Riata Energy, Inc. Oklahoma City, OK 73118
Riata
Energy, Inc.
▇▇▇▇
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇
▇▇▇▇, ▇▇ ▇▇▇▇▇
September
7, 2006
American
Real Estate Partners, L.P.
American
Real Estate Holdings Limited Partnership
White
Plains Plaza
▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ - ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Ladies
and Gentlemen:
This
exclusivity agreement and letter of intent (the “Letter”)
relates to a potential transaction among American Real Estate Partners, L.P.
(“AREP”),
American Real Estate Holdings Limited Partnership (“AREH”)
and
Riata Energy, Inc. (“Buyer”)
under
which Buyer would obtain an option (the “Option”)
to
acquire all of the issued and outstanding membership interests of NEG Oil &
Gas, LLC (the “Company”)
from
AREP O & G Holdings LLC (“Seller”),
a
wholly-owned subsidiary of AREP Oil & Gas Holdings LLC, which is in turn a
wholly-owned subsidiary of AREH (“Oil
& Gas Holdings”,
together with AREH and AREP, the “Parents”)
substantially on
the
terms and subject to the conditions set forth herein and in the term sheet
attached hereto as Annex
A
(the
“Term
Sheet”).
For
purposes of this Letter, the Parents shall cause Seller to take all actions
and
comply with all obligations set forth herein. For purposes of this Letter and
the Term Sheet, (i) the Company shall not be deemed to include the corporate
entity, National Energy Group, Inc. (“▇▇▇▇”)
but
will be deemed to include all of the issued and outstanding membership interests
of NEG Holding LLC (“NEG
Holding”)
held
by ▇▇▇▇, which are to be acquired by the Company in the
Restructuring(1)(as defined in the Term Sheet), and (ii) ▇▇▇▇ shall not be
deemed to be a direct or indirect subsidiary (or, solely for purposes of
Sections
3, 5-7 and 9,
an
affiliate) of the Company, the Seller or the Parents. The proposed acquisition
of all of the Company’s membership interests (including, for the avoidance of
doubt, such membership interests of NEG Holding acquired by the Company through
the Restructuring) is referred to herein as the “Transaction”.
Except
for the provisions of this Letter contained in the following sentence and
Sections
1, 3, 5-12 and 15
(and
expressly excluding Annex
A
hereto),
which are intended to be binding, this Letter is a preliminary summary of
non-binding terms concerning a possible transaction between the parties. This
Letter is for discussion purposes only in order to facilitate discussions
between the parties regarding a potential transaction and, except for this
sentence and sections 1, 3, 5-12 and 15 below (and expressly excluding
Annex
A
hereto),
does not constitute and will not give rise to any legally binding agreement,
obligation or duty of any kind or character including, without limitation,
any
agreement, obligation or duty to act reasonably, fairly or in good faith) on
the
part of either party or their respective affiliates, officers, directors,
stockholders, employees or agents.
| (1) |
As
of July 31, 2006, NEGI’s assets, other than its membership interest in NEG
Holding, consisted of: (i) cash and cash equivalents in the amount
of
approximately $3.06 million; (ii) accounts receivable from the Company
and
its subsidiaries under operating and management contracts (all of
which
will be terminated as of the closing of the Transaction) in the amount
of
approximately $1.4 million; (iii) a deferred tax asset in the amount
of
approximately $6.2 million; and (iv) other assets unrelated to oil
and gas
operations (including, furniture, computers, leases for office space
and
office equipment and similar items, but not including any information
technology, software and data relevant to the oil and gas operations
of
the Company or its subsidiaries, including NEG Holding, whether or
not on
such computers, which will be transferred to Buyer as part of the
Transaction). All references herein to the SEC Reports (as defined
in
Section 11(c)(ii)) and financial statements
shall be deemed to exclude such assets of ▇▇▇▇ (other than NEGI’s
membership interests in NEG Holding and such information technology,
software and data).
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1
1. Payment.
Simultaneously with the execution of this Letter, Buyer is paying to Seller
$10
million.
2. Definitive
Documentation.
Following the execution of this Letter, the parties will engage in discussions
in order to develop definitive documents (the “Definitive Documentation”) to
reflect the matters contained herein, and such other matters as may be agreed
between the parties. Each party is free to negotiate the Definitive
Documentation in its sole and absolute discretion and shall have no duty or
obligation of any kind or character to the other party hereto in such
negotiations, including, without limitation, to act reasonably, fairly or in
good faith. The parties expect to execute the Definitive Documentation as
promptly as practicable and no later than 70 days from the date hereof (provided
that the Definitive Documentation shall be acceptable to each party in its
sole
and absolute discretion). If the Definitive Documentation shall have been
executed by both parties, it is the parties’ mutual desire that in accordance
with the terms and conditions of such Definitive Documentation, the Transaction
be consummated as promptly as practicable.
3. HSR.
Seller
and Buyer will use their best efforts to: (i) file with the Federal Trade
Commission and/or the Department of Justice, as applicable, the required
▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvement Act of 1976, as amended (the
“HSR
Act”),
notification and report forms within 10 days following execution of this Letter,
and will request expedited treatment (i.e., early termination) of such filing;
(ii) furnish any supplemental information which may be requested in connection
therewith as promptly as practicable; and (iii) obtain clearance under the
HSR
Act, either through early termination, expiration of the waiting period or
otherwise, as soon as possible (it being understood that neither Buyer nor
Seller shall be required to take any action with respect to selling, holding
separate or otherwise disposing of any business or assets or conducting their
or
their respective subsidiaries’ business in any specified manner in order to
obtain such clearance). If the Letter is terminated, Seller and Buyer shall
take
all action to immediately terminate all governmental and regulatory filings
theretofore made, including the HSR Act filing.
4. Transaction.
Under
the Definitive Documentation, Buyer will have the Option, subject to the terms
and conditions thereof, for a period from the date hereof until the End Date
(or
the Extended End Date, as the case may be), to purchase all of the issued and
outstanding membership interests of the Company, for an aggregate consideration
of $1.519 billion, which will consist of (i) the $10 million delivered upon
execution of this Letter, (ii) at the closing of the Transaction (the
“Closing”),
$1.015 billion in immediately available funds and 12,842,000 shares of Buyer
common stock, (iii) the Company and its subsidiaries shall have no more than
$300 million in third party debt obligations (consisting of borrowings under
the
Company’s Credit Facility with Citicorp USA, Inc. and Bear ▇▇▇▇▇▇▇ Corporate
Lending Inc., dated as of December 20, 2005 (the “Credit
Facility”))
at
Closing, and (iv) the Company and its subsidiaries shall have $50 million of
cash(2)
at
Closing (the “Cash
Amount”).
If,
as of the date of the Closing (the “Closing
Date”),
(i)
the Cash Amount is less than $50 million, then the cash portion of the purchase
price shall be reduced by the amount of any such shortfall and (ii) the Cash
Amount is more than $50 million, then either, at the Buyer’s option, (A) the
cash portion of the purchase price shall be increased by the amount of any
such
excess or (B) the Company shall distribute such excess cash to Seller. In
addition, if at Closing: (A) the Net Working Capital (as defined below) is
less
than $0 (the “Specified
Target”),
then
the cash portion of the purchase price shall be reduced by the amount of any
shortfall; and (B) the Net Working Capital is more than the Specified Target,
then Buyer will have the option to either: (x) adjust the aggregate cash
consideration upwards by the amount of any excess; or (y) cause the Company
to
reduce the Net Working Capital to such Specified Target by distributing cash
to
Seller. “Net
Working Capital”
shall
mean current assets of the Company minus current liabilities of the Company,
as
defined by GAAP (and consistent, with respect to presentation, with the June
30
Financials (as hereafter defined)), excluding receivables or payables due to
or
from AREP or its affiliates which are being eliminated by the Parents as part
of
the Transaction, cash and all liabilities and obligations relating to the
Company’s or its Subsidiaries’ hedging contracts and any other derivative
financial instruments,
and the
Company and its subsidiaries shall have been operating in the ordinary course
consistent with past practice
with
respect to net working capital items.
| (2) |
For
the avoidance of doubt, neither “cash” nor “cash equivalents” shall
include certain items such as monies restricted in connection with
securing bonding requirements for plugging and abandonment obligations
or
other similar items.
|
| (3) |
Unless
the Credit Facility is paid off by Buyer as part of the Transaction,
the
consents, waivers and/or amendments that Buyer shall obtain from
the
lenders under the Credit Facility shall include consent to (i) waive
change of control, (ii) elimination of ▇▇▇▇▇▇, (iii) release of the
Stock
and the Note (as referred to in the Restructuring) from pledges for
distribution to Seller, and (iv) distribution of the Stock and the
Note
and any excess cash to Seller as a result of adjustments relating
to cash
or Net Working Capital at Closing. Buyer will either obtain such
required
consents, together with any other consents under the Credit Facility
required in order to consummate the Restructuring and the Transaction,
or
pay all amounts outstanding under the Credit Facility at
Closing.
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2
At
Closing, Seller shall unwind the Company’s and its subsidiaries’ hedging
contracts and Seller shall retain all liabilities and obligations (or positive
benefits and value) relating to the hedging contracts.
5. Exclusivity.
From
the date hereof until the termination of this Letter (such period, the
“Exclusivity
Period”):
(a) none
of
the Parents, Seller, the Company, the Company’s subsidiaries (including for
purposes of this Letter, NEG Holding, of which the Company is the managing
member), or any of their respective (i) directors, officers or affiliates or
(ii) advisors, investment bankers, financial advisors, attorneys, accountants,
consultants, agents or employees, but only in the case of clause (ii) if and
to
the extent authorized to act on the behalf of the foregoing for the following
purposes (collectively, “Representatives”)
shall
directly or indirectly, (A) initiate, solicit, invite or facilitate any inquiry,
proposal or offer concerning the merger or sale of any of
the
assets of or equity interests in (whether by way of a single or series of direct
purchases, mergers, or consolidations or otherwise) the Company or any of its
subsidiaries, other than the sale of assets in the ordinary course of business
consistent with past practice (any such inquires, or alternative offer or
proposal, a “Competing
Proposal”)
or (B)
engage or participate in any negotiations or discussions concerning (it being
understood that a discussion consisting of a rejection of negotiations or
discussions or a referral to someone else who provides such a rejection shall
not be a violation of this Section
5(a)),
or
provide access to its properties, books and records or any nonpublic information
or data to, any person in connection with, any Competing Proposal, or execute
or
enter into any agreement, understanding or letter of intent with respect to, or
accept, any Competing Proposal, in each case other than the transactions
expressly contemplated or permitted herein;
(b) the
Parents, Seller, the Company, the Company’s subsidiaries and their respective
Representatives shall cease and terminate any and all discussions, negotiations
and any provision of access to their properties, books and records, nonpublic
information or data, with any person regarding any Competing Proposal (and
shall
promptly provide written notice to Buyer of receipt of any bona fide written
Competing Proposal of which any of ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇,
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇ or ▇▇▇▇ ▇▇▇▇▇▇ is aware, and the material terms
and
conditions thereof);
(c) the
Parents, Seller, the Company and their subsidiaries and Representatives shall
instruct ▇▇▇▇ and NEGI’s employees, in their capacity as managers of the Company
or its subsidiaries (and only to the extent that ▇▇▇▇ and such ▇▇▇▇ employees
possess or have access to confidential or non-public information of, or
participate in the management of, the Company or its subsidiaries (“NEGI’s
Relevant Employees”),
and
the Parents, Seller, the Company and their subsidiaries shall use their
commercially reasonable efforts, consistent with applicable laws, to cause
▇▇▇▇
and NEGI’s Relevant Employees: (i) not to provide access to any such
confidential or nonpublic information or data to, any person in connection
with
any Competing Proposal; and (ii) to cease and terminate any and all provision
of
access to such confidential or nonpublic information or data, with any person
regarding any Competing Proposal; and
(d) the
Parents and Seller shall, and shall cause the Company, the Company’s
subsidiaries and their respective Representatives (i) to take affirmative action
to prevent any registration statements of NEG, Inc., the Company or any of
the
Company’s subsidiaries filed with the SEC prior to the date hereof that are not
yet effective, from being amended or becoming effective (provided,
however,
that
Seller shall not be required to withdraw any such registration statements and
shall not be prohibited from making any amendments thereto required by the
SEC
in order to avoid the forced involuntary withdrawal of such registration
statements by the SEC); (ii) not to file any such registration statements or
similar forms or register any securities with respect to NEG, Inc. the Company
or any of the Company’s subsidiaries with the SEC; provided,
that
the foregoing shall not apply to ▇▇▇▇; and (iii) to cease all actions in
furtherance of marketing or completing the initial public offering of NEG,
Inc.,
the Company or any of the Company’ subsidiaries or making effective any
registration statements, provided,
that
nothing in this clause (iii) will limit Seller’s right to continue internal
preparation and discussions with its Representatives with respect to such
registration statements so long as such actions are kept confidential.
3
6. Due
Diligence.
In
order for Buyer and Seller to conduct their respective business, accounting
and
legal due diligence review of each other (the “Due
Diligence”),
Seller and Buyer agree to provide each other with reasonable cooperation and
access, for a period from the date hereof until the termination of this Letter,
to all of their and their subsidiaries’ respective, and in the case of Seller,
to the Company’s and the Company’s subsidiaries’ respective, properties,
offices, books and records (including bankruptcy records), abstracts of title,
title opinions, title files, ownership maps, lease files, assignments, division
orders, production, drilling and imbalance reports, operating records and
agreements, well files, financial and accounting records (including SEC
correspondence), geological, geophysical and engineering records, contracts,
commitments and such financial information (including work papers), operating
data, and all other information concerning their businesses, properties,
personnel, representatives, landlords/sublandlords, tenants, licensees and
franchisees as Buyer or Seller, as the case may be, may request. Buyer and
Seller and their respective subsidiaries will (and Seller will cause the Company
and its subsidiaries to) provide each other with reasonable access and
cooperation as necessary to facilitate their respective ongoing Due Diligence,
including access to, among other persons, management, Representatives and
customers; provided,
however,
that
only management of Buyer or Seller (or the Company and its subsidiaries) may
be
contacted and any contact of such other persons will be coordinated through
a
member of management of Buyer or Seller or the Company, as applicable,
provided,
that
the Representatives, personnel and customers of Buyer or Seller (or the Company
and its subsidiaries), as the case may be, may be contacted by the other party
in the ordinary course of business consistent with past practice.
Notwithstanding the foregoing, Buyer and Seller will cooperate to limit their
respective reviews so as to avoid (i) issues under applicable antitrust rules,
regulations and interpretations and (ii) any conflicts with the provisions
of
any confidentiality agreements, license agreements or other restrictive
agreements with third parties; provided,
that
the disclosing party will take such specific actions as are reasonably requested
by the recipient and, at the recipient’s expense if such additional fees to such
third parties are required, seek to enter into arrangements or obtain waivers
or
consents that would permit the provision of information without any such
limitations.
7. Cooperation
with Financing.
The
Parents and Seller shall, and shall cause the Company and its subsidiaries
and
its and their respective Representatives to use their commercially reasonable
efforts to provide (subject to customary confidentiality agreements) and will
request that the Company’s auditors and reserve engineers provide (at Buyer’s
ultimate expense), reasonably necessary cooperation on a timely basis in
connection with the arrangement of the Buyer’s equity and debt financing,
including furnishing Buyer and its financing sources with timely financial
information regarding the Company and the Company’s subsidiaries as shall be
requested by Buyer (and including, with respect to any audited financial
statements and engineering reserve reports, any consents to use the reports
of
the Company’s auditors and engineers thereon). In addition, the Parents and
Seller shall request, and shall cause the Company and its subsidiaries to
request the management of the Company to use their commercially reasonable
efforts (i) to meet with investors in presentations, meetings, road shows and
due diligence sessions, (ii) to provide timely assistance by providing
information in connection with Buyer’s preparation of pro forma business
projections, offering memorandum and similar materials (each of which shall
be
the sole responsibility of Buyer to prepare and approve),(4) and
(iii)
otherwise cooperate with the marketing efforts of Buyer for any of Buyer’s
equity and debt financing. It is a condition of the obligations set forth above
and in Section
6
(with
respect to both Buyer and Seller) that in requesting information and assistance
hereunder and under Section
6
(with
respect to both Buyer and Seller), Buyer shall act in a commercially reasonable
manner, including, without limitation, with respect to the amount of data and
timing of responses requested by Buyer, and in determining whether the
obligations set forth above and in Section
6
(with
respect to both Buyer and Seller) have been satisfied, and in determining
whether such parties acted reasonably or in a commercially reasonable manner,
such parties shall not be required to “drop everything” or ignore their existing
responsibilities to conduct their business and comply with their SEC or other
reporting obligations. In addition, neither Parents, the Seller, the Company,
nor their affiliates will have any liability to Buyer, its financing sources
or
otherwise should Buyer fail to secure adequate financing to close the
transactions contemplated hereby.
| (4) |
It
is intended that any such forward-looking financial information,
if
included in materials provided to potential financing parties, will
either
be subject to a confidentiality agreement or be a part of consolidated
information of Buyer (but without identifying the components thereof
attributable to the Company or identifying the Company as the source
thereof), and in any case, will not be included in the offering memorandum
prepared in connection with the financing.
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4
Buyer
shall indemnify the Parents, Seller, Seller’s subsidiaries and the directors and
officers of the foregoing, for any claims, liabilities and related expenses
relating to Buyer’s equity and debt offerings pursuant to the Transaction (other
than any such claims, liabilities and related expenses arising solely from
information provided by such parties in writing and expressly approved by such
parties in writing for use in a prospectus or offering memorandum). Neither
the
Parents nor Seller will be obligated to execute agreements with underwriters
or
purchasers in the Buyer’s equity and debt offerings pursuant to the Transaction
or be responsible for any representations or indemnification thereto. The
Definitive Documentation shall contain provisions substantially similar to
the
two foregoing sentences.
8. Transaction
Expenses.
Each
party
shall bear its own fees, costs and expenses related to the negotiation,
investigations, due diligence and consummation of the Transaction. The
Definitive Documentation will provide that the Parents and Seller shall be
liable for all of their own and the Company’s, and any of its subsidiaries’ or
affiliates’ transaction expenses, including fees and expenses of financial
advisors, attorneys and other advisors;
provided,
that
any transfer taxes resulting from Seller’s transfer of the Company’s membership
interests to Buyer shall be split equally by Buyer and Seller.
9. Ordinary
Course.
From
the date hereof, except as contemplated by and in furtherance of the
Restructuring, the Parents and Seller will cause the Company and the Company’s
subsidiaries to conduct their business in the ordinary course in substantially
the same manner in which it previously has been conducted, and not to (it being
understood and agreed that the provisions hereof shall not be applicable to
▇▇▇▇, but will be applicable to NEG Holding and its subsidiaries):
(a) (i)
acquire (by merger, consolidation, acquisition of stock or assets or otherwise)
or organize, any corporation, limited liability company, partnership, joint
venture, trust or other entity or person or any business organization or
division thereof or (ii) acquire any rights, assets or properties other than
in
the ordinary course of business consistent with past practice;
(b) amend
or
otherwise change the constituent or organizational documents or alter through
merger, liquidation, reorganization, restructuring or in any other fashion
the
corporate structure or ownership of the Company or its
subsidiaries;
(c) sell,
divest, transfer or otherwise dispose of any assets or equity interests, except
regular sales of oil and gas sold from out of the ground or storage tanks or
other inventories and supplies in the ordinary course of business consistent
with past practice; provided,
that
the Company may also sell, divest, transfer or otherwise dispose of other assets
in the ordinary course of business consistent with past practice not in excess
in the aggregate of $100,000, or such other assets in the ordinary course of
business consistent with past practice with the consent of Buyer not to be
unreasonably withheld; provided,
further,
that
the proceeds to be received from any such sale, divesture, transfer or
disposition shall be retained for the benefit of Buyer at Closing and shall
not
be counted towards the Cash Amount or Net Working Capital);
5
(d) lease,
license, sublicense, mortgage, pledge, encumber or create, incur, assume or
cause to be subjected to any lien (other than liens securing the Credit Facility
and immaterial liens) on, any of the assets of the Company or its subsidiaries,
except in the ordinary course of business in accordance with past
practice;
(e) other
than to borrow against its existing credit lines for ordinary course working
capital purposes (i) incur or modify any indebtedness for borrowed money or
issue any debt securities or any warrants or rights to acquire any debt security
(other than, with respect to the Company, in connection with the pending
amendment to its bank facility), (ii) assume, guarantee or endorse or otherwise
become responsible for, the obligations of any person, (iii) enter into any
off-balance sheet financing arrangement or any accounts receivable or payable
financing arrangement, or (iv) make any loans, advances or enter into any other
financing commitments, including without limitation, any financing commitments
or obligations to Seller or any of its affiliates (other than the Company or
its
subsidiaries);
(f) pay,
make
or declare any dividends or distributions (other than cash tax distributions
and
cash distributions pursuant to the Operating Agreement of NEG Holding dated
May
1, 2001)(5) in
respect of any of its equity interests; or
(g) issue,
grant, sell, transfer, deliver, pledge, promise, dispose of or encumber, or
authorize the issuance, grant, sale, transfer, deliverance, pledge, promise,
disposition or encumbrance of, or alter or modify the terms of rights or
obligations under, any equity interests, or any options, warrants, convertible
or exchangeable securities or other rights of any kind to acquire any equity
interest or any other ownership interest of the Company or any of its
subsidiaries.
10. Entire
Agreement; Confidentiality; No Third Party Beneficiaries.
This
Letter (including the Term Sheet) and the confidentiality agreement dated as
of
July 18, 2006 (the “Confidentiality
Agreement”),
among, Buyer, AREP and ▇▇▇▇, constitutes the entire agreement between the
parties and any of their respective affiliates and supersedes all prior
communications, agreements and understandings (written or oral) with respect
to
the subject matter hereof. The parties acknowledge and agree that the terms
of
the Confidentiality Agreement shall continue in full force and effect and apply
in all respects to this Letter and any information provided in accordance with
the terms hereof. No
oral
agreements between the parties will be deemed to exist with respect to the
Transaction. This Letter is solely for the benefit of the parties hereto and
their respective successors and permitted assigns, and shall not be deemed
to
confer upon or give to any other third party any remedy, claim, liability,
reimbursement, cause of action or other right.
11. Termination.
This
Letter shall terminate:
(a) automatically,
upon the first to occur of the following: (x) the close of business on November
16, 2006 (the “End
Date”),
provided,
that,
if Buyer shall have satisfied in all material respects its obligations under
Section
3
above
through the close of business on the End Date but the waiting period (and any
extension thereof) applicable to the Transaction under the HSR Act shall not
have been terminated or expired, Buyer and Seller agree that the End Date shall
be extended to the close of business on January 16, 2007 (the “Extended
End Date”)
to
allow more time for such waiting period to have terminated or expired; and
(y)
the execution and delivery of Definitive Documentation, or;
| (5) |
Cash
distributions pursuant to the Operating Agreement of NEG Holding
are
solely to allow ▇▇▇▇ to pay interest on its 10.75% senior notes due
2006
(which are held by the Company), and are generally made at the end
of each
October and April, in the amount of approximately $8 million per
distribution.
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6
(b) by
mutual
written consent of each of the parties hereto;
(c) by
Buyer
upon written notice to Seller, if:(6)
(i) Seller
breaches in any material respect: (x) its obligations under Section
5
during
the Exclusivity Period; or (y) its obligations provided in Sections
3, 6, 7 or 9
(provided that if Seller shall cure such breach prior to the end of 3 full
business days following the date of Seller’s receipt of written notice (which
notice must be given on a business day), this Letter shall not be terminated
and
which cure period if invoked, shall extend the End Date referenced in
Section
11(a)
by such
number of days);
(ii) the
Company’s most recent Form S-1, NEG, Inc.’s most recent Form S-1 and Form S-4,
or the most recent public filing by AREP to the extent regarding segment
information of the Company, in each case made prior to the date hereof, taken
as
a whole, excluding the financial statements contained therein (which are
addressed in clause (iii) below) (the “SEC
Reports”)
(excluding the effect of any general disclaimers, risk factors or
forward-looking statements, but after taking into account any disclosure in
such
provisions that are matters of fact), are materially untrue or incomplete or
include a materially untrue statement of material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein not materially misleading, in each case as of the date hereof
(provided that the failure to update financial and accounting information to
June 30, 2006 or to respond to SEC comments shall not in and of itself be
conclusive of such SEC Reports being materially untrue or incomplete or be
deemed to be a material omission);
(iii) (A)
the
financial statements contained in the SEC Reports (provided that the failure
to
update financial and accounting information to June 30, 2006 or to respond
to
SEC comments shall not in and of itself be conclusive of such financial
statements being materially untrue or incomplete or be deemed to be a material
omission) or the NEG Oil & Gas LLC June 30, 2006 financial statements (the
“June
30 Financials”)
that
have been provided to Buyer, or (B) the December 31, 2005 reserve report that
has been provided to Buyer, are materially untrue or incomplete or include
a
materially untrue statement of material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein not materially misleading, in each case as of the date of the financial
statements contained in such SEC Reports, such June 30 Financials or December
31, 2005 reserve report; or there shall have been a Material Adverse Change
with
respect to the Company (as defined in the Term Sheet) between June 30, 2006
and
the date hereof;
(iv) as
of any
date no earlier than 5 days prior to the End Date (or, if applicable, 5 days
prior to the Extended End Date), Buyer is ready and willing to effect the
Closing and able to obtain the financing**
but, (A)
Seller does not have board approval to enter into Definitive Documentation,
(B)
Seller, the Company or any material subsidiary of the Company is not duly
formed, or (C) Seller does not possess unencumbered title to all of the equity
interests of the Company (other than liens securing the Credit Facility and
immaterial liens);
(v)
as of
any date no earlier than 5 days prior to the End Date (or, if applicable, 5
days
prior to the Extended End Date), Buyer is ready and willing to effect the
Closing and able to obtain the financing**
but,
Seller and the Company are unable to complete the Restructuring(7) prior
to
or on such date (provided that, if such inability is the result of an injunction
issued by a court of competent jurisdiction, Buyer will not be entitled to
terminate the Letter under this clause (v) unless Buyer shall have agreed to
extend and has extended the End Date to the Extended End Date to allow Seller
to
remove such injunction, in which event the End Date shall be extended to the
Extended End Date); and
| (6) |
To
the extent that any items described in Sections
11(c)(ii)
or
11(c)(iii)
are based upon or include matters relating to ▇▇▇▇▇▇▇▇▇▇ Ranch (in
which
Buyer owns a controlling interest) of which matters Buyer has knowledge
as
of the date hereof, such items shall not result in any breach of
such
Sections or otherwise give rise to any right of Buyer to terminate
this
Letter.
|
| (7) |
As
used in clause (v) of Section
11,
the phrase “Seller and the Company are unable to complete the
Restructuring” shall not include any obligation or ability on the part of
such parties to obtain any consents or amendments, or pay any amounts
outstanding, under the Credit Facility, as contemplated in footnote
3 of
this Letter, it being the sole obligation of Buyer to obtain or
pay the
same.
|
| ** |
As
used in clauses (iv) and (v) of Section 11, the phrase “able to
obtain the financing”, means that Buyer shall be in a position to receive,
within 48 hours, the proceeds of the financing necessary to effect
the
Closing (including, if necessary as a result of required consents
contemplated in footnote 3 not being obtained, the proceeds necessary
to
pay off the Credit Facility) by delivering a borrowing or drawdown
or
similar notice, or take similar action that may be applicable to
a 144A
equity or debt drawdown (and that Buyer has entered into binding
definitive financing documentation for such financing) but shall
not mean
that Buyer shall have obtained or irrevocably bound itself to obtain
the
proceeds of such financing.
|
7
(vi) the
Company and its subsidiaries do not hold industry standard title to a material
portion of their respective properties (other than liens securing the Credit
Facility and immaterial liens) such that the SEC Reports or the June 30
Financials are materially untrue or incomplete or include a materially untrue
statement of material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein not
materially misleading.
The
parties agree that, in the event of termination of this Letter by Buyer as
set
forth in Section
11(c)
above,
then Buyer shall be entitled to the return of the $10 million paid
to
Seller as provided in Section
1.
Buyer
agrees that, except with respect to breaches of Section
5
(which
shall be subject to the following paragraph), (i) it shall
not seek
to recover any losses or damages under this Letter or for any breach of the
terms of this Letter beyond the return of such $10 million, (ii) the return
of
such $10 million payment is Buyer’s sole and exclusive remedy under this Letter
or for any breach of the terms of this Letter and (iii) Buyer shall in no event
seek or be entitled to an injunction or specific performance of any kind.
The
Parents, Seller, the Company and their affiliates agree that the retention
of
the $10 million paid to Seller pursuant to Section
1
shall be
their sole and exclusive remedy under this Letter or
for
any breach of the terms of this
Letter
and that they shall
not seek
to recover any losses or damages, and shall in no event, seek or be entitled
to
an injunction or specific performance of any kind. The Parents and Seller
agree to return to Buyer the $10 million amount provided in Section
1,
in
immediately available funds to an account designated by Buyer, immediately
if
this Letter terminates pursuant to Section
11(c).
If
Definitive Documentation has been executed and delivered, such Definitive
Documentation shall contain substantially similar termination provisions as
in
this Section
11
in
addition to customary termination rights for Seller and Buyer. Notwithstanding
anything in this agreement to the contrary, if Buyer provides Seller with a
good
faith written notice of termination pursuant to Section
11(c)
prior to
the automatic termination of this Letter pursuant to Section
11(a)(x),
then
Buyer’s right to make a claim for the return of the $10 million paid to Seller
shall survive until final resolution of such claim (notwithstanding an
intervening automatic termination pursuant to Section
11(a)(x)). Buyer
agrees that neither (a) the declaration of a “Default” or an “Event of Default”
by the agent or the lenders under the Credit Facility as a result of the
consummation of the Transaction or the Restructuring or the unwinding of ▇▇▇▇▇▇
or the distribution of the Stock and the Note pursuant to the Restructuring
or
the distribution of cash pursuant to adjustments set forth in Section
4
or any
similar provisions of the Definitive Documentation nor (b) the failure of the
lenders under the Credit Facility to consent to any assignment, waiver,
amendment, modification, forbearance or change under the Credit Facility
necessary for the consummation of the Transaction, shall in any event give
rise
to a right of Buyer to receive a refund or return of the $10 million paid to
Seller. Notwithstanding the foregoing, none of the foregoing limitations shall
apply with respect to any breaches of the Confidentiality Agreement, which
shall
continue on its own terms as a fully enforceable agreement separate and apart
from this Letter.
The
parties agree that, in the event of termination of this Letter by Buyer as
set
forth in Section
11(c)(i)(x)
above
(i.e., breach
of
Section
5),
then:
(i) Buyer shall be entitled to the return of the $10 million paid
to
Seller as provided in Section
1;
(ii) if
the Parents, Seller, the Company or any of their affiliates shall, within three
(3) months following such termination of this Letter, enter into a written
agreement with a third party (as to which any of the parties bound by
Section
5
herein
violated their obligations under Section
5)
with
respect to a Competing Proposal, Buyer shall be entitled to an additional
payment of $10 million from the Parents; (iii) Buyer shall
not seek
to recover any losses or damages beyond such amounts; (iv) the payment of such
amounts is Buyer’s sole and exclusive remedy under this Letter or for any breach
of the terms of this Letter; and (v) Buyer shall in no event seek or be entitled
to an injunction or specific performance of any kind. The Parents and
Seller
agree to make such payments to Buyer, in immediately available funds to an
account designated by Buyer, immediately if this Letter terminates pursuant
to
Section
11(c)(i)(x).
8
12. Assignment.
Neither
this Letter nor any rights or obligations hereunder may be assigned by any
party
hereto without the prior written consent of the other party.
13. Counterparts.
This
Letter may be signed in one or more counterparts, each of which may be an
original or facsimile and all of which taken together shall constitute one
and
the same instrument.
14. Notices.
All
notices and other communications hereunder shall be in writing and delivered
(i)
personally, (ii) by overnight courier or (iii) facsimile (with a PDF or other
copy by electronic mail), and shall be deemed duly given on the date of
delivery. All notices hereunder shall be delivered as set forth below, or
pursuant to such other instructions as may be designated in writing by the
party
to receive such notice.
if
to
Buyer, to
Riata
Energy, Inc.
▇▇▇▇
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: General Counsel
Facsimile No.: (405) 753- 5975
Email: ▇▇▇▇▇▇▇@▇▇▇▇▇▇▇▇▇▇▇.▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: General Counsel
Facsimile No.: (405) 753- 5975
Email: ▇▇▇▇▇▇▇@▇▇▇▇▇▇▇▇▇▇▇.▇▇▇
with
a
copy to
▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP
▇▇▇
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇
▇▇▇▇,
▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention:
▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
▇▇▇▇▇▇
▇.
▇▇▇▇▇, Esq.
Facsimile
No.: (▇▇▇) ▇▇▇-▇▇▇▇
Email:
▇▇▇▇▇▇@▇▇▇▇▇▇.▇▇▇
Email:
▇▇▇▇▇▇@▇▇▇▇▇▇.▇▇▇
if
to
AREP, AREH or Seller, to
White
Plains
Plaza
▇▇▇
▇▇▇▇▇▇▇▇
▇▇▇▇▇▇ -
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇
▇▇▇▇▇▇,
▇▇
▇▇▇▇▇
Attention:
▇▇▇▇▇▇▇ ▇▇▇▇▇▇, Esq.
Facsimile
No.: (▇▇▇) ▇▇▇-▇▇▇▇
Email:
▇▇▇@▇▇▇▇.▇▇▇
with
a
copy to:
DLA
▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇
1251
Avenue of the Americas
▇▇▇
▇▇▇▇,
▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention:
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Esq.
Facsimile
No.: (▇▇▇) ▇▇▇-▇▇▇▇
Email:
▇▇▇▇▇▇.▇▇▇▇▇▇▇▇▇@▇▇▇▇▇▇▇▇.▇▇▇
9
15. Governing
Law; Venue.
This
Letter shall be governed by and construed in accordance with the laws of the
State of New York. Each party to this Letter agrees that it will bring any
action or proceeding in respect of any claim arising out of or related to this
Letter or the Transaction, whether in tort or contract or at law or in equity,
exclusively in the federal or state courts located in New York, New York (the
“Chosen
Courts”).
In
addition, each party hereby (a) irrevocably submits to the exclusive
jurisdiction of the Chosen Courts, (b) waives, to the fullest extent permitted
by applicable law, any objection to laying venue in the Chosen Court and agrees
that it will not attempt to deny or defeat such personal jurisdiction by motion
or other request for leave from any such court, and (c) waives any objection
or
defense that the Chosen Court is an inconvenient forum or does not have personal
jurisdiction over any party to this Letter. Each party hereto further agrees,
to
the fullest extent permitted by applicable law, that any final judgment in
any
such action or proceeding shall be conclusive and may be enforced in any other
jurisdiction within or outside the United States by suit on the judgment.
Further, each party hereto hereby waives all right to trial by jury in any
claim, action, proceeding or counterclaim by either party against the other
on
any matters arising out of or in any way connected with this
Letter.
[Signature
page follows]
10
If
the
foregoing terms and conditions correctly sets forth your understanding with
respect to the Option and the Transaction, please indicate by executing a copy
of this Letter as provided below and returning the same to the
undersigned.
RIATA
ENERGY, INC.
By:
____________/s/
▇▇▇ ▇. Ward__
Name:
▇▇▇
▇. ▇▇▇▇
Title:
Chief Executive Officer
ACCEPTED
AND AGREED:
AMERICAN
REAL ESTATE PARTNERS, L.P.
By:
American Property Investors, Inc.,
its
general partner
By:
______/s/
▇▇▇▇▇ ▇. Meister__________
Name:
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title:
Principal Executive Officer
AMERICAN
REAL ESTATE HOLDINGS
LIMITED
PARTNERSHIP
By:
American Property Investors, Inc.,
its
general partner
By:
________/s/
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ _____
Name:
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title:
Principal Executive Officer
ANNEX
A
THIS
TERM SHEET IS A PRELIMINARY SUMMARY OF NON-BINDING TERMS CONCERNING A POSSIBLE
TRANSACTION BETWEEN THE PARTIES. THIS TERM SHEET IS FOR DISCUSSION PURPOSES
ONLY
IN ORDER TO FACILITATE DISCUSSIONS BETWEEN THE PARTIES REGARDING A POTENTIAL
TRANSACTION AND DOES NOT CONSTITUTE AND WILL NOT GIVE RISE TO ANY LEGALLY
BINDING AGREEMENT, OBLIGATION OR DUTY OF ANY KIND OR CHARACTER (INCLUDING,
WITHOUT LIMITATION, ANY AGREEMENT, OBLIGATION OR DUTY TO ACT REASONABLY,
FAIRLY
OR IN GOOD FAITH) ON THE PART OF EITHER PARTY OR THEIR RESPECTIVE AFFILIATES,
OFFICERS, DIRECTORS, STOCKHOLDERS, EMPLOYEES OR
AGENTS.
Term
Sheet
|
Defined
Terms:
|
Capitalized
terms used but not defined in this Term Sheet have the meanings given
in
the Letter to which this Term Sheet is attached.
|
|
Buyer:
|
Riata
Energy, Inc. or a subsidiary thereof.
|
|
Seller:
|
AREP
O & G Holdings LLC, the sole owner of membership interests in NEG Oil
& Gas, LLC, after giving effect to the Restructuring (as defined
below). For
purposes of this Term Sheet and the avoidance of doubt, the Company
shall
not be deemed to include the corporate entity, National Energy Group,
Inc.
but will be deemed to include all of the issued and outstanding membership
interests of NEG Holding LLC held by ▇▇▇▇ to be acquired by the Company
in
the Restructuring, and ▇▇▇▇ shall not be deemed to be a direct or
indirect
subsidiary of the Company, the Seller or the
Parents.(8)
|
|
The
Parents:
|
American
Real Estate Partners L.P.
American
Real Estate Holdings Limited Partnership
AREP
Oil & Gas Holdings, LLC
|
|
Transaction;
Restructuring:
|
If
Buyer elects to exercise the Option, on the Closing Date, Buyer will
purchase from Seller, and Seller will sell to Buyer, all of the issued
and
outstanding membership interests of the Company.
Prior
to the Closing, Seller will, or will cause the Company to (or will
cause
NEG Holding to), at Seller’s expense, exercise its redemption/call right
provided in Section 5.4 of the Operating Agreement For NEG Holding
LLC,
dated May 1, 2001 (or achieve the same result through another mechanism),
and distribute (i) the Company’s 50.1% common stock interest of ▇▇▇▇ (the
“Stock”)
to Seller or its other affiliates and (ii) the $148.6 million ▇▇▇▇
10.75%
senior notes due 2006 (extended maturity to 10/31/2007) held by the
Company (the “Note”)
in a transaction to close upon and simultaneously with the Closing,
such
that the Company will own 100% of NEG Holding (the “Restructuring”);
Parents will indemnify Buyer for all liabilities related to ▇▇▇▇,
any
claims of or liabilities to the shareholders of ▇▇▇▇, or any obligations
or liabilities related to the exercise of the redemption/call
right; Buyer
will either obtain any required consents or amendments, or pay all
amounts
outstanding, under the Credit Facility at Closing, as contemplated
in
footnote 3 of the Letter.
As
between Buyer and Seller, Parents and Seller shall retain all liabilities
and obligations related to the Restructuring and the cash-out of
the
public shareholders of ▇▇▇▇, if any, and shall bear all liabilities,
costs
and expenses associated with or resulting from the Restructuring,
or any
claims made by the public shareholders of ▇▇▇▇ regarding ▇▇▇▇, the
Restructuring, or any subsequent liquidation or similar action with
respect to ▇▇▇▇ (the “Restructuring
Liabilities”).
|
| (8) |
As
of July 31, 2006, NEGI’s assets, other than its membership interest in NEG
Holding, consisted of: (i) cash and cash equivalents in the amount
of
approximately $3.06 million; (ii) accounts receivable from the Company
and
its subsidiaries under operating and management contracts (all of
which
will be terminated as of the closing of the Transaction) in the amount
of
approximately $1.4 million; (iii) a deferred tax asset in the amount
of
approximately $6.2 million; and (iv) other assets unrelated to oil
and gas
operations (including, furniture, computers, leases for office space
and
office equipment and similar items, but not including any information
technology, software and data relevant to the oil and gas operations
of
the Company or its subsidiaries, including NEG Holding, whether or
not on
such computers, which will be transferred to Buyer as part of the
Transaction). All references herein to the SEC Reports (as defined
in
Section
11(c)(ii)
of the Letter) and financial statements shall be deemed to exclude
such
assets of ▇▇▇▇ (other than NEGI’s membership interests in NEG Holding and
such information technology, software and
data).
|
A-1
|
Purchase
Price:
|
Aggregate
purchase price of $1.519 billion (described in further detail below),
subject to the mandatory cash adjustment and working capital adjustment
described in Section
4
of
the Letter.
|
|
Cash:
|
$1.025
billion in immediately available funds currently contemplated to
come
from:
· The
$10 million that has been provided in connection with the execution
of the
Letter shall be applied towards the aggregate purchase price and
shall
reduce the below amounts accordingly
· $400
million will be provided from new 3rd
party common stock issuance
· $625
million will be provided by a bridge loan to be replaced by a high
yield
debt offering (but some of which could be common stock
instead)
|
|
Buyer
Common Stock:
|
12,842,000
shares of Buyer common stock.
▇▇▇
▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ (in each case, together with his wife and
children, entities, trusts and other affiliates, whether or not controlled
(the “Affiliated
Parties”)
holding common stock, preferred stock, options, warrants, or any
other
equity or debt securities or instruments convertible into common
stock, of
Buyer (“Buyer
Equity Securities”))
and Buyer will undertake, that if ▇▇▇ ▇▇▇▇ or ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ or
any
Affiliated Parties acquire any Buyer Equity Securities from Buyer
from
September 1, 2006 until the expiration of the post-Qualified Public
Offering lock-up period applicable to Seller and its affiliates at
less
than fair market value (it being agreed that ▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
and
the Affiliated Parties shall only acquire Buyer Equity Securities
for cash
or tangible assets), other than as part of their participation in
management or employee compensation arrangements not to exceed, with
respect to all employees of Buyer, in the aggregate 2% of outstanding
Buyer common stock per calendar year, then Seller shall be provided
an
opportunity, to close at the same time as any such transaction involving
▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ or the Affiliated Parties, to acquire from
Buyer
a proportionate number of additional Buyer Equity Securities at the
same
price and on the same terms as ▇▇▇ ▇▇▇▇ or ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ or such
Affiliated Parties, as the case may be.
None
of the Parents, Seller or any of their respective affiliates shall
be
restricted from purchasing additional Buyer Equity Securities and
the
Definitive Documentation will contain no “stand-still” provisions on such
purchases.
|
|
Cash
and Debt at Closing:
|
The
Company and its subsidiaries will have $50 million of cash (or, if
the
cash amount is more or less than $50 million, adjustments to the
cash
consideration will be made pursuant to Section
4
of
the Letter) and no more than $300 million of third party debt obligations
(consisting of borrowings under the Credit Facility) at
Closing.
|
|
Transaction
Expenses:
|
See
Section
8
of
the Letter.
|
|
Tax
Treatment:
|
The
purchase of all of the Company's membership interests is substantially
an
asset purchase from the Buyer's perspective (and the Company has
not and
will not elect to be treated as a corporation).
To
the extent possible, Seller will make, and will cause the Company
and its
subsidiaries to make, all Section 754 elections as Buyer may
request.
The
distributions of the Stock and the Note shall not be taxable to the
Company and its subsidiaries.
Any
upstream notes, obligations or liabilities of the Company or its
subsidiaries for the benefit of the Parents, Seller or their respective
affiliates will be eliminated without the incurrence of tax obligations
or
liabilities to the Company or its subsidiaries.
To
the extent any such matters that are intended to be tax neutral to
the
Company and its subsidiaries are not, the Parents shall indemnify
Buyer
against all such taxes.
|
A-2
|
Employee
Matters:
|
Buyer
shall have the option, but not the obligation, to offer employment
to any
or all of the former ▇▇▇▇ employees. Buyer is not responsible for
any
obligations to the former ▇▇▇▇ employees, and Seller or ▇▇▇▇ will
retain
all liabilities and obligations to such employees (including
severance).
|
|
Ordinary
Course Operation:
|
Prior
to Closing, the Company shall be operated in the ordinary course
of
business consistent with past practice and will not, among other
things,
take any actions enumerated in Section
9
of
the Letter.
|
|
IPO
of Buyer:
|
Buyer
shall use its reasonable best efforts to complete an initial public
offering within one year after the Closing (the “Target
Date”),
which shall be an underwritten, broad based offering of in excess
of $100
million in common shares and result in not less than 20 million shares
(including the 144A equity holders) being listed for trading on a
national
securities exchange (a “Qualified
Public Offering”).
|
|
Registration
Rights:
|
Seller
will have customary piggyback registration rights and, following
a
Qualified Public Offering, 3 demand registration rights (including
shelf
registration, if available) with customary terms, restrictions and
blackout periods. Shares of Buyer common stock held by Seller and
its
affiliates will be subject to a lock up (including as to PORTAL and
144A
trading) from the date of issuance until 180 days after a Qualified
Public
Offering of Buyer¸ provided,
that (i) ▇▇▇ ▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ and the Affiliated Parties
agree to
an equivalent lock up for the same period and (ii) Seller shall be
released (a) if and to the same extent as the lock-up with respect
to ▇▇▇
▇▇▇▇ or ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ or the Affiliated Parties is released and
(b)
solely with respect to PORTAL and 144A trading, upon the Target Date.
For
the avoidance of doubt, (A) if Seller exercises its demand registration
right (subject to the terms herein) such registration rights will
have
priority to, and will not be cut back as a result of, piggyback
registration rights held by ▇▇▇ ▇▇▇▇ or ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ or the Affiliated
Parties, (B) if ▇▇▇ ▇▇▇▇ or ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ or the Affiliated Parties
exercise a demand registration right, such registration rights will
have
priority to, and will not be cut back as a result of, piggyback
registration rights held by Seller or its affiliates, and (C) if
any third
party exercises a demand registration right or Buyer otherwise files
a
registration statement or effects an initial public offering, each
of ▇▇▇
▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ and the Affiliated Parties, on the one hand,
and
Seller and its affiliates, on the other, shall have pari passu piggyback
registration rights with respect to each other regarding such registration
or initial public offering.
If
Buyer has not completed a Qualified Public Offering prior to the
Target
Date, Seller will have the right to cause the Company to go public
by
exercising its demand registration right, but such right shall be
subject
to customary terms, restrictions and blackout periods (provided that
Seller may not impose any black-out period for more than 60 days
in any 90
day period or 90 days in any 360 day period). ▇▇▇ ▇▇▇▇ and ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇
and the Affiliated Parties shall not have a parallel pre-Qualified
Public
Offering demand registration right (as described in the preceding
sentence).
Seller
shall have the ability to transfer rights under its registration
rights
agreement (other than the rights described in the immediately preceding
paragraph) to up to two transferees in connection with substantial
(amount
to be determined in Definitive Documentation) sales of its shares
so long
as the overall rights under the registration rights agreement (e.g.,
number of demands, etc.) are not expanded and Seller and such transferees
exercise such registration rights together as a group acting by majority
vote of the shares held by them.
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A-3
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Seller’s
registration rights will be subject to existing priority and timing
of
registration rights of existing 144A holders as provided in the Resale
Registration Rights Agreement between Buyer and Banc of America Securities
LLC, dated December 21, 2005 and attached as Exhibit 4.2 to the Buyer
S-1,
filed on February 10, 2006 with the SEC, which agreement may not
be
amended in any manner detrimental in any material respect to Seller’s
registration rights described in this Term Sheet. Seller shall have
pari
passu rights with any future registration rights granted by Buyer
(including in connection with the contemplated acquisition financing)
for
such periods and on such terms as are agreed by the parties.
Tag
Along Rights: Seller shall have tag along rights with respect to
the
shares purchased or received hereunder on negotiated and block sales
of
substantial blocks of Buyer common stock by ▇▇▇ ▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
and the Affiliated Parties, provided,
that such rights shall expire on the earlier of (i) 2 years after
a
Qualified Public Offering or (ii) such time when the remaining shares
purchased or acquired hereunder, beneficially owned by the Parents,
Seller
and their affiliates taken together, represent in the aggregate less
than
5% of Buyer (but in no event shall such parties be deemed to beneficially
own less than 5% of Buyer as a result of the contemplated acquisition
financing). Prior to the Qualified Public Offering, without Seller’s
consent, neither ▇▇▇ ▇▇▇▇ nor ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ nor the Affiliated
Parties
shall sell Buyer Equity Securities unless Seller has previously sold
all
of its shares of Buyer common stock acquired pursuant to the Transaction
or Seller is provided an opportunity to sell all of such shares in
such
sale on the same terms and conditions as ▇▇▇ ▇▇▇▇ or ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
or
the Affiliated Parties, as the case may be.
Buyer
will bear the registration expenses (exclusive of underwriting discounts
and commissions) of all piggyback and demand registrations, including
the
reasonable fees and expenses of one counsel for the selling holders
of its
securities. The definitive registration rights documentation will
contain
such other provisions with respect to registration rights as are
customary, including cross-indemnification and underwriting
arrangements.
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Material
Adverse Change
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“Material
Adverse Change”
shall mean, when used in connection with Buyer or Seller, as the
case may
be, any change, event, occurrence, condition, circumstance, development
or
effect that, individually or in the aggregate has had, or will have,
a
material adverse effect on the business, properties, assets, liabilities,
condition (financial or otherwise) or results of operations of such
entity
and its subsidiaries taken as a whole, or that would reasonably be
expected to materially delay or adversely affect the ability of such
entity to consummate the Transaction; provided,
however, that any change, event, occurrence, condition, circumstance,
development or effect that is (i) primarily caused by conditions
affecting
the United States economy generally or the economy of any nation
or region
in which such entity or any of its subsidiaries conducts business
that is
material to the business of such entity and its subsidiaries, taken
as a
whole, shall not be taken into account in determining whether there
as
been or would be "Material Adverse Change" on or with respect to
such
entity, (ii) primarily caused by conditions generally affecting the
oil
and gas industry shall not be taken into account in determining whether
there has been or would be a "Material Adverse Change" on or with
respect
to such entity, and (iii) primarily caused by the announcement or
pendency
of the Letter, the Definitive Documentation or the transactions
contemplated hereby shall not be taken into account in determining
whether
there has been or would be a "Material Adverse Change" on or with
respect
to such entity, except in the case of clauses (i) and (ii), to the
extent
such change, event, occurrence, condition, circumstance, development
or
effect has a disproportionate adverse effect on such party and its
subsidiaries as compared to any other person engaged in the same
business.
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A-4
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Seller
Representations and Warranties; Survival:
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None
of the representations and warranties in the definitive purchase
agreement
shall survive the Closing except:
(i) certain
fundamental representations regarding authority, due formation, and
capital structure of the Company and title to equity interests being
sold
shall survive indefinitely;
(ii) representations
and warranties with respect to accuracy in all material respects
of the
SEC Reports (excluding the effect of any general disclaimers, risk
factors
or forward-looking statements, but after taking into account any
disclosure in such provisions that are matters of fact) (subject
to the
same provisos in the Letter), accuracy in all material respects of
updated
financial statements, accuracy in all material respects of the updated
reserve report, industry standard title to properties, absence of
Restructuring Liabilities, termination of affiliate transactions
(including guarantees and obligations to Seller affiliates or to
third
parties on behalf of Seller affiliates), and absence of Material
Adverse
Change of the business since the date of the updated financials shall
survive for 15 months after the Closing;
(iii) representations
and warranties with respect to material environmental liabilities
(which
shall be knowledge based) shall survive 2 years after the Closing;
and
(iv) representations
and warranties with respect to tax liabilities shall survive the
Closing
for a period ending 15 days past the applicable statute of
limitations.
The
representations and warranties in clauses (ii), (iii) and (iv) are
referred to as the “Seller
Business Representations”.
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Buyer
Representations and Warranties; Survival:
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None
of the representations and warranties in the definitive purchase
agreement
shall survive the Closing except:
(i) certain
fundamental representations regarding authority, due formation, and
capital structure of Buyer shall survive indefinitely;
(ii) representations
and warranties with respect to accuracy in all material respects
of the
144A offering memorandum prepared in connection with the raising
of the
third party common stock issuance for the Transaction described under
“Purchase Price - Cash” above (currently contemplated to be approximately
$400 million) (excluding the effect of any general disclaimers, risk
factors or forward-looking statements, but after taking into account
any
disclosure in such provisions that are matters of fact) (subject
to the
same provisos in the Letter), accuracy in all material respects of
financial statements contained in such 144A offering memorandum,
and
absence of Material Adverse Change of the business since the date
of such
financials contained in the 144A offering memorandum shall survive
15
months after the Closing (such representations and warranties in
this
clause (ii), the “Buyer
Business Representations”).
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Indemnification:
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Definitive
Documentation will include post-closing indemnification of Buyer
by the
Parents for (a) Restructuring Liabilities and any other liabilities
related to ▇▇▇▇ (including employee severance and other costs), (b)
all
pre-Closing tax liabilities, (c) liabilities of Seller or the Parents
incurred by Buyer based on the Company’s former status as a subsidiary or
member of the consolidated entity with the Parents, (d) liabilities
related to affiliate transactions and guarantees (e) breaches of
any
covenants, and (f) breaches of representations and warranties stated
to
survive the Closing.
$5
million basket and 25% cap reciprocal with respect to indemnities
for the
Seller Business Representations and Buyer Business
Representations.
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Affiliate
Transactions:
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The
Parents, Seller and the Company shall terminate all obligations and
liabilities of the Company or its subsidiaries to, or on behalf of,
the
Parents, Seller or their respective affiliates, and there shall not
exist
any such remaining liability of the Company or any of its subsidiaries
after the Closing to the Parents, Seller or their other respective
affiliates.
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A-5
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Closing
Conditions:
|
The
Definitive Documentation will contain customary closing conditions
for oil
and gas transactions. Without limiting the foregoing, the closing
conditions shall include: (a) no material adverse change to Buyer
or
Seller since the date of their respective updated financials, (b)
receipt
of all required approvals from governmental authorities including
HSR
approval, (c)
receipt of any material third party consents or approvals, (d) completion
of the Restructuring substantially in accordance with this Term Sheet,
(e)
no injunction, (f) termination
of all affiliate transactions, guarantees (including obligations
to third
parties on behalf of the Parents, Seller or their respective affiliates)
(other than between the Company and the Company’s subsidiaries),
and
(g) Buyer’s receipt of financing.
To
the extent that the parties enter into Definitive Documentation that
contemplates a closing after the End Date (or the Extended End Date,
as
the case may be), such entering into will be by choice of the parties
and
the Definitive Documentation under such circumstances will likely
contain
a drop dead date to be negotiated.
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No
Third Party Beneficiaries:
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This
Term Sheet and the Letter to which it is attached is solely for the
benefit of Buyer and Seller and their respective successors and permitted
assigns and shall not be deemed to confer upon or give to any other
third
party any remedy, claim, liability, reimbursement, cause of action
or
other right.
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Public
Announcements:
|
Except
as may be required by law or legal process and disclosures necessary
in
connection with financing transactions by Buyer or any of its related
entities, neither Buyer nor Seller, nor any of their respective
affiliates, will issue any press release or make any public statement
regarding the Transaction before consummation of the Transaction.
Buyer
acknowledges that (i) Seller will promptly file this Term Sheet and
the
accompanying Letter as an exhibit to an amendment to its Schedule
13D and
(ii) AREP will file a Form 8-K with respect to entering into a material
agreement. Seller acknowledges that Buyer will conduct an investor
conference call with its 144A holders. Buyer and Seller will promptly
issue a joint press release. Each of the parties agrees to consult
with
the other regarding these respective disclosures.
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Governance
Rights:
|
Seller
will not receive any governance rights, boards seats, or other similar
provisions.
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A-6