0000909334-13-000012.txt : 20130212 0000909334-13-000012.hdr.sgml : 20130212 20130212111441 ACCESSION NUMBER: 0000909334-13-000012 CONFORMED SUBMISSION TYPE: SC 13D/A PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 20130212 DATE AS OF CHANGE: 20130212 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: Ross Paul Alexander CENTRAL INDEX KEY: 0001556500 FILING VALUES: FORM TYPE: SC 13D/A MAIL ADDRESS: STREET 1: 7711 EAST 111TH STREET, SUITE 121 CITY: TULSA STATE: OK ZIP: 74133 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: American Natural Energy Corp CENTRAL INDEX KEY: 0000870732 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 731605215 STATE OF INCORPORATION: OK FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A SEC ACT: 1934 Act SEC FILE NUMBER: 005-41331 FILM NUMBER: 13595306 BUSINESS ADDRESS: STREET 1: 6100 SOUTH YALE STREET 2: SUITE 300 CITY: TULSA STATE: OK ZIP: 74136 BUSINESS PHONE: 9184811440 MAIL ADDRESS: STREET 1: 6100 SOUTH YALE STREET 2: SUITE 300 CITY: TULSA STATE: OK ZIP: 74136 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAN NATURAL ENERGY CORP DATE OF NAME CHANGE: 19930328 FORMER COMPANY: FORMER CONFORMED NAME: ALN RESOURCES CORPORATION DATE OF NAME CHANGE: 19600201 SC 13D/A 1 rossamended13d.htm PAUL ROSS AMENDED 13D rossamended13d.htm

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________
 
SCHEDULE 13D
(Rule 13d-101)
 
INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT
TO RULES 13d-1(a), AND (d) AND AMENDMENTS THERETO FILED
PURSUANT TO RULE 13d-2(a)
(Amendment No. 1)*
 
 
AMERICAN NATURAL ENERGY CORPORATION
(Name of Issuer)
 
Common Stock, par value $0.001 per share
(Title of Class of Securities)
 
02860R105
(CUSIP Number)
 
Paul Alexander Ross
7711 East 111th Street, Suite 121
Tulsa, OK  74133
(918) 459-1000
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
 
December 31, 2012
(Date of Event which Requires Filing of this Statement)

 
* The remainder of this cover page shall be filled out for a reporting person’s initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter the disclosures provided in a prior cover page.
 
The information required on the remainder of this cover page shall not be deemed to be “filed” for the purpose of Section 18 of the Securities Exchange Act of 1934 (“Act”) or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes).
 

 
 
 
 


 
CUSIP No:  02860R105
 
Schedule 13D/A
 
1.
NAMES OF REPORTING PERSONS
 
Paul Alexander Ross
 
  
2.
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a)  [    ]
(b)  [    ]
3.
SEC USE ONLY
 
  
4.
SOURCE OF FUNDS
 
OO
5.
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) or 2(e)
 
[    ]
6.
CITIZENSHIP OR PLACE OF ORGANIZATION          UNITED STATES OF AMERICA
 
  
NUMBER OF SHARES
 BENEFICIALLY
 OWNED BY EACH
 REPORTING PERSON
 WITH
7.
SOLE VOTING POWER           63,400,000
 
8.
SHARED VOTING POWER            -0-
 
9.
SOLE DISPOSITIVE POWER             63,400,000
 
10.
SHARED DISPOSITIVE POWER             -0-
 
11.
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON            63,400,000
 
  
12.
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
 
[    ]
13.
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW 11            73.4%
 
  
14.
TYPE OF REPORTING PERSON                IN
 
  
     

 
2
 
 
CUSIP No:  02860R105
 
13D/A
 
1.
NAMES OF REPORTING PERSONS
 
Palo Verde Acquisitions, LLC
 
I.R.S. IDENTIFICATION NO. OF ABOVE PERSONS (ENTITIES ONLY): 46-0659885
  
2.
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
 
(a)  [    ]
(b)  [    ]
 
3.
SEC USE ONLY
 
  
4.
SOURCE OF FUNDS
 
OO
5.
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT  TO ITEM 2(d) or 2(e)
 
[    ]
6.
CITIZENSHIP OR PLACE OF ORGANIZATION          NEVADA
 
  
NUMBER OF SHARES
BENEFICIALLY
OWNED BY EACH
 REPORTING PERSON
 WITH
7.
SOLE VOTING POWER           60,000,000
 
8.
SHARED VOTING POWER
 
9.
SOLE DISPOSITIVE POWER             60,000,000
 
10.
SHARED DISPOSITIVE POWER
 
11.
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON            60,000,000
 
  
12.
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
 
[    ]
13.
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW 11            69.4%
 
  
14.
TYPE OF REPORTING PERSON                OO
 
  
 
 
 
3
 
 
CUSIP No:  02860R105
 
13D/A
 
1.
NAMES OF REPORTING PERSONS
 
Arkoma Natural Gas Company, Inc.
 
I.R.S. IDENTIFICATION NO. OF ABOVE PERSONS (ENTITIES ONLY): 73-1485832
  
2.
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
 
(a)  [    ]
(b)  [    ]
3.
SEC USE ONLY
 
  
4.
SOURCE OF FUNDS
 
WC
5.
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) or 2(e)
 
[    ]
6.
CITIZENSHIP OR PLACE OF ORGANIZATION          NEVADA
 
  
NUMBER OF SHARES
BENEFICIALLY
 OWNED BY EACH
REPORTING PERSON
WITH
7.
SOLE VOTING POWER           3,400,000
 
8.
SHARED VOTING POWER            -0-
 
9.
SOLE DISPOSITIVE POWER             3,400,000
 
10.
SHARED DISPOSITIVE POWER             -0-
 
11.
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON            3,400,000
 
  
12.
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES 
 
[    ]
13.
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW 11            3.9%
 
  
14.
TYPE OF REPORTING PERSON                CO
 
  
 
 
 
4
 
 
Item 1.
Security and Issuer.
 
This Amendment No. 1 to Schedule 13D (“Amendment No. 1”) amends and supplements the Schedule 13D (the “Schedule 13D”) filed with the SEC on August 24, 2012. This Amendment No. 1 relates to the Common Stock, par value $0.001 per share (“Common Stock”) of American Natural Energy Corporation, an Oklahoma corporation (the “Issuer”) and is being filed on behalf of the reporting persons executing this Amendment No. 1.  Unless otherwise indicated, all capitalized terms used but not defined herein shall have the same meaning ascribed to them in the Schedule 13D. Except as indicated herein, the information set forth in the Schedule 13D remains unchanged.
 
Item 2.                    Identity and Background
 
There are no changes to the Item 2 information previously filed.
 
 
Item 3.                   Source and Amount of Funds or Other Consideration.
 
Item 3 is hereby amended by adding the following paragraphs:

Pursuant to the Securities Purchase Agreement, effective December 31, 2012, the Issuer sold to Palo Verde an additional $1,000,000 12% convertible debenture (the “Additional Debenture”) and additional warrants to purchase up to 10,000,000 shares of common stock of the Company at an exercise price of US$0.23 per share expiring on December 31, 2014 (the “Additional Warrants” and, together with the Additional Debenture, the "Additional Securities").  The aggregate consideration paid to the Issuer by Palo Verde for the Additional Securities was $1,000,000.  The Additional Securities were acquired with Palo Verde’s cash at hand.

At any time prior to the payment of the Debenture and the Additional Debenture (the “Debentures”) in full, Palo Verde may elect, in its sole discretion, to convert all or part of the outstanding principal amount of the Debentures into shares of common stock of the Issuer at a conversion rate of US$0.10 per share of common stock.

 
Item 4.
Purpose of Transaction.

Item 4 is hereby amended by adding the following paragraph:

On January 11, 2013, at the annual stockholders meeting of the Issuer, the stockholders of the Issuer approved a proposal permitting Palo Verde to convert the Debentures and to exercise the Warrants and the Additional Warrants (and to convert and exercise, respectively, any additional securities purchased) without the limitation of the Beneficial Ownership Limitation.

 
Item 5.                   Interest in Securities of the Issuer.
 
Item 5 is hereby amended and restated to read in its entirety as follows:

(a)     
Paul Alexander Ross is the beneficial owner of 63,400,000 shares of Common Stock which represents approximately 73.4% of the outstanding Common Stock.  Of the amount beneficially owned by the Paul Alexander Ross, 3,400,000 shares represent the shares of Common Stock held of record by Arkoma, a corporation of which he is the sole shareholder and president, and the maximum 60,000,000 shares that would be issuable to Palo Verde, a limited liability company of which he is the sole member and manager, within 60 days pursuant to the conversion of Debentures and/or exercise of the Warrants and Additional Warrants.

Arkoma is the beneficial owner of 3,400,000 shares of Common Stock with represents 3.9% of the outstanding Common Stock.

Palo Verde is the beneficial owner of 60,000,000 shares of Common Stock, which represents 69.4% of the outstanding Common Stock.

The calculations were based on 86,405,085 shares of outstanding Common Stock, which consists of the 26,405,085 shares of Common Stock reported to be outstanding as of November 14, 2012 on Issuer’s Quarterly Report on Form 10-Q filed with the SEC on November 14, 2012 plus the maximum aggregate 60,000,000 shares of Common Stock that could be issuable to Palo Verde upon conversion of the Debentures and exercise of the Warrants and Additional Warrants.
 
 
5
 
(b)     
Paul Alexander Ross possesses sole power to vote or direct the vote and sole power to dispose or direct the disposition of all 63,400,000 shares of Common Stock beneficially owned by him. Arkoma, of which Paul Alexander Ross is sole shareholder and president, possesses sole power to vote or direct the vote and sole power to dispose or direct the disposition of all 3,400,000 shares of Common Stock beneficially owned by it. Palo Verde, of which Paul Alexander Ross is sole member and manager,  possesses sole power to vote or direct the vote and sole power to dispose or direct the disposition of all 60,000,000 shares of Common Stock beneficially owned by it.
 
(c)     
N/A
 
(d)     
N/A
 
(e)     
N/A
 
Item 6.
Contracts, Arrangements, Understandings or Relationships With Respect to Securities of the Issuer.
 
There are no changes to the Item 6 information previously filed.
 
 
Item 7.                   Materials to be Filed as Exhibits.
 
Exhibit
Description
Filing
     
1
Additional Debenture
Filed herewith electronically
     
2
Additional Warrant
Filed herewith electronically
 

 

 
 
6
 

 

 
 
After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this Amendment No. 1 to Schedule 13D is true, complete and correct.
 

February 6, 2013
  
 
PAUL A. ROSS
 
Paul A. Ross
   
   
 
Arkoma Natural Gas Company, Inc.
   
 
By:
PAUL A. ROSS
 
Paul A. Ross, President
   
   
 
Palo Verde Acquisitions, LLC
   
 
By:
PAUL A. ROSS
 
Paul A. Ross, Manager

EX-99.1 2 anecwarrant.htm ANEC WARRANT anecwarrant.htm

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "U.S. SECURITIES ACT") OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. THE HOLDER HEREOF, BY PURCHASING SUCH SECURITIES, AGREES FOR THE BENEFIT OF THE COMPANY THAT SUCH SECURITIES MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED ONLY (A) TO THE COMPANY; (B) IN ACCORDANCE WITH RULE 905 OF REGULATIONS UNDER THE U.S. SECURITIES ACT; (C) IN ACCORDANCE WITH THE EXEMPTION FROM REGISTRATION UNDER THE U.S. SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER, IF AVAILABLE, AND IN COMPLIANCE WITH ANY APPLICABLE STATE SECURITIES LAWS; OR (D) IN A TRANSACTION THAT DOES NOT REQUIRE REGISTRATION UNDER THE U.S. SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS, AND, IN THE CASE OF PARAGRAPH (C) OR (D), UPON REQUEST OF THE COMPANY, THE SELLER FURNISHES TO THE COMPANY AN OPINION OF COUNSEL OF RECOGNIZED STANDING IN FORM AND SUBSTANCE SATISFACTORY TO THE COMPANY TO SUCH EFFECT.
 
 
WARRANT TO PURCHASE COMMON SHARES
OF
AMERICAN NATURAL ENERGY CORPORATION
 
(Incorporated under the laws of State of Oklahoma)
 
Warrant Certificate No: W-10-2012-01
 
 
THIS IS TO CERTIFY THAT, for value received, Palo Verde Acquisitions, LLC., the holder of this Warrant, is entitled to purchase:
 
10,000,000
 
non-assessable common shares of American Natural Energy Corporation (hereinafter called the "Company") as such shares were constituted on December 31, 2012 at any time up to 4:30 p.m. local time at the City of Tulsa, Oklahoma on December 31, 2014 at and for a price of US $0.23 per share, of lawful money of the United States, upon and subject to the terms and conditions attached hereto.
 
This Warrant may not be transferred or assigned by the holder.
 
This Warrant and the common shares to be issued upon its exercise have not been registered under the United States Securities Act of 1933, as amended (the "U.S. Securities Act") or the securities laws of any state of the United States. This Warrant may not be exercised unless (i) the common shares are registered under the U.S. Securities Act and the applicable laws of any such state, or, (ii) an exemption from such registration requirements is available. "United States" and "U.S. person" are as defined in Regulation S under the U.S. Securities Act.
 
This Warrant may be exercised only at the offices of the Company, Suite 2010, 6100 South Yale Avenue, Tulsa, Oklahoma, 74136.
 
AMERICAN NATURAL ENERGY CORPORATION
 
Per:           /s/  Michael Paulk                                              
Director/Officer
 
DATE:    December 31, 2012
 
 NOTE:
 Any share certificates issued upon exercise of this Warrant prior to the expiry of the hold periods will be printed with the corresponding legends.
 
 
 
 
 
TERMS, CONDITIONS AND INSTRUCTIONS
 
1.
The holder of this Warrant may subscribe for up to the number of shares of the Company ("Warrant Shares") indicated on the face hereof in accordance with and subject to the terms and conditions set out in this Warrant.
 
2.
For each Warrant Share purchased pursuant to this Warrant on or before December 31, 2014, payment must be made in the amount of US$0.23 per share (the "Exercise Price"). All payments must be made in United States funds, in cash or by certified check, bank draft or money order payable, at par, in Tulsa, Oklahoma to "American Natural Energy Corporation" If payment is made by way of an uncertified check, the Company reserves the right to deem that the payment has not been received until the check has cleared the account upon which it has been drawn.
 
3.
To exercise the rights evidenced by this Warrant, this Warrant with the Warrant Exercise Form attached hereto completed and payment as required for the shares subscribed for, must be delivered or mailed to the Company, Suite 2010, 6100 South Yale Avenue, Tulsa, Oklahoma, 74136 and received by such company.
 
4.
The rights evidenced by this Warrant expire at 4:30 p.m. local time in Tulsa, Oklahoma, on December 31, 2014.
 
5.
Any certificate representing common shares issued upon the exercise of this Warrant will bear the following legends, unless in the opinion of counsel to the Company such legend or legends are not required:
 
UNLESS PERMITTED UNDER SECURITIES LEGISLATION, THE HOLDER OF THIS SECURITY MUST NOT TRADE THE SECURITY BEFORE (four months and 1 day from issue date").
 
WITHOUT PRIOR WRITTEN APPROVAL OF THE TSX VENTURE EXCHANGE AND COMPLIANCE WITH ALL APPLICABLE SECURITIES LEGISLATION, THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, TRANSFERRED, HYPOTHECATED OR OTHERWISE TRADED ON OR THROUGH THE FACILITIES OF THE TSX VENTURE EXCHANGE OR OTHERWISE IN CANADA OR TO OR FOR THE BENEFIT OF A CANADIAN RESIDENT UNTIL (four months and 1 day from issue date).
 
6.
The certificates representing any Warrant Shares issued upon exercise of the Warrants, as well as all certificates issued in exchange for or in substitution of the foregoing, until, in the opinion of counsel to the Company, such time as is no longer required under the applicable requirements of the United States Securities Act of 1933, as amended (the "U.S. Securities Act") or applicable state securities laws, will bear, on the face of such certificate, the following legend:
 
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "U.S. SECURITIES ACT") OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. THE HOLDER HEREOF, BY PURCHASING SUCH SECURITIES, AGREES FOR THE BENEFIT OF THE COMPANY THAT SUCH SECURITIES MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED ONLY (A) TO THE COMPANY; (B) IN ACCORDANCE WITH RULE 905 OF REGULATION S UNDER THE U.S. SECURITIES ACT; (C) IN ACCORDANCE WITH THE EXEMPTION FROM REGISTRATION UNDER THE U.S. SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER, IF AVAILABLE, AND IN COMPLIANCE WITH ANY APPLICABLE STATE SECURITIES LAWS; OR (D) IN A TRANSACTION THAT DOES NOT REQUIRE REGISTRATION UNDER THE U.S. SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS, AND, IN THE CASE OF PARAGRAPH (C) OR (D), UPON REQUEST OF THE COMPANY, THE SELLER FURNISHES TO THE COMPANY AN OPINION OF COUNSEL OF RECOGNIZED STANDING IN FORM AND SUBSTANCE SATISFACTORY TO THE COMPANY TO SUCH EFFECT. THE PRESENCE OF THIS LEGEND MAY IMPAIR THE ABILITY OF THE HOLDER HEREOF TO EFFECT "GOOD DELIVERY" OF THE SECURITIES REPRESENTED HEREBY ON A CANADIAN STOCK EXCHANGE.
 
7.
The rights evidenced by this Warrant may not be transferred or assigned.
 
8.
The rights to purchase Warrant Shares granted by this certificate may be exercised, subject to the terms and conditions hereof, in whole or in part (but not as to a fractional share) from time to time.
 
9.
This Warrant does not entitle the holder to any rights as a shareholder of the Company, including, without limitation, voting rights.
 
 
 
 
 
10.
If this Warrant or the purchase price is forwarded by mail, it is suggested that registered mail be used as the Company and Computershare Investor Services Inc. will not be responsible for any losses which occur through the use of mails.
 
10.
The Company shall, no more than five business days after delivery of this Warrant, together with a duly executed Warrant Exercise Form and payment as required hereby for the shares subscribed for, issue and deliver to the holder certificates for that number of shares subscribed for, at the address shown on the Warrant Exercise Form.
 
11.
(a)
If, prior to the expiry of this Warrant, the Company,
 
 
 
(i)
subdivides, redivides, combines or consolidates its then outstanding common shares into a greater or lesser number of common shares, or
 
 
 
(ii)
distributes securities by way of stock dividend or otherwise (other than the issuance of common shares to holders of common shares who have elected to receive stock dividends in lieu of cash dividends) to holders of all or substantially all of its then outstanding common shares,
 
(any of such events herein called a "Common Share Reorganization"), then the Exercise Price shall be adjusted effective immediately after the record date determined for purposes, on the effective date, of such Common Share Reorganization by multiplying the Exercise Price in effect immediately prior to such record date or effective date, as the case may be, by a fraction, the numerator of which shall be the number of common shares outstanding on such record date or effective date, as the case may be, before giving effect to the Common Share Reorganization and the denominator of which shall be the number of common shares outstanding immediately after giving effect to such Common Share Reorganization including, in the case where securities exchangeable for or convertible into common shares are distributed, the number of common shares that would be outstanding if such securities were exchanged for or converted into common shares. From and after any adjustment of the Exercise Price pursuant to this section 11(a), the number of common shares issuable pursuant to this Warrant shall also be adjusted by multiplying the number of common shares then otherwise issuable by a fraction, the numerator of which shall be the Exercise Price in effect immediately prior to the adjustment and the denominator of which shall be the Exercise Price resulting from such adjustment.
 
 
(b)
If, prior to the expiry of this Warrant, the Company fixes a record date for the issue of options, rights or warrants exercisable during a period expiring not more than 45 days after the record date for such issue (the "Rights Period") to all or substantially all the holders of common shares entitling them to acquire common shares or other securities convertible or exchangeable into common shares at less than 95% of their Current Market Price (as hereinafter defined) (any of such events herein called a "Rights Offering"), then the Exercise Price shall be adjusted effective immediately after the end of the Rights Period to a price determined by multiplying the Exercise Price in effect immediately after such record date by a fraction,
 
   
(i)       
the numerator of which shall be the aggregate of:
 
     
   (1)      
the number of common shares outstanding as of the record date for the Rights Offering; and
 
     
   (2)      
a number determined by dividing either
 
       
(A)       
the product of the number of common shares issued or subscribed for during the Rights Period and the price at which such common shares are offered, or
 
       
(B)       
the product of the exchange or conversion price of such securities offered and the number of common shares for or into which the securities so offered pursuant to the Rights Offering have been exchanged or converted during the Rights Period,
 
by the Current Market Price of the common shares on the record date for the Rights Offering; and
 
   
(ii)      
the denominator of which shall be the number of common shares outstanding after giving effect to the Rights Offering, including the number of common shares actually issued or subscribed for (or securities for or into which the securities so offered pursuant to the Rights Offering have been exchanged or converted) during the Rights Period.
 
 
2
 
 
If the holder has exercised this Warrant at any time during the period commencing immediately after the record date for a Rights Offering and expiring on the last day of the Rights Period, the holder shall be entitled to receive from the Company, not later than 30 days after the end of the Rights Period, an amount equal to the difference, if any, between the Exercise Price in effect immediately prior to the end of such Rights Period and the Exercise Price as adjusted for such Rights Offering pursuant to this section 11(b) multiplied by the number of common shares acquired upon such exercise of this Warrant. Payment of any such amount shall be mailed to the address to which the common shares purchased upon such exercise are to be sent.
 
 
(c)
If, prior to the expiry of this Warrant, the Company distributes evidences of its indebtedness or any property or other assets (other than by way of a Common Share Reorganization or Rights Offering and excluding cash dividends paid in the ordinary course) to holders of all or substantially all of its then outstanding common shares, the number of common shares to be issued by the Company under this Warrant shall, at the time of exercise, be appropriately adjusted and the holder shall receive, in lieu of the number of common shares in respect of which the right is then being exercised, the aggregate number of common shares or other securities or property that the holder would have been entitled to receive as a result of such event, if, on the record date therefor, the holder had been the registered holder of the number of common shares to which the holder was theretofore entitled upon the exercise of this Warrant.
 
 
(d)
If, prior to the expiry of this Warrant, there is a capital reorganization of the Company or a reclassification or other change in the common shares (other than a Common Share Reorganization) or a consolidation, merger or amalgamation of the Company with or into any other corporation or entity (other than a consolidation, merger or amalgamation which does not result in any reclassification of the outstanding common shares or a change of the common shares into other securities) or a transfer of all or substantially all of the Company's undertaking and assets to another corporation or entity in which the holders of common shares are entitled to receive shares, other securities or property (any of such events being called a "Capital Reorganization"), the holder, where the holder has not exercised this Warrant prior to the effective date of such Capital Reorganization, shall be entitled to receive and shall accept, upon the exercise of such right, on such date or any time thereafter, for the same aggregate consideration in lieu of the number of common shares to which the holder was theretofore entitled to subscribe for and purchase, the aggregate number of shares or other securities or property which the holder would have been entitled to receive as a result of such Capital Reorganization if, on the effective date thereof, the holder had been the registered holder of the number of common shares to which the holder was theretofore entitled to acquire hereunder.
 
 
(e)
Any adjustments made pursuant to this section 11 shall be subject to the following rules and procedures:
 
   
(i)
the adjustments provided for in section 11 are cumulative and shall be made successively whenever an event referred to herein shall occur, provided no adjustment shall be made unless the cumulative effect of all such adjustments would change the Exercise Price by at least one percent of the current Exercise Price or if the holder is allowed to participate in the specified event as though the holder had exercised this Warrant prior to such occurrence of such event;
 
   
(ii)
if the Company sets a record date to take any action and thereafter and before taking such action abandons its plan to take such action, then no adjustment to the Exercise Price shall be required by reason of setting such record date;
 
   
(iii)
forthwith after any adjustment to the Exercise Price, the number of common shares or the type of securities issuable pursuant to this Warrant, the Company shall provide to the holder notice as to the amount of such adjustment and, in reasonable detail, describing the event requiring and the manner of computing or determining such adjustment;
 
   
(iv)  
upon the occurrence of each and every event set out in this section 11, the provisions of this Warrant, including the Exercise Price, shall ipso facto be deemed to be amended accordingly and the Company shall take all necessary action to comply with such provisions as so amended;
 
   
(v)  
"Current Market Price" of the common shares at any date means the weighted average trading price per share for the common shares for any 20 consecutive trading days (a "trading day" with respect to a stock exchange, quotation system or the over-the-counter market being a day on which such stock exchange, quotation system or over-the-counter market is open for business) selected by the Company commencing not more than 30 trading days and ending not less than three trading days before such date on such stock exchange or over-the-counter market on which the common shares trade (provided that if on any day in such period no closing price per share for the common shares is reported by such exchange for such day, the average of the reported closing bid and asked prices on such exchange on such day shall be deemed to be the closing price per share for the common shares for such day). If the common shares are not listed on a recognized stock exchange or quoted on the over-the-counter market, the Current Market Price of the common shares shall be, at any time, the price per common share equal to the fair market value thereof as reasonably determined by the board of directors of the Company;
 
 
3
 
 
   
(vi)  
if the Company after the date of issuance of this Warrant takes any action affecting the common shares, other than any action described in this section 11, which in the reasonable opinion of the directors would materially affect the rights of holders of this Warrant, the Exercise Price and the number of common shares which may be acquired upon the exercise of this Warrant shall be adjusted by the directors in such manner and at such time as the directors in their sole discretion may determine to be equitable in the circumstances; provided that no such adjustment will be made unless prior approval of any stock exchange on which the common shares are listed for trading has been obtained. Failure of the directors to make such an adjustment shall be prima facie evidence that the directors have determined that it is equitable to make no adjustment in the circumstances. If any such adjustment is made, the Company shall deliver a notice to the holder describing such adjustment;
 
   
(vii)  
in case a state of facts exists to which the provisions of this section 11 are not strictly applicable, or, if strictly applicable, operate in an unclear manner or in a manner that would not fairly adjust the rights of the holder against dilution in accordance with the intent and purposes of this section 11, the Company shall execute and deliver to the holder an amendment to this section 11 providing for an adjustment in the application of such provisions so as to adjust such rights in accordance with the advice of legal counsel to whom the Company may refer any such question. The Company shall refer such question to legal counsel upon the written request of the holder, acting reasonably;
 
   
(viii)  
in the event of any question arising with respect to the adjustments provided in section 11, such question shall be conclusively determined by a firm of chartered accountants appointed by the Company, acting reasonably (who may be the Company's auditors), such accountants shall have access to all necessary records of the Company and such determination shall be binding upon the Company and the holder;
 
   
(ix)  
as a condition precedent to the taking of any action which would result in an adjustment to the number of common shares purchasable upon exercise of these Warrants, the Company shall take any corporate action which may be necessary in order that the common shares to which the holder is entitled on the full exercise of its exercise right in accordance with the provisions hereof shall be available for such purpose and that such common shares may be validly and legally issued as fully paid and non-assessable common shares;
 
   
(x)  
if the issuance of any common shares upon the exercise of this Warrant requires any filing or registration with or approval of any governmental authority or compliance with any other requirement under any law before such shares may be validly issued upon such exercise, the Company agrees to take such actions as may be necessary to secure such filing, registration, approval or compliance, as the case may be; provided that, in the event that such filing, registration, approval or compliance is required only by reason of the particular circumstances of or actions taken by any such person, the Company will not be required to take such action;
 
   
(xi)  
the Company shall from time to time promptly after the occurrence of any event which requires an adjustment in the number of common shares purchasable upon exercise of this Warrant as above provided, deliver notice to the holder specifying the nature of the event requiring the adjustment and the amount of the adjustment thereby necessitated and setting forth in reasonable detail the adjusted number of common shares, method of calculation and the facts upon which such calculation is based; and
 
   
(xii)  
the Company will not effect any Capital Reorganization which could result in a successor to the Company unless prior to or simultaneously with the consummation thereof, the entity succeeding the Company acknowledges in writing that it is bound by and will comply with the provisions set forth in this Warrant certificate.
 
12.
The Company will at all times before October __, 2014 keep available, and reserve if necessary, out of its authorized shares, solely for the purpose of issue upon the exercise of this Warrant, such number of Warrant Shares of the Company as shall then be issuable upon the exercise of this Warrant. The Company covenants and agrees that all Warrant Shares which shall be so issuable will, upon issuance, be issued as fully paid and non-assessable and free from all liens, charges and encumbrances. The Company will use its commercially reasonable best efforts to maintain the listing of its common shares on the TSX Venture Exchange or another recognized stock exchange until the expiry date of this Warrant.
 
13.
This Warrant certificate is to be governed by and construed in accordance with the laws of the State of Oklahoma and the laws of United States applicable therein.
 
 
4
 
 
 
WARRANT EXERCISE FORM
 
 
The undersigned, holder of the within Warrant, hereby subscribes for 10,000,000 common shares of American Natural Energy Corporation (the "Company"), pursuant to a private placement conditionally approved by the TSX Venture Exchange on June 29, 2012. If the number of common shares purchased hereby does not exercise all of the rights evidenced by this Warrant, the holder requests issuance and delivery to it at the following address of a new Warrant evidencing the unused rights.
 
The undersigned directs that the common shares hereby subscribed for be issued and delivered to it as follows:
 

NAME
  
ADDRESS
  
NO. OF SHARES
         
         
 
As at the time of exercise hereunder, the undersigned represents, warrants and certifies as follows (check one):
 
 
[  ]
(A)
the undersigned holder at the time of exercise of the Warrants is not in the United States, is not a "U.S. person" as defined in Regulation S under the United States Securities Act of 1933, as amended (the "U.S. Securities Act") and is not exercising the Warrants for the account or benefit- of a U.S. person or person in the United States and did not execute or deliver this exercise form in the United States; OR
 
 
[  ]
(B)
(i) the undersigned holder is resident in the United States, is a U.S. person, or is exercising the Warrant for the account or benefit of a U.S. person or person in the United States, (ii) the holder is a resident of the jurisdiction referred to in the address appearing above, (iii) the holder was the original subscriber for the Warrant from the Company and (iv) the representations, warranties and covenants set forth in the Subscription Agreement are true and correct on the date of exercise of this Warrant, including specifically, the representations and warranties in Schedule D to the Subscription Agreement; OR
 
 
[  ]
(C)
if the undersigned holder is resident in the United States, is a U.S. person, or is exercising the Warrant for the account or benefit of a U.S. Person or person in the United States, the undersigned holder either [  ] (i) is an "accredited investor" (as defined in Rule 501(a) of Regulation D under the U.S. Securities Act) and has completed the U.S. Accredited Investor Status Certificate in the form attached to this exercise form and hereby makes the representations, warranties and acknowledgments as provided below OR [  ] (ii) has delivered to the Company and the Company's transfer agent an opinion of counsel (which will not be sufficient unless it is in form and substance satisfactory to the Company) or such other evidence satisfactory to the Company to the effect that with respect to the common shares to be delivered upon exercise of the Warrants, the issuance of such securities has been registered under the U.S. Securities Act and applicable state securities laws or an exemption from the registration requirements of the U.S. Securities Act and applicable state securities laws is available.
 
Note: Certificates representing common shares will not be registered or delivered to an address in the United States unless box (B) or (C) immediately above is checked.
 
The undersigned additionally represents and warrants to the Company that:
 
1.  
the undersigned has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of an investment in the common shares, and the undersigned is able to bear the economic risk of loss of his or her entire investment;
 
2.  
the undersigned is: (i) purchasing the common shares for his or her own account or for the account of one or more U.S. Accredited Investors with respect to which the undersigned is exercising sole investment discretion, and not on behalf of any other person; (ii) is purchasing the common shares for investment purposes only and not with a view to resale, distribution or other disposition in violation of United States federal or state securities laws; and (iii) in the case of the purchase by the undersigned of the common shares as agent or trustee for any other person or persons (each a "Beneficial Owner"), the undersigned holder has due and proper authority to act as agent or trustee for and on behalf of each such Beneficial Owner in connection with the transactions contemplated hereby; provided that: (x) if the undersigned holder, or any Beneficial Owner, is a corporation or a partnership, syndicate, trust or other form of unincorporated organization, the undersigned holder or each such Beneficial Owner was not incorporated or created solely, nor is it being used primarily to permit purchases without a prospectus or registration statement under applicable law; and (y) each Beneficial Owner, if any, is a U.S. Accredited Investor; and
 
 
 
 
 
3.  
the undersigned has not exercised the Warrants as a result of any form of general solicitation or general advertising, including advertisements, articles, notices or other communications published in any newspaper, magazine or similar media or broadcast over radio, television or other form of telecommunications, or any seminar or meeting whose attendees have been invited by general solicitation or general advertising.
 
The undersigned also acknowledges and agrees that:
 
1.  
the Company has provided to the undersigned the opportunity to ask questions and receive answers concerning the terms and conditions of the offering, and the undersigned has had access to such information concerning the Company as the undersigned has considered necessary or appropriate in connection with the undersigned's investment decision to acquire the common shares;
 
2.  
if the undersigned decides to offer, sell or otherwise transfer any of the common shares, the undersigned must not, and will not, offer, sell or otherwise transfer any of such common shares directly or indirectly, unless:
 
(a)  
the sale is to the Company;
 
(b)  
the sale is made outside the United States in a transaction meeting the requirements of Rule 905 of Regulation S under the U.S. Securities Act and in compliance with applicable local laws and regulations;
 
(c)  
the sale is made pursuant to the exemption from the registration requirements under the U.S. Securities Act provided by Rule 144 thereunder and in accordance with any applicable state securities or "blue sky" laws; or
 
(d)  
the common shares are sold in a transaction that does not require registration under the U.S. Securities Act or any applicable state laws and regulations governing the offer and sale of securities, and it has prior to such sale furnished to the Company an opinion of counsel reasonably satisfactory to the Company;
 
3.  
the common shares are "restricted securities" under applicable federal securities laws and that the U.S. Securities Act and the rules of the United States Securities and Exchange Commission provide in substance that the undersigned may dispose of the common shares only pursuant to an effective registration statement under the U.S. Securities Act or an exemption therefrom;
 
4.  
the Company has no obligation to register any of the common shares or to take action so as to permit sales pursuant to the U.S. Securities Act (including Rule 144 thereunder);
 
5.  
the certificates representing the common shares (and any certificates issued in exchange or substitution for the common shares) will bear a legend stating that such securities have not been registered under the U.S. Securities Act or the securities laws of any state of the United States and may not be offered for sale or sold unless registered under the U.S. Securities Act and the securities laws of all applicable states of the United States or an exemption from such registration requirements is available;
 
6.  
delivery of certificates bearing such a legend may not constitute "good delivery" in settlement of transactions on Canadian stock exchanges or over-the-counter markets; and
 
7.  
the undersigned consents to the Company making a notation on its records or giving instructions to any transfer agent of the Company in order to implement the restrictions on transfer set forth and described in this Warrant Exercise Form.
 
In the absence of instructions to the contrary, the securities or other property will be issued in the name of or to the holder hereof and will be sent by first class mail to the last address of the holder appearing on the register maintained for the Warrants.
 
DATED this _____ day of ___________, 20___.
  
   
   
Signature
  
   
   
Name (please print)
  
   
   
Address
  
   
   

 
2
 
 
Instructions:
 
 
1.
The registered holder may exercise its right to receive Warrant Shares by completing this form and surrendering this form and the Warrant Certificate representing the Warrants being exercised together with payment of the aggregate Exercise Price, by certified check, bank draft or money order payable in U.S. dollars to the order of "American Natural Energy Corporation", to the Company, Suite 2010, 6100 South Yale Avenue, Tulsa, Oklahoma, 74136, and such other documents as the Company may reasonably require. Certificates for Warrant Shares will be delivered or mailed within five business days after the exercise of the Warrants. The rights of the registered warrant holder hereof cease if the Warrants are not exercised on or prior to December 31, 2014.
 
2.
If the Warrant Exercise Form indicates that common shares are to be issued to a person or persons other than the registered holder of the Warrant Certificate, the signature of such holder of the Warrant Exercise Form must be guaranteed by an authorized officer of a chartered bank, trust company or medallion guaranteed by an investment dealer who is a member of a recognized stock exchange.
 
3.
If the Warrant Exercise Form is signed by a trustee, executor, administrator, curator, attorney, officer of a Company or any person acting in a judiciary or representative capacity, the certificate must be accompanied by evidence of authority to sign satisfactory to the Company.
 
 
3
 
 
 
U.S. ACCREDITED INVESTOR STATUS CERTIFICATE
 
In connection with the exercise of certain outstanding warrants of AMERICAN NATURAL ENERGY CORPORATION (the "Company") by the holder, the holder hereby represents and warrants to the Company that the holder, and each beneficial owner (each a "Beneficial Owner"), if any, on whose behalf the holder is exercising such warrants, satisfies one or more of the following categories of Accredited Investor (please write "W/H" for the undersigned holder, and "B/O" for each beneficial owner, if any, on each line that applies):

         
  
(1)
  
Any bank as defined in Section 3(a)(2) of the United States Securities Act of 1933, as amended (the "U.S. Securities Act") or any savings and loan association or other institution as defined in Section 3(a)(5)(A) of the U.S. Securities Act whether acting in its individual or fiduciary capacity; any broker or dealer registered pursuant to Section 15 of the U.S. Securities Exchange Act of 1934 or any insurance company as defined in Section 2(a)(13) of the U.S. Securities Act; any investment company registered under the U.S. Investment Company Act of 1940 or a business development company as defined in Section 2(a)(48) of that Act; any Small Business Investment Company licensed by the U.S. Small Business Administration under Section 301(c) or (d) of the U.S. Small Business Investment Act of 1958; any plan established and maintained by a state, its political subdivisions, or any agency or instrumentality of a state or its political subdivisions, for the benefit of its employees if such plan has total assets in excess of US$5,000,000; any employee benefit plan within the meaning of the U.S. Employee Retirement Income Security Act of 1974 if the investment decision is made by a plan fiduciary, as defined in Section 3(21) of such Act, which is either a bank, savings and loan association, insurance company, or registered investment adviser, or if the employee benefit plan has total assets in excess of US$5,000,000, or, if a self-directed plan, with investment decisions made solely by persons that are "accredited investors" (as such term is defined in Rule 501 of Regulation D of the U.S. Securities Act);
           
  ___    
  
(2)
  
Any private business development company as defined in Section 202(a)(22) of the U.S. Investment Advisers Act of 1940;
         
  ___    
  
(3)
  
Any organization described in Section 501(c)(3) of the U.S. Internal Revenue Code, corporation, Massachusetts or similar business trust, or partnership, not formed for the specific purpose of acquiring the securities offered, with total assets in excess of US$5,000,000;
         
  ___    
  
(4)
  
Any trust with total assets in excess of US$5,000,000, not formed for the specific purpose of acquiring the securities offered, whose purchase is directed by a sophisticated person (being defined as a person who has such knowledge and experience in financial and business matters that he or she is capable of evaluating the merits and risks of the prospective investment);
         
  ___    
  
(5)
  
Any natural person whose individual net worth, or joint net worth with that person's spouse, at the time of his purchase exceeds US$1,000,000, exclusive of the person's primary residence;
         
  ___    
  
(6)
  
Any natural person who had an individual income in excess of US$200,000 in each of the two most recent years or joint income with that person's spouse in excess of US$300,000 in each of those years, and has a reasonable expectation of reaching the same income level in the current year;
         
  ___    
  
(7)
  
Any director or executive officer of the Issuer; or
         
  ___    
  
(8)
  
Any entity in which all of the equity owners meet the requirements of at least one of the above categories.
 

 EX-99.2 3 anecdebenture.htm ANEC DEBENTURE anecdebenture.htm
EXHIBIT A-I

NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE 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 CONVERSION OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

Original Issue Date: December 31, 2012
Original Conversion Price (subject to adjustment herein): $0.10

$1,000,000.00

12% CONVERTIBLE DEBENTURE DUE
DECEMBER 31, 2014

THIS 12% CONVERTIBLE DEBENTURE is one of a series of duly authorized and validly issued 12% Convertible Debentures of American Natural Energy Corporation, an Oklahoma corporation (the "Company"), having its principal place of business at 6100 South Yale, Suite 2010, Tulsa, Oklahoma 74136, designated as its 12% Convertible Debenture due December 31, 2014 (this debenture, the "Debenture" and, collectively with the other debentures of such series, the "Debentures").

FOR VALUE RECEIVED, the Company promises to pay to Palo Verde Acquisitions, LLC or its registered assigns (the "Holder"), or shall have paid pursuant to the terms hereunder, the principal sum of ONE MILLION DOLLARS US $1,000,000.00 on December 31, 2014 (the "Maturity Date") or such earlier date as this Debenture is required or permitted to be repaid as provided hereunder. 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. 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:

"Affiliate" means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 405 under the Securities Act.

"Alternate Consideration" shall have the meaning set forth in Section 5(e).

"Bankruptcy Event" means any of the following events: (a) the Company or any Significant Subsidiary (as such term is defined in Rule l-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 Significant Subsidiary thereof, (b) there is commenced against the Company or any Significant Subsidiary thereof any such case or proceeding that is not dismissed within 60 days after commencement, (c) the Company or any Significant 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 Significant 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 Significant Subsidiary thereof makes a general assignment for the benefit of creditors, (f) the Company or any Significant 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 Significant 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.

"Base Conversion Price" shall have the meaning set forth in Section 4(b).

"Beneficial Ownership Limitation" shall have the meaning set forth in Section
4(d).

"Business Day" means any day except any Saturday, any Sunday, any day which is a federal legal holiday in the United States or any day on which banking institutions in the State of Oklahoma are authorized or required by law or other governmental action to close.

"Conversion" shall have the meaning ascribed to such term in Section 4.

"Conversion Date" shall have the meaning set forth in Section 4(a).
 

 
 
 
 
"Conversion Price" shall have the meaning set forth in Section 4(b).

"Conversion Schedule" means the Conversion Schedule in the form of Schedule 1 attached hereto.

"Conversion Shares" means, collectively, the shares of Common Stock issuable upon conversion of this Debenture in accordance with the terms hereof.

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

"Dilutive Issuance" shall have the meaning set forth in Section 5(b).

"Dilutive Issuance Notice" shall have the meaning set forth in Section 5(b).

"Event of Default" shall have the meaning set forth in Section 6(a).

"Notice of Conversion" shall have the meaning set forth in Section 4(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.

"Purchase Agreement" means the Securities Purchase Agreement, dated as of August 13, 2012 among the Company and the original Holder, 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.

"Share Delivery Date" shall have the meaning set forth in Section 4(c)(ii).

"Trading Day" means a day on which the principal Trading Market is open for trading.

"Trading Market" means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the TSX Venture Exchange, NYSE AMEX, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange, the OTC Bulletin Board, or the "Pink Sheets" published by Pink OTC Markets, Inc. (or any successors to any of the foregoing).

"VW AP" means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if the OTC Bulletin Board is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the OTC Bulletin Board, (c) if the Common Stock is not then listed or quoted for trading on the OTC Bulletin Board and if prices for the Common Stock are then reported in the "Pink Sheets" published by Pink OTC Markets, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Purchasers of a majority in interest of the Securities then outstanding and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.

Section 2.  Interest.  The Company hereby promises to pay to the Holder, interest on the outstanding principal amount under this Debenture at a rate of twelve percent (12%) per annum simple interest on a quarterly basis from the date of the original issue until paid in full, or converted pursuant to the provision of Section 4. Interest is payable in immediately available lawful money of the United States of America or in shares of common stock of the Company, at the election of the Company. Common shares shall be valued at the average VW AP for the preceding five (5) trading days prior to such interest payment.
 
Section 3.  Registration of Transfers and Exchanges.

a)     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.

b)     Reliance on Debenture Register.  Prior to due presentment to the Company of this Debenture for transfer, the Company and any agent of the Company may treat the Person in whose name this Debenture is duly registered on the records of the Company regarding registration and transfers of this Debenture (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.
 
 
2
 

Section 4.  Conversion.

a)     Voluntary Conversion.  At any time after the Original Issue Date until this Debenture is no longer outstanding, this Debenture shall be convertible, in whole or in part, into shares of Common Stock at the option of the Holder, at any time and from time to time (subject to the conversion limitations set forth in Section 4(d) hereof). The Holder shall effect conversions by delivering to the Company a Notice of Conversion, the form of which is attached hereto as Annex A (each, a "Notice of Conversion"), specifying therein the principal amount of this Debenture to be converted and the date on which such conversion shall be effected (such date, the "Conversion Date"). If no Conversion Date is specified in a Notice of Conversion, the Conversion Date shall be the date that such Notice of Conversion is deemed delivered hereunder. To effect conversions hereunder, the Holder shall not be required to physically surrender this Debenture to the Company unless the entire principal amount of this Debenture has been so converted. Conversions hereunder shall have the effect of lowering the outstanding principal amount of this Debenture in an amount equal to the applicable conversion.  The Holder and the Company shall maintain records showing the principal amount(s) converted and the date of such conversion(s). The Company may deliver an objection to any Notice of Conversion within five (5) Business Days of delivery of such Notice of Conversion.

b)     Conversion Price.  The conversion price in effect on any Conversion Date shall be equal to $0.10, subject to adjustment herein (the "Conversion Price").

c)     Mechanics of Conversion.

i.     Conversion Shares Issuable Upon Conversion of Principal Amount.  The number of Conversion Shares issuable upon a conversion hereunder shall be determined by the quotient obtained by dividing (x) the outstanding principal amount of this Debenture to be converted by (y) the Conversion Price.

ii.     Delivery of Certificate Upon Conversion.  Not later than three (3) Trading Days after each Conversion Date (the "Share Delivery Date"), the Company shall deliver, or cause to be delivered, to the Holder (A) a certificate or certificates representing the Conversion Shares which, on or after the earlier of (i) the six month anniversary of the Original Issue Date or (ii) the Effective Date, shall be free of restrictive legends and trading restrictions (other than those which may then be required by the Purchase Agreement) representing the number of Conversion Shares being acquired upon the conversion of this Debenture. On or after the earlier of (i) the six month anniversary of the Original Issue Date or (ii) the Effective Date, the Company shall use its best efforts to deliver any certificate or certificates required to be delivered by the Company under this Section 4( c) electronically through the Depository Trust Company or another established clearing corporation performing similar functions.

iii.     Reservation of Shares Issuable Upon Conversion.  The Company covenants that it will at all times reserve and keep available out of its authorized and unissued shares of Common Stock for the sole purpose of issuance upon conversion of this Debenture, each as herein provided, free from preemptive rights or any other actual contingent purchase rights of Persons other than the Holder (and the other holders of the Debentures), not less than such aggregate number of shares of the Common Stock as shall (subject to the terms and conditions set forth in the Purchase Agreement) be issuable (taking into account the adjustments and restrictions of Section 5) upon the conversion of the then outstanding principal amount of this Debenture. The Company covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly authorized, validly issued, fully paid and nonassessable.

iv.     Fractional Shares.  No fractional shares or scrip representing fractional shares shall be issued upon the conversion of this Debenture. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such conversion, 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 Conversion Price or round up to the next whole share.

  d)     Holder's Conversion Limitations.  The Company shall not effect any conversion of this Debenture, and a Holder shall not have the right to convert any portion of this Debenture, to the extent that after giving effect to the conversion set forth on the applicable Notice of Conversion, the Holder (together with the Holder's Affiliates, and any Persons acting as a group together with the Holder or any of the Holder's Affiliates) would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its affiliates shall include the number of shares of Common Stock issuable upon conversion of this Debenture with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which are issuable upon (i) conversion of the remaining, unconverted principal amount of this Debenture beneficially owned by the Holder or any of its Affiliates and (ii) exercise or conversion of the unexercised or unconverted portion of any other securities of the Company subject to a limitation on conversion or exercise analogous to the limitation contained herein (including, without limitation, any other Debentures or the Warrants) beneficially owned by the Holder or any of its affiliates. Except as set forth in the preceding sentence, for purposes of this Section 4(d), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 4(d), in determining the number of outstanding shares of Common Stock, the Holder may rely on the number of outstanding shares of Common Stock as stated in the most recent of the following: (i) the Company's most recent periodic or annual report filed with the Commission, as the case may be, (ii) a more recent public announcement by the Company, or (iii) a more recent written notice by the Company or the Company's transfer agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request of a Holder, the Company shall within five (5) Trading Days confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Debenture, by the Holder or its Affiliates since the date as of which such number of outstanding shares of Common Stock was reported. The "Beneficial Ownership Limitation" shall be no more than 19.9% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon conversion of this Debenture held by the Holder or group of Holders, unless approved by the shareholders. The Beneficial Ownership Limitation provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 4(d) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation contained herein or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Debenture.
 
3
 
 
e)     Shareholder Vote to Approve Conversion Amounts above the Beneficial Ownership Limitation.  The Company and its Board of Directors shall use their best efforts to seek the approval of the Company's shareholders to allow conversion of all Debentures owned by Holder at the next shareholders meeting. A shareholders meeting will be called during the fall of 2012.
 
Section 5.  Certain Adjustments.

a)     Stock Dividends and Stock Splits.  If the Company, at any time while this Debenture is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions payable in shares of Common Stock on shares of Common Stock or any Common Stock Equivalents (which, for avoidance of doubt, such payment or distribution shall not include any shares of Common Stock issued by the Company upon conversion of the Debentures), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of a reverse stock split) outstanding shares of Common Stock into a smaller number of shares or (iv) issues, in the event of a reclassification of shares of the Common Stock, any shares of capital stock of the Company, then the Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding any treasury shares of the Company) outstanding immediately before such event, and of which the denominator shall be the number of shares of Common Stock outstanding immediately 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.

b)     Subsequent Equity Sales.  If, at any time while this Debenture is outstanding, the Company or any Subsidiary, as applicable, sells or grants any option to purchase or sells or grants any right to reprice, or otherwise disposes of or issues (or announces any 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 that is lower than the then Conversion Price (such lower price, defined herein as the "Base Conversion 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 that is lower than the Conversion Price, such issuance shall be deemed to have occurred for less than the Conversion Price on such date of the Dilutive Issuance), then the Conversion Price shall be reduced to equal the Base Conversion Price. Such adjustment shall be made whenever such Common Stock or Common Stock Equivalents are issued provided an adjustment with respect to such securities has not theretofore been made with respect to the issuance of such Common Stock or Common Stock Equivalents. Notwithstanding the foregoing, no adjustment will be made under this Section 5(b) in respect of an Exempt Issuance. If the Company enters into a Variable Rate Transaction, despite the prohibition set forth in the Purchase Agreement, the Company shall be deemed to have issued Common Stock or Common Stock Equivalents at the lowest possible conversion price at which such securities may be converted or exercised. The Company shall notify the Holder in writing, no later than the Trading Day following the issuance of any Common Stock or Common Stock Equivalents subject to this Section 5(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 this Section 5(b), upon the occurrence of any Dilutive Issuance, the Holder is entitled to receive a number of Conversion Shares based upon the Base Conversion Price on or after the date of such Dilutive Issuance, regardless of whether the Holder accurately refers to the Base Conversion Price in the Notice of Conversion.

c)     Subsequent Rights Offerings.  If the Company, at any time while the Debenture is outstanding, shall issue rights, options or warrants to all holders of Common Stock (and not to the Holders) entitling them to subscribe for or purchase shares of Common Stock at a price per share that is lower than the VW AP on the record date referenced below, then the Conversion Price shall be multiplied by a fraction of which the denominator shall be the number of shares of the Common Stock outstanding on the date of issuance of such rights, options or warrants plus the number of additional shares of Common Stock offered for subscription or purchase, and of which the numerator shall be the number of shares of the Common Stock outstanding on the date of issuance of such rights, options or warrants plus the number of shares which the aggregate offering price of the total number of shares so offered (assuming delivery to the Company in full of all consideration payable upon exercise of such rights, options or warrants) would purchase at such VW AP. Such adjustment shall be made whenever such rights, options or warrants are issued, and shall become effective immediately after the record date for the determination of stockholders entitled to receive such rights, options or warrants.

d)     Pro Rata Distributions.  If the Company, at any time while this Debenture is outstanding, distributes to all holders of Common Stock (and not to the Holders) 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 5(b)), then in each such case the Conversion Price shall be adjusted by multiplying such Conversion 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 VW AP determined as of the record date mentioned above, and of which the numerator shall be such VW AP on such record date less the then fair market value at such record date of the portion of such assets or evidence of indebtedness or rights or warrants so distributed applicable to one outstanding share of the Common Stock as determined by the Board of Directors of the Company in good faith. In either case the adjustments shall be described in a statement delivered to the Holder describing 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.

e)     Calculations.  All calculations under this Section 5 shall be made to the nearest cent or the nearest 11100th of a share, as the case may be. For purposes of this Section 5, 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 any treasury shares of the Company) issued and outstanding.
 
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f)     Notice to the Holder.

i.     Adjustment to Conversion Price.  Whenever the Conversion Price is adjusted pursuant to any provision of this Section 5, the Company shall promptly deliver to each Holder a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment.
 
ii.     Notice to Allow Conversion 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 of 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, or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property or (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 this Debenture, and shall cause to be delivered to the Holder at its last address as it shall appear upon the Debenture Register, at least twenty (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 deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice. To the extent that any notice provided hereunder constitutes, or contains, material, non-public information regarding the Company or any of the Subsidiaries, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8- K. The Holder shall remain entitled to convert this Debenture during the 20-day period commencing on the date of such notice through the effective date of the event triggering such notice except as may otherwise be expressly set forth herein.

Section 6.     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):

i.     any default in the payment of (A) the principal amount of any Debenture or (B) 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);

ii.     the Company shall fail to observe or perform any other covenant or agreement contained in the Debentures (other than a breach by the Company of its obligations to deliver shares of Common Stock to the Holder upon conversion, which breach is addressed in clause (x) below) which failure is not cured, if possible to cure, within the earlier to occur of (A) ten (12) Trading Days after notice of such failure sent by the Holder or by any other Holder to the Company and (B) twenty (20) 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 other material agreement, lease, document or instrument to which the Company or any Subsidiary is obligated (and not covered by clause (vi) below);

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 shall be untrue or incorrect in any material respect as of the date when made or deemed made;

v.     the Company or any Significant Subsidiary (as such term is defined in Rule 1 -02( w) of Regulation S- X) 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;

vii.     at any time after issuance of the Debentures, the Common Stock shall not be eligible for listing or quotation for trading on a Trading Market and shall not be eligible to resume listing or quotation for trading thereon within five Trading Days;
 
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b)     Remedies Upon Event of Default.  If any Event of Default occurs, the outstanding principal amount of this Debenture, plus 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. Upon the payment in full of the 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 6(b). No such rescission or annulment shall affect any subsequent Event of Default or impair any right consequent thereon.
 
Section 7.     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 Conversion, shall be in writing and delivered personally, by facsimile, or sent by a nationally recognized overnight courier service, or by email, addressed to the Company, at the address set forth above, or such other facsimile number or by e-mail delivery of a ".pdf format data file or other address as the Company may specify for such purposes by notice to the Holder delivered in accordance with this Section 7(a). 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 or by email, addressed to each Holder at the facsimile number or address or email address of the Holder appearing on the books of the Company, or if no such facsimile number or address appears on the books of the Company, at the principal place of business of such Holder, as set forth in the Purchase Agreement. 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 set forth on the signature pages attached hereto prior to 5:30 p.m. (Central time zone) on any date, (ii) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth on the signature pages attached hereto on a day that is not a Trading Day or later than 5:30 p.m. (Central time zone) on any Trading Day, (iii) the second Trading Day following the date of mailing, if sent by U.S. 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 and liquidated damages, 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.

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.  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 Oklahoma, without .regard to the principles of conflict of laws thereof. Each party agrees that all legal proceedings 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 commenced in the state and federal courts sitting in the City of Tulsa, (the "Oklahoma Courts"). Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the Oklahoma 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 such Oklahoma Courts, or such Oklahoma 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 other manner permitted by applicable 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 any 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 in the investigation, preparation and prosecution of such action or proceeding.

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 on any other occasion. 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 impede the execution of any power herein granted to the Holder, but will suffer and permit the execution of every such as though no such law has been enacted.
 
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g)     Next Business Day.  Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day.

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

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.

 
AMERICAN NATURAL ENERGY CORPORATION
   
 
By:  /s/ Michael Paulk
 
Name:  Michael Paulk
 
Title:  Pres
 

 
 
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ANNEX A
NOTICE OF CONVERSION

The undersigned hereby elects to convert principal under the 12% Convertible Debenture due December 31, 2014 of American Natural Energy Corporation, an Oklahoma corporation (the "Company"'), into shares of common stock (the "Common Stock"'), of the Company according to the conditions hereof, as of the date written below. If shares of Common Stock are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates and opinions as reasonably requested by the Company in accordance therewith. No fee will be charged to the holder for any conversion, except for such transfer taxes, if any.

By the delivery of this Notice of Conversion the undersigned represents and warrants to the Company that its ownership of the Common Stock does not exceed the amounts specified under Section 4 of this Debenture, as determined in accordance with Section 13(d) of the Exchange Act.

The undersigned agrees to comply with the prospectus delivery requirements under the applicable securities laws in connection with any transfer of the aforesaid shares of Common Stock.

Conversion calculations:
  
 
Date to Effect Conversion:
   
 
Principal Amount of Debenture to be Converted:
   
 
Number of shares of Common Stock to be issued:
   
 
Signature:
   
 
Name:
   
 
Address for Delivery of Common Stock Certificates:
   
 
DW AC Instructions:
   
 
Broker No.
 
Account No.
 

 
 
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Schedule 1

CONVERSION SCHEDULE

The 12% Convertible Debentures due on December 31, 2014 in the aggregate principal amount of $ ____________ are issued by American Natural Energy Corporation, an Oklahoma corporation. This Conversion Schedule reflects conversions made under Section 4 of the above referenced Debenture.

Dated:
Date of Conversion
(or for first entry,
Original Issue Date)
Amount of Conversion
Aggregate Principal Amount
Remaining Subsequent to
Conversion
(or original Principal Amount)
Company Attest