Document:

SECURITY AGREEMENT

SECURITY AGREEMENT

SECURITY AGREEMENT (this "Agreement"), dated as of March 27, 2006, by
and among Modern Technology Corp., a Nevada corporation (the "Company"),
and the secured parties signatory hereto and their respective endorsees,
transferees and assigns (collectively, the "Secured Party"). 

W I T N E S S E T H:

WHEREAS, pursuant to a Securities Purchase Agreement, dated the date hereof,
between the Company and the Secured Party (the "Purchase Agreement"), the
Company has agreed to issue to the Secured Party and the Secured Party has
agreed to purchase from the Company certain of the Company's 6% Secured
Convertible Notes, due three years from the date of issue (the "Notes"),
which are convertible into shares of the Company's Common Stock, par value
$.0001 per share (the "Common Stock"). In connection therewith, the
Company shall issue the Secured Party certain Common Stock purchase warrants
(the "Warrants"); and

WHEREAS, in order to induce the Secured Party to purchase the Notes, the
Company has agreed to execute and deliver to the Secured Party this Agreement
for the benefit of the Secured Party and to grant to it a first priority
security interest in certain property of the Company to secure the prompt
payment, performance and discharge in full of all of the Company's obligations
under the Notes and exercise and discharge in full of the Company's obligations
under the Warrants.

NOW, THEREFORE, in consideration of the agreements herein contained and for
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto hereby agree as follows:

1. Certain Definitions. As used in this Agreement, the following terms
shall have the meanings set forth in this Section 1. Terms used but not
otherwise defined in this Agreement that are defined in Article 9 of the UCC
(such as "general intangibles' and "proceeds") shall have the
respective meanings given such terms in Article 9 of the UCC.

(a) "Collateral" means the collateral in which the Secured Party is
granted a security interest by this Agreement and which shall include the
following, whether presently owned or existing or hereafter acquired or coming
into existence, and all additions and accessions thereto and all substitutions
and replacements thereof, and all proceeds, products and accounts thereof,
including, without limitation, all proceeds from the sale or transfer of the
Collateral and of insurance covering the same and of any tort claims in
connection therewith:

(i) All Goods of the Company, including, without limitations, all
        machinery, equipment, computers, motor vehicles, trucks, tanks, boats,
        ships, appliances, furniture, special and general tools, fixtures, test
        and quality control devices and other equipment of every kind and nature
        and wherever situated, together with all documents of title and
        documents representing the same, all additions and accessions thereto,
        replacements therefor, all parts therefor, and all substitutes for any
        of the foregoing and all other items used and useful in connection with
        the Company's businesses and all improvements thereto (collectively, the
        "Equipment"); and

        (ii) All Inventory of the Company; and

        (iii) All of the Company's contract rights and general intangibles,
        including, without limitation, all partnership interests, stock or other
        securities, licenses, distribution and other agreements, computer
        software development rights, leases, franchises, customer lists, quality
        control procedures, grants and rights, goodwill, trademarks, service
        marks, trade styles, trade names, patents, patent applications,
        copyrights, deposit accounts, and income tax refunds (collectively, the
        "General Intangibles"); and

        (iv) All Receivables of the Company including all insurance proceeds,
        and rights to refunds or indemnification whatsoever owing, together with
        all instruments, all documents of title representing any of the
        foregoing, all rights in any merchandising, goods, equipment, motor
        vehicles and trucks which any of the same may represent, and all right,
        title, security and guaranties with respect to each Receivable,
        including any right of stoppage in transit; and

        (v) All of the Company's documents, instruments and chattel paper,
        files, records, books of account, business papers, computer programs and
        the products and proceeds of all of the foregoing Collateral set forth
        in clauses (i)-(iv) above.

      
    
  

(b) "Company" shall mean, collectively, Company and all of the
subsidiaries of Company, a list of which is contained in Schedule A,
attached hereto.

(c) "Obligations" means all of the Company's obligations under this
Agreement and the Notes, in each case, whether now or hereafter existing,
voluntary or involuntary, direct or indirect, absolute or contingent, liquidated
or unliquidated, whether or not jointly owed with others, and whether or not
from time to time decreased or extinguished and later decreased, created or
incurred, and all or any portion of such obligations or liabilities that are
paid, to the extent all or any part of such payment is avoided or recovered
directly or indirectly from the Secured Party as a preference, fraudulent
transfer or otherwise as such obligations may be amended, supplemented,
converted, extended or modified from time to time.

(d) "UCC" means the Uniform Commercial Code, as currently in effect in
the State of New York.

2. Grant of Security Interest. As an inducement for the Secured Party
to purchase the Notes and to secure the complete and timely payment, performance
and discharge in full, as the case may be, of all of the Obligations, the
Company hereby, unconditionally and irrevocably, pledges, grants and
hypothecates to the Secured Party, a continuing security interest in, a
continuing first lien upon, an unqualified right to possession and disposition
of and a right of set-off against, in each case to the fullest extent permitted
by law, all of the Company's right, title and interest of whatsoever kind and
nature in and to the Collateral (the "Security Interest").

3. Representations, Warranties, Covenants and Agreements of the Company.
The Company represents and warrants to, and covenants and agrees with, the
Secured Party as follows: 

(a) The Company has the requisite corporate power and authority to enter into
this Agreement and otherwise to carry out its obligations thereunder. The
execution, delivery and performance by the Company of this Agreement and the
filings contemplated therein have been duly authorized by all necessary action
on the part of the Company and no further action is required by the Company.
This Agreement constitutes a legal, valid and binding obligation of the Company
enforceable in accordance with its terms, except as enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditor's rights generally.

(b) The Company represents and warrants that it has no place of business or
offices where its respective books of account and records are kept (other than
temporarily at the offices of its attorneys or accountants) or places where
Collateral is stored or located, except as set forth on Schedule A
attached hereto;

(c) The Company is the sole owner of the Collateral (except for non-exclusive
licenses granted by the Company in the ordinary course of business), free and
clear of any liens, security interests, encumbrances, rights or claims, and is
fully authorized to grant the Security Interest in and to pledge the Collateral.
There is not on file in any governmental or regulatory authority, agency or
recording office an effective financing statement, security agreement, license
or transfer or any notice of any of the foregoing (other than those that have
been filed in favor of the Secured Party pursuant to this Agreement) covering or
affecting any of the Collateral. So long as this Agreement shall be in effect,
the Company shall not execute and shall not knowingly permit to be on file in
any such office or agency any such financing statement or other document or
instrument (except to the extent filed or recorded in favor of the Secured Party
pursuant to the terms of this Agreement).

(d) No part of the Collateral has been judged invalid or unenforceable. No
written claim has been received that any Collateral or the Company's use of any
Collateral violates the rights of any third party. There has been no adverse
decision to the Company's claim of ownership rights in or exclusive rights to
use the Collateral in any jurisdiction or to the Company's right to keep and
maintain such Collateral in full force and effect, and there is no proceeding
involving said rights pending or, to the best knowledge of the Company,
threatened before any court, judicial body, administrative or regulatory agency,
arbitrator or other governmental authority. 

(e) The Company shall at all times maintain its books of account and records
relating to the Collateral at its principal place of business and its Collateral
at the locations set forth on Schedule A attached hereto and may not
relocate such books of account and records or tangible Collateral unless it
delivers to the Secured Party at least 30 days prior to such relocation (i)
written notice of such relocation and the new location thereof (which must be
within the United States) and (ii)-evidence that appropriate financing
statements and other necessary documents have been filed and recorded and other
steps have been taken to perfect the Security Interest to create in favor of the
Secured Party valid, perfected and continuing first priority liens in the
Collateral. 

(f) This Agreement creates in favor of the Secured Party a valid security
interest in the Collateral securing the payment and performance of the
Obligations and, upon making the filings described in the immediately following
sentence, a perfected first priority security interest in such Collateral.
Except for the filing of financing statements on Form-1 under the UCC with the
jurisdictions indicated on Schedule B, attached hereto, no authorization
or approval of or filing with or notice to any governmental authority or
regulatory body is required either -for the grant by the Company of, or the
effectiveness of, the Security Interest granted hereby or for the execution,
delivery and performance of this Agreement by the Company or -for the perfection
of or exercise by the Secured Party of its rights and remedies hereunder. 

(g) On the date of execution of this Agreement, the Company will deliver to
the Secured Party one or more executed UCC financing statements on Form-1 with
respect to the Security Interest for filing with the jurisdictions indicated on
Schedule B, attached hereto and in such other jurisdictions as may be
requested by the Secured Party.

(h) The execution, delivery and performance of this Agreement does not
conflict with or cause a breach or default, or an event that with or without the
passage of time or notice, shall constitute a breach or default, under any
agreement to which the Company is a party or by which the Company is bound. No
consent (including, without limitation, from stock holders or creditors of the
Company) is required for the Company to enter into and perform its obligations
hereunder.

(i) The Company shall at all times maintain the liens and Security Interest
provided for hereunder as valid and perfected first priority liens and security
interests in the Collateral in favor of the Secured Party until this Agreement
and the Security Interest hereunder shall terminate pursuant to Section 11. The
Company hereby agrees to defend the same against any and all persons. The
Company shall safeguard and protect all Collateral for the account of the
Secured Party. At the request of the Secured Party, the Company will sign and
deliver to the Secured Party at any time or from time to time one or more
financing statements pursuant to the UCC (or any other applicable statute) in
form reasonably satisfactory to the Secured Party and will pay the cost of
filing the same in all public offices wherever filing is, or is deemed by the
Secured Party to be, necessary or desirable to effect the rights and obligations
provided for herein. Without limiting the generality of the foregoing, the
Company shall pay all fees, taxes and other amounts necessary to maintain the
Collateral and the Security Interest hereunder, and the Company shall obtain and
furnish to the Secured Party from time to time, upon demand, such releases
and/or subordinations of claims and liens which may be required to maintain the
priority of the Security Interest hereunder. 

(j) The Company will not transfer, pledge, hypothecate, encumber, license
(except for non-exclusive licenses granted by the Company in the ordinary course
of business), sell or otherwise dispose of any of the Collateral without the
prior written consent of the Secured Party.

(k) The Company shall keep and preserve its Equipment, Inventory and other
tangible Collateral in good condition, repair and order and shall not operate or
locate any such Collateral (or cause to be operated or located) in any area
excluded from insurance coverage.

(l) The Company shall, within ten (10) days of obtaining knowledge thereof,
advise the Secured Party promptly, in sufficient detail, of any substantial
change in the Collateral, and of the occurrence of any event which would have a
material adverse effect on the value of the Collateral or on the Secured Party's
security interest therein.

(m) The Company shall promptly execute and deliver to the Secured Party such
further deeds, mortgages, assignments, security agreements, financing statements
or other instruments, documents, certificates and assurances and take such
further action as the Secured Party may from time to time request and may in its
sole discretion deem necessary to perfect, protect or enforce its security
interest in the Collateral including, without limitation, the execution and
delivery of a separate security agreement with respect to the Company's
intellectual property ("Intellectual Property Security Agreement") in
which the Secured Party has been granted a security interest hereunder,
substantially in a form acceptable to the Secured Party, which Intellectual
Property Security Agreement, other than as stated therein, shall be subject to
all of the terms and conditions hereof.

(n) The Company shall permit the Secured Party and its representatives and
agents to inspect the Collateral at any time, and to make copies of records
pertaining to the Collateral as may be requested by the Secured Party from time
to time.

(o) The Company will take all steps reasonably necessary to diligently pursue
and seek to preserve, enforce and collect any rights, claims, causes of action
and accounts receivable in respect of the Collateral.

(p) The Company shall promptly notify the Secured Party in sufficient detail
upon becoming aware of any attachment, garnishment, execution or other legal
process levied against any Collateral and of any other information received by
the Company that may materially affect the value of the Collateral, the Security
Interest or the rights and remedies of the Secured Party hereunder.

(q) All information heretofore, herein or hereafter supplied to the Secured
Party by or on behalf of the Company with respect to the Collateral is accurate
and complete in all material respects as of the date furnished.

(r) Schedule A attached hereto contains a list of all of the
subsidiaries of Company.

4. Defaults. The following events shall be "Events of Default":

(a) The occurrence of an Event of Default (as defined in the Notes) under the
Notes;

(b) Any representation or warranty of the Company in this Agreement or in the
Intellectual Property Security Agreement shall prove to have been incorrect in
any material respect when made; 

(c) The failure by the Company to observe or perform any of its obligations
hereunder or in the Intellectual Property Security Agreement for ten (10) days
after receipt by the Company of notice of such failure from the Secured Party;
and

(d) Any breach of, or default under, the Warrants.

5. Duty To Hold In Trust. Upon the occurrence of any Event of Default
and at any time thereafter, the Company shall, upon receipt by it of any
revenue, income or other sums subject to the Security Interest, whether payable
pursuant to the Notes or otherwise, or of any check, draft, note, trade
acceptance or other instrument evidencing an obligation to pay any such sum,
hold the same in trust for the Secured Party and shall forthwith endorse and
transfer any such sums or instruments, or both, to the Secured Party for
application to the satisfaction of the Obligations.

6. Rights and Remedies Upon Default. Upon occurrence of any Event of
Default and at any time thereafter, the Secured Party shall have the right to
exercise all of the remedies conferred hereunder and under the Notes, and the
Secured Party shall have all the rights and remedies of a secured party under
the UCC and/or any other applicable law (including the Uniform Commercial Code
of any jurisdiction in which any Collateral is then located). Without
limitation, the Secured Party shall have the following rights and powers:

(a) The Secured Party shall have the right to take possession of the
Collateral and, for that purpose, enter, with the aid and assistance of any
person, any premises where the Collateral, or any part thereof, is or may be
placed and remove the same, and the Company shall assemble the Collateral and
make it available to the Secured Party at places which the Secured Party shall
reasonably select, whether at the Company's premises or elsewhere, and make
available to the Secured Party, without rent, all of the Company's respective
premises and facilities for the purpose of the Secured Party taking possession
of, removing or putting the Collateral in saleable or disposable form.

(b) The Secured Party shall have the right to operate the business of the
Company using the Collateral and shall have the right to assign, sell, lease or
otherwise dispose of and deliver all or any part of the Collateral, at public or
private sale or otherwise, either with or without special conditions or
stipulations, for cash or on credit or for future delivery, in such parcel or
parcels and at such time or times and at such place or places, and upon such
terms and conditions as the Secured Party may deem commercially reasonable, all
without (except as shall be required by applicable statute and cannot be waived)
advertisement or demand upon or notice to the Company or right of redemption of
the Company, which are hereby expressly waived. Upon each such sale, lease,
assignment or other transfer of Collateral, the Secured Party may, unless
prohibited by applicable law which cannot be waived, purchase all or any part of
the Collateral being sold, free from and discharged of all trusts, claims, right
of redemption and equities of the Company, which are hereby waived and released.

7. Applications of Proceeds. The proceeds of any such sale, lease or
other disposition of the Collateral hereunder shall be applied first, to the
expenses of retaking, holding, storing, processing and preparing for sale,
selling, and the like (including, without limitation, any taxes, fees and other
costs incurred in connection therewith) of the Collateral, to the reasonable
attorneys" fees and expenses incurred by the Secured Party in enforcing its
rights hereunder and in connection with collecting, storing and disposing of the
Collateral, and then to satisfaction of the Obligations, and to the payment of
any other amounts required by applicable law, after which the Secured Party
shall pay to the Company any surplus proceeds. If, upon the sale, license or
other disposition of the Collateral, the proceeds thereof are insufficient to
pay all amounts to which the Secured Party is legally entitled, the Company will
be liable for the deficiency, together with interest thereon, at the rate of 15%
per annum (the "Default Rate"), and the reasonable fees of any attorneys
employed by the Secured Party to collect such deficiency. To the extent
permitted by applicable law, the Company waives all claims, damages and demands
against the Secured Party arising out of the repossession, removal, retention or
sale of the Collateral, unless due to the gross negligence or willful misconduct
of the Secured Party.

8. Costs and Expenses. The Company agrees to pay all out-of-pocket
fees, costs and expenses incurred in connection with any filing required
hereunder, including without limitation, any financing statements, continuation
statements, partial releases and/or termination statements related thereto or
any expenses of any searches reasonably required by the Secured Party. The
Company shall also pay all other claims and charges which in the reasonable
opinion of the Secured Party might prejudice, imperil or otherwise affect the
Collateral or the Security Interest therein. The Company will also, upon demand,
pay to the Secured Party the amount of any and all reasonable expenses,
including the reasonable fees and expenses of its counsel and of any experts and
agents, which the Secured Party may incur in connection with -the enforcement of
this Agreement, -the custody or preservation of, or the sale of, collection
from, or other realization upon, any of the Collateral, or -the exercise or
enforcement of any of the rights of the Secured Party under the Notes. Until so
paid, any fees payable hereunder shall be added to the principal amount of the
Notes and shall bear interest at the Default Rate.

9. Responsibility for Collateral. The Company assumes all liabilities
and responsibility in connection with all Collateral, and the obligations of the
Company hereunder or under the Notes and the Warrants shall in no way be
affected or diminished by reason of the loss, destruction, damage or theft of
any of the Collateral or its unavailability for any reason. 

10. Security Interest Absolute. All rights of the Secured Party and
all Obligations of the Company hereunder, shall be absolute and unconditional,
irrespective of: -any lack of validity or enforceability of this Agreement, the
Notes, the Warrants or any agreement entered into in connection with the
foregoing, or any portion hereof or thereof; -any change in the time, manner or
place of payment or performance of, or in any other term of, all or any of the
Obligations, or any other amendment or waiver of or any consent to any departure
from the Notes, the Warrants or any other agreement entered into in connection
with the foregoing; - any exchange, release or nonperfection of any of the
Collateral, or any release or amendment or waiver of or consent to departure
from any other collateral for, or any guaranty, or any other security, for all
or any of the Obligations; -any action by the Secured Party to obtain, adjust,
settle and cancel in its sole discretion any insurance claims or matters made or
arising in connection with the Collateral; or -any other circumstance which
might otherwise constitute any legal or equitable defense available to the
Company, or a discharge of all or any part of the Security Interest granted
hereby. Until the Obligations shall have been paid and performed in full, the
rights of the Secured Party shall continue even if the Obligations are barred
for any reason, including, without limitation, the running of the statute of
limitations or bankruptcy. The Company expressly waives presentment, protest,
notice of protest, demand, notice of nonpayment and demand for performance. In
the event that at any time any transfer of any Collateral or any payment
received by the Secured Party hereunder shall be deemed by final order of a
court of competent jurisdiction to have been a voidable preference or fraudulent
conveyance under the bankruptcy or insolvency laws of the United States, or
shall be deemed to be otherwise due to any party other than the Secured Party,
then, in any such event, the Company's obligations hereunder shall survive
cancellation of this Agreement, and shall not be discharged or satisfied by any
prior payment thereof and/or cancellation of this Agreement, but shall remain a
valid and binding obligation enforceable in accordance with the terms and
provisions hereof. The Company waives all right to require the Secured Party to
proceed against any other person or to apply any Collateral which the Secured
Party may hold at any time, or to marshal assets, or to pursue any other remedy.
The Company waives any defense arising by reason of the application of the
statute of limitations to any obligation secured hereby.

11. Term of Agreement. This Agreement and the Security Interest shall
terminate on the date on which all payments under the Notes have been made in
full and all other Obligations have been paid or discharged. Upon such
termination, the Secured Party, at the request and at the expense of the
Company, will join in executing any termination statement with respect to any
financing statement executed and filed pursuant to this Agreement. 

12. Power of Attorney; Further Assurances.

(a) The Company authorizes the Secured Party, and does hereby make,
constitute and appoint it, and its respective officers, agents, successors or
assigns with full power of substitution, as the Company's true and lawful
attorney-in-fact, with power, in its own name or in the name of the Company, to,
after the occurrence and during the continuance of an Event of Default, -endorse
any notes, checks, drafts, money orders, or other instruments of payment
(including payments payable under or in respect of any policy of insurance) in
respect of the Collateral that may come into possession of the Secured Party;
-to sign and endorse any UCC financing statement or any invoice, freight or
express bill, bill of lading, storage or warehouse receipts, drafts against
debtors, assignments, verifications and notices in connection with accounts, and
other documents relating to the Collateral; -to pay or discharge taxes, liens,
security interests or other encumbrances at any time levied or placed on or
threatened against the Collateral; -to demand, collect, receipt for, compromise,
settle and sue for monies due in respect of the Collateral; and -generally, to
do, at the option of the Secured Party, and at the Company's expense, at any
time, or from time to time, all acts and things which the Secured Party deems
necessary to protect, preserve and realize upon the Collateral and the Security
Interest granted therein in order to effect the intent of this Agreement, the
Notes and the Warrants, all as fully and effectually as the Company might or
could do; and the Company hereby ratifies all that said attorney shall lawfully
do or cause to be done by virtue hereof. This power of attorney is coupled with
an interest and shall be irrevocable for the term of this Agreement and
thereafter as long as any of the Obligations shall be outstanding.

(b) On a continuing basis, the Company will make, execute, acknowledge,
deliver, file and record, as the case may be, in the proper filing and recording
places in any jurisdiction, including, without limitation, the jurisdictions
indicated on Schedule B, attached hereto, all such instruments, and take
all such action as may reasonably be deemed necessary or advisable, or as
reasonably requested by the Secured Party, to perfect the Security Interest
granted hereunder and otherwise to carry out the intent and purposes of this
Agreement, or for assuring and confirming to the Secured Party the grant or
perfection of a security interest in all the Collateral.

(c) The Company hereby irrevocably appoints the Secured Party as the
Company's attorney-in-fact, with full authority in the place and stead of the
Company and in the name of the Company, from time to time in the Secured Party's
discretion, to take any action and to execute any instrument which the Secured
Party may deem necessary or advisable to accomplish the purposes of this
Agreement, including the filing, in its sole discretion, of one or more
financing or continuation statements and amendments thereto, relative to any of
the Collateral without the signature of the Company where permitted by law.

13. Notices. All notices, requests, demands and other communications
hereunder shall be in writing, with copies to all the other parties hereto, and
shall be deemed to have been duly given when "if delivered by hand, upon
receipt, "if sent by facsimile, upon receipt of proof of sending thereof, "if
sent by nationally recognized overnight delivery service (receipt requested),
the next business day or "if mailed by first-class registered or certified mail,
return receipt requested, postage prepaid, four days after posting in the U.S.
mails, in each case if delivered to the following addresses:

  
    
      
        
          
            If to the Company: Modern Technology Corp.

 

            1420 N. Lamar Boulevard

            Oxford, Mississippi 38655

            Attention: Chief Executive Officer

            Telephone: 662-236-5928

            Facsimile: 662-236-7662

            With a copy to: Parsons Law Firm

            2070 Skyline Tower

            10900 N.E. 4th
            Street

            Bellevue, WA 98004

            Attention: James B.
            Parsons, Esq.

            Telephone: (425) 451-8036

            Facsimile: (425) 451-8568

            If to the Secured Party: AJW Partners, LLC

            AJW Offshore, Ltd.

            AJW Qualified Partners, LLC

            New Millennium Capital Partners II, LLC

            1044 Northern Boulevard

            Suite 302

            Roslyn, New York 11576

            Attention: Corey Ribotsky

            Facsimile: 516-739-7115

            With a copy to: Ballard Spahr Andrews & Ingersoll, LLP

            1735 Market Street, 51st Floor

            Philadelphia, Pennsylvania 19103

            Attention: Gerald J. Guarcini, Esq. 

            Facsimile: 215-864-8999

          

        

      

    

  

14. Other Security. To the extent that the Obligations are now or
hereafter secured by property other than the Collateral or by the guarantee,
endorsement or property of any other person, firm, corporation or other entity,
then the Secured Party shall have the right, in its sole discretion, to pursue,
relinquish, subordinate, modify or take any other action with respect thereto,
without in any way modifying or affecting any of the Secured Party's rights and
remedies hereunder.

15. Miscellaneous.

(a) No course of dealing between the Company and the Secured Party, nor any
failure to exercise, nor any delay in exercising, on the part of the Secured
Party, any right, power or privilege hereunder or under the Notes shall operate
as a waiver thereof; nor shall any single or partial exercise of any right,
power or privilege hereunder or thereunder preclude any other or further
exercise thereof or the exercise of any other right, power or privilege.

(b) All of the rights and remedies of the Secured Party with respect to the
Collateral, whether established hereby or by the Notes or by any other
agreements, instruments or documents or by law shall be cumulative and may be
exercised singly or concurrently.

(c) This Agreement constitutes the entire agreement of the parties with
respect to the subject matter hereof and is intended to supersede all prior
negotiations, understandings and agreements with respect thereto. Except as
specifically set forth in this Agreement, no provision of this Agreement may be
modified or amended except by a written agreement specifically referring to this
Agreement and signed by the parties hereto.

(d) In the event that any provision of this Agreement is held to be invalid,
prohibited or unenforceable in any jurisdiction for any reason, unless such
provision is narrowed by judicial construction, this Agreement shall, as to such
jurisdiction, be construed as if such invalid, prohibited or unenforceable
provision had been more narrowly drawn so as not to be invalid, prohibited or
unenforceable. If, notwithstanding the foregoing, any provision of this
Agreement is held to be invalid, prohibited or unenforceable in any
jurisdiction, such provision, as to such jurisdiction, shall be ineffective to
the extent of such invalidity, prohibition or unenforceability without
invalidating the remaining portion of such provision or the other provisions of
this Agreement and without affecting the validity or enforceability of such
provision or the other provisions of this Agreement in any other jurisdiction.

(e) No waiver of any breach or default or any right under this Agreement
shall be considered valid unless in writing and signed by the party giving such
waiver, and no such waiver shall be deemed a waiver of any subsequent breach or
default or right, whether of the same or similar nature or otherwise.

(f) This Agreement shall be binding upon and inure to the benefit of each
party hereto and its successors and assigns.

(g) Each party shall take such further action and execute and deliver such
further documents as may be necessary or appropriate in order to carry out the
provisions and purposes of this Agreement.

(h) This Agreement shall be construed in accordance with the laws of the
State of New York, except to the extent the validity, perfection or enforcement
of a security interest hereunder in respect of any particular Collateral which
are governed by a jurisdiction other than the State of New York in which case
such law shall govern. Each of the parties hereto irrevocably submit to the
exclusive jurisdiction of any New York State or United States Federal court
sitting in Manhattan county over any action or proceeding arising out of or
relating to this Agreement, and the parties hereto hereby irrevocably agree that
all claims in respect of such action or proceeding may be heard and determined
in such New York State or Federal court. The parties hereto agree that a final
judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law. The parties hereto further waive any objection to venue in the
State of New York and any objection to an action or proceeding in the State of
New York on the basis of forum non conveniens.

(i) EACH PARTY HERETO HEREBY AGREES TO WAIVE ITS RESPECTIVE RIGHTS TO A JURY
TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS
AGREEMENT. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY
DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATER OF
THIS AGREEMENT, INCLUDING WITHOUT LIMITATION CONTRACT CLAIMS, TORT CLAIMS,
BREACH OF DUTY CLAIMS AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. EACH PARTY
HERETO ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL INDUCEMENT FOR EACH PARTY TO
ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH PARTY HAS ALREADY RELIED ON THIS
WAIVER IN ENTERING INTO THIS AGREEMENT AND THAT EACH PARTY WILL CONTINUE TO RELY
ON THIS WAIVER IN THEIR RELATED FUTURE DEALINGS. EACH PARTY FURTHER WARRANTS AND
REPRESENTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT
SUCH PARTY HAS KNOWINGLY AND VOLUNTARILY WAIVES ITS RIGHTS TO A JURY TRIAL
FOLLOWING SUCH CONSULTATION. THIS WAIVER IS IRREVOCABLE, MEANING THAT,
NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY, IT MAY NOT BE MODIFIED EITHER
ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS AND SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT. IN THE EVENT OF A
LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE
COURT. 

(j) This Agreement may be executed in any number of counterparts, each of
which when so executed shall be deemed to be an original and, all of which taken
together shall constitute one and the same Agreement. In the event that any
signature is delivered by facsimile transmission, such signature shall create a
valid binding obligation of the party executing (or on whose behalf such
signature is executed) the same with the same force and effect as if such
facsimile signature were the original thereof.

 

 

 

 

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

IN WITNESS WHEREOF, the parties hereto have caused this
Security Agreement to be duly executed on the day and year first above written.

                    MODERN TECHNOLOGY CORP.

                    
                    By: _____________________________________

                    Anthony K. Welch

                      Chief Executive Officer

                      

                    
                    
                    AJW PARTNERS, LLC

                    By: SMS Group, LLC

                    By: _____________________________________

                      Corey S. Ribotsky

                      Manager

                      

                    
                    
                    AJW OFFSHORE, LTD.

                    By: First Street Manager II, LLC

                    By: _____________________________________

                      Corey S. Ribotsky

                      Manager

                      

                    
                    
                    AJW QUALIFIED PARTNERS, LLC

                    By: AJW Manager, LLC

                     

                    By: _____________________________________

                      Corey S. Ribotsky

                      Manager

                      

                    
                    
                    NEW MILLENNIUM CAPITAL PARTNERS II, LLC.

                    By: First Street Manager II, LLC

                    By: _____________________________________

                      Corey S. Ribotsky

                      ManagerFiled by Automated Filing Services Inc. (604) 609-0244 -  Terax Energy, Inc. -  Exhibit 10.1

Confidential treatment has been requested for
portions of this exhibit. The copy filed herewith omits the information subject
to the confidentiality request. Omissions are designated as [***]. A complete
version of this exhibit has been filed separately with the Securities and
Exchange Commission.

GAS PURCHASE AGREEMENT

THIS GAS PURCHASE AGREEMENT (this “Agreement”) is made
and entered into as of this 1st day of January, 2006, (the “Effective
Date”) by and between TERAX ENERGY, INC., a Nevada corporation (“Seller”
or “Terax”) and LOUIS DREYFUS GAS DEVELOPMENT L.P., a Delaware limited
partnership (“Buyer” or “LDGD”) (individually, the “Party” and, collectively,
the “Parties”).

RECITALS

	 	A. 	
      Seller operates, and is the majority interest owner in,
      the Lease; and

	 	 	 
	 	B. 	
      The Gathering System is located on or near the Lease;
      and

	 	 	 
	 	C. 	
      Buyer operates the Gathering System and will gather Gas
      from Seller’s Lease and deliver this Gas to the Plant; and

	 	 	 
	 	D. 	
      LDGD owns or controls Processing rights at the Plant for
      a supply of Gas, and LDGD is willing to process and purchase the Gas under
      the terms and conditions contained in this Agreement; and

	 	 	 
	 	E. 	
      Seller is willing to sell the Gas from the Lease to LDGD
      under this Agreement.

NOW, THEREFORE, for and in consideration of the premises and
the mutual covenants contained in this Agreement, the sufficiency of which is
hereby acknowledged, the Parties agree as follows:

ARTICLE I 
DEFINITIONS

	1.1 	
      Where used in this Agreement, the following words will
      have the following meanings:

	 	 	 
		1.1.1 	
      “Affiliate(s)” means with respect to either Party,
      any entity controlled, directly or indirectly, by that Party, any entity
      that controls, directly or indirectly, that Party or any entity directly
      or indirectly under common control with that Party, and for this
      definition, “control” of any entity or party means ownership of a majority
      of the issued shares or voting power of the entity or party or a majority
      interest in a partnership or control in fact of the entity or
  party.

	 	 	 
		1.1.2 	
      “Average Daily Delivered Quantity” means the
      average daily quantity of Gas delivered by Seller at the Delivery Point,
      calculated no more frequently than quarterly in each calendar year, and
      excluding reduced deliveries caused by a Force Majeure event (i.e.,
      the actual Daily Delivered Quantity each day shall be increased on a pro
      rata basis by the amount of the reduction in deliveries each day, if any,
      as a result of a Force Majeure event for the purposes of determining
      compliance with the minimum delivery obligations in Section 3.3
      hereof).

	 	1.1.3 	 “Btu” means British thermal unit and
        shall be defined as the quantity of heat required to raise the temperature
        of one pound of pure water one (1) degree Fahrenheit from fifty-nine degrees
        (59°F) to sixty degrees (60°F), at a constant pressure of 14.73
        psia.

	 	 	 
	 	1.1.4 	 “Business Day” means any Day in which
        the Federal Reserve member banks are open for business.

	 	 	 
	 	1.1.5 	 “Central Prevailing Time” means clock
        time in the United States central time zone, standard time or daylight
        savings time, whichever is in effect.

	 	 	 
	 	1.1.6 	 “Daily Contract Quantity” or “DCQ”
        means the quantity of Gas to be delivered by Seller and purchased by Buyer
        each Day at the Delivery Point, as nominated by Seller under Section 5.1.

	 	 	 
	 	1.1.7 	 “Day” means the period of twenty-four
        (24) consecutive hours commencing at nine o’clock (9:00) a.m. Central
        Prevailing Time on a calendar day and ending at nine o’clock (9:00)
        a.m. Central Prevailing Time on the next succeeding calendar day.

	 	 	 
	 	1.1.8 	 “Defaulting Party” has the meaning
        provided in Section 12.2.

	 	 	 
	 	1.1.9 	 “Delivery Point” means the inlet flange
        of the Gas Metering Equipment at the interconnection between the Gathering
        System and the Terax-installed facilities.

	 	 	 
	 	1.1.10 	 “Elected I-FERC Volume” shall have
        the meaning provided in Section 5.1.

	 	 	 
	 	1.1.11 	 “Firm” means that either Party may
        interrupt its performance under this Agreement without liability only
        to the extent that the performance is prevented for reasons of Force Majeure.

	 	 	 
	 	1.1.12 	 “Fractionation Fee” has the meaning
        provided in Section 8.3.

	 	 	 
	 	1.1.13 	 “Fractionator” means the fractionation
        facility to which Buyer transports the Raw Mix for fractionation.

	 	 	 
	 	1.1.14 	 “Gallon” means one (1) U.S. Standard
        Liquid Gallon of two hundred thirty-one (231) cubic inches, adjusted to
        a temperature of sixty degrees Fahrenheit (60oF) and equilibrium
        pressure of the Product measured.

	 	 	 
	 	1.1.15 	 “Gas” means any mixture of hydrocarbons
        and non-combustible gases in a gaseous state consisting primarily of methane.

	 	 	 
	 	1.1.16 	 “Gas Metering Equipment” means Buyer
        owned and operated Gas meters, samplers, and associated equipment used
        to determine the amount and composition of Gas delivered by Seller to
        Buyer at the Delivery Point and the amount of Gas delivered by the Gathering
        System at the Plant Inlet.

	 	 	 
	 	1.1.17 	 “Gas Proceeds” has the meaning provided
        in Section 8.2.

	 	 	 
	 	1.1.18 	 “Gathering and Processing Fees” has
        the meaning provided in Section 8.2.

	 	 	 
	 	1.1.19 	 “Gathering System” means that certain
        gas gathering system that receives unprocessed gas from various gas producing
        properties in Eastland, Comanche, Erath, Bosque, and Hill Counties in
        Texas.

	 	 	 
	 	1.1.20 	 “GDM Volume” has the meaning provided
        in Section 8.2.

	 	 	 
	 	1.1.21 	 “GDM Price” has the meaning provided
        in Section 8.2.

  Page 2

	 	1.1.22 	 “I-FERC Volume” has the meaning provided
        in Section 8.2.

	 	 	 
	 	1.1.23 	 “I-FERC Price” has the meaning provided
        in Section 8.2.

	 	 	 
	 	1.1.24 	 “Interrupting Party” has the meaning
        provided in Section 21.2.

	 	 	 
	 	1.1.25 	 “Interruption GDM Price” has the meaning
        provided in Section 21.2.2.

	 	 	 
	 	1.1.26 	 “Lease” or “Leases” means
        the oil and gas leases in Erath County, Texas, each of which is operated
        by Seller, owned by Seller or controlled by Terax, for the Leases described
        in Exhibit A. The Parties may amend Exhibit A by mutual consent.

	 	 	 
	 	1.1.27 	 “Market Hub” means any of the liquid
        markets for natural gas into which Buyer can sell Residue Gas purchased
        under this Agreement, which may include (not by way of limitation) the
        Katy Hub, Waha, Carthage, or Houston Ship Channel, as established by Buyer
        for each Month pursuant to Section 5.1.

	 	 	 
	 	1.1.28 	 “MCF” means one thousand standard cubic
        feet of Gas.

	 	 	 
	 	1.1.29 	 “MMBtu” means one million (1,000,000)
        Btu.

	 	 	 
	 	1.1.30 	 “MMCF” means one million cubic feet
        of Gas.

	 	 	 
	 	1.1.31 	 “Month” shall mean the period beginning
        on the first Day of the calendar month and ending immediately prior to
        the commencement of the first Day of the next calendar month.

	 	 	 
	 	1.1.32 	 “Non-Defaulting Party” has the meaning
        provided in Section 12.2.

	 	 	 
	 	1.1.33 	 “Normal and Routine Maintenance” means
        scheduled and non-scheduled maintenance, tests, alterations, modifications,
        enlargements, and repairs of the Gathering System, the Plant, and any
        pipeline or other transporter as would normally be done by a prudent operator,
        and which may or may not require a full or partial shut down of the affected
        facility, pipeline, or Plant.

	 	 	 
	 	1.1.34 	 “Observing Party” has the meaning provided
        in Section 11.3.

	 	 	 
	 	1.1.35 	 “Payment Date” means the earlier of
        (1) ten (10) Days after Buyer receives the allocation from the Plant pursuant
        to Section 7.1, or (2) the fifth (5th ) Day of the Month after
        Seller receives the statement from Buyer pursuant to Section 10.1.

	 	 	 
	 	1.1.36 	 “Person” means any natural person,
        corporation, Limited Liability Company, partnership, joint venture, association,
        cooperative, or other entity.

	 	 	 
	 	1.1.37 	 “Plant” means any Gas Processing plant
        and appurtenances thereto, as modified from time to time, which is connected
        to the Gathering System and which is capable of Processing Gas sold and
        delivered under this Agreement.

	 	 	 
	 	1.1.38 	 “Plant Fuel” means the MMBtus of Gas
        or other hydrocarbons used or consumed in the operation of the Processing
        Plant for fuel, flared Gas, and lost and unaccounted for Gas.

	 	 	 
	 	1.1.39 	 “Plant Inlet” means the point at which
        Gas enters the Plant.

	 	 	 
	 	1.1.40 	 “Process,” “Processed,”
        or “Processing” means blending, gas conditioning, or
        removal of Raw Mix, non-hydrocarbon substances or other impurities from
        Gas.

  Page 3

	 	1.1.41 	 “Raw Mix” means all natural gas liquids
        and non-hydrocarbon substances extracted from the Gas stream entering
        the Plant and shall include, but not by way of limitation, carbon dioxide,
        methane, ethane, propane, isobutane, normal butane, and natural gasoline.

	 	 	 
	 	1.1.42 	 “Raw Mix Component(s)” means the individual
        hydrocarbon constituents of the Raw Mix, including, but not limited to,
        ethane, propane, isobutane, normal butane, and natural gasoline.

	 	 	 
	 	1.1.43 	 “Raw Mix Component Payment” has the
        meaning provided in Section 8.3.

	 	 	 
	 	1.1.44 	 “Raw Mix Quantity” means, for each
        Month, the quantity of Raw Mix delivered at the Raw Mix Delivery Point
        during the Month and allocated to Gas delivered by Seller during the Month
        as measured pursuant to Section 7.1.

	 	 	 
	 	1.1.45 	 “Raw Mix Transportation Costs” has
        the meaning provided in Section 8.3.

	 	 	 
	 	1.1.46 	 “Raw Mix Transporter” means the pipeline
        on which Buyer transports the Raw Mix from the Raw Mix Delivery Point
        to the Fractionator.

	 	 	 
	 	1.1.47 	 “Raw Mix Delivery Point” means the
        point of interconnection between the Plant’s facilities and the Raw
        Mix Transporter’s facilities.

	 	 	 
	 	1.1.48 	 “Residue Gas” means for each Month
        the total volume of Gas delivered at the Residue Gas Delivery Point during
        the Month after Buyer’s Gas (received at the Plant Inlet from the
        Gathering System) has been Processed in the Plant and allocated to Gas
        delivered by Seller during the Month pursuant to Section 5.1.

	 	 	 
	 	1.1.49 	 “Residue Gas Delivery Point” means
        the point of interconnection between the Plant’s facilities and the
        Residue Gas Transporter’s facilities.

	 	 	 
	 	1.1.50 	 “Residue Gas Payment” has the meaning
        provided in Section 8.2.

	 	 	 
	 	1.1.51 	 “Residue Gas Transportation Costs”
        has the meaning provided in Section 8.2.

	 	 	 
	 	1.1.52 	 “Residue Gas Transporter” means the
        pipeline on which Buyer transports the Residue Gas from the Residue Gas
        Delivery Point to the Market Hub.

	 	 	 
	 	1.1.53 	 “Standard Cubic Foot of Gas” or “SCF”
        means the volume of Gas contained in one cubic foot of space at a standard
        pressure of 14.65 psia and a temperature of sixty (60) degrees Fahrenheit.
        Whenever the bases of pressure and temperature differ from the above standard,
        conversion of the volume from these conditions to the standard conditions
        shall be made in accordance with the Ideal Gas Laws. 

	 	 	 
	 	1.1.54 	 “SCFD” means Standard Cubic Feet of
        Gas per Day.

	 	 	 
	 	1.1.55 	 “Taxes” means any and all ad valorem,
        property, occupation, severance, production, extraction, first use, conservation,
        Btu or energy, gathering, transport, pipeline, utility, gross receipts,
        gas or oil revenue, gas or oil import, privilege, sales, use, consumption,
        excise, lease, transaction, environmental, and other taxes, governmental
        charges, duties, licenses, fees, permits and assessments that are not
        based on or measured by the net income or net worth.

	1.2 	
      Any word, phrase, abbreviation or expression that is not
      defined in this Agreement and that has a generally accepted meaning in the
      natural gas or natural gas liquids industry will have that meaning in this
      Agreement.

Page 4

ARTICLE II
PRELIMINARY OBLIGATIONS OF THE PARTIES;
SELLER RESERVATIONS

	2.1 	
      Before delivery of Gas commences under this Agreement,
      Seller shall perform certain acts and complete certain obligations, which
      are as follows:

	 	 	 
		2.1.1 	
      Seller shall install on the Lease all of the necessary
      pipe, fittings, valves, and equipment to transport the Gas from each well
      (whether now existing or completed in the future) on the Lease to the
      Delivery Point;

	 	 	 
		2.1.2 	
      Seller shall install at the Delivery Point all of the
      necessary equipment to deliver Gas that satisfies the requirements found
      in Section 4.1 of this Agreement and compress the Gas to a pressure
      sufficient to effect delivery into the Gathering System at the Delivery
      Point; and

	 	 	 
		2.1.3 	
      Seller shall own, operate, and maintain the items and
      equipment installed under this Section 2.1.

	 	 	 
	2.2 	
      Before delivery of Gas commences under this Agreement,
      Buyer shall perform certain acts and complete certain obligations, which
      are as follows:

	 	 	 
		2.2.1 	
      Buyer or Buyer’s designee shall install Gas Metering
      Equipment at the Delivery Point; and

	 	 	 
		2.2.2 	
      Buyer or Buyer’s designee shall install at and downstream
      of the Delivery Point all of the necessary pipe, fittings, valves, and
      equipment to connect the Gathering System to the Delivery Point;
  and

	 	 	 
		2.2.3 	
      Buyer or Buyer’s designee shall install Gas Metering
      Equipment at the Plant Inlet; and

	 	 	 
		2.2.4 	
      Buyer shall install at the Delivery Point all of the
      necessary equipment to measure the volume and composition of the Gas
      delivered at the Delivery Point; and

	 	 	 
		2.2.5 	
      Buyer shall own, operate, and maintain the items and
      equipment installed under this Section 2.2.

	 	 	 
	2.3 	
      Expenses incurred under this Article II shall be
      allocated as set forth in Section 19.1.

	 	 	 
	2.4 	
      Seller reserves and excepts from the terms of this
      Agreement the following:

	 	 	 
		2.4.1 	
      The right to use, but not to sell to others, sufficient
      Gas for Seller's requirements in the development and operation of Seller's
      properties located on the Lease including, but not limited to, use of Gas
      for drilling, workover operations, gas lift purposes, pressure
      maintenance, enhanced recovery, and fuel.

	 	 	 
		2.4.2 	
      The right to pool and unitize the land, leases, and
      properties covered hereby with other lands, leases, and properties of
      Seller or others located in the field in which the leases are located.
      Seller shall also have the right to include in any pool or unit, all of
      Seller's Gas produced therefrom and said Gas shall be subject to this
      Agreement; provided, however, the exercise of this right by Seller shall
      not diminish Buyer's right or increase its obligations with respect to the
      Gas produced from the leases subject to this Agreement.

	 	 	 
		2.4.3 	
      The right to operate the lands, leases, and properties
      subject to this Agreement in a manner as Seller deems advisable, including
      the right to drill new Wells, to repair or rework old Wells, to renew in
      whole or in part any of the leases covered by this Agreement, and to
      abandon any Well or surrender, release or terminate any lease not deemed
      by Seller capable under normal methods of operation of producing in
      commercial quantities.

ARTICLE III 
TERM

Page 5

	 	3.1 	 This Agreement shall become effective as of the Effective
        Date when authorized representatives of Buyer and Seller have executed
        this Agreement.

	 	 	 
	 	3.2 	 Unless sooner terminated as provided for under Section
        3.3 or pursuant to other provisions of this Agreement, this Agreement
        shall remain in force for a period of five (5) years from the Effective
        Date (the “Primary Term”). Following expiration of the Primary
        Term, this Agreement shall be automatically extended, without any action
        by either Party, for successive additional terms of one calendar year
        (an “Extended Term”) unless this Agreement is canceled by either
        Party by written notice given at least 90 Days before the end of the Primary
        Term or any Extended Term.

	 	 	 
	 	3.3 	 If the Average Daily Delivered Quantity is less than
        300,000 SCFD, Buyer shall send Seller written notice of the shortfall,
        giving Seller at least 180 Days to cure the deficiency. If, after the
        180-Day period expires, the Average Daily Delivered Quantity is still
        less than 300,000 SCFD, then in addition to the remedies available to
        Buyer under Section 6.3 of this Agreement, Buyer may terminate this Agreement
        on 90 Days’ written notice to Seller.

	 	 	 
	 	3.4 	 The rights and obligations of either Party with respect
        to arbitration, audit and document retention, Section 3.5, Article XII,
        Section 21.7, confidentiality, the obligations to make payment hereunder,
        and the obligation of either Party to indemnify the other under this Agreement
        shall survive the termination of this Agreement.

	 	 	 
	 	3.5 	 Seller expressly agrees that, upon expiration or termination
        of this Agreement, Buyer or Buyer’s designee may cease taking Gas
        from Seller’s wells or leases, may disconnect any Gas Metering Equipment
        at the Delivery Point, and may disconnect all of the pipe, fittings, valves,
        and equipment connecting the Gathering System to the Delivery Point(s)
        or any pipeline connected to Seller’s wells or leases. Seller hereby
        consents in writing for itself and on behalf of any producer or lease
        interest owner (with written authority provided by such producer or lease
        interest owner), to this disconnection and cessation of takes for purposes
        of Railroad Commission of Texas Statewide Rule 73 (16 Tex. Admin. Code
        Part 1, Ch. 3, Sec. 3.73) or any similar Federal or State Law or Regulation.

ARTICLE IV 
QUALITY

	 	4.1 	 Seller shall deliver to Buyer Gas that is of merchantable
        quality with no free water, hazardous substances, bacteria, or other objectionable
        gases, liquids, and/or solids, except as provided below. Seller shall
        be liable for all costs and/or damages caused by delivery of any or all
        objectionable substances. The Gas shall (a) be free of oxygen; (b) contain
        not more than four (4) grains of total sulfur and not more than one-quarter
        (0.25) grain of hydrogen sulfide per one hundred (100) cubic feet of Gas;
        (c) contain not more than two percent (2%) by volume of carbon dioxide;
        (d) not more than two percent (2%) nitrogen; and (e) have a saturated
        (wet) heating value of not less than one thousand and fifty (1050) Btu
        per cubic foot. The Gas delivered shall be at temperatures not greater
        than one hundred twenty degrees (120o) Fahrenheit, nor less than
        forty degrees (40o) Fahrenheit.

	 	 	 
	 	4.2 	 If Seller’s Gas does not conform to the specifications
        in Section 4.1 or is not interchangeable with Buyer’s Gas downstream
        of the Plant, Buyer will have the right to regulate or shut off entirely
        Seller’s Gas deliveries into the Gathering System until the problem
        is corrected by Seller and, in that event, Buyer shall not be liable to
        Seller for any damages or liabilities in connection with Buyer exercising
        its remedy under this Section 4.2. If Buyer accepts delivery of Gas not
        conforming to the specifications contained in Section 4.1, Buyer may charge
        Seller a blending or treating fee, as determined by mutual agreement between
        Seller and Buyer, in consideration of its willingness to accept Gas that
        does not conform to these specifications. Buyer’s acceptance of Gas
        that does not satisfy the specifications in Section 4.1 shall not be deemed
        a waiver of the right to require future deliveries to conform to those
        specifications. In the event that Buyer refuses to accept any or all of
        Seller’s Gas under this Article IV and the parties are unable to
        reach agreement on a blending or treating fee for the continued receipt
        of Gas hereunder, then Seller shall have the right to exclude from Exhibit
        A the Gas wells producing Gas that does not satisfy the specifications

Page 6

	 	listed in Section 4.1, and Seller shall have no further obligations
      to Buyer under this Agreement with respect to such wells. 

ARTICLE V
MONTHLY NOTICES, NOMINATIONS,
IMBALANCES

	 	5.1.    	 At least 3 Business Days before the beginning of each
        Month, (a) Buyer shall notify Seller of the following for the next Month:
        (1) the Market Hub; (2) the Residue Gas Transportation Costs; (3) the
        Raw Mix Transportation Costs; and (4) the Fractionation Fee, and (b) Seller
        shall notify Buyer of the following: (1) the DCQ; (2) the percentage of
        Residue Gas (if any) to be taken in-kind by Seller, as described in Section
        6.2; (3) the GDM Volume, and (4) volume of Residue Gas Seller elects to
        price as an I-FERC Volume for that Month (“Elected I-FERC Volume”).
        Buyer shall send Seller written confirmation of the Monthly elections
        made under this Section 5.1 using a form substantially similar to Exhibit
        B, attached to this Agreement. In selecting the Market Hub, Buyer will
        consider various commercial elements that affect the Gas Proceeds, including
        but not limited to the availability of transportation capacity to the
        relevant Market Hub and the transportation costs to deliver the Residue
        Gas to the various Market Hubs. The selection each Month of a Market Hub
        is for the sole purpose of calculating the payment to be made to Seller
        under Section 8.2. Buyer shall not be obligated to sell Residue Gas into
        that Market Hub.

	 	 	 
	 	5.2.	 Buyer and Seller shall use commercially reasonable efforts
        to avoid imposition of penalties by transporters for any reason, including
        but not limited to imbalances, improper scheduling, failure to schedule,
        overrun charges, violation of orders or directives issued by the transporter,
        or any other reason. If during any Month Buyer or Seller receives an invoice
        from a transporter that includes any penalties, both Parties shall use
        commercially reasonable efforts to determine the validity, as well as
        the cause, of the penalties.

	 	 	 
	 	5.3. 	 If the Parties determine that the transporter penalties
        were imposed because of Seller’s actions or inactions (which include,
        but are not limited to, Seller’s failure to deliver a quantity of
        Gas equal to Seller’s nomination), then Seller is solely responsible
        for and must pay the penalties and defend, indemnify and hold harmless
        Buyer. To the extent the Parties determine that the penalties were imposed
        because of Buyer’s actions or inactions (which include, but are not
        limited to, Buyer’s failure to take a quantity of Gas equal to Buyer’s
        nomination), then Buyer is solely responsible for and must pay the penalties
        and defend, indemnify and hold harmless Seller.

ARTICLE VI
OBLIGATIONS TO DELIVER AND RECEIVE
GAS; QUANTITY; TITLE

	 	 6.1.	 Seller will sell and deliver at the Delivery Point,
        and Buyer will purchase and receive at the Delivery Point, Gas produced
        from the Leases on a Firm basis, in an amount equal to Daily Contract
        Quantity. Buyer and Seller may also agree to a Daily Contract Quantity
        that exceeds the Daily Processing Capacity Commitment to the extent there
        is both (a) capacity on the Gathering System and (b) the Plant has unused
        Processing capacity available and Buyer can arrange to use the Plant’s
        available Processing capacity.

	 	 	 
	 	6.2. 	 When the quantity of Seller-attributable Residue Gas
        delivered at the Residue Gas Delivery Point is sustained at an average
        of 2 MMBtu per Day for thirty (30) consecutive Days, and for so long as
        Seller maintains this minimum average requirement of 2 MMBtu per Day of
        Seller-attributable Residue Gas delivered at the Residue Gas Delivery
        Point, then Seller may elect to receive Residue Gas in-kind at the Residue
        Gas Delivery Point in an amount up to a total of one hundred percent (100%)
        of the total Residue Gas attributable to Seller. If the conditions precedent
        in this Section 6.2 are satisfied, then to receive Residue Gas in-kind,
        Seller shall give notice to Buyer at least 10 Business Days before the
        beginning of the Month in which Seller is to receive delivery of the in-kind
        Residue Gas. If Seller fails to maintain the conditions precedent in this
        Section 6.2 over any thirty (30) consecutive Day period, then Seller shall
        be required to satisfy the conditions precedent in this Section 6.2 for
        a new thirty (30) consecutive Day period, starting from the date Seller
        failed to satisfy these conditions precedent. In its notice under this
        Section 6.2, Seller shall also designate what percentage of the Seller-attributable
        Residue Gas delivered at the Residue Gas Delivery Point that Seller will
        take in-kind. If Seller elects to exercise its delivery option under this

Page 7

	 		
      Section 6.2, Buyer shall deliver to Seller in-kind
      Residue Gas in accordance with Seller’s instructions. Buyer shall retain
      title to all other Residue Gas, including three percent (3%) of the
      Residue Gas attributable to Seller. Payment to Seller for Residue Gas
      shall exclude any volumes taken in-kind by Seller; provided, however, that
      Buyer shall deduct all applicable fees and costs incurred in connection
      with the Residue Gas volumes taken in-kind by the Seller.

	 	 	 
	 	6.3 	
      Seller warrants that it has good title to the Gas sold
      and delivered, that Seller has the right to sell the Gas, and that the Gas
      will be free and clear of all claims, liens, and other encumbrances.
      Seller will arrange and pay for all necessary transportation services to
      transport the Gas to the Delivery Point. Title to and possession of Gas
      transfers from Seller to Buyer at the Delivery Point. Buyer will be
      responsible for transportation after the Delivery Point, unless otherwise
      specified under this Agreement.

  ARTICLE VII

  RAW MIX AND RESIDUE GAS ALLOCATION

  

	 	7.1 	 Upon Buyer’s receipt from the Plant of an allocation
        of Residue Gas and Raw Mix, Buyer shall use the Plant allocation to further
        allocate Residue Gas and Raw Mix to Seller based on Seller’s relative
        theoretical production as compared to the total theoretical production
        being delivered into the Gathering System. Seller acknowledges that Buyer
        is purchasing Gas via the Gathering System from other Gas sellers. Per
        industry standards, Buyer shall receive a Residue Gas allocation and a
        Raw Mix allocation from the Plant, based on the contents of the combined
        Gas stream Buyer delivers at the Plant Inlet. Starting from the Plant’s
        allocations of Residue Gas and Raw Mix, Buyer shall further allocate Residue
        Gas and Raw Mix to Seller based on the total theoretical Raw Mix Component
        content of the Gas delivered by each seller at its respective Delivery
        Point during that Month.

ARTICLE VIII
CALCULATION OF MONTHLY PAYMENTS TO
SELLER

	 	8.1 	
      For Gas delivered by Seller to Buyer at the Delivery
      Point each Month, Buyer shall pay Seller the sum of the Residue Gas
      Payment and the Raw Mix Component Payment, calculated as
  follows:

	 	8.2	  Residue Gas Payment =
        [***]

	 	 	 	 	 
	 	 	 	 	 
	 	 	8.2.1	 [***]	 
	 	 	 	 	 
	 	 	 	8.2.1.1	[***]
	 	 	 	 	 
	 	 	 	8.2.1.2	[***]

*** CERTAIN INFORMATION ON THIS PAGE HAS BEEN
  OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
  CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO SUCH OMITTED PORTIONS.

Page 8

 

	 	8.3	  Raw Mix Component Payment
        = [***].

	 	 	 	 	 
	 	 	 	WHERE:	 
	 	 	 	 	 
	 	 	 	 [***]	 
	 	 	 	 	 
	 	 	 	[***]	 
	 	 	 	 	 
	 	 	 	[***]	 
	 	 	 	 	 
	 	8.4	[***]	 	 
	 	 	 	 	 
	 	8.5	[***]	 	 

ARTICLE IX 
TAXES

	 	9.1 	
      Seller will pay, or cause to be paid, all royalties,
      Taxes and other sums due on production, gathering, severance, or handling
      of the Gas before and at the Delivery Point. Seller will indemnify and
      save Buyer harmless against all loss, damage and expense of every
      character on account of adverse claims to the Gas delivered by it, or on
      account of royalties, Taxes, payments, or other charges thereon applicable
      before delivery of the Gas to Buyer or for any other Taxes or charges for
      Seller’s account under this Section.

	 	 	 
	 	9.2 	
      If Buyer is required to remit any of Seller’s Taxes, that
      amount will be deducted from any amounts payable to Seller under this
      Agreement. If either Party pays Taxes, royalties, or other sums rightfully
      paid by the other Party under this Agreement, the non-paying Party shall
      promptly reimburse the paying Party for the amount paid. If the a Party is
      exempt from any Taxes, that Party shall, upon request, deliver copies of
      exemption certificates to the other Party within thirty (30) Days of the
      other Party’s request.

ARTICLE X
BILLING, NETTING, AND
PAYMENT

	 	10.1. 	
      Each Month, for Gas received in the preceding Month, upon
      receipt of the Plant allocation Buyer shall perform applicable Gathering
      System allocations, after which Buyer shall provide to Seller a statement
      showing (i) the GDM Volume for each Day of the Month; (ii) GDM Price for
      each Day of the Month; (iii) the I- FERC Volume (if any); (iv) the I-FERC
      Price; (v) the volume of Residue Gas delivered in-kind to Seller, based on
      distribution instructions received from Seller pursuant to Section 6.2;
      (vi) Residue Gas Transportation Costs; (vii) Gathering and Processing
      Fees; (viii) Raw Mix Components allocated to Seller’s Gas; (ix) Raw Mix
      Component Prices; (x) Fractionation Fees; (xi) Raw Mix Transportation
      Costs; and (xii) adjustments under Section 21.2 (if any). Buyer shall
      deliver supporting documentation acceptable in industry practice to
      support the amount charged and the various costs listed in this
      Section.

*** CERTAIN INFORMATION ON THIS PAGE HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO SUCH OMITTED
PORTIONS.

Page 9

	 	10.2. 	
      Buyer shall remit the amount due under Section 10.1 by
      wire transfer, in immediately available funds, on or before the Payment
      Date; provided that if the Payment Date is not a Business Day, payment is
      due on the next Business Day following that date and, provided further,
      that payment shall be made no later than the tenth day after Buyer
      receives the processing plant allocation from the processing plant
      operator. If payments are owed to Buyer under this Agreement, Buyer shall
      net amounts owed and otherwise pay Seller on or before the Payment Date
      and as otherwise provided under Article X of the Agreement. Buyer’s
      payment under Section 10.2 shall be based on actual Gas delivery data if
      that data is available to Buyer. If Buyer does not have the actual Gas
      delivery data to calculate the amount due under Section 10.1, Buyer will
      remit payment on or before the Payment Date based on the estimated Gas
      delivery data. If Buyer’s payment to Seller is based on estimated Gas
      delivery data, as soon as reasonably possible after the Payment Date Buyer
      will deliver to Seller an updated invoice based on actual Gas delivery
      data. Any payment adjustment owed by Buyer or Seller, based on the
      difference between the estimated Gas delivery data and the actual Gas
      delivery data, shall be included in the following Month’s
  invoice.

	 	 	 
	 	10.3. 	
      If the Party that owes money under this Agreement, in
      good faith, disputes the amount of any such invoice or any part thereof,
      that Party will pay the amount it concedes to be correct; provided,
      however, if the invoiced Party disputes the amount due, it must provide
      supporting documentation acceptable in industry practice to support the
      amount paid or disputed. If the Parties cannot resolve such dispute,
      either Party may institute arbitration as provided in Article XVIII of
      this Agreement.

	 	 	 
	 	10.4. 	
      If the Party that owes money under this Agreement fails
      to remit the full amount payable when due, interest on the unpaid portion
      shall accrue from the date due until the date of payment at a rate equal
      to the lower of (i) the then- effective prime rate of interest published
      under “Money Rates” by The Wall Street Journal, plus two percent per
      annum; or (ii) the maximum applicable lawful interest rate.

	 	 	 
	 	10.5. 	
      The Parties shall net all undisputed amounts due and
      owing, and/or past due, arising under this Agreement such that the Party
      owing the greater amount shall make a single payment of the net amount to
      the other Party in accordance with Article X; provided that the Parties
      shall not net payments under this Article X against adequate assurance
      held by the other Party. If the Parties have executed a separate netting
      agreement, the terms and conditions therein shall prevail to the extent
      inconsistent with this Agreement.

ARTICLE XI
PRESSURE AND MEASUREMENT

	 	11.1. 	 Seller shall deliver the Gas to the Delivery Point at
        a pressure sufficient to cause the Gas to enter the Gathering System’s
        facilities but not to exceed the Gathering System MAOP; provided, however,
        that Seller will not be obligated to deliver Gas at a pressure in excess
        of 850 lbs. psig.

	 	 	 
	 	11.2. 	 For measurement of the Gas volumes delivered under this
        Agreement, the Parties will rely on the measurement information provided
        by the Gas Metering Equipment at the Delivery Point.

	 	 	 
	 	11.3. 	 The accuracy of any Gas Metering Equipment or other
        equipment installed under Article II of this Agreement used to measure
        the volume of Gas delivered under this Agreement or otherwise shall be
        verified by test, using means and methods generally acceptable in the
        gas industry in accordance with the latest American Gas Association (AGA)
        standards, with tests performed at least twice a year or as otherwise
        mutually agreed to by the Parties, except in the event that the volume
        of Gas at any Delivery Point exceeds 2 million SCFD average flow rate
        for a period of thirty (30) consecutive days, then such testing shall
        be conducted once per calendar quarter. The Party requesting or requiring
        a test of metering equipment shall give the other Party (“Observing
        Party”) notice of the time and nature of each test at least twenty-four
        (24) hours prior to such test to permit convenient arrangement for the
        Observing Party’s representative to be present. If Observing Party
        has received at least twenty-four (24) hours notice of a test and is not
        present at the test, the results of such test shall be accepted by Observing
        Party without objection. If any of the measuring equipment is found to
        be registering inaccurately, said inaccuracies, if greater than 1%, shall
        be promptly corrected. All tests of such measuring equipment shall be
        made at the requesting Party’s expense.

Page 10

	 	11.4. 	 Upon request, Seller shall have access to
        the Gas Metering Equipment at all reasonable times, but calibration thereof
        shall be done only by Buyer. Buyer shall keep said metering equipment
        accurate in repair and shall test the orifice meter in service as provided
        in Paragraph 11.2 herein or upon request of Seller. If the results of
        a test requested by Seller are within one percent by volume high or low
        of the most recent previous test, such test shall be paid for by Seller;
        otherwise, such test shall be paid for by Buyer.

	 	 	 	 
	 	11.5. 	 The meter found on test to register
        not more than one percent by volume high or low shall be deemed to be
        correct as to past measurements but shall be corrected to record accurately.
        In the event the meter upon test proves to be more than one percent by
        volume high or low, adjustment shall be made for the Gas delivered during
        the period such meter was registering inaccurately, which period shall
        not exceed half of the time since the last test or forty-five (45) days,
        whichever is shorter. Seller or Seller’s nominee shall be entitled
        to install and operate at its own expense near the Delivery Point(s) such
        meter of standard type as shall enable Seller to check the volume of Gas
        delivered. If Seller exercises this right of installing and operating
        a check meter, then in the event of failure of Buyer’s Gas Metering
        Equipment to register accurately at any time, the registration of Seller’s
        check meter, if accurately indicating within the tolerances provided above,
        shall be used to determine the volume of Gas delivered to Buyer until
        such time as Buyer’s Gas Metering Equipment is adjusted, repaired,
        or replaced. If Seller’s meter is used for the purpose of determining
        the quantity and/or quality of Gas delivered to Buyer, Seller’s meter
        shall be tested at such time and upon the request of Buyer as hereinabove
        provided in the case of Buyer’s Gas Metering Equipment. If Buyer’s
        Gas Metering Equipment is out of repair or is being tested, or in the
        event that Buyer’s Gas Metering Equipment becomes inoperative and
        manifestly in error and Seller has not installed a check meter as herein
        provided, or if such check meter has been installed and fails to record
        accurately, then the volume of Gas delivered during the period Buyer’s
        Gas Metering Equipment was inoperative shall be determined upon the basis
        of the best data available, using one of the following methods:

	 	 
	 	
	 	 
	 	
	 	 	 	 
	 		
      11.5.1 
	By correcting the error if the percentage of error is ascertainable by
      calibration, test, or mathematical calculation.
	 	 	 	 
	 		
      11.5.2
	 By determining the volume delivered by reference
        to deliveries during the proceeding period under similar conditions when
        the meter was registering accurately.

	 	 	 	 
	 	11.6. 	
      The quantity of Gas sold and purchased hereunder
        shall be determined as follows:

	 	 	 	 
	 		
      11.6.1 
	The unit volume for the purpose of measurement shall be a Standard Cubic
      Foot of Gas.
	 	 	 	 
	 		
      11.6.2
	 The average absolute atmospheric (barometric) pressure
        shall be assumed to be 14.7 pounds per square inch irrespective of actual
        elevation or location of a Delivery Point above sea level or variations
        in actual barometric pressure from time to time.

	 	 	 	 
	 		
      11.6.3
	 An assumed flowing temperature of sixty degrees
        Fahrenheit (60°F), or, at Buyer’s option, the arithmetic average
        determined to the nearest one degree Fahrenheit of the temperatures recorded
        each day, or a fraction of such day if Gas is not delivered continuously
        during such day, shall be used in calculating the Gas volume. If for any
        reason Buyer’s recording thermometer is out of service, Seller’s
        recording thermometer, if one is installed and operative, shall be used
        in the calculation of the Gas volume.

	 	 	 	 
	 		
      11.6.4
	 The specific gravity of the Gas shall be determined
        by Buyer using a gravitometer, chromatographic analysis (per GPA Standard
        2261) or any other mutually agreeable equipment at least once each twelve-month
        period, or more often at Buyer’s option. The result of such determination
        shall be used in the computation of orifice meter measurements beginning
        the applicable Month of flow and continuing thereafter until the Month
        following of the next determination. The orifice coefficient shall be
        corrected for each 0.001 variation from one specific gravity.

Page 11

	 		11.6.5 	
      The deviation of the Gas from Boyle’s law shall be
      computed from supercompressibility factors for gas as stated in the latest
      publication of ANSI/API 2530-AGA Report No. 3 and any supplements thereto
      and modifications thereof as mutually agreed to by the parties.

	 	 	 	 
	 		11.6.6 	
      In determining the volume of Gas delivered through the
      orifice meter during a daily period, a mechanical orifice chart integrator
      shall be used in reading the meter charts. The sum of the extensions
      obtained from the reading or integration of the meter chart shall be
      multiplied by the orifice coefficients and other applicable factors to
      obtain the Gas volume for that chart. If Buyer elects to install
      electronic flow measurement, rather than use a mechanical orifice chart
      integrator, the flow computer shall be programmed with the applicable
      factors and shall be used in determining the volume of Gas delivered
      through the orifice meter on a real time basis. The flow computer shall be
      of standard manufacture as agreed to by both parties.

	 	 	 	 
	 		11.6.7 	
      Samples of Seller’s Gas will be obtained at least
      quarterly, or more often at Buyer’s option, and tested by chromatography
      or by such other methods as the parties may agree upon to determine the
      BTU and natural gas liquids content of Seller’s Gas. The sampling and
      analysis shall be performed per GPA Standards 2166 and 2261 respectively.
      Seller’s Gas, for the purposes of testing, will be assumed saturated with
      water vapor at the Delivery Point(s) but will be corrected, for the
      purposes of payment, to reflect the actual water vapor content of the
      Gas.

	 	 	 	 
	 	11.7. 	
      Seller and Buyer shall have the right to have
      representatives present at all times of any installing, reading, cleaning,
      changing, repairing, inspecting, calibration, or adjusting done in
      connection with the other’s metering equipment or for sampling or testing
      of Gas. Seller and Buyer shall each give the other reasonable notice prior
      to the time of all tests so that the other may conveniently have its
      representatives present. Measurement and testing records shall remain the
      property of their owner, but upon request, each party shall submit to the
      other its records and charts, together with calculations therefrom, for
      inspection and verification, subject to return within thirty (30) days
      after receipt thereof. Each party shall preserve for the use of both
      parties for a period of two years, all test data, charts, and other
      similar records pertaining to the sale and purchase of
  Gas.

ARTICLE XII 
DEFAULT

	 	12.1 	
      An Event of Default shall be deemed to occur when (a)
      either Party fails to make payment when due under this Agreement which is
      not cured within two Business Days of receiving Notice from the other
      Party provided that the two-Business-Day curative period shall be tolled
      with respect to any amount which is disputed in good faith; (b) either
      Party fails to perform or repudiates any material obligation to the other
      Party under this Agreement or breaches any representation, covenant or
      warranty in any material respect under this Agreement that, if capable of
      being cured, is not cured to the satisfaction of the other Party in its
      sole discretion, within thirty (30) Business Days from Notice to that
      Party that corrective action is needed provided that the
      thirty-Business-Day curative period shall be tolled with respect to any
      claim of default under this clause “(b)” which is being disputed in good
      faith; (c) either Party is dissolved, becomes insolvent, is unable to pay
      its debts, makes a general assignment for the benefit of creditors,
      institutes or has instituted against it a bankruptcy proceeding, has a
      resolution passed for winding up or liquidation other than pursuant to a
      consolidation, amalgamation or merger, seeks or becomes subject to the
      appointment of a trustee or similar official, has a secured party take
      possession of substantially all of its assets or takes any other action or
      is subject to any other action similar to the foregoing.

	 	 	 
	 	12.2 	
      Upon the occurrence of an Event of Default with respect
      to either Party (the “Defaulting Party”) the other Party (the
      “Non-Defaulting Party”) may, in its sole discretion and upon one Business
      Day’s written Notice to the Defaulting Party, immediately (i) suspend its
      performance under this Agreement and withhold any payment due the
      Defaulting Party under this Agreement, (ii) terminate and liquidate this
      Agreement, and (iii) calculate the termination amount owed by one Party to
      the other by determining the gains and losses under this Agreement as of
      the termination date and aggregating those amounts, together with any
      unpaid amounts, breakage costs and interest owed under this Agreement, to
      arrive at a net amount owed by one Party to the other; provided that the
      right to exercise the remedies under clauses “(ii)” and “(iii)”
      preceding

Page 12

	 		
      shall be tolled during any period in which the existence
      of an Event of Default is being disputed in good faith; and provided
      further that, during the period of any suspension under clause “(i)”
      preceding, the Seller may sell Gas to others, and the Buyer may buy Gas
      from others, without, in either case, such action being deemed a default
      hereunder or an admission against interest. The Non-Defaulting Party shall
      provide the Defaulting Party with a statement showing in reasonable detail
      the calculation of the termination amount. The Party owing the termination
      amount shall pay that amount to the other Party within 10 Days of Non-
      Defaulting Party’s delivery of the statement calculating the termination
      amount.

	 	 	 
	 	12.3 	
      The Non-Defaulting Party’s rights under this Article XII
      shall be in addition to, and not in limitation or exclusion of, any other
      rights of setoff, recoupment, combination of accounts, lien or other right
      which it may have, whether by agreement, operation of law or otherwise. No
      delay or failure on the part of the Non-Defaulting Party to exercise any
      right or remedy shall waive that right or remedy, and the Non- Defaulting
      Party shall be entitled to exercise that right or remedy at any time after
      an Event of Default has occurred. The Defaulting Party shall reimburse the
      Non-Defaulting Party for its costs and expenses, including reasonable
      attorneys’ fees, incurred in connection with the enforcement of, or
      collecting any amounts payable to it under, this Agreement.

	 	 	 
	 	12.4 	
      The Parties agree that each Party to this Agreement is a
      Forward Contract Merchant and that this Agreement and the transactions
      under this Agreement are Forward Contracts. The Parties further agree that
      each will have all benefits and rights of a Forward Contract Merchant
      under the United States Bankruptcy Code in connection with the
      transactions under this Agreement.

	 	 
	 	

ARTICLE XIII 

  FORCE MAJEURE

	 	13.1. 	 To the extent a Force Majeure event renders a Party
        unable to carry out in whole or in part its obligations under this Agreement,
        and the Party declaring Force Majeure (the “Affected Party”)
        gives notice to the other Party (the “Other Party”) and to the
        Gathering System as soon as reasonably practicable after the Force Majeure
        event occurs, then (i) except for the obligation to make payments due
        for periods before the Force Majeure event, and (ii) except that during
        a Force Majeure interruption, the Affected Party is responsible for any
        imbalance charges related to such interruption until the applicable Transporter
        is notified and has confirmed the change in deliveries or receipt, neither
        Party is liable for any failure to perform the terms of this Agreement,
        provided such interruption shall be remedied with reasonable dispatch
        if it is commercially reasonable to do so. The obligations of the Parties
        affected by the Force Majeure will be suspended from the commencement
        of the Force Majeure event until the Affected Party remedies the Force
        Majeure event and the Affected Party is able to resume performance. The
        Force Majeure will be remedied as soon as reasonably possible if it is
        commercially reasonable to do so. The Affected Party must give notice
        as soon as possible after the Force Majeure event is remedied, stating
        that the event has been remedied and that the Affected Party has resumed
        or is then in a position to resume the performance of its obligations
        if it is commercially reasonable to do so. If the Affected Party fails
        to remedy the Force Majeure event with reasonable dispatch during the
        thirty (30) day period following the declaration notice of such event,
        then for as long as the Force Majeure event is continuing, the Other Party
        shall have the right, with five (5) days prior written notice, to take
        the following actions: (1) if Buyer is the Affected Party, Seller may
        negotiate with third parties to purchase Seller’s Gas from the Lease(s)
        and sell Gas to such third parties, and Buyer agrees to continue purchase
        Gas under the terms of this Agreement until the new purchaser’s pipeline
        connection for Seller’s Gas is established; and (2) if Seller is
        the Affected Party, Buyer may negotiate to purchase alternate Gas supplies
        from third parties for delivery into the Gathering System. When the Affected
        Party gives notice that it can resume performance of its obligations under
        this Agreement, if the Other Party has executed agreements in place with
        third parties that affect Gas deliveries previously covered by this Agreement,
        then the obligations under this Agreement shall be secondary to those
        agreements executed by the Other Party during the Force Majeure Event.

	 	 	 
	 	13.2. 	 The term “Force Majeure” as employed in this
        Agreement shall mean acts of God, acts of the public enemy, wars, blockades,
        insurrections, strikes or differences with workmen, riots, disorders,
        epidemics, landslides, mudslides, lightning, earthquakes, hurricanes,
        threats of hurricanes, fires, winds, storms, floods, washouts, arrests
        and restraints, civil disturbances, sabotage, terrorism, explosions, breakage
        or accident to

Page 13

		 	 machinery, wells, or lines of pipe, freezing of wells,
        lines of pipe or machinery, requisitions, directives, diversions, embargoes,
        priorities, expropriations of government or governmental authorities,
        legal or de facto, whether purporting to act under some constitution,
        decree, law or otherwise, failure of the Plant, delivery, or residue pipeline
        or tailgate carriers to gather, process, or transport or furnish facilities
        for gathering, processing, or transportation from the Delivery Point,
        the Residue Gas Delivery Point, or the Raw Mix Delivery Point, rules and
        regulations with regard to transportation by common carriers, failures,
        disruptions, or breakdowns of machinery or of facilities of production,
        manufacture, transportation, distribution and consumption, and without
        limitation by enumeration, any other cause or causes, whether of the kind
        enumerated or otherwise, not reasonably within the control of the Party
        claiming suspension. Normal and Routine Maintenance is not Force Majeure.

	 	 	 
	 	13.3. 	 The settlement of strikes or lockouts or industrial
        disputes or disturbances is entirely within the discretion of the Party
        declaring Force Majeure, and that Party will not be required to settle
        the strikes, lockouts, or industrial disputes or disturbances by acceding
        to the demands of any opposing party when such course is inadvisable in
        the discretion of the Party declaring the Force Majeure.

ARTICLE XIV 
INDEMNIFICATION

	 	14.1 	 In addition to the indemnities provided under Article
        IX, Seller agrees to indemnify Buyer and save it harmless from all losses,
        liabilities or claims including reasonable attorneys’ fees and costs
        of court (“Claims”), from any and all Persons, arising from
        or out of claims of title, personal injury or property damage from the
        Gas or other charges thereon which attach before title passes to Buyer.
        In addition to the indemnities provided under Article IX, Buyer agrees
        to indemnify Seller and save it harmless from all Claims, from any and
        all Persons, arising from or out of claims regarding payment, personal
        injury or property damage from the Gas or other charges thereon which
        attach after title passes to Buyer. 

	 	 	 
	 	14.2 	 Seller shall account to and pay to its lessors and royalty
        owners their share of proceeds, if any, derived from this Agreement. LDGD
        assumes no liability of any kind for the payments to Seller’s lessors
        or royalty owners due from the proceeds derived from this Agreement or
        the separation of condensate hereunder. After receiving distribution instructions
        from Seller, LDGD shall deliver in kind portions of Residue Gas to Seller,
        and Seller shall defend, indemnify, and hold LDGD harmless against any
        and all claims, demands, causes of action of any kind, together with all
        loss, damage and expense (including court costs and attorneys’ fees)
        arising out of the payments made or to be made by Seller to the lessors
        and/or royalty owners.

ARTICLE XV 

  CREDIT

	 	15.1 	 During the term of this Agreement, if either Party (“Requesting
        Party”) has reasonable grounds to believe that the creditworthiness
        or performance of the other Party (“Non-Requesting Party”) has
        become unsatisfactory, then the Requesting Party will send the Non-Requesting
        Party Notice requesting adequate assurances from the Non-Requesting Party
        in an amount determined by the Requesting Party in a commercially reasonable
        manner (“Request for Assurance”). Adequate assurance includes,
        without limitation, the following: (i) an irrevocable letter of credit
        in form and substance acceptable to the Requesting Party, (ii) a corporate
        guaranty provided by a creditworthy Person acceptable to the Requesting
        Party, or (iii) cash or prepayment in immediately available U.S. dollars.
        Upon receipt of the Request for Assurance, the Non-Requesting Party will
        have until the close of business on the second Day after receiving the
        Request for Assurance, but in no event less than 1 Business Day to deliver
        the adequate assurance to the Requesting Party. If the Non-Requesting
        Party fails to deliver the adequate assurance within the time permitted
        under this Article XV, then the Requesting Party may, at its sole option,
        effective as of the date specified by Requesting Party in its subsequent
        Notice, suspend delivery or receipt of Gas. If the Non-Requesting Party
        satisfies the Requesting Party’s Request for Assurance and does so
        within the time frame written above, the Requesting Party will continue
        its performance under this Agreement without interruption. If the Requesting
        Party suspends its performance as allowed under this Article XV and Non-
        Requesting Party later delivers adequate assurance, Requesting Party shall
        resume performance under this

Page 14

	 	Agreement not more than two
        Days after receiving the adequate assurance. The Requesting Party also
        is entitled to pursue any other remedy provided under this Agreement or
        available at law or in equity. 

ARTICLE XVI

  NOTICES, AUDIT RIGHTS, AND CONFIDENTIALITY

	 	16.1 	
      All invoices, payments and other communications made
      under this Agreement (“Notices”) shall be made to the addresses specified
      in writing by the respective Parties from time to time.

	 	 	 
	 	16.2 	
      All Notices required under this Agreement may be sent by
      facsimile or mutually acceptable electronic means, a nationally recognized
      overnight courier service, first class mail postage prepaid, or hand
      delivery.

	 	 	 
	 	16.3 	
      Notice is effective when received on a Business Day by
      the addressee. In the absence of proof of the actual receipt date, the
      following presumptions will apply. Notices sent by facsimile shall be
      deemed received when the sending Party’s receives a confirmation from its
      facsimile machine indicating the transmission was successfully completed.
      If the Day on which the facsimile is received is not a Business Day, or
      the facsimile is received after five p.m. (local time for receiving Party)
      on a Business Day, then the facsimile shall be deemed received on the next
      following Business Day. Notice by overnight mail or courier shall be
      deemed received on the next Business Day after it was sent or such earlier
      time as is confirmed by the receiving Party. Notice via first class mail
      shall be considered delivered five Business Days after mailing.

	 	 	 
	 	16.4 	
      Unless changed by either Party by providing written
      Notice, each Party’s Notice and other information is as
  follows:

	 	Administrative and Operational Notices: 	  
	 	  	  
	 	Louis Dreyfus Gas Development L.P. 	Terax Energy, Inc. 
	 	13430 Northwest Freeway, Suite 1200 	13355 Noel Road, Suite 1370 
	 	Houston, Texas 77040 	Dallas, Texas 75240 
	 	Attention: Greg Bowles 	Attention: Richard Binz 
	 	Facsimile: 281-378-1152 	Facsimile: 972-503-0901 
	 	  	  
	 	With a copy of any legal notices sent to: 	  
	 	  	  
	 	Louis Dreyfus Gas Development L.P. 	  
	 	20 Westport Road 	  
	 	Wilton, Connecticut 06897 	  
	 	Attention: Legal Department 	  
	 	Facsimile: 203-761-8321 	  
	 	  	  
	 	Invoices and Payments: 	  
	 	  	  
	 	Louis Dreyfus Gas Development L.P. 	Terax Energy, Inc. 
	 	20 Westport Road 	13355 Noel Road, Suite 1370 
	 	Wilton, Connecticut 06897 	Dallas, Texas 75240 
	 	Attention: Operations Department 	Attention: Revenue Accounting 
	 	Facsimile: 203-761-8478 	Facsimile: 972-503-0901 
	 	  	  
	 	Wire Transfer Instructions: 	  
	 	  	  
	 	Louis Dreyfus Gas Development L.P. 	Terax Energy, Inc. 
	 	Bank: HSBC Bank USA 	Bank: Bank of America 
	 	ABA: 021-001-088 	ABA: 026009593 
	 	Acct: 000-144-967 	Acct: 004784900891 

Page 15

	16.5 	 LDGD and Seller shall each preserve all records
        applicable to this Agreement, including tests and measurement data and
        charts, for a period of two years after the Month of Gas delivery, or
        such longer periods as shall be required under law or regulation. Each
        Party shall have the right at mutually agreeable business hours to examine
        books, records and charts to the extent necessary to verify the accuracy
        of any allocation or measurement of Gas, statement, charge, or computation
        made under this Agreement.

	 	 	 
		16.5.1 	 Each Party recognizes and acknowledges the other Party’s
        proprietary interest in this Agreement and both Parties agree not to divulge
        any findings resulting from and audit of this Agreement to any Person,
        firm, corporation or other entity, other than a Party’s officers,
        directors, affiliates, agents, attorneys, consultants and any Persons
        identified by a Party in connection with an audit except for disclosures
        necessary to enforce the terms of this Agreement. Each Party shall (i)
        enforce the confidentiality of the audit and this Agreement, (ii) take
        action as necessary to prevent any disclosure not authorized under this
        Agreement, and (iii) subject to Section 20.1, indemnify the other Party
        for any breach of confidentiality.

	 	 	 
	 	16.5.2 	Any audit or examination under this Agreement shall be performed by the
      Parties’ employees; provided, however, either Party may use third party
      agents or third party consultants to conduct the audit or examination.
	 	 	 
	16.6 	LDGD, Seller,
        and their respective employees, agents, officers, directors, affiliates
        and attorneys agree to keep the terms and provisions of this Agreement
        confidential. Nonetheless, either Party may disclose the terms of this
        Agreement, without prior permission of the other Party, to the following
        Persons in the following circumstances: (a) royalty owners for reasons
        indicated in the applicable lease agreement; (b) potential or existing
        sources of funding requiring such disclosure; (c) regulatory bodies, including
        taxing authorities with jurisdiction over part or all of the subject matter
        of this Agreement, and to the other Persons to whom disclosure is required
        by such regulatory bodies; (d) courts or other tribunals having jurisdiction
        and requiring such disclosure, and to the other Persons to whom disclosure
        is required by such courts or other tribunals; (e) independent certified
        public accountants for purposes of obtaining a financial audit; and (f)
        as required by subpoena or other legal discovery processes.

		 	  

	16.7 	Before making
        disclosure to any Person listed above, the Party shall obtain that Person’s
        agreement to be bound by the same burdens of confidentiality to the extent
        the Parties can make such a legal requirement on the third party. If the
        third party cannot legally agree to be bound by the confidentiality obligations
        in this Agreement, then the Party disclosing information under this Agreement
        shall provide the other Party with prior Notice of such disclosure.

ARTICLE XVII 
REGULATORY

	17.1 	 The sale and delivery
        of Gas by Seller and the purchase and receipt of Gas by Buyer, including
        the production and transportation of Gas, are subject to all valid legislation
        and to all valid present and future orders, rules and regulations of duly
        constituted authorities having jurisdiction. Seller will be responsible
        for obtaining and maintaining all regulatory authorizations and permits
        required for its performance obligations hereunder and Buyer will be responsible
        for obtaining and maintaining all regulatory authorizations and permits
        required for its performance hereunder.

	 	 	 
	17.2 	 If there is a
        change in law, administrative regulation, or any fees or costs imposed
        by any regulatory agency or governmental authority and such change causes
        Seller or Buyer to incur any additional capital, operating or other costs
        associated with providing the services contemplated in this Agreement,
        in order to maintain the same level and quantity of delivery of Gas, the
        Parties shall meet as soon as practicable to attempt to renegotiate the
        Agreement to comply with such change. Provided that, in the event such
        a change in law renders performance under this Agreement illegal, the
        Parties shall meet as soon as practicable to attempt to renegotiate the
        Agreement to comply with such change. If the Parties are unable to amend
        the Agreement, the Parties’ obligations hereunder shall terminate
        upon the earlier of the date the change in law becomes effective or on
        the date Buyer commences service with an alternate supplier of Gas.

Page 16

ARTICLE XVIII
DISPUTE RESOLUTION

	18.1 	 Any dispute or claim arising out of or relating to this
        Contract, or a breach thereof (“Dispute”), shall be decided
        by final and binding arbitration in Houston before three arbitrators.
        The arbitration shall be administered by the American Arbitration Association
        (“AAA”) in accordance with the United States Arbitration Act
        (“Act”) and the AAA’s Commercial Arbitration Rules (“Rules”).
        If there is a conflict between the provisions of this Article XVIII and
        the provisions of the Act or the Rules, the provisions of this Article
        XVIII shall prevail. If there is a conflict between the Act and the Rules,
        the provisions of the Act shall prevail. Either Party may notify the other
        that the Dispute is to be resolved pursuant to this Article XVIII, and
        in that notice name one arbitrator selected by it. Within 15 days of receiving
        this notice, the other Party shall select an arbitrator and notify the
        Party which initiated the arbitration of the name of its arbitrator. Within
        15 days after notice is given of the appointment of the second arbitrator,
        the two arbitrators selected shall select a third arbitrator. If either
        Party fails to appoint an arbitrator or the Party-appointed arbitrators
        fail to appoint the third arbitrator within the prescribed 15 day periods
        then, on reasonable notice to the other Party, either Party may ask the
        AAA to appoint the arbitrators within 15 days of making the request, with
        due regard for the selection criteria in this Article XVIII. The arbitrators
        selected to act under this Article XVIII shall be qualified by education,
        experience or training to render a decision upon the issues of the Dispute.

	 	 
	18.2 	 The arbitrators promptly shall hear and determine (after
        giving the parties due notice of hearing and reasonable opportunity to
        be heard) the issues submitted to them and shall render their decision
        within 60 days after they have notified the parties that the arbitration
        hearings have been closed or, if oral hearings have been waived, from
        the date of the AAA’s transmittal of the Parties’ final statements
        and proofs to the arbitrators. Pending the final decision of the arbitrators,
        both Parties shall proceed diligently with performance of all obligations
        under this Contract, including the payment of all sums not in dispute.
        Notwithstanding the foregoing, the Parties reserve the right to apply
        to any court of competent jurisdiction for the purpose of enforcing the
        provisions of this Article XVIII or obtaining security or other provisional
        relief to satisfy or effectuate an eventual arbitration award, including
        without limitation attachment and injunctive relief. The commencement
        of any such action shall not constitute a waiver of the right to arbitration
        nor shall it prejudice in any way the right to proceed to arbitration.

	 	 
	18.3 	 The arbitrators shall render their decision and the
        reasons therefor in writing. The decision of a majority of the arbitrators
        shall be final and binding upon the Parties without appeal to the courts.
        Judgment may be rendered upon such decision in a court of competent jurisdiction.
        The arbitrators are not empowered to render any award other than monetary
        damages or to award damages inconsistent with the provisions of this Agreement
        or in excess of compensatory damages, and each Party waives its right,
        if any, to recover any damages in excess of those provided for under this
        Agreement. Each Party shall bear the costs and expenses of its own arbitrator,
        attorneys and witnesses, and the Parties shall share equally the costs
        of the third arbitrator and any hearing expenses. In determining any matter
        submitted to arbitration, the arbitrators shall apply the governing law
        of this Agreement.

ARTICLE XIX
EXPANSION TO COVER ADDITIONAL
LEASES

	19.1 	 Buyer shall pay to connect the Gathering System to the
        first two Lease Common Points designated by Seller, after which Seller
        shall reimburse Buyer the actual cost for the construction of connections
        between the Gathering System and any additional Lease Common Points. For
        the purposes of calculating the Average Daily Delivered Quantity, Buyer
        shall combine the Gas volumes delivered at each Lease Common Point.

	 	 
	19.2 	 Seller shall deliver Gas under this Agreement only from
        the Seller Leases listed on Exhibit A. The Parties may amend Exhibit A
        by mutual consent.

Page 17

ARTICLE XX
ASSIGNMENT

	20.1 	 Except to Affiliates of Buyer, neither Party may assign
        its interest in this Agreement in whole or in part without prior written
        consent of the other Party, which consent may not be unreasonably withheld.

	 	 
	20.2 	 The terms and conditions contained in this Agreement
        are binding on each of the Parties and their respective successors and
        permitted assigns.

ARTICLE XXI
MISCELLANEOUS PROVISIONS

	21.1. 	 THE VALIDITY AND INTERPRETATION
        OF THIS AGREEMENT AND THE LEGAL RELATIONS OF THE PARTIES TO IT SHALL BE
        GOVERNED BY THE LAWS OF THE STATE OF TEXAS, EXCLUDING ANY CHOICE OF LAW
        RULES THAT WOULD OTHERWISE REQUIRE THE APPLICATION OF THE LAWS OF ANY
        OTHER JURISDICTION.

	 
	
	 	 	 
	21.2. 	 Either Party (the “Interrupting Party”)
        may interrupt its performance under this Agreement at any time for any
        reason. In the event of a breach of an obligation to deliver or receive
        I-FERC Volumes, the Parties agree that the following provisions shall
        apply:

	 	 	 
		21.2.1. 	 The Interrupting Party shall be responsible for any
        imbalance charges or other expenses provided under Section 5.2.

	 	 	 
		21.2.2. 	 When Seller is the Interrupting Party, Seller shall
        pay Buyer an amount equal to the difference between the Elected I-FERC
        Volume and the actual quantity of Residue Gas allocated to Seller and
        tendered for delivery to Buyer for that Day after deduction of any in-kind
        volumes delivered to Seller, multiplied by the positive difference, if
        any, obtained by subtracting the I-FERC Price from the GDM Price published
        two Days later than the Day on which the interruption under this Section
        occurred (the “Interruption GDM Price”).

	 	 	 
		21.2.3. 	 When Buyer is the Interrupting Party, Buyer shall pay
        Seller an amount equal to the difference between the Elected I-FERC Volume
        and the actual quantity of Residue Gas allocated to Seller and tendered
        for delivery to Buyer for that Day after deduction of any in-kind volumes
        delivered to Seller, multiplied by the positive difference, if any, obtained
        by subtracting the Interruption GDM Price from the I-FERC Price. When
        Buyer interrupts its performance under this Section 21.2 for any reason,
        the Gas volumes which Buyer fails to take shall be included in the Average
        Daily Delivery Quantity.

	 	 	 
		21.2.4. 	 Notwithstanding the foregoing, this Section 21.2 shall
        not apply to performance interruptions caused by Force Majeure events.

	 	 	 
	21.3. 	 This Agreement may be executed in any number
        of counterparts, each of which when so executed and delivered shall be
        an original, and such counterparts together shall constitute one instrument.

	 	 	 
	21.4. 	 The terms of this Agreement express and constitute
        the entire agreement between Seller and Buyer with respect to the matters
        addressed in this Agreement. No statement or assignment, oral or written,
        made prior to or at the signing modifies the written terms of this Agreement,
        and neither Party may claim any modification or amendment of any provision
        of this Agreement by mutual agreement unless the modification or amendment
        is in writing, signed by both Parties, and specifically states that it
        is an amendment to this Agreement.

	 	 	 
	21.5. 	 Should any Section, paragraph, subparagraph,
        or other portion of this Agreement be found invalid or be required to
        be modified, as a matter of law in a fully authorized court or by a duly
        authorized government agency, then only that portion of this Agreement
        shall be invalid or modified. The remainder of this

Page 18

		 Agreement, which is still valid and unaffected,
        shall remain in force. If the absence of the part that is held to be invalid,
        illegal, or unenforceable, or modification of the part for which modification
        is required, substantially deprives either Party of the economic benefit
        of this Agreement, the Parties shall negotiate reasonable and valid provisions
        to restore the relative economic benefit to the Parties. If the Parties
        cannot agree on how to modify this Agreement to restore the relative economic
        benefit to the Parties, either Party may terminate this Agreement by giving
        the other party notice of termination not later than sixty (60) Days after
        the date such order, rule, or regulation so affecting this Agreement is
        effective.

	 	 	 
	21.6. 	 No Party will be deemed to have waived any
        right, power or privilege under this Agreement unless the waiver is in
        writing and duly executed by it. No failure or delay in exercising any
        right under this Agreement will be deemed a waiver by any Party. No exercise
        or partial exercise of any right, power or privilege precludes any other
        or further exercise thereof or of any other right, power or privilege.

	 	 	 
	21.7. 	FOR BREACH OF ANY PROVISION OF THIS AGREEMENT
        FOR WHICH AN EXPRESS REMEDY OR MEASURE OF DAMAGES IS PROVIDED, THAT EXPRESS
        REMEDY OR MEASURE OF DAMAGES SHALL BE THE SOLE AND EXCLUSIVE REMEDY. A
        PARTY’S LIABILITY UNDER THIS AGREEMENT SHALL BE LIMITED AS SET FORTH
        IN THAT PROVISION, AND ALL OTHER REMEDIES OR DAMAGES AT LAW OR IN EQUITY
        ARE WAIVED. IF NO REMEDY OR MEASURE OF DAMAGES IS EXPRESSLY PROVIDED IN
        THIS AGREEMENT, A PARTY’S LIABILITY SHALL BE LIMITED TO DIRECT ACTUAL
        DAMAGES ONLY. THE DIRECT ACTUAL DAMAGES SHALL BE THE SOLE AND EXCLUSIVE
        REMEDY AVAILABLE TO SELLER OR LDGD, AND ALL OTHER REMEDIES OR DAMAGES
        AT LAW OR IN EQUITY ARE WAIVED. UNLESS EXPRESSLY HEREIN PROVIDED, NEITHER
        PARTY SHALL BE LIABLE FOR CONSEQUENTIAL, INCIDENTAL, PUNITIVE, EXEMPLARY
        OR INDIRECT DAMAGES, LOST PROFITS OR OTHER BUSINESS INTERRUPTION DAMAGES,
        BY STATUTE, IN TORT OR CONTRACT, UNDER ANY INDEMNITY PROVISION OR OTHERWISE.
        IT IS THE INTENT OF THE PARTIES THAT THE LIMITATIONS IN THIS SECTION IMPOSED
        ON REMEDIES AND THE MEASURE OF DAMAGES BE WITHOUT REGARD TO THE CAUSE
        OR CAUSES RELATED THERETO, INCLUDING THE NEGLIGENCE OF ANY PARTY, WHETHER
        SUCH NEGLIGENCE BE SOLE, JOINT OR CONCURRENT, OR ACTIVE OR PASSIVE. TO
        THE EXTENT ANY DAMAGES REQUIRED TO BE PAID HEREUNDER ARE LIQUIDATED, THE
        PARTIES ACKNOWLEDGE THAT THE DAMAGES ARE DIFFICULT OR IMPOSSIBLE TO DETERMINE,
        OR OTHERWISE OBTAINING AN ADEQUATE REMEDY IS INCONVENIENT AND THE DAMAGES
        CALCULATED HEREUNDER CONSTITUTE A REASONABLE APPROXIMATION OF THE HARM
        OR LOSS. 

      
	 	 
	21.8. 	 Each Party agrees that it will maintain in
        strict confidence the pricing terms set forth in this Agreement, and that
        it will not cause or permit the disclosure of such pricing terms to any
        third party (except for consultants, agents and other professional advisors
        who agree to keep the pricing terms confidential) without the express
        written consent of the other Party. However, disclosure is permitted to
        the extent the information has already become public through no act or
        omission on the part of either Party, or a Party is required to disclose
        by an order or regulation of a court or agency having jurisdiction over
        the subject matter. If either Party becomes aware of a judicial or administrative
        proceeding that has resulted or may result in such an order requiring
        disclosure, it will notify the other Party in writing immediately. These
        confidentiality obligations terminate 1 year after termination of this
        Agreement. Neither Party is permitted to use the other Party’s name
        in any customer/supplier list or promotional material.

	 	 	 
	21.9. 	 On the Effective Date and during any deliveries
        scheduled under this Agreement, each Party represents and warrants to
        the other Party that:

	 	 	 
		21.9.1. 	 it is duly organized, validly existing and in good standing
        under the laws of the jurisdiction of its formation;

	 	 	 
		21.9.2. 	 the execution, delivery and performance of this Agreement
        are within its powers, have been duly authorized by all necessary action
        and do not violate any of the terms and conditions in its governing documents,
        any contracts to which it is a party or any law, rule, regulation, order
        or the like applicable to it;

Page 19

		21.9.3. 	 this Agreement and each document executed and delivered
        in accordance with this Agreement constitutes its legally valid and binding
        obligation enforceable against it in accordance with its terms;

	 	 	 
		21.9.4. 	 it is not bankrupt or otherwise insolvent and there
        are no proceedings pending or being contemplated by it or, to its knowledge,
        threatened against it which would result in it being or becoming bankrupt;

	 	 	 
		21.9.5. 	 there is not pending or, to its knowledge, threatened
        against it or any of its Affiliates any legal proceedings that could materially
        adversely affect its ability to perform its obligations under this Agreement;
        and

	 	 	 
		21.9.6. 	 it is acting for its own account, has made its own independent
        decision to enter into this Agreement and as to whether this Agreement
        is appropriate or proper for it based upon its own judgment, is not relying
        upon the advice or recommendations of the other Party in so doing, and
        is capable of assessing the merits of and understanding, and understands
        and accepts, the terms, conditions and risks of this Agreement.

	 	 	 
	21.10. 	 If either Party takes any action which would
        subject the other Party, as a result of this Agreement, to regulation
        by the Federal Energy Regulatory Commission (FERC) or any successor agency
        under the Natural Gas Act or any other similar statute, the Party being
        subjected to jurisdiction may exercise its rights under this Section to
        terminate this Agreement with thirty (30) Days’ written notice to
        the other Party. The Party whose actions subjected the other Party to
        this jurisdiction shall not have a right to terminate this Agreement under
        this Section. If a Party intends to take an action which it believes will
        subject the other Party to this jurisdiction because of this Agreement,
        that Party shall inform the other Party of the proposed action, and on
        thirty (30) Day’s prior written notice the potentially impacted Party
        shall have the right to terminate this Agreement before the other Party
        takes the described action. If, because of the actions of either Party,
        the FERC asserts jurisdiction over the a Party to this Agreement, the
        Party whose actions resulted in the assertion of jurisdiction shall cease
        such activity or the other Party shall be allowed to terminate this Agreement
        upon thirty (30) Days’ written notice. If the FERC asserts jurisdiction
        because of this Agreement, the Parties agree to negotiate in good faith
        to amend this Agreement to avoid the ability of the FERC to assert jurisdiction.
        If within thirty (30) Days the Parties cannot agree about how to restructure
        this Agreement to avoid FERC asserting jurisdiction, either Party shall
        be allowed to terminate this Agreement with 30 Days’ written notice.

	 	 	 
	21.11. 	 LIMITATION OF LIABILITY.
        No present or future owner, director, officer, employee, advisor,
        affiliate, partner, manager, member, attorney or agent of or in either
        Seller or Purchaser or any affiliate of either Seller or Purchaser shall
        have any personal liability, directly or indirectly, under or in connection
        with this Agreement or any agreement made or entered into under or in
        connection with the provisions of this Agreement, or any amendment or
        amendments to any of the foregoing made at any time or times, heretofore
        or hereafter, and Seller and Buyer and their respective affiliates, successors
        and assigns and, without limitation, all other persons and entities, shall
        look solely to the assets of Buyer or Seller, as the case may be, for
        the payment of any claim or for any performance, and Buyer and Seller
        hereby waive any and all such personal liability. The limitations of liability
        contained in this Section shall survive the termination of this Agreement
        and are in addition to, and not in limitation of, any limitation on liability
        applicable to Seller or Buyer provided elsewhere in this Agreement or
        by law or by any other contract, agreement or instrument.

Page 20

     IN WITNESS WHEREOF, the
Parties hereto have executed this Agreement as of the day and year first above
written.

	LOUIS DREYFUS GAS DEVELOPMENT L.P. 	TERAX ENERGY, INC. 
	By: LOUIS DREYFUS RESOURCES LLC, 	  
	Its General Partner 	  
	 	 
	By:____/s/ Michael G. Dowling______________
    	By:        /s/
      Lawrence J. Finn________________
	 	 
	Name:          Michael
      G. Dowling                                  
      	Name: _Lawrence J. Finn___________________
	 	 
	Title:             Vice
      President                                           
      	Title: Chief Executive Officer________________

Page 21

EXHIBIT A
TO GAS PURCHASE AGREEMENT DATED JANUARY
1, 2006
BETWEEN TERAX OIL AND GAS OF TEXAS, INC.
AND LOUIS DREYFUS
GAS DEVELOPMENT L.P.

DESCRIPTION OF TERAX LEASES

154.38 acres of land, more or less, out of the F. Hunt Survey,
A-340, in Erath County, Texas and being described as two tracts:

Tract One: Containing 77.50 acres, more or less, in the
southerly half of said 155 acres of land, out of the F. Hunt Survey, A-340, in
Erath County, Texas conveyed to Don Mitchell, et ux, in a deed recorded Volume
851, Page 49.

Tract Two: Containing 76.88 acres, more or less, in the
northerly half of said 155 acres of land, out of the F. Hunt Survey, A-340, in
Erath County, Texas conveyed to Don Mitchell, et ux, in a deed recorded Volume
534, Page 366.

97.33 acres, more or less, out of the F. Hunt Survey, A-340, in
Erath County, Texas and being described as “Parcel B – Tract 2” conveyed to Don
Mitchell, et ux, in a deed recorded Volume 839, Page 274, of the Deed of Records
of Erath County, Texas.

371.84 acres, more or less, out of Blocks 1, 2 and 3, of the
Wade Cowan Subdivision of the F. Hunt Survey, Erath County, Texas conveyed to
Don Mitchell, et ux, in a deed recorded Volume 839, Page 298, of the Deed of
Records of Erath County, Texas.

439.5 acres of land, more or less, out of the F. Hunt Survey,
A-340, in Erath County, Texas and being described as “Parcel A – Tract 4”
conveyed to Don Mitchell, et ux, in a deed recorded Volume 839, Page 298, of the
Deed of Records of Erath County, Texas.

450.24 acres of land, more or less, out of the F. Hunt Survey,
A-340, in Erath County, Texas and being described as “Parcel B – Tracts 1, 2, 3”
conveyed to Don Mitchell, et ux, in a deed recorded Volume 839, Page 274, of the
Deed of Records of Erath County, Texas.

190 acres of land, more or less, out of the J. W. McDade
Survey, A-531, in Erath County, Texas and being described as “Parcel A – Tract
2” conveyed to Don Mitchell, et ux, in a deed recorded Volume 839, Page 298, of
the Deed of Records of Erath County, Texas.

280 acres of land, more or less, out of the F. Hunt Survey,
A-340, in Erath County, Texas and being described as “Parcel A – Tract 7”
conveyed to Don Mitchell, et ux, in a deed recorded Volume 839, Page 274, of the
Deed of Records of Erath County, Texas.

500 acres of land, more or less, out of the R. Mckinney Survey,
A-542, in Erath County, Texas and being described as “Parcel A – Blocks 1, 2, 3
and 4” conveyed to Don Mitchell, et ux, in a deed recorded Volume 839, Page 274,
of the Deed of Records of Erath County, Texas.

Page 22

131 acres of land, more or less, out of the WM. Lawrence Survey, A-494, in Erath County, Texas and being described as “Parcel A – 8-1” conveyed to Don Mitchell, et ux, in a deed recorded Volume 839, Page 274, of the Deed of Records of
Erath County, Texas.

209 acres of land, more or less, out of the F. Hunt Survey, A-340, in Erath County, Texas and being described as “Parcel A – Tract 3” conveyed to Don Mitchell, et ux, in a deed recorded Volume 839, Page 274, of the Deed of Records of
Erath County, Texas.

192.36 acres of land, more or less, out of the R. Mckinney Survey, A-542, in Erath County, Texas and being described as “Parcel A – Tract 6” conveyed to Don Mitchell, et ux, in a deed recorded Volume 839, page 274, of the Deed of
Records of Erath County, Texas.

 Page 23

 EXHIBIT B

  TO GAS PURCHASE AGREEMENT DATED JANUARY 1, 2006

  BETWEEN TERAX ENERGY, INC.

  AND LOUIS DREYFUS GAS DEVELOPMENT L.P.

 ACKNOWLEDGED AND AGREED:

	LOUIS DREYFUS GAS DEVELOPMENT L.P. 	TERAX ENERGY, INC.
	By:       LOUIS DREYFUS RESOURCES
      LLC, 	 
	             Its
      General Partner 	 
	 	 
	 By:______________________________________ 	 By:______________________________________
	 Title: ____________________________________	 Title: ____________________________________
	 Date:____________________________________ 	 Date:____________________________________

 Page 24

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