EXHIBIT 10.1

PURCHASE AGREEMENT

 

THIS PURCHASE AGREEMENT (“Agreement”) is made as of the 6th day of March, 2009
by and among Converted Organics, Inc., a Delaware corporation (the “Company”),
and Professional Offshore Opportunity Fund, Ltd. (the “Investor”).

 

Recitals

 

A.        The Company and the Investor are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by the provisions of Regulation D (“Regulation D”), as promulgated by the U.S.
Securities and Exchange Commission (the “Commission”) under the Securities Act
of 1933, as amended;

 

B.        The Investor wishes to purchase from the Company, and the Company
wishes to sell and issue to the Investor, upon the terms and conditions set
forth in this Agreement, (i) up to $1,500,000 in aggregate principal amount of
the 10% Convertible Notes in the form attached hereto as Exhibit A (the
“Notes”), which Notes are convertible into shares of the Company’s Common Stock,
par value $0.0001 per share (together with any securities into which such shares
may be reclassified, the “Common Stock”), at an initial conversion price of 85%
of the closing bid price for the Trading Day immediately prior to a conversion
(subject to adjustment as provided therein), and (ii) Class B Warrants (NASD:
COINZ) to purchase an aggregate number of shares of Common Stock equal to the
original principal amount of the Note (excluding any interest amounts to be
added to such original principal amount) divided by the initial conversion price
described above (the “Warrants”); and

 

In consideration of the mutual promises made herein and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:

 

1.         Definitions. In addition to those terms defined above and elsewhere
in this Agreement, for the purposes of this Agreement, the following terms shall
have the meanings set forth below:

 

.

“Affiliate” means, with respect to any Person, any other Person which directly
or indirectly through one or more intermediaries Controls, is controlled by, or
is under common control with, such Person.

 

“Business Day” means a day, other than a Saturday or Sunday, on which banks in
New York City are open for the general transaction of business.

 

“Company’s Knowledge” means the actual knowledge of the executive officers (as
defined in Rule 405 under the 1933 Act) of the Company.

 

“Control” (including the terms “controlling”, “controlled by” or “under common
control with”) means the possession, direct or indirect, of the power to direct
or cause the direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract or otherwise.

 

“Conversion Shares” means the shares of Common Stock issuable upon conversion of
the Notes.

 

“Escrow Agreement” has the meaning set forth in Section 2.3.

“Material Adverse Effect” means a material adverse effect on (i) the assets,
liabilities, results of operations, condition (financial or otherwise) or
business of the Company and its Subsidiaries taken as a whole as of December 31,
2008, or (ii) the ability of the Company to perform its obligations under the
Transaction Documents in all material respects; provided, however, that none of
the following shall be deemed to constitute a Material Adverse Effect or taken
into account in determining whether there has been a Material Adverse Effect:
(a) changes in GAAP or applicable laws; (b) the announcement of the execution of
this Agreement or of the pendency or completion of the transactions contemplated
hereby; (c) the effect of compliance by any of the parties with the terms of, or
the taking of any action specifically required to be taken under, this
Agreement; (d) changes in economic, financial, credit or securities markets, or
political conditions generally, except to the extent such changes have a
materially disproportionate effect on the Company and its Subsidiaries as
compared to others engaged in the same businesses; (e) any act of terrorism or
war (whether or not declared); (f) changes affecting generally the industries in
which the Company and its Subsidiaries conduct business, except to the extent
such changes have a materially disproportionate adverse effect on the Company
and its Subsidiaries or as compared to others engaged in the same businesses;
(g) the Company’s cash, short term assets, working capital, and liquidity
position prior to the transactions contemplated hereby; (h) non-cash impairment
charges recorded in accordance with GAAP; (i) the payment of outstanding
indebtedness in accordance with its terms; or (j) the incurrence and payment of
expenses and liabilities in the ordinary course of business.

“Nasdaq” has the meaning set forth in Section 4.13.

 

“Original Issue Discount” has the meaning set forth in Section 2.2.

“Person” means an individual, corporation, partnership, limited liability
company, trust, business trust, association, joint stock company, joint venture,
sole proprietorship, unincorporated organization, governmental authority or any
other form of entity not specifically listed herein.

 

“Principal Trading Market” means the Trading Market on which the Common Stock is
primarily listed on and quoted for trading, which, as of the date of this
Agreement and each Closing Date, shall be the Nasdaq.

 

“Purchase Price” means up to One Million Five Hundred Thousand Dollars
($1,500,000).

 

“Registration Statement” has the meaning set forth in the New Financing
Registration Rights Agreement.

“SEC Filings” has the meaning set forth in Section 4.6.

“Securities” means the Notes, the Warrants, the Conversion Shares and the
Warrant Shares.

 

“Stockholder Approval” has the meaning set forth in Section 7.7.

 

“Subsidiary” of any Person means another Person, an amount of the voting
securities, other voting ownership or voting partnership interests of which is
sufficient to elect at least a majority of its Board of Directors or other
governing body (or, if there are no such voting interests, 50% or more of the
equity interests of which) is owned directly or indirectly by such first Person.

 

“Trading Day” means (i) a day on which the Common Stock is listed or quoted and
traded on its Principal Trading Market, or (ii) if the Common Stock is not
listed on a Trading Market (other than the OTC Bulletin Board), a day on which
the Common Stock is traded in the over-the-counter market, as reported by the
OTC Bulletin Board, or (iii) if the Common Stock is not quoted on any Trading
Market, a day on which the Common Stock is quoted in the over-the-counter market
as reported in the “pink sheets” by Pink Sheets LLC (or any similar organization
or agency succeeding to its functions of reporting prices); provided, that in
the event that the Common Stock is not listed or quoted as set forth in (i),
(ii) and (iii) hereof, then Trading Day shall mean a Business Day.

“Trading Market” means whichever of the Nasdaq Global Select Market, the Nasdaq
Global Market, the Nasdaq Capital Market or the OTC Bulletin Board on which the
Common Stock is listed or quoted for trading on the date in question.

 

“Transaction Documents” means this Agreement, the Notes, the Warrants, the
Escrow Agreement and the Registration Rights Agreement.

 

“Warrant Shares” means the shares of Common Stock issuable upon the exercise of
the Warrants.

 

“1933 Act” means the Securities Act of 1933, as amended, or any successor
statute, and the rules and regulations promulgated thereunder.

 

“1934 Act” means the Securities Exchange Act of 1934, as amended, or any
successor statute, and the rules and regulations promulgated thereunder.

 

2.         Purchase and Sale of the Notes and the Warrants.

2.1       Sale of Notes. Subject to the terms and conditions of this Agreement,
on each Closing Date, the Company shall, in exchange for the Purchase Price as
specified in Section 3 below, sell and issue, and the following parties shall
severally, and not jointly, purchase: (a) on the First Closing Date, the
aggregate principal amount of Five Hundred Thousand Dollars ($500,000) of Notes
and the Warrants to purchase five hundred seventy one thousand one hundred and
two (571,102) shares of Common Stock to the Investor, (b) on the Second Closing
Date, the aggregate amount of Two Hundred Fifty Thousand Dollars ($250,000) of
the Notes and the Warrants to purchase two hundred eighty five thousand five
hundred fifty one (285,551) shares of Common Stock to the Investor, (c) on the
Third Closing Date, the aggregate amount of Two Hundred Fifty Thousand Dollars
($250,000) of the Notes and the Warrants to purchase two hundred eighty five
thousand five hundred fifty one (285,551) shares of Common Stock to the
Investor, (d) on the Fourth Closing Date, the aggregate amount of Two Hundred
Fifty Thousand Dollars ($250,000) of the Notes and the Warrants to purchase two
hundred eighty five thousand five hundred fifty one (285,551) shares of Common
Stock to the Investor, and (e) on the Fifth Closing Date, the aggregate amount
of Two Hundred Fifty Thousand Dollars ($250,000) of the Notes and the Warrants
to purchase two hundred eighty five thousand five hundred fifty one (285,551)
shares of Common Stock to the Investor.

2.2       Original Issue Discount. The Company agrees to provide an original
issue discount of 10% (the “Original Issue Discount”) to the Investor which will
result in an actual Purchase Price of $1,350,000, in the aggregate. The Investor
shall recognize the Original Issue Discount on the Fifth Closing by reducing the
amount the Investor actually pays at the Fifth Closing by $150,000 (which is
equal to the total amount of the Original Issue Discount of the Purchase Price)
but the Investor will still receive its Note for $250,000 plus any pre-paid
interest required under the Note for the Fifth Closing. In the event that an
Event of Default occurs prior to the Fifth Closing Date or if the Investor is
not obligated under the terms of this Agreement to fund the Fifth Closing, then
the Original Issue Discount shall be recognized by increasing the Original
Principal Amount of the Note purchased at the First Closing as follows: (i)
after the First Closing but before the Second Closing then the amount of the
Note for the First Closing shall be increased to $600,000 (which includes the
$50,000 of prepaid interest on such Note); (ii) after the Second Closing but
before the Third Closing then the amount of the Note for the First Closing shall
be increased to $625,000 (which includes the $50,000 of prepaid interest on such
Note); (iii) after the Third Closing but before the Fourth Closing then the
amount of the Note for the First Closing shall be increased to $650,000 (which
includes the $50,000 of prepaid interest on such Note); and (iv) after the
Fourth Closing but before the Fifth Closing then the amount of the Note for the
First Closing shall be increased to $675,000 (which includes the $50,000 of
prepaid interest on such Note).

2.3        Escrow of Purchase Price. In the event Stockholder Approval is not
obtained prior to a Closing Date, such Purchase Price that is due on the
respective Closing Date shall be deposited into an escrow account pursuant to
the terms of the escrow agreement between the Company, the Investor and Anslow &
Jaclin, LLP (as escrow agent) in substantially the form attached hereto as
Exhibit B (the “Escrow Agreement”).

                    3.    
Closing.
           
 

 

3.1       The First Closing.       Subject to the terms and conditions of this
Agreement, the Company shall deliver to the Investor the Notes and the Warrants,
registered in such name or names as the Investor may designate, upon payment in
full of the specified portion of the Purchase Price set forth on Schedule I to
the Company by the Investor pursuant to the Escrow Agreement. The first closing
(the “First Closing”) of the purchase and sale of the Notes and the Warrants
shall take place at the offices of Anslow & Jaclin, LLP, 195 Route 9 South,
Manalapan, New Jersey 07726, at 12:00 p.m., New York, New York, time on the date
that Shareholder Approval is obtained (the “First Closing Date”) or at such
other location and on such other date as the Company and the Investor shall
mutually agree.

 

3.2       The Second Closing.  Subject to the terms and conditions of this
Agreement and all representations, warranties and covenants being true and
accurate on the date of the Second Closing Date, the Company shall deliver to
the Investor the Notes and the Warrants, registered in such name or names as the
Investor may designate, upon payment in full of the specified portion of the
Purchase Price set forth on Schedule II to the Company by the Investor pursuant
to the Escrow Agreement. This second closing (the “Second Closing”) of the
purchase and sale of the Notes and Warrants shall take place at such location
and on the date that is thirty (30) days following the First Closing Date (the
“Second Closing Date”).

 

3.3       The Third Closing.  Subject to the terms and conditions of this
Agreement and all representations, warranties and covenants being true and
accurate on the date of the Third Closing Date, the Company shall deliver to the
Investor the Notes and the Warrants, registered in such name or names as the
Investor may designate, upon payment in full of the specified portion of the
Purchase Price set forth on Schedule III to the Company by the Investor pursuant
to the Escrow Agreement. This third closing (the “Third Closing”) of the
purchase and sale of the Notes and Warrants shall take place at such location
and on the date that is thirty (30) days following the Second Closing Date (the
“Third Closing Date”).

3.4       The Fourth Closing.  Subject to the terms and conditions of this
Agreement and all representations, warranties and covenants being true and
accurate on the date of the Fourth Closing Date, the Company shall deliver to
the Investor the Notes and the Warrants, registered in such name or names as the
Investor may designate, upon payment in full of the specified portion of the
Purchase Price set forth on Schedule IV to the Company by the Investor pursuant
to the Escrow Agreement. This fourth closing (the “Fourth Closing”) of the
purchase and sale of the Notes and Warrants shall take place at such location
and on the date that is thirty days following the Third Closing Date (the
“Fourth Closing Date”).

 

3.5       The Fifth Closing.  Subject to the terms and conditions of this
Agreement and all representations, warranties and covenants being true and
accurate on the date of the Fifth Closing Date, the Company shall deliver to the
Investor the Notes and the Warrants, registered in such name or names as the
Investor may designate, upon payment in full of the specified portion of the
Purchase Price, subject to the Original Issue Discount for all amounts included
in the Fifth Closing and in all prior Closings, set forth on Schedule V to the
Company by the Investor pursuant to the Escrow Agreement. This fifth closing
(the “Fifth Closing”) of the purchase and sale of the Notes and Warrants shall
take place at such location and on the date that is thirty (30) days following
the Fourth Closing Date (the “Fifth Closing Date”).

The First Closing Date, the Second Closing Date, the Third Closing Date, the
Fourth Closing Date and the Fifth Closing Date shall be sometimes referred to
herein as a “Closing Date”, and the First Closing, the Second Closing, the Third
Closing, the Fourth Closing and the Fifth Closing shall be sometimes referred to
herein as a “Closing”.

 

4.         Representations and Warranties of the Company. The Company hereby
represents and warrants to the Investor that, except as set forth in its public
filings with the Commission:

 

4. 1      Organization, Good Standing and Qualification. Each of the Company and
its Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has all
requisite corporate power and authority to carry on its business as now
conducted and to own its properties. Each of the Company and its Subsidiaries is
duly qualified to do business as a foreign corporation and is in good standing
in each jurisdiction in which the conduct of its business or its ownership or
leasing of property makes such qualification or leasing necessary unless the
failure to so qualify has not had and could not reasonably be expected to have a
Material Adverse Effect.

 

4.2       Authorization. The Company has full corporate power and authority and
has taken all requisite action on the part of the Company, its officers,
directors and stockholders necessary for (i) the authorization, execution and
delivery of the Transaction Documents, (ii) the authorization of the performance
of all obligations of the Company hereunder, and (iii) the authorization,
issuance (or reservation for issuance) and delivery of the Notes and Warrants;
provided, however, that the Investor hereby acknowledge and agree the issuance
and reservation for issuance of the shares of Common Stock issuable upon the
conversion of the Notes or exercise of the Warrants is subject to the receipt by
the Company of the Stockholder Approval in accordance with Section 7.7 below.
When delivered in accordance with the terms hereof, the Transaction Documents
will constitute the legal, valid and binding obligations of the Company,
enforceable against the Company in accordance with their terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability, relating to or affecting creditors’
rights generally.

 

4.3       Capitalization. Except as disclosed in the Company’s SEC Filings, the
Company does not have outstanding any options to purchase, or any preemptive
rights or other rights to subscribe for or to purchase, any securities or
obligations convertible into, or any contracts or commitments to issue or sell,
greater than 50,000 shares of its capital stock or any such options, rights,
convertible securities or obligations.

 

Except as set forth in the Company’s SEC Filings, the Company does not have
outstanding stockholder purchase rights or “poison pill” or any similar
arrangement in effect giving any Person the right to purchase any equity
interest in the Company upon the occurrence of certain events.

 

4.4       Valid Issuance. Upon receipt of the Stockholder Approval, the
Conversion Shares will be duly authorized and, when issued upon the due
conversion of the Notes, will be validly issued, fully paid and nonassessable,
and shall be free and clear of all encumbrances and restrictions (other than
those created by the Investor), except for restrictions on transfer set forth in
the Transaction Documents or imposed by applicable securities laws. Upon receipt
of the Stockholder Approval, the Warrants will be duly and validly authorized.
The Warrant Shares have been duly authorized and, when issued upon the due
exercise of the Warrants, will be validly issued, fully paid and non-assessable
free and clear of all encumbrances and restrictions, except for restrictions on
transfer set forth in the Transaction Documents or imposed by applicable
securities laws and except for those created by the Investor. From and after the
date of the receipt of the Stockholder Approval, the Company will, in its
reasonable discretion as the total number of shares of Common Stock that may be
issued upon conversion of the Notes is unknown and subject to the maximum number
of authorized shares of Common Stock available under the Company’s Certificate
of Incorporation, have reserved a sufficient number of shares of Common Stock
for issuance upon the conversion of the Notes and upon exercise of the Warrants,
free and clear of all encumbrances and restrictions, except for restrictions on
transfer set forth in the Transaction Documents or imposed by applicable
securities laws and except for those created by the Investor.

 

4.5       Consents. Assuming no exercise of the Warrants, the execution,
delivery and performance by the Company of the Transaction Documents and the
offer, issuance and sale of the Securities require no consent of, action by or
in respect of, or filing with, any Person, governmental body, agency, or
official other than the consent of the holder of the Company’s New Jersey
Economic Development Authority Bonds or filings that have been made pursuant to
applicable state securities laws and post-sale filings pursuant to applicable
state and federal securities laws and Nasdaq regulations which the Company
undertakes to file within the applicable time periods. Subject to the accuracy
of the representations and warranties of each Investor set forth in Section 5.1
hereof, the Company has taken all action necessary to exempt (i) the issuance
and sale of the Securities, (ii) the issuance of the Conversion Shares upon the
due conversion of the Notes and the issuance of the Warrant Shares upon due
exercise of the Warrants, and (iii) the other transactions contemplated by the
Transaction Documents from the provisions of any stockholder rights plan or
other “poison pill” arrangement, any anti-takeover, business combination or
control share law or statute binding on the Company or to which the Company or
any of its assets and properties may be subject and any provision of the
Company’s Certificate of Incorporation or Bylaws that is or could reasonably be
expected to become applicable to the Investor, assuming Investor’s compliance
with the stock ownership limitation provisions set forth in the Note and/or
Warrants, as a result of the transactions contemplated hereby, including without
limitation, the issuance of the Securities and the ownership, disposition or
voting of the Securities by the Investor or the exercise of any right granted to
the Investor pursuant to this Agreement or the other Transaction Documents.

 

4.6       Delivery of SEC Filings; Business. The Company has made available to
the Investor through the IDEA and EDGAR systems, true and complete copies of the
Company’s most recent Annual Report on Form 10-KSB for the fiscal year ended
December 31, 2007 (the “10-K”), and all other reports filed by the Company
pursuant to the 1934 Act, including pursuant to Section 13(a) or 15(d) thereof,
since the filing of the 10-K and prior to the date hereof (collectively, the
“SEC Filings”). With respect to any of the foregoing filings, to the extent such
filings have been amended prior to the date hereof, the term “SEC Filings” shall
be deemed to refer only to such amended versions of the filing.

 

4.7       Use of Proceeds. The net proceeds of the sale of the Notes and the
Warrants hereunder shall be used by the Company and its Subsidiaries for working
capital, capital expenditures and general corporate purposes.

 

4.8       Certain Changes. Since September 30, 2008, except as identified and
described in the SEC Filings, (i) the Company has not declared or made any
dividend or distribution of cash or other property to its stockholders or
purchased, redeemed or made any agreements to purchase or redeem any shares of
its capital stock (other than in connection with repurchases of unvested stock
issued to employees of the Company) and (ii) the Company has not issued any
equity securities to any officer, director or Affiliate, except Common Stock
issued in the ordinary course as dividends on outstanding preferred stock or
issued pursuant to existing Company stock option or stock purchase plans or
executive and director compensation arrangements disclosed in the SEC Filings.

 

4.9       SEC Filings. At the time of filing thereof, the SEC Filings complied
as to form in all material respects with the requirements of the 1934 Act and
did not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements made therein, in the
light of the circumstances under which they were made, not misleading.

 

4.10     No Conflict, Breach, Violation or Default. The execution, delivery and
performance of the Transaction Documents by the Company and the issuance and
sale of the Securities will not conflict with or result in a breach or violation
of any of the terms and provisions of, or constitute a default under (i) the
Company’s Certificate of Incorporation or the Company’s Bylaws, both as in
effect on the date hereof (true and complete copies of which have been filed
with the Commission), or (ii)(a) any statute, rule, regulation or order of any
governmental agency or body or any court, domestic or foreign, having
jurisdiction over the Company, any Subsidiary or any of their respective assets
or properties, or (b) any agreement or instrument to which the Company or any
Subsidiary is a party or by which the Company or a Subsidiary is bound or to
which any of their respective assets or properties is subject, except, in the
case of clause (ii) only, such breaches, violations or defaults that
individually or in the aggregate would not cause a Material Adverse Effect.

 

4.11     Litigation. There are no pending legal actions, suits or proceedings
against or affecting the Company, its Subsidiaries or any of its or their
properties that has had or are reasonably expected to have a Material Adverse
Effect. To the Company’s Knowledge, there has not been, and there is not
pending, any investigation by the Commission involving the Company or any
current or former director or officer of the Company. The Commission has not
issued any stop order or other order suspending the effectiveness of any
registration statement filed by the Company or any Subsidiary under the 1933 Act
or the 1934 Act.

 

4.12     Financial Statements. The financial statements included in each SEC
Filing present fairly, in all material respects, the consolidated financial
position of the Company as of the dates shown and its consolidated results of
operations and cash flows for the periods shown, and such financial statements
have been prepared in conformity with United States generally accepted
accounting principles applied on a consistent basis (“GAAP”) (except as may be
disclosed therein or in the notes thereto, and, in the case of quarterly
financial statements, as permitted by Form 10-Q under the 1934 Act); provided,
however, that the unaudited financial statements are subject to normal year-end
audit adjustments (which are not expected to be material) and do not contain all
footnotes required under GAAP.

 

4.13     NASDAQ Compliance. The Common Stock is registered pursuant to Section
12(b) of the 1934 Act and is listed on the Nasdaq Capital Market (the “Nasdaq”),
and the Company has not received any notification that the Commission, the
Nasdaq or the Financial Industry Regulatory Authority, Inc. is contemplating
terminating such registration or listing.

 

4.14     Brokers and Finders. Except with respect to fees payable to Chardan
Capital Markets, LLC, no Person will have, as a result of the transactions
contemplated by the Transaction Documents, any valid right, interest or claim
against or upon the Company, any Subsidiary or an Investor for any commission,
fee or other compensation pursuant to any agreement, arrangement or
understanding entered into by or on behalf of the Company.

 

4.15     No Directed Selling Efforts or General Solicitation. Neither the
Company nor any Person acting on its behalf has conducted any general
solicitation or general advertising (as those terms are used in Regulation D) in
connection with the offer or sale of any of the Securities.

 

4.16     No Integrated Offering. Neither the Company nor any person authorized
by the Company, nor any Person acting on its or such authorized person’s behalf
has, directly or indirectly, made any offers or sales of any Company security or
solicited any offers to buy any security, under circumstances that would
adversely affect reliance by the Company on Section 4(2) for the exemption from
registration for the transactions contemplated hereby or would require
registration of the Securities under the 1933 Act.

 

4.17     Private Placement. Assuming the accuracy of the Investor’
representations set forth in Section 5.1 hereof, the offer and sale of the
Securities to the Investor as contemplated hereby is exempt from the
registration requirements of the 1933 Act.

4.18     Reorganization. Neither the Company nor any Subsidiary has been decreed
or ordered by a court having jurisdiction adjudging the Company bankrupt or
insolvent, or approving a petition seeking reorganization, arrangement,
adjustment or composition of or in respect of the Company, under federal
bankruptcy law, as now or hereafter constituted, or any other applicable federal
or state bankruptcy, insolvency or other similar law; or the commencement
against the Company of a proceeding under the federal bankruptcy law or any
applicable federal or state bankruptcy, insolvency or similar law and the
continuance of any such proceedings; or the commencement by the Company of a
voluntary case under federal bankruptcy law, as now or hereafter constituted, or
any other applicable federal or state bankruptcy, insolvency, or other similar
law, or the consent by it to the institution of bankruptcy or insolvency
proceedings against it, or the filing by it of a petition or answer or consent
seeking reorganization or relief under federal bankruptcy law or any other
applicable federal or state law, or the consent by it to the filing of such
petition or to the appointment of a receiver, liquidator, assignee, trustee,
sequestrator or similar official of the Company or of any substantial part of
its property, or the making by it of an assignment for the benefit of creditors,
or the taking of corporate action by the Company in furtherance of any such
action.  

                    5.    
Representations, Warranties and Covenants of the Investor.
           
 

 

5.1       Representations and Warranties of the Investor. Each of the Investor
hereby severally, and not jointly, represents and warrants to the Company that:

 

(a)       Organization and Existence. The Investor is a validly existing
corporation, limited partnership or limited liability company and has all
requisite corporate, partnership or limited liability company power and
authority to invest in the Securities pursuant to this Agreement.

 

(b)       Authorization. The execution, delivery and performance by such
Investor of the Transaction Documents to which such Investor is a party have
been duly authorized and will each constitute the valid and legally binding
obligation of such Investor, enforceable against such Investor in accordance
with their respective terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general applicability,
relating to or affecting creditors’ rights generally.

 

(c)       Purchase Entirely for Own Account. The Securities to be received by
such Investor hereunder will be acquired for such Investor’s own account, not as
nominee or agent, and not with a view to the resale or distribution of any part
thereof in violation of the 1933 Act, and such Investor has no present intention
of selling, granting any participation in, or otherwise distributing the same in
violation of the 1933 Act without prejudice, however, to such Investor’s right
at all times to sell or otherwise dispose of all or any part of such Securities
in compliance with applicable federal and state securities laws. Nothing
contained herein shall be deemed a representation or warranty by such Investor
to hold the Securities for any period of time. Such Investor is not a
broker-dealer registered with the Commission under the 1934 Act or an entity
engaged in a business that would require it to be so registered.

 

(d)       Investment Experience. Such Investor acknowledges that it can bear the
economic risk and complete loss of its investment in the Securities and has such
knowledge and experience in financial or business matters that it is capable of
evaluating the merits and risks of the investment contemplated hereby.

 

(e)       Disclosure of Information. Such Investor has had an opportunity to
receive all information related to the Company requested by it and to ask
questions of and receive answers from the Company regarding the Company, its
business and the terms and conditions of the offering of the Securities. Such
Investor acknowledges receipt of copies of the SEC Filings. Neither such
inquiries nor any other due diligence investigation conducted by such Investor
shall modify, limit or otherwise affect such Investor’s right to rely on the
Company’s representations and warranties contained in this Agreement.

 

(f)        Restricted Securities; No Public Market. Such Investor understands
that the Securities have not been, and will not be, registered under the 1933
Act, by reason of a specific exemption from the registration provisions of the
1933 Act that depends upon, among other things, the bona fide nature of the
investment intent and the accuracy of the Investor’s representations as
expressed herein. Such Investor understands that such Securities are “restricted
securities” under applicable United States of America federal and state
securities laws and that, pursuant to these laws, the Investor must hold such
Securities indefinitely unless registered with the Commission and qualified by
state authorities, or an exemption from such registration and qualification
requirements is available. Such Investor further acknowledges that if an
exemption from registration or qualification is available, it may be conditioned
on various requirements including, but not limited to, the time and manner of
sale, the holding period for the Securities, and on requirements relating to the
Company that are outside of the Investor’s control, and that the Company is
under no obligation and may not be able to satisfy. Such Investor understands
that no public market now exists for any of the Securities, and that the Company
has made no assurances that a public market will ever exist for the Securities.

 

(g)       Legends. It is understood that, except as provided below, certificates
evidencing the Securities may bear the following or any similar legend:

 

(i)        “The securities represented hereby have not been registered under the
Securities Act of 1933, as amended (the “Act”) and may not be transferred unless
(A) such securities have been registered for sale pursuant to the Act, (B) such
securities may be sold without volume restriction pursuant to Rule 144, or
(C) the Company has received an opinion of counsel reasonably satisfactory to it
that such transfer may lawfully be made without registration under the Act or
qualification under applicable state securities laws.”

(ii)        “For purposes of Sections 1272, 1273, and 1275 of the United States
Internal Revenue Code of 1986, as amended, this security is issued with original
issue discount for United States Federal Income Tax purposes. The issue price,
amount of original issue discount, issue date and yield to maturity for this
security are available from the Company by telephoning the Company’s finance
department at (617) 624-0111 or by submitting a written request to: Converted
Organics, Inc., 7A Commercial Wharf West, Boston, Massachusetts 02110,
Attention: Ed Gildea.”

(iii)         If required by the authorities of any state in connection with the
issuance of sale of the Securities, the legend required by such state authority.

 

(h)       Accredited Investor. Such Investor is an accredited investor as
defined in Rule 501(a) of Regulation D, as amended, under the 1933 Act.

 

(i)        No General Solicitation. Such Investor did not learn of the
investment in the Securities as a result of any general solicitation or general
advertising.

(j)        Brokers and Finders. Except as otherwise disclosed, no Person will
have, as a result of the transactions contemplated by the Transaction Documents,
any valid right, interest or claim against or upon the Company, any Subsidiary
or an Investor for any commission, fee or other compensation pursuant to any
agreement, arrangement or understanding entered into by or on behalf of such
Investor.

 

(k)        Reliance on Exemptions. Such Investor understands that the Securities
are being offered and sold to it in reliance upon specific exemptions from the
registration requirements of the 1933 Act, the rules and regulations promulgated
thereunder and state securities laws and that the Company is relying upon the
truth and accuracy of, and the Investor’s compliance with, the representations,
warranties, agreements, acknowledgments and understandings of the Investor set
forth herein in order to determine the availability of such exemptions and the
eligibility of the Investor to acquire the Securities.

 

(l)      Investment Decision. Such Investor understands that nothing in the
Agreement or any other materials presented to such Investor in connection with
the purchase and sale of the Securities constitutes legal, tax or investment
advice. Such Investor has consulted such legal, tax and investment advisors as
it, in its sole discretion, has deemed necessary or appropriate in connection
with its purchase of the Securities. Such Investor acknowledges that it has,
independently and without reliance upon the Agents or any other Investor and
based on such documents and information as it has deemed necessary or
appropriate, made its own analysis and decision to enter into this Agreement.
Such Investor also acknowledges that it will, independently and without reliance
upon the Agents or any other Investor and based on such documents and
information as it shall from time to time deem necessary or appropriate,
continue to make its own decisions in taking or not taking action under or based
upon this Agreement or any other Transaction Document.

 

(m)       Risk of Loss. Such Investor understands that its investment in the
Securities involves a significant degree of risk, including a risk of total loss
of such Investor’s investment, and such Investor has full cognizance of and
understands all of the risk factors related to such Investor’s purchase of the
Securities, including, but not limited to, those set forth under or incorporated
by reference under the caption “Risk Factors” in the SEC Filings. Such Investor
understands that the market price of the Common Stock has been volatile and that
no representation is being made as to the future value of the Common Stock.

 

(n)       No Government Review. Such Investor understands that no United States
federal or state agency or any other government or governmental agency has
passed upon or made any recommendation or endorsement of the Securities.

 

(o)       Liquidity. Such Investor has sufficient liquid assets to fund and
fulfill its Purchase Price commitment by the Closing Date contemplated by
Section 3 hereof.

 

5.2       Voting Agreement. Each Investor hereby acknowledges that the Company
shall not be obligated to issue the Conversion Shares and the Warrant Shares
prior to receiving the Stockholder Approval. Each Investor hereby agrees if the
issuance of the Conversion Shares and Warrant Shares is submitted for
stockholder approval at any annual or special meeting of the Company’s
stockholders or by written consent, and such Investor beneficially owns any
securities of the Company entitled to vote thereon or consent thereto, then such
Investor shall (a) appear at such meeting or otherwise cause his, her or its
shares of voting securities of the Company, whether now owned or hereafter
acquired (together, the “Voting Securities”) to be counted as present thereat,
and (b) vote or to act by written consent with respect to (or cause to be voted
or acted upon by written consent), (i) all Voting Securities for which the
Investor is the record holder or beneficial owner at the time of such vote or
action by written consent and (ii) all Voting Securities as to which the
Investor at the time of such vote or action by written consent has voting
control, in each case, in favor of the issuance of the Conversion Shares and
Warrant Shares, and if solicited by the Company, such increase in the authorized
capital as may be reasonably requested by the Company. Each Investor hereby
agrees to execute such proxies, additional voting agreements, or other
instruments as may be reasonably requested by the Investor or the Company in
connection with this Section 5.2.

 

     
 
  6. Conditions to each Closing.
 
   

 

6.1       Conditions to the Investor’ Obligations. The obligation of each
Investor to purchase the Notes and the Warrants at each Closing is subject to
the fulfillment, on or prior to such Closing Date, of the following conditions:

 

(a)       The representations and warranties made by the Company in Section 4
hereof qualified as to materiality shall be true and correct in all material
respects on such Closing Date. The Company shall have performed in all material
respects all obligations and covenants herein required to be performed by it on
or prior to such Closing Date.

 

(b)       The Company is not in default under any of the Transaction Documents
for a prior Closing and an Event of Default (as defined in any of the Notes) has
not occurred.

(c) Other than the Stockholder Approval, the Company shall have obtained any and
all consents, permits, approvals, registrations and waivers necessary or
appropriate for consummation of the purchase and sale of the Securities and the
consummation of the other transactions contemplated by the Transaction
Documents, all of which shall be in full force and effect.

 

(d)       No judgment, writ, order, injunction, award or decree of or by any
court, or judge, justice or magistrate, including any bankruptcy court or judge,
or any order of or by any governmental authority, shall have been issued, and no
action or proceeding shall have been instituted by any governmental authority,
enjoining or preventing the consummation of the transactions contemplated hereby
or in the other Transaction Documents.

 

(e)       The Company shall have delivered to such Investor a Certificate,
executed on behalf of the Company by its Chief Executive Officer or its Chief
Financial Officer, dated as of such Closing Date, certifying to the fulfillment
of the conditions specified in subsections (a), (b), (c) and (g) of this
Section 6.1.

 

(f)       The Company shall have delivered to such Investor a Certificate,
executed on behalf of the Company by its Secretary, dated as of such Closing
Date, certifying the resolutions adopted by the Board of Directors of the
Company approving (i) the transactions contemplated by this Agreement and the
other Transaction Documents and (ii) the issuance of the Securities, certifying
the current versions of the Certificate of Incorporation and Bylaws of the
Company and certifying as to the signatures and authority of persons signing the
Transaction Documents and related documents on behalf of the Company.

 

(g)        No stop order or suspension of trading shall have been imposed by the
Commission or any other governmental or regulatory body with respect to public
trading in the Common Stock.

 

(h)       The Common Stock shall not have been suspended, as of such Closing
Date, by the Commission or the Principal Trading Market from trading on the
Principal Trading Market nor shall, to the Company’s Knowledge, suspension, as
of such Closing Date, by the Commission or the Principal Trading Market have
been threatened.

(i)       The Company and the Investor have entered into an agreement amending
the amendment dated January 29, 2009 to its secured convertible debentures by
and between the Company and Investor to remove the restriction preventing the
Investor from selling shares of Company common stock on any trading day in
excess of the amounts as set forth in the amendment.

(j) Oppenheimer Rochester National Municipals and Oppenheimer New Jersey
Municipal Fund shall enter into an agreement with the Company whereby they will
release to the Company an aggregate of approximately $2,000,000 from certain
escrow accounts and will agree to defer all interest owed by the Company on its
industrial revenue bonds through July 31, 2009.

                    6.2    
Conditions to Obligations of the Company.
           
 

 

(a)       Conditions to Each Closing. The Company’s obligation to sell and issue
the Notes and the Warrants at each Closing is subject to the fulfillment on or
prior to each Closing Date of the following conditions, any of which may be
waived by the Company. The representations and warranties made by such Investor
in Section 5.1 hereof shall be true and correct in all material respects when
made, and shall be true and correct in all material respects on such Closing
Date with the same force and effect as if they had been made on and as of said
date. Such Investor shall have performed in all material respects all
obligations and covenants herein required to be performed by them on or prior to
such Closing Date.     

 

(b)       Conditions to the First Closing. In addition to the satisfaction (or
waiver) of the conditions set forth in Section 6.2(a), the Company’s obligation
to sell and issue the Notes and Warrants at the First Closing is subject to the
delivery of the specified portion of the Purchase Price as set forth on
Schedule I by the Investor to the Company.

 

(c)       Conditions to the Second Closing. In addition to the satisfaction (or
waiver) of the conditions set forth in Section 6.2(a), the Company’s obligation
to sell and issue the Notes and Warrants at the Second Closing is subject to the
delivery of the specified portion of the Purchase Price as set forth on
Schedule II by the Investor to the Company.

 

(d)       Conditions to the Third Closing. In addition to the satisfaction (or
waiver) of the conditions set forth in Section 6.2(a), the Company’s obligation
to sell and issue the Notes and Warrants at the Third Closing is subject to the
delivery of the specified portion of the Purchase Price as set forth on
Schedule III by the Investor to the Company.

(d)       Conditions to the Fourth Closing. In addition to the satisfaction (or
waiver) of the conditions set forth in Section 6.2(a), the Company’s obligation
to sell and issue the Notes and Warrants at the Fourth Closing is subject to the
delivery of the specified portion of the Purchase Price as set forth on
Schedule IV by the Investor to the Company.

(d)       Conditions to the Fifth Closing. In addition to the satisfaction (or
waiver) of the conditions set forth in Section 6.2(a), the Company’s obligation
to sell and issue the Notes and Warrants at the Fifth Closing is subject to the
delivery of the specified portion of the Purchase Price as set forth on
Schedule V by the Investor to the Company.

                    7.    
Covenants and Agreements of the Company.
           
 

 

7.1       Reservation of Common Stock. From and after the date of the receipt of
the Stockholder Approval, the Company shall at all times reserve and keep
available out of its authorized but unissued shares of Common Stock, solely for
the purpose of providing for the conversion of the Notes, and the exercise of
the Warrants, such number of shares of Common Stock as shall from time to time
equal the Conversion Shares, and the Warrant Shares, as the Company in its
discretion shall believe reasonable with the understanding that the total number
of shares of Common Stock that may be issued upon conversion of the Notes is
unknown; provided that the provisions of this section are subject to the
limitations set forth in the Company’s Certificate of Incorporation as to the
maximum number of authorized shares of Common Stock available thereunder.

 

7.2       No Conflicting Agreements. The Company will not take any action, enter
into any agreement or make any commitment that would conflict with the Company’s
obligations to the Investor under the Transaction Documents in any material
respect.

 

7.3       Compliance with Laws. The Company will comply in all material respects
with all applicable laws, rules, regulations, orders and decrees of all
governmental authorities.

 

7.4       Listing of Underlying Shares and Related Matters. If the Company
applies to have its Common Stock or other securities traded on any stock
exchange or market, it shall include in such application the Conversion Shares
and the Warrant Shares and will take such other action as is necessary to cause
such Common Stock to be so listed. Following any such listing, the Company will
use commercially reasonable efforts to continue the listing and trading of its
Common Stock on such stock exchange or market and, in accordance, therewith,
will use commercially reasonable efforts to comply in all respects with the
Company’s reporting, filing and other obligations under the bylaws or rules of
such stock exchange or market, as applicable.

 

7.5       Removal of Legends. In connection with any sale or disposition of the
Securities by an Investor pursuant to and in accordance with Rule 144 or
pursuant to any other exemption under the 1933 Act such that the purchaser
acquires freely tradable shares and upon compliance by the Investor with the
requirements of this Agreement and the 1933 Act, the Company shall or, in the
case of Common Stock, shall cause the transfer agent for the Common Stock (the
“Transfer Agent”) to issue replacement certificates representing the Securities
sold or disposed of without restrictive legends. At any time when one or more of
the Securities may be freely sold, the Company shall, or shall cause the
Transfer Agent to, promptly cause the Investor’s Securities to be replaced with
Securities which do not bear restrictive legends, and Conversion Shares
subsequently issued upon the due conversion of the Notes and Warrant Shares
subsequently issued upon due exercise of the Warrants shall not bear such
restrictive legends provided such Securities may be freely sold or are covered
by an effective Registration Statement.

 

7.6       Use of Proceeds. The Company shall use the net proceeds of the sale of
the Notes and the Warrants as provided in Section 4.7.

 

7.7     Stockholder Approval. As soon as practicable following the execution of
this Agreement, but in any event within 10 calendar days thereof, the Company
shall cause to be prepared and filed with the Securities and Exchange Commission
a preliminary proxy statement or consent solicitation statement (the
“Preliminary Proxy Statement”) to obtain approval of the Company’s shareholders
of the issuance of shares of Common Stock issuable upon conversion of the Notes
and exercise of the Warrant in accordance with Nasdaq rules (the “Stockholder
Approval”). Upon approval by the Commission of such preliminary proxy or consent
solicitation statement or, if the Commission has not reviewed such, at the
expiration of 10 calendar days from the filing of the preliminary proxy
statement or consent solicitation statement, the Company shall file a definitive
proxy statement or consent solicitation statement and call and hold a
shareholder meeting, as soon as practicable, but in all events within 45
calendar days of the filing of such definitive proxy statement to obtain the
Stockholder Approval.

If the Stockholder Approval is not received on or before the later of
(a) May 15, 2010 or (b) 45 calendar days after the filing of the definitive
proxy statement, if the Commission reviews the Preliminary Proxy Statement, then
the obligation of the Investor to purchase the Notes and the Warrant shall
terminate.

7.8     Registration Rights. On or prior to the First Closing Date, the Company
shall enter into a registration rights agreement (the “Registration Rights
Agreement”) in form as attached hereto as a Transaction Document pursuant to
which the Company will agree to register the resale of the Conversion Shares,
the Warrants and the Warrant Shares under the 1933 Act.

7.9     Payment of Legal Fees. On or promptly after the date hereof, but in no
event later than 5 calendar days following the date hereof, the Company shall
deliver to Anslow & Jaclin, LLP legal fees in the amount of $50,000 pursuant to
Section 8.5, herein.

7.10 NASDAQ Listing Compliance. The Common Stock shall remain registered
pursuant to Section 12(b) of the 1934 Act and listed on the Nasdaq.  

                    8.    
Miscellaneous.
           
 

 

             
 
    8.1     Transfer and Exchange of Notes; Successors and Assigns.
 
           

 

(a)       The Notes may be assigned or transferred in whole, or in part in
increments of $25,000, as herein provided and subject to compliance with all
applicable federal and state securities laws. The Company shall maintain a
register (the “Register”) for the recordation of the names and addresses of the
Investor and the principal amounts of the Notes, which shall be numbered R-1 and
upwards in order of issuance. The entries in the Register shall be conclusive
and binding for all purposes, absent manifest error. The Notes may be assigned
or transferred, whether in whole or in part, only by registration of such
assignment or transfer on the Register. Upon surrender for registration of
transfer of any Note at the Company’s chief executive office, (i) duly endorsed
by, or accompanied by a written instrument or instruments of transfer in form
satisfactory to the Company and duly executed by the registered owner or his
attorney duly authorized in writing, and (ii) unless the assignee or transferee
is already a party to this Agreement, accompanied by a joinder agreement
satisfactory to the Company in which the assignee or transferee agrees to be
bound by this Agreement, whereupon the Company shall execute and deliver in the
name of the transferee or transferees a new Note or Notes for the principal
amount so assigned, and in the case of partial assignments and transfers, shall
issue a replacement Note to the transferor in the principal amount not so
assigned or transferred. Notes may be exchanged at said office of the Company
for a like aggregate principal amount of Notes in minimum denominations of
$25,000. The Company shall execute and deliver Notes bearing numbers not
contemporaneously then outstanding. As to any Note, the Person in whose name
such Note shall be registered shall be deemed and regarded as the absolute owner
thereof for all purposes, and payment of or on account of either principal of,
or interest on, any Note shall be made only to or upon the order of the
registered owner thereof or his legal representative, but such registration may
be changed as hereinabove provided. All such payments shall be valid and
effectual to satisfy and discharge the liability upon such Note to the extent of
the sum or sums so paid.

 

(b)       This Agreement may not be assigned by a party hereto without the prior
written consent of the Company or the Investor, as applicable; provided,
however, that an Investor may assign its rights and delegate its duties
hereunder in whole or in part to an Affiliate or to a third party acquiring some
or all of its Securities in a transaction complying with the provisions of the
Notes and applicable securities laws without the prior written consent of the
Company or the other Investor. The provisions of this Agreement shall inure to
the benefit of and be binding upon the respective permitted successors and
assigns of the parties. Nothing in this Agreement, express or implied, is
intended to confer upon any party other than the parties hereto or their
respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.

 

8.2       Counterparts; Faxes. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. This Agreement may also
be executed and transmitted via facsimile, or by portable document format via
electronic mail, each of which shall be deemed an original.

 

8.3       Titles and Subtitles. The titles and subtitles used in this Agreement
are used for convenience only and are not to be considered in construing or
interpreting this Agreement.

 

8.4       Notices. Unless otherwise provided, any notice required or permitted
under this Agreement shall be given in writing and shall be deemed effectively
given as hereinafter described (i) if given by personal delivery, then such
notice shall be deemed given upon such delivery, (ii) if given by telex or
telecopier, then such notice shall be deemed given upon receipt of confirmation
of complete transmittal, (iii) if given by mail, then such notice shall be
deemed given upon the earlier of (A) receipt of such notice by the recipient or
(B) three days after such notice is deposited in first class mail, postage
prepaid, and (iv) if given by an internationally recognized overnight air
courier, then such notice shall be deemed given one Business Day after delivery
to such carrier. All notices shall be addressed to the party to be notified at
the address as follows, or at such other address as such party may designate by
ten days’ advance written notice to the other party:

 

     
 
  If to the Company:

 

Converted Organics, Inc.
7A Commercial Wharf West
Boston, Massachusetts 02110
Attention: Ed Gildea
Phone: (617) 624-0111
Fax: (617) 625-0333

with a copy to:

 

Cozen O’Connor
The Army and Navy Building
1627 I Street, NW
Suite 1100
Washington, DC 20006
Attn: Ralph V. De Martino, Esq.
Phone: (202) 912-4830
Fax: (202) 912-4830

 

     
 
  If to the Investor:

 

Professional Offshore Opportunity Fund, Ltd.
1400 Old Country Road, Suite 206
Westbury, New York 11590
Attention: Howard Berger
Phone: (516) 228-0070
Fax: (516) 228-8083

with a copy to (which shall not constitute notice):

 

      Anslow & Jaclin, LLP 195 Route 9 South, Suite 204 Manalapan, New Jersey
07726 Attention:  
Joseph M. Lucosky, Esq.
Eric M. Stein, Esq.

Phone: (732) 409-1212
Fax: (732) 577-1188

8.5       Expenses. The parties hereto shall pay their own costs and expenses in
connection herewith, except that the Company shall pay the Investor’s legal fees
of $50,000 (which shall be paid promptly after the date hereof). Such expenses
shall be paid upon demand and receipt by the Company of supporting documentation
evidencing the expenses. The Company shall reimburse the Investor upon demand
for the reasonable attorneys’ fees for one law firm representing the Investor as
a group, in connection with any amendment, modification or waiver of this
Agreement or the other Transaction Documents. In the event that legal
proceedings are commenced by any party to this Agreement against another party
to this Agreement in connection with this Agreement or the other Transaction
Documents, the party or parties which do not prevail in such proceedings shall
severally, but not jointly, pay their pro rata share of the reasonable
attorneys’ fees and other reasonable out-of-pocket costs and expenses incurred
by the prevailing party in such proceedings.

 

8.6       Amendments and Waivers. Any term of this Agreement may be amended and
the observance of any term of this Agreement may be waived (either generally or
in a particular instance and either retroactively or prospectively), only with
the written consent of the Company and the Investor. Any amendment or waiver
effected in accordance with this paragraph shall be binding upon each holder of
any Securities issued under this Agreement at the time outstanding, each future
holder of all such Securities, and the Company.

 

8.7       Publicity. Except as set forth below, no public release or
announcement concerning the transactions contemplated hereby shall be issued by
the Company or the Investor without the prior consent of the Company (in the
case of a release or announcement by the Investor) or the Investor (in the case
of a release or announcement by the Company) (which consents shall not be
unreasonably withheld), except as such release or announcement may be required
by law or the applicable rules or regulations of any securities exchange or
securities market, in which case the Company or the Investor, as the case may
be, shall allow the Investor or the Company, as applicable, to the extent
reasonably practicable in the circumstances, reasonable time to comment on such
release or announcement in advance of such issuance. As soon as practicable but
no later than four Business Days following the First Closing Date, the Company
will publicly disclose the transactions contemplated hereby in a press release
and, in connection therewith, will, no later than four Business Days following
the First Closing Date, file with the Commission either on a Current Report on
Form 8-K or on the Company’s next periodic public report, to the extent
permissible, which may attach as exhibits copies of the Transaction Documents.

 

8.8       Severability. Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof but shall be interpreted as if it were written so as
to be enforceable to the maximum extent permitted by applicable law, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction. To the extent
permitted by applicable law, the parties hereby waive any provision of law which
renders any provision hereof prohibited or unenforceable in any respect.

 

8.9       Entire Agreement. This Agreement, including the Exhibits, and the
other Transaction Documents constitute the entire agreement among the parties
hereof with respect to the subject matter hereof and thereof and supersede all
prior agreements and understandings, both oral and written, between the parties
with respect to the subject matter hereof and thereof.

 

8.10     Further Assurances. The parties shall execute and deliver all such
further instruments and documents and take all such other actions as may
reasonably be required to carry out the transactions contemplated hereby and to
evidence the fulfillment of the agreements herein contained.

 

8.11     Governing Law; Consent to Jurisdiction; Waiver of Jury Trial. This
Agreement shall be governed by, and construed in accordance with, the internal
laws of the State of New York without regard to any law or principles that would
make this choice of law provision invalid. Each of the parties hereto
irrevocably submits to the exclusive jurisdiction of the courts of the State of
New York located in New York County and the United States District Court for the
Southern District of New York for the purpose of any suit, action, proceeding or
judgment relating to or arising out of this Agreement and the transactions
contemplated hereby. Service of process in connection with any such suit, action
or proceeding may be served on each party hereto anywhere in the world by the
same methods as are specified for the giving of notices under this Agreement.
Each of the parties hereto irrevocably consents to the jurisdiction of any such
court in any such suit, action or proceeding and to the laying of venue in such
court. Each party hereto irrevocably waives any objection to the laying of venue
of any such suit, action or proceeding brought in such courts and irrevocably
waives any claim that any such suit, action or proceeding brought in any such
court has been brought in an inconvenient forum. EACH OF THE PARTIES HERETO
WAIVES ANY RIGHT TO REQUEST A TRIAL BY JURY IN ANY LITIGATION WITH RESPECT TO
THIS AGREEMENT AND REPRESENTS THAT COUNSEL HAS BEEN CONSULTED SPECIFICALLY AS TO
THIS WAIVER.

 

8.12     Payment Set Aside. To the extent that the Company makes a payment or
payments to any Investor pursuant to any Transaction Document or an Investor
enforces or exercises its rights thereunder, and such payment or payments or the
proceeds of such enforcement or exercise or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside, recovered
from, disgorged by or are required to be refunded, repaid or otherwise restored
to the Company, a trustee, receiver or any other person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.

 

8.13     Adjustments in Share Numbers and Prices. In the event of any stock
split, subdivision, dividend or distribution payable in shares of Common Stock
(or other securities or rights convertible into, or entitling the holder thereof
to receive directly or indirectly shares of Common Stock), combination or other
similar recapitalization or event occurring after the date hereof and prior to
the First Closing, each reference in any Transaction Document to a number of
shares or a price per share shall be deemed to be amended to appropriately
account for such event.

 

8.14     Independent Nature of Investor’ Obligations and Rights. The obligations
of each Investor under any Transaction Document are several and not joint with
the obligations of any other Investor, and no Investor shall be responsible in
any way for the performance of the obligations of any other Investor under any
Transaction Document. The decision of each Investor to purchase Securities
pursuant to the Transaction Documents has been made by such Investor
independently of any other Investor. Nothing contained herein or in any
Transaction Document, and no action taken by any Investor pursuant thereto,
shall be deemed to constitute the Investor as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the
Investor are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by the Transaction Documents. Each
Investor acknowledges that no other Investor has acted as agent for such
Investor in connection with making its investment hereunder and that no Investor
will be acting as agent of such Investor in connection with monitoring its
investment in the Securities or enforcing its rights under the Transaction
Documents. Each Investor shall be entitled to independently protect and enforce
its rights, including, without limitation, the rights arising out of this
Agreement or out of the other Transaction Documents, and it shall not be
necessary for any other Investor to be joined as an additional party in any
proceeding for such purpose. The Company acknowledges that each of the Investor
has been provided with the same Transaction Documents for the purpose of closing
a transaction with multiple Investor and not because it was required or
requested to do so by any Investor.

8.15     Tax Matters. For United States Federal income tax purposes, the Company
and the Investor agree (i) to treat the Notes as indebtedness and (ii) to treat
the Notes as having been issued for an aggregate purchase price of $1,500,000
and with an original issue discount which shall be amortized pursuant to the
terms of the Note. If the Company shall be required to withhold or deduct any
tax or other governmental charge from any payment made hereunder or under any
Note to the Investor, then, subject to the last sentence of this Section, the
Company shall pay to the Investor such additional amounts as are necessary such
that the Investor actually receives the amount the Investor would have received
if no such withholding or deduction had been required. If the Investor is
organized under the laws of a jurisdiction other than the United States, any
State thereof or the District of Columbia (a “Non-United States Buyer”), the
Investor shall deliver to the Company either (a) two (2) copies of either United
States Internal Revenue Service Form W-8BEN or Form W-8ECI, or (b) if the
Investor claims exemption from United States Federal withholding tax under
Section 871(h) or 881(c) of the Internal Revenue Code of 1986, as amended, and
the rules and regulations promulgated thereunder (the “Code”) with respect to
payments of “portfolio interest”, a certificate in form and substance reasonably
acceptable to the Company representing that such Non-United States Buyer is not
a bank for purposes of Section 881(c) of the Code, is not a ten percent
(10%) shareholder (within the meaning of Section 871(h)(3)(B) of the Code) of
the Company and is not a controlled foreign corporation related to the Company
(within the meaning of Section 864(d)(4) of the Code), together with Internal
Revenue Service Form W-8, in all cases, such forms and other documents being
properly completed and duly executed by the Investor. If the Investor is not
otherwise exempt from “back-up withholding” it shall deliver to the Company
properly completed and duly executed Internal Revenue Service Form W-8 or W-9
indicating that the Investor is subject to “back-up withholding” for United
States Federal income tax purposes. The forms and other documents required to be
delivered pursuant to the two preceding sentences shall be delivered within ten
(10) days after the Closing Date. The Company shall not be required to pay any
additional amounts (x) to the Investor, in respect of United States Federal
withholding tax or (y) to the Investor, if a United States entity, in respect of
United States Federal “back-up withholding” tax.

 

[REMAINDER OF PAGE LEFT BLANK]

 

1

[SIGNATURE PAGE TO PURCHASE AGREEMENT]

IN WITNESS WHEREOF, the parties have executed this Agreement or caused their
duly authorized officers to execute this Agreement as of the date first above
written.

 

          The Company:   Converted Organics, Inc.
   
By:
       
 
        Name: Ed Gildea
    Title: President and Chief Executive Officer

 

 

          The Investor:   Professional Offshore Opportunity Fund, Ltd.
     
   
By:
       
 
        Name: Howard Berger
    Title: Manager

 

2

SCHEDULE I

   

                                 
 
          Purchase Price   Principal Amount of        
 
          After Original   Notes (includes   Number of Warrant
Investor
  Purchase Price
  Issue Discount
  pre-paid interest)
  Shares

 
                               
Professional
  $ 500,000   $ 500,000   $ 550,000   571,102
Offshore Opportunity Fund, Ltd.
                               
 
                               
Total
  $ 500,000   $ 500,000   $ 550,000   571,102
 
                               

 

SCHEDULE II

   

                                 
 
          Purchase Price   Principal Amount of        
 
  Original Purchase   After Original   Notes (includes   Number of Warrant
Investor
  Price
  Issue Discount
  pre-paid interest)
  Shares

 
                               
Professional
  $ 250,000   $ 250,000   $ 275,000   285,551
Offshore Opportunity Fund, Ltd.
                               
 
                               
Total
  $ 250,000   $ 250,000   $ 275,000   285,551
 
                               

 

SCHEDULE III

   

                                 
 
          Purchase Price   Principal Amount of        
 
  Original Purchase   After Original   Notes (includes   Number of Warrant
Investor
  Price
  Issue Discount
  pre-paid interest)
  Shares

 
                               
Professional
  $ 250,000   $ 250,000   $ 275,000   285,551
Offshore Opportunity Fund, Ltd.
                               
 
                               
Total
  $ 250,000   $ 250,000   $ 275,000   285,551
 
                               

   

SCHEDULE IV

   

                                 
 
          Purchase Price   Principal Amount of        
 
  Original Purchase   After Original   Notes (includes   Number of Warrant
Investor
  Price
  Issue Discount
  pre-paid interest)
  Shares

 
                               
Professional
  $ 250,000   $ 250,000   $ 275,000   285,551
Offshore Opportunity Fund, Ltd.
                               
 
                               
Total
  $ 250,000   $ 250,000   $ 275,000   285,551
 
                               

 

 .

3

SCHEDULE V

   

                                 
 
          Purchase Price   Principal Amount of        
 
  Original Purchase   After Original   Notes (includes   Number of Warrant
Investor
  Price
  Issue Discount (1)
  pre-paid interest)
  Shares

 
                               
Professional
  $ 250,000   $ 100,000   $ 275,000   285,551
Offshore Opportunity Fund, Ltd.
                               
 
                               
Total
  $ 250,000   $ 100,000   $ 275,000   285,551
 
                               

(1) Includes Original Issue Discount for all prior Closings.

 

4