National Energy Group, Inc. Announces Agreement With NEG Oil & Gas LLC
Dallas, TX - National Energy Group, Inc. recently announced that it has entered into an agreement dated October 25, 2006 (the "Agreement") with NEG Oil & Gas LLC, NEG, Inc. and American Real Estate Holdings Limited Partnership ("AREH") pertaining to the possible purchase of NEGI's membership interest in NEG Holding LLC ("NEG Holding") on the terms set forth therein.
As noted in the recitals to the Agreement, assuming that its membership interest in NEG Holding is purchased pursuant to Section 5.4 of NEG Holding's Operating Agreement dated as of May 1, 2001 (the "NEG Holding Operating Agreement"), it is anticipated that NEGI will distribute to its common stockholders (including NEG Oil & Gas), through a dividend or a tender offer, an aggregate of approximately $37M.
Following any such distribution and after giving effect to any necessary tax reserves or payments and the repayment of its 10.75% senior notes due 2007 (the "Bonds"), NEGI will continue to retain significant cash balances (approximating, based on currently available information, $40 to $47M). In such event, NEGI's Board of Directors intends to consider the appropriate application of such funds, including but not limited to the acquisition of producing oil and gas properties and related businesses and assets or the equity in another entity which owns such properties, businesses and assets.
There can be no assurance that the purchase of NEGI's membership interest in NEG Holding will occur. American Real Estate Partners, L.P. ("AREP") intends to exercise its option to purchase the membership interest only if AREP's previously announced transaction under its letter of intent (the "Letter of Intent") with Riata Energy, Inc. ("Riata") is completed.
In the event that the transactions contemplated by the Letter of Intent and the Agreement are not consummated, then NEGI will remain subject to the terms of the Merger Agreement, which includes an agreed upon termination date of December 1, 2006 in the event the transactions contemplated by the Merger Agreement have not been consummated by that date.
NEGI previously announced on December 7, 2005 that it had entered into an Agreement and Plan of Merger dated such date (the "Merger Agreement") with NEG Oil & Gas, Newco and, for certain purposes, AREH, pursuant to which NEGI was to have been merged into Newco. NEG Oil & Gas, which is a wholly-owned indirect subsidiary of AREP, is the owner of 50.1% of NEGI's common stock.
On September 11, 2006, NEGI publicly announced that it had been advised that on September 7, 2006 Riata and AREP entered into the Letter of Intent pursuant to which Riata obtained an option to acquire NEG Oil & Gas, which holds all of AREP's oil and gas investments. The transaction would include, among other things, the acquisition by NEG Oil & Gas or NEG Holding of NEGI's membership interest in NEG Holding through the purchase option set forth in Section 5.4 of the NEG Holding Operating Agreement. The transaction would not include the acquisition of any NEGI common stock by Riata. The transaction also contemplates that the management agreements pursuant to which NEGI manages the operations of NEG Operating LLC, National Onshore LP and National Offshore LP will be terminated. The Letter of Intent is subject to a number of conditions. NEGI is not a party to the Letter of Intent. As publicly announced on September 11, 2006, NEGI has been evaluating the impact of the Letter of Intent on NEGI, including on the pending Merger Agreement. NEGI's previously established Special Committee, consisting of an independent disinterested member of NEGI's Board of Directors (the "Special Committee"), has participated in the evaluation process. Based on the Special Committee's extensive review of relevant information and circumstances, the Special Committee has recommended that the NEGI Board of Directors approve the agreement outlined in the next paragraph, and based on such recommendation, the NEGI Board of Directors has approved such agreement, which was executed on October 25, 2006.
Under Section 5.4 of the NEG Holding Operating Agreement, NEG Oil & Gas, or its successor, at any time, in its sole discretion, is permitted to purchase NEGI's membership interest in NEG Holding at a price equal to the fair market value of such interest determined as if NEG Holding had sold all of its assets for fair market value and liquidated.
SOURCE: National Energy Group, Inc.