EXHIBIT 10.1
AGREEMENT
          This Agreement is being entered into as of October 25, 2006 (this
“Agreement”), by and among National Energy Group, Inc. (the “Company”), NEG Oil
& Gas LLC (“NEG Oil & Gas”), NEG, Inc. (“IPOCO”) and American Real Estate
Holdings Limited Partnership (“AREH”). All capitalized terms used but not
defined herein shall have the meanings given such terms in the Agreement and
Plan of Merger dated as of December 7, 2005 (the “Merger Agreement”), by and
among the Company, NEG Oil & Gas, IPOCO and AREH.
          WHEREAS, this Agreement has been duly considered and approved by the
Special Committee, following its consideration of all relevant facts,
circumstances and alternatives and its consultation with its financial and legal
advisors, and such committee has recommended that the Company Board adopt and
approve this Agreement.
          WHEREAS, the Company Board, based on the recommendation of the Special
Committee, has approved and adopted this Agreement and the transactions
contemplated hereby.
          WHEREAS, it is anticipated that, assuming the purchase of the
membership interests contemplated in Section 3 occurs, the Company will
distribute to its common stockholders (through a dividend or tender offer)
approximately $37 million.
          NOW, THEREFORE, in consideration of the foregoing premises and the
representations, warranties, covenants and agreements herein contained, and
intending to be legally bound hereby, the Company, NEG Oil & Gas, IPO Co. and
AREH hereby agree as follows:
          1. Each of the undersigned acknowledges and agrees that no action by
any party in furtherance of the transactions contemplated by that certain
Exclusivity Agreement and Letter of Intent dated September 7, 2006 (the
“Letter”), by and among AREH, AREP and Riata Energy, Inc. (including, without
limitation, the NEG Holding Purchase and the consummation of the Transaction or
the Restructuring (as such capitalized terms are defined in the Letter)), shall
in any event be or be deemed to be a breach of the Merger Agreement or any
representations, warranties, covenants or other provisions thereof (including,
without limitation, Section 4.2 thereof).
          2. Each of the undersigned (including the Company, which, as
contemplated in Section 6.1(a) of the Merger Agreement, is acting hereunder at
the direction of the Special Committee) agrees that the Merger Agreement shall
terminate pursuant to Section 6.1(a) thereof, automatically, without any further
action required, upon the transfer of all of the Company’s membership interest
in NEG Holding LLC (“NEG Holding”) as provided in Section 3 below.
          3. In recognition of the fact that, as contemplated in the Letter, NEG
Oil & Gas or its Affiliate intends to purchase or to cause NEG Holding to
purchase (such purchaser, the “Interest Buyer”) all of the Company’s membership
interest in NEG Holding pursuant to Section 5.4 of the NEG Holding Operating
Agreement in connection with the closing, if any, of AREP’s transaction with
Riata Energy, Inc. contemplated in the Letter:

 

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     (A) the Company hereby represents, warrants, acknowledges and agrees that:
   (i) the Company owns its membership interest in NEG Holding and all rights
under the NEG Holding Operating Agreement, all as set forth in the NEG Holding
Operating Agreement, free and clear of all liens, claims and encumbrances (other
than liens in favor of NEG Oil & Gas in connection with the NEG Operating LLC
credit facility (the “AREP Liens”));
   (ii) effective upon delivery of notice (the “Exercise Notice”) by NEG Oil &
Gas to the Company (which will be effective upon receipt of a facsimile copy
thereof by the Company) stating that the purchase rights under Section 5.4 of
the NEG Holding Operating Agreement are being exercised by the Interest Buyer
and the payment of the sum specified in Section 4(B) below: (x) all right, title
and interest of the Company in NEG Holding shall automatically be and be deemed
to be, transferred, assigned conveyed and sold to the Interest Buyer and the
Company shall cease to be a member of NEG Holding or have any rights, powers or
interests therein or under the NEG Holding Operating Agreement and (y) the
Company will cease to have (and releases and shall be deemed to have released):
(I) any right to receive any payment or distribution from NEG Holding or its
subsidiaries or (II) any other right or claim with respect to NEG Holding or its
subsidiaries, in the case of each of (I) and (II) associated with, arising out
of or relating to its membership interests in NEG Holding, other than the right
to receive the payment contemplated in Section 4(B) below.
     (B) NEG Oil & Gas agrees that upon delivery of the Exercise Notice: (i) the
Interest Buyer will cause to be delivered to the Company the sum of
$261,124,876* (the “Payment”), which the parties agree is the amount owing to
the Company under Section 5.4 of the NEG Holding Operating Agreement; and
(ii) the AREP Liens will be released and terminated. Upon receipt of such
payment the Company will pay in full the amount of principal and outstanding
interest owing under the Company’s 10.75% senior notes due 2006 (the “Bonds”),
the principal amount of which is approximately $148.6 million. As a result,
after payment of the Bonds the Company will retain approximately $112,487,876
from the Payment.
 

*   The above amount assumes that the closing occurs on November 1, 2006. If it
occurs on a different date then the price will be adjusted to take into account
the appropriate accrual of interest on the Bonds (as defined above) and the
appropriate distribution to NEG Oil & Gas under Article VI of the NEG Holding
Operating Agreement.

 

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          5. At the time the Payment is delivered, automatically and without any
further action necessary: (i) the management agreements between the Company and
each of National Onshore LP, National Offshore LP and NEG Operating LLC will be
terminated; and (ii) any assets or property of NEG Oil & Gas and its
subsidiaries owned by them but in the possession of the Company (including,
without limitation, information technology, software and data relevant to the
oil and gas operations of NEG Oil & Gas or its subsidiaries) will be transferred
and delivered to NEG Oil & Gas or its subsidiaries, as designated by NEG Oil &
Gas.
          6. The provisions of this Agreement constitute an agreement separate
from the Merger Agreement and shall survive any termination of the Merger
Agreement.
          7. This Agreement may be executed through the use of separate
signature pages or in any number of counterparts and all such counterparts shall
be deemed one and the same instrument.
          8. This Agreement shall be deemed to be made in and in all respects
shall be interpreted, construed and governed by and in accordance with the law
of the State of Delaware without regard to the conflict of law principles
thereof.
[The balance of this page has been left blank intentionally.]

 

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     IN WITNESS WHEREOF, the undersigned have duly executed this Agreement as of
the date first written above.

                  NATIONAL ENERGY GROUP, INC.    
 
           
 
  By:   /s/ Bob G. Alexander    
 
     
 
Name: Bob G. Alexander    
 
      Title: President    
 
                NEG OIL & GAS LLC    
 
  By:   AREP O & G Holding LLC, its sole member    
 
  By:   AREP Oil & Gas Holding LLC, its sole member    
 
  By:   American Real Estate Holdings Limited Partnership, its sole member    
 
  By:   American Property Investors, Inc., its general partner    
 
           
 
  By:   /s/ Keith Meister    
 
     
 
Name: Keith Meister    
 
      Title: Principal Executive Officer    
 
                NEG, INC.    
 
           
 
  By:   /s/ Keith Meister    
 
     
 
Name: Keith Meister    
 
      Title: Chief Executive Officer    
 
                AMERICAN REAL ESTATE HOLDINGS LIMITED PARTNERSHIP    
 
  By:   American Property Investors, Inc.    
 
           
 
  By:   /s/ Keith Meister    
 
     
 
        Name: Keith Meister         Title: Principal Executive Officer    

[Signature page to Agreement among National Energy Group, Inc., NEG Oil & Gas
LLC,
NEG, Inc. and American Real Estate Holdings Limited Partnership]