PROMISSORY NOTE
July 19, 2007
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Jersey City, New Jersey
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$1,150,000
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FOR VALUE RECEIVED on or about July 19, 2007,
the
undersigned,
FALCON NATURAL GAS CORP., a
Nevada corporation (the “
Company ”),
promises to pay
CORNELL CAPITAL PARTNERS, L.P. (the
“
Lender ”)
at 101 Hudson Street, Suite 3700, Jersey City, New Jersey 07302 or
other address as the Lender shall specify in writing, the principal
sum of
One Million One Hundred Fifty Thousand U.S. Dollars and 00/100
($1,150,000) (the
“
Principal Amount ”)
and interest at the annual rate of fourteen percent (14%) on the
unpaid balance pursuant to the following terms:
1.
Principal and Interest
. For
value received on the date hereof the Company hereby promises to
pay to the order of the Lender in lawful money of the United States
of America and in immediately available funds the Principal Amount,
together with interest on the unpaid principal of this Note on or
before December 1, 2007. The parties acknowledge that their intent
is that the amount due and owing on this Note be converted into
convertible debentures of the Company pursuant to the transaction
set forth in the term sheet attached as Exhibit A hereto and that
they will act in good faith to finalize that
transaction.
2.
Right of Prepayment .
The Company at its option shall have the right to prepay, with
three (3) business days advance written notice, a portion or all
outstanding principal plus accrued Interest under this
Note.
3.
Use of Proceeds
. The
Company acknowledges that the proceeds received in exchange for
this Note shall be used for general working capital purposes and to
make the payments described in Exhibit B hereto.
The Company hereby acknowledges and consents that
certain of the proceeds underlying this Note shall be used to make
the payments described in Exhibit B
hereto.
4.
Waiver and Consent .
To the fullest extent permitted by law and except as otherwise
provided herein, the Company waives demand, presentment, protest,
notice of dishonor, suit against or joinder of any other person,
and all other requirements necessary to charge or hold the Company
liable with respect to this Note.
5.
Costs, Indemnities and Expenses .
In the event of default as described herein, the Company agrees to
pay all reasonable fees and costs incurred by the Lender in
collecting or securing or attempting to collect or secure this
Note, including reasonable attorneys’ fees and expenses,
whether or not involving litigation, collecting upon any judgments
and/or appellate or bankruptcy proceedings. The Company agrees to
pay any documentary stamp taxes, intangible taxes or other taxes
which may now or hereafter apply to this Note or any payment made
in respect of this Note, and the Company agrees to indemnify and
hold the Lender harmless from and against any liability, costs,
attorneys’ fees, penalties, interest or expenses relating to
any such taxes, as and when the same may be incurred.
6.
Event of Default .
An “
Event of Default ”
shall be deemed to have occurred upon the occurrence of any of the
following: (i) the Company should fail for any reason or for no
reason to make any payment of the interest or principal pursuant to
this Note within ten (10) days of the date due as prescribed
herein; (ii) the Company shall fail to observe or perform any other
covenant, agreement or warranty contained in, or otherwise commit
any material breach or default of any material provision of this
Note or any of the Transaction Documents (as defined in the
Securities Purchase Agreements between the Company and the Lender
dated on or about January 29, 2007; April 19, 2005; and October 17,
2005), which is not cured within ten (10) days notice of the
default; (iii) the Company or any subsidiary of the Company
shall commence, or there shall be commenced against the Company or
any subsidiary of the Company under any applicable bankruptcy or
insolvency laws as now or hereafter in effect or any successor
thereto, or the Company or any subsidiary of the Company commences
any other proceeding under any reorganization, arrangement,
adjustment of debt, relief of debtors, dissolution, insolvency or
liquidation or similar law of any jurisdiction whether now or
hereafter in effect relating to the Company or any subsidiary of
the Company or there is commenced against the Company or any
subsidiary of the Company any such bankruptcy, insolvency or other
proceeding which remains undismissed for a period of sixty-one (61)
days; or the Company or any subsidiary of the Company is
adjudicated insolvent or bankrupt; or any order of relief or other
order approving any such case or proceeding is entered; or the
Company or any subsidiary of the Company suffers any appointment of
any custodian, private or court appointed receiver or the like for
it or any substantial part of its property which continues
undischarged or unstayed for a period of sixty one (61) days; or
the Company or any subsidiary of the Company makes a general
assignment for the benefit of creditors; or the Company or any
subsidiary of the Company shall fail to pay, or shall state that it
is unable to pay, or shall be unable to pay, its debts generally as
they become due; or the Company or any subsidiary of the Company
shall call a meeting of its creditors with a view to arranging a
composition, adjustment or restructuring of its debts; or the
Company or any subsidiary of the Company shall by any act or
failure to act expressly indicate its consent to, approval of or
acquiescence in any of the foregoing; or any corporate or other
action is taken by the Company or any subsidiary of the Company for
the purpose of effecting any of the foregoing; or (iv) a breach by
the Company of its obligations, or an event of default, under any
agreements entered into between the Company and the Lender which is
not cured by any applicable cure period set forth
therein.
Upon
an Event of Default (as defined above), the entire principal
balance and accrued interest outstanding under this Note, and
all other obligations of the Company under this Note, shall be
immediately due and payable without any action on the part of
the Lender, interest shall accrue on the unpaid principal
balance at twenty four percent (24%) or the highest rate
permitted by applicable law, if lower, and the Lender shall be
entitled to seek and institute any and all remedies available
to it.
7.
Maximum Interest Rate .
In no event shall any agreed to or actual interest charged,
reserved or taken by the Lender as consideration for this Note
exceed the limits imposed by New Jersey law. In the event that the
interest provisions of this Note shall result at any time or for
any reason in an effective rate of interest that exceeds the
maximum interest rate permitted by applicable law, then without
further agreement or notice the obligation to be fulfilled shall be
automatically reduced to such limit and all sums received by the
Lender in excess of those lawfully collectible as interest shall be
applied against the principal of this Note immediately upon the
Lender’s receipt thereof, with the same force and effect as
though the Company had specifically designated such extra sums to
be so applied to principal and the Lender had agreed to accept such
extra payment(s) as a premium-free prepayment or
prepayments.
8.
Secured Nature of the Note
. This
Note is secured by (i) the Security Agreement between the Company
and the Lender dated November 2, 2005 (
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