Document:

REGISTRATION RIGHTS AGREEMENT

          THIS  REGISTRATION  RIGHTS AGREEMENT (this "Agreement") dated November
16,  2004,  is  made  by  and among DERMISONICS, INC., a Nevada corporation (the
"Company"),  and  KENNETH  HOVDEN  (the  "Investor").

     Capitalized  terms  not  defined  herein shall have the meaning ascribed to
such  terms  in  the  Subscription  Agreement.

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

     WHEREAS, the Company and the Investor are parties to a certain Subscription
Agreement (the "Subscription Agreement") dated the date hereof pursuant to which
the  Company offered and sold and the Investor purchased $25,000.00 in principal
amount  of its Convertible Promissory Notes ("Notes") which are convertible into
(i)  a  number  of  shares  of Common Stock ("Conversion Shares") which shall be
calculated  by  dividing  the principal amount of the Notes by $1.23, and (ii) a
one-year warrant entitling the Investor to purchase a number of shares of Common
Stock  ("Warrant  Shares") calculated by dividing by two the number of shares of
Common Stock issuable upon conversion of the Note at a price of $2.00 per share;
and

     WHEREAS,  in  order  to  induce  the Company to enter into the Subscription
Agreement,  and  to  induce  the Investor to purchase Units offered thereby, the
Investor  and  the  Company  hereby  agree  that this Agreement shall govern the
rights  of the Investor to cause the Company to register (i) the Shares and (ii)
the  shares  of Common Stock issuable upon exercise of the Warrants ("Underlying
Shares")  and  certain  other  matters  set  forth  herein.

     NOW, THEREFORE, THE PARTIES HERBY AGREE AS FOLLOWS:

1.   Certain  Definitions

     (a)  Definitions.  For  purposes  of  this  Agreement,  the following terms
          -----------
shall  have  the  meaning  ascribed  to  them  below:

          The  terms  "Affiliate"  means,  with respect to any Person, any other
                       ---------
Person  that directly or indirectly controls or is controlled by or under common
control  with such Person.  For the purposes of this definition, "control," when
                                                                  -------
used  with  respect  to any Person, means the possession, direct or indirect, of
the  power  to  direct  or cause the direction of the management and policies of
such  Person, whether through the ownership of voting securities, by contract or
otherwise;  and  the  terms of "affiliated," "controlling" and "controlled" have
                                ----------    -----------       ----------
meanings  correlative  to  the  foregoing.

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          "Business Day" means any day except Saturday, Sunday and any day which
           ------------
shall  be a legal holiday or a day on which banking institutions in the State of
Nevada  generally  are authorized or required by law or other government actions
to  close.

          "Common  Stock"  means the Common Stock of the Company, par value $.01
           -------------
per  share.

          "Effectiveness  Period"  means  a  date which is three years after the
           ---------------------
date that a Registration Statement is declared effective by the SEC.

          "Exchange  Act" means the Securities Exchange Act of 1934, as amended.
           -------------

          "Filing  Date"  means  March  31,  2005.
           ------------

          "Holder" or "Holders" means the holder or holders, as the case may be,
           ------      -------
from time to time of Registrable Securities.

          "Indemnified  Party"  shall  have  the  meaning  set  forth in Section
           ------------------
2.05(c).

          "Indemnifying  Party"  shall  have  the  meaning  set forth in Section
           -------------------
2.05(c).

          "Losses"  shall  have  the  meaning  set  forth  in  Section  2.05(a).
           ------

          "Nevada  Courts"  shall  have  the  meaning set forth in Section 4.09.
           --------------

          "Person"  means  an  individual  or  corporation,  partnership, trust,
           ------
incorporated  or  unincorporated  association,  joint venture, limited liability
company,  joint  stock company, government (or an agency or subdivision thereof)
or  other  entity  of  any  kind.

          "Proceeding" means an action, claim, suit, investigation or proceeding
           ----------
(including,  without limitation, an investigation or partial proceeding, such as
a  deposition),  whether  commenced  or  threatened.

          "Prospectus"  means  the  prospectus  included  in  the  Registration
           ----------
Statement  (including,  without  limitation,  a  prospectus  that  includes  any
information  previously  omitted from a prospectus filed as part of an effective
registration  statement  in  reliance  upon  Rule  430A  promulgated  under  the
Securities  Act),  as amended or supplemented by any prospectus supplement, with
respect  to  the  terms  of  the  offering  of  any  portion  of the Registrable
Securities  covered  by the Registration Statement, and all other amendments and
supplements  to  the  Prospectus,  including  post-effective amendments, and all
material  incorporated by reference or deemed to be incorporated by reference in
such  Prospectus.

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          "Registrable  Securities" means (a) the Conversion Shares, and (b) the
           -----------------------
Warrant  Shares.

          "Registration Statement" means the registration statement contemplated
           ----------------------
by  either  Section  2(a)  or  3(a),  including  the  Prospectus, amendments and
supplements  to  such  registration  statement or Prospectus, including pre- and
post-effective  amendments,  all exhibits thereto, and all material incorporated
by  reference  or  deemed  to  be incorporated by reference in such registration
statement.

          "SEC"  means  the  United  States  Securities and Exchange Commission.
           ---

          "Securities  Act"  means  the  Securities  Act  of  1933,  as amended.
           ---------------

     The  plural  of  any  defined term shall have a meaning correlative to such
defined  term.

2.   Piggyback  Registrations.

     (a)     If,  at  any  time, the Company proposes or is required to register
any of its equity securities under the Securities Act (other than a registration
statement  on Form S-8 or Form S-4, or their successors, or any other form for a
similar  limited purpose, or any registration statement covering only securities
proposed  to  be  issued  in  exchange  for  securities  or  assets  of  another
corporation),  whether  for  its  own  account  or the account of other security
holders,  the Company shall give prompt written notice of its intention to do so
to  each  of the Holders of Registrable Securities.  Upon the written request of
any Holder, made within 15 days following the receipt of any such written notice
(which  request  shall  specify  the  maximum  number  of Registrable Securities
intended  to  be  disposed  of  by  such  Holder  and  the  intended  method  of
distribution  thereof), the Company shall use, subject to Sections 2(b) and 2(d)
hereof,  its  best efforts to cause all such Registrable Securities, the Holders
of  which have so requested the registration thereof, to be registered under the
Securities  Act  (with  the securities which the Company at the time proposes to
register)  to permit the sale or other disposition by the Holders (in accordance
with  the intended method of distribution thereof) of the Registrable Securities
to  be  so  registered.  There  is no limitation on the number of such piggyback
registrations  pursuant to the preceding sentence which the Company is obligated
to  effect.

     (b)     Abandonment  or  Delay. If, at any time after giving written notice
of  its  intention  to register any equity securities and prior to the effective
date  of  the registration statement filed in connection with such registration,
the  Company  shall  determine  for  any  reason  not  to  register  or to delay
registration  of  such equity securities, the Company may, at its election, give
written  notice  of  such  determination to all Holders of record of Registrable
Securities  and  (i)  in  the  case of a determination not to register, shall be
relieved  of its obligation to register any Registrable Securities in connection
with  such  abandoned  registration,  without  prejudice, however, to the rights

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of  Holders  under  Section  3, and (ii) in the case of a determination to delay
such  registration  of  its  equity  securities, shall be permitted to delay the
registration  of such Registrable Securities for the same period as the delay in
registering  such  other  equity  securities.

     (c)     Holder's  Right  to  Withdraw.  Any  Holder shall have the right to
withdraw  its  request  for  inclusion  of  its  Registrable  Securities  in any
registration  statement  pursuant  to this Section 2 by giving written notice to
the Company of its request to withdraw; provided, however, that (i) such request
must  be  made  in  writing  prior  to  the  earlier  of  the  execution  of the
underwriting agreement or the execution of the custody agreement with respect to
such  registration  and  (ii)  such  withdrawal  shall be irrevocable and, after
making  such  withdrawal,  a  Holder  shall  no longer have any right to include
Registrable Securities in the registration as to which such withdrawal was made.

     (d)     Cutbacks.  If the managing underwriter of any underwritten offering
shall  inform the Company by letter of its belief that the number of Registrable
Securities requested to be included in a registration under this Section 2 would
materially adversely affect such offering, then the Company will include in such
registration,  first,  the  securities  being  sold  by  the  Company  in  such
registration,  and  second,  the  Registrable  Securities to be included in such
registration  to the extent of the number and type, if any, which the Company is
so  advised can be sold in (or during the time of) such offering, pro rata among
the  Holders requesting to participate in such offering pursuant to this Section
2  in accordance with the number of Registrable Shares held by, or issuable upon
conversion  of  Convertible  Notes  and Warrants held by, each such Holder.  For
purposes  of this Section 2(d), for any selling shareholder which is a holder of
Registrable  Securities and which is a partnership or corporation, the partners,
retired  partners  and  shareholders  of  each holder, or the estates and family
members of any such partners and retired partners and any trusts for the benefit
of  any  of  the  foregoing  persons  shall  be  deemed  to be a single "selling
shareholder",  and  any  pro-rata  reduction  with  respect  to  such  "selling
shareholder"  shall  be  based  upon  the  aggregate  amount  of shares carrying
registration  rights  owned  by  all  entities  and individuals included in such
"selling  shareholder",  as  defined  in  this  sentence.

     (e)     In  the  case  of  a  filing of a Registration Statement under this
Section  2,  the  Company  shall  use its best efforts to keep such Registration
Statement  continuously  effective  under  the  Securities  Act  during  the
Effectiveness Period; provided, however, that the Company shall not be deemed to
                      --------  -------
have  used  its best efforts to keep the Registration Statement effective during
the Effectiveness Period if it voluntarily takes any action that would result in
the  Holders  not  being able to sell the Registrable Securities covered by such
Registration  Statement  during  the Effectiveness Period, unless such action is
required  under  applicable  law  or  the  Company  has  filed  a post-effective
amendment  to  the  Registration  Statement  and  the  SEC  has  not declared it
effective.

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3.   Mandatory  Registration.

     (a)     If  the  Company  has  not  undertaken  the  registration  of  all
Registrable  Securities  pursuant  to Section 2, above, then, on or prior to the
Filing  Date  the  Company  shall  prepare  and file with the SEC a Registration
Statement  covering  any  and  all  Registrable  Securities  not  covered  in  a
registration  statement filed pursuant to Section 2.  The Registration Statement
shall be on Form SB-2 (or, if, for any reason, the Company does not register the
resale  of  the  Registrable Securities on Form SB-2, the Registration Statement
shall  be  on  such  other  appropriate  form  in  accordance with the Rules and
Regulations  promulgated  under  the Securities Act).  The Company shall use its
best  efforts to cause the Registration Statement to be declared effective under
the  Securities  Act  as promptly as possible after the filing thereof and shall
use  its best efforts to keep such Registration Statement continuously effective
under  the  Securities  Act  during the Effectiveness Period; provided, however,
                                                              --------  -------
that  the  Company shall not be deemed to have used its best efforts to keep the
Registration  Statement  effective  during  the  Effectiveness  Period  if  it
voluntarily  takes any action that would result in the Holders not being able to
sell  the  Registrable  Securities covered by such Registration Statement during
the Effectiveness Period, unless such action is required under applicable law or
the  Company  has filed a post-effective amendment to the Registration Statement
and  the  SEC  has  not  declared  it  effective.

     (b)     Right  to  Postpone  or  Interrupt  the  Effective  Date  of  the
Registration  Statement.  The  Company will be entitled to postpone or interrupt
the  effective  date of the Registration Statement filed in connection with such
registration  (and  the  use of the prospectus contained therein) if the Company
determines,  in  its  best  judgment, after consultation with counsel, that such
Registration  Statement would require the premature announcement of any material
financing,  acquisition,  corporate  reorganization  or other material corporate
transaction  or  development  involving  the  Company  which,  in  the Company's
reasonable  determination,  would  be materially detrimental to the interests of
the  Company and all of its stockholders.  Any such postponement or interruption
will  be  for  a  minimum  period  reasonably  required  to avoid such premature
disclosure.  The  Company  promptly will give the Holders written notice of such
postponement  or  interruption.

4.   Obligations  of  the  Company.  Whenever  required  under this Agreement to
     -----------------------------
affect the registration of any Registrable Securities, the Company shall:

     (a)     Prepare  and  file  with  the SEC a Registration Statement (and any
additional  Registration  Statements  as  may  be  required)  and  cause  the
Registration  Statement  to  become  effective  and remain effective as provided
herein.

     (b)     (i) Prepare and file with the Commission such amendments, including
post-effective  amendments,  to  a Registration Statement as may be necessary to
keep  the

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Registration  Statement  continuously effective as to the applicable Registrable
Securities for the Effectiveness Period; (ii) cause the related Prospectus to be
amended  or  supplemented  by  any  required  Prospectus  supplement,  and as so
supplemented  or  amended  to  be  filed  pursuant  to  Rule 424 (or any similar
provisions then in force) promulgated under the Securities Act; (iii) respond as
promptly  as  practicable  to any comments received from the SEC with respect to
the  Registration  Statement  or  any amendment thereto and promptly provide the
Special  Counsel  true and complete copies of all correspondence from and to the
SEC  relating to the Registration Statement; and (iv) comply with the provisions
of  the  Securities  Act and the Exchange Act with respect to the disposition of
all  Registrable  Securities  covered  by  the Registration Statement during the
applicable  period in accordance with the intended methods of disposition by the
Holders thereof set forth in the Registration Statement as so amended or in such
Prospectus  as  so  supplemented.

     (c)     Notify  the  Holders immediately (and, in the case of (i)(A) below,
not  less  than five days prior to such filing): (i)(A) when a Prospectus or any
Prospectus supplement or post-effective amendment to a Registration Statement is
proposed  to be filed; (B) when the SEC comments in writing on such Registration
Statement  and  (C)  with  respect  to  the  Registration  Statement  or  any
post-effective  amendment,  when  the  same  has  become  effective; (ii) of any
request  by  the  SEC  or  any other Federal or state governmental authority for
amendments  or  supplements  to  the Registration Statement or Prospectus or for
additional  information;  (iii)  of  the  issuance  by the SEC of any stop order
suspending  the  effectiveness of the Registration Statement covering any or all
of  the  Registrable  Securities  or  the  initiation of any Proceeding for that
purpose;  (iv) of the receipt by the Company of any notification with respect to
the  suspension  of  the qualification or exemption from qualification of any of
the  Registrable  Securities  for sale in any jurisdiction, or the initiation or
threatening of any Proceeding for such purpose; and (v) of the occurrence of any
event  that makes any statement made in the Registration Statement or Prospectus
or  any  document incorporated or deemed to be incorporated therein by reference
untrue  in  any  material  respect  or  that  requires  any  revisions  to  the
Registration  Statement,  Prospectus  or other documents so that, in the case of
the  Registration  Statement  or the Prospectus, as the case may be, it will not
contain  any  untrue  statement of a material fact or omit to state any material
fact  required to be stated therein or necessary to make the statements therein,
in  light  of  the  circumstances  under  which  they were made, not misleading.

     (d)     Use  its  best  efforts  to  avoid  the issuance of, or, if issued,
obtain  the  withdrawal  of  (i)  any  order  suspending  the effectiveness of a
Registration Statement or (ii) any suspension of the qualification (or exemption
from  qualification)  of  any  of  the  Registrable  Securities  for sale in any
jurisdiction,  at  the  earliest  practicable  moment.

     (e)     Upon  the  occurrence of any event contemplated by Section 4(c)(v),
as  promptly  as  practicable,  prepare  a  supplement or amendment, including a
post-effective  amendment,  to  a  Registration Statement or a supplement to the
related

                                     Page 6
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Prospectus  or any document incorporated or deemed to be incorporated therein by
reference,  and  file  any  other  required  document  so  that,  as  thereafter
delivered,  neither  the Registration Statement nor such Prospectus will contain
an untrue statement of a material fact or omit to state a material fact required
to  be  stated  therein or necessary to make the statements therein, in light of
the  circumstances  under  which  they  were  made,  not  misleading.

     (f)     Furnish  to  the  Holders  such  numbers of copies of a prospectus,
including  a  preliminary prospectus, in conformity with the requirements of the
Act,  and  such  other  documents  as  they  may  reasonably request in order to
facilitate  the  disposition  of  Registrable  Securities  owned  by  them.

     (g)     Prior  to  any  public  offering of Registrable Securities, use its
best  efforts  to  register or qualify or cooperate with the selling Holders and
any  underwriters  in  connection  with  the  registration  or qualification (or
exemption  from  such  registration  or  qualification)  of  such  Registrable
Securities  for  offer  and  sale  under the securities or Blue Sky laws of such
jurisdictions  as  any  Holder  or underwriter requests in writing, to keep each
such registration or qualification (or exemption therefrom) effective during the
Effectiveness  Period  and  to  do any and all other acts or things necessary or
advisable  to  enable  the  disposition in such jurisdictions of the Registrable
Securities  covered  by  a  Registration  Statement; provided, however, that the
                                                     --------  -------
Company  shall  not  be  required  to  qualify  generally  to do business in any
jurisdiction  where it is not then so qualified or to take any action that would
subject  it  to  general service of process in any such jurisdiction where it is
not  then  so  subject  or  subject  the Company to any material tax in any such
jurisdiction  where  it  is  not  then  so  subject.

     (h)     In  the  event  of any underwritten public offering, enter into and
perform  its obligations under an underwriting agreement, in usual and customary
form, with the managing underwriter of such offering.  Each Holder participating
in such underwriting shall also enter into and perform its obligation under such
an  agreement.

     (i)     Notify  each  Holder  of  Registrable  Securities  covered  by such
registration  statement  at  any  time  when  a  prospectus  relating thereto is
required  to be delivered under the Securities Act of the happening of any event
as  a result of which the prospectus included in such registration statement, as
then  in  effect,  includes  an  untrue statement of a material fact or omits to
state  a  material  fact  required to be stated therein or necessary to make the
statements  therein  not  misleading  in  the  light  of  the circumstances than
existing.

     (j)     Cause all such Registrable Securities registered pursuant hereunder
to  be  listed on each securities exchange on which similar securities issued by
the  Company  are  then  listed.

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     (k)     Provide  a  transfer  agent  and  registrar  for  all  Registrable
Securities  registered  pursuant  hereunder  and  a  CUSIP  number  for all such
Registrable  Securities,  in each case not later than the effective date of such
registration.

     (l)     Cooperate  with  the  Holders  and  any  managing  underwriters  to
facilitate  the  timely  preparation  and  delivery of certificates representing
Registrable  Securities  to  be sold pursuant to a Registration Statement and to
enable such Registrable Securities to be in such denominations and registered in
such  names  as  any  such managing underwriters or Holders may request at least
three Business Days prior to any sale of Registrable Securities.

     (m)     Upon  the  occurrence of any event contemplated by Section 4(c)(v),
as  promptly  as  practicable,  prepare  a  supplement or amendment, including a
post-effective  amendment,  to the Registration Statement or a supplement to the
related  Prospectus  or  any  document incorporated or deemed to be incorporated
therein  by  reference,  and  file  any  other  required  document  so  that, as
thereafter  delivered,  neither  the  Registration Statement nor such Prospectus
will  contain an untrue statement of a material fact or omit to state a material
fact  required to be stated therein or necessary to make the statements therein,
in  light  of  the  circumstances  under  which  they were made, not misleading.

     (n)     In  the case of an Underwritten Offering, enter into such customary
agreements  on  terms  which  are customary in connection with such transactions
(including  an  underwriting  agreement  in  form,  scope  and  substance  as is
customary  in  Underwritten  Offerings)  and  take  all  such  other  actions in
connection  therewith  (including  those  reasonably  requested  by any managing
underwriters  and  the Holders of a majority of the Registrable Securities being
sold)  in  order  to  expedite or facilitate the disposition of such Registrable
Securities,  and  whether  or not an underwriting agreement is entered into, (i)
make  such  representations and warranties to such Holders and such underwriters
as  are  customarily  made  by  issuers  to  underwriters in underwritten public
offerings,  and  confirm the same if and when requested; (ii) obtain and deliver
copies thereof to each Holder and the managing underwriters, if any, of opinions
of  counsel  to the Company and updates thereof addressed to each selling Holder
and  each such underwriter, in form, scope and substance reasonably satisfactory
to  any  such  managing underwriters covering the matters customarily covered in
opinions  requested  in  Underwritten Offerings and such other matters as may be
reasonably  requested  by  underwriters;  (iii)  immediately  prior  to  the
effectiveness  of  the  Registration Statement or at the time of delivery of any
Registrable  Securities  sold  pursuant  thereto  (at  the  option  of  the
underwriters),  obtain  and  deliver  copies  to  the  Holders  and the managing
underwriters,  if  any,  of  "cold comfort" letters and updates thereof from the
independent  certified public accountants of the Company (and, if necessary, any
other  independent certified public accountants of any subsidiary of the Company
or  of  any  business acquired by the Company for which financial statements and
financial  data  is,  or  is  required  to  be,  included  in  the  Registration
Statement),

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<PAGE>
addressed  to  each  Person  and  in such form and substance as are customary in
connection  with  Underwritten  Offerings;  (iv) if an underwriting agreement is
entered  into,  the same shall contain indemnification provisions and procedures
no  less  favorable  to  the  selling Holders and the underwriters, if any, than
those  set  forth  in  Section  10  (or  such  other  provisions  and procedures
acceptable  to  the  managing underwriters, if any, and holders of a majority of
Registrable  Securities  participating  in  such  Underwritten Offering; and (v)
deliver  such  documents  and certificates as may be reasonably requested by the
Holders  of a majority of the Registrable Securities being sold and any managing
underwriters  to  evidence  the  continued  validity  of the representations and
warranties made pursuant to clause 4(l)(i) above and to evidence compliance with
any  customary  conditions  contained  in  the  underwriting  agreement or other
agreement  entered  into  by  the  Company.

     (o)     Comply  with  all  applicable  rules and regulations of the SEC and
make  generally  available to its security holders earning statements satisfying
the  provisions  of  Section  11(a) of the Securities Act and Rule 158 not later
than  45  days after the end of any 12-month period (or 90 days after the end of
any  12-month  period if such period is a fiscal year) (i) commencing at the end
of  any  fiscal quarter in which Registrable Securities are sold to underwriters
in  a firm commitment or best efforts Underwritten Offering and (ii) if not sold
to  underwriters  in  such an offering, commencing on the first day of the first
fiscal  quarter  of  the  Company  after  the effective date of the Registration
Statement,  which  statement  shall  cover said 12-month period, or such shorter
periods  as  is  consistent  with  the  requirements  of  Rule  158.

5.   Covenants  of  the  Holder.
     --------------------------

     (a)     It shall be a condition precedent to the obligations of the Company
to take any action pursuant to Section 2 or Section 3 hereof with respect to the
Registrable  Securities  of any selling Holder that such Holder shall furnish to
the  Company  such information regarding itself, the Registrable Securities held
by  it,  and  the  intended method of disposition of such securities as shall be
required  to  effect  the  registration of such Holder's Registrable Securities.

     (b)     Each  Holder  agrees  by  its  acquisition  of  such  Registrable
Securities  that  (i) it will not offer or sell any Registrable Securities under
the  Registration  Statement  until  it has received copies of the Prospectus as
then amended or supplemented as contemplated in Section 4(g) and notice from the
Company  that  such  Registration  Statement  and  any post-effective amendments
thereto  have  become  effective as contemplated by Section 4(b) and (c) it will
comply  with  the  prospectus  delivery  requirements  of  the Securities Act as
applicable  to it in connection with sales of Registrable Securities pursuant to
the  Registration  Statement.

     (c)     Each  Holder  agrees  by  its  acquisition  of  such  Registrable
Securities  that, upon receipt of a notice from the Company of the occurrence of
any  event  of  the  kind

                                     Page 9
<PAGE>
described in Section 4(c)(ii), 4(c)(iii), 4(c)(iv), or 4(c)(v), such Holder will
forthwith  discontinue  disposition  of  such  Registrable Securities until such
Holder's  receipt  of  the  copies of the supplemented Prospectus and/or amended
Registration  Statement  contemplated by Section 4(j), or until it is advised in
writing  (the "Advice") by the Company that the use of the applicable Prospectus
               ------
may  be  resumed,  and, in either case, has received copies of any additional or
supplemental  filings  that  are  incorporated  or  deemed to be incorporated by
reference  in  such  Prospectus  or  Registration  Statement.

     (d)     Each  Holder  agrees  that  upon any sale of Registrable Securities
pursuant  to  the  Registration Statement that it shall so advise the Company of
such  sale  by  delivering  to  the Company a completed and executed copy of the
Notice  of  Sale  Letter,  a  copy  of  which  is  attached hereto as Exhibit A.

     (e)     Each  Holder  agrees  that  for  so  long  as  it  owns Registrable
Securities, it will comply with the provisions of Section 9 of the Exchange Act,
and the rules promulgated thereunder, with respect to transactions involving the
Common  Stock.

     (f)     Each  Holder  agrees  that  for  so  long  as  it  owns Registrable
Securities,  it  will  comply  with  Regulation  M  under  the  Exchange Act, if
applicable

6.   Expenses  of  Registration.
     --------------------------

     (a)     Expenses  of  Mandatory  Registration.  All  expenses  other  than
             -------------------------------------
underwriting  discounts  and  commissions  incurred  in  connection  with
registrations,  filings  or  qualification  pursuant  to  Section  3,  including
(without  limitation) all registration, filing and qualification fees, printers;
and  accounting fees,; provided, however, that the Company shall not be required
to pay for any expenses of any registration proceeding begun pursuant to Section
3  if  the  registration request is subsequently withdrawn at the request of the
Holders  of  a majority of the Registrable Securities to be registered (in which
case  all  participating  holders  shall  bear  such  expenses).

     (b)     Expenses  of  Company Registration.  The Company shall bear and pay
             ----------------------------------
all  expenses  incurred  in  connection  with  any  registration,  filing  or
qualification  of  Registrable  Securities  with  respect  to  the registrations
pursuant  to  Section 2 for each Holder (which right may be assigned as provided
in  Section  11),  including  (without limitation) all registration, filing, and
qualification  fees,  printers  and  accounting  fees  relating or apportionable
thereto,  but  excluding  underwriting  discounts  and  commissions  relating to
Registrable  Securities.

7.   Underwriting  Requirements.  In  connection  with any offering involving an
     --------------------------
underwriting  of shares of the Company's capital stock, the Company shall not be
required  under  Section  2  to  include  any of the Holder's securities in such
underwriting  unless  they  accept  the terms of the underwriting as agreed upon
between  the  Company

                                     Page 10
<PAGE>
and the underwriter(s) selected by it (or by other persons entitle to select the
underwriters).

8.   Delay  of  Registration.  No  Holder shall have any right to obtain or seek
     -----------------------
an  injunction  restraining  or  otherwise delaying any such registration as the
result of any controversy that might arise with respect to the interpretation or
implementation  of  this  Agreement.

9.   Reports  under  the  Exchange  Act.  With a view to making available to the
     ----------------------------------
Holders the benefits of Rule 144 promulgated under the Act and any other rule or
regulation of the SEC that may at any time permit a Holder to sell securities of
the  Company to the public without registration or pursuant to a registration on
Form  S-3,  the  Company  agrees  to:

     (a)     make  and  keep  public  information  available, as those terms are
understood  and  defined  in  SEC Rule 144, at all times after 90 days after the
effective  date  of  the  Registration  Statement  filed  by the Company for the
offering  of  the  Registrable  Securities;

     (b)     file  with  the  SEC  in  a  timely  manner  all  reports and other
documents required of the Company under the Securities Act and the Exchange Act;
and

     (c)     furnish  to  any Holder, so long as the Holder owns any Registrable
Securities,  forthwith  upon request (i) a written statement by the Company that
it  has complied with the reporting requirements of SEC Rule 144, the Securities
Act  and  the  Exchange  Act  (at  any  time after it has become subject to such
reporting  requirements),  or that it qualifies as a registrant whose securities
may  be  resold pursuant to Form S-3 (at any time after it so qualifies), (ii) a
copy of the most recent annual or quarterly report of the Company and such other
reports  and documents so filed by the Company, and (iii) such other information
as  may be reasonably requested in availing any Holder of any rule or regulation
of the SEC which permits the selling of any such securities without registration
or  pursuant  to  such  form.

10.  Indemnification
     ---------------

     (a)     Indemnification by the Company.  The Company shall, notwithstanding
             ------------------------------
any  termination of this Agreement, indemnify and hold harmless each Holder, the
officers,  directors, agents (including any underwriters retained by such Holder
in  connection  with  the  offer  and  sale of Registrable Securities), brokers,
investment  advisors and employees of each of them, each Person who controls any
such  Holder  (within the meaning of Section 15 of the Securities Act or Section
20  of  the  Exchange  Act) and the officers, directors, agents and employees of
each such controlling Person, to the fullest extent permitted by applicable law,
from  and against any and all losses, claims, damages, liabilities, settlements,
judgments,  costs  (including,  without  limitation,

                                     Page 11
<PAGE>
costs of preparation and reasonable attorneys' fees) and expenses (collectively,
"Losses"),  as  incurred,  arising  out  of or relating to any untrue or alleged
 ------
untrue statement of a material fact contained in the Registration Statement, any
Prospectus  or  any form of prospectus or in any amendment or supplement thereto
or  in any preliminary prospectus, or arising out of or relating to any omission
or  alleged  omission  of  a  material  fact  required  to  be stated therein or
necessary  to make the statements therein (in the case of any Prospectus or form
of  prospectus  or supplement thereto, in light of the circumstances under which
they  were  made)  not misleading, except to the extent, but only to the extent,
that  such  untrue  statements  or  omissions  are based solely upon information
regarding  such  Holder  furnished  in writing to the Company by or on behalf of
such  Holder  expressly  for use therein, or to the extent that such information
relates  to  such  Holder  or  such  Holder's proposed method of distribution of
Registerable  Securities  and  was reviewed and expressly approved in writing by
such  Holder expressly for use in the Registration Statement, such Prospectus or
such  form  of Prospectus or in any amendment or supplement thereto. The Company
shall notify the Holders promptly of the institution, threat or assertion of any
Proceeding  of  which  the  Company is aware in connection with the transactions
contemplated  by  this  Agreement.

     (b)     Indemnification  by  Holders.  Each Holder shall, severally and not
             ----------------------------
jointly,  indemnify  and  hold  harmless  the  Company, its directors, officers,
agents  and  employees, each Person who controls the Company (within the meaning
of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the
directors,  officers,  agents  or  employees of such controlling Persons, to the
fullest  extent  permitted  by  applicable  law, from and against all Losses (as
determined  by a court of competent jurisdiction in a final judgment not subject
to  appeal  or  review)  arising  solely  out of or based solely upon any untrue
statement  of  a  material  fact  contained  in  the Registration Statement, any
Prospectus,  or any form of prospectus, or arising solely out of or based solely
upon  any omission of a material fact required to be stated therein or necessary
to  make  the  statements  therein not misleading to the extent, but only to the
extent,  that  such untrue statement or omission is contained in any information
so furnished in writing by such Holder to the Company specifically for inclusion
in  the  Registration  Statement  or  such Prospectus or to the extent that such
information  relates  to  such  Holder  or  such  Holder's  proposed  method  of
distribution  of  Registrable Securities and was reviewed and expressly approved
in  writing by such Holder expressly for use in the Registration Statement, such
Prospectus  or  such form of Prospectus.  In no event shall the liability of any
selling  Holder hereunder be greater in amount than the dollar amount of the net
proceeds  received  by  such  Holder upon the sale of the Registrable Securities
giving  rise  to  such  indemnification  obligation.

     (c)     Conduct  of Indemnification Proceedings. If any Proceeding shall be
             ---------------------------------------
brought  or  asserted  against  any  Person  entitled to indemnity hereunder (an
"Indemnified  Party"),  such  Indemnified Party promptly shall notify the Person
 ------------------
from  whom  indemnity  is  sought (the "Indemnifying Party") in writing, and the
                                        ------------------

                                    Page 12
<PAGE>
Indemnifying Party shall assume the defense thereof, including the employment of
counsel  reasonably satisfactory to the Indemnified Party and the payment of all
fees  and  expenses  incurred in connection with defense thereof; provided, that
the  failure  of any Indemnified Party to give such notice shall not relieve the
Indemnifying Party of its obligations or liabilities pursuant to this Agreement,
except  (and  only) to the extent that it shall be finally determined by a court
of  competent  jurisdiction  (which  determination  is  not subject to appeal or
further  review)  that  such  failure  shall  have  proximately  and  materially
adversely  prejudiced  the  Indemnifying  Party.

          An  Indemnified  Party shall have the right to employ separate counsel
in  any  such Proceeding and to participate in the defense thereof, but the fees
and  expenses  of such counsel shall be at the expense of such Indemnified Party
or Parties unless:  (1) the Indemnifying Party has agreed in writing to pay such
fees  and  expenses; or (2) the Indemnifying Party shall have failed promptly to
assume  the  defense  of  such  Proceeding  and  to  employ  counsel  reasonably
satisfactory  to such Indemnified Party in any such Proceeding; or (3) the named
parties  to  any  such Proceeding (including any impleaded parties) include both
such  Indemnified  Party  and the Indemnifying Party, and such Indemnified Party
shall  have  been  advised  by  counsel that a conflict of interest is likely to
exist  if  the  same  counsel  were  to represent such Indemnified Party and the
Indemnifying  Party  (in  which  case,  if  such  Indemnified Party notifies the
Indemnifying  Party  in writing that it elects to employ separate counsel at the
expense  of  the  Indemnifying  Party, the Indemnifying Party shall not have the
right  to assume the defense thereof and such counsel shall be at the expense of
the  Indemnifying  Party).  The  Indemnifying  Party shall not be liable for any
settlement  of  any  such Proceeding effected without its written consent, which
consent  shall  not  be  unreasonably  withheld.  No  Indemnifying  Party shall,
without  the  prior  written  consent  of  the  Indemnified  Party,  effect  any
settlement  of  any pending Proceeding in respect of which any Indemnified Party
is  a  party,  unless  such settlement includes an unconditional release of such
Indemnified  Party  from  all liability on claims that are the subject matter of
such  Proceeding.

          All  fees  and expenses of the Indemnified Party (including reasonable
fees  and  expenses  to  the extent incurred in connection with investigating or
preparing  to  defend  such  Proceeding  in  a manner not inconsistent with this
Section) shall be paid to the Indemnified Party, as incurred, within 10 Business
Days  of written notice thereof to the Indemnifying Party (regardless of whether
it  is  ultimately  determined  that  an  Indemnified  Party  is not entitled to
indemnification  hereunder;  provided,  that  the Indemnifying Party may require
                             --------
such  Indemnified  Party to undertake to reimburse all such fees and expenses to
the  extent  it  is finally judicially determined that such Indemnified Party is
not  entitled  to  indemnification  hereunder).

     (d)  Contribution.  If  a  claim  for  indemnification  under Section 10(a)
          ------------
or  10(b) is unavailable to an Indemnified Party because of a failure or refusal
of  a  governmental authority to enforce such indemnification in accordance with
its  terms  (by  reason  of

                                    Page 13
<PAGE>
public  policy  or  otherwise),  then  each  Indemnifying  Party,  in  lieu  of
indemnifying  such  Indemnified  Party,  shall  contribute to the amount paid or
payable by such Indemnified Party as a result of such Losses, in such proportion
as  is  appropriate  to reflect the relative fault of the Indemnifying Party and
Indemnified  Party  in connection with the actions, statements or omissions that
resulted  in such Losses as well as any other relevant equitable considerations.
The  relative  fault  of  such Indemnifying Party and Indemnified Party shall be
determined  by reference to, among other things, whether any action in question,
including  any untrue or alleged untrue statement of a material fact or omission
or alleged omission of a material fact, has been taken or made by, or relates to
information  supplied  by, such Indemnifying Party or Indemnified Party, and the
parties'  relative  intent,  knowledge, access to information and opportunity to
correct  or  prevent  such  action,  statement  or  omission. The amount paid or
payable by a party as a result of any Losses shall be deemed to include, subject
to  the  limitations  set  forth  in Section 10(c), any reasonable attorneys' or
other  reasonable fees or expenses incurred by such party in connection with any
Proceeding to the extent such party would have been indemnified for such fees or
expenses  if  the  indemnification provided for in this Section was available to
such  party  in  accordance  with  its  terms.

          The  parties  hereto  agree that it would not be just and equitable if
contribution  pursuant  to  this  Section  10(d)  were  determined  by  pro rata
                                                                        --- ----
allocation  or by any other method of allocation that does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding  the  provisions of this Section 10(d), the Holders shall not be
required  to contribute, in the aggregate, any amount in excess of the amount by
which  the  proceeds  actually  received  by  the  Investor from the sale of the
Registrable  Securities  subject  to  the  Proceeding  exceeds the amount of any
damages  that  the Holders have otherwise been required to pay by reason of such
untrue  or  alleged untrue statement or omission or alleged omission.  No Person
guilty  of  fraudulent misrepresentation (within the meaning of Section 11(f) of
the  Securities  Act)  shall be entitled to contribution from any Person who was
not  guilty  of  such  fraudulent  misrepresentation.

          The  indemnity  and  contribution agreements contained in this Section
are  in  addition to any liability that the Indemnifying Parties may have to the
Indemnified  Parties.

     (e)     The  obligations  of the Company and the Holders under this Section
10  shall  survive the completion of any offering of Registrable Securities in a
registration  statement  under  this  Article  IV,  and  otherwise.

11.  Assignment  of  Registration  Rights.  The  rights  of  a Holder hereunder,
     ------------------------------------
including  the  right  to  have  the  Company  register  for  resale Registrable
Securities  in  accordance  with  the  terms  of  this  Agreement,  shall  be
automatically  assignable by such Holder to any assignee or transferee of all or
a  portion  of  the  securities  referenced  in  the  definition  of Registrable
Securities  without  the  consent  of  the  Company  if:  (i) such Holder agrees

                                    Page 14
<PAGE>
in  writing with the transferee or assignee to assign such rights, and a copy of
such  agreement  is furnished to the Company within a reasonable time after such
assignment  (but  in  no  event  less  than  10  days  prior  to the filing of a
Registration  Statement),  (ii)  the  Company is, within a reasonable time after
such  transfer  or  assignment  (but  in no event less than 10 days prior to the
filing  of  a  Registration Statement), furnished with written notice of (a) the
name  and  address  of  such transferee or assignee, and (b) the securities with
respect  to such registration rights are being transferred or assigned, (iii) at
or  before  the  time  the  Company  receives the written notice contemplated by
clause  (ii)  of this Section, the transferee or assignee agrees in writing with
the  Company  to  be  bound by all of the provisions of this Agreement, and (iv)
such  transfer  shall  have  been  made  in  accordance  with  the  applicable
requirements  hereof  and  the  Subscription Agreement. The rights to assignment
shall apply to the Holders' (and to subsequent) successors and assigns.

12.  "Market  Stand-Off"  Agreement.  Each  Investor  hereby  agrees that during
      -----------------------------
the  period  of  duration  specified by the Company and an underwriter of Common
Stock  or  other  securities  of  the Company, following the effective date of a
Registration Statement, it shall not, to the extent requested by the Company and
such  underwriter,  directly or indirectly sell, offer to sell, contract to sell
(including, without limitation, any short sale), grant any option to purchase or
otherwise transfer or dispose of (other than to donees who agree to be similarly
bound)  any  securities of the Company held by it at any time during such period
except  Registrable Securities included in such registration; provided, however,
that  such  agreement  shall  be  applicable  only  during  the six-month period
following  the  effective  date  of  any  such  Registration  Statement.

          In  order  to  enforce  the foregoing covenant, the Company may impose
stop-transfer  instructions with respect to any securities of each Investor (and
the  shares  or  securities  of  every  other  person  subject  to the foregoing
restriction)  until  the  end  of  such  period.

          Notwithstanding  the  foregoing,  the  obligations  described  in this
Section 12 shall not apply to a registration relating solely to employee benefit
plans  on Form S-8 or similar forms which may be promulgated in the future, or a
registration relating solely to a Commission rule 145 transaction on Form S-4 or
similar  form  which  may  be  promulgated  in  the  future.

13.  Miscellaneous.
     -------------

     (a)     Aggregation of Stock.  All shares of Registrable Securities held or
             --------------------
acquired  by  persons  who  are  Affiliates shall be aggregated together for the
purpose  of  determining  the  availability  of any rights under this Agreement.

     (b)     Entire  Agreement;  Amendments.  This  Agreement, together with the
             ------------------------------
Exhibits  and Schedules hereto, contains the entire understanding of the parties
with

                                    Page 15
<PAGE>
respect  to  the  subject  matter  hereof and supersede all prior agreements and
understandings,  oral  or  written,  with  respect  to  such  matters.

     (c)     Notices.  Any and all notices or other communications or deliveries
             -------
required  or permitted to be provided hereunder shall be in writing and shall be
deemed  given  and effective on the earliest of (i) the date of transmission, if
such  notice  or  communication  is  delivered  via  facsimile  at the facsimile
telephone  number  specified  in  this Section prior to 4:30 p.m. (New York City
time)  on  a Business Day, (ii) the Business Day after the date of transmission,
if  such  notice  or  communication  is delivered via facsimile at the facsimile
telephone  number  specified in the Purchase Agreement later than 4:30 p.m. (New
York  City time) on any date and earlier than 11:59 p.m. (New York City time) on
such  date,  (iii)  the  Business  Day following the date of mailing, if sent by
nationally  recognized overnight courier service, or (iv) upon actual receipt by
the  party  to  whom  such  notice is required to be given. The address for such
notices  and  communications  shall  be  as  follows:

     If to the Company:      DERMISONICS, INC.
                             c/o Bruce H. Haglund
                             2 Park Plaza, Suite 450
                             Irvine, California 92614
                             Facsimile:  949-733-1188

                             If to the Undersigned: At the address or facsimile
                             number set forth on the signature page

or  such  other  address  as may be designated in writing hereafter, in the same
manner,  by  such  person.

     (d)     Amendments;  Waivers.  No provision of this Agreement may be waived
             --------------------
or  amended  except in a written instrument signed, in the case of an amendment,
by  both the Company and the Investor; or, in the case of a waiver, by the party
against whom enforcement of any such waiver is sought.  No waiver of any default
with  respect to any provision, condition or requirement of this Agreement shall
be  deemed  to  be  a  continuing  waiver in the future or a waiver of any other
provision,  condition  or requirement hereof, nor shall any delay or omission of
either  party  to exercise any right hereunder in any manner impair the exercise
of  any  such  right  accruing  to  it  thereafter.

     (e)     Headings.  The  headings  herein  are  for convenience only, do not
             --------
constitute  a  part of this Agreement and shall not be deemed to limit or affect
any  of  the  provisions  hereof.

     (f)     Successors  and  Assigns.  This Agreement shall be binding upon and
             ------------------------
inure  to the benefit of the parties and their successors and permitted assigns.
The Company may not assign this Agreement or any rights or obligations hereunder
without  the  prior

                                    Page 16
<PAGE>
written  consent of the Investor. Except as provided in Section 11, the Investor
may  not  assign  this  Agreement  or  any  rights  or  obligations  hereunder.

     (g)     No  Third-Party  Beneficiaries.  This Agreement is intended for the
             ------------------------------
benefit  of  the  parties  hereto  and their respective permitted successors and
assigns  and,  other  than with respect to permitted assignees under Section 11,
not  for  the benefit of, nor may any provision hereof be enforced by, any other
person.

     (h)     Governing  Law.  This  Agreement shall be governed by and construed
             --------------
and enforced in accordance with the internal laws of the State of Nevada without
regard  to  the  principles  of  conflicts  of  law  thereof.  Each party hereby
irrevocably  submits  to the non-exclusive jurisdiction of the state and federal
courts  sitting  in Clark County, Nevada (the "Courts"), for the adjudication of
any  dispute  hereunder  or  in  connection  herewith  or  with  any transaction
contemplated  hereby  or  discussed  herein,  and hereby irrevocably waives, and
agrees not to assert in any suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction of any such court, that such suit, action
or  proceeding  is  improper.  Each  party  hereby  irrevocably  waives personal
service of process and consents to process being served in any such suit, action
or  proceeding  by mailing a copy thereof to such party at the address in effect
for  notices  to  it  under  this  Agreement  and agrees that such service shall
constitute  good  and sufficient service of process and notice thereof.  Nothing
contained  herein shall be deemed to limit in any way any right to serve process
in  any  manner  permitted  by  law.

     (i)     Survival. The representations, warranties, agreements and covenants
             --------
contained  in  this  Agreement  shall  survive  the  Closing.

     (j)     Severability.  In  case  any  one or more of the provisions of this
             ------------
Agreement  shall  be  invalid  or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Agreement shall not
in  any  way  be  affecting  or impaired thereby and the parties will attempt to
agree  upon  a  valid  and  enforceable  provision  which  shall be a reasonable
substitute  therefor,  and  upon  so agreeing, shall incorporate such substitute
provision  in  this  Agreement.

     IN  WITNESS  WHEREOF,  the  Company  has  caused  this  Registration Rights
Agreement  to  be  signed  on  the  date  first  set  forth  above.

THE COMPANY:

DERMISONICS, INC.

By:
     ----------------------------
     Bruce H. Haglund, Chairman

                                    Page 17
<PAGE>
THE INVESTOR:

----------------------------------
KENNETH HOVDEN

Address  of  the  Investor:

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

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

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

Facsimile:
            -------------------

                                    Page 18
<PAGE>

                                    EXHIBIT A

                              NOTICE OF SALE LETTER

DERMISONICS, INC.

Ladies  and  Gentlemen:

     In  accordance  with  the  provisions  of  Section 5(d) of the Registration
Rights  Agreement  between DERMISONICS, INC. and the undersigned dated September
___,  2004,  the  undersigned  advises  you  that:

     On               ,  the  undersigned  sold
        --------------                          ------------------------------
shares of Common Stock pursuant to the Registration Statement.

     I  understand  that  of the terms and provisions of the Registration Rights
Agreement  continue  to  be  applicable  in  connection  with the sale described
herein,

     Capitalized  terms  have  the  meaning ascribed to them in the Registration
Rights  Agreement.

                              Sincerely,

                              ------------------------------
                              (Signature)

                              ------------------------------
                              (Print  Name)

<PAGE>Exhibit 10.1

                             PRODUCT SALES AGREEMENT
                             -----------------------

     This  Product  Sales  Agreement ("Agreement") is made and entered into this
9th  day  of December, 2003, ?ay and between Penn Octane Corporation, a Delaware
corporation  ("Penn  Octane"),  and  Koch  Hydrocarbon,  LP,  a Delaware limited
partnership  ("KHLP").

     WHEREAS,  KHLP  purchases  from its affiliate the entire Propane production
from  the  Flint  Hills  Resources,  LP  Refinery;  and

     WHEREAS,  Penn Octane desires to purchase from KHLP all of the Propane KHLP
purchases  from  its  affiliate from the Flint Hills Resources, LP Refinery; and

     WHEREAS,  KHLP  and  Penn  Octane desire to enter into an agreement for the
sale  of  such  Propane  on  the  terms  and  conditions  set  forth  below.

     NOW  THEREFORE,  in  consideration  of  the  mutual  covenants and premises
contained herein, and for other good and valuable consideration, the sufficiency
and  receipt  of  which  is  hereby  acknowledged, KHLP and Penn Octane agree as
follows:

     1.  DEFINITIONS.  For purposes of this Agreement, the following definitions
         ------------
shall  apply:

     (a)  "Barrel"  shall  mean  forty-two  (42)  U.S.  Gallons.

     (b)  "Gulf  Terra  Delivery  Point"  shall  mean the interconnection at the
          Flint Hills Resources, LP Refinery between Gulf Terra's Corpus Christi
          pipeline  and  the  pipeline  owned  by  KHLP's  affiliate.

     (c)  "Contract  Year"  shall  mean  such  periods  specified  in  Section 3
          ("Term").

     (d)  "Delivery  Point(s)"  shall mean, as specified in Section 4 below, (i)
          the  ExxonMobil Delivery Point, or (ii) the Gulf Terra Delivery Point,

     (e)  "Delivery Point Meter(s)" shall mean the meters maintained for custody
          transfer  purposes  at  or near the Delivery Point(s) specified above.

     (f)  "ExxonMobil Delivery Point" shall mean the interconnection between the
          12 inch ExxonMobil pipeline at the Viola valve station and the propane
          pipeline  owned  by  KHLP's  pipeline  affiliate.

     (g)  "Gallon"  shall  mean  a  U.S.  Gallon of 231 cubic inches or 0.133681
          cubic  feet  of  liquid  at  sixty (60 ) degrees Fahrenheit and at the
          equilibrium  vapor  pressure  of  the  liquid.

     (h)  "Month"  shall mean a period commencing at 12:01 a.m. CST on the first
          day  of a calendar month and ending at 12:01 a.m. CST on the first day
          of  the  next  succeeding  calendar  month.

     (i)  "Party"  or  "Parties" shall mean KHLP and/or Penn Octane individually
          or  collectively  as  the  context  requires.

     (j)  "Propane"  shall  mean  the  GPA  specifications  for  HD5  propane.

     (k)  "Flint Hills Resources, LP Refinery" shall mean both the east and west
          facilities  of the refinery owned by Flint Hills Resources, LP located
          near  Corpus  Christi,  Texas.

     2.  (a) COMMITMENT.  Subject  to the provisions herein, KHLP shall sell and
             -----------
deliver,  and  Penn Octane shall purchase and receive, a volume of Propane equal
to  the  Propane  purchased  by  KHLP  from its affiliate produced from the west
facility of the Flint Hills Resources, LP Refinery. The estimated amount of such
Propane  is  5000  Barrels  per  day. Notwithstanding the foregoing, the maximum
average  monthly  volume delivered from the west facility shall not exceed 5,500
Barrels  per  day  unless  otherwise  agreed  by  the  Parties.  In

<PAGE>
the  event  Flint Hills Resources should, in its sole discretion, decide to move
Propane  from  its east facility to its west facility, such volume (estimated to
be  500  -  1000  Barrels  per  day) not to exceed 1000 Barrels per day shall be
purchased and received in addition to the west facilities volumes by Penn Octane
hereunder.  The  Parties  understand  and  expressly agree that KHLP is under an
obligation  to  sell  or deliver the daily production of HD5 propane produced at
the Flint Hills Resources, LP Refinery to Penn Octane pursuant to this Agreement
however, KHLP is under no obligation to cause its affiliate to operate the Flint
Hills  Resources,  LP  Refinery  or  otherwise  produce  Propane.

          (b) PLANNED MAINTENANCE. Each party or its affiliates may periodically
              -------------------
require  the  partial,  or full shutdown, of certain of their facilities for the
purpose  of planned maintenance and which requirements may materially affect the
parties  respective  abilities to purchase and/or deliver the product commitment
specified  in article 2.0 (a) above during such periods. In recognition of these
maintenance needs, each party shall have the right to declare to the other party
such  periods  of maintenance as they arise, and be relieved of part, or all of,
the  obligations,  to  purchase or deliver during such periods. Such maintenance
periods  shall  not exceed 30 days in the aggregate in any contractual year. The
parties  will  make reasonable efforts to give advance notice to the other party
of  the  planned initiation and expected extend of such periods. In addition the
parties will use reasonable efforts to minimize the length and frequency of such
periods  and  to  maintain  as  much  of  the  commitment  as  practical.

     3.  TERM.  This  Agreement shall be effective, regardless of when executed,
         ----
as  of  December  1,  2003  and  shall continue until October 30, 2006 ("Primary
Term")  and  thereafter  from  year-to-year  unless  and  until (i) either Party
terminates  the  Agreement  by  providing  written  notice to the other at least
ninety  (90) days prior to the expiration of the Primary Term or any anniversary
of  the  expiration  of  the  Primary  Term or (ii) this Agreement is terminated
pursuant  to  Section  5  (b).

     4.  DELIVERY  POINTS.  KHLP shall deliver the Propane sold hereunder to the
         ----------------
ExxonMobil  Delivery  Point.  If  the  ExxonMobil  Delivery  Point  is unable or
unwilling  to  accept all or a portion of the Propane for any reason, KHLP shall
deliver  the Propane not accepted to the Gulf Terra Delivery Point.   KHLP shall
use  reasonable efforts to make deliveries to the Exxon Delivery Point, prior to
initiating  deliveries  to  Gulf  Terra.

     5.  (a)  PRICE.  Subject  to  the  following,  for  each  Gallon of Propane
              -----
delivered hereunder, Penn Octane shall pay KHLP an amount equal to the following
("Sale  Price"):

<TABLE>
<CAPTION>
     PERIOD                                                PRICE
     ------                                                -----
<S>                                                        <C>

     (i)     December 1, 2003 through March 31, 2004       Mt. Belvieu OPIS Average (non-TET)
                                                           plus 1/4 c /gal

     (ii)    April 1, 2004 through September 30, 2004      Mt. Belvieu OPIS Average (non-TET)

     (iii)   October 1, 2004 through September 30, 2005    Mt. Belvieu OPIS Average (non-TET)
                                                           minus 1/2 c /gal

     (iv)    October 1, 2005 through September 30, 2006    Mt. Belvieu OPIS Average (non-TET)
                                                           minus 1/2 c /gal
</TABLE>

          (b)  PRICE  REOPENER.  Either  party  shall have the right to open the
               ---------------
pricing  provisions  of  the  contract  for  the  period October 1, 2005 through
September  30,  2006  by  giving  the other party at least 90 days prior written
notice.  The  parties  shall  negotiate in good faith for the 90 days proceeding
October  1,  2005  to

<PAGE>
come  to  a mutually agreeable price. If after opening the pricing provisions of
the  contract,  no  Agreement  can  be  reached  by  October  1, 2005, then this
Agreement  shall  expire.

     6.  TITLE:  RISK  OF  LOSS.  Title to and risk of loss of the Propane shall
         ----------------------
pass  from  KHLP  to  Penn  Octane  as the Propane passes the flange connections
between  the  delivery  and  receiving  pipeline at the Delivery Point(s).  Penn
Octane shall own and have control, custody, and possession of the Propane, shall
bear  all costs and risks of transporting same, and shall be responsible for any
damage,  loss  or  injury  caused thereby after KHLP delivers the Propane at the
Delivery  Point(s).  Penn  Octane  shall  have  the right to inspect the Propane
immediately after delivery. Penn Octane's failure to give written notice to KHLP
of  any  claim, including off-spec Propane within fifteen (15) days from date of
delivery shall constitute an unqualified acceptance of such Propane and a waiver
by  Penn  Octane  of  all  claims  with  respect  thereto.

     7.  MEASUREMENT.  The  quantities of Propane delivered to Penn Octane shall
         -----------
be determined by the Delivery Point Meter(s).  All quantities shall he corrected
to  standard  conditions of sixty (60 ) degrees Fahrenheit and equilibrium vapor
pressure  in  accordance with the API Manual of Petroleum Measurement Standards,

     8.  WARRANTIES.  KHLP  warrants  that:  (a)  at  the  time  the  Propane is
         ----------
delivered  to  the  Delivery  Point(s), the Propane will meet the specifications
required  herein;  and  (b)  KHLP  has  good  title  to  the Propane at delivery
hereunder.  KHLP  EXTENDS NO IMPLIED WARRANTY OF MERCHANTABILITY, WHOLESOMENESS,
OR  FITNESS  FOR  A  PARTICULAR  PURPOSE.  WITHOUT  LIMITATION  OF THE FOREGOING
SENTENCE,  ALL  OTHER  WARRANTIES  OF  KHLP, EXPRESSED OR IMPLIED, ARE EXCLUDED.

     9.  UPFRONT  LETTER  OF  CREDIT.  Each  Month,  Penn  Octane  shall deliver
         ---------------------------
eligible  collateral  in  an  amount  equal  to  the Expected Aggregate Exposure
calculated by KHLP, at least three business days prior to the first calendar day
of  the  Month.  Eligible  collateral  shall  mean  US dollars or an irrevocable
standby letter of credit, issued in a format and by a bank acceptable to KHLP in
its  sole  discretion.  All banking charges, fees and expenses shall be borne by
Penn  Octane.  Expected Aggregate Exposure as of any calculation date shall mean
an  amount equal to the sum of the actual volume delivered each day of the Month
in question multiplied by the Sale Price, estimated by KHLP, plus the sum of the
expected  daily  volumes yet to be delivered in the same Month multiplied by the
Sale  Price, estimated by KHLP. The Expected Aggregate Exposure calculated prior
to  the  first  day  of  the  Month in order to determine the upfront collateral
requirement  will,  by  definition, not include any actual volumes delivered, in
which case, KHLP will estimate the expected daily volume for the entire month as
well  as  the  expected  Sales Price for the Month. KHLP may on any business day
recalculate  the  Expected  Aggregate Exposure for the entire month, and require
additional  collateral  from  Penn Octane. If at any time Penn Octane's Expected
Aggregate Exposure exceeds eighty percent (80%) of the Eligible Collateral, KHLP
may require additional Eligible Collateral until the Expected Aggregate Exposure
is  less than eighty percent (80%) of the eligible collateral, Penn Octane shall
deliver  additional  Eligible  Collateral  to  KHLP  within  two business day of
request  from  KHLP  to  the  following  address:

          Koch  Hydrocarbon,  LP
          4111  East  37th  Street,  North
          Wichita.  KS  67220  USA
          Phone:  (316)  828-6907
          Fax:  (316)  828-4967
          Telex:  417376
          Attn:  Kevin  Shelton

<PAGE>
     10.  PAYMENT  Penn  Octane  shall  remit  all sums due KHLP pursuant to any
          -------
invoice within ten (10) business days after the date of the invoice. Should Penn
Octane  fail  to  pay  all  or any part of any invoice when due, interest on the
outstanding  balance  shall  accrue  from the date due until the date payment is
received  by  KHLP  at the lesser of (i) the Chase Manhattan prime lending rate,
plus  two  percent  (2%) per annum, or (ii) the maximum interest rate allowed by
law.  Any  invoice shall be final as to the Parties unless questioned in writing
within  2 years after payment has been made thereon. If Penn Octane fails to pay
all  or  any  part  of  any invoice, it shall not be in breach of this provision
until  five  (5)  days  after  receiving  notice  from KHLP of such non-payment.

     11.  Default
A.   Notwithstanding  any  other  provision  herein,  the  following  shall each
     constitute  an  event  of default: a party or if the obligations of a party
     are  guaranteed by another party whether under this agreement or otherwise,
     the  guarantor of such party (each or either a "Non-Performing Party" shall
     (I) default in the payment or performance of any material obligation to the
     other  party (the "Performing Party") under this or any other contract, and
     such  default  shall  continue for three Business Days after Notice of such
     Default  to  the  Non-Performing  Party;  (II) file a petition or otherwise
     commence  or  authorize  the commencement of a proceeding or case under any
     bankruptcy,  reorganization, or similar law for the protection of creditors
     or  have  any such petition filed or proceeding commenced against it; (III)
     otherwise  become bankrupt or insolvent (however evidenced); (IV) be unable
     to pay its debts as the fall due by acceleration or otherwise; (V) merge or
     become consolidated with any other entity or transfer, by any means, all or
     substantially  all of its assets to another entity and the creditworthiness
     of  the resulting, surviving or transferee entity is materially weaker than
     that  of  the  Non-Performing  Party  immediately  prior  to such action as
     reasonably  determined by the Performing Party; (VI) fails to give adequate
     security  for,  or  assurance  or,  its  ability to perform its obligations
     hereunder  or  under  any  other  contract  within  two  business days or a
     reasonable  request therefor from the Performing Party; or (VII) disaffirm,
     disclaim,  repudiate  or  reject,  in  whole  or  in part, or challenge the
     validity  of  the  Guaranty  issued  by  the  Guarantor.

B.   Upon the occurrence of an event of default described above, and for so long
     as  such  event  of  default  is continuing, the Performing Party shall, in
     addition  to  all  other  rights  and  remedies available to the Performing
     Party, have the right to immediately terminate this transaction (and in the
     case  of  any  event  of  default  described in subsections (A)(II) through
     (A)(VII)  above,  any other transaction, contract or obligation between the
     Non-Performing  Party  and  the  Performing Party and the affiliates of the
     Performing  Party  by  notice  in  writing  to  the  Non-Performing  Party.

C.   The  Non-Performing  Party  shall  indemnify  and hold the Performing Party
     harmless  from  all  losses damages costs and expenses including reasonable
     attorneys  fees  (collectively  "Losses"),  incurred  in connection with an
     event  of  default, termination, or exercise of any remedies hereunder. The
     Performing  Party  shall  in a commercially reasonable manner calculate its
     losses,  if  any,  resulting  from such default, termination or exercise of
     remedies.

D.   Without  limitation, the Performing Party may net and set off amounts which
     the  Performing  Party  or  any of its affiliates owe to the Non-Performing
     Party  against  any  amounts  which  the  Non-Performing  Party owes to the
     Performing  Party  or  any  of  its  affiliates (whether hereunder, under a
     forward  contract  or  any other contract and whether or not then due). The
     Performing  Party  shall  notify the Non-Performing Party of the net amount
     owed  to  the  Performing  Party and its affiliates, and the Non-Performing
     Party  shall  pay  such  amount to the Performing Party in full within five
     business  days  of  such  notice  being  given,  which  amount

<PAGE>
     shall bear interest at the prime rate as listed in the Wall Street Journal,
     plus  two  percentage  points  from  the  date  of  termination.

E.   This  section  shall  be  without prejudice and in addition to any right of
     termination, setoff, combination of accounts, lien, or other right to which
     the  Performing  Party  is  at  any  time  otherwise  entitled  (whether by
     operation  of  law,  contract,  or  otherwise).

F.   Notwithstanding  any provision herein to the contrary, the Performing Party
     shall  not  be  required  to pay to the Non-Performing Party any amount due
     under  this  contract  until  the  Performing  Party  receives confirmation
     satisfactory  to  it, in its reasonable discretion, that all obligations of
     any kind whatsoever of the Non-Performing Party to make any payments to the
     Performing  Party  or  any  of the affiliates of the Performing Party under
     this  or  any  other  contract  have  been  or  will  be  fully and finally
     performed;  nor  shall  the  Performing Party be required to compensate the
     Non-Performing Party for any losses incurred by the Non-Performing Party in
     connection  with  a  default  or  termination  hereunder.

G.   The  parties  agree that this contract constitutes a "Forward Contract" and
     that  each  party  is a "Forward Contract Merchant" for purposes of Section
     556  of  the  U.S.  Bankruptcy  Code.

H.   The Performing Party's rights under this provision shall be in addition to,
     and  not  in  limitation  or  exclusion  of,  any  other  rights  which the
     Performing  Party  may  have  (whether  by  agreement,  operation of law or
     otherwise),  including  any right and remedies under the Uniform Commercial
     Code.

     12.  TAXES. Penn Octane shall be responsible for all other taxes imposed or
          -----
levied  by  a  governmental  agency upon or after the delivery of Propane at the
Delivery  Point(s).  If  KHLP  pays  or  remits  a  tax  which  is Penn Octane's
responsibility,  Penn  Octane shall reimburse KHLP for such taxes within 10 days
after the date of KHLP's invoice. If Penn Octane is exempt from paying a tax, it
shall  provide  KHLP  with  a  certificate  evidencing  the  exemption,

     13.  FORCE  MAJEURE. Notwithstanding any other provision in this Agreement,
          --------------
no  failure  to  carry  out  or observe any of the provisions of this Agreement,
except  the  obligation  to  pay  money  when  due, shall give rise to any claim
against  either Party or be deemed a breach of this Agreement if such failure or
omission  arises  from an event of Force Majeure. "Force Majeure" shall mean any
cause  or  causes  reasonably beyond the control of either Party or which either
Party  is unable to prevent or overcome by the exercise of reasonable diligence.
Without  limiting the generality of the foregoing, the following shall be deemed
to  be  events  of  Force  Majeure:  (a)  acts of God or the public enemy, fire,
explosion,  storms,  flood,  war,  riot,  sabotage,  accident,  embargo;  or (b)
interruption  of  or  delay  in  transportation,  lack of capacity on pipelines,
inadequacy, shortage or failure of a Party's normal source of supply of product,
breakdowns,  labor  trouble  from  whatever cause arising and whether or not the
demands  of  the employees involved are reasonable and within said party's power
to  concede;  or  (c) compliance with any order, action, direction or request of
any  governmental  officer,  department, agency, authority or committee thereof,
including  any  direction  or order restricting or limiting the selling price of
the  Propane  which  renders  it impossible for KHLP, in its sole discretion, to
make  a  reasonable  profit  on  such  sale.

In the event either Party hereto is rendered unable, by reason of Force Majeure,
to  carry  out  in  whole or in part its obligations under this Agreement, other
than the obligation to make payments due hereunder, that Party shall give notice
of the Force Majeure event in writing or by facsimile to the other Party as soon
as  possible after the occurrence of the event. The obligations of the notifying
Party  shall,  insofar  as they are affected by such Force Majeure, be suspended
during the continuance of any inability so caused, but for no longer period, and
Such

<PAGE>
cause  shall,  as  far  as  possible,  be remedied with all reasonable dispatch;
provided,  however,  that  the  settlement  of  strikes,  lockouts  and  labor
difficulties  shall  be solely within the discretion of the Party claiming Force
Majeure.

     14.  INDEMNITY.  Penn  Octane  shall  indemnify  and  hold  KHLP  and  its
          ---------
affiliates  harmless  from  any  claim, demand, lawsuit, cause of action, strict
liability  claim, penalty, fine, or administrative law action or order, and from
expenses  (including but not limited to attorneys' fees) and costs of every kind
and  character  on  account  of personal injuries, death, damage to property, or
damage  to  the  environment  and arising out of or related to Perm Octane's, or
Perm  Octane's  employees',  agents', contractors', or carriers' transportation,
use,  handling, re-sale, misuse, or disposal of the Propane purchased hereunder,
or  arising  out  of  or  in  any  way incident to the use or misuse of pipeline
facilities  in  which  the  Propane  is  transported or stored subsequent to the
passage  of  title  to  the  Propane  from  KHLP  to Penn Octane hereunder. Perm
Octane's duty to indemnify and hold harmless hereunder shall survive termination
of  this Agreement or the cessation of business transactions between Penn Octane
and  KHLP.

     15.  UNSAFE  CONDITIONS.  KHLP reserves the right, in it's sole discretion,
          ------------------
to  reject  any  pipelines  presented  for transportation which would present an
unsafe or potentially unsafe situation. In addition, KHLP reserves the right, in
its  sole  discretion,  to refuse to deliver any product under any conditions it
deems  unsafe,  which  is  caused  by,  including but not limited to, personnel,
equipment,  procedures,  and/or  weather  conditions.

     16.  LIMITATION OF REMEDIES.  KHLP's liability, and Penn Octane's exclusive
          ----------------------
remedy,  for  any  cause  of  action  (whether in contract, warranty, guarantee,
failure  of  essential  purpose,  tort,  violation  of  law, strict liability or
otherwise)  arising out of or related to this Agreement is expressly limited, at
KHLP's option, to:   (a) replacement of nonconforming product; or (b) payment of
the  Sale Price allocable to the Propane determined to be nonconforming.   IN NO
EVENT  SHALL  KHLP'S  CUMULATIVE  LIABILITY  HEREUNDER BE IN EXCESS OF THE TOTAL
SALES  PRICE  AT  THE  DELIVERY POINT OF THE PROPANE GIVING RISE TO THE CAUSE OF
ACTION.  WITHOUT  LIMITATION  OF  ANY  OTHER PROVISION HEREIN, KHLP SHALL NOT BE
OBLIGATED  FOR  LOST  PROFITS  OR  ANY  SPECIAL,  INDIRECT,  INCIDENTAL,  OR
CONSEQUENTIAL  DAMAGES. PENN OCTANE REPRESENTS AND AGREES THAT THE RETURN OF THE
FULL SALES PRICE BY KHLP AS ABOVE SET FORTH SHALL PREVENT THE FOREGOING REMEDIES
FROM  FAILING  OF  THEIR  ESSENTIAL PURPOSE, AND THAT SUCH REMEDIES ARE FAIR AND
ADEQUATE.

     17.  ODORIZATION.  PENN  OCTANE  ACKNOWLEDGES  AND  AGREES  THAT  AT  PENN
          -----------
          OCTANE'S  DIRECTION  KHLP  WILL NOT STENCH THE PROPANE SOLD HEREUNDER,
          AND THAT KHLP IS UNDER NO OBLIGATION, LEGAL OR OTHERWISE, TO DO SO. TO
          THE  FULLEST  EXTENT PERMITTED BY LAW, PENN OCTANE AGREES TO INDEMNIFY
          AND  HOLD HARMLESS KHLP AND ITS AFFILIATES FROM AND AGAINST ANY CLAIM,
          ACTION. CAUSE OF ACTION OR ADMINISTRATIVE OR ENFORCEMENT ACTION OF ANY
          KIND,  OR  ANY CLAIMED LIABILITY, LOSS, DAMAGE OR EXPENSE, ARISING OUT
          OF,  RELATED  TO,  OR  CONNECTED  WITH  THE  LACK  OF STENCHING OF THE
          PROPANE. Penn Octane hereby certifies that stenching or odorization of
          the  Propane will (1) be harmful to its use or farther processing; and
          (2) serves no useful purpose as a warning agent in such use or further
          processing. Penn Octane further represents and acknowledges that it is
          familiar  with  and  knowledgeable of the legal requirements regarding
          odorization,  and  that  Penn  Octane  will  comply  with  all  such
          requirements.  Penn Octane grants to KHLP the right, in its reasonably
          exercised  discretion,  to  conduct  such inquiries, audits, and other
          activities  as  may  be reasonably necessary to verify the accuracy of
          the  foregoing  certifications  and  representations.

<PAGE>
     18.  WARNINGS.  Penn  Octane acknowledges receipt from KHLP of the Material
          --------
Safety Data Sheet for the Propane, and has reviewed and understands the warnings
and  information  regarding the characteristics and hazards of handling or using
the  Propane  contained  therein  and  otherwise set forth in this Agreement The
Parties  acknowledge and agree that KHLP has no practical or effective method of
warning  Penn  Octane's  customers  of  the  characteristics  and hazards of the
Propane,  and  that  KHLP is under no obligation to provide any such warnings or
other  product  information  to  any  such  downstream  purchasers.  Penn Octane
warrants  and  represents  that it is capable of communicating such warnings and
information, and that Penn Octane will communicate such warnings and information
to  all  persons Penn Octane reasonably anticipates handling, using or otherwise
coming into contact with the Propane, including without limitation, warnings and
information  regarding  the  odorization  of  the  Propane.

     19.  HAZARDOUS  MATERIALS.  If,  and  to the extent, Penn Octane transports
          --------------------
hazardous materials (as listed in the Tables of 49 C.F.R. 172.101 and 172.102 as
amended  from  time  to  time)  pursuant  to  this Agreement, Penn Octane hereby
warrants  that  all  hazardous materials shall be prepared for transportation in
compliance  with  all  applicable  federal,  state  and  local  laws,  rules and
regulations  regarding  the  handling and transportation of hazardous materials,
Perm  Octane  shall  indemnify  and  defend KHLP from all liability, of whatever
nature, to which KHLP may become subject as a result of Penn Octane's failure to
comply  therewith.

     20.  LAY  AND  JURISDICTION.  This Agreement and its execution, performance
          ----------------------
or  nonperformance,  interpretation,  construction,  enforcement  and  any issue
arising  out  of  or  in connection therewith shall be governed by the law, both
procedural  and  substantive,  of  the  State  of  Kansas, without regard to its
principles  of  conflicts of law. The Parties agree that venue is to be Wichita,
Kansas.  This  Agreement  shall  be  subject  to  all  applicable  laws,  rules,
regulations  and orders of any governmental agency or tribunal with jurisdiction
over  the  Parties  or  the  subject  matter  hereof.   If any provision of this
Agreement  is held to be invalid, illegal or unenforceable, all other provisions
shall  remain  valid,  effective  and  fully  enforceable.

     21.  NOTICES.  All  notices,  reports  and other communications required or
          -------
permitted  hereunder  shall  be  deemed properly given if in writing and sent by
registered  or  certified  mail,  with  all postage or charges My prepaid, or by
facsimile  to  the  other  Party  at  the  address(es)  stated  below.

       PENN OCTANE CORP.:                     KOCHHVDROCARBON, LP.:
       -----------------                      ---------------------
       Penn Octane Corporation                Attn: NGL Accounting
       Attn: VP Gas Liquids                   4111 E. 37th St. North
                                                 P.O. Box 2911
       820 Gessner Rd., Suite 1285            Wichita, Kansas 67201-2911
       Houston, TX 77024
       Fax No.: 713-467-8258                  Fax No.: (316) 828-7972

Notices  of  change  of address of either Party shall be given in writing to the
other  in  accordance  with  this  section.

     22.  THIRD  PARTY BENEFICIARIES.  There are no third-party beneficiaries to
          --------------------------
this  Agreement,  and  the  provisions of this Agreement shall not impart rights
enforceable by any person, firm or organization not a Party or not a permissible
successor  or assignee of a Party to this Agreement, and neither are the Parties
an  agent  employee,  trustee  or  fiduciary  for  the  other  party.

<PAGE>
     23.  JOINT ACTION.  This Agreement was prepared jointly by the Parties, and
          ------------
not  by  either  Party  to  the  exclusion  of  the  other,

     24.  ASSIGNMENT.  Neither  this  Agreement nor any interest herein shall be
          ----------
assigned  by either Party  without the prior written consent of the other Party;
provided  that consent to an assignment shall not be unreasonably withheld.  Any
assignment  made in contravention of this section shall be void at the option of
the  other  Party,

     25.  TITLES.  The  numbering  and  titling of particular provisions of this
          ------
Agreement  are  solely  for convenience of reference and shall have no effect on
the  interpretation  or  construction  of  this  Agreement.

     26.  COUNTERPARTS.  This Agreement may be executed in multiple counterparts
          ------------
and  by  different  Parties  on  separate  counterparts,  each  of which when so
executed  shall  be  deemed  to be an original and all of which, taken together,
shall  constitute  one  agreement.

     27.  ENTIRE  AGREEMENT.  No  statements or agreements, oral or written, not
          -----------------
contained herein or in a future amendment, hereto executed by both Parties shall
vary  or  modify  the  terms  hereof.  Neither Party shall claim any amendments;
modifications  or  release  from  any  provisions  hereof  unless the same is in
writing signed by each of the Parties hereto and specifically states the same is
an  amendment  to  this  Agreement.

     28.  WAIVER.  Notwithstanding  any  other  provision  of this Agreement, no
          ------
waiver  by  either Party of any breach or default in performance of any covenant
herein by the other Party shall operate or be construed as a waiver of any other
breach  or  default,  whether  of  a  like or different character, nor shall any
failure  to exercise any right hereunder be considered a waiver of such right in
the  future.

     IN  WITNESS  WHEREOF, the Parties hereto have executed this Agreement as of
the  10th  day  of  December,  2003

PENN OCTANE CORPORATION                 KOCH HYDROCARBON,, LP

By:  /s/ Charles Handly                 By:  /s/ Steve Tatum
   -----------------------------           ---------------------------
Printed Name:  Charles Handly           Printed Name:  Steve Tatum
Title:  Exec. Vice President            Title:  President - KHLP

<PAGE>

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