Document:

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.

     

    
      
         

      

      
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    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:

     

    
      
         

      

      
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    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;

    
      
         

      

      
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    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.

    
      
         

      

      
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          (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.

    

      
        
           

        

        
          11

          
            

          

        

        
           

        

      

    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.

    
      
         

      

      
        12

        
          

        

      

      
         

      

    

     

    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:

     

    15Unassociated Document

  
    Exhibit
4.2

     

    

     

    

    NEITHER
THIS SECURITY NOR THE SECURITIES FOR WHICH THIS SECURITY IS EXERCISABLE HAVE
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.  THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF
THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR
OTHER LOAN SECURED BY SUCH SECURITIES.

    

    SERIES
[A or C] COMMON STOCK PURCHASE WARRANT

    

     CHINA
NORTH EAST PETROLEUM HOLDINGS, LIMITED

     

     

    Warrant
Shares:
__________                                                                                                Issue
Date: February __, 2008

    

     

    THIS SERIES A COMMON STOCK PURCHASE
WARRANT (the “Warrant”) certifies
that, for value received, LOTUSBOX INVESTMENTS LIMITED
(the “Holder”)
is entitled, upon the terms and subject to the limitations on exercise and the
conditions hereinafter set forth, at any time on or after the date hereof (the
“Initial Exercise
Date”) and on or prior to the close of business on the fifth year
anniversary of the Initial Exercise Date (the “Termination Date”)
but not thereafter, to subscribe for and purchase from CHINA NORTH EAST PETROLEUM HOLDINGS,
LIMITED, a Nevada corporation (the “Company”), up to
_______ shares (the “Warrant Shares”) of
Common Stock.  The purchase price of one share of Common Stock under
this Warrant shall be equal to the Exercise Price, as defined in Section
2(b).

     

    Section
1.             Definitions.  Capitalized
terms used and not otherwise defined herein shall have the meanings set forth in
that certain Securities Purchase Agreement (the “Purchase Agreement”),
dated February __, 2008, among the Company and the purchasers’ signatory
thereto.

     

    
      
         

      

      
        1

        
          

        

      

      
         

      

    

    Section
2.             Exercise.

     

    a)           Exercise of
Warrant.  Exercise of the purchase rights represented by this
Warrant may be made, in whole or in part, at any time or times on or after the
Initial Exercise Date and on or before 5:00 p.m New York time on the Termination
Date by delivery to the Company of a duly executed facsimile copy of the Notice
of Exercise Form annexed hereto (or such other office or agency of the Company
as it may designate by notice in writing to the registered Holder at the address
of such Holder appearing on the books of the Company); and, within 3 Trading
Days of the date said Notice of Exercise is delivered to the Company, the
Company shall have received  payment of the aggregate Exercise Price
of the shares thereby purchased by wire transfer or cashier’s check drawn on a
United States bank.  Notwithstanding anything herein to the contrary,
the Holder shall not be required to physically surrender this Warrant to the
Company until the Holder has purchased all of the Warrant Shares available
hereunder and the Warrant has been exercised in full, in which case, the Holder
shall surrender this Warrant to the Company for cancellation within 3 Trading
Days of the date the final Notice of Exercise is delivered to the
Company.  Partial exercises of this Warrant resulting in purchases of
a portion of the total number of Warrant Shares available hereunder shall have
the effect of lowering the outstanding number of Warrant Shares purchasable
hereunder in an amount equal to the applicable number of Warrant Shares
purchased.  The Holder and the Company shall maintain records showing
the number of Warrant Shares purchased and the date of such
purchases.  After any exercise, the Holder and the Company shall
confirm with each other the total amount of Warrants remaining to be
exercised.  The Company shall deliver any objection to any Notice of
Exercise Form within 3 Business Days of receipt of such notice.  The Holder and any assignee, by
acceptance of this Warrant, acknowledge and agree that, by reason of the
provisions of this paragraph, following the purchase of a portion of the Warrant
Shares hereunder, the number of Warrant Shares available for purchase hereunder
at any given time may be less than the amount stated on the face
hereof.

     

    b)           Exercise
Price.  The exercise price per share of the Common Stock under
this Warrant shall be $________ subject to adjustment or reset hereunder (the
“Exercise
Price”).

     

    c)           Cashless
Exercise.  If at any time after 180 days from the Closing there
is no effective Registration Statement registering pursuant to the Registration
Rights Agreement entered into by the Company and the Holder, or no current
prospectus available for, the resale of the Warrant Shares by the Holder, then
this Warrant may also be exercised at such time by means of a “cashless
exercise” in which the Holder shall be entitled to receive a certificate for the
number of Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)]
by (A), where:

     

    
      	
              (A)
      =  

            	
              the
      VWAP on the Trading Day immediately preceding the date of such election;

            

    

    
      	
               
      

            	
               

            
	
              (B)
      =  

            	
              the
      Exercise Price of this Warrant, as adjusted;
and

            

    

     

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

     

    
      	
              (X)
      =  

            	
              the
      number of Warrant Shares issuable upon exercise of this Warrant in accordance
      with the terms of this Warrant by means of a cash exercise rather than a
      cashless exercise.

            

      
        	
                 
      

              	
                 

              

      

    

    
    

    
    

    

    Notwithstanding
anything herein to the contrary, on the Termination Date, this Warrant shall be
automatically exercised via cashless exercise pursuant to this Section
2(c).

     

    d)           Mechanics of
Exercise.

     

    i.      Delivery of Certificates
Upon Exercise.  Certificates for shares purchased hereunder
shall be transmitted by the transfer agent of the Company to the Holder by
crediting the account of the Holder’s prime broker with the Depository Trust
Company through its Deposit Withdrawal Agent Commission (“DWAC”) system if the
Company is a participant in such system and there is an effective Registration
Statement permitting the resale of the Warrant Shares by the Holder, and
otherwise by physical delivery to the address specified by the Holder in the
Notice of Exercise within 5 Trading Days from the delivery to the Company of the
Notice of Exercise Form, surrender of this Warrant (if required) and payment of
the aggregate Exercise Price as set forth above (“Warrant Share Delivery
Date”).  This Warrant shall be deemed to have been exercised on
the date the Exercise Price is received by the Company.  The Warrant
Shares shall be deemed to have been issued, and Holder or any other person so
designated to be named therein shall be deemed to have become a holder of record
of such shares for all purposes, as of the date the Warrant has been exercised
by payment to the Company of the Exercise Price (or by cashless exercise, if
permitted) and all taxes required to be paid by the Holder, if any, pursuant to
Section 2(e)(vi) prior to the issuance of such shares, have been paid. If the
Company fails for any reason to deliver to the Holder certificates evidencing
the Warrant Shares subject to a Notice of Exercise by the 5th Trading
Day after the Warrant Share Delivery Date, the Company shall pay to such Holder,
in cash, as liquidated damages and not as a penalty, for each $1,000 of Warrant
Shares subject to such exercise (based on the VWAP of the Common Stock on the
date of the applicable Notice of Exercise), $5.00 per Trading Day (increasing to
$10.00 per Trading Day on the 45th Trading
Day after such liquidated damages begin to accrue) for each Trading Day after
such Warrant Share Delivery Date until such certificates are
delivered.

     

    ii.   
 Delivery of New
Warrants Upon Exercise.  If this Warrant shall have been
exercised in part, the Company shall, at the request of a Holder and upon
surrender of this Warrant certificate, at the time of delivery of the
certificate or certificates representing Warrant Shares, deliver to Holder a new
Warrant evidencing the rights of Holder to purchase the unpurchased Warrant
Shares called for by this Warrant, which new Warrant shall in all other respects
be identical with this Warrant.

     

    iii.    Rescission
Rights.  If the Company fails to cause its transfer agent to
transmit to the Holder a certificate or certificates representing
the Warrant Shares pursuant to Section 2(e)(i) by the Warrant Share
Delivery Date, then the Holder will have the right to rescind such
exercise.

     

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

     

       iv.     Compensation for Buy-In on
Failure to Timely Deliver Certificates Upon Exercise.  In
addition to any other rights available to the Holder, if the Company fails to
cause its transfer agent to transmit to the Holder a certificate or certificates
representing the Warrant Shares pursuant to an exercise on or before the Warrant
Share Delivery Date, and if after such date the Holder is required by its broker
to purchase (in an open market transaction or otherwise) or the Holder’s
brokerage firm otherwise purchases, shares of Common Stock to deliver in
satisfaction of a sale by the Holder of the Warrant Shares which the Holder
anticipated receiving upon such exercise (a “Buy-In”), then the
Company shall (1) pay in cash to the Holder the amount by which (x) the Holder’s
total purchase price (including brokerage commissions, if any) for the shares of
Common Stock so purchased exceeds (y) the amount obtained by multiplying (A) the
number of Warrant Shares that the Company was required to deliver to the Holder
in connection with the exercise at issue times (B) the price at which the sell
order giving rise to such purchase obligation was executed, and (2) at the
option of the Holder, either reinstate the portion of the Warrant and equivalent
number of Warrant Shares for which such exercise was not honored or deliver to
the Holder the number of shares of Common Stock that would have been issued had
the Company timely complied with its exercise and delivery obligations
hereunder.  For example, if the Holder purchases Common Stock having a
total purchase price of $11,000 to cover a Buy-In with respect to an attempted
exercise of shares of Common Stock with an aggregate sale price giving rise to
such purchase obligation of $10,000, under clause (1) of the immediately
preceding sentence the Company shall be required to pay the Holder $1,000. The
Holder shall provide the Company written notice indicating the amounts payable
to the Holder in respect of the Buy-In and, upon request of the Company,
evidence of the amount of such loss.  Nothing herein shall limit a
Holder’s right to pursue any other remedies available to it hereunder, at law or
in equity including, without limitation, a decree of specific performance and/or
injunctive relief with respect to the Company’s failure to timely deliver
certificates representing shares of Common Stock upon exercise of the Warrant as
required pursuant to the terms hereof.

     

    iv.    No Fractional Shares or
Scrip.  No fractional shares or scrip representing fractional
shares shall be issued upon the exercise of this Warrant.  As to any
fraction of a share which Holder would otherwise be entitled to purchase upon
such exercise, the Company shall at its election, either pay a cash adjustment
in respect of such final fraction in an amount equal to such fraction multiplied
by the Exercise Price or round up to the next whole share.

     

    vi.    Charges, Taxes and
Expenses.  Issuance of certificates for Warrant Shares shall be
made without charge to the Holder for any issue or transfer tax or other
incidental expense in respect of the issuance of such certificate, all of which
expenses shall be paid by the Company, and such certificates shall be issued in
the name of the Holder or in such name or names as may be directed by the
Holder; that in the event certificates for Warrant Shares are to be issued in a
name other than the name of the Holder, this Warrant when surrendered for
exercise shall be accompanied by the Assignment Form attached hereto duly
executed by the Holder; and the Company may require, as a condition thereto, the
payment of a sum sufficient to reimburse it for any transfer tax incidental
thereto.

     

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

     

    vii.   Closing of
Books.  The Company will not close its stockholder books or
records in any manner which prevents the timely exercise of this Warrant,
pursuant to the terms hereof.

     

    Section
3.             Certain
Adjustments.

     

    a)           Stock Dividends and
Splits. If the Company, at any time while this Warrant is outstanding:
(A) pays a stock dividend or otherwise make a distribution or distributions on
shares of its Common Stock or any other equity or equity equivalent securities
payable in shares of Common Stock (which, for avoidance of doubt, shall not
include any shares of Common Stock issued by the Company upon exercise of this
Warrant), (B) subdivides outstanding shares of Common Stock into a larger number
of shares, (C) combines (including by way of reverse stock split) outstanding
shares of Common Stock into a smaller number of shares, or (D) issues by
reclassification of shares of the Common Stock any shares of capital stock of
the Company, then in each case the Exercise Price shall be multiplied by a
fraction of which the numerator shall be the number of shares of Common Stock
(excluding treasury shares, if any) outstanding immediately before such event
and of which the denominator shall be the number of shares of Common Stock
outstanding immediately after such event and the number of shares issuable upon
exercise of this Warrant shall be proportionately adjusted such that the
aggregate Exercise Price of this Warrant shall remain unchanged.  Any
adjustment made pursuant to this Section 3(a) shall become effective immediately
after the record date for the determination of stockholders entitled to receive
such dividend or distribution and shall become effective immediately after the
effective date in the case of a subdivision, combination or
re-classification.

     

    b)           Subsequent Equity
Sales. If the Company or any Subsidiary thereof, as applicable, at any
time while this Warrant is outstanding, shall sell or grant any option to
purchase, or sell or grant any right to reprice, or otherwise dispose of or
issue (or announce any offer, sale, grant or any option to purchase or other
disposition) any Common Stock or Common Stock Equivalents entitling any Person
to acquire shares of Common Stock, at an effective price per share less than the
then Exercise Price (such lower price, the “Base Share Price” and
such issuances collectively, a “Dilutive Issuance”)
(if the holder of the Common Stock or Common Stock Equivalents so issued shall
at any time, whether by operation of purchase price adjustments, reset
provisions, floating conversion, exercise or exchange prices or otherwise, or
due to warrants, options or rights per share which are issued in connection with
such issuance, be entitled to receive shares of Common Stock at an effective
price per share which is less than the Exercise Price (as in effect from time to
time), such issuance shall be deemed to have occurred for less than the Exercise
Price on such date of the Dilutive Issuance), then the Exercise Price shall be
reduced in accordance with the following formula:

     

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

     

    O      +      N
x P

     
----------

    E’        =      E      x                 M

    -----------------------

    O +
N

     

    where:

     

    
      	
               
      

            	
              E’

            	
              =

            	
              the
      adjusted Exercise Price.

            

    

     

    
      	
               
      

            	
              E

            	
              =

            	
              the
      then current Exercise Price.

            

    

     

    
      	
               
      

            	
              O

            	
              =

            	
              the
      number of shares of Common Stock outstanding on the record
      date.

            

    

     

    
      	
               
      

            	
              N

            	
              =

            	
              the
      number of shares of additional Common Stock issued pursuant to such
      rights, options or warrants.

            

    

     

    
      	
               
      

            	
              P

            	
              =

            	
              the
      price per share of the additional shares of Common
  Stock.

            

    

     

    
      	
               
      

            	
              M

            	
              =

            	
              the
      Market Value per share of Common Stock on the record
  date.

            

    

     

     

    c)             Such
adjustment shall be made whenever such Common Stock or Common Stock Equivalents
are issued.  Notwithstanding the foregoing, no adjustments shall be
made, paid or issued under this Section 3(c) in respect of an Exempt
Issuance.  The Company shall notify the Holder in writing, no later
than 10 Trading Days following the issuance of any Common Stock or Common Stock
Equivalents subject to Section 3(b), indicating therein the applicable issuance
price, or applicable reset price, exchange price, conversion price and other
pricing terms (such notice the “Dilutive Issuance
Notice”).  For purposes of clarification, whether or not the
Company provides a Dilutive Issuance Notice pursuant to Section 3(b), upon the
occurrence of any Dilutive Issuance, after the date of such Dilutive Issuance
the Holder is entitled to receive a number of Warrant Shares based upon the Base
Share Price regardless of whether the Holder accurately refers to the Base Share
Price in the Notice of Exercise.

     

    d)          
 Subsequent
Rights Offerings.  If the Company, at any time while theWarrant
is outstanding, shall issue rights, options or warrants to all holders of
CommonStock (and not to Holders) entitling them to subscribe for or purchase
shares of Common Stock at a price per share less than the VWAP at the record
date mentioned below, then the Exercise Price shall be adjusted in accordance
with the formula:

     

    
      
         

      

      
        6

        
          

        

      

      
         

      

    

                   O           +           N
x P

    ----------

    E’        =      E      x                 M

    -----------------------

    O +
N

     

    where:

     

    
      	
               
      

            	
              E’

            	
              =

            	
              the
      adjusted Exercise Price.

            
	 	 	 	 

    

    
      	
               
      

            	
              E

            	
              =

            	
              the
      then current Exercise Price.

            
	 	 	 	 

    

    
      	
               
      

            	
              O

            	
              =

            	
              the
      number of shares of Common Stock outstanding on the record
      date.

            
	 	 	 	 

    

    
      	
               
      

            	
              N

            	
              =

            	
              the
      number of shares of additional Common Stock issued pursuant to such
      rights, options or warrants.

            
	 	 	 	 

    

    
      	
               
      

            	
              P

            	
              =

            	
              the
      price per share of the additional shares of Common
  Stock.

            
	 	 	 	 

    

    
      	
               
      

            	
              M

            	
              =

            	
              the
      Market Value per share of Common Stock on the record
  date.

            

    

     

     

    The
adjustment shall be made successively whenever any such rights, options
orwarrants are issued and shall become effective immediately after the record
date for thedetermination of stockholders entitled to receive the rights,
options or warrants.  If at the end of the period during which such
rights, options or warrants are exercisable, not all rights, options or warrants
shall have been exercised, the applicable Exercise Price shall be promptly
readjusted to what it would have been if “N” in the above formula had been the
number of shares actually issued.

     

    e)           Pro Rata
Distributions.  If the Company, at any time while this Warrant
is outstanding, shall distribute to all holders of Common Stock (and not to
Holders of the Warrants) evidences of its indebtedness or assets (including cash
and cash dividends) or rights or warrants to subscribe for or purchase any
security other than the Common Stock (which shall be subject to Section 3(b)),
then in each such case the Exercise Price shall be adjusted by multiplying the
Exercise Price in effect immediately prior to the record date fixed for
determination of stockholders entitled to receive such distribution by a
fraction of which the denominator shall be the VWAP determined as of the record
date mentioned above, and of which the numerator shall be such VWAP on such
record date less the then per share fair market value at such record date of the
portion of such assets or evidence of indebtedness so distributed applicable to
one outstanding share of the Common Stock as determined by the Board of
Directors in good faith.  In either case the adjustments shall be
described in a statement provided to the Holder of the portion of assets or
evidences of indebtedness so distributed or such subscription rights applicable
to one share of Common Stock.  Such adjustment shall be made whenever
any such distribution is made and shall become effective immediately after the
record date mentioned above.

     

    
      
         

      

      
        7

        
          

        

      

      
         

      

    

    f)           Fundamental
Transaction. If, at any time while this Warrant is outstanding, (A) the
Company effects any merger or consolidation of the Company with or into another
Person, (B) the Company effects any sale of all or substantially all of its
assets in one or a series of related transactions, (C) any tender offer or
exchange offer (whether by the Company or another Person) is completed pursuant
to which holders of Common Stock are permitted to tender or exchange their
shares for other securities, cash or property, or (D) the Company effects any
reclassification of the Common Stock or any compulsory share exchange pursuant
to which the Common Stock is effectively converted into or exchanged for other
securities, cash or property (each “Fundamental
Transaction”), then, upon any subsequent exercise of this Warrant, the
Holder shall have the right to receive, for each Warrant Share that would have
been issuable upon such exercise immediately prior to the occurrence of such
Fundamental Transaction, the number of shares of Common Stock of the successor
or acquiring corporation or of the Company, if it is the surviving corporation,
and any additional consideration (the “Alternate
Consideration”) receivable as a result of such merger, consolidation or
disposition of assets by a holder of the number of shares of Common Stock for
which this Warrant is exercisable immediately prior to such event. For purposes
of any such exercise, the determination of the Exercise Price shall be
appropriately adjusted to apply to such Alternate Consideration based on the
amount of Alternate Consideration issuable in respect of one share of Common
Stock in such Fundamental Transaction, and the Company shall apportion the
Exercise Price among the Alternate Consideration in a reasonable manner
reflecting the relative value of any different components of the Alternate
Consideration.  If holders of Common Stock are given any choice as to
the securities, cash or property to be received in a Fundamental Transaction,
then the Holder shall be given the same choice as to the Alternate Consideration
it receives upon any exercise of this Warrant following such Fundamental
Transaction.  To the extent necessary to effectuate the foregoing
provisions, any successor to the Company or surviving entity in such Fundamental
Transaction shall issue to the Holder a new warrant consistent with the
foregoing provisions and evidencing the Holder’s right to exercise such warrant
into Alternate Consideration. The terms of any agreement pursuant to which a
Fundamental Transaction is affected shall include terms requiring any such
successor or surviving entity to comply with the provisions of this Section 3(e)
and insuring that this Warrant (or any such replacement security) will be
similarly adjusted upon any subsequent transaction analogous to a Fundamental
Transaction. Notwithstanding anything to the contrary, in the event of a
Fundamental Transaction that is (1) an all cash transaction, (2) a “Rule 13e-3
transaction” as defined in Rule 13e-3 under the Securities Exchange Act of 1934,
as amended, or (3) a Fundamental Transaction involving a person or entity not
traded on a national securities exchange, the Nasdaq Global Select Market, the
Nasdaq Global Market, or the Nasdaq Capital Market, the Company or any successor
entity shall pay at the Holder’s option, exercisable at any time concurrently
with or within 30 days after the consummation of the Fundamental Transaction, an
amount of cash equal to the value of this Warrant as determined in accordance
with the Black-Scholes option pricing formula using an expected volatility equal
to the 100 day historical price volatility obtained from the HVT function on
Bloomberg L.P. as of the trading day immediately prior to the public
announcement of the Fundamental Transaction. 

     

    
      
         

      

      
        8

        
          

        

      

      
         

      

    

    g)          
INTENTIONALLY OMITTED

     

    h)           Calculations. All
calculations under this Section 3 shall be made to the nearest cent or the
nearest 1/100th of a share, as the case may be. For purposes of this Section 3,
the number of shares of Common Stock deemed to be issued and outstanding as of a
given date shall be the sum of the number of shares of Common Stock (excluding
treasury shares, if any) issued and outstanding.

     

    i)        
   Voluntary Adjustment by
Company. The Company may at any time during the term of this Warrant
reduce the then current Exercise Price to any amount and for any period of time
deemed appropriate by the Board of Directors of the Company.

     

    j)       
    Notice to
Holder.

     

    i.           Adjustment to Exercise
Price. Whenever the Exercise Price is adjusted pursuant to any provision
of this Section 3, the Company shall promptly mail to the Holder a notice
setting forth the Exercise Price after such adjustment and setting forth a brief
statement of the facts requiring such adjustment. If the Company issues a
variable rate security, despite the prohibition thereon in the Purchase
Agreement, the Company shall be deemed to have issued Common Stock or Common
Stock Equivalents at the lowest possible conversion or exercise price at which
such securities may be converted or exercised in the case of a Variable Rate
Transaction (as defined in the Purchase Agreement).

     

    ii.           Notice to Allow Exercise by
Holder. If (A) the Company shall declare a dividend (or any other
distribution in whatever form) on the Common Stock; (B) the Company shall
declare a special nonrecurring cash dividend on or a redemption of the Common
Stock; (C) the Company shall authorize the granting to all holders of the Common
Stock rights or warrants to subscribe for or purchase any shares of capital
stock of any class or of any rights; (D) the approval of any stockholders of the
Company shall be required in connection with any reclassification of the Common
Stock, any consolidation or merger to which the Company is a party, any sale or
transfer of all or substantially all of the assets of the Company, of any
compulsory share exchange whereby the Common Stock is converted into other
securities, cash or property; (E) the Company shall authorize the voluntary or
involuntary dissolution, liquidation or winding up of the affairs of the
Company; then, in each case, the Company shall cause to be mailed to the Holder
at its last address as it shall appear upon the Warrant Register of the Company,
at least 20 calendar days prior to the applicable record or effective date
hereinafter specified, a notice stating (x) the date on which a record is to be
taken for the purpose of such dividend, distribution, redemption, rights or
warrants, or if a record is not to be taken, the date as of which the holders of
the Common Stock of record to be entitled to such dividend, distributions,
redemption, rights or warrants are to be determined or (y) the date on which
such reclassification, consolidation, merger, sale, transfer or share exchange
or Fundamental Transaction is expected to become effective or close, and the
date as of which it is expected that holders of the Common Stock of record shall
be entitled to exchange their shares of the Common Stock for securities, cash or
other property deliverable upon such reclassification, consolidation, merger,
sale, transfer or share exchange; provided that the failure to mail such notice
or any defect therein or in the mailing thereof shall not affect the validity of
the corporate action required to be specified in such notice.  The
Holder is entitled to exercise this Warrant during the period commencing on the
date of such notice to the effective date of the event triggering such
notice.

     

    
      
         

      

      
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    Section
4.             Transfer of
Warrant.

     

    a)           Transferability.  Subject
to compliance with any applicable securities laws and the conditions set forth
in Section 4(d) hereof and to the provisions of Section 5 of the Purchase
Agreement, this Warrant and all rights hereunder (including, without limitation,
any registration rights) are transferable, in whole or in part, upon surrender
of this Warrant at the principal office of the Company or its designated agent,
together with a written assignment of this Warrant substantially in the form
attached hereto duly executed by the Holder or its agent or attorney and funds
sufficient to pay any transfer taxes payable upon the making of such
transfer.  Upon such surrender and, if required, such payment, the
Company shall execute and deliver a new Warrant or Warrants in the name of the
assignee or assignees and in the denomination or denominations specified in such
instrument of assignment, and shall issue to the assignor a new Warrant
evidencing the portion of this Warrant not so assigned, and this Warrant shall
promptly be cancelled.  A Warrant, if properly assigned, may be
exercised by a new holder for the purchase of Warrant Shares without having a
new Warrant issued.

     

    b)           New Warrants. This
Warrant may be divided or combined with other Warrants upon presentation hereof
at the aforesaid office of the Company, together with a written notice
specifying the names and denominations in which new Warrants are to be issued,
signed by the Holder or its agent or attorney.  Subject to compliance
with Section 4(a), as to any transfer which may be involved in such division or
combination, the Company shall execute and deliver a new Warrant or Warrants in
exchange for the Warrant or Warrants to be divided or combined in accordance
with such notice. All Warrants issued on transfers or exchanges shall be dated
the original Issue Date and shall be identical with this Warrant except as to
the number of Warrant Shares issuable pursuant thereto.

     

    c)           Warrant Register. The
Company shall register this Warrant, upon records to be maintained by the
Company for that purpose (the “Warrant Register”),
in the name of the record Holder hereof from time to time.  The
Company may deem and treat the registered Holder of this Warrant as the absolute
owner hereof for the purpose of any exercise hereof or any distribution to the
Holder, and for all other purposes, absent actual notice to the
contrary.

     

    d)           Transfer
Restrictions.  If, at the time of the surrender of this Warrant
in connection with any transfer of this Warrant, the transfer of this Warrant
shall not be registered pursuant to an effective registration statement under
the Securities Act and under applicable state securities or blue sky laws, the
Company may require, as a condition of allowing such transfer, that the Holder
or transferee of this Warrant, as the case may be, comply with the provisions of
the Purchase Agreement.

     

    
      
         

      

      
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    Section
5.             Miscellaneous.

     

    a)           No Rights as Shareholder
Until Exercise.  This Warrant does not entitle the Holder to
any voting rights or other rights as a shareholder of the Company prior to the
exercise hereof as set forth in Section 2(e)(i).

     

    b)           Loss, Theft, Destruction or
Mutilation of Warrant. The Company covenants that upon receipt by the
Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant or any stock certificate relating to
the Warrant Shares, and in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to it (which, in the case of the Warrant, shall
not include the posting of any bond), and upon surrender and cancellation of
such Warrant or stock certificate, if mutilated, the Company will make and
deliver a new Warrant or stock certificate of like tenor and dated as of such
cancellation, in lieu of such Warrant or stock certificate.

     

    c)           Saturdays, Sundays,
Holidays, etc.  If the last or appointed day for the taking of
any action or the expiration of any right required or granted herein shall not
be a Business Day, then such action may be taken or such right may be exercised
on the next succeeding Business Day.

     

    d)           Authorized
Shares.

     

    The Company covenants that during the
period the Warrant is outstanding, it will reserve from its authorized and
unissued Common Stock a sufficient number of shares to provide for the issuance
of the Warrant Shares upon the exercise of any purchase rights under this
Warrant.  The Company further covenants that its issuance of this
Warrant shall constitute full authority to its officers who are charged with the
duty of executing stock certificates to execute and issue the necessary
certificates for the Warrant Shares upon the exercise of the purchase rights
under this Warrant.  The Company will take all such reasonable action
as may be necessary to assure that such Warrant Shares may be issued as provided
herein without violation of any applicable law or regulation, or of any
requirements of the Trading Market upon which the Common Stock may be
listed.  The Company covenants that all Warrant Shares which may be
issued upon the exercise of the purchase rights represented by this Warrant
will, upon exercise of the purchase rights represented by this Warrant, be duly
authorized, validly issued, fully paid and nonassessable and free from all
taxes, liens and charges created by the Company in respect of the issue thereof
(other than taxes in respect of any transfer occurring contemporaneously with
such issue).

     

    Except and to the extent as waived or
consented to by the Holder, the Company shall not by any action, including,
without limitation, amending its certificate of incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such actions as may be necessary or appropriate to protect the
rights of Holder as set forth in this
Warrant against impairment.  Without limiting the generality of the
foregoing, the Company will (a) not increase the par value of any Warrant Shares
above the amount payable therefor upon such exercise immediately prior to such
increase in par value, (b) take all such action as may be necessary or
appropriate in order that the Company may validly and legally issue fully paid
and nonassessable Warrant Shares upon the exercise of this Warrant, and (c) use
commercially reasonable efforts to obtain all such authorizations, exemptions or
consents from any public regulatory body having jurisdiction thereof as may be
necessary to enable the Company to perform its obligations under this
Warrant.

     

    
      
         

      

      
        11

        
          

        

      

      
         

      

    

     

    Before taking any action which would
result in an adjustment in the number of Warrant Shares for which this Warrant
is exercisable or in the Exercise Price, the Company shall obtain all such
authorizations or exemptions thereof, or consents thereto, as may be necessary
from any public regulatory body or bodies having jurisdiction
thereof.

     

    e)           Jurisdiction; Governing
Law. All questions concerning the construction, validity, enforcement and
interpretation of this Warrant shall be determined in accordance with the
provisions of the Purchase Agreement.

     

    f)           Restrictions.  The
Holder acknowledges that the Warrant Shares acquired upon the exercise of this
Warrant, if not registered, will have restrictions upon resale imposed by state
and federal securities laws.  The Holder of this Warrant shall be
entitled to the Registration Rights described in the Registration Rights
Agreement dated as of February __, 2008 between the Company and the original
Holder of this Warrant.

     

    g)           Nonwaiver and
Expenses.  No course of dealing or any delay or failure to
exercise any right hereunder on the part of Holder shall operate as a waiver of
such right or otherwise prejudice Holder’s rights, powers or remedies,
notwithstanding the fact that all rights hereunder terminate on the Termination
Date.  If the Company willfully and knowingly fails to comply with any
provision of this Warrant, which results in any material damages to the Holder,
the Company shall pay to Holder such amounts as shall be sufficient to cover any
costs and expenses including, but not limited to, reasonable attorneys’ fees,
including those of appellate proceedings, incurred by Holder in collecting any
amounts due pursuant hereto or in otherwise enforcing any of its rights, powers
or remedies hereunder.

     

    h)           Notices.  Any
notice, request or other document required or permitted to be given or delivered
to the Holder by the Company shall be delivered in accordance with the notice
provisions of the Purchase Agreement.

     

    i)           Limitation of
Liability.  No provision hereof, in the absence of any
affirmative action by Holder to exercise this Warrant to purchase Warrant
Shares, and no enumeration herein of the rights or privileges of Holder, shall
give rise to any liability of Holder for the purchase price of any Common Stock
or as a stockholder of the Company, whether such liability is asserted by the
Company or by creditors of the Company.

     

    
      
         

      

      
        12

        
          

        

      

      
         

      

    

    j)           Remedies.  Holder,
in addition to being entitled to exercise all rights granted by law, including
recovery of damages, will be entitled to specific performance of its rights
under this Warrant.  The Company agrees that monetary damages would
not be adequate compensation for any loss incurred by reason of a breach by it
of the provisions of this Warrant and hereby agrees to waive and not to assert
the defense in any action for specific performance that a remedy at law would be
adequate.

     

    k)           Successors and
Assigns.  Subject to applicable securities laws, this Warrant
and the rights and obligations evidenced hereby shall inure to the benefit of
and be binding upon the successors of the Company and the successors and
permitted assigns of Holder.  The provisions of this Warrant are
intended to be for the benefit of all Holders from time to time of this Warrant
and shall be enforceable by any such Holder or holder of Warrant
Shares.

     

    l)        
   Amendment.  This
Warrant may be modified or amended or the provisions hereof waived with the
written consent of the Company and the Holder.

     

    m)           Severability.  Wherever
possible, each provision of this Warrant shall be interpreted in such manner as
to be effective and valid under applicable law, but if any provision of this
Warrant shall be prohibited by or invalid under applicable law, such provision
shall be ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provisions or the remaining provisions of
this Warrant.

     

    n)           Headings.  The
headings used in this Warrant are for the convenience of reference only and
shall not, for any purpose, be deemed a part of this Warrant.

     

    [Signature
Page Follows]

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

     

     

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

    

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

    
      

       

      
        
          	 	CHINA NORTH EAST PETROLEUM
      HOLDINGS, LIMITED	 
	 	 	 	 
	 	
                   

                	 
	 	By:	 	 
	 	 	Name:
      	 
	 	 	Title:
      	 
	 	
                   

                	 

        

      

      
 

       

    

    
      
         

      

      
        14

        
          

        

      

      
         

      

    

    

    NOTICE
OF EXERCISE

    

    TO:           CHINA NORTH EAST PETROLEUM HOLDINGS,
LIMITED

    

    (1)           The
undersigned hereby elects to purchase ________ Warrant Shares of the Company
pursuant to the terms of the attached Warrant (only if exercised in full), and
tenders herewith payment of the exercise price in full, together with all
applicable transfer taxes, if any.

     

    (2)           Payment
shall take the form of (check applicable box):

     

    [  ]
in lawful money of the United States; or

     

    (3)           Please
issue a certificate or certificates representing said Warrant Shares in the name
of the undersigned or in such other name as is specified below:

     

    _______________________________

    

    

    The
Warrant Shares shall be delivered to the following DWAC Account Number or by
physical delivery of a certificate to:

    

    _______________________________

    

    _______________________________

    

    _______________________________

    

    (4)  Accredited
Investor.  The undersigned is an “accredited investor” as
defined in Regulation D promulgated under the Securities Act of 1933, as
amended.

    

    [SIGNATURE
OF HOLDER]

    

    Name of
Investing Entity:
________________________________________________________________________

    Signature of Authorized Signatory of
Investing Entity:
_________________________________________________

    Name of
Authorized Signatory:
___________________________________________________________________

    Title of
Authorized Signatory:
____________________________________________________________________

    Date:
________________________________________________________________________________________

    

    

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    ASSIGNMENT
FORM

    

    (To
assign the foregoing warrant, execute

    this form
and supply required information.

    Do not
use this form to exercise the warrant.)

    

    

    

    FOR VALUE
RECEIVED, [____] all of or [_______] shares of the foregoing Warrant and all
rights evidenced thereby are hereby assigned to

     

    

    _______________________________________________
whose address is

    

    _______________________________________________________________.

    

    

    

    _______________________________________________________________

    

    Dated:  ______________,
_______

    

    

    Holder’s Signature:     
_____________________________

    

    Holder’s
Address:              
_____________________________

     

    _____________________________

    

    

    

    Signature
Guaranteed:  ___________________________________________

    

    

    NOTE:  The
signature to this Assignment Form must correspond with the name as it appears on
the face of the Warrant, without alteration or enlargement or any change
whatsoever, and must be guaranteed by a bank or trust
company.  Officers of corporations and those acting in a fiduciary or
other representative capacity should file proper evidence of authority to assign
the foregoing Warrant.

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