EXHIBIT 2
RE: LETTER AGREEMENT
PROSPECT PARTICIPATION
NEG EXPLORATION PROSPECTS
Dear Mr. Icahn:
Pursuant to our discussions, this Letter Agreement shall act to express the
mutual understanding and agreement by and between National Energy Group, Inc.
("NEG") and Icahn Associates Corp. ("Icahn") with respect to participation in
various oil and gas exploration prospects of NEG (individually, "Prospect" and
collectively, "Prospects").
NOW THEREFORE, in consideration of the mutual covenants and agreements
contained herein and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. PROSPECTS. NEG and Icahn agree that Icahn shall participate as set forth
herein in certain Prospects to be drilled by NEG. Notwithstanding
anything to the contrary, it is the intention of the parties, unless
otherwise specifically agreed in writing, the term "Prospect" as used
herein shall include all exploration and all available development
Prospects generated or acquired by NEG, its agents, advisors or
consultants during the term hereof.
2. PARTICIPATION. The parties agree that Icahn's participation in any
Prospect shall be on a promoted basis of one-third (1/3) for one-fourth
(1/4) interest to the casing point of the initial well in each Prospect,
which shall include the actual prospect fees and land acquisition costs
of each Prospect. The interest acquired by Icahn hereunder shall not be
burdened by any back-in interest in favor of Xxxxxxxx Oil & Gas, Inc.,
its successors and assigns. It is further understood and agreed that
in the event NEG should sell any Prospect under more favorable terms to
another party purchaser other than Icahn, then in such event, Icahn
shall be entitled to participate in each Prospect under the more
favorable terms and conditions as any other such purchaser.
Xx. Xxxx X. Icahn
c/o Icahn Associates Corp.
July 11, 1997
3. COMMITMENT. Through September 30, 1998, Icahn agrees to acquire, and NEG
agrees to offer participation to Icahn in each of NEG's Prospects for
an interest up to three-eighths (3/8) of one hundred percent (100%)
before casing point for any such Prospect and all development activity
deriving therefrom; if more is available, it shall be offered by NEG
and may be accepted by Icahn or rejected. The obligation and
commitment of Icahn described herein shall be an aggregate amount of
TEN MILLION DOLLARS ($10,000,000) during the term hereof. NEG agrees
that it will invest in and retain at least an amount equal to the
amount invested by Icahn in each well in which Icahn participates,
provided, however, that NEG may transfer all or a portion of its
interest if it first obtains a firm written bid for the interest from a
party whose identity it makes known to Icahn, which if accepted would
be a binding agreement to sell on the terms contained in such bid, and
if it then offers Icahn the right for a period of fifteen (15) days to
either (i) purchase the applicable portion of the interest at the same
price as contained in the firm bid or (ii) sell the same portion of
Icahn's entire interest in such well to the bidder at the same price
and on the same terms as contained in the bid. If Icahn chooses
alternative (i), then NEG shall sell to Icahn on the basis contained in
the firm bid and if Icahn chooses alternative (ii), then NEG shall sell
the applicable portion of its interest and shall sell, for Icahn, the
applicable portion of Icahn's interest to the firm bidder on the basis
set forth in the firm bid. If Icahn chooses neither alternative, then
NEG is free, for a period of ninety (90) days, to sell the applicable
portion of its interest to the firm bidder on a basis no more favorable
to it than contained in the firm bid.
4. PREFERENTIAL RIGHT. If at any time Icahn decides to sell a portion of its
interest in any Prospect to any party (other than to a subsidiary or
affiliate of Icahn, in which case there shall be an unrestricted right
to do so), it shall first notify NEG in writing that such interest is
for sale (the "Offered Interest"). NEG shall then have fifteen (15)
days from receipt of such notice in which to make an offer in writing
to purchase the Offered Interest. NEG's failure to timely respond in
writing within such fifteen (15) day period shall be deemed by Icahn to
be an election by NEG not to make an offer to purchase the Offered
Interest. Upon receipt of NEG's offer to purchase the Offered
Interest, Icahn shall then have fifteen (15) working days thereafter in
which to accept or reject in writing NEG's offer. Icahn's failure to
timely respond in writing within such ten (10) working day period shall
be deemed by NEG to be an election by Icahn to accept NEG's offer to
purchase the Offered Interest. In the event Icahn gives NEG timely
notice in writing of its rejection of NEG's offer to purchase the
Offered Interest, Icahn shall thereafter, for a period of ninety (90)
days, be free to offer the Offered Interest to any other party. In the
event that thereafter Icahn desires to transfer the Offered interest to
any other party, Icahn must first give NEG the right for a period of
ten (10) days to exceed the bid, in writing, for the Offered Interest.
The parties hereto agree that notwithstanding any other provision
contained herein, this Paragraph 4 shall apply to successors and
assigns of NEG. NEG covenants and agrees that no agreements relating
to the subject matter hereof shall diminish the rights granted in
Paragraphs 3 and 4 hereof.
Page 2 of 5
Xx. Xxxx X. Icahn
c/o Icahn Associates Corp.
July 11, 1997
5. WARRANTS. In consideration of the Preferential Rights granted in Paragraph
4 and the commitment of the amount of TEN MILLION DOLLARS ($10,000,000)
contained herein, NEG agrees that it shall hereby grant to Icahn
certain warrants to purchase THREE HUNDRED THOUSAND (300,000) shares of
common stock of NEG (the "Warrants") as more fully described below:
5.1 NUMBER OF WARRANTS. The Warrants shall become exercisable on the
earlier of (i) December 31, 1997, or (ii) as to each block of ONE
HUNDRED FIFTY THOUSAND (150,000) warrants where FIVE MILLION DOLLARS
($5,000,000) has been invested by Icahn in the Prospects.
5.2 EXERCISE PRICE. The exercise price per share of each Warrant shall be
equal to THREE DOLLARS ($3.00) per share for each share of NEG Common
Stock.
5.3 EXPIRATION DATE; FORM. Warrants earned hereunder shall expire five
(5) years from the date hereof, and any Warrants not so exercised
by such date shall become null and void of all rights and shall
cease to exist. The Warrants shall be in the form of EXHIBIT "A"
attached hereto and incorporated herein. The Warrants and warrant
shares shall be subject to the Registration Rights Agreement as set
forth on EXHIBIT "A-1" attached hereto and incorporated herein.
6. RELATED AGREEMENTS. The parties hereto further agree that all operations
on the jointly owned acreage shall be conducted pursuant to the terms
of a Participation Agreement and AAPL Form 610 1982 Joint Operating
Agreement, as modified, which shall (i) be mutually agreed upon by all
working interest participants in the Prospect (ii) designate NEG as
operator and (iii) contain a mutually agreeable area of mutual interest
to include the Prospect. In the event that there is any conflict
between this Letter Agreement and any such other agreement, the terms
of this Letter Agreement shall govern.
7. OTHER COVENANTS.
7.1 NEG shall use its best efforts to sell Icahn's proportionate share of
the oil and gas produced from any well if Icahn so requests, but
only for such reasonable periods of time as are consistent with
the minimum needs of the industry under the particular
circumstances, but in no event for a period in excess of one (1)
year. Such request shall be made in writing, within thirty (30)
days of the commencement of oil or gas production from the
aforementioned well.
7.2 TITLE:
i. Upon the initial payment for participation in any Prospect,
Icahn's interest in the right, title and interest in the property
or leasehold underlying the Prospect acquired by NEG shall be
conveyed and assigned to Icahn in any name, as directed by Icahn.
ii. NEG shall provide Icahn with timely and appropriate title as
is usual and customary in the industry for drilling operations as
contemplated herein.
Page 3 of 5
Xx. Xxxx X. Icahn
c/o Icahn Associates Corp.
July 11, 1997
7.3 Prior to committing to any single Prospect, NEG shall furnish to Icahn
all relevant reports or documents relating to that Prospect (including
the insurance coverage provided by NEG).
7.4 NEG represents and warrants that it is not an "integrated
oil company" as defined in Section 291(b) of the Internal Revenue
Code of 1986, as amended, and further covenants that NEG shall not
become an integrated oil company for the duration of this Agreement
(including any extensions thereof) and shall indemnify and hold
Icahn and its affiliates harmless against any loss of all benefits,
including tax benefits, in the event either the representation and
warranty or the covenant in this Paragraph 7.4 is breached.
8. CHOICE OF LAW. THIS LETTER AGREEMENT, THE LEGAL RELATIONSHIP OF
THE
PARTIES AND ALL RIGHTS AND OBLIGATIONS HEREUNDER SHALL BE
GOVERNED
BY AND INTERPRETED, CONSTRUED, APPLIED AND ENFORCED IN
ACCORDANCE
WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REFERENCE TO THE
LAWS OF ANY OTHER JURISDICTION.
9. NOTICES. Any notice required hereunder shall be in writing; delivered to
or sent by U.S. Mail, postage pre-paid, or nationally recognized
commercial carrier service, postage or delivery charges pre-paid, or by
facsimile with a copy delivered to the U.S. Mail, postage pre-paid,
addressed as follows (or such other address as may be specified by five
(5) days prior written notice to the other party hereto):
IF TO NEG: IF TO ICAHN:
National Energy Group, Inc. Icahn Associates Corp.
0000 Xxxxxxxxxx Xxxxxx 000 Xxxxx Xxxxxx
Xxxxx 0000 00xx Xxxxx
Xxxxxx, Xxxxx 00000- 0000 Xxx Xxxx, Xxx Xxxx 00000
Attn: Xx. Xxxxxxx X. Xxxxx Attn: Xx. Xxxx X. Icahn
Senior Vice President President
Phone: (000) 000-0000 Phone: (000) 000-0000
Fax: (000) 000-0000 Fax: (000) 000-0000
10. ASSIGNMENT. This Letter Agreement shall inure to the benefit of and be
binding upon NEG and Icahn and their respective successors and assigns.
11. COMPLETENESS. This Letter Agreement supersedes all prior written or oral
**********************************
agreements and understandings between the parties and constitutes the
complete agreement between the parties with respect to the subject
matter hereof. This Letter Agreement cannot be modified or amended
except by written instrument duly executed by NEG and Icahn.
Page 4 of 5
Xx. Xxxx X. Icahn
c/o Icahn Associates Corp.
July 11, 1997
If the foregoing expresses our mutual understanding and agreement, please so
indicate by executing in the appropriate space below and returning one (1)
fully executed copy to the undersigned.
Sincerely,
National Energy Group, Inc.
/s/ Miles X. Xxxxxx
--------------------------------
Miles X. Xxxxxx
President
MDB:ljg
ACCEPTED AND AGREED THIS
11 DAY OF JULY, 1997.
ICAHN ASSOCIATES CORP.
- ---------------------------------
By: Xxxxxx X. Xxxxxxx
--------------------------
Title: President
--------------------------
Page 5 of 5
NEITHER THIS WARRANT NOR THE SECURITIES RECEIVED UPON EXERCISE OF
THIS
WARRANT HAS BEEN REGISTERED OR QUALIFIED UNDER THE UNITED STATES
SECURITIES ACT
OF 1933 OR ANY APPLICABLE STATE SECURITIES LAWS AND, ACCORDINGLY,
THIS WARRANT
AND THE SECURITIES RECEIVED UPON EXERCISE OF THIS WARRANT MAY NOT
BE OFFERED,
SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS
AND UNTIL
REGISTERED OR QUALIFIED UNDER SAID ACT AND ALL APPLICABLE STATE
SECURITIES LAWS
OR, IN THE OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO
THE ISSUER
OF THESE WARRANTS AND THE SECURITIES RECEIVED UPON EXERCISE OF THIS
WARRANT, AN
EXEMPTION FROM SUCH REGISTRATION OR QUALIFICATION IS AVAILABLE AND
SUCH OFFER,
SALE, TRANSFER, PLEDGE OR HYPOTHECATION DOES NOT VIOLATE THE
PROVISIONS OF THE
ACT OR APPLICABLE LAWS.
