UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[ X ] ANNUAL REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (Fee Required)
For the Fiscal Year Ended December 31, 1995
or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (No Fee Required)
For the transition period from _______ to __________
Commission File Number 0-19136
NATIONAL ENERGY GROUP, INC.
(Name of small business issuer in its charter)
Delaware 58-1922764
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
4925 Greenville Ave., Ste. 1400, Dallas, TX 75206
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (214) 692-9211
Securities Registered Under Section 12 (b) of the Exchange Act: None
Securities Registered Under Section 12 (g) of the Exchange Act:
Title of Class
Class A Common Stock, Par Value $.01 Per Share
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the Registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No ___
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. X
The issuer's revenues for its most recent fiscal year were $7,858,316.
The aggregate market value of the shares of Class A Common Stock held by
non-affiliates of the Registrant, as of March 25, 1996 (based upon the last
sales price of $2.88, as reported by NASDAQ) was $27,399,185.
As of March 25, 1996, Registrant had outstanding 12,056,532 shares of
Class A Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III of this Report is incorporated by
reference from Registrant's definitive proxy statement for its 1996 Annual
Meeting of Stockholders (to be filed with the Commission not later than
April 29, 1995).
1
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National Energy Group, Inc.
Index to Form 10-KSB
PART I...................................................................3
ITEMS 1 AND 2. DESCRIPTION OF BUSINESS AND PROPERTIES..............3
The Company.......................................................3
Business..........................................................3
General...........................................................3
Recent Developments...............................................4
Oil and Gas Reserves..............................................5
Principal Areas of Operations.....................................7
Oil and Gas Production............................................7
Productive Well Summary...........................................8
Production Economics..............................................9
Acreage..........................................................10
Drilling Activity................................................11
Employees........................................................11
Markets..........................................................11
Regulation - Oil and Gas Production..............................12
Environmental Regulation.........................................12
Title to Oil and Gas Properties..................................13
Production and Sales Prices......................................13
Lease Interests..................................................13
Control Over Production Activities...............................14
Facts Beyond the Company's Control...............................14
Operational Hazards..............................................14
Competition......................................................14
Office Space and Other...........................................15
ITEM 3. LEGAL PROCEEDINGS.........................................15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........15
PART II.................................................................16
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS........................................16
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN
OF OPERATIONS..............................................17
Overview.........................................................17
Results of Operations............................................17
1995 Compared with 1994.......................................18
Liquidity and Capital Resources..................................19
Changes in Prices and Inflation..................................21
ITEM 7. FINANCIAL STATEMENTS.......................................22
ITEM 8. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE..........................22
PART III................................................................23
ITEMS 9. THROUGH 13.................................................23
SIGNATURES..............................................................27
FINANCIAL STATEMENTS...................................................F-1
EXHIBIT INDEX...........................................................29
GLOSSARY................................................................35
FINANCIAL DATA SCHEDULE
2
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PART I
ITEMS 1 AND 2. DESCRIPTION OF BUSINESS AND PROPERTIES
--------------------------------------
The Company
----------
National Energy Group, Inc. (the "Company") was incorporated under the
laws of the state of Delaware on November 20, 1990. Effective June 11,
1991, Big Piney Oil and Gas Company ("Big Piney") and VP Oil, Inc. ("VP")
merged with and into the Company.
Since September 1, 1995, the Company's Class A Common Stock ("Common
Stock") has been trading on the NASDAQ National Market System. The Common
Stock previously traded on the NASDAQ Small Cap Market. The Company's
symbol is "NEGX".
The Company's administrative offices are located at 4925 Greenville
Ave., Ste. 1400, Dallas, Texas 75206, and its telephone number is (214)
692-9211.
Business
--------
General
The Company is engaged in oil and natural gas exploration, production
and development, and owns an interest in 204 producing properties, of
which, 142 are operated by the Company. The Company's principal
properties include the Goldsmith Adobe Unit (the "GAU") and Oak Hill, both
of which are located in Texas, and Mustang Island located in offshore
Nueces County, Texas. The Company does not refine or otherwise process any
of its products. The Company primarily sells its oil at the lease to
various oil companies and sells its natural gas to gas companies through
pipelines located near its gas producing properties.
At December 31, 1995, the Company's proved reserves, as estimated by
Netherland, Sewell & Associates, Inc. ("Netherland & Sewell"), independent
petroleum engineers, were estimated to be 9,065,928 BOE, consisting of
3,921,076 barrels of oil and 30,869,112 Mcf of natural gas. Also, at
December 31, 1995, the present value of estimated future net cash flows,
before income taxes and discounted at 10% ("PV 10%"), from the Company's
proved reserves was $36,278,600, with approximately 49.6% attributable to
the GAU, 31.9% attributable to Oak Hill and 7.2% attributable to Mustang
Island. At the same date, the Standardized Measure was $32,127,101, as
estimated by the Company.
Management intends to pursue various strategies for increasing the
Company's oil and gas reserves and production, obtaining higher prices for
its production and reducing its costs of production.
The strategies for increasing reserves and production include
additional development of the GAU, Oak Hill and Mustang Island and certain
other properties, the enhancement and exploitation of the Company's other
existing properties, acquisitions of producing oil and gas properties,
acquisitions of companies with oil and gas production and exploratory
drilling. The Company anticipates funding additional development of the
GAU, Oak Hill, Mustang Island and certain other properties primarily from
advances under its current credit facility. Acquisitions may be funded
through borrowings under the current credit facility, the issuance of new
debt and/or equity
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securities, currently available cash and/or internally generated funds.
However, there can be no assurances that such sources of funds will actually
be available to fund future acquisitions.
In an effort to reduce the effects of the volatility of the price of
gas on the Company's operations, in December 1995 the Company began hedging
gas prices through the use of commodity price and basis swap agreements.
The use of these agreements allows the Company to fix the price to be
received for specified volumes of products to the commodity swap price less
the basis swap price. The Company does not hold or issue financial
instruments for trading purposes. See Note 7 of Notes to Financial
Statements.
During 1995 and the first quarter of 1996, the Company expanded its
areas of concentration to include offshore oil and gas properties and
exploratory drilling. In particular, the Company has recently purchased
interests in 8 wells and 3 leases in offshore Nueces County, Texas in the
Mustang Island. The Company expects to engage in development and
exploratory drilling on the Mustang Island. In addition, during 1996, the
Company has participated in the drilling of 3 exploratory wells in Texas
and Louisiana, 2 of which were dry and the third resulted in a junked
hole after logging a productive interval. This well will be redrilled
during 1996. The Company expects offshore and exploratory prospects to
become a more important part of its business in the future.
Periodically, management will review the Company's properties and
attempt to dispose of its lower value and marginal properties.
In the event that major changes occur in hydrocarbon pricing or any
other unforeseen event occurs, or if the Company's financial condition
changes materially, management of the Company will reevaluate its business
strategy.
Recent Developments
In December 1993, the Company completed the acquisition of an
additional 63.8% working interest in the GAU from Bligh Petroleum, Inc.
("Bligh") for $2,775,000 in cash and 900,000 shares of Common Stock. During
1994, the Company acquired an additional 17.0% working interest in the GAU
for $584,095 in cash. As a result of the 1993 and 1994 acquisitions, the
Company now holds a 91.8% working interest in the GAU.
In April 1995, the Company completed the acquisition of a producing
oil and gas property in Mustang Island in offshore Nueces County, Texas
("Mustang Island") from Sierra Mineral Development, L.C. and LLOG
Production Company (the Company assumed Sierra Mineral Development, L.C.'s
contractual rights and obligations with LLOG). Consideration for Mustang
Island consisted of $900,000 in cash and 352,000 shares of Common Stock.
In June 1995, the Company completed the acquisition of producing gas
properties in the Oak Hill Field in Rusk County, Texas ("Oak Hill") from
Sierra 1994 I Limited Partnership ("Sierra") for $7,200,000 in cash and
612,311 shares of Common Stock and warrants to purchase 200,000 shares
of Common Stock at $2.00 per share.
In June 1995, the Company completed the acquisition of producing oil
and gas properties in Eddy County, New Mexico from Enron Oil and Gas
Company (the "Enron Properties"). Consideration for the Enron Properties
consisted of $2,119,295 in cash.
In June 1995, the Company consummated a $33,000,000 reducing revolving
line of credit facility (the "Facility") with Bank One Texas, N.A. ("Bank
One"). The initial advance of $12,500,000 was used to pay off the Company's
credit facility with Texas Gas Fund I, to purchase Oak Hill and the Enron
Properties and for closing fees. Subsequent advances have been used for
development of the GAU, other acquisitions of oil and gas properties and
exploratory drilling. At December 31, 1995, the Company had $19,975,000
outstanding under the Facility. The Facility is more fully described in
Note 3 of Notes to Financial Statements.
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Also, in June 1995, the Company consummated the sale of $4,000,000 of
the Company's 10-1/2% Cumulative Convertible Preferred Stock, Series C
("Series C"), which was privately placed with affiliates of Kayne, Anderson
Investment Management, Inc. of Los Angeles, California. Forty thousand
shares of Series C were sold by the Company at $100.00 per share, and the
Series C is convertible into shares of the Company's Common Stock at a
conversion price of $2.00 per share of Common Stock. See Note 5 of Notes
to Financial Statements.
On December 29, 1995, the Company and Alexander Energy Corporation
("Alexander") signed a letter of intent providing for the merger of
Alexander and the Company. The letter of intent was subject to, among
other conditions, the execution of a definitive merger agreement by
February 15, 1996. On February 15, 1996, the Company and Alexander
extended the time to sign a definitive merger agreement to April 10, 1996.
On March 25, 1996, the Company and Alexander modified the terms of the
letter of intent to reduce the original exchange ratio from 1.8 to 1.7
shares of the Company's Common Stock for each share of Alexander common
stock.
Accordingly, the merger between the Company and Alexander is subject
to the execution of a definitive merger agreement, satisfactory due
diligence and other material conditions. Therefore, the merger may or may
not be consummated.
In January 1996, the Company completed the acquisition of oil and gas
properties in Mustang Island in offshore Nueces County, Texas from C/A
Limited, Chartex Petroleum Company and Petrotex Engineering Company (the
"CA Acquisition"). The acquisition includes interests in five wells, and a
pipeline and separation facility related to Mustang Island. The properties
have proved reserves with a PV10% of approximately $1,400,000. The
Company operates these properties. The consideration for this acquisition
consisted of 140,857 shares of the Company's Common Stock and $675,000 in
cash. The cash portion of the acquisition was funded out of the Company's
working capital and advances under the Facility.
In February 1996, the Company completed the acquisition of two oil and
gas wells on one offshore block, interests in five other offshore blocks,
and a related production platform and equipment in Mustang Island in
offshore Nueces County, Texas from UMC Petroleum Corporation (the "UMC
Acquisition"). The acquired interests have proved reserves with a present
value discounted at 10% (PV10%) of approximately $1,600,000. The Company
operates these properties. The Company paid UMC Petroleum Corporation
$1,500,000 in cash. The acquisition was funded primarily through borrowing
under the Facility.
Oil and Gas Reserves
The estimated reserves and related future net revenues are based on
reports prepared by the following independent petroleum engineers:
Netherland, Sewell & Associates, Inc. for the year ended December 31, 1995,
and by Roebuck Associates of Dallas, Texas for the years ended December 31,
1994 and 1993. All such reserves are located in the United States. These
reserve reports have been prepared using constant prices and costs in
accordance with the guidelines of the Securities and Exchange Commission
("SEC"). All of the Companies oil and gas reserves are pledged to Bank One
pursuant to the Facility.
The Company has not filed any estimates of proved oil and gas reserves
with any federal authority or agency other than with the SEC.
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The net weighted average prices used in the Company's reserve reports
at December 31, 1995, 1994 and 1993 were $18.71, $16.59 and $13.03 per
barrel of oil, respectively and $1.91, $1.62 and $1.86 per mcf of natural
gas, respectively.
The following table sets forth the Company's proved oil and gas
reserves and PV 10% of the estimated future net revenues at December 31,
1995, as prepared by Netherland & Sewell.
PROVED RESERVES
- ---------------------------------------------------------------------------
Oil and Natural % of
Gross Condensate Gas Total
Fields Wells (Bbls) (Mcf) PV10% PV10%
- ----------------------- ------ ---------- ----------- ----------- ------
ONSHORE:
Goldsmith Adobe Unit 88 3,613,605 3,318,754 $17,978,200 49.6%
Oak Hill 8 43,306 19,795,956 11,579,800 31.9%
Bishop 3 10,626 756,012 861,800 2.3%
Malaga 4 906 897,331 797,400 2.3%
Other Onshore 100 132,987 2,491,056 2,446,600 6.7%
------ ---------- ----------- ----------- ------
Total Onshore 203 3,801,430 27,259,109 33,663,800 92.8%
------ ---------- ----------- ----------- ------
OFFSHORE:
Mustang Island 1 119,646 3,610,003 2,614,800 7.2%
------ ---------- ----------- ----------- ------
TOTAL 204 3,921,076 30,869,112 36,278,600 100.0%
------ ---------- ----------- ----------- ------
The following table sets forth certain information on the Company's total
proved oil and gas reserves and the PV 10% of estimated future net revenues
from such reserves, as of the periods indicated. Also presented is the
Standardized Measure of the Company's total proved oil and gas reserves.
December 31, 1995
------------------------------------
Oil Gas
(Bbls) (Mcf) PV 10%
--------- ---------- -----------
Proved developed reserves 1,632,404 13,304,031 $21,338,900
Proved undeveloped reserves 2,288,672 17,565,081 14,939,700
--------- ---------- -----------
TOTAL PROVED RESERVES 3,921,076 30,869,112 $36,278,600
========= ========== ===========
Standardized Measure $32,127,101
===========
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Principal Areas of Operations
The Goldsmith Adobe Unit in Ector County, Texas, (the "GAU") is the
Company's largest single property. The GAU is operated by the Company and
consists of 88 producing wells. Due to acquisitions in 1993 and 1994 the
Company now holds a 91.8% working interest in the GAU. During 1995, the GAU
produced $4,568,146 in oil and gas sales, or 58.1% of the Company's total oil
and gas sales. The GAU is 7880 acre unit which was originally drilled on 40
acre spacing. Previous operators drilled several wells on 20 acre spacing and
based on the results of this drilling and 20 acre development on adjoining
leases, the Company began a drilling program in July, 1994 to develop the unit
on 20 acre spacing. The Company has drilled 28 wells during 1994 and 1995 and
continues to drill wells at the rate of two per month. Prior to the
commencement of drilling, the GAU had approximately 150 infill locations if the
lease were fully developed on 20 acre spacing. Data gained from the drilling
and coring of new wells suggest that the reservoir has significant secondary
recovery potential from a waterflood.
Oak Hill consists of 8 productive wells and is operated by the Company.
The Company owns over a 90% working interest in Oak Hill. From June to December
1995, Oak Hill produced $1,062,138 in oil and gas sales, or 13.5% of the
Company's total oil and gas sales. The Company has initiated a major
development program for Oak Hill involving workovers, recompletion and/or
completion of existing wells and additional development drilling. The Company
has performed 3 workovers and one completion and is drilling 1 development
well, and expects to drill 9 more development wells during 1996.
At December 31, 1995, the Company's interest in Mustang Island
consisted of 1 productive well and the Company owned a 100% working interest
in the Mustang Island. Subsequent to December 31, 1995, the Company has
acquired an approximate 72% working interest in five other wells in Mustang
Island (see "Recent Developments" above).
Oil and Gas Production
The following table shows the approximate net production attributable to the
Company's oil and gas interests for the periods indicated:
OIL AND GAS PRODUCTION
- ----------------------------------------------------------------------------
Years Ended December 31,
--------------------------------
1995 1994 1993
--------- --------- --------
Oil (bbls) 283,440 115,642 48,819
Gas (mcf) 1,752,990 620,843 483,241
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Productive Well Summary
The Company's production of oil and gas is primarily derived from
wells located in Texas, Oklahoma, New Mexico and Wyoming. The following table
sets forth the Company's interests in productive wells, by state, as of
December 31, 1995.
PRODUCTIVE WELLS
- -------------------------------------------------------------------------------
Oil Gas Total
-------------- ------------ -------------
Gross Net Gross Net Gross Net
----- ----- ----- ----- ---- ------
Texas 104 92.83 20 10.92 124 103.75
Oklahoma 12 4.18 38 12.24 50 16.42
New Mexico 9 2.18 9 3.52 18 5.70
Wyoming -- -- 9 2.33 9 2.33
Other 3 .17 -- -- 3 .17
----- ----- ----- ----- ---- ------
Total 128 99.36 76 29.01 204 128.37
===== ===== ===== ===== ==== ======
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Production Economics
The following table sets forth the average sales price per barrel of
oil and mcf of natural gas produced, the average lease operating expenses
and depletion, depreciation and amortization rates attributable to the
Company's oil and gas production for the periods indicated. For purposes of
calculating production cost per equivalent barrel of oil, mcfs of gas have
been converted to barrels of oil at a ratio of six mcf of gas for each
barrel of oil.
PRODUCTION ECONOMICS
- -------------------------------------------------------------------------
Years Ended December 31,
------------------------------
1995 1994 - 1993
------ ------ ------
Average Sales Price (1)
-----------------------
Oil (Bbl) $17.22 $16.01 $16.46
Gas (Mcf) $1.70 $2.11 $2.07
Average Lease Operating
-----------------------
Expense
-------
Per BOE$ 3.01 $5.51 $4.45
Depletion, Depreciation
-----------------------
and Amortization
----------------
Per BOE$ 5.29 $4.20 $4.08
(1) Prices shown are before deduction of production taxes.
Acreage
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The following table shows the approximate gross and net acres in
which the Company had a leasehold interest as of December 31, 1995.
LEASEHOLD ACREAGE
--------------------------------------
Developed Undeveloped
---------------- ----------------
Gross Net Gross Net
------ ------ ------ ------
Texas 12,318 8,687 2,402 1,108
Oklahoma 14,074 4,181 -- --
New Mexico 3,414 1,290 -- --
Wyoming 1,880 429 1,400 200
Other 960 52 320 8
------ ------ ------ ------
Total 32,646 14,639 4,122 1,388
====== ====== ====== ======
Substantially all of the Company's producing oil and gas properties
are located on leases held by the Company for an indeterminate number of
years for so long as production is maintained. All of the Company's
non-producing acreage is held under leases from mineral owners or a
government entity which expire at varying dates. The Company is obligated to
pay annual delay rentals to the lessors of certain properties in order to
prevent the leases from terminating. Because substantially all of the
Company's undeveloped acreage is held by production, annual delay rentals
for fiscal 1995 were nominal.
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Drilling Activity
DRILLING RESULTS
- ----------------------------------------------------------------
Years Ended December 31,
1995 1994
---------- ------------
Product Gross Net Gross Net
------- ----- ---- ----- ---
Exploratory
-----------
Louisiana Dry 1 .4 1 .5
Texas Dry 1 .4 1 .5
----- ---- ----- ---
Total 2 .8 2 1.0
Development
-----------
Texas Oil 22 20.2 6 5.6
Texas Gas 2 .5 3 .8
Wyoming Dry 1 .6 -- --
----- ---- ----- ---
Total 25 21.3 9 6.4
===== ==== ===== ===
The Company did not drill any development or exploratory wells
during 1993.
The oil developmental wells drilled in Texas during 1995 and 1994
represent wells drilled on the GAU and are the primary cause of the increase
in production.
See "Business - General" above for recent drilling activities.
Employees
At March 25, 1996, the Company had 17 employees, all but one of
which were full-time. Of the 17 employees, three were field related
personnel.
Markets
The availability of a ready market for any oil and gas produced by the
Company and the price obtained for such oil and gas depends upon numerous
factors beyond its control, including the demand for and supply of oil and
gas, fluctuations in production and seasonal demand, proximity of the wells
to adequate transmission facilities, inclement weather, and the effects of
governmental regulations on the production, transportation and sale of oil
and gas. The occurrence of any factor which affects a ready market for the
Company's oil and gas or reduces the price obtained for such oil and gas
will adversely affect the Company.
A large percentage of the Company's oil and gas sales are made to a
small number of purchasers. During the year ended December 31, 1995, two
customers, Plains Marketing and Transportation Inc. ("Plains") and Energy
Source, Inc., accounted for 59% and 11%, respectively, of the Company's
oil and gas sales. The Company, in 1993, entered into agreements with
Plains,
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pursuant to which Plains purchases the oil produced from the major
oil-producing properties that the Company operates at West Texas
Intermediate posted prices plus a small premium. However, under currently
prevailing market conditions, the Company does not believe that the loss of
any customer would have a material and adverse effect on its business. There
can be no assurance as to the continuance of such market conditions.
Regulation - Oil and Gas Production
The Company's oil and gas exploration, production and related
operations are subject to extensive rules and regulations promulgated by
federal and state agencies. Failure to comply with such rules and
regulations can result in substantial penalties. The regulatory burden on
the oil and gas industry increases the Company's cost of doing business
and affects its profitability. Because such rules and regulations are
frequently amended or interpreted, the Company is unable to predict the
future cost or impact of complying with such laws.
Many state authorities require permits for drilling operations,
drilling bonds and reports concerning operations and impose other
requirements relating to the exploration and production of oil and gas.
Such states also have statues or regulations addressing conservation
matters, including provisions for the unitization or pooling of oil and gas
properties, the establishment of maximum rates of production from oil and
gas wells and the regulation of spacing, plugging and abandonment of such
wells. The statutes and regulations of the federal authorities, as well as
many state authorities, limit the rates at which oil and gas can be
produced from the Company's properties.
The Natural Gas Wellhead Decontrol Act of 1989 eliminated, effective
January 1, 1993, most price controls set out in the Natural Gas Policy Act
of 1978. Neither law has a material impact on the prices received by the
Company for its natural gas. The sale of oil and gas is not currently
subject to governmental price controls.
Several major regulatory changes have been implemented by the Federal
Energy Regulatory Commission ("FERC") from 1985 to the present that affect
the economics of natural gas production, transportation and sales. In
addition, the FERC continues to promulgate revisions to various aspects of
the rules and regulations affecting those segments of the natural gas
industry that remain subject to the FERC's jurisdiction. The stated
purpose of many of these regulatory changes is to promote competition among
the various sectors of the gas industry. The ultimate impact of the
complex and overlapping rules and regulations issued by the FERC since 1985
cannot be predicted. In addition, many aspects of these regulatory
developments have not become final but are still pending judicial and FERC
final decisions.
Environmental Regulation
The Company is subject to numerous laws and regulations governing the
discharge of materials into the environment or otherwise relating to
environmental protection. These laws and regulations may require the
acquisition of a permit before drilling commences, restrict the types,
quantities and concentration of various substances that can be released
into the environment in connection with drilling and production activities,
limit or prohibit drilling activities on certain lands lying within
wilderness, wetlands and other protected areas and impose substantial
liabilities for pollution resulting from operations. Moreover, the recent
trend toward stricter standards in environmental legislation and
regulation is likely to continue. For instance, legislation has been
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proposed in Congress from time to time that would reclassify certain oil
and gas production wastes as "hazardous wastes", which reclassification
would make such wastes subject to much more stringent handling, disposal
and clean-up requirements. If such legislation were to be enacted, it
could have a significant impact on the operating costs of the Company, as
well as the oil and gas industry in general. It is not anticipated that
the Company will be required in the near future to expend amounts that are
material in relation to its total capital expenditure program by reason of
environmental laws and regulations, but because such laws and regulations
are frequently changed, the Company is unable to predict the ultimate cost
and effects of such compliance.
The Comprehensive Environmental Response, Compensation and Liability
Act ("CERCLA"), also known as the "Superfund" law, imposes liability,
without regard to fault or the legality of the original conduct, on certain
classes of persons who are considered to have contributed to the release of
a "hazardous substance" into the environment. These persons include the
owner or operator of the disposal site or sites where the release occurred
and companies that disposed or arranged for the disposal of the hazardous
substances and under CERCLA such persons or companies would be subject to
joint and several liability for the costs of cleaning up the hazardous
substances that have been released into the environment and for damages to
natural resources. It is not uncommon for neighboring landowners and other
third parties to file claims for personal injury and property damage
allegedly caused by the hazardous substance released into the environment.
Title to Oil and Gas Properties
The Company has acquired interests in producing and nonproducing
acreage in the form of working interests, royalty interests and overriding
royalty interests. To reduce the Company's financial exposure in any one
prospect, the Company often acquires less than 100% of the working interest
in a prospect. Working interests held by the Company may, from time to
time, become subject to minor liens. Furthermore, updated title opinions
may not be received prior to the acquisition of a producing oil and gas
property. It is contemplated, however, that investigations will be made in
accordance with standard practices in the industry before the acquisition
of such properties.
Production and Sales Prices
The Company's production of oil and gas is derived solely from the
United States. The Company is not obligated to provide a fixed and
determinable quantity of oil and/or gas in the future under existing
contracts or agreements. The Company does not plan to refine or process
the oil and natural gas it produces, but plans to sell the production to
unaffiliated oil and gas purchasing companies in the area in which it is
produced. The Company expects to sell crude oil on a market price basis
and to sell natural gas under contracts to both interstate and intrastate
gas pipeline companies. The Company currently sells a significant portion
of its oil and gas pursuant to a contract with Plains. See "- Markets"
above.
Lease Interests
The Company generally acquires a leasehold interest in the properties
to be explored. The leases grant the lessee the right to explore for and
extract oil and gas from a specified area. Rentals usually consist of
fixed annual charges prior to production and, once production has been
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established, a royalty based upon the gross proceeds from the sale of oil
and gas. Once wells are drilled, a lease generally continues as long as
production of oil and gas continues. In some cases, leases may be acquired
in exchange for a commitment to drill or finance the drilling of a
specified number of wells to predetermined depth.
Control Over Production Activities
The Company operates 142 of the 204 wells in which it owns an
interest. The non-operated properties are being operated by unrelated
third parties pursuant to operating agreements which are, for the most
part, standard to the industry. Decisions about operations regarding non-
operated properties may be determined by the outside operator rather than
the Company. If the Company declines to participate in additional
activities proposed by the outside operator, under certain operating
agreements, the Company will not receive revenues from, and/or lose its
interest in, the activity in which it declined to participate.
Factors Beyond the Company's Control
Although the demand for oil is steady, there are seasonal variations
in the demand for natural gas; that is, demand typically decreases in
warmer months. The Company's oil and gas business is also affected by
factors which are beyond its control and the exact effects of which cannot
be accurately predicted. These factors include war; the extent of domestic
production and imports of crude oil; production by and agreements among
OPEC members; the availability of adequate pipeline and other
transportation facilities; the marketing of competitive fuel; government
regulation of prices, production, transportation and marketing of energy;
fluctuating supply and demand; and other matters affecting the availability
of a ready market.
Operational Hazards
The Company's operations are subject to all of the risks inherent in
oil and gas exploration, drilling and production, including blowouts,
extreme weather conditions, pollution, cratering and fires. Any of these
occurrences could result in damage to or destruction of oil and gas wells
or production facilities or harm to persons and property. The Company
believes it is insured prudently against certain of these risks. Ultimate
limits provided under the Company's insurance policies are $15.0 million.
In addition, the Company maintains operator's extra expense coverage that
provides for care, custody and control of wells drilled by the Company.
The occurrence of an event not fully insured against may have a material
and adverse effect on the Company's financial position. The Company
believes that it operates in compliance with government regulations and in
accordance with safety standards which meet or exceed industry standards.
Competition
The oil and gas industry is intensely competitive in all of its
phases, particularly with respect to the acquisition of desirable producing
oil and gas leases and oil and gas companies with production. The Company,
which is a minor competitive factor in the industry, encounters strong
competition from major oil companies, independent oil and gas concerns, and
individual producers and operators, many of which have financial resources,
staffs, facilities and experience substantially greater than those of the
Company. Furthermore, in times of high drilling activity, exploration for
and production of oil and gas may be affected by the availability of
equipment, labor, supplies and by competition for drilling rigs. The
Company cannot predict the effect these
14
<PAGE>
factors will have on its operations. The Company owns no drilling rigs, and
it is anticipated that its drilling will be conducted by third parties.
Furthermore, the oil and gas industry also competes with other industries in
supplying the energy and fuel requirements of industrial, commercial and
individual consumers.
Office Space and Other
The Company leases approximately 10,827 square feet of office space
in Dallas, Texas. Minimum lease payments under future operating lease
commitments are as follows: 1996 - $147,792; 1997 - $156,551 and 1998 -
$53,491. Other than oil and gas properties and securities of oil and gas
companies, the Company does not intend to invest in real estate, real estate
mortgages or securities of, or interests in persons primarily engaged in real
estate activities for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
On August 31, 1995, R.E. Steakley and N.M. Steakley filed a lawsuit
in the District Court of Harris County, Texas against Amoco Production
Company, Phillips Petroleum Company, the Company and others. The lawsuit
alleges certain environmental claims and related tortious and contractual
claims. The plaintiffs seek unspecified damages which include remediation
and various tortious and contractual damages.
The Company believes that it is operating in compliance with
applicable environmental laws and regulations and believes, based on advice
from legal counsel, that the ultimate resolution of the lawsuit will not
have a material effect on the Company's financial condition or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
15
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Market Information
The Company's Common Stock is traded on the NASDAQ National Market
System. The Company's symbol is "NEGX".
The following table shows the range of closing bid prices through
August 31, 1995 and the range of closing sales prices starting September 1,
1995, for the Company's Common Stock, as reported by NASDAQ. The quotations
represent prices between dealers in securities and may not include retail
markup, markdown or commission and may not represent actual transactions.
Since September 1, 1995, the prices reflect trading on the NASDAQ
National Market System and, for prior periods, the prices reflect trading on
the NASDAQ Small Cap Market.
Common Stock Price
------------------
Calendar Years By Quarter High Low
------------------------- -------- -------
1995
----
First $ 2.38 $ 1.59
Second 3.38 2.34
Third 4.13 3.00
Fourth 4.13 2.81
1994
----
First $ 1.38 $ 1.06
Second 1.56 .94
Third 2.31 1.44
Fourth 2.44 1.75
On March 25, 1996, the latest practicable date for providing price
information, the last sales price for the Company's Common Stock was $2.88.
Holders
The number of record holders of the Company's Common Stock on March
25, 1996 was 2,524.
Dividends
The Company has not paid cash dividends on its Common Stock and does
not expect to declare cash dividends in the foreseeable future. Furthermore,
any future dividends on the Common Stock will be limited by the terms of the
Preferred Stock, which prohibits cash dividends on Common Stock unless all
accrued and unpaid dividends on the Preferred Stock have been paid, and the
terms of the Facility, which does not permit dividends on the Common Stock.
16
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN
OF OPERATIONS
Overview
During 1995, the Company acquired an estimated 4,487,639 barrels of
oil equivalent ("BOE") in proved reserves (based on reserve estimates at
the date of acquisition). As a result of acquisitions and efforts to
increase production from the GAU, the Company's proved reserves, as
estimated by Netherland & Sewell increased to 9,065,928 BOE at December 31,
1995. Production increased to 575,605 BOE in 1995 from 219,116 BOE in 1994.
During 1995, oil and gas sales, net of lease operating expenses and
production taxes, increased more rapidly than general and administrative
expenses and depreciation, depletion and amortization. As a consequence,
the Company was able to recognize income from operations of $926,432 for
1995 after recording losses from operations in each year from 1992 through
1994.
Results of Operations
The following table sets forth certain information regarding the
production volumes, oil and gas sales, average sales prices, average lease
operating expenses and general and administrative expenses associated with
the Company's oil and gas sales for the periods indicated.
Year Ended December 31,
----------------------------
1995 1994
----------- ----------
Net Production:
---------------
Oil (Bbls) 283,440 115,642
Gas (Mcf) 1,752,990 620,843
Oil and Gas Sales:
------------------
Oil $4,880,313 $1,851,443
Gas 2,978,003 1,307,273
----------- ----------
Total $7,858,316 $3,158,716
Average Sales Price:
--------------------
Oil (Bbls) $17.22 $16.01
Gas (Mcf) $ 1.70 $ 2.11
Average Lease Operating Expenses:
---------------------------------
Per BOE $3.01 $5.51
General and Administrative Expenses:
------------------------------------
Per BOE $2.84 $3.77
17
<PAGE>
1995 Compared with 1994
- -----------------------
Revenues:
Total revenues increased by $4,699,600 (148.8%) to $7,858,316 for
1995 from $3,158,716 for 1994. The increase in revenues is principally due to
the continued development of the GAU and the increase in production due to
the acquisitions of Mustang Island, Oak Hill and the Enron Properties.
Costs and Expenses:
Total costs and expenses increased $3,691,868 (114.0%) to $6,931,884
for 1995 from $3,240,016 for 1994. Lease operating expenses and production
taxes increased $764,420 (55.3%) to $2,147,991 for 1995 from $1,383,571 for
1994 primarily due to the Mustang Island, Oak Hill and Enron Properties
acquisitions. Lease operating expenses as a percent of oil and gas sales
decreased to 22.0% for 1995 from 38.2% for 1994. This decrease is a result
of the lower operating costs of the acquired properties, reductions in
costs at the GAU obtained through economies of scale resulting from the
additional wells drilled since August 1994 and fewer workovers performed
during 1995 than during 1994.
Depreciation, depletion and amortization increased $2,119,478
(205.8%) to $3,149,464 for 1995 compared to $1,029,986 for 1994. This
increase was, in part, related to the increased production from the GAU and
the acquisitions noted above. In addition, the depletion rate increased to
$6.31 per BOE for the fourth quarter from $4.71 per BOE due to downward
revisions in estimated proved reserves at December 31, 1995.
Although general and administrative expenses ("G & A") increased
$807,970 to $1,634,429 for 1995, G & A per BOE decreased to $2.84 (24.7%)
for 1995 from $3.77 for 1994. This decrease is attributable to the
increase in production from the GAU and the acquisitions made during 1995,
without a proportionate increase in the general and administrative costs to
the Company.
Other Income and Expenses:
The increase of $515,010 (99.6%) in interest expense to $1,032,096 for
1995 from $517,086 for 1994, was due to the increase in the amount of
outstanding debt as a result of borrowings under the Facility during 1995.
During 1995, the Company realized a gain of $220,582 on the sale of
marketable securities.
Net Loss:
Income before extraordinary item of $205,793 was generated for 1995,
compared with a loss before extraordinary item of $489,369 for 1994. This
increase is directly the result of the increased production on the GAU and
the increase in production resulting from the Mustang Island, Oak Hill and
Enron Properties acquisitions. Also contributing to this increase was a
realized gain of $220,582 on the sale of marketable securities in 1995.
A net loss of $225,969, after an extraordinary charge of $431,762, was
generated for 1995, compared with a net loss of $611,286, after an
extraordinary charge of $121,917, in 1994.
18
<PAGE>
The extraordinary charge in 1995 resulting from the write-off of unamortized
loan costs attributable to the Texas Gas Fund I facility which was paid off
out of proceeds from the Facility. The extraordinary charge in 1994 was in
connection with the write-off of unamortized loan costs attributable to the
Company's prior credit facility with Bank One, which was paid off in 1994
with proceeds from the Texas Gas Fund I facility.
Liquidity and Capital Resources
Overview
At December 31, 1995, the Company had existing cash and cash
equivalents of $6,076,199. Net cash provided by operating activities was
$3,077,082 for 1995, compared to $373,292 for 1994. The increase in cash
flow from operating activities is primarily due to the significant increase
in income from operations before depreciation, depletion and amortization.
Net cash used in investing activities was $16,946,221 for 1995
compared with $3,826,739 for 1994. This increase was principally due to
expenditures for development of the GAU and the cash used in the
acquisitions of Mustang Island, Oak Hill and the Enron Properties.
Net cash provided by financing activities was $17,351,693 for 1995
compared with $5,885,628 for 1994. The cash provided by financing
activities during 1995 primarily consisted of increased borrowings under
the Facility of $20,514,077 and the net proceeds from the issuance of the
Series C of $3,980,343. Borrowings under the Facility were used to repay
outstanding borrowings under the Texas Gas Fund I facility of $6,000,000
and to fund acquisitions, development of GAU and working capital.
The Company's production was increasing significantly at year end as
new production from development at Oak Hill came on line during the fourth
quarter. The Company's net production for January 1996 had risen to
approximately 9,517 Mcf per day and 1,197 Bbls per day compared with
average production during 1995 of 4,790 Mcf per day and 774 Bbls per day.
The Company's working capital deficit at December 31, 1995 was
$2,315,854. This deficit is primarily attributable to the inclusion of the
current portion of the Facility which totals $6,500,000, which was offset,
in part, by an increased cash and accounts receivable position. Also
contributing to the working capital deficit was the increase in accounts
payable resulting from increased development activities during 1995.
Current cash flows from the Company's properties are adequate for the
Company's general requirements and are sufficient to meet its debt service
requirements. Anticipated cash flows from operations, however, are not
sufficient to fund the planned capital expenditures for development and
enhancement of the GAU and the Company's other existing properties, which
capital expenditures will require additional advances under the Facility.
Because the Company's oil and gas reserves are depleted by production,
the success of its business strategy depends on a continuous development
and/or exploration program. Thus, the Company's capital requirements
relate primarily to the further development of the GAU and certain other
properties, acquisitions of producing oil and gas properties and/or
companies with oil and gas production and exploratory drilling. Subject to
sufficient funding, the Company expects to incur approximately $16.0
million in capital expenditures over the next twelve months. Of the $16.0
19
<PAGE>
million, $5.7 million is expected to be spent on the continued development
of the GAU, $8.6 million is expected to be spent on development of Oak Hill
and $1.7 million is expected to be spent on development of Mustang Island.
The Company anticipates funding the development of the GAU primarily from
working capital and advances under the Facility pursuant to anticipated
increases to the borrowing base under the Facility. Acquisitions may be
funded from advances under the Facility, proceeds from the issuance of
debt or equity securities, new credit facilities, currently available cash
and/or internally generated funds. However, there can be no assurances
that such sources of funds will actually be available to fund future
development and acquisition activities.
Credit Facility
In June 1995, the Company consummated a $33,000,000 reducing revolving
line of credit facility (the "Facility") with Bank One. The initial
advance of $12,500,000 was used to pay off the Company's credit facility
with Texas Gas Fund I, to purchase Oak Hill and the Enron Properties and
for closing fees. Subsequent advances have been used for development of
the GAU, other acquisitions of oil and gas properties and exploration
activities.
The Facility consists of a Revolving Note of up to $30,000,000,
subject to a borrowing base, and an Advance Note of up to $3,000,000
(primarily for the development of GAU). Interest on the Revolving Note is
at a rate of prime plus 1% (subject to reduction in certain circumstances)
or LIBOR plus 3.75% (subject to reduction in certain circumstances), at the
Company's option. Interest on the Advance Note is at a rate of prime plus
4%. Payments of interest and principal are made monthly. The Facility is
secured by all of the Company's principal oil and gas properties and
related equipment, oil and gas inventory, and related receivables.
Prepayments are allowed at any time. At December 31, 1995, the Company had
$16,975,000 outstanding under the Revolving Note and $3,000,000 outstanding
under the Advance Note.
The Revolving Note has a maturity date of June 30, 1999, and the
Advance Note has a maturity date of June 30, 1996. The Company's ability
to borrow under the Revolving Note is dependent upon the reserve value of
its oil and gas properties. At December 31, 1995, the borrowing base was
$17.0 million. The borrowing base is subject to adjustment quarterly based
on the reserve value. Bank One has substantial discretion in determining
the reserve value and borrowing base. In addition, the borrowing base is
reduced monthly by an amount redetermined semiannually by Bank One. The
amount of such automatic reduction was $175,000 per month for the period
July 31, 1995 through January 31, 1996. Effective February 1, 1996 the
amount of the monthly reduction was adjusted to $256,000. If the amount
outstanding under the Revolving Note exceeds the borrowing base, the
Company is required to repay such excess. In January 1996, the Company
repaid $3.5 million of borrowings outstanding under the Revolving Note. As
a result, the Company does not expect to be required to make additional
principal payments on the Revolving Note during 1996.
The Facility contains restrictive and affirmative covenants, and
maintenance of required financial ratios. In addition, the Company cannot
pay any dividends on or redeem Common Stock. However, cash dividends on
and redemptions of preferred stock are allowed, so long as no event of
default, as defined, has occurred and is continuing or would occur as a
result of such payment. At December 31, 1995, the Company was not in
violation of any covenants of the Facility.
20
<PAGE>
Preferred Stock
In June 1994, the Company consummated the sale of $5,000,000 of the
Company's 10% Cumulative Convertible Preferred Stock, Series B ("Series
B"). Fifty thousand shares of Series B were sold by the Company at $100.00
per share. The Series B is convertible into shares of Common Stock at a
conversion price of $1.625 per share.
In June 1995, the Company consummated the sale of $4,000,000 of the
Company's 10-1/2% Cumulative Convertible Preferred Stock, Series C ("Series
C"). Forty thousand shares of Series C were sold by the Company at $100.00
per share. The Series C is convertible into shares of Common Stock at a
conversion price of $2.00 per share. The Series B and Series C require
that dividends be paid on the Series B and Series C before any dividends
are paid on Common Stock. See Note 5 of Notes to Financial Statements.
Changes in Prices and Inflation
The Company's revenues and the value of its oil and gas properties
have been and will continue to be affected by changes in oil and gas
prices. Oil and gas prices are subject to seasonal and other fluctuations
that are beyond the Company's ability to control or predict.
In December 1995, the Company began hedging natural gas prices through
the use of commodity swap agreements in an effort to reduce the effects of
the volatility of the price of natural gas on the Company's operations.
These agreements involve the receipt of fixed-price amounts in exchange for
variable payments based on NYMEX prices and specific volumes. In
connection with the commodity swap agreements, the Company may also enter
into basis swap agreements to reduce the effects of unusual fluctuations
between prices actually received at the well head and NYMEX prices.
Through the use of commodity price and basis swap agreements, the Company
can fix the price to be received for specified volumes of production to the
commodity swap price less the basis swap price. The differential to be
paid or received, under the swap agreement, is accrued in the month of the
related production and recognized as a component of natural gas sales. The
Company does not hold or issue financial instruments for trading purposes.
While the use of hedging arrangements limits the downside risk of
adverse price movements, it may also limit future gains from favorable
movements. All hedging is accomplished pursuant to swap agreements based
upon standard forms. The Company addresses market risk by selecting
instruments whose value fluctuations correlate strongly with the underlying
commodity being hedged. Credit risk related to hedging activities is
managed by requiring minimum credit standards for counterparties, periodic
settlements, and mark to market valuations. The Company has not been
required to provide collateral relating to its hedging activities.
In December 1995, the Company had entered into various swap
agreements to fix the selling prices for natural gas at a weighted average
NYMEX price of $2.805 per Mcf for 225,000 Mcf of natural gas to be produced
during 1996. The Company had closed the positions prior to December 31,
1995 resulting in a deferred gain of approximately $70,875 which will be
recognized in 1996.
Subsequent to December 31, 1995 and as of March 25, 1996, the Company
has entered into additional swap agreements to fix the selling prices for
natural gas at a weighted average NYMEX price of $2.19 per Mcf for 1,300,000
Mcf of gas to be produced during 1996. In addition, the Company entered into a
basis swap agreement with a basis differential of $.205 covering 800,000 Mcf
of natural gas to be produced during 1996.
21
<PAGE>
Although certain of the Company's costs and expenses are affected by
the level of inflation, inflation has not had a significant effect on the
Company's results of operations during 1995 or 1994.
ITEM 7. FINANCIAL STATEMENTS
The Financial Statements of the Company required by this item are
included as part of Item 13(a)(1) hereof.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
22
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE
ACT
The information required by this Item 9 is set forth in the sections
entitled "Election of Directors" and "Certain Relationships and Related
Transactions - Section 16 Reporting" in the Company's definitive proxy
statement for its 1996 Annual Meeting of Stockholders (the "Proxy
Statement"), and is incorporated herein by reference.
ITEM 10. EXECUTIVE COMPENSATION
The information required by this Item 10 is set forth in the section
entitled "Executive Compensation" in the Company's Proxy Statement and is
incorporated herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this Item 11 is set forth in the section
entitled "Security Ownership of Certain Beneficial Owners and Management"
in the Company's Proxy Statement and is incorporated herein by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item 12 is set forth in the section
entitled "Certain Relationships and Related Transactions" in the Company's
Proxy Statement and is incorporated herein by reference.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. Financial Statements Page
-------------------- ----
Index to Financial Statements F-1
Report of Ernst & Young LLP, Independent F-2
Auditors
Balance Sheets at December 31, 1995 and F-3
December 31, 1994
Statements of Operations for the years ended F-5
December 31, 1995 and 1994
23
<PAGE>
Statement of Cash Flows for the years ended F-6
Decembers 31, 1995 and 1994
Statements of Changes in Stockholders' Equity F-7
for the years ended December 31, 1995 and
December 31, 1994
Notes to Financial Statements F-9
2. Exhibits
Exhibit
No. Description and Incorporation by Reference
------- ------------------------------------------
3.1 Certificate of Incorporation, as amended,
of the Company. (1)
3.2 By-Laws, as amended, of the Company. (1)
4.1 Instrument defining the Rights of Class A
Common Stock. (2)
4.2 Certificate of Designations of National
Energy Group, Inc. of 10% Cumulative
Convertible Preferred Stock, Series
B. (3)
4.3 Certificate of Designations of National
Energy Group,Inc. of 10 1/2%, Cumulative
Convertible Preferred Stock, Series C. (4)
10.1 Agreement of Merger, dated December 17,
1990, among Big Piney, VP Oil, Inc.,
National Energy Group, Inc., Big Piney
Acquisition Corp. and VP Acquisition
Corp. (1)
10.2 Asset Purchase and Sale Agreement, dated as
of February 7, 1992, among the Company,
TriSearch, Inc., TriSearch Ltd., Kirkland
Resources (Holdings) PLC, D. E. Boyle, Jr.,
C. D. Hughes, OilSearch Acquisition Group
One, Ltd. and OilSearch Leasing Partners,
Ltd. (5)
10.3 Addendum to Asset Purchase and Sale
Agreement, dated as of March 31, 1992,
among the Company, TriSearch, Inc.,
TriSearch, Ltd., Kirkland Resources
(Holdings) PLC, D. E. Boyle, Jr., C.D.
Hughes, OilSearch Acquisition Group One,
Ltd., and OilSearch Leasing Partners,
Ltd. (5)
10.4 Purchase Agreement, dated March 12, 1993,
by and among the Company, OilSearch Leasing
Partners, Ltd. ("Leasing"), OilSearch
Acquisition Group One, Ltd.
("Acquisition"), and the various limited
partners ofLeasing and Acquisition. (7)
10.5 Crude Oil Purchase Contract, dated November
30, 1992, between the Company and Plains
Liquids Transport, Inc. (7)
10.6 Crude Oil Purchase Contract, dated February
8, 1993, between the the Company and Plains
Marketing and Transportation, Inc., and
the predecessor contract, the Crude Oil
Purchase Contract, dated
24
<PAGE>
November 12, 1991, between Sunnybrook
Transmission, Inc. and TriSearch, Inc. (7)
10.7 Asset Purchase and Sale Agreement,
dated as of December 30, 1993, between the
Company and Bligh Petroleum, Inc. (6)
10.8 1992 Stock Option Plan. (8)
10.9 Subordinated Promissory Notes, dated
December 30, 1993, related to the Bligh
Acquisition. (8)
10.10 Amendment to Crude Oil Purchase Contract,
dated November 17, 1993, between the
Company and Plains Liquid Transport, Inc.
(3)
10.11 Credit Agreement, dated June 1, 1994,
between the Company and Texas Gas Fund
I. (3)
10.12 Stock Purchase Agreement, dated as of June
2, 1994, among the Company, Arbco
Associates L.P., Offense Group Associates
L.P., Kayne Anderson Nontraditional
Investments L.P., and Opportunity
Associates, L.P. (3)
10.13 Loan Agreement, dated June 30, 1995, between
the Company and Bank One, Texas, N.A. (4)
10.14 Agreement for Purchase and Sale (Oak Hill),
dated April 12, 1995, between the Company
and Sierra 1994 I Limited Partnership. (4)
10.15 Agreement for Purchase and Sale (Mustang
Island), dated April 20, 1995, between
the Company and Sierra Mineral Development,
L.C. (4)
10.16 Purchase and Sale Agreement, dated as of
March 29, 1995, between the Company and
Enron Oil and Gas Company. (4)
10.17 Stock Purchase Agreement, dated as of June
14, 1995, among the Company, Arbco
Associates L.P., Offense Group Associates
L.P., Kayne, Anderson Nontraditional
Investments L.P. and Opportunity Associates
L.P. (4)
10.18 Executive Employment Agreement, dated
January 1, 1996, between the Company and
Miles D. Bender. (9)
10.19 Executive Employment Agreement, dated
January 1, 1996, between the Company
and R. Thomas Fetters, Jr. (9)
10.20 Agreement, dated January 1, 1996, between
the Company and Randall A. Carter. (9)
25
<PAGE>
10.21 Agreement, dated January 1, 1996, between
the Company and Robert A. Imel. (9)
10.22 Executive Employment Agreement, dated
January 1, 1996, between the Company and
Melissa Rutledge. (9)
10.23 Executive Employment Agreement, dated
January 1, 1996, between the Company and
William T. Jones. (9)
23.1 Consent of Ernst & Young LLP. (9)
23.2 Consent of Roebuck & Associates. (9)
23.3 Consent of Netherland, Sewell &
Associates, Inc. (9)
27 The Financial Data Schedule for the
twelve months ended December 31, 1995
(applicable to EDGAR Filings only) (9)
- ------------------------------------------------------------------------------
(1) Incorporated by reference to the Company's Registration Statement on
Form S-4 (No. 33-38331), dated April 23, 1991.
(2) Incorporated by reference to the Company's Registration Statement on
Form S-3 (No. 33-81172), dated July 27, 1994.
(3) Incorporated by reference to the Company's Current Report on Form 8-
K, dated June 17, 1994.
(4) Incorporated by reference to the Company's Current Report on Form 8-
K, dated July 17, 1995.
(5) Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1991.
(6) Incorporated by reference to the Company's Current Report on Form 8-
K, dated January 13, 1994.
(7) Incorporated by reference to the Company's Annual Report on Form 10-
KSB for the year ended December 31, 1992.
(8) Incorporated by reference to the Company's Annual Report on Form 10-
KSB for the year ended December 31, 1993.
(9) Filed herewith.
(b) The Company did not file any reports on Form
8-K during the fourth quarter, which ended
December 31, 1995.
26
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
NATIONAL ENERGY GROUP, INC.
By: /s/ Miles D. Bender
---------------------------------
Miles D. Bender
President and Chief Executive Officer
By: /s/ Robert A. Imel
--------------------------------
Robert A. Imel
Chief Financial Officer
(Principal Financial Officer)
By: /s/ Melissa H. Rutledge
--------------------------------
Melissa H. Rutledge
Controller and Chief Accounting Officer
(Principal Accounting Officer)
Date: March 30, 1996
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
Signature Title Date
--------- ----- ----
By: /s/ Miles D. Bender President, March 30, 1996
-------------------------- Chief Executive Officer,
Miles D. Bender Treasurer and Director
By: /s/ George B. McCullough Chairman of the Board March 30, 1996
-------------------------- and Director
George B. McCullough
By: /s/ Norman C. Miller Chairman, Executive March 30, 1996
-------------------------- Committee and Director
Norman C. Miller
27
<PAGE>
Signature Title Date
--------- ----- ----
By: /s/ Robert H. Kite Director March 30, 1996
--------------------------
Robert H. Kite
By: /s/ George N. McDonald Director March 30, 1996
--------------------------
George N. McDonald
By: /s/ Director March 30, 1996
--------------------------
Robert V. Sinnott
By: /s/ Elwood W. Schafer Director March 30, 1996
--------------------------
Elwood W. Schafer
28
<PAGE>
National Energy Group, Inc.
Index to Financial Statements
Page
Report of Independent Auditors F-2
Financial Statements:
Balance Sheets at December 31, 1995 and 1994 F-3
Statements of Operations for the Years Ended
December 31, 1995 and 1994 F-5
Statements of Cash Flows for the Years Ended
December 31, 1995 and 1994 F-6
Statements of Changes in Stockholders' Equity for
the Years Ended December 31, 1995 and 1994 F-7
Notes to Financial Statements F-9
F-1
<PAGE>
Report of Independent Auditors
The Board of Directors
National Energy Group, Inc.
We have audited the accompanying balance sheets of National
Energy Group, Inc., as of December 31, 1995 and 1994, and
the related statements of operations, changes in
stockholders' equity, and cash flows for the years then
ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express
an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial
position of National Energy Group, Inc., at December 31,
1995 and 1994, and the results of its operations and its
cash flows for the years then ended in conformity with
generally accepted accounting principles.
Ernst & Young LLP
Dallas, Texas
March 27, 1996
F-2
National Energy Group, Inc.
Balance Sheets
December 31,
1995 1994
------------ ----------
Assets
Current assets:
Cash and cash equivalents $ 6,076,199 $2,593,645
Marketable securities 1,824,724 1,182,150
Accounts receivable - oil and gas sales 1,407,349 344,972
Accounts receivable - joint interest and other 262,619 543,771
Accounts receivable - related parties - 23,999
Other 335,751 267,731
------------ ----------
Total current assets 9,906,642 4,956,268
Property and equipment:
Oil and gas properties, at cost (full cost
method) 38,201,307 15,284,453
Furniture, fixtures, and equipment 372,395 329,445
------------ ----------
38,573,702 15,613,898
Accumulated depreciation, depletion, and
amortization 5,602,571 2,501,047
------------ ----------
Net property and equipment 32,971,131 13,112,851
Other assets 613,593 677,056
------------ ----------
Total assets $43,491,366 $18,746,175
============ ===========
See accompanying notes.
F-3
<PAGE>
December 31,
1995 1994
------------ ----------
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable - trade $ 3,630,603 820,377
Accounts payable - revenue and other 984,299 495,178
Accounts payable - broker margin 978,656 -
Accrued interest 128,938 79,917
Note payable and current portion of long-
term debt 6,500,000 -
------------ ----------
Total current liabilities 12,222,496 1,395,472
Long-term debt, less current portion 13,475,000 6,000,000
Other long-term liabilities 19,303 23,189
Stockholders' equity:
Convertible preferred stock, $1.00 par:
Authorized shares - 1,000,000
Series B:
Authorized shares - 100,000
Issued shares - 52,500
Aggregate liquidation preference - $5,250,000 52,500 52,500
Series C:
Authorized shares - 80,000
Issued shares - 40,000
Aggregate liquidation preference - $4,000,000 40,000 -
Class A common stock $.01 par value:
Authorized shares - 50,000,000
Issued shares - 11,880,125 and 8,875,892 at
December 31, 1995 and 1994, respectively 118,801 88,778
Class B common stock $.01 par value:
Authorized convertible shares - 200,000
Issued shares - 129,644 at December 31, 1994 - 1,296
Common stock issuable under asset acquisition
agreement - 136,035
Additional paid-in capital 21,485,224 13,626,117
Unrealized gain (loss) on marketable securities,
net (247,492) 136,285
Deficit (3,674,466) (2,713,497)
------------ ----------
Total stockholders' equity 17,774,567 11,327,514
------------ ----------
Total liabilities and stockholders' equity $43,491,366 $18,746,175
============ ==========
F-4
<PAGE>
National Energy Group, Inc.
Statements of Operations
Year ended December 31,
1995 1994
------------ ----------
Revenue:
Oil and gas sales $ 7,858,316 $3,158,716
Costs and expenses:
Lease operating 1,732,124 1,207,251
Oil and gas production taxes 415,867 176,320
Depreciation, depletion, and amortization 3,149,464 1,029,986
General and administrative 1,634,429 826,459
------------ ----------
6,931,884 3,240,016
Operating income (loss) 926,432 (81,300)
Interest expense (1,032,096) (517,086)
Interest income and other, net 90,875 109,017
Gain on sale of marketable securities 220,582 -
------------ ----------
Income (loss) before income taxes 205,793 (489,369)
Provision for income taxes - -
------------ ----------
Income (loss) before extraordinary item 205,793 (489,369)
Extraordinary loss on early extinguishments
of debt (431,762) (121,917)
------------ ----------
Net loss $ (225,969) $ (611,286)
============ ==========
Loss per common share:
Loss before extraordinary item $ (.05) $ (0.09)
============ ==========
Net loss $ (.09) $ (0.10)
============ ==========
Weighted average number of common and
common equivalent shares outstanding 10,701,635 8,476,821
============ ==========
See accompanying notes.
F-5
<PAGE>
National Energy Group, Inc.
Statements of Cash Flows
Year ended December 31,
1995 1994
------------ ----------
Operating Activities
Net loss $ (225,969) $ (611,286)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation, depletion and amortization 3,149,464 1,029,986
Amortization of loan costs 21,060 19,114
Amortization of deferred compensation 39,809 41,694
Extraordinary loss on early extinguishment
of debt 431,762 121,917
Common stock and warrants issued for services 104,614 64,290
Changes in operating assets and liabilities:
Accounts receivable (784,668) (217,192)
Accounts receivable from related parties 23,999 -
Other current assets (108,615) (101,530)
Accounts payable and accrued liabilities 425,626 26,299
------------ ----------
Net cash provided by operating activities 3,077,082 373,292
------------ ----------
Investing Activities
Purchases of marketable securities (2,917,659) (1,081,041)
Proceeds from sale of marketable securities 1,891,308 35,176
Proceeds from broker margin 978,656 -
Purchases of furniture, fixtures, and equipment (42,950) (48,632)
Oil and gas acquisition, exploration, and
development expenditures (16,912,919) (2,849,508)
Proceeds from sales of oil and gas properties 69,306 90,500
Purchases of long-term assets and other (11,963) 41,471
------------ ----------
Net cash used in investing activities (16,946,221) (3,826,739)
------------ ----------
Financing Activities
Proceeds from issuance of long-term debt, net 17,514,077 5,691,366
Proceeds from issuance of note payable 3,000,000 -
Repayments of long-term debt (6,875,000) (4,200,000)
Repayments of other long-term liabilities - (77,571)
Proceeds from exercise of stock options & warrants 467,987 35,938
Proceeds from issuance of Series B Preferred
Stock, net - 4,436,372
Proceeds from issuance of Series C Preferred
Stock, net 3,980,343 -
Preferred stock dividends (735,000) (14,705)
Payments for redemption of fractional shares (714) (477)
------------ ----------
Net cash provided by financing activities 17,351,693 5,885,628
------------ ----------
Increase in cash and cash equivalents 3,482,554 2,432,181
Cash and cash equivalents at beginning of period 2,593,645 161,464
------------ ----------
Cash and cash equivalents at end of period $ 6,076,199 2,593,645
============ ==========
Supplemental Cash Flow Information
Interest paid in cash $ 983,075 $ 457,949
============ ==========
See accompanying notes.
F-6
<PAGE>
<TABLE>
National Energy Group, Inc.
Statements of Changes in Stockholders' Equity
Years ended December 31, 1995 and 1994
<CAPTION>
Series B Series C Class A Class B
Preferred Stock Preferred Stock Common Stock Common Stock
--------------- --------------- -------------------- --------------------
Shares Amount Shares Amount Shares Amount Shares Amount
------- ------ ------- ------ ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 - $ - $ - - 7,752,838 $ 77,528 91,894 $ 919
Common stock issued upon exercise of
options - - - - 62,500 625 - -
Common stock issued or issuable under
asset acquisition agreements - - - - 200,000 2,000 - -
Issuance of Series B Preferred Stock 50,000 50,000 - - - - - -
Common stock issued for services - - - - 22,500 225 37,750 377
Common stock issued upon conversion of
Series A Preferred Stock - - - - 425,000 4,250 - -
Common stock issued on conversion
of long-term debt - - - - 415,054 4,151 - -
Unrealized gain on marketable securities - - - - - - - -
Dividends on Series A Preferred Stock - - - - - - - -
Dividends on Series B Preferred Stock 2,500 2,500 - - - - - -
Net loss - - - - - - - -
------- ------ ------ ------ ---------- -------- ---------- --------
Balance at December 31, 1994 52,500 52,500 - - 8,877,892 88,779 129,644 1,296
Common stock issued upon exercise
of options and warrants - - - - 327,992 3,280 - -
Common stock issued under asset
acquisition agreement - - - - 300,000 3,000 - -
Common stock and warrants issued for
services - - - - 13,000 130 - -
Common stock issued upon conversion
of Class B Common Stock - - - - 1,296,440 12,964 (129,644) (1,296)
Common stock and warrants issued to
acquire interests in oil and gas
properties - - - - 1,064,801 10,648 - -
Issuance of Series C Preferred Stock - - 40,000 40,000 - - - -
Dividends on Series B Preferred Stock - - - - - - - -
Dividends on Series C Preferred Stock - - - - - - - -
Unrealized loss on marketable securities - - - - - - - -
Net loss - - - - - - - -
------- ------ ------ ------ ---------- -------- ---------- --------
Balance at December 31, 1995 52,500 $52,500 40,000 $40,000 11,880,125 $118,801 - $ -
======= ======= ===== ======= ========== ======== ========== ========
F-7
<PAGE>
<CAPTION>
Common Stock Unrealized
Issuable Gain (Loss)
Under Asset Additional on Available- Total
Acquisition Paid-in for-sale Stockholder's
Agreement Capital Securities Deficit Equity
------------ ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993 $ 97,910 $ 7,980,992 $ - $(1,837,506) $ 6,319,843
Common stock issued upon exercise of
options - 35,313 - - 35,938
Common stock issued or issuable under
asset acquisition agreements 38,125 123,000 - - 163,125
Issuance of Series B Preferred Stock - 4,386,372 - - 4,436,372
Common stock issued for services - 51,908 - - 52,510
Common stock issued upon conversion of
Series A Preferred Stock - 420.720 - - 424,970
Common stock issued on conversion
of long-term debt - 380,311 - - 384,462
Unrealized gain on marketable securities - - 136,285 - 136,285
Dividends on Series A Preferred Stock - - - (14,705) (14,705)
Dividends on Series B Preferred Stock - 247,500 - (250,000) -
Net loss - - - (611,286) (611,286)
------------ ----------- ------------- ------------ -------------
Balance at December 31, 1994 136,035 13,626,116 136,285 (2,713,497) 11,327,514
Common stock issued upon exercise
of options and warrants - 464,707 - - 467,987
Common stock issued under asset
acquisition agreement (136,035) 133,035 - - -
Common stock and warrants issued for
services - 79,203 - - 79,333
Common stock issued upon conversion
of Class B Common Stock - (11,668) - - -
Common stock and warrants issued to
acquire interests in oil and gas
properties - 3,269,003 - - 3,279,651
Issuance of Series C Preferred Stock - 3,924,828 - - 3,964,828
Dividends on Series B Preferred Stock - - - (525,000) (525,000)
Dividends on Series C Preferred Stock - - - (210,000) (210,000)
Unrealized loss on marketable securities - - (383,777) - (383,777)
Net loss - - - (225,969) (225,969)
------------ ----------- ------------- ------------ -------------
Balance at December 31, 1995 $ - $21,485,224 $ (247,492) $(3,674,466) $ 17,774,567
============ =========== ============= ============ =============
</TABLE>
See accompanying notes.
F-8
<PAGE>
National Energy Group, Inc.
Notes to Financial Statements
December 31, 1995
1. Significant Accounting Policies
Organization and Business
National Energy Group, Inc. (the "Company") was incorporated
under the laws of the State of Delaware on November 20,
1990. The Company is engaged in the acquisition,
development, and production of crude oil and natural gas.
Accounting Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results
could differ from these estimates.
Cash and Cash Equivalents
Cash and cash equivalents include demand deposits and money-
market investments with maturities of three months or less
when purchased. At December 31, 1995 all cash and cash
equivalents were invested with Bank One, Texas, N.A. ("Bank
One").
Marketable Securities
The Company's marketable securities are classified as
available-for-sale. Available-for-sale securities are
carried at fair value, with the unrealized gains and losses,
net of tax, reported as a separate component of
stockholders' equity. Realized gains and losses and declines
in value judged to be other-than-temporary are included in
interest income. The cost of securities sold is based on the
specific identification method.
The marketable securities are comprised of other independent
oil and gas companies. The common stock of one oil and gas
company accounted for 62% and 86% of the estimated fair
market value of the total marketable securities held at
December 31, 1995 and 1994, respectively.
F-9
<PAGE>
National Energy Group, Inc.
Notes to Financial Statements (continued)
1. Significant Accounting Policies (continued)
The following is a summary of available-for-sale securities
at December 31, 1995 and 1994:
December 31, 1995
----------------------------------------------
Gross Gross
Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
---------- ---------- ---------- ----------
Common stocks $2,072,216 $1,026 $248,518 $1,824,724
========== ========== ========== ==========
December 31, 1994
----------------------------------------------
Gross Gross
Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
---------- ---------- ---------- ----------
Common stocks $1,045,864 $138,178 $ 1,893 $1,182,149
========== ========== ========== ==========
During the years ended December 31, 1995 and 1994, available-
for-sale securities with a fair value at the date of sale of
$2,111,890 and $51,156, respectively, were sold. The gross
realized gains on such sales totaled $224,443 and $14,954,
respectively. The gross realized losses on such sales
totaled $3,861 during 1995, and there were no realized
losses during 1994.
Accounts Receivable
The Company sells crude oil and natural gas to various
customers. In addition, the Company participates with other
parties in the operation of crude oil and natural gas wells.
Substantially all of the Company's accounts receivable are
due from either purchasers of crude oil and natural gas or
participants in crude oil and natural gas wells for which
the Company serves as the operator. Generally, operators of
crude oil and natural gas properties have the right to
offset future revenues against unpaid charges related to
operated wells. Crude oil and natural gas sales are
generally unsecured.
Natural Gas Production Imbalances
The Company accounts for natural gas production imbalances
using the sales method.
F-10
<PAGE>
National Energy Group, Inc.
Notes to Financial Statements (continued)
1. Significant Accounting Policies (continued)
Crude Oil and Natural Gas Properties
The Company utilizes the full cost method of accounting for
its crude oil and natural gas properties. Under the full
cost method, all productive and nonproductive costs incurred
in connection with the acquisition, exploration, and
development of crude oil and natural gas reserves are
capitalized and amortized on the units-of-production method
based upon total proved reserves. The costs of unproven
properties are excluded from the amortization calculation
until the individual properties are evaluated and a
determination is made as to whether reserves exist.
Capitalized costs are limited to the aggregate of the
present value of future net reserves plus the lower of cost
or fair market value of unproved properties. Conveyances of
properties, including gains or losses on abandonments of
properties, are treated as adjustments to the cost of crude
oil and natural gas properties, with no gain or loss
recognized. The Company does not believe that future costs
related to dismantlement, site restoration, and abandonment
costs, net of estimated salvage values, will have a
significant effect on its results of operations or financial
position because the salvage value of equipment and related
facilities should approximate or exceed any future
expenditures for dismantlement, restoration, or abandonment.
The Company has not incurred any net expenditures for costs
of this nature during the last two years.
The Company has capitalized internal costs of $141,516 and
$158,961 for the years ended December 31, 1995 and 1994,
respectively. Such capitalized costs include salaries and
related benefits of individuals directly involved in the
Company's acquisition, exploration and development
activities based on percentage of their time devoted to such
activities.
Furniture, Fixtures, and Equipment
Furniture, fixtures, and equipment are recorded at cost and
are depreciated over their estimated useful lives using the
straight-line method.
Maintenance and repairs are charged against income when
incurred; and renewals and betterments, which extend the
useful lives of furniture, fixtures, and equipment, are
capitalized.
F11
<PAGE>
National Energy Group, Inc.
Notes to Financial Statements (continued)
1. Significant Accounting Policies (continued)
Overhead Reimbursement Fees
Fees from overhead charges billed to working interest owners
of $136,943 and $157,845, for the years ended December 31,
1995 and 1994, respectively, have been classified as a
reduction of general and administrative expenses in the
accompanying statements of operations.
Income Taxes
The Company uses the liability method in accounting for
income taxes. Under the liability method, deferred tax
assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and
laws that will be in effect when the differences are
expected to reverse.
Earnings (Loss) Per Share
Primary earnings (loss) per common and common equivalent
share data is computed by dividing net income (loss),
adjusted for preferred stock dividend requirements of
$735,000 in 1995 and $264,705 in 1994, by the weighted
average number of common and common equivalent shares
outstanding during each period. Shares issuable upon
exercise of options and warrants are included in the
computation of earnings per common and common equivalent
share to the extent that they are dilutive. Fully diluted
earnings (loss) per share computations also assume the
conversion of the Company's preferred stock (Note 5) if such
conversion has a dilutive effect.
For the years ended December 31, 1995 and 1994, neither the
common equivalent shares nor the assumed conversion of the
preferred stock had a dilutive effect on the loss per share
calculations. Accordingly, the loss per share calculations
for such periods are based on the weighted average number of
common shares outstanding during each year.
Natural Gas Hedging Activities
In December 1995, the Company began hedging natural gas
prices through the use of commodity price swap agreements,
in an effort to reduce the effects of the volatility of the
price of natural gas on the Company's operations. These
agreements involve the receipt of fixed-price amounts in
exchange for variable payments based on NYMEX prices and
specific volumes. In connection with the commodity price
swap agreements,
F-12
<PAGE>
National Energy Group, Inc.
Notes to Financial Statements (continued)
1. Significant Accounting Policies (continued)
the Company may also enter into basis swap agreements to
reduce the effects of unusual fluctuations between prices
actually received at the well head and NYMEX prices.
Through the use of commodity price and basis swap agreements
the Company can fix the price to be received for specified
volumes of production to the commodity swap price less the
basis swap price. The differential to be paid or received
under the swap agreement is accrued in the month of the
related production and recognized as an adjustment to oil
and gas sales. The Company does not hold or issue financial
instruments for trading purposes.
New Accounting Pronouncement
In October 1995, the Financial Accounting Standards Board
("FASB") issued its statement No. 123, "Accounting for Stock
Based Compensation" ("FAS 123") which establishes an
alternative method of accounting for stock based
compensation to the method set forth in Accounting
Principles Board Opinion No. 25 ("APB 25"). FAS 123
encourages, but does not require, adoption of a fair value
based method of accounting for stock options and similar
equity instruments granted to employees. The Company will
continue to account for such grants under the provisions of
APB 25 and will adopt the disclosure provisions of FAS 123
in the first quarter of 1996. Accordingly, adoption of FAS
123 will not affect the Company's financial statements for
the year ended December 31, 1995.
Reclassifications
Certain previously reported amounts have been reclassified
to conform with the 1995 presentation.
2. Acquisitions of Oil and Gas Properties
During 1994, the Company acquired an additional 17.0%
working interest in the Goldsmith Adobe Unit ("GAU"). Such
interests were acquired for $584,095 in cash. The Company is
the operator of the GAU and holds a 91.8% working interest
in the GAU.
In April 1995, the Company purchased a 100% working interest
(77% net revenue interest) in State of Texas Lease No. 69153
and the State Tract 901-S Field, Nueces County, Texas
("Mustang Island") for $900,000 in cash and 352,500 shares
of Class A Common Stock ("Common Stock"). The cash portion
of the acquisition was funded from available cash.
F-13
<PAGE>
National Energy Group, Inc.
Notes to Financial Statements (continued)
2. Acquisitions of Oil and Gas Properties (continued)
In June 1995, the Company completed the acquisition of
producing gas properties in the Oak Hill Field in Rusk
County, Texas ("Oak Hill"). The consideration paid by the
Company for Oak Hill consisted of $7,200,000 in cash,
612,311 shares of Common Stock
and warrants to purchase 200,000 shares of Common Stock at a
price per share of $2.00. The cash portion of the
acquisition was funded primarily by borrowings under the
Company's credit facility with Bank One, Texas, N.A. ("Bank
One"). See Note 3.
In addition, in June 1995, the Company completed the
acquisition of producing oil and gas properties in Eddy
County, New Mexico from Enron Oil and Gas Company (the
"Enron Properties") for $2,119,295 in cash. This acquisition
was funded by borrowings under the credit facility with Bank
One and available cash.
The following pro forma data presents the results of the
Company for the years ended December 31, 1995 and 1994, as
if the acquisition of Mustang Island, Oak Hill and the Enron
Properties had occurred on January 1, 1994. The pro forma
results of operations are presented for comparative purposes
only and are not necessarily indicative of the results which
would have been obtained had the acquisitions been
consummated as presented. The following data reflect pro
forma adjustments for the oil and gas revenues, production
costs, and depreciation and depletion related to the
properties and additional interest on borrowed funds.
Pro Forma
Year ended December 31
(Unaudited)
1995 1994
---------- ----------
Revenues $9,253,803 $5,051,222
========== ==========
Income (loss) before extraordinary
item $ 998,512 $ (573,522)
========== ==========
Income (loss) before extraordinary
item per common share $.06 $(.06)
========== ==========
F-14
<PAGE>
National Energy Group, Inc.
Notes to Financial Statements (continued)
3. Note Payable and Long-Term Debt
Note payable and long-term debt consists of the following:
December 31
1995 1994
----------- ----------
Bank One credit facility $19,975,000 $ -
Gas Fund credit facility - 6,000,000
----------- ----------
19,975,000 6,000,000
Less current maturities:
Advance Note 3,000,000 -
Current portion of Revolving Note 3,500,000 -
----------- ----------
$13,475,000 $6,000,000
=========== ==========
In June 1995, the Company consummated a $33,000,000 reducing
revolving line of credit facility (the "Facility") with Bank
One. The initial advance under the Facility of $12,500,000
was used to pay off the Company's credit facility with Texas
Gas Fund I, to purchase Oak Hill and the Enron Properties
(Note 2), and for closing fees. Subsequent advances have
been used for development of the GAU, other acquisitions of
oil and gas properties (Note 2), and exploration activities.
The Facility consists of a Revolving Note of up to
$30,000,000, subject to a borrowing base, and an Advance
Note of up to $3,000,000 (primarily for the development of
GAU). Interest on the Revolving Note is at a rate of prime
plus 1% (subject to reduction in certain circumstances) or
LIBOR plus 3.75% (subject to reduction in certain
circumstances), at the Company's option. Interest on the
Advance Note is at a rate of prime plus 4%. Payments of
interest and principal are made monthly. The Facility is
secured by all of the Company's principal oil and gas
properties and related equipment, oil and gas inventory, and
related receivables. Prepayments are allowed at any time. At
December 31, 1995, the Company had $16,975,000 outstanding
under the Revolving Note and $3,000,000 outstanding under
the Advance Note.
The Revolving Note has a maturity date of June 30, 1999, and
the Advance Note has a maturity date of June 30, 1996. The
Company's ability to borrow under the Revolving Note is
dependent upon the reserve value of its oil and gas
properties. At December 31, 1995, the borrowing base was
$17.0 million. The borrowing base is subject to adjustment
quarterly based on the reserve value. Bank One has
substantial discretion in determining the reserve value and
borrowing base. In addition, the borrowing base is reduced
monthly by an amount redetermined semiannually by Bank One.
The amount of such automatic
F-15
<PAGE>
National Energy Group, Inc.
Notes to Financial Statements (continued)
3. Note Payable and Long-Term Debt (continued)
reduction was $175,000 per month for the period July 31,
1995 through January 31, 1996. Effective February 1, 1996
the amount of the monthly reduction was adjusted to
$256,000. If the amount outstanding under the Revolving Note
exceeds the borrowing base, the Company is required to repay
such excess. In January 1996, the Company repaid $3.5
million of borrowings outstanding under the Revolving Note.
As a result, the Company does not expect to be required to
make additional principal payments on the Revolving Note
during 1996.
The Facility contains restrictive and affirmative covenants,
and maintenance of required financial ratios. In addition,
the Company cannot pay any dividends on or redeem common
stock. However, cash dividends on and redemptions of
preferred stock are allowed, so long as no event of default,
as defined, has occurred and is continuing or would occur as
a result of such payment. At December 31, 1995, the Company
was not in violation of any covenants of the Facility.
Borrowings of $6,000,000 were outstanding at December 31,
1994, under the credit facility with Texas Gas Fund I.
Proceeds from the Texas Gas Fund I facility were used to
repay the Company's previous loan with Bank One which
resulted in an extraordinary charge of $121,917, or $.01 per
common share, in 1994. Borrowings under the Texas Gas Fund I
facility were repaid using proceeds from the Facility,
resulting in an extraordinary charge of $431,762 or $.04 per
common share, in 1995.
Effective June 9, 1994, the full principal amount and
accrued interest on the 8.5% subordinated notes payable,
which were issued in connection with the acquisition of
certain oil and gas assets from TriSearch, Inc. in April
1992, were converted into 125,054 shares of Common Stock.
In connection with the acquisition of the GAU working
interest in December 1993, the Company borrowed $230,000
from three directors in the form of 10% subordinated notes.
During 1994, $181,250 principal amount of the subordinated
notes were converted into 290,000 shares of Common Stock and
the remaining $48,750 principal amount was retired for cash.
The carrying value of the Company's note payable and long-
term debt approximates their fair values.
F-16
<PAGE>
National Energy Group, Inc.
Notes to Financial Statements (continued)
4. Lease
The Company leases office space under an operating lease.
Rental expense charged to operations was approximately
$100,493 and $80,132 during the years ended December 31,
1995 and 1994, respectively. Minimum lease payments under
future operating lease commitments at December 31, 1995, are
as follows:
1996 $147,792
1997 156,551
1998 53,491
--------
$357,834
========
5. Stockholders' Equity
Capital Stock
The authorized capital stock of the Company consists of
50,000,000 shares of Class A common stock, par value $.01
per share ("Common Stock"); 200,000 shares of Class B common
stock ("Class B"), par value $.01 per share; and 1,000,000
shares of convertible preferred stock par value $1.00 per
share. The management of the Company plans to recommend to
the Company's stockholders, at the next Annual Meeting of
Stockholders, that the Company's Certificate of
Incorporation be amended to eliminate Class B. No shares of
Class B were outstanding at December 31, 1995.
Preferred Stock
On June 3, 1994, the Company consummated the sale of
$5,000,000 of the Company's 10% Cumulative Convertible
Preferred Stock, Series B ("Series B"). Fifty thousand
shares of Series B were sold by the Company at $100.00 per
share. The Series B is convertible into shares of Common
Stock at a conversion price of $1.625 per share. The Series
B has a liquidation and dividend preference over the Common
Stock. The Series B has a 10% dividend, payable semi-
annually. The Company has the option to make six dividend
payments in shares of Series B; after the sixth such
payment, the holders of Series B have the option to receive
additional dividends in shares of Series B or to accrue such
dividends in cash. If the Company makes four dividend
payments in shares of Series B, the holders of Series B have
the right to appoint one-third of the members of the
Company's Board of Directors. The Series B would be
redeemable by the Company, until June 3, 1997, at $110.00
per share and, thereafter, at $100.00 per share, plus
accrued and unpaid dividends; provided, however, that the
Company cannot redeem any shares of Series B unless and
until all outstanding shares of the Series C have been
redeemed by
F-17
<PAGE>
National Energy Group, Inc.
Notes to Financial Statements (continued)
5. Stockholders' Equity (continued)
the Company. As a result, no shares of Series B can be
redeemed before June 14, 1997. The holders of Series B
currently have the right to appoint one member to the
Company's Board of Directors. The Series B requires that
dividends be paid on the Series B before any dividends are
paid on Common Stock.
The holders of Series B are entitled to one vote for each
share as to matters upon which by law they are entitled to
vote as a class, and the approval of a majority of the
Series B, voting separately as a class, is required to make
changes to the Company's Certificate of Incorporation or By-
Laws which adversely affect the Series B, to authorize or
issue additional shares of Series B or to issue preferred
stock equal to or senior to the Series B as to dividends or
liquidation, or, subject to certain exceptions, to effect an
extraordinary transaction that requires a vote of the
Company's stockholders. As a result, a class vote of the
holders of Series B would be required for the Company to
merge or be acquired and may therefore delay, deter, or
prevent a change in control of the Company.
In June 1995, the Company consummated the sale of $4,000,000
of the Company's 10 1/2% Cumulative Convertible Preferred
Stock, Series C ("Series C"). Forty thousand shares of
Series C were sold by the Company at $100.00 per share. The
Series C is convertible into shares of Common Stock at a
conversion price of $2.00 per share.
The Series C has a liquidation and dividend preference over
the Common Stock, and is parity stock to the previously
issued Series B. The Series C has a 10 1/2% dividend,
payable semi-annually. The Company has the option to make
six dividend payments in shares of Series C; after the sixth
such payment, the holders of Series C have the option to
receive additional dividends in shares of Series C or to
accrue such dividends in cash. If the Company makes four
dividend payments in shares of Series C, the holders of
Series C (voting as a class with other affected series of
preferred stock with similar voting rights) have the right
to appoint one-third of the members of the Company's Board
of Directors; provided, however, that if the holders of
Series B are presently entitled to a similar right, then the
holders of Series C shall have no such right until the right
of the holders of Series B terminates. The Series C is
redeemable by the Company between June 14, 1997 and June 14,
1998, at $110.00 per share and, thereafter, at $100.00 per
share, plus accrued and unpaid dividends. No shares of
Series B may be redeemed until all the shares of Series C
have been redeemed. The holders of the Series C currently
have the right to appoint one member to the Company's Board
of Directors.
F-18
<PAGE>
National Energy Group, Inc.
Notes to Financial Statements (continued)
5. Stockholders' Equity (continued)
The holders of Series C are entitled to one vote for each
share as to matters upon which by law they are entitled to
vote as a class, and the approval of a majority of the
Series C, voting separately as a class, is required to make
changes to the Company's Certificate of Incorporation or
By-Laws which adversely affect the Series C, to authorize or
issue additional shares of Series C or to issue preferred
stock equal to or senior to the Series C as to dividends or
liquidation, or, subject to certain exceptions, to effect an
extraordinary transaction that requires a vote of the
Company stockholders. As a result, a class vote of the
holders of Series C, as well as the Series B, would be
required for the Company to merge or be acquired and may
therefore delay, deter, or prevent a change in control of
the Company.
Common Stock
Holders of Common Stock are entitled to one vote for each
share held of record on all matters voted on by
stockholders. The shares of the Common Stock do not have
cumulative voting rights, which means that the holders of
more than 50% of the shares of the Common Stock voting for
the election of the directors can elect all of the directors
to be elected by holders of the Common Stock, in which event
the holders of the remaining shares of Common Stock will not
be able to elect any director. Upon any liquidation,
dissolution, or winding-up of the affairs of the Company,
holders of the Common Stock would be entitled to receive,
pro rata, all of the assets of the Company available for
distribution to stockholders, after payment of any
liquidation preference of any Preferred Stock that may be
issued and outstanding at the time. Holders of the Common
Stock have no subscription, redemption, sinking fund, or
preemptive rights.
The Class B was entitled to special conversion rights. In
June 1995, as a result of the Company's proven crude oil and
natural gas reserves reaching a value in excess of
$25,000,000, the 129,644 shares of Class B common stock
which were outstanding at December 31, 1994, were converted
into 1,296,440 shares of Common Stock, in accordance with
the terms of the Class B. Under the terms of the Class B,
such shares cannot be reissued.
In connection with the repayment of borrowings under the
Texas Gas Fund I credit facility, the Company issued 100,000
shares of Common Stock to reduce a net profits interest in
the GAU held by Texas Gas Fund I.
F-19
<PAGE>
National Energy Group, Inc.
Notes to Financial Statements (continued)
5. Stockholders' Equity (continued)
Common Stock issuable under asset acquisition agreement at
December 31, 1994, represents additional consideration
related to asset acquisition agreements. In January 1995,
300,000 shares of Common Stock were issued in satisfaction
of this obligation.
Warrants
In June 1994, in connection with the sale of the Series B
Preferred Stock, the Company issued warrants to purchase
307,692 shares of Common Stock at a price of $1.625 per
share. During 1995, 255,492 of these warrants were
exercised. These warrants expire June 3, 1997.
In 1995, the Company granted warrants to purchase 300,000
shares of Common Stock at a price of $1.625 per share,
pursuant to a consulting agreement. The first 100,000
warrants were exercisable immediately and expire July 31,
1997, the next 100,000 became exercisable on July 31, 1995
and expire July 31, 1998, and the remaining 100,000 become
exercisable on July 31, 1996 and expire July 31, 1999. The
estimated fair value of the warrants was deferred at the
date of grant and is being charged to general and
administrative expenses over the vesting period.
In June 1995, in connection with the acquisition of Oak Hill
(Note 2), the Company issued warrants to purchase 200,000
shares of Common Stock at a price of $2.00 per share. These
warrants will become exercisable on June 28, 1996 and expire
June 30, 1998.
The following table summarizes warrants outstanding at
December 31, 1995:
Number of Shares Expiration Warrants Exercise
Under Warrant Date Exercisable Price
---------------- ------------- ----------- --------
52,200 June 3, 1997 52,200 $1.625
100,000 July 31, 1997 100,000 $1.625
100,000 July 31, 1998 100,000 $1.625
100,000 July 31, 1999 - $1.625
200,000 June 30, 1998 - $2.00
---------------- ------------- ----------- --------
552,200 252,200
================ ===========
F-20
<PAGE>
National Energy Group, Inc.
Notes to Financial Statements (continued)
5. Stockholders' Equity (continued)
Stock Options
During 1992, the Company's Board of Directors and
stockholders approved the Company's 1992 Stock Option Plan
(the "Plan"). Awards may be granted to key employees or
nonemployee directors of the Company. Awards may consist of
options to purchase shares of Common Stock or stock
appreciation rights ("SARs") or a combination thereof. The
aggregate number of shares that the Company may issue under
the Plan will not, at the time of the grant, exceed an
amount equal to 10% of the number of then-outstanding shares
of Common Stock. Furthermore, no more than 30% of the shares
of Common Stock for which awards may be granted under the
Plan may be granted to the Company's directors, and no one
director may be granted awards covering more than 75,000
shares of Common Stock. No more than 50% of the shares of
Common Stock for which awards may be granted under the Plan
may be granted to officers of the Company who are not
directors, and no one officer who is not a director may be
granted awards covering more than 125,000 shares. The
exercise price of an option or SAR may not be less than the
fair market value of Common Stock on the date of grant. All
options granted under the Plan expire no later than the
tenth anniversary of the date of grant. At December 31,
1995, 15,000 options had been granted pursuant to the Plan.
At present, the Company does not plan to issue further
options under the Plan.
In addition, during 1995 and 1994, the Company's Board of
Directors issued options to purchase 765,000 and 40,000
shares of Common Stock, respectively, to certain officers
and directors. These options were issued outside of the
Plan.
Option transactions are summarized below:
Number of Option
Shares Price Range
--------- ---------------
Outstanding (297,500 options
exercisable) at December 31, 1993 297,500 $ .50 - $1.06
Granted 40,000 $1.625
Canceled (35,000) $ .625 - $1.06
Exercised (62,500) $ .50 - $ .625
--------- ---------------
Outstanding (200,000 options
exercisable) at December 31, 1994 240,000 $ .625 - $1.625
Granted 765,000 $1.625 - $2.875
Exercised (72,500) $ .625 - $1.625
--------- ---------------
Outstanding (347,500 options
exercisable) at December 31, 1995 932,500 $ .625 - $2.875
========= ===============
F-21
<PAGE>
National Energy Group, Inc.
Notes to Financial Statements (continued)
6. Income Taxes
The reconciliation of income taxes computed at the U.S.
federal statutory tax rates to the benefit for income taxes
on the income (loss) before extraordinary item is as
follows:
Year ended
December 31
1995 1994
--------- ---------
Income tax (benefit) at statutory rate $ 69,970 $(166,385)
Utilization of net operating loss
carryforward (69,970) -
Benefit of net operating loss not
recognized - 166,385
--------- ---------
$ - $ -
========= =========
The computation of the net deferred tax (liability) follows:
December 31
1995 1994
--------- ---------
Deferred tax liabilities:
Property and equipment $(198,790) $(357,330)
Other (8,378) (14,677)
Deferred tax assets:
Net operating loss carryforward 823,319 915,268
Other - 6,499
--------- ---------
616,151 549,760
Less valuation allowance (616,151) (549,760)
--------- ---------
$ - $ -
========= =========
At December 31, 1995, the Company had net operating loss
carryforwards available for federal income tax purposes of
approximately $2,333,000, which expire beginning in the year
2003. As a result of an asset acquisition in April 1992,
utilization of $1,356,000 of the net operating loss
carryforward for income tax purposes is restricted to
approximately $160,000 per year because of a change in
ownership, as defined by the Tax Reform Act of 1986.
F-22
<PAGE>
National Energy Group, Inc.
Notes to Financial Statements (continued)
7. Gas Hedging Activities and Commitments
While the use of hedging arrangements limits the downside
risk of adverse price movements, it may also limit future
gains from favorable movements. All hedging is accomplished
pursuant to swap agreements based upon standard forms. The
Company addresses market risk by selecting instruments whose
value fluctuations correlate strongly with the underlying
commodity being hedged. Credit risk related to hedging
activities is managed by requiring minimum credit standards
for counterparties, periodic settlements, and mark to market
valuations. The Company has not been required to provide
collateral relating to its hedging activities.
In December 1995, the Company had entered into various swap
agreements to fix the selling prices for natural gas at a
weighted average NYMEX price of $2.805 per Mcf for 225,000
Mcf of natural gas to be produced during 1996. The Company
closed the positions prior to December 31, 1995, resulting
in a deferred gain of approximately $70,875 which will be
recognized in 1996.
Subsequent to December 31, 1995 and as of March 25, 1996,
the Company has entered into additional swap agreements to
fix selling prices for natural gas at a weighted average
NYMEX price of $2.19 per Mcf for 1,300,000 Mcf of natural
gas to be produced during 1996. In addition, the Company
entered into a basis swap agreement with a basis
differential of $.205 covering 800,000 Mcf of natural gas to
be produced during 1996.
8. Crude Oil and Natural Gas Producing Activities
Capitalized costs relating to crude oil and natural gas
producing activities and related accumulated depreciation,
depletion, and amortization are summarized as follows:
December 31
1995 1994
----------- -----------
Proved crude oil and natural gas
properties $37,493,394 $15,284,453
Unproved crude oil and natural gas
properties 707,913 -
Accumulated depreciation, depletion,
and amortization (5,366,293) (2,320,378)
----------- -----------
$32,835,014 $12,964,075
=========== ===========
The unproven properties are excluded from the amortization
base and consist primarily of acreage, acquisition costs,
and related geological and geophysical costs. These costs
are expected to be evaluated during the Company's 1996
drilling program.
F-23
<PAGE>
National Energy Group, Inc.
Notes to Financial Statements (continued)
8. Crude Oil and Natural Gas Producing Activities
Costs incurred in crude oil and natural gas producing
activities for the years ended December 31, 1995 and 1994,
are as follows:
Year ended December 31
1995 1994
----------- ----------
Acquisitions of properties:
Proved $13,657,383 $1,153,548
Unproved $ 707,913 $ 134,512
Exploration costs $ 73,034 $ 130,182
Development costs $ 8,595,363 $2,006,183
Amortization rate per equivalent
barrel $5.97 $4.20
Depletion, depreciation and amortization increased $351,964
for the fourth quarter of 1995 due to downward revisions in
estimated proved reserves at December 31, 1995.
Revenues from individual customers exceed 10% of total crude
oil and natural gas sales are as follows:
Year ended December 31
1995 1994
----------- ----------
Plains Marketing and Transportation $ 4,618,136 $1,614,711
Energy Source, Inc. $ 870,285 -
GPM Natural Gas Corporation - $ 553,613
The Company believes that the loss of these customers would
not have a significant impact on the Company's results of
operations or financial condition.
9. Supplementary Crude Oil and Natural Gas Reserve
Information (Unaudited)
The Company has interests in crude oil and natural gas
properties that are principally located in Texas, Oklahoma,
New Mexico, Wyoming and offshore Texas. The Company does not
own or lease any crude oil and natural gas properties
outside the United States.
The Company retains independent engineering firms to provide
annual year-end estimates of the Company's future net
recoverable crude oil, natural gas, and natural gas liquids
reserves. Estimated proved net recoverable reserves as shown
below include only those quantities that can be expected to
be commercially recoverable at prices and costs in
F-24
<PAGE>
National Energy Group, Inc.
Notes to Financial Statements (continued)
9. Supplementary Crude Oil and Natural Gas Reserve
Information (Unaudited) (continued)
effect at the balance sheet dates under existing regulatory
practices and with conventional equipment and operating
methods. Proved developed reserves represent only those
reserves expected to be recovered through existing wells.
Proved undeveloped reserves include those reserves expected
to be recovered from new wells on undrilled acreage or from
existing wells on which a relatively major expenditure is
required for recompletion.
Net quantities of proved developed and undeveloped reserves
of natural gas and crude oil, including condensate and
natural gas liquids, are summarized as follows:
Natural
Crude Gas
Oil (Thousand
(Barrels) Cubic Feet)
--------- ----------
December 31, 1993 3,721,084 11,047,393
Purchase of reserves in place 1,035,137 1,858,271
Extensions and discoveries 906,526 1,996,771
Revisions of previous estimates (387,840) (879,838)
Production (115,642) (620,843)
Sales of reserves in place (3,524) (21,280)
--------- ----------
December 31, 1994 5,155,741 13,380,474
Purchase of reserves in place 190,063 25,785,458
Revisions of previous estimates (1,141,288) (6,453,623)
Production (283,440) (1,752,990)
Sales of reserves in place - (90,207)
--------- ----------
December 31, 1995 3,921,076 30,869,112
========= ==========
Proved developed reserves:
December 31, 1993 1,641,800 8,781,785
December 31, 1994 1,532,470 9,205,784
December 31, 1995 1,632,404 13,304,031
The Company's principal properties are the GAU and Oak Hill,
both of which are located onshore in Texas, and Mustang
Island located in offshore Nueces County, Texas.
F-25
<PAGE>
National Energy Group, Inc.
Notes to Financial Statements (continued)
9. Supplementary Crude Oil and Natural Gas Reserve
Information (Unaudited) (continued)
As of December 31, 1995 and 1994, the Company's net interest
in the proved reserves of the GAU was approximately
4,167,000 BOE and 5,422,000 BOE, respectively. As of
December 31, 1995, the Company's net interests in the proved
reserves of Oak Hill and Mustang Island were 3,342,632 BOE
and 721,313 BOE, respectively.
The following is a summary of a standardized measure of
discounted net cash flows related to the Company's proved
crude oil and natural gas reserves. For these calculations,
estimated future cash flows from estimated future production
of proved reserves were computed using crude oil and natural
gas prices as of the end of each period presented. Future
development and production costs attributable to the proved
reserves were estimated assuming that existing conditions
would continue over the economic lives of the individual
leases and costs were not escalated for the future.
Estimated future income tax expenses were calculated by
applying future statutory tax rates (based on the current
tax law adjusted for permanent differences and tax credits)
to the estimated future pretax net cash flows related to
proved crude oil and natural gas reserves, less the tax
basis of the properties involved.
The Company cautions against using this data to determine
the fair value of its crude oil and natural gas properties.
To obtain the best estimate of fair value of the crude oil
and natural gas properties, forecasts of future economic
conditions, varying discount rates, and consideration of
other than proved reserves would have to be incorporated
into the calculation. In addition, there are significant
uncertainties inherent in estimating quantities of proved
reserves and in projecting rates of production that impair
the usefulness of the data.
The standardized measure of discounted future net cash flows
relating to proved crude oil and natural gas reserves are
summarized as follows:
December 31
1995 1994
------------ ------------
Future cash inflows $132,218,400 $107,208,656
Future production and development (71,109,500) (55,049,902)
Future income tax expenses (7,123,405) (12,687,965)
------------ ------------
Future net cash flows 53,985,495 39,470,789
10% annual discount for estimated
timing of cash flows (21,858,394) (18,631,286)
------------ ------------
Standardized measure of discounted
future net cash flows $32,127,101 $ 20,839,503
============ ============
F-26
<PAGE>
National Energy Group, Inc.
Notes to Financial Statements (continued)
9. Supplementary Crude Oil and Natural Gas Reserve
Information (Unaudited) (continued)
The following are the principal sources of change in the
standardized measure of discounted future net cash flows:
Year ended December 31
1995 1994
----------- -----------
Sales and transfers of crude oil and
natural gas produced, net of
production costs (5,710,325) (1,775,145)
Net changes in prices and production
costs 14,654,096 14,785,630
Changes in estimated future
development costs (3,291,037) 1,738,982
Development costs incurred during the
period (8,595,363) (1,858,425)
Purchases of reserves in place 15,455,400 3,414,926
Sales of reserves in place (97,210) (30,585)
Extensions and discoveries, less
related costs - 4,605,206
Revisions of previous quantity
estimates (8,871,208) (1,985,978)
Accretion of discount 2,744,504 1,439,950
Net change in income taxes 5,564,560 (6,952,217)
Changes in production rates (timing)
and other (565,819) (4,221,647)
----------- -----------
Net change $11,287,598 $9,160,697
=========== ===========
During recent years, there have been significant
fluctuations in the prices paid for crude oil in the world
markets. This situation has had a destabilizing effect on
crude oil posted prices in the United States, including the
posted prices paid by purchasers of the Company's crude oil.
The net weighted average prices of crude oil and natural gas
at December 31, 1995 and 1994 used in the above table were
$18.71 and $16.59 per barrel of crude oil, respectively, and
$1.91 and $1.62 per thousand cubic feet of natural gas,
respectively.
10. Legal Proceedings and Claims
On August 31, 1995, R.E. Steakley and N.M. Steakley filed a
lawsuit in the District Court of Harris County, Texas,
against Amoco Production Company, Phillips Petroleum
Company, the Company and others. The lawsuit alleges certain
environmental claims and related tortuous and contractual
claims. The plaintiffs seek unspecified damages which
include remediation and various tortuous and contractual
damages.
F-27
<PAGE>
National Energy Group, Inc.
Notes to Financial Statements (continued)
10. Legal Proceedings (continued)
The Company believes that it is operating in compliance with
applicable environmental laws and regulations and believes,
based on the advice of counsel, that the ultimate resolution
of the lawsuit will not have a material effect on the
Company's financial condition or results of operations.
11. Proposed Merger
On December 29, 1995, the Company and Alexander Energy
Corporation ("Alexander") signed a letter of intent
providing for the merger of Alexander and the Company. The
letter of intent was subject to, among other conditions, the
execution of a definitive merger agreement by February 15,
1996. On February 15, 1996, the Company and Alexander
extended the time to sign a definitive merger agreement to
April 10, 1996. On March 25, 1996, the Company and
Alexander modified the terms of the letter of intent to
reduce the original exchange ratio from 1.8 to 1.7 shares of
the Company's Common Stock for each share of Alexander
common stock. The proposed merger between the Company and
Alexander is subject to the execution of a definitive
purchase agreement, satisfactory due diligence and other
material conditions. Therefore, the merger may or may not
be consummated.
F-28
<PAGE>
EXHIBIT INDEX
-------------
Exhibit Page
Number Description and Incorporation By Reference Number
- ------- ------------------------------------------ ------
3.1 Certificate of Incorporation, as amended, of the Company. (1)
3.2 By-Laws, as amended, of the Company. (1)
4.1 Instrument defining the Rights of Class A Common Stock. (2)
4.2 Certificate of Designations of National Energy Group, Inc. of
10% Cumulative Convertible Preferred Stock, Series B. (3)
4.3 Certificate of Designations of National Energy Group, Inc. of
10-1/2%, Cumulative Convertible Preferred Stock, Series C. (4)
10.1 Agreement of Merger, dated December 17, 1990, among Big Piney,
VP Oil, Inc., National Energy Group, Inc., Big Piney Acquisition
Corp. and VP Acquisition Corp. (1)
10.2 Asset Purchase and Sale Agreement, dated as of February 7, 1992,
among the Company, TriSearch, Inc., TriSearch Ltd., Kirkland
Resources (Holdings) PLC, D. E. Boyle, Jr., C. D. Hughes,
OilSearch Acquisition Group One, Ltd. and OilSearch Leasing
Partners, Ltd. (5)
10.3 Addendum to Asset Purchase and Sale Agreement, dated as of
March 31, 1992, among the Company, TriSearch, Inc., TriSearch
Ltd., Kirkland Resources (Holdings) PLC, D. E. Boyle, Jr., C. D.
Hughes, OilSearch Acquisition Group One, Ltd. and OilSearch
Leasing Partners, Ltd. (5)
10.4 Purchase Agreement, dated March 12, 1993, by and among the
Company, OilSearch Leasing Partners, Ltd. ("Leasing"), OilSearch
Acquisition Group One, Ltd. ("Acquisition"), and the various
limited partners of Leasing and Acquisition. (7)
10.5 Crude Oil Purchase Contract, dated November 30, 1992,
between the Company and Plains Liquids Transport Inc. (7)
10.6 Crude Oil Purchase Contract, dated February 8, 1993, between
the Company and Plains Marketing and Transportation Inc. and
the predecessor contract, the Crude Oil Purchase Contract,
dated November 12, 1991, between Sunnybrook Transmission, Inc.
and TriSearch Inc. (7)
10.7 Asset Purchase and Sale Agreement, dated as of December
30,1993, between the Company and Bligh Petroleum, Inc. (6)
29
<PAGE>
10.8 1992 Stock Option Plan. (8)
10.9 Subordinated Promissory Notes, dated December 30, 1993,
related to the Bligh Acquisition. (8)
10.10 Amendment to Crude Oil Purchase Contract, dated November
17, 1993, between the Company and Plains Liquid
Transport, Inc. (3)
10.11 Credit Agreement, dated June 1, 1994 between the Company
and Texas Gas Fund I. (3)
10.12 Stock Purchase Agreement, dated as of June 2, 1994, among
the Company, Arbco Associates L.P., Offense Group Associates
L.P., Kayne Anderson Nontraditional Investments L.P., and
Opportunity Associates L.P. (3)
10.13 Loan Agreement, dated June 30, 1995, between the Company and
Bank One, Texas, N.A. (4)
10.14 Agreement for Purchase and Sale (Oak Hill), dated April 12,
1995, between the Company and Sierra 1994 I Limited
Partnership. (4)
10.15 Agreement for Purchase and Sale (Mustang Island), dated
April 20, 1995, between the Company and Sierra Mineral
Development, L.C. (4)
10.16 Purchase and Sale Agreement, dated as of March 29, 1995,
between the Company and Enron Oil and Gas Company. (4)
10.17 Stock Purchase Agreement dated as of June 14, 1995, among
the Company, Arbco Associates L.P., Offense Group
Associates L.P., Kayne, Anderson Nontraditional
Investments L.P. and Opportunity Associates L.P. (4)
10.18 Executive Employment Agreement, dated January 1, 1996,
between the Company and Miles D. Bender. (9)
10.19 Executive Employment Agreement, dated January 1, 1996,
between the Company and R. Thomas Fetters, Jr. (9)
10.20 Agreement, dated January 1, 1996, between the Company and
Randall A. Carter. (9)
10.21 Agreement, dated January 1, 1996, between the Company and
Robert A. Imel. (9)
10.22 Executive Employment Agreement, dated January 1, 1996,
between the Company and Melissa Rutledge. (9)
10.23 Executive Employment Agreement, dated January 1, 1996,
between the Company and William T. Jones. (9)
23.1 Consent of Ernst & Young LLP. (9)
30
<PAGE>
23.2 Consent of Roebuck & Associates. (9)
23.3 Consent of Netherland, Sewell & Associates, Inc. (9)
27 The Financial Data Schedule, for the twelve months ending December
31, 1995 (applicable to EDGAR Filings only). (9)
- -------------------------------------------------------------------------------
(1) Incorporated by reference to the Company's Registration
Statement on Form S-4 (No. 33-38331), dated April 23, 1991.
(2) Incorporated by reference to the Company's Registration
Statement on Form S-3 (No. 33-81172), dated July 27, 1994.
(3) Incorporated by reference to the Company's Current Report on
Form 8- K, dated June 17, 1994.
(4) Incorporated by reference to the Company's Current Report on
Form 8- K, dated July 17, 1995.
(5) Incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1991.
(6) Incorporated by reference to the Company's Current Report on
Form 8- K, dated January 1994.
(7) Incorporated by reference to the Company's Annual Report on
Form 10- KSB for the year ended December 31, 1992.
(8) Incorporated by reference to the Company's Annual Report on
Form 10- KSB for the year ended December 31, 1993.
(9) Filed herewith.
31
<PAGE>
Exhibit 10.18
-------------
EXECUTIVE EMPLOYMENT AGREEMENT
This Executive Employment Agreement (the "Agreement") is made the 1st
day of January, 1996, by and between National Energy Group, Inc., a
Delaware corporation acting by and through its hereunto duly authorized
officer (the "Company"), and Miles D. Bender (the "Executive").
WHEREAS, the Executive is presently in the employ of the Company in
the capacity of President, Chief Executive Officer, and Treasurer, and the
Company is willing to provide certain employment assurances to the
Executive in the event of a Change of Control (as defined below) of the
Company as incentive and inducement for the Executive to continue in such
employment in his present capacity after a Change of Control; and
WHEREAS, in consideration of such employment assurances, the Executive
is willing to remain in the employ of the Company in the capacity of
President, Chief Executive Officer and Treasurer after a Change of Control
of the Company.
NOW, THEREFORE, in consideration of the premises and the mutual terms
and conditions hereof, the Company and the Executive hereby agree as
follows:
1. Employment. In consideration of the benefits hereinafter
specified, the Executive hereby agrees to continue his employment with the
Company in the capacity of President, Chief Executive Officer, and
Treasurer after a Change of Control of the Company and to discharge his
duties in such capacity during the term of this Agreement.
2. Exclusive Services. The Executive shall devote his full working
time, ability and attention to the business of the Company during the term
of this Agreement and shall not, directly or indirectly, render any
services of a business, commercial or professional nature to any other
person, corporation or organization, whether for compensation or otherwise,
without the prior knowledge and consent of the Board of Directors (the
"Board") of the Company; provided, however, that the provisions of this
Agreement shall not be construed as preventing the Executive from investing
in other non-competitive businesses or enterprises if such investments do
not require substantial services on the part of the Executive in the
affairs or operations of any such business or enterprise so as to
significantly diminish the performance by the Executive of his duties,
functions and responsibilities under this Agreement. During the term of
this Agreement, the Executive shall not, directly or indirectly, either
through any kind of ownership (other than ownership of securities of
publicly held corporations of which the Executive owns less than five
percent (5%) of any class of outstanding securities) or as a director,
officer, agent, employee or consultant engage in any business that is
competitive with the Company.
3. Authority and Duties. During the term of this Agreement, the
Executive shall have such authority and shall perform such duties,
functions and responsibilities as are
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specified by the Bylaws of the Company, the Executive Committee, or the
Board of Directors of the Company and/or as are appropriate for the office
of the President, Chief Executive Officer, and Treasurer and shall serve
with the necessary power and authority commensurate with such position and
consistent with the manner with which the Executive has carried out the
office in the past. If the Company removes the Executive from the office of
the President, Chief Executive Officer, and Treasurer of the Company after a
Change of Control or limits, restricts or reassigns his authority and
responsibility after a Change of Control so as to be less significant than,
or not comparable to, that to which he held immediately preceding such
Change of Control in his capacity as President, Chief Executive Officer, and
Treasurer without his prior mutual consent, the Executive shall be entitled
to resign for good reason and receive the Severance Benefits set forth in
this Agreement.
4. Compensation. In consideration for the services to be rendered
by the Executive to the Company and/or its subsidiaries, the Company shall
pay to the Executive at least the gross cash compensation and shall award
to the Executive at least the bonuses as set forth below:
Annual Period Annual Annual Bonus
Base Salary
- --------------------------------------------------------------------------------
For the one year 100% of the 100% of the average of
period following average of the the Executive's annual
effective date of a bonuses paid to base salary in effect
Change of Control the Executive for immediately prior to
each of the three the Change in Control
fiscal years and of the Executive's
before the Change annual base salary for
in Control each of the
immediately preceding
two years
For the second year 100% of the average of 100% of the
following effective the Executive's annual average of the
date of a Change of base salary on the bonuses paid to
Control date that is one year the Executive for
after the Change in the three
Control and of the immediately
Executive's annual preceding fiscal
base salary for each years
of the immediately
preceding two years
For the third year 100% of the average of 100% of the
following effective the Executive's annual average of the
date of a Change of base salary on the bonuses paid to
Control date that is two years the Executive for
after the Change in the three
Control and of the immediately
Executive's annual preceding fiscal
base salary for each years
of the immediately
preceding two years
- -------------------------------------------------------------------------------
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In the event that the Executive shall not have been employed for three
years prior to the effective date of this Agreement, the Executive's annual
base compensation rate or bonus rate shall be averaged over the actual
period of employment of the Executive by the Company.
Each of the annual base salary amounts set forth above shall be paid
to the Executive in equal monthly installments, or as otherwise agreed,
during each corresponding year of the term of this Agreement, provided that
for any period of less than one (1) year, the annual base salary shall be
pro-rated accordingly. The annual bonus amount indicated above or amounts
in excess of such indicated bonus shall be awarded no later than December
31 of the corresponding annual period. The amount set forth above is
compensation to the Executive or gross amounts due hereunder and the
Company shall have the right to deduct therefrom all taxes and other
amounts which may be required to be deducted or withheld by law (including,
but not limited to income tax, withholding, social security and medicare
payments) whether such law is now in effect or becomes effective after the
execution of this Agreement.
5. Benefits and Business Expenses. During the term hereof:
(a) The Executive shall be entitled to continue his
participation in programs maintained by the Company for the benefit of
its employees and officers and to participate in new or amended
programs, including, but not limited to, medical, health, life,
accident and disability insurance programs, pension plans, incentive
compensation plans, stock option plans, stock appreciation rights
plans, and limited stock appreciation rights plans. The Company shall
not terminate nor amend such plans to the detriment of the Executive.
(b) To the extent that the Company has provided the Officer with
an automobile, club memberships, association and trade memberships and
other memberships prior to the change of control, the Company shall
continue to provide the Officer with such items, of a comparable
nature, following a Change of Control. The Company shall pay the
expenses of such automobile, memberships and subscriptions.
(c) The Executive shall be reimbursed for any business expenses
reasonably incurred in carrying out his duties, functions and
responsibilities upon presentation of expense reports to the Company.
6. Term. This Agreement shall have a term of three (3) years
commencing on the effective date of a Change of Control and shall be
automatically extended on the 9th day of each and every calendar month
during the term of this Agreement for an additional calendar month so that
at the beginning of each and every month during the term of this Agreement
there shall be a remaining term of three (3) years (but in no event beyond
the time the Executive reaches age 65) unless and until the Company gives
written notice to the Executive that the term of this Agreement shall not
be further so extended, in which case
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the Executive shall be entitled to resign for good reason. The provisions of
this Section 6 shall apply to each Change of Control irrespective of any
Changes of Control which may have occurred previously.
7. Severance Benefits After Change Of Control. In addition to such
compensation and other benefits payable to or provided for the Executive as
authorized by the Board from time to time, Executive shall be entitled to
receive in lieu of the compensation described in paragraph 4 hereof, and
the Company shall pay or provide to the Executive the following severance
benefits (the "Severance Benefits") in the event that, during the term
hereof, the Company discharges the Executive without cause or the Executive
resigns for good reason after a Change of Control, to-wit:
(a) The Company shall pay to the Executive a lump sum cash
payment (multiplied by the applicable factor described below) payable
on such date of termination of employment equal to the Executive's
"base compensation" then in effect, which shall, and is defined to,
consist of the sum of (i) the Executive's annual base salary then in
effect, (ii) the average of the amounts of the last three annual cash
bonuses paid or granted to, or earned by, the Executive, and (iii) the
average of the total amounts of the Company's contributions to its
retirement plan allocable to the Executive on a fully vested basis for
the last three fiscal years of the retirement plan. The amount of the
"base compensation" payable to the Executive pursuant to this
Section 7(a) shall be (a) multiplied by the number three (3) for the
purposes of determining the lump sum cash severance payment due under
this Section 7(a).
(b) All stock options granted by the Company to the Executive,
all contributions made by the Executive and by the Company for the
account of the Executive to any pension, retirement or any other
benefit plan, and all other benefits or bonuses, including but not
limited to net profits interests which contain vesting or
exercisability provisions conditioned upon or subject to the continued
employment of the Executive, shall become fully vested and exercisable
and shall remain fully exercisable for a period of the later of three
hundred sixty (360) days after (i) the date of such termination of
employment; or (ii) the termination of this Agreement.
(c) The Company shall continue the participation of the
Executive in all life, accident, disability, medical, dental and all
other health and casualty insurance plans maintained by the Company
for its officers and employees for a period of one (1) year after the
date of such termination of employment or for such longer period as
may be required by applicable law.
(d) Notwithstanding any provision of this Agreement to the
contrary, if the Executive is a disqualified individual (as the term
"disqualified individual" is defined in Section 280G of the Code) and
if any portion of the Severance Benefits under this Section 7 of this
Agreement would be an excess parachute payment (as the term "excess
parachute payment" is defined in Section 280G of the Code) but for the
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application of this sentence, then the amount of the Severance
Benefits otherwise payable to the Executive pursuant to this Agreement
will be reduced to the minimum extent necessary (but in no event to
less than zero) so that no portion of the Severance Benefits, as so
reduced, constitutes an excess parachute payment. The determination
of whether any reduction in the amount of the Severance Benefits is
required pursuant to this Section 7(d) will be made by the Company's
independent accountants. The fact that the Executive has his
Severance Benefits reduced as a result of the limitations set forth in
this Section 7(d) will not of itself limit or otherwise affect any
rights of the Executive arising other than pursuant to this Agreement.
(e) The Company has determined that the amounts payable under
this Agreement constitute reasonable compensation for services
rendered. Accordingly, notwithstanding any other provision hereof,
unless such action would be expressly prohibited by applicable law, if
any amount is paid pursuant to this Agreement which is determined to
be subject to the excise tax imposed by Section 4999 of the Code, the
Company will pay to the Executive an additional amount in cash equal
to the amount necessary to cause the aggregate amount payable under
this Agreement, including such additional cash payment (net of all
federal, state and local income taxes and all taxes payable as the
result of the application of Sections 280G and 4999 of the Code), to
be equal to the aggregate amount payable under this Agreement,
excluding such additional payment (net of all federal, state and local
income taxes), as if Sections 280G and 4999 of the Code (and any
successor provisions thereto) had not been enacted into law.
8. Place of Performance. During the term hereof:
(a) The principal office of the Executive and the principal
place for performance by him of his duties, functions and
responsibilities under this Agreement shall be in the City or suburbs
of Dallas, Texas.
(b) It is recognized that the performance of the Executive's
duties hereunder may occasionally require the Executive, on behalf of
the Company, to be away from his principal office for business
reasons. Unless consent of the Executive is obtained, such periods of
being away from his principal office on behalf of the Company shall
not exceed thirty (30) calendar days per year.
9. Definition of Change of Control. For purposes of this Agreement,
"Change of Control" shall mean the occurrence of one or more of the
following events: (i) a person or entity or group (as that term is used in
Section 13(d)(3) of the Exchange Act) of persons or entities shall have
become the beneficial owner of a majority of the securities of the Company
ordinarily having the right to vote in the election of directors, (ii)
during any consecutive two-year period, individuals who at the beginning of
such period constituted the Board of Directors of the Company (together
with any directors who are members of such Board of Directors of the
Company on the date hereof and any new directors whose election
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<PAGE>
by such Board of Directors of the Company or whose nomination for election
by the stockholders of the Company was approved by a vote of 66 2/3% of the
directors then still in office who were either directors at the beginning
of such period or whose election or nomination for election was previously
so approved) cease for any reason to constitute a majority of the Board of
Directors of the Company then in office, (iii) any sale, lease, exchange or
other transfer (in one transaction or a series of related transactions) of
all, or substantially all, the assets of the Company to any person or
entity or group (as so defined in Section 13(d)(3) of the Exchange Act) of
persons or entities (other than any wholly owned subsidiary of the Company)
or (iv) the merger or consolidation of the Company into or with another
corporation or the merger of another corporation into the Company with the
effect that immediately after such transaction any person or entity or
group (as so defined in Section 13(d)(3) of the Exchange Act) of persons or
entities, or the stockholders of any other entity, shall have become the
beneficial owner of securities of the surviving corporation of such merger
or consolidation representing a majority of the voting power of the
outstanding securities of the surviving corporation ordinarily having the
right to vote in the election of directors. The Alexander Energy
Corporation merger, however it might be structured, shall not constitute a
Change of Control under this Agreement.
10. Discharge with Cause. For the purposes of this Agreement, the
Company shall be deemed to have discharged the Executive for cause only if
any one of the following conditions existed:
(a) If the Executive shall have willfully breached or habitually
neglected his duties and responsibilities as the President, Chief
Executive Officer, and Treasurer of the Company; or
(b) If the Executive shall have been convicted of any felony
offense during the term of this Agreement.
The discharge of the Executive by the Company when none of the foregoing
conditions exist shall be deemed to be a discharge without cause.
11. Resignation for Good Reason. For the purposes of this Agreement,
the Executive shall have resigned for good reason if any one of the
following conditions existed at the time of his resignation:
(a) If the Company shall have assigned to the Executive
authority and responsibilities less significant than, or not
comparable to, that which he had in his capacity as President, Chief
Executive Officer, and Treasurer immediately preceding a Change of
Control or shall otherwise so limit or restrict his authority and
responsibilities after a Change of Control;
(b) The Company shall have reduced the Executive's annual base
salary below his annual base salary in effect on the effective date of
a Change of Control
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<PAGE>
or the Company shall have reduced the Executive's annual cash bonus
below that of his last annual cash bonus prior to the effective date
of a Change of Control; or
(c) The Company shall have taken any actions having the purpose
or intent and the effect of inducing the Executive to resign, such as
failing to provide the Executive with all personnel benefits which are
otherwise generally provided to executive officers of the Company or
reasonably necessary or appropriate for the performance by the
Executive of his duties as President, Chief Executive Officer and
Treasurer of the Company; or
(d) The Company shall have declined to extend the term of this
Agreement pursuant to Section 6 hereof.
12. Termination Upon Death. This Agreement shall terminate
immediately upon the date of the death of the Executive.
13. Remedies. If the Executive shall file any judicial action for
enforcement of this Agreement and successfully recover compensation or
damages, the Executive shall be entitled to recover from the Company an
additional amount equal to interest at ten percent (10%) per annum on the
amount recovered from the date such amount was due and payable together
with all expenses and reasonable attorneys' fees incurred in obtaining
legal advice and counselling respecting his rights under this Agreement and
in prosecuting and disposing of such action. The provisions of this
Section shall be cumulative and without prejudice to any other right or
remedy to which the Executive may be entitled either at law, in equity or
under this Agreement and shall not constitute the exclusive remedy of the
Executive for breach of this Agreement.
14. General Provisions.
(a) Notices. Any notices to be given hereunder by either party
to the other may be given either by personal delivery in writing or by
fax, or by mail, registered or certified, postage prepaid, return
receipt requested, addressed to the parties at their respective
addresses set forth below their signatures to this Agreement, or at
such other addresses as they may specify to the other in writing.
(b) Law Governing. This Agreement shall be governed by and
construed in accordance with the laws of the State of Texas.
(c) Invalid Provisions. If any provision of this Agreement is
held to be illegal, invalid or unenforceable under present or future
laws effective during the term hereof, such provision shall be fully
severable and this Agreement shall be construed and enforced as if
such illegal, invalid or unenforceable provision had never comprised a
part hereof; and the remaining provisions hereof shall remain in full
force and effect and shall not be affected by the illegal, invalid or
unenforceable provision or by its severance herefrom. Furthermore, in
lieu of such illegal, invalid
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<PAGE>
or unenforceable provision there shall be added automatically as
part of this Agreement a provision as similar in terms to such
illegal, invalid or unenforceable provision as may be possible and
still be legal, valid or enforceable.
(d) Entire Agreement. This Agreement sets forth the entire
understanding of the parties and supersedes all prior agreements or
understandings, whether written or oral, with respect to the subject
matter hereof. No terms, conditions or warranties, other than those
contained herein, and no amendments or modifications hereto shall be
binding unless made in writing and signed by the parties hereto.
(e) Binding Effect. This Agreement shall extend to and be
binding upon and inure to the benefit of the parties hereto, their
respective heirs, representatives, successors and assigns. All of the
provisions of this Agreement shall be fully applicable to any
successor to the Company resulting from a Change of Control. The
Company agrees that in the event of a tender or exchange offer,
merger, consolidation or liquidation or any such similar event
involving the Company, its securities or assets, it shall reveal the
existence of this Agreement to the acquiring person or entity. The
Company further agrees that if such action is not inconsistent with
the best interests of the Company, it shall condition approval of any
transactions proposed by the acquiror upon obtaining the consent, in
writing, of the potential successor to the Company to be bound by this
Agreement. In the event the Executive dies prior to the termination
of this Agreement, any compensation or other payment due and owing to
the Executive on or before the date of the Executive's death shall be
paid to his estate, executors, administrators, heirs or legal
representatives. Since the duties and services of the Executive
hereunder are special, personal and unique in nature, the Executive
may not transfer, sell or otherwise assign his rights, obligations or
benefits under this Agreement.
(f) Waiver. The waiver by either party hereto of a breach of
any term or provision of this Agreement shall not operate or be
construed as a waiver of a subsequent breach of the same provisions by
either party or of the breach of any other term or provision of this
Agreement.
(g) Titles. Titles of the paragraphs herein are used solely for
convenience and shall not be used for interpretation or construing any
word, clause, paragraph or provision of this Agreement.
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IN WITNESS WHEREOF, the Company and the Executive have executed this
Executive Employment Agreement as of the day and year first written above,
effective as of the date specified above.
COMPANY:
NATIONAL ENERGY GROUP, INC.
By:_____________________________________
________________________________
________________________________
1400 One Energy Square
4925 Greenville Avenue
Dallas, Texas 75206
(214) 692-9211
(214) 692-9310 (FAX)
EXECUTIVE:
________________________________________
MILES D. BENDER
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Exhibit 10.19
-------------
EXECUTIVE EMPLOYMENT AGREEMENT
This Executive Employment Agreement (the "Agreement") is made the 1st day
of January, 1996, by and between National Energy Group, Inc., a Delaware
corporation acting by and through its hereunto duly authorized officer (the
"Company"), and R. Thomas Fetters, Jr. (the "Executive").
WHEREAS, the Executive is presently in the employ of the Company in the
capacity of Senior Vice President - Offshore Operations and Exploration, and the
Company is willing to provide certain employment assurances to the Executive in
the event of a Change of Control (as defined below) of the Company as incentive
and inducement for the Executive to continue in such employment in his present
capacity after a Change of Control; and
WHEREAS, in consideration of such employment assurances, the Executive is
willing to remain in the employ of the Company in the capacity of Senior Vice
President - Offshore Operations and Exploration after a Change of Control of the
Company.
NOW, THEREFORE, in consideration of the premises and the mutual terms and
conditions hereof, the Company and the Executive hereby agree as follows:
1. Employment. In consideration of the benefits hereinafter specified,
the Executive hereby agrees to continue his employment with the Company in the
capacity of Senior Vice President - Offshore Operations and Exploration after a
Change of Control of the Company and to discharge his duties in such capacity
during the term of this Agreement.
2. Exclusive Services. The Executive shall devote his full working time,
ability and attention to the business of the Company during the term of this
Agreement and shall not, directly or indirectly, render any services of a
business, commercial or professional nature to any other person, corporation or
organization, whether for compensation or otherwise, without the prior knowledge
and consent of the Board of Directors (the "Board") or President and Chief
Executive Officer of the Company; provided, however, that the provisions of this
Agreement shall not be construed as preventing the Executive from investing in
other non-competitive businesses or enterprises if such investments do not
require substantial services on the part of the Executive in the affairs or
operations of any such business or enterprise so as to significantly diminish
the performance by the Executive of his duties, functions and responsibilities
under this Agreement. During the term of this Agreement, the Executive shall
not, directly or indirectly, either through any kind of ownership (other than
ownership of securities of publicly held corporations of which the Executive
owns less than five percent (5%) of any class of outstanding securities) or as a
director, officer, agent, employee or consultant engage in any business that is
competitive with the Company.
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3. Authority and Duties. During the term of this Agreement, the
Executive shall have such authority and shall perform such duties, functions and
responsibilities as are specified by the Bylaws of the Company, the Executive
Committee, the Board of Directors, or the President of the Company and/or as are
appropriate for the office of the Senior Vice President - Offshore Operations
and Exploration and shall serve with the necessary power and authority
commensurate with such position and consistent with the manner with which the
Executive has carried out the office in the past. If the Company removes the
Executive from the office of the Senior Vice President - Offshore Operations and
Exploration of the Company after a Change of Control or limits, restricts or
reassigns his authority and responsibility after a Change of Control so as to be
less significant than, or not comparable to, that to which he held immediately
preceding such Change of Control in his capacity as Senior Vice President -
Offshore Operations and Exploration without his prior mutual consent, the
Executive shall be entitled to resign for good reason and receive the Severance
Benefits set forth in this Agreement.
4. Compensation. In consideration for the services to be rendered by the
Executive to the Company and/or its subsidiaries, the Company shall pay to the
Executive at least the gross cash compensation and shall award to the Executive
at least the bonuses as set forth below:
Annual Period Annual Annual Bonus
Base Salary
- -------------------------------------------------------------------------------
100% of the
For the one year 100% of the average of average of the
period following the Executive's annual bonuses paid to
effective date of a base salary in effect the Executive for
Change of Control immediately prior to each of the three
the Change in Control fiscal years
and of the Executive's before the Change
annual base salary for in Control
each of the
immediately preceding
two years
For the second year 100% of the average of 100% of the
following effective the Executive's annual average of the
date of a Change of base salary on the bonuses paid to
Control date that is one year the Executive for
after the Change in the three
Control and of the immediately
Executive's annual preceding fiscal
base salary for each years
of the immediately
preceding two years
For the third year 100% of the average of 100% of the
following effective the Executive's annual average of the
date of a Change of base salary on the bonuses paid to
Control date that is two years the Executive for
after the Change in the three
Control and of the immediately
Executive's annual preceding fiscal
base salary for each years
of the immediately
preceding two years
- --------------------------------------------------------------------------------
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In the event that the Executive shall not have been employed for three years
prior to the effective date of this Agreement, the Executive's annual base
compensation rate or bonus rate shall be averaged over the actual period of
employment of the Executive by the Company.
Each of the annual base salary amounts set forth above shall be paid to the
Executive in equal monthly installments, or as otherwise agreed, during each
corresponding year of the term of this Agreement, provided that for any period
of less than one (1) year, the annual base salary shall be pro-rated
accordingly. The annual bonus amount indicated above or amounts in excess of
such indicated bonus shall be awarded no later than December 31 of the
corresponding annual period. The amount set forth above is compensation to the
Executive or gross amounts due hereunder and the Company shall have the right to
deduct therefrom all taxes and other amounts which may be required to be
deducted or withheld by law (including, but not limited to income tax,
withholding, social security and medicare payments) whether such law is now in
effect or becomes effective after the execution of this Agreement.
5. Benefits and Business Expenses. During the term hereof:
(a) The Executive shall be entitled to continue his participation in
programs maintained by the Company for the benefit of its employees and
officers and to participate in new or amended programs, including, but not
limited to, medical, health, life, accident and disability insurance
programs, pension plans, incentive compensation plans, stock option plans,
stock appreciation rights plans, and limited stock appreciation rights
plans. The Company shall not terminate nor amend such plans to the
detriment of the Executive.
(b) To the extent that the Company has provided the Officer with an
automobile, club memberships, association and trade memberships and other
memberships prior to the change of control, the Company shall continue to
provide the Officer with such items, of a comparable nature, following a
Change of Control. The Company shall pay the expenses of such automobile,
memberships and subscriptions.
(c) The Executive shall be reimbursed for any business expenses
reasonably incurred in carrying out his duties, functions and
responsibilities upon presentation of expense reports to the Company.
6. Term. This Agreement shall have a term of three (3) years commencing
on the effective date of a Change of Control and shall be automatically extended
on the 9th day of each and every calendar month during the term of this
Agreement for an additional calendar month so that at the beginning of each and
every month during the term of this Agreement there shall be a remaining term of
three (3) years (but in no event beyond the time the Executive reaches age 65)
unless and until the Company gives written notice to the Executive that the term
of this Agreement shall not be further so extended, in which cases
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the Executive shall be entitled to resign for good reason. The provisions of
this Section 6 shall apply to each Change of Control irrespective of any
Changes of Control which may have occurred previously.
7. Severance Benefits After Change Of Control. In addition to such
compensation and other benefits payable to or provided for the Executive as
authorized by the Board from time to time, Executive shall be entitled to
receive in lieu of the compensation described in paragraph 4 hereof, and the
Company shall pay or provide to the Executive the following severance benefits
(the "Severance Benefits") in the event that, during the term hereof, the
Company discharges the Executive without cause or the Executive resigns for good
reason after a Change of Control, to-wit:
(a) The Company shall pay to the Executive a lump sum cash payment
(multiplied by the applicable factor described below) payable on such date
of termination of employment equal to the Executive's "base compensation"
then in effect, which shall, and is defined to, consist of the sum of (i)
the Executive's annual base salary then in effect, (ii) the average of the
amounts of the last three annual cash bonuses paid or granted to, or earned
by, the Executive, and (iii) the average of the total amounts of the
Company's contributions to its retirement plan allocable to the Executive
on a fully vested basis for the last three fiscal years of the retirement
plan. The amount of the "base compensation" payable to the Executive
pursuant to this Section 7(a) shall be (a) multiplied by the number three
(3) for the purposes of determining the lump sum cash severance payment due
under this Section 7(a).
(b) All stock options granted by the Company to the Executive, all
contributions made by the Executive and by the Company for the account of
the Executive to any pension, retirement or any other benefit plan, and all
other benefits or bonuses, including but not limited to net profits
interests which contain vesting or exercisability provisions conditioned
upon or subject to the continued employment of the Executive, shall become
fully vested and exercisable and shall remain fully exercisable for a
period of the later of three hundred sixty (360) days after (i) the date of
such termination of employment; or (ii) the termination of this Agreement.
(c) The Company shall continue the participation of the Executive in
all life, accident, disability, medical, dental and all other health and
casualty insurance plans maintained by the Company for its officers and
employees for a period of one (1) year after the date of such termination
of employment or for such longer period as may be required by applicable
law.
(d) Notwithstanding any provision of this Agreement to the contrary,
if the Executive is a disqualified individual (as the term "disqualified
individual" is defined in Section 280G of the Code) and if any portion of
the Severance Benefits under this Section 7 of this Agreement would be an
excess parachute payment (as the term "excess parachute payment" is defined
in Section 280G of the Code) but for the
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application of this sentence, then the amount of the Severance Benefits
otherwise payable to the Executive pursuant to this Agreement will be
reduced to the minimum extent necessary (but in no event to less than zero)
so that no portion of the Severance Benefits, as so reduced, constitutes an
excess parachute payment. The determination of whether any reduction in the
amount of the Severance Benefits is required pursuant to this Section 7(d)
will be made by the Company's independent accountants. The fact that the
Executive has his Severance Benefits reduced as a result of the limitations
set forth in this Section 7(d) will not of itself limit or otherwise affect
any rights of the Executive arising other than pursuant to this Agreement.
(e) The Company has determined that the amounts payable under this
Agreement constitute reasonable compensation for services rendered.
Accordingly, notwithstanding any other provision hereof, unless such action
would be expressly prohibited by applicable law, if any amount is paid
pursuant to this Agreement which is determined to be subject to the excise
tax imposed by Section 4999 of the Code, the Company will pay to the
Executive an additional amount in cash equal to the amount necessary to
cause the aggregate amount payable under this Agreement, including such
additional cash payment (net of all federal, state and local income taxes
and all taxes payable as the result of the application of Sections 280G and
4999 of the Code), to be equal to the aggregate amount payable under this
Agreement, excluding such additional payment (net of all federal, state and
local income taxes), as if Sections 280G and 4999 of the Code (and any
successor provisions thereto) had not been enacted into law.
8. Definition of Change of Control. For purposes of this Agreement,
"Change of Control" shall mean the occurrence of one or more of the following
events: (i) a person or entity or group (as that term is used in Section
13(d)(3) of the Exchange Act) of persons or entities shall have become the
beneficial owner of a majority of the securities of the Company ordinarily
having the right to vote in the election of directors, (ii) during any
consecutive two-year period, individuals who at the beginning of such period
constituted the Board of Directors of the Company (together with any
directors who are members of such Board of Directors of the Company on the
date hereof and any new directors whose election by such Board of Directors
of the Company or whose nomination for election by the stockholders of the
Company was approved by a vote of 66 2/3% of the directors then still in
office who were either directors at the beginning of such period or whose
election or nomination for election was previously so approved) cease for any
reason to constitute a majority of the Board of Directors of the Company then
in office, (iii) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all, or substantially
all, the assets of the Company to any person or entity or group (as so
defined in Section 13(d)(3) of the Exchange Act) of persons or entities
(other than any wholly owned subsidiary of the Company) or (iv) the merger or
consolidation of the Company into or with another corporation or the merger
of another corporation into the Company with the effect that immediately
after such transaction any person or entity or group (as so defined in
Section 13(d)(3) of the Exchange Act) of persons or entities, or the
stockholders
5
<PAGE>
of any other entity, shall have become the beneficial owner of securities of the
surviving corporation of such merger or consolidation representing a majority of
the voting power of the outstanding securities of the surviving corporation
ordinarily having the right to vote in the election of directors. The Alexander
Energy Corporation merger, however it might be structured, shall not constitute
a Change of Control under this Agreement.
9. Discharge with Cause. For the purposes of this Agreement, the Company
shall be deemed to have discharged the Executive for cause only if any one of
the following conditions existed:
(a) If the Executive shall have willfully breached or habitually
neglected his duties and responsibilities as the Senior Vice President -
Offshore Operations and Exploration of the Company; or
(b) If the Executive shall have been convicted of any felony offense
during the term of this Agreement.
The discharge of the Executive by the Company when none of the foregoing
conditions exist shall be deemed to be a discharge without cause.
10. Resignation for Good Reason. For the purposes of this Agreement, the
Executive shall have resigned for good reason if any one of the following
conditions existed at the time of his resignation:
(a) If the Company shall have assigned to the Executive authority and
responsibilities less significant than, or not comparable to, that which he
had in his capacity as Senior Vice President - Offshore Operations and
Exploration immediately preceding a Change of Control or shall otherwise so
limit or restrict his authority and responsibilities after a Change of
Control;
(b) The Company shall have reduced the Executive's annual base salary
below his annual base salary in effect on the effective date of a Change of
Control or the Company shall have reduced the Executive's annual cash bonus
below that of his last annual cash bonus prior to the effective date of a
Change of Control; or
(c) The Company shall have taken any actions having the purpose or
intent and the effect of inducing the Executive to resign, such as failing
to provide the Executive with all personnel benefits which are otherwise
generally provided to executive officers of the Company or reasonably
necessary or appropriate for the performance by the Executive of his duties
as Senior Vice President - Offshore Operations and Exploration of the
Company; or
(d) The Company shall have declined to extend the term of this
Agreement pursuant to Section 6 hereof.
6
<PAGE>
11. Termination Upon Death. This Agreement shall terminate immediately
upon the date of the death of the Executive.
12. Remedies. If the Executive shall file any judicial action for
enforcement of this Agreement and successfully recover compensation or damages,
the Executive shall be entitled to recover from the Company an additional amount
equal to interest at ten percent (10%) per annum on the amount recovered from
the date such amount was due and payable together with all expenses and
reasonable attorneys' fees incurred in obtaining legal advice and counselling
respecting his rights under this Agreement and in prosecuting and disposing of
such action. The provisions of this Section shall be cumulative and without
prejudice to any other right or remedy to which the Executive may be entitled
either at law, in equity or under this Agreement and shall not constitute the
exclusive remedy of the Executive for breach of this Agreement.
13. General Provisions.
(a) Notices. Any notices to be given hereunder by either party to
the other may be given either by personal delivery in writing or by fax, or
by mail, registered or certified, postage prepaid, return receipt
requested, addressed to the parties at their respective addresses set forth
below their signatures to this Agreement, or at such other addresses as
they may specify to the other in writing.
(b) Law Governing. This Agreement shall be governed by and construed
in accordance with the laws of the State of Texas.
(c) Invalid Provisions. If any provision of this Agreement is held
to be illegal, invalid or unenforceable under present or future laws
effective during the term hereof, such provision shall be fully severable
and this Agreement shall be construed and enforced as if such illegal,
invalid or unenforceable provision had never comprised a part hereof; and
the remaining provisions hereof shall remain in full force and effect and
shall not be affected by the illegal, invalid or unenforceable provision or
by its severance herefrom. Furthermore, in lieu of such illegal, invalid
or unenforceable provision there shall be added automatically as part of
this Agreement a provision as similar in terms to such illegal, invalid or
unenforceable provision as may be possible and still be legal, valid or
enforceable.
(d) Entire Agreement. This Agreement sets forth the entire
understanding of the parties and supersedes all prior agreements or
understandings, whether written or oral, with respect to the subject matter
hereof. No terms, conditions or warranties, other than those contained
herein, and no amendments or modifications hereto shall be binding unless
made in writing and signed by the parties hereto.
(e) Binding Effect. This Agreement shall extend to and be binding
upon and inure to the benefit of the parties hereto, their respective
heirs, representatives, successors and assigns. All of the provisions of
this Agreement shall be fully
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<PAGE>
applicable to any successor to the Company resulting from a Change of
Control. The Company agrees that in the event of a tender or exchange
offer, merger, consolidation or liquidation or any such similar event
involving the Company, its securities or assets, it shall reveal the
existence of this Agreement to the acquiring person or entity. The Company
further agrees that if such action is not inconsistent with the best
interests of the Company, it shall condition approval of any transactions
proposed by the acquiror upon obtaining the consent, in writing, of the
potential successor to the Company to be bound by this Agreement. In the
event the Executive dies prior to the termination of this Agreement, any
compensation or other payment due and owing to the Executive on or before
the date of the Executive's death shall be paid to his estate, executors,
administrators, heirs or legal representatives. Since the duties and
services of the Executive hereunder are special, personal and unique in
nature, the Executive may not transfer, sell or otherwise assign his
rights, obligations or benefits under this Agreement.
(f) Waiver. The waiver by either party hereto of a breach of any
term or provision of this Agreement shall not operate or be construed as a
waiver of a subsequent breach of the same provisions by either party or of
the breach of any other term or provision of this Agreement.
(g) Titles. Titles of the paragraphs herein are used solely for
convenience and shall not be used for interpretation or construing any
word, clause, paragraph or provision of this Agreement.
IN WITNESS WHEREOF, the Company and the Executive have executed this
Executive Employment Agreement as of the day and year first written above,
effective as of the date specified above.
COMPANY:
NATIONAL ENERGY GROUP, INC.
By:_______________________________
____________________________
____________________________
1400 One Energy Square
4925 Greenville Avenue
Dallas, Texas 75206
(214) 692-9211
(214) 692-9310 (FAX)
8
<PAGE>
EXECUTIVE:
__________________________________
R. THOMAS FETTERS, JR.
___________________________________
___________________________________
___________________________________
9
<PAGE>
Exhibit 10.20
-------------
AGREEMENT
This Agreement (the "Agreement") is made the 1st day of January, 1996,
by and between National Energy Group, Inc., a Delaware corporation acting
by and through its hereunto duly authorized officer (the "Company"), and
Randall A. Carter (the "Officer").
WHEREAS, the Officer is presently an officer of the Company in the
capacity of General Counsel and Secretary and the Company is willing to
provide certain assurances to the Officer in the event of a Change of
Control (as defined below) of the Company as incentive and inducement for
the Officer to continue in his present capacity after a Change of Control;
and
WHEREAS, in consideration of such assurances, the Officer is willing
to remain with the Company in the capacity of General Counsel and Secretary
after a Change of Control of the Company.
NOW, THEREFORE, in consideration of the premises and the mutual terms
and conditions hereof, the Company and the Officer hereby agree as follows:
1. Capacity. In consideration of the benefits hereinafter
specified, the Officer hereby agrees to continue with the Company in the
capacity of General Counsel and Secretary after a Change of Control of the
Company and to discharge his duties in such capacity during the term of
this Agreement.
2. Services. During the term of this Agreement, the Officer shall
devote appropriate working time to the attention of the business of the
Company.
3. Authority and Duties. During the term of this Agreement, the
Officer shall have such authority and shall perform such duties, functions
and responsibilities as are specified by the Bylaws of the Company, the
Board of Directors, the Executive Committee or the President of the Company
and/or as are appropriate for the office of the General Counsel and
Secretary and shall serve with the necessary power and authority
commensurate with such position and consistent with the manner with which
the Officer has carried out the office in the past. If the Company removes
the Officer from the office of the General Counsel and Secretary of the
Company after a Change of Control or limits, restricts or reassigns his
authority and responsibility after a Change of Control so as to be less
significant than, or not comparable to, that to which he held immediately
preceding such Change of Control in his capacity as General Counsel and
Secretary without his prior mutual consent, the Officer shall be entitled
to resign for good reason and receive the Severance Benefits set forth in
this Agreement.
4. Compensation. In consideration for the services to be rendered
by the Officer to the Company and/or its subsidiaries, the Company shall
pay to the Officer at least the
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gross cash compensation and shall award to the Officer at least the bonuses as
set forth below:
Annual Period Annual Gross Annual Bonus
Cash Compensation
- -------------------------------------------------------------------------------
For the one year 100% of the average of 100% of the
period following the Officer's gross average of the
effective date of a cash compensation bonuses paid to
Change of Control received from the the Officer for
Company in the year the last three
immediately prior to fiscal years
the Change in Control before the Change
and of the Officer's in Control
gross cash
compensation received
from the Company in
each of the
immediately preceding
two years
For the second year 100% of the average of 100% of the
following effective the Officer's gross average of the
date of a Change of cash compensation bonuses paid to
Control received from the the Officer for
Company for the year the three
after the Change in immediately
Control and of the preceding fiscal
Officer's gross cash years
compensation received
from the Company in
each of the
immediately preceding
two years
For the third year 100% of the average of 100% of the
following effective the Officer's gross average of the
date of a Change of cash compensation bonuses paid to
Control received from the the Officer for
Company for each of the three
the two years after immediately
the Change in Control preceding fiscal
and of the Officer's years
gross cash
compensation received
from the Company for
the year immediately
preceding the Change
in Control
- -------------------------------------------------------------------------------
In the event that the Officer shall not have been an officer for three
years prior to the effective date of this Agreement, the Officer's gross
cash compensation rate shall be averaged over the period the Officer has
been an officer of the Company.
2
<PAGE>
Each of the gross annual compensation amounts set forth above shall be
paid to the Officer in equal monthly installments, or as otherwise agreed,
during each year of the term of this Agreement, provided that for any
period of less than one (1) year, the gross annual compensation shall be
pro-rated accordingly. The annual bonus amount indicated above or amounts
in excess of such indicated bonus shall be awarded no later than December
31 of the corresponding annual period. The amount set forth above is
compensation to the Officer or gross amounts due hereunder and the Company
shall have the right to deduct therefrom all taxes and other amounts which
may be required to be deducted or withheld by law (including, but not
limited to income tax, withholding, social security and medicare payments)
whether such law is now in effect or becomes effective after the execution
of this Agreement.
The term "Officer" when used herein when relating to the receipt of
compensation or expense reimbursement includes any entity controlled by the
Officer and designated by the Officer to receive such compensation and
reimbursement (for example, the terms "gross cash compensation" and "bonus"
in this Agreement shall include all amounts paid to any and all
corporations and/or partnerships controlled by the Officer, as well as
amounts paid to the Officer). The Officer can establish prima facie
evidence of "gross cash compensation" and/or "bonus" by presenting income
tax returns for the Officer and/or any entity controlled by the Officer
and/or check stubs and/or invoices.
5. Benefits and Business Expenses. During the term hereof:
(a) The Officer shall be entitled to continue his participation
in programs maintained by the Company for the benefit of its employees
and officers and to participate in new or amended programs, including,
but not limited to, medical, health, life, accident and disability
insurance programs, pension plans, incentive compensation plans, stock
option plans, stock appreciation rights plans, and limited stock
appreciation rights plans. The Company shall not terminate nor amend
such plans to the detriment of the Officer.
(b) To the extent that the Company has provided the Officer with
an automobile, club memberships, association and trade memberships and
other memberships prior to the change of control, the Company shall
continue to provide the Officer with such items, of a comparable
nature, following a Change of Control. The Company shall pay the
expenses of such automobile, memberships and subscriptions.
(c) The Officer shall be reimbursed for any business expenses
reasonably incurred in carrying out his duties, functions and
responsibilities upon presentation of expense reports to the Company.
6. Term. This Agreement shall have a term of three (3) years
commencing on the effective date of a Change of Control and shall be
automatically extended on the 9th day of each and every calendar month
during the term of this Agreement for an additional
3
<PAGE>
calendar month so that at the beginning of each and every month during the
term of this Agreement there shall be a remaining term of three (3) years
(but in no event beyond the time the Officer reaches age 65) unless and
until the Company gives written notice to the Officer that the term of this
Agreement shall not be further so extended, in which case the Officer shall
be entitled to resign for good reason. The provisions of this Section 6
shall apply to each Change of Control irrespective of any Changes of Control
which may have occurred previously.
7. Severance Benefits After Change Of Control. In addition to such
compensation and other benefits payable to or provided for the Officer as
authorized by the Board from time to time, Officer shall be entitled to
receive in lieu of compensation described in paragraph 4 hereof, and the
Company shall pay or provide to the Officer the following severance
benefits (the "Severance Benefits") in the event that, during the term
hereof, the Company discharges the Officer without cause or the Officer
resigns for good reason after a Change of Control, to-wit:
(a) The Company shall pay to the Officer a lump sum cash payment
(multiplied by the applicable factor described below), payable on such
date of termination of compensation provided by paragraph 4, equal to
the Officer's "base compensation" then in effect, which shall, and is
defined to, consist of the sum of (i) the average of the Officer's
gross cash compensation received from the Company for each of the
three previous years, (ii) the average of the annual cash bonuses paid
or granted to, or earned by, the Officer for each of the three
previous years, and (iii) the average of the total amounts of the
Company's contributions to its retirement plan allocable to the
Officer on a fully vested basis for the preceding three fiscal years
of the retirement plan. The amount of the "base compensation" payable
to the Officer pursuant to this Section 7(a) shall be (a) multiplied
by the number three (3) for the purposes of determining the lump sum
cash severance payment due under this Section 7(a).
(b) All stock options granted by the Company to the Officer, all
contributions made by the Officer and by the Company for the account
of the Officer to any pension, retirement or any other benefit plan,
and all other benefits or bonuses, including but not limited to net
profits interests which contain vesting or exercisability provisions
conditioned upon or subject to the continued Officer status, shall
become fully vested and exercisable and shall remain fully exercisable
for a period of the later of three hundred sixty (360) days after (i)
the date of such termination of such Officer status; or (ii) the
termination of this Agreement.
(c) The Company shall continue the participation of the Officer
in all life, accident, disability, medical, dental and all other
health and casualty insurance plans maintained by the Company for its
officers and employees for a period of one (1) year after the date of
such termination of officer status or for such longer period as may be
required by applicable law.
4
<PAGE>
(d) Notwithstanding any provision of this Agreement to the
contrary, if the Officer is a disqualified individual (as the term
"disqualified individual" is defined in Section 280G of the Code) and
if any portion of the Severance Benefits under this Section 7 of this
Agreement would be an excess parachute payment (as the term "excess
parachute payment" is defined in Section 280G of the Code) but for the
application of this sentence, then the amount of the Severance
Benefits otherwise payable to the Officer pursuant to this Agreement
will be reduced to the minimum extent necessary (but in no event to
less than zero) so that no portion of the Severance Benefits, as so
reduced, constitutes an excess parachute payment. The determination
of whether any reduction in the amount of the Severance Benefits is
required pursuant to this Section 7(d) will be made by the Company's
independent accountants. The fact that the Officer has his Severance
Benefits reduced as a result of the limitations set forth in this
Section 7(d) will not of itself limit or otherwise affect any rights
of the Officer arising other than pursuant to this Agreement.
(e) The Company has determined that the amounts payable under
this Agreement constitute reasonable compensation for services
rendered. Accordingly, notwithstanding the foregoing paragraph (d) or
any other provision hereof, unless such action would be expressly
prohibited by applicable law, if any amount is paid pursuant to this
Agreement which is determined to be subject to the excise tax imposed
by Section 4999 of the Code, the Company will pay to the Officer an
additional amount in cash equal to the amount necessary to cause the
aggregate amount payable under this Agreement, including such
additional cash payment (net of all federal, state and local income
taxes and all taxes payable as the result of the application of
Sections 280G and 4999 of the Code), to be equal to the aggregate
amount payable under this Agreement, excluding such additional payment
(net of all federal, state and local income taxes), as if Sections
280G and 4999 of the Code (and any successor provisions thereto) had
not been enacted into law.
8. Definition of Change of Control. For purposes of this Agreement,
"Change of Control" shall mean the occurrence of one or more of the
following events: (i) a person or entity or group (as that term is used in
Section 13(d)(3) of the Exchange Act) of persons or entities shall have
become the beneficial owner of a majority of the securities of the Company
ordinarily having the right to vote in the election of directors, (ii)
during any consecutive two-year period, individuals who at the beginning of
such period constituted the Board of Directors of the Company (together
with any directors who are members of such Board of Directors of the
Company on the date hereof and any new directors whose election by such
Board of Directors of the Company or whose nomination for election by the
stockholders of the Company was approved by a vote of 66 2/3% of the directors
then still in office who were either directors at the beginning of such
period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the Board of
Directors of the Company then in office, (iii) any sale, lease, exchange or
other transfer (in one transaction or a series of related transactions) of
all, or substantially all, the assets of the Company to any person or
entity or group (as so defined in Section 13(d)(3) of the Exchange Act) of
persons or entities (other than any wholly
5
<PAGE>
owned subsidiary of the Company) or (iv) the merger or consolidation of the
Company into or with another corporation or the merger of another
corporation into the Company with the effect that immediately after such
transaction any person or entity or group (as so defined in Section 13(d)(3)
of the Exchange Act) of persons or entities, or the stockholders of any
other entity, shall have become the beneficial owner of securities of the
surviving corporation of such merger or consolidation representing a
majority of the voting power of the outstanding securities of the surviving
corporation ordinarily having the right to vote in the election of
directors. The Alexander Energy Corporation merger, however it might be
structured, shall not constitute a Change of Control under this Agreement.
9. Discharge with Cause. For the purposes of this Agreement, the
Company shall be deemed to have discharged the Officer for cause only if
any one of the following conditions existed:
(a) If the Officer shall have willfully breached or habitually
neglected his duties and responsibilities as the General Counsel and
Secretary of the Company; or
(b) If the Officer shall have been convicted of any felony
offense during the term of this Agreement.
The discharge of the Officer by the Company when none of the foregoing
conditions exist shall be deemed to be a discharge without cause.
10. Resignation for Good Reason. For the purposes of this Agreement,
the Officer shall have resigned for good reason if any one of the following
conditions existed at the time of his resignation:
(a) If the Company shall have assigned to the Officer authority
and responsibilities less significant than, or not comparable to, that
which he had in his capacity as General Counsel and Secretary
immediately preceding a Change of Control or shall otherwise so limit
or restrict his authority and responsibilities after a Change of
Control;
(b) The Company shall have reduced the Officer's gross cash
compensation to an amount below the average of the gross cash
compensation paid to the Officer for the three immediately preceding
years or the Company shall have reduced the Officer's annual cash
bonus below that of his last annual cash bonus prior to the effective
date of a Change of Control; or
(c) The Company shall have taken any actions having the purpose
or intent and the effect of inducing the Officer to resign such as
failing to provide the Officer with all personnel benefits which are
otherwise generally provided to executive officers of the Company or
reasonably necessary or appropriate for the performance by the Officer
of his duties as General Counsel and Secretary of the Company; or
6
<PAGE>
(d) The Company shall have declined to extend the term of this
Agreement pursuant to Section 6 hereof.
11. Termination Upon Death. This Agreement shall terminate
immediately upon the date of the death of the Officer.
12. Remedies. If the Officer shall file any judicial action for
enforcement of this Agreement and successfully recover compensation or
damages, the Officer shall be entitled to recover from the Company an
additional amount equal to interest at ten percent (10%) per annum on the
amount recovered from the date such amount was due and payable together
with all expenses and reasonable attorneys' fees incurred in obtaining
legal advice and counselling respecting his rights under this Agreement and
in prosecuting and disposing of such action. The provisions of this
Section shall be cumulative and without prejudice to any other right or
remedy to which the Officer may be entitled either at law, in equity or
under this Agreement and shall not constitute the exclusive remedy of the
Officer for breach of this Agreement.
13. General Provisions.
(a) Notices. Any notices to be given hereunder by either party
to the other may be given either by personal delivery in writing or by
fax, or by mail, registered or certified, postage prepaid, return
receipt requested, addressed to the parties at their respective
addresses set forth below their signatures to this Agreement, or at
such other addresses as they may specify to the other in writing.
(b) Law Governing. This Agreement shall be governed by and
construed in accordance with the laws of the State of Texas.
(c) Invalid Provisions. If any provision of this Agreement is
held to be illegal, invalid or unenforceable under present or future
laws effective during the term hereof, such provision shall be fully
severable and this Agreement shall be construed and enforced as if
such illegal, invalid or unenforceable provision had never comprised a
part hereof; and the remaining provisions hereof shall remain in full
force and effect and shall not be affected by the illegal, invalid or
unenforceable provision or by its severance herefrom. Furthermore, in
lieu of such illegal, invalid or unenforceable provision there shall
be added automatically as part of this Agreement a provision as
similar in terms to such illegal, invalid or unenforceable provision
as may be possible and still be legal, valid or enforceable.
(d) Entire Agreement. This Agreement sets forth the entire
understanding of the parties and supersedes all prior agreements or
understandings, whether written or oral, with respect to the subject
matter hereof. No terms, conditions or warranties, other than those
contained herein, and no amendments or modifications hereto shall be
binding unless made in writing and signed by the parties hereto.
7
<PAGE>
(e) Binding Effect. This Agreement shall extend to and be
binding upon and inure to the benefit of the parties hereto, their
respective heirs, representatives, successors and assigns. All of the
provisions of this Agreement shall be fully applicable to any
successor to the Company resulting from a Change of Control. The
Company agrees that in the event of a tender or exchange offer,
merger, consolidation or liquidation or any such similar event
involving the Company, its securities or assets, it shall reveal the
existence of this Agreement to the acquiring person or entity. The
Company further agrees that if such action is not inconsistent with
the best interests of the Company, it shall condition approval of any
transactions proposed by the acquiror upon obtaining the consent, in
writing, of the potential successor to the Company to be bound by this
Agreement. In the event the Officer dies prior to the termination of
this Agreement, any compensation or other payment due and owing to the
Officer on or before the date of the Officer's death shall be paid to
his estate, executors, administrators, heirs or legal representatives.
Since the duties and services of the Officer hereunder are special,
personal and unique in nature, the Officer may not transfer, sell or
otherwise assign his rights, obligations or benefits under this
Agreement.
(f) Waiver. The waiver by either party hereto of a breach of
any term or provision of this Agreement shall not operate or be
construed as a waiver of a subsequent breach of the same provisions by
either party or of the breach of any other term or provision of this
Agreement.
(g) Titles. Titles of the paragraphs herein are used solely for
convenience and shall not be used for interpretation or construing any
word, clause, paragraph or provision of this Agreement.
8
<PAGE>
IN WITNESS WHEREOF, the Company and the Officer have executed this
Agreement as of the day and year first written above, effective as of the
date specified above.
COMPANY:
NATIONAL ENERGY GROUP, INC.
By:____________________________________
_________________________________
_________________________________
1400 One Energy Square
4925 Greenville Avenue
Dallas, Texas 75206
214-692-9211 (Office)
214-692-9310 (Fax)
OFFICER:
________________________________________
RANDALL A. CARTER
9
<PAGE>
Exhibit 10.21
-------------
AGREEMENT
This Agreement (the "Agreement") is made the 1st day of January, 1996,
by and between National Energy Group, Inc., a Delaware corporation acting
by and through its hereunto duly authorized officer (the "Company"), and
Robert A. Imel (the "Officer").
WHEREAS, the Officer is presently an officer of the Company in the
capacity of Chief Financial Officer and the Company is willing to provide
certain assurances to the Officer in the event of a Change of Control (as
defined below) of the Company as incentive and inducement for the Officer
to continue in his present capacity after a Change of Control; and
WHEREAS, in consideration of such assurances, the Officer is willing
to remain with the Company in the capacity of Chief Financial Officer after
a Change of Control of the Company.
NOW, THEREFORE, in consideration of the premises and the mutual terms
and conditions hereof, the Company and the Officer hereby agree as follows:
1. Capacity. In consideration of the benefits hereinafter
specified, the Officer hereby agrees to continue with the Company in the
capacity of Chief Financial Officer after a Change of Control of the
Company and to discharge his duties in such capacity during the term of
this Agreement.
2. Services. During the term of this Agreement, the Officer shall
devote appropriate working time to the attention of the business of the
Company.
3. Authority and Duties. During the term of this Agreement, the
Officer shall have such authority and shall perform such duties, functions
and responsibilities as are specified by the Bylaws of the Company, the
Board of Directors, the Executive Committee or the President of the Company
and/or as are appropriate for the office of the Chief Financial Officer and
shall serve with the necessary power and authority commensurate with such
position and consistent with the manner with which the Officer has carried
out the office in the past. If the Company removes the Officer from the
office of the Chief Financial Officer of the Company after a Change of
Control or limits, restricts or reassigns his authority and responsibility
after a Change of Control so as to be less significant than, or not
comparable to, that to which he held immediately preceding such Change of
Control in his capacity as Chief Financial Officer without his prior mutual
consent, the Officer shall be entitled to resign for good reason and
receive the Severance Benefits set forth in this Agreement.
4. Compensation. In consideration for the services to be rendered
by the Officer to the Company and/or its subsidiaries, the Company shall
pay to the Officer at least the
1
<PAGE>
gross cash compensation and shall award to the Officer at least the bonuses as
set forth below:
Annual Period Annual Gross Annual Bonus
Cash Compensation
- -------------------------------------------------------------------------------
For the one year 100% of the average of 100% of the
period following the Officer's gross average of the
effective date of a cash compensation bonuses paid to
Change of Control received from the the Officer for
Company in the year the last three
immediately prior to fiscal years
the Change in Control before the Change
and of the Officer's in Control
gross cash
compensation received
from the Company in
each of the
immediately preceding
two years
For the second year 100% of the average of 100% of the
following effective the Officer's gross average of the
date of a Change of cash compensation bonuses paid to
Control received from the the Officer for
Company for the year the three
after the Change in immediately
Control and of the preceding fiscal
Officer's gross cash years
compensation received
from the Company in
each of the
immediately preceding
two years
For the third year 100% of the average of 100% of the
following effective the Officer's gross average of the
date of a Change of cash compensation bonuses paid to
Control received from the the Officer for
Company for each of the three
the two years after immediately
the Change in Control preceding fiscal
and of the Officer's years
gross cash
compensation received
from the Company for
the year immediately
preceding the Change
in Control
- -------------------------------------------------------------------------------
In the event that the Officer shall not have been an officer for three
years prior to the effective date of this Agreement, the Officer's gross
cash compensation rate shall be averaged over the period the Officer has
been an officer of the Company.
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<PAGE>
Each of the gross annual compensation amounts set forth above shall be
paid to the Officer in equal monthly installments, or as otherwise agreed,
during each year of the term of this Agreement, provided that for any
period of less than one (1) year, the gross annual compensation shall be
pro-rated accordingly. The annual bonus amount indicated above or amounts
in excess of such indicated bonus shall be awarded no later than December
31 of the corresponding annual period. The amount set forth above is
compensation to the Officer or gross amounts due hereunder and the Company
shall have the right to deduct therefrom all taxes and other amounts which
may be required to be deducted or withheld by law (including, but not
limited to income tax, withholding, social security and medicare payments)
whether such law is now in effect or becomes effective after the execution
of this Agreement.
The term "Officer" when used herein when relating to the receipt of
compensation or expense reimbursement includes any entity controlled by the
Officer and designated by the Officer to receive such compensation and
reimbursement (for example, the terms "gross cash compensation" and "bonus"
in this Agreement shall include all amounts paid to any and all
corporations and/or partnerships controlled by the Officer, as well as
amounts paid to the Officer). The Officer can establish prima facie
evidence of "gross cash compensation" and/or "bonus" by presenting income
tax returns for the Officer and/or any entity controlled by the Officer
and/or check stubs and/or invoices.
5. Benefits and Business Expenses. During the term hereof:
(a) The Officer shall be entitled to continue his participation
in programs maintained by the Company for the benefit of its employees
and officers and to participate in new or amended programs, including,
but not limited to, medical, health, life, accident and disability
insurance programs, pension plans, incentive compensation plans, stock
option plans, stock appreciation rights plans, and limited stock
appreciation rights plans. The Company shall not terminate nor amend
such plans to the detriment of the Officer.
(b) To the extent that the Company has provided the Officer with
an automobile, club memberships, association and trade memberships and
other memberships prior to the change of control, the Company shall
continue to provide the Officer with such items, of a comparable
nature, following a Change of Control. The Company shall pay the
expenses of such automobile, memberships and subscriptions.
(c) The Officer shall be reimbursed for any business expenses
reasonably incurred in carrying out his duties, functions and
responsibilities upon presentation of expense reports to the Company.
6. Term. This Agreement shall have a term of three (3) years
commencing on the effective date of a Change of Control and shall be
automatically extended on the 9th day of each and every calendar month
during the term of this Agreement for an additional
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<PAGE>
calendar month so that at the beginning of each and every month during the
term of this Agreement there shall be a remaining term of three (3) years
(but in no event beyond the time the Officer reaches age 65) unless and
until the Company gives written notice to the Officer that the term of this
Agreement shall not be further so extended, in which case the Officer shall
be entitled to resign for good reason. The provisions of this Section 6
shall apply to each Change of Control irrespective of any Changes of
Control which may have occurred previously.
7. Severance Benefits After Change Of Control. In addition to such
compensation and other benefits payable to or provided for the Officer as
authorized by the Board from time to time, Officer shall be entitled to
receive in lieu of compensation described in paragraph 4 hereof, and the
Company shall pay or provide to the Officer the following severance
benefits (the "Severance Benefits") in the event that, during the term
hereof, the Company discharges the Officer without cause or the Officer
resigns for good reason after a Change of Control, to-wit:
(a) The Company shall pay to the Officer a lump sum cash payment
(multiplied by the applicable factor described below), payable on such
date of termination of compensation provided by paragraph 4, equal to
the Officer's "base compensation" then in effect, which shall, and is
defined to, consist of the sum of (i) the average of the Officer's
gross cash compensation received from the Company for each of the
three previous years, (ii) the average of the annual cash bonuses paid
or granted to, or earned by, the Officer for each of the three
previous years, and (iii) the average of the total amounts of the
Company's contributions to its retirement plan allocable to the
Officer on a fully vested basis for the preceding three fiscal years
of the retirement plan. The amount of the "base compensation" payable
to the Officer pursuant to this Section 7(a) shall be (a) multiplied
by the number three (3) for the purposes of determining the lump sum
cash severance payment due under this Section 7(a).
(b) All stock options granted by the Company to the Officer, all
contributions made by the Officer and by the Company for the account
of the Officer to any pension, retirement or any other benefit plan,
and all other benefits or bonuses, including but not limited to net
profits interests which contain vesting or exercisability provisions
conditioned upon or subject to the continued Officer status, shall
become fully vested and exercisable and shall remain fully exercisable
for a period of the later of three hundred sixty (360) days after (i)
the date of such termination of such Officer status; or (ii) the
termination of this Agreement.
(c) The Company shall continue the participation of the Officer
in all life, accident, disability, medical, dental and all other
health and casualty insurance plans maintained by the Company for its
officers and employees for a period of one (1) year after the date of
such termination of officer status or for such longer period as may be
required by applicable law.
4
<PAGE>
(d) Notwithstanding any provision of this Agreement to the
contrary, if the Officer is a disqualified individual (as the term
"disqualified individual" is defined in Section 280G of the Code) and
if any portion of the Severance Benefits under this Section 7 of this
Agreement would be an excess parachute payment (as the term "excess
parachute payment" is defined in Section 280G of the Code) but for the
application of this sentence, then the amount of the Severance
Benefits otherwise payable to the Officer pursuant to this Agreement
will be reduced to the minimum extent necessary (but in no event to
less than zero) so that no portion of the Severance Benefits, as so
reduced, constitutes an excess parachute payment. The determination
of whether any reduction in the amount of the Severance Benefits is
required pursuant to this Section 7(d) will be made by the Company's
independent accountants. The fact that the Officer has his Severance
Benefits reduced as a result of the limitations set forth in this
Section 7(d) will not of itself limit or otherwise affect any rights
of the Officer arising other than pursuant to this Agreement.
(e) The Company has determined that the amounts payable under
this Agreement constitute reasonable compensation for services
rendered. Accordingly, notwithstanding the foregoing paragraph (d) or
any other provision hereof, unless such action would be expressly
prohibited by applicable law, if any amount is paid pursuant to this
Agreement which is determined to be subject to the excise tax imposed
by Section 4999 of the Code, the Company will pay to the Officer an
additional amount in cash equal to the amount necessary to cause the
aggregate amount payable under this Agreement, including such
additional cash payment (net of all federal, state and local income
taxes and all taxes payable as the result of the application of
Sections 280G and 4999 of the Code), to be equal to the aggregate
amount payable under this Agreement, excluding such additional payment
(net of all federal, state and local income taxes), as if Sections
280G and 4999 of the Code (and any successor provisions thereto) had
not been enacted into law.
8. Definition of Change of Control. For purposes of this Agreement,
"Change of Control" shall mean the occurrence of one or more of the
following events: (i) a person or entity or group (as that term is used in
Section 13(d)(3) of the Exchange Act) of persons or entities shall have
become the beneficial owner of a majority of the securities of the Company
ordinarily having the right to vote in the election of directors, (ii)
during any consecutive two-year period, individuals who at the beginning of
such period constituted the Board of Directors of the Company (together
with any directors who are members of such Board of Directors of the
Company on the date hereof and any new directors whose election by such
Board of Directors of the Company or whose nomination for election by the
stockholders of the Company was approved by a vote of 66 2/3% of the directors
then still in office who were either directors at the beginning of such
period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the Board of
Directors of the Company then in office, (iii) any sale, lease, exchange or
other transfer (in one transaction or a series of related transactions) of
all, or substantially all, the assets of the Company to any person or
entity or group (as so defined in Section 13(d)(3) of the Exchange Act) of
persons or entities (other than any wholly
5
<PAGE>
owned subsidiary of the Company) or (iv) the merger or consolidation of the
Company into or with another corporation or the merger of another
corporation into the Company with the effect that immediately after such
transaction any person or entity or group (as so defined in Section 13(d)(3)
of the Exchange Act) of persons or entities, or the stockholders of any
other entity, shall have become the beneficial owner of securities of the
surviving corporation of such merger or consolidation representing a
majority of the voting power of the outstanding securities of the surviving
corporation ordinarily having the right to vote in the election of
directors. The Alexander Energy Corporation merger, however it might be
structured, shall not constitute a Change of Control under this Agreement.
9. Discharge with Cause. For the purposes of this Agreement, the
Company shall be deemed to have discharged the Officer for cause only if
any one of the following conditions existed:
(a) If the Officer shall have willfully breached or habitually
neglected his duties and responsibilities as the Chief Financial
Officer of the Company; or
(b) If the Officer shall have been convicted of any felony
offense during the term of this Agreement.
The discharge of the Officer by the Company when none of the foregoing
conditions exist shall be deemed to be a discharge without cause.
10. Resignation for Good Reason. For the purposes of this Agreement,
the Officer shall have resigned for good reason if any one of the following
conditions existed at the time of his resignation:
(a) If the Company shall have assigned to the Officer authority
and responsibilities less significant than, or not comparable to, that
which he had in his capacity as Chief Financial Officer immediately
preceding a Change of Control or shall otherwise so limit or restrict
his authority and responsibilities after a Change of Control;
(b) The Company shall have reduced the Officer's gross cash
compensation to an amount below the average of the gross cash
compensation paid to the Officer for the three immediately preceding
years or the Company shall have reduced the Officer's annual cash
bonus below that of his last annual cash bonus prior to the effective
date of a Change of Control; or
(c) The Company shall have taken any actions having the purpose
or intent and the effect of inducing the Officer to resign such as
failing to provide the Officer with all personnel benefits which are
otherwise generally provided to executive officers of the Company or
reasonably necessary or appropriate for the performance by the Officer
of his duties as Chief Financial Officer of the Company; or
6
<PAGE>
(d) The Company shall have declined to extend the term of this
Agreement pursuant to Section 6 hereof.
11. Termination Upon Death. This Agreement shall terminate
immediately upon the date of the death of the Officer.
12. Remedies. If the Officer shall file any judicial action for
enforcement of this Agreement and successfully recover compensation or
damages, the Officer shall be entitled to recover from the Company an
additional amount equal to interest at ten percent (10%) per annum on the
amount recovered from the date such amount was due and payable together
with all expenses and reasonable attorneys' fees incurred in obtaining
legal advice and counselling respecting his rights under this Agreement and
in prosecuting and disposing of such action. The provisions of this
Section shall be cumulative and without prejudice to any other right or
remedy to which the Officer may be entitled either at law, in equity or
under this Agreement and shall not constitute the exclusive remedy of the
Officer for breach of this Agreement.
13. General Provisions.
(a) Notices. Any notices to be given hereunder by either party
to the other may be given either by personal delivery in writing or by
fax, or by mail, registered or certified, postage prepaid, return
receipt requested, addressed to the parties at their respective
addresses set forth below their signatures to this Agreement, or at
such other addresses as they may specify to the other in writing.
(b) Law Governing. This Agreement shall be governed by and
construed in accordance with the laws of the State of Texas.
(c) Invalid Provisions. If any provision of this Agreement is
held to be illegal, invalid or unenforceable under present or future
laws effective during the term hereof, such provision shall be fully
severable and this Agreement shall be construed and enforced as if
such illegal, invalid or unenforceable provision had never comprised a
part hereof; and the remaining provisions hereof shall remain in full
force and effect and shall not be affected by the illegal, invalid or
unenforceable provision or by its severance herefrom. Furthermore, in
lieu of such illegal, invalid or unenforceable provision there shall
be added automatically as part of this Agreement a provision as
similar in terms to such illegal, invalid or unenforceable provision
as may be possible and still be legal, valid or enforceable.
(d) Entire Agreement. This Agreement sets forth the entire
understanding of the parties and supersedes all prior agreements or
understandings, whether written or oral, with respect to the subject
matter hereof. No terms, conditions or warranties, other than those
contained herein, and no amendments or modifications hereto shall be
binding unless made in writing and signed by the parties hereto.
7
<PAGE>
(e) Binding Effect. This Agreement shall extend to and be
binding upon and inure to the benefit of the parties hereto, their
respective heirs, representatives, successors and assigns. All of the
provisions of this Agreement shall be fully applicable to any
successor to the Company resulting from a Change of Control. The
Company agrees that in the event of a tender or exchange offer,
merger, consolidation or liquidation or any such similar event
involving the Company, its securities or assets, it shall reveal the
existence of this Agreement to the acquiring person or entity. The
Company further agrees that if such action is not inconsistent with
the best interests of the Company, it shall condition approval of any
transactions proposed by the acquiror upon obtaining the consent, in
writing, of the potential successor to the Company to be bound by this
Agreement. In the event the Officer dies prior to the termination of
this Agreement, any compensation or other payment due and owing to the
Officer on or before the date of the Officer's death shall be paid to
his estate, executors, administrators, heirs or legal representatives.
Since the duties and services of the Officer hereunder are special,
personal and unique in nature, the Officer may not transfer, sell or
otherwise assign his rights, obligations or benefits under this
Agreement.
(f) Waiver. The waiver by either party hereto of a breach of
any term or provision of this Agreement shall not operate or be
construed as a waiver of a subsequent breach of the same provisions by
either party or of the breach of any other term or provision of this
Agreement.
(g) Titles. Titles of the paragraphs herein are used solely for
convenience and shall not be used for interpretation or construing any
word, clause, paragraph or provision of this Agreement.
8
<PAGE>
IN WITNESS WHEREOF, the Company and the Officer have executed this
Agreement as of the day and year first written above, effective as of the
date specified above.
COMPANY:
NATIONAL ENERGY GROUP, INC.
By:____________________________________
_________________________________
_________________________________
1400 One Energy Square
4925 Greenville Avenue
Dallas, Texas 75206
214-692-9211 (Office)
214-692-9310 (Fax)
OFFICER:
_______________________________________
ROBERT A. IMEL
_______________________________________
_______________________________________
_______________________________________
_______________________________________
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<PAGE>
Exhibit 10.22
-------------
EXECUTIVE EMPLOYMENT AGREEMENT
This Executive Employment Agreement (the "Agreement") is made the 1st
day of January, 1996, by and between National Energy Group, Inc., a
Delaware corporation acting by and through its hereunto duly authorized
officer (the "Company"), and Melissa K. Rutledge (the "Executive").
WHEREAS, the Executive is presently in the employ of the Company in
the capacity of Controller and Chief Accounting Officer, and the Company is
willing to provide certain employment assurances to the Executive in the
event of a Change of Control (as defined below) of the Company as incentive
and inducement for the Executive to continue in such employment in her
present capacity after a Change of Control; and
WHEREAS, in consideration of such employment assurances, the Executive
is willing to remain in the employ of the Company in the capacity of
Controller and Chief Accounting Officer after a Change of Control of the
Company.
NOW, THEREFORE, in consideration of the premises and the mutual terms
and conditions hereof, the Company and the Executive hereby agree as
follows:
1. Employment. In consideration of the benefits hereinafter
specified, the Executive hereby agrees to continue her employment with the
Company in the capacity of Controller and Chief Accounting Officer after a
Change of Control of the Company and to discharge her duties in such
capacity during the term of this Agreement.
2. Exclusive Services. The Executive shall devote her full working
time, ability and attention to the business of the Company during the term
of this Agreement and shall not, directly or indirectly, render any
services of a business, commercial or professional nature to any other
person, corporation or organization, whether for compensation or otherwise,
without the prior knowledge and consent of the Board of Directors (the
"Board") or President and Chief Executive Officer of the Company; provided,
however, that the provisions of this Agreement shall not be construed as
preventing the Executive from investing in other non-competitive businesses
or enterprises if such investments do not require substantial services on
the part of the Executive in the affairs or operations of any such business
or enterprise so as to significantly diminish the performance by the
Executive of her duties, functions and responsibilities under this
Agreement. During the term of this Agreement, the Executive shall not,
directly or indirectly, either through any kind of ownership (other than
ownership of securities of publicly held corporations of which the
Executive owns less than five percent (5%) of any class of outstanding
securities) or as a director, officer, agent, employee or consultant engage
in any business that is competitive with the Company.
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<PAGE>
3. Authority and Duties. During the term of this Agreement, the
Executive shall have such authority and shall perform such duties,
functions and responsibilities as are specified by the Bylaws of the
Company, the Executive Committee, the Board of Directors, or the President
of the Company and/or as are appropriate for the office of the Controller
and Chief Accounting Officer and shall serve with the necessary power and
authority commensurate with such position and consistent with the manner
with which the Executive has carried out the office in the past. If the
Company removes the Executive from the office of the Controller and Chief
Accounting Officer of the Company after a Change of Control or limits,
restricts or reassigns her authority and responsibility after a Change of
Control so as to be less significant than, or not comparable to, that to
which she held immediately preceding such Change of Control in her capacity
as Controller and Chief Accounting Officer without her prior mutual
consent, the Executive shall be entitled to resign for good reason and
receive the Severance Benefits set forth in this Agreement.
4. Compensation. In consideration for the services to be rendered
by the Executive to the Company and/or its subsidiaries, the Company shall
pay to the Executive at least the gross cash compensation and shall award
to the Executive at least the bonuses as set forth below:
Annual Period Annual Annual Bonus
Base Salary
- -------------------------------------------------------------------------------
For the one year 100% of the average of 100% of the
period following the Executive's annual average of the
effective date of a base salary in effect bonuses paid to
Change of Control immediately prior to the Executive for
the Change in Control each of the three
and of the Executive's fiscal years
annual base salary for before the Change
each of the in Control
immediately preceding
two years
For the second year 100% of the average of 100% of the
following effective the Executive's annual average of the
date of a Change of base salary on the bonuses paid to
Control date that is one year the Executive for
after the Change in the three
Control and of the immediately
Executive's annual preceding fiscal
base salary for each years
of the immediately
preceding two years
For the third year 100% of the average of 100% of the
following effective the Executive's annual average of the
date of a Change of base salary on the bonuses paid to
Control date that is two years the Executive for
after the Change in the three
Control and of the immediately
Executive's annual preceding fiscal
base salary for each years
of the immediately
preceding two years
- --------------------------------------------------------------------------------
2
<PAGE>
In the event that the Executive shall not have been employed for three
years prior to the effective date of this Agreement, the Executive's annual
base compensation rate or bonus rate shall be averaged over the actual
period of employment of the Executive by the Company.
Each of the annual base salary amounts set forth above shall be paid
to the Executive in equal monthly installments, or as otherwise agreed,
during each corresponding year of the term of this Agreement, provided that
for any period of less than one (1) year, the annual base salary shall be
pro-rated accordingly. The annual bonus amount indicated above or amounts
in excess of such indicated bonus shall be awarded no later than December
31 of the corresponding annual period. The amount set forth above is
compensation to the Executive or gross amounts due hereunder and the
Company shall have the right to deduct therefrom all taxes and other
amounts which may be required to be deducted or withheld by law (including,
but not limited to income tax, withholding, social security and medicare
payments) whether such law is now in effect or becomes effective after the
execution of this Agreement.
5. Benefits and Business Expenses. During the term hereof:
(a) The Executive shall be entitled to continue her
participation in programs maintained by the Company for the benefit of
its employees and officers and to participate in new or amended
programs, including, but not limited to, medical, health, life,
accident and disability insurance programs, pension plans, incentive
compensation plans, stock option plans, stock appreciation rights
plans, and limited stock appreciation rights plans. The Company shall
not terminate nor amend such plans to the detriment of the Executive.
(b) To the extent that the Company has provided the Officer with
an automobile, club memberships, association and trade memberships and
other memberships prior to the change of control, the Company shall
continue to provide the Officer with such items, of a comparable
nature, following a Change of Control. The Company shall pay the
expenses of such automobile, memberships and subscriptions.
(c) The Executive shall be reimbursed for any business expenses
reasonably incurred in carrying out her duties, functions and
responsibilities upon presentation of expense reports to the Company.
6. Term. This Agreement shall have a term of three (3) years
commencing on the effective date of a Change of Control and shall be
automatically extended on the 9th day of each and every calendar month
during the term of this Agreement for an additional calendar month so that
at the beginning of each and every month during the term of this Agreement
there shall be a remaining term of three (3) years (but in no event beyond
the time the Executive reaches age 65) unless and until the Company gives
written notice to the Executive that the term of this Agreement shall not
be further so extended, in which case
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<PAGE>
the Executive shall be entitled to resign for good reason. The provisions of
this Section 6 shall apply to each Change of Control irrespective of any
Changes of Control which may have occurred previously.
7. Severance Benefits After Change Of Control. In addition to such
compensation and other benefits payable to or provided for the Executive as
authorized by the Board from time to time, Executive shall be entitled to
receive in lieu of the compensation described in paragraph 4 hereof, and
the Company shall pay or provide to the Executive the following severance
benefits (the "Severance Benefits") in the event that, during the term
hereof, the Company discharges the Executive without cause or the Executive
resigns for good reason after a Change of Control, to-wit:
(a) The Company shall pay to the Executive a lump sum cash
payment (multiplied by the applicable factor described below) payable
on such date of termination of employment equal to the Executive's
"base compensation" then in effect, which shall, and is defined to,
consist of the sum of (i) the Executive's annual base salary then in
effect, (ii) the average of the amounts of the last three annual cash
bonuses paid or granted to, or earned by, the Executive, and (iii) the
average of the total amounts of the Company's contributions to its
retirement plan allocable to the Executive on a fully vested basis for
the last three fiscal years of the retirement plan. The amount of the
"base compensation" payable to the Executive pursuant to this
Section 7(a) shall be (a) multiplied by the number three (3) for the
purposes of determining the lump sum cash severance payment due under
this Section 7(a).
(b) All stock options granted by the Company to the Executive,
all contributions made by the Executive and by the Company for the
account of the Executive to any pension, retirement or any other
benefit plan, and all other benefits or bonuses, including but not
limited to net profits interests which contain vesting or
exercisability provisions conditioned upon or subject to the continued
employment of the Executive, shall become fully vested and exercisable
and shall remain fully exercisable for a period of the later of three
hundred sixty (360) days after (i) the date of such termination of
employment; or (ii) the termination of this Agreement.
(c) The Company shall continue the participation of the
Executive in all life, accident, disability, medical, dental and all
other health and casualty insurance plans maintained by the Company
for its officers and employees for a period of one (1) year after the
date of such termination of employment or for such longer period as
may be required by applicable law.
(d) Notwithstanding any provision of this Agreement to the
contrary, if the Executive is a disqualified individual (as the term
"disqualified individual" is defined in Section 280G of the Code) and
if any portion of the Severance Benefits under this Section 7 of this
Agreement would be an excess parachute payment (as the term "excess
parachute payment" is defined in Section 280G of the Code) but for the
4
<PAGE>
application of this sentence, then the amount of the Severance
Benefits otherwise payable to the Executive pursuant to this Agreement
will be reduced to the minimum extent necessary (but in no event to
less than zero) so that no portion of the Severance Benefits, as so
reduced, constitutes an excess parachute payment. The determination
of whether any reduction in the amount of the Severance Benefits is
required pursuant to this Section 7(d) will be made by the Company's
independent accountants. The fact that the Executive has her
Severance Benefits reduced as a result of the limitations set forth in
this Section 7(d) will not of itself limit or otherwise affect any
rights of the Executive arising other than pursuant to this Agreement.
(e) The Company has determined that the amounts payable under
this Agreement constitute reasonable compensation for services
rendered. Accordingly, notwithstanding any other provision hereof,
unless such action would be expressly prohibited by applicable law, if
any amount is paid pursuant to this Agreement which is determined to
be subject to the excise tax imposed by Section 4999 of the Code, the
Company will pay to the Executive an additional amount in cash equal
to the amount necessary to cause the aggregate amount payable under
this Agreement, including such additional cash payment (net of all
federal, state and local income taxes and all taxes payable as the
result of the application of Sections 280G and 4999 of the Code), to
be equal to the aggregate amount payable under this Agreement,
excluding such additional payment (net of all federal, state and local
income taxes), as if Sections 280G and 4999 of the Code (and any
successor provisions thereto) had not been enacted into law.
8. Place of Performance. During the term hereof:
(a) The principal office of the Executive and the principal
place for performance by him of her duties, functions and
responsibilities under this Agreement shall be in the City or suburbs
of Dallas, Texas.
(b) It is recognized that the performance of the Executive's
duties hereunder may occasionally require the Executive, on behalf of
the Company, to be away from her principal office for business
reasons. Unless consent of the Executive is obtained, such periods of
being away from her principal office on behalf of the Company shall
not exceed thirty (30) calendar days per year.
9. Definition of Change of Control. For purposes of this Agreement,
"Change of Control" shall mean the occurrence of one or more of the
following events: (i) a person or entity or group (as that term is used in
Section 13(d)(3) of the Exchange Act) of persons or entities shall have
become the beneficial owner of a majority of the securities of the Company
ordinarily having the right to vote in the election of directors, (ii)
during any consecutive two-year period, individuals who at the beginning of
such period constituted the Board of Directors of the Company (together
with any directors who are members of such Board of Directors of the
Company on the date hereof and any new directors whose election
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<PAGE>
by such Board of Directors of the Company or whose nomination for election by
the stockholders of the Company was approved by a vote of 66 2/3% of the
directors then still in office who were either directors at the beginning of
such period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the Board of
Directors of the Company then in office, (iii) any sale, lease, exchange or
other transfer (in one transaction or a series of related transactions) of
all, or substantially all, the assets of the Company to any person or entity
or group (as so defined in Section 13(d)(3) of the Exchange Act) of persons
or entities (other than any wholly owned subsidiary of the Company) or (iv)
the merger or consolidation of the Company into or with another corporation
or the merger of another corporation into the Company with the effect that
immediately after such transaction any person or entity or group (as so
defined in Section 13(d)(3) of the Exchange Act) of persons or entities, or
the stockholders of any other entity, shall have become the beneficial owner
of securities of the surviving corporation of such merger or consolidation
representing a majority of the voting power of the outstanding securities of
the surviving corporation ordinarily having the right to vote in the election
of directors. The Alexander Energy Corporation merger, however it might be
structured, shall not constitute a Change of Control under this Agreement.
10. Discharge with Cause. For the purposes of this Agreement, the
Company shall be deemed to have discharged the Executive for cause only if
any one of the following conditions existed:
(a) If the Executive shall have willfully breached or habitually
neglected her duties and responsibilities as the Controller and Chief
Accounting Officer of the Company; or
(b) If the Executive shall have been convicted of any felony
offense during the term of this Agreement.
The discharge of the Executive by the Company when none of the foregoing
conditions exist shall be deemed to be a discharge without cause.
11. Resignation for Good Reason. For the purposes of this Agreement,
the Executive shall have resigned for good reason if any one of the
following conditions existed at the time of her resignation:
(a) If the Company shall have assigned to the Executive
authority and responsibilities less significant than, or not
comparable to, that which she had in her capacity as Controller and
Chief Accounting Officer immediately preceding a Change of Control or
shall otherwise so limit or restrict her authority and
responsibilities after a Change of Control;
(b) The Company shall have reduced the Executive's annual base
salary below her annual base salary in effect on the effective date of
a Change of Control
6
<PAGE>
or the Company shall have reduced the Executive's annual cash bonus
below that of her last annual cash bonus prior to the effective date
of a Change of Control; or
(c) The Company shall have taken any actions having the purpose
or intent and the effect of inducing the Executive to resign, such as
failing to provide the Executive with all personnel benefits which are
otherwise generally provided to executive officers of the Company or
reasonably necessary or appropriate for the performance by the
Executive of her duties as Controller and Chief Accounting Officer of
the Company; or
(d) The Company shall have declined to extend the term of this
Agreement pursuant to Section 6 hereof.
12. Termination Upon Death. This Agreement shall terminate
immediately upon the date of the death of the Executive.
13. Remedies. If the Executive shall file any judicial action for
enforcement of this Agreement and successfully recover compensation or
damages, the Executive shall be entitled to recover from the Company an
additional amount equal to interest at ten percent (10%) per annum on the
amount recovered from the date such amount was due and payable together
with all expenses and reasonable attorneys' fees incurred in obtaining
legal advice and counselling respecting her rights under this Agreement and
in prosecuting and disposing of such action. The provisions of this
Section shall be cumulative and without prejudice to any other right or
remedy to which the Executive may be entitled either at law, in equity or
under this Agreement and shall not constitute the exclusive remedy of the
Executive for breach of this Agreement.
14. General Provisions.
(a) Notices. Any notices to be given hereunder by either party
to the other may be given either by personal delivery in writing or by
fax, or by mail, registered or certified, postage prepaid, return
receipt requested, addressed to the parties at their respective
addresses set forth below their signatures to this Agreement, or at
such other addresses as they may specify to the other in writing.
(b) Law Governing. This Agreement shall be governed by and
construed in accordance with the laws of the State of Texas.
(c) Invalid Provisions. If any provision of this Agreement is
held to be illegal, invalid or unenforceable under present or future
laws effective during the term hereof, such provision shall be fully
severable and this Agreement shall be construed and enforced as if
such illegal, invalid or unenforceable provision had never comprised a
part hereof; and the remaining provisions hereof shall remain in full
force and effect and shall not be affected by the illegal, invalid or
unenforceable provision or by its severance herefrom. Furthermore, in
lieu of such illegal, invalid
7
<PAGE>
or unenforceable provision there shall be added automatically as part
of this Agreement a provision as similar in terms to such illegal,
invalid or unenforceable provision as may be possible and still be
legal, valid or enforceable.
(d) Entire Agreement. This Agreement sets forth the entire
understanding of the parties and supersedes all prior agreements or
understandings, whether written or oral, with respect to the subject
matter hereof. No terms, conditions or warranties, other than those
contained herein, and no amendments or modifications hereto shall be
binding unless made in writing and signed by the parties hereto.
(e) Binding Effect. This Agreement shall extend to and be
binding upon and inure to the benefit of the parties hereto, their
respective heirs, representatives, successors and assigns. All of the
provisions of this Agreement shall be fully applicable to any
successor to the Company resulting from a Change of Control. The
Company agrees that in the event of a tender or exchange offer,
merger, consolidation or liquidation or any such similar event
involving the Company, its securities or assets, it shall reveal the
existence of this Agreement to the acquiring person or entity. The
Company further agrees that if such action is not inconsistent with
the best interests of the Company, it shall condition approval of any
transactions proposed by the acquiror upon obtaining the consent, in
writing, of the potential successor to the Company to be bound by this
Agreement. In the event the Executive dies prior to the termination
of this Agreement, any compensation or other payment due and owing to
the Executive on or before the date of the Executive's death shall be
paid to her estate, executors, administrators, heirs or legal
representatives. Since the duties and services of the Executive
hereunder are special, personal and unique in nature, the Executive
may not transfer, sell or otherwise assign her rights, obligations or
benefits under this Agreement.
(f) Waiver. The waiver by either party hereto of a breach of
any term or provision of this Agreement shall not operate or be
construed as a waiver of a subsequent breach of the same provisions by
either party or of the breach of any other term or provision of this
Agreement.
(g) Titles. Titles of the paragraphs herein are used solely for
convenience and shall not be used for interpretation or construing any
word, clause, paragraph or provision of this Agreement.
8
<PAGE>
IN WITNESS WHEREOF, the Company and the Executive have executed this
Executive Employment Agreement as of the day and year first written above,
effective as of the date specified above.
COMPANY:
NATIONAL ENERGY GROUP, INC.
By:____________________________________
_________________________________
_________________________________
1400 One Energy Square
4925 Greenville Avenue
Dallas, Texas 75206
(214) 692-9211
(214) 692-9310 (FAX)
EXECUTIVE:
________________________________________
MELISSA K. RUTLEDGE
________________________________________
________________________________________
________________________________________
9
<PAGE>
Exhibit 10.23
-------------
EXECUTIVE EMPLOYMENT AGREEMENT
This Executive Employment Agreement (the "Agreement") is made the 1st
day of January, 1996, by and between National Energy Group, Inc., a
Delaware corporation acting by and through its hereunto duly authorized
officer (the "Company"), and William T. Jones (the "Executive").
WHEREAS, the Executive is presently in the employ of the Company in
the capacity of Vice President - Production and Engineering, and the
Company is willing to provide certain employment assurances to the
Executive in the event of a Change of Control (as defined below) of the
Company as incentive and inducement for the Executive to continue in such
employment in his present capacity after a Change of Control; and
WHEREAS, in consideration of such employment assurances, the Executive
is willing to remain in the employ of the Company in the capacity of Vice
President - Production and Engineering after a Change of Control of the
Company.
NOW, THEREFORE, in consideration of the premises and the mutual terms
and conditions hereof, the Company and the Executive hereby agree as
follows:
1. Employment. In consideration of the benefits hereinafter
specified, the Executive hereby agrees to continue his employment with the
Company in the capacity of Vice President - Production and Engineering
after a Change of Control of the Company and to discharge his duties in
such capacity during the term of this Agreement.
2. Exclusive Services. The Executive shall devote his full working
time, ability and attention to the business of the Company during the term
of this Agreement and shall not, directly or indirectly, render any
services of a business, commercial or professional nature to any other
person, corporation or organization, whether for compensation or otherwise,
without the prior knowledge and consent of the Board of Directors (the
"Board") or President and Chief Executive Officer of the Company; provided,
however, that the provisions of this Agreement shall not be construed as
preventing the Executive from investing in other non-competitive businesses
or enterprises if such investments do not require substantial services on
the part of the Executive in the affairs or operations of any such business
or enterprise so as to significantly diminish the performance by the
Executive of his duties, functions and responsibilities under this
Agreement. During the term of this Agreement, the Executive shall not,
directly or indirectly, either through any kind of ownership (other than
ownership of securities of publicly held corporations of which the
Executive owns less than five percent (5%) of any class of outstanding
securities) or as a director, officer, agent, employee or consultant engage
in any business that is competitive with the Company.
1
<PAGE>
3. Authority and Duties. During the term of this Agreement, the
Executive shall have such authority and shall perform such duties,
functions and responsibilities as are specified by the Bylaws of the
Company, the Executive Committee, the Board of Directors, or the President
of the Company and/or as are appropriate for the office of the Vice
President - Production and Engineering and shall serve with the necessary
power and authority commensurate with such position and consistent with the
manner with which the Executive has carried out the office in the past. If
the Company removes the Executive from the office of the Vice President -
Production and Engineering of the Company after a Change of Control or
limits, restricts or reassigns his authority and responsibility after a
Change of Control so as to be less significant than, or not comparable to,
that to which he held immediately preceding such Change of Control in his
capacity as Vice President - Production and Engineering without his prior
mutual consent, the Executive shall be entitled to resign for good reason
and receive the Severance Benefits set forth in this Agreement.
4. Compensation. In consideration for the services to be rendered
by the Executive to the Company and/or its subsidiaries, the Company shall
pay to the Executive at least the gross cash compensation and shall award
to the Executive at least the bonuses as set forth below:
Annual Period Annual Annual Bonus
Base Salary
- --------------------------------------------------------------------------------
For the one year 100% of the average of 100% of the
period following the executive's annual average of the
effective date of a base salary in effect bonuses paid to
Change of Control immediately prior to the Executive for
the change in control each of the three
and of the executive's fiscal years
annual base salary for before the Change
each of the in Control
immediately preceding
two years
For the second year 100% of the average of 100% of the
following effective the executive's annual average of the
date of a Change of base salary on the bonuses paid to
Control date that is one year the executive for
after the change in the three
control and of the immediately
executive's annual preceding fiscal
base salary for each years
of the immediately
preceding two years
For the third year 100% of the average of 100% of the
following effective the executive's annual average of the
date of a Change of base salary on the bonuses paid to
Control date that is two years the executive for
after the change in the three
control and of the immediately
executive's annual preceding fiscal
base salary for each years
of the immediately
preceding two years
- --------------------------------------------------------------------------------
2
<PAGE>
In the event that the Executive shall not have been employed for three
years prior to the effective date of this Agreement, the Executive's annual
base compensation rate or bonus rate shall be averaged over the actual
period of employment of the Executive by the Company.
Each of the annual base salary amounts set forth above shall be paid
to the Executive in equal monthly installments, or as otherwise agreed,
during each corresponding year of the term of this Agreement, provided that
for any period of less than one (1) year, the annual base salary shall be
pro-rated accordingly. The annual bonus amount indicated above or amounts
in excess of such indicated bonus shall be awarded no later than December
31 of the corresponding annual period. The amount set forth above is
compensation to the Executive or gross amounts due hereunder and the
Company shall have the right to deduct therefrom all taxes and other
amounts which may be required to be deducted or withheld by law (including,
but not limited to income tax, withholding, social security and medicare
payments) whether such law is now in effect or becomes effective after the
execution of this Agreement.
5. Benefits and Business Expenses. During the term hereof:
(a) The Executive shall be entitled to continue his
participation in programs maintained by the Company for the benefit of
its employees and officers and to participate in new or amended
programs, including, but not limited to, medical, health, life,
accident and disability insurance programs, pension plans, incentive
compensation plans, stock option plans, stock appreciation rights
plans, and limited stock appreciation rights plans. The Company shall
not terminate nor amend such plans to the detriment of the Executive.
(b) To the extent that the Company has provided the Officer with
an automobile, club memberships, association and trade memberships and
other memberships prior to the change of control, the Company shall
continue to provide the Officer with such items, of a comparable
nature, following a Change of Control. The Company shall pay the
expenses of such automobile, memberships and subscriptions.
(c) The Executive shall be reimbursed for any business expenses
reasonably incurred in carrying out his duties, functions and
responsibilities upon presentation of expense reports to the Company.
6. Term. This Agreement shall have a term of three (3) years
commencing on the effective date of a Change of Control and shall be
automatically extended on the 9th day of each and every calendar month
during the term of this Agreement for an additional calendar month so that
at the beginning of each and every month during the term of this Agreement
there shall be a remaining term of three (3) years (but in no event beyond
the time the Executive reaches age 65) unless and until the Company gives
written notice to the Executive that the term of this Agreement shall not
be further so extended, in which case
3
<PAGE>
the Executive shall be entitled to resign for good reason. The provisions
of this Section 6 shall apply to each Change of Control irrespective of any
Changes of Control which may have occurred previously.
7. Severance Benefits After Change Of Control. In addition to such
compensation and other benefits payable to or provided for the Executive as
authorized by the Board from time to time, Executive shall be entitled to
receive in lieu of the compensation described in paragraph 4 hereof, and
the Company shall pay or provide to the Executive the following severance
benefits (the "Severance Benefits") in the event that, during the term
hereof, the Company discharges the Executive without cause or the Executive
resigns for good reason after a Change of Control, to-wit:
(a) The Company shall pay to the Executive a lump sum cash
payment (multiplied by the applicable factor described below) payable
on such date of termination of employment equal to the Executive's
"base compensation" then in effect, which shall, and is defined to,
consist of the sum of (i) the Executive's annual base salary then in
effect, (ii) the average of the amounts of the last three annual cash
bonuses paid or granted to, or earned by, the Executive, and (iii) the
average of the total amounts of the Company's contributions to its
retirement plan allocable to the Executive on a fully vested basis for
the last three fiscal years of the retirement plan. The amount of the
"base compensation" payable to the Executive pursuant to this
Section 7(a) shall be (a) multiplied by the number three (3) for the
purposes of determining the lump sum cash severance payment due under
this Section 7(a).
(b) All stock options granted by the Company to the Executive,
all contributions made by the Executive and by the Company for the
account of the Executive to any pension, retirement or any other
benefit plan, and all other benefits or bonuses, including but not
limited to net profits interests which contain vesting or
exercisability provisions conditioned upon or subject to the continued
employment of the Executive, shall become fully vested and exercisable
and shall remain fully exercisable for a period of the later of three
hundred sixty (360) days after (i) the date of such termination of
employment; or (ii) the termination of this Agreement.
(c) The Company shall continue the participation of the
Executive in all life, accident, disability, medical, dental and all
other health and casualty insurance plans maintained by the Company
for its officers and employees for a period of one (1) year after the
date of such termination of employment or for such longer period as
may be required by applicable law.
(d) Notwithstanding any provision of this Agreement to the
contrary, if the Executive is a disqualified individual (as the term
"disqualified individual" is defined in Section 280G of the Code) and
if any portion of the Severance Benefits under this Section 7 of this
Agreement would be an excess parachute payment (as the term "excess
parachute payment" is defined in Section 280G of the Code) but for the
4
<PAGE>
application of this sentence, then the amount of the Severance
Benefits otherwise payable to the Executive pursuant to this Agreement
will be reduced to the minimum extent necessary (but in no event to
less than zero) so that no portion of the Severance Benefits, as so
reduced, constitutes an excess parachute payment. The determination
of whether any reduction in the amount of the Severance Benefits is
required pursuant to this Section 7(d) will be made by the Company's
independent accountants. The fact that the Executive has his
Severance Benefits reduced as a result of the limitations set forth in
this Section 7(d) will not of itself limit or otherwise affect any
rights of the Executive arising other than pursuant to this Agreement.
(e) The Company has determined that the amounts payable under
this Agreement constitute reasonable compensation for services
rendered. Accordingly, notwithstanding any other provision hereof,
unless such action would be expressly prohibited by applicable law, if
any amount is paid pursuant to this Agreement which is determined to
be subject to the excise tax imposed by Section 4999 of the Code, the
Company will pay to the Executive an additional amount in cash equal
to the amount necessary to cause the aggregate amount payable under
this Agreement, including such additional cash payment (net of all
federal, state and local income taxes and all taxes payable as the
result of the application of Sections 280G and 4999 of the Code), to
be equal to the aggregate amount payable under this Agreement,
excluding such additional payment (net of all federal, state and local
income taxes), as if Sections 280G and 4999 of the Code (and any
successor provisions thereto) had not been enacted into law.
8. Place of Performance. During the term hereof:
(a) The principal office of the Executive and the principal
place for performance by him of his duties, functions and
responsibilities under this Agreement shall be in the City or suburbs
of Dallas, Texas.
(b) It is recognized that the performance of the Executive's
duties hereunder may occasionally require the Executive, on behalf of
the Company, to be away from his principal office for business
reasons. Unless consent of the Executive is obtained, such periods of
being away from his principal office on behalf of the Company shall
not exceed thirty (30) calendar days per year.
9. Definition of Change of Control. For purposes of this Agreement,
"Change of Control" shall mean the occurrence of one or more of the
following events: (i) a person or entity or group (as that term is used in
Section 13(d)(3) of the Exchange Act) of persons or entities shall have
become the beneficial owner of a majority of the securities of the Company
ordinarily having the right to vote in the election of directors, (ii)
during any consecutive two-year period, individuals who at the beginning of
such period constituted the Board of Directors of the Company (together
with any directors who are members of such Board of Directors of the
Company on the date hereof and any new directors whose election
5
<PAGE>
by such Board of Directors of the Company or whose nomination for election
by the stockholders of the Company was approved by a vote of 66 2/3% of the
directors then still in office who were either directors at the beginning of
such period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the Board of
Directors of the Company then in office, (iii) any sale, lease, exchange or
other transfer (in one transaction or a series of related transactions) of
all, or substantially all, the assets of the Company to any person or entity
or group (as so defined in Section 13(d)(3) of the Exchange Act) of persons
or entities (other than any wholly owned subsidiary of the Company) or (iv)
the merger or consolidation of the Company into or with another corporation
or the merger of another corporation into the Company with the effect that
immediately after such transaction any person or entity or group (as so
defined in Section 13(d)(3) of the Exchange Act) of persons or entities, or
the stockholders of any other entity, shall have become the beneficial owner
of securities of the surviving corporation of such merger or consolidation
representing a majority of the voting power of the outstanding securities of
the surviving corporation ordinarily having the right to vote in the
election of directors. The Alexander Energy Corporation merger, however it
might be structured, shall not constitute a Change of Control under this
Agreement.
10. Discharge with Cause. For the purposes of this Agreement, the
Company shall be deemed to have discharged the Executive for cause only if
any one of the following conditions existed:
(a) If the Executive shall have willfully breached or habitually
neglected his duties and responsibilities as the Vice President -
Production and Engineering of the Company; or
(b) If the Executive shall have been convicted of any felony
offense during the term of this Agreement.
The discharge of the Executive by the Company when none of the foregoing
conditions exist shall be deemed to be a discharge without cause.
11. Resignation for Good Reason. For the purposes of this Agreement,
the Executive shall have resigned for good reason if any one of the
following conditions existed at the time of his resignation:
(a) If the Company shall have assigned to the Executive
authority and responsibilities less significant than, or not
comparable to, that which he had in his capacity as Vice President -
Production and Engineering immediately preceding a Change of Control
or shall otherwise so limit or restrict his authority and
responsibilities after a Change of Control;
(b) The Company shall have reduced the Executive's annual base
salary below his annual base salary in effect on the effective date of
a Change of Control
6
<PAGE>
or the Company shall have reduced the Executive's annual cash bonus
below that of his last annual cash bonus prior to the effective date
of a Change of Control; or
(c) The Company shall have taken any actions having the purpose
or intent and the effect of inducing the Executive to resign, such as
failing to provide the Executive with all personnel benefits which are
otherwise generally provided to executive officers of the Company or
reasonably necessary or appropriate for the performance by the
Executive of his duties as Vice President - Production and Engineering
of the Company; or
(d) The Company shall have declined to extend the term of this
Agreement pursuant to Section 6 hereof.
12. Termination Upon Death. This Agreement shall terminate
immediately upon the date of the death of the Executive.
13. Remedies. If the Executive shall file any judicial action for
enforcement of this Agreement and successfully recover compensation or
damages, the Executive shall be entitled to recover from the Company an
additional amount equal to interest at ten percent (10%) per annum on the
amount recovered from the date such amount was due and payable together
with all expenses and reasonable attorneys' fees incurred in obtaining
legal advice and counselling respecting his rights under this Agreement and
in prosecuting and disposing of such action. The provisions of this
Section shall be cumulative and without prejudice to any other right or
remedy to which the Executive may be entitled either at law, in equity or
under this Agreement and shall not constitute the exclusive remedy of the
Executive for breach of this Agreement.
14. General Provisions.
(a) Notices. Any notices to be given hereunder by either party
to the other may be given either by personal delivery in writing or by
fax, or by mail, registered or certified, postage prepaid, return
receipt requested, addressed to the parties at their respective
addresses set forth below their signatures to this Agreement, or at
such other addresses as they may specify to the other in writing.
(b) Law Governing. This Agreement shall be governed by and
construed in accordance with the laws of the State of Texas.
(c) Invalid Provisions. If any provision of this Agreement is
held to be illegal, invalid or unenforceable under present or future
laws effective during the term hereof, such provision shall be fully
severable and this Agreement shall be construed and enforced as if
such illegal, invalid or unenforceable provision had never comprised a
part hereof; and the remaining provisions hereof shall remain in full
force and effect and shall not be affected by the illegal, invalid or
unenforceable provision or by its severance herefrom. Furthermore, in
lieu of such illegal, invalid
7
<PAGE>
or unenforceable provision there shall be added automatically as
part of this Agreement a provision as similar in terms to such
illegal, invalid or unenforceable provision as may be possible and
still be legal, valid or enforceable.
(d) Entire Agreement. This Agreement sets forth the entire
understanding of the parties and supersedes all prior agreements or
understandings, whether written or oral, with respect to the subject
matter hereof. No terms, conditions or warranties, other than those
contained herein, and no amendments or modifications hereto shall be
binding unless made in writing and signed by the parties hereto.
(e) Binding Effect. This Agreement shall extend to and be
binding upon and inure to the benefit of the parties hereto, their
respective heirs, representatives, successors and assigns. All of the
provisions of this Agreement shall be fully applicable to any
successor to the Company resulting from a Change of Control. The
Company agrees that in the event of a tender or exchange offer,
merger, consolidation or liquidation or any such similar event
involving the Company, its securities or assets, it shall reveal the
existence of this Agreement to the acquiring person or entity. The
Company further agrees that if such action is not inconsistent with
the best interests of the Company, it shall condition approval of any
transactions proposed by the acquiror upon obtaining the consent, in
writing, of the potential successor to the Company to be bound by this
Agreement. In the event the Executive dies prior to the termination
of this Agreement, any compensation or other payment due and owing to
the Executive on or before the date of the Executive's death shall be
paid to his estate, executors, administrators, heirs or legal
representatives. Since the duties and services of the Executive
hereunder are special, personal and unique in nature, the Executive
may not transfer, sell or otherwise assign his rights, obligations or
benefits under this Agreement.
(f) Waiver. The waiver by either party hereto of a breach of
any term or provision of this Agreement shall not operate or be
construed as a waiver of a subsequent breach of the same provisions by
either party or of the breach of any other term or provision of this
Agreement.
(g) Titles. Titles of the paragraphs herein are used solely for
convenience and shall not be used for interpretation or construing any
word, clause, paragraph or provision of this Agreement.
8
<PAGE>
IN WITNESS WHEREOF, the Company and the Executive have executed this
Executive Employment Agreement as of the day and year first written above,
effective as of the date specified above.
COMPANY:
NATIONAL ENERGY GROUP, INC.
By:____________________________________
_________________________________
_________________________________
1400 One Energy Square
4925 Greenville Avenue
Dallas, Texas 75206
(214) 692-9211
(214) 692-9310 (FAX)
EXECUTIVE:
_______________________________________
WILLIAM T. JONES
_______________________________________
_______________________________________
_______________________________________
9
<PAGE>
Exhibit 23.1
------------
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Forms S-3 No. 33-81172, 33-88008, and 33-62851) and related Prospectuses of
our report dated March 27, 1996, with respect to the financial statements of
National Energy Group, Inc., included in its Annual Report (Form 10-KSB) for
the year ended December 31, 1995, filed with the Securities and Exchange
Commission.
ERNST & YOUNG LLP
Dallas, Texas
March 29, 1996
32
<PAGE>
Exhibit 23.2
------------
CONSENT OF INDEPENDENT PETROLEUM ENGINEERS
We hereby consent to the references to our firm in "Item 1 - Business"
and to the use of our report, dated March 1, 1995, on the oil and gas
properties of National Energy Group, Inc., in National Energy Group Inc.'s
Annual Report on Form 10-K for the year ended December 31, 1995, and we
consent to the use of our report and references to our firm in National
Energy Group, Inc.'s registration statements (Form S-3 No. 33-81172, Form S-3
No. 33-88008 and Form S-3 No. 33-62851).
ROEBUCK ASSOCIATES, INC.
Dallas, Texas
March 28, 1996
33
<PAGE>
Exhibit 23.3
CONSENT OF INDEPENDENT PETROLEUM ENGINEERS AND GEOLOGISTS
We hereby consent to the references to our firm in "Items 1 and 2,
DESCRIPTION OF BUSINESS AND PROPERTIES" and to the use of our report, dated
February 13, 1996, presenting estimated reserves and future revenue for the oil
and gas properties of National Energy Group, Inc., in National Energy Group
Inc.'s Annual Report on Form 10-KSB for the ended December 31, 1995.
NETHERLAND, SEWELL & ASSOCIATES, INC.
Dallas, Texas
March 29, 1996
34
<PAGE>
GLOSSARY
Wherever used herein, the following terms shall have the meanings
specified.
Bbl
- ---
One stock tank barrel, or 42 US gallons liquid volume, used
herein in reference to crude oil or other liquid hydrocarbons.
BOE
- ---
Barrels of oil equivalent (converting six mcf of natural gas to
one barrel of oil).
Developed Acreage
- -----------------
The number of acres which are allocated or assignable to
producing wells or wells capable of production.
Development Well
- ----------------
A well drilled within the proved area of an oil and gas reservoir
to the depth of a stratigraphic horizon known to be productive.
Dry Well
- --------
A well found to be incapable of producing either oil or gas in
sufficient quantities to justify completion as an oil or well.
Exploratory Well
- ----------------
A well drilled to find and produce oil or gas in an unproved
area, to find a new reservoir in a field previously found to be
productive of oil or gas in another reservoir, or to extend a
known reservoir.
Gross Acres or Gross Wells
- --------------------------
The total acres or wells, as the case may be, in which a working
interest is owned.
Mcf
- ---
One thousand cubic feet.
Mmcf
- ---
One million cubic feet.
Net Acres or Net Wells
- ----------------------
The sum of the fractional working interests owned in gross acres
or gross wells.
Oil and Gas Lease
- -----------------
An instrument by which a mineral fee owner grants to a lessee the
right for a specific period of time to explore for oil and gas
underlying the lands covered by the lease and the right to
product any oil and gas so discovered generally for so long as
there is production in economic quantities from such lands.
Overriding Royalty Interest
- ---------------------------
A fractional undivided interest in an oil and gas property
entitling the owner to a share of oil and gas production, in
addition to the usual royalty paid to the owner, free of costs of
production.
35
<PAGE>
Productive Well
- ---------------
A well that is producing oil or gas or that is capable of
production.
Proved Developed Reserves
- -------------------------
Reserves that can be expected to be recovered through existing
wells with existing equipment and operating methods.
Proved Reserves
- ---------------
The estimated quantities of crude oil, natural gas and natural
gas liquids which geological and engineering data demonstrate
with reasonable certainty to be recoverable in future years from
known reservoirs under existing economic and operating
conditions.
Proved Undeveloped Reserves
- ---------------------------
Reserves that are expected to be recovered from new wells on
undrilled acreage, or from existing wells where a relatively
major expenditure is required for completion.
PV10%
- -----
The discounted future net cash flows for proved oil and gas
reserves computed on the same basis as the Standardized Measure,
but without deducting income taxes, which is not in accordance
with generally accepted accounting principles. PV10% is an
important financial measure for evaluating the relative
significance of oil and gas properties and acquisitions, but
should not be construed as an alternative to the Standardized
Measure (as determined in accordance with generally accepted
accounting principles)
Royalty Interest
- ----------------
An interest in an oil and gas property entitling the owner to a
share of oil and gas production free of costs of production.
Secondary Recovery
- ------------------
A method of oil and gas extraction in which energy sources
extrinsic to the reservoir are utilized.
Standardized Measure
- --------------------
The estimated future net cash flows from proved oil and gas
reserves computed using prices and costs, at the dates indicated,
after income taxes and discounted at 10%.
Undeveloped Acreage
- -------------------
Lease acreage on which wells have not been drilled or completed
to a point that would permit the production of commercial
quantities of oil and gas regardless of whether such acreage
contains proved reserves.
Working Interest
- ----------------
The operating interest which gives the owner the right to drill,
produce and conduct operating activities on the property and a
share of production, subject to all royalties, overriding
royalties and other burdens and to all costs of exploration,
development and operations and all risks in connection
therewith.
36
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Form 10-KSB for the twelve months ended December 31, 1995 and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 6,076,199
<SECURITIES> 1,824,724
<RECEIVABLES> 1,669,968
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9,906,642
<PP&E> 38,573,702
<DEPRECIATION> 5,602,571
<TOTAL-ASSETS> 43,491,366
<CURRENT-LIABILITIES> (12,222,496)
<BONDS> 0
0
(92,500)
<COMMON> (118,801)
<OTHER-SE> (17,563,266)
<TOTAL-LIABILITY-AND-EQUITY> (43,491,366)
<SALES> (7,858,316)
<TOTAL-REVENUES> (7,858,316)
<CGS> 0
<TOTAL-COSTS> 2,147,991
<OTHER-EXPENSES> 4,783,893
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,032,096
<INCOME-PRETAX> (205,793)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> (431,762)
<CHANGES> 0
<NET-INCOME> 225,969
<EPS-PRIMARY> .09
<EPS-DILUTED> 0
</TABLE>
