Unassociated Document


    


    PROMISSORY
      NOTE

    


    July
      19, 2007

    


    
      	
              Jersey
                City, New Jersey

            	
              $1,150,000

            


    

    


    FOR
      VALUE RECEIVED on or about July 19, 2007, the
      undersigned, FALCON
      NATURAL GAS CORP., a
      Nevada
      corporation (the “Company”),
      promises to pay CORNELL
      CAPITAL PARTNERS, L.P.
      (the
“Lender”)
      at 101
      Hudson Street, Suite 3700, Jersey City, New Jersey 07302 or other address as
      the
      Lender shall specify in writing, the principal sum of One
      Million One Hundred Fifty Thousand U.S. Dollars and 00/100 ($1,150,000)
(the
      “Principal
      Amount”)
      and
      interest at the annual rate of fourteen percent (14%) on the unpaid balance
      pursuant to the following terms: 

    


    1. Principal
      and Interest.
       For
      value
      received on the date hereof the Company hereby promises to pay to the order
      of
      the Lender in lawful money of the United States of America and in immediately
      available funds the Principal Amount, together with interest on the unpaid
      principal of this Note on or before December 1, 2007. The parties acknowledge
      that their intent is that the amount due and owing on this Note be converted
      into convertible debentures of the Company pursuant to the transaction set
      forth
      in the term sheet attached as Exhibit A hereto and that they will act in good
      faith to finalize that transaction.

    


    2. Right
      of Prepayment.
      The
      Company at its option shall have the right to prepay, with three (3) business
      days advance written notice, a portion or all outstanding principal plus accrued
      Interest under this Note.

    


    3. Use
      of Proceeds.
      The
      Company acknowledges that the proceeds received in exchange for this Note shall
      be used for general working capital purposes and to make the payments described
      in Exhibit B hereto. The
      Company hereby acknowledges and consents that certain of the proceeds underlying
      this Note shall be used to make the payments described in Exhibit B hereto.
      

    


    4. Waiver
      and Consent.
      To the
      fullest extent permitted by law and except as otherwise provided herein, the
      Company waives demand, presentment, protest, notice of dishonor, suit against
      or
      joinder of any other person, and all other requirements necessary to charge
      or
      hold the Company liable with respect to this Note.

    


    5. Costs,
      Indemnities and Expenses.
      In the
      event of default as described herein, the Company agrees to pay all reasonable
      fees and costs incurred by the Lender in collecting or securing or attempting
      to
      collect or secure this Note, including reasonable attorneys’ fees and expenses,
      whether or not involving litigation, collecting upon any judgments and/or
      appellate or bankruptcy proceedings. The Company agrees to pay any documentary
      stamp taxes, intangible taxes or other taxes which may now or hereafter apply
      to
      this Note or any payment made in respect of this Note, and the Company agrees
      to
      indemnify and hold the Lender harmless from and against any liability, costs,
      attorneys’ fees, penalties, interest or expenses relating to any such taxes, as
      and when the same may be incurred.


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    


    6. Event
      of Default.
      An
“Event
      of Default”
shall
      be deemed to have occurred upon the occurrence of any of the following: (i)
      the
      Company should fail for any reason or for no reason to make any payment of
      the
      interest or principal pursuant to this Note within ten (10) days of the date
      due
      as prescribed herein; (ii) the Company shall fail to observe or perform any
      other covenant, agreement or warranty contained in, or otherwise commit any
      material breach or default of any material provision of this Note or any of
      the
      Transaction Documents (as defined in the Securities Purchase Agreements between
      the Company and the Lender dated on or about January 29, 2007; April 19, 2005;
      and October 17, 2005), which is not cured within ten (10) days notice of the
      default; (iii) the Company or any subsidiary of the Company shall commence,
      or there shall be commenced against the Company or any subsidiary of the Company
      under any applicable bankruptcy or insolvency laws as now or hereafter in effect
      or any successor thereto, or the Company or any subsidiary of the Company
      commences any other proceeding under any reorganization, arrangement, adjustment
      of debt, relief of debtors, dissolution, insolvency or liquidation or similar
      law of any jurisdiction whether now or hereafter in effect relating to the
      Company or any subsidiary of the Company or there is commenced against the
      Company or any subsidiary of the Company any such bankruptcy, insolvency or
      other proceeding which remains undismissed for a period of sixty-one (61) days;
      or the Company or any subsidiary of the Company is adjudicated insolvent or
      bankrupt; or any order of relief or other order approving any such case or
      proceeding is entered; or the Company or any subsidiary of the Company suffers
      any appointment of any custodian, private or court appointed receiver or the
      like for it or any substantial part of its property which continues undischarged
      or unstayed for a period of sixty one (61) days; or the Company or any
      subsidiary of the Company makes a general assignment for the benefit of
      creditors; or the Company or any subsidiary of the Company shall fail to pay,
      or
      shall state that it is unable to pay, or shall be unable to pay, its debts
      generally as they become due; or the Company or any subsidiary of the Company
      shall call a meeting of its creditors with a view to arranging a composition,
      adjustment or restructuring of its debts; or the Company or any subsidiary
      of
      the Company shall by any act or failure to act expressly indicate its consent
      to, approval of or acquiescence in any of the foregoing; or any corporate or
      other action is taken by the Company or any subsidiary of the Company for the
      purpose of effecting any of the foregoing; or (iv) a breach by the Company
      of
      its obligations, or an event of default, under any agreements entered into
      between the Company and the Lender which is not cured by any applicable cure
      period set forth therein. 

    


    Upon
      an
      Event of Default (as defined above), the entire principal balance and accrued
      interest outstanding under this Note, and all other obligations of the Company
      under this Note, shall be immediately due and payable without any action on
      the
      part of the Lender, interest shall accrue on the unpaid principal balance at
      twenty four percent (24%) or the highest rate permitted by applicable law,
      if
      lower, and the Lender shall be entitled to seek and institute any and all
      remedies available to it. 


    
      
        
        

      

      
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    7. Maximum
      Interest Rate.
      In no
      event shall any agreed to or actual interest charged, reserved or taken by
      the
      Lender as consideration for this Note exceed the limits imposed by New Jersey
      law. In the event that the interest provisions of this Note shall result at
      any
      time or for any reason in an effective rate of interest that exceeds the maximum
      interest rate permitted by applicable law, then without further agreement or
      notice the obligation to be fulfilled shall be automatically reduced to such
      limit and all sums received by the Lender in excess of those lawfully
      collectible as interest shall be applied against the principal of this Note
      immediately upon the Lender’s receipt thereof, with the same force and effect as
      though the Company had specifically designated such extra sums to be so applied
      to principal and the Lender had agreed to accept such extra payment(s) as a
      premium-free prepayment or prepayments.

    


    8. Secured
      Nature of the Note.
      This
      Note
      is secured by (i) the Security Agreement between the Company and the Lender
      dated November 2, 2005 (the “Security
      Agreement”)
      and
      (ii) mortgages by the Company in favor of the Lender executed in connection
      with
      the Securities Purchase Agreement dated on or about January 29, 2007, between
      the Company and the Lender, and the obligations of the Company under this Note
      shall be secured thereby.

    


    9. Issuance
      of Capital Stock.
      So long
      as any portion of this Note is outstanding, the Company shall not, without
      the
      prior written consent of the Lender, (i) issue or sell shares of common stock
      or
      preferred stock without consideration or for a consideration per share less
      than
      the fair market value of the common stock determined immediately prior to its
      issuance, (ii) issue any warrant, option, right, contract, call, or other
      security instrument granting the holder thereof, the right to acquire common
      stock without consideration or for a consideration less than such common stock’s
      fair market value determined immediately prior to it’s issuance, or (iii) enter
      into any security instrument granting the holder a security interest in any
      and
      all assets of the Company, or (iv) file any registration statement on Form
      S-8.


    


    10. Cancellation
      of Note.
      Upon
      the repayment by the Company of all of its obligations hereunder to the Lender,
      including, without limitation, the principal amount of this Note, plus accrued
      but unpaid interest, the indebtedness evidenced hereby shall be deemed canceled
      and paid in full. Except as otherwise required by law or by the provisions
      of
      this Note, payments received by the Lender hereunder shall be applied first
      against expenses and indemnities, next against interest accrued on this Note,
      and next in reduction of the outstanding principal balance of this
      Note.

    


    11. Severability.
      If any
      provision of this Note is, for any reason, invalid or unenforceable, the
      remaining provisions of this Note will nevertheless be valid and enforceable
      and
      will remain in full force and effect. Any provision of this Note that is held
      invalid or unenforceable by a court of competent jurisdiction will be deemed
      modified to the extent necessary to make it valid and enforceable and as so
      modified will remain in full force and effect.

     

    
      
        
        

      

      
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    12. Amendment
      and Waiver.
      This
      Note may be amended, or any provision of this Note may be waived, provided
      that
      any such amendment or waiver will be binding on a party hereto only if such
      amendment or waiver is set forth in a writing executed by the parties hereto.
      The waiver by any such party hereto of a breach of any provision of this Note
      shall not operate or be construed as a waiver of any other breach.

    


    13. Successors.
      Except
      as otherwise provided herein, this Note shall bind and inure to the benefit
      of
      and be enforceable by the parties hereto and their permitted successors and
      assigns.

    


    14. Assignment.
      This
      Note shall not be directly or indirectly assignable or delegable by the Company.
      The Lender may assign this Note as long as such assignment complies with the
      Securities Act of 1933, as amended.

    


    15. No
      Strict Construction.
      The
      language used in this Note will be deemed to be the language chosen by the
      parties hereto to express their mutual intent, and no rule of strict
      construction will be applied against any party.

    


    16. Further
      Assurances.
      Each
      party hereto will execute all documents and take such other actions as the
      other
      party may reasonably request in order to consummate the transactions provided
      for herein and to accomplish the purposes of this Note.

    


    17. Notices,
      Consents, etc.  Any
      notices, consents, waivers or other communications required or permitted to
      be
      given under the terms hereof must be in writing and will be deemed to have
      been
      delivered: (i) upon receipt, when delivered personally; (ii) upon receipt,
      when
      sent by facsimile (provided confirmation of transmission is mechanically or
      electronically generated and kept on file by the sending party); or (iii) one
      (1) trading day after deposit with a nationally recognized overnight delivery
      service, in each case properly addressed to the party to receive the same.
      The
      addresses and facsimile numbers for such communications shall be:

    


    


    
      	
              If
                to Company:

            	
              Falcon
                Natural Gas Corp.

            
	 	
              Westchase
                Center

            
	 	
              2500
                Citywest Blvd., Suite 300

              Houston,
                Texas 77019

            
	 	
              Attention:      
                Saul S. Deutsch, CFO

            
	 	
              Telephone:    
                (832) 476-8699 

            
	 	
              Facsimile:       
                (513) 398-9802

            
	 	 
	
              With
                a copy to:

            	
              Kirkpatrick
                & Lockhart Preston Gates Ellis LLP

            
	 	
              201
                South Biscayne Boulevard - Suite 2000

            
	 	
              Miami,
                FL 33131-2399

            
	 	
              Attention:      
                Ronald S. Haligman, Esq.

            
	 	
              Telephone:     (305)
                539-3339 

            
	 	
              Facsimile:       
                (305) 358-7095

            


    

     

    
      
        
        

      

      
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              If
                to the Lender:

            	
              Cornell
                Capital Partners, LP

            
	 	
              101
                Hudson Street, Suite 3700

            
	 	
              Jersey
                City, NJ 07302

            
	 	
              Attention:      
                Mark A. Angelo

            
	 	
              Telephone:     (201)
                985-8300

            
	 	
              Facsimile:       
                (201) 985-8266

            
	 	 
	
              With
                a copy to:

            	
              David
                Gonzalez, Esq.

            
	 	
              101
                Hudson Street, Suite 3700

            
	 	
              Jersey
                City, NJ 07302

            
	 	
              Telephone:    
                (201) 985-8300

            
	 	
              Facsimile:       
                (201) 985-8266

            
	 	
               

            


    

    


    or
      at
      such other address and/or facsimile number and/or to the attention of such
      other
      person as the recipient party has specified by written notice given to each
      other party three (3) trading days prior to the effectiveness of such change.
      Written confirmation of receipt (A) given by the recipient of such notice,
      consent, waiver or other communication, (B) mechanically or electronically
      generated by the sender's facsimile machine containing the time, date, recipient
      facsimile number and an image of the first page of such transmission or (C)
      provided by a nationally recognized overnight delivery service, shall be
      rebuttable evidence of personal service, receipt by facsimile or receipt from
      a
      nationally recognized overnight delivery service in accordance with clause
      (i),
      (ii) or (iii) above, respectively.

    


    18. Remedies,
      Other Obligations, Breaches and Injunctive Relief.
      The
      Lender’s remedies provided in this Note shall be cumulative and in addition to
      all other remedies available to the Lender under this Note, at law or in equity
      (including a decree of specific performance and/or other injunctive relief),
      no
      remedy of the Lender contained herein shall be deemed a waiver of compliance
      with the provisions giving rise to such remedy and nothing herein shall limit
      the Lender’s right to pursue actual damages for any failure by the Company to
      comply with the terms of this Note. No remedy conferred under this Note upon
      the
      Lender is intended to be exclusive of any other remedy available to the Lender,
      pursuant to the terms of this Note or otherwise. No single or partial exercise
      by the Lender of any right, power or remedy hereunder shall preclude any other
      or further exercise thereof. The failure of the Lender to exercise any right
      or
      remedy under this Note or otherwise, or delay in exercising such right or
      remedy, shall not operate as a waiver thereof. Every right and remedy of the
      Lender under any document executed in connection with this transaction may
      be
      exercised from time to time and as often as may be deemed expedient by the
      Lender. The Company acknowledges that a breach by it of its obligations
      hereunder will cause irreparable harm to the Lender and that the remedy at
      law
      for any such breach may be inadequate. The Company therefore agrees that, in
      the
      event of any such breach or threatened breach, the Lender shall be entitled,
      in
      addition to all other available remedies, to an injunction restraining any
      breach, and specific performance without the necessity of showing economic
      loss
      and without any bond or other security being required. 



    
      
        
        

      

      
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    19. Governing
      Law; Jurisdiction.
      All
      questions concerning the construction, validity, enforcement and interpretation
      of this Agreement shall be governed by the internal laws of the State of New
      Jersey, without giving effect to any choice of law or conflict of law provision
      or rule (whether of the State of New Jersey or any other jurisdictions) that
      would cause the application of the laws of any jurisdictions other than the
      State of New Jersey. Each party hereby irrevocably submits to the exclusive
      jurisdiction of the Superior Court of the State of New Jersey sitting in Hudson
      County, New Jersey and the United States Federal District Court for the District
      of New Jersey sitting in Newark, New Jersey, for the adjudication of any dispute
      hereunder or in connection herewith or therewith, or with any transaction
      contemplated hereby or discussed herein, and hereby irrevocably waives, and
      agrees not to assert in any suit, action or proceeding, any claim that it is
      not
      personally subject to the jurisdiction of any such court, that such suit, action
      or proceeding is brought in an inconvenient forum or that the venue of such
      suit, action or proceeding is improper. Each party hereby irrevocably waives
      personal service of process and consents to process being served in any such
      suit, action or proceeding by mailing a copy thereof to such party at the
      address for such notices to it under this Agreement and agrees that such service
      shall constitute good and sufficient service of process and notice thereof.
      Nothing contained herein shall be deemed to limit in any way any right to serve
      process in any manner permitted by law. 

    


    20. No
      Inconsistent Agreements.
      None of
      the parties hereto will hereafter enter into any agreement, which is
      inconsistent with the rights granted to the parties in this Note.

    


    21. Third
      Parties.
      Nothing
      herein expressed or implied is intended or shall be construed to confer upon
      or
      give to any person or entity, other than the parties to this Note and their
      respective permitted successor and assigns, any rights or remedies under or
      by
      reason of this Note.

    


    22. Waiver
      of Jury Trial.
      AS A MATERIAL INDUCEMENT FOR THE LENDER TO LOAN TO THE COMPANY THE MONIES
      HEREUNDER, THE COMPANY HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY LEGAL
      PROCEEDING RELATED IN ANY WAY TO THIS AGREEMENT AND/OR ANY AND ALL OF THE OTHER
      DOCUMENTS ASSOCIATED WITH THIS TRANSACTION.

    


    23. Entire
      Agreement.  This
      Note (including any recitals hereto) set forth the entire understanding of
      the
      parties with respect to the subject matter hereof, and shall not be modified
      or
      affected by any offer, proposal, statement or representation, oral or written,
      made by or for any party in connection with the negotiation of the terms hereof,
      and may be modified only by instruments signed by all of the parties
      hereto.


    
      
        
        

      

      
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    EXHIBIT
      A

    


    Term
      Sheet

    


    


    



    
      
        
        

      

      
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    EXHIBIT
      B

    


    Use
      of Proceeds

    


    Of
      the
      proceeds of this Note, $598,489 will be paid directly by the Lender to pay
      Petrogulf Corporation.

    


    



    
      
        
        

      

      
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    IN
      WITNESS WHEREOF,
      this
      Promissory Note is executed by the undersigned as of the date
      hereof.

    


    


    
      	 	
              CORNELL
                CAPITAL PARTNERS, LP

            
	 	
              By:
                Yorkville Advisors, LLC

            
	 	
              Its: 
                Investment Manager

            
	 	 
	 	
              By:
                /s/ Mark
                Angelo                  

            
	 	
              Name:
                Mark Angelo

            
	 	
              Its:      
                Portfolio Manager

            
	 	 
	 	
              FALCON
                NATURAL GAS CORP. 

            
	 	 
	 	
              By:
                /s/ Saul S.
                Deutsch               
                

            
	 	
               

              Name:
                Saul S. Deutsch

            
	 	
               

              Title:  
                Chief Financial Officer

            


    

     

    
      
        
        

      

      
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