Document:

EX-10.1

SUBSCRIPTION AGREEMENT

THIS SUBSCRIPTION AGREEMENT (this “Agreement”), is dated as of September 14, 2009, by and
between Converted Organics Inc., a Delaware corporation (the “Company”), and Iroquois Master Fund
Ltd. (“Subscriber”).

WHEREAS, the Company and the Subscriber are executing and delivering this Agreement in
reliance upon an exemption from securities registration afforded by the provisions of Section 4(2),
Section 4(6) and/or Regulation D (“Regulation D”) as promulgated by the United States Securities
and Exchange Commission (the “Commission”) under the Securities Act of 1933, as amended (the “1933
Act”).

WHEREAS, the parties desire that, upon the terms and subject to the conditions contained
herein, the Company shall issue and sell to the Subscriber, as provided herein, and the Subscriber
shall purchase for $1,400,000 (the “Purchase Price”) (i) a secured promissory note in the principal
amount of $1,540,000 (“Note”), a form of which is annexed hereto as Exhibit A, convertible into
shares of the Company’s common stock, $.0001 par value (the “Common Stock”), at a per share
conversion price set forth in the Note (“Conversion Price”), and (ii) share purchase warrants (the
“Warrants”) in the form attached hereto as Exhibit B, to purchase shares of the Company’s Common
Stock (the “Warrant Shares”) (the “Offering”). The Note, the shares of Common Stock issuable upon
conversion of the Notes (the “Conversion Shares”), the Warrants, and the Warrant Shares are
collectively referred to herein as the “Securities”; and

WHEREAS, the aggregate proceeds of the sale of the Note contemplated hereby shall be held in
escrow pursuant to the terms of a Funds Escrow Agreement to be executed by the parties
substantially in the form attached hereto as Exhibit C (the “Escrow Agreement”).

NOW, THEREFORE, in consideration of the mutual covenants and other agreements contained in
this Agreement the Company and the Subscriber hereby agree as follows:

1. Closing Date. The “Closing Date” shall be the date that the Purchase Price is
transmitted by wire transfer or otherwise credited to or for the benefit of the Company. The
consummation of the transactions contemplated herein shall take place at the offices of Grushko &
Mittman, P.C., 551 Fifth Avenue, Suite 1601, New York, New York 10176, upon the satisfaction or
waiver of all conditions to closing set forth in this Agreement. Subject to the satisfaction or
waiver of the terms and conditions of this Agreement, on the Closing Date, Subscriber shall
purchase for the Purchase Price and the Company shall sell to Subscriber a Note in the Principal
Amount of $1,540,000 and Warrants as described in Section 2 of this Agreement.

2. Notes and Warrants.

(a) Notes. Subject to the satisfaction or waiver of the terms and conditions of this
Agreement, on the Closing Date, Subscriber shall purchase and the Company shall sell to the
Subscriber a Note in the Principal Amount designated on the signature page hereto for Subscriber’s
Purchase Price indicated thereon.

(b) Warrants. On the Closing Date, the Company will issue and deliver an aggregate of
2,500,000 Class G Warrants to the Subscriber. The exercise price to acquire a Warrant Share upon
exercise of a Warrant shall be equal to $1.25, subject to reduction as described in the Warrants.
The Warrants shall be exercisable until five (5) years after the issue date of the Warrants.

(c) Allocation of Purchase Price. The Purchase Price will be allocated among the
components of the Securities so that each component of the Securities will be fully paid and
non-assessable.

3. Security Interest. The Subscriber will be granted a security interest in the
assets of the Company and Subsidiaries (as defined in Section 5(a) of this Agreement), including
ownership of the Subsidiaries and in the assets of the Subsidiaries, which security interest will
be memorialized in a “Security Agreement,” a form of which is annexed hereto as Exhibit D. The
Subsidiaries will guaranty the Company’s obligations under the Transaction Documents as defined in
Section 5(c). Such guaranties will be memorialized in a “Subsidiary Guaranty”, the form of which
is annexed hereto as Exhibit E. The Company will execute such other agreements, documents and
financing statements reasonably requested by the Subscribers, which will be filed at the Company’s
expense with the jurisdictions, states and counties designated by the Subscriber.

4. Subscriber Representations and Warranties. Subscriber hereby represents and
warrants to and agrees with the Company that:

(a) Organization and Standing of the Subscriber. Subscriber is a corporation duly
incorporated, validly existing and in good standing under the laws of the jurisdiction of its
incorporation.

(b) Authorization and Power. Subscriber has the requisite power and authority to
enter into and perform this Agreement and the other Transaction Documents and to purchase the Note
being sold to it hereunder. The execution, delivery and performance of this Agreement and the
other Transaction Documents by Subscriber and the consummation by it of the transactions
contemplated hereby and thereby have been duly authorized by all necessary corporate action, and no
further consent or authorization of Subscriber or its Board of Directors or stockholders is
required. This Agreement and the other Transaction Documents have been duly authorized, executed
and when delivered by Subscriber and constitute, or shall constitute when executed and delivered, a
valid and binding obligation of Subscriber enforceable against Subscriber in accordance with the
terms thereof.

(c) No Conflicts. The execution, delivery and performance of this Agreement and the
other Transaction Documents and the consummation by Subscriber of the transactions contemplated
hereby and thereby or relating hereto do not and will not (i) result in a violation of Subscriber’s
charter documents, bylaws or other organizational documents, (ii) conflict with nor constitute a
default (or an event which with notice or lapse of time or both would become a default) under, nor
(iii) result in a violation of any law, rule, or regulation, or any order, judgment or decree of
any court or governmental agency applicable to Subscriber or its properties (except for such
conflicts, defaults and violations as would not, individually or in the aggregate, have a material
adverse effect on Subscriber). Subscriber is not required to obtain any consent, authorization or
order of, or make any filing or registration with, any court or governmental agency in order for it
to execute, deliver or perform any of its obligations under this Agreement and the other
Transaction Documents nor to purchase the Securities in accordance with the terms hereof, provided
that for purposes of the representation made in this sentence, Subscriber is assuming and relying
upon the accuracy of the relevant representations and agreements of the Company herein.

(d) Information on Company. Subscriber has been furnished with or has had access at
the EDGAR Website of the Commission to the Company’s Form 10-K filed on March 30, 2009 for the
fiscal year ended December 31, 2008, and the financial statements included therein for the year
ended December 31, 2008, together with the definitive proxy statement on Schedule 14A filed April
30, 2009 and all filings made subsequent to the Form 10-K with the Commission available at the
EDGAR website until five days before the Closing Date (hereinafter referred to collectively as the
"Reports”). In addition, Subscriber has been provided the opportunity to ask questions of Company
management as Subscriber deems necessary, and Subscriber has considered all factors Subscriber
deems material in deciding on the advisability of investing in the Securities.

(e) Information on Subscriber. Subscriber is, and will be at the time of the
purchase of the Note and exercise of the Warrants, an “accredited investor”, as such term is
defined in Regulation D promulgated by the Commission under the 1933 Act, is experienced in
investments and business matters, has made investments of a speculative nature and has purchased
securities of United States publicly-owned companies in private placements in the past and, with
its representatives, has such knowledge and experience in financial, tax and other business matters
as to enable Subscriber to utilize the information made available by the Company to evaluate the
merits and risks of and to make an informed investment decision with respect to the proposed
purchase, which represents a speculative investment. Subscriber has the authority and is duly and
legally qualified to purchase and own the Securities. Subscriber is able to bear the risk of such
investment for an indefinite period and to afford a complete loss thereof. The information set
forth on the signature page hereto regarding Subscriber is accurate.

(f) Purchase of Note and Warrants. On the Closing Date, Subscriber will purchase the
Note and Warrants as principal for its own account for investment only and not with a view toward,
or for resale in connection with, the public sale or any distribution thereof.

(g) Compliance with Securities Act. Subscriber understands and agrees that the
Securities have not been registered under the 1933 Act or any applicable state securities laws, by
reason of their issuance in a transaction that does not require registration under the 1933 Act
(based in part on the accuracy of the representations and warranties of the Subscriber contained
herein), and that such Securities must be held indefinitely unless a subsequent disposition is
registered under the 1933 Act or any applicable state securities laws or is exempt from such
registration. In any event, and subject to compliance with applicable securities laws, the
Subscriber may enter into lawful hedging transactions in the course of hedging the position they
assume and the Subscriber may also enter into lawful short positions or other derivative
transactions relating to the Securities, or interests in the Securities, and deliver the
Securities, or interests in the Securities, to close out their short or other positions or
otherwise settle other transactions, or loan or pledge the Securities, or interests in the
Securities, to third parties who in turn may dispose of these Securities.

(h) Conversion Shares and Warrant Shares Legend. The Conversion Shares and Warrant
Shares shall bear the following or similar legend:

"THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, NOR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY
NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE
ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF
COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A
GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER
SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER
SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE
PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR
FINANCING ARRANGEMENT SECURED BY THE SECURITIES.”

(i) Note and Warrant Legend. The Note and Warrant shall bear the
following legend:

” NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
[EXERCISABLE] HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY
NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE
ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF
COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A
GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER
SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER
SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE
PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR
FINANCING ARRANGEMENT SECURED BY THE SECURITIES.”

(j) Communication of Offer. The offer to sell the Securities was directly
communicated to Subscriber by the Company. At no time was Subscriber presented with or solicited
by any leaflet, newspaper or magazine article, radio or television advertisement, or any other form
of general advertising or solicited or invited to attend a promotional meeting otherwise than in
connection and concurrently with such communicated offer.

(k) Restricted Securities. Subscriber understands that the Securities have not been
registered under the 1933 Act and Subscriber will not sell, offer to sell, assign, pledge,
hypothecate or otherwise transfer any of the Securities unless pursuant to an effective
registration statement under the 1933 Act, or unless an exemption from registration is available.
Notwithstanding anything to the contrary contained in this Agreement, Subscriber may transfer
(without restriction and without the need for an opinion of counsel) the Securities to its
Affiliates (as defined below) provided that each such Affiliate is an “accredited investor” under
Regulation D and such Affiliate agrees in writing to be bound by the terms and conditions of this
Agreement. For the purposes of this Agreement, an “Affiliate” of any person or entity means any
other person or entity directly or indirectly controlling, controlled by or under direct or
indirect common control with such person or entity. Affiliate includes each Subsidiary of the
Subscriber. For purposes of this definition, “control” means the power to direct the management
and policies of such person or firm, directly or indirectly, whether through the ownership of
voting securities, by contract or otherwise.

(l) No Governmental Review. Subscriber understands that no United States federal or
state agency or any other governmental or state agency has passed on or made recommendations or
endorsement of the Securities or the suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the Securities.

(m) Correctness of Representations. Subscriber represents that the foregoing
representations and warranties are true and correct as of the date hereof and, unless Subscriber
otherwise notifies the Company prior to the Closing Date shall be true and correct as of the
Closing Date.

(n) Survival. The foregoing representations and warranties shall survive the Closing
Date.

5. Company Representations and Warranties. The Company represents and warrants to and
agrees with each Subscriber that:

(a) Due Incorporation. The Company is a corporation or other entity duly incorporated
or organized, validly existing and in good standing under the laws of the jurisdiction of its
incorporation or organization and has the requisite corporate power to own its properties and to
carry on its business as presently conducted. The Company is duly qualified as a foreign
corporation to do business and is in good standing in each jurisdiction where the nature of the
business conducted or property owned by it makes such qualification necessary, other than those
jurisdictions in which the failure to so qualify would not have a Material Adverse Effect. For
purposes of this Agreement, a “Material Adverse Effect” shall mean a material adverse effect on the
financial condition, results of operations, prospects, properties or business of the Company and
its Subsidiaries taken as a whole, other than as a result of changes resulting from the execution
by the Company of the Transaction Documents. For purposes of this Agreement, “Subsidiary” means,
with respect to any entity at any date, any corporation, limited or general partnership, limited
liability company, trust, estate, association, joint venture or other business entity of which more
than 30% of (i) the outstanding capital stock having (in the absence of contingencies) ordinary
voting power to elect a majority of the board of directors or other managing body of such entity,
(ii) in the case of a partnership or limited liability company, the interest in the capital or
profits of such partnership or limited liability company or (iii) in the case of a trust, estate,
association, joint venture or other entity, the beneficial interest in such trust, estate,
association or other entity business is, at the time of determination, owned or controlled directly
or indirectly through one or more intermediaries, by such entity. As of the Closing Date, all of
the Company’s Subsidiaries and the Company’s ownership interest thereof is set forth on Schedule
5(a).

(b) Outstanding Stock. All issued and outstanding shares of capital stock and equity
interests in the Company have been duly authorized and validly issued and are fully paid and
non-assessable.

(c) Authority; Enforceability. This Agreement, the Note, Warrant, the Security
Agreement, Subsidiary Guaranty, the Escrow Agreement, and any other agreements delivered together
with this Agreement or in connection herewith (collectively “Transaction Documents”) have been duly
authorized, executed and delivered by the Company and are valid and binding agreements of the
Company enforceable 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 and to general principles of equity. The Company has full
corporate power and authority necessary to enter into and deliver the Transaction Documents and to
perform its obligations thereunder.

(d) Capitalization and Additional Issuances. The authorized and outstanding capital
stock of the Company and Subsidiaries on a fully diluted basis as of the date of this Agreement and
the Closing Date (not including the Securities) are set forth on Schedule 5(d). Except as set
forth on Schedule 5(d), there are no options, warrants, or rights to subscribe to, securities,
rights, understandings or obligations convertible into or exchangeable for or giving any right to
subscribe for any shares of capital stock or other equity interest of the Company or any of the
Subsidiaries. The only officer, director, employee and consultant stock option or stock incentive
plan or similar plan currently in effect or contemplated by the Company is described on Schedule
5(d). There are no outstanding agreements for preemptive or similar rights affecting the Company’s
Common Stock.

(e) Consents. No consent, approval, authorization or order of any court, governmental
agency or body or arbitrator having jurisdiction over the Company, or any of its Affiliates, the
Nasdaq Capital Market (the “Nasdaq Capital Market”) or the Company’s shareholders is required for
the execution by the Company of the Transaction Documents and compliance and performance by the
Company of its obligations under the Transaction Documents, including, without limitation, the
issuance and sale of the Securities, provided that the Company will be required to submit a Listing
of Additional Shares application to the Nasdaq Stock Market in connection with the shares
underlying the Warrant. The Transaction Documents and the Company’s performance of its obligations
thereunder has been unanimously approved by the Company’s Board of Directors. No consent,
approval, order or authorization of, or registration, qualification, designation, declaration or
filing with, any governmental authority in the world, including without limitation, the United
States, or to the knowledge of the Company elsewhere is required by the Company or any Affiliate of
the Company in connection with the consummation of the transactions contemplated by this Agreement,
except as would not otherwise have a Material Adverse Effect or the consummation of any of the
other agreements, covenants or commitments of the Company or any Subsidiary contemplated by the
other Transaction Documents. Any such qualifications and filings will, in the case of
qualifications, be effective on the Closing and will, in the case of filings, be made within the
time prescribed by law.

(f) No Violation or Conflict. Assuming the representations and warranties of the
Subscriber in Section 4 are true and correct, neither the issuance and sale of the Securities nor
the performance of the Company’s obligations under this Agreement and all other agreements entered
into by the Company relating thereto by the Company will:

(i) violate, conflict with, result in a breach of, or constitute a default (or an event which
with the giving of notice or the lapse of time or both would be reasonably likely to constitute a
default) under (A) the articles or certificate of incorporation, charter or bylaws of the Company,
(B) to the Company’s knowledge, any decree, judgment, order, law, treaty, rule, regulation or
determination applicable to the Company of any court, governmental agency or body, or arbitrator
having jurisdiction over the Company or over the properties or assets of the Company or any of its
Affiliates, (C) the terms of any bond, debenture, note or any other evidence of indebtedness, or
any agreement, stock option or other similar plan, indenture, lease, mortgage, deed of trust or
other instrument to which the Company or any of its Affiliates is a party, by which the Company or
any of its Affiliates is bound, or to which any of the properties of the Company or any of its
Affiliates is subject, or (D) the terms of any “lock-up” or similar provision of any underwriting
or similar agreement to which the Company, or any of its Affiliates is a party, except with respect
to each of the foregoing the violation, conflict, breach, or default of which would not have a
Material Adverse Effect and except for such agreements for which the Company is required to obtain
consent to complete the Offering, provided the Company actually obtains such consent prior to the
Closing; or

(ii) result in the creation or imposition of any lien, charge or encumbrance upon the
Securities or any of the assets of the Company or any of its Affiliates except in favor of
Subscriber as described herein; or

(iii) result in the activation of any anti-dilution rights or a reset or repricing of any
debt, equity or security instrument of any creditor or equity holder of the Company, or the holder
of the right to receive any debt, equity or security instrument of the Company nor result in the
acceleration of the due date of any obligation of the Company; or

(iv) result in the triggering of any piggy-back or other registration rights of any person or
entity holding securities of the Company or having the right to receive securities of the Company.

(g) The Securities. The Securities upon issuance:

(i) are, or will be, free and clear of any security interests, liens, claims or other
encumbrances, subject only to restrictions upon transfer under the 1933 Act and any applicable
state securities laws;

(ii) have been, or will be, duly and validly authorized and on the dates of issuance of the
Conversion Shares upon conversion of the Notes, and Warrant Shares upon exercise of the Warrant,
such Conversion Shares and Warrant Shares will be duly and validly issued, fully paid and
non-assessable and if registered pursuant to the 1933 Act and resold pursuant to an effective
registration statement or if resold pursuant to an exemption from registration, upon such sale the
shares will be free trading, unrestricted and unlegended;

(iii) will not have been issued or sold in violation of any preemptive or other similar rights
of the holders of any securities of the Company or rights to acquire securities of the Company;

(iv) will not subject the holders thereof to personal liability by reason of being such
holders; and

(v) assuming the representations warranties of the Subscribers as set forth in Section 4
hereof are true and correct, will not result in a violation of Section 5 under the 1933 Act.

(h) Litigation. Except as disclosed in the Reports, there is no pending or, to the
best knowledge of the Company, threatened action, suit, proceeding or investigation before any
court, governmental agency or body, or arbitrator having jurisdiction over the Company, or any of
its Affiliates that would affect the execution by the Company or the complete and timely
performance by the Company of its obligations under the Transaction Documents. Except as disclosed
in the Reports, there is no pending or, to the best knowledge of the Company, basis for or
threatened action, suit, proceeding or investigation before any court, governmental agency or body,
or arbitrator having jurisdiction over the Company, or any of its Affiliates which litigation if
adversely determined would have a Material Adverse Effect.

(i) No Market Manipulation. The Company and its Affiliates have not taken, and will
not take, directly or indirectly, any action designed to, or that might reasonably be expected to,
cause or result in stabilization or manipulation of the price of the Common Stock to facilitate the
sale or resale of the Securities or affect the price at which the Securities may be issued or
resold.

(j) Information Concerning Company. The Reports contain all material information
relating to the Company and its operations and financial condition as of their respective dates
which information is required to be disclosed therein. Since December 31, 2008 and except as
disclosed in the Reports or modified in the Schedules hereto, there has been no Material Adverse
Event relating to the Company’s business, financial condition or affairs. The Reports including the
financial statements included therein do not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make the statements
therein, taken as a whole, not misleading in light of the circumstances and when made.

(k) Solvency. Based on the financial condition of the Company as of the Closing Date,
(i) the Company’s book value of its assets exceeds the amount that will be required to be paid on
or in respect of the Company’s existing debts and other liabilities (including known contingent
liabilities); and (ii) the current cash flow of the Company, together with the proceeds the Company
would receive, were it to liquidate all of its assets at book value, after taking into account all
anticipated uses of the cash, would be sufficient to pay all amounts on or in respect of its debt
when such amounts are required to be paid.

(l) Defaults. The Company is not in violation of its articles of incorporation or
bylaws. Except as set forth in the Reports and identified as events that could adversely effect
the Company in the Reports, the Company is (i) not in default under or in violation of any other
material agreement or instrument to which it is a party or by which it or any of its properties are
bound or affected, which default or violation would have a Material Adverse Effect, (ii) not in
default with respect to any order of any court, arbitrator or governmental body or subject to or
party to any order of any court or governmental authority arising out of any action, suit or
proceeding under any statute or other law respecting antitrust, monopoly, restraint of trade,
unfair competition or similar matters, or (iii) not in violation of any statute, rule or regulation
of any governmental authority which violation would have a Material Adverse Effect.

(m) No Integrated Offering. Neither the Company, nor any of its Affiliates, nor any
person acting on its or their behalf, has directly or indirectly made any offers or sales of any
security of the Company nor solicited any offers to buy any security of the Company under
circumstances that would cause the offer of the Securities pursuant to this Agreement to be
integrated with prior offerings by the Company for purposes of the 1933 Act, except for such offers
which would not result in a violation of the 1933 Act if such offers were integrated with the offer
of the Securities, or any applicable stockholder approval provisions, including, without
limitation, under the rules and regulations of the Bulletin Board. No prior offering will impair
the exemptions relied upon in this Offering or the Company’s ability to timely comply with its
obligations hereunder. Neither the Company nor any of its Affiliates will take any action or steps
that would cause the offer or issuance of the Securities to be integrated with other offerings
which would impair the exemptions relied upon in this Offering or the Company’s ability to timely
comply with its obligations hereunder.

(n) No General Solicitation. Neither the Company, nor any of its Affiliates, nor to
its knowledge, any person acting on its or their behalf, has engaged in any form of general
solicitation or general advertising (within the meaning of Regulation D under the 1933 Act) in
connection with the offer or sale of the Securities.

(o) No Undisclosed Liabilities. The Company has no liabilities or obligations which
are material, individually or in the aggregate, other than those incurred in the ordinary course of
the Company’s business since June 30, 2009 and which, individually or in the aggregate, would
reasonably be expected to have a Material Adverse Effect, except as disclosed in the Reports or on
Schedule 5(o).

(p) No Undisclosed Events or Circumstances. Since June 30, 2009, except as disclosed
in the Reports, no event or circumstance has occurred or exists with respect to the Company or its
businesses, properties, operations or financial condition, that, under applicable law, rule or
regulation, requires public disclosure or announcement prior to the date hereof by the Company but
which has not been so publicly announced or disclosed in the Reports.

(q) Banking. Schedule 5(q) contains a list of all financial institutions at which
the Company and Subsidiaries maintains deposit, checking and other accounts. The list includes the
accurate addresses of such financial institution.

(r) Dilution. The Company’s executive officers and directors understand the nature
of the Securities being sold hereby and recognize that the issuance of the Securities will have a
potential dilutive effect on the equity holdings of other holders of the Company’s equity or rights
to receive equity of the Company. The board of directors of the Company has concluded, in its good
faith business judgment that the issuance of the Securities is in the best interests of the
Company. The Company specifically acknowledges that its obligation to issue the Warrant Shares
upon exercise of the Warrant is binding upon the Company and enforceable regardless of the dilution
such issuance may have on the ownership interests of other shareholders of the Company or parties
entitled to receive equity of the Company.

(s) No Disagreements with Accountants and Lawyers. There are no material
disagreements of any kind presently existing, or reasonably anticipated by the Company to arise
between the Company and the accountants and lawyers previously and presently employed by the
Company, including but not limited to disputes or conflicts over payment owed to such accountants
and lawyers, nor have there been any such disagreements during the two years prior to the Closing
Date.

(t) Investment Company. Neither the Company nor any Affiliate of the Company is an
“investment company” within the meaning of the Investment Company Act of 1940, as amended.

(u) Foreign Corrupt Practices. Neither the Company, nor to the knowledge of the
Company, any agent or other person acting on behalf of the Company, has (i) directly or indirectly,
used any funds for unlawful contributions, gifts, entertainment or other unlawful expenses related
to foreign or domestic political activity, (ii) made any unlawful payment to foreign or domestic
government officials or employees or to any foreign or domestic political parties or campaigns from
corporate funds, (iii) failed to disclose fully any contribution made by the Company (or made by
any person acting on its behalf of which the Company is aware) which is in violation of law, or
(iv) violated in any material respect any provision of the Foreign Corrupt Practices Act of 1977,
as amended.

(v) Reporting Company/Shell Company. The Company is a publicly-held company subject
to reporting obligations pursuant to Section 13 of the Securities Exchange Act of 1934, as amended
(the “1934 Act”) and has a class of Common Stock registered pursuant to Section 12(b) of the 1934
Act. Pursuant to the provisions of the 1934 Act, the Company has filed all reports and other
materials required to be filed thereunder with the Commission during the preceding twelve months.
As of the Closing Date, the Company is not a “shell company” as that term are employed in Rule 144
under the 1933 Act.

(w) Listing. The Company’s Common Stock is quoted on the Nasdaq Capital Market under
the symbol COIN. The Company has not received any oral or written notice that its Common Stock is
not eligible nor will become ineligible for quotation on the Nasdaq Capital Market nor that its
Common Stock does not meet all requirements for the continuation of such quotation.

(x) DTC Status. The Company’s transfer agent is a participant in, and the Common
Stock is eligible for transfer pursuant to, the Depository Trust Company Automated Securities
Transfer Program. The name, address, telephone number, fax number, contact person and email address
of the Company transfer agent is set forth on Schedule 5(x) hereto.

(y) Company Predecessor and Subsidiaries. The Company makes each of the
representations contained in Sections 5(a), (b), (c), (d), (e), (f), (h), (l), (o), (p), (q), (s),
(t) and (u) of this Agreement, as same relate or could be applicable to each Subsidiary. All
representations made by or relating to the Company of a historical or prospective nature and all
undertakings described in Sections 9(g) through 9(l) shall relate, apply and refer to the Company
and its predecessors and successors. The Company represents that it owns all of the equity of the
Subsidiaries and rights to receive equity of the Subsidiaries identified on Schedule 5(a), free and
clear of all liens, encumbrances and claims, except as set forth on Schedule 5(a). Except as set
for on Schedule 5(a), no person or entity other than the Company has the right to receive any
equity interest in the Subsidiaries.

(z) Correctness of Representations. The Company represents that the foregoing
representations and warranties are true and correct as of the date hereof in all material respects,
and, unless the Company otherwise notifies the Subscribers prior to the Closing Date, shall be true
and correct in all material respects as of the Closing Date; provided, that, if such representation
or warranty is made as of a different date, in which case such representation or warranty shall be
true as of such date.

(AA) Survival. The foregoing representations and warranties shall survive the Closing
Date until two years after the Closing Date.

6. Regulation D Offering/Legal Opinion. The offer and issuance of the Securities to
the Subscribers is being made pursuant to the exemption from the registration provisions of the
1933 Act afforded by Section 4(2) or Section 4(6) of the 1933 Act and/or Rule 506 of Regulation D
promulgated thereunder. On the Closing Date, the Company will provide an opinion reasonably
acceptable to the Subscriber from the Company’s legal counsel opining on the availability of an
exemption from registration under the 1933 Act as it relates to the offer and issuance of the
Securities and other matters reasonably requested by Subscriber. A form of the legal opinion is
annexed hereto as Exhibit F. The Company will provide, at the Company’s expense, such other legal
opinions, if any, as are reasonably necessary in Subscriber’s opinion for the issuance and resale
of the Warrant Shares pursuant to an effective registration statement, Rule 144 under the 1933 Act
or an exemption from registration.

7.1. Conversion of Notes.

(a) Upon the conversion of a Note or part thereof, the Company shall, at its own cost and
expense, take all necessary action, including obtaining and delivering an opinion of counsel, to
assure that the Company’s transfer agent shall issue stock certificates in the name of a Subscriber
(or its permitted nominee) or such other persons as designated by Subscriber and in such
denominations to be specified at conversion representing the number of shares of Common Stock
issuable upon such conversion. The Company warrants that no instructions other than these
instructions have been or will be given to the transfer agent of the Company’s Common Stock and
that the certificates representing such shares shall contain no legend other than the legend set
forth in Section 4(h). If and when a Subscriber sells the Conversion Shares, assuming (i) a
registration statement including such Conversion Shares for registration has been filed with the
Commission, is effective and the prospectus, as supplemented or amended, contained therein is
current and (ii) Subscriber or its agent confirms in writing to the transfer agent that Subscriber
has complied with the prospectus delivery requirements, the Company will reissue the Conversion
Shares without restrictive legend and the Conversion Shares will be free-trading, and freely
transferable. In the event that the Conversion Shares are sold in a manner that complies with an
exemption from registration, the Company will promptly instruct its counsel to issue to the
transfer agent an opinion permitting removal of the legend indefinitely, if pursuant to Rule
144(b)(1)(i) of the 1933 Act, provided that Subscriber delivers all reasonably requested
representations in support of such opinion.

(b) Each Subscriber will give notice of its decision to exercise its right to convert its
Note, interest, or part thereof by telecopying or otherwise delivering a completed Notice of
Conversion (a form of which is annexed as Exhibit A to the Note) to the Company via confirmed
telecopier transmission or otherwise pursuant to Section 13(a) of this Agreement. Subscriber will
not be required to surrender the Note until the Note has been fully converted or satisfied. Each
date on which a Notice of Conversion is telecopied to the Company in accordance with the provisions
hereof by 6 PM Eastern Time (“ET”) (or if received by the Company after 6 PM ET, then the next
business day) shall be deemed a “Conversion Date.” The Company will itself or cause the Company’s
transfer agent to transmit the Company’s Common Stock certificates representing the Conversion
Shares issuable upon conversion of the Note to Subscriber via express courier for receipt by
Subscriber within five (5) business days after the Conversion Date (such fifth day being the
"Delivery Date”). In the event the Conversion Shares are electronically transferable, then
delivery of the Shares must be made by electronic transfer provided request for such
electronic transfer has been made by the Subscriber. A Note representing the balance of the Note
not so converted will be provided by the Company to Subscriber if requested by Subscriber, provided
Subscriber delivers the original Note to the Company.

(c) The Company understands that a delay in the delivery of the Conversion Shares in the form
required pursuant to Section 7.1 hereof later than the Delivery Date could result in economic loss
to the Subscribers. As compensation to Subscribers for such loss, the Company agrees to pay (as
liquidated damages and not as a penalty) to each applicable Subscriber for late issuance of
Conversion Shares in the form required pursuant to Section 7.1 hereof upon Conversion of the Note,
the amount of $100 per business day after the Delivery Date for each $10,000 of Note principal
amount and interest (and proportionately for other amounts) being converted of the corresponding
Conversion Shares which are not timely delivered. The Company shall pay any payments incurred
under this Section upon demand. Furthermore, in addition to any other remedies which may be
available to the Subscribers, in the event that the Company fails for any reason to effect delivery
of the Conversion Shares within seven (7) business days after the Delivery Date, the relevant
Subscriber will be entitled to revoke all or part of the relevant Notice of Conversion by delivery
of a notice to such effect to the Company whereupon the Company and Subscriber shall each be
restored to their respective positions immediately prior to the delivery of such notice, except
that the damages payable in connection with the Company’s default shall be payable through the date
notice of revocation or rescission is given to the Company.

7.2. Maximum Conversion. A Subscriber shall not be entitled to convert on a
Conversion Date that amount of a Note nor may the Company make any payment including principal,
interest, or liquidated or other damages by delivery of Conversion Shares in connection with that
number of Conversion Shares which would be in excess of the sum of (i) the number of shares of
Common Stock beneficially owned by such Subscriber and its Affiliates on a Conversion Date or
payment date, and (ii) the number of Conversion Shares issuable upon the conversion of the Note
with respect to which the determination of this provision is being made on a calculation date,
which would result in beneficial ownership by Subscriber and its Affiliates of more than 4.99% of
the outstanding shares of Common Stock of the Company on such Conversion Date. For the purposes
of the immediately preceding sentence, beneficial ownership shall be determined in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended, and Rule 13d-3 thereunder.
Subject to the foregoing, the Subscriber shall not be limited to aggregate conversions of only
4.99% and aggregate conversions by the Subscriber may exceed 4.99%. The Subscriber may increase
the permitted beneficial ownership amount up to 9.99% upon and effective after 61 days prior
written notice to the Company. Subscriber may allocate which of the equity of the Company deemed
beneficially owned by Subscriber shall be included in the 4.99% amount described above and which
shall be allocated to the excess above 4.99%. Subscriber agrees that the total number of shares
of the Company’s common stock issuable upon any and all conversions of the Note and exercise of
the Warrants may not exceed 19.99% (the Numeric Limitation”) of the total issued and outstanding
shares of the Company’s outstanding common stock immediately following such exercise, unless the
exercise terms of such Note and Warrants are approved by the Company’s common stockholders. The
Company represents and agrees that the Numeric Limitation equals not less than 4,059,600 shares of
the Company’s Common Stock. The Company further represents that it will not take any action which
will result in the impairment or a decrease in the Numeric Limitation to Subscriber. Subscriber
shall have the absolute right to elect the allocation of the Numeric Limitation to Conversion
Shares and/or Warrant Shares. In the event Subscriber sells, transfers or otherwise disposes of
the Note or Warrants to a third party, the beneficial ownership and transfer restrictions set
forth in this section shall be binding upon such third party.

7.3. Injunction Posting of Bond. In the event a Subscriber shall elect to convert a
Note or part thereof, the Company may not refuse conversion based on any claim that Subscriber or
any one associated or affiliated with Subscriber has been engaged in any violation of law, or for
any other reason, unless, a final non-appealable injunction from a court made on notice to
Subscriber, restraining and or enjoining conversion of all or part of such Note shall have been
sought and obtained by the Company or the Company has posted a surety bond for the benefit of
Subscriber in the amount of 120% of the outstanding principal and accrued but unpaid interest of
the Note, or aggregate purchase price of the Conversion Shares which are sought to be subject to
the injunction, which bond shall remain in effect until the completion of arbitration/litigation of
the dispute and the proceeds of which shall be payable to Subscriber to the extent the judgment or
decision is in Subscriber’s favor.

7.4. Buy-In. In addition to any other rights available to Subscribers, if the
Company fails to deliver to a Subscriber Conversion Shares by the Delivery Date and if after the
Delivery Date Subscriber or a broker on Subscriber’s behalf purchases (in an open market
transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by Subscriber
of the Common Stock which Subscriber was entitled to receive upon such conversion (a “Buy-In”),
then the Company shall pay to Subscriber (in addition to any remedies available to or elected by
the Subscriber) the amount by which (A) Subscriber’s total purchase price (including brokerage
commissions, if any) for the shares of Common Stock so purchased exceeds (B) the aggregate
principal and/or interest amount of the Note for which such conversion request was not timely
honored together with interest thereon at a rate of 15% per annum, accruing until such amount and
any accrued interest thereon is paid in full (which amount shall be paid as liquidated damages and
not as a penalty). For example, if a Subscriber purchases shares of Common Stock having a total
purchase price of $11,000 to cover a Buy-In with respect to an attempted conversion of $10,000 of
Note principal and/or interest, the Company shall be required to pay Subscriber $1,000 plus
interest. Subscriber shall provide the Company written notice and evidence indicating the amounts
payable to Subscriber in respect of the Buy-In.

7.5. Adjustments. The Conversion Price, Warrant exercise price and amount of
Conversion Shares and Warrant Shares shall be equitably adjusted and as otherwise described in this
Agreement, the Notes and Warrants.

7.6. Redemption. The Note shall not be redeemable or callable by the Company,
except as described in the Note.

8. Fees.

(a) Broker’s Fee. The Company on the one hand, and Subscriber (for himself only) on
the other hand, agrees to indemnify the other against and hold the other harmless from any and all
liabilities to any persons claiming brokerage commissions or similar fees other than other than the
parties identified on Schedule 8(a) hereto (“Broker”) on account of services purported to have been
rendered on behalf of the indemnifying party in connection with this Agreement or the transactions
contemplated hereby and arising out of such party’s actions. Anything in this Agreement to the
contrary notwithstanding, each Subscriber is providing indemnification only for such Subscriber’s
own actions and not for any action of any other Subscriber. The liability of the Company and
Subscriber’s liability hereunder is several and not joint. The Company agrees that it will pay the
Broker a cash fee in the aggregate amount of $98,000 (“Broker’s Fees”). The Company represents
that to the best of its knowledge there are no other parties entitled to receive fees, commissions,
or similar payments in connection with the offering described in this Agreement except the Broker.
The aggregate Broker’s Fee will be payable out of funds held pursuant to the Escrow Agreement.

(b) Legal Fees. The Company shall pay to Grushko & Mittman, P.C., a fee of $50,000
(“Subscriber’s Legal Fees”) as reimbursement for services rendered to the Subscribers in connection
with this Agreement and the purchase and sale of the Note and Warrant. The Subscriber’s Legal
Fees and expenses (to the extent known as of the Closing) will be payable out of funds held
pursuant to the Escrow Agreement. Grushko & Mittman, P.C. will be reimbursed at Closing for all
lien searches and filing fees incurred in connection with the Offering.

9. Covenants of the Company. The Company covenants and agrees with the Subscriber as
follows:

(a) Stop Orders. Subject to the prior notice requirement described in Sections 9(n)
and 9(o) and until such time as the Note and Warrants are no longer outstanding, the Company will
advise the Subscriber, within two business days after it receives notice of issuance by the
Commission, any state securities commission or any other regulatory authority of any stop order or
of any order preventing or suspending any offering of any securities of the Company, or of the
suspension of the qualification of the Common Stock of the Company for offering or sale in any
jurisdiction, or the initiation of any proceeding for any such purpose. The Company will not issue
any stop transfer order or other order impeding the sale, resale or delivery of any of the
Securities, except as may be required by any applicable federal or state securities laws and unless
contemporaneous notice of such instruction is given to the Subscriber.

(b) Listing/Quotation. The Company shall promptly secure the quotation or listing of
the Warrant Shares upon each national securities exchange, or automated quotation system upon the
Company’s Common Stock is quoted or listed and upon which such Warrant Shares are or become
eligible for quotation or listing (subject to official notice of issuance) and shall maintain same
so long as the Warrants are outstanding. The Company will maintain the quotation or listing of its
Common Stock on the American Stock Exchange, Nasdaq Capital Market, Nasdaq Global Market, Nasdaq
Global Select Market, Bulletin Board, or New York Stock Exchange (whichever of the foregoing is at
the time the principal trading exchange or market for the Common Stock (the “Principal Market”),
and will comply in all respects with the Company’s reporting, filing and other obligations under
the bylaws or rules of the Principal Market, as applicable. Subject to the prior notice
requirements described in Sections 9(n) and 9(o) and unless otherwise disclosed on Form 8-K, the
Company will provide Subscribers with copies of all notices it receives notifying the Company of
the threatened and actual delisting of the Common Stock from any Principal Market. As of the date
of this Agreement and the Closing Date, the Nasdaq Capital Market is and will be the Principal
Market.

(c) Market Regulations. If required, the Company shall notify the Commission, the
Principal Market and applicable state authorities, in accordance with their requirements, of the
transactions contemplated by this Agreement, and shall take all other necessary action and
proceedings as may be required and permitted by applicable law, rule and regulation, for the legal
and valid issuance of the Securities to the Subscriber and promptly provide copies thereof to the
Subscriber.

(d) Filing Requirements. From the date of this Agreement and until the last to occur
of (i) until all the Warrant Shares have been resold or transferred by the Subscriber pursuant to a
registration statement or pursuant to Rule 144(b)(1)(i), or (ii) the Note is no longer outstanding
(the date of such latest occurrence being the “End Date”), the Company will (A) cause its Common
Stock to continue to be registered under Section 12(b) or 12(g) of the 1934 Act, (B) comply in all
respects with its reporting and filing obligations under the 1934 Act, (C) voluntarily comply with
all reporting requirements that are applicable to an issuer with a class of shares registered
pursuant to Section 12(g) of the 1934 Act, if the Company is not subject to such reporting
requirements, and (D) comply with all requirements related to any registration statement filed
pursuant to this Agreement. The Company will use its best efforts not to take any action or file
any document (whether or not permitted by the 1933 Act or the 1934 Act or the rules thereunder) to
terminate or suspend such registration or to terminate or suspend its reporting and filing
obligations under said acts until the End Date. Until the End Date, the Company will continue the
listing or quotation of the Common Stock on a Principal Market and will comply in all respects with
the Company’s reporting, filing and other obligations under the bylaws or rules of the Principal
Market. The Company agrees to timely file a Form D with respect to the Securities if required
under Regulation D and to provide a copy thereof to Subscriber promptly after such filing.

(e) Use of Proceeds. The proceeds of the Offering will be employed by the Company
for expenses of the Offering and general working capital.

(f) Reservation. Prior to the Closing, the Company undertakes to reserve on behalf
of Subscriber from its authorized but unissued Common Stock, a number of shares of Common Stock
equal to 150% of the amount of Common Stock necessary to allow Subscriber to be able to convert the
entire Note and 100% of the amount of Common Stock necessary to allow Subscriber to be able to
exercise the Warrants based on the exercise price in effect on such date (“Required Reservation”).
Failure to have sufficient shares reserved pursuant to this Section 9(f) at any time shall be a
material default of the Company’s obligations under this Agreement and an Event of Default under
the Note. If at any time the Note is outstanding the Company has insufficient Common Stock
reserved on behalf of the Subscriber in an amount less than 125% of the amount necessary for full
conversion of the outstanding Note principal at the conversion price that would be in effect on any
such date and 100% of the amount necessary for full exercise of the Warrants (“Minimum Required
Reservation”), the Company will promptly reserve the Minimum Required Reservation, or if there are
insufficient authorized and available shares of Common Stock to do so, the Company will take all
action necessary to increase its authorized capital to be able to fully satisfy its reservation
requirements hereunder, including the filing of a preliminary proxy with the Commission not later
than fifteen days after the first day the Company has less than the Minimum Required Reservation.
The Company agrees to provide notice to the Subscriber not later than three days after the date the
Company has less than the Minimum Required Reservation reserved on behalf of the Subscriber.

(g) DTC Program. At all times that the Notes and Warrant are outstanding, the Company
will employ as the transfer agent for the Common Stock a participant in the Depository Trust
Company Automated Securities Transfer Program.

(h) Taxes. From the date of this Agreement and until the End Date, the Company will
promptly pay and discharge, or cause to be paid and discharged, when due and payable, all lawful
taxes, assessments and governmental charges or levies imposed upon the income, profits, property or
business of the Company; provided, however, that any such tax, assessment, charge or levy need not
be paid if the validity thereof shall currently be contested in good faith by appropriate
proceedings and if the Company shall have set aside on its books adequate reserves with respect
thereto, and provided, further, that the Company will pay all such taxes, assessments, charges or
levies forthwith upon the commencement of proceedings to foreclose any lien which may have attached
as security therefore.

(i) Insurance. From the date of this Agreement and until the End Date, the Company
will keep its assets which are of an insurable character insured by financially sound and reputable
insurers against loss or damage by fire, explosion and other risks customarily insured against by
companies in the Company’s line of business and location, in amounts and to the extent and in the
manner customary for companies in similar businesses similarly situated and located and to the
extent available on commercially reasonable terms.

(j) Books and Records. From the date of this Agreement and until the End Date, the
Company will keep true records and books of account in which full, true and correct entries will be
made of all dealings or transactions in relation to its business and affairs in accordance with
generally accepted accounting principles applied on a consistent basis.

(k) Governmental Authorities. From the date of this Agreement and until the End
Date, the Company shall duly observe and conform in all material respects to all valid requirements
of governmental authorities relating to the conduct of its business or to its properties or assets.

(l) Intellectual Property. From the date of this Agreement and until the End Date,
the Company shall maintain in full force and effect its corporate existence, rights and franchises
and all licenses and other rights to use intellectual property owned or possessed by it and
reasonably deemed to be necessary to the conduct of its business. Schedule 9(l) hereto identifies
all of the intellectual property owned by the Company and each of the Subsidiaries and all of the
URLs and domain names owned by them.

(m) Properties. From the date of this Agreement and until the End Date, the Company
will keep its properties in good repair, working order and condition, reasonable wear and tear
excepted, and from time to time make all necessary and proper repairs thereto; and the Company will
at all times comply with each provision of all leases and claims to which it is a party or under
which it occupies or has rights to property if the breach of such provision could reasonably be
expected to have a Material Adverse Effect. The Company will not abandon any of its assets except
for those assets which have negligible or marginal value or for which it is prudent to do so under
the circumstances.

(n) Confidentiality/Public Announcement. From the date of this Agreement and until
the End Date, the Company agrees that except in connection with a Form 8-K and a registration
statement or statements regarding the Subscriber’s Securities or in correspondence with the SEC
regarding same, it will not disclose publicly or privately the identity of the Subscriber unless
expressly agreed to in writing by Subscriber or only to the extent required by law and then only
upon not less than three days prior notice to Subscriber. In any event and subject to the
foregoing, the Company undertakes to file a Form 8-K describing the Offering not later than the
fourth business day after the Closing Date. Prior to the Closing Date, such Form 8-K will be
provided to Subscriber for Subscriber’s review and approval. Upon  delivery by the Company to the
Subscriber after the Closing Date of any notice or information, in writing, electronically or
otherwise, and while a Note or Warrant Shares are held by Subscriber, unless the  Company has in
good faith determined that the matters relating to such notice do not
constitute material, nonpublic information relating to the Company or Subsidiaries, the Company 
shall within one business day after any such delivery publicly disclose such  material,  nonpublic 
information on a Report on Form 8-K. In the event that the Company believes that a notice or
communication to Subscriber contains material, nonpublic information relating to the Company or
Subsidiaries, the Company shall so indicate to Subscriber prior to delivery of such notice or
information. Subscriber will be granted sufficient time to notify the Company that such Subscriber
elects not to receive such information. In such case, the Company will not deliver such
information to Subscriber. In the absence of any such indication, Subscriber shall be allowed to
presume that all matters relating to such notice and information do not constitute material,
nonpublic information relating to the Company or Subsidiaries.

(o) Non-Public Information. The Company covenants and agrees that except for the
Reports, and schedules and exhibits to this Agreement and the Transaction Documents, which
information the Company undertakes to publicly disclose on the Form 8-K described in Section 9(n)
above, neither it nor any other person acting on its behalf will at any time provide Subscriber or
its agents or counsel with any information that the Company believes constitutes material
non-public information, unless prior thereto Subscriber shall have agreed in writing to accept such
information. The Company understands and confirms that Subscriber shall be relying on the
foregoing representations in effecting transactions in securities of the Company.

(p) Negative Covenants. So long as the Note is outstanding, without the consent of
the Subscriber, the Company will not and will not permit any of its Subsidiaries to directly or
indirectly:

(i) until the Note is fully satisfied, the Company shall not grant nor allow any new security
interest to be taken in the assets of the Company or any Subsidiary or any Subsidiary’s assets; nor
issue any new debt, equity or other instrument which would give the holder thereof directly or
indirectly, a right in any assets of the Company or any Subsidiary or any right to payment equal to
or superior to any right of the Subscriber as a holder of the Note in or to such assets or payment,
nor issue or incur any debt not in the ordinary course of business except for: (A) the Excepted
Issuances (as defined in Section 12 hereof), and (B) (a) Liens imposed by law for taxes that are
not yet due or are being contested in good faith and for which adequate reserves have been
established in accordance with generally accepted accounting principles; (b) carriers’,
warehousemen’s, mechanics’, material men’s, repairmen’s and other like Liens imposed by law,
arising in the ordinary course of business; (c) pledges and deposits made in the ordinary course of
business in compliance with workers’ compensation, unemployment insurance and other social security
laws or regulations; (d) deposits to secure the performance of bids, trade contracts, leases,
statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like
nature, in each case in the ordinary course of business; (e) Liens created with respect to the
financing of the purchase of new property in the ordinary course of the Company’s business up to
the amount of the purchase price of such property; and (f) easements, zoning restrictions,
rights-of-way and similar encumbrances on real property imposed by law or arising in the ordinary
course of business that do not secure any monetary obligations and do not materially detract from
the value of the affected property (each of (a) through (f), a “Permitted Lien”).

  (ii) amend its certificate of incorporation, bylaws or its charter documents so as to
materially and adversely affect any rights of the Subscriber (an increase in the amount of
authorized shares and an increase in the number of directors will not be deemed adverse to the
rights of the Subscriber);

(iii) repay, repurchase or offer to repay, repurchase or otherwise acquire or make any
dividend or distribution in respect of any of its Common Stock, preferred stock, or other equity
securities other than to the extent permitted or required under the Transaction Documents; or

(iv) prepay or redeem for cash any financing related debt or past due obligations or
securities outstanding as of the Closing Date, or past due obligations (except with respect to
vendor obligations, any such obligations which in management’s good faith, reasonable judgment must
be repaid to avoid disruption of the Company’s businesses.

The Company agrees to provide Subscribers not less than ten (10) days notice prior to becoming
obligated to or effectuating a Permitted Lien or Excepted Issuance.

(q) Until the Note is fully satisfied, the Company will cause all Subsidiaries and any future
Subsidiaries of the Company to enter into a Security Agreement in the form which is annexed hereto
as Exhibit D.

(r) In the event the Company does not receive within two weeks of the Closing Date written
confirmation that there will be no review by the Commission of the registration statement to be
filed on or about September 14, 2009 by the Company on Form S-1 for the underwritten public
offering of units consisting of common stock and warrants, the Company undertakes to immediately
reduce its monthly “Burn Rate” (or how much cash is spent monthly) by $200,000.

10. Covenants of the Company Regarding Indemnification.

(a) The Company agrees to indemnify, hold harmless, reimburse and defend the Subscriber, the
Subscriber’s officers, directors, agents, Affiliates, members, managers, control persons, and
principal shareholders, against any claim, cost, expense, liability, obligation, loss or damage
(including reasonable legal fees) of any nature, incurred by or imposed upon the Subscriber or any
such person which results, arises out of or is based upon (i) any material misrepresentation by
Company or breach of any representation or warranty by Company in this Agreement or in any Exhibits
or Schedules attached hereto in any Transaction Document, or other agreement delivered pursuant
hereto or in connection herewith, now or after the date hereof; or (ii) after any applicable notice
and/or cure periods, any breach or default in performance by the Company of any covenant or
undertaking to be performed by the Company hereunder, or any other agreement entered into by the
Company and Subscriber relating hereto.

(b) In no event shall the liability of the Subscriber or permitted successor hereunder or
under any Transaction Document or other agreement delivered in connection herewith be greater in
amount than the dollar amount of the net proceeds actually received by such Subscriber or successor
upon the sale of Registrable Securities (as defined herein).

11. Additional Post-Closing Obligations.

11.1. Delivery of Unlegended Shares.

(a) Within five (5) business days (such fifth business day being the “Unlegended Shares
Delivery Date”) after the business day on which the Company has received (i) a notice that Warrant
Shares held by Subscriber has been sold pursuant to a registration statement or Rule 144 under the
1933 Act, (ii) a representation that the prospectus delivery requirements, or the requirements of
Rule 144, as applicable and if required, have been satisfied, (iii) the original share certificates
representing the shares of Common Stock that have been sold, and (iv) in the case of sales under
Rule 144, customary representation letters of the Subscriber and, if required, Subscriber’s broker
regarding compliance with the requirements of Rule 144, the Company at its expense, (y) shall
deliver, and shall cause legal counsel selected by the Company to deliver to its transfer agent
(with copies to Subscriber) an appropriate instruction and opinion of such counsel, directing the
delivery of shares of Common Stock without any legends including the legend set forth in Section
4(h) above (the “Unlegended Shares”); and (z) cause the transmission of the certificates
representing the Unlegended Shares together with a legended certificate representing the balance of
the submitted Common Stock certificate, if any, to the Subscriber at the address specified in the
notice of sale, via express courier, by electronic transfer or otherwise on or before the
Unlegended Shares Delivery Date.

(b) In lieu of delivering physical certificates representing the Unlegended Shares, upon
request of Subscriber, so long as the certificates therefor do not bear a legend and the Subscriber
is not obligated to return such certificate for the placement of a legend thereon, the Company
shall cause its transfer agent to electronically transmit the Unlegended Shares by crediting the
account of Subscriber’s prime broker with the Depository Trust Company through its Deposit
Withdrawal Agent Commission system, if such transfer agent participates in such DWAC system. Such
delivery must be made on or before the Unlegended Shares Delivery Date.

(c) The Company understands that a delay in the delivery of the Unlegended Shares pursuant to
Section 11 hereof later than the Unlegended Shares Delivery Date could result in economic loss to a
Subscriber. As compensation to a Subscriber for such loss, the Company agrees to pay late payment
fees (as liquidated damages and not as a penalty) to the Subscriber for late delivery of Unlegended
Shares in the amount of $100 per business day after the Delivery Date for each $10,000 of purchase
price of the Unlegended Shares subject to the delivery default. If during any 360 day period, the
Company fails to deliver Unlegended Shares as required by this Section 11.1 for an aggregate of
thirty days, then each Subscriber or assignee holding Securities subject to such default may, at
its option, require the Company to redeem all or any portion of the Shares subject to such default
at a price per share equal to the greater of (i) 120%, or (ii) a fraction in which the numerator is
the highest closing price of the Common Stock during the aforedescribed thirty day period and the
denominator of which is the lowest conversion price during such thirty day period, multiplied by
the price paid by Subscriber for such Common Stock (“Unlegended Redemption Amount”). The Company
shall pay any payments incurred under this Section in immediately available funds upon demand.

(d) In the event a Subscriber shall request delivery of Unlegended Shares as described in
Section 11.1 and the Company is required to deliver such Unlegended Shares pursuant to Section
11.1, the Company may not refuse to deliver Unlegended Shares based on any claim that such
Subscriber or any one associated or affiliated with such Subscriber has been engaged in any
violation of law, or for any other reason, unless, an injunction or temporary restraining order
from a court, on notice, restraining and or enjoining delivery of such Unlegended Shares shall have
been sought and obtained by the Company and the Company has posted a surety bond for the benefit of
such Subscriber in the amount of 120% of the amount of the aggregate purchase price of the Common
Stock which are subject to the injunction or temporary restraining order, which bond shall remain
in effect until the completion of arbitration/litigation of the dispute and the proceeds of which
shall be payable to such Subscriber to the extent Subscriber obtains judgment in Subscriber’s
favor. The above section shall not apply to and shall not require the Company to deliver
Unlegended Shares if such issuance and delivery would be in violation of law.

(e) In addition to any other rights available to Subscriber, if the Company fails to deliver
to a Subscriber Unlegended Shares as required pursuant to this Agreement and after the Unlegended
Shares Delivery Date, the Subscriber or a broker on the Subscriber’s behalf, purchases (in an open
market transaction or otherwise) shares of common stock to deliver in satisfaction of a sale by
such Subscriber of the shares of Common Stock which the Subscriber was entitled to receive from the
Company (a “Buy-In”), then the Company shall pay in cash to the Subscriber (in addition to any
remedies available to or elected by the Subscriber) the amount by which (A) the Subscriber’s total
purchase price (including brokerage commissions, if any) for the shares of common stock so
purchased exceeds (B) the aggregate purchase price of the shares of Common Stock delivered to the
Company for reissuance as Unlegended Shares together with interest thereon at a rate of 15% per
annum accruing until such amount and any accrued interest thereon is paid in full (which amount
shall be paid as liquidated damages and not as a penalty). For example, if a Subscriber purchases
shares of Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to
$10,000 of purchase price of shares of Common Stock delivered to the Company for reissuance as
Unlegended Shares, the Company shall be required to pay the Subscriber $1,000, plus interest. The
Subscriber shall provide the Company written notice indicating the amounts payable to the
Subscriber in respect of the Buy-In.

11.2. In the event commencing six months after the Closing Date and ending twenty-four months
thereafter, the Subscriber upon the cashless exercise of the Warrants is not permitted to resell
any of the Warrant Shares without any restrictive legend or if such sales are permitted but subject
to volume limitations or further restrictions on resale as a result of the unavailability to
Subscriber of Rule 144(b)(1)(i) under the 1933 Act or any successor rule (a “144 Default”), for any
reason except for Subscriber’s status as an Affiliate or “control person” of the Company,
Subscriber’s failure to provide the documentation required in Section 11.1(a), or as a result of a
change in current applicable securities laws, then the Company shall pay such Subscriber as
liquidated damages and not as a penalty an amount equal to two percent (2%) for each thirty days
(or such lesser pro-rata amount for any period less than thirty days) thereafter of the purchase
price of the Warrant Shares subject to such 144 Default during the pendency of the 144 Default.
Liquidated Damages shall not be payable pursuant to this Section 11.2 in connection with Shares for
such times as such Shares may be sold by the holder thereof without volume or other restrictions
pursuant to Section 144(b)(1)(i) of the 1933 Act or pursuant to an effective registration
statement.

12. (a) Right of First Refusal. Until one year following the Closing Date, the
Subscriber shall be given not less than five (5) business days prior written notice of any proposed
sale by the Company of its common stock or other equity securities or equity linked debt
obligations, except in connection with (i) full or partial consideration in connection with an
arm’s length strategic merger, acquisition, consolidation or purchase of substantially all of the
securities or assets of corporation or other entity which holders of such securities or debt are
not at any time granted registration rights, (ii) the Company’s issuance of securities in
connection with arm’s length strategic license agreements and other partnering arrangements so long
as such issuances are not for the purpose of raising capital and which holders of such securities
or debt are not at any time granted registration rights, (iii) the Company’s issuance of Common
Stock or the issuances or grants of options to purchase Common Stock to employees, directors, and
consultants, pursuant to plans described in the Reports or on Schedule 5(d) as such plans are
constituted on the Closing Date or the issuance of Common Stock in connection with the settlement
of vendor obligations and which holders of such securities are not at any time granted registration
rights until the Note is no longer outstanding, (iv) securities upon the exercise or exchange of or
conversion of any securities exercisable or exchangeable for or convertible into shares of Common
Stock issued and outstanding on the date of this Agreement and described in the Reports or on
Schedule 5(d), (v) as a result of the exercise of Warrants or conversion of the Note which are
granted or issued pursuant to this Agreement, and (vi) the Company’s issuance of securities in an
underwritten public offering registered pursuant to the 1933 Act (collectively the foregoing are
“Excepted Issuances”). If Subscriber elects to exercise its rights pursuant to this Section 12(a),
Subscriber shall have the right during the five (5) business days following receipt of the notice
to purchase in the aggregate such offered common stock, debt or other securities in accordance with
the terms and conditions set forth in the notice of sale. In the event such terms and conditions
are modified during the notice period, Subscriber shall be given prompt notice of such modification
and shall have the right during the five (5) business days following the notice of modification to
exercise such right.

(b) Maximum Exercise of Rights. In the event the exercise of the rights described in
Section 12(a) would or could result in the issuance of an amount of Common Stock of the Company
that would exceed the maximum amount that may be issued to Subscriber calculated in the manner
described in Section 10 of the Warrants, then the issuance of such additional shares of Common
Stock of the Company to Subscriber will be deferred in whole or in part until such time as
Subscriber is able to beneficially own such Common Stock without exceeding the applicable maximum
amount set forth calculated in the manner described in Section 10 of the Warrants and notifies the
Company accordingly.

13. Miscellaneous.

(a) Notices. All notices, demands, requests, consents, approvals, and other
communications required or permitted hereunder shall be in writing and, unless otherwise specified
herein, shall be (i) personally served, (ii) deposited in the mail, registered or certified, return
receipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed as set forth below
or to such other address as such party shall have specified most recently by written notice. Any
notice or other communication required or permitted to be given hereunder shall be deemed effective
(a) upon hand delivery or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated below (if delivered on a
business day during normal business hours where such notice is to be received), or the first
business day following such delivery (if delivered other than on a business day during normal
business hours where such notice is to be received) or (b) on the second business day following the
date of mailing by express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for such communications
shall be:

(i) if to the Company, to:

Converted Organics, Inc.

7A Commercial Wharf West

Boston, MA 02110

Attn: Edward J. Gildea, CEO and President

Fax: (617) 624-0333

With a copy by facsimile only to:

Cozen O’Connor

1900 Market Street

Philadelphia, PA 19103

Attn: Cavas Pavri, Esq.

Fax: (215) 665-2013

Mintz Levin Cohn Ferris Glovsky & Popeo, P.C.

666 Third Avenue

New York, NY 10017

Attn: Kenneth R. Koch, Esq.

Fax: (212) 983-3115

(ii) if to the Subscriber, to:

the address and fax number indicated on the signature page hereto

With an additional copy by fax only to:

Grushko & Mittman, P.C.

551 Fifth Avenue, Suite 1601

New York, New York 10176

Fax: (212) 697-3575

(b) Entire Agreement; Assignment. This Agreement and other documents delivered in
connection herewith represent the entire agreement between the parties hereto with respect to the
subject matter hereof and may be amended only by a writing executed by both parties. Neither the
Company nor the Subscriber has relied on any representations not contained or referred to in this
Agreement and the documents delivered herewith. No right or obligation of the Company shall be
assigned without prior notice to and the written consent of the Subscriber.

(c) Counterparts/Execution. This Agreement may be executed in any number of
counterparts and by the different signatories hereto on separate counterparts, each of which, when
so executed, shall be deemed an original, but all such counterparts shall constitute but one and
the same instrument. This Agreement may be executed by facsimile signature and delivered by
electronic transmission.

(d) Law Governing this Agreement. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York without regard to principles of conflicts of
laws. Any action brought by either party against the other concerning the transactions contemplated
by this Agreement shall be brought only in the state courts of New York or in the federal courts
located in the state and county of New York. The parties to this Agreement hereby irrevocably
waive any objection to jurisdiction and venue of any action instituted hereunder and shall not
assert any defense based on lack of jurisdiction or venue or based upon forum non
conveniens. The parties executing this Agreement and other agreements referred to herein or
delivered in connection herewith on behalf of the Company agree to submit to the in personam
jurisdiction of such courts and hereby irrevocably waive trial by jury. The prevailing party shall
be entitled to recover from the other party its reasonable attorney’s fees and costs. In the event
that any provision of this Agreement or any other agreement delivered in connection herewith is
invalid or unenforceable under any applicable statute or rule of law, then such provision shall be
deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to
conform with such statute or rule of law. Any such provision which may prove invalid or
unenforceable under any law shall not affect the validity or enforceability of any other provision
of any agreement. Each party hereby irrevocably waives personal service of process and consents to
process being served in any suit, action or proceeding in connection with this Agreement or any
other Transaction Document by mailing a copy thereof via registered or certified mail or overnight
delivery (with evidence of delivery) to such party at the address in effect for notices to it under
this Agreement and agrees that such service shall constitute good and sufficient service of process
and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to
serve process in any other manner permitted by law.

(e) Specific Enforcement, Consent to Jurisdiction. The Company and Subscriber
acknowledge and agree that irreparable damage would occur in the event that any of the provisions
of this Agreement were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to seek an injunction or
injunctions to prevent or cure breaches of the provisions of this Agreement and to enforce
specifically the terms and provisions hereof, this being in addition to any other remedy to which
any of them may be entitled by law or equity. Subject to Section 13(d) hereof, the Company hereby
irrevocably waives, and agrees not to assert in any such suit, action or proceeding, any claim that
it is not personally subject to the jurisdiction in New York of such court, that the suit, action
or proceeding is brought in an inconvenient forum or that the venue of the suit, action or
proceeding is improper. Nothing in this Section shall affect or limit any right to serve process
in any other manner permitted by law.

(f) Damages. In the event the Subscriber is entitled to receive any liquidated
damages pursuant to the Transactions Documents, the Subscriber may elect to receive the greater of
actual damages or such liquidated damages.

(g) Maximum Payments. Nothing contained herein or in any document referred to herein
or delivered in connection herewith shall be deemed to establish or require the payment of a rate
of interest or other charges in excess of the maximum permitted by applicable law. In the event
that the rate of interest or dividends required to be paid or other charges hereunder exceed the
maximum permitted by such law, any payments in excess of such maximum shall be credited against
amounts owed by the Company to the Subscriber and thus refunded to the Company.

(h) Calendar Days. All references to “days” in the Transaction Documents shall mean
calendar days unless otherwise stated. The terms “business days” and “trading days” shall mean
days that the New York Stock Exchange is open for trading for three or more hours. Time periods
shall be determined as if the relevant action, calculation or time period were occurring in New
York City. Any deadline that falls on a non-business day in any of the Transaction Documents shall
be automatically extended to the next business day and interest, if any, shall be calculated and
payable through such extended period.

(i) Captions: Certain Definitions. The captions of the various sections and
paragraphs of this Agreement have been inserted only for the purposes of convenience; such captions
are not a part of this Agreement and shall not be deemed in any manner to modify, explain, enlarge
or restrict any of the provisions of this Agreement. As used in this Agreement the term
“person” shall mean and include an individual, a partnership, a joint venture, a
corporation, a limited liability company, a trust, an unincorporated organization and a government
or any department or agency thereof.

(j) Severability. In the event that any term or provision of this Agreement shall be
finally determined to be superseded, invalid, illegal or otherwise unenforceable pursuant to
applicable law by an authority having jurisdiction and venue, that determination shall not impair
or otherwise affect the validity, legality or enforceability: (i) by or before that authority of
the remaining terms and provisions of this Agreement, which shall be enforced as if the
unenforceable term or provision were deleted, or (ii) by or before any other authority of any of
the terms and provisions of this Agreement.

(k) Successor Laws. References in the Transaction Documents to laws, rules,
regulations and forms shall also include successors to and functionally equivalent replacements of
such laws, rules, regulations and forms. A successor rule to Rule 144(b)(1)(i) shall include any
rule that would be available to a non-Affiliate of the Company for the sale of Common Stock not
subject to volume restrictions and after a six month holding period.

[THIS SPACE INTENTIONALLY LEFT BLANK]

1

SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT

Please acknowledge your acceptance of the foregoing Subscription Agreement by signing and
returning a copy to the undersigned whereupon it shall become a binding agreement between us.

CONVERTED ORGANICS INC.

a Delaware corporation

By:      

Name:

Title:

Dated: September 14, 2009

	 	 	 	 	 	 	 	 	 	 	 	 	 
	SUBSCRIBER	 	PURCHASE PRICE	 	NOTE PRINCIPAL	 	CLASS G WARRANTS
	IROQUOIS MASTER FUND LTD.	 	$1,400,000.00	 	$1,540,000.00	 	1,000,000
	641 Lexington Avenue, 26th Floor	 	 	 	 	 	 	 	 	 	 	 	 
	New York, NY 10022	 	 	 	 	 	 	 	 	 	 	 	 
	Fax: (212) 207-3452	 	 	 	 	 	 	 	 	 	 	 	 
	_____________________________________	 	 	 	 	 	 	 	 	 	 	 	 
	(Signature)	 	 	 	 	 	 	 	 	 	 	 	 
	By:
	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 

2

LIST OF EXHIBITS AND SCHEDULES

	 	 	 
	Exhibit A

Exhibit B

Exhibit C

Exhibit D

Exhibit E

Exhibit F

Schedule 5(a)

Schedule 5(d)

Schedule 5(o)

Schedule 5(q)

Schedule 5(x)

Schedule 8(a)

Schedule 9(l)

	 	Form of Note

Form of Warrant

Escrow Agreement

Form of Security Agreement

Form of Subsidiary Guaranty

Form of Legal Opinion

Subsidiaries

Additional Issuances / Capitalization

Undisclosed Liabilities

Financial Institutions

Transfer Agent

Broker’s Fee

Intellectual Properties

3EX-10.2

SECURITY AGREEMENT

SECURITY AGREEMENT, dated as of September 14, 2009 (this “Agreement”), between
CONVERTED ORGANICS, INC., a Delaware corporation (the “Company), and IROQUOIS MASTER FUND
LTD. (the “Lender”).

WHEREAS, the Company and the Lender are parties to that certain Subscription Agreement dated
the date hereof (the “Subscription Agreement”);

WHEREAS, it is intended hereby that all obligations of the Company to the Lender under the
Transaction Documents (as defined in the Subscription Agreement) and other agreements to which the
Company and Lender are from time to time party, be secured by the personal property assets of the
Company herein described;

NOW, THEREFORE, in consideration of the promises contained 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.

(a) Capitalized terms used herein without definition (by cross-reference or otherwise) shall
have the meanings provided for such terms (by cross-reference or otherwise) in the Subscription
Agreement.

(b) The following capitalized terms, when used herein, shall have the meanings provided for
such terms in Article 9 of the NYUCC (as hereafter defined): Accession, Account, Cash Proceeds,
Certificate of Title, Chattel Paper, Commercial Tort Claim, Commodity Account, Commodity Contract,
Commodity Intermediary, Deposit Account, Document, Electronic Chattel Paper, Equipment, Farm
Products, General Intangible, Goods, Health-Care-Insurance Receivable, Instrument, Inventory,
Investment Property, Letter-of-Credit Right, Non-Cash Proceeds, Payment Intangible, Proceeds,
Promissory Note, Software, Supporting Secured Obligations, and Tangible Chattel Paper. Such terms
(and those in the following clauses of this Section 1) shall include in the singular number the
plural and in the plural number the singular. Nothing contained in this subsection (b) or otherwise
in this Agreement shall be construed to mean that uncapitalized terms used herein which are defined
in the UCC or the NYUCC shall not have the meanings ascribed to such terms in such statutes.

(c) The following capitalized terms, when used herein and not defined in Article 9 of the
NYUCC, shall have the meanings provided therefor elsewhere in the NYUCC: Certificated Security,
Letter of Credit, Securities Intermediary and Uncertificated Security.

(d) As used herein, the following capitalized terms shall have the following meanings:

“Event of Default” means any of the following: (i) any failure by the Company to pay,
when due, any amount payable by it under any Transaction Document, (ii) any other material breach
by the Company of any provision of any Transaction Document which if permitted to be cured is not
cured within 30 days, (iii) any representation or warranty made by the Company in any Transaction
Document, or otherwise in writing in connection with any such document, or in any certificate or
statement furnished pursuant to or in connection with any such document, shall be breached or shall
prove to be untrue in any material respect on the date as of which made; (iv) the occurrence of an
Insolvency Event with respect to the Company; or (v) any other Event of Default (as defined in the
terms and conditions of any relevant Transaction Document).

“Government Authority” shall mean any nation or government, any state or political
subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.

“Insolvency Event” means the occurrence of any of the following with respect to the
Company or another Person: any bankruptcy, insolvency or other proceeding for the relief of
financially distressed debtors shall be commenced with respect to such Person, or a receiver,
liquidator, custodian or trustee shall be appointed for such Person or a substantial part of its
assets, and, if any of the same shall occur involuntarily as to such Person, it shall not be
dismissed, stayed or discharged within 60 days; or if any order for relief shall be entered against
such Person under Title 11 of the United States Code entitled “Bankruptcy”; or such Person shall
take any action to effect, or which indicates its acquiescence in, any of the foregoing; in each of
the foregoing situations, whether under the laws of the United States or the analogous laws of any
foreign jurisdiction.

“Loan Agreement” means each agreement (if, as and when executed by the Company and the
Lender) pursuant to or in connection with which any financial accommodation is extended by the
Lender to or on behalf of the Company, including, without limitation, the Note.

“NYUCC” means the Uniform Commercial Code of the State of New York (as currently in
effect and as the same may from time to time hereafter be amended).

“Patents” means (i) all United States or other patents which the Company may from time
to time possess or be otherwise entitled to use, and all licenses of United States or other patents
which the Company may from time to time possess or be otherwise entitled to use (including without
limitation the patents described in Section 8(f) hereof), (ii) all re-issues, divisions,
continuations, renewals, extensions and continuations-in-part thereof, (iii) the right to sue for
past, present and future infringements of the foregoing, and (iv) all rights corresponding to all
of the foregoing throughout the world.

“Payment Default” means the failure by the Company to make any payment required to be
made by it pursuant to any Transaction Document to which it is a party at the time when same is due
(after giving effect to any applicable cure period).

“Person” shall mean and include an individual, a partnership, a corporation (including
a business trust), a joint stock company, a limited liability company, a not-for-profit corporation
or other not-for-profit entity, a trust, an unincorporated association, a joint venture or other
entity or a Government Authority.

“Secured Obligations” means all of the indebtedness, obligations and liabilities of
the Company to the Lender, whether direct or indirect, joint or several, absolute or contingent,
due or to become due, now existing or hereafter arising, pursuant to one or more of the Transaction
Documents.

“State” means the State of New York.

“Trademarks” means (i) all United States or other trademarks which the Company may
from time to time possess or be otherwise entitled to use, together with the goodwill of the
business connected with the use of, and symbolized by, such trademarks (together with the
trademarks described in Section 8(f) hereof), (ii) all re-issues, divisions, continuations,
renewals, extensions and continuations-in-part thereof, (iii) the right to sue for past, present
and future infringements of the foregoing, and (iv) all rights corresponding to all of the
foregoing throughout the world (excluding intent-to-use United States applications prior to their
conversion into use-based applications).

(e) Unless otherwise specified, each reference in this Agreement or in any other Transaction
Document to a Transaction Document shall mean such Transaction Document as the same may from time
to time be amended, restated, replaced, supplemented or otherwise modified from time to time with
the consent of the Lender.

(f) As used in this Agreement, the terms “including,” “including without limitation” and “such
as” (and like terms) are illustrative and not limitative. No difference shall be imputed to the use
in some places herein of “including” and in others of “including without limitation.” Phrases such
as “hereof” and “herein” refer to the entire Agreement and not just the section or other portion in
which said reference appears.

2. Grant of Security Interest.

(a) The Company hereby grants to the Lender, to secure the payment and performance in full of
all of the Secured Obligations, a security interest in and so pledges and assigns to the Lender all
the Company’s interest in Converted Organics of California LLC, a California limited liability
company, and any and all assets that are acquired by the use of the funds from the Subscription
Agreement. In addition, the Company grants the Lender a security interest in the Company’s interest
in Converted Organics of Woodbridge, LLC, a New Jersey limited liability company, and all of its
assets subordinate only to the current lien held by the holder of the current debt issued in
connection with the initial plant of approximately $17,500,000, wherever located, whether now owned
or hereafter acquired or arising, and all Proceeds and products thereof; all personal and fixture
property of every kind and nature including without limitation all Goods (including Inventory,
Equipment and any Accessions thereto), Instruments (including Promissory Notes), Documents,
Accounts, Chattel Paper (whether Tangible Chattel Paper or Electronic Chattel Paper), Deposit
Accounts, Letter-of-Credit Rights (whether or not the Letter of Credit is evidenced by a writing),
Commercial Tort Claims, Investment Property, Subsidiaries (as defined in the Subscription
Agreement) whether now existing or existing in the future, Supporting Secured Obligations, any
other contract rights or rights to the payment of money, insurance claims and proceeds, tort
claims, and all General Intangibles (including all Payment Intangibles and all Proceeds of the
foregoing) (all of the same listed in this Section 2 being hereinafter called, the
“Collateral”). The Lender acknowledges that the attachment of its security interest in any
Commercial Tort Claim as original collateral is subject to the Company’s compliance with
Section 4(g).

(b) Lender at all times shall have a perfected security interest in the Collateral. Company
represents that, other than the security interests described on Schedule 2, if any, it has and will
continue to have full title to the Collateral free from any liens, leases, encumbrances, judgments
or other claims. The Lender’s security interest in the Collateral constitutes and will continue to
constitute a first, prior and indefeasible security interest in favor of Lender, subject only to
the security interests described on Schedule 2, if any, and as set forth in Section 2(a) hereof
Company will do all acts and things, and will execute and file all instruments (including, but not
limited to, security agreements, financing statements, continuation statements, etc.) reasonably
requested by Lender to establish, maintain and continue the perfected security interest of Lender
in the perfected Collateral, and will promptly on demand, pay all costs and expenses of filing and
recording, including the costs of any searches reasonably deemed necessary by Lender from time to
time to establish and determine the validity and the continuing priority of the security interest
of Lender, and also pay all other claims and charges that, in the opinion of Lender are reasonably
likely to materially prejudice, imperil or otherwise affect the Collateral or Lender’s security
interests therein.

3. Authorization to File Financing Statements. The Company hereby irrevocably
authorizes the Lender at any time and from time to time to file in any Uniform Commercial Code
jurisdiction any initial Financing Statements and amendments thereto that (a) indicate the
Collateral (i) as all assets of the Company or words of similar effect, regardless of whether any
particular asset included in the Collateral falls within the scope of Article 9 of the NYUCC, or
(ii) as being of an equal or lesser scope or with greater detail, and (b) contain any other
information required by part 5 of Article 9 of the NYUCC for the sufficiency or filing office
acceptance of any Financing Statement or amendment, including (i) whether the Company is an
organization, the type of organization and any organization identification number issued to the
Company and, (ii) in the case of a Financing Statement filed as a fixture filing or indicating
Collateral as as-extracted collateral or timber to be cut, a sufficient description of real
property to which the Collateral relates. The Company agrees to furnish any such information to the
Lender promptly upon request.

4. Other Actions. To further insure the attachment, perfection and priority of, and
the ability of the Lender to enforce the Lender’s security interest in the Collateral, the Company
agrees, in each case at the Company’s own expense, at any time when an Event of Default exists and
has not been cured under the terms of the Note or the terms hereof, to take the following actions
with respect to the Collateral:

(a) Promissory Notes and Tangible Chattel Paper. If the Company shall at any time hold
or acquire any Promissory Notes or Tangible Chattel Paper, the Company shall (unless required
otherwise by another Loan Document) forthwith endorse, assign and deliver the same to the Lender,
accompanied by such instruments of transfer or assignment duly executed in blank as the Lender may
from time to time specify.

(b) [Reserved].

(c) Investment Property. If the Company shall at any time hold or acquire any
Certificated Securities, the Company shall forthwith endorse, assign and deliver the same to the
Lender, accompanied by such instruments of transfer or assignment duly executed in blank as the
Lender may from time to time specify. If any securities now or hereafter acquired by the Company
are uncertificated and are issued to the Company or its nominee directly by the issuer thereof, the
Company shall immediately notify the Lender thereof and, at the Lender’s request and option,
pursuant to an agreement in form and substance satisfactory to the Lender, cause the issuer to
agree to comply with instructions from the Lender as to such securities, without further consent of
the Company or such nominee. If any securities, whether certificated or uncertificated, or other
Investment Property now or hereafter acquired by the Company are held by the Company or its nominee
through a Securities Intermediary or Commodity Intermediary, the Company shall immediately notify
the Lender thereof and, at the Lender’s request and option, pursuant to an agreement in form and
substance satisfactory to the Lender, either (i) cause such Securities Intermediary or (as the case
may be) Commodity Intermediary to agree to comply with entitlement orders or other instructions
from the Lender to such Securities Intermediary as to such securities or other Investment Property,
or (as the case may be) to apply any value distributed on account of any commodity contract as
directed by the Lender to such Commodity Intermediary, in each case without further consent of the
Company or such nominee, or (ii) in the case of financial assets or other Investment Property held
through a Securities Intermediary, arrange for the Lender to become the entitlement holder with
respect to such Investment Property, with the Company being permitted, only with the consent of the
Lender, to exercise rights to withdraw or otherwise deal with such Investment Property. The Lender
agrees with the Company that the Lender shall not give any such entitlement orders or instructions
or directions to any such issuer, Securities Intermediary or Commodity Intermediary, and shall not
withhold its consent to the exercise of any withdrawal or dealing rights by the Company, unless an
Event of Default exists (or would exist after giving effect to any such investment or withdrawal).
The provisions of this paragraph shall not apply to any financial assets credited to a securities
account for which the Lender is the Securities Intermediary.

(d) Collateral in the Possession of a Bailee. If any goods are at any time in the
possession of a bailee, the Company shall promptly notify the Lender thereof and, if requested by
the Lender, shall promptly obtain an acknowledgment from the bailee, in form and substance
satisfactory to the Lender, that the bailee holds such Collateral for the benefit of the Lender and
shall act upon the instructions of the Lender, without the further consent of the Company.

(e) Electronic Chattel Paper and Transferable Records. If the Company at any time
holds or acquires an interest in any Electronic Chattel Paper or any “transferable record,” as that
term is defined in Section 201 of the federal Electronic Signatures in Global and National Commerce
Act, or in §16 of the Uniform Electronic Transactions Act as in effect in any relevant
jurisdiction, the Company shall promptly notify the Lender thereof and, at the request of the
Lender, shall take such action as the Lender may reasonably request to vest in the Lender control,
under §9-105 of the NYUCC, of such Electronic Chattel Paper or control under Section 201 of the
federal Electronic Signatures in Global and National Commerce Act or, as the case may be, §16 of
the Uniform Electronic Transactions Act, as so in effect in such jurisdiction, of such transferable
record.

(f) Letter-of-Credit Rights. If the Company is at any time a beneficiary under a
letter of credit now or hereafter issued in favor of the Company, the Company shall promptly notify
the Lender thereof and, at the request and option of the Lender at any time when an Event of
Default exists, the Company shall, pursuant to an agreement in form and substance satisfactory to
the Lender, either (i) arrange for the issuer and any confirmer of such letter of credit to consent
to an assignment to the Lender of the proceeds of any drawing under the letter of credit or
(ii) arrange for the Lender to become the transferee beneficiary of the letter of credit, with the
Lender agreeing, in each case, that the proceeds of any drawing under the letter of credit shall be
held as collateral for the Secured Obligations.

(g) Commercial Tort Claims. If the Company shall at any time hold or acquire a
Commercial Tort Claim, the Company shall immediately notify the Lender in a writing signed by the
Company of the brief details thereof and grant to the Lender in such writing a security interest
therein and in the proceeds thereof, all upon the terms of this Agreement, with such writing to be
in form and substance satisfactory to the Lender.

(h) Other Actions as to any and all Collateral. The Company further agrees to take any
other action reasonably requested by the Lender to insure the attachment, perfection and first
priority of, and the ability of the Lender to enforce, the Lender’s security interest in any and
all of the Collateral including, without limitation, (1) executing, delivering and, where
appropriate, filing Financing Statements and amendments relating thereto under the Uniform
Commercial Code, to the extent, if any, that the Company’s signature thereon is required therefor,
(2) causing the Lender’s name to be noted as secured party on any certificate of title for a titled
good if such notation is a condition to attachment, perfection or priority of, or ability of the
Lender to enforce, the Lender’s security interest in such Collateral, (3) complying with any
provision of any statute, regulation or treaty of the United States or any foreign jurisdiction to
any Collateral if compliance with such provision is a condition to attachment, perfection or
priority of (or comparable concepts under the laws of the United States or any foreign
jurisdiction), or ability of the Lender to enforce, the Lender’s security interest in such
Collateral, (4) making such filings in the United States Copyright Office and the United States
Patent and Trademark Office as the Lender shall request to register, file or otherwise confirm
Lender’s security interest in intellectual property, or rights therein, held by the Company,
(5) obtaining governmental and other third party consents and approvals, including without
limitation any consent of any licensor, lessor or other person obligated on Collateral,
(6) obtaining waivers from mortgagees and landlords in form and substance satisfactory to the
Lender and (7) taking all actions required by any earlier versions of the Uniform Commercial Code
or by other law, as applicable in any relevant Uniform Commercial Code jurisdiction, or by other
law as applicable in any foreign jurisdiction.

5. Conflicts; Other Jurisdictions. In the case of any direct conflict between the
provisions of this Agreement and any other Transaction Document, whether governed by the laws of
the United States, any state therein or any other jurisdiction, those provisions shall control
which afford to the Secured Party the greater rights, security and indemnification. Without
limiting the generality of the foregoing, the parties hereto acknowledge that the inclusion of
supplemental rights or remedies in favor of the Secured Party with respect to any Collateral in any
such Transaction Document shall not be deemed a conflict with this Agreement.

6. Representations and Warranties. The Company hereby makes the following
representations and warranties to the Lender, which representations and warranties shall survive
the execution, delivery and performance of this Agreement and the other Transaction Documents:

(a) All of the representations and warranties made by the Company in any of the Transaction
Documents are incorporated herein by this reference.

(b) The Company is the owner of, or has other rights in, the Collateral, free from any adverse
lien, security interest or other encumbrance, except for the security interest created by this
Agreement and other liens permitted by the Transaction Documents or listed on Schedule 6(b)
attached hereto.

(c) None of the account debtors or other persons materially obligated on any of the Collateral
is a governmental authority subject to the Federal Assignment of Claims Act or like federal, state
or local statute or rule in respect of such Collateral.

(d) To the Company’s knowledge, the Company holds no Commercial Tort Claim.

(e) The Company has at all times operated its business in compliance with all applicable
material provisions of the federal Fair Labor Standards Act, as amended, and with all applicable
provisions of federal, state and local statutes and ordinances dealing with the control, shipment,
storage or disposal of hazardous materials or substances, except where the failure to do so would
not be expected to have a Material Adverse Effect.

(f) On the date hereof, excluding such securities of the Subsidiaries, the Company does not
hold or have any interest in (directly or through a nominee or through a Securities Intermediary or
Commodity Intermediary) any Investment Property (whether Certificated Securities, Uncertificated
Securities or otherwise).

(g) On the date hereof:

(i) the Company does not hold or otherwise have any material interest in any Electronic
Chattel Paper or any such transferable record.

(ii) the Company is not a beneficiary under a letter of credit issued in favor of the Company.

(iii) the Company possesses no rights in any material or significant copyrights, regardless of
whether same have been registered with the United States Copyright Office or not.

7. [Reserved].

8. Special Provisions Concerning Trademarks and Patents.

(a) The Company (either itself or through licensees) will, for each Patent, not do any act, or
omit to do any act, whereby any Patent which is material to the conduct of the Company’s business
may become abandoned or dedicated.

(b) The Company shall notify the Lender immediately if it knows or has reason to know that any
application or registration relating to any Patent or Trademark which is material to the conduct of
the Company’s business may become abandoned or dedicated, or of any adverse determination or
development (including, without limitation, the institution of, or any such determination or
development in, any proceeding in the United States Patent and Trademark Office or any court)
regarding the Company’s ownership of any Patent or Trademark which is material to the Company’s
business, its right to register the same, or to keep and maintain the same.

(c) In no event shall the Company, either itself or through any agent, employee, licensee or
designee, file an application for the registration of any Patent or Trademark with the United
States Patent and Trademark Office or any similar office or agency in any other country or any
political subdivision thereof, unless it promptly informs the Lender, and, upon request of the
Lender, executes and delivers any and all agreements, instruments, documents, and papers as the
Lender may request to evidence the Lender’s security interest in such Patent or Trademark and the
goodwill and general intangibles of the Company relating thereto or represented thereby, and the
Company hereby constitutes the Lender its attorney-in-fact after an Event of Default has occurred
(which has not been waived and only during the continuation of such Event of Default) to execute
and file all such writings for the foregoing purposes, all acts of such attorney being hereby
ratified and confirmed; such power, being coupled with an interest, is irrevocable until the
Secured Obligations are paid in full.

(d) The Company will take all necessary steps that are consistent with good business practices
in any proceeding before the United States Patent and Trademark Office or any similar office or
agency in any other country or any political subdivision thereof, to maintain and pursue each
application relating to the Patents (and to obtain the relevant registration) and to maintain each
registration of each of the Patents which is material to the conduct of the Company’s business,
including, without limitation, filing of applications for renewal, affidavits of use, affidavits of
incontestability and opposition, interference and cancellation proceedings.

(e) In the event that any Collateral consisting of a Patent material to the business is
infringed, misappropriated or diluted by a third party, the Company shall notify the Lender within
(30) days after it learns thereof and shall, if consistent with good business practice and in its
reasonable discretion, promptly sue for infringement, misappropriation or dilution and to recover
any and all damages for such infringement, misappropriation or dilution, and take such other
actions as are appropriate under the circumstances to protect such Collateral consisting of a
Patent.

(f) If, before the Secured Obligations have been satisfied in full, the Company obtains rights
to any new trademark material to its business or new patent, or becomes entitled to the benefit of
any trademark material to its business or patent application or patent for any reissue, division,
continuation, renewal, extension, or continuation-in-part of any Patent, or any improvement on any
Patent, or any Trademark, the provisions of Section 2 hereof shall automatically apply thereto and
the Company shall give the Lender prompt notice thereof in writing.

(g) The Company shall have the duty reasonably exercised, through counsel reasonably
acceptable to the Lender, to prosecute diligently any patent or trademark application pending as of
the date of this Agreement or thereafter until the Secured Obligations have been paid in full, to
make application on unpatented but patentable inventions and to preserve and maintain all rights in
patent and trademark applications; provided, however, that the Company shall have
no obligation to make application on any unpatented but patentable inventions if making such
application would be unnecessary or imprudent in the good faith business judgment of the Company or
if Company’s management believes in good faith that the foregoing actions would not be in the best
interests of the Company. Any expenses incurred in connection with such an application shall be
borne by the Company.

(h) During an Event of Default, the Lender shall have the right but shall in no way be
obligated to bring suit in its own name to enforce the Patents and Trademarks and any license
thereunder, in which event the Company shall, at the request of the Lender, do any and all lawful
acts and execute any and all proper documents required by the Lender in aid of such enforcement
action and indemnify the Lender for all costs and expenses incurred by the Lender in the exercise
of its rights under this Section (h).

(i) The Company represents and warrants that (x) it has no Patents or Trademarks which are
material to the business or operations of the Company or otherwise important to the Company except
such as are listed on Schedule 9(l) to the Subscription Agreement, and (y) it is not the holder,
owner or licensee of any copyright (i) material to its business or (ii) which has been registered
with the United States Copyright Office.

(j) The Lender may make all filings with the U.S. Patent and Trademark Office reasonably
necessary or prudent to memorialize and evidence the security agreement granted in this Agreement.

9. Covenants Concerning Company’s Legal Status. The Company covenants with the Lender
as follows: (a) without providing at least 60 days prior written notice to the Lender, the Company
will not change its name, its place of business or, if more than one, chief executive office, or
its mailing address or organizational identification number if it has one, (b) if the Company does
not have an organizational identification number and later obtains one, the Company shall forthwith
notify the Lender of such organizational identification number, and (c) the Company will not change
its type of organization, jurisdiction of organization or other legal structure.

10. Covenants Concerning Collateral, Etc. The Company further covenants with the
Lender as follows:

(a) The Collateral, to the extent not delivered to the Lender pursuant to Section 4, will be
kept at those locations listed on Schedule 10 hereto, and the Company will not remove the
Collateral from such locations (except for the sale of Inventory in the ordinary course of the
Company’s business) without providing at least 60 days (or such lesser number of days agreed to at
the relevant time by the Lender) prior written notice to the Lender.

(b) Except for the security interest herein granted and liens permitted pursuant to the
Transaction Documents: (1) the Company is and shall be the owner of or have other rights in the
Collateral free from any lien, security interest or other encumbrance, and (2) the Company shall
defend the same against all claims and demands of all persons at any time claiming the same or any
interests therein adverse to the Lender.

(c) The Company shall not pledge, mortgage or create, or suffer to exist a security interest
in the Collateral in favor of any person other than the Lender except for liens permitted by or
disclosed in the Transaction Documents.

(d) The Company will keep the Collateral in good order and repair (reasonable wear and tear
excepted) and will not use the same in violation of law or any policy of insurance thereon.

The Company will permit the Lender, or its designee, to inspect the Collateral (wherever
located) at any reasonable time.

(f) The Company will pay promptly when due all taxes, assessments, governmental charges and
levies upon the Collateral or incurred in connection with the use or operation of such Collateral
or incurred in connection with this Agreement (except for taxes, assessments and government charges
which are being contested in good faith and by appropriate proceedings diligently conducted and the
Company has set aside on its books adequate reserves therefor in accordance with generally accepted
accounting principles).

(h) The Company will continue to operate its business in compliance with all applicable
provisions of the federal Fair Labor Standards Act, as amended, and with all applicable provisions
of federal, state and local statutes and ordinances dealing with the control, shipment, storage or
disposal of hazardous materials or substances.

(i) The Company will not sell or otherwise dispose, or offer to sell or otherwise dispose, of
the Collateral or any interest therein except for (1) sales and leases of Inventory, and licenses
of general intangibles, in the ordinary course of the Company’s business and (2) sales or other
dispositions of obsolescent items of equipment in the ordinary course of business consistent with
the Company’s past practices except to the extent same is prohibited by the Transaction Documents.

(j) The Company shall cause each Subsidiary of the Company in existence on the date hereof,
excluding any Subsidiaries that do not have any material assets, and each future Subsidiary shall
execute and deliver to Lender promptly and in any event within ten (10) days after the formation,
acquisition or change in status thereof (a) a guaranty guaranteeing the Secured Obligations, and
(b) if requested by Lender, a security and pledge agreement substantially in the form of this
Agreement together with (i) certificates evidencing all of the capital stock of each Subsidiary of
and any entity owned by such Subsidiary, (ii) undated stock powers executed in blank with
signatures guaranteed, and (iii) such opinion of counsel and such approving certificate of such
Subsidiary as Lender may reasonably request in respect of complying with any legend on any such
certificate or any other matter relating to such shares, or other documents reasonably requested by
Lender in order to create, perfect, establish the first priority of or otherwise protect any lien
purported to be covered by any such pledge and security agreement or otherwise to effect the intent
that all property and assets of such Subsidiary shall become Collateral for the Secured
Obligations. Schedule 10(j) annexed hereto contains a list of all Subsidiaries of the Company that
have material assets of the Company as of the date of this Agreement indicating thereon which such
Subsidiaries have material assets and which such Subsidiaries do not have material assets.

11. Insurance. The Company will maintain with financially sound and reputable insurers
insurance with respect to its properties and business against loss and damage by fire and other
risks, casualties and contingencies in such manner and to the extent that like properties are
customarily so insured by other corporations engaged in the same or similar business similarly
situated.

12. Collateral Protection Expenses; Preservation of Collateral.

(a) Expenses Incurred by Lender. In its reasonable discretion, the Lender may
discharge taxes and other encumbrances at any time levied or placed on any of the Collateral, make
repairs thereto and pay any necessary filing fees or, if the Company fails to do so, insurance
premiums. The Company agrees to reimburse the Lender on demand for any and all reasonable
expenditures so made. The Lender shall have no obligation to the Company to make any such
expenditures, nor shall the making thereof relieve the Company of any default.

(b) Lender’s Obligations and Duties. Anything herein to the contrary notwithstanding,
the Company shall remain liable for its obligations under each contract or agreement included in
the Collateral. The Lender shall not have any obligation or liability under any such contract or
agreement by reason of or arising out of this Agreement or the receipt by the Lender of any payment
relating to any of the Collateral, nor shall the Lender be obligated in any manner to perform any
of the obligations of the Company under or pursuant to any such contract or agreement, to make
inquiry as to the nature or sufficiency of any payment received by the Lender in respect of the
Collateral or as to the sufficiency of any performance by any party under any such contract or
agreement, to present or file any claim, to take any action to enforce any performance or to
collect the payment of any amounts which may have been assigned to the Lender or to which the
Lender may be entitled at any time or times. The Lender’s sole duty with respect to the custody,
safe keeping and physical preservation of the Collateral in its possession, under §9-207 of the
NYUCC of the State or otherwise, shall be to deal with such Collateral in the same manner as the
Lender deals with similar property for its own account.

13. Notification to Account Debtors and Other Persons Obligated on Collateral.
Whenever an Event of Default exists which has not been waived and only during the continuation
of such Event of Default, the Company shall, at the request of the Lender, notify account debtors
and other persons obligated on any of the Collateral of the security interest of the Lender in any
Account, Chattel Paper, General Intangible, Instrument or other Collateral and that payment thereof
is to be made directly to the Lender or to any financial institution designated by the Lender as
the Lender’s agent therefor, and the Lender may itself, whenever an Event of Default exists ,
without notice to or demand upon the Company, so notify account debtors and other persons obligated
on Collateral. After the making of such a request or the giving of any such notification, the
Company shall hold as trustee for the Lender any Proceeds of collection of Accounts, Chattel Paper,
General Intangibles, Instruments and other Collateral received by the Company without commingling
the same with other funds of the Company and shall turn the same over to the Lender in the
identical form received, together with any necessary endorsements or assignments. The Lender, at
its option, shall apply the Proceeds of collection of Accounts, Chattel Paper, General Intangibles,
Instruments and other Collateral received by the Lender to the Secured Obligations, such Proceeds
to be immediately entered after final payment in cash or other immediately available funds of the
items giving rise to them, or hold such Proceeds as collateral for the Secured Obligations.

14. Power of Attorney.

(a) Appointment and Powers of Lender. The Company hereby irrevocably constitutes and
appoints the Lender and any officer or agent thereof, with full power of substitution, as its true
and lawful attorneys-in-fact with full irrevocable power and authority in the place and stead of
the Company or in the Lender’s own name, solely to do the following:

(i) whenever an Event of Default exists which has not been waived and only during the
continuation of such Event of Default, generally to sell, transfer, pledge, make any agreement with
respect to or otherwise deal with any of the Collateral in such manner as is consistent with the
NYUCC and as fully and completely as though the Lender was the absolute owner thereof for all
purposes, and to do at the Company’s expense, at any time, or from time to time, all acts and
things which the Lender deems reasonably necessary to protect, preserve or realize upon the
Collateral and the Lender’s security interest therein, in order to effect the intent of this
Agreement, all as fully and effectively as the Company might do, including, without limitation,
(i) the filing and prosecuting of registration and transfer applications with the appropriate
federal or local agencies or authorities with respect to trademarks, copyrights and patentable
inventions and processes, and (ii) the execution, delivery and recording, in connection with any
sale or other disposition of any Collateral, of the endorsements, assignments or other instruments
of conveyance or transfer with respect to such Collateral; and

(ii) to the extent that the Company’s authorization given in Section 3 is not sufficient, to
file such Financing Statements with respect hereto, with or without the Company’s signature, or a
photocopy of this Agreement in substitution for a Financing Statement, as the Lender may deem
appropriate and to execute in the Company’s name such Financing Statements and amendments thereto
and continuation statements which may require the Company’s signature.

(b) Ratification by Company. To the extent permitted by law, the Company hereby
ratifies all that said attorneys shall lawfully do or cause to be done by virtue of this Agreement.
This power of attorney is a power coupled with an interest and shall be irrevocable.

(c) No Duty on Lender. The powers conferred on the Lender hereunder are solely to
protect its interests in the Collateral and shall not impose any duty upon it to exercise any such
powers. The Lender shall be accountable only for the amounts that it actually receives as a result
of the exercise of such powers and neither it nor any of its officers, directors, employees or
agents shall be responsible to the Company for any act or failure to act, except for the Lender’s
own gross negligence or willful misconduct.

(d) Expiration of Power of Attorney. The appointment of the Lender as the Company’s
attorney-in-fact shall expire effective upon the final and indefeasible payment and satisfaction
and discharge in full by the Company of all of the Secured Obligations.

15. Remedies.

(a) Whenever an Event of Default exists, the Lender may, without notice to or demand upon the
Company, declare this Agreement to be in default, and the Lender shall thereafter have in any
jurisdiction in which enforcement hereof is sought, in addition to all other rights and remedies,
the rights and remedies of a secured party under the NYUCC or of any other jurisdiction in which
Collateral is located, including, without limitation, the right to take possession of the
Collateral, and for that purpose the Lender may, so far as the Company can give authority therefor,
enter upon any premises on which the Collateral may be situated and remove the same therefrom. The
Lender may in its discretion require the Company to assemble all or any part of the Collateral at
such location or locations within the jurisdiction(s) of the Company’s principal office(s) or at
such other locations as the Lender may reasonably designate. Unless the Collateral is perishable
or threatens to decline speedily in value or is of a type customarily sold on a recognized market,
the Lender shall give to the Company at least ten Business Days prior written notice of the time
and place of any public sale of Collateral or of the time after which any private sale or any other
intended disposition is to be made. The Company hereby acknowledges that ten Business Days prior
written notice of such sale or sales shall be reasonable notice. In addition, the Company waives
any and all rights that it may have to a judicial hearing in advance of the enforcement of any of
the Lender’s rights hereunder, including, without limitation, the Lender’s right following an Event
of Default to take immediate possession of the Collateral and to exercise its rights with respect
thereto. To the extent allowed by law, Lender may purchase the Collateral and pay for such
purchase by offsetting the purchase price with sums owed to Lender by Debtor arising under the
Secured Obligations or any other source.

(b) Without limiting, and in addition to, any other rights, options and remedies Lender has
under the Transaction Documents, the UCC, at law or in equity, or otherwise, upon the occurrence
and continuation of an Event of Default, Lender shall have the right to apply for and have a
receiver appointed by a court of competent jurisdiction. Debtor expressly agrees that such a
receiver will be permitted to manage, protect and preserve the Collateral and continue the
operation of the business of Debtor to the extent necessary to collect all revenues and profits
thereof and to apply the same to the payment of all expenses and other charges of such
receivership, including the compensation of the receiver, until a sale or other disposition of such
Collateral shall be finally made and consummated. Debtor waives any right to require a bond to be
posted by or on behalf of any such receiver.

16. Standards for Exercising Remedies. To the extent that applicable law imposes
duties on the Lender to exercise remedies in a commercially reasonable manner, the Company
acknowledges and agrees that it is not commercially unreasonable for the Lender (a) to incur or
fail to incur expenses reasonably deemed necessary by the Lender to prepare Collateral for
disposition or otherwise to complete raw material or work in process into finished goods or other
finished products for disposition, (b) to fail to obtain third party consents for access to
Collateral to be disposed of, or to obtain or (if not required by other law) to fail to obtain
governmental or third party consents for the collection or disposition of Collateral to be
collected or disposed of, (c) to fail to exercise collection remedies against account debtors or
other persons obligated on Collateral or to fail to remove liens or encumbrances on or any adverse
claims against Collateral, (d) to exercise collection remedies against account debtors and other
persons obligated on Collateral directly or through the use of collection agencies and other
collection specialists, (e) to advertise dispositions of Collateral through publications or media
of general circulation, whether or not the Collateral is of a specialized nature, (f) to contact
other persons, whether or not in the same business as the Company, for expressions of interest in
acquiring all or any portion of the Collateral, (g) to hire or fail to hire one or more
professional auctioneers to assist in the disposition of Collateral, whether or not the collateral
is of a specialized nature, (h) to dispose of Collateral by utilizing Internet sites that provide
for the auction of assets of the types included in the Collateral or that have the reasonable
capability of doing so, or that match buyers and sellers of assets, (i) to dispose of assets in
wholesale rather than retail markets, (j) to disclaim disposition warranties, (k) to purchase
insurance or credit enhancements to insure the Lender against risks of loss, collection or
disposition of Collateral or to provide to the Lender a guaranteed return from the collection or
disposition of Collateral, or (l) to the extent deemed appropriate by the Lender, to obtain the
services of other brokers, investment bankers, consultants and other professionals to assist the
Lender in the collection or disposition of any of the Collateral. The Company acknowledges that the
purpose of this Section 16 is to provide non-exhaustive indications of what actions or omissions by
the Lender would not be commercially unreasonable in the Lender’s exercise of remedies against the
Collateral and that other actions or omissions by the Lender shall not be deemed commercially
unreasonable solely on account of not being indicated in this Section 16. Without limitation upon
the foregoing, nothing contained in this Section 16 shall be construed to grant any rights to the
Company or to impose any duties on the Lender that would not have been granted or imposed by this
Agreement or by applicable law in the absence of this Section 16.

17. No Waiver by Lender, etc. The Lender shall not be deemed to have waived any of its
rights upon or under the Secured Obligations or the Collateral unless such waiver shall be in
writing and signed by the Lender and any other person or entity required by the Note to sign such
waiver. No delay or omission on the part of the Lender in exercising any right shall operate as a
waiver of such right or any other right. A waiver on any one occasion shall not be construed as a
bar to or waiver of any right on any future occasion. All rights and remedies of the Lender with
respect to the Secured Obligations or the Collateral, whether evidenced hereby or by any other
instrument or papers, shall be cumulative and may be exercised singularly, alternatively,
successively or concurrently at such time or at such times as the Lender deems expedient.

18. Suretyship Waivers by Company. Except as expressly provided herein, the Company
waives demand, notice, protest, notice of acceptance of this Agreement, notice of loans made,
credit extended, Collateral received or delivered or other action taken in reliance hereon and all
other demands and notices of any description. With respect to both the Secured Obligations and the
Collateral, the Company assents to any extension or postponement of the time of payment or any
other indulgence, to any substitution, exchange or release of or failure to perfect any security
interest in any Collateral, to the addition or release of any party or person primarily or
secondarily liable, to the acceptance of partial payment thereon and the settlement, compromising
or adjusting of any thereof, all in such manner and at such time or times as the Lender may
reasonably deem advisable. The Lender shall have no duty as to the collection or protection of the
Collateral or any income thereon, nor as to the preservation of rights against prior parties, nor
as to the preservation of any rights pertaining thereto beyond the safe custody thereof as set
forth in Section 12(b). The Company further waives any and all other suretyship defenses.

19. Marshalling. The Lender shall not be required to marshal any present or future
collateral security (including but not limited to this Agreement and the Collateral) for, or other
assurances of payment of, the Secured Obligations or any of them or to resort to such collateral
security or other assurances of payment in any particular order, and all of its rights hereunder
and in respect of such collateral security and other assurances of payment shall be cumulative and
in addition to all other rights, however existing or arising. To the extent that it lawfully may,
the Company hereby agrees that it will not invoke any law relating to the marshalling of collateral
which might cause delay in or impede the enforcement of the Lender’s rights under this Agreement or
under any other instrument creating or evidencing any of the Secured Obligations or under which any
of the Secured Obligations is outstanding or by which any of the Secured Obligations is secured or
payment thereof is otherwise assured, and, to the extent that it lawfully may, the Company hereby
irrevocably waives the benefits of all such laws.

20. Proceeds of Dispositions; Expenses. Upon an Event of Default, and subject to the
Company’s receipt from the Lender of an accounting of such expenses, the Company shall pay to the
Lender on demand any and all expenses, including reasonable attorneys’ fees and disbursements,
incurred or paid by the Lender in protecting, preserving or enforcing the Lender’s rights under or
in respect of any of the Secured Obligations or any of the Collateral, or otherwise in connection
with this Agreement. After deducting all of said expenses, the residue of any proceeds of
collection or sale of the Secured Obligations or Collateral shall, to the extent actually received
in cash, be applied to the payment of the Secured Obligations in such order or preference as the
Lender may determine or held by it as otherwise provided in the Note, proper allowance and
provision being made for any Secured Obligations not then due. Upon the final payment and
satisfaction in full of all of the Secured Obligations and after making any payments required by
Sections 9-608(a)(1)(C) or 9-615(a)(3) of the NYUCC or other applicable law, any excess shall be
returned to the Company, and the Company shall remain liable for any deficiency in the payment of
the Secured Obligations.

21. Overdue Amounts. Until paid, all amounts due and payable by the Company hereunder
shall be a debt secured by the Collateral and shall bear, whether before or after judgment,
interest (to the fullest extent permitted by applicable law) at the rate of eighteen percent (18%)
per annum..

22. Governing Law. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAWS OF THE STATE OF NEW
YORK WITHOUT REFERENCE TO CHOICE OF LAW DOCTRINE THAT WOULD RESULT IN THE APPLICATION OF THE LAWS
OF ANOTHER JURISDICTION, except to the extent that matters of title or procedural issues of
foreclosure are required to be governed by the laws of the state in which the Collateral, or part
thereof, is located.

23. Jurisdiction. The Company hereby agrees that ANY LEGAL ACTION OR PROCEEDING
AGAINST THE COMPANY WITH RESPECT TO THIS AGREEMENT OR ANY OTHER TRANSACTION DOCUMENT MAY BE BROUGHT
IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT
OF NEW YORK AS THE LENDER MAY ELECT, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT THE COMPANY
ACCEPTS AND CONSENTS FOR ITSELF AND IN RESPECT TO ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE
JURISDICTION OF THE AFORESAID COURTS AND AGREES THAT SUCH JURISDICTION SHALL BE EXCLUSIVE, unless
waived by the Lender in writing, with respect to any action or proceeding brought by the Company
against the Lender, and further consents (to the extent permitted by applicable law) to the service
of process in any such action or proceeding being made upon the Company by mail at the address
stated in Section 24(h) or at such other address as the Lender are notified of in accordance with
Section 24(h) hereof. The Company hereby waives any objection that it may now or hereafter have to
the venue of any such suit or any such court or that such suit is brought in an inconvenient court.
Nothing herein shall limit the right of the Lender to bring proceedings against the Company in the
courts of any other jurisdiction. The Company covenants that it is and will remain subject to
service of process in the State of New York so long as any of the Secured Obligations is
outstanding. Nothing herein shall affect the right of the Lender to serve process in any other
manner permitted by law.

24. Miscellaneous.

(a) No Waiver. No delay on the part of the Lender in exercising any of its rights,
remedies, powers and privileges hereunder or partial or single exercise thereof, shall constitute a
waiver thereof. None of the terms and conditions of this Agreement may be changed, waived, modified
or varied in any manner whatsoever unless in writing duly signed by the Company and the Lender. No
notice to or demand on the Company in any case shall entitle the Company to any other or further
notice or demand in similar or other circumstances or constitute a waiver of any of the rights of
the Lender to any other or further action in any circumstances without notice or demand.

(b) Binding Effect. The obligations of the Company hereunder shall remain in full
force and effect without regard to, and shall not be impaired by, (i) any bankruptcy, insolvency,
reorganization, arrangement, readjustment, composition, liquidation or the like of the Company;
(ii) any exercise or non-exercise, or any waiver of, any right, remedy, power or privilege under or
in respect of this Agreement or any of the other Transaction Documents, any other agreement
executed in connection with any of the foregoing whereby the Company has granted any Lien to the
Lender or any other agreement executed in connection with any of the foregoing, the Secured
Obligations or any security for any of the Secured Obligations; or (iii) any amendment to or
modification of any of the foregoing; whether or not the Company shall have notice or knowledge of
any of the foregoing. The rights and remedies of the Lender herein provided are cumulative and not
exclusive of any rights or remedies which the Lender would otherwise have.

(c) No Violation. All rights, remedies and powers provided by this Agreement may be
exercised only to the extent that the exercise thereof does not violate any applicable provision of
law, and the provisions hereof are intended to be subject to all applicable mandatory provisions of
law that may be controlling and to be limited to the extent necessary so that they will not render
this Agreement invalid, unenforceable in whole or in part or not entitled to be recorded,
registered or filed under the provisions of any applicable law.

(d) No Obligation of Lender. It is expressly agreed, anything herein, in the
Transaction Documents or in any other agreement or instrument executed by the Company in connection
with any of the Transaction Documents to the contrary notwithstanding, that the Company shall
remain liable to perform all of the obligations, if any, assumed by it with respect to the
Collateral and the Lender shall not have any obligations or liabilities with respect to any
Collateral by reason of or arising out of this Agreement, nor shall the Lender be required or
obligated in any manner to perform or fulfill any of the obligations of the Company under or
pursuant to any or in respect of any Collateral.

(e) Successors. This Agreement shall be binding upon the Company and its successors
and assigns and shall inure to the benefit of the Lender and its successors and assigns, except
that the Company may not transfer or assign any of its obligations, rights or interest hereunder
without the prior written consent of the Lender and any such purported assignment by the Company
shall be void. All agreements, representations and warranties made herein shall survive the
execution, delivery and performance of this Agreement.

(f) Headings; Amendments. The descriptive headings of the several sections of this
Agreement are inserted for convenience only and shall not in any way affect the meaning or
construction of any provision of this Agreement. No provision of this Agreement shall be waived,
amended or supplemented except by a written instrument executed by the Company and the Lender.

(g) Severability. Any provision of this Agreement which 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, and any such
prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable
such provision in any other jurisdiction.

(h) Notices. All notices or other communications given or made hereunder shall be in
writing and shall be personally delivered or deemed delivered the first business day after being
faxed (provided that a copy is delivered by first class mail) to the party to receive the same at
its address set forth below or to such other address as either party shall hereafter give to the
other by notice duly made under this Section:

	 	 	 
	(i)if to the Debtor, to:
	 	Converted Organics, Inc.

7A Commercial Wharf West

Boston, MA 02110

Attn: Edward J. Gildea, CEO and President

Fax: (617) 624-0333

	With a copy by facsimile only to:
	 	Cozen O’Connor

1900 Market Street

Philadelphia, PA 19103

Attn: Cavas Pavri, Esq.

Fax: (215) 665-2013

Mintz Levin Cohn Ferris Glovsky & Popeo, P.C.

666 Third Avenue

New York, NY 10017

Attn: Kenneth R. Koch, Esq.

Fax: (212) 983-3115

	 	 	 
	To Lender:
	 	Iroquois Master Fund Ltd.

641 Lexington Avenue, 26th Floor

New York, NY 10022

Fax: (212) 207-3452

Attn: Mitchell Kulick, Esq.

	If to Debtor or Lender,

with a copy by telecopier only to:
	 	

Grushko & Mittman, P.C.

551 Fifth Avenue, Suite 1601

New York, New York 10176

Fax: (212) 697-3575

Attn: Barbara R. Mittman, Esq.

Any party may change its address by written notice in accordance with this paragraph.

(i) Counterparts. This Agreement may be executed in any number of counterparts and by
the different parties hereto on separate counterparts, each of which when so executed and delivered
shall be an original, but all of which counterparts taken together shall be deemed to constitute
one and the same instrument. Telecopied or electronically delivered signatures hereto shall be of
the same force and effect as an original of a manually signed copy.

25. Waiver of Jury Trial. EACH OF THE COMPANY AND THE LENDER HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVE ANY AND ALL RIGHTS EITHER MAY HAVE TO A TRIAL BY JURY IN
RESPECT OF ANY LITIGATION BASED ON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT
OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL
OR WRITTEN), OR ACTIONS OF THE LENDER, THE COMPANY OR ANY OTHER PERSON. Except as prohibited by
law, the Company waives any other right which it may have to claim or recover in any litigation
referred to in the preceding sentence any special, exemplary, punitive or consequential damages or
any damages other than, or in addition to, actual damages.

26. Term of Agreement. This Agreement and the security interests granted pursuant to
this Agreement shall terminate on the date on which all Secured Obligations have been indefeasibly
paid in full or the Secured Obligations have otherwise been satisfied in full and the Lender shall
immediately return any and all Collateral of the Company’s that it has received pursuant to this
Agreement to the Company and shall take such other actions to return ownership of such Collateral
to the Company as may be necessary.

1

IN WITNESS WHEREOF, the Company has caused this Agreement to be duly executed as of the date
first above written.

CONVERTED ORGANICS INC.

the “Company”

By:       

Name:

Title:

ACCEPTED:

IROQUOIS MASTER FUND LTD.

the “Lender”

By:       

Name:

Title:

LIST OF SCHEDULES TO SECURITY AGREEMENT

Schedule 2 – Other Security Interests

Schedule 6(b) – Liens

Schedule 10 – Locations of Collateral

Schedule 10(j) – List of Subsidiaries of Debtor

2

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