Document:

exv10w1

Exhibit 10.1

SECURITIES PURCHASE AGREEMENT

     This SECURITIES PURCHASE AGREEMENT (the “Agreement”), dated as of April 1, 2011, is by and
among Converted Organics Inc., a Delaware corporation with headquarters located at 137A Lewis
Wharf, Boston, Massachusetts 02110 (the “Company”), each of the investors listed on the Schedule of
Buyers attached hereto (individually, a “Buyer” and collectively, the “Buyers”), and, solely for
purposes of the last two sentences of Section 4(t) and the third sentence of Section 4(o), Iroquois
Capital Opportunity Fund LP (“ICOP”).

RECITALS

     A. The Company and each Buyer is executing and delivering this Agreement in reliance upon the
exemption from securities registration afforded by Section 4(2) of the Securities Act of 1933, as
amended (the “1933 Act”), and Rule 506 of Regulation D (“Regulation D”) as promulgated by the
United States Securities and Exchange Commission (the “SEC”) under the 1933 Act.

     B. The Company has authorized the issuance of senior secured convertible notes in the
aggregate amount of $3,850,000, in the form attached hereto as Exhibit A (the “Notes”),
which Notes shall be convertible into shares of the Company’s common stock, $0.0001 par value per
share (the “Common Stock”) (as converted, collectively, the “Conversion Shares,” for purposes of
clarification, such term includes, without limitation, all shares of Common Stock issued pursuant
to Section 8 of the Notes), in accordance with the terms of the Notes.

     C. Upon the terms and conditions stated in this Agreement, each Buyer wishes to purchase, and
the Company wishes to sell, (i) the aggregate original principal amount of the Notes set forth
opposite such Buyer’s name in column (3) on the Schedule of Buyers, (ii) a warrant to initially
acquire up to the aggregate number of shares of Common Stock set forth opposite such Buyer’s name
in column (4) on the Schedule of Buyers, in the form attached hereto as Exhibit B (the
“Series A Warrants”) (as exercised, collectively, the “Series A Warrant Shares”), (iii) a warrant
to initially acquire up to the aggregate number of shares of Common Stock set forth opposite such
Buyer’s name in column (5) on the Schedule of Buyers, in the form attached hereto as Exhibit
C (the “Series B Warrants”) (as exercised, collectively, the “Series B Warrant Shares”) and
(iv) a warrant to initially acquire up to the aggregate number of shares of Common Stock set forth
opposite such Buyer’s name in column (6) on the Schedule of Buyers, in the form attached hereto as
Exhibit D (the “Series C Warrants”) (as exercised, collectively, the “Series C Warrant
Shares”). The Series A Warrants, Series B Warrants and the Series C Warrants are collectively
referred to herein as the “Warrants.” The Series A Warrant Shares, the Series B Warrant Shares and
the Series C Warrant Shares are collectively referred to herein as the “Warrant Shares.”

     D. At the Closing, the parties hereto shall execute and deliver a Registration Rights
Agreement, in the form attached hereto as Exhibit E (the “Registration Rights Agreement”),
pursuant to which the Company has agreed to provide certain registration rights with respect to the
Registrable Securities (as defined in the Registration Rights Agreement), under the 1933 Act and
the rules and regulations promulgated thereunder, and applicable state securities laws.

 

 

     E. The Notes, the Conversion Shares, the Warrants and the Warrant Shares are collectively
referred to herein as the “Securities.”

     F. The Notes will be secured by a first priority perfected security interest in all of the
assets of the Company and its Subsidiaries (as defined below) as evidenced by a security agreement
as the Buyers shall require in form and substance acceptable to each Buyer (the “Security
Agreement” and together with the other security documents and agreements entered into in connection
with this Agreement and each of such other documents and agreements, as each may be amended or
modified from time to time, collectively, the “Security Documents”), and each of its Subsidiaries
(as defined below) will execute a guaranty in favor of each Buyer (collectively, the “Guaranties”)
pursuant to which each of them guarantees the obligations of the Company under the Transaction
Documents (as defined below).

AGREEMENT

     NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein and
for other good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Company and each Buyer hereby agree as follows:

1. PURCHASE AND SALE OF NOTES AND WARRANTS.

     (a) Purchase of Notes and Warrants. Subject to the satisfaction (or waiver) of the
conditions set forth in Sections 6 and 7 below, the Company shall issue and sell to each Buyer, and
each Buyer severally, but not jointly, shall purchase from the Company on the Closing Date (as
defined below), a Note in the original principal amount as is set forth opposite such Buyer’s name
in column (3) on the Schedule of Buyers, along with (i) Series A Warrants to initially acquire up
to the aggregate number of Series A Warrant Shares as is set forth opposite such Buyer’s name in
column (4) on the Schedule of Buyers, (ii) Series B Warrants to initially acquire up to the
aggregate number of Series B Warrant Shares as is set forth opposite such Buyer’s name in column
(5) on the Schedule of Buyers and (iii) Series C Warrants to initially acquire up to the aggregate
number of Series C Warrant Shares as is set forth opposite such Buyer’s name in column (6) on the
Schedule of Buyers.

     (b) Closing. The closing (the “Closing”) of the purchase of the Notes and the Warrants
by the Buyers shall occur at the offices of Greenberg Traurig, LLP, 77 W. Wacker Drive, Suite 3100,
Chicago, Illinois 60601. The date and time of the Closing (the “Closing Date”) shall be 10:00 a.m.,
New York time, on the first (1st) Business Day on which the conditions to the Closing
set forth in Sections 6 and 7 below are satisfied or waived (or such later date as is mutually
agreed to by the Company and each Buyer). As used herein “Business Day” means any day other than a
Saturday, Sunday or other day on which commercial banks in New York, New York are authorized or
required by law to remain closed.

     (c) Purchase Price. The aggregate purchase price for the Notes and the Warrants to be
purchased by each Buyer (the “Purchase Price”) shall be the amount set forth opposite such Buyer’s
name in column (7) on the Schedule of Buyers.

     (d) Payment of Purchase Price; Delivery of Notes and Warrants. On the Closing Date,
(i) each Buyer shall pay its respective Purchase Price to the Company for its respective Note and
Warrants to be issued and sold to such Buyer at the Closing, by wire transfer of immediately

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available funds in accordance with the Company’s written wire instructions (less, in the case
of Iroquois (as defined below), the amounts withheld pursuant to Section 4(g)) and (ii) the Company
shall deliver to each Buyer (A) a Note (in such amount as is set forth opposite such Buyer’s name
in column (3) on the Schedule of Buyers), (B) Series A Warrants pursuant to which such Buyer shall
have the right to initially acquire up to the aggregate number of Series A Warrant Shares as is set
forth opposite such Buyer’s name in column (4) on the Schedule of Buyers, (C) Series B Warrants
pursuant to which such Buyer shall have the right to initially acquire up to the aggregate number
of Series B Warrant Shares as is set forth opposite such Buyer’s name in column (5) on the Schedule
of Buyers and (D) Series C Warrants pursuant to which such Buyer shall have the right to initially
acquire up to the aggregate number of Series C Warrant Shares as is set forth opposite such Buyer’s
name in column (6) on the Schedule of Buyers, in all cases, duly executed on behalf of the Company
and registered in the name of such Buyer or its designee.

2. BUYER’S REPRESENTATIONS AND WARRANTIES.

     Each Buyer, severally and not jointly, represents and warrants to the Company with respect to
only itself that:

     (a) Organization; Authority. Such Buyer is an entity duly organized, validly existing
and in good standing under the laws of the jurisdiction of its organization with the requisite
power and authority to enter into and to consummate the transactions contemplated by the
Transaction Documents to which it is a party and otherwise to carry out its obligations hereunder
and thereunder.

     (b) No Public Sale or Distribution. Such Buyer (i) is acquiring its Note and Warrants,
(ii) upon conversion of its Note will acquire the Conversion Shares issuable upon conversion
thereof, and (iii) upon exercise of its Warrants will acquire the Warrant Shares issuable upon
exercise thereof, in each case, for its own account and not with a view towards, or for resale in
connection with, the public sale or distribution thereof in violation of applicable securities
laws, except pursuant to sales registered or exempted under the 1933 Act; provided, however, by
making the representations herein, such Buyer does not agree, or make any representation or
warranty, to hold any of the Securities for any minimum or other specific term and reserves the
right to dispose of the Securities at any time in accordance with or pursuant to a registration
statement or an exemption under the 1933 Act. Such Buyer does not presently have any agreement or
understanding, directly or indirectly, with any Person to distribute any of the Securities in
violation of applicable securities laws.

     (c) Accredited Investor Status. Such Buyer is an “accredited investor” as that term
is defined in Rule 501(a) of Regulation D.

     (d) Reliance on Exemptions. Such Buyer understands that the Securities are being
offered and sold to it in reliance on specific exemptions from the registration requirements of
United States federal and state securities laws and that the Company is relying in part upon the
truth and accuracy of, and such Buyer’s compliance with, the representations, warranties,
agreements, acknowledgments and understandings of such Buyer set forth herein in order to determine
the availability of such exemptions and the eligibility of such Buyer to acquire the Securities.

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     (e) Information. Such Buyer and its advisors, if any, have been furnished with all
materials relating to the business, finances and operations of the Company and materials relating
to the offer and sale of the Securities which have been requested by such Buyer. Such Buyer and its
advisors, if any, have been afforded the opportunity to ask questions of the Company. Such Buyer
understands that its investment in the Securities involves a high degree of risk. Such Buyer has
sought such accounting, legal and tax advice as it has considered necessary to make an informed
investment decision with respect to its acquisition of the Securities.

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

     (g) Transfer or Resale. Such Buyer understands that except as provided in the
Registration Rights Agreement and Section 4(h) hereof: (i) the Securities have not been and are not
being registered under the 1933 Act or any state securities laws, and may not be offered for sale,
sold, assigned or transferred unless (A) subsequently registered thereunder, (B) such Buyer shall
have delivered to the Company (if requested by the Company) an opinion of counsel to such Buyer, in
a form reasonably acceptable to the Company, to the effect that such Securities to be sold,
assigned or transferred may be sold, assigned or transferred pursuant to an exemption from such
registration, or (C) such Buyer provides the Company with reasonable assurance that such Securities
can be sold, assigned or transferred pursuant to Rule 144 or Rule 144A promulgated under the 1933
Act (or a successor rule thereto) (collectively, “Rule 144”); (ii) any sale of the Securities made
in reliance on Rule 144 may be made only in accordance with the terms of Rule 144, and further, if
Rule 144 is not applicable, any resale of the Securities under circumstances in which the seller
(or the Person (as defined below) through whom the sale is made) may be deemed to be an underwriter
(as that term is defined in the 1933 Act) may require compliance with some other exemption under
the 1933 Act or the rules and regulations of the SEC promulgated thereunder; and (iii) neither the
Company nor any other Person is under any obligation to register the Securities under the 1933 Act
or any state securities laws or to comply with the terms and conditions of any exemption
thereunder.

     (h) Validity; Enforcement. This Agreement has been duly and validly authorized,
executed and delivered on behalf of such Buyer and constitutes the legal, valid and binding
obligations of such Buyer enforceable against such Buyer in accordance with its terms, except as
such enforceability may be limited by general principles of equity or applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation and other similar laws relating to, or
affecting generally, the enforcement of applicable creditors’ rights and remedies.

     (i) No Conflicts. The execution, delivery and performance by such Buyer of this
Agreement and the consummation by such Buyer of the transactions contemplated hereby will not (i)
result in a violation of the organizational documents of such Buyer, (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which such Buyer is a party or (iii)
result in a violation of any law, rule, regulation, order, judgment or decree (including federal
and state securities laws) applicable to such Buyer, except in the case of clauses (ii) and (iii)
above,

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for such conflicts, defaults, rights or violations which would not, individually or in the
aggregate, reasonably be expected to have a material adverse effect on the ability of such Buyer to
perform its obligations hereunder.

     (j) Certain Trading Activities. Such Buyer has not directly or indirectly, nor has any
Person acting on behalf of or pursuant to any understanding with such Buyer, engaged in any
transactions in the securities of the Company (including, without limitation, any Short Sales (as
defined below) involving the Company’s securities) during the period commencing as of the time that
such Buyer executed a Term Sheet regarding the specific investment in the Company contemplated by
this Agreement and ending immediately prior to the execution of this Agreement by such Buyer (it
being understood and agreed that for all purposes of this Agreement, and without implication that
the contrary would otherwise be true, transactions shall not include the location and/or
reservation of borrowable shares of Common Stock). “Short Sales” means all “short sales” as defined
in Rule 200 promulgated under Regulation SHO under the Securities Exchange Act of 1934, as amended
(the “1934 Act”).

3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

     The Company represents and warrants to each of the Buyers that:

     (a) Organization and Qualification. Each of the Company and each of its Subsidiaries
are entities duly organized and validly existing and in good standing under the laws of the
jurisdiction in which they are formed, and have the requisite power and authorization to own their
properties and to carry on their business as now being conducted and as presently proposed to be
conducted. Each of the Company and each of its Subsidiaries is duly qualified as a foreign entity
to do business and is in good standing in every jurisdiction in which its ownership of property or
the nature of the business conducted by it makes such qualification necessary, except to the extent
that the failure to be so qualified or be in good standing would not have a Material Adverse
Effect. “Material Adverse Effect” means any material adverse effect on (i) the business,
properties, assets, liabilities, operations (including results thereof), condition (financial or
otherwise) or prospects of the Company and its Subsidiaries, taken as a whole, (ii) the
transactions contemplated hereby or in any of the other Transaction Documents or (iii) the
authority or ability of the Company or any of its Subsidiaries to perform any of their respective
obligations under any of the Transaction Documents (as defined below). Other than the Persons (as
defined below) set forth on Schedule 3(a), the Company has no Subsidiaries. “Subsidiaries” means
any Person in which the Company, directly or indirectly, (I) owns any of the outstanding capital
stock or holds any equity or similar interest of such Person or (II) controls or operates any part
of the business, operations or administration of such Person, and each of the foregoing, is
individually referred to herein as a “Subsidiary”; provided that, except with respect to Section
3(m), Converted Organics of Woodbridge, LLC shall not be considered to be a Subsidiary.

     (b) Authorization; Enforcement; Validity. The Company has the requisite power and
authority to enter into and perform its obligations under this Agreement and the other Transaction
Documents and to issue the Securities in accordance with the terms hereof and thereof. Each
Subsidiary has the requisite power and authority to enter into and perform its obligations under
the Transaction Documents to which it is a party. The execution and delivery of this Agreement and
the other Transaction Documents by the Company and its Subsidiaries, and the consummation by the
Company and its Subsidiaries of the transactions contemplated

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hereby and thereby (including, without limitation, the issuance of the Notes and the
reservation for issuance and issuance of the Conversion Shares issuable upon conversion of the
Notes, the issuance of the Warrants and the reservation for issuance and issuance of the Warrant
Shares issuable upon exercise of the Warrants) have been duly authorized by the Company’s board of
directors and each of its Subsidiaries’ board of directors or other governing body, as applicable,
and (other than the filing with the SEC of one or more Registration Statements in accordance with
the requirements of the Registration Rights Agreement, a Form D with the SEC and any other filings
as may be required by any state securities agencies) no further filing, consent or authorization is
required by the Company, its Subsidiaries, their respective boards of directors or their
stockholders or other governing body (other than Shareholder Approval (as defined below)). This
Agreement has been, and the other Transaction Documents will be prior to the Closing, duly executed
and delivered by the Company, and each constitutes the legal, valid and binding obligations of the
Company, enforceable against the Company in accordance with its respective terms, except as such
enforceability may be limited by general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or affecting generally, the
enforcement of applicable creditors’ rights and remedies and except as rights to indemnification
and to contribution may be limited by federal or state securities law. Prior to the Closing, the
Transaction Documents to which each Subsidiary is a party will be duly executed and delivered by
each such Subsidiary, and shall constitute the legal, valid and binding obligations of each such
Subsidiary, enforceable against each such Subsidiary in accordance with their respective terms,
except as such enforceability may be limited by general principles of equity or applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally, the enforcement of applicable creditors’ rights and remedies and except as
rights to indemnification and to contribution may be limited by federal or state securities law.
“Transaction Documents” means, collectively, this Agreement, the Notes, the Warrants, the Security
Documents, the Guaranties, the Registration Rights Agreement, the Irrevocable Transfer Agent
Instructions (as defined below) and each of the other agreements and instruments entered into or
delivered by any of the parties hereto in connection with the transactions contemplated hereby and
thereby, as may be amended from time to time.

     (c) Issuance of Securities. The issuance of the Notes and the Warrants is duly
authorized, and after receipt of Shareholder Approval and upon issuance in accordance with the
terms of the Transaction Documents, will be validly issued, fully paid and non-assessable and free
from all preemptive or similar rights, taxes, liens, charges and other encumbrances with respect to
the issue thereof. As of the date of Shareholder Approval, the Company shall have reserved from its
duly authorized capital stock not less than 100% of the sum of (i) the maximum number of Conversion
Shares issuable upon conversion of the Notes (assuming for purposes hereof that the Notes are
convertible at the initial Conversion Price (as defined in the Notes) and without taking into
account any limitations on the conversion of the Notes set forth therein) and (ii) the maximum
number of Warrant Shares issuable upon exercise of the Warrants (without taking into account any
limitations on the exercise of the Warrants set forth therein). Upon conversion in accordance with
the Notes or exercise in accordance with the Warrants (as the case may be), the Conversion Shares
and the Warrant Shares, respectively, when issued, will be validly issued, fully paid and
non-assessable and free from all preemptive or similar rights, taxes, liens, charges and other
encumbrances with respect to the issue thereof, with the holders being entitled to all rights
accorded to a holder of Common Stock. Subject to the accuracy of the

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representations and warranties of the Buyers in this Agreement, the offer and issuance by the
Company of the Securities is exempt from registration under the 1933 Act.

     (d) No Conflicts. The execution, delivery and performance of the Transaction Documents
by the Company and its Subsidiaries and the consummation by the Company and its Subsidiaries of the
transactions contemplated hereby and thereby (including, without limitation, the issuance of the
Notes, the Warrants, the Conversion Shares and the Warrant Shares and the reservation for issuance
of the Conversion Shares and Warrant Shares) will not (i) result in a violation of the Articles of
Incorporation (as defined below) (including, without limitation, any certificate of designation
contained therein) or other organizational documents of the Company or any of its Subsidiaries, any
capital stock of the Company or any of its Subsidiaries or Bylaws (as defined below) of the Company
or any of its Subsidiaries, (ii) conflict with, or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to
which the Company or any of its Subsidiaries is a party or (iii) result in a violation of any law,
rule, regulation, order, judgment or decree (including, without limitation, foreign, federal and
state securities laws and regulations and the rules and regulations of the Nasdaq Capital Market
(the “Principal Market”)) applicable to the Company or any of its Subsidiaries or by which any
property or asset of the Company or any of its Subsidiaries is bound or affected except, in the
case of clause (ii) or (iii) above, to the extent such violations that could not reasonably be
expected to have a Material Adverse Effect.

     (e) Consents. Neither the Company nor any Subsidiary is required to obtain any
consent from, authorization or order of, or make any filing or registration with (other than the
filing with the SEC of one or more Registration Statements in accordance with the requirements of
the Registration Rights Agreement, a Form D with the SEC and any other filings as may be required
by any state securities agencies), any court, governmental agency or any regulatory or
self-regulatory agency or any other Person in order for it to execute, deliver or perform any of
its respective obligations under, or contemplated by, the Transaction Documents, in each case, in
accordance with the terms hereof or thereof. All consents, authorizations, orders, filings and
registrations which the Company or any Subsidiary is required to obtain at or prior to the Closing
have been obtained or effected on or prior to the Closing Date, and neither the Company nor any of
its Subsidiaries are aware of any facts or circumstances which might prevent the Company or any
Subsidiary from obtaining or effecting any of the registration, application or filings contemplated
by the Transaction Documents. Except as disclosed in the SEC Documents, the Company is not in
violation of the requirements of the Principal Market and has no knowledge of any facts or
circumstances which could reasonably lead to delisting or suspension of the Common Stock in the
foreseeable future.

     (f) Acknowledgment Regarding Buyer’s Purchase of Securities. The Company acknowledges
and agrees that each Buyer is acting solely in the capacity of an arm’s length purchaser with
respect to the Transaction Documents and the transactions contemplated hereby and thereby and that
no Buyer is (i) an officer or director of the Company or any of its Subsidiaries, (ii) to its
knowledge, an “affiliate” (as defined in Rule 144) of the Company or any of its Subsidiaries or
(iii) to its knowledge, a “beneficial owner” of more than 10% of the shares of Common Stock (as
defined for purposes of Rule 13d-3 of the 1934 Act). The Company further acknowledges that no Buyer
is acting as a financial advisor or fiduciary of the Company or any of its Subsidiaries (or in any
similar capacity) with respect to the Transaction Documents

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and the transactions contemplated hereby and thereby, and any advice given by a Buyer or any
of its representatives or agents in connection with the Transaction Documents and the transactions
contemplated hereby and thereby is merely incidental to such Buyer’s purchase of the Securities.
The Company further represents to each Buyer that the Company’s and each Subsidiary’s decision to
enter into the Transaction Documents to which it is a party has been based solely on the
independent evaluation by the Company, each Subsidiary and their respective representatives.

     (g) No General Solicitation; Placement Agent’s Fees. Neither the Company, nor any of
its Subsidiaries or affiliates, nor 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) in
connection with the offer or sale of the Securities. The Company shall be responsible for the
payment of any placement agent’s fees, financial advisory fees, or brokers’ commissions (other than
for Persons engaged by any Buyer or its investment advisor) relating to or arising out of the
transactions contemplated hereby. Other than Chardan Capital Markets, LLC (the “Placement Agent”),
neither the Company nor any of its Subsidiaries has engaged any placement agent or other agent in
connection with the offer or sale of the Securities.

     (h) No Integrated Offering. None of the Company, its Subsidiaries or any of their
affiliates, nor any Person acting on their behalf has, directly or indirectly, made any offers or
sales of any security or solicited any offers to buy any security, under circumstances that would
require registration of the issuance of any of the Securities under the 1933 Act, whether through
integration with prior offerings or otherwise, or cause this offering of the Securities to require
approval of stockholders of the Company (other than the Shareholder Approval) under any applicable
stockholder approval provisions, including, without limitation, under the rules and regulations of
any exchange or automated quotation system on which any of the securities of the Company are listed
or designated for quotation. None of the Company, its Subsidiaries, their affiliates nor any Person
acting on their behalf will take any action or steps that would require registration of the
issuance of any of the Securities under the 1933 Act or cause the offering of any of the Securities
to be integrated with other offerings of securities of the Company.

     (i) Dilutive Effect. The Company understands and acknowledges that the number of
Conversion Shares and Warrant Shares will increase in certain circumstances. The Company further
acknowledges that its obligation to issue the Conversion Shares upon conversion of the Notes and
the Warrant Shares upon exercise of the Warrants in accordance with this Agreement, the Notes and
the Warrants is absolute and unconditional, regardless of the dilutive effect that such issuance
may have on the ownership interests of other stockholders of the Company.

     (j) Application of Takeover Protections; Rights Agreement. The Company and its board
of directors have taken all necessary action, if any, in order to render inapplicable any control
share acquisition, interested stockholder, business combination, poison pill (including, without
limitation, any distribution under a rights agreement) or other similar anti-takeover provision
under the Articles of Incorporation, Bylaws or other organizational documents or the laws of the
jurisdiction of its incorporation or otherwise which is or could become applicable to any Buyer as
a result of the transactions contemplated by this Agreement, including, without limitation, the
Company’s issuance of the Securities and any Buyer’s ownership of the Securities. The Company and
its board of directors have taken all necessary action, if any, in order to render inapplicable any
stockholder rights plan or similar arrangement relating to

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accumulations of beneficial ownership of shares of Common Stock or a change in control of the
Company or any of its Subsidiaries.

     (k) SEC Documents; Financial Statements. During the two (2) years prior to the date
hereof, the Company has timely filed all reports, schedules, forms, proxy statements, statements
and other documents required to be filed by it with the SEC pursuant to the reporting requirements
of the 1934 Act (all of the foregoing filed prior to the date hereof and all exhibits and
appendices included therein and financial statements, notes and schedules thereto and documents
incorporated by reference therein being hereinafter referred to as the “SEC Documents”). The
Company has delivered to the Buyers or their respective representatives true, correct and complete
copies of each of the SEC Documents not available on the EDGAR system. As of their respective
dates, the SEC Documents complied in all material respects with the requirements of the 1934 Act
and the rules and regulations of the SEC promulgated thereunder applicable to the SEC Documents,
and none of the SEC Documents, at the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the circumstances under which
they were made, not misleading. As of their respective dates, the financial statements of the
Company included in the SEC Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with respect thereto as
in effect as of the time of filing. Such financial statements have been prepared in accordance with
generally accepted accounting principles, consistently applied, during the periods involved (except
(i) as may be otherwise indicated in such financial statements or the notes thereto, or (ii) in the
case of unaudited interim statements, to the extent they may exclude footnotes or may be condensed
or summary statements) and fairly present in all material respects the financial position of the
Company as of the dates thereof and the results of its operations and cash flows for the periods
then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments
which will not be material, either individually or in the aggregate). No other information provided
by or on behalf of the Company to any of the Buyers which is not included in the SEC Documents
(including, without limitation, information referred to in Section 2(e) of this Agreement) contains
any untrue statement of a material fact or omits to state any material fact necessary in order to
make the statements therein not misleading, in the light of the circumstance under which they are
or were made.

     (l) Absence of Certain Changes. Since the date of the Company’s most recent audited
financial statements contained in a Form 10-K, except as disclosed in the SEC Documents filed
subsequent to such Form 10-K, there has been no material adverse change and no material adverse
development in the business, assets, liabilities, properties, operations (including results
thereof), condition (financial or otherwise) or prospects of the Company or any of its
Subsidiaries. Since the date of the Company’s most recent audited financial statements contained in
a Form 10-K, except as disclosed in the SEC Documents filed subsequent to such Form 10-K, neither
the Company nor any of its Subsidiaries has (i) declared or paid any dividends, (ii) sold any
assets outside of the ordinary course of business or (iii) made any material capital expenditures,
individually or in the aggregate. Neither the Company nor any of its Subsidiaries has taken any
steps to seek protection pursuant to any law or statute relating to bankruptcy, insolvency,
reorganization, receivership, liquidation or winding up, nor does the Company or any Subsidiary
have any knowledge or reason to believe that any of their respective creditors intend to initiate
involuntary bankruptcy proceedings or any actual knowledge of any fact which would reasonably lead
a creditor to do so. The Company and its Subsidiaries, on a

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consolidated basis, are not, and after giving effect to the transactions contemplated hereby
to occur at the Closing will not be, Insolvent (as defined below). “Insolvent” means, (I) with
respect to the Company and its Subsidiaries, on a consolidated basis, (i) the present fair saleable
value of the Company’s and its Subsidiaries’ assets is less than the amount required to pay the
Company’s and its Subsidiaries’ total Indebtedness (as defined below), (ii) the Company and its
Subsidiaries are unable to pay their debts and liabilities, subordinated, contingent or otherwise,
as such debts and liabilities become absolute and matured or (iii) the Company and its Subsidiaries
intend to incur or believe that they will incur debts that would be beyond their ability to pay as
such debts mature; and (II) with respect to the Company and each Subsidiary, individually, (i) the
present fair saleable value of the Company’s or such Subsidiary’s (as the case may be) assets is
less than the amount required to pay its respective total Indebtedness, (ii) the Company or such
Subsidiary (as the case may be) is unable to pay its respective debts and liabilities,
subordinated, contingent or otherwise, as such debts and liabilities become absolute and matured or
(iii) the Company or such Subsidiary (as the case may be) intends to incur or believes that it will
incur debts that would be beyond its respective ability to pay as such debts mature. Neither the
Company nor any of its Subsidiaries has engaged in any business or in any transaction, and is not
about to engage in any business or in any transaction, for which the Company’s or such Subsidiary’s
remaining assets constitute unreasonably small capital.

     (m) No Undisclosed Events, Liabilities, Developments or Circumstances. No event,
liability, development or circumstance has occurred or exists, or is reasonably expected to occur
or exist with respect to the Company, any of its Subsidiaries or any of their respective
businesses, properties, liabilities, prospects, operations (including results thereof) or condition
(financial or otherwise) that (i) would be required to be disclosed by the Company under applicable
securities laws on a registration statement on Form S-1 filed with the SEC relating to an issuance
and sale by the Company of its Common Stock and which has not been publicly announced, (ii) could
have a material adverse effect on any Buyer’s investment hereunder (other than the Reverse Stock
Split (as defined below)) or (iii) could have a Material Adverse Effect.

     (n) Conduct of Business; Regulatory Permits. Neither the Company nor any of its
Subsidiaries is in violation of any term of or in default under its Articles of Incorporation, any
certificate of designation, preferences or rights of any other outstanding series of preferred
stock of the Company or any of its Subsidiaries or Bylaws or their organizational charter,
certificate of formation or certificate of incorporation or bylaws, respectively. Neither the
Company nor any of its Subsidiaries is in violation of any judgment, decree or order or any
statute, ordinance, rule or regulation applicable to the Company or any of its Subsidiaries, and
neither the Company nor any of its Subsidiaries will conduct its business in violation of any of
the foregoing, except in all cases for possible violations which could not, individually or in the
aggregate, have a Material Adverse Effect. Without limiting the generality of the foregoing, except
as disclosed in the SEC Documents, the Company is not in violation of any of the rules, regulations
or requirements of the Principal Market and has no knowledge of any facts or circumstances that
could reasonably lead to delisting or suspension of the Common Stock by the Principal Market in the
foreseeable future. Since January 1, 2008, (i) the Common Stock has been listed or designated for
quotation on the Principal Market, (ii) trading in the Common Stock has not been suspended by the
SEC or the Principal Market and (iii) except as disclosed in the SEC Documents, the Company has
received no communication, written or oral, from the SEC or the Principal Market regarding the
suspension or delisting of the Common Stock from the Principal Market. The Company and each of its
Subsidiaries possess all certificates, authorizations and permits issued by the appropriate

10

 

regulatory authorities necessary to conduct their respective businesses, except where the
failure to possess such certificates, authorizations or permits would not have, individually or in
the aggregate, a Material Adverse Effect, and neither the Company nor any such Subsidiary has
received any notice of proceedings relating to the revocation or modification of any such
certificate, authorization or permit.

     (o) Foreign Corrupt Practices. Neither the Company nor any of its Subsidiaries nor
any director, officer, agent, employee or other Person acting on behalf of the Company or any of
its Subsidiaries has, in the course of its actions for, or on behalf of, the Company or any of its
Subsidiaries (i) used any corporate funds for any unlawful contribution, gift, entertainment or
other unlawful expenses relating to political activity; (ii) made any direct or indirect unlawful
payment to any foreign or domestic government official or employee from corporate funds; (iii)
violated or is in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as
amended; or (iv) made any unlawful bribe, rebate, payoff, influence payment, kickback or other
unlawful payment to any foreign or domestic government official or employee.

     (p) Sarbanes-Oxley Act. The Company and each Subsidiary is in compliance with all
applicable requirements of the Sarbanes-Oxley Act of 2002 that are effective as of the date hereof,
and all applicable rules and regulations promulgated by the SEC thereunder that are effective as of
the date hereof.

     (q) Transactions With Affiliates. Except as disclosed in the SEC Documents, none of
the officers, directors, employees or affiliates of the Company or any of its Subsidiaries is
presently a party to any transaction with the Company or any of its Subsidiaries (other than for
ordinary course services as employees, officers or directors), including any contract, agreement or
other arrangement providing for the furnishing of services to or by, providing for rental of real
or personal property to or from, or otherwise requiring payments to or from any such officer,
director, employee or affiliate or, to the knowledge of the Company or any of its Subsidiaries, any
corporation, partnership, trust or other Person in which any such officer, director, employee or
affiliate has a substantial interest or is an employee, officer, director, trustee or partner.

     (r) Equity Capitalization. As of the date hereof, the authorized capital stock of the
Company consists of (i) 250,000,000 shares of Common Stock, of which, 100,670,127 are issued and
outstanding and 115,778,705, shares are reserved for issuance pursuant to securities (other than
the Notes and the Warrants) exercisable or exchangeable for, or convertible into, shares of Common
Stock and shares of Common Stock to be issued to TerraSphere (as defined below) members as
disclosed in the SEC Documents and (ii) 10,000,000 shares of preferred stock, of which 17,500
shares of 1% Series A Convertible Preferred Stock are issued and outstanding. No shares of Common
Stock are held in treasury. All of such outstanding shares are duly authorized and have been, or
upon issuance will be, validly issued and are fully paid and non-assessable. 7,038,534 shares of
the Company’s issued and outstanding Common Stock on the date hereof are owned by Persons who are
“affiliates” (as defined in Rule 405 of the 1933 Act and calculated based on the assumption that
only officers, directors and holders of at least 10% of the Company’s issued and outstanding Common
Stock are “affiliates” without conceding that any such Persons are “affiliates” for purposes of
federal securities laws) of the Company or any of its Subsidiaries. To the Company’s knowledge, no
Person owns 10% or more of the Company’s issued and outstanding shares of Common Stock (calculated
based on the assumption that all Convertible Securities (as defined below), whether or not
presently exercisable or convertible,

11

 

have been fully exercised or converted (as the case may be) taking account of any limitations
on exercise or conversion (including “blockers”) contained therein without conceding that such
identified Person is a 10% stockholder for purposes of federal securities laws). (i) None of the
Company’s or any Subsidiary’s capital stock is subject to preemptive rights or any other similar
rights or any liens or encumbrances suffered or permitted by the Company or any Subsidiary; (ii)
except as disclosed in the SEC Documents, there are no outstanding options, warrants, scrip, rights
to subscribe to, calls or commitments of any character whatsoever relating to, or securities or
rights convertible into, or exercisable or exchangeable for, any capital stock of the Company or
any of its Subsidiaries, or contracts, commitments, understandings or arrangements by which the
Company or any of its Subsidiaries is or may become bound to issue additional capital stock of the
Company or any of its Subsidiaries or options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights convertible into, or
exercisable or exchangeable for, any capital stock of the Company or any of its Subsidiaries; (iii)
except as disclosed in the SEC Documents, there are no outstanding debt securities, notes, credit
agreements, credit facilities or other agreements, documents or instruments evidencing Indebtedness
of the Company or any of its Subsidiaries or by which the Company or any of its Subsidiaries is or
may become bound; (iv) there are no financing statements securing obligations in any amounts filed
in connection with the Company or any of its Subsidiaries; (v) except as disclosed in the SEC
Documents and pursuant to the Registration Rights Agreement, there are no agreements or
arrangements under which the Company or any of its Subsidiaries is obligated to register the sale
of any of their securities under the 1933 Act; (vi) there are no outstanding securities or
instruments of the Company or any of its Subsidiaries which contain any redemption or similar
provisions, and there are no contracts, commitments, understandings or arrangements by which the
Company or any of its Subsidiaries is or may become bound to redeem a security of the Company or
any of its Subsidiaries; (vii) except as disclosed in the SEC Documents, there are no securities or
instruments containing anti-dilution or similar provisions that will be triggered by the issuance
of the Securities; (viii) neither the Company nor any Subsidiary has any stock appreciation rights
or “phantom stock” plans or agreements or any similar plan or agreement; and (ix) neither the
Company nor any of its Subsidiaries have any liabilities or obligations required to be disclosed in
the SEC Documents which are not so disclosed in the SEC Documents, other than those incurred in the
ordinary course of the Company’s or its Subsidiaries’ respective businesses and which, individually
or in the aggregate, do not or could not have a Material Adverse Effect. The Company has furnished
to the Buyers true, correct and complete copies of the Company’s Certificate of Incorporation, as
amended and as in effect on the date hereof (the “Articles of Incorporation”), and the Company’s
bylaws, as amended and as in effect on the date hereof (the “Bylaws”), and the terms of all
securities convertible into, or exercisable or exchangeable for, shares of Common Stock and the
material rights of the holders thereof in respect thereto.

     (s) Indebtedness and Other Contracts. Neither the Company nor any of its Subsidiaries
(i) except as disclosed in the SEC Documents, has any outstanding Indebtedness (as defined below),
(ii) except as disclosed in the SEC Documents, is a party to any contract, agreement or instrument,
the violation of which, or default under which, by the other party(ies) to such contract, agreement
or instrument could reasonably be expected to result in a Material Adverse Effect, (iii) is in
violation of any term of, or in default under, any contract, agreement or instrument relating to
any Indebtedness, except where such violations and defaults would not result, individually or in
the aggregate, in a Material Adverse Effect, or (iv) is a party to any contract, agreement or
instrument relating to any Indebtedness, the performance of which, in the

12

 

judgment of the Company’s officers, has or is expected to have a Material Adverse Effect. (x)
“Indebtedness” of any Person means, without duplication (A) all indebtedness for borrowed money,
(B) all obligations issued, undertaken or assumed as the deferred purchase price of property or
services (including, without limitation, “capital leases” in accordance with generally accepted
accounting principles) (other than trade payables entered into in the ordinary course of business),
(C) all reimbursement or payment obligations with respect to letters of credit, surety bonds and
other similar instruments, (D) all obligations evidenced by notes, bonds, debentures or similar
instruments, including obligations so evidenced incurred in connection with the acquisition of
property, assets or businesses (excluding shares of Common Stock to be issued to TerraSphere
Systems, LLC (“TerraSphere”) members as disclosed in the SEC Documents), (E) all indebtedness
created or arising under any conditional sale or other title retention agreement, or incurred as
financing, in either case with respect to any property or assets acquired with the proceeds of such
indebtedness (even though the rights and remedies of the seller or bank under such agreement in the
event of default are limited to repossession or sale of such property), (F) all monetary
obligations under any leasing or similar arrangement which, in connection with generally accepted
accounting principles, consistently applied for the periods covered thereby, is classified as a
capital lease, (G) all indebtedness referred to in clauses (A) through (F) above secured by (or for
which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured
by) any mortgage, lien, pledge, charge, security interest or other encumbrance upon or in any
property or assets (including accounts and contract rights) owned by any Person, even though the
Person which owns such assets or property has not assumed or become liable for the payment of such
indebtedness, and (H) all Contingent Obligations in respect of indebtedness or obligations of
others of the kinds referred to in clauses (A) through (G) above; (y) “Contingent Obligation”
means, as to any Person, any direct or indirect liability, contingent or otherwise, of that Person
with respect to any indebtedness, lease, dividend or other obligation of another Person if the
primary purpose or intent of the Person incurring such liability, or the primary effect thereof, is
to provide assurance to the obligee of such liability that such liability will be paid or
discharged, or that any agreements relating thereto will be complied with, or that the holders of
such liability will be protected (in whole or in part) against loss with respect thereto; and (z)
“Person” means an individual, a limited liability company, a partnership, a joint venture, a
corporation, a trust, an unincorporated organization, any other entity and a government or any
department or agency thereof.

     (t) Absence of Litigation. Except as disclosed in the SEC Documents, there is no
action, suit, proceeding, inquiry or investigation before or by the Principal Market, any court,
public board, government agency, self-regulatory organization or body pending or, to the knowledge
of the Company, threatened against or affecting the Company or any of its Subsidiaries, the Common
Stock or any of the Company’s or its Subsidiaries’ officers or directors which is outside of the
ordinary course of business or individually or in the aggregate material to the Company or any of
its Subsidiaries. There has not been, and to the knowledge of the Company, there is not pending or
contemplated, any investigation by the SEC involving the Company, any of its Subsidiaries or any
current or former director or officer of the Company or any of its Subsidiaries that has not been
previously resolved with no consequences to the Company or any of its Subsidiaries. The SEC has not
issued any stop order or other order suspending the effectiveness of any registration statement
filed by the Company under the 1933 Act or the 1934 Act.

13

 

     (u) Insurance. The Company and each of its Subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and in such amounts as management
of the Company believes to be prudent and customary in the businesses in which the Company and its
Subsidiaries are engaged. Neither the Company nor any such Subsidiary has been refused any
insurance coverage sought or applied for, and neither the Company nor any such Subsidiary has any
reason to believe that it will be unable to renew its existing insurance coverage as and when such
coverage expires or to obtain similar coverage from similar insurers as may be necessary to
continue its business at a cost that would not have a Material Adverse Effect.

     (v) Employee Relations. Neither the Company nor any of its Subsidiaries is a party to
any collective bargaining agreement or employs any member of a union. The Company believes that its
and its Subsidiaries’ relations with their respective employees are good. No executive officer (as
defined in Rule 501(f) promulgated under the 1933 Act) or other key employee of the Company or any
of its Subsidiaries has notified the Company or any such Subsidiary that such officer intends to
leave the Company or any such Subsidiary or otherwise terminate such officer’s employment with the
Company or any such Subsidiary. No executive officer or other key employee of the Company or any of
its Subsidiaries is, or is now expected to be, in violation of any material term of any employment
contract, confidentiality, disclosure or proprietary information agreement, non-competition
agreement, or any other contract or agreement or any restrictive covenant, and the continued
employment of each such executive officer or other key employee (as the case may be) does not
subject the Company or any of its Subsidiaries to any liability with respect to any of the
foregoing matters. The Company and its Subsidiaries are in compliance with all federal, state,
local and foreign laws and regulations respecting labor, employment and employment practices and
benefits, terms and conditions of employment and wages and hours, except where failure to be in
compliance would not, either individually or in the aggregate, reasonably be expected to result in
a Material Adverse Effect.

     (w) Title. The Company and its Subsidiaries have good and marketable title in fee
simple to all real property, and have good and marketable title to all personal property, owned by
them which is material to the business of the Company and its Subsidiaries, in each case, free and
clear of all liens, encumbrances and defects except such as do not materially affect the value of
such property and do not interfere with the use made and proposed to be made of such property by
the Company and any of its Subsidiaries. Any real property and facilities held under lease by the
Company or any of its Subsidiaries are held by them under valid, subsisting and enforceable leases
with such exceptions as are not material and do not interfere with the use made and proposed to be
made of such property and buildings by the Company or any of its Subsidiaries.

     (x) Intellectual Property Rights. The Company and its Subsidiaries own or possess
adequate rights or licenses to use all trademarks, trade names, service marks, service mark
registrations, service names, patents, patent rights, copyrights, original works, inventions,
licenses, approvals, governmental authorizations, trade secrets and other intellectual property
rights and all applications and registrations therefor (“Intellectual Property Rights”) necessary
to conduct their respective businesses as now conducted and as presently proposed to be conducted.
None of the Company’s or its Subsidiaries’ Intellectual Property Rights have expired, terminated or
been abandoned, or are expected to expire, terminate or be abandoned, within three years from the
date of this Agreement. The Company has no knowledge of any infringement by

14

 

the Company or any of its Subsidiaries of Intellectual Property Rights of others. There is no
claim, action or proceeding being made or brought, or to the knowledge of the Company or any of its
Subsidiaries, being threatened, against the Company or any of its Subsidiaries regarding their
Intellectual Property Rights. The Company is not aware of any facts or circumstances which might
give rise to any of the foregoing infringements or claims, actions or proceedings. The Company and
each of its Subsidiaries have taken reasonable security measures to protect the secrecy,
confidentiality and value of all of their Intellectual Property Rights.

     (y) Environmental Laws. The Company and its Subsidiaries (i) are in compliance with
all Environmental Laws (as defined below), (ii) have received all permits, licenses or other
approvals required of them under applicable Environmental Laws to conduct their respective
businesses and (iii) are in compliance with all terms and conditions of any such permit, license or
approval where, in each of the foregoing clauses (i), (ii) and (iii), the failure to so comply
could be reasonably expected to have, individually or in the aggregate, a Material Adverse Effect.
“Environmental Laws” means all federal, state, local or foreign laws relating to pollution or
protection of human health or the environment (including, without limitation, ambient air, surface
water, groundwater, land surface or subsurface strata), including, without limitation, laws
relating to emissions, discharges, releases or threatened releases of chemicals, pollutants,
contaminants, or toxic or hazardous substances or wastes (collectively, “Hazardous Materials”) into
the environment, or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of Hazardous Materials, as well as all
authorizations, codes, decrees, demands or demand letters, injunctions, judgments, licenses,
notices or notice letters, orders, permits, plans or regulations issued, entered, promulgated or
approved thereunder.

     (z) Subsidiary Rights. The Company or one of its Subsidiaries has the unrestricted
right to vote, and (subject to limitations imposed by applicable law) to receive dividends and
distributions on, all capital securities of its Subsidiaries as owned by the Company or such
Subsidiary.

     (aa) Tax Status. The Company and each of its Subsidiaries (i) has timely made or filed
all foreign, federal and state income and all other tax returns, reports and declarations required
by any jurisdiction to which it is subject, (ii) has timely paid all taxes and other governmental
assessments and charges that are material in amount, shown or determined to be due on such returns,
reports and declarations, except those being contested in good faith and (iii) has set aside on its
books provision reasonably adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations apply. There are no unpaid taxes in any
material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of
the Company and its Subsidiaries know of no basis for any such claim. The Company is not operated
in such a manner as to qualify as a passive foreign investment company, as defined in Section 1297
of the U.S. Internal Revenue Code of 1986, as amended.

     (bb) Internal Accounting and Disclosure Controls. The Company and each of its
Subsidiaries maintains internal control over financial reporting (as such term is defined in Rule
13a-15(f) under the 1934 Act) that is effective to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles, including that (i)
transactions are executed in accordance with management’s general or specific authorizations, (ii)
transactions

15

 

are recorded as necessary to permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain asset and liability accountability, (iii)
access to assets or incurrence of liabilities is permitted only in accordance with management’s
general or specific authorization and (iv) the recorded accountability for assets and liabilities
is compared with the existing assets and liabilities at reasonable intervals and appropriate action
is taken with respect to any difference. The Company maintains disclosure controls and procedures
(as such term is defined in Rule 13a-15(e) under the 1934 Act) that are effective in ensuring that
information required to be disclosed by the Company in the reports that it files or submits under
the 1934 Act is recorded, processed, summarized and reported, within the time periods specified in
the rules and forms of the SEC, including, without limitation, controls and procedures designed to
ensure that information required to be disclosed by the Company in the reports that it files or
submits under the 1934 Act is accumulated and communicated to the Company’s management, including
its principal executive officer or officers and its principal financial officer or officers, as
appropriate, to allow timely decisions regarding required disclosure. Neither the Company nor any
of its Subsidiaries has received any notice or correspondence from any accountant or other Person
relating to any potential material weakness or significant deficiency in any part of the internal
controls over financial reporting of the Company or any of its Subsidiaries.

     (cc) Off Balance Sheet Arrangements. There is no transaction, arrangement, or other
relationship between the Company or any of its Subsidiaries and an unconsolidated or other off
balance sheet entity that is required to be disclosed by the Company in its 1934 Act filings and is
not so disclosed or that otherwise could be reasonably likely to have a Material Adverse Effect.

     (dd) Investment Company Status. The Company is not, and upon consummation of the sale
of the Securities will not be, an “investment company,” an affiliate of an “investment company,” a
company controlled by an “investment company” or an “affiliated person” of, or “promoter” or
“principal underwriter” for, an “investment company” as such terms are defined in the Investment
Company Act of 1940, as amended.

     (ee) Acknowledgement Regarding Buyers’ Trading Activity. It is understood and
acknowledged by the Company that (i) following the public disclosure of the transactions
contemplated by the Transaction Documents in accordance with the terms thereof, none of the Buyers
have been asked by the Company or any of its Subsidiaries to agree, nor has any Buyer agreed with
the Company or any of its Subsidiaries, to desist from effecting any transactions in or with
respect to (including, without limitation, purchasing or selling, long and/or short) any securities
of the Company, or “derivative” securities based on securities issued by the Company or to hold any
of the Securities for any specified term; (ii) any Buyer, and counterparties in “derivative”
transactions to which any such Buyer is a party, directly or indirectly, presently may have a
“short” position in the Common Stock which was established prior to such Buyer’s knowledge of the
transactions contemplated by the Transaction Documents; and (iii) each Buyer shall not be deemed to
have any affiliation with or control over any arm’s length counterparty in any “derivative”
transaction. The Company further understands and acknowledges that following the public disclosure
of the transactions contemplated by the Transaction Documents pursuant to the 8-K Filing (as
defined below) one or more Buyers may engage in hedging and/or trading activities at various times
during the period that the Securities are outstanding, including, without limitation, during the
periods that the value and/or number of the Conversion Shares or Warrant Shares deliverable with
respect to the Securities are being determined and such hedging and/or

16

 

trading activities, if any, can reduce the value of the existing stockholders’ equity interest
in the Company both at and after the time the hedging and/or trading activities are being
conducted. The Company acknowledges that such aforementioned hedging and/or trading activities do
not constitute a breach of this Agreement or any other Transaction Document or any of the documents
executed in connection herewith or therewith.

     (ff) Manipulation of Price. Neither the Company nor any of its Subsidiaries has, and,
to the knowledge of the Company, no Person acting on their behalf has, directly or indirectly, (i)
taken any action designed to cause or to result in the stabilization or manipulation of the price
of any security of the Company or any of its Subsidiaries to facilitate the sale or resale of any
of the Securities, (ii) sold, bid for, purchased, or paid any compensation for soliciting purchases
of, any of the Securities (other than the Placement Agent), or (iii) paid or agreed to pay to any
Person any compensation for soliciting another to purchase any other securities of the Company or
any of its Subsidiaries.

     (gg) U.S. Real Property Holding Corporation. Neither the Company nor any of its
Subsidiaries is, or has ever been, and so long as any of the Securities are held by any of the
Buyers, shall become, a U.S. real property holding corporation within the meaning of Section 897 of
the Internal Revenue Code of 1986, as amended, and the Company and each Subsidiary shall so certify
upon any Buyer’s request.

     (hh) Transfer Taxes. On the Closing Date, all stock transfer or other taxes (other
than income or similar taxes) which are required to be paid in connection with the issuance, sale
and transfer of the Securities to be sold to each Buyer hereunder will be, or will have been, fully
paid or provided for by the Company, and all laws imposing such taxes will be or will have been
complied with.

     (ii) Bank Holding Company Act. Neither the Company nor any of its Subsidiaries is
subject to the Bank Holding Company Act of 1956, as amended (the “BHCA”) and to regulation by the
Board of Governors of the Federal Reserve System (the “Federal Reserve”). Neither the Company nor
any of its Subsidiaries or affiliates owns or controls, directly or indirectly, five percent (5%)
or more of the outstanding shares of any class of voting securities or twenty-five percent (25%) or
more of the total equity of a bank or any equity that is subject to the BHCA and to regulation by
the Federal Reserve. Neither the Company nor any of its Subsidiaries or affiliates exercises a
controlling influence over the management or policies of a bank or any entity that is subject to
the BHCA and to regulation by the Federal Reserve.

     (jj) Shell Company Status. The Company is not, and has never been, an issuer
identified in, or subject to, Rule 144(i).

     (kk) Public Utility Holding Act. None of the Company nor any of its Subsidiaries is a
“holding company,” or an “affiliate” of a “holding company,” as such terms are defined in the
Public Utility Holding Act of 2005.

     (ll) Federal Power Act. None of the Company nor any of its Subsidiaries is subject to
regulation as a “public utility” under the Federal Power Act, as amended.

     (mm) No Additional Agreements. The Company does not have any agreement or
understanding with any Buyer with respect to the transactions contemplated by the Transaction

17

 

Documents other than as specified in the Transaction Documents.

     (nn) Real Property. Each of the Company and its Subsidiaries holds good title to all
real property, leases in real property, or other interests in real property owned or held by the
Company or any of its Subsidiaries (the “Real Property”) owned by the Company or any of its
Subsidiaries (as applicable). The Real Property is free and clear of all mortgages, defects,
claims, liens, pledges, charges, taxes, rights of first refusal, encumbrances, security interests
and other encumbrances (collectively “Encumbrances”) and is not subject to any rights of way,
building use restrictions, exceptions, variances, reservations, or limitations of any nature except
for (a) liens for current taxes not yet due and (b) zoning laws and other land use restrictions
that do not impair the present or anticipated use of the property subject thereto.

     (oo) Fixtures and Equipment. Each of the Company and its Subsidiaries (as applicable)
has good title to, or a valid leasehold interest in, the tangible personal property, equipment,
improvements, fixtures, and other personal property and appurtenances that are used by the Company
or its Subsidiary in connection with the conduct of its business (the “Fixtures and Equipment”).
The Fixtures and Equipment are structurally sound, are in good operating condition and repair, are
adequate for the uses to which they are being put, are not in need of maintenance or repairs except
for ordinary, routine maintenance and repairs and are sufficient for the conduct of the Company’s
and/or its Subsidiaries’ businesses (as applicable) in the manner as conducted prior to the
Closing. Each of the Company and its Subsidiaries owns all of its Fixtures and Equipment free and
clear of all Encumbrances except for (a) liens for current taxes not yet due and (b) zoning laws
and other land use restrictions that do not impair the present or anticipated use of the property
subject thereto.

     (pp) Illegal or Unauthorized Payments; Political Contributions. Neither the Company
nor any of its Subsidiaries nor, to the best of the Company’s knowledge (after reasonable inquiry
of its officers and directors), any of the officers, directors, employees, agents or other
representatives of the Company or any of its Subsidiaries or any other business entity or
enterprise with which the Company or any Subsidiary is or has been affiliated or associated, has,
directly or indirectly, made or authorized any payment, contribution or gift of money, property, or
services, whether or not in contravention of applicable law, (a) as a kickback or bribe to any
Person or (b) to any political organization, or the holder of or any aspirant to any elective or
appointive public office except for personal political contributions not involving the direct or
indirect use of funds of the Company or any of its Subsidiaries.

     (qq) Money Laundering. The Company and its Subsidiaries are in compliance with, and
have not previously violated, the USA Patriot Act of 2001 and all other applicable U.S. and
non-U.S. anti-money laundering laws and regulations, including, without limitation, the laws,
regulations and Executive Orders and sanctions programs administered by the U.S. Office of Foreign
Assets Control, including, without limitation, (i) Executive Order 13224 of September 23, 2001
entitled, “Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten to
Commit, or Support Terrorism” (66 Fed. Reg. 49079 (2001)); and (ii) any regulations contained in 31
CFR, Subtitle B, Chapter V.

     (rr) Ranking of the Notes. No Indebtedness of the Company, at the Closing, will be
senior to, or pari passu with, the Notes in right of payment, whether with respect to payment or
redemptions, interest, damages, upon liquidation or dissolution or otherwise.

18

 

     (ss) Disclosure. The Company confirms that neither it nor any other Person acting on
its behalf has provided any of the Buyers or their agents or counsel with any information that
constitutes or could reasonably be expected to constitute material, non-public information
concerning the Company or any of its Subsidiaries, other than the existence of the transactions
contemplated by this Agreement and the other Transaction Documents. The Company understands and
confirms that each of the Buyers will rely on the foregoing representations in effecting
transactions in securities of the Company. All disclosure provided to the Buyers regarding the
Company and its Subsidiaries, their businesses and the transactions contemplated hereby, including
the schedules to this Agreement, furnished by or on behalf of the Company or any of its
Subsidiaries is true and correct and does 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. Each press release issued by
the Company or any of its Subsidiaries during the twelve (12) months preceding the date of this
Agreement did not at the time of release contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they are made, not misleading. No event or
circumstance has occurred or information exists with respect to the Company or any of its
Subsidiaries or its or their business, properties, liabilities, prospects, operations (including
results thereof) or conditions (financial or otherwise), which, under applicable law, rule or
regulation, requires public disclosure at or before the date hereof or announcement by the Company
but which has not been so publicly disclosed. The Company acknowledges and agrees that no Buyer
makes or has made any representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in Section 2.

4. COVENANTS.

     (a) Best Efforts. Each Buyer shall use its best efforts to timely satisfy each of the
conditions to be satisfied by it as provided in Section 6 of this Agreement. The Company shall use
its best efforts to timely satisfy each of the conditions to be satisfied by it as provided in
Section 7 of this Agreement.

     (b) Form D and Blue Sky. The Company shall file a Form D with respect to the
Securities as required under Regulation D and to provide a copy thereof to each Buyer promptly
after such filing. The Company shall, on or before the Closing Date, take such action as the
Company shall reasonably determine is necessary in order to obtain an exemption for, or to, qualify
the Securities for sale to the Buyers at the Closing pursuant to this Agreement under applicable
securities or “Blue Sky” laws of the states of the United States (or to obtain an exemption from
such qualification), and shall provide evidence of any such action so taken to the Buyers on or
prior to the Closing Date. Without limiting any other obligation of the Company under this
Agreement, the Company shall timely make all filings and reports relating to the offer and sale of
the Securities required under all applicable securities laws (including, without limitation, all
applicable federal securities laws and all applicable “Blue Sky” laws), and the Company shall
comply with all applicable federal, state, local and foreign laws, statutes, rules, regulations and
the like relating to the offering and sale of the Securities to the Buyers.

     (c) Reporting Status. Until the date on which no Notes or Warrants are outstanding
(the “Reporting Period”), the Company shall timely file all reports required to be filed with the
SEC pursuant to the 1934 Act, and the Company shall not terminate its status as an issuer

19

 

required to file reports under the 1934 Act even if the 1934 Act or the rules and regulations
thereunder would no longer require or otherwise permit such termination.

     (d) Use of Proceeds. The Company shall use the net proceeds from the sale of the
Securities hereunder solely for general working capital. Without limiting the foregoing, none of
such proceeds shall be used, directly or indirectly, (i) for the satisfaction of any debt of the
Company or any of its Subsidiaries (other than payment of trade payables incurred after the date
hereof in the ordinary course of business of the Company and its Subsidiaries and consistent with
prior practices) or (ii) for the redemption of any securities of the Company (other than the
Securities).

     (e) Financial Information. The Company agrees to send the following to each Investor
(as defined in the Registration Rights Agreement) during the Reporting Period (i) unless the
following are filed with the SEC through EDGAR and are available to the public through the EDGAR
system, within one (1) Business Day after the filing thereof with the SEC, a copy of its Annual
Reports on Form 10-K and Quarterly Reports on Form 10-Q, any interim reports or any consolidated
balance sheets, income statements, stockholders’ equity statements and/or cash flow statements for
any period other than annual, any Current Reports on Form 8-K and any registration statements
(other than on Form S-8) or amendments filed pursuant to the 1933 Act, (ii) unless publicly
disseminated, on the same day as the release thereof, facsimile copies of all press releases issued
by the Company or any of its Subsidiaries and (iii) copies of any notices and other information
made available or given to the stockholders of the Company generally, contemporaneously with the
making available or giving thereof to the stockholders.

     (f) Listing. The Company shall promptly secure the listing or designation for
quotation (as the case may be) of all of the Registrable Securities upon each national securities
exchange and automated quotation system, if any, upon which the Common Stock is then listed or
designated for quotation (as the case may be) (subject to official notice of issuance) (but in no
event later than the first Installment Notice Due Date) and shall maintain such listing or
designation for quotation (as the case may be) of all the shares of Common Stock from time to time
issuable under the terms of the Transaction Documents on such national securities exchange or
automated quotation system. The Company shall maintain the Common Stock’s listing or designation
for quotation (as the case may be) on the Principal Market, The New York Stock Exchange, the NYSE
Amex, the Nasdaq Global Select Market or the Nasdaq Global Market (each, an “Eligible Market”).
Neither the Company nor any of its Subsidiaries shall take any action which could be reasonably
expected to result in the delisting or suspension of the Common Stock on an Eligible Market. The
Company shall pay all fees and expenses in connection with satisfying its obligations under this
Section 4(f).

     (g) Fees. The Company shall reimburse Iroquois Master Fund Ltd. (“Iroquois”) or its
designee(s) for all costs and expenses incurred by it or its affiliates in connection with the
transactions contemplated by the Transaction Documents (including, without limitation, all legal
fees and disbursements in connection therewith, structuring, documentation and implementation of
the transactions contemplated by the Transaction Documents and due diligence and regulatory filings
in connection therewith) in a non-accountable amount equal to $70,000, which amount shall be
withheld by Iroquois from its Purchase Price at the Closing or paid by the Company on demand by
Iroquois if Iroquois terminates its obligations under this Agreement in accordance with Section 8
(as the case may be). The Company shall be responsible for the payment of any

20

 

placement agent’s fees, financial advisory fees, or broker’s commissions (other than for
Persons engaged by any Buyer) relating to or arising out of the transactions contemplated hereby
(including, without limitation, any fees payable to the Placement Agent, who is the Company’s sole
placement agent in connection with the transactions contemplated by this Agreement). The Company
shall pay, and hold each Buyer harmless against, any liability, loss or expense (including, without
limitation, reasonable attorneys’ fees and out-of-pocket expenses) arising in connection with any
claim relating to any such payment. Except as otherwise set forth in the Transaction Documents,
each party to this Agreement shall bear its own expenses in connection with the sale of the
Securities to the Buyers.

     (h) Pledge of Securities. Notwithstanding anything to the contrary contained in this
Agreement, the Company acknowledges and agrees that the Securities may be pledged by a Buyer in
connection with a bona fide margin agreement or other loan or financing arrangement that is secured
by the Securities. The pledge of Securities shall not be deemed to be a transfer, sale or
assignment of the Securities hereunder, and no Buyer effecting a pledge of Securities shall be
required to provide the Company with any notice thereof or otherwise make any delivery to the
Company pursuant to this Agreement or any other Transaction Document. The Company hereby agrees to
execute and deliver such documentation as a pledgee of the Securities may reasonably request in
connection with a pledge of the Securities to such pledgee by a Buyer.

     (i) Disclosure of Transactions and Other Material Information. The Company shall, on
or before 9:15 a.m. New York time, on the date of this Agreement, file a Current Report on Form 8-K
describing all the material terms of the transactions contemplated by the Transaction Documents in
the form required by the 1934 Act and attaching all the material Transaction Documents (including,
without limitation, this Agreement (and all schedules to this Agreement), the form of the Notes,
the form of the Warrants, the form of the Security Documents, the form of the Guaranties and the
form of the Registration Rights Agreement) (including all attachments, the “8-K Filing”). From and
after the filing of the 8-K Filing, the Company shall have disclosed all material, non-public
information (if any) delivered to any of the Buyers by the Company or any of its Subsidiaries, or
any of their respective officers, directors, employees or agents in connection with the
transactions contemplated by the Transaction Documents. The Company shall not, and the Company
shall cause each of its Subsidiaries and each of its and their respective officers, directors,
employees and agents, not to, provide any Buyer with any material, non-public information regarding
the Company or any of its Subsidiaries from and after the filing of the 8-K Filing without the
express prior written consent of such Buyer. In the event of a breach of any of the foregoing
covenants or any of the covenants contained in Section 4(o) by the Company, any of its
Subsidiaries, or any of its or their respective officers, directors, employees and agents (as
determined in the reasonable good faith judgment of such Buyer), in addition to any other remedy
provided herein or in the Transaction Documents, such Buyer shall have the right to make a public
disclosure, in the form of a press release, public advertisement or otherwise, of such material,
non-public information without the prior approval by the Company, any of its Subsidiaries, or any
of its or their respective officers, directors, employees or agents. No Buyer shall have any
liability to the Company, any of its Subsidiaries, or any of its or their respective officers,
directors, employees, stockholders or agents, for any such disclosure. Subject to the foregoing,
neither the Company, its Subsidiaries nor any Buyer shall issue any press releases or any other
public statements with respect to the transactions contemplated hereby; provided, however, the
Company shall be entitled, without the prior approval of any Buyer, to make any press release or
other public disclosure with respect to such transactions (i) in

21

 

substantial conformity with the 8-K Filing and contemporaneously therewith and (ii) as is
required by applicable law and regulations (provided that in the case of clause (i) each Buyer
shall be consulted by the Company in connection with any such press release or other public
disclosure prior to its release). Without the prior written consent of the applicable Buyer, the
Company shall not (and shall cause each of its Subsidiaries and affiliates to not) disclose the
name of such Buyer in any filing (other than the 8-K Filing), announcement, release or otherwise.
Notwithstanding anything contained in this Agreement to the contrary and without implication that
the contrary would otherwise be true, the Company expressly acknowledges and agrees that no Buyer
has had, and no Buyer shall have (unless expressly agreed to by a particular Buyer after the date
hereof in a written definitive and binding agreement executed by the Company and such particular
Buyer (it being understood and agreed that no Buyer may bind any other Buyer with respect
thereto)), any duty of confidentiality with respect to, or a duty not to trade on the basis of, any
information regarding the Company or any of its Subsidiaries.

     (j) Additional Registration Statements. Until the Applicable Date (as defined below)
and at any time thereafter while any Registration Statement is not effective or any prospectus
contained therein is not available for use, the Company shall not file a registration statement
under the 1933 Act relating to securities that are not the Registrable Securities (other than (i)
registration statements on Form S-8 related to an Approved Share Plan and (ii) post-effective
amendments to registration statements that are effective as of the date of this Agreement solely to
update the information contained therein). “Applicable Date” means the first date on which the
resale by the Buyers of all Registrable Securities is covered by one or more effective Registration
Statements (as defined in the Registration Rights Agreement) (and each prospectus contained therein
is available for use on such date).

     (k) Additional Issuance of Securities. The Company agrees that for the period
commencing on the date hereof and ending on the date immediately following the ninety (90) day
anniversary of the Applicable Date (provided that such period shall be extended by the number of
days during such period and any extension thereof contemplated by this proviso on which the
Registration Statement is not effective or any prospectus contained therein is not available for
use) (the “Restricted Period”), neither the Company nor any of its Subsidiaries shall directly or
indirectly issue, offer, sell, grant any option or right to purchase, or otherwise dispose of (or
announce any issuance, offer, sale, grant of any option or right to purchase or other disposition
of) any equity security or any equity-linked or related security (including, without limitation,
any “equity security” (as that term is defined under Rule 405 promulgated under the 1933 Act), any
Convertible Securities, any debt, any preferred stock or any purchase rights) (any such issuance,
offer, sale, grant, disposition or announcement (whether occurring during the Restricted Period or
at any time thereafter) is referred to as a “Subsequent Placement”). Notwithstanding the foregoing,
this Section 4(j) shall not apply in respect of the issuance of (A) shares of Common Stock or
standard options to purchase Common Stock to directors, officers, consultants (it being expressly
understood and agreed that lawyers, law firms, accountants, accounting firms and other similar
professional advisors and professional advisory firms are not consultants) or employees of the
Company or any of its Subsidiaries in their capacity as such pursuant to an Approved Share Plan (as
defined below), provided that (1) all such issuances (taking into account the shares of Common
Stock issuable upon exercise of such options) after the date hereof pursuant to this clause (A) do
not, in the aggregate, exceed more than 6,500,000 shares of Common Stock (adjusted for stock
splits, stock combinations and other similar transactions occurring after the date of this
Agreement) and (2) the exercise price of any such

22

 

options is not lowered, none of such options are amended to increase the number of shares
issuable thereunder and none of the terms or conditions of any such options are otherwise
materially changed in any manner that adversely affects any of the Buyers; (B) shares of Common
Stock issued upon the conversion or exercise of Convertible Securities (other than standard options
to purchase Common Stock issued pursuant to an Approved Share Plan that are covered by clause (A)
above) issued prior to the date hereof, provided that the conversion or exercise price of any such
Convertible Securities (other than standard options to purchase Common Stock issued pursuant to an
Approved Share Plan that are covered by clause (A) above) is not lowered, none of such Convertible
Securities (other than standard options to purchase Common Stock issued pursuant to an Approved
Share Plan that are covered by clause (A) above) are amended to increase the number of shares
issuable thereunder and none of the terms or conditions of any such Convertible Securities (other
than standard options to purchase Common Stock issued pursuant to an Approved Share Plan that are
covered by clause (A) above) are otherwise materially changed in any manner that adversely affects
any of the Buyers; (C) up to 15,992,064 shares of Common Stock (adjusted for stock splits, stock
combinations and other similar transactions occurring after the date of this Agreement) to be
issued to TerraSphere members as disclosed in the SEC Documents; (D) shares of Common Stock issued
in connection with strategic alliances, strategic mergers and acquisitions and strategic
partnerships, provided that (1) the primary purpose of such issuance is not to raise capital as
determined in good faith by the Buyers, (2) the purchaser or acquirer of such shares of Common
Stock in such issuance solely consists of either (I) the actual participants in such strategic
alliance or strategic partnership, (II) the actual owners of such assets or securities acquired in
such merger or acquisition or (III) the stockholders, partners or members of the foregoing Persons
in the immediately preceding clauses (I) and (II), (3) the number or amount (as the case may be) of
such shares of Common Stock issued to such Person by the Company shall not be disproportionate to
such Person’s actual participation in such strategic alliance or strategic partnership or ownership
of such assets or securities to be acquired by the Company (as applicable) and (4) all such
issuances of Common Stock after the date hereof pursuant to this clause (D) do not, in the
aggregate, exceed more than 16,000,000 shares of Common Stock (adjusted for stock splits, stock
combinations and other similar transactions occurring after the date of this Agreement); (E) the
Conversion Shares (as defined in the Notes); (F) the Warrant Shares; (G) the Conversion Shares (as
defined in the Prior Purchase Agreement (as defined below)); (H) the Warrant Shares (as defined in
the Prior Purchase Agreement); and (I) up to 500,000 unregistered shares of Common Stock (adjusted
for stock splits, stock combinations and other similar transactions occurring after the date of
this Agreement) issuable in connection with investor relations activities, provided that none of
such shares may be issued, directly or indirectly, to CEOcast, Inc. or any of its affiliated or
related Persons (each of the foregoing in clauses (A) through (I) collectively the “Excluded
Securities”). “Approved Share Plan” means any employee benefit plan which has been approved by the
board of directors of the Company prior to or subsequent to the date hereof pursuant to which
shares of Common Stock and standard options to purchase Common Stock may be issued to any employee,
officer, consultants or director for services provided to the Company or any of its
Subsidiaries in
their capacity as such. “Convertible Securities” means any capital stock or other security of the
Company or any of its Subsidiaries that is at any time and under any circumstances directly or
indirectly convertible into, exercisable or exchangeable for, or which otherwise entitles the
holder thereof to acquire, any capital stock or other security of the Company (including, without
limitation, Common Stock) or any of its Subsidiaries. “Prior Purchase Agreement” means that certain

23

 

Securities Purchase Agreement, dated as of December 17, 2010, by and among the Company and the
investors party thereto, as may be amended from time to time.

     (l) Reservation of Shares. From and after the date on which Shareholder Approval is
obtained, so long as any of the Notes or Warrants remain outstanding, the Company shall take all
action necessary to at all times have authorized, and reserved for the purpose of issuance, no less
than 100% of (i) the maximum number of shares of Common Stock issuable upon conversion of all the
Notes (assuming for purposes hereof, that the Notes are convertible at the Conversion Price (as
defined in the Notes) and without regard to any limitations on the conversion of the Notes set
forth therein) and (ii) the maximum number of shares of Common Stock issuable upon exercise of all
the Warrants (without regard to any limitations on the exercise of the Warrants set forth therein).

     (m) Conduct of Business. The business of the Company and its Subsidiaries shall not
be conducted in violation of any law, ordinance or regulation of any governmental entity, except
where such violations would not result, either individually or in the aggregate, in a Material
Adverse Effect.

     (n) Variable Rate Transaction. Until none of the Notes or Warrants are outstanding,
the Company and each Subsidiary shall be prohibited from effecting or entering into an agreement to
effect any Subsequent Placement involving a Variable Rate Transaction. “Variable Rate Transaction”
means a transaction in which the Company or any Subsidiary (i) issues or sells any Convertible
Securities either (A) at a conversion, exercise or exchange rate or other price that is based upon
and/or varies with the trading prices of, or quotations for, the shares of Common Stock at any time
after the initial issuance of such Convertible Securities, or (B) with a conversion, exercise or
exchange price that is subject to being reset at some future date after the initial issuance of
such Convertible Securities or upon the occurrence of specified or contingent events directly or
indirectly related to the business of the Company or the market for the Common Stock, other than
pursuant to a customary “weighted average” or “full-ratchet” anti-dilution provisions similar to
those set forth in the Warrants, or (ii) enters into any agreement (including, without limitation,
an “equity line of credit” or an “at-the-market offering”) whereby the Company or any Subsidiary
may sell securities at a future determined price (other than standard and customary “preemptive” or
“participation” rights). Each Buyer shall be entitled to obtain injunctive relief against the
Company and its Subsidiaries to preclude any such issuance, which remedy shall be in addition to
any right to collect damages.

     (o) Participation Right. From the date hereof through the one (1) year anniversary of
the Closing Date, neither the Company nor any of its Subsidiaries shall, directly or indirectly,
effect any Subsequent Placement unless the Company shall have first complied with this Section
4(o). The Company acknowledges and agrees that the right set forth in this Section 4(o) is a right
granted by the Company, separately, to each Buyer. The Company, each Buyer and ICOP agree that from
and after the Closing Date Section 4(o) of the Prior Purchase Agreement will no longer be in effect
and this Section 4(o) supersedes Section 4(o) of the Prior Purchase Agreement.

     (i) At least five (5) Trading Days prior to any proposed or intended Subsequent
Placement, the Company shall deliver to each Buyer a written notice of its proposal or
intention to effect a Subsequent Placement (each such notice, a “Pre-Notice”), which
Pre-Notice shall not contain any information (including, without

24

 

limitation, material, non-public information) other than: (i) a statement that the
Company proposes or intends to effect a Subsequent Placement, (ii) a statement that the
statement in clause (i) above does not constitute material, non-public information and (iii)
a statement informing such Buyer that it is entitled to receive an Offer Notice (as defined
below) with respect to such Subsequent Placement upon its written request. Upon the written
request of a Buyer within three (3) Trading Days after the Company’s delivery to such Buyer
of such Pre-Notice, and only upon a written request by such Buyer, the Company shall
promptly, but no later than one (1) Trading Day after such request, deliver to such Buyer an
irrevocable written notice (the “Offer Notice”) of any proposed or intended issuance or sale
or exchange (the “Offer”) of the securities being offered (the “Offered Securities”) in a
Subsequent Placement, which Offer Notice shall (w) identify and describe the Offered
Securities, (x) describe the price and other terms upon which they are to be issued, sold or
exchanged, and the number or amount of the Offered Securities to be issued, sold or
exchanged, (y) identify the Persons (if known) to which or with which the Offered Securities
are to be offered, issued, sold or exchanged and (z) offer to issue and sell to or exchange
with such Buyer in accordance with the terms of the Offer all of the Offered Securities,
provided that the number of Offered Securities which such Buyer shall have the right to
subscribe for under this Section 4(o) shall be (a) based on such Buyer’s pro rata portion of
the aggregate original principal amount of the Notes purchased hereunder by all Buyers (the
“Basic Amount”), and (b) with respect to each Buyer that elects to purchase its Basic
Amount, any additional portion of the Offered Securities attributable to the Basic Amounts
of other Buyers as such Buyer shall indicate it will purchase or acquire should the other
Buyers subscribe for less than their Basic Amounts (the “Undersubscription Amount”).

     (ii) To accept an Offer, in whole or in part, such Buyer must deliver a written notice
to the Company prior to the end of the fifth (5th) Business Day after such
Buyer’s receipt of the Offer Notice (the “Offer Period”), setting forth the portion of such
Buyer’s Basic Amount that such Buyer elects to purchase and, if such Buyer shall elect to
purchase all of its Basic Amount, the Undersubscription Amount, if any, that such Buyer
elects to purchase (in either case, the “Notice of Acceptance”). If the Basic Amounts
subscribed for by all Buyers are less than the total of all of the Basic Amounts, then such
Buyer who has set forth an Undersubscription Amount in its Notice of Acceptance shall be
entitled to purchase, in addition to the Basic Amounts subscribed for, the Undersubscription
Amount it has subscribed for; provided, however, if the Undersubscription Amounts subscribed
for exceed the difference between the total of all the Basic Amounts and the Basic Amounts
subscribed for (the “Available Undersubscription Amount”), such Buyer who has subscribed for
any Undersubscription Amount shall be entitled to purchase only that portion of the
Available Undersubscription Amount as the Basic Amount of such Buyer bears to the total
Basic Amounts of all Buyers that have subscribed for Undersubscription Amounts, subject to
rounding by the Company to the extent it deems reasonably necessary. Notwithstanding the
foregoing, if the Company desires to modify or amend the terms and conditions of the Offer
prior to the expiration of the Offer Period, the Company may deliver to each Buyer a new
Offer Notice and the Offer Period shall expire on the fifth (5th) Business Day
after such Buyer’s receipt of such new Offer Notice.

25

 

     (iii) The Company shall have five (5) days from the expiration of the Offer Period
above (i) to offer, issue, sell or exchange all or any part of such Offered Securities as to
which a Notice of Acceptance has not been given by a Buyer (the “Refused Securities”)
pursuant to a definitive agreement(s) (the “Subsequent Placement Agreement”), but only to
the offerees described in the Offer Notice (if so described therein) and only upon terms and
conditions (including, without limitation, unit prices and interest rates) that are not more
favorable to the acquiring Person or Persons or less favorable to the Company than those set
forth in the Offer Notice and (ii) to publicly announce (a) the execution of such Subsequent
Placement Agreement, and (b) either (x) the consummation of the transactions contemplated by
such Subsequent Placement Agreement or (y) the termination of such Subsequent Placement
Agreement, which shall be filed with the SEC on a Current Report on Form 8-K with such
Subsequent Placement Agreement and any documents contemplated therein filed as exhibits
thereto.

     (iv) In the event the Company shall propose to sell less than all the Refused
Securities (any such sale to be in the manner and on the terms specified in Section
4(o)(iii) above), then such Buyer may, at its sole option and in its sole discretion, reduce
the number or amount of the Offered Securities specified in its Notice of Acceptance to an
amount that shall be not less than the number or amount of the Offered Securities that such
Buyer elected to purchase pursuant to Section 4(o)(ii) above multiplied by a fraction, (i)
the numerator of which shall be the number or amount of Offered Securities the Company
actually proposes to issue, sell or exchange (including Offered Securities to be issued or
sold to Buyers pursuant to this Section 4(o) prior to such reduction) and (ii) the
denominator of which shall be the original amount of the Offered Securities. In the event
that any Buyer so elects to reduce the number or amount of Offered Securities specified in
its Notice of Acceptance, the Company may not issue, sell or exchange more than the reduced
number or amount of the Offered Securities unless and until such securities have again been
offered to the Buyers in accordance with Section 4(o)(i) above.

     (v) Upon the closing of the issuance, sale or exchange of all or less than all of the
Refused Securities, such Buyer shall acquire from the Company, and the Company shall issue
to such Buyer, the number or amount of Offered Securities specified in its Notice of
Acceptance. The purchase by such Buyer of any Offered Securities is subject in all cases to
the preparation, execution and delivery by the Company and such Buyer of a separate purchase
agreement relating to such Offered Securities reasonably satisfactory in form and substance
to such Buyer and its counsel.

     (vi) Any Offered Securities not acquired by a Buyer or other Persons in accordance with
this Section 4(o) may not be issued, sold or exchanged until they are again offered to such
Buyer under the procedures specified in this Agreement.

     (vii) The Company and each Buyer agree that if any Buyer elects to participate in the
Offer, neither the Subsequent Placement Agreement with respect to such Offer nor any other
transaction documents related thereto (collectively, the “Subsequent Placement Documents”)
shall include any term or provision whereby such Buyer shall be required to agree to any
restrictions on trading as to any securities of the Company (other than restrictions
required by applicable securities laws on the resale of the specific

26

 

“restricted securities” (as that term is defined under Rule 144) being issued in the
Subsequent Placement) or be required to consent to any amendment to or termination of, or
grant any waiver, release or the like under or in connection with, any agreement previously
entered into with the Company or any instrument received from the Company.

     (viii) Notwithstanding anything to the contrary in this Section 4(o) and unless
otherwise agreed to by such Buyer, the Company shall either confirm in writing to such Buyer
that the transaction with respect to the Subsequent Placement has been abandoned or shall
publicly disclose its intention to issue the Offered Securities, in either case in such a
manner such that such Buyer will not be in possession of any material, non-public
information, by the fifth (5th) Business Day following delivery of the Offer
Notice. If by such fifth (5th) Business Day, no public disclosure regarding a
transaction with respect to the Offered Securities has been made, and no notice regarding
the abandonment of such transaction has been received by such Buyer, such transaction shall
be deemed to have been abandoned and such Buyer shall not be in possession of any material,
non-public information with respect to the Company or any of its Subsidiaries. Should the
Company decide to again pursue such transaction with respect to the Offered Securities, the
Company shall provide such Buyer with another Offer Notice in accordance with, and subject
to, the terms of this Section 4(o) and such Buyer will again have the right of participation
set forth in this Section 4(o). The Company shall not be permitted to deliver more than one
Offer Notice to such Buyer in any forty-five (45) day period, except as expressly
contemplated by the last sentence of Section 4(o)(ii).

     (ix) The restrictions contained in this Section 4(o) shall not apply in connection with
the issuance of any Excluded Securities. The Company shall not circumvent the provisions of
this Section 4(o) by providing terms or conditions to one Buyer that are not provided to
all.

     (p) Passive Foreign Investment Company. The Company shall conduct its business in such
a manner as will ensure that the Company will not be deemed to constitute a passive foreign
investment company within the meaning of Section 1297 of the U.S. Internal Revenue Code of 1986, as
amended.

     (q) Restriction on Redemption and Cash Dividends. So long as any Notes are
outstanding, the Company shall not, directly or indirectly, redeem, or declare or pay any cash
dividend or distribution on, any securities of the Company without the prior express written
consent of the Buyers.

     (r) Corporate Existence. So long as any Buyer owns any Notes or Warrants, the Company
shall not be party to any Fundamental Transaction (as defined in the Notes) unless the Company is
in compliance with the applicable provisions governing Fundamental Transactions set forth in the
Notes and the Warrants.

     (s) Shareholder Approval. The Company shall provide each shareholder entitled to vote
at a special or annual meeting of shareholders of the Company (the “Shareholder Meeting”), which
meeting shall be held no later than June 15, 2011 (the “Shareholder Meeting Deadline”)), a proxy
statement, substantially in a form which has been previously reviewed by each of the Buyers and
each of their counsel at the expense of the Company, soliciting each such

27

 

shareholder’s affirmative vote at the Shareholder Meeting for approval of resolutions (the
“Resolutions”) (x) (i) permitting adjustments to the Exercise Price (as defined in the Series A
Warrants and the Series C Warrants) below the Floor Price (as defined in the Series A Warrants and
the Series C Warrants) and the issuance of any resulting additional shares of Common Stock issued
thereunder, (iii) making the Exchange Cap (as defined in the Notes) inapplicable with respect to
issuances of Common Stock in excess thereof, (iii) eliminating any floor price in any of the
warrants held by any of the Buyers, all in accordance with applicable law and the rules and
regulations of Principal Market, (y) amending the Articles of Incorporation to authorize
500,000,000 shares of Common Stock and (z) authorizing up to a 1 for 10 reverse stock split of the
Common Stock (such reverse stock split is referred to herein as the “Reverse Stock Split”) (such
affirmative approval of all of clauses (x), (y) and (z) is referred to herein as the “Shareholder
Approval”), and the Company shall use its best efforts to solicit its shareholders’ approval of the
Resolutions (which efforts shall include, without limitation, the requirement to hire a reputable
proxy solicitor) and to cause the board of directors of the Company to recommend to the
shareholders that they approve the Resolutions. The Company shall be obligated to seek to obtain
the Shareholder Approval by the Shareholder Meeting Deadline. If, despite the Company’s best
efforts the Shareholder Approval is not obtained on or prior to the Shareholder Meeting Deadline,
the Company shall cause an additional Shareholder Meeting to be held every three (3) months
thereafter until such Shareholder Approval is obtained. Until Shareholder Approval is obtained, the
Company shall not, directly or indirectly, issue or sell, or, in accordance with Section 2 of the
Warrants, be deemed to have issued or sold, any shares of Common Stock (other than Excluded
Securities and shares of Common Stock issuable under Convertible Securities held by any Buyer) for
consideration per share (determined in accordance with Section 2 of the Warrants) less than the
Floor Price at any time while any of the Notes or Warrants are outstanding without the prior
written consent of each Buyer, which consent may be granted or withheld in each Buyer’s sole
discretion.

     (t) Waiver of Certain Anti-Dilution Rights. Each Buyer who holds Class C warrants
issued by the Company, Class D warrants issued by the Company, Class E warrants issued by the
Company, Class F warrants issued by the Company, Class G warrants issued by the Company, Class I
warrants issued by the Company, Notes (as defined in the Prior Purchase Agreement) and Warrants (as
defined in the Prior Purchase Agreement) hereby agrees with the Company that no adjustment to any
of the exercise or conversion prices thereunder shall occur solely as a result of the issuance of
any of the Securities or any of the Securities (as defined in the Prior Purchase Agreement). Each
Buyer who is party to the Prior Purchase Agreement consents to the transactions contemplated by
this Agreement with respect to the Transaction Documents (as defined in the Prior Purchase
Agreement) and expressly acknowledges and agrees that the consummation of the transactions
contemplated by the Transaction Documents and the issuance of the Securities shall not constitute a
breach of any of the Transaction Documents (as defined in the Prior Purchase Agreement). ICOP
hereby agrees with the Company that no adjustment to any of the exercise or conversion prices under
the Notes (as defined in the Prior Purchase Agreement) or Warrants (as defined in the Prior
Purchase Agreement) held by ICOP shall occur solely as a result of the issuance of any of the
Securities or any of the Securities (as defined in the Prior Purchase Agreement). ICOP consents to
the transactions contemplated by this Agreement with respect to the Transaction Documents (as
defined in the Prior Purchase Agreement) and expressly acknowledges and agrees that the
consummation of the transactions contemplated by the Transaction Documents and the issuance of the
Securities shall not constitute a breach of any of the Transaction Documents (as defined in the
Prior Purchase Agreement).

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5. REGISTER; TRANSFER AGENT INSTRUCTIONS; LEGENDS.

     (a) Register. The Company shall maintain at its principal executive offices (or such
other office or agency of the Company as it may designate by notice to each holder of Securities),
a register for the Notes and the Warrants in which the Company shall record the name and address of
the Person in whose name the Notes and the Warrants have been issued (including the name and
address of each transferee), the principal amount of the Notes held by such Person, the number of
Conversion Shares issuable upon conversion of the Notes held by such Person and the number of
Warrant Shares issuable upon exercise of the Warrants held by such Person. The Company shall keep
the register open and available at all times during business hours for inspection of any Buyer or
its legal representatives.

     (b) Transfer Agent Instructions. The Company shall issue irrevocable instructions to
its transfer agent and any subsequent transfer agent in a form acceptable to each of the Buyers
(the “Irrevocable Transfer Agent Instructions”) to issue certificates or credit shares to the
applicable balance accounts at The Depository Trust Company (“DTC”), registered in the name of each
Buyer or its respective nominee(s), for the Conversion Shares and the Warrant Shares in such
amounts as specified from time to time by each Buyer to the Company upon conversion of the Notes or
exercise of the Warrants (as the case may be), as permitted by applicable law. The Company
represents and warrants that no instruction other than the Irrevocable Transfer Agent Instructions
referred to in this Section 5(b), and stop transfer instructions to give effect to Section 2(g)
hereof, will be given by the Company to its transfer agent with respect to the Securities, and that
the Securities shall otherwise be freely transferable on the books and records of the Company, as
applicable, to the extent provided in this Agreement and the other Transaction Documents. If a
Buyer effects a sale, assignment or transfer of the Securities in accordance with Section 2(g), the
Company shall permit the transfer and shall promptly instruct its transfer agent to issue one or
more certificates or credit shares to the applicable balance accounts at DTC in such name and in
such denominations as specified by such Buyer to effect such sale, transfer or assignment. In the
event that such sale, assignment or transfer involves Conversion Shares or Warrant Shares sold,
assigned or transferred pursuant to an effective registration statement or in compliance with Rule
144, the transfer agent shall issue such shares to such Buyer, assignee or transferee (as the case
may be) without any restrictive legend in accordance with Section 5(d) below. The Company
acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to each
Buyer. Accordingly, the Company acknowledges that the remedy at law for a breach of its obligations
under this Section 5(b) will be inadequate and agrees, in the event of a breach or threatened
breach by the Company of the provisions of this Section 5(b), that each Buyer shall be entitled, in
addition to all other available remedies, to an order and/or injunction restraining any breach and
requiring immediate issuance and transfer, without the necessity of showing economic loss and
without any bond or other security being required. The Company shall cause its counsel to issue the
legal opinion referred to in the Irrevocable Transfer Agent Instructions to the Company’s transfer
agent on each Effective Date (as defined in the Registration Rights Agreement). Any fees (with
respect to the transfer agent, counsel to the Company or otherwise) associated with the issuance of
such opinion or the removal of any legends on any of the Securities shall be borne by the Company.

29

 

     (c) Legends. Each Buyer understands that the Securities have been issued (or will be
issued in the case of the Conversion Shares and the Warrant Shares) pursuant to an exemption from
registration or qualification under the 1933 Act and applicable state securities laws, and except
as set forth below, the Securities shall bear any legend as required by the “blue sky” laws of any
state and a restrictive legend in substantially the following form (and a stop-transfer order may
be placed against transfer of such stock certificates):

[NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR
THE SECURITIES INTO WHICH THESE SECURITIES ARE [CONVERTIBLE] [EXERCISABLE] HAVE
BEEN][THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT 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 TO THE HOLDER (IF
REQUESTED BY THE COMPANY), IN A FORM REASONABLY ACCEPTABLE TO THE COMPANY, THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD OR ELIGIBLE TO BE
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.

     (d) Removal of Legends. Certificates evidencing Securities shall not be required to
contain the legend set forth in Section 5(c) above or any other legend (i) while a registration
statement (including a Registration Statement) covering the resale of such Securities is effective
under the 1933 Act, (ii) following any sale of such Securities pursuant to Rule 144 (assuming the
transferor is not an affiliate of the Company), (iii) if such Securities are eligible to be sold,
assigned or transferred under Rule 144 (provided that a Buyer provides the Company with reasonable
assurances that such Securities are eligible for sale, assignment or transfer under Rule 144 which
shall not include an opinion of counsel), (iv) in connection with a sale, assignment or other
transfer (other than under Rule 144), provided that such Buyer provides the Company with an opinion
of counsel to such Buyer, in a generally acceptable form, to the effect that such sale, assignment
or transfer of the Securities may be made without registration under the applicable requirements of
the 1933 Act or (v) if such legend is not required under applicable requirements of the 1933 Act
(including, without limitation, controlling judicial interpretations and pronouncements issued by
the SEC). If a legend is not required pursuant to the foregoing, the Company shall no later than
two (2) Trading Days following the delivery by a Buyer to the Company or the transfer agent (with
notice to the Company) of a legended certificate representing such Securities (endorsed or with
stock powers attached, signatures guaranteed, and otherwise in form necessary to affect the
reissuance and/or transfer, if applicable), together with any other deliveries from such Buyer as
may be required above in this Section 5(d), as directed by such Buyer, either: (A) provided that
the Company’s transfer agent is participating in the DTC Fast Automated Securities Transfer Program
and such Securities are Conversion Shares or Warrant Shares, credit the aggregate number of shares
of Common Stock to which such Buyer

30

 

shall be entitled to such Buyer’s or its designee’s balance account with DTC through its
Deposit/Withdrawal at Custodian system or (B) if the Company’s transfer agent is not participating
in the DTC Fast Automated Securities Transfer Program, issue and deliver (via reputable overnight
courier) to such Buyer, a certificate representing such Securities that is free from all
restrictive and other legends, registered in the name of such Buyer or its designee (the date by
which such credit is so required to be made to the balance account of such Buyer’s or such Buyer’s
nominee with DTC or such certificate is required to be delivered to such Buyer pursuant to the
foregoing is referred to herein as the “Required Delivery Date”).

     (e) Failure to Timely Deliver; Buy-In. If the Company fails to (i) issue and deliver
(or cause to be delivered) to a Buyer by the Required Delivery Date a certificate representing the
Securities so delivered to the Company by such Buyer that is free from all restrictive and other
legends or (ii) credit the balance account of such Buyer’s or such Buyer’s nominee with DTC for
such number of Conversion Shares or Warrant Shares so delivered to the Company, then, in addition
to all other remedies available to such Buyer, the Company shall pay in cash to such Buyer on each
day after the Required Delivery Date that the issuance or credit of such shares is not timely
effected an amount equal to 2% of the original principal amount of such Buyer’s Note. In addition
to the foregoing, if the Company fails to so properly deliver such unlegended certificates or so
properly credit the balance account of such Buyer’s or such Buyer’s nominee with DTC by the
Required Delivery Date, and if on or after the Required Delivery Date such Buyer (or any other
Person in respect, or on behalf, of such Buyer) purchases (in an open market transaction or
otherwise) shares of Common Stock to deliver in satisfaction of a sale by such Buyer of all or any
portion of the number of shares of Common Stock, or a sale of a number of shares of Common Stock
equal to all or any portion of the number of shares of Common Stock, that such Buyer so anticipated
receiving from the Company without any restrictive legend, then, in addition to all other remedies
available to such Buyer, the Company shall, within three (3) Trading Days after such Buyer’s
request and in such Buyer’s sole discretion, either (i) pay cash to such Buyer in an amount equal
to such Buyer’s total purchase price (including brokerage commissions and other out-of-pocket
expenses, if any) for the shares of Common Stock so purchased (including brokerage commissions and
other out-of-pocket expenses, if any) (the “Buy-In Price”), at which point the Company’s obligation
to so deliver such certificate or credit such Buyer’s balance account shall terminate and such
shares shall be cancelled, or (ii) promptly honor its obligation to so deliver to such Buyer a
certificate or certificates or credit such Buyer’s DTC account representing such number of shares
of Common Stock that would have been so delivered if the Company timely complied with its
obligations hereunder and pay cash to such Buyer in an amount equal to the excess (if any) of the
Buy-In Price over the product of (A) such number of shares of Conversion Shares or Warrant Shares
(as the case may be) that the Company was required to deliver to such Buyer by the Required
Delivery Date multiplied by (B) the lowest Closing Sale Price (as defined in the Warrants) of the
Common Stock on any Trading Day during the period commencing on the date of the delivery by such
Buyer to the Company of the applicable Conversion Shares or Warrant Shares (as the case may be) and
ending on the date of such delivery and payment under this clause (ii).

6. CONDITIONS TO THE COMPANY’S OBLIGATION TO SELL.

     (a) The obligation of the Company hereunder to issue and sell the Notes and Warrants to each
Buyer at the Closing is subject to the satisfaction, at or before the Closing Date, of each of the
following conditions, provided that these conditions are for the Company’s sole

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benefit and may be waived by the Company at any time in its sole discretion by providing each
Buyer with prior written notice thereof:

     (i) Such Buyer shall have executed each of the other Transaction Documents to which it
is a party and delivered the same to the Company.

     (ii) Such Buyer and each other Buyer shall have delivered to the Company the Purchase
Price (less, in the case of Iroquois, the amounts withheld pursuant to Section 4(g)) for the
Notes and Warrants being purchased by such Buyer at the Closing by wire transfer of
immediately available funds pursuant to the wire instructions provided by the Company.

     (iii) The representations and warranties of such Buyer shall be true and correct in all
material respects as of the date when made and as of the Closing Date as though originally
made at that time (except for representations and warranties that speak as of a specific
date, which shall be true and correct as of such date), and such Buyer shall have performed,
satisfied and complied in all material respects with the covenants, agreements and
conditions required by this Agreement to be performed, satisfied or complied with by such
Buyer at or prior to the Closing Date.

7. CONDITIONS TO EACH BUYER’S OBLIGATION TO PURCHASE.

     (a) The obligation of each Buyer hereunder to purchase its Note and Warrants at the Closing is
subject to the satisfaction, at or before the Closing Date, of each of the following conditions,
provided that these conditions are for each Buyer’s sole benefit and may be waived by such Buyer at
any time in its sole discretion by providing the Company with prior written notice thereof:

     (i) The Company and each Subsidiary (as the case may be) shall have duly executed and
delivered to such Buyer each of the Transaction Documents to which it is a party and the
Company shall have duly executed and delivered to such Buyer a Note (in such original
principal amount as is set forth across from such Buyer’s name in column (3) on the Schedule
of Buyers) and the related Series A Warrants, Series B Warrants and Series C Warrants (for
such aggregate number of Series A Warrant Shares, Series B Warrants and Series C Warrants as
is set forth across from such Buyer’s name in columns (4), (5) and (6) on the Schedule of
Buyers, respectively), in each case, being purchased by such Buyer at the Closing pursuant
to this Agreement.

     (ii) Such Buyer shall have received the opinion of Cozen O’Connor, the
Company’s counsel, dated as of the Closing Date, in the form previously provided to the
Company.

     (iii) The Company shall have delivered to such Buyer a copy of the Irrevocable Transfer
Agent Instructions, in the form acceptable to such Buyer, which instructions shall have been
delivered to and acknowledged in writing by the Company’s transfer agent.

     (iv) The Company shall have delivered to such Buyer a certificate evidencing the
formation and good standing of the Company and each of its Subsidiaries in each

32

 

such entity’s jurisdiction of formation issued by the Secretary of State (or comparable
office) of such jurisdiction of formation as of a date within ten (10) days of the Closing
Date.

     (v) The Company shall have delivered to such Buyer a certificate evidencing the
Company’s and each Subsidiary’s qualification as a foreign corporation and good standing
issued by the Secretary of State (or comparable office) of each jurisdiction in which the
Company and each Subsidiary conducts business and is required to so qualify, as of a date
within ten (10) days of the Closing Date.

     (vi) The Company shall have delivered to such Buyer a certified copy of the Articles of
Incorporation as certified by the Secretary of State of the Company’s jurisdiction of
incorporation within ten (10) days of the Closing Date.

     (vii) Each Subsidiary shall have delivered to such Buyer a certified copy of its
certificate of incorporation or formation as certified by the Secretary of State (or
comparable office) of such Subsidiary’s jurisdiction of incorporation or formation within
ten (10) days of the Closing Date.

     (viii) The Company and each Subsidiary shall have delivered to such Buyer a
certificate, in the form acceptable to such Buyer, executed by the Secretary of the Company
and each Subsidiary and dated as of the Closing Date, as to (i) the resolutions consistent
with Section 3(b) as adopted by the Company’s and each Subsidiary’s board of directors in a
form reasonably acceptable to such Buyer, (ii) the Articles of Incorporation of the Company
and the organizational documents of each Subsidiary and (iii) the Bylaws of the Company and
the bylaws of each Subsidiary, each as in effect at the Closing.

     (ix) Each and every representation and warranty of the Company shall be true and
correct as of the date when made and as of the Closing Date as though originally made at
that time (except for representations and warranties that speak as of a specific date, which
shall be true and correct as of such date) and the Company shall have performed, satisfied
and complied in all respects with the covenants, agreements and conditions required to be
performed, satisfied or complied with by the Company at or prior to the Closing Date. Such
Buyer shall have received a certificate, executed by the Chief Executive Officer of the
Company, dated as of the Closing Date, to the foregoing effect and as to such other matters
as may be reasonably requested by such Buyer in the form acceptable to such Buyer.

     (x) The Company shall have delivered to such Buyer a letter from the Company’s transfer
agent certifying the number of shares of Common Stock outstanding on the Closing Date
immediately prior to the Closing.

     (xi) The Common Stock (I) shall be designated for quotation or listed on the Principal
Market and (II) shall not have been suspended, as of the Closing Date, by the SEC or the
Principal Market from trading on the Principal Market nor shall suspension by the SEC or the
Principal Market have been threatened, except as disclosed in the SEC Documents, as of the
Closing Date, either (A) in writing by the SEC or the Principal Market or (B) by falling
below the minimum maintenance requirements of the Principal Market.

33

 

     (xii) The Company shall have obtained all governmental, regulatory or third party
consents and approvals, if any, necessary for the sale of the Securities, including without
limitation, those required by the Principal Market.

     (xiii) No statute, rule, regulation, executive order, decree, ruling or injunction
shall have been enacted, entered, promulgated or endorsed by any court or governmental
authority of competent jurisdiction that prohibits the consummation of any of the
transactions contemplated by the Transaction Documents.

     (xiv) Since the date of execution of this Agreement, no event or series of events shall
have occurred that reasonably would have or result in a Material Adverse Effect.

     (xv) In accordance with the terms of the Security Documents, the Company shall have
delivered to such Buyer (i) certificates representing the Subsidiaries’ shares of capital
stock to the extent such subsidiary is a corporation or otherwise has certificated capital
stock, along with duly executed blank stock powers and (ii) appropriate financing statements
on Form UCC-1 to be duly filed in such office or offices as may be necessary or, in the
opinion of the Buyers, desirable to perfect the security interests purported to be created
by each Security Document.

     (xvi) Such Buyer shall have received true copies of UCC search results, listing all
effective financing statements which name as debtor the Company or any of its Subsidiaries
filed in the prior five years to perfect an interest in any assets thereof, together with
copies of such financing statements, none of which, except as otherwise agreed in writing by
the Buyers, shall cover any of the Collateral (as defined in the Security Documents) and the
results of searches for any tax lien and judgment lien filed against such Person or its
property, which results, except as otherwise agreed to in writing by the Buyers shall not
show any such Liens (as defined in the Security Documents).

     (xvii) The Company and its Subsidiaries shall have delivered to such Buyer such other
documents, instruments or certificates relating to the transactions contemplated by this
Agreement as such Buyer or its counsel may reasonably request.

8. TERMINATION.

     In the event that the Closing shall not have occurred with respect to a Buyer within five (5)
days after the date hereof, then such Buyer shall have the right to terminate its obligations under
this Agreement with respect to itself at any time on or after the close of business on such date
without liability of such Buyer to any other party; provided, however, (i) the right to terminate
this Agreement under this Section 8 shall not be available to such Buyer if the failure of the
transactions contemplated by this Agreement to have been consummated by such date is the result of
such Buyer’s breach of this Agreement and (ii) the abandonment of the sale and purchase of the
Notes and the Warrants shall be applicable only to such Buyer providing such written notice,
provided further that no such termination shall affect any obligation of the Company under this
Agreement to reimburse such Buyer for the expenses described in Section 4(g) above. Nothing
contained in this Section 8 shall be deemed to release any party from any

34

 

liability for any breach by such party of the terms and provisions of this Agreement or the
other Transaction Documents or to impair the right of any party to compel specific performance by
any other party of its obligations under this Agreement or the other Transaction Documents.

9. MISCELLANEOUS.

     (a) Governing Law; Jurisdiction; Jury Trial. All questions concerning the construction,
validity, enforcement and interpretation of this Agreement and the other Transaction Documents
shall be governed by the internal laws of the State of New York, without giving effect to any
choice of law or conflict of law provision or rule (whether of the State of New York or any other
jurisdictions) that would cause the application of the laws of any jurisdictions other than the
State of New York. Each party hereby irrevocably submits to the exclusive jurisdiction of the state
and federal courts sitting in The City of New York, Borough of Manhattan, for the adjudication of
any dispute hereunder or under any of the other Transaction Documents or in connection herewith or
therewith or with any transaction contemplated hereby or thereby or discussed herein or therein,
and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any
claim that it is not personally subject to the jurisdiction of any such court, that such suit,
action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or
proceeding is improper. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by mailing a copy thereof
to such party at the address for such 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 manner
permitted by law. Nothing contained herein shall be deemed or operate to preclude any Buyer from
bringing suit or taking other legal action against the Company in any other jurisdiction to collect
on the Company’s obligations to such Buyer or to enforce a judgment or other court ruling in favor
of such Buyer. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO, AND AGREES NOT TO
REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR
ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.

     (b) Counterparts. This Agreement may be executed in two or more identical
counterparts, all of which shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each party and delivered to the other party. In the
event that any signature is delivered by facsimile transmission or by an e-mail which contains a
portable document format (.pdf) file of an executed signature page, such signature page shall
create a valid and binding obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such signature page were an original thereof.

     (c) Headings; Gender. The headings of this Agreement are for convenience of reference
and shall not form part of, or affect the interpretation of, this Agreement. Unless the context
clearly indicates otherwise, each pronoun herein shall be deemed to include the masculine,
feminine, neuter, singular and plural forms thereof. The terms “including,” “includes,” “include”
and words of like import shall be construed broadly as if followed by the words “without
limitation.” The terms “herein,” “hereunder,” “hereof” and words of like import refer to this
entire Agreement instead of just the provision in which they are found. For purposes of this
Agreement for each Buyer’s benefit, the word “state” or “states” includes any “province”

35

 

or “provinces” in Canada and the concept of “law, rules or regulations” includes laws, rules
and regulations under applicable law, rules and regulations in Canada.

     (d) Severability. If any provision of this Agreement is prohibited by law or otherwise
determined to be invalid or unenforceable by a court of competent jurisdiction, the provision that
would otherwise be prohibited, invalid or unenforceable shall be deemed amended to apply to the
broadest extent that it would be valid and enforceable, and the invalidity or unenforceability of
such provision shall not affect the validity of the remaining provisions of this Agreement so long
as this Agreement as so modified continues to express, without material change, the original
intentions of the parties as to the subject matter hereof and the prohibited nature, invalidity or
unenforceability of the provision(s) in question does not substantially impair the respective
expectations or reciprocal obligations of the parties or the practical realization of the benefits
that would otherwise be conferred upon the parties. The parties will endeavor in good faith
negotiations to replace the prohibited, invalid or unenforceable provision(s) with a valid
provision(s), the effect of which comes as close as possible to that of the prohibited, invalid or
unenforceable provision(s). Notwithstanding anything to the contrary contained in this Agreement or
any other Transaction Document (and without implication that the following is required or
applicable), it is the intention of the parties that in no event shall amounts and value paid by
the Company and/or any of its Subsidiaries (as the case may be), or payable to or received by any
of the Buyers, under the Transaction Documents (including without limitation, any amounts that
would be characterized as “interest” under applicable law (including, without limitation, any
applicable Canadian law)) exceed amounts permitted under any applicable law. Accordingly, if any
obligation to pay, payment made to any Buyer, or collection by any Buyer pursuant the Transaction
Documents is finally judicially determined to be contrary to any such applicable law, such
obligation to pay, payment or collection shall be deemed to have been made by mutual mistake of
such Buyer, the Company and its Subsidiaries and such amount shall be deemed to have been adjusted
with retroactive effect to the maximum amount or rate of interest, as the case may be, as would not
be so prohibited by the applicable law. Such adjustment shall be effected, to the extent necessary,
by reducing or refunding, at the option of such Buyer, the amount of interest or any other amounts
which would constitute unlawful amounts required to be paid or actually paid to such Buyer under
the Transaction Documents. For greater certainty, to the extent that any interest, charges, fees,
expenses or other amounts required to be paid to or received by such Buyer under any of the
Transaction Documents or related thereto are held to be within the meaning of “interest” or another
applicable term to otherwise be violative of applicable law, such amounts shall be pro-rated over
the period of time to which they relate.

     (e) Entire Agreement; Amendments. This Agreement, the other Transaction Documents and
the schedules and exhibits attached hereto and thereto and the instruments referenced herein and
therein supersede all other prior oral or written agreements between the Buyers, the Company, its
Subsidiaries, their affiliates and Persons acting on their behalf solely with respect to the
matters contained herein and therein, and this Agreement, the other Transaction Documents, the
schedules and exhibits attached hereto and thereto and the instruments referenced herein and
therein contain the entire understanding of the parties solely with respect to the matters covered
herein and therein; provided, however, nothing contained in this Agreement or any other Transaction
Document shall (or shall be deemed to), except as expressly set forth in Section 4(t) and the third
sentence of Section 4(o), (i) have any effect on any agreements any Buyer has entered into with, or
any instruments any Buyer has received from, the Company or any of its Subsidiaries prior to the
date hereof with respect to any prior

36

 

investment made by such Buyer in the Company or (ii) waive, alter, modify or amend in any
respect any obligations of the Company or any of its Subsidiaries, or any rights of or benefits to
any Buyer or any other Person, in any agreement entered into prior to the date hereof between or
among the Company and/or any of its Subsidiaries and any Buyer, or any instruments any Buyer
received from the Company and/or any of its Subsidiaries prior to the date hereof, and all such
agreements and instruments shall continue in full force and effect. Except as specifically set
forth herein or therein, neither the Company nor any Buyer makes any representation, warranty,
covenant or undertaking with respect to such matters. For clarification purposes, the Recitals are
part of this Agreement. No provision of this Agreement may be amended other than by an instrument
in writing signed by the Company and each of the Buyers. No waiver shall be effective unless it is
in writing and signed by an authorized representative of the waiving party. No consideration shall
be offered or paid to any Person to amend or consent to a waiver or modification of any provision
of any of the Transaction Documents unless the same consideration also is offered to all of the
parties to the Transaction Documents, all holders of the Notes or all holders of the Warrants (as
the case may be). The Company has not, directly or indirectly, made any agreements with any Buyers
relating to the terms or conditions of the transactions contemplated by the Transaction Documents
except as set forth in the Transaction Documents. Without limiting the foregoing, the Company
confirms that, except as set forth in this Agreement, no Buyer has made any commitment or promise
or has any other obligation to provide any financing to the Company, any Subsidiary or otherwise.
As a material inducement for each Buyer to enter into this Agreement, the Company expressly
acknowledges and agrees that (i) no due diligence or other investigation or inquiry conducted by a
Buyer, any of its advisors or any of its representatives shall affect such Buyer’s right to rely
on, or shall modify or qualify in any manner or be an exception to any of, the Company’s
representations and warranties contained in this Agreement or any other Transaction Document and
(ii) unless a provision of this Agreement or any other Transaction Document is expressly preceded
by the phrase “except as disclosed in the SEC Documents,” nothing contained in any of the SEC
Documents shall affect such Buyer’s right to rely on, or shall modify or qualify in any manner or
be an exception to any of, the Company’s representations and warranties contained in this Agreement
or any other Transaction Document.

     (f) Notices. Any notices, consents, waivers or other communications required or
permitted to be given under the terms of this Agreement must be in writing and will be deemed to
have been delivered: (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by
facsimile (provided confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one (1) Business Day after deposit with an overnight
courier service with next day delivery specified, in each case, properly addressed to the party to
receive the same. The addresses and facsimile numbers for such communications shall be:

If to the Company:

Converted Organics Inc.

137A Lewis Wharf

Boston MA 02110

Telephone: 617.624.0111

Facsimile: 617.624.0333

Attention: Edward J. Gildea, President

37

 

With a copy (for informational purposes only) to:

Cozen O’Connor

1900 Market Street

Philadelphia, PA 19103

Telephone: 215-665-5542

Facsimile: 215-701-2478

Attention: Ralph De Martino, Esq.

                  Cavas S. Pavri, Esq.

If to the Transfer Agent:

Computershare Inc.

250 Royall St

Canton, Massachusetts 02021

Telephone: (781) 575-4182

Facsimile: (781) 575.2549

Attention: Kim Crimi

If to a Buyer, to its address or facsimile number (as the case may be) set forth on the Schedule of
Buyers, with copies to such Buyer’s representatives as set forth on the Schedule of Buyers,

with a copy (for informational purposes only) to:

Greenberg Traurig, LLP

77 W. Wacker Drive, Suite 3100

Chicago, Illinois 60601

Telephone: (312) 456-8400

Facsimile: (312) 456-8435

Attention: Peter H. Lieberman, Esq.

                  Todd A. Mazur, Esq.

or to such other address and/or facsimile number and/or to the attention of such other Person as
the recipient party has specified by written notice given to each other party five (5) days prior
to the effectiveness of such change, provided that Greenberg Traurig, LLP shall only be provided
copies of notices sent to Iroquois. Written confirmation of receipt (A) given by the recipient of
such notice, consent, waiver or other communication, (B) mechanically or electronically generated
by the sender’s facsimile machine containing the time, date, recipient facsimile number and an
image of the first page of such transmission or (C) provided by an overnight courier service shall
be rebuttable evidence of personal service, receipt by facsimile or receipt from an overnight
courier service in accordance with clause (i), (ii) or (iii) above, respectively.

     (g) Successors and Assigns. This Agreement shall be binding upon and inure to the
benefit of the parties and their respective successors and assigns, including, as contemplated
below, any assignee of any of the Securities. The Company shall not assign this Agreement or any
rights or obligations hereunder without the prior written consent of each of the Buyers, including,
without limitation, by way of a Fundamental Transaction (as defined in the Warrants) (unless the
Company is in compliance with the applicable provisions governing Fundamental

38

 

Transactions set forth in the Warrants) or a Fundamental Transaction (as defined in the Notes)
(unless the Company is in compliance with the applicable provisions governing Fundamental
Transactions set forth in the Notes). A Buyer may assign some or all of its rights hereunder in
connection with any transfer of any of its Securities without the consent of the Company, in which
event such assignee shall be deemed to be a Buyer hereunder with respect to such assigned rights.

     (h) No Third Party Beneficiaries. This Agreement is intended for the benefit of the
parties hereto and their respective permitted successors and assigns, and is not for the benefit
of, nor may any provision hereof be enforced by, any other Person, other than the Indemnitees
referred to in Section 9(k).

     (i) Survival. The representations, warranties, agreements and covenants shall survive
the Closing. Each Buyer shall be responsible only for its own representations, warranties,
agreements and covenants hereunder.

     (j) Further Assurances. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all such other
agreements, certificates, instruments and documents, as any other party may reasonably request in
order to carry out the intent and accomplish the purposes of this Agreement and the consummation of
the transactions contemplated hereby.

     (k) Indemnification. In consideration of each Buyer’s execution and delivery of the
Transaction Documents and acquiring the Securities thereunder and in addition to all of the
Company’s other obligations under the Transaction Documents, the Company shall defend, protect,
indemnify and hold harmless each Buyer and each holder of any Securities and all of their
stockholders, partners, members, officers, directors, employees and direct or indirect investors
and any of the foregoing Persons’ agents or other representatives (including, without limitation,
those retained in connection with the transactions contemplated by this Agreement) (collectively,
the “Indemnitees”) from and against any and all actions, causes of action, suits, claims, losses,
costs, penalties, fees, liabilities and damages, and expenses in connection therewith (irrespective
of whether any such Indemnitee is a party to the action for which indemnification hereunder is
sought), and including reasonable attorneys’ fees and disbursements (the “Indemnified
Liabilities”), incurred by any Indemnitee as a result of, or arising out of, or relating to (a) any
misrepresentation or breach of any representation or warranty made by the Company or any Subsidiary
in any of the Transaction Documents, (b) any breach of any covenant, agreement or obligation of the
Company or any Subsidiary contained in any of the Transaction Documents or (c) any cause of action,
suit, proceeding or claim brought or made against such Indemnitee by a third party (including for
these purposes a derivative action brought on behalf of the Company or any Subsidiary) or which
otherwise involves such Indemnitee that arises out of or results from (i) the execution, delivery,
performance or enforcement of any of the Transaction Documents, (ii) any transaction financed or to
be financed in whole or in part, directly or indirectly, with the proceeds of the issuance of the
Securities, (iii) any disclosure properly made by such Buyer pursuant to Section 4(i), or (iv) the
status of such Buyer or holder of the Securities either as an investor in the Company pursuant to
the transactions contemplated by the Transaction Documents or as a party to this Agreement
(including, without limitation, as a party in interest or otherwise in any action or proceeding for
injunctive or other equitable relief). To the extent that the foregoing undertaking by the Company
may be unenforceable for any

39

 

reason, the Company shall make the maximum contribution to the payment and satisfaction of
each of the Indemnified Liabilities which is permissible under applicable law. Except as otherwise
set forth herein, the mechanics and procedures with respect to the rights and obligations under
this Section 9(k) shall be the same as those set forth in Section 6 of the Registration Rights
Agreement.

     (l) Construction. The language used in this Agreement will be deemed to be the
language chosen by the parties to express their mutual intent, and no rules of strict construction
will be applied against any party. No specific representation or warranty shall limit the
generality or applicability of a more general representation or warranty. Each and every reference
to share prices, shares of Common Stock and any other numbers in this Agreement that relate to the
Common Stock shall be automatically adjusted for stock splits, stock dividends, stock combinations
and other similar transactions that occur with respect to the Common Stock after the date of this
Agreement. Notwithstanding any references to “Buyers” herein, Iroquois and the Company acknowledge
and agree that Iroquois is the only Buyer that is a party hereto.

     (m) Remedies. Each Buyer and each holder of any Securities shall have all rights and
remedies set forth in the Transaction Documents and all rights and remedies which such holders have
been granted at any time under any other agreement or contract and all of the rights which such
holders have under any law. Any Person having any rights under any provision of this Agreement
shall be entitled to enforce such rights specifically (without posting a bond or other security),
to recover damages by reason of any breach of any provision of this Agreement and to exercise all
other rights granted by law. Furthermore, the Company recognizes that in the event that it or any
Subsidiary fails to perform, observe, or discharge any or all of its or such Subsidiary’s (as the
case may be) obligations under the Transaction Documents, any remedy at law may prove to be
inadequate relief to the Buyers. The Company therefore agrees that the Buyers shall be entitled to
seek specific performance and/or temporary, preliminary and permanent injunctive or other equitable
relief from any court of competent jurisdiction in any such case without the necessity of proving
actual damages and without posting a bond or other security.

     (n) Withdrawal Right. Notwithstanding anything to the contrary contained in (and
without limiting any similar provisions of) the Transaction Documents, whenever any Buyer exercises
a right, election, demand or option under a Transaction Document and the Company or any Subsidiary
does not timely perform its related obligations within the periods therein provided, then such
Buyer may rescind or withdraw, in its sole discretion from time to time upon written notice to the
Company or such Subsidiary (as the case may be), any relevant notice, demand or election in whole
or in part without prejudice to its future actions and rights.

     (o) Payment
Set Aside; Currency. To the extent that the Company makes a payment or
payments to any Buyer hereunder or pursuant to any of the other Transaction Documents or any of the
Buyers enforce or exercise their rights hereunder or 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, foreign, 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

40

 

continued in full force and effect as if such payment had not been made or such enforcement or
setoff had not occurred. Until the Warrants are no longer outstanding, the Company shall not effect
any stock combination, reverse stock split or other similar transaction (or make any public
announcement or disclosure with respect to any of the foregoing) without the prior written consent
of each of the Buyers (other than the Reverse Stock Split). Unless otherwise expressly indicated,
all dollar amounts referred to in this Agreement and the other Transaction Documents are in United
States Dollars (“U.S. Dollars”), and all amounts owing under this Agreement and all other
Transaction Documents shall be paid in U.S. Dollars. All amounts denominated in other currencies
(if any) shall be converted into the U.S. Dollar equivalent amount in accordance with the Exchange
Rate on the date of calculation. “Exchange Rate” means, in relation to any amount of currency to be
converted into U.S. Dollars pursuant to this Agreement, the U.S. Dollar exchange rate as published
in the Wall Street Journal on the relevant date of calculation.

     (p) Independent Nature of Buyers’ Obligations and Rights. The obligations of each
Buyer under the Transaction Documents are several and not joint with the obligations of any other
Buyer, and no Buyer shall be responsible in any way for the performance of the obligations of any
other Buyer under any Transaction Document. Nothing contained herein or in any other Transaction
Document, and no action taken by any Buyer pursuant hereto or thereto, shall be deemed to
constitute the Buyers as, and the Company acknowledges that the Buyers do not so constitute, a
partnership, an association, a joint venture or any other kind of group or entity, or create a
presumption that the Buyers are in any way acting in concert or as a group or entity with respect
to such obligations or the transactions contemplated by the Transaction Documents or any matters,
and the Company acknowledges that the Buyers are not acting in concert or as a group, and the
Company shall not assert any such claim, with respect to such obligations or the transactions
contemplated by the Transaction Documents. The decision of each Buyer to purchase Securities
pursuant to the Transaction Documents has been made by such Buyer independently of any other Buyer.
Each Buyer acknowledges that no other Buyer has acted as agent for such Buyer in connection with
such Buyer making its investment hereunder and that no other Buyer will be acting as agent of such
Buyer in connection with monitoring such Buyer’s investment in the Securities or enforcing its
rights under the Transaction Documents. The Company and each Buyer confirms that each Buyer has
independently participated with the Company and its Subsidiaries in the negotiation of the
transaction contemplated hereby with the advice of its own counsel and advisors. Each Buyer shall
be entitled to independently protect and enforce its rights, including, without limitation, the
rights arising out of this Agreement or out of any other Transaction Documents, and it shall not be
necessary for any other Buyer to be joined as an additional party in any proceeding for such
purpose. The use of a single agreement to effectuate the purchase and sale of the Securities
contemplated hereby was solely in the control of the Company, not the action or decision of any
Buyer, and was done solely for the convenience of the Company and its Subsidiaries and not because
it was required or requested to do so by any Buyer. It is expressly understood and agreed that
each provision contained in this Agreement and in each other Transaction Document is between the
Company, each Subsidiary and a Buyer, solely, and not between the Company, its Subsidiaries and the
Buyers collectively and not between and among the Buyers.

     (q) Judgment Currency.

          (i) If for the purpose of obtaining or enforcing judgment against the Company in any court in
any jurisdiction it becomes necessary to convert into any other currency (such

41

 

other currency being hereinafter in this Section 9(q) referred to as the “Judgment Currency”)
an amount due in U.S. Dollars under this Agreement or any other Transaction Document, the
conversion shall be made at the Exchange Rate prevailing on the Trading Day immediately preceding:
(1) the date actual payment of the amount due, in the case of any proceeding in the courts of
Illinois or in the courts of any other jurisdiction that will give effect to such conversion being
made on such date or (2) the date on which the foreign court determines, in the case of any
proceeding in the courts of any other jurisdiction (the date as of which such conversion is made
pursuant to this Section 9(q)(i) being hereinafter referred to as the “Judgment Conversion Date”).

          (ii) If in the case of any proceeding in the court of any jurisdiction referred to in Section
9(q)(i) above, there is a change in the Exchange Rate prevailing between the Judgment Conversion
Date and the date of actual payment of the amount due, the applicable party shall pay such adjusted
amount as may be necessary to ensure that the amount paid in the Judgment Currency, when converted
at the Exchange Rate prevailing on the date of payment, will produce the amount of U.S. Dollars
which could have been purchased with the amount of Judgment Currency stipulated in the judgment or
judicial order at the Exchange Rate prevailing on the Judgment Conversion Date.

          (iii) Any amount due from the Company under this provision shall be due as a separate debt and
shall not be affected by judgment being obtained for any other amounts due under or in respect of
this Agreement or any other Transaction Document.

[signature pages follow]

42

 

     IN WITNESS WHEREOF, Buyer and the Company have caused their respective signature page to this
Agreement to be duly executed as of the date first written above.

	 	 	 	 	 
	 	COMPANY:

CONVERTED ORGANICS INC.

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 

 

 

	 	 	 	 	 

     IN WITNESS WHEREOF, Buyer and the Company have caused their respective signature page to this
Agreement to be duly executed as of the date first written above.

	 	 	 	 	 
	 	BUYER:

IROQUOIS MASTER FUND LTD.

 	 
	 	 	 
	 	By:  Joshua Silverman, Authorized Signatory 	 
	 	 	 

 

 

	 	 	 	 	 

     IN WITNESS WHEREOF, the undersigned and the Company have caused their respective signature
page to this Agreement to be duly executed as of the date first written above.

	 	 	 	 	 
	 	IROQUOIS CAPITAL OPPORTUNITY FUND LP

 	 
	 	 	 
	 	By:  Joshua Silverman, Authorized Signatory 	 
	 	 	 
	 

 

 

SCHEDULE OF BUYERS

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	(1)	 	(2)	 	(3)	 	(4)	 	(5)	 	(6)	 	(7)
	 	 	 	 	Principal	 	Number of	 	Number of	 	Number of	 	 
	 	 	 	 	Amount of	 	Series A Warrant	 	Series B Warrant	 	Series C Warrant	 	 
	Buyer	 	Address and Facsimile Number	 	Notes	 	Shares	 	Shares	 	Shares	 	Purchase Price
	Iroquois Master Fund Ltd.
	 	641 Lexington Avenue, 26th Floor
New York, New York 10022
Facsimile: (212) 207-3452	 	$	3,850,000	 	 	 	4,812,500	 	 	 	9,143,750	 	 	 	4,343,285	 	 	$	3,500,000exv10w2

Exhibit 10.2

REGISTRATION RIGHTS AGREEMENT

     This REGISTRATION RIGHTS AGREEMENT (this “Agreement”), dated as of April [___], 2011, is by
and among Converted Organics Inc., a Delaware corporation (the “Company”), and each of the
undersigned buyers (each, a “Buyer,” and collectively, the “Buyers”).

RECITALS

     A. In connection with the Securities Purchase Agreement by and among the parties hereto, dated
as of April [___], 2011 (the “Securities Purchase Agreement”), the Company has agreed, upon the
terms and subject to the conditions of the Securities Purchase Agreement, to issue and sell to each
Buyer (i) the Notes (as defined in the Securities Purchase Agreement), which will be convertible
into Conversion Shares (as defined in the Securities Purchase Agreement) in accordance with the
terms of the Notes and (ii) the Warrants (as defined in the Securities Purchase Agreement), which
will be exercisable to purchase Warrant Shares (as defined in the Securities Purchase Agreement) in
accordance with the terms of the Warrants.

     B. To induce the Buyers to consummate the transactions contemplated by the Securities Purchase
Agreement, the Company has agreed to provide certain registration rights under the Securities Act
of 1933, as amended, and the rules and regulations thereunder, or any similar successor statute
(collectively, the “1933 Act”), and applicable state securities laws.

AGREEMENT

     NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein and
for other good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Company and each of the Buyers hereby agree as follows:

1. Definitions.

          Capitalized terms used herein and not otherwise defined herein shall have the respective
meanings set forth in the Securities Purchase Agreement. As used in this Agreement, the following
terms shall have the following meanings:

     (a) “Business Day” means any day other than Saturday, Sunday or any other day on which
commercial banks in New York, New York are authorized or required by law to remain closed.

     (b) “Closing Date” shall have the meaning set forth in the Securities Purchase Agreement.

     (c) “Effective Date” means the date that the applicable Registration Statement has been
declared effective by the SEC.

     (d) “Effectiveness Deadline” means (i) with respect to the initial Registration Statement
required to be filed pursuant to Section 2(a), the earlier of (A) the 90th calendar day
after the earlier to occur of (x) the Shareholder Meeting Deadline (as defined in the Securities

 

 

Purchase Agreement) and (y) the date on which Shareholder Approval (as defined in the
Securities Purchase Agreement) is obtained and (B) the 2nd Business Day after the date
the Company is notified (orally or in writing, whichever is earlier) by the SEC that such
Registration Statement will not be reviewed or will not be subject to further review and (ii) with
respect to any additional Registration Statements that may be required to be filed by the Company
pursuant to this Agreement, the earlier of (A) the 90th calendar day following the date
on which the Company was required to file such additional Registration Statement (or the
120th calendar day after such date in the event that such Registration Statement is
subject to review by the SEC) and (B) the 2nd Business Day after the date the Company is
notified (orally or in writing, whichever is earlier) by the SEC that such Registration Statement
will not be reviewed or will not be subject to further review.

     (e) “Filing Deadline” means (i) with respect to the initial Registration Statement required to
be filed pursuant to Section 2(a), the 10th calendar day after the earlier to occur of
(x) the Shareholder Meeting Deadline and (y) the date on which Shareholder Approval is obtained and
(ii) with respect to any additional Registration Statements that may be required to be filed by the
Company pursuant to this Agreement, the date on which the Company was required to file such
additional Registration Statement pursuant to the terms of this Agreement.

     (f) “Investor” means a Buyer or any transferee or assignee of any Registrable Securities,
Notes or Warrants, as applicable, to whom a Buyer assigns its rights under this Agreement and who
agrees to become bound by the provisions of this Agreement in accordance with Section 9 and any
transferee or assignee thereof to whom a transferee or assignee of any Registrable Securities,
Notes or Warrants, as applicable, assigns its rights under this Agreement and who agrees to become
bound by the provisions of this Agreement in accordance with Section 9.

     (g) “Person” means an individual, a limited liability company, a partnership, a joint venture,
a corporation, a trust, an unincorporated organization or a government or any department or agency
thereof.

     (h) “register,” “registered,” and “registration” refer to a registration effected by preparing
and filing one or more Registration Statements in compliance with the 1933 Act and pursuant to Rule
415 and the declaration of effectiveness of such Registration Statement(s) by the SEC.

     (i) “Registrable Securities” means (i) the Conversion Shares, (ii) the Warrant Shares and
(iii) any capital stock of the Company issued or issuable with respect to the Conversion Shares,
the Warrant Shares, the Notes or the Warrants, including, without limitation, (1) as a result of
any stock split, stock dividend, recapitalization, exchange or similar event or otherwise and (2)
shares of capital stock of the Company into which the shares of Common Stock (as defined in the
Notes) are converted or exchanged and shares of capital stock of a Successor Entity (as defined in
the Warrants) into which the shares of Common Stock are converted or exchanged, in each case,
without regard to any limitations on conversion of the Notes or exercise of the Warrants.

     (j) “Registration Statement” means a registration statement or registration

2

 

statements of the Company filed under the 1933 Act covering Registrable Securities.

     (k) “Required Registration Amount” means 133% (or 100%, but only to the extent the Company is
required by the Staff (as defined below) to reduce such higher amount) of the sum of (i) the
maximum number of Conversion Shares issued and issuable pursuant to the Notes and (ii) the maximum
number of Warrant Shares issued and issuable pursuant to the Warrants, in each case, as of the
Trading Day (as defined in the Warrants) immediately preceding the applicable date of determination
(without taking into account any limitations on the conversion of the Notes or the exercise of the
Warrants set forth therein), all subject to adjustment as provided in Section 2(d).

     (l) “Rule 144” means Rule 144 promulgated by the SEC under the 1933 Act, as such rule may be
amended from time to time, or any other similar or successor rule or regulation of the SEC that may
at any time permit the Investors to sell securities of the Company to the public without
registration.

     (m) “Rule 415” means Rule 415 promulgated by the SEC under the 1933 Act, as such rule may be
amended from time to time, or any other similar or successor rule or regulation of the SEC
providing for offering securities on a continuous or delayed basis.

     (n) “SEC” means the United States Securities and Exchange Commission or any successor thereto.

2. Registration.

     (a) Mandatory Registration. The Company shall prepare and, as soon as practicable,
but in no event later than the Filing Deadline, file with the SEC an initial Registration Statement
on Form S-1 covering the resale of all of the Registrable Securities, provided that such initial
Registration Statement shall register for resale at least the number of shares of Common Stock
equal to the Required Registration Amount as of the date such Registration Statement is initially
filed with the SEC. Such initial Registration Statement, and each other Registration Statement
required to be filed pursuant to the terms of this Agreement, shall contain (except if otherwise
directed by each of the Investors) the “Selling Stockholders” and “Plan of
Distribution” sections in substantially the form attached hereto as Exhibit B. The
Company shall use its best efforts to have such initial Registration Statement, and each other
Registration Statement required to be filed pursuant to the terms of this Agreement, declared
effective by the SEC as soon as practicable, but in no event later than the applicable
Effectiveness Deadline for such Registration Statement.

     (b) Legal Counsel. Subject to Section 5 hereof, Iroquois (as defined in the Securities
Purchase Agreement) shall have the right to select one (1) legal counsel to review and oversee,
solely on its behalf, any registration pursuant to this Section 2 (“Legal Counsel”), which shall be
Greenberg Traurig, LLP or such other counsel as thereafter designated by Iroquois.

     (c) Use of Form S-3. The Company shall undertake to register the resale of all the
Registrable Securities on Form S-3 as soon as such form is available, provided that the Company
shall maintain the effectiveness of all Registration Statements then in effect until such time as a
Registration Statement on Form S-3 covering the resale of all the Registrable Securities has been

3

 

declared effective by the SEC and the prospectus contained therein is available for use.

     (d) Sufficient Number of Shares Registered. In the event the number of shares
available under any Registration Statement is insufficient to cover all of the Registrable
Securities required to be covered by such Registration Statement or an Investor’s allocated portion
of the Registrable Securities pursuant to Section 2(h), the Company shall amend such Registration
Statement (if permissible), or file with the SEC a new Registration Statement (on the short form
available therefor, if applicable), or both, so as to cover at least the Required Registration
Amount as of the Trading Day immediately preceding the date of the filing of such amendment or new
Registration Statement, in each case, as soon as practicable, but in any event not later than
fifteen (15) days after the necessity therefor arises (but taking account of any Staff position
with respect to the date on which the Staff will permit such amendment to the Registration
Statement and/or such new Registration Statement (as the case may be) to be filed with the SEC).
The Company shall use its best efforts to cause such amendment to such Registration Statement
and/or such new Registration Statement (as the case may be) to become effective as soon as
practicable following the filing thereof with the SEC, but in no event later than the applicable
Effectiveness Deadline for such Registration Statement. For purposes of the foregoing provision,
the number of shares available under a Registration Statement shall be deemed “insufficient to
cover all of the Registrable Securities” if at any time the number of shares of Common Stock
available for resale under the applicable Registration Statement is less than the product
determined by multiplying (i) the Required Registration Amount as of such time by (ii) 0.90. The
calculation set forth in the foregoing sentence shall be made without regard to any limitations on
(i) conversion of the Notes (and such calculation shall assume that the Notes are then fully
convertible into shares of Common Stock at the then-prevailing applicable Conversion Price) and
(ii) exercise of the Warrants (and such calculation shall assume that the Warrants are then fully
exercisable for shares of Common Stock at the then-prevailing applicable Exercise Price).

     (e) Effect of Failure to File and Obtain and Maintain Effectiveness of any Registration
Statement. If (i) a Registration Statement covering the resale of all of the Registrable
Securities required to be covered thereby (taking account of any reduction pursuant to Section
2(f)) and required to be filed by the Company pursuant to this Agreement is (A) not filed with the
SEC on or before the Filing Deadline for such Registration Statement (a “Filing Failure”) (it being
understood that if the Company files a Registration Statement without affording each Investor the
opportunity to review and comment on the same as required by Section 3(c) hereof, the Company shall
be deemed to not have satisfied this clause (i)(A) and such event shall be deemed to be a Filing
Failure) or (B) not declared effective by the SEC on or before the Effectiveness Deadline for such
Registration Statement (an “Effectiveness Failure”) (it being understood that if on the Business
Day immediately following the Effective Date for such Registration Statement the Company shall not
have filed a “final” prospectus for such Registration Statement with the SEC under Rule 424(b) in
accordance with Section 3(b) (whether or not such a prospectus is technically required by such
rule), the Company shall be deemed to not have satisfied this clause (i)(B) and such event shall be
deemed to be an Effectiveness Failure), (ii) other than during an Allowable Grace Period (as
defined below), on any day after the Effective Date of a Registration Statement sales of all of the
Registrable Securities required to be included on such Registration Statement (taking account of
any reduction pursuant to Section 2(f)) cannot be made pursuant to such Registration Statement

4

 

(including, without limitation, because of a failure to keep such Registration Statement
effective, a failure to disclose such information as is necessary for sales to be made pursuant to
such Registration Statement, a suspension or delisting of (or a failure to timely list) the shares
of Common Stock on the Principal Market (as defined in the Securities Purchase Agreement), or a
failure to register a sufficient number of shares of Common Stock or by reason of a stop order) or
the prospectus contained therein is not available for use for any reason (a “Maintenance Failure”),
or (iii) if a Registration Statement is not effective for any reason or the prospectus contained
therein is not available for use for any reason, the Company fails to file with the SEC any
required reports under Section 13 or 15(d) of the 1934 Act such that it is not in compliance with
Rule 144(c)(1) (or Rule 144(i)(2), if applicable) (a “Current Public Information Failure”) as a
result of which any of the Investors are unable to sell Registrable Securities without restriction
under Rule 144 (including, without limitation, volume restrictions), then, as partial relief for
the damages to any holder by reason of any such delay in, or reduction of, its ability to sell the
underlying shares of Common Stock (which remedy shall not be exclusive of any other remedies
available at law or in equity), the Company shall pay to each holder of Registrable Securities
relating to such Registration Statement an amount in cash equal to one percent (1%) of such
Investor’s original principal amount stated in such Investor’s Note on the Closing Date (1) on the
date of such Filing Failure, Effectiveness Failure, Maintenance Failure or Current Public
Information Failure, as applicable, and (2) on every thirty (30) day anniversary of (I) a Filing
Failure until such Filing Failure is cured; (II) an Effectiveness Failure until such Effectiveness
Failure is cured; (III) a Maintenance Failure until such Maintenance Failure is cured; and (IV) a
Current Public Information Failure until the earlier of (i) the date such Current Public
Information Failure is cured and (ii) such time that such public information is no longer required
pursuant to Rule 144 (in each case, pro rated for periods totaling less than thirty (30) days). The
payments to which a holder of Registrable Securities shall be entitled pursuant to this Section
2(e) are referred to herein as “Registration Delay Payments.” Following the initial Registration
Delay Payment for any particular event or failure (which shall be paid on the date of such event or
failure, as set forth above), without limiting the foregoing, if an event or failure giving rise to
the Registration Delay Payments is cured prior to any thirty (30) day anniversary of such event or
failure, then such Registration Delay Payment shall be made on the third (3rd) Business
Day after such cure. In the event the Company fails to make Registration Delay Payments in a timely
manner in accordance with the foregoing, such Registration Delay Payments shall bear interest at
the rate of one and one-half percent (1.5%) per month (prorated for partial months) until paid in
full. Notwithstanding the foregoing, no Registration Delay Payments shall be owed to an Investor
(other than with respect to a Maintenance Failure resulting from a suspension or delisting of (or a
failure to timely list) the shares of Common Stock on the Principal Market) with respect to any
period during which all of such Investor’s Registrable Securities may be sold by such Investor
without restriction under Rule 144 (including, without limitation, volume restrictions) and without
the need for current public information required by Rule 144(c)(1) (or Rule 144(i)(2), if
applicable).

     (f) Offering. Notwithstanding anything to the contrary contained in this Agreement, in
the event the staff of the SEC (the “Staff”) or the SEC seeks to characterize any offering pursuant
to a Registration Statement filed pursuant to this Agreement as constituting an offering of
securities by, or on behalf of, the Company, or in any other manner, such that the Staff or the SEC
do not permit such Registration Statement to become effective and used for resales in a manner that
does not constitute such an offering and that permits the continuous resale at the

5

 

market by the Investors participating therein (or as otherwise may be acceptable to each
Investor) without being named therein as an “underwriter,” then the Company shall reduce the number
of shares to be included in such Registration Statement by all Investors until such time as the
Staff and the SEC shall so permit such Registration Statement to become effective as aforesaid. In
making such reduction, the Company shall reduce the number of shares to be included by all
Investors on a pro rata basis (based upon the number of Registrable Securities otherwise required
to be included for each Investor) unless the inclusion of shares by a particular Investor or a
particular set of Investors are resulting in the Staff or the SEC’s “by or on behalf of the
Company” offering position, in which event the shares held by such Investor or set of Investors
shall be the only shares subject to reduction (and if by a set of Investors on a pro rata basis by
such Investors or on such other basis as would result in the exclusion of the least number of
shares by all such Investors). In addition, in the event that the Staff or the SEC requires any
Investor seeking to sell securities under a Registration Statement filed pursuant to this Agreement
to be specifically identified as an “underwriter” in order to permit such Registration Statement to
become effective, and such Investor does not consent to being so named as an underwriter in such
Registration Statement, then, in each such case, the Company shall reduce the total number of
Registrable Securities to be registered on behalf of such Investor, until such time as the Staff or
the SEC does not require such identification or until such Investor accepts such identification and
the manner thereof. Any reduction pursuant to this paragraph will first reduce all securities that
are not Registrable Securities, if any such securities are permitted by the Required Holders to be
included in accordance with the terms of this Agreement. In the event of any reduction in
Registrable Securities pursuant to this paragraph, an affected Investor shall have the right to
require, upon delivery of a written request to the Company signed by such Investor, the Company to
file a registration statement within thirty (30) days of such request (subject to any restrictions
imposed by Rule 415 or required by the Staff or the SEC) for resale by such Investor in a manner
acceptable to such Investor, and the Company shall following such request cause to be and keep
effective such registration statement in the same manner as otherwise contemplated in this
Agreement for registration statements hereunder, in each case until such time as: (i) all
Registrable Securities held by such Investor have been registered and sold pursuant to an effective
Registration Statement in a manner acceptable to such Investor or (ii) all Registrable Securities
may be resold by such Investor without restriction (including, without limitation, volume
limitations) pursuant to Rule 144 (taking account of any Staff position with respect to “affiliate”
status) and without the need for current public information required by Rule 144(c)(1) (or Rule
144(i)(2), if applicable) or (iii) such Investor agrees to be named as an underwriter in any such
Registration Statement in a manner acceptable to such Investor as to all Registrable Securities
held by such Investor and that have not theretofore been included in a Registration Statement under
this Agreement (it being understood that the special demand right under this sentence may be
exercised by an Investor multiple times and with respect to limited amounts of Registrable
Securities in order to permit the resale thereof by such Investor as contemplated above).

     (g) Piggyback Registrations. Without limiting any obligation of the Company hereunder
or under the Securities Purchase Agreement, if there is not an effective Registration Statement
covering all of the Registrable Securities or the prospectus contained therein is not available for
use and the Company shall determine to prepare and file with the SEC a registration statement
relating to an offering for its own account or the account of others under the 1933 Act of any of
its equity securities (other than on Form S-4 or Form S-8 (each as promulgated under

6

 

the 1933 Act) or their then equivalents relating to equity securities to be issued solely in
connection with any acquisition of any entity or business or equity securities issuable in
connection with the Company’s stock option or other employee benefit plans), then the Company shall
deliver to each Investor a written notice of such determination and, if within fifteen (15) days
after the date of the delivery of such notice, any such Investor shall so request in writing, the
Company shall include in such registration statement all or any part of such Registrable Securities
such Investor requests to be registered; provided, however, the Company shall not be required to
register any Registrable Securities pursuant to this Section 2(g) that are eligible for resale
pursuant to Rule 144 without restriction (including, without limitation, volume restrictions) and
without the need for current public information required by Rule 144(c)(1) (or Rule 144(i)(2), if
applicable) or that are the subject of a then-effective Registration Statement.

     (h) Allocation of Registrable Securities. The initial number of Registrable Securities
included in any Registration Statement and any increase in the number of Registrable Securities
included therein shall be allocated pro rata among the Investors based on the number of Registrable
Securities held by each Investor at the time such Registration Statement covering such initial
number of Registrable Securities or increase thereof is declared effective by the SEC. In the event
that an Investor sells or otherwise transfers any of such Investor’s Registrable Securities, each
transferee or assignee (as the case may be) that becomes an Investor shall be allocated a pro rata
portion of the then-remaining number of Registrable Securities included in such Registration
Statement for such transferor or assignee (as the case may be). Any shares of Common Stock included
in a Registration Statement and which remain allocated to any Person which ceases to hold any
Registrable Securities covered by such Registration Statement shall be allocated to the remaining
Investors, pro rata based on the number of Registrable Securities then held by such Investors which
are covered by such Registration Statement.

     (i) No Inclusion of Other Securities. In no event shall the Company include any
securities other than Registrable Securities on any Registration Statement without the prior
written consent of each of the Investors. Until the Applicable Date (as defined in the Securities
Purchase Agreement), the Company shall not enter into any agreement providing any registration
rights to any of its security holders.

3. Related Obligations.

     The Company shall use its best efforts to effect the registration of the Registrable
Securities in accordance with the intended method of disposition thereof, and, pursuant thereto,
the Company shall have the following obligations:

     (a) The Company shall promptly prepare and file with the SEC a Registration Statement with
respect to all the Registrable Securities (but in no event later than the applicable Filing
Deadline) and use its best efforts to cause such Registration Statement to become effective as soon
as practicable after such filing (but in no event later than the Effectiveness Deadline). Subject
to Allowable Grace Periods, the Company shall keep each Registration Statement effective (and the
prospectus contained therein available for use) pursuant to Rule 415 for resales by the Investors
on a delayed or continuous basis at then-prevailing market prices (and not fixed prices) at all
times until the earlier of (i) the date as of which all of the Investors may sell all of the
Registrable Securities required to be covered by such Registration Statement (disregarding

7

 

any reduction pursuant to Section 2(f)) without restriction pursuant to Rule 144 (including,
without limitation, volume restrictions) and without the need for current public information
required by Rule 144(c)(1) (or Rule 144(i)(2), if applicable) or (ii) the date on which the
Investors shall have sold all of the Registrable Securities covered by such Registration Statement
(the “Registration Period”). Notwithstanding anything to the contrary contained in this Agreement,
the Company shall ensure that, when filed and at all times while effective, each Registration
Statement (including, without limitation, all amendments and supplements thereto) and the
prospectus (including, without limitation, all amendments and supplements thereto) used in
connection with such Registration Statement (1) shall 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 (in the case of prospectuses, in the light of the circumstances in which
they were made) not misleading and (2) will disclose (whether directly or through incorporation by
reference to other SEC filings to the extent permitted) all material information regarding the
Company and its securities. The Company shall submit to the SEC, within one (1) Business Day after
the later of the date that (i) the Company learns that no review of a particular Registration
Statement will be made by the Staff or that the Staff has no further comments on a particular
Registration Statement (as the case may be) and (ii) the consent of Legal Counsel is obtained
pursuant to Section 3(c) (which consent shall be immediately sought), a request for acceleration of
effectiveness of such Registration Statement to a time and date not later than forty-eight (48)
hours after the submission of such request.

     (b) Subject to Section 3(r) of this Agreement, the Company shall prepare and file with the SEC
such amendments (including, without limitation, post-effective amendments) and supplements to each
Registration Statement and the prospectus used in connection with each such Registration Statement,
which prospectus is to be filed pursuant to Rule 424 promulgated under the 1933 Act, as may be
necessary to keep each such Registration Statement effective at all times during the Registration
Period for such Registration Statement, and, during such period, comply with the provisions of the
1933 Act with respect to the disposition of all Registrable Securities of the Company required to
be covered by such Registration Statement until such time as all of such Registrable Securities
shall have been disposed of in accordance with the intended methods of disposition by the seller or
sellers thereof as set forth in such Registration Statement; provided, however, by 8:30 a.m. (New
York time) on the Business Day immediately following each Effective Date, the Company shall file
with the SEC in accordance with Rule 424(b) under the 1933 Act the final prospectus to be used in
connection with sales pursuant to the applicable Registration Statement (whether or not such a
prospectus is technically required by such rule). In the case of amendments and supplements to any
Registration Statement which are required to be filed pursuant to this Agreement (including,
without limitation, pursuant to this Section 3(b)) by reason of the Company filing a report on Form
10-Q or Form 10-K or any analogous report under the Securities Exchange Act of 1934, as amended
(the “1934 Act”), the Company shall have incorporated such report by reference into such
Registration Statement, if applicable, or shall file such amendments or supplements with the SEC on
the same day on which the 1934 Act report is filed which created the requirement for the Company to
amend or supplement such Registration Statement.

     (c) The Company shall (A) permit Legal Counsel to review and comment upon (i) each
Registration Statement at least five (5) Business Days (or two (2) Business Days for the filing
required under clause (i) of Section 1(e)) prior to its filing with the SEC and (ii) all

8

 

amendments and supplements to each Registration Statement (including, without limitation, the
prospectus contained therein) (except for Annual Reports on Form 10-K, Quarterly Reports on Form
10-Q, Current Reports on Form 8-K, and any similar or successor reports) within a reasonable number
of days prior to their filing with the SEC, and (B) not file any Registration Statement or
amendment or supplement thereto in a form to which Legal Counsel reasonably objects. The Company
shall not submit a request for acceleration of the effectiveness of a Registration Statement or any
amendment or supplement thereto or to any prospectus contained therein without the prior consent of
Legal Counsel, which consent shall not be unreasonably withheld. The Company shall promptly furnish
to Legal Counsel, without charge, (i) copies of any correspondence from the SEC or the Staff to the
Company or its representatives relating to each Registration Statement, provided that such
correspondence shall not contain any material, non-public information regarding the Company or any
of its Subsidiaries (as defined in the Securities Purchase Agreement), (ii) after the same is
prepared and filed with the SEC, one (1) copy of each Registration Statement and any amendment(s)
and supplement(s) thereto, including, without limitation, financial statements and schedules, all
documents incorporated therein by reference, if requested by an Investor, and all exhibits and
(iii) upon the effectiveness of each Registration Statement, one (1) copy of the prospectus
included in such Registration Statement and all amendments and supplements thereto. The Company
shall reasonably cooperate with Legal Counsel in performing the Company’s obligations pursuant to
this Section 3.

     (d) The Company shall promptly furnish to each Investor whose Registrable Securities are
included in any Registration Statement, without charge, (i) after the same is prepared and filed
with the SEC, at least one (1) copy of each Registration Statement and any amendment(s) and
supplement(s) thereto, including, without limitation, financial statements and schedules, all
documents incorporated therein by reference, if requested by an Investor, all exhibits and each
preliminary prospectus, (ii) upon the effectiveness of each Registration Statement, ten (10) copies
of the prospectus included in such Registration Statement and all amendments and supplements
thereto (or such other number of copies as such Investor may reasonably request from time to time)
and (iii) such other documents, including, without limitation, copies of any preliminary or final
prospectus, as such Investor may reasonably request from time to time in order to facilitate the
disposition of the Registrable Securities owned by such Investor.

     (e) The Company shall use its best efforts to (i) register and qualify, unless an exemption
from registration and qualification applies, the resale by Investors of the Registrable Securities
covered by a Registration Statement under such other securities or “blue sky” laws of all
applicable jurisdictions in the United States, (ii) prepare and file in those jurisdictions, such
amendments (including, without limitation, post-effective amendments) and supplements to such
registrations and qualifications as may be necessary to maintain the effectiveness thereof during
the Registration Period, (iii) take such other actions as may be necessary to maintain such
registrations and qualifications in effect at all times during the Registration Period, and (iv)
take all other actions reasonably necessary or advisable to qualify the Registrable Securities for
sale in such jurisdictions; provided, however, the Company shall not be required in connection
therewith or as a condition thereto to (x) qualify to do business in any jurisdiction where it
would not otherwise be required to qualify but for this Section 3(e), (y) subject itself to general
taxation in any such jurisdiction, or (z) file a general consent to service of process in any such

9

 

jurisdiction. The Company shall promptly notify Legal Counsel, legal counsel for each other
Investor and each Investor who holds Registrable Securities of the receipt by the Company of any
notification with respect to the suspension of the registration or qualification of any of the
Registrable Securities for sale under the securities or “blue sky” laws of any jurisdiction in the
United States or its receipt of actual notice of the initiation or threatening of any proceeding
for such purpose.

     (f) The Company shall notify Legal Counsel, legal counsel for each other Investor and each
Investor in writing of the happening of any event, as promptly as practicable after becoming aware
of such event, as a result of which the prospectus included in a Registration Statement, as then in
effect, includes an untrue statement of a material fact or omission to state a material fact
required to be stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading (provided that in no event shall such
notice contain any material, non-public information regarding the Company or any of its
Subsidiaries), and, subject to Section 3(r), promptly prepare a supplement or amendment to such
Registration Statement and such prospectus contained therein to correct such untrue statement or
omission and deliver ten (10) copies of such supplement or amendment to Legal Counsel, legal
counsel for each other Investor and each Investor (or such other number of copies as Legal Counsel,
legal counsel for each other Investor or such Investor may reasonably request). The Company shall
also promptly notify Legal Counsel, legal counsel for each other Investor and each Investor in
writing (i) when a prospectus or any prospectus supplement or post-effective amendment has been
filed, when a Registration Statement or any post-effective amendment has become effective
(notification of such effectiveness shall be delivered to Legal Counsel, legal counsel for each
other Investor and each Investor by facsimile or e-mail on the same day of such effectiveness and
by overnight mail), and when the Company receives written notice from the SEC that a Registration
Statement or any post-effective amendment will be reviewed by the SEC, (ii) of any request by the
SEC for amendments or supplements to a Registration Statement or related prospectus or related
information, (iii) of the Company’s reasonable determination that a post-effective amendment to a
Registration Statement would be appropriate; and (iv) of the receipt of any request by the SEC or
any other federal or state governmental authority for any additional information relating to the
Registration Statement or any amendment or supplement thereto or any related prospectus. The
Company shall respond as promptly as practicable to any comments received from the SEC with respect
to each Registration Statement or any amendment thereto (it being understood and agreed that the
Company shall use its commercially reasonable efforts to provide its response to any such comments
to the SEC no later than five (5) Business Days after the receipt thereof).

     (g) The Company shall (i) use its best efforts to prevent the issuance of any stop order or
other suspension of effectiveness of each Registration Statement or the use of any prospectus
contained therein, or the suspension of the qualification, or the loss of an exemption from
qualification, of any of the Registrable Securities for sale in any jurisdiction and, if such an
order or suspension is issued, to obtain the withdrawal of such order or suspension at the earliest
possible moment and (ii) notify Legal Counsel, legal counsel for each other Investor and each
Investor who holds Registrable Securities of the issuance of such order and the resolution thereof
or its receipt of actual notice of the initiation or threat of any proceeding for such purpose.

     (h) If any Investor may be required under applicable securities law to be described in

10

 

any Registration Statement as an underwriter and such Investor consents to so being named an
underwriter, at the request of any Investor, the Company shall furnish to such Investor, on the
date of the effectiveness of such Registration Statement and thereafter from time to time on such
dates as an Investor may reasonably request (i) a letter, dated such date, from the Company’s
independent certified public accountants in form and substance as is customarily given by
independent certified public accountants to underwriters in an underwritten public offering,
addressed to the Investors, and (ii) an opinion, dated as of such date, of counsel representing the
Company for purposes of such Registration Statement, in form, scope and substance as is customarily
given in an underwritten public offering, addressed to the Investors.

     (i) If any Investor may be required under applicable securities law to be described in any
Registration Statement as an underwriter and such Investor consents to so being named an
underwriter, upon the written request of such Investor, the Company shall make available for
inspection by (i) such Investor, (ii) legal counsel for such Investor and (iii) one (1) firm of
accountants or other agents retained by such Investor (collectively, the “Inspectors”), all
pertinent financial and other records, and pertinent corporate documents and properties of the
Company (collectively, the “Records”), as shall be reasonably deemed necessary by each Inspector,
and cause the Company’s officers, directors and employees to supply all information which any
Inspector may reasonably request; provided, however, each Inspector shall agree in writing to hold
in strict confidence and not to make any disclosure (except to such Investor) or use of any Record
or other information which the Company’s board of directors determines in good faith to be
confidential, and of which determination the Inspectors are so notified, unless (1) the disclosure
of such Records is necessary to avoid or correct a misstatement or omission in any Registration
Statement or is otherwise required under the 1933 Act, (2) the release of such Records is ordered
pursuant to a final, non-appealable subpoena or order from a court or government body of competent
jurisdiction, or (3) the information in such Records has been made generally available to the
public other than by disclosure in violation of this Agreement or any other Transaction Document
(as defined in the Securities Purchase Agreement). Such Investor agrees that it shall, upon
learning that disclosure of such Records is sought in or by a court or governmental body of
competent jurisdiction or through other means, give prompt notice to the Company and allow the
Company, at its expense, to undertake appropriate action to prevent disclosure of, or to obtain a
protective order for, the Records deemed confidential. Nothing herein (or in any other
confidentiality agreement between the Company and such Investor, if any) shall be deemed to limit
any Investor’s ability to sell Registrable Securities in a manner which is otherwise consistent
with applicable laws and regulations.

     (j) The Company shall hold in confidence and not make any disclosure of information concerning
an Investor provided to the Company unless (i) disclosure of such information is necessary to
comply with federal or state securities laws, (ii) the disclosure of such information is necessary
to avoid or correct a misstatement or omission in any Registration Statement or is otherwise
required to be disclosed in such Registration Statement pursuant to the 1933 Act, (iii) the release
of such information is ordered pursuant to a subpoena or other final, non-appealable order from a
court or governmental body of competent jurisdiction, or (iv) such information has been made
generally available to the public other than by disclosure in violation of this Agreement or any
other Transaction Document. The Company agrees that it shall, upon learning that disclosure of such
information concerning an Investor is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt written notice

11

 

to such Investor and allow such Investor, at such Investor’s expense, to undertake appropriate
action to prevent disclosure of, or to obtain a protective order for, such information.

     (k) Without limiting any obligation of the Company under the Securities Purchase Agreement,
the Company shall use its best efforts either to (i) cause all of the Registrable Securities
covered by each Registration Statement to be listed on each securities exchange on which securities
of the same class or series issued by the Company are then listed, if any, if the listing of such
Registrable Securities is then permitted under the rules of such exchange, (ii) secure designation
and quotation of all of the Registrable Securities covered by each Registration Statement on the
OTC Bulletin Board, or (iii) if, despite the Company’s best efforts to satisfy the preceding
clauses (i) or (ii) the Company is unsuccessful in satisfying the preceding clauses (i) or (ii),
without limiting the generality of the foregoing, to use its best efforts to arrange for at least
two market makers to register with the Financial Industry Regulatory Authority (“FINRA”) as such
with respect to such Registrable Securities. In addition, the Company shall cooperate with each
Investor and any broker or dealer through which any such Investor proposes to sell its Registrable
Securities in effecting a filing with FINRA pursuant to FINRA Rule 5110 as requested by such
Investor. The Company shall pay all fees and expenses in connection with satisfying its obligations
under this Section 3(k).

     (l) The Company shall cooperate with the Investors who hold Registrable Securities being
offered and, to the extent applicable, facilitate the timely preparation and delivery of
certificates (not bearing any restrictive legend) representing the Registrable Securities to be
offered pursuant to a Registration Statement and enable such certificates to be in such
denominations or amounts (as the case may be) as the Investors may reasonably request from time to
time and registered in such names as the Investors may request.

     (m) If requested by an Investor, the Company shall as soon as practicable after receipt of
notice from such Investor and subject to Section 3(r) hereof, (i) incorporate in a prospectus
supplement or post-effective amendment such information as an Investor reasonably requests to be
included therein relating to the sale and distribution of Registrable Securities, including,
without limitation, information with respect to the number of Registrable Securities being offered
or sold, the purchase price being paid therefor and any other terms of the offering of the
Registrable Securities to be sold in such offering; (ii) make all required filings of such
prospectus supplement or post-effective amendment after being notified of the matters to be
incorporated in such prospectus supplement or post-effective amendment; and (iii) supplement or
make amendments to any Registration Statement or prospectus contained therein if reasonably
requested by an Investor holding any Registrable Securities.

     (n) The Company shall use its best efforts to cause the Registrable Securities covered by a
Registration Statement to be registered with or approved by such other governmental agencies or
authorities as may be necessary to consummate the disposition of such Registrable Securities.

     (o) The Company shall make generally available to its security holders as soon as practical,
but not later than ninety (90) days after the close of the period covered thereby, an earnings
statement (in form complying with, and in the manner provided by, the provisions of Rule 158 under
the 1933 Act) covering a twelve-month period beginning not later than the first

12

 

day of the Company’s fiscal quarter next following the applicable Effective Date of each
Registration Statement.

     (p) The Company shall otherwise use its best efforts to comply with all applicable rules and
regulations of the SEC in connection with any registration hereunder.

     (q) Within one (1) Business Day after a Registration Statement which covers Registrable
Securities is declared effective by the SEC, the Company shall deliver, and shall cause legal
counsel for the Company to deliver, to the transfer agent for such Registrable Securities (with
copies to the Investors whose Registrable Securities are included in such Registration Statement)
confirmation that such Registration Statement has been declared effective by the SEC in the form
attached hereto as Exhibit A.

     (r) Notwithstanding anything to the contrary herein (but subject to the last sentence of this
Section 3(r)), at any time after the Effective Date of a particular Registration Statement, the
Company may delay the disclosure of material, non-public information concerning the Company or any
of its Subsidiaries the disclosure of which at the time is not, in the good faith opinion of the
board of directors of the Company, in the best interest of the Company and, in the opinion of
counsel to the Company, otherwise required (a “Grace Period”), provided that the Company shall
promptly notify the Investors in writing of the (i) existence of material, non-public information
giving rise to a Grace Period (provided that in each such notice the Company shall not disclose the
content of such material, non-public information to any of the Investors) and the date on which
such Grace Period will begin and (ii) date on which such Grace Period ends, provided further that
(I) no Grace Period shall exceed ten (10) consecutive days and during any three hundred sixty five
(365) day period all such Grace Periods shall not exceed an aggregate of thirty (30) days, (II) the
first day of any Grace Period must be at least five (5) Trading Days after the last day of any
prior Grace Period and (III) no Grace Period may exist during the sixty (60) Trading Day period
immediately following the Effective Date of such Registration Statement (provided that such sixty
(60) Trading Day period shall be extended by the number of Trading Days during such period and any
extension thereof contemplated by this proviso during which such Registration Statement is not
effective or the prospectus contained therein is not available for use) (each, an “Allowable Grace
Period”). For purposes of determining the length of a Grace Period above, such Grace Period shall
begin on and include the date the Investors receive the notice referred to in clause (i) above and
shall end on and include the later of the date the Investors receive the notice referred to in
clause (ii) above and the date referred to in such notice. The provisions of Section 3(g) hereof
shall not be applicable during the period of any Allowable Grace Period. Upon expiration of each
Grace Period, the Company shall again be bound by the first sentence of Section 3(f) with respect
to the information giving rise thereto unless such material, non-public information is no longer
applicable. Notwithstanding anything to the contrary contained in this Section 3(r), the Company
shall cause its transfer agent to deliver unlegended shares of Common Stock to a transferee of an
Investor in accordance with the terms of the Securities Purchase Agreement in connection with any
sale of Registrable Securities with respect to which such Investor has entered into a contract for
sale, and delivered a copy of the prospectus included as part of the particular Registration
Statement to the extent applicable, prior to such Investor’s receipt of the notice of a Grace
Period and for which the Investor has not yet settled.

13

 

     (s) The Company shall take all other reasonable actions necessary to expedite and facilitate
disposition by each Investors of its Registrable Securities pursuant to each Registration
Statement.

4. Obligations of the Investors.

     (a) At least five (5) Business Days prior to the first anticipated filing date of each
Registration Statement, the Company shall notify each Investor in writing of the information the
Company requires from each such Investor with respect to such Registration Statement. It shall be a
condition precedent to the obligations of the Company to complete the registration pursuant to this
Agreement with respect to the Registrable Securities of a particular Investor that such Investor
shall furnish to the Company such information regarding itself, the Registrable Securities held by
it and the intended method of disposition of the Registrable Securities held by it, as shall be
reasonably required to effect and maintain the effectiveness of the registration of such
Registrable Securities and shall execute such documents in connection with such registration as the
Company may reasonably request.

     (b) Each Investor, by such Investor’s acceptance of the Registrable Securities, agrees to
cooperate with the Company as reasonably requested by the Company in connection with the
preparation and filing of each Registration Statement hereunder, unless such Investor has notified
the Company in writing of such Investor’s election to exclude all of such Investor’s Registrable
Securities from such Registration Statement.

     (c) Each Investor agrees that, upon receipt of any notice from the Company of the happening of
any event of the kind described in Section 3(g) or the first sentence of 3(f), such Investor will
immediately discontinue disposition of Registrable Securities pursuant to any Registration
Statement(s) covering such Registrable Securities until such Investor’s receipt of the copies of
the supplemented or amended prospectus contemplated by Section 3(g) or the first sentence of
Section 3(f) or receipt of notice that no supplement or amendment is required. Notwithstanding
anything to the contrary in this Section 4(c), the Company shall cause its transfer agent to
deliver unlegended shares of Common Stock to a transferee of an Investor in accordance with the
terms of the Securities Purchase Agreement in connection with any sale of Registrable Securities
with respect to which such Investor has entered into a contract for sale prior to the Investor’s
receipt of a notice from the Company of the happening of any event of the kind described in Section
3(g) or the first sentence of Section 3(f) and for which such Investor has not yet settled.

     (d) Each Investor covenants and agrees that it will comply with the prospectus delivery
requirements of the 1933 Act as applicable to it in connection with sales of Registrable Securities
pursuant to a Registration Statement.

5. Expenses of Registration.

          All reasonable expenses, other than underwriting discounts and commissions, incurred in
connection with registrations, filings or qualifications pursuant to Sections 2 and 3, including,
without limitation, all registration, listing and qualifications fees, printers and accounting
fees, FINRA filing fees (if any) and fees and disbursements of counsel for the

14

 

Company shall be paid by the Company. The Company shall also reimburse Iroquois for the fees
and disbursements of Legal Counsel in connection with registration, filing or qualification
pursuant to Sections 2 and 3 of this Agreement which amount shall be limited to $10,000.

6. Indemnification.

     (a) To the fullest extent permitted by law, the Company will, and hereby does, indemnify, hold
harmless and defend each Investor and each of its directors, officers, shareholders, members,
partners, employees, agents, advisors, representatives (and any other Persons with a functionally
equivalent role of a Person holding such titles notwithstanding the lack of such title or any other
title) and each Person, if any, who controls such Investor within the meaning of the 1933 Act or
the 1934 Act and each of the directors, officers, shareholders, members, partners, employees,
agents, advisors, representatives (and any other Persons with a functionally equivalent role of a
Person holding such titles notwithstanding the lack of such title or any other title) of such
controlling Persons (each, an “Indemnified Person”), against any losses, obligations, claims,
damages, liabilities, contingencies, judgments, fines, penalties, charges, costs (including,
without limitation, court costs, reasonable attorneys’ fees and costs of defense and
investigation), amounts paid in settlement or expenses, joint or several, (collectively, “Claims”)
incurred in investigating, preparing or defending any action, claim, suit, inquiry, proceeding,
investigation or appeal taken from the foregoing by or before any court or governmental,
administrative or other regulatory agency, body or the SEC, whether pending or threatened, whether
or not an indemnified party is or may be a party thereto (“Indemnified Damages”), to which any of
them may become subject insofar as such Claims (or actions or proceedings, whether commenced or
threatened, in respect thereof) arise out of or are based upon: (i) any untrue statement or alleged
untrue statement of a material fact in a Registration Statement or any post-effective amendment
thereto or in any filing made in connection with the qualification of the offering under the
securities or other “blue sky” laws of any jurisdiction in which Registrable Securities are offered
(“Blue Sky Filing”), or the omission or alleged omission to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, (ii) any untrue
statement or alleged untrue statement of a material fact contained in any preliminary prospectus if
used prior to the effective date of such Registration Statement, or contained in the final
prospectus (as amended or supplemented, if the Company files any amendment thereof or supplement
thereto with the SEC) or the omission or alleged omission to state therein any material fact
necessary to make the statements made therein, in light of the circumstances under which the
statements therein were made, not misleading or (iii) any violation or alleged violation by the
Company of the 1933 Act, the 1934 Act, any other law, including, without limitation, any state
securities law, or any rule or regulation thereunder relating to the offer or sale of the
Registrable Securities pursuant to a Registration Statement (the matters in the foregoing clauses
(i) through (iii) being, collectively, “Violations”). Subject to Section 6(c), the Company shall
reimburse the Indemnified Persons, promptly as such expenses are incurred and are due and payable,
for any legal fees or other reasonable expenses incurred by them in connection with investigating
or defending any such Claim. Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this Section 6(a): (i) shall not apply to a Claim by an
Indemnified Person arising out of or based upon a Violation which occurs in reliance upon and in
conformity with information furnished in writing to the Company by such Indemnified Person for such
Indemnified Person expressly for use in connection with the preparation of such Registration
Statement or any such amendment thereof

15

 

or supplement thereto and (ii) shall not be available to a particular Investor to the extent
such Claim is based on a failure of such Investor to deliver or to cause to be delivered the
prospectus made available by the Company (to the extent applicable), including, without limitation,
a corrected prospectus, if such prospectus or corrected prospectus was timely made available by the
Company pursuant to Section 3(d) and then only if, and to the extent that, following the receipt of
the corrected prospectus no grounds for such Claim would have existed; and (iii) shall not apply to
amounts paid in settlement of any Claim if such settlement is effected without the prior written
consent of the Company, which consent shall not be unreasonably withheld or delayed. Such indemnity
shall remain in full force and effect regardless of any investigation made by or on behalf of the
Indemnified Person and shall survive the transfer of any of the Registrable Securities by any of
the Investors pursuant to Section 9.

     (b) In connection with any Registration Statement in which an Investor is participating, such
Investor agrees to severally and not jointly indemnify, hold harmless and defend, to the same
extent and in the same manner as is set forth in Section 6(a), the Company, each of its directors,
each of its officers who signs the Registration Statement and each Person, if any, who controls the
Company within the meaning of the 1933 Act or the 1934 Act (each, an “Indemnified Party”), against
any Claim or Indemnified Damages to which any of them may become subject, under the 1933 Act, the
1934 Act or otherwise, insofar as such Claim or Indemnified Damages arise out of or are based upon
any Violation, in each case, to the extent, and only to the extent, that such Violation occurs in
reliance upon and in conformity with written information furnished to the Company by such Investor
expressly for use in connection with such Registration Statement; and, subject to Section 6(c) and
the below provisos in this Section 6(b), such Investor will reimburse an Indemnified Party any
legal or other expenses reasonably incurred by such Indemnified Party in connection with
investigating or defending any such Claim; provided, however, the indemnity agreement contained in
this Section 6(b) and the agreement with respect to contribution contained in Section 7 shall not
apply to amounts paid in settlement of any Claim if such settlement is effected without the prior
written consent of such Investor, which consent shall not be unreasonably withheld or delayed,
provided further that such Investor shall be liable under this Section 6(b) for only that amount of
a Claim or Indemnified Damages as does not exceed the net proceeds to such Investor as a result of
the applicable sale of Registrable Securities pursuant to such Registration Statement. Such
indemnity shall remain in full force and effect regardless of any investigation made by or on
behalf of such Indemnified Party and shall survive the transfer of any of the Registrable
Securities by any of the Investors pursuant to Section 9.

     (c) Promptly after receipt by an Indemnified Person or Indemnified Party (as the case may be)
under this Section 6 of notice of the commencement of any action or proceeding (including, without
limitation, any governmental action or proceeding) involving a Claim, such Indemnified Person or
Indemnified Party (as the case may be) shall, if a Claim in respect thereof is to be made against
any indemnifying party under this Section 6, deliver to the indemnifying party a written notice of
the commencement thereof, and the indemnifying party shall have the right to participate in, and,
to the extent the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume control of the defense thereof with counsel mutually satisfactory to
the indemnifying party and the Indemnified Person or the Indemnified Party (as the case may be);
provided, however, an Indemnified Person or Indemnified Party (as the case may be) shall have the
right to retain its own counsel with the fees and expenses of such

16

 

counsel to be paid by the indemnifying party if: (i) the indemnifying party has agreed in
writing to pay such fees and expenses; (ii) the indemnifying party shall have failed promptly to
assume the defense of such Claim and to employ counsel reasonably satisfactory to such Indemnified
Person or Indemnified Party (as the case may be) in any such Claim; or (iii) the named parties to
any such Claim (including, without limitation, any impleaded parties) include both such Indemnified
Person or Indemnified Party (as the case may be) and the indemnifying party, and such Indemnified
Person or such Indemnified Party (as the case may be) shall have been advised by counsel that a
conflict of interest is likely to exist if the same counsel were to represent such Indemnified
Person or such Indemnified Party and the indemnifying party (in which case, if such Indemnified
Person or such Indemnified Party (as the case may be) notifies the indemnifying party in writing
that it elects to employ separate counsel at the expense of the indemnifying party, then the
indemnifying party shall not have the right to assume the defense thereof and such counsel shall be
at the expense of the Indemnifying Party, provided further that in the case of clause (iii) above
the indemnifying party shall not be responsible for the reasonable fees and expenses of more than
one (1) separate legal counsel for such Indemnified Person or Indemnified Party (as the case may
be). The Indemnified Party or Indemnified Person (as the case may be) shall reasonably cooperate
with the indemnifying party in connection with any negotiation or defense of any such action or
Claim by the indemnifying party and shall furnish to the indemnifying party all information
reasonably available to the Indemnified Party or Indemnified Person (as the case may be) which
relates to such action or Claim. The indemnifying party shall keep the Indemnified Party or
Indemnified Person (as the case may be) reasonably apprised at all times as to the status of the
defense or any settlement negotiations with respect thereto. No indemnifying party shall be liable
for any settlement of any action, claim or proceeding effected without its prior written consent;
provided, however, the indemnifying party shall not unreasonably withhold, delay or condition its
consent. No indemnifying party shall, without the prior written consent of the Indemnified Party
or Indemnified Person (as the case may be), consent to entry of any judgment or enter into any
settlement or other compromise which does not include as an unconditional term thereof the giving
by the claimant or plaintiff to such Indemnified Party or Indemnified Person (as the case may be)
of a release from all liability in respect to such Claim or litigation, and such settlement shall
not include any admission as to fault on the part of the Indemnified Party. Following
indemnification as provided for hereunder, the indemnifying party shall be subrogated to all rights
of the Indemnified Party or Indemnified Person (as the case may be) with respect to all third
parties, firms or corporations relating to the matter for which indemnification has been made. The
failure to deliver written notice to the indemnifying party within a reasonable time of the
commencement of any such action shall not relieve such indemnifying party of any liability to the
Indemnified Person or Indemnified Party (as the case may be) under this Section 6, except to the
extent that the indemnifying party is materially and adversely prejudiced in its ability to defend
such action.

     (d) No Person involved in the sale of Registrable Securities who is guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) in connection with such
sale shall be entitled to indemnification from any Person involved in such sale of Registrable
Securities who is not guilty of fraudulent misrepresentation.

     (e) The indemnification required by this Section 6 shall be made by periodic payments of the
amount thereof during the course of the investigation or defense, as and when bills are received or
Indemnified Damages are incurred.

17

 

     (f) The indemnity and contribution agreements contained herein shall be in addition to (i) any
cause of action or similar right of the Indemnified Party or Indemnified Person against the
indemnifying party or others, and (ii) any liabilities the indemnifying party may be subject to
pursuant to the law.

7. Contribution.

          To the extent any indemnification by an indemnifying party is prohibited or limited by law,
the indemnifying party agrees to make the maximum contribution with respect to any amounts for
which it would otherwise be liable under Section 6 to the fullest extent permitted by law;
provided, however: (i) no contribution shall be made under circumstances where the maker would not
have been liable for indemnification under the fault standards set forth in Section 6 of this
Agreement, (ii) no Person involved in the sale of Registrable Securities which Person is guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) in connection
with such sale shall be entitled to contribution from any Person involved in such sale of
Registrable Securities who was not guilty of fraudulent misrepresentation; and (iii) contribution
by any seller of Registrable Securities shall be limited in amount to the amount of net proceeds
received by such seller from the applicable sale of such Registrable Securities pursuant to such
Registration Statement. Notwithstanding the provisions of this Section 7, no Investor shall be
required to contribute, in the aggregate, any amount in excess of the amount by which the net
proceeds actually received by such Investor from the applicable sale of the Registrable Securities
subject to the Claim exceeds the amount of any damages that such Investor has otherwise been
required to pay, or would otherwise be required to pay under Section 6(b), by reason of such untrue
or alleged untrue statement or omission or alleged omission.

8. Reports Under the 1934 Act.

          With a view to making available to the Investors the benefits of Rule 144, the Company agrees
to:

     (a) make and keep public information available, as those terms are understood and defined in
Rule 144;

     (b) file with the SEC in a timely manner all reports and other documents required of the
Company under the 1933 Act and the 1934 Act so long as the Company remains subject to such
requirements (it being understood and agreed that nothing herein shall limit any obligations of the
Company under the Securities Purchase Agreement) and the filing of such reports and other documents
is required for the applicable provisions of Rule 144; and

     (c) furnish to each Investor so long as such Investor owns Registrable Securities, promptly
upon request, (i) a written statement by the Company, if true, that it has complied with the
reporting, submission and posting requirements of Rule 144 and the 1934 Act, (ii) a copy of the
most recent annual or quarterly report of the Company and such other reports and documents so filed
by the Company with the SEC if such reports are not publicly available via EDGAR, and (iii) such
other information as may be reasonably requested to permit the Investors to sell such securities
pursuant to Rule 144 without registration.

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9. Assignment of Registration Rights.

     All or any portion of the rights under this Agreement shall be automatically assignable by
each Investor to any transferee or assignee (as the case may be) of all or any portion of such
Investor’s Registrable Securities, Notes or Warrants if: (i) such Investor agrees in writing with
such transferee or assignee (as the case may be) to assign all or any portion of such rights, and a
copy of such agreement is furnished to the Company within a reasonable time after such transfer or
assignment (as the case may be); (ii) the Company is, within a reasonable time after such transfer
or assignment (as the case may be), furnished with written notice of (a) the name and address of
such transferee or assignee (as the case may be), and (b) the securities with respect to which such
registration rights are being transferred or assigned (as the case may be); (iii) immediately
following such transfer or assignment (as the case may be) the further disposition of such
securities by such transferee or assignee (as the case may be) is restricted under the 1933 Act or
applicable state securities laws if so required; (iv) at or before the time the Company receives
the written notice contemplated by clause (ii) of this sentence such transferee or assignee (as the
case may be) agrees in writing with the Company to be bound by all of the provisions contained
herein; (v) such transfer or assignment (as the case may be) shall have been made in accordance
with the applicable requirements of the Securities Purchase Agreement, the Notes and the Warrants
(as the case may be); and (vi) such transfer or assignment (as the case may be) shall have been
conducted in accordance with all applicable federal and state securities laws.

10. Amendment of Registration Rights.

     Provisions of this Agreement may be amended only with the written consent of the Company and
each of the Investors. No waiver shall be effective unless it is in writing and signed by an
authorized representative of the waiving party. No consideration shall be offered or paid to any
Person to amend or consent to a waiver or modification of any provision of this Agreement unless
the same consideration also is offered to all of the parties to this Agreement.

11. Miscellaneous.

     (a) Solely for purposes of this Agreement, a Person is deemed to be a holder of Registrable
Securities whenever such Person owns, or is deemed to own, of record such Registrable Securities.
If the Company receives conflicting instructions, notices or elections from two or more Persons
with respect to the same Registrable Securities, the Company shall act upon the basis of
instructions, notice or election received from such record owner of such Registrable Securities.

     (b) Any notices, consents, waivers or other communications required or permitted to be given
under the terms of this Agreement must be in writing and will be deemed to have been delivered: (i)
upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and kept on file by the
sending party); (iii) with respect to Sections 3(c) or 4(a), by electronic mail (provided
confirmation of transmission is electronically generated and kept on file by the sending party); or
(iv) one (1) Business Day after deposit with a nationally recognized overnight delivery service
with next day delivery specified, in each case, properly addressed to the party to receive the

19

 

same. The addresses and facsimile numbers for such communications shall be:

If to the Company:

Converted Organics Inc.

137A Lewis Wharf

Boston MA 02110

Telephone: 617.624.0111

Facsimile: 617.624.0333

Attention: Edward J. Gildea, President

With a copy (for informational purposes only) to:

Cozen O’Connor

1900 Market Street

Philadelphia, PA 19103

Telephone: 215-665-5542

Facsimile: 215-701-2478

Attention: Ralph De Martino, Esq.

                 Cavas S. Pavri, Esq.

If to the Transfer Agent:

Computershare Inc.

250 Royall St

Canton, Massachusetts 02021

Telephone: (781) 575-4182

Facsimile: (781) 575.2549

Attention: Kim Crimi

If to Legal Counsel:

Greenberg Traurig, LLP

77 W. Wacker Drive, Suite 3100

Chicago, Illinois 60601

Telephone: (312) 456-8400

Facsimile: (312) 456-8435

Attention: Peter H. Lieberman, Esq.

                 Todd A. Mazur, Esq.

If to a Buyer, to its address, facsimile number or electronic mal address (as the case may be) set
forth on the Schedule of Buyers attached to the Securities Purchase Agreement, with copies to such
Buyer’s representatives as set forth on the Schedule of Buyers, or to such other address and/or
facsimile number and/or to the attention of such other Person as the recipient party has specified
by written notice given to each other party five (5) days prior to the effectiveness of such
change, provided that Greenberg Traurig, LLP shall only be provided notices sent to Iroquois.
Written confirmation of receipt (A) given by the recipient of such notice, consent, waiver or other
communication, (B) mechanically or electronically generated by the sender’s

20

 

facsimile machine or electronic mail transmission containing the time, date, recipient facsimile
number or electronic mail address and an image of the first page of such transmission or (C)
provided by a courier or overnight courier service shall be rebuttable evidence of personal
service, receipt by facsimile or receipt from a nationally recognized overnight delivery service in
accordance with clause (i), (ii) or (iii) above, respectively.

     (c) Failure of any party to exercise any right or remedy under this Agreement or otherwise, or
delay by a party in exercising such right or remedy, shall not operate as a waiver thereof. The
Company and each Investor 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 each party hereto shall be entitled
to an injunction or injunctions to prevent or cure breaches of the provisions of this Agreement by
any other party hereto and to enforce specifically the terms and provisions hereof (without the
necessity of showing economic loss and without any bond or other security being required), this
being in addition to any other remedy to which any party may be entitled by law or equity.

     (d) All questions concerning the construction, validity, enforcement and interpretation of
this Agreement shall be governed by the internal laws of the State of New York, without giving
effect to any choice of law or conflict of law provision or rule (whether of the State of New York
or any other jurisdictions) that would cause the application of the laws of any jurisdictions other
than the State of New York. Each party hereby irrevocably submits to the exclusive jurisdiction of
the state and federal courts sitting in The City of New York, Borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in
any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of
any such court, that such suit, action or proceeding is brought in an inconvenient forum or that
the venue of such suit, action or proceeding is improper. Each party hereby irrevocably waives
personal service of process and consents to process being served in any such suit, action or
proceeding by mailing a copy thereof to such party at the address for such 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 manner permitted by law. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the
validity or enforceability of the remainder of this Agreement in that jurisdiction or the validity
or enforceability of any provision of this Agreement in any other jurisdiction. EACH PARTY HEREBY
IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE
ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR
ANY TRANSACTION CONTEMPLATED HEREBY.

     (e) This Agreement, the other Transaction Documents, the schedules and exhibits attached
hereto and thereto and the instruments referenced herein and therein constitute the entire
agreement among the parties hereto and thereto solely with respect to the subject matter hereof and
thereof. There are no restrictions, promises, warranties or undertakings, other than those set
forth or referred to herein and therein. This Agreement, the other Transaction Documents, the
schedules and exhibits attached hereto and thereto and the instruments referenced herein and

21

 

therein supersede all prior agreements and understandings among the parties hereto solely with
respect to the subject matter hereof and thereof; provided, however, nothing contained in this
Agreement or any other Transaction Document shall (or shall be deemed to) (i) have any effect on
any agreements any Investor has entered into with, or any instrument that any Investor received
from, the Company or any of its Subsidiaries prior to the date hereof with respect to any prior
investment made by such Investor in the Company, (ii) waive, alter, modify or amend in any respect
any obligations of the Company or any of its Subsidiaries or any rights of or benefits to any
Investor or any other Person in any agreement entered into prior to the date hereof between or
among the Company and/or any of its Subsidiaries and any Investor or any instrument that any
Investor received prior to the date hereof from the Company and/or any of its Subsidiaries and all
such agreements and instruments shall continue in full force and effect or (iii) limit any
obligations of the Company under any of the other Transaction Documents.

     (f) Subject to compliance with Section 9 (if applicable), this Agreement shall inure to the
benefit of and be binding upon the permitted successors and assigns of each of the parties hereto.
This Agreement is not for the benefit of, nor may any provision hereof be enforced by, any Person,
other than the parties hereto, their respective permitted successors and assigns and the Persons
referred to in Sections 6 and 7 hereof.

     (g) The headings in this Agreement are for convenience of reference only and shall not limit
or otherwise affect the meaning hereof. Unless the context clearly indicates otherwise, each
pronoun herein shall be deemed to include the masculine, feminine, neuter, singular and plural
forms thereof. The terms “including,” “includes,” “include” and words of like import shall be
construed broadly as if followed by the words “without limitation.” The terms “herein,”
“hereunder,” “hereof” and words of like import refer to this entire Agreement instead of just the
provision in which they are found.

     (h) This Agreement may be executed in two or more identical counterparts, all of which shall
be considered one and the same agreement and shall become effective when counterparts have been
signed by each party and delivered to the other party. In the event that any signature is delivered
by facsimile transmission or by an e-mail which contains a portable document format (.pdf) file of
an executed signature page, such signature page shall create a valid and binding obligation of the
party executing (or on whose behalf such signature is executed) with the same force and effect as
if such signature page were an original thereof.

     (i) Each party shall do and perform, or cause to be done and performed, all such further acts
and things, and shall execute and deliver all such other agreements, certificates, instruments and
documents as any other party may reasonably request in order to carry out the intent and accomplish
the purposes of this Agreement and the consummation of the transactions contemplated hereby.

     (j) The language used in this Agreement will be deemed to be the language chosen by the
parties to express their mutual intent and no rules of strict construction will be applied against
any party. Notwithstanding anything to the contrary set forth in Section 10, terms used in this
Agreement but defined in the other Transaction Documents shall have the meanings ascribed to such
terms on the Closing Date in such other Transaction Documents unless otherwise consented to in
writing by each Investor. Notwithstanding any references to “Buyers” herein,

22

 

Iroquois and the Company acknowledge and agree that Iroquois is the only Buyer that is a party
hereto.

     (k) The obligations of each Investor under this Agreement and the other Transaction Documents
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 this
Agreement or any other Transaction Document. Nothing contained herein or in any other Transaction
Document, and no action taken by any Investor pursuant hereto or thereto, shall be deemed to
constitute the Investors as, and the Company acknowledges that the Investors do not so constitute,
a partnership, an association, a joint venture or any other kind of group or entity, or create a
presumption that the Investors are in any way acting in concert or as a group or entity with
respect to such obligations or the transactions contemplated by the Transaction Documents or any
matters, and the Company acknowledges that the Investors are not acting in concert or as a group,
and the Company shall not assert any such claim, with respect to such obligations or the
transactions contemplated by this Agreement or any of the other 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 any 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 use of a single agreement with respect to the obligations of the
Company contained herein was solely in the control of the Company, not the action or decision of
any Investor, and was done solely for the convenience of the Company and not because it was
required or requested to do so by any Investor. It is expressly understood and agreed that each
provision contained in this Agreement and in each other Transaction Document is between the Company
and an Investor, solely, and not between the Company and the Investors collectively and not between
and among Investors.

[signature pages follow]

23

 

     IN WITNESS WHEREOF, Buyer and the Company have caused their respective signature page to this
Registration Rights Agreement to be duly executed as of the date first written above.

	 	 	 	 	 
	 	COMPANY:

CONVERTED ORGANICS INC.

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 

 

 

     IN WITNESS WHEREOF, Buyer and the Company have caused their respective signature page to this
Registration Rights Agreement to be duly executed as of the date first written above.

	 	 	 	 	 
	 	BUYER:

IROQUOIS MASTER FUND LTD.

 	 
	 	By:  	Joshua Silverman, Authorized Signatory
 	 
	 	 	 	 
	 	 	 	 

 

 

	 	 	 	 	 

     IN WITNESS WHEREOF, Buyer and the Company have caused their respective signature page to this
Registration Rights Agreement to be duly executed as of the date first written above.

	 	 	 	 	 
	 	BUYER:

IROQUOIS CAPITAL OPPORTUNITY FUND LP

 	 
	 	By:  	Joshua Silverman, Authorized Signatory
 	 
	 	 	 	 
	 	 	 	 

 

 

	 	 	 	 	 

EXHIBIT A

FORM OF NOTICE OF EFFECTIVENESS

OF REGISTRATION STATEMENT

______________________

______________________

______________________

Attention: ______________

     Re: Converted Organics Inc.

Ladies and Gentlemen:

     [We are][I am] counsel to Converted Organics Inc., a Delaware corporation (the “Company”), and
have represented the Company in connection with that certain Securities Purchase Agreement (the
“Securities Purchase Agreement”) entered into by and among the Company and the buyers named therein
(collectively, the “Holders”) pursuant to which the Company issued to the Holders secured
convertible notes (the “Notes”) convertible into shares of the Company’s common stock, $0.0001 par
value per share (the “Common Stock”), and warrants exercisable for shares of Common Stock (the
“Warrants”). Pursuant to the Securities Purchase Agreement, the Company also has entered into a
Registration Rights Agreement with the Holders (the “Registration Rights Agreement”) pursuant to
which the Company agreed, among other things, to register the Registrable Securities (as defined in
the Registration Rights Agreement), including the shares of Common Stock issuable upon conversion
of the Notes and exercise of the Warrants, under the Securities Act of 1933, as amended (the “1933
Act”). In connection with the Company’s obligations under the Registration Rights Agreement, on
____________ ___, 20__, the Company filed a Registration Statement on Form [S-1][S-3] (File No.
333-_____________) (the “Registration Statement”) with the Securities and Exchange Commission (the
“SEC”) relating to the Registrable Securities which names each of the Holders as a selling
stockholder thereunder.

     In connection with the foregoing, [we][I] advise you that a member of the SEC’s staff has
advised [us][me] by telephone that the SEC has entered an order declaring the Registration
Statement effective under the 1933 Act at [ENTER TIME OF EFFECTIVENESS] on [ENTER DATE OF
EFFECTIVENESS] and [we][I] have no knowledge, after telephonic inquiry of a member of the SEC’s
staff, that any stop order suspending its effectiveness has been issued or that any proceedings for
that purpose are pending before, or threatened by, the SEC and the Registrable Securities are
available for resale under the 1933 Act pursuant to the Registration Statement.

     This letter shall serve as our standing opinion to you that the shares of Common Stock and the
shares of Common Stock underlying the Notes and the Warrants are freely transferable by the Holders
pursuant to the Registration Statement. You need not require further letters from us to effect any
future legend-free issuance or reissuance of such shares of Common Stock to the Holders as
contemplated by the Company’s Irrevocable Transfer Agent Instructions

 

 

dated _________ __, 20_.

Very truly yours,

[ISSUER’S COUNSEL]

By:_____________________

CC: [LIST NAMES OF HOLDERS]

 

 

EXHIBIT B

SELLING STOCKHOLDERS

     The shares of common stock being offered by the selling stockholders are those issuable to the
selling stockholders upon conversion of the notes and exercise of the warrants. For additional
information regarding the issuance of the notes and the warrants, see “Private Placement of Notes
and Warrants” above. We are registering the shares of common stock in order to permit the selling
stockholders to offer the shares for resale from time to time. Except for the ownership of the
notes and the warrants issued pursuant to the Securities Purchase Agreement, the selling
stockholders have not had any material relationship with us within the past three years.

     The table below lists the selling stockholders and other information regarding each selling
stockholder’s beneficial ownership (as determined under Section 13(d) of the Securities Exchange
Act of 1934, as amended, and the rules and regulations thereunder) of the common stock. The second
column lists the number of shares of common stock beneficially owned by the selling stockholders,
based on their respective ownership of shares of common stock, notes and warrants, as of ________,
2011, assuming conversion of the notes and exercise of the warrants held by each such selling
stockholder on that date but taking account of any limitations on conversion and exercise set forth
therein.

     The third column lists the shares of common stock being offered by this prospectus by the
selling stockholders and does not take into account any limitations on (i) conversion of the notes
set forth therein or (ii) exercise of the warrants set forth therein.

     In accordance with the terms of a registration rights agreement with the holders of the notes
and the warrants, this prospectus generally covers the resale of 133% of the sum of (i) the maximum
number of shares of common stock issuable upon conversion of the notes and (ii) the maximum number
of shares of common stock issuable upon exercise of the warrants, in each case, determined as if
the outstanding notes and warrants were converted or exercised (as the case may be) in full
(without regard to any limitations on conversion or exercise contained therein) as of the trading
day immediately preceding the date this registration statement was initially filed with the SEC.
Because the conversion price of the notes and the exercise price of the warrants may be adjusted,
the number of shares that will actually be issued may be more or less than the number of shares
being offered by this prospectus. The fourth column assumes the sale of all of the shares offered
by the selling stockholders pursuant to this prospectus.

     Under the terms of the notes and the warrants, a selling stockholder may not convert the notes
or exercise the warrants to the extent (but only to the extent) such selling stockholder or any of
its affiliates would beneficially own a number of shares of our common stock which would exceed
4.9%. The number of shares in the second column reflects these limitations. The selling
stockholders may sell all, some or none of their shares in this offering. See “Plan of
Distribution.”

 

 

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Maximum Number of	 	 		 
	 	 	Number of Shares of	 	 	Shares of Common Stock to	 	 	Number of Shares of	 
	 	 	Common Stock Owned	 	 	be Sold Pursuant to this	 	 	Common Stock Owned	 
	Name of Selling Stockholder	 	Prior to Offering	 	 	Prospectus	 	 	After Offering	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	(1)
	 	 	 	 	 	 	 	 	 	 	 	 

 

 

PLAN OF DISTRIBUTION

     We are registering the shares of common stock issuable upon conversion of the notes and
exercise of the warrants to permit the resale of these shares of common stock by the holders of the
notes and warrants from time to time after the date of this prospectus. We will not receive any of
the proceeds from the sale by the selling stockholders of the shares of common stock. We will bear
all fees and expenses incident to our obligation to register the shares of common stock.

     The selling stockholders may sell all or a portion of the shares of common stock held by them
and offered hereby from time to time directly or through one or more underwriters, broker-dealers
or agents. If the shares of common stock are sold through underwriters or broker-dealers, the
selling stockholders will be responsible for underwriting discounts or commissions or agent’s
commissions. The shares of common stock may be sold in one or more transactions at fixed prices, at
prevailing market prices at the time of the sale, at varying prices determined at the time of sale
or at negotiated prices. These sales may be effected in transactions, which may involve crosses or
block transactions, pursuant to one or more of the following methods:

	 	•	 	on any national securities exchange or quotation service on which the securities may
be listed or quoted at the time of sale;
	 
	 	•	 	in the over-the-counter market;
	 
	 	•	 	in transactions otherwise than on these exchanges or systems or in the
over-the-counter market;
	 
	 	•	 	through the writing or settlement of options, whether such options are listed on an
options exchange or otherwise;
	 
	 	•	 	ordinary brokerage transactions and transactions in which the broker-dealer solicits
purchasers;
	 
	 	•	 	block trades in which the broker-dealer will attempt to sell the shares as agent but
may position and resell a portion of the block as principal to facilitate the
transaction;
	 
	 	•	 	purchases by a broker-dealer as principal and resale by the broker-dealer for its
account;
	 
	 	•	 	an exchange distribution in accordance with the rules of the applicable exchange;
	 
	 	•	 	privately negotiated transactions;
	 
	 	•	 	short sales made after the date the Registration Statement is declared effective by
the SEC;
	 
	 	•	 	broker-dealers may agree with a selling securityholder to sell a specified number of
such shares at a stipulated price per share;
	 
	 	•	 	a combination of any such methods of sale; and

 

 

	 	•	 	any other method permitted pursuant to applicable law.

     The selling stockholders may also sell shares of common stock under Rule 144 promulgated under
the Securities Act of 1933, as amended, if available, rather than under this prospectus. In
addition, the selling stockholders may transfer the shares of common stock by other means not
described in this prospectus. If the selling stockholders effect such transactions by selling
shares of common stock to or through underwriters, broker-dealers or agents, such underwriters,
broker-dealers or agents may receive commissions in the form of discounts, concessions or
commissions from the selling stockholders or commissions from purchasers of the shares of common
stock for whom they may act as agent or to whom they may sell as principal (which discounts,
concessions or commissions as to particular underwriters, broker-dealers or agents may be in excess
of those customary in the types of transactions involved). In connection with sales of the shares
of common stock or otherwise, the selling stockholders may enter into hedging transactions with
broker-dealers, which may in turn engage in short sales of the shares of common stock in the course
of hedging in positions they assume. The selling stockholders may also sell shares of common stock
short and deliver shares of common stock covered by this prospectus to close out short positions
and to return borrowed shares in connection with such short sales. The selling stockholders may
also loan or pledge shares of common stock to broker-dealers that in turn may sell such shares.

     The selling stockholders may pledge or grant a security interest in some or all of the notes,
warrants or shares of common stock owned by them and, if they default in the performance of their
secured obligations, the pledgees or secured parties may offer and sell the shares of common stock
from time to time pursuant to this prospectus or any amendment to this prospectus under Rule
424(b)(3) or other applicable provision of the Securities Act amending, if necessary, the list of
selling stockholders to include the pledgee, transferee or other successors in interest as selling
stockholders under this prospectus. The selling stockholders also may transfer and donate the
shares of common stock in other circumstances in which case the transferees, donees, pledgees or
other successors in interest will be the selling beneficial owners for purposes of this prospectus.

     To the extent required by the Securities Act and the rules and regulations thereunder, the
selling stockholders and any broker-dealer participating in the distribution of the shares of
common stock may be deemed to be “underwriters” within the meaning of the Securities Act, and any
commission paid, or any discounts or concessions allowed to, any such broker-dealer may be deemed
to be underwriting commissions or discounts under the Securities Act. At the time a particular
offering of the shares of common stock is made, a prospectus supplement, if required, will be
distributed, which will set forth the aggregate amount of shares of common stock being offered and
the terms of the offering, including the name or names of any broker-dealers or agents, any
discounts, commissions and other terms constituting compensation from the selling stockholders and
any discounts, commissions or concessions allowed or re-allowed or paid to broker-dealers.

     Under the securities laws of some states, the shares of common stock may be sold in such
states only through registered or licensed brokers or dealers. In addition, in some states the
shares of common stock may not be sold unless such shares have been registered or qualified for
sale in such state or an exemption from registration or qualification is available and is complied
with.

 

 

     There can be no assurance that any selling stockholder will sell any or all of the shares of
common stock registered pursuant to the registration statement, of which this prospectus forms a
part.

     The selling stockholders and any other person participating in such distribution will be
subject to applicable provisions of the Securities Exchange Act of 1934, as amended, and the rules
and regulations thereunder, including, without limitation, to the extent applicable, Regulation M
of the Exchange Act, which may limit the timing of purchases and sales of any of the shares of
common stock by the selling stockholders and any other participating person. To the extent
applicable, Regulation M may also restrict the ability of any person engaged in the distribution of
the shares of common stock to engage in market-making activities with respect to the shares of
common stock. All of the foregoing may affect the marketability of the shares of common stock and
the ability of any person or entity to engage in market-making activities with respect to the
shares of common stock.

     We will pay all expenses of the registration of the shares of common stock pursuant to the
registration rights agreement, estimated to be $[       ] in total, including, without limitation,
Securities and Exchange Commission filing fees and expenses of compliance with state securities or
“blue sky” laws; provided, however, a selling stockholder will pay all underwriting discounts and
selling commissions, if any. We will indemnify the selling stockholders against liabilities,
including some liabilities under the Securities Act in accordance with the registration rights
agreements or the selling stockholders will be entitled to contribution. We may be indemnified by
the selling stockholders against civil liabilities, including liabilities under the Securities Act
that may arise from any written information furnished to us by the selling stockholder specifically
for use in this prospectus, in accordance with the related registration rights agreements or we may
be entitled to contribution.

     Once sold under the registration statement, of which this prospectus forms a part, the shares
of common stock will be freely tradable in the hands of persons other than our affiliates.

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