<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
NATIONAL ENERGY GROUP, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE>
NATIONAL ENERGY GROUP, INC.
4925 GREENVILLE AVENUE, SUITE 1400
DALLAS, TEXAS 75206
April 26, 1997
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders (the
"Meeting") of National Energy Group, Inc., a Delaware corporation (the
"Company") to be held on June 5, 1997, at 9:00 a.m. Central Time, at the
University Amphitheater, Holiday Inn, 10650 North Central Expressway, Dallas,
Texas 75231. Your Board of Directors and management look forward to greeting
personally those Shareholders able to attend.
At the Meeting, you will be asked to consider and vote upon (i) a proposal
to elect eight (8) nominees as directors of the Company to serve until the next
annual meeting of Shareholders of the Company to be held in 1998; (ii) adoption
of the National Energy Group, Inc. 1996 Incentive Compensation Plan; (iii) a
proposal to ratify the selection of Ernst & Young LLP as the Company's
independent auditors for the current fiscal year ending December 31, 1997; and
(iv) any other business as may properly come before the Meeting (collectively,
the "Proposals"). The Proposals are fully set forth in the accompanying Proxy
Statement which you are urged to read thoroughly. For the reasons set forth in
the Proxy Statement, your Board of Directors recommends a vote "for" all
nominees as directors and in favor of all Proposals.
It is important that your shares be voted at the Meeting. Whether or not you
plan to attend in person, please complete, date and sign the enclosed proxy card
and return it as promptly as possible in the accompanying envelope. If you do
attend the Meeting and wish to vote your shares in person, even after returning
your proxy, you still may do so.
Mailing of this Proxy Statement is expected to begin on April 26, 1997.
Thank you for your cooperation.
<TABLE>
<S> <C>
Respectfully,
NATIONAL ENERGY GROUP, INC.
/s/ MILES D. BENDER
---------------------------------------------
MILES D. BENDER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
<PAGE>
NATIONAL ENERGY GROUP, INC.
4925 GREENVILLE AVENUE, SUITE 1400
DALLAS, TEXAS 75206
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 5, 1997
------------------------
To Our Shareholders:
The Annual Meeting of Shareholders (the "Meeting") of National Energy Group,
Inc., a Delaware corporation (the "Company") will be held at the University
Amphitheater, Holiday Inn, 10650 North Central Expressway, Dallas, Texas 75231
at 9:00 a.m., Central Time, on June 5, 1997, to consider and vote on the
following matters as described in this notice and the accompanying Proxy
Statement:
1. To elect eight members of the Board of Directors of the Company to
hold office until the next annual meeting of Shareholders or until their
successors have been duly elected and qualified.
2. To approve the adoption of the National Energy Group, Inc. 1996
Incentive Compensation Plan (the "1996 Plan") under which the Board of
Directors or a committee composed of directors will have the authority to
issue incentive and nonqualified stock options, restricted stock and
appreciation rights to employees and directors of the Company and its
subsidiaries. The 1996 Plan will authorize and reserve for issuance
5,000,000 shares of the Company's Common Stock, which may be issued pursuant
to the terms of the 1996 Plan.
3. To consider and vote upon a proposal to ratify the selection of
Ernst & Young LLP as the Company's independent auditors for the current
fiscal year ending December 31, 1997.
4. To transact such other business as may properly come before the
Meeting or any adjournment thereof.
The Board of Directors have fixed the close of business on April 21, 1997 as
the record date for determination of Shareholders entitled to vote at the
Meeting or any adjournments thereof, and only Shareholders of record at the
close of business on that date will be entitled to vote. At the Record Date,
36,145,359 shares of Common Stock and 50,000 shares of Series E Preferred Stock
convertible into 2,222,222 shares of Common Stock were issued and outstanding. A
list of Shareholders entitled to vote at the meeting will be available for
inspection at the principal executive offices of the Company located at 4925
Greenville Avenue, Suite 1400, Dallas, Texas 75206.
The approximate date on which this Proxy Statement is first being mailed to
Shareholders is April 26, 1997. Shareholders who execute proxies may revoke them
at any time prior to their being exercised by providing written notice to the
Company by delivering another proxy card at any time prior to the Meeting. Mere
attendance at a Meeting will not revoke a proxy, but a Shareholder present at a
Meeting may revoke his or her proxy and vote in person. Any duly executed proxy
card on which a vote is not indicated (except broker non-votes expressly
indicating a lack of discretionary authority to vote) will be deemed a vote for
the nominees and all the Proposals. Abstentions and broker non-votes will not be
counted as votes either "for" or "against" any matters coming before the
Meeting, nor will such abstentions and broker non-votes be counted toward
determining a quorum.
To assure representation at the Meeting, Shareholders are urged to sign and
return the enclosed proxy cards as promptly as possible in the postage prepaid
envelope enclosed for that purpose. Any Shareholder attending the Meeting may
vote in person even if he or she previously returned a proxy.
<TABLE>
<S> <C>
By Order of the Board of Directors
PHILIP D. DEVLIN
VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
</TABLE>
<PAGE>
NATIONAL ENERGY GROUP, INC.
1400 ONE ENERGY SQUARE
4925 GREENVILLE AVENUE
DALLAS, TEXAS 75206
(214) 692-9211
(PRINCIPAL EXECUTIVE OFFICES)
------------------------
PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 5, 1997
------------------------
SOLICITATION OF PROXIES
This Proxy Statement is furnished in connection with the solicitation of
proxies on behalf of the Board of Directors of National Energy Group, Inc. (the
"Company") to be voted at the annual general meeting of shareholders (the
"Meeting") to be held at the University Amphitheater, Holiday Inn, 10650 North
Central Expressway, Dallas, Texas 75231 on Thursday, June 5, 1997 at 9:00 a.m.,
central daylight savings time and at any adjournment thereof. This proxy
statement and the enclosed form of proxy are first being sent or given to
shareholders of record on or about April 26, 1997.
At the Meeting, the shareholders will be asked to consider and vote upon (i)
a proposal to elect eight (8) nominees as directors of the Company to serve
until the next annual meeting of shareholders of the Company to be held in 1998;
(ii) adoption of the Company's 1996 Incentive Compensation Plan (the "1996
Plan"); (iii) a proposal to ratify the selection of Ernst & Young LLP as the
Company's independent auditors for the current fiscal year ending December 31,
1997; and (iv) any other business as may properly come before the Meeting
(collectively, the "Proposals"). THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
THAT THE SHAREHOLDERS VOTE FOR ALL NOMINEES AS DIRECTORS AND IN FAVOR OF ALL
PROPOSALS.
RECORD DATE AND OUTSTANDING SHARES
The Board of Directors has fixed the close of business on April 21, 1997 as
the record date for the determination of holders of shares of outstanding
capital stock entitled to notice of and to vote at the Meeting. On April 21,
1997, there were outstanding 36,145,359 shares of common stock, $.01 par value
("Common Stock") and 50,000 shares of Series E Preferred Stock ("Series E
Preferred Stock") convertible into 2,222,222 shares of Common Stock, held by
shareholders entitled to vote at the Meeting voting together as one class.
VOTING PROXIES
A proxy card accompanies this Proxy Statement. All properly executed proxies
that are not revoked will be voted at the Meeting, and at any postponements or
adjournments thereof, in accordance with the instructions contained therein.
Proxies containing no instructions regarding the Proposals specified in the form
of proxy will be voted for all nominees as directors and in favor of the
Proposals. The Meeting may be adjourned, and additional proxies solicited, if
the vote necessary to approve a Proposal has not been obtained. Any adjournment
of the Meeting will require the affirmative vote of the holders of at least a
majority of the shares represented, whether in person or by proxy, at the
Meeting (regardless of whether those shares constitute a quorum).
This Proxy Statement is dated April 25, 1997.
<PAGE>
A shareholder who has executed and returned a proxy may revoke such proxy at
any time before it is voted at the Meeting by executing and returning a proxy
bearing a later date, by filing written notice of such revocation with the
Secretary of the Company stating that the proxy is revoked, or by attending the
Meeting and voting in person. Mere attendance at the Meeting will not revoke a
properly executed proxy.
QUORUM AND REQUIRED VOTE
QUORUM. The presence, in person or proxy, of holders of Common Stock and
Series E Preferred Stock, representing in the aggregate not less than a majority
of the total number of outstanding shares of Common Stock and shares of Common
Stock into which the Series E Preferred Stock is convertible, on the Record
Date, will constitute a quorum for the Meeting.
REQUIRED VOTE. At the Meeting, the holders of Common Stock on the Record
Date will be entitled to one vote per share on each matter of business properly
brought before the Meeting including one vote per share on each of the nominees
for director and the Proposals. Holders of the Series E Preferred Stock will be
entitled to one vote for each share of Common Stock into which the Series E
Preferred Stock would be convertible on the Record Date. The holders of Common
Stock and Series E Preferred Stock will vote together as one class on the
nominees for director and the Proposals.
Holders of Common Stock and the Series E Preferred Stock have the right to
elect eight (8) members of the Board of Directors, as proposed in the "Director
Election Proposal." Every holder of Common Stock and Series E Preferred Stock on
the Record Date shall have the right to vote, in person or by proxy, the number
of shares of Common Stock owned, or with respect to the Series E Preferred
Stock, the number of shares of Common Stock into which such preferred stock is
convertible by such holder, for as many persons as there are directors to be
elected at that time. Cumulative voting in the election of directors is not
permitted. Directors are elected by the plurality of the votes cast by the
shares entitled to vote in the election.
The holders of the Company's Series B Preferred Stock ("Series B Preferred
Stock"), Series C Preferred Stock ("Series C Preferred Stock") and Series D
Preferred Stock ("Series D Preferred Stock") shall each have the right to elect
one additional director to the Company's Board of Directors. See "Proposal
1--Director Election Proposal--Appointments of Series B Preferred, Series C
Preferred and Series D Preferred Directors."
Abstentions and broker non-votes will not be counted as votes either "for"
or "against" any matters coming before the Meeting, nor will such abstentions
and broker non-votes be counted toward determining a quorum.
VOTE BY DIRECTORS, OFFICERS AND AFFILIATES. At the Record Date, directors,
officers and affiliates of the Company had the right to vote through proxy,
beneficial ownership or otherwise 3,444,187 shares of Common Stock, or 9.5% of
the issued and outstanding Common Stock. The Company has been advised that the
directors, officers and affiliates of the Company intend to vote FOR all
nominees for director and in favor of all other Proposals described in this
Proxy Statement. All of these directors, officers and affiliates of the Company
will have an interest in the election of directors and/or the approval of the
1996 Plan Proposal. See "Security Ownership of Certain Beneficial Owners and
Management."
PROXY SOLICITATION; EXPENSES
Solicitation of proxies may be made by mail by directors, officers and
employees of the Company. In addition to the use of the mails, proxies may be
solicited by personal interview, telephone, facsimile and telegraph, and by
directors, officers and regular employees of the Company, without special
compensation therefor; except that directors, officers and employees of the
Company may be reimbursed for out-of-pocket expenses in connection with any
solicitation of proxies. The Company will request banking institutions,
brokerage firms, custodians, trustees, nominees and fiduciaries to forward
solicitation material
2
<PAGE>
to the beneficial holders or owners of capital stock held of record by such
persons, and the Company will reimburse reasonable forwarding expenses upon the
request of such record holders.
Although the Company does not anticipate retaining a proxy solicitation firm
to aid in solicitation of proxies from its shareholders, if such a firm is
retained, it would be paid customary fees and would be reimbursed for
out-of-pocket expenses.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following tables set forth, to the best knowledge of the Company,
information as to the ownership of the Company's Common Stock and all series of
Preferred Stock held by (i) each person or entity who owns of record or who is
known by the Company to own beneficially 5% or more of the outstanding shares of
such stock, (ii) directors and nominees, and (iii) all directors and officers as
a group, as of April 21, 1997. Except as otherwise indicated, ownership of
shares by the person's named below includes sole voting and investment power
held by such persons.
a. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth as of April 21, 1997, the individuals or
entities known to the Company to own more than 5% of the Company's outstanding
shares of capital stock.
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER % OF
OF BENEFICIAL OWNER TITLE OF CLASS OF SHARES CLASS(1)
- ------------------------------------------------------------ ----------------- ------------- ------------
<S> <C> <C> <C>
COMMON STOCK
Carl C. Icahn .............................................. Common Stock 8,212,544(2) 19.8%
114 West 47th Street
19th Floor
New York, NY 10036
Kayne, Anderson Investment Management, Inc. ................ Common Stock 6,825,548(3) 15.8%
1800 Avenue Of Stars
Suite 1424
Los Angeles, CA 90067
Croft-Leominster, Inc. ..................................... Common Stock 2,161,710(4) 6.0%
207 E. Redwood St.
Suite 802
Baltimore, MD 21202
SERIES B PREFERRED STOCK
Kayne, Anderson Investment Management, Inc. ................ Series B 52,500(5) 100%
1800 Avenue Of Stars Preferred Stock
Suite 1424
Los Angeles, CA 90067
Arbco Associates, L.P. ..................................... Series B 18,900(6) 36%
1800 Avenue of Stars Preferred Stock
Suite 1424
Los Angeles, CA 90067
Offense Group Associates, L.P. ............................. Series B 15,750(5) 30%
1800 Avenue of Stars Preferred Stock
Suite 1424
Los Angeles, CA 90067
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER % OF
OF BENEFICIAL OWNER TITLE OF CLASS OF SHARES CLASS(1)
- ------------------------------------------------------------ ----------------- ------------- ------------
<S> <C> <C> <C>
Kayne, Anderson Nontraditional Investments, L.P. ........... Series B 14,700(5) 28%
1800 Avenue of Stars Preferred Stock
Suite 1424
Los Angeles, CA 90067
Opportunity Associates L.P. ................................ Series B 3,150(5) 6%
1800 Avenue of Stars Preferred Stock
Suite 1424
Los Angeles, CA 90067
SERIES C PREFERRED STOCK
Kayne, Anderson Investment Management, Inc. ................ Series C 40,000(6) 100%
1800 Avenue Of Stars Preferred Stock
Suite 1424
Los Angeles, CA 90067
Arbco Associates, L.P. ..................................... Series C 14,400(6) 36%
1800 Avenue of Stars Preferred Stock
Suite 1424
Los Angeles, CA 90067
Offense Group Associates, L.P. ............................. Series C 12,000(6) 30%
1800 Avenue of Stars Preferred Stock
Suite 1424
Los Angeles, CA 90067
Kayne, Anderson Nontraditional Investments, L.P. ........... Series C 11,200(6) 28%
1800 Avenue of Stars Preferred Stock
Suite 1424
Los Angeles, CA 90067
Opportunity Associates L.P. ................................ Series C 2,400(6) 6%
1800 Avenue of Stars Preferred Stock
Suite 1424
Los Angeles, CA 90067
SERIES D PREFERRED STOCK
Carl C. Icahn .............................................. Series D 100,000(2) 100%
114 West 47th Street Preferred Stock
19th Floor
New York, NY 10036
SERIES E PREFERRED STOCK
Kayne, Anderson Investment Management, Inc. ................ Series E 31,000(7) 62%
1800 Avenue of Stars Preferred Stock
Suite 1424
Los Angeles, CA 90067
Foremost Insurance Company ................................. Series E 15,000(8) 30%
5230 33rd Street, S.E. Preferred Stock
Grand Rapids, MI 49512
Arbco Associates, L.P. ..................................... Series E 13,750(7) 27.5%
1800 Avenue of Stars Preferred Stock
Suite 1424
Los Angeles, CA 90067
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER % OF
OF BENEFICIAL OWNER TITLE OF CLASS OF SHARES CLASS(1)
- ------------------------------------------------------------ ----------------- ------------- ------------
<S> <C> <C> <C>
Offense Group Associates, L.P. ............................. Series E 6,750(7) 13.5%
1800 Avenue of Stars Preferred Stock
Suite 1424
Los Angeles, CA 90067
Kayne, Anderson Nontraditional Investments, L.P. ........... Series E 8,000(7) 16%
1800 Avenue of Stars Preferred Stock
Suite 1424
Los Angeles, CA 90067
Topa Insurance Company ..................................... Series E 4,000(8) 8%
c/o Kayne, Anderson Investment Management, Inc. Preferred Stock
1800 Avenue of Stars
Suite 1424
Los Angeles, CA 90067
Kayne, Anderson Offshore Ltd. .............................. Series E 2,500(7) 5%
1800 Avenue of Stars Preferred Stock
Suite 1424
Los Angeles, CA 90067
</TABLE>
- --------------------------
(1) Based upon the 36,145,359 shares of Common Stock, 52,500 shares of issued
and outstanding Series B Preferred Stock, 40,000 shares of issued and
outstanding Series C Preferred Stock, 100,000 shares of issued and
outstanding Series D Preferred Stock and 50,000 shares of issued and
outstanding Series E Preferred Stock that are outstanding as of April 21,
1997. For each person or group 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) High River, the record owner of these shares, is a Delaware limited
partnership, and has pledged these shares to ING Capital. Riverdale
Investors Corp., Inc. is a Delaware corporation and is the general partner
of High River. Mr. Carl C. Icahn is the sole shareholder 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. The ownership figures in the table assume that all the shares of
Series D Preferred Stock are converted and warrants for 700,000 shares of
Common Stock are exercised. 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 Exchange Act) the shares which High River
directly beneficially owns. Each of Riverdale and Mr. Icahn disclaims
beneficial ownership of such shares for all other purposes. Mr. Robert J.
Mitchell has been appointed a director of the Company as the representative
of the holders of the Series D Preferred Stock. Mr. Mitchell does not have
dispositive or voting power over any of the shares owned by High River.
(3) Richard A. Kayne ("Kayne") is President, Chief Executive Officer and
Director of KAIM, a registered investment advisor, and of Kayne, Anderson
Associates, Inc. a registered broker/dealer. KAIM is the general partner of
KAIM Non-Traditional L.P. ("L.P.") which is the general partner of and
investment advisor to the investment partnerships referred to in this
footnote. Mr. Kayne is also a limited partner in each investment partnership
and a general partner of one of them. Mr. Kayne and KAIM have shared
dispositive and voting power through investment partnerships for 52,500
shares of Series B Preferred Stock, 40,000 shares of Series C Preferred
Stock, and 31,000 shares of Series E Preferred Stock, which may be converted
at anytime into 3,230,769 shares, 2,000,000 shares and 1,377,779 shares of
Common Stock, respectively, and for warrants to purchase 217,000 shares of
Common Stock. The percentage ownership figures in the table assume that all
shares of Series B Preferred Stock, Series C Preferred Stock and Series E
Preferred Stock are converted, the warrants to purchase 217,000 shares of
Common Stock are exercised and
5
<PAGE>
6,825,548 shares of Common Stock are issued, and such shares are added to
the shares of Common Stock outstanding. Mr. Kayne disclaims beneficial
ownership of the shares held by the investment partnerships in excess of the
amount attributable to him by virtue of his direct interest as a limited or
general partner and by virtue of his indirect interest in KAIM's interest in
the investment partnerships. KAIM and L.P. disclaim beneficial ownership of
the shares held by the investment partnerships in excess of the amount
attributable to them by virtue of their percentage interest in the
investment partnerships. Mr. Robert V. Sinnott is Senior Vice President and
Senior Investment Officer of L.P. and Mr. Elwood W. Schafer is a consultant
to KAIM. Both are Directors of the Company; neither Mr. Sinnott nor Mr.
Schafer have dispositive or voting power over any of these shares.
(4) Croft-Leominster, Inc., the record owner of the shares, is a Maryland
corporation.
(5) For information on Richard A. Kayne, KAIM and L.P., see footnote (3) above.
Arbco Associates L.P. has shared dispositive and voting power with Mr.
Kayne, KAIM and L.P. of 18,900 shares of Series B Preferred Stock, which
converts into 1,163,077 shares of Common Stock. Offense Group Associates has
shared dispositive and voting power with Mr. Kayne, KAIM and L.P. for 15,750
shares of Series B Preferred Stock, which converts into 969,231 shares of
Common Stock. Kayne, Anderson Non-Traditional Investments has shared
dispositive and voting power with Mr. Kayne, KAIM and L.P. for 14,700 shares
of Series B Preferred Stock, which converts into 904,615 shares of Common
Stock. Opportunity Associates L.P. has shared dispositive and voting power
with Mr. Kayne, KAIM and L.P. of 3,150 shares of Series B Preferred Stock,
which converts into 193,846 shares of Common Stock.
(6) For information on Richard A. Kayne, KAIM and L.P., see footnote (3) above.
Arbco Associates L.P. has shared dispositive and voting power with Mr.
Kayne, KAIM and L.P. of 14,400 shares of Series C Preferred Stock, which
converts into 720,000 shares of Common Stock. Offense Group Associates has
shared dispositive and voting power with Mr. Kayne, KAIM and L.P. for 12,000
shares of Series C Preferred Stock, which converts into 600,000 shares of
Common Stock. Kayne, Anderson Non-Traditional Investments has shared
dispositive and voting power with Mr. Kayne, KAIM and L.P. for 11,200 shares
of Series C Preferred Stock, which converts into 560,000 shares of Common
Stock. Opportunity Associates L.P. has shared dispositive and voting power
with Mr. Kayne, KAIM and L.P. of 2,400 shares of Series C Preferred Stock,
which converts into 120,000 shares of Common Stock.
(7) For information on Richard A. Kayne, KAIM and L.P., see footnote (3) above.
Arbco Associates L.P. shares dispositive and voting power with Mr. Kayne,
KAIM and L.P. of 13,750 shares of Series E Preferred Stock, which converts
into 611,110 shares of Common Stock, and warrants for 96,250 shares of
Common Stock. Offense Group Associates shares dispositive and voting power
with Mr. Kayne, KAIM and L.P. for 6,750 shares of Series E Preferred Stock,
which converts into 300,000 shares of Common Stock, and warrants for 47,250
shares of Common Stock. Kayne, Anderson Non-Traditional Investments shares
dispositive and voting power with Mr. Kayne, KAIM and L.P. for 8,000 shares
of Series E Preferred Stock, which converts into 355,555 shares of Common
Stock, and warrants for 56,000 shares of Common Stock. Kayne, Anderson
Offshore Limited shares dispositive and voting power with Mr. Kayne, KAIM
and L.P. for 2,500 shares of Series E Preferred Stock, which converts into
111,111 shares of Common Stock, and warrants for 17,500 shares of Common
Stock.
(8) Foremost Insurance Company has dispositive and voting power for 15,000
shares of Series E Preferred Stock, which converts into 666,666 shares of
Common Stock, and warrants for 105,000 shares of Common Stock. Topa
Insurance Company has dispositive and voting power for 4,000 shares of
Series E Preferred Stock, which converts into 177,777 shares of Common
Stock, and warrants for 28,000 shares of Common Stock.
b. SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth information concerning the beneficial
ownership of the Company's capital stock as of April 21, 1997 by each of the
Company's present directors and executive officers and
6
<PAGE>
certain other parties, and the directors and executive officers of the Company
as a group, all as reported by each such person as of April 21, 1996.
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER % OF
OF BENEFICIAL OWNER TITLE OF CLASS OF SHARES CLASS(1)
- ---------------------------------------------------- ----------------- ----------------- ----------------
<S> <C> <C> <C>
Miles D. Bender .................................... Common Stock 1,348,244(1) 3.7%
4925 Greenville Avenue
Suite 1400
Dallas, Texas 75206
Bob G. Alexander ................................... Common Stock 479,602(2) 1.3%
6017 Morning Dove Lane
Edmond, OK 73003
Jim L. David ....................................... Common Stock 462,889(3) 1.3%
4925 Greenville Avenue
Suite 1400
Dallas, TX 75206
George B. McCullough ............................... Common Stock 406,852(4) 1.1%
6510 Pauma Dr.
Houston, TX 77069
Robert H. Kite ..................................... Common Stock 376,955(5) 1.0%
207 W. Clarendon
12 F&G
Phoenix, AZ 85013
Norman C. Miller ................................... Common Stock 339,860(6) -- (7)
P.O. Box 1566
Griffin, GA 30224
Robert A. Imel ..................................... Common Stock 165,250(8) -- (7)
4925 Greenville Avenue
Suite 1400
Dallas, TX 75206
William T. Jones ................................... Common Stock 135,000(9) -- (7)
4925 Greenville Avenue
Suite 1400
Dallas, Texas 75206
R. Thomas Fetters, Jr. ............................ Common Stock 75,000(10) -- (7)
4925 Greenville Avenue
Suite 1400
Dallas, Texas 75206
George N. McDonald ................................. Common Stock 130,523(11) -- (7)
3656 Macintosh Lane
Salt Lake City, UT 84121
Philip D. Devlin ................................... Common Stock 50,000(12) -- (7)
4925 Greenville Avenue
Suite 1400
Dallas, TX 75206
Robert V. Sinnott .................................. Common Stock 27,500(13) -- (7)
1800 Avenue of Stars
2nd Floor
Los Angeles, CA 90067
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER % OF
OF BENEFICIAL OWNER TITLE OF CLASS OF SHARES CLASS(1)
- ---------------------------------------------------- ----------------- ----------------- ----------------
<S> <C> <C> <C>
Robert A. West ..................................... Common Stock 12,012(14) -- (7)
507 S. Main
Suite 602
Tulsa, OK 74103
Elwood W. Schafer .................................. Common Stock 9,500(15) -- (7)
7018 Blackwood Dr.
Dallas, TX 75231
Robert J. Mitchell ................................. Common Stock (16) -- (7)
767 Fifth Avenue
New York, NY 10153
Gene Anderson ...................................... Common Stock (17) -- (7)
4925 Greenville Avenue
Suite 1400
Dallas, Texas 75206
Melissa H. Rutledge ................................ Common Stock 35,000(18) -- (7)
4925 Greenville Avenue
Suite 1400
Dallas, Texas 75206
All officers and directors as a group
(17 people) ...................................... Common Stock 4,054,187(19) 11.2%
All officers and officers as a group
(17 people) ...................................... Series B -- --
Preferred Stock
All officers and directors as a group
(17 people) ...................................... Series C -- --
Preferred Stock
All officers and directors as a group
(17 people) ...................................... Series D -- --
Preferred Stock
All officers and directors as a group
(17 people) ...................................... Series E -- --
Preferred Stock
</TABLE>
- --------------------------
(1) Mr. Bender's shares include the following: 1,135,744 shares held directly by
Mr. Bender, 12,500 shares held in a trust for Mr. Bender's minor child and
options to purchase 200,000 shares; does not include options to purchase
950,000 shares which are not yet exercisable.
(2) The amount shown owned by Mr. Alexander includes 139,602 shares owned by Mr.
Alexander's wife, Donna Ports Alexander, but does not include options to
purchase 25,000 shares which are not yet exercisable. Mr. Alexander
disclaims any beneficial interest in the shares owned by his wife.
(3) Does not include options to purchase 25,000 shares which are not yet
exercisable.
(4) Includes 371,852 shares held directly by Mr. McCullough and immediately
exercisable options to purchase 35,000 shares, but does not include options
to purchase 40,000 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.
(5) Robert H. Kite is Chief Operating Officer and 33.0% 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
8
<PAGE>
173,158 shares directly. The share figure in the table also includes options
to purchase 27,500 shares, but does not include options to purchase 32,500
shares which are not yet exercisable.
(6) Mr. Miller owns 254,860 shares directly, and 50,000 shares through Incorp,
Inc., of which Mr. Miller is owner. Includes options to purchase 35,000
shares, but does not include options to purchase 40,000 shares which are not
yet exercisable.
(7) Less than one percent.
(8) Includes 30,250 shares held directly by Mr. Imel, options to purchase
135,000 shares (42,500 shares of which are for the beneficial interest of a
former partner of Mr. Imel's pursuant to the dissolution of their
partnership that previously engaged in contract services for the Company),
but does not include options to purchase 125,000 shares (12,500 shares of
which are for the beneficial interest of Mr. Imel's former partner
referenced above) which are not yet exercisable.
(9) Includes 50,000 shares held directly by Mr. Jones and options to purchase
85,000 shares, but does not include options to purchase 125,000 shares which
are not yet exercisable.
(10) Includes 50,000 shares held directly by Mr. Fetters and options to purchase
25,000 shares, but does not include options to purchase 125,000 shares which
are not yet exercisable.
(11) Includes 123,023 shares held directly by Mr. McDonald and options to
purchase 7,500 shares, but does not include options to purchase 32,500
shares which are not yet exercisable.
(12) Includes 50,000 shares of restricted Common Stock granted to Mr. Devlin,
but does not include options to purchase 10,000 shares which are not yet
exercisable.
(13) Includes options to purchase 27,500 shares held by Mr. Sinnott, but does
not include options to purchase 32,500 shares which are not yet exercisable.
(14) Does not include options to purchase 25,000 shares which are not yet
exercisable.
(15) Includes 2,000 shares held directly by Mr. Schafer and options to purchase
7,500 shares, but does not include options to purchase 32,500 shares which
are not yet exercisable.
(16) Does not include options to purchase 25,000 shares which are not yet
exercisable.
(17) Does not include options to purchase 25,000 shares which are not yet
exercisable.
(18) Includes 10,000 shares held directly by Ms. Rutledge and options to
purchase 25,000 shares, but does not include options to purchase 35,000
shares which are not yet exercisable.
(19) Includes a total of 3,444,187 shares held directly or indirectly by the
executive officers and directors and options and warrants to purchase
910,000 shares which are exercisable within 60 days.
Under the terms of the Series D Preferred Stock, a change in control of the
Company may occur if any of the events occur that trigger the Series D Preferred
Stock Contingent Voting Rights (as defined) to elect one-half of the Board of
Directors of the Company plus one member and if such rights are exercised by
such holders. See "Description of Capital Stock--Series D Preferred Stock."
9
<PAGE>
PROPOSAL 1--DIRECTOR ELECTION PROPOSAL
The Company's bylaws provide that the Board of Directors of the Company will
consist of one or more members, the number of which is to be determined from
time to time by the Board of Directors. The Board of Directors of the Company
presently consists of 11 members, one of whom is appointed by the holders of
Series B Preferred Stock, one or whom is appointed by the holders of Series C
Preferred Stock and one of whom is appointed by the holders of Series D
Preferred Stock, each voting separately as a class, and eight of whom are
elected by the holders of Common Stock and Series E Preferred Stock. The Common
Stock and Series E Preferred Stock vote together as one class with the number of
votes held by the holders Series E Preferred Stock being equivalent to the
number of votes that would be held if the Series E Preferred Stock was converted
into Common Stock on the Record Date. Directors of the Company generally serve
for a term of one year (until the next annual meeting of shareholders) and until
their successors are duly elected or appointed and qualified, or until their
death, resignation or removal. Each of the persons nominated to hold offices
provided below is currently a member of the Board of Directors. Unless authority
to vote in the election of directors is withheld, it is the intention of the
persons named in the proxy to nominate and vote for the eight persons named in
the table below, each of whom has consented to serve if elected. In the event
that by reason of contingencies not presently known to the Board of Directors,
one or all of the nominees should become unavailable for election, the proxies
will be voted for such substitute as shall be designated by the Company's Board
of Directors. In completing the enclosed proxy card, if a shareholder decides to
withhold authority to vote for any of the director nominees, such shareholder
should mark the WITHHOLD AUTHORITY box and line through such nominee(s) name in
Proposal 1 of the proxy card.
Directors are elected by plurality of the votes cast by the shares entitled
to vote in the election at a meeting at which a quorum is present.
Messrs. McCullough, Miller, Kite, McDonald, Sinnott, Schafer, Alexander,
West and Mitchell are "non-executive" directors, denoting that they are neither
officers nor employees of the Company. There are no family relationships between
or among any of the directors of the Company.
NOMINEES FOR ELECTION AT THE MEETING
<TABLE>
<CAPTION>
NAME AGE PRESENT POSITION WITH COMPANY(1)
- -------------------------------------- --- --------------------------------------------------------------------
<S> <C> <C>
George B. McCullough.................. 71 Director, Chairman of the Board of Directors
Norman C. Miller...................... 77 Director, Chairman of the Executive Committee
Miles D. Bender....................... 60 Director, President and Chief Executive Officer
Robert H. Kite........................ 42 Director
George N. McDonald.................... 63 Director
Jim L. David.......................... 57 Director, Vice President, Exploitation
Bob J. Alexander...................... 63 Director
Robert A. West........................ 58 Director
</TABLE>
- ------------------------
(1) Messrs. McCullough, Miller, Bender, Kite, and McDonald have been Directors
of the Company since December 17, 1990. Messrs. Alexander, David and West
were appointed to the Board on August 29, 1996. Pursuant to the terms of the
Series B Preferred Stock, Series C Preferred Stock and Series D Preferred
Stock, the holders of a majority of the outstanding shares of each series
have the right to appoint one member to the Company's Board of Directors at
all times while such series are outstanding. Directors generally serve for a
term of one year (until the next annual meeting of shareholders) and until
their successors are duly elected and qualified, or until their death,
resignation or removal.
10
<PAGE>
For certain biographical information regarding the directors of the Company
and information regarding committees of the Board of Directors and director
compensation, see "Management."
APPOINTMENT OF SERIES B PREFERRED, SERIES C PREFERRED AND SERIES D PREFERRED
DIRECTORS
Pursuant to the terms of the Series B Preferred Stock, Series C Preferred
Stock and Series D Preferred Stock, holders of the majority of the outstanding
shares of each such series shall have the right to appoint one member to the
Company's Board of Directors at all times, and to collectively appoint one-third
of the members of the Company's Board of Directors if the Company fails to make
four dividend payments or if the Company makes four dividend payments on such
preferred stock in shares of Series B Preferred Stock, Series C Preferred Stock
or Series D Preferred Stock, as the case may be (as opposed to cash dividends).
Effective immediately following the election of the eight members of the Board
of Directors at the Meeting, it is anticipated that a majority of the holders of
the Series B Preferred Stock will appoint Robert V. Sinnott as the director of
the Company representing the Series B Preferred Stock, a majority of the holders
of the Series C Preferred Stock will appoint Elwood W. Schafer as a director of
the Company representing the Series C Preferred Stock and the holders of the
Series D Preferred Stock will appoint Robert G. Mitchell as a director of the
Company representing the Series D Preferred Stock, provided that such holders of
preferred stock at their option may appoint other persons as directors of the
Company. For certain biographical information regarding Messrs. Sinnott, Schafer
and Mitchell, see "Management."
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table lists the name, age (as of March 17, 1997) and present
position with the Company for each of the Company's directors and executive
officers:
<TABLE>
<CAPTION>
NAME AGE PRESENT POSITION WITH THE COMPANY(1)
- -------------------------------------- --- --------------------------------------------------------------------
<S> <C> <C>
George B. McCullough.................. 71 Director, Chairman of the Board of Directors
Norman C. Miller...................... 77 Director, Chairman of the Executive Committee
Miles D. Bender....................... 60 Director, President and Chief Executive Officer
Robert H. Kite........................ 42 Director
George N. McDonald.................... 63 Director
Robert V. Sinnott..................... 57 Director
Elwood W. Schafer..................... 68 Director
Jim L. David.......................... 56 Director, Vice President, Exploitation
Bob G. Alexander...................... 63 Director
Robert A. West........................ 58 Director
Robert J. Mitchell.................... 50 Director
Robert A. Imel........................ 38 Senior Vice President and Chief Financial Officer
William T. Jones...................... 51 Senior Vice President, Operations
R. Thomas Fetters, Jr................. 57 Senior Vice President, Exploration
Philip D. Devlin...................... 52 Vice President, General Counsel and Secretary
Gene W. Anderson...................... 54 Vice President, Land
Melissa H. Rutledge................... 30 Controller and Chief Accounting Officer
</TABLE>
- ------------------------
(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 on June 3, 1994 and Mr. Schafer was
11
<PAGE>
appointed to the Board effective September 26, 1995. Messrs. Alexander,
David, West and Mitchell were appointed to the Board on August 29, 1996.
Pursuant to the terms of the Series B Preferred Stock, Series C Preferred
Stock and Series D Preferred Stock, the holders of a majority of the
outstanding shares of each series have the right to appoint one member to
the Company's Board of Directors at all times while such series are
outstanding. Directors generally serve for a term of one year (until the
next annual meeting of shareholders) and until their successors are duly
elected and qualified, or until their death, resignation or removal.
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. 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 Exxon. 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 the Company and to the office of Chairman of the Executive Committee
of the Company. Mr. Miller is the President and owner of Incorp, Inc., a
petroleum consulting firm. 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.
MILES D. BENDER. Since December 17, 1990, Mr. Bender has been President,
Chief Executive Officer 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.
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 President and 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 with a B.S. degree in Psychology and Political Science.
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
12
<PAGE>
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 KAIM Non-Traditional L.P. 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 is on the Board of Directors of Glacier Water Services, Inc. an AMEX
listed vended water company, and Plains Resources, Inc., an AMEX listed oil and
natural gas company. Mr. Sinnott received a Bachelor of Arts from the University
of Virginia, and a MBA from the Graduate School of Business Administration at
Harvard University.
ELWOOD W. SCHAFER. Effective September 26, 1995, Mr. Schafer was appointed
a Director of the Company. Mr. Schafer has been a consultant to KAIM since
January 1993. Mr. Schafer was Managing Director and Chief Petroleum Engineer of
Chemical Bank and its affiliate, Texas Commerce 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 well-site geology. Mr. Schafer
graduated from University of Illinois with a B.S. in geology.
JIM L. DAVID. Mr. David, a founder of Alexander, was appointed a Director
and Vice President, Exploitation of the Company when Alexander merged into
NEG-OK on August 29, 1996. From 1980 until the Merger, Mr. David served as
Executive Vice President of Alexander. From 1977 to 1980, Mr. David was employed
as exploration manager for Reserve Oil, Inc., Northern Division. Mr. David
served as Alaska chief geologist and senior staff geologist for Texas
International from 1973 to 1976. Mr. David graduated with a bachelor of arts
degree in geology from Louisiana Tech University and obtained a master of arts
in geology from the University of Missouri.
BOB G. ALEXANDER. Mr. Alexander, a founder of Alexander, was appointed a
Director of the Company when Alexander merged into NEG-OK on August 29, 1996.
From 1980 until the Merger, Mr. Alexander served as Chairman of the Board,
President and Chief Executive Officer of Alexander. From 1976 to 1980, Mr.
Alexander was Vice President and General Manager of the Northern Division of
Reserve Oil, Inc. and President of Basin Drilling Corp. (subsidiaries of Reserve
Oil and Gas Company). Mr. Alexander attended the University of Oklahoma and
graduated with a bachelor of science degree in geological engineering.
ROBERT A. WEST. Mr. West was appointed a Director of the Company when
Alexander merged into NEG-OK on August 29, 1996. Since 1973, Mr. West has owned
and/or invested in various energy industry service companies including Alexander
Well Services, Inc. and Beacon Fluid Services (formerly Beacon Well Services,
Inc.). Since 1989, he has served as President and majority shareholder of The
West Group, Inc., a vacuum transport and completion fluids service company. Mr.
West is a graduate of The University of Tulsa.
ROBERT J. MITCHELL. Effective August 29, 1996, Mr. Mitchell was appointed a
Director of the Company. Mr. Mitchell has been Senior Vice President--Finance of
ACF Industries Inc. since March 1995 and was Treasurer of ACF Industries Inc.
from December 1984 to March 1995. Mr. Mitchell has also served as President and
Treasurer of ACF Industries Holdings Inc. since August 1993 and as Vice
President, Liaison Officer of Icahn & Co., Inc. since November 1984. From 1987
to January 1993, Mr. Mitchell served as Treasurer of TransWorld Airlines, Inc.
and was the Treasurer of TransWorld Airlines, Inc. when it filed for
13
<PAGE>
reorganization under Chapter 11 of the United States Bankruptcy Code, as
amended, in January 1992. Mr. Mitchell is also a director of Cadus
Pharmaceutical Corporation, a NASDAQ National Market listed pharmaceutical
company.
ROBERT A. IMEL. Effective October 1, 1996, Mr. Imel became the full-time
Chief Financial Officer and Senior Vice President of the Company. From September
1993 to October 1996, Mr. Imel served as Chief Financial Officer of the Company
on a contract basis. From May 1992 to October 1996, Mr. Imel was President of
Imel and Hayes, P.C. and its predecessor. From March 1991 to January 1993, Mr.
Imel was President and Chief Financial Officer of Murexco Petroleum, Inc.,
Dallas, Texas. In May, 1992, Murexco Petroleum, Inc. filed a voluntary
bankruptcy petition and in January 1993 it was converted to a Chapter 7
liquidation. 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. Effective August 29, 1996, Mr. Jones was appointed Senior
Vice President, Operations of the Company. Prior to such appointment, Mr. Jones
was Vice President, Production and Engineering of the Company since July 1994.
After receiving a B.S. degree in Petroleum Engineering at Mississippi State
University, Mr. Jones began his career with Shell Oil Company in June 1968 in
Houston, Texas. In May 1973, Mr. Jones joined Tenneco Oil Company in Denver,
Colorado. After Tenneco Oil, Mr. Jones held various engineering and management
positions with several independent oil companies in Dallas and Ft. Worth, Texas
before moving to Abilene to become Chief Operating officer of Ard Drilling
Company from July 1992 to June 1994.
R. THOMAS FETTERS, JR. Mr. Fetters was appointed Senior Vice President,
Exploration of the Company effective September 18, 1995. 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 filed for personal bankruptcy in June
1993 due to market conditions of real estate at such time and was discharged
from his debts in September 1993. Mr. Fetters holds B.S. and M.S. degrees in
geology from the University of Tennessee.
PHILIP D. DEVLIN. Effective March 1, 1997, Mr. Devlin was appointed Vice
President and General Counsel of the Company and, effective March 20, 1997, the
Board of Directors appointed him Secretary of the Company. From September 1984
to October 1994, Mr. Devlin served as Executive Vice President, General Counsel
and Secretary for Sunrise Energy Services, Inc., a publicly-held natural gas
marketing company. From October 1994 through February 1997, Mr. Devlin acted as
President and Chief Executive Officer of Sunrise Energy Services, Inc. In July
1995, Sunrise Energy Services, Inc. filed to reorganize under Chapter 11 of the
Bankruptcy Code and in February 1997 a Plan of Reorganization was confirmed by
the Bankruptcy Court. Mr. Devlin is licensed by the State Bar of Texas, admitted
to practice before the Supreme Court of the United States and is a past
President and Director of the Natural Gas and Electric Power Association of
North Texas. Mr. Devlin holds a B.A. degree and an M.A. degree from the
University of California and J.D. degree with honors from California Western
School of Law, San Diego, California.
14
<PAGE>
GENE W. ANDERSON. Mr. Anderson was appointed Vice President, Land effective
March 17, 1997. Mr. Anderson has 29 years of land experience, both domestic and
foreign. Most recently, Mr. Anderson was responsible for Enserch Exploration's
land activities in South Louisiana. Prior to that he held the position of
Onshore Land Manager at both Total Minatome Corporation in Houston and PG&E
Resources (DALEN) in Dallas. He held these positions from 1989 through 1995.
From 1975 to 1989, Mr. Anderson held various Land Management positions in
Denver, including Vice President--Land at Energetics Inc. from 1980 to 1984. Mr.
Anderson's career began with Chevron in 1968 and continued until 1975. While at
Chevron, Mr. Anderson held various land positions in both the Rockies and Mid
Continent areas as well as 3 years on the land/legal staff of Chevron Overseas
Petroleum. Mr. Anderson holds B.S. and J.D. degrees from the University of North
Dakota.
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.B.A. degree in Accounting from Texas Tech University
and is currently licensed as a CPA in the State of Texas.
The Company has an Executive Committee, whose members include Messrs.
Miller, Bender, Alexander and McCullough. The Executive Committee acts as
liaison to senior management and in place of the Board of Directors between
regularly scheduled meetings. The Executive Committee held three (3) meetings
during 1996. The Company also has a Finance Committee, whose members are Messrs.
Sinnott, Mitchell, Bender, Schafer and David. The Finance Committee's principal
function is to plan for the financial and capital needs of the Company. The
Finance Committee held one (1) meeting during 1996. The Company's Audit
Committee, composed of Messrs. Kite, McDonald, Mitchell, Alexander, West and
Schafer is responsible for reviewing the audited financials, the scope of audit
coverage and internal control systems with the Company's independent auditors.
The Audit Committee did not meet during 1996. The Company's Compensation
Committee (formerly the Personnel and Compensation Committee) is comprised of
Messrs. McCullough, Miller, Bender, Sinnott, Kite and Mitchell. The Compensation
Committee is charged with the responsibility of administering and interpreting
the Company's various incentive compensation plans, determining bonuses and
approving other compensation issues. The Compensation Committee held two (2)
meetings during 1996. The Compensation Committee includes a subcommittee formed
for the purpose of administering the Company's 1996 Plan. The Company has an
NEG-OK Asset Committee, consisting of Messrs. Alexander, David, Kite, McDonald,
West and Miller. The NEG-OK Asset Committee is charged with the responsibility
for administering the disposition of assets acquired in the merger of Alexander
Energy Corporation with the Company. The NEG-OK Asset Committee did not meet
during 1996.
The Board of Directors held six (6) regular and special meetings during
1996.
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
shareholders. Each executive officer will hold office until the first meeting of
the Board after the annual meeting of shareholders next succeeding his or her
election and until his or her successor is duly elected and qualified, or until
his or her death or resignation or until he or she shall have been removed in
the manner provided in the Company's bylaws.
EXECUTIVE COMPENSATION
The following tables set forth the cash compensation received by the
Company's Chief Executive Officer and each of the next four most highly
compensated executive officers of the Company whose cash compensation exceeded
$100,000 during the fiscal years ended December 31, 1996, 1995, and 1994, and
aggregate option/SAR exercises during the last fiscal year and year end
option/SAR values.
15
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION AWARDS
ANNUAL COMPENSATION(1) --------------------------
RESTRICTED SECURITIES
---------------------- STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) AWARDS($) OPTIONS(#) COMPENSATION($)
- -------------------------------------- --------- --------- ----------- ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
Miles D. Bender....................... 1996 222,694 35,000 -- 200,000(7) --
President and Chief 1995 179,448 50,000 -- 200,000 78,971(6)
Executive Officer 1994 136,187 15,000 3,871(5) -- --
Robert A. Imel........................ 1996 116,098 16,000 -- 150,000(8) --
Senior Vice President and 1995 87,500 -- 26,000(5) 110,000 --
Chief Financial Officer(2) 1994 86,792 -- 21,575(5) -- --
William T. Jones...................... 1996 121,721 35,000 -- 100,000(7) --
Senior Vice President, 1995 97,992 10,000 -- 110,000 --
Operations(3) 1994 45,000 -- 4,075(5) -- --
R. Thomas Fetters, Jr................. 1996 155,000 5,000 131,250(5) 100,000(7) --
Senior Vice President, 1995 43,182 -- -- 50,000 --
Exploration(4)
</TABLE>
- ------------------------
(1) Excludes the aggregate, incremental cost to the Company of perquisites and
other personal benefits, securities or property, the aggregate amount of
which, with respect to the named individual, does not exceed the lesser of
$50,000 or 10% of reported annual salary and bonus for such person.
(2) Effective October 1, 1996, Mr. Imel became employed full time by the Company
as Chief Financial Officer and Senior Vice President. During prior periods
covered by this table, Mr. Imel was employed by the Company on a contract
basis.
(3) Mr. Jones was appointed Senior Vice President, Operations effective August
29, 1996.
(4) Mr. Fetters was appointed Senior Vice President, Exploration effective
September 18, 1995.
(5) At December 31, 1995, Mr. Bender held 247,500 shares of restricted Common
Stock, with a value of $804,375, Mr. Imel held 80,500 shares of restricted
Common Stock, with a value of $261,625 and Mr. Jones held 50,000 shares of
restricted Common Stock, with a value of $162,500. As of December 31, 1996,
all of the aforementioned shares have been registered.
(6) During 1995, the Board of Directors approved payment of $78,971 to Mr.
Bender for services rendered without pay in prior years, and for
reimbursement of certain other expenses.
(7) These option grants are subject to shareholder approval of the 1996 Plan.
(8) Of this amount, 100,000 shares underlying the option grants are subject to
shareholder approval of the 1996 Plan.
16
<PAGE>
OPTION/GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- ----------------------------------------------------------------------------------------------- POTENTIAL REALIZABLE VALUE
NUMBER OF AT ASSUMED ANNUAL RATES OF
SECURITIES PERCENT OF TOTAL STOCK PRICE APPRECIATION
UNDERLYING OPTIONS GRANTED EXERCISE OR FOR OPTION TERM
OPTIONS TO EMPLOYEES IN BASE PRICE EXPIRATION --------------------------
NAME GRANTED(#) FISCAL YEAR ($/SH) DATE 5%($) 10%($)
- ------------------------------------ ------------ ---------------- ------------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Miles D. Bender..................... 200,000(1) 19% $ 3.75 12/06/01 $ 1,005,072 $ 1,328,671
Robert A. Imel...................... 100,000(1) 10% $ 3.75 12/06/01 $ 502,536 $ 664,335
50,000 5% $ 3.00 12/15/97 $ 157,500 $ 165,000
William T. Jones.................... 100,000(1) 10% $ 3.75 12/06/01 $ 502,536 $ 664,335
R. Thomas Fetters, Jr............... 100,000(1) 10% $ 3.75 12/06/01 $ 502,536 $ 664,335
</TABLE>
- ------------------------
(1) These options are subject to approval by the stockholders and vest over a
two year period.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT FISCAL YEAR-END AT FISCAL
SHARES (#) YEAR-END($)
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE(#) REALIZED($) UNEXERCISABLE UNEXERCISABLE(1)
- ----------------------------------------- ------------- ----------- --------------------- --------------------
<S> <C> <C> <C> <C>
Miles D. Bender.......................... 50,000 $ 171,875 $ 200,000/$250,000 $ 209,375/$28,125
Robert A. Imel(2)........................ -- -- $ 85,000/$125,000 $ 122,813/$14,063
William T. Jones(2)...................... -- -- $ 85,000/$125,000 $ 122,813/$14,063
R. Thomas Fetters(2)..................... -- -- $ 25,000/$125,000 $ 14,063/$14,063
</TABLE>
- ------------------------
(1) Based on the closing price of Common Stock on December 31, 1996 of $3.4375.
(2) These individuals did not exercise options during 1996.
The Company does not have any long-term incentive plans or defined benefit
or actuarial plans. Therefore, the tables on long-term incentive plan awards and
pension plans are omitted.
COMPENSATION OF DIRECTORS
The Company compensates non-employee Board of Directors members in the
amount of $1,000 for each official Board of Directors' meeting and $1,000 for
each Board of Directors' committee meeting unless such committee meeting is held
at the time of, or in conjunction with, an official Board of Directors' meeting.
In addition, members of the Board of Directors are generally granted stock
options each year. In December 1996 each director who was a member of the
Executive Committee received options to purchase 37,500 shares of Common Stock,
and each of the other directors received options to purchase 25,000 shares of
Common Stock, which options vest over a two year period. These option grants are
subject to the approval by the shareholders of Proposal 2 regarding the 1996
Plan.
In addition to the above-referenced option grants to all directors of the
Company during 1996, in December 1996, certain of the directors received
additional options to purchase Common Stock for services rendered to the
Company. The number of shares underlying such additional options granted were as
follows: Miles D. Bender--162,500 at an exercise price of $3.75 per share; and
Jim L. David--5,000 at an exercise price of $3.75 per share. These additional
option grants are subject to shareholder approval of the 1996 Plan.
17
<PAGE>
Mr. Norman Miller received $22,500 in 1996 for work performed for the
Company, and an affiliated company of Mr. Miller, Incorp Inc. (which acts as a
petroleum consultant and independent oil and gas producer), was paid $7,500 for
services rendered to the Company by Mr. Miller during 1996. Effective November
11, 1994, Mr. Miller began to receive $500 for each day he works on Company
matters.
Mr. Bob G. Alexander entered into a consulting agreement with the Company
for a term running from September 1996 to September 1999 at a compensation level
of $150,000 per year. Through the end of 1996, Mr. Alexander was paid $50,000
for his services pursuant to such consulting agreement.
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.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
In January 1996, the Company executed employment agreements that have a term
of three years from the effective date of a change in control of the Company
with Miles D. Bender, President and Chief Executive Officer, William T. Jones,
Senior Vice President, Operations, Robert A. Imel, Chief Financial Officer and
Senior Vice President, R. Thomas Fetters, Jr., Senior Vice President,
Exploration and Melissa H. Rutledge, Controller and Chief Accounting Officer. In
March 1997, the Company executed similar employment agreements that have a term
of three years from the effective date of a change of control of the Company
(together with the above-referenced employment agreements, the "Employment
Agreements") with Philip D. Devlin, Vice President, General Counsel and
Secretary and Gene W. Anderson, Vice President, Land. The Employment Agreements
each provide that the three-year term will be rolling (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).
The Employment Agreements define the "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 shareholders 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 Employment Agreements provide for a three year employment term during
which the executive and/or officer receives for each year (i) 100% of the
average of the executive's annual base salary at the time in question and the
executive's annual base salary for each of the preceding two 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" (as defined therein) 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 (a) the executive's annual base salary
then in effect, (b) the average of cash bonuses for each of the three previous
years, and (c) the average of fully-vested 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 become fully vested and remain fully exercisable for
360 days.
In addition to the Employment Agreements discussed above, the Company
entered into an employment agreement with Jim L. David, Vice President,
Exploitation in March 1997 for a two year term, commencing with the date of
consummation of the merger of the Company with Alexander Energy Corporation. In
the event Mr. David resigns for a good reason after a "change of control" as
defined
18
<PAGE>
above, or upon the discharge of Mr. David without cause during the employment
term, Mr. David will receive severance benefits equal to the sum of (i) his
annual base salary then in effect, (ii) his last annual cash bonus and (iii) the
average retirement plan contributions by the Company on his behalf on a fully
vested bases for the last two fiscal years, multiplied by three (3). Mr. David
will also have all stock options previously granted to him become fully vested
and exercisable for a three year period (360 days) following termination. Mr.
David shall continue to receive for a period of one (1) year following
termination all life, accident, disability, medical, dental and other health and
casualty insurance benefits maintained by the Company for its employees.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Miles D. Bender served both as a member of the Compensation Committee of the
Board of Directors of the Company (the "Compensation Committee") and as the
President and CEO of the Company during 1996. Robert V. Sinnott served as a
director and member of the Finance and Compensation Committees during 1996 and
as a director of Plains Resources, Inc., the parent company of Plains, to whom
the Company sold 38.6% of its total oil and natural gas sales during 1996. The
Company's production sales contracts with Plains Resources, Inc. were entered
into in 1992. Mr. Sinnott did not become a director of the Company until 1994.
See "Certain Relationships and Related Transactions."
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee is composed of five Directors and the President
and Chief Executive Officer of National Energy Group, Inc. The Compensation
Committee advises the Company's Board of Directors and management concerning
compensation for its executive officers. Compensation for executive officers is
based on the principles that compensation must be competitive to enable the
Company to motivate, attract and retain highly qualified and talented employees
to lead and grow the Company's business and, at the same time, provide rewards
which are closely linked to the Company's and the individual's performance.
The Compensation Committee considers management skills, long term
performance, operating results, unusual accomplishments as well as economic
conditions and other external events that affect the Company's operations.
In addition to salaries, bonuses and stock options are generally granted
once annually based on performance, length of service or other noted
accomplishments in helping to increase reserves and/or cash flows of the
Company. Options are currently granted under the National Energy Group, Inc.,
1996 Incentive Compensation Plan which was approved by the Board of Directors
and is being submitted to the shareholders for their approval at the June 5,
1997 Annual Meeting. Shares are generally issued annually to executives at
market price on the grant date.
COMPENSATION COMMITTEE
George B. McCullough, Chairman
Norman C. Miller
Robert H. Kite
Robert V. Sinnott
Robert J. Mitchell
Miles D. Bender
19
<PAGE>
CORPORATE PERFORMANCE
The following graph shows a five year comparison of cumulative total
stockholder returns for the Company, the NASDAQ Market Index (the "Broad
Market") and an index of peer companies in the oil and gas industry selected by
the Company (the "Peer Group").
COMPARISON OF CUMULATIVE TOTAL RETURN
OF COMPANY, PEER GROUP AND BROAD MARKET
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
NATIONAL ENERGY GROUP PEER GROUP BROAD MARKET
<S> <C> <C> <C>
1991 $100 $100 $100
1992 150.00 145.11 100.98
1993 240.00 157.85 121.13
1994 320.00 176.49 127.17
1995 560.00 186.76 164.96
1996 550.00 236.43 204.98
</TABLE>
The total cumulative return in investment (change in the year end stock
price plus reinvested dividends) for each of the years for the Company, the
NASDAQ Market Index and the Peer Group is based on the stock price or composite
index beginning at the end of the calendar year 1991. The Company has never paid
dividends on the Company's Common Stock.
The Peer Group Index, is a diversified group of independent oil and gas
companies comprised of Abraxas Petroleum, C.P. N.V.; Arch Petroleum, Inc.; Basin
Exploration, Inc.; Cairn Energy USA, Inc.; Coho Energy, Inc.; Comstock
Resources, Inc.; Gothic Energy Corp.; Houston Energy Corp.; Lomak Petroleum,
Inc.; Panaco, Inc.; and Petrocorp, Inc.
20
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In connection with a 1996 private placement of securities conducted in
connection with the acquisition of, and merger with, Alexander Energy
Corporation (the "Merger"), the Company issued securities and entered into
certain other agreements with investors who beneficially owned or were
affiliates of persons or entities who owned more than five percent of the Common
Stock (assuming conversion of the Company's preferred stock). See "Security
Ownership." On August 29, 1996, the Company consummated the sale for $10.0
million of 100,000 shares of Series D Preferred Stock and 700,000 warrants to
purchase Common Stock at $2.50 a share which was privately placed with High
River. On August 29, 1995, the Company also consummated the sale for $5.0
million of 50,000 shares of Series E Preferred Stock and 350,000 warrants to
purchase Common Stock at $2.50 a share which was privately placed with four
investment partnerships associated with KAIM and two insurance companies (the
"Series E Investors"). See "Security Ownership" and footnotes (2) and (3)
thereto. Both the Series D Preferred Stock and the Series E Preferred Stock are
convertible into shares of the Common Stock at a conversion price of $2.25 per
share of Common Stock.
In connection with the Merger, the Company extended the period during which
the Series B Preferred Stock and the Series C Preferred Stock cannot be redeemed
by the Company from June 14, 1997 to June 14, 1999 and amended the Company's
Certificates of Designations to so prohibit such redemption. As a result,
dividends at a rate of 10% and 10% per annum, respectively, or $525,000 and
$420,000 per year, respectively, will accrue and be payable to holders of such
Preferred Stock. Such holders are KAIM affiliates.
During the year ended December 31, 1996, the Company sold $9,382,466 of oil
and natural gas, or 38.6% of the Company's total oil and natural gas sales, to
Plains. KAIM and investment partnerships associated with KAIM, and other
accounts managed by affiliates of KAIM, own on a fully diluted basis
approximately 17.8% of the issued and outstanding shares of Common Stock of
Plains Resources, Inc. The Company has agreements with Plains that were entered
into in 1992 prior to the Company's association with KAIM, 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 premium. The
premium is based on Plains purchasing substantially all the production of the
Company. Sales to Plains will account for a significant percentage of the
Company's total oil and natural gas sales in 1997. For information on the
ownership of the Company's securities by KAIM and investment partnerships
associated with KAIM, see "Security Ownership."
VOTE REQUIRED
Directors are elected by plurality of the votes cast by the shares entitled
to vote in the election at a meeting at which a quorum is present.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR ALL
NOMINEES AS DIRECTORS.
PROPOSAL 2--RATIFICATION AND APPROVAL OF 1996 INCENTIVE COMPENSATION PLAN
GENERAL
On December 6, 1996, the Board of Directors authorized the adoption, subject
to shareholder approval, of the National Energy Group, Inc. 1996 Incentive
Compensation Plan (the "1996 Plan"), under which employees, consultants,
advisors and directors of the Company will be eligible to receive awards. The
1996 Plan provides for the issuance of appreciation rights, incentive and
non-qualified stock option rights and awards of restricted stock ("Awards").
Other types of incentive-based awards may not be granted under the 1996 Plan.
The 1996 Plan also prohibits the grant of stock option rights for less than 100%
of the market value per share on the date of grant.
21
<PAGE>
If the 1996 Plan is approved by the shareholders, a total of 5,000,000
shares of Common Stock will be reserved for issuance under the 1996 Plan. No
shares of the Company's Common Stock have been issued pursuant to the 1996 Plan;
however, stock option grants to purchase 966,500 shares of Common Stock at an
exercise price of $3.75 per share were made under the 1996 Plan on December 6,
1996, subject to approval of the 1996 Plan by the Company's shareholders. On
March 20, 1997, the Board of Directors also granted incentive stock options
under the 1996 Plan (subject to shareholder approval) to purchase 700,000 shares
of Common Stock to Miles D. Bender at an exercise price of $4.00 per share,
exercisable at any time within five years from the date of grant that the
closing price per share of the Company's Common Stock on the NASDAQ National
Market System (or other exchange on which the Common Stock is traded) has been
$8.00 or greater for a period of not less than thirty (30) consecutive days. The
Board of Directors also granted on March 20, 1997, incentive stock options under
the 1996 Plan (subject to shareholder approval) to purchase the following number
of shares at the closing price of the Common Stock on the NASDAQ National Market
System on March 20, 1997: 25,000 shares to Gene W. Anderson, Vice President,
Land; 10,000 shares to Philip D. Devlin, Vice President, General Counsel and
Secretary; 10,000 shares to Patti Davis-Sebastian, Manager, Human Resources; and
10,000 shares to Bradley A. Cox, Senior Reservoir Engineer. In addition, the
Board of Directors granted 50,000 shares of restricted Common Stock under the
1996 Plan (subject to shareholder approval) to Philip D. Devlin, Vice President,
General Counsel and Secretary, on March 20, 1997.
The pool of shares available under the 1996 Plan will be used for Awards to
employees, consultants, advisors and directors of the Company in the discretion
of a committee appointed by the Board of Directors to administer the 1996 Plan
(the "Committee") or the Board of Directors. See "Management-- Directors and
Executive Officers" for the current composition of the Committee. The Company
currently has 17 officers and directors. Other employees, as well as consultants
and advisors, also will be eligible to receive Awards under the 1996 Plan.
SUMMARY OF THE 1996 PLAN
PURPOSE
The purpose of the 1996 Plan is to provide a means whereby the Company may
provide for grants of Awards to employees (including officers), consultants,
advisors and directors of the Company and any of its subsidiaries, thereby
helping to retain and motivate such individuals, and to encourage the judgment,
initiative and efforts of such individuals by further aligning their interest
with those of the shareholders of the Company.
ADMINISTRATION
The 1996 Plan is to be administered by the Committee or, in the discretion
of the Board, the full Board of Directors. Subject to the requirements of the
1996 Plan, the Committee or the Board will have full and exclusive power to
construe and interpret the 1996 Plan, to determine and designate the persons who
are eligible to participate in the 1996 Plan, to determine the terms of Awards
and generally to answer any and all questions arising under the 1996 Plan. All
decisions, determinations and interpretations by the Committee or the Board
regarding the 1996 Plan will be final and binding on all eligible persons and
participants.
ELIGIBILITY
Any person who is an employee, consultant, advisor or director of the
Company or any of its subsidiaries (a "participant") may be eligible for the
grant of Awards under the 1996 Plan, as determined by the Committee or Board in
its discretion.
22
<PAGE>
GRANT OF AWARDS
Awards may be in the form of incentive stock options, non-qualified stock
options, restricted stock or appreciation rights. The maximum number of shares
of Common Stock that may be issued pursuant to stock options or restricted stock
under the 1996 Plan to a participant in any calendar year may not exceed 900,000
shares of Common Stock.
Within these parameters, the Committee or the Board is authorized to grant
to eligible persons Awards, which may vest either automatically or upon the
occurrence of specified events, including without limitation the achievement of
qualifying performance criteria or the satisfaction of an event or condition
within the control of the recipient of the Award or within the control of
others.
TERMINATION OF AWARDS
All Awards will vest on the schedule determined by the Committee or the
Board as set forth in such Award. Subject to the following, if a participant who
is an employee of the Company ceases for any reason to be such an employee,
including without limitation by reason of death, disability, retirement,
hardship or other special circumstances, the Board may, in its sole discretion,
take any action that it deems to be equitable under the circumstances or in the
best interests of the Company, including waiving or modifying any limitation or
requirement with respect to any such Award under the 1996 Plan or causing
termination of such Award. If an employee is terminated by the Company for any
reason, including without limitation, retirement or disability, such employee
will have thirty (30) days from such termination in which to exercise all Awards
vested and exerciseable on the date of termination. If an employee voluntarily
leaves his employment by the Company for any reason, all Awards not previously
vested and exercised will terminate on the date of resignation. In the event of
the death of a participant, all Awards exerciseable on the date of death will
continue to be exerciseable by the estate or other legal representative of the
deceased until the completion of final administration of the probate estate.
ASSIGNABILITY
The Committee or Board may grant Awards which are, or are not, transferable
without restriction; provided that any incentive stock option ("Incentive
Option") may be transferable only as provided in the Internal Revenue Code, as
amended, and the Treasury Regulations thereunder.
ADJUSTMENT TO AWARDS
The Committee or Board may make or provide for adjustments in the maximum
number of shares covered by the 1996 Plan, the number of shares of Common Stock
covered by outstanding Awards granted thereunder, the option price or grant
price applicable to any such Awards and/or in the kind of shares covered thereby
(including shares of another issuer) as the Committee or Board in its sole
discretion may determine, as required to prevent dilution or enlargement of the
right to participants that otherwise would result from any stock dividend, stock
split, combination of shares, recapitalization or other change in the capital
structure of the Company, merger, consolidation, spin-off, reorganization,
partial or complete liquidation, issuance of rights or warrants to purchase
securities or any other corporate transaction or event having a similar effect.
The Committee or Board may modify, extend or renew outstanding Awards
granted under the 1996 Plan, accept the surrender of Awards outstanding and
authorize the grant of new Awards in substitution therefor, or otherwise modify,
extend or renew outstanding Awards under the 1996 Plan. No modification of an
Award under the 1996 Plan may alter or impair any rights or obligations under
any Award theretofore granted to a participant, without the consent of the
participant, except as necessary (with respect to Incentive Options) to satisfy
the requirements of Section 422 of the Code.
23
<PAGE>
AMENDMENT AND TERMINATION OF THE 1996 PLAN
The Board may insofar as permitted by law, suspend or discontinue from time
to time the 1996 Plan or revise or amend it in any respect whatsoever, and the
1996 Plan as so revised or amended will govern all options thereunder, including
those granted before such revision or amendment. In addition, to the extent
required by applicable law, regulation or rule, any such revision or amendment
shall not take effect without the approval of the holders of a majority of the
outstanding shares of voting stock of all classes of the Company entitled to
vote with respect to such proposal at a meeting of shareholders or by written
consent; and provided further that without prior stockholder approval, no such
revision or amendment shall (i) increase the number of shares of Common Stock
subject to grant as Awards or (ii) change the designation of the class of
employees eligible to receive Awards.
EXPIRATION
Unless previously terminated, the authority to grant options under the 1996
Plan will expire ten (10) years after the effective date of the 1996 Plan, but
such expiration will not affect any option previously made or granted that has
been outstanding.
FEDERAL INCOME TAX TREATMENT
Under current U.S. federal tax law, the following are the U.S. federal
income tax consequences generally arising with respect to awards under the 1996
Plan.
A participant who is granted an Incentive Option does not realize any
taxable income at the time of the grant or at the time of exercise (but in some
circumstances may be subject to an alternative minimum tax as a result of the
exercise). Similarly, the Company is not entitled to any deduction at the time
of grant or at the time of exercise. If the participant makes no disposition of
the shares acquired pursuant to an Incentive Option before the later of two
years from the date of grant and one year from the date of exercise, any gain or
loss realized on a subsequent disposition of the shares will be treated as a
long-term capital gain or loss. Under such circumstances, the Company will not
be entitled to any deduction for federal income tax purposes. If the participant
fails to hold the shares for the foregoing period, the disposal is treated as a
disqualifying disposition. The gain on such disposition is ordinary income to
the participant to the extent of the difference between the option price and the
fair market value on the exercise date (or, if less, the amount realized on the
disposition), and any excess is long-term or short-term capital gain, depending
on the holding period. Under such circumstances, the Company will be entitled to
a tax deduction equal to the ordinary income amount the participant recognizes
in a disqualifying disposition.
A participant who is granted non-qualified Option Rights (I.E., stock
options other than Incentive Options) does not have taxable income at the time
of grant, but does have taxable compensation income at the time of exercise
equal to the difference between the exercise price of the shares and the market
value of the shares on the date of exercise. The Company is entitled to a
corresponding tax deduction for the same amount, assuming the Company fulfills
its reporting obligations under the Code as to the compensation income received
by the participant. In general, the optionee will recognize capital gain or loss
with respect to the difference between the value of any shares tendered to the
Company in satisfaction of the optionee's employment tax or withholding
obligations and his or her tax basis for such shares. However, where an optionee
tenders shares to satisfy all or a portion of the exercise price, (i) the
disposition of such shares by the optionee will not result in gain or loss and a
like number of shares received from the Company will have a basis equal to the
shares tendered for the exercise price and (ii) the additional shares will have
a basis equal to the compensation income recognized with respect to such
exercise (I.E., the fair market value of such additional shares). Upon a
subsequent disposition of the shares received upon exercise of a non-qualified
Option Right, the difference between the amount realized on the disposition and
the basis of the stock should qualify as long-term or short-term capital gain,
depending on the holding period. The tax basis of shares received upon exercise
of the option will generally be the sum of the exercise price and the amount of
taxable compensation income required to be recognized.
24
<PAGE>
The grant of an Appreciation Right (or "AR") will produce no U.S. federal
tax consequences for the participant or the Company. The exercise of an AR
results in taxable income to the participant, equal to the difference between
the total grant price of the AR and the market price of a corresponding number
of shares on the date of exercise, and a corresponding tax deduction to the
Company.
A participant who has been granted Restricted Stock (stock that has not been
registered under applicable securities laws) will not realize taxable income at
the time of the grant, and the Company will not be entitled to a tax deduction
at the time of the grant, unless the participant makes an election to be taxed
at the time of the grant. At such time or times as the restrictions lapse, the
participant will recognize taxable compensation income in an amount equal to the
excess of the fair market value at such time of the shares constituting the
grant of Restricted Stock over the amount, if any, paid for such shares. If the
Company fulfills its reporting obligations as to the compensation, the Company
will be entitled to a corresponding tax deduction, subject to the restrictions
of Code Section 162(m) discussed below. Any dividends paid to the participant
during the restriction period will also be compensation income to the
participant and deductible as such by the Company. The holder of Restricted
Stock may elect to be taxed at the time of grant of the Restricted Stock on the
market value of the shares, ignoring the restrictions, in which case (1) the
Company will be entitled to a deduction at the same time and in the same amount,
(2) dividends paid to the participant during the restriction period will be
taxable as dividends to him and not deductible by the Company, and (3) there
will be no further federal income tax consequences when the restrictions lapse.
Section 162(m) of the Code generally provides that a publicly-held
corporation will not be allowed a deduction for employee compensation paid to
its chief executive officer or to its four highest compensated officers for the
taxable year other than the chief executive officer (each, an "Applicable
Employee") to the extent that such compensation with respect to any such
Applicable Employee exceeds $1 million. Any compensation that qualifies as
"performance-based compensation" is not subject to this deduction limitation.
The Company believes that all Option Rights and all Appreciation Rights awarded
pursuant to the Plan will qualify as performance-based compensation, and the
compensation attributable to such Awards will not, in the taxable year of
exercise, be considered part of any compensation that is subject to the $1
million deduction limitation. However, awards of Restricted Stock will not
qualify as performance-based compensation, and amounts of compensation
attributable to such Awards will be treated, in the year otherwise deductible by
the Company, as compensation that is subject to the deduction limitation.
VOTE REQUIRED
The affirmative vote of the holders of a majority of the shares of the
Common Stock and the Series E Preferred Stock represented in voting as a class
(as previously described), in person or by proxy, at the Meeting is required to
approve the 1996 Plan. If the 1996 Plan does not receive requisite shareholder
approval, the 1996 Plan and all Awards thereunder will terminate and be of no
effect.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR APPROVAL OF
THE NATIONAL ENERGY GROUP, INC. 1996 INCENTIVE COMPENSATION PLAN.
PROPOSAL 3--INDEPENDENT AUDITORS
Ernst & Young LLP served as the Company's independent auditors for 1996. One
or more representatives of Ernst & Young LLP are expected to be present at the
Meeting, will have an opportunity to make a statement if they so desire and will
be available to respond to appropriate questions.
The Board of Directors has selected Ernst & Young LLP to act as its
independent auditors for the 1997 fiscal year and ask for the shareholders'
ratification of such appointment.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR
RATIFICATION OF ERNST & YOUNG LLP AS INDEPENDENT AUDITORS FOR 1997.
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SHAREHOLDER PROPOSALS
Shareholders who wish to include proposals for action at the Company's 1998
annual meeting of shareholders in next year's proxy statement must, in addition
to other applicable requirements cause their proposals to be received in writing
by the Company at its address set forth on the first page of this Proxy
Statement no later than December 30, 1997. Such proposals should be addressed to
the Company's Secretary and may be included in next year's proxy statement if
they comply with certain rules and regulations promulgated by the Securities and
Exchange Commission.
OTHER BUSINESS
The Board of Directors of the Company knows of no other matters to come
before the Meeting, other than those set forth herein and in the accompanying
Notice of Annual Meeting of Shareholders. However, if any other matters should
properly come before the Meeting, it is the intention of the persons named in
the accompanying proxy to vote all proxies given to them in accordance with
their best judgment of such matters.
ANNUAL REPORT
A copy of the Company's Annual Report for the fiscal year ended December 31,
1996 is being mailed with this Proxy Statement to shareholders of record on the
Record Date, but such report is not incorporated herein and is not deemed to be
a part of this proxy solicitation material.
26
<PAGE>
APPENDIX A
NATIONAL ENERGY GROUP, INC.
1996 INCENTIVE COMPENSATION PLAN
National Energy Group, Inc., a Delaware corporation (the "Company"), hereby
establishes this National Energy Group, Inc. 1996 Incentive Compensation Plan
(the "Plan").
1. PURPOSE. The purpose of this Plan is to attract and retain key
employees and directors for the Company and its Subsidiaries and to provide to
such persons incentives and rewards for superior performance.
2. DEFINITIONS. As used in this Plan,
(a) "Appreciation Right" means a right granted pursuant to
Paragraph 5.
(b) "Award" means an Appreciation Right, an Option Right or an award
of Restricted Stock.
(c) "Board" means the Board of Directors of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as in effect from
time to time, and the Treasury Regulations promulgated thereunder.
(e) "Committee" means the committee established pursuant to
Paragraph 13 and, to the extent the administration of this Plan has been
assumed by the Board pursuant to Paragraph 13, the Board.
(f) "Common Stock" means the Common Stock, $.01 par value, of the
Company or any security into which such Common Stock may be changed by
reason of any transaction or event of the type described in Paragraph 9.
(g) "Date of Grant" means the date specified by the Committee on
which a grant of Option Rights, Appreciation Rights or a grant or sale of
Restricted Stock will become effective (which date will not be earlier than
the date on which the Committee takes action with respect thereto).
(h) "Grant Price" means the price per share of Common Stock at which
an Appreciation Right not granted in tandem with an Option Right is
granted.
(i) "Incentive Option" means an Option Right that complies with all
requirements of Section 422 of the Code, or its successor, as amended from
time to time.
(j) "Management Objectives" means the objectives, if any, established
by the Committee that are to be achieved with respect to an Award granted
under this Plan, which may be described in terms of Company-wide
objectives, in terms of objectives that are related to performance of the
division, Subsidiary, department or function within the Company or a
Subsidiary in which the Participant receiving the Award is employed, in
individual objectives for the Participant, or in other terms, and which
will relate to the Performance Cycle determined by the Committee. The
Committee may adjust
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<PAGE>
Management Objectives and any minimum acceptable level of achievement
with respect to any Management Objectives if, in the sole judgment of the
Committee, events or transactions have occurred which are unrelated to
the performance of the Participant and result in a distortion of the
Management Objectives or such minimum acceptable level of achievement.
Management Objectives may, but are not required to, be established to
constitute preestablished, objective performance goals under Code
Section 162(m).
(k) "Market Value per Share" means, at any date, the closing sale
price of the Common Stock on that date (or, if there are no sales on that
date, the last preceding date on which there was a sale) in the principal
market in which the Common Stock is traded.
(l) "Option Agreement" means an agreement evidencing Option Rights
granted to a Participant containing such terms and provisions consistent
with the Plan, as the Committee may approve.
(m) "Option Price" means the purchase price per share payable on
exercise of an Option Right.
(n) "Option Right" means the right to purchase a share of Common
Stock upon exercise of an option granted pursuant to Paragraph 4.
(o) "Participant" means a person who is selected by the Committee to
receive benefits under this Plan and who is at that time an employee,
consultant, advisor or director of the Company or any of its Subsidiaries.
(p) "Performance Cycle" means, in respect of an Award, a period of
time established by the Committee within which the Management Objectives
relating to such Award are to be achieved.
(q) "Restricted Stock" means shares of Common Stock granted or sold
pursuant to Paragraph 6 as to which neither the ownership restrictions nor
the restriction on transfers referred to therein has expired.
(r) "Rule 16b-3" means Rule 16b-3 of the Securities and Exchange
Commission (or any successor rule to the same effect) as in effect from
time to time.
(s) "Spread" means the excess of the Market Value per Share on the
date when an Appreciation Right is exercised over (a) the Option Price
provided for in the related Option Right or (b) if there is no tandem
Option Right, the Grant Price provided for in the Appreciation Right,
multiplied by the number of shares of Common Stock in respect of which the
Appreciation Right is exercised.
(t) "Subsidiary" means any corporation in which at the time the
Company owns or controls, directly or indirectly, not less than 50% of the
total combined voting power represented by all classes of stock issued by
such corporation.
3. SHARES AVAILABLE UNDER PLAN. Subject to adjustment as provided in
Paragraph 9, the shares of Common Stock which may be issued or transferred
and covered by outstanding Awards granted under this Plan will not exceed in
the aggregate 5,000,000 shares, and a Participant will not be awarded Option
Rights, Appreciation Rights and/or Restricted Stock with respect to more than
900,000 shares of Common Stock during any one calendar year. Such shares may
be shares of original issuance or treasury shares or a combination of the
foregoing.
2
<PAGE>
Upon exercise of any Appreciation Rights, there will be deemed to have been
delivered under this Plan for purposes of this Paragraph 3 the number of
shares of Common Stock covered by the Appreciation Rights or the related
Option Rights, regardless of whether such Appreciation Rights were paid in
cash or shares of Common Stock. Subject to the provisions of the preceding
sentence, any shares of Common Stock which are subject to Option Rights or
Appreciation Rights or are awarded or sold as Restricted Stock that are
terminated, unexercised, forfeited or surrendered or which expire for any
reason will again be available for issuance under this Plan. The foregoing
notwithstanding, the aggregate number of shares available under the Plan and
the number of shares as to which Awards may be granted to any Participant
shall, at all relevant times, be determined consistent with the requirements
of Code Section 162(m)(4)(C).
4. OPTION RIGHTS. The Committee may from time to time authorize grants
to any Participant of options to purchase shares of Common Stock upon such
terms and conditions as it may determine in accordance with the following
provisions:
(a) Option Rights may be Incentive Options or Option Rights which do
not qualify under Section 422 of the Code, or a combination of both, or any
particular type of option authorized by the Code from time to time.
(b) Each grant will specify the number of shares of Common Stock to
which it pertains.
(c) Each grant will specify the Option Price, which will not be less
than 100% of the Market Value per Share on the Date of Grant.
(d) To the extent allowed by the Option Agreement evidencing the
grant of Option Rights, the Option Price will be payable (i) in cash or by
check acceptable to the Company, (ii) by the transfer to the Company of
shares of Common Stock having an aggregate fair market value (determined by
multiplying the number of shares transferred by the Market Value per Share
at the date of exercise) equal to the aggregate Option Price, or (iii) by a
combination of such methods of payment. To the extent allowed by the Option
Agreement evidencing the grant of Option Rights, the aggregate Option Price
may be payable, in whole or in part, by delivering a properly executed
notice of exercise of the Option Right to the Company and a broker, with
irrevocable instructions to the Company to deliver to such broker the stock
certificates for the shares issued pursuant to such exercise and
irrevocable instructions to such broker to deliver to the Company, on or
before the settlement date, cash in an amount necessary to pay the
aggregate Option Price for the shares being purchased.
(e) Successive grants may be made to the same Participant whether or
not any Option Rights previously granted to such Participant remain
unexercised.
(f) Each grant may specify a required period or periods of continuous
service by the Participant with the Company or any Subsidiary and/or
Management Objectives to be achieved before the Option Rights or
installments thereof will become exercisable, and any grant may provide for
the earlier exercise of the Option Rights in the event of a change in
control of the Company or other similar transaction or event.
(g) Each grant, the exercise of which, or the timing of the exercise
of which, is dependent, in whole or in part, on the achievement of
Management Objectives may specify a minimum level of achievement in respect
of the specified Management Objectives below which no Options Rights will
be exercisable and may set forth a formula
3
<PAGE>
or other method for determining the number of Option Rights that will be
exercisable if performance is at or above such minimum, but short of
full achievement of the Management Objectives.
(h) The Committee shall determine the term of each Option Right
granted under the Plan; provided, however, that no Option Right will be
exercisable more than ten (10) years from the Date of Grant.
(i) Each grant of Option Rights will be evidenced by an Option
Agreement executed by the Company and the Participant and delivered to the
Participant.
5. APPRECIATION RIGHTS. The Committee may also from time to time
authorize grants to any Participant of Appreciation Rights upon such terms
and conditions as it may determine in accordance with this Paragraph.
Appreciation Rights may be granted in tandem with Option Rights or separate
and apart from a grant of Option Rights. An Appreciation Right will be a
right of the Participant granted such Award to receive from the Company upon
exercise an amount which will be determined by the Committee at the Date of
Grant and will be expressed as a percentage of the Spread (not exceeding
100%) at the time of exercise. An Appreciation Right granted in tandem with
an Option Right may be exercised only by surrender of the related Option
Right. Each grant of an Appreciation Right may utilize any or all of the
authorizations, and will be subject to all of the limitations, contained in
the following provisions:
(a) Each grant will state whether it is made in tandem with Option
Rights and, if not made in tandem with any Option Rights, will specify the
number of shares of Common Stock in respect of which it is made.
(b) Each grant made in tandem with Option Rights will specify the
Option Price and each grant not made in tandem with Option Rights will
specify the Grant Price, which in either case will not be less than 100% of
the Market Value per Share on the Date of Grant.
(c) Any grant may specify that the amount payable on exercise of an
Appreciation Right may be paid by the Company in (i) cash, (ii) shares of
Common Stock having an aggregate Market Value per Share equal to the Spread
or (iii) any combination thereof, as determined by the Committee in its
sole discretion at the time of payment.
(d) Any grant may specify that the amount payable on exercise of an
Appreciation Right may not exceed a maximum specified by the Committee at
the Date of Grant (valuing shares of Common Stock for this purpose at their
Market Value per Share at the date of exercise).
(e) Each grant will specify the required period or periods of
continuous service by the Participant with the Company or any Subsidiary
and/or Management Objectives to be achieved before the Appreciation Rights
or installments thereof will become exercisable, and will provide that no
Appreciation Right may be exercised except at a time when the Spread is
positive and, with respect to any grant made in tandem with Option Rights,
when the related Option Right is also exercisable. Any grant may provide
for the earlier exercise of the Appreciation Rights in the event of a
change in control of the Company or other similar transaction or event.
(f) Each grant the exercise of which, or the timing of the exercise
of which, is dependent, in whole or in part, on the achievement of
Management Objectives may
4
<PAGE>
specify a minimum level of achievement in respect of the specified
Management Objectives below which no Appreciation Rights will be
exercisable and may set forth a formula or other method for determining
the number of Appreciation Rights that will be exercisable if performance
is at or above such minimum but short of full achievement of the Management
Objectives.
(g) Each grant of an Appreciation Right will be evidenced by an
agreement executed on behalf of the Company by any officer and delivered to
and accepted by the Participant receiving the grant, which agreement will
describe such Appreciation Right, identify any Option Right granted in
tandem with such Appreciation Right, state that such Appreciation Right is
subject to all the terms and conditions of this Plan and contain such other
terms and provisions, consistent with this Plan, as the Committee may
approve.
6. RESTRICTED STOCK. The Committee may also from time to time
authorize grants or sales to any Participant of Restricted Stock upon such
terms and conditions as it may determine in accordance with the following
provisions:
(a) Each grant or sale will constitute an immediate transfer of the
ownership of shares of Common Stock to the Participant in consideration of
the performance of services, entitling such Participant to voting and other
ownership rights, but subject to the restrictions hereinafter referred to.
Each grant or sale may limit the Participant's dividend rights during the
period in which the shares of Restricted Stock are subject to any such
restrictions.
(b) Each grant or sale will specify the Management Objectives, if
any, that are to be achieved in order for the ownership restrictions to
lapse. Each grant or sale that is subject to the achievement of Management
Objectives will specify a minimum acceptable level of achievement in
respect of the specified Management Objectives below which the shares of
Restricted Stock will be forfeited and may set forth a formula or other
method for determining the number of shares of Restricted Stock with
respect to which restrictions will lapse if performance is at or above such
minimum but short of full achievement of the Management Objectives.
(c) Each such grant or sale may be made without additional
consideration or in consideration of a payment by such Participant that is
less than the Market Value per Share at the Date of Grant.
(d) Each such grant or sale will provide that the shares of
Restricted Stock covered by such grant or sale will be subject, for a
period to be determined by the Committee at the Date of Grant, to one or
more restrictions, including, without limitation, a restriction that
constitutes a "substantial risk of forfeiture within the meaning of Section
83 of the Code and the regulations of the Internal Revenue Service
thereunder, and any grant or sale may provide for the earlier termination
of such period in the event of a change in control of the Company or other
similar transaction or event.
(e) Each such grant or sale will provide that during the period for
which such restriction or restrictions are to continue, the transferability
of the Restricted Stock will be prohibited or restricted in a manner and to
the extent prescribed by the Committee at the Date of Grant (which
restrictions may include, without limitation, rights of repurchase or first
refusal in the Company or provisions subjecting the Restricted Stock to
continuing restrictions in the hands of any transferee).
5
<PAGE>
(f) Each grant or sale of Restricted Stock will be evidenced by an
agreement executed on behalf of the Company by any officer and delivered to
and accepted by the Participant and containing such terms and provisions,
consistent with this Plan, as the Committee may approve.
(g) Shares of Common Stock transferred pursuant to a grant of
Restricted Stock will be held in escrow pursuant to an agreement
satisfactory to the Committee until such time as the restrictions on
transfer have expired.
7. DIVIDENDS AND DIVIDEND EQUIVALENTS. If an Award is granted in the
form of Restricted Stock or Appreciation Rights, the Committee may choose, at
the time of the grant of the Award, to include as part of such Award an
entitlement to receive dividends or dividend equivalents, subject to such
terms, conditions, restrictions and limitations, if any, as the Committee may
establish. Dividends and dividend equivalents shall be paid in such form and
manner and at such time as the Committee shall determine. All dividends or
dividend equivalents which are not paid currently may, at the Committee's
discretion, accrue interest or be reinvested into additional shares of Common
Stock.
8. TRANSFERABILITY. The Committee may grant Awards which are, or are not,
transferable without restriction; provided, however, that any Incentive
Option may be transferable only by will or the laws of descent and
distribution and any Incentive Option may be exercisable during the
Participant's lifetime only by the Participant or by the Participant's
guardian or legal representative.
9. ADJUSTMENTS. The Committee may make or provide for such adjustments
(i) in the maximum number of shares specified in Paragraph 3, (ii) in the
numbers of shares of Common Stock covered by outstanding Option Rights and
Appreciation Rights granted hereunder, (iii) in the Option Price or Grant
Price applicable to any such Option Rights and Appreciation Rights, and/or
(iv) in the kind of shares covered thereby (including shares of another
issuer), as the Committee in its sole discretion, exercised in good faith,
may determine is equitably required to prevent dilution or enlargement of the
rights of Participants that otherwise would result from any stock dividend,
stock split, combination of shares, recapitalization or other change in the
capital structure of the Company, merger, consolidation, spin-off,
reorganization, partial or complete liquidation, issuance of rights or
warrants to purchase securities or any other corporate transaction or event
having an effect similar to any of the foregoing.
10. MODIFICATION, EXTENSION AND RENEWAL OF AWARDS. Subject to the terms
and conditions of the Plan, the Committee may modify, extend or renew
outstanding Awards granted under the Plan, or accept the surrender of Awards
outstanding hereunder (to the extent not theretofore exercised) and authorize
the granting of new Awards hereunder in substitution therefor (to the extent
not theretofore exercised) or otherwise modify, extend or renew outstanding
Awards under the Plan. However, no modification, extension or renewal of an
Award granted hereunder shall, without the consent of the Participant, alter
or impair any rights or obligations under any Award theretofore granted
hereunder to such Participant under the Plan, except as may be necessary,
with respect to Incentive Options, to satisfy the requirements of Section 422
of the Code. Moreover, the foregoing notwithstanding, the Committee shall
have no power to make a change pursuant to this Paragraph to the extent such
change would cause an Award that is intended to qualify as performance-based
compensation under Code Section 162(m)(4)(C) to fail to so qualify.
11. FRACTIONAL SHARES. The Company will not be required to issue any
fractional share of Common Stock pursuant to this Plan. The Committee may
provide for the elimination of
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<PAGE>
fractions or for the settlement of fractions in cash.
12. WITHHOLDING TAXES. To the extent that the Company is Required to
withhold federal, state, local or foreign taxes in connection with any payment
made or benefit realized by a Participant or other person under this Plan, or is
requested by a Participant to withhold additional amounts with respect to such
taxes, and the amounts available to the Company for such withholding are
insufficient, it will be a condition to the receipt of such payment or the
realization of such benefit that the Participant or such other person make
arrangements satisfactory to the Company for payment of the balance of such
taxes required or requested to be withheld, which arrangements in the discretion
of the Committee may include relinquishment of a portion of such benefit.
13. ADMINISTRATION OF THE PLAN.
(a) Unless the administration of this Plan has been expressly assumed
by the Board pursuant to a resolution of the Board, this Plan will be
administered by a committee of the Board, which at all times will consist
solely of not less than two directors appointed by the Board, each of whom
will be a "Non-Employee Director" within the meaning of Rule 16b-3 and an
"outside director" within the meaning of Section 162(m) of the Code. A
majority of the Committee will constitute a quorum, and the action of the
members of the Committee (i) present at any meeting at which a quorum is
present, or (ii) by unanimous written consent, will be the acts of the
Committee. The Committee may delegate to one or more employees, agents or
officers of the Company or its Subsidiaries, or to one or more third party
consultants or advisors, such ministerial duties related to the operation
of the Plan as it may deem appropriate.
(b) The interpretation and construction by the Committee of any
provision of this Plan or of any agreement, notification or document
evidencing the grant of an Award and any determination by the Committee
pursuant to any provision of this Plan or of any such agreement,
notification or document will be final and conclusive. No member of the
Committee will be liable for any such action or determination made in good
faith.
14. AMENDMENTS, TERMINATION OF EMPLOYMENT, ETC.
(a) The Board may, insofar as permitted by law, suspend or
discontinue the Plan or revise or amend it in any respect whatsoever and
the 1996 Plan as so revised or amended will govern all options thereunder,
including those granted before such revision or amendment, except that no
such amendment will alter or impair or diminish in any material respect any
rights or obligations under any option theretofore granted under the 1996
Plan without the consent of the person to whom such option was granted;
provided, however, that, to the extent required by applicable law,
regulation, or rule, any such revision or amendment shall not take effect
without the approval of the holders of a majority of the outstanding shares
of voting stock of all classes of the Company present, or represented, and
entitled to vote with respect to such proposal at a meeting of stockholders
duly held in accordance with Delaware law or by a written consent signed by
holders of a majority of the shares of the Company entitled to vote with
respect to such proposal; and further provided that, without such prior
stockholder approval, no such revision or amendment shall (i) increase the
number of shares of the Common Stock subject to grant as Awards, or (ii)
change the designation of the class of Participants eligible to receive
Awards.
(b) In case of termination of employment by reason of death,
disability or
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<PAGE>
retirement, or in the event of hardship or other special circumstances, of
a Participant who holds an Option Right or Appreciation Right not
immediately exercisable in full, or any Restricted Stock as to which
ownership restrictions or the prohibition or restriction on transfer has
not lapsed, the Board may, in its sole discretion, take any action that
it deems to be equitable under the circumstances or in the best interests
of the Company, including waiving or modifying any limitation or
requirement with respect to any Award under this Plan.
(c) If an employee is terminated by the Company for any reason,
including without limitation, retirement or disability, such employee will
have thirty (30) days from such termination in which to exercise all Awards
vested and exerciseable on the date of termination. If an employee
voluntarily leaves his employment by the Company for any reason, all Awards
not previously vested and exercised will terminate on the date of
resignation. In the event of the death of a Participant, all Awards
exerciseable on the date of death will continue to be exerciseable by the
estate or other legal representative of the deceased until the completion
of final administration of the probate estate.
(d) This Plan will not confer upon any Participant any right with
respect to continuance of employment or other service with the Company or
any Subsidiary, nor will it interfere in any way with any right the Company
or any Subsidiary would otherwise have to terminate such Participant's
employment or other service at any time. No Participant shall have any
rights as a stockholder as a result of participation in the Plan until the
date of issuance of a stock certificate in the Participant's name except,
in the case of Restricted Stock, to the extent provided in Paragraph 6
hereof. To the extent any person acquires a right to receive payments from
the Company under the Plan, such rights shall be no greater than the rights
of an unsecured creditor of the Company.
15. APPROVAL BY THE STOCKHOLDERS. The Plan is dated December 6, 1996,
which is the date upon which the Board adopted the Plan. However, if this
Plan is not approved by the holders of a majority of the outstanding shares
of voting stock of all classes of the Company present, or represented, and
entitled to vote with respect to such proposal at a meeting of stockholders
duly held in accordance with Delaware law or by a written consent signed by
holders of a majority of the shares of the Company entitled to vote with
respect to such proposal within a period ending twelve (12) months after the
date the Board adopts the Plan, none of the Awards granted hereunder shall be
effective and all such Awards shall be canceled and treated for all purposes
as though they had never been granted.
16. INDEMNIFICATION OF COMMITTEE. In addition to such other rights of
indemnification as they may have as directors of the Company or as members of
the Committee, the members of the Committee shall be indemnified by the
Company against the reasonable expenses, including attorneys' fees actually
and reasonably incurred in connection with the defense of any action, suit or
proceeding, or in connection with any appeal therein, to which they or any of
them may be a party by reason of any action taken or failure to act under or
in connection with the Plan or any Award granted hereunder, and against all
amounts paid by them in settlement thereof (provided such settlement is
approved by a majority of the disinterested directors of the Company or by
independent legal counsel selected by the Company) or paid by them in
satisfaction of a judgment in any such action, suit or proceeding, except in
relation to matters as to which it shall be adjudged in such action, suit or
proceeding that a member of the Committee is liable for gross negligence or
intentional and willful misconduct in the performance of his duties; provided
that within 60 days after institution of any such action, suit or proceeding,
such member of the Committee shall in writing offer the Company the
opportunity, at its own expense, to handle and
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defend the same.
The foregoing provisions shall be in addition to all rights to
indemnification and advancement of expenses to which the Committee members
may be entitled pursuant to any provision of the Certificate of Incorporation
or Bylaws of the Company, agreement, vote or consent of stockholders of the
Company, statute, or otherwise.
17. DURATION, EARLY TERMINATION. No Awards may be granted under this Plan
after the date that is ten (10) years after the date the Plan was adopted by the
Board. This Plan may be terminated any time before ten (10) years from the date
the Board adopted the Plan, provided that such termination shall have no adverse
effect on an Award existing at the time of such termination.
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APPENDIX B
PROXY
HOLDERS OF COMMON STOCK AND CONVERTIBLE PREFERRED STOCK, SERIES E
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
<TABLE>
<S> <C>
NATIONAL ENERGY GROUP, INC. The undersigned hereby appoints Robert A.
4925 GREENVILLE AVENUE, SUITE 1400 Imel and Philip D. Devlin as Proxies, each
DALLAS, TX 75206 with the power to appoint his substitute, and
hereby authorizes them to represent and to
vote, as designated below, all the shares of
Common Stock and Convertible Preferred Stock,
Series E ("Series E Preferred Stock") (which
for voting purposes will be considered those
number of shares of Common Stock which the
Series E Preferred Stock could be converted
into as April 21, 1997) of National Energy
Group, Inc. held of record by the undersigned
on April 21, 1997, at the annual meeting of
shareholders to be held on June 5, 1997 or
any adjournment thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL NOMINEES AND IN FAVOR OF ALL PROPOSALS.
1. ELECTION OF DIRECTORS FOR ALL NOMINEES LISTED BELOW EXCEPT
AS INDICATED TO THE CONTRARY BELOW / /
WITHHOLD AUTHORITY TO
VOTE FOR ALL NOMINEES LISTED BELOW / /
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
George B. McCullough Norman C. Miller Miles D. Bender Robert H. Kite
George N. McDonald Jim L. David Bob J. Alexander Robert A. West
</TABLE>
<TABLE>
<S> <C>
(INSTRUCTION To withhold authority to vote for any individual nominee, write that
nominee's name in the space provided here.)
- -----------------------------------------------------------------------------------------
2. PROPOSAL TO APPROVE THE NATIONAL ENERGY GROUP, INC. 1996 INCENTIVE COMPENSATION PLAN
/ / FOR / / AGAINST / / ABSTAIN
3. PROPOSAL TO RATIFY THE APPOINTMENT OF ERNST & YOUNG LLP AS INDEPENDENT AUDITORS OF
NATIONAL ENERGY GROUP, INC.
/ / FOR / / AGAINST / / ABSTAIN
</TABLE>
(Please Date and Sign on Reverse Side)
<PAGE>
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
"FOR ALL NOMINEES" IN PROPOSAL 1, "FOR" PROPOSALS 2 AND 3, AND IN ACCORDANCE
WITH THE DIRECTION OF THE PERSONS VOTING THIS PROXY WITH RESPECT TO ANY OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.
YOU MAY REVOKE THIS PROXY AT ANY TIME PRIOR TO A VOTE THEREIN.
<TABLE>
<C> <S>
Please sign below exactly as name
appears. When shares are held by joint
tenants, both should sign. When
signing as attorney, executor,
administrator, trustee or guardian,
please give full title as such. If a
corporation, please sign in full
corporate name by President or other
authorized officer. If a partnership,
please sign in partnership name by
authorized person.
</TABLE>
<TABLE>
<C> <S>
DATED _______________________________ , 1997 -------------------------------------------------------------
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY Signature if held jointly
CARD PROMPTLY USING THE ENCLOSED ENVELOPE
-------------------------------------------------------------
Signature
</TABLE>
