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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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, 2003
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NO. 0-19136 (COMMON STOCK)
NATIONAL ENERGY GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 58-1922764
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1400 ONE ENERGY SQUARE
4925 GREENVILLE AVENUE
DALLAS, TEXAS 75206
(Address of principal executive offices)
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
(214) 692-9211
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes [ ] No [X]
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [X] No [ ]
11,190,650 shares of the registrant's Common Stock, $0.01 par value, were
outstanding on May 12, 2003.
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NATIONAL ENERGY GROUP, INC.
INDEX
PAGE
NO.
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets at December 31, 2002 and March 31, 2003
(Unaudited)................................................. 2
Statements of Operations for the three months ended March
31, 2002 and 2003 (Unaudited)............................... 3
Statements of Cash Flows for the three months ended March
31, 2002 and 2003 (Unaudited)............................... 4
Statement of Stockholders' Equity (Deficit) for the three
months ended March 31, 2003 (Unaudited)..................... 5
Notes to Financial Statements (Unaudited)................... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 11
Item 3. Quantitative and Qualitative Disclosure about Market Risk... 14
Item 4. Controls and Procedures..................................... 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................... 15
Item 2-5. None........................................................ 15
Item 6. Exhibits and Reports on Form 8-K............................ 15
1
NATIONAL ENERGY GROUP, INC.
BALANCE SHEETS
DECEMBER 31, MARCH 31,
2002 2003
------------- -------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents................................. $ 3,477,250 $ 3,569,424
Accounts receivable -- other.............................. 18,876 --
Accounts receivable -- affiliates......................... 588,122 627,559
Other..................................................... 319,409 302,842
------------- -------------
Total current assets................................. 4,403,657 4,499,825
Investment in NEG Holding LLC............................... 108,879,929 63,934,122
Deferred tax assets......................................... 25,521,738 24,030,757
------------- -------------
Total assets......................................... $ 138,805,324 $ 92,464,704
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable -- trade................................. $ 45,254 $ 87,128
Accrued interest on senior notes.......................... 44,359,805 6,657,705
------------- -------------
Total current liabilities............................ 44,405,059 6,744,833
Long term liabilities:
Credit facility........................................... 10,939,750 --
Senior notes.............................................. 148,637,000 148,637,000
Deferred gain on senior note redemption................... 7,812,699 7,303,175
Commitments and contingencies
Stockholders' equity (deficit):
Common stock, $.01 par value:
Authorized shares -- 15,000,000 at December 31, 2002
and March 31, 2003; Issued and outstanding
shares -- 11,190,650 at December 31, 2002 and March
31, 2003............................................. 111,907 111,907
Additional paid-in capital................................ 123,020,121 123,020,121
Accumulated deficit....................................... (196,121,212) (193,352,332)
------------- -------------
Total stockholders' equity (deficit)................. (72,989,184) (70,220,304)
------------- -------------
Total liabilities and stockholders' equity
(deficit)......................................... $ 138,805,324 $ 92,464,704
============= =============
See accompanying notes to financial statements.
2
NATIONAL ENERGY GROUP, INC.
STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31,
-----------------------------
2002 2003
------------- -------------
(UNAUDITED)
Revenues:
Accretion of Investment in NEG Holding LLC................ $ 7,854,820 $ 8,750,320
Management fee............................................ 1,988,384 1,873,338
----------- -----------
Total revenue........................................ 9,843,204 10,623,658
Cost and expenses:
General and administrative................................ 1,822,237 1,712,375
----------- -----------
Total costs and expenses............................. 1,822,237 1,712,375
----------- -----------
Operating income............................................ 8,020,967 8,911,283
Other income (expense):
Interest expense.......................................... (4,754,518) (4,659,620)
Interest income and other, net............................ 5,606 8,198
----------- -----------
Income before income taxes.................................. 3,272,055 4,259,861
Income tax expense.......................................... (1,145,006) (1,490,981)
----------- -----------
Net income.................................................. $ 2,127,049 $ 2,768,880
=========== ===========
Earnings per common share:
Net income per common share............................... $ .19 $ .25
=========== ===========
Weighted average number of common shares outstanding........ 11,190,650 11,190,650
=========== ===========
See accompanying notes to financial statements.
3
NATIONAL ENERGY GROUP, INC.
STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31,
----------------------------
2002 2003
------------ -------------
(UNAUDITED)
Operating Activities:
Net income................................................ $ 2,127,049 $ 2,768,880
Adjustments to reconcile net income to net cash provided
by operating activities:
Accretion of Investment in NEG Holding LLC........... (7,854,820) (8,750,320)
Deferred gain amortization........................... (509,524) (509,524)
Deferred income tax expense.......................... 1,145,006 1,490,981
Changes in operating assets and liabilities:
Accounts receivable............................... 505,472 (20,561)
Other current assets.............................. 15,759 16,567
Accounts payable and accrued liabilities.......... 5,071,047 5,096,151
----------- ------------
Net cash provided by operating activities....... 499,989 92,174
----------- ------------
Investing Activities:
Priority distribution from NEG Holding LLC................ -- 40,506,071
Guaranteed payment from NEG Holding LLC................... -- 2,250,306
----------- ------------
Net cash provided by investing activities......... -- 42,756,377
----------- ------------
Financing Activities -- Repayment of Reinstated Interest.... -- (42,756,377)
----------- ------------
Increase in cash and cash equivalents....................... 499,989 92,174
Cash and cash equivalents and beginning of period........... 3,090,361 3,477,250
----------- ------------
Cash and cash equivalents at end of period.................. $ 3,590,350 $ 3,569,424
=========== ============
Supplemental cash flow information
Interest paid in cash..................................... $ 184,684 $ 42,871,244
=========== ============
Non-cash financing and investing activities
Distribution of note from NEG Holding LLC................. $ -- $ 10,939,750
=========== ============
See accompanying notes to financial statements.
4
NATIONAL ENERGY GROUP, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
COMMON STOCK TOTAL
--------------------- ADDITIONAL ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT PAID-IN CAPITAL DEFICIT EQUITY (DEFICIT)
---------- -------- --------------- ------------- ----------------
(UNAUDITED)
Balance at December 31,
2002..................... 11,190,650 $111,907 $123,020,121 $(196,121,212) $(72,989,184)
Net income............... -- -- -- 2,768,880 2,768,880
---------- -------- ------------ ------------- ------------
Balance at March 31,
2003..................... 11,190,650 $111,907 $123,020,121 $(193,352,332) $(70,220,304)
========== ======== ============ ============= ============
See accompanying notes to financial statements.
5
NATIONAL ENERGY GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 2003
1. SETTLEMENT OF BANKRUPTCY CASE AND FORMATION OF LIMITED LIABILITY COMPANY
National Energy Group, Inc. (the "Company") was incorporated under the laws
of the State of Delaware on November 20, 1990. Effective June 11, 1991, Big
Piney Oil and Gas Company and VP Oil, Inc. merged with and into the Company. On
August 29, 1996, Alexander Energy Corporation was merged with and into a
wholly-owned subsidiary of the Company, which subsidiary was merged with and
into the Company on December 31, 1996.
On February 11, 1999, the United States Bankruptcy Court for the Northern
District of Texas, Dallas Division ("Bankruptcy Court") entered an involuntary
petition placing the Company under protection of the Bankruptcy Court pursuant
to Title 11, Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy
Proceeding"). On July 24, 2000, the Bankruptcy Court entered a subsequent order
confirming a Plan of Reorganization (the "Plan of Reorganization") jointly
proposed by the Company and the official committee of unsecured creditors, which
Plan of Reorganization became effective on August 4, 2000. The Bankruptcy Court
issued a final decree closing the case effective December 13, 2001. Accordingly,
the Company has effectively settled all matters relating to the Bankruptcy
Proceeding.
As mandated by the Plan of Reorganization and the Bankruptcy Court, NEG
Holding LLC ("Holding LLC"), a Delaware limited liability company, was formed in
August 2000. In exchange for an initial 50% membership interest in Holding LLC,
on September 12, 2001, but effective as of May 1, 2001, the Company contributed
to Holding LLC all of its operating assets and oil and natural gas properties
excluding cash of $4.3 million ("LLC Contribution"). In exchange for its initial
50% membership interest in Holding LLC, Gascon Partners, an affiliate of the
Company's largest stockholder ("Gascon"), contributed its sole membership
interest in Shana National LLC, an oil and natural gas producing company, and
cash, including a $10.9 million Revolving Note issued to Arnos Corp., an
affiliate of the Company's largest stockholder ("Arnos"), evidencing the
borrowings under the Company's revolving credit facility. In connection with the
foregoing, Holding LLC initially owns 100% of the membership interest in NEG
Operating LLC ("Operating LLC"), a Delaware limited liability company. All of
the oil and natural gas assets contributed by the Company and all of the oil and
natural gas assets associated with Gascon's contribution to Holding LLC were
transferred from Holding LLC to Operating LLC on September 12, 2001, effective
as of May 1, 2001.
The assets contributed by the Company to Holding LLC were current assets of
$11.5 million, net oil and natural gas assets of $85.0 million and other assets
of $4.8 million. The liabilities assumed by Holding LLC were current liabilities
of $4.2 million, intercompany payable to Gascon of $4.8 million and long-term
liabilities of $1.0 million.
The Holding LLC Operating Agreement entered into on September 12, 2001,
contains a provision that allows Gascon at any time, in its sole discretion, to
redeem the Company's membership interest in Holding LLC at a price equal to the
fair market value of such interest determined as if Holding LLC had sold all of
its assets for fair market value and liquidated. Since all of the Company's
operating assets and oil and natural gas properties have been contributed to
Holding LLC, as noted above, following such a redemption, the Company's
principal assets would consist solely of its cash balances. In the event that
such redemption right is exercised by Gascon, the Company may be obligated to
use the proceeds that it would receive for its redeemed membership interest to
pay outstanding indebtedness and operating expenses before the distribution of
any portion of such proceeds to the Company's stockholders. Following the
payment of the Company's indebtedness (currently held by entities owned or
controlled by Carl C. Icahn) and its operating expenses, there is a substantial
risk that there will be no proceeds remaining for distribution to the Company's
stockholders.
6
NATIONAL ENERGY GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
As a result of the foregoing transactions and as mandated by the Plan of
Reorganization effective September 12, 2001, the Company's principal assets were
its remaining cash balances, accounts receivable from affiliates, deferred tax
asset, and its initial 50% membership interest in Holding LLC, and its principal
liabilities were the $10.9 million outstanding under its existing $100 million
revolving credit facility with Arnos and its 10 3/4% Senior Notes ("Senior
Notes") and long-term interest payable on Senior Notes. None of the Company's
employees were transferred to Holding LLC or Operating LLC.
On March 26 2003, NEG Holding LLC distributed the $10.9 million note
outstanding under the Company's revolving credit facility, as a priority
distribution to the Company thereby canceling the note. Also, on March 26, 2003
the Company, Arnos and Operating LLC entered into an agreement to assign the
credit facility to Operating LLC.
As a result of the terms and conditions of the various agreements related
to the repayment of the Company's indebtedness and repayment of the priority
distribution amounts and the guaranteed payments (plus accrued interest thereon)
to Gascon, there is a substantial risk that there will be no amounts remaining
for distribution to the Company's stockholders.
The Company remains highly leveraged after confirmation of the Plan of
Reorganization.
2. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America for interim financial information, and with the instructions to Form
10-Q and Article 10 of Regulation S-X and are fairly presented. 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 financial statements of the Company for
the year ended December 31, 2002 (including the notes thereto), set forth in the
Company's Annual Report on Form 10-K.
The results of operations for the three months ended March 31, 2003, are
not necessarily indicative of the results expected for the full year. Certain
prior year amounts have been reclassified to correspond with the current
presentation.
3. MANAGEMENT AGREEMENT
The management and operation of Operating LLC is being undertaken by the
Company pursuant to a Management Agreement (the "Management Agreement") which
the Company has entered into with Operating LLC. However, neither the Company's
officers nor directors will control the strategic direction of Operating LLC's
oil and natural gas business including oil and natural gas drilling and capital
investments, which shall be controlled by the managing member of Holding LLC
(currently Gascon). The Management Agreement provides that the Company will
manage Operating LLC's oil and natural gas assets and business until the earlier
of November 1, 2006, or such time as Operating LLC no longer owns any of the
managed oil and natural gas properties. The Company's employees will conduct the
day-to-day operations of Operating LLC's oil and natural gas properties, and all
costs and expenses incurred in the operation of the oil and natural gas
properties shall be borne by Operating LLC; although the Management Agreement
provides that the salary of the Company's Chief Executive Officer shall be 70%
attributable to the managed oil and natural gas properties, and the salaries of
each of the General Counsel and Chief Financial Officer shall be 20%
7
NATIONAL ENERGY GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
attributable to the managed oil and natural gas properties. In exchange for the
Company's management services, Operating LLC shall pay the Company a management
fee equal to 115% of the actual direct and indirect administrative and
reasonable overhead costs incurred by the Company in operating the oil and
natural gas properties, which either the Company or Operating LLC may seek to
change within the range of 110%-115% as such change is warranted; however, the
parties have agreed to consult with each other to ensure that such
administrative and reasonable overhead costs attributable to the managed
properties are properly reflected in the management fee paid to the Company. In
addition, Operating LLC has agreed to indemnify the Company to the extent it
incurs any liabilities in connection with its operation of the assets and
properties of Operating LLC, except to the extent of its gross negligence, or
misconduct. The Company recorded $1.9 million as a management fee for the three
month period ended March 31, 2003.
4. CREDIT FACILITIES
At December 31, 2002, the Company had $10.9 million outstanding under its
existing $100 million credit facility with Arnos. Arnos continued to be the
holder of the credit facility; however, the $10.9 million note outstanding under
the credit facility was contributed to Holding LLC as part of Gascon's
contribution to Holding LLC on September 12, 2001. In December 2001, the
maturity date of the credit facility was extended to December 31, 2003 and the
Company was given a waiver of compliance with respect to any and all covenant
violations. The Company was not in compliance with the minimum interest coverage
ratio at September 30, 2002 and December 31, 2002 and the current ratio at
December 31, 2002, however, in December 2001 the Company was given a waiver of
compliance with respect to any and all covenant violations through December 31,
2003.
On March 26, 2003, NEG Holding LLC distributed the $10.9 million note
outstanding under the Company's revolving credit facility, as a priority
distribution to the Company thereby canceling the note. Also, on March 26, 2003
the Company, Arnos and Operating LLC entered into an agreement to assign the
credit facility to Operating LLC. Effective with this assignment, Arnos amended
the credit facility to increase the revolving commitment to $150 million,
increase the borrowing base to $75 million and extend the revolving due date
until June 30, 2004. Concurrently, Arnos extended a $42.8 million loan to
Operating LLC under the amended credit facility; Operating LLC then distributed
$42.8 million to Holding LLC who, thereafter, made a $40.5 million priority
distribution and a $2.3 million guaranteed payment to the Company. The Company
utilized these funds to pay a portion of the interest payable on the Senior
Notes and interest accrued thereon outstanding on March 27, 2003.
5. SENIOR NOTES DUE 2006
Upon confirmation of the Joint Plan, the Senior Notes are held in their
entirety by Arnos and its affiliates. The Senior Notes bear interest at an
annual rate of 10 3/4%, payable semiannually in arrears on May 1 and November 1
of each year. The Senior Notes are senior, unsecured obligations of the Company,
ranking pari passu with all existing and future senior indebtedness of the
Company, and senior in right of payment to all future subordinated indebtedness
of the Company. Subject to certain limitations set forth in the indenture
covering the Senior Notes (the "Indenture"), the Company and its subsidiaries
may incur additional senior indebtedness and other indebtedness.
The Indenture contains certain covenants limiting the Company with respect
to the following: (i) asset sales; (ii) restricted payments; (iii) the
incurrence of additional indebtedness and the issuance of certain redeemable
preferred stock; (iv) liens; (v) sale and leaseback transactions; (vi) lines of
business; (vii) dividend and other payment restrictions affecting subsidiaries;
(viii) mergers and consolidations; and (ix) transactions with affiliates.
8
NATIONAL ENERGY GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. INVESTMENT IN NEG HOLDING LLC
As explained below, the Company's investment in NEG Holding LLC is recorded
as a preferred investment. The initial investment was recorded at historical
carrying value of the net assets contributed with no gain or loss recognized on
the transfer.
The following is a summary balance sheet of NEG Holding LLC as of December
31, 2002 and March 31, 2003.
DECEMBER 31, MARCH 31,
2002 2003
------------ ------------
Current assets........................................... $ 42,126,407 $ 38,514,078
Net oil and natural gas properties....................... 168,334,114 174,227,670
Net other property and equipment......................... 1,322,745 1,285,578
Other long-term assets................................... 10,954,103 14,353
------------ ------------
Total assets............................................. $222,737,369 $214,041,679
============ ============
Current liabilities...................................... $ 20,927,227 $ 15,443,049
Long-term liabilities.................................... 1,968,248 47,713,603
Members' equity.......................................... 199,841,894 150,885,027
------------ ------------
Total liabilities and members' equity.................... $222,737,369 $214,041,679
============ ============
The following is a summary income statement for NEG Holding LLC for the
three months ended March 31, 2002 and 2003.
2002 2003
---------- -----------
Total revenues.............................................. $7,410,997 $19,501,176
Total cost and expenses..................................... 7,131,437 11,743,436
---------- -----------
Operating income............................................ 279,560 7,757,740
Interest income and other................................... 7,749,700 (4,930,185)
---------- -----------
Income before cumulative effect of change in accounting
principle................................................. 8,029,260 2,827,555
Cumulative effect of change in accounting principle......... -- 1,911,705
---------- -----------
Net income.................................................. $8,029,260 $ 4,739,260
========== ===========
For the three month period ended March 31, 2003, NEG Holding LLC generated
cash flows of $2.8 million from operating activities, used $49.1 million in
investing activities and generated cash flows from financing activities of $42.8
million. Audited financials will be prepared and included in the Company's Form
10-K at December 31, 2003.
Under the Holding LLC Operating Agreement, the Company is to receive
guaranteed payments in addition to a priority distribution amount of $202.2
million before Gascon receives any monies. The priority distribution is to be
made on or before November 1, 2006. Guaranteed payments are to be paid, on a
semi annual basis, based on an annual interest rate of 10.75% of the outstanding
priority distribution amount. After the payments to the Company, Gascon is to
receive distributions equivalent to the priority distribution amount and
guaranteed payments plus other amounts as defined. Following the above
distributions to the Company and Gascon, additional distributions, if any, are
to be made in accordance with their respective capital accounts. The order of
distributions is listed below. Because of the substantial uncertainty that the
Company will receive any distributions above the priority and guaranteed payment
amounts, the Company will account for its investment in Holding LLC as a
preferred investment whereby guaranteed payment amounts received
9
NATIONAL ENERGY GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
and receipts of the priority distribution amount are recorded as reductions in
the investment, and income is recognized from accretion of the investment up to
the priority distribution amount including the guaranteed payments (based on the
interest method) and the residual interest attributable to Holding LLC will be
valued at zero.
This method of accounting results in the recognition of income to November
1, 2006 equivalent to the difference between the original contribution amount of
$91.4 million and the remaining priority distribution amount of $148.6 million.
As a result, the investment will accrete (increase) towards the priority
distribution amount. The residual interest attributable to the Company's
investment in Holding LLC has been valued at zero because of the substantial
uncertainty that the Company will receive any future distributions in excess of
the priority distribution and the guaranteed payments.
The distributions from Holding LLC to the Company made during the first
quarter of 2003 have been accounted for as reductions in the investment. These
distributions will reduce future accretion revenue.
The Holding LLC Operating Agreement requires that (provided full payment of
all outstanding guaranteed payments has been made) distributions shall be made
to both the Company and Gascon as follows:
- First and through November 1, 2006, to the Company in an amount equal to
the Company's initial priority amount of $202.2 million minus any
distributions previously made to the Company.
- Second, to Gascon in an amount equal to the excess of (a) the sum of (i)
the Company's initial priority amount of $202.2 million, (ii) any
additional capital contributions made by Gascon, (iii) the aggregate sum
of all Guaranteed Payments, and (iv) an amount equal to the Accrued
Gascon Amount (which, under the Holding LLC Operating Agreement, means an
amount equal to the aggregate of interest that would be computed annually
if interest were imposed at a rate equal to the prime rate plus 1/2% as
of the close of each fiscal year on the excess of (a) the sum of (i) the
cumulative Guaranteed Payments and (ii) the aggregate of any Accrued
Gascon Amount computed in prior years, over (b) the cumulative
distributions by Holding LLC to Gascon), over (b) distributions
previously made to Gascon pursuant to this provision in the Holding LLC
Operating Agreement.
- Third, to the Company and Gascon in accordance with their then respective
Capital Accounts.
7. INCOME TAXES
At December 31, 2002, the Company had net operating loss carryforwards
available for federal income tax purposes of approximately $101.3 million which
begin expiring in 2003. Utilization of approximately $27.6 million of the net
operating loss carryforwards is subject to various limitations because of
previous changes in control of ownership (as defined in the Internal Revenue
Code) of the Company and Alexander Energy. Additional net operating loss
limitations may be imposed as a result of subsequent changes in stock ownership
of the Company. Prior to the formation of Holding LLC, the income tax benefit
associated with the loss carryforwards had not been recognized since, in the
opinion of management, there was not sufficient positive evidence of future
taxable income to justify recognition of a benefit. Upon the formation of
Holding LLC, management again evaluated all evidence, both positive and
negative, in determining whether a valuation allowance to reduce the carrying
value of deferred tax assets was still needed and concluded, based on the
projected allocations of taxable income by Holding LLC, the Company more likely
than not will realize a partial benefit from the loss carryforwards.
Accordingly, the Company recorded a deferred tax asset of $31.9 million in
September 2001, $24.0 million as of March 31, 2003. Ultimate realization of the
deferred tax asset is dependent upon, among other factors, the Company's ability
to generate sufficient taxable income within the carryforward periods and is
subject to change depending on the tax laws in effect in the years in which the
carryforwards are used. As a result of the recognition of expected future income
tax benefits, subsequent periods will reflect a full effective tax rate
provision.
10
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 "Selected Financial Data" and respective notes thereto,
included elsewhere herein. The information below should not be construed to
imply that the results discussed herein will necessarily continue into the
future or that any conclusion reached herein will necessarily be indicative of
actual operating results in the future. Such discussion only represents the best
present assessment by management of the Company.
On February 11, 1999, the United States Bankruptcy Court for the Northern
District of Texas, Dallas Division ("Bankruptcy Court") entered an involuntary
petition placing the Company under protection of the Bankruptcy Court pursuant
to Title 11, Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy
Proceeding"). On July 24, 2000 the Bankruptcy Court entered a subsequent order
confirming a Plan of Reorganization (the "Plan of Reorganization") jointly
proposed by the Company and the official committee of unsecured creditors, which
Plan of Reorganization became effective on August 4, 2000. The Bankruptcy Court
issued a Final Decree closing the case effective December 13, 2001. Accordingly,
the Company has effectively settled all matters relating to the Bankruptcy
Proceeding.
As mandated by the Plan of Reorganization and the Bankruptcy Court, NEG
Holding LLC ("Holding LLC"), a Delaware limited liability company, was formed in
August 2000. In exchange for an initial 50% membership interest in Holding LLC,
on September 12, 2001, but effective as of May 1, 2001, the Company contributed
to Holding LLC all of its operating assets and oil and natural gas properties
excluding cash of $4.3 million. In exchange for its initial 50% membership
interest in Holding LLC, Gascon Partners, an entity owned or controlled by Carl
C. Icahn, the Company's largest stockholder ("Gascon"), contributed its sole
membership interest in Shana National LLC, an oil and natural gas producing
company, and cash, including a $10.9 million Revolving Note issued to Arnos
Corp., an entity owned or controlled by Carl C. Icahn, the Company's largest
stockholder ("Arnos"), evidencing the borrowings under the Company's revolving
credit facility. In connection with the foregoing, Holding LLC initially owns
100% of the membership interest in NEG Operating LLC ("Operating LLC"), a
Delaware limited liability company. All of the oil and natural gas assets
contributed by the Company and all of the oil and natural gas assets associated
with Gascon's contribution to Holding LLC were transferred from Holding LLC to
Operating LLC on September 12, 2001, effective as of May 1, 2001.
Pursuant to the Holding LLC Operating Agreement, the Company is to receive
guaranteed payments, in addition to a priority distribution amount of $202.2
million before Gascon receives any monies. It is anticipated that the priority
distribution amount of $202.2 million will be used by the Company to pay off the
Company's indebtedness (currently held by entities owned or controlled by Carl
C. Icahn). The priority distribution is to be made on or before November 1,
2006. Guaranteed payments are to be paid on a semi annual basis, based on 10.75%
of the outstanding priority distribution amount. The guaranteed payments are
expected to be sufficient to make the interest payments on the Senior Notes
until their due date of 2006. After the payments to the Company, Gascon is to
receive distributions equivalent to the priority distribution amount and
guaranteed payments plus other amounts as defined in the NEG Holding LLC
Operating Agreement referred herein. Following the above distributions to the
Company and Gascon, additional distributions, if any, are to be made in
accordance with their respective capital accounts. Because of the substantial
uncertainty that the Company will receive any distributions above the priority
and guaranteed payment amounts, the Company accounts for its investment in
Holding LLC as a preferred investment whereby guaranteed payment amounts
received and receipts of the priority distribution amount are recorded as
reductions in the investment and income is recognized from accretion of the
investment up to the priority distribution amount, including the guaranteed
payments (based on the interest method), and the residual interest attributable
to Holding LLC will be valued at zero. Cash receipts, if any, from the residual
interest will be reported in income as earned. In March 2003, Holding LLC made a
priority distribution of $51.4 million to the Company, consisting of $40.5
million in cash and the $10.9 million note outstanding under the credit
facility. The Company utilized these funds to repay the long-term interest
payable on the Senior Notes.
The Holding LLC Operating Agreement entered into on September 12, 2001,
contains a provision that allows Gascon at any time, in its sole discretion, to
redeem the Company's membership interest in Holding
11
LLC at a price equal to the fair market value of such interest determined as if
Holding LLC had sold all of its assets for fair market value and liquidated.
Since all of the Company's operating assets and oil and natural gas properties
have been contributed to Holding LLC, as noted above, following such a
redemption, the Company's principal assets would consist solely of its cash
balances. In the event that such redemption right is exercised by Gascon, the
Company may be obligated to use the proceeds that it would receive for its
redeemed membership interest to pay outstanding indebtedness and operating
expenses before the distribution of any portion of such proceeds to the
Company's stockholders. Following the payment of the Company's indebtedness
(currently held by entities owned or controlled by Carl C. Icahn) and its
operating expenses, there is a substantial risk that there will be no proceeds
remaining for distribution to the Company's stockholders. It is the present
intention of Holding LLC to continue to conduct oil and natural gas drilling and
development activities in the ordinary course of business and to seek additional
reserves.
The management and operation of Operating LLC is being undertaken by the
Company pursuant to a Management Agreement (the "Management Agreement") which
the Company has entered into with Operating LLC. However, neither the Company's
officers nor directors will control the strategic direction of Operating LLC's
oil and natural gas business, including oil and natural gas drilling and capital
investments, which shall be controlled by the managing member of Holding LLC
(currently Gascon). The Management Agreement provides that the Company will
manage Operating LLC's oil and natural gas assets and business until the earlier
of November 1, 2006, or such time as Operating LLC no longer owns any of the
managed oil and natural gas properties. The Company's employees will conduct the
day-to-day operations of Operating LLC's oil and natural gas properties, and all
costs and expenses incurred in the operation of the oil and natural gas
properties shall be borne by Operating LLC; although the Management Agreement
provides that the salary of the Company's Chief Executive Officer shall be 70%
attributable to the managed oil and natural gas properties, and the salaries of
each of the General Counsel and Chief Financial Officer shall be 20%
attributable to the managed oil and natural gas properties. In exchange for the
Company's management services, Operating LLC shall pay the Company a management
fee equal to 115% of the actual direct and indirect administrative and
reasonable overhead costs incurred by the Company in operating the oil and
natural gas properties, which either the Company or Operating LLC may seek to
change within the range of 110%-115% as such change is warranted; however, the
parties have agreed to consult with each other to ensure that such
administrative and reasonable overhead costs attributable to the managed
properties are properly reflected in the management fee paid to the Company. In
addition, Operating LLC has agreed to indemnify the Company to the extent it
incurs any liabilities in connection with its operation of the assets and
properties of Operating LLC, except to the extent of its gross negligence, or
misconduct. The Company recorded $1.9 million as a management fee for the three
month period ended March 31, 2003.
As a result of the foregoing transactions and as mandated by the Plan of
Reorganization effective September 12, 2001, the Company's principal assets were
its remaining cash balances, accounts receivable from affiliates, deferred tax
asset and its initial 50% membership interest in Holding LLC, and its principal
liabilities were the $10.9 million outstanding under its existing $100 million
revolving credit facility with Arnos and its 10 3/4% Senior Notes and long-term
interest payable on Senior Notes. None of the Company's employees were
transferred to Holding LLC or Operating LLC.
On March 26, 2003, NEG Holding LLC distributed the $10.9 million note
outstanding under the Company's revolving credit facility, as a priority
distribution to the Company thereby canceling the note. Also, on March 26, 2003
the Company, Arnos and Operating LLC entered into an agreement to assign the
credit facility to Operating LLC.
As a result of the terms and conditions of the various agreements related
to the repayment of the Company's indebtedness and repayment of the priority
distribution amounts and the guaranteed payments (plus accrued interest thereon)
to Gascon, there is a substantial risk that there will be no amounts remaining
for distribution to the Company's stockholders.
Although the Company is highly leveraged following confirmation of the Plan
of Reorganization, the Company expects that cash flows from guaranteed payments,
priority distributions and management fees will be sufficient to fund its
operations and debt service. However, no assurances can be given that Holding
LLC
12
will generate sufficient cash flows to make these payments and in that event,
the Company would not be able to meet its obligations.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2002, COMPARED WITH THREE MONTHS ENDED MARCH 31,
2003
Revenues. Total revenues increased $.8 million (8.2%) from $9.8 million
for the first quarter of 2002 to $10.6 million for the first quarter of 2003.
Total revenues increased due to the increase in accretion of investment in
Holding LLC.
General and administrative costs decreased $.1 million (5.5%) from $1.8
million for the three months ended March 31, 2002 to $1.7 million for the same
period in 2003.
Other Income and Expenses. The $.1 million decrease in interest expense
from $4.8 million for the three months ended March 31, 2002 to $4.7 million for
the same period in 2003 was due primarily to the repayment of the long-term
interest payable. The weighted average interest rate for the three months ended
March 31, 2002 was 9.46% compared to 9.27% for the same period in 2003.
Income Taxes. As of December 31, 2002, the Company estimates it has net
operating loss carryforwards available for federal income tax purposes of
approximately $101.3 million which begin expiring in 2003. The Company recorded
a deferred tax asset of $25.5 million and $24.0 million as of December 31, 2002
and March 31, 2003, respectively, based upon the projected allocations of
taxable income by Holding LLC. Ultimate realization of the deferred tax asset is
dependent upon, among other factors, the Company's ability to generate
sufficient taxable income within the carryforward periods and is subject to
change depending on the tax laws in effect in the years in which the
carryforwards are used. As a result of the recognition of expected future income
tax benefits, subsequent periods will reflect a full effective tax rate
provision. The Company recorded deferred income tax expense of $1.5 million for
the three months ended March 31, 2003.
LIQUIDITY AND CAPITAL RESOURCES
THREE MONTHS ENDED MARCH 31, 2002, COMPARED WITH THREE MONTHS ENDED MARCH 31,
2003
Net cash provided by operating activities was $.5 million for 2002,
compared to $.01 million for 2003. The decrease in cash flows from operating
activities is primarily due to the timing of management fee payments by
Operating LLC. The cash received from the guaranteed payments is on a
semi-annual basis computed at 10.75% of the outstanding priority distribution
amount. The guaranteed payments are expected to be sufficient to make the
interest payments on the Senior Notes until their due date of 2006.
Net cash provided by investing activities was $42.8 million for 2003 and
consisted of the $40.5 million priority distribution and the $2.3 million
guaranteed payment received from NEG Holding LLC. There were no investing
activities in 2002.
Net cash used in financing activities was $42.8 million in 2003 and
consisted of repayment of a portion of the interest payable on the Senior Notes.
There were no financing activities in 2002.
FUTURE CAPITAL AND FINANCING REQUIREMENTS
Although the Company is highly leveraged following confirmation of the Plan
of Reorganization, the Company expects that cash flows from guaranteed payments,
priority distributions and management fees will be sufficient to fund its
operations and debt service. However, no assurances can be given that Holding
LLC will generate sufficient cash flows to make these payments and in that
event, the Company would not be able to meet its obligations.
Upon confirmation of the Joint Plan, the Senior Notes are held in their
entirety by Arnos and its affiliates. The Senior Notes bear interest at an
annual rate of 10 3/4%, payable semiannually in arrears on May 1 and November 1
of each year. The Senior Notes are senior, unsecured obligations of the Company,
ranking pari passu with all existing and future senior indebtedness of the
Company, and senior in right of payment to all
13
future subordinated indebtedness of the Company. Subject to certain limitations
set forth in the indenture covering the Senior Notes (the "Indenture"), the
Company and its subsidiaries may incur additional senior indebtedness and other
indebtedness.
The Indenture contains certain covenants limiting the Company with respect
to the following: (i) asset sales; (ii) restricted payments; (iii) the
incurrence of additional indebtedness and the issuance of certain redeemable
preferred stock; (iv) liens; (v) sale and leaseback transactions; (vi) lines of
business; (vii) dividend and other payment restrictions affecting subsidiaries;
(viii) mergers and consolidations; and (ix) transactions with affiliates.
The following table is a summary of contractual obligations as of March 31,
2003.
2003 2004 2005 2006
----------- ----------- ----------- ------------
Senior Notes.................... $ -- $ -- $ -- $148,637,000
Interest payments............... 15,978,478 15,978,478 15,978,478 14,646,938
Rent............................ 447,096 596,128 596,128 596,128
----------- ----------- ----------- ------------
Total......................... $16,425,574 $16,574,606 $16,574,606 $163,880,066
=========== =========== =========== ============
RECENT ACCOUNTING PRONOUNCEMENTS
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness to Others, an interpretation of FASB Statements No.
5, 57 and 107 and a rescission of FASB Interpretation No. 34". This
Interpretation elaborates on the disclosures to be made by a guarantor in its
interim and annual financial statements about its obligations under guarantees
issued. The Interpretation also clarifies that a guarantor is required to
recognize, at inception of a guarantee, a liability for the fair value of the
obligation undertaken. The initial recognition and measurement provisions of the
Interpretation are applicable to guarantees issued or modified after December
31, 2002 and are not expected to have a material effect on the Company's
financial statements. The disclosure requirements are effective for financial
statements of interim and annual periods ending after December 31, 2002.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities, an interpretation of ARB No. 51". This
Interpretation addresses the consolidation by business enterprises of variable
interest entities as defined in the Interpretation. The Interpretation applies
immediately to variable interests in variable interest entities created after
January 31, 2003, and to variable interests in variable interest entities
obtained after January 31, 2003. The application of this Interpretation is not
expected to have a material effect on the Company's financial statements. The
Interpretation requires certain disclosures in financial statements issued after
January 31, 2003 if it is reasonably possible that the Company will consolidate
or disclose information about variable interest entities when the Interpretation
becomes effective. The Company is currently evaluating the impact of the
adoption of Interpretation No. 46.
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, 2002 and 2003.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
In the past, the Company utilized various derivative instruments,
principally to control risk related to future oil and natural gas prices. While
the use of derivative contracts can limit the downside risk of adverse price
movements, it may also limit future gains from favorable movements. The Company
addressed market risk by selecting instruments whose value fluctuations
correlated strongly with the underlying commodity. Credit risk related to
derivative activities was managed by requiring minimum credit standards for
counterparties, periodic settlements, and market to market valuations.
14
ITEM 4. CONTROLS AND PROCEDURES
Our Board of Directors adopted a policy designed to establish disclosure
controls and procedures that are adequate to provide reasonable assurance that
we will be able to collect, process and disclose both financial and
non-financial information, on a timely basis, in our reports to the Securities
and Exchange Commission ("SEC") and other communications with our stockholders.
Disclosure controls and procedures include all processes necessary to ensure
that material information is recorded, processed, summarized and reported within
the time periods specified in the SEC's rules and forms, and is accumulated and
communicated to our management, including our chief executive and chief
accounting officer, to allow timely decisions regarding required disclosures.
With respect to our disclosure controls and procedures:
- We have evaluated the effectiveness of the design and operation of our
disclosure controls and procedures within 90 days prior to the filing of
this report;
- This evaluation was conducted under the supervision and with the
participation of our management, including our chief executive and chief
financial officer; and
- It is the conclusion of our chief executive and chief financial officer
that these disclosure controls and procedures operate such that material
information flows to the appropriate collection and disclosure points in
a timely manner and are effective in ensuring that material information
is accumulated and communicated to our management and is made known to
the chief executive and chief financial officer, particularly during the
period in which this report was prepared, as appropriate to allow timely
decisions regarding required disclosures.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Currently, the Company is not a party to any material pending legal
proceedings, nor is Operating LLC. With respect to certain claims of the Company
against Enron North America Corp. relating to the oil and natural gas properties
contributed to Holding LLC, a representative of the Company has been appointed
to the official committee of unsecured creditors in the Enron bankruptcy
proceeding, and the Company has filed a claim for damages in that bankruptcy
proceeding. This claim represents a hedge against future oil and natural gas
prices and does not reflect a cash gain or loss. Any recoveries from Enron North
America Corp. will become the property of Operating LLC as a result of the LLC
Contribution.
The Company's Joint Plan became effective August 4, 2000 and the Bankruptcy
Court issued a final decree effective December 13, 2001 closing the case.
ITEM 2-5.
None.
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.
15
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
By: /s/ BOB G. ALEXANDER
------------------------------------
Bob G. Alexander
President and Chief Executive
Officer
May 15, 2003
By: /s/ RANDALL D. COOLEY
------------------------------------
Randall D. Cooley
Vice President and Chief Financial
Officer
May 15, 2003
16
CERTIFICATION
PURSUANT TO AND IN CONNECTION WITH THE QUARTERLY
REPORTS ON FORM 10-Q TO BE FILED UNDER SECTIONS 13 AND 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934, AS AMENDED.
I Bob G. Alexander, certify that:
1. I have reviewed this quarterly report on Form 10-Q of National Energy
Group, Inc.
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, is made known to us by
others within those entities, particularly during the period in which this
quarterly report is being prepared;
(b) evaluating the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the "Evaluation Date") and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
function):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal controls;
and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
By: /s/ BOB G. ALEXANDER
------------------------------------
Bob G. Alexander
Chief Executive Officer
May 15, 2003
17
CERTIFICATION
PURSUANT TO AND IN CONNECTION WITH THE QUARTERLY
REPORTS ON FORM 10-Q TO BE FILED UNDER SECTIONS 13 AND 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934, AS AMENDED.
I Randall D. Cooley, certify that:
1. I have reviewed this quarterly report on Form 10-Q of National Energy
Group, Inc.
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, is made known to us by
others within those entities, particularly during the period in which this
quarterly report is being prepared;
(b) evaluating the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the "Evaluation Date") and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
function):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal controls;
and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
By: /s/ RANDALL D. COOLEY
------------------------------------
Randall D. Cooley
Chief Financial Officer
May 15, 2003
18
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
2.1 -- Joint Plan of Reorganization Under Chapter 11 of the
Bankruptcy Code for National Energy Group, Inc. and Boomer
Marketing Corporation dated May 12, 2000(1)
2.3 -- Order of Bankruptcy Court Confirming Joint Plan of
Reorganization and Fixing Deadlines for Filing
Administrative Claims, Fee Claims and Rejections Claims(2)
3.1 -- Restated Certificate of Incorporation filed with the
Secretary of the State of Delaware on October 16, 2000(3)
3.2 -- By-laws of the Company(4)
4.1 -- Indenture dated as of November 1, 1996, among the Company,
National Energy Group of Oklahoma, Inc., formerly NEG-OK,
and BankOne, Columbus, N.A.(5)
4.2 -- Indenture dated August 21, 1997, among the Company and Bank
One, N.A.(6)
4.3 -- Instrument of Resignation, Appointment and Acceptance, dated
October 23, 1998, between the Company, Bank One, Texas, N.A.
and Norwest Bank Minnesota, N.A.(7)
10.5 -- Restated Loan Agreement dated August 29, 1996 among Bank One
and Credit Lyonnais New York Branch ("Credit Lyonnais") and
the Company, NEG-OK and Boomer Marketing Corpora-
tion("Boomer")(8)
10.6 -- $50,000,000 Revolving Note dated August 29, 1996 payable to
Bank One(8)
10.7 -- $50,000,000 Revolving Note dated August 29, 1996 payable to
Credit Lyonnais(8)
10.8 -- Assignment of $50,000,000 Revolving Note to Arnos Corp. from
Bank One, Texas, N.A.(9)
10.9 -- Assignment of $50,000,000 Revolving Note to Arnos Corp. from
Credit Lyonnais New York Branch(9)
10.10 -- Unlimited Guaranty of NEG-OK dated August 29, 1996 for the
benefit of Bank One(8)
10.11 -- Unlimited Guaranty of NEG-OK, dated August 29, 1996 for the
benefit of Credit Lyonnais(8)
10.12 -- Unlimited Guaranty of Boomer dated August 29, 1996 for the
benefit of Bank One(8)
10.13 -- Unlimited Guaranty of Boomer dated August 29, 1996 for the
benefit of Credit Lyonnais(8)
10.14 -- First Amendment to Restated Loan Agreement dated October 31,
1996 among Bank One and Credit Lyonnais and the Company,
Guarantor and Boomer(10)
10.15 -- Second Amendment to Restated Loan Agreement dated October
31, 1996, among Bank One and Credit Lyonnais and the
Company, Guarantor and Boomer(11)
10.16 -- Third Amendment to Restated Loan Agreement dated October 31,
1996, among Bank One and Credit Lyonnais and the Company,
Guarantor and Boomer(11)
10.17 -- Fourth Amendment to Restated Loan Agreement dated October
31, 1996, among Bank One and Credit Lyonnais and the
Company, Guarantor and Boomer(11)
10.18 -- Multi-State Assignment Agreement dated December 22, 1998
between Bank One, Texas, N.A., Credit Lyonnais New York
Branch and Arnos Corp.(12)
10.19 -- Multi-State Assignment Agreement, LaFourche Parish,
Louisiana, dated December 22, 1998, between Bank One, Texas,
N.A., Credit Lyonnais New York Branch and Arnos Corp.(9)
10.20 -- Multi-State Assignment Agreement, Iberville Parish,
Louisiana, dated December 22, 1998, between Bank One, Texas,
N.A., Credit Lyonnais New York Branch and Arnos Corp.(9)
10.21 -- Oklahoma Assignment Agreement, dated December 22, 1998,
between Bank One, Texas, N.A., Credit Lyonnais New York
Branch and Arnos Corp.(9)
10.29 -- Fifth Amendment to Restated Loan Agreement dated August 1,
2001, among the Company and Arnos Corp.(13)
10.30 -- Debt Purchase Agreement dated August 1, 2001 between the
Company and High River Limited Partnership.(13)
10.31 -- Debt Purchase Agreement dated August 1, 2001 between the
Company and High Coast Limited Partnership.(13)
10.32 -- NEG Holding LLC Operating Agreement dated May 1, 2001
between the Company and Gascon Partners.(14)
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.33 -- NEG Operating LLC Operating Agreement dated May 1, 2001
executed by NEG Holding LLC.(14)
10.34 -- Shana National LLC Amended and Restated Operating Agreement
dated September 12, 2001 executed by NEG Operating LLC.(14)
10.35 -- Management Agreement dated September 12, 2001 between the
Company and NEG Operating LLC.(14)
10.36 -- Master Conveyance dated September 12, 2001 executed by the
Company in favor of NEG Holding LLC.(14)
10.37 -- Master Conveyance dated September 12, 2001 executed by
Gascon Partners in favor of NEG Holding LLC.(14)
10.38 -- Master Conveyance dated September 12, 2001 executed by NEG
Holding LLC in favor of NEG Operating LLC.(14)
10.39 -- Master Conveyance dated September 12, 2001 executed by Shana
Petroleum Company in favor of Gascon Partners.(14)
10.40 -- Master Conveyance dated September 12, 2001 executed by Shana
Petroleum Company in favor of Shana National LLC.(14)
10.41 -- Final Decree of Bankruptcy Court(15)
10.42 -- Sixth Amendment to Restated Loan Agreement dated December
15, 2001, among the Company and Arnos Corp.(16)
10.43 -- Assignment of Restated Loan Agreement dated March 26, 2003,
among Arnos Corp., the Company and NEG Operating LLC.(16)
10.44 -- Seventh Amendment to Restated Loan Agreement dated March 26,
2003, among Arnos Corp. and NEG Operating LLC.(16)
99.1 -- Certification of Chief Executive Officer pursuant to Section
906 of Sarbanes-Oxley Act of 2002, 18 U.S.C. Section
1350(17). Pursuant to SEC Release 34-47551 this Exhibit is
furnished to the SEC and shall not be deemed to be "filed".
99.2 -- Certification of Chief Financial Officer pursuant to Section
906 of Sarbanes-Oxley Act of 2002, 18 U.S.C. Section
1350(17). Pursuant to SEC Release 34-47551 this Exhibit is
furnished to the SEC and shall not be deemed to be "filed".
- ---------------
(1) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 2000.
(2) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 2000.
(3) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 2000.
(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 Quarterly Report on Form 10-Q
for the quarter ended September 30, 1996.
(6) Incorporated by reference to the Company's Form S-4 (No. 333-38075), filed
October 16, 1997.
(7) Incorporated by reference to the Company's Form 10-K for the year ended
December 31, 1998.
(8) Incorporated by reference to the Company's Current Report on Form 8-K,
dated August 29, 1996.
(9) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1998.
(10) Incorporated by reference to the Company's Annual Report on Form 10-KSB for
the year ended December 31, 1995.
(11) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1997.
(12) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1997.
(13) Incorporated by reference to the Company's Report on Form 10-Q for the
quarter ended June 30, 2001.
(14) Incorporated by reference to the Company's Report on Form 10-Q for the
quarter ended September 30, 2001.
(15) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 2001.
(16) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 2002.
(17) Filed herewith.