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: 345-949-9877 (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 31,
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 31, 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 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 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 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
("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 tr
