Filed by sedaredgar.com - Doral Energy Corp. - Exhibit 10.1






THIS CONVERTIBLE PROMISSORY NOTE AND THE SECURITIES INTO WHICH
THIS NOTE IS CONVERTIBLE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE SECURITIES LAWS AND THIS
CONVERTIBLE NOTE, THE SECURITIES AND ANY INTEREST THEREIN MAY NOT BE OFFERED,
SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR SUCH LAWS OR AN EXEMPTION
FROM REGISTRATION UNDER SUCH ACT AND SUCH LAWS, WHICH, IN THE OPINION OF COUNSEL
FOR THE LENDER, WHICH COUNSEL AND OPINION ARE REASONABLY SATISFACTORY TO COUNSEL
FOR THIS CORPORATION, IS AVAILABLE. THE CONVERSION RIGHTS ATTACHED TO THIS
CONVERTIBLE PROMISSORY NOTE MAY ONLY BE EXERCISED BY A PERSON WHO QUALIFIES AS
AN "ACCREDITED INVESTOR" PURSUANT TO RULE 501 OF REGULATION D OF THE SECURITIES
ACT. 

CONVERTIBLE PROMISSORY NOTE


	$250,000.00 	Midland, TX 
	  	August 24, 2009 


FOR VALUE RECEIVED, the undersigned, Doral Energy Corp., a
Nevada corporation (referred to herein as the “Borrower”), with offices at 415
West Wall, Suite 500, Midland, TX 79701, hereby unconditionally promises to pay
to the order of W.S. Oil & Gas Limited, its successors and permitted assigns
(the “Lender”), in lawful money of the United States, at 2002 Bedford Drive,
Midland, TX 79701, or such other address as the Lender may from time to time
designate, the principal sum of Two Hundred Fifty-Thousand Dollars ($250,000.00)
plus interest (the “Loan”). This Note shall mature and become due and payable in
full on or after November 1, 2012 on demand by the holder (the “Maturity
Date”).

          1.      Terms
of Repayment. Subject to Section 1(c) of this Note, Principal of and
interest on this Note shall be paid by the Borrower as follows: 

          (a)          
Payments in the amount of $16,666.67 representing principal and interest due
shall be paid in twenty-four (24) equal monthly payments with a first payment
due November 1, 2009 and thereafter on the first day of each month. Further,
payments in the amount of $8,333.33 representing principal and interest due that
shall be paid in twelve (12) equal monthly payments with a first payment due
November 1, 2011, with a final payment of interest and principal due on the
Maturity Date. Total payments due on this Note shall equal Five Hundred Thousand
Dollars ($500.000.00) .

          (b)           The
Borrower further agrees that, if any payment made by the Borrower or any other
person is applied to this Note and is at any time annulled, set aside,
rescinded, invalidated, declared to be fraudulent or preferential or otherwise
required to be refunded or repaid, or the proceeds of any property hereafter
pledged as security for this Note is required to be returned by Lender to the
Borrower, its estate, trustee, receiver or any other party, including,

1




without limitation, under any bankruptcy law, state or federal
law, common law or equitable cause, then, to the extent of such payment or
repayment, the Borrower’s liability hereunder (and any lien, security interest
or other collateral securing such liability) shall be and remain in full force
and effect, as fully as if such payment had never been made, or, if prior
thereto any such lien, security interest or other collateral hereunder securing
the Borrower’s liability hereunder shall have been released or terminated by
virtue of such cancellation or surrender, this Note (and such lien, security
interest or other collateral) shall be reinstated in full force and effect, and
such prior cancellation or surrender shall not diminish, release, discharge,
impair or otherwise affect the obligations of the Borrower in respect to the
amount of such payment (or any lien, security interest or other collateral
securing such obligation).

          (c)           Notwithstanding
any other agreement between Borrower and Lender, pursuant to this Note or
otherwise, Borrower and Lender agree that Borrower will not pay Lender any
amount, including without limitation, any Principal of or interest on this Note,
until and after all amounts payable by Borrower to Macquarie Bank Limited
pursuant to any documentation between the parties, has been indefeasibly paid in
cash.

          2.      Conversion.


          (a)           At
any time after an Event of Default (as defined below), the Lender shall have the
option to convert any remaining principal and interest due on this Note into
fully-paid and nonassessable shares of the Borrower’s Common Stock valued at
four times the “Fair Market Value” (the “Conversion Rate”). “Fair Market
Value” on a date shall be the average of the daily closing prices for the
five (5) consecutive trading days before such date excluding any trades which
are not bona fide arm’s length transactions. The closing price for each day
shall be (a) if such security is listed or admitted for trading on any national
securities exchange, the last sale price of such security, regular way, or the
mean of the closing bid and asked prices thereof if no such sale occurred, in
each case as officially reported on the principal securities exchange on which
such security are listed, or (b) if quoted on NASDAQ or any similar system of
automated dissemination of quotations of securities prices then in common use
the mean between the closing high bid and low asked quotations of such security
in the over-the-counter market as shown by NASDAQ or such similar system of
automated dissemination of quotations of securities prices, as reported by any
member firm of the New York Stock Exchange selected by the Lender, (c) if not
quoted as described in clause (b), the mean between the high bid and low asked
quotations for the shares as reported by NASDAQ or any similar successor
organization, as reported by any member firm of the New York Stock Exchange
selected by the Lender. If such security is quoted on a national securities or
central market system in lieu of a market or quotation system described above,
the closing price shall be determined in the manner set forth in clause (a) of
the preceding sentence if bid and asked quotations are reported but actual
transactions are not, and in the manner set forth in clause (b) of the preceding
sentence if actual transactions are reported. 

          (b)           To
exercise any conversion, the holder of this Note shall surrender the Note to the
Borrower during usual business hours at the offices of the Borrower, accompanied
by a written notice in the form attached hereto as Exhibit A, Notice of
Conversion, and made a part hereof. 

2




          (c)           As
promptly as practicable after the surrender of this Note by the Lender, the
Borrower shall deliver or cause to be delivered to the Lender, certificates for
the full number of Shares issuable upon conversion of this Note, in accordance
with the provisions hereof, together with a duly executed new Note of the
Borrower in the form of this Note for any principal amount not so converted.
Such conversion shall be deemed to have been made at the time that this Note was
surrendered for conversion and the notice specified herein shall have been
received by the Borrower. 

          (d)           The
number of shares issuable upon conversion of this Note or repayment by the
Borrower in shares shall be proportionately adjusted if the Borrower shall
declare a dividend of capital stock on its capital stock, or subdivide its
outstanding capital stock into a larger number of shares by reclassification,
stock split or otherwise, which adjustment shall be made effective immediately
after the record date in the case of a dividend, and immediately after the
effective date in the case of a subdivision. The number of shares issuable upon
conversion of this Note or any part thereof shall be proportionately adjusted in
the amount of securities for which the shares have been changed or exchanged in
another transaction for other stock or securities, cash and/or any other
property pursuant to a merger, consolidation or other combination. The Borrower
shall promptly provide the holder of this Note with notice of any events
mandating an adjustment to the conversion ratio, or for any planned merger,
consolidation, share exchange or sale of the Borrower, signed by the President
and Chief Executive Officer of Borrower.

          3.     
Restricted Securities. By accepting this Note, the Lender hereby:


          (a)           Represents
and warrants to the Borrower as follows, and acknowledges that the Borrower has
relied upon such representations and warranties in issuing this Note: 

(i)        the Lender is an
“accredited investor” as defined in Rule 501 of Regulation D of the Securities
Act of 1933, as amended (the “Securities Act”), 

(ii)     
Everett Willard Gray, II, the Chief Executive Officer, Vice-Chairman and a
director of the Borrower, is the sole general partner of the Lender, and that
the Lender has been provided with such information as it deems necessary for
deciding whether or not to invest in the Borrower’s securities, 

(iii)     the
Lender is not aware of any general solicitation or general advertising relating
to the offer and sale of this Note or the Note Shares, 

(iv)     this Note
is, and the Note Shares will be, acquired by the Lender for investment purposes
for the Lender’s own account, not as a nominee or agent, and not with a view to
the reoffer, resale or distribution of any part thereof, and the Lender has no
present intention of selling, granting any participation in, assigning,
transferring or otherwise distributing the same, and the Lender does not have
any contract, undertaking, agreement or arrangement with any person to sell,
transfer, assign, grant participations or

3





		 otherwise distribute to such person or any
        other person, with respect to this Note or the Note Shares; and

	 	 	 
	          (b)           
        Agrees with the Borrower that:

	 	 	 
		(i) 	 this Note and the shares issuable upon conversion of
        this Note (the “Note Shares”) have been and will
        be issued pursuant to the exemption from the registration requirements
        of the Securities Act provided by Regulation D of the Securities Act based
    upon the representations and warranties of the Lender contained herein,

	 	 	 
		(ii) 	 notwithstanding any other provision in this Note to
        the contrary, neither this Note nor the Note Shares may be offered, sold,
        transferred, pledged, assigned or hypothecated unless there is an effective
        registration statement under the Securities Act relating
        to such securities or there is an available exemption from the registration
        requirements of the Securities Act, and that the Borrower will refuse
        to register or acknowledge any offer, sale, transfer, pledge, assignment
        or hypothecation not made pursuant to an effective registration statement
        under the Securities Act or not made pursuant to an available exemption
        from the registration requirements of the Securities Act, and

	 	 	 
		(iii) 	 this Note is, and the Note Shares will be, restricted
        securities under the Securities Act, and all certificates representing
        the Note Shares will be endorsed with a legend substantially similar to
        the following, or such other legend as the Borrower may deem advisable,
        in its sole discretion, to ensure compliance with the Securities Act:

	 	 	 
		  




  
    
      
        
          “THE SECURITIES REPRESENTED BY THIS CERTIFICATE
            HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT"),
            AND HAVE BEEN ISSUED IN RELIANCE UPON EXEMPTIONS FROM THE REGISTRATION
            REQUIREMENTS OF THE ACT. SUCH SECURITIES MAY NOT BE
            REOFFERED FOR SALE OR RESOLD OR OTHERWISE TRANSFERRED UNLESS THEY
            ARE REGISTERED UNDER THE APPLICABLE PROVISIONS OF THE ACT OR ARE EXEMPT
            FROM SUCH REGISTRATION.” 

        

      

    

  



          4.     
Liability of the Borrower. The Borrower is unconditionally, and
without regard to the liability of any other person, liable for the payment and
performance of this Note and such liability shall not be affected by an
extension of time, renewal, waiver, or modification of this Note or the release,
substitution, or addition of collateral for this Note. Each person signing this
Note consents to any and all extensions of time, renewals, waivers, or
modifications, as well as

4




to release, substitution, or addition of guarantors or
collateral security, without affecting the Borrower’s liabilities hereunder.
Lender is entitled to the benefits of any collateral agreement, guarantee,
security agreement or any other documents which may be related to or are
applicable to the debt evidenced by this Note, all of which are collectively
referred to as “Loan Documents” as they now exist, may exist in the future, have
existed, and as they may be amended, modified, renewed, or substituted.

          5.      Representations
and Warranties. The Borrower represents and warrants as follows: (i) the
Borrower is a corporation duly organized, validly existing and in good standing
under the laws of the State of Nevada; (ii) the execution, delivery and
performance by the Borrower of this Note are within the Borrower's powers, have
been duly authorized by all necessary action, and do not contravene (A) the
Borrower's certificate of incorporation or bylaws or (B) (x) any law or (y) any
agreement or document binding on or affecting the Borrower, (iii) no
authorization or approval or other action by, and no notice to or filing with,
any governmental authority, regulatory body or third person is required for the
due execution, delivery and performance by the Borrower of this Note; (iv) this
Note constitutes the legal, valid and binding obligation of the Borrower,
enforceable against the Borrower in accordance with its terms except as
enforcement hereof may be limited by bankruptcy, insolvency or other similar
laws affecting the enforcement of creditors' rights generally and subject to the
applicability of general principles of equity; (v) the Borrower has all
requisite power and authority to own and operate its property and assets and to
conduct its business as now conducted and proposed to be conducted and to
consummate the transactions contemplated hereby; (vi) the Borrower is duly
qualified to conduct its business and is in good standing in each jurisdiction
in which the character of the properties owned or leased by it, or in which the
transaction of its business makes such qualification necessary; (vi) there is no
pending or, to the Borrower 's knowledge, threatened action or proceeding
affecting the Borrower before any governmental agency or arbitrator which
challenges or relates to this Note or which may otherwise have a material
adverse effect on the Borrower; (viii) after giving effect to the transactions
contemplated by this Note, the Borrower is Solvent; (ix) the Borrower is not in
violation or default of any provision of (A) its certificate of incorporation or
by-laws, each as currently in effect, or (B) any instrument, judgment, order,
writ, decree or contract, statute, rule or regulation to which the Borrower is
subject, and (x) this Note is validly issued, free of any taxes, liens, and
encumbrances related to the issuance hereof and is not subject to preemptive
right or other similar right of members of the Borrower, and (xi) the Borrower
has taken all required action to reserve for issuance such number of shares of
Common Stock as may be issuable from time to time upon conversion of this
Note.

          6.     
Covenants. So long as any principal or interest is due hereunder
and shall remain unpaid, the Borrower will, unless the Lender shall otherwise
consent in writing: 

          (a)          
Maintain and preserve its existence, rights and privileges;

          (b)           Give
written notice to Lender upon the occurrence of an Event of Default (as defined
below) or any event but for the giving of notice or lapse of time, or both,
would constitute an Event of Default within five (5) Business Days of such
event;

5




          (c)           Not
use the proceeds from the issuance of this Note in any way for any purpose that
entails a violation of, or is inconsistent with, Regulation U of the Board of
Governors of the Federal Reserve System of the United States of America;

          (d)           Comply
in all material respects with all applicable laws (whether federal, state or
local and whether statutory, administrative or judicial or other) and with every
applicable lawful governmental order (whether administrative or judicial);

          (e)           Not
redeem or repurchase any of its capital stock without Lender’s prior written
consent;

          (f)           Not
prepay any indebtedness, except for indebtedness to Macquarie Bank Limited and
trade payables incurred in the ordinary course of the Borrower's business;
and

          (g)           Not
take any action which would impair the rights and privileges of this Note set
forth herein or the rights and privileges of the holder of this Note. 

          7.       
Events of Default. Each and any of the following shall constitute
a default and, after expiration of a grace period, if any, shall constitute an
“Event of Default” hereunder: 

          (a)          
the nonpayment of principal and interest, late charges or any other costs or
expenses promptly when due of any amount payable under this Note or the
nonpayment by the Borrower of any other obligation to the Lender; 

          (b)          
an Event of Default under this Note (other than a payment default described
above), or any other failure of the Borrower to observe or perform any present
or future agreement of any nature whatsoever with Lender, including, without
limitation, any covenant set forth in this Note; 

          (c)          
if Borrower shall commence any case, proceeding or other action: (i) under any
existing or future law of any jurisdiction, domestic or foreign, relating to
bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an
order for relief entered with respect to it, or seeking to adjudicate it
bankrupt or insolvent, or seeking reorganization, arrangement, adjustment,
liquidation, dissolution, composition or other relief with respect to it or its
debts; or (ii) seeking appointment of a receiver, trustee, custodian or other
similar official for it or for all or any substantial part of its property, or
the Borrower shall make a general assignment for the benefit of its creditors;
or (iii) there shall be commenced against the Borrower any case, proceeding or
other action of a nature referred to above or seeking issuance of a warrant of
attachment, execution, distraint or similar process against all or any
substantial part of its property, which case, proceeding or other action results
in the entry of any order for relief or remains undismissed, undischarged or
unbonded for a period of sixty (60) days; or (iii) the Borrower shall take any
action indicating its consent to, approval of, or acquiescence in, or in
furtherance of, any of the acts set forth; or (iv) the Borrower shall generally
not, or shall be unable to, pay its debts as they become due or shall admit in
writing its inability to pay its debts;

6




          (d)           any
representation or warranty made by the Borrower or any other person or entity
under this Note or under any other Loan Documents shall prove to have been
incorrect in any material respect when made;

          (e)           an
event of default or default shall occur and be continuing for more than six (6)
months under any other material agreement, document or instrument binding upon
the Borrower including, without limitation, any instrument for borrowed money in
excess of fifty thousand dollars ($50,000) (whether or not any such event of
default or default is waived by the holder thereof), provided that any such
event of default or default existing as of the initial date of this Note shall
not be deemed an Event of Default until or unless it persists for six (6) months
from the initial date of this Note;

          (f)          
the entry of any judgment against Borrower or any of its property for an amount
in excess of fifty thousand dollars ($50,000) that remains unsatisfied for
thirty (30) days;

          (g)          
the sale of all or substantially all of the assets, or change in ownership or
the dissolution, liquidation, merger, consolidation, or reorganization of
Borrower without the Lender’s prior written consent; or

          (h)          
the Borrower’s shares of Common Stock are suspended from trading or delisted
from trading on the Over the Counter Bulletin Board.

          8.      
 Lender’s Rights Upon Default. Upon the occurrence of any
Event of Default, the Lender may, at its sole and exclusive option, do any or
all of the following, either concurrently or separately: (a) accelerate the
maturity of this Note and demand immediate payment in full, whereupon the
outstanding principal amount of the Note and all obligations of Borrower to
Lender, together with accrued interest thereon and accrued charges and costs,
shall become immediately due and payable without presentment, demand, protest or
further notice of any kind, all of which are hereby expressly waived; and (b)
exercise all legally available rights and privileges. 

          9.       
Default Interest Rate. Upon an Event of Default, without any
further action on the part of Lender, interest will thereafter accrue at the
rate equal to the lesser of (i) 36% per annum or (ii) the highest rate permitted
by applicable law, per annum (the “Default Rate”), until all outstanding
principal, interest and fees are repaid in full by Borrower.

          10.     
Usury. In no event shall the amount of interest paid or agreed to
be paid hereunder exceed the highest lawful rate permissible under applicable
law. Any excess amount of deemed interest shall be null and void and shall not
interfere with or affect the Borrower’s obligation to repay the principal of and
interest on the Note. This confirms that the Borrower and, by its acceptance of
this Note, the Lender intend to contract in strict compliance with applicable
usury laws from time to time in effect. Accordingly, the Borrower and the Lender
stipulate and agree that none of the terms and provisions contained herein shall
ever be construed to create a contract to pay, for the use or forbearance of
money, interest in excess of the maximum amount of interest permitted to be
charged by applicable law from time to time in effect. 

7




          11.      No
Prepayment. This Note may not be prepaid in whole or in part, at any
time, without the prior written consent of the Lender. 

          12.     
Costs of Enforcement. Borrower hereby covenants and agrees to
indemnify, defend and hold Lender harmless from and against all costs and
expenses, including reasonable attorneys’ fees and their costs, together with
interest thereon at the Prime Rate, incurred by Lender in enforcing its rights
under this Note; or if Lender is made a party as a defendant in any action or
proceeding arising out of or in connection with its status as a lender, or if
Lender is requested to respond to any subpoena or other legal process issued in
connection with this Note; or reasonable disbursements arising out of any costs
and expenses, including reasonable attorneys’ fees and their costs incurred in
any bankruptcy case; or for any legal or appraisal reviews, advice or counsel
performed for Lender following a request by Borrower for waiver, modification or
amendment of this Note or any of the other Loan Documents. 

          13.     
Governing Law. This Note shall be binding upon and inure to the
benefit of the Borrower and the Lender and their respective successors and
permitted assigns; provided that the Borrower may not assign this Note, in whole
or in part, by operation of law or otherwise, without the prior written consent
of the Lender. The Lender may not assign or otherwise participate out any part
of, or any interest in, its rights and benefits hereunder except as provided in
Section 3 of this Note. The terms and provisions of this Note shall at all times
be subject to the Lender Subordination Agreement (as defined below), and the
terms and provisions of this Note shall be binding upon and enure to the benefit
of the Lender and the Borrower and their respective heirs, executors,
administrators, successors and permitted assigns; provided that this Note shall
not be assignable by any party without prior written consent of the other
parties. Notwithstanding any provision of this Note to the contrary, this Note
and any Convertible Notes issued pursuant to this Note may not be assigned,
pledged, transferred or sold by the Lender unless such assignee, pledge,
transferee or purchaser has duly executed a Subordination Agreement (as defined
below). This Note, and any claims arising out of relating to this Note, whether
in contract or tort, statutory or common law, shall be governed exclusively by,
and construed in accordance with the laws of the State of Texas without regard
to principles of conflicts of laws.

          14.     
Jurisdiction. THE BORROWER CONSENTS THAT ANY LEGAL ACTION OR
PROCEEDING AGAINST IT UNDER, ARISING OUT OF OR IN ANY MANNER RELATING TO THIS
NOTE, OR ANY OTHER INSTRUMENT OR DOCUMENT EXECUTED AND DELIVERED IN CONNECTION
HEREWITH SHALL BE BROUGHT EXCLUSIVELY IN ANY COURT OF THE STATE OF TEXAS OR IN
THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF UTAH. THE BORROWER, BY THE
EXECUTION AND DELIVERY OF THIS NOTE, EXPRESSLY AND IRREVOCABLY CONSENTS AND
SUBMITS TO THE PERSONAL JURISDICTION OF ANY OF SUCH COURTS IN ANY SUCH ACTION OR
PROCEEDINGS. THE BORROWER AGREES THAT PERSONAL JURISDICTION OVER IT MAY BE
OBTAINED BY THE DELIVERY OF A SUMMONS BY PERSONAL DELIVERY OR OVERNIGHT COURIER
AT THE ADDRESS PROVIDED IN SECTION 15 OF THIS NOTE. ASSUMING DELIVERY OF THE
SUMMONS IN ACCORDANCE WITH THIS PROVISION, THE BORROWER HEREBY EXPRESSLY AND
IRREVOCABLY WAIVES ANY ALLEGED LACK OF PERSONAL

8




JURISDICTION, IMPROPER VENUE OF FORUM NON CONVENIENS OR ANY
SIMILAR BASIS. 

          15.      Miscellaneous.
(a) Borrower hereby waives protest, notice of protest, presentment, dishonor,
and demand. (b) Time is of the essence for each of Borrower’s covenants under
this Note. (c) The rights and privileges of Lender under this Note shall inure
to the benefit of its successors and permitted assigns. All obligations of
Borrower in connection with this Note shall bind Borrower’s successors and
permitted assigns, and Lender’s conversion rights shall succeed to any successor
securities to Borrower’s common stock. (d) The terms and provisions of this Note
shall at all times be subject to the Lender Subordination Agreement, and the
terms and provisions of this Note shall be binding upon and enure to the benefit
of the Lender and the Borrower and their respective heirs, executors,
administrators, successors and assigns; provided that this Note shall not be
assignable by any party without prior written consent of the other parties.
Notwithstanding any provision of this Note to the contrary, this Note may not be
assigned, pledged, transferred or sold by the Lender unless such assignee,
pledge, transferee or purchaser has duly executed a Subordination Agreement. (e)
If any provision of this Note shall for any reason be held to be invalid or
unenforceable, such invalidity or unenforceability shall not affect any other
provision hereof, but this Note shall be construed as if such invalid or
unenforceable provision had never been contained herein. (f) The waiver of any
Event of Default or the failure of Lender to exercise any right or remedy to
which it may be entitled shall not be deemed a waiver of any subsequent Event of
Default or Lender’s right to exercise that or any other right or remedy to which
Lender is entitled. No delay or omission by Lender in exercising, or failure by
Lender to exercise on any one or more occasions, shall be construed as a waiver
or novation of this Note or prevent the subsequent exercise of any or all such
rights. (g) This Note may not be waived, changed, modified, or discharged
orally, but only in writing.

          16.     
Notice, Etc. Any notice required by the provisions of this Note
will be in writing and will be deemed effectively given: (a) upon personal
delivery to the party to be notified; (b) when sent by confirmed telex or
facsimile if sent during normal business hours of the recipient; if not, then on
the next business day; (c) five (5) days after having been sent by registered or
certified mail, return receipt requested, postage prepaid; or (d) one (1) day
after deposit with a nationally recognized overnight courier, specifying next
day delivery, with written verification of receipt, and delivered as
follows:

If to the Borrower:


Doral Energy Corp. 
415 West Wall,
Suite 500
Midland, TX 79701 


If to Lender:


W.S. Oil & Gas Limited
2002
Bedford Drive 
Midland, TX 79701 


9




          or,
as to each party, at such other address as shall be designated by such party in
a written notice to the other parties 

          17.      Definitions.
As used herein, the term "Solvent" shall mean, with respect to any person or
entity on a particular date, that on such date (i) the fair value of the
property of such person or entity is not less than the total amount of the
liabilities of such person or entity, (ii) the present fair salable value of the
assets of such person or entity is not less than the amount required to pay (E)
the probable liability on such person's existing debts as they become absolute
and matured, (iii) such person or entity is able to realize upon its assets and
pay its debts and other liabilities, (iv) such person or entity does not intend
to, and does not believe that it will, incur debts or liabilities beyond such
person or entity's ability to pay as such debts and liabilities mature and (v)
such person or entity is not engaged in business or a transaction, and is not
about to engage in a business or a transaction, for which such person's or
entity's property would constitute unreasonably small capital. As used herein,
the term “Subordination Agreement” means a subordination agreement in the form
and substance as attached as Exhibit B hereto. As used herein, the term “Lender
Subordination Agreement” means a Subordination Agreement between the Lender,
Borrower, and Macquarie Bank Limited, which must be in place prior to the
execution of this Note. 

          IN
  WITNESS WHEREOF, the undersigned has executed this Convertible Promissory
  Note as of the date first set forth above.

DORAL ENERGY CORP. 

           
/s/ H. Patrick Seale 
_________________________________

By: H. Patrick Seale 

Its: President & COO

The Lender hereby acknowledges its agreement to the terms and
conditions set out in this Convertible Promissory Note. 

W.S. OIL AND GAS LIMITED

/s/ Everett Willard Gray, II

_________________________________
By:     
Everett Willard Gray,
II 
           
General Partner. 

10




EXHIBIT A 

NOTICE OF CONVERSION 

(to be signed upon conversion of the Note) 

TO DORAL ENERGY CORP.: 

          The
undersigned, the holder of the foregoing Note, hereby surrenders such Note for
conversion into _____________ shares of Common Stock of Doral Energy Corp., and
requests that the certificates for such shares be issued in the name of
________________________________________, and delivered to,
________________________________________, whose address is
________________________________________. 

          The
undersigned represents and warrants to the Company that, as of the date hereof,
the undersigned is an "accredited investor" as such term is defined in
Regulation D promulgated under the Securities Act of 1933, as amended (the
"Securities Act") and that the shares of Common Stock issuable to the
undersigned upon conversion of the Note are being acquired for investment
purposes for the undersigned's own account and not as a nominee or agent, and
not with a view to the resale or distribution of any part thereof, and the
undersigned has no present intention of selling, granting any participation in,
or otherwise distributing the same. 

          The
undersigned agrees not to offer, resell, pledge or otherwise transfer the shares
of Common Stock issuable to the undersigned upon conversion of the Note unless
such offer, resale, pledge or transfer is made pursuant to an effective
registration under the Securities Act or pursuant to an available exemption from
the registration requirements of the Securities Act. 

Dated: _____________________


____________________________________
                            
(signature)



____________________________________
____________________________________
                            
(address) 


11




EXHIBIT B 

SUBORDINATION AGREEMENT [FORM OF]

 

 

 

 

 

 

12



 

SUBORDINATION AGREEMENT 

          This
  SUBORDINATION AGREEMENT (as amended or modified, the “Subordination Agreement”) is by and among W.S. OIL & GAS LIMITED, a Texas Limited
  Partnership, (“Subordinated Creditor”, whether one or more), whose
  address is 2002 Bedford, Midland, Texas, 79701, DORAL ENERGY CORP., a Nevada
  corporation (“Borrower”), whose address is 415 West Wall, Suite 500,
  Midland, TX 79701, and MACQUARIE BANK LIMITED, a bank incorporated under the
  laws of Australia (“Administrative Agent”), with offices at Level 15, 1
  Martin Place, Sydney, New South Wales, 2000 Australia. 

Background 

          1.           Borrower,
  Administrative Agent and each of the Lenders (as defined in the Credit
  Agreement) are parties to the Senior First Lien Secured Credit Agreement dated
  as of July 29, 2008 (as amended, supplemented or modified from time to time, the
  “Credit Agreement”). Borrower’s obligations to each of the Lenders under
  the Credit Agreement are secured by a senior mortgage lien and first-priority
  security interest conveying all of the real and personal property of Borrower. 

          2.          
  Each of Lenders’ obligations under the Credit Agreement is conditioned upon,
  among other things, the subordination of all obligations owed by Borrower to the
  Subordinated Creditor to the obligations owed by Borrower to Lenders under the
  Credit Agreement and the other Loan Documents (as defined in the Credit
  Agreement). 

          3.           Capitalized
  terms not defined in this Subordination Agreement shall have the meanings set
  forth in the Credit Agreement. 

Agreements 

          To
  comply with the terms and conditions of the Credit Agreement and for other good
  and valuable consideration, the receipt and sufficiency of which are
  acknowledged by the parties, the Subordinated Creditor, Borrower and Lenders
  agree as follows: 

          Section
  1.      Subordination of Obligations and
    Priority. 

                         (a)      The
  payment of and any liens or security interests securing payment of any and all
  Subordinated Debt (defined below) is expressly subordinated to the extent and in
  the manner set forth in this Subordination Agreement to the Senior Indebtedness
  (defined below) and the liens and security interests securing the Senior
  Indebtedness. The term “Subordinated Debt” as used in this
  Subordination Agreement means any and all indebtedness, liabilities and
  obligations of Borrower to the Subordinated Creditor, absolute or contingent,
  direct or indirect, joint, several or independent, now outstanding or owing or
  which may hereafter be existing or incurred, arising by operation of law or
  otherwise, due or to become due, or held or to be held by the Subordinated
  Creditor, whether created directly or acquired by assignment, as a
  participation, conditionally, as collateral security from another or otherwise,
  including indebtedness, obligations and liabilities of Borrower to Subordinated
  Creditor as a member of any partnership, syndicate, association or other group,
  and whether incurred by Borrower as principal, surety, endorser, guarantor,
  accommodation party or otherwise, including, without limiting the 




generality of the foregoing, all indebtedness, liabilities and
  obligations of Borrower to the Subordinated Creditor arising out of any
  operating agreement or similar agreement between Subordinated Creditor and
  Borrower. 

                         The
  term “Senior Indebtedness” as used in this Subordination Agreement means
  any and all indebtedness, liabilities and other Obligations of Borrower to
  Senior Creditor (as defined below) absolute or contingent, direct or indirect,
  joint, several or independent, now outstanding or owing or which may hereafter
  be existing or incurred, arising by operation of law or otherwise, due or to
  become due, or held or to be held by Senior Creditor whether created directly or
  acquired by assignment, as a participation, conditionally, as collateral
  security from another or otherwise, including indebtedness, obligations and
  liabilities of Borrower to Senior Creditor as a member of any partnership,
  syndicate, association or other group, and whether incurred by Borrower as
  principal, surety, endorser, guarantor, accommodation party or otherwise and
  including, without limitation, all Obligations (as defined in the Credit
  Agreement) owed by Borrower to Senior Creditor under the Credit Agreement, the
  Swap Agreement and the other Loan Documents. 

                         (b)      Priority.
  The agreements of Borrower, Senior Creditor and Subordinated Creditor herein are
  applicable without regard to the date a loan or extension of credit is made to
  Borrower. The term “Senior Creditor” includes Administrative Agent, each
  of the Lenders party to the Credit Agreement and Macquarie Bank Limited under
  the Swap Agreement. 

          Section
  2.      Restrictions on Subordinated Creditor.
  During such time as any Senior Indebtedness remains unpaid, Subordinated
  Creditor will not ask for, demand, sue for, take, receive or accept from the
  Borrower, by set off or in any other manner, any payment or distribution on
  account of the Subordinated Debt, nor present any instrument evidencing the
  Subordinated Debt for payment (other than such presentment as may be necessary
  to prevent discharge of other liable parties on such instrument); [provided, however, nothing contained herein shall
  prevent Subordinated Creditor from (a) receiving any scheduled payment from
  Borrower pursuant to the instruments set forth on Exhibit A (the
  “Subordinated Debt Instruments”) and (b) receiving payment from
  Borrower for goods and services provided to Borrower by Subordinated Creditor in
  the ordinary course of business within thirty (30) days of the date hereof or
  after the date hereof.] 

          Section
  3.      Prohibition of All Payments Following
    Default and Notice. 

                         (a)      If
  there shall occur and be continuing any Event of Default, then, unless and until
  such Event of Default shall have been cured, or unless and until the Senior
  Indebtedness shall be paid in full, the Subordinated Creditor will not ask for,
  sue for, take, demand, receive or accept from Borrower, by set off or in any
  other manner, any payment or distribution on account of the Subordinated Debt
  nor present any Subordinated Debt Instrument or any instrument evidencing the
  Subordinated Debt for payment (other than such presentment as may be necessary
  to prevent discharge of other liable parties on such instrument). 

                         (b)      In
  the event that Borrower defaults under the Subordinated Debt prior to the full
  and final payment of the Senior Indebtedness, Borrower shall provide Lender with
  notice of such default. 

2




          Section
  4.      Payments Cannot Create a Default. The
  Subordinated Creditor will not ask for, demand, sue for, take, receive or accept
  from Borrower, by set off or in any other manner, any payment or distribution on
  account of the Subordinated Debt, if the making of such payment would
  constitute, or would result in the occurrence of, a violation of the provisions
  of any instrument or agreement evidencing, in connection with, as security for
  or providing for the issuance of any Senior Indebtedness or would result in the
  occurrence of any event which with the giving of notice or lapse of time or both
  would constitute a default or an event of default under the Credit Agreement or
  any other Loan Document. 

          Section
  5.      Unauthorized Receipt of Payment by
    Subordinated Creditor. In the event the Subordinated Creditor shall receive
  any payment or distribution on account of the Subordinated Debt which
  Subordinated Creditor is not entitled to receive under this Subordination
  Agreement, Subordinated Creditor will hold any amount so received in trust for
  Senior Creditor and will promptly turn over such payment to Senior Creditor in
  the form received by Subordinated Creditor (together with any necessary
  endorsement) to be applied against the Senior Indebtedness. 

          Section
  6.      Restrictions on Actions to Recover
    Subordinated Debt. The Subordinated Creditor will not commence any action or
  proceeding against Borrower to recover all or any part of the Subordinated Debt
  or join with any other creditor, unless Senior Creditor shall also join, in
  bringing any proceedings against Borrower under any bankruptcy, reorganization,
  readjustment of debt, arrangement of debt, receivership, liquidation or
  insolvency law or statute of the Federal or any state government unless and
  until all Senior Indebtedness shall have been paid in full. 

          Section
  7.      Insolvency or Bankruptcy by Borrower. In
  the event of any receivership, insolvency, bankruptcy, assignment for the
  benefit of creditors, reorganization or arrangement with creditors, adjustment
  of debt, whether or not pursuant to bankruptcy laws, the sale of all or
  substantially all of the assets, dissolution, liquidation, or any other
  marshaling of the assets and liabilities of Borrower, the Subordinated Creditor
  will at Senior Creditor’s request file any claim, proof of claim, proof of
  interest or other instrument of similar character necessary to enforce the
  obligations of Borrower in respect of the Subordinated Debt and will hold in
  trust for Senior Creditor and pay over to Senior Creditor, in the form received
  (together with any necessary endorsement), to be applied on the Senior
  Indebtedness, any and all monies, dividends or other assets received in any such
  proceedings on account of the Subordinated Debt unless and until the Senior
  Indebtedness shall be paid in full. In the event that the Subordinated Creditor
  shall fail to take any such action requested by Senior Creditor, Senior
  Creditor, may, as attorney in fact for the Subordinated Creditor take such
  action on behalf of the Subordinated Creditor, and the Subordinated Creditor
  hereby appoints Senior Creditor as attorney in fact for the Subordinated
  Creditor to demand, sue for, collect and receive any and all such monies,
  dividends or other assets and give acquittance therefor and to file any claim,
  proof of claim, proof of interest or other instrument of similar character and
  to take such other proceedings in Senior Creditor’s own name or in the name of
  the Subordinated Creditor as Senior Creditor may deem necessary or advisable for
  the enforcement of this Subordination Agreement, and the Subordinated Creditor
  will execute and deliver to Senior Creditor such other and further powers of
  attorney or other instruments as Senior Creditor may request in order to
  accomplish the foregoing. 

3




          Section
  8.      Senior Creditor’s Rights. Senior
  Creditor may, at any time, and from time to time, without the consent of or
  notice to the Subordinated Creditor, without incurring responsibility to the
  Subordinated Creditor and without impairing or releasing any of Senior
  Creditor’s rights or any of the obligations of the Subordinated Creditor under
  this Subordination Agreement: 

                         (a)      change
  the amount of the Senior Indebtedness, manner, place or terms of payment, or
  change or extend for any period the time of payment of, or renew, rearrange or
  otherwise modify or alter, the Senior Indebtedness or any instrument or
  agreement now or hereafter executed evidencing, in connection with, as security
  for or providing for the issuance of any of the Senior Indebtedness in any
  manner, or enter into or amend in any manner any other agreement relating to the
  Senior Indebtedness (including provisions restricting or further restricting
  payments of the Subordinated Debt); 

                         (b)      sell,
  exchange, release or otherwise deal with all or any part of any property by
  whomsoever at any time pledged or mortgaged to secure, howsoever securing, the
  Senior Indebtedness in accordance with the applicable Loan Documents; 

                         (c)      release
  anyone liable in any manner for payment or collection of the Senior
  Indebtedness; 

                         (d)      exercise
  or refrain from exercising any rights against Borrower or others (including the
  Subordinated Creditor); and 

                         (e)      apply
  any sums received by Senior Creditor, by whomsoever paid and however realized,
  to payment of the Senior Indebtedness in such a manner as Senior Creditor, in
  its sole discretion, may deem appropriate. 

          Section
  9.      Documentation of Subordinated Debt.
  The Subordinated Creditor will: 

                         (a)      cause
  all Subordinated Debt to be evidenced by a note, debenture or other instrument
  evidencing the Subordinated Debt; 

                         (b)      at
  Senior Creditor’s request, promptly surrender or cause to be surrendered any
  such note, debenture, or instrument evidencing the Subordinated Debt so that a
  statement or legend may be entered thereon to the effect that such note,
  debenture, or other instrument is subordinated to the Senior Indebtedness in
  favor of Senior Creditor in the manner and to the extent set forth in this
  Subordination Agreement; 

                         (c)      mark
  the books of Subordinated Creditor to show that the Subordinated Debt is
  subordinated to the Senior Indebtedness in the manner and to the extent set
  forth in this Subordination Agreement; and 

                         (d)      cause
  all financial statements of the Subordinated Creditor hereafter prepared for
  delivery to any person to make specific reference to the provisions of this
  Subordination Agreement. 

4




          Section
  10.      Notices. All notices and other
  communications provided for hereunder shall be in writing (including by
  facsimile transmission). All such written notices shall be mailed, faxed or
  delivered, to the applicable address, or facsimile number set out below or to
  such other address, or facsimile number, as shall be designated by such party in
  a notice to the other parties. All such notices and other communications shall
  be deemed to be given or made upon the earlier to occur of (a) actual receipt by
  the relevant party hereto and (b) (i) if delivered by hand or by courier,
  upon delivery; (ii) if delivered by mail, four Business Days after
  deposit in the mails, postage prepaid; and (iii) if delivered by
  facsimile, when sent and the sender has received electronic confirmation of
  error free receipt. In no event shall a voicemail message be effective as a
  notice, communication or confirmation hereunder. 

	 	If to Administrative Agent: 	Macquarie Bank Limited 
	 	 	Houston Representative Office 
	 		One Allen Center 	 
	 	 	500 Dallas Street, Suite 3100 
	 	 	Houston, Texas 77002 
	 	 	Attention: 	Michael Sextro 
	 	 	Telephone: 	713-275-6207 
	 	 	Facsimile: 	713-275-6222 
	 	 	E-Mail: 	michael.sextro@macquarie.com 
	 	 	 	 
	 	With a copy to: 	Greenberg Traurig, LLP 
	 	 	1000 Louisiana, Suite 1700 
	 	 	Houston, Texas 77002 
	 	 	Attention: 	Douglas C. Atnipp 
	 	 	Telephone: 	713-374-3500 
	 	 	Facsimile: 	713-374-3505 
	 	 	E-Mail: 	atnippd@gtlaw.com 
	 	 	 	 
	 	If to Subordinated Creditor: 	W.S. Oil & Gas Limited 
	 	 	2002 Bedford 	 
	 	 	Midland, TX 79701 
	 	 	Attention: 	Everett Willard Gray, II 
	 	 	Telephone: 	432-218-9824 
	 	 	Facsimile: 	432-505-9746 
	 	 	E-Mail: 	willgray@sbcglobal.net 
	 	 	 	 
	 	If to Borrower: 	Doral Energy Corp 
	 	 	415 West Wall 
	 	 	Suite 500 	 
	 	 	Midland, TX 79701 
	 	 	Attention: 	Paul Kirkitelos 
	 	 	Telephone: 	432-789-1180 
	 	 	Facsimile: 	888-311-4939 
	 	 	E-Mail: 	paulk@doralenergy.com 


5 




          Section
  11.      Execution of Instruments. The
  Subordinated Creditor agrees to execute any and all other instruments necessary
  as required by the Lender to subordinate the Subordinated Debt to the Senior
  Indebtedness as herein provided. 

          Section
  12.      Assignment by Subordinated
    Creditor. Subordinated Creditor will not assign or transfer to others any
  claim the Subordinated Creditor has or may have against Borrower as long as any
  of the Senior Indebtedness remains outstanding, unless such assignment or
  transfer is expressly made subject to this Subordination Agreement. 

          Section
  13.      Warranties and Representations. The
  Subordinated Creditor represents and warrants that (a) neither the execution nor
  delivery of this Subordination Agreement nor fulfillment of or compliance with
  the terms and provisions hereof will conflict with, or result in a breach of the
  terms, conditions or provisions of, or constitute a default under, any agreement
  or instrument (including, without limitation, any formation documents) to which
  Subordinated Creditor is now subject, (b) none of the Subordinated Debt is or
  will be subordinated to any other indebtedness of Borrower other than the Senior
  Indebtedness unless otherwise agreed by Lender, (c) except for the Subordinated
  Debt evidenced by the Subordinated Debt Instruments, as of the date of this
  Agreement, Borrower has no additional debt due and owing to Subordinated
  Creditors and (d) Exhibit B contains a listing of all liens filed by
  Subordinated Creditor relating to the Subordinated Debt. 

          Section
  14.      Waiver of Notice of Acceptance.
  Notice of acceptance of this Subordination Agreement is waived, acceptance on
  the part of Lender being conclusively presumed by its request for this
  Subordination Agreement and delivery of the same to it. 

          Section
  15.      Assignment by Lender. This
  Subordination Agreement may be assigned by Lender in connection with any
  assignment or transfer of the Senior Indebtedness. 

          Section
  16.      GOVERNING LAW. THIS SUBORDINATION
  AGREEMENT SHALL BE CONSTRUED UNDER AND GOVERNED BY THE LAWS OF THE STATE OF
  TEXAS AND APPLICABLE FEDERAL LAW. 

          Section
  17.      Severability. If any provision (or
  portion of any provision) of this Subordination Agreement is rendered or
  declared invalid, illegal or unenforceable by reason of any existing or
  subsequently enacted legislation or by a final decision of any court of
  competent jurisdiction, the parties shall promptly meet and negotiate substitute
  provisions for those rendered invalid, illegal or unenforceable, but all of the
  remaining provisions will remain in full force and effect. 

          Section
  18.      Counterparts. This Subordination
  Agreement may be executed in two or more counterparts, and it shall not be
  necessary that the signatures of all parties be contained together on any one
  counterpart of this Subordination Agreement. Each counterpart will be deemed an
  original, but all counterparts taken together will constitute one and the same
  agreement. 

          Section
  19.      ENTIRE AGREEMENT; AMENDMENT. THIS
  SUBORDINATION AGREEMENT REFLECTS THE ENTIRE AGREEMENT OF THE PARTIES WITH
  RESPECT TO THE MATTERS COVERED BY THIS SUBORDINATION AGREEMENT 

6




AND CANNOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
  CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS AMONG ANY OF THE PARTIES. THERE
  ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES. This Subordination Agreement
  may be amended and the rights of any party under this Subordination Agreement
  may be waived only pursuant to a written agreement signed by each of the parties
  to this Subordination Agreement. 

 

 

 

 

 

 

 

 

[SIGNATURES BEGIN ON THE FOLLOWING PAGE] 

7




          IN
  WITNESS WHEREOF, the undersigned has executed this instrument effective as of
  August 24, 2009. 

SUBORDINATED CREDITOR: 

W.S. OIL & GAS LIMITED, 

  a Texas Limited Partnership 

 

By:       /s/ Everett
  Willard Gray, II 

  Name: EVERETT WILLARD GRAY, II 

  Title:   President 

 

 

 

 

 

 

 

 

 

 

[SIGNATURE PAGE TO SUBORDINATION AGREEMENT] 




          IN
  WITNESS WHEREOF, the undersigned has caused this instrument to be executed by
  its duly authorized undersigned officer effective as of August 24, 2009. 

BORROWER: 

DORAL ENERGY CORP., 

  a
  Nevada corporation 



    

  By:      /s/ H.
    Patrick Seale 

  Name: H. PATRICK SEALE 

  Title:   President & COO 

 

 

 

 

 

 

 

 

[SIGNATURE PAGE TO SUBORDINATION AGREEMENT] 




          IN
  WITNESS WHEREOF, the undersigned has caused this instrument to be executed by
  its duly authorized undersigned officers effective as of August ___, 2009. 

LENDER: 

MACQUARIE BANK LIMITED, 

  a
  bank incorporated under the laws of Australia 

 

By:     
  _________________________________________________

  Name: _________________________________________________

  Title:  
  _________________________________________________



  By:     
  _________________________________________________

  Name: _________________________________________________

  Title:  
  _________________________________________________

 

 

 

 

 

 

 

 

 

[SIGNATURE PAGE TO SUBORDINATION AGREEMENT] 




EXHIBIT A 

Subordinated Debt Instruments 

Convertible Promissory Note dated on or about the date of this
  Agreement. 




EXHIBIT B 

Liens 

None.