PURCHASE AGREEMENT
BETWEEN
VERIDIUM CORPORATION; VERIDIUM ENVIRONMENTAL CORPORATION, AMERICAN METAL
RECOVERY CORP., NEW WORLD RECYCLING, INC., JONES ENVIRONMENTAL SERVICES
(NORTHEAST) INC., ENVIROSAFE CORPORATION, and METAL RECOVERY TRANSPORTATION
CORP.
AS BORROWERS
AND
GCS INVESTMENTS, L.L.C.
AS PURCHASER
DECEMBER 19, 2003
<PAGE>
TABLE OF CONTENTS
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1.
CERTAIN
DEFINITIONS.......................................................................................1
-------------------
1.1
Definitions......................................................................................1
-----------
1.2 Special
Definitions..............................................................................7
-------------------
2. SALE
AND PURCHASE OF NOTE AND
WARRANTS....................................................................8
--------------------------------------
2.1 Sale of
Note.....................................................................................8
------------
2.2 Terms of
Note....................................................................................8
-------------
2.3 Use of
Proceeds.................................................................................10
---------------
2.4
Warrants........................................................................................10
--------
2.5
Registration
Rights.............................................................................11
-------------------
3.
CLOSING..................................................................................................11
-------
3.1 Time of
Closing.................................................................................11
---------------
3.2
Co-Investment...................................................................................11
-------------
3.3 Debt
Conversion.................................................................................11
---------------
3.4 Schaedel
Existing
Indebtedness..................................................................12
------------------------------
3.5 Deliveries
by the
Borrowers.....................................................................12
---------------------------
4.
REPRESENTATIONS AND WARRANTIES OF
BORROWERS..............................................................13
-------------------------------------------
4.1 Corporate
Existence, Power and
Authority........................................................13
----------------------------------------
4.2 Stock
Ownership.................................................................................14
---------------
4.3
Subsidiaries....................................................................................14
------------
4.4 Business;
Business
Plan.........................................................................14
-----------------------
4.5 No
Defaults or
Conflicts........................................................................15
------------------------
4.6 Financial
Statements............................................................................16
--------------------
4.7 Labor
Disputes and Acts of
God..................................................................16
------------------------------
4.8
Litigation......................................................................................16
----------
4.9 Taxes.
........................................................................................16
-----
4.10
ERISA...........................................................................................16
-----
4.11
Legal
Compliance................................................................................17
----------------
4.12
Permits, Licenses and
Approvals.................................................................17
-------------------------------
4.13
Properties......................................................................................17
----------
4.14
Suppliers and
Customers.........................................................................18
-----------------------
4.15
Environmental
Compliance........................................................................18
------------------------
4.16
Indebtedness....................................................................................18
------------
4.17
Intellectual
Property...........................................................................18
---------------------
4.18
Contracts.......................................................................................19
---------
4.19
Capital.........................................................................................20
-------
4.20
Offering of Note and
Securities.................................................................20
-------------------------------
4.21
Disclosure......................................................................................20
----------
5...........................................................REPRESENTATIONS
AND WARRANTIES OF THE PURCHASER
-----------------------------------------------
20
6.....................................................................................AFFIRMATIVE
COVENANTS
---------------------
20
6.1 Use of
Proceeds.................................................................................21
---------------
6.2
Maintenance of Existence, Properties and Franchises; Compliance
with Law; Taxes; Insurance;
--------------------------------------------------------------------------------------------
Payment of other
Indebtedness...................................................................21
-----------------------------
6.3
Notices........................................................................................22
-------
6.4 Reporting
Requirements..........................................................................23
----------------------
6.5
Environment.....................................................................................24
-----------
6.6 Annual
Certificate of No
Default................................................................24
--------------------------------
6.7 Further
Assurances..............................................................................24
------------------
6.8 Election
to Board of
Directors..................................................................24
------------------------------
6.9 Completion
of Post-Closing
Obligations..........................................................24
--------------------------------------
6.10
Financial
Covenants.............................................................................25
-------------------
7.
NEGATIVE COVENANTS OF THE
BORROWERS......................................................................25
-----------------------------------
7.1 Restricted
Payments.............................................................................25
-------------------
7.2 Merger,
Sale of Assets, Dissolution,
Etc........................................................25
-----------------------------------------
7.3
Limitations on Loans, Investments, and
Advances.................................................25
-----------------------------------------------
7.4 Regulation
U....................................................................................26
------------
7.5 Permitted
Indebtedness..........................................................................26
----------------------
7.6 No Change
in
Business...........................................................................26
---------------------
7.7 Affiliate
Loans and
Guarantees..................................................................26
------------------------------
7.8
Transactions with
Affiliates....................................................................27
----------------------------
7.9 Liens,
Etc......................................................................................27
----------
7.10
Private Placement
Status........................................................................28
------------------------
7.11
Modification of
Documents.......................................................................28
-------------------------
7.12
Leases.
.......................................................................................28
------
8.
DEFAULTS.................................................................................................28
--------
8.1
Payment.........................................................................................28
-------
8.2
Misrepresentation...............................................................................28
-----------------
8.3 Failure to
Perform..............................................................................29
------------------
8.4
Bankruptcy,
etc.................................................................................29
----------------
8.5
Judgment........................................................................................29
--------
8.6
Collateral......................................................................................29
----------
8.7
ERISA...........................................................................................29
-----
8.8
Dissolution or
Death............................................................................29
--------------------
8.9
Cross-Default...................................................................................29
-------------
8.10
Default on Third Party
Debt.....................................................................29
---------------------------
8.11
Insecure........................................................................................30
--------
8.12
Material Adverse
Change.........................................................................30
-----------------------
9.
REMEDIES ON
DEFAULT......................................................................................30
-------------------
9.1 General
Rights..................................................................................30
--------------
9.2 Costs and
Expenses..............................................................................30
------------------
9.3 Course of
Dealings..............................................................................30
------------------
9.4 Equitable
Rights................................................................................30
----------------
10.
EXPENSES.................................................................................................30
--------
10.1
Purchaser
Expenses..............................................................................30
------------------
10.2
Survival........................................................................................31
--------
11.
NOTICES..................................................................................................31
-------
12.
INDEMNIFICATION..........................................................................................32
---------------
12.1
Indemnification for Misrepresentation,
etc......................................................32
------------------------------------------
12.2
Indemnification for Certain Actions of
Purchaser................................................32
------------------------------------------------
13.
MISCELLANEOUS
PROVISIONS.................................................................................33
------------------------
13.1
Entire
Agreement................................................................................33
----------------
13.2
Survival........................................................................................33
--------
13.3
Closing
Costs...................................................................................33
-------------
13.4
Costs of Collection;
Enforcement................................................................33
--------------------------------
13.5
Payments,
Generally.............................................................................33
-------------------
13.6
Severability....................................................................................34
------------
13.7
Amendments,
etc.................................................................................34
---------------
13.8 No
Waiver.......................................................................................34
---------
13.9
Headings........................................................................................34
--------
13.10 New Jersey
Law...................................................................................34
--------------
13.11
Consent to
Jurisdiction.........................................................................34
-----------------------
13.12
Counterparts.....................................................................................35
------------
13.13 Successors
and
Assigns...........................................................................35
----------------------
13.14
Waiver of Jury
Trial............................................................................35
--------------------
13.15
Remedies
Cumulative.............................................................................35
-------------------
13.16 Further
Assurances...............................................................................36
------------------
13.17 Late
Charges....................................................................................36
------------
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<PAGE>
PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT is made this 19th day of December, 2003 by
and
among GCS INVESTMENTS, L.L.C., a New Jersey
limited liability company
("Purchaser") having an address at c/o Carl
Schaedel & Co., 11 Patton Drive,
West Caldwell, New Jersey 07006 and
VERIDIUM CORPORATION (formerly known as KBF
Pollution Management Inc.), a Delaware
corporation ("Veridium"); VERIDIUM
ENVIRONMENTAL CORPORATION, a Delaware
corporation ("VEC"), AMERICAN METAL
RECOVERY CORP., a Nevada corporation
("AMRC"), NEW WORLD RECYCLING, INC., a
Nevada corporation ("NWRC"), JONES
ENVIRONMENTAL SERVICES (NORTHEAST) INC., a
Massachusetts corporation ("Jones"),
ENVIROSAFE CORPORATION, a Massachusetts
corporation ("Envirosafe"), and METAL
RECOVERY TRANSPORTATION CORP., a New
Jersey corporation ("MRT"), all having an
address at One Jasper Street,
Paterson, New Jersey 07522 (collectively,
the "Borrowers" and individually a
"Borrower").
W I T N E S S E T H:
In consideration of the mutual covenants and agreements set
forth
herein and for other good and valuable
consideration, the receipt and
sufficiency of which are hereby
acknowledged, the parties hereto, intending to
be legally bound hereby, do hereby agree as
follows:
1. CERTAIN DEFINITIONS.
1.1 Definitions. The following terms shall have the
respective
meanings set forth below:
-----------
"Affiliate" , when used with respect to any Person, means (i) if
such
Person is a corporation, any officer or
director thereof and Person (other than
the Purchaser) which is, directly or
indirectly, the beneficial owner (by itself
or as part of any group) of more than five
percent of any class of any equity
security (within the meaning of the
Securities Exchange Act) thereof, and , if
such beneficial owner is a partnership, any
partner thereof, or if such
beneficial owner is a limited liability
company, any member or manager thereof,
or if such beneficial owner is a
corporation, any Person controlling, controlled
by or under common control with such
beneficial owner, or any officer or
director of such beneficial owner or of
such corporation occupying any such
control relationship; (ii) if such Person
is a partnership, any partner thereof;
(iii) if such Person is a limited liability
company, any member or manager
thereof, and (iv) if any other Person
(other than Purchaser) which, directly or
indirectly, controls or is controlled by or
is under common control with such
Person. For purposes of this definition,
"control" (including the correlative
terms "controlling", "controlled by" and
"under common control with"), with
respect to any Person, shall mean
possession, directly or indirectly, of the
power to direct or cause the direction of
the management and policies of such
Person, whether through the ownership of
voting securities or by contract or
otherwise.
"Agreement" means this Purchase Agreement, as amended,
supplemented, or
modified from time to time.
"Business Day" means any day other than a Saturday, Sunday, or
other
day on which commercial banks in New Jersey
are authorized or required to close
under the laws of the State of New
Jersey.
"Business Plan" means the business plan given by the Borrowers to
the
Purchaser.
"Capitalized Lease" means any lease to which a Borrower is a party
as
lessee, or by which it is bound, under
which it leases any property (real,
personal or mixed) from any lessor and
which is required to be capitalized in
accordance with GAAP consistently
applied.
"Closing" shall mean the closing of the transactions contemplated
by
this Agreement.
"Closing Date" shall mean the date of Closing, which is the date of
the
execution of this Agreement.
"Code" means the Internal Revenue Code of 1986, as amended from
time to
time, and the regulations thereunder and
published interpretations thereof.
"Collateral" means all property which is subject to the Lien
granted by
the Security Agreement.
"Commission" means the Securities and Exchange Commission and any
other
similar or successor agency of the federal
government administering the
Securities Act or the Securities Exchange
Act.
"Common Stock" means that class of stock or other equivalent
evidences
of ownership of any Borrower, the holders
of which are entitled to vote
generally to elect the Board of Directors
of a Borrower.
"Contract" means any written or oral contract, agreement, order
or
commitment of any nature whatsoever,
including without limitation any sales
order, purchase order, lease, sublease,
license agreement, sublicense agreement,
loan agreement, security agreement,
guarantee, management contract, employment
agreement, consulting agreement,
partnership agreement, buy-sell agreement,
option, warrant, subscription, call or
put.
"Current Assets" shall be determined in accordance with GAAP,
excluding, however, prepaid Current Assets. "Current Liabilities"
shall
be determined in accordance with GAAP, and shall include, as of
the
date of
determination thereof: (i) all Indebtedness
payable on demand or maturing within
one year after such date without any option
on the part of the obligor to extend
or renew beyond such year; (ii) final
maturities, installments and prepayments
of Indebtedness required to be made within
one year after such date; (iii) the
unpaid principal balance of notes due
within one year after such date; and (iv)
all other items (including taxes accrued as
estimated and reserves for deferred
income taxes) which, in accordance with
GAAP, would be included on a balance
sheet as current liabilities.
"EBITDA" means earnings before interest, taxes, depreciation
and
amortization.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as
amended from time to time, and the
regulations and published interpretations
thereof.
"Event of Default" means any of the events specified in Article
8,
provided that any requirement for the
giving of notice, the lapse of time, the
expiration of any grace period, or any
other condition, has been satisfied.
"GAAP" shall have the meaning set forth in Section 1.2 hereof
"Governmental Authority" means any sovereign state, nation, or
government, any state or other political
subdivision thereof, and any authority
exercising executive, legislative,
judicial, regulatory, or administrative
functions of or pertaining to
government.
"Guaranty" means (i) any guaranty or endorsement of the payment
or
performance of, or any contingent
obligation in respect or, any Indebtedness or
other obligation of any other Person, (ii)
any other arrangement whereby credit
is extended to one obligor on the basis of
any promise or undertaking of another
Person (a) to pay the Indebtedness of such
obligor, (b) to purchase an
obligation owed by such obligor, (c) to
purchase or lease assets under the
circumstances that would enable such
obligor to discharge one or more of its
obligations or (d) to maintain the capital,
working capital, solvency or general
financial condition of such obligor, in
each case whether or not such
arrangement is disclosed in the balance
sheet of such other Person or is
referred to in a footnote thereof and (iii)
any liability as a general partner
of a partnership in respect of Indebtedness
or other obligations of such
partnership; provided, however, that the
term "Guaranty" shall not include (1)
endorsements for collection or deposit in
the ordinary course of business or (2)
obligations of a Borrower which would
constitute Guaranties solely by virtue of
the continuing liability of a Person which
has sold assets subject to
liabilities for the liabilities which were
assumed by the Person acquiring the
assets, unless such liability is required
to be carried on the consolidated
balance sheet of the Borrowers. The amount
of any Guaranty and the amount of
Indebtedness resulting from such Guaranty
shall be the greater of (i) the amount
which would have to be carried on the
balance sheet of the guarantor in respect
of such Guaranty or (ii) the amount which
would have to be carried on the
balance sheet of such Person whose
obligations were guaranteed, in respect of
such obligations.
"Indebtedness" of any Person means and includes, without
duplication,
as of any date as of which the amount
thereof is to be determined, (i) all
obligations of such Person to repay money
borrowed (including, without
limitation, all notes payable and drafts
accepted representing extensions of
credit, all obligations under letters of
credit, all obligations evidenced by
bonds, debentures, notes or other similar
instruments, all interest swap or
similar obligations and all obligations
upon which interest charges are
customarily paid), (ii) all capitalized
leases in respect of which such Person
is liable as less or as the guarantor of
the lessee, (iii) all monetary
obligations which are secured by any Lien
existing on property owned by such
Person whether or not the obligations
secured thereby have been incurred or
assumed by such Person, (iv) all
conditional sales contracts and similar title
retention debt instruments under which such
Person is obligated to make
payments, (v) all Guaranties by such Person
and (vii) all contractual
obligations (whether absolute or
contingent) of such Person to repurchase goods
sold or distributed, and the value of such
repurchase obligations at any time
shall be the maximum amount which would be
payable if all then outstanding
potential repurchase obligations became
due. "Indebtedness" shall not include,
however (1) Indebtedness or any Borrower to
any other Borrower, (2) any unfunded
obligations in any employee pension benefit
plan (as defined in ERISA) of any
Borrower and (3) any trade debt incurred in
the ordinary course of business.
"Intangible" means any name, corporate name, partnership name,
fictitious name, trademark, trademark
application, trade name, brand name,
slogan, trade secret, know-how, patent,
patent application, copyright, copyright
application, design, formula, invention,
blueprint, product right, software
right, license, franchise, authorization,
or any other intangible property of
any nature whatsoever.
"Judgment" means any order, writ, injunction, fine, citation,
award,
decree, or any other judgment of any nature
whatsoever of any foreign, federal,
state or local court, any governmental,
administrative or regulatory authority,
or any arbitration tribunal.
"Lien" means any mortgage, deed of trust, pledge, security
interest,
hypothecation, assignment, deposit
arrangement, judgment, encumbrance, lien
(statutory or other), or preference,
priority, or other security agreement or
preferential arrangement, charge, or
encumbrance of any kind or nature
whatsoever (including, without limitation,
any conditional sale or other title
retention agreement, any financing lease
having substantially the same economic
effect as any of the foregoing, any
assignment or other conveyance of any right
to receive income and any assignment of
receivables with recourse against the
assignor), any filing of any financing
statement as debtor under the Uniform
Commercial Code or similar statute and any
agreement to give or make any of the
foregoing.
"Liabilities" shall mean liabilities as defined under GAAP.
"Material Adverse Effect" shall have the meaning ascribed to such
term
in Section 4.1.1 hereof.
"Multiemployer Plan" means a Plan
described in Section 4001(a)(3) of ERISA.
"Note" shall mean the Convertible
Secured Demand Promissory Note issued by the
Borrowers to the Purchaser in the original
principal amount of $1,500,000.
"Obligation" means any debt, liability or obligation of any
nature
whatsoever, whether secured, unsecured,
recourse, nonrecourse, liquidated,
unliquidated, accrued, absolute, fixed,
contingent, ascertained, unascertained,
known, unknown or otherwise, including
without limitation liabilities and
obligations under executory Contracts.
"PBGC" means the Pension Benefit Guaranty Corporation or any
entity
succeeding to any or all of its functions
under ERISA.
"Permitted Liens" means (i) Liens for taxes not yet due or Liens
for
taxes being contested in good faith and by
appropriate proceedings, for which
adequate reserves have been established,
and provided that any proceedings
commenced for enforcement of such Liens
have been suspended, (ii) Liens in
respect of property of a Borrower imposed
by law (such as carriers',
warehousemen's, landlord's and mechanics'
liens), which were incurred in the
ordinary course of business and, in each
case, were not incurred in connection
with the borrowing of money, and (x) which
do not in the aggregate materially
detract from the value of such property or
assets or materially impair the use
thereof in the operation of the business of
the Borrowers and (y) which either
relate to sums not yet delinquent or are
being contested in good faith by
appropriate proceedings, which proceedings
have the effect of preventing the
forfeiture or sale of the property or
assets subject to such Lien, provided that
adequate reserves have been established for
any such Liens being contested,
(iii) pledges or deposits (other than any
Lien imposed by ERISA) in the ordinary
course of business in connection with
worker's compensation, unemployment
insurance and other social security
legislation, (iv) easements, rights-of-way
and minor defects or irregularities in
title not interfering in any material
respect with the ordinary conduct of the
business of the Borrowers and (v) Liens
securing the performance of bids, tenders,
leases, contracts, statutory
obligations, surety, customs and appeal
bonds and other obligations of like
nature, incurred as an incident to and in
the ordinary course of business and
not to secure the repayment of borrowed
money.
"Person" or "Persons" means an individual, partnership,
corporation,
limited liability company, firm,
association, business trust, joint stock
company, trust, unincorporated
organization, joint venture, government,
governmental body, agency, authority,
political subdivision, or other entity of
whatever nature.
"Plan" means any pension plan which is covered by Title IV of ERISA
and
in respect of which a Borrower is an
"employer" as defined in Section 3(5) of
ERISA.
"Potential Default" means any condition or event which, if it
continues
uncured will, with the lapse of time or the
giving of notice or both, constitute
an Event of Default.
"Prime Rate" shall have the meaning ascribed to such term in the
Note.
"Proceeding" means any demand, claim, suit, action, litigation,
investigation, arbitration, administrative
hearing, or any other proceeding of
any nature whatsoever.
"Prohibited
Transaction" means any
transaction set forth
in Section
406 of ERISA or Section 4975 of
the Code.
"Reportable Event" means any of the events set forth in Section
4043 of
ERISA.
"Registration Rights Agreement" shall have the meaning ascribed to
such
term in Section 2.5 of this Agreement.
"Restricted Payment" means (i) every dividend or other
distribution
paid, made or declared by a Borrower on or
in respect of any class of its
capital stock, (ii) every payment to or on
behalf of any Affiliate of a Borrower
(other than another Borrower) on account of
or with respect to any lease
arrangements and (iii) every payment by or
on behalf of any Borrower (whether as
repayment or prepayment of principal or as
interest or otherwise) on or with
respect to (A) any obligation to repay
money borrowed owing to any Affiliate of
a Borrower (other than another Borrower) or
to any other holder of shares of the
capital stock of a Borrower (other than
another Borrower), (B) any management,
consulting or similar arrangement between a
Borrower and any Affiliate (other
than another Borrower) (other than
employment agreements) or (C) any obligation
to any Person, of any Affiliate of a
Borrower (other than another Borrower),
which obligation is assumed or guaranteed
by a Borrower; provided, however, (a)
that the restrictions of the foregoing
clause (i) shall not apply to any
dividend, distribution or other payment on
or in respect of capital stock of
Veridium to the extent payable in shares of
the capital stock of Veridium, (b)
that none of the foregoing clauses shall
apply to any payments from a Subsidiary
to a Borrower (including without
limitations dividends or other distributions),
(c) that none of the foregoing clauses
shall apply to any purchases by a
Borrower from a wholly-owned Subsidiary of
additional capital stock of such
Subsidiary and (d) that none of the
foregoing clauses shall apply to any
payments, distributions or other transfers
or actions on or with respect to the
Note or Securities or involving the holders
of the Note or Securities under this
Agreement.
"Rule 144" means (i) Rule 144 under the Securities Act as such Rule
is
in effect from time to time, (ii) Rule 144A
under the Securities act as such
Rule may be adopted by the Commission and
as in effect from time to time and
(iii) any successor rule, regulation or
law, as in effect from time to time.
"Schaedel Existing Indebtedness" shall mean (i) the sum of Five
Hundred
Thousand ($500,000.00) Dollars, evidenced
by and subject to the terms and
conditions described in a certain Secured
Promissory Note issued by Veridium's
predecessor, KBF Pollution Management Inc.
("KBF") to GCS Investments, a sole
proprietorship, dated July 18, 2003, (ii)
the sum of Two Hundred Thousand
($200,000.00) Dollars, evidenced by and
subject to the terms and conditions
described in a certain Investment and
Security Agreement between KBF (and its
subsidiary, AMR, Inc) and Gary Schaedel
dated February 9, 1999, (iii) the sum of
One Hundred Thousand ($100,000.00) Dollars,
evidenced by and subject to the
terms and conditions described in a certain
Investment and Security Agreement,
between KBF (and its subsidiary, New World
Recycling, Inc. - formerly AMR, Inc.)
and Gary Schaedel dated June 24, 2002; and
(iv) the sum of Two Hundred Fifty
Thousand ($250,000.00) Dollars, evidenced
by and subject to the terms and
conditions described in that certain letter
agreement dated November 26, 2002
between KBF and Gary Schaedel and the
convertible debentures to be issued
pursuant thereto; all plus accrued interest
thereon.
"Securities" means the Warrants and Note issued or issuable to
the
Purchaser pursuant to this Agreement and
Common Stock issued or issuable upon
the exercise or conversion of Warrants or
Note issued pursuant to this
Agreement.
"Securities Act" means the Securities Act of 1933, as amended and
the
rules and regulations thereunder.
"Securities Exchange Act" means the Securities Exchange Act of
1934, as
amended, and the rules and regulations
thereunder.
"Security Agreement" shall mean the security agreement executed by
the
Borrowers which secures the obligations
under the Note.
"Subsidiary" means any corporation, limited liability company,
association or other entity of which more
than 50% of the total voting power of
shares of stock or other equity interests
entitled (without regard to the
occurrence of any contingency) to vote in
the election of directors, managers or
trustees thereof is, at the time as of
which any determination is being made,
owned or controlled, directly or
indirectly, by a Borrower or one or more of its
Subsidiaries, or both.
"Tangible Net Worth" shall mean the sum of capital surplus,
earned
surplus and capital stock, or partnership
or limited liability company
interests, as the case may be, minus
deferred charges, intangibles and treasury
stock (if applicable), all as determined in
accordance with GAAP.
"Transaction Documents" means this Agreement, the Note, the
Security
Agreement, UCC-1 Financing Statements,
Warrants and all other documents executed
by Borrower and/or Guarantor in connection
with the making of this Loan.
"Warrants" means the currently issued and to be issued
Nonqualified
Option to Purchase Common Stock of Veridium
as described in Section 2.4 hereof.
1.2 Special Definitions. For all purposes
of this Agreement and the Note, except
as otherwise expressly provided or unless
the context otherwise requires:
(i) the words "herein", "hereof" and "hereunder" and other words
of
similar import refer to this Agreement (or
if used therein, the Note) as a whole
and not to any particular section or other
subdivision.
(ii) all accounting terms not otherwise defined herein have the
meanings ascribed to such terms in
accordance with generally accepted accounting
principles consistently applied ("GAAP")
(except as otherwise provided herein);
(iii) all computations provided for herein, if any, shall be made
in
accordance with GAAP (except as otherwise
expressly provided herein);
(iv) all uses of the masculine, feminine or neuter gender shall
also be
deemed to include any other gender, and
singular shall also be plural, as
appropriate, and the term "including" shall
mean "including but not limited to";
(v) all references herein to actions by a Borrower such as
"create,"
"sell," "transfer," "dispose of," etc.
means such action whether voluntary or
involuntary, by operation of law or
otherwise; and
(vi) the exhibits to this Agreement shall be deemed a part of
this
Agreement and any exhibit to the Note shall
be deemed a part of such Note, as
the case may be.
C:\DOCUME~1\MCARROLL\LOCALS~1\TEMP\purchase
agmt final.doc
December 19, 2003
1
2. SALE AND PURCHASE OF NOTE AND
WARRANTS.
2.1 Sale of Note. The Borrowers jointly and
severally agree to sell to the
Purchaser, and, subject to the terms and
conditions of this Agreement and in
reliance upon the representations and
warranties of the Borrowers contained
herein or made pursuant hereto, the
Purchaser agrees to purchase from the
Borrowers at the Closing, the Note. The
purchase price to be paid to the
Borrowers by the Purchaser for the Note is
100% of the principal amount of the
Note.
2.2
Terms of Note.
-------------
2.2.1. Principal Amount. The principal
amount of the Note is One Million Five
Hundred Thousand ($1,500,000) Dollars.
2.2.2. Interest. The Note shall bear
interest at the rate of ten (10%) percent
per annum on the unpaid principal balance,
payable on the first day of each and
every month for the first twelve (12)
months of the Note, and thereafter, shall
bear interest on the unpaid principal
balance at the rate equal to the greater
of (x) ten (10%) percent per annum or (y)
the floating rate per annum equal to
the Prime Rate plus six (6) percentage
points, payable on the first day of each
and every month until the principal has
been paid in full.
2.2.3. Term of Note. THE NOTE SHALL BE
REPAID BY BORROWERS UPON DEMAND BY
PURCHASER. Prior to making such demand, the
Note shall be repaid as provided
elsewhere in this Agreement or the Note.
Unless the Purchaser shall have
demanded payment of the Note prior thereto,
which it shall have the absolute
right to do, the Note shall in all events
be due and payable one (1) year from
the Closing Date unless the Purchaser
shall, in its sole discretion, not require
payment on said date.
2.2.4. Limitation on Interest Payments. Any
provision of this Agreement or any
other document, instrument or certificate
executed and delivered in connection
herewith, including all amendments,
modification and supplements of or to all
such documents, instruments and
certificates, to the contrary notwithstanding,
it is not intended to charge interest at a
rate in excess of the maximum
interest rate permitted to be charged to
the Borrowers under applicable law.
Borrowers shall not be required to make
interests payments to the extent that
the receipt thereof by Purchaser would not
be permissible under any applicable
statute, rule or regulation limiting rates
of interest which may be charged or
collected by an Purchaser; provided,
however, that any interest payment not
required to be made by Borrowers pursuant
to the foregoing limitations shall be
made by Borrowers to Purchaser on the
earliest date or dates on which the
receipt thereof would be permissible under
such statutes, rules or regulations;
and provided, further, that no interest
shall accrue or be charged on the amount
of any interest payment deferred pursuant
to this provision.
2.2.5. Right of Prepayment. Borrowers shall
have the right to prepay the Note in
whole or in part any time without penalty.
Prepayments shall be applied first to
interest due and any sums then remaining
shall be applied to principal.
2.2.6. Mandatory Prepayment. In the event
that Borrowers close the anticipated
financing with the Laurus Fund, the
Borrowers shall be required to prepay Seven
Hundred Fifty Thousand ($750,000) Dollars
of the principal of the Note from the
proceeds of such loan. Borrowers agree to
use their best efforts to facilitate a
closing with Lazarus Fund and Purchaser to
cooperate with Borrowers with respect
to same.
2.2.7. Best Efforts Obligation. The
Borrowers shall use their best efforts to
secure the investment of a suitable
investor or institution with the purpose of
prepaying at least $250,000 of the
principal of the Note within ninety (90) days
of the Closing Date.
2.2.8. Method of Payment. The Borrowers
shall make each payment under the Note
on the date when due in lawful money of the
United States at the place
designated by the Purchaser.
2.2.9. Default Interest. If the Note shall
not be paid in full on the date on
which shall payment shall be demanded by
the Purchaser, interest on the Note
shall be increased to the Default Rate of
eighteen (18%) percent per annum from
the date upon which the Note first became
due and payable. 2.2.10. Late Charges.
In the event that any payment, including
without limitation, interest and/or
principal, required to be made by Borrowers
under this Agreement or the Note
shall not be received on the due date
thereof, the Purchaser may charge, and if
so charged, the Borrowers shall pay a late
charge equal to five cents ($.05) for
each dollar ($1.00) of delinquent payment,
for the purpose of defraying the
expense incident to the handling of such
delinquent payment.
2.2.11. Security for Note. The Note shall
be secured by the Collateral.
2.2.12. Conversion. The Note shall be
convertible in whole or in part to Common
Stock of Veridium at price per share equal
to the average closing price of such
Common Stock for the ten (10) day period
prior to the date of the exercise of
conversion.
2.3 Use of Proceeds. The proceeds of the sale of the
Note shall be applied by
the Borrowers as follows:
$600,000.00 to pay down the amount
outstanding to Prestige Capital Corporation.
$900,000.00 for working capital,
including paying all expenses incurred
in connection with the
Closing.
2.4 Warrants.
2.4.1. Current Warrants. As additional
consideration to the Purchaser for
purchasing the Note, the Purchaser shall be
issued at the Closing, ten-year
Warrants to purchase Five Hundred Thousand
(500,000) shares of Veridium's Common
Stock at $0.40 per share.
2.4.2. Additional Warrants. On the first
anniversary of the Closing Date and on
each anniversary thereafter during the time
that any portion of the Note shall
be outstanding, the Purchaser shall be
issued ten-year Warrants in a form and
tenor similar to the Warrant issued at the
closing for an additional Two Hundred
Fifty Thousand (250,000) shares of Common
Stock of Veridium at an exercise price
equal to the then current market price of
Veridium Common Stock for the ten (10)
day period prior to the date of the
issuance of the Warrant.
2.4.3. Put Right. Purchaser shall have the
right, at any time and from time to
time, during the term of the Warrants, to
require Veridium to repurchase such
amounts of Warrants as the Purchaser shall
require for an amount equal to the
excess of the closing price of the common
stock on Veridium on the date of such
request over the exercise price of such
Warrants of $0.50 per share, such
purchase price to be paid within fifteen
(15) days after the date of such
exercise.
2.4.4. Anti-dilution. The Warrants shall
provide for protection against dilution
in the event that the capital stock of
Veridium is increased at any time other
than by the issuance of shares of stock to
effectuate a merger or consolidation.
Upon the issuance of any additional shares
of Common Stock of Veridium to which
the anti-dilution provisions shall apply,
Borrowers shall cause to be issued to
Purchaser such number of additional
Warrants so that the total number of
Warrants held by the Purchaser shall at all
times (prior to exercise) represent
the same percentage of outstanding shares
of Common Stock of Veridium as the
Warrants issued on the date hereof
represent of the Common Stock of Veridium
outstanding on the date hereof and the
exercise price of the Warrants shall be
adjusted appropriately.
2.5 Registration Rights. The Purchaser
shall be granted piggyback registration
rights for all shares of Common Stock
converted or Warrants exercised or
expected to be converted or exercised at
the time of such registration, and
demand registration rights pursuant to the
terms of a Registration Rights
Agreement (the "Registration Rights
Agreement"), to be executed and delivered at
Closing.
3.
CLOSING
3.1 Time of Closing. Subject to the terms
and conditions hereof, the Closing
will take place at the offices of counsel
to the Purchaser contemporaneously
with the execution of this Agreement.
3.2 Co-Investment. At or prior to the
Closing, the following shall occur,
evidenced by documentation acceptable to
the Purchaser in all respects:
3.2.1. The management of the Borrowers
shall invest an additional sum of Two
Hundred Fifty Thousand ($250,000) Dollars,
which funds shall be utilized to pay
down the balance due by Veridium to its
factor, Prestige Capital Corporation,
and/or for general working capital
purposes.
3.2.2. Kevin Kreisler, Lawrence Kreisler
and Jim Green shall have waived and
converted their outstanding officer loans
into equity.
3.3 Debt Conversion. At or prior to
Closing, Veridium has secured suitable
commitments, in form acceptable to the
Purchaser in all respects, for the
conversion of the following liabilities
into equity instruments or subordinate
convertible debentures (subordinated in all
respects to the Note and the
obligations of the Borrowers under this
Agreement):
3.3.1. Kevin Kreisler and Lawrence Kreisler, in the aggregate amount of
$1,115,000;
3.3.2. Jim Green, in the approximate amount
of $500,000;
3.3.3. R.M. Jones & Co., Inc. in the
approximate amount of $2.0 million; and
3.3.4. New World Recycling Investors in the
approximate amount of $1.0 million.
3.4 Schaedel Existing Indebtedness. The
Schaedel Existing Indebtedness shall be
recast and all documents with respect
thereto executed and delivered by the
parties thereto.
3.5 Deliveries by the Borrowers. Subject to
the terms and conditions hereof, the
Borrowers are delivering to the Purchaser
at the Closing:
3.5.1. The Note
3.5.2. Security Agreement
3.5.3. The Warrant for 500,000 shares of
Common Stock
3.5.4. Registration Rights Agreement
3.5.5. Intercreditor and Subordination
Agreement with Robert Jones & Co., Inc.
3.5.6. Intercreditor Agreement with
Prestige Capital.
3.5.7. Collateral Assignment of a $ 3
million life insurance policy on the life
of Kevin Kreisler.
3.5.8. Opinion of counsel to the Borrowers
in form acceptable to the Purchaser.
3.5.9. Uniform Commercial Code Financing
Statements (UCC-1) for filing in all
appropriate filing offices.
3.5.10. Landlord Lien Waivers and
Collateral Assignment of Lease with respect to
the property leased by the Borrowers in
Paterson, New Jersey and Farmington,
Connecticut.
3.5.11. Collateral Assignment of Licenses
and Permits.
3.5.12. Estoppel letters from all existing
secured creditors.
3.5.13. List of outstanding environmental
issues relating to the Borrowers and
their assets.
3.5.14. Such good standing certificates,
judgment, tax, lien and other search
reports as may be required by
Purchaser.
3.5.15. Insurance policies on the
Collateral naming the Purchaser as an
additional insured. 3.5.16. Evidence
satisfactory to Purchaser of the power and
authority, and due authorization, of each
person or entity executing this
Agreement and each of the other Loan
Documents on behalf of the Borrowers,
including appropriate certified resolutions
of the Borrowers and incumbency
certificate.
3.5.17. Such other certificates,
instruments and documents as Purchaser may
request.
4. REPRESENTATIONS AND WARRANTIES OF
BORROWERS.
To induce the Purchaser to purchase the Note, the Borrowers,
jointly
and severally, represent and warrant to the
Purchaser, all of which
representations and warranties shall be
deemed to be continuing representations
and warranties so long as the Note shall
remain outstanding, that:
4.1
Corporate Existence, Power and Authority.
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4.1.1. Veridium and VEC are each a
corporation d
