THIS NOTE AND THE COMMON SHARES ISSUABLE
UPON CONVERSION OF THIS NOTE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY STATE
SECURITIES LAWS. THIS NOTE AND THE COMMON SHARES ISSUABLE UPON
CONVERSION OF
THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE
UNDER SAID ACT
AND ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL
REASONABLY
SATISFACTORY TO WINDSWEPT ENVIRONMENTAL GROUP, INC. THAT SUCH
REGISTRATION IS
NOT REQUIRED.
AMENDED AND RESTATED SECURED CONVERTIBLE TERM NOTE
--------------------------------------------------
FOR
VALUE RECEIVED, WINDSWEPT ENVIRONMENTAL GROUP, INC., a Delaware
corporation (the
"Company"),
promises to pay to
LAURUS MASTER FUND, LTD., c/o
M&C Corporate
Services Limited,
P.O. Box 309 GT,
Ugland House,
South Church
Street, George Town,
Grand Cayman,
Cayman Islands, Fax: 345-949-8080 (the
"Holder") or its registered assigns or successors in interest, on
order, the sum
of Five Million Nine Hundred Forty Two Thousand One Hundred Seventy
Five Dollars
($5,942,175), or, if
different, the
aggregate principal amount outstanding
hereunder together with any accrued and unpaid interest hereon, on
June 30, 2009
(the "Maturity Date")
if not sooner paid.
This note amends and restates in its
entirety (and is given
in substitution
for and not in
satisfaction
of) that
certain promissory
amended and restated note in the principal amount of
$7,350,000 issued by the Company in favor of Holder on October 6,
2005.
Capitalized terms used
herein without
definition shall have
the meanings
ascribed to such terms in that certain Securities Purchase
Agreement dated as of
June 30, 2005 by and between the Company and the Holder (as
amended, modified
and/or supplemented from time to time, the "Purchase
Agreement").
The
following terms shall apply to this Amended and Restated Secured
Convertible Term Note
(this "Note"):
ARTICLE I
CONTRACT RATE AND AMORTIZATION
1.1
Contract Rate. Subject
to Sections 4.2 and 5.10, interest payable on
-------------
the outstanding
principal amount of
this Note (the
"Principal Amount")
shall
accrue at a rate per
annum equal to the
"prime rate" published in The Wall
--------
Street Journal from
time to time (the "Prime Rate"), plus two percent (2.0%)
---------------
(the "Contract Rate").
The Contract Rate shall be increased or decreased as the
case may be for each
increase or decrease in the Prime Rate in an amount equal
to such increase or
decrease in the Prime Rate; each change to be effective as
of the day of the change in the Prime Rate. Subject to Section 1.2,
the Contract
Rate shall not at any time be less than seven and one quarter
percent (7.25%).
Interest shall be (i)
calculated
on the basis of a 360-day year, and (ii)
payable monthly,
in arrears, commencing on the first
<PAGE>
business day of each consecutive calendar month hereafter through
and including
the Maturity
Date, and on the Maturity Date, whether by acceleration or
otherwise.
1.2
Contract Rate
Adjustments
and Payments. The Contract Rate shall be
------------------------------------------
calculated on the last business day of each calendar month
hereafter (other than
for increases
or decreases in the Prime Rate which shall be
calculated
and
become effective in accordance with the terms of Section 1.1) until
the Maturity
Date (each a
"Determination Date")
and shall be subject to adjustment as set
forth herein. If (i)
the Company shall have registered such number of shares of
the Common
Stock as then may be
required to be registered pursuant to the
Registration Rights Agreement on a registration statement declared effective
by
the Securities and Exchange Commission (the "SEC"), and (ii) the market price
(the "Market Price")
of the Common Stock as reported by Bloomberg, L.P. on the
Principal Market
for the five (5) trading days immediately preceding a
Determination Date
exceeds the then
applicable Fixed
Conversion
Price by at
least twenty-five
percent (25%), the Contract Rate for the succeeding calendar
month shall
automatically
be reduced by 200
basis points (200
b.p.) (2%) for
each incremental
twenty-five percent
(25%) increase in the Market Price of the
Common Stock above the then applicable Fixed Conversion
Price. Notwithstanding
the foregoing (and anything to the contrary contained herein), in
no event shall
the Contract Rate at any time be less than zero percent (0%).
1.3
Monthly Payments.
Subject to Article III
below, payments of
$100,000
-----------------
per month (the
"Monthly Amount") shall be made by the Company to the Holder
beginning on the first business day of each succeeding month hereafter through
and including the Maturity Date (each, an "Payment Date"). The Monthly Amount
shall be applied first towards any accrued and unpaid interest,
second, to any
-----
------
and all other unpaid
amounts which are then owing under this Note, the Purchase
Agreement and/or any other Related Agreement (other than principal)
and third to
-----
the repayment of the Principal Amount. Any outstanding Principal
Amount together
with any accrued and unpaid interest and any and all other
unpaid amounts which
are then owing by the
Company to the Holder
under this Note, the Purchase
Agreement and/or any
other Related
Agreement shall be due and payable on
the
Maturity Date. Notwithstanding anything in this Section 1.3 to the
contrary, the
principal portion of the Monthly Amounts otherwise due and payable
on October 1,
2006, November 1, 2006 and December 1, 2006 (each a "Principal
Deferred Period",
and collectively, the
"Principal Deferred Periods") shall be due and payable in
full on the Maturity
Date; for the
avoidance of doubt, the interest and fee
portion of such
Monthly Amounts
shall be due and
payable on each
respective
Principal Deferred Period.
1.4
Mandatory Prepayment. If at any time on or before the Maturity Date
the
--------------------
Company shall
have at least
$1,000,000
in cash and cash
equivalents,
fifty
percent (50%) of any additional cash or cash equivalents received
by the Company
in excess of such $1,000,000 shall be paid to the Holder as a mandatory
prepayment of this Note.
-2-
<PAGE>
ARTICLE II
CONVERSION AND REDEMPTION
2.1
Payment of Monthly Amount.
-------------------------
(a)
Payment in Cash or Common Stock. If the Monthly Amount (or a
portion of
-------------------------------
such Monthly
Amount if not all of
the Monthly
Amount may be
converted into
shares of Common Stock
pursuant to Section
3.2) is required to be paid in cash
pursuant to Section
2.1(b), then the
Company shall pay the Holder an amount in
cash equal to 100% of the Monthly Amount (or such portion of such
Monthly Amount
to be paid in cash) due and owing to the Holder on the Amortization
Date. If the
Monthly Amount (or a
portion of such
Monthly Amount if not
all of the Monthly
Amount may be converted into shares of Common Stock
pursuant to Section 3.2) is
required to be paid in shares of Common Stock pursuant to Section 2.1(b), the
number of such
shares to be issued by the Company to the Holder on such
Amortization Date (in
respect of such portion of the Monthly Amount converted
into shares of Common
Stock pursuant to
Section 2.1(b)),
shall be the
number
determined by dividing
(i) the portion of the
Monthly Amount
converted into
shares of Common Stock, by (ii) the then applicable Fixed
Conversion Price.
For
purposes hereof,
subject to Section 3.6 hereof, the initial "Fixed Conversion
Price" means $ 0.09.
(b)
Monthly Amount Conversion Conditions. Subject to Sections 2.1(a),
2.2,
------------------------------------
and 3.2 hereof, the
Holder shall
convert into shares of
Common Stock all or a
portion of the Monthly
Amount due on each
Amortization Date if
the following
conditions (the
"Conversion Criteria")
are satisfied: (i) the
average closing
price of the Common Stock as reported by Bloomberg, L.P. on the
Principal Market
for the five (5) trading days immediately preceding such
Amortization Date shall
be greater
than or equal to 110%
of the Fixed
Conversion
Price and (ii) the
amount of such
conversion does not exceed thirty percent (30%) of the
aggregate
dollar trading
volume of the Common
Stock for the period
of twenty-two
(22)
trading days immediately preceding such Amortization Date.
If subsection (i) of
the Conversion Criteria is met but subsection (ii) of the
Conversion Criteria is
not met as to the entire Monthly Amount, the Holder shall convert
only such part
of the Monthly Amount that meets subsection (ii) of the Conversion Criteria.
Notwithstanding anything to the contrary contained herein, in no
event shall the
Holder convert
in excess of an aggregate of $1,942,175 (the "Convertible
Amount"). Immediately
upon conversion by the
Holder of the Convertible Amount
into Common Stock, no
further amounts due
and payable under this Note shall be
convertible.
2.2
No Effective
Registration.
Notwithstanding
anything to the
contrary
---------------------------
herein, none of the
Company's obligations
to the Holder may be
converted into
Common Stock unless (a) either (i) an effective current
Registration
Statement
(as defined in the Registration Rights Agreement) covering the
shares of Common
Stock to be issued in connection with satisfaction of such
obligations exists or
(ii) an exemption from registration for resale of all of the Common
Stock issued
and issuable is available pursuant to Rule 144 of the
Securities Act and (b) no
Event of Default (as hereinafter defined) exists and is continuing,
unless such
Event of Default is cured within any applicable cure period or
otherwise waived
in writing by the Holder.
-3-
<PAGE>
2.3
Optional Redemption in Cash. The Company may prepay this Note
------------------------------
("Optional
Redemption") by
paying to the
Holder a sum of money
equal to one
hundred twenty percent (120%) of the Principal Amount outstanding at such time
together with
accrued but unpaid
interest thereon and any and all other
sums
due, accrued or
payable to the Holder
arising under this
Note, the Purchase
Agreement or any other Related Agreement (the "Redemption
Amount") outstanding
on the Redemption
Payment Date (as defined below). The Company shall deliver to
the Holder
a written notice of redemption (the "Notice of Redemption")
specifying the date
for such Optional Redemption (the "Redemption Payment
Date"), which date
shall be ten (10) business days after the date of the Notice
of Redemption (the
"Redemption Period").
A Notice of Redemption
shall not be
effective with
respect to any portion of this Note for which the Holder
has
previously delivered a
Notice of Conversion
(as hereinafter defined) or for
conversions elected to
be made by the Holder pursuant to Section 3.3 during the
Redemption Period. The
Redemption Amount shall be determined as if the Holder's
conversion elections
had been completed
immediately
prior to the date of
the
Notice of Redemption. On the Redemption Payment Date, the
Redemption Amount must
be paid in good funds to the Holder. In the event the Company
fails to pay the
Redemption Amount on the Redemption Payment Date as set forth
herein, then such
Redemption Notice will be null and void.
ARTICLE III
HOLDER'S CONVERSION RIGHTS
3.1
Optional Conversion. Subject to the terms set forth in
this Article
--------------------
III, the Holder shall have the right, but not the obligation,
to convert all or
any portion of the
issued and
outstanding
Principal Amount and/or accrued
interest and fees due
and payable (in an
amount not to exceed the Convertible
Amount) into fully
paid and nonassessable
shares of Common Stock
at the Fixed
Conversion Price.
The shares of Common
Stock to be issued upon such conversion
and/or pursuant to
Section 2.1(b) are
herein referred to as,
the "Conversion
Shares."
3.2
Conversion Limitation. Notwithstanding anything herein to the
contrary,
---------------------
in no event shall the
Holder be entitled to convert any portion of this Note in
excess of that portion of this Note upon conversion of which the sum of (1)
the
number of shares
of Common Stock beneficially owned by the Holder and its
Affiliates (other than
shares of Common Stock which may be deemed beneficially
owned through
the ownership of the unconverted portion of the Note or the
unexercised or
unconverted portion of
any other security of the Holder subject
to a limitation on exercise or conversion analogous to the
limitations contained
herein) and (2) the
number of shares of Common Stock issuable upon the
conversion of the
portion of this Note with respect to which the determination
of this proviso is
being made, would
result in beneficial ownership by the
Holder and
its Affiliates of any amount greater than 9.99% of the then
outstanding shares
of Common Stock (whether or not, at the time of such
exercise, the Holder and its Affiliates beneficially own more than 9.99%
of the
then outstanding
shares of Common Stock). As used herein, the term "Affiliate"
means any person or entity that, directly or indirectly through one or more
intermediaries,
controls or is controlled by or is under common control with a
person or entity, as
such terms are used in and construed under Rule 144 under
the Securities Act. For purposes of the second preceding sentence, beneficial
ownership shall be determined in accordance with Section 13(d) of
the Securities
Exchange Act of 1934, as amended, and Regulations 13D-G thereunder, except as
otherwise provided in
clause (1) of such sentence. For any reason at any time,
upon the written or oral request of the Holder, the
-4-
<PAGE>
Company shall within
one (1) business day confirm orally and in writing to the
Holder the number of
shares of Common Stock
then outstanding.
The preceding
limitations set forth
herein (x) may be waived by the Holder upon provision of
no less than sixty-one
(61) days' prior
written notice to the
Company and (y)
shall automatically
become null and void
(i) following
notice to the
Company
upon the occurrence and during the continuance of an Event of
Default, or (ii)
upon receipt by the Holder of a Notice of Redemption.
3.3
Mechanics of Holder's
Conversion. In the
event that the Holder elects
---------------------------------
to convert this Note
into Common Stock,
the Holder
shall give notice of
such
election by delivering
an executed and completed notice of conversion in
substantially the form of Exhibit A hereto (appropriate completed) ("Notice of
Conversion") to the
Company and such Notice of Conversion shall provide a
breakdown in reasonable detail of the Principal
Amount, accrued interest and
fees that are being converted. On each Conversion Date (as
hereinafter defined)
and in accordance
with its Notice of
Conversion,
the Holder shall make the
appropriate reduction
to the Principal
Amount, accrued interest and fees as
entered in its records and shall provide written notice thereof to the Company
within two (2) business days after the Conversion Date. Each date on which a
Notice of Conversion
is delivered or
telecopied
to the Company in
accordance
with the provisions
hereof shall be deemed a Conversion Date (the "Conversion
Date"). Pursuant to
the terms of the Notice of Conversion, the Company will
issue instructions
to the transfer agent
accompanied by an
opinion of counsel
within one (1)
business day of the
date of the delivery
to the Company of the
Notice of Conversion and shall cause the transfer agent to transmit the
certificates
representing the Conversion Shares to the Holder by crediting
the
account of the Holder's designated broker with the
Depository Trust Corporation
("DTC") through its Deposit Withdrawal Agent Commission
("DWAC") system
within
three (3) business days after receipt by the Company of the Notice
of Conversion
(the "Delivery Date").
In the case of the exercise of the conversion rights set
forth herein the conversion privilege s
