Document:

f10k2011ex10i_inspiredbuild.htm

Exhibit 10.1

 

 

SHARE PURCHASE AGREEMENT

by and among

INSPIRED BUILDERS, INC.

and

BRENDAN POWDERLY

and

CERTAIN PURCHASERS LISTED HEREUNDER

Dated as of January 13, 2012

  

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SHARE PURCHASE AGREEMENT

 

THIS SHARE PURCHASE AGREEMENT (hereinafter referred to as this “Agreement”) is entered into as of January 13, 2012 (the “Closing Date”), by and between Brendan Powderly and the persons and entities indicated on the attached Schedule of Purchaser (hereinafter collectively referred to as “Purchasers”), upon the following premises:

Premises

 

WHEREAS, Inspired Builders, Inc., a Nevada corporation (hereinafter referred to as “PubCo”), with principal offices located at 288 Main Street, Georgetown, MA 01833, is a publicly held corporation organized under the laws of the State of Nevada;

 

WHEREAS, Brendan Powderly (the “Principal PubCo Stockholder”) is currently the principal stockholder of PubCo, owning, directly or indirectly, 10,000,000 shares of PubCo Common Stock (as defined in Section 2.02 below), representing 90.7% of the issued and outstanding PubCo Common Stock on a fully diluted basis as of the date hereof;

 

WHEREAS, Principal PubCo Stockholder agrees to sell 10,000,000 shares to Purchasers in exchange for the payment of Fifteen Thousand Dollars ($15,000) (the “Stock Sale”) and the assumption of all the liabilities and obligations of the PubCo (such transactions hereinafter referred to as the "Contemplated Transaction"), and the Purchasers agrees to pay the purchase price on the terms described herein; and

 

Agreement

 

NOW THEREFORE, on the stated premises and for and in consideration of the mutual covenants and agreements hereinafter set forth and the mutual benefits to the parties to be derived herefrom, and intending to be legally bound hereby, it is hereby agreed as follows:

 

ARTICLE I

REPRESENTATIONS, COVENANTS, AND WARRANTIES OF PUBCO

 

As an inducement to, and to obtain the reliance of, Purchaser, and except as set forth in the corresponding disclosure schedules delivered by PubCo in connection with this Agreement (the “PubCo Schedules”), each of PubCo and Principal PubCo Stockholder jointly and severally represents and warrants, as of the date hereof and as of the Closing Date, as follows:

 

Section 1.01 Organization.  PubCo is a corporation duly organized, validly existing, and in good standing under the laws of the State of Nevada and has the corporate power and is duly authorized under all applicable laws, regulations, ordinances, and orders of public authorities to carry on its business in all material respects as it is now being conducted. Other than Massachusetts, PubCo is not qualified or licensed to do business as a foreign corporation in any other jurisdiction and neither the location of its assets nor the nature of its business requires it to be so qualified. The execution and delivery of this Agreement does not, and the consummation of the Contemplated Transactions will not, violate any provision of PubCo’s Organizational Documents.  PubCo has full power, authority, and legal right and has taken all action required by law, its Organizational Documents, or otherwise to authorize the execution and delivery of this Agreement and to consummate the Contemplated Transactions.

 

  

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Section 1.02 Capitalization.  The authorized capital stock of PubCo consists of  (a) 50,000,000 shares of common stock, par value $0.001 per share (“PubCo Common Stock”), of which 11,025,000 shares are issued and outstanding immediately prior to the consummation of the contemplated Transaction, 775,000 shares of which have been registered for resale with the U.S. Securities and Exchange Commission (“SEC”) pursuant to an effective registration statement, and an additional 250,000 shares which were sold and issued pursuant to Regulation D and (b) 5,000,000 shares of preferred stock, par value $0.001 per share (“PubCo Preferred Stock”), none of which are issued and outstanding.  All issued and outstanding shares of PubCo Common Stock are legally issued, fully paid, and non-assessable, issued in compliance with all applicable securities laws and not issued in violation of the preemptive or other rights of any person.

 

Section 1.03 Subsidiaries and Predecessor Corporations.  PubCo does not have any predecessor corporation(s), no subsidiaries, and does not own, beneficially or of record, any shares of any other corporation or any interest in any other partnership, limited liability company or any other entity.

 

Section 1.04 Financial Statements.

 

(a) Copies of (a) the audited balance sheet of PubCo as of September 30, 2011 and the related audited statements of operations, stockholders’ equity and cash flows for the fiscal year ended September 30, 2011, together with the notes to such statements and the opinion of Donahue & Associates, P.A., independent certified public accountants, and (b) the unaudited balance sheet of PubCo as of June 30, 2011 (together with the balance sheets of PubCo as of June 30, 2011, the “PubCo Balance Sheets”) and the related unaudited statements of operations, stockholders’ equity and cash flows for the nine-month period ending September 30, 2011 (the financial statements referred to in (a) and (b) collectively, the “PubCo Financial Statements”) have been filed with the SEC.

 

(b) The PubCo Financial Statements have been prepared in accordance with US GAAP consistently applied throughout the periods involved. The PubCo Balance Sheets are true and accurate and fairly present as of their respective dates the financial condition of PubCo.  As of the respective dates of the PubCo Balance Sheets, except as and to the extent reflected or reserved against therein, PubCo had no liabilities or obligations (absolute or contingent) which should be reflected in the PubCo Balance Sheets or the notes thereto prepared in accordance with GAAP, and all assets reflected therein are properly reported and fairly present the value of the assets of PubCo, in accordance with GAAP. The statements of operations, stockholders’ equity and cash flows in the PubCo Financial Statements reflect fairly the information required to be set forth therein by GAAP.

 

  

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(c) Except as disclosed on the Schedule of Outstanding Liabilities , PubCo has no liabilities with respect to the payment of any federal, state, county, local or other taxes (including any deficiencies, interest or penalties), except for taxes accrued but not yet due and payable. All liabilities on the Schedule of Outstanding Liabilities will be satisfied at Closing.

 

(d) All of PubCo’s assets are reflected on the PubCo Financial Statements, and, except as set forth in the PubCo Schedules or the PubCo Financial Statements, PubCo has no material liabilities, direct or indirect, matured or unmatured, contingent or otherwise.

 

Section 1.05 Information.  The information concerning PubCo set forth in this Agreement and the PubCo Schedules, if any, is complete and accurate in all material respects and does not contain any untrue statements of a material fact or omit to state a material fact required to make the statements made, in light of the circumstances under which they were made, not misleading.

Section 1.06 Litigation and Proceedings.  There are no actions, suits, proceedings or investigations pending or, to the knowledge of PubCo after reasonable investigation, threatened by or against PubCo or affecting PubCo or its properties, at law or in equity, before any court or other governmental agency or instrumentality, domestic or foreign, or before any arbitrator of any kind.  PubCo does not have any knowledge of any default on its part with respect to any judgment, order, writ, injunction, decree, award, rule or regulation of any court, arbitrator, or governmental agency or instrumentality or any circumstance which after reasonable investigation would result in the discovery of such default.

 

Section 1.07 Compliance With Laws and Regulations.  To the best of its knowledge, PubCo has complied with all applicable statutes and regulations of any federal, state, or other applicable governmental entity or agency thereof.  This compliance includes, but is not limited to, the filing of all reports to date with federal and state securities authorities.

 

Section 1.08 Material Transactions or Affiliations.  Except for this Agreement and the Contemplated Transactions, there exists no contract, agreement or arrangement between PubCo and any predecessor and any person who was at the time of such contract, agreement or arrangement an officer, director, or person owning of record or known by PubCo to own beneficially, five percent (5%) or more of the issued and outstanding PubCo Common Stock and which is to be performed in whole or in part after the date hereof or was entered into not more than one (1) year prior to the date hereof.  Neither any officer, director, nor five percent (5%) stockholder of PubCo has, or has had since inception of PubCo, any known interest, direct or indirect, in any such transaction with PubCo which was material to the business of PubCo.  PubCo has no commitment, whether written or oral, to lend any funds to, borrow any money from, or enter into any other transaction with, any such affiliated person.

 

Section 1.09 Bank Accounts; Power of Attorney.  Set forth in Schedule 1.09 of  the PubCo Schedules is a true and complete list of (a) all accounts with banks, money market mutual funds or securities or other financial institutions maintained by PubCo within the past twelve (12) months, the account numbers thereof, and all persons authorized to sign or act on behalf of PubCo, (b) all safe deposit boxes and other similar custodial arrangements maintained by PubCo within the past twelve (12) months, (c) the check ledger for the last twelve (12) months, (d) the names of all persons holding powers of attorney from PubCo or who are otherwise authorized to act on behalf of PubCo with respect to any matter, other than its officers and directors, and a summary of the terms of such powers or authorizations, and (e) a list of all the current officers and directors of PubCo. Any accounts listed on Schedule 1.09 shall be closed upon the Closing of this Contemplated Transaction. Upon the closing of this transaction, the bank account listed on Schedule 1.09 shall be closed and all proceeds shall be the property of the Principal PubCo Stockholder.

 

  

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Section 1.10 Valid Obligation.  This Agreement and all agreements and other documents executed by PubCo in connection herewith constitute the valid and binding obligations of PubCo, enforceable in accordance with their respective terms.

 

Section 1.11 Filings.  PubCo has filed in a timely manner with the Securities and Exchange Commission (the “SEC”) all reports required to be filed and is “current” in its reporting obligations (collectively, the “SEC Reports”).

 

Section 1.12 OTCBB.  PubCo trades its PubCo Common Stock on the Over-The-Counter Bulletin Board (“OTCBB”) and meets all requirements to be listed on the OTCBB.  PubCo has not received any correspondence and/or notice (nor has any reason to believe it will in the future receive) regarding the continued eligibility of the PubCo Common Stock to be quoted on the OTCBB.

 

ARTICLE II

REPRESENTATIONS, COVENANTS, AND WARRANTIES OF PURCHASERS

 

Section 2.01 Organization and Good Standing of the Purchasers. If the Purchaser is an entity, such Purchaser is a corporation, partnership, or limited liability company duly incorporated or organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization.

 

Section 2.02 Authorization and Power. Each Purchaser has the requisite power and authority to enter into and perform this Agreement and each of the other documents to which such Purchaser is a party and to purchase the 10,000,000 shares of PubCo Common Stock being sold to it hereunder. The execution, delivery and performance of this Agreement and each of the other documents to which such Purchaser is a party by such Purchaser and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary corporate, partnership or limited liability company action, and no further consent or authorization of such Purchaser or its Board of Directors, stockholders, partners, members, or managers, as the case may be, is required. This Agreement and each of the other documents to which such Purchaser is a party have been duly authorized, executed and delivered by such Purchaser and constitute, or shall constitute when executed and delivered, valid and binding obligations of such Purchaser enforceable against such Purchaser in accordance with the terms hereof and thereof.

 

  

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Section 2.03 No Conflicts. The execution, delivery and performance of this Agreement and each of the other documents to which such Purchaser is a party and the consummation by such Purchaser of the transactions contemplated hereby and thereby or relating hereto do not and will not (i) result in a violation of such Purchaser’s charter documents, bylaws, operating agreement, partnership agreement or other organizational documents or (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 or obligation to which such Purchaser is a party or by which its properties or assets are bound, or result in a violation of any law, rule, or regulation, or any order, judgment or decree of any court or governmental agency applicable to such Purchaser or its properties (except for such conflicts, defaults and violations as would not, individually or in the aggregate, have a material adverse effect on such Purchaser). Such Purchaser is not required to obtain any consent, authorization or order of, or make any filing or registration with, any court or governmental agency in order for it to execute, deliver or perform any of its obligations under this Agreement or any other document to which such Purchaser is a party or to purchase the PubCo Common Stock in accordance with the terms hereof; provided that, for purposes of the representation made in this sentence, such Purchaser is assuming and relying upon the accuracy of the relevant representations and agreements of the Company herein.

 

Section 2.04 Status of Purchasers. Each Purchaser is an “accredited investor” (“Accredited Investor”) as defined in Regulation D, which definition is attached hereto as Exhibit B, or a “non-US person” as defined in Regulation S. Such Purchaser is not required to be registered as a broker-dealer under Section 15 of the Exchange Act, and such Purchaser is not a broker-dealer, nor an affiliate of a broker-dealer.

 

Section 2.05 Acquisition for Investment. Each Purchaser is acquiring the PubCo Common Stock solely for its own account for the purpose of investment and not with a view to or for sale in connection with a distribution. The Purchaser does not have a present intention to sell the PubCo Common Stock, nor a present arrangement (whether or not legally binding) or intention to effect any distribution of the PubCo Common Stock to or through any person or entity; provided, however, that by making the representations herein, such Purchaser does not agree to hold the PubCo Common Stock for any minimum or other specific term and reserves the right to dispose of the PubCo Common Stock at any time in accordance with federal and state securities laws applicable to such disposition. Each Purchaser represents that it is able to bear the financial risks associated with an investment in the PubCo Common Stock and that it has been given full access to such records of the Company and to the officers of the Company and received such information as it has deemed necessary or appropriate to conduct its due diligence investigation and that such Purchaser has had access to the periodic filings made by the Company with the Commission. Each Purchaser represents that it has sufficient knowledge and experience in investing in companies similar to the Company in terms of the Company’s stage of development so as to be able to evaluate the risks and merits of its investment in the Company. Each Purchaser further represents that such Purchaser understands that the purchase of the PubCo Common Stock involves substantial risks.

 

Section 2.06 Additional Representations and Warranties of Accredited Investors. Each Purchaser further makes the representations and warranties to the Company set forth on Exhibit B-1.

 

Section 2.07 Additional Representations and Warranties of Non-U.S. Persons. Each Purchaser indicating that it is not a U.S. person, severally and not jointly, further makes the representations and warranties to the Company set forth on Exhibit B-2.

 

  

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Section 2.08 Opportunities for Additional Information. Each Purchaser acknowledges that such Purchaser has had the opportunity to ask questions of and receive answers from, or obtain additional information from, the executive officers of the Company concerning the financial and other affairs of the Company.

 

Section 2.09 No General Solicitation. Each Purchaser acknowledges that the PubCo Common Stock was not offered to such Purchaser by means of any form of general or public solicitation or general advertising, or publicly disseminated advertisements or sales literature, including (i) any advertisement, article, notice or other communication published in any newspaper, magazine, or similar media, or broadcast over television or radio or the internet, including via email message, or (ii) any seminar or meeting to which such Purchaser was invited by any of the foregoing means of communications.

 

Section 2.10 Rule 144. Such Purchaser understands that the Shares must be held indefinitely unless such Shares are registered under the Securities Act or an exemption from registration is available. Such Purchaser acknowledges that such Purchaser is familiar with Rule 144 of the rules and regulations of the Commission, as amended, promulgated pursuant to the Securities Act (“Rule 144”), and that such Purchaser has been advised independently that Rule 144 permits resales only under certain circumstances. Such Purchaser understands that, to the extent that Rule 144 is not available, such Purchaser will be unable to sell any Shares without either registration under the Securities Act or the existence of another exemption from such registration requirement.

 

Section 2.11 Independent Investment. Except as may be disclosed in any filings with the Commission by the Purchasers under Section 13 and/or Section 16 of the Exchange Act, no Purchaser has agreed to act with any other Purchaser for the purpose of acquiring, holding, voting or disposing of the PubCo Common Stock purchased hereunder for purposes of Section 13(d) under the Exchange Act, and each Purchaser is acting independently with respect to its investment in the Shares.

 

ARTICLE III

PLAN OF SALE

 

Section 3.01 The Sale.  On the terms and subject to the conditions set forth in this Agreement, on the Closing Date, the Purchasers shall pay to the Principal PubCo Stockholder in cash the amount of Fifteen Thousand Dollars ($15,000) (the “Purchase Price”).  In exchange for the payment of the Purchase Price, the Principal PubCo Stockholder shall cause the 10,000,000 shares of PubCo Common Stock to be transferred to the Purchasers in accordance with the amounts indicated next to their respective name on the Schedule of Purchaser an aggregate of ten million (10,000,000) shares of PubCo Common Stock, representing 90.7% of the total issued and outstanding PubCo Common Stock (the “Sold Shares”). At the closing of the transactions described in this Section 3.01 (the “Closing”), the Purchasers shall, upon complete payment of the Purchase Price, be entitled to receive certificates evidencing its interest in the Sold Shares. Upon consummation of the Contemplated Transactions, there shall be 11,025,000 shares of PubCo Common Stock issued and outstanding on a fully diluted basis.

 

  

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Section 3.02 Closing Events.  At the Closing, Principal PubCo Stockholder and the Purchasers shall execute, acknowledge, and deliver (or shall ensure to be executed, acknowledged, and delivered), any and all certificates, opinions, financial statements, schedules, agreements, resolutions, rulings or other instruments required by this Agreement to be so delivered at or prior to the Closing, together with such other items as may be reasonably requested by the parties hereto and their respective legal counsel in order to effectuate or evidence the Contemplated Transactions.

 

Section 3.03 Termination.  This Agreement may be terminated only in the event that any party does not meet the conditions precedent set forth in Articles V and VI hereof.  If this Agreement is terminated pursuant this Section 3.04, this Agreement shall be of no further force or effect, and no obligation, right or liability shall arise hereunder.

 

Section 3.04 Liabilities.  On the Closing, the Purchasers will be assuming all outstanding liabilities of PubCo and the Principal PubCo Stockholder shall not be liable for any outstanding obligations.

 

ARTICLE IV

SPECIAL COVENANTS

 

Section 4.01 Access to Properties and Records.  PubCo will afford to the officers and authorized representatives of the Purchasers full access to the properties, books and records of PubCo, in order that each party may have a full opportunity to make such reasonable investigation as it shall desire to make of the affairs of the other party, and each party will furnish to the other party such additional financial and operating data and other information as to the business and properties of PubCo as the Purchaser shall from time to time reasonably request.  Without limiting the foregoing, as soon as practicable after the end of each fiscal quarter (and in any event through the last fiscal quarter prior to the Closing Date), each party shall provide the other party with quarterly internally prepared and unaudited financial statements.

 

Section 4.02 Delivery of Books and Records.  At the Closing, PubCo shall deliver to Purchaser the originals of the corporate minute books, books of account, contracts, records, and all other books or documents of PubCo now or then in the possession of PubCo or its representatives.

 

Section 4.03 Third Party Consents and Certificates.  PubCo and the Purchaser agree to cooperate with each other in order to obtain any required third party consents to this Agreement and the Contemplated Transactions.

 

Section 4.04 Indemnification.

 

(a) Purchasers hereby agree to indemnify Principal PubCo Stockholder, PubCo and each of the officers, agents and directors of PubCo as of the date of this Agreement against any loss, liability, claim, damage, or expense (including, but not limited to, attorneys' fees, any and all expense whatsoever reasonably incurred in investigating, preparing, or defending against any litigation, commenced or threatened, or any claim whatsoever) (“Loss”), to which it or they may become subject arising out of or based on any inaccuracy appearing in or misrepresentations made hereunder.  The indemnification provided for in this paragraph shall survive the Closing and consummation of Contemplated Transactions and termination of this Agreement for one (1) year following the Closing.

 

  

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(b) PubCo and Principal PubCo Stockholder hereby jointly and severally agree to indemnify the Purchaser and each of the respective officers, agents, and directors of the Purchaser as of the date of this Agreement against any Loss to which it or they may become subject arising out of or based on any inaccuracy appearing in or misrepresentation made hereunder, including without limitation:

 

(i) for any foreign, Federal, state or local tax of any kind arising out of or by reason of the existence or operations of PubCo and/or the PubCo Principal Stockholder prior to the Closing, including, without limitation, any payroll taxes owed by PubCo;

 

(ii) in respect of any salary, bonus, wages or other compensation of any kind owed by PubCo to any party for services rendered on or prior to the Closing;

 

(iii) for any damages to the environment caused by or arising out of any pollution resulting from or otherwise attributable to the operation of the business of PubCo prior to the Closing;

 

(iv) in respect of any payable of PubCo incurred prior to the Closing;

 

(v) in respect of any liability or indebtedness, including, without limitation, with respect to the execution and performance of this Agreement; and

 

(vi) for expenses required to be borne by PubCo and/or Principal PubCo Stockholder under the provisions of this Agreement.

 

The indemnification provided for in this paragraph shall survive the Closing and consummation of the Contemplated Transactions and termination of this Agreement for one (1) year following the Closing.

 

ARTICLE V

CONDITIONS PRECEDENT TO OBLIGATIONS OF PRINCIPAL PUBCO STOCKHOLDER

 

The obligations of Principal PubCo Stockholder under this Agreement are subject to the satisfaction, at or before the Closing Date, of the following conditions:

 

Section 5.01 Accuracy of Representations and Performance of Covenants.  The representations and warranties made by the Purchaser in this Agreement were true when made and shall be true on the Closing Date with the same force and effect as if such representations and warranties were made on and as of the Closing Date. The Purchaser shall have performed or complied with all covenants and conditions required by this Agreement to be performed or complied with by the Purchaser prior to or at the Closing.

 

  

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Section 5.02 Payment of Purchase Price.  The Purchaser shall have deposited the full Purchase Price on the Closing Date pursuant to the terms of an escrow agreement and the Company shall receive the Purchase Price upon the Closing.

 

Section 5.03 No Governmental Prohibition.  No order, statute, rule, regulation, executive order, injunction, stay, decree, judgment or restraining order shall have been enacted, entered, promulgated or enforced by any court or governmental or regulatory authority or instrumentality which prohibits the consummation of the Contemplated Transactions.

 

Section 5.04 Consents.  All consents, approvals, waivers or amendments pursuant to all contracts, licenses, permits, trademarks and other intangibles in connection with the Contemplated Transactions, shall have been obtained.

 

ARTICLE VI

CONDITIONS PRECEDENT TO OBLIGATIONS OF THE PURCHASER

 

The obligations of the Purchaser under this Agreement are subject to the satisfaction, at or before the Closing Date, of the following conditions:

 

Section 6.01 Accuracy of Representations and Performance of Covenants.  The representations and warranties made by PubCo in this Agreement were true when made and shall be true on the Closing Date with the same force and effect as if such representations and warranties were made on and as of the Closing Date.  PubCo shall have performed and complied with all covenants and conditions required by this Agreement prior to or at the Closing.

 

Section 6.02 No Governmental Prohibition.  No order, statute, rule, regulation, executive order, injunction, stay, decree, judgment or restraining order shall have been enacted, entered, promulgated or enforced by any court or governmental or regulatory authority or instrumentality which prohibits the consummation of the Contemplated Transactions.

 

Section 6.03 Consents.  All consents, approvals, waivers or amendments pursuant to all contracts, licenses, permits, trademarks and other intangibles in connection with the Contemplated Transactions, or for the continued operation of PubCo after the Closing Date on the basis as presently operated shall have been obtained.

 

ARTICLE VII

MISCELLANEOUS

 

Section 7.01 Brokers.  Principal PubCo Stockholder and the Purchaser agree that there were no finders or brokers involved in bringing the parties together or who were instrumental in the negotiation or execution of this Agreement or consummation of the Contemplated Transactions.  Principal PubCo Stockholder and the Purchaser each agree to indemnify the other party against any claim by any third person other than those described above for any commission, brokerage, or finder’s fee arising from the Contemplated Transactions based on any alleged agreement or understanding between the indemnifying party and such third person, whether express or implied from the actions of the indemnifying party.

 

  

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Section 7.02 Governing Law.  This Agreement shall be governed by, enforced, and construed under and in accordance with the laws of the United States of America and, with respect to the matters of state law, with the laws of the State of Nevada.  Venue for all matters shall be in Nevada, without giving effect to principles of conflicts of law thereunder.  Each of the parties irrevocably consents and agrees that any legal or equitable action or proceedings arising under or in connection with this Agreement shall be brought exclusively in the federal courts of the United States. By execution and delivery of this Agreement, each party hereto irrevocably submits to and accepts, with respect to any such action or proceeding, generally and unconditionally, the jurisdiction of the aforesaid court, and irrevocably waives any and all rights such party may now or hereafter have to object to such jurisdiction.

 

Section 7.03 Notices.  Any notice or other communications required or permitted hereunder shall  be in writing and shall be sufficiently given if personally delivered to it or sent by facsimile, overnight courier or registered mail or certified mail, postage prepaid, addressed as follows:

 

If to the Purchaser, to:

See the attached Schedule of Purchasers

 

If to Principal PubCo Stockholder, to:

Inspired Builders, Inc.

288 Main Street

Georgetown, MA 01833

Attn: Brendan Powderly

Tel: (978) 380-0181

With copies to (which shall not constitute notice):

Gregg E. Jaclin, Esq.

Anslow & Jaclin LLP

195 Route 9 South

Manalapan, NJ  07726

Tel:  732-409-1212

Fax: 732-577-1188

or such other addresses as shall be furnished in writing by any party in the manner for giving notices hereunder, and any such notice or communication shall be deemed to have been given (a) upon receipt, if personally delivered, (b) on the day after dispatch, if sent by overnight courier, (c) upon dispatch, if transmitted by facsimile and receipt is confirmed by email, or (d) three (3) days after mailing, if sent by registered or certified mail.

Section 7.04 Attorney’s Fees.  In the event that either party institutes any action or suit to enforce this Agreement or to secure relief from any default hereunder or breach hereof, the prevailing party shall be reimbursed by the losing party for all costs, including reasonable attorney’s fees, incurred in connection therewith and in enforcing or collecting any judgment rendered therein.

 

  

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Section 7.05 Confidentiality.  Each party hereto agrees with the other parties that, unless and until the Contemplated Transactions have been consummated, it and its representatives will hold in strict confidence all data and information obtained with respect to another party or any subsidiary thereof from any representative, officer, director or employee, or from any books or records or from personal inspection, of such other party, and shall not use such data or information or disclose the same to others, except (a) to the extent such data or information is published, is a matter of public knowledge, or is required by law to be published; or (b) to the extent that such data or information must be used or disclosed in order to consummate the Contemplated Transactions.  In the event of the termination of this Agreement, each party shall return to the other parties all documents and other materials obtained by it or on its behalf and shall destroy all copies, digests, work papers, abstracts or other materials relating thereto, and each party will continue to comply with the confidentiality provisions set forth herein.

 

Section 7.06 Public Announcements and Filings.  Unless required by applicable law or regulatory authority, none of the parties will issue any report, statement or press release to the general public, to the trade, to the general trade or trade press, or to any third party (other than its advisors and representatives in connection with the Contemplated Transactions) or file any document, relating to this Agreement and Contemplated Transactions, except as may be mutually agreed by the parties.  Copies of any such filings, public announcements or disclosures, including any announcements or disclosures mandated by law or regulatory authorities, shall be delivered to each party at least one (1) business day prior to the release thereof.

 

Section 7.07 Schedules; Knowledge.  The Purchaser Schedules and PubCo Schedules referred to herein and delivered pursuant to and attached to this Agreement (collectively, “Schedules”) are integral parts of this Agreement.  The inclusion of any information in the Schedules shall not be deemed to be an admission or acknowledgment, in and of itself, that such information is required by the terms hereof to be disclosed, is material to the Purchaser or PubCo, as the case may be, or is outside the ordinary course of business. The Purchaser is responsible for preparing the Purchaser Schedules and PubCo is responsible for preparing the PubCo Schedules. Each of the Purchaser Schedules and the PubCo Schedules will be arranged in paragraphs corresponding to the numbered and lettered paragraphs contained in this Agreement, and the disclosure in any such numbered and lettered section of the Purchaser Schedules or the PubCo Schedules, as the case may be, shall qualify and shall be deemed to qualify such other paragraphs in this Agreement to the extent such qualification is reasonably apparent regardless of the absence of any express cross-reference to such other paragraph.  Each party is presumed to have full knowledge of all information set forth in the other party’s Schedules delivered pursuant to this Agreement.

 

Section 7.08 Third Party Beneficiaries.  This contract is strictly between PubCo and the Purchaser, and, except as specifically provided, no director, officer, stockholder, employee, agent, independent contractor or any other person or entity shall be deemed to be a third party beneficiary of this Agreement.

 

Section 7.09 Expenses.  Subject to Section 7.04 above, whether or not the Sale is consummated, each of Principal PubCo Stockholder and the Purchaser will bear their own respective expenses, including legal, accounting and professional fees, incurred in connection with the Sale or any of the other Contemplated Transactions.

 

  

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Section 7.10 Entire Agreement.  This Agreement, together with the Schedules and any certificate or agreements delivered on the Closing Date, represents the entire agreement between the parties relating to the subject matter thereof and supersedes all prior agreements, understandings and negotiations, written or oral, with respect to such subject matter.

 

Section 7.11 Survival; Termination.  The representations, warranties, and covenants of the respective parties shall survive the Closing Date and the consummation of Contemplated Transactions for the later of a period of two (2) years or the applicable statute of limitations (for example, if the statute of limitations for taxes is six years, then the representation and warranty contained herein shall survive for six years.

 

Section 7.12 Counterparts.  This Agreement may be executed in multiple counterparts and by facsimile or other electronic means, such as scanned pages, each of which shall be deemed an original and all of which taken together shall be but a single instrument.

 

Section 7.13 Amendment or Waiver.  Every right and remedy provided herein shall be cumulative with every other right and remedy, whether conferred herein, at law, or in equity, and may be enforced concurrently herewith, and no waiver by any party of the performance of any obligation by the other parties shall be construed as a waiver or any other default then, theretofore, or thereafter occurring or existing.  At any time prior to the Closing Date, this Agreement may by amended by a writing signed by all parties hereto, with respect to any of the terms contained herein, and any term or condition of this Agreement may be waived or the time for performance may be extended by a writing signed by the party or parties for whose benefit the provision is intended.

 

Section 7.14 Best Efforts.  Subject to the terms and conditions herein provided, each party shall use its best efforts to perform or fulfill all conditions and obligations to be performed or fulfilled by it under this Agreement so that the Contemplated Transactions shall be consummated as soon as practicable.  Each party also agrees that it shall use its best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective this Agreement and the Contemplated Transactions.

 

Section 7.15 References.  References to Sections, Articles, Schedules or Exhibits in this Agreement shall be to Sections, Articles, Schedules or Exhibits to this Agreement unless explicitly provided otherwise.

 

  

13

  

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first-above written.

 

 

	 	INSPIRED BUILDERS, INC.	 
	 	 	 	 
	 	
By: 

	/s/ 	 
	 	 	Name:  Brendan Powderly	 
	 	 	Title:  Chief Executive Officer	 

 

 

	 	BRENDAN POWDERLY	 
	 	 	 	 
	 	
By: 

	/s/ 	 
	 	 	Brendan Powderly, individually and personally	 

 

	 	PURCHASERS	 
	 	 	 	 
	 	
By: 

	/s/ 	 
	 	 	Name:	 
	 	 	Title:	 

 

 

[Signature Page to Share Purchase Agreement]

 

 

 

14EX-4.1

NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE
SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR
SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT
FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL 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. ANY TRANSFEREE OF THIS NOTE SHOULD CAREFULLY REVIEW THE TERMS OF THIS NOTE, INCLUDING
SECTIONS 3(c)(iii) AND 16(a) HEREOF. THE PRINCIPAL AMOUNT REPRESENTED BY THIS NOTE AND,
ACCORDINGLY, THE SECURITIES ISSUABLE UPON CONVERSION HEREOF MAY BE LESS THAN THE AMOUNTS SET FORTH
ON THE FACE HEREOF PURSUANT TO SECTION 3(c)(iii) OF THIS NOTE.

Converted Organics Inc.

Senior Secured Convertible Note

	 	 	 
	Issuance Date: April 20, 2011

3(a)(9) Exchange Date: January 12,

2012 (“Exchange Date”)

	 	Original Principal Amount: U.S. $3,850,000

Principal Amount on Exchange Date

Immediately Following 3(a)(9) Exchange:
	
 
	 	U.S. $2,456,595.79

FOR VALUE RECEIVED, Converted Organics Inc., a Delaware corporation (the “Company”),
hereby promises to pay to the order of IROQUOIS MASTER FUND LTD. or its registered assigns
(“Holder”) the amount set out above as the Original Principal Amount (as reduced pursuant to the
terms hereof pursuant to redemption, conversion or otherwise, the “Principal”) when due, whether
upon the Maturity Date, acceleration, redemption or otherwise (in each case in accordance with the
terms hereof) and to pay interest (“Interest”) on any outstanding Principal at the applicable
Interest Rate (as defined below) from the date set out above as the Issuance Date (the “Issuance
Date”) until the same becomes due and payable, whether upon the Maturity Date or acceleration,
conversion, redemption or otherwise (in each case in accordance with the terms hereof). This Senior
Secured Convertible Note (including all Senior Secured Convertible Notes issued in exchange,
transfer or replacement hereof, this “Note”) is one of an issue of Senior Secured Convertible Notes
issued pursuant to the Securities Purchase Agreement (as defined below) (collectively, the “Notes”
and such other Convertible Notes, the “Other Notes”). Certain capitalized terms used herein are
defined in Section 26.

1. PAYMENT AT MATURITY. On the Maturity Date (as defined below), the Company shall pay
to the Holder an amount in cash equal to all outstanding Principal, accrued and unpaid Interest and
accrued and unpaid Late Charges on such Principal and Interest. Other than as specifically
permitted by this Note, the Company may not prepay any portion of the outstanding Principal,
accrued and unpaid Interest or accrued and unpaid Late Charges on Principal and Interest, if any.

2. INTEREST; INTEREST RATE. No Interest shall accrue on this Note prior to the
occurrence of an Event of Default, in which case Interest on this Note shall commence accruing on
the occurrence of such Event of Default, shall accrue daily at the Interest Rate on the outstanding
Principal amount from time to time, shall be computed on the basis of a 360-day year comprised of
twelve (12) thirty (30) day months, shall compound each Quarter and shall be payable in accordance
with the terms of this Note. From and after the occurrence and during the continuance of any Event
of Default, the Interest Rate shall automatically be increased to eighteen percent (18%). In the
event that such Event of Default is subsequently cured, the adjustment referred to in the preceding
sentence shall cease to be effective as of the date of such cure, provided that the Interest as
calculated and unpaid at such increased rate during the continuance of such Event of Default shall
continue to apply to the extent relating to the days after the occurrence of such Event of Default
through and including the date of such cure of such Event of Default.

3. CONVERSION OF NOTES. This Note shall be convertible into validly issued, fully paid
and non-assessable shares of Common Stock (as defined below), on the terms and conditions set forth
in this Section 3.

(a) Conversion Right. Subject to the provisions of Section 3(d), at any time or
times on or after the Issuance Date, the Holder shall be entitled to convert any portion of
the outstanding and unpaid Conversion Amount (as defined below) into validly issued, fully
paid and non-assessable shares of Common Stock in accordance with Section 3(c), at the
Conversion Rate (as defined below). The Company shall not issue any fraction of a share of
Common Stock upon any conversion. If the issuance would result in the issuance of a fraction
of a share of Common Stock, the Company shall round such fraction of a share of Common Stock
up to the nearest whole share. The Company shall pay any and all transfer, stamp, issuance
and similar taxes that may be payable with respect to the issuance and delivery of Common
Stock upon conversion of any Conversion Amount.

(b) Conversion Rate.

(i) The number of shares of Common Stock issuable upon conversion of any Conversion
Amount pursuant to Section 3(a) shall be determined by dividing (x) such Conversion
Amount by (y) the Conversion Price (the “Conversion Rate”).

(1) “Conversion Amount” means the portion of the Principal to be
converted, redeemed or otherwise with respect to which this determination is
being made, plus all accrued and unpaid Interest with respect to such
portion of the Principal amount and accrued and unpaid Late Charges with
respect to such portion of such Principal and such Interest.

(2) “Conversion Price” means, as of any Conversion Date or other date
of determination, the lowest of (i) $0.40 (subject to adjustment as provided
herein) (the “Fixed Conversion Price”), (ii) the price which is equal to the
product of (1) 85% multiplied by (2) the quotient of (A) the sum of each of
the three (3) lowest Closing Sale Prices of the Common Stock during the
twenty (20) consecutive Trading Day period immediately preceding the
applicable Conversion Date or other date of determination (as the case may
be) divided by (B) three (3) and (iii) the price which is equal to the
product of (I) 85% multiplied by (II) the Closing Sale Price of the Common
Stock on the Trading Day immediately preceding the applicable Conversion
Date or other date of determination (as the case may be). All such
determinations to be appropriately adjusted for any stock split, stock
dividend, stock combination or other similar transaction during any such
measuring period.

(c) Mechanics of Conversion.

(i) Conversion Prior to Maturity Date. To convert any Conversion Amount
into shares of Common Stock on any date (a “Conversion Date”), the Holder shall deliver
(whether via facsimile or otherwise), for receipt on or prior to 5:59 p.m., New York
time, on such date, a copy of an executed notice of conversion in the form attached
hereto as Exhibit I (the “Conversion Notice”) to the Company. If required by
Section 3(c)(iii), within three (3) Trading Days following a conversion of this Note as
aforesaid, the Holder shall surrender this Note to a nationally recognized overnight
delivery service for delivery to the Company (or an indemnification undertaking with
respect to this Note in the case of its loss, theft or destruction as contemplated by
Section 16(b)). On or before the first (1st) Trading Day following the date
of receipt of a Conversion Notice, the Company shall transmit by facsimile an
acknowledgment of confirmation, in the form attached hereto as Exhibit II, of
receipt of such Conversion Notice to the Holder and the Company’s transfer agent (the
“Transfer Agent”). On or before the second (2nd) Trading Day following the
date of receipt of a Conversion Notice, the Company shall (1) provided that either a
registration statement for the resale by the Holder of the applicable shares of Common
Stock issuable upon such conversion of this Note is effective or such shares of Common
Stock are otherwise eligible for resale pursuant to Rule 144 (as defined in the
Securities Purchase Agreement) and that the Transfer Agent is participating in The
Depository Trust Company’s (“DTC”) Fast Automated Securities Transfer Program, credit
such aggregate number of shares of Common Stock to which the Holder shall be entitled to
the Holder’s or its designee’s balance account with DTC through its Deposit/Withdrawal
at Custodian system or (2) if the Transfer Agent is not participating in the DTC Fast
Automated Securities Transfer Program, issue and deliver (via reputable overnight
courier) to the address as specified in the Conversion Notice, a certificate, registered
in the name of the Holder or its designee, for the number of shares of Common Stock to
which the Holder shall be entitled, and to the extent such shares of Common Stock have
not been registered for resale by the Holder on an effective registration statement or
are not eligible for resale pursuant to Rule 144, the certificate shall include such
restrictive legends as required by Section 5 of the Securities Purchase Agreement. If
this Note is physically surrendered for conversion pursuant to Section 3(c)(iii) and the
outstanding Principal of this Note is greater than the Principal portion of the
Conversion Amount being converted, then the Company shall as soon as practicable and in
no event later than three (3) Business Days after receipt of this Note and at its own
expense, issue and deliver to the Holder (or its designee) a new Note (in accordance
with Section 16(d)) representing the outstanding Principal not converted. The Person or
Persons entitled to receive the shares of Common Stock issuable upon a conversion of
this Note shall be treated for all purposes as the record holder or holders of such
            shares of Common Stock on the Conversion Date.

(ii) Company’s Failure to Timely Convert. If the Company shall fail, for
any reason or for no reason, to issue to the Holder within three (3) Trading Days after
the Company’s receipt of a Conversion Notice (whether via facsimile or otherwise), a
certificate for the number of shares of Common Stock to which the Holder is entitled and
register such shares of Common Stock on the Company’s share register or to credit the
Holder’s or its designee’s balance account with DTC for such number of shares of Common
Stock to which the Holder is entitled upon the Holder’s conversion of any Conversion
Amount (as the case may be) (a “Conversion Failure”), then, in addition to all other
remedies available to the Holder, (1) the Company shall pay in cash to the Holder on
each day after such third (3rd) Trading Day that the issuance of such shares
of Common Stock is not timely effected an amount equal to 2% of the product of (A) the
sum of the number of shares of Common Stock not issued to the Holder on a timely basis
and to which the Holder is entitled multiplied by (B) the Closing Sale Price of the
Common Stock on the Trading Day immediately preceding the last possible date which the
Company could have issued such shares of Common Stock to the Holder without violating
Section 3(c)(i) and (2) the Holder, upon written notice to the Company, may void its
Conversion Notice with respect to, and retain or have returned (as the case may be) any
portion of this Note that has not been converted pursuant to such Conversion Notice,
provided that the voiding of a Conversion Notice shall not affect the Company’s
obligations to make any payments which have accrued prior to the date of such notice
pursuant to this Section 3(c)(ii) or otherwise. In addition to the foregoing, if within
three (3) Trading Days after the Company’s receipt of a Conversion Notice (whether via
facsimile or otherwise), the Company shall fail to issue and deliver a certificate to
the Holder and register such shares of Common Stock on the Company’s share register or
credit the Holder’s or its designee’s balance account with DTC for the number of shares
of Common Stock to which the Holder is entitled upon the Holder’s conversion hereunder
(as the case may be), and if on or after such third (3rd) Trading Day the
Holder (or any other Person in respect, or on behalf, of the Holder) purchases (in an
open market transaction or otherwise) shares of Common Stock to deliver in satisfaction
of a sale by the Holder 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, issuable upon such conversion that the Holder so
anticipated receiving from the Company, then, in addition to all other remedies
available to the Holder, the Company shall, within three (3) Business Days after the
Holder’s request and in the Holder’s discretion, either (i) pay cash to the Holder in an
amount equal to the Holder’s total purchase price (including brokerage commissions and
other out-of-pocket expenses, if any) for the shares of Common Stock so purchased
(including, without limitation, by any other Person in respect, or on behalf, of the
Holder) (the “Buy-In Price”), at which point the Company’s obligation to so issue and
deliver such certificate or credit the Holder’s balance account with DTC for the number
of shares of Common Stock to which the Holder is entitled upon the Holder’s conversion
hereunder (as the case may be) (and to issue such shares of Common Stock) shall
terminate, or (ii) promptly honor its obligation to so issue and deliver to the Holder a
certificate or certificates representing such shares of Common Stock or credit the
Holder’s balance account with DTC for the number of shares of Common Stock to which the
Holder is entitled upon the Holder’s conversion hereunder (as the case may be) and pay
cash to the Holder in an amount equal to the excess (if any) of the Buy-In Price over
the product of (A) such number of shares of Common Stock multiplied by (B) the lowest
Closing Sale Price of the Common Stock on any Trading Day during the period commencing
on the date of the applicable Conversion Notice and ending on the date of such issuance
and payment under this clause (ii).

(iii) Registration; Book-Entry. The Company shall maintain a register (the
“Register”) for the recordation of the names and addresses of the holders of each Note
and the principal amount of the Notes held by such holders (the “Registered Notes”). The
entries in the Register shall be conclusive and binding for all purposes absent manifest
error. The Company and the holders of the Notes shall treat each Person whose name is
recorded in the Register as the owner of a Note for all purposes (including, without
limitation, the right to receive payments of Principal and Interest hereunder)
notwithstanding notice to the contrary. A Registered Note may be assigned, transferred
or sold in whole or in part only by registration of such assignment or sale on the
Register. Upon its receipt of a request to assign, transfer or sell all or part of any
Registered Note by the holder thereof, the Company shall record the information
contained therein in the Register and issue one or more new Registered Notes in the same
aggregate principal amount as the principal amount of the surrendered Registered Note to
the designated assignee or transferee pursuant to Section 16, provided that if the
Company does not so record an assignment, transfer or sale (as the case may be) of all
or part of any Registered Note within one (1) Business Day of such a request, then the
Register shall be automatically updated to reflect such assignment, transfer or sale (as
the case may be). Notwithstanding anything to the contrary set forth in this Section 3,
following conversion of any portion of this Note in accordance with the terms hereof,
the Holder shall not be required to physically surrender this Note to the Company unless
(A) the full Conversion Amount represented by this Note is being converted (in which
event this Note shall be delivered to the Company as contemplated by Section 3(c)(i)) or
(B) the Holder has provided the Company with prior written notice (which notice may be
included in a Conversion Notice) requesting reissuance of this Note upon physical
surrender of this Note. The Holder and the Company shall maintain records showing the
Principal, Interest and Late Charges converted and/or paid (as the case may be) and the
dates of such conversions and/or payments (as the case may be) or shall use such other
method, reasonably satisfactory to the Holder and the Company, so as not to require
physical surrender of this Note upon conversion.

(iv) Pro Rata Conversion; Disputes. In the event that the Company receives
a Conversion Notice from more than one holder of Notes for the same Conversion Date and
the Company can convert some, but not all, of such portions of the Notes submitted for
conversion, the Company, subject to Section 3(d), shall convert from each holder of
Notes electing to have Notes converted on such date a pro rata amount of such holder’s
portion of its Notes submitted for conversion based on the principal amount of Notes
submitted for conversion on such date by such holder relative to the aggregate principal
amount of all Notes submitted for conversion on such date. In the event of a dispute as
to the number of shares of Common Stock issuable to the Holder in connection with a
conversion of this Note, the Company shall issue to the Holder the number of shares of
Common Stock not in dispute and resolve such dispute in accordance with Section 21.

(d) Limitations on Conversions. Notwithstanding anything to the contrary
contained in this Note, this Note shall not be convertible by the Holder hereof to the
extent (but only to the extent) that the Holder or any of its affiliates would beneficially
own in excess of 4.9% (the “Maximum Percentage”) of the Common Stock. To the extent the
above limitation applies, the determination of whether this Note shall be convertible
(vis-à-vis other convertible, exercisable or exchangeable securities owned by the Holder or
any of its affiliates) and of which such securities shall be convertible, exercisable or
exchangeable (as among all such securities owned by the Holder and its affiliates) shall,
subject to such Maximum Percentage limitation, be determined on the basis of the first
submission to the Company for conversion, exercise or exchange (as the case may be). No
prior inability to convert this Note pursuant to this paragraph shall have any effect on the
applicability of the provisions of this paragraph with respect to any subsequent
determination of convertibility. For purposes of this paragraph, beneficial ownership and
all determinations and calculations (including, without limitation, with respect to
calculations of percentage ownership) shall be determined in accordance with Section 13(d)
of the 1934 Act (as defined in the Securities Purchase Agreement) and the rules and
regulations promulgated thereunder. The provisions of this paragraph shall be implemented in
a manner otherwise than in strict conformity with the terms of this paragraph to correct
this paragraph (or any portion hereof) which may be defective or inconsistent with the
intended Maximum Percentage beneficial ownership limitation herein contained or to make
changes or supplements necessary or desirable to properly give effect to such Maximum
Percentage limitation. The limitations contained in this paragraph shall apply to a
successor Holder of this Note. The holders of Common Stock shall be third party
beneficiaries of this paragraph and the Company may not waive this paragraph without the
consent of holders of a majority of its Common Stock. For any reason at any time, upon the
written or oral request of the Holder, the Company shall within one (1) Business Day confirm
orally and in writing to the Holder the number of shares of Common Stock then outstanding,
including by virtue of any prior conversion or exercise of convertible or exercisable
securities into Common Stock, including, without limitation, pursuant to this Note or
securities issued pursuant to the Securities Purchase Agreement.

4. RIGHTS UPON EVENT OF DEFAULT.

(a) Event of Default. Each of the following events shall constitute an “Event
of Default”:

(i) while the applicable Registration Statement is required to be maintained
effective pursuant to the terms of the Registration Rights Agreement, the effectiveness
of the applicable Registration Statement lapses for any reason (including, without
limitation, the issuance of a stop order) or such Registration Statement (or the
prospectus contained therein) is unavailable to any holder of Registrable Securities (as
defined in the Registration Rights Agreement) for sale of all of such holder’s
Registrable Securities in accordance with the terms of the Registration Rights
Agreement, and (I) such lapse or unavailability continues for a period of five (5)
consecutive days or for more than an aggregate of ten (10) days in any 365-day period
(excluding days during an Allowable Grace Period (as defined in the Registration Rights
Agreement)) and (II) any such holder may not then sell all of such holder’s Registrable
Securities without restriction pursuant to Rule 144 (as defined in the Securities
Purchase Agreement) (including, without limitation, without volume limitations);

(ii) the suspension from trading or the failure of the Common Stock to be trading
or listed (as applicable) on an Eligible Market for a period of five (5) consecutive
days or for more than an aggregate of ten (10) days in any 365-day period;

(iii) the Company’s (A) failure to cure a Conversion Failure or a Delivery Failure
(as defined in the Warrants) by delivery of the required number of shares of Common
Stock within five (5) Trading Days after the applicable Conversion Date or exercise date
(as the case may be) or (B) notice, written or oral, to any holder of the Notes or
Warrants, including, without limitation, by way of public announcement or through any of
its agents, at any time, of its intention not to comply, as required, with a request for
conversion of any Notes into shares of Common Stock that is requested in accordance with
the provisions of the Notes, other than pursuant to Section 3(d), or a request for
exercise of any Warrants for Warrant Shares (as defined in the Securities Purchase
Agreement) in accordance with the provisions of the Warrants;

(iv) at any time following the tenth (10th) consecutive day that the
Holder’s Authorized Share Allocation is less than the number of shares of Common Stock
that the Holder would be entitled to receive upon a conversion of the full Conversion
Amount of this Note (without regard to any limitations on conversion set forth in
Section 3(d) or otherwise);

(v) the Company’s or any Subsidiary’s failure to pay to the Holder any amount of
Principal, Interest, Late Charges or other amounts when and as due under this Note
(including, without limitation, the Company’s or any Subsidiary’s failure to pay any
redemption payments or amounts hereunder) or any other Transaction Document (as defined
in the Securities Purchase Agreement) or any other agreement, document, certificate or
other instrument delivered in connection with the transactions contemplated hereby and
thereby, except, in the case of a failure to pay Interest and Late Charges when and as
due, in which case only if such failure remains uncured for a period of at least five
(5) days;

(vi) the Company fails to remove any restrictive legend on any certificate or any
            shares of Common Stock issued to the Holder upon conversion or exercise (as the case may
be) of any Securities acquired by the Holder under the Securities Purchase Agreement
(including this Note) as and when required by such Securities or the Securities Purchase
Agreement, unless otherwise then prohibited by applicable federal securities laws, and
any such failure remains uncured for at least five (5) days;

(vii) the occurrence of any default under, redemption of or acceleration prior to
maturity of any Indebtedness (as defined in the Securities Purchase Agreement) of the
Company or any of its Subsidiaries, other than with respect to any Other Notes;

(viii) bankruptcy, insolvency, reorganization or liquidation proceedings or other
proceedings for the relief of debtors shall be instituted by or against the Company or
any Subsidiary and, if instituted against the Company or any Subsidiary by a third
party, shall not be dismissed within forty-five (45) days of their initiation;

(ix) the commencement by the Company or any Significant Subsidiary of a voluntary
case or proceeding under any applicable federal, state or foreign bankruptcy,
insolvency, reorganization or other similar law or of any other case or proceeding to be
adjudicated a bankrupt or insolvent, or the consent by it to the entry of a decree,
order, judgment or other similar document in respect of the Company or any Significant
Subsidiary in an involuntary case or proceeding under any applicable federal, state or
foreign bankruptcy, insolvency, reorganization or other similar law or to the
commencement of any bankruptcy or insolvency case or proceeding against it, or the
filing by it of a petition or answer or consent seeking reorganization or relief under
any applicable federal, state or foreign law, or the consent by it to the filing of such
petition or to the appointment of or taking possession by a custodian, receiver,
liquidator, assignee, trustee, sequestrator or other similar official of the Company or
any Significant Subsidiary or of any substantial part of its property, or the making by
it of an assignment for the benefit of creditors, or the execution of a composition of
debts, or the occurrence of any other similar federal, state or foreign proceeding, the
taking of corporate action by the Company or any Significant Subsidiary in furtherance
of any such action or the commencement by any Person of a UCC foreclosure sale of a
material portion of the Company’s or any Significant Subsidiary’s assets or any other
similar action under federal, state or foreign law;

(x) the entry by a court of (i) a decree, order, judgment or other similar document
adjudging the Company or any Significant Subsidiary as bankrupt or insolvent, or
approving as properly filed a petition seeking liquidation, reorganization, arrangement,
adjustment or composition of or in respect of the Company or any Significant Subsidiary
under any applicable federal, state or foreign law or (ii) a decree, order, judgment or
other similar document appointing a custodian, receiver, liquidator, assignee, trustee,
sequestrator or other similar official of the Company or any Significant Subsidiary or
of any substantial part of its property, or ordering the winding up or liquidation of
its affairs, and the continuance of any such decree, order, judgment or other similar
document or any such other decree, order, judgment or other similar document unstayed
and in effect for a period of thirty (30) consecutive days;

(xi) a final judgment or judgments for the payment of money aggregating in excess
of $100,000 are rendered against the Company and/or any of its Subsidiaries and which
judgments are not, within thirty (30) days after the entry thereof, bonded, discharged
or stayed pending appeal, or are not discharged within thirty (30) days after the
expiration of such stay; provided, however, any judgment which is covered by insurance
or an indemnity from a credit worthy party shall not be included in calculating the
$100,000 amount set forth above so long as the Company provides the Holder a written
statement from such insurer or indemnity provider (which written statement shall be
reasonably satisfactory to the Holder) to the effect that such judgment is covered by
insurance or an indemnity and the Company or such Subsidiary (as the case may be) will
receive the proceeds of such insurance or indemnity within thirty (30) days of the
issuance of such judgment;

(xii) the Company and/or any Subsidiary, individually or in the aggregate, either
(i) fails to pay, when due, or within any applicable grace period, any payment with
respect to any Indebtedness in excess of $100,000 due to any third party (other than,
with respect to unsecured Indebtedness only, payments contested by the Company and/or
such Subsidiary (as the case may be) in good faith by proper proceedings and with
respect to which adequate reserves have been set aside for the payment thereof in
accordance with GAAP) or is otherwise in breach or violation of any agreement for monies
owed or owing in an amount in excess of $100,000, which breach or violation permits the
other party thereto to declare a default or otherwise accelerate amounts due thereunder,
or (ii) suffer to exist any other circumstance or event that would, with or without the
passage of time or the giving of notice, result in a default or event of default under
any agreement binding the Company or any Subsidiary, which default or event of default
would or is likely to have a material adverse effect on the business, assets, operations
(including results thereof), liabilities, properties, condition (including financial
condition) or prospects of the Company or any of its Subsidiaries, individually or in
the aggregate;

(xiii) other than as specifically set forth in another clause of this Section
4(a), the Company or any Subsidiary breaches any representation, warranty,
covenant or other term or condition of any Transaction Document (including, without
limitation, the Security Documents and the Guaranties), except, in the case of a breach
of a covenant or other term or condition that is curable, only if such breach remains
uncured for a period of five (5) days;

(xiv) any breach or failure in any respect by the Company or any Subsidiary to
comply with any provision of Section 12 of this Note, except, in the case of a failure
to comply with any provision of Section 12 that is curable, only if such failure remains
uncured for a period of five (5) days;

(xv) any Material Adverse Effect (as defined in the Securities Purchase Agreement)
occurs;

(xvi) any provision of any Transaction Document (including, without limitation, the
Security Documents and the Guaranties) shall at any time for any reason (other than
pursuant to the express terms thereof) cease to be valid and binding on or enforceable
against the parties thereto, or the validity or enforceability thereof shall be
contested by any party thereto, or a proceeding shall be commenced by the Company or any
Subsidiary or any governmental authority having jurisdiction over any of them, seeking
to establish the invalidity or unenforceability thereof, or the Company or any
Subsidiary shall deny in writing that it has any liability or obligation purported to be
created under any Transaction Document (including, without limitation, the Security
Documents and the Guaranties);

(xvii) the Security Documents shall for any reason fail or cease to create a
separate valid and perfected and, except to the extent permitted by the terms hereof or
thereof, first priority Lien on the Collateral (as defined in the Security Agreement) in
favor of each of the Secured Parties (as defined in the Security Agreement);

(xviii) any material damage to, or loss, theft or destruction of, any Collateral,
whether or not insured, or any strike, lockout, labor dispute, embargo, condemnation,
act of God or public enemy, or other casualty which causes, for more than fifteen (15)
consecutive days, the cessation or substantial curtailment of revenue producing
activities at any facility of the Company or any Subsidiary, if any such event or
circumstance could have a Material Adverse Effect; or

(xix) any Event of Default (as defined in the Other Notes) occurs with respect to
any Other Notes.

(b) Notice of an Event of Default; Redemption Right. Upon the occurrence of an
Event of Default with respect to this Note or any Other Note, the Company shall within one
(1) Business Day deliver written notice thereof via facsimile and overnight courier (with
next day delivery specified) (an “Event of Default Notice”) to the Holder. At any time after
the earlier of the Holder’s receipt of an Event of Default Notice and the Holder becoming
aware of an Event of Default, the Holder may require the Company to redeem (regardless of
whether such Event of Default has been cured) all or any portion of this Note by delivering
written notice thereof (the “Event of Default Redemption Notice”) to the Company, which
Event of Default Redemption Notice shall indicate the portion of this Note the Holder is
electing to redeem. Each portion of this Note subject to redemption by the Company pursuant
to this Section 4(b) shall be redeemed by the Company at a price equal to the greater of (i)
the product of (A) the Conversion Amount to be redeemed multiplied by (B) the Redemption
Premium and (ii) the product of (X) the Conversion Rate with respect to the Conversion
Amount in effect at such time as the Holder delivers an Event of Default Redemption Notice
multiplied by (Y) the product of (1) the Equity Value Redemption Premium multiplied by (2)
the greatest Closing Sale Price of the Common Stock on any Trading Day during the period
commencing on the date immediately preceding such Event of Default and ending on the date
the Company makes the entire payment required to be made under this Section 4(b) (the “Event
of Default Redemption Price”). Redemptions required by this Section 4(b) shall be made in
accordance with the provisions of Section 10. To the extent redemptions required by this
Section 4(b) are deemed or determined by a court of competent jurisdiction to be prepayments
of this Note by the Company, such redemptions shall be deemed to be voluntary prepayments.
Notwithstanding anything to the contrary in this Section 4, but subject to Section 3(d),
until the Event of Default Redemption Price (together with any Late Charges thereon) is paid
in full, the Conversion Amount submitted for redemption under this Section 4(b) (together
with any Late Charges thereon) may be converted, in whole or in part, by the Holder into
Common Stock pursuant to the terms of this Note. In the event of the Company’s redemption of
any portion of this Note under this Section 4(b), the Holder’s damages would be uncertain
and difficult to estimate because of the parties’ inability to predict future interest rates
and the uncertainty of the availability of a suitable substitute investment opportunity for
the Holder. Accordingly, any redemption premium due under this Section 4(b) is intended by
the parties to be, and shall be deemed, a reasonable estimate of the Holder’s actual loss of
its investment opportunity and not as a penalty.

5. RIGHTS UPON FUNDAMENTAL TRANSACTION.

(a) Assumption. The Company shall not enter into or be party to a Fundamental
Transaction unless (i) the Successor Entity assumes in writing all of the obligations of the
Company under this Note and the other Transaction Documents in accordance with the
provisions of this Section 5(a) pursuant to written agreements in form and substance
satisfactory to the Holder and approved by the Holder prior to such Fundamental Transaction,
including agreements to deliver to each holder of Notes in exchange for such Notes a
security of the Successor Entity evidenced by a written instrument substantially similar in
form and substance to the Notes, including, without limitation, having a principal amount
and interest rate equal to the principal amounts then outstanding and the interest rates of
the Notes held by such holder, having similar conversion rights as the Notes and having
similar ranking to the Notes, and satisfactory to the Holder and (ii) the Successor Entity
is a publicly traded corporation whose common stock is quoted on or listed for trading on an
Eligible Market. Upon the occurrence of any Fundamental Transaction, the Successor Entity
shall succeed to, and be substituted for (so that from and after the date of such
Fundamental Transaction, the provisions of this Note and the other Transaction Documents
referring to the “Company” shall refer instead to the Successor Entity), and may exercise
every right and power of the Company and shall assume all of the obligations of the Company
under this Note and the other Transaction Documents with the same effect as if such
Successor Entity had been named as the Company herein. Upon consummation of a Fundamental
Transaction, the Successor Entity shall deliver to the Holder confirmation that there shall
be issued upon conversion or redemption of this Note at any time after the consummation of
such Fundamental Transaction, in lieu of the shares of the Company’s Common Stock (or other
securities, cash, assets or other property (except such items still issuable under Sections
6 and 13, which shall continue to be receivable thereafter) issuable upon the conversion or
redemption of the Notes prior to such Fundamental Transaction, such shares of the publicly
traded common stock (or their equivalent) of the Successor Entity (including its Parent
Entity) which the Holder would have been entitled to receive upon the happening of such
Fundamental Transaction had this Note been converted immediately prior to such Fundamental
Transaction (without regard to any limitations on the conversion of this Note), as adjusted
in accordance with the provisions of this Note. The provisions of this Section 5 shall apply
similarly and equally to successive Fundamental Transactions and shall be applied without
regard to any limitations on the conversion of this Note.

(b) Notice of a Fundamental Transaction; Redemption Right. No sooner than
twenty (20) Trading Days nor later than ten (10) Trading Days prior to the consummation of a
Fundamental Transaction, but not prior to the public announcement of such Fundamental
Transaction, the Company shall deliver written notice thereof via facsimile and overnight
courier to the Holder (a “Fundamental Transaction Notice”). At any time during the period
beginning after the Holder’s receipt of a Fundamental Transaction Notice or the Holder
becoming aware of a Fundamental Transaction if a Fundamental Transaction Notice is not
delivered to the Holder in accordance with the immediately preceding sentence (as
applicable) and ending on the later of twenty (20) Trading Days after (A) consummation of
such Fundamental Transaction or (B) the date of receipt of such Fundamental Transaction
Notice, the Holder may require the Company to redeem all or any portion of this Note by
delivering written notice thereof (“Fundamental Transaction Redemption Notice”) to the
Company, which Fundamental Transaction Redemption Notice shall indicate the Conversion
Amount the Holder is electing to redeem. The portion of this Note subject to redemption
pursuant to this Section 5 shall be redeemed by the Company in cash at a price equal to the
greater of (i) the product of (w) the Fundamental Transaction Redemption Premium multiplied
by (x) the Conversion Amount being redeemed and (ii) the product of (y) the Equity Value
Redemption Premium multiplied by (z) the product of (1) the Conversion Amount being redeemed
multiplied by (2) the quotient of (A) the aggregate cash consideration and the aggregate
cash value of any non-cash consideration per share of Common Stock to be paid to the holders
of the shares of Common Stock upon consummation of such Fundamental Transaction (any such
non-cash consideration constituting publicly-traded securities shall be valued at the
highest of the Closing Sale Price of such securities as of the Trading Day immediately prior
to the consummation of such Fundamental Transaction, the Closing Sale Price of such
securities on the Trading Day immediately following the public announcement of such proposed
Fundamental Transaction and the Closing Sale Price of such securities on the Trading Day
immediately prior to the public announcement of such proposed Fundamental Transaction)
divided by (B) the Conversion Price then in effect (the “Fundamental Transaction Redemption
Price”). Redemptions required by this Section 5 shall be made in accordance with the
provisions of Section 10 and shall have priority to payments to stockholders in connection
with such Fundamental Transaction. To the extent redemptions required by this Section 5(b)
are deemed or determined by a court of competent jurisdiction to be prepayments of this Note
by the Company, such redemptions shall be deemed to be voluntary prepayments.
Notwithstanding anything to the contrary in this Section 5, but subject to Section 3(d),
until the Fundamental Transaction Redemption Price (together with any Late Charges thereon)
is paid in full, the Conversion Amount submitted for redemption under this Section 5(b)
(together with any Late Charges thereon) may be converted, in whole or in part, by the
Holder into Common Stock pursuant to Section 3. In the event of the Company’s redemption of
any portion of this Note under this Section 5(b), the Holder’s damages would be uncertain
and difficult to estimate because of the parties’ inability to predict future interest rates
and the uncertainty of the availability of a suitable substitute investment opportunity for
the Holder. Accordingly, any redemption premium due under this Section 5(b) is intended by
the parties to be, and shall be deemed, a reasonable estimate of the Holder’s actual loss of
its investment opportunity and not as a penalty.

6. RIGHTS UPON ISSUANCE OF PURCHASE RIGHTS AND OTHER CORPORATE EVENTS.

(a) Purchase Rights. In addition to any adjustments pursuant to Section 7
below, if at any time the Company grants, issues or sells any Options, Convertible
Securities or rights to purchase stock, warrants, securities or other property pro rata to
the record holders of any class of Common Stock (the “Purchase Rights”), then the Holder
will be entitled to acquire, upon the terms applicable to such Purchase Rights, the
aggregate Purchase Rights which the Holder could have acquired if the Holder had held the
number of shares of Common Stock acquirable upon complete conversion of this Note (without
taking into account any limitations or restrictions on the convertibility of this Note)
immediately before the date on which a record is taken for the grant, issuance or sale of
such Purchase Rights, or, if no such record is taken, the date as of which the record
holders of Common Stock are to be determined for the grant, issue or sale of such Purchase
Rights (provided, however, to the extent that the Holder’s right to participate in any such
Purchase Right would result in the Holder exceeding the Maximum Percentage, then the Holder
shall not be entitled to participate in such Purchase Right to such extent (or beneficial
ownership of such shares of Common Stock as a result of such Purchase Right to such extent)
and such Purchase Right to such extent shall be held in abeyance for the Holder until such
time, if ever, as its right thereto would not result in the Holder exceeding the Maximum
Percentage).

(b) Other Corporate Events. In addition to and not in substitution for any
other rights hereunder, prior to the consummation of any Fundamental Transaction pursuant to
which holders of shares of Common Stock are entitled to receive securities or other assets
with respect to or in exchange for shares of Common Stock (a “Corporate Event”), the Company
shall make appropriate provision to insure that the Holder will thereafter have the right to
receive upon a conversion of this Note (i) in addition to the shares of Common Stock
receivable upon such conversion, such securities or other assets to which the Holder would
have been entitled with respect to such shares of Common Stock had such shares of Common
Stock been held by the Holder upon the consummation of such Corporate Event (without taking
into account any limitations or restrictions on the convertibility of this Note) or (ii) in
lieu of the shares of Common Stock otherwise receivable upon such conversion, such
securities or other assets received by the holders of shares of Common Stock in connection
with the consummation of such Corporate Event in such amounts as the Holder would have been
entitled to receive had this Note initially been issued with conversion rights for the form
of such consideration (as opposed to shares of Common Stock) at a conversion rate for such
consideration commensurate with the Conversion Rate. Provision made pursuant to the
preceding sentence shall be in a form and substance satisfactory to the Holder. The
provisions of this Section 6 shall apply similarly and equally to successive Corporate
Events and shall be applied without regard to any limitations on the conversion or
redemption of this Note.

7. RIGHTS UPON ISSUANCE OF OTHER SECURITIES.

(a) Adjustment of Fixed Conversion Price upon Issuance of Common Stock. If and
whenever on or after the Subscription Date the Company issues or sells, or in accordance
with this Section 7(a) is deemed to have issued or sold, any shares of Common Stock
(including the issuance or sale of shares of Common Stock owned or held by or for the
account of the Company, but excluding any Excluded Securities (as defined in the Securities
Purchase Agreement) issued or sold or deemed to have been issued or sold) for a
consideration per share (the “New Issuance Price”) less than a price equal to the Fixed
Conversion Price in effect immediately prior to such issue or sale or deemed issuance or
sale (such Fixed Conversion Price then in effect is referred to herein as the “Applicable
Price”) (the foregoing a “Dilutive Issuance”), then, immediately after such Dilutive
Issuance, the Fixed Conversion Price then in effect shall be reduced to an amount equal to
the New Issuance Price. For all purposes of the foregoing (including, without limitation,
determining the adjusted Fixed Conversion Price and consideration per share under this
Section 7(a)), the following shall be applicable:

(i) Issuance of Options. If the Company in any manner grants or sells any
Options and the lowest price per share for which one share of Common Stock is issuable
upon the exercise of any such Option or upon conversion, exercise or exchange of any
Convertible Securities issuable upon exercise of any such Option is less than the
Applicable Price, then such share of Common Stock shall be deemed to be outstanding and
to have been issued and sold by the Company at the time of the granting or sale of such
Option for such price per share. For purposes of this Section 7(a)(i), the “lowest price
per share for which one share of Common Stock is issuable upon the exercise of any such
Options or upon conversion, exercise or exchange of any Convertible Securities issuable
upon exercise of any such Option” shall be equal to (1) the lower of (x) the sum of the
lowest amounts of consideration (if any) received or receivable by the Company with
respect to any one share of Common Stock upon the granting or sale of such Option, upon
exercise of such Option and upon conversion, exercise or exchange of any Convertible
Security issuable upon exercise of such Option and (y) the lowest exercise price set
forth in such Option for which one share of Common Stock is issuable upon the exercise
of any such Options or upon conversion, exercise or exchange of any Convertible
Securities issuable upon exercise of any such Option minus (2) the sum of all amounts
paid or payable to the holder of such Option (or any other Person) upon the granting or
sale of such Option, upon exercise of such Option and upon conversion, exercise or
exchange of any Convertible Security issuable upon exercise of such Option plus the
value of any other consideration received or receivable by, or benefit conferred on, the
holder of such Option (or any other Person). Except as contemplated below, no further
adjustment of the Fixed Conversion Price shall be made upon the actual issuance of such
share of Common Stock or of such Convertible Securities upon the exercise of such
Options or upon the actual issuance of such share of Common Stock upon conversion,
exercise or exchange of such Convertible Securities.

(ii) Issuance of Convertible Securities. If the Company in any manner
issues or sells any Convertible Securities and the lowest price per share for which one
share of Common Stock is issuable upon the conversion, exercise or exchange thereof is
less than the Applicable Price, then such share of Common Stock shall be deemed to be
outstanding and to have been issued and sold by the Company at the time of the issuance
or sale of such Convertible Securities for such price per share. For the purposes of
this Section 7(a)(ii), the “lowest price per share for which one share of Common Stock
is issuable upon the conversion, exercise or exchange thereof” shall be equal to (1) the
lower of (x) the sum of the lowest amounts of consideration (if any) received or
receivable by the Company with respect to one share of Common Stock upon the issuance or
sale of the Convertible Security and upon conversion, exercise or exchange of such
Convertible Security and (y) the lowest conversion price set forth in such Convertible
Security for which one share of Common Stock is issuable upon conversion, exercise or
exchange thereof minus (2) the sum of all amounts paid or payable to the holder of such
Convertible Security (or any other Person) upon the issuance or sale of such Convertible
Security plus the value of any other consideration received or receivable by, or benefit
conferred on, the holder of such Convertible Security (or any other Person). Except as
contemplated below, no further adjustment of the Fixed Conversion Price shall be made
upon the actual issuance of such share of Common Stock upon conversion, exercise or
exchange of such Convertible Securities, and if any such issue or sale of such
Convertible Securities is made upon exercise of any Options for which adjustment of the
Fixed Conversion Price has been or is to be made pursuant to other provisions of this
Section 7(a), except as contemplated below, no further adjustment of the Fixed
Conversion Price shall be made by reason of such issue or sale.

(iii) Change in Option Price or Rate of Conversion. If the purchase or
exercise price provided for in any Options, the additional consideration, if any,
payable upon the issue, conversion, exercise or exchange of any Convertible Securities,
or the rate at which any Convertible Securities are convertible into or exercisable or
exchangeable for shares of Common Stock increases or decreases at any time, the Fixed
Conversion Price in effect at the time of such increase or decrease shall be adjusted to
the Fixed Conversion Price which would have been in effect at such time had such Options
or Convertible Securities provided for such increased or decreased purchase price,
additional consideration or increased or decreased conversion rate (as the case may be)
at the time initially granted, issued or sold. For purposes of this Section 7(a)(iii),
if the terms of any Option or Convertible Security that was outstanding as of the
Subscription Date are increased or decreased in the manner described in the immediately
preceding sentence, then such Option or Convertible Security and the shares of Common
Stock deemed issuable upon exercise, conversion or exchange thereof shall be deemed to
have been issued as of the date of such increase or decrease. No adjustment pursuant to
this Section 7(a) shall be made if such adjustment would result in an increase of the
Fixed Conversion Price then in effect.

(iv) Calculation of Consideration Received. If any Option or Convertible
Security is issued or deemed issued in connection with the issuance or sale or deemed
issuance or sale of any other securities of the Company, together comprising one
integrated transaction, (x) such Option or Convertible Security (as applicable) will be
deemed to have been issued for consideration equal to the Black Scholes Consideration
Value thereof and (y) the other securities issued or sold or deemed to have been issued
or sold in such integrated transaction shall be deemed to have been issued for
consideration equal to the difference of (I) the aggregate consideration received by the
Company minus (II) the Black Scholes Consideration Value of each such Option or
Convertible Security (as applicable). If any shares of Common Stock, Options or
Convertible Securities are issued or sold or deemed to have been issued or sold for
cash, the consideration received therefor will be deemed to be the net amount received
by the Company therefor. If any shares of Common Stock, Options or Convertible
Securities are issued or sold for a consideration other than cash, the amount of such
consideration received by the Company will be the fair value of such consideration,
except where such consideration consists of publicly traded securities, in which case
the amount of consideration received by the Company for such securities will be the
average VWAP of such security for the five (5) Trading Day period immediately preceding
the date of receipt. If any shares of Common Stock, Options or Convertible Securities
are issued to the owners of the non-surviving entity in connection with any merger in
which the Company is the surviving entity, the amount of consideration therefor will be
deemed to be the fair value of such portion of the net assets and business of the
non-surviving entity as is attributable to such shares of Common Stock, Options or
Convertible Securities (as the case may be). The fair value of any consideration other
than cash or publicly traded securities will be determined jointly by the Company and
the Holder. If such parties are unable to reach agreement within ten (10) days after the
occurrence of an event requiring valuation (the “Valuation Event”), the fair value of
such consideration will be determined within five (5) Trading Days after the tenth
(10th) day following such Valuation Event by an independent, reputable
appraiser jointly selected by the Company and the Holder. The determination of such
appraiser shall be final and binding upon all parties absent manifest error and the fees
and expenses of such appraiser shall be borne by the Company.

(v) Record Date. If the Company takes a record of the holders of shares of
Common Stock for the purpose of entitling them (A) to receive a dividend or other
distribution payable in Common Stock, Options or in Convertible Securities or (B) to
subscribe for or purchase shares of Common Stock, Options or Convertible Securities,
then such record date will be deemed to be the date of the issue or sale of the shares
of Common Stock deemed to have been issued or sold upon the declaration of such dividend
or the making of such other distribution or the date of the granting of such right of
subscription or purchase (as the case may be).

(b) Adjustment of Fixed Conversion Price upon Subdivision or Combination of Common
Stock. Without limiting any provision of Section 5 or Section 7(a), if the Company at
any time on or after the Subscription Date subdivides (by any stock split, stock dividend,
recapitalization or otherwise) one or more classes of its outstanding shares of Common Stock
into a greater number of shares, the Fixed Conversion Price in effect immediately prior to
such subdivision will be proportionately reduced. Without limiting any provision of Section
5 or Section 7(a), if the Company at any time on or after the Subscription Date combines (by
combination, reverse stock split or otherwise) one or more classes of its outstanding shares
of Common Stock into a smaller number of shares, the Fixed Conversion Price in effect
immediately prior to such combination will be proportionately increased. Any adjustment
pursuant to this Section 7(b) shall become effective immediately after the effective date of
such subdivision or combination. If any event requiring an adjustment under this Section
7(b) occurs during the period that a Fixed Conversion Price is calculated hereunder, then
the calculation of such Fixed Conversion Price shall be adjusted appropriately to reflect
such event.

(c) Other Events. In the event that the Company (or any Subsidiary) shall take
any action to which the provisions hereof are not strictly applicable, or, if applicable,
would not operate to protect the Holder from dilution or if any event occurs of the type
contemplated by the provisions of this Section 7 but not expressly provided for by such
provisions (including, without limitation, the granting of stock appreciation rights,
phantom stock rights or other rights with equity features), then the Company’s board of
directors shall in good faith determine and implement an appropriate adjustment in the Fixed
Conversion Price so as to protect the rights of the Holder, provided that no such adjustment
pursuant to this Section 7(c) will increase the Fixed Conversion Price as otherwise
determined pursuant to this Section 7, provided further that if the Holder does not accept
such adjustments as appropriately protecting its interests hereunder against such dilution,
then the Company’s board of directors and the Holder shall agree, in good faith, upon an
independent investment bank of nationally recognized standing to make such appropriate
adjustments, whose determination shall be final and binding and whose fees and expenses
shall be borne by the Company.

8. NONCIRCUMVENTION. The Company hereby covenants and agrees that the Company will
not, by amendment of its Articles of Incorporation (as defined in the Securities Purchase
Agreement), Bylaws (as defined in the Securities Purchase Agreement) or through any reorganization,
transfer of assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale of
securities, or any other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms of this Note, and will at all times in good faith carry out all of the provisions
of this Note and take all action as may be required to protect the rights of the Holder of this
Note. Without limiting the generality of the foregoing, the Company (i) shall not increase the par
value of any shares of Common Stock receivable upon conversion of this Note above the Conversion
Price then in effect, (ii) shall take all such actions as may be necessary or appropriate in order
that the Company may validly and legally issue fully paid and non-assessable shares of Common Stock
upon the conversion of this Note, and (iii) shall, so long as any of the Notes are outstanding,
take all action necessary to reserve and keep available out of its authorized and unissued shares
of Common Stock, solely for the purpose of effecting the conversion of the Notes, the maximum
number of shares of Common Stock as shall from time to time be necessary to effect the conversion
of the Notes then outstanding (without regard to any limitations on conversion).

9. RESERVATION OF AUTHORIZED SHARES.

(a) Reservation. The Company shall initially reserve out of its authorized and
unissued Common Stock a number of shares of Common Stock for each of the Notes equal to 100%
of the entire Conversion Rate with respect to the entire Conversion Amount of each such Note
as of the Issuance Date. So long as any of the Notes are outstanding, the Company shall take
all action necessary to reserve and keep available out of its authorized and unissued Common
Stock, solely for the purpose of effecting the conversion of the Notes, 100% of the number
of shares of Common Stock as shall from time to time be necessary to effect the conversion
of all of the Notes then outstanding, provided that at no time shall the number of shares of
Common Stock so reserved be less than the number of shares required to be reserved by the
previous sentence (without regard to any limitations on conversions) (the “Required Reserve
Amount”). The initial number of shares of Common Stock reserved for conversions of the Notes
and each increase in the number of shares so reserved shall be allocated pro rata among the
holders of the Notes based on the original principal amount of the Notes held by each holder
on the Closing Date or increase in the number of reserved shares (as the case may be) (the
“Authorized Share Allocation”). In the event that a holder shall sell or otherwise transfer
any of such holder’s Notes, each transferee shall be allocated a pro rata portion of such
holder’s Authorized Share Allocation. Any shares of Common Stock reserved and allocated to
any Person which ceases to hold any Notes shall be allocated to the remaining holders of
Notes, pro rata based on the principal amount of the Notes then held by such holders.

(b) Insufficient Authorized Shares. If, notwithstanding Section 9(a), and not
in limitation thereof, at any time while any of the Notes remain outstanding the Company
does not have a sufficient number of authorized and unreserved shares of Common Stock to
satisfy its obligation to reserve for issuance upon conversion of the Notes at least a
number of shares of Common Stock equal to the Required Reserve Amount (an “Authorized Share
Failure”), then the Company shall immediately take all action necessary to increase the
Company’s authorized shares of Common Stock to an amount sufficient to allow the Company to
reserve the Required Reserve Amount for the Notes then outstanding. Without limiting the
generality of the foregoing sentence, as soon as practicable after the date of the
occurrence of an Authorized Share Failure, but in no event later than sixty (60) days after
the occurrence of such Authorized Share Failure, the Company shall hold a meeting of its
stockholders for the approval of an increase in the number of authorized shares of Common
Stock. In connection with such meeting, the Company shall provide each stockholder with a
proxy statement and shall use its best efforts to solicit its stockholders’ approval of such
increase in authorized shares of Common Stock and to cause its board of directors to
recommend to the stockholders that they approve such proposal.

10. HOLDER’S REDEMPTIONS.

(a) Mechanics. The Company shall deliver the applicable Event of Default
Redemption Price to the Holder in cash within one (1) Business Day after the Company’s
receipt of the Holder’s Event of Default Redemption Notice. If the Holder has submitted a
Fundamental Transaction Redemption Notice in accordance with Section 5(b), the Company shall
deliver the applicable Fundamental Transaction Redemption Price to the Holder in cash
concurrently with the consummation of such Fundamental Transaction if such notice is
received prior to the consummation of such Fundamental Transaction and within one (1)
Business Day after the Company’s receipt of such notice otherwise. In the event of a
redemption of less than all of the Conversion Amount of this Note, if requested by Holder
the Company shall promptly cause to be issued and delivered to the Holder a new Note (in
accordance with Section 16(d)) representing the outstanding Principal which has not been
redeemed. In the event that the Company does not pay the applicable Redemption Price to the
Holder within the time period required, at any time thereafter and until the Company pays
such unpaid Redemption Price in full, the Holder shall have the option, in lieu of
redemption, to require the Company to promptly return to the Holder all or any portion of
this Note representing the Conversion Amount that was submitted for redemption and for which
the applicable Redemption Price (together with any Late Charges thereon) has not been paid.
Upon the Company’s receipt of such notice, (x) the applicable Redemption Notice shall be
null and void with respect to such Conversion Amount, (y) the Company shall immediately
return this Note, or issue a new Note (in accordance with Section 16(d)), to the Holder, and
in each case the principal amount of this Note or such new Note (as the case may be) shall
be increased by an amount equal to the difference between (1) the applicable Event of
Default Redemption Price or Fundamental Transaction Redemption Price (as the case may be)
minus (2) the Principal portion of the Conversion Amount submitted for redemption and (z)
the Conversion Price of this Note or such new Notes (as the case may be) shall be
automatically adjusted with respect to each conversion effected thereafter by the Holder to
the lowest of (A) the Conversion Price as in effect on the date on which the applicable
Redemption Notice is voided, (B) 80% of the lowest Closing Bid Price of the Common Stock
during the period beginning on and including the date on which the applicable Redemption
Notice is delivered to the Company and ending on and including the date on which the
applicable Redemption Notice is voided and (C) 80% of the VWAP of the Common Stock for the
five (5) Trading Day period immediately preceding the Conversion Date of the applicable
conversion. The Holder’s delivery of a notice voiding a Redemption Notice and exercise of
its rights following such notice shall not affect the Company’s obligations to make any
payments of Late Charges which have accrued prior to the date of such notice with respect to
the Conversion Amount subject to such notice.

(b) Redemption by Other Holders. Upon the Company’s receipt of notice from any
of the holders of the Other Notes for redemption or repayment as a result of an event or
occurrence substantially similar to the events or occurrences described in Section 4(b) or
Section 5(b) (each, an “Other Redemption Notice”), the Company shall immediately, but no
later than one (1) Business Day of its receipt thereof, forward to the Holder by facsimile a
copy of such notice. If the Company receives a Redemption Notice and one or more Other
Redemption Notices, during the seven (7) Business Day period beginning on and including the
date which is three (3) Business Days prior to the Company’s receipt of the Holder’s
applicable Redemption Notice and ending on and including the date which is three (3)
Business Days after the Company’s receipt of the Holder’s applicable Redemption Notice and
the Company is unable to redeem all principal, interest and other amounts designated in such
Redemption Notice and such Other Redemption Notices received during such seven (7) Business
Day period, then the Company shall redeem a pro rata amount from each holder of the Notes
(including the Holder) based on the principal amount of the Notes submitted for redemption
pursuant to such Redemption Notice and such Other Redemption Notices received by the Company
during such seven (7) Business Day period.

11. VOTING RIGHTS. The Holder shall have no voting rights as the holder of this Note,
except as required by law (including, without limitation, the Delaware General Corporation Law) and
as expressly provided in this Note.

12. COVENANTS. Until all of the Notes have been converted, redeemed or otherwise
satisfied in accordance with their terms:

(a) Rank. All payments due under this Note shall rank pari passu with all Other
Notes and be senior to all other Indebtedness of the Company and its Subsidiaries.

(b) Incurrence of Indebtedness. The Company shall not, and the Company shall
cause each of its Subsidiaries to not, directly or indirectly, incur or guarantee, assume or
suffer to exist any Indebtedness (other than (i) the Indebtedness evidenced by this Note and
the Other Notes and (ii) Permitted Indebtedness).

(c) Existence of Liens. The Company shall not, and the Company shall cause each
of its Subsidiaries to not, directly or indirectly, allow or suffer to exist any mortgage,
lien, pledge, charge, security interest or other encumbrance upon or in any property or
assets (including accounts and contract rights) owned by the Company or any of its
Subsidiaries, taken as a whole (collectively, “Liens”) other than Permitted Liens.

(d) Restricted Payments. The Company shall not, and the Company shall cause
each of its Subsidiaries to not, directly or indirectly, redeem, defease, repurchase, repay
or make any payments in respect of, by the payment of cash or cash equivalents (in whole or
in part, whether by way of open market purchases, tender offers, private transactions or
otherwise), all or any portion of any Indebtedness (other than the Notes (as defined in the
Prior Purchase Agreement (as defined in the Securities Purchase Agreement)), whether by way
of payment in respect of principal of (or premium, if any) or interest on, such Indebtedness
if at the time such payment is due or is otherwise made or, after giving effect to such
payment, (i) an event constituting an Event of Default has occurred and is continuing or
(ii) an event that with the passage of time and without being cured would constitute an
Event of Default has occurred and is continuing.

(e) Restriction on Redemption and Cash Dividends. The Company shall not, and
the Company shall cause each of its Subsidiaries to not, directly or indirectly, redeem,
repurchase or declare or pay any cash dividend or distribution on any of its capital stock.

(f) Restriction on Transfer of Assets. The Company shall not, and the Company
shall cause each of its Subsidiaries to not, directly or indirectly, sell, lease, license,
assign, transfer, convey or otherwise dispose of any assets or rights of the Company or any
Subsidiary owned or hereafter acquired whether in a single transaction or a series of
related transactions, other than (i) sales, leases, licenses, assignments, transfers,
conveyances and other dispositions of such assets or rights by the Company and its
Subsidiaries that, in the aggregate, do not have a fair market value in excess of $100,000
in any twelve (12) month period and (ii) sales of inventory in the ordinary course of
business. The Company shall cause Converted Organics of Woodbridge, LLC not to acquire any
assets or other property.

(g) Maturity of Indebtedness. The Company shall not, and the Company shall
cause each of its Subsidiaries to not, directly or indirectly, permit any Indebtedness
(other than the Notes (as defined in the Prior Purchase Agreement)) of the Company or any of
its Subsidiaries to mature or accelerate prior to the Maturity Date.

(h) Change in Nature of Business. The Company shall not, and the Company shall
cause each of its Subsidiaries to not, directly or indirectly, engage in any material line
of business substantially different from those lines of business conducted by or publicly
contemplated to be conducted by the Company and each of its Subsidiaries on the Issuance
Date or any business substantially related or incidental thereto. The Company shall not,
and the Company shall cause each of its Subsidiaries to not, directly or indirectly, modify
its or their corporate structure or purpose if such modification shall have a Material
Adverse Effect or shall materially adversely affect any rights of, or benefits to, the
Holder under any of the Transaction Documents.

(i) New Subsidiaries. Simultaneously with the acquisition or formation of each
New Subsidiary, the Company shall immediately cause such New Subsidiary to execute, and
deliver to each holder of Notes, all Security Documents (as defined in the Securities
Purchase Agreement) and Guaranties (as defined in the Securities Purchase Agreement) as
requested by the Holder.

13. PARTICIPATION. In addition to any adjustments pursuant to Section 7, the Holder,
as the holder of this Note, shall be entitled to receive such dividends paid and distributions made
to the holders of Common Stock to the same extent as if the Holder had converted this Note into
Common Stock (without regard to any limitations on conversion herein or elsewhere) and had held
such shares of Common Stock on the record date for such dividends and distributions. Payments under
the preceding sentence shall be made concurrently with the dividend or distribution to the holders
of Common Stock (provided, however, to the extent that the Holder’s right to participate in any
such dividend or distribution would result in the Holder exceeding the Maximum Percentage, then the
Holder shall not be entitled to participate in such dividend or distribution to such extent (or the
beneficial ownership of any such shares of Common Stock as a result of such dividend or
distribution to such extent) and such dividend or distribution to such extent shall be held in
abeyance for the benefit of the Holder until such time, if ever, as its right thereto would not
result in the Holder exceeding the Maximum Percentage).

14. AMENDING THE TERMS OF THIS NOTE. The prior written consent of the Holder shall be
required for any change or amendment to this Note. No consideration shall be offered or paid to the
Holder to amend or consent to a waiver or modification of any provision of this Note unless the
same consideration is also offered to all of the holders of the Other Notes. The Holder shall be
entitled, at its option, to the benefit of any amendment to any of the Other Notes.

15. TRANSFER. This Note and any shares of Common Stock issued upon conversion of this
Note may be offered, sold, assigned or transferred by the Holder without the consent of the
Company, subject only to the provisions of Section 2(g) of the Securities Purchase Agreement.

16. REISSUANCE OF THIS NOTE.

(a) Transfer. If this Note is to be transferred, the Holder shall surrender
this Note to the Company, whereupon the Company will forthwith issue and deliver upon the
order of the Holder a new Note (in accordance with Section 16(d)), registered as the Holder
may request, representing the outstanding Principal being transferred by the Holder and, if
less than the entire outstanding Principal is being transferred, a new Note (in accordance
with Section 16(d)) to the Holder representing the outstanding Principal not being
transferred. The Holder and any assignee, by acceptance of this Note, acknowledge and agree
that, by reason of the provisions of Section 3(c)(iii) following conversion or redemption of
any portion of this Note, the outstanding Principal represented by this Note may be less
than the Principal stated on the face of this Note.

(b) Lost, Stolen or Mutilated Note. Upon receipt by the Company of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this
Note (as to which a written certification and the indemnification contemplated below shall
suffice as such evidence), and, in the case of loss, theft or destruction, of any
indemnification undertaking by the Holder to the Company in customary and reasonable form
and, in the case of mutilation, upon surrender and cancellation of this Note, the Company
shall execute and deliver to the Holder a new Note (in accordance with Section 16(d))
representing the outstanding Principal.

(c) Note Exchangeable for Different Denominations. This Note is exchangeable,
upon the surrender hereof by the Holder at the principal office of the Company, for a new
Note or Notes (in accordance with Section 16(d) and in principal amounts of at least $1,000)
representing in the aggregate the outstanding Principal of this Note, and each such new Note
will represent such portion of such outstanding Principal as is designated by the Holder at
the time of such surrender.

(d) Issuance of New Notes. Whenever the Company is required to issue a new Note
pursuant to the terms of this Note, such new Note (i) shall be of like tenor with this Note,
(ii) shall represent, as indicated on the face of such new Note, the Principal remaining
outstanding (or in the case of a new Note being issued pursuant to Section 16(a) or Section
16(c), the Principal designated by the Holder which, when added to the principal represented
by the other new Notes issued in connection with such issuance, does not exceed the
Principal remaining outstanding under this Note immediately prior to such issuance of new
Notes), (iii) shall have an issuance date, as indicated on the face of such new Note, which
is the same as the Issuance Date of this Note, (iv) shall have the same rights and
conditions as this Note, and (v) shall represent accrued and unpaid Interest and Late
Charges on the Principal and Interest of this Note, from the Issuance Date.

17. REMEDIES, CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF.
The remedies provided in this Note shall be cumulative and in addition to all other remedies
available under this Note and any of the other Transaction Documents at law or in equity (including
a decree of specific performance and/or other injunctive relief), and nothing herein shall limit
the Holder’s right to pursue actual and consequential damages for any failure by the Company to
comply with the terms of this Note. The Company covenants to the Holder that there shall be no
characterization concerning this instrument other than as expressly provided herein. Amounts set
forth or provided for herein with respect to payments, conversion and the like (and the computation
thereof) shall be the amounts to be received by the Holder and shall not, except as expressly
provided herein, be subject to any other obligation of the Company (or the performance thereof).
The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable
harm to the Holder and that the remedy at law for any such breach may be inadequate. The Company
therefore agrees that, in the event of any such breach or threatened breach, the Holder shall be
entitled, in addition to all other available remedies, to an injunction restraining any such breach
or any such threatened breach, without the necessity of showing economic loss and without any bond
or other security being required. The Company shall provide all information and documentation to
the Holder that is requested by the Holder to enable the Holder to confirm the Company’s compliance
with the terms and conditions of this Note (including, without limitation, compliance with Section
7).

18. PAYMENT OF COLLECTION, ENFORCEMENT AND OTHER COSTS. If (a) this Note is placed in
the hands of an attorney for collection or enforcement or is collected or enforced through any
legal proceeding or the Holder otherwise takes action to collect amounts due under this Note or to
enforce the provisions of this Note or (b) there occurs any bankruptcy, reorganization,
receivership of the Company or other proceedings affecting Company creditors’ rights and involving
a claim under this Note, then the Company shall pay the costs incurred by the Holder for such
collection, enforcement or action or in connection with such bankruptcy, reorganization,
receivership or other proceeding, including, without limitation, attorneys’ fees and disbursements.
The Company expressly acknowledges and agrees that no amounts due under this Note shall be
affected, or limited, by the fact that the Purchase Price paid for this Note was less than the
original Principal amount hereof.

19. CONSTRUCTION; HEADINGS. This Note shall be deemed to be jointly drafted by the
Company and the Holder and shall not be construed against any Person as the drafter hereof. The
headings of this Note are for convenience of reference and shall not form part of, or affect the
interpretation of, this Note. Terms used in this Note 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 the Holder.

20. FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of the Holder in
the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such power, right or privilege preclude other or
further exercise thereof or of any other right, power or privilege. No waiver shall be effective
unless it is in writing and signed by an authorized representative of the waiving party.

21. DISPUTE RESOLUTION. In the case of a dispute as to the determination of the
Conversion Price, the Closing Bid Price, the Closing Sale Price or fair market value (as the case
may be) or the arithmetic calculation of the Conversion Rate or the applicable Redemption Price (as
the case may be), the Company or the Holder (as the case may be) shall submit the disputed
determinations or arithmetic calculations (as the case may be) via facsimile (i) within two (2)
Business Days after receipt of the applicable notice giving rise to such dispute to the Company or
the Holder (as the case may be) or (ii) if no notice gave rise to such dispute, at any time after
the Holder learned of the circumstances giving rise to such dispute (including, without limitation,
as to whether any issuance or sale or deemed issuance or sale was an issuance or sale or deemed
issuance or sale of Excluded Securities). If the Holder and the Company are unable to agree upon
such determination or calculation within two (2) Business Days of such disputed determination or
arithmetic calculation (as the case may be) being submitted to the Company or the Holder (as the
case may be), then the Company shall, within two (2) Business Days, submit via facsimile (a) the
disputed determination of the Conversion Price, the Closing Bid Price, the Closing Sale Price or
fair market value (as the case may be) to an independent, reputable investment bank selected by the
Holder or (b) the disputed arithmetic calculation of the Conversion Rate or any Redemption Price
(as the case may be) to the Company’s independent, outside accountant. The Company shall cause at
its expense the investment bank or the accountant (as the case may be) to perform the
determinations or calculations (as the case may be) and notify the Company and the Holder of the
results no later than ten (10) Business Days from the time it receives such disputed determinations
or calculations (as the case may be). Such investment bank’s or accountant’s determination or
calculation (as the case may be) shall be binding upon all parties absent demonstrable error.

22. NOTICES; PAYMENTS.

(a) Notices. Whenever notice is required to be given under this Note, unless
otherwise provided herein, such notice shall be given in accordance with Section 9(f) of the
Securities Purchase Agreement. The Company shall provide the Holder with prompt written
notice of all actions taken pursuant to this Note, including in reasonable detail a
description of such action and the reason therefore. Without limiting the generality of the
foregoing, the Company will give written notice to the Holder (i) immediately upon any
adjustment of the Conversion Price, setting forth in reasonable detail, and certifying, the
calculation of such adjustment and (ii) at least fifteen (15) days prior to the date on
which the Company closes its books or takes a record (A) with respect to any dividend or
distribution upon the Common Stock, (B) with respect to any grant, issuances, or sales of
any Options, Convertible Securities or rights to purchase stock, warrants, securities or
other property to all holders of shares of Common Stock or (C) for determining rights to
vote with respect to any Fundamental Transaction, dissolution or liquidation, provided in
each case that such information shall be made known to the public prior to or in conjunction
with such notice being provided to the Holder.

(b) Currency. All dollar amounts referred to in this Note are in United States
Dollars (“U.S. Dollars”), and all amounts owing under this Note 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 Note, the U.S. Dollar exchange rate as published in the
Wall Street Journal on the relevant date of calculation (it being understood and agreed that
where an amount is calculated with reference to, or over, a period of time, the date of
calculation shall be the final date of such period of time).

(c) Payments. Whenever any payment of cash is to be made by the Company to any
Person pursuant to this Note, unless otherwise expressly set forth herein, such payment
shall be made in lawful money of the United States of America by a certified check drawn on
the account of the Company and sent via overnight courier service to such Person at such
address as previously provided to the Company in writing (which address, in the case of each
of the Buyers, shall initially be as set forth on the Schedule of Buyers attached to the
Securities Purchase Agreement), provided that the Holder may elect to receive a payment of
cash via wire transfer of immediately available funds by providing the Company with prior
written notice setting out such request and the Holder’s wire transfer instructions.
Whenever any amount expressed to be due by the terms of this Note is due on any day which is
not a Business Day, the same shall instead be due on the next succeeding day which is a
Business Day. Any amount of Principal or other amounts due under the Transaction Documents
which is not paid when due shall result in a late charge being incurred and payable by the
Company in an amount equal to interest on such amount at the rate of eighteen percent (18%)
per annum from the date such amount was due until the same is paid in full (“Late Charge”).

23. CANCELLATION. After all Principal, accrued Interest, Late Charges and other
amounts at any time owed on this Note have been paid in full, this Note shall automatically be
deemed canceled, shall be surrendered to the Company for cancellation and shall not be reissued.

24. WAIVER OF NOTICE. To the extent permitted by law, the Company hereby irrevocably
waives demand, notice, presentment, protest and all other demands and notices in connection with
the delivery, acceptance, performance, default or enforcement of this Note and the Securities
Purchase Agreement.

25. GOVERNING LAW. This Note shall be construed and enforced in accordance with, and
all questions concerning the construction, validity, interpretation and performance of this Note
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. The Company 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. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law. In the event that
any provision of this Note is invalid or unenforceable under any applicable statute or rule of law,
then such provision shall be deemed inoperative to the extent that it may conflict therewith and
shall be deemed modified to conform with such statute or rule of law. Any such provision which may
prove invalid or unenforceable under any law shall not affect the validity or enforceability of any
other provision of this Note. Nothing contained herein shall be deemed or operate to preclude the
Holder from bringing suit or taking other legal action against the Company in any other
jurisdiction to collect on the Company’s obligations to the Holder, to realize on any collateral or
any other security for such obligations, or to enforce a judgment or other court ruling in favor of
the Holder. THE COMPANY 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 NOTE OR ANY TRANSACTION CONTEMPLATED HEREBY.

26. CERTAIN DEFINITIONS. For purposes of this Note, the following terms shall have
the following meanings:

(a) “Black Scholes Consideration Value” means the value of the applicable Option or
Convertible Security (as the case may be) as of the date of issuance thereof calculated
using the Black Scholes Option Pricing Model obtained from the “OV” function on Bloomberg
utilizing (i) an underlying price per share equal to the Closing Sale Price of the Common
Stock on the Trading Day immediately preceding the public announcement of the execution of
definitive documents with respect to the issuance of such Option or Convertible Security (as
the case may be), (ii) a risk-free interest rate corresponding to the U.S. Treasury rate for
a period equal to the remaining term of such Option or Convertible Security (as the case may
be) as of the date of issuance of such Option or Convertible Security (as the case may be)
and (iii) an expected volatility equal to the greater of 100% and the 100 day volatility
obtained from the HVT function on Bloomberg (determined utilizing a 365 day annualization
factor) as of the Trading Day immediately following the date of issuance of such Option or
Convertible Security (as the case may be).

(b) “Bloomberg” means Bloomberg, L.P.

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

(d) “Closing Bid Price” and “Closing Sale Price” means, for any security as of any
date, the last closing bid price and last trade price, respectively, for such security on
the Principal Market, as reported by Bloomberg, or, if the Principal Market begins to
operate on an extended hours basis and does not designate the closing bid price or the
closing trade price (as the case may be) then the last bid price or last trade price,
respectively, of such security prior to 4:00:00 p.m., New York time, as reported by
Bloomberg, or, if the Principal Market is not the principal securities exchange or trading
market for such security, the last closing bid price or last trade price, respectively, of
such security on the principal securities exchange or trading market where such security is
listed or traded as reported by Bloomberg, or if the foregoing do not apply, the last
closing bid price or last trade price, respectively, of such security in the
over-the-counter market on the electronic bulletin board for such security as reported by
Bloomberg, or, if no closing bid price or last trade price, respectively, is reported for
such security by Bloomberg, the average of the bid prices, or the ask prices, respectively,
of any market makers for such security as reported in the “pink sheets” by OTC Markets
Inc.(formerly Pink Sheets LLC). If the Closing Bid Price or the Closing Sale Price cannot be
calculated for a security on a particular date on any of the foregoing bases, the Closing
Bid Price or the Closing Sale Price (as the case may be) of such security on such date shall
be the fair market value as mutually determined by the Company and the Holder. If the
Company and the Holder are unable to agree upon the fair market value of such security, then
such dispute shall be resolved in accordance with the procedures in Section 21. All such
determinations shall be appropriately adjusted for any stock dividend, stock split, stock
combination or other similar transaction during such period.

(e) “Common Stock” means (i) the Company’s shares of common stock, $0.0001 par value
per share, and (ii) any capital stock into which such common stock shall have been changed
or any share capital resulting from a reclassification of such common stock.

(f) “Convertible Securities” means any stock or other security (other than Options)
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 shares of Common Stock.

(g) “Current Subsidiary” means any Person in which the Company on the Subscription
Date, 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 all or any part of
the business, operations or administration of such Person, and all of the foregoing,
collectively, “Current Subsidiaries.”

(h) “Eligible Market” means The New York Stock Exchange, the NYSE Amex, the Nasdaq
Global Select Market, the Nasdaq Global Market or the Principal Market.

(i) “Equity Value Redemption Premium” means 135%.

(j) “Fundamental Transaction” means that (i) (1) the Company or any of its Subsidiaries
shall, directly or indirectly, in one or more related transactions, consolidate or merge
with or into (whether or not the Company or any of its Subsidiaries is the surviving
corporation) any other Person, or (2) the Company or any of its Significant Subsidiaries
shall, directly or indirectly, in one or more related transactions, sell, lease, license,
assign, transfer, convey or otherwise dispose of all or substantially all of its respective
properties or assets to any other Person, or (3) the Company or any of its Subsidiaries
shall, directly or indirectly, in one or more related transactions, allow any other Person
to make a purchase, tender or exchange offer that is accepted by the holders of more than
50% of the outstanding shares of Voting Stock of the Company (not including any shares of
Voting Stock of the Company held by the Person or Persons making or party to, or associated
or affiliated with the Persons making or party to, such purchase, tender or exchange offer),
or (4) the Company or any of its Subsidiaries shall, directly or indirectly, in one or more
related transactions, consummate a stock or share purchase agreement or other business
combination (including, without limitation, a reorganization, recapitalization, spin-off or
scheme of arrangement) with any other Person whereby such other Person acquires more than
50% of the outstanding shares of Voting Stock of the Company (not including any shares of
Voting Stock of the Company held by the other Person or other Persons making or party to, or
associated or affiliated with the other Persons making or party to, such stock or share
purchase agreement or other business combination), or (5) the Company or any of its
Subsidiaries shall, directly or indirectly, in one or more related transactions, reorganize,
recapitalize or reclassify the Common Stock (which shall not include a reverse stock split),
or (ii) any “person” or “group” (as these terms are used for purposes of Sections 13(d) and
14(d) of the 1934 Act and the rules and regulations promulgated thereunder) is or shall
become the “beneficial owner” (as defined in Rule 13d-3 under the 1934 Act), directly or
indirectly, of 50% of the aggregate ordinary voting power represented by issued and
outstanding Voting Stock of the Company, excluding Iroquois (as defined in the Securities
Purchase Agreement).

(k) “Fundamental Transaction Redemption Premium” means 135%.

(l) “GAAP” means United States generally accepted accounting principles, consistently
applied.

(m) “Interest Rate” means zero percent (0%) per annum, as may be adjusted from time to
time in accordance with Section 2.

(n) “Maturity Date” shall mean May 2, 2012; provided, however, the Maturity Date may be
extended at the option of the Holder (i) in the event that, and for so long as, an Event of
Default shall have occurred and be continuing or any event shall have occurred and be
continuing that with the passage of time and the failure to cure would result in an Event of
Default or (ii) through the date that is twenty (20) Business Days after the consummation of
a Fundamental Transaction in the event that a Fundamental Transaction is publicly announced
or a Fundamental Transaction Notice is delivered prior to the Maturity Date, provided
further that if a Holder elects to convert some or all of this Note pursuant to Section 3
hereof, and the Conversion Amount would be limited pursuant to Section 3(d) hereunder, the
Maturity Date shall automatically be extended until such time as such provision shall not
limit the conversion of this Note.

(o) “New Subsidiary” means, as of any date of determination, any Person in which the
Company after the Subscription Date, directly or indirectly, (i) owns or acquires any of the
outstanding capital stock or holds any equity or similar interest of such Person or (ii)
controls or operates all or any part of the business, operations or administration of such
Person, and all of the foregoing, collectively, “New Subsidiaries.”

(p) “Options” means any rights, warrants or options to subscribe for or purchase shares
of Common Stock or Convertible Securities.

(q) “Parent Entity” of a Person means an entity that, directly or indirectly, controls
the applicable Person and whose common stock or equivalent equity security is quoted or
listed on an Eligible Market, or, if there is more than one such Person or Parent Entity,
the Person or Parent Entity with the largest public market capitalization as of the date of
consummation of the Fundamental Transaction.

(r) “Permitted Indebtedness” means (i) total Indebtedness of the Company and its
Subsidiaries (other than as expressly specified in, and permitted by, clauses (ii), (iii)
and (iv) below) not to exceed $250,000 in the aggregate outstanding at any time; provided,
however, such Indebtedness shall be made expressly subordinate in right of payment to the
Indebtedness evidenced by the Notes, as reflected in a written agreement acceptable to the
Holder and approved by the Holder in writing, and which Indebtedness does not provide at any
time for (A) the payment, prepayment, repayment, repurchase or defeasance, directly or
indirectly, of any principal or premium, if any, thereon until ninety-one (91) days after
the Maturity Date or later and (B) total interest and fees at a rate in excess of the
Interest Rate; (ii) equipment leases and purchase money obligations of the Company and its
Subsidiaries not to exceed $1,600,000 in the aggregate outstanding at any time; (iii)
Indebtedness evidenced by this Note and the Other Notes; and (iv) Indebtedness evidenced by
the Notes (as defined in the Prior Purchase Agreement).

(s) “Permitted Liens” means (i) any Lien for taxes not yet due or delinquent or being
contested in good faith by appropriate proceedings for which adequate reserves have been
established in accordance with GAAP, (ii) any statutory Lien arising in the ordinary course
of business by operation of law with respect to a liability that is not yet due or
delinquent; (iii) any Lien created by operation of law, such as materialmen’s liens,
mechanics’ liens and other similar liens, arising in the ordinary course of business with
respect to a liability that is not yet due or delinquent or that are being contested in good
faith by appropriate proceedings; (iv) Liens securing the Indebtedness expressly permitted
by clause (ii) of Permitted Indebtedness; (v) Liens securing the Company’s obligations under
the Transaction Documents and (vi) Liens securing each Subsidiary’s obligations under the
Transaction Documents (including, without limitation, under the Guaranties).

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

(u) “Principal Market” means the Nasdaq Capital Market.

(v) “Quarter” means each of: (i) the period beginning on and including January 1 and
ending on and including March 31; (ii) the period beginning on and including April 1 and
ending on and including June 30; (iii) the period beginning on and including July 1 and
ending on and including September 30; and (iv) the period beginning on and including October
1 and ending on and including December 31.

(w) “Redemption Notices” means, collectively, Event of Default Redemption Notices and
Fundamental Transaction Redemption Notices, and each of the foregoing, individually, a
“Redemption Notice.”

(x) “Redemption Premium” means (i) in the case of the Events of Default described in
Section 4(a) (other than Sections 4(a)(viii) through 4(a)(x)), 135% or (ii) in the case of
the Events of Default described in Sections 4(a)(viii) through 4(a)(x), 100%.

(y) “Redemption Prices” means, collectively, Event of Default Redemption Prices and the
Fundamental Transaction Redemption Prices, and each of the foregoing, individually, a
“Redemption Price.”

(z) “Registration Rights Agreement” means that certain registration rights agreement,
dated as of the Closing Date, by and among the Company and the initial holders of the Notes
relating to, among other things, the registration of the resale of the Common Stock issuable
upon conversion of the Notes and exercise of the Warrants, as may be amended from time to
time.

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

(bb) “Securities Purchase Agreement” means that certain securities purchase agreement,
dated as of the Subscription Date, by and among the Company and the initial holders of Notes
pursuant to which the Company issued Notes and Warrants, as may be amended from time to
time.

(cc) “Security Agreement” means that certain security agreement, dated as of the
Closing Date, by and among the Company, its Subsidiaries and the initial holders of the
Notes, as may be amended from time to time.

(dd) “Significant Subsidiaries” means, as of any date of determination, collectively,
all Subsidiaries (other than Converted Organics of Woodbridge, LLC) that would constitute a
“significant subsidiary” under Rule 1-02 of Regulation S-X promulgated by the SEC, and each
of the foregoing, individually, a “Significant Subsidiary.”

(ee) “Subscription Date” means April 1, 2011.

(ff) “Subsidiaries” means, as of any date of determination, collectively, all Current
Subsidiaries and all New Subsidiaries, and each of the foregoing, individually, a
“Subsidiary.”

(gg) “Successor Entity” means the Person (or, if so elected by the Holder, the Parent
Entity) formed by, resulting from or surviving any Fundamental Transaction or the Person
(or, if so elected by the Holder, the Parent Entity) with which such Fundamental Transaction
shall have been entered into.

(hh) “Trading Day” means any day on which the Common Stock is traded on the Principal
Market, or, if the Principal Market is not the principal trading market for the Common
Stock, then on the principal securities exchange or securities market on which the Common
Stock is then traded, provided that “Trading Day” shall not include any day on which the
Common Stock is scheduled to trade on such exchange or market for less than 4.5 hours or any
day that the Common Stock is suspended from trading during the final hour of trading on such
exchange or market (or if such exchange or market does not designate in advance the closing
time of trading on such exchange or market, then during the hour ending at 4:00:00 p.m., New
York time) unless such day is otherwise designated as a Trading Day in writing by the
Holder.

(ii) “Voting Stock” of a Person means capital stock of such Person of the class or
classes pursuant to which the holders thereof have the general voting power to elect, or the
general power to appoint, at least a majority of the board of directors, managers, trustees
or other similar governing body of such Person (irrespective of whether or not at the time
capital stock of any other class or classes shall have or might have voting power by reason
of the happening of any contingency).

(jj) “VWAP” means, for any security as of any date, the dollar volume-weighted average
price for such security on the Principal Market (or, if the Principal Market is not the
principal trading market for such security, then on the principal securities exchange or
securities market on which such security is then traded) during the period beginning at
9:30:01 a.m., New York time, and ending at 4:00:00 p.m., New York time, as reported by
Bloomberg through its “Volume at Price” function or, if the foregoing does not apply, the
dollar volume-weighted average price of such security in the over-the-counter market on the
electronic bulletin board for such security during the period beginning at 9:30:01 a.m., New
York time, and ending at 4:00:00 p.m., New York time, as reported by Bloomberg, or, if no
dollar volume-weighted average price is reported for such security by Bloomberg for such
hours, the average of the highest closing bid price and the lowest closing ask price of any
of the market makers for such security as reported in the “pink sheets” by OTC Markets Inc.
(formerly Pink Sheets LLC). If the VWAP cannot be calculated for such security on such date
on any of the foregoing bases, the VWAP of such security on such date shall be the fair
market value as mutually determined by the Company and the Holder. If the Company and the
Holder are unable to agree upon the fair market value of such security, then such dispute
shall be resolved in accordance with the procedures in Section 21. All such determinations
shall be appropriately adjusted for any stock dividend, stock split, stock combination or
other similar transaction during such period.

(kk) “Warrants” has the meaning ascribed to such term in the Securities Purchase
Agreement, as may be amended from time to time, and shall include all warrants issued in
exchange therefor or replacement thereof.

27. DISCLOSURE. Upon receipt or delivery by the Company of any notice in accordance
with the terms of this Note, unless the Company has in good faith determined that the matters
relating to such notice do not constitute material, non-public information relating to the Company
or any of its Subsidiaries, the Company shall within one (1) Business Day after any such receipt or
delivery publicly disclose such material, non-public information on a Current Report on Form 8-K or
otherwise. In the event that the Company believes that a notice contains material, non-public
information relating to the Company or any of its Subsidiaries, the Company so shall indicate to
such Holder contemporaneously with delivery of such notice, and in the absence of any such
indication, the Holder shall be allowed to presume that all matters relating to such notice do not
constitute material, non-public information relating to the Company or its Subsidiaries. Nothing
contained in this Section 27 shall limit any obligations of the Company, or any rights of the
Holder, under Section 4(j) of the Securities Purchase Agreement.

28. MAXIMUM PAYMENTS. Without limiting Section 9(d) of the Securities Purchase
Agreement, nothing contained in this Note shall, or shall be deemed to, establish or require the
payment of a rate of interest or other charges in excess of the maximum permitted by applicable
law. In the event that the rate of interest required to be paid or other charges under this Note
exceeds the maximum permitted by such law, any payments in excess of such maximum shall be credited
against amounts owed by the Company to the Holder and thus refunded to the Company.

29. SECURITY. This Note and the Other Notes are secured to the extent and in the
manner set forth in the Transaction Documents (including, without limitation, the Security
Agreement, the other Security Documents and the Guaranties).

[signature page follows]

IN WITNESS WHEREOF, the Company has caused this Note to be duly executed as of the Issuance
Date set out above.

	 
	Converted Organics Inc.

	By:

	Name:

	Title:

EXHIBIT I

CONVERTED ORGANICS INC.

CONVERSION NOTICE

Reference is made to the Senior Secured Convertible Note (the “Note”) issued to the
undersigned by Converted Organics Inc. (the “Company”). In accordance with and pursuant to the
Note, the undersigned hereby elects to convert the Conversion Amount (as defined in the Note) of
the Note indicated below into shares of common stock, $0.0001 par value per share (the “Common
Stock”), of the Company, as of the date specified below.

	 
	Date of Conversion:

	Aggregate Conversion Amount to be converted:

	Conversion Price:

	Number of shares of Common Stock to be issued:

	Please issue the Common Stock into which the Note is being converted in the

following name and to the following address:

	Issue to:

	Facsimile Number:

	Holder:

	By:

	Title:

	Dated:

	Account Number:

	  (if electronic book entry transfer)

	Transaction Code Number:

	  (if electronic book entry transfer)

EXHIBIT II

ACKNOWLEDGMENT

The Company hereby acknowledges this Conversion Notice and hereby directs        to
issue the above indicated number of shares of Common Stock in accordance with the Transfer Agent
Instructions dated     , 20       from the Company and acknowledged and agreed to by
     .

	 
	Converted Organics Inc.

	By:

	Name:

	Title:

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