EXHIBIT 11
INCOME PARTICIPATION CERTIFICATE
PURCHASE AGREEMENT
This Income Participation Certificate Purchase Agreement dated as of
June 1, 1997 ("Agreement"), is made by The Kafus Capital Corporation ("Kafus")
in favor of Enron Capital & Trade Resources Corp. ("Lender").
INTRODUCTION
This Agreement is made by Kafus in connection with the Subordinated Loan
Agreement dated as of June 1, 1997 (as modified from time to time, the
"Subordinated Loan Agreement"), between CanFibre of Riverside, Inc.
("Borrower"), and the Lender, and the related Income Participation Certificate
dated as of June 1, 1997 (as modified from time to time, the "Income
Participation Certificate"), made by the Borrower in favor of the Lender. The
effectiveness of this Agreement is a condition precedent to the effectiveness of
the Subordinated Loan Agreement and the extension of credit to the Borrower
provided thereunder. As the Borrower is a subsidiary of Kafus, Kafus believes
that it will receive substantial benefit from such credit extended to the
Borrower by the Lender. Therefore, to induce the Lender to enter into the
Subordinated Loan Agreement, and for other good and valuable consideration,
Kafus and the Lender hereby agree as follows:
Section 1. Definitions. Capitalized terms used herein but not defined herein
shall have the meanings set forth in Appendix A to the Trust Indenture dated as
of June 1, 1997 (as modified from time to time, the "Indenture") made by the
California Pollution Control Finance Authority in favor of BNY Western Trust
Company under which certain bonds are being issued for the benefit of the
Borrower (but without amendment thereto after the date of this Agreement unless
approved by the Lender in writing). As used herein, the following terms shall
have the following meanings:
"Purchase Activation Date" means the earlier of the date one calendar year
after the Completion Date or the date of the occurrence of any Event of Default
under and as defined in the Subordinated Loan Agreement.
"Received Income Discount" means, as of any date of determination, an
amount equal to the net present value as of the date of this Agreement of any
cash payments received by the Lender under the Income Participation Certificate
as of the date of determination discounted back to the date of this Agreement
using standard financial techniques selected by the Lender and a discount rate
of 12.00% per annum (but when applied as of the date of determination, such
amount shall not be adjusted to bring such net present value as of the date of
this Agreement forward to the date of determination).
Section 2. Purchase Agreement; Guaranty.
2.1 Upon demand by the Lender at any time after the Purchase Activation
Date, Kafus shall purchase the Income Participation Certificate from the Lender
at a price equal to U.S. $12,500,000 less the Received Income Discount. Any
written certificate provided by the Lender to Kafus showing the calculation of
the purchase price shall be conclusive and binding for all purposes, absent
manifest error. Kafus shall make payment to the Lender within five business
days after presentation to Kafus of the Income Participation Certificate
accompanied with such transfer endorsements or instruments as are necessary to
transfer the same to Kafus.
2.2 Kafus irrevocably guarantees to the Lender that the Lender shall have
received from the Borrower under the Income Participation Certificate at any
date after the Purchase Activation Date an amount equal to the sum of the
purchase price that would be owed under Section 2.1 at such time plus any
amounts actually received by the Lender under the Income Participation
Certificate (the"Guaranteed Amount"), and shall pay to the Lender upon demand
the difference between the amounts actually received by the Lender under the
Income Participation Certificate and the Guaranteed Amount. Any written
certificate provided by the Lender to Kafus showing the calculation of the
amount due under this guaranty shall be conclusive and binding for all purposes,
absent manifest error. This is a guaranty of payment and not merely a guaranty
of collection, and Kafus is liable as a primary obligor. Prior to making any
claim under the guaranty provided in this Section 2.2, Kafus must have failed to
purchase upon demand under Section 2.1.
Section 3. Purchase Option in Favor of Kafus. The Lender hereby grants Kafus
with the right to purchase the Income Participation Certificate from the Lender
at any time after the Purchase Activation Date at a price equal to U.S.
$15,000,000 less the Received Income Discount. Any written certificate provided
by the Lender to Kafus showing the calculation of the purchase price shall be
conclusive and binding for all purposes, absent manifest error. If Kafus elects
to purchase the Income Participation Certificate at such price, Kafus shall make
payment to the Lender upon presentation to Kafus of the Income Participation
Certificate accompanied with such transfer endorsements or instruments as are
necessary to transfer the same to Kafus.
Section 4. Method of Payment. Kafus shall make each payment to the Lender at
the option of the Lender (a) in wire transfer of U.S. Dollars in immediately
available funds to the Lender at such payment location as directed by the
Lender, (b) in shares of the common stock of Kafus issued to the Lender and
applied to the obligations of Kafus hereunder with the value of the shares to be
used in such application determined based upon the Price (as defined below)
applicable at the time of payment, or (c) in any combination of the methods
expressed in clauses (a) and (b) above as determined by the Lender. As used
herein, the "Price" with respect to the common stock of Kafus means, on any day,
(i) the preceding 20-day average of the reported "high" and "low" sales prices
for such shares (w) on the American Stock Exchange or (x) if such shares are not
so listed, then on the largest national securities exchange (based on the
aggregate dollar value of securities listed) on which such shares are listed or
traded or (y) if such shares are not listed on any national securities exchange,
then through the NASDAQ National Market or, (z) if such shares shall not be so
listed, the trade
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weighted average of all transactions in the Common Stock in an over-the-counter
market; or (ii) in the event the common stock of Kafus is not listed or traded
as described in (i) above, then the Price shall be equal to the value of one
share of common stock, as determined in good faith by the disinterested members
of the board of directors of Kafus. In the event Lender elects to receive
shares of common stock of Kafus as described herein, Kafus shall deliver to
Lender certificates representing the number of fully paid and nonassessable
shares of common stock determined in accordance with this Section, and Kafus and
Lender shall concurrently enter into a Registration Rights Agreement with
respect to such shares, which shall be in form and substance satisfactory to
Lender and shall provide Lender with rights and privileges comparable to those
set forth in the Registration Rights Agreement executed as of the date hereof
between Kafus and Lender (and the other Purchasers, as defined therein). The
Lender is hereby authorized at any time following any demand for payment
hereunder to set off and apply any indebtedness owed by the Lender to Kafus
against any and all of the obligations of Kafus under this Agreement. The
Lender agrees to promptly notify Kafus after any such setoff and application,
but the failure to give such notice shall not affect the validity of such setoff
and application.
Section 5. Obligations Absolute.
5.1 Kafus guarantees that amounts due under the Income Participation
Certificate will be paid strictly in accordance with the terms of the Income
Participation Certificate, regardless of any law, regulation, or order now or
hereafter in effect in any jurisdiction affecting any of such terms or the
rights of the Lender with respect thereto. Kafus agrees that Kafus's obligations
under this Agreement shall not be released, diminished, or impaired by, and
waives any rights which Kafus might otherwise have which relate to:
(a) Any lack of validity or enforceability of the Income Participation
Certificate or any other agreement or instrument relating thereto; any increase,
reduction, extension, or rearrangement of amounts due under the Income
Participation Certificate; any amendment, supplement, or other modification of
the Income Participation Certificate; any waiver or consent granted under the
Income Participation Certificate; or any sale, assignment, delegation, or other
transfer of the Income Participation Certificate;
(b) Any grant of any security or support for the amounts due under the
Income Participation Certificate or any impairment of any security or support
for the amounts due under the Income Participation Certificate, including any
full or partial release, exchange, subordination, or waste of any collateral for
the amounts due under the Income Participation Certificate or any full or
partial release of the Borrower or any other Person liable for the payment or
performance of the amounts due under the Income Participation Certificate;
(c) Any change in the organization or structure of the Borrower, Kafus, or
any other Person liable for the payment or performance of the amounts due under
the Income Participation Certificate, or the insolvency, bankruptcy,
liquidation, or dissolution of the Borrower, Kafus, or any other
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Person liable for the payment or performance of the amounts due under the Income
Participation Certificate;
(d) The manner of applying payments on the amounts due under the Income
Participation Certificate or the proceeds of any security or support for the
amounts due under the Income Participation Certificate against the amounts due
under the Income Participation Certificate;
(e) The failure to give notice of the occurrence of any default or event of
default, however denominated, under the Income Participation Certificate, notice
of bringing of action to enforce the payment or performance of the amounts due
under the Income Participation Certificate, notice of any sale or foreclosure of
any collateral for the amounts due under the Income Participation Certificate,
notice of the financial condition of or other circumstances regarding the
Borrower, Kafus, or any other Person liable for the amounts due under the Income
Participation Certificate, or any other notice of any kind relating to the
amounts due under the Income Participation Certificate; or
(f) Any other action taken or omitted which affects the amounts due under
the Income Participation Certificate, whether or not such action or omission
prejudices Kafus or increases the likelihood that Kafus will be required to pay
the amounts due under the Income Participation Certificate pursuant to the terms
hereof--it is the unambiguous and unequivocal intention of Kafus that Kafus
shall be obligated to pay the amounts due under the Income Participation
Certificate in accordance with its terms when due, notwithstanding any
occurrence, circumstance, event, action, or omission whatsoever, whether
contemplated or uncontemplated, and whether or not particularly described
herein.
5.2 This Agreement shall continue to be effective or be reinstated, as the
case may be, if any payment on the amounts due under the Income Participation
Certificate must be refunded for any reason including any bankruptcy proceeding.
In the event that the Lender must refund any payment received against the
amounts due under the Income Participation Certificate, any prior release from
the terms of this Agreement given to Kafus by the Lender shall be without
effect, and this Agreement shall be reinstated in full force and effect. It is
the intention of Kafus that Kafus's obligations hereunder shall not be
discharged except by final payment of the amounts due under the Income
Participation Certificate.
Section 6. Unimpaired Collection.
6.1 There are no conditions precedent to the enforcement of this
Agreement, except as expressly contained herein. It shall not be necessary for
the Lender, in order to enforce payment by Kafus under this Agreement, to show
any proof of the Borrower's default, to exhaust the Lender's remedies against
the Borrower or any other Person liable for the payment or performance of the
amounts due under the Income Participation Certificate, to enforce any security
or support for the payment or performance of the amounts due under the Income
Participation Certificate, or to
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enforce any other means of obtaining payment or performance of the amounts due
under the Income Participation Certificate. The Lender shall not be required to
mitigate damages or take any other action to reduce, collect, or enforce the
amounts due under the Income Participation Certificate.
Section 7. Miscellaneous.
7.1 Kafus shall pay to the Lender on demand all costs and expenses of
the Lender in connection with the preservation or enforcement of the Lender's
rights under this Agreement, whether through negotiations, legal proceedings, or
otherwise, including fees and expenses of counsel for the Lender. The
provisions of this paragraph shall survive any purported termination of this
Agreement that does not expressly reference this paragraph.
7.2 (a) Kafus shall at all times protect and hold the Lender and its
respective shareholders, affiliates, directors, officers, employees, agents, and
servants and the persons under their respective control or supervision
(collectively, the "Indemnified Parties") harmless of, from, and against any and
all claims (whether in tort, contract, or otherwise), demands, damages, losses,
liabilities, costs, or expenses of any kind or nature whatsoever (each referred
to herein as a "Loss") which an Indemnified Party may incur or which may be
claimed against an Indemnified Party by any Person, in each case by reason of,
or arising out of this Agreement and the Income Participation Certificate or any
other document or instrument delivered in connection herewith or therewith or
the enforcement of any of the terms or provisions hereof or thereof or the
transactions contemplated hereby or thereby; provided, however, that the
indemnity set forth in this Section shall not extend to any Loss arising, in
the case of any Indemnified Party, as a result of the gross negligence or
willful misconduct of such Indemnified Party. Kafus further covenants and
agrees, to the extent permitted by law, to pay or to reimburse the Indemnified
Parties for any and all costs, reasonable attorneys' fees, liabilities, or
expenses incurred in connection with investigating, defending against, or
otherwise in connection with any such losses, claims, damages, liabilities,
expenses, or actions, except to the extent that the same arise out of the gross
negligence or willful misconduct of the Indemnified Party claiming such payment
or reimbursement.
(b) An Indemnified Party shall promptly notify Kafus in writing of any
claim or action brought against such Indemnified Party in which indemnity may be
sought against Kafus pursuant to this Section; and such notice shall be given in
sufficient time to allow Kafus to defend such claim or action. However, the
failure to give such notice in sufficient time shall not constitute a defense
hereunder nor in any way impair the obligations of Kafus under this Section, if
(i) the Indemnified Party shall not have had knowledge or notice of such claim
or action, (ii) neither Kafus nor any Affiliate thereof shall have had knowledge
or notice of such claim or action, or (iii) Kafus's ability to defend such claim
or action shall not thereby be materially impaired. In the event, however, that
(i) the Indemnified Party shall not have timely notified Kafus of any such claim
or action, (ii) neither Kafus nor any Affiliate thereof shall have had knowledge
or notice of such claim or action, and (iii) Kafus's ability to defend or
participate in such claim or action is materially impaired by reason of not
having received timely notice thereof from the Indemnified Party, then Kafus's
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obligation to so defend and indemnify shall be qualified to the extent (and only
to the extent) of such material impairment.
(c) The obligations of Kafus under this Section shall survive the
termination of this Agreement and remain in full force and effect, with respect
to each Loss of each Indemnified Party, until the later of (i) the expiration of
the period stated in the applicable statute of limitations during which a claim
or cause of action may be brought, and (ii) payment in full or the satisfaction
of such claim or cause of action and of all expenses and charges incurred by
such Indemnified Party relating to the enforcement of the provisions herein
specified.
7.3 This Agreement shall be governed by the internal laws of the Province
of British Columbia, Canada (without reference to principles of conflicts of
laws). If any provision in this Agreement is held to be unenforceable, such
provision shall be severed and the remaining provisions shall remain in full
force and effect. All representations, warranties, and covenants of Kafus in
this Agreement shall survive the execution of this Agreement and any other
contract or agreement. If a due date for an amount payable is not specified in
this Agreement, the due date shall be the date on which the Lender demands
payment therefor. The Lender's remedies under this Agreement and other
documents and agreements shall be cumulative, and no delay in enforcing this
Agreement shall act as a waiver of the Lender's rights thereunder. The
provisions of this Agreement may be waived or amended only in a writing signed
by the party against whom enforcement is sought. This Agreement shall bind and
inure to the benefit of Kafus and the Lender and their respective successors and
assigns. Kafus may not assign its rights or delegate its duties under this
Agreement. The Lender may assign its rights and delegate its duties under this
Agreement. This Agreement may be executed in multiple counterparts each of
which shall constitute one and the same agreement.
Section 7.4 Notices. Except as otherwise provided herein, any notice,
demand, direction, certificate, request, instrument, or other communication
authorized or required by this Agreement to be given to or filed with the Lender
or Kafus shall be deemed to have been sufficiently given or filed for all
purposes of this Agreement if and when delivered by messenger or by a recognized
courier service or sent by registered or certified mail, return receipt
requested, postage prepaid or sent by confirmed telecopy, as follows:
(a) To the Lender, to:
Enron Capital & Trade Resources Corp.
0000 Xxxxx Xxxxxx
Xxxxxxx, Xxxxx 00000
Attention: Xxxx X. Xxxxxxxxx
Telecopy No.: 000-000-0000
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(b) To Kafus, to:
The Kafus Capital Corporation
000-0000 Xxxxxx Xx.
Xxxxxxxxx, Xxxxxxx Xxxxxxxx
Xxxxxx X0X 0X0
Attention: Xxxxxxx X. Xxxxxxxxx
Telecopy No.: 604-685-2426
with a copy to:
Paul, Hastings, Xxxxxxxx & Xxxxxx LLP
000 Xxxx Xxxxxx, Xxxxxx-Xxxxx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Euclid X. Xxxxxx, Esq.
Telecopy No.: 000-000-0000
The Lender and Kafus may, by like notice, designate any further or
different addresses or telecopy numbers to which subsequent notices, demands,
directions, certificates, requests, instruments, or other communications
hereunder shall be sent. Any notice, demand, direction, certificate, request,
instrument, or other communication hereunder shall, except as may expressly be
provided herein, be deemed to have been delivered or given as of the date it
shall have been delivered by messenger or courier service or sent by confirmed
telecopy or upon receipt if mailed.
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THIS WRITTEN AGREEMENT AND THE INCOME PARTICIPATION CERTIFICATE REPRESENT THE
FINAL AGREEMENT BETWEEN THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF
AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT
ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
EXECUTED as of the date first above written.
THE KAFUS CAPITAL CORPORATION
By: /s/ Xxxxxxx X. Xxxxxxxxx
-------------------------
Name: Xxxxxxx X. Xxxxxxxxx
---------------------
Title: President
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ENRON CAPITAL & TRADE RESOURCES CORP.
By: /s/ J. Xxxxx XxXxxxxxxx
------------------------
Name: J. Xxxxx XxXxxxxxxx
--------------------
Title: Vice President
---------------
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