<PAGE> 1
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2000
[ ] 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)
<TABLE>
<S> <C>
DELAWARE 58-1922764
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
</TABLE>
4925 GREENVILLE AVENUE
1400 ONE ENERGY SQUARE
DALLAS, TEXAS 75206
(Address of principal executive offices)
(214) 692-9211
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
40,527,482 shares of the registrant's Common Stock, $0.01 par value, were
outstanding on May 8, 2000.
================================================================================
<PAGE> 2
NATIONAL ENERGY GROUP, INC.
DEBTOR-IN-POSSESSION
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at December 31, 1999 and March
31, 2000 (Unaudited)...................................... 1
Consolidated Statements of Operations for the three months
ended March 31, 1999 and 2000 (Unaudited)................. 2
Consolidated Statements of Cash Flows for the three months
ended March 31, 1999 and 2000 (Unaudited)................. 3
Consolidated Statement of Changes in Stockholders' Equity
(Deficit) for the three months ended March 31, 2000
(Unaudited)............................................... 4
Notes to Consolidated Financial Statements (Unaudited)...... 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 8
Item 3. Quantitative and Qualitative Disclosure About Market Risk... 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................... 12
Item 3. Defaults Upon Senior Securities............................. 12
Item 5. Other Information........................................... 12
Item 6. Exhibits and Reports on Form 8-K............................ 12
</TABLE>
<PAGE> 3
NATIONAL ENERGY GROUP, INC.
DEBTOR-IN-POSSESSION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
DECEMBER 31, MARCH 31,
1999 2000
------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 29,216,751 $ 36,451,869
Marketable securities..................................... 342,937 331,875
Accounts receivable -- oil and natural gas sales.......... 5,057,904 4,887,928
Accounts receivable -- joint interest and other........... 490,339 568,198
Other..................................................... 1,411,783 1,302,325
------------- -------------
Total current assets............................... 36,519,714 43,542,195
Oil and natural gas properties, at cost (full cost method):
Subject to ceiling limitation............................. 327,330,494 327,526,490
Accumulated depreciation, depletion, and amortization..... (266,282,860) (269,032,877)
------------- -------------
Net oil and natural gas properties........................ 61,047,634 58,493,613
Other property and equipment................................ 2,495,606 2,495,606
Accumulated depreciation.................................... (1,361,349) (1,475,923)
------------- -------------
Net other property and equipment........................ 1,134,257 1,019,683
Other assets and deferred charges, net...................... 1,656,521 1,700,812
------------- -------------
Total assets....................................... $ 100,358,126 $ 104,756,303
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Liabilities not subject to compromise:
Accounts payable -- trade................................. $ 4,437,802 $ 4,602,691
Accounts payable -- revenue............................... 2,545,610 2,457,833
Credit facility........................................... 25,000,000 25,000,000
------------- -------------
Total liabilities not subject to compromise........ 31,983,412 32,060,524
Liabilities subject to compromise:
Accounts payable -- trade................................. 2,154,158 2,270,028
Accounts payable -- revenue............................... 2,879,469 2,723,874
Senior Notes.............................................. 165,000,000 165,000,000
Accrued interest on Senior Notes.......................... 10,537,601 10,537,601
Gas balancing and prepayments............................. 2,685,645 2,681,261
Other..................................................... 23,341 27,382
------------- -------------
Total liabilities subject to compromise............ 183,280,214 183,240,146
Commitments and contingencies
Stockholders' equity (deficit):
Convertible preferred stock, $1.00 par:
Authorized shares -- 1,000,000; Issued and outstanding
shares -- 171,187
Aggregate liquidation preference -- $17,118,700......... 171,187 171,187
Common stock, $.01 par value:
Authorized shares -- 100,000,000; Issued and outstanding
shares -- 40,527,482 .................................. 405,275 405,275
Additional paid-in capital................................ 113,089,872 113,089,872
Unrealized loss on marketable securities, net............. (172,407) (183,470)
Accumulated deficit....................................... (228,399,427) (224,027,231)
------------- -------------
Total stockholders' equity (deficit)............... (114,905,500) (110,544,367)
------------- -------------
Total liabilities and stockholders' equity
(deficit)........................................ $ 100,358,126 $ 104,756,303
============= =============
</TABLE>
See accompanying notes.
1
<PAGE> 4
NATIONAL ENERGY GROUP, INC.
DEBTOR-IN-POSSESSION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-----------------------------
1999 2000
------------- -------------
<S> <C> <C>
Revenues:
Oil and natural gas sales................................. $ 7,244,008 $10,721,251
Cost and expenses:
Lease operating........................................... 1,472,258 1,413,438
Oil and natural gas production taxes...................... 484,769 647,520
Depreciation, depletion, and amortization................. 4,428,956 2,909,991
General and administrative................................ 1,040,735 1,100,659
----------- -----------
Total costs and expenses............................... 7,426,718 6,071,608
----------- -----------
Operating income (loss)..................................... (182,710) 4,649,643
Other income (expense):
Interest expense.......................................... (455,928) (561,967)
----------- -----------
Income (loss) before reorganization items and income
taxes..................................................... (638,638) 4,087,676
Reorganization items:
Professional fees and other............................... (574,467) (135,314)
Interest earned on accumulating cash resulting from
Chapter 11 proceedings................................. 57,033 419,834
----------- -----------
Income (loss) before income taxes........................... (1,156,072) 4,372,196
Provision for income taxes.................................. -- --
----------- -----------
Net income (loss)........................................... (1,156,072) 4,372,196
Preferred stock dividend requirements....................... -- --
----------- -----------
Net income (loss) applicable to common shareholders......... $(1,156,072) $ 4,372,196
=========== ===========
Net income (loss) per common share, basic and diluted....... $ (.03) $ .11
=========== ===========
Weighted average number of common shares outstanding........ 40,527,482 40,527,482
=========== ===========
</TABLE>
See accompanying notes.
2
<PAGE> 5
NATIONAL ENERGY GROUP, INC.
DEBTOR-IN-POSSESSION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
1999 2000
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Income (loss) from operations............................... $ (638,638) $ 4,087,676
Chapter 11 proceeding reorganization costs, net............. (517,434) 284,520
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation, depletion, and amortization................. 4,428,956 2,909,991
Amortization of issuance premium.......................... (39,527) --
Amortization of deferred compensation..................... 11,133 12,062
Common stock, options, and warrants issued for services... 14,062 2,109
Other..................................................... 4,539 (13,141)
Changes in operating assets and liabilities:
Accounts receivable.................................... 2,700,603 92,118
Other current assets................................... 150,590 97,394
Accounts payable and accrued liabilities............... 962,940 34,935
----------- -----------
Net cash provided by operating activities......... 7,077,224 7,507,664
----------- -----------
INVESTING ACTIVITIES
Oil and gas acquisition, exploration, and development
expenditures.............................................. (1,108,772) (808,956)
Proceeds from sales of oil and gas properties............... 254,817 612,960
Purchases of other long-term assets......................... (97,266) (76,550)
Other....................................................... 9,114 --
----------- -----------
Net cash used in investing activities............. (942,107) (272,546)
----------- -----------
Increase (decrease) in cash and cash equivalents............ 6,135,117 7,235,118
Cash and cash equivalents and beginning of period........... 2,542,235 29,216,751
----------- -----------
Cash and cash equivalents at end of period.................. $ 8,677,352 $36,451,869
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid in cash....................................... $ -- $ 747,964
=========== ===========
</TABLE>
See accompanying notes.
3
<PAGE> 6
NATIONAL ENERGY GROUP, INC.
DEBTOR-IN-POSSESSION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(UNAUDITED)
<TABLE>
<CAPTION>
CONVERTIBLE UNREALIZED
PREFERRED STOCK COMMON STOCK ADDITIONAL LOSS ON
------------------- --------------------- PAID-IN MARKETABLE ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL SECURITIES DEFICIT
-------- -------- ---------- -------- ------------ ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1999....... 171,187 $171,187 40,527,482 $405,275 $113,089,872 $(172,407) $(228,399,427)
Unrealized loss on marketable
securities..................... -- -- -- -- -- (11,063) --
Net income....................... -- -- -- -- -- -- 4,372,196
-------- -------- ---------- -------- ------------ --------- -------------
Balance at March 31, 2000.......... 171,187 $171,187 40,527,482 $405,275 $113,089,872 $(183,470) $(224,027,231)
======== ======== ========== ======== ============ ========= =============
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
(DEFICIT)
-------------
<S> <C>
Balance at December 31, 1999....... $(114,905,500)
Unrealized loss on marketable
securities..................... (11,063)
Net income....................... 4,372,196
-------------
Balance at March 31, 2000.......... $(110,544,367)
=============
</TABLE>
See accompanying notes.
4
<PAGE> 7
NATIONAL ENERGY GROUP, INC.
DEBTOR-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 2000
1. PETITION FOR RELIEF UNDER CHAPTER 11
On December 4, 1998, certain of the holders of the Senior Notes of National
Energy Group, Inc. 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. On December 23, 1998, the Company
filed an Answer to and Motion to Dismiss the pending 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 which placed the Company under the
protection of the Court and precluded payment of the interest on the Senior
Notes until the conclusion of the bankruptcy proceeding. 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 were stayed during the Bankruptcy proceeding. The Company has
acted as debtor-in-possession and continued to operate its business and manage
its properties in the ordinary course of business during its Chapter 11
proceeding. As a result of the Chapter 11 proceeding, the Company discontinued
the accrual of interest on the unsecured Senior Notes and discontinued the
accrual of dividends on the unsecured preferred stock. Approximately $4.4
million additional interest expense would have been recognized by the Company
for the three months ended March 31, 1999 and 2000, respectively, if not for the
discontinuation of the interest accrual on the Senior Notes.
On August 4, 1999, the Company and the official committee of unsecured
creditors (the "Committee") appeared before the Bankruptcy Court and announced
agreement on the process for marketing the Company and/or its assets. The Court
entered an order which provided that the Company and the Committee would employ
CIBC World Markets Corp. ("CIBC") to solicit bids for sale of the Company and/or
its assets. The marketing process culminated in an auction conducted by the
Bankruptcy Court on November 1, 1999. At the auction, bidding on the Company's
oil and gas properties, exclusive of the Company's Lake Mongoulois and Mustang
Island properties, ultimately ended at a high bid of $96.25 million given by
Arnos, Corp. ("Arnos") an affiliated subsidiary of the Company's Series D
preferred stockholder. The Committee, after review, concluded that it would
recommend to the Court that it accept the high bid of $96.25 million. An order
accepting Arnos as the highest bidder was signed by the Court on November 16,
1999. Arnos filed a motion to close the Purchase and Sale Agreement ("Arnos
PSA") into escrow pending (i) the Court's confirmation of a plan of
reorganization or (ii) in the event a plan of reorganization is not confirmed, a
court ordered closing of the sale of the properties to Arnos.
On April 20, 2000, the Committee and the Company announced an agreement in
the Bankruptcy Court whereby the Committee would withdraw its previously filed
plan of reorganization and become a co-proponent with the Company in an amended
plan of reorganization initially filed by the Company on March 14, 2000. On May
12, 2000, the Bankruptcy Court approved a Disclosure Statement and Plan of
Reorganization (the "Joint Plan"), submitted by the Committee and the Company
which provides for (i) continuation of the Company's oil and gas operations;
(ii) satisfaction of secured claims, including the Arnos secured claim in the
amount of $25 million (plus accrued interest) which shall remain in place and
receive such treatment as Arnos and the reorganized Company may agree to in;
(iii) cash payment to certain tort claimants (determined by a formula equal to
approximately 2.0% of the lesser of claimants' proof of claim or the Bankruptcy
Court's estimate of the claim), if such class accepts the Plan or,
alternatively, if rejected by such class, cash payment in an amount equal to 75%
of any allowed claim; (iv) cash payment to Senior Noteholders (excluding Arnos),
in an amount equal to 56.5% of the face value of each note, less a pro-rata
share of $1 million to fund a creditors' trust, plus a pro-rata share of any net
recoveries from litigation brought by the creditors' trust on behalf of the
Senior Noteholders, excluding Arnos which will not participate in the creditors'
trust; (v) cash payment to
5
<PAGE> 8
NATIONAL ENERGY GROUP, INC.
DEBTOR-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
trade creditors in an amount equal to 75% of any allowed claim; (vi) conversion
of the preferred shareholders equity interests in the Company to common, (vii)
retention by holders of common equity interests which will be subject to
cancellation and reissuance of common stock at a ratio of one share in the
reorganized Company for every seven shares of existing common stock, and
cancellation of other equity interests (warrants and options) as of the
effective date following confirmation of the Plan; and (viii) amendment of the
Senior Note Indenture. The Plan further provides that the Bankruptcy Court Order
dated January 14, 2000 authorizing the closing of the Arnos PSA would be vacated
pursuant to confirmation of the Plan. The Company's preferred shareholders shall
not be entitled to vote on the Joint Plan, however, the Company's common
shareholders are entitled to vote on the Joint Plan. Both the Joint Plan and
Disclosure Statement are subject to amendment and/or withdrawal prior to
confirmation. A confirmation hearing in the Bankruptcy Court to implement the
Joint Plan is scheduled for July 7, 2000.
Due to the Chapter 11 filing and Bankruptcy Court restrictions, the Company
had suspended its exploratory and development drilling program and the Company
had been limited in its capital expenditures to ordinary course enhancement of
current production through workovers, recompletions, and other production
enhancing activities deemed to be economic. Pursuant to an Order of the
Bankruptcy Court dated May 2, 2000, the Company may operate all of its
properties in the ordinary course of business, including, but not limited to,
resuming exploration and development activities. Absent this Order, future
production would be adversely affected by the continued inability to make
acquisitions of producing properties and continue the exploratory and
development of its current asset base. Accordingly, the Company is currently
reviewing its development and exploration inventory and other opportunities for
enhancing the current production and asset base.
2. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, these financial statements
contain all adjustments, consisting of normal recurring accruals, necessary to
present fairly the financial position, results of operations and cash flows for
the periods indicated. The preparation of financial statements in accordance
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results may differ from these
estimates. The Company's quarterly financial data should be read in conjunction
with the consolidated financial statements of the Company for the year ended
December 31, 1999 (including the notes thereto), set forth in the Company's
Annual Report on Form 10-K.
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 prior 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
which provides for continuation of the Company's oil and gas operations, (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 accompanying financial statements as of and for the three months ended
March 31, 2000 have been presented in accordance with Statement of Position
90-7, Financial Reporting by Entities in Reorganization under the Bankruptcy
Code ("SOP 90-7"). In accordance with SOP 90-7, no interest has been accrued on
6
<PAGE> 9
NATIONAL ENERGY GROUP, INC.
DEBTOR-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
unsecured debt, no dividends on preferred stock have been accrued, costs
relating to the bankruptcy proceeding and interest earned on accumulating cash
resulting from the bankruptcy proceeding have been reported as reorganization
items in the accompanying statement of operations, and liabilities subject to
compromise have been separately reported in the accompanying balance sheet.
Certain previously reported amounts have been reclassified to conform with
the current presentation. The results of operations for the three months ended
March 31, 2000, are not necessarily indicative of the results expected for the
full year.
The Company capitalizes internal general and administrative costs that can
be directly identified with acquisition, exploration, and development
activities. Such capitalized costs include salary 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. These costs totaled approximately $582,000 and $186,000,
respectively, for the three months ended March 31, 1999 and 2000.
Overhead reimbursements received from joint interest partners which are
included as a reduction of general and administrative expense totaled
approximately $178,000 and $143,000 for the three months ended March 31, 1999
and 2000, respectively.
3. CREDIT FACILITY
The Company has an outstanding secured credit facility with Arnos with a
borrowing base of $25 million, currently maturing August 29, 2000. The Company
had $25 million outstanding under the credit facility as of December 31, 1999
and March 31, 2000. The Company is currently paying interest under the credit
facility at the base rate, as defined.
At December 31, 1999 and March 31, 2000, the Company was in violation of
the minimum interest coverage ratio and current ratio covenants under the Arnos
credit facility.
As discussed in Note 1, the Joint Plan provides for cash payment of the $25
million outstanding under the credit facility plus any accrued and unpaid
interest. The credit facility will remain in place and receive such treatment
agreed to between Arnos and the Company.
7
<PAGE> 10
NATIONAL ENERGY GROUP, INC.
DEBTOR-IN-POSSESSION
ITEM 2. 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 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.
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 prior 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
which provides for continuation of the Company's oil and gas operations, (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 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.
PETITION FOR RELIEF UNDER CHAPTER 11
On December 4, 1998, certain of the holders of the Senior Notes of the
Company 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. On December 23, 1998, the Company filed an Answer
to and Motion to Dismiss the pending 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 which placed the Company under the protection of the Court and
precluded payment of the interest on the Senior Notes until the conclusion of
the bankruptcy proceeding. See Note 1 to Consolidated Financial Statements for
further discussion of the bankruptcy proceeding.
8
<PAGE> 11
NATIONAL ENERGY GROUP, INC.
DEBTOR-IN-POSSESSION
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 expenses related to the Company's oil and natural gas
production for the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
1999 2000
------- --------
<S> <C> <C>
Net production:
Oil (Mbbls)............................................... 294 219
Natural gas (Mmcf)........................................ 2,494 1,882
Natural gas equivalent (Mmcfe)............................ 4,260 3,198
Oil and natural gas sales (in thousands):
Oil....................................................... $3,196 $ 5,846
Natural gas............................................... 4,048 4,875
------ -------
Total............................................. $7,244 $10,721
====== =======
Average sales price:
Oil (per Bbl)............................................. $10.85 $ 26.66
Natural gas (per Mcf)..................................... 1.62 2.59
Unit economics (per Mcfe):
Average sales price....................................... $ 1.70 $ 3.35
Lease operating expenses.................................. .35 .44
Oil and natural gas production taxes...................... .11 .20
Depletion rate............................................ .96 .86
General and administrative................................ .24 .34
</TABLE>
Three Months Ended March 31, 1999, Compared with Three Months Ended March 31,
2000
Revenues. Total revenues increased by $3.5 million (48.6%) to $10.7 million
for 2000 from $7.2 million in 1999. The increase in revenues was due to the
significant oil price increase combined with the increase in natural gas prices
offset, in part, by the decrease in production from the same period in 1999.
Average natural gas prices increased $.97 per Mcf to $2.59 per Mcf for 2000 from
$1.62 for 1999 while average oil prices increased $15.81 per barrel to $26.66
for 2000 from $10.85 for 1999.
In 2000, the Company produced 219 Mbbls of oil, a decrease of 26.0% from
294 Mbbls produced in 1999 and in 2000 the Company produced 1,882 Mmcf of
natural gas, a decrease of 24.5% from 2,494 Mmcf produced in 1999. The decline
in production is primarily due to natural production declines combined with the
decrease related to the properties sold at an oil and gas auction in December
1999. In addition, the Company's ability to offset these natural declines
through drilling and exploration has been limited due to the Bankruptcy Court
restrictions. The Company expects production to continue to decline unless
replaced through drilling, workovers, recompletions and/or acquisitions.
Accordingly, the Company is currently reviewing its development and exploration
inventory and other opportunities for enhancing the current production and asset
base pursuant to the May 2, 2000 Bankruptcy Court Order authorizing the Company
to operate its properties in the ordinary course of business, including, but not
limited to, exploration and development activities.
Costs and Expenses. Although, lease operating expenses remained relatively
constant at $1.4 million for 2000 compared to $1.5 million for 1999, lease
operating expenses per Mcfe increased $.09 to $.44 for 2000 from $.35 for 1999
due to the decline in overall production discussed above.
9
<PAGE> 12
NATIONAL ENERGY GROUP, INC.
DEBTOR-IN-POSSESSION
Oil and natural gas production taxes increased $.1 million (20.0%) to $.6
million for 2000 from $.5 million for 1999. This increase is the direct result
of the increased oil and gas revenue.
Depreciation, depletion and amortization ("DD&A") decreased $1.5 million
(34.1%) to $2.9 million for 2000 compared to $4.4 million for 1999 due to the
decrease in the average DD&A rate per Mcfe which was $.86 for 2000 compared to
$.96 for 1999. The decrease in the DD&A rate is due primarily to upward
revisions in the oil reserves, due to the significant increase in oil prices for
1999, that are used in computing the Company's DD&A rate.
General and administrative costs increased $.1 million (10.0%) to $1.1
million for 2000 compared to $1.0 million for 1999. As discussed in Note 2 to
the consolidated financial statements, the Company capitalizes internal general
and administrative costs that can be directly identified with acquisition,
exploration and development activities. These capitalized general and
administrative costs totaled $.3 million and $.1 million for the three months
ended March 31, 1999 and 2000, respectively.
Other Income and Expenses. The $.1 million increase (20.0%) in interest
expense to $.6 million for 2000 from $.5 million for 1999 was due to the
increase of the interest rate on the credit facility. Approximately $4.4 million
additional interest expense would have been recognized by the Company for the
three months ended both March 31, 1999 and 2000, respectively, if not for the
discontinuation of the interest accrual on the Senior Notes due to the
bankruptcy proceeding. The weighted average interest rate for 2000 was 9.0%
compared to 8.0% for 1999.
Reorganization Items. The Company incurred $.1 million and $.6 million for
the three months ended March 31, 2000 and 1999, respectively, for professional
fees and other expenses associated with the Chapter 11 filing. The Company
earned $.4 million and $.06 million in interest income on cash accumulating
during the Chapter 11 proceeding for the three months ended March 31, 2000 and
1999, respectively.
Net Income (Loss). Net income of $4.4 million was recognized for the three
months ended March 31, 2000, compared with a net loss of $1.2 million for the
comparable 1999 period. Net income for the first quarters of 2000 and 1999 both
exclude approximately $4.4 million in additional interest expense on the Senior
Notes and include expenses of approximately $.1 million and $.6 million,
respectively relating to the bankruptcy proceedings and include $.4 million and
$.06 million in interest income on cash accumulating during the bankruptcy
proceedings. Excluding the effects of these amounts, a net loss of $.3 million
would have been recognized for 2000 compared to a net loss of $5.06 million for
1999.
LIQUIDITY AND CAPITAL RESOURCES
Three Months Ended March 31, 1999, Compared with Three Months Ended March 31,
2000
Net cash provided by operating activities was $7.5 million for 2000,
compared to net cash provided by operating activities of $7.1 million for 1999.
The increase in cash flows from operating activities is primarily due to
increased income from operations before non-cash charges, resulting from
increased oil and gas revenues from higher commodity prices.
Net cash used in investing activities was $.3 million for 2000 compared
with $.9 million for 1999. The cash used by investing activities for 2000
included $.8 million of expenditures related primarily to workovers,
recompletions and other ordinary course production enhancement activities
compared with $1.1 million for 1999. The Company's ability to undertake drilling
and exploration activities was previously limited due to the Chapter 11
proceedings. However, as discussed above, on May 2, 2000 the Bankruptcy Court
approved an Order authorizing the Company to operate in the ordinary course of
business and resume exploration and development activities.
There was no cash provided by financing activities during either 2000 or
1999.
10
<PAGE> 13
NATIONAL ENERGY GROUP, INC.
DEBTOR-IN-POSSESSION
FUTURE CAPITAL AND FINANCING REQUIREMENTS
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 2000. However, the Company could require additional
capital to fund any large acquisitions and access to these markets could be
limited due to potential inability to access additional capital markets.
Prior to confirmation of the Joint Plan, Bankruptcy Court approval would be
required for the Company to seek additional capital from traditional reserve
base borrowings, equity, and debt offerings or joint ventures to further develop
and explore its properties and to acquire additional properties. There is no
assurance that the Company 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. The
Company does not anticipate seeking additional capital prior to confirmation of
the Joint Plan.
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.
CHANGES IN PRICES
Oil and gas prices are subject to numerous factors that are beyond the
Company's ability to control or predict, 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.
INFLATION
Although certain of the Company's costs and expenses are affected by the
level of inflation, inflation did not have a significant effect on the Company's
results of operations during the three months ended March 31, 1999 and 2000.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
None.
11
<PAGE> 14
NATIONAL ENERGY GROUP, INC.
DEBTOR-IN-POSSESSION
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Other than the Bankruptcy Court proceedings, the Company is not a party to
any material pending legal proceedings.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
At March 31, 2000, the Company was in violation of the minimum interest
coverage ratio and current ratio covenants under the Arnos credit facility.
On December 4, 1998, certain of the holders of the Senior Notes of National
Energy Group, Inc. 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. On December 23, 1998, the Company
filed, an Answer to and Motion to Dismiss the pending 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 which placed the Company under the
protection of the Court and precluded payment of the interest on the Senior
Notes until the conclusion of the bankruptcy proceeding. See Note 1 to
Consolidated Financial Statements for further discussion of the bankruptcy
proceedings.
ITEM 5. OTHER INFORMATION
The Company's common stock traded on the Nasdaq National Market under the
symbol "NEGX" from September 1, 1995 until November 9, 1998, when 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 prior to the Company's delisting on Nasdaq. 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".
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The list of exhibits required by Item 601 of Regulation S-K and filed as
part of this report is set forth in the Index to Exhibits.
(b) Reports on Form 8-K
None.
12
<PAGE> 15
NATIONAL ENERGY GROUP, INC.
DEBTOR-IN-POSSESSION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
NATIONAL ENERGY GROUP, INC.
<TABLE>
<S> <C>
By: /s/ BOB G. ALEXANDER May 15, 2000
-------------------------------------------------
Bob G. Alexander
President and Chief Executive Officer
By: /s/ MELISSA H. RUTLEDGE May 15, 2000
-------------------------------------------------
Melissa H. Rutledge
Vice President, Controller and
Chief Accounting Officer
</TABLE>
13
<PAGE> 16
NATIONAL ENERGY GROUP, INC.
DEBTOR-IN-POSSESSION
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
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)
2.4 -- Joint Plan of Reorganization Under Chapter 11 of the
Bankruptcy Code for National Energy Group, Inc. and
Boomer Marketing Corporation dated May 12, 2000(13)
2.5 -- Debtors' and Official Committee of Unsecured Creditors'
Joint Disclosure Statement under Section 1125 of the
Bankruptcy Code Regarding Debtors' and Official Committee
of Unsecured Creditors' Joint Plan of Reorganization
Under Chapter 11 of the Bankruptcy Code, Dated May 12,
2000(13)
3.1 -- Certificate of Incorporation of the Company, which
includes the Certificate of Incorporation of the Company
filed with the Secretary of State of Delaware on November
20, 1990(4), the Certificate of Elimination of the
Redeemable Convertible Preferred Stock, Series A of the
Company, filed with the office of the Secretary of State
of the State of Delaware on June 2, 1994(3), the
Certificate of Amendment of Certificate of Incorporation
of the Company, filed with the office of the Secretary of
State of the State of Delaware on August 29, 1996(3), the
Certificate of Designations of the Company of 10%
Cumulative Convertible Preferred Stock, Series B(5), the
Certificate of Designations of the Company of 10 1/2%
Cumulative Convertible Preferred Stock, Series(6), the
Certificate of Designations of the Company of Convertible
Preferred Stock, Series D(3), and the Certificate of
Designations of the Company of Convertible Preferred
Stock, Series E(3)
3.2 -- By-laws of the Company(4)
4.1 -- Certificate of Designations of the Company of 10%
Cumulative Convertible Preferred Stock, Series B(5)
4.2 -- Certificate of Designations of the Company of 10 1/2 %
Cumulative Convertible Preferred Stock, Series C(6)
4.3 -- Certificate of Designations of the Company of Convertible
Preferred Stock, Series D(3)
4.4 -- Certificate of Designations of the Company of Convertible
Preferred Stock, Series E(3)
4.5 -- Indenture dated as of November 1, 1996, among the
Company, National Energy Group of Oklahoma, Inc.,
formerly NEG-OK, and BankOne, Columbus, N.A.(7)
4.6 -- Indenture dated August 21, 1997, among the Company and
Bank One, N.A.(8)
4.7 -- Instrument of Resignation, Appointment and Acceptance,
dated October 23, 1998, between the Company, Bank One,
Texas, N.A. and Norwest Bank Minnesota, N.A.(9)
27.1 -- Financial Data Schedule(12)
99.1 -- Order of Bankruptcy Court Granting Relief on Involuntary
Petition(10)
99.2 -- Order of Bankruptcy Court Implementing Auction Sale
Closing (11)
</TABLE>
<PAGE> 17
- ---------------
(1) Incorporated by reference to the Company's Registration Statement on Form
S-4 (No. 333-9045), dated July 29, 1996.
(2) Incorporated by reference to Amendment No. 1 to the Company's Registration
Statement on Form S-4 (No. 333-9045), dated August 7, 1996.
(3) Incorporated by reference to the Company's Current Report on Form 8-K,
dated August 29, 1996.
(4) Incorporated by reference to the Company's Registration Statement on Form
S-4 (No. 33-38331), dated April 23, 1991.
(5) Incorporated by reference to the Company's Current Report on Form 8-K,
dated June 17, 1994.
(6) Incorporated by reference to the Company's Current Report on Form 8-K,
dated July 18, 1995.
(7) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1996.
(8) Incorporated by reference to the Company's Form S-4 (No. 333-38075), filed
October 16, 1997.
(9) Incorporated by reference to the Company's Form 10-K for the year ended
December 31, 1998.
(10) Incorporated by reference to the Company's Current Report on Form 8-K,
dated February 8, 1999.
(11) Incorporated by reference to the Company's Form 10-K for the year ended
December 31, 1999.
(12) The Financial Data Schedule is filed herewith for EDGAR filings only.
(13) Filed herewith.
<PAGE> 1
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
IN RE: )
)
NATIONAL ENERGY GROUP, INC. and ) CASE NO. 98-80258-HCA-11
BOOMER MARKETING CORPORATION, ) (Jointly Administered)
) Chapter 11
DEBTORS. )
---------------------------------------------
JOINT PLAN OF REORGANIZATION
UNDER CHAPTER 11 OF THE BANKRUPTCY CODE
FOR NATIONAL ENERGY GROUP, INC. AND
BOOMER MARKETING CORPORATION
---------------------------------------------
Patrick J. Neligan, Jr. J. Van Oliver
State Bar No. 14866000 Hugh M. Ray
Mark E. Andrews ANDREWS & KURTH, LLP
State Bar No. 01253520 1717 Main Street
NELIGAN, ANDREWS, BRYSON & FOLEY, L.L.P. Suite 3700
1717 Main Street, Suite 4050 Dallas, Texas 75201
Dallas, Texas 75201
COUNSEL FOR THE DEBTORS COUNSEL FOR COMMITTEE
AND DEBTORS-IN-POSSESSION OF UNSECURED CREDITORS
Dated: May 12, 2000
Dallas, Texas
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE 1 DEFINITIONS AND CONSTRUCTION OF TERMS...................................................................1
ARTICLE 2 TREATMENT OF UNCLASSIFIED CLAIMS........................................................................8
2.1 Administrative Claims...........................................................................8
(a) Time for Filing Administrative Claims..................................................8
(b) Time for Filing Fee Claims.............................................................8
(c) Allowance of Administrative Claims.....................................................8
(d) Payment of Allowed Administrative Claims...............................................8
(e) Treatment of Priority Tax Claims.......................................................8
(f) Treatment of Involuntary Gap Claims....................................................8
2.2 Treatment of Statutory Fees Due the United States Trustee.......................................8
ARTICLE 3 CLASSIFICATION OF CLAIMS AND EQUITY INTERESTS...........................................................9
ARTICLE 4 TREATMENT OF CLAIMS AND EQUITY INTERESTS...............................................................10
4.1 Class 1A - Other Priority Claims...............................................................10
(a) Impairment and Voting.................................................................10
(b) Treatment.............................................................................10
4.2 Class 1B - BMC Other Priority Claims...........................................................10
(a) Impairment and Voting.................................................................10
(b) Treatment.............................................................................10
4.3 Class 2 - Arnos Secured Claim..................................................................10
(a) Impairment and Voting.................................................................10
(b) Treatment.............................................................................10
4.4 Class 3 - Kauffman County Secured Claim........................................................10
(a) Impairment and Voting.................................................................10
(b) Treatment.............................................................................10
4.5 Class 4 - .....................................................................................10
(a) Impairment and Voting.................................................................10
(b) Treatment.............................................................................10
4.6 Class 5A - Other Secured Claims................................................................11
(a) Impairment and Voting.................................................................11
(b) Treatment.............................................................................11
4.7 Class 5B - BMC Secured Claims..................................................................11
4.8 Class 6 - Tort Claims..........................................................................11
(a) Impairment and Voting.................................................................11
(b) Treatment.............................................................................12
4.9 Class 7 - Intentionally Omitted................................................................12
4.10 Class 8 - Intentionally Omitted................................................................12
4.11 Class 9 - Intentionally Omitted................................................................12
4.12 Class 10 - Bondholder Claims...................................................................12
(a) Impairment and Voting.................................................................12
(b) Treatment.............................................................................12
</TABLE>
-ii-
<PAGE> 3
<TABLE>
<S> <C>
(i) Non-Arnos Bondholder Claims..................................................13
(ii) Arnos Bondholder Claims......................................................13
4.13 Class 11A - Trade Claims.......................................................................13
(a) Impairment and Voting.................................................................13
(b) Treatment.............................................................................13
4.14 Class 11B - BMC Trade Claims...................................................................13
(a) Impairment and Voting.................................................................13
(b) Treatment.............................................................................13
4.15 Class 12 - Intercompany Claims.................................................................13
(a) Impairment and Voting.................................................................13
(b) Treatment.............................................................................13
4.16 Class 13 - Preferred Equity Interests..........................................................13
(a) Impairment and Voting.................................................................13
(b) Treatment.............................................................................13
4.17 Class 14 - Common Equity Interests.............................................................13
(a) Impairment and Voting.................................................................13
(b) Treatment.............................................................................14
4.18 Class 15 - BMC Equity Interests................................................................14
(a) Impairment and Voting.................................................................14
(b) Treatment.............................................................................14
4.19 Class 16 - Other Equity Interests..............................................................14
(a) Impairment and Voting.................................................................14
(b) Treatment.............................................................................14
ARTICLE 5 SUBSTANTIVE CONSOLIDATION OF DEBTORS' ESTATES..........................................................14
5.1 Request for Substantive Consolidation..........................................................14
5.2 Effect of Substantive Consolidation............................................................14
ARTICLE 6 ACCEPTANCE OR REJECTION OF PLAN........................................................................15
6.1 Class Acceptance Requirement...................................................................15
6.2 Cramdown.......................................................................................15
ARTICLE 7 MEANS OF IMPLEMENTATION OF THE PLAN....................................................................15
7.1 Distributions..................................................................................15
(a) Allowed Claims, Other Than Bondholder Claims..........................................15
(b) Allowed Non-Arnos Bondholder Claims...................................................15
7.2 Exchange Agent.................................................................................15
7.3 Creditors' Trust...............................................................................15
7.4 Revesting of Assets............................................................................16
7.5 Discharge of Debtors...........................................................................16
7.6 Injunction.....................................................................................16
7.7 Revocation of Plan.............................................................................16
7.8 Reorganized Debtor's Board of Directors........................................................16
7.9 Reorganized Debtor's Executive Officers........................................................16
7.10 Charter and Bylaws.............................................................................16
7.11 Amendment to Indenture for Bonds...............................................................17
</TABLE>
-iii-
<PAGE> 4
<TABLE>
<S> <C>
7.12 Bonds Not Discharged...........................................................................17
7.13 Purchase of Additional Common and/or Preferred Stock...........................................17
7.14 Transfer of Reorganized Debtor's Assets into Holding LLC.......................................17
7.15 Preservation of Claims Against Officers and Directors..........................................17
ARTICLE 8 PROVISIONS GOVERNING DISTRIBUTION......................................................................17
8.1 Distributions..................................................................................17
8.2 Means of Cash Payment..........................................................................17
8.3 Delivery of Distributions......................................................................17
8.4 Deadline for Claims for Undeliverable Distributions............................................18
8.5 Time Bar to Cash Payments......................................................................18
8.6 No Interest Unless Otherwise Provided..........................................................18
8.7 Prepayment.....................................................................................18
8.8 Timing of Distributions........................................................................18
8.9 No De Minimis Distributions....................................................................18
8.10 Distribution of Common Stock in Reorganized NEG................................................18
(a) Timing of Distributions...............................................................18
(b) No Fractional Interests...............................................................18
ARTICLE 9 PROCEDURES FOR RESOLVING AND TREATING CONTESTED AND CONTINGENT CLAIMS..................................19
9.1 Objection Deadline.............................................................................19
9.2 Responsibility for Objecting to Claims.........................................................19
9.3 No Distribution Pending Allowance..............................................................19
9.4 Distribution After Allowance...................................................................19
ARTICLE 10 EXECUTORY CONTRACTS AND UNEXPIRED LEASES..............................................................19
10.1 General Treatment; Assumed If Not Rejected.....................................................19
10.2 Cure Payments and Release of Liability.........................................................19
10.3 Bar to Rejection Damages.......................................................................19
10.4 Rejection Claims...............................................................................20
ARTICLE 11 CONDITIONS PRECEDENT TO EFFECTIVENESS OF PLAN.........................................................20
11.1 Conditions to Effectiveness of Plan............................................................20
11.2 Deadline for Effectiveness of Plan.............................................................20
ARTICLE 12 CONSUMMATION OF THE PLAN..............................................................................20
12.1 Retention of Jurisdiction......................................................................20
12.2 Abstention and Other Courts....................................................................21
12.3 Nonmaterial Modifications......................................................................22
12.4 Material Modifications.........................................................................22
12.5 Termination and Rescission of Arnos Sale.......................................................22
</TABLE>
-iv-
<PAGE> 5
<TABLE>
<S> <C>
ARTICLE 13 MISCELLANEOUS PROVISIONS..............................................................................22
13.1 Limitation on Avoidance Actions................................................................22
13.2 Setoffs........................................................................................22
13.3 Compliance With All Applicable Laws............................................................22
13.4 Exculpation of Reorganized Debtor From Liability for Creditors' Trust..........................23
13.5 Binding Effect.................................................................................23
13.6 Governing Law..................................................................................23
13.7 Filing of Additional Documents.................................................................23
13.8 Dissolution of Committee.......................................................................23
13.9 Exemption from Transfer Taxes..................................................................23
13.10 Retiree Benefits...............................................................................23
13.11 Section 1125(e) of the Bankruptcy Code.........................................................23
13.12 Notices........................................................................................23
</TABLE>
-v-
<PAGE> 6
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
IN RE: )
)
NATIONAL ENERGY GROUP, INC. and ) CASE NO. 98-80258-HCA-11
BOOMER MARKETING CORPORATION, ) (Jointly Administered)
) Chapter 11
DEBTORS. )
JOINT PLAN OF REORGANIZATION UNDER
CHAPTER 11 OF THE BANKRUPTCY CODE FOR
NATIONAL ENERGY GROUP, INC. AND
BOOMER MARKETING CORPORATION
National Energy Group, Inc. and Boomer Marketing Corporation, the
Debtors and Debtors-in-Possession in the above-styled jointly administered
cases, and the Official Committee of Unsecured Creditors, propose the following
joint plan of reorganization under section 1121(a) of title 11 of the United
States Code:
ARTICLE 1
DEFINITIONS AND CONSTRUCTION OF TERMS
Definitions. As used in this Plan, the following terms have the respective
meanings specified below:
1.1 Administrative Claim means any right to payment constituting a cost
or expense of administration of any of the Chapter 11 Cases under sections
503(b) and 507(a)(1) of the Bankruptcy Code, including, without limitation, any
actual and necessary costs and expenses of preserving the estates of the
Debtors, any actual and necessary costs and expenses of operating the business
of the Debtors, any indebtedness or obligations incurred or assumed by the
Debtors in connection with the conduct of their business, including, without
limitation, for the acquisition or lease of property or an interest in property
or the rendition of services, all compensation and reimbursement of expenses to
the extent Allowed by the Bankruptcy Court under sections 330 or 503 of the
Bankruptcy Code and any fees or charges assessed against the estates of the
Debtors under section 1930 of chapter 123 of title 28 of the United States Code.
1.2 Allowed, when used with respect to a Claim, means a Claim (a) to
the extent it is not Contested or (b) a Contested Claim as to which a Final
Order allowing such Claim has been entered by the Bankruptcy Court or another
court of competent jurisdiction. "Allowed," when used with respect to an Equity
Interest, means an Equity Interest, proof of which was timely and properly filed
or, if no proof of interest was filed, which has been or hereafter is listed by
the Debtors on their Schedules as liquidated in amount and not disputed or
contingent and, in either case, as to which no
JOINT PLAN OF REORGANIZATION UNDER CHAPTER 11 OF THE BANKRUPTCY CODE
FOR NATIONAL ENERGY GROUP, INC. AND BOOMER MARKETING CORPORATION
1
<PAGE> 7
objection to the allowance thereof has been interposed on or before the
applicable period of limitation fixed by the Bankruptcy Code, the Bankruptcy
Rules, the Bankruptcy Court, or the Plan, or as to which any objection has been
determined by a Final Order to the extent such objection is determined in favor
of the respective holder. "Allowed," when used with respect to an Administrative
Claim of a Professional, means an Administrative Claim approved by application
to the Bankruptcy Court and entry of a Final Order approving such Administrative
Claim.
1.3 Arnos means Arnos Corp., a Nevada corporation, and its affiliates
and insiders.
1.4 Arnos Bondholder Claim means any Bondholder Claim held by Arnos.
1.3 Arnos Sale means the proposed sale of substantially all of NEG's
assets to Arnos, which was approved by the Bankruptcy Court pursuant to an Order
entered on November 16, 1999.
1.4 Arnos Secured Claim means the Secured Claim asserted against NEG
held by Arnos, in the approximate amount of $25.00 million plus accrued
interest.
1.5 Avoidance Action means any action arising in the Chapter 11 Cases
for avoidance and recovery of obligations, transfers of property or interests in
property pursuant to sections 544(b), 545, 547, 548, 550 and/or 551 of the
Bankruptcy Code, subject to the limitation set forth in section 13.1 of the
Plan.
1.5 Baker Atlas means Western Atlas Logging Services, a division of
Baker Hughes, Inc.
1.6 Baker Atlas Secured Claim means the Secured Claim asserted against
NEG by Baker Atlas.
1.6 Ballot means the form distributed to each holder of an impaired
Claim or Equity Interest on which is to be indicated acceptance or rejection of
the Plan.
1.7 Bankruptcy Code means title 11 of the United States Code, as
amended from time to time, as applicable to the Chapter 11 Cases.
1.8 Bankruptcy Court means the United States Bankruptcy Court for the
Northern District of Texas, Dallas Division, having jurisdiction over the
Chapter 11 Cases.
1.9 Bankruptcy Rules means the Federal Rules of Bankruptcy Procedure as
promulgated by the United States Supreme Court under section 2075 of title 28 of
the United States Code, and any Local Rules of the Bankruptcy Court of the
Northern District of Texas.
1.10 BMC means Boomer Marketing Corporation, a debtor and
debtor-in-possession in the Chapter 11 Cases.
1.11 BMC Equity Interest means any Equity Interest in BMC.
1.12 BMC Other Priority Claim means any Claim asserted against BMC
(other than an Administrative Claim, a Priority Tax Claim, or an Involuntary Gap
Claim) that is entitled to priority in right of payment pursuant to section 507
of the Bankruptcy Code.
1.13 BMC Secured Claim means any Secured Claim asserted against BMC.
1.14 BMC Trade Claim means any Claim asserted against BMC other than an
Administrative Claim, a Priority Tax Claim, an Involuntary Gap Claim, a BMC
Secured Claim, and a BMC Other Priority Claim.
JOINT PLAN OF REORGANIZATION UNDER CHAPTER 11 OF THE BANKRUPTCY CODE
FOR NATIONAL ENERGY GROUP, INC. AND BOOMER MARKETING CORPORATION
2
<PAGE> 8
1.15 Bonds means, collectively, the issued and outstanding (i)
registered 10 3/4% Series B Notes in the aggregate principal amount of $100
million due 2006 that were issued by NEG in 1997 in exchange for the
unregistered 10 3/4% Series A Notes due 2006, which were issued by NEG in
November 1996 (together, the "Series A/B Notes"); (ii) unregistered 10 3/4%
Series C Notes in the aggregate principal amount of $65.0 million due 2006 that
were issued by NEG in August 1997 (the "Series C Notes"); and (iii) registered
10 3/4% Series D Notes due 2006 that were issued by NEG in December 1997 in
exchange for substantially all of the Series A/B Notes and the Series C Notes,
which are substantially identical to the Series A/B Notes and the Series C
Notes. The Bonds bear interest at 10 3/4% per annum, payable semi-annually on
May 1 and November 1. The Bonds mature November 1, 2006, but may be redeemed
after November 1, 2001, at NEG's option.
1.16 Bondholder means a holder of one or more Bonds.
1.17 Bondholder Claim means any Claim by the holder of one or more
Bonds.
1.18 Buckles Class Action Claim means , collectively, any and all
Claims by the plaintiffs in the litigation styled Buckles v. National Energy
Group, Inc. commenced on or about September 5, 1997, in Canadian County,
Oklahoma.
1.19 Business Day means any day other than a Saturday, Sunday, or any
other day on which commercial banks in New York, New York are required or
authorized to close by law or executive order.
1.20 Cash means legal tender of the United States of America and
equivalents thereof.
1.21 Chapter 11 Cases means the Debtors' cases under Chapter 11 of the
Bankruptcy Code.
1.22 Claim means (a) a right to payment from one or both of the
Debtors, whether or not such right is reduced to judgment, liquidated,
unliquidated, fixed, contingent, matured, unmatured (including potential and
unmatured tort and contract claims), disputed, undisputed, legal, equitable,
secured or unsecured or (b) a right to an equitable remedy for breach of
performance if such breach gives rise to a right of payment from one or both of
the Debtors, whether or not such right to an equitable remedy is reduced to
judgment, fixed, contingent, matured, unmatured (including potential and
unmatured tort and contract claims), disputed, undisputed, secured or unsecured.
1.23 Class means a category of Claims or Equity Interests as set forth
in Article 3 of the Plan.
1.24 Collateral means any property or interest in property of the
estates of the Debtors subject to a Lien or Security Interest to secure the
payment or performance of a Claim, which Lien or Security Interest is not
subject to avoidance under the Bankruptcy Code or otherwise invalid under the
Bankruptcy Code or applicable nonbankruptcy law.
1.25 Committee means the statutory committee of unsecured creditors
appointed in the Chapter 11 Cases pursuant to section 1102 of the Bankruptcy
Code.
1.26 Common Equity Interest means any Equity Interest in NEG
(including, without limitation, any outstanding common stock in NEG) other than
a Preferred Equity Interest.
1.27 Confirmation Date means the date on which the Clerk of the
Bankruptcy Court enters the Confirmation Order on the docket.
1.28 Confirmation Hearing means the hearing held by the Bankruptcy
Court to consider confirmation of the Plan pursuant to section 1129 of the
Bankruptcy Code, as such hearing may be adjourned or continued from time to
time.
1.29 Confirmation Order means the order of the Bankruptcy Court
confirming the Plan pursuant to section 1129 of the Bankruptcy Code.
1.30 Contested, when used with respect to a Claim, means a Claim
against the Debtors (i) that is listed in
JOINT PLAN OF REORGANIZATION UNDER CHAPTER 11 OF THE BANKRUPTCY CODE
FOR NATIONAL ENERGY GROUP, INC. AND BOOMER MARKETING CORPORATION
3
<PAGE> 9
the Debtors' Schedules as disputed, contingent, or unliquidated; (ii) that is
listed in the Debtors' Schedules as undisputed, liquidated, and not contingent
and as to which a proof of Claim has been filed with the Bankruptcy Court, to
the extent the proof of Claim amount exceeds the scheduled amount; (iii) that is
the subject of a pending action in a forum other than the Bankruptcy Court
unless such Claim has been determined by Final Order in such other forum and
Allowed by Final Order of the Bankruptcy Court; or (iv) as to which an objection
has been or may be timely filed and has not been overruled by a Final Order. To
the extent an objection relates to the allowance of only a part of a Claim, such
Claim shall be a Contested Claim only to the extent of the objection.
1.31 Creditors' Trust means that certain trust to be created as of the
Effective Date pursuant to the Creditors' Trust Agreement to preserve and
liquidate the Creditors' Trust Assets for the exclusive benefit of the Non-Arnos
Bondholders and the holders of Allowed Trade Claims.
1.32 Creditors' Trust Agreement means that certain trust instrument,
pursuant to which the Creditors' Trust shall be created as of the Effective
Date. The form of the Creditors' Trust Agreement is attached as Exhibit "B " to
the Disclosure Statement.
1.33 Creditors' Trust Assets means all of the Debtors' and their
Estates' right, title, and interest in and to (a) the Transferred Causes of
Action and (b) $1.00 million, which shall be contributed to the Creditors' Trust
by the Non-Arnos Bondholders, through the Exchange Agent, pursuant to sections
4.12(b)(i) and 7.1(b)(iii) of this Plan.
1.34 Creditors' Trustee means the trustee (or, collectively, the
trustees) of the Creditors' Trust, in and only in such capacity. The Creditors'
Trustee shall be selected by the Committee and approved by the Bankruptcy Court
at the Confirmation Hearing.
1.35 Debtors means, collectively, NEG and BMC.
1.36 Debtors-in-Possession means the Debtors in their capacity as
debtors-in-possession in the Chapter 11 Cases pursuant to sections 1101,
1107(a), and 1108 of the Bankruptcy Code.
1.37 Deemed Collateral Value means, unless a Valuation Motion is timely
filed, a value equal to the amount, as of the Petition Date, of the Allowed
Claim it secures.
1.38 Disallowed means, when used with respect to a Claim or Equity
Interest, a Claim or Equity Interest that has been disallowed by Final Order.
1.39 Disclosure Statement means the joint disclosure statement relating
to the Plan, including, without limitation, all exhibits and schedules thereto,
as proposed jointly by the Debtors and the Committee and approved by the
Bankruptcy Court pursuant to section 1125 of the Bankruptcy Code.
1.40 Effective Date means the first Business Day on which all of the
conditions to the effectiveness of the Plan have been satisfied or waived as set
forth herein, unless the Plan has been earlier terminated pursuant to section
11.2 hereof.
1.41 Equity Interest means any share of common stock or other
instrument evidencing an ownership interest in either of the Debtors, whether or
not transferable, and any option, warrant or right, contractual or otherwise, to
acquire any such interest.
1.42 Escrowed Funds means those funds maintained in the registry of the
Bankruptcy Court deposited by Arnos in connection with the Arnos Sale, together
with all interest and income earned on such funds. The total amount of the
Escrowed Funds as of April 20, 2000 was approximately $73.0 million.
1.43 Estates means the Debtors' Chapter 11 bankruptcy estates.
JOINT PLAN OF REORGANIZATION UNDER CHAPTER 11 OF THE BANKRUPTCY CODE
FOR NATIONAL ENERGY GROUP, INC. AND BOOMER MARKETING CORPORATION
4
<PAGE> 10
1.44 Exchange Agent means an individual or entity designated by the
Debtors and approved by the Bankruptcy Court at the Confirmation Hearing to
serve as the Exchange Agent for purposes of disbursing the Non-Arnos Bondholder
Payment in accordance with the terms of this Plan.
1.45 Exchange Agent Agreement means that certain agreement further
describing the duties and responsibilities of the Exchange Agent under the Plan.
The form of the Exchange Agent Agreement shall be filed with the Bankruptcy
Court by the Debtors and the Committee at least fifteen (15) days prior to the
commencement of the Confirmation Hearing.
1.46 Fee Claim means an Administrative Claim by a Professional or any
other party in interest under section 330 or 503 of the Bankruptcy Code for
compensation or reimbursement in the Chapter 11 Cases.
1.47 Final Order means an order or judgment of the Bankruptcy Court or
any other court or adjudicative body as to which order or judgment the time to
appeal or seek rehearing or petition for certiorari shall have expired or which
order or judgment shall no longer be subject to appeal, rehearing, or certiorari
proceeding and with respect to which no appeal, motion for rehearing, or
certiorari proceeding or stay shall then be pending.
1.48 Initial Distribution Date, when used with respect to a particular
Claim, means the later of (i) the thirtieth day after the Effective Date or (b)
the date as soon as practicable, but within thirty days, after the date on which
a Contested Claim becomes an Allowed Claim.
1.49 Intercompany Claim means any Claim by either of the Debtors
against the other Debtor.
1.50 Involuntary Gap Claim means any Claim entitled to priority in
payment under section 507(a)(2) of the Bankruptcy Code.
1.51 Kauffman County Secured Claim means the Secured Claim asserted
against NEG held by Kauffman County, Texas.
1.52 Landry Claim means, collectively, any and all Claims by the
plaintiffs in the litigation styled Landry and Dupree v. Exxon, Panaco, National
Energy Group, Inc., et al. commenced on or about August 21, 1998, in Iberville
Parish, Louisiana.
1.53 Lien shall have the meaning set forth in section 101 of the
Bankruptcy Code.
1.54 Milton Vaughn Claim means, collectively, any and all Claims by the
plaintiffs in the litigation styled Milton Vaughn v. National Energy Group,
Inc., commenced on or about February 10, 1998, in Iberville Parish, Louisiana.
1.55 NEG means National Energy Group, Inc., a debtor and
debtor-in-possession in the Chapter 11 Cases.
1.7 Non-Arnos Bondholder means any Bondholder other than Arnos.
1.56 Non-Arnos Bondholder Claim means any Bondholder Claim other than
an Arnos Bondholder Claim.
1.8 Non-Arnos Bondholder Initial Recovery means an amount equal to (x)
the Non-Arnos Bondholder Payment minus (y) $1.00 million.
1.57 Non-Arnos Bondholder Payment means a payment in an amount equal to
(x) 56.5% of the aggregate principal amount of the Bonds held on the
Confirmation Date by Non-Arnos Bondholders plus (y) the actual interest accrued
on the foregoing amount from April 20, 2000 through the Effective Date. The
Non-Arnos Bondholder Payment shall be made by Arnos from the Escrowed Funds to
the Non-Arnos Bondholders, through the Exchange Agent, pursuant to sections
4.12(b)(i) and 7.1(b)(i) of the Plan.
JOINT PLAN OF REORGANIZATION UNDER CHAPTER 11 OF THE BANKRUPTCY CODE
FOR NATIONAL ENERGY GROUP, INC. AND BOOMER MARKETING CORPORATION
5
<PAGE> 11
1.57 Other Equity Interest means any Equity Interest other than a
Common Equity Interest, a Preferred Equity Interest, or a BMC Equity Interest.
Other Equity Interests include any warrant, option or agreement to buy Common
Equity Interests, Preferred Equity Interests or BMC Equity Interests.
1.58 Other Priority Claim means any Claim asserted against NEG (other
than an Administrative Claim, a Priority Tax Claim, or an Involuntary Gap Claim)
that is entitled to priority in right of payment pursuant to section 507 of the
Bankruptcy Code.
1.59 Other Secured Claim means any Secured Claim asserted against NEG
other than the Arnos Secured Claim, the Baker Atlas Secured Claim and the
Kauffman County Secured Claim.
1.60 Person means any individual, corporation, general partnership,
limited partnership, association, joint stock company, joint venture, estate,
trust, unincorporated organization, government, or any political subdivision
thereof or other entity.
1.61 Petition Date means December 4, 1998.
1.62 Plan means this Chapter 11 joint plan of reorganization proposed
jointly by the Debtors and the Committee dated May 2, 2000, including all
exhibits, supplements, appendices and schedules hereto, either in the present
form thereof or as the same may be altered, amended, or modified from time to
time.
1.63 Preferred Equity Interest means any issued and outstanding share
of NEG's Series B, Series C, Series D, and Series E Convertible Preferred Stock.
1.64 Priority Tax Claim means any Claim asserted against NEG or BMC by
a governmental unit of the kind specified in sections 502(i) and 507(a)(8) of
the Bankruptcy Code.
1.65 Professional means any Person (a) retained by the Debtors or the
Committee pursuant to an order of the Bankruptcy Court in accordance with
sections 327 and 1103 of the Bankruptcy Code or (b) who seeks compensation or
reimbursement pursuant to sections 503(b)(3), 503(b)(4), 503(b)(5), or 506(b) of
the Bankruptcy Code.
1.10 Pro Rata means a proportionate share, so that the ratio of the
consideration distributed on account of an Allowed Claim or Allowed Equity
Interest in a Class to the amount of such Allowed Claim or Allowed Equity
Interest is the same as the ratio of the amount of the consideration distributed
on account of Allowed Claims or Allowed Equity Interests in such Class to the
amount of all Allowed Claims or Allowed Equity Interests entitled to
distributions in such Class.
1.66 Relief Date means February 11, 1999, the date on which the
Bankruptcy Court entered the order for relief for NEG.
1.67 Reorganized Debtor or Reorganized NEG means, collectively, NEG and
BMC from and after the Effective Date.
1.68 Schedules means the schedules of assets and liabilities, the list
of holders of Equity Interests, and the statements of financial affairs filed by
the Debtors under section 521 of the Bankruptcy Code and Bankruptcy Rule 1007,
and all amendments and modifications thereto through the Confirmation Date.
1.69 Secured Claim means any Claim, to the extent reflected in the
Schedules or a proof of Claim as being secured by a Lien or Security Interest
(whether consensual or otherwise), to the extent it is secured by a valid,
unavoidable Lien or Security Interest in Collateral, to the extent of the value
of the Estates' interest in such Collateral, as determined in accordance with
section 506(a) of the Bankruptcy Code and taking into account any other Secured
Claims with respect to such Collateral not inferior in priority to such Secured
Claim or, in the event that such Claim is subject to setoff under section 553 of
the Bankruptcy Code, to the extent of such setoff.
1.70 Secured Tax Claim means any Secured Claim which is entitled to
priority in right of payment under section 507(a)(8) of the Bankruptcy Code.
JOINT PLAN OF REORGANIZATION UNDER CHAPTER 11 OF THE BANKRUPTCY CODE
FOR NATIONAL ENERGY GROUP, INC. AND BOOMER MARKETING CORPORATION
6
<PAGE> 12
1.71 Security Interest has the meaning set forth in section 101 of the
Bankruptcy Code.
1.72 Southerland Tort Claim means, collectively, any and all Claims by
the plaintiffs in the litigation styled Southerland v. National Energy Group,
Inc., commenced on or about January 16, 1998, in Harrison County, Texas.
1.11 Tort Claims means, collectively, the Buckles Class Action Claim,
the Milton Vaughn Claim, the Landry Claim, the Southerland Tort Claims, any
other Claim against either of the Debtors based upon a tort that allegedly
occurred prior to the Petition Date, and any other Claim asserted against either
of the Debtors in litigation commenced prior to the Petition Date.
1.73 Trade Claim means any Claim asserted against NEG other than an
Administrative Claim, a Priority Tax Claim, an Involuntary Gap Claim, an Other
Priority Claim, the Arnos Secured Claim, the Kauffman County Secured Claim, an
Other Secured Claim, a Southerland Tort Claim, the Buckles Class Action Claim,
the Milton Vaughn Claim, the Landry Claim, a Bondholder Claim, or an
Intercompany Claim.
1.74 Transferred Causes of Action means all of the Debtors' or the
Estates' right, title, and interest in and to the following: (i) all Avoidance
Actions and (ii) all claims, causes of action, rights, suits, debts, sums of
money, damages, judgment claims and demands whatsoever, whether known or
unknown, in law, equity or otherwise that were held by the Debtors as of the
Petition Date and which are not related to, or do not arise out of, (A) the
operating assets retained by the Reorganized Debtor following Confirmation of
the Plan; (B) the Debtors' ownership maintenance and/or operation of such
assets; (C) any executory contracts or leases assumed or rejected by the
Debtors; (D) any setoff rights that may be asserted by the Reorganized Debtor
against any third party in connection with an objection to a Claim or other
litigation; or (E) any transactions between either or both of the Debtors, on
the one hand, and EEX Corporation, Enserch Exploration, Inc., Reliant Gas
Transmission Company, Arkla Energy Resources, or Edge Petroleum Exploration
Company, on the other hand. Notwithstanding anything else in the Plan to the
contrary, the Transferred Causes of Action shall specifically include all claims
held by the Debtors as of the Petition Date against any or all of their
respective present and former officers, directors, accountants, other
professionals, parties in control of NEG, or parties asserting control of NEG.
Pursuant to sections 4.12(b)(i) and 7.1(b) of the Plan, the Transferred Causes
of Action will be preserved, maintained, and transferred on the Effective Date
to, and owned thereafter by, the Creditors' Trust, just as if the Creditors'
Trust were the Debtors, and will be enforced exclusively by the Creditors' Trust
on and after the Effective Date.
1.75 Valuation Motion means a motion filed by the Debtors, Arnos, the
Committee, or the holder of a Secured Claim seeking to obtain a determination by
the Bankruptcy Court of the value of Collateral.
Interpretation: Application of Definitions and Rules of Construction. Wherever
from the context it appears appropriate, each term stated in either the singular
or the plural shall include both the singular and the plural and pronouns stated
in the masculine, feminine, or neuter gender shall include the masculine,
feminine, and neuter. Unless otherwise specified, all section, article,
schedule, or exhibit references in the Plan are to the respective Section in,
Article of, Schedule to, or Exhibit to, the Plan.
The words "herein," "hereof," "hereto," "hereunder" and other words of similar
import refer to the Plan as a whole and not to any particular section,
subsection or clause contained in the Plan. The rules of construction contained
in section 102 of the Bankruptcy Code shall apply to the construction of the
Plan. A term used herein that is not defined herein, but that is used in the
Bankruptcy Code, shall have the meaning ascribed to that term in the Bankruptcy
Code. The headings in the Plan are for convenience of reference only and shall
not limit or otherwise affect the provisions of the Plan.
JOINT PLAN OF REORGANIZATION UNDER CHAPTER 11 OF THE BANKRUPTCY CODE
FOR NATIONAL ENERGY GROUP, INC. AND BOOMER MARKETING CORPORATION
7
<PAGE> 13
ARTICLE 2
TREATMENT OF UNCLASSIFIED CLAIMS
2.1 ADMINISTRATIVE CLAIMS. All Administrative Claims shall be treated
as follows:
(a) TIME FOR FILING ADMINISTRATIVE CLAIMS. The holder of any
Administrative Claim, other than (i) a Fee Claim, (ii) a liability incurred and
paid in the ordinary course of business by the Debtors, or (iii) an Allowed
Administrative Claim, must file with the Bankruptcy Court, and serve on the
Debtors and their counsel, notice of such Administrative Claim within thirty
(30) days after the Effective Date. Such notice must include at a minimum (i)
the Debtor(s) that are liable for the Claim, (ii) the name of the holder of the
Claim, (iii) the amount of the Claim, and (iv) the basis of the Claim. Failure
to file timely and properly the notice required under this section 2.1(a) of the
Plan shall result in the Administrative Claim being forever barred and
discharged.
(b) TIME FOR FILING FEE CLAIMS. Each Professional who holds,
or asserts, an Administrative Claim that is a Fee Claim for compensation for
services rendered and reimbursement of expenses incurred prior to the Effective
Date shall be required to file with the Bankruptcy Court and serve on all
parties required to receive such notice, a Fee Application within thirty (30)
days of the Effective Date. Failure to file timely a Fee Application as required
under this section 2.1(b) of the Plan shall result in the Fee Claim being
forever barred and discharged.
(c) ALLOWANCE OF ADMINISTRATIVE CLAIMS. An Administrative
Claim with respect to which notice has been properly filed pursuant to section
2.1(a) of the Plan shall become an Allowed Administrative Claim if no objection
is filed within twenty (20) days after its filing and service. If an objection
is filed within such twenty (20) day period, the Administrative Claim shall
become an Allowed Administrative Claim only to the extent Allowed by Final
Order. An Administrative Claim that is a Fee Claim, and with respect to which a
Fee Application has been properly filed pursuant to section 2.1(b) of the Plan,
shall become an Allowed Administrative Claim only to the extent allowed by Final
Order of the Bankruptcy Court.
(d) PAYMENT OF ALLOWED ADMINISTRATIVE CLAIMS. Each holder of
an Allowed Administrative Claim shall receive the amount of such holder's
Allowed Administrative Claim in Cash on or before the Initial Distribution Date,
or shall receive such other treatment as agreed upon in writing by the Debtors
and such holder; provided, however, that an Administrative Claim representing a
liability incurred in the ordinary course of business by the Debtors may be paid
in the ordinary course of business by the Debtors; and provided, further, that
the payment of an Allowed Administrative Claim representing a right to payment
under sections 365(b)(1)(A) and 365(b)(1)(B) of the Bankruptcy Code may be made
in one or more Cash payments over a period of eighteen (18) months or such other
period as is determined to be appropriate by the Bankruptcy Court. All Allowed
Fee Claims shall be paid within ten (10) days after such Claim is Allowed by
Final Order of the Bankruptcy Court.
(e) TREATMENT OF PRIORITY TAX CLAIMS. Each holder of an
Allowed Priority Tax Claim shall receive, at the option of the Reorganized
Debtor (i) the full amount of such holder's Allowed Claim in one Cash payment on
or before the Initial Distribution Date; (ii) the amount of such holder's
Allowed Claim, with interest accruing after the Confirmation Date thereon, in
equal quarterly Cash payments of principal and interest at 7% per annum
commencing on July 1, 2000 and continuing so that the entire Allowed Priority
Tax Claim is satisfied in full on or prior to the sixth (6th) anniversary of the
date of assessment of such Claim; or (iii) such other treatment as may be agreed
upon in writing by the Reorganized Debtor and such holder.
(f) TREATMENT OF INVOLUNTARY GAP CLAIMS. Each holder of an
Allowed Involuntary Gap Claim shall receive the full amount of such Allowed
Involuntary Gap Claim in one Cash payment on or before the Initial Distribution
Date.
2.2 TREATMENT OF STATUTORY FEES DUE THE UNITED STATES TRUSTEE. Pursuant
to 28 U.S.C.ss. 1930(a)(6), the statutory fees of the United States Trustee
shall be paid in Cash as such fees become due and payable.
JOINT PLAN OF REORGANIZATION UNDER CHAPTER 11 OF THE BANKRUPTCY CODE
FOR NATIONAL ENERGY GROUP, INC. AND BOOMER MARKETING CORPORATION
8
<PAGE> 14
ARTICLE 3
CLASSIFICATION OF CLAIMS AND EQUITY INTERESTS
3.1 Claims (other than Administrative Claims, Priority Tax Claims, and
Involuntary Gap Claims) and Equity Interests are classified for all purposes,
including voting, confirmation and distribution pursuant to the Plan, as
follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------- ------------------
CLASS STATUS
- -------------------------------------------------------- ------------------
<S> <C>
Class 1A - Other Priority Claims Impaired
- -------------------------------------------------------- ------------------
Class 1B - BMC Other Priority Claims Impaired
- -------------------------------------------------------- ------------------
Class 2 - Arnos Secured Claim Impaired
- -------------------------------------------------------- ------------------
Class 3 - Kauffman County Secured Claim Impaired
- -------------------------------------------------------- ------------------
Class 4 - Baker Atlas Secured Claim Impaired
- -------------------------------------------------------- ------------------
Class 5A - Other Secured Claims Impaired
- -------------------------------------------------------- ------------------
Class 5B - BMC Secured Claims Impaired
- -------------------------------------------------------- ------------------
Class 6 - Tort Claims Impaired
- -------------------------------------------------------- ------------------
Class 7 - Intentionally Omitted
- -------------------------------------------------------- ------------------
Class 8 - Intentionally Omitted
- -------------------------------------------------------- ------------------
Class 9 - Intentionally Omitted
- -------------------------------------------------------- ------------------
Class 10 - Bondholder Claims Impaired
- -------------------------------------------------------- ------------------
Class 11A - Trade Claims Impaired
- -------------------------------------------------------- ------------------
Class 11B - BMC Trade Claims Impaired
- -------------------------------------------------------- ------------------
Class 12 - Intercompany Claims Impaired
- -------------------------------------------------------- ------------------
Class 13 - Preferred Equity Interests Impaired
- -------------------------------------------------------- ------------------
Class 14 - Common Equity Interests Impaired
- -------------------------------------------------------- ------------------
Class 15 - BMC Equity Interests Impaired
- -------------------------------------------------------- ------------------
Class 16 - Other Equity Interests Impaired
- -------------------------------------------------------- ------------------
</TABLE>
JOINT PLAN OF REORGANIZATION UNDER CHAPTER 11 OF THE BANKRUPTCY CODE
FOR NATIONAL ENERGY GROUP, INC. AND BOOMER MARKETING CORPORATION
9
<PAGE> 15
ARTICLE 4
TREATMENT OF CLAIMS AND EQUITY INTERESTS
4.1 CLASS 1A - OTHER PRIORITY CLAIMS
(a) Impairment and Voting. Class 1A is impaired by the Plan.
Each holder of an Allowed Other Priority Claim is entitled to vote to accept or
reject the Plan.
(b) Treatment. Each holder of an Allowed Other Priority Claim
shall receive (i) the amount of such holder's Allowed Claim in one Cash payment
on or as soon as practicable after the Initial Distribution Date or (ii) such
other treatment as may be agreed upon in writing by the Reorganized Debtor and
the holder of such Claim.
4.2 CLASS 1B - BMC OTHER PRIORITY CLAIMS
(a) Impairment and Voting. Class 1B is impaired by the Plan.
Each holder of an Allowed BMC Other Priority Claim is entitled to vote to accept
or reject the Plan.
(b) Treatment. Each holder of an Allowed BMC Other Priority
Claim shall receive (i) the amount of such holder's Allowed Claim in one Cash
payment on or as soon as practicable after the Initial Distribution Date or (ii)
such other treatment as may be agreed upon in writing by the Reorganized Debtor
and the holder of such Claim.
4.3 CLASS 2 - ARNOS SECURED CLAIM
(a) Impairment and Voting. Class 2 is impaired by the Plan.
The holder of the Arnos Secured Claim is entitled to vote to accept or reject
the Plan.
(b) Treatment. The indebtedness giving rise to the Allowed
Arnos Secured Claim shall remain in place, and Arnos shall receive, on account
of the Allowed Arnos Secured Claim, such payments as shall be agreed to in
writing by the Reorganized Debtor and Arnos. As security for such payments,
Arnos shall retain all rights provided in all documents creating, evidencing, or
securing the Allowed Arnos Secured Claim.
4.4 CLASS 3 - KAUFFMAN COUNTY SECURED CLAIM
(a) Impairment and Voting. Class 3 is impaired by the Plan.
The holder of the Kauffman County Secured Claim is entitled to vote to accept or
reject the Plan.
(b) Treatment. The holder of the Allowed Kauffman County
Secured Claim shall receive four (4) equal quarterly payments of Cash, beginning
on the Initial Distribution Date. The amount of such payments shall be
calculated to provide full satisfaction of the Allowed Kauffman County Secured
Claim plus accrued interest thereon, from and after the Effective Date, at the
rate provided for civil judgments pursuant to 28 U.S.C. ss. 1961.
4.5 CLASS 4 - CLASS 4 - BAKER ATLAS SECURED CLAIM
(a) Impairment and Voting. Class 4 is impaired by the Plan.
The holder of the Baker Atlas Secured Claim is entitled to vote to accept or
reject the Plan.
(b) Treatment. The holder of the Allowed Baker Atlas Secured
Claim shall receive Cash in the full amount of the Allowed Baker Atlas Secured
Claim on the later of (i) the Effective Date and (ii) thirty (30) days after the
date that the Claim is Allowed.
JOINT PLAN OF REORGANIZATION UNDER CHAPTER 11 OF THE BANKRUPTCY CODE
FOR NATIONAL ENERGY GROUP, INC. AND BOOMER MARKETING CORPORATION
10
<PAGE> 16
4.6 CLASS 5A - OTHER SECURED CLAIMS
(a) Impairment and Voting. Class 5A is impaired by the Plan.
The holders of the Other Secured Claims are entitled to vote to accept or reject
the Plan.
(b) Treatment. Each holder of an Other Secured Claim shall be
placed within a separate subclass of this Class 5A. Accordingly, each such Class
5A Claim shall, for purposes of accepting or rejecting the Plan and for
receiving distributions under the Plan, be treated as though in a separate
Class. Each holder of an Allowed Class 5A Claim secured by a Lien on Collateral
shall have, or be deemed to have, an Allowed Other Secured Claim to the extent
of the value of its Collateral as determined by the Bankruptcy Court or, if no
Valuation Motion is filed within thirty (30) days after the Confirmation
Hearing, an Allowed Other Secured Claim equivalent to the Deemed Collateral
Value. The holder of each Allowed Other Secured Claim shall receive, on or
before the Initial Distribution Date, (i) return of such party's Collateral in
full satisfaction of such Other Secured Claim; (ii) payment in Cash in an amount
equivalent to the lesser of (A) the value of such party's Collateral or (B) the
full amount of the Other Secured Claim; (iii) treatment of such Other Secured
Claim in accordance with sections 1124(2) or 1129(b)(2) of the Bankruptcy Code;
(iv) return of a portion of such party's Collateral and deferred Cash payments
totaling the remaining value of such party's Collateral retained by the Debtors;
or (v) such other treatment as may be agreed to in writing by such Secured
Creditor and the Reorganized Debtor. If, as the result of any Valuation Motion,
it is determined that any Allowed Class 5A Claim exceeds the value of such
party's Collateral securing such Claim, any such excess (exclusive of
postpetition interest, fees or other charges that such Secured Creditor could
otherwise assert) shall constitute a Claim and be treated in Class 11A (Trade
Claims) for purposes of the Plan.
4.7 CLASS 5B - BMC SECURED CLAIMS
(a) Impairment and Voting. Class 5B is impaired by the Plan.
The holders of the BMC Secured Claims are entitled to vote to accept or reject
the Plan.
(b) Treatment. Each holder of a BMC Secured Claim shall be
placed within a separate subclass of this Class 5B. Accordingly, each such Class
5B Claim shall, for purposes of accepting or rejecting the Plan and for
receiving distributions under the Plan, be treated as though in a separate
Class. Each holder of an Allowed Class 5B Claim secured by a Lien on Collateral
shall have, or be deemed to have, an Allowed BMC Secured Claim to the extent of
the value of its Collateral as determined by the Bankruptcy Court or, if no
Valuation Motion is filed within thirty (30) days after the Confirmation
Hearing, an Allowed BMC Secured Claim equivalent to the Deemed Collateral Value.
The holder of each Allowed BMC Secured Claim shall receive, on or before the
Initial Distribution Date, (i) return of such party's Collateral in full
satisfaction of such BMC Secured Claim; (ii) payment in Cash in an amount
equivalent to the lesser of (A) the value of such party's Collateral or (B) the
full amount of the BMC Secured Claim; (iii) treatment of such BMC Secured Claim
in accordance with sections 1124(2) or 1129(b)(2) of the Bankruptcy Code; (iv)
return of a portion of such party's Collateral and deferred Cash payments
totaling the remaining value of such party's Collateral retained by the Debtors;
or (v) such other treatment as may be agreed to in writing by such Secured
Creditor and the Reorganized Debtor. If, as the result of any Valuation Motion,
it is determined that any Allowed Class 5B Claim exceeds the value of such
party's Collateral securing such Claim, any such excess (exclusive of
postpetition interest, fees or other charges that such Secured Creditor could
otherwise assert) shall constitute a Claim and be treated in Class 11B (BMC
Trade Claims) for purposes of the Plan.
4.8 CLASS 6 - TORT CLAIMS
(a) Impairment and Voting. Class 6 is impaired by the Plan.
Each holder of a Tort Claim is entitled to vote to accept or reject the Plan.
(b) Treatment. The Tort Claims shall be treated as follows:
(1) If Class 6 accepts the Plan as provided by
section 1126(c) of the Bankruptcy Code, (A) each of the holders of a Tort Claim
shall receive Cash on or before the Initial Distribution Date in an amount equal
to 2.0% of either (1) the lesser of the amount set forth on such holder's proof
of Claim on file with the Bankruptcy Court
JOINT PLAN OF REORGANIZATION UNDER CHAPTER 11 OF THE BANKRUPTCY CODE
FOR NATIONAL ENERGY GROUP, INC. AND BOOMER MARKETING CORPORATION
11
<PAGE> 17
as of June 21, 1999, and the amount of such holder's Claim that was listed in
the Schedules or (2) at the holder's election, an amount determined by the
Bankruptcy Court to be the estimated amount of such holder's Tort Claim; and (B)
nothing in the Plan shall prejudice the right of any holder of a Tort Claim to
seek recovery under any insurance policy maintained by the Debtors as of the
Petition Date. If a holder of a Tort Claim elects to have the Bankruptcy Court
estimate its Claim for purposes of a distribution under section 4.8(b)(i)(A)(2)
above, such holder must file with the Bankruptcy Court a motion requesting an
estimation of the amount of its Tort Claim, and such motion must be filed on or
before June 15, 2000. Otherwise, such Creditor shall only be entitled to a
distribution under section 4.8(b)(i)(A)(1) above.
(2) If Class 6 does not accept the Plan as provided
by section 1126(c) of the Bankruptcy Code, each holder of an Allowed Tort Claim
shall receive, within thirty (30) days after such Claim becomes an Allowed
Claim, Cash equal to 75% of its Allowed Tort Claim.
4.9 CLASS 7 - INTENTIONALLY DELETED
4.10 CLASS 8 - INTENTIONALLY DELETED
4.11 CLASS 9 - INTENTIONALLY DELETED
4.12 CLASS 10 - BONDHOLDER CLAIMS
(a) Impairment and Voting. Class 10 is impaired by the Plan.
Each holder of an Allowed Bondholder Claim is entitled to vote to accept or
reject the Plan.
(b) Treatment. All Bondholder Claims will be Allowed as of the
Effective Date. Pursuant to the Plan, Arnos will acquire all of the Bonds, which
shall remain outstanding following confirmation of the Plan and be repaid
according to section 7.12 of the Plan. To effectuate Arnos' acquisition of the
Bonds, Allowed Bondholder Claims shall be treated as follows:
(i) Non-Arnos Bondholder Claims.
(1) Each holder of an Allowed Non-Arnos
Bondholder Claim will receive a
Cash payment from Arnos, through
the Exchange Agent, in an amount
equal to its pro rata share of the
Non-Arnos Bondholder Payment. In
consideration for the Non-Arnos
Bondholder Payment, each Non-Arnos
Bondholder shall be deemed to have
transferred its Bondholder Claim,
as well as the Bonds representing
such Claim, to Arnos as of the
Effective Date.
(1) Each holder of an Allowed Non-Arnos
Bondholder Claim will also receive
a beneficial interest in the
Creditors' Trust equal to the
percentage that such Creditor's
Allowed Non-Arnos Bondholder Claim
bears to the total of all Allowed
Non-Arnos Bondholder Claims plus
all Allowed Trade Claims. The
operations of the Creditors' Trust
shall be funded by the Non-Arnos
Bondholders with a $1.00 million
contribution into the Creditors'
Trust made from the Non-Arnos
Bondholder Payment.
(2) Each Non-Arnos Bondholder shall
receive its pro rata share of the
Non-Arnos Bondholder Initial
Recovery as soon as practicable
after the holder delivers its Bonds
to the Exchange Agent in
transferable form for delivery to
Arnos.
(3) To the extent that a holder of an
Allowed Non-Arnos Bondholder Claim
has not delivered its Bonds to the
Exchange Agent within 180 days
JOINT PLAN OF REORGANIZATION UNDER CHAPTER 11 OF THE BANKRUPTCY CODE
FOR NATIONAL ENERGY GROUP, INC. AND BOOMER MARKETING CORPORATION
12
<PAGE> 18
following the Effective Date and to
the extent not prohibited by
applicable securities laws and the
Trust Indenture Act of 1939, (1)
the Bonds shall be deemed lost, (2)
the Exchange Agent shall deliver to
the record holder of such Bonds
Cash equal to such Non-Arnos
Bondholder's pro rata share of the
Non-Arnos Bondholder Initial
Recovery; (3) the Indenture Trustee
shall reflect the transfer of the
Bonds to Arnos in the applicable
Register, and (4) the Indenture
Trustee shall issue to Arnos
replacement Bonds in transferable
form in the amount of such holder's
Bonds.
(ii) Arnos Bondholder Claims. Arnos shall retain its
Bonds and receive no distribution from the Debtors under the Plan on account of
its Arnos Bondholder Claims. Arnos will also not receive any interest in, or
distribution from, the Creditors' Trust.
4.13 CLASS 11A - TRADE CLAIMS
(a) Impairment and Voting. Class 11A is impaired by the Plan.
Each holder of an Allowed Trade Claim is entitled to vote to accept or reject
the Plan.
(b) Treatment. Each holder of a Trade Claim shall receive, on
or before the Initial Distribution Date, (I) Cash equal to seventy-five percent
(75%) of the amount of such Allowed Trade Claim and (ii) a beneficial interest
in the Creditors' Trust equal to the percentage that such holder of an Allowed
Trade Claim bears to the total of all Allowed Non-Arnos Bondholder Claims plus
all Allowed Trade Claims.
4.14 CLASS 11B - BMC TRADE CLAIMS
(a) Impairment and Voting. Class 11B is impaired by the Plan.
Each holder of an Allowed BMC Trade Claim is deemed to have or rejected the
Plan.
(b) Treatment. Each holder of an Allowed BMC Trade Claim shall
receive, on or before the Initial Distribution Date, Cash equal to seventy-five
percent (75%) of the amount of such Allowed BMC Trade Claim.
4.15 CLASS 12 - INTERCOMPANY CLAIMS
(a) Impairment and Voting. Class 12 is impaired by the Plan.
Each holder of an Allowed Intercompany Claim is deemed to have rejected the
Plan.
(b) Treatment. All Intercompany Claims shall be disallowed and
shall not receive any distribution under the Plan.
4.16 CLASS 13 - PREFERRED EQUITY INTERESTS
(a) Impairment and Voting. Class 13 is impaired by the Plan.
Each holder of an Allowed Preferred Equity Interest is deemed to have rejected
the Plan.
(b) Treatment. The Preferred Equity Interests shall be deemed
canceled on the Effective Date. Each holder of an Allowed Preferred Equity
Interest shall receive its pro rata share of 714,286 newly issued shares of
common stock in the Reorganized Debtor in exchange for its Preferred Equity
Interests.
4.17 CLASS 14 - COMMON EQUITY INTERESTS
(a) Impairment and Voting. Class 14 is impaired by the Plan.
Each holder of an Allowed Common Equity Interest is entitled to vote to accept
or reject the Plan.
JOINT PLAN OF REORGANIZATION UNDER CHAPTER 11 OF THE BANKRUPTCY CODE
FOR NATIONAL ENERGY GROUP, INC. AND BOOMER MARKETING CORPORATION
13
<PAGE> 19
(b) Treatment. Each holder of an Allowed Common Equity
Interest shall retain such interest; provided, however, the stock certificates
evidencing Common Equity Interests shall be deemed canceled and exchanged as of
the Effective Date for shares of common stock in the Reorganized Debtor, which
shall be issued to the holders of Allowed Common Equity Interests at a ratio of
1 share of common stock in the Reorganized Debtor for every 7 shares of Allowed
Common Equity Interests.
4.18 CLASS 15 - BMC EQUITY INTERESTS
(a) Impairment and Voting. Class 15 is impaired by the Plan.
Each holder of an Allowed BMC Equity Interest is deemed to have rejected the
Plan.
(b) Treatment. As set forth below, the Plan provides for the
substantive consolidation of NEG and BMC. Accordingly, all of the BMC Equity
Interests, which are held by NEG, will be canceled as of the Effective Date, and
the holder of the BMC Equity Interests will not receive a distribution on
account of such Equity Interests.
4.19 CLASS 16 - OTHER EQUITY INTERESTS
(a) Impairment and Voting. Class 16 is impaired by the Plan.
Each holder of an Allowed Other Equity Interests is deemed to have rejected the
Plan.
(b) Treatment. All Other Equity Interests shall be canceled on
the Effective Date and the holders thereof shall receive no distribution under
the Plan.
ARTICLE 5
SUBSTANTIVE CONSOLIDATION OF DEBTORS' ESTATES
5.1 REQUEST FOR SUBSTANTIVE CONSOLIDATION. This Plan constitutes a
motion for substantive consolidation of the liabilities and properties of the
Debtors. Confirmation of the Plan shall constitute approval of the motion by the
Bankruptcy Court, and the Confirmation Order shall contain findings supporting,
and conclusions providing for, substantive consolidation of the Debtors'
Estates.
5.2 EFFECT OF SUBSTANTIVE CONSOLIDATION. As a result of the substantive
consolidation of the liabilities and properties of the Debtors, (a) the Chapter
11 Cases shall be consolidated into the case of NEG as a single consolidated
case; (b) all property of the Estate of each Debtor shall be deemed to be the
property of the consolidated Estates; (c) all Claims against each Estate shall
be deemed to be Claims against the consolidated Estates, any proof of claim
filed against one of the Debtors shall be deemed to be a single Claim filed
against the consolidated Estates, and all duplicate proofs of claim for the same
Claim filed against more than one Debtor shall be deemed expunged; (d) all
Intercompany Claims shall be eliminated, and no distributions under this Plan
shall be made on account of Intercompany Claims; (e) all guarantees by one
Debtor in favor of the other Debtor shall be eliminated, and no distributions
under the Plan shall be made on account of Claims based upon such guarantees;
and (f) for purposes of determining the availability of the right of setoff
under section 553 of the Bankruptcy Code, the Debtors shall be treated as one
consolidated entity so that, subject to the other provisions of section 553,
debts due to one of the Debtors may be set off against the debts of the other
Debtor. Substantive consolidation shall not merge or otherwise affect the
separate legal existence of each Debtor, other than with respect to distribution
rights under this Plan; substantive consolidation shall have no effect on valid,
enforceable and unavoidable liens, except for liens that secure a Claim that is
eliminated by virtue of substantive consolidation and liens against Collateral
that are extinguished by virtue of substantive consolidation; and substantive
consolidation shall not have the effect of creating a Claim in a class different
from the class in which a Claim would have been placed in the absence of
substantive consolidation.
JOINT PLAN OF REORGANIZATION UNDER CHAPTER 11 OF THE BANKRUPTCY CODE
FOR NATIONAL ENERGY GROUP, INC. AND BOOMER MARKETING CORPORATION
14
<PAGE> 20
ARTICLE 6
ACCEPTANCE OR REJECTION OF PLAN
6.1 CLASS ACCEPTANCE REQUIREMENT. A Class of Claims shall have accepted
the Plan if it is accepted by at least two-thirds (2/3) in amount and more than
one-half (1/2) in number of the Allowed Claims in such Class that have voted on
the Plan.
6.2 CRAMDOWN. This section shall constitute the Debtors' and the
Committee's request, pursuant to section 1129(b)(1) of the Bankruptcy Code, that
the Bankruptcy Court confirm the Plan notwithstanding the fact that the
requirements of section 1129(a)(8) may not be met. The Debtors and the Committee
reserve the right to amend the Plan as may be necessary to obtain confirmation
of the Plan under section 1129(b) of the Bankruptcy Code.
ARTICLE 7
MEANS OF IMPLEMENTATION OF THE PLAN
7.1 DISTRIBUTIONS. Distributions under the Plan shall be made as
follows:
(a) ALLOWED CLAIMS, OTHER THAN BONDHOLDER CLAIMS. The
Reorganized Debtor shall make all distributions from Cash on hand to holders of
Allowed Claims, other than the distributions to be made to Non-Arnos
Bondholders.
(b) ALLOWED NON-ARNOS BONDHOLDER CLAIMS. Distributions to
Non-Arnos Bondholders will be made as follows:
(i) On the Effective Date, the clerk of the
Bankruptcy Court shall distribute to the Exchange Agent from the registry of the
Bankruptcy Court a portion of the Escrowed Funds equal to the Non-Arnos
Bondholder Payment for distribution to Non-Arnos Bondholders in accordance with
Article 4.12(b)(i) of the Plan. On the Effective Date, the clerk of the
Bankruptcy Court shall return the remainder of the Escrowed Funds from the
registry of the Bankruptcy Court to Arnos.
(ii) On the Effective Date, the Transferred Causes of
Action shall be deemed transferred from the Debtors to the Creditors' Trust and
will then be administered in accordance with the terms of the Creditors' Trust
Agreement. On the Effective Date, the Debtors shall execute an assignment of the
Avoidance Actions to the Creditors' Trust; provided, however, that such
assignment must be in a form acceptable to the Debtors and Arnos.
(iii) As soon as is reasonably practical after the
Exchange Agent's receipt of the Non-Arnos Bondholder Payment, the Exchange
Agent, on behalf of the Non-Arnos Bondholders, shall transfer $1.00 million from
the Non-Arnos Bondholder Payment to the Creditors' Trustee, which funds will
then be administered in accordance with the terms of the Creditors' Trust
Agreement.
7.2 EXCHANGE AGENT. The Exchange Agent shall have the powers, duties
and obligations specified in the Plan and in the Exchange Agent Agreement. The
liability of the Exchange Agent will be limited so that he shall not be liable
for his actions in connection with his performance of his obligations under this
Plan unless he has been guilty of willful fraud or gross negligence. The
Exchange Agent shall not be required to give a bond for the faithful performance
of his duties hereunder. The fees and expenses incurred by the Exchange Agent
shall be paid by the Reorganized Debtor, subject to approval by the Bankruptcy
Court.
7.3 CREDITORS' TRUST. The Creditors' Trust shall be established as of
the Effective Date by execution of the Creditors' Trust Agreement and the
transfer of the Creditors' Trust Assets to the Creditors' Trustee pursuant to
the terms and conditions thereof. In order to carry out an orderly prosecution
of the Transferred Causes of Action, the Creditors' Trust, its agents and
professionals may appoint necessary personnel and may carry on operations,
including the prosecution, trial and settlement of the Transferred Causes of
Action, to obtain a fair and reasonable value for the Transferred Causes of
Action for the benefit of the beneficiaries of the Creditors' Trust.
JOINT PLAN OF REORGANIZATION UNDER CHAPTER 11 OF THE BANKRUPTCY CODE
FOR NATIONAL ENERGY GROUP, INC. AND BOOMER MARKETING CORPORATION
15
<PAGE> 21
7.4 REVESTING OF ASSETS. Except as otherwise provided in the Plan or
the Confirmation Order, upon the Effective Date, all property of the Debtors'
Estates, wherever situated, shall vest in, or remain the property of, the
Reorganized Debtor free and clear of all Claims. All causes of action of the
Debtors' Estates, except for the Transferred Causes of Action, shall be
preserved and vest in the Reorganized Debtor. All of the Transferred Causes of
Action shall be transferred to, and vest in, the Creditors' Trust.
7.5 DISCHARGE OF DEBTORS. Except as otherwise provided in the Plan, all
consideration distributed under the Plan shall be in exchange for, and in
complete satisfaction, discharge, and release of, all Claims of any nature
whatsoever against the Debtors or any of their assets or properties; and except
as otherwise provided herein, upon the Effective Date, the Debtors and their
successors in interest shall be deemed discharged and released pursuant to
section 1141(d)(1)(A) of the Bankruptcy Code from any and all Claims treated in
the Plan, as well as all other Claims, demands and liabilities that arose before
the Effective Date, and all debts of the kind specified in section 502(g),
502(h), or 502(i) of the Bankruptcy Code, whether or not (a) a proof of Claim
based upon such debt is filed or deemed filed under section 501 of the
Bankruptcy Code; (b) a Claim based upon such debt is Allowed under section 502
of the Bankruptcy Code; (c) the holder of a Claim based upon such debt has
accepted this Plan; or (d) the Claim has been Allowed, disallowed, or estimated
pursuant to section 502(c) of the Bankruptcy Code. Except as otherwise provided
in the Plan, the Confirmation Order shall be a judicial determination of
discharge of all liabilities of the Debtors and their successors in interest
other than those obligations specifically set forth pursuant to this Plan.
7.6 INJUNCTION. Except as otherwise provided in the Plan, from and
after the Confirmation Date, all holders of Claims against and Equity Interests
in the Debtors are permanently restrained and enjoined (a) from commencing or
continuing in any manner, any action or other proceeding of any kind with
respect to any such Claim or Equity Interest against the Debtors, their Assets,
or the Reorganized Debtor; (b) from enforcing, attaching, collecting, or
recovering by any manner or means, any judgment, award, decree, or order against
the Reorganized Debtor or its Assets; (c) from creating, perfecting, or
enforcing any encumbrance of any kind against the Reorganized Debtor or its
Assets; (d) from asserting any setoff, right of subrogation, or recoupment of
any kind against any obligation due the Debtors; and (e) from performing any
act, in any manner, in any place whatsoever, that does not conform to or comply
with the provisions of the Plan; provided, however, that each holder of a
Contested Claim may continue to prosecute its proof of Claim in the Bankruptcy
Court and all holders of Claims and Equity Interests shall be entitled to
enforce their rights under the Plan and any agreements executed or delivered
pursuant to or in connection with the Plan.
7.7 REVOCATION OF PLAN. The Debtors and the Committee jointly reserve
the right to revoke and withdraw this Plan before the entry of the Confirmation
Order. If the Debtors and the Committee jointly revoke or withdraw this Plan, or
if confirmation of this Plan does not occur, then, with respect to the Debtors
and the Committee, this Plan shall be deemed null and void and nothing contained
herein shall be deemed to constitute a waiver or release of any Claims by or
against the Debtors, as the case may be, or any other Person or to prejudice in
any manner the rights of the Debtors and the Committee, as the case may be, or
person in any further proceedings involving the Debtors.
7.8 REORGANIZED DEBTOR'S BOARD OF DIRECTORS. The initial board of
directors of the Reorganized Debtor shall consist of the following persons: Bob
G. Alexander (Chairman), Jim L. David, Russell D. Glass, Martin Hirsch, Robert
H. Kite, Robert J. Mitchell, and Jack G. Wasserman.
7.9 REORGANIZED DEBTOR'S EXECUTIVE OFFICERS. The initial executive
officers of the Reorganized Debtor shall include the following persons: Bob G.
Alexander (President and Chief Executive Officer), Philip D. Devlin (Vice
President, General Counsel and Secretary), R. Kent Lueders (Vice President,
Corporate Development), and Melissa H. Rutledge (Vice President, Controller and
Chief Accounting Officer). Such executive officers shall be compensated at their
current compensation levels or such other levels as may be determined by the
Board of Directors of the Reorganized Debtor.
7.10 CHARTER AND BYLAWS. The charter and bylaws of the Reorganized
Debtor shall be created or amended as of the Effective Date as necessary (a) to
satisfy the provisions of this Plan; (b) to prohibit the issuance of nonvoting
equity securities as required by section 1123(a)(6) of the Bankruptcy Code; and
(c) to prohibit the transfer of any Equity Interest in the Reorganized Debtor to
or by any Person who is, was or would become as a result of such transfer, a "5%
shareholder" within the meaning of 26 U.S.C. ss. 382.
JOINT PLAN OF REORGANIZATION UNDER CHAPTER 11 OF THE BANKRUPTCY CODE
FOR NATIONAL ENERGY GROUP, INC. AND BOOMER MARKETING CORPORATION
16
<PAGE> 22
7.11 AMENDMENT TO INDENTURE FOR BONDS. On or after the Effective Date,
Arnos, as the holders of 100% of the Bonds, and the Reorganized Debtor shall
amend the Indenture for the Bonds substantially in the manner reflected in the
Amended Indenture, which will be filed with the Bankruptcy Court at least
fifteen (15) days prior to the commencement of the Confirmation Hearing.
7.12 BONDS NOT DISCHARGED. Pursuant to the Plan, Arnos shall acquire
all of the Bonds that it does not already otherwise hold. NEG's and the
Reorganized Debtor's debts and obligations under the Bonds shall remain
outstanding and not be discharged by Confirmation of the Plan. Following
Confirmation of the Plan, the Bonds shall be paid either under the terms of the
Amended Indenture or on such other terms as are agreed between the Reorganized
Debtor and Arnos.
7.13 PURCHASE OF ADDITIONAL COMMON AND/OR PREFERRED STOCK. On the
Effective Date, Arnos or an affiliate of Arnos shall pay at least $2.0 million
to the Reorganized Debtor to purchase from the Reorganized Debtor additionally
issued shares of the Reorganized Debtor's common stock and/or preferred stock
such that Arnos or its affiliate may own up to 49.9% of the value of all issued
and outstanding common stock and preferred stock of the Reorganized Debtor.
7.14 TRANSFER OF REORGANIZED DEBTOR'S ASSETS INTO HOLDING LLC. After
the Effective Date, Reorganized NEG will contribute all or substantially all of
its operating properties to a newly-formed limited liability company ("Holding
LLC") in exchange for an equity interest in Holding LLC. Reorganized NEG shall
retain sufficient Cash to pay all of its obligations under the Plan until such
obligations are satisfied. If the Arnos Secured Claim is not paid in full on the
Effective Date, the Arnos Secured Claim will either be assumed by Holding LLC or
Reorganized NEG's assets will be contributed to Holding LLC subject to the liens
securing the Arnos Secured Claim. Arnos will contribute cash or other assets to
Holding LLC (with a net value equivalent to the net value of the assets
contributed to Holding LLC by the Reorganized NEG) in exchange for an equity
interest in Holding LLC. Further details of the transaction between Reorganized
NEG and Holding LLC, and of the structure of Holding LLC, are set forth in the
Term Sheet that is attached to this Plan as Exhibit "2" and incorporated herein
by reference.
7.15 PRESERVATION OF CLAIMS AGAINST OFFICERS AND DIRECTORS.
Notwithstanding any other provision of the Plan to the contrary, any and all
claims the Debtors may have against their respective directors and officers
(both former and present) and their accountants and persons in control or
asserting control of NEG are in all ways preserved and are not waived,
discharged, abandoned or released. Such claims shall be preserved, maintained
and transferred to the Creditors Trust as a Transferred Cause of Action.
ARTICLE 8
PROVISIONS GOVERNING DISTRIBUTION
8.1 DISTRIBUTIONS. Any payments or distributions to be made by the
Reorganized Debtor pursuant to the Plan shall be made on or before the Initial
Distribution Date except as otherwise provided for in the Plan, or as may be
ordered by the Bankruptcy Court. Any payment or distribution by the Reorganized
Debtor pursuant to this Plan, to the extent delivered by the United States Mail,
shall be deemed made when deposited by the Reorganized Debtor into the United
States Mail. Any payments or distributions to be made by the Exchange Agent
shall be made in accordance with section 4.12(b)(i) of this Plan and the
Exchange Agent Agreement. Any payments or distributions to be made by the
Creditors' Trustee shall be made in accordance with the Creditors' Trust
Agreement.
8.2 MEANS OF CASH PAYMENT. Payments of Cash to be made by the
Reorganized Debtor or the Exchange Agent pursuant to the Plan shall be made by
check drawn on a domestic bank or by wire transfer from a domestic bank.
8.3 DELIVERY OF DISTRIBUTIONS. Distributions and deliveries by the
Reorganized Debtor to holders of Allowed Claims shall be made at the addresses
set forth on the proofs of Claim or proofs of interest filed by such holders (or
at the last known addresses of such holders if no proof of Claim or proof of
interest is filed; or if the Debtors have
JOINT PLAN OF REORGANIZATION UNDER CHAPTER 11 OF THE BANKRUPTCY CODE
FOR NATIONAL ENERGY GROUP, INC. AND BOOMER MARKETING CORPORATION
17
<PAGE> 23
been notified of a change of address, at the address set forth in such notice).
If any holder's distribution is returned as undeliverable, no further
distributions to such holder shall be made unless and until the Reorganized
Debtor is notified of such holder's then current address, at which time all
unpaid distributions shall be made to such holder.
8.4 DEADLINE FOR CLAIMS FOR UNDELIVERABLE DISTRIBUTIONS. All claims for
undeliverable distributions shall be made on or before the fifth (5th)
anniversary of the Initial Distribution Date. After such date, all Unclaimed
Property shall revert to the Reorganized Debtor, and the Claim of any holder
with respect to such property shall be discharged and forever barred.
8.5 TIME BAR TO CASH PAYMENTS. Checks issued by the Reorganized Debtor
in respect of Allowed Claims shall be null and void if not cashed within ninety
(90) days after the date of delivery thereof. Requests for re-issuance of any
check shall be made directly to the Reorganized Debtor by the holder of the
Allowed Claim to whom such check originally was issued. Any claim in respect of
such a voided check shall be made on or before the later of the first
anniversary of the Initial Distribution Date or ninety (90) days after the date
of delivery of such check. After such date, all Claims in respect of void checks
shall be discharged and forever barred.
8.6 NO INTEREST UNLESS OTHERWISE PROVIDED. No interest shall be paid on
any Claim unless, and only to the extent that, the Plan specifically provides
otherwise.
8.7 PREPAYMENT. The Debtors expressly reserve the right, in their sole
discretion, to prepay, in whole or in part, any obligation created pursuant to
the Plan, and no interest shall accrue with respect to the prepaid portion of
such obligation from and after the date of such prepayment.
8.8 TIMING OF DISTRIBUTIONS. Any payment or distribution required to be
made hereunder on a day other than a Business Day shall be due and payable on
the next succeeding Business Day.
8.9 NO DE MINIMIS DISTRIBUTIONS. Notwithstanding any other provision of
the Plan to the contrary, no distribution of less than $25 shall be made to any
holder of an Allowed Claim. Such undistributed amount will be retained by the
Reorganized Debtor.
8.10 DISTRIBUTION OF COMMON STOCK IN REORGANIZED NEG.
(a) TIMING OF DISTRIBUTIONS. On the Effective Date or as soon
thereafter as is reasonably practical, Reorganized NEG shall distribute the
shares of common stock in Reorganized NEG to be issued and distributed under
sections 4.16 and 4.17 of the Plan to the beneficial holders, as of the
Confirmation Date, of Allowed Preferred Equity Interests and Allowed Common
Equity Interests.
(b) NO FRACTIONAL INTERESTS. The calculation of the
distribution of shares of common stock in Reorganized NEG to be issued and
distributed under sections 4.16 and 4.17 of the Plan may mathematically entitle
the holder of an Allowed Preferred Equity Interest or an Allowed Common Equity
Interest to a fractional interest in a share of common stock in Reorganized NEG.
The number of shares of common stock in Reorganized NEG to be received by a
holder of an Allowed Equity Interest shall be rounded to the next lower whole
number of shares. The total number of shares of common stock in Reorganized NEG
to be distributed to a Class of Allowed Equity Interests shall be adjusted as
necessary to account for the rounding provided for in this section. No
consideration shall be provided in lieu of the fractional shares that are
rounded down and not issued. For purposes of applying this section, the
"holders" of Allowed Preferred Equity Interests or Allowed Common Equity
Interests, as the case may be, means the beneficial holders thereof as of the
Confirmation Date.
JOINT PLAN OF REORGANIZATION UNDER CHAPTER 11 OF THE BANKRUPTCY CODE
FOR NATIONAL ENERGY GROUP, INC. AND BOOMER MARKETING CORPORATION
18
<PAGE> 24
ARTICLE 9
PROCEDURES FOR RESOLVING AND TREATING
CONTESTED AND CONTINGENT CLAIMS
9.1 OBJECTION DEADLINE. Unless a different date is set by order of the
Bankruptcy Court, all objections to Claims (except for Claims held by royalty
interest owners, overriding royalty interest owners or working interest owners)
shall be served and filed no later than June 23, 2000, or 90 days after a
particular proof of Claim is filed, whichever is later. Any proof of claim filed
more than 30 days after the Confirmation Date shall be of no force and effect,
shall be deemed disallowed, and will not require objection. All Contested Claims
shall be litigated to Final Order; provided, however, that the Debtors or the
Reorganized Debtor may compromise and settle any Contested Claim, subject to the
approval of the Bankruptcy Court.
1.13 RESPONSIBILITY FOR OBJECTING TO CLAIMS. The Reorganized Debtor
shall have the responsibility for objecting to the allowance of Claims following
the Effective Date.
9.2 NO DISTRIBUTION PENDING ALLOWANCE. Notwithstanding any other
provision of the Plan, no payment or distribution shall be made with respect to
any Contested Claim unless and until such Contested Claim becomes an Allowed
Claim.
9.3 DISTRIBUTION AFTER ALLOWANCE. Distributions to each holder of a
Contested Claim, to the extent that such Claim becomes an Allowed Claim, shall
be made in accordance with the provisions of the Plan governing the Class of
Claims to which such Claim belongs, and such holders shall receive all
distributions to which such holders would have been entitled had such Claim been
an Allowed Claim on the Effective Date.
ARTICLE 10
EXECUTORY CONTRACTS AND UNEXPIRED LEASES
10.1 GENERAL TREATMENT; ASSUMED IF NOT REJECTED. The Plan constitutes
and incorporates a motion by the Debtors to assume, as of the Effective Date,
all prepetition executory contracts and unexpired leases to which the Debtors
are a party, except for executory contracts or unexpired leases that (a) have
been assumed or rejected pursuant to Final Order of the Bankruptcy Court, (b)
are the subject of a separate motion pursuant to section 365 of the Bankruptcy
Code to be filed and served by the Debtors on or before the Confirmation Date,
or (c) are designated on Exhibit "1" of the Plan as executory contracts and
unexpired leases which the Debtors intend to reject.
10.2 CURE PAYMENTS AND RELEASE OF LIABILITY. All cure payments which
may be required by section 365(b)(1) of the Bankruptcy Code under any executory
contract or unexpired lease that is assumed, or assumed and assigned, under this
Plan shall be made on or before the Initial Distribution Date; provided,
however, that in the event of a dispute regarding the amount of any cure
payments, the cure of any other defaults, the ability of any party to provide
adequate assurance of future performance, or any other matter pertaining to
assumption or assignment, the Reorganized Debtor shall make such cure payments
and cure such other defaults and provide adequate assurance of future
performance, all as may be required by section 365(b)(1), of the Bankruptcy Code
only following the entry of a Final Order resolving such dispute. To the extent
that a party to an assumed executory contract or unexpired lease has not filed
an appropriate pleading with the Bankruptcy Court on or before the thirtieth
(30th) day after the Effective Date disputing the amount of any cure payments
offered to it, disputing the cure of any other defaults, disputing the
promptness of the cure payments, or disputing the provisions of adequate
assurance of future performance, then such party shall be deemed to have waived
its right to dispute such matters.
10.3 BAR TO REJECTION DAMAGES. If the rejection of an executory
contract or an unexpired lease by the Debtors results in damages to the other
party or parties to such contract or lease, a Claim for such damages shall be
forever barred and shall not be enforceable against the Debtors or their
respective properties or agents, successors, or assigns, unless a proof of Claim
is filed with the Bankruptcy Court and served upon the Reorganized Debtor by the
earlier of (a) 30 days after the Confirmation Date or (b) such other deadline as
the Bankruptcy Court may set for asserting a Claim for such damages.
JOINT PLAN OF REORGANIZATION UNDER CHAPTER 11 OF THE BANKRUPTCY CODE
FOR NATIONAL ENERGY GROUP, INC. AND BOOMER MARKETING CORPORATION
19
<PAGE> 25
10.4 REJECTION CLAIMS. Any Claim arising from the rejection of an
unexpired lease or executory contract and not barred by section 10.3 of the Plan
shall be treated as a Trade Claim pursuant to the Plan; provided, however, that
any Claim based upon the rejection of an unexpired lease of real property shall
be limited in accordance with section 502(b)(6) of the Bankruptcy Code and state
law mitigation requirements. Nothing contained herein shall be deemed an
admission by the Debtors that such rejection gives rise to or results in a Claim
or shall be deemed a waiver by the Debtors of any objections to such Claim if
asserted.
ARTICLE 11
CONDITIONS PRECEDENT TO EFFECTIVENESS OF PLAN
11.1 CONDITIONS TO EFFECTIVENESS OF PLAN. The Effective Date of the
Plan shall not occur unless and until the following conditions shall have been
satisfied or waived in writing by the Debtors, the Committee and Arnos, as
determined in their sole discretion:
(a) the Bankruptcy Court shall have entered the Confirmation
Order, in form and substance reasonably acceptable to the Debtors, the Committee
and Arnos;
(b) all actions, documents, and agreements necessary to
implement the Plan shall have been effected or executed;
(c) the Debtors shall have received all authorizations,
consents, regulatory approvals, rulings, letters, no-action letters, opinions or
documents that are determined by the Debtors to be necessary to implement the
Plan;
(d) the Non-Arnos Bondholder Payment shall have been received
by the Exchange Agent; and
(e) the Confirmation Order shall have become a Final Order.
11.2 DEADLINE FOR EFFECTIVENESS OF PLAN. If all of the conditions to
the effectiveness of the Plan, as set forth in section 11.1 above, have not been
satisfied or waived by August 15, 2000, this Plan shall be deemed terminated and
the Confirmation Order shall be deemed vacated. The deadline for effectiveness
of the Plan set forth in this section 11.2 of the Plan can be extended, modified
or waived only by written agreement between the Debtors, the Committee and
Arnos.
ARTICLE 12
CONSUMMATION OF THE PLAN
12.1 RETENTION OF JURISDICTION. Pursuant to sections 1334 and 157 of
title 28 of the United States Code, the Bankruptcy Court shall retain
nonexclusive jurisdiction of all matters arising in, arising under, and related
to the Chapter 11 Cases and the Plan, for the purposes of sections 105(a) and
1142 of the Bankruptcy Code, and for, among other things, the following
purposes:
(a) To hear and to determine any and all objections to or
applications concerning the allowance of Claims or the allowance,
classification, priority, compromise, estimation, or payment of any Claim, or
Equity Interest;
JOINT PLAN OF REORGANIZATION UNDER CHAPTER 11 OF THE BANKRUPTCY CODE
FOR NATIONAL ENERGY GROUP, INC. AND BOOMER MARKETING CORPORATION
20
<PAGE> 26
(b) To hear and determine any and all applications for payment
of fees and expenses from the Debtors' estates made by attorneys or any other
Professional pursuant to sections 330 or 503 of the Bankruptcy Code, or for
payment of any other fees or expenses authorized to be paid or reimbursed from
the Debtors' estates under the Bankruptcy Code, and any and all objections
thereto;
(c) To hear and determine all applications by professionals
employed by the Creditors' Trustee for payment of fees and expenses by the
Creditors' Trust, and any and all objections thereto;
(d) To hear and determine all applications by the Exchange
Agent for payment of fees and expenses by the Reorganized Debtor, and any and
all Objections thereto;
(e) To hear and determine pending applications for the
rejection, assumption, or assumption and assignment of unexpired leases and
executory contracts and the allowance of Claims resulting therefrom, and to
determine the rights of any party in respect of the assumption or rejection of
any executory contract or lease;
(f) To hear and determine any and all adversary proceedings,
applications, or contested matters, including any remands from any appeals;
(g) To hear and to determine all controversies, disputes, and
suits that may arise in connection with the execution, interpretation,
implementation, consummation, or enforcement of the Plan or in connection with
the enforcement of any remedies made available under the Plan;
(h) To liquidate any disputed, contingent, or unliquidated
Claims;
(i) To ensure that distributions to holders of Allowed Claims
are accomplished as provided herein;
(j) To enter and to implement such orders as may be
appropriate in the event the Confirmation Order is for any reason stayed,
reversed, revoked, modified, or vacated;
(k) To enable the Reorganized Debtor to prosecute any and all
proceedings which may be brought to set aside liens or encumbrances and to
recover any transfers, assets, properties or damages to which the Debtors may be
entitled under applicable provisions of the Bankruptcy Code or any other
federal, state or local laws, including causes of action, controversies,
disputes and conflicts between the Debtors and any other party, including but
not limited to, any causes of action or objections to Claims, preferences or
fraudulent transfers and obligations or equitable subordination;
(l) To consider any modification of the Plan pursuant to
section 1127 of the Bankruptcy Code, to cure any defect or omission, or to
reconcile any inconsistency in any order of the Bankruptcy Court, including,
without limitation, the Confirmation Order;
(m) To enter and to implement such orders as may be necessary
or appropriate to execute, interpret, implement, consummate, or to enforce the
terms and conditions of the Plan and the transactions contemplated thereunder;
(n) To hear and to determine any other matter not inconsistent
with the Bankruptcy Code and title 28 of the United States Code that may arise
in connection with or related to the Plan; and
(o) To enter a final decree closing the Chapter 11 Cases.
12.2 ABSTENTION AND OTHER COURTS. If the Bankruptcy Court abstains from
exercising, or declines to exercise, jurisdiction or is otherwise without
jurisdiction over any matter arising out of or relating to these Chapter 11
Cases, this section of the Plan shall have no effect upon and shall not control,
prohibit, or limit the exercise of jurisdiction by any other court having
competent jurisdiction with respect to such matter.
JOINT PLAN OF REORGANIZATION UNDER CHAPTER 11 OF THE BANKRUPTCY CODE
FOR NATIONAL ENERGY GROUP, INC. AND BOOMER MARKETING CORPORATION
21
<PAGE> 27
12.3 NONMATERIAL MODIFICATIONS. The Debtors and the Committee may, with
the approval of the Bankruptcy Court and without notice to all holders of Claims
and Equity Interests, jointly correct any nonmaterial defect, omission, or
inconsistency in the Plan in such manner and to such extent as may be necessary
or desirable. The Debtors and the Committee may jointly undertake such
nonmaterial modification pursuant to this section insofar as it does not
adversely change the treatment of the Claim of any Creditor or the interest of
any Equity Interest holder who has not accepted in writing the modification.
12.4 MATERIAL MODIFICATIONS. Modifications of this Plan may be proposed
in writing by the Debtors and the Committee at any time before confirmation,
provided that this Plan, as modified, meets the requirements of sections 1122
and 1123 of the Bankruptcy Code, and the Debtors and the Committee shall have
complied with section 1125 of the Bankruptcy Code. This Plan may be modified at
any time after confirmation and before the Initial Distribution Date, provided
that the Plan, as modified, meets the requirements of sections 1122 and 1123 of
the Bankruptcy Code and the Bankruptcy Court, after notice and a hearing,
confirms the Plan, as modified, under section 1129 of the Bankruptcy Code, and
the circumstances warrant such modification.
12.5 TERMINATION AND RESCISSION OF ARNOS SALE. The Plan contemplates
that the Arnos Sale will not be consummated, the properties covered by the Arnos
Sale will be retained by the Reorganized Debtor, and the Reorganized Debtor will
continue as a going concern. Confirmation of the Plan will operate as a
nullification of the Arnos Sale and all documents executed by the Debtors, the
Committee and/or Arnos in connection with the Arnos Sale. Confirmation of the
Plan will also operate as a vacateur of the Orders entered by the Bankruptcy
Court in connection with the Arnos Sale including, but not limited to, the
following:
(a) Order Authorizing the Assumption and Assignment of
Unexpired Leases of Real Property and Related Executory Contracts
Pursuant to Section 365 in Furtherance of the Sale to Arnos Under the
November 1, 1999 Purchase and Sale Agreement, entered on January 14,
2000;
(b) Order Authorizing the Sale of Certain Real and Personal
Property Free and Clear of Liens, Claims and Encumbrances Pursuant to
Section 363 of the Bankruptcy Code and for the Assumption and
Assignment Unexpired Leases of Real Property and Executory Contracts
Related Thereto, entered on January 14, 2000; and
(c) Order Implementing Auction Sale Closing entered January
14, 2000.
ARTICLE 13
MISCELLANEOUS PROVISIONS
13.1 LIMITATION ON AVOIDANCE ACTIONS. Any monetary recovery in an
Avoidance Action shall be limited to twenty-five percent (25%) of the amount to
which the Creditors' Trust, as the holder of such Avoidance Action, would be
entitled absent this provision. No Claims arising under section 502(h) of the
Bankruptcy Code shall be allowed.
13.2 SETOFFS. All of the Debtors' setoff rights are expressly preserved
under this Plan for the benefit of the Reorganized Debtor. The Debtors or
Reorganized Debtor may, but shall not be required to, set off against any Claim
and the payments or other distributions to be made pursuant to this Plan in
respect of such Claim, claims of any nature whatsoever that the Debtors may have
against the holder of such Claim, but neither the failure to do so nor the
allowance of any Claim hereunder shall constitute a waiver or release by the
Debtors of any such claim that the Debtors may have against such holder.
13.3 COMPLIANCE WITH ALL APPLICABLE LAWS. If notified by any
governmental authority that they are in violation of any applicable law, rule,
regulation, or order of such governmental authority relating to their
businesses, the Debtors and Reorganized Debtor shall comply with such law, rule,
regulation, or order; provided that nothing contained herein shall require such
compliance if the legality or applicability of any such requirement is being
contested in good faith in appropriate proceedings and, if appropriate, an
adequate reserve has been set aside on the books of the Debtors or Reorganized
Debtor.
JOINT PLAN OF REORGANIZATION UNDER CHAPTER 11 OF THE BANKRUPTCY CODE
FOR NATIONAL ENERGY GROUP, INC. AND BOOMER MARKETING CORPORATION
22
<PAGE> 28
13.4 EXCULPATION OF REORGANIZED DEBTOR FROM LIABILITY FOR CREDITORS'
TRUST. The Reorganized Debtor (i) shall have no obligations or duties to the
Creditors' Trust or its beneficiaries, (ii) shall have no responsibility for the
administration of the Creditors' Trust and (iii) shall not incur any liability
on account of the operations of the Creditors' Trust or the conduct of the
Creditors' Trustee.
13.5 BINDING EFFECT. The Plan shall be binding upon, and shall inure to
the benefit of, the Debtor, the holders of the Claims, the holders of Equity
Interests, and their respective successors and assigns.
13.6 GOVERNING LAW. Unless a rule of law or procedure supplied by
federal law (including the Bankruptcy Code and Bankruptcy Rules) is applicable,
or a specific choice of law provision is provided, the internal laws of the
State of Texas shall govern the construction and implementation of the Plan and
any agreements, documents, and instruments executed in connection with the Plan,
without regard to conflicts of law.
13.7 FILING OF ADDITIONAL DOCUMENTS. The Debtors shall file such
agreements and other documents as may be necessary or appropriate to effectuate
and further evidence the terms and conditions of the Plan.
13.8 DISSOLUTION OF COMMITTEE. The Committee shall dissolve and cease
to exist as of the Initial Distribution Date applicable to holders of Claims
that are not Contested Claims on, and do not become Contested Claim within
thirty (30) days after, the Effective Date.
13.9 EXEMPTION FROM TRANSFER TAXES. Pursuant to section 1146(c) of the
Bankruptcy Code, the issuance, transfer or exchange of notes or equity
securities as contemplated under the Plan, the creation of any mortgage, deed of
trust, or other security interest, the making or assignment of any lease or
sublease, or the making or delivery of any deed or other instrument of transfer
under, in furtherance of, or in connection with the Plan, including, without
limitation, any merger agreements or agreements of consolidation, deeds, bills
of sale or assignments executed in connection with any of the transactions
contemplated under the Plan shall not be subject to any stamp, real estate
transfer, mortgage recording or other similar tax.
13.10 RETIREE BENEFITS. On and after the Effective Date, pursuant to
section 1129(a)(13) of the Bankruptcy Code, the Reorganized Debtor shall
continue to pay any retiree benefits (within the meaning of section 1114 of the
Bankruptcy Code), at the level established in accordance with section 1114 of
the Bankruptcy Code, at any time prior to the Confirmation Date, or the duration
of the period for which the Reorganized Debtor is obligated to provide such
benefits.
13.11 SECTION 1125(e) OF THE BANKRUPTCY CODE. As of the Confirmation
Date, the Debtors, Arnos and the Committee shall be deemed to have solicited
acceptances of the Plan in good faith and in compliance with the applicable
provisions of the Bankruptcy Code.
13.12 NOTICES. To be effective, all notices, requests, and demands to
or upon the Debtors, the Reorganized Debtor, Arnos, or the Committee shall be in
writing and, unless otherwise expressly provided herein, shall be deemed to have
been duly given or made when actually delivered or, in the case of notice by
facsimile transmission, when received and telephonically confirmed, with a copy
by mail, addressed as follows:
If to the Debtors or the Reorganized Debtor: If to Arnos:
National Energy Group, Inc. Mr. Robert J. Mitchell
Attn: Philip D. Devlin, General Counsel 767 Fifth Avenue, 47th Floor
4925 Greenville Avenue New York, New York 10153
Dallas, Texas 75206 Telephone: (212) 702-4302
Telephone: (214) 692-9211 Facsimile: (212) 750-5815
Facsimile: (214) 692-5055
JOINT PLAN OF REORGANIZATION UNDER CHAPTER 11 OF THE BANKRUPTCY CODE
FOR NATIONAL ENERGY GROUP, INC. AND BOOMER MARKETING CORPORATION
23
<PAGE> 29
with a copy to: with copies to:
Patrick J. Neligan, Jr., Esq. Alan Forman, Esq.
Neligan, Andrews, Bryson & Foley LLP Berlack, Israels & Libermann, L.L.P.
1717 Main Street, Suite 4050 120 West 45th Street
Dallas, Texas 75201 New York, New York 10036
Telephone: (214) 653-4333 Telephone: (212) 704-0100
Facsimile: (214) 745-2533 Facsimile: (212) 704-0196
and
Robin E. Phelan, Esq.
Haynes and Boone, LLP
901 Main Street, Suite 3100
Dallas, Texas 75202
Telephone: (214) 651-5000
Facsimile: (214) 651-5940
If to the Committee:
Hugh M. Ray, Esq.
Andrews & Kurth L.L.P.
1717 Main Street, Suite 3700
Dallas, Texas 75201
Telephone: (214) 659-4400
Facsimile: (214) 659-4401
JOINT PLAN OF REORGANIZATION UNDER CHAPTER 11 OF THE BANKRUPTCY CODE
FOR NATIONAL ENERGY GROUP, INC. AND BOOMER MARKETING CORPORATION
24
<PAGE> 30
1.14 REORGANIZED DEBTOR'S INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Current officers and directors of NEG and BMC will be indemnified by the
Reorganized Debtor for any and all acts, decisions, omissions or conduct taken
in connection with their duties as officers and directors of NEG and BMC,
provided those acts that constitute intentional torts or criminal actions shall
not be indemnified. Further, all former directors of NEG and BMC shall be
indemnified by the Reorganized Debtor for any and all acts, decisions, omissions
or conduct taken by those directors in connection with their duties as former
directors of NEG and BMC. Likewise, former directors of NEG and BMC will not be
indemnified for those acts that constitute intentional torts or criminal
actions. In no event shall the indemnification for current officers and
directors of NEG and BMC or past directors of NEG and BMC be broader in scope
than the indemnification provided under state law for the state in which NEG and
BMC are incorporated.
1.15 DUE AUTHORIZATION BY CREDITORS. Each Creditor who elects to
participate in the distributions provided for herein warrants that it is
authorized to accept in consideration of its Claim against the Debtors the
distributions provided for in this Plan and that there are no outstanding
commitments, agreements, or understandings, express or implied, that may or can
in any way defeat or modify the rights conveyed or obligations undertaken by it
under this Plan.
1.16 CERTAIN MECHANICS OF THE CREDITORS' TRUST.
(a) Authorization. Except as otherwise provided in this Plan,
the Creditors' Trust shall have all of the following rights and powers:
(1) Prosecute, investigate and administer the
Transferred Causes of Action;
(2) Employ, retain or replace professional
persons;
(3) Receive reimbursement of expenses;
(4) Employ necessary personnel;
(5) Sell, liquidate, or otherwise dispose of the
Creditors' Trust Assets for cash,
individually or in bulk, by settlement,
public or private sale;
(6) Invest the proceeds of the Creditors' Trust
Assets in accordance with the Creditors'
Trust Agreement;
(7) Distribute the cash and proceeds from the
sale, liquidation, settlement, prosecution
or other distribution of Creditors' Trust
Assets as soon as practicable to the
beneficiaries of the Creditors' Trust in
accordance with the Creditors' Trust
Agreement;
(8) Utilize such other powers as may be vested
in the Creditors' Trust by provision of the
Creditors' Trust Agreement;
(9) Sue and be sued;
(10) Release, convey, or assign any right, title
or interest in or about the Creditors' Trust
Assets;
(11) Perform such other activities are necessary
to effectuate the provisions of the
Creditors' Trust Agreement; and
(12) Prosecute to trial, judgment, final claim or
settlement all Transferred Causes of Action
deemed appropriate by the Creditors'
Trustee, in its discretion to prosecute
and/or litigate.
JOINT PLAN OF REORGANIZATION UNDER CHAPTER 11 OF THE BANKRUPTCY CODE
FOR NATIONAL ENERGY GROUP, INC. AND BOOMER MARKETING CORPORATION
25
<PAGE> 31
(b) Operations of Trust. The Creditors' Trust shall be
directed in all things by the Creditors' Trust Agreement and the Creditors'
Trust Committee provided for under the Creditors' Trust Agreement. Full and
complete authority is conferred upon the Creditors' Trustee to do and perform
all acts, execute all documents, and make all payments and disbursement of funds
directed to be done, executed, performed, paid and distributed by the provisions
of this Plan and the Creditors' Trust Agreement.
(c) Payment of Fees and Expenses: All fees and expenses of the
Creditors' Trust, the Creditors' Trustee, its agents professionals and employees
incurred in connection with settlement, litigation and prosecution of the
Transferred Causes of Action shall be paid by the Creditors' Trust. The
Creditors' Trust may establish reserves and accounts it may deem necessary to
provide for the payment of fees, expenses and fund liabilities. ALL FEES OF THE
CREDITORS' TRUSTEE AND PROFESSIONALS EMPLOYED BY THE CREDITORS' TRUST MUST BE
SUBMITTED TO, AND APPROVED BY, THE BANKRUPTCY COURT AFTER APPROPRIATE NOTICE AND
HEARING PRIOR TO PAYMENT BY THE CREDITORS' TRUST.
(d) Allocation of Proceeds. The proceeds of the Creditors'
Trust Assets shall be allocated and distributed by the Creditors' Trust in the
following priority:
(1) reserves sufficient, in the judgment of the
Creditors' Trustee to pay for the ongoing
operations of the Creditors' Trust;
(2) distribution to Non-Arnos Bondholders and
holders of Allowed Trade Claims as provided
in this Plan and the Creditors' Trust
Agreement. From time to time, prior to the
complete liquidation of all Creditors' Trust
Assets, the Creditors' Trust may make
interim distributions in accordance with the
Plan and Creditors' Trust Agreement.
(e) Investment of Funds. All Cash reserves held by the
Creditors' Trust shall be invested and reinvested by the Creditors' Trust in
United States Treasury Bills or in certificates of deposits, demand deposit or
interest-bearing accounts of banking institutions acceptable to the Creditors'
Trust or such other investments as shall be prudent and appropriate under the
circumstances, in such amounts and upon which term as a reasonable and prudent
fiduciary would select and with a view toward sufficient liquidity to make the
distributions contemplated by the Creditors' Trust Agreement. All interest
earned on such Cash shall be retained by the Creditors' Trust and distributed in
accordance with the Creditors' Trust Agreement.
(f) Report to Trust Beneficiaries and Court. Every six (6)
months after the Confirmation Date until the prosecution and liquidation of the
Creditors' Trust Assets and the distribution of the proceeds thereof is
complete, the Creditors' Trustee shall submit a written report regarding the
status of the Creditors' Trust and the distributions made during the preceding
period to the Court and beneficiaries of the Creditors' Trust.
(g) Authorization. The initial Creditors' Trust Committee
shall be composed of three members: Katalin Kutasi, Chris Ryan; and Darryl
Schall.
(h) Liability of the Creditors' Trust. Neither the Creditors'
Trust Committee, their individual representatives nor any of their respective
employees or agents shall be liable for the payment of any of the Creditors'
Trust's liabilities, and no entity shall look to any of the foregoing parties
for payment of such liabilities or obligations.
(i) Delegation of Powers. The Creditors' Trust shall delegate
such authority to the Creditors' Trustee, its employees and agents as it shall
reasonably deem necessary to perform its responsibilities under the Creditors'
Trust Agreement.
(j) Resignation, Death or Removal. The Creditors' Trustee may
resign at any time upon thirty (30) days prior written notice to the members of
the Creditors' Trust Committee. A member of the Creditors' Trust
JOINT PLAN OF REORGANIZATION UNDER CHAPTER 11 OF THE BANKRUPTCY CODE
FOR NATIONAL ENERGY GROUP, INC. AND BOOMER MARKETING CORPORATION
26
<PAGE> 32
Committee may be removed upon application to the Bankruptcy Court for cause
after notice and an opportunity for hearing.
(k) Termination. Upon termination of the Creditors' Trust, the
powers and responsibilities of the Creditors' Trust and its representatives
shall terminate.
JOINT PLAN OF REORGANIZATION UNDER CHAPTER 11 OF THE BANKRUPTCY CODE
FOR NATIONAL ENERGY GROUP, INC. AND BOOMER MARKETING CORPORATION
27
<PAGE> 33
Dated: May 12, 2000 Dallas, Texas NATIONAL ENERGY GROUP, INC.
By:
-------------------------------
Name:
-----------------------------
Its:
------------------------------
BOOMER MARKETING CORPORATION
By:
-------------------------------
Name:
-----------------------------
Its:
------------------------------
OFFICIAL COMMITTEE OF
UNSECURED CREDITORS
By:
-------------------------------
Name:
-----------------------------
Its:
------------------------------
JOINT PLAN OF REORGANIZATION UNDER CHAPTER 11 OF THE BANKRUPTCY CODE
FOR NATIONAL ENERGY GROUP, INC. AND BOOMER MARKETING CORPORATION
<PAGE> 34
EXHIBIT 1
LIST OF EXECUTORY CONTRACTS AND LEASES TO BE REJECTED
1. Letter of Intent by and between Enserch Exploration, Inc. and National
Energy Group, Inc. dated December 8, 1998.
2. Participation Agreement by and between EEX Corporation and National
Energy Group, Inc. dated January 13, 1998.
3. Settlement Agreement by and between Reliant Gas Transmission Company
(successor-in-interest to Arkla Energy Resources) and National Energy
Group, Inc. (successor-in-interest to Petroleum Investments, Ltd. et
al.) dated July 8, 1987.
4. Agreement by and between Edge Petroleum Exploration Company and
National Energy Group, Inc. dated August 10, 1998.
JOINT PLAN OF REORGANIZATION UNDER CHAPTER 11 OF THE BANKRUPTCY CODE
FOR NATIONAL ENERGY GROUP, INC. AND BOOMER MARKETING CORPORATION
<PAGE> 35
EXHIBIT 2
TERM SHEET FOR HOLDING LLC
A. PROPOSED STRUCTURE
1. Reorganized NEG would contribute substantially all of its
assets ("NEG Assets") to a newly-formed limited liability
company ("Holding LLC") in exchange for an interest in Holding
LLC ("NEG Interest") as described below. Reorganized NEG would
either satisfy the Arnos Secured Claim or the NEG Assets would
be contributed subject to such claim.
2. Arnos would contribute cash or marketable securities in an
amount equal to the net fair market value of NEG Assets
(including any cash contributed by NEG) to Holding LLC in
exchange for an interest in Holding LLC ("Arnos Interest") as
described below. Arnos would have the right to make additional
contributions to Holding LLC. If such right is exercised, the
Arnos allocations and priorities described below would be
proportionately increased.
3. Arnos would be the sole manager of Holding LLC.
4. Holding LLC would be a partnership for a federal income tax
purposes.
5. It is anticipated that the NEG Assets would be contributed to
single-member LLC's ("Sub LLC's") the interests of which would
be transferred to Holding LLC. The Lake Mongoulois and Mustang
Island properties would be owned by a separate Sub LLC. Each
Sub LLC would be a disregarded entity for federal income tax
purposes.
B. HOLDING LLC
1. The NEG Interest would have the following attributes:
a) Reorganized NEG would have an initial capital account
of approximately $98 million (x) decreased by
approximately $25 million if the NEG Assets are
contributed to Holding LLC subject to the Arnos
Secured Claim and (y) increased by any cash
Reorganized NEG contributes to Holding LLC after
satisfying its obligations under the Plan.
b) Holding LLC would pay NEG an annual "guaranteed
payment" of 10.75% of the outstanding NEG Priority
Amount (as defined below) ("NEG Guaranteed Payment").
If Holding LLC does not have sufficient available
cash, it would make the payment "in kind".
c) Reorganized NEG would be entitled to priority
distributions from Holding
JOINT PLAN OF REORGANIZATION UNDER CHAPTER 11 OF THE BANKRUPTCY CODE
FOR NATIONAL ENERGY GROUP, INC. AND BOOMER MARKETING CORPORATION
<PAGE> 36
LLC before the end of 2006 in an aggregate amount
equal to the sum of $165 million plus any defaulted
interest on the Bonds ("NEG Priority Amount").
d) 95% of the net income (after reduction for the
guaranteed payments) of Holding LLC would be
allocated to Reorganized NEG ("NEG Priority
Allocation") in an amount equal to the excess of the
NEG Priority Amount over Reorganized NEG's initial
capital account. "Net income" of Holding LLC would
mean the consolidated net income of Holding LLC and
Sub LLC's.
e) After the NEG Priority Allocation is attained,
Reorganized NEG would not be allocated any of Holding
LLC's net income until Arnos is allocated the Arnos
Guaranteed Payment Amount (defined below) and
thereafter (subject to C below) would be allocated 5%
of Holding LLC's net income until the Arnos Priority
allocation, defined below, is attained.
f) Thereafter, Reorganized NEG would be entitled to 50%
of the distributions and allocations of Holding LLC.
2. The Arnos Interest would have the following attributes:
a) Arnos would have an initial capital account equal to
Reorganized NEG's initial capital account.
b) After the NEG Priority Amount is attained, Arnos
would be entitled to a priority distribution in an
amount equal to the sum of (x) the aggregate
guaranteed payments paid to Reorganized NEG ("Arnos
Guaranteed Payment Amount") and (y) the NEG Priority
Amount;
c) After the NEG Priority Allocation is attained, 100%
of Holding LLC's net income would be allocated to
Arnos, first, to the extent of specially allocated
items in C below and, second in an amount equal to
the Arnos Guaranteed Payment Amount. Thereafter, 95%
of Holding LLC's net income would be allocated to
Arnos in an amount equal to the excess of its
remaining priority distribution over its initial
capital account (the "Arnos Priority Allocation").
d) After the Arnos Priority Allocation is attained,
Arnos would be entitled to 50% of the distributions
and allocations of Holding LLC.
C. MISCELLANEOUS
1. Arnos may cause Holding LLC to redeem the interest of
Reorganized NEG at any time for an amount equal to the fair
market value of its interest determined as if Holding LLC had
sold all of its assets and liquidated.
JOINT PLAN OF REORGANIZATION UNDER CHAPTER 11 OF THE BANKRUPTCY CODE
FOR NATIONAL ENERGY GROUP, INC. AND BOOMER MARKETING CORPORATION
<PAGE> 37
2. After Reorganized NEG receives its NEG Priority Amount, to the
extent Arnos was specially allocated deductions for the
Reorganized NEG guaranteed payments, depletion, intangible
drilling and development costs and other items, Arnos' capital
account would be specially allocated items of income equal to
such deductions.
<PAGE> 1
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
IN RE: )
)
NATIONAL ENERGY GROUP, INC. and ) CASE NO. 98-80258-HCA-11
BOOMER MARKETING CORPORATION, ) (Jointly Administered)
)
DEBTORS. ) Reconvened Hearing: May 12, 2000
) 9:30 a.m.
DEBTORS' AND OFFICIAL COMMITTEE OF UNSECURED CREDITORS'
AMENDED JOINT DISCLOSURE STATEMENT UNDER SECTION 1125 OF THE
BANKRUPTCY CODE REGARDING DEBTORS' AND OFFICIAL
COMMITTEE OF UNSECURED CREDITORS' JOINT PLAN OF REORGANIZATION
UNDER CHAPTER 11 OF THE BANKRUPTCY CODE DATED MAY 12, 2000
Patrick J. Neligan, Jr.
State Bar No. 14866000
Mark E. Andrews
State Bar No. 01253520
NELIGAN, ANDREWS, BRYSON &
FOLEY, L.L.P.
1700 Pacific Avenue, Suite 2600
Dallas, Texas 75201
COUNSEL FOR THE DEBTORS
AND DEBTORS IN POSSESSION
J. Van Oliver
State Bar No. _____________
Hugh M. Ray
State Bar No. ________________
ANDREWS & KURTH
1717 Main Street, Suite 3700
Dallas, Texas 75201
COUNSEL FOR COMMITTEE OF
UNSECURED CREDITORS
Dated: May 12, 2000
Dallas, Texas
<PAGE> 2
I. INTRODUCTION
National Energy Group, Inc. ("NEG") and its wholly owned subsidiary,
Boomer Marketing Corporation ("BMC"), the above-captioned debtors and debtors in
possession herein (collectively, the "Debtors"), along with the Official
Committee of Unsecured Creditors, submit this Amended Joint Disclosure Statement
Pursuant to Section 1125 of the Bankruptcy Code with Respect to Debtors' and the
Official Committee of Unsecured Creditors' Joint Plan of Reorganization Under
Chapter 11 of the Bankruptcy Code (the "Disclosure Statement"). This Disclosure
Statement is to be used in connection with the solicitation of votes on the
Debtors' and Official Committee of Unsecured Creditors' Joint Plan of
Reorganization Under Chapter 11 of the Bankruptcy Code, dated March 14, 2000
(the "Plan"). A copy of the Plan is attached hereto as Exhibit A. Unless
otherwise defined herein, capitalized terms used herein have the meanings
ascribed thereto in the Plan (see Article I of the Plan entitled "Definitions
and Construction of Terms").
For a summary of the proposed treatment of your Claim or Equity
Interest under the Plan, please see the chart below.
NOTICE TO HOLDERS OF CLAIMS
The purpose of this Disclosure Statement is to enable creditors of the
Debtors whose Claims are impaired to make an informed decision in exercising
their right to vote to accept or reject the Plan.
THIS DISCLOSURE STATEMENT CONTAINS INFORMATION THAT MAY BEAR UPON YOUR
DECISION TO ACCEPT OR REJECT THE PLAN. PLEASE READ THIS DOCUMENT CAREFULLY.
On April 28, 2000, the Bankruptcy Court entered an order pursuant to
section 1125 of the Bankruptcy Code (the "Disclosure Statement Order") approving
this Disclosure Statement as containing information of a kind, and in sufficient
detail, adequate to enable a hypothetical, reasonable investor, typical of the
solicited holders of Claims against and Equity Interests in the Debtors, to make
an informed judgment with respect to the acceptance or rejection of the Plan. A
copy of the Disclosure Statement Order is included in the materials accompanying
this Disclosure Statement. APPROVAL OF THIS DISCLOSURE STATEMENT BY THE
BANKRUPTCY COURT DOES NOT CONSTITUTE A DETERMINATION BY THE BANKRUPTCY COURT
REGARDING THE FAIRNESS OR MERITS OF THE PLAN.
THIS DISCLOSURE STATEMENT HAS NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THE STATEMENTS CONTAINED HEREIN.
Each holder of a Claim or Equity Interest entitled to vote to accept or
reject the Plan should read this Disclosure Statement and the Plan in their
entirety before voting. No solicitation of votes to accept or reject the Plan
may be made except pursuant to this Disclosure Statement
2
<PAGE> 3
and section 1125 of the Bankruptcy Code. Except for the Debtors and their
professionals, no person has been authorized to use or promulgate any
information concerning the Debtors, their business, or the Plan, other than the
information contained herein, in connection with the solicitation of votes to
accept or reject the Plan. No holder of a Claim entitled to vote on the Plan
should rely upon any information relating to the Debtors, their business, or the
Plan other than that contained in the Disclosure Statement and the exhibits
hereto. Unless otherwise indicated, the source of all information set forth
herein is the Debtors and their professionals.
After carefully reviewing this Disclosure Statement, including the
attached exhibits, please indicate your acceptance or rejection of the Plan by
voting in favor of or against the Plan on the enclosed ballot and returning the
same to the address set forth on the ballot, in the enclosed return envelope so
that it will be received by the Debtors' tabulation agent, Poorman-Douglas
Corporation, Attention: Alice Whitfield,no later than 5:00 p.m., Pacific Time,
on June 23, 2000.
If you do not vote to accept the Plan, or if you are the holder of an
unimpaired Claim or an unimpaired Equity Interest, you may be bound by the Plan
if it is accepted by the requisite holders of Claims or Equity Interests. See
"Confirmation of the Plan -- Solicitation of Votes; Vote Required for Class
Acceptance," and "Cramdown" below.
TO BE SURE YOUR BALLOT IS COUNTED, YOUR BALLOT MUST BE RECEIVED NO
LATER THAN 5:00 P.M., PACIFIC TIME, ON JUNE 23, 2000. For detailed voting
instructions and the name, address, and phone number of the person you may
contact if you have questions regarding the voting procedures, see "Confirmation
of the Plan -- Solicitation of Votes; Voting Procedures - Parties In Interest
Entitled to Vote" below.
Pursuant to section 1128 of the Bankruptcy Code, the Bankruptcy Court
has scheduled a hearing to consider confirmation of the Plan (the "Confirmation
Hearing"), on July 7, 2000, at 9:30 a.m. Central Time, in the United States
Bankruptcy Court for the Northern District of Texas, Dallas Division. The
Bankruptcy Court has directed that objections, if any, to confirmation of the
Plan be filed and served on or before June 23, 2000, in the manner described
under the caption, "Confirmation of the Plan -- Confirmation Hearing" below.
THE DEBTORS SUPPORT CONFIRMATION OF THE PLAN AND URGE ALL HOLDERS OF
IMPAIRED CLAIMS AND IMPAIRED EQUITY INTERESTS TO ACCEPT THE PLAN.
II. EXPLANATION OF CHAPTER 11
A. OVERVIEW OF CHAPTER 11
Chapter 11 is the principal reorganization chapter of the Bankruptcy
Code. Pursuant to chapter 11, the debtor in possession attempts to reorganize
its business for the benefit of the debtor, its creditors, and other parties in
interest.
3
<PAGE> 4
The commencement of a chapter 11 case creates an estate comprising all
the legal and equitable interests of the debtor in property as of the date the
petition is filed. Sections 1101, 1107, and 1108 of the Bankruptcy Code provide
that a debtor may continue to operate its business and remain in possession of
its property as a "debtor in possession" unless the bankruptcy court orders the
appointment of a trustee. In the present Chapter 11 Cases, the Debtors have
remained in possession of their properties and have continued to operate their
businesses as debtors in possession.
The filing of a chapter 11 petition also triggers the automatic stay
provisions of the Bankruptcy Code. Section 362 of the Bankruptcy Code provides,
inter alia, for an automatic stay of all attempts to collect prepetition claims
from the debtor or otherwise interfere with its property or business. Except as
otherwise ordered by the bankruptcy court, the automatic stay remains in full
force and effect until the effective date of a confirmed plan of reorganization.
The formulation of a plan of reorganization is the principal purpose of
a chapter 11 case. The plan sets forth the means for satisfying the claims
against and interests in the debtor. Generally, unless a trustee is appointed,
only the debtor may file a plan during the first 120 days of a chapter 11 case
(the "Exclusive Period"). However, section 1121(d) of the Bankruptcy Code
permits the court to extend or reduce the Exclusive Period upon a showing of
"cause." After the Exclusive Period has expired, a creditor or any other party
in interest may file a plan, unless the debtor has filed a plan within the
Exclusive Period, in which case, the debtor is generally given 60 additional
days (the "Solicitation Period") during which it may solicit acceptances of its
plan. The Solicitation Period may also be extended or reduced by the court upon
a showing of "cause."
B. PLAN OF REORGANIZATION
Although referred to as a plan of reorganization, a plan may provide
anything from a complex restructuring of a debtor's business and its related
obligations to a simple liquidation of the debtor's assets. After a plan of
reorganization has been filed, the holders of claims against or interests in a
debtor are permitted to vote to accept or reject the plan. Before soliciting
acceptances of the proposed plan, section 1125 of the Bankruptcy Code requires
the debtor to prepare a disclosure statement containing adequate information of
a kind, and in sufficient detail, to enable a hypothetical reasonable investor
to make an informed judgment about the plan. This Disclosure Statement is
presented to holders of Claims against and Equity Interests in the Debtors to
satisfy the requirements of section 1125 of the Bankruptcy Code.
If all classes of claims and equity interests accept a plan of
reorganization, the bankruptcy court may nonetheless still not confirm the plan
unless the court independently determines that the requirements of section 1129
of the Bankruptcy Code have been satisfied. Section 1129 sets forth the
requirements for confirmation of a plan and, among other things, requires that a
plan meet the "best interests" test and be "feasible." The "best interests" test
generally requires that the value of the consideration to be distributed to the
holders of claims and equity interests under a plan may not be less than those
parties would receive if the debtor were liquidated pursuant to a hypothetical
liquidation occurring under chapter 7 of the Bankruptcy Code. Under the
4
<PAGE> 5
"feasibility" requirement, the court generally must find that there is a
reasonable probability that the debtor will be able to meet its obligations
under its plan without the need for further financial reorganization.
The Debtors and the Committee believe that the Plan satisfies all the
applicable requirements of section 1129(a) of the Bankruptcy Code, including, in
particular, the "best interests of creditors" test and the "feasibility"
requirement. The Debtors support confirmation of the Plan and urge all holders
of impaired Claims and Equity Interests to accept the Plan.
Chapter 11 does not require that each holder of a claim against or
interest in a debtor vote in favor of a plan of reorganization in order for the
bankruptcy court to confirm the plan. At a minimum, however, the plan must be
accepted by a majority in number and two-thirds in amount of those claims
actually voting in at least one class of impaired claims under the plan. The
Bankruptcy Code also defines acceptance of the plan by a class of equity
interests (equity securities) as acceptance by holders of two-thirds of the
number of shares actually voting. In the present case, only the holders of
Claims or Equity Interests who actually vote will be counted as either accepting
or rejecting the Plan.
In addition, classes of claims or equity interests that are not
"impaired" under a plan of reorganization are conclusively presumed to have
accepted the plan and thus are not entitled to vote. Accordingly, acceptances of
a plan will generally be solicited only from those persons who hold claims or
equity interests in an impaired class. A class is "impaired" if the legal,
equitable, or contractual rights attaching to the claims or equity interests of
that class are modified in any way under the plan. Modification for purposes of
determining impairment, however, does not include curing defaults and
reinstating maturity or payment in full in cash. All Classes of Claims and
Equity Interests are impaired under the Plan. Administrative Claims, Priority
Tax Claims, and Involuntary Gap Claims are unclassified; their treatment is
prescribed by the Bankruptcy Code, and the holders of such Claims are not
entitled to vote on the Plan. Each holder of a claim in Classes 2, 3, 4, 5A, 5B,
6, 10, 11A, 11B and equity interests in Class 14 shall be entitled to vote.
Holders of Equity interests in Classes 13, 15 and 16 are deemed to have rejected
the Plan and will not be solicited to vote. Inter-company claims have been
cancelled and Class 12 is therefore not entitled to vote.
The bankruptcy court may also confirm a plan of reorganization even
though fewer than all the classes of impaired claims and interests accept it.
For a plan of reorganization to be confirmed despite its rejection by a class of
impaired claims or interests, the proponents of the plan must show, among other
things, that the plan does not "discriminate unfairly" and that the plan is
"fair and equitable" with respect to each impaired class of claims or interests
that has not accepted the plan.
Under section 1129(b) of the Bankruptcy Code, a plan is "fair and
equitable" as to a class of rejecting claims if, among other things, the plan
provides: (a) with respect to secured claims, that each such holder will receive
or retain on account of its claim property that has a value, as of the effective
date of the plan, equal to the allowed amount of such claim; and (b) with
respect to unsecured claims and equity interests, that the holder of any claim
or equity interest that is junior
5
<PAGE> 6
to the claims or equity interests of such class will not receive or retain on
account of such junior claim or equity interest any property at all unless the
senior class is paid in full.
A plan does not "discriminate unfairly" against a rejecting class of
Claims if (a) the relative value of the recovery of such class under the plan
does not differ materially from that of any class (or classes) of similarly
situated Claims, and (b) no senior class of Claims is to receive more than 100%
of the amount of the Claims in such class.
The Debtors believe that the Plan has been structured so that it will
satisfy these requirements as to any rejecting Class of Claims or Equity
Interests, and can therefore be confirmed, if necessary, over the objection of
any Classes of Claims or Equity Interests. The Debtors, however, reserve the
right to request confirmation of the Plan under the "cramdown" provisions of
section 1129 of the Bankruptcy Code.
IV. SUMMARY OF THE PLAN
A. GENERAL OVERVIEW
The Plan sets up an efficient and cost-effective mechanism for the
payment of Claims. The Plan provides for (i) continuation of NEG's oil and gas
business operations; (ii) satisfaction of Secured Claims, including the Arnos
Secured Claim in the amount of $25 million, plus accrued interest which shall
remain in place and receive such treatment as Arnos and the Reorganized Debtor
may agree to in writing; (iii) payment of Cash, determined by a formula equal to
approximately 2% of the lesser of the proof of claim filed by the Claimant or a
claims estimate by the Bankruptcy Court if such Class accepts the Plan or,
alternatively, if rejected by such Class, Cash in the amount of 75% of any
Allowed Claim in such class; (iv) payment to Bondholders (excluding Arnos),
56.5% of the face value of each Bond, less the individual Bondholders pro-rata
share of $1 million, together with a pro-rata share of the net recoveries from
litigation brought by the Creditors' Trust on the behalf of the Bondholders
(Arnos Corp., which currently owns approximately $63 million in bonds, will not
participate in the Creditors' Trust thereby reserving all net litigation
recoveries for the remaining Bondholders owning approximately two-thirds of the
remaining Bonds); (v) payment to trade creditors of Cash equal to 75% of any
Allowed Claim; (vi) cancellation of other equity interests (warrants and
options); (vii) conversion of the preferred shareholders equity interests in NEG
to common; retention by common equity interests subject to the cancellation and
reissuance of common stock at a ratio of one (1) share in the Reorganized Debtor
for every seven (7) shares of Allowed Common Equity Interests, and (viii)
amendment of the Trust Indenture. The Plan further provides that NEG's existing
officers and directors shall continue as the officers and directors of
reorganized NEG until otherwise replaced in accordance with NEG's bylaws.
The Debtors believe, and will demonstrate at the Confirmation Hearing,
that confirmation and consummation of the Plan are in the best interests of
creditors and that the Plan will provide maximum return to creditors.
6
<PAGE> 7
B. CLASSIFICATION AND TREATMENT
The following is a summary of the classification and treatment of
Claims and Equity Interests under the Plan. The Administrative Claims, Priority
Tax Claims, and Involuntary Gap Claims shown below constitute the Debtors'
estimate of the amount of such Claims to be paid in Cash on the Initial
Distribution Date, taking into account amounts paid or projected to be paid
prior to that date. The total amount of Claims shown below reflects the Debtors'
current estimate of the likely amount of such Claims, after the resolution by
settlement or litigation of Claims that the Debtors believe are subject to
disallowance or reduction. Reference should be made to the entire Disclosure
Statement and to the Plan for a complete description of the classification and
treatment of Claims and Equity Interests.
THIS IS ONLY A SUMMARY OF CERTAIN PROVISIONS OF THE PLAN. THE PLAN
INCLUDES OTHER PROVISIONS THAT MAY AFFECT YOUR RIGHTS. YOU ARE URGED TO READ THE
PLAN IN ITS ENTIRETY BEFORE VOTING ON THE PLAN.
1. UNCLASSIFIED CLAIMS AGAINST THE DEBTORS
Unclassified Claims against the Debtors consist of Administrative
Claims, Priority Tax Claims, and Involuntary Gap Claims in accordance with
section 1123(a)(1) of the Bankruptcy Code. Based on their books and records and
their projections for future expenses, the Debtors presently estimate the
amounts of such Claims as follows:
<TABLE>
<S> <C>
Administrative Claims $ 6,600,000
Priority Tax Claims $ 500,000
Involuntary Gap Claims $ 1,750,000
</TABLE>
The above estimate of Administrative Claims consists of the following:
<TABLE>
<S> <C>
Post-Petition Trade Claims $2,250,000
Professional Fees and Expenses 3,700,000
Severance/Stay Bonus 1,500,000
Miscellaneous 100,000
</TABLE>
All professional fees and expenses are subject to review and approval
by the Bankruptcy Court pursuant to section 330 of the Bankruptcy Code.
The holder of any Administrative Claim, other than (i) a Fee Claim,
(ii) a liability incurred and paid in the ordinary course of business by the
Debtors, or (iii) an Allowed Administrative Claim, must file with the Bankruptcy
Court, and serve on the Debtors and their counsel, notice of such Administrative
Claim within thirty (30) days after the Effective Date. Such notice must include
at a minimum (i) the Debtor(s) that are liable for the Claim, (ii) the name of
the holder of the Claim, (iii) the amount of the Claim, and (iv) the basis of
the Claim.
7
<PAGE> 8
Failure to file timely and properly the notice required under section 2.1(a) of
the Plan shall result in the Administrative Claim being forever barred and
discharged.
Each Professional who holds, or asserts, an Administrative Claim that
is a Fee Claim for compensation for services rendered and reimbursement of
expenses incurred prior to the Effective Date shall be required to file with the
Bankruptcy Court and serve on all parties required to receive such notice, a Fee
Application within thirty (30) days of the Effective Date. Failure to file
timely a Fee Application as required under section 2.1(b) of the Plan shall
result in the Fee Claim being forever barred and discharged.
An Administrative Claim with respect to which notice has been properly
filed pursuant to section 2.1(a) of the Plan shall become an Allowed
Administrative Claim if no objection is filed within thirty (30) days after its
filing and service. If an objection is filed within such thirty (30) day period,
the Administrative Claim shall become an Allowed Administrative Claim only to
the extent Allowed by Final Order. An Administrative Claim that is a Fee Claim,
and with respect to which a Fee Application has been properly filed pursuant to
section 2.1(b) of the Plan, shall become an Allowed Administrative Claim only to
the extent allowed by Final Order of the Bankruptcy Court.
Each holder of an Allowed Administrative Claim shall receive the amount
of such holder's Allowed Administrative Claim in Cash on or before the Initial
Distribution Date, or shall receive such other treatment as agreed upon in
writing by the Debtors and such holder; provided, however, that an
Administrative Claim representing a liability incurred in the ordinary course of
business by the Debtors may be paid in the ordinary course of business by the
Debtors; and provided, further, that the payment of an Allowed Administrative
Claim representing a right to payment under sections 365(b)(1)(A) and
365(b)(1)(B) of the Bankruptcy Code may be made in one or more Cash payments
over a period of eighteen (18) months or such other period as is determined to
be appropriate by the Bankruptcy Court.
Each holder of an Allowed Priority Tax Claim shall receive, at the
option of the Reorganized Debtor, (i) the full amount of such holder's Allowed
Claim in one Cash payment on or before the Initial Distribution Date; (ii) the
amount of such holder's Allowed Claim, with interest accruing after the
Confirmation Date thereon, in equal quarterly Cash payments of principal and
interest at 7% per annum commencing on July 1, 2000, and continuing to that the
entire Allowed Priority Tax Claim is satisfied in full on or prior to the sixth
(6th) anniversary of the date of assessment of such Claim; or (iii) such other
treatment as may be agreed upon in writing by the Reorganized Debtor and such
holder.
Each holder of an Allowed Involuntary Gap Claim shall receive the full
amount of such Allowed Involuntary Gap Claim in one Cash payment on or before
the Initial Distribution Date.
Pursuant to 28 U.S.C. section 1930(a)(6), the statutory fees of the
United States Trustee shall be paid in Cash as such fees become due and
payable.
8
<PAGE> 9
2. CLASSIFIED CLAIMS AND INTERESTS
The following is an estimate of the numbers and amounts of classified
Claims and Equity Interests to receive treatment under the Plan:
<TABLE>
<CAPTION>
- ------------------------------------------------------------ ---------------------------------------------------------
CLASS TREATMENT
- ------------------------------------------------------------ ---------------------------------------------------------
<S> <C>
Class 1 - Other Priority Claims Impaired.
Holder shall receive (i) amount of Allowed Claim in one
Cash payment on or as soon as practicable after Initial
Distribution Date; or (ii) other treatment as agreed in
writing by Debtors and holder.
- ------------------------------------------------------------ ---------------------------------------------------------
Class 1A - Other Priority Claims Impaired.
Holder shall receive (i) amount of Allowed Claim in one
Cash payment on or as soon as practicable after Initial
Distribution Date; or (ii) other treatment as agreed in
writing by Debtors and holder.
- ------------------------------------------------------------ ---------------------------------------------------------
Class 1B - BMC Other Priority Claims Impaired.
Holder shall receive (i) amount of Allowed Claim in one
Cash payment on or as soon as practicable after Initial
Distribution Date; or (ii) other treatment as agreed in
writing by Debtors and holder.
- ------------------------------------------------------------ ---------------------------------------------------------
Class 2 - Arnos Secured Claim Impaired.
Indebtedness giving rise to Allowed Arnos Secured Claim
shall remain in place, and Arnos shall receive payments as
agreed to in writing by Debtors and Arnos. As security for
payments, Arnos shall retain all rights provided in all
documents creating, evidencing, or securing Allowed Arnos
Secured Claim.
- ------------------------------------------------------------ ---------------------------------------------------------
</TABLE>
9
<PAGE> 10
<TABLE>
<CAPTION>
- ------------------------------------------------------------ ---------------------------------------------------------
CLASS TREATMENT
- ------------------------------------------------------------ ---------------------------------------------------------
<S> <C>
Class 3 - Kauffman County Secured Claim Impaired.
Holder shall receive four equal quarterly payments of Cash,
beginning on the Initial Distribution Date. The amount of
such payments shall be calculated to provide full
satisfaction of the Allowed Kauffman County Secured Claim
plus accrued interest thereon, from and after the Effective
Date, at the federal civil judgment rate.
- ------------------------------------------------------------ ---------------------------------------------------------
Class 4 - Baker Atlas Secured Claim Impaired.
Holder has stated that it does not have a secured claim and
it will not receive a distribution in this class. Any
distribution to Holder shall be as an unsecured claimant in
Class 11A.
- ------------------------------------------------------------ ---------------------------------------------------------
Class 5A -NEG Secured Claims Impaired.
Holder shall receive, on or before the Initial Distribution
Date, (i) return of Collateral in full satisfaction of
Other Secured Claim; (ii) payment in Cash in an amount
equivalent to the lesser of (A) the value of party's
Collateral or (B) the full amount of Other Secured Claim;
(iii) treatment of Other Secured Claim in accordance with
sections 1124(2) or 1129(b)(2) of the Bankruptcy Code; (iv)
return of a portion of such party's Collateral and deferred
Cash payments totaling the remaining value of such party's
Collateral retained by the Debtors; or (v) other treatment
as may be agreed to in writing by Secured Creditor and
Debtors.
- ------------------------------------------------------------ ---------------------------------------------------------
Class 5B - BMC Secured Claims Impaired.
Holder shall receive, on or before the Initial Distribution
Date, (i) return of Collateral in full satisfaction of
Other Secured Claim; (ii) payment in Cash in an amount
equivalent to the lesser of (A) the value of party's
Collateral or (B) the full amount of Other Secured Claim;
- ------------------------------------------------------------ ---------------------------------------------------------
</TABLE>
10
<PAGE> 11
<TABLE>
<CAPTION>
- ------------------------------------------------------------ ---------------------------------------------------------
CLASS TREATMENT
- ------------------------------------------------------------ ---------------------------------------------------------
<S> <C>
(iii) treatment of Other Secured Claim in accordance with
sections 1124(2) or 1129(b)(2) of the Bankruptcy Code; (iv)
return of a portion of such party's Collateral and deferred
Cash payments totaling the remaining value of such party's
Collateral retained by the Debtors; or (v) other treatment
as may be agreed to in writing by Secured Creditor and
Debtors.
- ------------------------------------------------------------ ---------------------------------------------------------
Class 6 -Tort Claims (as defined in Section 1.81 Impaired.
of the Plan).
(i) If Class 6 accepts the Plan as provided by section
1126(c) of the Bankruptcy Code, (A) each of the holders of
Tort Claim shall receive Cash on or before the Initial
Distribution Date in an amount equal to 2% of either (1)
the lesser of the amount set forth on such holder's proof
of Claim on file with the Bankruptcy Court as of June 21,
1999, and the amount of such holder's Claim that was listed
in the Schedules OR (2) at the holder's election, an amount
determined by the Bankruptcy Court to be the estimated
amount of such holder's Tort Claim; and (B) nothing in the
Plan shall prejudice the right of any holder of a Tort
Claim to seek recovery under any insurance policy
maintained by the Debtors as of the Petition Date. If a
holder of a Tort Claim elects to have the Bankruptcy Court
estimate its Claim for purposes of a distribution under
section 4.8(b)(i)(A)(2) above, such holder must file a
motion on or before the Confirmation Date requesting such
an estimation. Otherwise, such Creditor shall only be
entitled to a distribution under section 4.8(b)(i)(A)(1)
above.
(ii) If Class 6 does not accept the Plan as provided by
section 1126(c) of the Bankruptcy Code, each holder of an
Allowed Southerland Tort Claim shall receive, within thirty
(30) days after such Claim becomes an Allowed Claim, Cash
equal to 75% of its Allowed Southerland Tort Claim.
- ------------------------------------------------------------ ---------------------------------------------------------
</TABLE>
11
<PAGE> 12
<TABLE>
<CAPTION>
- ------------------------------------------------------------ ---------------------------------------------------------
CLASS TREATMENT
- ------------------------------------------------------------ ---------------------------------------------------------
<S> <C>
Class 7 - Intentionally Omitted Intentionally Omitted
- ------------------------------------------------------------ ---------------------------------------------------------
Class 8 - Intentionally Omitted Intentionally Omitted
- ------------------------------------------------------------ ---------------------------------------------------------
Class 9 - Intentionally Omitted Intentionally Omitted
- ------------------------------------------------------------ ---------------------------------------------------------
Class 10 - Bondholder Claims Impaired.
Each holder of an Allowed Non-Arnos Bondholder Claim will
receive a cash payment in an amount equal to 56.5% of the
principal amount of the Bonds held on Confirmation plus
interest from April 20, 2000.
In any event, in consideration for treatment under the
Plan, holder shall be deemed to have transferred Bondholder
Claim to Arnos as of Effective Date. Payment and transfer
shall occur by delivery to Exchange Agent of such holder's
Bonds in transferable form for delivery to Arnos.
- ------------------------------------------------------------ ---------------------------------------------------------
Class 11A - NEG Trade Claims Impaired.
Holder shall receive, on or before Initial Distribution
Date, Cash equal to 75% of amount of such Claim.
- ------------------------------------------------------------ ---------------------------------------------------------
Class 11B - BMC Trade Claims Impaired.
Holder shall receive, on or before Initial Distribution
Date, Cash equal to 75% of amount of such Claim.
- ------------------------------------------------------------ ---------------------------------------------------------
Class 12 - Intercompany Claims Impaired.
All Intercompany Claims shall be disallowed and shall not
receive any distribution under the Plan.
- ------------------------------------------------------------ ---------------------------------------------------------
</TABLE>
12
<PAGE> 13
<TABLE>
<CAPTION>
- ------------------------------------------------------------ ---------------------------------------------------------
CLASS TREATMENT
- ------------------------------------------------------------ ---------------------------------------------------------
<S> <C>
Class 13 - Preferred Equity Interests Impaired.
Each Holder of Allowed Preferred Equity Interests will
receive its pro rata share of 714,286 newly issued shares
of common stock in the Reorganized Debtor in exchange for
its Preferred Equity Interests.
- ------------------------------------------------------------ ---------------------------------------------------------
Class 14 - Common Equity Interests Impaired.
Holder shall retain such interest; provided, however, the
stock certificates evidencing Common Equity Interests shall
be deemed cancelled and exchanged as of the Effective Date
for shares of common stock in the Reorganized Debtor; which
shall be issued to the holders of Allowed Common Equity
Interests at a ratio of one (1) share of common stock in
the Reorganized Debtor for every seven (7) shares of
Allowed common Equity Interests. This transaction will
result in the elimination of certain equity interests.
Interested Parties should carefully review the Plan
(sections 4.16, 4.17 and 8.10).
- ------------------------------------------------------------ ---------------------------------------------------------
Class 15 - BMC Equity Interests Impaired.
Upon substantive consolidation of NEG and BMC, BMC Equity
Interests will be cancelled as of Effective Date, and
holder shall not receive any distribution or retain any
interest on account of BMC Equity Interests.
- ------------------------------------------------------------ ---------------------------------------------------------
Class 16 - Other Equity Interests Impaired.
All Other Equity Interests (including but not limited to
holders of options and warrants) shall be canceled on the
Effective Date and holders will receive no distribution.
- ------------------------------------------------------------ ---------------------------------------------------------
</TABLE>
13
<PAGE> 14
C. MEANS OF IMPLEMENTATION OF THE PLAN
1. DISTRIBUTIONS
The Reorganized Debtor shall make all distributions from Cash on hand
to holders of Allowed Claims, other than the distributions to be made to holders
of Allowed Non-Arnos Bondholder Claims. Distributions to holders of Allowed
Bondholder Claims will be made as follows:
(i) On the Effective Date the clerk of the U.S. Bankruptcy
Court shall deliver to the Exchange Agent, a portion of the Escrowed
Funds equal to 56.5% of the aggregate principal amount of the Non-Arnos
Bondholder Claims for distribution to holders of such Claims in
accordance with Article 4.11(b)(i) of the Plan. Arnos shall retain the
remainder of the Escrowed Funds and NEG shall transfer all of the
Creditors' Trust Assets to the Creditors' Trust. Arnos shall retain the
remainder of the Escrowed Funds.
2. EXCHANGE AGENT
The Exchange Agent shall have the powers, duties and obligations
specified in the Plan and in the Exchange Agent Agreement, which will be filed
no fewer than fifteen (15) days prior to the Confirmation Hearing. The liability
of the Exchange Agent will be limited so that he shall not be liable for his
actions in connection with his performance of his obligations under this Plan
unless he has been guilty of willful fraud or gross negligence. The Exchange
Agent shall not be required to give a bond for the faithful performance of his
duties hereunder.
3. CREDITORS' TRUST
Generally. The Creditors' Trust shall be established as of the
Effective Date by execution of the Creditors' Trust Agreement and the transfer
of the Creditors' Trust Assets to the Creditors' Trustee pursuant to the terms
and conditions thereof. A copy of the Creditors Trust is attached hereto and
incorporated herein and labeled Exhibit "B".
Creditors' Trust Assets. The Creditors' Trust Assets consist of all of
the Debtors' and their Estates' right, title, and interest in and to the
following: (i) all Avoidance Actions and (ii) all claims, causes of action,
rights, suits, debts, sums of money, damages, judgment claims and demands
whatsoever, whether known or unknown, in law, equity or otherwise that were held
by the Debtors as of the Petition Date and which are not related to, or do not
arise out of, (a) the operating assets retained by the Reorganized Debtor
following Confirmation of the Plan; (b) the Debtors' ownership maintenance
and/or operation of such assets; (c) any executory contracts or leases assumed
or rejected by the Debtors; (d) any setoff rights that may be asserted by the
Reorganized Debtor against any third party; or (e) any transactions between
either or both of the Debtors, on the one hand, and EEX Corporation, Enserch
Exploration, Inc., Reliant Gas Transmission Company, Arkla Energy Resources, or
Edge Petroleum Exploration Company, on the other hand. Notwithstanding anything
else in the Plan to the contrary, the Transferred Causes of Action shall
specifically include all claims held by the Debtors as of the Petition Date
14
<PAGE> 15
against any or all of their respective present and former officers, directors,
accountants, and other professionals. Pursuant to sections 4.12(b)(ii) and
7.1(b) of the Plan, the Transferred Causes of Action will be preserved,
maintained, and transferred on the Effective Date to, and owned thereafter by,
the Creditors' Trust, just as if the Creditors' Trust were the Debtors, and will
be enforced exclusively by the Creditors' Trust on and after the Effective Date.
4. REVESTING OF ASSETS
Except as otherwise provided in the Plan or the Confirmation Order,
upon the Effective Date, all property of the Debtors' Estates, wherever
situated, shall vest in, or remain the property of, the Reorganized Debtor free
and clear of all Claims. All causes of action of the Debtors' Estates, including
all Avoidance Actions, shall be preserved and vest in the Reorganized Debtor;
provided, however, that if Class 10 does not accept the Plan and the Bankruptcy
Court confirms the Plan in accordance with Article 4.11(b)(ii)(B) thereof, all
of the Transferred Causes of Action shall be transferred to the Creditors'
Trust.
5. DISCHARGE OF DEBTORS
Except as otherwise provided in the Plan, all consideration distributed
under the Plan shall be in exchange for, and in complete satisfaction,
discharge, and release of, all Claims of any nature whatsoever against the
Debtors or any of their assets or properties; and except as otherwise provided
herein, upon the Effective Date, the Debtors and their successors in interest
shall be deemed discharged and released pursuant to section 1141(d)(1)(A) of the
Bankruptcy Code from any and all Claims treated in the Plan, as well as all
other Claims, demands and liabilities that arose before the Effective Date, and
all debts of the kind specified in section 502(g), 502(h), or 502(i) of the
Bankruptcy Code, whether or not (a) a proof of Claim based upon such debt is
filed or deemed filed under section 501 of the Bankruptcy Code; (b) a Claim
based upon such debt is Allowed under section 502 of the Bankruptcy Code; (c)
the holder of a Claim based upon such debt has accepted this Plan; or (d) the
Claim has been Allowed, disallowed, or estimated pursuant to section 502(c) of
the Bankruptcy Code. Except as otherwise provided in the Plan, the Confirmation
Order shall be a judicial determination of discharge of all liabilities of the
Debtors and their successors in interest other than those obligations
specifically set forth pursuant to this Plan.
6. INJUNCTION
Except as otherwise provided in the Plan, from and after the
Confirmation Date, all holders of Claims against and Equity Interests in the
Debtors are permanently restrained and enjoined (a) from commencing or
continuing in any manner, any action or other proceeding of any kind with
respect to any such Claim or Equity Interest against the Debtors, their Assets,
or the Reorganized Debtor; (b) from enforcing, attaching, collecting, or
recovering by any manner or means, any judgment, award, decree, or order against
the Reorganized Debtor or its Assets; (c) from creating, perfecting, or
enforcing any encumbrance of any kind against the Reorganized Debtor or its
Assets; (d) from asserting any setoff, right of subrogation, or recoupment of
any kind against any obligation due the Debtors; and (e) from performing any
act, in any manner, in any place whatsoever, that does not conform to or comply
with the provisions of the Plan;
15
<PAGE> 16
provided, however, that each holder of a Contested Claim may continue to
prosecute its proof of Claim in the Bankruptcy Court and all holders of Claims
and Equity Interests shall be entitled to enforce their rights under the Plan
and any agreements executed or delivered pursuant to or in connection with the
Plan.
7. REVOCATION OF PLAN
The Debtors and the Committee jointly reserve the right to revoke and
withdraw the Plan before the entry of the Confirmation Order. If the Debtors and
Committee revoke or withdraw this Plan, or if confirmation of this Plan does not
occur, then, this Plan shall be deemed null and void and nothing contained
herein shall be deemed to constitute a waiver or release of any Claims by or
against the Debtors, as the case may be, or any other Person or to prejudice in
any manner the rights of such Debtors and the Committee, as the case may be, or
person in any further proceedings involving such Debtors.
8. REORGANIZED DEBTOR'S BOARD OF DIRECTORS
The initial board of directors of the Reorganized Debtor shall consist
of the following persons: Bob G. Alexander (Chairman), Jim L. David, Russell D.
Glass, Martin Hirsch, Robert H. Kite, Robert J. Mitchell, and Jack G. Wasserman.
Current and former directors will receive certain indemnification under the
Plan. (See section 13.13 of the Plan for more information.)
9. REORGANIZED DEBTOR'S EXECUTIVE OFFICERS
The initial executive officers of the Reorganized Debtor shall include
the following persons: Bob G. Alexander (President and Chief Executive Officer),
Philip D. Devlin (Vice President, General Counsel and Secretary), R. Kent
Lueders (Vice President, Corporate Development), and Melissa H. Rutledge (Vice
President, Controller and Chief Accounting Officer). Such executive officers
shall be compensated at their current compensation levels or such other levels
as may be determined by the Board of Directors of the Reorganized Debtor.
Current officers of NEG will receive certain indemnification as more fully
described in section 13.13 of the Plan.
10. CHARTER AND BYLAWS
The charter and bylaws of the Reorganized Debtor shall be created or
amended as of the Effective Date as necessary (a) to satisfy the provisions of
this Plan; (b) to prohibit the issuance of nonvoting equity securities as
required by section 1123(a)(6) of the Bankruptcy Code; and (c) to prohibit the
transfer of any Equity Interest in the Reorganized Debtor to or by any Person
who is, was or would become as a result of such transfer, a "5% shareholder"
within the meaning of 26 U.S.C. ss. 382.
11. AMENDMENT TO INDENTURE FOR BONDS
The Indenture for the Bonds shall be amended substantially in the
manner reflected in the Amended Indenture attached as Exhibit "1" to the Plan.
16
<PAGE> 17
12. BONDS NOT DISCHARGED
Pursuant to the Plan, Arnos shall acquire all of the Bonds. Following
Confirmation of the Plan, the Bonds shall remain outstanding and shall be paid
either under the terms of the Amended Indenture attached to the Plan as Exhibit
"1" or on such other terms as are agreed between the Reorganized Debtor and
Arnos.
13. PURCHASE OF ADDITIONAL COMMON AND/OR PREFERRED STOCK
On the Effective Date, Arnos or an affiliate of Arnos shall pay at
least $2.0 million to the Reorganized Debtor to purchase from the Reorganized
Debtor additionally issued shares of the Reorganized Debtor's common stock such
that Arnos or its affiliate will own up to 49.9% of the value of all issued and
outstanding common and preferred stock of the Reorganized Debtor.
After the Effective Date, Reorganized NEG will contribute all or
substantially all of its operating properties to a newly-formed limited
liability company (Holding LLC) in exchange for an equity interest in Holding
LLC. The Arnos Secured Claim will either (i) be paid in full at the Effective
Date or thereafter as may be determined by Reorganized NEG; (ii) be assumed by
Holding LLC; (iii) or, Reorganized NEG's assets will be contributed to Holding
LLC subject to the liens securing the Arnos Secured Claim. Arnos will contribute
cash or other assets to Holding LLC (with a net value equivalent to the net
value of the assets contributed to Holding LLC by the Reorganized NEG in
exchange for an equity interest in Holding LLC. Further details of the
transaction between Reorganized NEG and Holding LLC, and of the structure of
Holding LLC, are set forth in the Term Sheet that is attached to the Plan as
Exhibit "2" and incorporated herein by reference.
D. EXECUTORY CONTRACTS AND UNEXPIRED LEASES
1. GENERAL TREATMENT; ASSUMED IF NOT REJECTED
The Plan constitutes and incorporates a motion by the Debtors to
assume, as of the Effective Date, all prepetition executory contracts and
unexpired leases to which the Debtors are a party, except for executory
contracts or unexpired leases that (a) have been assumed or rejected pursuant to
Final Order of the Bankruptcy Court, (b) are the subject of a separate motion
pursuant to section 365 of the Bankruptcy Code to be filed and served by the
Debtors on or before the Confirmation Date, or (c) are designated on Exhibit "2"
of the Plan as executory contracts and unexpired leases which the Debtors intend
to reject.
17
<PAGE> 18
2. CURE PAYMENTS AND RELEASE OF LIABILITY
All cure payments which may be required by section 365(b)(1) of the
Bankruptcy Code under any executory contract or unexpired lease that is assumed,
or assumed and assigned, under this Plan shall be made on or before the Initial
Distribution Date; provided, however, that in the event of a dispute regarding
the amount of any cure payments, the cure of any other defaults, the ability of
any party to provide adequate assurance of future performance, or any other
matter pertaining to assumption or assignment, the Reorganized Debtor shall make
such cure payments and cure such other defaults and provide adequate assurance
of future performance, all as may be required by section 365(b)(1), of the
Bankruptcy Code only following the entry of a Final Order resolving such
dispute. To the extent that a party to an assumed executory contract or
unexpired lease has not filed an appropriate pleading with the Bankruptcy Court
on or before the thirtieth (30th) day after the Effective Date disputing the
amount of any cure payments offered to it, disputing the cure of any other
defaults, disputing the promptness of the cure payments, or disputing the
provisions of adequate assurance of future performance, then such party shall be
deemed to have waived its right to dispute such matters.
3. BAR TO REJECTION DAMAGES
If the rejection of an executory contract or an unexpired lease by the
Debtors results in damages to the other party or parties to such contract or
lease, a Claim for such damages shall be forever barred and shall not be
enforceable against the Debtors or their respective properties or agents,
successors, or assigns, unless a proof of Claim is filed with the Bankruptcy
Court and served upon the Reorganized Debtor by the earlier of (a) 30 days after
the Confirmation Date or (b) such other deadline as the Bankruptcy Court may set
for asserting a Claim for such damages.
4. REJECTION CLAIMS
Any Claim arising from the rejection of an unexpired lease or executory
contract and not barred by section 10.3 of the Plan shall be treated as a Trade
Claim pursuant to the Plan; provided, however, that any Claim based upon the
rejection of an unexpired lease of real property shall be limited in accordance
with section 502(b)(6) of the Bankruptcy Code and state law mitigation
requirements. Nothing contained herein shall be deemed an admission by the
Debtors that such rejection gives rise to or results in a Claim or shall be
deemed a waiver by the Debtors of any objections to such Claim if asserted.
V. DESCRIPTION OF THE DEBTORS
A. OVERVIEW
NEG 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 NEG. On August 29, 1996, Alexander Energy
Corporation was merged with and into a wholly owned subsidiary of NEG, which
subsidiary was merged with and into NEG on December 31, 1996.
18
<PAGE> 19
NEG 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.
B. BUSINESS OF THE DEBTORS
1. PRINCIPAL AREAS OF OPERATIONS
Due to the chapter 11 filing, NEG has suspended its exploratory and
development drilling program. However, NEG currently has an inventory of
exploratory prospects in Louisiana and offshore at Mustang Island.
Historically, NEG has developed and exploited existing properties by
drilling Development Wells, and recompleting and reworking existing wells. NEG
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 Bankruptcy Court.
The following table sets forth NEG's principal areas of operations and
NEG's Proved Reserves of oil and natural gas at December 31, 1999. 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 511 33,184 36,248 37.5%
East and West Texas 2,852 22,058 39,174 40.6%
Gulf Coast 2,251 7,654 21,158 21.9%
------ ------ ------ ------
Total 5,614 62,896 96,580 100.0%
====== ====== ====== ======
</TABLE>
A discussion of the Company's oil and gas operations is contained in the
Company's annual report on Form 10-K which have been filed with the Securities
and Exchange Commission and is publicly available.
2. MARKETS AND CUSTOMERS
The availability of a ready market for any oil and natural gas produced
by NEG 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 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 NEG's oil and
natural gas or reduces the price obtained for such oil and natural gas, may
adversely affect NEG.
19
<PAGE> 20
A large percentage of NEG's oil and natural gas sales are made to a
small number of purchasers. NEG normally sells its oil under six month
contracts. For the year ended December 31, 1997, Plains Marketing and
Transportation ("Plains") accounted for 84% of NEG's oil sales, and Crosstex
Energy ("Crosstex") and GPM Natural Gas Corporation accounted for 20% and 14%,
respectively, of NEG's natural gas sales. For the year ended December 31, 1998,
Plains accounted for 85% of NEG's oil sales, and Crosstex and Aquila Energy
Marketing ("Aquila") accounted for 23% and 26%, respectively, of NEG's natural
gas sales. For the year ended December 31, 1999, Plains accounted for 90% of
NEG's oil sales, and Crosstex and Aquila accounted for 21% and 17%,
respectively, of NEG's natural gas sales. The agreement with Plains, entered
into in 1993, provides for Plains to purchase NEG's oil pursuant to West Texas
Intermediate posted prices plus a premium. NEG 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 NEG'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 NEG's
natural gas production is also sold under forward sales contracts. Deliveries
under these contracts are priced based on NYMEX prices less a differential
whereby NEG 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. NEG pays the cost of transportation of the natural gas to
the delivery point specified in these contracts. The remainder of NEG's natural
gas is sold on the spot market under short-term contracts.
3. REGULATION
GENERAL. NEG'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 NEG'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, NEG is unable to predict the future cost or
impact of complying with such laws.
EXPLORATION AND PRODUCTION. NEG'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. NEG'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
20
<PAGE> 21
the size of drilling and spacing units or proration units, the density of wells
that 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 NEG can produce from its wells and to limit the
number of wells or the locations at which NEG can drill. Legislation in Oklahoma
and regulatory action in Texas governs the methodology by which the regulatory
agencies establish permissible monthly production allowables. NEG cannot predict
what effect any change in prorationing regulations might have on its production
and sales of natural gas.
Certain of NEG'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. NEG 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 NEG, as well as the oil and gas
industry in general. It is not anticipated that NEG 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, NEG 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
21
<PAGE> 22
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 NEG 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 NEG's operations are exempt from
RCRA regulation. Nevertheless, NEG 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 NEG'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, NEG has
agreed to indemnify some sellers of producing properties from whom NEG has
acquired reserves against certain liabilities for environmental claims
associated with such properties. While NEG does not believe that costs to be
incurred by NEG 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 NEG's routine oil and natural gas
operations, surface spills and leaks, including casing leaks of oil or other
materials occur, and as a result, NEG incurs costs for waste handling and
environmental compliance. Moreover, NEG is able to control directly the
operations of only those wells for which it acts as the operator.
Notwithstanding NEG's lack of control over wells in which NEG 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 NEG.
22
<PAGE> 23
NEG is also subject to laws and regulations concerning occupational
safety and health. While it is not anticipated that NEG will be required in the
near future to expend amounts that are material in the aggregate to NEG's
overall operations by reason of occupational safety and health laws and
regulations, NEG 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 NEG 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.
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
23
<PAGE> 24
such as NEG, the FERC has stated that Order No. 636 is intended to foster
increased competition within the gas industry.
4. OPERATIONAL HAZARDS AND INSURANCE
NEG'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 NEG 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. NEG maintains insurance of various types customary
in the industry to cover its operations. NEG believes it is insured prudently
against certain of these risks. In addition, NEG maintains operator's extra
expense coverage that provides coverage for the care, custody and control of
wells drilled by NEG. NEG's insurance does not cover every potential risk
associated with the drilling and production of oil and natural gas. NEG 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 NEG's financial
condition and results of operations. Moreover, no assurance can be given that
NEG will be able to maintain adequate insurance in the future at rates it
considers reasonable. NEG believes that it operates in compliance with
government regulations and in accordance with safety standards which meet or
exceed industry standards.
5. COMPETITION
The oil and gas industry is intensely competitive in all of its phases.
NEG, 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 NEG.
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. NEG cannot predict the effect
these factors will have on its operations. NEG 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.
6. OFFICE SPACE
NEG leases approximately 25,000 square feet of office space in Dallas,
Texas. NEG also leases a small amount of office space in Odessa, Texas, Fort
Smith, Arkansas and Yukon, Oklahoma for its business activities.
24
<PAGE> 25
7. EMPLOYEES
At April 30, 2000, NEG had 46 full-time employees. Of these employees,
six are field-related personnel. NEG does not have any collective bargaining
agreements with employees and believes that relations with its employees are
generally satisfactory.
C. CAPITAL STRUCTURE OF NEG
1. SENIOR NOTES
In November 1996, NEG 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
NEG'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, NEG 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 NEG's working capital. In December 1997, NEG
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 "Bonds."
The Bonds bear interest at an annual rate of 10 3/4%, payable
semiannually in arrears on May 1 and November 1 of each year. The Bonds are
senior, unsecured obligations of NEG, ranking pari passu with all existing and
future senior indebtedness of NEG, and senior in right of payment to all future
subordinated indebtedness of NEG. Subject to certain limitations set forth in
the indenture covering the Bonds (the "Indenture"), NEG and its subsidiaries may
incur additional senior indebtedness and other indebtedness.
At December 31, 1998 and 1999, unamortized issuance premiums associated
with the Bonds totaled $1,238,513 and $1,080,405, respectively.
The Indenture provides that the Bonds will be unconditionally
guaranteed (the "Guarantee") by any subsidiary designated by NEG as a Restricted
Subsidiary (a "Guarantor"). As a result of the merger of NEG-OK into NEG on
December 31, 1996, NEG has no Restricted Subsidiaries.
The Indenture contains certain covenants limiting NEG 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
25
<PAGE> 26
affiliates. The Plan provides that the Indenture shall be amended as provided in
Section 7.11 of the Plan.
The Bonds mature on November 1, 2006. At any time on or after November
1, 2001, NEG may, at its option, redeem all or any portion of the Bonds at the
redemption prices expressed as percentages of the principal amount of the Bonds
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,
NEG may, at its option, redeem all or any portion of the Bonds at the Make-Whole
Price, as defined, plus accrued and unpaid interest to the date of redemption.
In addition, in the event NEG consummates one or more Equity Offerings, as
defined, on or prior to November 1, 1999, NEG, at its option, may redeem up to
$35.0 million of the aggregate principal amount of the Bonds with all or a
portion of the aggregate net proceeds received by NEG from such Equity Offering
or Equity Offerings at a redemption price of 110.75% of the aggregate principal
amount of the Bonds 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 Bonds remains
outstanding.
Upon a Change of Control, as defined, NEG will be required, subject to
certain conditions, to offer to repurchase all Bonds at 101% of the principal
amount thereof, plus accrued and unpaid interest to the date of purchase. Due to
the nonpayment of interest due December 2, 1998, the Bonds were in default at
December 31, 1999. Interested parties should consult the Plan at Section 7.11
with respect to the indenture.
2. CREDIT FACILITIES
On August 29, 1996, NEG, 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.
In November 1996, in connection with the issuance of the Series A
Notes, NEG revised the credit facility and redetermined the $25 million
borrowing base to provide that the borrowing base may be redetermined at least
semi-annually and may require mandated monthly principal
26
<PAGE> 27
reductions from time to time. The principal amount of any borrowings is due at
maturity, August 29, 2000 and interest is payable monthly.
NEG granted liens to the Banks on substantially all of NEG's oil and
natural gas properties, whether currently owned or hereafter acquired, and a
negative pledge on all other oil and natural gas properties.
Effective December 22, 1998, the Banks assigned the credit facility and
all associated liens to Arnos, an affiliated subsidiary of NEG'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 Bonds that
was due on November 2, 1998, conditioned upon the Bankruptcy Court's dismissal
of the Involuntary Petition. NEG is currently paying interest under the Arnos
credit facility. NEG had $25 million outstanding under the Arnos credit facility
as of December 31, 1999.
3. PREFERRED STOCK
In June 1994, NEG 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 NEG 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, NEG 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 NEG at $100 per share. The Series C Preferred Stock is 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, NEG 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, NEG 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. The Preferred Stock will be cancelled on
the Effective Date in exchange for each
27
<PAGE> 28
holders pro rata share of 714,286 shares of common stock in the Reorganized NEG
(as further set out in Section 4.16 of the Plan).
D. SELECTED FINANCIAL DATA
Holders of Claims and Equity Interests are directed to the Form 10-K
for current financial and other information concerning the Debtors. In
particular, parties may wish to review Item 6, Selected Financial Data, together
with Item 7, Management's Discussion and Analysis of Financial Condition and
Results of Operations.
E. DIRECTORS AND OFFICERS
The following table lists the name, age as of May 1, 2000, and present
position with NEG for each of NEG's directors and executive officers:
<TABLE>
<CAPTION>
NAME AGE PRESENT POSITION WITH NEG(1)
- ---- --- ----------------------------
<S> <C> <C>
Bob G. Alexander 66 Chairman of the Board of Directors, President and
Chief Executive Officer
Jim L. David 60 Director, Assistant to the President
Russell D. Glass 37 Director
Martin Hirsch 46 Director
Robert H. Kite 45 Director
Robert J. Mitchell 52 Director
Jack G. Wasserman 63 Director
Philip D. Devlin 55 Vice President, General Counsel and Secretary
R. Kent Lueders 43 Vice President, Corporate Development
Melissa H. Rutledge 34 Vice President, Controller and Chief Accounting Officer
</TABLE>
F. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth, as of the date of this Disclosure
Statement, the individuals or entities known to NEG to own more than 5% of NEG's
outstanding shares of capital stock.
28
<PAGE> 29
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER PERCENT
OF BENEFICIAL OWNER TITLE OF CLASS OF SHARES OF CLASS(1)
- ------------------- -------------- --------- -----------
<S> <C> <C> <C>
COMMON STOCK
Carl C. Icahn Common Stock 8,847,044(2) 19.2%
114 West 47th Street
19th Floor
New York, NY 10036
Kayne, Anderson Common Stock 4,414,068(3) 9.9%
Investment Management, Inc.
1800 Avenue of Stars
Suite 1424
Los Angeles, CA 90067
Croft-Leominster, Inc. Common Stock 2,161,710(4) 5.3%
207 E. Redwood St.
Suite 802
Baltimore, MD 21202
SERIES B PREFERRED STOCK
Kayne, Anderson Investment Management, Series B Preferred Stock 38,687(5) 100%
Inc.
1800 Avenue of Stars
Suite 1424
Los Angeles, CA 90067
Arbco Associates, L.P. Series B Preferred Stock 13,928(5) 36%
1800 Avenue of Stars
Suite 1424
Los Angeles, CA 90067
Offense Group Associates, L.P. Series B Preferred Stock 11,607(5) 30%
1800 Avenue of Stars
Suite 1424
Los Angeles, CA 90067
Kayne, Anderson Non-Traditional Series B Preferred Stock 10,832(5) 28%
Investments, L.P.
1800 Avenue of Stars
Suite 1424
Los Angeles, CA 90067
</TABLE>
29
<PAGE> 30
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER PERCENT
OF BENEFICIAL OWNER TITLE OF CLASS OF SHARES OF CLASS(1)
- ------------------- -------------- --------- -----------
<S> <C> <C> <C>
Opportunity Associates L.P. Series B Preferred Stock 2,320(5) 6%
1800 Avenue of Stars
Suite 1424
Los Angeles, CA 90067
SERIES C PREFERRED STOCK
Kayne, Anderson Investment Management, Series C Preferred Stock 23,000(6) 100%
Inc.
1800 Avenue of Stars
Suite 1424
Los Angeles, CA 90067
Arbco Associates, L.P. Series C Preferred Stock 8,280(6) 36%
1800 Avenue of Stars
Suite 1424
Los Angeles, CA 90067
Offense Group Associates, L.P. Series C Preferred Stock 7,240(6) 31%
1800 Avenue of Stars
Suite 1424
Los Angeles, CA 90067
Kayne, Anderson Non-Traditional Series C Preferred Stock 6,100(6) 27%
Investments, L.P.
1800 Avenue of Stars
Suite 1424
Los Angeles, CA 90067
Opportunity Associates L.P. Series C Preferred Stock 1,380(6) 6%
1800 Avenue of Stars
Suite 1424
Los Angeles, CA 90067
SERIES D PREFERRED STOCK
Carl C. Icahn Series D Preferred Stock 100,000(2) 100%
114 West 47th Street
19th Floor
New York, NY 10036
</TABLE>
30
<PAGE> 31
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER PERCENT
OF BENEFICIAL OWNER TITLE OF CLASS OF SHARES OF CLASS(1)
- ------------------- -------------- --------- -----------
<S> <C> <C> <C>
SERIES E PREFERRED STOCK
Kayne, Anderson Investment Management, Series E Preferred Stock 9,500(7) 100%
Inc.
1800 Avenue of Stars
Suite 1424
Los Angeles, CA 90067
Foremost Insurance Company Series E Preferred Stock 7,500(7) 79%
5230 33rd Street, S.E.
Grand Rapids, MI 49512
Topa Insurance Company Series E Preferred Stock 2,000(7) 21%
c/o Kayne, Anderson Investment
Management, Inc.
1800 Avenue of Stars
Suite 1424
Los Angeles, CA 90067
</TABLE>
(1) Based upon the 40,527,482 shares of Common Stock, 38,687 shares of
issued and outstanding Series B Preferred Stock, 23,000 shares of
issued and outstanding Series C Preferred Stock, 100,000 shares of
issued and outstanding Series D Preferred Stock and 9,500 shares of
issued and outstanding Series E Preferred Stock that are outstanding as
of April 20, 1999. For each person or group, the percentages are
calculated on the basis of the amount of outstanding securities of the
particular class plus any securities that such person or group has the
right to acquire within 60 days 1999 pursuant to options, warrants,
conversion privileges or other rights.
(2) High River Limited Partnership, the record owner of these shares, is a
Delaware limited partnership, and has pledged these shares to ING
Capital. Riverdale Investors Corp., Inc. is a Delaware corporation and
is the general partner of High River. Mr. Carl C. Icahn is the sole
stockholder and a director of Riverdale. Riverdale's principal business
address is 90 South Bedford Road, Mount Kisco, New York 10549, and Mr.
Icahn's principal business address is c/o Icahn Associates Corp., 114
West 47th Street, 19th Floor, New York, New York 10036. Gascon
Partners, a New York general partnership, an affiliate of Mr. Icahn,
High River and Riverdale holds warrants to purchase 300,000 shares of
Common Stock. High River also holds 700,000 warrants issued in August
1996 in connection with NEG's acquisition of and merger with Alexander
Energy Company. The ownership figures in the table assume that all the
shares of Series D Preferred Stock are converted and warrants for
1,000,000 shares of Common Stock are exercised. Riverdale and Mr.
Icahn, by virtue of their relationships to High River and Gascon, may
be deemed to beneficially own (as that term is defined in Rule 13d-3
under the Exchange Act) the shares which High River directly
beneficially owns and
31
<PAGE> 32
the shares which Gascon has warrants to purchase. Each of Riverdale and
Mr. Icahn disclaims beneficial ownership of such shares for all other
purposes. Mr. Robert J. Mitchell has been appointed a director of NEG
as the representative of the holders of the Series D Preferred Stock.
Mr. Mitchell does not have dispositive or voting power over any of the
shares owned by High River. Mr. Russell Glass and Mr. Martin Hirsch,
directors of NEG and affiliates of High River, disclaim any beneficial
ownership of these shares.
(3) Richard A. Kayne ("Kayne") is President, Chief Executive Officer and
Director of Kayne Anderson Investment Management Inc. ("KAIM") and of
KA Associates, Inc., a registered broker/dealer. KAIM is the general
partner of KAIM Non-Traditional, L.P. ("L.P."), registered investment
advisor, which is the general partner of and investment advisor to the
investment partnerships referred to in this footnote. Mr. Kayne is also
a limited partner in each investment partnership and a general partner
on one of them. Mr. Kayne and L.P. have shared dispositive and voting
power through investment partnerships for 38,687 shares of Series B
Preferred Stock, 23,000 shares of Series C Preferred Stock, and 9,500
shares of Series E Preferred Stock, which may be converted at anytime
into 2,380,738, 1,150,000 and 422,222 shares of Common Stock,
respectively, and for warrants to purchase 217,000 shares of Common
Stock. The percentage ownership figures in the table assume that all
shares of Series B Preferred Stock, Series C Preferred Stock and Series
E Preferred Stock are converted, the warrants to purchase 217,000
shares of Common Stock are exercised and 4,169,959 shares of Common
Stock are issued, and such shares are added to the shares of Common
Stock outstanding. Mr. Kayne disclaims beneficial ownership of the
shares held by the investment partnerships in excess of the amount
attributable to him by virtue of his direct interest as a limited or
general partner and by virtue of his indirect interest in L.P.'s
interest in the investment partnerships. L.P. disclaims beneficial
ownership of the shares held by the investment partnerships in excess
of the amount attributable to them by virtue of their percentage
interest in the investment partnerships.
(4) Croft-Leominster, Inc. the record owner of the shares, is a Maryland
corporation.
(5) Beneficial ownership of all the Series B Preferred Stock is attributed
to KAIM. For information on Richard A. Kayne, KAIM and L.P., see
footnote (3) above. Arbco Associates L.P. has shared dispositive and
voting power with Mr. Kayne, and L.P. of 13,928 shares of Series B
Preferred Stock, which is convertible at any time into 857,107 shares
of Common Stock. Offense Group Associates has shared dispositive and
voting power with Mr. Kayne, and L.P. for 11,607 shares of Series B
Preferred Stock, which is convertible at any time into 714,276 shares
of Common Stock. Kayne, Anderson Non-Traditional Investments has shared
dispositive and voting power with Mr. Kayne and L.P. for 10,832 shares
of Series B Preferred Stock, which is convertible at any time into
666,584 shares of Common Stock. Opportunity Associates L.P. has shared
dispositive and voting power with Mr. Kayne, and L.P. of 2,320 shares
of Series B Preferred Stock, which is convertible at any time into
142,769 shares of Common Stock.
(6) Beneficial ownership of all the Series C Preferred Stock is attributed
to KAIM. For information on Richard A. Kayne, KAIM and L.P., see
footnote (3) above. Arbco Associates
32
<PAGE> 33
L.P. has shared dispositive and voting power with Mr. Kayne, and L.P.
of 8,280 shares of Series C Preferred Stock, which is convertible at
any time into 414,000 shares of Common Stock. Offense Group Associates
has shared dispositive and voting power with Mr. Kayne, and L.P. for
7,240 shares of Series C Preferred Stock, which is convertible at any
time into 362,000 shares of Common Stock. Kayne, Anderson
Non-Traditional Investments has shared dispositive and voting power
with Mr. Kayne, and L.P. for 6,100 shares of Series C Preferred Stock,
which is convertible at any time into 305,000 shares of Common Stock.
Opportunity Associates L.P. has shared dispositive and voting power
with Mr. Kayne, and L.P. for 1,380 shares of Series C Preferred Stock,
which is convertible at any time into 69,000 shares of Common Stock.
(7) Beneficial ownership of all the Series E Preferred Stock is attributed
to KAIM, except with respect to Foremost Insurance Company which owns
7,500 shares of Series E Preferred Stock (convertible at any time into
333,333 shares of Common Stock) and warrants for 105,000 shares of
Common Stock. Topa Insurance Company has dispositive and voting power
for 2,000 shares of Series E Preferred Stock, which is convertible at
any time into 88,888 shares of Common Stock and warrants for 28,000
shares of Common Stock.
VI. THE CHAPTER 11 CASES
A. FACTORS LEADING TO CHAPTER 11 FILING
Due to the significant decline in oil prices in 1998, coupled with
unfavorable revisions in estimates of oil and gas reserves during the year, NEG
experienced disappointing operating results in 1998. The revenues generated by
NEG's operations are highly dependent upon the prices of, and demand for, oil
and natural gas. The price received by NEG for its oil and natural gas
production depends on numerous factors beyond NEG'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 had a material adverse effect on the carrying value of NEG's oil and gas
properties and NEG's revenues, profitability and cash flows.
B. COMMENCEMENT OF THE CHAPTER 11 CASES
On December 4, 1998, certain holders of the Bonds filed an Involuntary
Petition against NEG for an order for relief under chapter 11 of Bankruptcy Code
in the Bankruptcy Court, due to nonpayment of interest due December 2, 1998,
after expiration of a 30-day grace period. On December 23, 1998, NEG filed, in
the Bankruptcy Court, an Answer to and Motion to Dismiss the pending Involuntary
Petition. However, on February 8, 1999, the Bankruptcy Court denied NEG's Motion
to Dismiss the Involuntary Petition. On February 11, 1999, the Bankruptcy Court
entered an order for relief with respect to NEG, which placed NEG under
Bankruptcy Court protection in a chapter 11 proceeding, and BMC subsequently
filed a voluntary petition for relief under chapter 11.
33
<PAGE> 34
C. SIGNIFICANT EVENTS SINCE COMMENCEMENT OF CHAPTER 11 CASES
1. CONTINUATION OF DEBTORS' BUSINESS
Since the Relief Date, the Debtors have continued to operate their
business and manage their properties as debtors in possession. Due to the
chapter 11 filing, NEG has suspended its exploratory drilling program. NEG has
limited its capital expenditures to ordinary course enhancement of current
production through workovers, recompletions, and other production enhancing
activities deemed to be economic given current oil and gas prices. Development
drilling has been limited to (i) ordinary course non-operated wells in which NEG
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 require court approval.
2. STAY OF LITIGATION
An immediate effect of the filing of a bankruptcy case is the
imposition of the automatic stay under the Bankruptcy Code, which, with limited
exceptions, enjoins the commencement or continuation of all litigation against
the Debtors. This injunction will remain in effect until the Effective Date
unless otherwise modified by the order of the Bankruptcy Court.
3. OPERATING ORDERS
On February 11, 1999, upon entry of the order for relief with respect
to NEG and commencement of the voluntary case with respect to BMC, the Debtors
obtained a number of orders, supported by motions and applications, to authorize
the continued day-to-day operations of the Debtors. These orders included, among
others, (i) an order authorizing the maintenance of business forms and bank
accounts, (ii) an order to pay prepetition wages, reimbursable employee expenses
and employee benefits, (iii) an order to maintain utility services, (iv) an
order authorizing payment of certain critical vendors, (v) an order authorizing
the use of cash collateral, and (vi) an order authorizing the joint
administration of the Chapter 11 Cases.
4. APPOINTMENT OF COMMITTEE
The Committee was originally appointed on February 19, 1999, by the
United States Trustee. The Committee selected the law firm of Andrews & Kurth,
L.L.P. to represent it in the Chapter 11 Cases.
5. REPRESENTATION OF THE DEBTORS
(a) Reorganization Counsel
In July 9, 1999, the Bankruptcy Court entered an order authorizing the
Debtors to engage the law firm of Neligan, Andrews, Bryson & Foley, L.L.P.
(formerly known as Neligan & Averch, L.L.P.) as reorganization counsel in the
Chapter 11 Cases. The firm replaced Weil, Gotshal & Manges, L.L.P. as the
Debtors' reorganization counsel.
34
<PAGE> 35
(b) Financial Advisors/Accountants
On February 11, 1999, the Debtors filed an application to retain
PricewaterhouseCoopers ("PwC") as their financial advisors. On February 11,
1999, the Debtors filed an application to retain Ernst & Young as their
accountants. On February 24, 1999, the Bankruptcy Court entered an interim order
authorizing the Debtors' retention of PwC, and on March 9, 1999, the Bankruptcy
Court entered an order authorizing the Debtors retention of Ernst & Young. On
June 29, 1999, the Court entered an order expanding the employment of PwC.
(c) Labor, Corporate and Securities Counsel
On February 11, 1999, the Debtors filed an application to retain the
law firm of Akin, Gump, Strauss, Hauer & Feld, L.L.P. ("Akin Gump") as special
counsel for labor, corporate, and securities matters. On March 18, 1999, the
Bankruptcy Court entered an order authorizing the Debtors' retention of Akin,
Gump.
(d) Official Claims Administrator
On February 11, 1999, the Debtors filed an application to retain
Poorman-Douglas Corporation to act as the official claims administrator of these
Estates. On March 1, 1999, the Bankruptcy Court entered an order authorizing the
employment of Poorman-Douglas for the limited purpose of mailing notice of
commencement of cases pursuant to section 341 of the Bankruptcy Code.
Poorman-Douglas has also been appointed to be the official tabulator agent in
connection with balloting on the Plan of Reorganization.
6. TERMINATION OF EXCLUSIVITY
On April 2, 1999, the Committee filed a motion to terminate the
Debtors' exclusive right to file a plan of reorganization pursuant to section
1121 of the Bankruptcy Code. As a hearing conducted on April 22, 1999, the
Bankruptcy Court entered an order granting the motion in part and denying it in
part. The Bankruptcy Court's order required both the Debtors and the Committee
to file a comprehensive summary plan of reorganization by the close of business
on Monday, May 24, 1999. The Debtors did not file a plan of reorganization
within the exclusive period for doing so; therefore, the exclusive period has
expired.
35
<PAGE> 36
7. MARKETING AND SALE OF DEBTORS' ASSETS
On August 4, 1999, NEG and the Committee appeared before the Bankruptcy
Court and announced agreement on the process for marketing NEG and/or its
assets. The marketing process culminated in an auction conducted by the
Bankruptcy Court on November 1, 1999. At the auction, bidding on the bulk
properties, without Lake Mongoulois and Mustang Island, ultimately ended at a
high bid of $96.25 million given by Arnos, an affiliated subsidiary of NEG's
Series D preferred stockholder. The Committee, after review, concluded that it
would recommend to the Court that it accept the high bid of $96.25 million. The
Bankruptcy Court signed an order accepting Arnos as the highest bidder on
November 16, 1999. Arnos filed a motion to close the Purchase and Sale Agreement
(the "Arnos PSA") into escrow pending the Bankruptcy Court's approval of either
(i) a plan of reorganization or (ii) a closing of the sale of the properties to
Arnos. The Bankruptcy Court approved this motion and ordered Arnos to pay into
the Bankruptcy Court's registry the sum of $61.25 million, which equals the
purchase price of $96.25 million less the previously escrowed deposit of $9.625
million and the principal balance of $25 million outstanding under the Arnos
credit facility. Section 12.5 of the Plan describes termination and rescission
of the Arnos sale orders.
8. DEBTOR AND COMMITTEE FILE PLANS
On February 28, 2000, the Committee filed with the Bankruptcy Court a
disclosure statement and proposed plan of reorganization. On March 14, 2000,
Debtor filed a disclosure statement and proposed a plan of reorganization.
9. DEBTOR AND COMMITTEE REACH AGREEMENT
On April 20, 2000 the Debtor and Committee announced an agreement
whereby the Committee would withdraw its Plan and become a co-proponent of the
Debtors' Plan as amended.
VII. CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN
The following is a brief summary of certain federal income tax
consequences that holders of Claims and Equity Interests should consider. This
summary does not address all aspects of federal income taxation that may be
relevant to all persons considering the Plan. Special federal income tax
considerations not discussed in this summary may be applicable to, among other
persons, financial institutions, insurance companies, foreign corporations,
tax-exempt institutions and persons who are not citizens or residents of the
United States. In addition, this summary does not discuss the effect of any
foreign, state or local tax law, the effect of which may be significant.
This summary is based on the Internal Revenue Code of 1986, as amended
("IRC"), the regulations promulgated thereunder, judicial decisions, and
administrative positions of the Internal Revenue Service (the "Service"). All
section references in this summary are to sections of the IRC. Any change in the
foregoing authorities may be applied retroactively in a manner that could
adversely affect persons considering the Plan.
36
<PAGE> 37
No ruling will be sought from the Service with respect to the federal
income tax aspects of the Plan and there can be no assurance that the
conclusions set forth in this summary will be accepted by the Service. No
opinion has been sought or obtained with respect to the tax aspects of the Plan.
THIS SUMMARY IS INTENDED FOR GENERAL INFORMATION ONLY. PERSONS
CONSIDERING THE PLAN ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS CONCERNING
THE PARTICULAR TAX CONSEQUENCES TO THEM OF THE REORGANIZATION OF THE DEBTORS,
THE RECEIPT OF ANY PAYMENT UNDER THE PLAN, AND THE IMPACT ON THAT PERSON OR ANY
OTHER PERSON OF ANY OBLIGATION IMPOSED UNDER THE PLAN.
A. TAX CONSEQUENCES TO THE DEBTORS
1. DISCHARGE OF INDEBTEDNESS INCOME
The IRC generally provides that a debtor must include in income the
amount of discharge of indebtedness ("DOI") it realizes when a creditor accepts
less than full payment in satisfaction of its debt. The realized amount of DOI
is generally the difference between the amount of indebtedness and the amount
received by the creditor in exchange therefor. However, the IRC also provides in
Section 108(a) that DOI will not be included in the debtor's taxable income if
the debtor is under the jurisdiction of a court in a case under Title 11 of the
United States Code (related to bankruptcy) and the DOI is granted by the court
or is pursuant to a plan approved by the court. In the event IRC Section 108(a)
excludes DOI from the debtor's income, the debtor's tax attributes will be
reduced by the amount of DOI income so excluded. The tax attributes are
generally reduced in a prescribed order and include NOLs, general business
credit carryovers, capital loss carryovers and the tax basis of its assets. In
the alternative, the debtor may make an election to alter the order of attribute
reduction such that the tax basis of depreciable property would be reduced
first.
Subject to the discussion below, the Debtors believe that they should
not (i) realize DOI or (ii) suffer a reduction in tax attributes with respect to
any Bondholder Claim because the Bonds will be purchased by Arnos and not
discharged by the Debtors. The Debtors will realize DOI with respect to any
other Claim that is discharged in connection with the Plan to the extent of the
difference between the amount of such Claim and the amount of consideration paid
to the respective holder pursuant to the Plan.
IRC Section 108(e)(4) provides that an acquisition of outstanding debt
by a person related to the debtor from a person unrelated to the debtor will be
treated as an acquisition by the debtor of the debt for purposes of determining
the amount of DOI realized by the debtor. Generally, a corporate acquiror and a
corporate debtor may be related if (in addition to certain additional
requirements) certain persons (actually or constructively) own, directly or
indirectly, more than 50% of the value of all outstanding stock of both
corporations or more than 50% of all classes of voting stock. In the event IRC
Section 108(e)(4) applies, the debtor will be treated as retiring the amount of
the debt acquired by the related person in exchange for the amount of
37
<PAGE> 38
consideration paid by the related person for such debt. In such a case, the
debtor will realize, as DOI income, the difference between the deemed amount
retired and the consideration paid. To the extent applicable, IRC Section 108(a)
may then preclude recognition of such DOI income and require reduction of tax
attributes in the amount thereof.
Upon consummation of the Plan, Arnos will own less than 50% of the
voting classes of the stock of the Debtors and less than 50% of the value of the
stock of the Debtors. Accordingly, Arnos and the Debtors should not be related
within the meaning of IRC Section 108(e)(4). Even if Arnos and the Debtors were
related, any resulting DOI income to the Debtors should be excluded from taxable
income (but would reduce tax attributes) under IRC Section 108(a) as discussed
herein. The foregoing assumes that the Bonds constitute debt for federal income
tax purposes. If the Bonds were treated as exchanged for equity, the Bonds would
be deemed discharged and would result in DOI income to the Debtors. In such a
case, the DOI income should, in a manner similar to that discussed below with
respect to discharged Claims, be excluded from income under IRC Section 108(a)
and reduce tax attributes. While the Debtors believe that the Bonds will
constitute debt for federal income tax purposes upon consummation of the Plan,
there can be no assurance that the Service would agree with that conclusion.
In the case of any discharged Claim with respect to which DOI is
realized by the Debtors, the DOI will be excluded from the Debtors' taxable
income because the discharge of such Claims will occur pursuant to the Plan as
approved by the Bankruptcy Court. As a result of the exclusion from income, the
NOLs of the Debtors will be reduced by the amount of the DOI.
2. LIMITATION ON NET OPERATING LOSSES
Based on currently available information, the total consolidated NOL
carryforward available with respect to the Debtors is approximately $90 million
as of December 31, 1999. A portion of these NOLs is limited as a result of an
ownership change that occurred with respect to the Debtors in 1996.
IRC Sections 382 and 383 provide that in the event of an "ownership
change" a loss corporation's ability to use its pre-change NOLs, tax credits and
certain built-in losses will be limited. An ownership change generally occurs
when the percentage of a corporation's stock owned by "5% shareholders" has
increased by more than fifty (50) percentage points over a testing period that
is generally three (3) years. If an ownership change occurs, the corporation's
annual use of its NOL carryovers (and certain built-in losses recognized during
the 5 years following the ownership change) is limited to the "Section 382
Limitation." The Section 382 Limitation is calculated as the value of the
corporation's equity immediately before the ownership change multiplied by the
applicable federal long-term tax-exempt rate (for example, for ownership changes
in May 2000, the rate is 5.84%). IRC Section 382 also provides however that, in
certain cases, a loss corporation may utilize additional pre-change NOLs if the
corporation is treated as having "built-in gains" in excess of certain statutory
thresholds.
IRC Section 382(1)(5) provides that IRC Sections 382 and 383 generally
do not apply to an ownership change of a loss corporation if the loss
corporation is under the jurisdiction of the court in a title 11 case and the
shareholders and creditors of the loss corporation (determined
38
<PAGE> 39
immediately before such ownership change) own (after such ownership change and
as a result of being shareholders or creditors immediately before such change)
stock possessing at least 50% of the voting power and value of the stock of the
loss corporation. Since the Debtors are under the jurisdiction of the Bankruptcy
Court in a title 11 case and the existing shareholders of the Debtors should
satisfy the 50% stock ownership requirement upon consummation of the Plan, the
Debtors should qualify under IRC Section 382(1)(5). Accordingly, even if the
Debtors undergo an ownership change as a result of the Plan, IRC Sections 382
and 383 should generally not apply to the Debtors.
A 5% shareholder is any person that holds five percent (5%) or more of
the stock of the corporation at any time during the testing period. Assuming
that the Bonds are debt for general federal income tax purposes, a holder of
Bonds will not be treated as a shareholder with respect to the Debtors (except
as discussed below). However, if the Bonds are treated as exchanged for equity,
any ownership change of the Debtors would not qualify under IRC Section
382(1)(5) and the Debtors would be subject to the Section 382 Limitation with
respect to its NOLs and any other tax attributes described above. While the
Debtors believe that the Bonds will constitute debt for federal income tax
purposes upon consummation of the Plan, there can be no assurance that the
Service would agree with that conclusion.
However, the temporary treasury regulations under IRC Section 382
provide that an ownership interest in a corporation that is not stock will
nevertheless be treated as stock for purposes of IRC Section 382 if (i) at the
time of issuance or transfer to or by a 5% shareholder of such interest, such
interest offers a potential significant participation in the growth of the
corporation; (ii) treating such interest as stock would result in an ownership
change; and (iii) the amount of pre-change losses at such time exceeds twice the
Section 382 Limitation at such time. At the time of transfer of the Bonds to
Arnos, the Bonds may be viewed as offering a potential significant participation
in the growth of the Debtors. In such a case, the Bonds may be treated as stock
for purposes of IRC Section 382 and any ownership change of the Debtors would
not qualify under IRC Section 382(1)(5). There can be no assurance that the
Bonds will be treated as debt under IRC Section 382.
Any shift (deemed or actual) in the ownership of stock of the Debtors,
directly or by attribution, outside the scope of the Plan may trigger (or may
have already triggered) the application of IRC Section 382 and other IRC
provisions which may affect the availability of the Debtors' NOLs. Because the
federal income tax consequences of any shift would depend on the particular
facts and circumstances at such time and the application of complex legislation
and regulations, there can be no assurances as to the effect of any transactions
outside the scope of the Plan or the survival of any NOLs or other carryovers.
The charter and the bylaws of the Reorganized Debtor will be amended to prohibit
the transfer of any stock of the Reorganized Debtor to or by any Person who is,
was or would become as a result of such transfer a 5% shareholder within the
meaning of IRC Section 382.
39
<PAGE> 40
3. ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK
No gain or loss will be recognized by the Debtors upon the receipt of
money or Preferred Equity Interest in exchange for the issuance of additional
shares of common stock of the Reorganized Debtor to Arnos, an affiliate or other
Preferred Stockholders pursuant to the Plan.
4. ALTERNATIVE MINIMUM TAX
A corporation's federal income tax liability for a taxable year is
generally the greater of its regular income tax liability or its alternative
minimum tax ("AMT") liability (which is calculated at a 20% tax rate). The
regular corporate tax rate is applied to the corporation's regular taxable
income which may generally be offset by its available NOLs for the taxable year.
In contrast, in calculating alternative minimum taxable income ("AMTI"), NOLs
(as determined for these purposes) may not offset more than 90% of the pre-NOL
AMTI. Thus, if the Debtors have any AMTI, they will be required to pay tax at an
effective rate of 2% of such income (10% of the 20% AMT rate). In addition,
under IRC Section 59A, such AMTI (as adjusted by the rules therein) may be
subject to an environmental tax applicable at the rate of 0.12%.
B. TAX CONSEQUENCES TO HOLDERS OF CLAIMS
Generally, a holder of a Non-Arnos Bondholder Claim will recognize gain
or loss with respect to its Claim to the extent of the difference between the
amount of consideration paid by Arnos and the adjusted tax basis of the Claim. A
holder of any other Claim discharged by the Debtors under the Plan will
generally recognize gain or loss with respect to its Claim to the extent of the
difference between the consideration received by the holder and the adjusted tax
basis of the Claim. In both instances, the amount of the consideration is
generally the sum of any Cash and the fair market value of any property received
by the holder in exchange for the Claim. Subject to the discussion below, a
holder of a Claim will generally recognize capital gain or loss if the Claim was
a capital asset in the hands of such holder and as long-term or short-term gain
or loss depending generally on the length of time the Claim was held. However,
gain recognized by a holder of a Claim who acquired the Claim at a market
discount and who did not elect to include such discount in income currently will
generally be treated as recognizing ordinary income to the extent of any accrued
market discount with respect to such Claim.
With respect to any Allowed Non-Arnos Bondholder Claim, a portion of
the consideration received by a holder may be viewed as attributable to accrued
but unpaid interest. In that event, a holder would recognize ordinary income to
the extent that the consideration received is attributable to interest accrued
during the period the holder held the Allowed Non-Arnos Bondholder Claim and not
previously included in income. The gain (or loss) that a holder would otherwise
recognize with respect to its Claim would decrease (or increase) by the amount
of such recognized ordinary income. A holder that was previously required to
include interest income under its method of accounting would recognize a loss to
the extent that the consideration attributable to such interest is less than the
amount previously included in income
40
<PAGE> 41
by such holder. The Debtors intend to treat the distribution of a beneficial
interest in the Creditors' Trust to a Bondholder as a payment of accrued
interest.
C. TAX CONSEQUENCES TO HOLDERS OF EQUITY INTERESTS
The holders of Class 14 Preferred Equity Interests and Class 15 Common
Equity Interests should not recognize any gain or loss as a result of their
exchange under the Plan of their Equity Interests for shares of new common stock
of the Reorganized Debtor.
THE FOREGOING IS INTENDED TO BE A SUMMARY ONLY AND IS NOT INTENDED AND SHALL NOT
CONSTITUTE A TAX OPINION, TAX ADVICE OR ANY REPRESENTATION OR FORM OF LEGAL
OPINION BY THE DEBTORS AND THEIR COUNSEL REGARDING THE TAX CONSEQUENCES OF
CONFIRMATION AND EXECUTION OF THE PLAN AS TO ANY HOLDER OF A CLAIM OR EQUITY
INTEREST WITH RESPECT TO THE DEBTORS. IT IS NOT A SUBSTITUTE FOR CAREFUL TAX
PLANNING OR CONSULTATION WITH A TAX ADVISOR. THE FEDERAL, STATE, LOCAL, AND
FOREIGN TAX CONSEQUENCES OF THE PLAN ARE COMPLEX AND, IN SOME CASES, UNCERTAIN.
SUCH CONSEQUENCES MAY ALSO VARY BASED UPON THE INDIVIDUAL CIRCUMSTANCES OF EACH
HOLDER OF A CLAIM OR EQUITY INTEREST. ACCORDINGLY, EACH HOLDER OF A CLAIM OR
EQUITY INTEREST IS STRONGLY URGED TO CONSULT SUCH HOLDER'S OWN TAX ADVISOR
REGARDING THE FEDERAL, STATE, LOCAL, AND FOREIGN TAX CONSEQUENCES OF THE PLAN.
VIII. LITIGATION
A. LITIGATION CLAIMS AGAINST NEG
The following is a description of the existing litigation Claims
against NEG. Each of these Claims is provided specific treatment in the Plan.
1. BUCKLES V. NEG
Plaintiff filed suit as a putative class representative on September 5,
1997, in state court in Canadian County, Oklahoma, for allegedly due and unpaid
royalties. NEG filed its answer on September 29, 1997, with an offer of judgment
for $3,000. Proceedings are stayed due to the pendency of the Chapter 11 Cases.
2. SOUTHERLAND V. NEG
Plaintiff filed suit on January 16, 1998, in state court in Harrison
County, Texas, asserting that NEG wells caused damage to the plaintiff's wells.
NEG filed an answer of denial on February 20, 1998. NEG believes that it is
insured for the amount of any loss. Proceedings are stayed due to the pendency
of the Chapter 11 Cases.
41
<PAGE> 42
3. MILTON VAUGHN V. NEG AND EAGLE SERVICES
Plaintiff filed suit on February 10, 1998, in state court in Iberville
Parish, Louisiana, for injuries allegedly suffered in a fall. NEG believes it is
fully insured for any loss in respect of such litigation. An answer was filed on
April 2, 1998. Discovery is pending, and proceedings are stayed due to the
pendency of the Chapter 11 Cases.
4. LANDRY AND DUPREE V. EXXON, PANACO, NEG, ET AL.
Plaintiffs filed suit on August 21, 1998, in state court in Iberville
Parish, Louisiana, for unspecified damages and restoration costs associated with
an oil spill on the plaintiffs' property. NEG believes it is fully insured for
any loss in respect of such litigation. Proceedings are stayed due to the
pendency of the Chapter 11 cases.
B. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Current officers and directors of the Debtors as well as past directors
of the Debtors will continue to be indemnified for actions taken in connection
with their duties for the Debtors. The indemnification does not cover
intentional torts or criminal acts and the Reorganized Debtor's indemnification
is limited to that provided under state law.
C. CAUSES OF ACTION TO BE TRANSFERRED TO THE CREDITORS' TRUST
1. AVOIDANCE ACTIONS
Section 547 of the Bankruptcy Code enables a debtor in possession to
avoid a transfer to a creditor made within ninety days before the petition date
(or within one year before the petition date in the case of a transfer to an
insider) if the transfer was made on account of an antecedent debt and enabled
the creditor to receive more than it would in a liquidation. A creditor has
defenses to the avoidance of such a preferential transfer based upon, among
other things, the transfer's occurring as part of the ordinary course of the
debtor's business or that, subsequent to the transfer, the creditor provided the
debtor with new value. Section 548 of the Bankruptcy Code allows a debtor in
possession to avoid a transfer to a creditor made within one year before the
petition date if (i) the transfer was made with actual intent to hinder, delay,
or defraud other creditors or (ii) the transfer was for less than reasonably
equivalent value and the debtor was insolvent or undercapitalized at the time of
the transfer or became insolvent or undercapitalized as a result of the
transfer.
The Debtors have begun their analysis of payments by the Debtors to
creditors prior to the Petition Date, to determine whether such payments may be
avoidable as preferential or fraudulent transfers. The Debtors are reviewing
files containing payment histories for all operating accounts of the Debtors for
the period September 5, 1998, though December 4, 1998. Based on the Debtors'
analysis of these records, it appears that the Debtors, in the aggregate,
42
<PAGE> 43
made prepetition disbursements in excess of approximately $1.5 million.
This section is intended only as a general description of payments made
within the time period set forth above, and does not constitute an admission of
any fact relevant to a cause of action to avoid a preferential or fraudulent
transfer. Moreover, the payment totals set forth above are preliminary and are
likely to change as the Debtors' analysis of preferences and fraudulent
transfers progresses.
2. D&O AND RELATED LITIGATION
The Creditors' Trustee will be responsible for final evaluation and, if
deemed appropriate, filing, prosecution and/or settlement of such causes of
action. The Committee has already notified the Debtors that the Committee
believes such causes of action may exist. The Debtors believe that any such
causes of action are without merit.
IX. CONFIRMATION OF THE PLAN
A. SOLICITATION OF VOTES; VOTING PROCEDURES
1. BALLOTS AND VOTING DEADLINES
A ballot to be used for voting to accept or reject the Plan, together
with a postage-paid return envelope, is enclosed with all copies of this
Disclosure Statement mailed to all holders of Claims and Equity Interests
entitled to vote. BEFORE COMPLETING YOUR BALLOT, PLEASE READ CAREFULLY THE
INSTRUCTION SHEET THAT ACCOMPANIES THE BALLOT.
The Bankruptcy Court has directed that, in order to be counted for
voting purposes, ballots for the acceptance or rejection of the Plan must be
received no later than 5:00 p.m., Pacific Time, on June 23, 2000, at the
following address:
Poorman-Douglas Corporation
10300 SW Allen Blvd.
Beaverton, Oregon 97005-4833
Attention: Alice Whitfield
Facsimile: 503-350-5230
YOUR BALLOT MAY NOT BE COUNTED IF IT IS RECEIVED AT THE ABOVE ADDRESS
AFTER 5:00 P.M., PACIFIC TIME, ON JUNE 23, 2000.
43
<PAGE> 44
2. PARTIES IN INTEREST ENTITLED TO VOTE
Any holder of a Claim against or Equity Interest in the Debtors at the
date on which the order is entered approving the Disclosure Statement whose
Claim or Equity Interest has not previously been disallowed by the Bankruptcy
Court is entitled to vote to accept or reject the Plan, if such Claim or Equity
Interest is impaired under the Plan and either (i) such holder's Claim or Equity
Interest has been scheduled by the Debtors (and such Claim or Equity Interest is
not scheduled as disputed, contingent, or unliquidated) or (ii) such holder has
filed a proof of claim or proof of interest on or before June 21, 1999, the last
date set by the Bankruptcy Court for such filings. Any Claim or Equity Interest
as to which an objection has been filed is not entitled to vote, unless the
Bankruptcy Court, upon application of the holder to whose Claim or Equity
Interest an objection has been made, temporarily allows such Claim or Equity
Interest in an amount that it deems proper for the purpose of accepting or
rejecting the Plan. Any such application must be heard and determined by the
Bankruptcy Court on or before commencement of the Confirmation Hearing. A vote
may be disregarded if the Bankruptcy Court determines, after notice and a
hearing, that such vote was not solicited or procured in good faith or in
accordance with the provisions of the Bankruptcy Code.
3. DEFINITION OF IMPAIRMENT
As set forth in section 1124 of the Bankruptcy Code, a class of claims
or equity interests is impaired under a plan of reorganization unless, with
respect to each claim or equity interest of such class, the plan:
(a) leaves unaltered the legal, equitable, and contractual rights
of the holder of such claim or equity interest; or
(b) notwithstanding any contractual provision or applicable law
that entitles the holder of a claim or equity interest to
demand or receive accelerated payment of such claim or equity
interest after the occurrence of a default:
(i) cures any such default that occurred before or after
the commencement of the case under the Bankruptcy
Code, other than a default of a kind specified in
section 365(b)(2) of the Bankruptcy Code;
(ii) reinstates the maturity of such claim or interest as
it existed before such default;
(iii) compensates the holder of such claim or interest for
any damages incurred as a result of any reasonable
reliance on such contractual provision or such
applicable law; and
(iv) does not otherwise alter the legal, equitable or
contractual rights to which such claim or interest
entitles the holder of such claim or interest.
44
<PAGE> 45
4. CLASSES IMPAIRED UNDER THE PLAN
The following Classes of Claims and Equity Interests are impaired under
the Plan, and holders of Claims and Equity Interests in such Classes are
entitled to vote to accept or reject the Plan:
Class 1A - Other Priority Claims
Class 1B - BMC Other Priority Claims
Class 2 - Arnos Secured Claim
Class 3 - Kauffman County Secured Claim
Class 4 - Baker Atlas Secured Claim
Class 5A - Other Secured Claims
Class 5B - BMC Secured Claims
Class 6 - Southerland Tort Claims
Class 7 - Intentionally Omitted
Class 8 - Intentionally Omitted
Class 9 - Intentionally Omitted
Class 10 - Bondholder Claims
Class 11A - Trade Claims
Class 11B - BMC Trade Claims
Class 12 - Intercompany Claims
Class 13 - Preferred Equity Interests
Class 14 - Common Equity Interests
Class 15 - BMC Equity Interests
Class 16 - Other Equity Interests
Classes of claims or equity interests that are not "impaired" under a
plan of reorganization are conclusively presumed to have accepted the plan and
thus are not entitled to vote. Accordingly, acceptances of a plan will generally
be solicited only from those persons who hold claims or equity interests in an
impaired class. A class is "impaired" if the legal, equitable, or contractual
rights attaching to the claims or equity interests of that class are modified in
any way under the plan. Modification for purposes of determining impairment,
however, does not include curing defaults and reinstating maturity or payment in
full in cash. All Classes of Claims and Equity Interests are impaired under the
Plan. Administrative Claims, Priority Tax Claims, and Involuntary Gap Claims are
unclassified; their treatment is prescribed by the Bankruptcy Code, and the
holders of such Claims are not entitled to vote on the Plan. Each holder of a
claim in Classes 2, 3, 4, 5A, 5B, 6, 10, 11A, 11B and holders of common equity
interests in Class 14 shall be entitled to vote. Holders of Equity interests in
Classes 13, 15 and 16 are deemed to have rejected the Plan and will not be
solicited to vote. Inter-company claims have been cancelled and Class 12 is
therefore not entitled to vote.
45
<PAGE> 46
5. VOTE REQUIRED FOR CLASS ACCEPTANCE
The Bankruptcy Code defines acceptance of a plan by a class of claims
as acceptance by holders of at least two-thirds in dollar amount, and more than
one-half in number, of the claims of that class which actually cast ballots for
acceptance or rejection of the Plan. Thus, class acceptance takes place only if
at least two-thirds in amount and a majority in number of the holders of claims
voting cast their ballots in favor of acceptance.
The Bankruptcy Code defines acceptance of a plan by a class of equity
interests as acceptance by holders of at least two-thirds in amount of the
equity interests of that class that actually cast ballots for acceptance or
rejection of the plan. Thus, class acceptance takes place only if at least
two-thirds in amount of the holders of equity interests voting cast their
ballots in favor of acceptance.
B. CONFIRMATION HEARING
Section 1128(a) of the Bankruptcy Code requires the Bankruptcy Court,
after notice, to hold a hearing on confirmation of a plan. By order of the
Bankruptcy Court, the Confirmation Hearing has been scheduled for July 7, 2000,
at 9:30 a.m., Central Time, in the United States Bankruptcy Court for the
Northern District of Texas, Dallas Division. The Bankruptcy Court may adjourn
the Confirmation Hearing from time to time without further notice except for an
announcement made at the confirmation hearing or any adjournment thereof.
Section 1128(b) of the Bankruptcy Code provides that any party in
interest may object to confirmation of a plan. Any objection to confirmation of
the Plan must be made in writing and filed with the Bankruptcy Court on or
before June 23, 2000, at the following address:
Clerk of the United States Bankruptcy Court
1100 Commerce Street, Room 12A24
Dallas, Texas 75242-1496
In addition, any such objection must be served upon the following parties,
together with proof of service, on or before June 23, 2000:
<TABLE>
- ------------------------------------------------------------ ---------------------------------------------------------
<S> <C>
National Energy Group, Inc. Patrick J. Neligan, Jr.
Attn: Philip D. Devlin, General Counsel Neligan, Andrews, Bryson & Foley LLP
4925 Greenville Avenue 1700 Pacific Avenue, Suite 2600
Dallas, Texas 75206 Dallas, Texas 75201
- ------------------------------------------------------------ ---------------------------------------------------------
Robert J. Mitchell Alan Forman
767 Fifth Avenue, 47th Floor Berlack, Israels & Libermann, L.L.P.
New York, New York 10153 120 West 45th Street
New York, New York 10036
- ------------------------------------------------------------ ---------------------------------------------------------
</TABLE>
46
<PAGE> 47
<TABLE>
- ------------------------------------------------------------ ---------------------------------------------------------
<S> <C>
Robin E. Phelan George McElreath
Haynes and Boone, LLP Assistant U.S. Trustee
901 Main Street, Suite 3100 1100 Commerce Street, Room 9C60
Dallas, Texas 75202 Dallas, Texas 75242
- ------------------------------------------------------------ ---------------------------------------------------------
Van Oliver
Andrews & Kurth L.L.P.
1717 Main Street, Suite 3700
Dallas, Texas 75201
- ------------------------------------------------------------ ---------------------------------------------------------
</TABLE>
Objections to confirmation of the Plan are governed by Bankruptcy Rule
9014 and the Order Approving Disclosure Statement and Setting Deadline for
Objections. UNLESS AN OBJECTION TO CONFIRMATION IS SERVED AND FILED ON THE
DEBTOR, THROUGH ITS COUNSEL, AND ON THE CREDITORS COMMITTEE COUNSEL BY NO LATER
THAN 5:00 P.M. PACIFIC DAYLIGHT TIME ON JUNE 23, 2000, THE BANKRUPTCY COURT MAY
NOT CONSIDER IT.
C. REQUIREMENTS FOR CONFIRMATION OF A PLAN
At the Confirmation Hearing, the Bankruptcy Court must determine
whether the Bankruptcy Code's requirements for confirmation of the Plan have
been satisfied, in which event the Bankruptcy Court will enter an order
confirming the Plan. As set forth in section 1129 of the Bankruptcy Code, these
requirements are as follows:
1. The plan complies with the applicable provisions of the
Bankruptcy Code.
2. The proponents of the plan complied with the applicable
provisions of the Bankruptcy Code.
3. The plan has been proposed in good faith and not by any
means forbidden by law.
4. Any payment made or promised by the debtors, by the plan
proponents, or by a person issuing securities or acquiring property
under the plan, for services or for costs and expenses in, or in
connection with, the case, or in connection with the plan and incident
to the case, has been approved by, or is subject to the approval of the
Bankruptcy Court as reasonable.
5. (a) (i) The proponent of the plan has disclosed the
identity and affiliations of any individual proposed to serve, after
confirmation of the plan, as a director, officer, or voting trustee of
the debtors, an affiliate of the debtors participating in a joint plan
with the debtors, or a successor to the debtors under the plan; and
47
<PAGE> 48
(ii) the appointment to, or continuance in,
such office of such individual, is consistent with the interests of
creditors and equity security holders and with public policy; and
(b) the proponent of the plan has disclosed the
identity of any insider that will be employed or retained by the
reorganized debtors, and the nature of any compensation for such
insider.
6. Any governmental regulatory commission with jurisdiction,
after confirmation of the plan, over the rates of the debtor has
approved any rate change provided for in the plan, or such rate change
is expressly conditioned on such approval.
7. With respect to each impaired class of claims or interests:
(a) each holder of a claim or interest of such class
has accepted the plan or will receive or retain under the plan on
account of such claim or interest property of a value, as of the
effective date of the plan, that is not less than the amount that such
holder would so receive or retain if the Debtors were liquidated on
such date under chapter 7 of the Bankruptcy Code on such date; or
(b) if section 1111(b)(2) of the Bankruptcy Code
applies to the claims of such class, the holder of a claim of such
class will receive or retain under the plan on account of such claim
property of a value, as of the effective date of the plan, that is not
less than the value of such holder's interest in the estate's interest
in the property that secures such claims.
8. With respect to each class of claims or interests:
(a) such class has accepted the plan; or
(b) such class is not impaired under the plan.
9. Except to the extent that the holder of a particular claim
has agreed to a different treatment of such claim, the plan provides
that:
(a) with respect to a claim of a kind specified in
section 507(a)(1) or 507(a)(2) of the Bankruptcy Code, on the effective
date of the plan, the holder of such claim will receive on account of
such claim cash equal to the allowed amount of such claim;
(b) with respect to a class of claims of a kind
specified in section 507(a)(3), 507(a)(4), 507(a)(5) or 507(a)(6) of
the Bankruptcy Code, each holder of a claim of such class will receive:
48
<PAGE> 49
(a) (i) if such class has accepted the plan,
deferred cash payments of a value, as of the effective date of the
plan, equal to the allowed amount of such claim; or
(ii) if such class has not accepted the
plan, cash on the effective date of the plan equal to the allowed
amount of such claim; and
(c) with respect to a claim of a kind specified in
section 507(a)(7) of the Bankruptcy Code, the holder of a claim will
receive on account of such claim deferred cash payments, over a period
not exceeding six years after the date of assessment of such claim, of
a value, as of the effective date of the plan, equal to the allowed
amount of such claim.
10. If a class of claims is impaired under the plan, at least
one class of claims that is impaired has accepted the plan, determined
without including any acceptance of the plan by any insider holding a
claim of such class.
11. Confirmation of the plan is not likely to be followed by
the liquidation, or the need for further financial reorganization, of
the debtors or any successor to the debtors under the plan, unless such
liquidation or reorganization is proposed in the plan.
12. All fees payable under 28 U.S.C. Section 1930, as
determined by the Bankruptcy Court at the hearing on confirmation of
the plan, have been paid or the plan provides for the payments of all
such fees on the effective date of the plan.
13. The plan provides for the continuation after its effective
date of payment of all retiree benefits, as that term is defined in
section 1114 of the Bankruptcy Code, at the level established pursuant
to subsection (e)(1)(B) or (g) of section 1114, at any time prior to
confirmation of the plan, for the duration of the period the Debtors
has obligated itself to provide such benefits.
The Debtors and Committee believe that the Plan satisfies all the
statutory requirements of chapter 11 of the Bankruptcy Code, that the Debtors
has complied or will have complied with all the requirements of chapter 11, and
that the Plan is proposed in good faith.
The Debtors and Committee believe that holders of all Allowed Claims
and Equity Interests impaired under the Plan will receive payments under the
Plan having a present value as of the Effective Date not less than the amounts
likely to be received if the Debtors were liquidated in a case under chapter 7
of the Bankruptcy Code. At the Confirmation Hearing, the Bankruptcy Court will
determine whether holders of Allowed Claims or Allowed Equity Interests would
receive greater distributions under the Plan than they would receive in a
liquidation under chapter 7.
The Debtors and Committee also believe that the feasibility requirement
for confirmation of the Plan is satisfied by the fact that the Debtors' future
operating revenues will be sufficient to satisfy the Debtors' obligations under
the Plan in addition to supporting sustainable growth of the
49
<PAGE> 50
enterprise. These facts and others demonstrating the confirmability of
the Plan will be shown at the Confirmation Hearing.
D. CRAMDOWN
In the event that any impaired Class of Claims or Equity Interests does
not accept the Plan, the Bankruptcy Court may still confirm the Plan at the
request of the Debtors if, as to each impaired Class which has not accepted the
Plan, the Bankruptcy Court determines that the Plan "does not discriminate
unfairly" and is "fair and equitable" with respect to that Class. A plan of
reorganization "does not discriminate unfairly" within the meaning of the
Bankruptcy Code if no Class receives more than it is legally entitled to receive
for its claims or equity interests.
"Fair and equitable" has different meanings with respect to the
treatment of secured and unsecured claims. As set forth in section 1129(b)(2) of
the Bankruptcy Code, those meanings are as follows:
1. With respect to a class of secured claims, the plan
provides:
(a) (i) that the holders of such claims retain the
liens securing such claims, whether the property subject to such liens
is retained by the Debtors or transferred to another entity, to the
extent of the allowed amount of such claims; and
(ii) that each holder of a claim of such
class receive on account of such claim deferred cash payments totaling
at least the allowed amount of such claim, of a value, as of the
effective date of the plan, of at least the value of such holder's
interest in the estate's interest in such property;
(b) for the sale, subject to section 363(k) of the
Bankruptcy Code, of any property that is subject to the liens securing
such claims, free and clear of such liens, with such liens to attach to
the proceeds of such sale, and the treatment of such liens on proceeds
under clause (a) and (b) of this subparagraph; or
(c) the realization by such holders of the
"indubitable equivalent" of such claims.
2. With respect to a class of unsecured claims, the plan
provides:
(a) that each holder of a claim of such class receive
or retain on account of such claim property of a value, as of the
effective date of the plan, equal to the allowed amount of such claim;
or
(b) the holder of any claim or interest that is
junior to the claims of such class will not receive or retain under the
plan on account of such junior claim or interest any property.
50
<PAGE> 51
3. With respect to a class of equity interests, the plan
provides:
(a) that each holder of an interest of such class
receive or retain on account of such interest property of a value, as
of the effective date of the plan, equal to the greatest of the allowed
amount of any fixed liquidation preference to which such holder is
entitled, any fixed redemption price to which such holder is entitled
or the value of such interest; or
(b) that the holder of any interest that is junior to
the interests of such class will not receive or retain under the plan
on account of such junior interest any property.
In the event that one or more Classes of impaired Claims or Equity
Interests reject the Plan, the Bankruptcy Court will determine at the
Confirmation Hearing whether the Plan is fair and equitable with respect to, and
does not discriminate unfairly against, any rejecting impaired Class of claims
or equity interests. For the reasons set forth above, the Debtors believe the
Plan does not discriminate unfairly against, and is fair and equitable with
respect to, each impaired Class of Claims or Equity Interests.
X. RISK FACTORS
The following is intended as a summary of certain risks associated with
the Plan, but it is not exhaustive and must be supplemented by the analysis and
evaluation made by each holder of a Claim or Equity Interest of the Plan and
this Disclosure Statement as a whole with such holder's own advisors.
A. INSUFFICIENT ACCEPTANCES
For the Plan to be confirmed, each impaired Class of Claims and Equity
Interests is given the opportunity to vote to accept or reject the Plan. With
regard to such impaired voting Classes, the Plan will be deemed accepted by a
Class of impaired Claims if the Plan is accepted by claimants of such Class
actually voting on the Plan who hold at least two-thirds (2/3) in amount and
more than one-half (1/2) in number of the total Allowed Claims of the Class
voted. In addition, the Plan will be deemed accepted by an impaired Class of
Equity Interests if at least two-thirds (2/3) of the holders of Equity Interests
in such Class cast ballots voting to accept the Plan. Only those members of a
Class who vote to accept or reject the Plan will be counted for voting purposes.
The Debtors reserve the right to request confirmation pursuant to the cramdown
provisions in section 1129(b) of the Bankruptcy Code, which will allow
confirmation of the Plan regardless of the fact that a particular Class of
Claims or Equity Interests has not accepted the Plan. However, there can be no
assurance that any impaired Class of Claims under the Plan will accept the Plan
or that the Debtors would be able to use the cramdown provisions of the
Bankruptcy Code for confirmation of the Plan.
51
<PAGE> 52
B. CONFIRMATION RISKS
The following specific risks exist with respect to confirmation of the
Plan:
(i) Any objection to confirmation of the Plan filed by a
member of a Class of Claims or Equity Interests can either prevent
confirmation of the Plan or delay confirmation for a significant period
of time.
(ii) Since the Debtors and Committee may be seeking to obtain
approval of the Plan over the rejection of one or more impaired Classes
of Claims, the cramdown process could delay confirmation.
C. CONDITIONS PRECEDENT
Confirmation of the Plan and occurrence of the Effective Date are
subject to certain conditions precedent that may never occur. The Debtors and
Committee, however, are working diligently with all parties in interest to
ensure that all conditions precedent are satisfied.
XI. ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE PLAN
The Debtors and Committee have evaluated several reorganization
alternatives to the Plan, including the continued operation of the Debtors under
their current operating and debt structures, consummating the Arnos acquisition
transaction as an asset sale under section 363 of the Bankruptcy Code, and the
liquidation of the Debtors. After studying these alternatives, the Debtors and
Committee concluded that the Plan is the best alternative and will maximize
recoveries by holders of Claims, assuming confirmation of the Plan and
consummation of the transactions contemplated by the Plan. The following
discussion provides a summary of the Debtors' analysis leading to its conclusion
that the Plan will provide the highest value to holders of Claims.
A. CONTINUED OPERATION UNDER PREPETITION OPERATING AND DEBT STRUCTURE
The Debtors' pre-Petition Date operating and debt structure provided
insufficient income to meet the Debtor's obligations. As noted above, the
operating losses of the recent past and the uncertainty of achieving future
profits under the existing operating structure, raised substantial doubt
regarding the Debtors' ability to continue as a going concern without a
substantial reorganization.
Accordingly, the Debtors and Committee determined that to continue
operation under their existing operating and debt structure, or implementing the
needed restructuring outside of chapter 11, would not have remedied the
financial problems to which the Debtors were subject.
52
<PAGE> 53
B. SALE ALTERNATIVE
The Bankruptcy Court has approved the sale of certain of the Debtors'
assets to Arnos, and the transaction can be consummated as an asset sale under
section 363 of the Bankruptcy Code. However, Arnos will provide an additional $2
million in cash for unsecured creditors if the transaction is consummated upon
the terms set forth in the Plan. Accordingly, the Debtors and Committee believe
that confirmation and consummation of the Plan will provide at least $2 million
in additional value for unsecured creditors that if the Arnos transaction occurs
as a standalone sale under section 363 of the Bankruptcy Code.
C. LIQUIDATION ALTERNATIVE
The Debtors also have analyzed whether a chapter 7 liquidation of the
assets of the Debtors would be in the best interest of holders of Claims and
Equity Interests. That analysis reflects a liquidation value that is
substantially lower than the value that may be realized through the Plan. The
Debtors believe that liquidation would result in substantial diminution in the
value to be realized by holders of Claims because of (i) the failure to realize
the greater going-concern value of the Debtors' assets; (ii) additional
administrative expenses involved in the appointment of a trustee or trustees,
attorneys, accountants, and other professionals to assist such trustee(s) in the
case of a chapter 7 proceeding); (iii) additional expenses and claims, some of
which would be entitled to priority in payments, which would arise by reason of
the liquidation and from the rejection of leases and other executory contracts
in connection with a cessation of the Debtors' operations; and (iv) the
substantial time which would elapse before creditors would receive any
distribution in respect of their Claims. Consequently, the Debtors believe that
the Plan, which provides for the continuation of the Debtors' core business,
provides a substantially greater return to holders of Claims than would
liquidation.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
53
<PAGE> 54
XII. CONCLUSION
The Debtors and Committee urge holders of Claims to vote to ACCEPT the
Plan and to evidence such acceptance by returning their ballots so that they
will be received by 5:00 p.m., Pacific Time, on June 23, 2000.
Dated: May ___, 2000 NATIONAL ENERGY GROUP, INC.
Dallas, Texas
By:
-------------------------------------
Bob G. Alexander
President and Chief Executive Officer
BOOMER MARKETING CORPORATION
By:
-------------------------------------
Bob G. Alexander
President and Chief Executive Officer
OFFICIAL COMMITTEE OF
UNSECURED CREDITORS
BY:
-------------------------------------
54
<PAGE> 55
EXHIBIT A
PLAN OF REORGANIZATION
<PAGE> 56
EXHIBIT B
CREDITORS' TRUST
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 36,452
<SECURITIES> 332
<RECEIVABLES> 5,456
<ALLOWANCES> 104
<INVENTORY> 138
<CURRENT-ASSETS> 43,542
<PP&E> 330,022
<DEPRECIATION> 270,509
<TOTAL-ASSETS> 104,756
<CURRENT-LIABILITIES> 32,061
<BONDS> 165,000
0
171
<COMMON> 405
<OTHER-SE> (111,120)
<TOTAL-LIABILITY-AND-EQUITY> 104,756
<SALES> 10,721
<TOTAL-REVENUES> 10,721
<CGS> 2,060
<TOTAL-COSTS> 2,060
<OTHER-EXPENSES> 4,147
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (562)
<INCOME-PRETAX> 4,372
<INCOME-TAX> 0
<INCOME-CONTINUING> 4,372
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,372
<EPS-BASIC> 0.11
<EPS-DILUTED> 0.11
</TABLE>
