AMENDED AND RESTATED SECURED CONVERTIBLE TERM NOTE

 

                                                                EXHIBIT 10

 

     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   Three   Hundred   Fifty   Thousand   Dollars

($5,350,000),   or, if different,   the   aggregate   principal   amount   outstanding

hereunder together with any accrued and unpaid interest hereon, on June 30, 2008

(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   note in the principal   amount of   $5,000,000   issued by the

Company in favor of Holder on June 30, 2005.

 

                  Capitalized terms   used   herein   without definition shall have

the   meanings   ascribed   to   such   terms   in   that certain   Securities   Purchase

Agreement   dated as of the date hereof 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 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 August 1, 2005, on the

first business day of each   consecutive   calendar month   thereafter   through and

including the Maturity Date, and on the Maturity Date,   whether by   acceleration

or otherwise.

 

<PAGE>

 

                   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   the

shares of the   Common   Stock   underlying   the   conversion   of this Note and each

Warrant 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 Principal Payments. Amortizing payments of the aggregate

principal    amount    outstanding   under   this   Note   at any time (the "PRINCIPAL

AMOUNT")   shall be made by the   Company   on   November   1,   2005 and on the first

business day of each   succeeding   month   thereafter   through and   including   the

Maturity   Date (each,   an   "AMORTIZATION   DATE").   Subject to Article III below,

commencing   on the first   Amortization   Date,   the   Company   shall make   monthly

payments to the Holder on each Repayment   Date,   each such payment in the amount

of the   sum   of   $167,187.50   plus   (II)   the   aggregate   sum of all   Additional

Principal   Amounts   (as   defined   below)   together   with any   accrued and unpaid

interest on such portion of the   Principal   Amount plus any and all other unpaid

amounts which are then owing under this Note, the Purchase   Agreement and/or any

other Related Agreement   (collectively,   the "MONTHLY 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. For purposes hereof,   the term "ADDITIONAL

PRINCIPAL AMOUNT" shall mean (A) the amount of each disbursement (if any) by the

Holder after the Closing Date to, or for the benefit of, the Company pursuant to

the terms of the side letter   dated the date   hereof   between the Holder and the

Company and divided by (B) the number of months   remaining from the time of such

disbursement   until the Maturity Date.  

 

                                   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 103% 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

 

                                       2

 

<PAGE>

 

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.   Any portion of the Monthly Amount due on an   Amortization

Date that the Holder has not been able to convert   into   shares of Common   Stock

due to the failure to meet the Conversion Criteria, shall be paid in cash by the

Company   at the   rate   of   103%   of the   Monthly   Amount   otherwise   due on such

Amortization Date, within three (3) business days of such Amortization Date.

 

 

                    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.

 

                    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

 

                                        3

 

<PAGE>

 

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   and   the    availability of issuable Common Stock, 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   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 are herein referred to as, the "Conversion Shares."

 

                    3.2 Conversion Limitation. Notwithstanding anything

contained    herein   to   the   contrary,   the   Holder   shall   not be   entitled   to

convert   pursuant to the terms of this Note an amount that would be   convertible

into that number of Conversion Shares which would exceed the difference   between

(i)   4.99% of the   outstanding   shares of   Common   Stock and (ii) the   number of

shares of Common   Stock   beneficially   owned by the Holder.   For purposes of the

immediately   preceding   sentence,   beneficial   ownership   shall be determined in

accordance   with   Section   13(d)   of   the   Exchange   Act   and   Regulation   13d-3

thereunder. The Conversion Shares limitation described in this Section 3.2 shall

automatically   become null and void   without any notice to the Company   upon the

occurrence and during the   continuance   of an Event of Default,   or upon 75 days

prior written notice to the Company.   Notwithstanding   anything contained herein

to the contrary,   the provisions of this Section 3.2 are irrevocable and may not

be waived by the Holder or the Company.

 

                    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

 

 

                                       4

 

<PAGE>

 

case   of   the   exercise   of   the   conversion   rights    set   forth    herein    the

conversion   privilege   shall be deemed to have been exercised and the Conversion

Shares   issuable upon such   conversion   shall be deemed to have been issued upon

the date of receipt by the Company of the Notice of Conversion. The Holder shall

be treated   for all   purposes   as the record   holder of the   Conversion   Shares,

unless the Holder provides the Company written instructions to the contrary.

 

                    3.4   Late   Payments. The Company understands that a delay in

the   delivery   of   the   Conversion   Shares in the form required pursuant to this

Article beyond the Delivery Date could result in economic loss to the Holder. As

compensation   to the Holder for such loss,   in addition to all other   rights and

remedies which the Holder may have under this Note, applicable law or otherwise,

the   Company   shall pay late   payments   to the Holder for any late   issuance   of

Conversion   Shares   in the   form   required   pursuant   to   this   Article   II upon

conversion   of this Note, in the amount equal to $500 per business day after the

Delivery Date.   The Company shall make any payments   incurred under this Section

in immediately available funds upon demand.

 

                    3.5   Conversion   Mechanics. The number of shares   of   Common

Stock   to   be   issued   upon   each conversion of this Note shall be determined by

dividing that portion of the principal and interest and fees to be converted, if

any,   by the   then   applicable   Fixed   Conversion   Price.   In the   event   of any

conversions of a portion of the   outstanding   Principal   Amount pursuant to this

Article III, such conversions   shall be deemed to constitute   conversions of