Document:

exh10-1.htm

Exhibit 10.1

SEPARATION AGREEMENT

Separation Agreement (“Agreement”) made as of this 15th day of April, 2010 by and between Centerline Holding Company, a Delaware business trust (“CHC”), and Centerline Capital Group, Inc., a Delaware corporation (“CCG” and together with CHC, “Centerline”), and Marc D. Schnitzer.

A.           Mr. Schnitzer is employed by CCG as Chief Executive Officer of CHC and as an officer and director of various Centerline affiliates.

B.           Mr. Schnitzer has announced his intention to retire from his employment with Centerline and resign as a trustee, director and officer of Centerline and any and all of Centerline’s parents, subsidiaries, affiliates and any other entities organized in connection with, or related to, Centerline or its affiliates (collectively, the “Company Group”); which defined term shall exclude any entities wholly owned by Schnitzer and/or his family members through which Mr. Schnitzer owns his interests in entities constituting the Company Group.

1.           Last Day of Employment.  Mr. Schnitzer’s last day of employment with Centerline shall be April 15, 2010 (the “Effective Date”).   Mr. Schnitzer agrees that except as expressly set forth herein, he shall not be entitled to any payment or benefit from Centerline subsequent to the Effective Date.

2.           Separation Benefits.  In exchange for Mr. Schnitzer’s execution of this Agreement and subject to Section 2(e) hereof, Centerline will provide Mr. Schnitzer with the benefits set forth in subsections (a) through (d) below (collectively, the “Separation Benefits”), to which he is not otherwise entitled:

(a)   Within thirty (30) days of the Effective Date, Centerline shall pay Mr. Schnitzer $ 750,000 as severance pay (the “Separation Payment”).  Mr. Schnitzer acknowledges that no payment for any bonus or wages for any prior period are due him other than unpaid base wages through the Effective Date.

(b)   Centerline shall reimburse Mr. Schnitzer for the cost of federal, state and local tax return preparation with respect to each of his 2009 and 2010 tax returns; provided, however, that the amount of the reimbursement for each of the 2009 and 2010 tax preparations shall not materially exceed the amount of reimbursement for his 2008 tax preparation.

(c)   Within thirty (30) days of the Effective Date, Centerline shall pay Mr. Schnitzer the amount of $8,780 which represents the premiums for two (2) years on a $3 million term life insurance policy owned by Mr. Schnitzer or a life insurance trust established by him or his spouse and Centerline shall have no further responsibility for payment or reimbursement of any premiums due on account of such policy.

(d)   Mr. Schnitzer (and his spouse and eligible dependents) shall be entitled to continue to participate in Centerline’s medical, dental and vision plans on the same terms and conditions as active executives of Centerline for the period extending from the Effective Date until the date which is ten (10) years from the Effective Date and Centerline shall pay the full cost of coverage; provided, however, if such continued participation is not permitted under the terms of the plans, Centerline shall use all commercially reasonable efforts to (i) assist Mr. Schnitzer (and his spouse and dependents) in obtaining coverage that is reasonably comparable to Centerline’s active employee coverage in terms of both cost to Mr. Schnitzer and range of benefits and health care providers offered, and (ii) ensure that all pre-existing condition exclusions and actively at work requirements are waived in connection with such coverage, and shall pay for such new coverage.  Mr. Schnitzer’s right to coverage pursuant to this Section 2(d) shall lapse if Mr. Schnitzer becomes a participant  in a comparable medical, dental and vision plan offered by a subsequent employer.

 

 

 

 

  

  

  

 

 

(e)           As a condition to receiving the Separation Benefits, Mr. Schnitzer agrees to execute and deliver the release attached hereto as Exhibit E (the “Release”).  If Mr. Schnitzer revokes the Release, he will not be eligible to receive the Separation Benefits.

(f)           Mr. Schnitzer shall promptly, but no later than thirty (30) days after the Effective Date, submit to Centerline all amounts which may be due him from Centerline as reimbursable expenses for payment in accordance with Centerline’s expense reimbursement policy, but no later than thirty (30) days after submission.

3.           Resignations.  On the Effective Date, Mr. Schnitzer shall resign as a trustee, director, and officer of the entities set forth on Schedule A to his resignation letter, the form of which is attached hereto as Exhibit A.  Mr. Schnitzer also shall resign as a trustee and officer of American Mortgage Acceptance Company, pursuant to a resignation letter attached hereto as part of Exhibit A.  Mr. Schnitzer shall sign the resignation letter to carry out the effect of the foregoing within five (5) days of delivery of same (such delivery to be deemed to occur in accordance with the notice delivery provisions set forth in Section 17 hereof).   In the event that it becomes evident to Centerline at any time after the Effective Date that there are additional Company Group entities that are subsidiaries of Centerline in which Mr. Schnitzer holds a position as trustee, director or officer, Centerline will so notify Mr. Schnitzer in writing and request his written resignation within five (5) business days of delivery of such written notice.  In the event Mr. Schnitzer does not respond within such five-day period, Mr. Schnitzer agrees that the Attorney-in-Fact (as defined below) may execute any such resignation letter on his behalf in accordance with Section 8 hereof.  This section shall not apply to any voting rights Mr. Schnitzer has by virtue of his position as a member of any entity, which rights shall be governed by Section 4 hereof.

4.           Schnitzer Interests. On the Effective Date, Mr. Schnitzer shall withdraw as a member of and transfer his interest in the following entities to the other members/shareholders of such entities: (i) Centerline GP Holdings LLC  (ii) Centerline GP Dispositions LLC.  and (iii) 111 Pine Avenue Court Corp.  In connection with such withdrawal and transfer Mr. Schnitzer shall execute and deliver those documents and instruments attached hereto as Exhibits B, C and D.  Centerline shall indemnify and hold Mr. Schnitzer harmless from any and all claims by third parties (including all costs and expenses) arising out of or relating to these interests, except claims arising from his fraud, gross negligence or willful wrongdoing.

 

 

 

 

  

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5.           Business Materials.  All written materials, records and documents made by Mr. Schnitzer or coming into his possession concerning the business or affairs of the Company Group shall be the sole property of Centerline and Mr. Schnitzer shall return the same to Centerline and shall retain no copies in any form or media, except as expressly permitted by Centerline; provided, however, it is understood that Mr. Schnitzer shall be entitled to retain all personal files.  Except as provided in Section 6, Mr. Schnitzer shall also return to Centerline on the Effective Date all other property in his possession owned by Centerline, including but not limited to his office keys and access card.

 

 

6.           Office Equipment.  From and after the Effective Date, Centerline shall not pay for Mr. Schnitzer’s cellular telephone, Blackberry devise or any other wireless services; provided, however, Mr. Schnitzer shall, subject to Section 5 above, be entitled to retain his Blackberry device and telephone number.  Mr Schnitzer shall be entitled to retain the computer equipment provided to him by Centerline, subject to a review of the files contained on such computer equipment so that any files or other materials which Centerline, in its sole discretion, determines that Mr. Schnitzer should not be allowed to retain pursuant to Section 5 above may be permanently deleted.  Mr. Schnitzer shall also be entitled to remove and take with him three (3) framed prints in his current office, which are his personal property, and a black Barcelona chair in his current office, which is the property of Centerline.

 

7.           Cooperation.

(a)           Mr. Schnitzer agrees that he will cooperate in providing the Company Group with information and other assistance relating to the Company Group’s businesses conducted prior to the Effective Date, and that he will be reasonably available during business hours to provide such cooperation.

(b)           Mr. Schnitzer  agrees that he will assist and cooperate with the Company Group in connection with the defense or prosecution of any claim that may be made against or by the Company Group, or in connection with any ongoing or future investigation or dispute or claim of any kind involving the Company Group, including any proceeding before any arbitral, administrative, judicial, legislative, or other body or agency, including testifying in any proceeding to the extent such claims, investigations or proceedings are related to knowledge possessed by him, or any act or omission by him.  Centerline shall reimburse Mr. Schnitzer for all reasonable expenses actually incurred in connection with his provision of testimony or assistance.

(c)           Mr. Schnitzer agrees promptly to perform such acts and deeds, and to execute and deliver such conveyances, assignments, proxies, consents, agreements, instruments, HUD 2530 forms or letters of resignation, as the Company Group may at any time reasonably request in writing in connection with the implementation of this Agreement or in order to better assure and confirm unto the parties hereto their respective rights, powers and remedies hereunder, or in connection with the management transition resulting from his resignation, including, but not limited to the execution of any documents reasonably requested by any lender, partner or affiliate of the Company Group (the “Documentation”).

 

 

 

  

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(d)           Centerline shall cooperate in providing Mr. Schnitzer with such information regarding the Company Group entities in which Mr. Schnitzer owns an interest as such entities are required to provide to similarly situated interest holders.  Mr. Schnitzer, at his sole expense, shall have the right to inspect and copy the books and records of such entities to the same extent such entities are required to provide such rights to similarly situated interest holders entities during normal business hours upon reasonable written notice, provided that such inspection and copying does not interfere with the normal business operations of Centerline or the applicable Company Group entity; and provided further that such inspection and copying is for a purpose reasonably related to his interest as a partner, member or shareholder of the applicable entity.  Mr. Schnitzer shall have the right to audit the books and records of Company Group entities in which he owns an interest, at his sole expense, during normal business hours upon reasonable written notice, provided that such audit does not interfere with the normal business operations of Centerline or the applicable Company Group entity.

(e)           Unless Centerline in good faith determines for a particular matter that cooperation or assistance with Mr. Schnitzer would be inconsistent with its obligations to its shareholders or other fiduciary duties, Centerline will assist and cooperate with Mr. Schnitzer in connection with the defense of any claim that may be brought against him, or in connection with any investigation or dispute or claim of any kind involving his work for Centerline and/or its affiliates, including any proceeding before any arbitral, administrative, judicial, legislative, or other body or agency, including, without limitation, providing Mr. Schnitzer with access to relevant non-privileged documents in the possession of Centerline.  Under no circumstances shall such cooperation or assistance require Centerline and/or any of its affiliates to disclose any privileged communication.

(f)           The parties shall agree on the wording of the public announcement of Mr. Schnitzer’s retirement from Centerline in advance of such announcement; provided, however, that the Company Group shall not be required to obtain Mr. Schnitzer’s consent to disclose information that the Company Group is required to disclose by law in the opinion of the Company Group’s counsel.

8.           Power of Attorney.  If, for any reason or no reason, Mr. Schnitzer shall fail to execute any Documentation (exclusive of any Federal, state or local filings) within five (5) business days following delivery of a written request therefor, Mr. Schnitzer hereby makes and appoints the General Counsel of Centerline, as his attorney-in-fact (“Attorney-in-Fact”) to act in his name, place and stead for the purpose of making, executing and delivering the Documentation (exclusive of any Federal, state or local filings), and, without limiting the foregoing, for the purpose of making, executing and delivering all documents and doing such lawful things which the Attorney-in-Fact deems necessary to (i) effect the resignation of Mr. Schnitzer as a trustee, director or officer of any entity related to the Company Group; (ii) execute and deliver consents pursuant to Sections 4 and 7(c) hereof; and (iii) take any further ministerial actions as may be necessary to effect the foregoing.  This power is coupled with an interest, is irrevocable, and all powers conferred upon the Attorney-in-Fact herein above shall remain at all times in full force and effect, notwithstanding Mr. Schnitzer’s incapacity, disability, death, or any uncertainty with regard thereto.  Mr. Schnitzer hereby consents and agrees that any third party shall be entitled to accept the provisions hereof as conclusive evidence of the right of the Attorney-in-Fact to execute and deliver the Documentation and to effect any other action pursuant to the provisions hereof, notwithstanding any other notice or direction to the contrary heretofore or hereafter given by or on behalf of Mr. Schnitzer.  Upon exercise of this power of attorney, the Attorney-in-Fact will deliver written notice to Mr. Schnitzer, including a copy of the executed Documentation.

 

 

 

 

  

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9.           Covenant Not to Disclose.  Mr. Schnitzer acknowledges and agrees that, by virtue of the performance of the normal duties of his position with Centerline and by virtue of the relationship of trust and confidence between Mr. Schnitzer and Centerline, Centerline has permitted Mr. Schnitzer to have access to and Mr. Schnitzer has become familiar with, acquired knowledge of and developed or maintained the Company Group’s Confidential Information (as defined below), which Mr. Schnitzer recognizes permits the Company Group to enjoy a competitive advantage and the premature disclosure of which would irreparably injure the Company Group.  Mr. Schnitzer covenants and agrees that he will not, at any time, directly or indirectly use, disclose (in any manner, including transmitting via or posting on the Internet), reproduce, distribute, reverse engineer or otherwise provide, in whole or in part, to or on behalf of any person (other than the Company Group) or use for his own account, any data or knowledge of operations of the Company Group which are proprietary in nature and/or confidential, whether in writing, in computer or other form or conveyed orally, including but not limited to confidential or proprietary records, data, trade secrets, pricing policies, bid amounts, bid strategies, rate structures, personnel policies, methods or practices of obtaining or doing business by the Company Group, or any other confidential or proprietary information whatsoever (the “Confidential Information”), whether or not obtained with the knowledge and permission of Centerline and whether or not developed, devised or otherwise created in whole or in part by the efforts of Mr. Schnitzer; provided, however, that Confidential Information shall not be deemed to include any information that (i) is or hereafter becomes generally available to the public other than through disclosure by Mr. Schnitzer, or (ii) is rightfully received by Mr. Schnitzer following the Effective Date from a third party who Mr. Schnitzer has no reason to believe is under a confidentiality agreement with Centerline.  Mr. Schnitzer further covenants and agrees that he shall retain all such knowledge and information which he has acquired or developed respecting such Confidential Information in trust for the sole benefit of the Company Group and its successors and assigns.  Mr. Schnitzer shall not, without the prior written consent of Centerline, unless compelled pursuant to the order of a court or other governmental or legal body having jurisdiction over such matter, communicate or divulge any such Confidential Information to anyone other than Centerline and those designated by it.  In the event Mr. Schnitzer is compelled by order of a court or other governmental or legal body to communicate or divulge any Confidential Information to anyone other than Centerline and those designated by it, Mr. Schnitzer shall promptly notify Centerline of any such order and shall cooperate fully with Centerline (and the owner of such Confidential Information) in protecting such information to the extent possible under applicable law; provided, that such Confidential Information may be disclosed if Mr. Schnitzer is advised by counsel that failure to disclose would subject him to risk of penalty or fine.  Anything contained in this Section 9 to the contrary notwithstanding, nothing herein shall prohibit Mr. Schnitzer from (A) discussing any matters with his attorney for the purposes of seeking legal advice, provided that Mr. Schnitzer notifies his attorney of his obligation under this Section 9 or (B) using Confidential Information in connection with (i) his raising capital for affordable housing investments for an affiliate of Island Capital Group, provided such use is consistent with the terms of the Management Agreement between Centerline and Island Capital Manager LLC or (ii) his direct representation of the Company Group with respect to the capital raises for affordable housing investments.

 

 

 

 

  

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10.           Non-Interference Covenant.  To protect Centerline’s legitimate business interests, including Centerline’s Confidential Information and business relationships, Mr. Schnitzer covenants and agrees that he will not, for a period of one (1) year subsequent to the Effective Date, directly or indirectly, for whatever reason, whether for his own account or for the account of any other person, firm, company or other organization:  (i) solicit for employment, hire, assist others to solicit for employment or hire , or otherwise deal with in a manner which interferes with the Company Group’s relationship with any person or entity who is (A) at the time of such action an employee, officer or director of the Company Group or who constitutes a bona fide prospective employee, officer, trustee or director of the Company Group or (B) at any time during the six (6) month period preceding such action was an employee, officer or director of the Company Group, if such action is taken with respect to a business that competes with the Company Group; provided, however, Mr. Schnitzer will not be deemed to be in violation of this clause (i) if an employee of the Company Group is hired by Mr. Schnitzer’s future employers, including, but not limited to Island Capital Group,  provided that Mr. Schnitzer either obtained the prior written consent of Centerline to take such action or did not otherwise violate this provision, (ii) interfere in any manner with any of the Company Group's contracts or relationships with any investor, customer, client or supplier (of services or tangible or intangible property) of the Company Group, or any person or entity who is a bona fide prospective, investor customer, client or supplier of the Company Group; (iii) interfere with any existing or proposed contract or relationship between the Company Group and any other party or (iv) speak or write in any manner which is disparaging of the Company Group, its business practices, employees, officers, trustees or directors; provided that nothing in this Section 10 shall preclude Mr. Schnitzer to make any disclosures required by applicable law, regulation or legal process.  Similarly, no officer or director of the Company Group shall speak or write in any manner that is disparaging of Mr. Schnitzer.

11.           Remedies.  It is expressly understood, acknowledged and agreed by the Mr. Schnitzer that (i) the restrictions contained in Sections 3, 4, 7, 9 and 10  of this Agreement represent a reasonable and necessary protection of the legitimate interests of Centerline and that his failure to observe and comply with his covenants and agreements in Sections 3, 4, 7, 9 or 10  will cause irreparable harm to Centerline; (ii) it is and will continue to be difficult to ascertain the nature, scope and extent of the harm; and (iii) a remedy at law for such failure by Mr. Schnitzer will be inadequate.  Accordingly, it is the intention of the parties that, in addition to any other rights and remedies which Centerline may have in the event of any breach of said Sections, Centerline shall be entitled, and is expressly and irrevocably authorized by Mr. Schnitzer, to demand and obtain specific performance, including without limitation temporary and permanent injunctive relief, and all other appropriate equitable relief against Mr. Schnitzer in order to enforce against Mr. Schnitzer, or in order to prevent any breach or any threatened breach by Mr. Schnitzer, of the covenants and agreements contained in those Sections in any court of competent jurisdiction without the need to post any bond or undertaking.  Any action, suit or other legal proceeding to resolve any matter arising as a result of a breach of the restrictions contained in Sections 3, 4, 7, 9 or 10, may be commenced in any court of competent jurisdiction and the parties hereby consent to the jurisdiction of such a court.  The parties hereto unconditionally waive their respective right to demand a jury trial in any dispute relating to this Agreement.

 

 

 

 

  

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12.           Indemnification.  Notwithstanding anything contained in the Release or this Agreement, Centerline shall indemnify Mr. Schnitzer, defend and hold him harmless and provide him with the advancement of expenses arising in connection with his employment to the full extent that it does or is required to do so with respect to all other officers and directors of the Company Group, whether by operation of law or pursuant to the Company Group’s governing instruments.  Centerline shall continue to maintain for a period of six (6) years from March 5, 2010 a tail director and officers’ insurance policy covering Mr. Schnitzer on the same basis as all other officers and directors as of such date.

13.           Governing Law.  This Agreement shall be governed by the laws of the State of New York without regard to the conflicts of principles thereof.

14.           Amendment and Modification.  This Agreement may be modified, amended or supplemented only by an instrument in writing signed by all of the parties hereto.

15.           Waiver of Compliance.  Except as otherwise provided in this Agreement, any failure of any of the parties to comply with any obligation, covenant, agreement or condition herein may be waived by the party or parties entitled to the benefits thereof only by a written instrument signed by the party granting such waiver, but such waiver or failure to insist upon strict compliance with such obligation, covenant, agreement or condition shall not operate as a waiver of, or estoppel with respect to, any subsequent other failure.

16.           Severability.  The invalidity or unenforceability of any provision of this Agreement in any such jurisdiction shall not affect the validity, legality or enforceability of the remainder of this Agreement in such jurisdiction, or the validity, legality or enforceability of this Agreement, including any such provision, in any other jurisdiction, it being intended that all rights and obligations of the parties hereunder shall be enforceable to the fullest extent permitted by law.  Upon such determination that any provision is invalid, illegal or incapable of being enforced, the parties hereto will negotiate in good faith to modify this Agreement so as to affect the original intentions of the parties as closely as possible in an acceptable manner to the end that the transactions contemplated hereby and thereby are fulfilled to the extent possible.

17.           Notices.  All notices, Documents and other communications given or made pursuant hereto shall be in writing and delivered by hand or sent by registered or certified mail (postage prepaid, return receipt requested), facsimile or by nationally recognized overnight air courier service and shall be deemed to have been duly given or made as of the date delivered if delivered personally or by facsimile, or if mailed, on the third business day after mailing (on the first business day after mailing in the case of a nationally recognized overnight air courier service) to the parties at the following addresses:

	
If to Mr. Schnitzer:

	  
	
Marc D. Schnitzer

	
21 Hampton Road

	
Scarsdale, NY 10583

	  

 

 

 

 

 

  

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with a copy to:

	  
	
Paul, Hastings, Janofsky & Walker LLP

	
75 East 55th Street

	
New York, New York 10022

	
Attention:  Alan S. Cohen, Esq.

	  
	  
	
If to Centerline:

	  
	
Centerline Holding Company

	
625 Madison Avenue

	
New York, New York 10022

	
Attention:  General Counsel

	  
	
with a copy to

	  
	
Paul, Hastings, Janofsky & Walker LLP

	
75 East 55th Street

	
New York, New York 10022

	
Attention:  Michael Zuppone, Esq.

18.           Entire Agreement.  This Agreement and the Employment Agreement constitutes the entire agreement of the parties hereto with respect to the subject matter hereof, supersedes all prior agreements and undertakings, both written and oral, and may not be modified in any way except in writing by the parties hereto.

19.           Counterparts.  This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

20.           Tax withholding. Any compensation or benefits payable under this Agreement shall be subject to applicable federal, state and local withholding taxes.  Mr. Schnitzer agrees that (i) he shall bear sole responsibility for payment of any federal, state or local income or other taxes or related penalties associated with his receipt of any amounts pursuant to this Agreement and (ii) Centerline shall have no obligation to mitigate or hold Mr. Schnitzer harmless from any such tax obligations.

[The next page is the signature page]

 

 

 

 

 

  

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IN WITNESS WHEREOF, the parties hereto knowingly and voluntarily executed this Agreement as of the date set forth below:

	
/s/ Marc D. Schnitzer

	
Marc D. Schnitzer

	  
	
Date:

	
April 21, 2010

	  
	  
	
CENTERLINE HOLDING COMPANY

	  
	  
	
By:

	
/s/ Robert Levy

	  	
Robert Levy

	  	
Chief Operating Officer

	  	  
	
Date:

	

April 21, 2010

	  
	  
	
CENTERLINE CAPITAL GROUP INC.

	  
	  
	
By:

	
/s/ Robert Levy

	  	
Robert Levy

	  	
Chief Operating Officer

	  
	
Date:

	

April 21, 2010

 

 

 

 

 

 

  

9EX-4.1

EXHIBIT A

THE SECURITIES FOR WHICH THIS SECURITY IS EXERCISABLE HAVE NOT BEEN REGISTERED WITH THE SECURITIES
AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION
FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND,
ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT
SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE
STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT,
THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THE SECURITIES ISSUABLE UPON
EXERCISE OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN SECURED BY SUCH SECURITIES

COMMON STOCK PURCHASE WARRANT

CONVERTED ORGANICS INC.

	 	 	Warrant Shares: 1,163,362 Initial Exercise Date: April   , 2011

Issue Date: April   , 2010

THIS COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies that, for value received,
Iroquois Master Fund Ltd. (the “Holder”) is entitled, upon the terms and subject to the
limitations on exercise and the conditions hereinafter set forth, at any time on or after the later
of (i) one year from the Issue Date and (ii) the date the Company receives Authorized Share
Approval (the “Initial Exercise Date”) and on or prior to the close of business on the five
year anniversary of the date hereof (the “Termination Date”) but not thereafter, to
subscribe for and purchase from Converted Organics Inc., a Delaware corporation (the
“Company”), up to 1,163,362 shares (the “Warrant Shares”) of Common Stock.
Notwithstanding anything herein to the contrary, in the event that Authorized Share Approval is not
obtained on or before July 15, 2010 or the Registration Statement (as defined in the Registration
Rights Agreement) registering all the Warrant Shares is not declared effective by the Commission on
or before September 30, 2010, the Termination Date shall be extended for the sum of the number of
days after such deadlines that Authorized Share Approval has not been obtained or such Registration
Statement is not effective. The purchase price of one share of Common Stock under this Warrant
shall be equal to the Exercise Price, as defined in Section 2(b).

Section 1. Definitions. Capitalized terms used and not otherwise defined
herein shall have the meanings set forth in that certain Securities Purchase Agreement (the
“Purchase Agreement”), dated April 20, 2010, among the Company and the purchasers signatory
thereto.

Section 2. Exercise.

a) Exercise of the purchase rights represented by this Warrant may be made, in whole or
in part, at any time or times on or after the Initial Exercise Date and on or before the
Termination Date by delivery to the Company (or such other office or agency of the Company
as it may designate by notice in writing to the registered Holder at the address of the
Holder appearing on the books of the Company) of a duly executed facsimile copy of the
Notice of Exercise Form annexed hereto. Within three (3) Trading Days following the date of
exercise as aforesaid, the Holder shall deliver the aggregate Exercise Price for the shares
specified in the applicable Notice of Exercise by wire transfer or cashier’s check drawn on
a United States bank unless the cashless exercise procedure specified in Section 2(c) below
is specified in the applicable Notice of Exercise. Notwithstanding anything herein to the
contrary, the Holder shall not be required to physically surrender this Warrant to the
Company until the Holder has purchased all of the Warrant Shares available hereunder and the
Warrant has been exercised in full, in which case, the Holder shall surrender this Warrant
to the Company for cancellation within three (3) Trading Days of the date the final Notice
of Exercise is delivered to the Company. Partial exercises of this Warrant resulting in
purchases of a portion of the total number of Warrant Shares available hereunder shall have
the effect of lowering the outstanding number of Warrant Shares purchasable hereunder in an
amount equal to the applicable number of Warrant Shares purchased. The Holder and the
Company shall maintain records showing the number of Warrant Shares purchased and the date
of such purchases. The Company shall deliver any objection to any Notice of Exercise Form
within 1 Business Day of receipt of such notice. In the event of any dispute or
discrepancy, the records of the Holder shall be controlling and determinative in the absence
of manifest error. The Holder and any assignee, by acceptance of this Warrant, acknowledge
and agree that, by reason of the provisions of this paragraph, following the purchase of a
portion of the Warrant Shares hereunder, the number of Warrant Shares available for purchase
hereunder at any given time may be less than the amount stated on the face hereof.

b) Exercise Price. The exercise price per share of the Common Stock under this
Warrant shall be $1.06, subject to adjustment hereunder (the “Exercise Price”).

c) Cashless Exercise. If at any time after the Initial Exercise Date, there is
no effective registration statement registering, or the prospectus contained therein is not
available for the issuance of the Warrant Shares to the Holder and all of the Warrant Shares
are not then registered for resale by Holder into the market at market prices from time to
time on an effective registration statement for use on a continuous basis (or the prospectus
contained therein is not available for use), then this Warrant may also be exercised, in
whole or in part, at such time by means of a “cashless exercise” in which the Holder shall
be entitled to receive a certificate for the number of Warrant Shares equal to the quotient
obtained by dividing [(A-B) (X)] by (A), where:

	 	(A)	 	= the VWAP on the Trading Day immediately preceding the date
on which Holder elects to exercise this Warrant by means of a “cashless
exercise,” as set forth in the applicable Notice of Exercise;

	 	(B)	 	= the Exercise Price of this Warrant, as adjusted hereunder;
and

	 	(X)	 	= the number of Warrant Shares that would be issuable upon
exercise of this Warrant in accordance with the terms of this Warrant if such
exercise were by means of a cash exercise rather than a cashless exercise.

“VWAP” means, for any date, the price determined by the first of the following
clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market,
the daily volume weighted average price of the Common Stock for such date (or the nearest
preceding date) on the Trading Market on which the Common Stock is then listed or quoted as
reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to
4:02 p.m. (New York City time), (b)  if the OTC Bulletin Board is not a Trading Market, the
volume weighted average price of the Common Stock for such date (or the nearest preceding
date) on the OTC Bulletin Board, (c) if the Common Stock is not then listed or quoted for
trading on the OTC Bulletin Board and if prices for the Common Stock are then reported in
the “Pink Sheets” published by Pink OTC Markets, Inc. (or a similar organization or agency
succeeding to its functions of reporting prices), the most recent bid price per share of the
Common Stock so reported, or (d) in all other cases, the fair market value of a share of
Common Stock as determined by an independent appraiser selected in good faith by the Holders
of a majority in interest of the Securities then outstanding and reasonably acceptable to
the Company, the fees and expenses of which shall be paid by the Company.

d) Mechanics of Exercise.

i. Delivery of Certificates Upon Exercise. Certificates for
            shares purchased hereunder shall be transmitted by the Transfer Agent to the
Holder by crediting the account of the Holder’s prime broker with the
Depository Trust Company through its Deposit or Withdrawal at Custodian
system (“DWAC”) if the Company is then a participant in such system
and either (A) there is an effective Registration Statement permitting the
issuance of the Warrant Shares to or resale of the Warrant Shares by Holder
or (B) this Warrant is being exercised via cashless exercise, and otherwise
by physical delivery to the address specified by the Holder in the Notice of
Exercise by the date that is three (3) Trading Days after the latest of (A)
the delivery to the Company of the Notice of Exercise Form, (B) surrender of
this Warrant (if required) and (C) payment of the aggregate Exercise Price
as set forth above (including by cashless exercise, if permitted) (such
date, the “Warrant Share Delivery Date”). This Warrant shall be
deemed to have been exercised on the first date on which all of the
foregoing have been delivered to the Company. The Warrant Shares shall be
deemed to have been issued, and Holder or any other person so designated to
be named therein shall be deemed to have become a holder of record of such
            shares for all purposes, as of the date the Warrant has been exercised, with
payment to the Company of the Exercise Price (or by cashless exercise, if
permitted) and all taxes required to be paid by the Holder, if any, pursuant
to Section 2(d)(vi) prior to the issuance of such shares, having been paid.
If the Company fails for any reason to deliver to the Holder certificates
evidencing the Warrant Shares subject to a Notice of Exercise by the Warrant
Share Delivery Date, the Company shall pay to the Holder, in cash, as
liquidated damages and not as a penalty, for each $1,000 of Warrant Shares
subject to such exercise (based on the VWAP of the Common Stock on the date
of the applicable Notice of Exercise), $10 per Trading Day (increasing to
$20 per Trading Day on the fifth Trading Day after such liquidated damages
begin to accrue) for each Trading Day after such Warrant Share Delivery Date
until such certificates are delivered or Holder rescinds such exercise.

ii. Delivery of New Warrants Upon Exercise. If this Warrant
shall have been exercised in part, the Company shall, at the request of a
Holder and upon surrender of this Warrant certificate, at the time of
delivery of the certificate or certificates representing Warrant Shares,
deliver to Holder a new Warrant evidencing the rights of Holder to purchase
the unpurchased Warrant Shares called for by this Warrant, which new Warrant
shall in all other respects be identical with this Warrant.

iii. Rescission Rights. If the Company fails to cause the
Transfer Agent to transmit to the Holder a certificate or the certificates
representing the Warrant Shares pursuant to Section 2(d)(i) by the Warrant
Share Delivery Date, then, the Holder will have the right to rescind such
exercise.

iv. Compensation for Buy-In on Failure to Timely Deliver
Certificates Upon Exercise. In addition to any other rights available
to the Holder, if the Company fails to cause the Transfer Agent to transmit
to the Holder a certificate or the certificates representing the Warrant
Shares pursuant to an exercise on or before the Warrant Share Delivery Date,
and if after such date the Holder is required by its broker to purchase (in
an open market transaction or otherwise) or the Holder’s brokerage firm
otherwise purchases, shares of Common Stock to deliver in satisfaction of a
sale by the Holder of the Warrant Shares which the Holder anticipated
receiving upon such exercise (a “Buy-In”), then the Company shall
(A) pay in cash to the Holder the amount, if any, by which (x) the Holder’s
total purchase price (including brokerage commissions, if any) for the
            shares of Common Stock so purchased exceeds (y) the amount obtained by
multiplying (1) the number of Warrant Shares that the Company was required
to deliver to the Holder in connection with the exercise at issue times (2)
the price at which the sell order giving rise to such purchase obligation
was executed, and (B) at the option of the Holder, either reinstate the
portion of the Warrant and equivalent number of Warrant Shares for which
such exercise was not honored (in which case such exercise shall be deemed
rescinded) or deliver to the Holder the number of shares of Common Stock
that would have been issued had the Company timely complied with its
exercise and delivery obligations hereunder. For example, if the Holder
purchases Common Stock having a total purchase price of $11,000 to cover a
Buy-In with respect to an attempted exercise of shares of Common Stock with
an aggregate sale price giving rise to such purchase obligation of $10,000,
under clause (A) of the immediately preceding sentence the Company shall be
required to pay the Holder $1,000. The Holder shall provide the Company
written notice indicating the amounts payable to the Holder in respect of
the Buy-In and, upon request of the Company, evidence of the amount of such
loss. Nothing herein shall limit a Holder’s right to pursue any other
remedies available to it hereunder, at law or in equity including, without
limitation, a decree of specific performance and/or injunctive relief with
respect to the Company’s failure to timely deliver certificates representing
            shares of Common Stock upon exercise of the Warrant as required pursuant to
the terms hereof.

v. No Fractional Shares or Scrip. No fractional shares or
scrip representing fractional shares shall be issued upon the exercise of
this Warrant. As to any fraction of a share which the Holder would
otherwise be entitled to purchase upon such exercise, the Company shall, at
its election, either pay a cash adjustment in respect of such final fraction
in an amount equal to such fraction multiplied by the Exercise Price or
round up to the next whole share.

vi. Charges, Taxes and Expenses. Issuance of certificates for
Warrant Shares shall be made without charge to the Holder for any issue or
transfer tax or other incidental expense in respect of the issuance of such
certificate, all of which taxes and expenses shall be paid by the Company,
and such certificates shall be issued in the name of the Holder or in such
name or names as may be directed by the Holder; provided,
however, that in the event certificates for Warrant Shares are to be
issued in a name other than the name of the Holder, this Warrant when
surrendered for exercise shall be accompanied by the Assignment Form
attached hereto duly executed by the Holder and the Company may require, as
a condition thereto, the payment of a sum sufficient to reimburse it for any
transfer tax incidental thereto.

vii. Closing of Books. The Company will not close its
stockholder books or records in any manner which prevents the timely
exercise of this Warrant, pursuant to the terms hereof.

e) Holder’s Exercise Limitations. The Company shall not effect any exercise of
this Warrant, and a Holder shall not have the right to exercise any portion of this Warrant,
pursuant to Section 2 or otherwise, to the extent that after giving effect to such issuance
after exercise as set forth on the applicable Notice of Exercise, the Holder (together with
the Holder’s Affiliates, and any other Persons acting as a group together with the Holder or
any of the Holder’s Affiliates), would beneficially own in excess of the Beneficial
Ownership Limitation (as defined below).  For purposes of the foregoing sentence, the number
of shares of Common Stock beneficially owned by the Holder and its Affiliates shall include
the number of shares of Common Stock issuable upon exercise of this Warrant with respect to
which such determination is being made, but shall exclude the number of shares of Common
Stock which would be issuable upon (i) exercise of the remaining, nonexercised portion of
this Warrant beneficially owned by the Holder or any of its Affiliates and (ii) exercise or
conversion of the unexercised or nonconverted portion of any other securities of the Company
(including, without limitation, any other Common Stock Equivalents) subject to a limitation
on conversion or exercise analogous to the limitation contained herein beneficially owned by
the Holder or any of its Affiliates.  Except as set forth in the preceding sentence, for
purposes of this Section 2(e), beneficial ownership shall be calculated in accordance with
Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it
being acknowledged by the Holder that the Company is not representing to the Holder that
such calculation is in compliance with Section 13(d) of the Exchange Act and the Holder is
solely responsible for any schedules required to be filed in accordance therewith. To the
extent that the limitation contained in this Section 2(e) applies, the determination of
whether this Warrant is exercisable (in relation to other securities owned by the Holder
together with any Affiliates) and of which portion of this Warrant is exercisable shall be
in the sole discretion of the Holder, and the submission of a Notice of Exercise shall be
deemed to be the Holder’s determination of whether this Warrant is exercisable (in relation
to other securities owned by the Holder together with any Affiliates) and of which portion
of this Warrant is exercisable, in each case subject to the Beneficial Ownership Limitation,
and the Company shall have no obligation to verify or confirm the accuracy of such
determination. In addition, a determination as to any group status as contemplated above
shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and
regulations promulgated thereunder. For purposes of this Section 2(e), in determining the
number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding
            shares of Common Stock as reflected in (A) the Company’s most recent periodic or annual
report filed with the Commission, as the case may be, (B) a more recent public announcement
by the Company or (C) a more recent written notice by the Company or the Transfer Agent
setting forth the number of shares of Common Stock outstanding.  Upon the written or oral
request of a Holder, the Company shall within two Trading Days confirm orally and in writing
to the Holder the number of shares of Common Stock then outstanding.  In any case, the
number of outstanding shares of Common Stock shall be determined after giving effect to the
conversion or exercise of securities of the Company, including this Warrant, by the Holder
or its Affiliates since the date as of which such number of outstanding shares of Common
Stock was reported. The “Beneficial Ownership Limitation” shall be 4.9% of the
number of shares of the Common Stock outstanding immediately after giving effect to the
issuance of shares of Common Stock issuable upon exercise of this Warrant. The Holder, upon
not less than 61 days’ prior notice to the Company, may increase or decrease the Beneficial
Ownership Limitation provisions of this Section 2(e), provided that the Beneficial Ownership
Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding
immediately after giving effect to the issuance of shares of Common Stock upon exercise of
this Warrant held by the Holder and the provisions of this Section 2(e) shall continue to
apply. Any such increase or decrease will not be effective until the 61st day
after such notice is delivered to the Company. The provisions of this paragraph shall be
construed and implemented in a manner otherwise than in strict conformity with the terms of
this Section 2(e) to correct this paragraph (or any portion hereof) which may be defective
or inconsistent with the intended Beneficial Ownership Limitation herein contained or to
make changes or supplements necessary or desirable to properly give effect to such
limitation. The limitations contained in this paragraph shall apply to a successor holder of
this Warrant.

Section 3. Certain Adjustments.

a) Stock Dividends and Splits. If the Company, at any time while this Warrant
is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions
on shares of its Common Stock or any other equity or equity equivalent securities payable in
            shares of Common Stock (which, for avoidance of doubt, shall not include any shares of
Common Stock issued by the Company upon exercise of this Warrant), (ii) subdivides
outstanding shares of Common Stock into a larger number of shares, (iii) combines (including
by way of reverse stock split) outstanding shares of Common Stock into a smaller number of
            shares, or (iv) issues by reclassification of shares of the Common Stock any shares of
capital stock of the Company, then in each case the Exercise Price shall be multiplied by a
fraction of which the numerator shall be the number of shares of Common Stock (excluding
treasury shares, if any) outstanding immediately before such event and of which the
denominator shall be the number of shares of Common Stock outstanding immediately after such
event, and the number of shares issuable upon exercise of this Warrant shall be
proportionately adjusted such that the aggregate Exercise Price of this Warrant shall remain
unchanged. Any adjustment made pursuant to this Section 3(a) shall become effective
immediately after the record date for the determination of stockholders entitled to receive
such dividend or distribution and shall become effective immediately after the effective
date in the case of a subdivision, combination or re-classification.

b) Subsequent Equity Sales. If the Company or any Subsidiary thereof, as
applicable, at any time while this Warrant is outstanding, shall sell or grant any option to
purchase, or sell or grant any right to reprice, or otherwise dispose of or issue (or
announce any offer, sale, grant or any option to purchase or other disposition) any Common
Stock or Common Stock Equivalents entitling any Person to acquire shares of Common Stock, at
an effective price per share less than the then Exercise Price (such lower price, the
“Base Share Price” and such issuances collectively, a “Dilutive Issuance”)
(if the holder of the Common Stock or Common Stock Equivalents so issued shall at any time,
whether by operation of purchase price adjustments, reset provisions, floating conversion,
exercise or exchange prices or otherwise, or due to warrants, options or rights per share
which are issued in connection with such issuance, be entitled to receive shares of Common
Stock at an effective price per share that is less than the Exercise Price, such issuance
shall be deemed to have occurred for less than the Exercise Price on such date of the
Dilutive Issuance), then the Exercise Price shall be reduced and only reduced to equal the
Base Share Price. Such adjustment shall be made whenever such Common Stock or Common Stock
Equivalents are issued. Notwithstanding the foregoing, no adjustments shall be made, paid
or issued under this Section 3(b) in respect of an Exempt Issuance. The Company shall
notify the Holder, in writing, no later than the Trading Day following the issuance of any
Common Stock or Common Stock Equivalents subject to this Section 3(b), indicating therein
the applicable issuance price, or applicable reset price, exchange price, conversion price
and other pricing terms (such notice, the “Dilutive Issuance Notice”). For purposes
of clarification, whether or not the Company provides a Dilutive Issuance Notice pursuant to
this Section 3(b), upon the occurrence of any Dilutive Issuance, after the date of such
Dilutive Issuance the Holder is entitled to receive a number of Warrant Shares based upon
the Base Share Price regardless of whether the Holder accurately refers to the Base Share
Price in the Notice of Exercise.

c) Subsequent Rights Offerings. If the Company, at any time while the Warrant
is outstanding, shall issue rights, options or warrants to all holders of Common Stock (and
not to the Holders) entitling them to subscribe for or purchase shares of Common Stock at a
price per share less than the VWAP on the record date mentioned below, then, the Exercise
Price shall be multiplied by a fraction, of which the denominator shall be the number of
            shares of the Common Stock outstanding on the date of issuance of such rights, options or
warrants plus the number of additional shares of Common Stock offered for subscription or
purchase, and of which the numerator shall be the number of shares of the Common Stock
outstanding on the date of issuance of such rights, options or warrants plus the number of
            shares which the aggregate offering price of the total number of shares so offered (assuming
receipt by the Company in full of all consideration payable upon exercise of such rights,
options or warrants) would purchase at such VWAP. Such adjustment shall be made whenever
such rights, options or warrants are issued, and shall become effective immediately after
the record date for the determination of stockholders entitled to receive such rights,
options or warrants.

d) Pro Rata Distributions. If the Company, at any time while this Warrant is
outstanding, shall distribute to all holders of Common Stock (and not to the Holders)
evidences of its indebtedness or assets (including cash and cash dividends) or rights or
warrants to subscribe for or purchase any security other than the Common Stock (which shall
be subject to Section 3(b)), then in each such case the Exercise Price shall be adjusted by
multiplying the Exercise Price in effect immediately prior to the record date fixed for
determination of stockholders entitled to receive such distribution by a fraction of which
the denominator shall be the VWAP determined as of the record date mentioned above, and of
which the numerator shall be such VWAP on such record date less the then per share fair
market value at such record date of the portion of such assets or evidence of indebtedness
so distributed applicable to one outstanding share of the Common Stock as determined by the
Board of Directors in good faith. In either case the adjustments shall be described in a
statement provided to the Holder of the portion of assets or evidences of indebtedness so
distributed or such subscription rights applicable to one share of Common Stock. Such
adjustment shall be made whenever any such distribution is made and shall become effective
immediately after the record date mentioned above.

e) Fundamental Transaction. If, at any time while this Warrant is outstanding,
(i) the Company, directly or indirectly, in one or more related transactions effects any
merger or consolidation of the Company (or Subsidiary) with or into another Person, (ii) the
Company, directly or indirectly, effects any sale, lease, license, assignment, transfer,
conveyance or other disposition of all or substantially all of its assets in one or a series
of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or
exchange offer (whether by the Company or another Person) is completed pursuant to which
holders of Common Stock are permitted to sell, tender or exchange their shares for other
securities, cash or property and has been accepted by the holders of 50% or more of the
outstanding Common Stock, (iv) the Company, directly or indirectly, in one or more related
transactions effects any reclassification, reorganization or recapitalization of the Common
Stock or any compulsory share exchange pursuant to which the Common Stock is effectively
converted into or exchanged for other securities, cash or property, (v) the Company,
directly or indirectly, in one or more related transactions consummates a stock or share
purchase agreement or other business combination (including, without limitation, a
reorganization, recapitalization, spin-off or scheme of arrangement) with another Person
whereby such other Person acquires more than 50% of the outstanding shares of Common Stock
(not including any shares of Common Stock held by the other Person or other Persons making
or party to, or associated or affiliated with the other Persons making or party to, such
stock or share purchase agreement or other business combination) (each a “Fundamental
Transaction”), then, upon any subsequent exercise of this Warrant, the Holder shall have
the right to receive, for each Warrant Share that would have been issuable upon such
exercise immediately prior to the occurrence of such Fundamental Transaction, at the option
of the Holder (without regard to any limitation in Section 2(e) on the exercise of this
Warrant), the number of shares of Common Stock of the successor or acquiring corporation or
of the Company, if it is the surviving corporation, and any additional consideration (the
“Alternate Consideration”) receivable as a result of such Fundamental Transaction by
a holder of the number of shares of Common Stock for which this Warrant is exercisable
immediately prior to such Fundamental Transaction (without regard to any limitation in
Section 2(e) on the exercise of this Warrant). For purposes of any such exercise, the
determination of the Exercise Price shall be appropriately adjusted to apply to such
Alternate Consideration based on the amount of Alternate Consideration issuable in respect
of one share of Common Stock in such Fundamental Transaction, and the Company shall
apportion the Exercise Price among the Alternate Consideration in a reasonable manner
reflecting the relative value of any different components of the Alternate Consideration.
If holders of Common Stock are given any choice as to the securities, cash or property to be
received in a Fundamental Transaction, then the Holder shall be given the same choice as to
the Alternate Consideration it receives upon any exercise of this Warrant following such
Fundamental Transaction. Notwithstanding anything to the contrary, in the event of a
Fundamental Transaction (including Fundamental Transactions that occur prior to the Initial
Exercise Date) that is (1) an all cash transaction, (2) a “Rule 13e-3 transaction” as
defined in Rule 13e-3 under the Exchange Act, or (3) a Fundamental Transaction involving a
person or entity not traded on a national securities exchange, including, but not limited
to, the Nasdaq Global Select Market, the Nasdaq Global Market, or the Nasdaq Capital Market,
the Company or any Successor Entity (as defined below) shall, at the Holder’s option,
exercisable at any time concurrently with, or within 30 days after, the consummation of the
Fundamental Transaction, purchase this Warrant from the Holder by paying to the Holder an
amount of cash equal to the Black Scholes Value of the remaining unexercised portion of this
Warrant on the date of the consummation of such Fundamental Transaction. “Black Scholes
Value” means the value of this Warrant based on the Black and Scholes Option Pricing
Model obtained from the “OV” function on Bloomberg, L.P. (“Bloomberg”) determined as
of the day of consummation of the applicable Fundamental Transaction for pricing purposes
and reflecting (A) a risk-free interest rate corresponding to the U.S. Treasury rate for a
period equal to the time between the date of the public announcement of the applicable
Fundamental Transaction and the Termination Date, (B) an expected volatility equal to the
greater of 100% and the 100 day volatility obtained from the HVT function on Bloomberg as of
the Trading Day immediately following the public announcement of the applicable Fundamental
Transaction, (C) the underlying price per share used in such calculation shall be the sum of
the price per share being offered in cash, if any, plus the value of any non-cash
consideration, if any, being offered in such Fundamental Transaction and (D) a remaining
option time equal to the time between the date of the public announcement of the applicable
Fundamental Transaction and the Termination Date. The Company shall cause any successor
entity in a Fundamental Transaction in which the Company is not the survivor (the
“Successor Entity”) to assume in writing all of the obligations of the Company under
this Warrant and the other Transaction Documents in accordance with the provisions of this
Section 3(e) pursuant to written agreements in form and substance reasonably satisfactory to
the Holder and approved by the Holder (without unreasonable delay) prior to such Fundamental
Transaction and shall, at the option of the holder of this Warrant, deliver to the Holder in
exchange for this Warrant a security of the Successor Entity evidenced by a written
instrument substantially similar in form and substance to this Warrant which is exercisable
for a corresponding number of shares of capital stock of such Successor Entity (or its
parent entity) equivalent to the shares of Common Stock acquirable and receivable upon
exercise of this Warrant (without regard to any limitations on the exercise of this Warrant)
prior to such Fundamental Transaction, and with an exercise price which applies the exercise
price hereunder to such shares of capital stock (but taking into account the relative value
of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such
            shares of capital stock, such number of shares of capital stock and such exercise price
being for the purpose of protecting the economic value of this Warrant immediately prior to
the consummation of such Fundamental Transaction), and which is reasonably satisfactory in
form and substance to the Holder. Upon the occurrence of any such Fundamental Transaction,
the Successor Entity shall succeed to, and be substituted for (so that from and after the
date of such Fundamental Transaction, the provisions of this Warrant and the other
Transaction Documents referring to the “Company” shall refer instead to the Successor
Entity), and may exercise every right and power of the Company and shall assume all of the
obligations of the Company under this Warrant and the other Transaction Documents with the
same effect as if such Successor Entity had been named as the Company herein.

f) Calculations. All calculations under this Section 3 shall be made to the
nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this
Section 3, the number of shares of Common Stock deemed to be issued and outstanding as of a
given date shall be the sum of the number of shares of Common Stock (excluding treasury
            shares, if any) issued and outstanding.

g) Notice to Holder.

i. Adjustment to Exercise Price. Whenever the Exercise Price is
adjusted pursuant to any provision of this Section 3, the Company shall
promptly mail to the Holder a notice setting forth the Exercise Price after
such adjustment and setting forth a brief statement of the facts requiring
such adjustment.

ii. Notice to Allow Exercise by Holder. If (A) the Company
shall declare a dividend (or any other distribution in whatever form) on the
Common Stock, (B) the Company shall declare a special nonrecurring cash
dividend on or a redemption of the Common Stock, (C) the Company shall
authorize the granting to all holders of the Common Stock rights or warrants
to subscribe for or purchase any shares of capital stock of any class or of
any rights, (D) the approval of any stockholders of the Company shall be
required in connection with any reclassification of the Common Stock, any
consolidation or merger to which the Company is a party, any sale or
transfer of all or substantially all of the assets of the Company, or any
compulsory share exchange whereby the Common Stock is converted into other
securities, cash or property, or (E) the Company shall authorize the
voluntary or involuntary dissolution, liquidation or winding up of the
affairs of the Company, then, in each case, the Company shall cause to be
mailed to the Holder at its last address as it shall appear upon the Warrant
Register of the Company, at least 20 calendar days prior to the applicable
record or effective date hereinafter specified, a notice stating (x) the
date on which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not to be
taken, the date as of which the holders of the Common Stock of record to be
entitled to such dividend, distributions, redemption, rights or warrants are
to be determined or (y) the date on which such reclassification,
consolidation, merger, sale, transfer or share exchange is expected to
become effective or close, and the date as of which it is expected that
holders of the Common Stock of record shall be entitled to exchange their
            shares of the Common Stock for securities, cash or other property
deliverable upon such reclassification, consolidation, merger, sale,
transfer or share exchange; provided that the failure to mail such notice or
any defect therein or in the mailing thereof shall not affect the validity
of the corporate action required to be specified in such notice. To the
extent that any notice provided hereunder constitutes, or contains,
material, non-public information regarding the Company or any of the
Subsidiaries, the Company shall simultaneously file such notice with the
Commission pursuant to a Current Report on Form 8-K. The Holder shall
remain entitled to exercise this Warrant during the period commencing on the
date of such notice to the effective date of the event triggering such
notice except as may otherwise be expressly set forth herein.

Section 4. Transfer of Warrant.

a) Transferability. This Warrant and all rights hereunder (including, without
limitation, any registration rights) are transferable, in whole or in part, upon surrender
of this Warrant at the principal office of the Company or its designated agent, together
with a written assignment of this Warrant substantially in the form attached hereto duly
executed by the Holder or its agent or attorney and funds sufficient to pay any transfer
taxes payable upon the making of such transfer. Upon such surrender and, if required, such
payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the
assignee or assignees, as applicable, and in the denomination or denominations specified in
such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the
portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. The
Warrant, if properly assigned in accordance herewith, may be exercised by a new holder for
the purchase of Warrant Shares without having a new Warrant issued.

b) New Warrants. This Warrant may be divided or combined with other Warrants
upon presentation hereof at the aforesaid office of the Company, together with a written
notice specifying the names and denominations in which new Warrants are to be issued, signed
by the Holder or its agent or attorney. Subject to compliance with Section 4(a), as to any
transfer which may be involved in such division or combination, the Company shall execute
and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided
or combined in accordance with such notice. All Warrants issued on transfers or exchanges
shall be dated the initial issuance date set forth on the first page of this Warrant and
shall be identical with this Warrant except as to the number of Warrant Shares issuable
pursuant thereto.

c) Warrant Register. The Company shall register this Warrant, upon records to
be maintained by the Company for that purpose (the “Warrant Register”), in the name
of the record Holder hereof from time to time. The Company may deem and treat the
registered Holder of this Warrant as the absolute owner hereof for the purpose of any
exercise hereof or any distribution to the Holder, and for all other purposes, absent actual
notice to the contrary.

Section 5. Miscellaneous.

a) No Rights as Stockholder Until Exercise. This Warrant does not entitle the
Holder to any voting rights, dividends or other rights as a stockholder of the Company prior
to the exercise hereof as set forth in Section 2(d)(i).

b) Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants
that upon receipt by the Company of evidence reasonably satisfactory to it of the loss,
theft, destruction or mutilation of this Warrant or any stock certificate relating to the
Warrant Shares, and in case of loss, theft or destruction, of indemnity or security
reasonably satisfactory to it (which, in the case of the Warrant, shall not include the
posting of any bond), and upon surrender and cancellation of such Warrant or stock
certificate, if mutilated, the Company will make and deliver a new Warrant or stock
certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or
stock certificate.

c) Saturdays, Sundays, Holidays, etc. If the last or appointed day for the
taking of any action or the expiration of any right required or granted herein shall not be
a Business Day, then, such action may be taken or such right may be exercised on the next
succeeding Business Day.

d) Authorized Shares.

After the date that the Company receives Authorized Share Approval, the Company
covenants that, during the period the Warrant is outstanding, it will reserve from
its authorized and unissued Common Stock a sufficient number of shares to provide
for the issuance of the Warrant Shares upon the exercise of any purchase rights
under this Warrant. The Company further covenants that its issuance of this Warrant
shall constitute full authority to its officers who are charged with the duty of
executing stock certificates to execute and issue the necessary certificates for the
Warrant Shares upon the exercise of the purchase rights under this Warrant. The
Company will take all such reasonable action as may be necessary to assure that such
Warrant Shares may be issued as provided herein without violation of any applicable
law or regulation, or of any requirements of the Trading Market upon which the
Common Stock may be listed. The Company covenants that, after the Company receives
Authorized Share Approval, all Warrant Shares which may be issued upon the exercise
of the purchase rights represented by this Warrant will, upon exercise of the
purchase rights represented by this Warrant and payment for such Warrant Shares in
accordance herewith, be duly authorized, validly issued, fully paid and
nonassessable and free from all taxes, liens and charges created by the Company in
respect of the issue thereof (other than taxes in respect of any transfer occurring
contemporaneously with such issue).

Except and to the extent as waived or consented to by the Holder, the Company
shall not by any action, including, without limitation, amending its certificate of
incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms of this
Warrant, but will at all times in good faith assist in the carrying out of all such
terms and in the taking of all such actions as may be necessary or appropriate to
protect the rights of Holder as set forth in this Warrant against impairment.
Without limiting the generality of the foregoing, the Company will (i) not increase
the par value of any Warrant Shares above the amount payable therefor upon such
exercise immediately prior to such increase in par value, (ii) take all such action
as may be necessary or appropriate in order that the Company may validly and legally
issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant
and (iii) use commercially reasonable efforts to obtain all such authorizations,
exemptions or consents from any public regulatory body having jurisdiction thereof,
as may be, necessary to enable the Company to perform its obligations under this
Warrant.

Before taking any action which would result in an adjustment in the number of
Warrant Shares for which this Warrant is exercisable or in the Exercise Price, the
Company shall obtain all such authorizations or exemptions thereof, or consents
thereto, as may be necessary from any public regulatory body or bodies having
jurisdiction thereof.

e) Jurisdiction. All questions concerning the construction, validity,
enforcement and interpretation of this Warrant shall be determined in accordance with the
provisions of the Purchase Agreement.

f) Restrictions. The Holder acknowledges that the Warrant Shares acquired upon
the exercise of this Warrant, if not registered, and the Holder does not utilize cashless
exercise, will have restrictions upon resale imposed by state and federal securities laws.

g) Nonwaiver and Expenses. No course of dealing or any delay or failure to
exercise any right hereunder on the part of Holder shall operate as a waiver of such right
or otherwise prejudice Holder’s rights, powers or remedies. Without limiting any other
provision of this Warrant or the Purchase Agreement, if the Company willfully and knowingly
fails to comply with any provision of this Warrant, which results in any material damages to
the Holder, the Company shall pay to Holder such amounts as shall be sufficient to cover any
costs and expenses including, but not limited to, reasonable attorneys’ fees, including
those of appellate proceedings, incurred by Holder in collecting any amounts due pursuant
hereto or in otherwise enforcing any of its rights, powers or remedies hereunder.

h) Notices. Any notice, request or other document required or permitted to be
given or delivered to the Holder by the Company shall be delivered in accordance with the
notice provisions of the Purchase Agreement.

i) Limitation of Liability. No provision hereof, in the absence of any
affirmative action by Holder to exercise this Warrant to purchase Warrant Shares, and no
enumeration herein of the rights or privileges of Holder, shall give rise to any liability
of Holder for the purchase price of any Common Stock or as a stockholder of the Company,
whether such liability is asserted by the Company or by creditors of the Company.

j) Remedies. The Holder, in addition to being entitled to exercise all rights
granted by law, including recovery of damages, will be entitled to specific performance of
its rights under this Warrant. The Company agrees that monetary damages would not be
adequate compensation for any loss incurred by reason of a breach by it of the provisions of
this Warrant and hereby agrees to waive and not to assert the defense in any action for
specific performance that a remedy at law would be adequate.

k) Successors and Assigns. Subject to applicable securities laws, this Warrant
and the rights and obligations evidenced hereby shall inure to the benefit of and be binding
upon the successors and permitted assigns of the Company and the successors and permitted
assigns of Holder. The provisions of this Warrant are intended to be for the benefit of any
Holder from time to time of this Warrant and shall be enforceable by the Holder or holder of
Warrant Shares.

l) Amendment. This Warrant may be modified or amended or the provisions hereof
waived with the written consent of the Company and Holders holding Warrants at least equal
to 67% of the Warrant Shares issuable upon exercise of all then outstanding Warrants.

m) Severability. Wherever possible, each provision of this Warrant shall be
interpreted in such manner as to be effective and valid under applicable law, but if any
provision of this Warrant shall be prohibited by or invalid under applicable law, such
provision shall be ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provisions or the remaining provisions of this Warrant.

n) Headings. The headings used in this Warrant are for the convenience of
reference only and shall not, for any purpose, be deemed a part of this Warrant.

********************

(Signature Pages Follow)

1

IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer
thereunto duly authorized as of the date first above indicated.

	 
	CONVERTED ORGANICS INC.

	By:     

Name:

	Title:

NOTICE OF EXERCISE

TO: CONVERTED ORGANICS INC.

(1) The undersigned hereby elects to purchase        Warrant Shares of the Company pursuant
to the terms of the attached Warrant (only if exercised in full), and tenders herewith payment of
the exercise price in full, together with all applicable transfer taxes, if any.

(2) Payment shall take the form of (check applicable box):

[ ] in lawful money of the United States; or

[ ] [if permitted] the cancellation of such number of Warrant Shares as is
necessary, in accordance with the formula set forth in subsection 2(c), to
exercise this Warrant with respect to the maximum number of Warrant Shares
purchasable pursuant to the cashless exercise procedure set forth in subsection
2(c).

(3) Please issue a certificate or certificates representing said Warrant Shares in the name of
the undersigned or in such other name as is specified below:

      

The Warrant Shares shall be delivered to the following DWAC Account Number or by physical delivery
of a certificate to:

      

      

      

[SIGNATURE OF HOLDER]

Name of Investing Entity:      

Signature of Authorized Signatory of Investing Entity:
     

Name of Authorized Signatory:      

Title of Authorized Signatory:      

Date:       

2

ASSIGNMENT FORM

(To assign the foregoing warrant, execute

this form and supply required information.

Do not use this form to exercise the warrant.)

FOR VALUE RECEIVED, [      ] all of or [      ] shares of the foregoing Warrant and all rights
evidenced thereby are hereby assigned to

       whose address is

      .

      

Dated:       ,       

	 	 	 	 	 
	Holder’s Signature:
	 	 	—	 
	Holder’s Address:
	 	 	—	 

      

Signature Guaranteed:       

NOTE: The signature to this Assignment Form must correspond with the name as it appears on the
face of the Warrant, without alteration or enlargement or any change whatsoever, and must be
guaranteed by a bank or trust company. Officers of corporations and those acting in a fiduciary or
other representative capacity should file proper evidence of authority to assign the foregoing
Warrant.

3

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