[Execution Version]
Securities Purchase Agreement
August 18, 1998
Kafus Environmental Industries Ltd.
Xxxxx 000, 000 Xxxxxxx Xxxxxx
Xxxxxxxxx, XX Xxxxxx X0X 0X0
Attn: Xx. Xxxxxxx X. XxXxxx
Gentlemen:
Reference is made to the U.S. $12,500,000 Convertible Promissory Note dated as
of August 18, 1998 (as modified from time to time, the "Note"), made by Kafus
Environmental Industries Ltd., a British Columbia corporation (the "Company"),
and payable to the order of Enron Capital & Trade Resources Corp., a Delaware
corporation (the "Purchaser"), and the related Warrants issued in connection
therewith, including (a) the Warrant for 750,000 Shares of Common Stock of the
Company ("Common Stock") dated as of August 18, 1998 made by the Company and
issued to the Purchaser, (b) the Warrant for 250,000 Shares of Common Stock
dated as of August 18, 1998, made by the Company and issued to the Purchaser,
(c) the Warrant for 500,000 Shares of Common Stock dated as of August 18, 1998,
made by the Company and issued to the Purchaser, and (d) the Warrant for 45,000
Shares of Common Stock dated as of August 18, 1998, made by the Company and
issued to the Purchaser (such Warrants in (a) through (d) being the "Warrants").
This Securities Purchase Agreement (this "Agreement") is entered into in
connection with the execution of the Note and the Warrants, and is intended to
supplement the terms of the Note and the Warrants. In consideration of the
credit to be provided to the Company under the Note, the Company and the
Purchaser agree as follows:
Section 1. Definitions.
1.1 Terms defined herein shall have the meanings specified in their
definition, including the following terms which shall have the following
meanings:
"Affiliate" means, as to any Person, any other Person that, directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, such Person or any Subsidiary of such Person. The
term "control" (including the terms "controlled by" or "under common control
with") means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of a Person, whether through
ownership, by contract, or otherwise.
"Assignment Agreement" means the Assignment Agreement dated as of August
18, 1998, made by Samarac in of favor the Purchaser agreeing to assigning to the
Purchaser certain rights of Samarac under CanFibre Group Agreements, subject to
certain conditions as specified therein.
"Business Day" has the meaning specified in Section 7.3(a).
"CanFibre Group" means The CanFibre Group Ltd., an Ontario corporation.
"CanFibre Group Agreements" means the CanFibre Group Management Agreement
and the CanFibre Group Development Payment Agreement.
"CanFibre Group Management Agreement" means the Amended and Restated
Management Agreement dated as of December 1, 1994, between CanFibre Group and
Samarac providing for the payment of 10% of certain amounts to Samarac for
management services (as amended and restated in connection with this Agreement).
"CanFibre Group Development Payment Agreement" means the Amended and
Restated Development Payment Agreement dated as of December 1, 1994, between
CanFibre Group and Samarac providing for the payment of 10% of certain amounts
to Samarac for development services which have been performed (as amended and
restated in connection with this Agreement).
"Consent and Agreement" means the Consent and Agreement dated as of August
18, 1998, made by CanFibre Group in favor of the Purchaser consenting to the
security interests under the Security Agreement and the assignment under the
Assignment Agreement.
"Credit Parties" means the Company, Samarac, and CanFibre Group.
"Default" means (a) an Event of Default or (b) any event or condition which
with notice or lapse of time would, unless cured or waived, become an Event of
Default.
"Event of Default" means the occurrence of any of the events specified in
Section 6.1.
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"Financial Statements" means the March 31, 1998, financial statements of
the Company.
"Guaranty" means the Limited Recourse Guaranty dated as of August 18, 1998,
made by Samarac in favor of the Purchaser guaranteeing the Loan Obligations to
the extent of the collateral under the Security Agreement.
"Loan Documents" means this Agreement, the Note, the Structuring Fee
Agreement, the Pledge Agreement, the Guaranty, the Security Agreement, the
Assignment Agreement, the Consent and Agreement, and each other agreement,
document, or instrument now or hereafter executed which secures, supports, or
otherwise relates to the Note (other than the Warrant Documents).
"Loan Obligations" means any and all amounts now or hereafter owed by the
Company to the Purchaser in connection with the Loan Documents, including
principal, interest, fees, reimbursements, indemnifications, and other amounts,
and any increases, extensions, rearrangements, and other modifications thereof.
"Material Adverse Change" means any material adverse change in the
business, operations, financial condition, or prospects of the Company since the
date of the Financial Statements.
"Material Subsidiary" means CanFibre Group, Kenaf Industries, Ltd., a
Delaware corporation, Kafus Cement Fibre Industries, Inc., a Delaware
corporation, and Camden Agro-Systems Ltd., an Ontario corporation, and any
Subsidiary of the foregoing corporations.
"Maturity Date" has the meaning specified in the Note.
"Person" means an individual, partnership, corporation (including a
business trust), joint stock company, trust, unincorporated association, joint
venture, or other entity, or a government or any political subdivision or agency
thereof, or any trustee, receiver, custodian, or similar official.
"Pledge Agreement" means the Pledge Agreement dated as of August 18, 1998,
made by the Company in favor the Purchaser pledging 100% of the shares in Kafus
Cement Fibre Industries, Inc., a Delaware corporation, to the Purchaser as
collateral for the Loan Obligations.
"Registration Rights Agreement" means the Registration Rights Agreement
dated as of August 18, 1998, between the Company and the Purchaser providing for
the registration of the Common Stock issuable upon conversion of the Note in
accordance with Section 5.1 of the Note or upon exercise of any of the Warrants.
"Samarac" means The Samarac Corporation Ltd., an Ontario corporation.
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"Security Agreement" means the Security Agreement dated as of August 18,
1998, made by Samarac in favor the Purchaser granting the Purchaser a security
interest in the CanFibre Group Agreements to secure the Loan Obligations.
"Structuring Fee Agreement" means the letter agreement dated as of August
18, 1998, made by the Company in favor of ECT Securities Corp. providing for
certain fees payable to ECT Securities Corp. in connection with arranging the
commitment under this Agreement.
"Subsidiary" means, with respect to any Person, any other Person, a
majority of whose outstanding Voting Securities (other than directors'
qualifying shares) shall at any time be owned by such Person or one or more
Subsidiaries of such Person.
"Voting Securities" means (a) with respect to any corporation, any capital
stock of the corporation having general voting power under ordinary
circumstances to elect directors of such corporation, (b) with respect to any
partnership, any partnership interest having general voting power under ordinary
circumstances to elect the general partner or other management of the
partnership, and (c) with respect to any other Person, such ownership interests
in such Person having general voting power under ordinary circumstances to elect
the management of such Person, in each case irrespective of whether at the time
any other class of stock, partnership interests, or other ownership interest
might have special voting power or rights by reason of the happening of any
contingency.
"Warrant Documents" means the Warrants and the Registration Rights
Agreement.
"Transaction Documents" means the Loan Documents and the Warrant Documents.
1.2 All accounting terms not specifically defined in this Agreement shall
be construed in accordance with Canadian generally accepted accounting
principles applied on a consistent basis with those applied in the preparation
of the Financial Statements, and the Company shall not change and shall not
permit any change in the method of accounting employed in the preparation of
those financial statements unless required to conform to such principles or
approved in writing by the Purchaser.
1.3 All references to documents and agreements shall refer to such
documents as amended, supplemented, and otherwise modified from time to time,
unless otherwise specified.
1.4 All references to $ or Dollars shall mean U.S. Dollars unless
otherwise specified.
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Section 2. The Purchase and Sale of Note and Warrants.
2.1 Sale and Purchase. Effective on the date of this Agreement, and for
the commitment to make advances under the 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 other
Transaction Documents, Purchaser will purchase from the Company, the Note and
the Warrants. The combined purchase price of the Note and the Warrants shall be
the amount of advances actually made under the Note, with such purchase price
being allocated for tax purposes only between the Note and the Warrants with the
Note receiving 88% of the purchase price and the Warrants receiving 12% of the
purchase price. For all other purposes, including the determination of the
outstanding principal amount of the Note and the accrual of interest thereon,
all advances of funds by the Purchaser under the Loan Documents shall be treated
as advances of principal under the Note. The sale and purchase shall be
effective upon execution and delivery of this Agreement and the first advance
under the Note. All Warrants shall be earned in full upon such sale and
purchase.
2.2 Commitment under Note. Subject to the terms and conditions set forth
herein, the Purchaser agrees to advance principal to the Company under the Note
from the date of this Agreement through the Maturity Date provided that (a) the
outstanding principal amount of the Note during any period may not exceed the
commitment limit for such period set forth below and (b) the outstanding
principal amount of the Note during any period may not exceed the face amount of
the Note.
Period U.S. $ Commitment Limit
------ -----------------------
August 1998 $ 8,000,000
September 1998 $ 8,500,000
October 1998 $ 9,000,000
November 1998 $ 9,500,000
December 1998 $10,000,000
January 1999 $10,500,000
February 1999 $11,000,000
March 1999 $11,500,000
April 1999 $12,000,000
May 1999 through Maturity Date $12,500,000
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2.3 Advancing. Each advance of principal under the Note shall be made by
the Purchaser to the Company upon submission of a written borrowing request
provided by the Company to the Purchaser not later than five Business Days prior
to the date of such 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 Section 3 below have been satisfied, and be in
a form reasonably satisfactory to the Purchaser. No more than two advances may
be made during any month.
Section 3. Conditions Precedent.
3.1 First Disbursement. The Purchaser's obligation to make the first
advance of principal under the Note is subject to the satisfaction by the
Company or waiver in writing by the Purchaser of the following conditions:
(a) The Company shall have delivered or shall have caused to be
delivered the documents and other items listed in the Closing Documents List
provided in connection with this Agreement, together with any other documents
and items reasonably requested by the Purchaser to document the agreements and
intent of the Loan Documents, in each case fully executed and delivered where
applicable and in each case in form and substance satisfactory to the Purchaser,
including the following documents and other items:
(i) this Agreement, the Note, the Structuring Fee Agreement;
(ii) the Warrants, and the Registration Rights Agreement;
(iii) the Pledge Agreement, the Guaranty, the Security Agreement,
the Assignment Agreement, the Consent and Agreement, and all related share
certificates, stock powers, financing statements and other lien filings,
and lien searches;
(b) Where applicable, the financing statements and other documents
and agreements requiring filing or recording in public records shall have been
duly delivered to the appropriate offices for filing or recording and the
Purchaser shall have received confirmations of receipt thereof by the
appropriate filing or recording offices, if available, with all filing fees,
mortgage tax, and intangible tax paid by the Company, and the original copies of
all share certificates and other items requiring possession for perfection shall
have been delivered to the Purchaser in appropriate form for transfer; and
(c) The Company shall have provided direction to the Purchaser to pay
on behalf of the Company the fees contemplated by the Structuring Fee Agreement
and all legal fees and expense of counsel and local counsel for the Purchaser
incurred in connection with this Agreement.
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3.2 Each Disbursement. The Purchaser's obligation to make each
advance of principal under the Note (including the first and final advance) is
subject to the following conditions precedent:
(a) The Purchaser shall have received a written borrowing request
from the Company in accordance with Section 2.3;
(b) The representations and warranties set forth in the Loan
Documents shall be true and correct as of the date of the advance, the Company
shall have performed all of its covenants and obligations under the Loan
Documents to have been performed as of the date of the advance, and no Default
or Event of Default shall have occurred and be continuing;
(c) No Material Adverse Change shall have occurred;
(d) With respect to any advance requested after September 30, 1998,
financial closing and funding of the project finance for CanFibre of Lackawanna,
Inc., shall have occurred in accordance with the commitment letter provided by
the Purchaser in connection therewith, including the funding of U.S. $87,000,000
of solid waste disposal revenue bonds for such project finance; and
(e) With respect to any advance requested after the initial advance,
the Purchaser shall have received an opinion acceptable to the Purchaser from
counsel acceptable to the Purchaser regarding the enforceability of the CanFibre
Group Management Agreement and the CanFibre Group Development Payment Agreement
and such other matters related thereto as are reasonably requested by the
Purchaser.
Section 4. Representations and Warranties. Upon the execution of this
Agreement, and with each advance of principal under the Note, the Company
represents and warrants to the Purchaser as follows:
4.1 Corporate Organization and Authority. The Company (a) is a
corporation duly incorporated and in good standing under the laws of British
Columbia and is authorized to exercise its corporate powers in such province;
(b) has all requisite corporate power and authority to own and operate its
properties and assets and to carry on its business as currently conducted and as
is currently proposed to be conducted; and (c) has been duly qualified and is in
good standing to do business as a foreign corporation in each jurisdiction where
the nature of its business and assets requires such qualification, except for
those jurisdictions where the failure to qualify would not result in a Material
Adverse Change.
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4.2 Authorization. The Company has all requisite corporate power to
execute and deliver the Transaction Documents to which it is a party and to
perform its obligations thereunder. All corporate and shareholder action
necessary for the authorization, execution, and delivery by the Company of the
Transaction Documents to which it is a party and the performance by the Company
of its obligations thereunder have been taken. Each Transaction Document to
which the Company or any of its Affiliates is a party constitutes a legally
binding and valid obligation of the Company and its Affiliates, as applicable,
enforceable in accordance with its respective terms, except as enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, fraudulent
conveyance, moratorium, liquidation, or similar laws relating to, or affecting
generally the enforcement of, creditors' rights or by other equitable principles
of general application.
4.3 Capitalization. As of the date of this Agreement the authorized
capital stock of the Company consists of (a) 50,000,000 Preference Shares,
without par value, of which (i) 15,000 have been designated as Series I
Preference Shares and all of which are issued and are outstanding, (ii) 5,000
have been designated as Series II Preference Shares of which 3,300 are issued
and outstanding, (iii) 3,000 have been designated as Series III Preference
Shares of which none are issued and outstanding, (iv) 1,000 have been designated
as Series IV Preference Shares of which 1,000 are issued and outstanding, (v)
75 have been designated as Series V Preference Shares of which none are issued
and outstanding, (vi) 75 have been designated as Series VI Preference Shares of
which 75 are issued and outstanding, (vii) 75 have been designated as Series
VII Preference Shares of which 38 are issued and outstanding, and (b)
100,000,000 shares of Common Stock, without par value of which 24,510,868 shares
are issued and outstanding. As of the date of this Agreement, all shares that
have been issued and are outstanding have been validly issued (including,
without limitation, issued in compliance with all applicable federal and
provincial securities laws) and are fully paid and nonassessable. As of the
date of this Agreement, there are no outstanding rights of first refusal,
preemptive rights, or other rights, warrants, options, conversion privileges,
subscriptions, contracts, or other rights or agreements obligating the Company
either directly or indirectly to issue, sell, purchase, or redeem any equity
securities of the Company or any Subsidiary of the Company other than:
(i) the Series I, II, IV, VI, and VII Preference Shares;
(ii) outstanding warrants to purchase shares of Common Stock as set forth
in the attached Schedule 4.3(ii);
(iii) outstanding options to purchase shares of Common Stock as set forth
in the attached Schedule 4.3(iii);
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(iv) the right of Purchaser to acquire Common Stock of the Company pursuant
to an Income Participation Certificate Purchase Agreement dated for reference
June 1, 1997, between the Company and Purchaser;
(v) the right of Purchaser to acquire Common Stock of the Company pursuant
to a Deferred Payment Purchase Agreement dated for reference June 1, 1997,
between the Company and Purchaser;
(vi) the right of Purchaser to acquire Common Stock of the Company pursuant
to a U.S. $11,250,000 Exchangeable Promissory Note dated as of March 31, 1998,
made by Kafus Cement Fibre Industries of Texas, Inc. and payable to the order of
the Purchaser;
(vii) Re-Con Building Products Inc. ("Re-Con") has an option to acquire
from Kafus Cement Fibre Industries of Texas ("Kafus Cement") 500 shares of Class
B Common Stock of Cement Fibreboard Industries of Texas, Inc. ("Cement
Fibreboard") for $8,000,000;
(viii) Kafus Cement has an option to acquire, under certain conditions,
from Re-Con 500 shares of Class C Common Stock of Cement Fibreboard for $10.00;
(ix) Kafus Cement Fibre Industries, Inc. has issued Preferred Stock in the
face amount of Cdn $500,000 to Re-Con which may be redeemable upon the request
of the holder thereof;
(x) Re-Con has the right to reacquire 500 shares of Class B Common Stock of
Cement Fibre Technology from Kafus Cement Fibre Industries Inc. for $10 if it
exercises its option to acquire 500 shares of Class B Common Stock of Cement
Fibreboard from Kafus Cement;
(xi) Kafus Cement Fibre Industries Inc. has the right to acquire 500 shares
of Class C Common Stock of Cement Fibre Technology from Re-Con if Kafus Cement
exercises its option to acquire 500 shares of Class C Common Stock of Cement
Fibreboard Kafus Cement;
(xii) Kenaf Industries Ltd. has issued Series C redeemable preferred stock
with an issue value of $1,250,000 in the aggregate to Kenaf International, Inc.;
and
(xiii) CanFibre of Riverside, Inc. has issued 4,000 shares of Series A
Convertible Redeemable Preferred Stock which may be redeemed by CanFibre of
Riverside for $1,000 per share. The Series A Convertible Redeemable Preferred
Stock accrues dividends payable in Series B redeemable preferred stock.
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4.4 Subsidiaries. As of the date of this Agreement, Schedule 4.4 sets
forth an accurate and complete list of all Subsidiaries of the Company, their
jurisdiction of incorporation, and the ownership by the Company and its
Subsidiaries of the equity interests of each Subsidiary. As of the date of this
Agreement, all of the issued and outstanding shares of capital stock of each
Subsidiary of the Company have been duly and validly authorized and issued and
are fully paid and non-assessable, and such shares were not issued in violation
of any preemptive or similar right and, except as set forth on such Schedule,
are owned by the Company or one of its Subsidiaries, free and clear of any Liens
(as defined below). As of the date of this Agreement, there are no outstanding
warrants, options, or other rights to purchase or acquire any shares of capital
stock of any Subsidiary of the Company, nor any outstanding securities
convertible into such shares or any outstanding warrants, options, or other
rights to acquire any such convertible securities except as set forth on such
Schedule.
4.5 Litigation. There is no pending or, to the best knowledge of the
Company, threatened action, suit, proceeding, or investigation before any court,
governmental agency, or body having jurisdiction over the Company or any of its
Subsidiaries, or before any arbitrator or mediator, that if adversely
determined, would result in a Material Adverse Change or that relates to or
could materially affect the performance by the Company of its obligations under
the Transaction Documents.
4.6 SEC Documents, Financial Statements. Since January 1, 1997, the
Company has filed all reports, schedules, forms, statements, and other documents
required to be filed by it with the Securities Exchange Commission (the "SEC")
pursuant to the reporting requirements of the Securities Exchange Act of 1934,
as amended (the "Exchange Act") (all of the foregoing filed prior to the date
hereof being hereinafter referred to herein as the "SEC Documents"). The Company
has delivered to the Purchaser true and complete copies of all SEC Documents.
As of their respective filing dates, the SEC Documents complied in all material
respects with the requirements of the Exchange Act and the rules and regulations
of the SEC promulgated thereunder and none of the SEC Documents (when read
together with all exhibits included therein and financial statement schedules
thereto and documents, other than exhibits, incorporated by reference) contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make to statements
therein, in light of the circumstances under which they were made, not
misleading. The Company, any Person authorized to represent the Company, and,
to the best knowledge of the Company, any other Person in connection with the
issuing of the Warrants, have not made, at any time, any oral communication in
connection with the issuing of the Warrants which contained any untrue statement
of a material fact or omitted to state any material fact necessary in order to
make the statements, in the light of the circumstances under which they were
made, not misleading. As of September 30, 1997, the Company was, and as of the
date hereof the Company believes that it is a "foreign private issuer" within
the meaning of Rule 3b-4 promulgated
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by the SEC under the Exchange Act and the Common Stock of the Company is
therefore exempt from the operation of Section 16 of the Exchange Act pursuant
to Rule 3a12-3(b) promulgated thereunder. As of the date of this Agreement, the
Company is not in possession of any material non-public information that if
disclosed would, or could reasonably be expected to have, an effect on the price
of the Common Stock. The financial statements of the Company included in the SEC
Documents comply as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto. Such financial statements have been prepared in accordance with
Canadian generally accepted accounting principles applied on a consistent basis
during the periods involved and fairly present the consolidated financial
condition and results of operations, of the Company as of the dates and for the
periods presented.
4.7 No Change in Condition. Since the date of the Financial Statements,
there has not been any change in the business, properties, prospects, or
financial condition of the Company or its Subsidiaries which would constitute or
reasonably could be expected to result in a Material Adverse Change.
4.8 Taxes.
(a) The Company and each of its Subsidiaries has filed all tax returns
(provincial, federal, foreign, state, and local) required to be filed by it on
or before the date of the Warrants under the laws of all jurisdictions wherein
the location of the assets of the Company and its Subsidiaries, the nature or
transaction of their business, or other requirements subject any of them to
liability for taxes or other governmental charges ("Applicable Tax Laws"), and
all taxes which are due and payable, all assessments received by the Company or
any of its Subsidiaries, and all other taxes and installments of taxes or other
governmental charges (foreign, federal, state, provincial, and local) due and
payable by or with respect to the Company or any of its Subsidiaries under
Applicable Tax Laws on or before the date hereof have been paid.
(b) There are no agreements, waivers or other arrangements providing
for an extension of time with respect to the assessment of any tax or deficiency
against the Company or any of its Subsidiaries or their respective assets.
(c) To the Company's knowledge, there are no actions, suits,
proceedings, investigations, audits, or claims now pending against or related to
the Company or any of its Subsidiaries or their assets regarding any tax or
assessment, or any material matters under discussion with any taxing authority
relating to any taxes or assessments, or any claims for additional taxes or
assessments asserted by any such authority.
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4.9 Title to Assets. All of the assets owned by the Company and its
Subsidiaries are free and clear of all Liens except for Permitted Liens and all
assessments, covenants, restrictions, reservations, and other burdens and
charges of every kind except for those reflected in the SEC Documents and the
financial statements included therein.
4.10 Compliance with Laws and Agreements. Neither the Company nor any of
its Subsidiaries is in violation of any material term or provision of its
organizational documents or any material term or provision of any indebtedness,
mortgage, indenture, contract, agreement, or judgment or any decree, order,
statute, rule, or regulation the violation of which would, individually or in
the aggregate, constitute a Material Adverse Change. The execution, delivery,
and performance of the Transaction Documents will not result in any violation
of, be in conflict with, or constitute a default under, with or without the
passage of time or the giving of notice, any provisions of the Company's or any
of its Subsidiaries' organizational documents, or any indebtedness, mortgage,
indenture, or contract, obligation, or commitment to which the Company or any of
its Subsidiaries is a party or by which any of them is bound, or any provision
of any judgment, decree, order, statute, rule, or regulation to which the
Company or any of its Subsidiaries is a party or by which any of them is bound.
4.11 Employee Benefit Plans. All employee welfare or benefit plans
(including any stock option, stock purchase, or ownership plan) with respect to
which the Company or any Subsidiary is a sponsor are set forth in the SEC
Documents.
4.12 Environmental Matters. There has been no storage, disposal,
generation, manufacture, spill, discharge (or any threatened spill or
discharge), refinement, transportation, handling, or treatment of toxic wastes,
medical wastes, hazardous wastes, or hazardous substances by the Company or any
of its Subsidiaries (or to the knowledge of the Company, by any other Person)
at, upon or from any of the property now or previously owned or leased or under
contract for purchase by the Company or any of its Subsidiaries, in violation of
any applicable law, ordinance, rule, regulations, order, judgment, decree, or
permit or which would require remedial action under any applicable law,
ordinance, rule, regulations, order, judgment, decree, or permit; the terms
"hazardous wastes," "toxic wastes," "hazardous substances," and "medical wastes"
shall have the meanings specified in any applicable local, state, provincial,
federal, and foreign laws or regulations with respect to environmental
protection.
4.13 Consents. No consent, approval, order, or authorization of, or
registration, qualification, designation, declaration, or filing with any
federal, provincial, state, or local government authority or any other person is
required in connection with the execution, delivery, and performance by the
Company of its obligations under the Transaction Documents, except for filings
pursuant to Regulation D promulgated under the Act, Blue Sky filings, securities
filing required by
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governmental authorities in British Columbia, and any other filings that are or
may be required by the SEC or any such authority in connection with the
Registration Rights Agreement. The Purchaser acknowledges that the shares of
Common Stock issuable upon conversion of the Note or the exercise of the
Warrants will require listing approval of the American Stock Exchange prior to
being publicly traded.
4.14 Private Offering. The offer, issuance, and sale of the Note, the
Warrants, and the shares of Common Stock issuable upon conversion of the Note or
exercise of the Warrants are and will be exempt from the registration and
prospectus delivery requirements of the Securities Act of 1933 and have been
registered or qualified (or are exempt from registration and qualification)
under the registration, permit, or qualification requirements of all applicable
state securities laws.
4.15 Fees. No fees or commissions are or will be payable by the Company or
any of its Subsidiaries (or to its knowledge by any affiliate of the Company) to
advisors, consultants, brokers, finders, investment bankers, or banks with
respect to the offer, issuance, or sale of the Note, the Warrants, and the
shares of Common Stock issuable upon conversion of the Note or exercise of the
Warrants or the consummation of the transactions otherwise contemplated by the
Warrants other than under the Structuring Fee Agreement.
4.16 Transactions with Affiliates. Neither the Company nor any of its
Subsidiaries has entered into any transaction directly or indirectly with or for
the benefit of an Affiliate except (a) transactions with an Affiliate for the
leasing of property, the rendering or receipt of services, or the purchase or
sale of inventory or other assets in the ordinary course of business if the
monetary or business consideration arising from such a transaction would be
substantially as advantageous to the Company or such Subsidiary as the monetary
or business consideration which such Person would obtain in a comparable arm's
length transaction and (b) the transactions disclosed in the Company's
Information Statement dated February 6, 1998, and Form 20-F for the year ended
September 30, 1997, each as filed with the SEC.
4.17 True and Complete Disclosure.
(a) All factual information furnished by or on behalf of the Company
in writing to the Purchaser in connection with the Transaction Documents and the
transactions contemplated thereby is true and accurate in all material respects
on the date as of which such information was dated or certified and does not
contain any untrue statement of material fact or omit to state any material fact
necessary to make the statements contained therein not misleading.
(b) The Purchaser acknowledges receipt of that form of Notice attached
hereto as Schedule 4.17 regarding issuance shares of Common Stock upon
conversion of the Note. In
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addition, the Purchaser acknowledges that the Company intends to cease as soon
as practicable having its Common Stock quoted on the Canadian Dealing Network.
Section 5. Covenants. So long as the Purchaser retains any commitments
hereunder or any Loan Obligations remain outstanding or the Purchaser retains
any Warrants, the Company covenants as follows:
5.1 Use of Proceeds. The Company shall use the proceeds of the initial
advance under the Note as follows: (a) to satisfy all indebtedness of the
Company and its Subsidiaries owing to and to redeem all of the securities of the
Company and its Subsidiaries held by Olympus Securities Ltd. and NP Partners,
formerly known as Xxxxxx Partners, (b) to redeem all of the Series VI and Series
VII Preference Shares of the Company, (c) to repay certain existing payables of
the Company and its Subsidiaries, including amounts owed to officers and
directors of the Company, and (d) for other general working capital purposes,
in each case as presented to the Purchaser with the initial borrowing request.
All other proceeds of the Note shall be used solely for working capital and
project development expenses of the Company and its Subsidiaries, in each case
as presented to the Purchaser with the applicable borrowing request.
5.2 Inspection. The Company shall, and shall cause each of its
Subsidiaries to, permit the Purchaser to visit and inspect any of the properties
of such Person, to examine all of such Person's books of account, records,
reports, and other papers, to make copies and extracts therefrom, and to discuss
their respective affairs, finances, and accounts with their respective officers,
employees, and independent public accountants all at such reasonable times and
as often as may be reasonably requested provided that the Company is given at
least one Business Day advance notice thereof and reasonable opportunity to be
present when independent public accountants or other third parties are
contacted.
5.3 Debt.
(a) As used herein, the term "Debt" means with respect to any Person,
without duplication, (a) indebtedness of such Person for borrowed money, (b)
obligations of such Person evidenced by bonds, debentures, notes, or other
similar instruments, (c) obligations of such Person to pay the deferred purchase
price of property or services (other than trade debt and normal operating
liabilities incurred in the ordinary course of business), (d) obligations of
such Person as lessee under capital leases, (e) obligations of such Person under
or relating to letters of credit, guaranties, purchase agreements, or other
creditor assurances assuring a creditor against loss in respect of indebtedness
or obligations of others of the kinds referred to in clauses (a) through (d) of
this definition, and (f) nonrecourse indebtedness or obligations of others of
the kinds referred to in clauses (a) through (e) of this definition secured by
any Lien on or in respect of any property of such
-14-
Person. For the purposes of determining the amount of any Debt, the amount of
any Debt described in clause (e) of the definition of Debt shall be valued at
the maximum amount of the contingent liability thereunder and the amount of any
Debt described in clause (f) that is not covered by clause (e) shall be valued
at the lesser of the amount of the Debt secured or the book value of the
property securing such Debt.
(b) Without the prior written approval of the Purchaser, the Company
shall not, and shall not permit any of its Subsidiaries to, create, assume,
incur, or suffer to exist any Debt, except for the following (collectively, the
"Permitted Debt"): (i) Debt in the form of the Loan Obligations and other Debt
owed to the Purchaser; (ii) Debt in the form of Debt outstanding as of the date
of and reported in the Financial Statements, but no increases, extensions, or
refinancings thereof; (iii) Debt in the form of notes payable to officers and
directors or their Affiliates incurred after the date of the Financial
Statements but before the date of this Agreement listed in Schedule 5.3(b); (iv)
Debt in the form of (A) Debt of any Subsidiary of the Company which is
nonrecourse to the Company and the other Subsidiaries of the Company incurred to
finance project developments or operations in the ordinary course of business
and (B) Debt of any Subsidiary of the Company (other than CanFibre Group and its
Subsidiaries and Kafus Cement Fibre Industries, Inc., and its Subsidiaries)
which is nonrecourse to the Company and the other Subsidiaries of the Company
not operating in the same line of business as such Subsidiary; (v) Debt in the
form of capital leases or purchase money financing for equipment not to exceed
U.S. $1,000,000 on a combined basis for the Company and its Subsidiaries; (vi)
Debt in the form of unsecured indebtedness of the Company for borrowed money not
to exceed U.S. $3,000,000; and (vii) Debt in the form of unsecured subordinated
indebtedness of the Company for borrowed money having subordination terms
reasonably acceptable to the Purchaser not to exceed U.S. $5,000,000.
(c) Without the prior written approval of the Purchaser, the Company
shall not, and shall not permit any of its Subsidiaries to, make any payment on
or with respect to, or purchase, redeem, defease, or otherwise acquire or retire
for value any amount of any Permitted Debt permitted pursuant to paragraph
(b)(ii) above prior to the stated due dates or maturities thereof. The Company
shall not, and shall not permit any of its Subsidiaries to, amend, supplement,
or otherwise modify any of the terms or conditions of any such Permitted Debt
(other than any such amendment, supplement, or modification which would extend
the maturities of or reduce the amounts of any payments of principal, interest,
fees, or other amounts, any modification which would render the terms of such
Permitted Debt less restrictive, or any non-material administrative amendment
which imposes no new restrictions).
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5.4 Liens.
(a) As used herein, the term "Lien" means any mortgage, lien, pledge,
charge, deed of trust, security interest, encumbrance, or other type of
preferential arrangement to secure or provide for the payment of any obligation
of any Person, whether arising by contract, operation of law, or otherwise
(including any title retention for such purposes under any conditional sale
agreement, any capital lease, or any other title transfer or retention
agreement).
(b) Without the prior written approval of the Purchaser, the Company
shall not, and shall not permit any of its Subsidiaries to, create, assume,
incur, or suffer to exist any Lien on any of the Company's or its Subsidiaries'
real or personal property whether now owned or hereafter acquired, or assign any
right to receive its income, except for the following (collectively, the
"Permitted Liens"): (i) Liens securing the Loan Obligations and other Debt owed
to the Purchaser; (ii) [intentionally deleted]; (iii) [intentionally deleted];
(iv) Liens securing Debt permitted under Section 5.3(b)(iv)(A)), provided that
each such Lien encumbers only the assets of the Subsidiary of the Company that
incurred such Debt and Liens Securing Debt permitted under Section 5.3(b)(iv)(B)
provided that each such Lien encumbers only the assets of the Subsidiaries of
the Company which are obligated on such Debt; (v) Liens securing Debt permitted
under Section 5.3(b)(v) provided that each such Lien encumbers only the leased
or purchased assets purchased with the proceeds of such Debt; (vi)
[intentionally deleted]; and (vii) Liens arising in the ordinary course of
business which are not incurred in connection with the borrowing of money or the
obtaining of advances or credit and which do not materially detract from the
value of the Company's or any of its Subsidiaries assets or materially interfere
with the Company's or any of its Subsidiaries business, including Liens
satisfying the foregoing requirements that are (A) Liens for taxes, assessments,
or other governmental charges or levies which are not yet due and payable or
which are being contested in accordance with the terms of this Agreement; (B)
Liens in connection with worker's compensation, unemployment insurance, or other
social security, old age pension, or public liability obligations; (C) Liens in
the form of legal or equitable encumbrances deemed to exist by reason of
negative pledge covenants and other covenants or undertakings of like nature;
(D) Liens in the form of vendors', carriers', warehousemen's, repairmen's,
mechanics', workmen's, materialmen's, construction, or other like Liens arising
by operation of law in the ordinary course of business or incident to the
construction or improvement of any property in respect of obligations which are
not yet due and payable or which are being contested in accordance with this
Agreement; and (E) Liens in the form of zoning restrictions, easements,
licenses, and other restrictions on the use of real property or minor
irregularities in title thereto which do not materially impair the use of such
property in the operation of the business of the Company or the value of such
property.
-16-
(c) Without the prior written approval of the Purchaser, the Company
shall not, and shall not permit any of its Subsidiaries to, be party to any
agreement restricting the right of the Company to pledge its assets to secure
the Loan Obligations.
5.5 Other Obligations.
(a) The Company shall not, and shall not permit any of its
Subsidiaries to, create, incur, assume, or suffer to exist any obligations in
respect of unfunded vested benefits under any pension plan or deferred
compensation agreement.
(b) The Company shall not, and shall not permit any of its
Subsidiaries to, create, incur, assume, or suffer to exist any obligations in
respect of derivatives, other than derivatives used by such Person in such
Person's respective business operations in aggregate notional quantities not to
exceed the reasonably anticipated consumption of such Person of the underlying
commodity for the relevant period, but no derivatives which are speculative in
nature.
5.6 Payment of Certain Claims. The Company shall, and shall cause each
of its Subsidiaries to, pay and discharge, before the same shall become
delinquent, (a) all taxes, assessments, levies, and like charges imposed upon
such Person or upon such Person's income, profits, or property by authorities
having competent jurisdiction prior to the date on which penalties attached
thereto and (b) all trade payables and current operating liabilities, unless the
same are less than 90 days past due.
5.7 Investments. The Company shall not, and shall not permit any of its
Subsidiaries to, make or hold any direct or indirect investment in any Person,
including capital contributions to the Person, investments in the debt or equity
securities of the Person, and loans, guaranties, trade credit, or other
extensions of credit to the Person (collectively, "Investments"), except for the
following (collectively, the "Permitted Investments"): (a) (i) investments in
the Company and in Subsidiaries of the Company (whether existing or when
acquired as formed), (ii) specified limited investments in Persons other than
Subsidiaries of the Company that have been expressly approved by the Purchaser,
but no further investments therein unless such further investments have been
approved by the Purchaser, and (iii) loans, advances, and other investments in
Persons other than those described in clauses (i) and (ii) in an aggregate
outstanding amount not to exceed U.S. $500,000; (b) investments in the form of
loans, guaranties, open accounts, and other extensions of trade credit in the
ordinary course of business; (c) investments in direct obligations of the United
States or Canada, or investments in any Person which investments are guaranteed
by the full faith and credit of the United States or Canada, in either case
maturing in twelve months or less from the date of acquisition thereof and
repurchase agreements having a term of less than one year and fully
collateralized by such obligations which are entered into with banks or trust
companies described
-17-
in clause (e) below; (d) investments in commercial paper and bankers'
acceptances maturing in twelve months or less from the date of issuance and
which, at the time of acquisition are rated A-2 or better by Standard & Poor's
Corporation and P-2 or better by Xxxxx'x Investors Services, Inc; (e)
investments in time deposits or certificates of deposit maturing within one year
from the date such investment is made, issued by a bank or trust company
organized under the laws of the United States or Canada or any state or province
thereof having capital, surplus, and undivided profits aggregating at least U.S.
$250,000,000 or a foreign branch thereof and whose long-term certificates of
deposit are, at the time of acquisition thereof, rated A-2 by Standard & Poor's
Corporation or P-2 by Xxxxx'x Investors Services, Inc.; and (f) investments in
money market funds which invest solely in the types of investments described in
paragraphs (c) through (e) above.
5.8 Corporate Transactions. Without the prior written consent of the
Purchaser, the Company shall not, and shall not permit any of its Subsidiaries
to (a) merge, consolidate, or amalgamate with another Person, or liquidate, wind
up, or dissolve itself (or take any action towards any of the foregoing), (b)
convey, sell, lease, assign, transfer, or otherwise dispose of any of its
property, businesses, or other assets outside of the ordinary course of
business, or (c) make any direct or indirect purchase or acquisition, whether in
one or more related transactions, of any Person or group of Persons or any
related group of assets, liabilities, or securities of any Person or group of
Persons (excluding purchases of inventory and equipment in the ordinary course
of business) except that:
(i) The Company or any Subsidiary of the Company may sell the stock of
Subsidiaries of the Company provided that the Subsidiaries whose stock is
sold remain Subsidiaries of the Company;
(ii) Any Subsidiary of the Company may merge, consolidate, or
amalgamate into any Subsidiary of the Company or convey, sell, lease,
assign, transfer, or otherwise dispose of any of its assets to any
Subsidiary of the Company (and if such disposition transfers all or
substantially all of the assets of transferring Subsidiary, such subsidiary
may then liquidate, wind up, or dissolve itself); provided that the
Subsidiary is the surviving or acquiring Subsidiary;
(iii) Any Subsidiary of the Company may merge, consolidate, or
amalgamate with another Person with the other Person as the surviving
entity or convey, sell, lease, assign, transfer, or otherwise dispose of
any of its assets to another Person (and if such disposition transfers all
or substantially all of the assets of transferring Subsidiary, such
Subsidiary may then liquidate, wind up, or dissolve itself) provided that
the result of such transaction would not cause the net book value of the
assets so merged out of the Subsidiaries of the Company
-18-
or disposed of during any fiscal year of the Company to exceed 20% of the
consolidated net book value of the Company as of the end of the prior
fiscal year of the Company; and
(iv) The Company or any Subsidiary of the Company may make any
acquisition (by purchase or merger) provided that (A) the Subsidiary of the
Company is the acquiring or surviving entity, (B) the aggregate non-equity
consideration paid by the Company and its Subsidiaries in connection with
acquisitions during any fiscal year does not exceed 20% of the consolidated
net book value of the Company as of the end of the prior fiscal year of the
Company, (C) no Default or Event of Default exists and the acquisition
would not reasonably be expected to cause a Default or Event of Default,
and (D) the transaction is not hostile, as reasonably determined by the
Purchaser.
5.9 Dividends. Without the prior written approval of the Purchaser
(including the approval already given as detailed in Section 5.1) the Company
shall not (a) declare or pay any dividends other than cash dividends under the
Series IV Preference Stock of the Company and stock dividends under the
Preference Stock of the Company; (b) purchase, redeem, retire, or otherwise
acquire for value any of its capital stock now or hereafter outstanding; or make
any distribution of assets to its stockholders as such, whether in cash, assets
or in obligations of it; (c) allocate or otherwise set apart any sum for the
payment of any dividend or distribution on, or for the purchase, redemption, or
retirement of, any shares of its capital stock; or (d) make any other
distribution by reduction of capital or otherwise in respect of any shares of
its capital stock.
5.10 Insurance. The Company shall, and shall cause each of its
Subsidiaries to, maintain insurance with responsible and reputable insurance
companies or associations reasonably acceptable to the Purchaser in such amounts
and covering such risks as are usually carried by companies engaged in similar
businesses and owning similar properties in the same general areas in which such
Person operates.
5.11 Lines of Business. The Company shall not, and shall not permit its
any of its Subsidiaries to, change the character of its business as conducted on
the date of this Agreement, or engage in any type of business not reasonably
related to its business as presently and normally conducted.
5.12 Transactions with Affiliates. The Company shall not, and shall not
permit any of its Subsidiaries to, enter into any transaction directly or
indirectly with or for the benefit of an Affiliate except transactions with an
Affiliate for the leasing of property, the rendering or receipt of services, or
the purchase or sale of inventory or other assets in the ordinary course of
business if the monetary or business consideration arising from such a
transaction would be substantially as advantageous to
-19-
the Company or such Subsidiary as the monetary or business consideration which
such Person would obtain in a comparable arm's length transaction.
5.13 Compliance with Laws. The Company shall, and shall cause each of its
Subsidiaries to, comply, in all material respects, with all federal, state, and
local laws and regulations which are applicable to its operations and property.
5.14 Validity of Shares. The Company shall reserve and keep available at
all times, free from preemptive rights, a sufficient number of shares of Common
Stock to satisfy the requirements of the Note and the Warrants. Such shares of
Common Stock: (i) will be upon issuance, free and clear of any Liens created by
the Company or, to the Company's knowledge, any other Person; (ii) have been
duly and validly authorized and when issued and paid for in accordance with the
terms of the Warrants and the Note will be duly and validly issued, fully paid,
and non-assessable; (iii) will not have been issued or sold in violation of any
preemptive or similar rights; and (iv) will not subject the Purchaser thereof to
personal liability by reason of holding the same.
5.15 Financial Reports. The Company shall deliver to the Purchaser:
(i) within sixty-five (65) days of the end of each fiscal quarter, an
unaudited balance sheet and statement of operations for the Company and its
Subsidiaries on a consolidated basis prepared in accordance with Canadian
Generally Accepted Accounting Principles consistently applied;
(ii) within one hundred eighty (180) of the end of each fiscal year
audited financial statements consisting of a balance sheet and statement of
operations and cash flows statement for the Company and its Subsidiaries on a
consolidated basis prepared in accordance with Canadian Generally Accepted
Accounting Principles consistently applied (provided that with respect to
paragraphs (i) and (ii) of this Section, provision of copies of reports and
financial statements filed with the SEC pursuant to the Company's reporting
requirements which contain such items within the time periods required hereunder
shall be deemed satisfactory delivery of the required financial statements);
(iii) copies of any management letters prepared by the Company's
auditors and the Company's responses thereto promptly after their issuance; and
(iv) notice of the occurrence of any Material Adverse Change,
promptly after its occurrence.
-20-
5.16 Reports Under Exchange Act; Change in Status. With a view to making
available to the Purchaser the benefits of Rule 144 and any other rule or
regulation of the SEC that may at any time permit the Purchaser to sell
securities of the Company to the public without registration, the Company agrees
to: (i) make and keep public information available, as those terms are defined
in Rule 144; (ii) file with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the Exchange Act, and (iii)
furnish the Purchaser, so long as the Purchaser owns the Note or any Warrants
forthwith upon request: (x) a written statement by the Company that it has
complied with the reporting requirements of Rule 144, the Act and the Exchange
Act; (y) a copy of the most recent annual or quarterly report of the Company and
such other reports and documents filed by the Company; and (z) such other
information as may be reasonably requested in availing the Purchaser of any rule
or regulation of the SEC which permits the selling of any such securities
without registration. The Company shall immediately notify the Purchaser in the
event the Company ceases to be a "foreign private issuer," as defined in Rule
3b-4 promulgated by the SEC under the Exchange Act or if holders of Common Stock
of the Company are otherwise subject to Section 16 of the Act.
5.17 HSR Act. The Company agrees that, in the event that conversion of the
Note or the exercise of any Warrants requires any filing to be made under the
Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976 ("HSR Act"), the Company
shall, at the request of the Purchaser and at the expense of the Company, make
all filings required by the HSR Act and shall cooperate with the Purchaser in
responding to any request for information submitted by the Department of Justice
or the Federal Trade Commission.
5.18 Future Stock Sales. The Company shall not (a) issue or sell (i)
shares of the Common Stock at a price less than 85% of the Average Price (as
defined in Section 5 of the Note) as of the date of sale or (ii) any securities
convertible into or exchangeable for Common Stock, with a conversion or exercise
price that is less than 85% of the Average Price of the Common Stock on the date
of issuance of such convertible or exchangeable securities or (b) sell more than
U.S. $10 million of Common Stock at prices less than the Average Price as of the
date of the related sale. Purchaser shall have the right in connection with any
issuance of Common Stock (or any security convertible into or exchangeable for
Common Stock) to purchase its proportionate share (based on its beneficial
ownership of the Common Stock as determined under Rule 13d-3) of the securities
proposed to be so issued, on the same terms as those pursuant to which the
Company proposes to sell such securities to other Persons. This paragraph will
not restrict the ability of the Company to offer or sell securities at or above
the Average Price of the Common Stock during the 30 days preceding the date of
sale. This Section 5.18 shall terminate on the date the Purchaser and its
Affiliates beneficially own less than 10% of the outstanding Common Stock.
-21-
Section 6. Default and Remedies.
6.1 Events of Default. Each of the following shall be an "Event of
Default" for the purposes of this Agreement:
(a) The Company or any other Credit Party defaults in the payment when
due of any amount due under any Loan Document, including payments of principal,
interest, fees, reimbursements, or indemnifications;
(b) Any representation or warranty made by the Company or any other
Credit Party or any officer thereof in any Loan Document or any Warrant Document
proves to have been materially false or erroneous at the time it was made or
deemed made;
(c) (i) Any breach by the Company or any Credit Party of any
restrictive covenant in any Loan Document or Warrant Document or any covenant in
any Loan Document or Warrant Document for which a specific time period for
compliance is provided or (ii) any breach by the Company or any Credit Party of
any other covenant in any Loan Document or Warrant Document which breach is not
cured within 30 days after receipt of written notice from the Purchaser of such
breach;
(d) Any Loan Document or Warrant Document shall at any time and for
any reason, other than the action of the Purchaser, cease to create the Lien on
the property purported to be subject to such agreement in accordance with the
terms of such agreement, or cease to be in full force and effect, or shall be
contested by any party thereto;
(e) (i) Any principal, interest, fees, or other amounts due on any
indebtedness of the Company or any other Credit Party or any Subsidiary of the
Company is not paid when due, whether by scheduled maturity, required
prepayment, acceleration, demand, or otherwise, and the aggregate amount of all
such indebtedness so in default exceeds U.S. $5,000,000; (ii) any indebtedness
of the Company or any other Credit Party or any Subsidiary of the Company shall
be declared to be due and payable, or required to be prepaid (other than by a
regularly scheduled prepayment) prior to the stated maturity thereof, and the
aggregate amount of all such indebtedness so accelerated exceeds U.S.
$5,000,000; or (iii) any event shall occur or condition shall exist under any
agreement or instrument relating to any indebtedness of the Company or any other
Credit Party or any Subsidiary of the Company the effect of which is to
accelerate or to permit the acceleration of the maturity of any such
indebtedness, whether or not any such indebtedness is actually accelerated, and
the aggregate amount of all such indebtedness so in default exceeds U.S.
$5,000,000;
-22-
(f) (i) There shall have been filed against the Company or any other
Credit Party or any Material Subsidiary of the Company or any of their
respective properties, without such Person's consent, any petition or other
request for relief seeking an arrangement, receivership, reorganization,
liquidation, or similar relief under bankruptcy or other laws for the relief of
debtors and such request for relief (A) remains in effect for 60 or more days,
whether or not consecutive, or (B) is approved by a final nonappealable order,
or (ii) the Company or any other Credit Party or any Material Subsidiary of the
Company consents to or files any petition or other request for relief of the
type described in clause (i) above seeking relief from creditors, makes any
assignment for the benefit of creditors or other arrangement with creditors, or
admits in writing such Person's inability to pay its debts as they become due
(the occurrence of any Event of Default under clause (i) or (ii) being a
"Bankruptcy Event of Default");
(g) A judgment in excess of U.S. $5,000,000 is rendered against the
Company or any other Credit Party or any Subsidiary of the Company and such
judgment is not discharged or stayed pending appeal within 30 days following its
entry; or
(h) (a) There shall occur the direct or indirect acquisition after the
date hereof by any Person or related Persons constituting a group of (i)
beneficial ownership of issued and outstanding shares of Voting Securities of
the Company, the result of which acquisition is that such Person or such group
possesses 20% or more of the combined voting power of all then-issued and
outstanding Voting Securities of the Company or (ii) the power to elect,
appoint, or cause the election or appointment of at least a majority of the
members of the board of directors of the Company, or (b) the individuals who, at
the beginning of any period of 12 consecutive months, constitute the Company's
board of directors (together with any new director whose election by the
Company's board of directors or whose nomination for election by the Company's
stockholders entitled to vote thereon was approved by a vote of at least a
majority of the directors then still in office who either were directors at the
beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason (other than death or disability) to
constitute a majority of the Company's board of directors then in office.
6.2 Remedies.
(a) During the continuation of any Event of Default, the Purchaser may
(i) declare by written notice to the Company all of its commitments under the
Loan Documents terminated, whereupon such commitments shall terminate (provided
that upon the occurrence of any Bankruptcy Event of Default, all such
commitments of the Purchaser shall terminate immediately and automatically), and
(ii) declare by written notice to the Company all Loan Obligations to be
immediately due and payable, whereupon such amounts shall become immediately due
and payable (provided that upon the occurrence of any Bankruptcy Event of
Default, all Loan Obligations shall
-23-
immediately and automatically become due and payable). Except as expressly
provided for in the Loan Documents, the Company waives notice of any default or
event of default (however denominated), notice of intent to accelerate, notice
of acceleration, presentment, demand, notice of dishonor, notice of setoff,
notice of the initiation of any suit, notice of any action against any credit
support or collateral, and notice of any other action or remedy.
(b) During the continuation of any Event of Default, the Purchaser may
declare by written notice to the Company that the Loan Obligations specified in
such notice shall bear interest beginning on the date specified in such notice
(which may be at any time on or after receipt of such notice) until paid in full
at the lesser of 17.00% per annum, calculated based upon a 365/366 day year for
the actual number of days elapsed, or the Highest Lawful Rate (as defined
below), whereupon such interest shall begin to accrue and the Company shall pay
such interest to the Purchaser upon demand.
(c) During the continuation of an Event of Default, the Purchaser is
authorized at any time, to the fullest extent permitted by law, to setoff and
apply any indebtedness owed by the Purchaser to the Company against any and all
of the obligations of the Company under the Loan Documents, irrespective of
whether or not the Purchaser shall have made any demand under the Loan
Documents and although such obligations may be contingent and unmatured.
(d) During the continuation of an Event of Default, the Purchaser may
exercise all of its rights under the Loan Documents and all other rights at law
or in equity.
(e) During the continuation of an Event of Default, all payments
received in respect of obligations under the Loan Documents shall be applied in
the order determined by the Purchaser.
No right, power, or remedy conferred to the Purchaser in the Loan Documents or
in any documents securing or supporting the Loan Documents or now or hereafter
existing at law, in equity, by statute, or otherwise shall be exclusive, and
each such right, power, or remedy shall to the full extent permitted by law be
cumulative and in addition to every other such right, power or remedy. No
course of dealing and no delay in exercising any right, power, or remedy
conferred to the Purchaser shall operate as a waiver of or otherwise prejudice
any such right, power, or remedy. No notice to or demand upon the Company shall
entitle the Company to similar notices or demands in the future.
Section 7. Miscellaneous.
7.1 Expenses. The Company shall pay directly or reimburse the Purchaser
for all reasonable expenses of the Purchaser, including reasonable charges and
disbursements of legal
-24-
counsel for the Purchaser, in connection with the amendment, modification,
waiver, or interpretation of the Transaction Documents, and the preservation or
enforcement of any rights of the Purchaser under the Transaction Documents,
including the expenses of the Purchaser prior to the execution of this
Agreement. The amount and nature of any expense of the Purchaser hereunder shall
be fully established by a certificate of any officer of the Purchaser. The
provisions of this paragraph shall survive any purported termination of this
Agreement that does not expressly reference this paragraph.
7.2 Indemnification of Purchaser. The Company agrees to protect, defend,
indemnify, and hold harmless the Purchaser and its stockholders, directors,
officers, employees, agents, affiliates, successors, and assigns, and their
respective stockholders, directors, officers, employees, and agents (for the
purposes of this Section 7.2, collectively, the "Indemnified Parties"), from and
against all demands, claims, actions, suits, damages, judgments, fines,
penalties, liabilities, and out-of-pocket costs and expenses, including
reasonable costs of attorneys and related costs of experts such as accountants
(collectively, the "Indemnified Liabilities"), actually incurred by any
Indemnified Party which are related to (a) any breach of any representation,
warranty, or covenant of the Company under the Transaction Documents and (b) any
litigation or proceeding relating to the Transaction Documents or the
transactions contemplated thereunder, INCLUDING ANY INDEMNIFIED LIABILITIES
CAUSED BY ANY INDEMNIFIED PARTY'S OWN NEGLIGENCE, but not Indemnified
Liabilities which are a result of any Indemnified Party's gross negligence or
willful misconduct. The amount and nature of any indemnification claim under
this Section shall be presumptively established by a certificate from the
applicable Indemnified Party. The provisions of this paragraph shall survive
any purported termination of this Agreement that does not expressly reference
this paragraph.
7.3 Certain Provisions Regarding Payments.
(a) Unless otherwise specified, the Company shall make all payments
required under the Transaction Documents not later than 1:00 p.m., Houston,
Texas, time on any date when due in lawful money of the United States of America
to the Purchaser at such location as is specified by the Purchaser in writing in
immediately available funds. Whenever any payment to be made under the
Transaction Documents shall be stated to be due on a day other than a day on
which the banks in Vancouver, British Columbia, and Houston, Texas, are required
to be open ("Business Day"), such payment shall be due and payable on the next
succeeding Business Day. If the date for payment of any obligation is not
specified in the Transaction Documents, such obligation shall be payable upon
demand.
(b) Any and all payments by the Company under the Transaction
Documents shall be made free and clear of and without deduction for any and all
present or future taxes, levies,
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imposts, deductions, charges, or withholdings, and all liabilities with respect
thereto, other than taxes imposed on the income of and franchise taxes imposed
on the Purchaser by any jurisdiction in which the Purchaser is a citizen or
resident or any political subdivision of such jurisdiction (all such non-
excluded taxes, levies, imposts, deductions, charges, withholdings, and
liabilities being hereinafter referred to as "Taxes"). If the Company shall be
required by law to deduct any Taxes from any sum payable to the Purchaser (i)
the sum payable shall be increased as may be necessary so that, after making all
required deductions (including deductions applicable to additional sums payable
under this paragraph), the Purchaser receives an amount equal to the sum it
would have received had no such deductions been made; (ii) the Company shall
make such deductions; and (iii) the Company shall pay the full amount deducted
to the relevant taxation authority or other authority in accordance with
applicable law.
(c) The Company agrees to pay any present or future stamp or
documentary taxes or any other excise or property taxes, charges, or similar
levies which arise from any payment made with respect to, or from the execution,
delivery, filing, or registration of, the Transaction Documents.
(d) If any sum due from the Company under the Transaction Documents or
any order or judgment given in relation hereto has to be converted from the
currency in which the same is payable hereunder or under such order or judgment
(the "first currency") into another currency (the "second currency") for the
purpose of (i) making or filing a claim or proof against the Company with any
governmental authority or in any court, tribunal, or arbitration panel or (ii)
enforcing any order or judgment given in relation hereto, the Company shall
indemnify the Purchaser against any loss incurred as a result of any discrepancy
between (A) the rate of exchange used when restating the amount in question from
the first currency into the second currency and (B) the rate or rates of
exchange at which the Purchaser purchased the first currency with the second
currency after receipt of a sum paid to it in the second currency in
satisfaction, in whole or in part, of any such sum due or order or judgment.
The foregoing indemnity shall constitute a separate obligation of the Company
distinct from any other obligations and shall survive the giving or making of
any judgment or order in relation to all or any of such other obligations.
7.4 Waiver, Amendment, and Survival.
(a) Performance under the Loan Documents to which the Company is a
party may be waived only in a writing signed by the party against whom
enforcement is sought, and such a waiver shall be effective only for the
purposes and only to the extent stated in that writing. The terms of the Loan
Documents to which the Company is a party may be amended, supplemented, and
otherwise modified only in a writing signed by the party against whom
enforcement is sought, and such an amendment, supplement, or other modification
shall be effective only for the purposes and only to the extent stated in that
writing. All representations, warranties, and covenants of the
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Company in the Loan Documents shall survive the execution of this Agreement and
any other document or agreement.
(b) The provisions in the Warrant Documents shall control waiver and
amendment of the Warrant Documents. No holder of Warrants that is not the
holder of the Note shall have any rights with respect to the waiver or amendment
of the Loan Documents.
7.5 Successors and Assigns.
(a) The Loan Documents shall bind and inure to the benefit of the
Company and the Purchaser and their respective successors and assigns. The
Company may not assign its rights or delegate its duties under the Loan
Documents. The Purchaser may not assign or participate its rights and delegate
its duties under the Loan Documents without the consent of the Company, which
consent shall not be unreasonably withheld; provided that, during the
continuation of an Event of Default, the Purchaser may assign or participate its
rights and delegate its duties under the Loan Documents without the consent of
the Company, following notice thereof to the Company. Notwithstanding any other
provision of this Agreement, the Purchaser may, at any time, assign its rights
and duties under the Loan Documents to an affiliate of the Purchaser.
(b) The provisions in the Warrant Documents shall control the rights
and duties of the parties to the Warrant Documents and their successors and
assigns. No holder of Warrants that is not the holder of the Note shall have
any rights or obligations under the Loan Documents, but the holder of the Note
shall be entitled to the benefit of the provisions of the Loan Documents with
respect to any Warrants held by the holder of the Note.
7.6 Notice.
(a) Unless otherwise specified, all notices and other communications
provided for between the Company and the Purchaser in the Loan Documents shall
be in writing, including telecopy, and delivered or transmitted to the addresses
set forth below, or to such other address as shall be designated by the Company
or the Purchaser in written notice to the other party. Notice sent by telecopy
shall be deemed to be given and received when receipt of such transmission is
acknowledged, and delivered notice shall be deemed to be given and received when
receipted for by, or actually received by, an authorized officer of the Company
or the Purchaser, as the case may be.
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Kafus Environmental Industries Ltd.
000 Xxxxxx Xxxxxx
Xxxxxx XX 00000
Attn: Xx. Xxxxxxx X. XxXxxx
telephone: 000-000-0000
telecopier: 000-000-0000
Enron Capital & Trade Resources Corp.
Attn: Xxxx X. Xxxxxxxxx
0000 Xxxxx Xxxxxx
Xxxxxxx, Xxxxx 00000
telephone: 000-000-0000
telecopier: 000-000-0000
(b) The provisions in the Warrant Documents shall control the rights
and duties of the parties to the Warrant Documents with respect to notice
obligations.
7.7 Choice of Law.
(a) Except as otherwise specified in another Loan Document, the Loan
Documents shall be governed by and construed and enforced in accordance with the
laws of Texas and the applicable laws of the United States, without regard to
conflicts of law principles which would select another law.
(b) The provisions in the Warrant Documents shall control the choice
of law elections under the Warrant Documents.
7.8 Arbitration.
(a) Disputes arising under the Loan Documents shall be settled by one
arbitrator pursuant to the rules of the American Arbitration Association (the
"AAA") for Commercial Arbitration (the "Rules"). Such arbitration shall be held
in New York, New York, or at such other location as mutually agreed to by the
parties to the dispute. Subject to any applicable limitations contained in this
Agreement, arbitration may be commenced at any time by any party giving notice
to the other party that a dispute has been referred to arbitration under this
paragraph (a). The arbitrator shall be selected by the joint agreement of the
parties hereto, but if they do not so agree within twenty (20) days after the
date of the notice referred to above, the selection shall be made pursuant to
the Rules from the panel of arbitrators maintained by the AAA. Any award of the
arbitrator shall be accompanied by a written opinion giving the reasons for the
award. The expense
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of the arbitration shall be borne by the parties in the manner determined in
writing by the arbitrator. This arbitration provision shall be specifically
enforceable by the parties. The determination of the arbitrator pursuant to this
Section shall be final and binding on the parties and may be entered for
enforcement before any court of competent jurisdiction.
(b) The provisions in the Warrant Documents shall control the dispute
resolution elections under the Warrant Documents.
7.9 Prevention of Usury. As used herein, the term "Highest Lawful Rate"
means the maximum lawful interest rate, if any, that at any time or from time to
time may be contracted for, charged, or received under the laws applicable to
the Purchaser which are presently in effect or, to the extent allowed by law,
under such applicable laws which may hereafter be in effect and which allow a
higher maximum nonusurious interest rate than applicable laws now allow.
NOTWITHSTANDING the foregoing or any other term in the Transaction Documents to
the contrary, it is the intention of the Purchaser and the Company to conform
strictly to any applicable usury laws. Accordingly, if the Purchaser contracts
for, charges, or receives any consideration in connection with the Transaction
Documents which constitutes interest in excess of the Highest Lawful Rate, then
any such excess shall be canceled automatically and, if previously paid, shall
at the Purchaser's option be applied to the outstanding amount of the loans made
hereunder or be refunded to the Company. In determining whether any interest
exceeds the Highest Lawful Rate, such interest shall, to the extent permitted by
applicable law, be amortized, prorated, allocated, and spread in equal parts
throughout the term of the Transaction Documents.
7.10 Counterparts. This Agreement may be executed in multiple counterparts
which together shall constitute one and the same instrument.
[the remainder of this page is intentionally blank]
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7.11 No Further Agreements. THIS WRITTEN AGREEMENT AND THE OTHER LOAN
DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN 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 BETWEEN THE PARTIES.
EXECUTED as of the date first above written.
Very truly yours,
ENRON CAPITAL & TRADE RESOURCES
CORP.
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
AGREED TO AND ACCEPTED
as of the date first
above written.
KAFUS ENVIRONMENTAL INDUSTRIES LTD.
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[Securities Purchase Agreement]
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