Converted Organics is to release around US$2m for capital expenditures on its New Jersey facility and defer interest payments on the bonds until August.

The company said it has made the agreement in principle, subject only to the finalisation of documentation, with the holders of its $17.5m of New Jersey Economic Development Authority Bonds.

The funds are being held in a reserve for bond principal and interest payments along with a reserve for lease payments.

The company has also entered into a term sheet with an institutional investor under which it will issue a 10% convertible note in a principal amount of up to $1.5bn at a 10% original issue discount.

Upon the execution of definitive agreements, the investor has agreed to place funds into escrow to acquire $500,000 in principal amount of the note, and will acquire additional $250,000 increments in principal amount of the note on 1 May, 1 June, 1 July, and 1 August.

The note will be convertible at a rate of 85% of the closing bid price of the company's common stock for the trading day immediately preceding any conversion, subject to anti-dilution rights and adjustments if the company defaults on the note.

Chardan Capital Markets will act as the sole placement agent for the transaction.