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EXHIBIT 10.12

SEPARATION, CONSULTING AND RELEASE AGREEMENT

This Separation, Consulting and Release Agreement (the "Agreement") is made

and entered into this 13th day of September, 2004, effective as of the 1st day

of September, 2004 (the "Agreement Effective Date"), by and between U.S. Gas &

Electric, Inc. (the "Company") and Don Secunda ("Secunda").

RECITALS

Secunda has been providing services to the Company as Chief Executive

Officer of the Company; and

The Company and Secunda have agreed that Secunda's employment with the

Company shall cease as of the Agreement Effective Date; and

The Company and Secunda have agreed that Secunda shall remain as an

independent consultant to the Company and its subsidiaries for an additional

period of time on the terms set forth herein; and

Secunda acknowledges that in connection with his employment with the

Company (and in the future in connection with his providing consulting services

to the Company), he has been given access to (or will in the future be given

access to) certain confidential and proprietary information relating to the

Company and its business operations, and in connection with the cessation of

Secunda's employment with the Company, the parties wish to confirm certain

understandings with respect thereto.

TERMS OF AGREEMENT

NOW THEREFORE, in consideration of the mutual covenants and agreements set

forth herein and for other good and valuable consideration, the receipt and

sufficiency of which is hereby acknowledged, the parties hereto agree as

follows:

1. End of Employment Period. The parties mutually agree that effective on

the Agreement Effective Date:

a. Secunda shall no longer be an employee of the Company;

b. Secunda shall resign and shall no longer be an officer or director of

the Company;

c. Except as set forth herein, the parties hereby release each other from

any and all further obligations under any existing agreements or

understandings between them with respect to Secunda's employment with

the Company, including that certain Employment Agreement dated as of

March 18, 2002 and any amendments thereto;

d. The 2,000,000 shares of the Company's issued and outstanding common

stock that were previously issued to Secunda for services will be

cancelled (and

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Secunda shall deliver the certificate(s) representing such shares to

the Company for cancellation); and

e. All stock options and any other rights to purchase securities of the

Company held by Secunda shall be cancelled.

2. Consulting Agreement.

a. From and after the Agreement Effective Date until August 31, 2005 (the

"Consulting Period"), Secunda agrees to act as a part time consultant

to the Company. Without limiting the foregoing, Secunda shall assist

the Company with such matters and projects as are assigned to him from

time to time by the Company's Chief Executive Officer, including

matters relating to the Company's contemplated Reorganization (as

defined below).

b. During the Consulting Period, the Company shall continue to make

available to Secunda the use of an office and computer, and the

Company shall continue to reimburse Secunda for such of his

out-of-pocket expenses relating to his services as a consultant to the

Company as are approved in advance by the Company's Chief Executive

Officer.

c. During the Consulting Period, Secunda shall receive the following

compensation:

(i) a gross monthly consulting fee of $3,000, payable in arrears,

with the first payment due on September 30, 2004 and each month

thereafter on the same date (Secunda shall be responsible for all

taxes with respect to such compensation);

(ii) a $30,000 bonus upon the Company's successful completion of

the Reorganization; and

(iii) 5% of the Class B Management Shares or such other shares as

are issued to the Company's management in connection with the

Reorganization.

3. Reorganization. Secunda acknowledges that the Company is currently

preparing to make an offer to its investors (including within that group those

investors who purchased interests in the three drilling programs sponsored by

the Company) to reorganize the Company's debt and equity in an out-of-court

reorganization (the "Reorganization") in order to deal with certain rescission

obligations that the Company purportedly has to the investors. In connection

with the Reorganization, Secunda agrees as follows:

a. Secunda will support the Company's efforts to complete the

Reorganization and will use his good faith commercially reasonable

efforts to assist the Company's management in seeking the approval of

the Company's investors to the terms of the Reorganization;

b. The MJL Trust ("Trust") is the owner of 12,000,000 shares (the

"Shares") of the Company's issued and outstanding common stock. To his

knowledge and belief,

 

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Secunda is the ultimate beneficial owner (for SEC purposes) of the

Shares owned by the Trust and has the power to vote and dispose of the

Shares on behalf of the Trust. With respect to the Trust and the

Shares, Secunda agrees as follows:

(i) Effective as the Agreement Effective Date, Secunda shall

transfer such rights as he has in the Trust and in the Shares, and

thereby his rights to control the voting and disposition of the Shares

held by the Trust, to Doug Marcille, for the benefit of all of the

Company's shareholders. In furtherance of this objective, Secunda

agrees to deliver all documents in his possession (including the

certificate(s) representing the Shares) relating to the Trust and the

Shares and to execute any and all documents as may be reasonably

required to effect this transfer of control; and

(ii) Effective as of the effective date of the Reorganization,

and as part of the Reorganization, Secunda agrees that the Shares

shall be cancelled (and in that regard, Secunda agrees to deliver the

certificate(s) representing the Shares to the Company and to execute

such documents as are reasonably required to the effect this

cancellation).

c. During 2003 and 2004, Secunda made an unsecured subordinated loan (the

"Loan") to the Company on the terms forth in that certain Promissory

Note dated November 12, 2003. At the Agreement Effective Date, the

principal amount of the Loan was $84,900, plus accrued but unpaid

interest through that date. The Loan is subordinated to all creditor

claims, including rescission claims of holders of the Company's

securities (and the securities of the three drilling programs

sponsored by the Company). The Loan matures on the earlier of the

completion of the Reorganization or the successful payment in full of

all rescission claims due to the investors. Secunda agrees, with

respect to the Loan:

(i) to subordinate his loan to any secured financing of the

Company, and to execute a subordination agreement with respect to

any and all secured financing to the extent and on such form as

is reasonably required by the lender; and

(ii) upon the effective date of the Reorganization, to convert

all outstanding principal and interest due under the Loan at that

date into shares of the Company's common stock. While the terms

of the conversion have not yet been finalized, Secunda agrees to

convert the Loan at the same conversion price at which unrelated

note-holders convert their loans into equity, or, if no unrelated

note-holders convert their loans to equity as part of the

reorganization, at such price as is determined between the

Company and Secunda.

4. Definitions. The terms below shall have the following meanings when used

throughout this Agreement:

 

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a. "Confidential Documents" shall mean and include all files, letters,

memoranda, reports, records, computer disks or other computer storage

medium, data models or any photographic or other tangible materials

containing Confidential Information, whether created by the Company,

Secunda or any other party, and all copies, excerpts and summaries

thereof which shall come into the custody or possession of Secunda.

b. "Confidential Information" shall mean and include all information

whether written or oral, tangible or intangible, of a private, secret,

proprietary or confidential nature, of or concerning the Company and

its business and operations, including, without limitation, any trade

secrets or know-how, computer software programs in both source code

and object code form (including, without limitation, Programs) and any

rights relating thereto, information relating to any product (where

actual or proposed), development (including any improvement,

advancement or modification thereto), technology, technique, process

or methodology, any sales, promotional or marketing plans, programs

techniques, practices or strategies, any expansion plans (including

existing and entry into new geographic and/or product markets), any

operational and management guidelines, any corporate and commercial

policies, any cost, pricing or other financial data or projections,

the identity and background of any customer, prospect or supplier, and

any other information which is to be treated as confidential because

of any duty of confidentiality owed by the Company to a third party or

any other information that the Company shall, in the ordinary course

of business, possess or use and not release externally without

restriction on use or disclosure.

c. Notwithstanding the foregoing, Confidential Information shall not

include any information that (i) becomes available to Secunda from a

source other than the Company that is not bound by a duty of

confidentiality to the Company, (ii) becomes generally available or

known in the industry other than as a result of its disclosure by

Secunda, or (iii) has been independently developed by Secunda after

the end of the Consulting Agreement and may be disclosed by him

without breach of the Agreement, provided, in each case, that Secunda

shall bear the burden of demonstrating that the information falls

under one of the above-described exceptions.

d. "Programs" shall mean certain routines, object and source codes,

specifications, flowcharts and other material and documentation,

together with all information data and know-how, alterations,

corrections, improvements and upgrades thereto.

5. Treatment of Confidential Information.

a. Ownership and Implied Rights. Secunda acknowledges that all

Confidential Information and Confidential Documents are and shall

remain the exclusive property of the Company, and nothing in this

Agreement or any document relating to Secunda's employment or

consultin