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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 JUNE 30, 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)
(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 [ ]
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 August 14, 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 June 30, 2003
(Unaudited)................................................. 2
Statements of Operations for the three months and six months
ended June 30, 2002 and 2003 (Unaudited).................... 3
Statements of Cash Flows for the six months ended June 30,
2002 and 2003 (Unaudited)................................... 4
Statement of Stockholders' Equity (Deficit) for the six
months ended June 30, 2003 (Unaudited)...................... 5
Notes to Financial Statements (Unaudited)................... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 12
Item 3. Quantitative and Qualitative Disclosure About Market Risk... 16
Item 4. Controls and Procedures..................................... 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................... 16
Item 2-5. None........................................................ 17
Item 6. Exhibits and Reports on Form 8-K............................ 17
1
NATIONAL ENERGY GROUP, INC.
BALANCE SHEETS
DECEMBER 31, JUNE 30,
2002 2003
------------- -------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents................................. $ 3,477,250 $ 3,765,379
Accounts receivable -- other.............................. 18,876 --
Accounts receivable -- affiliates......................... 588,122 604,365
Other..................................................... 319,409 261,986
------------- -------------
Total current assets................................. 4,403,657 4,631,730
Investment in NEG Holding LLC............................... 108,879,929 62,645,787
Deferred tax assets......................................... 25,521,738 22,856,505
------------- -------------
Total assets......................................... $ 138,805,324 $ 90,134,022
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable -- trade................................. $ 45,254 $ 79,841
Accrued interest on senior notes.......................... 44,359,805 2,663,080
------------- -------------
Total current liabilities............................ 44,405,059 2,742,921
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 6,793,651
Commitments and contingencies
Stockholders' equity (deficit):
Common stock, $.01 par value:
Authorized shares -- 15,000,000 at December 31, 2002
and June 30, 2003; Issued and outstanding
shares -- 11,190,650 at December 31, 2002 and June
30, 2003............................................. 111,907 111,907
Additional paid-in capital................................ 123,020,121 123,020,121
Accumulated deficit....................................... (196,121,212) (191,171,578)
------------- -------------
Total stockholders' equity (deficit)................. (72,989,184) (68,039,550)
------------- -------------
Total liabilities and stockholders' equity
(deficit)......................................... $ 138,805,324 $ 90,134,022
============= =============
See accompanying notes to financial statements.
2
NATIONAL ENERGY GROUP, INC.
STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- -------------------------
2002 2003 2002 2003
----------- ----------- ----------- -----------
(UNAUDITED)
Revenues:
Accretion of Investment in NEG Holding
LLC................................. $ 8,011,234 $ 6,700,904 $15,866,054 $15,451,224
Management fee......................... 2,046,168 2,006,344 4,034,552 3,879,682
----------- ----------- ----------- -----------
Total revenue..................... 10,057,402 8,707,248 19,900,606 19,330,906
Cost and expenses:
General and administrative............. 1,861,794 1,875,614 3,684,030 3,587,989
----------- ----------- ----------- -----------
Total costs and expenses.......... 1,861,794 1,875,614 3,684,030 3,587,989
----------- ----------- ----------- -----------
Operating income......................... 8,195,608 6,831,634 16,216,576 15,742,917
Other income (expense):
Interest expense....................... (4,745,308) (3,485,118) (9,499,826) (8,144,737)
Interest income and other, net......... 6,698 8,489 12,305 16,687
----------- ----------- ----------- -----------
Income before income taxes............... 3,456,998 3,355,005 6,729,055 7,614,867
Income tax expense....................... (1,208,782) (1,174,252) (2,353,788) (2,665,233)
----------- ----------- ----------- -----------
Net income............................... $ 2,248,216 $ 2,180,753 $ 4,375,267 $ 4,949,634
=========== =========== =========== ===========
Earnings per common share:
Net income per common share............ $ .20 $ .19 $ .39 $ .44
=========== =========== =========== ===========
Weighted average number of common shares
outstanding............................ 11,190,650 11,190,650 11,190,650 11,190,650
=========== =========== =========== ===========
See accompanying notes to financial statements.
3
NATIONAL ENERGY GROUP, INC.
STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30,
---------------------------
2002 2003
------------ ------------
(UNAUDITED)
Operating Activities:
Net income................................................ $ 4,375,267 $ 4,949,634
Adjustments to reconcile net income to net cash provided
by operating activities:
Accretion of Investment in NEG Holding LLC........... (15,866,054) (15,451,224)
Deferred gain amortization........................... (1,019,046) (1,019,048)
Deferred income tax expense.......................... 2,353,788 2,665,233
Changes in operating assets and liabilities:
Accounts receivable............................... 492,509 2,633
Other current assets.............................. (116,358) 57,423
Accounts payable and accrued liabilities.......... (700,162) 1,094,239
------------ ------------
Net cash used in operating activities........... (10,480,056) (7,701,110)
------------ ------------
Investing Activities:
Priority distribution from NEG Holding LLC................ -- 40,506,071
Guaranteed payment from NEG Holding LLC................... 10,842,212 10,239,545
------------ ------------
Net cash provided by investing activities......... 10,842,212 50,745,616
------------ ------------
Financing Activities:
Repayment of Reinstated Interest.......................... -- (42,756,377)
------------ ------------
Net cash used in financing activities............. -- (42,756,377)
------------ ------------
Increase in cash and cash equivalents....................... 362,156 288,129
Cash and cash equivalents and beginning of period........... 3,090,361 3,477,250
------------ ------------
Cash and cash equivalents at end of period.................. $ 3,452,517 $ 3,765,379
============ ============
Supplemental cash flow information
Interest paid in cash..................................... $ 11,165,162 $ 50,860,483
============ ============
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............... -- -- -- 4,949,634 4,949,634
---------- -------- ------------ ------------- ------------
Balance at June 30, 2003... 11,190,650 $111,907 $123,020,121 $(191,171,578) $(68,039,550)
========== ======== ============ ============= ============
See accompanying notes to financial statements.
5
NATIONAL ENERGY GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 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, ("Gascon"), an entity
owned or controlled by Carl C. Icahn, who through Arnos Corp. ("Arnos") and
Greenville Holding LLC ("Greenville"), is the beneficial owner of 49.9% of the
Company's common stock, contributed (i) its sole membership interest in Shana
National LLC, an oil and natural gas producing company, (ii) cash of $75.2
million, and (iii) a $10.9 million revolving note, evidencing the borrowings
under the Company's revolving credit facility issued to Arnos. 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.
Holding LLC is governed by an operating agreement, effective as of May 1, 2001,
which provides for the management and control of Holding LLC by Gascon (the
"Holding LLC Operating Agreement"). 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 contains a provision that allows
Gascon, or its successor, 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. A determination of the fair market value
of such assets shall be made by an independent third party jointly engaged by
Gascon and the Company. Since all of the Company's operating assets and oil and
natural gas properties would have been contributed to Holding LLC, 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,
6
NATIONAL ENERGY GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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.
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. (See Note 4)
The Company remains highly leveraged following confirmation of the Plan of
Reorganization and entry of the final decree closing the Bankruptcy Proceeding.
Further, as a result of the terms and conditions of the various agreements
related to the repayment of the Company's indebtedness to Arnos 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
proceeds remaining for distribution to the Company's shareholders.
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 six months ended June 30, 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
7
NATIONAL ENERGY GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 $2.0 million and $3.9 million as a management
fee for the three and six month periods ended June 30, 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.
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;
8
NATIONAL ENERGY GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(vii) dividend and other payment restrictions affecting subsidiaries; (viii)
mergers and consolidations; and (ix) transactions with affiliates.
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.
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 accounts for its investment in Holding LLC as a preferred
investment.
At inception (September 12, 2001), the Company recorded the investment in
Holding LLC at the historical cost of the oil and gas properties contributed
into the partnership (in exchange for Holding LLC's obligation to pay the
Company the priority distribution and guaranteed payments). Subsequently, the
Company accretes its investment in Holding LLC from the initial investment
recorded up to the priority distribution amount, including the guaranteed
payments, at the implicit rate of interest, recognizing the accretion income in
earnings. Accretion income is periodically adjusted for changes in the timing of
cash flows, if necessary due to unscheduled cash distributions. Receipt of
guaranteed payments and the priority distribution are recorded as reductions in
the preferred investment. The preferred investment is evaluated quarterly for
other than temporary impairment.
Because of the substantial uncertainty that the Company will receive any
distributions in excess of the priority distribution and the guaranteed payments
("residual interest"), the residual interest attributable to the investment in
Holding LLC is valued at zero. Upon payment of the priority distribution in
2006, the Company's investment in Holding LLC will be zero. Cash receipts, if
any, after the priority distribution and the guaranteed payments will be
reported in income as earned.
The following is a summary balance sheet of NEG Holding LLC as of December
31, 2002 and June 30, 2003.
DECEMBER 31, JUNE 30,
2002 2003
------------ ------------
Current assets........................................... $ 42,126,407 $ 39,127,167
Net oil and natural gas properties....................... 168,334,114 177,365,763
Net other property and equipment......................... 1,322,745 1,248,648
Other long-term assets................................... 10,954,103 14,353
------------ ------------
Total assets............................................. $222,737,369 $217,755,931
============ ============
Current liabilities...................................... $ 20,927,227 $ 17,554,281
Long-term liabilities.................................... 1,968,248 51,662,055
Members' equity.......................................... 199,841,894 148,539,595
------------ ------------
Total liabilities and members' equity.................... $222,737,369 $217,755,931
============ ============
9
NATIONAL ENERGY GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following is a summary income statement for NEG Holding LLC for the six
months ended June 30, 2002 and 2003.
2002 2003
------------ ------------
Total revenues........................................... $ 17,120,022 $ 39,773,529
Total cost and expenses.................................. (14,627,278) (23,623,749)
------------ ------------
Operating income......................................... 2,492,744 16,149,780
Interest income and other................................ 9,133,028 (7,678,419)
------------ ------------
Income before cumulative effect of change in accounting
principle.............................................. 11,625,722 8,471,361
Cumulative effect of change in accounting principle...... -- 1,911,705
------------ ------------
Net income............................................... $ 11,625,722 $ 10,383,066
============ ============
For the six month period ended June 30, 2003, NEG Holding LLC generated
cash flows of $14.7 million from operating activities, used $66.3 million in
investing activities and generated cash flows from financing activities of $46.8
million. Audited financials will be prepared and included in the Company's Form
10-K at December 31, 2003.
The following is a rollforward of the Investment in NEG Holding LLC as of
June 30, 2003:
Investment in NEG Holding LLC at December 31, 2002.......... $108,879,929
Priority distribution from NEG Holding LLC.................. (51,445,821)
Guaranteed payment from NEG Holding LLC..................... (10,239,545)
Accretion of Investment in NEG Holding LLC.................. 15,451,224
------------
Investment in NEG Holding LLC at June 30, 2003.............. $ 62,645,787
============
The Holding LLC Operating Agreement requires that distributions shall be
made to both the Company and Gascon as follows:
1. Guaranteed payments are to be paid to the Company, calculated on an
annual interest rate of 10.75% on the outstanding priority distribution
amount. The priority distribution amount includes all outstanding debt owed
to entities owned or controlled by Carl C. Icahn, including the amount of
the Company's 10.75% Senior Notes. As of June 30, 2003, the priority
distribution amount was $148.6 million. The guaranteed payments will be
made on a semi-annual basis.
2. The priority distribution amount is to be paid to the Company. Such
payment is to occur by November 6, 2006.
3. An amount equal to the priority distribution amount and all
guaranteed payments paid to the Company, plus any additional capital
contributions made by Gascon, less any distribution previously made by
Holding LLC to Gascon, is to be paid to Gascon.
4. An amount equal to the aggregate annual interest (calculated at
prime plus 1/2% on the sum of the guaranteed payments), plus any unpaid
interest for prior years (calculated at prime plus 1/2% on the sum of the
guaranteed payments), less any distributions previously made by Holding LLC
to Gascon, is to be paid to Gascon.
5. After the above distributions have been made, any additional
distributions will be made in accordance with the ratio of the Company's
and Gascon's respective capital accounts.
10
NATIONAL ENERGY GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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.
Operating LLC is currently in compliance with all covenants of the credit
facility. (See Note 4)
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, $22.9 million as of June 30, 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.
8. CONTINGENCIES
On July 7, 2003, the Company filed a request with the American Arbitration
Association for dispute resolution of a claim in the amount of $21,000 against
Osprey Petroleum Company, Inc. ("Osprey") arising out of Osprey's failure to
post bond for certain plugging and abandonment liabilities associated with oil
and gas properties sold by the Company to Osprey in September 2000. Osprey has
counterclaimed against the Company and its affiliates (NEG Holding LLC and NEG
Operating LLC) in an amount up to $15 million, alleging fraud and breach of
contract related to the sale of such oil and gas properties. The Purchase and
Sale Agreement transferring the properties from the Company to Osprey provides
for dispute resolution through binding arbitration utilizing arbitrator(s)
experienced in oil and gas transactions. The exclusive venue for any such
arbitration is in Dallas, Texas, and the binding, nonappealable judgment by the
arbitrator(s) may be entered in any court having competent jurisdiction.
While the ultimate result of these proceedings cannot be predicted with
certainty, the Company believes it will be successful in the pursuit of its
claim against Osprey. Further, the Company will vigorously defend against the
Osprey counterclaim, which the Company believes to be spurious and without
merit. It is the Company's belief that the ultimate resolution of the
arbitration will not have a material adverse effect on the Company's financial
condition or results of operations.
11
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 ("LLC Contribution"). In exchange for its initial
50% membership interest in Holding LLC, Gascon Partners, ("Gascon"), an entity
owned or controlled by Carl C. Ichan, who through Arnos Corp. ("Arnos") and
Greenville Holding LLC ("Greenville"), is the beneficial owner of 49.9% of the
Company's common stock contributed (i) its sole membership interest in Shana
National LLC, an oil and natural gas producing company, (ii) cash of $75.2
million, and (iii) a $10.9 million revolving note, evidencing the borrowings
under the Company's revolving credit facility issued to Arnos Corp. 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. Holding LLC is governed by an operating agreement, effective as of May
1, 2001, which provides for the management and control of Holding LLC by Gascon
(the "Holding LLC Operating Agreement"). 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 Company's remaining investment
in Holding LLC will be valued at zero. Cash receipts, if any, after the priority
distribution and guaranteed payments 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.
12
The Holding LLC Operating Agreement contains a provision that allows
Gascon, or its successor, 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. A determination of the fair market value
of such assets shall be made by an independent third party jointly engaged by
Gascon and the Company. Since all of the Company's operating assets and oil and
natural gas properties would have been contributed to Holding LLC, 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 $2.0 million and $3.9 as a management fee for
the three and six month periods ended June 30, 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. (See Note 4).
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.
13
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.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2002, COMPARED WITH THREE MONTHS ENDED JUNE 30,
2003
Revenues. Total revenues decreased $1.4 million (13.9%) from $10.1 million
for the second quarter of 2002 to $8.7 million for the second quarter of 2003.
Total revenues decreased due to the decrease in accretion of investment in
Holding LLC as a result of the priority distributions received from NEG Holding
LLC in March 2003.
General and administrative costs remained constant at $1.9 million for both
the second quarter of 2002 and 2003.
Other Income and Expenses. The $1.2 million decrease in interest expense
from $4.7 million for the three months ended June 30, 2002 to $3.5 million for
the same period in 2003 was due primarily to the repayment of the long-term
interest payable on March 27, 2003 and the canceling of the note outstanding
under the Company's revolving credit facility. The weighted average interest
rate for the three months ended June 30, 2002 was 9.44% compared to 9.32% 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 $22.9 million as of December 31, 2002
and June 30, 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 $1.2 million for
the three months ended June 30, 2003.
SIX MONTHS ENDED JUNE 30, 2002, COMPARED WITH SIX MONTHS ENDED JUNE 30, 2003
Revenues. Total revenues decreased $.6 million (3.0%) from $19.9 million
for the six months ended June 30, 2002 to $19.3 million for the same period in
2003. Total revenues decreased due to the decrease in accretion of investment in
Holding LLC.
General and administrative costs decreased $.1 million (2.7%) from $3.7
million for the six months ended June 30, 2002 to $3.6 million for the same
period in 2003.
Other Income and Expenses. The $1.4 million decrease in interest expense
from $9.5 million for the six months ended June 30, 2002 to $8.1 million for the
same period in 2003 was due primarily to the repayment of the long-term interest
payable on March 27, 2003 and the canceling of the note outstanding under the
Company's revolving credit facility. The weighted average interest rate for the
six months ended June 30, 2002 was 9.45% compared to 9.34% 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 $22.9 million as of December 31, 2002
and June 30, 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
14
income tax benefits, subsequent periods will reflect a full effective tax rate
provision. The Company recorded deferred income tax expense of $2.7 million for
the six months ended June 30, 2003.
LIQUIDITY AND CAPITAL RESOURCES
SIX MONTHS ENDED JUNE 30, 2002, COMPARED WITH SIX MONTHS ENDED JUNE 30, 2003
Net cash used in operating activities was $10.5 million for 2002, compared
to $7.7 million for 2003. The decrease in cash flows used in operating
activities is primarily due to the reduced interest expense as a result of the
repayment of the long-term interest payable. 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 $50.7 million for 2003 and
consisted of the $40.5 million priority distribution and the $10.2 million
guaranteed payment received from NEG Holding LLC. Net cash provided by investing
activities in 2002 consisted of the $10.8 million guaranteed payment received
from NEG Holding LLC.
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 Plan of Reorganization, 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.
The following table is a summary of contractual obligations as of June 30,
2003.
2003 2004 2005 2006
---------- ----------- ----------- ------------
Senior Notes..................... $ -- $ -- $ -- $148,637,000
Interest payments................ 7,989,238 15,978,478 15,978,478 14,646,938
Rent............................. 298,064 596,128 596,128 596,128
---------- ----------- ----------- ------------
Total.......................... $8,287,302 $16,574,606 $16,574,606 $163,880,066
========== =========== =========== ============
RECENT ACCOUNTING PRONOUNCEMENTS
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
15
entities obtained after January 31, 2003. 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 six months ended June 30, 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.
ITEM 4. CONTROLS AND PROCEDURES
In accordance with Exchange Act Rules 13a-15 and 15d-15, we carried out an
evaluation under the supervision and with the participation of management,
including our Chief Executive Officer and Chief Financial Officer, of the
effectiveness of our disclosure controls and procedures as of the end of the
period covered by this report. Based on that evaluation, our Chief Executive
Officer and Chief Financial Officer concluded that our disclosure controls and
procedures were effective as of June 30, 2003 to provide reasonable assurance
that information required to be disclosed in our reports filed or submitted
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in the Securities and Exchange Commission's rules and
forms.
There has been no change in our internal controls over financial reporting
that occurred during the three months ended June 30, 2003 that has materially
affected, or is reasonably likely to materially affect, our internal controls
over financial reporting.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On July 7, 2003, the Company filed a request with the American Arbitration
Association for dispute resolution of a claim in the amount of $21,000 against
Osprey Petroleum Company, Inc. ("Osprey") arising out of Osprey's failure to
post bond for certain plugging and abandonment liabilities associated with oil
and gas properties sold by the Company to Osprey in September 2000. Osprey has
counterclaimed against the Company and its affiliates (NEG Holding LLC and NEG
Operating LLC) in an amount up to $15 million, alleging fraud and breach of
contract related to the sale of such oil and gas properties. The Purchase and
Sale Agreement transferring the properties from the Company to Osprey provides
for dispute resolution through binding arbitration utilizing arbitrator(s)
experienced in oil and gas transactions. The exclusive venue for any such
arbitration is in Dallas, Texas, and the binding, nonappealable judgment by the
arbitrator(s) may be entered in any court having competent jurisdiction.
While the ultimate result of these proceedings cannot be predicted with
certainty, the Company believes it will be successful in the pursuit of its
claim against Osprey. Further, the Company will vigorously defend against the
Osprey counterclaim, which the Company believes to be spurious and without
merit. It is the
16
Company's belief that the ultimate resolution of the arbitration will not have a
material adverse effect on the Company's financial condition or results of
operations.
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.
Other than routine litigation incidental to its business operations which
are not deemed by the Company to be material, there are no additional legal
proceedings in which the Company nor Operating LLC, is a defendant.
The Company's Plan of Reorganization 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.
17
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
August 14, 2003
By: /s/ RANDALL D. COOLEY
------------------------------------
Randall D. Cooley
Vice President and Chief Financial
Officer
August 14, 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 Bank One, 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 Corporation
("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)
31.1 -- Certification of Chief Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.(17)
31.2 -- Certification of Chief Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.(17)
32.1 -- 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".
32.2 -- 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.