Unassociated Document


    Term
Sheet

    Secured
Convertible Note

    March
29, 2009

    


    This
Term Sheet is by and between the Investor (as defined below) and the Company (as
defined below) and no other person or entity and is meant to be a party hereto
or a third party beneficiary thereof. The purpose of this Term Sheet is to set
forth the indicative terms pursuant to which the Investor would purchase the
securities of the Company described herein. The terms and conditions set forth
herein are not a complete statement of the terms and conditions for any such
investment and are subject to change, and this Term Sheet does not constitute an
offer or solicitation or commitment to purchase or sell any securities of the
Company. The issuance and sale of such securities is subject to completion of
the Investor’s due diligence to the Investor’s satisfaction, the preparation of
definitive legal documentation to effect the transaction that is mutually
satisfactory to the Company and the Investor and, in the case of the Investor,
that the Investor shall have determined that subsequent to the date hereof and
prior to the closing of the transaction contemplated hereby, there shall have
been no material adverse developments relating to the business, assets,
liabilities, operations, properties, condition (financial or otherwise) or
prospects of the Company or any of its subsidiaries, either individually or
taken as a whole. Nothing contained herein constitutes an agreement or
obligation on the part of any person to purchase or sell securities of the
Company or enter into any agreement to purchase or sell securities of the
Company.

    
      


      
        
          	
                  Issuer:

                	
                  NutraCea
      (the “Company”)

                
	 
      	 
      
	
                  Investors:

                	
                  Cranshire
      Capital, L.P. (“Investor”)

                
	 
      	 
      
	
                  Securities:

                	
                  Convertible
      Note

                
	 
      	 
      
	
                  Amount:

                	
                  $1,000,000

                
	 
      	 
      
	
                  Maturity
      Date:

                	
                  7
      months from original issuance date

                
	 
      	 
      
	
                  Interest
      Rate:

                	
                  8%
      per annum, calculated and payable quarterly in arrears. At the Company’s
      option, interest may be paid in cash or in shares of the Company’s common
      stock that have been registered for resale under an effective registration
      statement. If the Company elects to pay in common stock, such shares will
      be valued at a 10% discount to the average of the daily volume weighted
      average price of the Company’s common stock for the 20 trading days
      immediately preceding the interest payment date.

                
	 
      	 
      
	
                  Fixed
      Conversion

                	 
      
	
                  Price:

                	
                  20% premium to the
      closing price of the Company’s common stock on the closing
      date

                
	 
      	 
      
	
                  Redemption/

                	 
      
	
                  Conversion:

                	
                  The
      Convertible Note will be redeemed in cash by the Company over 4 months in
      4 equal monthly installments (each a “Redemption Date”) commencing with
      the four month anniversary of the initial issuance date
      thereof.

                


        

      

       

      
        
           


        

        
           

          
            

          

        

        
           


        

      

      


      
        
          	 
      	
                  At
      the Company’s option after a resale registration statement registering the
      common stock underlying the Convertible Note and the warrants described
      below is declared effective by the SEC, the Company may elect to have the
      portion of the Convertible Note to be redeemed automatically convert into
      common stock on the applicable Redemption Date in lieu of paying the
      applicable redemption price in cash, provided that if the Company elects
      such automatic conversion in lieu of paying cash, the conversion will
      occur at the lower of the fixed conversion price or a 10% discount to the
      average of the daily volume weighted average price of the Company’s common
      stock for the 20 trading days immediately preceding the applicable
      Redemption Date, and, among other customary conditions, the common stock
      to be received is then registered for resale pursuant to an effective
      registration statement.

                
	 
      	 
      
	 
      	
                  The
      Company may prepay the Convertible Note in full beginning on the 4 month
      anniversary of the initial issuance date thereof at a 115% premium on
      terms substantially similar to the redemption terms contained in the
      Series D Convertible Preferred Stock issued by the Company in October
      2008.

                
	 
      	 
      
	
                  Anti-Dilution

                	 
      
	
                  Protection:

                	
                  Full
      ratchet for issuances or deemed issuances below the fixed conversion
      price.

                
	 
      	 
      
	
                  Security:

                	
                  The
      Convertible Note will be secured by all of
      the assets of the Company, and the Convertible Note will be guaranteed by
      each of the Company’s wholly-owned subsidiaries. The Investor’s security
      interest will be subordinated to the security interest granted in
      connection with the Company’s Wells Fargo facility (or to a replacement
      lender thereof).

                
	 
      	 
      
	
                  Other
      Terms of

                	 
      
	
                  Convertible
      Note:

                	
                  All
      other terms of the Convertible Note will be substantially
      similar to those of the Series D Convertible Preferred Stock issued by the
      Company in October 2008.

                
	 
      	 
      
	
                  Warrants:

                	
                  The
      Company will issue five (5) year warrants to the Investor in an amount
      equal to 50% of the number of shares that the Investor would own if the
      Investor converted its Convertible Note in full on the closing date
      (without regard to any limitations on conversion). The warrants (i) will
      have an exercise price equal to the fixed conversion price; (ii) may be
      exercised via cashless exercise if the underlying shares are not
      registered for resale; (iii) will include standard Black-Scholes language
      upon the occurrence of a fundamental transaction involving the Company;
      and (iv) contain full ratchet anti-dilution protection. All other terms of
      the warrants will be substantially similar to those terms contained in the
      warrants issued by the Company in connection with the issuance of its
      Series D Convertible Preferred Stock in October 2008.

                
	 
      	 
      
	
                  Registration
      Rights:

                	
                  The Investor will have
      customary registration rights, which shall include, without limitation,
      the requirement for the Company to file a resale registration statement on
      Form S-1 within 45 days of the closing date and to have such registration
      statement declared effective by the SEC within 90 days of the closing
      date. The Company will be subject to customary monetary damages if such
      obligations are not met.

                


        

      

      



      
        
           


        

        
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                  Other
      Terms:

                	
                  The
      other definitive legal documentation shall be, and contain terms and
      conditions, substantially similar to the legal documentation executed by
      the Company in connection with its issuance of Series D Convertible
      Preferred Stock in October 2008, including, without limitation, with
      respect to rights of first refusal and participation
    rights.

                
	 
      	 
      
	
                  Closing
      Date:

                	
                  As
      soon as practicable upon the execution of written definitive legal
      documentation acceptable to the Investor in its sole
      discretion.

                
	 
      	 
      
	
                  Expenses:

                	
                  The
      Company shall reimburse the Investor for all costs and expenses associated
      with the transaction contemplated hereby (including, without limitation,
      all legal fees) regardless of whether such transaction is consummated so
      long as the Investor proceeds in good faith. Simultaneously with the
      execution of this Term Sheet, the Company will wire to the Investor
      $30,000 as a deposit towards such expense
reimbursement.

                
	 
      	 
      
	
                  Counterparts:

                	
                  This
      Term Sheet may be executed in multiple counterparts and by facsimile
      signature, each of which shall be deemed to be an original, and all such
      counterparts shall constitute but one instrument.

                
	 
      	 
      
	
                  Disclosure:

                	
                  The
      Company shall, on or before 8:30 a.m., New York time, on the first (1st)
      business day after the date of this Term Sheet file a Current Report on
      Form 8-K describing all the material terms of the proposed transaction
      contemplated by this Term Sheet in the form required by the Securities
      Exchange Act of 1934, as amended, and attach this Term Sheet as an exhibit
      thereto.

                
	 
      	 
      
	
                  Nature of Term
      Sheet:

                	
                  Except
      for “Expenses,” “Counterparts,” “Disclosure” above and this provision
      (collectively, the “Binding Provisions”), this Term Sheet represents an
      expression of intent only. Accordingly, none of the parties hereto will be
      bound by any terms of this Term Sheet other than the Binding Provisions.
      This Term Sheet and all rights and remedies hereunder or with respect
      hereto (including, without limitation, specific performance, injunctions
      or temporary restraining orders or other similar equitable relief, all of
      which may be sought and obtained without the necessity of posting any bond
      or other security) are personal to the parties and neither this Term Sheet
      nor any such rights or remedies (all of which are cumulative and may be
      pursued individually, with one or more other, or collectively, in whole or
      in part and from time to time) may be assigned without the consent of the
      other party hereto. Nothing contained in this Term Sheet shall limit or
      reduce any rights or remedies that any party may have hereunder at law or
      in equity. Should the Investor determine not to proceed with the
      contemplated transaction, the Investor shall have no obligation or
      liability related thereto to the Company or any other person or
      entity.

                


        

         

      

      [signature page
follows]

    


    
      
         


      

      
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    If the
foregoing is acceptable, please so indicate by executing and delivering a copy
of this Term Sheet in the space provided below.


    


    
      
        
          
            	
                    NUTRACEA

                  	
                    CRANSHIRE
      CAPITAL, L.P.

                  
	 
      	 
      
	
                    By:
      /s/
      Olga Hernandez Longan

                  	
                    By:  Downsview
      Capital, Inc.

                  
	 
      	
                    Its:  General
      Partner

                  
	 
      	 
      
	
                    Title:
      Chief
      Financial Officer

                  	
                    By:
      /s/
      Keith A. Goodman

                  
	 
      	 
      
	 
      	
                    Title:
      Chief
      Operating
Officer

                  


          

        

      

    

     

    
      
         


      

      
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