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Separation Agreement - Jim L. David

This is an actual contract by National Energy Group.
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Sectors: Energy
Governing Law: Texas, View Texas State Laws
Effective Date: August 21, 1998
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July 31, 1998


Mr. Jim L. David 9420 Loma Vista Dallas, TX 75243

Re: Separation Agreement

Dear Jim:

National Energy Group, Inc. (the "Company") recognizes your service as an employee of the Company. This letter confirms the discussions we have held concerning the resignation of your employment from the Company, and the Company's offer and your acceptance of this proposed separation agreement (this "Separation Agreement") on the terms set forth below.

1. Resignation; Termination of Employment. Your employment with the Company as
Vice President-Exploration is terminated effective July 31, 1998
(hereinafter the "Separation Date"), at which time your Executive
Employment Agreement effective August 29, 1996 (the "Employment Agreement")
shall also terminate.

2. Salary and Benefits. In accordance with the Company's existing policies,
you have received, will receive, or are receiving with this letter the
following payments and benefits pursuant to your employment with the
Company and your participation in the Company's benefit plans:

(a) Payment of your regular base salary through July 31, 1998;

(b) Payment of accrued and unused vacation leave, if any, through the
Separation Date; and

(c) Payment of two (2) weeks of your base salary for each year of
employment you have completed with the Company in the amount of
$124,600.00, representing credit for eighteen (18) such years of
employment. 2 Mr. Jim L. David July 31, 1998 Page 2

The amounts paid in accordance with subparagraphs (a), (b) and (c) of this
Paragraph 2 are gross amounts, subject to lawful deductions, including any
deductions you have previously authorized or authorize prior to your
Separation Date.

Your paid group health insurance benefits are paid through August 31, 1998.
After the Separation Date, you are entitled at your option to continue your
group health insurance coverage at your expense in accordance with
applicable law. Please complete the COBRA election form which will be
furnished to you if you elect to continue such insurance coverage.

Payment of any benefits to which you have vested entitlements under the
terms of the employee benefit plans established by the Company (including
but not limited to the Company 401(k) Plan and Employee Stock Purchase
Plan) shall be paid to you in accordance with the provisions of such plans.

The Company will settle promptly all authorized reimbursable business
expenses, if any, when you have submitted appropriate expense reports along
with the required receipts and documenting information. To be eligible for
reimbursement of these expenses, they must be submitted by the close of
business on or before August 7, 1998.

3. Special Separation Benefits. In consideration of the General Release, the
Confidentiality of Separation Agreement and Nondisparagement provision, and
the Agreement Regarding Solicitation of Employees and Consultants set forth
in this Separation Agreement, and contingent upon your acceptance of the
terms contained herein, the Company offers you the following Special
Separation Benefits, in addition to the benefits you will receive pursuant
to Paragraph 2:

(a) Termination Allowance. A termination allowance in the amount of
$55,400.00, which is equivalent to your base salary for sixteen (16)
weeks, payable concurrently with the execution and delivery to the
Company of both this Separation Agreement and the Reaffirmation of
Separation Agreement described in Paragraph 13 hereof.

(b) Additional Benefits.

(i) An amount equal to $9,000.00 (payable to you concurrently with the
execution and delivery to the Company of both this Separation
Agreement and the Reaffirmation of Separation Agreement provided in
Paragraph 13 hereof) in lieu of any benefits which may no longer be
available to you through the Company after your Separation Date;

3 Mr. Jim L. David July 31, 1998 Page 3

(ii) The Company shall continue to pay your group health benefits
through August 31, 1998;

(iii) Any stock options granted to you shall continue to vest in
accordance with the 1996 Incentive Compensation Plan for so long as
you continue as a member of the Board of Directors of the Company;

(iv) The Company shall allow you to retain your lap top computer
(Name: Texas Instruments Extensa 570CDT, Serial No: 25167851845); and

(v) The Company shall transfer to you the ownership of that certain
vehicle (1995 Ford Windstar, VIN #2FMDA51495B, Texas license
#XCW-61C); provided that you shall pay all transfer, license, sales
and other taxes, fees and/or assessments payable in connection with
such transfer of ownership.

By execution of this Separation Agreement, you acknowledge and agree that
for purposes of unemployment compensation benefits, the amounts to be paid
as specified in this Paragraph 3 constitute wages in lieu of notice for the
period from the Separation Date through November 20, 1998. Accordingly, you
agree not to seek, qualify for nor receive unemployment compensation
benefits for the period from the Separation Date through November 20, 1998.

4. Return of Property. Whether or not you accept the terms of this Separation
Agreement, you must return to the Company any and all items of its
property, including without limitation: automobiles, telephones, office
keys, security access cards, computers, equipment, credit cards, forms,
files, manuals, correspondence, business records, personnel data, lists of
employees, salary and benefits information, work product, maps, data and
files relating to wells, leases, partners and/or contractors, seismic data
and files, contracts, contract information, Prospect information and plans
for future Prospects, brochures, catalogs, computer tapes and diskettes,
and data processing reports, and any and all other documents or property
which you have had possession of or control over during the course of your
employment, and which you have not already returned to the Company. You
agree that you will return such property to the Company by no later than
the close of business on or before August 7, 1998, or as soon thereafter as
is possible with respect to any items not then immediately available or
which you later find in your possession. The provisions of this Paragraph 4
do not prohibit the maintenance by you of copies of any non-confidential,
non-proprietary information, such as reading files, work papers,
calculations, flowcharts and other similar information reflecting the
performance of your job duties and responsibilities.

4 Mr. Jim L. David July 31, 1998 Page 4

5. Use of Confidential Information. You acknowledge and agree that, except for
your knowledge and training to compete in the marketplace and except for
information which is now or in the future becomes available in the public
domain, all of the non-public documents and information to which you have
had access during your employment, including but not limited to all
information pertaining to any specific business transactions in which the
Company or any other Company Released Parties (as defined in Paragraph 6(a)
below) were, are, or may be involved, all information concerning salary and
benefits paid to employees of the Company or any of the other Company
Released Parties, all personnel information relating in any way to current
or former employees of the Company or any of the other Company Released
Parties, all non-public information obtained in the course of employment
pertaining to acquisitions, divestitures, wells, Prospects and development
plans of the Company or any of the other Company Released Parties, lease
holdings and lease block bid information and strategies, all financial
budgetary information, all other information specified in Paragraph 4
above, and in general, the business and operations of the Company or any of
the other Company Released Parties in addition to any other work product,
calculations, files, maps, logs, flowcharts and other related and/or
similar information to which you had access through the Company, its
partners or consultants are considered confidential and are not to be
disseminated or disclosed by you
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