Document:

Exhibit 10.5

Exhibit 10.5

AMENDMENT OF AGREEMENT

THIS Amendment of Agreement (this “Amendment”) is entered into to be effective as of April 30, 2010
(the “Effective Date”) between GREIT-PACIFIC PLACE, LP, a Delaware limited partnership (“Seller”)
and BOXER F2, L.P., a Texas limited partnership (“Buyer”).

RECITALS

	 	A.	 	Seller and Buyer are parties to a Purchase and Sale Agreement for 1910 Pacific Avenue
dated as of March 26, 2010 (the “PSA”), pursuant to which Seller has agreed to sell and
buyer has agreed to purchase the property described therein, commonly known as 1910 Pacific
Avenue or “Pacific Place”, being the Land, Improvements (the “Building”), and Personalty
located 1910 Pacific Avenue, Dallas, TX (collectively, with certain Property Agreements and
Parking Lease described in the PSA, the “Property”).

	 
	 	B.	 	The parties now desire to extend the Closing Date.

NOW, THEREFORE, for $10 cash in hand paid and other good and valuable consideration, the receipt
and sufficiency of which are acknowledged by both parties, Seller and Buyer agree to extend the
Closing to May 5, 2010 (the revised “Closing Date”), or such earlier date as they may agree upon.

The PSA remains in full force and effect, and is unmodified, except by this Amendment.

This Amendment may be executed in counterparts, and shall be effective upon receipt by both parties
of scanned signatures.

EXECUTED AS OF April 30, 2010.

[Signatures follow]+

 

 

 

SELLER:

GREIT-PACIFIC PLACE, LP,

a Delaware limited partnership

	 	 	 	 	 
	By:

	 	GREIT-PACIFIC PLACE GP LLC,
	 	 
	 

	 	a Delaware limited liability company,	 	 
	 

	 	Its General Partner	 	 
	 
	 	 	 	 
	By:

	 	GREIT Liquidating Trust,	 	 
	 

	 	a Maryland trust,	 	 
	 

	 	Its Sole Member	 	 
	 
	 	 	 	 
	By:

	 	Gary T. Westcombe, Trustee,	 	 
	 

	 	Gary H. Hunt, Trustee,	 	 
	 

	 	W. Brand Inlow, Trustee,	 	 
	 

	 	Edward A. Johnson, Trustee,	 	 
	 

	 	D. Fleet Wallace, Trustee,	 	 
	 

	 	As Trustees of the GREIT Liquidating Trust	 	 

	 	 	 	 	 
	By:

	 	/s/ Andrea R. Biller
 

Name: Andrea R. Biller
	 	 
	 

	 	Title:   Authorized Representative	 	 

Date: April 30, 2010

ASSIGNEE:

BOXER F2, L.P.,

a Texas limited partnership

	 	 	 	 	 
	By:

	 	Boxer M2, L.L.C., a Texas limited liability company,

its general partner	 	 
	 
	 	 	 	 
	By:

	 	/s/ Andrew Segal
 

Andrew Segal, Manager
	 	 

Date: April 30, 2010exv10w38

Exhibit 10.38

EXCHANGE AGREEMENT

     This EXCHANGE AGREEMENT (the “Agreement”), dated as of October 18, 2010, is being entered into
by and between CONVERTED ORGANICS INC., a Delaware corporation (the “Company”), and OPPENHEIMER
ROCHESTER NATIONAL MUNICIPALS and OPPENHEIMER NEW JERSEY MUNICIPAL FUND, each a series of
OPPENHEIMER MULTI-STATE MUNICIPAL TRUST, a Massachusetts business trust (together, the “Holder”).

RECITALS 

     A. Pursuant to a certain Loan Agreement dated as of February 1, 2007 (the “Loan Agreement”),
by and between the New Jersey Economic Development Authority (the “Authority”) and a wholly-owned
subsidiary of the Company, Converted Organics of Woodbridge, LLC (the “Borrower”), the Authority
issued and sold its $17,500,000 aggregate principal amount Solid Waste Facilities Revenue Bonds
(Converted Organics of Woodbridge, LLC — 2006 Project) Series A (the “Bonds”), for the purpose of
making a loan to the Borrower in the amount of $17,500,000 (the “Loan”).

     B. The Loan is evidenced by a certain Promissory Note dated as of February 16, 2007 (the
“Note”), which Note is secured by a certain Mortgage and Security Agreement (the “Mortgage”) and
Assignment of Leases and Other Agreements (the “Assignment”), each dated as of February 16, 2007.

     C. As an inducement to the Authority to make the Loan and to Holder to purchase the Bonds, the
Company entered into and executed a certain Guaranty Agreement dated as of February 16, 2007,
pursuant to which it guaranteed the full, prompt and unconditional payment when due of any
liability of Borrower owing to the Authority and the Holder with respect to the Loan.

     D. The Holder purchased the Bonds from Authority’s placement agent pursuant to a Bond
Placement Agreement dated February 14, 2007.

     E. The Holder is the owner of warrants to purchase 2,284,409 shares the Company’s common stock
(the “Class B Warrants”).

     F. Holder acknowledges that since the date of the Loan Agreement, the Company has periodically
deposited funds into certain accounts with BNY Mellon, and as of August 31, 2010, $613,245.11
remained in such accounts (such amount, plus any additional interest accrued since August 31, 2010
thereon, the “Indenture Funds”).

     G. To induce the Holder to exchange the Bonds, the Class B Warrants and certain additional
consideration described herein, for equity in the Company, the Company has authorized a new class
of Series A Preferred Stock (the “Securities”), such Securities to have such rights and preferences
relative to the common stock of the Company as set forth in the Certificate of Designation set
forth in Exhibit A hereto.

     H. Pursuant to the terms of this Agreement and in consideration of the 17,500 shares

 

 

of the Securities, the Holder will (i) transfer to the Company its interest in the Bonds, (ii)
waive the interest accrued and unpaid from February 1, 2010 until the date hereof on the Bonds (the
“Bond Interest”), (iii) transfer to the Company any and all rights with respect to the Indenture
Funds and irrevocably waive any continuing rights relating to such Indenture Funds and (iv)
relinquish and terminate the Class B Warrants (collectively, the “Consideration”).

     I. Notwithstanding the foregoing, the Company acknowledges that it shall remit to Holder, upon
receipt of the Indenture Funds, an amount equal to Holder’s legal fees incurred in connection with
this Agreement (“Holder’s Fees”).

     J. The issuance of the Securities is being made in reliance upon the exemption from
registration provided by Section 4(2) of the Securities Act of 1933 (the “1933 Act”).

AGREEMENT 

     NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein and
for other good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Company and the Holder hereby agree as follows:

1. EXCHANGE; INTEREST RELEASE.

     (a) Exchange Terms. On the date hereof (the “Closing Date”), the Holder shall, and the
Company shall, pursuant to Section 4(2) of the 1933 Act, exchange the Consideration for the
Securities. The closing (the “Closing”) of the exchange shall occur at the offices of the Company
located at 137A Lewis Wharf, Boston, Massachusetts, 02110.

     (b) Delivery. On the Closing Date, (i) the Holder shall deliver to the Company (a) DTC
Transfer Instructions relating to the Bonds, instructing that the Bonds be transferred to the
Company and (b) the Class B Warrant certificate (collectively, the “Holder Deliveries”) and (ii)
the Company shall deliver to the Holder the Securities, registered in the name of the Holder.

     (c) Interest Release. By executing this Agreement, Holder hereby irrevocably waives
and relinquishes its right to the Bond Interest. Holder further acknowledges that as of the date
hereof no interest, penalties, fees or expenses are due or payable to Holder related to the Bonds
from the Company or Borrower.

     (d) Indenture Funds Release. By executing this Agreement, Holder hereby transfers to
the Company any and all rights with respect to the Indenture Funds and irrevocably waives any
rights relating to such Indenture Funds.

     (e) Company Obligation. Upon receipt of the Indenture Funds, the Company shall deliver
to the Holder, by wire transfer of immediately available funds, an amount equal to Holder’s Fees.

2. HOLDER’S REPRESENTATIONS AND WARRANTIES.

     The Holder represents and warrants to the Company:

 

 

     (a) Organization; Authority. The Holder is an entity duly organized, validly existing
and in good standing under the laws of the jurisdiction of its organization with the requisite
power and authority to enter into and to consummate the transactions contemplated by this
Agreement.

     (b) No Public Sale or Distribution. The Securities are being acquired by the Holder
for its own account and not with a view towards, or for resale in connection with, the public sale
or distribution thereof, except pursuant to sales registered or exempted under the 1933 Act. The
Holder does not presently have any agreement or understanding, directly or indirectly, with any
individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization, any other entity or a government or any department or agency thereof
(“Person”) to distribute any of the Securities in violation of any applicable securities laws.

     (c) Accredited Investor Status. The Holder is an “accredited investor” as that term is
defined in Rule 501(a) of Regulation D.

     (d) Reliance on Exemptions. The Holder understands that the Securities are being
offered and issued to it in reliance on specific exemptions from the registration requirements of
United States federal and state securities laws and that the Company is relying in part upon the
truth and accuracy of, and the Holder’s compliance with, the representations, warranties,
agreements, acknowledgments and understandings of the Holder set forth herein in order to determine
the availability of such exemptions and the eligibility of the Holder to acquire the Securities.

     (e) Information. The Holder and its advisors have been furnished with all materials
relating to the business, finances and operations of the Company and materials relating to the
offer and issuance of the Securities which have been requested by the Holder, including, without
limitation, the information related to the restructuring of the Company’s debt obligations and
landlord and contractor obligations. The Holder and its advisors have been afforded the
opportunity to ask questions of the Company. The Holder understands that its acquisition of the
Securities involves a high degree of risk. The Holder has sought such accounting, legal and tax
advice as it has considered necessary to make an informed investment decision with respect to its
acquisition of the Securities.

     (f) No Governmental Review. The Holder understands that no United States federal or
state agency or any other government or governmental agency has passed on or made any
recommendation or endorsement of the Securities or the fairness or suitability of the acquisition
of the Securities nor have such authorities passed upon or endorsed the merits of the offering of
the Securities.

     (g) Transfer or Resale. The Holder understands that: (i) the Securities and the
Company’s common stock, par value $0.0001 per share, issuable upon conversion of all of the
Securities (the “Conversion Shares”), have not been and are not being registered under the 1933 Act
or any state securities laws, and may not be offered for sale, sold, assigned or transferred unless
(A) subsequently registered thereunder, (B) the Holder shall have delivered to the Company an
opinion of counsel to the Holder (if requested by the Company), in a form reasonably acceptable to
the Company, to the effect that such Securities and Conversion Shares

 

 

to be sold, assigned or transferred may be sold, assigned or transferred pursuant to an exemption
from such registration, or (C) the Holder provides the Company with reasonable assurance (which
shall not include an opinion of counsel) that such Securities and Conversion Shares can be sold,
assigned or transferred pursuant to Rule 144 or Rule 144A promulgated under the 1933 Act (or a
successor rule thereto) (collectively, “Rule 144”); (ii) any sale of the Securities and Conversion
Shares made in reliance on Rule 144 may be made only in accordance with the terms of Rule 144 and
further, if Rule 144 is not applicable, any resale of the Securities and Conversion Shares under
circumstances in which the seller (or the Person through whom the sale is made) may be deemed to be
an underwriter (as that term is defined in the 1933 Act) may require compliance with some other
exemption under the 1933 Act or the rules and regulations of the Securities and Exchange Commission
(“SEC”) promulgated thereunder; and (iii) except as set forth herein, neither the Company nor any
other Person is under any obligation to register the Securities and Conversion Shares under the
1933 Act or any state securities laws or to comply with the terms and conditions of any exemption
thereunder.

     (i) Validity; Enforcement. This Agreement has been duly and validly authorized,
executed and delivered on behalf of the Holder and shall constitute the legal, valid and binding
obligations of the Holder enforceable against the Holder in accordance with its terms, except as
such enforceability may be limited by general principles of equity or to applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation and other similar laws relating to, or
affecting generally, the enforcement of applicable creditors’ rights and remedies.

     (j) No Conflicts. The execution, delivery and performance by the Holder of this
Agreement and the consummation by the Holder of the transactions contemplated hereby will not (i)
result in a violation of the organizational documents of the Holder or (ii) result in a violation
of any law, rule, regulation, order, judgment or decree (including federal and state securities
laws) applicable to the Holder, except in the case of clause (ii) above, for such conflicts,
defaults, rights or violations which would not, individually or in the aggregate, reasonably be
expected to have a material adverse effect on the ability of the Holder to perform its obligations
hereunder.

     (k) General Solicitation. The Holder is not acquiring the Securities as a result of
any advertisement, article, notice or other communication regarding the Securities published in any
newspaper, magazine or similar media or broadcast over television or radio or presented at any
seminar.

	3.	 	REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

     The Company represents and warrants to the Holder that:

     (a) Organization and Qualification. The Company is an entity duly incorporated or
otherwise organized, validly existing and in good standing under the laws of the jurisdiction of
its incorporation, with the requisite power and authority to own and use its properties and assets
and to carry on its business as currently conducted. The Company is not in material violation nor
default of any of the provisions of its certificate of incorporation, bylaws or other
organizational or charter documents. The Company is duly qualified to conduct business and is in
good standing as a foreign corporation or other entity in each jurisdiction in which the nature of
the business conducted or property owned by it makes such qualification necessary, except where

 

 

the failure to be so qualified or in good standing, as the case may be, could not have or
reasonably be expected to result in: (i) a material adverse effect on the legality, validity or
enforceability of this Agreement, (ii) a material adverse effect on the results of operations,
assets, business, prospects or condition (financial or otherwise) of the Company, taken as a whole,
or (iii) a material adverse effect on the Company’s ability to perform in any material respect on a
timely basis its obligations under this Agreement (any of (i), (ii) or (iii), a “Material Adverse
Effect”) and no Proceeding has been instituted in any such jurisdiction revoking, limiting or
curtailing or seeking to revoke, limit or curtail such power and authority or qualification.

     (b) Authorization; Enforcement. The Company has the requisite corporate power and
authority to enter into and to consummate the transactions contemplated by this Agreement and
otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of this
Agreement by the Company and the consummation by it of the transactions contemplated hereby has
been duly authorized by all necessary action on the part of the Company and no further action is
required by the Company, the Board of Directors or the Company’s stockholders in connection
therewith other than in connection with the Required Approvals. This Agreement has been (or upon
delivery will have been) duly executed by the Company and, when delivered in accordance with the
terms hereof and thereof, will constitute the valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, except: (i) as limited by general
equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other
laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited
by laws relating to the availability of specific performance, injunctive relief or other equitable
remedies and (iii) insofar as indemnification and contribution provisions may be limited by
applicable law.

     (c) No Conflicts. The execution, delivery and performance by the Company of this
Agreement, the issuance and sale of the Securities and the consummation by it of the transactions
contemplated hereby to which it is a party do not and will not: (i) conflict with or violate any
provision of the Company’s certificate of incorporation, bylaws or other organizational or charter
documents, or (ii) subject to the Required Approvals, conflict with or result in a violation of any
law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or
governmental authority to which the Company is subject (including federal and state securities laws
and regulations), or by which any property or asset of the Company is bound or affected; except in
the case of clause (ii), such as could not have or reasonably be expected to result in a Material
Adverse Effect.

     (d) Filings, Consents and Approvals. The Company is not required to obtain any
consent, waiver, authorization or order of, give any notice to, or make any filing or registration
with, any court or other federal, state, local or other governmental authority or other Person in
connection with the execution, delivery and performance by the Company of this Agreement, other
than such filings as are required to be made under applicable securities laws and the notice and
application to the NASDAQ Stock Market for the listing of the shares of Company common stock
underlying the Securities (the “Required Approvals”), and the Company will use its reasonable best
efforts to keep its shares listed on the NASDAQ Stock Market.

     (e) Issuance of the Securities. The Securities are duly authorized and, when issued
and paid for, will be duly and validly issued, fully paid and nonassessable, free and clear of all
liens imposed by the Company other than restrictions on transfer provided for in this Agreement.

 

 

The Company has duly authorized the issuance and delivery of the Conversion Shares, and upon
conversion of the Securities, the Conversion Shares will be fully paid and nonassessable and free
of and clear of all liens imposed by the Company other than restrictions on transfer provided for
in this Agreement.

     (f) SEC Reports; Financial Statements. The Company has filed all reports, forms,
statements and other documents required to be filed by the Company under the 1933 Act and the
Securities Exchange Act of 1934 (the “1934 Act”), including pursuant to Section 13(a) or 15(d)
thereof, for the two years preceding the date hereof (the foregoing materials, including the
exhibits thereto and documents incorporated by reference therein, being collectively referred to
herein as the “SEC Reports”) on a timely basis or has received a valid extension of such time of
filing and has filed any such SEC Reports prior to the expiration of any such extension. As of
their respective dates, the SEC Reports complied in all material respects with the requirements of
the 1933 Act and the 1934 Act, as applicable, and none of the SEC Reports, when filed, contained
any untrue statement of a material fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein, in the light of the circumstances
under which they were made, not misleading. The financial statements of the Company included in
the SEC Reports complied in all material respects with applicable accounting requirements and the
rules and regulations of the Commission with respect thereto as in effect at the time of filing.
Such financial statements have been prepared in accordance with United States generally accepted
accounting principles applied on a consistent basis during the periods involved (“GAAP”), except as
may be otherwise specified in such financial statements or the notes thereto and except that
unaudited financial statements may not contain all footnotes required by GAAP, and fairly present
in all material respects the financial position of the Company as of and for the dates thereof and
the results of operations and cash flows for the periods then ended, subject, in the case of
unaudited statements, to normal, immaterial, year-end audit adjustments.

     (g) Litigation. Except as set forth in the SEC Reports, there is no action, suit,
inquiry, notice of violation, proceeding or investigation pending or, to the knowledge of the
Company, threatened against or affecting the Company or any of its properties before or by any
court, arbitrator, governmental or administrative agency or regulatory authority (federal, state,
county, local or foreign) (collectively, an “Action”) which (i) adversely affects or challenges the
legality, validity or enforceability of this Agreement or the Securities or (ii) could, if there
were an unfavorable decision, have or reasonably be expected to result in a Material Adverse
Effect.

     (h) Regulatory Permits. The Company possess all certificates, authorizations and
permits issued by the appropriate federal, state, local or foreign regulatory authorities necessary
to conduct their respective businesses as described in the SEC Reports, except where the failure to
possess such permits could not reasonably be expected to result in a Material Adverse Effect
(“Material Permits”), and the Company has not received any notice of proceedings relating to the
revocation or modification of any Material Permit.

     (i) Sarbanes-Oxley; Internal Accounting Controls. The Company is in material
compliance with all provisions of the Sarbanes-Oxley Act of 2002 which are applicable to it as of
the Closing Date. The Company maintains a system of internal
accounting controls sufficient to provide reasonable assurance that: (i) transactions are
executed in accordance with management’s general or specific authorizations, (ii) transactions are
recorded as necessary to

 

 

permit preparation of financial statements in conformity with GAAP and to maintain asset
accountability, (iii) access to assets is permitted only in accordance with management’s general or
specific authorization, and (iv) the recorded accountability for assets is compared with the
existing assets at reasonable intervals and appropriate action is taken with respect to any
differences. The Company has established disclosure controls and procedures (as defined in 1934 Act
Rules 13a-15(e) and 15d-15(e)) for the Company and designed such disclosure controls and procedures
to ensure that information required to be disclosed by the Company in the reports it files or
submits under the 1934 Act is recorded, processed, summarized and reported, within the time periods
specified in the Commission’s rules and forms. The Company’s certifying officers have evaluated the
effectiveness of the Company’s disclosure controls and procedures as of the end of the period
covered by the Company’s most recently filed periodic report under the 1934 Act (such date, the
“Evaluation Date”). The Company presented in its most recently filed periodic report under the
1934 Act the conclusions of the certifying officers about the effectiveness of the disclosure
controls and procedures based on their evaluations as of the Evaluation Date. Since the Evaluation
Date, there have been no changes in the Company’s internal control over financial reporting (as
such term is defined in the 1934 Act) that has materially affected, or is reasonably likely to
materially affect, the Company’s internal control over financial reporting.

     (j) Investment Company. The Company is not an “investment company” within the meaning
of the Investment Company Act of 1940, as amended. The Company shall conduct its business in a
manner so that it will not become an “investment company” subject to registration under the
Investment Company Act of 1940, as amended.

     (k) Disclaimer of Shareholder and Trustee Liability. The Company understands and
agrees that the obligations of the Funds under this Agreement are not binding on any trustee or
shareholder of the Funds personally but bind only the property of the Funds. The Company represents
that it has notice of the provisions of the Declaration of Trust of the Holder disclaiming
shareholder or trustee liability for acts or obligations of the Funds.

4. COVENANTS.

     (a) The Company shall, on or before 9:30 a.m., Eastern time, on the fourth (4th)
Business Day following the date of this Agreement, file a Current Report on Form 8-K describing all
the material terms of the transactions contemplated by this Agreement in the form required by the
1934 Act and attaching all the material ancillary agreements, provided, however, that any press
release or Form 8-K filing made by the Company pursuant to this section shall be subject to
Holder’s prior review and approval.

     (b) After the six-month anniversary of the date hereof, upon written request of the Holder,
the Company shall prepare and file with the SEC a registration statement (the “Registration
Statement”) covering the resale of all or such maximum portion of the Conversion Shares as
permitted by any publicly-available written or oral guidance of the SEC staff, or any comments,
requirements or requests of the SEC staff, including, without limitation, the Manual of Publicly
Available Telephone Interpretations D.29 (the “SEC Guidance”) that are: (i) not then registered on
an effective registration statement for an offering to be made on a continuous basis pursuant to
Rule 415 of the 1933 Act or
(ii) not eligible for resale without volume or manner-of-sale restrictions and without current
public information pursuant to Rule

 

 

144. The Company shall use its reasonable best efforts to cause a Registration Statement filed
hereunder to be declared effective under the 1933 Act as promptly as possible after the filing
thereof, and shall use its reasonable best efforts to keep such Registration Statement continuously
effective under the 1933 Act until all Conversion Shares covered by such Registration Statement (i)
have been sold, thereunder or pursuant to Rule 144, or (ii) (A) may be sold without volume or
manner-of-sale restrictions pursuant to Rule 144 and (B) (I) may be sold without the requirement
for the Company to be in compliance with the current public information requirement under Rule 144
or (II) the Company is in compliance with the current public information requirement under Rule
144. Notwithstanding any other provision of this Agreement, if any SEC Guidance sets forth a
limitation on the number of Conversion Shares permitted to be registered on a Registration
Statement (and notwithstanding that the Company used diligent efforts to advocate with the
Commission for the registration of all or a greater portion of Conversion Shares), the number of
Conversion Shares to be registered on such Registration Statement will reduced as required by the
SEC Guidance. The Company agrees to pay all costs of the Company associated with the preparation
and filing of the Registration Statement. The Holder shall be responsible for any broker or similar
commissions.

5. REGISTER; LEGEND.

     (a) Register. The Company shall maintain at its principal executive offices (or such
other office or agency of the Company as it may designate by notice to Holder), a register for the
Securities in which the Company shall record the name and address of Holder as the Person in whose
name the Securities has been issued. The Company shall keep the register open and available at all
times during business hours for inspection of the Holder or its legal representatives.

     (b) Legends. The Holder understands that the certificates or other instruments
representing the Securities and, if required by law, the Conversion Shares shall bear any legend as
required by the “blue sky” laws of any state and a restrictive legend in substantially the
following form (and a stop-transfer order may be placed against transfer of such stock
certificates):

THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE “ACT”), AS AMENDED AND HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION
THEREOF. NO SUCH TRANSFER MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.

6. MISCELLANEOUS.

     (a) Governing Law. The parties hereby agree that they have chosen that all questions
concerning the construction, validity, enforcement and interpretation of this Agreement shall be
governed by the internal laws of the State of Delaware, without giving effect to any choice of law
or conflict of law provision or rule (whether of the State of Delaware or any other

 

 

jurisdictions) that would cause the application of the laws of any jurisdictions other than the
State of Delaware.

     (b) Counterparts. This Agreement may be executed in two identical counterparts, all of
which shall be considered one and the same agreement and shall become effective when counterparts
have been signed by each party and delivered to the other party. In the event that any signature is
delivered by facsimile transmission or by an e-mail which contains a portable document format
(.pdf) file of an executed signature page, such signature page shall create a valid and binding
obligation of the party executing (or on whose behalf such signature is executed) with the same
force and effect as if such signature page were an original thereof.

     (c) Headings; Gender. The headings of this Agreement are for convenience of reference
and shall not form part of, or affect the interpretation of, this Agreement. Unless the context
clearly indicates otherwise, each pronoun herein shall be deemed to include the masculine,
feminine, neuter, singular and plural forms thereof. The terms “including,” “includes,” “include”
and words of like import shall be construed broadly as if followed by the words “without
limitation.” The terms “herein,” “hereunder,” “hereof” and words of like import refer to this
entire Agreement instead of just the provision in which they are found.

     (d) Severability. If any provision of this Agreement shall be invalid or unenforceable
in any jurisdiction, such invalidity or unenforceability shall not affect the validity or
enforceability of the remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction. Notwithstanding
anything to the contrary contained in this Agreement (and without implication that the following is
required or applicable), it is the intention of the parties that in no event shall amounts and
value paid by the Company, or payable to or received by the Holder, including without limitation,
any amounts that would be characterized as “interest” under applicable law, exceed amounts
permitted under any such applicable law. Accordingly, if any obligation to pay, payment made to the
Holder, or collection by the Holder pursuant this Agreement is finally judicially determined to be
contrary to any such applicable law, such obligation to pay, payment or collection shall be deemed
to have been made by mutual mistake of the Holder and the Company, and such amount shall be deemed
to have been adjusted with retroactive effect to the maximum amount or rate of interest, as the
case may be, as would not be so prohibited by the applicable law. Such adjustment shall be
effected, to the extent necessary, by reducing or refunding, at the option of the Holder, the
amount of interest or any other amounts which would constitute unlawful amounts required to be paid
or actually paid to the Holder under this Agreement. For greater certainty, to the extent that any
interest, charges, fees, expenses or other amounts required to be paid to or received by the Holder
under this Agreement are held to be within the meaning of “interest” or another applicable term to
otherwise be violative of applicable law, such amounts shall be pro-rated over the period of time
to which they relate.

     (e) Entire Agreement; Amendments. This Agreement and exhibits attached hereto and
thereto and the instruments referenced herein and therein supersede all other prior oral or written
agreements between the Holder, the Company, their affiliates and Persons acting on their behalf
solely with respect to the matters contained herein and therein and this Agreement and exhibits
attached hereto and thereto and the instruments
referenced herein and therein contain the entire understanding of the parties solely with
respect to the matters covered herein and therein and, except as specifically set forth herein or
therein, neither the Company nor the Holder makes

 

 

any representation, warranty, covenant or undertaking with respect to such matters. No provision of
this Agreement may be amended or waived other than by an instrument in writing signed by the
Company and the Holder, provided that any party may give a waiver in writing as to itself.

     (f) Notices. Any notices, consents, waivers or other communications required or
permitted to be given under the terms of this Agreement must be in writing and will be deemed to
have been delivered: (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by
facsimile (provided confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one (1) Business Day after deposit with an overnight
courier service with next day delivery specified, in each case, properly addressed to the party to
receive the same. The addresses and facsimile numbers for such communications shall be:

If to the Company:

Converted Organics Inc.

137A Lewis Wharf

Boston, Massachusetts 02110

Attention: Edward J. Gildea, President

Facsimile: (617) 624-0333

With a copy (for informational purposes only) to:

Cozen O’Connor

The Army and Navy Building

1627 I Street, NW

Suite 1100

Washington, D.C. 20006

Attention: Ralph V. De Martino, Esq.

Facsimile: (866) 741-8182

If to the Holder:

Richard Stein

Director of Credit Research

OppenheimerFunds Inc.

350 Linden Oaks

Rochester, New York 14625

(585) 383-1300

rstein@oppenheimerfunds.com

With a copy (for informational purposes only) to:

Randy Legg

Vice President and Associate Counsel

OppenheimerFunds, Inc.

6803 South Tucson Way

Centennial, CO 80112-3924

 

 

(ph) 303-768-1026

(fax) 303-645-9606

rlegg@oppenheimerfunds.com

or to such other address and/or facsimile number and/or to the attention of such other Person as
the recipient party has specified by written notice given to each other party five (5) days prior
to the effectiveness of such change. Written confirmation of receipt (A) given by the recipient of
such notice, consent, waiver or other communication, (B) mechanically or electronically generated
by the sender’s facsimile machine containing the time, date, recipient facsimile number and an
image of the first page of such transmission or (C) provided by an overnight courier service shall
be rebuttable evidence of personal service, receipt by facsimile or receipt from an overnight
courier service in accordance with clause (i), (ii) or (iii) above, respectively.

     (g) Successors and Assigns. This Agreement shall be binding upon and inure to the
benefit of the parties and their respective successors and assigns, including any purchasers of any
of the Securities.

     (h) No Third Party Beneficiaries. This Agreement is intended for the benefit of the
parties hereto and their respective permitted successors and assigns, and is not for the benefit
of, nor may any provision hereof be enforced by, any other Person.

     (i) Further Assurances. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all such other
agreements, certificates, instruments and documents, as any other party may reasonably request in
order to carry out the intent and accomplish the purposes of this Agreement and the consummation of
the transactions contemplated hereby.

     (j) No Strict Construction. The language used in this Agreement will be deemed to be
the language chosen by the parties to express their mutual intent, and no rules of strict
construction will be applied against any party.

[Signature Page Follow]

 

 

     IN WITNESS WHEREOF, the Holder and the Company have caused their respective signature page to
this Agreement to be duly executed as of the date first written above.

	 	 	 	 	 
	 	COMPANY:

CONVERTED ORGANICS INC.

 	 
	 	By:  	/s/
Edward J. Gildea 	 
	 	 	Name:  	Edward J. Gildea 	 
	 	 	Title:  	President 	 
	 

	 	 	 	 	 
	 	HOLDER:

OPPENHEIMER ROCHESTER NATIONAL MUNICIPALS

 	 
	 	By:  	/s/ Richard Stein	 
	 	 	Richard Stein, Vice President 	 
	 	 	 	 	 
	 	OPPENHEIMER NEW JERSEY MUNICIPAL FUND

 	 
	 	By:  	/s/ Richard Stein	 
	 	 	Richard Stein, Vice President 	 
	 	 	 	 

 

 

	 	 	 	 	 

Exhibit A

Certificate of Designation

 

 

CONVERTED ORGANICS INC.

CERTIFICATE OF DESIGNATION OF PREFERENCES,

RIGHTS AND LIMITATIONS

OF

1% SERIES A CONVERTIBLE PREFERRED STOCK

PURSUANT TO SECTION 151 OF THE

DELAWARE GENERAL CORPORATION LAW

     The undersigned, Edward J. Gildea, does hereby certify that:

          1. He is the Chief Executive Officer and President of Converted Organics Inc., a Delaware
corporation (the “Corporation”).

          2. The Corporation is authorized to issue 10,000,000 shares of preferred stock all of which
are presently undesignated and may be issued with such rights and powers as the board of directors
of the Corporation (the “Board of Directors”) may designate.

          3. The following resolutions were duly adopted by the Board of Directors:

     WHEREAS, the certificate of incorporation of the Corporation provides for a class of its
authorized stock known as preferred stock, consisting of 10,000,000 shares, $0.0001 par value per
share, issuable from time to time in one or more series;

     WHEREAS, the Board of Directors is authorized to fix the dividend rights, dividend rate,
voting rights, conversion rights and liquidation preferences of any wholly unissued series of
preferred stock and the number of shares constituting any series and the designation thereof, of
any of them; and

     WHEREAS, it is the desire of the Board of Directors, pursuant to its authority as aforesaid,
to fix the rights, preferences, restrictions and other matters relating to a series of the
preferred stock, which shall consist of 17,500 shares of the preferred stock which the Corporation
has the authority to issue, as follows:

     NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors does hereby provide for the
issuance of a series of preferred stock for cash or exchange of other securities, rights or
property and does hereby fix and determine the rights, preferences, restrictions and other matters
relating to such series of preferred stock as follows:

1

 

TERMS OF PREFERRED STOCK

          Section 1. Definitions. For the purposes hereof, the following terms shall
have the following meanings:

     “Affiliate” means any Person that, directly or indirectly through one or more
intermediaries, controls or is controlled by or is under common control with a Person, as
such terms are used in and construed under Rule 405 of the Securities Act.

     “Business Day” means any day except any Saturday, any Sunday, any day which is
a federal legal holiday in the United States or any day on which banking institutions in the
State of New York are authorized or required by law or other governmental action to close.

     “Change of Control Transaction” means the occurrence after the date hereof of
any of (a) an acquisition after the date hereof by an individual or legal entity or “group”
(as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of effective control
(whether through legal or beneficial ownership of capital stock of the Corporation, by
contract or otherwise) of in excess of 50% of the voting securities of the Corporation
(other than by means of conversion or exercise of Preferred Stock), (b) the Corporation
merges into or consolidates with any other Person, or any Person merges into or consolidates
with the Corporation and, after giving effect to such transaction, the stockholders of the
Corporation immediately prior to such transaction own less than 50% of the aggregate voting
power of the Corporation or the successor entity of such transaction, (c) the Corporation
sells or transfers all or substantially all of its assets to another Person and the
stockholders of the Corporation immediately prior to such transaction own less than 50% of
the aggregate voting power of the acquiring entity immediately after the transaction, (d) a
replacement at one time or within a one year period of more than one-half of the members of
the Board of Directors which is not approved by a majority of those individuals who are
members of the Board of Directors on the Original Issue Date (or by those individuals who
are serving as members of the Board of Directors on any date whose nomination to the Board
of Directors was approved by a majority of the members of the Board of Directors who are
members on the Original Issue Date), or (e) the execution by the Corporation of an agreement
to which the Corporation is a party or by which it is bound, providing for any of the events
set forth in clauses (a) through (d) above.

     “Common Stock” means the Corporation’s common stock, par value $0.0001 per
share, and stock of any other class of securities into which such securities may hereafter
be reclassified or changed.

     “Common Stock Equivalents” means any securities of the Corporation that would
entitle the holder thereof to acquire at any time Common Stock, including, without
limitation, any debt, preferred stock, rights, options, warrants or other instrument that is
at any time convertible into or exercisable or exchangeable for, or otherwise entitles the
holder thereof to receive, Common Stock.

     “Conversion Amount” means the sum of the Stated Value at issue.

     “Conversion Shares” means, collectively, the shares of Common Stock issuable
upon conversion of the shares of Preferred Stock in accordance with the terms hereof.

2

 

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

     “Exchange Agreement” means the Exchange Agreement between the Corporation and
Oppenheimer Rochester National Municipals and Oppenheimer New Jersey Municipal Fund dated
October 18, 2010.

     “Junior Securities” means the Common Stock and all other Common Stock
Equivalents of the Corporation other than those securities which are explicitly senior or
pari passu to the Preferred Stock in dividend rights or liquidation
preference.

     “Original Issue Date” means the date of the issuance of the Preferred Stock.

     “Person” means an individual or corporation, partnership, trust, incorporated
or unincorporated association, joint venture, limited liability company, joint stock
company, government (or an agency or subdivision thereof) or other entity of any kind.

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

     “Stated Value” shall have the meaning set forth in Section 2, as the same may
be increased pursuant to Section 3 and as adjusted for reverse and forward stock splits and
the like after the Original Issue Date.

     “Trading Day” means a day on which the principal Trading Market is open for
business.

     “Trading Market” means any of the following markets or exchanges on which the
Common Stock is listed or quoted for trading on the date in question: the Nasdaq Capital
Market, the NYSE Amex, the Nasdaq Global Market, the Nasdaq Global Select Market or the New
York Stock Exchange (or any successors to any of the foregoing).

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

          Section 2. Designation, Amount and Par Value. The series of preferred stock
shall be designated as its 1% Series A Convertible Preferred Stock (the “Preferred Stock”)
and the number of

3

 

shares so designated shall be 17,500 (which shall not be subject to increase
without the written consent of
a majority-in-interest of the Preferred Stock (each, a “Holder” and collectively, the
“Holders”)). Each share of Preferred Stock shall have a par value of $0.0001 per share and
a stated value equal to $1,000 (the “Stated Value”).

          Section 3. Dividends. Holders shall be entitled to receive, and the
Corporation shall pay, cumulative dividends at the rate per share (as a percentage of the Stated
Value per share) of 1% per annum, payable annually and on each Conversion Date (with respect only
to Preferred Stock being converted) (each such date, a “Dividend Payment Date”), and such
dividends shall be payable, during the period from the Original Issue Date to the third anniversary
of the Original Issue Date, at the election of the Corporation, and thereafter, at the election of
the Holder, in cash or in shares of Common Stock valued at the Conversion Price (or in some
combination thereof).

          Section 4. Voting Rights. Except as otherwise provided herein or as otherwise
required by law, the Preferred Stock shall have no voting rights.

          Section 5. Liquidation. Upon any liquidation, dissolution or winding-up of the
Corporation, whether voluntary or involuntary (a “Liquidation”), the Holders shall be
entitled to receive out of the assets, whether capital or surplus, of the Corporation available to
stockholders, an amount equal to the greater of: (i) $0.01 for each share of Common Stock
underlying the Preferred Stock then held by Holders, or (ii) the amount the Holders would have
received had such Holders converted the Preferred Stock then held into Common Stock immediately
prior to the Liquidation, in each case, before any distribution or payment shall be made to the
holders of any Junior Securities. If the assets of the Corporation shall be insufficient to pay in
full such amounts, then the entire assets to be distributed to the Holders shall be ratably
distributed among the Holders in accordance with the respective amounts that would be payable on
such shares if all amounts payable thereon were paid in full. A Fundamental Transaction or Change
of Control Transaction shall not be deemed a Liquidation.

          Section 6. Conversion.

     a) Conversion by Holder. Each share of Preferred Stock shall be convertible,
beginning on the date which is six (6) months and one (1) day after the Original Issue Date,
at the option of the Holder thereof, into that number of shares of Common Stock (subject to
the limitations set forth in Section 6(d)) determined by dividing the Stated Value of such
share of Preferred Stock by the Conversion Price. Holders shall effect conversions by
providing the Corporation with the form of conversion notice attached hereto as Annex
A (a “Notice of Conversion”). Each Notice of Conversion shall specify the date
on which such conversion is to be effected, which date may not be prior to the date the
applicable Holder delivers by facsimile such Notice of Conversion to the Corporation (such
date, the “Conversion Date”). If no Conversion Date is specified in a Notice of
Conversion, the Conversion Date shall be the date that such Notice of Conversion to the
Corporation is deemed delivered hereunder. The calculations and entries set forth in the
Notice of Conversion shall control in the absence of manifest or mathematical error. To
effect conversions of shares of Preferred Stock, a Holder shall not be required to surrender
the certificate(s) representing the shares of Preferred Stock to the Corporation unless all
of the shares of Preferred Stock represented thereby are so converted, in which case such
Holder shall deliver the certificate representing such shares of Preferred Stock promptly
following the Conversion Date at issue. The Corporation shall maintain records showing the
number of shares of Preferred Stock converted for each Holder and the applicable Conversion
Date. Each Holder and any assignee, by acceptance of a certificate for the Preferred Stock,
acknowledges and agrees that, by reason of the provisions of this paragraph, the number of

4

 

shares of Preferred Stock represented by such certificate may at any given time be less than
the amount stated on the face thereof.

     b) Conversion Price. The conversion price for the Preferred Stock shall equal
$0.543, subject to adjustment herein (the “Conversion Price”).

     c) Mechanics of Conversion

     i. Delivery of Certificate Upon Conversion. Not later than three (3)
Trading Days after each Conversion Date (the “Share Delivery Date”), the
Corporation shall deliver, or cause to be delivered, to the converting Holder a
certificate or certificates representing the Conversion Shares. If permitted by law,
the Corporation shall use its best efforts to deliver any certificate or
certificates required to be delivered by the Corporation under this Section 6
electronically through the Depository Trust Company or another established clearing
corporation performing similar functions.

     ii. Reservation of Shares Issuable Upon Conversion. The Corporation
covenants that it will at all times reserve and keep available out of its authorized
and unissued shares of Common Stock for the sole purpose of issuance upon conversion
of the Preferred Stock, as herein provided, free from preemptive rights or any other
actual contingent purchase rights of Persons other than the Holder, not less than
such aggregate number of shares of the Common Stock as shall be issuable (taking
into account the adjustments of Section 7) upon the conversion of the then
outstanding shares of Preferred Stock. The Corporation covenants that all shares of
Common Stock that shall be so issuable shall, upon issue, be duly authorized,
validly issued, fully paid and nonassessable.

     iii. Fractional Shares. No fractional shares or scrip representing
fractional shares shall be issued upon the conversion of the Preferred Stock. As
to any fraction of a share which the Holder would otherwise be entitled to purchase
upon such conversion, the Corporation shall, at its election, either pay a cash
adjustment in respect of such final fraction in an amount equal to such fraction
multiplied by the VWAP on the Conversion Date or round up to the next whole share.

     iv. Transfer Taxes. The issuance of certificates for shares of the
Common Stock on conversion of this Preferred Stock shall be made without charge to
any Holder for any documentary stamp or similar taxes that may be payable in respect
of the issue or delivery of such certificates, provided that the Corporation shall
not be required to pay any tax that may be payable in respect of any transfer
involved in the issuance and delivery of any such certificate upon conversion in a
name other than that of the Holders of such shares of Preferred Stock and the
Corporation shall not be required to issue or deliver such certificates unless or
until the Person or Persons requesting the issuance thereof shall have paid to the
Corporation the amount of such tax or shall have established to the satisfaction of
the Corporation that such tax has been paid.

     v. Corporation’s Failure to Timely Comply. If within five (5) business
days of the Corporation’s receipt of an executed copy of the Notice of Conversion
(so long as the applicable Preferred Stock certificates and original Notice of
Conversion are received by the Corporation on or before such third business day),
the Corporation shall fail to issue and deliver to a holder the number of shares of
Common Stock to which such

5

 

holder is entitled upon such holder’s conversion of the
Preferred Stock or to issue a new Preferred Stock certificate representing the
number of shares of Preferred Stock to which such holder is entitled (a
“Conversion Failure”), in addition to all other available
remedies which such holder may pursue hereunder, the Corporation shall pay
additional damages to such holder on each business week after such fifth (5th)
business day that such conversion is not timely effected (so long as the applicable
Preferred Stock certificates and original Notice of Conversion are received by the
Corporation on or before such fifth business day) in an amount equal 0.5% of the
product of (A) the sum of the number of shares of Common Stock not issued to the
Holder on a timely basis pursuant to Section 6(c)(i) and to which such Holder is
entitled and, in the event the Corporation has failed to deliver a Preferred Stock
certificate to the holder on a timely basis pursuant to Section 6(c)(i), the number
of shares of Common Stock issuable upon conversion of the shares of Preferred Stock
represented by such Preferred Stock certificate, as of the last possible date which
the Corporation could have issued such Preferred Stock certificate to such Holder
without violating Section 6(c)(i) and (B) the VWAP of the Common Stock on the last
possible date which the Corporation could have issued such Common Stock and such
Preferred Stock certificate, as the case may be, to such holder without violating
Section 6(c)(i). If the Corporation fails to pay the additional damages set forth
in this Section 6(c)(v) within seven (7) business days of the date incurred, then
such payment shall bear interest at the rate of 1.0% per month (pro rated for
partial months) until such payments are made.

     vi. Buy-In Rights. In addition to any other rights available to the
Holders, if upon a Conversion Failure, the Holder is required by its broker to
purchase (in an open market transaction or otherwise) shares of Common Stock to
deliver in satisfaction of a sale by the holder of the shares of Common Stock
issuable upon conversion of Preferred Stock which the Holder anticipated receiving
upon such conversion (a “Buy-In”), then the Corporation shall (1) pay in
cash to the holder the amount by which (x) the Holder’s total purchase price
(including brokerage commissions, if any) for the shares of Common Stock so
purchased exceeds (y) the amount obtained by multiplying (A) the number of shares of
Common Stock issuable upon conversion of Preferred Stock that the Corporation was
required to deliver to the Holder in connection with the conversion at issue times
(B) the price at which the sell order giving rise to such purchase obligation was
executed, and (2) deliver to the holder the number of shares of Common Stock that
would have been issued had the Corporation timely complied with its conversion and
delivery obligations hereunder. For example, if the holder purchases Common Stock
having a total purchase price of $11,000 to cover a Buy-In with respect to an
attempted conversion of shares of Common Stock with an aggregate sale price giving
rise to such purchase obligation of $10,000, under clause (1) of the immediately
preceding sentence the Corporation shall be required to pay to the holder $1,000.
The Holder shall provide the Corporation written notice indicating the amounts
payable to the Holder in respect of the Buy-In, together with applicable
confirmations and other evidence reasonably requested by the Corporation. Nothing
herein shall limit a holder’s right to pursue any other remedies available to it
hereunder, at law or in equity including, without limitation, a decree of specific
performance and/or injunctive relief with respect to the Corporation’s failure to
timely deliver certificates representing shares of Common Stock upon conversion of
the Preferred Stock as required pursuant to the terms hereof.

     d) Beneficial Ownership Limitation. The Corporation shall not effect any
conversion of the Preferred Stock, and a Holder shall not have the right to convert any
portion of

6

 

the Preferred Stock, to the extent that, after giving effect to the conversion
set forth on the applicable Notice of Conversion, such Holder (together with such Holder’s
Affiliates, and any Persons acting as a group together with such Holder or any of such
Holder’s Affiliates) would
beneficially own in excess of 19.9% of the total issued and outstanding shares of
Common Stock as of the date the Exchange Agreement is executed.

          Section 7. Certain Adjustments.

     a) Stock Dividends and Stock Splits. If the Corporation, at any time while
this Preferred Stock is outstanding: (i) pays a stock dividend or otherwise makes a
distribution or distributions payable in shares of Common Stock on shares of Common Stock
(which, for avoidance of doubt, shall not include any transaction in which any shares of
Common Stock are issued by the Corporation upon conversion of, or payment of a dividend on,
this Preferred Stock), (ii) subdivides outstanding shares of Common Stock into a larger
number of shares, (iii) combines (including by way of a reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (iv) issues, in the event of a
reclassification of all shares of the Common Stock, any shares of capital stock of the
Corporation, then the Conversion Price shall be multiplied by a fraction of which the
numerator shall be the number of shares of Common Stock (excluding any treasury shares of
the Corporation) outstanding immediately before such event, and of which the denominator
shall be the number of shares of Common Stock outstanding immediately after such event. Any
adjustment made pursuant to this Section 7(a) shall become effective immediately after the
record date for the determination of stockholders entitled to receive such dividend or
distribution and shall become effective immediately after the effective date in the case of
a subdivision, combination or re-classification.

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

     

     c) Pro Rata Distributions. If the Corporation, at any time while this Preferred
Stock is outstanding, distributes to all holders of Common Stock (and not to the Holders)
evidences of its indebtedness or assets (including cash and cash dividends) or rights or
warrants to subscribe for or purchase any security, then in each such case the Conversion
Price shall be adjusted by multiplying such Conversion Price in effect immediately prior to
the record date fixed for determination of stockholders entitled to receive such
distribution by a fraction of which the denominator shall be the VWAP determined as of the
record date set forth in Section 7(b) above, and of which the numerator shall be such VWAP
on such record date less the then fair market value at such record date of the portion of
such assets or evidence of indebtedness or rights or warrants so distributed applicable to
one outstanding share of the Common Stock as determined

7

 

by the Board of Directors of the
Corporation in good faith. In either case the adjustments shall be described in a statement
delivered to the Holders describing the portion of assets or evidences of indebtedness so
distributed or such subscription rights applicable to one share of Common Stock.
Such adjustment shall be made whenever any such distribution is made and shall become
effective immediately after the record date mentioned above.

     d) Fundamental Transaction. If, at any time while this Preferred Stock is
outstanding, (i) the Corporation effects any merger or consolidation of the Corporation with
or into another Person, (ii) the Corporation effects any sale, lease, license, assignment,
transfer, conveyance or other disposition of all or substantially all of its assets in one
or a series of related transactions (provided, for the avoidance of doubt, that in no event
shall a sale, transfer, divestiture or other assignment of the Corporation’s interest in the
facility located in Woodbridge, New Jersey, without more, be considered a sale of
substantially all assets), (iii) any tender offer or exchange offer is completed pursuant to
which holders of Common Stock are permitted to tender or exchange their shares for other
securities, cash or property and has been accepted by the holders of 50% or more of the
outstanding Common Stock, or (iv) the Corporation effects any reclassification,
reorganization or recapitalization of the Common Stock or any compulsory share exchange
pursuant to which the Common Stock is effectively converted into or exchanged for other
securities, cash or property (each a “Fundamental Transaction”), then, upon any
subsequent conversion of this Preferred Stock, the Holder shall have the right to receive,
for each Conversion Share that would have been issuable upon such conversion immediately
prior to the occurrence of such Fundamental Transaction, the number of shares of common
stock of the successor or acquiring corporation or of the Corporation, if it is the
surviving corporation, and any additional consideration (the “Alternate
Consideration”) receivable as a result of such Fundamental Transaction by a holder of
the number of shares of Common Stock for which this Preferred Stock is convertible
immediately prior to such Fundamental Transaction. If holders of Common Stock are given any
choice as to the securities, cash or property to be received in a Fundamental Transaction,
then the Holder shall be given the same choice as to the Alternate Consideration it receives
upon any conversion of this Preferred Stock following such Fundamental Transaction. To the
extent necessary to effectuate the foregoing provisions, any successor to the Corporation or
surviving entity in such Fundamental Transaction shall file a new Certificate of Designation
with the same terms and conditions and issue to the Holders new preferred stock consistent
with the foregoing provisions and evidencing the Holders’ right to convert such preferred
stock into Alternate Consideration. To the extent necessary, the Corporation shall cause
any successor entity in a Fundamental Transaction in which the Corporation is not the
survivor (the “Successor Entity”) to assume in writing all of the obligations of the
Corporation under this Certificate of Designation.

     e) Calculations. All calculations under this Section 7 shall be made to the
nearest cent or the nearest 1/100th of a share, as the case may be.

     f) Notice to the Holders.

     i. Adjustment to Conversion Price. Whenever the Conversion Price is
adjusted pursuant to any provision of this Section 7, the Corporation shall promptly
deliver to each Holder a notice setting forth the Conversion Price after such
adjustment and setting forth a brief statement of the facts requiring such
adjustment.

     ii. Notice to Allow Conversion by Holder. If (A) the Corporation shall
declare a dividend (or any other distribution in whatever form) on the Common Stock,

8

 

(B) the Corporation shall declare a special nonrecurring cash dividend on or a
redemption of the Common Stock, (C) the Corporation shall authorize the granting to
all holders of the Common Stock of rights or warrants to subscribe for or purchase
any shares of capital stock of any class or of any rights, or (D) the Corporation
shall authorize the dissolution,
liquidation or winding up of the affairs of the Corporation; then, in each
case, the Corporation shall cause to be delivered to each Holder at its last address
as it shall appear upon the stock books of the Corporation, at least twenty (20)
calendar days prior to the applicable record or effective date hereinafter
specified, a notice stating (x) the date on which a record is to be taken for the
purpose of such dividend, distribution, rights or warrants, or if a record is not to
be taken, the date as of which the holders of the Common Stock of record to be
entitled to such dividend, distributions, rights or warrants are to be determined or
(y) the date on which such dissolution, liquidation or winding up is expected to
become effective, provided that the failure to deliver such notice or any defect
therein or in the delivery thereof shall not affect the validity of the corporate
action required to be specified in such notice. The Holder shall remain entitled to
convert the Conversion Amount of this Preferred Stock (or any part hereof) during
the 20-day period commencing on the date of such notice through the effective date
of the event triggering such notice.

          Section 8. Negative Covenants. As long as any shares of Preferred Stock are
outstanding, unless the holders of a majority-in-interest of the Preferred Stock shall have
otherwise given prior written consent, the Corporation shall not amend its charter documents,
including, without limitation, its certificate of incorporation and bylaws, in any manner that
materially and adversely affects any rights of the Holder; provided, however, that this covenant
shall in no event apply to amendments to increase the Corporation’s authorized number of shares of
Common Stock or to designate any future series of preferred stock so long as such series of
preferred stock are Junior Securities.

          Section 9. Miscellaneous.

     a) Notices. Any and all notices or other communications or deliveries to be
provided by the Holders hereunder including, without limitation, any Notice of Conversion,
shall be in writing and delivered personally, by facsimile, or sent by a nationally
recognized overnight courier service, addressed to the Corporation at 137A Lewis Wharf,
Boston MA 02110, Attention: President, facsimile number 617.624.0333, or such other
facsimile number or address as the Corporation may specify for such purposes by notice to
the Holders delivered in accordance with this Section 9. Any and all notices or other
communications or deliveries to be provided by the Corporation hereunder shall be in writing
and delivered personally, by facsimile, or sent by a nationally recognized overnight courier
service addressed to each Holder at the facsimile number or address of such Holder appearing
on the books of the Corporation. Any notice or other communication or deliveries hereunder
shall be deemed given and effective on the earliest of (i) the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile number set forth in this
Section prior to 5:00 p.m. (New York City time) on any Trading Day, (ii) the next Trading
Day after the date of transmission, if such notice or communication is delivered via
facsimile at the facsimile number set forth in this Section on a day that is not a Trading
Day or later than 5:00 p.m. (New York City time) on any Trading Day, (iii) the Trading Day
following the date of mailing, if sent by U.S. nationally recognized overnight courier
service for next-day delivery, or (iv) upon actual receipt by the party to whom such notice
is required to be given.

9

 

     b) Lost or Mutilated Preferred Stock Certificate. If a Holder’s Preferred
Stock certificate shall be mutilated, lost, stolen or destroyed, the Corporation shall
execute and deliver, in exchange and substitution for and upon cancellation of a mutilated
certificate, or in lieu of or in substitution for a lost, stolen or destroyed certificate, a
new certificate for the shares of Preferred Stock so lost, stolen or destroyed, but only
upon receipt of evidence of such loss, theft or
destruction of such certificate, and of the ownership hereof reasonably satisfactory to
the Corporation (including indemnity or security reasonably satisfactory to the
Corporation).

     c) Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of this Certificate of Designation shall be governed by and
construed and enforced in accordance with the internal laws of the State of Delaware,
without regard to the principles of conflict of laws thereof.

     d) Waiver. Any waiver by the Corporation or a Holder of a breach of any
provision of this Certificate of Designation shall not operate as or be construed to be a
waiver of any other breach of such provision or of any breach of any other provision of this
Certificate of Designation.

     e) Severability. If any provision of this Certificate of Designation is
invalid, illegal or unenforceable, the balance of this Certificate of Designation shall
remain in effect, and if any provision is inapplicable to any Person or circumstance, it
shall nevertheless remain applicable to all other Persons and circumstances.

     f) Next Business Day. Whenever any payment or other obligation hereunder shall
be due on a day other than a Business Day, such payment shall be made on the next succeeding
Business Day.

     g) Headings. The headings contained herein are for convenience only, do not
constitute a part of this Certificate of Designation and shall not be deemed to limit or
affect any of the provisions hereof.

     h) Status of Converted Preferred Stock. Shares of Preferred Stock may only be
issued pursuant to the Exchange Agreement. If any shares of Preferred Stock shall be
converted, such shares shall resume the status of authorized but unissued shares of
preferred stock and shall no longer be designated as 1% Series A Convertible Preferred
Stock.

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

10

 

          RESOLVED, FURTHER, that the Chairman, the president or any vice-president, and the secretary
or any assistant secretary, of the Corporation be and they hereby are authorized and directed to
prepare and file this Certificate of Designation of Preferences, Rights and Limitations in
accordance with the foregoing resolution and the provisions of Delaware law.

     IN WITNESS WHEREOF, the undersigned have executed this Certificate this 18th day of
October 2010.

	 	 	 
	 
	/s/
Edward J. Gildea

	 	/s/
William A. Gildea
	Name: Edward J. Gildea

	 	Name: William A. Gildea
	Title: President

	 	Title: Secretary

 

 

ANNEX A

NOTICE OF CONVERSION

(TO BE EXECUTED BY THE REGISTERED HOLDER IN ORDER TO CONVERT SHARES OF

PREFERRED STOCK)

The undersigned hereby elects to convert the number of shares of 1% Series A Convertible Preferred
Stock indicated below into shares of common stock, par value $0.0001 per share (the “Common
Stock”), of Converted Organics Inc., a Delaware corporation (the “Corporation”),
according to the conditions hereof, as of the date written below. If shares of Common Stock are to
be issued in the name of a Person other than the undersigned, the undersigned will pay all transfer
taxes payable with respect thereto and is delivering herewith such certificates and opinions as may
be required by the Corporation in accordance with the Purchase Agreement. No fee will be charged to
the Holders for any conversion, except for any such transfer taxes.

Conversion calculations:

	 	 	 

	Date to Effect Conversion:

	 	 
	 

	 	 

	 	 	 

	Number of shares of Preferred Stock owned prior to Conversion:

	 	 
	 

	 	 

	 	 	 

	Number of shares of Preferred Stock to be Converted:

	 	 
	 

	 	 

	 	 	 

	Stated Value of shares of Preferred Stock to be Converted:

	 	 
	 

	 	 

	 	 	 

	Number of shares of Common Stock to be Issued:

	 	 
	 

	 	 

	 	 	 

	Applicable Conversion Price:

	 	 
	 

	 	 

	 	 	 

	Number of shares of Preferred Stock subsequent to Conversion:

	 	 
	 

	 	 

	 	 	 

	Address for Delivery:

	 	 
	 

	 	 

or

DWAC Instructions*:

	 	 	 

	Name of DTC Participant (Holder’s prime broker-dealer):

	 	 
	 

	 	 

	 	 	 

	DTC Participant Number:

	 	 
	 

	 	 

	 	 	 

	Name of Account at DTC Participant to be credited with the shares:

	 	  
  

	 	 	 

	Account Number at DTS Participant to be credited with the shares: 

	 	 
	 

	 	 

 

			
	*	 	You must contact your broker-dealer and ask them to initiate the DWAC or you will not
receive the shares. Your ability to utilize electronic delivery procedures is subject to
applicable securities laws.

	 	 	 	 	 	 	 

	 	 	 	 	 
	 	 	(Print Name of Holder)	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 

Name:
	 	 
	 

	 	 	 	Title:

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