<PAGE> 1
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No. 0-19136 (Common Stock)
and 333-9045 (Series B Senior Notes)
and 333-38075 (Series D Senior Notes)
NATIONAL ENERGY GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 58-1922764
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
1400 ONE ENERGY SQUARE
4925 GREENVILLE AVENUE
DALLAS, TEXAS 75206
(Address of principal executive offices)
(214) 692-9211
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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
-------------------------
40,495,410 shares of the registrant's Common Stock, $0.01 par value,
were outstanding on May 11, 1998.
================================================================================
<PAGE> 2
NATIONAL ENERGY GROUP, INC.
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets at December 31, 1997 and March 31, 1998
(Unaudited)..................................................................... 1
Consolidated Statements of Operations for the three months ended
March 31, 1997 and 1998 (Unaudited)............................................. 2
Consolidated Statements of Cash Flows for the three months
ended March 31, 1997 and 1998 (Unaudited)....................................... 3
Consolidated Statement of Stockholders' Equity for the three months ended
March 31, 1998 (Unaudited)...................................................... 4
Notes to Consolidated Financial Statements (Unaudited)............................. 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................................... 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................................................. 12
Item 6. Exhibits and Reports on Form 8-K................................................... 12
</TABLE>
<PAGE> 3
NATIONAL ENERGY GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
---------------- --------------
<S> <C> <C>
Current assets:
Cash and cash equivalents.......................................... $ 25,954,479 $ 11,308,896
Marketable securities.............................................. 486,750 486,750
Accounts receivable--oil and natural gas sales..................... 10,145,739 7,008,436
Accounts receivable--joint interest and other...................... 7,278,436 6,704,995
Other.............................................................. 2,678,029 3,693,459
---------------- --------------
Total current assets............................................ 46,543,433 29,202,536
Oil and natural gas properties, at cost (full cost method):
Proved oil and natural gas properties.............................. 245,228,081 265,648,122
Unproved oil and natural gas properties............................ 35,698,549 32,464,741
---------------- --------------
280,926,630 298,112,863
Accumulated depreciation, depletion, and amortization.............. (83,478,971) (115,539,647)
---------------- --------------
Net oil and natural gas properties.............................. 197,447,659 182,573,216
Other property and equipment........................................... 4,797,737 5,223,630
Accumulated depreciation........................................... (799,136) (952,716)
---------------- --------------
Net other property and equipment................................ 3,998,601 4,270,914
Other assets and deferred charges, net................................. 6,371,714 6,318,282
---------------- --------------
Total assets....................................................... $ 254,361,407 $ 222,364,948
================ ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable-trade............................................. $ 21,725,575 $ 8,947,085
Accounts payable-revenue........................................... 7,393,127 5,601,466
Drilling advances.................................................. 5,282,467 2,514,391
Accrued interest................................................... 2,956,250 7,390,625
Other 798,983 520,912
---------------- --------------
Total current liabilities....................................... 38,156,402 24,974,479
Long-term liabilities.................................................. 1,915,305 2,090,071
Credit facility........................................................ -- 10,000,000
10 3/4% Senior Notes due 2006, including unamortized issuance
premium............................................................ 166,396,622 166,357,095
Stockholders' equity:
Convertible preferred stock, $1.00 par:
Authorized shares--1,000,000
Issued and outstanding share--171,187
Aggregate liquidation preference--$17,187,000................... 171,187 171,187
Common stock, $.01 par value:
Authorized shares--100,000,000
Issued and outstanding shares--40,456,320 and 40,481,320 at
December 31, 1997 and March 31, 1998, respectively............ 404,563 404,813
Additional paid-in capital......................................... 112,940,414 113,033,914
Unrealized loss on marketable securities, net...................... (28,594) (28,594)
Deficit............................................................ (65,594,492) (94,638,017)
---------------- --------------
Total stockholders' equity...................................... 47,893,078 18,943,303
---------------- --------------
Total liabilities and stockholders' equity......................... $ 254,361,407 $ 222,364,948
================ ==============
</TABLE>
See accompanying notes.
1
<PAGE> 4
NATIONAL ENERGY GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------------------
1997 1998
------------- --------------
<S> <C> <C>
Revenues:
Oil and natural gas sales......................................... $ 12,965,027 $ 10,851,137
Well operator fees and other...................................... 387,736 310,646
------------- --------------
13,352,763 11,161,783
Cost and expenses:
Lease operating................................................... 1,802,173 2,029,267
Oil and natural gas production taxes.............................. 816,267 736,341
Depreciation, depletion, and amortization......................... 4,884,373 5,714,256
Write-down of oil and natural gas properties...................... -- 26,500,000
General and administrative........................................ 1,064,707 1,714,709
------------- --------------
8,567,520 36,694,573
------------- --------------
Operating income (loss).............................................. 4,785,243 (25,532,790)
Other income (expense):
Interest expense.................................................. (2,853,698) (3,734,952)
Interest income and other, net.................................... 194,879 224,217
------------- --------------
Income (loss) before income taxes.................................... 2,126,424 (29,043,525)
Provision for income taxes........................................... 722,984 --
------------- --------------
Net income (loss).................................................... 1,403,440 (29,043,525)
Preferred stock dividend requirements................................ (236,250) (157,095)
------------- --------------
Net income (loss) applicable to common shareholders.................. $ 1,167,190 $ 29,200,620
============= ==============
Net income (loss) per common share, basic and diluted................ $ .03 $ (.72)
============= ==============
Weighted average number of common shares outstanding................ 36,094,169 40,481,320
============= ==============
</TABLE>
See accompanying notes.
2
<PAGE> 5
NATIONAL ENERGY GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------------------
1997 1998
-------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss)..................................................... $ 1,403,440 $ (29,043,525)
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation, depletion, and amortization.......................... 4,884,373 5,714,256
Write-down of oil and natural gas properties...................... -- 26,500,000
Amortization of loan costs and issuance premium.................... 136,175 183,121
Amortization of deferred compensation.............................. 9,482 10,273
Provision for deferred income taxes................................ 722,984 --
Common stock, options, and warrants issued for services............ 50,708 24,999
Changes in operating assets and liabilities:
Accounts receivable................................................ 313,940 3,710,746
Other current assets............................................... (246,270) (1,040,429)
Accounts payable and accrued liabilities........................... 2,259,074 (2,673,850)
-------------- --------------
Net cash provided by operating activities.......................... 9,533,906 3,385,591
-------------- --------------
INVESTING ACTIVITIES
Purchases of other property and equipment............................. (490,208) (425,893)
Oil and gas acquisition, exploration, and development expenditures.... (19,779,818) (27,517,621)
Purchases of other long-term assets................................... (479,656) (157,829)
Other................................................................. (5,131) 3,337
-------------- --------------
Net cash used by investing activities.............................. (20,754,813) (28,098,006)
-------------- --------------
FINANCING ACTIVITIES
Proceeds from credit facility......................................... -- 10,000,000
Repayments of other long-term liabilities............................. (772,773) (26,918)
Proceeds from exercise of stock options and warrants.................. 180,532 93,750
Other................................................................. (1,297) --
-------------- --------------
Net cash provided by (used by) financing activities................ (593,538) 10,066,832
-------------- --------------
Decrease in cash and cash equivalents................................. (11,814,445) (14,645,583)
Cash and cash equivalents and beginning of period..................... 14,182,246 25,954,479
-------------- --------------
Cash and cash equivalents at end of period............................ $ 2,367,801 $ 11,308,896
============== ==============
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid in cash................................................. $ 3,474 $ --
============== ==============
</TABLE>
See accompanying notes.
3
<PAGE> 6
NATIONAL ENERGY GROUP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
UNREALIZED
CONVERTIBLE (LOSS)
PREFERRED STOCK COMMON STOCK ADDITIONAL ON
------------------------- ---------------------------- PAID-IN MARKETABLE
SHARES AMOUNT SHARES AMOUNT CAPITAL SECURITIES
----------- ----------- ------------- ------------ -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 171,187 $ 171,187 40,456,320 $ 404,563 $ 112,940,414 $ (28,594)
Common stock issued upon
exercise of options........ -- -- 25,000 250 93,500 --
Net loss...................... -- -- -- -- -- --
----------- ----------- ------------- ------------ -------------- -------------
Balance at March 31, 1998........ 171,187 $ 171,187 40,481,320 $ 404,813 $ 113,033,914 $ (28,594)
=========== =========== ============= ============ ============== =============
<CAPTION>
TOTAL
STOCKHOLDERS'
DEFICIT EQUITY
------------- -------------
<S> <C> <C>
Balance at December 31, 1997 $(65,594,492) $ 47,893,078
Common stock issued upon
exercise of options........ -- 93,750
Net loss...................... (29,043,525) (29,043,525)
------------- -------------
Balance at March 31, 1998........ $(94,638,017) $ 18,943,303
============ =============
</TABLE>
See accompanying notes.
4
<PAGE> 7
NATIONAL ENERGY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1998
1. BASIS OF PRESENTATION
In management's opinion, the accompanying financial statements contain
all adjustments (consisting solely of normal recurring accruals) necessary to
present fairly the financial position of National Energy Group, Inc. (the
"Company") as of December 31, 1997 and March 31, 1998, the results of operations
for the three month periods ended March 31, 1997 and 1998, and the cash flows
for the three month periods ended March 31, 1997 and 1998.
The accompanying unaudited financial statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and disclosures normally included in annual financial
statements prepared in accordance with generally accepted accounting principles
have been omitted pursuant to those rules and regulations, although the Company
believes that the disclosures made are adequate to make the information
presented not misleading. These financial statements should be read in
conjunction with the Company's financial statements and notes thereto included
in the Company's Annual Report on Form 10-K for the year ended December 31,
1997.
The Company capitalizes internal general and administrative costs that
can be directly identified with acquisition, exploration, and development
activities. These costs totaled $336,465 for the three months ended March 31,
1997 and $446,291 for the three months ended March 31, 1998. During the three
months ended March 31, 1998, the Company capitalized interest costs of $954,875
related to its unproved oil and natural gas properties.
The results of operations for the three months ended March 31, 1998,
are not necessarily indicative of the results expected for the full year.
In 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings per Share ("SFAS 128") which replaced the previously reported
primary and fully diluted earnings per share with basic and diluted earnings per
share. Basic earnings per share data is computed by dividing income (loss)
applicable to common shareholders by the weighted average number of common
shares outstanding and excludes any dilutive effects of options, warrants, and
convertible securities. Diluted earnings per share is very similar to the
previously reported fully diluted earnings per share. Shares issuable upon
exercise of options and warrants are included in the computation of diluted
earnings per common and common equivalent share to the extent that they are
dilutive. Diluted earnings per share computations also assume the conversion of
the Company's preferred stock if such conversion has a dilutive effect. For the
three months ended March 31, 1997 and 1998, neither the common equivalent shares
nor the assumed conversion of the preferred stock had a dilutive effect on the
loss per share calculations. Accordingly, both basic and diluted loss per share
calculations for such periods are based on the weighted average number of common
shares outstanding during each period. SFAS 128 has been applied in the
computation of the loss per share data for all periods presented. However,
adoption of SFAS 128 had no effect on the per share amounts previously reported
for the three month period ended March 31, 1997.
5
<PAGE> 8
NATIONAL ENERGY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1998
2. ACQUISITIONS
On March 31, 1998, the Company acquired Fortune Natural Resources
Corporation's 12.5% working interest in the East Bayou Sorrel Field for $4.5
million in cash.
3. CREDIT FACILITIES
The Company has a revolving credit agreement with a group of banks
which, as amended, (the "Revised Credit Facility") provides for a borrowing base
of $40.0 million. The borrowing base will be redetermined at least semiannually
and may require mandated monthly principal reductions by an amount determined by
the Banks from time to time. The principal is due at maturity, August 29, 2000.
Interest is payable monthly and is calculated at the BankOne base rate, as
determined from time to time by BankOne (which increases by .25% if the
outstanding loan balance is greater than 75% of the borrowing base). The Company
may elect to calculate interest under the EuroDollar Rate, as defined in the
Revised Credit Facility. The EuroDollar Rate increases by (i) 2.25% if the
outstanding loan balance is greater than 75% of the borrowing base, (ii) 2.0% if
the outstanding loan balance is greater than 50% but less than or equal to 75%
of the borrowing base or (iii) 1.75% if the outstanding loan amount is less than
50% of the borrowing base. At March 31, 1998, the Company had $10.0 million
outstanding under the Revised Credit Facility.
The Company paid a facility fee equal to 3/4% of the initial borrowing
base under the Revised Credit Facility and is required to pay a commitment fee
on the unused portion of the borrowing base equal to 3/8% per annum.
The Company has granted to the Banks liens on substantially all of the
Company's oil and natural gas properties, whether currently owned or hereafter
acquired, and a negative pledge on all other oil and natural gas properties. The
Revised Credit Facility requires, among other things, semiannual engineering
reports covering oil and natural gas properties, and maintenance of certain
financial ratios, including the maintenance of a minimum interest coverage, a
current ratio, and a minimum tangible net worth.
The Revised Credit Facility includes other covenants prohibiting cash
dividends, distributions, loans, or advances to third parties, except that cash
dividends on preferred stock will be allowed so long as no event of default
exists or would exist as a result of the payment thereof. In addition, if the
Company is required to purchase or redeem any portion of the Notes (as
hereinafter defined), or if any portion of the Notes become due, the borrowing
base is subject to reduction. At March 31, 1998, the Company was not in
violation of any covenants of the Revised Credit Facility.
4. 10 3/4% SENIOR NOTES DUE 2006
In November 1996, the Company issued $100 million aggregate principal
amount of unregistered 10 3/4% Series A Notes due 2006 (the "Series A Notes").
The net proceeds of the Series A Notes of approximately $96.1 million were used
to repay approximately $62.0 million of borrowings under the predecessor to the
Revised Credit Facility and to increase the Company's working capital. In 1997,
the Series A Notes were exchanged for the registered 10 3/4% Series B Notes due
2006 (the "Series B Notes") which are substantially identical to the Series A
Notes. Collectively, the Series A Notes and Series B Notes are referred to as
the "Series A/B Notes." In August 1997, the Company issued $65.0 million
aggregate principal amount of its unregistered 10 3/4% Series C Notes due 2006
(the "Series C Notes"). The net proceeds of the Series C Notes of approximately
$64.8 million were used to repay approximately $23.0 million of borrowings under
the Revised Credit Facility, to fund the Drilling Program (as defined), and to
increase the Company's working capital. In December 1997, the Company exchanged
substantially all of the Series A/B Notes and the Series C Notes for registered
10 3/4% Series D Notes due 2006 (the "Series D Notes"). The Series D Notes are
substantially identical to the Series A/B Notes and the Series C Notes.
Collectively, the Series
6
<PAGE> 9
NATIONAL ENERGY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1998
A/B Notes, the Series C Notes, and the Series D Notes are referred to as the
"Notes." The Notes bear interest at 10 3/4% per annum, payable semi-annually on
May 1 and November 1. The Notes mature November 1, 2006, but may be redeemed
after November 1, 2001, at the Company's option. The Indentures governing the
Notes contain certain covenants, including, but not limited to covenants
restricting the ability of the Company and its Restricted Subsidiaries' (as
defined), to incur additional indebtedness.
5. CRUDE OIL AND NATURAL GAS PRODUCING ACTIVITIES
At March 31, 1998, the net book value of the Company's oil and natural
gas properties exceeded the full cost ceiling, based on the weighted average
prices of crude oil and natural gas received by the Company, resulting in a
non-cash writedown of $26.5 million. There can be no assurance that there will
not be additional writedowns in future periods under the full cost method of
accounting as a result of sustained decreases in oil and natural gas prices or
other factors.
7
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
In the fourth quarter of 1996, the Company began an accelerated
development and exploration program (the "Drilling Program") on its increased
inventory of properties. During the three months ended March 31, 1998, the
Company spent approximately $9.8 million related to the Drilling Program, of
which $6.5 million was for development drilling and $3.3 million was for
exploratory drilling. An additional $7.4 million was spent during the quarter
for leasehold acreage, seismic costs and the acquisition of an additional 12.5%
working interest in the East Bayou Sorrel Field. The Company's Drilling Program
has been the primary reason for the increase in the Company's production during
1997 and the first quarter of 1998.
The Company's results of operations and cash flows from operating
activities were adversely impacted in the first quarter of 1998 by the sharp
decline in commodity prices. The average price received for the Company's
natural gas production declined 20.5% compared to the first quarter of 1997 and
24.6% compared to the fourth quarter of 1997. The average price received for the
Company's crude oil production declined 33.5% compared to the first quarter of
1997 and 21.7% compared to the fourth quarter of 1997. A sustained period of
commodity prices at current levels could have a material adverse impact on the
Company's results of operations, cash flows and financial position.
RESULTS OF OPERATIONS
OVERVIEW OF PRODUCTION, SALES AND UNIT ECONOMICS
The following table sets forth certain information regarding the
production volumes, oil and natural gas sales, average sales prices, and unit
economics per Mcfe for revenues and costs and expenses related to the Company's
oil and natural gas production for the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1997 1998
---------- -----------
<S> <C> <C>
Net production:
Oil (Mbbls).................................................. 237 293
Natural gas (Mmcf)........................................... 2,884 3,080
Natural gas equivalent (Mmcfe)............................... 4,308 4,835
Oil and natural gas sales (in thousands):
Oil.......................................................... $ 5,198 $ 4,261
Natural gas.................................................. 7,767 6,590
---------- --------
Total........................................................ $ 12,965 $ 10,851
========== ========
Average sales price:
Oil (per Bbl)................................................ $ 21.90 $ 14.57
Natural gas (per Mcf)........................................ 2.69 2.14
Unit economics (per Mcfe):
Average sales price.......................................... 3.01 2.24
Lease operating expenses .................................... .42 .42
Oil and gas production taxes................................. .19 .15
Depreciation, depletion and amortization..................... 1.13 1.18
General and administrative................................... .25 .35
</TABLE>
THREE MONTHS ENDED MARCH 31, 1997, COMPARED WITH THREE MONTHS ENDED
MARCH 31, 1998
Revenues. Total revenues decreased by $2.2 million (16.4%) to $11.2
million for 1998 from $13.4 million in 1997. In 1998, the Company produced 293
Mbbls of oil, an increase of 23.6% over the 237 Mbbls produced in 1997, and
3,080 Mmcf of natural gas, an increase of 6.8% over the 2,884 Mmcf produced in
the same period of 1997. Production increases resulting from the Drilling
Program were partially offset by the temporary shut-in of the
8
<PAGE> 11
Company's East Bayou Sorrel Field in South Louisiana to allow for the repair of
a gas line, which also reduced first quarter 1998 production by approximately
163 Mmcfe. The 1997 sale of certain non-strategic properties (the "1997
Divestiture") also reduced first quarter production by approximately 267 Mmcfe
compared to 1997. Average natural gas prices declined $.55 per Mcf to $2.14 per
Mcf for 1998 from $2.69 for 1997, and average oil prices declined $7.33 per
barrel to $14.57 for 1998 from $21.90 for 1997. The decreases in commodity
prices reduced first quarter revenues by approximately $3.8 million compared to
1997.
Costs and Expenses. Lease operating expenses increased $.2 million
(12.6%) to $2.0 million for 1998 from $1.8 million for 1997, primarily due to
the increased production discussed above. Although total lease operating
expenses increased, lease operating expenses per Mcfe remained constant at $.42.
Production taxes decreased $.1 million (9.8%) to $.7 million for 1998
compared to $.8 million for 1997. This decrease resulted from the decline in
total oil and natural gas revenues discussed above.
Depreciation, depletion and amortization increased $.8 million (17.0%)
to $5.7 million for 1998 compared to $4.9 million for 1997 due to the increased
production. The depletion rate per Mcfe was $1.18 for 1998 compared to $1.13 for
1997. This increase in the depletion rate was due to the increase in capitalized
costs resulting from the Company's Drilling Program.
At March 31, 1998, the net book value of the Company's oil and natural
gas properties exceeded the full cost ceiling, resulting in a non-cash writedown
of the oil and natural gas properties of $26.5 million. This writedown resulted
primarily from the decline in oil and natural gas prices in the first quarter of
1998, combined with the costs incurred on unsuccessful exploratory wells drilled
during such period.
General and administrative costs increased $.6 million to $1.7 million
compared to $1.1 million for 1997. The increase in general and administrative
expenses is primarily due to the increase in personnel and office space due to
the Company's increased operations.
Other Income and Expenses. The increase of $.9 million in interest
expense to $3.7 million for 1998 from $2.9 million for 1997 was due to the
issuance of the Series C Notes issued in August of 1997, partially offset by
$1.0 million of interest costs related to the Company's unproved oil and natural
gas properties which was capitalized in 1998. The average balance of debt
outstanding during 1998 was $165.4 million as compared to average debt
outstanding of $100.0 million for 1997. The weighted average interest rate for
1998 was 10.74% compared to 10.75% for 1997.
Net Income (Loss). The Company incurred a net loss of $29.0 million for
the first quarter of 1998, compared with net income of $1.4 million for 1997.
The net loss for 1998 includes a writedown of oil and natural gas properties of
$26.5 million. Excluding this writedown, income declined $3.9 million in 1998
compared with 1997, primarily due to the decrease in oil and natural gas prices,
the increase in depreciation, depletion and amortization and the increase in
interest expense.
LIQUIDITY AND CAPITAL RESOURCES
THREE MONTHS ENDED MARCH 31, 1997, COMPARED WITH THREE MONTHS ENDED
MARCH 31, 1998
Net cash provided by operating activities was $3.4 million for the
three months ended March 31, 1998, compared to $9.5 million for the same period
in 1997. The decline in cash flow from operating activities is primarily due to
the decrease in oil and natural gas prices discussed above.
Net cash used by investing activities was $28.1 million for 1998
compared with $20.8 million for 1997. The cash used by investing activities for
1998, included $27.5 million of expenditures for the Company's Drilling Program,
leasehold and seismic costs, and the acquisition of additional interests in East
Bayou Sorrel.
Net cash provided by financing activities was $10.1 million for 1998
compared with cash used of $.6 million for the same period in 1997. The net cash
provided by financing activities during 1998 consisted
9
<PAGE> 12
primarily of proceeds from borrowings under the Revised Credit Facility. In
1997, cash used by financing activities consisted primarily of repayments of
long-term liabilities.
The Company's working capital surplus at March 31, 1998, was $4.2
million compared to a working capital surplus at December 31, 1997, of $8.4
million. The decrease in working capital was due primarily to the expenditures
of cash for oil and gas exploration, acquisition, and development activities.
FUTURE CAPITAL REQUIREMENTS
The Company has made, and will continue to make, substantial capital
expenditures for the exploration, acquisition, development, and exploitation of
oil and natural gas reserves. Actual amounts to be expended by the Company for
these activities will be dependent upon a number of factors, including oil and
natural gas prices, seismic and contract service costs, availability of drilling
rigs, future drilling results, and the availability of capital. Because of the
decline in crude oil and natural gas prices during the first quarter of 1998,
the Company is currently re-evaluating its capital budget for the remainder of
1998. The Company is not contractually committed to expend budgeted funds.
The Company currently expects that available working capital, cash
flows from operations, and available borrowings under the Revised Credit
Facility will be sufficient to fund capital expenditures for its existing
properties through 1998 in addition to funding interest requirements on the
Notes. However, the Company would need to raise additional capital to fund any
significant acquisitions.
For the periods following 1998, the Company may seek additional
capital, if required, from traditional reserve base borrowings, equity, and debt
offerings or joint ventures to further develop and explore its properties and to
acquire additional properties. There is no assurance that the Company will be
able to access additional capital or that, if available, it will be at prices or
on terms acceptable to the Company.
Should the Company be unable to access the capital markets or should
sufficient capital not be available, the development and exploration of the
Company's properties could be delayed or reduced and, accordingly, oil and
natural gas revenues and operating results may be adversely affected.
10 3/4% SENIOR NOTES DUE 2006
In November 1996, the Company issued $100 million aggregate principal
amount of unregistered 10 3/4% Series A Notes due 2006 (the "Series A Notes").
The net proceeds of the Series A Notes of approximately $96.1 million were used
to repay approximately $62.0 million of borrowings under the predecessor to the
Revised Credit Facility and to increase the Company's working capital. In 1997,
the Series A Notes were exchanged for the registered 10 3/4% Series B Notes due
2006 (the "Series B Notes") which are substantially identical to the Series A
Notes. Collectively, the Series A Notes and Series B Notes are referred to as
the "Series A/B Notes." In August 1997, the Company issued $65.0 million
aggregate principal amount of its unregistered 10 3/4% Series C Notes due 2006
(the "Series C Notes"). The net proceeds of the Series C Notes of approximately
$64.8 million were used to repay approximately $23.0 million of borrowings under
the Revised Credit Facility, to fund the Drilling Program, and to increase the
Company's working capital. In December 1997, the Company exchanged substantially
all of the Series A/B Notes and the Series C Notes for registered 10 3/4% Series
D Notes due 2006 (the "Series D Notes"). The Series D Notes are substantially
identical to the Series A/B Notes and the Series C Notes. Collectively, the
Series A/B Notes, the Series C Notes, and the Series D Notes are referred to as
the "Notes." The Notes bear interest at 10 3/4% per annum, payable semi-annually
on May 1 and November 1. The Notes mature November 1, 2006, but may be redeemed
after November 1, 2001, at the Company's option. The Indentures governing the
Notes contain certain covenants, including, but not limited to covenants
restricting the ability of the Company and its Restricted Subsidiaries' (as
defined), to incur additional indebtedness.
10
<PAGE> 13
CREDIT FACILITIES
The Revised Credit Facility, as amended, currently provides for a
borrowing base of $40.0 million. The borrowing base will be redetermined at
least semiannually and may require mandated monthly principal reductions by an
amount determined by the Banks from time to time. The principal amount of any
borrowings is due at maturity, August 29, 2000. Interest is payable monthly and
is calculated at the Bank One base rate, as determined from time to time by Bank
One (which increases by .25% if the outstanding loan balance is greater than 75%
of the borrowing base). The Company may elect to calculate interest under the
EuroDollar Rate, as defined in the Revised Credit Facility. The EuroDollar Rate
increases by (i) 2.25% if the outstanding loan balance is greater than 75% of
the borrowing base, (ii) 2.0% if the outstanding loan balance is greater than
50% but less than or equal to 75% of the borrowing base or (iii) 1.75% if the
outstanding loan amount is less than 50% of the borrowing base. At March 31,
1998, the Company had $10.0 million outstanding under the Revised Credit
Facility. See Note 2 of Notes to Consolidated Financial Statements.
FINANCIAL REPORTING IMPACT OF FULL COST METHOD OF ACCOUNTING
The Company follows the full cost method of accounting for oil and
natural gas properties. Under such method, the net book value of such
properties, less related deferred income taxes, may not exceed a calculated
"ceiling." The ceiling is the estimated after-tax future net revenues from
proved oil and natural gas properties, discounted at 10% per year. In
calculating future net revenues, prices and costs in effect at the time of the
calculation are held constant indefinitely, except for charges which are fixed
and determinable by existing contracts. The net book value is compared to the
ceiling on a quarterly and yearly basis. The excess, if any, of the net book
value above the ceiling is required to be written off as a non-cash expense. At
March 31, 1998, the net book value of the Company's oil and natural gas
properties exceeded the full cost ceiling, based on the weighted average prices
of crude oil and natural gas received by the Company, resulting in a non-cash
writedown during the quarter of $26.5 million. There can be no assurance that
there will not be additional writedowns in future periods under the full cost
method of accounting as a result of sustained decreases in oil and natural gas
prices or other factors.
CHANGES IN PRICES AND INFLATION
The Company's revenues and value of its oil and natural 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.
At December 31, 1997, the Company had entered into forward sales
contracts with three purchasers covering the future production of natural gas.
Deliveries under these contracts are priced based on NYMEX prices less a
differential whereby the Company may fix the price for deliveries under these
contracts at any time three days prior to the close of the then current contract
based on the NYMEX prices at that time. The Company pays the cost of
transportation of the natural gas to the delivery point specified in the
contracts. Currently, the Company has fixed the sales prices of approximately
1.67 Bcf of gas to be delivered under these contracts during the months of April
1998 through September 1998. The average price of the natural gas for these
deliveries is approximately $2.40 per Mcf.
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 the three months ended March 31, 1997 and
1998.
11
<PAGE> 14
NATIONAL ENERGY GROUP, INC.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On August 30, 1995, the Company filed a lawsuit in the District Court
of Ector County, Texas, against R.E. Steakley in which the Company seeks to
enjoin Mr. Steakley from interfering with its operations on the surface property
controlled by Mr. Steakley. The lawsuit alleges tortuous interference with the
Company's access to its facilities and wrongful conduct with respect to the
Company's personnel.
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 and seeks
unspecified damages. On December 19, 1996, the Court in Harris County, Texas,
signed an order transferring the R.E. Steakley claim to the court in Ector
County, Texas as a part of the Company's claim against R.E. Steakley.
Subsequently, R.E. Steakley filed a Fourth Amended Original Answer and Original
Counterclaims against the Company in Ector County District Court in which he
reasserts the claims filed in the Harris County action. 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.
The Company is not a defendant in any additional pending legal
proceedings other than routine litigation incidental to its business. While the
ultimate results of these proceedings cannot be predicted with certainty, the
Company does not believe that the outcome of these matters will have a material
adverse effect on the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The list of exhibits required by Item 601 of Regulation S-K and filed
as part of this report is set forth in the Index to Exhibits.
(b) No reports on Form 8-K were filed during the three months ended
March 31, 1998.
12
<PAGE> 15
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
NATIONAL ENERGY GROUP, INC.
By: /s/ Miles D. Bender May 14, 1998
----------------------------------
Miles D. Bender
President and Chief Executive Officer
By: /s/ Fred R. Miller May 14, 1998
----------------------------------
Fred R. Miller
Senior Vice President, Finance and
Administration, and Chief Financial
Officer
/s/ Melissa H. Rutledge May 14, 1998
----------------------------------
Melissa H. Rutledge
Vice President, Controller, and Chief
Accounting Officer
13
<PAGE> 16
INDEX TO EXHIBITS
2.1 Agreement and Plan of Merger, dated June 6, 1996, among the Company,
NEG-OK, Inc. ("NEG-OK"), and Alexander Energy Corporation
("Alexander") (1)
2.2 First Amendment to Agreement and Plan of Merger, dated as of June 20,
1996, among the Company, NEG-OK, and Alexander (2)
2.3 Mutual Waiver Agreement dated as of August 29, 1996 by and among the
Company, NEG-OK and Alexander (3)
3.1 Certificate of Incorporation of the Company, which includes the
Certificate of Incorporation of the Company filed with the Secretary
of State of Delaware on November 20, 1990 (4), the Certificate of
Elimination of the Redeemable Convertible Preferred Stock, Series A of
the Company, filed with the office of the Secretary of State of the
State of Delaware on June 2, 1994 (3), the Certificate of Amendment of
Certificate of Incorporation of the Company, filed with the office of
the Secretary of State of the State of Delaware on August 29, 1996
(3), the Certificate of Designations of the Company of 10% Cumulative
Convertible Preferred Stock, Series B (5), the Certificate of
Designations of the Company of 10 1/2% Cumulative Convertible
Preferred Stock, Series (6), the Certificate of Designations of the
Company of Convertible Preferred Stock, Series D (3), and the
Certificate of Designations of the Company of Convertible Preferred
Stock, Series E (3)
3.2 By-laws of the Company (4)
4.1 Certificate of Designations of the Company of 10% Cumulative
Convertible Preferred Stock, Series B (5)
4.2 Certificate of Designations of the Company of 10 1/2% Cumulative
Convertible Preferred Stock, Series C (6)
4.3 Certificate of Designations of the Company of Convertible Preferred
Stock, Series D (3)
4.4 Certificate of Designations of the Company of Convertible Preferred
Stock, Series E (3)
4.5 Indenture dated as of November 1, 1996, among the Company, National
Energy Group of Oklahoma, Inc. (the "Guarantor"), formerly NEG-OK,
and BankOne, Columbus, N.A. (7)
4.6 Indenture dated August 21, 1997, among the Company and Bank One, N.A.
(8)
10.1 Executive Employment Agreement, dated March 31, 1998, between the
Company and Chuck L. Elsey (10)
10.2 Executive Employment Agreement, dated April 13, 1998, between the
Company and Kent Lueders (10)
11 Computation of Earnings Per Share (10)
27.1 Financial Data Schedule (9)
- -----------
(1) Incorporated by reference to the Company's Registration Statement on Form
S-4 (No. 333-9045), dated July 29, 1996.
(2) Incorporated by reference to Amendment No. 1 to the Company's Registration
Statement on Form S-4 (No. 333-9045), dated August 7, 1996.
(3) Incorporated by reference to the Company's Current Report on Form 8-K,
dated August 29, 1996.
(4) Incorporated by reference to the Company's Registration Statement on Form
S-4 (No. 33-38331), dated April 23, 1991.
(5) Incorporated by reference to the Company's Current Report on Form 8-K,
dated June 17, 1994.
(6) Incorporated by reference to the Company's Current Report on Form 8-K,
dated July 18, 1995.
(7) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1996.
(8) Incorporated by reference to the Company's Form S-4 (No. 333-38075), filed
October 16, 1997.
(9) The Financial Data Schedule, is filed herewith for EDGAR filings only.
(10) Filed herewith.
<PAGE> 1
EXHIBIT 10.1
EXECUTIVE EMPLOYMENT AGREEMENT
This Executive Employment Agreement (the "Agreement") is made the 31st
day of March, 1998, by and between National Energy Group, Inc., a Delaware
corporation acting by and through its hereunto duly authorized officer (the
"Company"), and C.L. Elsey (the "Executive").
WHEREAS, the Executive is presently in the employ of the Company in
the capacity of Executive Vice President and Chief Operating 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 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 Executive
Vice President and Chief Operating 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 his employment with the
Company in the capacity of Executive Vice President and Chief Operating Officer
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.
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 Executive Vice President and
Chief Operating Officer and shall serve with the necessary power and authority
commensurate with such position. If the Company removes the Executive from the
office of the Executive Vice President and Chief Operating 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 Executive Vice President
and Chief Operating Officer 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.
<PAGE> 2
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:
<TABLE>
<CAPTION>
=======================================================================================================================
ANNUAL PERIOD ANNUAL ANNUAL BONUS
BASE SALARY
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
For the one year period following 100% of the average of the Executive's 100% of the average of the bonuses
effective date of a Change of annual base salary in effect paid to the Executive for each of
Control immediately prior to the Change in the three fiscal years before the
Control and of the Executive's annual Change in Control
base salary for each of the immediately
preceding two years
- -----------------------------------------------------------------------------------------------------------------------
For the second year following 100% of the average of the Executive's 100% of the average of the bonuses
effective date of a Change of Control annual base salary on the date that is paid to the Executive for the
one year after the Change in Control and three immediately preceding fiscal
of the Executive's annual base salary for years
each of the immediately preceding two
years
- -----------------------------------------------------------------------------------------------------------------------
For the third year following effective 100% of the average of the Executive's 100% of the average of the bonuses
date of a Change of Control annual base salary on the date that is paid to the Executive for the
two years after the Change in Control and three immediately preceding fiscal
of the Executive's annual base salary for years
each of the immediately preceding two
years
=======================================================================================================================
</TABLE>
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.
2
<PAGE> 3
(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 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 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.
3
<PAGE> 4
(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 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,
4
<PAGE> 5
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 66b%
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 Executive
Vice President and Chief Operating 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 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 Executive Vice
President and Chief Operating 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 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;
5
<PAGE> 6
(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 Executive Vice President and Chief
Operating 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 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
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.
6
<PAGE> 7
(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.
(h) Certain Conflicts. The parties hereto acknowledge
and agree that Executive has entered into that certain letter
agreement pertaining to the Executive's employment with the Company
dated January 2, 1998 (the "Letter Agreement"). Where a conflict may
arise between the provisions of this Agreement and the Letter
Agreement, the provisions of the Letter Agreement shall apply.
(i) Mediation/Arbitration. In the event of a dispute
between the parties to this agreement, the parties agree not to
commence any action in a court of law or equity but to participate in
good faith in a minimum of four (4) hours of mediation in Dallas,
Texas with an attorney-mediator trained and certified by the American
Arbitration Association, the United States Arbitration and Mediation
Service, or any comparable organization, and to abide by the mediation
procedures and decision of such organization. The parties agree to
equally bear the costs of the mediation. In the event the parties
cannot resolve their dispute through mediation as described herein,
the parties agree to participate in binding arbitration pursuant to
the rules of the American Arbitration Association or mutually
agreeable similar organization. Such arbitration shall be held in
Dallas, Texas, shall be binding and nonappealable and a judgment on
the award to the prevailing party (inclusive of reasonable attorney's
fees and costs) may be entered in any court having competent
jurisdiction.
7
<PAGE> 8
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:
-------------------------------------
Miles D. Bender
President and Chief Executive Officer
4925 Greenville Avenue, Suite 1400
Dallas, Texas 75206
(214) 692-9211
(214) 692-5055 (Fax)
EXECUTIVE:
----------------------------------------
C.L. ELSEY
Address: 200 E. Oak Knoll Circle, #1223
Lewisville, TX 75067
8
<PAGE> 1
EXHIBIT 10.2
EXECUTIVE EMPLOYMENT AGREEMENT
This Executive Employment Agreement (the "Agreement") is made the 13th
day of April, 1998, by and between National Energy Group, Inc., a Delaware
corporation acting by and through its hereunto duly authorized officer (the
"Company"), and Kent Lueders (the "Executive").
WHEREAS, the Executive is presently in the employ of the Company in
the capacity of Director of Corporate Development 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 Director
of Corporate Development 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 Director of Corporate Development 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.
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 Director of Corporate
Development and shall serve with the necessary power and authority commensurate
with such position. If the Company removes the Executive from the office of
the Director of Corporate Development 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 Director of Corporate Development 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.
<PAGE> 2
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:
<TABLE>
<CAPTION>
===============================================================================================================================
ANNUAL PERIOD ANNUAL ANNUAL BONUS
BASE SALARY
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
For the one year period following 100% of the average of the Executive's 100% of the average of the bonuses paid
effective date of a Change of Control annual base salary in effect to the Executive for each of the three
immediately prior to the Change in fiscal years before the Change in
Control and of the Executive's annual Control
base salary for each of the immediately
preceding two years
- -------------------------------------------------------------------------------------------------------------------------------
For the second year following effective 100% of the average of the Executive's 100% of the average of the bonuses paid
date of a Change of Control annual base salary on the date that is to the Executive for the three
one year after the Change in Control immediately preceding fiscal years
and of the Executive's annual base
salary for each of the immediately
preceding two years
- -------------------------------------------------------------------------------------------------------------------------------
For the third year following effective 100% of the average of the Executive's 100% of the average of the bonuses paid
date of a Change of Control annual base salary on the date that is to the Executive for the three
two years after the Change in Control immediately preceding fiscal years
and of the Executive's annual base
salary for each of the immediately
preceding two years
==========================================================================================================================
</TABLE>
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.
2
<PAGE> 3
(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 1st 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 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 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
3
<PAGE> 4
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 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
4
<PAGE> 5
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 66b% 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 Director
of Corporate Development 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 Director of
Corporate Development 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;
5
<PAGE> 6
(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 Director of Corporate Development 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. Subject to the provisions of Section 14(i) below,
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 counseling respecting his rights
under this Agreement and in prosecuting and disposing of such action.
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
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
6
<PAGE> 7
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.
(h) Certain Conflicts. The parties hereto acknowledge
and agree that Executive has entered into that certain letter
agreement pertaining to the Executive's employment with the Company
dated March 26, 1998 (the "Letter Agreement"). Where a conflict may
arise between the provisions of this Agreement and the Letter
Agreement, the provisions of the Letter Agreement shall apply.
(i) Mediation/Arbitration. Notwithstanding anything to
the contrary contained herein, in the event of a dispute between the
parties to this agreement, the parties agree to participate in good
faith in a minimum of four (4) hours of mediation in Dallas, Texas
with an attorney-mediator trained and certified by the American
Arbitration Association, the United States Arbitration and Mediation
Service, or any comparable organization, and to abide by the mediation
procedures and decision of such organization. The parties agree to
equally bear the costs of the mediation. In the event the parties
cannot resolve their dispute through mediation as described herein,
the parties agree to participate in binding arbitration pursuant to
the rules of the American Arbitration Association or mutually
agreeable similar organization. Such arbitration shall be held in
Dallas, Texas, shall be binding and nonappealable and a judgment on
the award to the prevailing party (inclusive of reasonable attorney's
fees and costs) may be entered in any court having competent
jurisdiction.
7
<PAGE> 8
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: /s/ MILES D. BENDER
--------------------------------------
Miles D. Bender
President and Chief Executive Officer
4925 Greenville Avenue, Suite 1400
Dallas, Texas 75206
(214) 692-9211
(214) 692-5055 (Fax)
EXECUTIVE:
/s/ KENT LUEDERS
-----------------------------------------
KENT LUEDERS
16210 Red Cedar Trail
Dallas, TX 75248
8
<PAGE> 1
EXHIBIT 11
NATIONAL ENERGY GROUP, INC.
COMPUTATION OF EARNINGS PER SHARE
THREE MONTHS ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
PRIMARY FULLY DILUTED
-------------- --------------
<S> <C> <C>
Income applicable to common stockholders:
Net Income............................................................ $ 1,403,440 $ 1,403,440
Preferred dividend requirements....................................... (236,250) -
-------------- --------------
Income applicable to common stockholders.............................. $ 1,167,190 $ 1,403,440
============== ==============
Common and common equivalent shares:
Weighted average number of common shares outstanding.................. 36,094,169 36,094,169
Shares issuable upon exercise of options and warrants................. 3,629,135 3,629,135
Less shares assumed repurchased....................................... (2,443,506) (2,443,506)
-------------- --------------
1,185,629 1,185,629
Shares issuable upon conversion of Convertible Preferred Stock:
Series B and Series C.............................................. - 5,230,769
Series D and Series E.............................................. 6,666,666 6,666,666
-------------- --------------
Common and common equivalent shares................................... 43,966,562 49,197,331
============== ==============
Net income per common and common equivalent share........................ $ 0.027 $ 0.029
============== ==============
</TABLE>
Note: Fully diluted net income per common share data is not presented
because the effect of assumed conversion of the Convertible Preferred
Stock, Series B and C, is antidilutive.
<TABLE> <S> <C>
<ARTICLE> CT
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<TOTAL-ASSETS> 222,364,948
0
171,187
<COMMON> 404,813
<OTHER-SE> 18,367,303
<TOTAL-LIABILITY-AND-EQUITY> 22,364,948
<TOTAL-REVENUES> 11,161,783
<INCOME-TAX> 0
<INCOME-CONTINUING> (29,043,525)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (29,043,525)
<EPS-PRIMARY> (.72)
<EPS-DILUTED> (.72)
</TABLE>
