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EXHIBIT 3
[Execution Version]
SECOND AMENDMENT TO NOTE AGREEMENTS
This Second Amendment to Note Agreements dated as of June 28, 2000
(this "Agreement"), is entered into by Kafus Industries Ltd. f/k/a Kafus
Environmental Industries Ltd., a British Columbia corporation (the "Company"),
Sundance Assets, L.P., a Delaware limited partnership ("Sundance"), ENA CLO I
Holding Company I L.P. ("Holdco"), and ECT Merchant Investments Corp., a
Delaware corporation ("ECTMI;" and together with Sundance and Holdco, the
"Purchasers"). Reference is made to the Amended and Restated Note Agreement
dated as of March 11, 1999, as amended (the "Sundance Note Agreement"), between
the Company and Sundance, and to the Amended and Restated Note Agreement dated
as of March 11, 1999, as amended (the "ECTMI/Holdco Note Agreement;" and
together with the Sundance Note Agreement, the "Note Agreements"), between the
Company and ECTMI, certain rights under which have been assigned to Holdco.
Capitalized terms used herein but not defined herein shall have the meanings
specified by the Note Agreements.
INTRODUCTION
The Company and ECTMI have agreed that the Company shall issue and sell
and ECTMI shall purchase, on the terms and conditions set forth below, the
$685,000 Convertible Promissory Note (Term Loan E) (the "Term Loan E Note") and
the related Warrants for 68,500 shares of common stock of the Company (the "Term
Loan E Warrants").
The Company and the Purchasers have also agreed to amend Section 5.1(e)
of the Note Agreements to decrease the amount of other indebtedness under which
a default will constitute an Event of Default under the Note Agreements.
In consideration of the foregoing, and for other good and valuable
consideration, the Company and the Purchasers hereby agree as follows:
Section 1. Amendments to the Sundance Note Agreement.
1.1 The definition of "Notes" contained in the Sundance Note
Agreement is hereby amended by deleting the first paragraph of such
definition in its entirety and replacing it with the following:
"Notes" means, with respect to the Purchaser (i) the $10,000,000
Convertible Promissory Note (Term Loan A) dated as of December 31,1998
(the "$10,000,000 Term Loan A Note"), made by the Company and payable
to ECT and assigned by ECT to Ponderosa Assets, L.P., an Affiliate of
the Purchaser ("Ponderosa"), pursuant to the Assignment dated as of
March 1, 1999, between ECT as assignor and Ponderosa, as assignee, and
subsequently assigned by Ponderosa to the Purchaser
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pursuant to the Assignment dated as of March 1, 1999, between Ponderosa
as assignor and the Purchaser as assignee, (ii) the $1,000,000
Convertible Promissory Note (Term Loan D) dated as of June 5, 2000 (the
"$1,000,000 Term Loan D Note"), made by the Company and payable to
ECTMI, and, (iii) the $685,000 Convertible Promissory Note (Term Loan
E) dated as of June 28, 2000 (the "$685,000 Term Loan E Note"), made by
the Company and payable to ECTMI, and with respect to the Purchasers,
the foregoing instruments together with:
1.2 Section 2 of the Sundance Note Agreement is hereby amended by
inserting, in appropriate alphabetical order, the following Section
2.7:
2.7 $685,000 Term Loan E Note. Effective on June 28, 2000, the
Company has issued the $685,000 Term Loan E Note to ECTMI, in
exchange for the commitment of ECTMI to make advances
thereunder.
Section 2. Amendments to the ECTMI/Holdco Note Agreement.
2.1 The definition of "Notes" contained in the ECTMI/Holdco Note
Agreement is hereby amended by inserting, in appropriate alphabetical
order, the following paragraph (f):
(f) the $685,000 Convertible Promissory Note (Term Loan E) dated
as of June 28, 2000 (the "$685,000 Term Loan E Note"), made by
the Company and payable to the Purchaser.
2.2 The definition of "Registration Rights Agreement" contained in
the ECTMI/Holdco Note Agreement is hereby amended by deleting such
definition in its entirety and replacing it with the following:
"Registration Rights Agreement" means, individually or collectively (a)
the Registration Rights Agreement dated as of March 11,1999, between
the Company and the Purchaser providing for the registration of the
Common Stock issuable upon conversion of the Notes described therein
and the exercise of the warrants described therein, and (b) the
Registration Rights Agreement dated as of June 5, 2000, as amended by
the Amendment to Registration Rights Agreement dated as of June 28,
2000, between the Company and the Purchaser providing for the
registration of the Common Stock issuable upon conversion of the
$1,000,000 Term Loan D Note, the $685,000 Term Loan E Note, and the
exercise of the warrants described therein.
2.3 Section 2 of the Sundance Note Agreement is hereby amended by
inserting, in appropriate alphabetical order, the following Section
2.7:
2.7 $685,000 Term Loan E Note.
(a) Effective as of June 28, 2000 and in exchange for the
commitment to advance the loan under the $685,000 Term Loan E Note as
provided for herein, the Company will issue and sell to the Purchaser
and, in reliance upon the representations and warranties of the Company
contained herein and in the Warrant
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Agreement, and in the other Loan Documents, Purchaser will purchase
from the Company the $685,000 Term Loan E Note and the Term Loan E
Warrant (as defined in the Warrant Agreement). The allocation of the
purchase price of the $685,000 Term Loan E Note and the Term Loan E
Warrants shall be determined in accordance with Section 2.3 of the
Warrant Agreement.
(b) Subject to the terms and conditions set forth herein, the
Purchaser agrees to advance the face amount of the $685,000 Term Loan E
Note to the Company on the date of the requested advance. The
outstanding principal amount of the $685,000 Term Loan E Note may not
exceed the face amount of the $685,000 Term Loan E Note. The $685,000
Term Loan E Note is not revolving; therefore, amounts advanced
thereunder may not be reborrowed.
(c) The advance of principal under the $685,000 Term Loan E
Note shall be made by the Purchaser to the Company upon submission of a
written borrowing request provided by the Company to the Purchaser by
10:00 a.m., Houston, Texas, time) on the date of the requested advance.
The written borrowing request shall certify the use for the proceeds of
the advance, state that the conditions precedent for such advance under
paragraph (d) below have been satisfied, and be in a form reasonably
satisfactory to the Purchaser.
(d) The Purchaser's obligation to advance principal under the
$685,000 Term Loan E Note is subject to the following conditions
precedent:
(i) The Purchaser shall have received a written
borrowing request from the Company in accordance with paragraph (c)
above; and
(ii) The representations and warranties set forth in
the Loan Documents shall be true and correct as of the date of the advance
except as otherwise disclosed to the Purchasers in writing.
Section 3. Amendment to the Note Agreements. Section 5.1(e) of the Note
Agreements is hereby amended by deleting each reference in such Section
to U.S. $5,000,000 in its entirety and replacing it with a reference to
U.S. $500,000.
Section 4. Representations and Warranties. The Company represents and
warrants to each Purchaser that upon the effectiveness of this
Agreement and the amendment of the Note Agreements as provided for
herein, all representations and warranties set forth in the Loan
Documents shall be true and correct in all material respects except as
otherwise disclosed to the Purchasers in writing.
Section 5. Effect on Loan Documents.
5.1 Except as amended herein, the Note Agreements and the other
Loan Documents remain in full force and effect. The Company further
agrees that nothing herein shall act as a waiver of any of the
Purchasers' rights under the Loan Documents as amended, including
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any waiver of any default or event of default, however denominated. The
Company must continue to comply with the terms of the Loan Documents,
as amended.
5.2 This Agreement is a Loan Document for the purposes of the
provisions of the other Loan Documents. Without limiting the generality
of the foregoing, any breach of representations, warranties, and
covenants under this Agreement shall be a default and event of default
for the purposes of all other Loan Documents.
Section 6. Effectiveness. Upon delivery, or waiver thereof by
the Purchasers, of all items listed on the Closing Documents list dated
of even date herewith, all of which must be in form and substance
satisfactory to the Purchasers, this Agreement shall become effective
and the Note Agreements shall be amended as provided herein effective
as of the date first set forth above when the Company and the
Purchasers shall have duly and validly executed originals of this
Agreement, and the Company shall have delivered the same to ECTMI.
Section 7. Miscellaneous.
7.1 Expenses. The Company shall pay directly or reimburse the
Purchasers for all reasonable expenses of the Purchasers, including
charges and disbursements of legal counsel for the Purchasers, in
connection with the amendment, modification, waiver, or interpretation
of this Agreement and the other Loan Documents, and the preservation or
enforcement of any rights of the Purchasers hereunder or thereunder,
including the expenses of the Purchasers prior to the execution of this
Agreement or the other Loan Documents. The provisions of this paragraph
shall survive any purported termination of this Agreement that does not
expressly reference this paragraph.
7.2 Incorporation of Terms. The miscellaneous provisions
of the Note Agreements apply to this Agreement. This Agreement
shall be governed by, construed, and enforced in accordance
with the laws of British Columbia and the applicable laws of
Canada, without regard to its principles of conflicts of law
which would select another law. This Agreement may be signed
in any number of counterparts, each of which shall be an
original, and may be executed and delivered by telecopier.
7.3 No Further Agreements. THIS WRITTEN AGREEMENT AND THE
LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES
AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.
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EXECUTED as of the date first above written.
KAFUS INDUSTRIES LTD. f/k/a
KAFUS ENVIRONMENTAL INDUSTRIES LTD.
By:
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Name:
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Title:
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SUNDANCE ASSETS, L.P.
By: Ponderosa Assets, L.P., its general partner
By: Enron Ponderosa Management Holdings, Inc.
By:
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Name:
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Title:
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ECT MERCHANT INVESTMENTS CORP.
By:
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Name:
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Title:
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[Second Amendment to Note Agreements]
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ENA CLO I HOLDING COMPANY I L.P.
By: ENA CLO I Holding Company GP L.L.C., its
general partner
By:
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Name:
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Title:
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ENRON NORTH AMERICA CORP., as Servicer on
behalf of ENA CLO I Holding Company I L.P.
By:
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Name:
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Title:
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[Second Amendment to Note Agreements]
