EXHIBIT 10.1


 


NEITHER THIS DEBENTURE NOR THE SECURITIES
INTO WHICH THIS DEBENTURE IS CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION
OF ANY STATE.  THESE SECURITIES HAVE BEEN SOLD 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.


 


CARBONICS
CAPITAL CORPORATION


 


Secured
Convertible Debenture


 


Principal Amount:     $25,000


Debenture Issuance Date: August 13, 2012


Debenture Number: CICS-12


 


FOR VALUE RECEIVED,
CARBONICS CAPITAL CORPORATION, a Delaware corporation (the "Company"), hereby promises to pay to the order of
YA Global Investments, L.P., a Cayman Islands exempt limited partnership, or its registered assigns (the "Holder")
the amount set out above as the Principal Amount (as reduced pursuant to the terms hereof pursuant to redemption, conversion or
otherwise, the "Principal") when due, whether upon the Maturity Date (as defined below), acceleration, redemption
or otherwise (in each case in accordance with the terms hereof) and to pay interest ("Interest") on any outstanding
Principal at the applicable Interest Rate from the date set out above as the Debenture Issuance Date (the "Issuance Date")
until the same becomes due and payable, whether upon an Interest Date (as defined below), the Maturity Date or acceleration, conversion,
redemption or otherwise (in each case in accordance with the terms hereof).  This Secured Convertible Debenture (including
all debentures issued in exchange, transfer or replacement hereof, this "Debenture") is issued pursuant to the
Securities Purchase Agreement dated August 17, 2010, as supplement by the agreements dated May 25, 2011, December 6, 2011, May
31, 2012 and August 13, 2012 (collectively, the “Securities Purchase Agreement”) between the Holder and the
Company.  Certain capitalized terms used herein are defined in Section 17.


 


(1)         GENERAL
TERMS


 


(a)          Payment
of Principal.  On the Maturity Date, the Company shall pay to the Holder an amount in
cash representing all outstanding Principal, accrued and unpaid Interest.  The "Maturity Date"
shall be December 31, 2013, as may be extended at the option of the Holder (i) in the event that, and for so long as, an Event
of Default (as defined below) shall have occurred and be continuing on the Maturity Date (as may be extended pursuant to this Section
1) or any event shall have occurred and be continuing on the Maturity Date (as may be extended pursuant to this Section 1) that
with the passage of time and the failure to cure would result in an Event of Default.  Other than as specifically permitted
by this Debenture, the Company may not prepay or redeem any portion of the outstanding Principal without the prior written consent
of the Holder.


 



    	 



    	 



    

 


(b)          Interest.  Interest
shall accrue on the outstanding principal balance hereof at an annual rate equal to nine percent (9%) (“Interest Rate”).  Interest
shall be calculated on the basis of a 365-day year and the actual number of days elapsed, to the extent permitted by applicable
law.  Interest hereunder shall be paid on the Maturity Date (or sooner as provided herein) to the Holder or its assignee
in whose name this Debenture is registered on the records of the Company regarding registration and transfers of Debentures in
cash, or, provided that the Equity Conditions are then satisfied, and with the consent of the Holder, converted into Common Stock
at the Conversion Price on the Trading Day it is paid.


 


(c)          Security.  This
Debenture is secured by the “Security Documents,” as such term is defined in the Securities Purchase Agreement. 


 


(2)         EVENTS
OF DEFAULT. 


 


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


 


(i)          the
Company's failure to pay to the Holder any amount of Principal, Interest, or other amounts when and as due under this Debenture
(including, without limitation, the Company's failure to pay any redemption payments or amounts hereunder) or any other Transaction
Document;


 


(ii)         The
Company or any subsidiary of the Company shall commence, or there shall be commenced against the Company or any subsidiary of the
Company under any applicable bankruptcy or insolvency laws as now or hereafter in effect or any successor thereto, or the Company
or any subsidiary of the Company commences any other proceeding under any reorganization, arrangement, adjustment of debt, relief
of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction whether now or hereafter in effect relating
to the Company or any subsidiary of the Company or there is commenced against the Company or any subsidiary of the Company any
such bankruptcy, insolvency or other proceeding which remains undismissed for a period of 61 days; or the Company or any subsidiary
of the Company is adjudicated insolvent or bankrupt; or any order of relief or other order approving any such case or proceeding
is entered; or the Company or any subsidiary of the Company suffers any appointment of any custodian, private or court appointed
receiver or the like for it or any substantial part of its property which continues undischarged or unstayed for a period of sixty
one (61) days; or the Company or any subsidiary of the Company makes a general assignment for the benefit of creditors; or the
Company or any subsidiary of the Company shall fail to pay, or shall state that it is unable to pay, or shall be unable to pay,
its debts generally as they become due; or the Company or any subsidiary of the Company shall call a meeting of its creditors with
a view to arranging a composition, adjustment or restructuring of its debts; or the Company or any subsidiary of the Company shall
by any act or failure to act expressly indicate its consent to, approval of or acquiescence in any of the foregoing; or any corporate
or other action is taken by the Company or any subsidiary of the Company for the purpose of effecting any of the foregoing;


 



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(iii)        The
Company or any subsidiary of the Company shall default in any of its obligations under any other debenture or 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 of the Company or any subsidiary of the Company in an amount exceeding $100,000, whether such indebtedness now exists
or shall hereafter be created and such default shall result in such indebtedness becoming or being declared due and payable;


 


(iv)        The
Common Stock shall cease to be quoted or listed for trading, fail to have a bid price or VWAP, or fail to maintain a trading market
on any Primary Market, for a period of five (5) consecutive Trading Days;


 


(v)         The
Company or any subsidiary of the Company shall be a party to any Change of Control Transaction (as defined in Section 6) unless
in connection with such Change of Control Transaction this Debenture is retired;


 


(vi)        the
Company's (A) failure to cure a Conversion Failure by delivery of the required number of shares of Common Stock within five (5)
Business Days after the applicable Conversion Failure or (B) notice, written or oral, to any holder of the Debentures, including
by way of public announcement, at any time, of its intention not to comply with a request for conversion of any Debentures into
shares of Common Stock that is tendered in accordance with the provisions of the Debentures, other than pursuant to Section 4(c);


 


(vii)       The
Company shall fail for any reason to deliver the payment in cash pursuant to a Buy-In (as defined herein) within three (3) Business
Days after such payment is due;


 


(viii)      The
Company shall fail to observe or perform any other covenant, agreement or warranty contained in, or otherwise commit any breach
or default of any provision of this Debenture (except as may be covered by Section 2(a)(i) through 2(a)(vii) hereof) or any Transaction
Document (as defined in Section 17) which is not cured within the time prescribed.


 


(ix)         any
Event of Default (as defined in the Other Debentures) occurs with respect to any Other Debentures.


 



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(b)          During
the time that any portion of this Debenture is outstanding, if any Event of Default has occurred, the full unpaid Principal amount
of this Debenture, together with interest and other amounts owing in respect thereof, to the date of acceleration shall become
at the Holder's election, immediately due and payable in cash.  Furthermore, in addition to any other remedies, the Holder
shall have the right (but not the obligation) to convert this Debenture at any time after (x) an Event of Default or (y) the Maturity
Date at the Conversion Price.  The Holder need not provide and the Company hereby waives any presentment, demand, protest
or other notice of any kind, (other than required notice of conversion) and the Holder may immediately and without expiration of
any grace period enforce any and all of its rights and remedies hereunder and all other remedies available to it under applicable
law. Such declaration may be rescinded and annulled by Holder at any time prior to payment hereunder. No such rescission or annulment
shall affect any subsequent Event of Default or impair any right consequent thereon.  


 


(3)         COMPANY
REDEMPTION.  The Company at its option shall have the right to redeem (“Optional Redemption”)
a portion or all amounts outstanding under this Debenture prior to the Maturity Date with prior written notice to the Holder.  The
Company shall pay an amount equal to the principal amount being redeemed plus a redemption premium equal to 20% of the principal
amount being redeemed, plus all accrued and unpaid Interest, (collectively referred to as the “Redemption Amount”).  In
order to make a redemption pursuant to this Section, the Company shall first provide written notice to the Holder of its intention
to make a redemption (the “Redemption Notice”) setting forth the amount of Principal it desires to redeem.  After
receipt of the Redemption Notice the Holder shall have three (3) Business Days to elect to convert all or any portion of this Debenture,
subject to the limitations set forth in Section 4(b).  On the fourth (4th) Business Day after the Redemption Notice,
the Company shall deliver to the Holder the Redemption Amount with respect to the Principal amount redeemed after giving effect
to conversions effected during the three (3) Business Day period.


 


(4)         CONVERSION
OF DEBENTURE.  This Debenture shall be convertible into shares of the Company's Common Stock, on the terms and conditions
set forth in this Section 4.


 


(a)          Conversion
Right.  Subject to the provisions of Section 4(c), at any time or times on or after the Issuance Date, the Holder
shall be entitled to convert any portion of the outstanding and unpaid Conversion Amount (as defined below) into fully paid and
nonassessable shares of Common Stock in accordance with Section 4(b), at the Conversion Rate (as defined below).  The
number of shares of Common Stock issuable upon conversion of any Conversion Amount pursuant to this Section 4(a) shall be determined
by dividing (x) such Conversion Amount by (y) the Conversion Price (the "Conversion Rate").  The Company
shall not issue any fraction of a share of Common Stock upon any conversion.  If the issuance would result in the issuance
of a fraction of a share of Common Stock, the Company shall round such fraction of a share of Common Stock up to the nearest whole
share.  The Company shall pay any and all transfer, stamp and similar taxes that may be payable with respect to the issuance
and delivery of Common Stock upon conversion of any Conversion Amount.  


 


(i)          "Conversion
Amount" means the portion of the Principal and accrued Interest to be converted, redeemed or otherwise with respect to
which this determination is being made.


 



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(ii)         "Conversion
Price" means, as of any Conversion Date (as defined below) or other date of determination, the lesser of (a) $0.003 (the
“Fixed Conversion Price”), or (b) 90% of the lowest daily VWAP during the 10 consecutive Trading Days immediately
preceding the Conversion Date or other date of determination (the “Market Conversion Price”).  The
Conversion Price shall be adjusted from time to time pursuant to the other terms and conditions of this Debenture.  


 


(b)          Mechanics
of Conversion.


 


(i)          Optional
Conversion.  To convert any Conversion Amount into shares of Common Stock on any date (a "Conversion Date"),
the Holder shall (A) transmit by facsimile (or otherwise deliver), for receipt on or prior to 11:59 p.m., New York Time, on such
date, a copy of an executed notice of conversion in the form attached hereto as Exhibit I (the "Conversion Notice")
to the Company and (B) if required by Section 4(b)(iv), surrender this Debenture to a nationally recognized overnight delivery
service for delivery to the Company (or an indemnification undertaking reasonably satisfactory to the Company with respect to this
Debenture in the case of its loss, theft or destruction).  On or before the third Business Day following the date of
receipt of a Conversion Notice (the "Share Delivery Date"), the Company shall (X) if legends are not required
to be placed on certificates of Common Stock and provided that the Transfer Agent is participating in the Depository Trust Company's
("DTC") Fast Automated Securities Transfer Program, credit such aggregate number of shares of Common Stock to
which the Holder shall be entitled to the Holder's or its designee's balance account with DTC through its Deposit Withdrawal Agent
Commission system or (Y) if the Transfer Agent is not participating in the DTC Fast Automated Securities Transfer Program, issue
and deliver to the address as specified in the Conversion Notice, a certificate, registered in the name of the Holder or its designee,
for the number of shares of Common Stock to which the Holder shall be entitled which certificates shall not bear any restrictive
legends unless required pursuant to rules and regulations of the Commission.  If this Debenture is physically surrendered
for conversion and the outstanding Principal of this Debenture is greater than the Principal portion of the Conversion Amount being
converted, then the Company shall as soon as practicable and in no event later than three (3) Business Days after receipt of this
Debenture and at its own expense, issue and deliver to the holder a new Debenture representing the outstanding Principal not converted.  The
Person or Persons entitled to receive the shares of Common Stock issuable upon a conversion of this Debenture shall be treated
for all purposes as the record holder or holders of such shares of Common Stock upon the transmission of a Conversion Notice.


 


(ii)         Company's
Failure to Timely Convert.  If within three (3) Trading Days after the Company's receipt of the facsimile copy of
a Conversion Notice the Company shall fail to issue and deliver a certificate to the Holder or credit the Holder's balance account
with DTC for the number of shares of Common Stock to which the Holder is entitled upon such holder's conversion of any Conversion
Amount (a "Conversion Failure"), and if on or after such Trading Day the Holder purchases (in an open market transaction
or otherwise) Common Stock to deliver in satisfaction of a sale by the Holder of Common Stock issuable upon such conversion that
the Holder anticipated receiving from the Company (a "Buy-In"), then the Company shall, within three (3) Business
Days after the Holder's request and in the Holder's discretion, either (i) pay cash to the Holder in an amount equal to the Holder's
total purchase price (including brokerage commissions and other out of pocket expenses, if any) for the shares of Common Stock
so purchased (the "Buy-In Price"), at which point the Company's obligation to deliver such certificate
(and to issue such Common Stock) shall terminate, or (ii) promptly honor its obligation to deliver to the Holder a certificate
or certificates representing such Common Stock and pay cash to the Holder in an amount equal to the excess (if any) of the Buy-In
Price over the product of (A) such number of shares of Common Stock, times (B) the Closing Bid Price on the Conversion Date.


 



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(iii)        Book-Entry.
Notwithstanding anything to the contrary set forth herein, upon conversion of any portion of this Debenture in accordance with
the terms hereof, the Holder shall not be required to physically surrender this Debenture to the Company unless (A) the full Conversion
Amount represented by this Debenture is being converted or (B) the Holder has provided the Company with prior written notice (which
notice may be included in a Conversion Notice) requesting reissuance of this Debenture upon physical surrender of this Debenture.  The
Holder and the Company shall maintain records showing the Principal and Interest converted and the dates of such conversions or
shall use such other method, reasonably satisfactory to the Holder and the Company, so as not to require physical surrender of
this Debenture upon conversion.


 


(c)          Limitations
on Conversions.


 


(i)          Beneficial
Ownership.  The Company shall not effect any conversions of this Debenture and the Holder shall not have the right
to convert any portion of this Debenture or receive shares of Common Stock as payment of interest hereunder to the extent that
after giving effect to such conversion or receipt of such interest payment, the Holder, together with any affiliate thereof, would
beneficially own (as determined in accordance with Section 13(d) of the Exchange Act and the rules promulgated thereunder) in excess
of 4.99% of the number of shares of Common Stock outstanding immediately after giving effect to such conversion or receipt of shares
as payment of interest.   Since the Holder will not be obligated to report to the Company the number of shares of Common
Stock it may hold at the time of a conversion hereunder, unless the conversion at issue would result in the issuance of shares
of Common Stock in excess of 4.99% of the then outstanding shares of Common Stock without regard to any other shares which may
be beneficially owned by the Holder or an affiliate thereof, the Holder shall have the authority and obligation to determine whether
the restriction contained in this Section will limit any particular conversion hereunder and to the extent that the Holder determines
that the limitation contained in this Section applies, the determination of which portion of the principal amount of this Debenture
is convertible shall be the responsibility and obligation of the Holder.  If the Holder has delivered a Conversion Notice
for a principal amount of this Debenture that, without regard to any other shares that the Holder or its affiliates may beneficially
own, would result in the issuance in excess of the permitted amount hereunder, the Company shall notify the Holder of this fact
and shall honor the conversion for the maximum principal amount permitted to be converted on such Conversion Date in accordance
with Section 4(a) and, any principal amount tendered for conversion in excess of the permitted amount hereunder shall remain outstanding
under this Debenture. The provisions of this Section may be waived by a Holder (but only as to itself and not to any other Holder)
upon not less than 65 days prior notice to the Company. Other Holders shall be unaffected by any such waiver.


 



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(d)          Other
Provisions.


 


(i)          The
Company shall at all times reserve and keep available out of its authorized Common Stock the full number of shares of Common Stock
issuable upon conversion of all outstanding amounts under this Debenture; and within three (3) Business Days following the receipt
by the Company of a Holder's notice that such minimum number of Underlying Shares is not so reserved, the Company shall promptly
reserve a sufficient number of shares of Common Stock to comply with such requirement.


 


(ii)         All
calculations under this Section 4 shall be rounded to the nearest $0.0001 or whole share.


 


(iii)        The
Company covenants that it will at all times reserve and keep available out of its authorized and unissued shares of Common Stock
solely for the purpose of issuance upon conversion of this Debenture and payment of interest on this Debenture, each as herein
provided, free from preemptive rights or any other actual contingent purchase rights of persons other than the Holder, not less
than such number of shares of the Common Stock as shall be issuable (taking into account the adjustments and restrictions set forth
herein) upon the conversion of the outstanding principal amount of this Debenture and payment of interest hereunder. The Company
covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly and validly authorized, issued and
fully paid, nonassessable and, if the Underlying Shares Registration Statement has been declared effective under the Securities
Act, registered for public sale in accordance with such Underlying Shares Registration Statement.


 


(iv)        Nothing
herein shall limit a Holder's right to pursue actual damages or declare an Event of Default pursuant to Section 2 herein for the
Company 's failure to deliver certificates representing shares of Common Stock upon conversion within the period specified herein
and such Holder shall have the right to pursue all remedies available to it at law or in equity including, without limitation,
a decree of specific performance and/or injunctive relief, in each case without the need to post a bond or provide other security.
The exercise of any such rights shall not prohibit the Holder from seeking to enforce damages pursuant to any other Section hereof
or under applicable law.


 


(5)         Adjustments
to Conversion Price


 


(a)          Adjustment
of Conversion Price upon Issuance of Common Stock.  If the Company, at any time while this Debenture is outstanding,
issues or sells, or in accordance with this Section 5(a) is deemed to have issued or sold, any shares of Common Stock, excluding
shares of Common Stock deemed to have been issued or sold by the Company in connection with any Excluded Securities, for a consideration
per share (the “New Issuance Price”) less than a price equal to the Fixed Conversion Price in effect immediately
prior to such issue or sale (such price the "Applicable Price") (the foregoing a "Dilutive Issuance"),
then immediately after such Dilutive Issuance the Fixed Conversion Price then in effect shall be reduced to an amount equal to
the New Issuance Price. For purposes of determining the adjusted Fixed Conversion Price under this Section 5(a), the following
shall be applicable:


 



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(i)          Issuance
of Options.  If the Company in any manner grants or sells any Options and the lowest price per share for which one
share of Common Stock is issuable upon the exercise of any such Option or upon conversion or exchange or exercise of any Convertible
Securities issuable upon exercise of such Option is less than the Applicable Price, then such share of Common Stock shall be deemed
to be outstanding and to have been issued and sold by the Company at the time of the granting or sale of such Option for such price
per share.  For purposes of this Section, the "lowest price per share for which one share of Common Stock is issuable
upon the exercise of any such Option or upon conversion or exchange or exercise of any Convertible Securities issuable upon exercise
of such Option" shall be equal to the sum of the lowest amounts of consideration (if any) received or receivable by the Company
with respect to any one share of Common Stock upon granting or sale of the Option, upon exercise of the Option and upon conversion
or exchange or exercise of any Convertible Security issuable upon exercise of such Option.  No further adjustment of
the Conversion Price shall be made upon the actual issuance of such share of Common Stock or of such Convertible Securities upon
the exercise of such Options or upon the actual issuance of such Common Stock upon conversion or exchange or exercise of such Convertible
Securities.


 


(ii)         Issuance
of Convertible Securities.  If the Company in any manner issues or sells any Convertible Securities and the lowest
price per share for which one share of Common Stock is issuable upon such conversion or exchange or exercise thereof is less than
the Applicable Price, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the
Company at the time of the issuance or sale of such Convertible Securities for such price per share.  For the purposes
of this Section, the "lowest price per share for which one share of Common Stock is issuable upon such conversion or exchange
or exercise" shall be equal to the sum of the lowest amounts of consideration (if any) received or receivable by the Company
with respect to any one share of Common Stock upon the issuance or sale of the Convertible Security and upon the conversion or
exchange or exercise of such Convertible Security.  No further adjustment of the Conversion Price shall be made upon
the actual issuance of such share of Common Stock upon conversion or exchange or exercise of such Convertible Securities, and if
any such issue or sale of such Convertible Securities is made upon exercise of any Options for which adjustment of the Conversion
Price had been or are to be made pursuant to other provisions of this Section, no further adjustment of the Conversion Price shall
be made by reason of such issue or sale.


 


(iii)        Change
in Option Price or Rate of Conversion.  If the purchase price provided for in any Options, the additional consideration,
if any, payable upon the issue, conversion, exchange or exercise of any Convertible Securities, or the rate at which any Convertible
Securities are convertible into or exchangeable or exercisable for Common Stock changes at any time, the Conversion Price in effect
at the time of such change shall be adjusted to the Conversion Price which would have been in effect at such time had such Options
or Convertible Securities provided for such changed purchase price, additional consideration or changed conversion rate, as the
case may be, at the time initially granted, issued or sold.  For purposes of this Section, if the terms of any Option
or Convertible Security that was outstanding as of the Issuance Date are changed in the manner described in the immediately preceding
sentence, then such Option or Convertible Security and the Common Stock deemed issuable upon exercise, conversion or exchange thereof
shall be deemed to have been issued as of the date of such change.  No adjustment shall be made if such adjustment would
result in an increase of the Conversion Price then in effect.


 



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(iv)        Calculation
of Consideration Received.  In case any Option is issued in connection with the issue or sale of other securities
of the Company, together comprising one integrated transaction in which no specific consideration is allocated to such Options
by the parties thereto, the Options will be deemed to have been issued for the difference of (x) the aggregate fair market value
of such Options and other securities issued or sold in such integrated transaction, less (y) the fair market value of the securities
other than such Option, issued or sold in such transaction and the other securities issued or sold in such integrated transaction
will be deemed to have been issued or sold for the balance of the consideration received by the Company.  If any Common
Stock, Options or Convertible Securities are issued or sold or deemed to have been issued or sold for cash, the consideration received
therefor will be deemed to be the gross amount raised by the Company; provided, however, that such gross amount is not greater
than 110% of the net amount received by the Company therefor.  If any Common Stock, Options or Convertible Securities
are issued or sold for a consideration other than cash, the amount of the consideration other than cash received by the Company
will be the fair value of such consideration, except where such consideration consists of securities, in which case the amount
of consideration received by the Company will be the Closing Bid Price of such securities on the date of receipt.  If
any Common Stock, Options or Convertible Securities are issued to the owners of the non-surviving entity in connection with any
merger in which the Company is the surviving entity, the amount of consideration therefor will be deemed to be the fair value of
such portion of the net assets and business of the non-surviving entity as is attributable to such Common Stock, Options or Convertible
Securities, as the case may be.  The fair value of any consideration other than cash or securities will be determined
jointly by the Company and the Holder.  If such parties are unable to reach agreement within ten (10) days after the
occurrence of an event requiring valuation (the "Valuation Event"), the fair value of such consideration will
be determined within five (5) Business Days after the tenth (10th) day following the Valuation Event by an independent,
reputable appraiser jointly selected by the Company and the Holder.  The determination of such appraiser shall be deemed
binding upon all parties absent manifest error and the fees and expenses of such appraiser shall be borne by the Company.


 


(v)         Record
Date.  If the Company takes a record of the holders of Common Stock for the purpose of entitling them (A) to receive
a dividend or other distribution payable in Common Stock, Options or in Convertible Securities or (B) to subscribe for or purchase
Common Stock, Options or Convertible Securities, then such record date will be deemed to be the date of the issue or sale of the
Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution
or the date of the granting of such right of subscription or purchase, as the case may be.


 


(b)          Adjustment
of Conversion Price upon Subdivision or Combination of Common Stock.  If the Company, at any time while this Debenture
is outstanding, shall (a) pay a stock dividend or otherwise make a distribution or distributions on shares of its Common Stock
or any other equity or equity equivalent securities payable in shares of Common Stock, (b) subdivide outstanding shares of Common
Stock into a larger number of shares, (c) combine (including by way of reverse stock split) outstanding shares of Common Stock
into a smaller number of shares, or (d) issue by reclassification of shares of the Common Stock any shares of capital stock of
the Company, then the Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares of
Common Stock (excluding treasury shares, if any) outstanding before such event and of which the denominator shall be the number
of shares of Common Stock outstanding after such event. Any adjustment made pursuant to this Section shall become effective immediately
after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become
effective immediately after the effective date in the case of a subdivision, combination or re-classification.


 



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(c)          Purchase
Rights.  If at any time the Company grants, issues or sells any Options, Convertible Securities or rights to purchase
stock, warrants, securities or other property pro rata to the record holders of any class of Common Stock (the "Purchase
Rights"), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate
Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon
complete conversion of this Debenture (without taking into account any limitations or restrictions on the convertibility of this
Debenture) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or,
if no such record is taken, the date as of which the record holders of Common Stock are to be determined for the grant, issue or
sale of such Purchase Rights.


 


(d)          Other
Events.  If any event occurs of the type contemplated by the provisions of this Section 4 but not expressly provided
for by such provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other
rights with equity features), then the Company's Board of Directors will make an appropriate adjustment in the Conversion Price
so as to protect the rights of the Holder under this Debenture; provided that no such adjustment will increase the Conversion Price
as otherwise determined pursuant to this Section 5.


 


(e)          Other
Corporate Events.  In addition to and not in substitution for any other rights hereunder, prior to the consummation
of any Fundamental Transaction pursuant to which holders of shares of Common Stock are entitled to receive securities or other
assets with respect to or in exchange for shares of Common Stock (a "Corporate Event"), the Company shall make
appropriate provision to insure that the Holder will thereafter have the right to receive upon a conversion of this Debenture,
at the Holder's option, (i) in addition to the shares of Common Stock receivable upon such conversion, such securities or other
assets to which the Holder would have been entitled with respect to such shares of Common Stock had such shares of Common Stock
been held by the Holder upon the consummation of such Corporate Event (without taking into account any limitations or restrictions
on the convertibility of this Debenture) or (ii) in lieu of the shares of Common Stock otherwise receivable upon such conversion,
such securities or other assets received by the holders of shares of Common Stock in connection with the consummation of such Corporate
Event in such amounts as the Holder would have been entitled to receive had this Debenture initially been issued with conversion
rights for the form of such consideration (as opposed to shares of Common Stock) at a conversion rate for such consideration commensurate
with the Conversion Rate.  Provision made pursuant to the preceding sentence shall be in a form and substance satisfactory
to the Required Holders.  The provisions of this Section shall apply similarly and equally to successive Corporate Events
and shall be applied without regard to any limitations on the conversion or redemption of this Debenture.


 


(f)          Whenever
the Conversion Price is adjusted pursuant to Section 5 hereof, the Company shall promptly mail to the Holder a notice setting forth
the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment.


 



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(g)          In
case of any (1) merger or consolidation of the Company or any subsidiary of the Company with or into another Person, or (2) sale
by the Company or any subsidiary of the Company of more than one-half of the assets of the Company in one or a series of related
transactions, a Holder shall have the right to (A) exercise any rights under Section 2(b), (B) convert the aggregate amount of
this Debenture then outstanding into the shares of stock and other securities, cash and property receivable upon or deemed to be
held by holders of Common Stock following such merger, consolidation or sale, and such Holder shall be entitled upon such event
or series of related events to receive such amount of securities, cash and property as the shares of Common Stock into which such
aggregate principal amount of this Debenture could have been converted immediately prior to such merger, consolidation or sales
would have been entitled, or (C) in the case of a merger or consolidation, require the surviving entity to issue to the Holder
a convertible Debenture with a principal amount equal to the aggregate principal amount of this Debenture then held by such Holder,
plus all accrued and unpaid interest and other amounts owing thereon, which such newly issued convertible Debenture shall have
terms identical (including with respect to conversion) to the terms of this Debenture, and shall be entitled to all of the rights
and privileges of the Holder of this Debenture set forth herein and the agreements pursuant to which this Debentures were issued.
In the case of clause (C), the conversion price applicable for the newly issued shares of convertible preferred stock or convertible
Debentures shall be based upon the amount of securities, cash and property that each share of Common Stock would receive in such
transaction and the Conversion Price in effect immediately prior to the effectiveness or closing date for such transaction. The
terms of any such merger, sale or consolidation shall include such terms so as to continue to give the Holder the right to receive
the securities, cash and property set forth in this Section upon any conversion or redemption following such event. This provision
shall similarly apply to successive such events.


 


(6)         REISSUANCE
OF THIS DEBENTURE.


 


(a)          Transfer.  If
this Debenture is to be transferred, the Holder shall surrender this Debenture to the Company, whereupon the Company will forthwith
issue and deliver upon the order of the Holder a new Debenture (in accordance with Section 6(d)), registered in the name of the
registered transferee or assignee, representing the outstanding Principal being transferred by the Holder and, if less then the
entire outstanding Principal is being transferred, a new Debenture (in accordance with Section 6(d)) to the Holder representing
the outstanding Principal not being transferred.  The Holder and any assignee, by acceptance of this Debenture, acknowledge
and agree that, by reason of the provisions of Section 4(b)(iii) following conversion or redemption of any portion of this Debenture,
the outstanding Principal represented by this Debenture may be less than the Principal stated on the face of this Debenture.


 


(b)          Lost,
Stolen or Mutilated Debenture.  Upon receipt by the Company of evidence reasonably satisfactory to the Company of
the loss, theft, destruction or mutilation of this Debenture, and, in the case of loss, theft or destruction, of any indemnification
undertaking by the Holder to the Company in customary form and, in the case of mutilation, upon surrender and cancellation of this
Debenture, the Company shall execute and deliver to the Holder a new Debenture (in accordance with Section 6(d)) representing the
outstanding Principal.


 



    	11



    	 



    

 


(c)          Debenture
Exchangeable for Different Denominations.  This Debenture is exchangeable, upon the surrender hereof by the Holder
at the principal office of the Company, for a new Debenture or Debentures (in accordance with Section 6(d)) representing in the
aggregate the outstanding Principal of this Debenture, and each such new Debenture will represent such portion of such outstanding
Principal as is designated by the Holder at the time of such surrender.


 


(d)          Issuance
of New Debentures.  Whenever the Company is required to issue a new Debenture pursuant to the terms of this Debenture,
such new Debenture (i) shall be of like tenor with this Debenture, (ii) shall represent, as indicated on the face of such new Debenture,
the Principal remaining outstanding (or in the case of a new Debenture being issued pursuant to Section 6(a) or Section 6(c), the
Principal designated by the Holder which, when added to the principal represented by the other new Debentures issued in connection
with such issuance, does not exceed the Principal remaining outstanding under this Debenture immediately prior to such issuance
of new Debentures), (iii) shall have an issuance date, as indicated on the face of such new Debenture, which is the same as the
Issuance Date of this Debenture, (iv) shall have the same rights and conditions as this Debenture, and (v) shall represent accrued
and unpaid Interest from the Issuance Date.


 


(7)         NOTICES.  Any
notices, consents, waivers or other communications required or permitted to be given under the terms hereof must be in writing
and will be deemed to have been delivered: (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile
(provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party); or
(iii) one (1) Trading Day after deposit with a nationally recognized overnight delivery service, in each case properly addressed
to the party to receive the same.  The addresses and facsimile numbers for such communications shall be:


 


	If to the Company, to:	Carbonics Capital Corporation
	 	100 Overlook Capital, 2nd Floor
	 	Princeton, NJ 08540
	 	Attn:	Chief Executive Officer
	 	Telephone:	(609) 375-2239
	 	Facsimile:	(609) 498-7029
	 	 
	If to the Holder:	YA Global Investments, L.P.
	 	101 Hudson Street, Suite 3700
	 	Jersey City, NJ  07302
	 	Attention:	Mark Angelo
	 	Telephone:	(201) 985-8300
	 	 
	With a copy to:	David Gonzalez, Esq.
	 	101 Hudson Street, Suite 3700
	 	Jersey City, NJ  07302
	 	Telephone:	(201) 985-8300
	 	Facsimile:	(201) 985-8266


 



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or at such other
address and/or facsimile number and/or to the attention of such other person as the recipient party has specified by written notice
given to each other party three (3) Business Days prior to the effectiveness of such change.  Written confirmation of
receipt (i) given by the recipient of such notice, consent, waiver or other communication, (ii) mechanically or electronically
generated by the sender's facsimile machine containing the time, date, recipient facsimile number and an image of the first page
of such transmission or (iii) provided by a nationally recognized overnight delivery service, shall be rebuttable evidence of personal
service, receipt by facsimile or receipt from a nationally recognized overnight delivery service in accordance with clause (i),
(ii) or (iii) above, respectively.


 


(8)         Except
as expressly provided herein, no provision of this Debenture shall alter or impair the obligations of the Company, which are absolute
and unconditional, to pay the principal of, interest and other charges (if any) on, this Debenture at the time, place, and rate,
and in the coin or currency, herein prescribed.  This Debenture is a direct obligation of the Company. As long as this
Debenture is outstanding, the Company shall not and shall cause their subsidiaries not to, without the consent of the Holder, (i)
amend its certificate of incorporation, bylaws or other charter documents so as to adversely affect any rights of the Holder; (ii)
repay, repurchase or offer to repay, repurchase or otherwise acquire shares of its Common Stock or other equity securities; or
(iii) enter into any agreement with respect to any of the foregoing.


 


(9)         This
Debenture shall not entitle the Holder to any of the rights of a stockholder of the Company, including without limitation, the
right to vote, to receive dividends and other distributions, or to receive any notice of, or to attend, meetings of stockholders
or any other proceedings of the Company, unless and to the extent converted into shares of Common Stock in accordance with the
terms hereof.


 


(10)        No
indebtedness of the Company is senior to this Debenture in right of payment, whether with respect to interest, damages or upon
liquidation or dissolution or otherwise.  Without the Holder’s consent, the Company will not and will not permit
any of their subsidiaries to, directly or indirectly, enter into, create, incur, assume or suffer to exist any indebtedness of
any kind, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income
or profits there from that is senior in any respect to the obligations of the Company under this Debenture.


 


(11)        This
Debenture shall be governed by and construed in accordance with the laws of the State of New Jersey, without giving effect to conflicts
of laws thereof.  Each of the parties consents to the jurisdiction of the Superior Courts of the State of New Jersey
sitting in Hudson County, New Jersey and the U.S. District Court for the District of New Jersey sitting in Newark, 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.


 



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(12)        If
the Company fails to strictly comply with the terms of this Debenture, then the Company shall reimburse the Holder promptly for
all fees, costs and expenses, including, without limitation, attorneys’ fees and expenses incurred by the Holder in any action
in connection with this Debenture, including, without limitation, those incurred: (i) during any workout, attempted workout, and/or
in connection with the rendering of legal advice as to the Holder’s rights, remedies and obligations, (ii) collecting any
sums which become due to the Holder, (iii) defending or prosecuting any proceeding or any counterclaim to any proceeding or appeal;
or (iv) the protection, preservation or enforcement of any rights or remedies of the Holder.


 


(13)        Any
waiver by 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 Holder to insist upon
strict adherence to any term of this Debenture on one or more occasions shall not be considered a waiver or deprive that party
of the right thereafter to insist upon strict adherence to that term or any other term of this Debenture. Any waiver must be in
writing.


 


(14)        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 shall violate applicable laws
governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum permitted rate
of interest. The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead,
or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law or other law which would
prohibit or forgive the Company from paying all or any portion of the principal of or interest on this Debenture as contemplated
herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this indenture,
and the Company (to the extent it may lawfully do so) hereby expressly waives all benefits or advantage of any such law, and covenants
that it will not, by resort to any such law, hinder, delay or impeded the execution of any power herein granted to the Holder,
but will suffer and permit the execution of every such as though no such law has been enacted.


 


(15)        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.


 


(16)        THE
PARTIES HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION BASED HEREON OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY TRANSACTION DOCUMENT OR ANY COURSE
OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY.  THIS PROVISION IS A MATERIAL
INDUCEMENT FOR THE PARTIES’ ACCEPTANCE OF THIS AGREEMENT.


 


(17)        CERTAIN
DEFINITIONS For purposes of this Debenture, the following terms shall have the following meanings:


 



    	14



    	 



    

 


(a)          “Approved
Stock Plan” means a stock option plan that has been approved by the Board of Directors of the Company, pursuant to which
the Company’s securities may be issued only to any employee, officer, or director for services provided to the Company.


 


(b)          "Bloomberg"
means Bloomberg Financial Markets.


 


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


 


(d)          “Change
of Control Transaction” means the occurrence of (a) an acquisition after the date hereof by an individual or legal entity
or “group” (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of effective control (whether through
legal or beneficial ownership of capital stock of the Company, by contract or otherwise) of in excess of fifty percent (50%) of
the voting securities of the Company (except that the acquisition of voting securities by the Holder or any other current holder
of convertible securities of the Company shall not constitute a Change of Control Transaction for purposes hereof), (b) a replacement
at one time or over time of more than one-half of the members of the board of directors of the Company which is not approved by
a majority of those individuals who are members of the board of directors on the date hereof (or by those individuals who are serving
as members of the board of directors on any date whose nomination to the board of directors was approved by a majority of the members
of the board of directors who are members on the date hereof), (c) the merger, consolidation or sale of fifty percent (50%) or
more of the assets of the Company or any subsidiary of the Company in one or a series of related transactions with or into another
entity, or (d) the execution by the Company of an agreement to which the Company is a party or by which it is bound, providing
for any of the events set forth above in (a), (b) or (c).


 


(e)          “Closing
Bid Price” means the price per share in the last reported trade of the Common Stock on a Primary Market or on the exchange
which the Common Stock is then listed as quoted by Bloomberg.


 


(f)          “Convertible
Securities” means any stock or securities (other than Options) directly or indirectly convertible
into or exercisable or exchangeable for Common Stock.


 


(g)          “Commission”
means the Securities and Exchange Commission.


 


(h)          “Common
Stock” means the common stock, par value $0.001, of the Company and stock of any other class into which such shares may
hereafter be changed or reclassified.


 


(i)          “Exchange
Act” means the Securities Exchange Act of 1934, as amended.


 



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(j)          “Excluded
Securities” means, (a) shares issued or deemed to have been issued by the Company pursuant to an Approved Stock Plan
(b) shares of Common Stock issued or deemed to be issued by the Company upon the conversion, exchange or exercise of any right,
option, obligation or security outstanding on the date prior to date of the Original Issue Date, provided that the terms of such
right, option, obligation or security are not amended or otherwise modified on or after such date, and provided that the conversion
price, exchange price, exercise price or other purchase price is not reduced, adjusted or otherwise modified and the number of
shares of Common Stock issued or issuable is not increased (whether by operation of, or in accordance with, the relevant governing
documents or otherwise) on or after the such date, (c) shares issued in connection with any acquisition by the Company, whether
through an acquisition of stock or a merger of any business, assets or technologies, leasing arrangement or any other transaction
the primary purpose of which is not to raise equity capital, and (d) the shares of Common Stock issued or deemed to be issued
by the Company upon conversion of this Debenture, the Other Debentures, or any future debenture issued to Holder, New Earthshell
Corporation, or any of their affiliates or in connection with any warrant or option issued to Holder, New Earthshell Corporation,
or any of their affiliates.  


 


(k)          “Fundamental
Transaction” means any of the following: (1) the Company effects any merger or consolidation of the Company with
or into another Person and the Company is the non-surviving company (other than a merger or consolidation with a wholly owned subsidiary
of the Company for the purpose of redomiciling the Company), (2) the Company effects any sale of all or substantially all of its
assets in one or a series of related transactions, (3) any tender offer or exchange offer (whether by the Company or another Person)
is completed pursuant to which holders of Common Stock are permitted to tender or exchange their shares for other securities, cash
or property, or (4) the Company effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which
the Common Stock is effectively converted into or exchanged for other securities, cash or property


 


(l)          “Other
Debentures” means the following debentures issued by the Obligor, as may be amended: (a) Convertible Debenture (No. CCP-4)
issued to YA Global Investments, L.P. on February 8, 2008 in the original principal amount of $3,050,369, (b) Convertible Debenture
(No. CCP-3) issued to YA Global Investments, L.P. on October 12, 2005 in the original principal amount of $1,475,000, (c) Convertible
Debenture (No. GSHF-3-1) issued to YA Global Investments, L.P. on June 26, 2007 in the original principal amount of $570,000, (d)
Convertible Debenture (No. CICS-5) issued to YA Global Investments, L.P. on June 30, 2009 in the original principal amount of $4,000,000,
(e) Convertible Debenture (No. CICS-6) issued to New Earthshell Corporation on August 17, 2011 in the original principal amount
of $27,640,712, (f) Convertible Debenture (No. CICS-7) issued to YA Global Investments, L.P. on August 17, 2010 in the original
principal amount of $650,000, (g) Convertible Debenture (No. CICS-8) issued to YA Global Investments, L.P. on May 26, 2011 in the
original principal amount of $120,000, (h) Convertible Debenture (No. CICS-9) issued to YA Global Investments, L.P. on December
6, 2011 in the original principal amount of $910,000, (i) Convertible Debenture (No. CICS-10) issued
to YA Global Investments, L.P. on December 6, 2011 in the original principal amount of $172,411, (j) Convertible Debenture (No.
CICS-11) issued to YA Global Investments, L.P. on May 31, 2012 in the original principal amount of $200,000 and (k) any
other debentures, notes, or other instruments issued in exchange, replacement, or modification of the foregoing.


 


(m)          “Options”
means any rights, warrants or options to subscribe for or purchase shares of Common Stock or Convertible
Securities.


 



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


 


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


 


(p)          “Primary
Market” means any of (a) the NYSE Amex (b) the New York Stock Exchange, (c) the Nasdaq Stock Market, (d) the Nasdaq Capital
Market, (e) Pink OTC Markets, Inc. (including any of the OTCQX, OTC Bulletin Board, and the Pink Sheets) or (f) any successor to
any of the foregoing markets or exchanges.


 


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


 


(r)          “Security
Documents” shall have the meaning set forth in the Securities Purchase Agreement.  


 


(s)          “Trading
Day” means a day on which the shares of Common Stock are quoted or traded on a Primary Market on which the shares of
Common Stock are then quoted or listed; provided, that in the event that the shares of Common Stock are not listed or quoted, then
Trading Day shall mean a Business Day.


 


(t)          “Transaction
Document(s)” shall mean this Debenture, along with the Securities Purchase Agreement, the Security Documents, and any
other documents or agreements entered into in connection with the foregoing.  


 


(u)          “Underlying
Shares” means the shares of Common Stock issuable upon conversion of this Debenture or as payment of interest in accordance
with the terms hereof.


 


(v)         "VWAP"
means, for any security as of any date, the daily dollar volume-weighted average price for such security on the Primary Market
as reported by Bloomberg through its “Historical Prices – Px Table with Average Daily Volume” functions, or,
if no dollar volume-weighted average price is reported for such security by Bloomberg, the average of the highest closing bid price
and the lowest closing ask price of any of the market makers for such security as reported in the "pink sheets" by Pink
Sheets LLC.  


 


[Signature Page Follows]


 



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IN WITNESS WHEREOF,
the Company has caused this Secured Convertible Debenture to be duly executed by a duly authorized officer as of the date set forth
above.


 


	 	COMPANY:
	 	CARBONICS CAPITAL CORPORATION
	 	 
	 	By:	/s/ Stephen Schoepfer
	 	Name:	Stephen Schoepfer
	 	Title:	Chief Executive Officer


 



    	 



    	 



    

 


EXHIBIT I


CONVERSION NOTICE


 


(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 Debenture No. CICS-12 into Shares of
Common Stock of CARBONICS CAPITAL CORPORATION, according to the conditions stated therein, as of the Conversion Date written
below.


 


	Conversion Date:	 
	Conversion Amount to be converted:	$	 
	Conversion Price:	$	 
	Number of shares of Common Stock to be issued:	 


 


Please issue the shares of Common Stock in the following
name and to the following address:


Issue to:


 


	Authorized Signature:	 
	Name:	 
	Title:	 
	Broker DTC Participant Code:	 
	Account Number: