EXHIBIT 10.2
 
LETTER AGREEMENT
 
September 3, 2008
 
Valens U.S. SPV I, LLC
Valens Offshore SPV I, Ltd.
PSource Structured Debt Limited
LV Administrative Services, Inc., as agent
c/o Valens Capital Management, LLC
335 Madison Avenue, 10th Floor
New York, New York 10017
 
Ladies and Gentlemen:
 
Reference is made to (a) the Securities Purchase Agreement, dated as of June 30,
2005 (as amended, restated, modified and/or supplemented from time to time, the
“Purchase Agreement”), by and among WINDSWEPT ENVIRONMENTAL GROUP, INC., a
Delaware corporation (“Company”), VALENS U.S. SPV I, LLC, a Delaware limited
liability company (“Valens U.S.”), as assignee of Laurus Master Fund, Ltd.
(“Laurus”), VALENS OFFSHORE SPV I, LTD., a Cayman Islands company (“Valens
Offshore”), as assignee of Laurus, and PSOURCE STRUCTURED DEBT LIMITED, a
Guernsey company (“PSource” and, together with Valens U.S. and Valens Offshore
as assignees of Laurus Master Fund, Ltd., collectively, the “Purchasers”), as
assignee of Laurus, (b) the Second Amended and Restated Secured Term Note, dated
as of April 17, 2007 (as amended, restated, modified and/or supplemented from
time to time, the “Secured Term Note”), made by the COMPANY in favor of the
PURCHASERS, as assignees of Laurus, (c) the Amended and Restated Secured
Convertible Term Note, dated as of October 6, 2005 (as amended, restated,
modified and/or supplemented from time to time, the “Secured Convertible Term
Note” and, together with the Secured Term Note, the “Existing Notes”), made by
the COMPANY in favor of the PURCHASERS, as assignees of Laurus, (d) the Master
Security Agreement, dated as of June 30, 2005, among the COMPANY, TRADE-WINDS
ENVIRONMENTAL GROUP, INC. (“Tradewinds”), NORTH ATLANTIC LABORATORIES, INC.
(“North Atlantic”), ENVIRONMENTAL RESTORATION, INC. (“Environmental Restoration,
Inc.”) and RESTORENET, INC. (“Restorenet” and, together with Tradewinds, North
Atlantic, Environmental Restoration, collectively, the “Subsidiaries”) and the
PURCHASERS, as assignees of Laurus (as amended, restated, modified and/or
supplemented from time to time, the “Security Agreement”), (e) the Subsidiary
Guaranty, dated as of June 30, 2005, by the Subsidiaries in favor of the
Purchasers, as assignees of Laurus (as amended, modified or supplemented from
time to time, the “Guaranty”), and (f) the Reaffirmation and Ratification
Agreements, dated as of January 12, 2007, April 17, 2007 and July 17, 2007, by
the Company, Trade-Winds and North Atlantic (as amended, restated, modified
and/or supplemented from time to time the “Reaffirmation Agreements” and,
together with the Purchase Agreement, the Existing Notes, the Security
Agreement, the Guaranty and all other ancillary documents, instruments and
agreements executed in connection therewith, each an “Existing Agreement” and
collectively, the “Existing Agreements). Defined terms used in this letter
agreement (the “Letter Agreement”) but not otherwise defined in this Letter
Agreement shall have the meanings ascribed to those terms in the Purchase
Agreement.

 
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To induce Purchasers to, among other things, continue to provide financial
accommodations to the Companies and, more specifically, to agree to the terms of
(a) the Demand Note, dated as of the date hereof, in the principal amount of
$9,948 in favor of Valens U.S., (b) the Demand Note, dated as of the date
hereof, in the principal amount of $37,737 in favor of Valens Offshore and (c)
the Demand Note, dated as of the date hereof, in the principal amount of
$207,315 in favor of PSource (collectively, the “Demand Notes”), each of the
undersigned (other than the Purchasers and Agent) hereby:
 
(a) acknowledges, ratifies and confirms that the Purchasers have made several
term loans to the Company (the “Original Term Loans”) and such Original Term
Loans are evidenced by the Existing Notes;
 
(b) acknowledges, ratifies and confirms that, as of the date hereof, the
aggregate outstanding principal amount of the Original Term Loans is
$6,320,028.14;
 
(c) acknowledges, ratifies and confirms that on the date hereof (the “Closing
Date”), subject to the terms and conditions set forth herein and in the New
Agreements (as defined below), the Purchasers shall make an additional advance
to the Company in an aggregate amount equal to Two Hundred and Fifty Thousand
Dollars ($250,000) (the “Additional Advances”). The Additional Advances shall be
evidenced by the Demand Notes. Each of the Company and the Subsidiaries
(collectively, the “Security Parties”) hereby acknowledge and agree that the
Purchasers’ obligation to purchase the Demand Notes on the Closing Date shall be
contingent upon the satisfaction (or waiver by LV Administrative Services, Inc.,
as agent for the Purchasers, the “Agent”) of the items and matters set forth in
the closing checklist provided by the Agent to the Security Parties on or prior
to the Closing Date;
 
(d) acknowledges, ratifies and confirms that in consideration of the Purchasers’
agreement to make the Additional Advance, (i) the Company shall issue the Demand
Notes to the Purchasers and (ii) the Company shall pay to Valens Capital
Management, LLC, the investment manager of the Purchasers (“VCM”), a
non-refundable payment in an amount equal to Three Thousand Seven Hundred Fifty
Dollars ($3,750), plus reasonable expenses (including legal fees and expenses)
incurred in connection with the entering into of this Letter Agreement and the
ancillary documents, and expenses incurred in connection with VCM’s due
diligence review of the Company and its Subsidiaries) and all related matters.
Each of the foregoing payments in clause (ii) above shall be deemed fully earned
on the Closing Date and shall not be subject to rebate or proration for any
reason.
 
(e) represents and warrants to the Agent and the Purchasers that it has reviewed
and approved the terms and provisions of the Demand Notes, this Letter
Agreement, the Guaranty by Michael O’Reilly (“Principal”) in favor of the
Purchasers and Agent, dated as of the date hereof (as amended, restated,
modified and/or supplemented from time to time, the “Individual Guaranty”) and
all documents, instruments and agreements executed in connection herewith and
therewith (together the “New Agreements);

 
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(f) acknowledges, ratifies and confirms that all of the terms, conditions,
representations and covenants contained in the Existing Agreements to which it
is a party are in full force and effect and shall remain in full force and
effect after giving effect to the execution and effectiveness of the New
Agreements;
 
(g) acknowledges, ratifies and confirms that the defined term “Obligations”
under each of the Purchase Agreement and the Related Agreements include, without
limitation, all obligations and liabilities of the Security Parties under the
New Agreements and the Existing Agreements, as applicable, and all other
obligations and liabilities of each of the undersigned to each Purchaser and
Agent (including interest accruing after the filing of any petition in
bankruptcy, or the commencement of any insolvency, reorganization or like
proceeding, whether or not a claim for post-filing or post-petition interest is
allowed or allowable in such proceeding), whether now existing or hereafter
arising, direct or indirect, liquidated or unliquidated, absolute or contingent
(collectively, the “Obligations”);
 
(h) acknowledges, ratifies and confirms that the New Agreements (i) are
“Documents” under, and as defined in, the Security Agreement and the Guaranty
and (ii) “Related Agreements” under, and as defined in, the Purchase Agreement.
 
(i) acknowledges and confirms that (i) the occurrence of a breach and/or an
Event of Default under any of the New Agreements shall constitute a breach
and/or an Event of Default under the Existing Agreements and (ii) the occurrence
of a breach and/or an Event of Default under any of the Existing Agreements
shall constitute a breach and/or an Event of Default under the New Agreements;
 
(j) represents and warrants that no offsets, counterclaims or defenses exist as
of the date hereof with respect to any of the undersigned’s obligations under
any of the Existing Agreements;
 
(k) acknowledges, ratifies and confirms (i) that the security interest grants to
Laurus set forth in the Existing Agreements extend to each Purchaser, as
assignees of Laurus, and to Agent, as agent for each Purchaser, (ii) that the
grant by each Security Party to the Purchasers and Agent of a security interest
under the Existing Agreements extends to and covers all assets (including,
without limitation, the equity interests owned by such Security Party) of each
Security Party as more specifically set forth in the Existing Agreements and the
New Agreements, as applicable (the “Security Interest Grants”), (iii) that the
Security Interest Grants secure all Obligations, and (iv) that each Purchaser
and Agent have all rights and remedies of a secured creditor under the Existing
Agreements, New Agreement and applicable law. To the extent not otherwise
granted by the terms of the Existing Agreements, each Security Party grants to
each Purchaser and Agent, as agent for each Purchaser, a security interest in
all cash, cash equivalents, accounts, accounts receivable, deposit accounts,
inventory, equipment, goods, fixtures, documents, instruments (including,
without limitation, promissory notes and equity securities), contract rights,
general intangibles (including, without limitation, payment intangibles),
chattel paper, supporting obligations, investment property, letter-of-credit
rights, trademarks, trademark applications, tradestyles, patents, patent
applications, copyrights, copyright applications and other intellectual property
in which each Security Party now has or hereafter may acquire any right, title
or interest, all proceeds and products thereof (including, without limitation,
proceeds of insurance) and all additions, accessions and substitutions thereto
or therefor;

 
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(l) represents and warrants that (i) all of the representations made by or on
behalf of the Security Parties in the Existing Agreements to which it is a party
are true and correct in all material respects on and as of the date hereof; (ii)
the Security Parties have the corporate power and authority to execute and
deliver the New Agreements; (iii) all corporate action on the part of the
Security Parties (including their respective officers and directors) necessary
for the authorization of the New Agreements, the performance of all obligations
of the Security Parties hereunder and thereunder and, the authorization, sale,
issuance and delivery of the Demand Notes has been taken; and (iv) the New
Agreements, when executed and delivered and to the extent it is a party thereto,
will be valid and binding obligations of the Security Party; and
 
(m) releases, remises, acquits and forever discharges each Purchaser and its
respective employees, agents, representatives, consultants, attorneys,
fiduciaries, officers, directors, partners, predecessors, successors and
assigns, subsidiary corporations, parent corporations, and related corporate
divisions (all of the foregoing hereinafter called the “Released Parties”), from
any and all actions and causes of action, judgments, executions, suits, debts,
claims, demands, liabilities, obligations, damages and expenses of any and every
character, known or unknown, direct and/or indirect, at law or in equity, of
whatsoever kind or nature, for or because of any matter or things done, omitted
or suffered to be done by any of the Released Parties prior to and including the
date of execution hereof, and in any way directly or indirectly arising out of
or in any way connected to this Letter Agreement, the Existing Agreements, the
New Agreements and any other document, instrument or agreement made by the
undersigned in favor of a Purchaser.
 
Each party hereto agrees and acknowledges that the Agent shall maintain, or
cause to be maintained, for this purpose only as agent of the Company, (i) a
copy of each assignment agreement delivered to it and (ii) a book entry system,
within the meaning of U.S. Treasury Regulation Sections 15f.103-1(c) and
1.871-14(c) (the “Register”), in which it will register the name and address of
each Purchaser and the name and address of each assignee of each Purchaser under
this Letter Agreement and the Purchase Agreement, and the principal amount of,
and stated interest on, the Existing Notes and Demand Notes owing to each such
Purchaser and assignee pursuant to the terms hereof and each assignment
agreement. The right, title and interest of the Purchasers and their assignees
in and to such Existing Notes and Demand Notes shall be transferable only upon
notation of such transfer in the Register, and no assignment thereof shall be
effective until recorded therein. The Security Parties, the Purchasers and the
Agent shall treat each person whose name is recorded in the Register as a
Purchaser pursuant to the terms hereof and under the Purchase Agreement as a
Purchaser and owner of an interest in the Obligations hereunder and thereunder
for all purposes of this Letter Agreement and the Purchase Agreement,
notwithstanding notice to the contrary or any notation of ownership or other
writing or any Note. The Register shall be available for inspection by the
Security Parties or any Purchaser, at any reasonable time and from time to time,
upon reasonable prior notice.

 
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Principal shall deliver to Agent (in the case of the following clause “(a)”, on
or prior to the execution of this Letter Agreement, and in the case of the
following clause “(b)”, on or prior to the delivery to Agent of a security
agreement in form and substance acceptable to Agent covering the vessel
referenced in such clause “(b)”), in form and substance satisfactory to Agent,
endorsements to each and every insurance policy (the “Insurance Policies”)
covering (a) the recreational motor vessel DORADO, of about 19 gross and 15 net
tons, length about 38.2 feet, built in 1985 at Owings MD and duly documented
under the laws of the United States with official number 699081 (the “Dorado”)
and (b) each other vessel owned by Principal, including without limitation the
New York State titled vessel (collectively, with the Dorado, the “Vessels”)
naming Agent, on behalf of the Purchasers, as an additional insured and a lender
loss payee. Principal irrevocably makes, constitutes and appoints Agent (and all
officers, employees or agents designated by Agent), so long as the Obligations
(as defined in the Individual Guaranty) remain outstanding as Principal’s true
and lawful agent and attorney in fact for the purpose of making, settling and
adjusting claims under such Insurance Policies, endorsing the name of Principal
on any check or other item of payment for the proceeds of such Insurance
Policies and for making all determinations and decisions with respect to such
Insurance Policies. Agent shall have no duty to exercise any rights or powers
granted to it pursuant to the foregoing power-of-attorney. Principal shall
promptly notify Agent of any loss, damage, or destruction to the Vessels,
whether or not covered by an Insurance Policy. If Principal receives any
proceeds from such Insurance Policies (the “Proceeds”), Principal shall promptly
remits such Proceeds to Agent. After deducting from such Proceeds the expenses
(including reasonable attorneys’ fees) incurred by Agent in the collection or
handling thereof, Agent may, at its option, make such remaining Proceeds
available to Principal to replace, repair, restore or rebuild the Vessel that
was damaged or destroyed. If such Vessel is replaced, the Principal shall enter
into all such documents, instruments and agreements as Agent shall require to
evidence the grant by Principal to Agent, as agent for the Purchasers, of a
first priority perfected security interest in such replacement vessel. All
Proceeds at any time held by Agent which are not otherwise made available to
Principal hereunder (the “Cash Collateral Amount”) shall be held by Agent as
cash collateral to secure the Obligations (as defined in the Individual
Guaranty). Agent, as agent for Purchasers, is hereby granted a security interest
in the Cash Collateral Amount and Agent is authorized, without any prior notice
or demand, to debit the Cash Collateral Amount to pay any amount due with
respect to the Obligations (as defined in the Individual Guaranty). Upon the
payment in full of the Obligations (as defined in the Individual Guaranty), the
Agent will remit to Principal (or otherwise as a court of competent jurisdiction
shall direct), the amount, if any, of the Cash Collateral Amount then held by
the Agent.
 
This Letter Agreement may be executed in any number of counterparts, each of
which when so executed shall be deemed to be an original, and all which when
taken together shall constitute one and the same agreement.
 
[Remainder of this page intentionally left blank.]

 
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This Letter Agreement shall be governed by and construed in accordance with the
laws of the State of New York.

Very truly yours,
 
WINDSWEPT ENVIRONMENTAL
GROUP, INC., a Delaware corporation
 
By:
/s/ Michael O’Reilly
 
Name: Michael O’Reilly
 
Title: President
   
TRADE-WINDS ENVIRONMENTAL
GROUP, INC., a New York corporation
   
By:
/s/ Michael O’Reilly
 
Name: Michael O’Reilly
 
Title: President
   
NORTH ATLANTIC LABORATORIES,
INC., a New York corporation
   
By:
/s/ Michael O’Reilly
 
Name: Michael O’Reilly
 
Title: President
   
ENVIRONMENTAL RESTORATION,
INC., a New York corporation
   
By:
/s/ Michael O’Reilly
 
Name: Michael O’Reilly
 
Title: President
   
RESTORENET, INC., a New York
corporation
   
By:
/s/ Michael O’Reilly
 
Name: Michael O’Reilly
 
Title: President

 
SIGNATURE PAGE TO
LETTER AGREEMENT
 
 

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/s/ Michael O’Reilly
Michael O’Reilly, Individually

STATE OF New York
)
 
): ss.:
COUNTY OF Suffolk
)

 
On the 3rd day of September, 2008, before me personally came Michael O’Reilly to
me known, who being by me duly sworn, did depose and say that he has read the
foregoing instrument and is fully familiar with the contents thereof; that he
signed his name thereto of his own free will and volition.

Mary E. Dunn
Notary Public

Mary E. Dunn
Notary Public, State of New York
No. 01DU6190448
Qualified In Suffolk County
Commission Expires 07/28/2012

 
 

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ACCEPTED AND AGREED TO:
 
AGENT:
 
LV ADMINISTRATIVE SERVICES, INC.
   
By:
/s/ Scott Bluestein
 
Name: Scott Bluestein
 
Title: Authorized Signatory
   
PURCHASERS:
 
VALENS U.S. SPV I, LLC
   
By:
Valens Capital Management, LLC,
 
its investment manager
       
By:
/s/ Scott Bluestein
 
Name: Scott Bluestein
 
Title: Authorized Signatory
   
VALENS OFFSHORE SPV I, LTD.
 
By:
Valens Capital Management, LLC,
 
its investment manager
   
By:
/s/ Scott Bluestein
 
Name: Scott Bluestein
 
Title: Authorized Signatory
   
PSOURCE STRUCTURED DEBT LIMITED
   
By:
/s/ Soondra Appavoo
 
Name: Soondra Appavoo
 
Title: Managing Director, PSource Capital Limited, its investment manager

 
 

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