Exhibit 4.2


 


	
  No. [     ]

  	
  $[     ]

  	
   

  	
   

  	
   

  	
   

  	
   

  



 


 


Date: March 5, 2003


 


EARTHSHELL CORPORATION

SECURED CONVERTIBLE DEBENTURE DUE MARCH 5, 2006


 


THIS DEBENTURE
is one of a series of duly authorized and issued debentures of EarthShell
Corporation, a Delaware corporation (the “Borrower”), designated as its Secured Convertible Debentures
due March 5, 2006, in the aggregate principal amount of Twelve Million Five
Hundred Fifty Thousand Dollars ($12,550,000) (the “Debentures”).


 


FOR VALUE
RECEIVED, the Borrower promises to pay to the order of [ ] or its registered
assigns (the “Holder”), the
principal sum of [ ] ($), on March 5, 2006 (the “Maturity
Date”), or such earlier date as this Debenture or the Debentures are
required or permitted to be repaid as provided hereunder, and to pay interest
to the Holder on the aggregate then outstanding principal amount of this
Debenture in accordance with the provisions hereof. The principal amount of
this Debenture may be increased as set forth in Section 2(c) below. All holders
of Debentures are referred to collectively, as the “Holders”.  This Debenture is subject to the following
additional provisions.


 


1.                                       Definitions.  In addition to the terms defined elsewhere
in this Debenture, (a) capitalized terms that are not otherwise defined herein
have the meanings given to such terms in the Loan and Securities Purchase
Agreement, dated as of March 5, 2003, among the Borrower and the lenders
identified therein (the “Loan Agreement”),
and (b) the following terms have the meanings indicated:


 


“Closing Price” means, for any date, the
price determined by the first of the following clauses that applies: (a) if the
Common Stock is then listed or quoted on an Eligible Market, the closing sale
price per share of the Common Stock for such date (or the nearest preceding
date) on the primary Eligible Market or exchange on which the Common Stock is
then listed or quoted; (b) if prices for the Common Stock are then quoted on
the OTC Bulletin Board, the closing sale price per share of the Common Stock
for such date (or the nearest preceding date) so quoted; (c) if prices for the
Common Stock are then reported in the “Pink Sheets” published by the National
Quotation Bureau Incorporated (or a similar organization or agency succeeding
to its functions of reporting prices), the most recent sale price per share of
the Common Stock so reported; or (d) in all other cases, the fair market value
of a share of Common Stock as determined by an independent appraiser selected
in good faith by a majority in interest of the Lenders.


 


“Common Stock Equivalents” means any
securities of the Borrower or a subsidiary thereof which entitle the holder
thereof to acquire Common Stock at any time, including without limitation, any
debt, preferred stock, rights, options, warrants or other instrument that is at
any time convertible into or exchangeable for, or otherwise entitles the


 

















 


holder thereof to receive,
Common Stock or other securities that entitle the holder to receive, directly
or indirectly, Common Stock.


 


“Borrower
Conversion Date” means the date set forth on a Borrower Conversion
Notice, which date may not be earlier than the tenth (10th) Trading Day
immediately following, or later than the fifteenth (15th) Trading Day
immediately following, the date a Borrower Conversion Notice together with the
Conversion Schedule is delivered to the Holder in accordance with Section 5(b).


 


“Borrower
Conversion Notice” means a written notice in the form attached
hereto as Exhibit B.


 


“Conversion
Date” means either a Holder Conversion Date or a Borrower Conversion
Date.


 


“Conversion
Notice” means either a Holder Conversion Notice or a Borrower
Conversion Notice.


 


“Conversion
Price” means $0.50, subject to adjustment from time to time pursuant
to Section 12.


 


“Eligible
Market” means any of the New York Stock Exchange, the American Stock
Exchange, the Nasdaq or the Nasdaq Small Cap Market.


 


“Equity
Conditions” means, with respect to a specified issuance of Common
Stock, that each of the following conditions is satisfied: (i) the number of
authorized but unissued and otherwise unreserved shares of Common Stock is
sufficient for such issuance; (ii) the Common Stock is listed or quoted (and is
not suspended from trading) on an Eligible Market and such shares of Common
Stock are approved for listing on such Eligible Market upon issuance; (iii)
such Common Stock is covered under the Registration Statement, (iv) such
issuance would be permitted in full without violating Section 5(c) hereof or
the rules or regulations of the Eligible Market on which such shares are listed
or quoted; (v) no Event of Default nor any event that with the passage of time
and without being cured would constitute a Event of Default has occurred and
not been cured, and (vi) no public announcement of a pending or proposed Change
of Control transaction has occurred that has not been consummated.


 


“Event Equity
Value” means 115% of the average of the Closing Prices for the five
Trading Days preceding either (a) the date of delivery of the notice requiring
payment of the Event Equity Value or (b) the date on which such required
payment (together with any other payments, expenses and liquidated damages then
due and payable under the Transaction Documents) is paid in full, whichever is
greater.


 


“Event of
Default” 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):


 


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(i)                                       any
default in the payment (free of any claim of subordination) of principal,
interest or liquidated damages in respect of any Debentures, as and when the
same becomes due and payable (whether on a Conversion Date, Prepayment Date or
the Maturity Date or by acceleration or prepayment or otherwise).


 


(ii)                                    the
Borrower or any Subsidiary defaults 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 Borrower or any Subsidiary in an amount exceeding $250,000,
whether such indebtedness now exists or is hereafter created, and such default
results in such indebtedness becoming or being declared due and payable prior
to the date on which it would otherwise become due and payable, provided,
that, subject to clause (xiii), no Event of Default shall be deemed to have
occurred with respect to any default which exists on the Original Issue Date
with respect to the trade payables listed on Schedule 4.9 of the Loan Agreement.


 


(iii)                                 the
occurrence of a Change of Control transaction (as defined in the Loan
Agreement).


 


(iv)                                the
incurrence by the Borrower of any debt obligation that is senior in right of
payment to the Debentures or otherwise secured by any of the assets, income or
properties of the Borrower, provided, that the Borrower shall, after the
Original Issue Date, be entitled to acquire property, valued up to an aggregate
of $250,000, which is secured by a purchase-money security interest.


 


(v)                                   the
payment by the Borrower of any dividends or distributions of assets, properties
or cash to any Person that is either (A) outside of the ordinary course of the
Borrower’s business and consistent in amount and type with prior practice as
disclosed in SEC Reports (as defined in the Loan Agreement) or (B) other than
any other payment permitted under the Letter Agreement or Section 4.12 of the
Loan Agreement.


 


(vi)                                the
occurrence of any event of default (whether or not declared) under any
Debentures (as defined in the Loan Agreement).


 


(vii)                             the
Borrower shall fail to deliver an irrevocable notice to prepay $5,200,000 of
the outstanding principal amount of the secured convertible debentures
(including accrued and unpaid interest thereon and any other payments due
thereunder), in the original principal amount of $10,000,000, issued and sold
to certain holders pursuant to that certain Securities Purchase Agreement dated
as of August 12, 2002, among the Borrower and the purchasers signatory thereto
(the “Previous Debentures”), by the
first Trading Day following the Original Issue Date.


 


(viii)                          the
Borrower shall fail to prepay in full the amount of outstanding principal
amount of the Previous Debentures (including accrued and unpaid interest
thereon and any other payments due thereunder), set forth in the prepayment
notice contemplated


 


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by clause (vii) above, by the
first Trading Day immediately following the delivery of the prepayment notice
referenced in subsection (vii) hereof.


 


(ix)                                  any
prepayment by the Borrower of any debenture issued by it (except for the
Debentures pursuant to Section 4.12 of the Loan Agreement or Previous
Debentures pursuant to clause (vii) above) or any issuance of securities in
exchange for any debentures issued by it (other than Underlying Shares upon
conversion thereof in accordance with their terms as in effect on the Original
Issue Date thereof).


 


(x)                                     either
of the License Agreements (as defined in the Loan Agreement) ceases to be in
full force and effect or there should occur any material default  or modification thereunder that would give
any party thereto the right to terminate or otherwise reduce in any material
respect the amount of license fees that would be earned or paid thereunder, or
either of the License Agreements is repudiated or otherwise terminates or is
transferred or assigned to a third party.


 


(xi)                                  the
Borrower defaults in the timely performance of any  obligation under the Transaction Documents and such default
continues uncured for a period of five Trading Days after the date on which
written notice of such default is first given to the Borrower by the Holder (it
being understood that no prior notice need be given in the case of a default
that cannot reasonably be cured within five Trading Days).


 


(xii)                               any
of the Borrower’s representations and warranties set forth in the Loan
Agreement shall be incorrect as of the Closing Date and such incorrect
representation or warranty, either individually or together with any other
incorrect representation or warranty (if any), shall constitute a Material
Adverse Effect (as defined in the Loan Agreement).


 


(xiii)                            the
occurrence of a Bankruptcy Event.


 


(xiv)                           the
Common Stock is not listed or quoted, or is suspended from trading, on an
Eligible Market for a period of five Trading Days (which need not be
consecutive Trading Days).


 


(xv)                              the
Borrower breaches its obligations to deliver a certificate evidencing
Underlying Shares to a Holder within five Trading Days after a Conversion Date
or the conversion rights of the Holders pursuant to the terms hereof are
otherwise suspended for any reason other than the restrictions set forth in
Section 5(c) hereof.


 


(xvi)                           the
Borrower fails to have available a sufficient number of authorized but unissued
and otherwise unreserved shares of Common Stock available to issue Underlying
Shares upon any conversion of Debentures hereunder.


 


(xvii)                        the
Borrower effects or publicly announces its intention to effect any exchange,
recapitalization or other transaction that effectively requires or rewards
physical delivery of certificates evidencing the Common Stock, unless following
such transaction or series of transactions, the holders of the Borrower’s
securities prior to the first such 


 


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transaction continue to hold at
least two-thirds of the voting rights and equity interests in the surviving
entity or acquirer of such assets.


 


(xviii)                     the Borrower
fails to make any cash payment required under the Transaction Documents and such
failure is not cured within five Trading Days after notice of such default is
first given to the Borrower by a Lender.


 


“Holder
Conversion Date” means the date a Holder Conversion Notice together
with the Conversion Schedule is delivered to the Borrower in accordance with
Section 5(a).


 


“Holder
Conversion Notice” means a written notice in the form attached
hereto as Exhibit A.


 


“Nasdaq”
means the Nasdaq National Market.


 


“Original
Issue Date” means the date of the first issuance of any Debentures,
regardless of the number of transfers of any particular Debenture.


 


“Registration Statement” shall have the
meaning set forth in the Loan Agreement.


 


“Security
Agreement” shall have the meaning set forth in the Loan Agreement.


 


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


 


“Underlying
Shares” means the shares of Common Stock issuable upon conversion of
the Debentures and payment of interest thereunder.


 


“VWAP” means on any particular Trading Day
or for any particular period, the volume weighted average trading price per
share of Common Stock on such date or for such period on an Eligible Market as
reported by Bloomberg L.P., or any successor performing similar functions.


 


2.                                       Interest.


 


(a)                                  The
Borrower shall pay interest to the Holder on the aggregate unconverted and then
outstanding principal amount of this Debenture (including any interest added to
such principal in accordance with this Section 2) at the rate of 2% per annum,
payable quarterly in arrears on each January 31, April 30, July 31 and October
31, except if such date is not a Trading Day, in which case such interest shall
be payable on the next succeeding Trading 


 


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Day (each, an “Interest
Payment Date”). Interest shall be calculated on the basis of a
360-day year and shall accrue daily commencing on the Original Issue Date.


 


(b)                                 Subject
to the conditions and limitations set forth below, the Borrower may pay
interest on this Debenture in cash


 


(c)                                  So
long as any Debentures are outstanding, (i) neither the Borrower nor any
Subsidiary shall, directly or indirectly, redeem, purchase or otherwise acquire
any capital stock or set aside any monies for such a redemption, purchase or
other acquisition, and (ii) the Borrower shall not pay or declare any dividend
or make any distribution on any capital stock, except stock dividends on the
Common Stock payable in additional shares of Common Stock.


 


3.                                       Registration
of Debentures.  The Borrower shall
register the Debentures upon records to be maintained by the Borrower for that
purpose (the “Debenture Register”)
in the name of each record Holder thereof from time to time. The Borrower may
deem and treat the registered Holder of this Debenture as the absolute owner
hereof for the purpose of any conversion hereof or any payment of interest
hereon, and for all other purposes, absent actual notice to the contrary.


 


4.                                       Registration
of Transfers and Exchanges.  The
Borrower shall register the transfer of any portion of this Debenture in the
Debenture Register upon surrender of this Debenture to the Borrower at its
address for notice set forth herein. Upon any such registration or transfer, a
new Debenture, in substantially the form of this Debenture (any such new
debenture, a “New Debenture”),
evidencing the portion of this Debenture so transferred shall be issued to the
transferee and a New Debenture evidencing the remaining portion of this
Debenture not so transferred, if any, shall be issued to the transferring
Holder. The acceptance of the New Debenture by the transferee thereof shall be
deemed the acceptance by such transferee of all of the rights and obligations
of a holder of a Debenture. The Borrower agrees that its prior consent is not
required for the transfer of any portion of this Debenture.  This Debenture is exchangeable for an equal
aggregate principal amount of Debentures of different authorized denominations,
as reasonably requested by the Holder surrendering the same. No service charge
or other fee will be imposed in connection with any such registration of
transfer or exchange.


 


5.                                       Conversion.


 


(a)                                  At
the Option of the Holder.  All or
any portion of the principal amount of this Debenture then outstanding shall be
convertible into shares of Common Stock at the Conversion Price (subject to
limitations set forth in Section 5(c)), at the option of the Holder, at any
time and from time to time from and after the Original Issue Date. The Holder
may effect conversions under this Section 5(a), by delivering to the Borrower a
Holder Conversion Notice together with a schedule in the form of Schedule 1
attached hereto (the “Conversion Schedule”).
If the Holder is converting less than all of the principal amount represented
by this Debenture, or if a conversion hereunder may not be effected in full due
to the application of Section 5(c), the Borrower shall honor such conversion to
the extent permissible hereunder and shall promptly deliver to the Holder a
Conversion Schedule indicating the principal amount which has not been
converted.  Subject to the provisions of
this Section and Section 6 below and so long as the 


 


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Equity Conditions are satisfied
with respect to such Underlying Shares then issuable upon the applicable
conversion, the conversion subject to each Holder Conversion Notice, once
given, shall be irrevocable.


 


(b)                                 At
the Option of the Borrower.   
Subject to the conditions set forth in this Section 5(b) and Section
5(c), at any time after the first anniversary of the Original Issue Date, the
Borrower may deliver a Borrower Conversion Notice to require a conversion of
all or a portion of the outstanding principal amount of this Debenture if: (i)
the Closing Prices during any 10 consecutive Trading Days following the first
year anniversary of the Original Issue Date is equal to or greater than 300% of
the Conversion Price, and (ii) all of the Equity Conditions are satisfied as of
the Borrower Conversion Date with respect to the Underlying Shares potentially
issuable in connection with such proposed conversion. Notwithstanding anything
set forth in this Debenture to the contrary, the Borrower may not require
conversion of Debentures pursuant to Section 5(b) and any attempted conversion
or Borrower Conversion Notice delivered will be void, unless on each Trading
Day from the date of the delivery of the Borrower Conversion Notice through and
including the later of the date the Holder receives the Underlying Shares
issuable upon such conversion and the Borrower Conversion Date: (i) the Closing
Price exceeds 300% of the Conversion Price measured on the Original Issue Date
(as adjusted only as a result of stock splits and reverse stock splits) and
(ii) the Equity Conditions have been satisfied. Subject to the provisions of
this Section, the conversion subject to each Borrower Conversion Notice, once
given, shall be irrevocable as to the Borrower. If the conversion of a
principal amount of Debentures indicated in a Borrower Conversion Notice would
result in the issuance to the Holder of Underlying Shares in excess of the
amount permitted pursuant to Section 5(c), the Holder shall notify the Borrower
in writing of this fact and the Borrower shall: (x) honor the conversion for
the maximum principal amount of Debentures permitted pursuant to Section 5(c)
to be converted on such Borrower Conversion Date and (y) cancel the Borrower
Conversion Notice with respect to the portion of the principal amount of
Debentures the conversion of which would violate Section 5(c).  Notwithstanding anything to the contrary
herein, the Borrower may not deliver a Borrower Conversion Notice pursuant to
Section 5(b) unless the Borrower delivers Borrower Conversion Notices to all of
the Holders requiring each Holder to convert a pro-rata portion of the
outstanding principal amount of its Debentures, provided, that in no
event will the reduction of the principal amount of a Debenture to be converted
pursuant to a Borrower Conversion Notice resulting from the application of the
limitation contained in Section 5(c) as to one Holder cause or result in a
reduction of the principal amount of the principal amount of any other
Debenture to be converted pursuant to a Borrower Conversion Notice.


 


(c)                                  Certain
Conversion Restrictions.


 


(i)             Notwithstanding
anything to the contrary contained herein, the number of shares of Common Stock
that may be acquired by a Holder upon any conversion of Debentures (or
otherwise in respect hereof) shall be limited to the extent necessary to insure
that, following such conversion (or other issuance), the total number of shares
of Common Stock then beneficially owned by such Holder and its Affiliates and
any other Persons whose beneficial ownership of Common Stock would be
aggregated with such Holder’s for purposes of Section 13(d) of the Exchange
Act, does not exceed 4.999% of the total number of issued and outstanding
shares of Common Stock (including for such purpose the shares of Common Stock
issuable upon such conversion).  For
such purposes, beneficial ownership shall be determined in


 


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accordance with Section 13(d) of the Exchange Act and the rules and
regulations promulgated thereunder. Each delivery of a Holder Conversion Notice
hereunder will constitute a representation by the applicable Holder that it has
evaluated the limitation set forth in this paragraph and determined that
issuance of the full number of Underlying Shares issuable in respect of such
Conversion Notice does not violate the restriction contained in this paragraph.
This provision shall not restrict the number of shares of Common Stock which a
Holder may receive or beneficially own in order to determine the amount of
securities or other consideration that such Holder may receive in the event of
a merger, sale or other business combination or reclassification involving the
Borrower as contemplated herein.


 


(ii)          If the Borrower has not
previously obtained Shareholder Approval (as defined below), then the Borrower
may not issue in excess of the Issuable Maximum at a Conversion Price below the
Closing Price on the Trading Day immediately preceding the Original Issue Date,
upon conversions of the Debentures.  The
“Issuable Maximum” means a number
of shares of Common Stock equal to 29,270,290. The Issuable Maximum shall be
reduced, at any given time, by the number of shares of Common Stock previously
issued upon conversion of any Debentures (as defined in the Loan Agreement) at
such time.  Each Holder shall be
entitled to a portion of the Issuable Maximum equal to the quotient obtained by
dividing: (x) the principal amount of Debentures issued and sold to such Holder
on the Original Issue Date by (y) the aggregate principal amount of Debentures
issued and sold by the Borrower on the Original Issue Date.  If any Holder shall no longer hold
Debentures, then such Holder’s remaining portion of the Issuable Maximum shall
be allocated pro-rata among the remaining Holders. If on any Conversion Date:
(A) the aggregate number of shares of Common Stock that would then be issuable
upon conversion in full of all then outstanding principal amount of  Debentures would exceed the Issuable Maximum
on such date, and (B) the Borrower shall not have previously obtained the vote
of shareholders, as may be required by the applicable rules and regulations of
the Nasdaq (or any successor entity or any other Eligible Market on which the
Company’s securities then trade) applicable to approve the issuance of shares
of Common Stock  in excess of the
Issuable Maximum pursuant to the terms hereof (the “Shareholder Approval”), then, the Borrower shall issue to the
converting Holder a number of shares of Common Stock equal to such Holder’s
pro-rata portion (which shall be calculated pursuant to the terms hereof) of
the then-current Issuable Maximum and, with respect to the remainder of the
principal amount of Debentures then held by such Holder for which a conversion
would result in an issuance of shares of Common Stock in excess of such
Holder’s pro-rata portion (which shall be calculated pursuant to the terms
hereof) of the then-current Issuable Maximum (the “Excess Principal Amount”), the applicable Holder shall have
the right to obligate the Borrower to obtain the Shareholder Approval
applicable to such issuance as soon as is possible, but in any event not later
than the 90th day after such request. 
If a Holder shall have elected the option pursuant to the immediately
preceding sentence and the Borrower shall have failed to obtain the Shareholder
Approval on or prior to the 90th day after such request, then: (i) such Holder
will continue to hold the unconverted portion of the Debentures held by such Holder,
(ii) no additional shares of Common Stock will be issued in respect of such
Debentures, (iii) the Debentures held by such Holder shall no longer be
convertible into shares of Common Stock and (iv) such Holder shall continue to
be entitled to all of its rights and privileges under such Debentures. The
Borrower and the Holder understand and agree that shares of Common Stock issued
to and then held by the Holder as a result of conversions of Debentures 


 


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shall not be entitled to cast votes on any resolution to obtain
Shareholder Approval pursuant hereto.


 


6.                                       Mechanics
of Conversion.


 


(a)                                  The
number of Underlying Shares issuable upon any conversion hereunder shall equal:
(i) the outstanding principal amount of this Debenture to be converted, divided
by the Conversion Price on the Conversion Date, plus (ii) the amount of any
accrued but unpaid interest on this Debenture through the Conversion Date
(including any interest payments accreted to principal pursuant to the terms of
this Debenture), divided by the Conversion Price on the Conversion Date.


 


(b)                                 Upon
conversion of this Debenture, the Borrower shall promptly (but in no event
later than three Trading Days after the Holder Conversion Notice, and in no event
later than two Trading Days after the Borrower Conversion Date) issue or cause
to be issued and cause to be delivered to or upon the written order of the
Holder and in such name or names as the Holder may designate a certificate for
the Underlying Shares issuable upon such conversion, free of restrictive
legends. The Holder, or any Person so designated by the Holder to receive
Underlying Shares, shall be deemed to have become holder of record of such
Underlying Shares as of the Conversion Date. The Borrower shall, upon request
of the Holder, use its best efforts to deliver Underlying Shares hereunder
electronically (via a DWAC) through the Depository Trust Corporation or another
established clearing corporation performing similar functions.


 


(c)                                  The
Holder shall not be required to deliver the original Debenture in order to
effect a conversion hereunder. Execution and delivery of the Conversion Notice
shall have the same effect as cancellation of the original Debenture and
issuance of a New Debenture representing the remaining outstanding principal
amount. Upon surrender of this Debenture following one or more partial
conversions, the Borrower shall promptly deliver to the Holder a New Debenture
representing the remaining outstanding principal amount.


 


(d)                                 The
Borrower’s obligations to issue and deliver Underlying Shares upon conversion
of this Debenture in accordance with the terms hereof are absolute and
unconditional, irrespective of any action or inaction by the Holder to enforce
the same, any waiver or consent with respect to any provision hereof, the
recovery of any judgment against any Person or any action to enforce the same,
or any setoff, counterclaim, recoupment, limitation or termination, or any
breach or alleged breach by the Holder or any other Person of any obligation to
the Borrower or any violation or alleged violation of law by the Holder or any
other Person, and irrespective of any other circumstance which might otherwise
limit such obligation of the Borrower to the Holder in connection with the
issuance of such Underlying Shares.


 


(e)                                  If
by the third Trading Day after a Conversion Date the Borrower fails to deliver
to the Holder such Underlying Shares in such amounts and in the manner required
pursuant to Section 6, then the Holder will have the right to rescind the
Conversion Notice (including a Borrower Conversion Notice) pertaining thereto
by giving written notice to the Borrower prior to such Holder’s receipt of such
Underlying Shares.


 


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(f)                                    If
by the third Trading Day after a Conversion Date the Borrower fails to deliver
to the Holder such Underlying Shares in such amounts and in the manner required
pursuant to Section 6, and if after such third Trading Day the Holder purchases
(in an open market transaction or otherwise) shares of Common Stock to deliver
in satisfaction of a sale by such Holder of the Underlying Shares which the
Holder anticipated receiving upon such conversion (a “Buy-In”), then the Borrower shall (A) pay in cash to the
Holder (in addition to any remedies available to or elected by the Holder) the
amount by which (x) the Holder’s total purchase price (including brokerage
commissions, if any) for the shares of Common Stock so purchased exceeds (y)
the amount obtained by multiplying (1) the aggregate number of Underlying
Shares that the Borrower was required to deliver to the Holder in connection
with the conversion at issue by (2) the Closing Price at the time of the
obligation giving rise to such purchase obligation and (B) at the option of the
Holder, either void the conversion at issue and reinstate the principal amount
of Debentures (plus accreted interest thereon) for which such conversion was
not timely honored or deliver to the Holder the number of Underlying Shares
that would have been issued had the Borrower timely complied with its
conversion and delivery obligations hereunder. 
The Holder shall provide the Borrower reasonably detailed evidence or
written notice indicating the amounts payable to the Holder in respect of the
Buy-In.


 


7.                                       Events
of Default.


 


(a)                                  At
any time or times following the occurrence of an Event of Default, the Holder
shall have the option to elect, by notice to the Borrower (an “Event Notice”), to require the Borrower to
repurchase all or any portion of the outstanding principal amount of this
Debenture indicated in the Event Notice, at a repurchase price equal to the
greater of (A) 125% of such outstanding principal amount, plus all accrued but
unpaid interest thereon through the date of payment, or (B) the Event Equity
Value of the Underlying Shares issuable upon conversion of such principal
amount and all such accrued but unpaid interest thereon. The aggregate amount
payable pursuant to the preceding sentence is referred to as the “Event Price.” The Borrower shall pay the
aggregate Event Price to the Holder (free of any claim of subordination) no
later than the third Trading Day following the date of delivery of the Event
Notice, and upon receipt thereof the Holder shall deliver the original Debenture
and original certificates evidencing any Underlying Shares so repurchased to
the Borrower (to the extent such documents have been delivered to the Holder).


 


(b)                                 Upon
the occurrence of any Bankruptcy Event, all outstanding principal and accrued
but unpaid interest on this Debenture shall immediately become due and payable
in full in cash (free of any claim of subordination), without any further
action by the Holder, and the Borrower shall immediately be obligated to
repurchase this Debenture and all such Underlying Shares at the Event Price
pursuant to the preceding paragraph as if the Holder had delivered an Event
Notice immediately prior to the occurrence of such Bankruptcy Event.


 


(c)                                  In
connection with any Event of Default, the Holder need not provide and the
Borrower hereby waives any presentment, demand, protest or other notice of any
kind, and the Holder may immediately and without expiration of any grace period
enforce any and all of its rights and remedies hereunder and all other remedies
available to it under applicable law. Any such declaration may be rescinded and
annulled by the Holder at any time prior to 


 


10

















 


payment hereunder. No such rescission or annulment shall affect any
subsequent Event of Default or impair any right consequent thereto.


 


8.                                       Prepayment
at the Option of the Holder.  Upon
each receipt of a Proceeds Notice delivered pursuant to Section 4.12 of the
Loan Agreement, the Holder shall have the right, exercisable at the sole option
of the Holder and by delivery of a written notice (a “Holder Prepayment Notice” and the date such
notice is delivered by the Holder, the “Holder
Notice Date”) to the Borrower, to require the Borrower to prepay all
or a portion of the Debentures then held by the Holder for an amount in cash,
equal to 102% of such outstanding principal amount, plus all accrued but unpaid
interest thereon through the date of payment (the “Prepayment Price”) which shall be due and payable on the 20th
Trading Day following the Holder Notice Date (such date, the “Prepayment Date”), provided, that
the Prepayment Price shall not exceed  of the applicable Excess Amount
multiplied by such Holder’s Purchase Percentage.  If any portion of the Holder Prepayment Price due pursuant to the
terms hereof remains unpaid after the 20th Trading Day following the
Holder Notice Date, the Holder may, in addition to any other rights available
hereunder, elect by written notice to the Borrower to invalidate ab initio such Holder Prepayment Notice
with respect to the unpaid amount, notwithstanding anything herein contained to
the contrary.  If the Holder makes such
an election, this Debenture shall be reinstated with respect to such unpaid
amount. For purposes of this Section , principal amount of Debentures shall
remain outstanding until such date as the Holder shall have received Underlying
Shares upon a conversion (or attempted conversion) thereof that meets the
requirements hereof.  The Holder may
convert any portion of the outstanding principal amount of the Debentures
subject to a prepayment hereunder prior to the date that the Prepayment Price
is due and paid in full.


 


9.                                       Ranking.  This Debenture ranks pari passu with (i) all
other Debentures (as defined in the Loan Agreement) now or hereafter issued
pursuant to the Transaction Documents and (ii) the Previous Debentures (which,
as of the Original Issue Date, reflect an aggregate principal amount of
$1,000,000 and, it being understood that the Previous Debentures shall not in
any manner be secured under the Security Agreement) and is senior to all
existing and hereafter created Indebtedness of the Borrower. No Indebtedness of
the Borrower is senior to this Debenture in right of payment, whether with
respect of interest, damages or upon liquidation or dissolution or otherwise.
The Borrower will not, and will not permit any Subsidiary 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 therefrom, that is senior in any respect to the Borrower’s obligations
under the Debentures.


 


10.                                 Charges,
Taxes and Expenses.  Issuance of
certificates for Underlying Shares upon conversion of (or otherwise in respect
of) this Debenture shall be made without charge to the Holder for any issue or
transfer tax, withholding tax, transfer agent fee or other incidental tax or
expense in respect of the issuance of such certificate, all of which taxes and
expenses shall be paid by the Borrower; provided, however, that the Borrower
shall not be required to pay any tax which may be payable in respect of any
transfer involved in the registration of any certificates for Underlying Shares
or Debentures in a name other than that of the Holder. The Holder shall be
responsible for all other tax liability that may arise as a result of holding
or transferring this Debenture or receiving Underlying Shares in respect
hereof.


 


11.                                 Reservation
of Underlying Shares.  The Borrower
covenants that it will at all times reserve and keep available out of the
aggregate of its authorized but unissued and 


 


11

















 


otherwise unreserved Common Stock, solely for
the purpose of enabling it to issue Underlying Shares as required hereunder,
the number of Underlying Shares which are then issuable and deliverable upon
the conversion of (and otherwise in respect of) this entire Debenture (taking
into account the adjustments of Section 12), free from preemptive rights or any
other contingent purchase rights of persons other than the Holder. The Borrower
covenants that all Underlying Shares so issuable and deliverable shall, upon
issuance in accordance with the terms hereof, be duly and validly authorized,
issued and fully paid and nonassessable.


 


12.                                 Certain
Adjustments.  The Conversion Price
is subject to adjustment from time to time as set forth in this Section 12.


 


(a)                                  Stock
Dividends and Splits.  If the
Borrower, at any time while this Debenture is outstanding: (i) pays a stock
dividend on its Common Stock or otherwise makes a distribution on any class of
capital stock that is payable in shares of Common Stock, (ii) subdivides
outstanding shares of Common Stock into a larger number of shares, or (iii)
combines outstanding shares of Common Stock into a smaller number of shares,
then in each such case the Conversion Price shall be multiplied by a fraction
of which the numerator shall be the number of shares of Common Stock
outstanding immediately before such event and of which the denominator shall be
the number of shares of Common Stock outstanding immediately after such
event.  Any adjustment made pursuant to
clause (i) of this paragraph shall become effective immediately after the
record date for the determination of stockholders entitled to receive such
dividend or distribution, and any adjustment pursuant to clause (ii) or (iii)
of this paragraph shall become effective immediately after the effective date
of such subdivision or combination.


 


(b)                                 Pro
Rata Distributions.  If the
Borrower, at any time while this Debenture is outstanding, distributes to all
holders of Common Stock (i) evidences of its indebtedness, (ii) any security
(other than a distribution of Common Stock covered by the preceding paragraph),
(iii) rights or warrants to subscribe for or purchase any security, or (iv) any
other asset (in each case, “Distributed
Property”), then, at the request of the Holder delivered before the
90th day after the record date fixed for determination of stockholders entitled
to receive such distribution, the Borrower will deliver to the Holder, within
five Trading Days after such request (or, if later, on the effective date of
such distribution), the Distributed Property that the Holder would have been
entitled to receive in respect of the Underlying Shares for which this
Debenture could have been converted immediately prior to such record date.  If such Distributed Property is not
delivered to the Holder pursuant to the preceding sentence, then upon any
conversion of this Debenture that occurs after such record date, the Holder
shall be entitled to receive, in addition to the Underlying Shares otherwise
issuable upon such conversion, the Distributed Property that the Holder would
have been entitled to receive in respect of such number of Underlying Shares
had the Holder been the record holder of such Underlying Shares immediately
prior to such record date.


 


(c)                                  Fundamental
Transactions.  If, at any time while
this Debenture is outstanding, (i) the Borrower effects any merger or
consolidation of the Borrower with or into another Person, (ii) the Borrower
effects any sale of all or substantially all of its assets in one or a series
of related transactions, (iii) any tender offer or exchange offer (whether by
the Borrower 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 (iv) the Borrower effects 


 


12

















 


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 (other than as a result of a
subdivision or combination of shares of Common Stock covered by Section 12(a) above)
(in any such case, a “Fundamental Transaction”),
then upon any subsequent conversion of this Debenture, the Holder shall have
the right to receive, for each Underlying Share that would have been issuable
upon such conversion absent such Fundamental Transaction, the same kind and
amount of securities, cash or property as it would have been entitled to
receive upon the occurrence of such Fundamental Transaction if it had been,
immediately prior to such Fundamental Transaction, the holder of one share of Common
Stock (the “Alternate Consideration”).
For purposes of any such conversion, the Borrower shall apportion the
Conversion Price among the Alternate Consideration in a reasonable manner
reflecting the relative value of any different components of the Alternate
Consideration. If holders of Common Stock are given any choice as to the
securities, cash or property to be received in a Fundamental Transaction, then
the Holder shall be given the same choice as to the Alternate Consideration it
receives upon any conversion of this Debenture following such Fundamental
Transaction. To the extent necessary to effectuate the foregoing provisions,
any successor to the Borrower or surviving entity in such Fundamental
Transaction (or, if different, the ultimate parent of such successor or entity
or the entity issuing the Alternate Consideration) shall issue to the Holder a
new debenture consistent with the foregoing provisions and evidencing the
Holder’s right to convert such debenture into Alternate Consideration. The terms
of any agreement pursuant to which a Fundamental Transaction is effected shall
include terms requiring any such successor or surviving entity to comply with
the provisions of this paragraph (c) and insuring that this Debenture (or any
such replacement security) will be similarly adjusted upon any subsequent
transaction analogous to a Fundamental Transaction.


 


(d)                                 Subsequent
Equity Sales.


 


(i)             If the Borrower or
any subsidiary thereof, as applicable, at any time while this Debenture is
outstanding, shall issue shares of Common Stock (whether upon conversion of
Previous Debentures or otherwise) or Common Stock Equivalents entitling any
Person to acquire shares of Common Stock, at a price per share (the “Effective Price”) less than the Conversion
Price (if the holder of the Common Stock or Common Stock Equivalent so issued
shall at any time, whether by operation of purchase price adjustments, reset
provisions, floating conversion, exercise or exchange prices or otherwise, or
due to warrants, options or rights issued in connection with such issuance, be
entitled to receive shares of Common Stock at a price less than the Conversion
Price, such issuance shall be deemed to have occurred for less than the
Conversion Price), then, at the option of the Holder for such conversions as it
shall indicate, the Conversion Price shall be adjusted to mirror the
conversion, exchange or purchase price for such Common Stock or Common Stock
Equivalents (including any reset provisions thereof) at issue.  Such adjustment shall be made whenever such
Common Stock or Common Stock Equivalents are issued.  The Borrower shall notify the Holder in writing, no later than
the Trading Day following the issuance of any Common Stock or Common Stock Equivalent
subject to this section, indicating therein the applicable issuance price, or
of applicable reset price, exchange price, conversion price and other pricing
terms.  No further adjustments shall be
made to the Conversion Price upon the actual issuance of Common Stock upon
conversion or exercise of the applicable Common Stock Equivalent.


 


13

















 


(ii)          If, at any time while
this Debenture is outstanding, the Borrower or any Subsidiary issues Common
Stock Equivalents with an Effective Price or a number of underlying shares that
floats or resets or otherwise varies or is subject to adjustment based
(directly or indirectly) on market prices of the Common Stock (a “Floating Price Security”), then for purposes of applying the
preceding paragraph in connection with any subsequent conversion, the Effective
Price will be determined separately on each Conversion Date and will be deemed
to equal the lowest Effective Price at which any holder of such Floating Price
Security is entitled to acquire Common Stock, whether prior, on or after such
Conversion Date (regardless of whether any such holder actually acquires any
shares on such date).


 


(iii)       Notwithstanding the
foregoing, no adjustment will be made under this paragraph (d) in respect of:
(A) the issuance of Common Stock upon exercise or conversion of any Common
Stock Equivalents described in Schedule 3.1(m) to the Loan Agreement
(provided that such exercise or conversion occurs in accordance with the terms
thereof, without amendment or modification), (B) any grant of options to
employees, officers or directors of the Borrower pursuant to any stock option
plan duly adopted by the Borrower’s board of directors or in respect of the
issuance of Common Stock upon exercise of any such options, (C) issuances of
Common Stock Equivalents upon the conversion of Debenture or other Common Stock
Equivalent outstanding on the date hereof or (D) any shares of Common Stock or
Common Stock Equivalents issued to pay all or a portion of any investment
banking, finders or similar fee or commission, which entitles the holders
thereof to acquire shares of Common Stock at a price not less than the market
price of the Common Stock on the date of such issuance and which is not subject
to any adjustments other than on account of stock splits and reverse stock
splits and which does not exceed 6% of the amount of Common Stock issued or
issuable pursuant to the transaction for which such fee or commission is paid.


 


(e)                                  Reclassifications;
Share Exchanges.   In case of any
reclassification of the Common Stock, or any compulsory share exchange pursuant
to which the Common Stock is converted into other securities, cash or property
(other than compulsory share exchanges which constitute Change of Control
transactions), the Holders of the Debentures then outstanding shall have the
right thereafter to convert such shares only 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 reclassification or share exchange, and the
Holders shall be entitled upon such event to receive such amount of securities,
cash or property as a holder of the number of shares of Common Stock of the
Borrower into which such shares of Debentures could have been converted
immediately prior to such reclassification or share exchange would have been
entitled. This provision shall similarly apply to successive reclassifications
or share exchanges.


 


(f)                                    Calculations.    All calculations under this Section 12
shall be made to the nearest cent or the nearest 1/100th of a share, as
applicable. The number of shares of Common Stock outstanding at any given time
shall not include shares owned or held by or for the account of the Borrower,
and the disposition of any such shares shall be considered an issue or sale of
Common Stock.


 


(g)                                 Notice
of Adjustments.    Upon the
occurrence of each adjustment pursuant to this Section 12, the Borrower at its
expense will promptly compute such adjustment in accordance with the terms
hereof and prepare a certificate describing in reasonable detail such 


 


14

















 


adjustment and the transactions
giving rise thereto, including all facts upon which such adjustment is based.
Upon written request, the Borrower will promptly deliver a copy of each such
certificate to the Holder.


 


(h)                                 Notice
of Corporate Events.    If the
Borrower (i) declares a dividend or any other distribution of cash, securities
or other property in respect of its Common Stock, including without limitation
any granting of rights or warrants to subscribe for or purchase any capital
stock of the Borrower or any Subsidiary, (ii) authorizes or approves, enters
into any agreement contemplating or solicits stockholder approval for any
Fundamental Transaction or (iii) authorizes the voluntary dissolution,
liquidation or winding up of the
affairs of the Borrower, then the Borrower shall deliver to the Holder a notice
describing the material terms and conditions of such transaction, at least 20
calendar days prior to the applicable record or effective date on which a
Person would need to hold Common Stock in order to participate in or vote with
respect to such transaction, and the Borrower will take all steps reasonably
necessary in order to insure that the Holder is given the practical opportunity
to convert this Debenture prior to such time so as to participate in or vote
with respect to such transaction; provided, however, that the failure to
deliver such notice or any defect therein shall not affect the validity of the corporate
action required to be described in such notice.


 


13.                                 Fractional
Shares.    The Borrower shall not be
required to issue or cause to be issued fractional Underlying Shares on
conversion of this Debenture. If any fraction of an Underlying Share would,
except for the provisions of this Section, be issuable upon conversion of this
Debenture, the number of Underlying Shares to be issued will be rounded up to
the nearest whole share.


 


14.                                 Notices.    Any and all notices or other
communications or deliveries hereunder (including without limitation any
Conversion Notice) shall be in writing and shall be deemed given and effective
on the earliest of (i) the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number specified in
this Section prior to 6:30 p.m. (New York City time) on a Trading Day, (ii) the
next Trading Day after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number specified in
this Section on a day that is not a Trading Day or later than 6:30 p.m. (New
York City time) on any Trading Day, (iii) the Trading Day following the date of
mailing, if sent by nationally recognized overnight courier service, or (iv)
upon actual receipt by the party to whom such notice is required to be given.
The addresses for such communications shall be: (i) if to the Borrower, to 800
Miramonte Drive, Santa Barbara, California 93109, facsimile: (805) 899-3517,
attention Chief Financial Officer, or (ii) if to the Holder, to the address or
facsimile number appearing on the Borrower’s stockholder records or such other
address or facsimile number as the Holder may provide to the Borrower in
accordance with this Section.


 


15.                                 Miscellaneous.


 


(a)                                  This
Debenture shall be binding on and inure to the benefit of the parties hereto
and their respective successors and assigns. This Debenture may be amended only in writing signed by the Borrower and the
Holder and their successors and assigns.


 


15

















 


(b)                                 Subject
to Section 15(a), above, nothing in this Debenture shall be construed to give
to any person or corporation other than the Borrower and the Holder any legal or equitable right, remedy or cause
under this Debenture. This Debenture shall inure to the sole and exclusive
benefit of the Borrower and the Holder.


 


(c)                                  The
corporate laws of the State of Delaware shall govern all issues concerning the
relative rights of the Borrower and its stockholders. All questions concerning
the construction, validity, enforcement and interpretation of this Debenture
shall be governed by and construed and enforced in accordance with the internal
laws of the State of New York, without regard to the principles of conflicts of
law thereof.  Each party agrees that all
proceedings shall be commenced exclusively in the state and federal courts
sitting in the City of New York, Borough of Manhattan (the “New York Courts”).  Each party hereto hereby irrevocably submits
to the exclusive jurisdiction of the New York Courts for any proceeding, and
hereby irrevocably waives, and agrees not to assert in any proceeding, any
claim that it is not personally subject to the jurisdiction of any New York
Court or that a New York Court is an inconvenient forum for such proceeding.  Each party hereto hereby irrevocably waives
personal service of process and consents to process being served in any such
proceeding by mailing a copy thereof via registered or certified mail or
overnight delivery (with evidence of delivery) to such party at the address in
effect for notices to it under this Debenture and agrees that such service
shall constitute good and sufficient service of process and notice
thereof.  Nothing contained herein shall
be deemed to limit in any way any right to serve process in any manner
permitted by law.  Each party hereto
hereby irrevocably waives, to the fullest extent permitted by applicable law,
any and all right to trial by jury in any legal proceeding.  The prevailing party in a proceeding shall
be reimbursed by the other party for its attorney’s fees and other costs and
expenses incurred with the investigation, preparation and prosecution of such
proceeding.


 


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


 


(e)                                  In
case any one or more of the provisions of this Debenture shall be invalid or
unenforceable in any respect, the validity and enforceability of the remaining
terms and provisions of this Debenture shall not in any way be affected or
impaired thereby and the parties will attempt in good faith to agree upon a
valid and enforceable provision which shall be a commercially reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Debenture.


 


(f)                                    No
provision of this Debenture may be waived or amended except in a written
instrument signed, in the case of an amendment, by the Borrower and the Holder
or, or, in the case of a waiver, by the Holder. No waiver of any default with
respect to any provision, condition or requirement of this Debenture shall be
deemed to be a continuing waiver in the future or a waiver of any subsequent
default or a waiver of any other provision, condition or requirement hereof, nor
shall any delay or omission of either party to exercise any right hereunder in
any manner impair the exercise of any such right.


 


(g)                                 To
the extent it may lawfully do so, the Borrower hereby agrees not to insist upon
or plead or in any manner whatsoever claim, and will resist any and all efforts
to be compelled to take the benefit or advantage of, usury laws wherever
enacted, now or at any 


 


16

















 


time hereafter in force, in connection with any claim, action or
proceeding that may be brought by any Holder in order to enforce any right or
remedy under the Debentures. Notwithstanding any provision to the contrary
contained in the Debentures, it is expressly agreed and provided that the total
liability of the Borrower under the Debentures for payments in the nature of
interest shall not exceed the maximum lawful rate authorized under applicable
law (the “Maximum Rate”), and,
without limiting the foregoing, in no event shall any rate of interest or
default interest, or both of them, when aggregated with any other sums in the
nature of interest that the Borrower may be obligated to pay under the
Debentures exceed such Maximum Rate. It is agreed that if the maximum contract
rate of interest allowed by law and applicable to the Debentures is increased
or decreased by statute or any official governmental action subsequent to the
date hereof, the new maximum contract rate of interest allowed by law will be
the Maximum Rate of interest applicable to the Debentures from the effective
date forward, unless such application is precluded by applicable law. If under
any circumstances whatsoever, interest in excess of the Maximum Rate is paid by
the Borrower to any Holder with respect to indebtedness evidenced by the
Debentures, such excess shall be applied by such Holder to the unpaid principal
balance of any such indebtedness or be refunded to the Borrower, the manner of
handling such excess to be at such Holder’s election.


 


(h)                                 Except
pursuant to Sections 5(c)(ii), 7 and 8 hereunder, the outstanding principal
amount and interest under this Debenture may not be prepaid by the Borrower
without the prior written consent of the Holder.


 


(i)                                     The
obligations under this Debenture are secured pursuant to the Security
Agreement.


 


[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK


SIGNATURE PAGE FOLLOWS]


 


17

















 


IN WITNESS
WHEREOF, the Borrower has caused this Debenture to be duly executed by a duly
authorized officer as of the date first above indicated.


 


	
  EARTHSHELL
  CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  



 


18

















 


EXHIBIT
A


 


HOLDER CONVERSION NOTICE


 


(To be Executed by the Registered Holder

in order to convert Debentures)


 


The
undersigned hereby elects to convert the principal amount of Debenture
indicated below, into shares of Common Stock of EarthShell Corporation, as of
the date written below. If shares are to be issued in the name of a Person
other than undersigned, the undersigned will pay all transfer taxes payable
with respect thereto and is delivering herewith such certificates and opinions
as reasonably requested by the Borrower in accordance therewith. No fee will be
charged to the Holder for any conversion, except for such transfer taxes, if any.
All terms used in this notice shall have the meanings set forth in the
Debenture.


 


	
  Conversion calculations:

  	
   

  
	
   

  	
  Date to Effect Conversion

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Principal amount of Debenture owned prior to conversion

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Principal amount of Debenture to be Converted

  
	
   

  	
  (including
                
  of interest added under Section 2(c) of the Debenture)

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Principal amount of Debenture remaining after Conversion

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Number of shares of Common Stock to be Issued

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Applicable Conversion Price

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Name of Holder

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  



 


[ ] By the delivery of this Conversion Notice the Holder represents and
warrants to the Borrower that its ownership of the Common Stock does not exceed
the restrictions set forth in Section 5(c) of the Debenture.


 


19

















 


EXHIBIT
B


 


COMPANY CONVERSION NOTICE


 


(To be executed by the Borrower

in order to convert the Debenture)


 


The
undersigned in the name and on behalf of EarthShell Corporation, hereby
irrevocably elects to convert the principal amount of Debenture indicated
below, into shares of Common Stock of EarthShell Corporation, as of the date
written below. If shares are to be issued in the name of a Person other than
Holder, the Holder will pay all transfer taxes payable with respect thereto and
is delivering herewith such certificates and opinions as reasonably requested
by the Borrower in accordance therewith. No fee will be charged to the Holder
for any conversion, except for such transfer taxes, if any. All terms used in
this notice shall have the meanings set forth in the Debenture.


 


	
  Conversion calculations:

  	
   

  
	
   

  	
  Date to Effect Conversion

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Principal amount of Debenture owned prior to conversion

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Principal amount of Debenture to be Converted

  
	
   

  	
  (including
                
  of interest added under Section 2(c) of the Debenture)

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Principal amount of Debenture remaining after Conversion

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Number of shares of Common Stock to be Issued

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Applicable Conversion Price

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Name of Holder

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  



 


20

















 


	
   

  	
  EARTHSHELL CORPORATION

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  



 


21

















 


Schedule
1


 


CONVERSION SCHEDULE


 


Secured
Convertible Debentures due on the third year anniversary of the Original Issue
Date in the aggregate principal amount of $12,550,000 issued by EarthShell
Corporation. This Conversion Schedule reflects conversions made under the above
referenced Debentures.


 


Dated:


 


 


	
  Date of Conversion

  	
   

  	
  Amount of

  Conversion

  	
   

  	
  Aggregate

  Principal

  Amount

  Remaining

  Subsequent to

  Conversion

  	
   

  	
  Applicable Conversion

  Price

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  



 


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