THE
SECURITIES REPRESENTED HEREBY HAVE BEEN OFFERED IN AN OFFSHORE
TRANSACTION TO A PERSON WHO IS NOT A U.S. PERSON PURSUANT TO
REGULATION S UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS
AMENDED (THE “SECURITIES ACT”). NEITHER THE SECURITIES
REPRESENTED BY THIS NOTE NOR THE SECURITIES ISSUABLE UPON
CONVERSION OF THIS NOTE HAVE BEEN REGISTERED UNDER THE SECURITIES
ACT, OR ANY U.S. STATE SECURITIES LAWS, AND, UNLESS SO REGISTERED,
MAY NOT BE OFFERED OR SOLD, DIRECTLY OR INDIRECTLY, IN THE UNITED
STATES (AS DEFINED HEREIN) OR TO U.S. PERSONS EXCEPT IN ACCORDANCE
WITH THE PROVISIONS OF REGULATION S UNDER THE SECURITIES ACT,
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 EACH CASE ONLY IN ACCORDANCE WITH APPLICABLE
STATE SECURITIES LAWS. IN ADDITION, HEDGING TRANSACTIONS INVOLVING
THE SECURITIES MAY NOT BE CONDUCTED UNLESS IN COMPLIANCE WITH THE
SECURITIES ACT. “UNITED STATES” AND “U.S.
PERSON” ARE AS DEFINED BY REGULATION S UNDER THE SECURITIES
ACT.
TEXOLA ENERGY
CORPORATION
6.0% CONVERTIBLE NOTE
DUE MARCH 9, 2008
Section
1. General .
FOR
VALUE RECEIVED, Texola Energy Corporation, a Nevada corporation
(the “ Company ”), hereby promises to pay to the
order of Bulstrode International Inc., or its registered assigns
(the “ Purchaser ”), the principal sum of FIVE
HUNDRED SEVENTY THOUSAND UNITED STATES DOLLARS (US$570,000), or
such lesser amount as shall then equal the outstanding principal
amount hereof, together with interest thereon at a rate equal to 6%
(the “ Interest Rate ”) per annum, simple
interest computed on the basis of the actual number of days elapsed
and a year of 360 days comprised of twelve 30 day months. Unless
earlier converted in accordance with Section 4, all unpaid
principal, together with any then unpaid and accrued interest and
other amounts payable hereunder, shall be due and payable on the
earlier of (i) March 9, 2008 (the “ Maturity Date
”) or (ii) when such amounts become due and payable as a
result of, and following, an Event of Default in accordance with
Section 2. The Company may repay all but not less than all of the
principle amount, or principle amount remaining, of this Note,
together with all accrued interest thereon with thirty (30) days
written notice received by the Purchaser (the “ Repayment
Notice ”). Upon receipt of the Repayment Notice, the
Purchaser shall have ten (10) days to convert all but not less than
all the principle amount, or principle amount remaining, of this
Note by delivering the Conversion Notice (as hereinafter defined),
to the Company. Upon expiration of ten (10) days following receipt
of the Repayment Notice, the Purchaser shall lose all right to
convert the principle amount, or principle amount remaining, of
this Note. Except as otherwise provided herein, all payments
required to be made hereunder, if
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any, shall
be made in such coin or currency of the United States as at the
time of payment shall be legal tender therein for the payment of
public and private debts. Interest shall accrue on the unpaid
balance of the principal amount of this Note (without any
compounding) from and including the date hereof to, but excluding,
the date on which the principal amount of this Note is paid in full
(or converted in accordance with Section 4 hereof) and shall be
payable on the Maturity Date. The payment of interest shall be
payable in Units valued at US$1.00 each as defined in, and in
accordance with, section 4(a) hereof. No fractional Units shall be
issued upon payment of interest under this Note. Upon payment of
interest of this Note at the Maturity Date or when such interest
becomes due and payable as a result of, and following, an Event of
Default in accordance with Section 2 hereof, the Company shall pay
to the Purchaser the amount of interest that is not paid by the
issuance of the Units in lieu of the Company issuing any fractional
Units to the Purchaser.
Section
2. Defaults .
The
occurrence of any of the following shall constitute an “
Event of Default ” under this Note:
(a)
the Company shall fail to pay (i) when due any principal or
interest payment hereof on the due date hereunder or (ii) any other
payment required under the terms of this Note on the date
due;
(b) the
Company shall fail to observe or perform any other covenant,
obligation, condition or agreement contained in this Note and such
failure shall continue for ten (10) days after written notice
thereof is delivered to the Company;
(c)
any representation, warranty, certificate, or other statement
(financial or otherwise) made or furnished by or on behalf of the
Company to the Purchaser in writing in connection with this Note
shall be false, incorrect, incomplete or misleading in any material
respect when made or furnished;
(d)
the Company shall (i) apply for or consent to the appointment of a
receiver, trustee, liquidator or custodian of itself or of all or a
substantial part of its property, (ii) be unable, or admit in
writing its inability, to pay its debts generally as they mature,
(iii) make a general assignment for the benefit of its or any of
its creditors, (iv) be dissolved or liquidated in full or in part
(v) commence a voluntary case or other proceeding seeking
liquidation, reorganization or other relief with respect to itself
or its debts under any bankruptcy, insolvency or other similar law
now or hereafter in effect or consent to any such relief or to the
appointment of or taking possession of its property by any official
in an involuntary case or other proceeding commenced against it, or
(vi) take any action for the purpose of effecting any of the
foregoing; or
(e)
proceedings for the appointment of a receiver, trustee, liquidator
or custodian of the Company or of all or a substantial part of the
property thereof, or an involuntary case or other proceedings
seeking liquidation, reorganization or other relief with respect to
the Company or the debts thereof under any bankruptcy, insolvency
or other similar law now or hereafter in effect shall be commenced
and an order for relief entered or such proceeding shall not be
dismissed or discharged within thirty (30) days of
commencement.
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Section
3. Rights Of Purchaser Upon
Default.
Upon
the occurrence or existence of any Event of Default and following
the expiry of any applicable grace periods (other than an Event of
Default referred to in Sections 2(e) hereof) and at any time
thereafter during the continuance of such Event of Default, the
Purchaser may, by written notice to the Company, declare all
outstanding amounts payable by the Company hereunder to be
immediately due and payable without presentment, demand, protest or
any other notice of any kind, all of which are hereby expressly
waived, anything contained herein to the contrary notwithstanding.
Upon the occurrence or existence of any Event of Default described
in Sections 2(e) hereof, immediately and without notice, all
outstanding amounts payable by the Company hereunder shall
automatically become immediately due and payable, without
presentment, demand, protest or any other notice of any kind, all
of which are hereby expressly waived, anything contained herein to
the contrary notwithstanding. In addition to the foregoing
remedies, upon the occurrence or existence of any Event of Default,
the Purchaser may exercise any other right, power or remedy
permitted to it by law, either by suit in equity or by action at
law, or both.
Section
4. Conversion .
(a)
Purchaser Conversion . At any time, and from time to time,
the Purchaser may, at its sole and exclusive option by delivering
to the Company a conversion notice in the form attached hereto as
Annex A (the “ Conversion Notice ”),
convert all or any part of the principal (plus accrued but unpaid
interest thereon) outstanding under this Note into units (the
“ Units ”) at a conversion price per Unit of
US$1.00 (the “ Conversion Price ”). Each Unit
converted under this Note will consist of one fully paid and
nonassessable share of Common Stock of the Company and one common
share purchase warrant (the “ Warrants ”) in the
form attached as Exhibit B to the Private Placement Subscription
Agreement dated April 3, 2006, effective March 9, 2006 (the “
Subscription Agreement ”). As set out in the
Subscription Agreement, each Warrant shall be non-transferable and
shall entitle the holder thereof to purchase one additional share
of Common Stock (each, a “ Warrant Share ”) at a
price per Warrant Share of US$1.50 for a period of two (2) years
commencing on the date of issuance of the Warrants. The Conversion
Price shall be subject to adjustment as provided in Section 5
hereof. The Purchaser shall convert a minimum of US$10,000 of
principal for any conversion pursuant to this Section
4(a).
(b)
Mechanics and Effect of Conversion . No fractional Units
shall be issued upon conversion of this Note. Upon the conversion
of the entire principal outstanding under this Note, in lieu of the
Company issuing any fractional Units to the Purchaser, the Company
shall pay to the Purchaser the amount of outstanding principal that
is not so converted. The Purchaser shall not be required to deliver
the original Note in order to effect a conversion thereunder.
Execution and delivery of the Conversion Notice shall have the same
effect as cancellation of the original Note and issuance of a new
Note representing the remaining outstanding principal amount. Upon
surrender of this Note following one or more partial conversions,
the Company shall promptly deliver to the Purchaser a new Note
representing the remaining outstanding principal amount. At its
expense, the Company shall, as soon as practicable but in no event
more than ten (10) business days after conversion of this Note
pursuant to section 4, issue and deliver to the Purchaser at such
principal office a certificate or certificates for the number of
shares of Common Stock (the “ Conversion Shares
”) and for the number of Warrants, to which the
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Purchaser
shall be entitled upon such conversion (bearing such legends as are
required by applicable state and federal securities laws in the
opinion of counsel to the Company), together with any other
securities and property to which the Purchaser is entitled upon
such conversion under the terms of this Note.
(c)
Reservation Of Stock Issuable Upon Conversion . The Company
shall at all times reserve and keep available out of its authorized
but unissued shares of capital stock of the Company, solely for the
purpose of effecting the conversion of this Note, such number of
Conversion Shares and Warrant Shares as shall from time to time be
sufficient to effect the conversion of this Note; and if at any
time the number of authorized but unissued shares of capital stock
of the Company shall not be sufficient to effect the conversion of
this Note, the Company hereby covenants and agrees to take such
corporate action as may, in the opinion of its counsel, be
necessary to increase its authorized but unissued shares of capital
stock to such number of shares as shall be sufficient for such
purpose.
(d)
Payment Of Expenses And Taxes On Conversion . The Company
shall pay all expenses, taxes and other charges payable in
connection with the preparation, execution, issuance and delivery
of stock certificates, warrant certificates and new notes pursuant
to this Section 4 hereof, except that, in the event such stock
certificates, warrant certificates or new notes shall be registered
in a name or names other than the name of the holder of this Note,
funds sufficient to pay all stock transfer fees, which shall
be
