquisition of oil and gas
properties in the Mustang Island Field in offshore Nueces County, Texas (see
also below) from C/A Limited, Chartex Petroleum Company and Petrotex
Engineering Company (the "CA Acquisition"). The acquisition includes interests
in five wells, and a pipeline and separation facility related to the Mustang
Island Field. The interest have proved reserves with a present value discounted
at 10% (PV10) of approximately $1,400,000 . The Company will operate the
properties. The Company based the consideration given for the CA Acquisition on
the value of acquired reserves, cash flow from the acquired interests and
development opportunities in the Mustang Island Field. The Company paid the
Sellers an aggregate of 140,857 shares of the Company's Common Stock and
$675,000 cash. The cash portion of the acquisition was funded out of the
Company's working capital and advances under the Facility.
In June 1995, the Company completed the acquisition of producing gas
properties in the Oak Hill Field in Rusk County, Texas ("Oak Hill") from Sierra
1994 I Limited Partnership ("Sierra"). The acquisition follows the purchase of
a producing oil and gas property in the Mustang Island Field in offshore
Nueces County, Texas ("Mustang") from Sierra Mineral Development, L.C. and LLOG
Production Company (the Company assumed Sierra Mineral Development, L.C.'s
contractual rights and obligations with LLOG).
Collectively, the Oak Hill and Mustang interests (not including the UMC
and CA Acquisitions) have proved reserves with a present value discounted at
10% (PV 10) of approximately $14,500,000 and such properties are estimated to
contain nearly 25 billion cubic feet of gas equivalent. Collectively, the Oak
Hill and Mustang interests are currently producing at an aggregate rate of
approximately 8 million cubic feet of gas and 81 barrels of oil per day. The
Company will operate both properties.
The Company based the consideration given for the Oak Hill acquisition on
the value of the acquired reserves, cash flow from the acquired working
interest and development opportunities in the Oak Hill Field. The consideration
paid by the Company to Sierra for the Oak Hill acquisition consisted of
$7,200,000 in cash, 612,311 shares of the Company's Common Stock and Warrants
to purchase 200,000 shares of Common Stock at a price per share of $2.00. The
cash portion of the acquisition was funded primarily by the Company's new
reducing, revolving credit facility with Bank One, Texas, N.A. ("Bank One")
(see below). The consideration given for the acquisition of the Mustang
interests consisted of $900,000 in cash and 352,500 shares of the Company's
Common Stock. The Company based the consideration given for the Mustang
acquisition on the value of the acquired reserves, cash flow from the acquired
interests and development opportunities in the Mustang Island Field. The
Company funded the Mustang acquisition with available cash.
In addition, in June 1995, the Company completed the acquisition of
producing oil and gas properties in Eddy County, New Mexico from Enron Oil and
Gas Company ("Enron"), pursuant to
5
<PAGE>
a Purchase and Sale Agreement dated as of March 29, 1995 between the Company
and Enron. The acquisition consists of six gas wells and two oil wells, which
contain approximately 4 billion cubic feet of gas equivalent. The Company will
be the operator of a majority of the properties. The consideration given for
the acquisition was $2,119,295 in cash. The Company based the consideration
given for the acquisition on the value of acquired reserves and cash flow from
the acquired properties. This acquisition was funded by the Company's Facility
with Bank One and available cash.
In June 1995, the Company consummated a $33,000,000 reducing revolving
line of credit facility (the "Facility") with Bank One, Texas, N.A. ("Bank
One"). The initial funding was $15,500,000, of which $12,500,000 was drawn
upon. The initial advance was used to purchase the Oak Hill and Enron
properties described above, to pay off the Company's credit facility with Texas
Gas Fund I and for closing fees. In the future, the Facility will be used for
the further development of the Goldsmith Adobe Unit (GAU) in Ector County,
Texas and for acquisitions and limited exploration. On March 4, 1996, the
Company had $18,800,000 of outstanding debt pursuant to the Facility.
The Facility consists of two parts: a Revolving Note of up to $30,000,000,
with an interest rate of prime plus 1% (subject to reduction in certain
circumstances) or LIBOR plus 3.75% (subject to reduction in certain
circumstances), and an Advance Note of up to $3,000,000 (primarily for the
development of GAU) at a rate of prime plus 4%. Payments of interest and
principal will be made monthly. The Facility is secured by all of the Company's
principal oil and gas properties, related equipment, oil and gas inventory and
related revenues. Prepayments are allowed at any time.
The Revolving Note has a maturity date of June 30, 1999 and the Advance
Note has a maturity date of June 30, 1996. Payment of the Advance Note is
subordinated to payment of the Revolving Note. Beginning July 31, 1995, the
Company is required to make monthly payments of $175,000 (which amount can be
redetermined semi-annually by Bank One). The Facility contains restrictive and
affirmative covenants and maintenance of required financial ratios.
In addition, on June 15, 1995, the Company consummated the sale of
$4,000,000 of the Company's 10 1/2% Cumulative Convertible Preferred Stock,
Series C ("Series C"), which was privately placed with affiliates of Kayne,
Anderson Investment Management, Inc. of Los Angeles, California. Forty thousand
shares of Series C were sold by the Company at $100.00 per share, and the
Series C is convertible into shares of the Company's Common Stock at a
conversion price of $2.00 per share of Common Stock.
The Series C has a liquidation and dividend preference over the Common
Stock, and is parity stock to the previously issued 10% Cumulative Convertible
Preferred Stock, Series B ("Series B"). The Series C has a 10 1/2% dividend,
payable semi-annually. The Company has the option to make dividend payments in
Series C; after the sixth such payment, the holders of the Series C have the
option to receive additional dividends in Series C or to accrue such dividends
in cash. If the Company makes four dividend payments in Series C, the holders
of the Series C (voting as a class with other affected series of preferred
stock with similar voting rights) have the right to appoint one-third of the
members of the Company's Board of Directors; provided, however, that if the
holders of Series B are presently entitled to a similar right, then the holders
of Series C shall have no such right
6
<PAGE>
until the right of the holders of Series B terminates. The Series C is not
redeemable by the Company for two years; between two years and three years
from June 14, 1995, the Series C is redeemable at $110.00 per share and,
thereafter, at $100.00 per share, plus accrued and unpaid dividends. No shares
of Series B shall be redeemed by the Company unless and until all outstanding
shares of Series C have been redeemed by the Company. The holders of the Series
C have the right to appoint one member to the Company's Board of Directors
while the Series C is outstanding.
The holders of Series C are entitled to one vote for each share as to
matters upon which by law they are entitled to vote as a class, and the
approval of a majority of the holders of Series C, voting separately as a
class, is required to make changes to the Company's Certificate of
Incorporation or By-Laws which adversely affect the Series C, to authorize or
issue additional shares of Series C or to issue preferred stock equal to or
senior to the Series C as to dividends or liquidation, or, subject to certain
exceptions, to effect an extraordinary transaction that requires a vote of the
Company stockholders. As a result, a class vote of the holders of Series C, as
well as the Series B, would be required for the Company to merge or be acquired
and may therefore delay, defer, or prevent a change in control of the Company.
Proceeds from the offering of Series C were used to develop the Company's
GAU property in Ector County, Texas, to acquire certain producing properties,
and to recomplete, enhance and exploit certain of the Company's other selected
properties. The proceeds were used for the acquisition of producing properties
or companies, or the securities of such companies, and for limited exploration
drilling.
7
<PAGE>
The Offering
A total of 3,613,533 shares of Common Stock are offered by this
Prospectus, with 2,688,533 shares being offered by certain Selling Stockholders
of the Company, and 925,000 shares to be offered for resale upon the exercise
of the Options by the Option Holders. See "Selling Stockholders". The Shares
will be sold from time to time by the Selling Stockholders, and upon the
exercise of the Options by the Option Holders, as determined by each such
Selling Stockholder, and Option Holders, respectively, at the then current
market prices or otherwise. The Company will not receive any proceeds from the
sale of shares of Common Stock by the Selling Stockholders or the Option
Holders.
Since September 1, 1995, the Company's Common Stock has been trading on
the NASDAQ National Market System. The Common Stock previously traded on the
NASDAQ Small Cap Market. The Company's symbol is "NEGX". On March 4, 1996, the
last sales price for the Company's Common Stock was $2.63.
8
<PAGE>
RISK FACTORS
An investment in the Common Stock offered hereby involves various risks.
Investors should consider carefully all of the information set forth in
this Prospectus and the documents incorporated by reference herein and, in
particular, the following risk factors which have increased the risk associated
with, and may otherwise adversely affect the value of, the Common Stock
registered hereunder.
Nature of the Company's Business.
- --------------------------------
The Company is engaged in one industry segment: oil and natural gas
exploration, production and development. In recent years, prices for oil and
gas have been depressed. In addition, the oil and gas business is subject to
various economic and political factors and the significant dependence of the
United States and other countries on foreign oil. Therefore, oil and gas prices
appear dependent, to a significant degree, on the actions of major foreign
crude oil producers and governments and other factors beyond the Company's
control. As a result of such factors and the accompanying unstable market
conditions, future prices for oil and gas are unpredictable. Any significant
decline in the prices of oil or gas will have a material and adverse effect on
the Company's operating results.
Potential Dilution.
- ------------------
It should be noted that purchasers of Common Stock, upon becoming
stockholders of the Company, may be subject to significant dilution of their
proportionate ownership of the Company. On March 4, 1996, there were 12,056,532
shares of Common Stock out standing. The Company currently has 1,453,200 shares
of Common Stock reserved for issuance pursuant to existing options and warrants
to purchase Common Stock (which include 925,000 shares registered hereunder).
In addition, if all of the shares of the Company's Series B and Series C are
converted to Common Stock, an additional 5,230,769 shares of Common Stock will
be issued. These issuances will reduce the proportionate ownership in the
Company of purchasers of the Common Stock offered hereby. In addition, if the
Company exercises its option to make six dividend payments on the Series B and
the Series C in shares of Series B and Series C instead of cash, then the
Company will issue 25,100 additional shares of Series B and Series C,
collectively, which shares would be convertible into 1,544,615 shares of Common
Stock. Additionally, shares of Series B and Series C, which would be
convertible into additional shares of Common Stock, may be issuable as
dividends upon such 25,100 shares of Series B and Series C. Furthermore, the
holders of the Series B and Series C have the option to continue to receive
dividends on the Series B and Series C in shares of Series B and Series C,
respectively, after the sixth dividend payment in shares of Series B or Series
C, which dividends would result in the issuance of additional shares of Series
B or Series C, which in turn would be convertible into additional shares of
Common Stock.
In addition, the Company may issue up to 10% of its outstanding shares of
Common Stock pursuant to its 1992 Stock Option Plan. As of March 4, 1996, no
options to purchase shares were outstanding pursuant to the 1992 Stock Option
Plan (the "Plan"). Although the Company has no current plans to issue more
options pursuant to the Plan, the Company has issued options outside of
9
<PAGE>
the Plan. In addition, the Company intends to propose a new option plan to its
Stockholders at the 1996 Annual Meeting of Stockholders.
It should be noted that the Company's stated objective is to grow through
the acquisition of oil and gas producing properties and companies with oil and
gas production. Thus, further issuances of Common Stock and preferred stock in
connection with acquisitions can be expected, and such issuances will dilute
the proportional ownership of the Company held by Common Stock stockholders.
Issuances of authorized but unissued shares of Common Stock and preferred stock
could even change control of the Company. Furthermore, the Company will
generally not seek further authorization for the issuance of Common Stock and
preferred stock in acquisitions from the Company's stockholders prior to such
issuances.
Delay of Change in Control.
- --------------------------
An issuance of Common Stock, which could be effected without stockholder
approval, could also be used as an anti-takeover device by the Company by
making it more difficult for anyone to acquire control of the Company. Such an
issuance would permit the Company to dilute both the stock ownership of a
stockholder seeking control of the Company and the voting power of all other
stockholders. With respect to the preferred stock, the Board could use its
authority to make such designations and to issue preferred stock in a manner
that would create impediments to or otherwise discourage persons attempting to
gain control of the Company. Certain issuances of preferred stock could also
seriously dilute the proportionate ownership of the Company held by the
Company's Common Stock stockholders (in particular, subject to the NASDAQ Stock
Market Shareholder Voting Rights Rule, the Board can authorize preferred stock
with voting rights greater than one vote per share) and could even change
control of the Company.
Viability of the Company; Development and Production Risks.
- ----------------------------------------------------------
Oil and gas reserves are depleting assets by their nature, and revenues
generated by oil and gas production will decline in the absence of
acquisitions, improvements to producing properties, successful exploration or
increases in the prices of oil and gas. It is anticipated that the Company
will seek to make acquisitions of oil and gas companies or production and
continue to rework, reenter and complete wells in an effort to replace
reserves. If such efforts are unsuccessful, the Company's results of operations
and financial condition will be materially and adversely affected. Furthermore,
there can be no assurance that the Company will be successful in acquiring
properties and/or companies because successful acquisitions are subject to the
availability of satisfactory acquisition candidates and cash and credit
facilities to the Company, the relative costs of acquisitions as compared to
drilling and the market demand for oil and gas. Furthermore, the Company's
business strategy assumes that major integrated oil companies and independent
oil companies will continue to divest many of their domestic oil and natural
gas properties. There can be no assurance that such divestitures will continue
or that the Company will be able to acquire such properties with acceptable
rates of return. In addition, the Company could be under severe financial
pressures if prices for oil and gas decline substantially from present levels.
In addition, a substantial portion of the Company's oil and gas reserves
are proved undeveloped reserves. Successful development of such reserves cannot
be assured. Additional
10
<PAGE>
drilling will be necessary in future years both to maintain production levels
and to define the extent and recoverability of existing reserves. There is no
assurance that present oil and gas wells of the Company will continue to
produce at current or anticipated rates of production, that development
drilling will be successful, that production of oil and gas will commence when
expected, that there will be favorable markets for oil and gas which may be
produced in the future or that production rates achieved in early periods can
be maintained.
The Company's results of operations and cash flow will be significantly
affected by the outcome of its planned development of the GAU. For information
on the Company's GAU development plan, see "- Need for Additional Capital"
below. If the GAU development plan is not successful, the Company's results of
operations and financial condition will be materially and adversely affected.
Development of the GAU involves all of the risks inherent in oil and gas
exploration and development described above and in " -Risk of Future Oil and
Gas Exploration" below.
In addition, the Company recently acquired oil and gas properties in the
Oak Hill and Mustang Island Fields and oil and gas properties from Enron. See
"Prospectus Summary - Recent Developments". In particular, the Company's
results of operations and cash flow will be significantly affected by the
outcome of the development of the Oak Hill and Mustang properties. A portion of
the development costs for the Oak Hill and Mustang properties is expected to be
funded by existing working capital and additional advances under the Facility
with Bank One. To the extent the Company uses borrowed funds to develop the Oak
Hill and Mustang properties, the Company's interest expense will increase. The
Company's depreciation, amortization and depletion costs will increase as the
Oak Hill and Mustang properties are developed, but the Company expects such
increases to be in proportion to the Company's other such costs. Due to the
greater depth of the expected drilling in the Oak Hill field, the Company's
development costs for the Oak Hill property are expected to be somewhat higher
than the average development costs for the the Company's other properties. The
development of the Oak Hill and Mustang properties involves all of the risks
inherent in oil and gas exploration and development described above and in "-
Risk of Future Oil and Gas Exploration" below and such development may or may
not be successful. If the development of the Oak Hill and Mustang properties is
unsuccessful, development costs will exceed revenues resulting from such
development and the Company's results of operations and cash flow will be
adversely affected.
Need for Additional Capital.
- ---------------------------
The Company's ability to develop its principal property, the GAU, and to
otherwise expand its reserve base through acquisition and development, is
dependent upon the Company's ability to obtain the necessary capital. In
particular, the Company will need funding of approximately $14,129,800 over the
next four years to develop the GAU in accordance with the Company's plan.
Although the Company has entered into the Facility with Bank One, there is no
assurance that Bank One will make additional advances under the Facility or
that the Company will be able to otherwise raise sufficient capital to
implement its development plan for the GAU or any other property, or to replace
oil and gas reserves as they are produced.
Recent Operating Losses.
- -----------------------
11
<PAGE>
The Company has incurred losses from operations for the past four years
and had an accumulated deficit of $2,921,861 at September 30, 1995, which
deficit includes a deficit from the Company's predecessor companies. No
assurance can be made that the Company will operate profitably in the future.
The likelihood of future profitability of the Company must be considered in
light of the problems, expenses, difficulties, complications and delays
frequently encountered in connection with the oil and gas exploration,
development and production business in which the Company is engaged.
Risk of Future Oil and Gas Exploration.
- --------------------------------------
To the extent the Company engages, directly or indirectly, in exploratory
and other drilling activities in the future, it will be subject to certain
risks inherent in this phase of the oil and gas business. Exploration for oil
and gas is a speculative business and, therefore, involves a high degree of
risk. No proven techniques exist with which to predict whether the drilling of
a particular well will result in the discovery of oil and/or gas in commercial
quantities. There can therefore be no assurance that the drilling of any wells
will result in production in commercial quantities, or that production will be
profitable. Moreover, once a well is drilled and completed, the completion may
still fail to produce a commercial well for various geological or mechanical
reasons. Abandonment of a well may result in the loss of both drilling and
completion costs, which will then be non-recoverable. Also, there exist several
natural hazards in the drilling of oil and gas wells, such as unusual or
unexpected formation pressure, infiltration of salt water, swelling of the
formation, lost fluid circulation, or other unanticipated conditions, which
could adversely affect profitability even in the event of a successful well.
Dependence on Management.
- ------------------------
The Company is dependent on the judgment, experience and expertise of its
current Management, particularly with respect to its development activities and
the acquisition of properties and/or companies. In particular, Miles D. Bender
is under no contractual obligation to serve in his present positions, and the
Company has no "key man" life insurance policy on Mr. Bender. The loss of
members of current Management could materially and adversely affect the Company
and its business, operations and prospects.
Limitation on Accuracy of Reserve Estimates.
- -------------------------------------------
This Prospectus contains and/or incorporates by reference, estimates of
reserves and of future net revenue which have been prepared by petroleum
engineers. Estimates of reserves and of future net revenue prepared by
different petroleum engineers may vary substantially depending, in part, on the
assumptions made and may be subject to adjustment in the future. The actual
amounts of production, revenue, taxes, development expenditures, operating
expenses, and quantities of recoverable oil and gas reserves to be encountered
may vary substantially from the engineers' estimates. Oil and gas reserve
estimates are necessarily inexact and involve matters of subjective engineering
judgment. In addition, any estimates of future net revenue and the present
value thereof are based on price and cost assumptions made by the Company which
only represent its best estimate. If these estimates of quantities, prices and
costs prove inaccurate, the Company is unsuccessful in expanding its oil and
gas reserves base with its capital expenditure program, and/or declines in and
12
<PAGE>
instability of oil and gas prices occur, then write-downs in the capitalized
costs associated with the Company's oil and gas assets may be required.
Competition.
- -----------
The oil and gas industry is intensely competitive in all of its phases,
particularly with respect to the acquisition of desirable producing oil and gas
properties and oil and gas companies with production. The Company, which is a
minor competitive factor in the industry, encounters strong competition from
major oil companies, large independent oil and gas concerns, and individual
producers and operators, most of which have financial resources, staffs,
facilities and experience substantially greater than those of the Company.
Furthermore, in times of high drilling activity, exploration for and production
of oil and gas may be affected by the availability of equipment, labor and
supplies and by competition for drilling rigs. The Company cannot predict the
effect these factors will have on its operations. The Company owns no drilling
rigs, and it is anticipated that its drilling will be conducted by third
parties. Furthermore, the oil and gas industry also competes with other
industries in supplying the energy and fuel requirements of industrial,
commercial and individual consumers.
Sale of Shares.
- --------------
Sales of substantial amounts of Common Stock in the public market
following this Offering could adversely affect the market price for the Common
Stock. In particular, sales of Shares registered hereunder by the Selling
Stockholders may significantly and adversely affect the prevailing market price
for Common Stock, and if any of the Company's other principal stockholders were
to sell a significant number of their shares, the prevailing market price of
the Common Stock may also be significantly and adversely affected. For more
information on the sale of the Shares offered hereby, see "Plan of
Distribution".
Governmental Regulation and Environmental Matters.
- -------------------------------------------------
In general, the exploration and production activities of the Company are
subject to certain existing laws and regulations relating to environmental
quality and pollution control, prevention of waste, the conservation of natural
gas and oil, permits for drilling, drilling bonds, spacing of wells,
unitization and pooling, taxes and various other matters. Such laws and
regulations may substantially increase the costs of equipping and carrying on
production activities and may prevent or delay the commencement or continuance
of a given operation. Many jurisdictions have at various times imposed
limitations on the production of gas and oil by restricting the rate of flow
for gas and oil wells below their actual capacity to produce.
In addition, many states have raised state taxes on energy sources and
additional increases may occur. The existence of environmental regulations has
had no material effect on methods of development of oil and gas properties
owned by the Company to date, and the cost of such compliance has not been
material to date. The Company does not believe that its environmental risks are
materially different from those of comparable companies in the oil and gas
industry. Nevertheless, no assurance can be given that environmental laws will
not, in the future, result in curtailment of
13
<PAGE>
production or material increases in the cost of production, development or
exploration or otherwise adversely affect the Company's operations and
financial condition.
Control by Management.
- ---------------------
The executive officers and directors of the Company collectively own 22.1%
of the Company's currently outstanding Common Stock. As a result, until the
conversion of the Series B and Series C, management will in all likelihood
control the Company by virtue of their voting power and ownership of voting
stock and will in all likelihood be able to determine the outcome of elections
of the Company's directors. The Company, however, needs, subject to certain
exceptions, approval of a majority of the outstanding shares of each of the
Series B and Series C to effect extraordinary actions which require the consent
of the Company's stockholders.
In addition, one of the Company's directors, Robert V. Sinnott, is the
representative of the holders of the Series B and Series C. If all 52,500
shares of Series B and all 40,000 shares of Series C were converted into
5,230,769 shares of Common Stock (and assuming no additional shares of Common
Stock are issued), then the holders of Series B and Series C would hold 30.3%
of the then outstanding shares of Common Stock. If such holders were to vote
such shares of Common Stock in accordance with the Board of Director's
recommendations, then management of the Company would exercise control over the
Company.
14
<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of 2,688,533 shares of Common Stock
registered hereunder by the Selling Stockholders will be received by the
Selling Stockholders, and the Company will not receive any portion of such
proceeds. The net proceeds from the sale of 925,000 additional shares of
Common Stock, if and when the Options are exercised, will be received by the
Option Holders, and the Company will not receive any portion of such proceeds.
The Company will use the proceeds from the exercise, if any, of the Options
for general corporate purposes and to enhance and exploit the Company's
existing properties, at the time of such exercises. If the Options are
exercised in full, the Company will receive $1,793,125 in proceeds.
15
<PAGE>
SELLING STOCKHOLDERS
C/A Limited, a Texas limited partnership ("CA"), Chartex Petroleum
Company, a Texas Corporation ("Chartex"), Sierra Mineral Development, L.C., a
Texas limited liability company ("Sierra"), Miles D. Bender, Norman C. Miller,
George B. McCullough, Robert H. Kite, Randall A. Carter, Robert A. Imel,
George N. McDonald, William T. Jones, Melissa H. Rutledge, Leonard McCarty and
Joyce Fielder are the Selling Stockholders hereunder (the "Selling
Stockholders").
CA, Sierra and Chartex acquired the shares of Common Stock that they are
registering hereunder through the Company's acquisition of interests in the
Mustang Island Field in offshore Nueces County, Texas, and a related pipeline
and separation facility, in January 1996. CA is registering 91,703 shares;
Sierra is registering 26,300 shares; and Chartex is registering 22,854 shares.
Miles D. Bender is President, Chief Executive Officer, Treasurer, and a
Director of the Company. Norman C. Miller is Chairman of the Executive
Committee and a Director of the Company. George B. McCullough is Chairman of
the Board of Directors of the Company. Robert H. Kite is a Director of the
Company. Randall A. Carter is the Company's General Counsel and Secretary.
Robert A. Imel is the Company's Chief Financial Officer. George N. McDonald is
a Director of the Company. William T. Jones is the Company's Vice President -
Production and Engineering. Melissa H. Rutledge is the Company's Controller and
Chief Accounting Officer. Leonard McCarty is Land Manager for the Company.
Joyce Fielder is Production Analyst and Assistant Secretary for the Company.
Miles D. Bender, Norman C. Miller, George B. McCullough, Robert H. Kite,
Randall A. Carter, George N. McDonald, Robert A. Imel, William T. Jones,
Melissa H. Rutledge, Robert V. Sinnott, Elwood W. Schafer, R. Thomas Fetters,
Jr., Leonard G. McCarty, Darryl Wright and Bill Bledsoe are the Option Holders
hereunder (the "Option Holders" or, individually, the "Option Holder").
Collectively, the Option Holders are registering hereunder 925,000 shares of
Common Stock which are subject to various options. The exercise price for
various portions of the options are $.625, $1.625, and $2.625. Robert V.
Sinnott and Elwood W. Schafer are Directors of the Company and have been
appointed by the holders of the Company's Series B and Series C Preferred Stock
(See "Prospectus Summary - Recent Developments"). Mr. Sinnott is Senior Vice
President and Senior Investment Officer of Kayne, Anderson Investment
Management, Inc. ("Kayne"). The Series B and Series C are held by investment
partnerships associated with Kayne. Mr. Schafer is a consultant to Kayne.
R. Thomas Fetters, Jr. is Senior Vice President - Offshore Operations and
Exploration for the Company. Darryl Wright is Production Superintendent for the
Company. Bill Bledsoe is the Company's Senior Petroleum Engineer.
The following table sets forth, as of March 4, 1996, the name and address
of each Selling Stockholder and Option Holder, their respective current
beneficial stockholdings and option holdings, and the number of shares that are
being offered hereby by each such stockholder and option holder, and their
respective stockholdings after the offering.
16
<PAGE>
Holdings Prior to Sale Holdings After Sale(1)
% of % of
Outstanding Shares Outstanding
No. of Common to be No. of Common
Shares Stock (2) Sold (1) Shares Stock (2)
------ ----- ---- ------ -----
Miles D. Bender 1,398,144(3) 10.8% 1,398,144 0 0%
1400 One Energy Square
4925 Greenville Avenue
Dallas, Texas 75206
George B. McCullough 421,852(4) 3.3% 421,852 0 0%
6510 Pauma Drive
Houston, Texas 77069
Robert H. Kite 384,455(5) 3.0% 384,455 0 0%
5415 East Piping Rock
Scottsdale, Arizona 85254
Norman C. Miller 354,860(6) 2.7% 354,860 0 0%
19 Stillwater Trace
Griffin, Georgia 30223
Robert A. Imel 215,500(7) 1.7% 215,500 0 0%
1400 One Energy Square
4925 Greenville Avenue
Dallas, Texas 75206
Randall A. Carter 184,882(8) 1.4% 184,882 0 0%
234 Columbine, Suite 240
Denver, Colorado 80206
William T. Jones 160,000(9) 1.2% 160,000 0 0%
1400 One Energy Square
4925 Greenville Avenue
Dallas, Texas 75206
George N. McDonald 138,023(10) 1.1% 138,023 0 0%
3656 Macintosh Lane
Salt Lake City, Utah
84121
C/A Limited 91,703 (19) 91,703 0 0%
4200 Westheimer, Ste 230
Houston, Texas 77027
R. Thomas Fetters, Jr. 50,000(11) (19) 50,000 0 0%
1400 One Energy Square
4925 Greenville Avenue
Dallas, Texas 75206
Melissa H. Rutledge 40,000(12) (19) 40,000 0 0%
1400 One Energy Square
4925 Greenville Avenue
Dallas, Texas 75206
17
<PAGE>
Robert V. Sinnott 35,000(13) (19) 35,000 0 0%
c/o Kayne Anderson
Investments
1800 Avenue of Stars,
Ste. 1424
Los Angeles, California
90067
Leonard G. McCarty 31,890(14) (19) 31,890 0 0%
1400 One Energy Square
4925 Greenville Avenue
Dallas, Texas 75206
Darryl Wright 30,000(15) (19) 30,000 0 0%
1400 One Energy Square
4925 Greenville Avenue
Dallas, Texas 75206
Sierra Mineral 26,300 (19) 26,300 0 0%
Development, L.C.
1201 Louisiana, Suite 3125
Houston, Texas 77002
Chartex Petroleum Company 22,854 (19) 22,854 0 0%
12777 Jones Road
Suite 360
Houston, Texas 77070
Elwood W. Schafer 15,000(16) (19) 15,000 0 0%
7018 Blackwood Drive
Dallas, Texas 75231
Bill Bledsoe 10,000(17) (19) 10,000 0 0%
1400 One Energy Square
4925 Greenville Avenue
Dallas, Texas 75206
Joyce Fielder 3,070 (19) 3,070 0 0%
1400 One Energy Square
4925 Greenville Avenue
Dallas, Texas 75206
- -------------------------------------------------------------------------------
Total 3,613,533(18) 27.8% 3,613,533 0 0%
(1) Assumes all of the shares offered hereby are sold by the Selling
Stockholders and all options are exercised and the underlying shares are
sold by the Option Holders. See "Plan of Distribution".
(2) Based upon 12,056,532 shares of Common Stock outstanding as of March
4, 1996 and 925,000 shares subject to options, for a total of 12,981,532
shares.
(3) Includes 1,148,144 shares held by Mr. Bender and 250,000 shares subject
to options held by Mr. Bender.
(4) Includes 351,852 shares held by Mr. McCullough and 70,000 shares subject
to options held by Mr. McCullough.
18
<PAGE>
(5) Includes 153,158 shares held by Mr. Kite and 176,297 shares held by KFT,
Ltd. (of which Mr. Kite is Chief Operating Officer and 29.0% beneficial
owner) and 55,000 shares subject to options held by Mr. Kite.
(6) Includes 234,860 shares held by Mr. Miller, 50,000 shares held by Incorp,
Inc. (of which Mr. Miller is owner) and 70,000 shares subject to options
held by Mr. Miller.
(7) Includes 105,500 shares held by Mr. Imel and 110,000 shares subject to
options held by Mr. Imel.
(8) Includes 164,882 shares held by Mr. Carter and 20,000 shares subject to
options held by Mr. Carter.
(9) Includes 50,000 shares held by Mr. Jones and 110,000 shares subject to
options held by Mr. Jones.
(10) Includes 83,023 shares held by Mr. McDonald and 55,000 shares subject to
options held by Mr. McDonald.
(11) Includes 50,000 shares subject to an option held by Mr. Fetters.
(12) Includes 10,000 shares held by Ms. Rutledge and 30,000 shares subject to
options held by Ms. Rutledge.
(13) Includes 35,000 shares subject to options held by Mr. Sinnott.
(14) Includes 16,890 shares held by Mr. McCarty and 15,000 shares subject to
options held by Mr. McCarty.
(15) Includes 30,000 shares subject to options held by Mr. Wright. Does not
include 2,750 shares which Mr. Wright purchased on the open market.
(16) Includes 15,000 shares subject to an option held by Mr. Schafer; does not
include 2,000 shares held by Mr. Schafer which he purchased on the open
market.
(17) Includes 10,000 shares subject to an option held by Mr. Bledsoe.
(18) Includes 2,688,533 shares held by the Selling Stockholders and 925,000
shares subject to options held by the Option Holders.
(19) Less than 1%.
19
<PAGE>
PLAN OF DISTRIBUTION
The shares of Common Stock of the Company owned by each Selling
Stockholder, and the shares of Common Stock to be offered for resale by the
Option Holders, upon exercise of the Options, and included in this Prospectus
may be offered and sold by such Selling Stockholder or Option Holder, from time
to time, as determined by such Selling Stockholder or Option Holder, at any
time while the Registration Statement, of which this Prospectus is a part, is
effective. The Company will not receive any proceeds from the sales of such
shares of Common Stock. All expenses related to the registration of the Shares
hereunder will be borne by the Company.
Each Selling Stockholder or Option Holder may from time to time elect to
sell shares in the over-the-counter market and in other market transactions or
to sell shares directly in negotiated transactions, at prices and on terms
related to the respective then-current market prices or otherwise. Such shares
may be offered or sold with or without the participation of underwriters,
brokers or dealers. Each Selling Stockholder or Option Holder may also from
time to time offer shares to underwriters, brokers or dealers, who may receive
underwriting discounts, concessions or commissions from such Selling
Stockholder or Option Holder and/or the purchasers of shares for whom they act
as agent or to whom they sell as principal or both (which discounts,
concessions or commissions will not exceed those customary in the types of
transactions involved). Such offers or sales may be made: by a block trade in
which a broker or dealer, engaged for the purpose, will attempt to sell the
shares as agent, but may position and resell a portion of the block as
principal, to facilitate the transaction; by purchase by a broker or dealer as
principal and resale by such broker or dealer for its own account; by ordinary
brokerage transactions or transactions in which the broker solicits
purchasers; or otherwise. In effecting sales, brokers or dealers engaged by the
Selling Stockholders or Options Holders may arrange for other brokers or
dealers to participate, who in turn may receive underwriting discounts,
concessions or commissions. In addition, any shares of Common Stock held by
the Selling Stockholders or Option Holders that qualify for sale pursuant to
Rule 144 under the Securities Act of 1933 (the "Act") may be sold under Rule
144 rather that pursuant to the Registration Statement of which this
Prospectus is a part.
Each Selling Stockholder or Option Holder and any brokers or dealers who
participate in the distribution of shares of Common Stock of the Company may be
deemed to be "underwriters" as defined in the Act, and the excess of the price
received over the amount paid for such shares and any discounts, commissions or
concessions received by any such brokers or dealers may be deemed to
underwriting compensation, discounts or commissions under the Act.
At the time each Selling Stockholder or Option Holder makes a particular
offer of shares of Common Stock, such Selling Stockholder or Option Holder will
provide the Company with information, to the extent required, sufficient to
prepare a supplement to this Prospectus which will set forth the aggregate
amount of shares being offered and the terms of the offering, including the
name or names of any underwriters, brokers or dealers, any discounts,
commissions and other items constituting compensation from such Selling
Stockholder or Option Holder and any discounts, commissions or concessions
allowed or reallowed or paid to dealers.
20
<PAGE>
DESCRIPTION OF SECURITIES
The authorized capital stock of the Company consists of 50,000,000 shares
of Class A Common Stock, par value $.01 per share ("Common Stock"), 200,000
shares of Class B Common Stock, par value $.01 per share ("Class B") and
1,000,000 shares of Preferred Stock, par value $1.00 per share ("Preferred
Stock"). Shares of Common Stock only are offered by this Prospectus.
The following summary description of the Company's capital stock is not
intended to be complete and is subject to, and is qualified in its entirety by
reference to, the Company's Certificate of Incorporation, as amended, and the
Certificate of Designations of National Energy Group, Inc. of 10% Cumulative
Convertible Preferred Stock, Series B (the "Series B Certificate of
Designation") and the Certificate of Designations of National Energy Group,
Inc. of 10 1/2% Cumulative Convertible Preferred Stock, Series C ("Series C
Certificate of Designation") incorporated by reference as exhibits to the
Registration Statement of which this Prospectus forms a part.
Description of Class A Common Stock.
- -----------------------------------
At March 4, 1996, the Company had 12,056,532 shares of Common Stock
outstanding. Holders of Common Stock are entitled to one vote for each share
held of record on all matters voted on by stockholders. The shares of the
capital stock of the Company do not have cumulative voting rights, which means
that the holders of more than 50% of the shares of the capital stock voting for
the election of Directors can elect all of the Directors to be elected by
holders of the capital stock, in which event the holders of the remaining
shares of capital stock will not be able to elect any Director. Subject to the
Company's Facility with Bank One and the rights of the holders of the Series B
and Series C, holders of Common Stock would be entitled to receive dividends
when, as, and if declared by the Board of Directors out of funds of the Company
legally available for the payment of dividends. The Facility, however,
prohibits the payment of dividends or other distributions on the Common Stock
and limits the dividends on the Series B and Series C and, under the terms of
the Series B and Series C, no dividend or distribution may be paid on the
Common Stock unless all accrued and unpaid dividends on the Series B and Series
C, respectively, have been paid. Upon any liquidation, dissolution or
winding-up of the affairs of the Company, holders of Common Stock would be
entitled to receive, pro-rata all of the assets of the Company available for
distribution to stockholders after payment of any liquidation preference of the
Series B and Series C and any other preferred stock that may be issued and
outstanding at the time. Holders of Common Stock have no subscription,
redemption, sinking fund, conversion or preemptive rights.
Description of Class B Common Stock.
- -----------------------------------
At March 4, 1996, the Company had no shares of Class B outstanding. All of
the Class B has been converted into Common Stock and by the terms of Class B,
cannot be reissued. Management
21
<PAGE>
of the Company plans to recommend to the Company's stockholders, at the next
Annual Meeting of Stockholders, that the Company's Certificate of Incorporation
be amended to eliminate the Class B.
Description of Preferred Stock.
- ------------------------------
The Company's Certificate of Incorporation creates the preferred stock and
authorizes the Board of Directors of the Company to designate by resolution the
relative rights, preferences and limitations, and the number of shares, of each
series thereof. The Board of Directors has the authority to create terms for
the preferred stock so that, upon issuance, the preferred stock may seriously
dilute the holders of Common Stock and possibly even change control of the
Company. See "Risk Factors - Potential Dilution; Delay of Change in Control".
The Company currently has two outstanding series of Preferred Stock: Series B
and Series C.
52,500 shares of Series B were issued and outstanding as of March 4, 1996.
The Series B is convertible into shares of Common Stock at a conversion price
of $1.625 per share of Common Stock. The Series B has a liquidation and
dividend preference over Commmon Stock. The Series B has a 10% dividend, payable
semi-annually. The Company has the option to make dividend payments in shares
of Series B; after the sixth such payment, the holders of the Series B have the
option to receive additional dividends in shares of Series B or to accrue such
dividends in cash. If the Company makes four dividend payments in shares of
Series B, the holders of the Series B have the right to appoint one-third of
the members of the Company's Board of Directors. The Series B would be
redeemable 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 the Series B unless and until all
outstanding shares of the Series C have been redeemed by the Company, which in
effect means no shares of Series B can be redeemed before June 14, 1997. The
holders of Series B have the right to appoint one member to the Company's Board
of Directors while the Series B is outstanding.
Dividends on the Series B are required to be paid before any dividends are
paid on Common Stock. The holders of Series B are entitled to one vote for each
share as to matters upon which by law they are entitled to vote as a class, and
the approval of a majority of the Series B, voting separately as a class, is
required to make changes to the Company's Certificate of Incorporation or
By-Laws which adversely affect the Series B, to authorize or issue additional
shares of Series B or to issue preferred stock equal to or senior to the Series
B as to dividends or liquidation, or, subject to certain exceptions, to effect
an extraordinary transaction that requires a vote of the Company's
stockholders. As a result, a class vote of the holders of Series B would be
required for the Company to merge or be acquired and may therefore delay,
deter, or prevent a change in control of the Company.
40,000 shares of Series C were issued and outstanding as of March 4, 1996.
The Series C is convertible into shares of Common Stock at a conversion price
of $2.00 per share of Common Stock. The Series C has a liquidation and dividend
preference over Common Stock and it is parity stock to the previously issued
Series B. The Series C has a 10 1/2% dividend, payable semi-annually. The
Company has the option to make dividend payments in shares of Series C; after
the sixth such payment, the holders of the Series C have the option to receive
additional dividends in shares of Series C or to accrue such dividends in cash.
If the Company makes four dividend payments in shares
22
<PAGE>
of Series C, the holders of the Series C (voting as a class with other affected
series of preferred stock with similar voting rights) have the right to appoint
one-third of the members of the Company's Board of Directors; provided,
however, that if the holders of Series B are presently entitled to a similar
right, then the holders of the Series C shall have no such right until the
right of the holders of Series B terminates. The Series C is not redeemable by
the Company for two years; between two years and three years from June 14,
1995, the Series C is redeemable at $110.00 per share and, thereafter, at
$100.00 per share, plus accrued and unpaid dividends. No shares of Series B
shall be redeemed by the Company unless and until all outstanding shares of
Series C have been redeemed by the Company. The holders of Series C have the
right to appoint one member to the Company's Board of Directors while the
Series C is outstanding.
Dividends on the Series C are required to be paid before dividends can be
paid on the Common Stock. The holders of Series C are entitled to one vote for
each share as to matters upon which by law they are entitled to vote as a
class, and the approval of a majority of the Series C, voting separately as a
class, is required to make changes to the Company's Certificate of
Incorporation or By-Laws which adversely affect the Series C, to authorize or
issue additional shares of Series C or to issue preferred stock equal to or
senior to the Series C as to dividends or liquidation, or, subject to certain
exceptions, to effect an extraordinary transaction that requires a vote of the
Company's stockholders. As a result, a class vote of the holders of Series C,
as well as the Series B, would be required for the Company to merge or be
acquired and may therefore delay, deter, or prevent a change in control of the
Company.
LEGAL MATTERS
Randall A. Carter, who is General Counsel and Secretary of the Company, is
handling certain legal matters for the Company concerning this registration. At
March 4, 1996, Mr. Carter owned 164,882 shares of Common Stock and held options
to purchase 20,000 shares of Common Stock, which shares are included in this
Prospectus.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
The Company's Certificate of Incorporation and By-Laws provide that the
Company shall indemnify, to the fullest extent authorized by law, any person
made or threatened to be made a party to any action, suit or proceeding,
whether criminal, civil, administrative or investigative, by reason of the
fact that such person or such person's testator or intestate is or was a
Director, officer, employee or agent of the Company or serves or served at the
request of the Company any other enterprise as a Director, officer, employee
or agent.
The Company has agreed to indemnify the officers and Directors of the
Company against any and all damages to which such indemnified individuals may
become subject, pursuant to any securities, corporate or other laws, which
damages arise in connection with this Registration Statement or any amendment
thereto, or from the inaccuracy or omission of any information in connection
with this Prospectus and related Registration Statement. In the event that the
foregoing indemnity is unavailable or insufficient, then the indemnifying
party shall contribute to amounts paid
23
<PAGE>
or payable by the indemnified party in respect to the damages of the
indemnified party in such proportion as is appropriate to reflect the relative
fault of the indemnified and indemnifying parties.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to Directors, officers and controlling
persons of the Company pursuant to the foregoing provisions, or otherwise, the
Company has been advised that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Company of expenses incurred or paid by a
director, officer or controlling person of the Company in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
EXPERTS
The financial statements of the Company appearing in its Annual Report
(Form 10-KSB) for the year ended December 31, 1994 and the statements of
operating revenues and direct operating expenses of the Mustang Island
Interest, the Oak Hill Interest and the Enron Interest appearing in the
Company's Form 8-K/A No. 1 dated June 30, 1995, have been audited by Ernst &
Young LLP, independent auditors, as set forth in their reports thereon included
therein and incorporated herein by reference. Such financial statements and
statements of operating revenues and direct operating expenses are incorporated
herein by reference in reliance upon such reports given upon the authority of
such firm as experts in accounting and auditing.
Information incorporated by reference in this Prospectus relating to the
Company's estimated proved oil and natural gas reserves at December 31, 1994,
the related estimated calculations of future net cash flows and the net present
value thereof have been derived from an independent petroleum engineering
report prepared by Roebuck & Associates of Dallas, Texas. Such information has
been incorporated by reference herein in reliance on such firm as experts in
petroleum engineering.
Information incorporated by reference in this Prospectus relating to the
Company's estimated proved oil and natural gas reserves at December 31, 1995,
the related estimated calculations of future net cash flows and the net present
value thereof have been derived from an independent petroleum engineering
report prepared by Netherland, Sewell & Associates, Inc. of Dallas, Texas. Such
information has been incorporated by reference herein in reliance on such firm
as experts in petroleum engineering.
24
<PAGE>
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
Item
Filing Fee - Securities and Exchange Commission $ 3,701
*Blue Sky Filing fees 1,000
Printing 0
*Legal Fees 2,500
*Accounting Fees and Expenses 2,500
Miscellaneous 1,000
--------
Total $10,701
*Estimate
The Company is paying the expenses of the offering.
Item 15. Indemnification of Directors and Officers.
The Company's Certificate of Incorporation and By-Laws provide that the
Company shall indemnify, to the fullest extent authorized by law, any person
made or threatened to be made a party to any action, suit or proceeding,
whether criminal, civil, administrative or investigative, by reason of the
fact that such person or such person's testator or intestate is or was a
Director, officer, employee or agent of the Company or serves or served at the
request of the Company any other enterprise as a Director, officer, employee
or agent.
The Company is incorporated in Delaware, and the General Corporation Law
of Delaware ("Delaware Law") provides that the Company may provide the
indemnification provided in the preceding paragraph against expenses (including
attorney's fee), judgments , fines and amounts paid in settlement actually and
reasonably incurred by the Director, officer, employee or agent in connection
with an action, suit or proceeding if he/she acted in good faith and in a
manner he/she reasonably believed to be in or not opposed to the best
interests of the Company, and with respect to any criminal action or
proceeding, he/she had no reasonable cause to believe his/her conduct was
unlawful. According to Delaware Law, the Company may also indemnify a Director,
officer, employee or agent against threatened, pending or completed actions or
suits by or in the right of the Company, against expenses (including attorney's
fees) actually and reasonably incurred by him/her in connection with the
defense or settlement of such action or suit if he/she acted in good faith and
in a manner he/she reasonably believed to be in or not opposed to the best
interests of the Company; provided that no indemnification shall be made with
respect to any claim as to which such person shall have been adjudged to be
liable to the Company unless the appropriate court determines such person is
fairly and reasonably entitled to an indemnity. Under Delaware Law, the Company
may also pay expenses incurred by officers and Directors (and employees and
agents if the Board of Directors deems appropriate) in connection with a suit
or proceeding in advance of the final disposition of such
25
<PAGE>
suit or proceeding, if the Director or officer undertakes to repay such amount
if it is ultimately determined that he/she is not entitled to such
indemnification. Under Delaware Law, the Company may also purchase and maintain
insurance for officers, Director, employees or agents against any liability
related to their capacity or status, whether or not the Company would have the
power to indemnify such person under Delaware Law. The Company, however, has
not purchased such insurance.
The Company has agreed to indemnify the officers and Directors of the
Company against any and all damages to which such indemnified individuals may
become subject, pursuant to any securities, corporate or other laws, which
damages arise in connection with this Registration Statement or any amendment
thereto, or from the inaccuracy or omission of any information in connection
with this Prospectus and related Registration Statement. In the event that the
foregoing indemnity is unavailable or insufficient, then the indemnifying
party shall contribute to amounts paid or payable by the indemnified party in
respect to the damages of the indemnified party in such proportion as is
appropriate to reflect the relative fault of the indemnified and indemnifying
parties.
Item 16. Exhibits.
The following is a list of all of the exhibits filed or incorporated by
reference as part of this Registration Statement:
(b) Exhibits
--------
Exhibit
No. Description and Incorporation By Reference
--- ------------------------------------------
4.1 Instrument defining the Rights of Class A Common Stock.*
4.2 Certificate of Designations of National Energy Group, Inc. of
10% Cumulative Convertible Preferred Stock, Series B.**
4.3 Certificate of Designations of National Energy Group, Inc. of
10 1/2% Cumulative Convertible Preferred Stock, Series C.***
5.1 Opinion of Randall A. Carter, General Counsel, re legality.****
23.1 Consent of Randall A. Carter, General Counsel, of the Company.*****
23.2 Consent of Ernst & Young LLP.****
23.3 Consent of Roebuck & Associates.****
23.4 Consent of Netherland, Sewell & Associates, Inc.*******
24.1 Power of Attorney.******
26
<PAGE>
- -------------------------------------------------------------------------
* Incorporated by reference to the Company's Registration Statement
on Form S-3 (No. 33-81172), dated July 27, 1994.
** Incorporated by reference to the Company's Current Report on Form
8-K, dated June 17, 1994.
*** Incorporated by reference to the Company's Current Report on Form
8-K, dated June 30, 1995.
**** Filed herewith.
***** Included in Exhibit 5.1.
****** Filed on the signature page, page 29 of the Registration Statement.
******* To be filed by amendment.
27
<PAGE>
Item 17. Undertakings.
1. Rule 415 Offering.
-----------------
The undersigned Registrant hereby undertakes:
a. To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement to include
any additional or changed material information on the plan of
distribution; and
b. That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
treated as a new registration statement of the securities offered,
and the offering of the securities at that time shall be treated
as the initial bona fide offering;
c. To remove from registration by means of a post-effective amendment
any of the securities which remain unsold at the termination of the
offering.
2. Request for Acceleration of Effective Date.
------------------------------------------
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act"), may be permitted to Directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a Director, officer
or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such officer, Director or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
28
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Dallas, State of Texas, on March 6, 1996.
NATIONAL ENERGY GROUP, INC.
By: /s/ Miles D. Bender
----------------------------------------
Miles D. Bender
President and Chief Executive Officer
By: /s/ Robert A. Imel
----------------------------------------
Robert A. Imel
Chief Financial Officer
By: /s/ Melissa H. Rutledge
----------------------------------------
Melissa H. Rutledge
Controller and
Chief Accounting Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated. Each person whose signature appears
below hereby authorizes Miles D. Bender to file one or more Amendments,
including Post-Effective Amendments, to this Registration Statement, which
Amendments may make such changes as Miles D. Bender deems appropriate, and each
person whose signature appears below, individually and in each capacity stated
below, hereby appoints Miles D. Bender as Attorney-in-Fact to execute in his
name and on his behalf any such Amendment to this Registration Statement.
Signature Capacity Date
--------- -------- ----
By: /s/ Miles D. Bender President, March 6, 1996
--------------------- Chief Executive Officer,
Miles D. Bender Director and Treasurer
By: /s/ George B. McCullough Chairman of the Board March 6, 1996
-------------------------- and Director
George B. McCullough
<PAGE>
Signature Title Date
--------- ----- ----
By: /s/ Norman C. Miller Chairman, Executive March 6, 1996
---------------- Committee and Director
Norman C. Miller
By: /s/ Robert H. Kite Director March 6, 1996
-------------
Robert H. Kite
By: /s/ George N. McDonald Director March 6, 1996
------------------
George N. McDonald
By:/s/ Robert V. Sinnott Director March 6, 1996
-----------------
Robert V. Sinnott
By:/s/ Elwood W. Schafer Director March 6, 1996
-----------------
Elwood W. Schafer
<PAGE>
Exhibit 5.1
March 6, 1996
National Energy Group, Inc.
4925 Greenville Ave., Ste. 1400
Dallas, TX 75206
Dear Sirs:
I am General Counsel and Secretary of National Energy Group, Inc. (the
"Company") and as General Counsel and Secretary, have worked on the
Registration Statement on Form S-3 (the "Registration Statement") filed with
the Securities and Exchange Commission under the Securities Act of 1933, as
amended, covering 3,613,533 shares of the Company's Class A Common Stock, $.01
par value ("Common Stock").
I have examined the originals, or copies certified or otherwise identified
to my satisfaction, of the Company's Certificate of Incorporation, as amended,
its By-Laws, as amended, resolutions of the Board of Directors of the Company,
and such other documents and corporate records as I have deemed necessary or
appropriate. Based upon the foregoing and in reliance thereon, and, after
examination of such matters of law as appear applicable or relevant, and
subject to the other conditions set forth in this letter, it is my opinion
that:
(1) The Company has been duly incorporated under the laws of the State of
Delaware; and
(2) 2,688,533 of the shares of Common Stock covered by the
Registration Statement (the shares offered by the Selling
Stockholders, as defined in the Registration Statement) have been
duly authorized and validly issued and are fully paid and
nonassessable, and the other 925,000 shares (the shares underlying
the Options, as defined in the Registration Statement), when such
shares are duly issued upon exercise of the Options, will be duly
authorized, validly issued, fully paid and nonassessable.
Also, with your approval, I have relied as to certain matters on
information obtained from public officials, other officers of the Company and
other sources believed by me to be responsible, and I have assumed that the
certificates for the shares conform to the specimens thereof examined by me
and have been signed by the President and by the Secretary or an Assistant
Secretary of the Company, under the Company's corporate seal, and that the
signatures on all documents examined by me are genuine, assumptions which I
have not independently verified. In addition, I am rendering this opinion as an
officer (General Counsel and Secretary) of the Company only, and this opinion
is covered by the Company's indemnification provisions and policies. This
opinion is limited in all respects to the General Corporation Law of the State
of Delaware and applicable federal law.
I hereby consent to the reference to me as General Counsel and Secretary
in the Registration Statement under the Prospectus caption "Legal Matters".
Very truly yours,
/s/ Randall A. Carter
General Counsel and Secretary
<PAGE>
Exhibit 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
incorporation by reference of our report dated March 15, 1995 with respect to
the financial statements of National Energy Group, Inc. included in its Annual
Report (Form 10-KS B) for the year ended December 31, 1994, and our reports
dated September 12, 1995 with respect to the statements of operating revenues
and direct operating expenses of the Mustang Island Interest, the Oak Hill
Interest and the Enron Interest appearing in the Company's Current Report (Form
8-K/A No. 1) dated June 30, 1995, in the Registration Statement (Form S-3) and
related Prospectus of National Energy Group, Inc. dated March 6, 1996.
ERNST & YOUNG LLP
Dallas, Texas
March 6, 1996
<PAGE>
Exhibit 23.3
CONSENT OF INDEPENDENT PETROLEUM ENGINEERS
We hereby give consent to the references to our firm in "Experts" and to
the use of our report, dated March 1, 1995, on the oil and gas properties of
National Energy Group, Inc., in National Energy Group's Registration Statement
on Form S-3.
ROEBUCK ASSOCIATES, INC.
/s/ Field Roebuck
------------------
President
Dallas, Texas
March 5, 1996
