EX-10.1






EXHIBIT 10.1



PURCHASE AGREEMENT




 



THIS PURCHASE AGREEMENT (“Agreement”) is made as of the 6th day of
March, 2009 by and among Converted Organics, Inc., a Delaware corporation (the “Company”),
and Professional Offshore Opportunity Fund, Ltd. (the “Investor”).



 



Recitals




 



A.        The Company and the Investor are executing and delivering this Agreement in
reliance upon the exemption from securities registration afforded by the provisions of Regulation D
(“Regulation D”), as promulgated by the U.S. Securities and Exchange Commission (the
“Commission”) under the Securities Act of 1933, as amended;



 



B.        The Investor wishes to purchase from the Company, and the Company wishes to
sell and issue to the Investor, upon the terms and conditions set forth in this Agreement, (i) up
to $1,500,000 in aggregate principal amount of the 10% Convertible Notes in the form attached
hereto as Exhibit A (the “Notes”), which Notes are convertible
into shares of the Company’s Common Stock, par value $0.0001 per share (together with any
securities into which such shares may be reclassified, the “Common Stock”), at an initial
conversion price of 85% of the closing bid price for the Trading Day immediately prior to a
conversion (subject to adjustment as provided therein), and (ii) Class B Warrants (NASD: COINZ) to
purchase an aggregate number of shares of Common Stock equal to the original principal amount of
the Note (excluding any interest amounts to be added to such original principal amount) divided by
the initial conversion price described above (the “Warrants”); and



 



In consideration of the mutual promises made herein and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:



 



1.         Definitions. In addition to those terms defined above and elsewhere in
this Agreement, for the purposes of this Agreement, the following terms shall have the meanings set
forth below:



 



.



“Affiliate” means, with respect to any Person, any other Person which directly or
indirectly through one or more intermediaries Controls, is controlled by, or is under common
control with, such Person.



 



“Business Day” means a day, other than a Saturday or Sunday, on which banks in
New York City are open for the general transaction of business.



 



“Company’s Knowledge” means the actual knowledge of the executive officers (as
defined in Rule 405 under the 1933 Act) of the Company.



 



“Control” (including the terms “controlling”, “controlled by” or “under common
control with”) means the possession, direct or indirect, of the power to direct or cause the
direction of the management and policies of a Person, whether through the ownership of voting
securities, by contract or otherwise.



 



“Conversion Shares” means the shares of Common Stock issuable upon conversion of
the Notes.



 



“Escrow Agreement” has the meaning set forth in Section 2.3.



“Material Adverse Effect” means a material adverse effect on (i) the assets,
liabilities, results of operations, condition (financial or otherwise) or business of the Company
and its Subsidiaries taken as a whole as of December 31, 2008, or (ii) the ability of the Company
to perform its obligations under the Transaction Documents in all material respects; provided,
however, that none of the following shall be deemed to constitute a Material Adverse Effect or
taken into account in determining whether there has been a Material Adverse Effect: (a) changes in
GAAP or applicable laws; (b) the announcement of the execution of this Agreement or of the pendency
or completion of the transactions contemplated hereby; (c) the effect of compliance by any of the
parties with the terms of, or the taking of any action specifically required to be taken under,
this Agreement; (d) changes in economic, financial, credit or securities markets, or political
conditions generally, except to the extent such changes have a materially disproportionate effect
on the Company and its Subsidiaries as compared to others engaged in the same businesses; (e) any
act of terrorism or war (whether or not declared); (f) changes affecting generally the industries
in which the Company and its Subsidiaries conduct business, except to the extent such changes have
a materially disproportionate adverse effect on the Company and its Subsidiaries or as compared to
others engaged in the same businesses; (g) the Company’s cash, short term assets, working capital,
and liquidity position prior to the transactions contemplated hereby; (h) non-cash impairment
charges recorded in accordance with GAAP; (i) the payment of outstanding indebtedness in accordance
with its terms; or (j) the incurrence and payment of expenses and liabilities in the ordinary
course of business.



“Nasdaq” has the meaning set forth in Section 4.13.



 



“Original Issue Discount” has the meaning set forth in Section 2.2.



“Person” means an individual, corporation, partnership, limited liability company,
trust, business trust, association, joint stock company, joint venture, sole proprietorship,
unincorporated organization, governmental authority or any other form of entity not specifically
listed herein.



 



“Principal Trading Market” means the Trading Market on which the Common Stock is
primarily listed on and quoted for trading, which, as of the date of this Agreement and each
Closing Date, shall be the Nasdaq.



 



“Purchase Price” means up to One Million Five Hundred Thousand Dollars
($1,500,000).



 



“Registration Statement” has the meaning set forth in the New Financing
Registration Rights Agreement.



“SEC Filings” has the meaning set forth in Section 4.6.



“Securities” means the Notes, the Warrants, the Conversion Shares and the Warrant
Shares.



 



“Stockholder Approval” has the meaning set forth in Section 7.7.



 



“Subsidiary” of any Person means another Person, an amount of the voting
securities, other voting ownership or voting partnership interests of which is sufficient to elect
at least a majority of its Board of Directors or other governing body (or, if there are no such
voting interests, 50% or more of the equity interests of which) is owned directly or indirectly by
such first Person.



 



“Trading Day” means (i) a day on which the Common Stock is listed or quoted and
traded on its Principal Trading Market, or (ii) if the Common Stock is not listed on a Trading
Market (other than the OTC Bulletin Board), a day on which the Common Stock is traded in the
over-the-counter market, as reported by the OTC Bulletin Board, or (iii) if the Common Stock is not
quoted on any Trading Market, a day on which the Common Stock is quoted in the over-the-counter
market as reported in the “pink sheets” by Pink Sheets LLC (or any similar organization or agency
succeeding to its functions of reporting prices); provided, that in the event that the
Common Stock is not listed or quoted as set forth in (i), (ii) and (iii) hereof, then Trading Day
shall mean a Business Day.



“Trading Market” means whichever of the Nasdaq Global Select Market, the Nasdaq Global
Market, the Nasdaq Capital Market or the OTC Bulletin Board on which the Common Stock is listed or
quoted for trading on the date in question.



 



“Transaction Documents” means this Agreement, the Notes, the Warrants, the Escrow
Agreement and the Registration Rights Agreement.



 



“Warrant Shares” means the shares of Common Stock issuable upon the exercise of
the Warrants.



 



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



 



“1934 Act” means the Securities Exchange Act of 1934, as amended, or any
successor statute, and the rules and regulations promulgated thereunder.



 



2.         Purchase and Sale of the Notes and the Warrants.



2.1       Sale of Notes. Subject to the terms and conditions of this Agreement, on
each Closing Date, the Company shall, in exchange for the Purchase Price as specified in Section 3
below, sell and issue, and the following parties shall severally, and not jointly, purchase: (a) on
the First Closing Date, the aggregate principal amount of Five Hundred Thousand Dollars ($500,000)
of Notes and the Warrants to purchase five hundred seventy one thousand one hundred and two
(571,102) shares of Common Stock to the Investor, (b) on the Second Closing Date, the aggregate
amount of Two Hundred Fifty Thousand Dollars ($250,000) of the Notes and the Warrants to purchase
two hundred eighty five thousand five hundred fifty one (285,551) shares of Common Stock to the
Investor, (c) on the Third Closing Date, the aggregate amount of Two Hundred Fifty Thousand Dollars
($250,000) of the Notes and the Warrants to purchase two hundred eighty five thousand five hundred
fifty one (285,551) shares of Common Stock to the Investor, (d) on the Fourth Closing Date, the
aggregate amount of Two Hundred Fifty Thousand Dollars ($250,000) of the Notes and the Warrants to
purchase two hundred eighty five thousand five hundred fifty one (285,551) shares of Common Stock
to the Investor, and (e) on the Fifth Closing Date, the aggregate amount of Two Hundred Fifty
Thousand Dollars ($250,000) of the Notes and the Warrants to purchase two hundred eighty five
thousand five hundred fifty one (285,551) shares of Common Stock to the Investor.



2.2       Original Issue Discount. The Company agrees to provide an original issue
discount of 10% (the “Original Issue Discount”) to the Investor which will result in an
actual Purchase Price of $1,350,000, in the aggregate. The Investor shall recognize the Original
Issue Discount on the Fifth Closing by reducing the amount the Investor actually pays at the Fifth
Closing by $150,000 (which is equal to the total amount of the Original Issue Discount of the
Purchase Price) but the Investor will still receive its Note for $250,000 plus any pre-paid
interest required under the Note for the Fifth Closing. In the event that an Event of Default
occurs prior to the Fifth Closing Date or if the Investor is not obligated under the terms of this
Agreement to fund the Fifth Closing, then the Original Issue Discount shall be recognized by
increasing the Original Principal Amount of the Note purchased at the First Closing as follows: (i)
after the First Closing but before the Second Closing then the amount of the Note for the First
Closing shall be increased to $600,000 (which includes the $50,000 of prepaid interest on such
Note); (ii) after the Second Closing but before the Third Closing then the amount of the Note for
the First Closing shall be increased to $625,000 (which includes the $50,000 of prepaid interest on
such Note); (iii) after the Third Closing but before the Fourth Closing then the amount of the Note
for the First Closing shall be increased to $650,000 (which includes the $50,000 of prepaid
interest on such Note); and (iv) after the Fourth Closing but before the Fifth Closing then the
amount of the Note for the First Closing shall be increased to $675,000 (which includes the $50,000
of prepaid interest on such Note).



2.3        Escrow of Purchase Price. In the event Stockholder Approval is not
obtained prior to a Closing Date, such Purchase Price that is due on the respective Closing Date
shall be deposited into an escrow account pursuant to the terms of the escrow agreement between the
Company, the Investor and Anslow & Jaclin, LLP (as escrow agent) in substantially the form attached
hereto as Exhibit B (the “Escrow Agreement”).



	 	 	 	 	 	 	 
	 
	 	 	3.	 	 	Closing.

	 	 	 	 	 	 	 







 



3.1       The First Closing.       Subject to the terms and conditions of this
Agreement, the Company shall deliver to the Investor the Notes and the Warrants, registered in such
name or names as the Investor may designate, upon payment in full of the specified portion of the
Purchase Price set forth on Schedule I to the Company by the Investor
pursuant to the Escrow Agreement. The first closing (the “First Closing”) of the purchase
and sale of the Notes and the Warrants shall take place at the offices of Anslow & Jaclin, LLP, 195
Route 9 South, Manalapan, New Jersey 07726, at 12:00 p.m., New York, New York, time on the date
that Shareholder Approval is obtained (the “First Closing Date”) or at such other location
and on such other date as the Company and the Investor shall mutually agree.



 



3.2       The Second Closing.  Subject to the terms and conditions of this
Agreement and all representations, warranties and covenants being true and accurate on the date of
the Second Closing Date, the Company shall deliver to the Investor the Notes and the Warrants,
registered in such name or names as the Investor may designate, upon payment in full of the
specified portion of the Purchase Price set forth on Schedule II to the
Company by the Investor pursuant to the Escrow Agreement. This second closing (the “Second
Closing”) of the purchase and sale of the Notes and Warrants shall take place at such location
and on the date that is thirty (30) days following the First Closing Date (the “Second Closing
Date”).



 



3.3       The Third Closing.  Subject to the terms and conditions of this
Agreement and all representations, warranties and covenants being true and accurate on the date of
the Third Closing Date, the Company shall deliver to the Investor the Notes and the Warrants,
registered in such name or names as the Investor may designate, upon payment in full of the
specified portion of the Purchase Price set forth on Schedule III to
the Company by the Investor pursuant to the Escrow Agreement. This third closing (the “Third
Closing”) of the purchase and sale of the Notes and Warrants shall take place at such location
and on the date that is thirty (30) days following the Second Closing Date (the “Third Closing
Date”).



3.4       The Fourth Closing.  Subject to the terms and conditions of this Agreement
and all representations, warranties and covenants being true and accurate on the date of the Fourth
Closing Date, the Company shall deliver to the Investor the Notes and the Warrants, registered in
such name or names as the Investor may designate, upon payment in full of the specified portion of
the Purchase Price set forth on Schedule IV to the Company by the
Investor pursuant to the Escrow Agreement. This fourth closing (the “Fourth Closing”) of
the purchase and sale of the Notes and Warrants shall take place at such location and on the date
that is thirty days following the Third Closing Date (the “Fourth Closing Date”).



 



3.5       The Fifth Closing.  Subject to the terms and conditions of this
Agreement and all representations, warranties and covenants being true and accurate on the date of
the Fifth Closing Date, the Company shall deliver to the Investor the Notes and the Warrants,
registered in such name or names as the Investor may designate, upon payment in full of the
specified portion of the Purchase Price, subject to the Original Issue Discount for all amounts
included in the Fifth Closing and in all prior Closings, set forth on Schedule
V to the Company by the Investor pursuant to the Escrow Agreement. This fifth closing
(the “Fifth Closing”) of the purchase and sale of the Notes and Warrants shall take place
at such location and on the date that is thirty (30) days following the Fourth Closing Date (the
“Fifth Closing Date”).



The First Closing Date, the Second Closing Date, the Third Closing Date, the Fourth Closing
Date and the Fifth Closing Date shall be sometimes referred to herein as a “Closing Date”,
and the First Closing, the Second Closing, the Third Closing, the Fourth Closing and the Fifth
Closing shall be sometimes referred to herein as a “Closing”.



 



4.         Representations and Warranties of the Company. The Company hereby
represents and warrants to the Investor that, except as set forth in its public filings with the
Commission:



 



4. 1      Organization, Good Standing and Qualification. Each of the Company and
its Subsidiaries is a corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation and has all requisite corporate power and authority
to carry on its business as now conducted and to own its properties. Each of the Company and its
Subsidiaries is duly qualified to do business as a foreign corporation and is in good standing in
each jurisdiction in which the conduct of its business or its ownership or leasing of property
makes such qualification or leasing necessary unless the failure to so qualify has not
had and could not reasonably be expected to have a Material Adverse Effect.



 



4.2       Authorization. The Company has full corporate power and authority and
has taken all requisite action on the part of the Company, its officers, directors and stockholders
necessary for (i) the authorization, execution and delivery of the Transaction Documents, (ii) the
authorization of the performance of all obligations of the Company hereunder, and (iii) the
authorization, issuance (or reservation for issuance) and delivery of the Notes and Warrants;
provided, however, that the Investor hereby acknowledge and agree the issuance and reservation for
issuance of the shares of Common Stock issuable upon the conversion of the Notes or exercise of the
Warrants is subject to the receipt by the Company of the Stockholder Approval in accordance with
Section 7.7 below. When delivered in accordance with the terms hereof, the Transaction Documents
will constitute the legal, valid and binding obligations of the Company, enforceable against the
Company 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.



 



4.3       Capitalization. Except as disclosed in the Company’s SEC Filings, the
Company does not have outstanding any options to purchase, or any preemptive rights or other rights
to subscribe for or to purchase, any securities or obligations convertible into, or any contracts
or commitments to issue or sell, greater than 50,000 shares of its capital stock or any such
options, rights, convertible securities or obligations.



 



Except as set forth in the Company’s SEC Filings, the Company does not have outstanding
stockholder purchase rights or “poison pill” or any similar arrangement in effect giving any Person
the right to purchase any equity interest in the Company upon the occurrence of certain events.



 



4.4       Valid Issuance. Upon receipt of the Stockholder Approval, the
Conversion Shares will be duly authorized and, when issued upon the due conversion of the Notes,
will be validly issued, fully paid and nonassessable, and shall be free and clear of all
encumbrances and restrictions (other than those created by the Investor), except for restrictions
on transfer set forth in the Transaction Documents or imposed by applicable securities laws. Upon
receipt of the Stockholder Approval, the Warrants will be duly and validly authorized. The Warrant
Shares have been duly authorized and, when issued upon the due exercise of the Warrants, will be
validly issued, fully paid and non-assessable free and clear of all encumbrances and restrictions,
except for restrictions on transfer set forth in the Transaction Documents or imposed by applicable
securities laws and except for those created by the Investor. From and after the date of the
receipt of the Stockholder Approval, the Company will, in its reasonable discretion as the total
number of shares of Common Stock that may be issued upon conversion of the Notes is unknown and
subject to the maximum number of authorized shares of Common Stock available under the Company’s
Certificate of Incorporation, have reserved a sufficient number of shares of Common Stock for
issuance upon the conversion of the Notes and upon exercise of the Warrants, free and clear of all
encumbrances and restrictions, except for restrictions on transfer set forth in the
Transaction Documents or imposed by applicable securities laws and except for those created by the
Investor.



 



4.5       Consents. Assuming no exercise of the Warrants, the execution, delivery
and performance by the Company of the Transaction Documents and the offer, issuance and sale of the
Securities require no consent of, action by or in respect of, or filing with, any Person,
governmental body, agency, or official other than the consent of the holder of the Company’s New
Jersey Economic Development Authority Bonds or filings that have been made pursuant to applicable
state securities laws and post-sale filings pursuant to applicable state and federal securities
laws and Nasdaq regulations which the Company undertakes to file within the applicable time
periods. Subject to the accuracy of the representations and warranties of each Investor set forth
in Section 5.1 hereof, the Company has taken all action necessary to exempt (i) the issuance and
sale of the Securities, (ii) the issuance of the Conversion Shares upon the due conversion of the
Notes and the issuance of the Warrant Shares upon due exercise of the Warrants, and (iii) the other
transactions contemplated by the Transaction Documents from the provisions of any stockholder
rights plan or other “poison pill” arrangement, any anti-takeover, business combination or control
share law or statute binding on the Company or to which the Company or any of its assets and
properties may be subject and any provision of the Company’s Certificate of Incorporation or Bylaws
that is or could reasonably be expected to become applicable to the Investor, assuming Investor’s
compliance with the stock ownership limitation provisions set forth in the Note and/or Warrants, as
a result of the transactions contemplated hereby, including without limitation, the issuance of the
Securities and the ownership, disposition or voting of the Securities by the Investor or the
exercise of any right granted to the Investor pursuant to this Agreement or the other Transaction
Documents.



 



4.6       Delivery of SEC Filings; Business. The Company has made available to
the Investor through the IDEA and EDGAR systems, true and complete copies of the Company’s most
recent Annual Report on Form 10-KSB for the fiscal year ended December 31, 2007 (the
“10-K”), and all other reports filed by the Company pursuant to the 1934 Act, including
pursuant to Section 13(a) or 15(d) thereof, since the filing of the 10-K and prior to the date
hereof (collectively, the “SEC Filings”). With respect to any of the foregoing filings, to
the extent such filings have been amended prior to the date hereof, the term “SEC Filings” shall be
deemed to refer only to such amended versions of the filing.



 



4.7       Use of Proceeds. The net proceeds of the sale of the Notes and the
Warrants hereunder shall be used by the Company and its Subsidiaries for working capital, capital
expenditures and general corporate purposes.



 



4.8       Certain Changes. Since September 30, 2008, except as identified and
described in the SEC Filings, (i) the Company has not declared or made any dividend or distribution
of cash or other property to its stockholders or purchased, redeemed or made any agreements to
purchase or redeem any shares of its capital stock (other than in connection with repurchases of
unvested stock issued to employees of the Company) and (ii) the Company has not issued any equity
securities to any officer, director or Affiliate, except Common Stock issued in the ordinary course
as dividends on outstanding preferred stock or issued pursuant to existing Company stock option or
stock purchase plans or executive and director compensation arrangements disclosed in the SEC
Filings.



 



4.9       SEC Filings. At the time of filing thereof, the SEC Filings complied as
to form in all material respects with the requirements of the 1934 Act and did not contain any
untrue statement of a material fact or omit to state any material fact necessary in order to make
the statements made therein, in the light of the circumstances under which they were made, not
misleading.



 



4.10     No Conflict, Breach, Violation or Default. The execution, delivery and
performance of the Transaction Documents by the Company and the issuance and sale of the Securities
will not conflict with or result in a breach or violation of any of the terms and provisions of, or
constitute a default under (i) the Company’s Certificate of Incorporation or the Company’s Bylaws,
both as in effect on the date hereof (true and complete copies of which have been filed with the
Commission), or (ii)(a) any statute, rule, regulation or order of any governmental agency or body
or any court, domestic or foreign, having jurisdiction over the Company, any Subsidiary or any of
their respective assets or properties, or (b) any agreement or instrument to which the Company or
any Subsidiary is a party or by which the Company or a Subsidiary is bound or to which any of their
respective assets or properties is subject, except, in the case of clause (ii) only, such breaches,
violations or defaults that individually or in the aggregate would not cause a Material Adverse
Effect.



 



4.11     Litigation. There are no pending legal actions, suits or proceedings
against or affecting the Company, its Subsidiaries or any of its or their properties that has had
or are reasonably expected to have a Material Adverse Effect. To the Company’s Knowledge, there has
not been, and there is not pending, any investigation by the Commission involving the Company or
any current or former director or officer of the Company. The Commission has not issued any stop
order or other order suspending the effectiveness of any registration statement filed by the
Company or any Subsidiary under the 1933 Act or the 1934 Act.



 



4.12     Financial Statements. The financial statements included in each SEC
Filing present fairly, in all material respects, the consolidated financial position of the Company
as of the dates shown and its consolidated results of operations and cash flows for the periods
shown, and such financial statements have been prepared in conformity with United States generally
accepted accounting principles applied on a consistent basis (“GAAP”) (except as may be
disclosed therein or in the notes thereto, and, in the case of quarterly financial statements, as
permitted by Form 10-Q under the 1934 Act); provided, however, that the unaudited
financial statements are subject to normal year-end audit adjustments (which are not expected to be
material) and do not contain all footnotes required under GAAP.



 



4.13     NASDAQ Compliance. The Common Stock is registered pursuant to Section
12(b) of the 1934 Act and is listed on the Nasdaq Capital Market (the “Nasdaq”), and the
Company has not received any notification that the Commission, the Nasdaq or the Financial Industry
Regulatory Authority, Inc. is contemplating terminating such registration or listing.



 



4.14     Brokers and Finders. Except with respect to fees payable to Chardan
Capital Markets, LLC, no Person will have, as a result of the transactions contemplated by the
Transaction Documents, any valid right, interest or claim against or upon the Company, any
Subsidiary or an Investor for any commission, fee or other compensation pursuant to any agreement,
arrangement or understanding entered into by or on behalf of the Company.



 



4.15     No Directed Selling Efforts or General Solicitation. Neither the Company
nor any Person acting on its behalf has conducted any general solicitation or general advertising
(as those terms are used in Regulation D) in connection with the offer or sale of any of the
Securities.



 



4.16     No Integrated Offering. Neither the Company nor any person authorized by
the Company, nor any Person acting on its or such authorized person’s behalf has, directly or
indirectly, made any offers or sales of any Company security or solicited any offers to buy any
security, under circumstances that would adversely affect reliance by the Company on Section 4(2)
for the exemption from registration for the transactions contemplated hereby or would require
registration of the Securities under the 1933 Act.



 



4.17     Private Placement. Assuming the accuracy of the Investor’
representations set forth in Section 5.1 hereof, the offer and sale of the Securities to the
Investor as contemplated hereby is exempt from the registration requirements of the 1933 Act.



4.18     Reorganization. Neither the Company nor any Subsidiary has been decreed or
ordered by a court having jurisdiction adjudging the Company bankrupt or insolvent, or approving a
petition seeking reorganization, arrangement, adjustment or composition of or in respect of the
Company, under federal bankruptcy law, as now or hereafter constituted, or any other applicable
federal or state bankruptcy, insolvency or other similar law; or the commencement against the
Company of a proceeding under the federal bankruptcy law or any applicable federal or state
bankruptcy, insolvency or similar law and the continuance of any such proceedings; or the
commencement by the Company of a voluntary case under federal bankruptcy law, as now or hereafter
constituted, or any other applicable federal or state bankruptcy, insolvency, or other similar law,
or the consent by it to the institution of bankruptcy or insolvency proceedings against it, or the
filing by it of a petition or answer or consent seeking reorganization or relief under federal
bankruptcy law or any other applicable federal or state law, or the consent by it to the filing of
such petition or to the appointment of a receiver, liquidator, assignee, trustee, sequestrator or
similar official of the Company or of any substantial part of its property, or the making by it of
an assignment for the benefit of creditors, or the taking of corporate action by the Company in
furtherance of any such action.

 


	 	 	 	 	 	 	 
	 
	 	 	5.	 	 	Representations, Warranties and Covenants of the Investor.

	 	 	 	 	 	 	 







 



5.1       Representations and Warranties of the Investor. Each of the Investor
hereby severally, and not jointly, represents and warrants to the Company that:



 



(a)       Organization and Existence. The Investor is a validly existing
corporation, limited partnership or limited liability company and has all requisite corporate,
partnership or limited liability company power and authority to invest in the Securities pursuant
to this Agreement.



 



(b)       Authorization. The execution, delivery and performance by such Investor
of the Transaction Documents to which such Investor is a party have been duly authorized and will
each constitute the valid and legally binding obligation of such Investor, enforceable against such
Investor in accordance with their respective terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general applicability, relating to or
affecting creditors’ rights generally.



 



(c)       Purchase Entirely for Own Account. The Securities to be received by
such Investor hereunder will be acquired for such Investor’s own account, not as nominee or agent,
and not with a view to the resale or distribution of any part thereof in violation of the 1933 Act,
and such Investor has no present intention of selling, granting any participation in, or
otherwise distributing the same in violation of the 1933 Act without prejudice, however, to
such Investor’s right at all times to sell or otherwise dispose of all or any part of such
Securities in compliance with applicable federal and state securities laws. Nothing
contained herein shall be deemed a representation or warranty by such Investor to hold the
Securities for any period of time. Such Investor is not a broker-dealer registered with the
Commission under the 1934 Act or an entity engaged in a business that would require it to be so
registered.



 



(d)       Investment Experience. Such Investor acknowledges that it can bear the
economic risk and complete loss of its investment in the Securities and has such knowledge and
experience in financial or business matters that it is capable of evaluating the merits and risks
of the investment contemplated hereby.



 



(e)       Disclosure of Information. Such Investor has had an opportunity to
receive all information related to the Company requested by it and to ask questions of and receive
answers from the Company regarding the Company, its business and the terms and conditions of the
offering of the Securities. Such Investor acknowledges receipt of copies of the SEC Filings.
Neither such inquiries nor any other due diligence investigation conducted by such Investor shall
modify, limit or otherwise affect such Investor’s right to rely on the Company’s representations
and warranties contained in this Agreement.



 



(f)        Restricted Securities; No Public Market. Such Investor
understands that the Securities have not been, and will not be, registered under the 1933 Act, by
reason of a specific exemption from the registration provisions of the 1933 Act that depends upon,
among other things, the bona fide nature of the investment intent and the accuracy of the
Investor’s representations as expressed herein. Such Investor understands that such Securities are
“restricted securities” under applicable United States of America federal and state securities laws
and that, pursuant to these laws, the Investor must hold such Securities indefinitely unless
registered with the Commission and qualified by state authorities, or an exemption from such
registration and qualification requirements is available. Such Investor further acknowledges that
if an exemption from registration or qualification is available, it may be conditioned on various
requirements including, but not limited to, the time and manner of sale, the holding period for the
Securities, and on requirements relating to the Company that are outside of the Investor’s control,
and that the Company is under no obligation and may not be able to satisfy. Such Investor
understands that no public market now exists for any of the Securities, and that the Company has
made no assurances that a public market will ever exist for the Securities.



 



(g)       Legends. It is understood that, except as provided below, certificates
evidencing the Securities may bear the following or any similar legend:



 



(i)        “The securities represented hereby have not been registered under the
Securities Act of 1933, as amended (the “Act”) and may not be transferred unless (A) such
securities have been registered for sale pursuant to the Act, (B) such securities may be sold
without volume restriction pursuant to Rule 144, or (C) the Company has received an opinion of
counsel reasonably satisfactory to it that such transfer may lawfully be made without registration
under the Act or qualification under applicable state securities laws.”



(ii)        “For purposes of Sections 1272, 1273, and 1275 of the United States Internal
Revenue Code of 1986, as amended, this security is issued with original issue discount for United
States Federal Income Tax purposes. The issue price, amount of original issue discount, issue date
and yield to maturity for this security are available from the Company by telephoning the Company’s
finance department at (617) 624-0111 or by submitting a written request to: Converted Organics,
Inc., 7A Commercial Wharf West, Boston, Massachusetts 02110, Attention: Ed Gildea.”



(iii)         If required by the authorities of any state in connection with the issuance of
sale of the Securities, the legend required by such state authority.



 



(h)       Accredited Investor. Such Investor is an accredited investor as defined
in Rule 501(a) of Regulation D, as amended, under the 1933 Act.



 



(i)        No General Solicitation. Such Investor did not learn of the investment
in the Securities as a result of any general solicitation or general advertising.



(j)        Brokers and Finders. Except as otherwise disclosed, no Person will have, as
a result of the transactions contemplated by the Transaction Documents, any valid right, interest
or claim against or upon the Company, any Subsidiary or an Investor for any commission, fee or
other compensation pursuant to any agreement, arrangement or understanding entered into by or on
behalf of such Investor.



 



(k)        Reliance on Exemptions. Such Investor understands that the Securities
are being offered and sold to it in reliance upon specific exemptions from the registration
requirements of the 1933 Act, the rules and regulations promulgated thereunder and state securities
laws and that the Company is relying upon the truth and accuracy of, and the Investor’s compliance
with, the representations, warranties, agreements, acknowledgments and understandings of
the Investor set forth herein in order to determine the availability of such exemptions and the
eligibility of the Investor to acquire the Securities.



 



(l)      Investment Decision. Such Investor understands that nothing in the
Agreement or any other materials presented to such Investor in connection with the purchase and
sale of the Securities constitutes legal, tax or investment advice. Such Investor has consulted
such legal, tax and investment advisors as it, in its sole discretion, has deemed necessary or
appropriate in connection with its purchase of the Securities. Such Investor acknowledges that it
has, independently and without reliance upon the Agents or any other Investor and based on such
documents and information as it has deemed necessary or appropriate, made its own analysis and
decision to enter into this Agreement. Such Investor also acknowledges that it will, independently
and without reliance upon the Agents or any other Investor and based on such documents and
information as it shall from time to time deem necessary or appropriate, continue to make its own
decisions in taking or not taking action under or based upon this Agreement or any other
Transaction Document.



 



(m)       Risk of Loss. Such Investor understands that its investment in the
Securities involves a significant degree of risk, including a risk of total loss of such Investor’s
investment, and such Investor has full cognizance of and understands all of the risk factors
related to such Investor’s purchase of the Securities, including, but not limited to, those set
forth under or incorporated by reference under the caption “Risk Factors” in the SEC Filings. Such
Investor understands that the market price of the Common Stock has been volatile and that no
representation is being made as to the future value of the Common Stock.



 



(n)       No Government Review. Such Investor understands that no United States
federal or state agency or any other government or governmental agency has passed upon or made any
recommendation or endorsement of the Securities.



 



(o)       Liquidity. Such Investor has sufficient liquid assets to fund and
fulfill its Purchase Price commitment by the Closing Date contemplated by Section 3 hereof.



 



5.2       Voting Agreement. Each Investor hereby acknowledges that the Company
shall not be obligated to issue the Conversion Shares and the Warrant Shares prior to receiving the
Stockholder Approval. Each Investor hereby agrees if the issuance of the Conversion Shares and
Warrant Shares is submitted for stockholder approval at any annual or special meeting of the
Company’s stockholders or by written consent, and such Investor beneficially owns any
securities of the Company entitled to vote thereon or consent thereto, then such Investor shall (a)
appear at such meeting or otherwise cause his, her or its shares of voting securities of the
Company, whether now owned or hereafter acquired (together, the “Voting Securities”) to be
counted as present thereat, and (b) vote or to act by written consent with respect to (or cause to
be voted or acted upon by written consent), (i) all Voting Securities for which the Investor is the
record holder or beneficial owner at the time of such vote or action by written consent and
(ii) all Voting Securities as to which the Investor at the time of such vote or action by written
consent has voting control, in each case, in favor of the issuance of the Conversion Shares and
Warrant Shares, and if solicited by the Company, such increase in the authorized capital as may be
reasonably requested by the Company. Each Investor hereby agrees to execute such proxies,
additional voting agreements, or other instruments as may be reasonably requested by the Investor
or the Company in connection with this Section 5.2.



 



	 	 	 
	 

	 	6. Conditions to each Closing.
	
 
	 	 






 



6.1       Conditions to the Investor’ Obligations. The obligation of each
Investor to purchase the Notes and the Warrants at each Closing is subject to the fulfillment, on
or prior to such Closing Date, of the following conditions:



 



(a)       The representations and warranties made by the Company in Section 4 hereof
qualified as to materiality shall be true and correct in all material respects on such Closing
Date. The Company shall have performed in all material respects all obligations and covenants
herein required to be performed by it on or prior to such Closing Date.



 



(b)       The Company is not in default under any of the Transaction Documents for a
prior Closing and an Event of Default (as defined in any of the Notes) has not occurred.



(c) Other than the Stockholder Approval, the Company shall have obtained any and all
consents, permits, approvals, registrations and waivers necessary or appropriate for consummation
of the purchase and sale of the Securities and the consummation of the other transactions
contemplated by the Transaction Documents, all of which shall be in full force and effect.



 



(d)       No judgment, writ, order, injunction, award or decree of or by any court, or
judge, justice or magistrate, including any bankruptcy court or judge, or any order of or by any
governmental authority, shall have been issued, and no action or proceeding shall have been
instituted by any governmental authority, enjoining or preventing the consummation of the
transactions contemplated hereby or in the other Transaction Documents.



 



(e)       The Company shall have delivered to such Investor a Certificate, executed on
behalf of the Company by its Chief Executive Officer or its Chief Financial Officer,
dated as of such Closing Date, certifying to the fulfillment of the conditions specified in
subsections (a), (b), (c) and (g) of this Section 6.1.



 



(f)       The Company shall have delivered to such Investor a Certificate, executed on
behalf of the Company by its Secretary, dated as of such Closing Date, certifying the resolutions
adopted by the Board of Directors of the Company approving (i) the transactions contemplated by
this Agreement and the other Transaction Documents and (ii) the issuance of the Securities,
certifying the current versions of the Certificate of Incorporation and Bylaws of the Company and
certifying as to the signatures and authority of persons signing the Transaction Documents and
related documents on behalf of the Company.



 



(g)        No stop order or suspension of trading shall have been imposed by the
Commission or any other governmental or regulatory body with respect to public trading in the
Common Stock.



 



(h)       The Common Stock shall not have been suspended, as of such Closing Date, by the
Commission or the Principal Trading Market from trading on the Principal Trading Market nor shall,
to the Company’s Knowledge, suspension, as of such Closing Date, by the Commission or the Principal
Trading Market have been threatened.



(i)       The Company and the Investor have entered into an agreement amending the amendment
dated January 29, 2009 to its secured convertible debentures by and between the Company and
Investor to remove the restriction preventing the Investor from selling shares of Company common
stock on any trading day in excess of the amounts as set forth in the amendment.



(j) Oppenheimer Rochester National Municipals and Oppenheimer New Jersey Municipal Fund shall
enter into an agreement with the Company whereby they will release to the Company an aggregate of
approximately $2,000,000 from certain escrow accounts and will agree to defer all interest owed by
the Company on its industrial revenue bonds through July 31, 2009.



	 	 	 	 	 	 	 
	 
	 	 	6.2	 	 	Conditions to Obligations of the Company.

	 	 	 	 	 	 	 







 



(a)       Conditions to Each Closing. The Company’s obligation to sell and issue
the Notes and the Warrants at each Closing is subject to the fulfillment on or prior to each
Closing Date of the following conditions, any of which may be waived by the Company. The
representations and warranties made by such Investor in Section 5.1 hereof shall be true and
correct in all material respects when made, and shall be true and correct in all material respects
on such Closing Date with the same force and effect as if they had been made on and as of said
date. Such Investor shall have performed in all material respects all obligations and covenants
herein required to be performed by them on or prior to such Closing Date.     



 



(b)       Conditions to the First Closing. In addition to the satisfaction (or
waiver) of the conditions set forth in Section 6.2(a), the Company’s obligation to sell and issue
the Notes and Warrants at the First Closing is subject to the delivery of the specified portion of
the Purchase Price as set forth on Schedule I by the Investor to the
Company.



 



(c)       Conditions to the Second Closing. In addition to the satisfaction (or
waiver) of the conditions set forth in Section 6.2(a), the Company’s obligation to sell and issue
the Notes and Warrants at the Second Closing is subject to the delivery of the specified portion of
the Purchase Price as set forth on Schedule II by the Investor to the
Company.



 



(d)       Conditions to the Third Closing. In addition to the satisfaction (or
waiver) of the conditions set forth in Section 6.2(a), the Company’s obligation to sell and
issue the Notes and Warrants at the Third Closing is subject to the delivery of the
specified portion of the Purchase Price as set forth on Schedule III by
the Investor to the Company.



(d)       Conditions to the Fourth Closing. In addition to the satisfaction (or
waiver) of the conditions set forth in Section 6.2(a), the Company’s obligation to sell and
issue the Notes and Warrants at the Fourth Closing is subject to the delivery of the
specified portion of the Purchase Price as set forth on Schedule IV by
the Investor to the Company.



(d)       Conditions to the Fifth Closing. In addition to the satisfaction (or waiver)
of the conditions set forth in Section 6.2(a), the Company’s obligation to sell and issue
the Notes and Warrants at the Fifth Closing is subject to the delivery of the specified
portion of the Purchase Price as set forth on Schedule V by the
Investor to the Company.



	 	 	 	 	 	 	 
	 
	 	 	7.	 	 	Covenants and Agreements of the Company.

	 	 	 	 	 	 	 







 



7.1       Reservation of Common Stock. From and after the date of the receipt of
the Stockholder Approval, the Company shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock, solely for the purpose of providing for the
conversion of the Notes, and the exercise of the Warrants, such number of shares of Common Stock as
shall from time to time equal the Conversion Shares, and the Warrant Shares, as the Company in its
discretion shall believe reasonable with the understanding that the total number of shares of
Common Stock that may be issued upon conversion of the Notes is unknown; provided that the
provisions of this section are subject to the limitations set forth in the Company’s Certificate of
Incorporation as to the maximum number of authorized shares of Common Stock available thereunder.



 



7.2       No Conflicting Agreements. The Company will not take any action, enter
into any agreement or make any commitment that would conflict with the Company’s obligations to the
Investor under the Transaction Documents in any material respect.



 



7.3       Compliance with Laws. The Company will comply in all material respects
with all applicable laws, rules, regulations, orders and decrees of all governmental authorities.



 



7.4       Listing of Underlying Shares and Related Matters. If the Company
applies to have its Common Stock or other securities traded on any stock exchange or market, it
shall include in such application the Conversion Shares and the Warrant Shares and will take such
other action as is necessary to cause such Common Stock to be so listed. Following any such
listing, the Company will use commercially reasonable efforts to continue the listing and trading
of its Common Stock on such stock exchange or market and, in accordance, therewith, will use
commercially reasonable efforts to comply in all respects with the Company’s reporting, filing and
other obligations under the bylaws or rules of such stock exchange or market, as applicable.



 



7.5       Removal of Legends. In connection with any sale or disposition of the
Securities by an Investor pursuant to and in accordance with Rule 144 or pursuant to any other
exemption under the 1933 Act such that the purchaser acquires freely tradable shares and upon
compliance by the Investor with the requirements of this Agreement and the 1933 Act, the Company
shall or, in the case of Common Stock, shall cause the transfer agent for the Common Stock (the
“Transfer Agent”) to issue replacement certificates representing the Securities sold or
disposed of without restrictive legends. At any time when one or more of the Securities may be
freely sold, the Company shall, or shall cause the Transfer Agent to, promptly cause the Investor’s
Securities to be replaced with Securities which do not bear restrictive legends, and
Conversion Shares subsequently issued upon the due conversion of the Notes and Warrant Shares
subsequently issued upon due exercise of the Warrants shall not bear such restrictive legends
provided such Securities may be freely sold or are covered by an effective Registration Statement.



 



7.6       Use of Proceeds. The Company shall use the net proceeds of the sale of
the Notes and the Warrants as provided in Section 4.7.



 



7.7     Stockholder Approval. As soon as practicable following the execution of
this Agreement, but in any event within 10 calendar days thereof, the Company shall cause to be
prepared and filed with the Securities and Exchange Commission a preliminary proxy statement or
consent solicitation statement (the “Preliminary Proxy Statement”) to obtain approval of
the Company’s shareholders of the issuance of shares of Common Stock issuable upon conversion of
the Notes and exercise of the Warrant in accordance with Nasdaq rules (the “Stockholder
Approval”). Upon approval by the Commission of such preliminary proxy or consent solicitation
statement or, if the Commission has not reviewed such, at the expiration of 10 calendar days from
the filing of the preliminary proxy statement or consent solicitation statement, the Company shall
file a definitive proxy statement or consent solicitation statement and call and hold a shareholder
meeting, as soon as practicable, but in all events within 45 calendar days of the filing of such
definitive proxy statement to obtain the Stockholder Approval.



If the Stockholder Approval is not received on or before the later of (a) May 15, 2010 or
(b) 45 calendar days after the filing of the definitive proxy statement, if the Commission reviews
the Preliminary Proxy Statement, then the obligation of the Investor to purchase the Notes and the
Warrant shall terminate.



7.8     Registration Rights. On or prior to the First Closing Date, the Company shall
enter into a registration rights agreement (the “Registration Rights Agreement”) in form as
attached hereto as a Transaction Document pursuant to which the Company will agree to register the
resale of the Conversion Shares, the Warrants and the Warrant Shares under the 1933 Act.



7.9     Payment of Legal Fees. On or promptly after the date hereof, but in no event
later than 5 calendar days following the date hereof, the Company shall deliver to Anslow & Jaclin,
LLP legal fees in the amount of $50,000 pursuant to Section 8.5, herein.



7.10 NASDAQ Listing Compliance. The Common Stock shall remain registered pursuant to
Section 12(b) of the 1934 Act and listed on the Nasdaq.

 


	 	 	 	 	 	 	 
	 
	 	 	8.	 	 	Miscellaneous.

	 	 	 	 	 	 	 







 



	 	 	 	 	 	 	 
	 

	 	 	8.1	 	 	Transfer and Exchange of Notes; Successors and Assigns.
	
 
	 	 	 	 	 	 






 



(a)       The Notes may be assigned or transferred in whole, or in part in increments of
$25,000, as herein provided and subject to compliance with all applicable federal and state
securities laws. The Company shall maintain a register (the “Register”) for the recordation
of the names and addresses of the Investor and the principal amounts of the Notes, which shall be
numbered R-1 and upwards in order of issuance. The entries in the Register shall be conclusive and
binding for all purposes, absent manifest error. The Notes may be assigned or transferred, whether
in whole or in part, only by registration of such assignment or transfer on the Register. Upon
surrender for registration of transfer of any Note at the Company’s chief executive office, (i)
duly endorsed by, or accompanied by a written instrument or instruments of transfer in form
satisfactory to the Company and duly executed by the registered owner or his attorney duly
authorized in writing, and (ii) unless the assignee or transferee is already a party to this
Agreement, accompanied by a joinder agreement satisfactory to the Company in which the assignee or
transferee agrees to be bound by this Agreement, whereupon the Company shall execute and deliver in
the name of the transferee or transferees a new Note or Notes for the principal amount so assigned,
and in the case of partial assignments and transfers, shall issue a replacement Note to the
transferor in the principal amount not so assigned or transferred. Notes may be exchanged at said
office of the Company for a like aggregate principal amount of Notes in minimum denominations of
$25,000. The Company shall execute and deliver Notes bearing numbers not contemporaneously then
outstanding. As to any Note, the Person in whose name such Note shall be registered shall be deemed
and regarded as the absolute owner thereof for all purposes, and payment of or on account of either
principal of, or interest on, any Note shall be made only to or upon the order of the registered
owner thereof or his legal representative, but such registration may be changed as hereinabove
provided. All such payments shall be valid and effectual to satisfy and discharge the liability
upon such Note to the extent of the sum or sums so paid.



 



(b)       This Agreement may not be assigned by a party hereto without the prior written
consent of the Company or the Investor, as applicable; provided, however, that an Investor may
assign its rights and delegate its duties hereunder in whole or in part to an Affiliate or to a
third party acquiring some or all of its Securities in a transaction complying with the provisions
of the Notes and applicable securities laws without the prior written consent of the Company or the
other Investor. The provisions of this Agreement shall inure to the benefit of and be
binding upon the respective permitted successors and assigns of the parties. Nothing in this
Agreement, express or implied, is intended to confer upon any party other than the parties hereto
or their respective successors and assigns any rights, remedies, obligations, or liabilities under
or by reason of this Agreement, except as expressly provided in this Agreement.



 



8.2       Counterparts; Faxes. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which together shall constitute
one and the same instrument. This Agreement may also be executed and transmitted via facsimile, or
by portable document format via electronic mail, each of which shall be deemed an original.



 



8.3       Titles and Subtitles. The titles and subtitles used in this Agreement
are used for convenience only and are not to be considered in construing or interpreting this
Agreement.



 



8.4       Notices. Unless otherwise provided, any notice required or permitted
under this Agreement shall be given in writing and shall be deemed effectively given as hereinafter
described (i) if given by personal delivery, then such notice shall be deemed given upon such
delivery, (ii) if given by telex or telecopier, then such notice shall be deemed given upon receipt
of confirmation of complete transmittal, (iii) if given by mail, then such notice shall be deemed
given upon the earlier of (A) receipt of such notice by the recipient or (B) three days after such
notice is deposited in first class mail, postage prepaid, and (iv) if given by an internationally
recognized overnight air courier, then such notice shall be deemed given one Business Day after
delivery to such carrier. All notices shall be addressed to the party to be notified at the address
as follows, or at such other address as such party may designate by ten days’ advance written
notice to the other party:



 



	 	 	 
	 

	 	If to the Company:






 




Converted Organics, Inc.


7A Commercial Wharf West


Boston, Massachusetts 02110


Attention: Ed Gildea


Phone: (617) 624-0111


Fax: (617) 625-0333




with a copy to:




 




Cozen O’Connor


The Army and Navy Building


1627 I Street, NW


Suite 1100


Washington, DC 20006


Attn: Ralph V. De Martino, Esq.


Phone: (202) 912-4830


Fax: (202) 912-4830




 



	 	 	 
	 

	 	If to the Investor:






 




Professional Offshore Opportunity Fund, Ltd.


1400 Old Country Road, Suite 206


Westbury, New York 11590


Attention: Howard Berger


Phone: (516) 228-0070


Fax: (516) 228-8083




with a copy to (which shall not constitute notice):




 



	 	 	 
	Anslow & Jaclin, LLP
	195 Route 9 South, Suite 204
	Manalapan, New Jersey 07726
	Attention:
	 	Joseph M. Lucosky, Esq.

Eric M. Stein, Esq.








Phone: (732) 409-1212


Fax: (732) 577-1188



8.5       Expenses. The parties hereto shall pay their own costs and expenses in
connection herewith, except that the Company shall pay the Investor’s legal fees of $50,000 (which
shall be paid promptly after the date hereof). Such expenses shall be paid upon demand and receipt
by the Company of supporting documentation evidencing the expenses. The Company shall reimburse the
Investor upon demand for the reasonable attorneys’ fees for one law firm representing the Investor
as a group, in connection with any amendment, modification or waiver of this Agreement or the other
Transaction Documents. In the event that legal proceedings are commenced by any party to this
Agreement against another party to this Agreement in connection with this Agreement or the other
Transaction Documents, the party or parties which do not prevail in such proceedings shall
severally, but not jointly, pay their pro rata share of the reasonable attorneys’ fees and other
reasonable out-of-pocket costs and expenses incurred by the prevailing party in such proceedings.



 



8.6       Amendments and Waivers. Any term of this Agreement may be amended and
the observance of any term of this Agreement may be waived (either generally or in a particular
instance and either retroactively or prospectively), only with the written consent of the Company
and the Investor. Any amendment or waiver effected in accordance with this paragraph shall be
binding upon each holder of any Securities issued under this Agreement at the time outstanding,
each future holder of all such Securities, and the Company.



 



8.7       Publicity. Except as set forth below, no public release or announcement
concerning the transactions contemplated hereby shall be issued by the Company or the Investor
without the prior consent of the Company (in the case of a release or announcement by the Investor)
or the Investor (in the case of a release or announcement by the Company) (which consents shall not
be unreasonably withheld), except as such release or announcement may be required by law or the
applicable rules or regulations of any securities exchange or securities market, in which case the
Company or the Investor, as the case may be, shall allow the Investor or the Company, as
applicable, to the extent reasonably practicable in the circumstances, reasonable time to comment
on such release or announcement in advance of such issuance. As soon as practicable but no later
than four Business Days following the First Closing Date, the Company will publicly disclose the
transactions contemplated hereby in a press release and, in connection therewith, will, no later
than four Business Days following the First Closing Date, file with the Commission either on a
Current Report on Form 8-K or on the Company’s next periodic public report, to the extent
permissible, which may attach as exhibits copies of the Transaction Documents.



 



8.8       Severability. Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining provisions hereof but shall
be interpreted as if it were written so as to be enforceable to the maximum extent permitted by
applicable law, and any such prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other jurisdiction. To the extent
permitted by applicable law, the parties hereby waive any provision of law which renders any
provision hereof prohibited or unenforceable in any respect.



 



8.9       Entire Agreement. This Agreement, including the Exhibits, and the other
Transaction Documents constitute the entire agreement among the parties hereof with respect to the
subject matter hereof and thereof and supersede all prior agreements and understandings, both oral
and written, between the parties with respect to the subject matter hereof and thereof.



 



8.10     Further Assurances. The parties shall execute and deliver all such
further instruments and documents and take all such other actions as may reasonably be required to
carry out the transactions contemplated hereby and to evidence the fulfillment of the agreements
herein contained.



 



8.11     Governing Law; Consent to Jurisdiction; Waiver of Jury Trial. This
Agreement shall be governed by, and construed in accordance with, the internal laws of the State of
New York without regard to any law or principles that would make this choice of law provision
invalid. Each of the parties hereto irrevocably submits to the exclusive jurisdiction of the courts
of the State of New York located in New York County and the United States District Court for the
Southern District of New York for the purpose of any suit, action, proceeding or judgment relating
to or arising out of this Agreement and the transactions contemplated hereby. Service of process in
connection with any such suit, action or proceeding may be served on each party hereto anywhere in
the world by the same methods as are specified for the giving of notices under this Agreement. Each
of the parties hereto irrevocably consents to the jurisdiction of any such court in any such suit,
action or proceeding and to the laying of venue in such court. Each party hereto irrevocably waives
any objection to the laying of venue of any such suit, action or proceeding brought in such courts
and irrevocably waives any claim that any such suit, action or proceeding brought in any such court
has been brought in an inconvenient forum. EACH OF THE PARTIES HERETO WAIVES ANY RIGHT TO
REQUEST A TRIAL BY JURY IN ANY LITIGATION WITH RESPECT TO THIS AGREEMENT AND REPRESENTS THAT
COUNSEL HAS BEEN CONSULTED SPECIFICALLY AS TO THIS WAIVER.



 



8.12     Payment Set Aside. To the extent that the Company makes a payment or
payments to any Investor pursuant to any Transaction Document or an Investor enforces or exercises
its rights thereunder, and such payment or payments or the proceeds of such enforcement or exercise
or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set
aside, recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to
the Company, a trustee, receiver or any other person under any law (including, without limitation,
any bankruptcy law, state or federal law, common law or equitable cause of action), then to the
extent of any such restoration the obligation or part thereof originally intended to be satisfied
shall be revived and continued in full force and effect as if such payment had not been made or
such enforcement or setoff had not occurred.



 



8.13     Adjustments in Share Numbers and Prices. In the event of any stock
split, subdivision, dividend or distribution payable in shares of Common Stock (or other securities
or rights convertible into, or entitling the holder thereof to receive directly or indirectly
shares of Common Stock), combination or other similar recapitalization or event occurring
after the date hereof and prior to the First Closing, each reference in any Transaction Document to
a number of shares or a price per share shall be deemed to be amended to appropriately account for
such event.



 



8.14     Independent Nature of Investor’ Obligations and Rights. The obligations
of each Investor under any Transaction Document are several and not joint with the obligations of
any other Investor, and no Investor shall be responsible in any way for the performance of the
obligations of any other Investor under any Transaction Document. The decision of each Investor to
purchase Securities pursuant to the Transaction Documents has been made by such Investor
independently of any other Investor. Nothing contained herein or in any Transaction Document, and
no action taken by any Investor pursuant thereto, shall be deemed to constitute the Investor as a
partnership, an association, a joint venture or any other kind of entity, or create a presumption
that the Investor are in any way acting in concert or as a group with respect to such obligations
or the transactions contemplated by the Transaction Documents. Each Investor acknowledges that no
other Investor has acted as agent for such Investor in connection with making its investment
hereunder and that no Investor will be acting as agent of such Investor in connection with
monitoring its investment in the Securities or enforcing its rights under the Transaction
Documents. Each Investor shall be entitled to independently protect and enforce its rights,
including, without limitation, the rights arising out of this Agreement or out of the other
Transaction Documents, and it shall not be necessary for any other Investor to be joined as an
additional party in any proceeding for such purpose. The Company acknowledges that each of the
Investor has been provided with the same Transaction Documents for the purpose of closing a
transaction with multiple Investor and not because it was required or requested to do so by any
Investor.



8.15     Tax Matters. For United States Federal income tax purposes, the Company and
the Investor agree (i) to treat the Notes as indebtedness and (ii) to treat the Notes as having
been issued for an aggregate purchase price of $1,500,000 and with an original issue discount which
shall be amortized pursuant to the terms of the Note. If the Company shall be required to withhold
or deduct any tax or other governmental charge from any payment made hereunder or under any Note to
the Investor, then, subject to the last sentence of this Section, the Company shall pay to the
Investor such additional amounts as are necessary such that the Investor actually receives the
amount the Investor would have received if no such withholding or deduction had been required. If
the Investor is organized under the laws of a jurisdiction other than the United States, any State
thereof or the District of Columbia (a “Non-United States Buyer”), the Investor shall deliver to
the Company either (a) two (2) copies of either United States Internal Revenue Service Form W-8BEN
or Form W-8ECI, or (b) if the Investor claims exemption from United States Federal withholding tax
under Section 871(h) or 881(c) of the Internal Revenue Code of 1986, as amended, and the rules and
regulations promulgated thereunder (the “Code”) with respect to payments of “portfolio interest”, a
certificate in form and substance reasonably acceptable to the Company representing that such
Non-United States Buyer is not a bank for purposes of Section 881(c) of the Code, is not a ten
percent (10%) shareholder (within the meaning of Section 871(h)(3)(B) of the Code) of the Company
and is not a controlled foreign corporation related to the Company (within the meaning of
Section 864(d)(4) of the Code), together with Internal Revenue Service Form W-8, in all cases, such
forms and other documents being properly completed and duly executed by the Investor. If the
Investor is not otherwise exempt from “back-up withholding” it shall deliver to the Company
properly completed and duly executed Internal Revenue Service Form W-8 or W-9 indicating that the
Investor is subject to “back-up withholding” for United States Federal income tax purposes. The
forms and other documents required to be delivered pursuant to the two preceding sentences shall be
delivered within ten (10) days after the Closing Date. The Company shall not be required to pay any
additional amounts (x) to the Investor, in respect of United States Federal withholding tax or
(y) to the Investor, if a United States entity, in respect of United States Federal “back-up
withholding” tax.



 



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1



[SIGNATURE PAGE TO PURCHASE AGREEMENT]




IN WITNESS WHEREOF, the parties have executed this Agreement or caused their duly authorized
officers to execute this Agreement as of the date first above written.



 



	 	 	 	 	 
	The Company:	 	Converted Organics, Inc.

	 
	 	By:

	 	 
	 	 	
 
	 	 
	 	 	Name: Ed Gildea

	 	 	Title: President and Chief Executive Officer







 



 




	 	 	 	 	 
	The Investor:	 	Professional Offshore Opportunity Fund, Ltd.

	 	 	 

	 
	 	By:

	 	 
	 	 	
 
	 	 
	 	 	Name: Howard Berger

	 	 	Title: Manager







 



2



SCHEDULE I




 

 


	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	Purchase Price	 	Principal Amount of	 	 	 	 
	 
	 	 	 	 	 	After Original	 	Notes (includes	 	Number of Warrant
	Investor
	 	Purchase Price
	 	Issue Discount
	 	pre-paid interest)
	 	Shares

	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Professional
	 	$	500,000		 	$	500,000		 	$	550,000		 		571,102	
	Offshore
Opportunity Fund,
Ltd.
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Total
	 	$	500,000		 	$	500,000		 	$	550,000		 		571,102	
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 






 



SCHEDULE II




 


 


	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	Purchase Price	 	Principal Amount of	 	 	 	 
	 
	 	Original Purchase	 	After Original	 	Notes (includes	 	Number of Warrant
	Investor
	 	Price
	 	Issue Discount
	 	pre-paid interest)
	 	Shares

	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Professional
	 	$	250,000		 	$	250,000		 	$	275,000		 		285,551	
	Offshore
Opportunity Fund,
Ltd.
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Total
	 	$	250,000		 	$	250,000		 	$	275,000		 		285,551	
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 






 



SCHEDULE III




 


 


	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	Purchase Price	 	Principal Amount of	 	 	 	 
	 
	 	Original Purchase	 	After Original	 	Notes (includes	 	Number of Warrant
	Investor
	 	Price
	 	Issue Discount
	 	pre-paid interest)
	 	Shares

	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Professional
	 	$	250,000		 	$	250,000		 	$	275,000		 		285,551	
	Offshore
Opportunity Fund,
Ltd.
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Total
	 	$	250,000		 	$	250,000		 	$	275,000		 		285,551	
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 






 

 


SCHEDULE IV




 


 


	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	Purchase Price	 	Principal Amount of	 	 	 	 
	 
	 	Original Purchase	 	After Original	 	Notes (includes	 	Number of Warrant
	Investor
	 	Price
	 	Issue Discount
	 	pre-paid interest)
	 	Shares

	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Professional
	 	$	250,000		 	$	250,000		 	$	275,000		 		285,551	
	Offshore
Opportunity Fund,
Ltd.
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Total
	 	$	250,000		 	$	250,000		 	$	275,000		 		285,551	
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 






 



 .



3



SCHEDULE V




 


 


	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	Purchase Price	 	Principal Amount of	 	 	 	 
	 
	 	Original Purchase	 	After Original	 	Notes (includes	 	Number of Warrant
	Investor
	 	Price
	 	Issue Discount (1)
	 	pre-paid interest)
	 	Shares

	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Professional
	 	$	250,000		 	$	100,000		 	$	275,000		 		285,551	
	Offshore
Opportunity Fund,
Ltd.
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Total
	 	$	250,000		 	$	100,000		 	$	275,000		 		285,551	
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 






(1) Includes Original Issue Discount for all prior Closings.



 




4