ex4_1.htm


  
                                                                                                                                              Exhibit
4.1

    


    


    THIS
SECURITY HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT 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 ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY.

    


    Original
Issue Date: February 28, 2008

    


    U.S.
$15,000,000

    


    


    8%
SECURED DEBENTURE

    DUE
FEBRUARY 27, 2012

    


    THIS
DEBENTURE is one of a series of duly authorized and validly issued 8% Secured
Debentures of China North East Petroleum Holding, Limited, a Nevada corporation,
(the “Company”), having its
principal place of business at 445 Park Avenue, New York, New York 10022,
designated as its 8% Secured Debenture due February 27, 2012 (this debenture,
the “Debenture”
and, collectively with the other debentures of such series, the “Debentures”).

    


    FOR VALUE
RECEIVED, the Company promises to pay to Lotusbox Investments Limited or its
registered assigns (the “Holder”), or shall
have paid pursuant to the terms hereunder, the principal sum of  U.S.
$15,000,000 on  February 27, 2012 (the “Maturity Date”) or
such earlier date as this Debenture is required or permitted to be repaid as
provided hereunder, and to pay interest to the Holder on the aggregate
unconverted and then outstanding principal amount of this Debenture in
accordance with the provisions hereof.  This Debenture is subject to
the following additional provisions:

    


    Section 1.    Definitions.  For
the purposes hereof, in addition to the terms defined elsewhere in this
Debenture, (a) capitalized terms not otherwise defined herein shall have the
meanings set forth in the Purchase Agreement and (b) the following terms shall
have the following meanings:

    

      
        
           


        

        
          1

          
            

          

        

        
           


        

      

    

     

    “Bankruptcy Event”
means any of the following events: (a) the Company or any  Subsidiary
(as such term is defined in Rule 1-02(w) of Regulation S-X) thereof commences a
case or other proceeding under any bankruptcy, reorganization, arrangement,
adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or
similar law of any jurisdiction relating to the Company or
any  Subsidiary thereof; (b) there is commenced against the Company or
any  Subsidiary thereof any such case or proceeding that is not
dismissed within 60 days after commencement; (c) the Company or
any  Subsidiary thereof is adjudicated insolvent or bankrupt or any
order of relief or other order approving any such case or proceeding is entered;
(d) the Company or any  Subsidiary thereof suffers any appointment of
any custodian or the like for it or any substantial part of its property that is
not discharged or stayed within 60 calendar days after such appointment; (e) the
Company or any  Subsidiary thereof makes a general assignment for the
benefit of creditors; (f) the Company or any  Subsidiary thereof calls
a meeting of its creditors with a view to arranging a composition, adjustment or
restructuring of its debts; or (g) the Company or any  Subsidiary
thereof, by any act or failure to act, expressly indicates its consent to,
approval of or acquiescence in any of the foregoing or takes any corporate or
other action for the purpose of effecting any of the foregoing.

    


    “Business Day” means
any day except Saturday, Sunday, any day which shall be a federal legal holiday
in the United States or any day on which banking institutions in the State of
New York are authorized or required by law or other governmental action to
close.

    


    “Change of Control
Transaction” means the occurrence after the date hereof of any of (i) an
acquisition after the date hereof by an individual or legal entity or “group”
(as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of
effective control (whether through legal or beneficial ownership of capital
stock of the Company, by contract or otherwise) of in excess of 33% of the
voting securities of the Company (other than by means of conversion or exercise
of the Debentures and the Securities issued together with the Debentures), or
(ii) the Company merges into or consolidates with any other Person, or any
Person merges into or consolidates with the Company and, after giving effect to
such transaction, the stockholders of the Company immediately prior to such
transaction own less than 50.1% of the aggregate voting power of the Company or
the successor entity of such transaction, or (iii) the Company sells or
transfers all or substantially all of its assets to another Person and the
stockholders of the Company immediately prior to such transaction own less than
50.1% of the aggregate voting power of the acquiring entity immediately after
the transaction, or (iv) a replacement at one time or within a one year period
of more than one-half of the members of the Company’s board of directors which
is not approved by a majority of those individuals who are members of the board
of directors on the date hereof (or by those individuals who are serving as
members of the board of directors on any date whose nomination to the board of
directors was approved by a majority of the members of the board of directors
who are members on the date hereof), or (v) the execution by the Company of an
agreement to which the Company  is a party or by which it is bound,
providing for any of the events set forth in clauses (i) through (iv)
above.

    


    “Debenture Register”
shall have the meaning set forth in Section 3(b).


    
      
         


      

      
        2

        
          

        

      

      
         


      

    

    


    “Event of Default” shall have the meaning set forth in Section
7.

    


    “Fundamental
Transaction” means any of the following actions or agreements by the
Company or any Subsidiary: (i) a merger or consolidation in which the Company is
not the surviving entity or the shareholders (or owners of registered capital or
other form of ownership) of the Company or its Subsidiary are not the
controlling shareholders after such transaction (ii) a sale of all or
substantially all of the assets of the Company or any Subsidiary, as the case
may be, or (iii) the sale of any of the legal and beneficial ownership of any
Subsidiary.

    


    “Interest Payment
Date” shall have the meaning set forth in Section 3(a).

    


    “Late Fees” shall have
the meaning set forth in Section 3(c).

    


    “Mandatory Default
Amount” means the sum of (i) the outstanding principal amount of this
Debenture, plus all accrued and unpaid interest hereon, and (ii) all other
amounts, costs and expenses due in respect of this Debenture.

    


    “New York Courts”
shall have the meaning set forth in Section 8(d).

    


    “Optional Redemption”
shall have the meaning set forth in Section 5(a).

    


    “Optional Redemption
Amount” means the sum of (i) 100% of the then outstanding principal
amount of the Debenture, (ii) accrued but unpaid interest and (iii) all other
amounts due in respect of the Debenture.

    


    “Optional Redemption
Date” shall have the meaning set forth in Section 5(a).

    


    “Optional Redemption
Notice” shall have the meaning set forth in Section 5(a).

    


    “Optional Redemption Notice
Date” shall have the meaning set forth in Section 5(a).

    


    “Original Issue Date”
means the date of the first issuance of the Debentures, regardless of any
transfers of any Debenture and regardless of the number of instruments which may
be issued to evidence such Debentures.

    


    “Permitted
Indebtedness” means (a) the Indebtedness existing on the Original Issue
Date and set forth on Schedule 3.1(ll)
attached to the Purchase Agreement, (b) lease obligations and purchase
consideration of up to $150,000, in the aggregate, incurred in connection with
the acquisition of capital assets and lease obligations with respect to newly
acquired or leased assets (c) indebtedness that (i) is expressly subordinate to
the Debentures pursuant to a written subordination agreement and (ii) matures at
a date later than the Maturity Date and (d) indebtedness in an amount not to
exceed the principal sum of U.S.
$300,000 incurred in the ordinary course of business and
(e)  obligations of the Company and its Subsidiaries related to the
Company’s Material Oil Drilling Agreements (as defined in Section 7 (a)(iii)
below or its ongoing oil drilling activities through First Drilling and
PetroChina Oil and Gas Company).


    
      
         


      

      
        3

        
          

        

      

      
         


      

    

    


    “Permitted Lien” means
the individual and collective reference to the following: (a) Liens for taxes,
assessments and other governmental charges or levies not yet due or Liens for
taxes, assessments and other governmental charges or levies being contested in
good faith and by appropriate proceedings for which adequate reserves (in the
good faith judgment of the management of the Company) have been established in
accordance with GAAP; (b) Liens imposed by law which were incurred in the
ordinary course of the Company’s business, such as carriers’, warehousemen’s and
mechanics’ Liens, statutory landlords’ Liens, and other similar Liens arising in
the ordinary course of the Company’s business, and which (x) do not individually
or in the aggregate materially detract from the value of such property or assets
or materially impair the use thereof in the operation of the business of the
Company and its consolidated Subsidiaries or (y) are being contested in good
faith by appropriate proceedings, which proceedings have the effect of
preventing for the foreseeable future the forfeiture or sale of the property or
asset subject to such Lien; (c) Liens incurred in connection with Permitted
Indebtedness under clause (a) thereunder; and (d) Liens incurred in connection
with Permitted Indebtedness under clauses (b) or (c) or (d) thereunder, provided
that such Liens are not secured by assets of the Company or its Subsidiaries
other than the assets so acquired or leased.

     

    “Purchase Agreement”
means the Securities Purchase Agreement, dated as of February __, 2008, among
the Company and the original Holders, as amended, modified or supplemented from
time to time in accordance with its terms.

    


    “Securities Act” means
the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder.

    


    “Subsidiary” shall
have the meaning set forth in the Purchase Agreement.

    


    “Trading Day” means a
day on which the principal Trading Market is open for business.

    


    “Trading Market” means
the following markets or exchanges on which the Common Stock is listed or quoted
for trading on the date in question: the American Stock Exchange, the Nasdaq
Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the
New York Stock Exchange or the OTC Bulletin Board.

    


    “Transaction
Documents” shall have the meaning set forth in the Purchase
Agreement.

     

    
      
         


      

      
        4

        
          

        

      

      
         


      

    


    Section 2.    Schedule of
Repayment

    


     
a)    Principal
Payments.  The principal amount of this Debenture shall be payable as
follows:

    


    


    Repayment
Date
                     
                                               
            Repayment
Amount (US$)

    


    6 months
from the Original Issue Date
                                                        750,000

    


    12 months
from the Original Issue Date
                                                      750,000

    


    18 months
from the Original Issue Date
                                                   
1,875,000

    


    24 months
from the Original Issue Date
                                                   
1,875,000

    


    30 months
from the Original Issue Date
                                                   
3,375,000

    


    36 months
from the Original Issue
Date                                                    
3,375,000

    


    42 months
from the Original Issue
Date                                                    
1,500,000

    


    48 months
from the Original Issue
Date                                                    
1,500,000

    


    Total
Principal
Payment:                                                                       
     15,000,000

    


    


    b)    All payments of
principal and Interest shall be made in United States dollars, without right of
setoff.

    


    


    Section 3.      Payment of
Interest.

    


    a)    Payment of
Interest   The Company shall pay interest to the Holder on the
aggregate unconverted and then outstanding principal amount of this Debenture at
the rate of 8% per annum, payable quarterly on January 1, April 1, July 1 and
October 1, beginning on the first such date after the Original Issue
Date,  on each Optional Redemption Date (as to that principal amount
then being redeemed) and on the Maturity Date (each such date, an “Interest Payment
Date”) (if any Interest Payment Date is not a Business Day, then the
applicable payment shall be due on the next succeeding Business Day), in
cash.

    


    b)    Interest
Calculations. Interest shall be calculated on the basis of a 365-day
year, and shall accrue daily commencing on the Original Issue Date until payment
in full of the outstanding principal, together with all accrued and unpaid
interest, and other amounts which may become due hereunder, has been
made.    Interest hereunder will be paid to the Person in
whose name this Debenture is registered on the records of the Company regarding
registration and transfers of this Debenture (the “Debenture
Register”).


    
      
         


      

      
        5

        
          

        

      

      
         


      

    

     

    c)    Late
Fee.  All overdue accrued and unpaid interest to be paid
hereunder shall entail a late fee at an interest rate equal to the lesser of 18%
per annum or the maximum rate permitted by applicable law (“Late Fees”) which
shall accrue daily from the date such interest is due hereunder through and
including the date of payment in full.

    


    d)    Prepayment.  Except
as otherwise set forth in this Debenture, the Company may not prepay any portion
of the principal amount of this Debenture without the prior written consent of
the Holder.

    


    e)    Gross Up Payment for
Taxes.  Any and all payments by the Company for interest to or
for the account of the Holder under this Debenture shall be made free and clear
of and without deduction for any U.S. taxes, except as required by applicable
law.  If the Company shall be required by any applicable law to deduct
any Taxes from or in respect of any interest payable under this Debenture to the
Holder, (i) the interest payable shall be increased as necessary so that
after making all required deductions (including deductions applicable to
additional sums payable under this ‎Section
3, the Holder receives an amount equal to the sum it would have received had no
such deductions been made, (ii) the Company shall make such deductions, (iii)
the Company shall pay the full amount deducted to the relevant taxation
authority or other authority in accordance with applicable law, and (iv) as
promptly as practicable after the date of such payment, the Company shall
furnish to the Holder the original or a certified copy of a receipt evidencing
payment thereof.

    


    Section 4.      Registration of Transfers
and Exchanges.

    


    a)    Different
Denominations. This Debenture is exchangeable for an equal aggregate
principal amount of Debentures of different authorized denominations, as
requested by the Holder surrendering the same.  No service charge will
be payable for such registration of exchange.

    


    b)    Investment
Representations. This Debenture has been issued subject to certain
investment representations of the original Holder set forth in the Purchase
Agreement and may be transferred or exchanged only in compliance with the
Purchase Agreement and applicable federal and state securities laws and
regulations.

    


    c)    Reliance on Debenture
Register. Prior to due presentment for transfer to the Company of this
Debenture, the Company and any agent of the Company may treat the Person in
whose name this Debenture is duly registered on the Debenture Register as the
owner hereof for the purpose of receiving payment as herein provided and for all
other purposes, whether or not this Debenture is overdue, and neither the
Company nor any such agent shall be affected by notice to the
contrary.


    
      
         


      

      
        6

        
          

        

      

      
         


      

    

     

    Section 5.      Company Right To
Prepay;  Holders’ Right
to Demand Prepayment.

    


    a)    Optional Prepayment at
Election of Company.  Subject to
the provisions of this Section 5, at any time after the 2nd anniversary of the
Original Issuer Date, the Company may deliver a notice to the Holder (an
“Optional
Redemption Notice” and the date such notice
is deemed delivered hereunder, the “Optional Redemption Notice
Date”) of its irrevocable election to
prepay all, but not less than all, of the then outstanding principal amount of
this Debenture for cash in an amount equal to the Optional Redemption Amount on
the 5thth Trading Day following the Optional Redemption Notice
Date (such date, the “Optional Redemption
Date” and such redemption, the
“Optional
Redemption”).  The Optional
Redemption Amount is payable in full on the Optional Redemption
Date.

    


    b)    Prepayment
Procedure.  The payment of cash pursuant to an Optional
Redemption shall be payable on the Optional Redemption Date.  If any
portion of the payment pursuant to an Optional Redemption shall not be paid by
the Company by the applicable due date, interest shall accrue thereon at an
interest rate equal to the lesser of 18% per annum or the maximum rate permitted
by applicable law until such amount is paid in full.

    


    c)    Holder’s Right to Demand
Prepayment. In addition to any rights granted to Holder upon the
occurrence of an Event of Default as set forth under Section 7 below, Holder
shall have the right to require that the Company pay any portion or all
principal and accrued interest on the Debentures at anytime following 10 days’
prior written notice to the Company in the event that  either: (i) the
Common Stock ceases to be  eligible for listing or quotation for
trading on any the Trading Markets and shall not be eligible to resume listing
or quotation for trading on any Trading Market within 30 Trading Days or (ii)
any of the Material Oil Drilling Agreements (as defined in Section 7 (a) (iii)
below) is terminated for any reason other than the expiration of such contract
pursuant to its terms, or (iii) the Company fails to effect a listing on either
the American Stock Exchange or NASDAQ for its Common Stock by a date which is 12
months after the Original Issue Date of this Debenture.  Upon receipt
of any such notice from Holder, payment of all outstanding principal, plus
accrued interest, shall be made to the Holder within three (3) business days of
the redemption date set forth in such notice, which date shall not be sooner
than 60 days following delivery of such notice.

    


    Section 6.      Negative Covenants.
As long as any portion of this Debenture remains outstanding, unless the holders
of at least 66% in principal amount of the then outstanding Debentures shall
have otherwise given prior written consent, the Company shall not and shall not
permit any of its subsidiaries (whether or not a Subsidiary on the Original
Issue Date and whether or not any subsidiary is wholly owned or only majority
owned) to, directly or indirectly:

     

    
      
         


      

      
        7

        
          

        

      

      
         


      

    


    a)    other than Permitted Indebtedness, enter into, create,
incur, assume, guarantee or suffer to exist any indebtedness for borrowed money
of any kind, including but not limited to, a guarantee, on or with respect to
any of its property or assets now owned or hereafter acquired or any interest
therein or any income or profits therefrom;

    


    b)    other than Permitted Liens, enter into, create, incur,
assume or suffer to exist any Liens of any kind, on or with respect to any of
its property or assets now owned or hereafter acquired or any interest therein
or any income or profits therefrom;

    


    c)    amend its charter documents, including, without
limitation, its certificate of incorporation and bylaws, in any manner that
materially and adversely affects any rights of the Holder;

    


    d)    repay,
repurchase or offer to repay, repurchase or otherwise acquire more than a de minimis number of
shares of its Common Stock or Common Stock Equivalents other than as to (a)
repurchases of Common Stock or Common Stock Equivalents of departing officers
and directors of the Company, provided that such repurchases shall not exceed an
aggregate of $100,000 for all officers and directors during the term of this
Debenture; or

    


    e)    pay cash dividends or distributions of any kind on any
equity securities of the Company, whether such securities are outstanding on the
date hereof or issued at any time that the principal an interest on this
Debenture remains unpaid;

    


    f)    enter into
any transaction with any Affiliate of the Company which would be required to be
disclosed in any public filing with the Commission, unless such transaction is
made on an arm’s-length basis and expressly approved by a majority of the
disinterested directors of the Company (even if less than a quorum otherwise
required for board approval); or

    


    g)    enter into
any Fundamental Transaction (as defined in the Purchase Agreement)

    


    h)    enter into
any agreement with respect to any of the foregoing.

    


    Section 7.      Events of
Default.

    


    a)    “Event of Default”
means, wherever used herein, any of the following events (whatever the reason
for such event and whether such event shall be voluntary or involuntary or
effected by operation of law or pursuant to any judgment, decree or order of any
court, or any order, rule or regulation of any administrative or governmental
body):


    
      
         


      

      
        8

        
          

        

      

      
         


      

    


    i.           any default in the payment of (A) the principal amount
of any Debenture or (B) interest, liquidated damages and other amounts owing to
a Holder on any Debenture, as and when the same shall become due and payable
(whether on a Conversion Date or the Maturity Date or by acceleration or
otherwise) which default, solely in the case of an interest payment or other
default under clause (B) above, is not cured within 3 Trading
Days;

    


    ii.           the
Company shall fail to observe or perform any other covenant or agreement
contained in the Debentures or the Purchase Agreement which failure is not
cured, if possible to cure, within the earlier to occur of (A) 5 Trading Days
after notice of such failure sent by the Holder or by any other Holder and (B)
10 Trading Days after the Company has become or should have become aware of such
failure;

    


    iii.          a
default or event of default (subject to any grace or cure period provided in the
applicable agreement, document or instrument) shall occur under (A) any of the
Transaction Documents or (B) any of the following agreements or contracts (i)
Qian-112 Oilfield Cooperative Development Contract effective as of May 28, 2002
by and between PetroChina Oil and Gas Company Limited Jilin Oil Field Branch
Company and Song Yuan City Yu Qiao Oil and Gas Development Company Limited, and
(ii) He301 Oilfield Cooperative Development Contract effective as of May 28,
2003 by and between PetroChina Oil and Gas Company Limited Jilin Oil Field
Branch Company and Chang Ling Long De Oil and Gas Development Limited
(collectively, the agreements and leases described in clause (B) above are
sometimes referred to as the “Material Oil Drilling Agreements”).

    


    iv.          any
representation or warranty made in this Debenture, any other Transaction
Documents, any written statement pursuant hereto or thereto or any other report,
financial statement or certificate made or delivered to the Holder or any other
Holder pursuant to the Securities Purchase Agreement shall be untrue or
incorrect in any material respect as of the date when made or deemed
made;

    


    v.           the
Company or any Subsidiary shall be subject to a Bankruptcy Event;

    


    vi.          the
Company or any Subsidiary shall default on any of its obligations under any
mortgage, credit agreement or other facility, indenture agreement, factoring
agreement or other instrument under which there may be issued, or by which there
may be secured or evidenced, any indebtedness for borrowed money or money due
under any long term leasing or factoring arrangement that (a) involves an
obligation greater than $150,000, whether such indebtedness now exists or shall
hereafter be created, and (b) results in such indebtedness becoming or being
declared due and payable prior to the date on which it would otherwise become
due and payable;


    
      
         


      

      
        9

        
          

        

      

      
         


      

    


    vii.        
the Company fails to satisfy its obligations under the Registration Rights
Agreement;

    


    viii.        the
Company shall be a party to any Change of Control Transaction or Fundamental
Transaction or shall agree to sell or dispose of all or in excess of 33% of its
assets in one transaction or a series of related transactions (whether or not
such sale would constitute a Change of Control Transaction);

    


    ix.         
the Company shall have failed to satisfy any of the any of the Funding Post
Closing Conditions of  the Purchase Agreement or satisfied Section
3.3(f) of the Purchase Agreement;

    


    x.          
any monetary judgment, writ or similar final process shall be entered or filed
against the Company, any subsidiary or any of their respective property or other
assets for more than $150,000, such judgment, writ or similar final process
shall remain unvacated, unbonded or unstayed for a period of 45 calendar
days;

    


    xi.          
there is a material adverse change in the nature of the business or operations
of the Company or its Subsidiaries, taken as a whole;

    


    xii.         
within 90 days of the date of this Debenture the Company shall have failed to
obtain approval from the appropriate governmental authorities in the PRC and
changed the legal representative of Song Yuan City Yu Qiao Oil and Gas
Exploration Limited Corp., a corporation organized and existing under the laws
of the PRC to Mr. Wang Hong Jun; or

    


    xiii.         the
Company shall have failed to satisfy Sections 4.18(c) or 4.18(e) of the Purchase
Agreement.

    


    b)    Remedies Upon Event of
Default.

    


       (i)         If
any Event of Default occurs, the outstanding principal amount of this Debenture,
plus accrued but unpaid interest, and other amounts owing in respect thereof
through the date of acceleration, shall become, at the Holder’s election,
immediately due and payable in cash at the Mandatory Default
Amount.  Commencing 5 days after the occurrence of any Event of
Default that results in the eventual acceleration of this Debenture, the
interest rate on this Debenture shall accrue at an interest rate equal to the
lesser of 18% per annum or the maximum rate permitted under applicable
law.  Upon the payment in full of the Mandatory Default Amount, the
Holder shall promptly surrender this Debenture to or as directed by the
Company.  In connection with such acceleration described herein, the
Holder need not provide, and the Company hereby waives, any presentment, demand,
protest or other notice of any kind, and the Holder may immediately and without
expiration of any grace period enforce any and all of its rights and remedies
hereunder and all other remedies available to it under applicable
law.  Such acceleration may be rescinded and annulled by Holder at any
time prior to payment hereunder and the Holder shall have all rights as a holder
of the Debenture until such time, if any, as the Holder receives full payment
pursuant to this Section 7(b).  No such rescission or annulment shall
affect any subsequent Event of Default or impair any right consequent
thereon.


    
      
         


      

      
        10

        
          

        

      

      
         


      

    

     

          (ii)     In
addition to the rights granted under purchase (a) above, the Holders, of 66% of
the outstanding principal amount of Debentures, shall have the right to (i)
enforce their rights under the Security Documents (as defined under the Purchase
Agreement and/or the Option Agreement (as defined in the Purchase Agreement) or
(ii) waive any Event of Default, except for the obligation to pay principal or
interest.

    


    Section 8.      Miscellaneous.
 

    a)    Notices.  Any
and all notices or other communications or deliveries to be provided by the
Holder hereunder, including, without limitation, any Notice of Transfer, shall
be in writing and delivered personally, by facsimile, or sent by a nationally
recognized overnight courier service, addressed to the Company, at the address
set forth above, or such other facsimile number or address as the Company may
specify for such purpose by notice to the Holder delivered in accordance with
this Section 8.  Any and all notices or other communications or
deliveries to be provided by the Company hereunder shall be in writing and
delivered personally, by facsimile, or sent by a nationally recognized overnight
courier service addressed to each Holder at the facsimile number or address of
such Holder appearing on the books of the Company, or if no such facsimile
number or address appears, at the principal place of business of the
Holder.  Any notice or other communication or deliveries hereunder
shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number specified in this Section 8 prior to 5:30 p.m. (New York City
time), (ii) the date immediately following the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile number
specified in this Section 8 between 5:30 p.m. (New York City time) and 11:59
p.m. (New York City time) on any date, (iii) the second Business Day following
the date of mailing, if sent by nationally recognized overnight courier service,
or (iv) upon actual receipt by the party to whom such notice is required to be
given.

    


    b)    Absolute Obligation.
Except as expressly provided herein, no provision of this Debenture shall alter
or impair the obligation of the Company, which is absolute and unconditional, to
pay the principal of, and accrued interest, as applicable, on this Debenture at
the time, place, and rate, and in the coin or currency, herein
prescribed.  This Debenture is a direct debt obligation of the
Company.  This Debenture ranks pari passu with all other
Debentures now or hereafter issued under the terms set forth
herein.

    

      
        
           


        

        
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    c)    Lost or Mutilated
Debenture.  If this Debenture shall be mutilated, lost, stolen
or destroyed, the Company shall execute and deliver, in exchange and
substitution for and upon cancellation of a mutilated Debenture, or in lieu of
or in substitution for a lost, stolen or destroyed Debenture, a new Debenture
for the principal amount of this Debenture so mutilated, lost, stolen or
destroyed, but only upon receipt of evidence of such loss, theft or destruction
of such Debenture, and of the ownership hereof, reasonably satisfactory to the
Company.

    


    d)    Governing Law;
Arbitration.  All questions concerning the construction,
validity, enforcement and interpretation of this Debenture shall be governed by
and construed and enforced in accordance with the internal laws of the State of
New York, without regard to the principles of conflict of laws
thereof.  Each party agrees that all legal proceedings in equity or at
law concerning the interpretation, enforcement and defense of the transactions
contemplated by any of the Transaction Documents (whether brought against a
party hereto or its respective Affiliates, directors, officers, shareholders,
employees or agents) shall be held in the City of New York, Borough of
Manhattan, United States of America in arbitration before the International
Chamber of Commerce and shall be determined by three arbitrators, and otherwise
held in accordance with its rules.  Each party shall choose one
arbitrator and the two arbitrators shall choose the third.  The third
arbitrator so chosen shall have a background in either corporate, finance,
banking or law. The arbitration shall be conducted in the English language and
the arbitration award shall include the allocation of costs and expenses among
the parties. The arbitration ruling shall be final and binding

    


    e)    Waiver.  Any
waiver by the Company or the Holder of a breach of any provision of this
Debenture shall not operate as or be construed to be a waiver of any other
breach of such provision or of any breach of any other provision of this
Debenture.  The failure of the Company or the Holder to insist upon
strict adherence to any term of this Debenture on one or more occasions shall
not be considered a waiver or deprive that party of the right thereafter to
insist upon strict adherence to that term or any other term of this
Debenture.  Any waiver by the Company or the Holder must be in
writing.

    


    f)    Severability.  If
any provision of this Debenture is invalid, illegal or unenforceable, the
balance of this Debenture shall remain in effect, and if any provision is
inapplicable to any Person or circumstance, it shall nevertheless remain
applicable to all other Persons and circumstances.  If it shall be
found that any interest or other amount deemed interest due hereunder violates
the applicable law governing usury, the applicable rate of interest due
hereunder shall automatically be lowered to equal the maximum rate of interest
permitted under applicable law. The Company covenants (to the extent that it may
lawfully do so) that it shall not at any time insist upon, plead, or in any
manner whatsoever claim or take the benefit or advantage of, any stay, extension
or usury law or other law which would prohibit or forgive the Company from
paying all or any portion of the principal of or interest on this Debenture as
contemplated herein, wherever enacted, now or at any time hereafter in force, or
which may affect the covenants or the performance of this indenture, and the
Company (to the extent it may lawfully do so) hereby expressly waives all
benefits or advantage of any such law, and covenants that it will not, by resort
to any such law, hinder, delay or impeded the execution of any power herein
granted to the Holder, but will suffer and permit the execution of every such as
though no such law has been enacted.


    
      
         


      

      
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    g)    Next Business
Day.  Whenever any payment or other obligation hereunder shall
be due on a day other than a Business Day, such payment shall be made on the
next succeeding Business Day.

    


    h)    Headings.  The
headings contained herein are for convenience only, do not constitute a part of
this Debenture and shall not be deemed to limit or affect any of the provisions
hereof.

    


    i)    Assumption.  Any
successor to the Company or any surviving entity in a Fundamental Transaction
shall (i) assume, prior to such Fundamental Transaction, all of the obligations
of the Company under this Debenture and the other Transaction Documents pursuant
to written agreements in form and substance satisfactory to the Holder (such
approval not to be unreasonably withheld or delayed) and (ii) if the successor
or surviving entity is a legal entity other than that of the Company, issue to
the Holder a new debenture of such successor entity evidenced by a written
instrument substantially similar in form and substance to this Debenture,
including, without limitation, having a principal amount and interest rate equal
to the principal amount and the interest rate of this Debenture and having
similar ranking to this Debenture, which shall be satisfactory to the Holder
(any such approval not to be unreasonably withheld or delayed).  The
provisions of this Section 8(i) shall apply similarly and equally to successive
Fundamental Transactions and shall be applied without regard to any limitations
of this Debenture.

    


    j)    Secured
Obligation.  The obligations of the Company under this
Debenture are secured by assets of the Company pursuant to Security Documents as
defined in the Purchase Agreement and the Pledge Agreement dated as of February
___, 2008 between the Company, Mr. Wang Hong Jun and the Holder.

    


    *********************


    
      
         


      

      
        13

        
          

        

      

      
         


      

    


    IN
WITNESS WHEREOF, the Company has caused this Debenture to be duly executed by a
duly authorized officer as of the date first above indicated.

    


     

    
      
        	 	China North East Petroleum
      Holdings Limited	 
	 	 	 	 
	 	
                /s/
      Wang Hongjun

              	 
	 	By:	 	 
	 	 	Name:
      Wang Hongjun	 
	 	 	Title:
      Chairman and President	 
	 	
                Facsimile
      No. for delivery of Notices: _______________

              	 


      

    

    
 

     

     

     

    
      
         


      

      
        14

        
          

        

      

      
         


      

    


    ANNEX
A

    


    NOTICE
OF TRANSFER

    


    


    [Date]

    


    To: China
North East Petroleum Holding, Limited

    445 Park
Avenue

    New York,
New York  10022

    Attn:
Chief Financial Officer

    


    Re: 8% Secured Debenture

    


    Sir/Madam:

    


    Enclosed
is the original 8% Secured Debenture issued by China North East Petroleum
Holding, Limited to the undersigned holder.

    


    The
undersigned holder has transferred and assigned $_____________ principal amount
of the Debenture to the person (s) or entity (ies) set forth below
(“Assignee”).  Please deliver a new Debenture to the Assignee (s) in
the principal amount so indicated, with the remainder, if any, re-issued into
the name of the undersigned holder.

    


    The
undersigned hereby confirms that the transfer and assignment to the Assignee(s)
has been made in accordance with Regulation S promulgated by the U.S. Securities
and Exchange Commission.

     

     

    
      	 Name of
      Assignee (s)  	 Address of
      Assignee(s)	
              Principal
      Amount of 

              Debenture
      Assigned

            


    

    
 

     

     

    
 

    


    Holder:

    


    


    [name of
holder]

    


    


    By:___________________

    Name:

    Title:

     

    15