THIS SECURED DEBENTURE, AND THE SECURITIES INTO WHICH IT IS
CONVERTIBLE (COLLECTIVELY, THE "SECURITIES"), HAVE NOT BEEN REGISTERED WITH
THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
COMMISSION OF ANY STATE. THE SECURITIES ARE BEING OFFERED PURSUANT TO A
SAFE HARBOR FROM REGISTRATION UNDER REGULATION D PROMULGATED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THE SECURITIES ARE
"RESTRICTED" AND MAY NOT BE OFFERED OR SOLD UNLESS THE SECURITIES ARE
REGISTERED UNDER THE ACT, PURSUANT TO REGULATION D OR PURSUANT TO AVAILABLE
EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND THE COMPANY
WILL BE PROVIDED WITH OPINION OF COUNSEL OR OTHER SUCH INFORMATION AS IT
MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH EXEMPTIONS ARE AVAILABLE.
FURTHER HEDGING TRANSACTIONS INVOLVING THE SECURITIES MAY NOT BE MADE
EXCEPT IN COMPLIANCE WITH THE ACT.
SECURED DEBENTURE
GREENSHIFT CORPORATION
5% Secured Convertible Debenture
Due December 22, 2006
No. CCP-1 $1,500,000
This Secured Debenture is issued on December 22, 2004 by Greenshift
Corporation, a Delaware corporation (the "Company"), to Cornell Capital
Partners L.P. (together with its permitted successors and assigns, the
"Holder") pursuant to exemptions from registration under the Securities Act
of 1933, as amended.
ARTICLE I.
Section 1.01 Principal and Interest. For value received, on
the Company hereby promises to pay to the order of the Holder in lawful
money of the United States of America and in immediately available funds
the principal sum of One Million Five Hundred Dollars ($1,500,000),
together with interest on the unpaid principal of this Debenture at the
rate of five percent (5%) per year (computed on the basis of a 365-day year
and the actual days elapsed) from the date of this Debenture until paid.
At the Company's option, the entire principal amount and all accrued
interest shall be either (a) paid to the Holder on the second (2nd) year
anniversary from the date hereof or (b) converted in accordance with
Section 1.02 herein provided, however, that in no event shall the Holder be
entitled to convert this Debenture for a number of shares of Common Stock
in excess of that number of shares of Common Stock which, upon giving
effect to such conversion, would cause the aggregate number of shares of
Common Stock beneficially owned by the Holder and its affiliates to exceed
4.99% of the outstanding shares of the Common Stock following such
conversion (which provision may be waived by the Investor by written notice
from the Investor to the Company, which notice shall be effective 61 days
after the date of such notice). This limitation shall not apply to an
automatic conversion pursuant to Section 4.03 hereof.
Section 1.02 Optional Conversion. The Holder is entitled, at
its option, to convert, and sell on the same day, at any time and from time
to time, until payment in full of this Debenture, all or any part of the
principal amount of the Debenture, plus accrued interest, into shares (the
"Conversion Shares") of the Company's common stock, par value $0.001 per
share ("Common Stock"), at the price per share (the "Conversion Price")
equal to the lesser of (a) an amount equal to one hundred ten percent
(110%) of the initial bid price of the Common Stock (the "Fixed Price")
submitted on Form 211 by a registered market maker to and approved by the
NASD or the closing bid price of the Common Stock on the date immediately
preceeding any public announcement that the Company intends to acquire or
be acquired in a reverse merger transaction with a public corporation, or
(b) an amount equal to eighty percent (80%) of the lowest closing bid price
of the Company's Common Stock, as quoted by Bloomberg, LP (the "Closing Bid
Price"), for the five (5) trading days immediately preceding the Conversion
Date (as defined herein). Subparagraphs (a) and (b) above are individually
referred to as a "Conversion Price". As used herein, "Principal Market"
shall mean The National Association of Securities Dealers Inc.'s Over-The-
Counter Bulletin Board, Nasdaq SmallCap Market, or American Stock Exchange.
If the Common Stock is not traded on a Principal Market, the Closing Bid
Price shall mean the reported Closing Bid Price for the Common Stock, as
furnished by the National Association of Securities Dealers, Inc., for the
applicable periods. No fraction of shares or scrip representing fractions
of shares will be issued on conversion, but the number of shares issuable
shall be rounded to the nearest whole share. To convert this Debenture,
the Holder hereof shall deliver written notice thereof, substantially in
the form of Exhibit "A" to this Debenture, with appropriate insertions (the
"Conversion Notice"), to the Company at its address as set forth herein.
The date upon which the conversion shall be effective (the "Conversion
Date") shall be deemed to be the date set forth in the Conversion Notice.
Section 1.03 Reservation of Common Stock. The Company shall
reserve and keep available out of its authorized but unissued shares of
Common Stock, solely for the purpose of effecting the conversion of this
Debenture, such number of shares of Common Stock as shall from time to time
be sufficient to effect such conversion, based upon the Conversion Price.
If at any time the Company does not have a sufficient number of Conversion
Shares authorized and available, then the Company shall call and hold a
special meeting of its stockholders within thirty (30) days of that time
for the sole purpose of increasing the number of authorized shares of
Common Stock.
Section 1.04 Right of Redemption. The Company at its option
shall have the right to redeem, with fifteen (15) days advance written
notice (the "Redemption Notice"), a portion or all outstanding convertible
debenture. The redemption price shall be one hundred thirty percent (130%)
of the amount redeemed plus accrued interest.
In the event the Company exercises a redemption of either all or a
portion the Convertible Debenture, the Holder shall receive a warrant to
purchase fifty thousand (50,000) shares of the Company's Common Stock for
every One Hundred Thousand Dollars ($100,000) redeemed, pro rata (the
"Warrant"). The Warrant shall be exercisable on a "cash basis" and have an
exercised price equal to the Fixed Price. The Warrant shall have "piggy-
back" and demand registration rights and shall survive for two (2) years
from the Closing Date.
Section 1.05 Registration Rights. The Company is obligated to
register the resale of the Conversion Shares under the Securities Act of
1933, as amended, pursuant to the terms of a Registration Rights Agreement
of even date herewith between the Company and the Holder (the "Investor
Registration Rights Agreement").
Section 1.06 Interest Payments. Accrued interest shall be paid
at the time of maturity or conversion to the person in whose name this
Debenture is registered. At the time such interest is payable, the Holder,
in its sole discretion, may elect to receive the interest in cash (via wire
transfer or certified funds) or in the form of Common Stock. In the event
of default, as described in Article III Section 3.01 hereunder, the Holder
may elect that the interest be paid in cash (via wire transfer or certified
funds) or in the form of Common Stock. If paid in the form of Common
Stock, the amount of stock to be issued will be calculated as follows: the
value of the stock shall be the Conversion Price on: (i) the date the
interest payment is due; or (ii) if the interest payment is not made when
due, the date the interest payment is made. A number of shares of Common
Stock with a value equal to the amount of interest due shall be issued. No
fractional shares will be issued; therefore, in the event that the value of
the Common Stock per share does not equal the total interest due, the
Company will pay the balance in cash.
Section 1.07 Paying Agent and Registrar. Initially, the Company
will act as paying agent and registrar. The Company may change any paying
agent, registrar, or Company-registrar by giving the Holder not less than
ten (10) business days' written notice of its election to do so, specifying
the name, address, telephone number and facsimile number of the paying
agent or registrar. The Company may act in any such capacity.
Section 1.08 Secured Nature of Debenture. This Debenture is
secured by certain assets and property of the Company, as more fully
described in the Security Agreement of even date herewith between the
Company and the Holder.
ARTICLE II.
Section 2.01 Amendments and Waiver of Default. The Debenture
may not be amended without the consent of the Holder. Notwithstanding the
above, without the consent of the Holder, the Debenture may be amended to
cure any ambiguity, defect or inconsistency, to provide for assumption of
the Company obligations to the Holder or to make any change that does not
adversely affect the rights of the Holder.
ARTICLE III.
Section 3.01 Events of Default. An Event of Default is defined
as follows: (a) failure by the Company to pay amounts due hereunder within
fifteen (15) days of the date of maturity of this Debenture; (b) failure by
the Company to comply with the terms of the Irrevocable Transfer Agent
Instructions; (c) failure by the Company's transfer agent to issue freely
tradeable Common Stock to the Holder within five (5) days of the Company's
receipt of the attached Notice of Conversion from Holder; (d) failure by
the Company for ten (10) days after notice to it to comply with any of its
other agreements in the Debenture; (e) if the Company files for relief
under the United States Bankruptcy Code (the "Bankruptcy Code") or under
any other state or federal bankruptcy or insolvency law, or files an
assignment for the benefit of creditors, or if an involuntary proceeding
under the Bankruptcy Code or under any other federal or state bankruptcy
or insolvency law is commenced against the Company; (f) a breach by the
Company of its obligations under the Securities Purchase Agreement, the
Escrow Agreement, the Security Agreement, the Investor Registration Rights
Agreement or any other agreement entered into on the date hereof between
the Company and the Holder which is not cured by the Company within ten
(10) days after receipt of written notice thereof. Upon the occurrence of
an Event of Default, the Holder may, in its sole discretion, accelerate
full repayment of all debentures outstanding and accrued interest thereon
or may, notwithstanding any limitations contained in this Debenture and/or
the Securities Purchase Agreement of even date herewith between the Company
and Cornell Capital Partners, L.P. (the "Securities Purchase Agreement"),
convert all debentures outstanding and accrued interest thereon into shares
of Common Stock pursuant to Section 1.02 herein.
Section 3.02 Failure to Issue Unrestricted Common Stock. As
indicated in Article III Section 3.01, a breach by the Company of its
obligations under the Investor Registration Rights Agreement shall be
deemed an Event of Default, which if not cured within ten (10) days, shall
entitle the Holder to accelerate full repayment of all debentures
outstanding and accrued interest thereon or, notwithstanding any
limitations contained in this Debenture and/or the Securities Purchase
Agreement, to convert all debentures outstanding and accrued interest
thereon into shares of Common Stock pursuant to Section 1.02 herein. The
Company acknowledges that failure to honor a Notice of Conversion shall
cause irreparable harm to the Holder.
ARTICLE IV.
Section 4.01 Rights and Terms of Conversion. This Debenture, in
whole or in part, may be converted at any time following the date of
closing into shares of Common Stock at a price equal to the Conversion
Price as described in Section 1.02 above.
Section 4.02 Re-issuance of Debenture. When the Holder elects
to convert a part of the Debenture, then the Company shall reissue a new
Debenture in the same form as this Debenture to reflect the new principal
amount.
Section 4.03 Termination of Conversion Rights. The Holder's
right to convert the Debenture into the Common Stock in accordance with
paragraph 4.01 shall terminate on the date that is the third (3rd) year
anniversary from the date hereof and this Debenture shall be automatically
converted on that date in accordance with the formula set forth in
Section 4.01 hereof, and the appropriate shares of Common Stock and amount
of interest shall be issued to the Holder.
ARTICLE V.
Section 5.01 Anti-dilution. In the event that the Company shall
at any time subdivide the outstanding shares of Common Stock, or shall
issue a stock dividend on the outstanding Common Stock, the Conversion
Price in effect immediately prior to such subdivision or the issuance of
such dividend shall be proportionately decreased, and in the event that the
Company shall at any time combine the outstanding shares of Common Stock,
the Conversion Price in effect immediately prior to such combination shall
be proportionately increased, effective at the close of business on the
date of such subdivision, dividend or combination as the case may be.
Section 5.02 Consent of Holder to Sell Capital Stock or Grant
Security Interests. Except for the Standby Equity Distribution Agreement
dated the date hereof between the Company and Cornell Capital Partners, LP.
so long as any of the principal of or interest on this Note remains unpaid
and unconverted, the Company shall not, without the prior consent of the
Holder, issue or sell (i) any Common Stock or Preferred Stock without
consideration or for a consideration per share less than its fair market
value determined immediately prior to its issuance, (ii) issue or sell any
Preferred Stock, warrant, option, right, contract, call, or other security
or instrument granting the holder thereof the right to acquire Common Stock
without consideration or for a consideration per share less than such
Common Stock's fair market value determined immediately prior to its
issuance, (iii) enter into any security instrument granting the holder a
security interest in any of the assets of the Company, or (iv) file any
registration statement on Form S-8.
ARTICLE VI.
Section 6.01 Notice. Notices regarding this Debenture shall be
sent to the parties at the following addresses, unless a party notifies the
other parties, in writing, of a change of address:
If to the Company, to:
Greenshift Corporation
111 Howard Street, Suite 108
Mount Arlington, New Jersey 07856
Attention: Kevin Kreisler
Telephone: (973)-398-8183
Facsimile: (973)-398-8037
With a copy to:
Robert Brantl, Esq
322 Fourth Street
Brooklyn, New York 11215
Telephone: (718)-768-6045
Facsimile: (718)-965-4042
If to the Holder:
Cornell Capital Partners, LP
101 Hudson Street, Suite 3700
Jersey City, NJ 07303
Attention: Mark Angelo
Telephone: (201) 985-8300
Facsimile: (201) 985-8266
With a copy to:
Cornell Capital Partners, LP
101 Hudson Street, Suite 3700
Jersey City, NJ 07303
Attention: Troy J. Rillo, Esq.
Telephone: (201) 985-8300
Facsimile: (201) 985-8266
Section 6.02 Governing Law. This Debenture shall be deemed to
be made under and shall be construed in accordance with the laws of the
State of New Jersey without giving effect to the principals of conflict of
laws thereof. Each of the parties consents to the exclusive jurisdiction
of the U.S. District Court sitting in the District of the State of New
Jersey or the state courts of the State of New Jersey sitting in Hudson
County, New Jersey in connection with any dispute arising under this
Debenture and hereby waives, to the maximum extent permitted by law, any
objection, including any objection based on forum non conveniens to the
bringing of any such proceeding in such jurisdictions.
Section 6.03 Severability. The invalidity of any of the
provisions of this Debenture shall not invalidate or otherwise affect any
of the other provisions of this Debenture, which shall remain in full force
and effect.
Section 6.04 Entire Agreement and Amendments. This Debenture
represents the entire agreement between the parties hereto with respect to
the subject matter hereof and there are no representations, warranties or
commitments, except as set forth herein. This Debenture may be amended
only by an instrument in writing executed by the parties hereto.
Section 6.05 Counterparts. This Debenture may be executed in
multiple counterparts, each of which shall be an original, but all of which
shall be deemed to constitute one instrument.
IN WITNESS WHEREOF, with the intent to be legally bound hereby, the
Company as executed this Debenture as of the date first written above.
GREENSHIFT CORPORATION
By:/s/ Kevin Kreisler
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Name: Kevin Kreisler
Title: Chairman & CEO
EXHIBIT "A"
NOTICE OF CONVERSION
(To be executed by the Holder in order to Convert the Debenture)
TO:
The undersigned hereby irrevocably elects to convert $____________
__________ of the principal amount of the above Debenture into Shares of
Common Stock of Greenshift Corporation, according to the conditions stated
therein, as of the Conversion Date written below.
Conversion Date:
Applicable Conversion Price:
Signature:
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Name:
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Address:
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Amount to be converted: $
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Amount of Debenture unconverted:$
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Conversion Price per share: $
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Number of shares of Common Stock to be issued:
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Please issue the shares of Common Stock in the following name
and to the following address:
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Issue to:
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Authorized Signature:
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Name:
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Title:
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Phone Number:
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Broker DTC Participant Code:
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Account Number:
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