EX-10.7






EXHIBIT 10.7



SUBSIDIARY GUARANTY




1. Identification.



This Guaranty (the “Guaranty”), dated as of May 7, 2009, is entered into by Converted Organics
of California LLC, a California limited liability company, Converted Organics of Woodbridge LLC, a
New Jersey limited liability company (each a “Guarantor” and collectively, “Guarantors”), for the
benefit of Iroquois Master Fund Ltd. (“Lender”).



2. Recitals.



2.1 Guarantors are direct or indirect subsidiaries of Converted Organics Inc., a Delaware
corporation (“Parent”). The Lender has made and/or is making a loan to Parent (the “Loan”).
Guarantor has or will obtain substantial benefit from the proceeds of the Loan.



2.2 The Loan is and will be evidenced by a certain secured promissory Note issued by Parent
on or about the date of this Guaranty (“Note”) in the principal amount of $1,320,000 pursuant to a
subscription agreement dated at or about the date hereof (“Subscription Agreement”). The Note was
or will be executed by Parent as “Borrower” or “Debtor” for the benefit of Lender as the “Holder”
or “Lender” thereof.



2.3 In consideration of the Loan and for other good and valuable consideration, and as
security for the performance by Parent of its obligations under the Note and as security for the
repayment of the Loan and all other sums due from Parent to Lender arising under the Note,
Transaction Documents (as defined in the Subscription Agreement) and any other agreement to which
the Lender and Parent are parties (collectively, the “Obligations”), Guarantor, for good and
valuable consideration, receipt of which is acknowledged, has agreed to enter into this Guaranty.



2.4 Capitalized terms used but not defined herein shall have the meanings ascribed to them in
the Subscription Agreement and the Security Agreement dated of even date herewith between the
Parent and the Lender (the “Security Agreement”).



3. Guaranty.



3.1 Guaranty. Guarantor hereby unconditionally and irrevocably guarantees, jointly
and severally with any other Guarantor, the punctual payment, performance and observance when due,
whether at stated maturity, by acceleration or otherwise, of all of the Secured Obligations now or
hereafter existing, whether for principal, interest (including, without limitation, all interest
that accrues after the commencement of any insolvency, bankruptcy or reorganization of Parent,
whether or not constituting an allowed claim in such proceeding), fees, commissions, expense
reimbursements, liquidated damages, indemnifications or otherwise (such obligations, to the extent
not paid by Parent being the parts of and components of the “Secured Obligations”),, and agrees to
pay any and all reasonable costs, fees and expenses (including reasonable counsel fees and
expenses) incurred by Lender in enforcing any rights under the guaranty set forth herein. Without
limiting the generality of the foregoing, Guarantor’s liability shall extend to all amounts that
constitute part of the Secured Obligations and would be owed by Parent to Lender, but for the fact
that they are unenforceable or not allowable due to the existence of an insolvency, bankruptcy or
reorganization involving Parent.



3.2 Guaranty Absolute. Guarantor guarantees that the Secured Obligations will be paid
strictly in accordance with the terms of the Note, regardless of any law, regulation or order now
or hereafter in effect in any jurisdiction affecting any of such terms or the rights of Lender with
respect thereto. The obligations of Guarantor under this Guaranty are independent of the Secured
Obligations, and a separate action or actions may be brought and prosecuted against Guarantor to
enforce such obligations, irrespective of whether any action is brought against Parent or any other
Guarantor or whether Parent or any other Guarantor is joined in any such action or actions. The
liability of Guarantor under this Guaranty constitutes a primary obligation, and not a contract of
surety, and to the extent permitted by law, shall be irrevocable, absolute and unconditional
irrespective of, and Guarantor hereby irrevocably waives any defenses it may now or hereafter have
in any way relating to, any or all of the following:



(a) any lack of validity of the Note or any agreement or instrument relating thereto;



(b) any change in the time, manner or place of payment of, or in any other term of, all or any
of the Secured Obligations, or any other amendment or waiver of or any consent to departure from
the Note, including, without limitation, any increase in the Secured Obligations resulting from the
extension of additional credit to Parent or otherwise;



(c) any taking, exchange, release, subordination or non-perfection of any Collateral, or any
taking, release or amendment or waiver of or consent to departure from any other guaranty, for all
or any of the Secured Obligations;



(d) any change, restructuring or termination of the corporate, limited liability company or
partnership structure or existence of Parent; or



(e) any other circumstance (including, without limitation, any statute of limitations) or any
existence of or reliance on any representation by Lender that might otherwise constitute a defense
available to, or a discharge of, Parent or any other guarantor or surety.



This Guaranty shall continue to be effective or be reinstated, as the case may be, if at any
time any payment of any of the Secured Obligations is rescinded or must otherwise be returned by
Lender, the Lender or any other entity upon the insolvency, bankruptcy or reorganization of the
Parent or otherwise (and whether as a result of any demand, settlement, litigation or otherwise),
all as though such payment had not been made.



3.3 Waiver. Guarantor hereby waives promptness, diligence, notice of acceptance and
any other notice with respect to any of the Secured Obligations and this Guaranty and any
requirement that Lender exhaust any right or take any action against any Borrower or any other
person or entity or any Collateral. Guarantor acknowledges that it will receive direct and
indirect benefits from the financing arrangements contemplated herein and that the waiver set forth
in this Section 3.3 is knowingly made in contemplation of such benefits. Guarantor hereby waives
any right to revoke this Guaranty, and acknowledges that this Guaranty is continuing in nature and
applies to the Secured Obligations, whether existing now or in the future.



3.4 Continuing Guaranty; Assignments. This Guaranty is a continuing guaranty
and shall (a) remain in full force and effect until the cash payment in full of the Secured
Obligations and all other amounts payable under this Guaranty, (b) be binding upon Guarantor, its
successors and assigns and (c) inure to the benefit of and be enforceable by the Lender and its
successors, pledgees, transferees and assigns. Without limiting the generality of the foregoing
clause (c), Lender may pledge, assign or otherwise transfer all or any portion of its rights and
obligations under this Guaranty (including, without limitation, all or any portion of its Note
owing to it) to any other Person, and such other Person shall thereupon become vested with all the
benefits in respect thereof granted Lender herein or otherwise.



3.5 Subrogation. Guarantor will not exercise any rights that it may now or
hereafter acquire against Lender or other Guarantor (if any) that arise from the existence,
payment, performance or enforcement of such Guarantor’s obligations under this Guaranty, including,
without limitation, any right of subrogation, reimbursement, exoneration, contribution or
indemnification, whether or not such claim, remedy or right arises in equity or under contract,
statute or common law, including, without limitation, the right to take or receive from Lender or
other Guarantor (if any), directly or indirectly, in cash or other property or by set-off or in any
other manner, payment or security solely on account of such claim, remedy or right, unless and
until all of the Secured Obligations and all other amounts payable under this Guaranty shall have
been indefeasibly paid in full.



3.6 Maximum Obligations. Notwithstanding any provision herein contained to the
contrary, Guarantor’s liability with respect to the Secured Obligations shall be limited to an
amount not to exceed, as of any date of determination, the amount that could be claimed by Lender
from Guarantor without rendering such claim voidable or avoidable under Section 548 of the
Bankruptcy Code or under any applicable state Uniform Fraudulent Transfer Act, Uniform Fraudulent
Conveyance Act or similar statute or common law.



4. Miscellaneous.



4.1 Expenses. Guarantor shall pay to the Lender, on demand, the amount of any and all
reasonable expenses, including, without limitation, attorneys’ fees, which the Lender may incur in
connection with exercise or enforcement of any the rights, remedies or powers of the Lender
hereunder or with respect to any or all of the Secured Obligations.



4.2 Waivers, Amendment and Remedies. No course of dealing by the Lender and no
failure by the Lender to exercise, or delay by the Lender in exercising, any right, remedy or power
hereunder shall operate as a waiver thereof, and no single or partial exercise thereof shall
preclude any other or further exercise thereof or the exercise of any other right, remedy or power
of the Lender. No amendment, modification or waiver of any provision of this Guaranty and no
consent to any departure by Guarantor therefrom, shall, in any event, be effective unless contained
in a writing signed by the party against whom such amendment, modification or waiver is sought, and
then such waiver or consent shall be effective only in the specific instance and for the specific
purpose for which given. The rights, remedies and powers of the Lender, not only hereunder, but
also under any instruments and agreements evidencing or securing the Secured Obligations and under
applicable law are cumulative, and may be exercised by the Lender from time to time in such order
as the Lender may elect.



4.3 Notices. All notices or other communications given or made hereunder shall be
given in the same manner as set forth in Section 12(b) of the Subscription Agreement 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:



	 	 	 
	To Guarantor, to:
	 	c/o 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

	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 Guarantor 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.



4.4 Term; Binding Effect. This Guaranty shall (a) remain in full force and effect
until payment and satisfaction in full of all of the Obligations; (b) be binding upon Guarantor and
its successors and permitted assigns; and (c) inure to the benefit of the Lender and its respective
successors and assigns. Upon the payment in full of the Obligations, (i) this Guaranty shall
terminate and (ii) the Lender will, upon Guarantor’s request and at Guarantor’s expense, execute
and deliver to Guarantor such documents as Guarantor shall reasonably request to evidence such
termination, all without any representation, warranty or recourse whatsoever.



4.5 Captions. The captions of Paragraphs, Articles and Sections in this Guaranty have
been included for convenience of reference only, and shall not define or limit the provisions
hereof and have no legal or other significance whatsoever.



4.6 Governing Law; Venue; Severability. This Guaranty shall be governed by and
construed in accordance with the laws of the State of New York without regard to principles of
conflicts or choice of law. Any legal action or proceeding against Guarantor with respect to this
Guaranty must be brought only in the courts of the State of New York or of the United States for
the Southern District of New York, and, by execution and delivery of this Guaranty, Guarantor
hereby irrevocably accepts for itself and in respect of its property, generally and
unconditionally, the jurisdiction of the aforesaid courts. Guarantor hereby irrevocably waives any
objection which they may now or hereafter have to the laying of venue of any of the aforesaid
actions or proceedings arising out of or in connection with this Guaranty brought in the aforesaid
courts and hereby further irrevocably waives and agrees not to plead or claim in any such court
that any such action or proceeding brought in any such court has been brought in an inconvenient
forum. If any provision of this Guaranty, or the application thereof to any person or
circumstance, is held invalid, such invalidity shall not affect any other provisions which can be
given effect without the invalid provision or application, and to this end the provisions hereof
shall be severable and the remaining, valid provisions shall remain of full force and effect. This
Guaranty shall be deemed an unconditional obligation of Guarantor for the payment of money and,
without limitation to any other remedies of Lender, may be enforced against Guarantor by summary
proceeding pursuant to New York Civil Procedure Law and Rules Section 3213 or any similar rule or
statute in the jurisdiction where enforcement is sought. For purposes of such rule or statute, any
other document or agreement to which Lender and Guarantor are parties or which Guarantor delivered
to Lender, which may be convenient or necessary to determine Lender’s rights hereunder or
Guarantor’s obligations to Lender are deemed a part of this Guaranty, whether or not such other
document or agreement was delivered together herewith or was executed apart from this Guaranty.
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. Guarantor irrevocably appoints Parent its true and lawful
agent for service of process upon whom all processes of law and notices may be served and given in
the manner described above; and such service and notice shall be deemed valid personal service and
notice upon each such Guarantor with the same force and validity as if served upon such Guarantor.



4.7 Satisfaction of Obligations. For all purposes of this Guaranty, the payment in
full of the Secured Obligations shall be conclusively deemed to have occurred when the
Secured Obligations have been indefeasibly paid.



4.8 Execution. This Agreement may be executed by facsimile signature and delivered
by electronic transmission.



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IN WITNESS WHEREOF, the undersigned have executed and delivered this Guaranty, as of the date
first written above.



“GUARANTOR”


CONVERTED ORGANICS OF CALIFORNIA LLC


a California limited liability company



     


By:


Its:



“GUARANTOR”


CONVERTED ORGANICS OF WOODBRIDGE LLC


a New Jersey limited liability company



     


By:


Its:



This Guaranty may be signed by facsimile signature and

delivered by confirmed facsimile transmission.





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