Unassociated Document


    
      
        
          

        

      

    

    Exhibit
      10.2

     

    [FORM
      OF]

    


    


    NEITHER
      THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE HAVE
      BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
      COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER
      THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY,
      MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
      STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM,
      OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
      SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS
      EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE
      SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
      COMPANY.

    


    


    


    
      	
              Original
                Issue Date:

            	
              November
                9, 2007

            
	 	 
	
              Original
                Conversion Price (subject to adjustment herein):

            	
              $1.05

            
	 	 
	
              8%
                Senior Secured Convertible Note #____

            	
              $_________________

            


    

    


    


    8%
      SENIOR SECURED CONVERTIBLE NOTE

    


    This
      note is one of a series of duly
      authorized and issued notes (each a “Convertible Note” or
      collectively the “Convertible Notes”) of PETROSEARCH
      ENERGYCORPORATION, a Nevada corporation, having its
      principal place of business at 675 Bering Drive, Suite 200, Houston, Texas
      77057
      (the “Company”), designated as its Eight Percent
      (8%)  Senior Secured Convertible Notes Due November 9, 2010, in an
      aggregate principal face value for all Convertible Notes of this series of
      Eight
      Million One Hundred Thousand and no/100 United States Dollars (US$8,100,000.00)
      issued in registered form under that certain Note and Warrant Purchase Agreement
      (together with all amendments, supplements and modifications thereto in
      accordance with the terms hereof from time to time, herein called the
“Purchase Agreement”), dated of even date herewith, by and
      among the Company and the Holders, to which Purchase Agreement reference is
      hereby made for additional rights, duties and obligations of the Company and
      the
      Holder.

    


    FOR
      VALUE RECEIVED, the Company promises to pay to the order of
CROSSCAP PARTNERS, LP, a Texas limited partnership, or its
      registered assigns (the “Holder”), the principal sum of
________________________________ AND NO/100 DOLLARS
      (US
      $____________) on the three (3) year anniversary of the Original Issue
      Date hereof or such earlier date as this Convertible Note is required or
      permitted to be repaid as provided hereunder, whether by acceleration or
      otherwise (such three (3) year anniversary date, or such
      earlier date, the“Maturity Date”), and to pay interest to the
      Holder on the aggregate unconverted and then outstanding principal amount of
      this Convertible Note in accordance with the provisions hereof. This Convertible
      Note is secured by the Collateral described herein and is subject to the
      following additional provisions:


    
      
         

      

      
        
        

        
          

        

      

      
         

      

    


    Section
      1.    Definitions.  For
      the purposes hereof, in addition to the terms defined elsewhere in this
      Convertible Note, (a) capitalized terms not otherwise defined herein shall
      have
      the meanings set forth in the Purchase Agreement and (b) the following terms
      shall have the following meanings:

    


    “Affiliate”
means,
      with respect
      to a specified Person, any other Person, whether now in existence or hereafter
      created, directly or indirectly controlling, controlled by or under direct
      or
      indirect common control with such specified Person.  For purposes of
      this definition, “control” (including, with correlative meanings, “controlling,”
“controlled by,” and “under common control with”) means the power to direct or
      cause the direction of the management and policies of such Person, directly
      or
      indirectly, whether through the ownership of voting securities, by contract
      or
      otherwise.

    


    “Barnett
      Petrosearch” means
      Barnett Petrosearch, L.L.C., a Texas limited liability company.

    


    “Barnett
      Shale Project” means
      the project located in the Fort Worth basin of Texas comprised a 2 million
      acre,
      8-county contract area directed by the Partnership (as defined in the Pledge
      and
      Security Agreement) in which the Company indirectly owns a 5.54455%
      interest.

    


    “Bankruptcy
      Event” means any of the following events: (a) the Company or any Significant
      Subsidiary thereof commences a case or other proceeding under any bankruptcy,
      reorganization, arrangement, adjustment of debt, relief of debtors, dissolution,
      insolvency or liquidation or similar law of any jurisdiction relating to the
      Company or any Significant Subsidiary thereof; (b) there is commenced against
      the Company or any Significant Subsidiary thereof any such case or proceeding
      that is not dismissed within 60 days after commencement; (c) the Company or
      any
      Significant Subsidiary thereof is adjudicated insolvent or bankrupt or any
      order
      of relief or other order approving any such case or proceeding is entered;
      (d)
      the Company or any Significant Subsidiary thereof suffers any appointment of
      any
      custodian or the like for it or any substantial part of its property that is
      not
      discharged or stayed within 60 calendar days after such appointment; (e) the
      Company or any Significant Subsidiary thereof makes a general assignment for
      the
      benefit of creditors; (f) the Company or any Significant Subsidiary thereof
      calls a meeting of its creditors with a view to arranging a composition,
      adjustment or restructuring of its debts; or (g) the Company or any Significant
      Subsidiary thereof, by any act or failure to act, expressly indicates its
      consent to, approval of or acquiescence in any of the foregoing or takes any
      corporate or other action for the purpose of effecting any of the
      foregoing.

    


    “Business
      Day” means any day except Saturday, Sunday, any day which shall be a federal
      legal holiday in the United States or any day on which banking institutions
      in
      the State of New York are authorized or required by law or other governmental
      action to close.


    
      
        Convertible
          Note

         

      

      
        Page
          2

        
          

        

      

      
         

      

    


    “Capital
      Lease” means a lease with respect to which the lessee is required
      concurrently to recognize the acquisition of an asset and the incurrence of
      a
      liability in accordance with GAAP.

    


    “Collateral”
      has the meaning set forth in the Pledge and Security Agreement and includes
      without limitation the following:

    


    
      	
               

            	
              (a)

            	
              the
                Holder’s pro rata portion, as set forth on Schedule “A” to the Purchase
                Agreement, of the 5.00% of the membership interests (ownership interests)
                owned by the Company in Exploration Holding (the “Exploration
                Holding Membership Interest”) as further described in the Pledge
                and Security Agreement;

            


    

    


    
      	
               

            	
              (b)

            	
              the
                Holder’s pro rata portion of all products and proceeds of the foregoing
                Exploration Holding Membership Interest, including, without limitation,
                all revenues, distributions, dividends, stock dividends, securities
                and
                other property, rights, and interests that the Company is at any
                time
                entitled to receive on account of the
                same.

            


    

    


    “Collateral
      Value” means 5.00% of the Fair Market Value of all assets of Barnett
      Petrosearch (as long as Barnett Petrosearch continues to be owned directly,
      or
      indirectly, by the Company) as estimated by a third party engineer.

    


    “Common
      Stock” means the common stock, par value $0.001 per share, of the Company
      and stock of any other class of securities into which such securities may
      hereafter be reclassified or changed into.

    


    “Exchange
      Act” means the Securities Exchange Act of 1934, as amended, and the rules
      and regulations promulgated thereunder.

    


    “Exploration
      Holding” means Exploration Holding Co., L.L.C., a Texas limited liability
      company.

    


    “Fair
      Market Value” means the amount at which property would change hands between
      a willing buyer and a willing seller, neither being under any compulsion to
      buy
      or sell and both having reasonable knowledge of the relevant facts.

    


    “GAAP”
      means generally accepted accounting principles in the United States set forth
      in
      the opinions and pronouncements of the Accounting Principles Board and the
      American Institute of Certified Public Accountants and statements and
      pronouncements of the Financial Accounting Standards Board or such other
      principles as may be approved by a significant segment of the accounting
      profession in the United States, that are applicable to the circumstances as
      of
      the date of determination, consistently applied.


    
      
        Convertible
          Note

         

      

      
        Page
          3

        
          

        

      

      
         

      

    


    “Guarantee”
      means, as to any Person, (a) any obligation, contingent or otherwise, of such
      Person guaranteeing or having the economic effect of guaranteeing any
      Indebtedness or other obligation payable or performable by another Person (the
      “primary obligor”) in any manner, whether directly or indirectly, and
      including any obligation of such Person, direct or indirect, (i) to purchase
      or
      pay (or advance or supply funds for the purchase or payment of) such
      Indebtedness or other obligation, (ii) to purchase or lease property, securities
      or services for the purpose of assuring the obligee in respect of such
      Indebtedness or other obligation of the payment or performance of such
      Indebtedness or other obligation, (iii) to maintain working capital, equity
      capital or any other financial statement condition or liquidity or level of
      income or cash flow of the primary obligor so as to enable the primary obligor
      to pay such Indebtedness or other obligation, or (iv) entered into for the
      purpose of assuring in any other manner the obligee in respect of such
      Indebtedness or other obligation of the payment or performance thereof or to
      protect such obligee against loss in respect thereof (in whole or in part),
      or
      (b) any Lien on any assets of such Person securing any Indebtedness or other
      obligation of any other Person, whether or not such Indebtedness or other
      obligation is assumed by such Person (or any right, contingent or otherwise,
      of
      any holder of such Indebtedness to obtain any such Lien).  The amount
      of any Guarantee shall be deemed to be an amount equal to the stated or
      determinable amount of the related primary obligation, or portion thereof,
      in
      respect of which such Guarantee is made or, if not stated or determinable,
      the
      maximum reasonably anticipated liability in respect thereof as determined by
      the
      guaranteeing Person in good faith.  The term “Guarantee” as a
      verb has a corresponding meaning.

    


    “Indebtedness”
      means as to the Company at a particular time, without duplication, all of the
      following, whether or not included as indebtedness or liabilities in accordance
      with GAAP:

    


    (i)
      all
      obligations of the Company for borrowed money and all obligations of the Company
      evidenced by bonds, debentures, notes, loan agreements or other similar
      instruments;

    


    (ii)
      all
      direct or contingent obligations of the Company arising under letters of credit
      (including standby and commercial), bankers’ acceptances, bank guaranties,
      surety bonds and similar instruments;

    


    (iii)
      net
      obligations of the Company under any Swap Contract;

    


    (iv)
      all
      obligations of the Company to pay the deferred purchase price of property or
      services (other than trade accounts payable in the ordinary course of business
      that are not unpaid for more than 120 days after the date on which such trade
      account payable was created);

    


    (v)
      indebtedness (excluding prepaid interest thereon) secured by a Lien on property
      owned or being purchased by the Company (including indebtedness arising under
      conditional sales or other title retention agreements), whether or not such
      indebtedness shall have been assumed by the Company or is limited in
      recourse;


    
      
        Convertible
          Note

         

      

      
        Page
          4

        
          

        

      

      
         

      

    


    (vi)
      Capital Lease Obligations and Synthetic Lease Obligations;

    


    (vii)
      all
      obligations of the Company to purchase, redeem, retire, defease or otherwise
      make any payment in respect of any equity interest in the Company or any other
      entity or company, valued, in the case of a redeemable preferred interest,
      at
      the greater of its voluntary or involuntary liquidation preference plus accrued
      and unpaid dividends (but excluding undeclared dividends where the Company
      is
      not required to declare such dividends); and

    


    (viii)
      all Guarantees of the Company in respect of any of the foregoing.

    


    “Interest
      Shares” means the number of shares of Common Stock that could be paid as
      interest pursuant to Section 2(a) at a rate of 8.5% under this Convertible
      Note
      during the term of this Convertible Note.

    


    “Lien”
means
      any mortgage,
      pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien
      (statutory or other), charge, or preference, priority or other security interest
      or preferential arrangement in the nature of a security interest of any kind
      or
      nature whatsoever (including any conditional sale or other title retention
      agreement, any easement, right of way or other encumbrance on title to real
      property, and any financing lease having substantially the same economic effect
      as any of the foregoing).

    


    “Note
      Shares” means the shares of Common Stock (i) to which the Holder is entitled
      upon conversion of this Convertible Note and (ii) that have been issued in
      lieu
      of cash interest payments under this Convertible Note at the time of filing
      the
      applicable Registration Statement (as defined in the Registration Rights
      Agreement) or Piggyback Registration Statement (as defined in the Registration
      Rights Agreement).

    


    “Optional
      Redemption Amount” means the sum of (i) 110% of the principal amount of the
      Convertible Note then outstanding and (ii) all accrued but unpaid
      interest.

    


    “Original
      Issue Date” means the date of the first issuance of the Convertible Note,
      regardless of any transfers of any Convertible Note and regardless of the number
      of instruments which may be issued to evidence such Convertible
      Note.

    


    “Outstanding
      Principal” means the outstanding principal balance of this Convertible Note
      at the time and excludes any principal that has been converted into shares
      of
      Common Stock of the Company pursuant to the terms of this Convertible Note,
      if,
      and to the extent that, the Holder has received its Note Shares from the Company
      with respect to any such excluded converted principal.

    


    “Partnership”
      means the DDJET Limited, LLP, a Texas limited liability limited partnership
      as
      further described in the recitals to the Pledge and Security
      Agreement.

    


    “Partnership
      Interest” means the 5.54455% limited partnership interest in the Partnership
      owned by Barnett Petrosearch.


    
      
        Convertible
          Note

         

      

      
        Page
          5

        
          

        

      

      
         

      

    


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

    


    “Pledge
      and Security Agreement” means the Pledge and Security Agreement, dated of
      even date herewith, by and between the Company as pledgor and the Holder as
      secured party.

    


    “Purchase
      Agreement” shall have the meaning set forth on page 1 of this Convertible
      Note.

    


    “Prime
      Rate” shall mean the “prime rate” as published in the money rates section of
      the Wall Street Journal (Southwest Edition)

    


    “Proved
      Reserves” means collectively, the Proved Developed Oil and Gas Reserves and
      Proved Undeveloped Reserves of the Company and its subsidiaries, as such terms
      are defined in § 210.4-10(a) of Regulation S-X.

    


    “PV-10
      Value” means the estimated future gross revenue to be generated from the
      production of Proved Reserves of the Company and its subsidiaries, net of
      estimated production and future development costs, using prices and costs in
      effect at the determination date, without giving effect to non-property related
      expenses such as general and administrative expenses, debt service and future
      income tax expense or to depreciation, depletion and amortization, discounted
      using an annual discount rate of 10%.

    


    “Registration
      Rights Agreement” means the Registration Rights Agreement, dated as of the
      date of the Purchase Agreement, among the Company and the original Holders,
      as
      amended, modified or supplemented from time to time in accordance with its
      terms.

    


    “Registration
      Statement” means a registration statement that registers the resale of the
      Note Shares and names such Holder as a “selling stockholder” therein, and meets
      the requirements of the Registration Rights Agreement.

    


    “SEC”
      means the United States Securities and Exchange Commission.

    


    “Securities
      Act” means the Securities Act of 1933, as amended, and the rules and
      regulations promulgated thereunder.

    


    “Significant
      Subsidiary” shall mean (i) Exploration Holding or Barnett Petrosearch and
      (ii) any other Significant Subsidiary (as such term is defined in Rule 1-02(w)
      of Regulation S-X ) but, at the option of the Company, shall exclude any
      Significant Subsidiary (other than the Significant Subsidiaries listed in
      foregoing clause (i)), which has Indebtedness for which recourse is exclusive
      to
      the assets of any such Significant Subsidiary and as to which there is no
      recourse to the Company or to the Company’s other subsidiaries, from the
      Indebtedness incurrence test set forth in Section 7(a)(i)
      hereof.


    
      
        Convertible
          Note

         

      

      
        Page
          6

        
          

        

      

      
         

      

    


    “Swap
      Contract” means (a) any and all rate swap transactions, basis swaps, credit
      derivative transactions, forward rate transactions, commodity swaps, commodity
      options, forward commodity contracts, commodity futures contracts, equity or
      equity index swaps or options, bond or bond price or bond index swaps or options
      or forward bond or forward bond price or forward bond index transactions,
      interest rate options, forward foreign exchange transactions, cap transactions,
      floor transactions, collar transactions, currency swap transactions,
      cross-currency rate swap transactions, currency options, spot contracts, or
      any
      other similar transactions or any combination of any of the foregoing (including
      any options to enter into any of the foregoing), whether or not any such
      transaction is governed by or subject to any master agreement, and (b) any
      and
      all transactions of any kind, and the related confirmations, which are subject
      to the terms and conditions of, or governed by, any form of master agreement
      published by the International Swaps and Derivatives Association, Inc., any
      international foreign exchange master agreement, or any other master agreement
      (any such master agreement, together with any related schedules, a “Master
      Agreement”), including any such obligations or liabilities under any Master
      Agreement.

    


    “Synthetic
      Lease Obligation” means the monetary obligation of a Person under a
      so-called synthetic, off-balance sheet or tax retention lease.

    


    “Trading
      Day” means a day on which the principal Trading Market is open for
      business.

    


    “Trading
      Market” means the following markets or exchanges on which the Common Stock
      is listed or quoted for trading on the date in question: the American Stock
      Exchange, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global
      Select Market, the New York Stock Exchange or the OTC Bulletin
      Board.

    


    “VWAP”
      means, for any date, the price determined by the first of the following clauses
      that applies: (a) if the Common Stock is then listed or quoted on a Trading
      Market, the daily volume weighted average price of the Common Stock for such
      date (or the nearest preceding date) on the Trading Market on which the Common
      Stock is then listed or quoted for trading as reported by Bloomberg L.P. (based
      on a Trading Day from 9:30 a.m. (Eastern Standard Time) to 4:02 p.m. (Eastern
      Standard Time); (b)  if the OTC Bulletin Board is not a Trading Market, the
      volume weighted average price of the Common Stock for such date (or the nearest
      preceding date) on the OTC Bulletin Board; (c) if the Common Stock is not then
      quoted for trading on the OTC Bulletin Board and if prices for the Common Stock
      are then reported in the “Pink Sheets” published by Pink Sheets, LLC (or a
      similar organization or agency succeeding to its functions of reporting prices),
      the most recent bid price per share of the Common Stock so reported; or
      (d) in all other cases, the fair market value of a share of Common Stock as
      determined by an independent appraiser selected in good faith by the Holder
      and
      reasonably acceptable to the Company.


    
      
        Convertible
          Note

         

      

      
        Page
          7

        
          

        

      

      
         

      

    


    Section
      2.    Interest.

    


    a)           Payment
      of Interest. Interest shall accrue at the rate of the lesser of (i) eight
      percent (8%) per annum; and (ii) the maximum nonusurious interest rate under
      applicable law (except that interest shall accrue at the 8.5% per annum interest
      rate described below (limited by the maximum nonusurious rate) in the specified
      circumstance) on the principal balance of this Convertible Note from time to
      time outstanding commencing on the Original Issue Date.  Accrued
      interest from such time through December 31, 2007 shall be paid by the Company
      to the Holder on January 1, 2008.  Thereafter, commencing on January
      1, 2008, the Company shall pay in cash (or restricted common stock) to the
      Holder, on the aggregate unconverted and then outstanding principal amount
      of
      this Convertible Note, accrued interest quarterly in arrears and continuing
      on
      each, April 1, July 1, October 1 and January 1, thereafter throughout the term
      of this Convertible Note and shall pay accrued interest on each Conversion
      Date
      (as to that principal amount then being converted), on each Redemption Date
      (as
      to that principal amount then being redeemed) and on the Maturity Date (each
      of
      the foregoing dates of payment, an “Interest Payment
      Date”).  If any Interest Payment Date is not a Business Day,
      then the applicable payment shall be due on the next succeeding Business Day
      and
      the amount of the accrued interest shall include such additional Business Day
      or
      Days.  At the sole discretion of the Company, interest shall accrue at
      the rate of the lesser of (i) eight and 1/2 percent (8.5%) per annum; or (ii)
      the maximum nonusurious rate of interest under applicable law, if, and to the
      extent that Company opts to pay such interest in Common Stock of the Company
      priced using the closing price of the last Trading Day of each quarter
      immediately preceding the quarterly Interest Payment Date, or the date preceding
      the Conversion Date, each Redemption Date or the Maturity
      Date.  Notwithstanding the foregoing, the Company shall not have the
      option of paying interest in shares of Common Stock unless: (i) the Company
      continues to be listed on a Trading Market; (ii) the Company is in compliance
      with its obligations under the Registration Rights Agreement; and (ii) no Event
      of Default (as defined herein) exists, in each case  as of the
      Interest Payment Date (collectively, the “Equity Conditions”).  All
      cash payments of interest payments shall be paid to the Holder in accordance
      with wire transfer instructions provided by the Holder to the
      Company.  All interest payments made with Common Stock shall be made
      by delivery to the Holder by overnight courier to the address for the Holder
      provided under Section 11 hereof.

    


    b)           Default
      Interest.  The Company further agrees  that if the
      Company shall default in the payment of any payment required hereunder, whether
      payment of principal, interest, or fees or otherwise, and whether paid in cash
      or with Common Stock, the Company promises to pay, on demand, interest on any
      such unpaid amounts, from the date the payment is due to the date of actual
      payment, at the rate (the “Default Rate”) of the lesser of (i)
      the Prime Rate plus 5.00% per annum; and (ii) the maximum nonusurious rate
      permitted by applicable law.

     

    
      
        Convertible
          Note

         

      

      
        Page
          8

        
          

        

      

      
         

      

    

     

    c)           Interest
      Calculations. Interest shall be calculated on the basis of a 360-day year,
      consisting of twelve 30 calendar day periods, and shall accrue daily commencing
      on the Original Issue Date until payment in full of the principal sum, together
      with all accrued and unpaid interest and other amounts which may become due
      hereunder, has been made.  Interest shall cease to accrue with respect
      to any principal amount converted, provided that the Company actually delivers
      the Note Shares within the time period required by Section 4(c)(iii)
      herein.  Interest hereunder will be paid to the Person in whose name
      this Convertible Note is registered on the records of the Company regarding
      registration and transfers of this Convertible Note (the “Convertible
      Note Register”).

    


    d)           Prepayment.  Except
      for Company’s right to redeem this Convertible Note in accordance with the
      provisions of Section 6 hereof, the Company may not prepay any portion of the
      principal amount of this Convertible Note, without the prior written consent
      of
      the Holder.

    


    e)           Maturity.
      On the Maturity Date, the outstanding principal balance on this Convertible
      Note, together with all accrued and unpaid interest shall be paid by the Company
      to the Holder in cash in accordance with wire transfer instructions previously
      provided by the Holder to the Company for use in connection with cash interest
      payments.

    


    Section
      3.    Registration of
      Transfers and Exchanges.

    


    a)           Different
      Denominations. This Convertible Note is exchangeable, from time to time, for
      Convertible Note in different denominations and in the names of one or more
      different designees, nominees or assignees, in an aggregate principal amount
      equal to the aggregate principal balance outstanding on the Convertible Note
      being exchanged at the time, as requested by the Holder surrendering the
      same.  No service charge will be payable for such exchanges,
      transfers, or registrations of transfers.

    


    b)           Investment
      Representations. This Convertible Note has been issued subject to certain
      investment representations of the original Holder set forth in the Purchase
      Agreement and may be transferred or exchanged only in compliance with the
      Purchase Agreement and applicable federal and state securities laws and
      regulations.

    


    c)           Reliance
      on Convertible Note Register. Prior to due presentment to the Company for
      transfer of this Convertible Note, the Company and any agent of the Company
      may
      treat the Person in whose name this Convertible Note is duly registered on
      the
      Convertible Note Register as the owner hereof for the purpose of receiving
      payment as herein provided and for all other purposes, whether or not this
      Convertible Note is overdue, and neither the Company nor any such agent shall
      be
      affected by notice to the contrary.


    
      
        Convertible
          Note

         

      

      
        Page
          9

        
          

        

      

      
         

      

    


    Section
      4.    Conversion.

    


    a)           Voluntary
      Conversion. This Convertible Note shall be convertible, in whole or in part,
      into shares of Common Stock at a price of $1.05 per share at the option of
      the
      Holder at any time and from time to time after the Original Issue
      Date.  The Holder shall effect conversions by delivering to the
      Company a Notice of Conversion, the form of which is attached hereto as Annex
      A (a “Notice of Conversion”), specifying therein the
      principal amount of this Convertible Note to be converted and the date on which
      such conversion shall be effected (such date, the “Conversion
      Date”).  If no Conversion Date is specified in a Notice of
      Conversion, the Conversion Date shall be the date that such Notice of Conversion
      is deemed delivered hereunder.  To effect conversions hereunder, the
      Holder shall not be required to physically surrender this Convertible Note
      to
      the Company unless the entire principal amount of this Convertible Note, plus
      all accrued and unpaid interest thereon, has been so converted. Conversions
      hereunder shall have the effect of reducing the outstanding principal amount
      of
      this Convertible Note in an amount equal to the applicable conversion of
      principal.  The Holder and the Company shall maintain records showing
      the principal amount(s) converted and the date of such
      conversion(s).  The Company may deliver an objection to any Notice of
      Conversion within two (2) Business Days of delivery of such Notice of Conversion
      based on an inaccuracy in such Notice but not on any other basis.  In
      the event of any dispute or discrepancy, the records of the Holder shall be
      controlling and determinative in the absence of manifest error. The
      Holder, and any assignee by acceptance of this Convertible Note, acknowledge
      and
      agree that, by reason of the provisions of this paragraph, following conversion
      of a portion of this Convertible Note, the unpaid and unconverted principal
      amount of this Convertible Note will be less than the amount stated on the
      face
      hereof.

    


    b)
                 Conversion
      Price.  The conversion price in effect on any Conversion Date
      shall be $1.05 per share, subject to adjustment as provided herein (the
“Conversion Price”).

    


    c)    Mechanics
      of Conversion.

    


    i.           Note
      Shares Issuable Upon Conversion of Principal Amount.  The number
      of shares of Common Stock issuable upon a conversion hereunder shall be
      determined by the quotient obtained by dividing (x) the outstanding principal
      amount of this Convertible Note to be converted by (y) the Conversion
      Price.

    


    ii.           Delivery
      of Certificate Upon Conversion. Not later than three (3) Trading Days after
      each Conversion Date (the “Share Delivery Date”), the Company
      shall deliver, or cause to be delivered, to the Holder (A) a certificate or
      certificates representing the Note Shares which, shall bear an appropriate
      restrictive legend and trading restrictions as required by the Purchase
      Agreement representing the number of shares of Common Stock being acquired
      upon
      the conversion of this Convertible Note and (B) a bank check in the amount of
      accrued and unpaid interest (if the Company has elected or is required to pay
      accrued interest in cash).

     

    
      
        Convertible
          Note

         

      

      
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    iii.           Failure
      to Deliver Certificates.  If in the case of any Notice of
      Conversion such certificate or certificates are not delivered to or as directed
      by the applicable Holder by the fifth Trading Day after the Conversion Date,
      the
      Holder shall be entitled to elect by written notice to the Company at any time
      on or before its receipt of such certificate or certificates, to rescind such
      Conversion, in which event the Company shall promptly return to the Holder
      any
      original Convertible Note delivered to the Company and the Holder shall promptly
      return the Common Stock certificates representing the principal amount of this
      Convertible Note tendered for conversion to the Company.

    


    iv.           Obligation
      Absolute.  The Company’s obligations to issue and deliver the Note
      Shares upon conversion of this Convertible Note in accordance with the terms
      hereof are absolute and unconditional, irrespective of any action or inaction
      by
      the Holder to enforce the same, any waiver or consent with respect to any
      provision hereof, the recovery of any judgment against any Person or any action
      to enforce the same, or any setoff, counterclaim, recoupment, limitation or
      termination, or any breach or alleged breach by the Holder or any other Person
      of any obligation to the Company or any violation or alleged violation of law
      by
      the Holder or any other Person, and irrespective of any other circumstance
      which
      might otherwise limit such obligation of the Company to the Holder in connection
      with the issuance of such Note Shares; provided, however, that
      such delivery shall not operate as a waiver by the Company of any such action
      the Company may have against the Holder.

    


    v.           Reservation
      of Shares Issuable Upon Conversion. The Company covenants that it will at
      all times reserve and keep available out of its authorized and unissued shares
      of Common Stock for the sole purpose of issuance upon conversion of this
      Convertible Note and payment of interest on this Convertible Note, each as
      herein provided, free from preemptive rights or any other actual contingent
      purchase rights of Persons other than the Holder (and the other holders of
      the
      Convertible Note), not less than such aggregate number of shares of the Common
      Stock as shall (subject to the terms and conditions set forth in the Purchase
      Agreement) be issuable (taking into account the adjustments and restrictions
      of
      Section 5) upon the conversion of the outstanding principal amount of this
      Convertible Note and payment of interest hereunder.  The Company
      covenants that all shares of Common Stock that shall be so issuable shall,
      upon
      issue, be duly authorized, validly issued, fully paid and nonassessable and,
      if
      the Registration Statement is then effective under the Securities Act, shall
      be
      registered for public sale in accordance with such Registration
      Statement.

    


    vi.           Fractional
      Shares. Upon a conversion hereunder the Company shall not be required to
      issue stock certificates representing fractions of shares of Common Stock,
      but
      may if otherwise permitted, make a cash payment in respect of any final fraction
      of a share calculated by the Company to be equal to the then fair value of
      one
      share of Common Stock of the Company, as determined by the Board of Directors
      of
      the Company in good faith, multiplied by such fraction computed to the nearest
      whole cent.  If the Company elects not, or is unable, to make such a
      cash payment, the Holder shall be entitled to receive, in lieu of the final
      fraction of a share, 1 whole share of Common Stock.

     

    
      
        Convertible
          Note

         

      

      
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    vii.           Transfer
      Taxes.  The issuance of certificates for shares of the Common
      Stock on conversion of this Convertible Note shall be made without charge to
      the
      Holder hereof for any documentary stamp or similar taxes that may be payable
      in
      respect of the issue or delivery of such certificates, provided that the Company
      shall not be required to pay any tax that may be payable in respect of any
      transfer involved in the issuance and delivery of any such certificate upon
      conversion in a name other than that of the Holder of this Convertible Note
      so
      converted and the Company shall not be required to issue or deliver such
      certificates unless or until the person or persons requesting the issuance
      thereof shall have paid to the Company the amount of such tax or shall have
      established to the satisfaction of the Company that such tax has been
      paid.

    


    Section
      5.    Certain
      Adjustments.

    


    a)           Stock
      Dividends and Stock Splits.  If the Company, at any time while
      this Convertible Note is outstanding: (A) pays a stock dividend or otherwise
      makes a distribution or distributions payable in shares of Common Stock on
      shares of Common Stock or any security of the Company convertible into Common
      Stock (which, for avoidance of doubt, shall not include any shares of Common
      Stock issued by the Company upon conversion of, or payment of interest on,
      the
      Convertible Note); (B) subdivides outstanding shares of Common Stock into a
      larger number of shares; (C) combines (including by way of a reverse stock
      split) outstanding shares of Common Stock into a smaller number of shares;
      or
      (D) issues, in the event of a reclassification of shares of the Common Stock,
      any shares of capital stock of the Company, then the Conversion Price shall
      be
      multiplied by a fraction of which the numerator shall be the number of shares
      of
      Common Stock (excluding any treasury shares of the Company) outstanding
      immediately before such event and of which the denominator shall be the number
      of shares of Common Stock outstanding immediately after such
      event.  Any adjustment made pursuant to this Section shall become
      effective immediately after the record date for the determination of
      stockholders entitled to receive such dividend or distribution and shall become
      effective immediately after the effective date in the case of a subdivision,
      combination or re-classification.

    


    b)           Pro
      Rata Distributions. If the Company, at any time while this Convertible Note
      is outstanding, distributes to all holders of Common Stock (and not to the
      Holder) evidences of its indebtedness or assets (including cash and cash
      dividends) or rights or warrants to subscribe for or purchase any security,
      then
      in each such case the Conversion Price shall be adjusted by multiplying such
      Conversion Price in effect immediately prior to the record date fixed for
      determination of stockholders entitled to receive such distribution by a
      fraction of which the denominator shall be the VWAP determined as of the record
      date mentioned above, and of which the numerator shall be such VWAP on such
      record date less the then fair market value at such record date of the portion
      of such assets or evidence of indebtedness so distributed applicable to one
      outstanding share of the Common Stock as determined by the Board of Directors
      of
      the Company in good faith;
      provided, however, that the adoption of any so-called “poison pill” by the
      Company will not trigger any adjustment hereunder, but upon the conversion
      of
      any portion of the Convertible Note, any rights that attach to the Common Stock
      under any such “poison pill” shall attach to the shares of Common Stock issued
      upon conversion.  In either case the adjustments shall be described in
      a statement delivered to the Holder describing the portion of assets or
      evidences of indebtedness so distributed or such subscription rights applicable
      to one share of Common Stock.  Such adjustment shall be made whenever
      any such distribution is made and shall become effective immediately after
      the
      record date mentioned above.

     

    
      
        Convertible
          Note

         

      

      
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          12

        
          

        

      

      
         

      

    

     

    c)           Fundamental
      Transaction.

    


    (i)           If,
      at any time while this Convertible Note is outstanding, (A) the Company effects
      any merger or consolidation of the Company with or into another Person, (B)
      the
      Company effects any sale of all or substantially all of its assets in one
      transaction or a series of related transactions, (C) any tender offer or
      exchange offer (whether by the Company or another Person) is completed pursuant
      to which holders of Common Stock are permitted to tender or exchange their
      shares for other securities, cash or property, or (D) the Company effects any
      reclassification of the Common Stock or any compulsory share exchange pursuant
      to which the Common Stock is effectively converted into or exchanged for other
      securities, cash or property (in any such case, a “Fundamental
      Transaction”), then, upon any subsequent conversion of this Convertible
      Note, the Holder shall have the right to receive, for each Conversion Share
      that
      would have been issuable upon such conversion immediately prior to the
      occurrence of such Fundamental Transaction, the same kind and amount of
      securities, cash or property as it would have been entitled to receive upon
      the
      occurrence of such Fundamental Transaction if it had been, immediately prior
      to
      such Fundamental Transaction, the holder of one (1) share of Common Stock (the
      “Alternate Consideration”).  For purposes of any such
      conversion, the determination of the Conversion Price shall be appropriately
      adjusted to apply to such Alternate Consideration based on the amount of
      Alternate Consideration issuable in respect of one (1) share of Common Stock
      in
      such Fundamental Transaction, and the Company shall apportion the Conversion
      Price among the Alternate Consideration in a reasonable manner reflecting the
      relative value of any different components of the Alternate
      Consideration.  If holders of Common Stock are given any choice as to
      the securities, cash or property to be received in a Fundamental Transaction,
      then the Holder shall be given the same choice as to the Alternate Consideration
      it receives upon any conversion of this Convertible Note following such
      Fundamental Transaction.  To the extent necessary to effectuate the
      foregoing provisions, any successor to the Company or surviving entity in such
      Fundamental Transaction shall issue to the Holder a new Convertible Note
      consistent with the foregoing provisions and evidencing the Holder’s right to
      convert such Convertible Note into Alternate Consideration. The terms of any
      agreement pursuant to which a Fundamental Transaction is effected shall include
      terms requiring any such successor or surviving entity to comply with the
      provisions of this Section 5(c) and insuring that this Convertible Note (or
      any
      such replacement security) will be similarly adjusted upon any subsequent
      transaction analogous to a Fundamental Transaction.


    
      
        Convertible
          Note

         

      

      
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          13

        
          

        

      

      
         

      

    


    (ii)           Any
      successor to the Company or any surviving entity in a Fundamental Transaction
      shall (i) assume, prior to such Fundamental Transaction, all of the obligations
      of the Company under this Convertible Note, the Purchase Agreement, the Pledge
      and Security Agreement, the Registration Rights Agreement and the other
      transaction documents pursuant to written agreements in form and substance
      satisfactory to the Holder (such approval not to be unreasonably withheld or
      delayed) and (ii) issue to the Holder a new Convertible Note of such successor
      entity evidenced by a written instrument substantially similar in form and
      substance to this Convertible Note, including, without limitation, having a
      principal amount and interest rate equal to the principal amount and the
      interest rate of this Convertible Note and having similar ranking to this
      Convertible Note, which shall be satisfactory to the Holder (any such approval
      not to be unreasonably withheld or delayed).  The provisions of this
      Section 5(c) shall apply similarly and equally to successive Fundamental
      Transactions and shall be applied without regard to any limitations of this
      Convertible Note.

    


    d)           Calculations.  All
      calculations under this Section 5 shall be made to the nearest cent or the
      nearest 1/100th of a share, as the case may be.  For purposes of this
      Section 5, the number of shares of Common Stock deemed to be issued and
      outstanding as of a given date shall be the sum of the number of shares of
      Common Stock (excluding any treasury shares of the Company) issued and
      outstanding.

    


    e)           Notice
      to the Holder.

    


    i.           Adjustment
      to Conversion Price.  Whenever the Conversion Price is adjusted
      pursuant to any provision of this Section 5, the Company shall promptly mail
      to
      each Holder a notice setting forth the Conversion Price after such adjustment
      and setting forth a brief statement of the facts requiring such adjustment
      and
      the calculations undergirding such adjustment.


    
      
        Convertible
          Note

         

      

      
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          14

        
          

        

      

      
         

      

    


    ii.           Notice
      to Allow Conversion by Holder.  If (A) the Company shall declare a
      dividend (or any other distribution in whatever form) on the Common Stock,
      (B)
      the Company shall declare a special nonrecurring cash dividend on or a
      redemption of the Common Stock, (C) the Company shall authorize the granting
      to
      some or all holders of the Common Stock of rights or warrants to subscribe
      for
      or purchase any shares of capital stock of any class or of any rights, (D)
      the
      approval of any stockholders of the Company shall be required in connection
      with
      any reclassification of the Common Stock, any consolidation or merger to which
      the Company is a party, any sale or transfer of all or substantially all of
      the
      assets of the Company, of any compulsory share exchange whereby the Common
      Stock
      is converted into other securities, cash or property or (E) the Company shall
      authorize the voluntary or involuntary dissolution, liquidation or winding
      up of
      the affairs of the Company, then, in each case, the Company shall cause to
      be
      filed at each office or agency maintained for the purpose of conversion of
      this
      Convertible Note, and shall cause to be delivered to the Holder at its last
      address as it shall appear upon the Convertible Note Register, at least 10
      calendar days prior to the applicable record or effective date hereinafter
      specified, a notice stating (x) the date on which a record is to be taken for
      the purpose of such dividend, distribution, redemption, rights or warrants,
      or
      if a record is not to be taken, the date as of which the holders of the Common
      Stock of record to be entitled to such dividend, distributions, redemption,
      rights or warrants are to be determined or (y) the date on which such
      reclassification, consolidation, merger, sale, transfer or share exchange is
      expected to become effective or close, and the date as of which it is expected
      that holders of the Common Stock of record shall be entitled to exchange their
      shares of the Common Stock for securities, cash or other property deliverable
      upon such reclassification, consolidation, merger, sale, transfer or share
      exchange, provided that the failure to deliver such notice or any defect therein
      or in the delivery thereof shall not affect the validity of the corporate action
      required to be specified in such notice.  The Holder is entitled to
      convert this Convertible Note during the 10-day period commencing on the date
      of
      such notice through the effective date of the event triggering such
      notice.

    


    Section
      6.    Redemption At
      Election Of Company.

    


    a)           Redemption
      at Election of Company.  Subject to the provisions of this Section
      6, so long as the Company is in compliance with all Equity Conditions listed
      in
      Section 2.a. herein, the Company may redeem part or all of the outstanding
      Convertible Note on or after twelve (12) months from the Original Issue Date
      (the period beginning after the 12-month anniversary of the Original Issue
      Date
      being referred to herein as the “Redemption
      Period”).  During the Redemption Period, the Company may
      deliver a notice to the Holder (the “Redemption Notice”) of its
      irrevocable election to redeem some or all of the then outstanding principal
      amount of this Convertible Note for cash in an amount equal to the Optional
      Redemption Amount (“Redemption Amount”) on the 20th
      Trading Day
      following the date the Redemption Notice is received by Holder
      (“Redemption Date”), and the Redemption Amount shall be payable
      to Holder in full on the Redemption Date unless Holder elects to convert its
      Convertible Note prior to such Redemption Date; provided, however, that the
      Company may not deliver a Redemption Notice prior to the 12-month anniversary
      of
      the Original Issue Date.  The Company covenants and agrees that it
      will honor all Notices of Conversion tendered from the time of delivery of
      the
      Redemption Notice through the date the Redemption Amount is paid in
      full.


    
      
        Convertible
          Note

         

      

      
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    b)           Redemption
      Procedure.  The Redemption Amount payment shall be payable in cash
      on the Redemption Date.  Notwithstanding anything herein contained to
      the contrary, if any portion of the Redemption Amount remains unpaid after
      such
      date, the Holder may elect, by written notice to the Company given at any time
      thereafter, to invalidate such Redemption, abinitio, and,
      with respect to the Company’s failure to pay the Redemption Amount, the Company
      shall have no further right to exercise such
      Redemption.  Notwithstanding anything to the contrary in this Section
      6, the Company’s determination to redeem in cash shall be applied ratably among
      the Holders of Convertible Note. The Holder may elect to convert the outstanding
      principal amount of the Convertible Note pursuant to Section 4 prior to actual
      payment in cash for any redemption under this Section 6 by the delivery of
      a
      Notice of Conversion to the Company.

    


    Section
      7.    Negative Covenants
      and Representations.

    


    a)           As
      long as any portion of this Convertible Note remains outstanding and the Company
      has any obligations to the Holder under the Convertible Note, the Purchase
      Agreement, the Pledge and Security Agreement and any agreements executed in
      connection therewith, the Company shall not, and shall not permit any of its
      Significant Subsidiaries to, in the future, directly or indirectly:

    


    
      	
               

            	
              i)

            	
              Incur
                Indebtedness (including the Indebtedness evidenced by this Convertible
                Note) in excess of fifty percent (50%) of the PV-10 Value of the
                Company’s
                (or such Significant Subsidiary’s) total Proved Reserves, plus the Fair
                Market Value of the leases and pipeline assets associated with the
                Barnett
                Shale Project, without the prior written consent of the Holders
                collectively holding at least 50% of the aggregate principal amount
                then
                outstanding under the Convertible
                Notes;

            


    

    


    
      	
               

            	
              ii)

            	
              Amend
                its charter documents, including, without limitation, its certificate
                of
                incorporation or formation, and its articles and bylaws or limited
                liability agreement or other operating agreement, as applicable,
                in any
                manner that materially and adversely affects any rights of the Holder,
                without the prior written consent of the Holders collectively holding
                at
                least 50% of the aggregate principal amount then outstanding under
                the
                Convertible Notes; provided, however, that the Company shall not
                take any
                such action if they affect any Holder disproportionately to the other
                Holders without such Holder's prior written
                consent.

            


    

    


    
      	
               

            	
              iii)

            	
              Sell,
                transfer, or otherwise dispose of any of its membership interests
                or
                partnership interests in Exploration Holding or Barnett Petrosearch,
                without the prior written consent of the Holders collectively holding
                at
                least 50% of the aggregate principal amount then outstanding under
                the
                Convertible Notes;

            


    

    


    
      	
               

            	
              iv)

            	
              (A)
                Pay any dividends or make any distributions on its equity securities;
                (B)
                purchase, redeem, retire, defease or otherwise acquire for value
                any of
                its equity securities; (C) return any capital to any holder of its
                equity
                securities; (D) make any distribution of assets, equity securities,
                obligations or securities to any holder of its equity securities;
                or (E)
                set apart any sum for any such purpose; provided, however, that the
                Company may repurchase its capital stock at cost from directors,
                officers,
                employees and consultants upon the exercise of its right of repurchase
                upon termination of such person’s employment with or services to the
                Company; and provided, further, however, that the Company and its
                subsidiaries shall be permitted to take the actions described in
                clauses
                (A)-(D) as long as, and to the extent that, after taking such actions,
                (Y)
                no Event of Default or event which with the passage of time or the
                giving
                of notice would constitute an Event of Default shall have
                occurred.

            


    


    
      
        Convertible
          Note

         

      

      
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    As
      to
      Section 7(a)(i), on each quarterly Interest Payment Date, the Company shall
      certify to the Holder, in a form satisfactory to the Holder, that no Event
      of
      Default, or event which, with the passage of time or the giving of notice would
      become an Event of Default, has occurred.  In making calculations of
      the Indebtedness incurrence test under Section 7(a)(i) hereof, the Company
      shall
      not be entitled (i) to include either the assets or the Indebtedness of any
      Significant Subsidiary which the Company has elected to exclude from the test
      (which Significant Subsidiary must also meet the other requirements of the
      definition of Significant Subsidiary in order to be excluded); or (ii) to
      include the Fair Market Value of the leases and pipelines assets associated
      with
      the Barnett Shale Project, unless and only to the extent that, the Company
      is a
      direct or indirect owner thereof by virtue of Barnett Petrosearch’s Partnership
      Interest therein.

    


    b)           The
      Company represents, warrants and covenants (i) that the Company owns 100% of
      the
      membership interests in Exploration Holding (subject to outstanding security
      interests); (ii) that Exploration Holding owns 100% of the membership interests
      in Barnett Petrosearch; (iii) that Barnett Petrosearch owns the Partnership
      Interest; (iv) that the sole asset of Barnett Petrosearch on the Original Issue
      Date is the Partnership Interest; and (v) that after the Original Issue Date,
      the only assets that Barnett Petrosearch, L.L.C. will own are the Partnership
      Interest with Exxon Mobil Corporation and others relating to the development
      of
      the Barnett Shale geologic regions.

    


    Section
      8.    Default By
      Company.

    


    a)           “Event
      of Default” means, wherever used herein, any of the following events
      (whatever the reason for such event and whether such event shall be voluntary
      or
      involuntary or effected by operation of law or pursuant to any judgment, decree
      or order of any court, or any order, rule or regulation of any administrative
      or
      governmental body):

    


    i.    any
      default
      in the payment of (A) the principal amount of any Convertible Note or (B)
      interest, liquidated damages and other amounts owing to a Holder on any
      Convertible Note or under the Purchase  Agreement, as and when the
      same shall become due and payable (whether on a Conversion Date or the Maturity
      Date or by acceleration or otherwise) which default, solely in the case of
      an
      interest payment or other default under clause (B) above, is not cured within
      five (5) Trading Days;

    


    ii.           the
      Company shall fail the Indebtedness incurrence test set forth in Section 7(a)(i)
      hereof, provided that the Company shall have 90 days to meet such test if
      Company’s failure to meet such test was as a result of mark-to-market matters
      out of the control of the Company, as for example fluctuations in the price
      of
      the commodity;


    
      
        Convertible
          Note

         

      

      
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          17

        
          

        

      

      
         

      

    


    iii.           the
      Company breaches its obligations to deliver shares of Common Stock to the Holder
      upon conversion;

    


    iv.           any
      covenant or agreement contained in the Purchase Agreement or the Convertible
      Note other than those covered by the Events of Defaults described in foregoing
      clause (i)-(iii),which failure is not cured, if possible to cure, within the
      earlier to occur of (A) 60 days after notice of such failure sent by the Holder
      or by any other Holder and (B) 90 days after the Company has become or should
      have become aware of such failure;

    


    v.    any
      representation or warranty made in this Convertible Note, the Purchase
      Agreement, any written statement pursuant hereto or thereto or any other report,
      financial statement or certificate made or delivered to the Holder or any other
      Holder shall be untrue or incorrect in any material respect as of the date
      when
      made or deemed made provided however, that in the event that the untrue or
      incorrect representation or warranty is of the type capable of being cured
      and
      is cured by the Company within the time frame set forth in Section 8(a)(iv)
      above, then it shall be deemed to be cured and non-material;

    


    vi.           the
      Company or any Significant Subsidiary shall be subject to a Bankruptcy Event
      or
      shall fail to pay its debts in the aggregate amount of $500,000 or more, as
      they
      become due, or within 120 days of the stated due date, (except as to debts
      that
      are legitimately in dispute as to which the Company is taking action to resolve
      the dispute and as to which reserves are set aside in accordance with and to
      the
      extent required by GAAP);

    


    vii.           the
      Company or any Significant Subsidiary shall default, which default shall not
      be
      cured within any applicable cure period, on any of its obligations under any
      mortgage, credit agreement or other facility, indenture agreement, factoring
      agreement or other instrument under which there may be issued, or by which
      there
      may be secured or evidenced, any indebtedness for borrowed money or money due
      under any long term leasing or factoring arrangement that (a) involves an
      obligation greater than $500,000, whether such indebtedness now exists or shall
      hereafter be created, and (b) results in such indebtedness becoming or being
      declared due and payable prior to the date on which it would otherwise become
      due and payable;

    


    viii.           any
      monetary judgment, writ or similar final process shall be entered or filed
      against the Company, any Significant Subsidiary or any of their respective
      property or other assets for $500,000 or more, and such judgment, writ or
      similar final process shall remain unvacated, unbonded or unstayed for a period
      of 45 calendar days;


    
      
        Convertible
          Note

         

      

      
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          18

        
          

        

      

      
         

      

    


    ix.           
      any Event of Default under the Pledge and Security  Agreement, the
      Registration Rights Agreement, or any other agreement executed in connection
      with this Convertible Note occurs; or

    


    x.    any
      tax lien
      in the amount of $500,000 or more, is filed against the Company  or
      Exploration Holding or on any property of the Company or Exploration Holding
      for
      any past-due tax obligations (except as to tax liens that are legitimately
      in
      dispute as to which the Company is taking action to resolve the dispute and
      as
      to which reserves are set aside in accordance with and to the extent required
      by
      GAAP).

    


    b)           Remedies
      Upon Event of Default. If any Event of Default occurs, interest on this
      Convertible Note shall begin accruing at the Default Rate and the outstanding
      principal amount of this Convertible Note, plus accrued but unpaid interest,
      liquidated damages (if any) and other amounts owing in respect thereof through
      the date of acceleration, shall become, at the Holder’s election, immediately
      due and payable in cash; provided however that in the case of an Event of
      Default under Section 8(a)(vi) hereof, acceleration shall be automatic, without
      action by the Holder and the indebtedness evidenced by this Convertible Note
      shall be immediately due and payable.  If an Event of Default occurs,
      the Holder shall be entitled to pursue all rights and remedies with respect
      to
      the Collateral and to foreclose on it, take possession, and otherwise realize
      on
      it in accordance with the Pledge and Security Agreement.  In
      connection with such acceleration described herein, the Holder need not provide,
      and the Company hereby waives, any presentment, demand, protest, notice of
      intent to accelerate, notice of acceleration, and other notice of any kind,
      and
      the Holder may immediately and without expiration of any grace period enforce
      any and all of its rights and remedies hereunder and all other remedies
      available to it under applicable law.  Such acceleration may be
      rescinded and annulled by Holder at any time prior to payment hereunder and
      the
      Holder shall have all rights as a holder of the Convertible Note until such
      time, if any, as the Holder receives full payment pursuant to this Section
      8(b).  No such rescission or annulment shall affect any subsequent
      Event of Default or impair any right consequent thereon.

    


    Section
      9.    Registration
      Rights.  The Company shall comply with its obligations under the
      Purchase Agreement and the Registration Rights Agreement executed in connection
      therewith.


    
      
        Convertible
          Note

         

      

      
        Page
          19

        
          

        

      

      
         

      

    


    Section
      10.    Senior Status/
      Release/Partial Release of Collateral.  This Convertible Note is a
      senior secured note and is pari passu with all other senior indebtedness of
      the
      Company.  This Convertible Note is secured by a first and prior
      security interest in the Holder’s pro rata portion of a five percent (5.00%)
      membership interest in Exploration Holding and certain other Collateral as
      defined in and evidenced by the Pledge and Security Agreement.  The
      Holder shall execute and deliver to the Company a full release of the Holder’s
      pro rata portion of the Collateral in the case of clauses (a)-(c) following,
      or
      a partial release of the Holder’s pro rata portion of the Collateral in the case
      of clause (d), upon the occurrence of the following:  (a) payment in
      full of all principal, interest and other sums due and owing to the Holder
      under
      this Convertible Note in accordance with its terms and fulfillment of all
      obligations under the Purchase Agreement and the Pledge and Security Agreement
      and any other agreement executed in connection herewith; (b) redemption by
      the
      Company of the Convertible Note under the redemption terms set forth in this
      Convertible Note and fulfillment of all obligations under the Purchase Agreement
      and the Pledge and Security Agreement and any other agreement executed in
      connection herewith; (c) conversion in full of this Convertible Note by Holder
      under the terms set forth in this Convertible Note and fulfillment of all
      obligations under the Purchase Agreement and the Pledge and Security Agreement
      and any other agreement executed in connection herewith; or (d) as long as
      no
      Event of Default, or event which with the passage of time or the giving of
      notice would constitute an Event of Default, occurs, and so long as the Company
      continues to be listed on a Trading Market and the Company is in compliance
      with
      its obligations under the Registration Rights Agreement, if (i) the Company’s
      shares of Common Stock trade above $1.50 for a period of ten (10) consecutive
      Trading Days, (ii) the Holder has the right to convert this Convertible Note
      under Section 4(a) hereof and (iii) the sooner of (A) three months of the
      effective date of the Registration Statement or (B) twelve (12) months from
      the
      Original Issue Date has passed.  The Holder shall, at the cost and
      expense of the Company, and to the extent the Holder has not exercised any
      of
      its remedies in accordance with the Pledge and Security Agreement, (a) release
      from the lien and security interest created by the Pledge and Security Agreement
      and reassign to the Company the Collateral (and any property or rights assigned
      by the Company to the Holder by the Pledge and Security Agreement or by any
      agreement or agreements supplemental hereto with respect thereto) required
      to be
      released by this Section, and (b) do and execute all such acts, things and
      instruments as are necessary to effect such  release or reassignment
      including the return to the Company of the certificates evidencing the released
      Pledged Securities (as defined in the Pledge and Security Agreement, hereafter
      the “Pledged Securities”), including, without limitation, where
      appropriate, a release of any financing statement.

    


    Section
      11.    Miscellaneous.

    


    a)           Notices.  Any
      and all notices or other communications or deliveries to be provided by the
      Holder hereunder, including, without limitation, any Notice of Conversion,
      shall
      be in writing and delivered personally, by facsimile, or sent by a nationally
      recognized overnight courier service, addressed to the Company, at the address
      set forth on page 1 hereof, facsimile number  (713) 961-9338, Attn:
      David Collins or such other facsimile number or address as the Company may
      specify for such purpose by notice to the Holder delivered in accordance with
      this Section 11.  Any and all notices or other communications or
      deliveries to be provided by the Company hereunder shall be in writing and
      delivered personally, by facsimile, or sent by a nationally recognized overnight
      courier service addressed to the Holder at the following address:
      ___________________________, _________________  
 __________, Attn: _____________________, facsimile number
      _________________ or at such other address or facsimile number as the Holder
      may
      specify for such purpose by notice to the Company delivered in accordance with
      this Section 11.  Any notice or other communication or deliveries
      hereunder shall be deemed given and effective on the earliest of (i) the date
      of
      transmission, if such notice or communication is delivered via facsimile at
      the
      facsimile number specified in this Section 11 prior to 5:30 p.m. (Eastern
      Standard Time), (ii) the date immediately following the date of transmission,
      if
      such notice or communication is delivered via facsimile at the facsimile number
      specified in this Section 11 between 5:30 p.m. (Eastern Standard Time) and
      11:59
      p.m. (Eastern Standard Time) on any date, (iii) the second Business Day
      following the date of mailing, if sent by nationally recognized overnight
      courier service, or (iv) upon actual receipt by the party to whom such notice
      is
      required to be given.


    
      
        Convertible
          Note

         

      

      
        Page
          20

        
          

        

      

      
         

      

    


    b)           Absolute
      Obligation. Except as expressly provided herein, no provision of this
      Convertible Note shall alter or impair the obligation of the Company, which
      is
      absolute and unconditional, to pay the principal of, liquidated damages and
      accrued interest, as applicable, on this Convertible Note at the time, place,
      and rate, and in the coin or currency, herein prescribed.  This
      Convertible Note is a direct debt obligation of the Company.  This
      Convertible Note ranks paripassu with all other Convertible Note
      now or hereafter issued under the terms set forth herein.

    


    c)           Lost
      or Mutilated Convertible Note.  If this Convertible Note shall be
      mutilated, lost, stolen or destroyed, the Company shall execute and deliver,
      in
      exchange and substitution for and upon cancellation of a mutilated Convertible
      Note, or in lieu of or in substitution for a lost, stolen or destroyed
      Convertible Note, a new Convertible Note for the principal amount of this
      Convertible Note so mutilated, lost, stolen or destroyed, but only upon receipt
      of evidence of such loss, theft or destruction of such Convertible Note, and
      of
      the ownership hereof, reasonably satisfactory to the Company and if requested
      by
      the Company, indemnity also reasonably satisfactory to the Company.

    


    d)           Governing
      Law.  All questions concerning the construction, validity,
      enforcement and interpretation of this Convertible Note shall be governed by
      and
      construed and enforced in accordance with the internal laws of the State of
      Texas, without regard to the principles of conflict of laws
      thereof.  Each party agrees that all legal proceedings concerning the
      interpretation, enforcement and defense of the Convertible Note (whether brought
      against a party hereto or its respective Affiliates, directors, officers,
      shareholders, employees or agents) shall be commenced in the state and federal
      courts sitting in the City of Houston, Texas (the “Houston
      Courts”).  Each party hereto hereby irrevocably submits to the
      exclusive jurisdiction of the Houston Courts for the adjudication of any dispute
      hereunder or in connection herewith or with any transaction contemplated hereby
      or discussed herein, and hereby irrevocably waives, and agrees not to assert
      in
      any suit, action or proceeding, any claim that it is not personally subject
      to
      the jurisdiction of such Houston Courts, or that such Houston Courts are
      improper or inconvenient venue for such proceeding. If either party shall
      commence an action or proceeding to enforce any provisions of this Convertible
      Note, then the prevailing party in such action or proceeding shall be reimbursed
      by the other party for its attorney’s fees and other costs and expenses incurred
      in the investigation, preparation and prosecution of such action or
      proceeding.  The Company agrees to reimburse the Holder on demand for
      all costs, expenses and charges (including, without limitation, fees and charges
      of counsel and court costs) in connection with the preparation or modification
      of this Convertible Note, the Purchase Agreement, the Pledge and Security
      Agreement and the other agreements executed in connection herewith, and the
      collection, performance or enforcement of this Convertible Note and all such
      agreements, and the defense or prosecution of any rights of the Holder pursuant
      to this Convertible Note and such agreements.


    
      
        Convertible
          Note

         

      

      
        Page
          21

        
          

        

      

      
         

      

    


    e)           Waiver.  Any
      waiver by the Company or the Holder of a breach of any provision of this
      Convertible Note shall not operate as or be construed to be a waiver of any
      other breach of such provision or of any breach of any other provision of this
      Convertible Note.  The failure of the Company or the Holder to insist
      upon strict adherence to any term of this Convertible Note on one or more
      occasions shall not be considered a waiver or deprive that party of the right
      thereafter to insist upon strict adherence to that term or any other term of
      this Convertible Note.  Any waiver by the Company or the Holder must
      be in writing.

    


    f)           Severability.  If
      any provision of this Convertible Note is invalid, illegal or unenforceable,
      the
      balance of this Convertible Note shall remain in effect, and if any provision
      is
      inapplicable to any Person or circumstance, it shall nevertheless remain
      applicable to all other Persons and circumstances.

    


    g)           Usury
      Savings Clause.  It is the intention of the Company and the holder
      of this Convertible Note to comply with applicable usury laws; accordingly,
      it
      is agreed that notwithstanding any provisions to the contrary in this
      Convertible Note, in no event shall this Convertible Note and/or any other
      instrument or document executed in connection with this Convertible Note require
      or permit the payment, charge or receipt of interest, as defined under
      applicable usury laws, in excess of the maximum amount permitted by such
      laws.  If any such excess of interest is contracted for, charged,
      taken, reserved or received under this Convertible Note, or if the maturity
      of
      the indebtedness evidenced by this Convertible Note is accelerated, in whole
      or
      in part, or in the event that all or part of the principal of or interest on
      this Convertible Note shall be prepaid, so that under any of such circumstances
      the amount of interest contracted for, charged, taken, reserved or received
      under this Convertible Note on the amount of principal actually outstanding
      from
      time to time under this Convertible Note shall exceed the maximum amount of
      interest permitted by applicable usury laws, then in any such event (a) the
      provisions of this paragraph shall govern and control, (b) neither the Company
      nor any other party now or hereafter liable for the payment of this Convertible
      Note shall be obligated to pay the amount of such interest to the extent that
      it
      is in excess of the maximum amount of interest permitted to be contracted for
      by, charged to, taken, reserved or received from the party obligated thereon
      under applicable usury laws, (c) any such excess which may have been collected
      either shall be applied as a credit against the then unpaid principal amount
      on
      this Convertible Note or refunded to the party paying the same, at the holder’s
      option, (d) any such excess which may have been charged shall be canceled ab
      initio and be of no force or effect, and (e) the effective rate of interest
      shall be automatically reduced to the maximum lawful rate of interest permitted
      under applicable usury laws as now or hereafter construed by the courts having
      jurisdiction thereof.  It is further agreed that, without limitation
      of the foregoing, all calculations of the rate of interest contracted for,
      charged, taken, reserved or received under this Convertible Note, which are
      made
      for the purpose of determining whether such rate exceeds the maximum lawful
      rate
      of interest shall be made, to the extent permitted by applicable usury laws,
      by
      amortizing, prorating, allocating and spreading in equal parts during the period
      of the full stated term of the indebtedness evidenced by this Convertible Note,
      all interest at any time contracted for, charged or received from the Company
      or
      otherwise by the holder or holders hereof in connection with this Convertible
      Note.


    
      
        Convertible
          Note

         

      

      
        Page
          22

        
          

        

      

      
         

      

    


    h)           Waiver.
      The Company covenants (to the extent that it may lawfully do so) that it shall
      not at any time insist upon, plead, or in any manner whatsoever claim or take
      the benefit or advantage of, any stay, extension or usury law or other law
      which
      would prohibit or forgive the Company from paying all or any portion of the
      principal of or interest on this Convertible Note as contemplated herein,
      wherever enacted, now or at any time hereafter in force, or which may affect
      the
      covenants or the performance of this Convertible Note and the related
      agreements, and the Company (to the extent it may lawfully do so) hereby
      expressly waives all benefits or advantage of any such law, and covenants that
      it will not, by resort to any such law, hinder, delay or impede the execution
      of
      any power herein granted to the Holder, but will suffer and permit the execution
      of every such as though no such law has been enacted.

    


    i)           Next
      Business Day.  Whenever any payment or other obligation hereunder
      shall be due on a day other than a Business Day, such payment shall be made
      on
      the next succeeding Business Day.

    


    j)           Business
      Purpose.  The Company agrees, represents, and acknowledges that
      the purposes of consideration furnished by the Holder will be used for solely
      for business, commercial, investment or other similar purposes and not personal,
      family or agricultural purposes.

    


    k)           Headings.  The
      headings contained herein are for convenience only, do not constitute a part
      of
      this Convertible Note and shall not be deemed to limit or affect any of the
      provisions hereof.

    


    


    [SIGNATURES
      APPEAR ON THE FOLLOWING PAGE.]


    
      
        Convertible
          Note

         

      

      
        Page
          23

        
          

        

      

      
         

      

    


    IN
      WITNESS WHEREOF, the Company has caused this Convertible Note to be duly
      executed by a duly authorized officer as of the date first above
      indicated.

    


    
      	 	
              PETROSEARCH
                ENERGY CORPORATION

            
	 	 	 
	 	
              By:

            	
                
                

            
	 	 	
              Name: 
                

            
	 	 	
              Title: 
                

            


    


    
      
        Signature
          Page to Note

         

      

      
        
        

        
          

        

      

      
         

      

    


    ANNEX
      A

    


    NOTICE
      OF CONVERSION

    


    


    The
      undersigned hereby elects to
      convert principal under the 8% Senior Secured Convertible Note due November
      9,
      2010 of Petrosearch Energy Corporation, a Nevada corporation (the
“Company”), into shares of common stock, par value $0.001 per share (the
“Common Stock”), of the Company according to the conditions hereof, as of
      the date written below.  If shares of Common Stock are to be issued in
      the name of a person other than the undersigned, the undersigned will pay all
      transfer taxes payable with respect thereto and is delivering herewith such
      certificates and opinions as reasonably requested by the Company in accordance
      therewith.  No fee will be charged to the Holder for any conversion,
      except for such transfer taxes, if any.

    


    The
      undersigned agrees to comply with
      the prospectus delivery requirements under the applicable securities laws in
      connection with any transfer of the aforesaid shares of Common
      Stock.

    


    
      	
              Conversion
                calculations:

            	 	 	 	 
	 	
              Date
                to Effect Conversion: 

            	 	 
	 	 	 	 	 
	 	
              Principal
                Amount of Convertible Note to be Converted:   

            
	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 
	 	
              Number
                of shares of Common Stock to be issued:  

            	 
	 	 	 	 	 
	 	 	 	 	 
	 	
              Signature:

            	 	 	 
	 	 	 	 	 
	 	
              Name:

            	 	 	 
	 	 	 	 	 
	 	
              Address:

            	 	 	 
	 	 	 	 	 


    


    
      
        Annex
          A

         

      

      
        
        

        
          

        

      

      
         

      

    


    Schedule
      1

    


    CONVERSION
      SCHEDULE

    


    The
      8%
      Senior Secured Convertible Note due November 9, 2010 in the aggregate principal
      amount of $8,100,000 is issued by Petrosearch Energy
      Corporation.  This Conversion Schedule reflects conversions made under
      Section 4 of the above referenced Convertible Note.

    


    Dated:

    


    


    
      	
              Date
                of Conversion

              (or
                for first entry, Original Issue Date)

            	
              Amount
                of Conversion

            	
              Aggregate
                Principal Amount Remaining Subsequent to Conversion

              (or
                original Principal Amount)

            	
              Company
                Attest

            
	
               

               

            	 	 	 
	
               

               

            	 	 	 
	
               

               

            	 	 	 
	
               

               

            	 	 	 
	
               

               

            	 	 	 
	
               

               

            	 	 	 
	
               

               

            	 	 	 
	
               

               

            	 	 	 
	
               

               

            	 	 	 


    

    


     

    Schedule
      1