Location: Currently not anywhere in the game.

Artix: Hail guardian! I'm glad you've volunteered for this mission.
Artix: There is a creature in these woods call an Undead Terror, but few have seen it... and those who have rarely escaped alive.
Artix: If you can find one of these Terrors, our battlefield smiths will be able to create a powerful item from it!
Artix: This item will prove valuable in our neverending battle with the undead. Including vampires, should you meet any!
Artix: So do you think you can handle it??

QUEST! (Find an Undead Terror!)

Artix: Excellent! There's one catch... if you return to town or lose a battle you will need to start over.

Understood I am ready

Artix: Good luck on your hunt! You must defeat 1 Undead Terror so we can make your special item.

QUEST! (Find an Undead Terror!)

You fight:
Level 25 and Below
Giant Spider
Lesser Zombie
Sickly Zombie (4)
Undead Knight
Undead Mage (14)
Undead Soldier
Undead Terror
Undead Troll
Undead Wounded
Wun-Dead

Level 26-49
Giant Spider
Lesser Zombie
Undead Knight
Undead Mage (14)
Undead Moglin Knight
Undead Soldier
Undead Terror
Undead Troll
Undead Wounded
Wun-Dead

Level 50+
Lesser Droag
Mechazombie
Pile o' Bones (Undead)
Undead Giant
Undead Mage (45)
Undead Moglin Demon
Undead Skull Knight
Undead Skuller
Undead Terror
Zombie Dragon (38)

Kro: Good luck helping Artix find an Undead Terror!
HEAL!

You can take up to 5 potions from the potion bag.

Once an Undead Terror is beaten in battle, a shop would open up where you could purchase Undead Terror.

Source

Suikoman444, http://forums2.battleon.com/f/tm.asp?m=3687634