EXHIBIT A
COMMON STOCK
PURCHASE WARRANT
CONVERTED ORGANICS
INC.
Warrant Shares:
Initial Exercise Date:
, 2009
Issue Date: July ,
2009
THIS COMMON STOCK PURCHASE WARRANT
(the “ Warrant ”) certifies that, for value
received, (the “
Holder ”) is entitled, upon the terms and subject to
the limitations on exercise and the conditions hereinafter set
forth, at any time on or after the six month anniversary of the
Initial Exercise Date (the “ Initial Exercise Date
”) and on or prior to the close of business on the five year
anniversary of the date hereof (the “ Termination Date
”) but not thereafter, to subscribe for and purchase from
Converted Organics Inc., a Delaware corporation (the “
Company ”), up to
shares (the “
Warrant Shares ”) of Common Stock.
Section 1 .
Definitions . Capitalized terms used and not otherwise
defined herein shall have the meanings set forth in that certain
Securities Purchase Agreement (the “ Purchase
Agreement ”), dated July , 2009, among
the Company and the purchasers signatory thereto.
Section 2 .
Exercise .
a) Exercise of
Warrant . Exercise of the purchase rights represented by this
Warrant may be made, in whole or in part, at any time or times on
or after the Initial Exercise Date and on or before the Termination
Date by delivery to the Company (or such other office or agency of
the Company as it may designate by notice in writing to the
registered Holder at the address of the Holder appearing on the
books of the Company) of a duly executed facsimile copy of the
Notice of Exercise Form annexed hereto; and, within three
(3) Trading Days of the date said Notice of Exercise is
delivered to the Company, the Company shall have received payment
of the aggregate Exercise Price of the shares thereby purchased by
wire transfer or cashier’s check drawn on a United States
bank or, if available, pursuant to the cashless exercise procedure
specified in Section 2(c) below. Notwithstanding anything herein to
the contrary, the Holder shall not be required to physically
surrender this Warrant to the Company until the Holder has
purchased all of the Warrant Shares available hereunder and the
Warrant has been exercised in full, in which case, the Holder shall
surrender this Warrant to the Company for cancellation within three
(3) Trading Days of the date the final Notice of Exercise is
delivered to the Company. Partial exercises of this Warrant
resulting in purchases of a portion of the total number of Warrant
Shares available hereunder shall have the effect of lowering the
outstanding number of Warrant Shares purchasable hereunder in an
amount equal to the applicable number of Warrant Shares purchased.
The Holder and the Company shall maintain records showing the
number of Warrant Shares purchased and the date of such purchases.
The Company shall deliver any objection to any Notice of Exercise
Form within 1 Business Day of receipt of such notice. In the event
of any dispute or discrepancy, the records of the Holder shall be
controlling and determinative in the absence of manifest error.
The Holder and any assignee, by acceptance of this Warrant,
acknowledge and agree that, by reason of the provisions of this
paragraph, following the purchase of a portion of the Warrant
Shares hereunder, the number of Warrant Shares available for
purchase hereunder at any given time may be less than the amount
stated on the face hereof.
b) Exercise
Price . The exercise price per share of the Common Stock under
this Warrant shall be $1.25, subject to adjustment hereunder
(the “ Exercise Price ”).
c) Cashless
Exercise . If at the time of exercise hereof there is no
effective registration statement registering, or the prospectus
contained therein is not available for the issuance of the Warrant
Shares to the Holder and all of the Warrant Shares are not then
registered for resale by Holder into the market at market prices
from time to time on an effective registration statement for use on
a continuous basis (or the prospectus contained therein is not
available for use), then this Warrant may also be exercised, in
whole or in part, at such time by means of a “cashless
exercise” in which the Holder shall be entitled to receive a
certificate for the number of Warrant Shares equal to the quotient
obtained by dividing [(A-B) (X)] by (A), where:
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(A)
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= the VWAP on the Trading Day immediately
preceding the date on which Holder elects to exercise this Warrant
by means of a “cashless exercise,” as set forth in the
applicable Notice of Exercise;
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(B)
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= the Exercise Price of this Warrant, as
adjusted hereunder; and
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(X)
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= the number of Warrant Shares that would be
issuable upon exercise of this Warrant in accordance with the terms
of this Warrant if such exercise were by means of a cash exercise
rather than a cashless exercise.
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“
VWAP ” means, for any date, the price determined by
the first of the following clauses that applies: (a) if the
Common Stock is then listed or quoted on a Trading Market, the
daily volume weighted average price of the Common Stock for such
date (or the nearest preceding date) on the Trading Market on which
the Common Stock is then listed or quoted as reported by Bloomberg
L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to
4:02 p.m. (New York City time), (b) if the OTC Bulletin Board
is not a Trading Market, the volume weighted average price of the
Common Stock for such date (or the nearest preceding date) on the
OTC Bulletin Board, (c) if the Common Stock is not then listed
or quoted for trading on the OTC Bulletin Board and if prices for
the Common Stock are then reported in the “Pink Sheets”
published by Pink OTC Markets, Inc. (or a similar organization or
agency succeeding to its functions of reporting prices), the most
recent bid price per share of the Common Stock so reported, or
(d) in all other cases, the fair market value of a share of
Common Stock as determined by an independent appraiser selected in
good faith by the Holders of a majority in interest of the
Securities then outstanding and reasonably acceptable to the
Company, the fees and expenses of which shall be paid by the
Company.
d) Mechanics
of Exercise .
i. Delivery of
Certificates Upon Exercise . Certificates for
shares
purchased hereunder shall be transmitted by the Transfer Agent to
the Holder by crediting the account of the Holder’s prime
broker with the Depository Trust Company through its Deposit
Withdrawal Agent Commission (“ DWAC ”) system if
the Company is then a participant in such system and either
(A) there is an effective Registration Statement permitting
the issuance of the Warrant Shares to or resale of the Warrant
Shares by Holder or (B) this Warrant is being exercised via
cashless exercise, and otherwise by physical delivery to the
address specified by the Holder in the Notice of Exercise by the
date that is three (3) Trading Days after the latest of (A)
the delivery to the Company of the Notice of Exercise Form,
(B) surrender of this Warrant (if required) and
(C) payment of the aggregate Exercise Price as set forth above
(including by cashless exercise, if permitted) (such date, the
“ Warrant Share Delivery Date ”). This Warrant
shall be deemed to have been exercised on the first date on which
all of the foregoing have been delivered to the Company. The
Warrant Shares shall be deemed to have been issued, and Holder or
any other person so designated to be named therein shall be deemed
to have become a holder of record of such
shares
for all purposes, as of the date the Warrant has been exercised,
with payment to the Company of the Exercise Price (or by cashless
exercise, if permitted) and all taxes required to be paid by the
Holder, if any, pursuant to Section 2(d)(vi) prior to the
issuance of such shares, having been paid. If the Company fails for
any reason to deliver to the Holder certificates evidencing the
Warrant Shares subject to a Notice of Exercise by the Warrant Share
Delivery Date, the Company shall pay to the Holder, in cash, as
liquidated damages and not as a penalty, for each $1,000 of Warrant
Shares subject to such exercise (based on the VWAP of the Common
Stock on the date of the applicable Notice of Exercise), $10 per
Trading Day (increasing to $20 per Trading Day on the fifth Trading
Day after such liquidated damages begin to accrue) for each Trading
Day after such Warrant Share Delivery Date until such certificates
are delivered or Holder rescinds such exercise.
ii. Delivery
of New Warrants Upon Exercise . If this Warrant shall have been
exercised in part, the Company shall, at the request of a Holder
and upon surrender of this Warrant certificate, at the time of
delivery of the certificate or certificates representing Warrant
Shares, deliver to Holder a new Warrant evidencing the rights of
Holder to purchase the unpurchased Warrant Shares called for by
this Warrant, which new Warrant shall in all other respects be
identical with this Warrant.
iii.
Rescission Rights . If the Company fails to cause the
Transfer Agent to transmit to the Holder a certificate or the
certificates representing the Warrant Shares pursuant to
Section 2(d)(i) by the Warrant Share Delivery Date, then, the
Holder will have the right to rescind such exercise.
iv.
Compensation for Buy-In on Failure to Timely Deliver
Certificates Upon Exercise . In addition to any other rights
available to the Holder, if the Company fails to cause the Transfer
Agent to transmit to the Holder a certificate or the certificates
representing the Warrant Shares pursuant to an exercise on or
before the Warrant Share Delivery Date, and if after such date the
Holder is required by its broker to purchase (in an open market
transaction or otherwise) or the Holder’s brokerage firm
otherwise purchases, shares of Common Stock to deliver in
satisfaction of a sale by the Holder of the Warrant Shares which
the Holder anticipated receiving upon such exercise (a “
Buy-In ”), then the Company shall (A) pay in cash
to the Holder the amount, if any, by which (x) the
Holder’s total purchase price (including brokerage
commissions, if any) for the
shares
of Common Stock so purchased exceeds (y) the amount obtained
by multiplying (1) the number of Warrant Shares that the
Company was required to deliver to the Holder in connection with
the exercise at issue times (2) the price at which the sell order
giving rise to such purchase obligation was executed, and
(B) at the option of the Holder, either reinstate the portion
of the Warrant and equivalent number of Warrant Shares for which
such exercise was not honored (in which case such exercise shall be
deemed rescinded) or deliver to the Holder the number of shares of
Common Stock that would have been issued had the Company timely
complied with its exercise and delivery obligations hereunder. For
example, if the Holder purchases Common Stock having a total
purchase price of $11,000 to cover a Buy-In with respect to an
attempted exercise of shares of Common Stock with an aggregate sale
price giving rise to such purchase obligation of $10,000, under
clause (A) of the immediately preceding sentence the Company
shall be required to pay the Holder $1,000. The Holder shall
provide the Company written notice indicating the amounts payable
to the Holder in respect of the Buy-In and, upon request of the
Company, evidence of the amount of such loss. Nothing herein shall
limit a Holder’s right to pursue any other remedies available
to it hereunder, at law or in equity including, without limitation,
a decree of specific performance and/or injunctive relief with
respect to the Company’s failure to timely deliver
certificates representing
shares
of Common Stock upon exercise of the Warrant as required pursuant
to the terms hereof.
v. No
Fractional Shares or Scrip . No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of
this Warrant. As to any fraction of a share which the Holder would
otherwise be entitled to purchase upon such exercise, the Company
shall, at its election, either pay a cash adjustment in respect of
such final fraction in an amount equal to such fraction multiplied
by the Exercise Price or round up to the next whole share.
vi. Charges,
Taxes and Expenses . Issuance of certificates for Warrant
Shares shall be made without charge to the Holder for any issue or
transfer tax or other incidental expense in respect of the issuance
of such certificate, all of which taxes and expenses shall be paid
by the Company, and such certificates shall be issued in the name
of the Holder or in such name or names as may be directed by the
Holder; provided , however , that in the event
certificates for Warrant Shares are to be issued in a name other
than the name of the Holder, this Warrant when surrendered for
exercise shall be accompanied by the Assignment Form attached
hereto duly executed by the Holder and the Company may require, as
a condition thereto, the payment of a sum sufficient to reimburse
it for any transfer tax incidental thereto.
vii. Closing
of Books . The Company will not close its stockholder books or
records in any manner which prevents the timely exercise of this
Warrant, pursuant to the terms hereof.
e)
Holder’s Exercise Limitations . The Company shall not
effect any exercise of this Warrant, and a Holder shall not have
the right to exercise any portion of this Warrant, pursuant to
Section 2 or otherwise, to the extent that after giving effect
to such issuance after exercise as set forth on the applicable
Notice of Exercise, the Holder (together with the Holder’s
Affiliates, and any other Persons acting as a group together with
the Holder or any of the Holder’s Affiliates), would
beneficially own in excess of the Beneficial Ownership Limitation
(as defined below). For purposes of the foregoing sentence,
the number of shares of Common Stock beneficially owned by the
Holder and its Affiliates shall include the number of shares of
Common Stock issuable upon exercise of this Warrant with respect to
which such determination is being made, but shall exclude the
number of shares of Common Stock which would be issuable upon
(i) exercise of the remaining, nonexercised portion of this
Warrant beneficially owned by the Holder or any of its Affiliates
and (ii) exercise or conversion of the unexercised or
nonconverted portion of any other securities of the Company
(including, without limitation, any other Common Stock Equivalents)
subject to a limitation on conversion or exercise analogous to the
limitation contained herein beneficially owned by the Holder or any
of its Affiliates. Except as set forth in the preceding
sentence, for purposes of this Section 2(e), beneficial
ownership shall be calculated in accordance with Section 13(d) of
the Exchange Act and the rules and regulations promulgated
thereunder, it being acknowledged by the Holder that the Company is
not representing to the Holder that such calculation is in
compliance with Section 13(d) of the Exchange Act and the Holder is
solely responsible for any schedules required to be filed in
accordance therewith. To the extent that the limitation contained
in this Section 2(e) applies, the determination of whether this
Warrant is exercisable (in relation to other securities owned by
the Holder together with any Affiliates) and of which portion of
this Warrant is exercisable shall be in the sole discretion of the
Holder, and the submission of a Notice of Exercise shall be deemed
to be the Holder’s determination of whether this Warrant is
exercisable (in relation to other securities owned by the Holder
together with any Affiliates) and of which portion of this Warrant
is exercisable, in each case subject to the Beneficial Ownership
Limitation, and the Company shall have no obligation to verify or
confirm the accuracy of such determination. In addition, a
determination as to any group status as contemplated above shall be
determined in accordance with Section 13(d) of the Exchange Act and
the rules and regulations promulgated thereunder. For purposes of
this Section 2(e), in determining the number of outstanding
shares of Common Stock, a Holder may rely on the number of
outstanding
shares
of Common Stock as reflected in (A) the Company’s most
recent periodic or annual report filed with the Commission, as the
case may be, (B) a more recent public announcement by the
Company or (C) a more recent written notice by the Company or
the Transfer Agent setting forth the number of shares of Common
Stock outstanding. Upon the written or oral request of a
Holder, the Company shall within two Trading Days confirm orally
and in writing to the Holder the number of shares of Common Stock
then outstanding. In any case, the number of outstanding
shares of Common Stock shall be determined after giving effect to
the conversion or exercise of securities of the Company, including
this Warrant, by the Holder or its Affiliates since the date as of
which such number of outstanding shares of Common Stock was
reported. The “ Beneficial Ownership Limitation
” shall be 4.9% of the number of shares of the Common Stock
outstanding immediately after giving effect to the issuance of
shares of Common Stock issuable upon exercise of this Warrant. The
Holder, upon not less than 61 days’ prior notice to the
Company, may increase or decrease the Beneficial Ownership
Limitation provisions of this Section 2(e), provided that the
Beneficial Ownership Limitation in no event exceeds 9.99% of the
number of shares of the Common Stock outstanding immediately after
giving effect to the issuance of shares of Common Stock upon
exercise of this Warrant held by the Holder and the provisions of
this Section 2(e) shall continue to apply. Any such increase or
decrease will not be effective until the 61 st day after
such notice is delivered to the Company. The provisions of this
paragraph shall be construed and implemented in a manner otherwise
than in strict conformity with the terms of this Section 2(e) to
correct this paragraph (or any portion hereof) which may be
defective or inconsistent with the intended Beneficial Ownership
Limitation herein contained or to make changes or supplements
necessary or desirable to properly give effect to such limitation.
The limitations contained in this paragraph shall apply to a
successor holder of this Warrant.
f) Call
Provision . Subject to the provisions of Section 2(e) and this
Section 2(f), if, (i) the VWAP for each of 5 consecutive
Trading Days (the “ Measurement Period ”)
exceeds $ 2.10 (subject to adjustment for forward and
reverse stock splits, recapitalizations, stock dividends and the
like after the Initial Exercise Date) and (ii) the Holder is not in
possession of any information that constitutes, or might
constitute, material non-public information which was provided by
the Company, then the Company may, within 1 Trading Day of the end
of such Measurement Period, call for cancellation of all or any
portion of this Warrant for which a Notice of Exercise has not yet
been delivered (such right, a “ Call ”) for
consideration equal to $.001 per Share. To exercise this right, the
Company must deliver to the Holder an irrevocable written notice (a
“ Call Notice ”), indicating therein the portion
of unexercised portion of this Warrant to which such notice
applies. If the conditions set forth below for such Call are
satisfied from the period from the date of the Call Notice through
and including the Call Date (as defined below), then any portion of
this Warrant subject to such Call Notice for which a Notice of
Exercise shall not have been received by the Call Date will be
cancelled at 6:30 p.m. (New York City time) on the tenth Trading
Day after the date the Call Notice is received by the Holder (such
date and time, the “ Call Date ”). Any
unexercised portion of this Warrant to which the Call Notice does
not pertain will be unaffected by such Call Notice. In furtherance
thereof, the Company covenants and agrees that it will honor all
Notices of Exercise with respect to Warrant Shares subject to a
Call Notice that are tendered through 6:30 p.m. (New York City
time) on the Call Date. The parties agree that any Notice of
Exercise delivered following a Call Notice which calls less than
all the Warrants shall first reduce to zero the number of Warrant
Shares subject to such Call Notice prior to reducing the remaining
Warrant Shares available for purchase under this Warrant. For
example, if (A) this Warrant then permits the Holder to
acquire 100 Warrant Shares, (B) a Call Notice pertains to 75
Warrant Shares, and (C) prior to 6:30 p.m. (New York City
time) on the Call Date the Holder tenders a Notice of Exercise in
respect of 50 Warrant Shares, then (x) on the Call Date the
right under this Warrant to acquire 25 Warrant Shares will be
automatically cancelled, (y) the Company, in the time and
manner required under this Warrant, will have issued and delivered
to the Hold