Document:

ADA AND ENVIRONMENTAL INDEMNITY AGREEMENT

            ADA AND ENVIRONMENTAL INDEMNITY AGREEMENT (this "Agreement") made as
of the 9th day of February, 2006, by INTERPHARM, INC., a New York corporation,
having an address at 75 Adams Avenue, Commack, New York 11725 ("Indemnitor") in
favor of WELLS FARGO BANK, NATIONAL ASSOCIATION, acting through its Wells Fargo
Business Credit operating division, having an address at 119 West 40th Street,
New York, New York 10018 ("Lender" or "Indemnitee") and other Indemnified
Parties (defined below).

                                    RECITALS:

            A. This Assignment is given in connection with a loan in the
principal sum of up to a maximum of Twelve Million and No/100 Dollars
($12,000,000.00) (the "Loan") made by Indemnitee to Indemnitor, as evidenced by
that certain Consolidated Real Estate Term Note, dated the date hereof, made by
Debtor to Indemnitor in the maximum principal amount of the Loan (as the same
may be amended, extended, restated, replaced, supplemented or otherwise modified
from time to time, the "Note"); and

            B. The Note is secured by, among other things, that certain Mortgage
and Security Agreement, as modified and consolidated by a Mortgage
Consolidation, Modification and Extension Agreement, made by Indemnitor to
Indemnitee, dated the date hereof (as the same may be amended, extended,
restated, replaced, supplemented or otherwise modified from time to time, the
"Mortgage") encumbering the premises known as 50 Horseblock Road in the Town of
Yaphank, County of Suffolk, State of New York, as more fully described as set
forth in Exhibit "A" attached hereto and made a part hereof (the "Property");
and

            C. Indemnitor desires to further secure the Note and the performance
by Indemnitor of all of its obligations under the Mortgage and the other Loan
Documents (as such term is defined in the Mortgage).

            D. Indemnitee is unwilling to make the Loan unless Indemnitor agrees
to provide the indemnification, representations, warranties, covenants and other
matters described in this Agreement for the benefit of the Indemnified Parties.

            E. Indemnitor is entering into this Agreement to induce Indemnitee
to make the Loan.

                                    AGREEMENT

            NOW THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Indemnitor hereby represents, warrants, covenants and agrees for
the benefit of the Indemnified Parties as follows:

            1.Representations And Warranties. (a) There are no Hazardous
Substances (defined below) or underground storage tanks in, on, or under the
Property, except those that are in compliance with all Environmental Laws
(defined below) and with permits issued pursuant thereto; (b) there are no past,

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present or threatened Releases (defined below) of Hazardous Substances in, on,
under or from the Property which have not been fully remediated in accordance
with Environmental Law; (c) there is no threat of any Release of Hazardous
Substances migrating to the Property; (d) there is no past or present
non-compliance with Environmental Laws, or with permits issued pursuant thereto,
in connection with the Property which has not been fully remediated in
accordance with Environmental Law; (e) Indemnitor does not know of, and has not
received, any written or oral notice or other communication from any person
(including but not limited to a governmental entity) relating to Hazardous
Substances or Remediation (defined below) thereof, or possible liability of any
person pursuant to any Environmental Law, other environmental conditions in
connection with the Property, or any actual or potential administrative or
judicial proceedings in connection with any of the foregoing; and (f) Indemnitor
has truthfully and fully provided to Indemnitee, in writing, any and all
information relating to conditions in, on, under or from the Property that is
known to Indemnitor and that is contained in files and records of Indemnitor,
including but not limited to any reports relating to Hazardous Substances in,
on, under or from the Property and/or to the environmental condition of the
Property.

            2. Covenants.

            (a) Indemnitor covenants and agrees that at all times that it or an
affiliate of Indemnitor is the owner of the Property or a tenant or user of the
Property: (a) all uses and operations on or of the Property, whether by
Indemnitor or any other person, shall be in compliance with all Environmental
Laws and permits issued pursuant thereto; (b) there shall be no Releases of
Hazardous Substances in, on, under or from the Property; (c) there shall be no
Hazardous Substances in, on, or under the Property, except those that are both
(i) in compliance with all Environmental Laws and with permits issued pursuant
thereto and (ii) fully disclosed to Indemnitee in writing; (d) Indemnitor shall
keep the Property free and clear of all liens and other encumbrances imposed
pursuant to any Environmental Law, whether due to any act or omission of
Indemnitor or any other person (the "Environmental Liens"); (e) Indemnitor
shall, at its sole cost and expense, fully and expeditiously cooperate in all
activities pursuant to Paragraph 3 of this Agreement, including but not limited
to providing all relevant information and making knowledgeable persons available
for interviews; (f) Indemnitor shall, at its sole cost and expense, perform any
environmental site assessment or other investigation of environmental conditions
in connection with the Property, pursuant to any reasonable written request of
Indemnitee (including but not limited to sampling, testing and analysis of soil,
water, air, building materials, and other materials and substances whether
solid, liquid or gas), and share with Indemnitee the reports and other results
thereof, and Indemnitee and the other Indemnified Parties shall be entitled to
rely on such reports and other results thereof; (g) Indemnitor shall, at its
sole cost and expense, comply with all reasonable written requests of Indemnitee
to (i) effectuate Remediation of any condition (including but not limited to a
Release of a Hazardous Substance) in, on, under or from the Property; (ii)
comply with any Environmental Law; (iii) comply with any directive from any
governmental authority; and (iv) take any other reasonable action necessary or
appropriate for protection of human health or the environment; (h) Indemnitor
shall not do or allow any tenant or other user of the Property to do any act
that materially increases the dangers to human health or the environment, poses
an unreasonable risk of harm to any person (whether on or off the Property),
impairs or may impair the value of the Property, is contrary to any requirement
of any insurer, constitutes a public or private nuisance, constitutes waste, or
violates any covenant, condition, agreement or easement applicable to the

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Property; and (i) Indemnitor shall immediately notify Indemnitee in writing of
(A) any presence or Releases or threatened Releases of Hazardous Substances in,
on, under, from or migrating towards the Property; (B) any non-compliance with
any Environmental Laws related in any way to the Property; (C) any actual or
potential Environmental Lien; (D) any required or proposed Remediation of
environmental conditions relating to the Property; and (E) any written or oral
notice or other communication of which any Indemnitor becomes aware from any
source whatsoever (including but not limited to a governmental entity) relating
in any way to Hazardous Substances or Remediation thereof, possible liability of
any person pursuant to any Environmental Law, other environmental conditions in
connection with the Property, or any actual or potential administrative or
judicial proceedings in connection with anything referred to in this Agreement.

            (b) Indemnitor covenants and agrees that at all times that it or an
affiliate of Indemnitor is the owner of the Property or a tenant or user of the
Property: (a) the Property shall at all times comply with all requirements of
the ADA with respect to similar properties for similar use, (b) Indemnitor
shall, at its sole cost and expense, comply with all reasonable written requests
of Indemnitee to (i) effectuate compliance with the ADA and (ii) comply with any
directive from any governmental authority relating to ADA compliance and (c)
Indemnitor shall immediately notify Indemnitee in writing of (i) any
non-compliance with the ADA related in any way to the Property and (ii) any
written or oral notice or other communication of which Indemnitor becomes aware
from any source whatsoever (including but not limited to a governmental entity)
relating in any way to the ADA or compliance therewith, possible liability of
any person pursuant to the ADA, or any actual or potential administrative or
judicial proceedings in connection with anything referred to in this Agreement.

            3. Indemnified Rights/Cooperation and Access.

            (a) In the event the Indemnified Parties have a reasonable basis to
believe that an environmental hazard exists on the Property that does not, in
the reasonable discretion of the Indemnified Parties, endanger any tenants or
other occupants of the Property or their guests or the general public or
materially and adversely affects the value of the Property, upon reasonable
notice from the Indemnitee, Indemnitor shall, at Indemnitor's expense, promptly
cause an engineer or consultant reasonably satisfactory to the Indemnified
Parties to conduct any environmental assessment or audit (the scope of which
shall be determined in the sole and absolute discretion of the Indemnified
Parties exercising commercially reasonable judgment) and take any samples of
soil, groundwater or other water, air, or building materials or any other
invasive testing reasonably requested by Indemnitee and promptly deliver the
results of any such assessment, audit, sampling or other testing; provided,
however, if such results are not delivered to the Indemnified Parties within a
reasonable period or if the Indemnified Parties have a reasonable basis to
believe that an environmental hazard exists on the Property that, in the
reasonable judgment of the Indemnified Parties, endangers any tenant or other
occupant of the Property or their guests or the general public or may materially
and adversely affect the value of the Property, upon reasonable notice to
Indemnitor, the Indemnified Parties and any other person designated by the
Indemnified Parties, including but not limited to any receiver, any
representative of a governmental entity, and any environmental consultant, shall
have the right, but not the obligation, to enter upon the Property at all
reasonable times to assess any and all aspects of the environmental condition of

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the Property and its use, including but not limited to conducting any
environmental assessment or audit (the scope of which shall be determined in the
sole and absolute discretion of the Indemnified Parties exercising commercially
reasonable judgment) and taking samples of soil, groundwater or other water,
air, or building materials, and reasonably conducting other invasive testing.
Indemnitor shall cooperate with and provide the Indemnified Parties and any such
person designated by the Indemnified Parties with access to the Property.

            (b) In the event the Indemnified Parties have a reasonable basis to
believe that the Property is not in compliance with the ADA, upon reasonable
notice from the Indemnitee, Indemnitor shall, at Indemnitor's expense, promptly
cause an engineer or consultant reasonably satisfactory to the Indemnified
Parties to conduct any ADA assessment reasonably required by Indemnitee (the
scope of which shall be determined in the sole and absolute discretion of the
Indemnified Parties exercising commercially reasonable judgment) and promptly
deliver the results of any such assessment. Indemnitor shall cooperate with and
provide the Indemnified Parties and any such person designated by the
Indemnified Parties with access to the Property.

            4. Indemnification. Indemnitor covenants and agrees, at its sole
cost and expense, to protect, defend, indemnify, release and hold Indemnified
Parties harmless from and against any and all Losses (defined below) imposed
upon or incurred by or asserted against any Indemnified Parties and directly or
indirectly arising out of or in any way relating to any one or more of the
following: (a) any presence of any Hazardous Substances in, on, above, or under
the Property; (b) any past, present or threatened Release of Hazardous
Substances in, on, above, under or from the Property; (c) any activity by
Indemnitor, any person affiliated with Indemnitor, and any tenant or other user
of the Property in connection with any actual, proposed or threatened use,
treatment, storage, holding, existence, disposition or other Release,
generation, production, manufacturing, processing, refining, control,
management, abatement, removal, handling, transfer or transportation to or from
the Property of any Hazardous Substances at any time located in, under, on or
above the Property; (d) any activity by Indemnitor, any person affiliated with
Indemnitor, and any tenant or other user of the Property in connection with any
actual or proposed Remediation of any Hazardous Substances at any time located
in, under, on or above the Property, whether or not such Remediation is
voluntary or pursuant to court or administrative order, including but not
limited to any removal, remedial or corrective action; (e) any past, present or
threatened non-compliance or violations of any Environmental Laws (or permits
issued pursuant to any Environmental Law) in connection with the Property or
operations thereon, including but not limited to any failure by Indemnitor, any
person affiliated with Indemnitor, and any tenant or other user of the Property
to comply with any order of any governmental authority in connection with any
Environmental Laws; (f) the imposition, recording or filing or the threatened
imposition, recording or filing of any Environmental Lien encumbering the
Property; (g) any administrative processes or proceedings or judicial
proceedings in any way connected with any matter addressed in this Agreement;
(h) any past, present or threatened injury to, destruction of or loss of natural
resources in any way connected with the Property, including but not limited to
costs to investigate and assess such injury, destruction or loss; (i) any acts
of Indemnitor, any person affiliated with Indemnitor, and any tenant or other
user of the Property in arranging for disposal or treatment, or arranging with a
transporter for transport for disposal or treatment, of Hazardous Substances at
any facility or incineration vessel containing such or similar Hazardous
Substances; (j) any acts of Indemnitor, any person affiliated with any
Indemnitor, and any tenant or other user of the Property in accepting any
Hazardous Substances for transport to disposal or treatment facilities,
incineration vessels or sites from which there is a Release, or a threatened
Release of any Hazardous Substance which causes the incurrence of costs for
Remediation; (k) any personal injury, wrongful death, or property or other
damage arising under any statutory or common law or tort law theory, including

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but not limited to damages assessed for private or public nuisance or for the
conducting of an abnormally dangerous activity on or near the Property; (l) any
past, present or future non-compliance with the ADA; and (m) misrepresentation
or inaccuracy in any material representation or warranty or material breach or
failure to perform any covenants or other obligations pursuant to this Agreement
or the Mortgage; provided, however, that nothing contained in this Section 4
shall impose liability upon Indemnitor with respect to conditions or
circumstances which did not exist prior to, and arise solely out of actions,
conditions or events occurring after, any sale of the Property by foreclosure of
the Mortgage or deed-in-lieu thereof.

            5. Duty to Defend and Attorneys and Other Fees and Expenses. Upon
written request by any Indemnified Party, Indemnitor shall defend same (if
requested by any Indemnified Party, in the name of the Indemnified Party) by
attorneys and other professionals reasonably approved by the Indemnified
Parties. Notwithstanding the foregoing, any Indemnified Parties may, in their
sole discretion, engage their own attorneys and other professionals to defend or
assist them, and, at the option of Indemnified Parties, their attorneys shall
control the resolution of any claim or proceeding, providing that no compromise
or settlement shall be entered without Indemnitor's consent, which consent shall
not be unreasonably withheld. Upon demand, Indemnitor shall pay or, in the sole
and absolute discretion of the Indemnified Parties, reimburse, the Indemnified
Parties for the payment of reasonable fees and disbursements of attorneys,
engineers, environmental consultants, laboratories and other professionals in
connection therewith.

            6. Definitions. As used in this Agreement, the following terms shall
have the following meanings:

            The term "ADA" means the Americans with Disabilities Act of 1990, as
amended and supplemented from time to time.

            The term "Environmental Law" includes, but is not limited to, the
following statutes, as amended, any successor thereto, and any regulations
promulgated pursuant thereto, and any state or local statutes, ordinances,
rules, regulations and the like addressing similar issues: the Comprehensive
Environmental Response, Compensation and Liability Act; the Emergency Planning
and Community Right-to-Know Act; the Hazardous Substances Transportation Act;
the Resource Conservation and Recovery Act (including but not limited to
Subtitle I relating to underground storage tanks); the Solid Waste Disposal Act;
the Clean Water Act; the Clean Air Act; the Toxic Substances Control Act; the
Safe Drinking Water Act; the Occupational Safety and Health Act; the Federal
Water Pollution Control Act; the Federal Insecticide, Fungicide and Rodenticide
Act; the Endangered Species Act; the National Environmental Policy Act; and the
River and Harbors Appropriation Act. The term "Environmental Law" also includes,
but is not limited to, any present and future federal, state and local laws,
statutes ordinances, rules, regulations and the like, as well as common law:
conditioning transfer of property upon a negative declaration or other approval
of a governmental authority of the environmental condition of the Property;
requiring notification or disclosure of Releases of Hazardous Substances or
other environmental condition of the Property to any Governmental Authority or
other person, whether or not in connection with transfer of title to or interest

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in property; imposing conditions or requirements in connection with permits or
other authorization for lawful activity; relating to protection of human health
or the environment, relating to Hazardous Substances, relating to liability for
or costs of other actual or threatened danger to human health or the
environment, relating to nuisance, trespass or other causes of action related to
the Property; and relating to wrongful death, personal injury, or property or
other damage in connection with any physical condition or use of the Property.

            The term "Hazardous Substances" includes but is not limited to any
and all substances (whether solid, liquid or gas) defined, listed, or otherwise
classified as pollutants, hazardous wastes, hazardous substances, hazardous
materials, extremely hazardous wastes, or words of similar meaning or regulatory
effect under any present or future Environmental Laws or that may have a
negative impact on human health or the environment, including but not limited to
petroleum and petroleum products, asbestos and asbestos-containing materials,
polychlorinated biphenyls, lead, radon, radioactive materials, flammables and
explosives, but excluding substances of kinds and in amounts ordinarily and
customarily used or stored in similar properties for the purposes of cleaning or
other maintenance or operations and otherwise in compliance with all
Environmental Laws.

            The term "Indemnified Parties" includes Indemnitee, any person who
is or will have been involved in the origination of the Loan, any person who is
or will have been involved with the servicing of the Loan, any person in whose
name the encumbrance created by the Mortgage is or will have been recorded,
persons who may hold or acquire or will have held a full or partial interest in
the Loan as well as the respective directors, officers, shareholders, partners,
employees, agents, servants, representatives, contractors, subcontractors,
affiliates, subsidiaries, participants, successors and assigns of any and all of
the foregoing (including but not limited to any other person who holds or
acquires or will have held a participation or other full or partial interest in
the Loan or the Property, whether during the term of the Loan or as a part of or
following a foreclosure of the Loan and including, but not limited to, any
successors by merger, consolidation or acquisition of all or a substantial
portion of Indemnitee's assets and business); provided that Indemnified Parties
shall not include any person at or after a foreclosure sale or deed-in-lieu of
foreclosure other than Indemnitee or its affiliated designee.

            The term "Legal Action" means any claim, suit or proceeding, whether
administrative or judicial in nature.

            The term "Losses" includes any losses, damages (excluding
consequential damages), costs, fees, expenses, claims, suits, judgments, awards,
liabilities (including but not limited to strict liabilities), obligations,
debts, diminutions in value, fines, penalties, charges, costs of Remediation
(whether or not performed voluntarily), amounts paid in settlement, litigation
costs, attorneys' fees, engineers' fees, environmental consultants' fees, and
investigation costs (including but not limited to costs for sampling, testing
and analysis of soil, water, air, building materials, and other materials and
substances whether solid, liquid or gas), of whatever kind or nature, and
whether or not incurred in connection with any judicial or administrative
proceedings, actions, claims, suits, judgments or awards.

            The term "Release" with respect to any Hazardous Substance includes
but is not limited to any release, deposit, discharge, emission, leaking,
leaching, spilling, seeping, migrating, injecting, pumping, pouring, emptying,
escaping, dumping, disposing or other movement of Hazardous Substances.

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            The term "Remediation" includes but is not limited to any response,
remedial, removal, or corrective action; any activity to clean up, detoxify,
decontaminate, contain or otherwise remediate any Hazardous Substance; any
actions to prevent, cure or mitigate any Release of any Hazardous Substance; any
action to comply with any Environmental Laws or with any permits issued pursuant
thereto; any inspection, investigation, study, monitoring, assessment, audit,
sampling and testing, laboratory or other analysis, or evaluation relating to
any Hazardous Substances or to anything referred to herein.

            The term "Property" means the Property listed on Exhibit A attached
hereto.

            7. Unimpaired Liability. The liability of Indemnitor under this
Agreement shall in no way be limited or impaired by, and Indemnitor hereby
consents to and agrees to be bound by, any amendment or modification of the
provisions of the Note, the Mortgage or any other Loan Document to or with
Indemnitee by Indemnitor or any person who succeeds Indemnitor or any person as
owner of the Property. In addition, the liability of Indemnitor under this
Agreement shall in no way be limited or impaired by (i) any extensions of time
for performance required by the Note, the Mortgage or any of the other Loan
Documents, (ii) any sale or transfer of all or part of the Property, (iii) any
exculpatory provision in the Note, the Mortgage, or any of the other Loan
Documents limiting Indemnitee's recourse to the Property or to any other
security for the Note, or limiting Indemnitee's rights to a deficiency judgment
against Indemnitor, (iv) the accuracy or inaccuracy of the representations and
warranties made by Indemnitor under the Note, the Mortgage or any of the other
Loan Documents or herein, (v) the release of Indemnitor or any other person from
performance or observance of any of the agreements, covenants, terms or
condition contained in any of the other Loan Documents by operation of law,
Indemnitee's voluntary act, or otherwise, (vi) the release or substitution in
whole or in part of any security for the Note, or (vii) Indemnitee's failure to
record the Mortgage or file any UCC financing statements (or Indemnitee's
improper recording or filing of any thereof) or to otherwise perfect, protect,
secure or insure any security interest or lien given as security for the Note;
and, in any such case, whether with or without notice to Indemnitor and with or
without consideration.

            8. Enforcement. Indemnified Parties may enforce the obligations of
Indemnitor without first resorting to or exhausting any security or collateral
or without first having recourse to the Note, the Mortgage, or any other Loan
Documents or any of the Property, through foreclosure proceedings or otherwise,
provided, however, that nothing herein shall inhibit or prevent Indemnitee from
suing on the Note, foreclosing, or exercising any power of sale under, the
Mortgage, or exercising any other rights and remedies thereunder. This Agreement
is not collateral or security for the debt of Indemnitor pursuant to the Loan,
unless Indemnitee expressly elects in writing to make this Agreement additional
collateral or security for the debt of Indemnitor pursuant to the Loan, which
Indemnitee is entitled to do in its sole and absolute discretion. It is not
necessary for an Event of Default to have occurred pursuant to and as defined in
the Mortgage for Indemnified Parties to exercise their rights pursuant to this
Agreement. Indemnitor is fully and personally liable for the obligations
pursuant to this Agreement and such liability is not limited to the original or
amortized principal balance of the Loan or the value of the Property.

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            9. Survival. The obligations and liabilities of Indemnitor under
this Agreement shall fully survive indefinitely notwithstanding any termination,
satisfaction, assignment, entry of a judgment of foreclosure, exercise of any
power of sale, or delivery of a deed in lieu of foreclosure of the Mortgage;
provided, however, that nothing in this Section 9 shall impose liability upon
Indemnitor with respect to conditions or circumstances which did not exist prior
to, and arise solely out of actions, conditions or events occurring after, any
sale of the Property by foreclosure of the Mortgage or deed-in-lieu thereof.
Notwithstanding the foregoing, the obligations and liabilities of Indemnitor
under this Agreement shall not inure to the benefit of any purchaser or
transferee of the Property upon and after a sale of the Property by foreclosure
of the Mortgage or deed-in-lieu thereof unless such purchaser or transferee is
the holder of the Mortgage at the time of such foreclosure or deed-in-lieu
thereof or is an affiliate or nominee of such holder.

            10. Interest. Any amounts payable to any Indemnified Parties under
this Agreement shall become immediately due and payable on demand and, if not
paid within ten (10) days of such demand therefor, shall bear interest at the
Default Rate.

            11. Waivers.

                  (a) Indemnitor hereby waives (i) any right or claim of right
to cause a marshaling of Indemnitor's assets or to cause Indemnitee or other
Indemnified Parties to proceed against any of the security for the Loan before
proceeding under this Agreement against Indemnitor; (ii) and relinquishes all
rights and remedies accorded by applicable law to indemnitors or guarantors,
except any rights of subrogation which Indemnitor may have, provided that the
indemnity provided for hereunder shall neither be contingent upon the existence
of any such rights of subrogation nor subject to any claims or defenses
whatsoever which may be asserted in connection with the enforcement or attempted
enforcement of such subrogation rights including, without limitation, any claim
that such subrogation rights were abrogated by any acts of Indemnitee or other
Indemnified Parties; (iii) the right to assert a counterclaim, other than a
mandatory or compulsory counterclaim, in any action or proceeding brought
against or by Indemnitee or other Indemnified Parties; (iv) notice of acceptance
hereof and of any action taken or omitted in reliance hereon; (v) presentment
for payment, demand of payment, protest or notice of nonpayment or failure to
perform or observe, or other proof, or notice or demand; and (vi) all homestead
exemption rights against the obligations hereunder and the benefits of any
statutes of limitations or repose. Notwithstanding anything to the contrary
contained herein, Indemnitor hereby agrees to postpone the exercise of any
rights of subrogation with respect to any collateral securing the Loan until the
Loan shall have been paid in full.

                  (b) INDEMNITOR, AND BY ITS ACCEPTANCE HEREOF, INDEMNITEE, EACH
HEREBY AGREE NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY JURY,
AND WAIVE ANY RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT
SHALL NOW OR HEREAFTER EXIST WITH REGARD TO THE AGREEMENT, OR ANY CLAIM,
COUNTERCLAIM OR OTHER ACTION ARISING IN CONNECTION THEREWITH. THIS WAIVER OF
RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY INDEMNITOR AND
INDEMNITEE, AND IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH
ISSUE AS TO WHICH THE RIGHT TO A TRIAL BY JURY WOULD OTHERWISE ACCRUE.
INDEMNITOR AND INDEMNITEE ARE EACH HEREBY AUTHORIZED TO FILE A COPY OF THIS
PARAGRAPH IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER.

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            12. Subrogation. Indemnitor shall take any and all reasonable
actions, including institution of legal action against third parties, necessary
or appropriate to obtain reimbursement, payment or compensation from such
persons responsible for the presence of any Hazardous Substances at, in, on,
under or near the Property or otherwise obligated by law to bear the cost.
Indemnified Parties shall be and hereby are subrogated to all of Indemnitor's
rights now or hereafter in such claims.

            13. Indemnitor's Representations and Warranties. Indemnitor
represents and warrants that:

                  (a) it has the full power and authority to execute and deliver
this Agreement and to perform its obligations hereunder; the execution, delivery
and performance of this Agreement by Indemnitor has been duly and validly
authorized; and all requisite action has been taken by Indemnitor to make this
Agreement valid and binding upon Indemnitor, enforceable in accordance with its
terms;

                  (b) its execution of, and compliance with, this Agreement is
in the ordinary course of business of Indemnitor and will not result in the
breach of any term or provision of the charter, by-laws, partnership or trust
agreement, or other governing instrument of Indemnitor or result in the breach
of any term or provision of, or conflict with or constitute a default under, or
result in the acceleration of any obligation under, any agreement, indenture or
loan or credit agreement or other instrument to which Indemnitor or the Property
is subject, or result in the violation of any law, rule, regulation, order,
judgment or decree to which Indemnitor or the Property is subject; to the best
of Indemnitor's knowledge, there is no action, suit, proceeding or investigation
pending or threatened against it which, either in any one instance or in the
aggregate, may result in any material adverse change in the business,
operations, financial condition, properties or assets of Indemnitor, or in any
material impairment of the right or ability of Indemnitor to carry on its
business substantially as now conducted, or in any material liability on the
part of Indemnitor, or which would draw into question the validity of this
Agreement or of any action taken or to be taken in connection with the
obligations of Indemnitor contemplated herein, or which would be likely to
impair materially the ability of Indemnitor to perform under the terms of this
Agreement;

                  (c) it does not believe, nor does it have any reason or cause
to believe, that it cannot perform each and every covenant contained in this
Agreement;

                  (d) to the best of Indemnitor's knowledge, no approval,
authorization, order, license or consent of, or registration or filing with, any
governmental authority or other person, and no approval, authorization or
consent of any other party is required in connection with this Agreement which
has not been obtained; and

                  (e) this Agreement constitutes a valid, legal and binding
obligation of Indemnitor, enforceable against it in accordance with the terms
hereof.

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            14. No Waiver. No delay by any Indemnified Party in exercising any
right, power or privilege under this Agreement shall operate as a waiver of any
such privilege, power or right.

            15. Notice of Legal Actions. Each party hereto shall, within five
(5) business days of receipt thereof, give written notice to the other party
hereto of (i) any notice, advice or other communication from any governmental
entity or any source whatsoever with respect to Hazardous Substances or the ADA
on, from or affecting the Property, and (ii) any legal action brought against
such party or related to the Property, with respect to which Indemnitor may have
liability under this Agreement. Such notice shall comply with the provisions of
Section 18 hereof.

            16. [Intentionally Omitted].

            17. [Intentionally Omitted].

            18. Notices. All notices or other written communications hereunder
shall be made in accordance with the notice provisions of the Mortgage.

            19. Duplicate Originals; Counterparts. This Agreement may be
executed in any number of duplicate originals and each duplicate original shall
be deemed to be an original. This Agreement may be executed in several
counterparts, each of which counterparts shall be deemed an original instrument
and all of which together shall constitute a single Agreement. The failure of
any party hereto to execute this Agreement, or any counterpart hereof, shall not
relieve the other signatories from their obligations hereunder.

            20. No Oral Change. This Agreement, and any provisions hereof, may
not be modified, amended, waived, extended, changed, discharged or terminated
orally or by any act or failure to act on the part of Indemnitor or any
Indemnified Party, but only by an agreement in writing signed by the party
against whom enforcement of any modification, amendment, waiver, extension,
change, discharge or termination is sought.

            21. Headings, Etc. The headings and captions of various paragraphs
of this Agreement are for convenience of reference only and are not to be
construed as defining or limiting, in any way, the scope or intent of the
provisions hereof.

            22. Number and Gender/Successors and Assigns. All pronouns and any
variations thereof shall be deemed to refer to the masculine, feminine, neuter,
singular or plural as the identity of the person or persons referred to may
require. Without limiting the effect of specific references in any provision of
this Agreement, the term "Indemnitor" shall be deemed to refer to each and every
person comprising an Indemnitor from time to time, as the sense of a particular
provision may require, and to include the heirs, executors, administrators,
legal representatives, successors and assigns of Indemnitor, all of whom shall
be bound by the provisions of this Agreement, provided that no obligation of
Indemnitor may be assigned except with the written consent of Indemnitee. Each
reference herein to Indemnitee shall be deemed to include its successors and
assigns. This Agreement shall inure to the benefit of Indemnified Parties and
their respective successors and assigns forever.

                                       10
<PAGE>

            23. Release of Liability. Any one or more parties liable upon or in
respect of this Agreement may be released without affecting the liability of any
party not so released.

            24. Rights Cumulative. The rights and remedies herein provided are
cumulative and not exclusive of any rights or remedies which Indemnitee has
under the Note, the Mortgage, or the other Loan Documents or would otherwise
have at law or in equity.

            25. Inapplicable Provisions. If any term, condition or covenant of
this Agreement shall be held to be invalid, illegal or unenforceable in any
respect, this Agreement shall be construed without such provision.

            26. Governing Law. This Agreement shall be governed, construed,
applied and enforced in accordance with the laws of the State of New York
(without giving effect to New York's principles of conflicts law) and the
applicable laws of the United States of America.

            27. Miscellaneous.

                  (a) Wherever pursuant to this Agreement (i) Indemnitee
exercises any right given to it approve or disapprove, (ii) any arrangement or
term is to be satisfactory to Indemnitee, or (iii) any other decision or
determination is to be made by Indemnitee, the decision of Indemnitee to approve
or disapprove, all decisions that arrangements or terms are satisfactory or not
satisfactory and all other decisions and determinations made by Indemnitee,
shall be in the sole and absolute discretion of Indemnitee and shall be final
and conclusive, except as may be otherwise expressly and specifically provided
herein.

                  (b) Wherever pursuant to this Agreement it is provided that
Indemnitor pay any costs and expenses, such costs and expenses shall include,
but not be limited to, reasonable attorneys' fees and disbursements of
Indemnitee.

                  (c) Capitalized terms used in this Agreement and not otherwise
defined in this Agreement shall have the respective meanings assigned to them in
the Mortgage.

           [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]

                                       11
<PAGE>

            IN WITNESS WHEREOF, this Agreement has been executed by Indemnitor
and is effective as of the day and year first above written.

                                    INDEMNITOR:

                                    INTERPHARM, INC.

                                    By: /s/ George Aronson
                                       ---------------------------------------
                                        George Aronson, Chief Financial Officer

                                    With respect to Section 11(b):

                                    WELLS FARGO BANK, NATIONAL ASSOCIATION,
                                    acting through its Wells Fargo Business
                                    Credit operating division

                                    By: /s/ Richard Mahtani
                                       ---------------------------------------
                                        Richard Mahtani, Assistant Vice
                                        President

                                       12
<PAGE>

                                 ACKNOWLEDGMENTS

STATE OF NEW YORK )
                  ) ss.:
COUNTY OF NASSAU  )

      On the 9th day of February, in the year 2006, before me, the undersigned,
a Notary Public in and for said State, personally appeared George Aronson,
personally known to me or proved to me on the basis of satisfactory evidence to
be the individual whose name is subscribed to the within instrument and
acknowledged to me that he executed the same in his capacity, and that by his
signature on the instrument, the individual, or the person upon behalf of which
the individual acted, executed the instrument.

                                          -------------------------------------
                                          Notary Public

STATE OF NEW YORK )
                  ) ss.:
COUNTY OF NASSAU  )

      On the 9th day of February, in the year 2006, before me, the undersigned,
a Notary Public in and for said State, personally appeared Richard Mahtani,
personally known to me or proved to me on the basis of satisfactory evidence to
be the individual whose name is subscribed to the within instrument and
acknowledged to me that he executed the same in his capacity, and that by his
signature on the instrument, the individual, or the person upon behalf of which
the individual acted, executed the instrument.

                                          -------------------------------------
                                          Notary Public

                                       13
<PAGE>

                                    EXHIBIT AEXHIBIT 10.4

                              SETTLEMENT AGREEMENT

      THIS SETTLEMENT AGREEMENT ("Agreement") is made as of February 3, 2006 by
and among Falcon Natural Gas Corp., a Nevada corporation with its principal
offices at Westchase Center, 2500 City West Boulevard, Suite 300, Houston, TX
77042 ("FNGC") and Source Capital Group, Inc., a corporation with offices at
1221 Post Road East, Westport, CT 06880 ("SCGI"). The foregoing parties are
sometimes referred to hereinafter collectively as the "Parties", and each,
individually, as a "Party".

                                    RECITALS

      A. FNGC and SCGI are the Parties to a Financial Advisory Services
Agreement ("FAS Agreement"), dated August 9, 2004 pursuant to which SCGI is
entitled to receive up to a 10% cash and 10% warrant fee on up to $10,000,000 in
monies raised by FNGC, other than overseas capital, during the term of the FAS
Agreement.

      B. A 10% warrant fee and 10% cash fee is due to SCGI under the FAS
Agreement with regard to $7,000,000 financing (the "Financing") provided by
Cornell Capital Partners, LP and Highgate House Funds, Ltd. during the period
July 2005 through October 2005.

      C. FNGC is obligated to issue 1,166,666 warrants to SCGI and its assignees
pursuant to the 10% warrant provision in the FAS Agreement.

      D. FNGC is obligated to issue $700,000 in cash to SCGI pursuant to the 10%
cash provision in the FAS Agreement, $40,000 of which was paid in December 2005.

      E. The Parties have agreed that FNGC will issue an additional 833,334
warrants to SCGI and its assignees in lieu of $300,000 in cash otherwise due to
SCGI under the FAS Agreement.

      F. The Parties have agreed to enter into a payment plan in the future with
regard to the $360,000 cash balance due to SCGI from FNGC.

                                    AGREEMENT

         NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and in consideration of the mutual
promises, covenants and conditions herein contained, the Parties agree as
follows:

         1. Settlement. The Parties acknowledge and agree that SCGI earned a 10%
warrant and 10% cash fee under the FAS Agreement with respect to the Financing.
In full satisfaction thereof the Parties have agreed that FNGC will issue to
SCGI and its assignees (i) an aggregate of 2,000,000, 5 year, common stock
purchase warrants (the "Warrants") in the form attached hereto as Exhibit A,
with an exercise price, subject to adjustment, of $0.60 per share; and (ii)
$400,000 in cash, $40,000 of which has been previously paid. The Parties also
agree that the $360,000 cash balance (the "Cash Balance") will be paid pursuant
to a payment plan to be entered into between the Parties in the future. The
Parties further agree that FNGC's sole obligation to SCGI with respect to the
Financing is to issue the Warrants and pay the Cash Balance.

<PAGE>

2. Entire Agreement. This Agreement contains the sole, complete and entire
agreement and understanding of the Parties concerning the matters contained
herein and may not be altered, modified, or changed in any manner except by a
writing duly executed by the Parties. No Party is relying on any representations
other than those expressly set forth herein. No conditions precedent to the
effectiveness of this Agreement exists, other than as expressly provided for
herein. There are no oral or written collateral agreements hereto. All prior
discussions and negotiations have been and are merged, integrated into and
superseded by this Agreement.

3. Waiver. The delay or failure of a Party to exercise any right, power or
privilege hereunder, or failure to strictly enforce any breach or default shall
not constitute a waiver with respect thereto; and no waiver of any such right,
power, privilege, breach or default on any one occasion shall constitute a
waiver thereof on subsequent occasion unless clear and express notice thereof in
writing is provided.

4. Applicable Law; Venue. This Agreement shall be governed by and construed and
enforced in accordance with and subject to the laws of the State of New York,
and any and all actions brought under this Agreement shall be brought in the
state or federal courts sitting in New York, New York.

5. Warranties. The Parties, and each of them, warrant: (i) that they, and each
of them, have the sole right and exclusive authority to execute this Agreement;
and (ii) that they have not sold, assigned, transferred, conveyed or otherwise
disposed of any claim, demand, cause of action, obligation, damage or liability
covered in this Agreement.

6. Recitals Incorporated. The Recitals of this Agreement are incorporated herein
and made a part hereof.

7. Counterparts. This Agreement may be executed in one or more counterparts, all
of which together constitute one single document.

8. Facsimile Signatures. This Agreement and any documents relating to it may be
executed and transmitted to any other party by facsimile, which facsimile shall
be deemed to be, and utilized in all respects as, an original, wet-inked
document.

                                       2
<PAGE>

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

                                            FALCON NATURAL GAS CORP.

                                            By:  /s/ Fred Zaziski
                                               ---------------------------------
                                            Name:  Fred Zaziski
                                            Title:  President

                                            SOURCE CAPITAL GROUP, INC.

                                            By: /s/ William F. Butler
                                               ---------------------------------
                                            Name:  William F. Butler
                                            Title:  Managing Director

                                       3
<PAGE>

                                    EXHIBIT A
                                    ---------

             Void after 5:00 p.m., New York Time on February 2, 2011
               Warrant to Purchase ________ Shares of Common Stock

                        WARRANT TO PURCHASE COMMON STOCK

                                       OF

                            FALCON NATURAL GAS CORP.

THIS WARRANT, AND THE SECURITIES INTO WHICH IT IS EXERCISABLE (COLLECTIVELY, THE
"SECURITIES"),  HAVE NOT BEEN  REGISTERED  UNDER THE  SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF ANY STATE. THE SECURITIES MAY NOT
BE  OFFERED  OR SOLD  UNLESS  THE  SECURITIES  ARE  REGISTERED  UNDER THE ACT OR
PURSUANT TO AVAILABLE  EXEMPTIONS FROM THE REGISTRATION  REQUIREMENTS OF THE ACT
AND THE  COMPANY  WILL BE  PROVIDED  WITH  OPINION  OF  COUNSEL  OR  OTHER  SUCH
INFORMATION  AS IT MAY  REASONABLY  REQUIRE TO CONFIRM THAT SUCH  EXEMPTIONS ARE
AVAILABLE.

      FOR VALUE  RECEIVED,  Falcon  Natural Gas Corp.,  a corporation  organized
under  the laws of  Nevada  (the  "Company"),  grants  the  following  rights to
__________ and/or his assigns (the "Holder"):

                             ARTICLE 1. DEFINITIONS

      As used in this  Agreement,  the following  terms shall have the following
meanings:

      "Corporate Office" shall mean the office of the Company (or its successor)
at which at any particular time its principal business shall be administered.

      "Exercise  Date" shall mean any date on which the Holder gives the Company
a Notice of Exercise in the form attached hereto as Appendix I.

      "Exercise  Price"  shall mean the Fixed  Price per share of Common  Stock,
subject to adjustment as provided herein.

      "Expiration  Date"  shall mean 5:00 p.m.  (New York time) on  February  2,
2011.

      "Fair Market Value" shall have the meaning set forth in Section 2.2(b).

      "Fixed Price" shall mean US$0.60.

      "Market Value" shall have the meaning set forth in Section 2.2(b).

<PAGE>

      "Market Price" shall mean the closing price of the Company's  common stock
on the OTC  Bulletin  Board or such other U.S.  market or  exchange on which the
Company's common stock is then trading.

      "SEC" shall mean the United States Securities and Exchange Commission.

      "Warrant  Shares" shall mean the shares of the Common Stock  issuable upon
exercise of this Warrant.

                       ARTICLE 2. EXERCISE AND AGREEMENTS

      2.1  Exercise of Warrant;  Sale of Warrant  and Warrant  Shares.  (a) This
Warrant shall entitle the Holder to purchase,  at the Exercise  Price,  ________
shares of Common Stock.  This Warrant shall be  exercisable at any time and from
time to time  from  the  date  hereof  and  prior to the  Expiration  Date  (the
"Exercise  Period").  This  Warrant  and the right to  purchase  Warrant  Shares
hereunder shall expire and become void on the Expiration Date.

      2.2 Manner of Exercise.

      (a) The Holder may exercise this Warrant at any time and from time to time
during the Exercise  Period,  in whole or in part (but not in  denominations  of
fewer than 10,000 Warrant  Shares,  except upon an exercise of this Warrant with
respect to the remaining balance of Warrant Shares purchasable  hereunder at the
time of exercise), in accordance with the cashless exercise provision in Section
2.2(b)  hereof or by  delivering  to the Company (i) a duly  executed  Notice of
Exercise in  substantially  the form  attached  as  Appendix I hereto,  (ii) the
certificate  representing  the Warrants and (iii) a bank  cashier's or certified
check for the aggregate Exercise Price of the Warrant Shares being purchased.

      (b) The Holder  may,  at its  option,  in lieu of paying  cash for Warrant
Shares,  exercise  this Warrant by an exchange,  in whole or in part (a "Warrant
Exchange"), by delivery to the Company of (i) a duly executed Notice of Exercise
electing a Warrant Exchange and (ii) the certificate  representing this Warrant.
In connection with any Warrant Exchange, the Holder shall be deemed to have paid
for the Warrant  Shares an amount equal to the Fair Market Value of each Warrant
delivered,  and the  Warrants  shall be deemed  exercised  to the  extent of the
amount so paid.  For this purpose,  the Fair Market Value of each Warrant is the
amount by which the Market Value of a share of Common Stock exceeds the Exercise
Price on the  Exercise  Date.  Market  Value shall mean the average  Closing Bid
Price of a share of Common Stock during the ten (10) Trading Days ending one (1)
Trading Day prior to the Exercise Date.

      2.3 Termination.  All rights of the Holder in this Warrant,  to the extent
they have not been exercised, shall terminate on the Expiration Date.

      2.4 No Rights Prior to Exercise. This Warrant shall not entitle the Holder
to any voting or other rights as a stockholder of the Company.

                                       2
<PAGE>

      2.5  Fractional  Shares.  No  fractional  shares  shall be  issuable  upon
exercise of this Warrant, and the number of Warrant Shares to be issued shall be
rounded up to the nearest whole number.  If, upon exercise of this Warrant,  the
Holder  hereof would be entitled to receive any  fractional  share,  the Company
shall issue to the Holder one  additional  share of Common Stock in lieu of such
fractional share.

      2.6 Adjustments to Exercise Price and Number of Securities.

      (a)  Computation of Adjusted  Exercise Price. In case the Company shall at
any time  after the date  hereof and until this  Warrant is fully  exercised  or
terminated issue or sell any shares of Common Stock (other than the issuances or
sales  referred  to in Section  2.7 (f)  hereof),  including  shares held in the
Company's  treasury  and shares of Common  Stock issued upon the exercise of any
options,  rights or warrants to subscribe  for shares of Common Stock and shares
of Common  Stock  issued upon the direct or indirect  conversion  or exchange of
securities for shares of Common Stock (excluding shares of Common Stock issuable
upon exercise of options,  warrants or conversion  rights granted as of the date
hereof),  for a  consideration  per share  less than the  Exercise  Price on the
trading  date one day prior to the date of issuance or sale of such  shares,  or
without  consideration,  then forthwith upon such issuance or sale, the Exercise
Price shall (until  another such issuance or sale) be reduced to the price equal
to the  quotient  derived by dividing  (A) an amount equal to the sum of (X) the
product of (a) the Exercise Price on the date immediately  prior to the issuance
or sale of such shares,  multiplied  by (b) the total number of shares of Common
Stock  outstanding  immediately  prior to such  issuance  or sale plus,  (Y) the
aggregate of the amount of all  consideration,  if any,  received by the Company
upon such  issuance or sale,  by (B) the total  number of shares of Common Stock
outstanding immediately after such issuance or sale; provided, however, that (i)
in no event shall the Exercise Price be adjusted pursuant to this computation to
an amount in excess of the Exercise  Price in effect  immediately  prior to such
computation, except in the case of a combination of outstanding shares of Common
Stock,  as provided  by Section  2.7 (c) hereof,  and (ii) in no event shall the
Exercise Price be adjusted  pursuant to this computation where the consideration
per share  although less than the Exercise Price is equal to or greater than the
closing  Market  Price on the trading date one day prior to the date of issuance
or sale of such shares.

      For the purposes of any  computation  to be made in  accordance  with this
Section 2.7(a), the following provisions shall be applicable:

            (i) In case of the  issuance or sale of shares of Common Stock for a
      consideration  part or all of  which  shall be cash,  the  amount  of cash
      consideration  therefor  shall be deemed to be the amount of cash received
      by the Company for such shares (or, if shares of Common  Stock are offered
      by the Company for subscription,  the subscription  price, or if either of
      such  securities  shall be sold to  underwriters  or  dealers  for  public
      offering  without a subscription  offering,  the initial  public  offering
      price)  before  deducting  therefrom  any  compensation  paid or  discount
      allowed in the sale,  underwriting or purchase  thereof by underwriters or
      dealers or others performing similar services, or any expenses incurred in
      connection therewith.

                                       3
<PAGE>

            (ii) In case of the issuance or sale  (otherwise  than as a dividend
      or other  distribution  on any stock of the  Company)  of shares of Common
      Stock for a  consideration  part or all of which shall be other than cash,
      the amount of the  consideration  therefor other than cash shall be deemed
      to be the value of such  consideration  as determined in good faith by the
      Board of Directors of the Company.

            (iii)  Shares of Common  Stock  issuable by way of dividend or other
      distribution  on any  stock of the  Company  shall be  deemed to have been
      issued  immediately after the opening of business on the day following the
      record date for the determination of stockholders entitled to receive such
      dividend  or other  distribution  and shall be deemed to have been  issued
      without consideration.

            (iv) The  reclassification  of  securities of the Company other than
      shares of the Common  Stock  into  securities  including  shares of Common
      Stock  shall be deemed to involve  the  issuance  of such shares of Common
      Stock for a consideration  other than cash immediately  prior to the close
      of business on the date fixed for the  determination  of security  holders
      entitled  to  receive  such  shares,  and the  value of the  consideration
      allocable to such shares of Common Stock shall be  determined  as provided
      in subsection (ii) of this Section 2.7(a).

            (v) The number of shares of Common Stock at any one time outstanding
      shall include the aggregate  number of shares issued or issuable  (subject
      to  readjustment  upon the actual  issuance  thereof) upon the exercise of
      options,   rights,  warrants  and  upon  the  conversion  or  exchange  of
      convertible or exchangeable  securities;  provided,  however,  that shares
      issuable  upon the exercise of the Warrants  shall not be included in such
      calculation.

      (b) Options, Rights, Warrants and Convertible and Exchangeable Securities.
In case the  Company  shall at any time  after the date  hereof  and until  this
Warrant is fully  exercised  issue options,  rights or warrants to subscribe for
shares of Common Stock, or issue any securities convertible into or exchangeable
for shares of Common Stock, for a consideration  per share less than the closing
Market  Price and the  Exercise  Price on the trading  date one day prior to the
date of issuance of such options, rights or warrants (excluding shares of Common
Stock issuable upon exercise of options,  warrants or conversion  rights granted
as of the date hereof and shares of Common Stock issuable upon exercise of stock
options at or above the closing market price per share of Common Stock under any
stock  option  plan  of  the  Company),  or  such  convertible  or  exchangeable
securities,  or without consideration,  the Exercise Price in effect immediately
prior to the issuance of such options,  rights or warrants,  or such convertible
or  exchangeable  securities,  as the case may be,  shall be  reduced to a price
determined by making a computation  in accordance  with the provision of Section
2.7(a) hereof, provided that:

            (i) The aggregate  maximum number of shares of Common Stock,  as the
      case may be,  issuable  under such  options,  rights or warrants  shall be
      deemed to be issued and  outstanding  at the time such options,  rights or
      warranties  were  issued,  and for a  consideration  equal to the  minimum
      purchase price per share provided for in such options,  rights or warrants
      at the time of issuance,  plus the  consideration  (determined in the same
      manner  as  consideration  received  on the  issue  or sale of  shares  in
      accordance  with  the  terms of the  Warrants),  if any,  received  by the
      Company for such options, rights or warrants.

                                       4
<PAGE>

            (ii) The aggregate maximum number of shares of Common Stock issuable
      upon conversion or exchange of any convertible or exchangeable  securities
      shall be deemed to be issued and  outstanding  at the time of  issuance of
      such  securities,  and  for a  consideration  equal  to the  consideration
      (determined in the same manner as  consideration  received on the issue or
      sale of  shares  of  Common  Stock in  accordance  with  the  terms of the
      Warrants)  received by the Company for such  securities,  plus the minimum
      consideration,  if any,  receivable by the Company upon the  conversion or
      exchange thereof.

            (iii) If any change shall occur in the price per share  provided for
      in any of the options, rights or warrants referred to in subsection (a) of
      this  Section  2.7,  or in the price  per  share at which  the  securities
      referred  to in  subsection  (b) of this  Section 2.7 are  convertible  or
      exchangeable,  such options,  rights or warrants or conversion or exchange
      rights,  as the case may be, shall be deemed to have expired or terminated
      on the date when such price change  became  effective in respect of shares
      not theretofore  issued pursuant to the exercise or conversion or exchange
      thereof, and the Company shall be deemed to have issued upon such date new
      options,  rights or warrants or convertible or exchangeable  securities at
      the new  price in  respect  of the  number  of  shares  issuable  upon the
      exercise of such options, rights or warrants or the conversion or exchange
      of such convertible or exchangeable securities.

            (iv) If any options,  rights or warrants  referred to in  subsection
      (a) of this Section 2.7, or any  convertible  or  exchangeable  securities
      referred to in  subsection  (b) of this Section  2.7,  expire or terminate
      without  exercise or  conversion,  as the case may be,  then the  Exercise
      Price of the remaining  outstanding Warrant shall be readjusted as if such
      options, rights or warrants or convertible or exchangeable securities,  as
      the case may be, had never been issued.

      (c)  Subdivision  and  Combination.  In case the Company shall at any time
subdivide or combine the outstanding  shares of Common Stock, the Exercise Price
shall  forthwith  be  proportionately  decreased in the case of  subdivision  or
increased in the case of combination.

      (d)  Adjustment  in Number of  Securities.  Upon  each  adjustment  of the
Exercise  Price  pursuant to the  provisions  of this Section 2.7, the number of
Warrant  Shares  issuable upon the exercise of each Warrant shall be adjusted to
the nearest whole number by  multiplying a number equal to the Exercise Price in
effect  immediately  prior to such  adjustment  by the number of Warrant  Shares
issuable upon exercise of the Warrants  immediately prior to such adjustment and
dividing the product so obtained by the adjusted Exercise Price.

                                       5
<PAGE>

      (e) Merger or  Consolidation.  In case of any consolidation of the Company
with,  or merger of the Company  with,  or merger of the Company  into,  another
corporation  (other than a consolidation  or merger which does not result in any
reclassification  or change of the  outstanding  Common Stock),  the corporation
formed by such consolidation or merger shall execute and deliver to the Holder a
supplemental  warrant  agreement  providing that the Holder of each Warrant then
outstanding  or to be  outstanding  shall have the right  thereafter  (until the
expiration of such Warrant) to receive,  upon exercise of such Warrant, the kind
and amount of shares of stock and other  securities and property  (except in the
event the property is cash, then the Holder shall have the right to exercise the
Warrant and receive  cash in the same manner as other  stockholders)  receivable
upon such consolidation or merger, by a holder of the number of shares of Common
Stock  of  the  Company  for  which  such  warrant  might  have  been  exercised
immediately  prior  to  such  consolidation,  merger,  sale  or  transfer.  Such
supplemental  warrant  agreement  shall provide for  adjustments  which shall be
identical to the adjustments  provided in Section 2.7. The foregoing  provisions
of this  paragraph (e) shall  similarly  apply to successive  consolidations  or
mergers.

      (f) No Adjustment of Exercise Price in Certain Cases. No adjustment of the
Exercise Price shall be made (i) upon the issuance of the Warrant  Shares,  (ii)
upon the exercise of any options, rights, or warrants outstanding as of February
3, 2006 or (iii)  shares of Common Stock  pursuant to any employee  benefit plan
which has been  approved by the Board of Directors  of the Company,  pursuant to
which  the  Company's  securities  may be  issued to any  employee,  officer  or
director for services provided to the Company.

      2.8 Piggyback  Registration  Rights. From February 3, 2006 until such time
that the Warrant  Shares are  eligible  for sale  pursuant to Rule 144(k) of the
General Rule and Regulations  under the Securities Act of 1933, as amended,  the
Warrant  Shares  shall  have  piggyback   registration  rights.  Such  piggyback
registration rights shall not be applicable,  however,  to Company  registration
statements relating solely to employee benefit plans or business combinations.

                            ARTICLE 3. MISCELLANEOUS

      3.1 Transfer. This Warrant may not be offered, sold, transferred, pledged,
assigned,  hypothecated  or otherwise  disposed of, in whole or in part,  at any
time, except in compliance with applicable  federal and state securities laws by
the transferor and the transferee (including,  without limitation,  the delivery
of  an  investment   representation   letter  and  a  legal  opinion  reasonably
satisfactory to the Company).

      3.2  Transfer  Procedure.  Subject to the  provisions  of Section 3.1, the
Holder may transfer or assign this Warrant by giving the Company  notice setting
forth the name, address and taxpayer  identification number of the transferee or
assignee, if applicable (the "Transferee"), and surrendering this Warrant to the
Company  for  reissuance  to the  Transferee  and, in the event of a transfer or
assignment of this Warrant in part, the Holder. (Each of the persons or entities
in whose name any such new Warrant  shall be issued are herein  referred to as a
"Holder").

      3.3 Loss, Theft,  Destruction or Mutilation.  If this Warrant shall become
mutilated or defaced or be destroyed,  lost or stolen, the Company shall execute
and deliver a new Warrant in exchange for and upon surrender and cancellation of
such mutilated or defaced  Warrant or, in lieu of and in  substitution  for such
Warrant so destroyed, lost or stolen, upon the Holder filing with the Company an
affidavit that such Warrant has been so mutilated,  defaced,  destroyed, lost or
stolen.  However, the Company shall be entitled, as a condition to the execution
and delivery of such new Warrant, to demand reasonably  acceptable  indemnity to
it and payment of the  expenses  and charges  incurred  in  connection  with the
delivery of such new Warrant. Any Warrant so surrendered to the Company shall be
canceled.

                                       6
<PAGE>

      3.4 Notices.  All notices and other communications from the Company to the
Holder  or vice  versa  shall be  deemed  delivered  and  effective  when  given
personally,  by facsimile  transmission with confirmation  sheet at such address
and/or facsimile number as may have been furnished to the Company or the Holder,
as the case may be, in writing by the Company or the Holder from time to time.

      3.5 Waiver.  This Warrant and any term hereof may be changed,  waived,  or
terminated  only by an instrument  in writing  signed by the party against which
enforcement of such change, waiver, discharge or termination is sought.

      3.6  Governing  Law.  This Warrant  shall be governed by and  construed in
accordance with the laws of the State of New York,  without giving effect to its
principles  regarding  conflicts of law. Any action to enforce the terms of this
Warrant shall be  exclusively  heard in the county,  state and federal Courts of
New York and Country of the United States of America.

      3.7  Signature.  In the  event  that  any  signature  on this  Warrant  is
delivered by facsimile  transmission,  such  signature  shall create a valid and
binding  obligation of the party executing (or on whose behalf such signature is
executed)  the  same,  with the  same  force  and  effect  as if such  facsimile
signature page were an original thereof.

      3.8 Legal  Fees.  In the  event any  Person  commences  a legal  action or
proceeding to enforce its rights under this Warrant, the non-prevailing party to
such action or  proceeding  shall pay all  reasonable  and  necessary  costs and
expenses  (including  reasonable  and  necessary  attorney's  fees)  incurred in
enforcing such rights.

Dated:   February 3, 2006

FALCON NATURAL GAS CORP.

By:
   ---------------------------------
       Name:
       Title:

                                       7
<PAGE>

                                   APPENDIX I

                               NOTICE OF EXERCISE

1.    The  undersigned  hereby elects (please check the appropriate box and fill
      in the blank  spaces):
      |_| to purchase ______ shares of Common Stock, of Falcon Natural Gas Corp.
      at $0.60 per share for a total of $______ and pursuant to the terms of the
      attached Warrant,  and tenders herewith payment of the aggregate  Exercise
      Price of such Warrant Shares in full; or
      |_| to purchase  _______  shares of Common  Stock,  of Falcon  Natural Gas
      Corp. pursuant to the cashless exercise provision under Section 2.2 (b) of
      the attached Warrant, and tenders herewith the number of Warrant Shares to
      purchase  such Warrant  Shares based upon the formula set forth in Section
      2.2 (b).

2.    Please  issue a  certificate  or  certificates  representing  said Warrant
      Shares  in the  name  of the  undersigned  or in  such  other  name  as is
      specified below:

Dated: ______________________________       By:   ______________________________

                                            Name: ______________________________

Title: _______________________________

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