Term Sheet Secured Convertible Note March 29, 2009
Term
Sheet
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.
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Issuer:
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NutraCea
(the “Company”)
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Investors:
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Cranshire
Capital, L.P. (“Investor”)
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Securities:
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Convertible
Note
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Amount:
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$1,000,000
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Maturity
Date:
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7
months from original issuance date
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Interest
Rate:
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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.
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Fixed
Conversion
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Price:
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20% premium to the
closing price of the Company’s common stock on the closing
date
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Redemption/
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Conversion:
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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.
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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.
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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.
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Anti-Dilution
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Protection:
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Full
ratchet for issuances or deemed issuances below the fixed conversion
price.
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Security:
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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 ▇▇▇▇▇ Fargo facility (or to a replacement
lender thereof).
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Other
Terms of
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Convertible
Note:
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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.
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Warrants:
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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.
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Registration
Rights:
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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:
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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.
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Closing
Date:
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As
soon as practicable upon the execution of written definitive legal
documentation acceptable to the Investor in its sole
discretion.
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Expenses:
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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.
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Counterparts:
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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.
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Disclosure:
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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.
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Nature of Term
Sheet:
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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.
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[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.
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CRANSHIRE
CAPITAL, L.P.
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By:
/s/
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
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By: Downsview
Capital, Inc.
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Its: General
Partner
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Title:
Chief
Financial Officer
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By:
/s/
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
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Title:
Chief
Operating
Officer
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