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As filed with the Securities and Exchange Commission on January 21, 1997
Registration No. 333-____
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
FORM S-3
Registration Statement
Under
The Securities Act of 1933
NATIONAL ENERGY GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 58-1922764
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
4925 Greenville Avenue, Suite 1400, Dallas, Texas 75206
(214) 692-9211
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(Address, including zip code, and telephone number, including area code of
registrant's principal executive offices)
Miles D. Bender
President and
Chief Executive Officer
National Energy Group, Inc.
4925 Greenville, Avenue, Suite 1400
Dallas, Texas 75206
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(Name, address, including zip code, and telephone number, including area code,
of agent for service)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS
PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box: /X/
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CALCULATION OF REGISTRATION FEE
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Proposed Proposed
Title of each maximum maximum
class of offering aggregate Amount of
securities to Amount to be price per offering registration
be registered registered share price fee
<S> <C> <C> <C> <C>
Common Stock 11,449,330 shares $4.375 (1) $50,090,819 (1) $15,179.02 (1)
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(1) Estimated solely for the purpose of calculating the registration fee and
based on the high and low sales prices, as reported by the National Association
of Securities Dealers, Inc. on January 17, 1997.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
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NATIONAL ENERGY GROUP, INC.
CROSS-REFERENCE SHEET PURSUANT TO ITEM 501(B) OF REGULATION S-K
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Location in Registration
Form S-3 Item Statement and Prospectus
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<S> <C>
1. Forepart of Registration Statement and Outside
Front Cover Page of Prospectus...................... Facing Page; Outside Front Cover Page of Registration
Statement and Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus.......................................... Inside Front Cover Page of Registration Statement and
Prospectus; Available Information
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges........................... Risk Factors
4. Use of Proceeds..................................... Use of Proceeds
5. Determination of Offering Price..................... Not Applicable
6. Dilution............................................ Not Applicable
7. Selling Security Holders............................ Selling Stockholders
8. Plan of Distribution................................ Plan of Distribution
9. Description of Securities to be Registered.......... Description of Securities
10. Interests of Named Experts and Counsel.............. Legal Matters, Experts
11. Material Changes.................................... Incorporation of Work Document by Reference
12. Incorporation of Certain Information by Reference... Incorporation of Certain Documents by Reference
13. Disclosure of Commission Position on Disclosure of Commission Position on Indemnification
Indemnification for Securities Act Liabilities...... for Securities Act Liabilities
</TABLE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
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Location in Registration
Form S-3 Item Statement and Prospectus
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<S> <C>
14. Other Expenses of Issuance and Distribution......... Other Expenses of Issuance and Distribution
15. Indemnification of Directors and Officers........... Indemnification of Directors and Officers
16. Exhibits............................................ Exhibits
17. Undertakings........................................ Undertakings
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Subject to Completion, dated January 21, 1997
PROSPECTUS NATIONAL ENERGY GROUP, INC.
11,449,330 SHARES OF COMMON STOCK
Of the 11,449,330 shares (the "Shares") of Common Stock, $.01 par value
("Common Stock") of National Energy Group, Inc., a Delaware corporation (the
"Company") offered hereby, 2,505,164 shares are being offered by certain
Selling Stockholders (as defined herein) of the Company, 2,277,500 shares are
to be offered for resale upon the exercise of warrants (the "Warrants") held by
certain entities (the "Warrant Holders"), 4,444,444 shares are to be offered
for resale upon conversion of the Convertible Preferred Stock,Series D ("Series
D Preferred Stock") by the Series D Holder (as defined herein) and 2,222,222
shares are to be offered for resale upon conversion of the Convertible
Preferred Stock, Series E ("Series E Preferred Stock") by the Series E Holders
(as defined herein). See "Selling Stockholders." The Shares will be sold by the
Selling Stockholders and, upon exercise of the Warrants, by the Warrant
Holders, and, upon conversion of the Series D Preferred Stock, by the Series D
Holder, and, upon conversion of the Series E Preferred Stock, by the Series E
Holders, from time to time at the then prevailing market prices or otherwise.
Since September 1, 1995, the Company's Common Stock has been trading on
the NASDAQ National Market System. The Common Stock previously traded on the
NASDAQ Small Cap Market. The Company's symbol is "NEGX." On January 17, 1997,
the last sales price for the Company's Common Stock was $4.31.
The Company will receive no portion of the proceeds of the sale of the
Shares offered hereby and will bear the expenses incident to their
registration.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
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Price to Proceeds
Public (1) to Selling
Stockholders(l)(2)
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<S> <C> <C>
Per Share of
Common Stock $ _______ $_______
Maximum Offering $ _________________ $___________________
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</TABLE>
(1) Assumes that the shares of Common Stock are sold at $4.375 (the average
of the high and low sales prices as of January 17, 1997) and that
all shares offered hereby are sold.
(2) Before deducting expenses of the offering, estimated at $_________ which
are payable by the Company,
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AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES VARIOUS RISKS. SEE
"RISK FACTORS" ON PAGES 4-10.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY SHARES IN ANY JURISDICTION TO ANY PERSON TO
WHOM SUCH OFFER OR SOLICITATION IS UNLAWFUL.
The date of this Prospectus is January , 1997.
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AVAILABLE INFORMATION
The Registrant is a reporting company and therefore is subject to the
informational requirements of the Securities Exchange Act of 1934 and in
accordance therewith files reports and other information with the Securities
and Exchange Commission (the "Commission"). Reports and other information filed
by the Registrant may be inspected and copied at the public reference
facilities of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
Washington, D.C. 20549, and at the regional offices of the Commission at 7
World Trade Center, 13th Floor, New York, N.Y. 10048 and at Citicorp Center,
14th Floor, 500 West Madison Street, Chicago, Illinois 60661, and copies of
such material can be obtained from the Public Reference Section of the
Commission, Washington, D.C. 20549 at prescribed rates.
The Company has filed with the Commission a Registration Statement on Form
S-3 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the securities offered hereby. As permitted
by the rules and regulations of the Commission, this Prospectus omits certain
information, exhibits and undertakings contained in the Registration Statement.
For further information with respect to the Company and the securities offered
hereby, reference is made to the Registration Statement, including the exhibits
thereto and the documents incorporated by reference therein. Statements
contained in this Prospectus as to the contents of any contract or other
document are not necessarily complete, and in each instance reference is made
to the copy of such contract or document filed or incorporated by reference as
an exhibit to the Registration Statement, each such statement being qualified
in all respects by such reference.
INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE
Incorporated by reference in this Prospectus as of the date of filing, and
subject in each case to information contained in this Prospectus, are the
following documents filed by the Company with the Commission pursuant to the
Securities Exchange Act of 1934 (the "Exchange Act"):
(i) Annual Report on Form 10-KSB for the fiscal year ended December 31,
1995, and Amendments No. 1 and No. 2 thereto on Form 10-KSB/A dated
April 29, 1996 and May 2, 1996, respectively;
(ii) Current Report on Form 8-K dated June 30, 1995, and Amendment No. 1
thereto on Form 8-K/A dated June 30, 1995;
(iii) Quarterly Report on Form 10-QSB for the quarter ended March 31, 1996;
(iv) Quarterly Report on Form 10-Q for the quarter ended June 30, 1996;
(v) Quarterly Report on Form 10-Q for the quarter ended September 30, 1996;
(vi) Registration Statement on Form S-4 dated July 29, 1996, and Amendment
No. 1 thereto dated August 7, 1996;
(vii) Current Report on Form 8-K, dated August 29, 1996, and Amendment No. 1
thereto on Form 8-K/A dated August 29, 1996; and
(viii) Registration Statement on Form S-4 dated December 13, 1996 and
Amendment No. 1 thereto dated January 13, 1997.
The audited Consolidated Balance Sheets of Alexander Energy Corporation as
of December 31, 1994 and 1995 and the related Consolidated Statements of
Operations, Stockholders' Equity and Cash Flows for each of the three years in
the period ended December 31, 1995 and the unaudited Condensed Consolidated
Balance Sheet of Alexander Energy Corporation as of June 30, 1996, and the
related unaudited Condensed Consolidated Statements of Operations for the three
and six-month periods ended June 30, 1995 and 1996 and the unaudited Condensed
Consolidated Statements of Cash Flows for the six-month periods ended June 30,
1995 and 1996 are incorporated herein by reference and can be found
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on pages F-31 through F-53 in the Proxy Statement filed with the Commission as
part of or in conjunction with, the Registration Statement on Form S-4
(Registration No.333-9045), as amended, originally filed with the Commission on
July 29, 1996, and declared effective August 8, 1996 and pages 1 through 4 in
the Quarterly Report on Form 10-Q of Alexander Energy Corporation, for the
quarter ended June 30, 1996 filed with the Commission on August 14, 1996
respectively.
In addition, all documents subsequently filed by the Company pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Prospectus and prior to the termination of the offering of Common Stock made
hereby shall be deemed to be incorporated by reference into this Prospectus and
to be a part hereof from the date of filing of such documents. Any statement
contained herein or in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for the purposes
of this Prospectus to the extent that a statement contained herein or in any
subsequently filed document which is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom a copy of
this Prospectus is delivered, upon oral or written request of such person, a
copy of any and all of the information incorporated by reference herein (other
than exhibits to such information, unless such exhibits are specifically
incorporated by reference into such information). Such requests should be
directed to Sue Barnard, Vice-President - Administration and Human Resources
and Secretary, National Energy Group, Inc., 4925 Greenville Avenue, Suite 1400,
Dallas, Texas 75206 or by telephone at (214) 692- 9211.
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RISK FACTORS
An investment in the Common Stock offered hereby involves various risks.
Investors should consider carefully all of the information set forth in
this Prospectus and the documents incorporated by reference herein and, in
particular, the following risk factors which have increased the risk associated
with, and may otherwise adversely affect the value of, the Common Stock
registered hereunder.
VOLATILITY OF OIL AND GAS PRICES AND MARKETS
The Company's profitability will be substantially dependent on prevailing
prices for oil and natural gas. The amounts of and prices obtainable for the
Company's oil and gas production will be affected by market factors beyond the
Company's control. Such factors include the extent of domestic production, the
level of imports of foreign oil and gas, the general level of market demand on
a regional, national and worldwide basis, domestic and foreign economic
conditions that determine levels of industrial production, political events in
foreign oil producing regions, and variations in governmental regulations and
tax laws or the imposition of new governmental requirements upon the oil and
gas industry. Prices for oil and gas are subject to wide fluctuation in
response to relatively minor changes in supply of and demand for oil and gas,
market uncertainty and a variety of additional factors that are beyond the
control of the Company. A substantial and prolonged decline in oil and gas
prices could have a material adverse effect upon the Company, including the
inability of the Company to fund planned operations and capital expenditures,
writedowns of the carrying value of its oil and gas properties, and the
Company's inability to meet debt service requirements resulting in defaults
under its indebtedness. In addition, the marketability of the Company's
production will depend in part upon the availability, proximity and capacity of
gathering systems, pipelines and processing facilities.
SUBSTANTIAL INDEBTEDNESS
At January 17, 1997, the Company had approximately $100 million of
indebtedness (including current maturities of long-term indebtedness) as
compared to the Company's stockholders' equity as of September 30, 1996, of
$76.6 million. The Company may incur additional indebtedness under the
amendment to the Credit Facility (as amended, the "Amended Credit Facility").
This level of indebtedness may pose substantial risks to the Company,
including the possibility that the Company might not generate sufficient cash
flow to pay the principal of and interest on its indebtedness. If the Company
is unsuccessful in increasing its proved reserves or realizing production from
its proved undeveloped reserves, the future net revenue from existing proved
reserves may not be sufficient to pay the principal of and interest on the
Company's indebtedness in accordance with its terms. Such indebtedness may also
adversely affect the Company's ability to finance its future operations and
capital needs, and may limit its ability to pursue other business
opportunities.
FUTURE CAPITAL REQUIREMENTS
The Company has made, and will continue to make, substantial capital
expenditures for acquisition, development and production of oil and natural gas
reserves, particularly since a substantial portion of the proved reserves of
the Company consist of proved undeveloped reserves, which require substantial
capital expenditures to prove and develop. The Company has budgeted capital
expenditures of approximately $47.6 million for the three months ended December
31, 1996 and for the year ended 1997, excluding the capital expenditures made
for the acquisition of additional interests in a well in East Bayou Sorrel and
the acquisition of a 88.5% working interest in the Bayou Sorrel Field and to be
made for the pending acquisition of interests in limited partnerships for which
the Company is general partner. The Company is not contractually committed to
expend the budgeted funds. The Company currently expects that available cash,
cash flows from operations, and available borrowings under the Amended Credit
Facility will be sufficient to fund planned capital expenditures for its
existing properties through 1997, including the East Bayou Sorrel acquisitions,
the Bayou Sorrel acquisition and the pending acquisition described above.
However, the Company may need to raise additional capital to fund acquisitions
which may become available to the Company in the future, and the development
thereof.
For periods after 1997, the Company may seek additional capital, if
required, from traditional reserve base borrowing, equity and debt offerings or
joint ventures to further develop and explore its properties and to acquire
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additional properties. The Company's ability to access additional capital will
depend on its continued success in exploring for and developing its oil and
natural gas reserves and the status of the capital markets at the time such
capital is sought. Accordingly, there can be no assurance that capital will be
available to the Company from any source or that, if available, it will be at
prices or on terms acceptable to the Company. Should the Company be unable to
access the capital markets or should sufficient capital not be available, the
development and exploration of the Company's properties could be delayed or
reduced and, accordingly, oil and natural gas revenues and operating results
may be adversely affected.
RESTRICTIONS IMPOSED BY LENDERS
The instruments governing the indebtedness of the Company impose
significant operating and financial restrictions on the Company. Such
restrictions will affect, and in many respects significantly limit or prohibit,
among other things, the ability of the Company to incur additional
indebtedness, pay dividends, repay indebtedness prior to its stated maturity,
sell assets or engage in mergers or acquisitions. These restrictions could also
limit the ability of the Company to effect future financings, make needed
capital expenditures, withstand a future downturn in the Company's business or
the economy in general, or otherwise conduct necessary corporate activities. A
failure by the Company to comply with these restrictions could lead to a
default under the terms of such indebtedness. In the event of default, the
holders of such indebtedness could elect to declare all of the funds borrowed
pursuant thereto to be due and payable together with accrued and unpaid
interest. In such event there can be no assurance that the Company would be
able to make such payments or borrow sufficient funds from alternative sources
to make any such payment. Even if additional financing could be obtained, there
can be no assurance that it would be on terms that are favorable or acceptable
to the Company. In addition, the Company's indebtedness under the Amended
Credit Facility is secured by a substantial portion of the assets of the
Company. The pledge of such collateral to existing lenders could impair the
Company ability to obtain favorable financing.
UNCERTAINTY OF ESTIMATES OF RESERVES AND FUTURE NET REVENUES
There are numerous uncertainties inherent in estimating quantities of
proved reserves, including many factors beyond the control of the Company. The
reserve information incorporated by reference in this Prospectus represents
estimates based on reports prepared by the Company's independent petroleum
engineers, as well as internally generated reports. Petroleum engineering is
not an exact science. Information relating to the Company's proved oil and gas
reserves is based upon engineering estimates. Estimates of economically
recoverable oil and gas reserves and of future net cash flows necessarily
depend upon a number of variable factors and assumptions, such as historical
production from the area compared with production from other producing areas,
the assumed effects of regulations by governmental agencies and assumptions
concerning future oil and natural gas prices, future operating costs, severance
and excise taxes, capital expenditures and workover and remedial costs, all of
which may in fact vary considerably from actual results. For these reasons,
estimates of the economically recoverable quantities of oil and natural gas
attributable to any particular group of properties, classifications of such
reserves based on risk of recovery and estimates of the future net cash flows
expected therefrom prepared by different engineers or by the same engineers at
different times may vary substantially. Actual production, revenues and
expenditures with respect to the Company's reserves will likely vary from
estimates, and such variances may be material. Approximately one-half of the
Company's estimated proved reserves are classified as undeveloped. Either
inaccuracies in estimates of proved undeveloped reserves or the inability to
fund development could result in substantially reduced reserves. In addition,
the timing of receipt of estimated future net revenues from proved undeveloped
reserves will be dependent upon the timing and implementation of drilling and
development activities estimated by the Company for purposes of the reserve
report.
EXPLORATION AND DEVELOPMENT RISKS
Exploration and development of oil and natural gas resources involve a
high degree of risk that no commercial production will be obtained or that the
production will be insufficient to recover drilling and completion costs. The
cost of drilling, completing and operating wells is often uncertain. The
Company's drilling operations may be curtailed, delayed or canceled as a result
of numerous factors, including title problems, weather conditions, compliance
with governmental requirements and shortages or delays in the delivery of
equipment. Furthermore, completion of a well does not assure a profit on the
investment or a recovery of drilling, completion and operating costs.
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GOVERNMENTAL REGULATION
The Company's operations are affected by extensive regulation pursuant to
various federal, state and local laws and regulations relating to the
exploration for and development, production, gathering and marketing of oil and
natural gas and the release of material into the environment or otherwise
relating to protection of the environment. In particular, the Company's oil and
natural gas exploration, development and production, and its activities in
connection with storage and transportation of liquid hydrocarbons are subject
to stringent environmental regulation by governmental authorities in the United
States and in foreign jurisdictions. Such regulations have increased the costs
of planning, designing, drilling, installing, operating and abandoning oil and
natural gas wells and other related facilities.
The Company has expended significant resources, both financial and
managerial, to comply with environmental regulations and permitting
requirements and anticipates that it will continue to do so in the future.
Although the Company believes that its operations are in general compliance
with all such laws and regulations, including applicable environmental laws and
regulations, risks of substantial costs and liabilities are inherent in oil and
natural gas operations, and there can be no assurance that significant costs
and liabilities will not be incurred in the future. Moreover, it is possible
that other developments, such as increasingly strict environmental laws,
regulations and enforcement policies thereunder, and claims for damages to
property, employees, other persons and the environment resulting from the
Company's operations, could result in substantial costs and liabilities in the
future.
OPERATING HAZARDS AND UNINSURED RISKS
In addition to the substantial risk that wells drilled will not be
productive, hazards such as unusual or unexpected geologic formations,
pressures, downhole fires, mechanical failures, blowouts, cratering,
explosions, uncontrollable flows of oil, natural gas or well fluids, pollution
and other physical and environmental risks are inherent in oil and natural gas
exploration and production. These hazards could result in substantial losses to
the Company due to injury and loss of life, severe damage to and destruction of
property and equipment, pollution and other environmental damage and suspension
of operations. The Company carries insurance which it believes is in accordance
with customary industry practices, but, as is common in the oil and natural gas
industry, the Company does not fully insure against all risks associated with
its business either because such insurance is not available or because the cost
thereof is considered prohibitive.
REPLACEMENT OF RESERVES
The Company's success will be largely dependent on its ability to replace
and expand its oil and natural gas reserves through the acquisition of
producing properties and the exploration for and development of oil and natural
gas reserves, both of which involve substantial risks. Without successful
acquisition or drilling ventures, the Company will be unable to replace the
reserves being depleted by production, and its assets and revenues, including
the reserves, will decline. There can be no assurance that the Company's
acquisition and exploration and development activities will result in the
replacement of, or additions to, the Company's reserves. Similarly, there can
be no assurance that the Company will have sufficient capital to engage in its
acquisition, exploration or development activities. Successful acquisition of
producing properties generally requires accurate assessments of recoverable
reserves, future oil and natural gas prices and operating costs, potential
environmental and other liabilities and other factors. Such assessments are
necessarily inexact, and as estimates their accuracy is inherently uncertain.
RISKS OF PURCHASING INTERESTS IN PRODUCING PROPERTIES
Acquisitions of producing oil and gas properties have been a key element
of the Company's operations, and the Company expects to continue to make
acquisitions of producing properties in the future. The Company generally
focuses most of its time and valuation efforts on the more significant
properties. It is generally not feasible for the Company to review in-depth
every property it purchases and all records with respect to such properties.
However, even an in-depth review of properties and records may not necessarily
reveal existing or potential problems, nor will it permit the Company to become
familiar enough with the properties to assess fully their deficiencies and
capabilities. Evaluation of future recoverable reserves of oil, natural gas and
natural gas liquids, which is an integral part of the property selection
process, is a process that depends upon evaluation of existing geological,
engineering and production data, some or all of which may prove to be
unreliable or not indicative of future performance. To the extent the seller
does not operate the properties, obtaining access to properties and records may
be more difficult. Even when problems are identified, the seller may not be
willing or financially able to give contractual protection against such
problems, and the Company may decide to assume environmental and other
liabilities in connection with acquired properties.
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EFFECT OF PRICE RISK HEDGING
The Company may, from time to time, have various swap agreements to fix
the selling price of a portion of its oil and gas. Pursuant to the New Credit
Facility, the Company may not engage in hedging, forward sales or swaps of
crude oil, natural gas or other commodities unless approval is received from
the Banks. In addition, the Company may be required, under certain
circumstances, to hedge pricing risks under the New Credit Facility. While the
use of hedging arrangements limits the downside of adverse price movements, it
may also limit future gains from favorable price movements.
COMPETITION
The oil and natural gas industry is highly competitive. The Company will
compete in acquisitions and the development, production and marketing of oil
and natural gas with major oil companies, other independent oil and gas
concerns, and individual producers and operators. Many of these competitors
have substantially greater financial and other resources than the Company.
Furthermore, the oil and natural gas industry competes with other industries in
supplying the energy and fuel needs of industrial, commercial and other
consumers.
FINANCIAL REPORTING IMPACT OF FULL COST METHOD OF ACCOUNTING
The Company follows the full cost method of accounting for oil and natural
gas properties. Under such method, the net book value of such properties, less
related deferred income taxes, may not exceed a calculated "ceiling." The
ceiling is the estimated after-tax future net revenues from proved oil and
natural gas properties, discounted at 10% per year. In calculating future net
revenues, prices and costs in effect at the time of the calculation are held
constant indefinitely, except for changes which are fixed and determinable by
existing contracts. The net book value is compared to the ceiling on a
quarterly and yearly basis. The excess, if any, of the net book value above the
ceiling is required to be written off as a noncash expense. As a result of
allocating additional cost, under the purchase method of accounting, to the oil
and natural gas properties in connection with the merger with Alexander Energy
Corporation, the Company recognized a noncash write-down of its oil and natural
gas properties of approximately $28.3 million net of deferred taxes. The amount
of the actual writedown was charged to expense in the third quarter of 1996,
the period in which the merger was consummated. At September 30, 1996, the
Company was near the ceiling and there are no assurances that there will not be
any future writedowns under the full cost method of accounting. Any further
decrease in oil and natural gas prices could result in additional writedowns.
LOSSES FROM OPERATIONS
The Company reported net losses for the fiscal years ended December 31,
1994 and 1995 of $611,286 and $225,969, respectively. However, for 1995 the
Company reported income before extraordinary item of $205,793, compared with a
loss before extraordinary item of $489,369 for 1994. The income before
extraordinary item for 1995 includes a $220,582 gain on the sale of marketable
securities. The extraordinary losses reported for 1995 and 1994 of $431,762 and
$121,917, respectively, were due to early extinguishment of long-term debt
which resulted in the write-off of unamortized loan costs of such debt.
Alexander reported net losses for the fiscal years ended December 31, 1994 and
1995 of $1.2 million and $4.5 million, respectively. The $4.5 million loss in
fiscal year 1995 included $2.3 million resulting from a writedown required
under the full cost method of accounting. Both the Company and Alexander
reported net income in the first quarter of 1996. In the second quarter of
1996, the Company reported net income of $435,736 and Alexander reported net
income of $209,564. In the third quarter of 1996, which reflects the merger
with Alexander, the Company reported a net loss of $28.0 million, which
includes a writedown of oil and gas properties of $28.3 million net of tax
benefit. There can be no assurance that the Company will have profitable
operations and therefore generate sufficient cash flow to fund future working
capital requirements and budgeted capital expenditures.
INCREASE IN SCOPE OF OPERATIONS
The Company believes that the recent merger with Alexander and subsequent
acquisitions offer opportunities for long-term efficiencies in operations that
should positively affect future operating results of the Company. However, the
increased scope of operations will present difficult challenges to the Company
due to the increased time and resources required in the management effort.
While the management and Boards of Directors of the Company believe that the
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merger can be effected in a manner that will realize the value of the two
companies, and while a majority of the members of management and the Board of
Directors individually have had experience in combinations of this size, the
Company does not have such experience. Accordingly, there can be no assurance
that the process of effecting the business combination can be effectively
managed to realize the operational efficiencies anticipated to result from the
merger and from subsequent acquisitions.
RELIANCE ON KEY PERSONNEL; DEMANDS OF RAPID GROWTH
The Company is dependent upon its executive officers and key employees,
which includes certain Alexander personnel. The unexpected loss of services of
one or more of these individuals could have a detrimental effect on the
Company. The Company currently does not have key employee insurance to
compensate it for any loss of such key employees. In addition, the continued
growth and expansion of the Company will depend, among other factors, on the
ability to recruit and retain skilled and experienced management and technical
personnel, especially in connection with expanding development programs,
exploration efforts and any future acquisitions. There can be no assurance that
the Company will be successful in such efforts.
SHARES ELIGIBLE FOR PUBLIC SALE
Sales of substantial amounts of Common Stock in the public market could
adversely affect prevailing market prices. Of the approximately 53.5 million
shares of Common Stock outstanding on a fully-diluted basis at January 17,
1997, approximately 37,510,845 shares of Common Stock (which includes
36,196,345 shares of issued and outstanding Common Stock and 1,314,500 shares
of Common Stock issuable pursuant to currently exercisable options and
warrants) are eligible for immediate sale in the public market, subject to
certain limitations under the Securities Act applicable to affiliates of
Alexander. In addition, should the holders of the Series D Preferred Stock and
the Series E Preferred Stock convert their preferred stock and exercise their
warrants, an additional 7,716,666 shares of Common Stock on a fully diluted
basis may be eligible for immediate resale and the availability of such shares
for sale in the public market could adversely affect prevailing market prices.
ABSENCE OF DIVIDENDS
Although the Company has paid cash dividends to holders of the Preferred
Stock, the Company has not paid any cash dividends to holders of Common Stock
and does not anticipate paying cash dividends to holders of Common Stock for
the foreseeable future.
The Senior Notes and Amended Credit Facility contain covenants that limit
the Company's ability to pay cash dividends on its Common Stock. The Amended
Credit Facility allows cash dividends on preferred stock so long as no event of
default exists or would exist as a result of the payment thereof. The Senior
Notes limit the Company's issuance of certain redeemable preferred stock.
CONTROL BY PRINCIPAL SHAREHOLDERS
Richard A. Kayne ("Kayne"), as the President and a director of KAIM, the
general partner of KAIM Non-Traditional L.P. ("L.P."), and investment adviser
to the Kayne Anderson Investors and the other investment partnerships holding
the 10% Cumulative Convertible Preferred Stock, Series B (the "Series B
Preferred Stock"), 10 1/2% Cumulative Convertible Preferred Stock, Series C
(the "Series C Preferred Stock ")and the Series E Preferred Stock, and KAIM, as
general partner of L.P., will be deemed beneficially to own approximately
6,825,548 shares, or 15.9%, of the Common Stock on a fully diluted basis. Due
primarily to the class vote that each of the Series B Preferred Stock and
Series C Preferred Stock has with respect to certain extraordinary
transactions, such as mergers, the KAIM affiliates may be able, either by
themselves or in concert with others, to delay or prevent a change in control
of the Company. In addition, the KAIM affiliates, as the owners of the Series B
Preferred Stock and Series C Preferred Stock, beneficially share the right to
elect one-third of the Board of Directors if, with respect to four dividend
payments, the Company does not pay dividends or pays them in shares of Series B
Preferred Stock or Series C Preferred Stock, as the case may be. If the holders
of the Series B Preferred Stock and Series C Preferred Stock are each entitled
to exercise this right, however, the holders of Series C Preferred Stock may
not exercise their rights until the rights of the holders of the Series B
Preferred Stock terminate. One payment on the Series B Preferred Stock has been
paid in Series B Preferred Stock.
8
<PAGE> 11
Under the Exchange Act, High River Limited Partnership ("High River"),
Riverdale Investors Corp. Inc. ("Riverdale") and Carl C. Icahn will be deemed
beneficially to own approximately 8,212,544 shares, or 19.9%, of the Common
Stock on a fully diluted basis. As the holder of the Series D Preferred Stock,
High River and its affiliates Riverdale and Carl C. Icahn, will have certain
rights if certain events occur that may indicate that the Company is insolvent
or is financially distressed. The member of the Board of Directors appointed by
High River has the right to veto any voluntary bankruptcy filing by the
Company, which filing might be in the best interests of the Company or its
shareholders. In addition, High River will have the right to elect one-half of
the members of the Board of Directors of the Company plus one member (including
the member appointed by the holders of Series D Preferred Stock) if certain
events occur indicating insolvency of the Company, such as an involuntary
bankruptcy filing or a default on indebtedness of the Company in excess of $10
million which are not cured within certain time periods of less than 30 days.
If such rights are exercised, Icahn affiliates will control the Board and may
be able to delay, prevent or cause a change in control of the Company and such
exercise may cause the exclusion of the Common Stock from the Nasdaq National
Market. See "-- No Market for Shares if Series D Preferred Stock Voting Rights
Exercised."
If the Company experiences financial difficulties for a prolonged period
of time so that the rights described above are triggered and exercised and if
the Company fails to make four dividend payments, or makes such payments in
stock, with respect to the Series B Preferred Stock or the Series C Preferred
Stock, the holders of Preferred Stock will have the right to elect at least 83%
of the Company's Board of Directors.
Due to their respective ownership positions and the lack of other holders
of significant blocks of Common Stock, even without exercise of the additional
voting rights they may acquire if the Company experiences certain financial
difficulties, either or all of the Icahn affiliates, on the one hand, and the
KAIM affiliates, on the other hand, may be able, in concert with others, to
direct the election of the entire Board of Directors of the Company and, in
general, to determine the outcome of other matters submitted to the Company's
shareholders for approval, including mergers, consolidations or the sale of all
or substantially all of the Company's assets or to delay or prevent a change in
control of the Company.
NO MARKET FOR SHARES IF SERIES D PREFERRED STOCK VOTING RIGHTS EXERCISED
The Common Stock currently is listed for trading on the Nasdaq National
Market. The Nasdaq has a voting rights policy that prohibits continued listing
of securities of issuers that disenfranchise public common stockholders by any
corporate action or issuance that disparately reduces or restricts the voting
rights of existing common stock shareholders (the "Voting Rights Policy").
Holders of the Series D Preferred Stock have the right to elect one-half
of the Company's Board of Directors plus one if certain events indicating
insolvency or financial distress occur. If similar rights were to be granted to
holders of common stock of an issuer and such holders had not paid for their
proportionate share of the vote, the Nasdaq would deem the exercise of such
rights a violation of the Voting Rights Policy.
The Voting Rights Policy does not apply, however, to any class of security
having a preference or priority over the issuer's common stock as to dividends,
interest payments, redemption or payments on liquidation, if the voting rights
of such securities only become effective as a result of specified events which
reasonably can be expected to jeopardize the issuer's financial ability to meet
its payment obligations to that class of securities. The Company believes that
the Series D Preferred Stock falls within this exclusion from the Voting Rights
Policy, as it has a liquidation preference over Common Stock and the events
triggering the voting rights reasonably can be expected to jeopardize the
Company's ability to pay the liquidation preference. The Nasdaq has advised the
Company, however, that while it does not consider the grant of the Series D
Preferred Stock voting rights a violation of the Voting Rights Policy which
would cause the Nasdaq to take any action, any exercise of those rights would
constitute a violation of the Voting Rights Policy as currently interpreted by
the Nasdaq. As a result, the Nasdaq may exclude the Common Stock from trading
on the Nasdaq National Market. If that happens, no market may exist for the
Company's Common Stock.
The Nasdaq may suspend or terminate inclusion of an otherwise qualified
security on the Nasdaq National Market and may halt trading if an issuer files
for protection under any provision of the federal bankruptcy laws and under
certain other circumstances that indicate a listed issuer is experiencing
financial difficulties. Thus, the Nasdaq already has discretion to suspend the
listing of the Common Stock under some of the circumstances under which Series
D Preferred Stock voting rights may be exercised. Nonetheless, there are other
circumstances under which such rights may be
9
<PAGE> 12
exercised, such as loan agreement defaults, where no other Nasdaq policy would
expressly exclude the Common Stock from trading on the Nasdaq National Market.
If the Nasdaq excluded the Common Stock from the Nasdaq National Market,
the Company would explore other options to provide a means to trade shares of
Common Stock, including trading the Common Stock in the over the counter market
or in the pink sheets or providing other means by which potential sellers and
buyers of Common Stock may contact each other for purposes of trading in the
Common Stock. There can be no assurance these means will provide a market for,
or not adversely affect the price of, the Common Stock.
USE OF PROCEEDS
The net proceeds from the sale of 2,505,164 shares of Common Stock
registered hereunder by the Selling Stockholders will be received by the
Selling Stockholders, and the Company will not receive any portion of such
proceeds. The net proceeds from the sale of 2,277,500 additional shares of
Common Stock, if and when the Warrants are exercised, will be received by the
Warrant Holders, and the Company will not receive any portion of such proceeds.
The Company will use the proceeds from the exercise, if any, of the Warrants
for general corporate purposes and to enhance and exploit the Company's
existing properties, at the time of such exercises. If the Warrants are
exercised in full, the Company will receive $6,291,250 in proceeds. The net
proceeds from the sale of 4,444,444 additional shares of Common Stock, if and
when the Series D Preferred Stock is converted into Common Stock by the Series
D Holder, will be received by the Series D Holder, and the net proceeds from
the sale of 2,222,222 additional shares of Common Stock, if and when the Series
E Preferred Stock is converted into Common Stock by the Series E Holders, will
be received by the Series E Holder; the Company will not receive any portion of
any such proceeds.
10
<PAGE> 13
SELLING STOCKHOLDERS
Prudential Securities Incorporated ("Prudential"), Principal Financial
Securities, Inc. ("Principal"), Hanifen, Imhoff Inc. ("Hanifen"), Araxas Energy
Corporation ("Araxas"), Michael W. Englert, Daniel L. Doss, Faulkinberry Oil
and Gas Company, Inc. ("Faulkinberry"), O'Sullivan Oil & Gas Co., Inc.
("O'Sullivan"), CTM 1995, L.L.C. ("CTM"), Scully Oil and Gas Co., Inc.
("Scully"), The Texas Fuel Company ("Texas Fuel"), New Age Energy, Inc., ("New
Age"), James D. Snyder, Thomas R. Morris, Dawson Resources ("Dawson"), Southern
Onshore Exploration LLC ("Southern"), PANACO, Inc., ("PANACO"), John Eads,
Edwin C. Broun, III, Hallie Houston Eads 1994 Trust ("Hallie 1994 Trust"),
Hallie Houston Eads Trust ("Hallie Trust"), John Carr Eads Trust ("Eads
Trust"), John Carr Eads 1994 Trust ("1994 Trust"), Bronita Black, Bruce Lazier,
Marty Oring, Jim L. David, David E. Grose, Sue Barnard, Robert A. Imel and Lori
Mauk are the selling stockholders hereunder (the "Selling Stockholders").
Prudential received the 122,324 shares of Common Stock it is registering
hereunder in connection with the merger with Alexander Energy Corporation
(Prudential is also a Warrant Holder; see below). Principal and Hanifen
received the 85,000 and 42,500 respective shares of Common Stock they are
registering hereunder for underwriting a public offering of the common stock of
Alexander in 1993. Araxas, Michael W. Englert, Daniel L. Doss, Faulkinberry,
O'Sullivan, CTM, Scully, Texas Fuel, New Age, James D. Snyder, Thomas R.
Morris, and Dawson received the shares they are offering hereunder pursuant to
the sale to the Company of interests in two wells and proved undeveloped
reserves in the South Lake Boeuf field in LaFourche Parish, Louisiana. John
Eads, Edwin C. Broun, III, Hallie Trust, Eads Trust, 1994 Trust and Bronita
Black received the shares they are offering hereunder for introducing the
Company to the owners of the interests in the aforementioned South Lake Boeuf
field. Southern received the shares it is offering hereby pursuant to the sale
of oil and gas leases in Baldwin County, Alabama. PANACO received the shares it
is offering hereby pursuant to the sale to the Company of a 88.5% working
interest in the Bayou Sorrel field in Iberville Parish, Louisiana.
Effective with the Company's merger with Alexander, Jim L. David became
Vice President - Exploitation and a Director of the Company, David E. Grose
became Vice President of Finance and Treasurer and Sue Barnard became Vice
President - Administration and Human Resources and Secretary, and each received
the respective shares offered hereby in connection with agreements with such
individuals. Robert A. Imel is Chief Financial Officer and Senior Vice
President of the Company and received the 50,000 shares registered hereby as
compensation and Lori Mauk, who is Oil and Gas Marketing Coordinator for the
Company, received the 4,500 shares registered hereby as compensation. Messrs.
Lazier and Oring received 7,500 and 5,000 shares, respectively, for services
rendered in connection with various acquisitions of the Company.
Gaines Berland, Inc. ("Gaines"), Principal, Hanifen, Prudential, High
River, Foremost Insurance Company ("Foremost"), Arbco Associates L.P
("Arbco")., Kayne, Anderson Non-traditional Investments
L.P.("Non-Traditional"), Topa Insurance Company ("Topa") and Kayne, Anderson
Offshore Limited ("Offshore") are the Warrant Holders hereunder (the "Warrant
Holders"). For services rendered by Gaines in connection with the Company's
merger with Alexander and the related equity private placement, the Company
issued warrants to Gaines for the purchase of 700,000 shares and 300,000
shares, respectively, of Common Stock at an exercise price of $2.875 per share.
Prudential received warrants to purchase 100,000 shares of the Company's Common
Stock at an exercise price of $4.0875, in connection with the Alexander merger.
High River received warrants to purchase 700,000 shares in connection with its
purchase of the Convertible Preferred Stock, Series D, and such warrants are
exercisable at $2.50 per share. The Series E Holders received warrants to
purchase 350,000 shares in connection with the purchase of the Series E
Preferred Stock, and such warrants are exercisable at $2.50 per share. The
shares of Common Stock underlying all of the warrants described in this
paragraph are being registered hereunder.
On August 29, 1996, High River (the "Series D Holder") purchased 100,000
shares of Series D Preferred Stock, $1.00 per value par share; such shares of
Series D Preferred Stock are convertible into 4,444,444 shares of Common Stock
(which reflects an initial conversion price of $2.25 per share), and such
shares of Common Stock are registered hereunder. Kayne, Kayne, Anderson
Investment Mgmt., Inc. ("KAIM"), Foremost, Arbco, Offense Group Associates
L.P.("Offense"), Nontraditional, Topa and Offshore (the "Series E Holders")
purchased, on August 29, 1996, 50,000 shares of Series E Preferred Stock, $1.00
par value per share; such shares of Series E Preferred Stock are convertible
into 2,222,222 shares of Common Stock (which reflects the initial conversion
price of $2.25 per share) and such shares of Common Stock are registered
hereunder.
11
<PAGE> 14
The following table sets forth, as of January 17, 1997, the name and
address of each Selling Stockholder and Warrant Holder, and the Series D Holder
and the Series E Holders, their respective current beneficial stock holdings
and warrant holdings, and the number of shares that are being offered hereby by
each such stockholder and warrant holder and preferred stockholder, and their
respective stock holdings after the offering.
<TABLE>
<CAPTION>
HOLDINGS PRIOR TO SALE HOLDINGS AFTER SALE(1)
% of % of
Outstanding Shares Outstanding
Common to be No. of Common
No. of Shares Stock(2) Sold(1) Shares Stock(2)
------------- ----------- ------ ------ -----------
<S> <C> <C> <C> <C> <C>
Prudential Securities Incorporated 222,324 (3) (18) 222,324 0 0.0%
One New York Plaza
18th Floor
New York, NY 10292
Principal Financial Securities, Inc. 85,000 (18) 85,000 0 0.0%
909 Fannin, Suite 1900
Houston, TX 77010
Hanifen, Imhoff Inc. 42,500 (18) 42,500 0 0.0%
1125 17th Street, Suite 1600
Denver, CO 80202
Araxas Energy Corporation 763,269 2.1% 763,269 0 0.0%
10200 Grogans Mill Road
Suite 500
The Woodlands, TX 77380
Michael W. Englert 20,192 (18) 20,192 0 0.0%
2009 Persa
Houston, TX 77019
Daniel L. Doss 20,192 (18) 20,192 0 0.0%
3646 Blue Lake
Spring, TX 77388
Faulkinberry Oil and Gas 4,038 (18) 4,038 0 0.0%
Company, Inc.
42 West Rock Wing Place
The Woodlands, TX 77381
O'Sullivan Oil and Gas Co., Inc. 80,816 (18) 80,816 0 0.0%
910 Travis, Suite 2150
Houston, TX 77002
CTM 1995, LLC 475,385 1.3% 475,385 0 0.0%
1201 Louisiana, Suite 1048
Houston, TX 77002
Scully Oil and Gas Co., Inc. 80,815 (18) 80,815 0 0.0%
910 Travis
Suite 2150, Box 134
Houston, TX 77002
The Texas Fuel Company 161,631 (18) 161,631 0 0.0%
11 Greenway Plaza
Suite 2128
Houston, TX 77046
</TABLE>
12
<PAGE> 15
<TABLE>
<S> <C> <C> <C> <C> <C>
New Age Energy, Inc. 76,061 (18) 76,061 0 0.0%
7500 San Felipe, Suite 1030
Houston, TX 77063
James D. Snyder 23,769 (18) 23,769 0 0.0%
2500 Tanglewilde, Suite 410
Houston, TX 77063
Thomas R. Morris 23,769 (18) 23,769 0 0.0%
Post Office Box 644
Edinburg, TX 78540
Dawson Resources 28,523 (18) 28,523 0 0.0%
11211 Katy Freeway, Suite 250
Houston, TX 77079
Southern Onshore Exploration 39,403 (18) 39,403 0 0.0%
LLC
Post Office Box 1684
Midland, TX 79702
PANACO, Inc. 477,612 1.3 % 477,612 0 0.0%
1050 W. Blue Ridge Boulevard
PANACO Building
Kansas City, MO 64145
John Eads 7,458 (18) 7,458 0 0.0%
1201 Louisiana, Suite 3125
Houston, TX 77002
Edwin C. Broun, III 6,215 (18) 6,215 0 0.0%
1201 Louisiana, Suite 3125
Houston, TX 77002
John Carr Eads Trust 155 (18) 155 0 0.0%
1201 Louisiana, Suite 3125
Houston, TX 77002
Hallie Houston Eads Trust 155 (18) 155 0 0.0%
1201 Louisiana, Suite 3125
Houston, TX 77002
Hallie Houston Eads 1994 Trust 777 (18) 777 0 0.0%
1201 Louisiana, Suite 3125
Houston, TX 77002
John Carr Eads 1994 Trust 777 (18) 777 0 0.0%
1201 Louisiana, Suite 3125
Houston, TX 77002
Bronita Black 317 (18) 317 0 0.0%
1201 Louisiana, Suite 3125
Houston, TX 77002
Bruce Lazier 7,500 (18) 7,500 0 0.0%
5949 Sherry Lane, Suite 960
Dallas, TX 75225
</TABLE>
13
<PAGE> 16
<TABLE>
<S> <C> <C> <C> <C> <C>
Marty Oring 5,000 (18) 5,000 0 0.0%
One New York Plaza, 15th Floor
New York, NY 10292
Jim L. David 462,889 (4) 1.3% 10,407 452,482 1.3%
4925 Greenville Avenue
Suite 1400
Dallas, TX 75206
David E. Grose 153,141 (5) (18) 9,211 143,930 (13)
4925 Greenville Avenue
Suite 1400
Dallas, TX 75206
Sue Barnard 10,843 (6) (18) 4,893 5,950 (13)
4925 Greenville Avenue.
Suite 1400
Dallas, TX 75206
Robert A. Imel 240,500 (7) (18) 50,000 190,500 (13)
4925 Greenville Avenue
Suite 1400
Dallas, TX 75206
Lori Mauk 5,520 (8) (18) 4,500 1,020 (13)
4925 Greenville Avenue
Suite 1400
Dallas, TX 75206
Gaines Berland, Inc. 1,568,515 (9) 4.2% 1,000,000 568,515 1.6%
6900 Jericho Turnpike, Suite 308
Syosset, NY 11791
High River Limited Partnership 8,212,544 (10) 19.9% 5,144,444 3,068,100 8.5%
100 South Bedford Road
Mount Kisco, NY 10549
Richard A. Kayne 6,825,548 (11) 15.9% 1,594,779 5,230,769 12.6%
1800 Avenue of Stars, Suite 1424
Los Angeles, CA 90067
Kayne, Anderson Investment 6,825,548 (11) 15.9% 1,594,779 5,230,769 12.6%
Mgmt., Inc.
1800 Avenue of Stars, Suite 1424
Los Angeles, CA 90067
Foremost Insurance Company 771,666 (11) 2.1% 771,666 0 0.0%
c/o Kayne, Anderson Investment
Mgmt., Inc.
1800 Avenue of Stars, Suite 1424
Los Angeles, CA 90067
Arbco Associates L.P. 2,590,437 (12) 6.7% 707,360 1,883,077 5.0%
1800 Avenue of Stars, Suite 1424
Los Angeles, CA 90067
Offense Group Associates L.P. 1,916,481 (13) 5.0% 347,250 1,569,231 4.2%
1800 Avenue of Stars, Suite 1424
Los Angeles, CA 90067
</TABLE>
14
<PAGE> 17
<TABLE>
<S> <C> <C> <C> <C> <C>
Kayne, Anderson Nontraditional 1,876,170 (14) 4.9% 411,555 1,464,615 3.9%
Investments, L.P.
1800 Avenue of Stars, Suite 1424
Los Angeles, CA 90067
Topa Insurance Company 205,777 (15) (18) 205,777 0 0.0%
c/o Kayne, Anderson Investment
Mgmt., Inc.
1800 Avenue of Stars, Suite 1424
Los Angeles, CA 90067
Kayne, Anderson Offshore 128,611 (16) (18) 128,611 0 0.0%
Limited
1800 Avenue of Stars, Suite 1424
Los Angeles, CA 90067
- ----------------------------------------------------------------------------------------------------------------------
Total 21,110,596 (17) 41.3% 11,449,330 9,661,266 22.9%
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Assumes all of the shares offered hereby are sold by the Selling
Stockholders, all Warrants are exercised and the underlying shares
are sold by the Warrant Holders and all shares of Series D Preferred
Stock and Series E Preferred Stock are converted and the underlying
shares of Common Stock are sold by the Series D Holder and Series E
Holders. See "Plan of Distribution."
(2) Based upon 36,196,345 shares of Common Stock outstanding as of
January 17, 1997 and 2,856,015 shares subject to warrants, options
exercisable within 60 days to purchase 161,100 shares, 3,230,769,
2,000,000, 4,444,444 and 2,222,222 shares into which Series B,
Series C, Series D and Series E Preferred Stock converts,
respectively. Assumes the holdings of the individuals and entities
listed prior to sale and after sale are only those shares known by
the Company to be held by those individuals and entities.
(3) Includes 122,324 shares held by Prudential and 100,000 shares
underlying a warrant held by Prudential, all of which are being
registered hereunder.
(4) Includes 10,407 shares which are being registered hereunder and
452,482 shares which are not being registered hereunder. Does not
include options to purchase 30,000 shares which are not yet
exercisable and are not being registered hereunder.
(5) Includes 9,211 shares which are being registered hereunder and
84,011 shares and options to purchase 69,130 shares which are not
being registered hereunder. Does not include options to purchase
5,000 shares which are not yet exercisable and are not being
registered hereunder.
(6) Includes 4,893 shares which are being registered hereunder and
options to purchase 5,950 shares which are not registered hereunder.
Does not include options to purchase 5,000 shares which are not yet
exercisable and are not being registered hereunder.
(7) Includes 50,000 shares which are being registered hereunder, 105,000
shares which are not being registered hereunder and options to
purchase 85,000 shares which are not being registered hereunder.
Does not include options to purchase 125,000 shares which are not
yet exercisable and are not being registered hereunder. Mr. Imel
disclaims beneficial ownership of 40,250 shares as to which he
shares voting and dispositive powers and options to purchase 55,000
shares as to which he shares dispositive power.
15
<PAGE> 18
(8) Includes 4,500 shares which are being registered hereunder and
options to purchase 1,020 shares which are not being registered
hereunder. Does not include options to purchase 10,000 shares which
are not yet exercisable and are not being registered hereunder
(9) Includes 1,000,000 shares registered hereunder for which Warrants
are exercisable and 568,515 shares for which other warrants are
exercisable which are not being registered hereunder.
(10) Assumes conversion of Series D Preferred Stock into 4,444,444 shares
and exercise of a warrant to purchase 700,000 shares, all of which
shares of Common Stock are being registered hereunder. Also includes
3,068,100 shares of Common Stock which are not being registered
hereunder.
(11) Assumes conversion of Series E Preferred Stock into 1,377,779 shares
and exercise of warrants to purchase 217,000 shares, all of which
shares of Common Stock are being registered hereunder. Also assumes
conversion of Series B Preferred Stock and Series C Preferred Stock
to 3,230,769 shares and 2,000,000 shares, respectively, of Common
Stock which are not being registered hereunder. KAIM is general
partner of L.P. and investment adviser to Foremost, Arbco, Offense,
Topa, Nontraditional and Offshore and as such share dispositve and
voting power with Kayne, KAIM and L.P. See "Risk Factors -- Control
by Principal Shareholders."
(12) Assumes conversion of Series E Preferred Stock into 611,110 shares
of Common Stock which shares are being registered hereunder. Also
assumes conversion of Series B Preferred Stock into 1,163,077 shares
and Series C Preferred Stock into 720,000 shares of Common Stock
which are not being registered hereunder.
(13) Assumes conversion of Series E Preferred Stock into 300,000 shares
of Common Stock and the exercise of a warrant to purchase 47,250
shares of Common Stock which are being registered hereunder. Also
assumes conversion of Series B Preferred Stock into 969,231 shares
and Series C Preferred Stock into 600,000 shares of Common Stock
which are not being registered hereunder.
(14) Assumes conversion of Series E Preferred Stock into 355,555 shares
of Common Stock and the exercise of a warrant to purchase 56,000
shares of Common Stock which are being registered hereunder. Also
assumes conversion of Series B Preferred Stock into 904,615 shares
and Series C Preferred Stock into 560,000 shares of Common Stock
which are not being registered hereunder.
(15) Assumes conversion of Series E Preferred Stock into 177,777 shares
of Common Stock and the exercise of a warrant to purchase 28,000
shares of Common Stock which are being registered hereunder.
(16) Assumes conversion of Series E Preferred Stock into 111,111 shares
of Common Stock and the exercise of a warrant to purchase 17,500
shares of Common Stock which are being registered hereunder.
(17) Includes 6,206,046 shares held by the Selling Stockholders,
2,846,015 shares subject to Warrants held by the Warrant Holders,
options held by the Selling Stockholders to purchase 161,100 shares
which are exercisable within 60 days, 3,230,769, 2,000,000,
4,444,444 and 2,222,222 shares into which the Series B, Series C,
Series D and Series E Preferred Stock is respectively convertible.
Does not include options to purchase 165,000 shares held by the
Selling Stockholders which are not yet exercisable.
(18) Less than 1%.
PLAN OF DISTRIBUTION
The shares of Common Stock of the Company owned by each Selling
Stockholder, the shares of Common Stock to be offered for resale by the Warrant
Holders, upon exercise of the Warrants, and the shares of Common Stock to be
16
<PAGE> 19
offered for resale by the Series D Holders and Series E Holders, upon
conversion of the Series D Preferred Stock and Series E Preferred Stock,
respectively, and included in this Prospectus may be offered and sold by such
Selling Stockholder, Warrant Holder, Series D Holder or Series E Holder from
time to time, as determined by such Selling Stockholder, Warrant Holder, Series
D Holder or Series E Holder, at any time while the Registration Statement, of
which this Prospectus is a part, is effective. The Company will not receive any
proceeds from the sales of such shares of Common Stock. All expenses related to
the registration of the Shares hereunder will be borne by the Company.
Each Selling Stockholder, Warrant Holder, Series D Holder or Series E
Holder may from time to time elect to sell shares in the over-the-counter
market and in other market transactions or to sell shares directly in
negotiated transactions, at prices and on terms related to the respective
then-current market prices or otherwise. Such shares may be offered or sold
with or without the participation of underwriters, brokers or dealers. Each
Selling Stockholder, Warrant Holder, Series D Holder or Series E Holders may
also from time to time offer shares to underwriters, brokers or dealers, who
may receive underwriting discounts, concessions or commissions from such
Selling Stockholder, Warrant Holder, Series D Holder or Series E Holders,
and/or the purchasers of shares for whom they act as agent or to whom they sell
as principal or both (which discounts, concessions or commissions will not
exceed those customary in the types of transactions involved). Such offers or
sales may be made: by a block trade in which a broker or dealer, engaged for
the purpose, will attempt to sell the shares as agent, but may position and
resell a portion of the block as principal; to facilitate the transaction, by
purchase by a broker or dealer as principal and resale by such broker or dealer
for its own account; by ordinary brokerage transactions or transactions in
which the broker solicits purchasers; or otherwise. In effecting sales, brokers
or dealers engaged by the Selling Stockholders, Warrant Holders, Series D
Holder or Series E Holders, may arrange for other brokers or dealers to
participate, who in turn may receive underwriting discounts, concessions or
commissions. In addition, any shares of Common Stock held by the Selling
Stockholders, Warrant Holders, Series D Holder or Series E Holders that qualify
for sale pursuant to Rule 144 under the Securities Act of 1933 (the "Act") may
be sold under Rule 144 rather than pursuant to the Registration Statement of
which this Prospectus is a part.
Each Selling Stockholder, Warrant Holder, Series D Holder or Series E
Holders, and any brokers or dealers who participate in the distribution of
Shares of Common Stock of the Company may be deemed to be "underwriters" as
defined in the Act, and the excess of the price received over the amount paid
for such shares and any discounts, commissions or concessions received by any
such brokers or dealers may be deemed to underwriting compensation, discounts
or commissions under the Act.
At the time each Selling Stockholder, Warrant Holder, Series D Holder or
Series E Holder makes a particular offer of shares of Common Stock, such
Selling Stockholder, Warrant Holder, Series D Holder or Series E Holder will
provide the Company with information, to the extent required, sufficient to
prepare a Supplement to this Prospectus which will set forth the aggregate
amount of shares being offered and the terms of the offering, including the
name or names of any underwriters, brokers or dealers, any discounts,
commissions and other items constituting compensation from such Selling
Stockholder, Warrant Holder, Series D Holder or Series E Holder, and any
discounts, commissions or concessions allowed or reallowed or paid to dealers.
DESCRIPTION OF SECURITIES
The authorized capital stock of the Company consists of 100,000,000 shares
of Common Stock, par value $.01 per share ("Common Stock"), and 1,000,000
shares of Preferred Stock, par value $1.00 per share ("Preferred Stock").
Shares of Common Stock only are offered by this Prospectus.
The following summary description of the Company's capital stock is not
intended to be complete and is subject to, and is qualified in its entirety by
reference to, the Company's Certificate of Incorporation, as amended, and the
Certificate of Designations of National Energy Group, Inc. of Series B
Preferred Stock (the "Series B Certificate of Designation") the Certificate of
Designations of National Energy Group, Inc. of Series C Preferred Stock
("Series C Certificate of Designation"), the Certificate of Designations of
National Energy Group, Inc. of Series D Preferred Stock (the "Series D
Certificate of Designation") and the Certificate of Designation of National
Energy Group, Inc. of Series E Preferred Stock (the "Series E Certificate of
Designation") incorporated by reference as exhibits to the Registration
Statement of which this Prospectus forms a part.
17
<PAGE> 20
DESCRIPTION OF COMMON STOCK.
At January 17, 1997, the Company had 36,196,345 shares of Common Stock
outstanding, which excludes 1,314,500 shares issuable pursuant to currently
exercisable options and warrants. Holders of Common Stock are entitled to one
vote for each share held of record on all matters voted on by stockholders. The
shares of the Common Stock of the Company do not have cumulative voting rights
with respect to election of directors. Subject to the Series D Preferred Stock
Contingent Voting Rights, the holders of more than 50% of the shares of the
Common Stock (including the number of shares of Common Stock into which the
Series E Preferred Stock is converted for purposes of voting with the Common
Stock) voting for the election of directors can elect all of the directors to
be elected by holders of the Common Stock and Series E Preferred Stock, in
which case the holders of the remaining shares of Common Stock and remaining
shares of Series E Preferred Stock will not be able to elect any directors.
Upon any liquidation, dissolution or winding-up of the affairs of the Company,
holders of Common Stock would be entitled to receive pro rata all of the assets
of the Company available for distribution to stockholders after payment of any
liquidation preference of any Preferred Stock that may be issued and
outstanding at the time. Holders of Common Stock have no subscription,
redemption, sinking fund, conversion or preemptive rights.
SERIES B PREFERRED STOCK.
The 10% Cumulative Convertible Preferred Stock, Series B is convertible
into shares of Common Stock at a conversion price of $1.625 per share. The
Series B Preferred Stock has a liquidation and dividend preference over the
Common Stock. The Series B Preferred Stock has a 10% dividend, payable
semiannually, and requires the dividends be paid on the Series B Preferred
Stock before any dividends are paid on Common Stock. The Company has the option
to make dividend payments in shares of Series B Preferred Stock; after the
sixth such payment, the holders of Series B Preferred Stock have the option to
receive additional dividends in shares of Series B Preferred Stock or to accrue
such dividends in cash. If the Company pays dividends in shares of Series B
Preferred Stock, or does not pay dividends in either stock or cash, for four
dividend payments, the holders of Series B Preferred Stock have the right to
appoint one-third of the members of the Company's Board of Directors.
The Series B Preferred Stock is redeemable by the Company, between June
14, 1999 and June 14, 2000, at $110 per share and thereafter at $100 per share,
plus accrued and unpaid dividends; however, the Company cannot redeem any
shares of Series B Preferred Stock unless and until all outstanding shares of
the Series C Preferred Stock have been redeemed by the Company. See "- Series C
Preferred Stock."
The holders of Series B Preferred Stock currently have the right to
appoint one member to the Company Board of Directors. The holders of Series B
Preferred Stock are entitled to one vote for each share as to matters upon
which by law they are entitled to vote as a class, and the approval of a
majority of the Series B Preferred Stock, voting separately as a class, is
required to make changes to the Company's Certificate of Incorporation or
By-Laws which adversely affect the Series B Preferred Stock, to authorize or
issue additional shares of Series B Preferred Stock or to issue preferred stock
equal to or senior to the Series B Preferred Stock as to dividends or
liquidation, to effect a reclassification of the Series B Preferred Stock or,
subject to certain exceptions, to effect an extraordinary transaction that
requires a vote of the Company's shareholders. As a result, a class vote of the
holders of Series B Preferred Stock would be required for the Company to merge
or be acquired and may therefore delay, deter, or prevent a change in control
of the Company. See "Risk Factors - Control by Principal Shareholders."
SERIES C PREFERRED STOCK
The 10 1/2% Cumulative Convertible Preferred Stock, Series C is
convertible into shares of Common Stock at a conversion price of $2.00 per
share. The Series C Preferred Stock has a liquidation and dividend preference
over the Common Stock, and is parity stock to the Series B Preferred Stock. The
Series C Preferred Stock has a 10 1/2% dividend, payable semiannually. The
Company has the option to make dividend payments in shares of Series C
Preferred Stock; after the sixth such payment, the holders of Series C
Preferred Stock have the option to receive additional dividends in shares of
Series C Preferred Stock or to accrue such dividends in cash. If the Company
pays dividends in shares of Series C Preferred Stock, or does not pay dividends
in either stock or cash, for four dividend payments, the holders of Series C
Preferred Stock (voting as a class with other affected series of preferred
stock with similar voting rights) have the right to appoint one-third of the
members of the Company's Board of Directors; however, if the holders of Series B
18
<PAGE> 21
Preferred Stock are presently entitled to a similar right, then the holders of
Series C Preferred Stock shall have no such right until the right of the
holders of Series B Preferred Stock terminates.
The Series C Preferred Stock is redeemable by the Company between June 14,
1999 and June 14, 2000, at $110 per share, and thereafter, at $100 per share,
plus accrued and unpaid dividends; however, no shares of Series C Preferred
Stock may be redeemed until all the shares of Series B Preferred Stock have
been redeemed. See "- Series B Preferred Stock."
The holders of the Series C Preferred Stock currently have the right to
appoint one member to the Board of Directors. The holders of Series C Preferred
Stock are entitled to one vote for each share as to matters upon which by law
they are entitled to vote as a class, and the approval of a majority of the
Series C Preferred Stock, voting separately as a class, is required to make
changes to the Certificate of Incorporation or By-Laws which adversely affect
the Series C Preferred Stock, to authorize or issue additional shares of Series
C Preferred Stock or to issue preferred stock equal to or senior to the Series
C Preferred Stock as to dividends or liquidation, to effect a reclassification
of the Series C Preferred Stock, or, subject to certain exceptions, to effect
an extraordinary transaction that requires a vote of the shareholders of the
Company. As a result, a class vote of the holders of Series C Preferred Stock,
as well as the Series B Preferred Stock, would be required for the Company to
merge or be acquired and may therefore delay, deter, or prevent a change in
control of the Company. See "Risk Factors - Control by Principal Shareholders."
SERIES D PREFERRED STOCK
The Convertible Preferred Stock, Series D immediately is convertible into
shares of Common Stock initially at a conversion price of $2.25 per share,
entitling the holders to receive 4,444,444 shares of Common Stock. Such
conversion price is subject to certain anti-dilution adjustments, including
adjustments that may occur if shares of Common Stock are issued by the Company
below the conversion price of the Series D Preferred Stock. The Series D
Preferred Stock has a liquidation preference over the Common Stock, but each of
the Series B Preferred Stock and the Series C Preferred Stock has a liquidation
preference over the Series D Preferred Stock. The Series D Preferred Stock
liquidation preference ranks pari passu with the Series E Preferred Stock
liquidation preference. See "- Series E Preferred Stock." The Series D
Preferred Stock does not require the payment of any dividends but will
participate with the Common Stock in any dividends or distributions to the
Common Stock on an as converted basis.
The holders of Series D Preferred Stock are entitled to one vote for each
share when entitled to vote as described below and as to matters upon which by
law they are entitled to vote as a class. The holders of Series D Preferred
Stock have the right to appoint one member to the Company's Board of Directors.
The Company may not, without the consent of the director appointed by the
holders of the Series D Preferred Stock, voluntarily file for protection under
federal or other bankruptcy laws. In addition, the holders of the Series D
Preferred Stock will have the right to choose to appoint one-half of the
members of Board of Directors plus one member (including the member appointed
by the Series D Preferred Stock holders) if the Series D Preferred Stock
contingent voting rights are triggered and the holders of the Series D
Preferred Stock exercise their rights. Thereafter, such holders will control
the Company's Board of Directors. See "Risk Factors -- Control by Principal
Shareholders."
The right of the holders of Series D Preferred Stock (the "Series D
Preferred Stock Contingent Voting Rights') to choose to appoint one-half of the
Board of Directors of the Company plus one member (including the member
appointed by the holders of the Series D Preferred Stock) is triggered by the
following events: (i) if an involuntary case under federal bankruptcy laws or
other applicable federal or state insolvency laws is commenced against the
Company (including a case for the appointment of a receiver, liquidator,
custodian, trustee or similar official for the Company or its assets) which
does not seek emergency or expedited relief if such case is not dismissed or
stayed within 15 days or, if such case seeks emergency or expedited relief
against the Company, permanent relief is granted or, if temporary relief is
granted, the Company does not provide to the holders of Series D Preferred
Stock an opinion of counsel which states that the Company, without condition,
will prevail on the petition for permanent relief, or (ii) if a default shall
have occurred under notes or other evidences of indebtedness of the Company
where the aggregate outstanding principal amount exceeds $10.0 million, and one
of the following three circumstances exists. First, such indebtedness is due in
full by reason of failure to pay such indebtedness and the default is not cured
within 30 days. Second, such indebtedness is accelerated and such acceleration
is not rescinded within 15 days. Third, notice of foreclosure on collateral
securing such indebtedness has
19
<PAGE> 22
been given to the Company and has not been rescinded after five days or the
proposed date of the sale of the collateral is less than five days away.
The approval of a majority of the Series D Preferred Stock, voting
separately as a class, is required to make changes to the Certificate of
Incorporation or By-Laws which adversely affect the Series D Preferred Stock,
or to authorize or issue additional shares of Series D Preferred Stock or to
issue preferred stock equal to or senior to the Series D Preferred Stock as to
liquidation.
The Series D Preferred Stock automatically will be converted into Common
Stock if High River and its affiliates own less than 7.5% of the Common Stock
on a fully diluted basis. To determine the percentage of Common Stock on a
fully diluted basis that High River and its affiliates own as of any day, the
number of shares owned by High River and its affiliates on a fully diluted
basis (assuming conversion of all preferred stock and exercise of all
outstanding options and warrants owned by High River and its affiliates) as of
such date will be divided by 49,322,275 (as adjusted by any anti-dilution
adjustments made with respect to the shares of Common Stock owned by High River
and its affiliates after the date of the issuance of the Series D Preferred
Stock). Until July 19, 2001, High River will have a right of first refusal with
respect to equity sold by NEG for cash in private placement transactions.
The Common Stock currently is listed for trading on The Nasdaq National
Market. The Nasdaq has a voting rights policy that prohibits continued listing
of securities of issuers that disenfranchise public common stockholders by any
corporate action or issuance that disparately reduces or restricts the voting
rights of existing common stock shareholders (the "Voting Rights Policy"). If
rights similar to the Series D Preferred Stock Contingent Voting Rights were to
be granted to holders of common stock of an issuer and such holders had not
paid for their proportionate share of the vote, the Nasdaq would deem the
exercise of such rights a violation of the Voting Rights Policy.
The Voting Rights Policy does not apply, however, to any class of security
having a preference or priority over the issuer's common stock as to dividends,
interest payments, redemption or payments on liquidation, if the voting rights
of such securities only become effective as a result of specified events which
reasonably can be expected to jeopardize the issuer's financial ability to meet
its payment obligations to that class of securities. The Company believes that
the Series D Preferred Stock falls within this exclusion from the Voting Rights
Policy, as it has a liquidation preference over Common Stock and the events
triggering the Series D Preferred Stock Contingent Voting Rights reasonably can
be expected to jeopardize the Company's ability to pay the liquidation
preference. The Nasdaq has advised the Company, however, that while it does not
consider the grant of the Series D Preferred Stock Contingent Voting Rights a
violation of the Voting Rights Policy which would cause the Nasdaq to take any
action, any exercise of those rights would constitute a violation of the Voting
Rights Policy as currently interpreted by the Nasdaq. As a result, the Nasdaq
may exclude the Common Stock from trading on The Nasdaq National Market. If
that happens, no market may exist for the Common Stock. The Company would
explore other options to provide a means to trade shares of Common Stock,
including trading the Common Stock in the over-the-counter market or in the
pink sheets or providing other means by which potential sellers and buyers of
Common Stock may contact each other for purposes of trading in the Common
Stock. There can be no assurance these means will provide a market for, or not
adversely affect the price of, the Common Stock.
SERIES E PREFERRED STOCK
The Convertible Preferred Stock, Series E immediately is convertible into
shares of Common Stock initially at a conversion price of $2.25 per share,
entitling the holders to receive 2,222,222 shares of Common Stock. Such
conversion price is subject to certain anti-dilution adjustments, including
adjustments that may occur if shares of Common Stock are issued by the Company
below the conversion price of the Series E Preferred Stock. The Series E
Preferred Stock has a liquidation preference over the Common Stock, but each of
the Series B Preferred Stock and the Series C Preferred Stock has a liquidation
preference over the Series E Preferred Stock. The Series E Preferred Stock
liquidation preference ranks pari passu with the Series D Preferred Stock
liquidation preference. The Series E Preferred Stock does not require the
payment of any dividends but will participate with the Common Stock in any
dividends or distributions to the Common Stock on an as converted basis.
The holders of Series E Preferred Stock are entitled to one vote for each
share as to matters upon which by law they are entitled to vote as a class. The
approval of a majority of the Series E Preferred Stock, voting separately as a
class, is required to make changes to the Certificate of Incorporation or
By-Laws which adversely affect the Series E Preferred
20
<PAGE> 23
Stock, or to authorize or issue additional shares of Series E Preferred Stock
or to issue preferred stock equal to or senior to the Series E Preferred Stock
as to liquidation. The holders of Series E Preferred Stock will be entitled to
vote with the Common Stock on all matters submitted to the holders of Common
Stock, and such holders will have the number of votes per share of Series E
Preferred Stock as is equal to the number of shares of Common Stock into which
such share is convertible on the record date for such vote.
The Series E Preferred Stock automatically will be converted into Common
Stock if investment partnerships or accounts managed by KAIM own less than 7.5%
of the Common Stock on a fully diluted basis. To determine the percentage of
Common Stock on a fully diluted basis that investment partnerships or accounts
managed by KAIM own as of any day, the number of shares owned by investment
partnerships or accounts managed by KAIM on a fully diluted basis (assuming
conversion of all preferred stock and exercise of all outstanding options and
warrants owned by investment partnerships or accounts managed by KAIM) as of
such date will be divided by 49,322,275 (as adjusted by any anti-dilution
adjustments made with respect to the shares of Common Stock owned by investment
partnerships or accounts managed by KAIM after the date of the issuance of the
Series E Preferred Stock).
LEGAL MATTERS
The validity of the Common Stock registered hereunder will be passed upon
by Philip D. Devlin, Esq.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
The Company's Certificate of Incorporation and By-Laws provide that the
Company shall indemnify, to the fullest extent authorized by law, any person
made or threatened to be made a party to any action, suit or proceeding,
whether criminal, civil, administrative or investigative, by reason of the fact
that such person or such person's testator or intestate is or was a Director,
officer, employee or agent of the Company or serves or served at the request of
the Company any other enterprise as a Director, officer, employee or agent.
The Company has agreed to indemnify the officers and Directors of the
Company against any and all damages to which such indemnified individuals may
become subject, pursuant to any securities, corporate or other laws, which
damages arise in connection with this Registration Statement or any amendment
thereto, or from the inaccuracy or omission of any information in connection
with this Prospectus and related Registration Statement. In the event that the
foregoing indemnity is unavailable or insufficient, then the indemnifying party
shall contribute to amounts paid or payable by the indemnified party in respect
to the damages of the indemnified party in such proportion as is appropriate to
reflect the relative fault of the indemnified and indemnifying parties.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to Directors, officers or persons
controlling the Company pursuant to the foregoing provisions, the Company has
been informed that in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Act and is
therefore unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Company of expenses incurred or paid by a
director, officer or controlling person of the Company in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication
of such issue.
EXPERTS
The financial statements of the Company at December 31, 1995 and 1994, and
for each of the three years in the period ended December 31, 1995 incorporated
by reference in this Prospectus, and the statements of operating revenues and
direct operating expenses of the Mustang Island Interest, the Oak Hill Interest
and the Enron Interest for the years
21
<PAGE> 24
ended December 31, 1994 and 1993 appearing in the Company's Form 8-K/A No. 1
dated June 30, 1995, have been audited by Ernst & Young LLP independent
auditors, as set forth in their reports thereon incorporated herein by
reference. Such financial statements and statements of operating revenues and
direct operating expenses are incorporated herein by reference in reliance upon
such reports given upon the authority of such firm as experts in accounting and
auditing.
The consolidated financial statements of Alexander (subsequently NEG-OK)
at December 31, 1995 and 1994 and for each of the three years in the period
ended December 31, 1995, incorporated by reference in this Prospectus have been
audited by Ernst & Young LLP, independent auditors, to the extent indicated in
their report incorporated by reference herein. The separate financial
statements of ANEC for the year ended December 31, 1993 (not incorporated by
reference herein), prior to the merger of ANEC and NEG-OK, were audited by
Coopers & Lybrand L.L.P. independent accountants, to the extent indicated in
their report incorporated herein by reference. The financial statements
referred to above are incorporated by reference herein in reliance upon such
reports given upon the authority of such firms as experts in accounting and
auditing.
Information incorporated by reference in this Prospectus relating to the
Company's estimated proved oil and natural gas reserves at December 31, 1994,
the related estimated calculations of future net revenue and the net present
value thereof have been derived from an independent petroleum engineering
report prepared by Roebuck & Associates of Dallas, Texas. Such information has
been incorporated by reference herein in reliance on such firm as experts in
petroleum engineering.
Information incorporated by reference in this Prospectus relating to the
Company's estimated proved oil and natural gas reserves at December 31, 1995,
the related estimated calculations of future net revenue and the net present
value thereof have been derived from an independent petroleum engineering
report prepared by Netherland, Sewell & Associates, Inc. of Dallas, Texas. Such
information has been incorporated by reference herein in reliance on such firm
as experts in petroleum engineering.
22
<PAGE> 25
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<CAPTION>
Item
- ----
<S> <C>
Filing Fee - Securities and Exchange Commission $14,853.77
*Blue Sky Filing fees 1,000.00
Printing 2,000.00
*Legal Fees 5,000.00
*Accounting Fees and Expenses 2,500.00
Miscellaneous 1,000.00
----------
Total $26,353.77
==========
</TABLE>
*Estimate
The Company is paying the expenses of the offering.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
As authorized by Section 145 of the General Corporation Law of Delaware
(the "Delaware Corporation Law"), each director and officer of the Company may
be indemnified by the Company against expenses (including attorney's fees,
judgments, fines and amounts paid in settlement) actually and reasonably
incurred in connection with the defense or settlement of any threatened,
pending or completed legal proceedings in which he is involved by reason of the
fact that he is or was a director or officer of the Company if he acted in good
faith and in a manner that he reasonably believed to be in or not opposed to
the best interests of the Company, and, with respect to any criminal action or
proceeding, if he had no reasonable cause to believe that his conduct was
unlawful. In each case, such indemnity shall be to the fullest extent
authorized by the Delaware Corporation Law, as amended, to the extent such
amendment permits the Company to provide broader indemnification rights. If the
legal proceeding, however, is by or in the right of the Company the director or
officer may not be indemnified in respect of any claim, issue or matter as to
which he shall have been adjudged to be liable for negligence or misconduct in
the performance of his duty to the Company unless a court determines otherwise.
Article Eighth of the Certificate of Incorporation of the Company, a copy
of which is filed as Exhibit 3.1 to this Registration Statement, provides that
no Director of the Company shall be personally liable to the Company or its
shareholders for monetary damages for any breach of fiduciary duty as a
Director except for liability: (1) for any breach of duty of loyalty to the
Company or its shareholders, (2) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (3) under
Section 174 of the Delaware Corporation Law, or (4) for any transaction from
which the Director derived an improper personal benefit. In addition, Article
Ninth of the Certificate of Incorporation and Section 7.4 of the Bylaw of the
Company require the Company to indemnify to the fullest extent authorized by
law any person made or threatened to be made a party to any action, suit or
proceeding, whether criminal, civil, administrative, or investigative, by
reason of the fact that such person or such person's testator or intestate is
or was a director, officer, employee or agent of the Company or serves or
served at the request of the Company any other enterprise as a director,
officer, employee or agent.
The Company has agreed to indemnify the officers and directors of the
Company against any and all damages to which such indemnified individuals may
become subject, pursuant to any securities, corporate or other laws, which
damages arise in connection with this Registration Statement or any amendment
thereto, or from the inaccuracy or omission of any information in connection
with this Proxy Statement and Prospectus and related Registration Statement. In
the event that the foregoing indemnity is unavailable or insufficient, then the
indemnifying party shall contribute to amounts paid or payable by the
indemnified party in respect to the damages of the indemnified party in such
proportion as is appropriate to reflect the relative fault of the indemnified
and indemnifying parties.
23
<PAGE> 26
Pursuant to Section 1.03 of the Agreement and Plan of Merger, dated June
6, 1996, among the Company, NEG-OK, Inc. ("NEG-OK") and Alexander Energy
Corporation ("Alexander"), the Company agreed to assume and be liable for all
of the obligations of Alexander under Alexander's Certificate of Incorporation
and By-Laws as in effect immediately prior to the Effective Time of the Merger
relating to the indemnification of persons who were directors or officers of
Alexander immediately prior to the Effective Time, with the intent that such
officers and directors, including those Alexander officers and directors who
will become officers or directors of the Company immediately after the
Effective Time, be as fully indemnified after the Effective Time for acts of
omissions prior thereto as they were prior to the Merger.
ITEM 16. EXHIBITS.
The following is a list of all of the exhibits filed or incorporated by
reference as part of this Registration Statement:
<TABLE>
<CAPTION>
Exhibit No. Description and Incorporation by Reference
- ----------- ------------------------------------------
<S> <C>
4.1 Certificate of Designations of the Registrant of 10%
Cumulative Convertible Preferred Stock, Series B (2)
4.2 Certificate of Designations of the Registrant of
10-1/2% Cumulative Convertible Preferred Stock,
Series C (3)
4.3 Certificate of Designations of the Registrant of
Convertible Preferred Stock, Series D (3)
4.4 Certificate of Designations of the Registrant of
Convertible Preferred Stock, Series E (3)
4.5 Note Agreement dated as of April 25, 1989, by and
among AEJH 1989 Limited Partnership, Alexander
Energy Corporation ("Alexander") and John Hancock
Mutual Life Insurance (10-1/2% Senior Secured
Notes) (4)
4.6 Letter dated August 29, 1996 between Alexander and
John Hancock Mutual Life Insurance Company relating
to the payment of the 1989 Notes (1)
4.7 Specimen Common Stock Certificate (5)
4.8 Indenture dated as of November 1, 1996, among the
Registrant, National Energy Group of Oklahoma, Inc.,
formerly NEG-OK, Inc. ("NEG-OK"), and Bank One,
Columbus, N.A. (9)
4.9 Registration Rights Agreement dated October 29, 1996,
by and among the Registrant, Guarantor and the
Initial Purchasers (6)
4.10 Specimen Global Note Certificate dated November 1,
1996 (6)
4.11 Specimen Global Exchange Note Certificate (7)
5.1 Opinion of Philip D. Devlin, Esq. regarding legality
of securities being issued (8)
23.1 Consent of Ernst & Young LLP, independent
auditors (8)
23.2 Consent of Coopers & Lybrand L.L.P., independent
accountants (8)
23.3 Consent of Netherland, Sewell & Associates, Inc.,
independent petroleum engineers (8)
23.4 Consent of Philip D. Devlin, Esq. (included in
Exhibit 5.1)
</TABLE>
- --------------
(1) Incorporated by reference to the Registrant's Current Report
on Form 8-K, dated August 29, 1996.
(2) Incorporated by reference to the Registrant's Current Report
on Form 8-K, dated June 17, 1994.
(3) Incorporated by reference to the Registrant's Current Report
on Form 8-K, dated July 17, 1995.
(4) Incorporated by reference to Alexander's Form 10-K for the
fiscal year ended December 31, 1994.
(5) Incorporated by reference to the Registrant's Current Report
on Form 8-K/A No. 1, dated August 29, 1996.
(6) Incorporated by reference to the Registrant's Quarterly
Report on Form 10-Q for the three months ended September 30,
1996.
(7) Incorporated by reference to the Registrant's Registration
Statement on Form S-4 (No. 333-17817, dated December 13, 1996,
as amended January 13, 1997.
(8) Filed herewith.
24
<PAGE> 27
ITEM 17. UNDERTAKINGS.
1. Rule 415 Offering.
The undersigned Registrant hereby undertakes:
a. To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration
Statement to include any material information with respect to
the plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement; and
b. That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating
to the securities offered therein; and the offering of such
securities at that time shall be deemed to be the initial
bona fide offering thereof;
c. To remove from registration by means of a post-effective
amendment any of the securities being registered, which
remain unsold at the termination of the offering.
2. Filings Incorporating Subsequent Exchange Act Documents by Reference.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
3. Request for Acceleration of Effective Date.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act"), may be permitted to Directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a Director, officer
or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such officer, Director or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
25
<PAGE> 28
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Dallas, State of Texas, on January 21, 1997.
NATIONAL ENERGY GROUP, INC.
By: /s/ Miles D. Bender
--------------------------------------
Miles D. Bender
President and Chief Executive
Officer
By: /s/ Robert A. Imel
--------------------------------------
Robert A. Imel
Chief Financial Officer and
Senior Vice President
By: /s/ Melissa H. Rutledge
--------------------------------------
Melissa H. Rutledge
Controller and
Chief Accounting Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated. Each person whose signature appears
below hereby authorizes Miles D. Bender to file one or more Amendments,
including Post-Effective Amendments, to this Registration Statement, which
Amendments may make such changes as Miles D. Bender deems appropriate, and each
person whose signature appears below, individually and in each capacity stated
below, hereby appoints Miles D. Bender as Attorney-in- Fact to execute in his
name and on his behalf any such Amendment to this Registration Statement.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<S> <C> <C>
By: /s/ Miles D. Bender President, January 21, 1997
-------------------------------------- Chief Executive Officer ----------------
Miles D. Bender and Director
By: /s/ George B. McCullough Chairman of the Board January 21, 1997
-------------------------------------- and Director ----------------
George B. McCullough
By: /s/ Norman C. Miller Chairman, Executive January 21, 1997
-------------------------------------- Committee and Director ----------------
Norman C. Miller
By: /s/ Robert H. Kite Director January 21, 1997
-------------------------------------- ----------------
Robert H. Kite
By: /s/ George M. McDonald Director January 21, 1997
-------------------------------------- ----------------
George N. McDonald
By: /s/ Robert V. Sinnott Director January 21, 1997
-------------------------------------- ----------------
Robert V. Sinnott
By: /s/ Elwood W. Schafer Director January 21, 1997
-------------------------------------- ----------------
Elwood W. Schafer
</TABLE>
<PAGE> 29
<TABLE>
<S> <C> <C>
By: /s/ Bob G. Alexander Director January 21, 1997
-------------------------------------- ----------------
Bob G. Alexander
By: /s/ Jim L. David Vice President - January 21, 1997
-------------------------------------- Exploitation and Director ----------------
Jim L. David
By: /s/ Robert A. West Director January 21, 1997
-------------------------------------- ----------------
Robert A. West
By: Director
-------------------------------------- ----------------
Robert J. Mitchell
</TABLE>
<PAGE> 30
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description and Incorporation by Reference
- ----------- ------------------------------------------
<S> <C>
4.1 Certificate of Designations of the Registrant of 10%
Cumulative Convertible Preferred Stock, Series B (2)
4.2 Certificate of Designations of the Registrant of
10-1/2% Cumulative Convertible Preferred Stock,
Series C (3)
4.3 Certificate of Designations of the Registrant of
Convertible Preferred Stock, Series D (3)
4.4 Certificate of Designations of the Registrant of
Convertible Preferred Stock, Series E (3)
4.5 Note Agreement dated as of April 25, 1989, by and
among AEJH 1989 Limited Partnership, Alexander
Energy Corporation ("Alexander") and John Hancock
Mutual Life Insurance (10-1/2% Senior Secured
Notes) (4)
4.6 Letter dated August 29, 1996 between Alexander and
John Hancock Mutual Life Insurance Company relating
to the payment of the 1989 Notes (1)
4.7 Specimen Common Stock Certificate (5)
4.8 Indenture dated as of November 1, 1996, among the
Registrant, National Energy Group of Oklahoma, Inc.,
formerly NEG-OK, Inc. ("NEG-OK"), and Bank One,
Columbus, N.A. (9)
4.9 Registration Rights Agreement dated October 29, 1996,
by and among the Registrant, Guarantor and the
Initial Purchasers (6)
4.10 Specimen Global Note Certificate dated November 1,
1996 (6)
4.11 Specimen Global Exchange Note Certificate (7)
5.1 Opinion of Philip D. Devlin, Esq. regarding legality
of securities being issued (8)
23.1 Consent of Ernst & Young LLP, independent
auditors (8)
23.2 Consent of Coopers & Lybrand L.L.P., independent
accountants (8)
23.3 Consent of Netherland, Sewell & Associates, Inc.,
independent petroleum engineers (8)
23.4 Consent of Philip D. Devlin, Esq. (included in
Exhibit 5.1)
</TABLE>
- --------------
(1) Incorporated by reference to the Registrant's Current Report
on Form 8-K, dated August 29, 1996.
(2) Incorporated by reference to the Registrant's Current Report
on Form 8-K, dated June 17, 1994.
(3) Incorporated by reference to the Registrant's Current Report
on Form 8-K, dated July 17, 1995.
(4) Incorporated by reference to Alexander's Form 10-K for the
fiscal year ended December 31, 1994.
(5) Incorporated by reference to the Registrant's Current Report
on Form 8-K/A No. 1, dated August 29, 1996.
(6) Incorporated by reference to the Registrant's Quarterly
Report on Form 10-Q for the three months ended September 30,
1996.
(7) Incorporated by reference to the Registrant's Registration
Statement on Form S-4 (No. 333-17817, dated December 13, 1996,
as amended January 13, 1997.
(8) Filed herewith.
<PAGE> 1
EXHIBIT 5.1
[PHILIP D. DEVLIN, ESQ. LETTERHEAD]
January 16, 1997
National Energy Group, Inc.
4925 Greenville Avenue
Suite 1400
Dallas, Texas 75206
Re: Registration Statement on Form S-3, Registration No. __________,
Registering 11,449,330 Shares of Common Stock, $0.01 Par Value Per
Share, of National Energy Group, Inc. (the "Registration Statement").
Ladies and Gentlemen:
As set forth in the Registration Statement filed by National Energy Group, Inc.,
a Delaware corporation (the "Company"), under the Securities Act of 1933, as
amended (the "Act"), relating to the issuance of 11,449,330 shares
(the "Shares") of Common Stock, $0.01 par value per share, of the Company
("Common Stock") to various selling stockholders of the Company, certain legal
matters in connection with the Shares are being passed upon for the Company by
me acting as counsel for the Company. The Registration Statement has been filed
under the Act with respect to the offering of the Shares, but has not yet
become effective. At your request, this opinion is being furnished to the
Company for filing as Exhibit 5.1 to the Registration Statement.
I have acted as counsel to the Company in connection with the registration by
the Company of the proposed issuance of the Shares by the Company as set forth
in the Registration Statement. In such capacity, I have examined the Certificate
of Incorporation and Bylaws of the Company, each as amended, and the originals
or copies which I have assumed are genuine, accurate, and complete, of
corporate records of the Company, certificates of public officials,
certificates of representatives of the Company, certificates of other relevant
records, instruments and documents as a basis for the opinions hereinafter
expressed. In giving such opinions, I have relied upon certificates of officers
of the Company with respect to the accuracy of the material factual matters
contained in such documents examined by me.
<PAGE> 2
National Energy Group, Inc.
January 16, 1997
Page Two
Based upon my examination as aforesaid, I am of the opinion that:
1. The Company is a corporation incorporated, existing and in good standing
under the laws of the State of Delaware.
2. The Shares, when issued in the offering pursuant to the Registration
Statement after it has been declared effective by the Securities and
Exchange Commission, will be validly issued, fully paid and non-
assessable shares of Common Stock of the Company.
I am a member of the State Bar of Texas, and as such, do not hold myself out as
an expert on the laws of any other State. I, therefore, do not provide any
opinion with respect to the laws of any other jurisdiction other than the laws
of the United States of America and the State of Texas. As counsel for NEG, a
Delaware corporation, I am, however, familiar with the General Corporation Law
of the State of Delaware. Accordingly, the opinions set forth above are limited
to the General Corporation Law of the State of Delaware and applicable federal
law as in effect on the date hereof.
I hereby consent to the filing of this opinion as an exhibit to the Registration
Statement and to the use of my name in the Registration Statement under the
caption "Legal Matters".
Very truly yours,
/s/ PHILIP D. DEVLIN
Philip D. Devlin, Esq.
PDD:ljg
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the references to our firm under the caption "Experts"
in the Registration Statement (Form S-3) and related Prospectus of National
Energy Group, Inc. for the registration of 11,449,330 shares of its Common
Stock. We also consent to the incorporation by reference therein of our report
dated March 27, 1996, with respect to the financial statements of National
Energy Group, Inc. included in its Annual Report (Form 10-KSB) for the year
ended December 31, 1995 filed with the Securities and Exchange Commission; our
report dated March 30, 1996, except Notes 4 and 13 for which the date is May
10, 1996 with respect to the consolidated financial statements of Alexander
Energy Corporation included in the Company's Proxy Statement filed, as part of,
or in conjunction with, the Registration Statement on Form S-4, as amended,
declared effective August 8, 1996; and our reports dated September 12, 1995
with respect to the statements of operating revenues and direct operating
expenses of Mustang Island Interest, the Oak Hill Interest and the Enron
Interest included in the Company's Current Report on Form 8-K and Form 8-K/A
No. 1 dated June 30, 1995 filed with the Securities and Exchange Commission.
ERNST & YOUNG LLP
Dallas, Texas
January 17, 1997
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in the Registration Statement on Form S-3 of
National Energy Group, Inc. (File No. 333- ) of our report, which includes
an explanatory paragraph relating to the Company's adoption of different
methods of accounting for its oil and gas properties and income taxes, dated
February 22, 1994, on our audit of the consolidated financial statements of
American Natural Energy Corporation and Subsidiaries ("the Company") for the
year ended December 31, 1993.
/s/ COOPERS & LYBRAND LLP
----------------------------
COOPERS & LYBRAND LLP
Tulsa, Oklahoma
January 20, 1997
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT PETROLEUM ENGINEERS AND GEOLOGISTS
We hereby consent to the use of our reports with respect to National
Energy Group, Inc. and Alexander Energy Corporation and to all references to
our firm included in or made a part of this Registration Statement on Form S-3
of National Energy Group, Inc.
NETHERLAND, SEWELL & ASSOCIATES, INC.
By: /s/ FREDERICK D. SEWELL
-------------------------------------
Frederick D. Sewell
President
Dallas, TX
January 17, 1997
