This Note and the shares of common stock purchasable upon exercise of the
conversion rights contained in this Note (collectively, the "Securities") have
not been registered under the Securities Act of 1933 (the "Act"). The Securities
may not be sold, assigned, pledged, transferred or otherwise disposed of in the
absence of such registration unless in the opinion of counsel satisfactory to
the Company (defined below), an exemption from such registration under the Act
is applicable to such proposed sale, assignment, pledge, transfer or other
disposition. Furthermore, an optional conversion of this Note may not be made
unless, in the opinion of counsel satisfactory to the Company, such conversion
is exempt from registration under the Act.
WINDSWEPT ENVIRONMENTAL GROUP, INC.
Convertible Note
Due March 15, 2002
No .............
$ .............. April , 1997
WINDSWEPT ENVIRONMENTAL GROUP, INC., a corporation duly organized and
existing under the laws of the State of Delaware, currently having its principal
office at ▇▇-▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ (the "Company") for
value received hereby promises to pay to
on March 15, 2002, the principal amount of
(or so much thereof as shall not have been repaid) at the office or agency of
the Company in the City of West Babylon, State of New York, and to pay interest
at the rate of 10% per annum (computed on the basis of a 360-day year of twelve
30 day months) at said office or agency, on the unpaid portion of said principal
amount from the date of this Note, semi-annually on the 15th day of September
and the 15th day of March in each year, subject to Section 2.3(b) hereof.
ARTICLE 1
The Notes; Exchanges and Prepayments
1.1 Notes. This Note is one of an authorized issue of Convertible Notes due
March 15, 2002 (collectively, the "Notes" and each, a "Note"), each in the
denomination of $10,000 or a multiple thereof, issued by the Company in an
aggregate original principal amount of a minimum of $200,000 and a maximum of
$700,000, maturing on March 15, 2002, and bearing interest payable at the same
rate and on the same dates as the interest on the principal amount of this Note.
This Note is one of the Notes referred to in that certain Subscription Agreement
between the Company and the holder to whom this Note was originally issued (the
"Agreement"). This Note is entitled to the benefits of the Agreement and, with
respect to the registration, issuance and resale of the securities acquired upon
conversion of this Note, is also subject to the obligations imposed by the
Agreement.
1.2 Loss, Theft, Destruction of Notes. Upon receipt of evidence
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Note and, in the case of any such loss, theft or destruction, upon receipt
of indemnity reasonably satisfactory to the Company, or, in the case of any such
mutilation, upon surrender or cancellation of this Note, the Company will make
and deliver, in lieu of such lost, stolen, destroyed or mutilated Note, a new
Note of like tenor and unpaid principal amount and dated as of the date to which
interest has been paid on the unpaid principal amount of the Note so lost,
stolen, destroyed or mutilated, or, if no interest shall have been paid thereon,
then dated as of the date of the Note so lost, stolen, destroyed or mutilated.
1.3 Optional Prepayments. The Company, at its election, upon notice given
as provided in Section 1.4 below, may prepay the outstanding Notes at any time
or from time to time, in whole or in part, at the principal amount so to be
prepaid, together with accrued interest thereon to the date of such prepayment,
and without premium.
1.4 Notice of Prepayments; Right to Convert in Lieu of Accepting
Prepayments. In the case of each prepayment of the Notes, notice thereof shall
be given to the holders of all outstanding Notes not less than 45 nor more than
60 days prior to the date fixed for such prepayment, which notice shall specify
the date fixed for such prepayment and the Section of this Note pursuant to
which such prepayment is to be made.
Upon notice of any prepayment being given there shall become due and
payable, at the principal office of the Company, on the date specified in such
notice, the principal amount of this Note, or portion thereof, designated for
prepayment, with interest accrued on such principal amount, or portion thereof,
to the date fixed for such prepayment; provided, however, that, without limiting
the generality of any provision of Article 2 below, upon notice of any
prepayment pursuant to this Section 1.4, the holder of this Note may, subject to
compliance with
- 2 -
applicable securities laws, elect to refuse any part or all of such prepayment
by converting (in accordance with Article 2 below), on or prior to the close of
business on the fifth business day next preceding the date fixed for such
prepayment, the principal amount of this Note equal to the amount of the payment
of principal so refused, and in such case, the rights of the Company to make any
prepayment pursuant to such notice shall be reduced by the principal amount of
this Note so converted.
1.5 Application of Prepayments. In the case of any prepayment of less than
the entire unpaid principal amount of all outstanding Notes, the amount to be
prepaid shall be applied pro rata (as nearly as may be in multiples of $1,000)
to all outstanding Notes according to the respective unpaid principal amounts
thereof. Anything in this Section 1.5 or elsewhere in this Note to the contrary
notwithstanding, the Company may at any time or from time to time repurchase or
offer to repurchase Notes .pursuant to a pro rata offer for tenders made to all
holders of the Notes.
1.6 Surrender of Notes; Notation Thereon. Upon any prepayment of a portion
of the principal amount of this Note, the holder hereof at its option may
require the Company to make and deliver, at the expense of the Company (other
than for transfer taxes, if any), upon surrender of this Note, a new Note
payable to such holder, for the principal amount of this Note then remaining
unpaid, dated as of the date to which interest has been paid on the unpaid
principal amount of this Note (or, if no interest has been paid hereon, then
dated as of the date of this Note), or may present this Note to the Company for
notation hereon of the payment of the portion of the principal amount of this
Note so prepaid. As a condition of payment of all or any of the principal, of or
interest on this Note, the Company may require the holder to present this Note
for notation of such payment and, if this Note be paid in full, may require the
holder to surrender this Note.
ARTICLE 2
Conversion of Notes
2.1 Conversion; Conversion Price.
(a) On the date the registration statement registering the shares of Common
Stock (defined below) into which all of the Notes are then convertible becomes
effective under the Act, the entire principal amount of all of the Notes shall
be automatically converted into fully-paid and nonassessable shares of Common
Stock of the Company, par value $.0001 per share ("Common Stock") at the
conversion price, determined below, in effect on such date.
(b) At the option of the holder, subject to compliance with applicable
securities laws, all or any portion of the principal amount of this Note may, at
any time on or before the close of business on March 15, 2002, or in case this
Note or portion hereof shall have been
- 3 -
called for prepayment, then until and including, but (unless the Company shall
default in payment due upon the prepayment hereof) not after, the close of
business on the fifth business day next preceding the date fixed for such
prepayment, be converted into fully-paid and non-assessable shares of Common
Stock at the conversion price, determined below, in effect at the time of
conversion.
(c) The initial conversion price at which shares of Common Stock shall be
delivered upon conversion, of this Note shall be $0.50 per share, subject to
adjustment from time to time as provided in Section 2.4 below. The term
"conversion price" refers to the initial and/or an adjusted conversion price.
2.2 Surrender of Note Upon Conversion.
(a) Following the automatic conversion of this Note, this Note shall
represent the right to receive a certificate or certificates for the number of
shares of Common Stock into which this Note has been automatically converted,
registered in the name of the holder, plus any cash payable pursuant to Section
2.3 below, after surrender of this Note to the Company at its principal office.
(b) In order to exercise the conversion privilege, the holder shall
surrender this Note to the Company at its principal office and shall give
written notice to the Company at said office that the holder elects to convert
this Note or, if less than the entire principal amount of this Note is to be
converted, the portion hereof to be converted. Notes surrendered for conversion
shall be accompanied by proper assignments thereof to the Company or in blank.
(c) Upon conversion of this Note in part only, the Company shall execute
and deliver to the holder hereof, at the expense of the Company, a new Note or
Notes in principal amount equal to the unconverted portion of this Note. As
promptly as practicable after the surrender of this Note as aforesaid, the
Company shall issue and shall deliver at its principal office to the holder, or
on the holder's written order, a certificate or certificates for the number of
full shares issuable upon the conversion of the principal of this Note (or
portion hereof) in accordance with the provisions of this Article 2 and cash, as
provided in Section 2.3 below, in respect of any fraction of a share of Common
Stock issuable upon such conversion and in payment of any accrued interest. The
holder of this Note shall become the holder of record of the shares of Common
Stock into which this Note has been converted at the close of business on the
date of an automatic conversion or, with respect to an optional conversion, on
the date the Company receives this Note and the requisite notice and assignment,
as the case may be.
2.3 Fractional Shares; Accrued Interest.
(a) No fractional shares of Common Stock or scrip representing fractional
shares shall be issued upon conversion of this Note. Instead, the Company shall
pay cash equal
- 4 -
to the difference between the principal amount converted and the product of the
number of whole shares purchasable under this Note upon such conversion and the
conversion price.
(b) Subject to the next sentence, interest shall accrue on this Note
through the date of its conversion into Common Stock and shall be payable in
cash when the certificates(s) for the Common Stock into which this Note has been
converted are delivered to the holder. However, if this Note is automatically
converted into Common Stock prior to September 15, 1997, no interest shall be
due and payable to the holder.
2.4 Adjustment of Conversion Price.
(a) In the event the Company (i) declares any dividend on its Common Stock
in shares of its capital stock, (ii) subdivides the outstanding shares of its
Common Stock into a larger number of shares, (iii) combines the outstanding
shares of its Common Stock into a smaller number of shares, or (iv) issues by
reclassification of its Common Stock any shares of its capital stock (including
any reclassification in connection with a consolidation or merger in which the
Company is the continuing corporation), then the conversion price in effect on
the record date for such dividend or on the effective date of such subdivision,
combination or reclassification shall be proportionately adjusted so that the
record holder of this Note shall be entitled to receive the kind and amount of
shares which such holder would have owned or have been entitled to receive had
this Note been converted immediately prior to such date. Such adjustment shall
be made successively whenever any event listed above shall occur. If, as a
result of an adjustment made hereunder, the holder of shall become entitled to
receive shares of two or more classes of capital stock or shares of Common Stock
and other capital stock of the Company, the Board of Directors of the Company
(the "Board") shall determine the allocation of the adjusted conversion price
between shares of such classes of capital stock or shares of Common Stock and
other capital stock.
(b) After each adjustment of the conversion price pursuant to this Section
2.4, the Company will promptly prepare a certificate signed by the President,
and by the Secretary or an Assistant Secretary of the Company setting forth the
conversion price as so adjusted, and a brief statement of the facts accounting
for such adjustment. The Company will promptly cause a brief summary thereof to
be sent by to the record holder of this Note. No failure to give such notice nor
any defect therein or in the giving thereof shall affect the validity thereof
except as to the holder to whom the Company failed to give such notice or except
as to the holder whose notice was defective. The affidavit of the Secretary or
an Assistant Secretary of the Company that such notice has been given shall, in
the absence of fraud, be prima facie evidence of the facts stated therein.
(c) As used in this Section 2.4, the term "Common Stock" shall mean and
include the Company's Common Stock authorized on the date hereof and shall also
include any capital stock of any class of the Company thereafter authorized
which shall not be limited to a
- 5 -
fixed sum or percentage in respect of the rights of the holders thereof to
participate in dividends and in the distribution of assets upon the voluntary
liquidation, dissolution or winding up of the Company; provided, however, that
the shares issuable upon conversion of this Note shall include only shares of
such class designated in the Company's Certificate of Incorporation as common
Stock on the date the Notes were first issued or in the case, pursuant to
Section 2.4(a) hereof, (i) of any reclassification, change, consolidation,
merger, sale or conveyance of the character referred to in Section 2.4(a)
hereof, the stock, securities or property provided for in such Section 2.4(a),
or (ii) in the case of any reclassification or change in the outstanding shares
of Common Stock issuable upon the conversion of this note as a result of a
subdivision or combination or consisting of a change in par value, or from par
value to no par value,or from no par value to par value, such shares of Common
Stock as so reclassified or changed.
(d) Any determination as to whether an adjustment in the conversion price
in effect is required pursuant to this Section 2.4, or as to the amount of any
such adjustment, if required, shall be binding upon the holder of this Note and
the Company if made in good faith by the Board.
(e) No adjustment in the conversion price shall be required unless such
adjustment would require an increase or decrease of at least 5% in such price;
provided, however, that any adjustments which by reason of this subparagraph (e)
are not required to be made shall be carried forward and taken into account in
any subsequent adjustment. All calculations shall be made to the nearest cent or
the nearest one-hundredth of a share, as the case may be.
(f) If at any time as a result of an adjustment made pursuant to this
Section 2.4, the holder of this Note thereafter converted shall become entitled
to receive any shares of the Company other than Common Stock, the number of such
other shares so receivable upon of this Note shall be subject to adjustment from
time to time in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the shares issuable upon conversion of this Note
contained in this Section, and the provisions of this Section 2.4 with respect
to the shares issuable upon conversion of this Note shall apply on like terms to
any such other shares.
2.5 Reservation of Shares. The Company covenants that it will at all times
reserve and keep available out of its authorized Common Stock, solely for the
purpose of issue upon conversion of this Note as herein provided, such number of
shares of Common Stock as shall then be issuable upon the conversion of this
Note. The Company covenants that all shares of Common Stock which shall be so
issuable shall be duly and validly issued and, when issued in accordance with
the provisions of this Note, shall be fully paid and non-assessable.
2.6 Exercise of Conversion Right. By accepting this Note, the holder agrees
that any exercise of the conversion right will be made only in accordance with
applicable securities laws and, accordingly, that the holder will cooperate with
the Company to the extent reasonably
- 6 -
requested by the Company for the purposes of permitting such compliance.
ARTICLE 3
Defaults and Remedies
3.1 Events of Default. "Event of Default" wherever used herein means any
one of the following events (whatever the reason for such Event of Default and
whether it shall be voluntary or involuntary or be effected by operation of law
or pursuant to any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body):
A. Default in the due and punctual payment of the principal of this
Note when and as the same shall become due and payable, whether at the
maturity or at a date fixed for prepayment or by acceleration or otherwise;
or
B. Default in the due and punctual payment of any interest on this
Note, when and as such interest shall become due and payable, and
continuance of such default for a period of 10 days; or
C. The entry of a decree or order by a court having jurisdiction in
the premises adjudging the Company a bankrupt or insolvent, or approving as
properly filed a petition seeking reorganization, arrangement, adjustment
or composition of or in respect of the Company under the United States
Bankruptcy Code or any other applicable federal or state law, or appointing
a receiver, liquidator, assignee, trustee or sequestrator (or other similar
official) of the Company or of any substantial part of its property, or
ordering the winding up or liquidation of its affairs, and the continuance
of any such decree or order unstayed and in effect for a period of 60
consecutive days; or
D. The institution by the Company of proceedings to be adjudicated a
bankrupt or insolvent, or the consent by it to the institution of
bankruptcy or insolvency proceedings against it, or the filing by it of a
petition or answer or consent seeking reorganization or relief under the
United States Bankruptcy Code or any other applicable federal or state law,
or the consent by it to the filing of any such petition or to the
appointment of a receiver, liquidator, assignee, trustee, or sequestrator
(or other similar official) of the Company or of any substantial part of
its property, or the making by it of an assignment for the benefit of
creditors.
3.2 Acceleration of Maturity. Upon any Event of Default described in
Subsections C. or D. of Section 3.1, the principal of this Note, together with
the interest accrued thereon, shall become immediately due and payable. If any
Event of Default described in subsections A.
- 7 -
or B. of Section 3.1 occurs and is continuing, then the holder of this Note may
declare the principal of this Note to be due and payable immediately, by a
notice in writing to the Company, and, upon any such declaration, the principal
of this Note together with the interest accrued thereon shall become immediately
due and payable.
3.3 Remedies Cumulative. No remedy herein conferred upon the holder hereof
is intended to be exclusive of any other remedy and each and every such remedy
shall be cumulative and shall be in addition to every other remedy given
hereunder or now or hereafter existing at law or in equity or by statute or
otherwise.
3.4 Remedies Not Waived. No course of dealing between the Company and the
holder hereof or any delay in exercising any rights hereunder shall operate as
waiver by any holder hereof.
ARTICLE 4
Amendment and Waiver
By accepting this Note, the holder hereof agrees that any provision of this
Note, including any Event of Default, may, with the written consent of the
Company and such holder, be amended, or compliance therewith may be waived
(either generally or in a particular instance and either retroactively or
prospectively).
ARTICLE 5
Provisions Bind Successors and Assigns
All the provisions of this Note binding the Company or the holder shall
bind their respective successors and assigns, whether or not they state so
expressly.
ARTICLE 6
Headings
The headings in this Note are inserted for convenience of reference only
and shall in no way restrict or otherwise modify any of the provisions hereof.
- 8 -
ARTICLE 7
Notices
All notices, requests, consents and other communications hereunder shall be
in writing and shall be deemed to have been given or made when delivered by
hand, against acknowledgement of receipt, (including delivery by a recognized
overnight courier service), or on the third business day after mailing, if
mailed certified mail, return receipt requested, in each case addressed as
follows:
(a) if to the holder of this Note, to the last address of such holder
set forth in the Note registry records of the Company; or
(b) if to the Company, to the address of its principal office,
Attention: President.
ARTICLE 8
Governing Law
This Note shall be construed and enforced in accordance with, and governed
by, the law of the State of New York, without regard to principles of conflict
of laws.
IN WITNESS WHEREOF, WINDSWEPT ENVIRONMENTAL GROUP, INC. has caused this
Note to be executed in its corporate name by its duly authorized representative,
all as of the day and year first above written.
WINDSWEPT ENVIRONMENTAL GROUP, INC.
By:
--------------------------------
Title:
-----------------------------
- 9 -
