EX-10.1






EXHIBIT 10.1



SUBSCRIPTION AGREEMENT




THIS SUBSCRIPTION AGREEMENT (this “Agreement”), is dated as of May 7, 2009, by and between
Converted Organics Inc., a Delaware corporation (the “Company”), and Iroquois Master Fund Ltd.
(“Subscriber”).



WHEREAS, the Company and the Subscriber are executing and delivering this Agreement in
reliance upon an exemption from securities registration afforded by the provisions of Section 4(2),
Section 4(6) and/or Regulation D (“Regulation D”) as promulgated by the United States Securities
and Exchange Commission (the “Commission”) under the Securities Act of 1933, as amended (the “1933
Act”).



WHEREAS, the parties desire that, upon the terms and subject to the conditions contained
herein, the Company shall issue and sell to the Subscriber, as provided herein, and the Subscriber
shall purchase for $1,182,500 (the “Purchase Price”) (i) a promissory note in the principal amount
of $1,330,312.50 (“Note”), a form of which is annexed hereto as Exhibit A, and (ii) share purchase
warrants (the “Warrants”) in the form attached hereto as Exhibit B, to purchase shares of the
Company’s Common Stock (the “Warrant Shares”) (the “Offering”). The Note, the Warrants, and the
Warrant Shares are collectively referred to herein as the “Securities”; and



WHEREAS, the aggregate proceeds of the sale of the Note contemplated hereby shall be held in
escrow pursuant to the terms of a Funds Escrow Agreement to be executed by the parties
substantially in the form attached hereto as Exhibit C (the “Escrow Agreement”).



NOW, THEREFORE, in consideration of the mutual covenants and other agreements contained in
this Agreement the Company and the Subscriber hereby agree as follows:



1. Closing Date. The “Closing Date” shall be the date that the Purchase Price is
transmitted by wire transfer or otherwise credited to or for the benefit of the Company. The
consummation of the transactions contemplated herein shall take place at the offices of Grushko &
Mittman, P.C., 551 Fifth Avenue, Suite 1601, New York, New York 10176, upon the satisfaction or
waiver of all conditions to closing set forth in this Agreement. Subject to the satisfaction or
waiver of the terms and conditions of this Agreement, on the Closing Date, Subscriber shall
purchase for the Purchase Price and the Company shall sell to Subscriber a Note in the Principal
Amount of $1,330,312.50 and Warrants as described in Section 2 of this Agreement.



2. Warrants.



(a) Class C Warrants. On the Closing Date, the Company will issue and deliver an
aggregate of 750,000 Class C Warrants to the Subscriber. The exercise price to acquire a Warrant
Share upon exercise of a Class C Warrant shall be $1.00. The Class C Warrants shall be exercisable
commencing six months after the issue date until five years after the issue date of the Class C
Warrants.



(b) Class D Warrants. On the Closing Date, the Company will issue and deliver an
aggregate of 350,000 Class D Warrants to the Subscriber. The exercise price to acquire a Warrant
Share upon exercise of a Class D Warrant shall be $1.50. The Class D Warrants shall be exercisable
commencing six months after the issue date until five years after the issue date of the Class D
Warrants.



3. Security Interest. The Subscriber will be granted a security interest in the
assets of the Company and Subsidiaries (as defined in Section 5(a) of this Agreement), including
ownership of the Subsidiaries and in the assets of the Subsidiaries, which security interest will
be memorialized in a “Security Agreement,” a form of which is annexed hereto as Exhibit D. The
Subsidiaries will guaranty the Company’s obligations under the Transaction Documents as defined in
Section 5(c). Such guaranties will be memorialized in a “Subsidiary Guaranty”, the form of which
is annexed hereto as Exhibit E. The Company will execute such other agreements, documents and
financing statements reasonably requested by the Subscribers, which will be filed at the Company’s
expense with the jurisdictions, states and counties designated by the Subscriber.



4. Subscriber Representations and Warranties. Subscriber hereby represents and
warrants to and agrees with the Company that:



(a) Organization and Standing of the Subscriber. Subscriber is a corporation duly
incorporated, validly existing and in good standing under the laws of the jurisdiction of its
incorporation.



(b) Authorization and Power. Subscriber has the requisite power and authority to
enter into and perform this Agreement and the other Transaction Documents and to purchase the Note
being sold to it hereunder. The execution, delivery and performance of this Agreement and the
other Transaction Documents by Subscriber and the consummation by it of the transactions
contemplated hereby and thereby have been duly authorized by all necessary corporate action, and no
further consent or authorization of Subscriber or its Board of Directors or stockholders is
required. This Agreement and the other Transaction Documents have been duly authorized, executed
and when delivered by Subscriber and constitute, or shall constitute when executed and delivered, a
valid and binding obligation of Subscriber enforceable against Subscriber in accordance with the
terms thereof.



(c) No Conflicts. The execution, delivery and performance of this Agreement and the
other Transaction Documents and the consummation by Subscriber of the transactions contemplated
hereby and thereby or relating hereto do not and will not (i) result in a violation of Subscriber’s
charter documents, bylaws or other organizational documents, (ii) conflict with nor constitute a
default (or an event which with notice or lapse of time or both would become a default) under, nor
(iii) result in a violation of any law, rule, or regulation, or any order, judgment or decree of
any court or governmental agency applicable to Subscriber or its properties (except for such
conflicts, defaults and violations as would not, individually or in the aggregate, have a material
adverse effect on Subscriber). Subscriber is not required to obtain any consent, authorization or
order of, or make any filing or registration with, any court or governmental agency in order for it
to execute, deliver or perform any of its obligations under this Agreement and the other
Transaction Documents nor to purchase the Securities in accordance with the terms hereof, provided
that for purposes of the representation made in this sentence, Subscriber is assuming and relying
upon the accuracy of the relevant representations and agreements of the Company herein.



(d) Information on Company. Subscriber has been furnished with or has had access at
the EDGAR Website of the Commission to the Company’s Form 10-K filed on March 30, 2009 for the
fiscal year ended December 31, 2008, and the financial statements included therein for the year
ended December 31, 2008, together with the definitive proxy statement on Schedule 14A filed April
30, 2009 and all filings made subsequent to the Form 10-K with the Commission available at the
EDGAR website until five days before the Closing Date (hereinafter referred to collectively as the
"Reports”). In addition, Subscriber has been provided the opportunity to ask questions of Company
management as Subscriber deems necessary, and Subscriber has considered all factors Subscriber
deems material in deciding on the advisability of investing in the Securities.



(e) Information on Subscriber. Subscriber is, and will be at the time of the
purchase of the Note and exercise of the Warrants, an “accredited investor”, as such term is
defined in Regulation D promulgated by the Commission under the 1933 Act, is experienced in
investments and business matters, has made investments of a speculative nature and has purchased
securities of United States publicly-owned companies in private placements in the past and, with
its representatives, has such knowledge and experience in financial, tax and other business matters
as to enable Subscriber to utilize the information made available by the Company to evaluate the
merits and risks of and to make an informed investment decision with respect to the proposed
purchase, which represents a speculative investment. Subscriber has the authority and is duly and
legally qualified to purchase and own the Securities. Subscriber is able to bear the risk of such
investment for an indefinite period and to afford a complete loss thereof. The information set
forth on the signature page hereto regarding Subscriber is accurate.



(f) Purchase of Note and Warrants. On the Closing Date, Subscriber will purchase the
Note and Warrants as principal for its own account for investment only and not with a view toward,
or for resale in connection with, the public sale or any distribution thereof.



(g) Compliance with Securities Act. Subscriber understands and agrees that the
Securities have not been registered under the 1933 Act or any applicable state securities laws, by
reason of their issuance in a transaction that does not require registration under the 1933 Act
(based in part on the accuracy of the representations and warranties of the Subscriber contained
herein), and that such Securities must be held indefinitely unless a subsequent disposition is
registered under the 1933 Act or any applicable state securities laws or is exempt from such
registration. In any event, and subject to compliance with applicable securities laws, the
Subscriber may enter into lawful hedging transactions in the course of hedging the position they
assume and the Subscriber may also enter into lawful short positions or other derivative
transactions relating to the Securities, or interests in the Securities, and deliver the
Securities, or interests in the Securities, to close out their short or other positions or
otherwise settle other transactions, or loan or pledge the Securities, or interests in the
Securities, to third parties who in turn may dispose of these Securities.



(h) Warrant Shares Legend. The Warrant Shares shall bear the following or similar
legend:



"THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, NOR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY
NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE
ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF
COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A
GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER
SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER
SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE
PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR
FINANCING ARRANGEMENT SECURED BY THE SECURITIES.”




(i) Note and Warrant Legend. The Note and Warrant shall bear the
following legend:



” NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
[EXERCISABLE] HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY
NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE
ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF
COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A
GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER
SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER
SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE
PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR
FINANCING ARRANGEMENT SECURED BY THE SECURITIES.”



(j) Communication of Offer. The offer to sell the Securities was directly
communicated to Subscriber by the Company. At no time was Subscriber presented with or solicited
by any leaflet, newspaper or magazine article, radio or television advertisement, or any other form
of general advertising or solicited or invited to attend a promotional meeting otherwise than in
connection and concurrently with such communicated offer.



(k) Restricted Securities. Subscriber understands that the Securities have not been
registered under the 1933 Act and Subscriber will not sell, offer to sell, assign, pledge,
hypothecate or otherwise transfer any of the Securities unless pursuant to an effective
registration statement under the 1933 Act, or unless an exemption from registration is available.
Notwithstanding anything to the contrary contained in this Agreement, Subscriber may transfer
(without restriction and without the need for an opinion of counsel) the Securities to its
Affiliates (as defined below) provided that each such Affiliate is an “accredited investor” under
Regulation D and such Affiliate agrees in writing to be bound by the terms and conditions of this
Agreement. For the purposes of this Agreement, an “Affiliate” of any person or entity means any
other person or entity directly or indirectly controlling, controlled by or under direct or
indirect common control with such person or entity. Affiliate includes each Subsidiary of the
Subscriber. For purposes of this definition, “control” means the power to direct the management
and policies of such person or firm, directly or indirectly, whether through the ownership of
voting securities, by contract or otherwise.



(l) No Governmental Review. Subscriber understands that no United States federal or
state agency or any other governmental or state agency has passed on or made recommendations or
endorsement of the Securities or the suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the Securities.



(m) Correctness of Representations. Subscriber represents that the foregoing
representations and warranties are true and correct as of the date hereof and, unless Subscriber
otherwise notifies the Company prior to the Closing Date shall be true and correct as of the
Closing Date.



(n) Survival. The foregoing representations and warranties shall survive the Closing
Date.



5. Company Representations and Warranties. The Company represents and warrants to and
agrees with each Subscriber that:



(a) Due Incorporation. The Company is a corporation or other entity duly incorporated
or organized, validly existing and in good standing under the laws of the jurisdiction of its
incorporation or organization and has the requisite corporate power to own its properties and to
carry on its business as presently conducted. The Company is duly qualified as a foreign
corporation to do business and is in good standing in each jurisdiction where the nature of the
business conducted or property owned by it makes such qualification necessary, other than those
jurisdictions in which the failure to so qualify would not have a Material Adverse Effect. For
purposes of this Agreement, a “Material Adverse Effect” shall mean a material adverse effect on the
financial condition, results of operations, prospects, properties or business of the Company and
its Subsidiaries taken as a whole, other than as a result of changes resulting from the execution
by the Company of the Transaction Documents. For purposes of this Agreement, “Subsidiary” means,
with respect to any entity at any date, any corporation, limited or general partnership, limited
liability company, trust, estate, association, joint venture or other business entity of which more
than 30% of (i) the outstanding capital stock having (in the absence of contingencies) ordinary
voting power to elect a majority of the board of directors or other managing body of such entity,
(ii) in the case of a partnership or limited liability company, the interest in the capital or
profits of such partnership or limited liability company or (iii) in the case of a trust, estate,
association, joint venture or other entity, the beneficial interest in such trust, estate,
association or other entity business is, at the time of determination, owned or controlled directly
or indirectly through one or more intermediaries, by such entity. As of the Closing Date, all of
the Company’s Subsidiaries and the Company’s ownership interest thereof is set forth on Schedule
5(a).



(b) Outstanding Stock. All issued and outstanding shares of capital stock and equity
interests in the Company have been duly authorized and validly issued and are fully paid and
non-assessable.



(c) Authority; Enforceability. This Agreement, the Note, Warrant, the Security
Agreement, Subsidiary Guaranty, the Escrow Agreement, and any other agreements delivered together
with this Agreement or in connection herewith (collectively “Transaction Documents”) have been duly
authorized, executed and delivered by the Company and are valid and binding agreements of the
Company enforceable in accordance with their terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general applicability relating to or
affecting creditors’ rights generally and to general principles of equity. The Company has full
corporate power and authority necessary to enter into and deliver the Transaction Documents and to
perform its obligations thereunder.



(d) Capitalization and Additional Issuances. The authorized and outstanding capital
stock of the Company and Subsidiaries on a fully diluted basis as of the date of this Agreement and
the Closing Date (not including the Securities) are set forth on Schedule 5(d). Except as set
forth on Schedule 5(d), there are no options, warrants, or rights to subscribe to, securities,
rights, understandings or obligations convertible into or exchangeable for or giving any right to
subscribe for any shares of capital stock or other equity interest of the Company or any of the
Subsidiaries. The only officer, director, employee and consultant stock option or stock incentive
plan or similar plan currently in effect or contemplated by the Company is described on Schedule
5(d). There are no outstanding agreements for preemptive or similar rights affecting the Company’s
Common Stock.



(e) Consents. No consent, approval, authorization or order of any court, governmental
agency or body or arbitrator having jurisdiction over the Company, or any of its Affiliates, the
Nasdaq Capital Market (the “Nasdaq Capital Market”) or the Company’s shareholders is required for
the execution by the Company of the Transaction Documents and compliance and performance by the
Company of its obligations under the Transaction Documents, including, without limitation, the
issuance and sale of the Securities, provided that the Company will be required to submit a Listing
of Additional Shares application to the Nasdaq Stock Market in connection with the shares
underlying the Warrant. The Transaction Documents and the Company’s performance of its obligations
thereunder has been unanimously approved by the Company’s Board of Directors. No consent,
approval, order or authorization of, or registration, qualification, designation, declaration or
filing with, any governmental authority in the world, including without limitation, the United
States, or to the knowledge of the Company elsewhere is required by the Company or any Affiliate of
the Company in connection with the consummation of the transactions contemplated by this Agreement,
except as would not otherwise have a Material Adverse Effect or the consummation of any of the
other agreements, covenants or commitments of the Company or any Subsidiary contemplated by the
other Transaction Documents. Any such qualifications and filings will, in the case of
qualifications, be effective on the Closing and will, in the case of filings, be made within the
time prescribed by law.



(f) No Violation or Conflict. Assuming the representations and warranties of the
Subscriber in Section 4 are true and correct, neither the issuance and sale of the Securities nor
the performance of the Company’s obligations under this Agreement and all other agreements entered
into by the Company relating thereto by the Company will:



(i) violate, conflict with, result in a breach of, or constitute a default (or an event which
with the giving of notice or the lapse of time or both would be reasonably likely to constitute a
default) under (A) the articles or certificate of incorporation, charter or bylaws of the Company,
(B) to the Company’s knowledge, any decree, judgment, order, law, treaty, rule, regulation or
determination applicable to the Company of any court, governmental agency or body, or arbitrator
having jurisdiction over the Company or over the properties or assets of the Company or any of its
Affiliates, (C) the terms of any bond, debenture, note or any other evidence of indebtedness, or
any agreement, stock option or other similar plan, indenture, lease, mortgage, deed of trust or
other instrument to which the Company or any of its Affiliates is a party, by which the Company or
any of its Affiliates is bound, or to which any of the properties of the Company or any of its
Affiliates is subject, or (D) the terms of any “lock-up” or similar provision of any underwriting
or similar agreement to which the Company, or any of its Affiliates is a party, except with respect
to each of the foregoing the violation, conflict, breach, or default of which would not have a
Material Adverse Effect and except for such agreements for which the Company is required to obtain
consent to complete the Offering, provided the Company actually obtains such consent prior to the
Closing; or



(ii) result in the creation or imposition of any lien, charge or encumbrance upon the
Securities or any of the assets of the Company or any of its Affiliates except in favor of
Subscriber as described herein; or



(iii) result in the activation of any anti-dilution rights or a reset or repricing of any
debt, equity or security instrument of any creditor or equity holder of the Company, or the holder
of the right to receive any debt, equity or security instrument of the Company nor result in the
acceleration of the due date of any obligation of the Company; or



(iv) result in the triggering of any piggy-back or other registration rights of any person or
entity holding securities of the Company or having the right to receive securities of the Company.



(g) The Securities. The Securities upon issuance:



(i) are, or will be, free and clear of any security interests, liens, claims or other
encumbrances, subject only to restrictions upon transfer under the 1933 Act and any applicable
state securities laws;



(ii) have been, or will be, duly and validly authorized and on the dates of issuance of the
Warrant Shares upon exercise of the Warrant, such Warrant Shares will be duly and validly issued,
fully paid and non-assessable and if registered pursuant to the 1933 Act and resold pursuant to an
effective registration statement or if resold pursuant to an exemption from registration, upon such
sale the shares will be free trading, unrestricted and unlegended;



(iii) will not have been issued or sold in violation of any preemptive or other similar rights
of the holders of any securities of the Company or rights to acquire securities of the Company;



(iv) will not subject the holders thereof to personal liability by reason of being such
holders; and



(v) assuming the representations warranties of the Subscribers as set forth in Section 4
hereof are true and correct, will not result in a violation of Section 5 under the 1933 Act.



(h) Litigation. Except as disclosed in the Reports, there is no pending or, to the
best knowledge of the Company, threatened action, suit, proceeding or investigation before any
court, governmental agency or body, or arbitrator having jurisdiction over the Company, or any of
its Affiliates that would affect the execution by the Company or the complete and timely
performance by the Company of its obligations under the Transaction Documents. Except as disclosed
in the Reports, there is no pending or, to the best knowledge of the Company, basis for or
threatened action, suit, proceeding or investigation before any court, governmental agency or body,
or arbitrator having jurisdiction over the Company, or any of its Affiliates which litigation if
adversely determined would have a Material Adverse Effect.



(i) No Market Manipulation. The Company and its Affiliates have not taken, and will
not take, directly or indirectly, any action designed to, or that might reasonably be expected to,
cause or result in stabilization or manipulation of the price of the Common Stock to facilitate the
sale or resale of the Securities or affect the price at which the Securities may be issued or
resold.



(j) Information Concerning Company. The Reports contain all material information
relating to the Company and its operations and financial condition as of their respective dates
which information is required to be disclosed therein. Since December 31, 2008 and except as
disclosed in the Reports or modified in the Schedules hereto, there has been no Material Adverse
Event relating to the Company’s business, financial condition or affairs. The Reports including the
financial statements included therein do not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make the statements
therein, taken as a whole, not misleading in light of the circumstances and when made.



(k) Solvency. Based on the financial condition of the Company as of the Closing Date,
(i) the Company’s book value of its assets exceeds the amount that will be required to be paid on
or in respect of the Company’s existing debts and other liabilities (including known contingent
liabilities); and (ii) the current cash flow of the Company, together with the proceeds the Company
would receive, were it to liquidate all of its assets at book value, after taking into account all
anticipated uses of the cash, would be sufficient to pay all amounts on or in respect of its debt
when such amounts are required to be paid.



(l) Defaults. The Company is not in violation of its articles of incorporation or
bylaws. Except as set forth in the Reports and identified as events that could adversely effect
the Company in the Reports, the Company is (i) not in default under or in violation of any other
material agreement or instrument to which it is a party or by which it or any of its properties are
bound or affected, which default or violation would have a Material Adverse Effect, (ii) not in
default with respect to any order of any court, arbitrator or governmental body or subject to or
party to any order of any court or governmental authority arising out of any action, suit or
proceeding under any statute or other law respecting antitrust, monopoly, restraint of trade,
unfair competition or similar matters, or (iii) not in violation of any statute, rule or regulation
of any governmental authority which violation would have a Material Adverse Effect.



(m) No Integrated Offering. Neither the Company, nor any of its Affiliates, nor any
person acting on its or their behalf, has directly or indirectly made any offers or sales of any
security of the Company nor solicited any offers to buy any security of the Company under
circumstances that would cause the offer of the Securities pursuant to this Agreement to be
integrated with prior offerings by the Company for purposes of the 1933 Act, except for such offers
which would not result in a violation of the 1933 Act if such offers were integrated with the offer
of the Securities, or any applicable stockholder approval provisions, including, without
limitation, under the rules and regulations of the Bulletin Board. No prior offering will impair
the exemptions relied upon in this Offering or the Company’s ability to timely comply with its
obligations hereunder. Neither the Company nor any of its Affiliates will take any action or steps
that would cause the offer or issuance of the Securities to be integrated with other offerings
which would impair the exemptions relied upon in this Offering or the Company’s ability to timely
comply with its obligations hereunder.



(n) No General Solicitation. Neither the Company, nor any of its Affiliates, nor to
its knowledge, any person acting on its or their behalf, has engaged in any form of general
solicitation or general advertising (within the meaning of Regulation D under the 1933 Act) in
connection with the offer or sale of the Securities.



(o) No Undisclosed Liabilities. The Company has no liabilities or obligations which
are material, individually or in the aggregate, other than those incurred in the ordinary course of
the Company’s business since December 31, 2008 and which, individually or in the aggregate, would
reasonably be expected to have a Material Adverse Effect, except as disclosed in the Reports or on
Schedule 5(o).



(p) No Undisclosed Events or Circumstances. Since December 31, 2008, except as
disclosed in the Reports, no event or circumstance has occurred or exists with respect to the
Company or its businesses, properties, operations or financial condition, that, under applicable
law, rule or regulation, requires public disclosure or announcement prior to the date hereof by the
Company but which has not been so publicly announced or disclosed in the Reports.



(q) Banking. Schedule 5(q) contains a list of all financial institutions at which
the Company and Subsidiaries maintains deposit, checking and other accounts. The list includes the
accurate addresses of such financial institution.



(r) Dilution. The Company’s executive officers and directors understand the nature
of the Securities being sold hereby and recognize that the issuance of the Securities will have a
potential dilutive effect on the equity holdings of other holders of the Company’s equity or rights
to receive equity of the Company. The board of directors of the Company has concluded, in its good
faith business judgment that the issuance of the Securities is in the best interests of the
Company. The Company specifically acknowledges that its obligation to issue the Warrant Shares
upon exercise of the Warrant is binding upon the Company and enforceable regardless of the dilution
such issuance may have on the ownership interests of other shareholders of the Company or parties
entitled to receive equity of the Company.



(s) No Disagreements with Accountants and Lawyers. There are no material
disagreements of any kind presently existing, or reasonably anticipated by the Company to arise
between the Company and the accountants and lawyers previously and presently employed by the
Company, including but not limited to disputes or conflicts over payment owed to such accountants
and lawyers, nor have there been any such disagreements during the two years prior to the Closing
Date.



(t) Investment Company. Neither the Company nor any Affiliate of the Company is an
“investment company” within the meaning of the Investment Company Act of 1940, as amended.



(u) Foreign Corrupt Practices. Neither the Company, nor to the knowledge of the
Company, any agent or other person acting on behalf of the Company, has (i) directly or indirectly,
used any funds for unlawful contributions, gifts, entertainment or other unlawful expenses related
to foreign or domestic political activity, (ii) made any unlawful payment to foreign or domestic
government officials or employees or to any foreign or domestic political parties or campaigns from
corporate funds, (iii) failed to disclose fully any contribution made by the Company (or made by
any person acting on its behalf of which the Company is aware) which is in violation of law, or
(iv) violated in any material respect any provision of the Foreign Corrupt Practices Act of 1977,
as amended.



(v) Reporting Company/Shell Company. The Company is a publicly-held company subject
to reporting obligations pursuant to Section 13 of the Securities Exchange Act of 1934, as amended
(the “1934 Act”) and has a class of Common Stock registered pursuant to Section 12(b) of the 1934
Act. Pursuant to the provisions of the 1934 Act, the Company has filed all reports and other
materials required to be filed thereunder with the Commission during the preceding twelve months.
As of the Closing Date, the Company is not a “shell company” as that term are employed in Rule 144
under the 1933 Act.



(w) Listing. The Company’s Common Stock is quoted on the Nasdaq Capital Market under
the symbol COIN. The Company has not received any oral or written notice that its Common Stock is
not eligible nor will become ineligible for quotation on the Nasdaq Capital Market nor that its
Common Stock does not meet all requirements for the continuation of such quotation.



(x) DTC Status. The Company’s transfer agent is a participant in, and the Common
Stock is eligible for transfer pursuant to, the Depository Trust Company Automated Securities
Transfer Program. The name, address, telephone number, fax number, contact person and email address
of the Company transfer agent is set forth on Schedule 5(x) hereto.



(y) Company Predecessor and Subsidiaries. The Company makes each of the
representations contained in Sections 5(a), (b), (c), (d), (e), (f), (h), (l), (o), (p), (q), (s),
(t) and (u) of this Agreement, as same relate or could be applicable to each Subsidiary. All
representations made by or relating to the Company of a historical or prospective nature and all
undertakings described in Sections 9(g) through 9(l) shall relate, apply and refer to the Company
and its predecessors and successors. The Company represents that it owns all of the equity of the
Subsidiaries and rights to receive equity of the Subsidiaries identified on Schedule 5(a), free and
clear of all liens, encumbrances and claims, except as set forth on Schedule 5(a). Except as set
for on Schedule 5(a), no person or entity other than the Company has the right to receive any
equity interest in the Subsidiaries.



(z) Correctness of Representations. The Company represents that the foregoing
representations and warranties are true and correct as of the date hereof in all material respects,
and, unless the Company otherwise notifies the Subscribers prior to the Closing Date, shall be true
and correct in all material respects as of the Closing Date; provided, that, if such representation
or warranty is made as of a different date, in which case such representation or warranty shall be
true as of such date.



(AA) Survival. The foregoing representations and warranties shall survive the Closing
Date until two years after the Closing Date.



6. Regulation D Offering/Legal Opinion. The offer and issuance of the Securities to
the Subscribers is being made pursuant to the exemption from the registration provisions of the
1933 Act afforded by Section 4(2) or Section 4(6) of the 1933 Act and/or Rule 506 of Regulation D
promulgated thereunder. On the Closing Date, the Company will provide an opinion reasonably
acceptable to the Subscriber from the Company’s legal counsel opining on the availability of an
exemption from registration under the 1933 Act as it relates to the offer and issuance of the
Securities and other matters reasonably requested by Subscriber. A form of the legal opinion is
annexed hereto as Exhibit F. The Company will provide, at the Company’s expense, such other legal
opinions, if any, as are reasonably necessary in Subscriber’s opinion for the issuance and resale
of the Warrant Shares pursuant to an effective registration statement, Rule 144 under the 1933 Act
or an exemption from registration.



7. Allocation of Purchase Price. The Purchase Price will be allocated among the
components of the Securities so that each component of the Securities will be fully paid and
non-assessable.



8. Fees.



(a) Due Diligence Fee. The Company will pay a cash due diligence fee (“Due Diligence
Fee”) in the aggregate amount of $82,500 to the parties identified on Schedule 8(a) hereto. The
aggregate Due Diligence Fee will be payable out of funds held pursuant to the Escrow Agreement.



(b) Legal Fees. The Company shall pay to Grushko & Mittman, P.C., a fee of $20,000
(“Subscriber’s Legal Fees”) as reimbursement for services rendered to the Subscribers in connection
with this Agreement and the purchase and sale of the Note and Warrant. The Subscriber’s Legal
Fees and expenses (to the extent known as of the Closing) will be payable out of funds held
pursuant to the Escrow Agreement. Grushko & Mittman, P.C. will be reimbursed at Closing for all
lien searches and filing fees incurred in connection with the Offering.



9. Covenants of the Company. The Company covenants and agrees with the Subscriber as
follows:



(a) Stop Orders. Subject to the prior notice requirement described in Sections 9(n)
and 9(o) and until such time as the Note and Warrants are no longer outstanding, the Company will
advise the Subscriber, within two business days after it receives notice of issuance by the
Commission, any state securities commission or any other regulatory authority of any stop order or
of any order preventing or suspending any offering of any securities of the Company, or of the
suspension of the qualification of the Common Stock of the Company for offering or sale in any
jurisdiction, or the initiation of any proceeding for any such purpose. The Company will not issue
any stop transfer order or other order impeding the sale, resale or delivery of any of the
Securities, except as may be required by any applicable federal or state securities laws and unless
contemporaneous notice of such instruction is given to the Subscriber.



(b) Listing/Quotation. The Company shall promptly secure the quotation or listing of
the Warrant Shares upon each national securities exchange, or automated quotation system upon the
Company’s Common Stock is quoted or listed and upon which such Warrant Shares are or become
eligible for quotation or listing (subject to official notice of issuance) and shall maintain same
so long as the Warrants are outstanding. The Company will maintain the quotation or listing of its
Common Stock on the American Stock Exchange, Nasdaq Capital Market, Nasdaq Global Market, Nasdaq
Global Select Market, Bulletin Board, or New York Stock Exchange (whichever of the foregoing is at
the time the principal trading exchange or market for the Common Stock (the “Principal Market”),
and will comply in all respects with the Company’s reporting, filing and other obligations under
the bylaws or rules of the Principal Market, as applicable. Subject to the prior notice
requirements described in Sections 9(n) and 9(o) and unless otherwise disclosed on Form 8-K, the
Company will provide Subscribers with copies of all notices it receives notifying the Company of
the threatened and actual delisting of the Common Stock from any Principal Market. As of the date
of this Agreement and the Closing Date, the Nasdaq Capital Market is and will be the Principal
Market.



(c) Market Regulations. If required, the Company shall notify the Commission, the
Principal Market and applicable state authorities, in accordance with their requirements, of the
transactions contemplated by this Agreement, and shall take all other necessary action and
proceedings as may be required and permitted by applicable law, rule and regulation, for the legal
and valid issuance of the Securities to the Subscriber and promptly provide copies thereof to the
Subscriber.



(d) Filing Requirements. From the date of this Agreement and until the last to occur
of (i) two (2) years after the Closing Date, (ii) until all the Warrant Shares have been resold or
transferred by the Subscriber pursuant to a registration statement or pursuant to Rule
144(b)(1)(i), or (iii) the Note is no longer outstanding (the date of such latest occurrence being
the “End Date”), the Company will (A) cause its Common Stock to continue to be registered under
Section 12(b) or 12(g) of the 1934 Act, (B) comply in all respects with its reporting and filing
obligations under the 1934 Act, (C) voluntarily comply with all reporting requirements that are
applicable to an issuer with a class of shares registered pursuant to Section 12(g) of the 1934
Act, if the Company is not subject to such reporting requirements, and (D) comply with all
requirements related to any registration statement filed pursuant to this Agreement. The Company
will use its best efforts not to take any action or file any document (whether or not permitted by
the 1933 Act or the 1934 Act or the rules thereunder) to terminate or suspend such registration or
to terminate or suspend its reporting and filing obligations under said acts until the End Date.
Until the End Date, the Company will continue the listing or quotation of the Common Stock on a
Principal Market and will comply in all respects with the Company’s reporting, filing and other
obligations under the bylaws or rules of the Principal Market. The Company agrees to timely file a
Form D with respect to the Securities if required under Regulation D and to provide a copy thereof
to Subscriber promptly after such filing.



(e) Use of Proceeds. The proceeds of the Offering will be employed by the Company
for expenses of the Offering and general working capital.



(f) Reservation. Prior to the Closing, the Company undertakes to reserve on behalf
of Subscriber from its authorized but unissued Common Stock, a number of shares of Common Stock
equal to 100% of the amount of Common Stock necessary to allow Subscriber to be able to exercise
the Warrants based on the exercise price in effect on such date (“Required Reservation”). Failure
to have sufficient shares reserved pursuant to this Section 9(f) at any time shall be a material
default of the Company’s obligations under this Agreement and an Event of Default under the Note.
If at any time the Note is outstanding the Company has insufficient Common Stock reserved on behalf
of the Subscriber in an amount less than 100% of the amount necessary for full exercise of the
Warrants (“Minimum Required Reservation”), the Company will promptly reserve the Minimum Required
Reservation, or if there are insufficient authorized and available shares of Common Stock to do so,
the Company will take all action necessary to increase its authorized capital to be able to fully
satisfy its reservation requirements hereunder, including the filing of a preliminary proxy with
the Commission not later than fifteen days after the first day the Company has less than the
Minimum Required Reservation. The Company agrees to provide notice to the Subscriber not later
than three days after the date the Company has less than the Minimum Required Reservation reserved
on behalf of the Subscriber.



(g) DTC Program. At all times that the Warrant is outstanding, the Company will
employ as the transfer agent for the Common Stock a participant in the Depository Trust Company
Automated Securities Transfer Program.



(h) Taxes. From the date of this Agreement and until the End Date, the Company will
promptly pay and discharge, or cause to be paid and discharged, when due and payable, all lawful
taxes, assessments and governmental charges or levies imposed upon the income, profits, property or
business of the Company; provided, however, that any such tax, assessment, charge or levy need not
be paid if the validity thereof shall currently be contested in good faith by appropriate
proceedings and if the Company shall have set aside on its books adequate reserves with respect
thereto, and provided, further, that the Company will pay all such taxes, assessments, charges or
levies forthwith upon the commencement of proceedings to foreclose any lien which may have attached
as security therefore.



(i) Insurance. From the date of this Agreement and until the End Date, the Company
will keep its assets which are of an insurable character insured by financially sound and reputable
insurers against loss or damage by fire, explosion and other risks customarily insured against by
companies in the Company’s line of business and location, in amounts and to the extent and in the
manner customary for companies in similar businesses similarly situated and located and to the
extent available on commercially reasonable terms.



(j) Books and Records. From the date of this Agreement and until the End Date, the
Company will keep true records and books of account in which full, true and correct entries will be
made of all dealings or transactions in relation to its business and affairs in accordance with
generally accepted accounting principles applied on a consistent basis.



(k) Governmental Authorities. From the date of this Agreement and until the End
Date, the Company shall duly observe and conform in all material respects to all valid requirements
of governmental authorities relating to the conduct of its business or to its properties or assets.



(l) Intellectual Property. From the date of this Agreement and until the End Date,
the Company shall maintain in full force and effect its corporate existence, rights and franchises
and all licenses and other rights to use intellectual property owned or possessed by it and
reasonably deemed to be necessary to the conduct of its business. Schedule 9(l) hereto identifies
all of the intellectual property owned by the Company and each of the Subsidiaries and all of the
URLs and domain names owned by them.



(m) Properties. From the date of this Agreement and until the End Date, the Company
will keep its properties in good repair, working order and condition, reasonable wear and tear
excepted, and from time to time make all necessary and proper repairs thereto; and the Company will
at all times comply with each provision of all leases and claims to which it is a party or under
which it occupies or has rights to property if the breach of such provision could reasonably be
expected to have a Material Adverse Effect. The Company will not abandon any of its assets except
for those assets which have negligible or marginal value or for which it is prudent to do so under
the circumstances.



(n) Confidentiality/Public Announcement. From the date of this Agreement and until
the End Date, the Company agrees that except in connection with a Form 8-K and a registration
statement or statements regarding the Subscriber’s Securities or in correspondence with the SEC
regarding same, it will not disclose publicly or privately the identity of the Subscriber unless
expressly agreed to in writing by Subscriber or only to the extent required by law and then only
upon not less than three days prior notice to Subscriber. In any event and subject to the
foregoing, the Company undertakes to file a Form 8-K describing the Offering not later than the
fourth business day after the Closing Date. Prior to the Closing Date, such Form 8-K will be
provided to Subscriber for Subscriber’s review and approval. Upon  delivery by the Company to the
Subscriber after the Closing Date of any notice or information, in writing, electronically or
otherwise, and while a Note or Warrant Shares are held by Subscriber, unless the  Company has in
good faith determined that the matters relating to such notice do not
constitute material, nonpublic information relating to the Company or Subsidiaries, the Company 
shall within one business day after any such delivery publicly disclose such  material,  nonpublic 
information on a Report on Form 8-K. In the event that the Company believes that a notice or
communication to Subscriber contains material, nonpublic information relating to the Company or
Subsidiaries, the Company shall so indicate to Subscriber prior to delivery of such notice or
information. Subscriber will be granted sufficient time to notify the Company that such Subscriber
elects not to receive such information. In such case, the Company will not deliver such
information to Subscriber. In the absence of any such indication, Subscriber shall be allowed to
presume that all matters relating to such notice and information do not constitute material,
nonpublic information relating to the Company or Subsidiaries.



(o) Non-Public Information. The Company covenants and agrees that except for the
Reports, and schedules and exhibits to this Agreement and the Transaction Documents, which
information the Company undertakes to publicly disclose on the Form 8-K described in Section 9(n)
above, neither it nor any other person acting on its behalf will at any time provide Subscriber or
its agents or counsel with any information that the Company believes constitutes material
non-public information, unless prior thereto Subscriber shall have agreed in writing to accept such
information. The Company understands and confirms that Subscriber shall be relying on the
foregoing representations in effecting transactions in securities of the Company.



(p) Negative Covenants. So long as the Note is outstanding, without the consent of
the Subscriber, the Company will not and will not permit any of its Subsidiaries to directly or
indirectly:



(i) until the Note is fully satisfied, the Company shall not grant nor allow any new security
interest to be taken in the assets of the Company or any Subsidiary or any Subsidiary’s assets; nor
issue any new debt, equity or other instrument which would give the holder thereof directly or
indirectly, a right in any assets of the Company or any Subsidiary or any right to payment equal to
or superior to any right of the Subscriber as a holder of the Note in or to such assets or payment,
nor issue or incur any debt not in the ordinary course of business except for: (A) the Excepted
Issuances (as defined in Section 12 hereof), and (B) (a) Liens imposed by law for taxes that are
not yet due or are being contested in good faith and for which adequate reserves have been
established in accordance with generally accepted accounting principles; (b) carriers’,
warehousemen’s, mechanics’, material men’s, repairmen’s and other like Liens imposed by law,
arising in the ordinary course of business; (c) pledges and deposits made in the ordinary course of
business in compliance with workers’ compensation, unemployment insurance and other social security
laws or regulations; (d) deposits to secure the performance of bids, trade contracts, leases,
statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like
nature, in each case in the ordinary course of business; (e) Liens created with respect to the
financing of the purchase of new property in the ordinary course of the Company’s business up to
the amount of the purchase price of such property; and (f) easements, zoning restrictions,
rights-of-way and similar encumbrances on real property imposed by law or arising in the ordinary
course of business that do not secure any monetary obligations and do not materially detract from
the value of the affected property (each of (a) through (f), a “Permitted Lien”).



  (ii) amend its certificate of incorporation, bylaws or its charter documents so as to
materially and adversely affect any rights of the Subscriber (an increase in the amount of
authorized shares and an increase in the number of directors will not be deemed adverse to the
rights of the Subscriber);



(iii) repay, repurchase or offer to repay, repurchase or otherwise acquire or make any
dividend or distribution in respect of any of its Common Stock, preferred stock, or other equity
securities other than to the extent permitted or required under the Transaction Documents; or



(iv) prepay or redeem for cash any financing related debt or past due obligations or
securities outstanding as of the Closing Date, or past due obligations (except with respect to
vendor obligations, any such obligations which in management’s good faith, reasonable judgment must
be repaid to avoid disruption of the Company’s businesses.



The Company agrees to provide Subscribers not less than ten (10) days notice prior to becoming
obligated to or effectuating a Permitted Lien or Excepted Issuance.



(q) Until the Note is fully satisfied, the Company will cause all Subsidiaries and any future
Subsidiaries of the Company to enter into a Security Agreement in the form which is annexed hereto
as Exhibit D.



10. Covenants of the Company Regarding Indemnification.



(a) The Company agrees to indemnify, hold harmless, reimburse and defend the Subscriber, the
Subscriber’s officers, directors, agents, Affiliates, members, managers, control persons, and
principal shareholders, against any claim, cost, expense, liability, obligation, loss or damage
(including reasonable legal fees) of any nature, incurred by or imposed upon the Subscriber or any
such person which results, arises out of or is based upon (i) any material misrepresentation by
Company or breach of any representation or warranty by Company in this Agreement or in any Exhibits
or Schedules attached hereto in any Transaction Document, or other agreement delivered pursuant
hereto or in connection herewith, now or after the date hereof; or (ii) after any applicable notice
and/or cure periods, any breach or default in performance by the Company of any covenant or
undertaking to be performed by the Company hereunder, or any other agreement entered into by the
Company and Subscriber relating hereto.



(b) In no event shall the liability of the Subscriber or permitted successor hereunder or
under any Transaction Document or other agreement delivered in connection herewith be greater in
amount than the dollar amount of the net proceeds actually received by such Subscriber or successor
upon the sale of Registrable Securities (as defined herein).




11. Additional Post-Closing Obligations.



11.1. Delivery of Unlegended Shares.



(a) Within five (5) business days (such fifth business day being the “Unlegended Shares
Delivery Date”) after the business day on which the Company has received (i) a notice that Warrant
Shares held by Subscriber has been sold pursuant to a registration statement or Rule 144 under the
1933 Act, (ii) a representation that the prospectus delivery requirements, or the requirements of
Rule 144, as applicable and if required, have been satisfied, (iii) the original share certificates
representing the shares of Common Stock that have been sold, and (iv) in the case of sales under
Rule 144, customary representation letters of the Subscriber and, if required, Subscriber’s broker
regarding compliance with the requirements of Rule 144, the Company at its expense, (y) shall
deliver, and shall cause legal counsel selected by the Company to deliver to its transfer agent
(with copies to Subscriber) an appropriate instruction and opinion of such counsel, directing the
delivery of shares of Common Stock without any legends including the legend set forth in Section
4(h) above (the “Unlegended Shares”); and (z) cause the transmission of the certificates
representing the Unlegended Shares together with a legended certificate representing the balance of
the submitted Common Stock certificate, if any, to the Subscriber at the address specified in the
notice of sale, via express courier, by electronic transfer or otherwise on or before the
Unlegended Shares Delivery Date.



(b) In lieu of delivering physical certificates representing the Unlegended Shares, upon
request of Subscriber, so long as the certificates therefor do not bear a legend and the Subscriber
is not obligated to return such certificate for the placement of a legend thereon, the Company
shall cause its transfer agent to electronically transmit the Unlegended Shares by crediting the
account of Subscriber’s prime broker with the Depository Trust Company through its Deposit
Withdrawal Agent Commission system, if such transfer agent participates in such DWAC system. Such
delivery must be made on or before the Unlegended Shares Delivery Date.



(c) The Company understands that a delay in the delivery of the Unlegended Shares pursuant to
Section 11 hereof later than the Unlegended Shares Delivery Date could result in economic loss to a
Subscriber. As compensation to a Subscriber for such loss, the Company agrees to pay late payment
fees (as liquidated damages and not as a penalty) to the Subscriber for late delivery of Unlegended
Shares in the amount of $100 per business day after the Delivery Date for each $10,000 of purchase
price of the Unlegended Shares subject to the delivery default. If during any 360 day period, the
Company fails to deliver Unlegended Shares as required by this Section 11.1 for an aggregate of
thirty days, then each Subscriber or assignee holding Securities subject to such default may, at
its option, require the Company to redeem all or any portion of the Shares subject to such default
at a price per share equal to the greater of (i) 120%, or (ii) a fraction in which the numerator is
the highest closing price of the Common Stock during the aforedescribed thirty day period and the
denominator of which is the lowest conversion price during such thirty day period, multiplied by
the price paid by Subscriber for such Common Stock (“Unlegended Redemption Amount”). The Company
shall pay any payments incurred under this Section in immediately available funds upon demand.



(d) In the event a Subscriber shall request delivery of Unlegended Shares as described in
Section 11.1 and the Company is required to deliver such Unlegended Shares pursuant to Section
11.1, the Company may not refuse to deliver Unlegended Shares based on any claim that such
Subscriber or any one associated or affiliated with such Subscriber has been engaged in any
violation of law, or for any other reason, unless, an injunction or temporary restraining order
from a court, on notice, restraining and or enjoining delivery of such Unlegended Shares shall have
been sought and obtained by the Company and the Company has posted a surety bond for the benefit of
such Subscriber in the amount of 120% of the amount of the aggregate purchase price of the Common
Stock which are subject to the injunction or temporary restraining order, which bond shall remain
in effect until the completion of arbitration/litigation of the dispute and the proceeds of which
shall be payable to such Subscriber to the extent Subscriber obtains judgment in Subscriber’s
favor. The above section shall not apply to and shall not require the Company to deliver
Unlegended Shares if such issuance and delivery would be in violation of law.



(e) In addition to any other rights available to Subscriber, if the Company fails to deliver
to a Subscriber Unlegended Shares as required pursuant to this Agreement and after the Unlegended
Shares Delivery Date, the Subscriber or a broker on the Subscriber’s behalf, purchases (in an open
market transaction or otherwise) shares of common stock to deliver in satisfaction of a sale by
such Subscriber of the shares of Common Stock which the Subscriber was entitled to receive from the
Company (a “Buy-In”), then the Company shall pay in cash to the Subscriber (in addition to any
remedies available to or elected by the Subscriber) the amount by which (A) the Subscriber’s total
purchase price (including brokerage commissions, if any) for the shares of common stock so
purchased exceeds (B) the aggregate purchase price of the shares of Common Stock delivered to the
Company for reissuance as Unlegended Shares together with interest thereon at a rate of 15% per
annum accruing until such amount and any accrued interest thereon is paid in full (which amount
shall be paid as liquidated damages and not as a penalty). For example, if a Subscriber purchases
shares of Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to
$10,000 of purchase price of shares of Common Stock delivered to the Company for reissuance as
Unlegended Shares, the Company shall be required to pay the Subscriber $1,000, plus interest. The
Subscriber shall provide the Company written notice indicating the amounts payable to the
Subscriber in respect of the Buy-In.



11.2. In the event commencing six months after the Closing Date and ending twenty-four months
thereafter, the Subscriber upon the cashless exercise of the Warrants is not permitted to resell
any of the Warrant Shares without any restrictive legend or if such sales are permitted but subject
to volume limitations or further restrictions on resale as a result of the unavailability to
Subscriber of Rule 144(b)(1)(i) under the 1933 Act or any successor rule (a “144 Default”), for any
reason except for Subscriber’s status as an Affiliate or “control person” of the Company,
Subscriber’s failure to provide the documentation required in Section 11.1(a), or as a result of a
change in current applicable securities laws, then the Company shall pay such Subscriber as
liquidated damages and not as a penalty an amount equal to two percent (2%) for each thirty days
(or such lesser pro-rata amount for any period less than thirty days) thereafter of the purchase
price of the Warrant Shares subject to such 144 Default during the pendency of the 144 Default.
Liquidated Damages shall not be payable pursuant to this Section 11.2 in connection with Shares for
such times as such Shares may be sold by the holder thereof without volume or other restrictions
pursuant to Section 144(b)(1)(i) of the 1933 Act or pursuant to an effective registration
statement.



12. (a) Right of First Refusal. Until the later of one year following the Closing
Date or for so long as any amount remains outstanding on the Note, the Subscriber shall be given
not less than five (5) business days prior written notice of any proposed sale by the Company of
its common stock or other equity securities or equity linked debt obligations, except in connection
with (i) full or partial consideration in connection with an arm’s length strategic merger,
acquisition, consolidation or purchase of substantially all of the securities or assets of
corporation or other entity which holders of such securities or debt are not at any time granted
registration rights, (ii) the Company’s issuance of securities in connection with arm’s length
strategic license agreements and other partnering arrangements so long as such issuances are not
for the purpose of raising capital and which holders of such securities or debt are not at any time
granted registration rights, (iii) the Company’s issuance of Common Stock or the issuances or
grants of options to purchase Common Stock to employees, directors, and consultants, pursuant to
plans described in the Reports or on Schedule 5(d) as such plans are constituted on the Closing
Date or the issuance of Common Stock in connection with the settlement of vendor obligations and
which holders of such securities are not at any time granted registration rights until the Note is
no longer outstanding, (iv) securities upon the exercise or exchange of or conversion of any
securities exercisable or exchangeable for or convertible into shares of Common Stock issued and
outstanding on the date of this Agreement and described in the Reports or on Schedule 5(d), and (v)
as a result of the exercise of Warrants which are granted or issued pursuant to this Agreement
(collectively the foregoing are “Excepted Issuances”). If Subscriber elects to exercise its rights
pursuant to this Section 12(a), Subscriber shall have the right during the five (5) business days
following receipt of the notice to purchase in the aggregate such offered common stock, debt or
other securities in accordance with the terms and conditions set forth in the notice of sale. In
the event such terms and conditions are modified during the notice period, Subscriber shall be
given prompt notice of such modification and shall have the right during the five (5) business days
following the notice of modification to exercise such right.



(b) Maximum Exercise of Rights. In the event the exercise of the rights described in
Section 12(a) would or could result in the issuance of an amount of Common Stock of the Company
that would exceed the maximum amount that may be issued to Subscriber calculated in the manner
described in Section 10 of the Warrants, then the issuance of such additional shares of Common
Stock of the Company to Subscriber will be deferred in whole or in part until such time as
Subscriber is able to beneficially own such Common Stock without exceeding the applicable maximum
amount set forth calculated in the manner described in Section 10 of the Warrants and notifies the
Company accordingly.




13. Miscellaneous.



(a) Notices. All notices, demands, requests, consents, approvals, and other
communications required or permitted hereunder shall be in writing and, unless otherwise specified
herein, shall be (i) personally served, (ii) deposited in the mail, registered or certified, return
receipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed as set forth below
or to such other address as such party shall have specified most recently by written notice. Any
notice or other communication required or permitted to be given hereunder shall be deemed effective
(a) upon hand delivery or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated below (if delivered on a
business day during normal business hours where such notice is to be received), or the first
business day following such delivery (if delivered other than on a business day during normal
business hours where such notice is to be received) or (b) on the second business day following the
date of mailing by express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for such communications
shall be: (i) if to the Company, to: Converted Organics, Inc., 7A Commercial Wharf West, Boston, MA
02110, Attn: Edward J. Gildea, CEO and President, facsimile: (617) 624-0333, with a copy by
facsimile only to: Cozen O’Connor, 1900 Market Street, Philadelphia, PA 19103, Attn: Cavas Pavri,
Esq., facsimile: (215) 665-2013, and (ii) if to the Subscriber, to: the address and fax number
indicated on the signature page hereto, with an additional copy by fax only to: Grushko & Mittman,
P.C., 551 Fifth Avenue, Suite 1601, New York, New York 10176, facsimile: (212) 697-3575.



(b) Entire Agreement; Assignment. This Agreement and other documents delivered in
connection herewith represent the entire agreement between the parties hereto with respect to the
subject matter hereof and may be amended only by a writing executed by both parties. Neither the
Company nor the Subscriber has relied on any representations not contained or referred to in this
Agreement and the documents delivered herewith. No right or obligation of the Company shall be
assigned without prior notice to and the written consent of the Subscriber.



(c) Counterparts/Execution. This Agreement may be executed in any number of
counterparts and by the different signatories hereto on separate counterparts, each of which, when
so executed, shall be deemed an original, but all such counterparts shall constitute but one and
the same instrument. This Agreement may be executed by facsimile signature and delivered by
electronic transmission.



(d) Law Governing this Agreement. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York without regard to principles of conflicts of
laws. Any action brought by either party against the other concerning the transactions contemplated
by this Agreement shall be brought only in the state courts of New York or in the federal courts
located in the state and county of New York. The parties to this Agreement hereby irrevocably
waive any objection to jurisdiction and venue of any action instituted hereunder and shall not
assert any defense based on lack of jurisdiction or venue or based upon forum non
conveniens. The parties executing this Agreement and other agreements referred to herein or
delivered in connection herewith on behalf of the Company agree to submit to the in personam
jurisdiction of such courts and hereby irrevocably waive trial by jury. The prevailing party shall
be entitled to recover from the other party its reasonable attorney’s fees and costs. In the event
that any provision of this Agreement or any other agreement delivered in connection herewith is
invalid or unenforceable under any applicable statute or rule of law, then such provision shall be
deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to
conform with such statute or rule of law. Any such provision which may prove invalid or
unenforceable under any law shall not affect the validity or enforceability of any other provision
of any agreement. Each party hereby irrevocably waives personal service of process and consents to
process being served in any suit, action or proceeding in connection with this Agreement or any
other Transaction Document 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 Agreement 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 other manner permitted by law.



(e) Specific Enforcement, Consent to Jurisdiction. The Company and Subscriber
acknowledge and agree that irreparable damage would occur in the event that any of the provisions
of this Agreement were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to seek an injunction or
injunctions to prevent or cure breaches of the provisions of this Agreement and to enforce
specifically the terms and provisions hereof, this being in addition to any other remedy to which
any of them may be entitled by law or equity. Subject to Section 13(d) hereof, the Company hereby
irrevocably waives, and agrees not to assert in any such suit, action or proceeding, any claim that
it is not personally subject to the jurisdiction in New York of such court, that the suit, action
or proceeding is brought in an inconvenient forum or that the venue of the suit, action or
proceeding is improper. Nothing in this Section shall affect or limit any right to serve process
in any other manner permitted by law.



(f) Damages. In the event the Subscriber is entitled to receive any liquidated
damages pursuant to the Transactions Documents, the Subscriber may elect to receive the greater of
actual damages or such liquidated damages.



(g) Maximum Payments. Nothing contained herein or in any document referred to herein
or delivered in connection herewith shall be deemed to establish or require the payment of a rate
of interest or other charges in excess of the maximum permitted by applicable law. In the event
that the rate of interest or dividends required to be paid or other charges hereunder exceed the
maximum permitted by such law, any payments in excess of such maximum shall be credited against
amounts owed by the Company to the Subscriber and thus refunded to the Company.



(h) Calendar Days. All references to “days” in the Transaction Documents shall mean
calendar days unless otherwise stated. The terms “business days” and “trading days” shall mean
days that the New York Stock Exchange is open for trading for three or more hours. Time periods
shall be determined as if the relevant action, calculation or time period were occurring in New
York City. Any deadline that falls on a non-business day in any of the Transaction Documents shall
be automatically extended to the next business day and interest, if any, shall be calculated and
payable through such extended period.



(i) Captions: Certain Definitions. The captions of the various sections and
paragraphs of this Agreement have been inserted only for the purposes of convenience; such captions
are not a part of this Agreement and shall not be deemed in any manner to modify, explain, enlarge
or restrict any of the provisions of this Agreement. As used in this Agreement the term
“person” shall mean and include an individual, a partnership, a joint venture, a
corporation, a limited liability company, a trust, an unincorporated organization and a government
or any department or agency thereof.



(j) Severability. In the event that any term or provision of this Agreement shall be
finally determined to be superseded, invalid, illegal or otherwise unenforceable pursuant to
applicable law by an authority having jurisdiction and venue, that determination shall not impair
or otherwise affect the validity, legality or enforceability: (i) by or before that authority of
the remaining terms and provisions of this Agreement, which shall be enforced as if the
unenforceable term or provision were deleted, or (ii) by or before any other authority of any of
the terms and provisions of this Agreement.



(k) Successor Laws. References in the Transaction Documents to laws, rules,
regulations and forms shall also include successors to and functionally equivalent replacements of
such laws, rules, regulations and forms. A successor rule to Rule 144(b)(1)(i) shall include any
rule that would be available to a non-Affiliate of the Company for the sale of Common Stock not
subject to volume restrictions and after a six month holding period.



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SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT




Please acknowledge your acceptance of the foregoing Subscription Agreement by signing and
returning a copy to the undersigned whereupon it shall become a binding agreement between us.




CONVERTED ORGANICS INC.




a Delaware corporation




By:      

Name:

Title:





Dated: May 7, 2009



	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	SUBSCRIBER	 	PURCHASE PRICE	 	NOTE PRINCIPAL	 	CLASS A WARRANTS	 	CLASS B WARRANTS
	IROQUOIS MASTER FUND LTD.
	 	$	1,182,500.00	 	 	$	1,330,312.50	 	 	 	750,000	 	 	 	350,000	 
	641 Lexington Avenue, 26th Floor
New York, NY 10022
Fax: (212) 207-3452
______________________________________
(Signature)
By:
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 






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LIST OF EXHIBITS AND SCHEDULES




	 	 	 
	Exhibit A

Exhibit B

Exhibit C

Exhibit D

Exhibit E

Exhibit F

Schedule 5(a)

Schedule 5(d)

Schedule 5(o)

Schedule 5(q)

Schedule 5(x)

Schedule 8(a)

Schedule 9(l)

	 	Form of Note

Form of Warrant

Escrow Agreement

Form of Security Agreement

Form of Subsidiary Guaranty

Form of Legal Opinion

Subsidiaries

Additional Issuances / Capitalization

Undisclosed Liabilities

Financial Institutions

Transfer Agent

Due Diligence Fee Recipients

Intellectual Properties







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