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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 STATES SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO VERIDIUM CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED.
SECURED CONVERTIBLE MINIMUM BORROWING NOTE
FOR VALUE RECEIVED, VERIDIUM CORPORATION a Delaware corporation (the
"Borrower") promises to pay to LAURUS MASTER FUND, LTD., c/o Ironshore Corporate
Services Ltd., P.O. Box 1234 G.T., Queensgate House, South Church Street, Grand
Cayman, Cayman Islands, Fax: 000-000-0000 (the "Holder") or its registered
assigns, on order, the sum of ONE MILLION DOLLARS ($1,000,000), or, if
different, the aggregate principal amount of all "Loans" (as such term is
defined in the Security Agreement referred to below), together with any accrued
and unpaid interest hereon, on March __, 2007 (the "Maturity Date").
Capitalized terms used herein without definition shall have the meanings
ascribed to such terms in the Security Agreement between Borrower and the Holder
dated as of March __, 2004 (as amended, modified and supplemented from time to
time, the "Security Agreement").
The following terms shall apply to this Minimum Borrowing Note (the "Note"):
ARTICLE I
INTEREST
1.1 Interest Rate and Payments. Subject to Sections 5.3 and 6.7 hereof,
interest payable on this Note shall accrue at a rate per annum equal to the
"prime rate" published in The Wall Street Journal from time to time, plus five
(5%) (the "Contract Rate"). The Prime 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 such rate in accordance with the terms
of the Security Agreement. Subject to the immediately following sentence, the
Contract Rate shall not be less than nine percent (9%). The Contract Rate shall
be adjusted as follows: if (i) the Company shall have registered the shares of
the Company's common stock underlying the conversion of this Note and that
certain warrant issued to Holder of even date herewith on a registration
statement declared effective by the Securities Exchange Commission, and (ii) the
volume weighted average price of the Common Stock as reported by Bloomberg, L.P.
on the principal market for any of the ten (10) trading days immediately
preceding a Interest Payment Date (defined below) exceeds the then applicable
Fixed Conversion Price by twenty five percent (25%), the Contract Rate for the
succeeding calendar month shall automatically be reduced by twenty five basis
points (25 b.p.) for such period. In no event shall the Contract Rate be less
than 0.00%. Interest shall be payable monthly in arrears commencing on May 1,
2004 and on the first day of each consecutive calendar month thereafter, (each,
an "Interest Payment Date").
ARTICLE II
ADVANCES, BORROWER CONVERSION RIGHTS, PAYMENTS UNDER NOTE
2.1. Mechanics of Advances. All Loans evidenced by this Note shall be made
in accordance with the terms and provisions of the Security Agreement. 2.2.
Fixed Conversion Price. For purposes hereof, subject to Section 3.5 hereof, the
"Fixed Conversion Price" means $0.43.
2.3. No Effective Registration. Notwithstanding anything to the contrary
herein, the Borrower shall be prohibited from exercising its right to repay any
amount hereunder in shares of Common Stock if at any time from the Call Date
(defined below) for such payment through the date upon which such payment is
made by delivery of certificates for shares of Common Stock there fails to exist
an effective current Registration Statement (as defined in the Registration
Rights Agreement) covering the shares of Common Stock to be issued, or if an
Event of Default hereunder exists and is continuing, unless such requirement is
otherwise waived in writing by the Holder in whole or in part at the Holder's
option.
2.4. Optional Payments in Common Stock. Subject to Section 2.2 hereof, if
the Company elects to pay interest or prepay principal and the average closing
price of the Common Stock on the Principal Market is greater than 110% of the
Fixed Conversion Price for a period of at least five (5) consecutive trading
days, then the Borrower may, at its sole option, provide the Holder written
notice (a "Call Notice") requiring the conversion at the Fixed Conversion Price
of all or a portion of the outstanding interest or principal of this Note
(subject to compliance with Section 2.3 and 3.2, together with accrued interest
on the amount being prepaid, as of the date set forth in such Call Notice (the
"Call Date"). The Call Date shall be at least ten (10) trading days following
the date of the Call Notice. On the Call Date the Borrower shall deliver to the
Holder certificates evidencing the shares of Common Stock issued in satisfaction
of the principal and/or interest being retired. Notwithstanding the foregoing,
the Borrower's right to issue shares of Common Stock in payment of obligations
under this Note shall be subject to the limitation that the number of shares of
Common Stock issued in connection with any Call Notice shall not exceed 25% of
the aggregate dollar trading volume of the Common Stock for the ten (10) trading
days immediately preceding the Call Date (as such volume is reported by
Bloomberg, L.P. If the price of the Common Stock falls below 110% of the Fixed
Conversion Price during the ten (10) trading day period immediately preceding
the Call Date, then the Holder will then be required to convert only such amount
of the Note as shall equal twenty five percent (25%) of the aggregate dollar
trading volume (as such volume is reported by Bloomberg L.P.) for each day that
the Common Stock has exceeded 110% of the then applicable Fixed Conversion
Price. The Borrower shall not be permitted to give the Holder more than one Call
Notice under this Note during any 10-day period.
2.5 Optional Redemption in Cash. The Borrower will have the option of
prepaying this Note in full (but not in part) in cash, ("Optional Redemption")
by paying to the Holder a sum of money equal to one hundred fifteen percent
(115%) of the principal amount of this Note 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 Security Agreement, or any Ancillary
Agreement (as defined in the Security Agreement) (the "Redemption Amount")
outstanding on the day written notice of redemption (the "Notice of Redemption")
is given to the Holder. The Notice of Redemption shall specify the date for such
Optional Redemption (the "Redemption Payment Date") which date shall be seven
(7) 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 a pending election to convert pursuant to Section
3.1, or for conversions elected to be made by the Holder pursuant to Section 3.1
during the Redemption Period. The Redemption Amount shall be determined as if
such Xxxxxx'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 Borrower fails
to pay the Redemption Amount on the Redemption Payment Date, then such
Redemption Notice will be null and void.
ARTICLE III
HOLDER'S CONVERSION RIGHTS
3.1. Optional Conversion. Subject to the terms of this Article III, the
Holder shall have the right, but not the obligation, at any time until the
Maturity Date, or thereafter during an Event of Default (as defined in Article
V), and, subject to the limitations set forth in Section 3.2 hereof, to convert
all or any portion of the outstanding Principal Amount and/or accrued interest
and fees due and payable into fully paid and nonassessable shares of the 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 the number of shares of Common
Stock beneficially owned by such Holder or issuable upon exercise of warrants
held by such Holder and 4.99% of the outstanding shares of Common Stock of the
Borrower. For the 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 Borrower upon the occurrence and during the continuance beyond any applicable
grace period of an Event of Default, or upon 75 days prior notice to the
Borrower.
3.3. Mechanics of Xxxxxx'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 ("Notice
of Conversion") to the Borrower 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 Borrower
within two (2) business days after the Conversion Date. Each date on which a
Notice of Conversion is delivered or telecopied to the Borrower in accordance
with the provisions hereof shall be deemed a Conversion Date (the "Conversion
Date"). A form of Notice of Conversion to be employed by the Holder is annexed
hereto as Exhibit A. Pursuant to the terms of the Notice of Conversion, the
Borrower 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 Borrower
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 Borrower 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 be
deemed to have been issued upon the date of receipt by the Borrower of the
Notice of Conversion. The Holder shall be treated for all purposes as the record
holder of such Common Stock, unless the Holder provides the Borrower written
instructions to the contrary.
3.4. Late Payments. The Borrower understands that a delay in the delivery
of the shares of Common Stock 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, the Borrower agrees to pay late
payments to the Holder for late issuance of such shares in the form required
pursuant to this Article III upon conversion of the Note, in the amount equal to
$500 per business day after the Delivery Date. The Borrower shall pay any
payments incurred under this Section in immediately available funds upon demand.
3.5. Adjustment Provisions. The Fixed Conversion Price and number and kind
of shares or other securities to be issued upon conversion determined pursuant
to Section 2.2 shall be subject to adjustment from time to time upon the
happening of certain events while this conversion right remains outstanding, as
follows:
A. Reclassification, etc. If the Borrower at any time shall, by
reclassification or otherwise, change the Common Stock into the same or a
different number of securities of any class or classes, this Note, as to
the unpaid Principal Amount and accrued interest thereon, shall thereafter
be deemed to evidence the right to purchase an adjusted number of such
securities and kind of securities as would have been issuable as the result
of such change with respect to the Common Stock immediately prior to such
reclassification or other change.
B. Stock Splits, Combinations and Dividends. If the shares of Common
Stock are subdivided or combined into a greater or smaller number of shares
of Common Stock, or if a dividend is paid on the Common Stock in shares of
Common Stock, the Fixed Conversion Price shall be proportionately reduced
in case of subdivision of shares or stock dividend or proportionately
increased in the case of combination of shares, in each such case by the
ratio which the total number of shares of Common Stock outstanding
immediately after such event bears to the total number of shares of Common
Stock outstanding immediately prior to such event.
C. Share Issuances. Subject to the provisions of this Section 3.5, if
the Borrower shall at any time prior to the conversion or repayment in full
of the Principal Amount issue any shares of Common Stock to a person other
than the Holder (except (i) pursuant to Subsections A or B above; (ii)
pursuant to options, warrants, or other obligations to issue shares
outstanding on the date hereof as disclosed to Holder in writing; or (iii)
pursuant to options that may be issued under any employee incentive stock
option and/or any qualified stock option plan adopted by the Borrower) for
a consideration per share (the "Offer Price") less than the Fixed
Conversion Price in effect at the time of such issuance, then the Fixed
Conversion Price shall be immediately reset to such lower Offer Price. For
purposes hereof, the issuance of any security of the Borrower convertible
into or exercisable or exchangeable for Common Stock shall result in an
adjustment to the Fixed Conversion Price at the time of issuance of such
securities.
D. Computation of Consideration. For purposes of any computation
respecting consideration received pursuant to Subsection C above, the
following shall apply:
(a) in the case of the issuance of shares of Common Stock for
cash, the consideration shall be the amount of such cash, provided
that in no case shall any deduction be made for any commissions,
discounts or other expenses incurred by the Borrower for any
underwriting of the issue or otherwise in connection therewith;
(b) in the case of the issuance of shares of Common Stock for a
consideration in whole or in part other than cash, the consideration
other than cash shall be deemed to be the fair market value thereof as
determined in good faith by the Board of Directors of the Borrower
(irrespective of the accounting treatment thereof); and
(c) Upon any such exercise, the aggregate consideration received
for such securities shall be deemed to be the consideration received
by the Borrower for the issuance of such securities plus the
additional minimum consideration, if any, to be received by the
Borrower upon the conversion or exchange thereof (the consideration in
each case to be determined in the same manner as provided in clauses
(a) and (b) of this Subsection (D)).
3.6. Reservation of Shares. During the period the conversion right exists,
the Borrower will reserve from its authorized and unissued Common Stock a
sufficient number of shares to provide for the issuance of Common Stock upon the
full conversion of this Note. The Borrower represents that upon issuance, such
shares will be duly and validly issued, fully paid and non-assessable. The
Borrower agrees that its issuance of this Note shall constitute full authority
to its officers, agents, and transfer agents who are charged with the duty of
executing and issuing stock certificates to execute and issue the necessary
certificates for shares of Common Stock upon the conversion of this Note.
3.7. Registration Rights. The Holder has been granted registration rights
with respect to the shares of Common Stock issuable upon conversion of this Note
as more fully set forth in a Registration Rights Agreement dated the date
hereof.
ARTICLE IV
EVENTS OF DEFAULT
The occurrence of any of the following events is an Event of Default
("Event of Default"):
4.1. Failure to Pay Principal, Interest or other Fees. The Borrower fails
to pay when due any installment of principal, interest or other fees hereon or
on any other promissory note issued pursuant to the Security Agreement, when due
in accordance with the terms of such note.
4.2. Breach of Covenant. The Borrower breaches any covenant or other term
or condition of this Note in any material respect and such breach, if subject to
cure, continues for a period of thirty (30) days after the occurrence thereof.
4.3. Breach of Representations and Warranties. Any material representation
or warranty of the Borrower made herein, or the Security Agreement, or in any
Ancillary Agreement shall be materially false or misleading.
4.4. Stop Trade. An SEC stop trade order or Principal Market trading
suspension of the Common Stock shall be in effect for 5 consecutive days or 5
days during a period of 10 consecutive days, excluding in all cases a suspension
of all trading on a Principal Market, provided that the Borrower shall not have
been able to cure such trading suspension within 30 days of the notice thereof
or list the Common Stock on another Principal Market within 60 days of such
notice. The "Principal Market" for the Common Stock shall include the NASD OTC
Bulletin Board, NASDAQ SmallCap Market, NASDAQ National Market System, American
Stock Exchange, or New York Stock Exchange (whichever of the foregoing is at the
time the principal trading exchange or market for the Common Stock), or any
securities exchange or other securities market on which the Common Stock is then
being listed or traded.
4.5. Default Under Related Agreement. The occurrence of an Event of Default
under and as defined in the Security Agreement and/or the Ancillary Agreements.
4.6 Failure to Deliver Common Stock or Replacement Note. The Borrower's
failure to timely deliver Common Stock to the Holder pursuant to and in the form
required by this Note, and Section 9 of the Security Agreement, or if required,
a replacement Note if such failure to timely deliver Common Stock shall not be
cured within two (2) business days or such failure to deliver a replacement Note
is not cured within seven (7) business days.
4.7 Payment Grace Period. The Borrower shall have a three (3)
business day grace period to pay any monetary amounts due under this Note or the
Security Agreement or any Ancillary Agreements, after which grace period a
default interest rate of two and one half percent (2.5%) per annum above the
then applicable interest rate hereunder shall apply to the monetary amounts due.
ARTICLE V
DEFAULT PAYMENTS
5.1. Default Payment. If an Event of Default occurs, the Holder, at its
option, may elect, in addition to all rights and remedies of Holder under the
Security Agreement and all obligations of Borrower under the Security Agreement,
to require the Borrower to make a Default Payment ("Default Payment"). The
Default Payment shall be the outstanding principal amount of the Note, plus
accrued but unpaid interest, all other fees then remaining unpaid, and all other
amounts payable hereunder.
5.2. Default Payment Date and Default Notice Period. The Default Payment
shall be due and payable on the fifth business day after an Event of Default as
defined in Article IV ("Default Payment Date") has occurred and is continuing
beyond any applicable grace period. The period between date upon which of an
Event of Default has occurred and is continuing beyond any applicable grace
period and the Default Payment Date shall be the "Default Period." If during the
Default Period, the Borrower cures the Event of Default, the Event of Default
will no longer exist and any additional rights the Holder had triggered by the
occurrence and continuance of an Event of Default will no longer exist. If the
Event of Default is not cured during the Default Notice Period, all amounts
payable hereunder shall be due and payable on the Default Payment Date, all
without further demand, presentment or notice, or grace period, all of which
hereby are expressly waived.
5.3. Default Interest Rate. Following the occurrence and during the
continuance of an Event of Default, interest on this Note shall automatically be
increased to one and one half percent (1.5%) per month, and all outstanding
Obligations, including unpaid interest, shall continue to accrue interest from
the date of such Event of Default at such interest rate applicable to such
Obligations until such Event of Default is cured or waived.
5.4. Cumulative Remedies. The remedies under this Note shall be cumulative.
ARTICLE VI
MISCELLANEOUS
6.1. Failure or Indulgence Not Waiver. No failure or delay on the part of
the Holder hereof in the exercise of any power, right or privilege hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such power, right or privilege preclude other or further exercise thereof or
of any other right, power or privilege. All rights and remedies existing
hereunder are cumulative to, and not exclusive of, any rights or remedies
otherwise available.
6.2. Notices. Any notice herein required or permitted to be given shall be
in writing and provided in accordance with the terms of the Security Agreement.
6.3. Amendment Provision. The term "Note" and all reference thereto, as
used throughout this instrument, shall mean this instrument as originally
executed, or if later amended or supplemented, then as so amended or
supplemented, and any successor instrument as it may be amended or supplemented.
6.4. Assignability. This Note shall be binding upon the Borrower and its
successors and assigns, and shall inure to the benefit of the Holder and its
successors and assigns, and may be assigned by the Holder in accordance with the
requirements of the Security Agreement.
6.5. Cost of Collection. If default is made in the payment of this Note,
the Borrower shall pay the Holder hereof reasonable costs of collection,
including reasonable attorneys' fees.
6.6. Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of New York, without regard to principles
of conflicts of laws. Any action brought by either party against the other
concerning the transactions contemplated by this Agreement shall be brought only
in the state courts of New York or in the federal courts located in the state of
New York. Both parties and the individual signing this Note on behalf of the
Borrower agree to submit to the jurisdiction of such courts. The prevailing
party shall be entitled to recover from the other party its reasonable
attorney's fees and costs. In the event that any provision of this Note is
invalid or unenforceable under any applicable statute or rule of law, then such
provision shall be deemed inoperative to the extent that it may conflict
therewith and shall be deemed modified to conform with such statute or rule of
law. Any such provision which may prove invalid or unenforceable under any law
shall not affect the validity or unenforceability of any other provision of this
Note. Nothing contained herein shall be deemed or operate to preclude the Holder
from bringing suit or taking other legal action against the Borrower in any
other jurisdiction to collect on the Borrower's obligations to Holder, to
realize on any collateral or any other security for such obligations, or to
enforce a judgment or other court order in favor of Xxxxxx.
6.7. Maximum Payments. Nothing contained herein shall be deemed to
establish or require the payment of a rate of interest or other charges in
excess of the maximum permitted by applicable law. In the event that the rate of
interest required to be paid or other charges hereunder exceed the maximum
permitted by such law, any payments in excess of such maximum shall be credited
against amounts owed by the Borrower to the Holder and thus refunded to the
Borrower.
6.8. Security Interest. The Holder of this Note has been granted a security
interest in certain assets of the Borrower more fully described in a Security
Agreement dated as of March ___, 2004.
6.9. Construction. Each party acknowledges that its legal counsel
participated in the preparation of this Note and, therefore, stipulates that the
rule of construction that ambiguities are to be resolved against the drafting
party shall not be applied in the interpretation of this Note to favor any party
against the other.
Balance of page intentionally left blank; signature page follows.
IN WITNESS WHEREOF, the Borrower has caused this Secured Convertible
Revolving Note to be signed in its name effective as of this ____ day of March,
2004.
VERIDIUM CORPORATION
By:__________________________________
Name:
Title:
WITNESS:
___________________________
NOTICE OF CONVERSION
(To be executed by the Holder in order to convert the Note)
The undersigned hereby elects to convert $_________ of the
principal and $_________ of the interest due on the Secured Convertible
Revolving Note issued by VERIDIUM CORPORATION on ________ __, 2004 into Shares
of Common Stock of VERIDIUM CORPORATION (the "Borrower") according to the
conditions set forth in such Note, as of the date written below.
Date of Conversion:____________________________________________________________
Conversion Price:______________________________________________________________
Shares To Be Delivered:________________________________________________________
Signature:_____________________________________________________________________
Print Name:____________________________________________________________________
Address:_______________________________________________________________________
_______________________________________________________________________________
Holder DWAC instructions ___________________________________________
