<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------
FORM 10-K/A
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
OR
[ ] 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 of (I.R.S. Employer
Incorporation or Organization) Identification No.)
4925 GREENVILLE AVENUE
DALLAS, TEXAS 75206
(Address of Principal Executive Offices) (Zip Code)
(214) 692-9211
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 par value
(Title of Class)
Securities registered pursuant to Securities Act of 1933:
Series B Senior Notes, 10 3/4% due 2006
Series D Senior Notes, 10 3/4% due 2006
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
Yes [X] No [ ]
The aggregate market value of the shares of Common Stock held by
non-affiliates of the Registrant, as of March 24, 1999 (based upon the last
sales price of $.10 as reported by the OTC Bulletin Board) was $3,341,072.
40,527,482 shares of the Registrant's Common Stock, $0.01 par value,
were outstanding on March 24, 1999.
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EXPLANATORY NOTE
This Annual Report on Form 10-K/A for the fiscal year ended December
31, 1998 is being filed for the purpose of including the information required
by Part III of this report and to file new Exhibits 10.53 and 10.54 and new
Exhibit 27.1 as a replacement to Exhibit 27.1 previously filed with the
Registrant's Annual Report on Form 10-K for the year ended December 31, 1998
and to make corresponding amendments to the Index to Exhibits to the report.
This Form 10-K/A constitutes Amendment No. 1 to the report.
ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT
The following table lists the name, age as of April 20, 1999 and
present position with the Company for each of the Company's directors and
executive officers:
<TABLE>
<CAPTION>
NAME AGE PRESENT POSITION WITH THE COMPANY(1)
- ---- --- ------------------------------------
<S> <C> <C>
Bob G. Alexander 65 Chairman of the Board of Directors, President and Chief
Executive Officer
Jim L. David 59 Director, Assistant to the President
Russell D. Glass 36 Director
Martin Hirsch 44 Director
Robert H. Kite 44 Director
Robert J. Mitchell 51 Director
Jack G. Wasserman 62 Director
Philip D. Devlin 54 Vice President, General Counsel and Secretary
R. Kent Lueders 42 Vice President, Corporate Development
Melissa H. Rutledge 33 Vice President, Controller and Chief Accounting Officer
Leslie J. Wylie 47 Vice President, Land and Assistant General Counsel
</TABLE>
(1) Messrs. Alexander, David and Mitchell were appointed to the Board on
August 29, 1996, and Mr. Alexander was appointed President and Chief
Executive Officer of the Company effective November 23, 1998. Messrs.
Glass, Hirsch and Wasserman were appointed to the Board on December 1,
1998. Pursuant to the terms of the Series B Preferred Stock, Series C
Preferred Stock and Series D Preferred Stock, the holders of a
majority of the outstanding shares of each series have the right to
appoint one member to the Company's Board of Directors at all times
while such series are outstanding. Mr. Elwood Schafer, the Series C
Preferred Stock appointee, resigned from the Board of Directors
effective December 31, 1998. Directors generally serve for a term of
one year (until the next annual meeting of shareholders) and until
their successors are duly elected and qualified, or until their death,
resignation or removal, at which time the Board of Directors has the
authority to appoint replacements to fill any such vacancies until the
next annual meeting of shareholders.
Bob G. Alexander. Mr. Alexander, a founder of Alexander Energy
Corporation, was appointed a Director of the Company when Alexander merged into
NEG-OK on August 29, 1996 and was appointed President and Chief Executive
Officer of the Company on November 23, 1998. From 1980 until the Merger, Mr.
Alexander served as Chairman of the Board, President and Chief Executive
Officer of Alexander. From 1976 to 1980, Mr. Alexander was Vice President and
General Manager of the Northern Division of Reserve Oil, Inc. and President of
Basin Drilling Corp. (subsidiaries of Reserve Oil and Gas Company). Mr.
Alexander attended the University of Oklahoma and graduated with a bachelor of
science degree in geological engineering.
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Jim L. David. Mr. David, a founder of Alexander Energy Corporation,
was appointed a Director of the Company when Alexander merged into NEG-OK on
August 29, 1996. From August 1996 until July 1998, Mr. David served as Vice
President, Exploration of the Company. In December 1998, he became Assistant to
the President of the Company. From 1980 until the Merger, Mr. David served as
Executive Vice President of Alexander. From 1977 to 1980, Mr. David was
employed as exploration manager for Reserve Oil, Inc., Northern Division. Mr.
David served as Alaska chief geologist and senior staff geologist for Texas
International from 1973 to 1976. Mr. David graduated with a B.A. degree in
geology from Louisiana Tech University and obtained a master of arts in geology
from the University of Missouri.
Russell D. Glass. Effective December 1, 1998, Mr. Glass was appointed
to the Board of Directors of the Company. Mr. Glass has been President and
Chief Investment Officer of Icahn Associates Corporation and Starfire Holding
Corporation, privately held investment companies, since April 1998. From March
1996 to March 1998, he was a partner in Relational Investors LLC, an investment
management firm. From 1988 to 1996, he was President of Premier Partners Inc.,
a private investment firm. From 1984 to 1986 he served as an investment banker
with Kidder, Peabody & Company. Mr. Glass is a director of Cadus Pharmaceutical
corporation, a biotechnology research company; Global Discount Travel Services
LLC, an internet travel reservations company; and the A.G. Spanos Corporation,
a privately held national real estate development company and owner of the NFL
San Diego Chargers. Mr. Glass received his B.A. from Princeton University and
an M.B.A. from the Stanford University Graduate School of Business.
Martin Hirsch. Effective December 1, 1998, Mr. Hirsch was appointed to
the Board of Directors of the Company. Mr. Hirsch has served as a Vice
President of American Property Investors since March 18, 1991 where he is
involved in investing, managing and disposing of real estate properties and
securities. From January 1986 to January 1991, he was at Integrated Resources,
Inc. as a Vice President and where he was involved in the acquisition of
commercial real estate properties and asset management. From 1985 to 1986, he
was a Vice President of Hall Financial Group where he was involved in acquiring
and financing commercial and residential properties. Mr. Hirsch received his
M.B.A. from The Emory University Graduate School of Business.
Robert H. Kite. Effective December 17, 1990, Mr. Kite was appointed a
Director of the Company. From November 1987 until June 11, 1991, Mr. Kite
served as a Director of VP. Since 1980, Mr. Kite has been President and Chief
Operating Officer of KFC, Ltd., a family-owned company with operations which
include real estate development, investments and medical MRI clinics. He has
also been Chief Executive Officer of Roamin' Korp., Inc. since 1982, which is
engaged in the businesses of construction, recording, mining and equity
investments. Mr. Kite graduated from Southern Methodist University with a B.S.
degree in Psychology and Political Science.
Robert J. Mitchell. Effective August 29, 1996, Mr. Mitchell was
appointed a Director of the Company. Mr. Mitchell is Chief Executive Officer of
ACF Industries Inc., has served as Senior Vice President -- Finance of such
company from March 1995 to the present and was Treasurer from December 1984 to
March 1995. Mr. Mitchell has also served as President and Treasurer of ACF
Industries Holdings Inc. since August 1993 and as Vice President, Liaison
Officer of Icahn & Co., Inc. since November 1984. From 1987 to January 1993,
Mr. Mitchell served as Treasurer of TransWorld Airlines, Inc. and was the
Treasurer of TransWorld Airlines, Inc. when it filed for reorganization under
Chapter 11 of the United States Bankruptcy Code, as amended, in January 1992.
Mr. Mitchell is also a director of Cadus Pharmaceutical Corporation, a NASDAQ
National Market listed pharmaceutical company.
Jack G. Wasserman. Effective December 1, 1998, Mr. Wasserman was
appointed to the Board of Directors of the Company. Mr. Wasserman is a senior
partner of Wasserman, Schneider, Babb and Reed,
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a New York law firm, and has been a partner of that firm and its predecessors
since 1966. Mr. Wasserman is admitted to practice before the Supreme Court of
the United States and in the states of New York, Florida and the District of
Columbia. He serves as a Director of American Property Investors, Inc., the
general partner of American Real Estate Partners, L.P. whose units are traded
on the New York Stock Exchange, and Cadus Pharmaceutical Corporation whose
shares are traded on the NASDAQ National Market. Mr. Wasserman holds a B.A.
degree from Adelphi University, a J.D. degree from Georgetown University, and a
Graduate Diploma from the Johns Hopkins University School of Advanced
International Studies in Bologna, Italy.
Philip D. Devlin. Effective March 1, 1997, Mr. Devlin was appointed
Vice President and General Counsel of the Company and, effective March 20,
1997, the Board of Directors appointed him Secretary of the Company. From
September 1984 to October 1994, Mr. Devlin served as Executive Vice President,
General Counsel and Secretary for Sunrise Energy Services, Inc., a
publicly-held natural gas marketing company. From October 1994 through February
1997, Mr. Devlin acted as President and Chief Executive Officer of Sunrise
Energy Services, Inc. In July 1995, Sunrise Energy Services, Inc. filed to
reorganize under Chapter 11 of the Bankruptcy Code and in February 1997 a Plan
of Reorganization was confirmed by the Bankruptcy Court. Mr. Devlin is licensed
by the State Bar of Texas, admitted to practice before the Supreme Court of the
United States and is a past President and Director of the Natural Gas and
Electric Power Association of North Texas. Mr. Devlin holds a B.A. degree and
an M.A. degree from the University of California and J.D. degree with honors
from California Western School of Law, San Diego, California.
R. Kent Lueders. Effective April 13, 1998, Mr. Lueders was appointed
Director of Corporate Development and in September 1998 was made a Vice
President of the Company. From 1996 to 1998, Mr. Lueders was Manager of
Acquisitions for Merit Energy. From 1994 to 1996, Mr. Lueders worked as a
consulting evaluation engineer for RK Engineering. Prior to this Mr. Lueders
was the Product Line Manager with Munro Garrett International from 1993 to
1994. From 1982 to 1993, Mr. Lueders was Manager of Engineering Services for
Pacific Enterprises Oil Company (USA) where he managed the Company reserves,
budget and engineering systems. Mr. Lueders began his career with Amoco
Production Company in 1979 as an engineer working East and West Texas. He
received a B.S. degree in Petroleum Engineering from the University of Missouri
at Rolla in 1979.
Melissa H. Rutledge. Effective August 15, 1994, Ms. Rutledge was
appointed Controller and Chief Accounting Officer of the Company and in
December 1997 was made a Vice President of the Company. From September 1990 to
August 1994, Ms. Rutledge was a Senior Auditor for Ernst & Young LLP in Dallas.
Ms. Rutledge received her B.B.A. degree in Accounting from Texas Tech
University and is currently licensed as a CPA in the State of Texas.
Leslie J. Wylie. Effective June 1, 1998, Ms. Wylie was appointed Vice
President, Land and Asst. General Counsel. Ms. Wylie has 26 years of experience
in the energy industry in the legal, exploration and production, pipeline,
marketing and acquisition and divestiture areas. From April, 1993 to April,
1997, Ms. Wylie served as Attorney and Manager. of Business Development
Administration for EEX Corporation and as General Attorney for ENSERCH
Corporation. From June, 1991 through March, l993, Ms. Wylie served as Director
of Land for Pacific Enterprises Oil Company, USA. From December, 1989 until
June, 1991 Ms. Wylie was an Attorney for Lone Star Gas Company. From 1982 until
December l989, Ms Wylie was the Land Manager and Attorney for Statex Petroleum,
Inc., an independent oil and gas producer. Prior to 1989, Ms. Wylie held
various land, legal and/or marketing positions with Phoenix Resources Company,
Helmerich & Payne, Inc., ARCO Pipeline Company and Oklahoma Natural Gas
Company. Ms. Wylie is licensed by the State Bars of Oklahoma and Texas, holds a
B.A. degree from Oklahoma State University and a J.D. degree from the
University of Tulsa College of Law.
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All of the Company's Executive Officers and Directors were acting in
such capacity upon the filing of the involuntary petition for an Order for
Relief under Chapter 11 of Title 11 of the United States Bankruptcy Code on
December 4, 1998 by the Company's 10 3/4% Senior Note Bondholders.
The Company had a number of Committees which convened during 1998, but
which were dissolved October 26, 1998 in favor of the entire Board of Directors
acting en banc in all matters. The Executive Committee included Messrs. Miller,
Bender, Alexander and McCullough. The Executive Committee acted as liaison to
senior management and in place of the Board of Directors between regularly
scheduled meetings. The Executive Committee held seven (7) meetings during
1998. The Company's Audit Committee consisted of non-executive officers who
were outside directors as follows: Messrs. Kite, McDonald, Mitchell, Alexander
and Schafer, and was responsible for reviewing the audited financials, the
scope of audit coverage and internal control systems with the Company's
independent auditors. The Audit Committee held three (3) meetings during 1998.
The Compensation Committee was comprised of Messrs. McCullough, Miller, Kite
and Mitchell, and Mr. Bender served as an ad hoc member. The Compensation
Committee was charged with the responsibility of administering and interpreting
the Company's various incentive compensation plans, determining bonuses and
approving other compensation issues. The Compensation Committee held no formal
meetings during 1998, and all compensation matters were handled by the Board
acting en banc.
The Board of Directors held thirteen (13) regular and special meetings
during 1998.
The executive officers of the Company are elected annually at the
first meeting of the Company's Board of Directors held after each annual
meeting of shareholders. Each executive officer will hold office until the
first meeting of the Board after the annual meeting of shareholders next
succeeding his or her election and until his or her successor is duly elected
and qualified, or until his or her death or resignation or until he or she
shall have been removed in the manner provided in the Company's bylaws.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Company received no copy of a Form 5 filing for the year ended
December 31, 1998 for the following former directors and officers of the
Company who resigned during 1998: Gene W. Anderson, C. Dewayne Cravens and
Chuck L. Elsey, and has no knowledge if such individuals were required to file
a Form 5.
ITEM 11. EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
The following tables set forth the cash compensation received by the
Company's Chief Executive Officer, the former Chief Executive Officer of the
Company, and each of the next four most highly compensated executive officers
of the Company whose cash compensation exceeded $100,000 for the fiscal year
ended December 31, 1998, together with two additional executive officers who
left the Company prior to year end, but whose compensation would have been
among the four most highly compensated executive officers and whose base salary
plus bonus equaled or exceeded $100,000. Such tables also include option grants
in the last fiscal year for such officers and aggregate option/SAR exercises
during the last fiscal year and year end option/SAR values.
5
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SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION AWARDS
--------------------------
ANNUAL RESTRICTED ALL
COMPENSATION (1) STOCK SECURITIES OTHER
--------------------- AWARDS UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($) OPTIONS(#)(2) ($)
--------------------------- ---- --------- -------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Bob G. Alexander 1998 148,910 -- -- -- --
President and Chief 1997 148,645 -- -- 37,500 --
Executive Officer(3) 1996 132,008 -- -- 37,500 --
Miles D. Bender 1998 302,500 -- -- -- 415,214(4)
(former President and Chief 1997 300,000 100,000 -- 900,000(5)(6) --
Executive Officer) 1996 224,694 35,000 -- 200,000(6) --
William T. Jones 1998 71,981 -- -- -- 140,731(7)
(former Senior Vice 1997 185,000 35,000 -- 100,000(6) --
President, Operations) 1996 121,721 35,000 -- 100,000(6) --
Jim L. David 1998 105,000 -- -- -- 197,000(8)
(former Vice President, 1997 132,500 35,000 -- 75,000 --
Exploration) 1996 115,000 10,000 -- 30,000 --
Philip D. Devlin 1998 193,882 -- -- -- --
Vice President, 1997 137,500 25,000 203,500(10) 60,000 50,885(11)
General Counsel(9) 1996 -- -- -- -- --
Melissa H. Rutledge 1998 107,000 -- -- -- --
Vice President, Controller 1997 80,000 15,000 -- 30,000 --
and Chief Accounting 1996 80,000 15,000 -- 30,000 --
Officer(12)
R. Kent Lueders 1998 80,556 -- 2,188(15) 25,000 --
Vice President, Corporate 1997 -- -- -- -- --
Development(13) 1996 -- -- -- -- --
Leslie J. Wylie 1998 74,108 -- 2,188(16) 50,000 --
Vice President, Land(14) 1997 -- -- -- -- --
1996 -- -- -- -- --
</TABLE>
(1) Excludes the aggregate, incremental cost to the Company of perquisites
and other personal benefits, securities or property, the aggregate
amount of which, with respect to the named individual, does not equal
or exceed the lesser of $50,000 or 10% of reported annual salary and
bonus for such person.
(2) All options granted since June 1996 were granted pursuant to the 1996
Incentive Compensation Plan which was approved by the shareholders
June 4, 1996 and registered by the Company on December 5, 1997. All
previous options had been registered by the Company prior to January
1, 1997.
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(3) Effective November 23, 1998, Mr. Alexander was appointed President and
Chief Executive Officer of the Company.
(4) Mr. Bender's employment with the Company terminated November 23, 1998
and was paid these amounts pursuant to a Separation Agreement with the
Company.
(5) Includes 700,000 options granted March 20, 1997 at a price of $4.00
per share which shall vest at any time within a five (5) year period
of the date of grant; provided that the closing price of the Company's
common stock as quoted on the NASDAQ shall have been at or above $8.00
per share for not less than thirty (30) consecutive days prior to any
such exercise.
(6) All such options have since expired.
(7) Mr. Jones' employment with the Company was terminated May 18, 1998,
and these amounts were paid pursuant to a Separation Agreement with
the Company.
(8) Mr. David's employment with the Company was terminated July 31, 1998,
and these amounts were paid pursuant to a Separation Agreement with
the Company. Mr. David was subsequently rehired by the Company on
December 1, 1998 as an assistant to the President and Chief Executive
Officer.
(9) Effective March 1, 1997, Mr. Devlin was appointed Vice President and
General Counsel of the Company.
(10) Mr. Devlin was granted 50,000 shares of the Company's common stock
during 1997 which was subsequently registered and had a market value
of $203,500 as of December 31, 1997.
(11) Mr. Devlin earned $50,885 as consulting fees from the Company during
1997 prior to joining the Company as an employee and officer.
(12) Effective December 4, 1997, Ms. Rutledge was appointed Vice President
of the Company and has served as its Controller and Chief Accounting
Officer since August 1994.
(13) Mr. Lueders was employed by the Company April 13, 1998 and effective
September 2, 1998, Mr. Lueders was appointed Vice President, Corporate
Development of the Company.
(14) Effective June 1, 1998, Ms. Wylie was appointed Vice President, Land
of the Company.
(15) Mr. Lueders was granted 10,000 shares of the Company's unregistered
common stock during 1998, which had a market value of $2,188 as of
December 31, 1998. Fifty percent of this stock grant vests after one
year of service and the remainder vests after two years of service.
(16) Ms. Wylie was granted 10,000 shares of the Company's unregistered
common stock during 1998, which had a market value of $2,188 as of
December 31, 1998. fifty percent of this stock grant vests after one
year of service and the remainder vests after two years of service.
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OPTION/GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF POTENTIAL REALIZABLE VALUE
NUMBER OF TOTAL AT ASSUMED ANNUAL RATES
SECURITIES OPTIONS OF STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM
OPTIONS EMPLOYEES IN OR BASE EXPIRATION ----------------------------
NAME GRANTED (#) FISCAL YEAR PRICE ($/SH) DATE 5%($) 10%($)
---- ----------- ------------ ------------ ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Bob G. Alexander........ -- -- -- -- -- --
Miles D. Bender.......... -- -- -- -- -- --
William T. Jones......... -- -- -- -- -- --
Jim L. David............. -- -- -- -- -- --
Philip D. Devlin......... -- -- -- -- -- --
Melissa H. Rutledge...... -- -- -- -- -- --
Leslie J. Wylie ......... 50,000(1) 12% $1.6875 6/4/03 $88,500 $93,000(2)
R. Kent Lueders.......... 25,000(1) 6% $1,6875 6/4/03 $44,250 $46,500(2)
</TABLE>
(1) These options were granted pursuant to the 1996 Incentive Compensation
Plan and vest 50% at the end of one year and the remaining 50% at the end
of two years following the date of grant. The 1996 Incentive Compensation
Plan was approved by shareholders in June 1997 and the underlying
securities registered in December 1997.
(2) At April 20, 1999, the quoted price of the Company's stock was
approximately $0.12 per share. The amounts represented reflect an increase
over the option exercise price as stated.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING
UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
SHARES FISCAL YEAR-END (#) AT FISCAL YEAR-END ($)
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE(1)
---- ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Bob G. Alexander(2).............. -- -- 56,250 / 18,750 $0 / $0
Miles D. Bender ................. -- -- -- --
William T. Jones ................ -- -- -- --
</TABLE>
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<TABLE>
<S> <C> <C> <C> <C>
Jim L. David .................... -- -- -- --
Philip D. Devlin(2).............. -- -- 35,000 / 25,000 $0 / $0
Melissa H. Rutledge(2) .......... -- -- 55,000 / 15,000 $0 / $0
Leslie J. Wylie (2) ............. -- -- -- / 50,000 $0 / $0
R. Kent Lueders(2) .............. -- -- -- / 25,000 $0 / $0
</TABLE>
(1) Based on the closing price of the Company's common stock at December
31, 1998 of $0.23 per share.
(2) These individuals did not exercise any options during 1998.
The Company does not have any long-term incentive plans or defined
benefit or actuarial plans. Therefore, the tables on long-term incentive plan
awards and pension plans are omitted.
Robert A. Imel, formerly the Chief Financial Officer of the Company,
terminated his employment on December 6, 1997. Pursuant to the terms of his
Separation Agreement, he was given a termination allowance equivalent to his
base salary for a period of five months plus $500 per month for a period of
eighteen months following his separation from the Company. Additionally, Mr.
Imel was granted an extension through June 30, 1998 in which to redeem certain
shares of the Company's Common Stock (the "Stock") granted to Mr. Imel by the
Company in January 1997 pursuant to his employment which Mr. Imel had pledged
to the Company in return for cash in the amount of $150,000. Mr. Imel did not
redeem the Stock by tendering payment to the Company of the amount of $150,000
on or before June 30, 1998, and the Company now has the absolute right to
dispose of the Stock in any manner it so deems in its sole discretion without
any obligation of notice, presentment or demand upon Mr. Imel.
EMPLOYEE STOCK PURCHASE PLAN
The Company has an Employee Stock Purchase Plan (the "Plan") pursuant
to Section 423(b) of the United States Internal Revenue Code of 1986, as
amended. Pursuant to the Plan, all Eligible Participants may participate in
each semi-annual offering in an amount of not less than 1% or more than 10% of
his or her base pay in effect as of the Offering Commencement Date of each
offering. At the end of each offering, the employee shall be entitled to
purchase stock of the Company from the payroll deductions through the Offering
Period at a price equal to the lower of:
(a) 85% of the closing price of the stock on the Offering Commencement
Date or the nearest prior business day on which trading occurred
on the NASDAQ National Market System; or
(b) 85% of the closing price of the stock on the Offering Termination
Date or the nearest prior business day on which trading occurred
on the NASDAQ National Market System; or
(c) if the Common Stock of the Company is not admitted to trading on
any of the aforesaid dates for which closing prices of the stock
are to be determined, then reference shall be made to the fair
market value of the stock on that date, as determined on such
basis as shall be established or specified for purposes of the
offering by the Board of Directors.
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During 1998, a total of 34 employees participated in the Plan and 46,162 shares
of the Company's common stock were issued pursuant thereto. Mr. Devlin and Ms.
Rutledge were the only officers of the Company who participated in the Plan and
purchased 1,463 and 1,800, respectively, of the total shares issued.
COMPENSATION OF DIRECTORS
The Company compensates non-employee Board of Directors members in the
amount of $1,000 for each official Board of Directors' meeting and $500 for
each Board of Directors' committee meeting unless such committee meeting is
held at the time of, or in conjunction with, an official Board of Directors'
meeting. In addition, members of the Board of Directors have been granted stock
options in past years. During 1998, no stock options were granted to directors.
An affiliated company of Mr. Norman Miller, Incorp Inc. (which acts as
a petroleum consultant and independent oil and gas producer), was paid $35,000
for consulting services rendered to the Company by Mr. Miller during 1998.
Effective November 11, 1994, Mr. Miller was entitled to receive $500 for each
day he works on Company matters and Incorp Inc. received $6,000 during 1998 for
Mr. Miller's expenses in performing such work. Incorp Inc. terminated its
relationship with the Company on December 7, 1998, and Mr. Miller resigned from
the Board of Directors effective February 10, 1999.
Upon consummation of the Alexander merger, Mr. Bob G. Alexander
entered into a consulting agreement with the Company for a term running from
September 1996 to September 1999 at a compensation level of $150,000 per year.
Effective November 23, 1998, Mr. Alexander was appointed President and Chief
Executive Officer of the Company at an annual salary of $250,000 per year. In
January 1999, Mr. Alexander was paid the outstanding amount of $112,500 due
under his consulting agreement.
In addition, the Company pays other incidental compensation to
executive officers and directors from time to time, consisting primarily of
health insurance and reimbursement for travel and entertainment expenses on
behalf of the Company.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
In January 1996, the Company executed an employment agreement with
Melissa H. Rutledge, Vice President, Controller and Chief Accounting Officer,
which has a term of three years from the effective date of a "change in
control" of the Company. In March 1997, April 1998 and June 1998, respectively,
the Company executed a similar employment agreement with Philip D. Devlin, Vice
President, General Counsel and Secretary; R, Kent Lueders, Vice President,
Corporate Development; and Leslie J. Wylie, Vice President, Land, which has a
term of three years from the effective date of a "change of control" of the
Company (together with the above-referenced employment agreements, the
"Employment Agreements"). The Employment Agreements each provide that the
three-year term will continuously roll over (so that at any time during the
term of such agreements there is a remaining term of three years, but in no
event beyond the time the executive and/or officer reaches age 65).
The Employment Agreements define the "change in control" to have
occurred when (i) a person, entity or group becomes the beneficial owner of a
majority of the securities of the Company ordinarily having the right to vote
for election of directors, (ii) during any consecutive two year period, the
directors at the beginning of the period (together with directors approved by a
vote of 662/3% of such initial directors plus directors previously approved by
such 662/3% margin) cease to constitute a majority of the
10
<PAGE> 11
Company's Board of Directors, (iii) any sale, lease, exchange or transfer of
all, or substantially all, of the Company's assets occurs, or (iv) a merger or
consolidation occurs with the effect that any person, entity or group, or the
shareholders thereof, become the owner of securities of the surviving
corporation representing a majority of the voting power of such surviving
corporation for the election of directors.
The Employment Agreements provide for a three year employment term
during which the executive and/or officer receives for each year (i) 100% of
the average of the executive's annual base salary at the time in question and
the executive's annual base salary for each of the preceding two years, and
(ii) 100% of the average of the bonuses paid to the executive and/or officer
for each of the preceding three fiscal years. If the executive and/or officer
is discharged without cause or resigns for "good reason" (as defined therein)
after a change in control, then in lieu of the compensation described in the
preceding sentence, the executive and/or officer is entitled to a lump sum cash
severance payment equal to three times the sum of (a) the executive's annual
base salary then in effect, (b) the average of cash bonuses for each of the
three previous years, and (c) the average of fully-vested contributions to
retirement plans for such executive and/or officer for each of the three
preceding years. In addition, at such time, all options and all other
retirement or pension contributions or benefits become fully vested and remain
fully exercisable for 360 days.
Pursuant to an agreement with the Company dated December 2, 1998, each
of Ms. Rutledge, Mr. Devlin, Mr. Lueders and Ms. Wylie agreed to terminate
their existing Employment Agreements; provided that no court (including the
bankruptcy court) reduces or dismisses any of the Severance Pay Benefits
(described below) available to such executives pursuant to the Company's
Severance Policy.
In January 1996, the Company executed an employment agreement with the
same terms as the employment agreements referenced above with Miles D. Bender,
President and Chief Executive Officer. In November 1998, the Company and Mr.
Bender entered into a Separation Agreement which terminated Mr. Bender's
position as President and Chief Executive Officer. Under the terms of the
Separation Agreement, Mr. Bender was paid a cash settlement of $395,764.43, and
his stock options terminated 30 days following his resignation from the Board
of Directors of the Company.
In addition to the Employment Agreements discussed above, the Company
entered into an employment agreement with Jim L. David, then Vice President,
Exploration in March 1997 for a two year term, commencing with the date of
consummation of the merger of the Company with Alexander Energy Corporation.
Under such agreement, in the event Mr. David resigned for a good reason after a
"change of control" as defined above, or upon the discharge of Mr. David
without cause during the employment term, Mr. David would receive severance
benefits equal to the sum of (i) his annual base salary then in effect, (ii)
his last annual cash bonus and (iii) the average retirement plan contributions
by the Company on his behalf on a fully vested bases for the last two fiscal
years, multiplied by three (3). Mr. David would also have all stock options
previously granted to him become fully vested and exercisable for a three year
period (360 days) following termination. Mr. David shall continue to receive
for a period of one (1) year following termination all life, accident,
disability, medical, dental and other health and casualty insurance benefits
maintained by the Company for its employees. Mr. David's employment agreement
was terminated in July, 1998 and the benefits payable under this employment
agreement were paid and made a part of his separation agreement.
SEVERANCE POLICY
Effective November 23, 1998, the directors initiated a Severance
Policy for all employees which provides that for a period ending October 31,
2000, all Eligible Participants shall be entitled to a Severance Pay Benefit up
to 18 months (as defined in the Policy) in the event such Eligible Participant
is terminated by the Company for any reason other than "cause" (as defined in
the Policy). The Policy provides that payments to such terminated employee
shall be subject to the employee's execution of a Separation Agreement which
shall include the following provisions:
(i) a release of all claims against the Company;
(ii) a confidentiality provision; and
11
<PAGE> 12
(iii) an agreement to give notice to the Company and not accept or
retain any further Severance Pay Benefit in the event the
Eligible Participant shall accept the same or substantially
similar employment with any other employer.
Payments under the Policy shall be made to each such terminated employee on a
monthly basis; provided that in the event the Company is sold pursuant to a
merger or liquidation proceeding and the Eligible Participant is not offered
the same or substantially similar employment, such Severance Pay Benefit shall
be paid to each Eligible Participant in a lump sum. To date, no employees have
been terminated by the Company who would be eligible for Severance Pay Benefits
under the Policy.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to his termination of employment with the Company, Miles D.
Bender served during 1998 both as a member of the Compensation Committee of the
Board of Directors of the Company and as the President and Chief Executive
Officer of the Company.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Prior to its dissolution in October 1998, the Compensation Committee
was composed of four Directors, and Mr. Bender (an executive officer) acted as
an ad hoc member. The Compensation Committee advises the Company's Board of
Directors and management concerning compensation for its executive officers.
Upon dissolution of the Compensation Committee, the Board of Directors acting
en banc assumed responsibility for all matters relating to compensation;
provided that directors who are executive officers or employees of the Company
shall abstain from all matters in which they have a vested interest.
Compensation for executive officers is based on the principles that
compensation must be competitive to enable the Company to motivate, attract and
retain highly qualified and talented employees to lead and grow the Company's
business and, at the same time, provide rewards which are closely linked to the
Company's and the individual's performance.
The Compensation Committee considers management skills, long term
performance, operating results, unusual accomplishments as well as economic
conditions and other external events that affect the Company's operations.
In addition to salaries, bonuses and stock options are generally
granted once annually based on performance, length of service or other noted
accomplishments in helping to increase reserves and/or cash flows of the
Company. Options were granted under the National Energy Group, Inc., 1996
Incentive Compensation Plan which was approved by the Board of Directors and
was approved by the shareholders at the 1997 Annual Meeting. Shares have been
issued annually to executives at market price on the grant date. During 1998,
no bonuses were granted and no options were given to any executive officers of
the Company other than to Ms. Wylie and Mr. Lueders as part of their respective
employment with the Company. Also during 1998, six (6) executive officers were
terminated and, in accordance with prior practice and policy of the Company,
were given severance of up to eighteen months salary depending upon their level
of responsibility and service while employed by the Company.
12
<PAGE> 13
With respect to Mr. Alexander's base compensation, the Board of
Directors recognized that the growth and performance of the Company is
dependent on the efforts and results of its executive officers and in
particular its Chief Executive Officer. Mr. Alexander's base salary was
determined to reflect his increased responsibilities to the Company during this
period of financial instability. The Board of Directors believes that the award
of long-term stock options aligns the interests of the executive officers with
the interests of the Company by creating value for the executives through
positive results of the Company.
COMPENSATION COMMITTEE
(Consisting of the Board of Directors acting en banc)
CORPORATE PERFORMANCE
The following graph shows a five year comparison of cumulative total
stockholder returns for the Company, the NASDAQ Market Index (the "Broad
Market") and an index of peer companies in the oil and gas industry selected by
the Company (the "Peer Group").
<TABLE>
<CAPTION>
CUSTOMER
MEASUREMENT PERIOD NATIONAL SELECTED NASDAQ
(FISCAL YEAR COVERED) ENERGY GROUP STOCK LIST MARKET INDEX
<S> <C> <C> <C>
12/31/1993 100.00 100.00 100.00
12/30/1994 133.33 105.71 104.99
12/29/1995 233.33 83.39 136.18
12/31/1996 229.17 128.34 169.23
12/31/1997 270.83 166.49 207.00
12/31/1998 12.50 75.59 291.96
</TABLE>
Assumes $100 Invested On January 1, 1992
Assumes Dividend Reinvested
Fiscal Year Ending December 31, 1998
The total cumulative return in investment (change in the year end
stock price plus reinvested dividends) for each of the years for the Company,
the NASDAQ Market Index and the Peer Group is based on the stock price or
composite index beginning at the end of the calendar year 1992. The Company has
never paid dividends on the Company's Common Stock.
The Peer Group Index, is a diversified group of independent oil and
gas companies comprised of Abraxas Petroleum, C.P. N.V.; Basin Exploration,
Inc.; Coho Energy, Inc.; Comstock Resources, Inc.; Gothic Energy Corp.; Panaco,
Inc.; and Petrocorp, Inc. Two companies formerly used as part of the peer
group, Arch Petroleum, Inc. and Lomak Petroleum, Inc., have been acquired by
other entities and no longer exist.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following tables set forth, to the best knowledge of the Company,
information as to the ownership of the Company's Common Stock and all series of
Preferred Stock held by (i) each person or entity who owns of record or who is
known by the Company to own beneficially 5% or more of the outstanding shares
of such stock, (ii) directors, and (iii) all directors and officers as a group,
as of April 20, 1999. Except as otherwise indicated, ownership of shares by the
person's named below includes sole voting and investment power held by such
persons.
13
<PAGE> 14
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth as of April 20, 1999, the individuals
or entities known to the Company to own more than 5% of the Company's
outstanding shares of capital stock.
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER PERCENT
OF BENEFICIAL OWNER TITLE OF CLASS OF SHARES OF CLASS(1)
- ------------------- -------------- --------- -----------
COMMON STOCK
<S> <C> <C> <C>
Carl C. Icahn Common Stock 8,847,044(2) 19.2%
114 West 47th Street
19th Floor
New York, NY 10036
Kayne, Anderson Common Stock 4,547,069(3) 10.1%
Investment Management, Inc.
1800 Avenue of Stars
Suite 1424
Los Angeles, CA 90067
Croft-Leominster, Inc. Common Stock 2,161,710(4) 5.3%
207 E. Redwood St.
Suite 802
Baltimore, MD 21202
SERIES B PREFERRED STOCK
Kayne, Anderson Investment Series B Preferred 38,687(5) 100%
Management, Inc. Stock
1800 Avenue of Stars
Suite 1424
Los Angeles, CA 90067
Arbco Associates, L.P. Series B Preferred 13,928(5) 36%
1800 Avenue of Stars Stock
Suite 1424
Los Angeles, CA 90067
Offense Group Associates, L.P. Series B Preferred 11,607(5) 30%
1800 Avenue of Stars Stock
Suite 1424
Los Angeles, CA 90067
</TABLE>
14
<PAGE> 15
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER PERCENT
OF BENEFICIAL OWNER TITLE OF CLASS OF SHARES OF CLASS(1)
- ------------------- -------------- --------- -----------
COMMON STOCK
<S> <C> <C> <C>
Kayne, Anderson Non-Traditional Series B Preferred 10,832(5) 28%
Investments, L.P. Stock
1800 Avenue of Stars
Suite 1424
Los Angeles, CA 90067
Opportunity Associates L.P. Series B Preferred 2,320(5) 6%
1800 Avenue of Stars Stock
Suite 1424
Los Angeles, CA 90067
SERIES C PREFERRED STOCK
Kayne, Anderson Investment Series C Preferred 23,000(6) 100%
Management, Inc. Stock
1800 Avenue of Stars
Suite 1424
Los Angeles, CA 90067
Arbco Associates, L.P. Series C Preferred 8,280(6) 36%
1800 Avenue of Stars Stock
Suite 1424
Los Angeles, CA 90067
Offense Group Associates, L.P. Series C Preferred 7,240(6) 31%
1800 Avenue of Stars Stock
Suite 1424
Los Angeles, CA 90067
Kayne, Anderson Non-Traditional Series C Preferred 6,100(6) 27%
Investments, L.P. Stock
1800 Avenue of Stars
Suite 1424
Los Angeles, CA 90067
Opportunity Associates L.P. Series C Preferred 1,380(6) 6%
1800 Avenue of Stars Stock
Suite 1424
Los Angeles, CA 90067
SERIES D PREFERRED STOCK
Carl C. Icahn Series D Preferred 100,000(2) 100%
114 West 47th Street Stock
19th Floor
New York, NY 10036
</TABLE>
15
<PAGE> 16
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER PERCENT
OF BENEFICIAL OWNER TITLE OF CLASS OF SHARES OF CLASS(1)
- ------------------- -------------- --------- -----------
SERIES E PREFERRED STOCK
<S> <C> <C> <C>
Kayne, Anderson Investment Series E Preferred 9,500(7) 100%
Management, Inc. Stock
1800 Avenue of Stars
Suite 1424
Los Angeles, CA 90067
Foremost Insurance Company Series E Preferred 7,500(7) 79%
5230 33rd Street, S.E. Stock
Grand Rapids, MI 49512
Topa Insurance Company Series E Preferred 2,000(7) 21%
c/o Kayne, Anderson Investment Stock
Management, Inc.
1800 Avenue of Stars
Suite 1424
Los Angeles, CA 90067
</TABLE>
(1) Based upon the 40,527,482 shares of Common Stock, 38,687 shares of issued
and outstanding Series B Preferred Stock, 23,000 shares of issued and
outstanding Series C Preferred Stock, 100,000 shares of issued and
outstanding Series D Preferred Stock and 9,500 shares of issued and
outstanding Series E Preferred Stock that are outstanding as of April 20,
1999. For each person or group, the percentages are calculated on the
basis of the amount of outstanding securities of the particular class plus
any securities that such person or group has the right to acquire within
60 days of April 20, 1999 pursuant to options, warrants, conversion
privileges or other rights.
(2) High River Limited Partnership, the record owner of these shares, is a
Delaware limited partnership, and has pledged these shares to ING Capital.
Riverdale Investors Corp., Inc. is a Delaware corporation and is the
general partner of High River. Mr. Carl C. Icahn is the sole stockholder
and a director of Riverdale. Riverdale's principal business address is 90
South Bedford Road, Mount Kisco, New York 10549, and Mr. Icahn's principal
business address is c/o Icahn Associates Corp., 114 West 47th Street, 19th
Floor, New York, New York 10036. Gascon Partners, a New York general
partnership, an affiliate of Mr. Icahn, High River and Riverdale holds
warrants to purchase 300,000 shares of Common Stock. High River also holds
700,000 warrants issued in August 1996 in connection with the Company's
acquisition of and merger with Alexander Energy Company. The ownership
figures in the table assume that all the shares of Series D Preferred
Stock are converted and warrants for 1,000,000 shares of Common Stock are
exercised. Riverdale and Mr. Icahn, by virtue of their relationships to
High River and Gascon, may be deemed to beneficially own (as that term is
defined in Rule 13d-3 under the Exchange Act) the shares which High River
directly beneficially owns and the shares which Gascon has warrants to
purchase. Each of Riverdale and Mr. Icahn disclaims beneficial ownership
of such shares for all other purposes. Mr. Robert J. Mitchell has been
appointed a director of the Company as the representative of the holders
of the Series D Preferred Stock. Mr. Mitchell does not have dispositive or
voting power over any of the shares owned by High River.
16
<PAGE> 17
(3) Richard A. Kayne ("Kayne") is President, Chief Executive Officer and
Director of Kayne Anderson Investment Management Inc. ("KAIM") and of KA
Associates, Inc., a registered broker/dealer. KAIM is the general partner
of KAIM Non-Traditional, L.P. ("L.P."), registered investment advisor,
which is the general partner of and investment advisor to the investment
partnerships referred to in this footnote. Mr. Kayne is also a limited
partner in each investment partnership and a general partner on one of
them. Mr. Kayne and L.P. have shared dispositive and voting power through
investment partnerships for 38,687 shares of Series B Preferred Stock,
23,000 shares of Series C Preferred Stock, and 9,500 shares of Series E
Preferred Stock, which may be converted at anytime into 2,380,738,
1,150,000 and 422,222 shares of Common Stock, respectively, and for
warrants to purchase 350,000 shares of Common Stock. The percentage
ownership figures in the table assume that all shares of Series B
Preferred Stock, Series C Preferred Stock and Series E Preferred Stock are
converted, the warrants to purchase 350,000 shares of Common Stock are
exercised and 4,302,960 shares of Common Stock are issued, and such shares
are added to the shares of Common Stock outstanding. Mr. Kayne disclaims
beneficial ownership of the shares held by the investment partnerships in
excess of the amount attributable to him by virtue of his direct interest
as a limited or general partner and by virtue of his indirect interest in
L.P.'s interest in the investment partnerships. L.P. disclaims beneficial
ownership of the shares held by the investment partnerships in excess of
the amount attributable to them by virtue of their percentage interest in
the investment partnerships.
(4) Croft-Leominster, Inc. the record owner of the shares, is a Maryland
corporation.
(5) Beneficial ownership of all the Series B Preferred Stock is attributed to
KAIM. For information on Richard A. Kayne, KAIM and L.P., see footnote (3)
above. Arbco Associates L.P. has shared dispositive and voting power with
Mr. Kayne, and L.P. of 13,928 shares of Series B Preferred Stock, which is
convertible at any time into 857,107 shares of Common Stock. Offense Group
Associates has shared dispositive and voting power with Mr. Kayne, and
L.P. for 11,607 shares of Series B Preferred Stock, which is convertible
at any time into 714,276 shares of Common Stock. Kayne, Anderson
Non-Traditional Investments has shared dispositive and voting power with
Mr. Kayne and L.P. for 10,832 shares of Series B Preferred Stock, which is
convertible at any time into 666,584 shares of Common Stock. Opportunity
Associates L.P. has shared dispositive and voting power with Mr. Kayne,
and L.P. of 2,320 shares of Series B Preferred Stock, which is convertible
at any time into 142,769 shares of Common Stock.
(6) Beneficial ownership of all the Series C Preferred Stock is attributed to
KAIM. For information on Richard A. Kayne, KAIM and L.P., see footnote (3)
above. Arbco Associates L.P. has shared dispositive and voting power with
Mr. Kayne, and L.P. of 8,280 shares of Series C Preferred Stock, which is
convertible at any time into 414,000 shares of Common Stock. Offense Group
Associates has shared dispositive and voting power with Mr. Kayne, and
L.P. for 7,240 shares of Series C Preferred Stock, which is convertible at
any time into 362,000 shares of Common Stock. Kayne, Anderson
Non-Traditional Investments has shared dispositive and voting power with
Mr. Kayne, and L.P. for 6,100 shares of Series C Preferred Stock, which is
convertible at any time into 305,000 shares of Common Stock. Opportunity
Associates L.P. has shared dispositive and voting power with Mr. Kayne,
and L.P. for 1,380 shares of Series C Preferred Stock, which is
convertible at any time into 69,000 shares of Common Stock.
(7) Beneficial ownership of all the Series E Preferred Stock is attributed to
KAIM. Foremost Insurance Company has dispositive and voting power for
7,500 shares of Series E Preferred Stock, which is convertible at any time
into 333,333 shares of Common Stock, and warrants for 105,000 shares of
Common Stock. Topa Insurance Company has dispositive and voting power for
2,000 shares of
17
<PAGE> 18
Series E Preferred Stock, which is convertible at any time into 88,888
shares of Common Stock and warrants for 28,000 shares of Common Stock.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth information concerning the beneficial
ownership of the Company's capital stock as of April 20, 1999 by each of the
Company's present directors and executive officers and certain other parties,
and the directors and executive officers of the Company as a group, all as
reported by each such person as of April 20, 1999.
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER
OF BENEFICIAL OWNER TITLE OF CLASS OF SHARES % OF CLASS(1)
- ------------------- -------------- --------- -------------
<S> <C> <C> <C>
Miles D. Bender Common Stock 847,944(2) 2.1%
4925 Greenville Avenue
Suite 1400
Dallas, Texas 75206
Jim L. David Common Stock 475,389(3) 1.2%
4925 Greenville Avenue
Suite 1400
Dallas, TX 75206
Bob G. Alexander Common Stock 456,252(4) 1.1%
4925 Greenville Avenue
Suite 1400
Dallas, TX 75206
Robert H. Kite Common Stock 406,455(5) 1.0
2722 N. 7th Street
Phoenix, AZ 85006
Melissa H. Rutledge Common Stock 66,800(6) ______(7)
4925 Greenville Avenue
Suite 1400
Dallas, TX 75206
Philip D. Devlin Common Stock 41,473(8) ______(7)
4925 Greenville Avenue
Suite 1400
Dallas, TX 75206
Robert J. Mitchell Common Stock 37,500(9) ______(7)
767 Fifth Avenue
New York, NY 10153
</TABLE>
18
<PAGE> 19
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER
OF BENEFICIAL OWNER TITLE OF CLASS OF SHARES % OF CLASS(1)
- ------------------- -------------- --------- -------------
<S> <C> <C> <C>
R. Kent Lueders Common Stock 5,000(10) ______(7)
4925 Greenville Avenue
Suite 1400
Dallas, Texas 75206
Leslie J. Wylie Common Stock ______(11) ______(7)
4925 Greenville Avenue
Suite 1400
Dallas, Texas 75206
Russell D. Glass Common Stock ______(12) ______(7)
767 Fifth Avenue
New York, NY 10153
Martin Hirsch Common Stock ______(13) ______(7)
767 Fifth Avenue
New York, NY 10153
Jack G. Wasserman Common Stock ______(14) ______(7)
111 Broadway
New York, NY 10006
All officers and directors as a Common Stock 2,336,813(15) 5.9%
group (12 people)
All officers and directors as a Series B Preferred ______ ______
group (12 people) Stock
All officers and directors as a Series C Preferred ______ ______
group (12 people) Stock
All officers and directors as a Series D Preferred ______ ______
group (12 people) Stock
All officers and directors as a Series E Preferred ______ ______
group (12 people) Stock
</TABLE>
(1) Based upon the 40,527,482 shares of Common Stock outstanding.
For each person or group, the percentages are calculated on the basis
of the amount of outstanding securities of the particular class plus
any securities that such person or group has the right to acquire
within 60 days of April 20, 1999 pursuant to the options or other
rights.
(2) Includes 847,944 shares held directly by Mr. Bender, former President
and Chief Executive Officer, who resigned from the Company's Board of
Directors in March 1999 and whose options have since expired.
(3) Includes 407,889 shares held directly by Mr. David and immediately
exercisable options to purchase 67,500 shares, but does not include
options to purchase 37,500 shares which are not yet exercisable.
(4) Includes 340,000 shares held directly by Mr. Alexander and 60,002
shares owned by Mr. Alexander's wife, Donna Ports Alexander, and
immediately exercisable options to purchase 56,250 shares held by Mr.
Alexander, but does not include options to purchase 18,750 shares
which are not yet exercisable. Mr. Alexander disclaims any beneficial
interest in the shares owned by his wife.
19
<PAGE> 20
(5) Robert H. Kite is Chief Operating Officer and a 33.0% beneficial owner
of KFT, Ltd. and may be deemed to be the beneficial owner of shares
held by KFT, Ltd. KFT, Ltd. holds 176,297 shares and Mr. Kite holds
157,658 shares directly and immediately exercisable options to
purchase 72,500 shares, but does not include options to purchase
12,500 shares which are not yet exercisable.
(6) Includes 11,800 shares held directly by Ms. Rutledge and immediately
exercisable options to purchase 55,000 shares, but does not include
options to purchase 15,000 shares which are not yet exercisable.
(7) Less than one percent.
(8) Includes 6,473 shares of Common Stock held directly by Mr. Devlin and
immediately exercisable options to purchase 35,000 shares, but does
not include options to purchase 25,000 shares which are not yet
exercisable.
(9) Includes immediately exercisable options to purchase 37,500 shares,
but does not include options to purchase 12,500 shares which are not
yet exercisable. Mr. Mitchell disclaims any beneficial ownership of
stock attributable to High River.
(10) Includes 5,000 shares of registered common stock held directly by
Mr. Lueders, but does not include options to purchase 25,000 shares
which are not yet exercisable and does not include a common stock grant
of 5,000 that has not vested.
(11) Does not include options to purchase 50,000 shares which are not yet
exercisable and does not include common stock grant of 10,000 shares
that has not vested.
(12) Mr. Glass holds no stock or options of the Company and disclaims
beneficial ownership of any stock attributable to High River.
(13) Mr. Hirsch holds no stock or options of the Company and disclaims
beneficial ownership of any stock attributable to High River.
(14) Mr. Wasserman holds no stock or options of the Company.
(15) Includes a total of 2,013,063 shares held directly or indirectly by
the executive officers and directors and options and warrants to
purchase 323,750 shares which are immediately exercisable or
exercisable within 60 days.
Under the terms of the Series D Preferred Stock, a change in control
of the Company may occur if any of the events occur that trigger the Series D
Preferred Stock Contingent Voting Rights (as defined) to elect one-half of the
Board of Directors plus one member and if such rights are exercised by such
holder. Pursuant to an order dated February 11, 1999 of the United States
Bankruptcy Court for the Northern District of Texas, the Company was placed
into a Title 11, Chapter 11 of the United States Code bankruptcy reorganization
proceeding. Such proceeding gives rise to the Series D Preferred stockholder to
exercise its right to control the Company's Board of Directors. To date, the
Series D Preferred Stockholder has not exercised such right. However, Messrs.
Mitchell, Glass and Hirsch are affiliated with the Series D Preferred
Stockholder. See "Description of Capital Stock -- Series D Preferred Stock."
20
<PAGE> 21
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company entered into an agreement (the "IAC Agreement") with Icahn
Associates Corp. ("IAC"), an affiliate of Carl C. Icahn, who is a beneficial
owner of more than 5% of the Company's Common Stock. Pursuant to the IAC
Agreement, IAC committed and subsequently spent $10 million to participate for
specified interests in each of the prospects generated or acquired by the
Company through September 30, 1998. Each party is entitled to certain rights of
first refusal in the event that the other party decides to sell all or part of
its participation interest in a prospect in which both parties are
participating. As partial consideration for IAC's obligations under the
participation agreement, the Company has also granted Gascon Partners, an
affiliate of IAC, certain warrants, which became exercisable prior to December
31, 1997 and will expire July 11, 2002, to purchase 300,000 shares of Common
Stock at an exercise price of three dollars ($3.00) per share.
During the year ended December 31, 1998, the Company sold $13,291,379
of oil and natural gas, or 83% of the Company's total oil sales to Plains. KAIM
and investment partnerships associated with KAIM, and other accounts managed by
affiliates of KAIM, own on a fully diluted basis approximately 24.63% of the
issued and outstanding shares of Common Stock of Plains Resources, Inc. The
Company has agreements with Plains that were entered into in 1993 pursuant to
which Plains purchases oil produced from the major oil-producing properties
which the Company operates, at West Texas Intermediate posted prices plus a
premium. The premium is based on Plains purchasing substantially all the
production of the Company. Sales to Plains will account for a significant
percentage of the Company's total oil and natural gas sales in 1999.
Robert A. Imel, formerly the Chief Financial Officer of the Company,
was granted 50,000 shares of the Company's Common Stock during 1997. Mr. Imel
pledged such stock to the Company in return for cash in the amount of $150,000
and had until June 30, 1998 in which to redeem such stock. Mr. Imel did not
redeem such stock by tendering payment to the Company of $150,000 on or before
June 30, 1998, and the Company now has the absolute right to dispose of such
stock in any manner it so deems in its sole discretion.
21
<PAGE> 22
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.
<TABLE>
<S> <C>
NATIONAL ENERGY GROUP, INC.
By: /s/ Bob G. Alexander April 30, 1999
-------------------------------------------
Bob G. Alexander
President and Chief Executive Officer
By: /s/ Melissa H. Rutledge April 30, 1999
-------------------------------------------
Melissa H. Rutledge
Vice President, Principal Financial Officer
and Controller
</TABLE>
22
<PAGE> 23
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
10.53 Memorandum to Bob G. Alexander, President & CEO
10.54 Separation Agreement, dated July 31, 1998, between the
Company and Jim L. David
27.1 Financial Data Schedule for 1998 Fiscal Year
(included in SEC-Filed Copy Only)
</TABLE>
<PAGE> 1
EXHIBIT 10.53
M E M O R A N D U M
TO: Bob G. Alexander, President & CEO
FROM: Melissa H. Rutledge
Leslie J. Wylie
R. Kent Lueders
Philip D. Devlin
DATE: December 3, 1998
RE: Severance Policy
- --------------------------------------------------------------------------------
It is our understanding that the Board of Directors has instituted a
Severance Policy which requires that existing Executive Employment Agreements
with the Company be terminated. Each of the undersigned (the "Executive") agrees
to terminate his/her existing Executive Employment Agreement with the Company
upon enrollment in the Company's Severance Policy; provided the Company agrees
that in the event the Company (other than for "cause" as defined in the
Severance Policy) or any court shall declare the Severance Pay Benefit described
in the Severance Policy to be reduced or denied to any Executive, such Executive
shall have the right to claim any benefits or rights under his/her respective
Executive Employment Agreement, which shall be deemed to be in full force and
effect as if the Severance Policy had not been adopted by the Board of Directors
of the Company.
----------------------------------------
Melissa H. Rutledge, Vice President
----------------------------------------
Leslie J. Wylie, Vice President
----------------------------------------
R. Kent Lueders, Vice President
----------------------------------------
Philip D. Devlin, Vice President
NATIONAL ENERGY GROUP, INC.
By:
----------------------------
Bob G. Alexander
President and CEO
<PAGE> 1
EXHIBIT 10.54
July 31, 1998
VIA HAND DELIVERY
Mr. Jim L. David
9420 Loma Vista
Dallas, TX 75243
Re: Separation Agreement
Dear Jim:
National Energy Group, Inc. (the "Company") recognizes your service as an
employee of the Company. This letter confirms the discussions we have held
concerning the resignation of your employment from the Company, and the
Company's offer and your acceptance of this proposed separation agreement (this
"Separation Agreement") on the terms set forth below.
1. Resignation; Termination of Employment. Your employment with the Company as
Vice President-Exploration is terminated effective July 31, 1998
(hereinafter the "Separation Date"), at which time your Executive
Employment Agreement effective August 29, 1996 (the "Employment Agreement")
shall also terminate.
2. Salary and Benefits. In accordance with the Company's existing policies,
you have received, will receive, or are receiving with this letter the
following payments and benefits pursuant to your employment with the
Company and your participation in the Company's benefit plans:
(a) Payment of your regular base salary through July 31, 1998;
(b) Payment of accrued and unused vacation leave, if any, through the
Separation Date; and
(c) Payment of two (2) weeks of your base salary for each year of
employment you have completed with the Company in the amount of
$124,600.00, representing credit for eighteen (18) such years of
employment.
<PAGE> 2
Mr. Jim L. David
July 31, 1998
Page 2
The amounts paid in accordance with subparagraphs (a), (b) and (c) of this
Paragraph 2 are gross amounts, subject to lawful deductions, including any
deductions you have previously authorized or authorize prior to your
Separation Date.
Your paid group health insurance benefits are paid through August 31, 1998.
After the Separation Date, you are entitled at your option to continue your
group health insurance coverage at your expense in accordance with
applicable law. Please complete the COBRA election form which will be
furnished to you if you elect to continue such insurance coverage.
Payment of any benefits to which you have vested entitlements under the
terms of the employee benefit plans established by the Company (including
but not limited to the Company 401(k) Plan and Employee Stock Purchase
Plan) shall be paid to you in accordance with the provisions of such plans.
The Company will settle promptly all authorized reimbursable business
expenses, if any, when you have submitted appropriate expense reports along
with the required receipts and documenting information. To be eligible for
reimbursement of these expenses, they must be submitted by the close of
business on or before August 7, 1998.
3. Special Separation Benefits. In consideration of the General Release, the
Confidentiality of Separation Agreement and Nondisparagement provision, and
the Agreement Regarding Solicitation of Employees and Consultants set forth
in this Separation Agreement, and contingent upon your acceptance of the
terms contained herein, the Company offers you the following Special
Separation Benefits, in addition to the benefits you will receive pursuant
to Paragraph 2:
(a) Termination Allowance. A termination allowance in the amount of
$55,400.00, which is equivalent to your base salary for sixteen (16)
weeks, payable concurrently with the execution and delivery to the
Company of both this Separation Agreement and the Reaffirmation of
Separation Agreement described in Paragraph 13 hereof.
(b) Additional Benefits.
(i) An amount equal to $9,000.00 (payable to you concurrently with the
execution and delivery to the Company of both this Separation
Agreement and the Reaffirmation of Separation Agreement provided in
Paragraph 13 hereof) in lieu of any benefits which may no longer be
available to you through the Company after your Separation Date;
<PAGE> 3
Mr. Jim L. David
July 31, 1998
Page 3
(ii) The Company shall continue to pay your group health benefits
through August 31, 1998;
(iii) Any stock options granted to you shall continue to vest in
accordance with the 1996 Incentive Compensation Plan for so long as
you continue as a member of the Board of Directors of the Company;
(iv) The Company shall allow you to retain your lap top computer
(Name: Texas Instruments Extensa 570CDT, Serial No: 25167851845); and
(v) The Company shall transfer to you the ownership of that certain
vehicle (1995 Ford Windstar, VIN #2FMDA51495B, Texas license
#XCW-61C); provided that you shall pay all transfer, license, sales
and other taxes, fees and/or assessments payable in connection with
such transfer of ownership.
By execution of this Separation Agreement, you acknowledge and agree that
for purposes of unemployment compensation benefits, the amounts to be paid
as specified in this Paragraph 3 constitute wages in lieu of notice for the
period from the Separation Date through November 20, 1998. Accordingly, you
agree not to seek, qualify for nor receive unemployment compensation
benefits for the period from the Separation Date through November 20, 1998.
4. Return of Property. Whether or not you accept the terms of this Separation
Agreement, you must return to the Company any and all items of its
property, including without limitation: automobiles, telephones, office
keys, security access cards, computers, equipment, credit cards, forms,
files, manuals, correspondence, business records, personnel data, lists of
employees, salary and benefits information, work product, maps, data and
files relating to wells, leases, partners and/or contractors, seismic data
and files, contracts, contract information, Prospect information and plans
for future Prospects, brochures, catalogs, computer tapes and diskettes,
and data processing reports, and any and all other documents or property
which you have had possession of or control over during the course of your
employment, and which you have not already returned to the Company. You
agree that you will return such property to the Company by no later than
the close of business on or before August 7, 1998, or as soon thereafter as
is possible with respect to any items not then immediately available or
which you later find in your possession. The provisions of this Paragraph 4
do not prohibit the maintenance by you of copies of any non-confidential,
non-proprietary information, such as reading files, work papers,
calculations, flowcharts and other similar information reflecting the
performance of your job duties and responsibilities.
<PAGE> 4
Mr. Jim L. David
July 31, 1998
Page 4
5. Use of Confidential Information. You acknowledge and agree that, except for
your knowledge and training to compete in the marketplace and except for
information which is now or in the future becomes available in the public
domain, all of the non-public documents and information to which you have
had access during your employment, including but not limited to all
information pertaining to any specific business transactions in which the
Company or any other Company Released Parties (as defined in Paragraph 6(a)
below) were, are, or may be involved, all information concerning salary and
benefits paid to employees of the Company or any of the other Company
Released Parties, all personnel information relating in any way to current
or former employees of the Company or any of the other Company Released
Parties, all non-public information obtained in the course of employment
pertaining to acquisitions, divestitures, wells, Prospects and development
plans of the Company or any of the other Company Released Parties, lease
holdings and lease block bid information and strategies, all financial
budgetary information, all other information specified in Paragraph 4
above, and in general, the business and operations of the Company or any of
the other Company Released Parties in addition to any other work product,
calculations, files, maps, logs, flowcharts and other related and/or
similar information to which you had access through the Company, its
partners or consultants are considered confidential and are not to be
disseminated or disclosed by you to any other parties, except as may be
required by law or judicial process. In the event you are required to
disclose such information to any other party, you shall provide the Company
immediate written notice to enable the Company to seek, at the Company's
discretion and expense, a protective order or take other such action as the
Company in its sole discretion deems advisable or necessary. You further
agree that in the event it appears that you will be compelled by law or
judicial process to disclose such confidential information, you will notify
Mr. Philip D. Devlin, General Counsel, in writing at 4925 Greenville
Avenue, Suite 1400, Dallas, Texas, 75206, immediately upon your receipt of
any such notice, a subpoena or other legal process.
6. General Release.
(a) Except for the obligations of the Company and the Company Released
Parties to be performed hereunder and in consideration of the Special
Separation Benefits described above, you and your family members,
heirs, successors, and assigns (collectively, the "Employee Released
Parties") hereby release, acquit, and forever discharge any and all
claims and demands of whatever kind or character, whether vicarious,
derivative, or direct, that you or they, individually, collectively,
or otherwise, may have or assert against (i) National Energy Group,
Inc. or (ii) any officer, director, stockholder, fiduciary, agent,
employee, representative, insurer, attorney, or any successors and
assigns of National Energy Group, Inc. (collectively, the "Company
Released Parties"). This Separation Agreement includes but is not
limited to any claim or demand based on any federal, state, or local
statutory or
<PAGE> 5
Mr. Jim L. David
July 31, 1998
Page 5
common law that applies or is asserted to apply, directly or
indirectly, to the formation of your employment relationship, your
employment relationship, or the termination of your employment
relationship with the Company. Thus, you and the other Employee
Released Parties agree not to make any claims or demands against the
Company or any of the other Company Released Parties such as for
wrongful discharge; unlawful employment discrimination; retaliation;
breach of contract (express or implied); breach of the duty of good
faith and fair dealing; violation of the public policy of the United
States, the State of Texas, or any other state; intentional or
negligent infliction of emotional distress; tortious interference with
contract; promissory estoppel; detrimental reliance; defamation of
character; duress; negligent misrepresentation; intentional
misrepresentation or fraud; invasion of privacy; loss of consortium;
assault; battery; conspiracy; bad faith; negligent hiring or
supervision; any intentional or negligent act of personal injury; any
alleged act of harassment or intimidation; or any other intentional or
negligent tort; or any alleged violation of the Age Discrimination in
Employment Act of 1967; Title VII of the Civil Rights Act of 1964; the
Americans with Disabilities Act of 1990; the Employee Retirement
Income Security Act of 1974; the Fair Labor Standards Act; the Fair
Credit Reporting Act; the Texas Commission on Human Rights Act; or the
Texas Wage Payment Statute, Tex. Rev. Civ. Stat. Ann. art. 5155.
(b) Except for your obligations to be performed hereunder, the Company and
the other Company Released Parties hereby release, acquit, and forever
discharge any and all claims and demands of whatever kind or
character, whether vicarious, derivative, or direct, that it or they,
individually, collectively, or otherwise may have or assert against
you or any of the other Employee Released Parties. This Separation
Agreement includes, but is not limited to, any claim or demand based
on any federal, state, or local statutory or common law that applies
or is asserted to apply, directly or indirectly, to the formation of
your employment relationship, your employment, or the termination of
your employment relationship with the Company.
(c) Except as otherwise provided herein, the effect of this Separation
Agreement is to mutually release, acquit, and forever discharge any
and all claims and demands of whatever kind or character, that either
party, the Employee Released Parties, or the Company Released Parties
may now have, or hereafter have or assert against each other arising
out of the employment relationship (including the formation and
termination thereof) which has existed between you and the Company. It
is further agreed that each of you and the Company agree to indemnify
and hold harmless the other for any breach of the provisions of this
Separation Agreement by the respective Employee Released Parties or
Company Released Parties which results in damage to the other or to
the respective parties hereto. This mutual general release does not
<PAGE> 6
Mr. Jim L. David
July 31, 1998
Page 6
include: (i) the executory obligations of either party yet to be
performed, or (ii) any rights, claims or obligations which may accrue
as between the parties after the date of this Separation Agreement.
7. Confidentiality of this Separation Agreement and Nondisparagement. In
consideration of the Special Separation Benefits described above, each of
the Company and you agree that the terms of this Separation Agreement shall
be and remain confidential, and shall not be disclosed by you and the other
Employee Release Parties or the Company and the other Company Released
Parties to any party other than your spouse, attorney, accountant or tax
return preparer; provided such persons have agreed to keep such information
confidential, and except as may be required by law or judicial process.
Each of the Company and you further agree, except as compelled by law or
judicial process, not to cooperate or supply information of any kind in any
proceeding, investigation, or inquiring raising issues under the Age
Discrimination in Employment Act of 1967, Title VII of the Civil Rights Act
of 1964, the Americans with Disabilities Act of 1990, the Employee
Retirement Income Security Act of 1974, the Fair Labor Standards Act, the
Fair Credit Reporting Act, the Texas Commission on Human Rights Act, or the
Texas Wage Payment Statute, Tex. Rev. Civ. Stat. Ann. art. 5155, or any
other federal, state, or local law, involving the formation of your
employment relationship, your employment relationship, the termination of
your employment relationship, or the employment of other persons by the
Company or any of the Company Released Parties. In the event it appears
that either party hereto shall be compelled by law or judicial process to
disclose the terms and conditions of this Separation Agreement, such party
shall immediately notify the other party in writing and provide a copy of
any notice that such disclosure is being requested or required so that such
party at its sole discretion and expense may seek a protective order or
take other such action as such party in its sole discretion deems advisable
or necessary.
You and the other Employee Released Parties further agree not to make any
statement, oral or written, which directly or indirectly impugns the
quality or integrity of the Company's or any of the Company Released
Parties' business practices, or to make any other disparaging or derogatory
remarks or statements, oral or written, about the Company or any of the
Company Released Parties, their officers, directors, stockholders,
managerial personnel, or other employees or their partners and consultants
to any other parties. You agree and acknowledge that should you breach this
obligation, in addition to any other remedy the Company may have at law or
in equity, you may be required to repay the Special Separation Benefits
provided to you pursuant to this Separation Agreement, but all other
provisions of this Separation Agreement shall remain in full force and
effect.
In consideration of the General Release, the Confidentiality of Separation
Agreement and Nondisparagement provision, and the Agreement Regarding
Solicitation of Employees and
<PAGE> 7
Mr. Jim L. David
July 31, 1998
Page 7
Consultants, set forth herein, the Company and the Company Released Parties
agree that it and they, respectively, shall instruct its officers,
directors, managerial personnel, or other employees not to make any
statement, oral or written, which directly or indirectly impugns the
quality or integrity of you or any of the Employee Released Parties'
business practices, or to make any other disparaging or derogatory remarks
or statements, oral or written, about you or your employment with the
Company.
8. Agreement Regarding Solicitation of Employees. In consideration of the
monetary payments and other benefits provided to you or on your behalf by
the Company in this Separation Agreement, you acknowledge and agree that
for a period of two (2) years following the termination of your employment
with the Company, you will not, directly or indirectly, for your own
account or for the benefit of any other person or party, solicit, induce,
entice, or attempt to entice any employee, or independent contractor of the
Company to terminate his or her employment relationship, agreements or
contracts with the Company.
9. Nonadmission of Liability and Wrongdoing. It is acknowledged that this
Separation Agreement does not in any manner constitute an admission of
liability or wrongdoing on your part or that of the Company, but that you
and the Company expressly deny any such liability or wrongdoing, and enter
into this Separation Agreement for the sole purpose of avoiding further
trouble and expense; and, except to the extent necessary to enforce this
Separation Agreement, neither this Separation Agreement, nor any part of it
may be construed, used, or admitted into evidence in any judicial,
administrative, or arbitral proceedings as an admission of any kind by the
Company, the Company Released Parties, or you or any of the Employee
Released Parties.
10. Authority to Execute. Each of the parties hereto warrants and agrees that
it (i) has full power and authority to execute, deliver and perform the
obligations contained in this Separation Agreement, (ii) is a legally
binding and enforceable agreement in accordance with its terms and
conditions, (iii) has the power and authority to bind its respective
Released Parties, (iv) does not violate, conflict with or constitute a
breach or default under any statute, rule, ordinance, regulation or
administrative order of any federal, state, county or municipal court,
board, office, agency or commission, and (v) is not contemplating, nor are
any bankruptcy or insolvency proceedings threatened against such party of
which it is aware.
11. GOVERNING LAW AND INTERPRETATION. THIS SEPARATION AGREEMENT AND THE RIGHTS
AND DUTIES OF THE PARTIES UNDER IT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND PERFORMED IN DALLAS
COUNTY, TEXAS. If any provision of this Separation Agreement is held to be
unenforceable, such provision shall be considered separate, distinct, and
severable from the other remaining provisions and shall not
<PAGE> 8
Mr. Jim L. David
July 31, 1998
Page 8
affect the validity or enforceability of such other remaining provisions,
and that, in all other respects, this Separation Agreement shall remain in
full force and effect. If any provision of this Separation Agreement is
held to be unenforceable as written and may be made to be enforceable by
limitation thereof, then such provision shall be enforceable to the maximum
extent permitted by applicable law and to the extent the remaining
provisions further accomplish the goals, benefits and intent of this
Separation Agreement. The language of all parts of this Separation
Agreement shall in all cases be construed as a whole, according to its fair
meaning, and not strictly for or against any of the parties.
12. Expiration of Offer. The Company's offer of the proposed Special Separation
Benefits will expire at midnight on the 21st day (the "Expiration of
Offer") following the date of this correspondence, i.e., on August 21,
1998. You may accept this offer at any time before the Expiration of Offer
by executing this Separation Agreement and returning it to the designated
representative of the Company. Whether or not you execute this Separation
Agreement, you will receive the items set forth in Paragraph 2(a), (b) and
(c) and are required to follow the obligations set forth in Paragraphs 4
and 5 hereof.
13. The Effective Date. This Separation Agreement will become effective and
enforceable seven (7) days after your execution hereof (the "Effective
Date"). At any time prior to the Effective Date, you may revoke your
acceptance of this Separation Agreement by delivering written notice
thereof to the Company. You further agree to execute and deliver to the
Company the Reaffirmation of this Separation Agreement, attached hereto as
Exhibit "A", within seven (7) days of the execution and delivery of this
Separation Agreement.
14. Consultation With Counsel. You have the right to consult, and are
encouraged by the Company to consult, an attorney before executing this
Separation Agreement.
15. Voluntary Agreement. You and the Company acknowledge that execution of this
Separation Agreement is knowing and voluntary, that you and the Company
have had reasonable time to deliberate regarding its terms, and that you
and the Company have had the right to consult with an attorney.
16. Entire Agreement. This Separation Agreement contains and constitutes the
entire understanding and agreement between you and the Company and may be
modified only by a writing of contemporaneous or subsequent date executed
by both you and an authorized officer of the Company.
17. In the event of a dispute between the parties to this Separation Agreement,
the parties agree not to file any action or petition in any court of law or
equity for any relief, but to participate in good faith in a minimum of
four (4) hours of mediation in Dallas, Texas with an attorney-
<PAGE> 9
Mr. Jim L. David
July 31, 1998
Page 9
mediator who 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.
If you are in agreement with the terms of this Separation Agreement, please
execute the attached duplicate of this letter in the space provided below. By
executing this Separation Agreement, you acknowledge that (a) you have been
offered at least twenty-one (21) days to consider the terms of this Separation
Agreement, (b) you were advised by the Company to consult with an attorney
regarding the terms of this Separation Agreement, (c) you have consulted with,
or have had sufficient opportunity to consult with, an attorney of your own
choosing regarding the terms of this Separation Agreement, (d) any and all
questions regarding the terms of this Separation Agreement have been asked and
answered to your complete satisfaction, (e) you have read this Separation
Agreement and fully understand its terms and their importance, (f) the
consideration or special separation benefits described in Paragraph 3 of this
Separation Agreement is good and valuable and of a kind to which you were not
otherwise entitled, and (g) you are entering into this Separation Agreement
voluntarily, of your own free will, and without any coercion, undue influence,
threat or intimidation of any kind or type whatsoever.
Sincerely,
National Energy Group, Inc. ACCEPTED AND AGREED THIS
____ DAY OF ___________, 19__.
By:
--------------------------------- ------------------------------------
Name: Chuck L. Elsey Name: Jim L. David,
Title: President and an Individual
Chief Operating Officer
<TABLE> <S> <C>
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