AGREEMENT
This Agreement is being entered into as of October 25, 2006 (this
"Agreement"), by and among National Energy Group, Inc. (the "Company"), NEG Oil
& Gas LLC ("NEG Oil & Gas"), NEG, Inc. ("IPOCO") and American Real Estate
Holdings Limited Partnership ("AREH"). All capitalized terms used but not
defined herein shall have the meanings given such terms in the Agreement and
Plan of Merger dated as of December 7, 2005 (the "Merger Agreement"), by and
among the Company, NEG Oil & Gas, IPOCO and AREH.
WHEREAS, this Agreement has been duly considered and approved by the
Special Committee, following its consideration of all relevant facts,
circumstances and alternatives and its consultation with its financial and legal
advisors, and such committee has recommended that the Company Board adopt and
approve this Agreement.
WHEREAS, the Company Board, based on the recommendation of the Special
Committee, has approved and adopted this Agreement and the transactions
contemplated hereby.
WHEREAS, it is anticipated that, assuming the purchase of the membership
interests contemplated in Section 3 occurs, the Company will distribute to its
common stockholders (through a dividend or tender offer) approximately $37
million.
NOW, THEREFORE, in consideration of the foregoing premises and the
representations, warranties, covenants and agreements herein contained, and
intending to be legally bound hereby, the Company, NEG Oil & Gas, IPO Co. and
AREH hereby agree as follows:
1. Each of the undersigned acknowledges and agrees that no action by any
party in furtherance of the transactions contemplated by that certain
Exclusivity Agreement and Letter of Intent dated September 7, 2006 (the
"Letter"), by and among AREH, AREP and Riata Energy, Inc. (including,
without limitation, the NEG Holding Purchase and the consummation of the
Transaction or the Restructuring (as such capitalized terms are defined in
the Letter)), shall in any event be or be deemed to be a breach of the
Merger Agreement or any representations, warranties, covenants or other
provisions thereof (including, without limitation, Section 4.2 thereof).
2. Each of the undersigned (including the Company, which, as contemplated
in Section 6.1(a) of the Merger Agreement, is acting hereunder at the
direction of the Special Committee) agrees that the Merger Agreement shall
terminate pursuant to Section 6.1(a) thereof, automatically, without any
further action required, upon the transfer of all of the Company's
membership interest in NEG Holding LLC ("NEG Holding") as provided in
Section 3 below.
3. In recognition of the fact that, as contemplated in the Letter, NEG Oil
& Gas or its Affiliate intends to purchase or to cause NEG Holding to
purchase (such purchaser, the "Interest Buyer") all of the Company's
membership interest in NEG Holding pursuant to Section 5.4 of the NEG
Holding Operating Agreement in connection with the closing, if any, of
AREP's transaction with Riata Energy, Inc. contemplated in the Letter:
(A) the Company hereby represents, warrants, acknowledges and agrees
that:
(i) the Company owns its membership interest in NEG Holding and all
rights under the NEG Holding Operating Agreement, all as set
forth in the NEG Holding Operating Agreement, free and clear of
all liens, claims and encumbrances (other than liens in favor of
NEG Oil & Gas in connection with the NEG Operating LLC credit
facility (the "AREP Liens"));
(ii) effective upon delivery of notice (the "Exercise Notice") by NEG
Oil & Gas to the Company (which will be effective upon receipt of
a facsimile copy thereof by the Company) stating that the
purchase rights under Section 5.4 of the NEG Holding Operating
Agreement are being exercised by the Interest Buyer and the
payment of the sum specified in Section 4(B) below: (x) all
right, title and interest of the Company in NEG Holding shall
automatically be and be deemed to be, transferred, assigned
conveyed and sold to the Interest Buyer and the Company shall
cease to be a member of NEG Holding or have any rights, powers or
interests therein or under the NEG Holding Operating Agreement
and (y) the Company will cease to have (and releases and shall be
deemed to have released): (I) any right to receive any payment or
distribution from NEG Holding or its subsidiaries or (II) any
other right or claim with respect to NEG Holding or its
subsidiaries, in the case of each of (I) and (II) associated
with, arising out of or relating to its membership interests in
NEG Holding, other than the right to receive the payment
contemplated in Section 4(B) below.
(B) NEG Oil & Gas agrees that upon delivery of the Exercise Notice:
(i) the Interest Buyer will cause to be delivered to the Company the
sum of $261,124,876* (the "Payment"), which the parties agree is the
amount owing to the Company under Section 5.4 of the NEG Holding
Operating Agreement; and (ii) the AREP Liens will be released and
terminated. Upon receipt of such payment the Company will pay in full
the amount of principal and outstanding interest owing under the
Company's 10.75% senior notes due 2006 (the "Bonds"), the principal
amount of which is approximately $148.6 million. As a result, after
payment of the Bonds the Company will retain approximately
$112,487,876 from the Payment.
4. At the time the Payment is delivered, automatically and without any
further action necessary: (i) the management agreements between the Company
and each of National Onshore LP, National Offshore LP and NEG Operating LLC
will be terminated; and (ii) any assets or property of NEG Oil & Gas and
its subsidiaries owned by them but in the possession of the Company
(including, without limitation, information technology, software and data
relevant to the oil and gas operations of NEG Oil & Gas or its
subsidiaries) will be transferred and delivered to NEG Oil & Gas or its
subsidiaries, as designated by NEG Oil & Gas.
5. The provisions of this Agreement constitute an agreement separate from
the Merger Agreement and shall survive any termination of the Merger
Agreement.
6. This Agreement may be executed through the use of separate signature
pages or in any number of counterparts and all such counterparts shall be
deemed one and the same instrument.
7. This Agreement shall be deemed to be made in and in all respects shall
be interpreted, construed and governed by and in accordance with the law of
the State of Delaware without regard to the conflict of law principles
thereof.
[The balance of this page has been left blank intentionally.]
IN WITNESS WHEREOF, the undersigned have duly executed this Agreement as of
the date first written above.
NATIONAL ENERGY GROUP, INC.
By: /s/ Xxx X. Xxxxxxxxx
--------------------
Name: Xxx X. Xxxxxxxxx
Title: President
NEG OIL & GAS LLC
By: AREP O & G Holding LLC, its sole member
By: AREP Oil & Gas Holding LLC, its sole member
By: American Real Estate Holdings Limited Partnership, its sole member
By: American Property Investors, Inc., its general partner
By: /s/ Xxxxx Xxxxxxx
-----------------
Name: Xxxxx Xxxxxxx
Title: Principal Executive Officer
NEG, INC.
By: /s/ Xxxxx Xxxxxxx
-----------------
Name: Xxxxx Xxxxxxx
Title: Chief Executive Officer
AMERICAN REAL ESTATE HOLDINGS LIMITED PARTNERSHIP
By: American Property Investors, Inc.
By: /s/ Xxxxx Xxxxxxx
-----------------
Name: Xxxxx Xxxxxxx
Title: Principal Executive Officer
[Signature page to Agreement among National Energy Group, Inc., NEG Oil & Gas
LLC, NEG, Inc. and American Real Estate Holdings Limited Partnership]
* The above amount assumes that the closing occurs on November 1, 2006. If it
occurs on a different date then the price will be adjusted to take into
account the appropriate accrual of interest on the Bonds (as defined above)
and the appropriate distribution to NEG Oil & Gas under Article VI of the
NEG Holding Operating Agreement.
