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:    $200,000


Debenture Issuance Date: May 31, 2012


Debenture Number: CICS-11


 


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, and May 31, 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;


 






    	2



    	 



    
 


(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.


 


(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



    	 



    
 


(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.


 






    	4



    	 



    
 


(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.


 






    	5



    	 



    
 


(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.


 


(d)          
Other Provisions.


 






    	6



    	 



    
 


(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:


 


(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.


 






    	7



    	 



    
 


(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.


 






    	8



    	 



    
 


(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.


 






    	9



    	 



    
 


(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.


 






    	10



    	 



    
 


(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.


 


(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



 






    	12



    	 



    
 


	 	 
	With a copy to:	David Gonzalez, Esq.
	 	101 Hudson Street, Suite 3700
	 	Jersey City, NJ  07302
	 	Telephone:       (201) 985-8300
	 	Facsimile:        (201) 985-8266
	 	 


 


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.


 






    	13



    	 



    
 


(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.


 






    	14



    	 



    
 


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


 


(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.


 






    	15



    	 



    
 


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


 


(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
and (j) any other debentures, notes, or other instruments issued in exchange, replacement, or modification of the foregoing.


 






    	16



    	 



    
 


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


 


(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]


 


 






    	17



    	 



    
 


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-10 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: