<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM 10-K
[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 (IRS 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, $0.01 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 the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendments hereto 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.
The information required by Part III of this Report is incorporated by
reference from Registrant's definitive proxy statement for its 1999 Annual
Meeting of Stockholders (to be filed with the Commission not later than April
30,1999, or in the event of delay of the annual meeting, from a Form 10-KA filed
no later than April 30, 1999).
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I
Page
----
<S> <C>
ITEMS 1. AND 2. BUSINESS AND PROPERTIES
Background and Recent Development............................................................. 3
Forward-Looking Statements.................................................................... 3
Principal Areas of Operations................................................................. 4
Oil and Natural Gas Reserves.................................................................. 6
Oil and Natural Gas Production and Unit Economics............................................. 7
Productive Well Summary....................................................................... 8
Leasehold Acreage............................................................................. 8
Drilling Activity............................................................................. 9
Title to Oil and Natural Gas Properties....................................................... 9
Production and Sales Prices................................................................... 9
Control Over Production Activities............................................................ 9
Markets and Customers......................................................................... 9
Regulation.................................................................................... 10
Operational Hazards and Insurance............................................................. 13
Competition................................................................................... 13
Office Space.................................................................................. 13
Employees..................................................................................... 13
ITEM 3. LEGAL PROCEEDINGS............................................................................. 14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........................................... 14
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS....................................................................... 15
Market Information............................................................................ 15
Holders....................................................................................... 15
Dividends on Common Stock..................................................................... 15
ITEM 6. SELECTED FINANCIAL DATA....................................................................... 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS....................................................... 18
Overview...................................................................................... 18
Results of Operations......................................................................... 19
Liquidity and Capital Resources............................................................... 21
Future Capital Requirements................................................................... 22
103/4% Senior Notes Due 2006................................................................... 23
Credit Facilities............................................................................. 23
Preferred Stock............................................................................... 24
Financial Reporting Impact of Full Cost Method of Accounting.................................. 25
Recent Accounting Pronouncements.............................................................. 25
Changes in Prices and Inflation............................................................... 25
Year 2000..................................................................................... 26
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.................................... 27
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................................................... 27
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.................................................... 27
</TABLE>
1
<PAGE> 3
<TABLE>
<CAPTION>
PART III
<S> <C>
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT............................................ 27
ITEM 11. EXECUTIVE COMPENSATION........................................................................ 27
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT................................ 28
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................................................ 28
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K............................... 29
Signatures.................................................................................... 36
</TABLE>
2
<PAGE> 4
PART I
ITEMS 1. AND 2. BUSINESS AND PROPERTIES
BACKGROUND AND RECENT DEVELOPMENTS
National Energy Group, Inc. was incorporated under the laws of the State of
Delaware on November 20, 1990. Effective June 11, 1991, Big Piney Oil and Gas
Company and VP Oil, Inc. merged with and into the Company. On August 29, 1996,
Alexander Energy Corporation was merged with and into a wholly-owned subsidiary
of the Company, which subsidiary was merged with and into the Company on
December 31, 1996.
The Company is an independent energy company which has historically engaged
in the exploration, acquisition, exploitation, development and operation of oil
and natural gas properties in major producing basins onshore in Texas,
Louisiana, Oklahoma, Arkansas, and Mississippi, and offshore in the Gulf of
Mexico.
On December 4, 1998 the Company's 10 3/4% Senior Note bondholders filed an
Involuntary Petition for an Order for Relief under Chapter 11 of Title 11 of the
United States Bankruptcy Code in the United States Bankruptcy Court for the
Northern District of Texas, Dallas Division, due to non-payment of interest due
December 2, 1998, after expiration of a 30-day grace period. On December 23,
1998, the Company filed in the Bankruptcy Court, an Answer to and Motion to
Dismiss the pending Involuntary Petition. The Company's Motion affirmed that it
(i) was meeting its obligations and generally paying its debts as they became
due, unless such debts were the basis of a bona fide dispute and (ii) had
arranged with the lender under its credit facility to borrow additional funds
sufficient to pay the interest due on the 10 3/4% Senior Notes, conditioned upon
the Court's dismissal of the Involuntary Petition. However, on February 8, 1999,
the Bankruptcy Court denied the Company's Motion to Dismiss the Involuntary
Petition. An Order for Relief was entered by the Bankruptcy Court on February
11, 1999. The Order for Relief places the Company under the protection of the
Court and precludes payment of the interest on the Senior Notes at this time.
The Company shall act as debtor-in-possession and will continue to operate its
business and manage its properties in the ordinary course of business during its
Chapter 11 proceeding. The Company anticipates proposing a Plan of
Reorganization within 120 days of February 11, 1999 or at such time as may be
extended by the Court. As of December 4, 1998, the Company discontinued the
accrual of interest related to unsecured liabilities subject to compromise.
Due to the Chapter 11 filing and severely depressed oil prices, the Company
has suspended its exploratory drilling program. The Company will limit its
capital expenditures to ordinary course enhancement of current production
through workovers, recompletions, and other production enhancing activities
deemed to be economic given current depressed oil and gas prices. Development
drilling is anticipated to be limited to (i) ordinary course non-operated wells
in which the Company owns limited working interests and in which the failure to
participate may result in drainage, depletion or loss of current reserves and
(ii) operated wells deemed to be economical given current oil and gas prices.
Large expenditures for developmental drilling may require court approval and
none are planned at this time.
At December 31, 1998, the Company had estimated Proved Reserves, as
determined from reserve reports prepared by the Company's in-house engineers, of
104.9 Bcfe with a PV10% at that date of approximately $75.9 million. The
reserves were approximately 74% natural gas and 88% Proved Developed Reserves.
FORWARD-LOOKING STATEMENTS
This document includes "forward-looking statements" within the meaning of
various provisions of the Securities Act and the Securities Exchange Act of
1934, as amended. The words "expect," "estimate." "anticipate," "predict,"
"believe," and similar expressions and variations thereof are intended to
identify forward-looking statements. All statements, other than statements of
historical facts, included in this document that address activities, events, or
developments that the Company expects or anticipates will or may occur in the
future, including such things as estimated future net revenues from oil and
natural gas reserves and the present value thereof, drilling of wells, future
production of oil and gas, future capital expenditures (including the amount and
nature thereof), business strategy
3
<PAGE> 5
and measures to implement strategy, competitive strengths, goals, expansion, and
growth of the Company's business and operations, plans, references to future
success, references to intentions as to future matters and other such matters
are forward-looking statements and include statements regarding the interest,
belief or current expectations of the Company, its directors, or its officers
regarding such matters. These statements are based on certain assumptions and
analyses made by the Company in light of its experience and its perception of
historical trends, current conditions and expected future developments as well
as other factors it believes are appropriate under the circumstances. However,
whether actual results and developments will conform with the Company's
expectations and predictions is subject to a number of risks and uncertainties,
including the risk factors discussed in this document, future oil and gas
prices, future operating costs, severance and excise taxes, actions and
approvals of the Bankruptcy Court, general economic, market or business
conditions, the opportunities (or lack thereof) that may be presented to and
pursued by the Company, competitive actions by other oil and natural gas
companies, changes in laws or regulations, and other factors, many of which are
beyond the control of the Company. Consequently, all of the forward-looking
statements made in this document are qualified by these cautionary statements
and there can be no assurance that the actual results or developments
anticipated by the Company will be realized or, even if substantially realized,
that they will have the expected consequences to or effects on the Company or
its business or operations. Such statements are not guarantees of future
performance and actual results or developments may differ materially from those
projected in the forward-looking statements.
PRINCIPAL AREAS OF OPERATIONS
Due to the Chapter 11 filing and severely depressed oil prices, the Company
has suspended its exploratory drilling program. However, the Company currently
has an inventory of exploratory prospects in Louisiana and offshore at Mustang
Island.
Historically, the Company has developed and exploited existing properties by
drilling Development Wells, and recompleting and reworking existing wells. The
Company will continue to participate in non-operated wells as described above
and continue its drilling operations where economical in accordance with the
rulings and procedures set forth by the Court.
The following table sets forth the Company's principal areas of operations
and the Company's Proved Reserves of oil and natural at December 31, 1998. See -
"Oil and Natural Gas Properties".
<TABLE>
<CAPTION>
NATURAL
OIL AND NATURAL GAS
CONDENSATE GAS EQUIVALENT % OF
(MBBLS) (MMCF) (MMCFE) TOTAL
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Area:
Mid-Continent ....................... 594 42,230 45,793 43.6%
East and West Texas ................. 1,262 24,658 32,232 30.8
Gulf Coast .......................... 2,758 10,354 26,900 25.6
============ ============ ============ ============
Total ............................. 4,614 77,242 104,925 100.0%
============ ============ ============ ============
</TABLE>
The following table sets forth the Company's production by principal area
of operation for the year ended December 31, 1998:
<TABLE>
<CAPTION>
NATURAL
OIL AND NATURAL GAS
CONDENSATE GAS EQUIVALENT % OF
(MBBLS) (MMCF) (MMCFE) TOTAL
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Area:
Mid-Continent ....................... 99 5,722 6,317 33.8%
East and West Texas ................. 485 4,199 7,109 38.1
Gulf Coast .......................... 654 1,334 5,259 28.1
============ ============ ============ ============
Total ............................. 1,238 11,255 18,685 100.0%
============ ============ ============ ============
</TABLE>
MID-CONTINENT AREA
At December 31, 1998, approximately 43.6% (45.8 Bcfe) of the Company's
Proved Reserves were located in the Mid-Continent area in Oklahoma and Western
Arkansas which includes the Anadarko and Arkoma Basins.
4
<PAGE> 6
ANADARKO BASIN. The Anadarko Basin is considered a mature oil and natural
gas province characterized by multiple producing horizons and relatively long
reserve lives. Drilling a Producing Well on these locations can convert Proved
Undeveloped Reserves to Proved Developed Producing Reserves, and can provide
additional PUD locations on the Company's leasehold acreage.
The Company's Anadarko Basin properties were initially drilled on 640 acre
producing units. Industry has successfully demonstrated to Oklahoma regulators
that deeper wells in the Anadarko Basin will not efficiently drain 640 acres and
have obtained authorization for increased density drilling on smaller acreage
units. Further, under the forced pooling rules in Oklahoma, even if the Company
is not the operator of the property for which increased density drilling has
been approved, the Company may propose to drill and operate additional wells on
the original production unit. Frequently this results in the proposing party
owning a larger portion of newly drilled wells because other Working Interest
owners may decline to participate.
During the year ended December 31, 1998, the Company drilled 7 Gross (2.4
Net) Development Wells in the Anadarko Basin of which 5 Gross (1.6 Net)
Development Wells were completed as commercially productive. The Company's wells
typically are completed in horizons ranging in depth between 7,000 and 15,000
feet.
ARKOMA BASIN. Most Arkoma Basin reserves are produced from formations at
depths ranging from approximately 3,000 to 8,000 feet.
During 1998, the Company drilled 3 Gross (1.5 Net) Development Wells in the
Arkoma Basin of which 1 Gross (.2 Net) Development Well was completed as
commercially productive. The typical Arkoma Basin well is drilled to a total
depth of approximately 7,500 feet.
EAST AND WEST TEXAS AREA
At December 31, 1998, approximately 30.8% (32.2 Bcfe) of the Company's
Proved Reserves were located in the East and West Texas area, including East
Texas and the Goldsmith Adobe Unit in West Texas.
EAST TEXAS. These reserves are found in the Cotton Valley formation and the
Travis Peak formation. The Cotton Valley formation is generally found at depths
of 8,500 to 10,500 feet in the Company's area of interest. These properties
produce from low permeability reservoirs that generally contain relatively long
life natural gas reserves. A significant portion of the cost to complete Cotton
Valley wells is incurred due to the low permeability of interbedded sandstones
and shales, which requires large hydraulic fracture stimulation, typically of
multiple zones of the producing formation, to obtain the increased production
levels necessary to make such wells commercially viable. The Travis Peak
formation is generally found at a depth of 7,200 feet and principally contains
oil reserves.
During the year ended December 31, 1998, the Company drilled 2 Gross (2 Net)
Development Wells in the Travis Peak formation in East Texas both of which were
completed as commercially productive.
GOLDSMITH ADOBE UNIT ("GAU"). The Goldsmith Adobe Unit is in the Permian
Basin in West Texas. The Company owns approximately a 95% Working Interest in
the GAU, which it operates.
Originally the GAU was drilled on 40 acre spacing units. Previous operators
had drilled several wells on 20 acre spacing units and, based on the results of
this drilling and 20 acre spacing development on adjoining leases, the Company
began a drilling program in July 1994 to develop the GAU on 20 acre spacing
units. During 1998, the Company drilled and completed as commercially
productive, 4 Gross (3.8 Net) Development Wells on the GAU.
Typically, wells drilled by the Company in the GAU in 1998 were drilled to
depths between 5,600 and 6,000 feet into the Clearfork formation.
5
<PAGE> 7
GULF COAST AREA
At December 31, 1998, 25.6% (26.9 Bcfe) of the Company's Proved Reserves
were located in the Gulf Coast areas, principally in the Greater Bayou Sorrel
Area in Iberville Parish, Louisiana and at Mustang Island in offshore Gulf of
Mexico. The Company also has participated in exploratory activity in various
parishes throughout Southern Louisiana.
GREATER BAYOU SORREL AREA. The Greater Bayou Sorrel Area is located
approximately eighty miles west of New Orleans, in Iberville Parish, Louisiana,
in the Atchafalaya River Basin. The target formations of the Company's
exploration prospects in this area range from approximately 11,000 to 14,000
feet and include the Marg Vag, Marg Howeii, Camerina, Cib Haz, and Marg Tex
zones. The topography of the surface is river swamp and all work must be done
with barge-mounted drilling rigs and boats. Production platforms are mounted on
pilings. The Company first participated in the successful exploratory test of
the Schwing #1 well in the Company's East Bayou Sorrel prospect in January 1996.
This discovery well was drilled to a total depth of approximately 14,000 feet on
the eastern flank of the old Bayou Sorrel Field, which was discovered by Shell
Oil Company in 1954. The old Bayou Sorrel Field was drilled in the 1950s and
1960s, with a total of 87 wells drilled and produced in twenty-eight different
horizons ranging in depths from 7,000 to 11,100 feet. During 1997, the Company
successfully drilled and completed a second test well, the Schwing #2.
During 1998, the Company drilled 2 Gross (1.2 Net) Exploratory Wells in the
Greater Bayou Sorrel area both of which were determined to be dry holes. Also
during 1998, the Company successfully drilled and completed 1 Gross (.8 Net)
Development Well in the Greater Bayou Sorrel area.
The Company has completed shooting, processing and interpreting, an
approximate 54 square mile 3-D seismic survey over the Greater Bayou Sorrel
Area. The Company has identified additional potential drilling locations for
prospects in this area through interpretation of the 3-D seismic data. The
Greater Bayou Sorrel Area has produced and continues to produce significant oil
and gas. Because of the difficult topography, very little seismic data had been
acquired prior to the Company's 3-D survey. The Company controls approximately
13,400 acres either by lease or option to lease, within the Greater Bayou Sorrel
Area.
In March 1998, the Company acquired Fortune Natural Resources Corporation's
interests in the East Bayou Sorrel field for approximately $4.5 million in cash.
MUSTANG ISLAND. The Mustang Island area is located offshore in shallow state
waters in Nueces County, Texas. The Company currently has approximately a 92%
working interest in approximately 16,000 gross acres of leases, majority
interests in 2 producing wells, 11 miles of pipeline, and an onshore tank
facility. In addition, the Company participated in a 3-D seismic survey over the
area, which provided approximately 90 square miles of data. Several exploratory
opportunities have been identified from this 3-D seismic data. The Company did
not drill any wells at Mustang Island during 1998.
In June 1998, the Company acquired Germany Oil Company's interest in six
state leases and one producing well in the Mustang Island area for $.4 million
in cash.
OTHER SOUTH LOUISIANA. The Company has also participated in exploratory
prospects outside of the Greater Bayou Sorrel area in various parishes in South
Louisiana. During 1998, the Company drilled 5 Gross (2.7 Net) Exploratory Wells
in various parishes located in South Louisiana, of which 1 Gross (.3 Net)
Exploratory Well was completed as commercially productive.
OIL AND NATURAL GAS RESERVES
The estimated reserves and related future net revenues as of December 31,
1998, were prepared by the Company's in-house engineers. All of the Company's
reserves are located in the continental United States. This reserve report was
prepared using constant prices and costs in accordance with the published
guidelines of the SEC. The net weighted average prices used in the Company's
reserve report at December 31, 1998, were $10.46 per
6
<PAGE> 8
barrel of oil and $2.06 per Mcf of natural gas. The estimation of reserves and
future net revenues can be materially affected by the oil and gas prices used in
preparing the reserve report. Substantially all of the Company's oil and natural
gas properties are subject to liens, and the remaining oil and natural gas
properties are subject to a negative pledge pursuant to the Company's credit
facility.
All reserves are evaluated at constant temperature and pressure which can
affect the measurement of natural gas reserves. Estimated operating costs,
development costs, abandonment costs and certain production-related and ad
valorem taxes were deducted in arriving at the estimated future net cash flows.
No provision was made for income taxes. The following estimates set forth
reserves considered to be economically recoverable under normal operating
methods and existing conditions at the prices and operating costs prevailing at
the dates indicated above. The estimates of the PV10% from future net cash flows
can differ from the Standardized Measure of discounted future net cash flows set
forth in the notes to the Financial Statements of the Company, which is
calculated after provision for future income taxes. There can be no assurance
that these estimates are accurate predictions of future net cash flows from oil
and natural gas reserves or their present value.
Reservoir engineering is a subjective process of estimating the volumes of
underground accumulations of oil and natural gas that cannot be measured in an
exact way. The accuracy of any reserve estimates is a function of the quality of
available data and of engineering and geological interpretation and judgment.
Reserve estimates prepared by other engineers might differ from the estimates
contained herein. Results of drilling, testing, and production subsequent to the
date of the estimate may justify revision of such estimate. Future prices
received for the sale of oil and natural gas may be different from those used in
preparing these reports. The amounts and timing of future operating and
development costs may also differ from those used. Accordingly, reserve
estimates are often different from the quantities of oil and natural gas that
are ultimately recovered.
No estimates of Proved Reserves of oil and natural gas have been filed by
the Company with, or included in any report to, any United States authority or
agency (other than the SEC) since December 31, 1997.
The following table sets forth certain information for the Company's total
Proved Reserves of oil and natural gas and the PV10% of estimated future net
revenues from such reserves, at December 31, 1998. Also presented is the
Standardized Measure of the Company's total Proved Reserves of oil and natural
gas.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1998
---------------------------------------------------------
NATURAL NATURAL GAS PV10%
OIL GAS EQUIVALENT (IN
(MBBLS) (MMCF) (MMCFE) THOUSANDS)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Proved Developed Reserves .............. 4,188 67,039 92,166 $ 68,973
Proved Undeveloped Reserves ............ 426 10,203 12,759 6,904
------------ ------------ ------------ ------------
Total Proved Reserves .................. 4,614 77,242 104,925 $ 75,877
============ ============ ============ ============
Standardized Measure ................... $ 75,877
============
</TABLE>
OIL AND NATURAL GAS PRODUCTION AND UNIT ECONOMICS
The following table shows the approximate net production attributable to the
Company's oil and natural gas interests, the average sales price per barrel of
oil and Mcf of natural gas produced, and the average unit economics per Mcfe
related to the Company's oil and natural gas production for the periods
indicated. Information relating to
7
<PAGE> 9
properties acquired or disposed of is reflected in this table only since or up
to the closing date of their respective acquisition or sale, and may affect the
comparability of the data between the periods presented.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Net production:
Oil (Mbbls) ................................... 522 1,110 1,238
Natural gas (Mmcf) ............................ 5,681 13,146 11,255
Natural gas equivalent (Mmcfe) ................ 8,811 19,807 18,685
Average sales price:
Oil (per Bbl) ................................. $ 21.70 $ 19.17 $ 12.66
Natural gas (per Mcf) ......................... 2.26 2.37 2.02
Unit economics (per Mcfe):
Average sales price ........................... $ 2.74 $ 2.65 $ 2.06
Lease operating expenses ...................... .41 .34 .46
Oil and gas production taxes .................. .15 .16 .13
Depletion rate (excluding writedowns) ......... 1.10 1.11 1.06
General and administrative expenses ........... .24 .22 .33
</TABLE>
PRODUCTIVE WELL SUMMARY
The Company's production of oil and natural gas is primarily derived from
wells located in Texas, Oklahoma, Louisiana, and Arkansas. The following table
sets forth the Company's interests in Productive Wells, by principal area of
operation, as of December 31, 1998:
<TABLE>
<CAPTION>
OIL NATURAL GAS TOTAL
----------------- ----------------- -----------------
GROSS NET GROSS NET GROSS NET
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Area:
Mid-Continent ......... 67 20.2 280 136.3 347 156.5
East and West Texas ... 135 124.1 37 35.1 172 159.2
Gulf Coast ............ 22 18.0 9 4.9 31 22.9
======= ======= ======= ======= ======= =======
Total ............... 224 162.3 326 176.3 550 338.6
======= ======= ======= ======= ======= =======
</TABLE>
LEASEHOLD ACREAGE
The following table shows the approximate Gross and Net Acres in which the
Company had a leasehold interest as of December 31, 1998:
<TABLE>
<CAPTION>
DEVELOPED ACREAGE UNDEVELOPED ACREAGE
------------------- -------------------
GROSS NET GROSS NET
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Area:
Mid-Continent ....................... 104,654 53,900 3,700 2,494
East and West Texas ................. 17,863 14,315 6,374 3,656
Gulf Coast .......................... 15,778 10,657 30,832 22,045
======== ======== ======== ========
Totals ............................ 138,295 78,872 40,906 28,195
======== ======== ======== ========
</TABLE>
The Company generally acquires a leasehold interest in the properties to be
explored. The leases grant the lessee the right to explore for and extract oil
and natural gas from a specified area. Lease rentals usually consist of a fixed
annual charge made prior to obtaining production. Once production has been
established, a royalty is paid to the lessor based upon the gross proceeds from
the sale of oil and natural gas. Once wells are drilled, a lease generally
continues as long as production of oil and natural gas continues. In some cases,
leases may be acquired in exchange for a commitment to drill or finance the
drilling of a specified number of wells to predetermined depths.
Substantially all of the Company's producing oil and natural gas properties
are located on leases held by the Company for an indeterminate number of years
as long as production is maintained. All of the Company's non-producing acreage
is held under leases from mineral owners or a government entity which expire at
varying dates. The Company is obligated to pay annual delay rentals to the
lessors of certain properties in order to prevent the
8
<PAGE> 10
leases from terminating. Delay rentals were approximately $1.0 million for the
year ended December 31, 1997 and were approximately $.9 million for the year
ended December 31, 1998, and could increase in future periods depending on the
Company's lease acquisition activities.
DRILLING ACTIVITY
The following table sets forth exploration and development drilling results
for the years ended December 31, 1996, 1997, and 1998.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
1996 1997 1998
------------------- ------------------- -------------------
GROSS NET GROSS NET GROSS NET
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Exploratory
Productive ................ 3 1.4 2 1.0 1 .3
Non-productive ............ 5 1.1 6 2.4 6 3.6
-------- -------- -------- -------- -------- --------
Total ................... 8 2.5 8 3.4 7 3.9
-------- -------- -------- -------- -------- --------
Development
Productive ................ 28 25.6 67 58.5 13 8.4
Non-productive ............ 1 .2 2 1.5 4 2.1
-------- -------- -------- -------- -------- --------
Total ................... 29 25.8 69 60.0 17 10.5
-------- -------- -------- -------- -------- --------
Combined Total ............... 37 28.3 77 63.4 24 14.4
======== ======== ======== ======== ======== ========
</TABLE>
TITLE TO OIL AND NATURAL GAS PROPERTIES
The Company has acquired interests in producing wells and undeveloped
acreage in the form of Working Interests, Royalty Interests, and Overriding
Royalty Interests. To reduce the Company's financial exposure in any one
exploratory prospect, the Company often acquires less than 100% of the Working
Interest in a prospect. Working Interests held by the Company may, from time to
time, become subject to minor liens. Prior to an acquisition, due diligence
investigations are made in accordance with standard practices in the industry,
which may include securing an acquisition title opinion.
PRODUCTION AND SALES PRICES
The Company produces oil and natural gas solely in the continental United
States. The Company has no obligations to provide a fixed and determinable
quantity of oil and/or natural gas in the future under existing contracts or
agreements. Nor does the Company refine or process the oil and natural gas it
produces, but sells the production to unaffiliated oil and natural gas
purchasing companies in the area in which it is produced. The Company expects to
sell crude oil on a market price basis and to sell natural gas under contracts
to both interstate and intrastate natural gas pipeline companies. The Company
currently sells a significant portion of oil pursuant to a contract with Plains
Marketing and Transportation. See "-- Markets and Customers."
CONTROL OVER PRODUCTION ACTIVITIES
The Company operated 394 of the 550 producing wells in which it owned an
interest as of December 31, 1998. The non-operated properties are operated by
unrelated third parties pursuant to operating agreements which are generally
standard in the industry. Significant decisions about operations regarding
non-operated properties may be determined by the outside operator rather than by
the Company. If the Company declines to participate in additional activities
proposed by the outside operator under certain operating agreements, the Company
will not receive revenues from, and/or will lose its interest in the activity in
which it declined to participate.
MARKETS AND CUSTOMERS
The availability of a ready market for any oil and natural gas produced by
the Company and the prices obtained for such oil and natural gas depend upon
numerous factors beyond its control, including the demand for and supply of oil
and natural gas; fluctuations in production and seasonal demand; the
availability of adequate pipeline and
9
<PAGE> 11
other transportation facilities; weather conditions; economic conditions;
imports of crude oil; production by and agreements among OPEC members; and the
effects of state and federal governmental regulations on the import, production,
transportation, sale and taxation of oil and natural gas. The occurrence of any
factor that affects a ready market for the Company's oil and natural gas or
reduces the price obtained for such oil and natural gas, may adversely affect
the Company.
A large percentage of the Company's oil and natural gas sales are made to a
small number of purchasers. The Company normally sells its oil under six month
contracts. During 1996, Plains Marketing and Transportation accounted for 83% of
the Company's oil sales, while Crosstex Energy and GPM Natural Gas Corporation
each accounted for 22% of the Company's natural gas sales. For the year ended
December 31, 1997, Plains accounted for 84% of the Company's oil sales, and
Crosstex and GPM accounted for 20% and 14%, respectively, of the Company's
natural gas sales. For the year ended December 31, 1998, Plains accounted for
85% of the Company's oil sales, and Crosstex and Aquila Energy Marketing
accounted for 23% and 26%, respectively, of the Company's natural gas sales. The
agreement with Plains, entered into in 1993, provides for Plains to purchase the
Company's oil pursuant to West Texas Intermediate posted prices plus a premium.
The Company does not believe that the loss of any purchaser would have a
material adverse effect on its business because, under prevailing market
conditions, such purchaser could be replaced.
A portion of the Company's natural gas production is sold pursuant to long
term netback contracts. Under netback contracts, gas purchasers buy gas from a
number of producers, process the gas for natural gas liquids, and sell the
liquids and residue gas. Each producer receives a fixed portion of the proceeds
from the sale of the liquids, and residue gas. The gas purchasers pay for
transportation, processing, and marketing of the gas and liquids, and assume the
risk of contracting pipelines and processing plants in return for a portion of
the proceeds of the sale of the gas and liquids. Generally, because the
purchasers are marketing large volumes of hydrocarbons gathered from multiple
producers, higher prices may be obtained for the gas and liquids. A portion of
the Company's natural gas production is also sold under forward sales contracts.
See Note 9 of Notes to Consolidated Financial Statements. 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 these contracts. The remainder of the Company's
natural gas is sold on the spot market under short-term contracts.
REGULATION
GENERAL. The Company's oil and natural gas exploration, production, and
related operations are subject to extensive rules and regulations promulgated by
federal and state agencies. Failure to comply with such rules and regulations
can result in substantial penalties. The regulatory burden on the oil and gas
industry increases the Company's cost of doing business and affects its
profitability. Because such rules and regulations are frequently amended or
interpreted by federal and state agencies or jurisdictions, the Company is
unable to predict the future cost or impact of complying with such laws.
EXPLORATION AND PRODUCTION. The Company's exploration and development
operations are subject to various types of regulation at the federal, state, and
local levels. Such regulation includes requiring permits for the drilling of
wells; maintaining bonding requirements in order to drill or operate wells; and
regulating the location of wells, the method of drilling and casing wells, the
surface use and restoration of properties upon which wells are drilled, and the
plugging and abandoning of wells. The Company's operations are also subject to
various conservation regulations and rules to protect the correlative rights of
mineral interest owners. These include the regulation of the size of drilling
and spacing units or proration units, the density of wells which may be drilled,
and the unitization or pooling of oil and natural gas properties. In this
regard, some states allow the forced pooling or integration of tracts to
facilitate exploration, while other states rely on voluntary pooling of land and
leases. In addition, some state conservation laws establish maximum rates of
production from oil and natural gas wells, generally prohibit the venting or
flaring of natural gas, and impose certain requirements regarding the ratability
of production. The effect of these regulations is to limit the amounts of oil
and natural gas the Company can produce from its wells and to limit the number
of wells or the locations at which the Company can drill. Legislation in
Oklahoma and regulatory
10
<PAGE> 12
action in Texas governs the methodology by which the regulatory agencies
establish permissible monthly production allowables. The Company cannot predict
what effect any change in prorationing regulations might have on its production
and sales of natural gas.
Certain of the Company's Oil, Gas and Mineral Leases are granted by the
federal government and administered by various federal agencies. Such leases
require compliance with detailed federal regulations and orders which regulate,
among other matters, drilling and operations on these leases and calculation and
disbursement of royalty payments to the federal government. The Mineral Lands
Leasing Act of 1920 places limitations on the number of acres under federal
leases that may be owned in any one state.
ENVIRONMENTAL PROTECTION AND OCCUPATIONAL SAFETY. The Company is subject to
numerous federal, state and local laws and regulations governing the release of
materials into the environment or otherwise relating to environmental
protection. These laws and regulations may require the acquisition of a permit
before drilling commences, restrict the types, quantities and concentration of
various substances that can be released into the environment in connection with
drilling and production activities, limit or prohibit drilling activities on
certain lands lying within wilderness, wetlands and other protected areas, and
impose substantial liabilities for pollution resulting from operations.
Moreover, the recent trend toward stricter standards in environmental
legislation and regulation is likely to continue. For instance, legislation has
been proposed in Congress from time to time that would reclassify certain oil
and natural gas production wastes as "hazardous wastes," which reclassification
would make such wastes subject to much more stringent handling, disposal, and
clean-up requirements. If such legislation were to be enacted, it could have a
significant impact on the operating costs of the Company, as well as the oil and
gas industry in general. It is not anticipated that the Company will be required
in the near future to expend amounts that are material in relation to its total
capital expenditure program by reason of environmental laws and regulations, but
because such laws and regulations are frequently changed, the Company is unable
to predict the ultimate cost and effects of such compliance.
The Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA"), also known as the "Superfund" law, imposes liability, without regard
to fault or the legality of the original conduct, on certain classes of persons
who are considered to have contributed to the release of a "hazardous substance"
into the environment. These persons include the owner or operator of the
disposal site or sites where the release occurred and companies that disposed or
arranged for the disposal of the hazardous substances. Under CERCLA, such
persons or companies may be subject to joint and several liabilities for the
costs of cleaning up the hazardous substances that have been released into the
environment and for damages to natural resources. Also, it is not uncommon for
neighboring landowners and other third parties to file claims for personal
injury, property damage, and recovery of response costs allegedly caused by the
hazardous substance released into the environment.
In addition, the U.S. Oil Pollution Act of 1990 (the "OPA") and regulations
promulgated pursuant thereto impose a variety of regulations on responsible
parties related to the prevention of oil spills and liability for damages
resulting from such spills. The OPA establishes strict liability for owners of
facilities that are the site of a release of oil into "waters of the United
States." While OPA liability more typically applies to facilities near
substantial bodies of water, at least one district court has held that OPA
liability can attach if the contamination could enter waters that may flow into
navigable waters.
Stricter standards in environmental legislation may be imposed in the oil
and gas industry as the result of the reclassification of certain oil and
natural gas exploration and production wastes as "hazardous oil and gas wastes,"
which could make the reclassified wastes subject to more stringent and costly
handling, disposal and clean-up requirements. The impact of any such
requirements, however, would not likely be any more burdensome to the Company
than to any other similarly situated company involved in oil and natural gas
exploration and production.
The Resource Conservation and Recovery Act ("RCRA") and regulations
promulgated thereunder govern the generation, storage, transfer and disposal of
hazardous wastes. RCRA, however, excludes from the definition of hazardous
wastes "drilling fluids, produced waters, and other wastes associated with the
exploration, development, or production of crude oil, natural gas, or geothermal
energy." Because of this exclusion, many of the Company's
11
<PAGE> 13
operations are exempt from RCRA regulation. Nevertheless, the Company must
comply with RCRA regulations for any of its operations that do not fall within
the RCRA exclusion (such as painting activities or use of solvents).
Because oil and natural gas exploration and production, and possibly other
activities, have been conducted at some of the Company's properties by previous
owners and operators, materials from these operations remain on some of the
properties and in some instances require remediation. In addition, the Company
has agreed to indemnify some sellers of producing properties from whom the
Company has acquired reserves against certain liabilities for environmental
claims associated with such properties. While the Company does not believe that
costs to be incurred by the Company for compliance and remediating previously or
currently owned or operated properties will be material, there can be no
guarantee that such costs will not result in material expenditures.
Additionally, in the course of the Company's routine oil and natural gas
operations, surface spills and leaks, including casing leaks of oil or other
materials occur, and as a result, the Company incurs costs for waste handling
and environmental compliance. Moreover, the Company is able to control directly
the operations of only those wells for which it acts as the operator.
Notwithstanding the Company's lack of control over wells in which the Company
owns an interest but is operated by others, the failure of the operator to
comply with applicable environmental regulations may, in certain circumstances,
be attributable to the Company.
The Company is also subject to laws and regulations concerning occupational
safety and health. While it is not anticipated that the Company will be required
in the near future to expend amounts that are material in the aggregate to the
Company's overall operations by reason of occupational safety and health laws
and regulations, the Company is unable to predict the ultimate cost of
compliance.
MARKETING AND TRANSPORTATION. Federal legislation and regulatory controls in
the United States have historically affected the price of the natural gas
produced by the Company and the manner in which such production is marketed. The
transportation and sales for resale of natural gas in interstate commerce are
regulated pursuant to the Natural Gas Act of 1938 (the "NGA") and the Federal
Energy Regulatory Commission ("FERC") regulations promulgated thereunder.
Maximum selling prices of certain categories of natural gas, whether sold in
interstate or intrastate commerce, previously were regulated pursuant to The
Natural Gas Policy Act of 1978 ("NGPA"). The NGPA established various categories
of natural gas and provided for graduated deregulation of price controls of
several categories of natural gas and the deregulation of sales of certain
categories of natural gas. All price deregulation contemplated under the NGPA
has already taken place. Subsequently, the Natural Gas Wellhead Decontrol Act of
1989 (the "Decontrol Act") terminated all remaining NGA and NGPA price and
non-price controls on wellhead sales of domestic natural gas on January 1, 1993.
While natural gas producers may currently make sales at uncontrolled market
prices, Congress could re-enact price controls in the future.
In April 1992, the FERC issued its restructuring rule, known as Order No.
636 ("Order No. 636"), that has had a major impact on pipeline operations,
services, and rates. The most significant provisions of Order No. 636: (i)
required interstate pipelines to provide firm and interruptible transportation
solely on an "unbundled" basis, separate from their sales service, and to
convert each pipeline's bundled firm sales service into unbundled firm
transportation service; (ii) provided for the issuance of blanket certificates
to pipelines to provide unbundled sales service giving all utility customers a
chance to purchase their firm supplies from non-pipeline merchants; (iii)
required that pipelines provide firm and interruptible transportation service on
a basis that is equal in quality for all natural gas supplies, whether purchased
from the pipeline or elsewhere; (iv) required that pipelines provide a new,
non-discriminatory "no-notice" transportation service that largely replicates
the "bundled" sales service previously provided by pipelines; (v) established
two new, generic programs for the reallocation of firm pipeline capacity; (vi)
required that all pipelines offer access to their storage facilities on a firm
and interruptible basis; (vii) provided for pregranted abandonment of pipeline
sales agreements, interruptible and firm short-term (defined as one year or
less) transportation agreements and conditional pregranted abandonment of firm
long-term transportation service; (viii) modified transportation rate design by
requiring that all fixed costs related to transportation be recovered through
the reservation charge; and (ix) provided mechanisms for the recovery by
pipelines of certain transition costs occurring from implementation of Order No.
636.
12
<PAGE> 14
The rules contained in Order No. 636, as amended by Order No. 636-A (issued
in August 1992) and Order No. 636-B (issued in November 1992) (collectively,
"Order No. 636"), are far-reaching and complex. While Order No. 636 does not
directly regulate natural gas producers such as the Company, the FERC has stated
that Order No. 636 is intended to foster increased competition within the gas
industry.
OPERATIONAL HAZARDS AND INSURANCE
The Company's operations are subject to all of the risks inherent in oil and
natural gas exploration, drilling and production. These hazards can result in
substantial losses to the Company due to personal injury and loss of life,
severe damage to and destruction of property and equipment, pollution or
environmental damage, or suspension of operations. The Company maintains
insurance of various types customary in the industry to cover its operations.
The Company believes it is insured prudently against certain of these risks. In
addition, the Company maintains operator's extra expense coverage that provides
coverage for the care, custody and control of wells drilled by the Company. The
Company's insurance does not cover every potential risk associated with the
drilling and production of oil and natural gas. The Company does, however,
maintain levels of insurance customary in the industry to limit its financial
exposure in the event of a substantial environmental claim resulting from sudden
and accidental discharges. However, 100% coverage is not maintained. The
occurrence of a significant adverse event, the risks of which are not fully
covered by insurance, could have a material adverse effect on the Company's
financial condition and results of operations. Moreover, no assurance can be
given that the Company will be able to maintain adequate insurance in the future
at rates it considers reasonable. The Company believes that it operates in
compliance with government regulations and in accordance with safety standards
which meet or exceed industry standards.
COMPETITION
The oil and gas industry is intensely competitive in all of its phases. With
the decline in prices, the reduction in exploratory drilling, the reduction in
available capital markets and debt financing becoming scarce for energy
activities, competition for the acquisition of desirable producing Oil, Gas and
Mineral Leases and oil and natural gas companies with production has increased.
The Company, which is a small competitive factor in the industry, encounters
strong competition from major oil companies, independent oil and natural gas
concerns, and individual producers and operators, many of which have financial
resources, staffs, facilities and experience substantially greater than those of
the Company. Depressed energy prices have caused many energy companies to seek
merger candidates resulting in the combination of many small energy companies
into larger and more competitive entities. Furthermore, in times of high
drilling activity, exploration for and production of oil and natural gas may be
affected by the availability of equipment, labor, supplies and by competition
for drilling rigs. The Company cannot predict the effect these factors will have
on its operations. The Company owns no drilling rigs, and it is anticipated that
its drilling will be conducted by third parties. Furthermore, the oil and gas
industry also competes with other industries in supplying the energy and fuel
requirements of industrial, commercial, and individual consumers.
OFFICE SPACE
The Company leases approximately 25,000 square feet of office space in
Dallas, Texas. The Company also leases a small amount of office space in Odessa,
Texas, Fort Smith, Arkansas and Yukon, Oklahoma for its business activities.
EMPLOYEES
At March 24, 1999, the Company had 54 full-time employees. Of these
employees, eight are field-related personnel. The Company does not have any
collective bargaining agreements with employees and believes that relations with
its employees are generally satisfactory.
13
<PAGE> 15
ITEM 3. LEGAL PROCEEDINGS
The Company filed suit against Mr. R. E. Steakley in August 1995 to enjoin
Mr. Steakley from interfering with the operations of the Company. Mr. Steakley
counterclaimed against the Company for surface damages, alleging certain
environmental claims. In February 1999, without admitting any liability, the
Company and Mr. R. E. Steakley entered into a Settlement and Release Agreement
which provided that each of the Company and Mr. Steakley release and discharge
the other from all claims and damages which may have occurred through January
31, 1999 and dismiss the pending lawsuits against each other. The Company
further agreed to pay Mr. Steakley an amount of $75,000, purchase certain
materials from Mr. Steakley at market value which the Company shall use to
maintain roads incidental to its operations on the Steakley property and limit
the Company's ingress and egress to specified entrances on the Steakley
property.
Other than the Bankruptcy Court proceedings, the Company is not a defendant
in any additional material pending legal proceedings. 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended December 31, 1998.
14
<PAGE> 16
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
The Company's Common Stock traded on the Nasdaq National Market since
September 1, 1995 under the symbol "NEGX". On November 9, 1998, Nasdaq notified
the Company that its common stock would be delisted effective at the close of
business that day for failing to meet the net tangible asset test and minimum
bid price requirements set forth in NASD Marketplace Rules 4450(a)(3) and
4450(a)(5). Nasdaq also advised the Company that its common stock was
immediately eligible for trading on the OTC Bulletin Board through authorized
broker-dealers who had been market makers in the Company's stock during the last
30-days. The Company contacted its OTC Market Makers to notify them of Nasdaq's
action and to facilitate future trading activity. The Company's common stock
currently trades on the OTC Bulletin Board under the symbol "NEGXQ". The
following table sets forth for the periods indicated, the high and low closing
sales prices for the Company's Common Stock, as reported on Nasdaq and/or the
OTC Bulletin Board. The quotations represent prices between dealers in
securities and may not include retail mark-up, mark-down, or commission and may
not represent actual transactions.
<TABLE>
<CAPTION>
COMMON STOCK PRICE
-----------------------
HIGH LOW
---------- ----------
<S> <C> <C>
CALENDAR YEARS BY QUARTER
1998:
First ............................... $ 4.13 $ 2.31
Second .............................. 2.78 1.38
Third ............................... 1.50 .38
Fourth .............................. .38 .03
1997:
First ............................... 4.56 3.13
Second .............................. 3.69 2.88
Third ............................... 5.63 2.94
Fourth .............................. 6.56 3.44
</TABLE>
On March 24, 1999, the latest practicable date for providing price
information, the last sales price for the Company's Common Stock was $.10.
HOLDERS
As of March 24, 1999, the Company had approximately 4,500 record holders
of its shares of Common Stock, including multiple nominee holders for an
undetermined number of beneficial owners.
DIVIDENDS ON COMMON STOCK
The Company has not paid cash dividends on its Common Stock and does not
expect to declare cash dividends in the foreseeable future. Payment of dividends
is prohibited under bankruptcy rules and regulations. Furthermore, any future
dividends on the Common Stock will be limited by the terms of the Preferred
Stock, which prohibits cash dividends on Common Stock unless all accrued and
unpaid dividends on the Preferred Stock have been paid, and the terms of the
Company's credit facility with Arnos, Inc., which does not permit dividends on
the Common Stock.
15
<PAGE> 17
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected historical financial and operating
data with respect to the Company as of and for each of the five years in the
period ended December 31, 1998. The Company acquired significant producing oil
and natural gas properties during certain of the periods presented which affects
the comparability of the historical financial and operating data for the periods
presented. The financial data was derived from the historical financial
statements of the Company. This information is not necessarily indicative of the
Company's future performance. The financial data set forth below should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements and the
related notes thereto of the Company included elsewhere herein.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
1994 1995 1996 1997 1998
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT FOR RATIOS AND PER UNIT DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:(1)
Oil and natural gas sales ........................ $ 3,100 $ 7,827 $ 24,174 $ 52,417 $ 38,440
Costs and expenses:
Lease operating ............................... 1,149 1,701 3,596 6,729 8,590
Oil and natural gas production taxes .......... 176 416 1,285 3,139 2,504
Depreciation, depletion and amortization ...... 1,050 3,171 9,901 23,205 21,311
Writedown of oil and natural gas
properties(2) ................................ -- -- 43,497 46,396 148,400
Restructuring charges ......................... -- -- -- -- 1,869
General and administrative .................... 826 1,634 2,157 4,392 6,141
---------- ---------- ---------- ---------- ----------
Total costs and expenses .................... 3,201 6,922 60,436 83,861 188,815
---------- ---------- ---------- ---------- ----------
Operating income (loss) .......................... (101) 905 (36,262) (31,444) (150,375)
Interest expense ................................. (497) (1,011) (4,108) (11,212) (14,432)
Other income ..................................... 109 312 308 1,032 293
---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes and
extraordinary item ............................. (489) 206 (40,062) (41,624) (164,514)
Income tax benefit ............................... -- -- 14,504 7,286 --
---------- ---------- ---------- ---------- ----------
Income (loss) before extraordinary item .......... (489) 206 (25,558) (34,338) (164,514)
Extraordinary loss ............................... (122) (432) (292) -- --
---------- ---------- ---------- ---------- ----------
Net loss ......................................... $ (611) $ (226) $ (25,850) $ (34,338) $ (164,514)
========== ========== ========== ========== ==========
Loss per common share before
extraordinary item ............................. $ (0.09) $ (0.05) $ (1.33) $ (.94) $ (4.08)
========== ========== ========== ========== ==========
Net loss per common share ........................ $ (0.10) $ (0.09) $ (1.34) $ (.94) $ (4.08)
========== ========== ========== ========== ==========
CASH FLOW DATA:
Net cash provided by operating activities ........ $ 373 $ 2,857 $ 11,788 $ 22,864 $ 5,082
Net cash used in investing activities ............ (3,812) (16,726) (49,277) (75,826) (53,303)
Net cash provided by financing activities ........ 5,871 17,352 45,595 64,734 24,809
OTHER FINANCIAL DATA:
EBITDA(3) ........................................ $ 1,058 $ 4,387 $ 17,443 $ 39,189 $ 19,628
Ratio of EBITDA to interest expense .............. 2.1x 4.3x 4.2x 3.5x 1.4x
Ratio of earnings to fixed charges (4) ........... -- 1.2x -- -- --
BALANCE SHEET DATA (AT PERIOD END):(1)
Cash and cash equivalents ........................ $ 2,594 $ 6,076 $ 14,182 $ 25,954 $ 2,542
Working capital (deficit) ........................ 3,561 (2,335) (1,582) 8,387 (197,834)
Total assets ..................................... 18,746 43,491 216,199 254,361 95,002
Long-term debt ................................... 6,000 13,475 100,000 166,397 --
Stockholders' equity/(deficit) ................... 11,328 17,775 80,426 47,893 (116,933)
</TABLE>
16
<PAGE> 18
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1994 1995 1996 1997 1998
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:(1)
Production:
Oil (Mbls) ..................................... 116 283 522 1,110 1,238
Natural gas (Mmcf) ............................. 621 1,753 5,681 13,146 11,255
Natural gas equivalent (Mmcfe) ................. 1,315 3,454 8,811 19,807 18,685
Average sales price:
Oil (per Bbl) .................................. $ 16.01 $ 17.22 $ 21.70 $ 19.17 $ 12.66
Natural gas (per Mcf) .......................... 2.01 1.68 2.26 2.37 2.02
Unit economics (per Mcfe):
Average sales price ............................ 2.36 $ 2.27 $ 2.74 $ 2.65 $ 2.06
Lease operating expenses ....................... .87 .49 .41 .34 .46
Oil and natural gas production taxes ........... .13 .12 .15 .16 .13
Depreciation, depletion and amortization (5) ... .80 .92 1.12 1.17 1.14
General and administrative ..................... .63 .47 .24 .22 .33
</TABLE>
- ----------
(1) Reflects the revenues, results of operations, and production subsequent
to the dates of acquisitions of various oil and natural gas properties
that affect the comparability of the data presented. The Company
acquired a 17% Working Interest in the GAU during 1994. During 1995,
the Company acquired interests in producing oil and natural gas
properties in the Mustang Island area, the Oak Hill Field, and in Eddy
County, New Mexico. In August 1996, the Company completed the Merger
with Alexander. See Note 3 of Notes to Consolidated Financial
Statements.
(2) The results of operations for the year ended December 31, 1996 include
a writedown of oil and natural gas properties of approximately $43.5
million ($28.3 million net of deferred income taxes), in accordance
with the full cost method of accounting, which resulted from the
Merger. The results of operations for the year ended December 31, 1997,
included a writedown of oil and natural gas properties of approximately
$46.4 million ($37.5 million, net of deferred income taxes) in
accordance with the full cost method of accounting. The results of
operations for the year ended December 31, 1998, include a writedown of
oil and natural gas properties of approximately $148.4 million in
accordance with the full cost method of accounting. See Notes 3 and 12
of Notes to Consolidated Financial Statements.
(3) See the Glossary included elsewhere herein for the definition of
EBITDA. EBITDA is not a measure of cash flow as determined by generally
accepted accounting principles. The Company has included information
concerning EBITDA because EBITDA is a measure used by certain investors
in determining the Company's historical ability to service its
indebtedness. However, this measure may not be comparable to similarly
titled measures of other companies. EBITDA should not be considered as
an alternative to, or more meaningful than, net income or cash flows as
determined in accordance with generally accepted accounting principles
as an indicator of the Company's operating performance or liquidity.
(4) For the purposes of calculating the ratio of earnings to, or deficiency
of earnings over, fixed charges, earnings consist of income before
extraordinary items and income taxes plus fixed charges, excluding
capitalized interest. Fixed charges consist of interest expense,
capitalized interest, the interest component of rent expense, and
amortization of debt premium, discount and financing costs. The
deficiency of earnings over fixed charges for the years ended December
31, 1994, 1996, 1997 and 1998, were approximately $.05 million, $40.0
million, $44.2 million, and $167.9 million, respectively.
(5) Excludes the full cost ceiling writedowns discussed in Note 2 above.
17
<PAGE> 19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the Company's
Financial Statements and "Selected Financial Data" and respective notes thereto,
included elsewhere herein. The information below should not be construed to
imply that the results discussed herein will necessarily continue into the
future or that any conclusion reached herein will necessarily be indicative of
actual operating results in the future. Such discussion only represents the best
present assessment by management of the Company. Because of the size and scope
of the Company's acquisitions during 1996 and the relatively small scale of the
Company's operations prior to those acquisitions, the results of operations from
1996 to 1997 are not necessarily comparative.
On December 4, 1998 the Company's 10 3/4% Senior Note bondholders filed an
Involuntary Petition for an Order and Relief under Chapter 11 of Title 11 of the
United States Bankruptcy Code in the United States Bankruptcy Court for the
Northern District of Texas, Dallas Division, due to non-payment of interest due
December 2, 1998, after expiration of a 30-day grace period. On December 23,
1998, the Company filed in the Bankruptcy Court, an Answer to and Motion to
Dismiss the pending Involuntary Petition. The Company's Motion affirmed that it
(i) was meeting its obligations and generally paying its debts as they became
due, unless such debts were the basis of a bona fide dispute and (ii) had
arranged with the lender under its credit facility to borrow additional funds
sufficient to pay the interest due on the 10 3/4% Senior Notes, conditioned upon
the Court's dismissal of the Involuntary Petition. However, on February 8, 1999,
the Bankruptcy Court denied the Company's Motion to Dismiss the Involuntary
Petition. An Order for Relief was entered by the Bankruptcy Court on February
11, 1999, effective February 8, 1999. The Order for Relief places the Company
under the protection of the Court and precludes payment of the interest on the
Senior Notes at this time. The Company will act as debtor-in-possession and will
continue to operate its business and manage its properties in the ordinary
course during its Chapter 11 proceeding. The Company anticipates proposing a
Plan of Reorganization within 120 days of February 11, 1999, or at such time as
may be extended by the Court. As of December 4, 1998, the Company discontinued
the accrual of interest on unsecured liabilities subject to compromise, which
primarily relates to the Senior Notes.
OVERVIEW
The Company's current financial condition and 1998 operating results have
resulted from the significant decline in oil prices during 1998, coupled with
unfavorable revisions in estimates of oil and gas reserves during the year.
The revenues generated by the Company's operations are highly dependent upon
the prices of, and demand for, oil and natural gas. The price received by the
Company for its oil and natural gas production depends on numerous factors
beyond the Company's control, including seasonal price fluctuation, the
condition of the U.S. economy, foreign imports, political conditions in other
oil and natural gas producing countries, the actions of the Organization of
Petroleum Exporting Countries and domestic governmental regulations, legislation
and policies. Declines during 1998 in the prices of oil and gas have had a
material adverse effect on the carrying value of the Company's oil and gas
properties and the Company's revenues, profitability and cash flows.
18
<PAGE> 20
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>
YEAR ENDED DECEMBER 31,
------------------------------------
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Net production:
Oil (Mbbls) .................................... 522 1,110 1,238
Natural Gas (Mmcf) ............................. 5,681 13,146 11,255
Natural Gas Equivalent (Mmcfe) ................. 8,811 19,807 18,685
Oil and natural gas sales (in thousands):
Oil ............................................ $ 11,320 $ 21,276 $ 15,673
Natural gas .................................... 12,854 31,141 22,767
---------- ---------- ----------
Total .......................................... $ 24,174 $ 52,417 $ 38,440
========== ========== ==========
Average sales price:
Oil (per Bbl) .................................. $ 21.70 $ 19.17 $ 12.66
Natural gas (per Mcf) .......................... 2.26 2.37 2.02
Unit economics (per Mcfe):
Average sales price ............................ 2.74 2.65 2.06
LOE ............................................ .41 .34 .46
Oil and gas production taxes ................... .15 .16 .13
Depletion rate (excluding writedowns) .......... 1.10 1.11 1.06
General and administrative ..................... .24 .22 .33
</TABLE>
YEAR ENDED DECEMBER 31, 1998, COMPARED WITH YEAR ENDED DECEMBER 31, 1997
Revenues. Total revenues decreased by $14.0 million (26.7%) to $38.4
million for 1998 from $52.4 million in 1997. The reduction in revenues is
primarily due to the decrease in commodity prices from the same period in 1997.
Average natural gas prices decreased $.35 per Mcf to $2.02 per Mcf for 1998 from
$2.37 for 1997, and average oil prices decreased $6.51 per barrel to $12.66 for
1998 from $19.17 for 1997. The decrease in average prices reduced 1998 revenues
by approximately $12.0 million compared to 1997.
Also contributing to the decrease in revenues was the Mmcfe equivalent
decrease in production. In 1998, the Company produced 1,238 Mbbls of oil, an
increase of 11.5% over 1,110 Mbbls in 1997, and 11,255 Mmcf of natural gas, a
decrease of 14.4% over 13,146 Mmcf in the same period of 1997. The increase in
oil production is due primarily to the completion of four GAU wells in the first
quarter of 1998, the completion of the State Lease #2102 well (in the Greater
Bayou Sorrel area) in October of 1998 and the drilling activity on the Company's
Anadarko Basin properties. The decline in gas production is primarily due to the
flush production in 1997 from the drilling program on the East Texas and Arkoma
properties. The Company had limited drilling activity in these areas during
1998.
Also affecting 1998 production was the temporary shut-in of the East Bayou
Sorrel field to allow for a pipeline repair, which reduced 1998 production by
291 Mmcfe, the 1997 sale of certain non-strategic properties and natural decline
of production not replaced by additional drilling activity. The East Bayou
Sorrel field was also shut-in for seven days to allow for the completion of the
State Lease #2102 and Hurricane George. The Company expects production to
continue to decline unless replaced through drilling, workovers, recompletions
and/or acquisitions.
Costs and Expenses. Lease operating expenses increased $1.9 million (28.4%)
to $8.6 million for 1998 from $6.7 million for 1997 primarily due to additional
wells brought into production during 1998 and 1997. The Company also entered
into a saltwater disposal lease and $.4 million was paid for this lease during
the fourth Quarter of 1998. The increase in lease operating expenses was in part
offset by the 1997 sale of non-strategic properties and the Company's efforts to
reduce operating costs. Lease operating expenses per Mcfe
19
<PAGE> 21
increased to $.46 for 1998 from $.34 for 1997 due to increased costs combined
with the Mmcfe equivalent decline in production during the period.
Production taxes decreased $.6 million (19.4%) to $2.5 million for 1998
compared to $3.1 million for 1997. This decrease principally resulted from the
decrease in total oil and natural gas revenues discussed above.
Depreciation, depletion and amortization decreased $1.9 million (8.2%) to
$21.3 million for 1998 compared to $23.2 million for 1997. This decrease is due
to the decrease in the depletion rate per Mcfe from $1.11 in 1997 to $1.06 for
1998. This decrease in the depletion rate was primarily due to the effects on
depletion expense of the full cost ceiling writedowns discussed below in 1998.
At March 31, June 30, September 30, and December 31, 1998, the net book
value of the Company's oil and natural gas properties exceeded the full cost
ceiling, resulting in non-cash writedowns of the oil and natural gas properties
totaling $148.4 million for the year. These writedowns resulted primarily from
the decline in oil and natural gas prices, costs incurred on unsuccessful
exploratory wells drilled during such period and unfavorable revisions to
estimates of oil and gas reserves. See Notes 3 and 12 of Notes to Financial
Statements.
During 1998, the Company recorded non-recurring charges of approximately
$1.9 million for severance and related costs resulting from the restructuring of
its executive management team, other personnel changes and costs associated with
the Chapter 11 filing.
General and administrative costs increased $1.7 million (38.6%) to $6.1
million compared to $4.4 million for 1997. The increase in general and
administrative expenses compared to 1997 was primarily due to increased
personnel and office space due to the increase in the scope of the Company's
operations. In an effort to reduce general and administrative costs the Company
has restructured its executive management team and other personnel. The Company
has also renegotiated its office lease and implemented other cost cutting
strategies that should help reduce these costs in the future. The Company's
capitalized general and administrative expenses totaled $ 1.6 million and $2.0
million for the years ended December 31, 1997 and 1998, respectively. General
and administrative costs per Mcfe increased 50.0% to $.33 for 1998 from $.22 for
1997. This increase per Mcfe is attributable to the decrease in production,
combined with additional general and administrative costs noted above.
Other Income and Expenses. The increase of $3.2 million in interest expense
to $14.4 million for 1998 from $11.2 million for 1997, was due to the issuance
of the Series C Notes in August 1997, and interest on borrowings under the
credit facility, partially offset by an increase of $.8 million of interest
costs which were capitalized during 1998 related to the Company's unproved oil
and natural gas properties. The average balance of debt outstanding during 1998
was $180.6 million as compared to average debt outstanding of $133.4 million for
1997. The weighted average interest rate for 1998 was 9.9% compared to 10.3% for
1997. As of December 4, 1998, the Company discontinued the accrual of interest
on unsecured liabilities subject to compromise, which primarily consisted of the
Senior Notes, as a result of the Chapter 11 filing. Approximately $1.3 million
additional interest expense would have been recognized by the Company if not for
the discontinuation of the interest accrual on the Senior Notes.
Net Loss. A net loss of $164.5 million was generated for 1998, compared with
net loss of $34.3 million for 1997. The net losses for 1998 and 1997 included
writedowns of oil and natural gas properties of $148.4 million and $37.5
million, respectively, net of deferred taxes. Excluding these charges, income
decreased $19.3 million in 1998 compared with 1997 due to the decrease in
operating income and increased interest expense.
YEAR ENDED DECEMBER 31, 1997, COMPARED WITH YEAR ENDED DECEMBER 31, 1996
Revenues. Total revenues increased by $28.2 million (116.5%) to $52.4
million for 1997 from $24.2 million in 1996. In 1997, the Company produced 1,110
Mbbls of oil, an increase of 112.6% over 522 Mbbls in 1996, and 13,146 Mmcf of
natural gas, an increase of 131.4% over 5,681 Mmcf in the same period of 1996.
The increase in production primarily from the results of the Drilling Program
and the Merger with Alexander completed in August 1996. Also contributing to the
increased production is the UMC Acquisition, the CA Acquisition, the Lake Boeuf
Acquisition and the Bayou Sorrel Acquisition (collectively, the "1996
Acquisitions") completed during 1996.
20
<PAGE> 22
Also contributing to the increase in revenues was the increase in average
natural gas prices of $.11 per Mcf to $2.37 per Mcf for 1997 from $2.26 for
1996, offset by the decrease in average oil prices of $2.53 per barrel to $19.17
for 1997 from $21.70 for 1996.
Costs and Expenses. Lease operating expenses increased $3.1 million (86.1%)
to $6.7 million for 1997 from $3.6 million for 1996 primarily due to the
increased production discussed above. Although total lease operating expenses
increased, lease operating expenses per Mcfe decreased to $.34 for 1997 from
$.41 for 1996.
Production taxes increased $1.8 million (144.2%) to $3.1 million for 1997
compared to $1.3 million for 1996. This increase principally resulted from the
increase in total oil and natural gas revenues discussed above and increased
production in Louisiana, which has higher production tax rates than Texas,
Oklahoma and Arkansas.
Depreciation, depletion and amortization increased $13.3 million (134.3%) to
$23.2 million for 1997 compared to $9.9 million for 1996. This increase is due
to the increased production. The depletion rate per Mcfe was $1.11 for 1997
compared to $1.10 for 1996. This increase in the depletion rate was primarily
due to the acquisition costs incurred in the Merger.
At December 31, 1997, 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 $46.4 million ($37.5 million net of
deferred income taxes). This writedowns resulted primarily from the decline in
oil and natural gas prices in the fourth quarter of 1997, combined with the
costs incurred on unsuccessful exploratory wells drilled during such period. In
August, 1996, as a result of allocating the cost of the Merger with Alexander,
under the purchase method of accounting, to the proved oil and natural gas
properties acquired in connection with the Merger, the Company recognized a
writedown of the oil and natural gas properties, net of related deferred income
taxes of $28.3 million. See Notes 3 and 12 of Notes to Financial Statements.
General and administrative costs increased $2.2 million (100.0%) to $4.4
million compared to $2.2 million for 1996, due to the Merger with Alexander,
although general and administrative costs per Mcfe decreased 8.3% to $.22 for
1997 from $.24 for 1996. This decrease per Mcfe is attributable to the increase
in production discussed above, without a proportionate increase in costs to the
Company.
Other Income and Expenses. The increase of $7.1 million in interest expense
to $11.2 million for 1997 from $4.1 million for 1996, was due to the issuance of
the Notes, partially offset by $2.5 million of interest costs related to the
Company's unproved oil and natural gas properties which was capitalized in 1997.
The average balance of debt outstanding during 1997 was $133.4 million as
compared to average debt outstanding of $41.4 million for 1996. The weighted
average interest rate for 1997 was 10.34% compared to 8.64% for 1996.
Net Loss. A net loss of $34.3 million was generated for 1997, compared with
net loss of $25.8 million for 1996. The net losses for 1997 and 1996 included
writedowns of oil and natural gas properties of $37.5 million and $28.3 million,
respectively, net of deferred taxes. Excluding these charges, income increased
$.8 million in 1997 compared with 1996 as the increase in 1997 operating income
more than offset the increase in interest expense.
LIQUIDITY AND CAPITAL RESOURCES
YEAR ENDED DECEMBER 31, 1998, COMPARED WITH YEAR ENDED DECEMBER 31, 1997
Net cash provided by operating activities was $5.1 million for the year
ended December 31, 1998, compared to $22.9 million for the same period in 1997.
The decrease in cash flow from operating activities is primarily due to the
decrease in income from operations before non-cash charges, resulting from
depressed sales prices for oil and gas and reduced production at such prices.
Net cash used by investing activities was $53.3 million for 1998 compared
with $75.8 million for 1997. The cash used by investing activities for 1998
included $52.0 million for exploration and development expenditures pursuant to
the Company's Drilling Program, including acquisitions of leasehold interests
and seismic costs.
21
<PAGE> 23
Net cash provided by financing activities was $24.8 million for 1998
compared with $64.7 million for the same period in 1997. The net cash provided
by financing activities during 1998 consisted primarily of proceeds from the
credit facility. In 1997, cash provided by financing activities consisted
primarily of proceeds from the issuance of the Series C Notes.
The Company's working capital deficit at December 31, 1998, was $197.8
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 classification
as a current liability of the $25.0 million due under the Arnos credit facility,
the $166.2 million due on the Senior Notes and the accrued interest on the
Senior Notes.
YEAR ENDED DECEMBER 31, 1997, COMPARED WITH YEAR ENDED DECEMBER 31, 1996
Net cash provided by operating activities was $22.9 million for the year
ended December 31, 1997, compared to $11.8 million for the same period in 1996.
The increase in cash flow from operating activities is primarily due to the
increase in income from operations before non-cash charges.
Net cash used by investing activities was $75.8 million for 1997 compared
with $49.3 million for 1996. The cash used by investing activities for 1997
included $77.9 million for exploration and development expenditures pursuant to
the Company's Drilling Program, including acquisitions of leasehold interests
and seismic costs. In December 1997, the Company sold its interests in 274
nonstrategic wells for approximately $5.4 million.
Net cash provided by financing activities was $64.7 million for 1997
compared with $45.6 million for the same period in 1996. The net cash provided
by financing activities during 1997 consisted primarily of proceeds from the
issuance of the Series C Notes. In 1996, cash provided by financing activities
consisted primarily of proceeds from the issuance of the Series A Notes and
proceeds from the issuance of preferred stock, partially offset by repayments of
long-term debt.
The Company's working capital surplus at December 31, 1997, was $8.4 million
compared to a working capital deficit at December 31, 1996, of $1.6 million. The
increase in working capital was due primarily to the issuance of the Series C
Notes, partially offset by 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, ordinary course capital
expenditures for the development, and exploitation of oil and natural gas
reserves, subject to economic conditions and in accordance with the rulings and
procedures set forth by the Court. Due to the Chapter 11 filing and severely
depressed oil prices, the Company has suspended its exploratory drilling
program. The Company will limit its capital expenditures to ordinary course
enhancement of current production through workovers, recompletions, and other
production enhancing activities deemed to be economic given current depressed
oil and gas prices. Development drilling is anticipated to be limited to (i)
ordinary course nonoperated wells in which we have limited working interests and
in which the failure to participate may result in drainage, depletion or loss of
current reserves and (ii) operated wells deemed to be economical given current
oil and gas prices. Large expenditures for developmental drilling may require
court approval and none are planned at this time.
The Company has currently budgeted approximately $7.8 million for capital
expenditures related to its oil and gas properties in 1999, of which
approximately $6.0 million would be for development and exploitation activities,
and approximately $1.8 million would be for delay rentals, lease bonuses,
geological and geophysical costs. Actual amounts to be expended by the Company
for these activities will be dependent upon a number of factors, including Court
approval if necessary, oil and natural gas prices, the availability of capital,
seismic and contract service costs, availability of drilling rigs and future
drilling results. The Company is not contractually committed to expend the
budgeted funds.
22
<PAGE> 24
The Company currently expects that existing cash and cash flows from
operations will be sufficient to fund planned capital expenditures for its
existing properties through 1999. However, the Company would require additional
capital to fund any acquisitions and access to these markets could be limited
due to the Chapter 11 proceeding.
Subject to Court approval, 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, even if approved by the Court,
that the Company would be able to access additional capital or that, if
available, it will be at prices or on terms acceptable to the Company. In
addition, the Chapter 11 proceeding and restrictions from the Bankruptcy Court
could limit the Company's ability to access additional capital markets.
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
On December 4, 1998 the Company's 10 3/4% Senior Note bondholders filed an
Involuntary Petition for an Order for Relief under Chapter 11 of Title 11 of the
United States Bankruptcy Code in the United States Bankruptcy Court for the
Northern District of Texas, Dallas Division, due to non-payment of interest due
December 2, 1998, after expiration of a 30-day grace period. On December 23,
1998, the Company filed in the Bankruptcy Court, an Answer to and Motion to
Dismiss the pending Involuntary Petition. The Company's Motion affirmed that it
(i) was meeting its obligations and generally paying its debts as they became
due, unless such debts were the basis of a bona fide dispute and (ii) had
arranged with the lender under its credit facility to borrow additional funds
sufficient to pay the interest due on the 10 3/4% Senior Notes, conditioned upon
the Court's dismissal of the Involuntary Petition. However, on February 8, 1999,
the Bankruptcy Court denied the Company's Motion to Dismiss the Involuntary
Petition. An Order for Relief was entered by the Bankruptcy Court on February
11, 1999. The Order for Relief places the Company under the protection of the
Court and precludes payment of the interest on the Senior Notes at this time.
The Company shall act as debtor-in-possession and will continue to operate its
business and manage its properties in the ordinary course of business during its
Chapter 11 proceeding. The Company anticipates proposing a Plan of
Reorganization within 120 days of February 11, 1999 or at such time as may be
extended by the Court. As of December 4, 1998, the Company discontinued the
accrual of interest related to unsecured liabilities subject to compromise,
principally the Senior Notes.
Due to the non-payment of interest due December 2, 1998, the Senior Notes
were in default at December 31, 1998 and have been classified as a current
liability.
In November 1996, the Company issued $100 million aggregate principal amount
of unregistered 10 3/4% Series A Notes due 2006. 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 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 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. 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 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 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. See Note 5 of Notes to Consolidated Financial Statements.
CREDIT FACILITIES
On August 29, 1996, the Company, NEG-OK and Boomer Marketing, entered into a
credit facility with Bank One, as Bank and Administrative Agent, and the Credit
Lyonnais New York Branch, as Bank and Syndication Agent
23
<PAGE> 25
(collectively, the "Banks"). The credit facility consisted of a $100.0 million
reducing revolving line of credit, with an initial borrowing base of $60.0
million and a $5.0 million term loan. Interest under the reducing revolving line
of credit was payable monthly at the Bank One base rate, as adjusted. The
proceeds from the credit facility were used to repay a prior credit facility and
the existing indebtedness of NEG-OK, resulting in an extraordinary charge of
$292,372 or $.01 per common share in 1996.
In November 1996, the Company repaid the outstanding borrowings under the
credit facility with a portion of proceeds from the issuance of $100.0 million
principal amount of 10 3/4% Senior Notes due 2006 (the "Series A Notes"). See
Note 5.
Also in November 1996, in connection with the issuance of the Series A
Notes, the Company revised the credit facility. The credit facility had a
borrowing base of $25.0 million. The borrowing base may be redetermined at least
semiannually and may require mandated monthly principal reductions from time to
time. The principal amount of any borrowings is due at maturity, August 29, 2000
and interest is payable monthly.
The Company granted liens to the Banks 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 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 credit facility contains 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, or if any portion of
the Notes become due, the borrowing base is subject to reduction.
The Company is required to pay a commitment fee on the unused portion of the
borrowing base equal to 1% per annum.
On December 7, 1998, Bank One and Credit Lyonnais gave notice to the Company
that all outstanding obligations under the credit facility were accelerated and
were immediately due and payable due to certain unspecified Events of Default as
defined in the loan agreement.
Effective December 22, 1998, the credit facility and all associated liens
were assigned by the Banks to Arnos, Inc., an affiliated subsidiary of the
Company's Series D Preferred Stockholder. In a letter dated December 23, 1998,
Arnos (1) rescinded the acceleration of the loan, (2) waived all defaults
existing at that time and (3) made sufficient borrowings available to pay the
interest on the Senior Notes that was due on November 2, 1998 conditioned upon
the Bankruptcy Court's dismissal of the Involuntary Petition. To date, no fees
or interest have been paid to Arnos. The Company is accruing interest expense at
an estimated rate under the Arnos credit facility. The Company had $25,000,000
outstanding under the Arnos credit facility as of December 31, 1998. At December
31, 1998, the Company was in violation of the minimum interest coverage ratio
and current ratio covenants under the Arnos credit facility and as a result has
classified the borrowings under the credit facility as a current liability.
PREFERRED STOCK
In June 1994, the Company consummated the sale of $5.0 million of the Series
B Preferred Stock. Fifty thousand shares of the Series B Preferred Stock were
sold by the Company at $100 per share. The Series B Preferred Stock is
convertible into shares of the Common Stock at a conversion price of $1.625 per
share. In October 1997, 13,813 shares of the Series B Preferred Stock were
converted into Common Stock, leaving 38,687 shares of the Series B Preferred
Stock outstanding. The board of directors declared dividends on the Series B in
December of 1998, which would be made in shares of Series B Preferred Stock.
This dividend-in-kind has not been made and is currently in arrears.
In June 1995, the Company consummated the sale of $4.0 million of the Series
C Preferred Stock. Forty thousand shares of the Series C Preferred Stock were
sold by the Company at $100 per share. The Series C Preferred Stock is
24
<PAGE> 26
convertible into shares of the Common Stock at a conversion rate of $2.00 per
share. The Series B Preferred Stock and Series C Preferred Stock require that
dividends be paid on the Series B Preferred Stock and Series C Preferred Stock
before any dividends are paid on the Common Stock. In October 1997, 17,000
shares of the Series C Preferred Stock were converted into Common Stock, leaving
23,000 shares of the Series C Preferred Stock outstanding. The board of
directors declared dividends on the Series C in December of 1998, which would be
made in shares of Series C Preferred Stock. This dividend-in-kind has not been
made and is currently in arrears.
In August 1996, the Company completed the sale of 100,000 shares of the
Series D Preferred Stock for $10.0 million and 50,000 shares of the Series E
Preferred Stock for $5.0 million. The Series D Preferred Stock and Series E
Preferred Stock are convertible into shares of the Common Stock at a conversion
price of $2.25 per share. As part of such sale, the Company agreed to extend the
date at which it may first redeem the Series B Preferred Stock and Series C
Preferred Stock from June 14, 1997 to June 14, 1999. In October 1997, 40,500
shares of the Series E Preferred Stock were converted into Common Stock, leaving
9,500 shares of the Series E Preferred Stock outstanding.
See Note 7 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 changes which are fixed and determinable by
existing contracts. The net book value is compared to the ceiling on a quarterly
and yearly basis. The excess, if any, of the net book value above the ceiling is
required to be written off as a non-cash expense. During 1996, as a result of
allocating additional cost, under the purchase method of accounting, to the oil
and natural gas properties in connection with the Merger, the Company recognized
a non-cash writedown of its oil and natural gas properties of approximately
$28.3 million, net of deferred taxes. During the years ended December 31, 1997
and 1998, the net book value of the Company's oil and natural gas properties
exceeded the ceiling based on the weighted average prices of crude oil and
natural gas received by the Company resulting in non-cash writedowns totaling
$37.5 million, net of deferred taxes and $148.4 million, respectively. 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.
RECENT ACCOUNTING PRONOUNCEMENTS
As of January 1, 1998, the Company adopted Financial Accounting Standards
Board Statement No. 130, Reporting Comprehensive Income. Comprehensive income is
defined as the change in equity of a business enterprise during a period from
transactions and other events and circumstances from non-owner sources.
Statement 130 establishes rules for the reporting and display of comprehensive
income and its components. For 1996, 1997 and 1998, the differences between net
earnings and total comprehensive income were not material.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities, which is required to be adopted in years beginning after
June 15, 1999. The Company expects to adopt the new Statement effective January
1, 2000. The Statement will require the Company to recognize all derivatives on
the balance sheet at fair value. Derivatives that are not hedges must be
adjusted to fair value through income. If the derivative is a hedge, depending
on the nature of the hedge, changes in the fair value of derivatives will either
be offset against the change in fair value of the hedged assets, liabilities, or
firm commitments through earnings or recognized in other comprehensive income
until the hedged item is recognized in earnings. The ineffective portion of a
hedge's change in fair value will be immediately recognized in earnings.
CHANGES IN PRICES AND INFLATION
The prices received by the Company for its oil and natural gas production
declined dramatically during 1998. The prices received for crude oil reached
their lowest level in 50 years and were the lowest inflation-adjusted oil prices
since
25
<PAGE> 27
the Depression. The Company's revenue and value of its oil and natural gas
properties have been and will continue to be adversely affected until such
prices recover. Oil and gas prices are subject to seasonal and other
fluctuations that are beyond the Company's ability to control or predict.
During 1996, the Company hedged crude oil and natural gas prices through the
use of commodity swap agreements in an effort to reduce the effects of the
volatility of the price of crude oil and natural gas on the Company's
operations. These agreements involved the receipt of fixed-price amounts in
exchange for variable payments based on NYMEX prices and specific volumes. In
connection with the commodity swap agreements, the Company may also enter into
basis swap agreements to reduce the effects of unusual fluctuations between
prices actually received at the wellhead and NYMEX prices. Through the use of
commodity price and basis swap agreements, the Company can fix the price to be
received for specified volumes of production to the commodity swap price less
the basis swap price. The differential to be paid or received, under the swap
agreement, is accrued in the month of the related production and recognized as a
component of crude oil and natural gas sales. The Company does not hold or issue
financial instruments for trading purposes.
While the use of hedging arrangements limits the downside risk of adverse
price movements, it may also limit future gains from favorable movements. All
hedging has been accomplished pursuant to swap agreements based upon standard
forms. The Company addresses market risk by selecting instruments whose value
fluctuations correlate strongly with the underlying commodity being hedged.
Credit risk related to hedging activities is managed by requiring minimum credit
standards for counter parties, periodic settlements, and market to market
valuations. The Company has not been required to provide collateral relating to
hedging activities. At December 31, 1998, the Company had no hedging or basis
swap agreements outstanding. During the years ended December 31, 1996, 1997 and
1998, the Company recognized a net gain of $20,315, $0, and $0 respectively,
related to hedging transactions.
At December 31, 1998, the Company had entered into forward sales contracts
with two 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. See Note 9 of
Notes to Consolidated Financial Statements.
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 years ended December 31, 1998.
YEAR 2000
The year 2000 ("Y2K") problem arises because of computer programs which use
two digits rather than four digits to define a year. This may result in
miscalculations or complete system failures in processing data with programs
using date sensitive information.
The Company currently uses commercially available software for its
management information systems, including accounting, engineering, and word
processing applications. This software has either already been warranted by the
suppliers or publishers to be Y2K compliant or the suppliers and publishers have
represented such software will be compliant in upgrades the Company will receive
in 1999 at minimal or no cost to the Company.
The Company has reviewed its internal computer systems and expects to be
compliant with Y2K by mid-year. The costs of compliance have been minimal and
management expects them to remain minimal since its management information
systems are warranted to be compliant or are represented to be compliant in
upgrades the Company will receive in 1999. Furthermore, the Company replaced its
former oil and gas system in 1996 with a Y2K compliant oil and gas package.
Management is in the process of obtaining confirmation from its major
suppliers and purchasers that they also are or will be Y2K compliant. The costs
of seeking such confirmation are expected to be minimal. Management believes
that it will not be practical to independently verify the responses because it
does not believe that the Company would be given access to carry out such
verification or that the costs of doing so would be affordable. The cost of
replacing
26
<PAGE> 28
non-compliant or non-responsive suppliers and customers will not be possible to
determine until the review process has been completed. Any Y2K problems that do
occur will likely manifest themselves in reduced production through equipment
shut downs or impaired liquidity through inability of customers to take delivery
of production or process payments. The Company plans to establish contingency
plans by mid-year once its confirmation program is complete and the risks have
been more fully quantified.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company from time to time utilizes derivative instruments, principally
to hedge natural gas production, whereby gains and losses in the fair value of
the derivative instruments are generally offset by price changes in the
underlying commodity. Based on this approach, combined with risk assessment
procedures and internal controls, management believes that its use of derivative
instruments does not expose the Company to material risk, however, the use of
derivative instruments for the hedging activities could affect the Company's
results of operations in particular quarterly or annual periods. The use of such
instruments limits the downside risk of adverse price movements, but it may also
limit the Company's ability to benefit from favorable price movements.
At December 31, 1998, the Company had entered into forward sales contracts
with two purchasers covering 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 the time. Deliveries to be made under the forward sales contracts have not
been priced as of December 31, 1998.
The Company's exposure to interest rates relates primarily to its borrowings
under its credit facility. The Company does not currently use derivatives to
manage interest rate risk. Interest is payable on borrowings under the credit
facility based on a floating rate. If short-term interest rates average 10%
higher in 1999 than they were in 1998, the Company's interest expense would
increase by approximately $225,000. This amount was determined by applying the
hypothetical interest rate change to the Company's outstanding borrowings under
the credit facility at December 31, 1998.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements of the Company required by this Item 8 are included
as part of Item 14(a)(1) hereof. These Financial Statements also serve as
financial statements required pursuant to Rule 15d-21 and Form 11-K of the
Exchange Act for the National Energy Group, Inc. Employee Stock Purchase Plan,
as such Plan invests solely in the Company's common stock.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item 10 will be provided in the sections
entitled "Proposal 1 - Director Election Proposal", "Management" and "Certain
Relationships and Related Transactions" in the Company's definitive proxy
statement for its 1999 Annual Meeting of Shareholders (the "Proxy Statement") or
in Item 10 of a Form 10-KA, and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 will be provided in the section
entitled, "Management" in the Company's Proxy Statement or in Item 11 of a Form
10-KA, and is incorporated herein by reference.
27
<PAGE> 29
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item 12 will be provided in the section
entitled "Security Ownership of Certain Beneficial Owners and Management" in the
Company's Proxy Statement or in Item 12 of a Form 10-KA, and is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item 13 will be provided in the section
entitled "Certain Relationships and Related Transactions" in the Company's Proxy
Statement or in Item 13 of a Form 10-KA, and is incorporated herein by
reference.
28
<PAGE> 30
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report.
1. Financial Statements: See Index to Financial Statements and
Financial Statement Schedules on page F-1 of this report.
2. Financial Statement Schedules: See Index to Financial Statements
and Financial Statement Schedules on page F-1 of this report.
3. Exhibits: The following documents are filed as exhibits to this
report:
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 C (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 Bank One, Columbus, N.A. (7)
4.6 Indenture dated August 21, 1997, among the Company and Bank
One, N.A. (14)
4.7 Instrument of Resignation, Appointment and Acceptance, dated
October 23, 1998, between the Company, Bank One, N.A., and
Norwest Bank Minnesota, N.A. (19)
10.1 Crude Oil Purchase Contract, dated November 30, 1992, between
the Company and Plains Liquids Transport Inc. (8)
29
<PAGE> 31
10.2 Amendment to Crude Oil Purchase Contract, dated November 17,
1993, between the Company and Plains Liquids Transport, Inc.
(5)
10.3 Crude Oil Purchase Contract, dated February 8, 1993, between
the Company and Plains Marketing and Transportation Inc. and
the predecessor contract, the Crude Oil Purchase Contract,
dated November 12, 1991, between Sunnybrook Transmission,
Inc. and TriSearch Inc. (8)
10.4 Agreement for Purchase and Sale (Mustang Island) dated April
20, 1995, between the Company and Sierra Mineral Development,
L.C. (6)
10.5 Agreement for Purchase and Sale (Oak Hill) dated April 12,
1995, between the Company and Sierra 1994 I Limited
Partnership (6)
10.6 Stock Purchase Agreement, dated as of June 14, 1995, among
the Company, Arbco Associates L.P., Offense Group Associates
L.P., Kayne, Anderson Nontraditional Investments L.P., and
Opportunity Associates L.P. (6)
10.7 High River Limited Partnership Warrant to purchase 700,000
Shares of Common Stock, dated August 29, 1996 (3)
10.8 Form of Series E Investors' Warrants to purchase an aggregate
350,000 Shares of Common Stock, dated August 29, 1996 (3)
10.9 Gascon Partners Warrant to Purchase 300,000 shares of the
Company's Common Stock (13)
10.10 Prudential Securities Incorporated Warrant to Purchase
100,000 Shares of the Company's Common Stock (3)
10.11 Gaines Berland, Inc. Warrant to Purchase 300,000 Shares of
the Company's Common Stock dated August 29, 1996 (3)
10.12 Gaines Berland, Inc. Warrant to Purchase 700,000 Shares of
the Company's Common Stock dated August 29, 1996 (3) 10.13
Executive Employment Agreement, dated January 1, 1996,
between the Company and Miles D. Bender (9)
10.13 Executive Employment Agreement, dated January 1, 1996,
between the Company and Miles D. Bender (9)
10.14 Separation Agreement, dated November 24, 1998, between the
Company and Miles D. Bender (19)
10.15 Executive Employment Agreement, dated January 1, 1996,
between the Company and Melissa Rutledge (9)
10.16 Separation Agreement between the Company and Robert A. Imel
dated October 31, 1997 (15)
10.17 Separation Agreement, dated May 18, 1998, between the Company
and William T. Jones (17)
10.18 Executive Employment Agreement, dated June 6, 1996, between
the Company and Jim L. David (1)
10.19 Executive Employment Agreement dated March 20, 1997, between
the Company and Philip D. Devlin (10)
30
<PAGE> 32
10.20 Separation Agreement, dated May 19, 1998, between the Company
and Gene W. Anderson (19)
10.21 Executive Employment Agreement dated August 25, 1997, between
the Company and C. Dewayne Cravens (19)
10.22 Separation Agreement, dated May 18, 1998, between the Company
and C. Dewayne Cravens (19)
10.23 Executive Employment Agreement, dated January 29, 1998,
between the Company and Fred R. Miller (15)
10.24 Executive Employment Agreement, dated March 5, 1998, between
the Company and Chuck Elsey (16)
10.25 Termination Notice and Agreement, dated October 28, 1998,
between the Company and Chuck Elsey(19)
10.26 Executive Employment Agreement, dated April 13, 1998, between
the Company and Kent Lueders(16)
10.27 Executive Employment Agreement, dated June 1, 1998, between
the Company and Leslie Wylie(17)
10.28 National Energy Group, Inc. 1996 Incentive Compensation Plan
(11)
10.29 National Energy Group, Inc. Employee Stock Purchase Plan(12)
10.30 National Energy Group, Inc. Employee Severance Policy(19)
10.31 Agreement dated January 1, 1996 between the Company and
Sandefer Oil & Gas, Inc.(1)
10.32 Consulting Agreement dated January 1, 1996 between Sandefer
Oil & Gas, Inc. and Potosky Oil & Gas, Inc. and Atocha
Exploration, Inc.(1)
10.33 Memorandum of Amendment dated March 27, 1997 amending (i)
Agreement dated January 1, 1996 between the Company and
Sandefer Oil & Gas, Inc. and (ii) Consulting Agreement dated
January 1, 1996 between Sandefer Oil & Gas, Inc. and Potosky
Oil & Gas, Inc. and Atocha Exploration, Inc.(15)
10.34 First Amendment dated April 15, 1997 to (i) Agreement dated
January 1, 1996 between the Company and Sandefer Oil & Gas,
Inc. and (ii) Consulting Agreement dated January 1, 1996
between Sandefer Oil & Gas, Inc. and Potosky Oil & Gas, Inc.
and Atocha Exploration, Inc.(15)
10.35 Restated Loan Agreement dated August 29, 1996 among Bank One
and Credit Lyonnais New York Branch ("Credit Lyonnais") and
the Company, NEG-OK and Boomer Marketing Corporation
("Boomer")(3)
10.36 $50,000,000 Revolving Note dated August 29, 1996 payable to
Bank One(3)
10.37 $50,000,000 Revolving Note dated August 29, 1996 payable to
Credit Lyonnais(3)
10.38 Assignment of $50,000,000 Revolving Note to Arnos Corp. from
BankOne, Texas, N.A.(19)
10.39 Assignment of $50,000,000 Revolving Note to Arnos Corp. from
Credit Lyonnais New York Branch(19)
10.40 Unlimited Guaranty of NEG-OK dated August 29, 1996 for the
benefit of Bank One(3)
31
<PAGE> 33
10.41 Unlimited Guaranty of NEG-OK, dated August 29, 1996 for the
benefit of Credit Lyonnais(3)
10.42 Unlimited Guaranty of Boomer dated August 29, 1996 for the
benefit of Bank One(3)
10.43 Unlimited Guaranty of Boomer dated August 29, 1996 for the
benefit of Credit Lyonnais(3)
10.44 First Amendment to Restated Loan Agreement dated October 31,
1996 among Bank One and Credit Lyonnais and the Company,
Guarantor and Boomer(9)
10.45 Second Amendment to Restated Loan Agreement dated October 31,
1996, among Bank One and Credit Lyonnais and the Company,
Guarantor and Boomer(10)
10.46 Third Amendment to Restated Loan Agreement dated October 31,
1996, among Bank One and Credit Lyonnais and the Company,
Guarantor and Boomer(10)
10.47 Fourth Amendment to Restated Loan Agreement dated October 31,
1996, among Bank One and Credit Lyonnais and the Company,
Guarantor and Boomer(5)
10.48 Multi-State Assignment Agreement dated December 22, 1998
between BankOne, Texas, NA, Credit Lyonnais New York Branch
and Arnos, Corp.(19)
10.49 Multi-State Assignment Agreement, LaFourche Parish,
Louisiana, dated December 22, 1998, between BankOne, Texas,
NA, Credit Lyonnais New York Branch and Arnos Corp.(19)
10.50 Multi-State Assignment Agreement, Iberville Parish,
Louisiana, dated December 22, 1998, between BankOne, Texas,
NA, Credit Lyonnais New York Branch and Arnos Corp.(19)
10.51 Oklahoma Assignment Agreement, dated December 22, 1998,
between BankOne, Texas, NA, Credit Lyonnais New York Branch
and Arnos, Corp.(19)
10.52 Arnos Corporation Letter dated December 23, 1998(19)
12.1 Computation of Ratio of Earnings to Fixed Charges(19)
23.1 Consent of Ernst & Young LLP, Independent Auditors(19)
24.1 Power of Attorney (included in signature pages to this Form
10-K)(19)
27.1 Financial Data Schedule(19)
99.1 Order of Bankruptcy Court Granting Relief on Involuntary
Petition(18)
- ------------------------------
(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 17, 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 Annual Report
on Form 10-KSB for the year ended December 31, 1992.
(9) Incorporated by reference to the Company's Annual Report
on Form 10-KSB for the year ended December 31, 1995.
(10) Incorporated by reference to the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1997.
(11) Incorporated by reference to the Company's Schedule 14A
filed April 25, 1997.
32
<PAGE> 34
(12) Incorporated by reference to the Company's Form S-8 filed
December 23, 1997.
(13) Incorporated by reference to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1997.
(14) Incorporated by reference to the Company's Form S-4 (No.
333-38075), filed October 16, 1997.
(15) Incorporated by reference to the Company's Annual Report
on Form 10-K for the year ended December 31, 1997.
(16) Incorporated by reference to the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1998.
(17) Incorporated by reference to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1998.
(18) Incorporated by reference to the Company's Current Report
on Form 8-K, dated February 8, 1999.
(19) Filed herewith.
(b) The Company filed a report on Form 8-K, dated February 8, 1999, reporting
the entry of an Order for Relief Under Chapter 11 of the Bankruptcy Code by the
United States Bankruptcy Court for the Northern District of Texas, Dallas
Division. Under the Order, the Court assumed jurisdiction and supervision of the
Company and its assets and business.
33
<PAGE> 35
GLOSSARY
Wherever used herein, the following terms shall have the meaning specified.
Bbl -- One stock tank barrel, or 42 U.S. gallons liquid volume, used herein
in reference to crude oil or other liquid hydrocarbons.
Bcf -- One billion cubic feet.
Bcfe -- One billion cubic feet of Natural Gas Equivalent.
Behind the Pipe -- Hydrocarbons in a potentially producing horizon
penetrated by a well bore the production of which has been postponed pending the
production of hydrocarbons from another formation penetrated by the well bore.
The hydrocarbons are classified as proved but non-producing reserves.
Developed Acreage -- Acres which are allocated or assignable to producing
wells or wells capable of production.
Development Well -- A well drilled within the proved area of an oil and
natural gas reservoir to the depth of stratigraphic horizon known to be
productive.
Dry Well -- A well found to be incapable of producing either oil or natural
gas in sufficient quantities to justify completion as an oil or natural gas
well.
EBITDA -- Earnings (including interest income and excluding discontinued
operations, extraordinary items, charges resulting from changes in accounting
and significant nonrecurring revenues and expenses) before interest expense,
income taxes, depletion, depreciation and amortization, and the provision for
impairment of oil and natural gas properties. EBITDA is not a measure of cash
flow as determined by generally accepted accounting principles. EBITDA
information has been included in this document because EBITDA is a measure used
by certain investors in determining historical ability to service indebtedness.
EBITDA should not be considered as an alternative to, or more meaningful than,
net income or cash flows as determined in accordance with generally accepted
accounting principles as an indicator of operating performance or liquidity.
Exploratory Well -- A well drilled to find and produce oil or natural gas in
an unproved area, to find a new reservoir in a field previously found to be
productive of oil or natural gas in another reservoir, or to extend a known
reservoir.
Gross Acres or Gross Wells -- The total acres or wells, as the case may be,
in which a Working Interest is owned.
Infill Well -- A well drilled between known producing wells.
Mbbl -- One thousand Bbl.
Mcf -- One thousand cubic feet.
Mcfe -- One thousand cubic feet of Natural Gas Equivalent.
Mmcf -- One million cubic feet.
Mmcfe -- One million cubic feet of Natural Gas Equivalent.
Natural Gas Equivalent -- The ratio of one Bbl of crude oil to six Mcf of
natural gas.
Net Acres or Net Wells -- The sum of the fractional Working Interests owned
in Gross Acres or Gross Wells.
34
<PAGE> 36
NYMEX -- New York Mercantile Exchange.
Oil and Natural Gas Lease -- An instrument by which a mineral fee owner
grants to a lessee the right for a specific period of time to explore for oil
and natural gas underlying the lands covered by the lease and the right to
produce any oil and natural gas so discovered generally for so long as there is
production in economic quantities from such lands.
OPEC -- Organization of Petroleum Exporting Countries.
Overriding Royalty Interest -- A fractional undivided interest in an oil and
natural gas property entitling the owner of a share of oil and natural gas
production, in addition to the usual royalty paid to the owner, free of costs of
production.
PDNP -- Proved developed, nonproducing, or Behind the Pipe reserves.
Productive Well -- A well that is producing oil or natural gas or that is
capable of production.
Proved Developed Producing Reserves -- Proved reserves that can be expected
to be recovered from currently producing zones under the continuation of present
operating methods.
Proved Developed Reserves -- Reserves that can be expected to be recovered
through existing wells with existing equipment and operating methods.
Proved Reserves -- The estimated quantities of crude oil, natural gas, and
natural gas liquids which geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known reservoirs
under existing economic and operating conditions.
Proved Undeveloped Reserves -- Reserves that are expected to be recovered
from new wells on undrilled acreage, or from existing wells where a relatively
major expenditure is required for completion.
PUD -- See Proved Undeveloped Reserves.
PV 10% -- The discounted future net cash flows for Proved Reserves of oil
and natural gas computed on the same basis as the Standardized Measure, but
without deducting income taxes, which is not in accordance with generally
accepted accounting principles. PV 10% is an important financial measure for
evaluating the relative significance of oil and natural gas properties and
acquisitions, but should not be construed as an alternative to the Standardized
Measure (as determined in accordance with generally accepted accounting
principles).
Revenue Interest -- The interest in a lease or well that receives a
proportionate share of all revenues from that lease or well as identified in the
division order.
Royalty Interest -- An interest in an oil and natural gas property entitling
the owner to a share of oil and natural gas production free of costs of
production.
Secondary Recovery -- A method of oil and natural gas extraction in which
energy sources extrinsic to the reservoir are utilized.
Standardized Measure -- The estimated future net cash flows from Proved
Reserves of oil and natural gas computed using prices and costs, at the date
indicated, after income taxes and discounted at 10%.
Undeveloped Acreage -- Lease acreage on which wells have not been drilled or
completed to a point that would permit the production of commercial quantities
of oil and natural gas regardless of whether such acreage contains Proved
Reserves.
Working Interest -- The operating interest which gives the owner the right
to participate in the drilling, producing, and conducting operating activities
on the property and a share of all costs of exploration, development, and
operations and all risks in connection therewith.
35
<PAGE> 37
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 March 31, 1999
------------------------------------------------
Bob G. Alexander
President and Chief Executive Officer
By: /s/ Melissa H. Rutledge March 31, 1999
------------------------------------------------
Melissa H. Rutledge
Vice President, Principal Financial Officer and
Controller
</TABLE>
POWER OF ATTORNEY AND SIGNATURES
The undersigned directors and officers of National Energy Group, Inc. hereby
constitute and appoint Bob G. Alexander with full power to act and with full
power of substitution and resubstitution, our true and lawful attorney-in-fact
with full power to execute in our name and on our behalf in the capacities
indicated below any and all amendments to this Form 10-K and to file the same,
with all exhibits thereto and other documents in connection therewith with the
Commission, and hereby ratify and confirm all that such attorney-in-fact, which
he or his substitute shall lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities on March 31, 1999.
/s/ Bob G. Alexander President, Chief Executive
- ------------------------------------------------ Officer and Director
Bob G. Alexander
/s/ Jim L. David Assistant to President
- ------------------------------------------------ and Director
Jim L. David
/s/ Russell D. Glass Director
- ------------------------------------------------
Russell D. Glass
/s/ Martin Hirsch Director
- ------------------------------------------------
Martin Hirsch
/s/ Robert H. Kite Director
- ------------------------------------------------
Robert H. Kite
/s/ Robert J. Mitchell Director
- ------------------------------------------------
Robert J. Mitchell
/s/ Jack G. Wasserman Director
- ------------------------------------------------
Jack G. Wasserman
36
<PAGE> 38
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS PAGE
----
<S> <C>
Report of Independent Auditors....................................................................... F-2
Consolidated Balance Sheets as of December 31, 1997, and 1998........................................ F-3
Consolidated Statements of Operations for the years ended
December 31, 1996, 1997, and 1998................................................................. F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1997, and 1998................................................................. F-5
Consolidated Statements of Stockholders' Equity (Deficit) for the years ended
December 31, 1996, 1997, and 1998................................................................. F-6
Notes to Consolidated Financial Statements........................................................... F-8
</TABLE>
FINANCIAL STATEMENT SCHEDULES
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and therefore have been omitted.
F-1
<PAGE> 39
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
National Energy Group, Inc.
We have audited the accompanying consolidated balance sheets of National
Energy Group, Inc., as of December 31, 1997 and 1998, and the related
consolidated statements of operations, stockholders' equity (deficit), and cash
flows for each of the three years in the period ended December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of National Energy
Group, Inc., at December 31, 1997 and 1998, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. The Company has
suffered recurring losses from operations. Additionally, as discussed in Note 1
of the Notes to the Consolidated Financial Statements, on February 11, 1999, the
United States Bankruptcy Court granted an Involuntary Petition for an Order for
Relief under Chapter 11 of Title 11 of the United States Bankruptcy Code. These
matters raise substantial doubt about the ability of the Company to continue as
a going concern. The financial statements do not include any adjustments to
reflect the possible future effects on the recoverability and classification of
assets or the amounts and classification of liabilities that may result from the
outcome of this uncertainty.
ERNST & YOUNG LLP
Dallas, Texas
March 24, 1999
F-2
<PAGE> 40
NATIONAL ENERGY GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(NOTE 1)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31
------------------------------
1997 1998
------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents .................................................... $ 25,954,479 $ 2,542,235
Marketable securities ........................................................ 486,750 339,250
Accounts receivable - oil and natural gas sales .............................. 10,145,739 5,030,155
Accounts receivable - joint interest and other ............................... 7,278,436 1,918,411
Other ........................................................................ 2,678,029 1,905,050
------------- -------------
Total current assets ....................................................... 46,543,433 11,735,101
Oil and natural gas properties, at cost (full cost method):
Subject to ceiling limitation ................................................ 245,228,081 327,459,034
Excluded from ceiling limitation ............................................. 35,698,549 --
------------- -------------
280,926,630 327,459,034
Accumulated depreciation, depletion, and amortization ........................... (83,478,971) (251,712,879)
------------- -------------
Net oil and natural gas properties ........................................... 197,447,659 75,746,155
Other property and equipment .................................................... 4,797,737 2,601,163
Accumulated depreciation ........................................................ (799,136) (989,905)
------------- -------------
Net other property and equipment ............................................. 3,998,601 1,611,258
Other assets and deferred charges, net .......................................... 6,371,714 5,909,344
------------- -------------
Total assets ............................................................... $ 254,361,407 $ 95,001,858
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable - trade ..................................................... $ 21,725,575 $ 2,299,274
Accounts payable - revenue ................................................... 7,393,127 4,932,541
Drilling advances ............................................................ 5,282,467 99,961
Debt in default:
Senior Notes ................................................................ -- 166,238,513
Credit facility borrowings .................................................. -- 25,000,000
Accrued interest ............................................................. 2,956,250 10,537,601
Other ........................................................................ 798,983 461,088
------------- -------------
Total current liabilities .................................................. 38,156,402 209,568,978
Long-term liabilities ........................................................... 1,915,305 2,365,648
Senior Notes .................................................................... 166,396,622 --
Commitments and contingencies
Stockholders' equity (deficit): Convertible preferred stock, $1.00 par:
Authorized shares - 1,000,000;
Issued and outstanding shares 171,187 at both
December 31, 1997 and 1998
Aggregate liquidation preference $17,118,700
and $17,433,300 at December 31, 1997 and 1998, respectively .............. 171,187 171,187
Common stock, $.01 par value:
Authorized shares - 100,000,000;
Issued and outstanding shares - 40,456,320 and 40,527,482
at December 31, 1997 and 1998, respectively .............................. 404,563 405,275
Additional paid-in capital ................................................... 112,940,414 113,089,872
Unrealized loss on marketable securities, net ................................ (28,594) (176,094)
Accumulated deficit .......................................................... (65,594,492) (230,423,008)
------------- -------------
Total stockholders' equity (deficit) ....................................... 47,893,078 (116,932,768)
------------- -------------
Total liabilities and stockholders' equity (deficit) ..................... $ 254,361,407 $ 95,001,858
============= =============
</TABLE>
See accompanying notes.
F-3
<PAGE> 41
NATIONAL ENERGY GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(NOTE 1)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1996 1997 1998
------------- ------------- -------------
<S> <C> <C> <C>
Revenues:
Oil and natural gas sales ......................... $ 24,174,410 $ 52,417,108 $ 38,440,260
Costs and expenses:
Lease operating ................................... 3,595,537 6,728,684 8,589,663
Oil and natural gas production taxes .............. 1,285,410 3,138,644 2,503,616
Depreciation, depletion, and amortization ......... 9,900,777 23,205,462 21,310,754
Writedowns of oil and natural gas properties ...... 43,497,000 46,396,334 148,400,000
Restructuring charges ............................. -- -- 1,869,169
General and administrative ........................ 2,157,899 4,392,469 6,141,837
------------- ------------- -------------
60,436,623 83,861,593 188,815,039
------------- ------------- -------------
Operating loss ....................................... (36,262,213) (31,444,485) (150,374,779)
Other income (expense):
Interest expense .................................. (4,107,070) (11,211,607) (14,431,794)
Interest income and other, net .................... 426,021 1,031,980 292,242
Loss on sale of marketable securities ............. (117,955) -- --
------------- ------------- -------------
Loss before income taxes ............................. (40,061,217) (41,624,112) (164,514,331)
Benefit for income taxes ............................. 14,503,595 7,285,765 --
------------- ------------- -------------
Loss before extraordinary item ....................... (25,557,622) (34,338,347) (164,514,331)
Extraordinary loss on early extinguishments of debt .. (292,372) -- --
------------- ------------- -------------
Net loss ............................................. (25,849,994) (34,338,347) (164,514,331)
Preferred stock dividend requirements ................ 945,000 883,435 628,380
------------- ------------- -------------
Net loss applicable to common shareholders ........... $ (26,794,994) $ (35,221,782) $(165,142,711)
============= ============= =============
Loss per common share, basic and diluted:
Loss before extraordinary item .................... $ (1.33) $ (.94) $ (4.08)
============= ============= =============
Net loss .......................................... $ (1.34) $ (.94) $ (4.08)
============= ============= =============
Weighted average number of common
shares outstanding .............................. 19,939,975 37,380,343 40,499,911
============= ============= =============
</TABLE>
See accompanying notes.
F-4
<PAGE> 42
NATIONAL ENERGY GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(NOTE 1)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1996 1997 1998
------------- ------------- -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss ...................................................................... $ (25,849,994) $ (34,338,347) $(164,514,331)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and depletion .................................................... 9,795,283 22,521,612 20,374,833
Writedowns of oil and natural gas properties .................................. 43,497,000 46,396,334 148,400,000
Amortization of loan costs and issuance premium ............................... 151,063 573,705 777,804
Amortization of deferred compensation ......................................... 36,083 39,094 42,366
Benefit for deferred income taxes ............................................. (14,503,595) (7,273,829) --
Loss on sale of marketable securities ......................................... 117,955 -- --
Extraordinary loss on early extinguishment of debt ............................ 292,372 -- --
Common stock, options, and warrants issued for services ....................... 216,206 151,365 --
Other ......................................................................... -- -- 290,701
Changes in operating assets and liabilities excluding effects of business
acquisitions:
Accounts receivable ........................................................ (4,729,262) (7,771,430) 8,581,932
Other current assets ....................................................... (320,601) (1,350,230) 194,926
Accounts payable and accrued liabilities ................................... 3,085,455 3,915,896 (9,066,079)
------------- ------------- -------------
Net cash provided by operating activities .................................. 11,787,965 22,864,170 5,082,152
------------- ------------- -------------
INVESTING ACTIVITIES
Purchases of marketable securities ............................................ (9,008) (515,344) --
Proceeds from sale of marketable securities ................................... 1,675,669 -- --
Purchases of other property and equipment ..................................... (1,553,355) (1,910,904) (687,613)
Oil and natural gas acquisition, exploration, and development expenditures .... (46,945,872) (77,902,861) (51,999,775)
Acquisition of Alexander Energy Corporation, net of cash acquired of $1,332,444 (2,455,993) -- --
Proceeds from sales of oil and gas properties ................................. -- 5,419,581 50,881
Other ......................................................................... 11,638 (916,639) (666,956)
------------- ------------- -------------
Net cash used in investing activities ...................................... (49,276,921) (75,826,167) (53,303,463)
------------- ------------- -------------
FINANCING ACTIVITIES
Proceeds from issuance of 103/4% Notes due 2006, net .......................... 96,059,119 64,483,206 --
Proceeds from issuance of other long-term debt, net ........................... 69,026,613 32,978,502 30,000,000
Proceeds from issuance of note payable ........................................ 8,000,000 -- --
Repayments of other long-term debt ............................................ (130,510,233) (33,000,000) (5,000,000)
Repayments of note payable .................................................... (11,000,000) -- --
Repayments of other long-term liabilities ..................................... (534,815) (776,034) (26,918)
Proceeds from exercise of stock options and warrants .......................... 499,704 1,917,561 93,750
Proceeds from employee stock purchase plan .................................... -- -- 56,420
Proceeds from issuance of convertible preferred stock, net .................... 15,000,000 -- --
Preferred stock dividends ..................................................... (945,000) (786,685) (314,185)
Other ......................................................................... (385) (82,320) --
------------- ------------- -------------
Net cash provided by financing activities .................................. 45,595,003 64,734,230 24,809,067
------------- ------------- -------------
Increase (decrease) in cash and cash equivalents ............................. 8,106,047 11,772,233 (23,411,244)
Cash and cash equivalents at beginning of period .............................. 6,076,199 14,182,246 25,954,479
------------- ------------- -------------
Cash and cash equivalents at end of period .................................... $ 14,182,246 $ 25,954,479 $ 2,542,235
============= ============= =============
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid in cash ......................................................... $ 2,549,835 $ 12,403,910 $ 9,940,420
============= ============= =============
</TABLE>
See accompanying notes.
F-5
<PAGE> 43
NATIONAL ENERGY GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(NOTE 1)
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK
------------------------------- ------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1995 ........... 92,500 $ 92,500 11,880,125 $ 118,801
Common stock issued upon
exercise of options and ........... -- -- 351,242 3,513
warrants
Common stock, options, and
warrants issued for services ...... -- -- 50,000 500
Common stock issued to acquire
interests in oil and natural
gas properties .................... -- -- 2,416,332 24,163
Issuance of Series D and E
Convertible Preferred Stock
and related warrants to ........... 150,000 150,000 -- --
purchase common stock
Common stock, stock options,
and warrants issued or
assumed in acquisition of ......... -- -- 21,279,441 212,794
Alexander Energy Corporation
Preferred stock dividends ........... -- -- -- --
Unrealized gain on marketable
securities ........................ -- -- -- --
Net loss ............................ -- -- -- --
------------- ------------- ------------- -------------
Balance at December 31, 1996 ........... 242,500 $ 242,500 35,977,140 $ 359,771
Common stock issued upon
exercise of options and ........... -- -- 920,300 9,203
warrants
Common stock and warrants
issued for services and other ..... -- -- 82,854 829
Common stock issued upon
conversion of Series B, C,
and E convertible preferred ....... (71,313) (71,313) 3,500,026 35,000
Repurchase of common stock .......... -- -- (24,000) (240)
Preferred stock dividends ........... -- -- -- --
Unrealized loss on marketable
securities ........................ -- -- -- --
Net loss ............................ -- -- -- --
------------- ------------- ------------- -------------
Balance at December 31, 1997 ........... 171,187 $ 171,187 40,456,320 $ 404,563
============= ============= ============= =============
<CAPTION>
GAIN
(LOSS) ON TOTAL
ADDITIONAL AVAILABLE STOCKHOLDERS'
PAID-IN FOR SALE ACCUMULATED EQUITY
CAPITAL SECURITIES DEFICIT (DEFICIT)
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1995 ........... $ 21,485,224 $ (247,492) $ (3,674,466) $ 17,774,567
Common stock issued upon
exercise of options and ........... 496,191 -- -- 499,704
warrants
Common stock, options, and
warrants issued for services ...... 215,706 -- -- 216,206
Common stock issued to acquire
interests in oil and natural
gas properties .................... 8,319,203 -- -- 8,343,366
Issuance of Series D and E
Convertible Preferred Stock
and related warrants to ........... 14,850,000 -- -- 15,000,000
purchase common stock
Common stock, stock options,
and warrants issued or
assumed in acquisition of ......... 64,927,062 -- -- 65,139,856
Alexander Energy Corporation
Preferred stock dividends ........... -- -- (945,000) (945,000)
Unrealized gain on marketable
securities ........................ -- 247,492 -- 247,492
Net loss ............................ -- -- (25,849,994) (25,849,994)
------------- ------------- ------------- -------------
Balance at December 31, 1996 ........... $ 110,293,386 $ -- $ (30,469,460) $ 80,426,197
Common stock issued upon
exercise of options and ........... 1,908,358 -- -- 1,917,561
warrants
Common stock and warrants
issued for services and other ..... 782,489 -- -- 783,318
Common stock issued upon
conversion of Series B, C,
and E convertible preferred ....... 36,313 -- -- --
Repurchase of common stock .......... (80,132) -- -- (80,372)
Preferred stock dividends ........... -- -- (786,685) (786,685)
Unrealized loss on marketable
securities ........................ -- (28,594) -- (28,594)
Net loss ............................ -- -- (34,338,347) (34,338,347)
------------- ------------- ------------- -------------
Balance at December 31, 1997 ........... $ 112,940,414 $ (28,594) $ (65,594,492) $ 47,893,078
============= ============= ============= =============
</TABLE>
See accompanying notes.
F-6
<PAGE> 44
NATIONAL ENERGY GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
(NOTE 1)
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK
----------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1997 ......... 171,187 $ 171,187 40,456,320 $ 404,563
Common stock issued upon
exercise of options and ......... -- -- 25,000 250
warrants
Common stock issued under
employee stock purchase plan .... -- -- 46,162 462
Preferred stock dividends ......... -- -- -- --
Unrealized loss on marketable
securities ...................... -- -- -- --
Net loss .......................... -- -- -- --
------------- ------------- ------------- -------------
Balance at December 31, 1998 ......... 171,187 $ 171,187 40,527,482 $ 405,275
============= ============= ============= =============
<CAPTION>
GAIN
(LOSS) ON TOTAL
ADDITIONAL AVAILABLE STOCKHOLDERS'
PAID-IN FOR SALE ACCUMULATED EQUITY
CAPITAL SECURITIES DEFICIT (DEFICIT)
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1997 ......... $ 112,940,414 $ (28,594) $ (65,594,492) $ 47,893,078
Common stock issued upon
exercise of options and ......... 93,500 -- -- 93,750
warrants
Common stock issued under
employee stock purchase plan .... 55,958 -- -- 56,420
Preferred stock dividends ......... -- -- (314,185) (314,185)
Unrealized loss on marketable
securities ...................... -- (147,500) -- (147,500)
Net loss .......................... -- -- (164,514,331) (164,514,331)
------------- ------------- ------------- -------------
Balance at December 31, 1998 ......... $ 113,089,872 $ (176,094) $(230,423,008) $(116,932,768)
============= ============= ============= =============
</TABLE>
See accompanying notes.
F-7
<PAGE> 45
NATIONAL ENERGY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. SUBSEQUENT EVENT - BANKRUPTCY ORDER
On December 4, 1998 the Company's 10 3/4% Senior Note bondholders filed an
Involuntary Petition for an Order for Relief under Chapter 11 of Title 11 of the
United States Bankruptcy Code in the United States Bankruptcy Court for the
Northern District of Texas, Dallas Division, due to non-payment of interest due
December 2, 1998, after expiration of a 30-day grace period. On December 23,
1998, the Company filed in the Bankruptcy Court, an Answer to and Motion to
Dismiss the pending Involuntary Petition. The Company's Motion affirmed that it
(i) was meeting its obligations and generally paying its debts as they become
due, unless such debts were the basis of a bona fide dispute and (ii) had
arranged with the lender under its credit facility to borrow additional funds
sufficient to pay the interest due on the 10 3/4% Senior Notes, conditioned upon
the Court's dismissal of the Involuntary Petition. However, on February 8, 1999,
the Bankruptcy Court denied the Company's Motion to Dismiss the Involuntary
Petition. An Order for Relief was entered by the Bankruptcy Court on February
11, 1999. The Order for Relief places the Company under the protection of the
Court and precludes payment of the interest on the Senior Notes at this time.
Additionally, payment of liabilities existing as of February 11, 1999 to certain
unsecured creditors and dividends in arrears to holders of the Company's
Preferred Stock and any pending litigation are stayed during the Bankruptcy
proceeding. The Company shall act as debtor-in-possession and will continue to
operate its business and manage its properties in the ordinary course of
business during its Chapter 11 proceeding. The Company anticipates proposing a
Plan of Reorganization within 120 days of February 11, 1999 or at such time as
may be extended by the Court. As of December 4, 1998, the Company discontinued
the accrual of interest related to unsecured liabilities subject to compromise,
principally the Senior Notes, as a result of the Chapter 11 filing.
Approximately $1.3 million additional interest expense would have been
recognized by the Company if not for the discontinuation of the interest accrual
on the Senior Notes.
The accompanying consolidated financial statements have been prepared on a
going concern basis of accounting and do not reflect any adjustments that might
result should the Company be unable to continue as a going concern. The
Company's recent losses from operations and the related Chapter 11 proceeding
raise concern about its ability to continue as a going concern. The
appropriateness of using the going concern basis is dependent upon, among other
things (i) confirmation of a plan of reorganization under the Bankruptcy Code,
(ii) the ability to achieve profitable operations after such confirmation and
(iii) the ability to generate sufficient cash from operations to meet its
obligations.
The Company anticipates proposing a Plan of Reorganization in accordance
with the federal bankruptcy laws as administered by the Bankruptcy Court.
Confirmation of a Plan of Reorganization could materially change the amounts
currently recorded in the financial statements. The financial statements do not
give effect to any adjustment to the carrying value of assets, or amounts and
classifications of liabilities that might be necessary as a consequence of this
matter.
Through December 31, 1998, the Company has incurred expenses of
approximately $.3 million relating to the bankruptcy proceedings. At December
31, 1998, substantially all of the Company's unsecured liabilities are subject
to compromise under the terms of the bankruptcy proceeding.
2. SIGNIFICANT ACCOUNTING POLICIES
Organization and Business
National Energy Group, Inc. was incorporated under the laws of the State of
Delaware on November 20, 1990. The Company has historically engaged in the
exploration, acquisition, exploitation, development, and operation of crude oil
and natural gas properties in major producing basins onshore in Texas,
Louisiana, Oklahoma, Arkansas, and Mississippi and offshore in the Gulf of
Mexico.
Consolidation
The consolidated financial statements include the accounts of National
Energy Group, Inc., and its subsidiaries. All significant intercompany
transactions and balances have been eliminated.
F-8
<PAGE> 46
NATIONAL ENERGY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
Cash and Cash Equivalents
Cash and cash equivalents may include demand deposits, short-term commercial
paper, and/or money-market investments with maturities of three months or less
when purchased. At December 31, 1997, all cash and cash equivalents were
invested with Bank One, Texas, N.A. At December 31, 1998, all cash and cash
equivalents were invested with either Bank One or Chase Bank of Texas.
Oil and Natural Gas Properties
The Company utilizes the full cost method of accounting for its crude oil
and natural gas properties. Under the full cost method, all productive and
nonproductive costs incurred in connection with the acquisition, exploration,
and development of crude oil and natural gas reserves are capitalized and
amortized on the units-of-production method based upon total proved reserves.
The costs of unproven properties are excluded from the amortization calculation
until the individual properties are evaluated and a determination is made as to
whether reserves exist. Conveyances of properties, including gains or losses on
abandonments of properties, are treated as adjustments to the cost of crude oil
and natural gas properties, with no gain or loss recognized.
Under the full cost method, the net book value of oil and natural gas
properties, less related deferred income taxes, may not exceed the estimated
after-tax future net revenues from proved oil and natural gas properties,
discounted at 10% per year (the ceiling limitation). In arriving at estimated
future net revenues, estimated lease operating expenses, development costs,
abandonment costs, and certain production related and ad-valorem taxes are
deducted. In calculating future net revenues, prices and costs in effect at the
time of the calculation are held constant indefinitely, except for changes which
are fixed and determinable by existing contracts. The net book value is compared
to the ceiling limitation on a quarterly and yearly basis. The excess, if any,
of the net book value above the ceiling limitation is required to be written off
as a non-cash expense. During 1996, as a result of allocating additional cost,
under the purchase method of accounting, to the oil and natural gas properties
in connection with the Alexander Energy acquisition, the Company recognized a
non-cash writedown of its oil and natural gas properties of approximately $43.5
million. During the years ended December 31, 1997 and 1998, the net book value
of the Company's oil and natural gas properties exceeded the ceiling limitation
resulting in non-cash writedowns totaling $46.4 and $148.4 million,
respectively. 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.
Oil and natural gas properties excluded from the ceiling limitation consist
primarily of unevaluated acreage, acquisition costs, and related seismic and
other geological and geophysical costs (unproven properties). During 1998,
unproven properties with a carrying value of approximately $32.0 million were
transferred to proved properties, largely as a result of drilling activities and
became subject to the full cost ceiling. At December 31, 1998, due to
uncertainty relating to the Company's ability to obtain Court approval for
exploration of its remaining portfolio of unproven properties and due to low oil
prices which make the projects uneconomical, the remaining carrying value of the
unproven properties, approximately $9.1 million, was transferred to proved
properties and became subject to the ceiling limitation.
F-9
<PAGE> 47
NATIONAL ENERGY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company has capitalized internal costs of $487,835, $1,582,021 and
$1,950,914 for the years ended December 31, 1996, 1997, and 1998, respectively.
Such capitalized costs include salaries and related benefits of individuals
directly involved in the Company's acquisition, exploration, and development
activities based on the percentage of their time devoted to such activities.
During the years ended December 31, 1997 and 1998, the Company capitalized
interest costs of $2,545,617 and $3,371,279 related to its unproved oil and gas
properties.
Other Property and Equipment
Other property and equipment includes furniture, fixtures, and other
equipment. Such assets are recorded at cost and are depreciated over their
estimated useful lives using the straight-line method.
Maintenance and repairs are charged against income when incurred; renewals
and betterments, which extend the useful lives of property and equipment, are
capitalized.
Income Taxes
Deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured using enacted tax rates. The effect on deferred tax assets and
liabilities of a change in tax rate is recognized in the period that includes
the enactment date. The measurement of deferred tax assets is adjusted by a
valuation allowance, if necessary, to recognize the extent to which, based on
available evidence, the future tax benefits more likely than not will be
realized.
Financial Instruments
The Company does not hold or issue financial instruments for trading
purposes.
See Notes 4 and 5 for disclosure of the fair value of borrowings under the
Company's credit facility and the 10 3/4% Senior Notes, respectively.
The Company from time to time utilizes certain derivative financial
instruments to hedge future oil and gas prices. (Note 9). Gains and losses
arising from the use of these instruments are deferred until realized and are
reported as oil and natural gas sales.
The Company's marketable securities are classified as available-for-sale.
Available-for-sale securities are carried at fair value, with the unrealized
gains and losses, net of tax, reported as a separate component of stockholders'
equity. Realized gains and losses and declines in value judged to be
other-than-temporary are included in interest income. The cost of securities
sold is based on the specific identification method.
The following is a summary of available-for-sale securities at December 31,
1997 and 1998:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
============= ============= ============= =============
<S> <C> <C> <C> <C>
Common stocks at December 31, 1997 .......... $ 515,344 $ -- $ 28,594 $ 486,750
============= ============= ============= =============
Common stocks at December 31, 1998 .......... $ 515,344 $ -- $ 176,094 $ 339,250
============= ============= ============= =============
</TABLE>
The Company had no sales of marketable securities in 1998.
The Company's investment in marketable securities is comprised of securities
of another independent oil and gas company.
F-10
<PAGE> 48
NATIONAL ENERGY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company sells crude oil and natural gas to various customers. In
addition, the Company participates with other parties in the operation of crude
oil and natural gas wells. Substantially all of the Company's accounts
receivable are due from either purchasers of crude oil and natural gas or
participants in crude oil and natural gas wells for which the Company serves as
the operator. Generally, operators of crude oil and natural gas properties have
the right to offset future revenues against unpaid charges related to operated
wells. Crude oil and natural gas sales are generally unsecured.
Allowances for bad debt totaled approximately $120,000 and $150,000 at
December 31, 1997 and 1998, respectively. At December 31, 1997 and 1998, the
carrying value of the Company's accounts receivable approximates fair value.
Natural Gas Production Imbalances
The Company accounts for natural gas production imbalances using the sales
method, whereby the Company recognizes revenue on all natural gas sold to its
customers notwithstanding the fact that its ownership may be less than 100% of
the natural gas sold.
Stock Options
The Company has elected to follow Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees, in accounting for its employee
stock options. Under APB 25, if the exercise price of an employee's stock
options equals or exceeds the market price of the underlying stock on the date
of grant, no compensation expense is recognized.
Earnings (Loss) Per Share
Earnings (loss) per share is computed in accordance with Financial
Accounting Standards Board Statement No. 128, Earnings per Share. Basic earnings
per share data is computed by dividing net 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.
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 (Note 7) if such
conversion has a dilutive effect. For the years ended December 31, 1996, 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 year.
Recent Accounting Pronouncements
As of January 1, 1998, the Company adopted Financial Accounting Standards
Board Statement No. 130, Reporting Comprehensive Income. Comprehensive income is
defined as the change in equity of a business enterprise during a period from
transactions and other events and circumstances from non-owner sources.
Statement 130 establishes rules for the reporting and display of comprehensive
income and its components. For 1996, 1997 and 1998, the differences between net
earnings and total comprehensive income were not material.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities, which is required to be adopted in years beginning after
June 15, 1999. The Company expects to adopt the new Statement effective January
1, 2000. The Statement will require the Company to recognize all derivatives on
the balance sheet at fair value. Derivatives that are not hedges must be
adjusted to fair value through income. If the derivative is a hedge, depending
on the nature of the hedge, changes in the fair value of derivatives will either
be offset against the change in fair value of the
F-11
<PAGE> 49
NATIONAL ENERGY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
hedged assets, liabilities, or firm commitments through earnings or recognized
in other comprehensive income until the hedged item is recognized in earnings.
The ineffective portion of a hedge's change in fair value will be immediately
recognized in earnings.
Reclassifications
Certain previously reported amounts have been reclassified to conform with
the current presentation.
3. ACQUISITIONS
In January 1996, the Company completed the acquisition of oil and natural
gas properties in offshore Nueces County, Texas, adjacent to the Company's
Mustang Island property, from C/A Limited, Chartex Petroleum Company, and
Petrotex Engineering Company. The acquisition includes interests in five wells,
a pipeline and separation facility related to Mustang Island. The consideration
for this acquisition consisted of 140,857 shares of the Company's Common Stock
and $675,000 in cash.
In February 1996, the Company completed the acquisition of two oil and gas
wells on one offshore block, interests in five other offshore blocks, and a
related production platform and equipment in offshore Nueces County, Texas,
adjacent to the Company's Mustang Island property, from UMC Petroleum
Corporation (the "UMC Acquisition"). The consideration for this acquisition
consisted of $1.5 million in cash, which was funded primarily from borrowings
under a credit agreement with Bank One.
In April 1996, the Company won exploration rights on 16 offshore tracts
(covering 7,765 acres) in the Mustang Island area in offshore Nueces County,
Texas, through successful bids with the State of Texas ("Offshore Lease
Acquisition"). The Company paid $1.4 million in cash for these rights, and the
purchase was funded by borrowings under a credit facility with Bank One and
available cash.
On August 29, 1996, the Company completed the acquisition of Alexander
Energy Corporation. The transaction consisted of a merger of Alexander with and
into National Energy Group of Oklahoma, Inc., formerly known as NEG-OK, Inc., a
wholly-owned subsidiary of the Company ("NEG-OK"). Pursuant to the Merger, (a)
the separate corporate existence of Alexander terminated, (b) each share of
Alexander common stock, par value $.03 per share ("Alexander Common Stock"),
together with certain rights associated with the Alexander Common Stock
outstanding immediately before the Merger, were converted into 1.7 shares of the
Company's Common Stock, and (c) all outstanding options and warrants to purchase
Alexander Common Stock were assumed by the Company and converted into options
and warrants to purchase Common Stock. In lieu of fractional shares, Alexander
shareholders otherwise entitled to receive fractional shares of Common Stock
were paid in cash an amount equal to $4.375 multiplied by the fraction of a
share of Common Stock to be received. On December 31, 1996, NEG-OK was merged
into and with the Company and its separate corporate existence ceased to exist.
In connection with the Merger, on August 29, 1996, the Company, NEG-OK, and
Boomer Marketing Corporation, a wholly-owned subsidiary of NEG-OK, entered into
a new credit facility. See Note 4. On August 29, 1996, the Company also closed
the sale of 100,000 shares of its Convertible Preferred Stock, Series D, $1.00
par value per share, the sale of 50,000 shares of its Convertible Preferred
Stock, Series E, $1.00 par value per share, and warrants to purchase 1,050,000
shares of Common Stock. See Note 7.
F-12
<PAGE> 50
NATIONAL ENERGY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
3. ACQUISITIONS (CONTINUED)
The cost of acquiring Alexander was approximately $69.4 million, consisting
of the following (in thousands):
<TABLE>
<S> <C>
Fair value of 21.1 million shares of the Company's Common
Stock issued ................................................................... $63,404
Cost of 105,740 shares of NEG-OK common stock owned by the
Company ........................................................................ 288
Alexander stock options and warrants assumed ..................................... 340
Fair value of 122,324 shares of the Company's Common Stock and 800,000 warrants
issued for services provided by
investment advisors ............................................................ 1,322
Other investment advisor, legal, and accounting professional
fees and other Merger related costs ............................................ 4,009
-------
$69,363
=======
</TABLE>
The fair value of the securities issued in connection with the Merger was
calculated using the price of the Company's Common Stock at the time the Merger
was announced to the public of $3.00 per share.
The Company's purchase price was allocated to the consolidated assets and
liabilities of NEG-OK based on preliminary estimates of fair values with the
remaining purchase price allocated to proved oil and gas properties. No goodwill
was recorded in this transaction.
The allocation of the purchase price is summarized as follows (in
thousands):
<TABLE>
<S> <C>
Working capital (deficit) assumed, excluding current portion
of long-term debt .................................................. $ (87)
Oil and natural gas properties:
Proved ............................................................. 132,756
Unproved ........................................................... 6,319
Other property and equipment ......................................... 970
Other non-current assets ............................................. 198
Long-term debt assumed ............................................... (45,853)
Other non-current liabilities assumed ................................ (3,163)
Deferred income taxes ................................................ (21,777)
---------
$ 69,363
=========
</TABLE>
Under the full cost method of accounting, the carrying value of oil and gas
properties (net of related deferred taxes) is generally not permitted to exceed
the sum of the present value (10% discount rate) of estimated future net cash
flows, after tax, from proved reserves, based on current prices and costs, plus
the lower of cost or estimated fair value of unproved properties (the "full cost
ceiling"). Based upon the combined full cost ceiling at August 29, 1996, and the
preliminary allocation of the Company's purchase price, the purchase price
allocated to oil and gas properties was in excess of the full cost ceiling using
oil and natural gas prices being received by the Company and NEG-OK in August
1996 of $20.75 per Bbl and $2.21 per Mcf. Such excess was written off at the
date of acquisition, resulting in a charge to the Company's results of
operations of $28.3 million as follows (in thousands):
<TABLE>
<S> <C>
Writedown of oil and natural gas properties ................ $ 43,497
Deferred income tax benefit ................................ (15,224)
--------
$ 28,273
========
</TABLE>
In September 1996, the Company acquired an approximate 87.5% working
interest in two wells and certain proved undeveloped reserves in the South Lake
Boeuf Field, La Fourche Parish, Louisiana (the "Lake Boeuf Acquisition") for
approximately $7.2 million, consisting of $1.5 million in cash and 1,758,460
shares of Common Stock.
F-13
<PAGE> 51
NATIONAL ENERGY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
3. ACQUISITIONS (CONTINUED)
The following pro forma data presents the results of the Company for the
year ended December 31, 1996, as if the acquisitions of Mustang Island, Oak
Hill, the Enron Properties, NEG-OK, and the Lake Boeuf Acquisition had occurred
on January 1, 1996. The pro forma results of operations are presented for
comparative purposes only and are not necessarily indicative of the results
which would have been obtained had the acquisitions been consummated as
presented. The following data reflect pro forma adjustments for oil and gas
revenues, production costs, depreciation, and depletion related to the
properties and businesses acquired, interest on borrowed funds, additional
preferred stock dividend requirements, and the related income tax effects, but
excluding the effect of the full cost ceiling writedown recorded in 1996 (in
thousands, except per share amounts).
<TABLE>
<CAPTION>
PRO FORMA
YEAR ENDED DECEMBER 31, 1996
----------------------------
(UNAUDITED)
<S> <C>
Total revenues ........................................ $ 38,807
==========
Income (loss) before extraordinary item ............... $ 3,465
==========
Income (loss) before extraordinary item per share ..... $ .06
==========
</TABLE>
In October 1996, the Company acquired certain leasehold interests located in
the East Bayou Sorrel Field, Iberville Parish, Louisiana from W&T Offshore, Inc.
The consideration paid by the Company consisted of $3,300,000 in cash. In
November 1996, the Company completed the acquisition of oil and natural gas
properties and related facilities located in the Bayou Sorrel Field, Iberville
Parish, Louisiana. The consideration paid by the Company consisted of $9.0
million cash, 477,612 shares of the Company's Common Stock and conveyance of 3%
overriding royalty interest in the property acquired, limited to production
below 11,000 feet. In December 1996, the Company acquired certain oil and
natural gas properties located in the East Bayou Sorrel Field, Iberville Parish,
Louisiana. The consideration paid by the Company consisted of $7.0 million in
cash. The Company funded the cash portion of these acquisitions from available
cash. These acquisitions consisted principally of proved developed nonproducing
and unproved properties and, accordingly, did not have a significant impact on
the Company's results of operations for 1996.
In December 1996, the Company acquired, for $4.2 million in cash, John
Hancock Mutual Life Insurance Company's limited partnership interests in certain
limited partnerships in which the Company was the general partner. The limited
partnerships owned working interests in the Anadarko and Arkoma Basin areas of
Oklahoma and the Giddings area of Texas.
In March 1998, the Company acquired Fortune Natural Resources Corporation's
interests in the East Bayou Sorrel field for approximately $4.5 million in cash.
In June 1998, the Company acquired Germany Oil Company's interest in six state
leases and one producing well in the Mustang Island area for $.4 million in
cash. These acquisitions did not have a significant impact on the Company's
results of operations for 1998.
4. CREDIT FACILITIES
On August 29, 1996, the Company, NEG-OK and Boomer Marketing, entered into a
credit facility with Bank One, as Bank and Administrative Agent, and the Credit
Lyonnais New York Branch, as Bank and Syndication Agent (collectively, the
"Banks"). The credit facility consisted of a $100.0 million reducing revolving
line of credit, with an initial borrowing base of $60.0 million and a $5.0
million term loan. Interest under the reducing revolving line of credit was
payable monthly at the Bank One base rate, as adjusted. The proceeds from the
credit facility were used to repay a prior credit facility and the existing
indebtedness of NEG-OK, resulting in an extraordinary charge of $292,372 or $.01
per common share in 1996.
F-14
<PAGE> 52
NATIONAL ENERGY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
4. CREDIT FACILITIES (CONTINUED)
In November 1996, the Company repaid the outstanding borrowings under the
credit facility with a portion of proceeds from the issuance of $100.0 million
principal amount of 10 3/4% Senior Notes due 2006 (the "Series A Notes"). See
Note 5.
Also in November 1996, in connection with the issuance of the Series A
Notes, the Company revised the credit facility. The credit facility had a
borrowing base of $25.0 million. The borrowing base may be redetermined at least
semiannually and may require mandated monthly principal reductions from time to
time. The principal amount of any borrowings is due at maturity, August 29, 2000
and interest is payable monthly.
The Company granted liens to the Banks 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 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 credit facility contains 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, or if any portion of
the Notes become due, the borrowing base is subject to reduction.
The Company is required to pay a commitment fee on the unused portion of the
borrowing base equal to 1% per annum.
On December 7, 1998, Bank One and Credit Lyonnais gave notice to the Company
that all outstanding obligations under the credit facility were accelerated and
were immediately due and payable due to certain unspecified Events of Default as
defined in the loan agreement.
Effective December 22, 1998, the credit facility and all associated liens
were assigned by the Banks to Arnos, Inc., an affiliated subsidiary of the
Company's Series D Preferred Stockholder. In a letter dated December 23, 1998,
Arnos (1) rescinded the acceleration of the loan, (2) waived all defaults
existing at that time and (3) made sufficient borrowings available to pay the
interest on the Senior Notes that was due on November 2, 1998, conditioned upon
the Bankruptcy Court's dismissal of the Involuntary Petition. To date, no fees
or interest have been paid to Arnos. The Company is currently accruing interest
expense at an estimated rate under the Arnos credit facility. The Company had
$25,000,000 outstanding under the Arnos credit facility as of December 31, 1998.
At December 31, 1998, the Company was in violation of the minimum interest
coverage ratio and current ratio covenants under the Arnos credit facility and
has classified borrowings under the facility as current liabilities.
At December 31, 1998, the fair value of borrowings under the Arnos credit
facility approximates the carrying value of the liability.
F-15
<PAGE> 53
5. 10 3/4 SENIOR NOTES DUE 2006
On December 4, 1998 the Company's 10 3/4% Senior Note bondholders filed an
Involuntary Petition for an Order for Relief under Chapter 11 of Title 11 of the
United States Bankruptcy Code in the United States Bankruptcy Court for the
Northern District of Texas, Dallas Division due to non-payment of interest due
December 2, 1998, after expiration of 30 day grace period. On December 23, 1998,
the Company filed in the Bankruptcy Court, an Answer to and Motion to Dismiss
the pending Involuntary Petition. The Company's Motion affirmed that it (i) was
meeting its obligations and generally paying its debts as they become due,
unless such debts were the basis of a bona fide dispute and (ii) had arranged
with the lender under its credit facility to borrow additional funds sufficient
to pay the interest due on the 10 3/4% Senior Notes, conditioned upon the
Court's dismissal of the Involuntary Petition. However, on February 8, 1999, the
Bankruptcy Court denied the Company's Motion to Dismiss the Involuntary
Petition. An Order for Relief was entered by the Bankruptcy Court on February
11, 1999. The Order for Relief places the Company under the protection of the
Court and precludes payment of the interest on the Senior Notes at this time.
The Company shall act as debtor-in-possession and will continue to operate its
business and manage its properties in the ordinary course of business during its
Chapter 11 proceeding. The Company anticipates proposing a Plan of
Reorganization within 120 days of February 11, 1999 as such time may be extended
by the Court. As a result of the Chapter 11 proceeding, the Company discontinued
accruing interest on the Notes as of December 4, 1998, principally the Senior
Notes, as a result of the Chapter 11 filing. Approximately $1.3 million
additional interest expense would have been recognized by the Company if not for
the discontinuation of the interest accrual on the Senior Notes.
In November 1996, the Company issued $100 million aggregate principal amount
of unregistered 10 3/4% Senior 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 a prior facility and to increase
the Company's working capital. In 1997, the Series A Notes were exchanged for
registered 10 3/4% Senior Notes due 2006 (the "Series B Notes") which were
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% Senior Notes (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 credit facility and to increase the Company's working
capital. In December 1997, the Company exchanged substantially all of the Series
A/B Notes and all of the Series C Notes for registered 10 3/4% Senior 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 an annual rate of 10 3/4%, payable semiannually in
arrears on May 1 and November 1 of each year. The Notes are senior, unsecured
obligations of the Company, ranking pari passu with all existing and future
senior indebtedness of the Company, and senior in right of payment to all future
subordinated indebtedness of the Company. Subject to certain limitations set
forth in the indenture covering the Notes (the "Indenture"), the Company and its
subsidiaries may incur additional senior indebtedness and other indebtedness.
At December 31, 1997 and 1998, unamortized issuance premiums associated with
the Notes totaled $1,396,622 and $1,238,513, respectively.
The Indenture provides that the Notes will be unconditionally guaranteed
(the "Guarantee") by any subsidiary designated by the Company as a Restricted
Subsidiary (a "Guarantor"). As a result of the merger of NEG-OK into the Company
on December 31, 1996, the Company has no Restricted Subsidiaries.
The Indenture contains certain covenants limiting the Company and any
Restricted Subsidiaries, with respect to the following: (i) assets sales; (ii)
restricted payments; (iii) the incurrence of additional indebtedness and the
issuance of certain redeemable preferred stock; (iv) liens; (v) sale and
leaseback transactions; (vi) lines of business; (vii) dividend and other payment
restrictions affecting subsidiaries; (viii) mergers and consolidations; and (ix)
transactions with affiliates.
F-16
<PAGE> 54
NATIONAL ENERGY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
The Notes mature on November 1, 2006. At any time on or after November 1,
2001, the Company may, at its option, redeem all or any portion of the Notes at
the redemption prices expressed as percentages of the principal amount of the
Notes set forth below, plus, in each case, accrued and unpaid interest thereon
to the applicable redemption date, if redeemed during the 12-month period
beginning November 1 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2001............................................................................................. 105.375%
2002............................................................................................. 102.688%
2003 and thereafter.............................................................................. 100.000%
</TABLE>
Notwithstanding the foregoing, at any time prior to November 1, 2001, the
Company may, at its option, redeem all or any portion of the Notes at the
Make-Whole Price, as defined, plus accrued and unpaid interest to the date of
redemption. In addition, in the event the Company consummates one or more Equity
Offerings, as defined, on or prior to November 1, 1999, the Company, at its
option, may redeem up to $35.0 million of the aggregate principal amount of the
Notes with all or a portion of the aggregate net proceeds received by the
Company from such Equity Offering or Equity Offerings at a redemption price of
110.75% of the aggregate principal amount of the Notes so redeemed, plus accrued
and unpaid interest thereon to the redemption date; provided, however, that
following such redemption, at least $65.0 million of the aggregate principal
amount of the Notes remains outstanding.
Upon a Change of Control, as defined, the Company will be required, subject
to certain conditions, to offer to repurchase all Notes at 101% of the principal
amount thereof, plus accrued and unpaid interest to the date of purchase.
Due to the non-payment of interest due December 2, 1998, the Notes were in
default at December 31, 1998, and have been classified as a current liability.
At December 31, 1998, the fair value of the Notes, as determined by quoted
market prices, was approximately $62.7 million.
6. COMMITMENTS AND CONTINGENCIES
The Company leases office space under an operating lease. Rental expense
charged to operations was approximately $117,000, $275,000, and $364,000 during
the years ended December 31, 1996, 1997 and 1998, respectively. Minimum lease
payments under future operating lease commitments at December 31, 1998, are as
follows:
<TABLE>
<S> <C>
1999....................................................................................... $ 391,611
2000....................................................................................... 487,442
2001....................................................................................... 487,442
2002....................................................................................... 487,442
2003....................................................................................... 549,934
Thereafter................................................................................. 2,199,736
-----------
$ 4,603,607
===========
</TABLE>
The Company filed suit against Mr. R. E. Steakley in August 1995 to enjoin
Mr. Steakley from interfering with the operations of the Company. Mr. Steakley
counterclaimed against the Company for surface damages, alleging certain
environmental claims. In February 1999, without admitting any liability, the
Company and Mr. R. E. Steakley entered into a Settlement and Release Agreement
which provided that each of the Company and Mr. Steakley release and discharge
the other from all claims and damages which may have occurred through January
31, 1999 and dismiss the pending litigation against each other. The Company
further agreed to pay Mr. Steakley an amount of $75,000, purchase certain
materials from Mr. Steakley at market value which the Company shall use to
maintain roads incidental to its operations on the Steakley property and limit
the Company's ingress and egress to specified entrances on the Steakley
property.
F-17
<PAGE> 55
NATIONAL ENERGY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
6. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Other than the Bankruptcy Court proceeding, the Company is not a defendant
in any additional material pending legal proceedings. 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.
7. STOCKHOLDERS' EQUITY
Preferred Stock
At December 31, 1998, the Company has authorized 330,000 shares of $1.00 par
value convertible preferred stock designated in four series B through E:
<TABLE>
<CAPTION>
SERIES B SERIES C SERIES D SERIES E
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Number of authorized
shares ......................... 100,000 80,000 100,000 50,000
Number of shares issued and
outstanding:
December 31, 1996 ............ 52,500 40,000 100,000 50,000
December 31, 1997 ............ 38,687 23,000 100,000 9,500
December 31, 1998 ............ 38,687 23,000 100,000 9,500
Conversion price per
common share ................... $ 1.625 $ 2.00 $ 2.25 $ 2.25
Liquidation preference
value per share ................ $ 100.00 $ 100.00 $ 100.00 $ 100.00
Dividend rights.................... 10% payable 101/2% payable Participation Participation
semi-annually semi-annually with common with common
(cumulative) (cumulative) stock stock
</TABLE>
On June 3, 1994, the Company consummated the sale of $5,000,000 of the
Company's 10% Cumulative Convertible Preferred Stock, Series B. Fifty thousand
shares of Series B were sold by the Company at $100.00 per share. The Series B
is convertible into shares of Common Stock at a conversion price of $1.625 per
share. The Series B has a liquidation and dividend preference over the Common
Stock. The Series B has a 10% dividend, payable semi-annually. The Company has
the option to make six dividend payments in shares of Series B; after the sixth
such payment, the holders of Series B have the option to receive additional
dividends in shares of Series B or to accrue such dividends in cash. If the
Company makes four dividend payments in shares of Series B, the holders of
Series B have the right to appoint one-third of the members of the Company's
Board of Directors. In December 1998, the Board of Directors declared a dividend
on Series B to be made in shares of Series B. To date, the dividends have not
been paid and therefore there are $193,435 dividends in arrears at December 31,
1998. The Series B is redeemable by the Company beginning June 14, 1999, at
$100.00 per share, plus accrued and unpaid dividends; provided, however, that
the Company cannot redeem any shares of Series B unless and until all
outstanding shares of the Series C have been redeemed by the Company. The
holders of Series B currently have the right to appoint one member to the
Company's Board of Directors. The Series B requires that dividends be paid on
the Series B before any dividends are paid on Common Stock.
The holders of Series B are entitled to one vote for each share as to
matters upon which by law they are entitled to vote as a class. The approval of
a majority of the Series B, voting separately as a class, is required to (i)
make changes to the Company's Certificate of Incorporation or By-Laws which
adversely affect the Series B, (ii) authorize or issue additional shares of
Series B, (iii) issue preferred stock equal to or senior to the Series B as to
dividends or liquidation, or (iv) subject to certain exceptions, to effect an
extraordinary transaction that requires a vote of the Company's stockholders. As
a result, a class vote of the holders of Series B would be required for the
Company to merge or be acquired and may therefore delay, deter, or prevent a
change in control of the Company.
F-18
<PAGE> 56
NATIONAL ENERGY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
7. STOCKHOLDERS' EQUITY (CONTINUED)
In June 1995, the Company consummated the sale of $4.0 million of the
Company's 10 1/2% Cumulative Convertible Preferred Stock, Series C. Forty
thousand shares of Series C were sold by the Company at $100.00 per share. The
Series C is convertible into shares of Common Stock at a conversion price of
$2.00 per share.
The Series C has a liquidation and dividend preference over the Common Stock
and is parity stock to the previously issued Series B. The Series C has a 10
1/2% dividend, payable semi-annually. The Company has the option to make six
dividend payments in shares of Series C; after the sixth such payment, the
holders of Series C have the option to receive additional dividends in shares of
Series C or to accrue such dividends in cash.
If the Company makes four dividend payments in shares of Series C, the
holders of Series C (voting as a class with other affected series of preferred
stock with similar voting rights) have the right to appoint one-third of the
members of the Company's Board of Directors; provided, however, that if the
holders of Series B are presently entitled to a similar right, then the holders
of Series C shall have no such right until the right of the holders of Series B
terminates. In December 1998, the Board of Directors declared a dividend on
Series C to be made in shares of Series C. To date, the dividend is unpaid and
therefore there are $120,750 dividends in arrears at December 31, 1998. The
Series C is redeemable by the Company beginning June 14, 1999, at $100.00 per
share, plus accrued and unpaid dividends. The holders of the Series C currently
have the right to appoint one member to the Company's Board of Directors. The
holders of Series C are entitled to one vote for each share as to matters upon
which by law they are entitled to vote as a class. The approval of a majority of
the Series C, voting separately as a class, is required to (i) make changes to
the Company's Certificate of Incorporation or By-Laws which adversely affect the
Series C, (ii) authorize or issue additional shares of Series C, (iii) issue
preferred stock equal to or senior to the Series C as to dividends or
liquidation, (iv) subject to certain exceptions, to effect an extraordinary
transaction that requires a vote of the Company stockholders. As a result, a
class vote of the holders of Series C, as well as the Series B, would be
required for the Company to merge or be acquired and may therefore delay, deter,
or prevent a change in control of the Company.
On August 29, 1996, the Company closed the sale for $10.0 million to High
River Limited Partnership of 100,000 shares of its Convertible Preferred Stock,
Series D, $1.00 par value per share and warrants to purchase 700,000 shares of
Common Stock exercisable immediately at $2.50 per share, which warrants expire
five years from their date of issuance. The rights and preferences of the Series
D are described in the Certificate of Designations of the Series D and include
the immediate right to convert all the shares of the Series D into 4,444,444
shares of Common Stock, based upon the initial conversion price of $2.25 per
share.
The holder of the Series D is entitled to one vote for each share when
entitled to vote as described below and as to matters upon which by law it is
entitled to vote as a class. The holder of Series D has the right to appoint one
member to the Board of Directors. The Company may not, without the consent of
the director appointed by the holder of Series D, voluntarily file for
protection under federal or other bankruptcy laws. In addition, the holder of
Series D currently has the right to choose to appoint one-half of the members of
the Board of Directors plus one member (including the member appointed by the
Series D) if it elects to exercise such right. Currently, the holder of the
Series D has appointed a total of three directors to the Board.
On August 29, 1996, simultaneously with the closing of the sale for $10.0
million of the Series D to High River, the Company also closed the sale for $5.0
million to two insurance companies and four affiliates of Kayne, Anderson
Investment Management, Inc., a registered investment adviser, of 50,000 shares
of Convertible Preferred Stock, Series E, $1.00 par value per share and warrants
to purchase 350,000 shares of the Common Stock exercisable immediately at $2.50
per share, which warrants expire five years from their date of issuance. The
Series E has the rights and preferences described in the Certificate of
Designations of the Series E which include the immediate right to convert all of
the shares of the Series E into 2,222,222 shares of the Common Stock, based upon
the initial conversion price of $2.25 per share. The Series E will vote together
with the Common Stock on all matters submitted to the holders of Common Stock
and shall have that number of votes per share equal to the number of shares of
Common Stock into which such share is convertible as of the record date for the
vote.
F-19
<PAGE> 57
NATIONAL ENERGY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
7. STOCKHOLDERS' EQUITY (CONTINUED)
In October 1997, 13,813 shares of Series B Preferred Stock, 17,000 shares of
Series C Preferred Stock and 40,500 shares of Series E Preferred Stock were
converted into approximately 3.5 million shares of Common Stock.
Common Stock
Holders of Common Stock are entitled to one vote for each share held of
record on all matters voted on by stockholders. The shares of the Common Stock
do not have cumulative voting rights, which means that the holders of more than
50% of the shares of the Common Stock voting for the election of the directors
can elect all of the directors to be elected by holders of the Common Stock, in
which event the holders of the remaining shares of Common Stock will not be able
to elect any director. Upon any liquidation, dissolution, or winding-up of the
affairs of the Company, holders of the Common Stock would be entitled to
receive, pro rata, all of the assets of the Company available for distribution
to stockholders, after payment of any liquidation preference of any Preferred
Stock that may be issued and outstanding at the time. Holders of the Common
Stock have no subscription, redemption, sinking fund, or preemptive rights.
Warrants
In June 1994, in connection with the sale of the Series B Preferred Stock,
the Company issued warrants to purchase 307,692 shares of Common Stock at a
price of $1.625 per share. During 1995, 255,492 of these warrants were exercised
and the remainder was exercised in 1996. In 1995, the Company granted warrants
to purchase 300,000 shares of Common Stock at a price of $1.625 per share,
pursuant to a consulting agreement. The estimated fair value of the warrants was
determined at the date of grant and charged to general and administrative
expenses over the vesting period. During 1997, 300,000 of these warrants were
exercised. In June 1995, in connection with the acquisition of Oak Hill (Note
3), the Company issued warrants to purchase 200,000 shares of Common Stock at a
price of $2.00 per share. During 1996, 100,000 of these warrants were exercised.
During 1998, the remaining warrants expired.
During 1996, the Company issued warrants to purchase 1,050,000 shares of
Common Stock with exercise prices of $2.50 per share to the purchasers of the
Series D and Series E and issued warrants to purchase 300,000 shares of Common
Stock with exercise prices of $2.875 per share to financial advisors in
connection with this transaction. In connection with the Merger, the Company
issued warrants to purchase 800,000 shares of Common Stock to two financial
advisors. Warrants to purchase 700,000 shares have an exercise price of $2.875
per share while warrants to purchase 100,000 shares have an exercise price of
$4.09 per share. The Company also assumed 396,015 warrants to purchase Common
Stock at prices ranging from $2.07 to $3.00 in the Merger. During 1997, 353,515
of these warrants were exercised and the remainder expired during 1998. During
1997, the Company issued warrants to purchase 300,000 shares of common stock
with exercise prices of $3.00 per share in connection with the formation of a
drilling joint venture.
The following table summarizes warrants outstanding at December 31, 1998:
<TABLE>
<CAPTION>
NUMBER OF SHARES EXPIRATION WARRANTS EXERCISE
UNDER WARRANT DATE EXERCISABLE PRICES
- ------------------ ----------------- ----------------- -------
<S> <C> <C> <C>
1,050,000 August 29, 2001 1,050,000 $ 2.50
300,000 August 29, 2001 300,000 2.875
700,000 August 29, 2001 700,000 2.875
100,000 August 29, 2001 100,000 4.09
300,000 July 11, 2002 300,000 3.00
--------- ---------
2,450,000 2,450,000
========= =========
</TABLE>
F-20
<PAGE> 58
NATIONAL ENERGY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
7. STOCKHOLDERS' EQUITY (CONTINUED)
Stock Options
A summary of the Company's stock option activity, and related information
for the years ended December 31, 1996, 1997, and 1998, follows:
<TABLE>
<CAPTION>
1996 1997 1998
---------------------------- --------------------------- ---------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
------------ ------------ ------------ ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
year ................................. 932,500 $ 2.02 873,486 $ 2.28 3,072,201 $ 3.62
Granted ................................ 5,000 3.00 2,707,500 3.92 415,000 2.65
Assumed in the Merger with
Alexander ............................ 135,028 2.25 -- -- -- --
Exercised .............................. (199,042) 1.08 (266,785) 2.44 (25,000) 3.75
Canceled ............................... -- -- (242,000) 3.52 (1,824,351) 3.58
------------ ------------ ------------
Outstanding at end of year ............. 873,486 2.28 3,072,201 3.62 1,637,850 3.40
============ ============ ============
Exercisable at end of year ............. 503,484 2.24 936,450 2.84 1,148,600 3.45
============ ============ ============
Weighted-average fair value of
options granted or assumed
during the year ...................... $ 2.15 $ 1.46 $ 1.11
============ ============ ============
</TABLE>
Information related to options outstanding and exercisable at December 31, 1998,
is summarized below:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------ -----------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF OPTIONS CONTRACTUAL EXERCISE OPTIONS EXERCISE
EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
--------------- ------------ ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
$1.31 - $2.99 445,850 1.79 $ 2.11 305,850 $ 2.35
$3.32 - $4.13 1,183,500 3.51 3.88 838,500 3.84
$5.75 8,500 3.79 5.75 4,250 5.75
------------ ----------
1,637,850 3.05 $ 3.40 1,148,600 $ 3.45
============ ===========
</TABLE>
Statement of Financial Accounting Standards No. 123, Accounting for Stock
Based Compensation, requires the disclosure of pro forma net income and earnings
per share information computed as if the Company had accounted for its employee
stock options granted subsequent to December 31, 1994, under the fair value
method set forth in SFAS 123. The fair value for these options was estimated at
the date of grant using a Black-Scholes option pricing model with the following
weighted-average assumptions for 1996, 1997 and 1998, respectively: a risk-free
interest rates of 6%, 5.5% and 5.5%, a dividend yield of 0%, and volatility
factors of .54, .53 and .53. In addition, the fair value of these options was
estimated based on an expected life of three to five years for options granted
by the Company and one year for options assumed in the merger with Alexander.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options. In addition, because
SFAS 123 is applicable only to options granted subsequent to December 31, 1994,
the pro forma information does not reflect the pro forma effect of all
F-21
<PAGE> 59
NATIONAL ENERGY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
7. STOCKHOLDERS' EQUITY (CONTINUED)
previous stock option grants of the Company, and thus the pro forma information
is not necessarily indicative of future amounts until SFAS 123 is applied to all
outstanding stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows (in thousands except for earnings per share
information):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1996 1997 1998
--------------- --------------- ---------------
<S> <C> <C> <C>
Pro forma net loss ..................... $ (26,380,771) $ (35,226,665) $ (164,914,586)
=============== =============== ===============
Pro forma net loss per common share .... $ (1.37) $ (.97) $ (4.09)
=============== =============== ===============
</TABLE>
Stock Purchase Plan
During 1998, the Company's shareholders approved the Company's Employee
Stock Purchase Plan ("ESPP"). Pursuant to the ESPP, employees can purchase the
common stock of the Company at a specified price through payroll deductions
during an offering period, currently established on a semi-annual basis. In June
1998, approximately 46,000 shares were issued to employees under the ESPP.
8. INCOME TAXES
The reconciliation of income taxes computed at the U.S. federal statutory
tax rates to the benefit for income taxes on the income (loss) before
extraordinary item is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Income tax benefit at statutory rate ................. $ 14,021,426 $ 14,568,439 $ 57,580,016
Utilization of net operating loss carryforward ....... 414,177 -- --
Valuation allowance on deferred tax assets ........... -- (7,294,578) (57,560,222)
Other ................................................ 67,992 11,904 (19,794)
============ ============ ============
$ 14,503,595 $ 7,285,765 $ --
============ ============ ============
</TABLE>
The computation of the net deferred tax asset (liability) follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1997 1998
------------- -------------
<S> <C> <C>
Deferred tax assets (liabilities):
Property and equipment.................................................. $ (6,875,104) $ 36,718,003
Net operating loss carryforwards........................................ 15,790,102 29,766,440
Statutory depletion carryforwards....................................... 1,340,763 1,340,763
Other, net.............................................................. 1,009,371 1,000,148
------------- -------------
11,265,132 68,825,354
Less valuation allowance................................................ (11,265,132) (68,825,354)
------------- -------------
$ -- $ --
============= =============
</TABLE>
At December 31, 1998, the Company had net operating loss carryforwards
available for federal income tax purposes of approximately $85.0 million which
expire beginning in 1999. Utilization of approximately $32.0 million of the net
operating loss carryforwards is subject to various limitations because of
previous changes in control of ownership (as defined in the Internal Revenue
Code) of the Company and Alexander. Additional net operating loss limitations
may be imposed as a result of subsequent changes in stock ownership of the
Company. Bankruptcy proceedings may eliminate all or a portion of the Company's
net operating loss carryforwards. For federal income tax purposes, the Company
also has statutory depletion carryforwards of $3.8 million, which do not expire.
F-22
<PAGE> 60
NATIONAL ENERGY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
9. NATURAL GAS HEDGING ACTIVITIES AND FORWARD SALES CONTRACTS
While the use of financial hedging arrangements limits the downside risk of
adverse price movements, it may also limit future gains from favorable
movements. All financial hedging is accomplished pursuant to swap agreements
based upon standard forms. The Company addresses market risk by selecting
instruments whose value fluctuations correlate strongly with the underlying
commodity being hedged. Credit risk related to hedging activities is managed by
requiring minimum credit standards for counterparties, periodic settlements, and
mark to market valuations. The Company has not been required to provide
collateral relating to its hedging activities.
During the year ended December 31, 1996, the Company recognized a net gain
of $20,315 related to hedging transactions. At December 31, 1997 and 1998, the
Company had no financial hedging agreements outstanding.
At December 31, 1998, the Company had entered into forward sales contracts
with two purchasers covering future production of natural gas as follows:
<TABLE>
<CAPTION>
VOLUME COMMITMENT
(MMBTU PER DAY) TERM
- ------------------ ----------------------------------------
<S> <C>
9,250 January 1999 through March 1999
1,750 January 1999 through October 1999
4,500 January 1999 through December 1999
4,000 April 1999 through October 1999
2,000 April 1999 through December 1999
</TABLE>
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 the time. Deliveries to be made under the forward
sales contracts have not been priced as of December 31, 1998. The Company pays
the cost of transportation of the natural gas to the delivery point specified in
the contracts.
10. RESTRUCTURING CHARGES
During 1998, the Company recorded non-recurring restructuring charges of
$1,869,169. These charges related primarily to severance and related costs
resulting from restructuring of the Company's executive management team, and
other personnel changes and costs associated with the Chapter 11 filing. The
components of the restructuring charges are as follows:
<TABLE>
<S> <C>
Severance $ 1,401,537
Lease termination costs 154,946
Cost associated with Chapter 11 filing 312,686
------------
$ 1,869,169
============
</TABLE>
Substantially all of the restructuring charges required cash outlays which
have been made as of December 31, 1998.
11. CRUDE OIL AND NATURAL GAS PRODUCING ACTIVITIES
Costs incurred in connection with the exploration acquisition, development,
and exploitation of the Company's crude oil and natural gas properties for the
years ended December 31, 1996, 1997, and 1998, are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1996 1997 1998
------------- ------------ ------------
<S> <C> <C> <C>
Acquisitions of properties:
Proved................................................. $ 155,675,254 $ -- $ 5,093,000
Unproved............................................... 24,534,610 2,074,339 --
Exploration costs......................................... 4,406,015 31,126,227 9,012,942
Development costs......................................... 19,389,494 54,475,373 25,022,494
Amortization rate per Mcfe................................ 1.10 1.11 1.06
</TABLE>
F-23
<PAGE> 61
NATIONAL ENERGY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
The acquisitions of properties in 1996 include $132.8 million of proved
properties and $6.3 million of unproved properties acquired in the Merger. See
Note 3.
During 1996, as a result of allocating additional cost under the purchase
method of accounting, to the oil and natural gas properties in connection with
the Merger, the Company recognized a non-cash writedown of its oil and natural
gas properties of approximately $43.5 million. During 1997 and 1998, the net
book value of the Company's oil and natural gas properties exceeded the full
cost ceiling resulting in writedowns of the oil and natural gas properties of
$46.4 million and $148.4 million, respectively. 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.
Revenues from individual purchasers that exceed 10% of total crude oil and
natural gas sales are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1996 1997 1998
-------------- -------------- --------------
<S> <C> <C> <C>
Plains Marketing and Transportation....................... $9,382,466 $ 17,918,762 $13,291,379
Crosstex Energy........................................... 2,919,944 6,471,157 5,140,693
GPM Natural Gas Corporation............................... 2,832,049 4,547,352 --
Aquila Energy Corp........................................ -- -- 5,897,799
</TABLE>
The Company believes that the loss of these purchasers would not have a
significant impact on the Company's results of operations or financial
condition.
12. SUPPLEMENTARY CRUDE OIL AND NATURAL GAS RESERVE INFORMATION (UNAUDITED)
The revenues generated by the Company's operations are highly dependent upon
the prices of, and demand for, oil and natural gas. The price received by the
Company for its oil and natural gas production depends on numerous factors
beyond the Company's control, including seasonality, the condition of the U.S.
economy, foreign imports, political conditions in other oil and natural gas
producing countries, the actions of the Organization of Petroleum Exporting
Countries and domestic governmental regulations, legislation and policies.
Declines during 1998 in the prices of oil and gas have had an adverse effect on
the carrying value of the Company's oil and gas properties and the Company's
revenues, profitability and cash flows.
The Company has made, and will continue to make, ordinary course capital
expenditures for the development, and exploitation of oil and natural gas
reserves, subject to economic conditions and in accordance with the rulings and
procedures set forth by the Court. Due to the Chapter 11 filing and severely
depressed oil prices, the Company has suspended its exploratory drilling
program. The Company will limit its capital expenditures to ordinary course
enhancement of current production through workovers, recompletions, and other
production enhancing activities deemed to be economic given current depressed
oil and gas prices. Development drilling is anticipated to be limited to (i)
ordinary course nonoperated wells in which the Company has limited working
interests and in which the failure to participate may result in drainage,
depletion or loss of current reserves and (ii) operated wells deemed to be
economical given current oil and gas prices. Large expenditures for
developmental drilling may require Court approval and none are planned at this
time.
The Company has interests in crude oil and natural gas properties that are
principally located onshore in Texas, Louisiana, Oklahoma, Arkansas, and
offshore in the Gulf of Mexico. The Company does not own or lease any crude oil
and natural gas properties outside the United States.
In 1995 and 1996, the Company retained independent petroleum engineering
firms to provide year-end estimates of the Company's future net recoverable
crude oil, natural gas, and natural gas liquids reserves. In 1997 and 1998, such
estimates were prepared by the Company's in-house reserve engineers. Estimated
proved net recoverable reserves as shown below include only those quantities
that can be expected to be commercially
F-24
<PAGE> 62
NATIONAL ENERGY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
12. SUPPLEMENTARY CRUDE OIL AND NATURAL GAS RESERVE INFORMATION (UNAUDITED)
(CONTINUED)
recoverable at prices and costs in effect at the balance sheet dates under
existing regulatory practices and with conventional equipment and operating
methods.
Proved developed reserves represent only those reserves expected to be
recovered through existing wells. Proved undeveloped reserves include those
reserves expected to be recovered from new wells on undrilled acreage or from
existing wells on which a relatively major expenditure is required for
recompletion.
Net quantities of proved developed and undeveloped reserves of natural gas
and crude oil, including condensate and natural gas liquids, are summarized as
follows:
<TABLE>
<CAPTION>
NATURAL GAS
CRUDE OIL (THOUSAND CUBIC
(BARRELS) FEET)
------------ -----------------
<S> <C> <C>
December 31, 1995 ...................... 3,921,076 30,869,112
Purchase of reserves in place ........ 4,691,982 97,840,796
Extensions and discoveries ........... 37,800 371,062
Revisions of previous estimates ...... 703,594 6,104,198
Production ........................... (521,701) (5,680,904)
Sales of reserves in place ........... (29,880) (634,386)
------------ -----------------
December 31, 1996 ...................... 8,802,871 128,869,878
Extensions and discoveries ........... 1,908,087 7,835,287
Revisions of previous estimates ...... 397,541 (7,685,884)
Production ........................... (1,110,105) (13,146,251)
Sales of reserves in place ........... (220,190) (5,391,799)
------------ -----------------
December 31, 1997 ...................... 9,778,204 110,481,231
Purchase of reserves in place ........ 347,000 438,000
Extensions and discoveries ........... 74,000 1,857,000
Revisions of previous estimates ...... (4,346,951) (24,279,454)
Production ........................... (1,238,379) (11,254,797)
------------ -----------------
December 31, 1998 ...................... 4,613,874 77,241,980
============ =================
Proved developed reserves:
December 31, 1995 ................... 1,632,404 13,304,031
December 31, 1996 ................... 4,383,926 77,496,645
December 31, 1997 ................... 5,780,958 89,939,678
December 31, 1998 ................... 4,187,831 67,039,255
</TABLE>
The following is a summary of a standardized measure of discounted net cash
flows related to the Company's proved crude oil and natural gas reserves. For
these calculations, estimated future cash flows from estimated future production
of proved reserves were computed using crude oil and natural gas prices as of
the end of each period presented. Future development, production and abandonment
costs attributable to the proved reserves were estimated assuming that existing
conditions would continue over the economic lives of the individual leases and
costs were not escalated for the future. Estimated future income tax expenses
were calculated by applying future statutory tax rates (based on the current tax
law adjusted for permanent differences and tax credits) to the estimated future
pretax net cash flows related to proved crude oil and natural gas reserves, less
the tax basis of the properties involved.
The Company cautions against using this data to determine the fair value of its
crude oil and natural gas properties. To obtain the best estimate of fair value
of the crude oil and natural gas properties, forecasts of future economic
conditions, varying discount rates, and consideration of other than proved
reserves would have to be incorporated into the calculation. In addition, there
are significant uncertainties inherent in estimating quantities of proved
reserves and in projecting rates of production that impair the usefulness of the
data.
F-25
<PAGE> 63
NATIONAL ENERGY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
12. SUPPLEMENTARY CRUDE OIL AND NATURAL GAS RESERVE INFORMATION (UNAUDITED)
(CONTINUED)
The standardized measure of discounted future net cash flows relating to
proved crude oil and natural gas reserves are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1997 1998
-------------- --------------
<S> <C> <C>
Future cash inflows ........................................ $ 430,107,524 $ 207,087,600
Future production and development costs .................... (163,245,775) (85,893,140)
Future income tax expenses ................................. (17,720,565) --
-------------- --------------
Future net cash flows ...................................... 249,141,184 121,194,460
10% annual discount for estimated timing of cash flows ..... (87,390,632) (45,316,980)
-------------- --------------
Standardized measure of discounted future net cash flows ... $ 161,750,552 $ 75,877,480
============== ==============
</TABLE>
The following are the principal sources of change in the standardized
measure of discounted future net cash flows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1996 1997 1998
------------- ------------- -------------
<S> <C> <C> <C>
Sales and transfers of crude oil and
natural gas produced, net of production costs .......... $ (19,293,463) $ (42,549,780) $ (27,705,832)
Net changes in prices and production costs ................ 131,330,518 (136,971,646) (70,032,540)
Development costs incurred during the
period and changes in estimated future development ..... 4,884,876 24,893,672 16,451,276
costs
Purchases of reserves in place ............................ 117,893,900 -- 4,783,270
Sales of reserves in place ................................ (450,300) (8,489,852) --
Extensions and discoveries, less related costs ............ 850,200 24,388,228 1,663,986
Revisions of previous quantity estimates .................. 16,576,531 (5,219,509) (36,419,059)
Accretion of discount ..................................... 3,627,860 19,576,509 16,175,055
Net change in income taxes ................................ (57,743,416) 54,258,990 7,633,978
Changes in production rates (timing) and other ............ (24,175) 2,084,308 1,576,794
------------- ------------- -------------
Net change ................................................ $ 197,652,531 $ (68,029,080) $ (85,873,072)
============= ============= =============
</TABLE>
During recent years, there have been significant fluctuations in the prices
paid for crude oil in the world markets. This situation has had a destabilizing
effect on crude oil posted prices in the United States, including the posted
prices paid by purchasers of the Company's crude oil. The net weighted average
prices of crude oil and natural gas at December 31, 1996, 1997, and 1998, used
in the above table were $25.36, $17.03 and $10.46 per barrel of crude oil,
respectively, and $3.72, $2.38 and $2.06 per thousand cubic feet of natural gas,
respectively.
F-26
<PAGE> 64
NATIONAL ENERGY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
13. QUARTERLY FINANCIAL RESULTS (UNAUDITED)
The Company's operating results for each quarter of 1997 and 1998 are summarized
as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997:
Total revenues .......................... $ 12,864 $ 11,622 $ 13,122 $ 14,809
============ ============ ============ ============
Writedowns of oil and gas properties .... $ -- $ -- $ -- $ (46,396)
============ ============ ============ ============
Operating income (loss) ................. $ 4,623 $ 2,752 $ 3,100 $ (41,918)
============ ============ ============ ============
Net income (loss) ....................... $ 1,403 $ 454 $ 272 $ (36,467)
============ ============ ============ ============
Income (loss) per common share .......... $ .03 $ .00 $ .00 $ (.97)
============ ============ ============ ============
Production:
Oil (Bbl) ............................. 237 261 292 320
Natural gas (Mcf) ..................... 2,884 3,389 3,580 3,293
Natural gas equivalent (Mcfe).......... 4,308 4,956 5,329 5,213
YEAR ENDED DECEMBER 31, 1998:
Total revenues .......................... $ 10,529 $ 10,544 $ 8,573 $ 8,794
============ ============ ============ ============
Writedowns of oil and gas properties .... $ (26,500) $ (24,800) $ (38,650) $ (58,450)
============ ============ ============ ============
Operating loss .......................... $ (25,757) $ (25,280) $ (39,690) $ (59,289)
============ ============ ============ ============
Net loss ................................ $ (29,044) $ (28,968) $ (43,592) $ (62,910)
============ ============ ============ ============
Income (loss) per common share .......... $ (.72) $ (.72) $ (1.08) $ (1.56)
============ ============ ============ ============
Production:
Oil (Bbl) ............................. 293 335 278 332
Natural gas (Mcf) ..................... 3,080 2,913 2,682 2,580
Natural gas equivalent (Mcfe) ......... 4,835 4,925 4,350 4,575
</TABLE>
<PAGE> 65
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
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 C (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 Bank One, Columbus, N.A. (7)
4.6 Indenture dated August 21, 1997, among the Company and Bank
One, N.A. (14)
4.7 Instrument of Resignation, Appointment and Acceptance, dated
October 23, 1998, between the Company, Bank One, N.A., and
Norwest Bank Minnesota, N.A. (19)
10.1 Crude Oil Purchase Contract, dated November 30, 1992, between
the Company and Plains Liquids Transport Inc. (8)
</TABLE>
<PAGE> 66
<TABLE>
<S> <C>
10.2 Amendment to Crude Oil Purchase Contract, dated November 17,
1993, between the Company and Plains Liquids Transport, Inc.
(5)
10.3 Crude Oil Purchase Contract, dated February 8, 1993, between
the Company and Plains Marketing and Transportation Inc. and
the predecessor contract, the Crude Oil Purchase Contract,
dated November 12, 1991, between Sunnybrook Transmission,
Inc. and TriSearch Inc. (8)
10.4 Agreement for Purchase and Sale (Mustang Island) dated April
20, 1995, between the Company and Sierra Mineral Development,
L.C. (6)
10.5 Agreement for Purchase and Sale (Oak Hill) dated April 12,
1995, between the Company and Sierra 1994 I Limited
Partnership (6)
10.6 Stock Purchase Agreement, dated as of June 14, 1995, among
the Company, Arbco Associates L.P., Offense Group Associates
L.P., Kayne, Anderson Nontraditional Investments L.P., and
Opportunity Associates L.P. (6)
10.7 High River Limited Partnership Warrant to purchase 700,000
Shares of Common Stock, dated August 29, 1996 (3)
10.8 Form of Series E Investors' Warrants to purchase an aggregate
350,000 Shares of Common Stock, dated August 29, 1996 (3)
10.9 Gascon Partners Warrant to Purchase 300,000 shares of the
Company's Common Stock (13)
10.10 Prudential Securities Incorporated Warrant to Purchase
100,000 Shares of the Company's Common Stock (3)
10.11 Gaines Berland, Inc. Warrant to Purchase 300,000 Shares of
the Company's Common Stock dated August 29, 1996 (3)
10.12 Gaines Berland, Inc. Warrant to Purchase 700,000 Shares of
the Company's Common Stock dated August 29, 1996 (3) 10.13
Executive Employment Agreement, dated January 1, 1996,
between the Company and Miles D. Bender (9)
10.13 Executive Employment Agreement, dated January 1, 1996,
between the Company and Miles D. Bender (9)
10.14 Separation Agreement, dated November 24, 1998, between the
Company and Miles D. Bender (19)
10.15 Executive Employment Agreement, dated January 1, 1996,
between the Company and Melissa Rutledge (9)
10.16 Separation Agreement between the Company and Robert A. Imel
dated October 31, 1997 (15)
10.17 Separation Agreement, dated May 18, 1998, between the Company
and William T. Jones (17)
10.18 Executive Employment Agreement, dated June 6, 1996, between
the Company and Jim L. David (1)
10.19 Executive Employment Agreement dated March 20, 1997, between
the Company and Philip D. Devlin (10)
</TABLE>
<PAGE> 67
<TABLE>
<S> <C>
10.20 Separation Agreement, dated May 19, 1998, between the Company
and Gene W. Anderson (19)
10.21 Executive Employment Agreement dated August 25, 1997, between
the Company and C. Dewayne Cravens (19)
10.22 Separation Agreement, dated May 18, 1998, between the Company
and C. Dewayne Cravens (19)
10.23 Executive Employment Agreement, dated January 29, 1998,
between the Company and Fred R. Miller (15)
10.24 Executive Employment Agreement, dated March 5, 1998, between
the Company and Chuck Elsey (16)
10.25 Termination Notice and Agreement, dated October 28, 1998,
between the Company and Chuck Elsey(19)
10.26 Executive Employment Agreement, dated April 13, 1998, between
the Company and Kent Lueders(16)
10.27 Executive Employment Agreement, dated June 1, 1998, between
the Company and Leslie Wylie(17)
10.28 National Energy Group, Inc. 1996 Incentive Compensation Plan
(11)
10.29 National Energy Group, Inc. Employee Stock Purchase Plan(12)
10.30 National Energy Group, Inc. Employee Severance Policy(19)
10.31 Agreement dated January 1, 1996 between the Company and
Sandefer Oil & Gas, Inc.(1)
10.32 Consulting Agreement dated January 1, 1996 between Sandefer
Oil & Gas, Inc. and Potosky Oil & Gas, Inc. and Atocha
Exploration, Inc.(1)
10.33 Memorandum of Amendment dated March 27, 1997 amending (i)
Agreement dated January 1, 1996 between the Company and
Sandefer Oil & Gas, Inc. and (ii) Consulting Agreement dated
January 1, 1996 between Sandefer Oil & Gas, Inc. and Potosky
Oil & Gas, Inc. and Atocha Exploration, Inc.(15)
10.34 First Amendment dated April 15, 1997 to (i) Agreement dated
January 1, 1996 between the Company and Sandefer Oil & Gas,
Inc. and (ii) Consulting Agreement dated January 1, 1996
between Sandefer Oil & Gas, Inc. and Potosky Oil & Gas, Inc.
and Atocha Exploration, Inc.(15)
10.35 Restated Loan Agreement dated August 29, 1996 among Bank One
and Credit Lyonnais New York Branch ("Credit Lyonnais") and
the Company, NEG-OK and Boomer Marketing Corporation
("Boomer")(3)
10.36 $50,000,000 Revolving Note dated August 29, 1996 payable to
Bank One(3)
10.37 $50,000,000 Revolving Note dated August 29, 1996 payable to
Credit Lyonnais(3)
10.38 Assignment of $50,000,000 Revolving Note to Arnos Corp from
Bank One, Texas, N.A. (19)
10.39 Assignment of $50,000,000 Revolving Note to Arnos Corp from
Credit Lyonnais New York Branch (19)
10.40 Unlimited Guaranty of NEG-OK dated August 29, 1996 for the
benefit of Bank One(3)
</TABLE>
<PAGE> 68
<TABLE>
<S> <C>
10.41 Unlimited Guaranty of NEG-OK, dated August 29, 1996 for the
benefit of Credit Lyonnais(3)
10.42 Unlimited Guaranty of Boomer dated August 29, 1996 for the
benefit of BankOne(3)
10.43 Unlimited Guaranty of Boomer dated August 29, 1996 for the
benefit of Credit Lyonnais(3)
10.44 First Amendment to Restated Loan Agreement dated October 31,
1996 among BankOne and Credit Lyonnais and the Company,
Guarantor and Boomer(9)
10.45 Second Amendment to Restated Loan Agreement dated October 31,
1996, among BankOne and Credit Lyonnais and the Company,
Guarantor and Boomer(10)
10.46 Third Amendment to Restated Loan Agreement dated October 31,
1996, among BankOne and Credit Lyonnais and the Company,
Guarantor and Boomer(10)
10.47 Fourth Amendment to Restated Loan Agreement dated October 31,
1996, among BankOne and Credit Lyonnais and the Company,
Guarantor and Boomer(15)
10.48 Multi-State Assignment Agreement dated December 22, 1998
between BankOne, Texas, NA, Credit Lyonnais New York Branch
and Arnos, Corp (19)
10.49 Multi-State Assignment Agreement, LaFourche Parish,
Louisiana, dated December 22, 1998, between BankOne, Texas,
NA, Credit Lyonnais New York Branch and Arnos Corp (19)
10.50 Multi-State Assignment Agreement, Iberville Parish,
Louisiana, dated December 22, 1998, between BankOne, Texas,
NA, Credit Lyonnais New York Branch and Arnos Corp (19)
10.51 Oklahoma Assignment Agreement, dated December 22, 1998,
between BankOne, Texas, NA, Credit Lyonnais New York Branch
and Arnos, Corp (19)
10.52 Arnos Corporation Letter dated December 23, 1998(19)
12.1 Computation of Ratio of Earnings to Fixed Charges(19)
23.1 Consent of Ernst & Young LLP, Independent Auditors(19)
24.1 Power of Attorney (included in signature pages to this Form
10-K)(19)
27.1 Financial Data Schedule(19)
99.1 Order of Bankruptcy Court Granting Relief on Involuntary
Petition(18)
</TABLE>
- ------------------------------
(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 17, 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 Annual Report
on Form 10-KSB for the year ended December 31, 1992.
(9) Incorporated by reference to the Company's Annual Report
on Form 10-KSB for the year ended December 31, 1995.
(10) Incorporated by reference to the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1997.
(11) Incorporated by reference to the Company's Schedule 14A
filed April 25, 1997.
<PAGE> 69
(12) Incorporated by reference to the Company's Form S-8 filed
December 23, 1997.
(13) Incorporated by reference to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1997.
(14) Incorporated by reference to the Company's Form S-4 (No.
333-38075), filed October 16, 1997.
(15) Incorporated by reference to the Company's Annual Report
on Form 10-K for the year ended December 31, 1997.
(16) Incorporated by reference to the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1998.
(17) Incorporated by reference to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1998.
(18) Incorporated by reference to the Company's Current Report
on Form 8-K, dated February 8, 1999.
(19) Filed herewith.
<PAGE> 1
EXHIBIT 4.7
INSTRUMENT OF RESIGNATION, APPOINTMENT AND ACCEPTANCE, dated as of October 23,
1998 among National Energy Group, Inc., a corporation duly organized and
existing under the laws of the State of Delaware, having its principal office
at 1400 One Energy Square, 4925 Greenville Avenue, Dallas, Texas 75206 (the
"Company"), Bank One, NA, a national banking association duly organized and
existing under the laws of the United States, having its principal Corporate
Trust Office at 100 East Broad Street, Columbus, Ohio 43271 ("BANK ONE"), and
Norwest Bank Minnesota, N.A., a national banking association duly organized and
existing under the laws of the United States, having its principal office at
Norwest Center, Sixth and Marquette, Minneapolis, Minnesota 55479-0069.
WHEREAS, the Company issued its $165,000,000 10 3/4% Senior Notes due
2006 of which $165,000,000 principal amount is outstanding (the "Notes"), under
the Indenture dated as of August 21, 1997 (the "Indenture"), between the
Company and Bank One, NA, as the Trustee (the "Trustee");
WHEREAS, the Company appointed the Trustee as the paying agent (the
"Paying Agent"), and the Note Registrar (the "Note Registrar"), under the
Indenture;
WHEREAS, the Indenture provides that the Trustee may at any time
resign by giving written notice thereof to the Company;
WHEREAS, the Trustee represents that it gave the Company a written
notice of its resignation as Trustee, a true copy of which is annexed hereto
marked Exhibit A;
WHEREAS, the Indenture further provides that, if the Trustee shall
resign, the Company shall promptly appoint a successor Trustee;
WHEREAS, the Indenture provides that the successor Trustee shall
execute, acknowledge and deliver to the Company and to the resigning Trustee an
Instrument accepting such appointment and thereupon the resignation of the
Trustee shall become effective and such successor Trustee without any further
act, deed or conveyance, shall become vested with all rights, powers, duties
and obligations of the resigning Trustee;
WHEREAS, the Indenture further provides that no successor Trustee
shall accept appointment as such unless at the time it is qualified and
eligible under the Indenture;
WHEREAS, Norwest Bank Minnesota, N.A. is qualified, eligible and
willing to accept such appointment as successor Trustee:
-1-
<PAGE> 2
WHEREAS, Bank One, simultaneously with the execution and delivery of
this Instrument, has caused the notice required pursuant to the Indenture, a
form of which is annexed hereto marked Exhibit B, to be mailed to the Holders
of the Notes as therein required;
NOW, THEREFORE, THIS INSTRUMENT OF RESIGNATION, APPOINTMENT AND
ACCEPTANCE, WITNESSETH: that for and in consideration of the premises and of
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, it is hereby covenanted, declared and decreed by the
Company, the successor Trustee and the Trustee as follows:
1. The resignation of BANK ONE, as Trustee, and its discharge from the
trust created by the Indenture shall be effective as of the date hereof upon
the execution and delivery of this Instrument by all the parties hereto.
2. The Company, in the exercise of the authority vested in it by the
Indenture hereby appoints Norwest Bank Minnesota, N.A. as successor Trustee
with all rights, powers, trusts, duties and obligations under the Indenture,
such appointment to be effective as of the date hereof upon the execution and
delivery of this Instrument by all the parties hereto.
3. Norwest Bank Minnesota, N.A. hereby represents that it is qualified
and eligible under the provisions of the Indenture to be appointed successor
Trustee, and hereby accepts its appointment as successor Trustee, effective as
of the date hereof upon the execution and delivery of this Instrument by all
parties hereto, and hereby assumes the rights, powers, trusts, duties and
obligations of the Trustee under the Indenture, subject to all terms and
provisions therein contained.
4. BANK ONE hereby grants, gives, bargains, sells, remises, releases,
conveys, confirms, assigns, transfers and sets over to Norwest Bank Minnesota,
N.A. as such successor Trustee and its successors and assigns all rights, title
and interest of BANK ONE in and to the trust estate and all rights, powers and
trusts, under the Indenture; and BANK ONE does hereby pay over, assign and
deliver to Norwest Bank Minnesota, N.A. as such successor Trustee any and all
money, if any, and property, if any, held by BANK ONE as Trustee; and the
Company for the purpose of more fully and certainly vesting in and confirming
to Norwest Bank Minnesota, N.A. as such successor Trustee said estate,
properties, rights, powers and, at the request of Norwest Bank Minnesota, N.A.,
joins in the execution hereof.
5. Notwithstanding the resignation of BANK ONE, as Trustee under the
Indenture, the Company shall remain obligated under the Indenture to
compensate, reimburse and indemnify BANK ONE in connection with its Trusteeship
under the Indenture.
-2-
<PAGE> 3
6. The Resigning Trustee agrees to pay or indemnify, as applicable,
the Successor Trustee and hereby saves the Successor Trustee harmless from and
against any and all costs, claims, liabilities, losses or damages whatsoever
arising out of the Resigning Trustee's actions or omissions during its tenure
as Trustee under the Indenture (including the reasonable fees, expenses and
disbursements of counsel and other advisors of the Successor Trustee) that the
Successor Trustee might suffer or incur arising out of actual, alleged or
adjudicated actions of omissions of the Resigning Trustee. The Resigning
Trustee will furnish to the Successor Trustee, promptly after receipt, all
papers with respect to any action the outcome of which would make the indemnity
provided for in this paragraph operative. The Resigning Trustee will have the
right to provide its own defense and to select counsel and other advisors for
the Successor Trustee in any such action. The Resigning Trustee and Successor
Trustee hereby agree that the indemnities provided for in this paragraph shall
apply only to claims, demands and actions that are made or brought against the
Successor Trustee on or before the expiration of the period established by a
statute of limitations (the "Statute of Limitations Period") adjudicated by any
final order of a court of competent jurisdiction to be applicable to such
claim, demand or action. The Resigning Trustee and the Successor Trustee
further hereby agree that the indemnities provided for in this paragraph shall
not apply to any claims, demands or actions brought against the Successor
Trustee after the expiration of an applicable Statute of Limitations Period, as
determined by a court of competent jurisdiction in any claim, demand or action
brought against the Successor Trustee.
7. This Instrument may be executed in any number of counterparts, each
of which shall be an original but such counterparts shall together constitute
but one and the same instrument.
8. This Instrument shall be governed by and construed in accordance
with the laws of the State of New York.
-3-
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this Instrument of
Resignation, Appointment and Acceptance to be duly executed and their
respective seals to be affixed hereunto and duly attested all as of the day and
year first above written.
NATIONAL ENERGY GROUP, INC.
By /s/ MILES D. BENDER
--------------------------------
Miles D. Bender
Chairman and Chief Executive Officer
[Seal]
ATTEST:
/s/ PHILIP D. DEVLIN
- -----------------------------------
Philip D. Devlin
Secretary
BANK ONE, NA
as resigning Trustee
By /s/
--------------------------------
Authorized Signer
[Corporate Seal]
ATTEST:
/s/
- -----------------------------------
Authorized Signer
Norwest Bank Minnesota, N.A.
as successor Trustee,
By /s/
--------------------------------
Authorized Signer
[Corporate Seal]
ATTEST:
/s/
- -----------------------------------
Authorized Signer
-4-
<PAGE> 1
EXHIBIT 10.14
[NATIONAL ENERGY GROUP, INC. LOGO]
November 24, 1998
Mr. Miles D. Bender
2809 Milton
Dallas, TX 75205
Re: Separation Agreement
Dear Miles:
National Energy Group, Inc. (the "Company") recognizes the issues you have
raised with respect to the Company's termination of your employment. This
letter confirms the discussions we have held concerning the termination of your
employment from the Company, and the Company's offer and your acceptance of
this proposed settlement and separation agreement (this "Separation Agreement")
on the terms set forth below.
1. Resignation; Termination of Employment. Your employment with the Company
as President and Chief Executive Officer is terminated effective November
24, 1998 (hereinafter the "Separation Date"), at which time your
Executive Employment Agreement effective January 1, 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 November 30, 1998;
and
(b) Payment of accrued and unused vacation leave, if any, through
the Separation Date.
The amounts paid in accordance with subparagraphs (a) and (b) 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.
<PAGE> 2
Mr. Miles D. Bender
November 24, 1998
Page 2
Your paid group health insurance benefits are paid through December 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 December 7, 1998.
3. Settlement Consideration. 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
Settlement Consideration, in addition to the compensation you will
receive pursuant to Paragraph 2:
(a) Settlement Payment. A lump-sum, cash settlement payment of
$395,764.43, 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) Stock Options. 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;
(c) Cellular Telephone; Laptop Computer. The Company shall allow you to
retain your cellular telephone and laptop computer;
(d) Transfer of Vehicle. Concurrent with the execution and delivery to
the Company of both this Separation Agreement and the Reaffirmation
of Separation Agreement described in Paragraph 13 hereof, the
Company shall transfer to you the ownership of that certain 1996
Infinity, VIN No. JNKNGO1D4TM400349; provided that you
<PAGE> 3
Mr. Miles D. Bender
November 24, 1998
Page 3
shall pay all transfer, license, sales and other taxes, fees and/or
assessments payable in connection with such transfer of ownership;
(e) Indemnification for Official Acts. The Company shall, to the
fullest extent permitted under applicable law, defend and indemnify
you and hold you harmless against any costs or expense (including
reasonable attorneys' fees), judgments, fines, losses, claims,
damages and liabilities incurred in connection with, and amounts
paid in settlement of, any claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or
investigative and wherever asserted, brought or filed, arising out
of or pertaining to any acts or omissions or alleged acts or
omissions by you in your capacity as an officer and/or director of
the Company or any of its subsidiaries. The foregoing shall be in
addition to and not in lieu of any indemnification rights you may
currently have by virtue of the Company's certificate of
incorporation, bylaws, resolutions or otherwise, which shall
continue in full force and effect notwithstanding any other
provisions of this Separation Agreement. EXCEPT FOR WILLFUL
CRIMINAL ACTS BY YOU, THE FOREGOING INDEMNIFICATION PROVISIONS
SHALL APPLY NOTWITHSTANDING YOUR SOLE OR CONTRIBUTORY NEGLIGENCE OR
STRICT LIABILITY; and
(f) Directors' and Officers' Liability Insurance. To the extent the
Company maintains any policy of insurance applicable to directors
and officers of the Company following the date of execution of this
Separation Agreement, it shall arrange for your continued coverage
under such policy for so long as you remain a director of the
Company.
4. Return of Property. Whether or not you accept the terms of this
Separation Agreement, except as provided in Paragraph 3, you must return
to the Company any and all items of its property, including without
limitation: office keys, security access cards, 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 December
2, 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-
<PAGE> 4
Mr. Miles D. Bender
November 24, 1998
Page 4
proprietary information, such as reading files, work papers,
calculations, flowcharts and other similar information reflecting the
performance of your job duties and responsibilities.
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
Settlement Consideration 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
<PAGE> 5
Mr. Miles D. Bender
November 24, 1998
Page 5
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 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,
the termination of your employment relationship with the Company,
or your service as an officer or director of the Company or any of
its subsidiaries.
(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 or your service
<PAGE> 6
Mr. Miles D. Bender
November 24, 1998
Page 6
as an officer or director of the Company or any of its
subsidiaries. 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 include: (i) the executory
obligations of either party yet to be performed, (ii) any rights,
claims or obligations which may accrue as between the parties after
the date of this Separation Agreement, or (iii) any rights, claim
or obligation to defend, indemnify (and any related rights by
virtue of Company insurance arrangements) in favor of you and any
Employee Released Party in connection with your service as an
officer and/or director of the Company or any of its subsidiaries.
(d) The parties acknowledge that the general release provisions of
subsection (a) of this paragraph and the obligations of Paragraph 7
and Paragraph 8 of this Separation Agreement are contingent upon
and undertaken by you in exchange for the Settlement Consideration
described in Paragraph 3. Accordingly, notwithstanding anything
herein to the contrary, if you are required, for any reason, to
return any material portion of the Settlement Consideration
described in Paragraph 3, then your obligations under the foregoing
General Release provision and under the provisions of Paragraph 7
and Paragraph 8 shall be deemed, at your option, null and void, and
upon your return of such material portion of the Settlement
Consideration, you shall be entitled to assert any rights and
claims you may have against the Company, including the Employment
Agreement, as if this Separation Agreement had never been executed
and delivered.
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
<PAGE> 7
Mr. Miles D. Bender
November 24, 1998
Page 7
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; provided, however, that nothing
herein shall limit your right to provide full and truthful testimony as
required by subpoena or other legal process. 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 Settlement Consideration 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 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; provided, however, that
nothing herein shall limit the Company Released Parties' right to provide
full and truthful testimony as required by subpoena or other legal
process. Any material breach of this obligation will, in addition to any
other remedy you may have at law or in equity, relieve you of the duties
and obligations provided for in this Separation Agreement.
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 one (1) year 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
<PAGE> 8
Mr. Miles D. Bender
November 24, 1998
Page 8
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. This Separation Agreement is
entered into for the purpose of resolving and settling any and all
disputed issues between you and the Company, including without
limitation, issues related to the Employment Agreement. Accordingly, 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, including potential
litigation; 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, and (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.
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. Subject to Paragraph 6(d), 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 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.
<PAGE> 9
Mr. Miles D. Bender
November 24, 1998
Page 9
12. Expiration of Offer. The Company's offer of the proposed Settlement
Consideration will expire at midnight on the 21st day (the "Expiration of
Offer") following the date of this correspondence 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 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-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 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
<PAGE> 10
Mr. Miles D. Bender
November 24, 1998
Page 10
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 Settlement Consideration 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
24th DAY OF NOVEMBER, 1998.
By: /s/ BOB G. ALEXANDER /s/ MILES D. BENDER
---------------------------- -------------------------------
Name: Bob G. Alexander Name: Miles D. Bender,
Title: President and an Individual
Chief Executive Officer
<PAGE> 11
EXHIBIT "A"
REAFFIRMATION OF SEPARATION AGREEMENT
I, Miles D. Bender, acknowledge that I executed that certain
separation agreement (the "Separation Agreement") with National Energy Group,
Inc. (the "Company") and that during the seven (7) day period immediately
following my execution of the Separation Agreement, I had the right to revoke
the Separation Agreement at any time. By executing the Separation Agreement, I
also understand that I agreed that I would receive no benefits thereunder
unless and until I executed this reaffirmation agreement (this
"Reaffirmation").
By executing this Reaffirmation, I now affirm and attest that I (a)
have not heretofore, or contemporaneously with the execution of this
Reaffirmation, revoked, or attempted to revoke the Separation Agreement, either
by notice to the Company, or otherwise, and (b) am now, by virtue of my
execution of this Reaffirmation, within seven (7) days after the execution of
the Separation Agreement, fully bound by all of the terms and conditions of the
Separation Agreement.
EXECUTED this 2nd day of December, 1998.
/s/ MILES D. BENDER
------------------------------------
Miles D. Bender,
an Individual
THE STATE OF TEXAS )
)
COUNTY OF DALLAS )
BEFORE ME, the undersigned, a Notary Public, on this day personally
appeared Miles D. Bender, known to me to be the person whose name is subscribed
to the foregoing instrument and acknowledged to me that he executed the same
for the purposes and consideration therein expressed.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this 2nd day of December, 1998.
/s/ MARILYN J. GRAHAM
------------------------------------
[SEAL] Notary Public, State of Texas
<PAGE> 1
EXHIBIT 10.20
[NATIONAL ENERGY GROUP, INC. LOGO]
May 19, 1998
VIA HAND DELIVERY
Mr. Gene W. Anderson
5990 Lindenshire, #130
Dallas, TX 75230
Re: Separation Agreement
Dear Gene:
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 termination 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-Land is terminated effective May 19, 1998 (hereinafter
the "Separation Date"), at which time your Employment Agreement dated
March 20, 1997 (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 May 19, 1998, less all
legal deductions;
(b) Payment of accrued and unused vacation leave, if any, through the
Separation Date, less all legally required deductions; 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
$4,038.50.
<PAGE> 2
Mr. Gene W. Anderson
May 19, 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 May 19, 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 May 26, 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
$26,250.00, which is equivalent to your base salary for three (3)
months, 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) The Company shall continue to pay your group health insurance
benefits through May 31, 1998; and
<PAGE> 3
Mr. Gene W. Anderson
May 19, 1998
Page 3
(ii) For a period of ninety (90) days following your
Separation Date through August 19, 1998, you shall have the right
to exercise Stock Options of the Company granted to you which have
vested as of your Separation Date.
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 May 26,
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.
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
<PAGE> 4
Mr. Gene W. Anderson
May 19, 1998
Page 4
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 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
<PAGE> 5
Mr. Gene W. Anderson
May 19, 1998
Page 5
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 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
<PAGE> 6
Mr. Gene W. Anderson
May 19, 1998
Page 6
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 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.
<PAGE> 7
Mr. Gene W. Anderson
May 19, 1998
Page 7
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
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 June 9, 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
<PAGE> 8
Mr. Gene W. Anderson
May 19, 1998
Page 8
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-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
<PAGE> 9
Mr. Gene W. Anderson
May 19, 1998
Page 9
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
9TH DAY OF JUNE, 1998.
By: /s/ CHUCK L. ELSEY /s/ GENE W. ANDERSON
------------------------------ ----------------------------
Name: Chuck L. Elsey Name: Gene W. Anderson,
Title: Executive Vice President an Individual
and Chief Operating Officer
<PAGE> 10
EXHIBIT "A"
REAFFIRMATION OF SEPARATION AGREEMENT
I, Gene W. Anderson, acknowledge that I executed that certain
separation agreement (the "Separation Agreement") with National Energy Group,
Inc. (the "Company") and that during the seven (7) day period immediately
following my execution of the Separation Agreement, I had the right to revoke
the Separation Agreement at any time. By executing the Separation Agreement, I
also understand that I agreed that I would receive no benefits thereunder
unless and until I executed this reaffirmation agreement (this
"Reaffirmation").
By executing this Reaffirmation, I now affirm and attest that I (a)
have not heretofore, or contemporaneously with the execution of this
Reaffirmation, revoked, or attempted to revoke the Separation Agreement, either
by notice to the Company, or otherwise, and (b) am now, by virtue of my
execution of this Reaffirmation, within seven (7) days after the execution of
the Separation Agreement, fully bound by all of the terms and conditions of the
Separation Agreement.
EXECUTED this 16 day of June, 1998.
/s/ GENE W. ANDERSON
---------------------------
Gene W. Anderson,
an Individual
THE STATE OF TEXAS )
)
COUNTY OF DALLAS )
BEFORE ME, the undersigned, a Notary Public, on this day personally
appeared Gene W. Anderson, known to me to be the person whose name is
subscribed to the foregoing instrument and acknowledged to me that he executed
the same for the purposes and consideration therein expressed.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this 16th day of June, 1998.
/s/ MARILYN J. GRAHAM
[SEAL] ------------------------------------
Notary Public, State of Texas
<PAGE> 1
EXHIBIT 10.30
SEVERANCE POLICY
The Company Severance Plan ("Plan") shall act to provide severance pay
to eligible participants as described below:
1. EFFECTIVE DATE: November 23, 1998.
2. ELIGIBLE PARTICIPANT:
(a) all full-time employees as of the Effective Date, and
(b) all new, full-time employees employed after the Effective Date,
subject to limitations as may be determined by the President and CEO
as conditions to such new employee's employment with the Company.
3. TERM OF PLAN: The Plan shall be in effect for a period of two (2) years,
commencing November 1, 1998 and ending October 31, 2000.
4. CLASSIFICATIONS: Each Eligible Participant shall be classified and
entitled to a Severance Pay Benefit as follows:
<TABLE>
<CAPTION>
Classification Severance Pay Benefit
-------------- ---------------------
<S> <C>
A eighteen (18) months base pay
B eighteen (18) months base pay
C eighteen (18) months base pay
D twelve (12) months base pay
E nine (9) months base pay
F six (6) months base pay
</TABLE>
5. SEVERANCE PAYMENT: Each Eligible Participant terminated by the Company
for any reason other than "cause" (as such term is defined below) shall be
entitled to the Severance Pay Benefit described above, payable in equal
monthly installments commencing on the first (1st) day of the month
immediately following the date of such Eligible Participant's termination
by the Company; provided that in the event the Company's 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.
For purposes of this Severance Policy, termination for "cause" shall
include:
(a) willful breach or habitual neglect of duties and responsibilities;
(b) conviction of a felony offense during the Term of Plan;
(c) habitual or serious violation of the Company's Personnel Policies and
Procedures; or
(d) any activity that acts to impugn the integrity of the Company, its
officers and directors, or compromises the confidentiality of the
Company's business or business relationships.
6. SPECIAL PROVISIONS: The Severance Pay Benefit described above SHALL BE
SUBJECT TO THE FOLLOWING:
(a) each Eligible Participant shall, upon termination and prior to
receipt of any Severance Pay Benefit, execute a Separation Agreement
with the Company which shall include the following provisions:
(i) a release of all claims against the Company;
(ii) a confidentiality provision; and
(iii) 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.
(b) Severance Pay Benefits provided under this Plan shall automatically
terminate as to any Eligible Participant at such time the Eligible
Participant shall accept the same or substantially similar employment
with any other employer.
<PAGE> 2
EXHIBIT 10.25
[NATIONAL ENERGY GROUP, INC. LOGO]
October 28, 1998
Mr. C.L. Elsey
2200 Sheffield Court
Flower Mound, TX 75028
Re: Notice of Termination of Employment
Dear Mr. Elsey:
Your employment with National Energy Group, Inc. (the "Company") is
subject to that certain Offer of Employment between you and the Company dated
February 25, 1998 (the "Offer of Employment") which provides that such
employment is "At Will" as may be determined by the Company and in accordance
with the laws of the State of Texas. Pursuant to Paragraph 5(c) of the Offer of
Employment, if the Company terminates you during the first year of your
employment for any reason other than cause, the Company is obligated to pay you
six (6) months salary ($100,000.00) plus 85% of your COBRA insurance premiums
for a period of six (6) months ($2,999.06).
This Notice shall act to advise you that the Company is terminating
your employment effective October 30, 1998, at which time your Executive
Employment Agreement described in Paragraph 5(b) of the Offer of Employment
shall also terminate.
Your insurance with the Company shall be paid through October 31, 1998
and you shall be eligible for a COBRA insurance election effective November 1,
1998. It shall be your responsibility to fill out the applicable COBRA
enrollment form and make payment each month to National Energy Group, Inc. and
mail to the COBRA representative, EPOCH Group, P.O. Box 12170, Overland Park,
Kansas 66282-2170. A copy of the COBRA enrollment form is being supplied to you
with this Notice, and you are advised that your failure to properly complete
the forms and timely make the required monthly payment may result in
interruption and/or suspension of your benefits. Ms. Christy Cansler will
forward to you under separate cover another notice and copy of your COBRA
enrollment form.
Concurrent with your execution and delivery of this Notice in the
space provided below, the Company shall deliver to you a check in the amount of
$110,691.36 (less applicable taxes, legal and other deductions previously
authorized by you) which shall include the payments described in Paragraph 1
above, plus ten (10) days of accrued vacation ($7,692.30). Additionally, the
Company shall pay the cost and expense of moving your personal furniture from
your office at the Company to your residence or other location you may
designate in Dallas, Texas.
You hereby acknowledge and agree as follows:
1. You have received notice that your employment with the
Company is terminated effective October 30, 1998.
<PAGE> 3
Mr. C.L. Elsey
October 28, 1998
Page 2
2. The payments described in this Notice have been delivered to you
and constitute full and complete payment of all monies owed to
you pursuant to the terms of the Offer of Employment;
3. All expenses incurred by you on behalf of the Company in
connection with your employment have been reimbursed to you;
4. The Bonus, the Executive Employment Agreement, the shares of
Common Stock of the Company and the Incentive Stock Options
described in Paragraphs 5(a), (b), (d) and (e) of the Offer of
Employment, respectively, are terminated effective October 30,
1998;
5. Notwithstanding the termination of your employment with the
Company, the Confidentiality provision contained in Paragraph 6
of the Offer of Employment is a continuing obligation upon you
as provided therein;
6. You have returned all Company property (keys, credit cards,
telephones, automobiles, etc.) to the Company, and in the event
you shall subsequently be in possession of additional property
belonging to the Company, you will immediately return it or make
arrangements for its return to the Company; and
7. There are no other agreements, written or oral, by and between
you and the Company for which you are due or may be due
additional compensation, and that the Offer of Employment and
Executive Employment Agreement were and are the only such
agreements for which the Company incurred any obligation to you.
Sincerely,
/s/ MILES D. BENDER
Miles D. Bender
Chairman, President and CEO
Acknowledged and Agreed to
this 28th day of October, 1998
/s/ C. L. ELSEY
- ----------------------------------
C.L. Elsey
an individual
PDD:mjg
Enclosures: COBRA Enrollment Forms
<PAGE> 4
EXHIBIT 10.14
[NATIONAL ENERGY GROUP, INC. LOGO]
November 24, 1998
Mr. Miles D. Bender
2809 Milton
Dallas, TX 75205
Re: Separation Agreement
Dear Miles:
National Energy Group, Inc. (the "Company") recognizes the issues you have
raised with respect to the Company's termination of your employment. This
letter confirms the discussions we have held concerning the termination of your
employment from the Company, and the Company's offer and your acceptance of
this proposed settlement and separation agreement (this "Separation Agreement")
on the terms set forth below.
1. Resignation; Termination of Employment. Your employment with the Company
as President and Chief Executive Officer is terminated effective November
24, 1998 (hereinafter the "Separation Date"), at which time your
Executive Employment Agreement effective January 1, 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 November 30, 1998;
and
(b) Payment of accrued and unused vacation leave, if any, through
the Separation Date.
The amounts paid in accordance with subparagraphs (a) and (b) 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.
<PAGE> 5
Mr. Miles D. Bender
November 24, 1998
Page 2
Your paid group health insurance benefits are paid through December 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 December 7, 1998.
3. Settlement Consideration. 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
Settlement Consideration, in addition to the compensation you will
receive pursuant to Paragraph 2:
(a) Settlement Payment. A lump-sum, cash settlement payment of
$395,764.43, 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) Stock Options. 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;
(c) Cellular Telephone; Laptop Computer. The Company shall allow you to
retain your cellular telephone and laptop computer;
(d) Transfer of Vehicle. Concurrent with the execution and delivery to
the Company of both this Separation Agreement and the Reaffirmation
of Separation Agreement described in Paragraph 13 hereof, the
Company shall transfer to you the ownership of that certain 1996
Infinity, VIN No. JNKNGO1D4TM400349; provided that you
<PAGE> 6
Mr. Miles D. Bender
November 24, 1998
Page 3
shall pay all transfer, license, sales and other taxes, fees and/or
assessments payable in connection with such transfer of ownership;
(e) Indemnification for Official Acts. The Company shall, to the
fullest extent permitted under applicable law, defend and indemnify
you and hold you harmless against any costs or expense (including
reasonable attorneys' fees), judgments, fines, losses, claims,
damages and liabilities incurred in connection with, and amounts
paid in settlement of, any claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or
investigative and wherever asserted, brought or filed, arising out
of or pertaining to any acts or omissions or alleged acts or
omissions by you in your capacity as an officer and/or director of
the Company or any of its subsidiaries. The foregoing shall be in
addition to and not in lieu of any indemnification rights you may
currently have by virtue of the Company's certificate of
incorporation, bylaws, resolutions or otherwise, which shall
continue in full force and effect notwithstanding any other
provisions of this Separation Agreement. EXCEPT FOR WILLFUL
CRIMINAL ACTS BY YOU, THE FOREGOING INDEMNIFICATION PROVISIONS
SHALL APPLY NOTWITHSTANDING YOUR SOLE OR CONTRIBUTORY NEGLIGENCE OR
STRICT LIABILITY; and
(f) Directors' and Officers' Liability Insurance. To the extent the
Company maintains any policy of insurance applicable to directors
and officers of the Company following the date of execution of this
Separation Agreement, it shall arrange for your continued coverage
under such policy for so long as you remain a director of the
Company.
4. Return of Property. Whether or not you accept the terms of this
Separation Agreement, except as provided in Paragraph 3, you must return
to the Company any and all items of its property, including without
limitation: office keys, security access cards, 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 December
2, 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-
<PAGE> 7
Mr. Miles D. Bender
November 24, 1998
Page 4
proprietary information, such as reading files, work papers,
calculations, flowcharts and other similar information reflecting the
performance of your job duties and responsibilities.
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
Settlement Consideration 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
<PAGE> 8
Mr. Miles D. Bender
November 24, 1998
Page 5
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 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,
the termination of your employment relationship with the Company,
or your service as an officer or director of the Company or any of
its subsidiaries.
(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 or your service
<PAGE> 9
Mr. Miles D. Bender
November 24, 1998
Page 6
as an officer or director of the Company or any of its
subsidiaries. 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 include: (i) the executory
obligations of either party yet to be performed, (ii) any rights,
claims or obligations which may accrue as between the parties after
the date of this Separation Agreement, or (iii) any rights, claim
or obligation to defend, indemnify (and any related rights by
virtue of Company insurance arrangements) in favor of you and any
Employee Released Party in connection with your service as an
officer and/or director of the Company or any of its subsidiaries.
(d) The parties acknowledge that the general release provisions of
subsection (a) of this paragraph and the obligations of Paragraph 7
and Paragraph 8 of this Separation Agreement are contingent upon
and undertaken by you in exchange for the Settlement Consideration
described in Paragraph 3. Accordingly, notwithstanding anything
herein to the contrary, if you are required, for any reason, to
return any material portion of the Settlement Consideration
described in Paragraph 3, then your obligations under the foregoing
General Release provision and under the provisions of Paragraph 7
and Paragraph 8 shall be deemed, at your option, null and void, and
upon your return of such material portion of the Settlement
Consideration, you shall be entitled to assert any rights and
claims you may have against the Company, including the Employment
Agreement, as if this Separation Agreement had never been executed
and delivered.
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
<PAGE> 10
Mr. Miles D. Bender
November 24, 1998
Page 7
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; provided, however, that nothing
herein shall limit your right to provide full and truthful testimony as
required by subpoena or other legal process. 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 Settlement Consideration 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 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; provided, however, that
nothing herein shall limit the Company Released Parties' right to provide
full and truthful testimony as required by subpoena or other legal
process. Any material breach of this obligation will, in addition to any
other remedy you may have at law or in equity, relieve you of the duties
and obligations provided for in this Separation Agreement.
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 one (1) year 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
<PAGE> 11
Mr. Miles D. Bender
November 24, 1998
Page 8
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. This Separation Agreement is
entered into for the purpose of resolving and settling any and all
disputed issues between you and the Company, including without
limitation, issues related to the Employment Agreement. Accordingly, 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, including potential
litigation; 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, and (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.
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. Subject to Paragraph 6(d), 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 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.
<PAGE> 12
Mr. Miles D. Bender
November 24, 1998
Page 9
12. Expiration of Offer. The Company's offer of the proposed Settlement
Consideration will expire at midnight on the 21st day (the "Expiration of
Offer") following the date of this correspondence 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 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-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 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
<PAGE> 13
Mr. Miles D. Bender
November 24, 1998
Page 10
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 Settlement Consideration 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
24th DAY OF NOVEMBER, 1998.
By: /s/ BOB G. ALEXANDER /s/ MILES D. BENDER
---------------------------- -------------------------------
Name: Bob G. Alexander Name: Miles D. Bender,
Title: President and an Individual
Chief Executive Officer
<PAGE> 14
EXHIBIT "A"
REAFFIRMATION OF SEPARATION AGREEMENT
I, Miles D. Bender, acknowledge that I executed that certain
separation agreement (the "Separation Agreement") with National Energy Group,
Inc. (the "Company") and that during the seven (7) day period immediately
following my execution of the Separation Agreement, I had the right to revoke
the Separation Agreement at any time. By executing the Separation Agreement, I
also understand that I agreed that I would receive no benefits thereunder
unless and until I executed this reaffirmation agreement (this
"Reaffirmation").
By executing this Reaffirmation, I now affirm and attest that I (a)
have not heretofore, or contemporaneously with the execution of this
Reaffirmation, revoked, or attempted to revoke the Separation Agreement, either
by notice to the Company, or otherwise, and (b) am now, by virtue of my
execution of this Reaffirmation, within seven (7) days after the execution of
the Separation Agreement, fully bound by all of the terms and conditions of the
Separation Agreement.
EXECUTED this 2nd day of December, 1998.
/s/ MILES D. BENDER
------------------------------------
Miles D. Bender,
an Individual
THE STATE OF TEXAS )
)
COUNTY OF DALLAS )
BEFORE ME, the undersigned, a Notary Public, on this day personally
appeared Miles D. Bender, known to me to be the person whose name is subscribed
to the foregoing instrument and acknowledged to me that he executed the same
for the purposes and consideration therein expressed.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this 2nd day of December, 1998.
/s/ MARILYN J. GRAHAM
------------------------------------
[SEAL] Notary Public, State of Texas
<PAGE> 15
EXHIBIT 10.22
[NATIONAL ENERGY GROUP, INC. LOGO]
May 18, 1998
VIA HAND DELIVERY
Mr. C. Dewayne Cravens
3629 Cross Bend Road
Plano, TX 75023
Re: Separation Agreement
Dear Dewayne:
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 termination 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-Engineering is terminated effective May 18, 1998
(hereinafter the "Separation Date"), at which time your Employment
Agreement dated August 25, 1997 (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 May 18, 1998, less all
legal deductions;
(b) Payment of accrued and unused vacation leave, if any, through the
Separation Date, less all legally required deductions; and
(c) Payment of two (2) weeks of your base salary in the amount of
$4,231.00.
<PAGE> 16
Mr. C. Dewayne Cravens
May 18, 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 May 18, 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 May 25, 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
$27,500.00, which is equivalent to your base salary for three (3)
months, payable concurrently with the execution and delivery of
both this Separation Agreement and the Reaffirmation of Separation
Agreement described in Paragraph 13 hereof.
(b) Additional Benefits. The Company shall continue to pay your group
health benefits through May 31, 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
<PAGE> 17
Mr. C. Dewayne Cravens
May 18, 1998
Page 3
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 May 25, 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.
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,
<PAGE> 18
Mr. C. Dewayne Cravens
May 18, 1998
Page 4
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 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
<PAGE> 19
Mr. C. Dewayne Cravens
May 18, 1998
Page 5
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 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
<PAGE> 20
Mr. C. Dewayne Cravens
May 18, 1998
Page 6
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 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
<PAGE> 21
Mr. C. Dewayne Cravens
May 18, 1998
Page 7
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
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 June 8, 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.
<PAGE> 22
Mr. C. Dewayne Cravens
May 18, 1998
Page 8
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-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
<PAGE> 23
Mr. C. Dewayne Cravens
May 18, 1998
Page 9
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
9TH DAY OF JUNE, 1998.
By: /s/ CHUCK L. ELSEY /s/ C. DEWAYNE CRAVENS
------------------------------ ---------------------------------
Name: Chuck L. Elsey Name: C. Dewayne Cravens,
Title: Executive Vice President an Individual
and Chief Operating Officer
<PAGE> 24
EXHIBIT "A"
REAFFIRMATION OF SEPARATION AGREEMENT
I, C. Dewayne Cravens, acknowledge that I executed that certain
separation agreement (the "Separation Agreement") with National Energy Group,
Inc. (the "Company") and that during the seven (7) day period immediately
following my execution of the Separation Agreement, I had the right to revoke
the Separation Agreement at any time. By executing the Separation Agreement, I
also understand that I agreed that I would receive no benefits thereunder
unless and until I executed this reaffirmation agreement (this
"Reaffirmation").
By executing this Reaffirmation, I now affirm and attest that I (a)
have not heretofore, or contemporaneously with the execution of this
Reaffirmation, revoked, or attempted to revoke the Separation Agreement, either
by notice to the Company, or otherwise, and (b) am now, by virtue of my
execution of this Reaffirmation, within seven (7) days after the execution of
the Separation Agreement, fully bound by all of the terms and conditions of the
Separation Agreement.
EXECUTED this 16th day of June, 1998.
/s/ C. DEWAYNE CRAVENS
------------------------------------
C. Dewayne Cravens,
an Individual
THE STATE OF TEXAS )
)
COUNTY OF DALLAS )
BEFORE ME, the undersigned, a Notary Public, on this day personally
appeared C. Dewayne Cravens, known to me to be the person whose name is
subscribed to the foregoing instrument and acknowledged to me that he executed
the same for the purposes and consideration therein expressed.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this 16th day of June, 1998.
/s/ MARILYN J. GRAHAM
------------------------------------
[SEAL] Notary Public, State of Texas
<PAGE> 25
EXHIBIT 10.21
EXECUTIVE EMPLOYMENT AGREEMENT
This Executive Employment Agreement (the "Agreement") is made the 25th
day of August, 1997, by and between National Energy Group, Inc., a Delaware
corporation acting by and through its hereunto duly authorized officer (the
("Company"), and C. Dewayne Cravens (the ("Executive").
WHEREAS, the Executive is presently in the employ of the Company in
the capacity of Vice President of Engineering and Production is willing to
provide certain employment assurances to the Executive in the event of a Change
of Control (as defined below) of the Company as incentive and inducement for
the Executive to continue in such employment in his present capacity after a
Change of Control; and
WHEREAS, in consideration of such employment assurances, the Executive
is willing to remain in the employ of the Company in the capacity of Vice
President of Engineering and Production after a Change of Control of the
Company.
NOW, THEREFORE, in consideration of the premises and the mutual terms
and conditions hereof, the Company and the Executive hereby agree as follows:
1. Employment. In consideration of the benefits hereinafter
specified, the Executive hereby agrees to continue his employment with the
Company in the capacity of Vice President of Engineering and Production 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 Vice President of Engineering
and Production and shall serve with the necessary power and authority
commensurate with such position. If the Company removes the Executive from the
office of the Vice President of Engineering and Production of the Company after
a Change of Control or limits, restricts or reassigns his authority and
responsibility after a Change of Control so as to be less significant than, or
not comparable to, that to which he held immediately preceding such Change of
Control in his capacity as Vice President of Engineering and Production without
his prior mutual consent, the Executive shall be entitled to resign for good
reason and receive the Severance Benefits set
<PAGE> 26
forth in this Agreement.
4. Compensation. In consideration for the services to be rendered by
the Executive to the Company and/or its subsidiaries, the Company shall pay to
the Executive at least the gross cash compensation and shall award to the
Executive at least the bonuses as set forth below:
<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
effective date of a Change of Control annual base salary in effect immediately bonuses paid to the Executive for
prior to the Change in Control and of each of the three fiscal years
the Executive's annual base salary for before the Change in Control
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
effective date of a Change of Control annual base salary on the date that is bonuses paid to the Executive for
one year after the Change in Control the three immediately preceding
and of the Executive's annual base fiscal years
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
date of a Change of Control annual base salary on the date that is bonuses paid to the Executive for
two years after the Change in Control the three immediately preceding
and of the Executive's annual base fiscal years
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.
2
<PAGE> 27
The Company shall not terminate nor amend such plans to the detriment
of the Executive.
(b) To the extent that the Company has provided the Officer
with an automobile, club memberships, association and trade
memberships and other memberships prior to the Change of Control, the
Company shall continue to provide the Officer with such items, of a
comparable nature, following a Change of Control. The Company shall
pay the expenses of such automobile, memberships and subscriptions.
(c) The Executive shall be reimbursed for any business
expenses reasonably incurred in carrying out his duties, functions and
responsibilities upon presentation of expense reports to the Company.
6. Term. This Agreement shall have a term of three (3) years
commencing on the effective date of a Change of Control and shall be
automatically extended on the 9th day of each and every calendar month during
the term of this Agreement for an additional calendar month so that at the
beginning of each and every month during the term of this Agreement there shall
be a remaining term of three (3) years (but in no event beyond the time the
Executive reaches age 65 unless and until the Company gives written notice to
the Executive that the term of this Agreement shall not be further so extended,
in which case 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
Abase 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
Abase 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> 28
(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> 29
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 Vice
President of Engineering and Production of the Company; or
(b) If the Executive shall have been convicted of any felony
offense during the term of this Agreement.
The discharge of the Executive by the Company when none of the foregoing
conditions exist shall be deemed to be a discharge without cause.
11. Resignation for Good Reason. For the purposes of this
Agreement, the Executive shall have resigned for good reason if any one of the
following conditions existed at the time of his resignation:
(a) If the Company shall have assigned to the Executive
authority and responsibilities less significant than, or not
comparable to, that which he had in his capacity as Vice President of
Engineering and Production 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> 30
(c) The Company shall have taken any actions having the
purpose or intent and the effect of inducing the Executive to resign,
such as failing to provide the Executive with all personnel benefits
which are otherwise generally provided to executive officers of the
Company or reasonably necessary or appropriate for the performance by
the Executive of his duties as Vice President of Engineering and
Production 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> 31
(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 August
13, 1997 (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 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> 32
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/ C. DEWAYNE CRAVENS
---------------------------------
C. DEWAYNE CRAVENS
3629 Cross Bend Road
Plano, TX 75023-5826
8
<PAGE> 1
EXHIBIT 10.22
[NATIONAL ENERGY GROUP, INC. LOGO]
May 18, 1998
VIA HAND DELIVERY
Mr. C. Dewayne Cravens
3629 Cross Bend Road
Plano, TX 75023
Re: Separation Agreement
Dear Dewayne:
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 termination 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-Engineering is terminated effective May 18, 1998
(hereinafter the "Separation Date"), at which time your Employment
Agreement dated August 25, 1997 (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 May 18, 1998, less all
legal deductions;
(b) Payment of accrued and unused vacation leave, if any, through the
Separation Date, less all legally required deductions; and
(c) Payment of two (2) weeks of your base salary in the amount of
$4,231.00.
<PAGE> 2
Mr. C. Dewayne Cravens
May 18, 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 May 18, 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 May 25, 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
$27,500.00, which is equivalent to your base salary for three (3)
months, payable concurrently with the execution and delivery of
both this Separation Agreement and the Reaffirmation of Separation
Agreement described in Paragraph 13 hereof.
(b) Additional Benefits. The Company shall continue to pay your group
health benefits through May 31, 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
<PAGE> 3
Mr. C. Dewayne Cravens
May 18, 1998
Page 3
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 May 25, 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.
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,
<PAGE> 4
Mr. C. Dewayne Cravens
May 18, 1998
Page 4
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 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
<PAGE> 5
Mr. C. Dewayne Cravens
May 18, 1998
Page 5
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 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
<PAGE> 6
Mr. C. Dewayne Cravens
May 18, 1998
Page 6
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 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
<PAGE> 7
Mr. C. Dewayne Cravens
May 18, 1998
Page 7
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
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 June 8, 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.
<PAGE> 8
Mr. C. Dewayne Cravens
May 18, 1998
Page 8
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-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
<PAGE> 9
Mr. C. Dewayne Cravens
May 18, 1998
Page 9
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
9TH DAY OF JUNE, 1998.
By: /s/ CHUCK L. ELSEY /s/ C. DEWAYNE CRAVENS
------------------------------ ---------------------------------
Name: Chuck L. Elsey Name: C. Dewayne Cravens,
Title: Executive Vice President an Individual
and Chief Operating Officer
<PAGE> 10
EXHIBIT "A"
REAFFIRMATION OF SEPARATION AGREEMENT
I, C. Dewayne Cravens, acknowledge that I executed that certain
separation agreement (the "Separation Agreement") with National Energy Group,
Inc. (the "Company") and that during the seven (7) day period immediately
following my execution of the Separation Agreement, I had the right to revoke
the Separation Agreement at any time. By executing the Separation Agreement, I
also understand that I agreed that I would receive no benefits thereunder
unless and until I executed this reaffirmation agreement (this
"Reaffirmation").
By executing this Reaffirmation, I now affirm and attest that I (a)
have not heretofore, or contemporaneously with the execution of this
Reaffirmation, revoked, or attempted to revoke the Separation Agreement, either
by notice to the Company, or otherwise, and (b) am now, by virtue of my
execution of this Reaffirmation, within seven (7) days after the execution of
the Separation Agreement, fully bound by all of the terms and conditions of the
Separation Agreement.
EXECUTED this 16th day of June, 1998.
/s/ C. DEWAYNE CRAVENS
------------------------------------
C. Dewayne Cravens,
an Individual
THE STATE OF TEXAS )
)
COUNTY OF DALLAS )
BEFORE ME, the undersigned, a Notary Public, on this day personally
appeared C. Dewayne Cravens, known to me to be the person whose name is
subscribed to the foregoing instrument and acknowledged to me that he executed
the same for the purposes and consideration therein expressed.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this 16th day of June, 1998.
/s/ MARILYN J. GRAHAM
------------------------------------
[SEAL] Notary Public, State of Texas
<PAGE> 1
EXHIBIT 10.25
[NATIONAL ENERGY GROUP, INC. LOGO]
October 28, 1998
Mr. C.L. Elsey
2200 Sheffield Court
Flower Mound, TX 75028
Re: Notice of Termination of Employment
Dear Mr. Elsey:
Your employment with National Energy Group, Inc. (the "Company") is
subject to that certain Offer of Employment between you and the Company dated
February 25, 1998 (the "Offer of Employment") which provides that such
employment is "At Will" as may be determined by the Company and in accordance
with the laws of the State of Texas. Pursuant to Paragraph 5(c) of the Offer of
Employment, if the Company terminates you during the first year of your
employment for any reason other than cause, the Company is obligated to pay you
six (6) months salary ($100,000.00) plus 85% of your COBRA insurance premiums
for a period of six (6) months ($2,999.06).
This Notice shall act to advise you that the Company is terminating
your employment effective October 30, 1998, at which time your Executive
Employment Agreement described in Paragraph 5(b) of the Offer of Employment
shall also terminate.
Your insurance with the Company shall be paid through October 31, 1998
and you shall be eligible for a COBRA insurance election effective November 1,
1998. It shall be your responsibility to fill out the applicable COBRA
enrollment form and make payment each month to National Energy Group, Inc. and
mail to the COBRA representative, EPOCH Group, P.O. Box 12170, Overland Park,
Kansas 66282-2170. A copy of the COBRA enrollment form is being supplied to you
with this Notice, and you are advised that your failure to properly complete
the forms and timely make the required monthly payment may result in
interruption and/or suspension of your benefits. Ms. Christy Cansler will
forward to you under separate cover another notice and copy of your COBRA
enrollment form.
Concurrent with your execution and delivery of this Notice in the
space provided below, the Company shall deliver to you a check in the amount of
$110,691.36 (less applicable taxes, legal and other deductions previously
authorized by you) which shall include the payments described in Paragraph 1
above, plus ten (10) days of accrued vacation ($7,692.30). Additionally, the
Company shall pay the cost and expense of moving your personal furniture from
your office at the Company to your residence or other location you may
designate in Dallas, Texas.
You hereby acknowledge and agree as follows:
1. You have received notice that your employment with the
Company is terminated effective October 30, 1998.
<PAGE> 2
Mr. C.L. Elsey
October 28, 1998
Page 2
2. The payments described in this Notice have been delivered to you
and constitute full and complete payment of all monies owed to
you pursuant to the terms of the Offer of Employment;
3. All expenses incurred by you on behalf of the Company in
connection with your employment have been reimbursed to you;
4. The Bonus, the Executive Employment Agreement, the shares of
Common Stock of the Company and the Incentive Stock Options
described in Paragraphs 5(a), (b), (d) and (e) of the Offer of
Employment, respectively, are terminated effective October 30,
1998;
5. Notwithstanding the termination of your employment with the
Company, the Confidentiality provision contained in Paragraph 6
of the Offer of Employment is a continuing obligation upon you
as provided therein;
6. You have returned all Company property (keys, credit cards,
telephones, automobiles, etc.) to the Company, and in the event
you shall subsequently be in possession of additional property
belonging to the Company, you will immediately return it or make
arrangements for its return to the Company; and
7. There are no other agreements, written or oral, by and between
you and the Company for which you are due or may be due
additional compensation, and that the Offer of Employment and
Executive Employment Agreement were and are the only such
agreements for which the Company incurred any obligation to you.
Sincerely,
/s/ MILES D. BENDER
Miles D. Bender
Chairman, President and CEO
Acknowledged and Agreed to
this 28th day of October, 1998
/s/ C. L. ELSEY
- ----------------------------------
C.L. Elsey
an individual
PDD:mjg
Enclosures: COBRA Enrollment Forms
<PAGE> 1
EXHIBIT 10.30
SEVERANCE POLICY
The Company Severance Plan ("Plan") shall act to provide severance pay
to eligible participants as described below:
1. EFFECTIVE DATE: November 23, 1998.
2. ELIGIBLE PARTICIPANT:
(a) all full-time employees as of the Effective Date, and
(b) all new, full-time employees employed after the Effective Date,
subject to limitations as may be determined by the President and CEO
as conditions to such new employee's employment with the Company.
3. TERM OF PLAN: The Plan shall be in effect for a period of two (2) years,
commencing November 1, 1998 and ending October 31, 2000.
4. CLASSIFICATIONS: Each Eligible Participant shall be classified and
entitled to a Severance Pay Benefit as follows:
<TABLE>
<CAPTION>
Classification Severance Pay Benefit
-------------- ---------------------
<S> <C>
A eighteen (18) months base pay
B eighteen (18) months base pay
C eighteen (18) months base pay
D twelve (12) months base pay
E nine (9) months base pay
F six (6) months base pay
</TABLE>
5. SEVERANCE PAYMENT: Each Eligible Participant terminated by the Company
for any reason other than "cause" (as such term is defined below) shall be
entitled to the Severance Pay Benefit described above, payable in equal
monthly installments commencing on the first (1st) day of the month
immediately following the date of such Eligible Participant's termination
by the Company; provided that in the event the Company's 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.
For purposes of this Severance Policy, termination for "cause" shall
include:
(a) willful breach or habitual neglect of duties and responsibilities;
(b) conviction of a felony offense during the Term of Plan;
(c) habitual or serious violation of the Company's Personnel Policies and
Procedures; or
(d) any activity that acts to impugn the integrity of the Company, its
officers and directors, or compromises the confidentiality of the
Company's business or business relationships.
6. SPECIAL PROVISIONS: The Severance Pay Benefit described above SHALL BE
SUBJECT TO THE FOLLOWING:
(a) each Eligible Participant shall, upon termination and prior to
receipt of any Severance Pay Benefit, execute a Separation Agreement
with the Company which shall include the following provisions:
(i) a release of all claims against the Company;
(ii) a confidentiality provision; and
(iii) 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.
(b) Severance Pay Benefits provided under this Plan shall automatically
terminate as to any Eligible Participant at such time the Eligible
Participant shall accept the same or substantially similar employment
with any other employer.
<PAGE> 1
EXHIBIT 10.38
ALLONGE
This Allonge is attached to and made a part of that certain Revolving
Note, dated August 29, 1996, in the original principal amount of $50,000,000.00
made by National Energy Group, Inc. and payable to the order of Bank One,
Texas, N.A.
Pay to the Order of Arnos Corp., without recourse to the undersigned.
Dated: As of December 22, 1998
Bank One, Texas, N.A.
By: /s/ RANDY DURANT
--------------------------------
Name: Randy Durant
Title: Vice President
<PAGE> 2
REVOLVING NOTE
$50,000,000.00 Dallas, Texas August 29, 1996
FOR VALUE RECEIVED, the undersigned, NATIONAL ENERGY GROUP, INC., a
Delaware corporation (referred to herein as "Borrower") hereby unconditionally
promises to pay to the order of BANK ONE, TEXAS, N.A., a national banking
association (referred to herein as "Bank"), at the offices of BANK ONE, TEXAS,
N.A. (the "Administrative Agent") in Dallas County, Texas, the principal sum of
FIFTY MILLION AND NO/100 DOLLARS ($50,000,000.00), or so much thereof as may be
advanced and outstanding to or for the benefit of Borrower by Bank pursuant to
the Loan Agreement (as hereinafter defined), in lawful money of the United
States of America together with interest from the date hereof until paid at the
rates specified in the Loan Agreement. All payments of principal and interest
due hereunder are payable at the offices of Agent at 1717 Main Street, 4th
Floor, Bank One Center, P.O. Box 655415, Dallas, Texas 75265-5415, attention:
Energy Department, or at such other address as Bank shall designate in writing
to Borrower.
The principal and all accrued interest on this Note shall be due and
payable in accordance with the terms and provisions of the Loan Agreement.
This Note is executed pursuant to that certain Restated Loan Agreement
dated of even date herewith among the Borrower, the Administrative Agent and
the Banks signatory thereto (the "Loan Agreement"), and is one of the
Revolving Notes referred to therein. This Note is secured by certain Security
Instruments (as such term is defined in the Loan Agreement) of even date
herewith between Borrower and Administrative Agent. Reference is made to the
Loan Agreement and the Security Instruments for a statement of prepayment
rights and obligations of Borrower, description of the properties mortgaged and
assigned, the nature and extent of such security and the rights of the parties
under the Security Instruments in respect to such security and for a statement
of the terms and conditions under which the due date of this Note may be
accelerated. Upon the occurrence of an Event of Default, as that term is
defined in the Loan Agreement and Security Instruments, the holder hereof
(subject to the provisions of the Loan Agreement) (i) may declare forthwith to
be entirely and immediately due and payable the principal balance hereof and
the interest accrued hereon, and (ii) shall have all rights and remedies under
the Loan Agreement and Security Instruments. This Note may be prepaid at any
time in full or in part without any premium or fee in accordance with the terms
and provisions of the Loan Agreement.
Regardless of any provision contained in this Note, the holder hereof
shall never be entitled to receive, collect or apply, as interest on this Note,
any amount in excess of the Maximum Rate (as such term is defined in the Loan
Agreement), and, if the holder hereof ever receives, collects, or applies as
interest, any such amount which would be excessive interest, it shall be deemed
a partial prepayment of principal and treated hereunder as such; and, if the
indebtedness evidenced hereby is paid in full, any remaining excess shall
forthwith be paid to Borrower. In determining whether or not the interest paid
or payable, under any specific contingency, exceeds the Maximum Rate, Borrower
and the holder hereof shall, to the maximum extent permitted under applicable
law (i) characterize any non-principal payment as an expense,
<PAGE> 3
fee or premium rather than as interest, (ii) exclude voluntary prepayments and
the effects thereof, and (iii) spread the total amount of interest throughout
the entire contemplated term of the obligations evidenced by this Note and/or
referred to in the Loan Agreement so that the interest rate is uniform
throughout the entire term of this Note; provided that, if this Note is paid
and performed in full prior to the end of the full contemplated term thereof
and if the interest received for the actual period of existence thereof exceeds
the Maximum Rate, the holder hereof shall refund to Borrower the amount of such
excess or credit the amount of such excess against the indebtedness evidenced
hereby, and, in such event, the holder hereof shall not be subject to any
penalties provided by any laws for contracting for, charging, taking, reserving
or receiving interest in excess of the Maximum Rate.
If any payment of principal or interest on this Note shall become due
on a Saturday, Sunday or public holiday or while the Administrative Agent is
not open for business, such payment shall be made on the next succeeding
business day unless required to be made on a different day pursuant to the
provisions of the Loan Agreement and such extension of time shall in such case
be included in computing interest in connection with such payment.
If this Note is placed in the hands of an attorney for collection, or
if it is collected through any legal proceeding at law or in equity or in
bankruptcy, receivership or other court proceedings, Borrower agrees to pay all
costs of collection, including, but not limited to, court costs and reasonable
attorneys' fees.
Borrower and each surety, endorser, guarantor and other party ever
liable for payment of any sums of money payable on this Note, jointly and
severally waive presentment and demand for payment, notice of intention to
accelerate the maturity, notice of acceleration of the maturity, protest,
notice of protest and nonpayment, as to this Note and as to each and all
installments hereof, and agree that their liability under this Note shall not
be affected by any renewal or extension in the time of payment hereof, or in
any indulgences, or by any release or change in any security for the payment of
this Note, and hereby consent to any and all renewals, extensions, indulgences,
releases or changes.
This Note shall be governed by and construed in accordance with the
applicable laws of the United States of America and the laws of the State of
Texas, except that Tex. Rev. Civ. Stat. Ann. art. 5069, Chapter 15 (which
regulates certain revolving credit loan accounts and revolving tri-party
accounts) shall not apply to this Note.
THIS WRITTEN NOTE, THE LOAN AGREEMENT AND THE OTHER LOAN DOCUMENTS
REPRESENT THE FINAL AGREEMENTS BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED
BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
-2-
<PAGE> 4
EXECUTED as of the 29th day of August, 1996.
BORROWER:
NATIONAL ENERGY GROUP, INC.
a Delaware corporation
By: /s/ MILES D. BENDER
--------------------------------
Miles D. Bender
President
-3-
<PAGE> 1
EXHIBIT 10.39
ALLONGE
This Allonge is attached to and made a part of that certain Revolving
Note, dated August 29, 1996, in the original principal amount of $50,000,000.00
made by National Energy Group, Inc. and payable to the order of Credit Lyonnais
New York Branch.
PAY TO THE ORDER OF ARNOS CORP., WITHOUT RECOURSE TO THE UNDERSIGNED.
Dated: As of December 22, 1998
Credit Lyonnais New York Branch
By: /s/ ALAN SIDRANE
--------------------------------
Name: Alan Sidrane
Title: Senior Vice President
<PAGE> 2
REVOLVING NOTE
$50,000,000.00 Dallas, Texas August 29, 1996
FOR VALUE RECEIVED, the undersigned, NATIONAL ENERGY GROUP, INC., a
Delaware corporation (referred to herein as "Borrower") hereby unconditionally
promises to pay to the order of CREDIT LYONNAIS NEW YORK BRANCH (referred to
herein as "Bank"), at the offices of BANK ONE, TEXAS, N.A. (the "Administrative
Agent") in Dallas County, Texas, the principal sum of FIFTY MILLION AND NO/100
DOLLARS ($50,000,000.00), or so much thereof as may be advanced and outstanding
to or for the benefit of Borrower by Bank pursuant to the Loan Agreement (as
hereinafter defined), in lawful money of the United States of America together
with interest from the date hereof until paid at the rates specified in the
Loan Agreement. All payments of principal and interest due hereunder are
payable at the offices of Agent at 1717 Main Street, 4th Floor, BankOne
Center, P.O. Box 655415, Dallas, Texas 75265-5415, attention: Energy
Department, or at such other address as Bank shall designate in writing to
Borrower.
The principal and all accrued interest on this Note shall be due and
payable in accordance with the terms and provisions of the Loan Agreement.
This Note is executed pursuant to that certain Restated Loan
Agreement dated of even date herewith among the Borrower, the Administrative
Agent and the Banks signatory thereto (the "Loan Agreement"), and is one of the
Revolving Notes referred to therein. This Note is secured by certain Security
Instruments (as such term is defined in the Loan Agreement) of even date
herewith between Borrower and Administrative Agent. Reference is made to the
Loan Agreement and the Security Instruments for a statement of prepayment
rights and obligations of Borrower, description of the properties mortgaged and
assigned, the nature and extent of such security and the rights of the parties
under the Security Instruments in respect to such security and for a statement
of the terms and conditions under which the due date of this Note may be
accelerated. Upon the occurrence of an Event of Default, as that term is
defined in the Loan Agreement and Security Instruments, the holder hereof
(subject to the provisions of the Loan Agreement) (i) may declare forthwith to
be entirely and immediately due and payable the principal balance hereof and
the interest accrued hereon, and (ii) shall have all rights and remedies under
the Loan Agreement and Security Instruments. This Note may be prepaid at any
time in full or in part without any premium or fee in accordance with the terms
and provisions of the Loan Agreement.
Regardless of any provision contained in this Note, the holder hereof
shall never be entitled to receive, collect or apply, as interest on this Note,
any amount in excess of the Maximum Rate (as such term is defined in the Loan
Agreement), and, if the holder hereof ever receives, collects, or applies as
interest, any such amount which would be excessive interest, it shall be deemed
a partial prepayment of principal and treated hereunder as such; and, if the
indebtedness evidenced hereby is paid in full, any remaining excess shall
forthwith be paid to Borrower. In determining whether or not the interest paid
or payable under any specific contingency, exceeds the Maximum Rate, Borrower
and the holder hereof shall, to the maximum extent permitted under applicable
law (i) characterize any non-principal payment as an expense, fee or premium
rather than as interest, (ii) exclude voluntary prepayments and the effects
thereof,
<PAGE> 3
and (iii) spread the total amount of interest throughout the entire
contemplated term of the obligations evidenced by this Note and/or referred to
in the Loan Agreement so that the interest rate is uniform throughout the
entire term of this Note; provided that, if this Note is paid and performed in
full prior to the end of the full contemplated term thereof and if the interest
received for the actual period of existence thereof exceeds the Maximum Rate,
the holder hereof shall refund to Borrower the amount of such excess or credit
the amount of such excess against the indebtedness evidenced hereby, and, in
such event, the holder hereof shall not be subject to any penalties provided by
any laws for contracting for, charging, taking, reserving or receiving interest
in excess of the Maximum Rate.
If any payment of principal or interest on this Note shall become due
on a Saturday, Sunday or public holiday or while the Administrative Agent is
not open for business, such payment shall be made on the next succeeding
business day unless required to be made on a different day pursuant to the
provisions of the Loan Agreement and such extension of time shall in such case
be included in computing interest in connection with such payment.
If this Note is placed in the hands of an attorney for collection, or
if it is collected through any legal proceeding at law or in equity or in
bankruptcy, receivership or other court proceedings, Borrower agrees to pay all
costs of collection, including, but not limited to, court costs and reasonable
attorneys' fees.
Borrower and each surety, endorser, guarantor and other party ever
liable for payment of any sums of money payable on this Note, jointly and
severally waive presentment and demand for payment, notice of intention to
accelerate the maturity, notice of acceleration of the maturity, protest,
notice of protest and nonpayment, as to this Note and as to each and all
installments hereof, and agree that their liability under this Note shall not
be affected by any renewal or extension in the time of payment hereof, or in
any indulgences, or by any release or change in any security for the payment of
this Note, and hereby consent to any and all renewals, extensions, indulgences,
releases or changes.
This Note shall be governed by and construed in accordance with the
applicable laws of the United States of America and the laws of the State of
Texas, except that Tex. Rev. Civ. Stat. Ann. art. 5069, Chapter 15 (which
regulates certain revolving credit loan accounts and revolving tri-party
accounts) shall not apply to this Note.
THIS WRITTEN NOTE, THE LOAN AGREEMENT AND THE OTHER LOAN DOCUMENTS
REPRESENT THE FINAL AGREEMENTS BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED
BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES,
-2-
<PAGE> 4
EXECUTED as of the 29th day of August, 1996.
BORROWER:
NATIONAL ENERGY GROUP, INC.
a Delaware corporation
By: /s/ MILES D. BENDER
--------------------------------
Miles D. Bender
President
-3-
<PAGE> 1
EXHIBIT 10.48
ASSIGNMENT AGREEMENT
(MULTI-STATE)
Assignment Agreement, dated December 22, 1998 between Bank One, Texas,
N.A. ("Bank One"), Credit Lyonnais New York Branch ("Credit Lyonnais"), and
Arnos Corp. ("Assignee"). Bank One and Credit Lyonnais are individually referred
to herein as an "Assignor" and collectively the "Assignors."
Reference is made to the Restated Loan Agreement, dated August 29,
1996, among National Energy Group, Inc., as Borrower, NEG-OK, INC. and Boomer
Marketing Corporation, as Guarantors, Bank One and Credit Lyonnais, as Banks,
Bank One, as Administrative Agent, and Credit Lyonnais, as Syndication Agent,
as amended by the First Amendment To Restated Loan Agreement, dated October 31,
1996, the Second Amendment to Restated Loan Agreement, dated March 7, 1997, the
Third Amendment to Restated Loan Agreement, dated May 12, 1997, and the Fourth
Amendment to Restated Loan Agreement, dated August 21, 1997 ( such amendments
being collectively referred to herein as the "Amendments" and such Restated
Loan Agreement, as amended by the Amendments, being referred to herein as the
"Loan Agreement"). Reference is further made to the Deeds of Trust, Mortgages
and Financing Statements described on Schedule "1" hereto, covering, the
collateral therein described, reference to which is hereby made for all
purposes (collectively, the "Security Documents"). Unless otherwise indicated
herein, terms defined in the Loan Agreement are used herein as therein defined.
Each of the Assignors and the Assignee hereby agree as follows:
1. For the Purchase Price set forth in Annex I hereto, the receipt of
which is hereby acknowledged, each Assignor hereby sells, assigns and transfers
to the Assignee, without recourse and without representation or warranty (other
than as expressly provided herein), and the Assignee hereby purchases and
assumes from such Assignor, all of such Assignor's right title and interest in
and to (i) its Notes, the Security Documents and any documents or agreements
existing in connection therewith (collectively, the "Loan Documents"), (ii) any
security interest and liens created by, or existing under, the Loan Documents
(collectively, the "Liens") and (iii) all of such Assignor's right, title,
interest, liens and powers in and to the deeds of trust and mortgages as
security for Borrower's obligations under the Notes, the Security Documents and
the other Loan Documents.
2. Each Assignor severally, and not jointly, hereby represents and
warrants that (i) it is the legal and beneficial owner of the Loan Documents
free and clear of any Liens and that it has the full right, power and authority
to transfer and assign the Loan Documents and the Liens (as defined in the Loan
Agreement); (ii) that the unpaid principal amount of and the unaccrued and
unpaid interest on its Note is set forth on Annex I hereto as of the dates
indicated; (iii) except for Partial Releases, heretofore delivered, it has not
assigned the Loan Documents or the Liens to any other Person or entity and (iv)
the Notes and other obligations of Borrower under the Loan Documents are in
default and all such obligations have been accelerated, as of December 3, 1998,
pursuant to the terms of the Loan Agreement. Notwithstanding anything herein to
the contrary,
<PAGE> 2
each Assignor (i) makes no representation or warranty and assumes no
responsibility for any statements, warranties or representations made in or in
connection with the Loan Agreement (by Borrower or by any other person) or with
respect to the execution, legality, validity, enforceability, genuineness,
sufficiency or value of the Loan Agreement, the Security Documents, the other
Loan Documents or the Liens or any document or instrument furnished or executed
in connection therewith; and (ii) makes no representation or warranty and
assumes no responsibility with respect to the financial condition of Borrower,
or any affiliate or other obligor, or any of their respective obligations under
the Loan Agreement, the Security Documents or any other Loan Document or any
other document or instrument furnished in connection therewith.
3. The Assignee (i) represents and warrants that it is duly authorized
to enter into and perform the terms of this Assignment Agreement, (ii) confirms
that it has received a copy of the Loan Agreement and the other Loan Documents,
together with copies of the financial statements referred to therein and such
other documents and information as it has deemed appropriate to make its own
credit analysis and decision to enter into this Assignment Agreement; (iii)
agrees that it will, independently and without reliance upon the Assignors or
any other Bank and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under the Loan Agreement; and (iv) agrees that it will
perform in accordance with their terms all of the obligations which by the
terms of the Loan Agreement are required to be performed by it as a Bank.
4. This Assignment Agreement is effective on and as of the date first
above written. The Assignee is deemed a party to the Loan Agreement and has the
rights and obligations of a Bank thereunder and under the other Loan Documents.
Each Assignor relinquishes its right and is released from its obligations under
the Loan Agreement and the other Loan Documents. Bank One hereby resigns
(effective as of the date hereof) as Administrative Agent and Credit Lyonnais
hereby resigns (effective as of the date hereof) as Syndication Agent pursuant
to the provisions of the Loan Agreement, and the Borrower, the Guarantor, each
Bank and the Assignee hereby consent to such resignations and hereby release
Bank One and Credit Lyonnais from their respective obligations as
Administrative Agent and Syndication Agent, respectively.
5. From and after the date hereof the Assignee shall be entitled to
all payments on account of each Assignor's Notes and which, but for this
Assignment Agreement, would have been due to the Assignors under the Loan
Agreement and the other Loan Documents, without any adjustments.
6. After the date hereof, at Assignee's expense, each Assignor shall
take such action and execute and deliver all such documents and instruments as
Assignee may reasonably request for the purpose of implementing or affectuating
this Assignment Agreement or to consummate the transactions contemplated
hereby.
7. By its execution of this Assignment Agreement each of the Borrower
and the Guarantor (i) consents to the sale, assignment and transfer of the
Assignors' Notes and other rights referred to herein to Assignee and
specifically approves the Assignee as an assignee
2
<PAGE> 3
notwithstanding Section 27 of the Loan Agreement, (ii) waives compliance with
Section 27(a)(2) of the Loan Agreement, and (iii) waives compliance with
Section 27(a)(4) of the Loan Agreement.
8. The Assignee agrees to reimburse each Assignor for reasonable fees
and disbursements of counsel incurred by such Assignor in connection with the
preparation and negotiation of this Assignment Agreement and the consummation
of the transaction contemplated hereby. Such fees and expenses are included
with the outstanding legal fees and expenses due Assignor's counsel under the
provisions of the Loan Documents, which fees and expenses are part of the
obligations owed to the Assignors and are shown on Annex I and included in the
Purchase Price.
9. THIS ASSIGNMENT AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS WITHOUT REGARD TO PRINCIPLES OF
CONFLICT OF LAWS.
IN WITNESS WHEREOF, the parties have caused this Assignment Agreement
to be executed and delivered on the date first above written.
BANK ONE, TEXAS, N.A., in its capacity as a
Bank and as Administrative Agent, Assignor
By:
---------------------------
Its:
--------------------------
CREDIT LYONNAIS NEW YORK BRANCH, in its
capacity as a Bank and as Syndication Agent,
Assignor
By:
---------------------------
Its:
--------------------------
ARNOS CORP., Assignee
By:
---------------------------
Its:
--------------------------
Consented to:
NATIONAL ENERGY GROUP, INC., Borrower
By: /s/ [ILLEGIBLE]
---------------------------
Its: Vice President
--------------------------
BOOMER-MARKETING CORPORATION, Guarantor
By: /s/ [ILLEGIBLE]
---------------------------
Its: Vice President
--------------------------
3
<PAGE> 4
STATE OF TEXAS )
)
COUNTY OF DALLAS )
This instrument was acknowledged before me on this ______ day of December,
1998, by ___________________, of BANK ONE, TEXAS, N.A., a national banking
association, on behalf of said association in its individual capacity and as
Administrative Agent.
----------------------------------------------
My Commission Expires: Notary Public in and for the State of Texas
- ---------------------- ----------------------------------------------
Printed Name of Notary
STATE OF NEW YORK )
)
COUNTY OF NEW YORK )
This instrument was acknowledged before me on this _____ day of ______, 1998, by
__________________, _______________, of CREDIT LYONNAIS NEW YORK BRANCH, a
licensed branch of a French banking corporation, on behalf of said corporation
in its individual capacity and as Syndication Agent.
----------------------------------------------
My Commission Expires: Notary Public in and for the State of New York
- ---------------------- ----------------------------------------------
Printed Name of Notary
STATE OF NEW YORK )
)
COUNTY OF NEW YORK )
This instrument was acknowledged before me on this _____ day of December, 1998,
by Edward E. Mattner, Vice President, of ARNOS CORP., a Nevada corporation, on
behalf of said corporation.
----------------------------------------------
My Commission Expires: Notary Public in and for the State of New York
- ---------------------- -------------------------------------------
Printed Name of Notary
<PAGE> 5
ANNEX I
BANK ONE
--------
<TABLE>
<CAPTION>
Outstanding Accrued and
Principal Amount Unpaid Interest
---------------- ---------------
<S> <C> <C> <C>
Revolving Note: as of 12/20 $12,500,000.00 $101,829.01
(due next a.m.)
as of 12/21 $12,500,000.00 $107,993.39
(due next a.m.)
as of 12/22 $12,500,000.00 $114,157.78
(due next a.m.)
Counsel Fees and
Disbursements: $ 64,409.00(1)
Purchase Price:
as of 12/20 (due next a.m.) $12,666,238.01
as of 12/21 (due next a.m.) $12,672,402.39
as of 12/22 (due next a.m.) $12,678,566.78
CREDIT LYONNAIS
---------------
Revolving Note: as of 12/20 $12,500,000.00 $101,829.01
(due next a.m.)
as of 12/21 $12,500,000.00 $107,993.40
(due next a.m.)
as of 12/22 $12,500,000.00 $114,157.78
(due next a.m.)
Counsel Fees and
Disbursements: $ -0-
Purchase Price:
as of 12/20 (due next a.m.) $12,601,829.01
as of 12/21 (due next a.m.) $12,607,993.40
as of 12/22 (due next a.m.) $12,614,157.78
</TABLE>
Wiring Instructions:
Bank One, Texas N.A. Credit Lyonnais New York Branch
Dallas, Texas 75201 ABA #026008073
ABA (for Texas) 111000614 Attention: Loan Servicing Dept.
BENF - Commercial Loan Servicing Reference: National Energy Group, Inc.
Center - South Region
Account No. 1065151010
Borrower: National Energy Group, Inc.
Attn: Special Servicing, Commercial Loan
Servicing Center - South Region
(Fax: 817-884-4651)
Attention: Randy Durant (214) 290-2721
- --------------
1. Includes all previously billed and outstanding invoices.
<PAGE> 6
SCHEDULE 1.
ARKANSAS
1. Mortgage, Deed of Trust, Security Agreement, Assignment of Production and
Financing Statement from NEG-OK, Inc. in favor of Bank One, Texas, N.A.,
Administrative Agent, effective as of August 29, 1996, filed and recorded
as follows:
(a) Crawford County, Arkansas, on September 13, 1996, File Number
96-026896, in Book 96, Pages 26896 - 26927.
(b) Franklin County, Arkansas, on September 12, 1996, in Mortgage Book
22, Page 376.
(c) Johnson County, Arkansas, on September 12, 1996, in Volume 185, Page
177.
(d) Logan County, Arkansas, on September 13, 1996, File Number 2305, in
Book N096-9, Page 64.
(e) Pope County, Arkansas, on September 12, 1996, in Book 22T, Pages
330 - 381.
(f) Sebastian County, Arkansas, on September 17, 1996, in Book 629, Pages
041 - 070.
1
<PAGE> 7
SCHEDULE 1
LOUISIANA
1. Mortgage, Security Agreement, Assignment of Production and Financing
Statement effective as of September 1, 1998, by National Energy Group,
Inc. as Mortgagor for the use and benefit of Bank One, Texas, N.A.,
Administrative Agent, filed and recorded as follows:
(a) Iberville Parish, Louisiana on September 8, 1998 in Mortgage Book
319, Page 197 and Conveyance Book 511, Page 174.
(b) Lafourche Parish, Louisiana on September 8, 1998 in Mortgage Book
786, Page 479 and Conveyance Book 1361, Folio 462 (Entry #839479).
1
<PAGE> 8
SCHEDULE 1
NEW MEXICO
1. Assignment of Note and Liens by Texas Gas Fund I in favor of Bank One,
Texas, N.A. effective as of June 30, 1995, filed and recorded as follows:
(a) July 21, 1995 in the Records of Chaves County, New Mexico, Liber 237,
Page 798 (County does not issue File Numbers).
(b) July 20, 1995 in the Records of Eddy County, New Mexico, Reception
No. 957307, Book 224, Page 688.
(c) July 14, 1995 in the Records of Lea County, New Mexico, File No.
76200, Book 633, Page 683.
2. Amended and Restated Mortgage, Security Agreement, Assignment of
Production and Financing Statement effective as of June 30, 1995, executed
by National Energy Group, Inc., in favor of Bank One, Texas, N.A., filed
and recorded July 20, 1995 in the Records of Eddy County, New Mexico,
Reception No. 957308, Book 224, Page 693.
3. Amended and Restated Mortgage, Security Agreement, Assignment of
Production and Financing Statement, dated as of August 29, 1996, from
National Energy Group, Inc., as Grantor, for the use and benefit of Bank
One Texas, N.A., Administrative Agent, filed and recorded by Eddy County,
State of New Mexico, on September 16, 1996, File Number 9610275, in Book
261, Pages 123-159.
1
<PAGE> 9
SCHEDULE 1
TEXAS
1. Assignment of Note and Liens by Texas Gas Fund I in favor of Bank One,
Texas, N.A. effective as of June 30, 1995, filed and recorded as follows:
(a) July 19, 1995 in the Records of Ector County, Texas, File No. 9112,
Book 1244, Page 188.
(b) July 17, 1995 in the Records of Howard County, Texas, File No. 4294,
Book 405, Page 183.
(c) July 14, 1995 in the Records of Irion County, Texas, File No. 15304,
Book 111, Page 590.
(d) July 14, 1995 in the Records of Nolan County, Texas, File No. 1638,
Book 332, Page 283.
(e) July 20, 1995 in the Records of Stephens County, Texas, File No.
2137, Book 1221, Page 144.
(f) July 18, 1995 in the Records of Sterling County, Texas, File No.
6443, Book 174, Page 689.
(g) July 14, 1995 in the Records of Throckmorton County, Texas, File No.
91574, Book 312, Page 904.
(h) July 14, 1995 in the Records of Yoakum County, Texas, File No. 200302,
Book 145, Page 539.
(i) July 13, 1995 in the Records of Young County, Texas, File No. 2596,
Book 812, Page 126.
2. Amended and Restated Deed of Trust, Security Agreement, Assignment of
Production and Financing Statement effective as of June 30, 1995, executed
by National Energy Group, Inc., in favor of Bank One, Texas, N.A., filed
and recorded as follows:
(a) July 19, 1995 in the Records of Ector County, Texas, File No. 9113,
Book 1244, Page 193.
(b) July 14, 1995 in the Records of Gregg County, Texas, File No. 13743,
Book 2841, Page 553.
1
<PAGE> 10
(c) July 14, 1995 in the Records of Irion County, Texas, File No. 15305,
Book 111, Page 595.
(d) July 14, 1995 in the Records of Nueces County, Texas, File No. 969612
(County does not issue Book and Page Numbers.)
(e) July 14, 1995 in the Records of Rusk County, Texas, File No. 70709,
Book 1921, Page 543.
(f) July 13, 1995 in the Records of Young County, Texas, File No. 2597,
Book 812, Page 131.
3. Deed of Trust, Security Agreement, Assignment of Production and Financing
Statement, from NEG-OK, Inc. in favor of Bank One, Texas, N.A.,
Administrative Agent, effective as of August 29, 1996, filed and recorded
as follows:
(a) Fayette County, Texas, on September 16, 1996, File Number 96-5205, in
Volume 965, Pages 252 - 289.
(b) Harrison County, Texas, on September 16, 1996, File Number 9123, in
Volume 1560, Pages 1 - 92.
(c) Hemphill County, Texas, on September 16, 1996, File Number 022239, in
Volume 415, Pages 170 - 203.
4. Amended and Restated Deed of Trust, Security Agreement, Assignment of
Production and Financing Statement, from National Energy Group, Inc. in
favor of Bank One, Texas, N.A., Administrative Agent, effective as of
August 29, 1996, filed and recorded as follows:
(a) Ector County, Texas, on September 16, 1996, File Number 10827, in
Volume 1303, Pages 615 - 654.
(b) Gregg County, Texas, on September 13, 1996, File Number 019700, in
Volume 3000, Pages 129 - 154.
(c) Irion County, Texas, on September 13, 1996, File Number 16455, in
Volume 119, Pages 179 - 202.
(d) Nueces County, Texas, on September 13, 1996, File Number 1996035768.
(e) Rusk County, Texas, on September 13, 1996, File Number 09077, in
Volume 1975, Pages 587 - 626.
2
<PAGE> 11
(f) Young County, Texas, on September 12, 1996, File Number 3311, in
Deed of Trust Volume 215, Pages 242 - 264.
5. Deed of Trust, Security Agreement, Assignment of Production and Financing
Statement effective as of September 1, 1998, by National Energy Group,
Inc. as Grantor for the use and benefit of Bank One, Texas, N.A.,
Administrative Agent, filed and recorded as follows:
(a) Ector County, Texas on September 8, 1998 (File Number 12207) in
Volume 1418 Page 0105.
(b) Gregg County, Texas on September 8, 1998 in GCC 9819759.
(c) Harrison County, Texas on September 8, 1998 (Real Number 34010) in
Volume 1837, Page 197.
(d) Hidalgo County, Texas on October 21, 1998 at File Number 718377.
(e) Nueces County, Texas on September 8, 1998 Document Number
#1998039840.
(f) Rusk County, Texas on September 8, 1998 (File Number 33284) in Volume
2092, Page 0425.
(g) Willacy County, Texas on September 8, 1998 (File Number 276111) in
Volume 064, Page 158.
(h) Texas General Land Office on October 26, 1998.
3
<PAGE> 12
SCHEDULE 1
OKLAHOMA
1. Assignment of Note and Liens by Texas Gas Fund I in favor of Bank One,
Texas, N.A. effective as of June 30, 1995, filed and recorded as follows:
(a) July 17, 1995 in the Records of Alfalfa County, Oklahoma, File No.
8170, Book 514, Page 18.
(b) July 18, 1995 in the Records of Beaver County, Oklahoma, File No.
F2267, Book 0949, Page 142.
(c) July 17, 1995 in the Records of Blaine County, Oklahoma, File No.
2539, Book 703, Page 506.
(d) July 14, 1995 in the Records of Caddo County, Oklahoma, File No.
9505279, Book 1990, Page 98.
(e) July 14, 1995 in the Records of Canadian County, Oklahoma, File No.
12296, Book 1943, Page 672.
(f) July 13, 1995 in the Records of Carter County, Oklahoma, File No.
7446, Book 2011, Page 146.
(g) July 14, 1995 in the Records of Cleveland County, Oklahoma, File No.
70794-A, Book 2650, Page 798.
(h) July 14, 1995 in the Records of Custer County, Oklahoma, File No.
3694, Book 951, Page 569.
(i) July 14, 1995 in the Records of Dewey County, Oklahoma, File No.
1669, Book 1031, Page 221.
(j) July 14, 1995 in the Records of Ellis County, Oklahoma, File No.
6265, Book 585, Page 389.
(k) July 14, 1995 in the Records of Garvin County, Oklahoma, File No.
5205, Book 1424, Page 653.
(1) July 14, 1995 in the Records of Grady County, Oklahoma, File No.
108549, Book 2797, Page 90.
1
<PAGE> 13
(m) July 14, 1995 in the Records of Haskell County, Oklahoma, File No.
262188, Book 535, Page 503.
(n) July 17, 1995 in the Records of Kingfisher County, Oklahoma, File No.
3330, Book 1458, Page 19.
(o) July 14,1995 in the Records of Major County, Oklahoma, File No.
40930, Book 1388, Page 96.
(p) July 14, 1995 in the Records of McClain County, Oklahoma, File No.
4567, Book 1401, Page 72.
(q) July 14, 1995 in the Records of Woods County, Oklahoma, File No.
2902, Book 797, Page 537.
(r) July 14, 1995 in the Records of Woodward County, Oklahoma, File No.
216, Book 1456, Page 296.
2. Amended and Restated Mortgage, Security Agreement, Assignment of
Production and Financing Statement effective as of June 30, 1995, executed
by National Energy Group, Inc., in favor of Bank One, Texas, N.A., filed
and recorded as follows:
(a) July 14, 1995 in the Records of Dewey County, Oklahoma, File
No. 001670, Book 1031, Page 236.
(b) July 14, 1995 in the Records of Ellis County, Oklahoma, File No.
6266, Book 585, Page 399.
(c) July 14, 1995 in the Records of Major County, Oklahoma, File
No. 40931, Book 1388, Page 102.
3. Mortgage, Security Agreement, Assignment of Production and Financing
Statement from NEG-OK, Inc., in favor of Bank One, Texas, N.A.,
Administrative Agent, effective as of August 29, 1996, filed and recorded
as follows:
(a) Alfalfa County, Oklahoma, on September 16, 1996, File Number 11501,
in Book 522, Pages 515 - 543.
(b) Beckham County, Oklahoma, on September 16, 1996, File Number 06022,
in Book 1486, Pages 206 - 241.
(c) Blaine County, Oklahoma, on September 16, 1996, File Number 003622,
in Book 727, Pages 83 - 126.
2
<PAGE> 14
(d) Caddo County, Oklahoma, on September 16,1996, File Number 9607301, in
Book 2079, Pages 40 - 131.
(e) Canadian County, Oklahoma, on September 16, 1996, File Number 018361,
in Book 2021, Pages 434 - 661.
(f) Carter County, Oklahoma, on September 13, 1996, File Number 010930,
in Book 3048, Pages 76 - 114.
(g) Coal County, Oklahoma, on September 16, 1996, File Number 97208, in
Book 559, Pages 501 - 530.
(h) Custer County, Oklahoma, on September 16, 1996, File Number 5162, in
Book 983, Pages 160 - 200.
(i) Dewey County, Oklahoma, on September 16, 1996, File Number 002546, in
Book 1053, Pages 378 - 437.
(j) Ellis County, Oklahoma, on September 16, 1996, File Number 113, in
Misc. Book 597, Pages 800 - 831.
(k) Garfield County, Oklahoma, on September 16, 1996, File Number 011894,
in Book 1337, Pages 87 - 115.
(1) Garvin County, Oklahoma, on September 18, 1996, File Number 07101, in
Book 1458, Pages 369 - 400.
(n) Grady County, Oklahoma, on September 16, 1996, File Number 129157, in
Book 2885, Pages 287 - 334.
(n) Harper County, Oklahoma, on September 16, 1996, File Number 1S-575,
in Book 0518, Pages 137 - 164.
(o) Haskell County, Oklahoma, on September 16, 1996, File Number 266270,
in Book 547, Pages 243 - 287.
(p) Kingfisher County, Oklahoma, on September 16, 1996, File Number 4070,
in Book 1516, Pages 001 - 041.
(q) Latimer County, Oklahoma, on September 16, 1996, File Number 389048,
in Book 0495, Pages 0747 - 0796.
3
<PAGE> 15
(r) Logan County, Oklahoma, on September 16, 1996, File Number 7180, in
Book 1407, Pages 244 - 272.
(s) Love County, Oklahoma, on September 13, 1996, File Number 2011, in
Book 488, Pages 370 - 405.
(t) Major County, Oklahoma, on September 17, 1996, File Number 45579, in
Book 1414, Pages 006 - 044.
(u) Oklahoma County, Oklahoma, on September 20,1996, File Number
96131110, in Book 6952, Pages 790 - 825.
(v) Pittsburg County, Oklahoma, on September 17, 1996, File Number
009091, in Book 889, Pages 784 - 854.
(w) Roger Mills County, Oklahoma, on September 16, 1996, File Number 0991,
in Book 1502, Pages 226 - 261.
(x) Sequoyah County, Oklahoma, on September 16, 1996, File Number 005848,
in Book 793, Pages 430 - 466.
(y) Washita County, Oklahoma, on September 16, 1996, File Number 4689, in
Book 840, Pages 154 - 186.
(z) Woods County, Oklahoma, on September 17, 1996, File Number 7464, in
Book 819, Pages 390 - 426.
(aa) Woodward County, Oklahoma, on September 17, 1996, File Number 1451,
in Book 1513, Pages 53 - 92.
4. Amended and Restated Mortgage, Security Agreement, Assignment of
Production and Financing Statement from National Energy Group, Inc. in
favor of Bank One, Texas, N.A., Administrative Agent, effective as of
August 29, 1996, filed and recorded as follows:
(a) Dewey County, Oklahoma, on September 23, 1996, File Number 002589, in
Book 1053, Pages 615 - 641.
(b) Ellis County, Oklahoma, on September 13, 1996, File Number 93, in
Misc. Book 597, Pages 721 - 747.
(c) Major County, Oklahoma, on September 13, 1996, File Number 45553, in
Misc. Book 1413, Pages 421 - 447.
4
<PAGE> 16
5. Mortgage, Security Agreement, Assignment of Production and Financing
Statement effective as of September 1, 1998, by National Energy Group,
Inc. as Mortgagor for the use and benefit of Bank One, Texas, N.A.,
Administrative Agent, filed and recorded as follows:
(a) Beckham County, Oklahoma on September 8, 1998 (File Number 05943) in
Book 1574, Pages 571-598.
(b) Caddo County, Oklahoma on September 8, 1998 (File Number 1998 6693) in
Book 2192, Page 305.
(c) Custer County, Oklahoma on September 8, 1998 (File Number 5196) in
Book 1049, Page 687.
(d) Dewey County, Oklahoma on September 8, 1998 (File Number 002933) in
Book 1096, Page 64.
(e) Ellis County, Oklahoma on September 9, 1998 (File Number 6627) in Book
621, Page 709.
(f) Grady County, Oklahoma on September 8, 1998 (File Number 12126) in
Book 3055, Page 504.
(g) Latimer County, Oklahoma on September 8, 1998 (File Number 002738) in
Book 0528, Page 0089.
(h) Roger Mills County, Oklahoma on September 9, 1998 in Book 1566, Page
361.
(i) Washita County, Oklahoma on September 8, 1998 (File Number 3826) in
Book 877, Pages 667-691.
(j) Woods County, Oklahoma on September 8, 1998 (File Number 5200-2) in
Book 860, Page 344.
5
<PAGE> 17
SCHEDULE 1
WYOMING
1. Assignment of Note and Liens by Texas Gas Fund I in favor of Bank One,
Texas, N.A. dated June 30, 1995, filed and recorded as follows:
(a) July 24, 1995 in the Records of Campbell County, Wyoming, File No.
698047, Book 1343 of Photos, Page 303.
(b) July 17, 1995 in the Records of Lincoln County, Wyoming, File No.
805213, Book 370PR, Page 849.
(c) July 17, 1995 in the Records of Sublette County, Wyoming, File No.
252969, Book 101 O&G Page 710.
(d) July 17, 1995 in the Records of Sweetwater County, Wyoming, File No.
1193313, Book 864, Page 1944.
2. Amended and Restated Deed of Trust, Mortgage, Security Agreement,
Assignment of Production and Financing Statement dated June 30, 1995,
executed by National Energy Group, Inc. filed in favor of Bank One, Texas,
N.A., filed and recorded July 17, 1995 in the Records of Sweetwater
County, Wyoming, File No. 1193314, Book 864, Page 1951.
3. Amended and Restated Deed of Trust, Mortgage, Security Agreement,
Assignment of Production and Financing Statement, dated as of August 29,
1996, from National Energy Group, Inc. as Grantor for the use and benefit
of Bank One Texas, N.A., Administrative Agent, filed and recorded by
Sweetwater County, Wyoming, on September 16, 1996, File Number 1222817, in
Book 0878, Pages 1760 - 1783.
1
<PAGE> 1
EXHIBIT 10.49
LaFourche Parish-Louisiana
ASSIGNMENT AGREEMENT
(MULTI-STATE)
Assignment Agreement, dated December 22, 1998 between Bank One, Texas,
N.A. ("Bank One"), Credit Lyonnais New York Branch ("Credit Lyonnais"), and
Arnos Corp. ("Assignee"). Bank One and Credit Lyonnais are individually referred
to herein as an "Assignor" and collectively the "Assignors."
Reference is made to the Restated Loan Agreement, dated August 29,
1996, among National Energy Group, Inc., as Borrower, NEG-OK, INC. and Boomer
Marketing Corporation, as Guarantors, Bank One and Credit Lyonnais, as Banks,
Bank One, as Administrative Agent, and Credit Lyonnais, as Syndication Agent,
as amended by the First Amendment To Restated Loan Agreement, dated October 31,
1996, the Second Amendment to Restated Loan Agreement, dated March 7, 1997, the
Third Amendment to Restated Loan Agreement, dated May 12, 1997, and the Fourth
Amendment to Restated Loan Agreement, dated August 21, 1997 (such amendments
being collectively referred to herein as the "Amendments" and such Restated
Loan Agreement, as amended by the Amendments, being referred to herein as the
"Loan Agreement"). Reference is further made to the Deeds of Trust, Mortgages
and Financing Statements described on Schedule "1" hereto, covering, the
collateral therein described, reference to which is hereby made for all
purposes (collectively, the "Security Documents"). Unless otherwise indicated
herein, terms defined in the Loan Agreement are used herein as therein defined.
Each of the Assignors and the Assignee hereby agree as follows:
1. For the Purchase Price set forth in Annex I hereto, the receipt of
which is hereby acknowledged, each Assignor hereby sells, assigns and transfers
to the Assignee, without recourse and without representation or warranty (other
than as expressly provided herein), and the Assignee hereby purchases and
assumes from such Assignor, all of such Assignor's right title and interest in
and to (i) its Notes, the Security Documents and any documents or agreements
existing in connection therewith (collectively, the "Loan Documents"), (ii) any
security interest and liens created by, or existing under, the Loan Documents
(collectively, the "Liens") and (iii) all of such Assignor's right, title,
interest, liens and powers in and to the deeds of trust and mortgages as
security for Borrower's obligations under the Notes, the Security Documents and
the other Loan Documents.
2. Each Assignor severally, and not jointly, hereby represents and
warrants that (i) it is the legal and beneficial owner of the Loan Documents
free and clear of any Liens and that it has the full right, power and authority
to transfer and assign the Loan Documents and the Liens (as defined in the Loan
Agreement); (ii) that the unpaid principal amount of and the unaccrued and
unpaid interest on its Note is set forth on Annex I hereto as of the dates
indicated; (iii) except for Partial Releases, heretofore delivered, it has not
assigned the Loan Documents or the Liens to any other Person or entity and (iv)
the Notes and other obligations of Borrower under the Loan Documents are in
default and all such obligations have been accelerated, as of December 3, 1998,
pursuant to the terms of the Loan Agreement. Notwithstanding anything herein to
the contrary,
<PAGE> 2
each Assignor (i) makes no representation or warranty and assumes no
responsibility for any statements, warranties or representations made in or in
connection with the Loan Agreement (by Borrower or by any other person) or with
respect to the execution, legality, validity, enforceability, genuineness,
sufficiency or value of the Loan Agreement, the Security Documents, the other
Loan Documents or the Liens or any document or instrument furnished or executed
in connection therewith; and (ii) makes no representation or warranty and
assumes no responsibility with respect to the financial condition of Borrower,
or any affiliate or other obligor, or any of their respective obligations under
the Loan Agreement, the Security Documents or any other Loan Document or any
other document or instrument furnished in connection therewith.
3. The Assignee (i) represents and warrants that it is duly authorized
to enter into and perform the terms of this Assignment Agreement, (ii) confirms
that it has received a copy of the Loan Agreement and the other Loan Documents,
together with copies of the financial statements referred to therein and such
other documents and information as it has deemed appropriate to make its own
credit analysis and decision to enter into this Assignment Agreement; (iii)
agrees that it will, independently and without reliance upon the Assignors or
any other Bank and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under the Loan Agreement; and (iv) agrees that it will
perform in accordance with their terms all of the obligations which by the
terms of the Loan Agreement are required to be performed by it as a Bank.
4. This Assignment Agreement is effective on and as of the date first
above written. The Assignee is deemed a party to the Loan Agreement and has the
rights and obligations of a Bank thereunder and under the other Loan Documents.
Each Assignor relinquishes its right and is released from its obligations under
the Loan Agreement and the other Loan Documents. Bank One hereby resigns
(effective as of the date hereof) as Administrative Agent and Credit Lyonnais
hereby resigns (effective as of the date hereof) as Syndication Agent pursuant
to the provisions of the Loan Agreement, and the Borrower, the Guarantor, each
Bank and the Assignee hereby consent to such resignations and hereby release
Bank One and Credit Lyonnais from their respective obligations as
Administrative Agent and Syndication Agent, respectively.
5. From and after the date hereof the Assignee shall be entitled to
all payments on account of each Assignor's Notes and which, but for this
Assignment Agreement, would have been due to the Assignors under the Loan
Agreement and the other Loan Documents, without any adjustments.
6. After the date hereof, at Assignee's expense, each Assignor shall
take such action and execute and deliver all such documents and instruments as
Assignee may reasonably request for the purpose of implementing or affectuating
this Assignment Agreement or to consummate the transactions contemplated
hereby.
7. By its execution of this Assignment Agreement each of the Borrower
and the Guarantor (i) consents to the sale, assignment and transfer of the
Assignors' Notes and other rights referred to herein to Assignee and
specifically approves the Assignee as an assignee
2
<PAGE> 3
notwithstanding Section 27 of the Loan Agreement, (ii) waives compliance with
Section 27(a)(2) of the Loan Agreement, and (iii) waives compliance with
Section 27(a)(4) of the Loan Agreement.
8. The Assignee agrees to reimburse each Assignor for reasonable fees
and disbursements of counsel incurred by such Assignor in connection with the
preparation and negotiation of this Assignment Agreement and the consummation
of the transaction contemplated hereby. Such fees and expenses are included
with the outstanding legal fees and expenses due Assignor's counsel under the
provisions of the Loan Documents, which fees and expenses are part of the
obligations owed to the Assignors and are shown on Annex I and included in the
Purchase Price.
9. THIS ASSIGNMENT AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS WITHOUT REGARD TO PRINCIPLES OF
CONFLICT OF LAWS.
IN WITNESS WHEREOF, the parties have caused this Assignment Agreement
to be executed and delivered on the date first above written.
WITNESS BANK ONE, TEXAS, N.A., in its capacity as a
Bank and as Administrative Agent, Assignor
- ----------------------
By:
----------------------
- ---------------------- Its:
----------------------
CREDIT LYONNAIS NEW YORK BRANCH, in its
capacity as a Bank and as Syndication
Agent, Assignor
By:
----------------------
Its:
----------------------
ARNOS CORP., Assignee
By:
----------------------
Its:
----------------------
Consented to:
NATIONAL ENERGY GROUP, INC., Borrower WITNESSES TO NATIONAL ENERGY GROUP, INC.
AND BOOMER MARKETING CORPORATION
By: /s/ [ILLEGIBLE]
--------------------------- /s/ MARILYN GRAHAM
-------------------------
Its: Vice President
---------------------------- /s/ GRACE BUCKER
-------------------------
BOOMER MARKETING CORPORATION, Guarantor
By: /s/ [ILLEGIBLE]
----------------------------
Its: Vice President
----------------------------
3
<PAGE> 4
STATE OF TEXAS )
)
COUNTY OF DALLAS )
This instrument was acknowledged before me on this ________ day of December,
1998, by _______, of BANK ONE, TEXAS, N.A., a national banking association, on
behalf of said association in its individual capacity and as Administrative
Agent.
----------------------------------------------
My Commission Expires: Notary Public in and for the State of Texas
- ------------------------------
----------------------------------------------
Printed Name of Notary
STATE OF NEW YORK )
)
COUNTY OF NEW YORK )
This instrument was acknowledged before me on this _____ day of _____________,
1998, by _________________, _______________, of CREDIT LYONNAIS NEW YORK
BRANCH, a licensed branch of a French banking corporation, on behalf of said
corporation in its individual capacity and as Syndication Agent.
----------------------------------------------
My Commission Expires: Notary Public in and for the State of New York
- ------------------------------
----------------------------------------------
Printed Name of Notary
STATE OF NEW YORK )
)
COUNTY OF NEW YORK )
This instrument was acknowledged before me on this _____ day of December, 1998,
by Edward E. Mattner, Vice President, of ARNOS CORP., a Nevada corporation, on
behalf of said corporation.
----------------------------------------------
My Commission Expires: Notary Public in and for the State of New York
- ------------------------------
----------------------------------------------
Printed Name of Notary
<PAGE> 5
ANNEX I
BANK ONE
--------
<TABLE>
<CAPTION>
Outstanding Accrued and
Principal Amount Unpaid Interest
---------------- ---------------
<S> <C> <C> <C>
Revolving Note: as of 12/20 $12,500,000.00 $101,829.01
(due next a.m.)
as of 12/21 $12,500,000.00 $107,993.39
(due next a.m.)
as of 12/22 $12,500,000.00 $114,157.78
(due next a.m.)
Counsel Fees and
Disbursements: $ 64,409.00(1)
Purchase Price:
as of 12/20 (due next a.m.) $12,666,238.01
as of 12/21 (due next a.m.) $12,672,402.39
as of 12/22 (due next a.m. $12,678,566.78
CREDIT LYONNAIS
---------------
Revolving Note: as of 12/20 $12,500,000.00 $101,829.01
(due next a.m.)
as of 12/21 $12,500,000.00 $107,993.40
(due next a.m.)
as of 12/22 $12,500,000.00 $114,157.78
(due next a.m.)
Counsel Fees and
Disbursements: $ -0-
Purchase Price:
as of 12/20 (due next a.m.) $12,601,829.01
as of 12/21 (due next a.m.) $12,607,993.40
as of 12/22 (due next a.m.) $12,614,157.78
</TABLE>
Wiring Instructions:
Bank One, Texas N.A. Credit Lyonnais New York Branch
Dallas, Texas 75201 ABA #026008073
ABA (for Texas) 111000614 Attention: Loan Servicing Dept.
BENF - Commercial Loan Servicing Reference: National Energy Group, Inc.
Center - South Region
Account No. 1065151010
Borrower: National Energy Group, Inc.
Attn: Special Servicing, Commercial Loan
Servicing Center - South Region
(Fax: 817-884-4651)
Attention: Randy Durant (214) 290-2721
- ---------------
1. Includes all previously billed and outstanding invoices.
<PAGE> 6
SCHEDULE 1
ARKANSAS
1. Mortgage, Deed of Trust, Security Agreement, Assignment of Production and
Financing Statement from NEG-OK, Inc. in favor of Bank One, Texas, N.A.,
Administrative Agent, effective as of August 29, 1996, filed and recorded
as follows:
(a) Crawford County, Arkansas, on September 13, 1996, File Number
96-026896, in Book 96, Pages 26896 - 26927.
(b) Franklin County, Arkansas, on September 12, 1996, in Mortgage Book
22, Page 376.
(c) Johnson County, Arkansas, on September 12, 1996, in Volume 185, Page
177.
(d) Logan County, Arkansas, on September 13, 1996, File Number 2305, in
Book NO96-9, Page 64.
(e) Pope County, Arkansas, on September 12, 1996, in Book 22T, Pages
330 - 381.
(f) Sebastian County, Arkansas, on September 17, 1996, in Book 629, Pages
041 - 070.
1
<PAGE> 7
SCHEDULE 1
LOUISIANA
1. Mortgage, Security Agreement, Assignment of Production and Financing
Statement effective as of September 1, 1998, by National Energy Group,
Inc. as Mortgagor for the use and benefit of Bank One, Texas, N.A.,
Administrative Agent, filed and recorded as follows:
(a) Iberville Parish, Louisiana on September 8, 1998 in Mortgage Book
319, Page 197 and Conveyance Book 511, Page 174.
(b) Lafourche Parish, Louisiana on September 8, 1998 in Mortgage Book
786, Page 479 and Conveyance Book 1361, Folio 462 (Entry #839479).
1
<PAGE> 8
SCHEDULE 1
NEW MEXICO
1. Assignment of Note and Liens by Texas Gas Fund I in favor of Bank One,
Texas, N.A. effective as of June 30, 1995, filed and recorded as follows:
(a) July 21, 1995 in the Records of Chaves County, New Mexico, Liber 237,
Page 798 (County does not issue File Numbers).
(b) July 20, 1995 in the Records of Eddy County, New Mexico, Reception
No. 957307, Book 224, Page 688.
(c) July 14, 1995 in the Records of Lea County, New Mexico, File No.
76200, Book 633, Page 683.
2. Amended and Restated Mortgage, Security Agreement, Assignment of
Production and Financing Statement effective as of June 30, 1995, executed
by National Energy Group, Inc., in favor of Bank One, Texas, N.A., filed
and recorded July 20, 1995 in the Records of Eddy County, New Mexico,
Reception No. 957308, Book 224, Page 693.
3. Amended and Restated Mortgage, Security Agreement, Assignment of Production
and Financing Statement, dated as of August 29, 1996, from National Energy
Group, Inc., as Grantor, for the use and benefit of Bank One Texas, N.A.,
Administrative Agent, filed and recorded by Eddy County, State of New
Mexico, on September 16, 1996, File Number 9610275, in Book 261, Pages 123
- 159.
1
<PAGE> 9
SCHEDULE 1
TEXAS
1. Assignment of Note and Liens by Texas Gas Fund I in favor of Bank One,
Texas, N.A. effective as of June 30, 1995, filed and recorded as follows:
(a) July 19, 1995 in the Records of Ector County, Texas, File No. 9112,
Book 1244, Page 188.
(b) July 17, 1995 in the Records of Howard County, Texas, File No. 4294,
Book 405, Page 183.
(c) July 14, 1995 in the Records of Irion County, Texas, File No. 15304,
Book 111, Page 590.
(d) July 14, 1995 in the Records of Nolan County, Texas, File No. 1638,
Book 332, Page 283.
(e) July 20, 1995 in the Records of Stephens County, Texas, File No.
2137, Book 1221, Page 144.
(f) July 18, 1995 in the Records of Sterling County, Texas, File No.
6443, Book 174, Page 689.
(g) July 14, 1995 in the Records of Throckmorton County, Texas, File No.
91574, Book 312, Page 904.
(h) July 14, 1995 in the Records of Yoakum County, Texas, File No.
200302, Book 145, Page 539.
(i) July 13, 1995 in the Records of Young County, Texas, File No. 2596,
Book 812, Page 126.
2. Amended and Restated Deed of Trust, Security Agreement, Assignment of
Production and Financing Statement effective as of June 30, 1995, executed
by National Energy Group, Inc., in favor of Bank One, Texas, N.A., filed
and recorded as follows:
(a) July 19, 1995 in the Records of Ector County, Texas, File No. 9113,
Book 1244, Page 193.
(b) July 14, 1995 in the Records of Gregg County, Texas, File No. 13743,
Book 2841, Page 553.
1
<PAGE> 10
(c) July 14, 1995 in the Records of Irion County, Texas, File No. 15305,
Book 111, Page 595.
(d) July 14, 1995 in the Records of Nueces County, Texas, File No. 969612
(County does not issue Book and Page Numbers.)
(e) July 14, 1995 in the Records of Rusk County, Texas, File No. 70709,
Book 1921, Page 543.
(f) July 13, 1995 in t he Records of Young County, Texas, File No. 2597,
Book 812, Page 131.
3. Deed of Trust, Security Agreement, Assignment of Production and Financing
Statement, from NEG-OK, Inc. in favor of Bank One, Texas, N.A.,
Administrative Agent, effective as of August 29, 1996, filed and recorded
as follows:
(a) Fayette County, Texas, on September 16, 1996, File Number 96-5205, in
Volume 965, Pages 252 - 289.
(b) Harrison County, Texas, on September 16, 1996, File Number 9123, in
Volume 1560, Pages 1 - 92.
(c) Hemphill County, Texas, on September 16, 1996, File Number 02223 9,
in Volume 415, Pages 170 - 203.
4. Amended and Restated Deed of Trust, Security Agreement, Assignment of
Production and Financing Statement, from National Energy Group, Inc. in
favor of Bank One, Texas, N.A., Administrative Agent, effective as of
August 29, 1996, filed and recorded as follows:
(a) Ector County, Texas, on September 16, 1996, File Number 10827, in
Volume 1303, Pages 615 - 654.
(b) Gregg County, Texas, on September 13, 1996, File Number 019700, in
Volume 3000, Pages 129 - 154.
(c) Irion County, Texas, on September 13, 1996, File Number 16455, in
Volume 119, Pages 179 - 202.
(d) Nueces County, Texas, on September 13, 1996, File Number 1996035768.
(e) Rusk County, Texas, on September 13, 1996, File Number 09077, in
Volume 1975, Pages 587 - 626.
2
<PAGE> 11
(f) Young County, Texas, on September 12, 1996, File Number 3 3 11, in
Deed of Trust Volume 215, Pages 242 - 264.
5. Deed of Trust, Security Agreement, Assignment of Production and Financing
Statement effective as of September 1, 1998, by National Energy Group,
Inc. as Grantor for the use and benefit of Bank One, Texas, N.A.,
Administrative Agent, filed and recorded as follows:
(a) Ector County, Texas on September 8, 1998 (File Number 12207) in
Volume 1418 Page 0105.
(b) Gregg County, Texas on September 8, 1998 in GCC 9819759.
(c) Harrison County, Texas on September 8, 1998 (Real Number 34010) in
Volume 1837, Page 197.
(d) Hidalgo County, Texas on October 21, 1998 at File Number 718377.
(e) Nueces County, Texas on September 8, 1998 Document Number #
1998039840.
(f) Rusk County, Texas on September 8, 1998 (File Number 3 3284) in
Volume 2092, Page 0425.
(g) Willacy County, Texas on September 8, 1998 (File Number 276111) in
Volume 064, Page 158.
(h) Texas General Land Office on October 26, 1998.
3
<PAGE> 12
SCHEDULE 1
OKLAHOMA
1. Assignment of Note and Liens by Texas Gas Fund I in favor of Bank One,
Texas, N.A. effective as of June 30, 1995, filed and recorded as follows:
(a) July 17, 1995 in the Records of Alfalfa County, Oklahoma, File No.
8170, Book 514, Page 18.
(b) July 18, 1995 in the Records of Beaver County, Oklahoma, File No.
F2267, Book 0949, Page 142.
(c) July 17, 1995 in the Records of Blaine County, Oklahoma, File No.
2539, Book 703, Page 506.
(d) July 14, 1995 in the Records of Caddo County, Oklahoma, File No.
9505279, Book 1990, Page 98.
(e) July 14, 1995 in the Records of Canadian County, Oklahoma, File No.
12296, Book 1943, Page 672.
(f) July 13, 1995 in the Records of Carter County, Oklahoma, File No.
7446, Book 2011, Page 146.
(g) July 14, 1995 in the Records of Cleveland County, Oklahoma, File No.
70794-A, Book 2650, Page 798.
(h) July 14, 1995 in the Records of Custer County, Oklahoma, File No.
3694, Book 95 1, Page 569.
(i) July 14, 1995 in the Records of Dewey County, Oklahoma, File No.
1669, Book 1031, Page 221.
(j) July 14, 1995 in the Records of Ellis County, Oklahoma, File No.
6265, Book 585, Page 389.
(k) July 14, 1995 in the Records of Garvin County, Oklahoma, File No.
5205, Book 1424, Page 653.
(1) July 14, 1995 in the Records of Grady County, Oklahoma, File No.
108549, Book 2797, Page 90.
1
<PAGE> 13
(m) July 14, 1995 in the Records of Haskell County, Oklahoma, File No.
262188, Book 535, Page 503.
(n) July 17, 1995 in the Records of Kingfisher County, Oklahoma, File No.
3330, Book 1458, Page 19.
(o) July 14, 1995 in the Records of Major County, Oklahoma, File No.
40930, Book 1388, Page 96.
(p) July 14,1995 in the Records of McClain County, Oklahoma, File No.
4567, Book 1401, Page 72.
(q) July 14, 1995 in the Records of Woods County, Oklahoma, File No.
2902, Book 797, Page 537.
(r) July 14, 1995 in the Records of Woodward County, Oklahoma, File No.
216, Book 1456, Page 296.
2. Amended and Restated Mortgage, Security Agreement, Assignment of
Production and Financing Statement effective as of June 30, 1995, executed
by National Energy Group, Inc., in favor of Bank One, Texas, N.A., filed
and recorded as follows:
(a) July 14, 1995 in the Records of Dewey County, Oklahoma, File No.
001670, Book 1031, Page 236.
(b) July 14, 1995 in the Records of Ellis County, Oklahoma, File No.
6266, Book 585, Page 399.
(c) July 14, 1995 in the Records of Major County, Oklahoma, File No.
40931, Book 1388, Page 102.
3. Mortgage, Security Agreement, Assignment of Production and Financing
Statement from NEG-OK, Inc., in favor of Bank One, Texas, N.A.,
Administrative Agent, effective as of August 29, 1996, filed and recorded
as follows:
(a) Alfalfa County, Oklahoma, on September 16,1996, File Number 11501, in
Book 522, Pages 515 - 543.
(b) Beckham County, Oklahoma, on September 16,1996, File Number 06022, in
Book 1486, Pages 206 - 241.
(c) Blaine County, Oklahoma, on September 16, 1996, File Number 003622,
in Book 727, Pages 83 - 126.
2
<PAGE> 14
(d) Caddo County, Oklahoma, on September 16, 1996, File Number 9607301,
in Book 2079, Pages 40 - 131.
(e) Canadian County, Oklahoma, on September 16, 1996, File Number 018361,
in Book 2021, Pages 434 - 661.
(f) Carter County, Oklahoma, on September 13, 1996, File Number 010930,
in Book 3048, Pages 76 - 114.
(g) Coal County, Oklahoma, on September 16, 1996, File Number 97208, in
Book 559, Pages 501 - 530.
(h) Custer County, Oklahoma, on September 16, 1996, File Number 5162, in
Book 983, Pages 160 - 200.
(i) Dewey County, Oklahoma, on September 16, 1996, File Number 002546, in
Book 1053, Pages 378 - 437.
(j) Ellis County, Oklahoma, on September 16, 1996, File Number 113, in
Misc. Book 597, Pages 800 - 831.
(k) Garfield County, Oklahoma, on September 16, 1996, File Number 011894,
in Book 1337, Pages 87 - 115.
(1) Garvin County, Oklahoma, on September 18, 1996, File Number 07101, in
Book 1458, Pages 369 - 400.
(m) Grady County, Oklahoma, on September 16, 1996, File Number 129157, in
Book 2885, Pages 287 - 334.
(n) Harper County, Oklahoma, on September 16, 1996, File Number 1S-575,
in Book 0518, Pages 137 - 164.
(o) Haskell County, Oklahoma, on September 16, 1996, File Number 266270,
in Book 547, Pages 243 - 287.
(p) Kingfisher County, Oklahoma, on September 16, 1996, File Number 4070,
in Book 1516, Pages 001 - 041.
(q) Latimer County, Oklahoma, on September 16, 1996, File Number 389048,
in Book 0495, Pages 0747 - 0796.
3
<PAGE> 15
(r) Logan County, Oklahoma, on September 16, 1996, File Number 7180, in
Book 1407, Pages 244 - 272.
(s) Love County, Oklahoma, on September 13, 1996, File Number 2011, in
Book 488, Pages 370 - 405.
(t) Major County, Oklahoma, on September 17, 1996, File Number 45579,
in Book 1414, Pages 006 - 044.
(u) Oklahoma County, Oklahoma, on September 20,1996, File Number
96131110, in Book 6952, Pages 790 - 825.
(v) Pittsburg County, Oklahoma, on September 17, 1996, File Number 009091,
in Book 889, Pages 784 - 854.
(w) Roger Mills County, Oklahoma, on September 16, 1996, File Number 0991,
in Book 1502, Pages 226 - 261.
(x) Sequoyah County, Oklahoma, on September 16,1996, File Number 005848,
in Book 793, Pages 430 - 466.
(y) Washita County, Oklahoma, on September 16, 1996, File Number 4689, in
Book 840, Pages 154 - 186.
(z) Woods County, Oklahoma, on September 17,1996, File Number 7464, in
Book 819, Pages 390 - 426.
(aa) Woodward County, Oklahoma, on September 17, 1996, File Number 1451,
in Book 1513, Pages 53 - 92.
4. Amended and Restated Mortgage, Security Agreement, Assignment of
Production and Financing Statement from National Energy Group, Inc. in
favor of Bank One, Texas, N.A., Administrative Agent, effective as of
August 29, 1996, filed and recorded as follows:
(a) Dewey County, Oklahoma, on September 23, 1996, File Number 002589,
in Book 1053, Pages 615 - 641.
(b) Ellis County, Oklahoma, on September 13, 1996, File Number 93, in
Misc. Book 597, Pages 721 - 747.
(c) Major County, Oklahoma, on September 13, 1996, File Number 45553, in
Misc. Book 1413, Pages 421 - 447.
4
<PAGE> 16
5. Mortgage, Security Agreement, Assignment of Production and Financing
Statement effective as of September 1, 1998, by National Energy Group,
Inc. as Mortgagor for the use and benefit of Bank One, Texas, N.A.,
Administrative Agent, filed and recorded as follows:
(a) Beckham County, Oklahoma on September 8, 1998 (File Number 05943) in
Book 1574, Pages 571-598.
(b) Caddo County, Oklahoma on September 8, 1998 (File Number 1998 6693)
in Book 2192, Page 305.
(c) Custer County, Oklahoma on September 8, 1998 (File Number 5196) in
Book 1049, Page 687.
(d) Dewey County, Oklahoma on September 8, 1998 (File Number 002933) in
Book 1096, Page 64.
(e) Ellis County, Oklahoma on September 9, 1998 (File Number 6627) in
Book 621, Page 709.
(f) Grady County, Oklahoma on September 8, 1998 (File Number 12126) in
Book 3055, Page 504.
(g) Latimer County, Oklahoma on September 8, 1998 (File Number 002738) in
Book 0528, Page 0089.
(h) Roger Mills County, Oklahoma on September 9, 1998 in Book 1566, Page
361.
(i) Washita County, Oklahoma on September 8, 1998 (File Number 3826) in
Book 877, Pages 667-691.
(j) Woods County, Oklahoma on September 8, 1998 (File Number 5200-2) in
Book 860, Page 344.
5
<PAGE> 17
SCHEDULE 1
WYOMING
1. Assignment of Note and Liens by Texas Gas Fund I in favor of Bank One,
Texas, N.A. dated June 30, 1995, filed and recorded as follows:
(a) July 24, 1995 in the Records of Campbell County, Wyoming, File No.
698047, Book 1343 of Photos, Page 303.
(b) July 17, 1995 in the Records of Lincoln County, Wyoming, File No.
805213, Book 370PR, Page 849.
(c) July 17, 1995 in the Records of Sublette County, Wyoming, File No.
252969, Book 101 O&G, Page 710.
(d) July 17, 1995 in the Records of Sweetwater County, Wyoming, File No.
1193313, Book 864, Page 1944.
2. Amended and Restated Deed of Trust, Mortgage, Security Agreement,
Assignment of Production and Financing Statement dated June 30, 1995,
executed by National Energy Group, Inc. filed in favor of Bank One, Texas,
N.A., filed and recorded July 17, 1995 in the Records of Sweetwater
County, Wyoming, File No. 1193314, Book 864, Page 1951.
3. Amended and Restated Deed of Trust, Mortgage, Security Agreement,
Assignment of Production and Financing Statement, dated as of August 29,
1996, from National Energy Group, Inc. as Grantor for the use and benefit
of Bank One Texas, N.A., Administrative Agent, filed and recorded by
Sweetwater County, Wyoming, on September 16, 1996, File Number 1222817, in
Book 0878, Pages 1760 - 1783.
1
<PAGE> 1
EXHIBIT 10.50
Iberville Parish - Louisiana
ASSIGNMENT AGREEMENT
(MULTI-STATE)
Assignment Agreement, dated December 22, 1998 between Bank One, Texas,
N.A. ("Bank One"), Credit Lyonnais New York Branch ("Credit Lyonnais"), and
Arnos Corp. ("Assignee"). Bank One and Credit Lyonnais are individually referred
to herein as an "Assignor" and collectively the "Assignors."
Reference is made to the Restated Loan Agreement, dated August 29,
1996, among National Energy Group, Inc., as Borrower, NEG-OK INC. and Boomer
Marketing Corporation, as Guarantors, Bank One and Credit Lyonnais, as Banks,
Bank One, as Administrative Agent, and Credit Lyonnais, as Syndication Agent,
as amended by the First Amendment To Restated Loan Agreement, dated October 31,
1996, the Second Amendment to Restated Loan Agreement, dated March 7, 1997, the
Third Amendment to Restated Loan Agreement, dated May 12, 1997, and the Fourth
Amendment to Restated Loan Agreement, dated August 21, 1997 ( such amendments
being collectively referred to herein as the "Amendments" and such Restated
Loan Agreement, as amended by the Amendments, being referred to herein as the
"Loan Agreement"). Reference is further made to the Deeds of Trust, Mortgages
and Financing Statements described on Schedule "1" hereto, covering, the
collateral therein described, reference to which is hereby made for all
purposes (collectively, the "Security Documents"). Unless otherwise indicated
herein, terms defined in the Loan Agreement are used herein as therein defined.
Each of the Assignors and the Assignee hereby agree as follows:
1. For the Purchase Price set forth in Annex I hereto, the receipt
of which is hereby acknowledged, each Assignor hereby sells, assigns and
transfers to the Assignee, without recourse and without representation or
warranty (other than as expressly provided herein), and the Assignee hereby
purchases and assumes from such Assignor, all of such Assignor's right title
and interest in and to (i) its Notes, the Security Documents and any documents
or agreements existing in connection therewith (collectively, the "Loan
Documents"), (ii) any security interest and liens created by, or existing
under, the Loan Documents (collectively, the "Liens") and (iii) all of such
Assignor's right, title, interest, liens and powers in and to the deeds of
trust and mortgages as security for Borrower's obligations under the Notes, the
Security Documents and the other Loan Documents.
2. Each Assignor severally, and not jointly, hereby represents and
warrants that (i) it is the legal and beneficial owner of the Loan Documents
free and clear of any Liens and that it has the full right, power and authority
to transfer and assign the Loan Documents and the Liens (as defined in the Loan
Agreement); (ii) that the unpaid principal amount of and the unaccrued and
unpaid interest on its Note is set forth on Annex I hereto as of the dates
indicated; (iii) except for Partial Releases, heretofore delivered, it has not
assigned the Loan Documents or the Liens to any other Person or entity and (iv)
the Notes and other obligations of Borrower under the Loan Documents are in
default and all such obligations have been accelerated, as of December 3, 1998,
pursuant to the terms of the Loan Agreement. Notwithstanding anything herein to
the contrary,
<PAGE> 2
each Assignor (i) makes no representation or warranty and assumes no
responsibility for any statements, warranties or representations made in or in
connection with the Loan Agreement (by Borrower or by any other person) or with
respect to the execution, legality, validity, enforceability, genuineness,
sufficiency or value of the Loan Agreement, the Security Documents, the other
Loan Documents or the Liens or any document or instrument furnished or executed
in connection therewith; and (ii) makes no representation or warranty and
assumes no responsibility with respect to the financial condition of Borrower,
or any affiliate or other obligor, or any of their respective obligations under
the Loan Agreement, the Security Documents or any other Loan Document or any
other document or instrument furnished in connection therewith.
3. The Assignee (i) represents and warrants that it is duly
authorized to enter into and perform the terms of this Assignment Agreement,
(ii) confirms that it has received a copy of the Loan Agreement and the other
Loan Documents, together with copies of the financial statements referred to
therein and such other documents and information as it has deemed appropriate
to make its own credit analysis and decision to enter into this Assignment
Agreement; (iii) agrees that it will, independently and without reliance upon
the Assignors or any other Bank and based on such documents and information as
it shall deem appropriate at the time, continue to make its own credit
decisions in taking or not taking action under the Loan Agreement; and (iv)
agrees that it will perform in accordance with their terms all of the
obligations which by the terms of the Loan Agreement are required to be
performed by it as a Bank.
4. This Assignment Agreement is effective on and as of the date
first above written. The Assignee is deemed a party to the Loan Agreement and
has the rights and obligations of a Bank thereunder and under the other Loan
Documents. Each Assignor relinquishes its right and is released from its
obligations under the Loan Agreement and the other Loan Documents. Bank One
hereby resigns (effective as of the date hereof) as Administrative Agent and
Credit Lyonnais hereby resigns (effective as of the date hereof) as Syndication
Agent pursuant to the provisions of the Loan Agreement, and the Borrower, the
Guarantor, each Bank and the Assignee hereby consent to such resignations and
hereby release Bank One and Credit Lyonnais from their respective obligations
as Administrative Agent and Syndication Agent, respectively.
5. From and after the date hereof the Assignee shall be entitled to
all payments on account of each Assignor's Notes and which, but for this
Assignment Agreement, would have been due to the Assignors under the Loan
Agreement and the other Loan Documents, without any adjustments.
6. After the date hereof, at Assignee's expense, each Assignor shall
take such action and execute and deliver all such documents and instruments as
Assignee may reasonably request for the purpose of implementing or affectuating
this Assignment Agreement or to consummate the transactions contemplated
hereby.
7. By its execution of this Assignment Agreement each of the Borrower
and the Guarantor (i) consents to the sale, assignment and transfer of the
Assignors' Notes and other rights referred to herein to Assignee and
specifically approves the Assignee as an assignee
2
<PAGE> 3
notwithstanding Section 27 of the Loan Agreement, (ii) waives compliance with
Section 27(a)(2) of the Loan Agreement, and (iii) waives compliance with
Section 27(a)(4) of the Loan Agreement.
8. The Assignee agrees to reimburse each Assignor for reasonable
fees and disbursements of counsel incurred by such Assignor in connection with
the preparation and negotiation of this Assignment Agreement and the
consummation of the transaction contemplated hereby. Such fees and expenses are
included with the outstanding legal fees and expenses due Assignor's counsel
under the provisions of the Loan Documents, which fees and expenses are part of
the obligations owed to the Assignors and are shown on Annex I and included in
the Purchase Price.
9. THIS ASSIGNMENT AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS WITHOUT REGARD TO PRINCIPLES OF
CONFLICT OF LAWS.
IN WITNESS WHEREOF, the parties have caused this Assignment Agreement
to be executed and delivered on the date first above written.
Witnesses: BANK ONE, TEXAS, N.A., in its capacity as a
Bank and as Administrative Agent, Assignor
- ----------------------------
By:
- ---------------------------- ---------------------------
Its:
--------------------------
CREDIT LYONNAIS NEW YORK BRANCH, in its
capacity as a Bank and as Syndication Agent,
Assignor
By:
---------------------------
Its:
--------------------------
ARNOS CORP., Assignee
By:
---------------------------
Its:
--------------------------
Consented to:
NATIONAL ENERGY GROUP, INC., Borrower
WITNESSES TO NATIONAL ENERGY GROUP, INC.
AND BOOMER MARKETING CORPORATION
By: /s/ [ILLEGIBLE] /s/ MARILYN J. GRAHAM
--------------------------- ---------------------------
Its: Vice President /s/ GRACE BRICKER
-------------------------- ---------------------------
3
<PAGE> 4
BOOMER MARKETING CORPORATION, Guarantor
By: /s/ [ILLEGIBLE]
---------------------------
Its: Vice President
--------------------------
4
<PAGE> 5
STATE OF TEXAS )
)
COUNTY OF DALLAS )
This instrument was acknowledged before me on this ______ day of December,
1998, by ___________________, of BANK ONE, TEXAS, N.A., a national banking
association, on behalf of said association in its individual capacity and as
Administrative Agent.
-------------------------------------------
My Commission Expires: Notary Public in and for the State of Texas
- ------------------------------
-------------------------------------------
Printed Name of Notary
STATE OF NEW YORK )
)
COUNTY OF NEW YORK )
This instrument was acknowledged before me on this _____ day of ______________,
1998, by __________________, _______________,of CREDIT LYONNAIS NEW YORK
BRANCH, a licensed branch of a French banking corporation, on behalf of said
corporation in its individual capacity and as Syndication Agent.
----------------------------------------------
My Commission Expires: Notary Public in and for the State of New York
- ------------------------------
----------------------------------------------
Printed Name of Notary
STATE OF NEW YORK )
)
COUNTY OF NEW YORK )
This instrument was acknowledged before me on this _____ day of December, 1998,
by Edward E. Mattner, Vice President, of ARNOS CORP., a Nevada corporation, on
behalf of said corporation.
----------------------------------------------
My Commission Expires: Notary Public in and for the State of New York
- ------------------------------
----------------------------------------------
Printed Name of Notary
<PAGE> 6
ANNEX I
BANK ONE
--------
<TABLE>
<CAPTION>
Outstanding Accrued an
Principal Amount Unpaid Interest
---------------- ---------------
<S> <C> <C> <C>
Revolving Note: as of 12/20 $12,500,000.00 $101,829.01
(due next a.m.)
as of 12/21 $12,500,000.00 $107,993.39
(due next a.m.)
as of 12/22 $12,500,000.00 $114,157.78
(due next a.m.)
Counsel Fees and
Disbursements: $ 64,409.00(1)
Purchase Price:
as of 12/20 (due next a.m.) $12,666,238.01
as of 12/21 (due next a.m.) $12,672,402.39
as of 12/22 (due next a.m. $12,678,566.78
</TABLE>
<TABLE>
<CAPTION>
CREDIT LYONNAIS
---------------
<S> <C> <C> <C>
Revolving Note: as of 12/20 $12,500,000.00 $101,829.01
(due next a.m.)
as of 12/21 $12,500,000.00 $107,993.40
(due next a.m.)
as of 12/22 $12,500,000.00 $114,157.78
(due next a.m.)
Counsel Fees and
Disbursements: $ -0-
Purchase Price:
as of 12/20 (due next a.m.) $12,601,829.01
as of 12/21 (due next a.m.) $12,607,993.40
as of 12/22 (due next a.m.) $12,614,157.78
</TABLE>
<TABLE>
<S> <C>
Wiring Instructions:
Bank One, Texas N.A. Credit Lyonnais New York Branch
Dallas, Texas 75201 ABA #026008073
ABA (for Texas) 111000614 Attention: Loan Servicing Dept.
BENF - Commercial Loan Servicing Reference: National Energy Group, Inc.
Center - South Region
Account No. 1065151010
Borrower: National Energy Group, Inc.
Attn: Special Servicing, Commercial Loan
Servicing Center - South Region
(Fax: 817-884-4651)
Attention: Randy Durant (214) 290-2721
</TABLE>
- --------------
(1) Includes all previously billed and outstanding invoices.
<PAGE> 7
SCHEDULE 1
ARKANSAS
1. Mortgage, Deed of Trust, Security Agreement, Assignment of Production and
Financing Statement from NEG-OK, Inc. in favor of Bank One, Texas, N.A.,
Administrative Agent, effective as of August 29, 1996, filed and recorded
as follows:
(a) Crawford County, Arkansas, on September 13, 1996, File Number
96-026896, in Book 96, Pages 26896 - 26927.
(b) Franklin County, Arkansas, on September 12, 1996, in Mortgage Book
22, Page 376.
(c) Johnson County, Arkansas, on September 12, 1996, in Volume 185, Page
177.
(d) Logan County, Arkansas, on September 13, 1996, File Number 2305, in
Book NO96-9, Page 64.
(e) Pope County, Arkansas, on September 12, 1996, in Book 22T, Pages
330 - 381.
(f) Sebastian County, Arkansas, on September 17, 1996, in Book 629, Pages
041 - 070.
1
<PAGE> 8
SCHEDULE 1
LOUISIANA
1. Mortgage, Security Agreement, Assignment of Production and Financing
Statement effective as of September 1, 1998, by National Energy Group,
Inc. as Mortgagor for the use and benefit of Bank One, Texas, N.A.,
Administrative Agent, filed and recorded as follows:
(a) Iberville Parish, Louisiana on September 8, 1998 in Mortgage Book
319, Page 197 and Conveyance Book 511, Page 174.
(b) Lafourche Parish, Louisiana on September 8, 1998 in Mortgage Book
786, Page 479 and Conveyance Book 1361, Folio 462 (Entry #839479).
1
<PAGE> 9
SCHEDULE 1
NEW MEXICO
1. Assignment of Note and Liens by Texas Gas Fund I in favor of Bank One,
Texas, N.A. effective as of June 30, 1995, filed and recorded as follows:
(a) July 21, 1995 in the Records of Chaves County, New Mexico, Liber 237,
Page 798 (County does not issue File Numbers).
(b) July 20, 1995 in the Records of Eddy County, New Mexico, Reception
No. 957307, Book 224, Page 688.
(c) July 14, 1995 in the Records of Lea County, New Mexico, File No.
76200, Book 633, Page 683.
2. Amended and Restated Mortgage, Security Agreement, Assignment of
Production and Financing Statement effective as of June 30, 1995, executed
by National Energy Group, Inc., in favor of Bank One, Texas, N.A., filed
and recorded July 20, 1995 in the Records of Eddy County, New Mexico,
Reception No. 957308, Book 224, Page 693.
3. Amended and Restated Mortgage, Security Agreement, Assignment of
Production and Financing Statement, dated as of August 29, 1996, from
National Energy Group, Inc., as Grantor, for the use and benefit of Bank
One Texas, N.A., Administrative Agent, filed and recorded by Eddy County,
State of New Mexico, on September 16, 1996, File Number 9610275, in Book
261, Pages 123 - 159.
1
<PAGE> 10
SCHEDULE 1
TEXAS
1. Assignment of Note and Liens by Texas Gas Fund I in favor of Bank One,
Texas, N.A. effective as of June 30, 1995, filed and recorded as follows:
(a) July 19, 1995 in the Records of Ector County, Texas, File No. 9112,
Book 1244, Page 188.
(b) July 17, 1995 in the Records of Howard County, Texas, File No. 4294,
Book 405, Page 183.
(c) July 14, 1995 in the Records of Irion County, Texas, File No. 15304,
Book 111, Page 590.
(d) July 14, 1995 in the Records of Nolan County, Texas, File No. 1638,
Book 332, Page 283.
(e) July 20, 1995 in the Records of Stephens County, Texas, File No.
2137, Book 1221, Page 144.
(f) July 18, 1995 in the Records of Sterling County, Texas, File No.
6443, Book 174, Page 689.
(g) July 14, 1995 in the Records of Throckmorton County, Texas, File No.
91574, Book 312, Page 904.
(h) July 14, 1995 in the Records of Yoakum County, Texas, File No.
200302, Book 145, Page 539.
(i) July 13, 1995 in the Records of Young County, Texas, File No. 2596,
Book 812, Page 126.
2. Amended and Restated Deed of Trust, Security Agreement, Assignment of
Production and Financing Statement effective as of June 30, 1995, executed
by National Energy Group, Inc., in favor of Bank One, Texas, N.A., filed
and recorded as follows:
(a) July 19, 1995 in the Records of Ector County, Texas, File No. 9113,
Book 1244, Page 193.
(b) July 14, 1995 in the Records of Gregg County, Texas, File No. 13743,
Book 2841, Page 553.
1
<PAGE> 11
(c) July 14, 1995 in the Records of Irion County, Texas, File No. 15305,
Book 111, Page 595.
(d) July 14, 1995 in the Records of Nueces County, Texas, File No. 969612
(County does not issue Book and Page Numbers.)
(e) July 14, 1995 in the Records of Rusk County, Texas, File No. 70709,
Book 1921, Page 543.
(f) July 13, 1995 in the Records of Young County, Texas, File No. 2597,
Book 812, Page 131.
3. Deed of Trust, Security Agreement, Assignment of Production and Financing
Statement, from NEG-OK, Inc. in favor of Bank One, Texas, N.A.,
Administrative Agent, effective as of August 29, 1996, filed and recorded
as follows:
(a) Fayette County, Texas, on September 16, 1996, File Number 96-5205, in
Volume 965, Pages 252 - 289.
(b) Harrison County, Texas, on September 16, 1996, File Number 9123, in
Volume 1560, Pages 1 - 92.
(c) Hemphill County, Texas, on September 16, 1996, File Number 022239, in
Volume 415, Pages 170 - 203.
4. Amended and Restated Deed of Trust, Security Agreement, Assignment of
Production and Financing Statement, from National Energy Group, Inc. in
favor of Bank One, Texas, N.A., Administrative Agent, effective as of
August 29, 1996, filed and recorded as follows:
(a) Ector County, Texas, on September 16, 1996, File Number 10827, in
Volume 1303, Pages 615 - 654.
(b) Gregg County, Texas, on September 13, 1996, File Number 019700, in
Volume 3000, Pages 129 - 154.
(c) Irion County, Texas, on September 13, 1996, File Number 16455, in
Volume 119, Pages 179 - 202.
(d) Nueces County, Texas, on September 13, 1996, File Number 1996035768.
(e) Rusk County, Texas, on September 13, 1996, File Number 09077, in
Volume 1975, Pages 587 - 626.
2
<PAGE> 12
(f) Young County, Texas, on September 12, 1996, File Number 3311, in
Deed of Trust Volume 215, Pages 242 - 264.
5. Deed of Trust, Security Agreement, Assignment of Production and Financing
Statement effective as of September 1, 1998, by National Energy Group,
Inc. as Grantor for the use and benefit of Bank One, Texas, N.A.,
Administrative Agent, filed and recorded as follows:
(a) Ector County, Texas on September 8, 1998 (File Number 12207) in
Volume 1418 Page 0105.
(b) Gregg County, Texas on September 8, 1998 in GCC 9819759.
(c) Harrison County, Texas on September 8, 1998 (Real Number 34010) in
Volume 1837, Page 197.
(d) Hidalgo County, Texas on October 21, 1998 at File Number 718377.
(e) Nueces County, Texas on September 8, 1998 Document Number
#1998039840.
(f) Rusk County, Texas on September 8, 1998 (File Number 33284) in Volume
2092, Page 0425.
(g) Willacy County, Texas on September 8, 1998 (File Number 276111) in
Volume 064, Page 158.
(h) Texas General Land Office on October 26, 1998.
3
<PAGE> 13
SCHEDULE 1
OKLAHOMA
1. Assignment of Note and Liens by Texas Gas Fund I in favor of Bank One,
Texas, N.A. effective as of June 30, 1995, filed and recorded as follows:
(a) July 17, 1995 in the Records of Alfalfa County, Oklahoma, File No.
8170, Book 514, Page 18.
(b) July 18, 1995 in the Records of Beaver County, Oklahoma, File No.
F2267, Book 0949, Page 142.
(c) July 17, 1995 in the Records of Blaine County, Oklahoma, File No.
2539, Book 703, Page 506.
(d) July 14, 1995 in the Records of Caddo County, Oklahoma, File No.
9505279, Book 1990, Page 98.
(e) July 14, 1995 in the Records of Canadian County, Oklahoma, File No.
12296, Book 1943, Page 672.
(f) July 13, 1995 in the Records of Carter County, Oklahoma, File No.
7446, Book 2011, Page 146.
(g) July 14, 1995 in the Records of Cleveland County, Oklahoma, File No.
70794-A, Book 2650, Page 798.
(h) July 14, 1995 in the Records of Custer County, Oklahoma, File No.
3694, Book 951, Page 569.
(i) July 14, 1995 in the Records of Dewey County, Oklahoma, File No.
1669, Book 1031, Page 221.
(j) July 14, 1995 in the Records of Ellis County, Oklahoma, File No.
6265, Book 585, Page 389.
(k) July 14, 1995 in the Records of Garvin County, Oklahoma, File No.
5205, Book 1424, Page 653.
(1) July 14, 1995 in the Records of Grady County, Oklahoma, File No.
108549, Book 2797, Page 90.
1
<PAGE> 14
(m) July 14, 1995 in the Records of Haskell County, Oklahoma, File No.
262188, Book 535, Page 503.
(n) July 17, 1995 in the Records of Kingfisher County, Oklahoma, File No.
3330, Book 1458, Page 19.
(o) July 14,1995 in the Records of Major County, Oklahoma, File No.
40930, Book 1388, Page 96.
(p) July 14, 1995 in the Records of McClain County, Oklahoma, File No.
4567, Book 1401, Page 72.
(q) July 14, 1995 in the Records of Woods County, Oklahoma, File No.
2902, Book 797, Page 537.
(r) July 14, 1995 in the Records of Woodward County, Oklahoma, File No.
216, Book 1456, Page 296.
2. Amended and Restated Mortgage, Security Agreement, Assignment of
Production and Financing Statement effective as of June 30, 1995, executed
by National Energy Group, Inc., in favor of Bank One, Texas, N.A., filed
and recorded as follows:
(a) July 14, 1995 in the Records of Dewey County, Oklahoma, File No.
001670, Book 1031, Page 236.
(b) July 14, 1995 in the Records of Ellis County, Oklahoma, File No.
6266, Book 585, Page 399.
(c) July 14, 1995 in the Records of Major County, Oklahoma, File No.
40931, Book 1388, Page 102.
3. Mortgage, Security Agreement, Assignment of Production and Financing
Statement from NEG-OK, Inc., in favor of Bank One, Texas, N.A.,
Administrative Agent, effective as of August 29, 1996, filed and recorded
as follows:
(a) Alfalfa County, Oklahoma, on September 16, 1996, File Number 11501,
in Book 522, Pages 515 - 543.
(b) Beckham County, Oklahoma, on September 16, 1996, File Number 06022,
in Book 1486, Pages 206 - 241.
(c) Blaine County, Oklahoma, on September 16, 1996, File Number 003622,
in Book 727, Pages 83 - 126.
2
<PAGE> 15
(d) Caddo County, Oklahoma, on September 16,1996, File Number 9607301, in
Book 2079, Pages 40 - 131.
(e) Canadian County, Oklahoma, on September 16, 1996, File Number 018361,
in Book 2021, Pages 434 - 661.
(f) Carter County, Oklahoma, on September 13, 1996, File Number 010930,
in Book 3048, Pages 76 - 114.
(g) Coal County, Oklahoma, on September 16, 1996, File Number 97208, in
Book 559, Pages 501 - 530.
(h) Custer County, Oklahoma, on September 16, 1996, File Number 5162, in
Book 983, Pages 160 - 200.
(i) Dewey County, Oklahoma, on September 16, 1996, File Number 002546, in
Book 1053, Pages 378 - 437.
(j) Ellis County, Oklahoma, on September 16, 1996, File Number 113, in
Misc. Book 597, Pages 800 - 831.
(k) Garfield County, Oklahoma, on September 16, 1996, File Number 011894,
in Book 1337, Pages 87 - 115.
(1) Garvin County, Oklahoma, on September 18, 1996, File Number 07101, in
Book 1458, Pages 369 - 400.
(m) Grady County, Oklahoma, on September 16, 1996, File Number 129157, in
Book 2885, Pages 287 - 334.
(n) Harper County, Oklahoma, on September 16, 1996, File Number 1S-575,
in Book 0518, Pages 137 - 164.
(o) Haskell County, Oklahoma, on September 16, 1996, File Number 266270,
in Book 547, Pages 243 - 287.
(p) Kingfisher County, Oklahoma, on September 16, 1996, File Number 4070,
in Book 1516, Pages 001 - 041.
(q) Latimer County, Oklahoma, on September 16, 1996, File Number 389048,
in Book 0495, Pages 0747 - 0796.
3
<PAGE> 16
(r) Logan County, Oklahoma, on September 16, 1996, File Number 7180, in
Book 1407, Pages 244 - 272.
(s) Love County, Oklahoma, on September 13, 1996, File Number 2011, in
Book 488, Pages 370 - 405.
(t) Major County, Oklahoma, on September 17, 1996, File Number 45579, in
Book 1414, Pages 006 - 044.
(u) Oklahoma County, Oklahoma, on September 20, 1996, File Number
96131110, in Book 6952, Pages 790 - 825.
(v) Pittsburg County, Oklahoma, on September 17, 1996, File Number
009091, in Book 889, Pages 784 - 854.
(w) Roger Mills County, Oklahoma, on September 16, 1996, File Number
0991, in Book 1502, Pages 226 - 261.
(x) Sequoyah County, Oklahoma, on September 16, 1996, File Number 005848,
in Book 793, Pages 430 - 466.
(y) Washita County, Oklahoma, on September 16, 1996, File Number 4689, in
Book 840, Pages 154 - 186.
(z) Woods County, Oklahoma, on September 17, 1996, File Number 7464, in
Book 819, Pages 390 - 426.
(aa) Woodward County, Oklahoma, on September 17, 1996, File Number 1451,
in Book 1513, Pages 53 - 92.
4. Amended and Restated Mortgage, Security Agreement, Assignment of
Production and Financing Statement from National Energy Group, Inc. in
favor of Bank One, Texas, N.A., Administrative Agent, effective as of
August 29, 1996, filed and recorded as follows:
(a) Dewey County, Oklahoma, on September 23, 1996, File Number 002589, in
Book 1053, Pages 615 - 641.
(b) Ellis County, Oklahoma, on September 13, 1996, File Number 93, in
Misc. Book 597, Pages 721 - 747.
(c) Major County, Oklahoma, on September 13, 1996, File Number 45553, in
Misc. Book 1413, Pages 421 - 447.
4
<PAGE> 17
5. Mortgage, Security Agreement, Assignment of Production and Financing
Statement effective as of September 1, 1998, by National Energy Group,
Inc. as Mortgagor for the use and benefit of Bank One, Texas, N.A.,
Administrative Agent, filed and recorded as follows:
(a) Beckham County, Oklahoma on September 8, 1998 (File Number 05943) in
Book 1574, Pages 571-598.
(b) Caddo County, Oklahoma on September 8, 1998 (File Number 1998 6693) in
Book 2192, Page 305.
(c) Custer County, Oklahoma on September 8, 1998 (File Number 5196) in
Book 1049, Page 687.
(d) Dewey County, Oklahoma on September 8, 1998 (File Number 002933) in
Book 1096, Page 64.
(e) Ellis County, Oklahoma on September 9, 1998 (File Number 6627) in Book
621, Page 709.
(f) Grady County, Oklahoma on September 8, 1998 (File Number 12126) in
Book 3055, Page 504.
(g) Latimer County, Oklahoma on September 8, 1998 (File Number 002738) in
Book 0528, Page 0089.
(h) Roger Mills County, Oklahoma on September 9, 1998 in Book 1566, Page
361.
(i) Washita County, Oklahoma on September 8, 1998 (File Number 3826) in
Book 877, Pages 667-691.
(j) Woods County, Oklahoma on September 8, 1998 (File Number 5200-2) in
Book 860, Page 344.
5
<PAGE> 18
SCHEDULE 1
WYOMING
1. Assignment of Note and Liens by Texas Gas Fund I in favor of Bank One,
Texas, N.A. dated June 30, 1995, filed and recorded as follows:
(a) July 24, 1995 in the Records of Campbell County, Wyoming, File No.
698047, Book 1343 of Photos, Page 303.
(b) July 17, 1995 in the Records of Lincoln County, Wyoming, File No.
805213, Book 370PR, Page 849.
(e) July 17, 1995 in the Records of Sublette County, Wyoming, File No.
252969, Book 101 O&G Page 710.
(d) July 17, 1995 in the Records of Sweetwater County, Wyoming, File No.
1193313, Book 864, Page 1944.
2. Amended and Restated Deed of Trust, Mortgage, Security Agreement,
Assignment of Production and Financing Statement dated June 30, 1995,
executed by National Energy Group, Inc. filed in favor of Bank One, Texas,
N.A., filed and recorded July 17, 1995 in the Records of Sweetwater
County, Wyoming, File No. 1193314, Book 864, Page 1951.
3. Amended and Restated Deed of Trust, Mortgage, Security Agreement,
Assignment of Production and Financing Statement, dated as of August 29,
1996, from National Energy Group, Inc. as Grantor for the use and benefit
of Bank One Texas, N.A., Administrative Agent, filed and recorded by
Sweetwater County, Wyoming, on September 16, 1996, File Number 1222817, in
Book 0878, Pages 1760 - 1783.
1
<PAGE> 1
EXHIBIT 10.51
ASSIGNMENT AGREEMENT
(OKLAHOMA)
Assignment Agreement, dated December 22, 1998 between Bank One, Texas,
N.A. ("Bank One"), Credit Lyonnais New York Branch ("Credit Lyonnais"), and
Arnos Corp. ("Assignee"). Bank One and Credit Lyonnais are individually referred
to herein as an "Assignor" and collectively the "Assignors."
Reference is made to the Restated Loan Agreement, dated August 29,
1996, among National Energy Group, Inc., as Borrower, NEG-OK, INC. and Boomer
Marketing Corporation, as Guarantors, Bank One and Credit Lyonnais, as Banks,
Bank One, as Administrative Agent, and Credit Lyonnais, as Syndication Agent,
as amended by the First Amendment To Restated Loan Agreement, dated October 31,
1996, the Second Amendment to Restated Loan Agreement, dated March 7, 1997, the
Third Amendment to Restated Loan Agreement, dated May 12, 1997, and the Fourth
Amendment to Restated Loan Agreement, dated August 21, 1997 (such amendments
being collectively referred to herein as the "Amendments" and such Restated
Loan Agreement, as amended by the Amendments, being referred to herein as the
"Loan Agreement"). Reference is further made to the Deeds of Trust, Mortgages
and Financing Statements described on Schedule "1" hereto, covering, among
other collateral, the lands and oil and gas leases described on Exhibit "A"
attached hereto (collectively, the "Security Documents"). Unless otherwise
indicated herein, terms defined in the Loan Agreement are used herein as
therein defined.
This Assignment Agreement has been executed in a number of identical
counterparts, each of which, for all purposes, shall be deemed an original, and
all of which are identical except that, to facilitate recordation, in any
particular counterpart, portions of Exhibit "A" which describe properties and
interests situated in counties other than the county in which such particular
counterpart is to be recorded may have been omitted.
Each of the Assignors and the Assignee hereby agree as follows:
1. For the Purchase Price set forth in Annex I hereto, the receipt of
which is hereby acknowledged, each Assignor hereby sells, assigns and transfers
to the Assignee, without recourse and without representation or warranty (other
than as expressly provided herein), and the Assignee hereby purchases and
assumes from such Assignor, all of such Assignor's right title and interest in
and to (i) its Notes, the Security Documents and any documents or agreements
existing in connection therewith (collectively, the "Loan Documents"), (ii) any
security interest and liens created by, or existing under, the Loan Documents
(collectively, the "Liens") and (iii) all of such Assignor's right, title,
interest, liens and powers in and to the deeds of trust and mortgages as
security for Borrower's obligations under the Notes, the Security Documents and
the other Loan Documents.
2. Each Assignor severally, and not jointly, hereby represents and
warrants that (i) it
<PAGE> 2
is the legal and beneficial owner of the Loan Documents free and clear of any
Liens and that it has the full right, power and authority to transfer and assign
the Loan Documents and the Liens (as defined in the Loan Agreement); (ii) that
the unpaid principal amount of and the unaccrued and unpaid interest on its Note
is set forth on Annex I hereto as of the dates indicated; (iii) except for
Partial Releases heretofore delivered, it has not assigned the Loan Documents or
the Liens to any other Person or entity and (iv) the Notes and other obligations
of Borrower under the Loan Documents are in default and all such obligations
have been accelerated, as of December 3, 1998, pursuant to the terms of the Loan
Agreement. Notwithstanding anything herein to the contrary, each Assignor (i)
makes no representation or warranty and assumes no responsibility for any
statements, warranties or representations made in or in connection with the Loan
Agreement (by Borrower or by any other person) or with respect to the execution,
legality, validity, enforceability, genuineness, sufficiency or value of the
Loan Agreement, the Security Documents, the other Loan Documents or the Liens or
any document or instrument furnished or executed in connection therewith; and
(ii) makes no representation or warranty and assumes no responsibility with
respect to the financial condition of Borrower, or any affiliate or other
obligor, or any of their respective obligations under the Loan Agreement, the
Security Documents or any other Loan Document or any other document or
instrument furnished in connection therewith.
3. The Assignee (i) represents and warrants that it is duly
authorized to enter into and perform the terms of this Assignment Agreement,
(ii) confirms that it has received a copy of the Loan Agreement and the other
Loan Documents, together with copies of the financial statements referred to
therein and such other documents and information as it has deemed appropriate
to make its own credit analysis and decision to enter into this Assignment
Agreement; (iii) agrees that it will, independently and without reliance upon
the Assignors or any other Bank and based on such documents and information as
it shall deem appropriate at the time, continue to make its own credit
decisions in taking or not taking action under the Loan Agreement; and (iv)
agrees that it will perform in accordance with their terms all of the
obligations which by the terms of the Loan Agreement are required to be
performed by it as a Bank.
4. This Assignment Agreement is effective on and as of the date first
above written. The Assignee is deemed a party to the Loan Agreement and has the
rights and obligations of a Bank thereunder and under the other Loan Documents.
Each Assignor relinquishes its right and is released from its obligations under
the Loan Agreement and the other Loan Documents. Bank One hereby resigns
(effective as of the date hereof) as Administrative Agent and Credit Lyonnais
hereby resigns (effective as of the date hereof) as Syndication Agent pursuant
to the provisions of the Loan Agreement, and the Borrower, the Guarantor, each
Bank and the Assignee hereby consent to such resignations and hereby release
Bank One and Credit Lyonnais from their respective obligations as
Administrative Agent and Syndication Agent, respectively.
5. From and after the date hereof the Assignee shall be entitled to
all payments on account of each Assignor's Notes and which, but for this
Assignment Agreement, would have been due to the Assignors under the Loan
Agreement and the other Loan Documents, without any adjustments.
2
<PAGE> 3
6. After the date hereof, at Assignee's expense, each Assignor shall
take such action and execute and deliver all such documents and instruments
as Assignee may reasonably request for the purpose of implementing or
affectuating this Assignment Agreement or to consummate the transactions
contemplated hereby.
7. By its execution of this Assignment Agreement each of the Borrower
and the Guarantor (i) consents to the sale, assignment and transfer of the
Assignors' Notes and other rights referred to herein to Assignee and
specifically approves the Assignee as an assignee notwithstanding Section 27 of
the Loan Agreement, (ii) waives compliance with Section 27(a)(2) of the Loan
Agreement, and (iii) waives compliance with Section 27(a)(4) of the Loan
Agreement.
8. The Assignee agrees to reimburse each Assignor for reasonable fees
and disbursements of counsel incurred by such Assignor in connection with the
preparation and negotiation of this Assignment Agreement and the consummation
of the transaction contemplated hereby. Such fees and expenses are included
with the outstanding legal fees and expenses due Assignor's counsel under the
provisions of the Loan Documents, which fees and expenses are part of the
obligations owed to the Assignors and are shown on Annex I and included in the
Purchase Price.
9. THIS ASSIGNMENT AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS WITHOUT REGARD TO PRINCIPLES OF
CONFLICT OF LAWS.
IN WITNESS WHEREOF, the parties have caused this Assignment Agreement
to be executed and delivered on the date first above written.
BANK ONE, TEXAS, N.A., in its capacity as a
Bank and as Administrative Agent, Assignor
By:
--------------------
Its:
--------------------
CREDIT LYONNAIS NEW YORK BRANCH, in
its capacity as a Bank and as Syndication
Agent, Assignor
By:
--------------------
Its:
--------------------
ARNOS CORP., Assignee
By:
--------------------
Its:
--------------------
3
<PAGE> 4
Consented to:
NATIONAL ENERGY GROUP, INC., Borrower
By: /s/ [ILLEGIBLE]
--------------------------------
Its: Vice President, [ILLEGIBLE]
--------------------------------
BOOMER MARKETING CORPORATION, Guarantor
By: /s/ [ILLEGIBLE]
--------------------------------
Its: Secretary & VP
--------------------------------
4
<PAGE> 5
STATE OF TEXAS )
)
COUNTY OF DALLAS )
This instrument was acknowledged before me on this ___ day of December, 1998,
by __________________, of BANK ONE, TEXAS, N.A., a national banking
association, on behalf of said association in its individual capacity and as
Administrative Agent.
--------------------------------------------
My Commission Expires: Notary Public in and for the State of Texas
- ---------------------- --------------------------------------------
Printed Name of Notary
STATE OF NEW YORK )
)
COUNTY OF NEW YORK )
This instrument was acknowledged before me on this ___ day of __________, 1998,
by __________________, _____________________, of CREDIT LYONNAIS NEW YORK
BRANCH, a licensed branch of a French banking corporation, on behalf of said
corporation in its individual capacity and as Syndication Agent.
-------------------------------------------
My Commission Expires: Notary Public in and for the State of New
York
- ---------------------- --------------------------------------------
Printed Name of Notary
STATE OF NEW YORK )
)
COUNTY OF NEW YORK )
This instrument was acknowledged before me on this ___ day of December, 1998,
by Edward E. Mattner, Vice President, of ARNOS CORP., a Nevada corporation, on
behalf of said corporation.
--------------------------------------------
My Commission Expires: Notary Public in and for the State of New
York
- ---------------------- --------------------------------------------
Printed Name of Notary
<PAGE> 6
ANNEX I
BANK ONE
<TABLE>
<CAPTION>
Outstanding Accrued and
Principal Amount Unpaid Interest
---------------- ---------------
<S> <C> <C> <C>
Revolving Note: as of 12/20 $12,500,000.00 $101,829.01
(due next a.m.)
as of 12/21 $12,500,000.00 $107,993.39
(due next a.m.)
as of 12/22 $12,500,000.00 $114,157.78
(due next a.m.)
Counsel Fees and
Disbursements: $64,409.00(1)
Purchase Price:
as of 12/20 (due next a.m.) $12,666,238.01
as of 12/21 (due next a.m.) $12,672,402.39
as of 12/22 (due next a.m.) $12,678,566.78
</TABLE>
CREDIT LYONNAIS
<TABLE>
<S> <C> <C> <C>
Revolving Note: as of 12/20 $12,500,000.00 $101,829.01
(due next a.m.)
as of 12/21 $12,500,000.00 $107,993.40
(due next a.m.)
as of 12/22 $12,500,000.00 $114,157.78
(due next a.m.)
Counsel Fees and
Disbursements: $ -0-
Purchase Price:
as of 12/20 (due next a.m.) $12,601,829.01
as of 12/21 (due next a.m.) $12,607,993.40
as of 12/22 (due next a.m.) $12,614,157.78
</TABLE>
Wiring Instructions:
<TABLE>
<S> <C>
Bank One, Texas N.A. Credit Lyonnais New York Branch
Dallas, Texas 75201 ABA #026008073
ABA (for Texas) 111000614 Attention: Loan Servicing Dept.
BENF - Commercial Loan Servicing Center - South Region Reference: National Energy Group, Inc.
Account No. 1065151010
Borrower: National Energy Group, Inc.
Attn: Special Servicing, Commercial Loan
Servicing Center - South Region (Fax: 817-884-4651)
Attention: Randy Durant (214) 290-2721
</TABLE>
- ---------------------
1. Includes all previously billed and outstanding invoices.
<PAGE> 7
SCHEDULE 1
ARKANSAS
1. Mortgage, Deed of Trust, Security Agreement, Assignment of Production and
Financing Statement from NEG-OK, Inc. in favor of Bank One, Texas, N.A.,
Administrative Agent, effective as of August 29, 1996, filed and recorded as
follows:
(a) Crawford County, Arkansas, on September 13, 1996, File Number
96-026896, in Book 96, Pages 26896 - 26927.
(b) Franklin County, Arkansas, on September 12, 1996, in Mortgage Book 22,
Page 376.
(c) Johnson County, Arkansas, on September 12, 1996, in Volume 185, Page
177.
(d) Logan County, Arkansas, on September 13, 1996, File Number 2305, in Book
NO96-9, Page 64.
(e) Pope County, Arkansas, on September 12, 1996, in Book 22T, Pages 330 -
381.
(f) Sebastian County, Arkansas, on September 17, 1996, in Book 629, Pages
041 - 070.
1
<PAGE> 8
SCHEDULE 1
LOUISIANA
1. Mortgage, Security Agreement, Assignment of Production and Financing
Statement effective as of September 1, 1998, by National Energy Group,
Inc. as Mortgagor for the use and benefit of Bank One, Texas, N.A.,
Administrative Agent, filed and recorded as follows:
(a) Iberville Parish, Louisiana on September 8, 1998 in Mortgage Book 319,
Page 197 and Conveyance Book 511, Page 174.
(b) Lafourche Parish, Louisiana on September 8, 1998 in Mortgage Book 786,
Page 479 and Conveyance Book 1361, Folio 462 (Entry #839479).
1
<PAGE> 9
SCHEDULE 1
NEW MEXICO
1. Assignment of Note and Liens by Texas Gas Fund I in favor of Bank One,
Texas, N.A. effective as of June 30, 1995, filed and recorded as follows:
(a) July 21, 1995 in the Records of Chaves County, New Mexico, Liber 237,
Page 798 (County does not issue File Numbers).
(b) July 20, 1995 in the Records of Eddy County, New Mexico, Reception
No. 957307, Book 224, Page 688.
(c) July 14, 1995 in the Records of Lea County, New Mexico, File No.
76200), Book 633, Page 683.
2. Amended and Restated Mortgage, Security Agreement, Assignment of
Production and Financing Statement effective as of June 30, 1995,
executed by National Energy Group, Inc., in favor of Bank One, Texas,
N.A., filed and recorded July 20, 1995 in the Records of Eddy County, New
Mexico, Reception No. 957308, Book 224, Page 693.
3. Amended and Restated Mortgage, Security Agreement, Assignment of
Production and Financing Statement, dated as of August 29, 1996, from
National Energy Group, Inc., as Grantor, for the use and benefit of Bank
One Texas, N.A., Administrative Agent, filed and recorded by Eddy County,
State of New Mexico, on September 16, 1996, File Number 9610275, in Book
261, Pages 123 - 159.
1
<PAGE> 10
SCHEDULE 1
TEXAS
1. Assignment of Note and Liens by Texas Gas Fund I in favor of Bank One,
Texas, N.A. effective as of June 30, 1995, filed and recorded as follows:
(a) July 19, 1995 in the Records of Ector County, Texas, File No. 9112,
Book 1244, Page 188.
(b) July 17, 1995 in the Records of Howard County, Texas, File No. 4294,
Book 405, Page 183.
(c) July 14, 1995 in the Records of Irion County, Texas, File No. 15304,
Book 111, Page 590.
(d) July 14, 1995 in the Records of Nolan County, Texas, File No. 1638,
Book 332, Page 283.
(e) July 20, 1995 in the Records of Stephens County, Texas, File No.
2137, Book 1221, Page 144.
(f) July 18, 1995 in the Records of Sterling County, Texas, File No.
6443, Book 174, Page 689.
(g) July 14, 1995 in the Records of Throckmorton County, Texas, File No.
91574, Book 312, Page 904.
(h) July 14, 1995 in the Records of Yoakum County, Texas, File No.
200302, Book 145, Page 539.
(i) July 13, 1995 in the Records of Young County, Texas, File No. 2596,
Book 812, Page 126.
2. Amended and Restated Deed of Trust, Security Agreement, Assignment of
Production and Financing Statement effective as of June 30, 1995,
executed by National Energy Group, Inc., in favor of Bank One, Texas,
N.A., filed and recorded as follows:
(a) July 19, 1995 in the Records of Ector County, Texas, File No. 9113,
Book 1244, Page 193.
(b) July 14, 1995 in the Records of Gregg County, Texas, File No. 13743,
Book 2841, Page 553.
1
<PAGE> 11
(c) July 14, 1995 in the Records of Irion County, Texas, File No. 15305,
Book 111, Page 595.
(d) July 14, 1995 in the Records of Nueces County, Texas, File No. 969612
(County does not issue Book and Page Numbers.)
(e) July 14, 1995 in the Records of Rusk County, Texas, File No. 70709,
Book 1921, Page 543.
(f) July 13, 1995 in the Records of Young County, Texas, File No. 2597,
Book 812, Page 131.
3. Deed of Trust, Security Agreement, Assignment of Production and
Financing Statement, from NEG-OK, Inc. in favor of Bank One, Texas, N.A.,
Administrative Agent, effective as of August 29, 1996, filed and recorded
as follows:
(a) Fayette County, Texas, on September 16, 1996, File Number 96-5205, in
Volume 965, Pages 252 - 289.
(b) Harrison County, Texas, on September 16, 1996, File Number 9123, in
Volume 1560, Pages 1 - 92.
(c) Hemphill County, Texas, on September 16, 1996, File Number 022239,
in Volume 415, Pages 170 - 203.
4. Amended and Restated Deed of Trust, Security Agreement, Assignment of
Production and Financing Statement, from National Energy Group, Inc. in
favor of Bank One, Texas, N.A., Administrative Agent, effective as of
August 29, 1996, filed and recorded as follows:
(a) Ector County, Texas, on September 16, 1996, File Number 10827, in
Volume 1303, Pages 615 - 654.
(b) Gregg County, Texas, on September 13, 1996, File Number 019700, in
Volume 3000, Pages 129 - 154.
(c) Irion County, Texas, on September 13, 1996, File Number 16455, in
Volume 119, Pages 179 - 202.
(d) Nueces County, Texas, on September 13, 1996, File Number 1996035768.
(e) Rusk County, Texas, on September 13, 1996, File Number 09077, in
Volume 1975, Pages 587 - 626.
2
<PAGE> 12
(f) Young County, Texas, on September 12, 1996, File Number 3311, in Deed
of Trust Volume 215, Pages 242 - 264.
5. Deed of Trust, Security Agreement, Assignment of Production and
Financing Statement effective as of September 1, 1998, by National Energy
Group, Inc. as Grantor for the use and benefit of Bank One, Texas, N.A.,
Administrative Agent, filed and recorded as follows:
(a) Ector County, Texas on September 8, 1998 (File Number 12207) in
Volume 1418, Page 0105.
(b) Gregg County, Texas on September 8, 1998 in GCC 9819759.
(c) Harrison County, Texas on September 8, 1998 (Real Number 34010) in
Volume 1837, Page 197.
(d) Hidalgo County, Texas on October 21, 1998 at File Number 718377.
(e) Nueces County, Texas on September 8, 1998 Document Number
#1998039840.
(f) Rusk County, Texas on September 8, 1998 (File Number 33284) in Volume
2092, Page 0425.
(g) Willacy County, Texas on September 8, 1998 (File Number 276111) in
Volume 064, Page 158.
(h) Texas General Land Office on October 26, 1998.
3
<PAGE> 13
SCHEDULE 1
OKLAHOMA
1. Assignment of Note and Liens by Texas Gas Fund I in favor of Bank One,
Texas, N.A. effective as of June 30, 1995, filed and recorded as follows:
(a) July 17, 1995 in the Records of Alfalfa County, Oklahoma, File No.
8170, Book 514, Page 18.
(b) July 18, 1995 in the Records of Beaver County, Oklahoma, File No.
F2267, Book 0949, Page 142.
(e) July 17, 1995 in the Records of Blaine County, Oklahoma, File No.
2539, Book 703, Page 506.
(d) July 14, 1995 in the Records of Caddo County, Oklahoma, File No.
9505279, Book 1990, Page 98.
(e) July 14, 1995 in the Records of Canadian County, Oklahoma, File No.
12296, Book 1943, Page 672.
(f) July 13, 1995 in the Records of Carter County, Oklahoma, File No.
7446, Book 2011, Page 146.
(g) July 14, 1995 in the Records of Cleveland County, Oklahoma, File No.
70794-A, Book 2650, Page 798.
(h) July 14, 1995 in the Records of Custer County, Oklahoma, File No.
3694, Book 951, Page 569.
(i) July 14, 1995 in the Records of Dewey County, Oklahoma, File No.
1669, Book 1031, Page 221.
(j) July 14, 1995 in the Records of Ellis County, Oklahoma, File No.
6265, Book 585, Page 389.
(k) July 14, 1995 in the Records of Garvin County, Oklahoma, File No.
5205, Book 1424, Page 653.
(1) July 14, 1995 in the Records of Grady County, Oklahoma, File No.
108549, Book 2797, Page 90.
1
<PAGE> 14
(m) July 14, 1995 in the Records of Haskell County, Oklahoma, File No.
262188, Book 535, Page 503.
(n) July 17, 1995 in the Records of Kingfisher County, Oklahoma, File No.
3330, Book 1458, Page 19.
(o) July 14, 1995 in the Records of Major County, Oklahoma, File No.
40930, Book 1388, Page 96.
(p) July 14, 1995 in the Records of McClain County, Oklahoma, File No.
4567, Book 1401, Page 72.
(q) July 14, 1995 in the Records of Woods County, Oklahoma, File No.
2902, Book 797, Page 537.
(r) July 14, 1995 in the Records of Woodward County, Oklahoma, File No.
216, Book 1456, Page 296.
2. Amended and Restated Mortgage, Security Agreement, Assignment of
Production and Financing Statement effective as of June 30, 1995,
executed by National Energy Group, Inc., in favor of Bank One, Texas,
N.A., filed and recorded as follows:
(a) July 14, 1995 in the Records of Dewey County, Oklahoma, File No.
001670, Book 1031, Page 236.
(b) July 14, 1995 in the Records of Ellis County, Oklahoma, File No.
6266, Book 585, Page 399.
(c) July 14, 1995 in the Records of Major County, Oklahoma, File No.
40931, Book 1388, Page 102.
3. Mortgage, Security Agreement, Assignment of Production and Financing
Statement from NEG-OK, Inc., in favor of Bank One, Texas, N.A.,
Administrative Agent, effective as of August 29, 1996, filed and recorded
as follows:
(a) Alfalfa County, Oklahoma, on September 16, 1996, File Number 11501,
in Book 522, Pages 515 - 543.
(b) Beckham County, Oklahoma, on September 16, 1996, File Number 06022,
in Book 1486, Pages 206 - 241.
(c) Blaine County, Oklahoma, on September 16, 1996, File Number 003622,
in Book 727, Pages 83 - 126.
2
<PAGE> 15
(d) Caddo County, Oklahoma, on September 16, 1996, File Number 9607301,
in Book 2079, Pages 40 - 131.
(e) Canadian County, Oklahoma, on September 16, 1996, File Number 018361,
in Book 2021, Pages 434 - 661.
(f) Carter County, Oklahoma, on September 13, 1996, File Number 010930,
in Book 3048, Pages 76 - 114.
(g) Coal County, Oklahoma, on September 16, 1996, File Number 97208, in
Book 559, Pages 501 - 530.
(h) Custer County, Oklahoma, on September 16, 1996, File Number 5162, in
Book 983, Pages 160 - 200.
(i) Dewey County, Oklahoma, on September 16, 1996, File Number 002546, in
Book 1053, Pages 378 - 437.
(j) Ellis County, Oklahoma, on September 16, 1996, File Number 113, in
Misc. Book 597, Pages 800 - 831.
(k) Garfield County, Oklahoma, on September 16, 1996, File Number 011894,
in Book 1337, Pages 87 - 115.
(1) Garvin County, Oklahoma, on September 18, 1996, File Number 07101, in
Book 1458, Pages 369 - 400.
(m) Grady County, Oklahoma, on September 16, 1996, File Number 129157, in
Book 2885, Pages 287 - 334.
(n) Harper County, Oklahoma, on September 16, 1996, File Number 1S-575,
in Book 0518, Pages 137 - 164.
(o) Haskell County, Oklahoma, on September 16, 1996, File Number 266270,
in Book 547, Pages 243 - 287.
(p) Kingfisher County, Oklahoma, on September 16, 1996, File Number 4070,
in Book 1516, Pages 001 - 041.
(q) Latimer County, Oklahoma, on September 16, 1996, File Number 389048,
in Book 0495, Pages 0747 - 0796.
3
<PAGE> 16
(r) Logan County, Oklahoma, on September 16, 1996, File Number 7180, in
Book 1407, Pages 244 - 272.
(s) Love County, Oklahoma, on September 13, 1996, File Number 2011, in
Book 488, Pages 370 - 405.
(t) Major County, Oklahoma, on September 17, 1996, File Number 45579, in
Book 1414, Pages 006 - 044.
(u) Oklahoma County, Oklahoma, on September 20, 1996, File Number
96131110, in Book 6952, Pages 790 - 825.
(v) Pittsburg County, Oklahoma, on September 17, 1996, File Number 009091,
in Book 889, Pages 784 - 854.
(w) Roger Mills County, Oklahoma, on September 16, 1996, File Number 0991,
in Book 1502, Pages 226 - 261.
(x) Sequoyah County, Oklahoma, on September 16, 1996, File Number 005848,
in Book 793, Pages 430 - 466.
(y) Washita County, Oklahoma, on September 16, 1996, File Number 4689, in
Book 840, Pages 154 - 186.
(z) Woods County, Oklahoma, on September 17,1996, File Number 7464, in
Book 819, Pages 390 - 426.
(aa) Woodward County, Oklahoma, on September 17, 1996, File Number 1451,
in Book 1513, Pages 53 - 92.
4. Amended and Restated Mortgage, Security Agreement, Assignment of
Production and Financing Statement from National Energy Group, Inc. in
favor of Bank One, Texas, N.A., Administrative Agent, effective as of
August 29, 1996, filed and recorded as follows:
(a) Dewey County, Oklahoma, on September 23, 1996, File Number 002589, in
Book 1053, Pages 615 - 641.
(b) Ellis County, Oklahoma, on September 13, 1996, File Number 93, in
Misc. Book 597, Pages 721 - 747.
(c) Major County, Oklahoma, on September 13, 1996, File Number 45553, in
Misc. Book 1413, Pages 421 - 447.
4
<PAGE> 17
5. Mortgage, Security Agreement, Assignment of Production and Financing
Statement effective as of September 1, 1998, by National Energy Group,
Inc. as Mortgagor for the use and benefit of Bank One, Texas, N.A.,
Administrative Agent, filed and recorded as follows:
(a) Beckham County, Oklahoma on September 8, 1998 (File Number 05943) in
Book 1574, Pages 571-598.
(b) Caddo County, Oklahoma on September 8, 1998 (File Number 1998 6693)
in Book 2192, Page 305.
(c) Custer County, Oklahoma on September 8, 1998 (File Number 5196) in
Book 1049, Page 687.
(d) Dewey County, Oklahoma on September 8, 1998 (File Number 002933) in
Book 1096, Page 64.
(e) Ellis County, Oklahoma on September 9, 1998 (File Number 6627) in
Book 621, Page 709.
(f) Grady County, Oklahoma on September 8, 1998 (File Number 12126) in
Book 3055, Page 504.
(g) Latimer County, Oklahoma on September 8, 1998 (File Number 002738) in
Book 0528, Page 0089.
(h) Roger Mills County, Oklahoma on September 9,1998 in Book 1566, Page
361.
(i) Washita County, Oklahoma on September 8, 1998 (File Number 3826) in
Book 877, Pages 667-691.
(j) Woods County, Oklahoma on September 8, 1998 (File Number 5200-2) in
Book 860, Page 344.
5
<PAGE> 18
SCHEDULE 1
WYOMING
1. Assignment of Note and Liens by Texas Gas Fund I in favor of Bank One,
Texas, N.A. dated June 30, 1995, filed and recorded as follows:
(a) July 24, 1995 in the Records of Campbell County, Wyoming, File No.
698047, Book 1343 of Photos, Page 303.
(b) July 17, 1995 in the Records of Lincoln County, Wyoming, File No.
805213, Book 370PR, Page 849.
(c) July 17, 1995 in the Records of Sublette County, Wyoming, File No.
252969, Book 101 O&G, Page 710.
(d) July 17, 1995 in the Records of Sweetwater County, Wyoming, File No.
1193313, Book 864, Page 1944.
2. Amended and Restated Deed of Trust, Mortgage, Security Agreement,
Assignment of Production and Financing Statement dated June 30, 1995,
executed by National Energy Group, Inc. filed in favor of Bank One,
Texas, N.A., filed and recorded July 17, 1995 in the Records of
Sweetwater County, Wyoming, File No. 1193314, Book 864, Page 1951.
3. Amended and Restated Deed of Trust, Mortgage, Security Agreement,
Assignment of Production and Financing Statement, dated as of August 29,
1996, from National Energy Group, Inc. as Grantor for the use and benefit
of Bank One Texas, N.A., Administrative Agent, filed and recorded by
Sweetwater County, Wyoming, on September 16, 1996, File Number 1222817,
in Book 0878, Pages 1760 - 1783.
1
<PAGE> 1
EXHIBIT 10.52
ARNOS CORPORATION
December 23, 1998
Mr. Philip D. Devlin
General Counsel
National Energy Group, Inc.
4925 Greenville Avenue, Suite 1400
Dallas, TX 75206
Re: Restated Loan Agreement dated as of August 29, 1996, between
National Energy Group, Inc., as Borrower; NEG-OK, Inc., and
Boomer Marketing Corporation, as Guarantors; Bank One, Texas,
N.A. ("Bank One") and Credit Lyonnais New York Branch ("Credit
Lyonnais") as Banks, as amended (the "Loan Agreement")
Arnos Corporation, assignor of Bank One and Credit Lyonnais as Lender under the
Loan Agreement, hereby notifies Borrower as follows:
1. The acceleration of Borrower's obligations under the Loan
Agreement asserted by Bank One and Credit Lyonnais by letter
dated December 3, 1998 is rescinded in all respects.
2. Any and all defaults existing under the Loan Agreement as of
the date hereof are hereby waived.
3. Lender will advance to Borrower under the Loan Agreement funds
sufficient to pay the interest that was due on November 2,
1998 in respect of the Company's 10-3/4% Senior Notes due 2006
upon the entry of an order of the United States Bankruptcy
Court for the Northern District of Texas providing that the
involuntary chapter 11 petition filed against Borrower on
December 4, 1998, Case No. 398-80358-RCM-11, will be
dismissed upon Borrower's payment of such interest.
Arnos Corporation
By: /s/ EDWARD MATTNER
---------------------
Its:
---------------------
<PAGE> 1
Exhibit 12.1
National Energy Group, Inc.
Computation of Historical Ratio of Earnings
to Fixed Charges
(in thousands, except for ratios)
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------------------------
Earnings 1994 1995 1996 1997 1998
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Income (loss) before income taxes and
extraordinary items $ (489) $ 206 $(40,061) $ (41,624) $ (164,514)
Interest expense 498 995 3,621 11,256 15,719
Amortization of debt issuance cost 19 37 151 640 936
Interest portion of rental expense 21 34 37 83 100
------ ------- -------- --------- ----------
Earnings (loss) $ 49 $ 1,272 $(36,252) $ (29,645) $ (147,759)
====== ======= ======== ========= ==========
Fixed charges:
Interest, including capitalized portion $ 498 $ 995 $ 3,621 $ 13,801 $ 19,090
Amortization of debt issuance cost 19 37 151 640 936
Interest portion of rental expense 21 34 37 83 100
------ ------- -------- --------- ----------
Fixed charges $ 538 $ 1,066 $ 3,809 $ 14,524 $ 20,126
====== ======= ======== ========= ==========
Ratio of earnings to fixed charges - 1.2X - - -
====== ======= ======== ========= ==========
Deficiency of earnings to fixed charges $ (489) - $(40,061) $ (44,169) $ (167,885)
====== ======= ======== ========= ==========
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP
We consent to the incorporation by reference in the Registration Statements
(Form S-8 Nos. 333-42981, and 333-41539) pertaining to National Energy Group,
Inc.'s Employee Stock Purchase Plan and 1996 Incentive Compensation Plan and
1996 Individual Compensation Arrangement, respectively, of our report dated
March 24, 1999, with respect to the consolidated financial statements of
National Energy Group, Inc. included in the Annual Report (Form 10-K) for the
year ended December 31, 1998.
Dallas, Texas
March 26, 1999
<TABLE> <S> <C>
<ARTICLE> CT
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<TOTAL-ASSETS> 95,002
0
171
<COMMON> 405
<OTHER-SE> (117,509)
<TOTAL-LIABILITY-AND-EQUITY> 95,002
<TOTAL-REVENUES> 38,440
<INCOME-TAX> 0
<INCOME-CONTINUING> (164,514)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (164,514)
<EPS-PRIMARY> (4.08)
<EPS-DILUTED> (4.08)
</TABLE>
