Exhibit 10.2

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 "1933 ACT").

NONE OF THE SECURITIES REPRESENTED HEREBY HAVE BEEN REGISTERED UNDER THE 1933
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 1933 ACT, PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE 1933 ACT, OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE 1933 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 1933 ACT. "UNITED STATES" AND "U.S. PERSON" ARE AS DEFINED
BY REGULATION S UNDER THE 1933 ACT.

CONFIDENTIAL

PRIVATE PLACEMENT SUBSCRIPTION AGREEMENT

TO:

Texola Energy Corporation (the "Company")

206 – 475 Howe Street

Vancouver, British Columbia Canada V6C 2B3

PURCHASE OF CONVERTIBLE NOTE AND WARRANTS

1.

Subscription

1.1                         On the basis of the representations and warranties
and subject to the terms and conditions set forth herein, the undersigned (the
"Subscriber") hereby irrevocably subscribes for and agrees to purchase a
convertible note, in the form attached hereto as Exhibit A (the "Note"), which
Note is convertible into 730,000 units (the "Units") at a price per Unit of
US$1.00, for an aggregate purchase price of US$730,000 (the "Subscription
Proceeds") (such subscription and agreement to purchase being the
"Subscription").

1.2                         Each Unit converted from the Note will consist of
one common share in the capital of the Company (each, a "Conversion Share") and
one common share purchase warrant, in the form attached hereto as Exhibit B (the
"Warrants"). Each Warrant shall be non-transferrable and shall entitle the
holder thereof to purchase one share of common stock in the capital of the
Company (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
Notes, the Warrants, the Warrant Shares and the Conversion Shares are
collectively referred to as the "Securities".

1.3                         On the basis of the representations and warranties
and subject to the terms and conditions set forth herein, the Company hereby
irrevocably agrees to sell the Securities to the Subscriber.

1.4                         Subject to the terms hereof, the Subscription will
be effective upon its acceptance by the Company.

 

 

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2.

Payment

2.1                         The Subscription Proceeds must accompany this
Subscription and shall be paid by certified cheque or bank draft drawn on a
Canadian chartered bank, and made payable and delivered to the Company.
Alternatively, the Subscription Proceeds may be wired to the Company or its
lawyers pursuant to wiring instructions that will be provided to the Subscriber
upon request. If the funds are wired to the Company's lawyers, those lawyers are
authorized to immediately deliver the funds to the Company.

2.2                         The Subscriber acknowledges and agrees that this
Subscription Agreement, the Subscription Proceeds and any other documents
delivered in connection herewith will be held on behalf of the Company. In the
event that this Subscription Agreement is not accepted by the Company for
whatever reason, which the Company expressly reserves the right to do, within 30
days of the delivery of an executed Subscription Agreement by the Subscriber,
this Subscription Agreement, the Subscription Proceeds (without interest
thereon) and any other documents delivered in connection herewith will be
returned to the Subscriber at the address of the Subscriber as set forth in this
Subscription Agreement.

2.3                         Where the Subscription Proceeds are paid to the
Company, the Company is entitled to treat such Subscription Proceeds as an
interest free loan to the Company until such time as the Subscription is
accepted and the Note has been issued to the Subscriber.

3.

Documents Required from Subscriber

3.1                         The Subscriber must complete, sign and return to the
Company two (2) executed copies of this Subscription Agreement.

3.2                         The Subscriber shall complete, sign and return to
the Company as soon as possible, on request by the Company, any additional
documents, questionnaires, notices and undertakings as may be required by any
regulatory authorities and applicable law.

4.

Closing

4.1                         Closing of the offering of the Securities (the
"Closing") shall occur on or before March 15, 2006, or on such other date as may
be determined by the Company (the "Closing Date").

5.

Acknowledgements of Subscriber

5.1

The Subscriber acknowledges and agrees that:

 

(a)

none of the Securities have been registered under the 1933 Act, or under any
state securities or "blue sky" laws of any state of the United States, and,
unless so registered, may not be offered or sold in the United States or,
directly or indirectly, to U.S. Persons, as that term is defined in Regulation S
under the 1933 Act ("Regulation S"), except in accordance with the provisions of
Regulation S, pursuant to an effective registration statement under the 1933
Act, or pursuant to an exemption from, or in a transaction not subject to, the
registration requirements of the 1933 Act;

 

(b)

the Subscriber acknowledges that the Company has not undertaken, and will have
no obligation, to register any of the Securities under the 1933 Act;

 

(c)

the decision to execute this Agreement and acquire the Securities agreed to be
purchased hereunder has not been based upon any oral or written representation
as to fact or otherwise made by or on behalf of the Company and such decision is
based entirely upon a review of any public information which has been filed by
the Company with the Securities and Exchange Commission ("SEC") in compliance,
or intended compliance, with applicable securities legislation;

 

 

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(d)

the Subscriber and the Subscriber's advisor(s) have had a reasonable opportunity
to ask questions of and receive answers from the Company in connection with the
distribution of the Securities hereunder, and to obtain additional information,
to the extent possessed or obtainable without unreasonable effort or expense,
necessary to verify the accuracy of the information about the Company;

 

(e)

the books and records of the Company were available upon reasonable notice for
inspection, subject to certain confidentiality restrictions, by the Subscriber
during reasonable business hours at its principal place of business, and all
documents, records and books in connection with the distribution of the
Securities hereunder have been made available for inspection by the Subscriber,
the Subscriber's lawyer and/or advisor(s);

 

(f)

the Company is entitled to rely on the representations and warranties of the
Subscriber contained in this Agreement and the Subscriber will hold harmless the
Company from any loss or damage it or they may suffer as a result of the
Subscriber's failure to correctly complete this Subscription Agreement;

 

(g)

the Subscriber will indemnify and hold harmless the Company and, where
applicable, its directors, officers, employees, agents, advisors and
shareholders, from and against any and all loss, liability, claim, damage and
expense whatsoever (including, but not limited to, any and all fees, costs and
expenses whatsoever reasonably incurred in investigating, preparing or defending
against any claim, lawsuit, administrative proceeding or investigation whether
commenced or threatened) arising out of or based upon any representation or
warranty of the Subscriber contained in this Subscription Agreement or in any
document furnished by the Subscriber to the Company in connection herewith being
untrue in any material respect or any breach or failure by the Subscriber to
comply with any covenant or agreement made by the Subscriber to the Company in
connection therewith;

 

(h)

none of the Securities are listed on any stock exchange or automated dealer
quotation system and no representation has been made to the Subscriber that any
of the Securities will become listed on any stock exchange or automated dealer
quotation system, except that currently the common shares of the Company are
quoted for trading on the National Association of Securities Dealers Inc.'s OTC
Bulletin Board (the "OTCBB");

 

(i)

the Subscriber has not acquired the Securities as a result of, and will not
itself engage in, any "directed selling efforts" (as defined in Regulation S
under the 1933 Act) in the United States in respect of the Securities which
would include any activities undertaken for the purpose of, or that could
reasonably be expected to have the effect of, conditioning the market in the
United States for the resale of any of the Securities; provided, however, that
the Subscriber may sell or otherwise dispose of the Securities pursuant to
registration thereof under the 1933 Act and any applicable state and provincial
securities laws or under an exemption from such registration requirements;

 

(j)

the Company will refuse to register any transfer of the Securities not made in
accordance with the provisions of Regulation S, pursuant to an effective
registration statement under the 1933 Act or pursuant to an available exemption
from the registration requirements of the 1933 Act and in accordance with
applicable state and provincial securities laws;

 

(k)

the statutory and regulatory basis for the exemption claimed for the offer of
the Securities, although in technical compliance with Regulation S, would not be
available if the offering is part of a plan or scheme to evade the registration
provisions of the 1933 Act or any applicable state and provincial securities
laws;

 

(l)

the Subscriber has been advised to consult the Subscriber's own legal, tax and
other advisors with respect to the merits and risks of an investment in the
Securities and with respect to applicable resale restrictions, and it is solely
responsible (and the Company is not in any way responsible) for compliance with:

 

 

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(i)

any applicable laws of the jurisdiction in which the Subscriber is resident in
connection with the distribution of the Securities hereunder, and

 

(ii)

applicable resale restrictions; and

 

(m)

in addition to resale restrictions imposed under U.S. securities laws, there are
additional restrictions on the Subscriber's ability to resell any of the
Conversion Shares or Warrant Shares under the Securities Act (British Columbia)
(the "B.C. Act") and Multilateral Instrument 45-102 adopted by the British
Columbia Securities Commission (the "BCSC");

 

(n)

the Company has advised the Subscriber that the Company is relying on an
exemption from the requirements to provide the Subscriber with a prospectus to
issue the Securities and, as a consequence of acquiring the Securities pursuant
to such exemption certain protections, rights and remedies provided by the
applicable securities legislation of British Columbia including statutory rights
of rescission or damages, will not be available to the Subscriber;

 

(o)

neither the SEC nor any other securities commission or similar regulatory
authority has reviewed or passed on the merits of any of the Securities;

 

(p)

no documents in connection with the sale of the Securities hereunder have been
reviewed by the SEC or any state securities administrators;

 

(q)

there is no government or other insurance covering any of the Securities; and

 

(r)

this Subscription Agreement is not enforceable by the Subscriber unless it has
been accepted by the Company.

6.

Representations, Warranties and Covenants of the Subscriber

6.1                         The Subscriber hereby represents and warrants to and
covenants with the Company (which representations, warranties and covenants
shall survive the Closing) that:

 

(a)

it has the legal capacity and competence to enter into and execute this
Subscription Agreement and to take all actions required pursuant hereto and it
is duly incorporated and validly subsisting under the laws of its jurisdiction
of incorporation and all necessary approvals by its directors, shareholders and
others have been obtained to authorize execution and performance of this
Subscription Agreement on behalf of the Subscriber;

 

(b)

the entering into of this Subscription Agreement and the transactions
contemplated hereby do not result in the violation of any of the terms and
provisions of any law applicable to, or the constating documents of, the
Subscriber or of any agreement, written or oral, to which the Subscriber may be
a party or by which the Subscriber is or may be bound;

 

(c)

the Subscriber has duly executed and delivered this Subscription Agreement and
it constitutes a valid and binding agreement of the Subscriber enforceable
against the Subscriber;

 

(d)

the Subscriber is not acquiring the Securities for the account or benefit of,
directly or indirectly, any U.S. Person;

 

(e)

the Subscriber is not a U.S. Person;

 

(f)

the Subscriber is resident in the jurisdiction set out under the heading "Name
and Address of Subscriber" on the signature page of this Subscription Agreement;

 

 

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(g)

the sale of the Securities to the Subscriber as contemplated in this
Subscription Agreement complies with or is exempt from the applicable securities
legislation of the jurisdiction of residence of the Subscriber;

 

(h)

the Subscriber is acquiring the Securities as principal for investment only and
not with a view to resale or distribution and, in particular, it has no
intention to distribute either directly or indirectly any of the Securities in
the United States or to U.S. Persons;

 

(i)

the Subscriber is outside the United States when receiving and executing this
Agreement and is acquiring the Securities as principal for the Subscriber's own
account, for investment purposes only, and not with a view to, or for, resale,
distribution or fractionalisation thereof, in whole or in part, and no other
person has a direct or indirect beneficial interest in such Securities;

 

(j)

the Subscriber is not an underwriter of, or dealer in, the common shares of the
Company, nor is the Subscriber participating, pursuant to a contractual
agreement or otherwise, in the distribution of the Securities;

 

(k)

the Subscriber acknowledges that the Subscriber has not acquired the Securities
as a result of, and will not itself engage in, any "directed selling efforts"
(as defined in Regulation S under the 1933 Act) in the United States in respect
of the Securities which would include any activities undertaken for the purpose
of, or that could reasonably be expected to have the effect of, conditioning the
market in the United States for the resale of the Securities; provided, however,
that the Subscriber may sell or otherwise dispose of the Securities pursuant to
registration of the Securities pursuant to the 1933 Act and any applicable state
and provincial securities laws or under an exemption from such registration
requirements and as otherwise provided herein;

 

(l)

the Subscriber understands and agrees that offers and sales of any of the
Securities prior to the expiration of a period of one year after the date of
original issuance of the Securities (the one year period hereinafter referred to
as the "Distribution Compliance Period") shall only be made in compliance with
the safe harbor provisions set forth in Regulation S, pursuant to the
registration provisions of the 1933 Act or an exemption therefrom, and that all
offers and sales after the Distribution Compliance Period shall be made only in
compliance with the registration provisions of the 1933 Act or an exemption
therefrom and in each case only in accordance with applicable state and
provincial securities laws;

 

(m)

the Subscriber understands and agrees not to engage in any hedging transactions
involving any of the Securities unless such transactions are in compliance with
the provisions of the 1933 Act and in each case only in accordance with
applicable state and provincial securities laws;

 

(n)

the Subscriber understands and agrees that the Company will refuse to register
any transfer of the Securities not made in accordance with the provisions of
Regulation S, pursuant to an effective registration statement under the 1933 Act
or pursuant to an available exemption from the registration requirements of the
1933 Act;

 

(o)

the Subscriber is aware that an investment in the Company is speculative and
involves certain risks, including the possible loss of the entire investment;

 

(p)

the Subscriber has made an independent examination and investigation of an
investment in the Securities and the Company and has depended on the advice of
its legal and financial advisors and agrees that the Company will not be
responsible in any way whatsoever for the Subscriber's decision to invest in the
Securities and the Company;

 

(q)

the Subscriber (i) has adequate net worth and means of providing for its current
financial needs and possible personal contingencies, (ii) has no need for
liquidity in this investment, and (iii) is able to bear the economic risks of an
investment in the Securities for an indefinite period of time;

 

 

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(r)

the Subscriber understands and agrees that the Company and others will rely upon
the truth and accuracy of the acknowledgements, representations and agreements
contained in this Agreement and agrees that if any of such acknowledgements,
representations and agreements are no longer accurate or have been breached, the
Subscriber shall promptly notify the Company;

 

(s)

the Subscriber (i) is able to fend for him/her/itself in the Subscription; (ii)
has such knowledge and experience in business matters as to be capable of
evaluating the merits and risks of its prospective investment in the Securities;
and (iii) has the ability to bear the economic risks of its prospective
investment and can afford the complete loss of such investment;

 

(t)

the Subscriber understands and agrees that none of the Securities have been
registered under the 1933 Act, or under any state securities or "blue sky" laws
of any state of the United States, and, unless so registered, may not be offered
or sold in the United States or, directly or indirectly, to U.S. Persons except
in accordance with the provisions of Regulation S, pursuant to an effective
registration statement under the 1933 Act, or pursuant to an exemption from, or
in a transaction not subject to, the registration requirements of the 1933 Act
and in each case only in accordance with applicable state and provincial
securities laws;

 

(u)

all information contained in this Agreement is complete and accurate and may be
relied upon by the Company, and the Subscriber will notify the Company
immediately of any material change in any such information occurring prior to
the closing of the purchase of the Securities;

 

(v)

the Subscriber is not an underwriter of, or dealer in, the common shares of the
Company, nor is the Subscriber participating, pursuant to a contractual
agreement or otherwise, in the distribution of the Securities;

 

(w)

the Subscriber understands and agrees that the Company will refuse to register
any transfer of the Conversion Shares or the Warrant Shares not made in
accordance with the provisions of Regulation S, pursuant to an effective
registration statement under the 1933 Act or pursuant to an available exemption
from the registration requirements of the 1933 Act;

 

(x)

the Subscriber is not aware of any advertisement of any of the Securities and is
not acquiring the Securities as a result of any form of general solicitation or
general advertising including advertisements, articles, notices or other
communications published in any newspaper, magazine or similar media or
broadcast over radio or television, or any seminar or meeting whose attendees
have been invited by general solicitation or general advertising; and

 

(y)

no person has made to the Subscriber any written or oral representations:

 

(i)

that any person will resell or repurchase any of the Securities;

 

(ii)

that any person will refund the purchase price of any of the Securities;

 

(iii)

as to the future price or value of any of the Securities; or

 

(iv)

that any of the Securities will be listed and posted for trading on any stock
exchange or automated dealer quotation system or that application has been made
to list and post any of the Securities of the Company on any stock exchange or
automated dealer quotation system, except that currently certain market makers
make market in the common shares of the Company on the OTCBB.

6.2                         In this Agreement, the term "U.S. Person" shall have
the meaning ascribed thereto in Regulation S.

 

 

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7.

Representations and Warranties will be Relied Upon by the Company

7.1                         The Subscriber acknowledges that the representations
and warranties contained herein are made by it with the intention that such
representations and warranties may be relied upon by the Company and its legal
counsel in determining the Subscriber's eligibility to purchase the Securities
under applicable securities legislation, or (if applicable) the eligibility of
others on whose behalf it is contracting hereunder to purchase the Securities
under applicable securities legislation. The Subscriber further agrees that by
accepting delivery of the certificates representing the Securities on the
Closing Date, it will be representing and warranting that the representations
and warranties contained herein are true and correct as at the Closing Date with
the same force and effect as if they had been made by the Subscriber on the
Closing Date and that they will survive the purchase by the Subscriber of
Securities and will continue in full force and effect notwithstanding any
subsequent disposition by the Subscriber of such Securities.

8.

Resale Restrictions

8.1                         The Subscriber acknowledges that any resale of the
Securities will be subject to resale restrictions contained in the securities
legislation applicable to the Subscriber or proposed transferee. The Subscriber
acknowledges that none of the Securities have been registered under the 1933 Act
of the securities laws of any state of the United States. None of the Securities
may be offered or sold in the United States unless registered in accordance with
United States federal securities laws and all applicable state and provincial
securities laws or exemptions from such registration requirements are available.

9.

Acknowledgement and Waiver

9.1                         The Subscriber has acknowledged that the decision to
acquire the Securities was solely made on the basis of publicly available
information. The Subscriber hereby waives, to the fullest extent permitted by
law, any rights of withdrawal, rescission or compensation for damages to which
the Subscriber might be entitled in connection with the distribution of any of
the Securities.

10.

Legending and Registration of Subject Securities

10.1                       The Subscriber hereby acknowledges that upon the
issuance thereof, and until such time as the same is no longer required under
the applicable securities laws and regulations, the certificates representing
any of the Securities will bear a legend in substantially the following form:

THE SECURITIES REPRESENTED HEREBY HAVE BEEN OFFERED IN AN OFFSHORE TRANSACTION
TO A PERSON WHO IS NOT A U.S. PERSON (AS DEFINED HEREIN) PURSUANT TO REGULATION
S UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT").
NONE OF THE SECURITIES REPRESENTED HEREBY HAVE BEEN REGISTERED UNDER THE 1933
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 1933 ACT, PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE 1933 ACT, OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE 1933 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 1933 ACT. "UNITED STATES" AND "U.S. PERSON" ARE AS DEFINED
BY REGULATION S UNDER THE 1933 ACT.

 

 

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10.2                       The Subscriber hereby acknowledges and agrees to the
Company making a notation on its records or giving instructions to the registrar
and transfer agent of the Company in order to implement the restrictions on
transfer set forth and described in this Agreement.

11.

British Columbia Resale Restriction

11.1                       The Subscriber acknowledges that the Conversion
Shares and the Warrant Shares are subject to resale restrictions in British
Columbia and may not be traded in British Columbia except as permitted by the
B.C. Act and the rules made thereunder.

11.2                       Pursuant to Multilateral Instrument 45-102, as
adopted by the BCSC, a subsequent trade in the Conversion Shares or Warrant
Shares will be a distribution subject to the prospectus and registration
requirements of applicable Canadian securities legislation (including the B.C.
Act) unless certain conditions are met, which conditions include a hold period
(the "Canadian Hold Period") that shall have elapsed from the date on which the
Securities were issued to the Subscriber and, during the currency of the
Canadian Hold Period, any certificate representing the Securities is to be
imprinted with a restrictive legend (the "Canadian Legend").

11.3                       By executing and delivering this Agreement, the
Subscriber will have directed the Company not to include the Canadian Legend on
any certificates representing the Securities to be issued to the Subscriber.

11.4                       As a consequence, the Subscriber will not be able to
rely on the resale provisions of Multilateral Instrument 45-102, and any
subsequent trade in any of the Conversion Shares or the Warrant Shares during or
after the Canadian Hold Period will be a distribution subject to the prospectus
and registration requirements of Canadian securities legislation, to the extent
that the trade is at that time subject to any such Canadian securities
legislation.

12.

Costs

12.1                       The Subscriber acknowledges and agrees that all costs
and expenses incurred by the Subscriber (including any fees and disbursements of
any special counsel retained by the Subscriber) relating to the purchase of the
Securities shall be borne by the Subscriber.

13.

Governing Law

13.1

This Subscription Agreement is governed by the laws of the Province of British
Columbia.

14.

Currency

14.1

Any reference to currency is to the currency of the United States unless
otherwise indicated.

15.

Survival

15.1                       This Subscription Agreement, including without
limitation the representations, warranties and covenants contained herein, shall
survive and continue in full force and effect and be binding upon the parties
hereto notwithstanding the completion of the purchase of the Securities by the
Subscriber pursuant hereto.

16.

Assignment

16.1

This Subscription Agreement is not transferable or assignable.

17.

Severability

17.1                       The invalidity or unenforceability of any particular
provision of this Subscription Agreement shall not affect or limit the validity
or enforceability of the remaining provisions of this Subscription Agreement.

 

 

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18.

Entire Agreement

18.1                       Except as expressly provided in this Subscription
Agreement and in the agreements, instruments and other documents contemplated or
provided for herein, this Subscription Agreement contains the entire agreement
between the parties with respect to the sale of the Securities and there are no
other terms, conditions, representations or warranties, whether expressed,
implied, oral or written, by statute or common law, by the Company or by anyone
else.

19.

Notices

19.1                       All notices and other communications hereunder shall
be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the Subscriber
shall be directed to the address on the signature page of this Subscription
Agreement and notices to the Company shall be directed to it at 206-475 Howe
Street, Vancouver, British Columbia, Canada V6C 2B3.

20.

Counterparts and Electronic Means

20.1                       This Subscription Agreement may be executed in any
number of counterparts, each of which, when so executed and delivered, shall
constitute an original and all of which together shall constitute one
instrument. Delivery of an executed copy of this Subscription Agreement by
electronic facsimile transmission or other means of electronic communication
capable of producing a printed copy will be deemed to be execution and delivery
of this Subscription Agreement as of the date hereinafter set forth.

IN WITNESS WHEREOF the Subscriber has duly executed this Subscription Agreement
as of the date of acceptance by the Company.

Bulstrode International Inc.                                          

 

(Name of Subscriber – Please type or print)

/s/ signed                                
                                        

 

(Signature and, if applicable, Office)

Bleicherweg 14, P.O. Box 2724                                          

 

(Address of Subscriber)

Zurich, 8022                                                                 

 

(City, State or Province, Postal Code of Subscriber)

Switzerland                                                                   

 

(Country of Subscriber)

 

 

 

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A C C E P T A N C E

The above-mentioned Subscription Agreement in respect of the Note and the
Warrants is hereby accepted by Texola Energy Corporation.

DATED at Vancouver, British Columbia, the 8th day of March 2006.

TEXOLA ENERGY CORPORATION

 

 

Per:

/s/ Thornton Donaldson

 

Authorized Signatory

 

 

 

 

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EXHIBIT A

FORM OF CONVERTIBLE NOTE

 

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.

 

NO. 1

US$730,000

TEXOLA ENERGY CORPORATION

6.0% CONVERTIBLE NOTE DUE MARCH 8, 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 SEVEN
HUNDRED THIRTY THOUSAND UNITED STATES DOLLARS (US$730,000), 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 8, 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

 

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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 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

 

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shall be commenced and an order for relief entered or such proceeding shall not
be dismissed or discharged within thirty (30) days of commencement.

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 March 8, 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

 

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(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 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 payable upon the
execution and delivery of such stock certificate or certificates or new notes,
shall be paid by the holder thereof to the Company at the time of delivering
this Note to the Company upon conversion.

Section 5.

Conversion Price Adjustments.

(a)          Adjustment For Stock Splits And Combinations. If the Company shall
at any time or from time to time after the date of original issuance of this
Note (the “Date of Original Issue”) effect a subdivision or reverse stock split
of the outstanding Common Stock, the Conversion Price in effect immediately
before a subdivision shall be proportionately decreased, and, conversely, the
Conversion Price in effect immediately before a reverse stock split shall be
proportionately increased. Any adjustment under this Section 5(a) shall become
effective at the close of business on the date the subdivision or reverse stock
split becomes effective.

(b)          Adjustment For Common Stock Dividends And Distributions. If the
Company at any time or from time to time after the Date of Original Issue
issues, or fixes a record date for the determination of holders of Common Stock
entitled to receive, a dividend or other distribution payable solely in
additional shares of Common Stock, the Conversion Price that is then in effect
shall be decreased as of the time of such issuance or, in the event such record
date is fixed, as of the close of business on such record date, by multiplying
the Conversion Price by a fraction (i) the numerator of which is the total
number of shares of Common Stock issued and outstanding immediately prior to the
time of such issuance or the close of business on such record date, and (ii) the
denominator of which is the sum of the total number of shares of Common Stock
issued and outstanding immediately prior to the time of such issuance or the

 

4

 

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close of business on such record date plus the number of shares of Common Stock
issuable in payment of such dividend or distribution; provided, however, that if
such record date is fixed and such dividend is not fully paid or if such
distribution is not fully made on the date fixed therefor, the Conversion Price
shall be recomputed accordingly as of the close of business on such record date
and thereafter the Conversion Price shall be adjusted pursuant to this
Section 5(b) to reflect the actual payment of such dividend or distribution.

(c)          Adjustments For Other Dividends And Distributions. If the Company
at any time or from time to time after the Date of Original Issue issues, or
fixes a record date for the determination of holders of Common Stock entitled to
receive, a dividend or other distribution payable in securities of the Company
other than shares of Common Stock or in other property, in each such event
provision shall be made so that the Purchaser shall receive upon conversion
hereof, in addition to the number of shares of Common Stock receivable hereupon,
the amount of securities of the Company or other property which such Purchaser
would have received had this Note been converted into Common Stock on the date
of such event and had it thereafter, during the period from the date of such
event to and including the conversion date, retained such securities or other
property receivable by it as aforesaid during such period, subject to all other
adjustments called for during such period under this Section 5 with respect to
the rights of the Purchaser or with respect to such other securities or other
property by their terms. As used herein, the term “other property” does not
include cash.

(d)          Adjustment For Reclassification, Exchange And Substitution. If at
any time or from time to time after the Date of Original Issue, the Common Stock
issuable upon the conversion of this Note is changed into the same or a
different number of shares of any class or series of stock, whether by
recapitalization, reclassification or otherwise (other than a subdivision or
reverse stock split or stock dividend or a reorganization, merger, consolidation
or sale of assets provided for elsewhere in this Section 5), then in any such
event the Purchaser shall have the right thereafter to convert this Note into
the kind and amount of stock and other securities and property receivable upon
such recapitalization, reclassification or other change by holders of the number
of shares of Common Stock into which this Note could have been converted
immediately prior to such recapitalization, reclassification or change, all
subject to further adjustment as provided herein or with respect to such other
securities or property by the terms thereof.

(e)          Certificate Of Adjustment. In each case of an adjustment or
readjustment of the Conversion Price for the number of shares of Common Stock,
Warrants or other securities issuable upon conversion of this Note, the Company,
at its own expense, shall cause its Secretary or Treasurer to compute such
adjustment or readjustment in accordance with the provisions hereof and prepare
a certificate showing such adjustment or readjustment, and shall mail such
certificate, by first class mail, postage prepaid, to the Purchaser at the
Purchaser’s address as shown in the Company’s books. The certificate shall set
forth such adjustment or readjustment, showing in detail the facts upon which
such adjustment or readjustment is based. No adjustment in the Conversion Price
shall be required to be made unless it would result in an increase or decrease
of at least one cent, but any adjustments not made because of this sentence
shall be carried forward and taken into account in any subsequent adjustment
otherwise required hereunder.

 

5

 

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(f)           Notices Of Record Date. Upon (i) the establishment by the Company
of a record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend or
other distribution, or (ii) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company, any
merger or consolidation of the Company with or into any other Company, or any
transfer of all or substantially all the assets of the Company to any other
person or any voluntary or involuntary dissolution, liquidation or winding up of
the Company, the Company shall mail to the Purchaser at least 20 days prior to
the record date specified therein a notice specifying (A) the date on which any
such record is to be taken for the purpose of such dividend or distribution and
a description of such dividend or distribution, (B) the date on which any such
reorganization, reclassification, transfer, consolidation, merger, dissolution,
liquidation or winding up is expected to become effective, and (C) the date, if
any, that is to be fixed as to when the holders of record of Common Stock (or
other securities), shall be entitled to exchange their shares of Common Stock
(or other securities), for securities or other property deliverable upon such
reorganization, reclassification transfer, consolidation, merger, dissolution,
liquidation or winding up.

Section 6.

Exchange or Replacement of Notes.

(a)          The Purchaser may, at its option, in person or by duly authorized
attorney, surrender this Note for exchange, at the principal business office of
the Company, and receive in exchange therefore, a new Note in the same principal
amount as the unpaid principal amount of this Note and bearing interest at the
same annual rate as this Note, each such new Note to be dated as of the date of
this Note and to be in such principal amount as remains unpaid and payable to
such person or persons, or order, as the Purchaser may designate in writing;
provided that any such transfer of this Note complies with all applicable
securities laws.

(b)          Upon receipt by the Company of evidence satisfactory to it of the
loss, theft, destruction, or mutilation of this Note and (in the case of loss,
theft or destruction) of an indemnity reasonably satisfactory to it, and upon
surrender and cancellation of this Note, if mutilated, the Company will deliver
a new Note of like tenor in lieu of this Note. Any Note delivered in accordance
with the provisions of this Section 6 shall be dated as of the date of this
Note.

Section 7.

Attorneys’ and Collection Fees.

Should the indebtedness evidenced by this Note or any part hereof be collected
at law or in equity or in bankruptcy, receivership or other court proceedings,
the Company agrees to pay, in addition to the principal and interest due and
payable hereon, all costs of collection, including reasonable attorneys’ fees
and expenses, incurred by the Purchaser in collecting or enforcing this Note.

Section 8.

Waivers.

The Company hereby waives presentment, demand for payment, notice of dishonor,
notice of protest and all other notices or demands in connection with the
delivery, acceptance, performance or default of this Note. No delay by the
Purchaser in exercising any power or right

 

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hereunder shall operate as a waiver of any power or right, nor shall any single
or partial exercise of any power or right preclude other or further exercise
thereof, or the exercise thereof, or the exercise of any other power or right
hereunder or otherwise; and no waiver whatsoever or modification of the terms
hereof shall be valid unless set forth in writing by the Purchaser and then only
to the extent set forth therein.

Section 9.

Amendments.

Subject to the provisions of the Purchase Agreement, this Note may not be
amended without the express written consent of both the Company and the
Purchaser.

Section 10.

Governing Law.

This Note shall be deemed to be made under and shall be construed in accordance
with the laws of the Province of British Columbia without giving effect to the
principles of conflict of laws thereof.

Section 11.

Successors and Assigns.

The rights and obligations of the Company and the Purchaser under this Note
shall be binding upon and benefit the successors, assigns, heirs, administrators
and transferees of the parties. Notwithstanding the foregoing, neither this Note
nor any of the rights, interests or obligations hereunder may be assigned, by
operation of law or otherwise, in whole or in part, by the Company, without the
prior written consent of the Purchaser.

Section 12.

Notices.

All notices, requests, demands and other communications to any party hereunder
shall be in writing (including facsimile or similar writing) and shall be given
to such party at its address or facsimile number set forth below or such other
address or facsimile number as such party may hereafter specify by notice to the
other parties listed below:

 

(a)

If to the Company:

Texola Energy Corporation

 

 

206 - 475 Howe Street

 

 

Vancouver, British Columbia

 

Canada V6C 2B3

 

Attention: Thornton Donaldson

Telephone: 604-488-0277

 

Facsimile:

604-488-0239

 

 

with a copy to:

Clark Wilson LLP

 

 

Barristers and Solicitors

 

 

800-885 West Georgia Street

 

 

Vancouver, BC, Canada V6C 3H1

 

Attention: Virgil Z. Hlus, Esq.

 

 

Telephone: 604-687-5700

 

 

Facsimile:

604-687-6314

 

 

 

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(b)

If to the Purchaser: At the address shown on the signature page

Each such notice, request or other communication shall be effective (i) upon
receipt (provided, however, that notices received on a Saturday, Sunday or legal
holiday or after 5:00 p.m. on any other day will be deemed to have been received
on the next business day), if given by legible facsimile transmission with proof
from sender of confirmation of receipt, or (ii) if given by any other means,
when delivered at the address specified in this Section 12.

Section 13.

No Rights of Stockholders.

Except as otherwise provided herein, this Note shall not entitle the Purchaser
to any of the rights of a stockholder of the Company, including without
limitation, the right to vote, to receive dividends and other distributions, or
to receive any notice of, or to attend, meetings of stockholders or any other
proceedings of the Company, unless and to the extent converted into shares of
Common Stock in accordance with the terms hereof.

Section 14.

Entire Agreement.

This Note represents the entire agreement between the parties hereto with
respect to the subject matter hereof and there are no representations,
warranties or commitments, except as set forth herein. This Note may be amended
only by an instrument in writing executed by the parties hereto.

Section 15.

Headings.

The headings used in this Note are used for convenience only and are not to be
considered in construing or interpreting this Note.

Section 16.

Electronic Means

Delivery of an executed copy of this Note by electronic facsimile transmission
or other means of electronic communication capable of producing a printed copy
will be deemed to be execution and delivery of this Note as of the date
hereinafter set forth.

Section 17.

Assignability

This Note shall be binding upon the Company and its successors and shall enure
to the benefit of the Purchaser and its successors. This Note is not assignable
by the Purchaser without the express written consent of the Company.

Section 18.

Currency

Unless expressly stated otherwise, all funds expressed in this Note are stated
in United States dollars.

Section 19.

Restrictions on Shares

 

 

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The Conversion Shares issuable upon conversion of this Note and the Warrant
Shares issuable upon exercise of the Warrants may not be sold or transferred
unless (a) the Conversion Shares or the Warrant Shares, as applicable, first
shall have been registered under the Securities Act and applicable state
securities laws, or (b) the Company shall have been furnished with an opinion of
legal counsel (in form, substance and scope customary for opinions in such
circumstances) to the effect that such sale or transfer is exempt from
registration requirements of the Securities Act, or (c) the Conversion Shares or
Warrant Shares, as applicable, are sold under Rule 144 under the Securities Act.
Except as otherwise provided in the Subscription Agreement dated March 8, 2006,
each certificate for the Conversion Shares and the Warrant Shares issuable upon
conversion of this Note or upon exercise of the Warrants, as applicable, that
have not been so registered and that have not been sold under an exemption that
permits removal of the legend, shall bear a legend substantially in the
following form, as appropriate:

“THE SECURITIES REPRESENTED HEREBY HAVE BEEN OFFERED IN AN OFFSHORE TRANSACTION
TO A PERSON WHO IS NOT A U.S. PERSON (AS DEFINED HEREIN) PURSUANT TO REGULATION
S UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”). NONE OF THE SECURITIES REPRESENTED HEREBY 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.”

Upon the request of the Holder of a certificate representing any Conversion
Shares issuable upon conversion of this Note or of a certificate representing
any Warrant Shares issuable upon exercise of the Warrants, the Company shall
remove the foregoing legend from the certificate and issue to the Purchaser a
new certificate free of any transfer legend, (a) if without an effective
registration statement with such request, the Company shall have received either
(i) an opinion of counsel, in form, substance and scope customary for opinions
in such circumstances, to the effect that any such legend may be removed from
such certificate, or (ii) satisfactory representations from the Purchaser that
the Purchaser is eligible to sell such security under Rule 144 or (b) a
registration statement under the Securities Act covering the resale of such
securities is in effect.

IN WITNESS WHEREOF, the Company has caused this Note to be duly executed by its
duly authorized officer as of the date indicated below.

Date: March 8, 2006

TEXOLA ENERGY CORPORATION

 

 

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By:

/s/ Thornton Donaldson

Name: Thornton Donaldson

 

Title:

President, Secretary and Treasury

 

 

Note No.

1                                          
                                          

Amount:

US$730,000                                                                   

Purchaser Name: Bulstrode International Inc.                              

Address:

Bleicherweg 14, P.O. Box 2724                                  

 

 

Zurich, 8022 Switzerland                                             

 

Telephone:

                                          
                                             

Facsimile:

                                          
                                             

 

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ANNEX A

NOTICE OF CONVERSION

(To be executed by the Purchaser in order to Convert the Note)

 

TO:

TEXOLA ENERGY CORPORATION

 

The undersigned hereby irrevocably elects to convert US$_______________________
of the principal amount of the Note dated March 8, 2006 between the Company and
Bulstrode International Inc., into shares of Common Stock of the Company and
Warrants, according to the conditions stated therein, as of the Conversion Date
written below. All capitalized terms used herein shall have the meanings
assigned thereto in the Note.

 

Conversion Date:

____________________________________________________

Applicable Conversion Price:

US$                                          
                                                         

Amount to be converted:

US$                                          
                                                         

Number of Shares of Common Stock to be issued:

____________________________________________________

Number of Warrants to be issued:

____________________________________________________

Amount of Note unconverted:

Principal: US$                                          
                          

Please issue the Shares of Common Stock and the Warrants in the following name
and to the following address:

____________________________________________________

____________________________________________________

 

____________________________________________________

 

 

Signature of the Holder:

____________________________________________________

Name:

Bulstrode International Inc.                                          
                    

Address:

Bleicherweg 14, P.O. Box 2724                                          
            

Zurich, 8022 Switzerland                                          
                      

 

____________________________________________________

Phone Number:

 

 

 

A-1

 

 

 

 

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EXHIBIT B

FORM OF WARRANT

 

 

NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
EXERCISABLE WERE ISSUED IN AN OFFSHORE TRANSACTION TO PERSONS WHO ARE NOT U.S.
PERSONS PURSUANT TO REGULATION S UNDER THE UNITED STATES SECURITIES ACT OF 1933,
AS AMENDED (THE “SECURITIES ACT”). ACCORDINGLY, NONE OF THE SECURITIES TO WHICH
THIS CERTIFICATE RELATES HAVE BEEN REGISTERED UNDER THE SECURITIES ACT, OR ANY
U.S. STATE SECURITIES LAWS, AND, UNLESS SO REGISTERED, NONE MAY BE OFFERED OR
SOLD IN THE UNITED STATES OR, DIRECTLY OR INDIRECTLY, TO U.S. PERSONS (AS
DEFINED HEREIN) EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR
PURSUANT TO AN 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 ACCORDANCE
WITH THE SECURITIES ACT.

TEXOLA ENERGY CORPORATION

COMMON STOCK PURCHASE WARRANT

________________, 2006

__________ Shares

1.            Issuance. For value received, this Warrant is issued to Bulstrode
International Inc., by Texola Energy Corporation, a Nevada corporation
(hereinafter with its successors called the “Company”), pursuant to the terms of
that certain Subscription Agreement dated as of March 8, 2006 (the “Subscription
Agreement”).

2.            Purchase Price; Number of Shares. The registered holder of this
Warrant (the “Holder”) is entitled upon surrender of this Warrant with the
subscription form annexed hereto duly executed, at the principal office of the
Company, to purchase from the Company __________________________
(________________) fully paid and nonassessable shares (the “Shares”) of common
stock, US$0.001 par value per share, of the Company (the “Common Stock”), at a
price per share of US$1.50 (the “Purchase Price”). Until such time as this
Warrant is exercised in full or expires, the Purchase Price and the securities
issuable upon exercise of this Warrant are subject to adjustment as hereinafter
provided. The person or persons under whose name or names any certificate
representing shares of Common Stock is issued hereunder shall be deemed to have
become the holder of record of the shares represented thereby as at the close of
business on the date this Warrant is exercised with respect to such shares,
whether or not the transfer books of the Company shall be closed.

 

3.

Payment of Purchase Price. The Purchase Price may be paid in cash or by check.

 

 

 

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4.            Partial Exercise. This Warrant may be exercised in part, and the
Holder shall be entitled to receive a new warrant, which shall be dated as of
the date of this Warrant, covering the number of shares in respect of which this
Warrant shall not have been exercised.

5.            Fractional Shares. In no event shall any fractional share of
Common Stock be issued upon any exercise of this Warrant. If, upon exercise of
this Warrant as an entirety, the Holder would, except as provided in this
Section 5, be entitled to receive a fractional share of Common Stock, then the
Company shall round up the fractional share to the nearest whole number.

 

6.

Expiration Date; Early Termination.

(a)          Expiration Date. Except as otherwise set forth in this Section 6,
this Warrant shall expire on the close of business on _______________ (the
“Expiration Date”), and shall be void thereafter.

(b)          Early Termination. In the event of, at any time prior to the
Expiration Date, any capital reorganization, or any reclassification of the
capital stock of the Company (other than as a result of a stock dividend or
subdivision, split-up or combination of shares), or the consolidation or merger
of the Company with or into another corporation, or the sale or other
disposition of all or substantially all the properties and assets of the Company
in its entirety to any other person, the Company shall provide to the Holder
fifteen (15) days advance written notice of such reorganization,
reclassification, consolidation, merger or sale or other disposition of the
Company’s assets, and this Warrant shall terminate unless exercised prior to the
occurrence of such reorganization, reclassification, consolidation, merger or
sale or other disposition of the Company’s assets.

7.            Reserved Shares; Valid Issuance. The Company covenants that it
will at all times from and after the date hereof reserve and keep available such
number of its authorized shares of Common Stock, free from all preemptive or
similar rights therein, as will be sufficient to permit the exercise of this
Warrant in full into shares of Common Stock upon such exercise. The Company
further covenants that such shares as may be issued pursuant to such exercise
will, upon issuance, be duly and validly issued, fully paid and nonassessable
and free from all taxes, liens and charges with respect to the issuance thereof.

 

8.

Exercise Price Adjustments.

(a)          Adjustment For Stock Splits And Combinations. If the Company shall
at any time or from time to time after the date of original issuance of this
Warrant (the “Date of Original Issue”) effect a subdivision or reverse stock
split of the outstanding Common Stock, the Exercise Price in effect immediately
before that subdivision shall be proportionately decreased, and, conversely, the
Exercise Price in effect immediately before the reverse stock split shall be
proportionately increased. Any adjustment under this Section 8(a) shall become
effective at the close of business on the date the reverse stock split or
subdivision becomes effective.

(b)          Adjustment For Common Stock Dividends And Distributions. If the
Company at any time or from time to time after the Date of Original Issue
issues, or fixes a record date for the determination of holders of Common Stock
entitled to receive, a dividend or

 

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other distribution payable solely in additional shares of Common Stock, the
Exercise Price that is then in effect shall be decreased as of the time of such
issuance or, in the event such record date is fixed, as of the close of business
on such record date, by multiplying the Exercise Price by a fraction (i) the
numerator of which is the total number of shares of Common Stock issued and
outstanding immediately prior to the time of such issuance or the close of
business on such record date, and (ii) the denominator of which is the sum of
the total number of shares of Common Stock issued and outstanding immediately
prior to the time of such issuance or the close of business on such record date
plus the number of shares of Common Stock issuable in payment of such dividend
or distribution; provided, however, that if such record date is fixed and such
dividend is not fully paid or if such distribution is not fully made on the date
fixed therefor, the Exercise Price shall be recomputed accordingly as of the
close of business on such record date and thereafter the Exercise Price shall be
adjusted pursuant to this Section 8(b) to reflect the actual payment of such
dividend or distribution.

(c)          Adjustments For Other Dividends And Distributions. If the Company
at any time or from time to time after the Date of Original Issue issues, or
fixes a record date for the determination of holders of Common Stock entitled to
receive, a dividend or other distribution payable in securities of the Company
other than shares of Common Stock or in other property, in each such event
provision shall be made so that the Holder shall receive upon conversion hereof,
in addition to the number of shares of Common Stock receivable hereupon, the
amount of securities of the Company or other property which such Holder would
have received had this Warrant been exercised for shares of Common Stock on the
date of such event and had it thereafter, during the period from the date of
such event to and including the exercise date, retained such securities or other
property receivable by it as aforesaid during such period, subject to all other
adjustments called for during such period under this Section 8 with respect to
the rights of the Holder or with respect to such other securities or other
property by their terms. As used herein, the term “other property” does not
include cash.

(d)          Adjustment For Reclassification, Exchange And Substitution. If at
any time or from time to time after the Date of Original Issue, the Common Stock
issuable upon the conversion of this Warrant is changed into the same or a
different number of shares of any class or series of stock, whether by
recapitalization, reclassification or otherwise (other than a subdivision or
combination of shares or stock dividend or a reorganization, merger,
consolidation or sale of assets provided for elsewhere in this Section 8), then
in any such event the Holder shall have the right thereafter to exercise this
Warrant for the kind and amount of stock and other securities and property
receivable upon such recapitalization, reclassification or other change by
holders of the number of shares of Common Stock into which this Warrant could
have been converted immediately prior to such recapitalization, reclassification
or change, all subject to further adjustment as provided herein or with respect
to such other securities or property by the terms thereof.

(e)          Certificate Of Adjustment. In each case of an adjustment or
readjustment of the Exercise Price for the number of shares of Common Stock or
other securities issuable upon conversion of this Warrant, the Company, at its
own expense, shall cause its Secretary or Treasurer to compute such adjustment
or readjustment in accordance with the provisions hereof and prepare a
certificate showing such adjustment or readjustment, and shall mail such
certificate, by first class mail, postage prepaid, to the Holder at the Holder’s
address as shown in

 

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the Company’s books. The certificate shall set forth such adjustment or
readjustment, showing in detail the facts upon which such adjustment or
readjustment is based. No adjustment in the Exercise Price shall be required to
be made unless it would result in an increase or decrease of at least one cent,
but any adjustments not made because of this sentence shall be carried forward
and taken into account in any subsequent adjustment otherwise required
hereunder.

(f)           Notices Of Record Date. Upon (i) the establishment by the Company
of a record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend or
other distribution, or (ii) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company, any
merger or consolidation of the Company with or into any other Company, or any
transfer of all or substantially all the assets of the Company to any other
person or any voluntary or involuntary dissolution, liquidation or winding up of
the Company, the Company shall mail to the Holder at least 20 days prior to the
record date specified therein a notice specifying (A) the date on which any such
record is to be taken for the purpose of such dividend or distribution and a
description of such dividend or distribution, (B) the date on which any such
reorganization, reclassification, transfer, consolidation, merger, dissolution,
liquidation or winding up is expected to become effective, and (C) the date, if
any, that is to be fixed as to when the holders of record of Common Stock (or
other securities), shall be entitled to exchange their shares of Common Stock
(or other securities), for securities or other property deliverable upon such
reorganization, reclassification transfer, consolidation, merger, dissolution,
liquidation or winding up.

9.            Representations, Warranties and Covenants. This Warrant is issued
and delivered by the Company and accepted by the Holder on the basis of the
following representations, warranties and covenants made by the Company:

(a)          the Company has all necessary authority to issue, execute and
deliver this Warrant and to perform its obligations hereunder. This Warrant has
been duly authorized issued, executed and delivered by the Company and is the
valid and binding obligation of the Company, enforceable in accordance with its
terms, except as enforceability may be limited by bankruptcy, insolvency,
reorganization or other similar laws of general application affecting the
enforcement of the Holder’s rights or by general equity principals or public
policy concerns.

(b)          the shares of Common Stock issuable upon the exercise of this
Warrant have been duly authorized and reserved for issuance by the Company and,
when issued in accordance with the terms hereof, will be validly issued, fully
paid and nonassessable.

10.          Amendment and Waiver. Subject to the provisions of the Subscription
Agreement, this Warrant may not be amended without the express written consent
of both the Company and the Holder.

11.          Representations and Covenants of the Holder. This Warrant has been
entered into by the Company in reliance upon the following representations and
covenants of the Holder, which by its execution hereof the Holder hereby
confirms as of the date of this Warrant and on each date on which this Warrant
is exercised:

 

4

 

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(a)          the Holder is not a “U.S. Person” as such term is defined by Rule
902 of Regulation S under the Securities Act of 1933, as amended (the
“Securities Act”) (the definition of which includes, but is not limited to, an
individual resident in the U.S. and an estate or trust of which any executor or
administrator or trust, respectively is a U.S. Person and any partnership or
corporation organized or incorporated under the laws of the U.S.),

(b)          the Holder is an “accredited investor” as defined in National
Instrument 45-106 as a person, other than a person or investment fund, that had
net assets of at least CDN$5,000,000 as reflected on its most recently prepared
financial statements and the Holder is knowledgeable, sophisticated and
experienced in making, and is qualified to make decisions with respect to,
investments in shares such as an investment decision like that involved in the
purchase of the Shares and the Warrant, including investments in securities
issued by the Company and investments in comparable companies, and has
requested, received, reviewed and considered all information it deemed relevant
in making an informed decision to purchase the Warrant;

(c)          the Holder is acquiring the Warrant in the ordinary course of its
business and for its own account for investment only and with no present
intention of distributing the Warrant or any of the Shares or any arrangement or
understanding with any other persons regarding the distribution of the Warrant
or the Shares; and

(d)          the Holder will not, directly or indirectly, offer, sell, pledge,
transfer or otherwise dispose of (or solicit any offers to buy, purchase or
otherwise acquire or take a pledge of) the Warrant or any of the Shares except
in compliance with the Securities Act, applicable state and provincial
securities laws and the respective rules and regulations promulgated thereunder.

 

12.

Notices, Transfers, Etc.

(a)          Notices. Any notice or written communication required or permitted
to be given to the Holder may be given by certified mail or delivered to the
Holder at the address most recently provided by the Holder to the Company.

(b)          Transfers. Subject to compliance with applicable federal, state and
provincial securities laws, this Warrant may be transferred by the Holder with
respect to any or all of the shares purchasable hereunder. Upon surrender of
this Warrant to the Company, together with the assignment notice annexed hereto
duly executed, for transfer of this Warrant as an entirety by the Holder, the
Company shall issue a new warrant of the same denomination to the assignee. Upon
surrender of this Warrant to the Company, together with the assignment hereof
properly endorsed, by the Holder for transfer with respect to a portion of the
shares of Common Stock purchasable hereunder, the Company shall issue a new
warrant to the assignee, in such denomination as shall be requested by the
Holder hereof, and shall issue to such Holder a new warrant covering the number
of shares in respect of which this Warrant shall not have been transferred.

(c)          Lost Warrants. In case this Warrant shall be mutilated, lost,
stolen or destroyed, the Company shall issue a new warrant of like tenor and
denomination and deliver the

 

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same (i) in exchange and substitution for and upon surrender and cancellation of
any mutilated Warrant or (ii) in lieu of any Warrant lost, stolen or destroyed,
upon receipt of an affidavit of the Holder or other evidence reasonably
satisfactory to the Company of the loss, theft or destruction of such Warrant
and an indemnification of loss by the Holder in favor of the Company.

13.          Transfer to Comply with the Securities Act of 1933. This Warrant
may not be exercised and neither this Warrant nor any of the Shares, nor any
interest in either, may be offered, sold, assigned, pledged, hypothecated,
encumbered or in any other manner transferred or disposed of, in whole or in
part, except in compliance with applicable United States federal, state and
provincial securities laws and the terms and conditions hereof. Each Warrant
shall bear a legend in substantially the same form as the legend set forth on
the first page of this Warrant. Each certificate for Shares issued upon exercise
of this Warrant, unless at the time of exercise such Shares are acquired
pursuant to a registration statement that has been declared effective under the
Securities Act and applicable blue sky laws, shall bear a legend substantially
in the following form:

“THESE SECURITIES WERE ISSUED IN AN OFFSHORE TRANSACTION TO PERSONS WHO ARE NOT
U.S. PERSONS (AS DEFINED HEREIN) PURSUANT TO REGULATION S UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”). ACCORDINGLY,
NONE OF THE SECURITIES TO WHICH THIS CERTIFICATE RELATES HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT, OR ANY U.S. STATE SECURITIES LAWS, AND, UNLESS SO
REGISTERED, NONE MAY BE OFFERED OR SOLD IN THE UNITED STATES OR, DIRECTLY OR
INDIRECTLY, TO U.S. PERSONS (AS DEFINED HEREIN) EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT OR PURSUANT TO AN 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 ACCORDANCE
WITH THE SECURITIES ACT.”

Any certificate for any Shares issued at any time in exchange or substitution
for any certificate for any Shares bearing such legend (except a new certificate
for any Shares issued after the acquisition of such Shares pursuant to a
registration statement that has been declared effective under the Securities
Act) shall also bear such legend unless, in the opinion of counsel for the
Company, the Shares represented thereby need no longer be subject to the
restriction contained herein. The provisions of this Section 13 shall be binding
upon all subsequent holders of certificates for Shares bearing the above legend
and all subsequent holders of this Warrant, if any.

 

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14.          Rights of Holder. Holder shall not, by virtue hereof, be entitled
to any rights of a stockholder of the Company, either at law or equity, and the
rights of Holder are limited to those expressed in this Warrant. Nothing
contained in this Warrant shall be construed as conferring upon Holder hereof
the right to vote or to consent or to receive notice as a stockholder of the
Company on any matters or with respect to any rights whatsoever as a stockholder
of the Company. No dividends or interest shall be payable or accrued in respect
of this Warrant or the interest represented hereby or the Shares purchasable
hereunder until, and only to the extent that, this Warrant shall have been
exercised in accordance with its terms.

15.          No Impairment. Except and to the extent as waived or consented to
by the Holder, the Company will not, by amendment of its Certificate of
Incorporation or through any reclassification, capital reorganization,
consolidation, merger, sale or conveyance of assets, dissolution, liquidation,
issue or sale of securities or any other voluntary action, avoid or seek to
avoid the observance of performance of any of the terms of this Warrant, but
will at all times in good faith assist in the carrying out of all such terms and
in the taking of all such action as may be necessary or appropriate in order to
protect the rights of the Holder.

16.          Governing Law. This Warrant shall be deemed to be made under and
shall be construed in accordance with the laws of the Province of British
Columbia without giving effect to the principles of conflict of laws thereof.

17.          Currency. Unless otherwise expressly stated, all funds expressed in
this Warrant are stated in United States dollars.

18.          Electronic Means. Delivery of an executed copy of this Warrant by
electronic facsimile transmission or other means of electronic communication
capable of producing a printed copy will be deemed to be execution and delivery
of this Warrant as of the date hereinafter set forth.

19.          Headings. The headings used in this Note are used for convenience
only and are not to be considered in construing or interpreting this Note.

20.          Entire Agreement. This Warrant represents the entire agreement
between the parties hereto with respect to the subject matter hereof and there
are no representations, warranties or commitments, except as set forth herein.
This Warrant may be amended only by an instrument in writing executed by the
parties hereto.

21.          Successors and Assigns. This Warrant shall be binding upon the
Company’s successors and assigns and shall inure to the benefit of the Holder’s
successors, legal representatives and permitted assigns.

22.          Business Days. If the last or appointed day for the taking of any
action required or the expiration of any rights granted herein shall be a
Saturday or Sunday or a legal holiday in the Province of British Columbia, then
such action may be taken or right may be exercised on the next succeeding day
which is not a Saturday or Sunday or such a legal holiday.

 

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IN WITNESS WHEREOF, the Company has duly caused this Warrant to be signed by its
duly authorized officer and to be dated as of the date first written above.

TEXOLA ENERGY CORPORATION

 

 

 

By:

 

 

Name: Thornton Donaldson

 

 

Title:

President, Secretary and Treasurer

 

 

8

 

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TEXOLA ENERGY CORPORATION

NOTICE OF EXERCISE

(1)

The undersigned hereby elects to purchase ________ shares of Common Stock of the
Company pursuant to the terms of the attached Warrant, and tenders herewith
payment of the purchase price of such shares in full, together with all
applicable transfer taxes, if any.

(2)

Please issue a certificate or certificates representing said shares of Common
Stock in the name of the undersigned or in such other name as is specified
below:

________________________________________________

(Name)

________________________________________________

________________________________________________

________________________________________________

(Address)

(3)

The undersigned represents that it is not a “U.S. Person” as such term is
defined by Rule 902 of Regulation S under the Securities Act of 1933, as amended
(the definition of which includes, but is not limited to, an individual resident
in the U.S. and an estate or trust of which any executor or administrator or
trust, respectively is a U.S. Person and any partnership or corporation
organized or incorporated under the laws of the U.S.), the aforesaid shares are
being acquired for the account of the undersigned for investment and not with a
view to, or for resale in connection with, the distribution thereof and that the
undersigned has no present intention of distributing or reselling such shares,
all except as in compliance with applicable securities laws.

(4)

The undersigned further represents that it is an “accredited investor” as
defined in National Instrument 45-106 as a person, other than a person or
investment fund, that had net assets of at least CDN$5,000,000 as reflected on
its most recently prepared financial statements.

 

                                                               

 

Date

(Signature)

                                                                     

 

(Print name)

 

 

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TEXOLA ENERGY CORPORATION

NOTICE OF ASSIGNMENT OF WARRANT

For value received _______________________________________ hereby sells, assigns

and transfers unto
_______________________________________________________________

[Please print or type the name and address of Assignee]

______________________________________________________________________________

the within Warrant, and does hereby irrevocably constitute and appoint
____________________

_______________ its attorney to transfer the within Warrant on the books of the
within named

Company with full power of substitution on the premises.

 

DATED:

____________________________

_____________________________

 

IN THE PRESENCE OF:

_________________________________

 

 

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