Document:

EX-10.3

SECURITY AGREEMENT

SECURITY AGREEMENT, dated as of September 14, 2009 (this “Agreement”), between
CONVERTED ORGANICS OF WOODBRIDGE, LLC, a New Jersey limited liability company, and CONVERTED
ORGANICS OF CALIFORNIA, LLC, a California limited liability company (each referred to herein as
“Guarantor), and IROQUOIS MASTER FUND LTD. (the “Lender”).

WHEREAS, Converted Organics, Inc., a Delaware corporation (the “Parent”) and the
Lender are parties to that certain Subscription Agreement dated the date hereof (the
“Subscription Agreement”) pursuant to which Lender has or will make a loan to Parent
(“Loan”);

WHEREAS, Guarantor is a wholly-owned subsidiary of Parent and will receive substantial benefit
from the Loan and the transactions described in the Transaction Documents; and

WHEREAS, Guarantor is delivering a “Guaranty” to Lender as security for and in
connection with amounts defined therein as “Secured Obligations”; and

WHEREAS, it is intended hereby that all obligations of Guarantor to the Lender under the
Guaranty and other agreements to which the Parent and/or Guarantor and Lender are, from time to
time, parties, be secured by the personal property assets of Guarantor herein described;

NOW, THEREFORE, in consideration of the promises contained herein and for other good and
valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties
hereto agree as follows:

1. Definitions.

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

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

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

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

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

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

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

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

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

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

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

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

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

“State” means the State of New York.

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

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

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

2. Grant of Security Interest.

(a) Guarantor hereby grants to the Lender, to secure the payment and performance in full of
all of the Secured Obligations, a security interest in all personal and fixture property of every
kind and nature including without limitation all Goods (including Inventory, Equipment and any
Accessions thereto), Instruments (including Promissory Notes), Documents, Accounts, Chattel Paper
(whether Tangible Chattel Paper or Electronic Chattel Paper), Deposit Accounts, Letter-of-Credit
Rights (whether or not the Letter of Credit is evidenced by a writing), Commercial Tort Claims,
Investment Property, Subsidiaries (as defined in the Subscription Agreement) whether now existing
or existing in the future, Supporting Secured Obligations, any other contract rights or rights to
the payment of money, insurance claims and proceeds, tort claims, and all General Intangibles
(including all Payment Intangibles and all Proceeds of the foregoing) (all of the same listed in
this Section 2 being hereinafter called, the “Collateral”). The Lender acknowledges that
the attachment of its security interest in any Commercial Tort Claim as original collateral is
subject to Guarantor’s compliance with Section 4(g).

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

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

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

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

(b) [Reserved].

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(g) On the date hereof:

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

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

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

7. [Reserved].

8. Special Provisions Concerning Trademarks and Patents.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

12. Collateral Protection Expenses; Preservation of Collateral.

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

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

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

14. Power of Attorney.

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

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

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

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

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

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

15. Remedies.

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

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

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

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

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

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

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

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

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

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

24. Miscellaneous.

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

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

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

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

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

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

(g) Severability. Any provision of this Agreement which is prohibited or unenforceable
in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining provisions hereof, and any such
prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable
such provision in any other jurisdiction.

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

	 	 	 
	To Guarantor:
	 	Converted Organics of Woodbridge, LLC

75 Crows Mill Road

Keasbey, NJ 08832

Fax:      

	 	 	Converted Organics of California, LLC

31677 Johnson Canyon Road

Gonzales, CA 93926

Fax:      

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

1900 Market Street

Philadelphia, PA 19103

Attn: Cavas Pavri, Esq.

Fax: (215) 665-2013

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

666 Third Avenue

New York, NY 10017

Attn: Kenneth R. Koch, Esq.

Fax: (212) 983-3115

	 	 	 
	To Lender:
	 	IROQUOIS MASTER FUND LTD.

641 Lexington Avenue, 26th Floor

New York, NY 10022

Fax: (212) 207-3452

Attn: Mitchell Kulick, Esq.

	If to Debtor or Lender,

with a copy by telecopier only to:
	 	

Grushko & Mittman, P.C.

551 Fifth Avenue, Suite 1601

New York, New York 10176

Fax: (212) 697-3575

Attn: Barbara R. Mittman, Esq.

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

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

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

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

1

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

CONVERTED ORGANICS OF WOODBRIDGE, LLC

“Guarantor”

By:       

Name:

Title:

CONVERTED ORGANICS OF CALIFORNIA, LLC

“Guarantor”

By:       

Name:

Title:

ACCEPTED:

IROQUOIS MASTER FUND LTD.

the “Lender”

By:       

Name:

Title:

LIST OF SCHEDULES TO SECURITY AGREEMENT

Schedule 2 – Other Security Interests

Schedule 6(b) – Liens

Schedule 10 – Locations of Collateral

Schedule 10(j) – List of Subsidiaries of Debtor

2EX-10.4

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

	 	 	 
	Principal Amount: $1,540,000.00

Purchase Price: $1,400,000.00

	 	Issue Date: September 14, 2009

SECURED CONVERTIBLE PROMISSORY NOTE

FOR VALUE RECEIVED, CONVERTED ORGANICS, INC., a Delaware corporation (hereinafter called
“Borrower”), hereby promises to pay to IROQUOIS MASTER FUND LTD., 641 Lexington Avenue, 26th Floor,
New York, NY 10022, Fax: (212) 207-3452 (the “Holder”) or order, without demand, the sum of One
Million Five Hundred and Forty Thousand Dollars ($1,540,000) (“Principal Amount”), with interest
accruing thereon, on March   , 2010 (the “Maturity Date”), if not sooner paid.

This Note has been entered into pursuant to the terms of a subscription agreement between the
Borrower and the Holder dated at or about the date hereof (the “Subscription Agreement”), and shall
be governed by the terms of such Subscription Agreement. Unless otherwise separately defined
herein, all capitalized terms used in this Note shall have the same meaning as is set forth in the
Subscription Agreement. The following terms shall apply to this Note:

ARTICLE I

GENERAL PROVISIONS

1.1 Payment Grace Period. The Borrower shall have a five (5) day grace period to pay
any monetary amounts due under this Note, after which grace period a default interest rate of
eighteen percent (18%) per annum shall apply during the pendency of the default.

1.2 Conversion Privileges. The Conversion Privileges set forth in Article II shall
remain in full force and effect immediately from the date hereof and until the Note is paid in full
regardless of the occurrence of an Event of Default. The Note shall be payable in full on the
Maturity Date, unless previously converted into Common Stock in accordance with Article II hereof.

1.3 Mandatory Repayment. Upon any sale and issuance by the Borrower and/or a
Subsidiary of Borrower of Debt and/or Equity in a single or series of offerings of such debt and/or
equity, at the election of Lender, the Principal and all other sums due under and in connection
with this Note and the Transaction Documents shall be immediately due and payable up to an amount
equal to 100% of the net proceeds.

ARTICLE II

CONVERSION RIGHTS

The Holder shall have the right to convert the principal due under this Note into Shares of
the Borrower’s Common Stock, $.0001 par value per share (“Common Stock”) as set forth below.

2.1. Conversion into the Borrower’s Common Stock.

(a) The Holder shall have the right from and after the date of the issuance of this Note and
then at any time until this Note is fully paid, to convert any outstanding and unpaid principal
portion of this Note at the election of the Holder (the date of giving of such notice of conversion
being a “Conversion Date”) into fully paid and nonassessable shares of Common Stock as such stock
exists on the date of issuance of this Note, or any shares of capital stock of Borrower into which
such Common Stock shall hereafter be changed or reclassified, at the conversion price as defined in
Section 2.1(b) hereof (the “Fixed Conversion Price”), determined as provided herein. Upon delivery
to the Borrower of a completed Notice of Conversion, a form of which is annexed hereto as Exhibit
A, Borrower shall issue and deliver to the Holder within three (3) business days after the
Conversion Date (such third day being the “Delivery Date”) that number of shares of Common Stock
for the portion of the Note converted in accordance with the foregoing. At the election of the
Holder, the Borrower will deliver accrued but unpaid interest on the Note, if any, through the
Conversion Date directly to the Holder on or before the Delivery Date. The number of shares of
Common Stock to be issued upon each conversion of this Note shall be determined by dividing that
portion of the principal of the Note and interest, if any, to be converted, by the Conversion
Price.

(b) Subject to adjustment as provided in Section 2.1(c) hereof, the fixed conversion price per
share shall be equal to $1.54 (“Fixed Conversion Price”).

(c) The Fixed Conversion Price and number and kind of shares or other securities to be issued
upon conversion determined pursuant to Section 2.1(a), shall be subject to adjustment from time to
time upon the happening of certain events while this conversion right remains outstanding, as
follows:

A. Merger, Sale of Assets, etc. If (A) the Borrower effects any merger or
consolidation of the Borrower with or into another entity, (B) the Borrower effects any sale of all
or substantially all of its assets in one or a series of related transactions, (C) any tender
offer or exchange offer (whether by the Borrower or another entity) is completed pursuant to which
holders of Common Stock are permitted to tender or exchange their shares for other securities, cash
or property, (D) the Borrower consummates a stock purchase agreement or other business combination
(including, without limitation, a reorganization, recapitalization, spin-off or scheme of
arrangement) with one or more persons or entities whereby such other persons or entities acquire
more than the 50% of the outstanding shares of Common Stock (not including any shares of Common
Stock held by such other persons or entities making or party to, or associated or affiliated with
the other persons or entities making or party to, such stock purchase agreement or other business
combination), (E) any “person” or “group” (as these terms are used for purposes of Sections 13(d)
and 14(d) of the 1934 Act) is or shall become the “beneficial owner” (as defined in Rule 13d-3
under the 1934 Act), directly or indirectly, of 50% of the aggregate Common Stock of the Borrower,
or (F) the Borrower effects any reclassification 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 (in any such case, a “Fundamental Transaction”), this Note, as to the
unpaid principal portion thereof and accrued interest thereon, shall thereafter be deemed to
evidence the right to convert into such number and kind of shares or other securities and property
as would have been issuable or distributable on account of such Fundamental Transaction, upon or
with respect to the securities subject to the conversion right immediately prior to such
Fundamental Transaction. The foregoing provision shall similarly apply to successive Fundamental
Transactions of a similar nature by any such successor or purchaser. Without limiting the
generality of the foregoing, the anti-dilution provisions of this Section shall apply to such
securities of such successor or purchaser after any such Fundamental Transaction.

B. Reclassification, etc. If the Borrower at any time shall, by reclassification or
otherwise, change the Common Stock into the same or a different number of securities of any class
or classes that may be issued or outstanding, this Note, as to the unpaid principal portion
thereof, shall thereafter be deemed to evidence the right to purchase an adjusted number of such
securities and kind of securities as would have been issuable as the result of such change with
respect to the Common Stock immediately prior to such reclassification or other change.

C. Stock Splits, Combinations and Dividends. If the shares of Common Stock are
subdivided or combined into a greater or smaller number of shares of Common Stock, or if a dividend
is paid on the Common Stock in shares of Common Stock, the Conversion Price shall be
proportionately reduced in case of subdivision of shares or stock dividend or proportionately
increased in the case of combination of shares, in each such case by the ratio which the total
number of shares of Common Stock outstanding immediately after such event bears to the total number
of shares of Common Stock outstanding immediately prior to such event.

(d) Whenever the Conversion Price is adjusted pursuant to Section 2.1(c) above, the Borrower
shall promptly mail to the Holder a notice setting forth the Conversion Price after such adjustment
and setting forth a statement of the facts requiring such adjustment.

(e) During the period the conversion right exists, Borrower will reserve from its authorized
and unissued Common Stock not less than an amount of Common Stock equal to 150% of the amount of
shares of Common Stock issuable upon the full conversion of this Note. Borrower represents that
upon issuance, such shares will be duly and validly issued, fully paid and non-assessable.
Borrower agrees that its issuance of this Note shall constitute full authority to its officers,
agents, and transfer agents who are charged with the duty of executing and issuing stock
certificates to execute and issue the necessary certificates for shares of Common Stock upon the
conversion of this Note.

2.2 Method of Conversion. This Note may be converted by the Holder in whole or in
part as described in Section 2.1(a) hereof and the Subscription Agreement. Upon partial conversion
of this Note, a new Note containing the same date and provisions of this Note shall, at the request
of the Holder, be issued by the Borrower to the Holder for the principal balance of this Note and
interest which shall not have been converted or paid.

2.3. Maximum Conversion. The Holder shall not be entitled to convert on a Conversion
Date that amount of the Note in connection with that number of shares of Common Stock which would
be in excess of the sum of (i) the number of shares of Common Stock beneficially owned by the
Holder and its affiliates on a Conversion Date, (ii) any Common Stock issuable in connection with
the unconverted portion of the Note, and (iii) the number of shares of Common Stock issuable upon
the conversion of the Note with respect to which the determination of this provision is being made
on a Conversion Date, which would result in beneficial ownership by the Holder and its affiliates
of more than 4.99% of the outstanding shares of Common Stock of the Borrower on such Conversion
Date. For the purposes of the provision to the immediately preceding sentence, beneficial
ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended, and Regulation 13d-3 thereunder. Subject to the foregoing, the Holder shall not
be limited to aggregate conversions of 4.99%. The Holder shall have the authority and obligation
to determine whether the restriction contained in this Section 2.3 will limit any conversion
hereunder and to the extent that the Holder determines that the limitation contained in this
Section applies, the determination of which portion of the Notes are convertible shall be the
responsibility and obligation of the Holder. The Holder may waive the conversion limitation
described in this Section 2.3, in whole or in part, upon and effective after 61 days prior written
notice to the Borrower to increase such percentage to up to 9.99%. Notwithstanding anything to the
contrary herein, Holder agrees that the aggregate number of shares of Common Stock issuable upon
any and all exercises of this Note are subject to the Numeric Limitation (as defined in the
Subscription Agreement).

ARTICLE III

EVENT OF DEFAULT

The occurrence of any of the following events of default (“Event of Default”) shall, at the
option of the Holder hereof, make all sums of principal and interest then remaining unpaid hereon
and all other amounts payable hereunder immediately due and payable, upon demand, without
presentment, or grace period, all of which hereby are expressly waived, except as set forth below:

3.1 Failure to Pay Principal. The Borrower fails to pay any principal, or other sum
due under this Note when due.

3.2 Breach of Covenant. The Borrower or any Subsidiary of Borrower breaches any
material covenant or other material term or condition of the Subscription Agreement or this Note in
any material respect and such breach, if subject to cure, continues for a period of five (5)
business days after written notice to the Borrower or any such Subsidiary of Borrower from the
Holder.

3.3 Breach of Representations and Warranties. Any material representation or warranty
of the Borrower or any Subsidiary of Borrower made herein, in any Transaction Document, or in any
agreement, statement or certificate given in writing pursuant hereto or in connection herewith or
therewith shall be false or misleading in any material respect as of the date made and as of the
Closing Date.

3.4 Liquidation. Any dissolution, liquidation or winding up of Borrower or any
operating Subsidiary of Borrower or any substantial portion of its business.

3.5 Cessation of Operations. Any cessation of operations by Borrower or any
operating Subsidiary of Borrower for a period of 30 consecutive days.

3.6 Maintenance of Assets. The failure by Borrower or any Subsidiary of Borrower to
maintain any material intellectual property rights, personal, real property or other assets which
are necessary to conduct its business (whether now or in the future).

3.7 Receiver or Trustee. The Borrower or any Subsidiary of Borrower shall make an
assignment for the benefit of creditors, or apply for or consent to the appointment of a receiver
or trustee for it or for a substantial part of its property or business; or such a receiver or
trustee shall otherwise be appointed.

3.8 Bankruptcy. Bankruptcy, insolvency, reorganization or liquidation proceedings or
other proceedings or relief under any bankruptcy law or any law for the relief of debtors shall be
instituted by the Borrower or any Subsidiary of Borrower or any such proceeding shall be instituted
against the Borrower or any Subsidiary of Borrower, which proceedings are not, within sixty (60)
days after institution thereof, discharged or stayed pending appeal.

3.9 Delisting. Failure of the Borrower’s Common Stock to be listed for trading or
quotation on a Principal Market for ten (10) or more consecutive days.

3.10 Stop Trade. An SEC or judicial stop trade order or Principal Market trading
suspension with respect to the Borrower’s Common Stock that lasts for seven (7) or more consecutive
trading days.

3.11 Failure to Deliver Common Stock or Replacement Note. Borrower’s failures to
timely deliver Common Stock to the Holder pursuant to and in the form required by this Note and
Sections 7 and 11 of the Subscription Agreement, or, if required, a replacement Note.

3.12 Reservation Default. The failure by the Borrower to have reserved for issuance
upon exercise of the Warrant at the exercise price in effect at such time the number of shares of
Common Stock as required in the Subscription Agreement.

3.13 Event Described in Subscription Agreement. The occurrence of an Event of Default
as described in the Subscription Agreement that, if susceptible to cure, is not cured during any
designated cure period.

3.14 Material Adverse Effect. The occurrence of any Material Adverse Effect as
defined in the Subscription Agreement as to Borrower or any Subsidiary of Borrower.

3.15 Financial Statement Restatement. A restatement of any financial statements filed
by the Borrower with the Securities and Exchange Commission for any date or period from two years
prior to the Issue Date of this Note and until this Note is no longer outstanding, if the result of
such restatement would, by comparison to the unrestated financial statements, have constituted a
Material Adverse Effect.

3.16 Reverse Splits. The Borrower effectuates a reverse split of its Common Stock
without twenty (20) days prior written notice to the Holder.

3.17 Material Breach of Security Agreement. Any default by Borrower or any
Subsidiary of Borrower of any of its material obligations pursuant to the Security Agreement.

ARTICLE IV

SECURITY INTEREST

4. Security Interest/Waiver of Automatic Stay. This Note is secured by a security
interest granted to the Holder pursuant to a Security Agreement and Guaranty, as delivered by
Borrower to Holder. The Borrower acknowledges and agrees that should a proceeding under any
bankruptcy or insolvency law be commenced by or against the Borrower, or if any of the Collateral
(as defined in the Security Agreement) should become the subject of any bankruptcy or insolvency
proceeding, then the Holder should be entitled to, among other relief to which the Holder may be
entitled under the Transaction Documents and any other agreement to which the Borrower and Holder
are parties (collectively, “Loan Documents”) and/or applicable law, an order from the court
granting immediate relief from the automatic stay pursuant to 11 U.S.C. Section 362 to permit the
Holder to exercise all of its rights and remedies pursuant to the Loan Documents and/or applicable
law. THE BORROWER EXPRESSLY WAIVES THE BENEFIT OF THE AUTOMATIC STAY IMPOSED BY 11 U.S.C. SECTION
362. FURTHERMORE, THE BORROWER EXPRESSLY ACKNOWLEDGES AND AGREES THAT NEITHER 11 U.S.C. SECTION
362 NOR ANY OTHER SECTION OF THE BANKRUPTCY CODE OR OTHER STATUTE OR RULE (INCLUDING, WITHOUT
LIMITATION, 11 U.S.C. SECTION 105) SHALL STAY, INTERDICT, CONDITION, REDUCE OR INHIBIT IN ANY WAY
THE ABILITY OF THE HOLDER TO ENFORCE ANY OF ITS RIGHTS AND REMEDIES UNDER THE LOAN DOCUMENTS AND/OR
APPLICABLE LAW. The Borrower hereby consents to any motion for relief from stay that may be filed
by the Holder in any bankruptcy or insolvency proceeding initiated by or against the Borrower and,
further, agrees not to file any opposition to any motion for relief from stay filed by the Holder.
The Borrower represents, acknowledges and agrees that this provision is a specific and material
aspect of the Loan Documents, and that the Holder would not agree to the terms of the Loan
Documents if this waiver were not a part of this Note. The Borrower further represents,
acknowledges and agrees that this waiver is knowingly, intelligently and voluntarily made, that
neither the Holder nor any person acting on behalf of the Holder has made any representations to
induce this waiver, that the Borrower has been represented (or has had the opportunity to he
represented) in the signing of this Note and the Loan Documents and in the making of this waiver by
independent legal counsel selected by the Borrower and that the Borrower has discussed this waiver
with counsel.

ARTICLE V

MISCELLANEOUS

5.1 Failure or Indulgence Not Waiver. No failure or delay on the part of the Holder
hereof in the exercise of any power, right or privilege hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such power, right or privilege preclude
other or further exercise thereof or of any other right, power or privilege. All rights and
remedies existing hereunder are cumulative to, and not exclusive of, any rights or remedies
otherwise available.

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

(i) if to Borrower, to:

Converted Organics, Inc.

7A Commercial Wharf West

Boston, MA 02110

Attn: Edward J. Gildea, CEO and President

Fax: (617) 624-0333

With a copy by facsimile only to:

Cozen O’Connor

1900 Market Street

Philadelphia, PA 19103

Attn: Cavas Pavri, Esq.

Fax: (215) 665-2013

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

666 Third Avenue

New York, NY 10017

Attn: Kenneth R. Koch, Esq.

Fax: (212) 983-3115

(ii) if to the Holder, to:

the address and fax number indicated on the front page of this Note

With an additional copy by fax only to:

Grushko & Mittman, P.C.

551 Fifth Avenue, Suite 1601

New York, New York 10176

Fax: (212) 697-3575

5.3 Amendment Provision. The term “Note” and all reference thereto, as used
throughout this instrument, shall mean this instrument as originally executed, or if later amended
or supplemented, then as so amended or supplemented.

5.4 Assignability. This Note shall be binding upon the Borrower and its successors
and assigns, and shall inure to the benefit of the Holder and its successors and assigns. The
Borrower may not assign its obligations under this Note.

5.5 Cost of Collection. If default is made in the payment of this Note, Borrower
shall pay the Holder hereof reasonable costs of collection, including reasonable attorneys’ fees.

5.6 Governing Law. This Note shall be governed by and construed in accordance with
the laws of the State of New York without regard to conflicts of laws principles that would result
in the application of the substantive laws of another jurisdiction. Any action brought by either
party against the other concerning the transactions contemplated by this Agreement must be brought
only in the civil or state courts of New York or in the federal courts located in the State and
county of New York. Both parties and the individual signing this Agreement on behalf of the
Borrower agree to submit to the jurisdiction of such courts. The prevailing party shall be
entitled to recover from the other party its reasonable attorney’s fees and costs. In the event
that any provision of this Note is invalid or unenforceable under any applicable statute or rule of
law, then such provision shall be deemed inoperative to the extent that it may conflict therewith
and shall be deemed modified to conform with such statute or rule of law. Any such provision which
may prove invalid or unenforceable under any law shall not affect the validity or unenforceability
of any other provision of this Note. Nothing contained herein shall be deemed or operate to
preclude the Holder from bringing suit or taking other legal action against the Borrower in any
other jurisdiction to collect on the Borrower’s obligations to Holder, to realize on any collateral
or any other security for such obligations, or to enforce a judgment or other decision in favor of
the Holder. This Note shall be deemed an unconditional obligation of Borrower for the payment of
money and, without limitation to any other remedies of Holder, may be enforced against Borrower 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 Holder and Borrower are parties or which Borrower
delivered to Holder, which may be convenient or necessary to determine Holder’s rights hereunder or
Borrower’s obligations to Holder are deemed a part of this Note, whether or not such other document
or agreement was delivered together herewith or was executed apart from this Note.

5.7 Maximum Payments. Nothing contained herein shall be deemed to establish or
require the payment of a rate of interest or other charges in excess of the maximum rate permitted
by applicable law. In the event that the rate of interest required to be paid or other charges
hereunder exceed the maximum rate permitted by applicable law, any payments in excess of such
maximum rate shall be credited against amounts owed by the Borrower to the Holder and thus refunded
to the Borrower.

5.8 Non-Business Days. Whenever any payment or any action to be made shall be due on
a Saturday, Sunday or a public holiday under the laws of the State of New York, such payment may be
due or action shall be required on the next succeeding business day and, for such payment, such
next succeeding day shall be included in the calculation of the amount of accrued interest payable
on such date.

5.9 Redemption. This Note may not be redeemed or called without the consent of the
Holder except as described in this Note or the Subscription Agreement.

5.10 Shareholder Status. The Holder shall not have rights as a shareholder of the
Borrower with respect to unconverted portions of this Note. However, the Holder will have the
rights of a shareholder of the Borrower with respect to the Shares of Common Stock to be received
after delivery by the Holder of a Conversion Notice to the Borrower.

1

IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its name by an authorized
officer as of the 14 day of September, 2009.

CONVERTED ORGANICS, INC.

By:      

Name:

Title:

WITNESS:

      

2

NOTICE OF CONVERSION

(To be executed by the Registered Holder in order to convert the Note)

The undersigned hereby elects to convert $      of the principal and $      of the
interest due on the Note issued by CONVERTED ORGANICS, INC. on September 14, 2009 into Shares of
Common Stock of CONVERTED ORGANICS, INC. (the “Borrower”) according to the conditions set forth in
such Note, as of the date written below.

Date of Conversion:      

Conversion Price:      

Number of Shares of Common Stock Beneficially Owned on the Conversion Date: Less than 5% of the
outstanding Common Stock of CONVERTED ORGANICS, INC.

Shares To Be Delivered:      

Signature:      

Print Name:      

Address:      

      

3

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