NATURAL GAS SALES AGREEMENT
                           ---------------------------

         THIS  AGREEMENT  is made and  entered  into this the 30th day of March,
("Contract  Date") by and between BAE SYSTEMS ORDNANCE  SYSTEMS INC.  ("Buyer"),
and TENGASCO, INC. ("Seller").


                              W I T N E S S E T H:
                              --------------------

         WHEREAS,  Seller has  substantial  natural  gas  reserves  in  Hawkins,
Hancock, Claiborne, and surrounding counties in Tennessee, and Tengasco Pipeline
Corporation,  a wholly owned subsidiary of Tengasco, Inc. desires to construct a
pipeline to deliver such natural gas to customers that will purchase natural gas
for customer's use, and for other purposes; and

         WHEREAS, Seller has developed natural gas reserves and plans to produce
Natural Gas from its properties in Hawkins, Hancock,  Claiborne, and surrounding
Counties in Tennessee  and transport  that Natural Gas through  facilities to be
constructed and owned by Tengasco Pipeline Corporation; and,

         WHEREAS,  Buyer requires natural gas for its plant facilities ("Plant")
located in Kingsport, Sullivan County, Tennessee; and

         WHEREAS,  Seller desires to sell and Buyer desires to purchase  Natural
Gas;

         NOW,  THEREFORE,  in consideration of the mutual covenants  hereinafter
set forth, Buyer and Seller agree as follows:

                                    ARTICLE 1
                                    QUANTITY
                                    --------

         1.1 VOLUME. Subject to the other provisions of this Agreement, each Day
Seller  shall make  available  a Maximum  Volume of Natural  Gas.  Seller is not
obligated to provide more than the Maximum Volume available on any Day. "Maximum
Volume" will be 5,000 MMBtu's per day. Buyer agrees to purchase a Minimum Volume
of gas per day. "Minimum Volume" means with respect to any Day, the lesser of i)
5,000 MMBtu's or ii) Buyer's actual  requirements  on such Day. Buyer and Seller
agree that the Minimum  Volume and  Maximum  Volume to be  delivered  under this
Agreement are subject to  availability  of Seller's  Natural Gas after sales are
made by Seller to Eastman  Chemical  Company at the maximum volume stated in the
existing  contract with Eastman  Chemical Company at the date of this Agreement,
which is 15,000 MMBtu's per day. Buyer and Seller further agree,  subject to the
preceding sentence, that the

<PAGE>


Maximum  Volume of gas shall be  delivered  under  this  Agreement  prior to the
delivery by Seller of all other volumes, if any, that may be contracted for sale
by Seller to any customer other than Eastman Chemical Company at any time during
the term of this agreement.

         1.2 Buyer does not have the ability to predict its exact total  Natural
Gas fuel purchase  requirement on a daily basis,  and, as a result,  may fail to
purchase the Minimum Volume on a given Day; provided,  however, Buyer shall make
a reasonable effort to purchase and receive the Minimum Volume on each Day.

         1.3 Seller's reserves in Hancock,  Hawkins,  Claiborne, and surrounding
Counties  are being  developed  by Seller  and  Seller's  capability  to produce
additional volumes may increase over time. Buyer may from time to time, consider
additional  projects at its Plant that would utilize Natural Gas. Should Buyer's
need for  Natural  Gas from  Seller be greater  than the  Maximum  Volume and if
Seller has additional Natural Gas available from its Tennessee  property,  Buyer
and Seller may agree to increase the Maximum  Volume in accordance  with Buyer's
increased needs.

                                   ARTICLE II
                                     PRICE
                                     -----

         2.1 For the purpose of  calculating  the delivered  price to be paid in
any Month pursuant to Section 2.2 of this Article, "Index Price" means the price
per MMBtu published in McGraw-Hill's INSIDE F.E.R.C'S GAS MARKET REPORT ("INSIDE
FERC"), equal to the Henry Hub price index as shown in the table labeled "Market
Center Spot Gas Prices.  The  published  price used to determine the Index Price
for  Natural  Gas  purchased  in any  Month is the  first  published  price  for
deliveries in that Month.

         2.2 If the Index Price is not published for any Month, then the parties
shall  negotiate,  in good faith,  in an attempt to agree to a substitute  index
which most closely  approximates the Index Price in order to calculate the price
under  Section  2.3 for that Month and any  succeeding  Month in which the Index
Price is not published.  If the parties fail to agree upon a substitute index on
or before the date  payment is due for the first Month for which the Index Price
is not published, the parties shall determine a substitute index by arbitration.
The arbitration shall be by a single impartial arbitrator in accordance with the
Federal  Arbitration  Act and the Commercial  Arbitration  Rules of the American
Arbitration  Association  to the  extent  not in  conflict  with such  Act.  The
arbitrator  shall be selected by the  American  Arbitration  Association  if the
parties are unable to agree on an arbitrator.  If the parties fail to agree upon
substitute  index on or before  the date  payment is due for any Month for which
the Index Price is not published and a substitute index has not been established
by  arbitration,  then Buyer shall pay Seller for all Natural Gas  purchased  in
that Month the price per MMBtu in effect or paid  subject to  adjustment  during
the immediately preceding Month subject to adjustment as

                                       2

<PAGE>


hereinafter  provided.  Once the substitute  index is determined by arbitration,
adjustment shall be made in the prices  previously paid for any Month, for which
the Index Price was not published, to implement the substitute index.

         2.3  Subject to Section  2.2 and 2.5,  Buyer shall pay Seller the Index
Price plus $0.05 per MMBtu for all Natural Gas  delivered  by Seller  under this
Agreement.

         2.4  Either  party  may  propose  that new  pricing  provisions  become
effective  ("Proposal  Effective  Date") on the  commencement of the sixth (6th)
Contract Year (or the  commencement  of any succeeding  Contract Year) by giving
written  notice to the other  party at least  twelve  (12)  Months  prior to the
Proposal  Effective Date. If either party proposes a new pricing  methodology in
the  manner  provided  above but the  parties  do not agree in  writing on a new
pricing  methodology  at least seven (7) Months  before the  Proposal  Effective
Date, the existing pricing  methodology will continue in effect but either party
may terminate this Agreement  effective on the Proposal Effective Date by giving
the other party written  notice of  termination at least (6) Months prior to the
Proposal  Effective Date. If either party proposes a new pricing  methodology in
the manner  provided  above,  and the parties  agree in writing on a new pricing
methodology  by  the  Proposal  Effective  Date,  that  pricing  methodology  is
effective on the  Proposal  Effective  Date and  continues in effect until a new
price becomes effective under this Agreement.

         2.5 If Buyer has a competitive  offer for similar volumes under similar
terms and  conditions  as  hereunder,  but at a better  price,  Buyer may notify
Seller of the competitive offer ("Market Price Notice"). If Buyer gives a Market
Price Notice in  accordance  with its rights under the  foregoing  provisions of
this Section,  Seller will provide  written notice that it either agrees to meet
such competitive offer or to release Buyer from its purchase obligations herein.

         2.6  Should  Seller  offer to sell  Natural  Gas to  another  Buyer for
similar  volumes under similar terms and  conditions as hereunder but at a price
lower than the price  determined  by 2.3, 2.4 or 2.5,  Seller shall  immediately
extend such lower price to Buyer.

                                  ARTICLE III
                                 DELIVERY POINT
                                 --------------

         3.1 Seller shall  deliver all Natural Gas  quantities at the inlet side
of Buyer's meter station located at Buyer's Plant site as specified by Buyer, so
long as such site  location  does not  unduly  burden  Seller,  near  Kingsport,
Tennessee  ("Delivery  Point").  Title shall  transfer to Buyer at such Delivery
Point.

         3.2 Buyer  shall,  at  Buyer's  sole cost and  expense,  install at the
Delivery Point all necessary meters,  valves,  fittings,  controllers,  pressure
control valve,  knock-out

                                       3
<PAGE>

tanks, and telemetry as required to effect and monitor deliveries hereunder.  In
addition,  to provide  Buyer  with  requested  signals  and  real-time  delivery
quantity parameters,  certain check metering and electronic monitoring abilities
shall also be installed  by Buyer at Buyer's  expense.  Buyer shall  provide any
necessary  surface  site,  easement and rights of ingress and egress that may be
required for the  installation  and operation of such measurement and regulation
station,  as well as any and all necessary  electrical  power,  connections  and
junction boxes at a mutually  agreeable  location within such site. Seller shall
have the right to review and  approve the  station  design and site  preparation
scope,  specifications and all construction  drawings prior to initiation of any
work hereunder.

                                   ARTICLE IV
                                     TERM
                                     ----

         4.1  Unless  terminated  earlier  in  accordance  with one of the other
provisions  of this  Agreement,  this  Agreement  shall become  effective on the
earlier  of the  30th day of  March,  2001 or the  date  the  physical  pipeline
facilities and metering  facilities are  constructed and installed by Seller and
Buyer,  and  commences  and  continues  in effect  for twenty  (20)  consecutive
Contract Years ("Primary  Term").  This Agreement is automatically  extended for
successive terms of one (1) Contract Year each unless and until it is terminated
by either  party at the end of the  Primary  Term or then end of any  successive
Contract Year by giving written notice at least twelve (12) Months prior to such
termination.

                                    ARTICLE V
                                     NOTICES
                                     -------

         5.1 Any notice,  request,  demand,  or  statement  provided for in this
Agreement  must be in writing and is deemed given when  actually  delivered to a
party at the address  indicated below for such party or, if mailed, it is deemed
given three (3)  business  Days after it is mailed by first class mail,  postage
paid,  to a party at the address  indicated  below for such party or, if sent by
facsimile transmission, when receipt of a legible facsimile is confirmed by such
party.





                                       4

<PAGE>


--------------------------------------------------------------------------------
 BUYER:                                   SELLER:
 ------                                   -------
--------------------------------------------------------------------------------
 ALL NOTICES                              NOTICES AND NOMINATIONS
 -----------                              -----------------------
--------------------------------------------------------------------------------
 BAE SYSTEMS ORDNANCE SYSTEMS INC.        Tengasco Inc.
--------------------------------------------------------------------------------
 Holston Army Ammunition Plant            Medical Arts Bldg.
 4509 West Stone Drive                    603 Main Ave., Suite 500
--------------------------------------------------------------------------------
 Kingsport, Tennessee 37660               Knoxville, Tennessee 37902
--------------------------------------------------------------------------------
 Attention:   Gary W. Taylor              Attention: Harold G. Morris
--------------------------------------------------------------------------------
 Facsimile:  423-247-2261                 Facsimile:  (423) 523-9894
--------------------------------------------------------------------------------

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

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

--------------------------------------------------------------------------------
 For confirmation of facsimile receipt:   For confirmation of facsimile receipt:
--------------------------------------------------------------------------------
 (423) 578-6508                           (423) 523-1124
--------------------------------------------------------------------------------

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

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

--------------------------------------------------------------------------------
 STATEMENT AND PAYMENTS:                  STATEMENT AND PAYMENTS:
 -----------------------                  -----------------------
--------------------------------------------------------------------------------
 BAE Systems Ordnance Systems Inc.        Tengasco, Inc.
--------------------------------------------------------------------------------
 Holston Army Ammunition Plant            Medical Arts Bldg.
 4509 West Stone Drive
--------------------------------------------------------------------------------
 Kingsport, Tennessee 37660               603 Main Ave., Suite 500
--------------------------------------------------------------------------------
 Attention:  Accounts Payable             Knoxville, Tennessee 37902
--------------------------------------------------------------------------------


Either party may, from time to time,  designate a new address as its address for
such  purposes by  registered  or  certified  letter or  facsimile  transmission
addressed to the other party.

                                   ARTICLE VI
                               FAILURE TO DELIVER
                               ------------------

         6.1 If Seller fails to fulfill its delivery quota,  both on time and as
to quality  or  quantity,  ("Seller's  Deficiency")  of  Natural  Gas that it is
obligated  to make  available  under  this  Agreement,  and such  failure is not
excused by this Agreement or law,  Buyer may, as its sole and exclusive  remedy,
except  for  remedies  under  4.3  of the  General  Conditions,  cover  Seller's
Deficiency  and recover from Seller (a) any  positive  remainder of i) the costs
that Buyer actually and reasonably incurred to purchase Seller's Deficiency from
a third  party  less ii) the costs  that  Buyer  would  have  paid for  Seller's
Deficiency  if  delivered  hereunder,  plus  (b) any  reasonable  and  necessary
attorney's  fees and court  costs,  incurred  by Buyer in order to recover  such
damages from Seller.  However,  in no event may Buyer  recover a total amount in
excess of $0.40 for each MMBtu of Seller's Deficiency.

                                       5

<PAGE>




                                   ARTICLE VII
                          GENERAL TERMS AND CONDITIONS
                          ----------------------------

         7.1 All the General Terms and Conditions  attached as Appendix A hereto
are incorporated by this reference and made a part of this Agreement.

         IN WITNESS WHEREOF, the parties hereto have executed this Agreement.

                                           BUYER:
ATTEST:                                    BAE SYSTEMS ORDNANCE SYSTEMS INC.

By: Gary Taylor                        By:     Anthony B. Hewitt
   ------------------------------             ----------------------------------
                                       Title:  Commercial Development Director
                                              ----------------------------------


                                       SELLER:
ATTEST:                                TENGASCO, INC.

By: Linda Parton                       By:     Robert Carter
   ------------------------------             ----------------------------------
                                       Title:  President
                                              ----------------------------------





                                       6

<PAGE>

                                   APPENDIX A
                          GENERAL TERMS AND CONDITIONS

         Attached hereto and made a part of, by mutual agreement of the parties,
that  certain  Natural Gas Sales  Agreement  ("Agreement")  dated March 30, 2001
between  TENGASCO,  INC.  ("Seller")  and  BAE  SYSTEMS  ORDNANCE  SYSTEMS  INC.
("Buyer").

                                   ARTICLE A-1
                                   DEFINITIONS
                                   -----------

         Except in those certain  instances where the context  requires  another
meaning,  the  following  terms  when  used in this  Agreement  shall  have  the
following meanings:

         1.1 "NATURAL GAS" MEANS natural gas produced from natural gas wells and
natural gas produced in association with oil (casinghead gas) and/or the residue
natural gas resulting from processing  both casinghead gas and Natural  Gas-well
gas. Natural Gas shall mean only such Natural Gas as is being or may be produced
from wells of Seller in Hawkins,  Hancock,  Claiborne and surrounding  counties,
Tennessee.

         1.2  "DAY"  means the  period of  twenty-four  (24)  consecutive  hours
beginning at 7:00 a.m. Eastern Standard or Daylight Time on any calendar Day and
ending  at 7:00 a.m.  Eastern  Standard  Time on the  calendar  Day  immediately
following.

         1.3 "MONTH" means a period  beginning at 7:00 a.m.  Eastern Standard or
Daylight  Time on the first  Day of a  calendar  Month  and  ending at 7:00 a.m.
Eastern  Standard  or  Daylight  Time on the  first  Day of the  calendar  Month
immediately  following,  except  that the first Month shall begin on the date of
initial  deliveries of Natural Gas hereunder and shall end at 7:00 a.m.  Eastern
Standard or Daylight  Time on the first Day of the  calendar  Month  immediately
following.

         1.4 "CONTRACT YEAR" means a period of (12) consecutive  calendar Months
beginning  on  the  Contract  Date,  PROVIDED  that  upon  termination  of  this
Agreement, the Contract Year then in progress shall end.

         1.5  "PSIA" means pounds per square inch absolute.

         1.6  "PSIG" means pounds per square inch gauge.

         1.7  "MCF"  means one  thousand  (1000)  cubic  feet at a  pressure  of
fourteen and  sixty-five  hundredths  (14.65) psia and at a temperature of sixty
degrees (60) Fahrenheit.

         1.8      "BTU" means a British thermal unit.

                                       7

<PAGE>

         1.9   "MMBTU" means one million (1,000,000) Btu.

         1.10  "HEATING  VALUE" means the gross number of British  Thermal Units
which would be contained in the volume of one (1) cubic foot of Natural Gas at a
temperature  of sixty degrees (60)  Fahrenheit,  when saturated with water vapor
and under a pressure of fourteen and  sixty-five  hundredths  (14.65) pounds per
square inch  absolute and adjusted to reflect the actual water vapor  content of
the Natural Gas delivered provided, however, if the water vapor content is seven
(7) pounds per million cubic feet or less, the Natural Gas shall be deemed dry.

         1.11 "SELLER'S  TRANSPORTER" means, with respect to any Delivery Point,
any entity other than Seller that  delivers the Natural Gas sold  hereunder  for
Seller at such Delivery Point.

         1.12 "BUYER'S  TRANSPORTER"  means, with respect to any Delivery Point,
any entity other than Buyer that  receives the Natural Gas  delivered  hereunder
for Buyer at said Delivery Point.

         1.13 "METER  OPERATOR" means Seller or Seller's  Transporter and Seller
shall perform or cause Seller's Transporter to perform in any duties ascribed to
the "Meter Operator".

                                  ARTICLE A-II
                              MEASUREMENT AND TESTS
                              ---------------------

         2.1    The Meter Operator shall measure the quantities  delivered.  The
measuring equipment shall be constructed, installed and operated as follows:


         2.1.1  Orifice Meters - in accordance with ANSI/API 2530,  American Gas
                Association  Report  No.  3,  and  any  subsequent   amendments,
                revisions or modifications thereof.

         2.1.2  Positive  Meters - in accordance  with American Gas  Association
                Measurement   Committee   Report  No.  6,  and  any   subsequent
                amendments, revisions or modifications thereof.

         2.1.3  Turbine  Meters - in accordance  with  American Gas  Association
                Measurement   Committee   Report  No.  7,  and  any   subsequent
                amendments, revisions or modifications thereof.

         2.1.4  Electronic  Transducers  and Flow Computers - in accordance with
                the applicable American Gas Association Standards including, but
                not limited to American Gas  Association  Measurement  Committee
                Report  Nos.  3,  5, 6 and 7,  and  any  subsequent  amendments,
                revisions or modifications thereof.

                                       8

<PAGE>

         2.2 The unit of volume for  purposes  of  measurement  shall be one (1)
cubic foot of Natural Gas at a temperature  base of sixty  degrees  (60(degree))
Fahrenheit and at a pressure base of fourteen and sixty-five  hundredths (14.65)
psia.

         2.3 The  Meter  Operator  shall  use the  arithmetical  average  of the
temperatures   recorded  during  each  Day,  the  factor  for  specific  gravity
determined by a recording  gravitometer or chromatographic  device installed and
located at a suitable  point to record  representative  specific  gravity of the
Natural Gas being metered,  and adjustments to measured  Natural Gas volumes for
the effects of  supercompressibility,  made in accordance with accepted American
Gas Association standards, to make computations of quantity delivered under this
Agreement.  Seller shall obtain  appropriate  carbon  dioxide and nitrogen  mole
fraction values for the Natural Gas delivered as may be required to compute such
supercompressibility adjustments in accordance with standard testing procedures.

         2.4 The Meter  Operator  shall  determine  temperature  by a  recording
thermometer  continuously  used  and  installed  so as to  record  properly  the
temperature of the Natural Gas flowing through the meter.

         2.5 The Meter Operator shall determine  specific  gravity with accuracy
to the nearest  one-thousandth by taking samples of the Natural Gas at the point
of measurement at such times as may be determined to be necessary in practice by
the use of chromatographic  analysis or other methods commonly used and accepted
in the industry.

         2.6 The assumed  atmospheric  (barometric)  pressure  for the  Delivery
Point is 14.5 PSIA.

         2.7 The Meter Operator shall calculate the deviation of the Natural Gas
from Ideal Gas Laws, at the pressures,  temperatures  and specific gravity under
which said Natural Gas is delivered to Buyer,  shall be calculated in accordance
with API 2530.

         2.8 The Meter Operator shall determine the Heating Value of the Natural
Gas at the Delivery  Point(s) by using a  Cutler-Hammer  or other  standard type
calorimeter or by calculating the heating value from an online  chromatograph or
a Natural Gas  analysis  of a  continuous  Natural  Gas sample.  A Party to this
Agreement  that is not the Meter  Operator  may, at such time or times as it may
desire,  determine  the  Heating  Value of the  Natural  Gas  using an  industry
accepted  method.  In the event of any  material  variance  between such test by
Meter Operator and the last or next  succeeding  test made by the  non-operating
party,  a joint test, the cost of which shall be shared equally by both parties,
will be run employing the method utilized by the Meter Operator,  and the result
thereof  will be  controlling,  effective  the first day of the  calendar  Month
preceding such joint test. The Btu content of any volume of Natural Gas shall be
determined  for  all  purposes,  including  payment,  under  this  Agreement  by
multiplying  the Heating Value of the Natural Gas as determined by the last test
in  accordance  with this

                                       9

<PAGE>

Section 2.8 by the number of cubic feet  contained in such volume, as determined
in accordance with Sections 2.2 and 2.3.

         2.9 Except as provided in Section  2.8, the Meter  Operator  shall test
the quality of the Natural Gas delivered  hereunder by approved standard methods
from time to time as requested by any party hereto.

         2.10 The Meter Operator shall  install,  and maintain,  at its expense,
measuring equipment, housing devices, and materials of standard manufacture. Any
party that is not the Meter Operator at a Delivery Point may install and operate
check-measuring  equipment  that  does  not  interfere  with  the  use of  meter
Operator's equipment. The Meter Operator shall maintain, operate and furnish, at
its expense, testing equipment of standard manufacture.

         2.11 The Meter  Operator  shall test the accuracy of its  measuring and
testing  equipment  at necessary  intervals,  and at least  approximately  every
thirty (30) Days. The Meter Operator shall give notice of the time and nature of
each test to the other party  sufficiently  in advance to permit the other party
to have a  representative  present.  The Meter Operator shall test measuring and
testing   equipment  by  reasonable   means  and  methods  in  the  presence  of
representatives of both Seller and Buyer, if present. If the non-operating party
fails to have a representative  present after proper notice,  the Meter Operator
shall provide the results of such tests of equipment  and/or Natural Gas quality
to the non-operating  party but the results of such tests shall  nevertheless be
considered  accurate  until the next test.  All tests shall be made at the Meter
Operator's  expense,  except that the non-operating party shall bear the expense
of tests made at its  request if the  inaccuracy  found is one  percent  (1%) or
less.

         2.12 If at any time any of the measuring or testing  equipment is found
to be out of service, or registering  inaccurately in any percentage,  the Meter
Operator shall adjust it at once to read accurately within the limits prescribed
by the  manufacturer.  If such equipment is out of service,  or inaccurate by an
amount exceeding one percent (1%) at a reading corresponding to the average rate
of flow for the period since the last preceding  test,  the previous  reading of
such equipment is disregarded for any period definitely known or agreed upon, or
if not so known or agreed  upon,  for a period of sixteen  (16) Days or one-half
(1/2) of the  elapsed  time  since the last  test,  whichever  is  shorter.  The
quantity of Natural Gas delivered during such period shall be estimated by:

                a) Using the data recorded by any  check-measuring  equipment if
                   installed and accurately registering; or

                b) if not installed or registering accurately, by correcting the
                   error  if  the  percentage  of  error  is   ascertainable  by
                   calibration, test or mathematical calculation; or

                                       10

<PAGE>

                c) If  neither  such  method  is  feasible,  by  estimating  the
                   quantity,  or quality,  delivered based upon deliveries under
                   similar  conditions  during a period when the  equipment  was
                   registering accurately.

No corrections  shall be made for recorded  inaccuracies  of one percent (1%) or
less.

         2.13  Each  party  has the  right to  inspect  equipment  installed  or
furnished by the other, and the charts and other  measurement or testing data of
the other, at all times during business hours, but the reading,  calibration and
adjustment  of such  equipment  and changing of charts shall be done only by the
party  furnishing  such  equipment.  Each party shall preserve all original test
data,  charts and other similar records in such party's  possession for a period
of at least two (2) years.

                                  ARTICLE A-III
                                DELIVERY PRESSURE
                                -----------------

         3.1  Seller  shall  deliver  the  Natural  Gas to Buyer  at a  pressure
sufficient to effect  delivery into the facilities of Buyer,  up to five hundred
(500) psig,  with a minimum  pressure of two hundred  (200) psig,  controlled to
plus or minus 10 psig of that  pressure.  Buyer will take the Natural Gas at the
pressure of delivery and thereafter regulate and control such pressure as may be
required for its own usage.

                                  ARTICLE A-IV
                                    QUALITY
                                    -------

         4.1 Seller  shall cause the Natural Gas  quantities  to be delivered to
Buyer under this Agreement at the Delivery Point to be free of gum,  gum-forming
constituents,  and other liquid or solid matter that may become  separated  from
the  Natural  Gas  during  transportation,  and  to  conform  to  the  following
specifications:

--------------------------------------------------------------------------------
         a) Dust, rust and other solids  None
--------------------------------------------------------------------------------
         b) Carbon Dioxide               Not more than 2.0% by volume
--------------------------------------------------------------------------------
         c) Oxygen                       Not more than 0.5% by volume
--------------------------------------------------------------------------------
         d) Hydrogen Sulfide             Not more than 0.25 grains per 100 cubic
                                            feet
--------------------------------------------------------------------------------
         e) Total Sulfur                 Not more than 2.0 grains per 100  cubic
                                            feet
--------------------------------------------------------------------------------
         f) Free Water                   None
--------------------------------------------------------------------------------
         g) Heating Value                Not  less  than  970 Btu per cubic foot
                                         and less than one (1) percent variation
                                         within any 30 minute period
--------------------------------------------------------------------------------
         h) Temperature                  Not less than 40 F nor more than 120 F.
--------------------------------------------------------------------------------
         i) Water Vapor                  Not  more than 7 lbs. Per million cubic
                                             feet
--------------------------------------------------------------------------------
         j) Nitrogen                     Not  more  than 5% by volume, and to be
                                            reduced as  provided in  Section 4.2
                                            below
--------------------------------------------------------------------------------
         k) Isopentane and heavier       Not more than 4/10 of 1 gallon per Mcf
--------------------------------------------------------------------------------

                                       11

<PAGE>



--------------------------------------------------------------------------------
                                                       Hydrocarbon
--------------------------------------------------------------------------------
         l) Total Nonhydrocarbons        Not    more    than   5%   by    volume
                                         (Nonhydrocarbons shall include, but not
                                         be  limited   to,   hydrogen   sulfide,
                                         sulfur,  carbon  dioxide,  oxygen,  and
                                         nitrogen)
--------------------------------------------------------------------------------

In the event Seller is unable to meet these quality specifications, Seller shall
notify Buyer and if Buyer refuses to accept such off quality Natural Gas, Seller
shall  immediately  stop delivery of off quality  Natural Gas into the pipeline,
and take whatever steps are necessary to resume  delivery of Natural Gas meeting
these quality specifications.

         4.2      [omitted]

         4.3 If any Natural Gas tendered under this Agreement  fails to meet the
applicable  quality  specifications as provided above in Sections 4.1, Buyer may
refuse to accept such Natural Gas. If Buyer refuses any such Natural Gas because
it fails to meet the  applicable  quality  specifications  set forth in Sections
4.1, Buyer must give Seller written notice  ("Quality  Notice")  within five (5)
Days of such refusal of the  particular  specifications  that Seller or Seller's
Transporter  has  failed to meet.  If Seller or  Seller's  Transporter  fails to
correct the cause of any failure to meet the applicable  quality  specifications
within the thirty (30) Days ("Correction Period") immediately following Seller's
receipt of any  Quality  Notice,  and such  failure is not excused by law or the
provisions of the Agreement,  Buyer may by additional notice immediately suspend
purchase of any volume of Natural Gas  hereunder  for an  additional  period not
less than 90 days ("Suspension Period") during which time Seller may continue to
correct the cause of any failure to meet the applicable quality  specifications.
If the  correction is not made by the end of the  Suspension  Period,  Buyer may
terminate  this  Agreement,  at any time in the  thirty  (30)  Days  immediately
following the end of the Suspension Period, upon written notice to Seller.

         4.4 If any  Natural Gas  tendered  under this  Agreement  fails to meet
applicable  quality  specifications  as provided  above in Sections  4.1 on five
separate occasions within any six (6) month period,  Buyer may, upon thirty (30)
days written notice, terminate this Agreement.

                                   ARTICLE A-V
                                    PAYMENTS
                                    --------

         5.1 After  delivery of Natural Gas has commenced,  Seller shall,  on or
before the  twentieth  (20th) Day of each Month,  ("Invoice  Month"),  render to
Buyer a statement showing the quantity of Natural Gas sold at the Delivery Point
in the  immediately  preceding  Month  ("Production  Month") and the amount owed
Seller.  Buyer shall provide or cause to be provided any information that may be
necessary in order to permit Seller to render statements in accordance with this
Section  5.1.  Buyer  shall pay  Seller on or before  the 15th Day of each Month
following the Invoice Month, for all Natural Gas


                                       12
<PAGE>

delivered  hereunder  during  the  preceding  Production  Month,   PROVIDED,  if
presentation  of said  statement is delayed  after the  twentieth  (20th) of the
Month, then the time for payment shall be extended until (25) Days after receipt
of such statement by Buyer. Should Buyer question, in good faith, any portion of
Seller's  statement,  then Buyer may withhold  payment,  if applicable,  for the
amount in  question  if Buyer  gives  Seller  written  notice  of the  reason it
questions  that amount on or before the date it would  otherwise  be due.  Buyer
shall,  however, make timely payment of the portion of the invoice amount not in
question. The parties agree to meet, if necessary, to resolve any questions and,
upon  resolution,  any  additional  amounts  owned by Buyer to  Seller  shall be
promptly paid.

         5.2 Each party is entitled, at any and all reasonable times, to examine
the books and  records  of the  other,  to the  extent  necessary  to verify the
accuracy  of any  statement,  charge,  computation  or demand  made  under  this
Agreement.

                                  ARTICLE A-VI
                                      TAXES
                                      -----

         6.1  Seller  shall  pay or  cause to be paid the  royalties  and  taxes
lawfully  levied  on  Seller,  and  applicable  to  the  Natural  Gas  produced,
transported  and delivered  hereunder  prior to its delivery to Buyer or Buyer's
designee.  Buyer shall pay all taxes lawfully levied on Buyer applicable to such
Natural  Gas after  delivery  to Buyer or Buyer's  designee.  Each  Party  shall
indemnify, defend and hold harmless the other Party for any Claims for Taxes for
which such Party is responsible hereunder. Upon request, a Party shall provide a
certificate  of exemption or other  evidence of exemption  from any Tax and each
Party  agrees  to  cooperate  with  the  other in  obtaining  an  exemption  and
minimizing Taxes payable in respect of all Transactions.

                                  ARTICLE A-VII
                      WARRANTIES, LIABILITIES AND REMEDIES
                      ------------------------------------

         7.1 Seller  warrants  title to all Natural Gas delivered by it, that it
has the right to sell the same,  and that such  Natural  Gas is free from  valid
liens and valid adverse claims of every kind.

         7.2 Title to the Natural Gas sold and delivered hereunder shall pass to
Buyer at the Delivery Point.  As between the parties hereto,  Seller shall be in
control and possession of the Natural Gas and  responsible  for any cost,  loss,
liability,  damage and/or injury to or death of any persons (including,  without
limitation,  reasonable  attorney  fees)  occurring  until  same shall have been
delivered at the Delivery  Point,  after which delivery Buyer shall be deemed to
be in exclusive control and possession  thereof and shall be responsible for any
cost,  loss,  liability,  damage  and/or  injury  to or  death  of  any  persons
(including,  without  limitation,  reasonable  attorney's  fees) caused thereby,

                                       13

<PAGE>

except for unknown or unknowable defects in the Natural Gas which cause in whole
or in part damage, injury, or loss.

SELLER SHALL INDEMNIFY,  DEFEND,  AND HOLD HARMLESS BUYER,  ITS SUCCESSORS,  AND
ASSIGNS  AS  WELL AS ITS  OFFICERS,  EMPLOYEES,  AND  AGENTS  (COLLECTIVELY  THE
"INDEMNITIES") FROM AND AGAINST ANY AND ALL CLAIMS, LOSSES,  DAMAGES,  CAUSES OF
ACTION, FINES, PENALTIES,  SUITS, LIABILITIES,  AND JUDGEMENTS OF EVERY KIND AND
CHARACTER,  INCLUDING ALL EXPENSES OF  LITIGATION,  COURT COSTS,  AND REASONABLE
ATTORNEY'S FEES, FOR ANY INJURY TO OR DEATH OF ANY PERSON, AND FOR ANY DAMAGE TO
ANY PROPERTY,  WHICH  RESULTS FROM OR IN CONNECTION  WITH THE NATURAL GAS BEFORE
ITS RECEIPT AT THE  DELIVERY  POINT  REGARDLESS  OF WHETHER  ANY SUCH  INJURIES,
DEATH,  OR DAMAGES ARE CAUSED OR ALLEGEDLY  CAUSED BY THE JOINT,  CONCURRING  OR
SOLE NEGLIGENCE, OR STRICT LIABILITY OF (i) BUYER AND SELLER, (ii) BUYER AND ANY
OTHER  PERSON OR ENTITY,  OR (iii) BUYER OR ANY OTHER ENTITY OR  COMBINATION  OF
ENTITIES.

BUYER SHALL INDEMNIFY,  DEFEND,  AND HOLD HARMLESS SELLER,  ITS SUCCESSORS,  AND
ASSIGNS  AS  WELL AS ITS  OFFICERS,  EMPLOYEES,  AND  AGENTS  (COLLECTIVELY  THE
"INDEMNITIES") FROM AND AGAINST ANY AND ALL CLAIMS, LOSSES,  DAMAGES,  CAUSES OF
ACTION, FINES, PENALTIES,  SUITS, LIABILITIES,  AND JUDGEMENTS OF EVERY KIND AND
CHARACTER,  INCLUDING ALL EXPENSES OF  LITIGATION,  COURT COSTS,  AND REASONABLE
ATTORNEY'S FEES, FOR ANY INJURY TO OR DEATH OF ANY PERSON, AND FOR ANY DAMAGE TO
ANY PROPERTY, WHICH RESULTS FROM OR IN CONNECTION WITH THE NATURAL GAS AFTER ITS
RECEIPT AT THE DELIVERY POINT,  REGARDLESS OF WHETHER ANY SUCH INJURIES,  DEATH,
OR DAMAGES  ARE CAUSED OR  ALLEGEDLY  CAUSED BY THE  JOINT,  CONCURRING  OR SOLE
NEGLIGENCE,  OR STRICT  LIABILITY  OF (i) SELLER AND BUYER,  (ii) SELLER AND ANY
OTHER PERSON OR ENTITY,  OR (iii) SELLER OR ANY OTHER ENTITY OR  COMBINATION  OF
ENTITIES.

         7.3 Unless  either Party is limited to a different  sole and  exclusive
remedy  by the other  provisions  of this  Agreement,  either  Party's  sole and
exclusive remedy for any breach by the other Party of any obligation,  covenant,
representation,  or  warranty  is only the  recovery  of actual  damages for any
direct  economic  losses  to  the  extent   recoverable  under  applicable  law.
Notwithstanding  any  other  provision  to the  contrary  or the  invalidity  or
unenforceability  of any sole and  exclusive  remedy or other  provision of this
Agreement,  neither Party is entitled to recover (in contract,  tort, equity, or
otherwise) any  incidental,  special,  punitive or  consequential  damages which
arise out of or relate to this Agreement or in connection  with the  performance
or breach thereof, and any right to recover any of said damages is hereby waived
and released.


                                       14

<PAGE>




                                 ARTICLE A-VIII
                                 FORCE MAJEURE
                                 -------------

         8.1 In the event either Party is rendered unable, wholly or in part, by
Force Majeure to carry out its obligations under this Agreement,  except for the
obligations  to make  payments  hereunder,  it is agreed  that,  on such Party's
giving notice and reasonably full  particulars of such Force Majeure,  orally as
soon as practical and followed in writing or by electronic transmission,  to the
other Party within a reasonable  time after the  occurrence of the Force Majeure
relied on, the  obligations of the Party giving such notice,  so far as they are
affected by such Force Majeure, shall be suspended during the continuance of any
inability so caused,  but for no longer period, and such Force Majeure shall, so
far as  possible,  be remedied  with all  reasonable  dispatch.  The term "Force
Majeure"  shall mean,  for  purposes of this  Agreement,  acts of God,  strikes,
lockouts,  or industrial disputes,  interruptions by government or court orders,
present and future  valid  orders of any  governmental  authority,  inability to
secure or delay in securing easements, rights-of-way, materials (including those
occasioned  by reason of  allocations  promulgated  by  authorized  governmental
agencies),  washouts,  explosions,  breakage,  accident, repairs, alterations or
freezing of pipelines,  or other  equipment,  the termination or interruption by
others of Natural Gas  supplies or any other  cause,  whether of the kind herein
enumerated or otherwise, which is not reasonably within the control of the party
claiming  Force  Majeure.  The  foregoing  enumerated  and other causes of Force
Majeure shall constitute  "Force Majeure"  regardless of whether or not they are
foreseeable.  The Force Majeure shall, so far as possible,  be remedied with all
reasonable  dispatch.  The  settlement  of strikes  or  lockouts  or  industrial
disputes or  disturbances  shall be entirely  within the discretion of the party
having the difficulty, and the above requirement that any Force Majeure shall be
remedied  with all  reasonable  dispatch  shall not  require the  settlement  of
strikes, lockouts, or industrial disputes or disturbances,  or the settlement or
negotiation by Seller of purchase or  transportation  contracts,  by acceding to
the demands of any opposing party therein when such course is inadvisable in the
discretion of the party having the difficulty. In no event shall any curtailment
of obligations hereunder due to these Force Majeure conditions exceed the extent
of the shortages caused by the Force Majeure condition.

                                  ARTICLE A-IX
               GOVERNMENTAL RULES, REGULATIONS AND AUTHORIZATIONS
               --------------------------------------------------

         9.1 This Agreement is subject to all valid applicable State, Local, and
Federal laws,  orders,  directives,  rules and  regulations of any  governmental
authority having jurisdiction. Each party has the right to question the validity
and applicability of any such laws,  orders,  directives,  rules and regulations
and the  jurisdiction of any  governmental  authority.  Neither Buyer nor Seller
shall  institute any proceeding  before any  governmental  authority  seeking to
obtain  sales or service  from Seller  except as  expressly  provided  under the
provisions of this  Agreement.  If the sums due Seller under this  Agreement are
now or become subject to rate regulation by any

                                       15
<PAGE>

governmental  authority, it is stipulated and agreed (i) that any price, rate or
fee that Seller is or hereafter  becomes  entitled to collect in accordance with
this Agreement, is just and reasonable,  fair and equitable and not preferential
or  discriminatory,  and  (ii)  that no  price,  rate or fee that  Seller  is or
hereafter  becomes entitled to collect in accordance with this Agreement,  shall
constitute an increase or change in rates.

         9.2 If at any time while this Agreement is in effect,  any governmental
authority  takes  any  action  as to  either  party  ("Affected  Party")  or any
transporter  of the Affected  Party  whereby the sale or purchase of Natural Gas
under this Agreement,  or transportation or other handling  (including,  without
limitation,  compression  or  treating),  of the  Natural  Gas sold  under  this
Agreement  is  proscribed  or  subjected  to  terms,  conditions,   regulations,
restraints, taxes, price or rate controls that are, in the Affected Party's good
faith opinion,  unduly  burdensome to the Affected Party, the Affected Party may
thereafter  terminate  this  Agreement by giving at least ninety (90) Days prior
written notice to the other party, provided the Affected Party terminates all of
the  Affected  Party's  other  contracts,  which are  similarly  affected by the
government  action,  to the extent the Affected Party has the right to terminate
such other contracts under a clause that is similar to this clause.

         9.3 Buyer shall, upon Seller's request,  consent to the granting of any
governmental  approval  that may be required,  in order for Seller a) to abandon
any and all  facilities and services  arising out of or in connection  with this
Agreement, if this Agreement is terminated in accordance with its provisions, or
b) to charge and collect any price, rate, charge, or fee that Seller is entitled
to receive under this Agreement.

         9.4 Seller  warrants  that it complies  with  governmental  acquisition
rules, natural gas exploration and transport rules, and Public Service Authority
rules and Buyer is  entitled  to rely fully on  Seller's  compliance  with these
rules.

                                   ARTICLE A-X
                                   ASSIGNMENT
                                   ----------

         10.1 The provisions of this Agreement are binding upon and inure to the
benefit of the successors,  assigns,  and legal  representatives  of the parties
hereto.  Subject to the other provisions of this Section, this Agreement may not
be assigned, in whole or in part, without the prior written consent of the other
party, which consent can not be unreasonably withheld.

                                  ARTICLE A-XI
                           OTHER TERMS AND CONDITIONS
                           --------------------------

         11.1 WAIVER.  No waiver,  by either Seller or Buyer,  of any default of
the other  under  this  Agreement  operates  as a waiver  of any other  default,
whether of like or different character or nature.

                                       16

<PAGE>

         11.2 HEADINGS. The headings used throughout this Agreement are inserted
for reference  purposes  only, and are not to be construed or taken into account
in  interpreting  the provisions of any Article,  nor to be deemed in any way to
supplement, modify or explain the effects of any provision.

         11.3 MODIFICATION.  No amendment, release, waiver or other modification
of this  Agreement  is  effective  unless made in writing  and  executed by duly
authorized representatives of both parties.

         11.4 INTEGRATION.  This Agreement is the final, complete, and exclusive
statement of the agreement between the parties.

         11.5 NO THIRD PARTY BENEFICIARIES.  Nothing contained in this Agreement
shall confer any rights,  as a third party  beneficiary  or otherwise,  upon any
entity other than Buyer, Seller and their successors and assigns.

         11.6 SEVERABILITY.  The invalidity or unenforceability of any provision
of this  Agreement  does not  invalidate  or affect  the  enforceability  of any
provision of this Agreement.

         11.7 PREPARATION.  This Agreement was prepared by all parties to it and
not by any party to the exclusion of the other parties. Neither Seller nor Buyer
had an unfair advantage during the negotiation of this Agreement.

         11.8   APPLICABLE   LAW.  AS  TO  ALL  MATTERS  OF   CONSTRUCTION   AND
INTERPRETATION,  THIS  AGREEMENT  AND THE RIGHTS  AND  DUTIES OF THE  PARTIES IS
GOVERNED BY THE LAWS OF THE STATE OF TENNESSEE.  VENUE AND SOLE JURISDICTION FOR
ANY LITIGATION UNDER THIS AGREEMENT SHALL BE IN SULLIVAN COUNTY, TENNESSEE.

         11.9  CONFIDENTIALITY.  Neither party shall  disclose the provisions of
this Agreement to any person except to the extent  disclosure is required by any
governmental  authority,  financing  entity,  or  reasonably  necessary  for the
performance and enforcement of this Agreement  without the prior written consent
of the other  party.  Seller  agrees to have its  employees  execute  individual
secrecy  agreements  that,  at a  minimum,  include  the  terms  found  in  this
Agreement.

         11.10   RELATIONSHIP  OF  PARTIES.   Neither  this  Agreement  nor  the
performance  of this Agreement  creates,  expressly,  impliedly or otherwise,  a
fiduciary  relationship  or any other  special  relationship  between  Buyer and
Seller.  All the duties owed by one party to the other in  connection  with this
Agreement are solely contractual in nature and these duties do not arise in tort
or sound in tort.

                                       17