Exhibit 10.1
CONVERTED ORGANICS INC.
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TEL: ▇▇▇ ▇▇▇-▇▇▇▇ FAX ▇▇▇ ▇▇▇-▇▇▇▇
EMAIL: ▇▇▇▇▇▇▇@▇▇▇▇▇▇▇▇▇▇.▇▇▇
MARCH 2, 2006
FINANCING TERMS AGREEMENT
FOR SALE OF BRIDGE NOTES AND SHARES
ISSUER: CONVERTED ORGANICS INC. ("CONVERTED ORGANICS"
or the "COMPANY").
AMOUNT: $1,200,000 in ninety-six (96) UNITS of
$12,500 in exchange for bridge notes ("BRIDGE
NOTE(S)") and securities of the COMPANY
("BRIDGE EQUITY UNITS").
PURCHASERS: "Accredited" investors, including High
Capital Funding, LLC ("HCF"), as defined in
Regulation D of the Securities Act of 1933.
See signature pages hereto for names,
addresses, and the number of UNITS being
purchased. PURCHASERS have read and agree to
the terms contained in Exhibit D hereto.
TERM OF NOTES: INTEREST AND PRE-PAYMENT: Interest will
accrue on the principal amount of the BRIDGE
NOTE(S) at the rate of eight (8%) percent per
annum, based on a 360-day year. The Company
will have the right to prepay without penalty
any amount owed under the BRIDGE NOTE(S) in
whole or in part at any time. Accrued
interest shall be paid quarterly, beginning
three months after the FIRST CLOSING and
every three months thereafter.
MATURITY DATE: The Company plans to raise
approximately $8-10 million in an initial
public offering (the "PUBLIC OFFERING"). The
principal amount and accrued and unpaid
interest on the BRIDGE NOTE(S) will be due
and payable at the earlier of: six months
from the FIRST CLOSING (as defined in
"Closing Date/Escrow" below); or the closing
of a PUBLIC OFFERING ("MATURITY DATE"). After
the MATURITY DATE, unpaid principal on the
BRIDGE NOTES shall bear interest at eighteen
(18%) per annum.
BRIDGE SECURITIES: Upon the closing of the PUBLIC OFFERING, the
COMPANY shall deliver to each PURCHASER,
BRIDGE EQUITY UNITS consisting of securities
identical in form to the securities offered
for sale in the PUBLIC OFFERING ("PRIMARY
BRIDGE EQUITY UNITS"), except that the
certificates for the PRIMARY BRIDGE EQUITY
UNITS may bear restrictive legends. Each
PURCHASER shall receive the number of
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PRIMARY BRIDGE EQUITY UNITS equal to the
principal of such PURCHASER'S BRIDGE NOTE(S)
divided by the public offering price of the
securities comprising the PRIMARY BRIDGE
EQUITY UNIT. The securities issued to
PURCHASERS shall have the same CUSIP numbers
as the corresponding securities in the PUBLIC
OFFERING.
If a PUBLIC OFFERING shall not have occurred
prior to six months from the FIRST CLOSING,
then on the first business day following the
end of such six month period the COMPANY
shall issue to the PURCHASER alternate BRIDGE
EQUITY UNITS ("ALTERNATE BRIDGE EQUITY
UNITS") consisting of that number of shares
of common stock of the COMPANY as shall equal
the principal amount of the BRIDGE NOTE(S)
divided by $3.00 plus an equal number of
non-callable warrants exercisable at $3.00
per share for a period of five years from
such issuance, and which shall have a
cashless exercise feature at any time after
one year from the FIRST CLOSING that the
underlying shares of common stock are not
covered by an effective registration
statement with a current prospectus
available. The number of ALTERNATE BRIDGE
EQUITY UNITS shall be adjusted, pro rata, on
account of any stock splits, reverse stock
splits, stock dividends paid on common stock,
etc. which occur after the date of issuance
of the BRIDGE NOTE(S) and prior to the
issuance of the ALTERNATE BRIDGE EQUITY
UNITS. PRIMARY BRIDGE EQUITY UNITS and
Alternate BRIDGE EQUITY UNITS are sometimes
referred to herein as "BRIDGE EQUITY UNITS."
The PURCHASERS shall have the right for a
period of one year and one month from the
issuance of the ALTERNATE BRIDGE EQUITY UNITS
to exchange them for PRIMARY BRIDGE EQUITY
UNITS of an equivalent worth issued in a
public offering of the COMPANY such that the
PURCHASERS will own the same securities as if
the public offering had closed on or prior to
the six month anniversary of the FIRST
CLOSING.
PURCHASE PRICE: The aggregate purchase price for each BRIDGE
NOTE and BRIDGE EQUITY UNIT shall be the
original principal amount of the BRIDGE
NOTE(S) included in such UNIT. The purchase
price allocable to the BRIDGE NOTE(S)
included in such UNIT shall be not less than
75% of such aggregate purchase price and the
purchase price allocable to the BRIDGE EQUITY
UNITS included in such UNIT shall be not more
than 25% of such aggregate purchase price.
The tax value of the BRIDGE EQUITY UNITS
shall be equal to the portion of the purchase
price allocated to the BRIDGE EQUITY UNITS.
SECURITY: Repayment of the BRIDGE NOTE(S) shall be
secured by a lien on all tangible and
intangible assets of the COMPANY to be
evidenced by a SECURITY AGREEMENT in form and
substance satisfactory to HCF, the lead
investor.
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DOCUMENT PREPARATION SECURITIES: In lieu of reimbursing HCF, for the cost of
preparing the legal documents for this
transaction, CONVERTED ORGANICS shall issue
to HCF, BRIDGE EQUITY UNITS with a tax value
of $25,000 ("DOCUMENT PREPARATION
SECURITIES"). The DOCUMENT PREPARATION
SECURITIES shall be in all respects identical
to the BRIDGE EQUITY UNITS with identical
attendant rights. If a PUBLIC OFFERING shall
not have occurred prior to six months from
the FIRST CLOSING, then the BRIDGE EQUITY
UNITS comprising the DOCUMENT PREPARATION
SECURITIES shall automatically convert to
33,333 ALTERNATE BRIDGE EQUITY UNITS.
PLACEMENT AGENT FEE: CONVERTED ORGANICS and PURCHASERS agree that
CONVERTED ORGANICS shall be solely
responsible for the payment of placement
agent fees to Investors Capital Corporation
("Placement Agent").
EXPENSES: PURCHASERS and CONVERTED ORGANICS shall each
be responsible for their own expenses in
connection with this transaction.
TRANSFER AND ASSIGNMENT: PURCHASERS shall have the right, subject to
applicable securities laws, to transfer
and/or assign the BRIDGE NOTES and/or the
BRIDGE EQUITY UNITS, and HCF shall have the
right to transfer and/or assign the DOCUMENT
PREPARATION SECURITIES. Any PURCHASER,
transferee or assignee of a BRIDGE NOTE,
BRIDGE EQUITY UNITS, or DOCUMENT PREPARATION
SECURITIES is a "HOLDER" or collectively
"HOLDERS."
CLOSING DATE/ESCROW: The first closing of this transaction ("
FIRST CLOSING") will be on the second
business day following the receipt by ▇▇▇▇▇
▇. ▇▇▇▇▇▇▇▇ (Executive V.P. and General
Counsel of HCF), as ESCROW AGENT, of (a) not
less than an aggregate of $500,000 ("FIRST
CLOSING PROCEEDS") from HCF and other
PURCHASERS, (b) executed BRIDGE NOTES for an
aggregate of the FIRST CLOSING PROCEEDS, (c)
a fully executed SECURITY AGREEMENT with
evidence of the filing of UCC-1's, and (d) a
LEGAL OPINION (as defined in
"Jurisdiction/Choice of Law" below). At the
FIRST CLOSING the ESCROW AGENT shall transfer
the FIRST CLOSING PROCEEDS - minus Placement
Agent fees - to CONVERTED ORGANICS and shall
deliver the BRIDGE NOTE(S) to PURCHASERS.
ADDITIONAL CLOSINGS shall be held at the
mutual agreement of the parties, including
HCF, provided that no ADDITIONAL CLOSINGS
shall be held after 30 days following the
FIRST CLOSING without the written consent of
HCF.
FINANCIAL INFORMATION: The Company has delivered to HCF the
unaudited financial statements of Mining
Organics Management LLC for the years ended
December 31, 2004 and December 31, 2003, or
the federal tax returns of Mining Organics
Management LLC for the years 2004 and 2003.
The Company shall deliver unaudited financial
statements of Mining Organics Management LLC
for the year ended December 31, 2005 or the
federal tax return of Mining
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Organics Management LLC for the year 2005 by
March 31, 2006. The Company also has
delivered to HCF the form of Asset Purchase
Agreements between the Company and Mining
Organics Management LLC, and between the
Company and Mining Organics HRRY LLC,
identifying the assets to be transferred from
the LLC's to the Company.
REGISTRATION RIGHTS: The Company will (1) file a resale
registration statement within 180 days of the
PUBLIC OFFERING closing: (2) cause it to be
effective within 240 days of the PUBLIC
OFFERING closing if the registration
statement is not reviewed by the Securities
and Exchange Commission ("SEC") and 270 days
of the PUBLIC OFFERING closing if the
registration statement is reviewed by the SEC
covering the resale of the BRIDGE EQUITY
UNITS and the DOCUMENT PREPARATION SECURITIES
(including the resale of any shares of common
stock issuable upon the exercise or
conversion of any BRIDGE EQUITY UNITS); and
(3) cause it to remain effective with a
current prospectus available for a period of
the longer of two years, or until the
expiration or exercise in full of any
warrants contained in the BRIDGE EQUITY
UNITS.
If the Company fails to satisfy requirements
(1) or (2) above it will be subject to a 2%
cash late registration fee (i.e. 2% of the
outstanding BRIDGE NOTE(S) principal) per
month or part thereof that such failure
continues ("LATE FEE"); provided such LATE
FEE shall not be accrued for any month after
one year from the FIRST CLOSING that the
Company is current in its reporting
obligations under the Exchange Act and has
been subject to such reporting requirements
for at least 90 days, unless any Holder is
the beneficial owner of more than 1% of
CONVERTED ORGANICS's issued and outstanding
common stock, in which case the LATE FEE
shall continue to accrue for no more than two
years from the FIRST CLOSING.
If the COMPANY fails to satisfy requirement
(3) above, the LATE FEE shall continue until
the longer of the period set forth in the
preceding paragraph, or the expiration or
exercise in full of any warrants included in
the BRIDGE EQUITY UNITS.
JURISDICTION/CHOICE OF LAW: All transaction documents shall be governed
by and construed under the laws of the state
of Delaware as applied to agreements entered
into and to be performed entirely within the
state of Delaware, without giving effect to
principles of conflicts of law. The parties
irrevocably consent to the jurisdiction and
venue of the state and federal courts located
in Wilmington, DE in connection with any
action relating to this transaction. At or
prior to the FIRST CLOSING and each
ADDITIONAL CLOSING, PURCHASERS shall receive
a legal opinion from Company counsel in form
and substance satisfactory to HCF it as to
(a) the due formation and existence of the
COMPANY (under Delaware law), (b) the
validity and enforceability of this Financing
Terms
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Agreement (under Delaware law), the BRIDGE
NOTE(S) (under Delaware law), and the
SECURITY AGREEMENT (under Delaware law),
including specifically that neither this
Financing Terms Agreement nor the BRIDGE
NOTE(S) violate any laws of the state of
Delaware relating directly or indirectly to
the maximum rate of interest that may be
charged in this transaction, subject to
standard carve-outs for equitable remedies
and insolvency laws, and (c) the valid
authorization to issue the BRIDGE EQUITY
UNITS and the DOCUMENT PREPARATION SECURITIES
(under Delaware law) ("LEGAL OPINION"). The
LEGAL OPINION shall be updated and reissued
at each ADDITIONAL CLOSING.
BINDING AGREEMENT: All parties executing this Financing Terms
Agreement, including Exhibit D, shall be
legally bound by the above terms and shall
execute such further documents ("FURTHER
DOCUMENTS"), including without limitation
BRIDGE NOTE(S), a SECURITY AGREEMENT, AND AN
ESCROW AGREEMENT substantially in the forms
of Exhibit A, Exhibit B, and Exhibit C
attached hereto, respectively. If there are
any inconsistencies between this Financing
Terms Agreement (Exclusive of Exhibits A, B &
C) and any such FURTHER DOCUMENTS executed in
connection with this transaction, the terms
of this Financing Terms Agreement shall
govern. This Financing Terms Agreement may be
signed in two or more counterparts, all of
which taken together shall constitute an
original. Facsimile signatures shall be
deemed to be original signatures.
This Financing Terms Agreement supersedes all
prior oral and/or written agreements
concerning the subject matter hereof,
including without limitation the Financing
Terms Agreement by and among the parties
hereto dated January 18, 2006, the Promissory
Note dated February 28, 2006 in the principal
amount of $500,000, and the Promissory Note
dated March 1, 2006 in the principal amount
of $300,000, both notes being void ab initio,
CONVERTED ORGANICS INC.
By: Date: March ____, 2006
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(signature)
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, President
(name and title)
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▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ESCROW AGENT
Date: March _____, 2006
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Tel: ▇▇▇ ▇▇▇-▇▇▇▇
Fax: ▇▇▇ ▇▇▇-▇▇▇▇
Email: ▇▇▇▇▇▇▇▇▇@▇▇▇▇▇▇▇▇▇.▇▇▇
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SIGNATURES OF PURCHASERS
High Capital Funding, LLC Number of Units:
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By: Principal Amount of Bridge Notes: $_____
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▇▇▇▇ ▇. ▇▇▇▇▇▇, CFO
Date: , 2006
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Attn: ▇▇▇▇ ▇. ▇▇▇▇▇▇, CFO
Tel: ▇▇▇ ▇▇▇-▇▇▇▇
Fax: ▇▇▇ ▇▇▇-▇▇▇▇
Email: ▇▇▇▇▇▇▇▇▇▇@▇▇▇▇▇▇▇▇▇▇.▇▇▇
Tax ID#/SS#: ▇▇-▇▇▇▇▇▇▇
With copy to:
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Escrow Agent
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Tel: ▇▇▇ ▇▇▇-▇▇▇▇
Fax: ▇▇▇ ▇▇▇-▇▇▇▇
Email: ▇▇▇▇▇▇▇▇▇@▇▇▇▇▇▇▇▇▇.▇▇▇
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EXHIBIT A
FORM OF BRIDGE NOTE
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), NOR UNDER ANY STATE SECURITIES LAW AND MAY NOT BE SOLD,
PLEDGED, OFFERED FOR SALE, ASSIGNED OR TRANSFERRED UNLESS (A) A REGISTRATION
STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE SECURITIES ACT, AND ANY
APPLICABLE STATE SECURITIES LAW REQUIREMENTS HAVE BEEN MET OR (B) EXEMPTIONS
FROM THE REGISTRATION REQUIREMENTS UNDER THE SECURITIES ACT AND THE REGISTRATION
OR QUALIFICATION REQUIREMENTS OF APPLICABLE STATE SECURITIES LAWS ARE AVAILABLE.
Certificate No. __________ $_______________
Principal Amount
CONVERTED ORGANICS INC.
SECURED PROMISSORY NOTE
_________, 2006
FOR VALUE RECEIVED, CONVERTED ORGANICS INC., a Delaware corporation,
("Borrower") promises to pay to the order of ___________________________
("Lender") the principal amount of ___________________________ Dollars
($______________), together with interest on the unpaid principal amount at the
rate of 8 percent (8%) per annum based on a 360-day year, all upon the terms set
forth below. This Secured Promissory Note (the "Note") is issued pursuant to
that certain Financing Terms Agreement for Sale of Bridge Notes and Shares,
dated as of January 18, 2006, by and between Lender and Borrower (the "Financing
Agreement"). This Note is subject to the terms and conditions of the Financing
Agreement. To the extent that any of the terms specifically set forth in the
Financing Agreement is inconsistent with the provisions of this Note
specifically relating to such matters, the Financing Agreement shall govern with
respect to such inconsistencies. Capitalized terms used herein and not otherwise
defined have the meanings ascribed to them in the Financing Agreement.
1. MATURITY. Accrued interest shall be paid in arrears on a quarterly basis,
beginning three months after the First Closing and every three months
thereafter. Except as otherwise provided herein, the principal hereunder shall
become due and payable in full on the date six months from the First Closing,
except that in the event of the closing of a Public Offering, the principal
amount and accrued and unpaid interest will become immediately due and payable.
After the Maturity Date, the Note shall bear interest at 18 percent per annum.
2. PREPAYMENT. Borrower may prepay any or all amounts due under this Bridge Note
at any time without penalty.
A-1
3. METHOD OF PAYMENT. Any payment of principal or interest hereunder shall be
made by certified or bank cashier's check unless Holder has provided Borrower
with appropriate wire instructions, in which event, the payment shall be made by
wire transfer of "same day" funds. For the purpose of any interest calculation,
payment shall be deemed made when the check is sent by overnight delivery or
when the wire is sent. Any partial payment shall be applied first to accrued and
unpaid interest and thereafter to a reduction of principal.
4. Security. REPAYMENT OF THE NOTE SHALL BE SECURED BY A LIEN ON ALL TANGIBLE
AND INTANGIBLE ASSETS OF THE BORROWER AS DESCRIBED IN THAT CERTAIN SECURITY
AGREEMENT EXECUTED CONTEMPORANEOUSLY HEREWITH.
5. ANTI DILUTION ADJUSTMENTS. The number and kind of securities or other
property into which this Note may become convertible shall be subject to
adjustment as follows:
(a) If a split or a reverse split shall have occurred with respect to the
Common Stock, the conversion rate shall be appropriately adjusted to
cause the Holder to receive, upon conversion, a number of shares of
Common Stock representing the same percentage of the equity of the
Company to which the Holder would have been entitled on such
conversion if the split had not occurred.
(b) If a dividend or other distribution shall be made in favor of the
Common Stock, appropriate adjustment shall be made so that, upon
conversion of the Note, the Holder shall receive, in addition to the
Common Stock otherwise obtainable on such conversion, the cash,
securities or other property that it would have received had the Note
been so converted immediately prior to the split, dividend or
distribution.
(c) If the Common Stock shall, as the result of a merger or otherwise, be
converted into the right to receive other securities or property,
appropriate adjustment shall be made so that, upon conversion of the
Note, the Holder shall receive, in lieu of Common Stock, the
securities and/or property that it would have received as a result of
the merger or other such transaction had the Note been so converted
immediately prior to the record date therefor.
6. DEFAULT. In the event of an occurrence of any event of default specified
below, the principal of, and all accrued and unpaid interest on, the Note shall
become immediately due and payable without notice, except as specified below:
(a) Borrower fails to make any payment hereunder when due, which failure
has not been cured within 10 days following such due date.
(b) Any defined event of default occurs under any contract or instrument
pursuant to which Borrower has incurred any liability for borrowed
money in excess of $50,000, which event of default has not been waived
within five business days following such occurrence, and which event
of default is reasonably likely to materially affect the Company's
business.
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(c) Borrower files a petition to take advantage of any insolvency act;
makes an assignment for the benefit of its creditors; commences a
proceeding for the appointment of a receiver, trustee, liquidator or
conservator of itself of a whole or any substantial part of its
property; files a petition or answer seeking reorganization or
arrangement or similar relief under the federal bankruptcy laws or any
other applicable law or statute of the United States of America or any
state.
(d) A court of competent jurisdiction enters an order, judgment or decree
appointing a custodian, receiver, trustee, liquidator or conservator
of Borrower or of the whole or any substantial part of its properties,
or approves a petition filed against Borrower seeking reorganization
or arrangement or similar relief under the federal bankruptcy laws or
any other applicable law or statute of the Untied States of America or
any state; or if, under the provisions of any other law for the relief
or aid of debtors, a court of competent jurisdiction assumes custody
or control of Borrower or of the whole or any substantial part of its
properties; or there is commenced against Borrower any proceeding for
any of the foregoing relief and such proceeding or petition remains
undismissed for a period of 30 days; or if Borrower by any act
indicates its consent to or approval of any such proceeding or
petition.
(e) If (i) any judgment remaining unpaid, unstayed or undismissed for a
period of 60 days is rendered against Borrower which by itself or
together with all other such judgments rendered against Borrower
remaining unpaid, unstayed or undismissed for a period of 60 days, is
in excess of $50,000, or (ii) there is any attachment or execution
against Borrower's properties remaining unstayed or undismissed for a
period of 60 days which by itself or together with all other
attachments and executions against Borrower's properties remaining
unstayed or undismissed for a period of 60 days is for an amount in
excess of $50,000.
7. SUCCESSORS AND ASSIGNS. The Note is transferable and assignable by Lender or
any subsequent permitted assignee subject to the requirement that any such
assignment or transfer be, in the opinion of Borrower's counsel, in compliance
with applicable federal and state securities laws. The assignee shall be
referred to herein as a "Holder." All covenants, agreements and undertakings in
the Note by or on behalf of any of the parties shall bind and inure to the
benefit of the respective successors and assigns of the parties whether so
expressed or not.
8. NOTICES. Any and all notices, requests, consents and demands required or
permitted to be given hereunder shall be in writing and shall be deemed given
and received (i) upon personal delivery, (ii) upon the first business day
following the receipt of confirmation of facsimile transmission to the telefax
number as indicated below, or (iii) upon the third business day after deposit in
the United States mail, by certified or registered mail, postage prepaid and
addressed as follows:
To Lender: [to the address and facsimile provided on the signature
page of the Agreement]
To Borrower: Converted Organics Inc.
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Tel: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Email: ▇▇▇▇▇▇▇@▇▇▇▇▇▇▇▇▇▇.▇▇▇
Either party may change by notice the address to which notices to that party are
to be addressed.
9. WAIVER/AMENDMENT. Borrower hereby waives presentment for payment, demand,
protest and notice of protest for nonpayment of the Note and consents to any
extension or postponement of the time of payment or any other indulgence. The
Note may only be amended or modified by written agreement signed by Borrower and
Holder.
10. EXPENSES. In the event that Holder brings legal action against Borrower, or
Borrower brings legal action against Holder, to enforce or otherwise determine
the meaning or enforceability of the Note or any provision hereof, each party
shall bear its own expenses, including attorney fees, directly attributable to
such action. However, in any action for breach of the Note, including
nonpayment, the prevailing party in any such dispute shall be entitled to
recover all reasonable costs and attorney fees incurred in connection with such
action. In addition, Borrower shall be entitled to recover from Lender all
reasonable costs of collection, including without limitation, legal fees and
expenses incurred in any bankruptcy and/or state insolvency proceeding.
11. CHOICE OF LAW. The Note shall be construed and enforced in accordance with,
and the rights of the parties shall be governed by, the laws of the State of
Delaware. The parties agree that venue for any suit, action, proceeding or
litigation arising out of or in relation to this Note will be in any federal or
state court in Wilmington, Delaware having subject matter jurisdiction, and the
parties hereby submit to the jurisdiction of that Court.
WITH RESPECT TO ANY CLAIM OR ACTION ARISING UNDER THIS NOTE, EACH PARTY
HEREBY (A) IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE COURTS OF
THE STATE OF DELAWARE AND THE UNITED STATES DISTRICT COURT LOCATED IN THE CITY
OF WILMINGTON, STATE OF DELAWARE, AND (B) IRREVOCABLY WAIVES ANY OBJECTION WHICH
IT MAY HAVE AT ANY TIME TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS NOTE BROUGHT IN ANY SUCH COURT, IRREVOCABLY
WAIVES ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH
COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM AND FURTHER IRREVOCABLY WAIVES
THE RIGHT TO OBJECT, WITH RESPECT TO SUCH CLAIM, SUIT, ACTION OR PROCEEDING
BROUGHT IN ANY SUCH COURT, THAT SUCH COURT DOES NOT HAVE JURISDICTION OVER SUCH
PARTY. NOTHING IN THIS NOTE WILL BE DEEMED TO PRECLUDE THE LENDER FROM BRINGING
AN ACTION OR PROCEEDING IN RESPECT HEREOF IN ANY OTHER JURISDICTION.
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IN WITNESS WHEREOF, the Note has been executed and delivered on the date
specified on the first page hereof by the duly authorized representative of
Borrower.
CONVERTED ORGANICS INC.
By:
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▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, President
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EXHIBIT B
FORM OF SECURITY AGREEMENT
THIS SECURITY AGREEMENT, ("Agreement") is made this 2nd day of March, 2006,
by and between CONVERTED ORGANICS INC., a Delaware Corporation, ▇▇ ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ (hereinafter "Borrower"), and Lender(s) as listed
on Schedule "1" of this Agreement.
WHEREAS, this Agreement is given to secure performance of the obligations
("Obligations") under the Secured Promissory Note(s) ("Secured Notes") of even
date herewith, executed by Borrower, to Lenders as lenders and in the amounts
listed on Schedule "1" attached hereto and incorporated herein by reference,
together with interest thereon as provided for in the Secured Notes.
NOW, THEREFORE, in consideration of the loans made by the Lenders to
Borrower, and further consideration of the covenants and promises contained in
this Agreement, and for other good and valuable consideration, the parties agree
as follows:
1. Defined Terms. As used in this Agreement, the following terms shall have the
following meanings:
(a) "Collateral" has the meaning set forth in paragraph 2 hereof.
(b) "PTO" means the United States Patent and Trademark Office.
(c) "UCC" means the Uniform Commercial Code as in effect in the State of
Delaware.
(d) Terms Defined in UCC. Where applicable in the context of this Agreement
and except as otherwise defined herein, terms used in this Agreement shall have
the meanings assigned to them in the UCC.
(e) Construction. In this Agreement, the following rules of construction
and interpretation shall be applicable: (i) no reference to "proceeds"
in this Agreement authorizes any sale, transfer, or other disposition
of any Collateral by Borrower; (ii) "includes" and "including" are not
limiting; (iii) "or" is not exclusive; and (iv) "all" includes "any"
and "any" includes "all."
2. Security Interest.
(a) Grant of Security Interest. As security for the payment and performance
of the Obligations, Borrower hereby assigns, transfers and conveys to Lenders,
and grants to Lenders a security interest in and to all of Borrower's right,
title and interest in, to and under the following property, in each case whether
now or hereafter existing or arising or in which Borrower now has
B-1
or hereafter owns, acquires or develops an interest and wherever located
(collectively, the "Collateral"):
(i) Accounts;
(ii) Chattel Paper and Electronic Chattel Paper;
(iii) Fixtures;
(iv) Goods;
(v) Inventory;
(vi) Software;
(vii) all patents, trademark, patent applications and trademark
applications, domestic or foreign, all licenses relating to any of the
foregoing and all income and royalties with respect to any licenses
(including such patents, trademark, patent applications and trademark
applications as described in Schedule "2"), all rights to ▇▇▇ for past,
present or future infringement thereof, all rights arising therefrom and
pertaining thereto and all reissues, divisions, continuations, renewals,
extensions and continuations-in-part thereof. Borrower represents and
warrants to Lenders that a true and correct list of all of the existing
Collateral consisting of U.S. patents, trademark, patent applications and
trademark applications or registrations owned by Borrower, in whole or in
part, is set forth in Schedule "2";
(viii) all General Intangibles and all intangible intellectual or
other similar property of Borrower of any kind or nature, associated with
or arising out of any of the aforementioned properties and assets and not
otherwise described above; and
(ix) all Proceeds of any and all of the foregoing Collateral
(including license royalties, rights to payment, accounts and proceeds of
infringement suits) and, to the extent not otherwise included, all payments
under insurance (whether or not Lenders is the loss payee thereof) or any
indemnity, warranty or guaranty payable by reason of loss or damage to or
otherwise with respect to the foregoing Collateral.
(b) Continuing Security Interest. Borrower agrees that this Agreement shall
create a continuing security interest in the Collateral which shall remain in
effect until terminated in accordance herewith.
3. Collateral Free of Other Security Interests. Borrower warrants that no
financing statement covering any of the Collateral or its proceeds is on file in
any public office at this date or will be on file with respect to the Collateral
at the time the Collateral becomes subject to this Agreement (except any
purchase money security interests). No other security interest of any kind
affects the Collateral at this date, and no arrangement exists whereby the
Collateral will in the future become subject to a security interest senior to
the Agreement.
B-2
Borrower will not sell, assign or otherwise alienate the ownership of the
Collateral or its use or operation except any sale or replacement in the
ordinary course of Borrower's business; and Borrower will not use the Collateral
in violation of any ordinance or state or federal statute or any administrative
rule or regulation of law.
Borrower authorizes Lenders at their option and their sole discretion to
discharge any taxes, charges, assessments, liens or other security interests or
other encumbrances to which the Collateral may become subject. Lenders may pay
amounts to preserve and maintain the Collateral, if Borrower fails to do so.
Borrower agrees to reimburse Lenders within ten (10) days after demand for any
payment made or any expense incurred by Lenders pursuant to the foregoing
authorization, together with interest on the amount expended at the rate of
eighteen percent (18%) per annum from the date of the payment. Any such amounts
shall be secured by and under this Agreement.
4. Fees and Taxes. Borrower will timely pay any and all license fees, taxes,
assessments and public charges, general and special, that may at any time be
levied or assessed upon or against Collateral.
5. Maintenance of Collateral. Borrower will, at Borrower's expense, maintain and
keep the Collateral at its present location in good order and repair, ordinary
wear and tear excepted, and shall not remove, demolish or substantially alter
the Collateral, except any sale or replacement in the ordinary course of
Borrower's business, without the prior written consent of the Lenders. Borrower
will not attempt to or actually dispose of, lend, transfer, lease or assign the
Collateral, except any sale or replacement in the ordinary course of Borrower's
business, without the prior written consent of Lenders.
Borrower may remove the Collateral in its ordinary course of business,
provided, that such Collateral shall be replaced with property of a similar
nature of equal or greater value. The security interest created by this
Agreement will immediately attach to the substitute property when it is
acquired, and the substitute property will become part or the Collateral defined
in this Agreement.
Borrower will not permit the Collateral to be attached or seized by any
legal process. Borrower will defend and indemnify Lenders from all expense and
liability of every kind to any person or to the property of any person by reason
of or in connection with the delivery, possession or use of the Collateral.
6. [Reserved].
7. Further Acts. On a continuing basis, Borrower shall make, execute,
acknowledge and deliver, and file and record in the proper filing and recording
places, all such instruments and documents, and take all such action as may be
necessary or advisable or may be requested by Lenders to carry out the intent
and purposes of this Agreement, or for assuring, confirming or protecting the
grant or perfection of the security interest granted or purported to be granted
hereby, to ensure Borrower's compliance with this Agreement or to enable Lenders
to exercise
B-3
and enforce its rights and remedies hereunder with respect to the Collateral,
including any documents for filing with the PTO or any applicable state office.
Lenders may record this Agreement, an abstract thereof, or any other document
describing Lenders' interest in the Collateral with the PTO, at the expense of
Borrower. In addition, Borrower authorizes Lenders to file financing statements
describing the Collateral in any UCC filing office deemed appropriate by
Lenders. If the Borrower shall at any time hold or acquire a commercial tort
claim arising with respect to the Collateral, the Borrower shall immediately
notify Lenders in a writing signed by the Borrower of the brief details thereof
and grant to the Lenders in such writing a security interest therein and in the
proceeds thereof, all upon the terms of this Agreement, with such writing to be
in form and substance satisfactory to the Lenders.
8. Authorization to Supplement. If Borrower shall obtain rights to any new
patentable inventions or become entitled to the benefit of any patent
application or patent for any reissue, division, or continuation, of any patent
or trademark, the provisions of this Agreement shall automatically apply
thereto. Borrower shall give prompt notice in writing to Lenders with respect to
any such new patent or trademark rights. Without limiting Borrower's obligations
hereunder, Borrower authorizes Lenders unilaterally to modify this Agreement by
amending Schedule "2" to include any such new patent or trademark rights.
Notwithstanding the foregoing, no failure to so modify this Agreement or amend
Schedule "2" shall in any way affect, invalidate or detract from Lenders'
continuing security interest in all Collateral, whether or not listed on
Schedule "2."
9. Default. The breach or failure of any term, agreement, covenant or term of
this Agreement or the occurrence of an event or default upon any term contained
in the Secured Note(s) shall constitute a default hereunder.
10. Remedies. Upon the occurrence of any default as defined above, Lenders will
have the right at their option to enforce and to exercise any or all of their
rights under this Agreement or otherwise. In addition to all other rights and
remedies, Lenders shall have the remedies of a secured party under the UCC. In
exercising these remedies, Lenders and Borrower agree as follows:
(a) Lenders may, at their option, required Borrower to assemble the
Collateral and make it available to Lenders at a place to be designated by
Lenders which is reasonably convenient to both parties. In the event Borrower
fails or refuses to assemble the Collateral, Lenders shall have the right, and
Borrower hereby authorizes and empowers Lenders, to enter the premises upon
which the Collateral is located in order to remove the same.
(b) Lenders will give Borrower reasonable notice of the time and place of
any public sale of the Collateral, or of the time after which any private sale
or other intended disposition of the collateral is to be made, unless the
Collateral is perishable, threatens to decline speedily in value, or is of a
type customarily sold on a recognized market. The requirement of reasonable
notice shall be met if a written notice is mail to Borrower, postage prepaid, to
the address of Borrower last known to Lenders, at least ten (10) days prior to
the date of the sale or disposition.
B-4
(c) Borrower agrees to surrender possession of the Collateral to Lenders in
event Lenders elects to foreclose this security interest. Borrower waives any
notice of the exercise of any and all options reserved to Lenders by this
Agreement.
(d) Borrower will, upon Lenders' request, deliver to Lenders all original
invoices, bills, charge or credit card receipts, books and records and other
documents evidencing or describing any of the account receivable constituting a
part of the Collateral. Borrower will also execute and deliver to Lenders an
assignment of the right to receive payments under all such Accounts. The parties
recognize, however, that in the event of default such Accounts shall be deemed
assigned to Lenders, whether or not the assignments described above are actually
delivered.
(e) Lenders shall have the right and are hereby authorized to collect all
amounts due under the Accounts; ▇▇▇ or take other actions to collect the same in
their own name or as assignee of or in the name of Borrower; compromise or give
acquittance for amounts due; and use such other measures as Lenders may in its
sole discretion deem appropriate for collection of the Accounts. All such
actions shall be taken at the sole expense of Borrower, who agrees to reimburse
Lenders for all reasonable amounts expended (including a reasonable attorney's
fee), together with interest thereon from the date of expenditure at the rate
then applicable under the Secured Notes.
(f) This Agreement constitutes a direction to and full authority to any
Account debtor to pay directly to Lenders any such accounts. No proof of default
shall be required. Any such debtor is herby irrevocably and unconditionally
authorized to rely upon and comply with any notice from Lenders. The debtor
shall not be liable to Borrower or any person claiming under Borrower for making
any payment or rendering any performance to Lenders. The debtor shall have no
obligation or right to inquire whether any default has occurred or is then
existing. By its execution of this Agreement, Borrower irrevocably and
unconditionally joins in, authorizes and consents to the above instructions.
(g) The proceeds of any sale of the Collateral shall be applied to the
following items in the following order: (a) the reasonable expenses of
repossessing the Collateral and preparing for the holding the sale, including
without limitation all reasonable attorney's fees incurred by Lenders; (b)
interest an principal then due (by acceleration or otherwise) under the Secured
Notes and any other debts specifically secured by the Agreement; (c) interest
and principal then due (by acceleration or otherwise) under any other debts of
Borrower to Lenders (to be applied in whatever order Lenders may in their sole
discretion determine); (d) indebtedness of Borrower to other secured parties,
provided written notice of demand therefore is received by Lenders before the
sale (to bee applied in the order Lenders receives the requires); and (e) the
balance, if any, to Borrower.
11. Set-off. Upon default by Borrower under this Agreement, Lenders (or the
holder or owner of any debt secured by this Agreement) shall immediately have
the right without further notice to Borrower to set off against the Secured
Notes and any other debts secured by this Agreement all debts of Lenders (or
such holder or owner) to Borrower, whether or not then due.
B-5
12. Notice. Any and all notices, requests, consents and demands required or
permitted to be given hereunder shall be in writing and shall be deemed given
and received (i) upon personal delivery, (ii) upon the first business day
following the receipt of confirmation of facsimile transmission to the telefax
number as indicated below, or (iii) upon the third business day after deposit in
the United States mail, by certified or registered mail, postage prepaid and
addressed to the appropriate party at the address provided for herein. Any party
may change by notice the address to which notices to that party are to be
addressed.
13. Miscellaneous. The following provisions are additional terms of this
Agreement:
(a) Lenders have no duty to maintain, repair or protect the Collateral.
(b) No waiver by Lenders of any default shall operate as a waiver of any
other default or of the same default on a future occasion.
(c) All rights and remedies of Lenders are cumulative and may be exercised
successively or concurrently, and shall inure to the benefit of Lenders'
assigns.
(d) All obligations of Borrower shall bind his trustees, custodians,
general partners, successors and assigns.
(e) The captions of the sections of this Agreement are inserted for
convenience only and shall not be used in the interpretation or construction of
any provisions hereof.
(f) If any provisions of this Agreement is held invalid or unenforceable,
the holding shall affect only the provision in question and all other provisions
on this Agreement shall remain in full force and effect.
(g) This Agreement supersedes all prior oral and/or written agreements
concerning the subject matter hereof, including without limitation the Security
Agreement by and among the parties hereto dated February 28, 2006.
IN WITNESS WHEREOF, Borrower has executed this Agreement the day and year
first above written.
CONVERTED ORGANICS INC.
a Delaware corporation
----------------------------------------
By: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, President
B-6
SCHEDULE "1"
LENDERS
NAME AND ADDRESS AMOUNT
---------------- ------
High Capital Funding, LLC $_______________
▇▇▇▇ ▇. ▇▇▇▇▇▇, CFO
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇
Tel: 404.257 9150
Fax: ▇▇▇.▇▇▇.▇▇▇▇
Email: ▇▇▇▇▇▇▇▇▇▇@▇▇▇▇▇▇▇▇▇▇.▇▇▇
By:
---------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇, CFO
Date:
-------------------------------
B-7
SCHEDULE "2"
PATENTS, TRADEMARKS AND APPLICATIONS
None.
B-8
EXHIBIT C
FORM OF ESCROW AGREEMENT
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Dear ▇▇. ▇▇▇▇▇▇▇▇:
The undersigned hereby appoints you as my (our) agent, and you hereby
accept such appointment, to act on my (our) behalf in connection with my (our)
purchase of Secured Promissory Note(s) ("Note") and Bridge Equity Units from
Converted Organics Inc. ("Organics" or "Company") pursuant to a Financing Terms
Agreement For Sale of Bridge Notes and Shares dated March 2, 2006 ("Financing
Terms Agreement"). You are hereby authorized and directed to hold for my (our)
benefit the Bridge Notes and Primary Bridge Equity Units, Alternate Bridge
Equity Units, if any, being issued, or to be issued in the future, to me (us) as
partial consideration for my (our) purchase of the Note. You are also authorized
to act on my behalf in the enforcement of my (our) rights under the Note, the
Security Agreement dated March 2, the Primary Bridge Equity Units and the
Alternate Bridge Equity Units.
1. The Agent's duties hereunder may be altered, amended, modified or
revoked only by a writing signed by Investor and the Agent.
2. The Agent shall be obligated only for the performance of such duties as
are specifically set forth herein and may rely and shall be protected in relying
or refraining from acting on any instrument reasonably believed by the Agent to
be genuine and to have been signed or presented by the property party or
parties. The Agent shall not be personally liable for any act the Agent may do
or omit to do hereunder as Agent while acting in good faith, except for fraud,
willful misconduct, or gross negligence, and any act done or omitted by the
Agent pursuant to the advice of the Agent's attorneys-at-law shall be evidence
of such good faith.
3. The fees, if any, and disbursements of the Agent chargeable in respect
of services provided in the capacity as Agent pursuant to this Escrow Agreement
will be responsibility of Investor, except to the extent recoverable from the
Company.
4. The Agent is hereby expressly authorized to disregard any and all
warnings given by any of the parties hereto or by any other person or
corporation, excepting only orders or process of courts of law and is hereby
expressly authorized to comply with and obey orders, judgments or decrees of any
court. In case the Agent obeys or complies with any such order, judgment or
decree, the Agent shall not be liable to any of the parties hereto or to any
other person, firm or corporation by reason of such decree being subsequently
reversed, modified, annulled, set aside, vacated or found to have been entered
without jurisdiction.
5. The Agent shall not be liable in any respect on account of the identity,
authorities or rights of the parties executing or delivering or purporting to
execute or deliver the Note, Security Agreement, or any documents or papers
deposited or called for hereunder.
C-1
6. The Agent shall be entitled to employ such legal counsel and other
experts as the Agent may deem necessary properly to advise the Agent in
connection with the Agent's duties hereunder, may rely upon the advice of such
counsel, and may pay such counsel reasonable compensation therefor. The Agent is
the Executive Vice President and General Counsel of High Capital Funding, LLC
("HCF") and has acted as legal counsel for HCF in connection with the Financing
Terms Agreement and may continue to act as legal counsel for HCF and/or its
affiliates from time to time, notwithstanding its duties as Agent hereunder.
Investor waives any and all claims and allegations of conflict in relation to
the Agent's continued representation of HCF and/or its affiliates as its
attorney.
7. The Agent's responsibilities as Agent hereunder shall terminate if the
Agent shall resign by three (3) business days prior written notice to Investor
and Organics. In the event of any such resignation, Investor may, but shall not
be required to, appoint a successor Agent.
8. If the Agent reasonably requires other or further instruments in
connection with Escrow Agreement or obligations in respect hereto, the necessary
parties hereto shall join in furnishing such instruments.
9. It is understood and agreed that should any dispute arise with respect
to the delivery and/or ownership or right of possession of the property held by
the Agent hereunder, the Agent is authorized and directed in the Agent's sole
discretion (1) to retain in the Agent's possession without liability to anyone
all or any part of such property until such disputes shall have been settled
either by mutual written agreement of the parties concerned or by a final order,
decree or judgment of a court of competent jurisdiction after the time for
appeal has expired and no appeal has been perfected, but the Agent shall be
under no duty whatsoever to institute or defend any such proceedings or (2) to
deliver the property held by the Agent hereunder to a state or federal court
having competent subject matter jurisdiction in accordance with the applicable
procedure therefore.
10. The Investor agrees to indemnify and hold harmless the Agent from any
and all claims, liabilities, costs or expenses in any way arising from or
relating to the duties or performance of the Agent hereunder other than any such
claim, liability, cost or expense to the extent the same shall have been
determined by final, unappealable judgment of a court of competent jurisdiction
to have resulted from fraud, gross negligence or willful misconduct of the
Agent.
11. In the event of any action or proceeding brought by any party against
another under Escrow Agreement the prevailing party or parties shall be entitled
to recover all expenses incurred through the date of final collection, including
without limitation, all attorneys' fees.
12. Any notice required or permitted hereunder shall be given in writing
(unless otherwise specified herein) and shall be deemed effectively given upon
personal delivery, overnight courier, facsimile, email or other form of
electronic transmission, or three business days after deposit in the United
States Postal Service, by registered or certified mail with postage and fees
prepaid, addressed to each of the other parties thereunto entitled at the
addresses listed below their signature, or at such other addresses as a party
may designate by ten days advance written notice to each of the other parties
hereto.
13. This instrument shall be binding upon and inure to the benefit of the
parties hereto, and their respective successors and permitted assigns and shall
be governed by the laws of the State of Georgia without giving effect to
principles governing the conflicts of laws. Facsimile
C-2
transmissions of the signatures to these instructions shall be legal and
binding on all parties hereto.
14. Organics shall be entitled to rely upon the authority of Agent under
this Escrow Agreement unless and until Organics is notified in writing by Agent
and/or Investor that such authority has been terminated and/or revoked in
conformity with the terms herein.
15. Capitalized terms used herein and not otherwise defined herein shall
have the respective meanings provided in the Financing Terms Agreement.
16. This Escrow Agreement supersedes all prior oral and/or written
agreements concerning the subject matter hereof, including without limitation
the Escrow Agreement by and among the parties hereto dated January 18, 2006.
(Signature page follows)
C-3
AGENT
Date:
------------------------------------- ----------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Email: ▇▇▇▇▇▇▇▇▇@▇▇▇▇▇▇▇▇▇.▇▇▇
INVESTOR
Date:
------------------------------------- ----------------------------------
C-4
EXHIBIT D
REPRESENTATIONS OF PURCHASER
(1) ACCREDITED INVESTOR STATUS. The PURCHASER is an "accredited investor"
within the meaning of Securities and Exchange Commission Rule 501 of Regulation
D.
(2) PURCHASE ENTIRELY FOR OWN ACCOUNT. The BRIDGE EQUITY UNITS to be
received by the PURCHASER will be acquired for investment for the PURCHASER'S
own account, not as a nominee or agent, and not with a view to the resale or
distribution of any part thereof, and that the PURCHASER has no present
intention of selling, granting any participation in, or otherwise distributing
the same. The PURCHASER further represents that it does not have any contract,
undertaking, agreement or arrangement with any person to sell, transfer or grant
participations to such person or to any third person, with respect to the BRIDGE
EQUITY UNITS.
(3) DISCLOSURE OF INFORMATION. The PURCHASER represents that it has
received the disclosure it believes relevant and necessary to its investment
decision and has had an opportunity to ask questions and receive answers from
the Company regarding the terms and conditions of this transaction and the
business, properties, prospects and financial condition of the Company and to
obtain additional information (to the extent the Company possessed such
information or could acquire it without unreasonable effort or expense) and/or
conduct its own independent investigation necessary to verify the accuracy of
any information furnished to the PURCHASER or to which the PURCHASER had access.
(4) INVESTMENT EXPERIENCE. The PURCHASER (i) is experienced in evaluating
and investing in private placement transactions in securities of companies
similar to the Company and has such knowledge and experience in financial or
business matters that it is capable of evaluating the merits and risks of the
investment in the UNITS and (ii) acknowledges that it can bear the economic risk
of its investment, including the loss of the entire investment.
(5) RESTRICTED SECURITIES. The PURCHASER understands that the BRIDGE EQUITY
UNITS are being sold pursuant to an exemption from registration under Section
4(2) of the Securities Act of 1933, as amended (the "Securities Act"). The
PURCHASER also understands that the BRIDGE EQUITY UNITS and, with certain
limited exceptions, any securities issuable on exercise or conversion thereof
may not be resold by the PURCHASER without registration under the Securities Act
or an exemption therefrom, and that in the absence of an effective registration
statement covering the BRIDGE EQUITY UNITS or an available exemption from
registration under the Securities Act, the BRIDGE EQUITY UNITS may be restricted
from resale in a transaction to which United States securities laws apply for an
indefinite period of time.
(6) ILLIQUID INVESTMENT. The PURCHASER understands that no market for the
BRIDGE EQUITY UNITS exists and no such market may ever exist.
(7) RESIDENCE. The PURCHASER resides, or its office primarily responsible
for the purchase of the BRIDGE EQUITY UNITS is located, at the address listed on
the signature page.
(8) BROKERS OR FINDERS. All negotiations on the part of the PURCHASER
relative to the transactions contemplated hereby have been carried on by the
PURCHASER without the intervention of any person or as the result of any act of
the PURCHASER in such manner as to give rise to any valid
D-1
claim for a brokerage commission, finder's fee, or other like payment, except
for Investors Capital Corporation.
(9) RELIANCE. The PURCHASER understands that this agreement is made with
the PURCHASER in reliance upon the PURCHASER'S representations to the Company,
as set forth above.
D-2
NAME: ___________________
AMOUNT: $________________
SUBSCRIPTION AGREEMENT
CONVERTED ORGANICS INC.
A DELAWARE COMPANY
The undersigned hereby applies to become an investor in CONVERTED ORGANICS INC.,
a Delaware company (the "Company"), and subscribes to purchase the number of
units consisting of Bridge Notes and Bridge Equity Units (the "Units") specified
herein.
1. REPRESENTATIONS AND WARRANTIES. The undersigned represents and warrants to
the Company as follows:
(a) I have received, read and understand the Confidential Memorandum dated
________, 2006 (the "Memorandum"), and in making this investment I am
relying only on the information provided therein. I have not relied on
any statements or representations inconsistent with those contained in
the Memorandum. I understand that by signing this subscription
agreement, I am agreeing to be bound by all of the terms and
conditions of the Financing Terms Agreement For Sale of Bridge Notes
And Shares dated _________, 2006 (the "Financing Terms Agreement"),
including the Security Agreement and Escrow Agreement attached to the
Financing Terms Agreement as Exhibits B and C, respectively, which are
included in the Memorandum, and my signature on this agreement is
deemed to be a signature on the Financing Terms Agreement, Security
Agreement, and Escrow Agreement.
(b) I, or the fiduciary account for which I am purchasing, meet the
suitability standards set forth in EXHIBIT D, "Representations of
Purchaser," to the Financing Terms Agreement..
(c) I am aware that this subscription may be rejected in whole or in part
by the Company or its designees in its sole and absolute discretion;
that my investment, if accepted, is subject to certain risks described
in part in "RISK FACTORS" set forth in the Memorandum; and that, among
other restrictions on sale or transfer of the Units, there will be no
public market for the Units, and accordingly, it may not be possible
for me to readily liquidate my investment in the Company.
(d) I have been informed of all pertinent facts relating to the lack of
liquidity or marketability of this investment. I am aware that any
transfer of the Units or the Bridge Notes and/or Bridge Equity Units
is subject to numerous restrictions described in the Memorandum. I
have liquid assets sufficient to assure myself that such purchase will
cause me no undue financial difficulties and that I can provide for my
current needs and possible personal contingencies, or if I am the
trustee of a retirement trust, that the limited liquidity of the Units
will not cause difficulty in
Subscription Agreement -1-
meeting the trust's obligations to make distributions to plan
participants in a timely manner.
(e) I am of the age of majority (as established in the state in which I am
domiciled) if I am an individual, and in any event, I have full power,
capacity, and authority to enter into a contractual relationship with
the Company. If acting in a representative or fiduciary capacity for a
corporation, fund or trust, or as a custodian or agent for any person
or entity, I have full power or authority to enter into this
subscription agreement in such capacity and on behalf of such
corporation, fund, trust, person or entity.
(f) I am buying the Units solely for my own account, or for the account of
a member or members of my immediate family or in a fiduciary capacity
for the account of another person or entity and not as an agent for
another. I understand that the sale, transfer and assignment of the
Units are subject to restrictions and may not be sold, transferred or
assigned except in accordance with the terms of the Financing Terms
Agreement, and I am aware that the certificates evidencing the Bridge
Notes and the Bridge Equity Unit securities will bear a legend in
substantially the following form:
THIS [NAME OF SECURITY] HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), NOR UNDER ANY STATE
SECURITIES LAW AND MAY NOT BE SOLD, PLEDGED, OFFERED FOR SALE,
ASSIGNED OR TRANSFERRED UNLESS (A) A REGISTRATION STATEMENT WITH
RESPECT THERETO IS EFFECTIVE UNDER THE SECURITIES ACT, AND ANY
APPLICABLE STATE SECURITIES LAW REQUIREMENTS HAVE BEEN MET OR (B)
EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS UNDER THE SECURITIES ACT
AND THE REGISTRATION OR QUALIFICATION REQUIREMENTS OF APPLICABLE STATE
SECURITIES LAWS ARE AVAILABLE.
As appropriate, other legends required by applicable state securities
laws also will be affixed to certificates evidencing the Bridge Notes
and/or Bridge Equity Unit securities.
(g) I acknowledge and agree that counsel representing the Company and its
affiliates do not represent me and shall not be deemed under the
applicable codes of professional responsibility to have represented or
to be representing me or any of the Company's members in any respect.
(h) If I am buying the Units in a fiduciary capacity or as a custodian for
the account of another person or entity, I have been directed by that
person or entity to purchase the Unit(s), and such person or entity is
aware of my purchase of Units on their behalf, and consents thereto
and is aware of the merits and risks involved in the investment in the
Company.
-2-
(i) I (or the entity on whose behalf I am signing) do not have a direct or
indirect ownership interest in Investors Capital Corp., ▇▇▇▇▇▇▇
Investment Company, Inc. or any other NASD member firm (through the
ownership of securities in the NASD member firm, its parent,
affiliates or otherwise).
(j) I (or the entity on whose behalf I am signing) do not have an
"immediate family relationship" with Investors Capital Corp., ▇▇▇▇▇▇▇
Investment Company, Inc. or any other NASD member firm. For purposes
of this statement, I understand that the NASD defines "immediate
family relationship" as parents, mother-in-law, father-in-law, husband
or wife, brother or sister, brother-in-law or sister-in-law,
son-in-law or daughter-in-law, and children, or any other person who
is supported, directly or indirectly, to a material extent by an
employee of, or person associated, with an NASD member.
(k) I (or the entity on whose behalf I am signing) have not provided any
consulting or other services to the Company.
(l) I (or the entity on whose behalf I am signing) am not an "underwriter
or a related person." For purposes of this statement, I understand
that the NASD defines an "underwriter or a related person" with
respect to a proposed offering as being an underwriter, underwriter's
counsel, financial consultant or advisor, finder, member of the
selling or distribution group, any member participating in a public
offering, and any and all other person associated with or related to
any of the aforementioned persons.
(m) I (or the entity on whose behalf I am signing) do not have any oral or
written agreements with any NASD member or any associated persons of
such member concerning the dispositions of my securities of the
Company. For purposes of this statement, I understand that the NASD
defines a "person associated with an NASD member" as being every sole
proprietor, partner, officer, director or branch manager of any NASD
member, or any natural person occupying a similar status or performing
similar functions, or any natural person engaged in the investment
banking or securities business who is directly or indirectly
controlling or controlled by an NASD member (for example, any
employee), whether or not any such person is registered or exempt from
registration with the NASD pursuant to its Bylaws.
By making these representations, the subscriber has not waived any right of
action available under applicable federal or state securities laws.
2. ACCEPTANCE. This subscription agreement will be accepted or rejected by the
Company within five (5) days of its receipt by the Company. Upon
acceptance, this subscription will become irrevocable, and will obligate
the undersigned to purchase the number of Units and in the dollar amount
specified herein. The Company will return a countersigned copy of this
subscription agreement to accepted subscribers, which copy of the agreement
will be evidence of the purchase of the Units.
-3-
3. PAYMENT OF SUBSCRIPTION PRICE. The full purchase price for the Units, equal
to the number of purchased Units shall be payable by check or wire
concurrently with delivery of this subscription agreement. Checks shall be
made payable to "▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Escrow Agent. Wires shall be sent as
follows:
BANK: Wachovia Bank, N.A.
ABA #: ▇▇▇-▇▇▇-▇▇▇
FOR CREDIT TO: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Attorney Escrow Account
ACCT #: ▇▇▇ ▇▇▇ ▇▇▇ 4713
4. INDEMNIFICATION. THE UNDERSIGNED AGREES TO INDEMNIFY AND HOLD CONVERTED
ORGANICS INC., A DELAWARE COMPANY, ITS DIRECTORS, OFFICERS, EMPLOYEES,
ADVISOR AND OTHER AGENTS HARMLESS FROM AND AGAINST ANY AND ALL CLAIMS,
DEMANDS, LIABILITIES, AND DAMAGES, INCLUDING, WITHOUT LIMITATION, ALL
ATTORNEYS' FEES WHICH ANY OF THEM MAY INCUR, IN ANY MANNER OR TO ANY
PERSON, BY REASON OF THE FALSITY, INCOMPLETENESS OR MISREPRESENTATION OF
ANY INFORMATION FURNISHED BY THE UNDERSIGNED HEREIN OR IN ANY DOCUMENT
SUBMITTED HEREWITH.
5. SUBSCRIPTION-RELATED UNDERTAKINGS, REPRESENTATIONS AND WARRANTIES.
(a) General. Each of the undersigned represents that: (i) I have read this
agreement and the Memorandum included herein in its entirety and that
all the information provided by me is accurate and complete; and (ii)
I will notify the Company immediately of any material adverse change
in any of the information set forth herein which occurs prior to the
acceptance of my subscription.
(b) Type Of Ownership: (check one)
[ ] SINGLE PERSON
[ ] MARRIED PERSON - JTWROS
[ ] MARRIED PERSONS-- TENANTS-IN-COMMON
[ ] CORPORATION OR LLC (C):
(Authorized party must sign)
[ ] TRUST (TR)
(Trustee signature required)
[ ] PARTNERSHIP (P)
(Authorized Party must sign)
-4-
[ ] CUSTODIAN (CU)
(Custodian signature required)
[ ] OTHER (Explain)
(c) If Investor is One or More Individuals. Type or print your name(s)
exactly as it should appear in the account records of the Company.
Complete this section for individual investors and all trusts. All
checks and correspondence will go to this address unless another
address is listed in Sections 2 or 5 below.
______________________________________________________________________
Individual Name
______________________________________________________________________
Additional Name(s) if held in joint tenancy, community property or
tenants-in-common
______________________________________________________________________
Street Address
______________________________________________________________________
City State Zip Code
______________________________________________________________________
Daytime Phone Number Evening Phone Number
______________________________________________________________________
Mobile Phone Number
______________________________________________________________________
Email
______________________________________________________________________
Taxpayer ID# or Social Security #
(A social security number or taxpayer identification number is
required for individual investors. For most individual taxpayers, it
is your social security number. NOTE: If the Units are to be held in
more than one name, only one number will be used and will be that of
the first person listed.)
______________________________________________________________________
Date of Birth
______________________________________________________________________
Citizenship: [ ] U.S. [ ] Other
______________________________________________________________________
Occupation Employer Name
______________________________________________________________________
Employer Address
______________________________________________________________________
City State Zip Code
Investment Objective (check one):
[ ] Capital appreciation
-5-
[ ] Other (please explain)
Do you have a net worth, either individually or jointly with spouse,
in excess of $1,000,000 [ ] YES [ ] NO
Did you have an individual income in excess of $200,000 (or joint
income with your spouse in excess of $300,000) during the last two
years, and do you have a reasonable expectation of reaching the same
or higher income level in the current year?
[ ] YES [ ] NO
Are you subject to any regulatory or other constraints that may
preclude or limit your participation in any potential investment?
[ ] YES [ ] NO
If yes, please explain:
(d) If Investor is an Entity:
______________________________________________________________________
Name of Investor
______________________________________________________________________
Type of Legal Entity (e.g., corporation, trust, etc.):
______________________________________________________________________
Address
______________________________________________________________________
City State Zip Code
______________________________________________________________________
Daytime Tel
______________________________________________________________________
Evening Tel
______________________________________________________________________
Mobile
______________________________________________________________________
Email
______________________________________________________________________
Taxpayer ID# Tax Year End
Please print here the exact name of Custodian, Administrator or other
signatory for the entity
Investment Objective: (check one)
[ ] Capital appreciation
-6-
[ ] Other (please explain)
If the Investor is an entity is the Investor any of the following?
(check applicable box, if any)
[ ] A corporation, Massachusetts or similar business trust, limited
liability company, or partnership with total assets in excess of
$5,000,000 that was not formed for the specific purposed of acquiring
the Units
[ ] A trust with total assets in excess of $5,000,000 not formed for
the specific purposed of acquiring the Units and whose purchase of the
Units is directed by a person who has such knowledge and experience in
financial and business matters that he/she is capable of evaluating
the merits and risks of investment in the Units
[ ] A trust in which all of the beneficiaries are accredited investors
as defined in Rule 501 (c)(3) of the Securities Act of 1933.
ARE THE FOREGOING REPRESENTATIONS AND WARRANTIES TRUE?
[ ] YES [ ] NO
Please provide your initials here
6. DISTRIBUTIONS INFORMATION. ALTERNATIVE ADDRESS FOR DELIVERY OF DOCUMENTS,
SECURITIES, AND FUNDS (I.E., OTHER THAN THE ADDRESS GIVEN IN SECTION 5(C)
OR 5(D) ABOVE).
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Tel: ▇▇▇ ▇▇▇-▇▇▇▇
Fax: ▇▇▇ ▇▇▇-▇▇▇▇
Email: ▇▇▇▇▇▇@▇▇▇▇▇.▇▇▇
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7. INVESTMENT.
Amount of payment enclosed: $______________________________________________
[Minimum subscription is $5,000 with additional
investments in increments of $1,000.]
Payment by Check: [ ] Check # _________________________________
Payment by Wire Transfer: [ ] Wire Reference # ________________________
8. SIGNATURES.
(a) Individuals:
Investor's primary residence is in:
____________________________________________
--------------------------- ----------------------------------------
Signature of Subscriber Date
----------------------------------------------------------------------
Print Name of Subscriber
--------------------------- ----------------------------------------
Signature of Co-Subscriber Date
----------------------------------------------------------------------
Print Name of Co-Subscriber
(b) Entities:
----------------------------------------------------------------------
Print Name of Subscriber
--------------------------- ----------------------------------------
By Date
----------------------------------------------------------------------
Signature of Authorized Signatory
----------------------------------------------------------------------
Print Name and Title of Signatory
--------------------------- ----------------------------------------
By: Date
----------------------------------------------------------------------
Signature of Required Authorized Co-Signatory
----------------------------------------------------------------------
Print Name and Title of Co-Signatory
9. ACCEPTANCE. THE SUBSCRIPTION AGREEMENT WILL NOT BE AN EFFECTIVE AGREEMENT
UNTIL IT OR A FACSIMILE IS SIGNED BY AN OFFICER OF CONVERTED ORGANICS INC.,
A DELAWARE COMPANY. (Office Use Only)
-8-
______________________________________________________________________
Account Number
______________________________________________________________________
Investor Check/Wire Date
______________________________________________________________________
Check/Wire Amount
______________________________________________________________________
Check/Wire #
___________________________ ________________________________________
Entered by Date
Subscription has been: ____ Accepted ____ Rejected
--------------------------- ----------------------------------------
By: Dated
----------------------------------------------------------------------
Print Name and Title
-9-