<PAGE> 1
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. ___)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
NATIONAL ENERGY GROUP, INC.
(Name of Registrant As Specified in its Charter)
-----------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
---------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
---------------------------------------------------------------
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how it
was determined): $___________
4) Proposed maximum aggregate value of transaction: $___________
5) Total fee paid: $___________
[ ] Fee paid previously with preliminary materials: $_____________
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
1) Amount Previously Paid:
-------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------
3) Filing Party:
-------------------------------------------------------------
4) Date Filed:
-------------------------------------------------------------
<PAGE> 2
NATIONAL ENERGY GROUP, INC.
4925 GREENVILLE AVENUE, SUITE 1400
DALLAS, TEXAS 75206
April 30, 1998
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders
(the "Meeting") of National Energy Group, Inc., a Delaware corporation (the
"Company") to be held on June 4, 1998, at 9:00 a.m. Central Time, at the
University Amphitheater, Holiday Inn, 10650 North Central Expressway, Dallas,
Texas 75231. Your Board of Directors and management look forward to greeting
personally those Shareholders able to attend.
At the Meeting, you will be asked to consider and vote upon (i) a
proposal to elect seven (7) nominees as directors of the Company to serve until
the next annual meeting of Shareholders of the Company to be held in 1999; (ii)
adoption of the National Energy Group, Inc. Employee Stock Purchase Plan; (iii)
a proposal to ratify the selection of Ernst & Young LLP as the Company's
independent auditors for the current fiscal year ending December 31, 1998; and
(iv) any other business as may properly come before the Meeting (collectively,
the "Proposals"). The Proposals are fully set forth in the accompanying Proxy
Statement which you are urged to read thoroughly. For the reasons set forth in
the Proxy Statement, your Board of Directors recommends a vote "for" all
nominees as directors and in favor of all Proposals.
It is important that your shares be voted at the Meeting. Whether or
not you plan to attend in person, please complete, date and sign the enclosed
proxy card and return it as promptly as possible in the accompanying envelope.
If you do attend the Meeting and wish to vote your shares in person, even after
returning your proxy, you still may do so.
Mailing of this Proxy Statement is expected to begin on May 6, 1998.
Thank you for your cooperation.
Respectfully,
NATIONAL ENERGY GROUP, INC.
Miles D. Bender
President and Chief Executive Officer
<PAGE> 3
NATIONAL ENERGY GROUP, INC.
4925 GREENVILLE AVENUE, SUITE 1400
DALLAS, TEXAS 75206
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 4, 1998
To Our Shareholders:
The Annual Meeting of Shareholders (the "Meeting") of National Energy
Group, Inc., a Delaware corporation (the "Company") will be held at the
University Amphitheater, Holiday Inn, 10650 North Central Expressway, Dallas,
Texas 75231 at 9:00 a.m., Central Time, on June 4, 1998, to consider and vote on
the following matters as described in this notice and the accompanying Proxy
Statement:
1. To elect seven members of the Board of Directors of the Company to
hold office until the next annual meeting of Shareholders or until their
successors have been duly elected and qualified.
2. To approve the adoption of the National Energy Group, Inc. Employee
Stock Purchase Plan (the "Plan") under which employees of the Company will be
able to purchase shares of stock of the Company through accumulated payroll
deductions at a discount. The Plan will authorize and reserve for issuance
500,000 shares of the Company's Common Stock, which may be purchased pursuant to
the terms of the Plan.
3. To consider and vote upon a proposal to ratify the selection of
Ernst & Young LLP as the Company's independent auditors for the current fiscal
year ending December 31, 1998.
4. To transact such other business as may properly come before the
Meeting or any adjournment thereof.
The Board of Directors have fixed the close of business on April 20,
1998 as the record date for determination of Shareholders entitled to vote at
the Meeting or any adjournments thereof, and only Shareholders of record at the
close of business on that date will be entitled to vote. At the Record Date,
40,675,150 shares of Common Stock and 9,500 shares of Series E Preferred Stock
convertible into 422,221 shares of Common Stock were issued and outstanding. A
list of Shareholders entitled to vote at the meeting will be available for
inspection at the principal executive offices of the Company located at 4925
Greenville Avenue, Suite 1400, Dallas, Texas 75206.
The approximate date on which this Proxy Statement is first being
mailed to Shareholders is May 6, 1998. Shareholders who execute proxies may
revoke them at any time prior to their being exercised by providing written
notice to the Company by delivering another proxy card at any time prior to the
Meeting. Mere attendance at a Meeting will not revoke a proxy, but a Shareholder
present at a Meeting may revoke his or her proxy and vote in person. Any duly
executed proxy card on which a vote is not indicated (except broker non-votes
expressly indicating a lack of discretionary authority to vote) will be deemed a
vote for the nominees and all the Proposals. Abstentions and broker non-votes
will not be counted as votes either "for" or "against" any matters coming before
the Meeting, nor will such abstentions and broker non-votes be counted toward
determining a quorum.
To assure representation at the Meeting, Shareholders are urged to sign
and return the enclosed proxy cards as promptly as possible in the postage
prepaid envelope enclosed for that purpose. Any Shareholder attending the
Meeting may vote in person even if he or she previously returned a proxy.
By Order of the Board of Directors
Philip D. Devlin
Vice President, General Counsel and Secretary
<PAGE> 4
NATIONAL ENERGY GROUP, INC.
PROXY STATEMENT FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD
JUNE 4, 1998
1400 One Energy Square
4925 Greenville Avenue
Dallas, Texas 75206
(214) 692-9211
(Principal Executive Offices)
SOLICITATION OF PROXIES
This Proxy Statement is furnished in connection with the solicitation
of proxies on behalf of the Board of Directors of National Energy Group, Inc.
(the "Company") to be voted at the annual general meeting of shareholders (the
"Meeting") to be held at the University Amphitheater, Holiday Inn, 10650 North
Central Expressway, Dallas, Texas 75231 on Thursday, June 4, 1998 at 9:00 a.m.,
central daylight savings time and at any adjournment thereof. This proxy
statement and the enclosed form of proxy are first being sent or given to
shareholders of record on or about May 6, 1998.
At the Meeting, the shareholders will be asked to consider and vote
upon (i) a proposal to elect seven (7) nominees as directors of the Company to
serve until the next annual meeting of shareholders of the Company to be held in
1999; (ii) adoption of the Company's Employee Stock Purchase Plan (the "Plan");
(iii) a proposal to ratify the selection of Ernst & Young LLP as the Company's
independent auditors for the current fiscal year ending December 31, 1998; and
(iv) any other business as may properly come before the Meeting (collectively,
the "Proposals"). THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE
SHAREHOLDERS VOTE FOR ALL NOMINEES AS DIRECTORS AND IN FAVOR OF ALL PROPOSALS.
RECORD DATE AND OUTSTANDING SHARES
The Board of Directors has fixed the close of business on April 20,
1998 as the record date for the determination of holders of shares of
outstanding capital stock entitled to notice of and to vote at the Meeting. On
April 20, 1998, there were outstanding 40,675,150 shares of common stock, $.01
par value ("Common Stock") and 9,500 shares of Series E Preferred Stock ("Series
E Preferred Stock") convertible into 422,221 shares of Common Stock, held by
shareholders entitled to vote at the Meeting voting together as one class.
This Proxy Statement is dated April 30, 1998.
<PAGE> 5
VOTING PROXIES
A proxy card accompanies this Proxy Statement. All properly executed
proxies that are not revoked will be voted at the Meeting, and at any
postponements or adjournments thereof, in accordance with the instructions
contained therein. Proxies containing no instructions regarding the Proposals
specified in the form of proxy will be voted for all nominees as directors and
in favor of the Proposals. The Meeting may be adjourned, and additional proxies
solicited, if the vote necessary to approve a Proposal has not been obtained.
Any adjournment of the Meeting will require the affirmative vote of the holders
of at least a majority of the shares represented, whether in person or by proxy,
at the Meeting (regardless of whether those shares constitute a quorum).
A shareholder who has executed and returned a proxy may revoke such
proxy at any time before it is voted at the Meeting by executing and returning a
proxy bearing a later date, by filing written notice of such revocation with the
Secretary of the Company stating that the proxy is revoked, or by attending the
Meeting and voting in person. Mere attendance at the Meeting will not revoke a
properly executed proxy.
QUORUM AND REQUIRED VOTE
Quorum. The presence, in person or proxy, of holders of Common Stock
and Series E Preferred Stock, representing in the aggregate not less than a
majority of the total number of outstanding shares of Common Stock and shares of
Common Stock into which the Series E Preferred Stock is convertible, on the
Record Date, will constitute a quorum for the Meeting.
Required Vote. At the Meeting, the holders of Common Stock on the
Record Date will be entitled to one vote per share on each matter of business
properly brought before the Meeting including one vote per share on each of the
nominees for director and the Proposals. Holders of the Series E Preferred Stock
will be entitled to one vote for each share of Common Stock into which the
Series E Preferred Stock would be convertible on the Record Date. The holders of
Common Stock and Series E Preferred Stock will vote together as one class on the
nominees for director and the Proposals.
Holders of Common Stock and the Series E Preferred Stock have the right
to elect seven (7) members of the Board of Directors, as proposed in the
"Director Election Proposal." Every holder of Common Stock and Series E
Preferred Stock on the Record Date shall have the right to vote, in person or by
proxy, the number of shares of Common Stock owned, or with respect to the Series
E Preferred Stock, the number of shares of Common Stock into which such
preferred stock is convertible by such holder, for as many persons as there are
directors to be elected at that time. Cumulative voting in the election of
directors is not permitted. Directors are elected by the plurality of the votes
cast by the shares entitled to vote in the election.
The holders of the Company's Series B Preferred Stock ("Series B
Preferred Stock"), Series C Preferred Stock ("Series C Preferred Stock") and
Series D Preferred Stock ("Series D Preferred Stock") shall each have the right
to elect one additional director to the Company's Board of Directors; provided,
however, that the holders of the Series B Preferred Stock have elected not to
appoint a director to the Company's Board of Directors for this term. See
"Proposal 1 - Director Election Proposal -- Appointments of Series B Preferred,
Series C Preferred and Series D Preferred Directors."
2
<PAGE> 6
Abstentions and broker non-votes will not be counted as votes either
"for" or "against" any matters coming before the Meeting, nor will such
abstentions and broker non-votes be counted toward determining a quorum.
Vote by Directors and Officers. At the Record Date, directors and
officers of the Company had the right to vote through proxy, beneficial
ownership or otherwise 3,208,762 shares of Common Stock, or approximately 8% of
the issued and outstanding Common Stock. The Company has been advised that the
directors and officers of the Company intend to vote FOR all nominees for
director and in favor of all other Proposals described in this Proxy Statement.
All of these directors and officers of the Company will have an interest in
the election of directors and/or the approval of the Plan Proposal. See
"Security Ownership of Certain Beneficial Owners and Management."
PROXY SOLICITATION; EXPENSES
Solicitation of proxies may be made by mail by directors, officers and
employees of the Company. In addition to the use of the mails, proxies may be
solicited by personal interview, telephone, facsimile and telegraph, and by
directors, officers and regular employees of the Company, without special
compensation therefor; except that directors, officers and employees of the
Company may be reimbursed for out-of-pocket expenses in connection with any
solicitation of proxies. The Company has requested banking institutions,
brokerage firms, custodians, trustees, nominees and fiduciaries to forward
solicitation material to the beneficial holders or owners of capital stock held
of record by such persons, and the Company will reimburse reasonable forwarding
expenses upon the request of such record holders.
Although the Company does not anticipate retaining a proxy solicitation
firm to aid in solicitation of proxies from its shareholders, if such a firm is
retained, it would be paid customary fees and would be reimbursed for
out-of-pocket expenses.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following tables set forth, to the best knowledge of the Company,
information as to the ownership of the Company's Common Stock and all series of
Preferred Stock held by (i) each person or entity who owns of record or who is
known by the Company to own beneficially 5% or more of the outstanding shares of
such stock, (ii) directors and nominees, and (iii) all directors and officers as
a group, as of April 20, 1998. Except as otherwise indicated, ownership of
shares by the person's named below includes sole voting and investment power
held by such persons.
a. Security Ownership of Certain Beneficial Owners
The following table sets forth as of April 20, 1998, the individuals or
entities known to the Company to own more than 5% of the Company's outstanding
shares of capital stock.
3
<PAGE> 7
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER PERCENT
OF BENEFICIAL OWNER TITLE OF CLASS OF SHARES OF CLASS(1)
- ------------------- -------------- --------- -----------
COMMON STOCK
<S> <C> <C> <C>
Carl C. Icahn Common Stock 8,847,044(2) 19.2%
114 West 47th Street
19th Floor
New York, NY 10036
Kayne, Anderson Common Stock 4,414,068(3) 9.9%
Investment Management, Inc.
1800 Avenue of Stars
Suite 1424
Los Angeles, CA 90067
Croft-Leominster, Inc. Common Stock 2,161,710(4) 5.3%
207 E. Redwood St.
Suite 802
Baltimore, MD 21202
SERIES B PREFERRED STOCK
Kayne, Anderson Investment Series B Preferred Stock 38,687(5) 100%
Management, Inc.
1800 Avenue of Stars
Suite 1424
Los Angeles, CA 90067
Arbco Associates, L.P. Series B Preferred Stock 13,928(5) 36%
1800 Avenue of Stars
Suite 1424
Los Angeles, CA 90067
Offense Group Associates, L.P. Series B Preferred Stock 11,607(5) 30%
1800 Avenue of Stars
Suite 1424
Los Angeles, CA 90067
Kayne, Anderson Non-Traditional Series B Preferred Stock 10,832(5) 28%
Investments, L.P.
1800 Avenue of Stars
Suite 1424
Los Angeles, CA 90067
</TABLE>
4
<PAGE> 8
<TABLE>
NAME AND ADDRESS NUMBER PERCENT
OF BENEFICIAL OWNER TITLE OF CLASS OF SHARES OF CLASS(1)
- ------------------- -------------- --------- -----------
<S> <C> <C> <C>
Opportunity Associates L.P. Series B Preferred Stock 2,320(5) 6%
1800 Avenue of Stars
Suite 1424
Los Angeles, CA 90067
SERIES C PREFERRED STOCK
Kayne, Anderson Investment Series C Preferred Stock 23,000(6) 100%
Management, Inc.
1800 Avenue of Stars
Suite 1424
Los Angeles, CA 90067
Arbco Associates, L.P. Series C Preferred Stock 8,280(6) 36%
1800 Avenue of Stars
Suite 1424
Los Angeles, CA 90067
Offense Group Associates, L.P. Series C Preferred Stock 7,240(6) 31%
1800 Avenue of Stars
Suite 1424
Los Angeles, CA 90067
Kayne, Anderson Non-Traditional Series C Preferred Stock 6,100(6) 27%
Investments, L.P.
1800 Avenue of Stars
Suite 1424
Los Angeles, CA 90067
Opportunity Associates L.P. Series C Preferred Stock 1,380(6) 6%
1800 Avenue of Stars
Suite 1424
Los Angeles, CA 90067
SERIES D PREFERRED STOCK
Carl C. Icahn Series D Preferred Stock 100,000(2) 100%
114 West 47th Street
19th Floor
New York, NY 10036
</TABLE>
5
<PAGE> 9
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER PERCENT
OF BENEFICIAL OWNER TITLE OF CLASS OF SHARES OF CLASS(1)
- ------------------- -------------- --------- -----------
SERIES E PREFERRED STOCK
<S> <C> <C> <C>
Kayne, Anderson Investment Series E Preferred Stock 9,500(7) 100%
Management, Inc.
1800 Avenue of Stars
Suite 1424
Los Angeles, CA 90067
Foremost Insurance Company Series E Preferred Stock 7,500(7) 79%
5230 33rd Street, S.E.
Grand Rapids, MI 49512
Topa Insurance Company Series E Preferred Stock 2,000(7) 21%
c/o Kayne, Anderson Investment
Management, Inc.
1800 Avenue of Stars
Suite 1424
Los Angeles, CA 90067
</TABLE>
(1) Based upon the 40,675,150 shares of Common Stock, 38,687 shares of issued
and outstanding Series B Preferred Stock, 23,000 shares of issued and
outstanding Series C Preferred Stock, 100,000 shares of issued and
outstanding Series D Preferred Stock and 9,500 shares of issued and
outstanding Series E Preferred Stock that are outstanding as of April 20,
1998. For each person or group, the percentages are calculated on the basis
of the amount of outstanding securities of the particular class plus any
securities that such person or group has the right to acquire within 60
days of April 20, 1998 pursuant to options, warrants, conversion privileges
or other rights.
(2) High River, the record owner of these shares, is a Delaware limited
partnership, and has pledged these shares to ING Capital. Riverdale
Investors Corp., Inc. is a Delaware corporation and is the general partner
of High River. Mr. Carl C. Icahn is the sole Stockholder and a director of
Riverdale. Riverdale's principal business address is 90 South Bedford Road,
Mount Kisco, New York 10549, and Mr. Icahn's principal business address is
c/o Icahn Associates Corp., 114 West 47th Street, 19th Floor, New York, New
York 10036. Gascon Partners, a New York general partnership, an affiliate
of Mr. Icahn, High River and Riverdale holds warrants to purchase 300,000
shares of Common Stock. High River also holds 700,000 warrants issued in
August 1996 in connection with the Company's acquisition of and merger with
Alexander Energy Company. The ownership figures in the table assume that
all the shares of Series D Preferred Stock are converted and warrants for
1,000,000 shares of Common Stock are exercised. Riverdale and Mr. Icahn, by
virtue of their relationships to High River and Gascon, may be deemed to
beneficially own (as that term is defined in Rule 13d-3 under the Exchange
Act) the shares which High River directly beneficially owns and the shares
which Gascon has warrants to purchase. Each of Riverdale and Mr. Icahn
disclaims beneficial ownership of such shares for all other purposes. Mr.
Robert J. Mitchell has been appointed a director of the Company as the
representative of the holders of the Series D Preferred Stock. Mr. Mitchell
does not have dispositive or voting power over any of the shares owned by
High River.
6
<PAGE> 10
(3) Richard A. Kayne ("Kayne") is President, Chief Executive Officer and
Director of Kayne Anderson Investment Management Inc. "(KAIM") and of KA
Associates, Inc., a registered broker/dealer. KAIM is the general partner
of KAIM Non-Traditional, L.P. ("L.P."), registered investment advisor,
which is the general partner of and investment advisor to the investment
partnerships referred to in this footnote. Mr. Kayne is also a limited
partner in each investment partnership and a general partner on one of
them. Mr. Kayne and L.P. have shared dispositive and voting power through
investment partnerships for 38,687 shares of Series B Preferred Stock,
23,000 shares of Series C Preferred Stock, and 9,500 shares of Series E
Preferred Stock, which may be converted at anytime into 2,380,738,
1,150,000 and 422,221 shares of Common Stock, respectively, and for
warrants to purchase 217,000 shares of Common Stock. The percentage
ownership figures in the table assume that all shares of Series B Preferred
Stock, Series C Preferred Stock and Series E Preferred Stock are converted,
the warrants to purchase 217,000 shares of Common Stock are exercised and
4,081,071 shares of Common Stock are issued, and such shares are added to
the shares of Common Stock outstanding. Mr. Kayne disclaims beneficial
ownership of the shares held by the investment partnerships in excess of
the amount attributable to him by virtue of his direct interest as a
limited or general partner and by virtue of his indirect interest in L.P.'s
interest in the investment partnerships. L.P. disclaims beneficial
ownership of the shares held by the investment partnerships in excess of
the amount attributable to them by virtue of their percentage interest in
the investment partnerships. Mr. Robert V. Sinnott is Senior Vice President
and Senior Investment Officer of L.P., and Mr. Elwood W. Schafer is a
consultant to KAIM. Both are Directors of the Company; neither Mr. Sinnott
nor Mr. Schafer have dispositive or voting power over any of these shares.
(4) Croft-Leominster, Inc. the record owner of the shares, is a Maryland
corporation.
(5) Beneficial ownership of all the Series B Preferred Stock is attributed to
KAIM. For information on Richard A. Kayne, KAIM and L.P., see footnote (3)
above. Arbco Associates L.P. has shared dispositive and voting power with
Mr. Kayne, and L.P. of 13,928 shares of Series B Preferred Stock, which is
convertible at any time into 857,107 shares of Common Stock. Offense Group
Associates has shared dispositive and voting power with Mr. Kayne, and L.P.
for 11,607 shares of Series B Preferred Stock, which is convertible at any
time into 714,276 shares of Common Stock. Kayne, Anderson Non-Traditional
Investments has shared dispositive and voting power with Mr. Kayne and L.P.
for 10,832 shares of Series B Preferred Stock, which is convertible at any
time into 666,584 shares of Common Stock. Opportunity Associates L.P. has
shared dispositive and voting power with Mr. Kayne, and L.P. of 2,320
shares of Series B Preferred Stock, which is convertible at any time into
142,769 shares of Common Stock.
(6) Beneficial ownership of all the Series C Preferred Stock is attributed to
KAIM. For information on Richard A. Kayne, KAIM and L.P., see footnote (3)
above. Arbco Associates L.P. has shared dispositive and voting power with
Mr. Kayne, and L.P. of 8,280 shares of Series C Preferred Stock, which is
convertible at any time into 414,000 shares of Common Stock. Offense Group
Associates has shared dispositive and voting power with Mr. Kayne, and L.P.
for 7,240 shares of Series C Preferred Stock, which is convertible at any
time into 362,000 shares of Common Stock. Kayne, Anderson Non-Traditional
Investments has shared dispositive and voting power with Mr. Kayne, and
L.P. for 6,100 shares of Series C Preferred Stock, which is convertible at
any time into 305,000 shares of Common Stock. Opportunity Associates L.P.
has shared dispositive and voting power with Mr. Kayne, and L.P. of 1,380
shares of Series C Preferred Stock, which is convertible at any time into
69,000 shares of Common Stock.
7
<PAGE> 11
(7) Beneficial ownership of all the Series E Preferred Stock is attributed to
KAIM. Foremost Insurance Company has dispositive and voting power for 7,500
shares of Series E Preferred Stock, which is convertible at any time into
422,221 shares of Common Stock, and warrants for 105,000 shares of Common
Stock. Topa Insurance Company has dispositive and voting power for 2,000
shares of Series E Preferred Stock, which is convertible at any time into
88,888 shares of Common Stock and warrants for 28,000 shares of Common
Stock.
b. Security Ownership of Management
The following table sets forth information concerning the beneficial
ownership of the Company's capital stock as of April 20, 1998 by each of the
Company's present directors and executive officers and certain other parties,
and the directors and executive officers of the Company as a group, all as
reported by each such person as of April 20, 1998.
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER PERCENT
OF BENEFICIAL OWNER TITLE OF CLASS OF SHARES OF CLASS(1)
- ------------------- -------------- --------- -----------
<S> <C> <C> <C>
Miles D. Bender Common Stock 1,348,244(1) 3.3%
4925 Greenville Avenue
Suite 1400
Dallas, Texas 75206
George B. McCullough Common Stock 430,602(2) 1.1%
6510 Pauma Dr.
Houston, TX 77069
Jim L. David Common Stock 422,889(3) 1.0%
4925 Greenville Avenue
Suite 1400
Dallas, TX 75206
Bob G. Alexander Common Stock 418,752(4) 1.0%
6017 Morning Dove Lane
Edmond, OK 73034
Robert H. Kite Common Stock 394,955(5) ______(7)
2722 N. 7th Street
Phoenix, AZ 85006
Norman C. Miller Common Stock 373,610(6) ______(7)
P.O. Box 1566
Griffin, GA 30224
William T. Jones Common Stock 210,000(8) ______(7)
4925 Greenville Avenue
Suite 1400
Dallas, Texas 75206
</TABLE>
8
<PAGE> 12
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER PERCENT
OF BENEFICIAL OWNER TITLE OF CLASS OF SHARES OF CLASS(1)
- ------------------- -------------- --------- -----------
<S> <C> <C> <C>
George N. McDonald Common Stock 123,960(9) ______(7)
3656 Macintosh Lane
Salt Lake City, UT 84121
Philip D. Devlin Common Stock 55,000(10) ______(7)
4925 Greenville Avenue
Suite 1400
Dallas, TX 75206
Melissa H. Rutledge Common Stock 55,000(11) ______(7)
4925 Greenville Avenue
Suite 1400
Dallas, TX 75206
Robert V. Sinnott Common Stock 47,500(12) ______(7)
1800 Avenue of Stars
Suite 1424
Los Angeles, CA 90067
Elwood W. Schafer Common Stock 29,500(13) ______(7)
7018 Blackwood Dr.
Dallas, TX 75231
Robert J. Mitchell Common Stock 12,500(14) ______(7)
767 Fifth Avenue
New York, NY 10153
Gene Anderson Common Stock 12,500(15) ______(7)
4925 Greenville Avenue
Suite 1400
Dallas, Texas 75206
Fred R. Miller Common Stock ______(16) ______(7)
4925 Greenville Avenue
Suite 1400
Dallas, Texas 75206
Dewayne Cravens Common Stock ______(17) ______(7)
4925 Greenville Avenue
Suite 1400
Dallas, Texas 75206
Chuck L. Elsey Common Stock ______(18) ______(7)
4925 Greenville Avenue
Suite 1400
Dallas, Texas 75206
</TABLE>
9
<PAGE> 13
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER PERCENT
OF BENEFICIAL OWNER TITLE OF CLASS OF SHARES OF CLASS(1)
- ------------------- -------------- --------- -----------
<S> <C> <C> <C>
All officers and directors as a Common Stock 3,935,012(19) 9.6%
group (17 people)
All officers and directors as a Series B Preferred Stock ______ ______
group (17 people)
All officers and directors as a Series C Preferred Stock ______ ______
group (17 people)
All officers and directors as a Series D Preferred Stock ______ ______
group (17 people)
All officers and directors as a Series E Preferred Stock ______ ______
group (17 people)
</TABLE>
(1) Includes 1,148,244 shares held directly by Mr. Bender, 12,500 shares
held in a trust for Mr. Bender's minor child, for which he disclaims
beneficial ownership, and immediately exercisable options to purchase
200,000 shares, but does not include options to purchase 1,000,000
shares which are not yet exercisable.
(2) Includes 371,852 shares held directly by Mr. McCullough and immediately
exercisable options to purchase 68,750 shares, but does not include
options to purchase 56,250 shares which are not yet exercisable. Also
does not include 5,405 shares owned by Mr. McCullough's sons, for which
Mr. McCullough disclaims beneficial ownership.
(3) Includes 407,889 shares held directly by Mr. David and immediately
exercisable options to purchase 15,000 shares, but does not include
options to purchase 90,000 shares which are not yet exercisable.
(4) Includes 340,000 shares held directly by Mr. Alexander and 60,002
shares owned by Mr. Alexander's wife, Donna Ports Alexander, and
immediately exercisable options to purchase 18,750 shares held by Mr.
Alexander, but does not include options to purchase 56,250 shares which
are not yet exercisable. Mr. Alexander disclaims any beneficial
interest in the shares owned by his wife.
(5) Robert H. Kite is Chief Operating Officer and 33.0% beneficial owner of
KFT, Ltd. and may be deemed to be the beneficial owner of shares held
by KFT, Ltd. KFT, Ltd. holds 176,297 shares and Mr. Kite holds 171,158
shares directly. The share figure in the table also includes
immediately exercisable options to purchase 47,500 shares, but does not
include options to purchase 37,500 shares which are not yet
exercisable.
(6) Mr. Miller owns 274,860 shares directly, and 50,000 shares through
Incorp, Inc., of which Mr. Miller is owner. Includes immediately
exercisable options to purchase 48,750 shares, but does not include
options to purchase 56,250 shares which are not yet exercisable.
10
<PAGE> 14
(7) Less than one percent.
(8) Includes 50,000 shares held directly by Mr. Jones and immediately
exercisable options to purchase 160,000 shares, but does not include
options to purchase 150,000 shares which are not yet exercisable.
(9) Includes 96,460 shares held directly by Mr. McDonald and immediately
exercisable options to purchase 27,500 shares, but does not include
options to purchase 37,500 shares which are not yet exercisable.
(10) Includes 50,000 shares of Common Stock held directly by Mr. Devlin and
immediately exercisable options to purchase 5,000 shares, but does not
include options to purchase 55,000 shares which are not yet
exercisable.
(11) Includes 10,000 shares held directly by Ms. Rutledge and immediately
exercisable options to purchase 45,000 shares, but does not include
options to purchase 45,000 shares which are not yet exercisable.
(12) Includes immediately exercisable options to purchase 47,500 shares held
by Mr. Sinnott, but does not include options to purchase 37,500 shares
which are not yet exercisable.
(13) Includes 2,000 shares held directly by Mr. Schafer and immediately
exercisable options to purchase 27,500 shares, but does not include
options to purchase 37,500 shares which are not yet exercisable.
(14) Includes immediately exercisable options to purchase 12,500 shares, but
does not include options to purchase 37,500 shares which are not yet
exercisable.
(15) Includes immediately exercisable options to purchase 12,500 shares, but
does not include options to purchase 22,500 shares which are not yet
exercisable.
(16) Does not include 50,000 shares of common stock that have not yet vested
and options to purchase 100,000 shares which are not yet exercisable.
(17) Does not include options to purchase 40,000 shares which are not yet
exercisable.
(18) Does not include 50,000 shares of common stock that have not yet vested
and options to purchase 150,000 shares which are not yet exercisable.
(19) Includes a total of 3,208,762 shares held directly or indirectly by the
executive officers and directors and options and warrants to purchase
726,250 shares which are immediately exercisable or exercisable within
60 days.
Under the terms of the Series D Preferred Stock, a change in control of
the Company may occur if any of the events occur that trigger the Series D
Preferred Stock Contingent Voting Rights (as defined) to elect one-half of the
Board of Directors plus one member and if such rights are exercised by such
holder. See "Description of Capital Stock -- Series D Preferred Stock."
11
<PAGE> 15
PROPOSAL 1 - DIRECTOR ELECTION PROPOSAL
The Company's bylaws provide that the Board of Directors of the Company
will consist of one or more members, the number of which is to be determined
from time to time by the Board of Directors. The Board of Directors of the
Company presently consists of 10 members, one of whom is appointed by the
holders of Series B Preferred Stock, although the holders of Series B Preferred
Stock have elected not to appoint a director to the Company's Board of Directors
for this term, one or whom is appointed by the holders of Series C Preferred
Stock and one of whom is appointed by the holders of Series D Preferred Stock,
each voting separately as a class, and seven of whom are elected by the holders
of Common Stock and Series E Preferred Stock. The Common Stock and Series E
Preferred Stock vote together as one class with the number of votes held by the
holders Series E Preferred Stock being equivalent to the number of votes that
would be held if the Series E Preferred Stock was converted into Common Stock on
the Record Date. Directors of the Company generally serve for a term of one year
(until the next annual meeting of shareholders) and until their successors are
duly elected or appointed and qualified, or until their death, resignation or
removal. Each of the persons nominated to hold offices provided below is
currently a member of the Board of Directors. Unless authority to vote in the
election of directors is withheld, it is the intention of the persons named in
the proxy to nominate and vote for the seven persons named in the table below,
each of whom has consented to serve if elected. In the event that by reason of
contingencies not presently known to the Board of Directors, one or all of the
nominees should become unavailable for election, the proxies will be voted for
such substitute as shall be designated by the Company's Board of Directors. In
completing the enclosed proxy card, if a shareholder decides to withhold
authority to vote for any of the director nominees, such shareholder should mark
the WITHHOLD AUTHORITY box and line through such nominee(s) name in Proposal 1
of the proxy card.
Directors are elected by plurality of the votes cast by the shares
entitled to vote in the election at a meeting at which a quorum is present.
Messrs. McCullough, Miller, Kite, McDonald, Schafer, Alexander and
Mitchell are "non-executive" directors, denoting that they are neither officers
nor employees of the Company. There are no family relationships between or among
any of the directors of the Company.
NOMINEES FOR ELECTION AT THE MEETING
<TABLE>
<CAPTION>
NAME AGE PRESENT POSITION WITH COMPANY(1)
<S> <C> <C>
George B. McCullough 73 Director, Chairman of the Board of Directors
Norman C. Miller 78 Director, Chairman of the Executive Committee
Miles D. Bender 61 Director, President and Chief Executive Officer
Robert H. Kite 43 Director
George N. McDonald 64 Director
Jim L. David 58 Director, Vice President, Exploration
Bob G. Alexander 64 Director
</TABLE>
12
<PAGE> 16
(1) Messrs. McCullough, Miller, Bender, Kite, and McDonald have been
Directors of the Company since December 17, 1990. Messrs. Alexander and
David were appointed to the Board on August 29, 1996. Pursuant to the
terms of the Series B Preferred Stock, Series C Preferred Stock and
Series D Preferred Stock, the holders of a majority of the outstanding
shares of each series have the right to appoint one member to the
Company's Board of Directors at all times while such series are
outstanding. Directors generally serve for a term of one year (until
the next annual meeting of shareholders) and until their successors are
duly elected and qualified, or until their death, resignation or
removal.
For certain biographical information regarding the directors of the
Company and information regarding committees of the Board of Directors and
director compensation, see "Management."
APPOINTMENT OF SERIES B PREFERRED, SERIES C PREFERRED AND SERIES D
PREFERRED DIRECTORS
Pursuant to the terms of the Series B Preferred Stock, Series C
Preferred Stock and Series D Preferred Stock, holders of the majority of the
outstanding shares of each such series shall have the right to appoint one
member to the Company's Board of Directors at all times, and to collectively
appoint one-third of the members of the Company's Board of Directors if the
Company fails to make four dividend payments or if the Company makes four
dividend payments on such preferred stock in shares of Series B Preferred Stock,
Series C Preferred Stock or Series D Preferred Stock, as the case may be (as
opposed to cash dividends.) Effective immediately following the election of the
seven members of the Board of Directors at the Meeting, it is anticipated that a
majority of the holders of the Series C Preferred Stock will appoint Elwood W.
Schafer as a director of the Company representing the Series C Preferred Stock,
the holders of the Series D Preferred Stock will appoint Robert G. Mitchell as a
director of the Company representing the Series D Preferred Stock and a majority
of the holders of the Series B Preferred Stock will not elect to appoint a
director of the Company for this term, provided that such holders of preferred
stock at their option may appoint other persons as directors of the Company. For
certain biographical information regarding Messrs. Schafer and Mitchell, see
"Management."
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table lists the name, age (as of March 15, 1998) and
present position with the Company for each of the Company's directors and
executive officers:
<TABLE>
<CAPTION>
NAME AGE PRESENT POSITION WITH THE COMPANY(1)
---- --- ------------------------------------
<S> <C> <C>
George B. McCullough 73 Director, Chairman of the Board of Directors
Norman C. Miller 78 Director, Chairman of the Executive Committee
Miles D. Bender 61 Director, President and Chief Executive Officer
Robert H. Kite 43 Director
George N. McDonald 64 Director
Robert V. Sinnott 48 Director
Elwood W. Schafer 69 Director
Jim L. David 58 Director, Vice President, Exploration
Bob G. Alexander 64 Director
Robert J. Mitchell 51 Director
</TABLE>
13
<PAGE> 17
<TABLE>
<CAPTION>
NAME AGE PRESENT POSITION WITH THE COMPANY(1)
---- --- ------------------------------------
<S> <C> <C>
Chuck L. Elsey 44 Executive Vice President and Chief Operating Officer
Fred R. Miller 48 Senior Vice President, Finance and Administration and Chief
Financial Officer
William T. Jones 52 Senior Vice President, Operations
Philip D. Devlin 53 Vice President, General Counsel and Secretary
Gene W. Anderson 55 Vice President, Land
C. Dewayne Cravens 51 Vice President, Production and Engineering
Melissa H. Rutledge 32 Vice President, Controller and Chief Accounting Officer
</TABLE>
(1) Messrs. McCullough, Miller, Bender, Kite, and McDonald have been
Directors of the Company since December 17, 1990. Mr. Schafer was
appointed to the Board effective September 26, 1995. Messrs. Alexander,
David and Mitchell were appointed to the Board on August 29, 1996.
Pursuant to the terms of the Series B Preferred Stock, Series C
Preferred Stock and Series D Preferred Stock, the holders of a majority
of the outstanding shares of each series have the right to appoint one
member to the Company's Board of Directors at all times while such
series are outstanding. Directors generally serve for a term of one
year (until the next annual meeting of shareholders) and until their
successors are duly elected and qualified, or until their death,
resignation or removal.
George B. McCullough. Effective December 17, 1990, Mr. McCullough was
appointed Chairman of the Board of Directors of a predecessor to the Company.
From July 20, 1990 to June 11, 1991, Mr. McCullough was a Director of Big Piney.
From October 1986 to June 11, 1991, Mr. McCullough served as Chairman of the
Board of Directors of VP Oil, Inc. ("VP"). From 1948 to 1986, Mr. McCullough
worked for Exxon Corporation ("Exxon"). Mr. McCullough was elected as a Vice
President of Exxon in 1980. He was responsible for all employee relations for
Exxon. Mr. McCullough holds B.A. and M.B.A. degrees from Tulane University.
Norman C. Miller. Effective December 17, 1990, Mr. Miller was appointed
a Director of the Company and to the office of Chairman of the Executive
Committee of the Company. Mr. Miller is the President and owner of Incorp, Inc.,
a petroleum consulting firm. Mr. Miller was a Director of Big Piney and Chairman
of its Executive Committee from July 20, 1990 until June 11, 1991. From
September 1988 to June 11, 1991, Mr. Miller had been a Director of and Chairman
of the Executive Committee of VP. Mr. Miller was President and CEO of Delhi
International Oil Corporation from 1974 to 1981. Delhi was listed on the
American Stock Exchange and had operations in the United States, Australia,
Canada, Columbia, Guatemala and Panama. Mr. Miller was a Director of Woodbine
Petroleum, a public company, from 1983 to 1985. He received his B.S. degree in
Geology from the University of Oklahoma.
Miles D. Bender. Since December 17, 1990, Mr. Bender has been
President, Chief Executive Officer and a Director of the Company. From July 20,
1990 to June 11, 1991, Mr. Bender served as President, Chief Executive Officer,
Treasurer and a Director of Big Piney. Mr. Bender was President, Chief Executive
Officer, Treasurer and a Director of VP from its inception in July, 1986 until
June 11, 1991. He was also President and a Director of Tierra Energy, Inc., from
1984 until 1990. From 1981 to 1984, he was general partner of Rio Colorado
Mining, Ltd., which was engaged in the minerals and natural resources
businesses. From 1970 to 1980, Mr. Bender was President and Chairman of the
Board of Syncom Incorporated ("Syncom"), a publicly-held company that
manufactured magnetic computer supplies. Syncom was listed on the Boston Stock
Exchange. Mr. Bender received his B.A. degree from and attended law school at
the University of Buffalo.
14
<PAGE> 18
Robert H. Kite. Effective December 17, 1990, Mr. Kite was appointed a
Director of the Company. From November 1987 until June 11, 1991, Mr. Kite served
as a Director of VP. Since 1980, Mr. Kite has been President and Chief Operating
Officer of KFC, Ltd., a family-owned company with operations which include real
estate development, investments and medical MRI clinics. He has also been Chief
Executive Officer of Roamin' Korp., Inc. since 1982, which is engaged in the
businesses of construction, recording, mining and equity investments. Mr. Kite
graduated from Southern Methodist University with a B.S. degree in Psychology
and Political Science.
George N. McDonald. Effective December 17, 1990, Mr. McDonald was
appointed a Director of the Company. For more than five years prior to June 11,
1991, Mr. McDonald was a Director of Big Piney, and, from 1982 to July 20, 1990,
he served as Vice President of Big Piney. From July 20, 1990 until June 11,
1991, Mr. McDonald was a Director of VP. Since 1990, Mr. McDonald has also been
President/Owner of Medical Alignment Systems. From 1973 to present, Mr. McDonald
has been the President and Owner of Canyon Courts, Inc. From 1985 to present,
Mr. McDonald has also been a Director of Ion Laser Technology, Inc. Mr. McDonald
was also President of Ion Laser Technology from 1985 to 1988, Chairman of the
Board from 1985 to 1992 and Secretary from 1990 to 1992. From 1960 to 1972, Mr.
McDonald was an account executive with Merrill Lynch, Pierce, Fenner and Smith,
Inc. and certain predecessor firms. Mr. McDonald holds B.S. and M.B.A. degrees
from the University of Utah.
Elwood W. Schafer. Effective September 26, 1995, Mr. Schafer was
appointed a Director of the Company. Mr. Schafer has been a consultant to KAIM
since January 1993. Mr. Schafer was Managing Director and Chief Petroleum
Engineer of Chemical Bank and its affiliate, Texas Commerce Bank, from December
1991 (when Chemical Bank and Manufacturers Hanover Trust merged) until July
1992. From 1974 until December 1991, Mr. Schafer worked for Manufacturers
Hanover Trust and reached the position of Managing Director and Chief Petroleum
Engineer. Mr. Schafer was Vice President and head of the oil department at the
Bank of New York from 1970 until he joined Manufacturers Hanover Trust. From
1955 to 1970, Mr. Schafer worked at General American Oil Company. Prior to that
he spent four years with Core Labs doing Rocky Mountain well-site geology. Mr.
Schafer graduated from University of Illinois with a B.S. in geology.
Jim L. David. Mr. David, a founder of Alexander, was appointed a
Director and Vice President, Exploration of the Company when Alexander merged
into NEG-OK on August 29, 1996. From 1980 until the Merger, Mr. David served as
Executive Vice President of Alexander. From 1977 to 1980, Mr. David was employed
as exploration manager for Reserve Oil, Inc., Northern Division. Mr. David
served as Alaska chief geologist and senior staff geologist for Texas
International from 1973 to 1976. Mr. David graduated with a bachelor of arts
degree in geology from Louisiana Tech University and obtained a master of arts
in geology from the University of Missouri.
Bob G. Alexander. Mr. Alexander, a founder of Alexander, was appointed
a Director of the Company when Alexander merged into NEG-OK on August 29, 1996.
From 1980 until the Merger, Mr. Alexander served as Chairman of the Board,
President and Chief Executive Officer of Alexander. From 1976 to 1980, Mr.
Alexander was Vice President and General Manager of the Northern Division of
Reserve Oil, Inc. and President of Basin Drilling Corp. (subsidiaries of Reserve
Oil and Gas Company). Mr. Alexander attended the University of Oklahoma and
graduated with a bachelor of science degree in geological engineering.
Robert J. Mitchell. Effective August 29, 1996, Mr. Mitchell was
appointed a Director of the Company. Mr. Mitchell is Chief Executive Officer of
ACF Industries Inc., has served as Senior Vice
15
<PAGE> 19
President -- Finance of such company from March 1995 to the present and was
Treasurer from December 1984 to March 1995. Mr. Mitchell has also served as
President and Treasurer of ACF Industries Holdings Inc. since August 1993 and as
Vice President, Liaison Officer of Icahn & Co., Inc. since November 1984. From
1987 to January 1993, Mr. Mitchell served as Treasurer of TransWorld Airlines,
Inc. and was the Treasurer of TransWorld Airlines, Inc. when it filed for
reorganization under Chapter 11 of the United States Bankruptcy Code, as
amended, in January 1992. Mr. Mitchell is also a director of Cadus
Pharmaceutical Corporation, a NASDAQ National Market listed pharmaceutical
company.
Charles L. (Chuck) Elsey. Effective April 1, 1998, Mr. Elsey was
appointed Executive Vice President and Chief Operating Officer for the Company.
Mr. Elsey came to the Company from EEX, Corporation (formerly Enserch
Exploration) where he served as Director, Domestic Onshore Assets from May of
1997. From June of 1996 until May of 1997, Mr. Elsey was a consultant for
various companies and individuals on business and contractual matters. In
November of 1995, Mr. Elsey was appointed by the District Court of Oklahoma to
manage the assets of Cushion Packaging as a Monitor and later as a Custodian
pending the settlement of litigation between the shareholders which was
successfully resolved in May of 1996. From November of 1994 until November of
1995, Mr. Elsey served as Vice President, Exploration for Gemini Exploration
Company. Mr. Elsey was independent from September of 1992 until October of 1994
subsequent to serving Pacific Enterprises (formerly Terra Resources) from
January 1985 until August 1992 in various management capacities, including
Regional Manager, Exploration and Development for the Gulf Coast area and Vice
President, Acquisition and Divestitures. Mr. Elsey is licensed by the State Bar
of Texas, holds a B.A. degree from Texas Christian University and a J.D. degree
from the University of Tulsa School of Law.
Fred R. Miller. Mr. Miller has served as Senior Vice President,
Finance and Administration and Chief Financial Officer of the Company since
January 1998. Prior to that time he was employed by Ernst & Young LLP, a
national accounting firm, having been a partner in that firm since 1984. Mr.
Miller received his B.B.A. and M.A. degrees in Accounting from the University of
Iowa and is currently licensed as a CPA in the State of Texas.
William T. Jones. Effective August 29, 1996, Mr. Jones was appointed
Senior Vice President, Operations of the Company. Prior to such appointment, Mr.
Jones was Vice President, Production and Engineering of the Company since July
1994. After receiving a B.S. degree in Petroleum Engineering at Mississippi
State University, Mr. Jones began his career with Shell Oil Company in June 1968
in Houston, Texas. In May 1973, Mr. Jones joined Tenneco Oil Company in Denver,
Colorado. After Tenneco Oil, Mr. Jones held various engineering and management
positions with several independent oil companies in Dallas and Ft. Worth, Texas
before moving to Abilene to become Chief Operating officer of Ard Drilling
Company from July 1992 to June 1994.
Philip D. Devlin. Effective March 1, 1997, Mr. Devlin was appointed
Vice President and General Counsel of the Company and, effective March 20, 1997,
the Board of Directors appointed him Secretary of the Company. From September
1984 to October 1994, Mr. Devlin served as Executive Vice President, General
Counsel and Secretary for Sunrise Energy Services, Inc., a publicly-held natural
gas marketing company. From October 1994 through February 1997, Mr. Devlin acted
as President and Chief Executive Officer of Sunrise Energy Services, Inc. In
July 1995, Sunrise Energy Services, Inc. filed to reorganize under Chapter 11 of
the Bankruptcy Code and in February 1997 a Plan of Reorganization was confirmed
by the Bankruptcy Court. Mr. Devlin is licensed by the State Bar of Texas,
admitted to practice before the Supreme Court of the United States and is a past
President and Director of the Natural Gas and Electric Power Association of
North Texas. Mr. Devlin holds a B.A.
16
<PAGE> 20
degree and an M.A. degree from the University of California and J.D. degree with
honors from California Western School of Law, San Diego, California.
Gene W. Anderson. Mr. Anderson was appointed Vice President, Land
effective March 17, 1997. Mr. Anderson has 29 years of land experience, both
domestic and foreign. Most recently, Mr. Anderson was responsible for Enserch
Exploration's land activities in South Louisiana. Prior to that he held the
position of Onshore Land Manager at both Total Minatome Corporation in Houston
and PG&E Resources (DALEN) in Dallas. He held these positions from 1989 through
1995. From 1975 to 1989, Mr. Anderson held various Land Management positions in
Denver, including Vice President - Land at Energetics Inc. from 1980 to 1984.
Mr. Anderson's career began with Chevron in 1968 and continued until 1975. While
at Chevron, Mr. Anderson held various land positions in both the Rockies and Mid
Continent areas as well as 3 years on the land/legal staff of Chevron Overseas
Petroleum. Mr. Anderson holds B.S. and J.D. degrees from the University of North
Dakota.
C. Dewayne Cravens. Effective August 25, 1997, Mr. Cravens was
appointed Vice President, Production and Engineering of the Company. Prior to
joining the Company, Mr. Cravens was Assistant Director-Permitting Services for
the Texas Railroad Commission from 1996 through August 1997 where he managed and
directed permitting and engineering units in the oil and gas divisions. From
1982 through 1995, Mr. Cravens was with Santa Fe Minerals, Inc.. From 1993 to
1995 he served as Senior Manager of U.S. Operations of Santa Fe Minerals, Inc.
where he managed and directed field operations of company operated wells, both
onshore and offshore, gas processing plants and drilling engineering support. He
received a B.S. degree in General Engineering from Oklahoma State University in
January 1970.
Melissa H. Rutledge. Effective August 15, 1994, Ms. Rutledge was
appointed Controller and Chief Accounting Officer of the Company and in December
1997 was made a Vice President of the Company. From September 1990 to August
1994, Ms. Rutledge was a Senior Auditor for Ernst & Young LLP in Dallas. Ms.
Rutledge received her B.B.A. degree in Accounting from Texas Tech University and
is currently licensed as a CPA in the State of Texas.
The Company has an Executive Committee, whose members include Messrs.
Miller, Bender, Alexander and McCullough. The Executive Committee acts as
liaison to senior management and in place of the Board of Directors between
regularly scheduled meetings. The Executive Committee held three (3) meetings
during 1997. The Company also has a Finance Committee, whose members are Messrs.
Sinnott, Mitchell, Bender, Schafer and David. The Finance Committee's principal
function is to plan for the financial and capital needs of the Company. The
Finance Committee held no meetings during 1997. The Company's Audit Committee,
composed of Messrs. Kite, McDonald, Mitchell, Alexander and Schafer is
responsible for reviewing the audited financials, the scope of audit coverage
and internal control systems with the Company's independent auditors. The Audit
Committee held two (2) meetings during 1997. The Company's Personnel and
Compensation Committee (the "Compensation Committee") is comprised of Messrs.
McCullough, Miller, Bender, Sinnott, Kite and Mitchell. The Compensation
Committee is charged with the responsibility of administering and interpreting
the Company's various incentive compensation plans, determining bonuses and
approving other compensation issues. The Compensation Committee held four (4)
meetings during 1997. The Compensation Committee includes a subcommittee formed
for the purpose of administering the Company's Plan. The Company has an NEG-OK
Asset Committee, consisting of Messrs. Alexander, David, Kite, McDonald and
Miller. The NEG-OK Asset Committee is charged with the responsibility for
administering the disposition of assets acquired in the merger of Alexander
Energy Corporation with the Company. The NEG-OK Asset Committee did not meet
during 1997.
17
<PAGE> 21
The Board of Directors held seven (7) regular and special meetings
during 1997.
The executive officers of the Company are elected annually at the first
meeting of the Company's Board of Directors held after each annual meeting of
shareholders. Each executive officer will hold office until the first meeting of
the Board after the annual meeting of shareholders next succeeding his or her
election and until his or her successor is duly elected and qualified, or until
his or her death or resignation or until he or she shall have been removed in
the manner provided in the Company's bylaws.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Company received no copy of a Form 5 filing for Robert A. Imel for
the year ended December 31, 1997 and has no knowledge if Mr. Imel was required
to file a Form 5.
EXECUTIVE COMPENSATION
The following tables set forth the cash compensation received by the
Company's Chief Executive Officer and each of the next four most highly
compensated executive officers of the Company whose cash compensation exceeded
$100,000 for the fiscal year ended December 31, 1997, together with one
additional executive officer who left the Company prior to year end but whose
compensation would have been among the four most highly compensated executive
officers, whose base salary plus bonus equaled or exceeded $100,000. Such tables
also include option grants in the last fiscal year for such officers and
aggregate option/SAR exercises during the last fiscal year and year end
option/SAR values.
18
<PAGE> 22
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION AWARDS
--------------------------
RESTRICTED ALL
ANNUAL STOCK SECURITIES OTHER
COMPENSATION (1) AWARDS UNDERLYING COMPENSATION
--------------------------
($) OPTIONS(#)(2) ($)
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($)
--------------------------- ---- --------- --------- ------------ ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Miles D. Bender 1997 300,000 100,000 -- 900,000(3) --
President and Chief Executive 1996 224,694 35,000 -- 200,000 --
Officer 1995 179,448 50,000 -- 200,000 78,971(4)
William T. Jones 1997 185,000 35,000 -- 100,000 --
Senior Vice President, 1996 121,721 35,000 -- 100,000 --
Operations 1995 97,992 10,000 -- 110,000 --
Jim L. David 1997 132,500 35,000 -- 75,000 --
Vice President, Exploration(5) 1996 115,000 10,000 -- 30,000 --
1995 85,000 48,370 -- -- --
Philip D. Devlin 1997 137,500 25,000 203,500(7) 60,000 50,885(8)
Vice President, 1996 -- -- -- -- --
General Counsel(6) 1995 -- -- -- -- --
Robert A. Imel 1997 176,077 -- 203,500(10) -- 94,000(11)
(Resigned effective December 1996 116,098 40,000 -- 150,000(12) --
6, 1997)(9) 1995 87,500 16,000 -- 110,000(12) --
</TABLE>
(1) Excludes the aggregate, incremental cost to the Company of perquisites
and other personal benefits, securities or property, the aggregate
amount of which, with respect to the named individual, does not equal
or exceed the lesser of $50,000 or 10% of reported annual salary and
bonus for such person.
(2) All Options granted in 1996 and 1997 were granted pursuant to the 1996
Incentive Compensation Plan which was approved by the shareholders June
4, 1996 and registered by the Company on December 5, 1997. All previous
Options had been registered by the Company prior to January 1, 1997.
(3) Includes 700,000 Options granted March 20, 1997 at a price of $4.00 per
share which shall vest at any time within a five (5) year period of the
date of grant; provided that the closing price of the Company's common
stock as quoted on the NASDAQ shall have been at or above $8.00 per
share for not less than thirty (30) consecutive days prior to any such
exercise.
(4) During 1995, the Board of Directors approved payment of $78,971 to Mr.
Bender for services rendered without pay in prior years and
reimbursement for certain other related expenses.
(5) Mr. David was formerly an employee of Alexander Energy Corporation and
was appointed Vice President, Exploration of the Company effective
August 29, 1996 with the merger of Alexander and the Company. Periods
prior to such date reflect his employment with Alexander Energy
Corporation.
19
<PAGE> 23
(6) Effective March 1, 1997, Mr. Devlin was appointed Vice President and
General Counsel of the Company.
(7) Mr. Devlin was granted 50,000 shares of the Company's common stock
during 1997 which was registered and had a market value of $203,500 as
of December 31, 1997.
(8) Mr. Devlin earned $50,885 as consulting fees from the Company during
1997 prior to joining the Company as an employee and officer.
(9) Mr. Imel resigned from the Company as its Senior Vice President and
Chief Financial Officer effective December 6, 1997.
(10) Mr. Imel was granted 50,000 shares of the Company's common stock during
1997 which has not been registered and had a market value of $203,500
as of December 31, 1997.
(11) Includes payment of five months' salary pursuant to a Separation
Agreement with the Company dated October 31, 1997 plus $500 per month
for 18 months.
(12) As of December 31, 1997, Mr. Imel had exercised all but 25,000 of
Options vested as of the termination of his employment with the Company
on December 6, 1997.
20
<PAGE> 24
<TABLE>
<CAPTION>
OPTION/GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
- ---------------------------------------------------------------------------------------
PERCENT OF POTENTIAL REALIZABLE VALUE
NUMBER OF TOTAL AT ASSUMED ANNUAL RATES
SECURITIES OPTIONS EXERCISE OF STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO OR BASE FOR OPTION TERM
OPTIONS EMPLOYEES IN PRICE EXPIRATION ---------------------------
NAME GRANTED (#) FISCAL YEAR ($/SH) DATE 5%($) 10%($)
---- ----------- ----------- -------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Miles D. Bender 700,000(1) 100.00%(3) $ 4.00 3/20/02 $ 952,268 $2,160,371
200,000(2) 19.21% $ 4.00 12/23/02 $ 272,077 $ 617,249
William T. Jones 100,000(2) 9.61% $ 4.00 12/23/02 $ 136,038 $ 308,624
Jim L. David 75,000(2) 7.20% $ 4.00 12/23/02 $ 102,029 $ 231,468
Philip D. Devlin 10,000(2) .96% $ 3.31 3/20/02 $ 11,257 $ 25,539
50,000(2) 4.80% $ 4.00 12/23/02 $ 40,811 $ 92,587
Robert A. Imel(4) -- -- -- -- -- --
</TABLE>
(1) These 700,000 Options are subject to the 1996 Incentive Compensation Plan,
but shall vest at any time within a five year period of the date of grant;
provided the closing price of the Company's stock as quoted on the NASDAQ
shall have been at or above $8.00 per share for not less than thirty
consecutive days prior to any such exercise.
(2) These Options were granted pursuant to the 1996 Incentive Compensation Plan
and vest 50% at the end of one year and the remaining 50% at the end of two
years following the date of grant. The 1996 Incentive Compensation Plan was
approved by shareholders in June 1997 and the underlying securities
registered in December 1997.
(3) These options constitute all Options granted with the terms and
restrictions set forth in footnote (1) above.
(4) Mr. Imel resigned from the Company effective December 6, 1997 and was
granted no Options in 1997.
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<PAGE> 25
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING
UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
SHARES FISCAL YEAR-END (#) AT FISCAL YEAR-END ($)
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE(1)
---- ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Miles D. Bender(2)............. -- -- 200,000/1,000,000 $156,250/$43,750
William T. Jones(2)............ -- -- 160,000/150,000 $220,625/$21,875
Jim L. David(2)................ -- -- 15,000/90,000 $4,688/$9,376
Philip D. Devlin(2)............ -- -- 5,000/55,000 $3,750/$3,438
Robert A. Imel................. 135,000 $247,969 25,000/--(3) $7,813/--
</TABLE>
(1) Based on the closing price of the Company's common stock at December 31,
1997 of $4.0625.
(2) These individuals did not exercise any Options during 1997.
(3) Mr. Imel forfeited 50,000 shares effective upon his resignation from the
Company on December 6, 1997.
The Company does not have any long-term incentive plans or defined
benefit or actuarial plans. Therefore, the tables on long-term incentive plan
awards and pension plans are omitted.
Robert A. Imel, formerly the Chief Financial Officer of the Company,
terminated his employment on December 6, 1997. Pursuant to the terms of his
Separation Agreement, he was given a termination allowance equivalent to his
base salary for a period of five months plus $500 per month for a period of
eighteen months following his separation from the Company. Additionally, Mr.
Imel was granted an extension through June 30, 1998 in which to redeem certain
shares of the Company's Common Stock (the "Stock") granted to Mr. Imel by the
Company in January 1997 pursuant to his employment which Mr. Imel had pledged
to the Company in return for cash in the amount of $150,000. In the event Mr.
Imel does not redeem the Stock by tendering payment to the Company of the amount
of $150,000 on or before June 30, 1998, the Company has the absolute right to
dispose of the Stock in any manner it so deems in its sole discretion without
any obligation of notice, presentment or demand upon Mr. Imel.
COMPENSATION OF DIRECTORS
The Company compensates non-employee Board of Directors members in the
amount of $1,000 for each official Board of Directors' meeting and $500 for each
Board of Directors' committee meeting unless such committee meeting is held at
the time of, or in conjunction with, an official Board of Directors' meeting. In
addition, members of the Board of Directors are generally granted stock options
each year. In December 1997 each outside director received options up to 37,500
shares of Common Stock, which options vest over a two year period.
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<PAGE> 26
In lieu of the above-referenced option grants to all non-employee
directors of the Company during 1997, in December 1997, certain of the employee
directors received additional options to purchase Common Stock for services
rendered to the Company. The number of shares underlying options granted were as
follows: Miles D. Bender -- 200,000 at an exercise price of $4.00 per share; and
Jim L. David -- 75,000 at an exercise price of $4.00 per share.
An affiliated company of Mr. Norman Miller, Incorp Inc. (which acts as
a petroleum consultant and independent oil and gas producer), was paid $30,000
for consulting services rendered to the Company by Mr. Miller during 1997.
Effective November 11, 1994, Mr. Miller began to receive $500 for each day he
works on Company matters and Incorp Inc. received $6,000 during 1997 for Mr.
Miller's expenses in performing such work.
Mr. Bob G. Alexander entered into a consulting agreement with the
Company for a term running from September 1996 to September 1999 at a
compensation level of $150,000 per year. For 1997, Mr. Alexander was paid
$150,000 for his services pursuant to such consulting agreement.
In addition, the Company pays other incidental compensation to
executive officers and directors from time to time, consisting primarily of
reimbursement for travel and entertainment expenses on behalf of the Company.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND
CHANGE-IN-CONTROL ARRANGEMENTS
In January 1996, the Company executed employment agreements that have a
term of three years from the effective date of a change in control of the
Company with Miles D. Bender, President and Chief Executive Officer, William T.
Jones, Senior Vice President, Operations and Melissa H. Rutledge, Vice
President, Controller and Chief Accounting Officer. In March 1997, the Company
executed similar employment agreements that have a term of three years from the
effective date of a change of control of the Company (together with the
above-referenced employment agreements, the "Employment Agreements") with Philip
D. Devlin, Vice President, General Counsel and Secretary and Gene W. Anderson,
Vice President, Land. The Company also executed similar employment agreements
with Dewayne Cravens, Vice President, Production and Engineering in August 1997,
Fred R. Miller, Senior Vice President, Finance and Administration and Chief
Financial Officer in January 1998 and with Chuck L. Elsey, Executive Vice
President and Chief Operating Officer and Kent Lueders in April 1998. The
Employment Agreements each provide that the three-year term will be rolling (so
that at any time during the term of such agreements there is a remaining term of
three years, but in no event beyond the time the executive and/or officer
reaches age 65).
The Employment Agreements define the "change in control" to have
occurred when (i) a person, entity or group becomes the beneficial owner of a
majority of the securities of the Company ordinarily having the right to vote
for election of directors, (ii) during any consecutive two year period, the
directors at the beginning of the period (together with directors approved by a
vote of 662/3% of such initial directors plus directors previously approved by
such 662/3% margin) cease to constitute a majority of the Company's Board of
Directors, (iii) any sale, lease, exchange or transfer of all, or substantially
all, of the Company's assets occurs, or (iv) a merger or consolidation occurs
with the effect that any person, entity or group, or the shareholders thereof,
become the owner of securities of the surviving corporation representing a
majority of the voting power of such surviving corporation for the election of
directors.
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<PAGE> 27
The Employment Agreements provide for a three year employment term
during which the executive and/or officer receives for each year (i) 100% of the
average of the executive's annual base salary at the time in question and the
executive's annual base salary for each of the preceding two years, and (ii)
100% of the average of the bonuses paid to the executive and/or officer for each
of the preceding three fiscal years. If the executive and/or officer is
discharged without cause or resigns for "good reason" (as defined therein) after
a change in control, then in lieu of the compensation described in the preceding
sentence, the executive and/or officer is entitled to a lump sum cash severance
payment equal to three times the sum of (a) the executive's annual base salary
then in effect, (b) the average of cash bonuses for each of the three previous
years, and (c) the average of fully-vested contributions to retirement plans for
such executive and/or officer for each of the three preceding years. In
addition, at such time, all options and all other retirement or pension
contributions or benefits become fully vested and remain fully exercisable for
360 days.
In addition to the Employment Agreements discussed above, the Company
entered into an employment agreement with Jim L. David, Vice President,
Exploration in March 1997 for a two year term, commencing with the date of
consummation of the merger of the Company with Alexander Energy Corporation. In
the event Mr. David resigns for a good reason after a "change of control" as
defined above, or upon the discharge of Mr. David without cause during the
employment term, Mr. David will receive severance benefits equal to the sum of
(i) his annual base salary then in effect, (ii) his last annual cash bonus and
(iii) the average retirement plan contributions by the Company on his behalf on
a fully vested bases for the last two fiscal years, multiplied by three (3). Mr.
David will also have all stock options previously granted to him become fully
vested and exercisable for a three year period (360 days) following termination.
Mr. David shall continue to receive for a period of one (1) year following
termination all life, accident, disability, medical, dental and other health and
casualty insurance benefits maintained by the Company for its employees.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Miles D. Bender served both as a member of the Compensation Committee
of the Board of Directors of the Company (the "Compensation Committee") and as
the President and CEO of the Company during 1997. Robert V. Sinnott served as a
director and member of the Finance and Compensation Committees during 1997 and
as a director of Plains Resources, Inc., the parent company of Plains, to whom
the Company sold 84% of its total oil sales during 1997. The Company's
production sales contracts with Plains Resources, Inc. were entered into in
1993. Mr. Sinnott did not become a director of the Company until 1994.
See "Certain Relationships and Related Transactions."
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee is composed of five Directors and the
President and Chief Executive Officer of National Energy Group, Inc. The
Compensation Committee advises the Company's Board of Directors and management
concerning compensation for its executive officers. Compensation for executive
officers is based on the principles that compensation must be competitive to
enable the Company to motivate, attract and retain highly qualified and talented
employees to lead and grow the Company's business and, at the same time, provide
rewards which are closely linked to the Company's and the individual's
performance.
The Compensation Committee considers management skills, long term
performance, operating results, unusual accomplishments as well as economic
conditions and other external events that affect the Company's operations.
24
<PAGE> 28
In addition to salaries, bonuses and stock options are generally
granted once annually based on performance, length of service or other noted
accomplishments in helping to increase reserves and/or cash flows of the
Company. Options are currently granted under the National Energy Group, Inc.,
1996 Incentive Compensation Plan which was approved by the Board of Directors
and was approved by the shareholders at the 1997 Annual Meeting. Shares are
generally issued annually to executives at market price on the grant date.
During 1997, two executive officers were terminated and, in accordance with
prior practice and policy of the Company, were given severance of up to six
months salary depending upon their level of responsibility and service while
employed by the Company.
In making its recommendations to the Board of Directors regarding Mr.
Bender's base compensation, the Compensation Committee recognized the growth of
the Company due to the acquisition and merger of Alexander Energy Company into
the Company in late 1996. The Compensation Committee acknowledged that the
growth and performance of the Company is dependent on the efforts and results of
its executive officers and in particular its Chief Executive Officer. Mr.
Bender's base salary was increased to reflect his increased responsibilities to
the expanded Company. The incentive stock option award recommendations for Mr.
Bender were based on the Company's achievements in doubling or tripling the size
of the Company, recording the first full year of net operating income and
implementing an aggressive drilling program. The Compensation Committee believes
that the award of long term stock options aligns the interests of Mr. Bender and
the other executive officers with the interests of the Company by creating value
for the executives through positive results of the Company.
COMPENSATION COMMITTEE
George B. McCullough, Chairman
Norman C. Miller
Robert H. Kite
Robert V. Sinnott
Robert J. Mitchell
Miles D. Bender
CORPORATE PERFORMANCE
The following graph shows a five year comparison of cumulative total
stockholder returns for the Company, the NASDAQ Market Index (the "Broad
Market") and an index of peer companies in the oil and gas industry selected by
the Company (the "Peer Group").
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<PAGE> 29
[OBJECT OMITTED]
Assumes $100 Invested On January 1, 1992
Assumes Dividend Reinvested
Fiscal Year Ending December 31, 1997
The total cumulative return in investment (change in the year end stock
price plus reinvested dividends) for each of the years for the Company, the
NASDAQ Market Index and the Peer Group is based on the stock price or composite
index beginning at the end of the calendar year 1992. The Company has never paid
dividends on the Company's Common Stock.
The Peer Group Index, is a diversified group of independent oil and gas
companies comprised of Abraxas Petroleum, C.P. N.V.; Arch Petroleum, Inc.; Basin
Exploration, Inc.; Coho Energy, Inc.; Comstock Resources, Inc.; Gothic Energy
Corp.; Lomak Petroleum, Inc.; Panaco, Inc.; and Petrocorp, Inc. Two companies
formerly used as part of the peer group, Cairn Energy USA, Inc. and Hugoton
Energy Corp. have been acquired by other entities and no longer exist.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has entered into an agreement (the "IAC Agreement") with
Icahn Associates Corp. ("IAC"), an affiliate of Carl C. Icahn, who is a
beneficial owner of more than 5% of the Company's Common Stock. Pursuant to the
IAC Agreement, IAC committed $10 million to participate for specified interest
in each of the prospects generated or acquired by the Company through September
30, 1998. Each party is entitled to certain rights of first refusal in the event
that the other party decides to sell all or part of its participation interest
in a prospect in which both parties are participating. As partial consideration
for IAC's obligations under the participation agreement, the Company has also
granted Gascon Partners, an affiliate of IAC, certain warrants, which became
exercisable prior to December 31, 1997 and will expire July 11, 2002, to
purchase 300,000 shares of Common Stock at an exercise price of three dollars
($3.00) per share. See "Security Ownership of Certain Beneficial Owners and
Management - Security Ownership of Certain Beneficial Owners."
During the year ended December 31, 1997, the Company sold $17,918,762
of oil and natural gas, or 84% of the Company's total oil sales to Plains. KAIM
and investment partnerships associated with KAIM, and other accounts managed by
affiliates of KAIM, own on a fully diluted basis approximately 19.14% of the
issued and outstanding shares of Common Stock of Plains Resources, Inc. The
Company
26
<PAGE> 30
has agreements with Plains that were entered into in 1993 pursuant to which
Plains purchases oil produced from the major oil-producing properties which the
Company operates, at West Texas Intermediate posted prices plus a premium. The
premium is based on Plains purchasing substantially all the production of the
Company. Sales to Plains will account for a significant percentage of the
Company's total oil and natural gas sales in 1998. For information on the
ownership of the Company's securities by KAIM and investment partnerships
associated with KAIM, see "Security Ownership."
Robert A. Imel, formerly the Chief Financial Officer of the Company,
was granted 50,000 shares of the Company's Common Stock during 1997. Mr. Imel
pledged such stock to the Company in return for cash in the amount of $150,000
and has until June 30, 1998 in which to redeem such stock. In the event Mr. Imel
does not redeem such stock by tendering payment to the Company of $150,000 on or
before June 30, 1998, the Company has the absolute right to dispose of such
stock in any manner it so deems in its sole discretion.
VOTE REQUIRED
Directors are elected by plurality of the votes cast by the shares
entitled to vote in the election at a meeting at which a quorum is present.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR ALL
NOMINEES AS DIRECTORS.
PROPOSAL 2 - APPROVAL OF EMPLOYEE STOCK PURCHASE PLAN
GENERAL
On December 3, 1997, the Board of Directors authorized the adoption,
subject to shareholder approval, of the National Energy Group, Inc. Employee
Stock Purchase Plan (the "Plan") pursuant to which employees of the Company will
be eligible to acquire a proprietary interest in the Company through the
purchase of Common Stock of the Company. It is the intention of the Company to
have the Plan qualify as an "employee stock purchase plan" under Section 423 of
the Internal Revenue Code of 1986, as amended ("the "Code"), and the Plan shall
be construed so as to extend and/or limit participation as provided therein.
If the Plan is approved by its shareholders, a total of 500,000 shares
of Common Stock will be reserved for issuance to the employees of the Company
under the Plan. No shares of the Company's Common Stock have been issued under
the Plan, and none shall be issued prior to shareholder approval. All employees
of the Company, subject to certain eligibility criteria, shall be entitled to
participate in the Plan. The plan is not subject to any provisions of the
Employee Retirement Income Security Act of 1994, as amended.
27
<PAGE> 31
SUMMARY OF THE PLAN
Purpose
The purpose of the Plan is to provide a means whereby each employee of
the Company can acquire as shareholders an ownership interest in the Company,
thereby motivating the individual to achieve optimal productivity and results
beneficial to all shareholders.
Administration
The Plan shall be administered, at the Company's expense, by a
committee (the "Committee") appointed by the Board of Directors consisting of
not less than three members of the Board of Directors. Subject to the provisions
of the Plan, the Committee has authority to interpret the Plan, to prescribe
rules and regulations relating to the Plan, and to make all other determinations
necessary or advisable in administering the Plan, all of which determinations
are binding unless otherwise determined by the Board of Directors. No members of
the Committee shall be eligible to purchase any Common Stock of the Company
under the Plan. The Committee's determination on all matters affecting the Plan
shall be conclusive.
Participation
All full-time or part-time employees of the Company who are regularly
scheduled to work more than 20 hours per week and who have been employed by the
Company for at least 90 days prior to the applicable Offering period (defined
below) are eligible to participate in the Plan, provided that all employees of
the Company as of January 2, 1998 are eligible to participate in the initial
Offering (defined below) regardless of whether or not they have been full or
part-time employees of the Company during the preceding 90-day period. Employees
who own five percent (5%) or more of the outstanding Common Stock of the Company
shall not be eligible to participate in any Offering so long as they own five
percent (5%) or more the Common Stock of the Company. The Committee may
designate any present or future subsidiary of the Company as a participating
company in the Plan. The Plan provides for eligibility criteria in the event an
employee shall have qualified for participation in the Plan but subsequently
takes a leave of absence for one or more Offering periods. No employee may
purchase stock under the Plan which permits such individual's purchases to
accrue at a rate in excess of $25,000 in fair market value (determined as of the
date of purchase) for each calendar year in which purchases pursuant to the Plan
are made; and no employee during his or her lifetime may transfer rights to
another to make purchases of the Company's Common Stock pursuant to the Plan.
Offerings
The Plan will be implemented through ten (10) semi-annual offerings of
the Company's Common Stock (the "Offerings") commencing, respectively, on
January 1 and July 31 of each of the years 1998, 1999, 2000, 2001 and 2002 and
terminating on June 30 and December 31 of each such year, respectively. The
maximum number of shares of the Common Stock of the Company that may be issued
in any respective Offering shall be 50,000 shares, plus any unused shares,
whether offered or not from the immediately preceding Offering period.
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<PAGE> 32
Procedures; Price; Payment
Under the Plan, the Company's Common Stock is sold on each Offering
termination date to those employees who have elected to authorize deductions
from their paychecks. The amount of such payroll deductions may not exceed 10%
of the employee's base pay. The term "base pay" means regular straight-time
earnings excluding payments for overtime, shift premium, bonuses, severance pay
and other special payments, commissions, and other marketing incentive payments.
Amounts deducted will be accumulated in an account established in the employee's
name. The maximum number of shares an employee will be permitted to purchase in
any Offering is an amount equal to (i) the percentage of base pay that the
employee has elected to have withheld, multiplied by (ii) the employee's base
pay during the Offering Period, divided by 85% of the market value of a share of
the Common Stock on the Offering Commencement Date.
However, the purchase price of the shares purchased on each Offering
termination date is the lower of (i) 85% of the closing market price of the
Common Stock as quoted on the NASDAQ National Market System on the applicable
Offering commencement date or (ii) 85% of the closing market price of the Common
Stock as quoted on the NASDAQ National Market System on the applicable Offering
termination date. Therefore, the number of shares which each participating
employee may purchase is determined by dividing the amount accumulated in his or
her payroll deduction account on an Offering termination date by the applicable
purchase price, subject to the maximum purchasable number described in the
preceding paragraph. The payment for shares purchased under the Plan is made
from amounts accumulated from payroll deductions. In the event the Common Stock
of the Company is not admitted for trading on any such referenced dates,
reference shall then be made to the fair market value of the Company's Common
Stock on such dates as determined by the Committee. The Company is obligated to
segregate any payroll deductions received or held by the Company under the Plan
and may not use these funds for any other corporate purpose.
Exercise; Withdrawal
Unless a participant gives written notice to the Company, the option
for the purchase of the Company's Common Stock with payroll deductions made
during any Offering will be deemed to have been exercised automatically on the
Offering termination date applicable to such Offering. The employee shall be
entitled to delivery as promptly as practicable following the Offering
termination date for all Common Stock so purchased during such Offering.
Fractional shares shall not be issued, and any accumulated payroll deductions
remaining after issuance shall be returned to the employee without interest.
Any employee may withdraw from the Plan or a particular Offering by
giving the Company written notice of such withdrawal. Upon termination of the
participant's employment with the Company for any reason (excluding death or
continuation of a leave of absence for a period beyond 90 days), participation
in the Plan and applicable Offering period shall be deemed to have terminated.
Upon termination of employment due to death, the participant's beneficiary shall
have the right, upon written notice to the Company prior to the applicable
Offering termination date, to (i) withdraw the deceased participant's payroll
deductions made pursuant to the Plan, or (ii) exercise the deceased
participant's purchase right as of the Offering termination date. In the event
no such written notice is received by the Company prior to the Offering
termination date, the deceased participant's beneficiaries shall be deemed to
have elected the deceased participant's purchase right. Participants on leave of
absence have the right to elect participation in the Plan by giving written
notice to the Company where such leave of absence exceeds a period of 90 days;
provided that if such employee does not return to full or part-time employment
within 180 days of the commencement of such leave of absence, such participant's
right to participate in the Plan shall
29
<PAGE> 33
terminate until such time that he or she returns to employee status as described
in the Plan. In the event of withdrawal or termination of a participant's
employment or right to participate in an Offering or the Plan, all of such
participant's remaining payroll deductions credited to his or her account under
the Plan at the time of such withdrawal or termination shall be distributed to
such participant; provided that distributions made to individuals who terminate
their employment with the Company or the beneficiary of a deceased participant
shall be entitled to simple interest from the date of withholding to the date of
return at the regular passbook savings account rates per annum in effect at the
Company's bank during the applicable Offering period.
Amendments; Changes in Capitalization; Dissolution
Amendments may be made to the Plan from time to time by the Board of
Directors, except that without shareholder approval no amendment shall (i)
increase the aggregate number of shares that may be issued under the Plan (other
than in connection with changes in the Company's capital structure) or (ii)
alter the eligibility criteria for participation in the Plan. If during any
Offering period, the outstanding shares of Common Stock of the Company have
increased, decreased, changed into, or been exchanged for a different number or
kind of shares or securities of the Company through reorganization, merger,
recapitalization, reclassification, stock split, reverse split or similar
transaction, appropriate and proportionate adjustments may be made by the
Committee in the number and/or kind of shares which shall be subject to purchase
under the Plan during the applicable Offering period in which the capital
structure of the Company undergoes such changes and thereafter. No adjustments
shall be made for stock dividends. Upon the dissolution or liquidation of the
Company, or upon a reorganization, merger transaction or consolidation of the
Company with one or more corporations as a result of which the Company is not
the surviving corporation, or upon a sale of substantially all of the property
or stock of the Company to another corporation, participants in the then
applicable Offering period under the Plan will thereafter be entitled to receive
at the next Offering termination date upon the exercise of his or her purchase
right, as nearly as reasonably may be determined, the cash, securities and/or
property which a holder of one share of the Company's Common Stock was entitled
to receive upon and at the time of such transaction.
FEDERAL INCOME TAX TREATMENT
Under current U.S. federal tax law, the plan is a qualified plan
pursuant to Section 423 of the Code, and the Company has been advised of the
following federal income tax consequences related to the purchase and subsequent
disposition of shares under the Plan.
A participant who purchases Common Stock of the Company pursuant to the
Plan is not taxed at the time of purchase, although the value of the shares on
the Offering termination date will be greater than the participant's payroll
deductions during such period. Shares purchased and held for more than two (2)
years after the Offering commencement date and more than one (1) year after the
date of such purchase, when subsequently sold are subject to U.S. tax treatment
as follows:
(i) any profit up to 15% of the fair market value of the Common Stock
on the Offering commencement date will be taxable as ordinary income, and any
further profit will be taxable as capital gain; and
(ii) any loss will be treated as a capital loss (long-term or
short-term depending on the length of time the stock is held).
30
<PAGE> 34
Shares purchased and sold within two (2) years after the Offering
commencement date, or within one (1) year after the date of such purchase are
subject to U.S. tax treatment as follows:
(i) the difference between the price actually paid and the market price
of the Common Stock at the Offering termination date when the shares were
purchased will be taxable as ordinary income (regardless of the market price of
the shares at the time of sale), and any further profit will be taxable as a
capital gain (long-term or short-term depending on the length of time the stock
is held); and
(ii) any loss, after increasing tax basis for the amount recognized as
ordinary income, will be treated as a capital loss (long-term or short-term
depending on the length of time the stock is held).
VOTE REQUIRED
The affirmative vote of the holders of a majority of the shares of the
Common Stock and the Series E Preferred Stock represented in voting as a class
(as previously described), in person or by proxy, at the Meeting is required to
approve the Plan. If the Plan does not receive requisite shareholder approval,
the Plan will terminate and be of no effect, and any employee contributions made
thereunder shall be refunded as described herein.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR APPROVAL
OF THE NATIONAL ENERGY GROUP, INC. EMPLOYEE STOCK PURCHASE PLAN.
PROPOSAL 3 - INDEPENDENT AUDITORS
Ernst & Young LLP served as the Company's independent auditors for
1997. One or more representatives of Ernst & Young LLP are expected to be
present at the Meeting, will have an opportunity to make a statement if they so
desire and will be available to respond to appropriate questions.
The Board of Directors has selected Ernst & Young LLP to act as its
independent auditors for the 1998 fiscal year and ask for the shareholders'
ratification of such appointment.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR
RATIFICATION OF ERNST & YOUNG LLP AS INDEPENDENT AUDITORS FOR 1998.
SHAREHOLDER PROPOSALS
Shareholders who wish to include proposals for action at the Company's
1999 annual meeting of shareholders in next year's proxy statement must, in
addition to other applicable requirements cause their proposals to be received
in writing by the Company at its address set forth on the first page of this
Proxy Statement no later than December 20, 1998. Such proposals should be
addressed to the Company's Secretary and may be included in next year's proxy
statement if they comply with certain rules and regulations promulgated by the
Securities and Exchange Commission.
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<PAGE> 35
OTHER BUSINESS
The Board of Directors of the Company knows of no other matters to come
before the Meeting, other than those set forth herein and in the accompanying
Notice of Annual Meeting of Shareholders. However, if any other matters should
properly come before the Meeting, it is the intention of the persons named in
the accompanying proxy to vote all proxies given to them in accordance with
their best judgment of such matters.
ANNUAL REPORT
A copy of the Company's Annual Report for the fiscal year ended
December 31, 1997 is being mailed with this Proxy Statement to shareholders of
record on the Record Date, but such report is not incorporated herein and is not
deemed to be a part of this proxy solicitation material.
32
<PAGE> 36
APPENDIX A
PROXY
HOLDERS OF COMMON STOCK AND CONVERTIBLE PREFERRED STOCK, SERIES E
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
<TABLE>
<S> <C>
NATIONAL ENERGY GROUP, INC. The undersigned hereby appoints Fred
4925 GREENVILLE AVENUE, SUITE 1400 R. Miller and Philip D. Devlin as
DALLAS, TX 75206 Proxies, each with the power to
appoint his substitute, and hereby
authorizes them to represent and to
vote, as designated below, all the
shares of Common Stock and
Convertible Preferred Stock, Series
E ("Series E Preferred Stock")
(which for voting purposes will be
considered those number of shares of
Common Stock which the Series E
Preferred Stock could be converted
into as April 20, 1998) of National
Energy Group, Inc. held on record by
the undersigned on April 20, 1998,
at the annual meeting of
stockholders to be held on June 4,
1998 or any adjournment thereof.
</TABLE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL NOMINEES AND IN FAVOR
OF ALL PROPOSALS.
<TABLE>
<S> <C> <C>
1. ELECTION OF DIRECTORS OF FOR all nominees listed below WITHHOLD AUTHORITY
EXCEPT as marked to the to vote for all nominees listed
contrary below [ ] below [ ]
[ ] George B. McCullough [ ] Norman C. Miller [ ] Miles D. Bender [ ] Robert H. Kite
[ ] George N. McDonald [ ] Jim L. David [ ] Bob G. Alexander
(INSTRUCTION TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL
NOMINEE, WRITE THAT NOMINEE'S NAME IN THE SPACE PROVIDED HERE.)
- ---------------------------------------------------------------------------
2. PROPOSAL TO APPROVE THE NATIONAL ENERGY GROUP, INC.
EMPLOYEE STOCK PURCHASE PLAN
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. PROPOSAL TO RATIFY THE APPOINTMENT OF ERNST & YOUNG LLP AS
INDEPENDENT AUDITORS OF NATIONAL ENERGY GROUP, INC.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
- ---------------------------------------------------------------------------
</TABLE>
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
"FOR ALL NOMINEES" IN PROPOSAL 1, "FOR" PROPOSALS 2 AND 3, AND IN ACCORDANCE
WITH THE DIRECTION OF THE PERSON VOTING THIS PROXY WITH RESPECT TO ANY OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.
YOU MAY REVOKE THIS PROXY AT ANY TIME PRIOR TO A VOTE THEREON.
[Stockholder Name]
[Address]
Please sign below exactly as name appears. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign in full corporate name by President or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
DATED _____________________, 1998 --------------------------
Signature if held jointly
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD --------------------------
PROMPTLY USING THE ENCLOSED ENVELOPE Signature
2
<PAGE> 37
APPENDIX B
NATIONAL ENERGY GROUP, INC.
EMPLOYEE STOCK PURCHASE PLAN
ARTICLE I. PURPOSE
1.1 Purpose. The National Energy Group, Inc. Employee Stock
Purchase Plan is intended to provide a method whereby employees of National
Energy Group, Inc. and any subsidiary corporations (hereinafter referred to,
unless the context otherwise requires, as the "Company") will have an
opportunity to acquire a proprietary interest in the Company through the
purchase of shares of the Common Stock of the Company. It is the intention of
the Company to have the Plan qualify as an "employee stock purchase plan" under
Section 423 of the Internal Revenue Code of 1986, as amended (the "Code"). The
provisions of the Plan shall be construed so as to extend and limit
participation in a manner consistent with the requirements of that section of
the Code.
ARTICLE II. DEFINITIONS
2.1 Base Pay. "Base Pay" shall mean regular straight-time
earnings excluding payments for overtime, shift premium, bonuses and other
special payments, commissions and other marketing incentive payments.
2.2 Committee. "Committee" shall mean the individuals
described in Article XI.
2.3 Employee. "Employee" means any person who is
customarily employed on a full-time or part-time basis by the Company and is
regularly scheduled to work more than 20 hours per week.
2.4 Subsidiary. "Subsidiary Corporation" shall mean any
present or future corporation which (i) would be a "subsidiary corporation" of
Company as that term is defined in Section 424 of the Code and (ii) is
designated as a participant in the Plan by the Committee.
ARTICLE III. ELIGIBILITY AND PARTICIPATION
3.1 Initial Eligibility. All persons who are Employees on the
Effective Date (as hereinafter defined) shall have the right to participate in
the Plan, excluding members of the Committee during their periods of service on
the Committee. Therefore, with respect to any additional Offerings (as
hereinafter defined) under the Plan, any Employee who shall have completed
ninety (90) days' employment and shall be employed by the Company on the date
such participation in the Plan is to become effective shall be eligible to
participate in offerings under the Plan which commence on or after such
ninety-day period has concluded.
3.2 Leave of Absence. For purposes of participation in the Plan,
a person on leave of absence shall be deemed to be an Employee for the first 90
days of such leave of absence and such Employee's employment shall be deemed to
have terminated at the close of business on the 90th
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<PAGE> 38
day of such leave of absence unless such Employee shall have returned to
regular full-time or part-time employment (as the case may be) prior to the
close of business on such 90th day. Termination by the Company of any
Employee's leave of absence, other than termination of such leave of absence or
return to full-time or part-time employment, shall terminate an Employee's
employment for all purposes of the Plan and shall terminate such Employee's
participation in the Plan and right to exercise any option.
3.3 Restrictions in Participation. Notwithstanding any provisions
of the Plan to the contrary, no Employee shall be granted an option to
participate in the Plan:
(a) if, immediately after the grant, such Employee would
own stock, and/or hold outstanding options to purchase stock,
possessing 5% or more of the total combined voting power or value of
all classes of stock of the Company (for purposes of this paragraph,
the rules of Section 424(d) of the Code shall apply in determining
stock ownership of any Employee); or
(b) which permits his or her rights to purchase stock
under all Employee stock purchase plans of the Company to accrue at a
rate which exceeds $25,000.00 in fair market value of the stock
(determined at the time such option is granted) for each calendar year
in which such option is outstanding.
3.4 Commencement of Participation. An eligible Employee may
become a participant by completing an authorization for a payroll deduction on
the form provided by the Company and filing it with the Company on or before
the date set therefor by the Committee, which date shall be prior to the
Offering Commencement Date for the Offering (as such terms are defined below).
Payroll deductions for a participant shall commence on the applicable Offering
Commencement Date when such authorization for a payroll deduction becomes
effective and shall end on the Offering Termination Date of the Offering to
which such authorization is applicable unless sooner terminated by the
participant as provided in Article VIII below.
ARTICLE IV. OFFERINGS
4.1 Annual Offerings. The Plan will be implemented by ten (10)
semi-annual offerings of the Company's Common Stock (the "Offerings")
commencing, respectively, on January 1 and July 1 of each of the years 1998,
1999, 2000, 2001 and 2002 and terminating on June 30 and December 31 of each
such year, respectively. The maximum number of shares of the Common Stock of
the Company that may be issued in the respective Offering shall be:
o From January 1, 1998 to June 30, 1998: 50,000 shares.
o From July 1, 1998 to December 31, 1998: 50,000 shares plus
unissued shares from the prior Offering, whether offered or
not.
o From January 1, 1999 to June 30, 1999: 50,000 shares plus
unissued shares from the prior Offerings, whether offered or
not.
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<PAGE> 39
o From July 1, 1999 to December 31, 1999: 50,000 shares plus
unissued shares from the prior Offerings, whether offered or
not.
o From January 1, 2000 to June 30, 2000: 50,000 shares plus
unissued shares from the prior Offerings, whether offered or
not.
o From July 1, 2000 to December 31, 2000: 50,000 shares plus
unissued shares from the prior Offerings, whether offered or
not.
o From January 1, 2001 to June 30, 2001: 50,000 shares plus
unissued shares from the prior Offerings, whether offered or
not.
o From July 1, 2001 to December 31, 2001: 50,000 shares plus
unissued shares from the prior Offerings, whether offered or
not.
o From January 1, 2002 to June 30, 2002: 50,000 shares plus
unissued shares from the prior Offerings, whether offered or
not.
o From July 1, 2002 to December 31, 2002: 50,000 shares plus
unissued shares from the prior Offerings, whether offered or
not.
In any six-month Offering, the maximum number of shares to be issued
shall be 50,000 shares, plus any unissued shares, whether offered or not, from
the immediately preceding six-month Offering. As used in the Plan, "Offering
Commencement Date" means the January 1 or July 1, as the case may be, on which
the particular Offering begins and "Offering Termination Date" means the June
30 or December 31 as the case may be, on which the particular Offering
terminates. The Committee may, in its discretion, change one or more
semi-annual Offerings to annual Offerings. In each such annual Offering, the
maximum number of shares that may be issued shall be 100,000 shares, plus any
unissued shares, whether offered or not, from the immediately preceding
Offering.
ARTICLE V. PAYROLL DEDUCTIONS
5.1 Amount of Deduction. At the time a participant files an
authorization for payroll deduction, the Employee shall elect to have
deductions made on each payday during the time he or she is a participant in an
Offering at the rate of not less than 1%, nor more than 10% of his or her base
pay in effect at the Offering Commencement Date of such Offering. In the case
of a part-time hourly Employee, such Employee's base pay during the Offering
shall be determined by multiplying such Employee's hourly rate of pay in effect
on the Offering Commencement Date by the number of regularly scheduled hours of
work for such Employee during such Offering.
5.2 Participant's Account. All payroll deductions made for a
participant shall be credited to the Employee's account under the Plan. A
participant may not make any separate cash payment into such account except
when on leave of absence and then only as provided in Section 5.4 hereof.
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<PAGE> 40
5.3 Changes in Payroll Deductions. A participant may discontinue
his or her participation in the Plan as provided in Article VIII, but no other
change can be made during an Offering and, specifically, a participant may not
alter the amount of his or her payroll deductions for that Offering.
5.4 Leave of Absence. If a participant goes on a leave of
absence, such participant shall have the right to elect: (a) to withdraw the
balance in his or her account pursuant to Section 7.2 hereof, (b) to
discontinue contributions to the Plan but remain a participant in the Plan, or
(c) remain a participant in the Plan during such leave of absence, authorizing
deductions to be made from payments by the Company to the participant during
such leave of absence and undertaking to make cash payments to the Plan at the
end of each payroll period to the extent that amounts payable by the Company to
such participant are insufficient to meet such participant's authorized Plan
deductions.
ARTICLE VI. GRANTING OF OPTION
6.1 Number of Option Shares. On the Commencement Date of each
Offering, a participating Employee shall be deemed to have been granted an
option to purchase a maximum number of shares of Common Stock of the Company
equal to an amount determined as follows: an amount equal to (i) that
percentage of the Employee's base pay which he or she has elected to have
withheld (but not in any case in excess of 10%), multiplied by (ii) the
Employee's base pay during the period of the Offering, divided by (iii) 85% of
the market value of the stock of the Company on the applicable Offering
Commencement Date. The market value of the Company's stock shall be determined
as provided in paragraphs (a) and (b ) of Section 6.2 below. An Employee's
base pay during the period of an Offering shall be determined by multiplying
his or her normal weekly rate of pay (as in effect on the last day prior to the
Commencement Date of the particular Offering) by 26, provided that, in the case
of a part-time hourly Employee, the Employee's base pay during the period of an
Offering shall be determined by multiplying such Employee's hourly rate by the
number of regularly scheduled hours of work for such Employee during such
Offering.
6.2 Option Price. The option price of stock purchased with
payroll deductions made during such Offering for a participant therein shall be
the lower of:
(a) 85% of the closing price of the stock on the Offering
Commencement Date or the nearest prior business day on which trading
occurred on the NASDAQ National Market System; or
(b) 85% of the closing price of the stock on the Offering
Termination Date or the nearest prior business day on which trading
occurred on the NASDAQ National Market System; or
(c) if the Common Stock of the Company is not admitted to
trading on any of the aforesaid dates for which closing prices of the
stock are to be determined, then reference shall be made to the fair
market value of the stock on that date, as determined on such basis as
shall be established or specified for purposes of the Offering by the
Committee.
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<PAGE> 41
ARTICLE VII. EXERCISE OF OPTION
7.1 Automatic Exercise. Unless a participant gives written notice
to the Company as hereinafter provided, the option for the purchase of stock
with payroll deductions made during any Offering will be deemed to have been
exercised automatically on the Offering Termination Date applicable to such
Offering, for the purchase of the number of full shares of stock which the
accumulated payroll deductions in his or her account at that time will purchase
at the applicable option price (but not in excess of the number of shares for
which options have been granted to the Employee pursuant to Section 6.1), and
any excess in his or her account at that time will be returned to him.
7.2 Withdrawal of Account. By written notice to the Company, at
any time prior to the Offering Termination Date applicable to any Offering, a
participant may elect to withdraw all the accumulated payroll deductions in his
or her account at such time.
7.3 Fractional Shares. Fractional shares will not be issued under
the Plan and any accumulated payroll deductions which would have been used to
purchase fractional shares will be returned to any Employee promptly following
the termination of an Offering, without interest.
7.4 Transferability of Option. During a participant's lifetime,
options held by such participant shall be exercisable only by that participant.
7.5 Delivery of Stock. As promptly as practicable after the
Offering Termination Date of each Offering, the Company will deliver to each
participant, as appropriate, the stock purchased upon exercise of his or her
option.
ARTICLE VIII. WITHDRAWAL
8.1 In General. As indicated in Section 7.2, a participant may
withdraw payroll deductions credited to such account under the Plan at any time
by giving written notice to the Company. All of the participant's payroll
deductions credited to his or her account will be paid to the Employee promptly
after receipt of such notice of withdrawal, and no further payroll deductions
will be made during such Offering. The Company may, at its option, treat any
attempt to borrow by an Employee on the security of his or her accumulated
payroll deductions as an election, under Section 7.2 hereof, to withdraw such
deductions.
8.2 Effect on Subsequent Participation. A participant's
withdrawal from any Offering will not have any effect upon his or her
eligibility to participant in any succeeding Offering or in any similar plan
which may hereafter be adopted by the Company.
8.3 Termination of Employment. Upon termination of the
participant's employment for any reason, including retirement (but excluding
death while in the employ of the Company or continuation of a leave of absence
for a period beyond 90 days), the payroll deductions credited to the Employee's
account will be returned, or, in the case of death subsequent to the
termination of employment, to the person or persons entitled thereto under
Section 12.1 hereof.
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<PAGE> 42
8.4 Termination of Employment Due to Death. Upon termination of
the participant's employment because of his or her death, his or her
beneficiary (as defined in Section 12.1 hereof) shall have the right to elect,
by written notice given to the Company prior to the earlier of the Offering
Termination Date or the expiration of a period of sixty (60) days commencing
with the date of the death of the participant, either:
(a) to withdraw all of the payroll deductions credited to
the participant's account under the Plan, or
(b) to exercise the participant's option for the purchase
of stock on the Offering Termination Date next following the date of
the participant's death for the purchase of the number of full shares
of stock which the accumulated payroll deductions in the participant's
account at the date of the participant's death will purchase at the
applicable option price (but not in excess of the number of shares for
which options have been granted to the Employee pursuant to Section
6.1), and any excess in such account will be returned to said
beneficiary, without interest. In the event that no such written
notice of election shall be duly received by the Company, the
beneficiary shall automatically be deemed to have elected, pursuant to
this paragraph (b), to exercise the participant's option.
8.5 Leave of Absence. A participant on leave of absence shall,
subject to the election made by such participant, continue to participate in
the Plan so long as such participant is on continuous leave of absence. A
participant who has been on leave of absence for more than 90 days and who,
therefore, is not an Employee for the purpose of the Plan shall not be entitled
to participate in any Offering commencing after the 90th day of such leave of
absence. Notwithstanding any other provisions of the Plan, unless a
participant on leave of absence returns to regular full-time or part-time
employment with the Company at the earlier of: (a) the termination of such
leave of absence or (b) three months from the 90th day of such leave of
absence, such participant's participation in the Plan shall terminate on
whichever of such dates first occurs.
ARTICLE IX. INTEREST
9.1 Payment of Interest. No interest will be paid or allowed on
any money paid into the Plan or credited to the account of any participant
Employee; provided, however, that interest shall be paid on any and all money
which is distributed to an Employee or his or her beneficiary pursuant to the
provisions of Sections 8.3 and 8.4 hereof. Such distributions shall bear
simple interest during the period from the date of withholding to the date of
return at the regular passbook savings account rates per annum in effect at
Bank One, Texas, N.A. during the applicable Offering period or, if such rates
are not published or otherwise available for such purpose, at the regular
passbook savings account rates per annum in effect during such period at
another major commercial bank in Dallas, Texas selected by the Board of
Directors or the Committee. Where the amount returned represents an excess
amount in an Employee's account after such account has been applied to the
purchase of stock, the Employee's withholding account shall be deemed to have
been applied first toward purchase of stock under the Plan, so that interest
shall be paid on the last withholdings during the period which results in the
excess amount.
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<PAGE> 43
ARTICLE X. STOCK
10.1 Maximum Shares. The maximum number of shares which shall be
issued under the Plan, subject to adjustment upon changes in capitalization of
the Company as provided in Section 12.4 hereof shall be 50,000 shares in each
semi-annual Offering plus in each Offering all unissued shares from prior
Offerings, whether offered or not, not to exceed 500,000 shares for all
Offerings. If the total number of shares for which options are exercised on
any Offering Termination Date in accordance with Article VI above exceeds the
maximum number of shares for the applicable Offering, the Company shall make a
pro rata allocation of the shares available for delivery and distribution in a
nearly uniform manner as shall be practicable and as it shall determine to be
equitable, and the balance of payroll deductions credited to the account of
each participant under the Plan shall be returned as promptly as possible.
10.2 Participant's Interest in Option Stock. The participant will
have no interest in stock covered by his or her option until such option has
been exercised.
10.3 Registration of Stock. Stock to be delivered to a participant
under the Plan will be registered in the name of the participant, or, if the
participant so directs by written notice to the Company prior to the Offering
Termination Date applicable thereto, in the names of the participant and one
such other person as may be designated by the participant, as joint tenants
with rights of survivorship or as tenants by the entireties, to the extent
permitted by applicable law.
10.4 Restrictions on Exercise. The Board of Directors may, in its
discretion, require as conditions to the exercise of any option that the shares
of Common Stock reserved for issuance upon the exercise of the option shall
have been duly listed, upon official notice of issuance, upon a stock exchange,
and that either:
(a) a Registration Statement under the Securities Act of
1933, as amended, with respect to said shares shall be effective, or
(b) the participant shall have represented at the time of
purchase, in form and substance satisfactory to the Company, that it
is his or her intention to purchase the shares for investment and not
for resale or distribution.
ARTICLE XI. ADMINISTRATION
11.1 Appointment of Committee. The Board of Directors shall
appoint a committee (the "Committee") to administer the Plan, which shall
consist of no fewer than three members of the Board of Directors. No member of
the Committee shall be eligible to purchase stock under the Plan.
11.2 Authority of Committee. Subject to the express provisions of
the Plan, the Committee shall have plenary authority in its discretion to
interpret and construe any and all provisions of the Plan, to adopt rules and
regulations for administering the Plan, and to make all other determinations
deemed necessary or advisable for administering the Plan. The Committee's
determination on the foregoing matters shall be conclusive.
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<PAGE> 44
11.3 Rules Governing the Administration of the Committee. The
Board of Directors may from time to time appoint members of the Committee in
substitution for or in addition to members previously appointed and may fill
vacancies, however caused, in the Committee. The Committee may select one of
its members as its Chairman and shall hold its meetings at such times and
places as it shall deem advisable and may hold telephonic meetings. A majority
of its members shall constitute a quorum. All determinations of the Committee
shall be made by a majority of its members. The Committee may correct any
defect or omission or reconcile any inconsistency in the Plan, in the manner
and to the extent it shall deem desirable. Any decision or determination
reduced to writing and signed by a majority of the members of the Committee
shall be as fully effective as if it had been made by a majority vote at a
meeting duly called and held. The Committee may appoint a secretary and shall
make such rules and regulations for the conduct of its business as it shall
deem advisable.
ARTICLE XII. MISCELLANEOUS
12.1 Designation of Beneficiary. A participant may file a written
designation of a beneficiary who is to receive any stock and/or cash. Such
designation of beneficiary may be changed by the participant at any time by
written notice to the Treasurer of the Company. Upon the death of a
participant and upon receipt by the Company of proof of identity and existence
at the participant's death of a beneficiary validly designated by him under the
Plan, the Company shall deliver such stock and/or cash to such beneficiary. In
the event of the death of a participant and in the absence of a beneficiary
validly designated under the Plan who is living at the time of such
participant's death, the Company shall deliver such stock and/or cash to the
executor or administrator of the estate of the participant, or if no such
executor or administrator has been appointed (to the knowledge of the Company),
the Company, in its discretion, may deliver such stock and/or cash to the
spouse or to any one or more dependents of the participant as the Company may
designate. No beneficiary shall, prior to the death of the participant by whom
he or she has been designated, acquire any interest in the stock or cash
credited to the participant under the Plan.
12.2 Transferability. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option
or to receive stock under the Plan may be assigned, transferred, pledged, or
otherwise disposed of in any way by the participant other than by will or the
laws of descent and distribution. Any such attempted assignment, transfer,
pledge or other disposition shall be without effect, except that the Company
may treat such act as an election to withdraw funds in accordance with Section
7.2 above.
12.3 Use of Funds. All payroll deductions received or held by the
Company under this Plan may be used by the Company for any corporate purpose
and the Company shall not be obligated to segregate such payroll deductions.
12.4 Adjustments Upon Changes in Capitalization.
(a) If, while any options are outstanding, the
outstanding shares of Common Stock of the Company have increased,
decreased, changed into, or been exchanged for a different number or
kind of shares or securities of the Company through reorganization,
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<PAGE> 45
merger, recapitalization, reclassification, stock split, reverse stock
split or similar transaction, appropriate and proportionate
adjustments may be made by the Committee in the number and/or kind of
shares which are subject to purchase under outstanding options and on
the option exercise price or prices applicable to such outstanding
options. In addition, in any such event, the number and/or kind of
shares which may be offered in the Offerings described in Article IV
hereof shall also be proportionately adjusted. No adjustments shall
be made for stock dividends. For the purposes of this paragraph, any
distribution of shares to shareholders in an amount aggregating 20% or
more of the outstanding shares shall be deemed a stock split and any
distributions of shares aggregating less than 20% of the outstanding
shares shall be deemed a stock dividend.
(b) Upon the dissolution or liquidation of the Company,
or upon a reorganization, merger or consolidation of the Company with
one or more corporations as a result of which the Company is not the
surviving corporation, or upon a sale of substantially all of the
property or stock of the Company to another corporation, the holder of
each option then outstanding under the Plan will thereafter be
entitled to receive at the next Offering Termination Date upon the
exercise of such option for each share as to which such option shall
be exercised, as nearly as reasonably may be determined, the cash,
securities and/or property which a holder of one share of the Common
Stock was entitled to receive upon and at the time of such
transaction. The Board of Directors shall take such steps in
connection with such transactions as the Board shall deem necessary to
assure that the provision of this Section 12.4 shall thereafter be
applicable, as nearly as reasonably may be determined, in relation to
the said cash, securities and/or property as to which such holder of
such option might thereafter be entitled to receive.
12.5 Amendment and Termination. The Board of Directors shall have
complete power and authority to terminate and amend the Plan; provided,
however, that the Board of Directors shall not, without the approval of the
stockholders of the Corporation (i) increase the maximum number of shares which
may be issued under any Offering (except pursuant to Section 12.4 hereof); or
(ii) amend the requirements as to the class of Employees eligible to purchase
stock under the Plan or permit the members of the Committee to purchase stock
under the Plan.
12.6 Effective Date. The Plan shall become effective as of January
1, 1998, subject to approval by the holders of the majority of the Common Stock
present and represented at a special or annual meeting of the shareholders held
on or before December 31, 1998. If the Plan is not so approved, the Plan shall
not become effective.
12.7 No Employment Rights. The Plan does not, directly or
indirectly, create any right for the benefit of any Employee or class of
Employees to purchase any shares under the Plan, or create in any Employee or
class of Employees any right with respect to continuation of employment by the
Company, and it shall not be deemed to interfere in any way with the Company's
right to terminate, or otherwise modify, an Employee's employment at any time.
12.8 Effect of Plan. The provisions of the Plan shall, in
accordance with its terms, be binding upon, and inure to the benefit of, all
successors of each Employee participating in the Plan, including, without
limitation, such Employee's estate and the executors, administrators or
trustees thereof, heirs and legatees, and any receiver, trustee in bankruptcy
or representative of creditors of such Employee.
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<PAGE> 46
12.9 Governing Law. The law of the State of Delaware will govern
all matters relating to this Plan except to the extent it is superseded by the
laws of the United States.
12.10 Notices. All notices to the Company shall be in writing or
written telecommunication and deemed effective when received by the Company at:
National Energy Group, Inc.
4925 Greenville Avenue, Suite 1400
Dallas, TX 75206
Phone: (214) 692.9211
Fax: (214) 692-5055
Attn: Mr. Philip D. Devlin
General Counsel
(or such other address as may be specified from time to time by the Company);
provided that notice by telecommunication shall be confirmed in writing by
personal delivery, U.S. mail, certified mail or registered mail of a copy
thereof.
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