Exhibit 10.3

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

 

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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.

 

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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