EXHIBIT 10.2
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.
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 Dollars ($5,000,000),
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.
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 July 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.
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
<PAGE>
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 $156,250
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
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
2
<PAGE>
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 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
3
<PAGE>
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 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
4
<PAGE>
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 the outstanding
Principal Amount applying to Monthly Amounts for the remaining Amortization
Dates in chronological order.
3.6 Adjustment
Provisions.
The Fixed C
