<PAGE>   1
                                                                   EXHIBIT 10.26

                                           Deal No. QY8453.1

[ENRON LOGO]                                           ENRON NORTH AMERICA CORP.
                                                       P.O. Box 4428
                                                       Houston TX 77210-4428
                                                       (713) 853-3300
                                                       Fax (713) 646-4816


                                  CONFIRMATION
                                     (SWAP)


Date:          March 23, 2001
To:            National Energy Group, Inc. ("Counterparty")
Attention:     Document Department
Fax No.:       214-692-8562
From:          Enron North America Corp. ("ENA")
Re:            Commodity Swap QY8453.1

     The purpose of this letter agreement (together with the General Terms and
Conditions of Confirmation as set forth in Annex A and any other attachments
hereto, collectively the "Confirmation") is to confirm the terms and conditions
of the transaction entered into between us on the Trade Date specified below
(the "Transaction") whereby we accepted your offer to enter into the
Transaction. The terms of the particular Transaction to which this Confirmation
relates are as follows:

GENERAL TERMS:

     Notional Quantity per
     Determination Period:        See Attachment

     Commodity:                   Natural Gas

     Commodity Unit:              MMBtu (One Million British Thermal Units)

     Trade Date:                  March 23, 2001

     Effective Date:              April 01, 2001

     Termination Date:            December 31, 2004

     Determination Period(s):     Each calendar month beginning with April 01,
                                  2001 and ending on December 31, 2004.

     Payment Date(s):             The fifth (5th) Business Day following
                                  the date on which the Floating Price is
                                  determinable


FIXED AMOUNT DETAILS:

     Fixed Price Payor:           ENA

     Fixed Price:                 See Attachment



                                       1
<PAGE>   2
                                           Deal No. QY8453.1



FLOATING AMOUNT DETAILS:

  Floating Price Payor:           Counterparty

  Floating Price:                 The average of the daily settlement prices
                                  for the last three (3) scheduled Trading Days
                                  of the NYMEX Henry Hub Natural Gas Futures
                                  Contract for the applicable Determination
                                  Period


CONTRACTUAL CURRENCY:             US Dollars

GOVERNING LAW:                    Texas

GENERAL TERMS AND CONDITIONS
OF CONFIRMATIONS:                 The general terms and conditions contained in
                                  Annex A attached hereto and made a part hereof
                                  apply and are incorporated herein by reference

CREDIT OR OTHER SPECIAL
PROVISIONS:                       The credit provisions contained in Annex B
                                  attached hereto and made a part hereof apply
                                  and are incorporated herein by reference

     For the purposes of the calculations of the Floating Price(s), all numbers
shall be rounded as follows: Floating Price(s) relating to commodities quoted in
(i) gallons shall be rounded to five places, (ii) MMBtu's shall be rounded to
four places, (iii) barrels shall be rounded to three places and (iv) gigajoules
shall be rounded to four places. If the number after the final number is five
(5) or greater then the final number shall be increased by one (1), and if the
number after the final number is less than five (5) then the final number shall
remain unchanged.

     This Confirmation is a complete and binding agreement between you and us as
to the Transaction. Until a Master Agreement is executed by you and us, all
currently existing swap, option or other financially-settled derivative
transactions between the parties shall be governed by the terms and conditions
set forth in any Annex attached hereto. All such swap, option or other
financially-settled derivative transactions, shall constitute a single
integrated agreement between you and us, it being acknowledged that the parties
are relying upon the fact that all such swap, option or other
financially-settled derivative transactions will form a single agreement and
that the parties would not otherwise enter into any transactions. The terms and
conditions contained in any Annex attached hereto are incorporated into this
Confirmation, and in the event of any inconsistency between any Annex and this
letter agreement, this letter agreement shall govern. Upon execution by you and
us of a Master Agreement, this Confirmation will supplement, form a part of, and
be subject to the Master Agreement. In the event of any inconsistency between
this Confirmation and the Master Agreement, the Master Agreement shall govern
except as expressly set forth therein.

     If this Confirmation correctly sets forth the terms of the Transaction
that we have entered into, please promptly confirm in a reply to us by signing
below and sending this Confirmation (or a copy hereof) to us (or notifying us
of any bona fide error that would require revisions in order to accurately
reflect our agreement on the Transaction) by facsimile transmission within two
Business Days after your receipt of this Confirmation. If you fail to so reply
within such time period, the terms hereof will constitute binding and
conclusive evidence of the Transaction. We look forward to receiving your
prompt reply.

Sincerely,

Enron North America Corp.       National Energy Group, Inc.



                                       2

<PAGE>   3
                                           Deal No. QY8453.1


By:     /s/ Joe Hunter                By:
                                             -------------------------------
Name:   Joe Hunter                    Name:
                                             -------------------------------
Title:  Agent and Attorney-in-Fact    Title:
                                             -------------------------------
Date:   March 27, 2001                Date:
                                             -------------------------------

COUNTERPARTY: AFTER YOU HAVE CONFIRMED TRANSACTION, PLEASE RETURN TO ENA,
ATTENTION: DIRECTOR OF DOCUMENTATION AT FAX NO (713) 646-4816

ADDRESS FOR NOTICES TO ENA:                 PAYMENT ACCOUNT INFORMATION FOR ENA:

1400 Smith St                               See invoice for wire instructions
Houston, TX 77002-7327
Attention: Director, Documentation Dept
Fax: (713) 646-4816
Phone: (713) 853-3300

With a copy of any notice given pursuant to Section 3 or 4 of Annex A or Annex
B, if any, to:

1400 Smith Street
Houston, Texas 77002
Attn: Assistant General Counsel, Trading Group
Fax: (713) 646-4818

ADDRESS FOR NOTICES TO                      PAYMENT ACCOUNT INFORMATION FOR
COUNTERPARTY:                               COUNTERPARTY:

Address:
         -----------------------------      -----------------------------------

--------------------------------------      -----------------------------------

--------------------------------------      -----------------------------------
Attention:
           ---------------------------      -----------------------------------
Fax:
    ----------------------------------      -----------------------------------
Phone:
       -------------------------------      -----------------------------------

COUNTERPARTY: PLEASE PROVIDE ABOVE REQUESTED INFORMATION IF NOT PROVIDED
PREVIOUSLY OR IF CHANGES HAVE OCCURRED



                                       3
<PAGE>   4
                                           Deal No. QY8453.1



                                   ATTACHMENT
                             CONTRACT NO. QY8453.1



                          QUANTITY MEASUREMENT: MMBtu



<TABLE>
<CAPTION>
Determination                 Notional Quantity                        Fixed
Period                        Per Determination Period                 Price
------                        ------------------------                 -----

<S>                           <C>                                      <C>
April, 2001                           126,000                          $5.34500
May, 2001                             126,000                          $5.34500
June, 2001                            126,000                          $5.34500
July, 2001                            126,000                          $5.34500
August, 2001                          126,000                          $5.34500
September, 2001                       126,000                          $5.34500
October, 2001                         126,000                          $5.34500
November, 2001                        126,000                          $5.34500
December, 2001                        126,000                          $5.34500
January, 2002                         125,000                          $4.68500
February, 2002                        125,000                          $4.68500
March, 2002                           125,000                          $4.68500
April, 2002                           125,000                          $4.68500
May, 2002                             125,000                          $4.68500
June, 2002                            125,000                          $4.68500
July, 2002                            125,000                          $4.68500
August, 2002                          125,000                          $4.68500
September, 2002                       125,000                          $4.68500
October, 2002                         125,000                          $4.68500
November, 2002                        125,000                          $4.68500
December, 2002                        125,000                          $4.68500
January, 2003                         116,000                          $4.21000
February, 2003                        116,000                          $4.21000
March, 2003                           116,000                          $4.21000
April, 2003                           116,000                          $4.21000
May, 2003                             116,000                          $4.21000
June, 2003                            116,000                          $4.21000
July, 2003                            116,000                          $4.21000
August, 2003                          116,000                          $4.21000
September, 2003                       116,000                          $4.21000
October, 2003                         116,000                          $4.21000
November, 2003                        116,000                          $4.21000
December, 2003                        116,000                          $4.21000
January, 2004                         88,000                           $4.16000
February, 2004                        88,000                           $4.16000
March, 2004                           88,000                           $4.16000
April, 2004                           88,000                           $4.16000
May, 2004                             88,000                           $4.16000
June, 2004                            88,000                           $4.16000
July, 2004                            88,000                           $4.16000
</TABLE>



                                       4
<PAGE>   5
                                           Deal No. QY8453.1


<TABLE>
<S>                           <C>                                      <C>
August, 2004                          88,000                           $4.16000
September, 2004                       88,000                           $4.16000
October, 2004                         88,000                           $4.16000
November, 2004                        88,000                           $4.16000
December, 2004                        88,000                           $4.16000
</TABLE>


          END OF ATTACHMENT



                                       5
<PAGE>   6
                                                           ENA/U.S. COUNTERPARTY
                                                            REVISION OF 03/02/00


                                    ANNEX A

                          GENERAL TERMS AND CONDITIONS

This Annex A supplements, forms part of, and is incorporated into the
Confirmation to which this Annex A is attached. Until a Master Agreement is
executed by the parties, this Annex A will set forth the general terms and
conditions governing all Transactions between the parties except as otherwise
specified in a Confirmation to a Transaction.

1. REPRESENTATIONS. Each of ENA and Counterparty represents and warrants to the
other that (a) Authority/Taxation (i) the execution, delivery and performance of
this Confirmation have been duly authorized by all necessary corporate or other
organization action on its part, (ii) this Confirmation is its legally valid and
binding obligation, enforceable against it in accordance with its terms, (iii)
it is a United States person (as such term is defined in Section 7701 of the
Internal Revenue Code), and (iv) during the term hereof, it will not be doing
business in any jurisdiction that imposes any withholding tax or similar levy on
any payment made or received by it under this Confirmation; and (b) Eligible
Swap Participant (i) it constitutes an "eligible swap participant" as such term
is defined in 17 C.F.R. Section 35.1(b)(2), and (ii) this Confirmation
constitutes a "swap agreement" within the meaning of 17 C.F.R. Section
35.1(b)(1); and (c) Line of Business (i) it is entering into this Confirmation
in conjunction with its line of business (including financial intermediation
services) or the financing of its business; and (ii) solely with respect to
Options, it is a producer, processor, commercial user of, or merchant handling,
the commodity subject to this Confirmation or the products or byproducts
thereof, and it has entered into this Confirmation solely for purposes related
to its business as such; and (d) No Reliance (i) the other party to this
Confirmation (1) is not acting as a fiduciary or financial, investment or
commodity trading advisor for it, and (2) has not given to it (directly or
indirectly through any other person) any assurance, guaranty or representation
whatsoever as to the merits (ether legal, regulatory, tax, financial, accounting
or otherwise) of this Confirmation or the expected performance or result of this
Confirmation; and (ii) in connection with the negotiation and execution of this
Confirmation, (1) it is acting as a principal (and not as an agent or in any
other capacity, fiduciary or otherwise), (2) it is not relying upon any advice,
counsel or representations (whether written or oral) of the other party other
than the representations expressly set forth in this Confirmation, (3) it has
made and will make its own decisions regarding the entering into of this
Confirmation based upon its own judgment and upon the advice from such
professional advisors as it deemed, or will deem, necessary to consult, (4) all
of its decisions regarding this Confirmation have been the result of arm's
length negotiations between the parties, and (5) it has a full understanding of
all the terms, conditions and risks (economic and otherwise) of this
Confirmation, and it is capable of assuming and willing to assume (financially
and otherwise) those risks; and (e) Absence of Litigation there is not pending
or, to its knowledge, threatened against it or any of its Affiliates any action,
suit or proceeding at law or in equity or before any court, tribunal,
governmental body, agency or official or any arbitrator that is likely to affect
the legality, validity or enforceability against it of this Confirmation or any
Credit Support Document to which it or its Affiliates is a party or its or its
Affiliates ability to perform their respective obligations under this
Confirmation or such Credit Support Document.

2. PAYMENTS. For each Determination Period, on the applicable Payment Date with
respect to (a) a SWAP, (i) if the Floating Amount is greater than the Fixed
Amount for the relevant Determination Period, the Floating Price Payor shall pay
the Fixed Price Payor the amount by which the Floating Amount exceeds the Fixed
Amount, and (ii) if the Floating Amount is less than the Fixed Amount, the Fixed
Price Payor shall pay the Floating Price Payor the amount by which the Fixed
Amount exceeds the Floating Amount; (b) an OPTION (other than a Swaption) that
has been properly exercised by the Buyer, the Seller shall pay the Buyer the
Cash Settlement Amount (if any) for the relevant Determination Period (Buyer may
exercise the rights granted pursuant to the Option only by giving a Notice of
Exercise on a Business Day during the Exercise Period (unless Automatic Exercise
is specified to apply in the Confirmation); otherwise the Option shall expire);
(c) a COLLAR, (i) if the Floating Amount is greater than the Cap Amount, the
Floating Price Payor will pay to the Fixed Price Payor the amount by which the
Floating Amount exceeds the Cap Amount, and (ii) if the Floating Amount is less
than the Floor Amount, the Fixed Price Payor shall pay to the Floating Price
Payor the amount by which the Floating Amount is less than the Floor Amount; (d)
a SWAPTION that has been properly exercised by the Buyer, all payments payable
under the Underlying Transaction shall be made by the relevant party in the
manner specified for a Swap in this Section (Buyer shall exercise Swaption in
accordance with the Option procedures); and (e) the TOTAL PREMIUM (if any) for
an Option, Collar or Swaption, the Total Premium is due and payable by the Buyer
or Premium Payor (as the case may be) to the other party on the Premium Payment
Date(s).

For the purposes of the calculations of the Floating Price(s), all numbers shall
be rounded as follows: Floating Price(s) relating to Commodities quoted in (i)
gallons, shall be rounded to five places, (ii) Mmbtu's shall be rounded to four
places, and (iii) barrels and megawatt hours shall be rounded to three places.

Each payment will be made in the Contractual Currency (specified in the
Confirmation or if not specified, in U.S. Dollars) via wire transfer in
immediately available funds on the relevant Payment Date (or if not a Business
Day, on the next Business Day). If amounts are not paid when due, they shall
bear interest daily until paid in full at the Interest Rate on the basis of the
actual number of days elapsed, and on the basis of a year of 365/366 days. If
the Payment Dates for two or more Transactions between the parties fall on the
same day in the same currency, if each party is required to make a payment to
the other on such Payment Date, such amounts with respect to each party shall be
aggregated, and the party owing the greater aggregate amount shall pay to the
other party the difference between the amounts owed.

3. EVENTS OF DEFAULT. An event of default ("Event of Default") shall mean with
respect to a party (the "Defaulting Party") any of the following: (a) the
failure by the Defaulting Party to make, when due, any payment required under
this Confirmation if such failure is not remedied within three Business Days
after notice of such failure is given to the Defaulting Party; (b) any
representation or warranty made by the Defaulting Party in this Confirmation
shall prove to have been false or misleading in any material respect; (c) the
breach by the Defaulting Party of any other covenant or agreement set forth in
this Confirmation (other than the obligation to make payment) and such failure
is not cured within ten Business Days after it is given notice thereof; (d) the
institution, with respect to the Defaulting Party, of a bankruptcy,
reorganization, moratorium, liquidation or similar insolvency proceeding or
other relief under any bankruptcy or insolvency law affecting creditors' rights
or a petition is presented or instituted for its winding-up or liquidation (and,
if such a proceeding is instituted against the party, it remains undismissed for
30 days); (e) the Defaulting Party consolidates or amalgamates with, or merges
into or with, or transfers substantially all of its assets to another entity and
(y) the resulting entity fails to assume all of the obligations of the
Defaulting Party under this Confirmation or (z) the resulting entity's
creditworthiness is materially weaker than that of the Defaulting Party; or (f)
an event of default occurs (howsoever determined) under any other Transaction
between the parties.


                                  Page 1 of 4
                                    Annex A

<PAGE>   7
 4. REMEDIES. If an Event of Default shall have occurred and shall be continuing
the non-defaulting party may, in its sole discretion, by no more than 20 days
notice to the Defaulting Party designate a day no earlier than the day such
notice is effective as an early termination date ("Early Termination Date"). On
the Early Termination Date, all obligations under all Transactions with respect
to all Determination Periods which would have ended after the Early Termination
Date shall be terminated, except as provided below. If an Early Termination Date
has been designated, the non-defaulting party shall in good faith calculate its
Gains or Losses and Costs resulting from the termination of the parties'
obligations under all Transactions with respect to all Payment Dates which would
have occurred after the Early Termination Date had the Early Termination Date
not occurred. The non-defaulting party shall aggregate such Gains, Losses and
Costs with respect to all Transactions into a single net amount and notify the
Defaulting Party of the net amount owed or owing. If the non-defaulting party's
aggregate Losses and Costs exceed its aggregate Gains, the Defaulting Party
shall, within five Business Days of receipt of such notice, pay the net amount
to the non-defaulting party, which amount shall bear interest at the Interest
Rate from the Early Termination Date until paid. If the non-defaulting party's
aggregate Gains exceed its Losses and Costs, if any, resulting from the Event of
Default, subject to the provisions of Section 5 herein, the non-defaulting party
shall pay the net amount to the Defaulting Party on the Payment Date for the
first next succeeding Determination Period. As used herein with respect to each
party: (a) "Costs" shall mean, with respect to such party, brokerage fees,
commissions and other similar transaction costs and expenses reasonably incurred
by such a party either in terminating any arrangement pursuant to which it has
hedged its obligations or entering into new arrangements which replace a
Transaction; (b) "Gains" shall mean, with respect to a party, an amount equal to
the present value of the economic benefit, if any, (exclusive of costs) to it
resulting from the termination of its obligations with respect to a Transaction,
determined in a commercially reasonable manner; and (c) "Losses" shall mean an
amount equal to the present value of the economic loss, if any, (exclusive of
Costs) to it resulting from the termination of its obligations with respect to
a Transaction, determined in a commercially reasonable manner. NO PARTY SHALL BE
REQUIRED TO PAY SPECIAL, EXEMPLARY, PUNITIVE, INCIDENTAL, CONSEQUENTIAL OR
INDIRECT DAMAGES (WHETHER OR NOT ARISING FROM A PARTY'S NEGLIGENCE) TO THE OTHER
PARTY, EXCEPT TO THE EXTENT THAT THE PAYMENTS REQUIRED TO BE MADE PURSUANT TO
THE CONFIRMATION ARE DEEMED TO BE SUCH DAMAGES. IF AND TO THE EXTENT ANY PAYMENT
MADE PURSUANT TO THE CONFIRMATION IS DEEMED TO CONSTITUTE LIQUIDATED DAMAGES,
THE PARTIES ACKNOWLEDGE AND AGREE THAT DAMAGES ARE DIFFICULT OR IMPOSSIBLE TO
DETERMINE AND THAT SUCH PAYMENT CONSTITUTE$ A REASONABLE APPROXIMATION OF THE
AMOUNT OF SUCH DAMAGES, AND NOT A PENALTY.

5. SETOFF. In the event of an occurrence of an Early Termination Date, the
non-defaulting party shall be entitled, at its option and in its discretion, to
set-off against any amounts owed to the Defaulting Party by the non-defaulting
party or any of its Affiliates under this Confirmation or otherwise any amounts
payable by the Defaulting Party to the non-defaulting party or any of its
Affiliates under this Confirmation or otherwise. This Section shall be without
prejudice and in addition to any right of setoff, combination of accounts, lien
or other right to which any party is at any time otherwise entitled (whether by
operation of law, contract or otherwise). Notwithstanding any provision to the
contrary contained in this Confirmation, the non-defaulting party shall not be
required to pay to the Defaulting Party any amount under this Confirmation until
the non-defaulting party receives confirmation satisfactory to it in its
reasonable discretion that all obligations of any kind whatsoever of the
Defaulting Party to make any payments to the non-defaulting party or any of its
Affiliates under this Confirmation or otherwise which are due and payable as of
the Early Termination Date hereof have been fully and finally performed.

6. MISCELLANEOUS. This Confirmation shall (a) be governed by, interpreted and
construed in accordance with the laws of the jurisdiction (excluding conflict of
laws principles) specified in this Confirmation for the governing law, and if no
such specification is made, the governing law shall be the laws of the State of
Texas (excluding conflict of laws principles); (b) be binding upon and inure of
the benefit of the parties and their respective successors and (effective upon
scheduled delivery day) permitted assigns; however, except for any assignments
by a party to an Affiliate of such party (y) who is in the same tax jurisdiction
as such party and (z) whose creditworthiness is not materially weaker than that
of such party, neither party shall have the power to assign or otherwise
transfer all or any of is rights or obligations under this Confirmation without
the prior written consent of the other party, which consent shall not be
unreasonably withheld or delayed, and any purported assignment or transfer in
violation of this provision shall be void and of no force and effect; and (c)
contain the entire agreement between the parties and supersede all prior oral or
written communications or agreements relating to the subject matter. All notices
in connection with this Confirmation may be given during normal business hours
by hand delivery (effective upon attempted delivery), overnight mail service
(effective upon scheduled weekday delivery day) or telefacsimile (effective upon
receipt of evidence, including telefacsimile evidence, that telefacsimile was
received), as specified in this Confirmation or as may be subsequently
designated by effective notice. This Confirmation may be executed in
counterparts (including by telefacsimile), each of which when executed and
delivered shall be deemed to be an original instrument and all of which when
taken together shall constitute one and the same agreement. Any party in default
hereunder shall reimburse the other party, on demand, for actual, reasonable
out-of-pocket expenses (and any interest thereon at the Interest Rate),
including, without limitation, reasonable legal fees and expenses incurred by
the other party during the occurrence and continuation of such default in
connection with the enforcement of, or the preservation of its rights in respect
of this Transaction.

Any dispute relating to this Confirmation shall be resolved by binding
arbitration conducted in accordance with the Commercial Arbitration Rules of the
American Arbitration Association ("AAA") and governed by the Federal Arbitration
Act ("FAA"). Each party shall select one arbitrator within 30 days of a notice
for arbitration and the two arbitrators shall select a third neutral arbitrator
with at least eight years professional experience in over-the-counter derivative
transactions. Only damages allowed pursuant to this Confirmation may be awarded
and the arbitrators shall have no authority to award treble, exemplary or
punitive damages of any kind under any circumstances regardless of whether such
damages may be available under the governing law for this Confirmation and/or
the FAA or AAA. The arbitration shall be conducted in New York City, New York,
if New York law governs this Confirmation, otherwise in Houston, Texas and such
arbitration, and any related award shall be confidential.

The contents of this Confirmation and all other documents relating to this
Confirmation or Annex B, if any, and any information made available by one party
or its Credit Support Provider, if any, to the other party or its Credit Support
Provider, if any, with respect to this Confirmation is confidential and shall
not be disclosed to any third party (nor shall any public announcement be made
by either party), except for such information (1) as may become generally
available to the public, (2) as may be required or appropriate in response to
any summons, subpoena, or otherwise in connection with any litigation or to
comply with any applicable law, order, regulation, ruling or accounting
disclosure rule or standard, (3) as may be obtained from a non-confidential
source that disclosed such information in a manner that did not violate its
obligations to the non-disclosing party or its Credit Support Provider, if any,
in making such disclosure, or (4) as may be furnished to the disclosing party's
Affiliates, and to each of such person's auditors, attorneys, advisors or


                                   Page 2 of 4
                                     Annex A

<PAGE>   8

lenders which are required to keep the information that is disclosed in
confidence.

If any term, provision, covenant, or condition of this Confirmation, or the
application thereof to any party or circumstance, shall be held to be invalid or
unenforceable (in whole or in part) for any reason, the remaining terms,
provisions, covenants, and conditions hereof shall continue in full force and
effect as if this Confirmation had been executed with the invalid or
unenforceable portion eliminated, so long as this Confirmation as so modified
continues to express, without material change, the original intentions of the
parties as to the subject matter of this Confirmation and the deletion of such
portion of this Confirmation will not substantially impair the respective
benefits or expectations of the parties to this Confirmation; provided, however,
that this severability provision shall not be applicable if any provision of
Section 2, 3 or 4 (or any definition or provision in Section 8 to the extent it
relates to, or is used in or in connection with any such Section) shall be so
held to be invalid or unenforceable.

7. MARKET DISRUPTION. If a Market Disruption Event has occurred and is
continuing on any Trading Day, the Floating Price for such Trading Day shall be
determined pursuant to the Floating Price Source specified in this Confirmation
for the first Trading Day thereafter on which no Market Disruption Event exists;
provided, however, if the Floating Price is not so determined within three
Business Days after the first Trading Day on which the Market Disruption Event
occurred or existed, then the Floating Price shall be determined by reference to
the Alternative Floating Price Source specified in this Confirmation, if any,
which is not subject to a Market Disruption Event. If no Alternative Floating
Price Source is available or has been specified, and the Market Disruption Event
continues for more than three Business Days, then the parties shall negotiate in
good faith to agree on a Floating Price (or a method for determining a Floating
Price), and if the parties have not so agreed on or before the twelfth Business
Day following the first Trading Day on which the Market Disruption Event
occurred or existed, then the Floating Price shall be determined in good faith
by ENA, by taking the average of two or more dealer quotes.

8. GENERAL DEFINITIONS. Terms used, but not defined in this Annex, are used with
the meanings provided in Annex B attached hereto, if any or in the Confirmation.
As used in this Annex:

"Affiliate" shall mean in relation to any party, any entity controlled, directly
or indirectly, by the party, any entity that controls, directly or indirectly,
the party or any entity directly or indirectly under common control with the
party. Control means ownership of a majority of the voting power of such entity
or party.

"American" means a style of Option pursuant to which the right(s) granted are
exercisable on any Business Day during an Exercise Period that consists of more
than one day.

"Asian" means a style of Option pursuant to which the right(s) granted are
exercisable only on the one day designated as the Exercise Period in the
Confirmation, and the Floating Price for which is the unweighted arithmetic
average (or such other specified method of averaging) of the Floating Prices for
the Trading Days referenced in the Floating Price Source (unless otherwise
specified in the Confirmation).

"Automatic Exercise" means, if specified to be applicable in the Confirmation,
that if at the close of the Exercise Period the Option has not been exercised,
it will be deemed exercised as of that time. If Automatic Exercise is specified
to be applicable and the Exercise Period is specified to be inapplicable in the
Confirmation, the Option (including Swaptions) shall be deemed exercised on the
first day of the first Determination Period.

"Business Day" means a day on which commercial banks are open for business in
New York, New York, Houston, Texas and in the cities where the parties'
addresses are located as specified in the Confirmation.

"Call" means an Option entitling Buyer to receive after exercise the Cash
Settlement Amount on the applicable Payment Date(s) if the Floating Price
exceeds the Strike Price.

"Cap Amount" means an amount equal to the product of (a) the National Quantity
per Determination Period multiplied by (b) the Cap Price, or as otherwise
provided in the Confirmation.

"Cash Settlement Account" means, in respect of an Option, an amount (if any)
that is payable by Seller on the applicable Payment Date(s) and is determined as
provided in the Confirmation governing such Option.

"Determination Period" means each period from and including the first date
specified as being included in that Determination Period to and including the
last date specified as being included in that Determination Period. If such
period is a calendar month, the period commences on the first day of the month
and it ends on the last day of the month.

"European" means a style of Option pursuant to which the right(s) granted are
exercisable only on the one day designated as the Exercise Period in the
Confirmation, if any.

"Fixed Amount" means an amount equal to the product of (a) the Notional Quantity
per Determination Period multiplied by (b) the Fixed Price, or as otherwise
provided in the Confirmation.

"Floating Amount" means an amount equal to the product of (a) the Notional
Quantity per Determination Period multiplied by (b) the Floating Price, or as
otherwise provided in the Confirmation.

"Floor Amount" means an amount equal to the product of (a) the Notional Quantity
per Determination Period multiplied by (b) the Floor Price, or as otherwise
provided in the Confirmation.

"Interest Rate" means (a) with respect to a non-defaulting party, a per annum
rate of interest equal to the prime lending rate as may from time to time be
published in The Wall Street Journal under "Money Rates" and (b) with respect to
a Defaulting Party, a per annum rate of interest equal to two percent (2%) over
such prime lending rate; provided, however, in ether case the Interest Rate may
never exceed the maximum lawful rate under applicable law.

"Market Disruption Event" means, with respect to a Floating Price Source, any of
the following events (the existence of which shall be determined in good faith
by ENA): (a) the failure of the Floating Price Source to announce or publish
information necessary for determining the Floating Price; (b) the failure of
trading to commence or the permanent discontinuation or material suspension of
trading in the relevant futures contract, options contract or commodity on the
exchange or market (e.g., NYMEX) acting as the Floating Price Source (the
"Exchange"); (c) the temporary or permanent discontinuance or unavailability of
any relevant Floating Price Source; (d) the temporary or permanent closing of
any Exchange acting as the Floating Price Source; (e) the imposition of trading
limits by the Exchange such that there are limits on the range within which the
price of the relevant commodity may fluctuate in the prompt month and the
closing or settlement price of such commodity on such day is at the upper or
lower limit of that range; (f) a material change in the formula for or the
method of determining the Floating Price; or (g) a material change in the
content, composition or constitution of the relevant commodity.

"Notice of Exercise" means, in respect of an Option (or Swaption), irrevocable
notice given by Buyer to Seller (which may be given orally,


                                   Page 3 of 4
                                     Annex A
<PAGE>   9

including by telephone, unless otherwise specified in the Confirmation) of
exercise of the right(s) granted pursuant to the Option during the hours
specified in the Confirmation (if no hours are specified, then prior to noon
Central time) on any Business Day during the Exercise Period.

"Option" means a Transaction that is a Call, Cap, Floor, Put, Swaption or is
identified in the relevant Confirmation as an Option.

"Put" means an Option entitling Buyer to receive after exercise the Cash
Settlement Amount on the applicable Payment Date(s) if the Strike Price exceeds
the Floating Price.

"Swaption" means an Option to cause an Underlying Transaction to become
effective.

"Trading Day" means (a) in respect of a Transaction for which a Floating Price
is a price announced or published by an exchange, a day that is a trading day on
that exchange or (b) in respect of a Transaction for which a Floating Price is
not a price announced or published by an exchange, a day in respect of which the
relevant price source published the relevant price.

"Transaction" means all swap, option or other financially-settled derivative
transactions between the parties.

"Underlying Transaction" means in respect of a Swaption, a transaction, the
terms of which are identified in the Confirmation, which Underlying Transaction
will not become effective unless the right to cause that Underlying Transaction
to become effective has been timely exercised or deemed exercised.

"Written Confirmation" means, if specified to be applicable in the Confirmation
or if demanded by Seller (which demand may be given orally, including by
telephone, or in writing) a written confirmation delivered promptly by Buyer,
confirming the substance of the Notice of Exercise.


                                   Page 4 of 4
                                     Annex A
<PAGE>   10

                                    ANNEX B

                      CREDIT AND OTHER SPECIAL PROVISIONS

                          NATIONAL ENERGY GROUP, INC.
                               (DEAL NO. QY8453]

         This Annex B supplements, forms part of, and is incorporated into the
Confirmation to which this Annex B is attached. Until a Master Agreement is
executed by the parties, this Annex B will set forth the credit and other
special provisions governing all Transactions between the parties except as
otherwise specified in a Confirmation to a Transaction; provided upon execution
of a Master Agreement by the parties (i) all Additional Amounts shall
automatically become Independent Amounts under, and as defined in, the Master
Agreement, and (ii) all Performance Assurance held by a party pursuant to the
terms hereof shall automatically become Posted Credit Support under, and as
defined in, the Mader Agreement.

1. Additional Events of Default. Section 3 of Annex A to the Confirmation is
hereby amended by adding the following Event of Default to Section 3 of Annex A:

"(g)     Counterparty fails to establish, maintain, renew, substitute or
         increase the Performance Assurance, inducing without limitation,
         the Additional Amount, in accordance with the terms and provisions
         hereof and the failure continues for two (2) Business Days after notice
         from ENA."

2. Credit Support Agreements. The following Sections are hereby added to Annex A
to the Confirmation:

     "9. Credit Support Agreements - Performance Assurance. On or before 5:00
     p.m. (Houston time) on March 29, 2001, Counterparty shall deliver to ENA
     Performance Assurance in the amount of $6,000,000 (the "Additional
     Amount"), which Additional Amount shall be maintained in favor of ENA in
     accordance with the terms of Annex B-1. In addition to such Performance
     Assurance, Counterparty shall establish, maintain, renew, substitute and
     increase Performance Assurance as (and only to the extent) required by
     Annex B-1."


                                       1
<PAGE>   11

                                    ANNEX B-1
                       COLLATERAL AND EXPOSURE PROVISIONS

         This Annex B-1 supplements, forms part of, and is incorporated into the
Confirmation to which it is attached. Capitalized terms used in this Annex but
not defined herein shall have the meanings given to them in the Confirmation
(including all Annexes).

1. Certain Definitions. As used herein:

(a)      "Additional Amount" shall mean, with respect to a party, the amount
         specified as such for that party in each Confirmation, or if no amount
         is specified, zero.

(b)      "Business Day" shall mean a day on which commercial banks are open for
         business in New York, New York, Houston, Texas and in the cities where
         the parties' addresses are specified in the Confirmation.

(c)      The "Collateral Requirement" shall mean, with respect to Counterparty,
         the excess, if any, of (i) (x) ENA's Net Exposure plus (y) the
         aggregate of all Additional Amounts applicable to the Counterparty
         minus (ii) Counterparty's Exposure Threshold plus the sum of (x) the
         Valuation Percentage times the remaining, undrawn portion of any
         outstanding Letter of Credit maintained by Counterparty and issued for
         the benefit of ENA in connection with the Swaps; (y) any Cash
         previously delivered to ENA and not returned pursuant to Section 2(b)
         of this Annex and any Interest Amount that has not been delivered to
         Counterparty; and (z) any Cash held by ENA pursuant to Section 4(d)(ii)
         of this Annex

(d)      The "Current Value" of a Swap at any time shall mean the amount, as
         calculated by ENA in good faith and in a commercially reasonable
         manner, which a party would pay to or receive from a third party in an
         arm's-length swap, as consideration for entering into a new Swap at
         that time in which such party holds the same position as in the
         outstanding Swap, assuming that the term of such Swap encompasses only
         uncompleted Determination Periods and that such Swap is in all other
         respects identical to the outstanding Swap.

(e)      "Exposure" for a Swap shall mean (1) if a payment amount under the
         Confirmation (or a payment amount under any other Swap) has been
         determined and is due but not yet paid, the amount of such payment,
         with the party due and owed such amount having Exposure to the other
         party in such amount; and (2) the Current Value of the Swap, with the
         party that would be due and owed such amount from the other party
         having Exposure to the other party in such amount. All calculations of
         Exposure shall be done by ENA in good faith and in a commercially
         reasonable manner.

         To the extent that a Swap is covered in part by clauses (1) and (2),
         such Swap shall be treated as separate Swaps for purposes of these
         calculations, to the extent covered by each such clause.

(f)      "Exposure Threshold" shall mean, with respect to Counterparty,
         $4,000,000; provided, however, that the Exposure Threshold shall be
         zero for Counterparty upon the occurrence and during the continuance of
         an Event of Default (or an event which, with the giving of notice or
         the lapse of time or both, would constitute an Event of Default (a
         "Potential Event of Default")) with respect to Counterparty. The
         Exposure Threshold assigned to Counterparty shall be the threshold
         applied to such party for all Swaps in the aggregate.

(g)      "Exposure Amount" for each party shall be calculated for all Swaps by
         calculating each party's Exposure to the other party in respect of all
         Swaps. The party having the greater Exposure Amount at any time (the
         "Exposed Party") shall be deemed to have a "Net Exposure" to the other
         party (the "Non-Exposed Party") equal to the difference between its
         Exposure Amount and the other party's Exposure Amount.

(h)      "Interest Amount" shall mean with respect to an "Interest Period" (as
         defined herein), the aggregate sum of the amounts of interest
         calculated for each day in that Interest Period on the principal amount
         of Cash held by ENA on that day, determined by ENA for each such day as
         follows: (x) the amount of Cash held by ENA on that day; multiplied by
         (y) the Interest Rate (as defined herein) for that day: divided by (z)
         360. "Interest Period" means the period from (and including) the last
         Business Day on which an Interest Amount was Transferred (or if no
         Interest Amount has yet been Transferred, the Business Day on which
         Cash was Transferred to ENA) to (but excluding) the Business Day on
         which the current Interest Amount is to be Transferred. "Interest Rate"
         shall be the Federal Funds Overnight Rate as from time to time in
         effect. "Federal Funds Overnight Rate" means the rate for that day
         opposite the caption "Federal Funds (Effective)" as set forth in the
         weekly statistical release designated as H.15(519), or any successor
         publication, published by the Board of Governors of the Federal Reserve
         System.

(i)      "Issuer" shall mean the bank issuing a Letter of Credit at the request
         of Counterparty that meets the requirements set forth in the definition
         of Letter of Credit herein.

(j)      "Letter of Credit Default" shall mean with respect to an outstanding
         Letter of Credit, the occurrence of any of the following events: (i)
         the Issuer of such Letter of Credit shall fail to maintain a Credit
         Rating of at least "A-" by S&P or "A3" by Moody's; or (ii) the Issuer
         of such Letter of Credit shall disaffirm, disclaim, repudiate or reject
         in whole or in part, or challenge the validity of, such Letter of
         Credit.


                                    Annex B-1
                                   Page 1 of 4
<PAGE>   12


(k)      "Moody's" means Moody's Investors Service, Inc. or its successor.

(l)      "Performance Assurance" means (i) one or more irrevocable, transferable
         standby letters of credit (each a "Letter of Credit") issued by a major
         U.S. commercial bank or a foreign bank with a U.S. branch office, with
         such bank having a Credit Rating of at least "A-" from S&P and "A3"
         from Moody's, such Letter of Credit being issued for the benefit of ENA
         and in the form of Schedule 1 attached hereto, with only such changes
         as may be required by the Issuer and as are acceptable to ENA; (ii) all
         Cash that has been Transferred to or received by ENA and not
         Transferred to Counterparty pursuant to Section 2(b) of this Annex or
         released by ENA; (iii) any Interest Amount or portion thereof that has
         not been Transferred pursuant to Section 3(b) of this Annex and any
         Cash received by ENA pursuant to Section 4 of this Annex; and (iv) all
         proceeds of all of the foregoing property that have been Transferred to
         or received by ENA hereunder.

(m)      "S&P" means the Standard & Poor's Rating Group (a division of
         McGraw-Hill, Inc.) or its successor.

(n)      "Swaps" shall mean (i) any outstanding swap, option or other
         financially-settled derivative transaction entered into between
         Counterparty and ENA prior to, on or after the date hereof, other than
         the Confirmation to which this Annex is attached and (ii) the swap,
         option or other financially-settled derivative transaction under the
         Confirmation to which this Annex is attached. "Swap" shall mean any of
         the Swaps.

(o)      "Transfer" shall mean, with respect to any Performance Assurance or
         Interest Amount, and in accordance with the instructions of ENA or
         Counterparty, as applicable: (i) in the case of Cash, payment or
         delivery by wire transfer into one or more bank accounts specified by
         the recipient; and (ii) in the case of Letters of Credit, delivery of
         the Letter of Credit or an amendment thereto to the recipient.

(p)      "Valuation Percentage" shall mean with respect to each Letter of
         Credit, 100% unless either (i) a Letter of Credit Default shall apply
         with respect to such Letter of Credit, or (ii) twenty (20) or fewer
         Business Days remain prior to the expiration of such Letter of Credit,
         in which case the Valuation Percentage shall be 0.

(q)      Defined terms used but not defined herein shall have the meanings given
         such terms in the Confirmation to which this Annex is attached.

2. Performance Assurance.

(a)      On any Business Day, ENA may demand in writing that Counterparty
         establish and maintain (subject to increase as provided below) (1)
         Performance Assurance for the benefit of ENA equal to Counterparty's
         Collateral Requirement, rounded up to the next higher integral multiple
         of $250,000, or (2) increase the amount of any outstanding Performance
         Assurance so that after such increase the Collateral Requirement has
         been fully satisfied. Counterparty shall either establish such
         Performance Assurance or increase any outstanding Performance
         Assurance, in each case by either (i) increasing the amount of any
         outstanding Letter of Credit; (ii) establishing additional Letters of
         Credit; or (iii) delivering Cash to ENA. Unless otherwise agreed in
         writing by the parties, Performance Assurance demanded of Counterparty
         by 10:00 a.m., New York time, on a Business Day shall be provided by
         the close of business on the next succeeding Business Day; provided,
         however, that Letters of Credit shall be Transferred by the close of
         business on the second succeeding Business Day.

(b)      On any Business Day (but no more frequently than weekly), Counterparty
         may request a reduction in the amount of Performance Assurance
         previously provided by it, provided that, after the requested reduction
         in Performance Assurance, (i) Counterparty shall then have a Collateral
         Requirement of zero; (ii) if at such time there are outstanding Swaps
         between the parties or unsatisfied obligations from Counterparty to ENA
         exist with respect to any Swaps, ENA shall either be holding
         Performance Assurance or shall have had Performance Assurance issued
         for its benefit in an amount equal to the aggregate of any Additional
         Amounts applicable to Counterparty; (iii) no Event of Default or
         Potential Event of Default with respect to Counterparty shall have
         occurred and be continuing; and (iv) no Early Termination Date for
         which any unsatisfied payment obligations of Counterparty exist has
         occurred or been designated as a result of an Event of Default with
         respect to Counterparty. A permitted reduction in Performance Assurance
         shall be effected by either the Transfer of Cash to Counterparty or the
         reduction of the amount of an outstanding Letter of Credit previously
         issued for the benefit of ENA. Counterparty shall have the right to
         specify the means of effecting the reduction in Performance Assurance.
         ENA shall have two (2) Business Days to effect a permitted reduction in
         Performance Assurance if such reduction is to be effected by the return
         of Cash to Counterparty. If a permitted reduction in Performance
         Assurance is to be effected by a reduction in the amount of an
         outstanding Letter of Credit previously issued for the benefit of ENA,
         then ENA shall not unreasonably withhold its consent to a commensurate
         reduction in the amount of such Letter of Credit and shall take such
         action as is reasonably necessary to effectuate such reduction. In all
         cases, the cost and expense of reducing Performance Assurance
         (including but not limited to the reasonable costs, expenses, and
         attorneys' fees of ENA) shall be borne by Counterparty.

3. Cash Collateral. Performance Assurance in the form of United States Dollars
("Cash") shall be subject to the following provisions:

(a)      Unless otherwise agreed in writing by the parties, Cash shall be
         delivered in accordance with this Annex and to such account specified
         by ENA in the demand sent to Counterparty pursuant to Section 2 of this
         Annex.

(b)      So long as no Event of Default with respect to Counterparty has
         occurred and is continuing, and no Early Termination Date for which any
         unsatisfied payment obligations of Counterparty exist has occurred or
         been designated as the result of an Event of Default with respect to
         Counterparty and to the extent that an obligation to deliver
         Performance Assurance would not be created or increased by the
         Transfer, ENA will Transfer to Counterparty, in lieu of any interest,
         dividends or other amounts paid or deemed to have been paid with
         respect to the Cash


                                    Annex B-1
                                   Page 2 of 4

<PAGE>   13

         (all of which may be retained by ENA), the Interest Amount (as defined
         above) on the last Business Day of each calendar month. On or after the
         occurrence of an Event of Debut with respect to Counterparty or an
         Early Termination Date as a result of an Event of Default with respect
         to Counterparty, ENA shall retain any such Interest Amount as
         additional Cash hereunder until the obligations of Counterparty under
         the Confirmation have been satisfied.

(c)      Without limiting ENA's rights under Section 8(d) of this Annex, ENA
         will exercise reasonable care to assure the safe custody of all Cash to
         the extent required by applicable law, and in any event the ENA will be
         deemed to have exercised reasonable care if it exercises at least the
         same degree of care as it would exercise with respect to its own
         property. Except as specified in the preceding sentence, ENA will have
         no duty with respect to Cash.

         4. Letters of Credit. Performance Assurance in the form of a Letter of
Credit shall be subject to the following provisions:

(a)      Unless otherwise agreed in writing by the parties, a Letter of Credit
         shall be provided in accordance with this Annex, and the Letter of
         Credit shall be maintained for the benefit of ENA. Counterparty or the
         Issuer of the Letter of Credit shall (i) renew or cause the renewal of
         each outstanding Letter of Credit on a timely basis as provided in the
         relevant Letter of Credit, (ii) if the Issuer of an outstanding Letter
         of Credit has indicated its intent not to renew such Letter of Credit,
         provide either a substitute Letter of Credit or other substitute
         Performance Assurance, in each case at least twenty (20) Business Days
         prior to the expiration of the outstanding Letter of Credit, and (iii)
         if the Issuer shall fail to honor ENA's properly documented request to
         draw on an outstanding Letter of Credit, provide for the benefit of ENA
         either a substitute Letter of Credit that is issued by a bank
         acceptable to ENA or other substitute Performance Assurance, in each
         case within two (2) Business Days after such refusal.

(b)      Upon the occurrence of a Letter of Credit Default, Counterparty agrees
         to either cause another Issuer to deliver to ENA a substitute Letter of
         Credit, or alternatively, Counterparty shall provide other Performance
         Assurance, in each case on or before the second Business Day after the
         occurrence thereof (or the fifth (5th) Business Day after the
         occurrence thereof if only clause (i) under the definition of Letter of
         Credit Default applies).

(c)      When providing Performance Assurance, Counterpart may increase the
         amount of an outstanding Letter of Credit or establish one or more
         additional Letters of Credit.

(d)      Upon or at any time after the occurrence of an Event of Default with
         respect to Counterparty, ENA may draw on the entire, undrawn portion of
         any outstanding Letter of Credit upon submission to the Issuer of one
         or more certificates specifying that such Event of Default has occurred
         in accordance with the specific requirements of the Letter of Credit.
         Cash proceeds received from drawing upon the Letter of Credit shall be
         deemed to be Performance Assurance as security for Counterparty's
         obligations to ENA (and Counterparty hereby pledges and grants to ENA
         as security for such obligations a first lien, priority security
         interest in and to such cash proceeds) and ENA shall have the rights
         and remedies set forth in Section 6 herein with respect to such cash
         proceeds. Notwithstanding ENA's receipt of Cash under the Letter of
         Credit, Counterparty shall remain liable to ENA (y) for any failure to
         Transfer sufficient Performance Assurance and (z) for any amounts due
         and owing to ENA and remaining unpaid after the application of the
         amounts so drawn by ENA.

(e)      Counterparty may substitute a Letter of Credit for one or more other
         outstanding Letter(s) of Credit issued for the benefit of ENA, provided
         that the amount of such substitute Letter of Credit shall be at least
         equal to that of the Letter(s) of Credit being replaced (determined in
         good faith and in a commercially reasonable manner by ENA), and
         provided further that no Letter of Credit shall be canceled unless and
         until the Letter of Credit to be substituted therefor shall have been
         validly executed and issued for the benefit of ENA in accordance with
         applicable law.

(f)      In all cases, the costs and expenses (including but not limited to the
         reasonable costs, expenses, and attorneys' fees of ENA) of
         establishing, renewing, substituting, canceling, and increasing the
         amount of (as the case may be) one or more Letters of Credit shall be
         borne by Counterparty.

     5. Additional Representation. Counterparty continuously represents and
warrants to ENA that (a) it has the power and authority under the law of the
jurisdiction of its organization or incorporation and under its organizational
and constituent documents to grant to ENA a valid, enforceable, first-priority
security interest in, and lien on, all Performance Assurance (other than Letters
of Credit) that it provides to ENA hereunder and has taken all necessary
actions to authorize the granting of that security interest and lien; (b) as of
each date on which it delivers Performance Assurance to ENA or to any agent of
ENA for the benefit of ENA (or, in the case of after-acquired Cash, at the time
ENA or its agent acquires rights therein), it will have title to and will be the
sole owner of such Performance Assurance, free and clear of any security
interest, lien, pledge, charge, encumbrance, or other interests or restrictions
other than the security interest granted to ENA hereby; (c) ENA will have a
valid and perfected first-priority security interest in, and lien on, all
Performance Assurance (other than Letters of Credit) upon receipt thereof; (d)
the performance by it of its obligations under this Annex will not result in the
creation of any security interest, lien or other encumbrance on any property
other than the security interest and lien granted pursuant to this Annex; and
(e) on each occasion that it causes the issuance, renewal, substitution, or
increase (as the case may be) of a Letter of Credit, such Letter of Credit will
be the legal, valid, and binding obligation of the Issuer thereof, enforceable
in accordance with its terms.

         6. ENA's Rights and Remedies. If at any time (i) an Event of Default
with respect to Counterparty has occurred and is continuing or (ii) an Early
Termination Date has occurred or been designated as a result of an Event of
Default with respect to Counterparty, then ENA may do any one or more of the


                                    Annex B-1
                                   Page 3 of 4

<PAGE>   14
following: (x) exercise any of the rights and remedies of a secured party with
respect to the Performance Assurance provided by Counterparty to it hereunder,
including any such rights and remedies under law then in effect; (y) exercise
its rights of setoff against any and all property of Counterparty in the
possession of ENA or its agent; or (z) draw on any outstanding Letter of Credit
issued for its benefit. ENA shall either (y) apply the proceeds of the
Performance Assurance realized upon the exercise of any such rights or remedies
to reduce Counterparty's obligations under the Confirmation and all outstanding
Swaps (Counterparty remaining liable for any amounts owing to ENA after such
application), subject to ENA's obligation to return any surplus proceeds
remaining after such obligations are satisfied in full or (z) hold such proceeds
as collateral security for Counterparty's obligations to ENA under the
Confirmation and all outstanding Swaps.

         7. Security Interest. To secure its obligations under the Confirmation
and all outstanding Swaps, Counterparty hereby grants to ENA a present and
continuing first-priority security interest in, and lien on (and right of setoff
against), all Performance Assurance (other than Letters of Credit) and any and
all proceeds, to the extent not otherwise Transferred to ENA, resulting from
such Performance Assurance, whether now or hereafter held by, on behalf of, or
for the benefit of, ENA, and Counterparty agrees to take such action as ENA
reasonably requires in order to perfect ENA's first-priority continuing security
interest in, and on (and right of setoff against), such Performance Assurance
(other than Letters of Credit) and any and all proceeds resulting from such
Performance Assurance.

         8.       General.

         (a)      Except as expressly set forth in this Annex or the
                  Confirmation, each party will pay its own costs and expenses
                  in connection with performing its obligations under this Annex
                  and neither party will be liable for any costs or expenses
                  incurred by the other party in connection herewith.

         (b)      Counterparty will promptly pay when due all taxes, assessments
                  or charges of any nature that are imposed with respect to
                  Performance Assurance held by ENA upon becoming aware of the
                  same, regardless of whether any portion of that Performance
                  Assurance is subsequently disposed of under Section 6 of this
                  Annex, except for those taxes, assessments and charges that
                  result from the exercise of ENA's rights under Section 8(d) of
                  this Annex.

         (c)      All reasonable costs and expenses incurred by or on behalf of
                  ENA in connection with the liquidation and/or application of
                  any Performance Assurance under Section 6 of this Annex will
                  be payable on demand and pursuant to the Confirmation and this
                  Annex by Counterparty.

         (d)      So long as ENA is not a Defaulting Party and no Early
                  Termination Date has occurred or been designated as a result
                  of an Event of Default with respect to ENA, then ENA shall
                  have the right to sell, pledge, rehypothecate, assign, invest,
                  use, commingle or otherwise dispose of, or otherwise use in
                  its business, any Cash it holds, free from any claim or right
                  of any nature whatsoever of Counterparty, including any equity
                  or right of redemption by Counterparty.


                                    Annex B-1
                                   Page 4 of 4

<PAGE>   15
                                   SCHEDULE 1

                   IRREVOCABLE STANDBY LETTER OF CREDIT FORMAT
                         DATE OF ISSUANCE: ________________

[Address]

         Re: Credit No. ___________________

         We hereby establish our Irrevocable Transferable Standby Letter of
Credit in your favor for the account of ____________________ (the "Account
Party"), for the aggregate amount not exceeding _______________________ United
States Dollars ($___________), available to you at sight upon demand at our
counters at (Location) on or before the expiration hereof against presentation
to us of the following statement, dated and signed by a representative of the
beneficiary:

         "An Event of Default (as defined in the Confirmation dated as of
         __________________, 200___, between beneficiary and Account Party (such
         Confirmation, together with any amendments, restatements and/or
         replacements thereof, including, without imitation, any restatements
         that occur as a result of any Master Agreement between beneficiary and
         Account Party being herein referred to collectively as the
         "Confirmation")) has occurred and is continuing with respect to the
         Account Party under the Confirmation. Wherefore, the undersigned does
         hereby demand payment of the entire undrawn amount of the Letter of
         Credit."

         The amount which may be drawn by you under this Letter of Credit shall
be automatically reduced by the amount of any drawings paid through the Issuing
Bank referencing this Letter of Credit No. _______. Partial drawings are
permitted hereunder.

         This Letter of Credit shall expire ________________ (____) days from
the date of issuance, but shall automatically extend without amendment for
additional ______________ (_______)-day periods from such expiration date and
from subsequent expiration dates, if you, as beneficiary, and the Account Party
have not received due notice of our intention not to renew ninety (90) days
prior to any such expiration date.

         We hereby agree with you that documents drawn under and in compliance
with the terms of this Letter of Credit shall be duly honored upon presentation
as specified.

         This Letter of Credit shall be governed by the Uniform Customs and
Practice for Documentary Credits, 1993 Revision, International Chamber of
Commerce Publication No. 500 (the "UCP"), except to the extent that the terms
hereof are inconsistent with the provisions of the UCP, including but not
limited to Articles 13(b) and 17 of the UCP, in which case the terms of this
Letter of Credit shall govern.

         With respect to Article 13(b) of the UCP, the Issuing Bank shall have a
reasonable amount of time, not to exceed three (3) banking days following the
date of its receipt of documents from the beneficiary, to examine the documents
and determine whether to take up or refuse the documents and to inform the
beneficiary accordingly.

         In the event of an Act of God, riot, civil commotion, insurrection, war
or any other cause beyond our control that interrupts our business
(collectively, an "Interruption Event") and causes the place for presentation of
this Letter of Credit to be closed for business on the last day for
presentation, the expiry date of this Letter of Credit will be automatically
extended without amendment to a date thirty (30) calendar days after the place
for presentation reopens for business.

         This Letter of Credit is transferable, and we hereby consent to such
transfer, but otherwise may not be amended, changed or modified without the
express written consent of the beneficiary, the Issuing Bank and the Account
Party.


                                             [BANK SIGNATURE]

<PAGE>   16

                                   SCHEDULE 1

                   IRREVOCABLE STANDBY LETTER OF CREDIT FORMAT
                         DATE OF ISSUANCE: ________________


[Address]

         Re: Credit No.

         We hereby establish our Irrevocable Transferable Standby Letter of
Credit in your favor for the account of ________________ (the "Account Party"),
for the aggregate amount not exceeding ________________ United States Dollars
($_________), available to you at sight upon demand at our counters at
(Location) on or before the expiration hereof against presentation to us of the
following statement, dated and signed by a representative of the beneficiary:

         "An Event of Default (as defined in the Confirmation dated as of
         __________, 200__, between beneficiary and Account Party (such
         Confirmation, together with any amendments, restatements and/or
         replacements thereof, including, without limitation, any restatements
         that occur as a result of any Master Agreement between beneficiary and
         Account Party being herein referred to collectively as the
         "Confirmation")) has occurred and is continuing with respect to the
         Account Party under the Confirmation. Wherefore, the undersigned does
         hereby demand payment of the entire undrawn amount of the Letter of
         Credit."

         The amount which may be drawn by you under this Letter of Credit shall
be automatically reduced by the amount of any drawings paid through the Issuing
Bank referencing this Letter of Credit No. _____. Partial drawings are permitted
hereunder.

         This Letter of Credit shall expire ______________ (______) days from
the date of issuance, but shall automatically extend without amendment for
additional _______________ (_______) day-periods from such expiration date and
from subsequent expiration dates, if you, as beneficiary, and the Account Party
have not received due notice of our intention not to renew ninety (90) days
prior to any such expiration date.

         We hereby agree with you that documents drawn under and in compliance
with the terms of this Letter of Credit shall be duly honored upon presentation
as specified.

         This Letter of Credit shall be governed by the Uniform Customs and
Practice for Documentary Credits, 1993 Revision, International Chamber of
Commerce Publication No. 500 (the "UCP"), except to the extent that the terms
hereof are inconsistent with the provisions of the UCP, including but not
limited to Articles 13(b) and 17 of the UCP, in which case the terms of this
Letter of Credit shall govern.

         With respect to Article 13(b) of the UCP, the Issuing Bank shall have a
reasonable amount of time, not to exceed three (3) banking days following the
date of its receipt of documents from the beneficiary, to examine the documents
and determine whether to take up or refuse the documents and to inform the
beneficiary accordingly.

         In the event of an Act of God, riot, civil commotion, insurrection, war
or any other cause beyond our control that interrupts our business
(collectively, an "Interruption Event") and causes the place for presentation of
this Letter of Credit to be closed for business on the last day for presentation
the expiry date of this Letter of Credit will be automatically extended without
amendment to a date thirty (30) calendar days after the place for presentation
reopens for business.

         This Letter of Credit is transferable, and we hereby consent to such
transfer, but otherwise may not be amended, changed or modified without the
express written consent of the beneficiary, the Issuing Bank and the Account
Party.

                                               [BANK SIGNATURE]