DALLAS, Oct. 25 /PRNewswire-FirstCall/ -- National Energy Group, Inc.
(OTC Bulletin Board: NEGI) ("NEGI" or the "Company") today announced that
it has entered into an agreement dated October 25, 2006 (the "Agreement")
with NEG Oil & Gas LLC ("NEG Oil & Gas"), NEG, Inc. ("Newco") 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.
Bob G. Alexander, President of NEGI, stated: "Considering that several
years ago National Energy was in bankruptcy, this transaction is a win for
our stockholders who have stood by the company during this period."
Carl C. Icahn, Chairman of American Real Estate Partners, L.P., the
indirect owner of a majority of the common stock of NEGI, noted: "On August
4, 2000, the effective date of NEGI's Plan of Reorganization, the shares
traded at approximately $2. Thereafter, NEGI's shares traded as low as 14
cents. If the contemplated transaction closes, the cash to NEGI, after the
repayment of debt, would be approximately $10 per share (approximately $7
per share after the payment of estimated income taxes). We are gratified
that all shareholders of NEGI that held their stock since the bankruptcy
would be able to achieve this excellent rate of return."
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 $37 million.
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
$47 million). 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.
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.
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.
A summary of the Agreement, which is qualified in its entirety by
reference to the full text thereof included as an exhibit to NEGI's Current
Report on Form 8-K filed today with the Securities and Exchange Commission,
is as follows:
1. No action by any party in furtherance of the transactions
contemplated by the Letter of Intent 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. The Merger Agreement will terminate pursuant to Section 6.1(a)
thereof automatically, without any further action required, upon the
transfer of all of the NEGI's membership interest in NEG Holding as
provided below.
3. In recognition of the fact that, as contemplated in the Letter of
Intent, NEG Oil & Gas or one of its affiliates intends to purchase or to
cause NEG Holding to purchase (such purchaser, the "Interest Buyer") all of
NEGI'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 contemplated in the Letter of Intent, NEGI
agrees that, effective upon delivery of notice (the "Exercise Notice") by
NEG Oil & Gas to NEGI 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 below, (x) all right, title and
interest of NEGI in NEG Holding shall automatically be and be deemed to be,
transferred, assigned conveyed and sold to the Interest Buyer and NEGI
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) NEGI
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 interest in NEG Holding, other
than the right to receive the payment contemplated below.
4. NEG Oil & Gas agreed that upon delivery of the Exercise Notice: (i)
the Interest Buyer will cause to be delivered to NEGI the sum of
$261,124,876(*) (the "Payment"), which the parties agree is the amount
owing to NEGI under Section 5.4 of the NEG Holding Operating Agreement; and
(ii) the liens in favor of NEG Oil & Gas with respect to NEGI's membership
interest in NEG Holding under the NEG Operating LLC credit facility will be
released and terminated.
5. Upon receipt of the Payment, NEGI will pay in full the amount of
principal and outstanding interest owing under NEGI's Bonds, the principal
amount of which is approximately $148.6 million.
6. As a result, after payment of the Bonds, NEGI will retain
approximately $112,487,876 from the Payment, approximately $37 million of
which is anticipated to be distributed to NEGI's common stockholders
(through a dividend or tender offer).
7. At the time the Payment is delivered, automatically and without any
further action necessary: (i) the management agreements between NEGI 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 NEGI (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.
If the transactions contemplated by the Letter of Intent and the
Agreement are consummated, NEGI's membership interest in NEG Holding is
purchased, NEGI's Bonds are fully paid and NEGI's management agreements
with NEG Operating LLC, National Onshore LP and National Offshore LP are
terminated, NEGI's principal asset will consist solely of its cash
balances, which, as noted above, are anticipated to approximate $112
million, and NEGI's only known liabilities will consist of its tax
liability noted in the next sentence, any amounts due under the management
agreements and its short term liabilities relating to its operations, such
as employee payroll, legal fees and trade payables, which are not
anticipated to be significant. NEGI also anticipates that, assuming the
purchase of its membership interest in NEG Holding in 2006, and based on
currently available information, its 2006 federal and state income tax
liability could range from approximately $28 to $35 million.
The Company
The Company is a Dallas, Texas based management company engaged in the
business of managing the exploration, development, production and
operations of oil and natural gas properties, primarily located in Texas,
Oklahoma, Arkansas and Louisiana (both onshore and in the Gulf of Mexico).
The Company manages the oil and natural gas operations of NEG Operating
LLC, National Onshore LP and National Offshore LP, all of which are
affiliated entities. The Company's principal assets are its membership
interest in NEG Holding LLC and its management agreements with NEG
Operating LLC, National Onshore LP and National Offshore LP.
Forward Looking Statements
This press release may contain projections and other forward-looking
statements within the meaning of Section 21E of the Securities Exchange Act
of 1934, as amended. Any such projections or statements reflect the
Company's current views with respect to future events and financial
performance. No assurances can be given, however, that these events will
occur or that such projections will be achieved and actual results could
differ materially from those projected. A discussion of important factors
that could cause actual results to differ materially from those projected
is included in the Company's periodic reports filed with the Securities and
Exchange Commission.
* The amount of the Payment assumes that the closing occurs on November
1, 2006. If it occurs on a different date, then the amount of the Payment
will be adjusted to take into account the appropriate accrual of interest
on the Bonds (as defined in numbered paragraph 5) and the appropriate
distribution to NEG Oil & Gas under Article VI of the NEG Holding Operating
Agreement in respect of its membership interest in NEG Holding. The amount
of the Payment is based on the Special Committee's determination, based on
all relevant information and circumstances, that the fair market valuation
for NEG Holding's assets is $700 million, net of indebtedness of $132
million, for purposes of Section 5.4 of the NEG Holding Operating
Agreement, which contemplates (as noted above) a deemed sale by NEG Holding
of all of its assets for fair market value followed by its deemed
liquidation. In connection with such deemed liquidation, under Article VI
of the NEG Holding Operating Agreement, such net fair market valuation will
be subjected to the distribution protocols set forth therein in order to
determine the amounts to be distributed to NEGI and NEG Oil & Gas in
connection with the assumed purchase of NEGI's membership interest in NEG
Holding upon the anticipated consummation of the transactions contemplated
by the Letter of Intent. In general, said Article will require aggregate
priority distributions to NEG Oil & Gas of $177,750,249, with the remaining
$522,249,751 to be distributed in equal $261,124,876 payments to each of
NEGI and NEG Oil & Gas. The foregoing summary is qualified in its entirety
by reference to the full text of the NEG Holding Operating Agreement filed
by NEGI as an exhibit to its Quarterly Report on Form 10-Q for the quarter
ended September 30, 2001.
SOURCE National Energy Group, Inc.
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Related links:
http://www.negx.com
CONTACT:
Bob G. Alexander, or Randall D. Cooley, or
Philip D. Devlin, ext. 5162, all of National Energy Group, Inc.,
+1-214-692-9211
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