Document:

Unassociated Document

    Exhibit
4.1

     

     

     EXHIBIT
A

    

    THESE
SECURITIES HAVE 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.  THESE SECURITIES AND THE SECURITIES ISSUABLE UPON CONVERSION
OF THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT
OR OTHER LOAN SECURED BY SUCH SECURITIES.

    

    Original
Issue Date: March 19,
2008

    

    $500,000

    

    

    10%
DEBENTURE

    DUE
MARCH 19, 2009

    

    THIS DEBENTURE of Arkanova Energy
Corp., a Nevada corporation, having a principal place of business at 21 Waterway
Avenue, Suite 300, The Woodlands, Texas 77380 (the “Company”), designated
as its 10% Debenture, due March 19, 2009 (the “Debenture”).

    

    FOR VALUE
RECEIVED, the Company promises to pay to John Thomas Bridge & Opportunity
Fund or its registered assigns (the “Holder”), the
principal sum of $500,000 on the earlier of (i) March 19, 2009, (ii) upon a
Change of Control (at the option of the Holder), or (iii) upon the closing of a
Subsequent Financing (the “Maturity Date”), and
to pay accrued interest to the Holder at the Maturity Date on the then
outstanding principal amount of this Debenture at the rate of 10% per annum,
payable in cash.  The Company may pre-pay this Debenture at any time
without penalty.

    

    This
Debenture is subject to the terms and conditions set forth in the Purchase
Agreement, as well as to the following additional provisions:

    

    Section
1.                        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 made for such registration of
transfer or exchange.

    

    Section
2.                                  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.  Prior to due presentment
to the Company for transfer 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.

     

     

    
      
         

      

      
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    Section
3.                      Events of
Default.

    

    (a)           “Event of Default”,
wherever used herein, means any one of the following events (whatever the reason
and whether it 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):

    

    (i)           any
default in the payment of the principal amount of, or interest on, the
Debenture;

    

    (ii)           the
Company shall fail to observe or perform any other covenant or agreement
contained in this Debenture or any of the other Transaction Documents which
failure is not cured, if possible to cure, within 10 Trading Days after notice
of such default is sent by the Holder or by any other holder to the Company;
or

    

    (iii)           the
Company shall commence, or there shall be commenced against the Company a case
under any applicable bankruptcy or insolvency laws as now or hereafter in effect
or any successor thereto, or the Company  commences any other
proceeding under any reorganization, arrangement, adjustment of debt, relief of
debtors, dissolution, insolvency or liquidation or similar law of any
jurisdiction whether now or hereafter in effect relating to the Company or there
is commenced against the Company any such bankruptcy, insolvency or other
proceeding which remains undismissed for a period of 60 days; or the Company is
adjudicated insolvent or bankrupt; or any order of relief or other order
approving any such case or proceeding is entered; or the
Company  suffers any appointment of any custodian or the like for it
or any substantial part of its property which continues undischarged or unstayed
for a period of 60 days; or the Company makes a general assignment for the
benefit of creditors; or the Company shall fail to pay, or shall state that it
is unable to pay, or shall be unable to pay, its debts generally as they become
due; or the Company; or any corporate or other action is taken by the Company or
any subsidiary thereof for the purpose of effecting any of the
foregoing;

    

    (iv)           default
shall occur with respect to any other indebtedness for borrowed money of the
Company or under any agreement under which such indebtedness may be issued by
the Company and such default shall continue for more than the period of grace,
if any, therein specified, if the aggregate amount of such indebtedness for
which such default shall have occurred exceeds $200,000;

     

     

    
      
         

      

      
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    (v)           default
shall occur with respect to any contractual obligation of the Company under or
pursuant to any contract, lease, or other agreement to which the Company is a
party and such default shall continue for more than the period of grace, if any,
therein specified, if the aggregate amount of the Company’s contractual
liability arising out of such default exceeds or is reasonably estimated to
exceed $200,000; and

    

    (vi)           final
judgment for the payment of money in excess of $200,000 shall be rendered
against the Company and the same shall remain undischarged for a period of 60
days during which execution shall not be effectively stayed;

    

    (b)           If
any Event of Default occurs, the full principal amount of this Debenture,
together with interest and other amounts owing in respect thereof, to the date
of acceleration shall become immediately due and payable in cash; provided,
however, that the Holder shall have the right to convert all or a portion of
such principal of and accrued interest on the Debenture into shares of Common
Stock pursuant to the terms set forth in Section 4 below (and to receive cash on
the principal amount Holder elects not to convert).  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 the rate of 18% per annum, or such lower maximum amount of interest permitted
to be charged under applicable law.  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 declaration may
be rescinded and annulled by Holder at any time prior to payment hereunder and
the Holder shall have all rights as a Debenture holder until such time, if any,
as the full payment under this Section shall have been received by
it.  No such rescission or annulment shall affect any subsequent Event
of Default or impair any right consequent thereon.

    

    Section
4.                      Conversion Upon Event of
Default.

    

    (a)           The
Holder, if elected pursuant to Section 3(b) above, shall convert all or a
portion of the principal of and accrued interest on this Debenture into shares
of Common Stock, the Holder shall effect such conversion by delivering to the
Company a notice of conversion (a “Notice of
Conversion”), specifying therein the principal amount of and accrued
interest on the Debenture to be converted and the date on which such conversion
is to be effected (a “Conversion
Date”).  The number of shares of Common Stock issuable upon a
conversion shall be determined by the quotient obtained by dividing (x) the
outstanding principal amount of, and accrued interest on, this Debenture to be
converted by (y) the Set Price (as defined in subsection 4(b)).

    

    (b)           (i)           The
conversion price in effect on the Conversion Date shall be equal to $.25 (the
“Set
Price”).

     

     

     

    
      
         

      

      
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    (ii)           If
the Company, at any time while the Debenture is outstanding; (A) shall pay 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 pursuant to this Debenture), (B)
subdivide outstanding shares of Common Stock into a larger number of shares, (C)
combine (including by way of reverse stock split) outstanding shares of Common
Stock into a smaller number of shares, or (D) issue by reclassification of
shares of the Common Stock any shares of capital stock of the Company, then the
Set 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
before such event and of which the denominator shall be the number of shares of
Common Stock outstanding after such event.  Any adjustment made
pursuant to this Section 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.  Additional adjustments in the Set Price shall be
made pursuant to subsection 4(b)(iii)(B)(4) in the event of the payment of a
dividend or distribution on its Common Stock in shares of Common
Stock.

    

    (iii)           (A)           In
case the Company, at any time this Debenture is outstanding, shall issue shares
of Common Stock or Common Stock Equivalents (as defined below) entitling any
person to acquire shares of Common Stock, at a price per share (determined,
reduced and adjusted in accordance with this subsection 4(b)) less than the then
current Set Price (if the holder of the Common Stock or Common Stock Equivalent
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 issued in connection with such issuance,
be entitled to receive shares of Common Stock at a price less than the Set
Price, such issuance shall be deemed to have occurred for less than the Set
Price), then, the Set Price shall be reduced to equal such lower
price.  “Common Stock Equivalents” shall mean any securities of the
Company or the Subsidiaries which would entitle the holder thereof to acquire at
any time Common Stock, including without limitation, any debt, preferred stock,
rights, options, warrants or other instrument that is at any time convertible
into or exchangeable for, or otherwise entitles the holder thereof to receive,
Common Stock.  Such adjustment shall be made whenever such Common
Stock or Common Stock Equivalents are issued.  The Company shall
notify the Holder in writing, no later than the trading day following the
issuance of any Common Stock or Common Stock Equivalent subject to this section,
indicating therein the applicable issuance price, or of applicable reset price,
exchange price, conversion price and other pricing terms.  In the
event any Common Stock Equivalents are issued which have a Common Stock purchase
price below the Set Price and such Common Stock Equivalents shall be cancelled,
expire or otherwise be of no further force or effect, than any prior adjustment
to the Set Price shall be rescinded.

     

     

    
      
         

      

      
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    (B)           For
purposes of this subsection (iii), the following subsections shall also be
applicable:

    

    (1)           Issuance
of Rights or Options.  In case at any time the Company shall in any
manner grant (directly and not by assumption in a merger or otherwise) any
warrants or other rights to subscribe for or to purchase, or any options for the
purchase of, Common Stock or any stock or security convertible into or
exchangeable for Common Stock (such warrants, rights or options being called
“Options” and such convertible or exchangeable stock or securities being called
“Convertible Securities”) whether or not such Options or the right to convert or
exchange any such Convertible Securities are immediately exercisable, and the
price per share for which Common Stock is issuable upon the exercise of such
Options or upon the conversion or exchange of such Convertible Securities
(determined by dividing (i) the sum (which sum shall constitute the applicable
consideration) of (x) the total amount, if any, received or receivable by the
Company as consideration for the granting of such Options, plus (y) the
aggregate amount of additional consideration payable to the Company upon the
exercise of all such Options, plus (z), in the case of such Options which relate
to Convertible Securities, the aggregate amount of additional consideration, if
any, payable upon the issue or sale of such Convertible Securities and upon the
conversion or exchange thereof, by (ii) the total maximum number of shares of
Common Stock issuable upon the exercise of such Options or upon the conversion
or exchange of all such Convertible Securities issuable upon the exercise of
such Options) shall be less than the Set Price in effect immediately prior to
the time of the granting of such Options, then the total number of shares of
Common Stock issuable upon the exercise of such Options or upon conversion or
exchange of the total amount of such Convertible Securities issuable upon the
exercise of such Options shall be deemed to have been issued for such price per
share as of the date of granting of such Options or the issuance of such
Convertible Securities and thereafter shall be deemed to be outstanding for
purposes of adjusting the Set Price.  Except as otherwise provided in
subsection (3) below, no adjustment of the Set Price shall be made upon the
actual issue of such Common Stock or of such Convertible Securities upon
exercise of such Options or upon the actual issue of such Common Stock upon
conversion or exchange of such Convertible Securities.

    

    (2)           Issuance
of Convertible Securities.  In case the Company shall in any manner
issue (directly and not by assumption in a merger or otherwise) or sell any
Convertible Securities, whether or not the rights to exchange or convert any
such Convertible Securities are immediately exercisable, and the price per share
for which Common Stock is issuable upon such conversion or exchange (determined
by dividing (i) the sum (which sum shall constitute the applicable
consideration) of (x) the total amount received or receivable by the Company as
consideration for the issue or sale of such Convertible Securities, plus (y) the
aggregate amount of additional consideration, if any, payable to the Company
upon the conversion or exchange thereof, by (ii) the total number of shares of
Common Stock issuable upon the conversion or exchange of all such Convertible
Securities) shall be less than the Set Price in effect immediately prior to the
time of such issue or sale, then the total maximum number of shares of Common
Stock issuable upon conversion or exchange of all such Convertible Securities
shall be deemed to have been issued for such price per share as of the date of
the issue or sale of such Convertible Securities and thereafter shall be deemed
to be outstanding for purposes of adjusting the Set Price, provided that (a)
except as otherwise provided in subsection (3) below, no adjustment of the Set
Price shall be made upon the actual issuance of such Common Stock upon
conversion or exchange of such Convertible Securities and (b) no further
adjustment of the Set Price shall be made by reason of the issue or sale of
Convertible Securities upon exercise of any Options to purchase any such
Convertible Securities for which adjustments of the Set Price have been made
pursuant to the other provisions of subsection (1) above.  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).

    

    
      
         

      

      
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    (3)           Change
in Option Price or Conversion Rate.  Upon the happening of any of the
following events, namely, if the purchase price provided for in any Option
referred to in subsection 4(b)(iii)(B) hereof, the additional consideration, if
any, payable upon the conversion or exchange of any Convertible Securities
referred to in subsections 4(b)(iii)(B)(1) or 4(b)(iii)(B)(2), or the rate at
which Convertible Securities referred to in subsections 4(b)(iii)(B)(1) or
4(b)(iii)(B)(2) are convertible into or exchangeable for Common Stock shall
change at any time (including, but not limited to, changes under or by reason of
provisions designed to protect against dilution), the Set Price in effect at the
time of such event shall forthwith be readjusted to the Set Price which would
have been in effect at such time had such Options or Convertible Securities
still outstanding provided for such changed purchase price, additional
consideration or conversion rate, as the case may be, at the time initially
granted, issued or sold.  On the termination of any Option for which
any adjustment was made pursuant to this subsection 4(b)(iii) or any right to
convert or exchange Convertible Securities for which any adjustment was made
pursuant to this subsection 4(b)(iii) (including without limitation upon the
redemption or purchase for consideration of such Convertible Securities by the
Company), the Set Price then in effect hereunder shall forthwith be changed to
the Set Price which would have been in effect at the time of such termination
had such Option or Convertible Securities, to the extent outstanding immediately
prior to such termination, never been issued.

    

    (4)           Stock
Dividends.  In case the Company shall declare a dividend or make any
other distribution upon any stock of the Company (other than the Common Stock)
payable in Common Stock, Options or Convertible Securities, then any Common
Stock, Options or Convertible Securities, as the case may be, issuable in
payment of such dividend or distribution shall be deemed to have been issued or
sold without consideration.

    

    (5)           Consideration
for Stock.  In case any shares of Common Stock, Options or Convertible
Securities shall be issued or sold for cash, the consideration received
therefore shall be deemed to be the net amount received by the Company
therefore, after deduction therefrom of any expenses incurred or any
underwriting commissions or concessions paid or allowed by the Company in
connection therewith.  In case any shares of Common Stock, Options or
Convertible Securities shall be issued or sold for a consideration other than
cash, the amount of the consideration other than cash received by the Company
shall be deemed to be the fair value of such consideration as determined in good
faith by the Board of Directors of the Company, after deduction of any expenses
incurred or any underwriting commissions or concessions paid or allowed by the
Company in connection therewith.  In case any Options shall be issued
in connection with the issue and sale of other securities of the Company,
together comprising one integral transaction in which no specific consideration
is allocated to such Options by the parties thereto, such Options shall be
deemed to have been issued for such consideration as determined in good faith by
the Board of Directors of the Company.  If Common Stock, Options or
Convertible Securities shall be issued or sold by the Company and, in connection
therewith, other Options or Convertible Securities (the “Additional Rights”) are
issued, then the consideration received or deemed to be received by the Company
shall be reduced by the fair market value of the Additional Rights (as
determined using the Black-Scholes Pricing Model).

    

    (6)           Record
Date.  In case the Company shall take a record of the holders of its
Common Stock for the purpose of entitling them to receive a dividend or other
distribution payable in Common Stock, Options or Convertible Securities or to
subscribe for or purchase Common Stock, Options or Convertible Securities, then
such record date shall be seemed to be the date of the issue or sale of the
shares of Common Stock deemed to have been issued or sold upon the declaration
of such dividend or the making of such other distribution or the date of the
granting of such right of subscription or purchase, as the case may
be.

    

    
      
         

      

      
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    (C)           Notwithstanding
the foregoing, no adjustment will be made under this Section 4(b)(iii) in
respect of: (i) the issuance of securities upon the exercise or conversion of
any Common Stock Equivalents issued by the Company prior to the date hereof (but
this Section 4(b)(iii) will apply to any amendments, modifications, and
reissuances thereof and as a result of any changes, resets or adjustments to a
conversion, exercise or exchange price thereunder whether or not as a result of
any amendment, modification or reissuance), (ii) Common Stock issued pursuant to
a Company’s stock incentive plan existing as of the date hereof, or (iii) Common
Stock issued in connection with the acquisition of businesses or assets, other
than transactions the purpose of which relate to capital raises.

    

    (iv)           
If the Company, at any time while Debentures are outstanding, shall distribute
to all holders of Common Stock (and not to Holder) evidences of its indebtedness
or assets, then in each such case the Set Price shall be determined by
multiplying such 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 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.  Such adjustment shall be made whenever
any such distribution is made and shall become effective immediately after the
record date mentioned above.

    

    (v)           All
calculations under this Section 4 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 4, the number of shares of Common Stock outstanding as of a given date
shall be the sum of the number of shares of Common Stock (excluding treasury
shares, if any) outstanding.

    

    (vi)           Whenever
the Set Price is adjusted pursuant to any of Section 4(b)(ii) - (iv), the
Company shall promptly mail to each Holder a notice setting forth the Set Price
after such adjustment and setting forth a brief statement of the facts requiring
such adjustment.

    

    (vii)           If
(A) the Company shall declare a dividend (or any other distribution) 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
filed at each office or agency maintained for the purpose of conversion of the
Debentures, and shall cause to be mailed to the Holder at its last address as it
shall appear upon the stock books 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 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.

     

     

     

    
      
         

      

      
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    (viii)                      If,
at any time while this Debenture 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 (in any such case, a “Fundamental
Transaction”), then upon any subsequent conversion of this Debenture, the
Holder shall have the right to receive, for each underlying share that would
have been issuable upon such conversion absent such Fundamental Transaction, the
same kind and amount of securities, cash or property as it would have been
entitled to receive upon the occurrence of such Fundamental Transaction if it
had been, immediately prior to such Fundamental Transaction, the holder of one
share of Common Stock (the “Alternate
Consideration”).  For purposes of any such conversion, the
determination of the Set 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 Set 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 conversion of this Debenture 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 debenture consistent
with the foregoing provisions and evidencing the Holder's right to convert such
debenture into Alternate Consideration. The terms of any agreement pursuant to
which a Fundamental Transaction is effected shall include terms requiring any
such successor or surviving entity to comply with the provisions of section
4(b)(iii) and insuring that this Debenture (or any such replacement security)
will be similarly adjusted upon any subsequent transaction analogous to a
Fundamental Transaction.

    

    (ix)           Notwithstanding
the foregoing, no adjustment will be made under this Section 4(b)(iii) in
respect of (A) the issuance of securities upon the exercise or conversion of any
Common Stock Equivalents issued by the Company prior to the date hereof (but
this Section 4(b)(iii) will apply to any amendments, modifications, and
reissuances thereof and as a result of any changes, resets or adjustments to a
conversion, exercise or exchange price thereunder whether or not as a result of
any amendment, modification or reissuance), or (B) Common Stock issued pursuant
to a Company’s stock incentive plan existing as of the date hereof.

     

     

     

    
      
         

      

      
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    (c)           The
Company covenants that it will at all times reserve and keep available out of
its authorized and unissued shares of Common Stock solely for the purpose of
issuance upon conversion of the Debenture, free from preemptive rights or any
other actual contingent purchase rights of persons other than the Holder, not
less than such number of shares of the Common Stock as shall be issuable (taking
into account the adjustments and restrictions of Section 4) upon the conversion
of the outstanding principal amount of the Debenture.  The Company
covenants that all shares of Common Stock that shall be so issuable shall, upon
issue, be duly and validly authorized, issued and fully paid and
nonassessable.

    

    (d)           Upon
a conversion hereunder the Company shall not be required to issue stock
certificates representing fractions of shares of the Common Stock, but may if
otherwise permitted, make a cash payment in respect of any final fraction of a
share.  If the Company elects not, or is unable, to make such a cash
payment, the Holder shall be entitled to receive, in lieu of the final fraction
of a share, one whole share of Common Stock.

    

    (e)           The
issuance of certificates for shares of the Common Stock on conversion of the
Debentures shall be made without charge to the Holder thereof for any
documentary stamp or similar taxes that may be payable in respect of the issue
or delivery of such certificate.

    

    (f)           Any
and all notices or other communications or deliveries to be provided by the
Holder hereunder, including, without limitation, any notice of conversion, shall
be in writing and delivered personally, by facsimile, sent by a nationally
recognized overnight courier service, addressed to the Company, at the address
set forth above, facsimile number 281-872-8585, Attn: Pierre Mulacek or such
other address or facsimile number as the Company may specify for such purposes
by notice to the Holder delivered in accordance with this
Section.  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, sent by a nationally recognized overnight courier
service addressed to each Holder at the facsimile telephone number or address of
Holder appearing on the books of the Company, or if no such facsimile telephone
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 telephone number specified in this Section prior to 5:30 p.m. (New
York City time), (ii) the date after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile telephone number
specified in this Section later than 5:30 p.m. (New York City time) on any date
and earlier than 11:59 p.m. (New York City time) on such 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.

     

     

     

    
      
         

      

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

    

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

    

    “Change of Control” as
used herein shall mean the occurrence of the following events:

    

    
      	
               
      

            	
              (i)

            	
              A
      sale, transfer, or other disposition by the Company through a single
      transaction or a series of transactions occurring within a 90-day period
      of securities of the Company representing Beneficial Ownership (as defined
      below) of fifty (50%) percent or more of the combined voting power of the
      Company’s then outstanding securities to any “Unrelated Person” or
      “Unrelated Persons” acting in concert with one another.  For
      purposes of this definition, the term “Person” shall mean and include any
      individual, partnership, joint venture, association, trust corporation, or
      other entity including a “group” as referred to in Section 13(d)(3) of the
      Securities Exchange Act of 1934, as amended (“1934 Act”).  For
      purposes of this definition, the term “Unrelated Person” shall mean and
      include any Person other than the Company, a wholly-owned subsidiary of
      the Company, an existing shareholder, or an employee benefit plan of the
      Company; provided however, a sale of the Company’s securities in a capital
      raising transaction shall not be a Change of
  Control.

            

    

    

    
      	
               
      

            	
              (ii)

            	
              A
      sale, transfer, or other disposition through a single transaction or a
      series of transactions occurring within a 90-day period of all or
      substantially all of the assets of the Company to an Unrelated Person or
      Unrelated Persons acting in concert with one
  another.

            

    

    

    
      	
               
      

            	
              (iii)

            	
              A
      change in the ownership of the Company through a single transaction or a
      series of transactions occurring within a 90-day period such that any
      Unrelated Person or Unrelated Persons acting in concert with one another
      become the “Beneficial Owner,” directly or indirectly, of securities of
      the Company representing at least fifty-one (51%) percent of the combined
      voting power of the Company then outstanding securities.  For
      purposes of this Agreement, the term “Beneficial Owner” shall have the
      same meaning as given to that term in Rule 13d-3 promulgated under the
      1934 Act, provided that any pledgee of voting securities is not deemed to
      be the Beneficial Owner of the securities prior to its acquisition of
      voting rights with respect to the
securities.

            

    

    

    
      	
               
      

            	
              (iv)

            	
              Any
      consolidation or merger of the Company with or into an Unrelated Person,
      unless immediately after the consolidation or merger the holders of the
      Common Stock of the Company immediately prior to the consolidation or
      merger are the beneficial owners of securities of the surviving
      corporation representing at least fifty-one (51%) percent of the combined
      voting power of the surviving corporation’s then outstanding
      securities.

            

    

    

    “Person” means a
corporation, an association, a partnership, organization, a business, an
individual, a government or political subdivision thereof or a governmental
agency.

    

    “Purchase Agreement”
means the Purchase Agreement, dated as of the date hereof, to which the Company
and the original Holder are parties, as amended, modified or supplemented from
time to time in accordance with its terms.

    

    “Subsequent Financing”
shall be the closing of the sale of Company capital stock or debt securities in
one or a series of placements aggregating $1,000,000 within the 12 month period
from the Original Funding Date.

     

     

    
      
         

      

      
        10

        
          

        

      

      
         

      

    

    
 

    “Trading Day” means
(a) a day on which the shares of Common Stock are traded on a Trading
Market on which the shares of Common Stock are then listed or quoted, or
(b) if the shares of Common Stock are not quoted on a Trading Market, a day
on which the shares of Common Stock are quoted in the over-the-counter market as
reported by the National Quotation Bureau Incorporated (or any similar
organization or agency succeeding its functions of reporting prices); provided, that in the
event that the shares of Common Stock are not listed or quoted as set forth in
(a), (b) and (c) hereof, then Trading Day shall mean a Business
Day.

    

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

    

    Section
6.  In the event of a Change of Control taking place otherwise
than in connection with the Subsequent Financing, Holder, at its option, will
have the right (a) immediately prior to the Change in Control, to convert the
Debenture into securities of the Company of the same class as those held by the
persons acquiring control of the Company, or (b) to require the Company, upon
the Change in Control, to purchase the Debenture at a purchase price of 110% of
the price, plus accrued interest.

    

    Section
7.                            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 interest 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.  As long as this Debenture
is outstanding, the Company shall not and shall cause it subsidiaries not to,
without the consent of the Holder, amend its certificate of incorporation,
bylaws or other charter documents so as to adversely affect any rights of the
Holder; or  enter into any agreement with respect to any of the
foregoing. 

    

    Section
8.                            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,
and indemnity, if requested, all reasonably satisfactory to the
Company.

    

    Section
9.  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
Texas, without regard to the principles of conflicts of law
thereof.  Each party agrees that all legal proceedings concerning the
interpretations, 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 commenced in the state and federal courts sitting in the City of
Houston, Harris County (the “Texas
Courts”).  Each party hereto hereby irrevocably submits to the
exclusive jurisdiction of the Texas Courts for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein (including with respect to the enforcement of any of the
Transaction Documents), and hereby irrevocably waives, and agrees not to assert
in any suit, action or proceeding, any claim that it is not personally subject
to the jurisdiction of any such court, or such Texas Courts are improper or
inconvenient venue for such proceeding.  Each party hereby irrevocably
waives personal service of process and consents to process being served in any
such suit, action or proceeding by mailing a copy thereof via registered or
certified mail or overnight delivery (with evidence of delivery) to such party
at the address in effect for notices to it under this Debenture and agrees that
such service shall constitute good and sufficient service of process and notice
thereof.  Nothing contained herein shall be deemed to limit in any way
any right to serve process in any manner permitted by law. Each party hereto
hereby irrevocably waives, to the fullest extent permitted by applicable law,
any and all right to trial by jury in any legal proceeding arising out of or
relating to this Debenture or the transactions contemplated hereby. If either
party shall commence an action or proceeding to enforce any provisions of this
Debenture, then the prevailing party in such action or proceeding shall be
reimbursed by the other party for its attorneys fees and other costs and
expenses incurred with the investigation, preparation and prosecution of such
action or proceeding.

     

     

     

    
      
         

      

      
        11

        
          

        

      

      
         

      

    

    
 

    Section
10.  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 must be in writing.

    

    Section
11.  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 applicable laws governing usury, the applicable rate of interest due
hereunder shall automatically be lowered to equal the maximum permitted rate of
interest. 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.

    

    Section
12.  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.

    

    

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

    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.

     

     

    
      
        	 	ARKANOVA
      ENERGY CORP.	 
	 	 	 	 
	
                 

              	
                By:
      

              	/s/ PIERRE
      MULACEK	 
	 	 	Name:
      Pierre Mulacek	 
	 	 	Title:  CEO	 
	 	 	 	 

      

    

     

     

    12ex42.htm

    Exhibit
4.2

     

    Exhibit
B

    

    THE SECURITIES REPRESENTED HEREBY MAY
NOT BE TRANSFERRED UNLESS (I) SUCH SECURITIES HAVE BEEN REGISTERED FOR SALE
PURSUANT TO THE SECURITIES ACT OF 1933, AS AMENDED, (II) SUCH SECURITIES MAY BE
SOLD PURSUANT TO RULE 144 WITHOUT RESTRICTION, OR (III) THE COMPANY HAS RECEIVED
AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO IT THAT SUCH TRANSFER MAY
LAWFULLY BE MADE WITHOUT REGISTRATION UNDER THE SECURITIES ACT OF 1933 OR
QUALIFICATION UNDER APPLICABLE STATE SECURITIES LAWS. NOTWITHSTANDING THE
FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN
ACCOUNT SECURED BY THE SECURITIES

    

    ARKANOVA
ENERGY CORP.

    

    WARRANT
TO PURCHASE 250,000 SHARES OF

    COMMON
STOCK, PAR VALUE $0.001 PER SHARE

    

    For VALUE RECEIVED, The John Thomas
Bridge & Opportunity Fund (“Warrantholder”), is entitled to purchase,
subject to the provisions of this Warrant, from Arkanova Energy Corp., a Nevada
corporation (“Company”), at any time from and after the date hereof (the
“Initial Exercise Date”) and not later than 5:00 P.M., Eastern time, on March
31, 2013 (the “Expiration Date”), at an exercise price per share equal to $0.65
(the exercise price in effect being herein called the “Warrant Price”), 250,000
shares (“Warrant Shares”) of the Company’s Common Stock, par value $0.001 per
share (“Common Stock”).  The number of Warrant Shares purchasable upon
exercise of this Warrant and the Warrant Price shall be subject to adjustment
from time to time as described herein.

    

    This Warrant is issued by the Company
pursuant to that certain Purchase Agreement dated March 19, 2008, among the
Company and the Warrantholder (the “Purchase Agreement”).

    

    Section
1.                                Registration.  The
Company shall maintain books for the transfer and registration of the
Warrant.  Upon the initial issuance of this Warrant, the Company shall
issue and register the Warrant in the name of the Warrantholder.

    

    Section
2.                                Transfers.  As
provided herein, this Warrant may be transferred only pursuant to a registration
statement filed under the Securities Act of 1933, as amended (the “Securities
Act”), or an exemption from such registration.  Subject to such
restrictions, the Company shall transfer this Warrant from time to time upon the
books to be maintained by the Company for that purpose, upon surrender hereof
for transfer, properly endorsed or accompanied by appropriate instructions for
transfer and such other documents as may be reasonably required by the Company,
including, if required by the Company, an opinion of its counsel to the effect
that such transfer is exempt from the registration requirements of the
Securities Act, to establish that such transfer is being made in accordance with
the terms hereof, and a new Warrant shall be issued to the transferee and the
surrendered Warrant shall be canceled by the Company.

     

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

    
 

    Section
3.                                Exercise of
Warrant.  Subject to the provisions hereof, the Warrantholder
may exercise this Warrant, in whole or in part, at any time after the Initial
Exercise Date and prior to the Expiration Date upon surrender of the Warrant,
together with delivery of a duly executed Warrant exercise form, in the form
attached hereto as Appendix A (the “Exercise Agreement”) and payment by cash,
certified check, wire transfer of funds, or by
cashless exercise (as provided below) of the aggregate Warrant Price for
that number of Warrant Shares then being purchased, to the Company during normal
business hours on any business day at the Company’s principal executive offices
(or such other office or agency of the Company as it may designate by notice to
the Warrantholder).  Upon a determination by Warrantholder to avail
itself of the cashless exercise provision, the Company shall issue to the
Warrantholder such number of fully paid, validly issued and nonassessable shares
of Common Stock as is computed using the following formula:

    

    X = Y (A -
B)

           A

    

    where

    

    X
=           the number of
shares of Common Stock to which the Warrantholder is entitled upon such cashless
exercise;

    

    Y
=           the total
number of shares of Common Stock covered by this Warrant for which the
Warrantholder has surrendered purchase rights at such time for cashless exercise
(including both shares to be issued to the Warrantholder and shares as to which
the purchase rights are to be canceled as payment therefor);

    

    A
=           the “Market
Price” of one share of Common Stock as of the date the net issue election is
made; and

    

    B
=           the Warrant
Price in effect under this Warrant at the time the net issue election is
made.

    

    The
Warrant Shares so purchased shall be deemed to be issued to the Warrantholder or
the Warrantholder’s designee, as the record owner of such shares, as of the
close of business on the date on which this Warrant shall have been surrendered
(or the date evidence of loss, theft or destruction thereof and security or
indemnity satisfactory to the Company has been provided to the Company), the
Warrant Price shall have been paid and the completed Exercise Agreement shall
have been delivered.  Certificates for the Warrant Shares so purchased
shall be delivered to the Warrantholder within a reasonable time, not exceeding
three (3) business days, after this Warrant shall have been so
exercised.  The certificates so delivered shall be in such
denominations as may be requested by the Warrantholder and shall be registered
in the name of the Warrantholder or such other name as shall be designated by
the Warrantholder, as specified in the Exercise Agreement.  If this
Warrant shall have been exercised only in part, then, unless this Warrant has
expired, the Company shall, at its expense, at the time of delivery of such
certificates, deliver to the Warrantholder a new Warrant representing the right
to purchase the number of shares with respect to which this Warrant shall not
then have been exercised.  As used herein, “business day” means a day,
other than a Saturday or Sunday, on which banks in New York City are open for
the general transaction of business.  Each exercise hereof shall
constitute the re-affirmation by the Warrantholder that the representations and
warranties contained in Section 5 of the Purchase Agreement are true and correct
in all material respects with respect to the Warrantholder as of the time of
such exercise.  Notwithstanding the foregoing, to effect the exercise
of the Warrant hereunder, the Warrantholder shall not be required to physically
surrender this Warrant to the Company unless the entire Warrant is
exercised.  The Warrantholder and the Company shall maintain records
showing the amount exercised and the dates of such exercise.  The
Warrantholder and any assignee, by acceptance of this Warrant, acknowledge and
agree that, by reason of the provision of the paragraph, following exercise of a
portion of the Warrant, the number of Warrant Shares of this Warrant may be less
than the amount stated on the face hereof.

     

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    
 

    Section
4.                                Compliance with the
Securities Act of 1933. Except as provided in the Purchase Agreement, the
Company may cause the legend set forth on the first page of this Warrant to be
set forth on each Warrant, and a similar legend on any security issued or
issuable upon exercise of this Warrant, unless counsel for the Company is of the
opinion as to any such security that such legend is unnecessary.

    

    Section
5.                                Payment of
Taxes.  The Company will pay any documentary stamp taxes
attributable to the initial issuance of Warrant Shares issuable upon the
exercise of the Warrant; provided, however, that the Company shall not be
required to pay any tax or taxes which may be payable in respect of any transfer
involved in the issuance or delivery of any certificates for Warrant Shares in a
name other than that of the Warrantholder in respect of which such shares are
issued, and in such case, the Company shall not be required to issue or deliver
any certificate for Warrant Shares or any Warrant until the person requesting
the same has paid to the Company the amount of such tax or has established to
the Company’s reasonable satisfaction that such tax has been
paid.  The Warrantholder shall be responsible for income taxes due
under federal, state or other law, if any such tax is due.

    

    Section
6.                                Mutilated or Missing
Warrants.  In case this Warrant shall be mutilated, lost,
stolen, or destroyed, the Company shall issue in exchange and substitution of
and upon surrender and cancellation of the mutilated Warrant, or in lieu of and
substitution for the Warrant lost, stolen or destroyed, a new Warrant of like
tenor and for the purchase of a like number of Warrant Shares, but only upon
receipt of evidence reasonably satisfactory to the Company of such loss, theft
or destruction of the Warrant, and with respect to a lost, stolen or destroyed
Warrant, reasonable indemnity or bond with respect thereto, if requested by the
Company.

    

    Section
7.                                Reservation of Common
Stock.  At any time when this Warrant is exercisable, the
Company shall at all applicable times keep reserved until issued (if necessary)
as contemplated by this Section 7, out of the authorized and unissued shares of
Common Stock, sufficient shares to provide for the exercise of the rights of
purchase represented by this Warrant.  The Company agrees that all
Warrant Shares issued upon due exercise of the Warrant shall be, at the time of
delivery of the certificates for such Warrant Shares, duly authorized, validly
issued, fully paid and non-assessable shares of Common Stock of the
Company.

     

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

    
 

    Section
8.                      Adjustments.  Subject
and pursuant to the provisions of this Section 8, the Warrant Price and number
of Warrant Shares subject to this Warrant shall be subject to adjustment from
time to time as set forth hereinafter.

    

    (a)           If
the Company shall, at any time or from time to time while this Warrant is
outstanding, pay a dividend or make a distribution on its Common Stock in shares
of Common Stock, subdivide its outstanding shares of Common Stock into a greater
number of shares or combine its outstanding shares of Common Stock into a
smaller number of shares or issue by reclassification of its outstanding shares
of Common Stock any shares of its capital stock (including any such
reclassification in connection with a consolidation or merger in which the
Company is the continuing corporation), then (i) the Warrant Price in effect
immediately prior to the date on which such change shall become effective shall
be adjusted by multiplying such Warrant Price by a fraction, the numerator of
which shall be the number of shares of Common Stock outstanding immediately
prior to such change and the denominator of which shall be the number of shares
of Common Stock outstanding immediately after giving effect to such change and
(ii) the number of Warrant Shares purchasable upon exercise of this Warrant
shall be adjusted by multiplying the number of Warrant Shares purchasable upon
exercise of this Warrant immediately prior to the date on which such change
shall become effective by a fraction, the numerator of which is shall be the
Warrant Price in effect immediately prior to the date on which such change shall
become effective and the denominator of which shall be the Warrant Price in
effect immediately after giving effect to such change, calculated in accordance
with clause (i) above.  Such adjustments shall be made successively
whenever any event listed above shall occur.  Additional adjustments
in the Exercise Price shall be made pursuant to section 8(d) in the event of the
payment of a dividend or distribution on its Common Stock in shares of Common
Stock.

    

    (b)           If
any capital reorganization, reclassification of the capital stock of the
Company, consolidation or merger of the Company with another corporation in
which the Company is not the survivor, or sale, transfer or other disposition of
all or substantially all of the Company’s assets to another corporation shall be
effected, then, as a condition of such reorganization, reclassification,
consolidation, merger, sale, transfer or other disposition, lawful and adequate
provision shall be made whereby each Warrantholder shall thereafter have the
right to purchase and receive upon the basis and upon the terms and conditions
herein specified and in lieu of the Warrant Shares immediately theretofore
issuable upon exercise of the Warrant, such shares of stock, securities or
assets as would have been issuable or payable with respect to or in exchange for
a number of Warrant Shares equal to the number of Warrant Shares immediately
theretofore issuable upon exercise of the Warrant, had such reorganization,
reclassification, consolidation, merger, sale, transfer or other disposition not
taken place, and in any such case appropriate provision shall be made with
respect to the rights and interests of each Warrantholder to the end that the
provisions hereof (including, without limitation, provision for adjustment of
the Warrant Price) shall thereafter be applicable, as nearly equivalent as may
be practicable in relation to any shares of stock, securities or assets
thereafter deliverable upon the exercise hereof.  The Company shall
not effect any such consolidation, merger, sale, transfer or other disposition
unless prior to or simultaneously with the consummation thereof the successor
corporation (if other than the Company) resulting from such consolidation or
merger, or the corporation purchasing or otherwise acquiring such assets or
other appropriate corporation or entity shall assume the obligation to deliver
to the Warrantholder, at the last address of the Warrantholder appearing on the
books of the Company, such shares of stock, securities or assets as, in
accordance with the foregoing provisions, the Warrantholder may be entitled to
purchase, and the other obligations under this Warrant.  The
provisions of this paragraph (b) shall similarly apply to successive
reorganizations, reclassifications, consolidations, mergers, sales, transfers or
other dispositions.

     

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

    
 

    (c)           In
case the Company shall fix a payment date for the making of a distribution to
all holders of Common Stock (including any such distribution made in connection
with a consolidation or merger in which the Company is the continuing
corporation) of evidences of indebtedness or assets (other than cash dividends
or cash distributions payable out of consolidated earnings or earned surplus or
dividends or distributions referred to in Section 8(a)), or subscription rights
or warrants, the Warrant Price to be in effect after such payment date shall be
determined by multiplying the Warrant Price in effect immediately prior to such
payment date by a fraction, the numerator of which shall be the total number of
shares of Common Stock outstanding multiplied by the Market Price (as defined
below) per share of Common Stock immediately prior to such payment date, less
the fair market value (as determined by the Company’s Board of Directors in good
faith) of said assets or evidences of indebtedness so distributed, or of such
subscription rights or warrants, and the denominator of which shall be the total
number of shares of Common Stock outstanding multiplied by such Market Price per
share of Common Stock immediately prior to such payment date.  “Market
Price” as of a particular date (the “Valuation Date”) shall mean the following:
(a) if the Common Stock is then listed on a national stock exchange, the closing
sale price of one share of Common Stock on such exchange on the last trading day
prior to the Valuation Date; (b) if the Common Stock is then quoted on The
Nasdaq Stock Market, Inc. (“Nasdaq”), the National Association of Securities
Dealers, Inc. OTC Bulletin Board (the “Bulletin Board”) or such similar
quotation system or association, the closing sale price of one share of Common
Stock on Nasdaq, the Bulletin Board or such other quotation system or
association on the last trading day prior to the Valuation Date or, if no such
closing sale price is available, the average of the high bid and the low asked
price quoted thereon on the last trading day prior to the Valuation Date; or (c)
if the Common Stock is not then listed on a national stock exchange or quoted on
Nasdaq, the Bulletin Board or such other quotation system or association, the
fair market value of one share of Common Stock as of the Valuation Date, as
determined in good faith by the Board of Directors of the Company and the
Warrantholder.  If the Common Stock is not then listed on a national
securities exchange, Nasdaq, the Bulletin Board or such other quotation system
or association, the Board of Directors of the Company shall respond promptly, in
writing, to an inquiry by the Warrantholder prior to the exercise hereunder as
to the fair market value of a share of Common Stock as determined by the Board
of Directors of the Company.  In the event that the Board of Directors
of the Company and the Warrantholder are unable to agree upon the fair market
value in respect of subpart (c) of this paragraph, the Company and the
Warrantholder shall jointly select an appraiser, who is experienced in such
matters.  The decision of such appraiser shall be final and
conclusive, and the cost of such appraiser shall be borne equally by the Company
and the Warrantholder.  Such adjustment shall be made successively
whenever such a payment date is fixed.

     

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

    
 

    (d)           (i)           In
case the Company, at any time this Warrant is outstanding, shall issue shares of
Common Stock or Common Stock Equivalents (as defined below) entitling any person
to acquire shares of Common Stock, at a price per share (determined, reduced and
adjusted in accordance with this subsection 8(d)) less than the then current
Exercise Price (if the holder of the Common Stock or Common Stock Equivalent 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 issued in connection with such issuance,
be entitled to receive shares of Common Stock at a price less than the Exercise
Price, such issuance shall be deemed to have occurred for less than the Exercise
Price), then, the Exercise Price shall be reduced to equal such lower
price.  “Common Stock Equivalents” shall mean any securities of the
Company or the Subsidiaries which would entitle the holder thereof to acquire at
any time Common Stock, including without limitation, any debt, preferred stock,
rights, options, warrants or other instrument that is at any time convertible
into or exchangeable for, or otherwise entitles the holder thereof to receive,
Common Stock.  Such adjustment shall be made whenever such Common
Stock or Common Stock Equivalents are issued.  The Company shall
notify the Holder in writing, no later than the trading day following the
issuance of any Common Stock or Common Stock Equivalent subject to this section,
indicating therein the applicable issuance price, or of applicable reset price,
exchange price, conversion price and other pricing terms.  In the
event any Common Stock Equivalents are issued which have a Common Stock purchase
price below the Exercise Price and such Common Stock Equivalents shall be
cancelled, expire or otherwise be of no further force or effect, than any prior
adjustment to the Exercise Price shall be rescinded.

    

    (ii)           For
purposes of this subsection (d), the following subsections shall also be
applicable:

    

    (A)           Issuance
of Rights or Options.  In case at any time the Company shall in any
manner grant (directly and not by assumption in a merger or otherwise) any
warrants or other rights to subscribe for or to purchase, or any options for the
purchase of, Common Stock or any stock or security convertible into or
exchangeable for Common Stock (such warrants, rights or options being called
“Options” and such convertible or exchangeable stock or securities being called
“Convertible Securities”) whether or not such Options or the right to convert or
exchange any such Convertible Securities are immediately exercisable, and the
price per share for which Common Stock is issuable upon the exercise of such
Options or upon the conversion or exchange of such Convertible Securities
(determined by dividing (i) the sum (which sum shall constitute the applicable
consideration) of (x) the total amount, if any, received or receivable by the
Company as consideration for the granting of such Options, plus (y) the
aggregate amount of additional consideration payable to the Company upon the
exercise of all such Options, plus (z), in the case of such Options which relate
to Convertible Securities, the aggregate amount of additional consideration, if
any, payable upon the issue or sale of such Convertible Securities and upon the
conversion or exchange thereof, by (ii) the total maximum number of shares of
Common Stock issuable upon the exercise of such Options or upon the conversion
or exchange of all such Convertible Securities issuable upon the exercise of
such Options) shall be less than the Exercise Price in effect immediately prior
to the time of the granting of such Options, then the total number of shares of
Common Stock issuable upon the exercise of such Options or upon conversion or
exchange of the total amount of such Convertible Securities issuable upon the
exercise of such Options shall be deemed to have been issued for such price per
share as of the date of granting of such Options or the issuance of such
Convertible Securities and thereafter shall be deemed to be outstanding for
purposes of adjusting the Exercise Price.  Except as otherwise
provided in subsection (C) below, no adjustment of the Exercise Price shall be
made upon the actual issue of such Common Stock or of such Convertible
Securities upon exercise of such Options or upon the actual issue of such Common
Stock upon conversion or exchange of such Convertible Securities.

     

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

    
 

    (B)           Issuance
of Convertible Securities.  In case the Company shall in any manner
issue (directly and not by assumption in a merger or otherwise) or sell any
Convertible Securities, whether or not the rights to exchange or convert any
such Convertible Securities are immediately exercisable, and the price per share
for which Common Stock is issuable upon such conversion or exchange (determined
by dividing (i) the sum (which sum shall constitute the applicable
consideration) of (x) the total amount received or receivable by the Company as
consideration for the issue or sale of such Convertible Securities, plus (y) the
aggregate amount of additional consideration, if any, payable to the Company
upon the conversion or exchange thereof, by (ii) the total number of shares of
Common Stock issuable upon the conversion or exchange of all such Convertible
Securities) shall be less than the Exercise Price in effect immediately prior to
the time of such issue or sale, then the total maximum number of shares of
Common Stock issuable upon conversion or exchange of all such Convertible
Securities shall be deemed to have been issued for such price per share as of
the date of the issue or sale of such Convertible Securities and thereafter
shall be deemed to be outstanding for purposes of adjusting the Exercise Price,
provided that (a) except as otherwise provided in subsection (C) below, no
adjustment of the Exercise Price shall be made upon the actual issuance of such
Common Stock upon conversion or exchange of such Convertible Securities and (b)
no further adjustment of the Exercise Price shall be made by reason of the issue
or sale of Convertible Securities upon exercise of any Options to purchase any
such Convertible Securities for which adjustments of the Exercise Price have
been made pursuant to the other provisions of subsection (A)
above.  If the Company issues a variable rate security, the Company
shall be deemed to have issued Common Stock at the price at which shares are
actually issued upon conversion or exercise of such instrument.

    

    (C)           Change
in Option Price or Conversion Rate.  Upon the happening of any of the
following events, namely, if the purchase price provided for in any Option
referred to in subsection 8(d)(ii) hereof, the additional consideration, if any,
payable upon the conversion or exchange of any Convertible Securities referred
to in subsections 8(d)(ii)(A) or 8(d)(ii)(B), or the rate at which Convertible
Securities referred to in subsections 8(d)(ii)(A) or 8(d)(ii)(B) are convertible
into or exchangeable for Common Stock shall change at any time (including, but
not limited to, changes under or by reason of provisions designed to protect
against dilution), the Exercise Price in effect at the time of such event shall
forthwith be readjusted to the Exercise Price which would have been in effect at
such time had such Options or Convertible Securities still outstanding provided
for such changed purchase price, additional consideration or conversion rate, as
the case may be, at the time initially granted, issued or sold.  On
the termination of any Option for which any adjustment was made pursuant to this
subsection 8(d) or any right to convert or exchange Convertible Securities for
which any adjustment was made pursuant to this subsection 8(d) (including
without limitation upon the redemption or purchase for consideration of such
Convertible Securities by the Company), the Exercise Price then in effect
hereunder shall forthwith be changed to the Exercise Price which would have been
in effect at the time of such termination had such Option or Convertible
Securities, to the extent outstanding immediately prior to such termination,
never been issued.

    

    (D)           Stock
Dividends.  In case the Company shall declare a dividend or make any
other distribution upon any stock of the Company (other than the Common Stock)
payable in Common Stock, Options or Convertible Securities, then any Common
Stock, Options or Convertible Securities, as the case may be, issuable in
payment of such dividend or distribution shall be deemed to have been issued or
sold without consideration.

     

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

    
 

    (E)           Consideration
for Stock.  In case any shares of Common Stock, Options or Convertible
Securities shall be issued or sold for cash, the consideration received
therefore shall be deemed to be the net amount received by the Company
therefore, after deduction therefrom of any expenses incurred or any
underwriting commissions or concessions paid or allowed by the Company in
connection therewith.  In case any shares of Common Stock, Options or
Convertible Securities shall be issued or sold for a consideration other than
cash, the amount of the consideration other than cash received by the Company
shall be deemed to be the fair value of such consideration as determined in good
faith by the Board of Directors of the Company, after deduction of any expenses
incurred or any underwriting commissions or concessions paid or allowed by the
Company in connection therewith.  In case any Options shall be issued
in connection with the issue and sale of other securities of the Company,
together comprising one integral transaction in which no specific consideration
is allocated to such Options by the parties thereto, such Options shall be
deemed to have been issued for such consideration as determined in good faith by
the Board of Directors of the Company.  If Common Stock, Options or
Convertible Securities shall be issued or sold by the Company and, in connection
therewith, other Options or Convertible Securities (the “Additional Rights”) are
issued, then the consideration received or deemed to be received by the Company
shall be reduced by the fair market value of the Additional Rights (as
determined using the Black-Scholes Pricing Model).

    

    (F)           Record
Date.  In case the Company shall take a record of the holders of its
Common Stock for the purpose of entitling them to receive a dividend or other
distribution payable in Common Stock, Options or Convertible Securities or to
subscribe for or purchase Common Stock, Options or Convertible Securities, then
such record date shall be seemed to be the date of the issue or sale of the
shares of Common Stock deemed to have been issued or sold upon the declaration
of such dividend or the making of such other distribution or the date of the
granting of such right of subscription or purchase, as the case may
be.

    

    (iii)           Notwithstanding
the foregoing, no adjustment will be made under this Section 8(d) in respect of:
(i) the issuance of securities upon the exercise or conversion of any Common
Stock Equivalents issued by the Company prior to the date hereof (but this
Section 8(d) will apply to any amendments, modifications, and reissuances
thereof and as a result of any changes, resets or adjustments to a conversion,
exercise or exchange price thereunder whether or not as a result of any
amendment, modification or reissuance), or (ii) Common Stock issued pursuant to
a Company’s stock incentive plan existing as of the date hereof, or (iii) Common
Stock issued in connection with the acquisition of businesses or assets, other
than transactions the purpose of which relate to capital raises.

    

    (e)           An
adjustment to the Warrant Price shall become effective immediately after the
payment date in the case of each dividend or distribution and immediately after
the effective date of each other event which requires an
adjustment.

    

    (f)           In
the event that, as a result of an adjustment made pursuant to this Section 8,
the Warrantholder shall become entitled to receive any shares of capital stock
of the Company other than shares of Common Stock, the number of such other
shares so receivable upon exercise of this Warrant shall be subject thereafter
to adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Warrant Shares contained in
this Warrant.

     

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

    
 

    (g)           To
the extent permitted by applicable law and the listing requirements of any stock
market or exchange on which the Common Stock is then listed, the Company from
time to time may decrease the Warrant Price by any amount for any period of time
if the period is at least twenty (20) days, the decrease is irrevocable during
the period and the Board shall have made a determination that such decrease
would be in the best interests of the Company, which determination shall be
conclusive.  Whenever the Warrant Price is decreased pursuant to the
preceding sentence, the Company shall provide written notice thereof to the
Warrantholder at least five (5) days prior to the date the decreased Warrant
Price takes effect, and such notice shall state the decreased Warrant Price and
the period during which it will be in effect.  Notwithstanding the
foregoing, the Company shall treat all holders of the Company Warrants
equally.

    

    Section
9.                      Fractional
Interest.  The Company shall not be required to issue fractions
of Warrant Shares upon the exercise of this Warrant.  If any
fractional share of Common Stock would, except for the provisions of the first
sentence of this Section 9, be deliverable upon such exercise, the Company, in
lieu of delivering such fractional share, shall pay to the exercising
Warrantholder an amount in cash equal to the Market Price of such fractional
share of Common Stock on the date of exercise.

    

    Section
10.                                Reserved.

    

    Section
11.                                Benefits.  Nothing
in this Warrant shall be construed to give any person, firm or corporation
(other than the Company and the Warrantholder) any legal or equitable right,
remedy or claim, it being agreed that this Warrant shall be for the sole and
exclusive benefit of the Company and the Warrantholder.

    

    Section
12.                                Notices to
Warrantholder.  Upon the happening of any event requiring an
adjustment of the Warrant Price, the Company shall promptly give written notice
thereof to the Warrantholder at the address appearing in the records of the
Company, stating the adjusted Warrant Price and the adjusted number of Warrant
Shares resulting from such event and setting forth in reasonable detail the
method of calculation and the facts upon which such calculation is
based.  Failure to give such notice to the Warrantholder or any defect
therein shall not affect the legality or validity of the subject
adjustment.

    

    Section
13.                                Identity of Transfer
Agent.  The Transfer Agent for the Common Stock is Pacific
Stock Transfer Company.  Upon the appointment of any subsequent
transfer agent for the Common Stock or other shares of the Company’s capital
stock issuable upon the exercise of the rights of purchase represented by the
Warrant, the Company will mail to the Warrantholder a statement setting forth
the name and address of such transfer agent.

     

     

    
      
        
        

      

      
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    Section
14.                                Notices.  Unless
otherwise provided, any notice required or permitted under this Warrant shall be
given in writing and shall be deemed effectively given and received as
hereinafter described (i) if given by personal delivery, then such notice shall
be deemed received upon such delivery, (ii) if given by telex or facsimile, then
such notice shall be deemed received upon receipt of confirmation of complete
transmittal, (iii) if given by certified mail return receipt requested, then
such notice shall be deemed received upon the day such return receipt is signed,
and (iv) if given by an internationally recognized overnight air courier, then
such notice shall be deemed given one business day after delivery to such
carrier.  Copies of such notices shall also be transmitted by email to
the email address provided for on the signature page of the Purchase
Agreement.  All notices shall be addressed as follows: if to the
Warrantholder, at its address as set forth on the signature page of the Purchase
Agreement (copied to the counsel for Investor) and, if to the Company, at the
address as follows, or at such other address as the Warrantholder or the Company
may designate by ten days’ advance written notice to the other:

    

    If to the Company:

    

    Arkanova
Energy Corp.

    21
Waterway Avenue, Suite 300

    The
Woodlands, Texas  77380

    Attention:  Pierre
Mulacek

    Facsimile:  (281)
362-2788

    

    With a copy to:

    

    Sichenzia
Ross Friedman Ference LLP

    61
Broadway

    New York,
NY 10006

    Attention:  Thomas
A. Rose, Esq.

    Facsimile:  212-930-9725

    

    Section
15.                                
Successors.  All the covenants and provisions hereof by or for
the benefit of the Warrantholder shall bind and inure to the benefit of its
respective successors and assigns hereunder.

    

    Section
16.                                Governing Law; Consent to
Jurisdiction; Waiver of Jury Trial.  This Warrant shall be
governed by, and construed in accordance with, the internal laws of the State of
Texas, without reference to the choice of law provisions thereof.  The
Company and, by accepting this Warrant, the Warrantholder, each irrevocably
submits to the exclusive jurisdiction of the courts of the State of Texas
located in Harris County and the United States District Court for the Southern
District of Texas for the purpose of any suit, action, proceeding or judgment
relating to or arising out of this Warrant and the transactions contemplated
hereby.  Service of process in connection with any such suit, action
or proceeding may be served on each party hereto anywhere in the world by the
same methods as are specified for the giving of notices under this
Warrant.  The Company and, by accepting this Warrant, the
Warrantholder, each irrevocably consents to the jurisdiction of any such court
in any such suit, action or proceeding and to the laying of venue in such
court.  The Company and, by accepting this Warrant, the Warrantholder,
each irrevocably waives any objection to the laying of venue of any such suit,
action or proceeding brought in such courts and irrevocably waives any claim
that any such suit, action or proceeding brought in any such court has been
brought in an inconvenient forum. EACH OF THE COMPANY AND, BY ITS
ACCEPTANCE HEREOF, THE WARRANTHOLDER HEREBY WAIVES ANY RIGHT TO REQUEST A TRIAL
BY JURY IN ANY LITIGATION WITH RESPECT TO THIS WARRANT AND REPRESENTS THAT
COUNSEL HAS BEEN CONSULTED SPECIFICALLY AS TO THIS WAIVER.

     

     

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

    
 

    Section
17.                                No Rights as
Stockholder.  Prior to the exercise of this Warrant, the
Warrantholder shall not have or exercise any rights as a stockholder of the
Company by virtue of its ownership of this Warrant.

    

    Section
18.                                Amendment;
Waiver.  Any term of this Warrant may be amended or waived
(including the adjustment provisions included in Section 8 of this Warrant) upon
the written consent of the Company and the Warrantholder.

    

    Section
19.                                Section
Headings.  The section headings in this Warrant are for the
convenience of the Company and the Warrantholder and in no way alter, modify,
amend, limit or restrict the provisions hereof.

    

    IN WITNESS WHEREOF, the Company has
caused this Warrant to be duly executed, as of the 19th day of
March, 2008.

     

    
      
        	 	ARKANOVA
      ENERGY CORP.	 
	 	 	 	 
	
                Date

              	
                By:
      

              	/s/ PIERRE
      MULACEK	 
	 	 	Name:
      Pierre Mulacek	 
	 	 	Title:
      CEO	 
	 	 	 	 

      

    

    

     

    

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

    

    APPENDIX
A

    ARKANOVA
ENERGY CORP.

    WARRANT
EXERCISE FORM

    

    To
Arkanova Energy Corp.:

    

    The undersigned hereby irrevocably
elects to exercise the right of purchase represented by the within Warrant
(“Warrant”) for, and to purchase thereunder by the payment of the Warrant Price
and surrender of the Warrant, _______________ shares of Common Stock (“Warrant
Shares”) provided for therein, and requests that certificates for the Warrant
Shares be issued as follows:

    

    _______________________________

    Name

    ________________________________

    Address

    ________________________________

    ________________________________

    Federal Tax ID or Social Security
No.

    

    and delivered
by                                           (certified
mail to the above address, or

    (electronically (provide DWAC
Instructions:___________________), or

    (other (specify):
__________________________________________).

    

    and, if
the number of Warrant Shares shall not be all the Warrant Shares purchasable
upon exercise of the Warrant, that a new Warrant for the balance of the Warrant
Shares purchasable upon exercise of this Warrant be registered in the name of
the undersigned Warrantholder or the undersigned’s Assignee as below indicated
and delivered to the address stated below.

     

    

     

    
      	Dated:
      ___________________, ____	 	Signature:______________________________	 
	 	 	 	 
	 	 	______________________________	 
	 	 	Name (please
      print)	 
	Note:  The
      signature must correspond with    

              the
      name of the Warrantholder as written

              on
      the first page of the Warrant in every

              particular,
      without alteration or
      enlargement           

              or
      any change whatever, unless the Warrant

              has
      been assigned.      

            	 	 	 
	 	 	______________________________	 
	 	 	 	 
	 	 	______________________________	 
	 	 	Address	 
	 	 	 	 
	 	 	______________________________	 
	 	 	Federal
      Identification or	 
	 	 	Social Security
      No.	 

    

     

    

    
      

      
        
          
          

        

        
          12

          
            

          

        

        
          
          

        

      

    

             

    

    

    APPENDIX
B

    ARKANOVA
ENERGY CORP.

    NET ISSUE
ELECTION NOTICE

    

    

    To:
Arkanova Energy Corp.

    

    Date:[_________________________]

    

    

    The
undersigned hereby elects under Section 3 of this
Warrant to surrender the right to purchase [____________] shares of Common Stock
pursuant to this Warrant and hereby requests the issuance of [_____________]
shares of Common Stock.  The certificate(s) for the shares issuable
upon such net issue election shall be issued in the name of the undersigned or
as otherwise indicated below.

    

    

    _________________________________________

    Signature

    

    _________________________________________

    Name for
Registration

    

    _________________________________________

    Mailing
Address

    
 

     

    13

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