EX-10.4






Exhibit 10.4




Execution Copy




Dated: November 2, 2006





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 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.



No. VSPC-1-3 $1,500,000



VIASPACE INC.




Secured Convertible Debenture




Due: November 2, 2011




This Secured Convertible Debenture (the “Debenture”) is issued by VIASPACE INC., a
Nevada corporation (the “Company”), to CORNELL CAPITAL PARTNERS, LP (the “Holder”),
pursuant to that certain Securities Purchase Agreement (the “Securities Purchase
Agreement”) dated November 2, 2006.



FOR VALUE RECEIVED, the Company hereby promises to pay to the Holder or its successors and
assigns the principal sum of One Million Five Hundred Thousand Dollars ($1,500,000) together with
accrued but unpaid interest on or before November 2, 2011 (the “Maturity Date”) in
accordance with the following terms:



Section 1. General Terms



(a) Interest. Interest shall accrue on the outstanding principal balance hereof at an
annual rate equal to ten percent (10%). 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 in Common Stock (valued at the Closing Bid
Price on the Trading Day immediately prior to the date paid) at the option of the Company.



(b) Security. This Debenture is secured by Pledge and Escrow Agreements dated
November 2, 2006 by and between the Company, the Holder and the Escrow Agent and Carl Kukkonen and
Amjad Abdallat (the “Pledge Agreements”), and Security Agreements dated November 2, 2006
between the Company and the Holder and Arroyo Sciences, Inc., and Concentric Water Technology,
Inc., each a wholly owned subsidiary of the Company (individually, a “Subsidiary”, and
together, the “Subsidiaries”), and the Holder dated November 2, 2006 (the “Security
Agreements”).



Section 2. Events of Default.



(a) An “Event of Default”, wherever used herein, means any one of the following
events, unless such event shall have been previously consented to by the Holder (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) Any default in the payment of the principal of, interest on or other charges in respect of
this Debenture, free of any claim of subordination, as and when the same shall become due and
payable whether upon a Mandatory Redemption (as defined in Section 3(b)), an Optional Redemption
(as defined in Section 3(a)), or the Maturity Date or by acceleration or otherwise, provided
however, an Event of Default shall not be deemed to have occurred pursuant to this Section 2(a)(i)
if the following conditions are satisfied: (A) the Company issues to the Holder shares of Common
Stock in an amount equal to the payment amount that the Company failed to make divided by the
Conversion Price within three days of the date that the payment was due, (B) the Closing Bid Price
of the Common Stock is greater than the Conversion Price as of the last completed Trading Day prior
to the date such shares are delivered to the Holder, and (C) such shares are freely tradeable by
the Holder;



(ii) The Company or a Subsidiary of the Company shall commence, or there shall be commenced
against the Company or a 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 a Subsidiary of the Company or there
is commenced against the Company or a Subsidiary of the Company any such bankruptcy, insolvency or
other proceeding which remains undismissed for a period of 61 days; or the Company or a 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 a 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 a Subsidiary of the Company makes a general assignment for the
benefit of creditors; or the Company or a 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 a 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 a 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 a
Subsidiary of the Company for the purpose of effecting any of the foregoing;



(iii) The Company or a Subsidiary of the Company shall default in any of its material
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 a Subsidiary of the Company in an
amount exceeding $500,000, 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 prior to
the date on which it would otherwise become due and payable;



(iv) The Common Stock shall cease to be quoted for trading or listing for trading on any of
(a) the American Stock Exchange, (b) New York Stock Exchange, (c) the Nasdaq Global Market, (d) the
Nasdaq Capital Market, or (e) the Nasdaq OTC Bulletin Board (“OTC”) (each, a “Primary
Market”) and shall not again be quoted or listed for trading on any Primary Market within five
(5) Trading Days of such delisting;



(v) The Company or any Subsidiary of the Company shall be a party to a consummated Change of
Control Transaction (as defined in Section 6);



(vi) The Company shall fail to file the Underlying Shares Registration Statement (as defined
in Section 6) with the Commission (as defined in Section 6), or the Underlying Shares Registration
Statement shall not have been declared effective by the Commission, in each case within the time
periods set forth in the Investor Registration Rights Agreement (“Registration Rights
Agreement”) dated November 2, 2006 between the Company and the Holder;



(vii) If the effectiveness of the Underlying Shares Registration Statement lapses for any
reason or the Holder shall not be permitted to resell the shares of Common Stock underlying this
Debenture under the Underlying Shares Registration Statement as a result of actions taken or not
taken by the Company, in either case, for more than fifteen (15) consecutive Trading Days or an
aggregate of twenty (20) Trading Days (which need not be consecutive Trading Days);



(viii) The Company shall fail for any reason to deliver Common Stock certificates to a Holder
prior to the fifth (5th) Trading Day after a Conversion Date or after a Redemption Date
if the Company elects to settle a Mandatory Redemption in shares of Common Stock, or the Company
shall provide notice to the Holder, including by way of public announcement, at any time, of its
intention not to comply with requests for conversions, or settlements of Mandatory Redemptions in
shares of Common Stock, in accordance with the terms hereof;



(ix) The Company shall fail for any reason to deliver the payment in cash pursuant to a Buy-In
(as defined herein) within three (3) days after notice is delivered hereunder;



(x) The Company shall fail to observe or perform any other material covenant, agreement or
warranty contained in, or otherwise commit any breach or default of any material provision of this
Debenture (except as may be covered by Section 2(a)(i) through 2(a)(ix) hereof) or any Transaction
Document (as defined in Section 6) which is not cured with in the time prescribed, or an Event of
Default under any other debenture issued to the Holder in connection with the Securities Purchase
Agreement shall occur;



(b) During the time that any portion of this Debenture is outstanding, if any Event of Default
has occurred and is continuing for a period of fifteen (15) days after notice of such default has
been delivered by the Holder to the Company (the “Notice Period”), the full 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,
provided however, the Holder may request (but shall have no obligation to request) payment of such
amounts in Common Stock of the Company. If an Event of Default shall occur the Conversion Price
shall be reduced to $0.30 (the “Default Conversion Price”). 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 then in-effect. The Holder need not provide and the Company hereby waives any presentment,
demand, protest or other notice of any kind, and the Holder may immediately and without expiration
of any grace period (other than the Notice 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.
Upon an Event of Default, notwithstanding any other provision of this Debenture or any Transaction
Document, the Holder shall have no obligation to comply with or adhere to any limitations, if any,
on the conversion of this Debenture or the sale of the Underlying Shares.



Section 3. Redemptions.



(a) Company’s Optional Cash 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 provided that as of the date of the Holder’s receipt of a
Redemption Notice (as defined herein) (i) the Closing Bid Price of the of the Common Stock, as
reported by Bloomberg, LP, is less than the Conversion Price, (ii) the Underlying Share
Registration Statement is effective, and (iii) no Event of Default has occurred. The Company shall
pay an amount equal to the principal amount being redeemed plus a redemption premium
(“Redemption Premium”) equal to ten percent (10%) of the principal amount being redeemed,
and accrued interest, (collectively referred to as the “Redemption Amount”). In order to
make a redemption, 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.



(b) Mandatory Redemptions. Beginning on the earlier of (i) the first Trading Day of
the month immediately following the month in which the Underlying Share Registration Statement is
first declared effective or (ii) May 2, 2007, and continuing on the first Trading Day of each
calendar month for thirteen (13) months thereafter, the Company shall make mandatory redemptions
(“Mandatory Redemptions”) consisting of outstanding principal and accrued and unpaid
interest. The principal amount of each Mandatory Redemption shall be equal to One Hundred Fifteen
Thousand Three Hundred Eighty-Four Dollars and Sixty-Two Cents ($115,384.62) plus an amount of
accrued and unpaid interest based upon interest due over the life of the Debenture divided by
thirteen (13) scheduled Mandatory Redemptions (“Mandatory Redemption Amount”) per calendar
month, until all amounts owed under this Debenture have been paid in full, provided however the
Investor at it sole option shall have the ability one (1) time during the life of this debenture,
upon twenty (20) calendar days advance written notice to the Company notice provided that the VWAP
of the Company’s Common Stock is at or above the Conversion Price with a volume traded of at least
1,250,000 shares per day for twenty (20) or more consecutive Trading Days, require that a Mandatory
Redemption Amount be increased up to Seven Hundred Fifty Thousand Dollars ($750,000).



The Company shall transmit a copy of a Redemption Notice in the form attached hereto as
Exhibit A (the “Redemption Notice”) via facsimile (or other delivery) for receipt
on or prior to 12:00 pm New York City time on the due date of such Mandatory Redemption (the
“Redemption Date”) which shall (i) indicate the applicable Mandatory Redemption Amount,
(ii) indicate the Company’s choice of settlement options (pursuant to Section 3(c)) with respect to
such Redemption Notice, and (iii) be signed by an officer of the Company. The Company shall settle
all Mandatory Redemptions within 5 Trading Days of the Redemption Date (the “Settlement
Date”). The Holder shall have the absolute right, in its sole discretion, to suspend the
Company’s obligations to make Mandatory Redemptions by providing the Company with written notice of
such election (a “Suspension Notice”) prior to a Redemption Date. The Holder shall have no
obligation to accept any Mandatory Redemptions made by the Company during any suspension period
specified in a Suspension Notice after the Holder’s submission of such Suspension Notice. The
obligation of the Company to make Mandatory Redemptions shall resume on the first Trading Day of
the month following the expiration of the suspension period specified in a Suspension Notice.



Notwithstanding the foregoing, if (A) the average VWAP of the Common Stock over the thirty (3)
consecutive Trading Days immediately prior to the Redemption Date is equal to or greater than 110%
of the of the Conversion Price then in effect, and (B) the Underlying Share Registration Statement
has been declared effective and remains effective on the Redemption Date, then the Company shall
not be permitted or required to make a Mandatory Redemption in that month (a “Waiver Mandatory
Redemption Month”).



(c) Company’s Settlement of Mandatory Redemptions. The Company shall settle Mandatory
Redemptions by paying the Holder cash in an amount equal to the Mandatory Redemption Amount.



Section 4. Conversion.



(a) Conversion at Option of Holder.



(i) This Debenture shall be convertible into shares of Common Stock at the option of the
Holder, in whole or in part at any time and from time to time, after the Original Issue Date (as
defined in Section 6) (subject to the limitations on conversion set forth in Section 4(b) hereof).
The number of shares of Common Stock issuable upon a conversion hereunder equals the quotient
obtained by dividing (x) the outstanding amount of this Debenture to be converted by (y) the
Conversion Price (as defined in Section 4(c)(i)). The Company shall deliver Common Stock
certificates to the Holder prior to the Fifth (5th) Trading Day after a Conversion Date.



(ii) Notwithstanding anything to the contrary contained herein, if on any Conversion Date:
(1) the number of shares of Common Stock at the time authorized, unissued and unreserved for all
purposes, or held as treasury stock, is insufficient to pay principal and interest hereunder in
shares of Common Stock; (2) the Common Stock is not listed or quoted for trading on the OTC or on a
Primary Market; or (3) the Company has failed to timely satisfy a conversion; then, at the option
of the Holder, the Company, in lieu of delivering shares of Common Stock pursuant to Section
4(a)(i), shall deliver, within three (3) Trading Days of each applicable Conversion Date, an amount
in cash equal to the product of the outstanding principal amount to be converted divided by the
applicable Conversion Price, and multiplied by the highest Closing Bid Price of the Common Stock
from the date of the conversion notice until the date that such cash payment is made.



Further, if the Company shall not have delivered any cash due in respect of conversion of this
Debenture by the fifth (5th) Trading Day after the Conversion Date, the Holder may, by
notice to the Company, require the Company to issue shares of Common Stock pursuant to Section
4(c), except that for such purpose the Conversion Price applicable thereto shall be the lesser of
the Conversion Price on the Conversion Date and the Conversion Price on the date of such Holder
demand. Any such shares will be subject to the provisions of this Section.



(iii) The Holder shall effect conversions by delivering to the Company a completed notice in
the form attached hereto as Exhibit B (a “Conversion Notice”). The date on which a
Conversion Notice is delivered is the “Conversion Date.” Unless the Holder is converting
the entire principal amount outstanding under this Debenture, the Holder is not required to
physically surrender this Debenture to the Company in order to effect conversions. Conversions
hereunder shall have the effect of lowering the outstanding principal amount of this Debenture plus
all accrued and unpaid interest thereon in an amount equal to the applicable conversion. The Holder
and the Company shall maintain records showing the principal amount converted and the date of such
conversions. In the event of any dispute or discrepancy, the records of the Holder shall be
controlling and determinative in the absence of manifest error.



(b) Certain Conversion Restrictions.



(i) 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 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, to the extent that it is aware that the Conversion by the
Holder at that time would result in such excess, 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 the periods described in Section 4(a)(i) 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.



(c) Conversion Price and Adjustments to Conversion Price.



(i) The conversion price in effect on any Conversion Date shall be equal to $0.60 per share
(the “Conversion Price”). The Conversion Price may be adjusted to reflect certain events
as set forth in this Section 4(c).



(ii) 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.



(iii) If the Company, at any time while this Debenture is outstanding, shall issue rights,
options or warrants to all holders of Common Stock (and not to the Holder) entitling them to
subscribe for or purchase shares of Common Stock at a price per share less than the Conversion
Price, then the Conversion Price shall be multiplied by a fraction, of which the denominator shall
be the number of shares of the Common Stock (excluding treasury shares, if any) outstanding on the
date of issuance of such rights or warrants (plus the number of additional shares of Common Stock
offered for subscription or purchase), and of which the numerator shall be the number of shares of
the Common Stock (excluding treasury shares, if any) outstanding on the date of issuance of such
rights or warrants, plus the number of shares which the aggregate offering price of the total
number of shares so offered would purchase at the Conversion Price. Such adjustment shall be made
whenever such rights or warrants are issued, and shall become effective immediately after the
record date for the determination of stockholders entitled to receive such rights, options or
warrants. However, upon the expiration of any such right, option or warrant to purchase shares of
the Common Stock the issuance of which resulted in an adjustment in the Conversion Price pursuant
to this Section, if any such right, option or warrant shall expire and shall not have been
exercised, the Conversion Price shall immediately upon such expiration be recomputed and effective
immediately upon such expiration be increased to the price which it would have been (but reflecting
any other adjustments in the Conversion Price made pursuant to the provisions of this Section after
the issuance of such rights or warrants) had the adjustment of the Conversion Price made upon the
issuance of such rights, options or warrants been made on the basis of offering for subscription or
purchase only that number of shares of the Common Stock actually purchased upon the exercise of
such rights, options or warrants actually exercised.



(iv) If the Company or any subsidiary thereof, as applicable, at any time while this Debenture
is outstanding, shall issue shares of Common Stock or rights, warrants, options or other securities
or debt that are convertible into or exchangeable for shares of Common Stock (“Common Stock
Equivalents”) entitling any Person to acquire shares of Common Stock, at a price per share 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 per
share which are issued in connection with such issuance, be entitled to receive shares of Common
Stock at a price per share which is less than the Conversion Price, such issuance shall be deemed
to have occurred for less than the Conversion Price), then, at the sole option of the Holder, 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
Company shall notify the Holder in writing, no later than one (1) business 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 adjustment under this Section shall be made as a result of issuances of
Excluded Securities, as defined in Section 6 hereof.



(v) If the Company, at any time while this Debenture is outstanding, shall distribute to all
holders of Common Stock (and not to the Holder) evidences of its indebtedness or assets or rights
or warrants to subscribe for or purchase any security, then in each such case the Conversion Price
at which this Debenture shall thereafter be convertible shall be determined by multiplying the
Conversion Price in effect immediately prior to the record date fixed for determination of
stockholders entitled to receive such distribution by a fraction of which the denominator shall be
the Closing Bid Price determined as of the record date mentioned above, and of which the numerator
shall be such Closing Bid Price on such record date less the then fair market value at such record
date of the portion of such assets or evidence of indebtedness so distributed applicable to one
outstanding share of the Common Stock as determined by the Board of Directors in good faith. In
either case the adjustments shall be described in a statement provided to the Holder of the portion
of assets or evidences of indebtedness so distributed or such subscription rights applicable to one
share of Common Stock. Such adjustment shall be made whenever any such distribution is made and
shall become effective immediately after the record date mentioned above.



(vi) 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, the Holder
shall have the right thereafter to, at its option, (A) convert the then outstanding principal
amount, together with all accrued but unpaid interest and any other amounts then owing hereunder in
respect of this Debenture into the shares of stock and other securities, cash and property
receivable upon or deemed to be held by holders of the Common Stock following such reclassification
or share exchange, and the Holder of this Debenture shall be entitled upon such event to receive
such amount of securities, cash or property as the shares of the Common Stock of the Company into
which the then outstanding principal amount, together with all accrued but unpaid interest and any
other amounts then owing hereunder in respect of this Debenture could have been converted
immediately prior to such reclassification or share exchange would have been entitled, or (B)
require the Company to prepay the outstanding principal amount of this Debenture, plus all interest
and other amounts due and payable thereon. The entire prepayment price shall be paid in cash. This
provision shall similarly apply to successive reclassifications or share exchanges.



(vii) Whenever the Conversion Price is adjusted pursuant to Section 4 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.



(viii) If (A) the Company shall declare a dividend (or any other distribution) on the Common
Stock; (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the
Common Stock; (C) the Company shall authorize the granting to all holders of the Common Stock
rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any
rights; (D) the approval of any stockholders of the Company shall be required in connection with
any reclassification of the Common Stock, any consolidation or merger to which the Company is a
party, any sale or transfer of all or substantially all of the assets of the Company, of any
compulsory share exchange whereby the Common Stock is converted into other securities, cash or
property; or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation
or winding up of the affairs of the Company; then, in each case, the Company shall cause to be
filed at each office or agency maintained for the purpose of conversion of this Debenture, and
shall cause to be mailed to the Holder at its last address as it shall appear upon the stock books
of the Company, at least twenty (20) calendar days prior to the applicable record or effective date
hereinafter specified, a notice stating (x) the date on which a record is to be taken for the
purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be
taken, the date as of which the holders of the Common Stock of record to be entitled to such
dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on
which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to
become effective or close, and the date as of which it is expected that holders of the Common Stock
of record shall be entitled to exchange their shares of the Common Stock for securities, cash or
other property deliverable upon such reclassification, consolidation, merger, sale, transfer or
share exchange, provided, that the failure to mail such notice or any defect therein or in the
mailing thereof shall not affect the validity of the corporate action required to be specified in
such notice. The Holder is entitled to convert this Debenture during the 20-day calendar period
commencing the date of such notice to the effective date of the event triggering such notice.



(ix) In case of any (1) merger or consolidation of the Company or any Subsidiary of the
Company with or into another Person, in which the Company is not the surviving entity, 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 sale, or (C) in the
case of a merger or consolidation described in clause (i), 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 newly issued convertible Debenture shall have terms substantially 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 Debenture was 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.



(d) Other Provisions.



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



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



(iiii) 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 (subject to any additional
requirements of the Company as to reservation of such shares set forth in this Debenture or in the
Transaction Documents) 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) Upon a conversion hereunder the Company shall not be required to issue stock certificates
representing fractions of shares of the Common Stock, but may if otherwise permitted, make a cash
payment in respect of any final fraction of a share based on the Closing Bid Price at such time. If
the Company elects not, or is unable, to make such a cash payment, the Holder shall be entitled to
receive, in lieu of the final fraction of a share, one whole share of Common Stock.



(v) The issuance of certificates for shares of the Common Stock on conversion of this
Debenture shall be made without charge to the Holder thereof for any documentary stamp or similar
taxes that may be payable in respect of the issue or delivery of such certificate, provided that
the Company shall not be required to pay any tax that may be payable in respect of any transfer
involved in the issuance and delivery of any such certificate upon conversion in a name other than
that of the Holder of such Debenture so converted and the Company shall not be required to issue or
deliver such certificates unless or until the person or persons requesting the issuance thereof
shall have paid to the Company the amount of such tax or shall have established to the satisfaction
of the Company that such tax has been paid.



(vi) 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.



(vii) In addition to any other rights available to the Holder, if the Company fails to deliver
to the Holder such certificate or certificates pursuant to Section 4(a)(i) by the fifth
(5th) Trading Day after the Conversion Date, and if after such fifth (5th)
Trading Day the Holder purchases (in an open market transaction or otherwise) 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 Company 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
Common Stock so purchased exceeds (y) the product of (1) the aggregate number of shares of Common
Stock that such Holder anticipated receiving from the conversion at issue multiplied by (2) the
market price of the Common Stock at the time of the sale giving rise to such purchase obligation
and (B) at the option of the Holder, either reissue a Debenture in the principal amount equal to
the principal amount of the attempted conversion or deliver to the Holder the number of shares of
Common Stock that would have been issued had the Company timely complied with its delivery
requirements under Section 4(a)(i). For example, if the Holder purchases Common Stock having a
total purchase price of $11,000 to cover a Buy-In with respect to an attempted conversion of
Debentures with respect to which the market price of the Underlying Shares on the date of
conversion was a total of $10,000 under clause (A) of the immediately preceding sentence, the
Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written
notice indicating the amounts payable to the Holder in respect of the Buy-In.



(viii) Over Allotment Option. At anytime during the twelve (12) months following
the effectiveness of the Underlying Shares Registration Statement the Investor shall have the sole
option, upon ten (10) calendar days notice to the Company, to purchase up to $2,850,000 of
Convertible Debentures from the Company on the same terms as this Convertible Debenture.



(ix) Acceleration of Maturity. On the three (3) year anniversary of this
Convertible Debenture the Investor shall have the sole option, upon fifteen (15) calendar days
advance written notice to the Company to demand repayment of all outstanding principal amounts plus
interest due and outstanding hereunder (the “Acceleration Notice”), which payment shall be
made within fifteen (15) calendar days of the Company’s receipt of such Acceleration Notice.
Provided, however, the Company shall still be obligated to pay any and all Mandatory Redemption
payments deferred hereunder.



Section 5. 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:

	 	VIASPACE Inc.
	 
	 	 
	
 
	 	171 N. Altadena Drive – Suite 101
	 
	 	 
	
 
	 	Pasadena, CA 91107
	 
	 	 
	
 
	 	Attention: Carl Kukkonen, President and

Chief Executive Officer
	 
	 	 
	
 
	 	Telephone: (626) 768-3360
	 
	 	 
	
 
	 	Facsimile: (626) 578-9063
	 
	 	 
	With a copy to:

	 	Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
	 
	 	 
	
 
	 	One Financial Center
	 
	 	 
	
 
	 	Boston, MA 02111
	 
	 	 
	
 
	 	Attention: Megan N. Gates, Esq.
	 
	 	 
	
 
	 	Telephone: (617) 348-4443
	 
	 	 
	
 
	 	Facsimile: (617) 542-2241






	 	 	 	 	 
	If to the Holder:
	 	Cornell Capital Partners, LP

	 
	 	101 Hudson Street, Suite 3700
	 
	 	Jersey City, NJ  07303

	 
	 	Attention: Mark Angelo

	 
	 	Telephone: (201) 985-8300

	With a copy to:
	 	David Gonzalez, Esq..

	 
	 	101 Hudson Street – Suite 3700
	 
	 	Jersey City, NJ 07302

	 
	 	Telephone: (201) 985-8300

	 
	 	Facsimile: (201) 985-8266







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.



Section 6. Definitions. For the purposes hereof, the following terms shall
have the following meanings:



“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.



“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.



“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 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).



“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, LP.



“Commission” means the Securities and Exchange Commission.



“Common Stock” means the common stock, par value $.001, of the Company and stock of
any other class into which such shares may hereafter be changed or reclassified.



“Conversion Date” shall mean the date upon which the Holder gives the Company notice
of their intention to effectuate a conversion of this Debenture into shares of the Company’s Common
Stock as outlined herein.



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



“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 Securities Purchase Agreement, provided that
the terms of such right, option, obligation or security are not amended or otherwise modified on or
after the date of the Securities Purchase Agreement, 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
date of the Securities Purchase Agreement, (c) the shares of Common Stock issued or deemed to be
issued by the Company upon conversion of this Debenture, and (d) any securities issued pursuant to
a financing that is conducted by the Company following an offer to the Holder made pursuant to
Section 4(m) of the Securities Purchase Agreement, if such offer is rejected in whole or in part.



“Original Issue Date” shall mean 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.



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



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



“Trading Day” means a day on which the shares of Common Stock are quoted on the OTC or
quoted or traded on such 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.



“Transaction Documents” means the Securities Purchase Agreement or any other agreement
delivered in connection with the Securities Purchase Agreement, including, without limitation, the
Security Agreements, Pledge and Escrow Agreements, the Irrevocable Transfer Agent Instructions, and
the Registration Rights Agreement.



“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.



“Underlying Shares Registration Statement” means a registration statement meeting the
requirements set forth in the Registration Rights Agreement, covering among other things the resale
of the Underlying Shares and naming the Holder as a “selling stockholder” thereunder.



“VWAP” shall mean the volume weighted average price of the Company’s Common Stock as quoted by
Bloomberg, LP.



Section 7. 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. This Debenture ranks pari passu with all other Debentures now or hereafter issued under
the terms set forth herein. 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 other than as to the Underlying Shares to the extent
permitted or required under the Transaction Documents; or (iii) enter into any agreement with
respect to any of the foregoing.



Section 8. 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.



Section 9. If this Debenture is mutilated, lost, stolen or destroyed, the Company
shall execute and deliver, in exchange and substitution for and upon cancellation of the mutilated
Debenture, or in lieu of or in substitution for a lost, stolen or destroyed Debenture, a new
Debenture for the principal amount of this Debenture so mutilated, lost, stolen or destroyed but
only upon receipt of evidence of such loss, theft or destruction of such Debenture, and of the
ownership hereof, and indemnity, if requested, all reasonably satisfactory to the Company.



Section 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.



Section 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.



Section 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, reasonable 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.



Section 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.



Section 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.



Section 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.



Section 16. This Debenture is exchangeable for an equal aggregate principal amount of
Debentures of different authorized denominations, as requested by the Holder surrendering the same.
No service charge will be made for such registration of transfer or exchange.



Section 17. 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.



[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]





1






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:

	 

	VIASPACE INC.

	 

	By: /S/ CARL KUKKONEN

	 

	Name: Carl Kukkonen

	Title: President and Chief Executive Officer

	 







2




EXHIBIT A




REDEMPTION NOTICE




Redemption Date: Mandatory Redemption Amount:



	 	 	 	 	 
	Settlement in Common Stock
	All Conditions to Company’s option to settle in Common Stock (Section 3(c)) are
	satisfied	 	 	 	 
	Mandatory Redemption Amount:
	 	$	 	 
	 
	 	 	 	 
	Redemption 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:
	 	 	 	 
	Broker DTC Participant Code:
	 	 	 	 
	Account Number:
	 	 	 	 








                                    Settlement in Cash



	 	 	 	 	 
	Mandatory Redemption Amount:
	 	$		
	 
	 	 	 	 
	Redemption Premium:
	 	$		
	 
	 	 	 	 
	Total Cash Settlement:
	 	$		
	 
	 	 	 	 






	 	 	 
	Notification of Settlement Option
	Settlement in Common Stock	 	Settlement in Cash
	
 
	 	 
	 
	 	 
	Viaspace Inc.

	 	

	 
	 	 
	By:

	 
	 	 
	Its:

	 
	 	 
	**THIS REDEMPTION NOTICE MUST BE SIGNED & RETURNED VIA
FACSIMILE TO THE HOLDER AT (201) 946-0851 NO LATER THAN 5:00
N.Y.C. TIME ON THE DAY PRIOR TO THE REDEMPTION DATE**

	 
	 	 






3




EXHIBIT B




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. ABCD-1-     into Shares of Common Stock of VIASPACE INC., according to the conditions
stated therein, as of the Conversion Date written below.



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







4