On November 5, 2009, the Company issued
a 13.5% Secured Convertible Debenture (the Debenture) to Rupes Futura AB (RF), an investment company
controlled by Henrik Sellmann, a director of the Company, providing for a loan to the Company of $500,000. The Debenture is due
November 2014. Additionally, the Company issued to RF 500,000 shares of Common Stock of the Company as a Commitment
Fee. The value of the Common Stock at the time of issuance was $30,000 and is recorded as debt discount. The Commitment Fee will
be amortized over five years, the term of the Debenture, using the effective interest method. The proceeds of the sale of this
Debenture and other Debentures in this series, the terms of which are described below, will primarily be used for the purchase,
refurbishment and upgrade of residential real estate in Michigan.
The Debenture is secured by a first
lien on the property to be purchased by ProGreen Realty. Interest is payable at an annual rate of 13.5%, payable annually in arrears
in shares of Common Stock of the Company, valued at the Conversion Price (defined below) as of the due date of the interest payment.
The Debenture may be prepaid at any time after two years from the Closing Date, without penalty, by the Company. Any accrued unpaid
interest due at such time will be paid in shares of Common Stock valued at the Conversion Price as of the date of the prepayment.
RF has the right to choose to convert the Debenture in lieu of cash prepayment.
The conversion price ("Conversion
Price") of the Debenture is the price equal to the average closing price (the mean average between bid and ask price) of the
Common Stock during the period of twenty (20) consecutive Trading Days, ending on the Trading Day immediately prior to the due
date of the interest payment, the prepayment date, or the date of RFs giving the conversion notice, as the case may be,
subject to equitable adjustment for any stock splits, stock dividends, reclassifications or similar events during such period. The
Debenture is convertible in whole or in part into Common Stock at the option of RF at the Conversion Price at any time following
the date that is two years from the Closing Date. If RF elects to convert any unpaid principal amount of the Debenture it shall
be entitled to receive shares of Common Stock on conversion equal in value, at the Conversion Price, to 115% of the unpaid principal
amount of the Debenture. The conversion feature has intrinsic value of $75,000 that is recorded as debt discount and
amortized over two years, the required holding period for RF, using the effective interest method. The effective interest rate
on the Debenture as a result of the debt discounts noted above was 20.09%, which resulted in interest expense of $94,300 for the
year ended April 30, 2012.
On February 8, 2012, the Company entered
into an amendment (Amendment) to the Debenture superseding an amendment entered into on December 14, 2011. The
Amendment provided that the Company, at its sole option, may elect to pay any interest payment on the Debenture in cash, such cash
interest payment to be payable no later than one hundred eighty (180) days from the original interest payment due date. In addition,
the Amendment provided that, in the event the Debenture is prepaid, the Company has the option to pay accrued interest on the Debenture
As of April 30, 2012, the Company transferred
six ARG debt obligation bonds and the rights to the conversion shares for six ARG convertible share bonds to Rupes Futura AB (owned
by Henrik Sellmann, a director of the Company), in satisfaction of $60,000 of the $67,500 annual interest payment due Rupes Futura
under the terms of the Companys outstanding $500,000 debenture held by Rupes Futura. (See Note 4)