EXHIBIT 7
[Execution Version]
Amended and Restated Note Agreement
(Sundance Assets, L.P.)
March 11,1999
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 Note Agreement dated as of December 31, 1998, between
the Company and Enron Capital & Trade Resources Corp. ("ECT"), a Delaware
corporation, which Note Agreement governed a certain $10,000,000 Term Loan A
Note made by Kafus Environmental Industries Ltd. (the "Company"), a British
Columbia corporation, and payable to the order of ECT and assigned from ECT to
Sundance Assets, L.P.(the "Purchaser"), a Delaware limited partnership, which is
an Affiliate of ECT. This Amended and Restated Note Agreement (this
"Agreement") is entered into to provide for the issuance of the Notes from time
to time and is intended to supplement the terms of the Notes. In consideration
of the benefits to be provided to the Company in connection with the issuance of
the Notes, 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.
"Asset Purchase Agreement" means the Asset Purchase Agreement dated as of
December 31, 1998, between Samarac and the Company agreeing to the sale of the
CanFibre Group Agreements to the Company and delegation to the Company of all
rights and obligations of Samarac under CanFibre Group Agreements, subject to
certain conditions as specified therein.
"Average Price" with respect to Common Stock means, on any day or for any
period, as applicable, the trade weighted average of the sales prices for such
shares as reported on Bloomberg News Services (i) on the American Stock Exchange
or (ii) 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 (iii) if such shares are not listed
on any national securities exchange, then the prices at which transactions are
effected through the NASDAQ National Market as reported by NASDAQ or, (iv) if
such shares shall not be listed thereon, the trade weighted average of all
transactions in Common Stock in an over-the-counter market.
"Business Day" has the meaning specified in Section 6.3(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, whose interests have been sold and delegated to the Company, providing
for the payment of 10% of certain amounts to Samarac for management services.
"CanFibre Group Development Payment Agreement" means the Amended and
Restated Development Payment Agreement dated as of December 1, 1994, between
CanFibre Group and Samarac, whose interests have been sold and delegated to the
Company, providing for the payment of 10% of certain amounts to Samarac for
development services.
"Common Stock" means the common stock of the Company.
"Consent and Agreements" means (a) the Consent and Agreement dated as of
December 31, 1998, made by CanFibre Group in favor of ECT, consenting to the
security interests under the Security Agreement and terminating the Consent and
Agreement dated as of August 18, 1998, between these two parties and (b) the
Consent and Agreement dated as of December 31, 1998, made by Samarac in favor of
ECT, consenting to the security interests under the Security Agreement.
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"Credit Parties" means the Company, CanFibre Group, and, for the purposes
of Section 5.1, Samarac.
"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.
"ECTMI" means the Purchaser's Affiliate, ECT Merchant Investments Corp., a
Delaware corporation.
"ECTMI Note Agreement" means the Note Agreement between the Company and
ECTMI dated as of March 11,1999.
"Equity Documents" means any subscription agreements, stock designations,
warrant agreements, warrants, options, shareholder agreements, and similar
agreements regarding equity investments in the Company entered into by the
Company with or for the benefit of either Purchaser or any predecessor in
interest of either Purchaser.
"Event of Default" means the occurrence of any of the events specified in
Section 5.1.
"Financial Statements" means the June 30, 1998, financial statements of the
Company.
"Loan Documents" means (a) with respect to the Purchaser, this Agreement,
the Notes of the Purchaser, and each other agreement, document, or instrument
now or hereafter executed which secures, supports, or otherwise relates to the
Notes of the Purchaser, and (b) with respect to the Purchasers, this Agreement,
the ECTMI Note Agreement, the Notes, the Pledge Agreement, the Security
Agreement, the Consent and Agreements, and each other agreement, document, or
instrument now or hereafter executed which secures, supports, or otherwise
relates to the Notes.
"Loan Obligations" means (a) with respect to the Purchaser, 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, and (b) with respect to the
Purchasers, any and all amounts now or hereafter owed by the Company to the
Purchasers in connection with the Loan Documents, including principal, interest,
fees, reimbursements, indemnifications, and other amounts, and any increases,
extensions, rearrangements, and other modifications thereof.
"Majority Purchasers" means, at any time, Purchasers holding more than 51%
of the then aggregate unpaid principal amount of the Notes held by the
Purchasers.
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"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, Camden Agro-Systems Ltd., an Ontario corporation, and Hyaton
Company Inc., a Nevada corporation, and any Subsidiary of the foregoing
corporations.
"Notes" means, with respect to the Purchaser, 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
pursuant to the Assignment dated as of March 1, 1999, between Ponderosa as
assignor and the Purchaser as assignee, and with respect to the Purchasers, the
foregoing instrument together with:
(a) the $7,500,000 Convertible Promissory Note (Advancing Credit
Facility) dated as of March 11,1999 (the "$7,500,000 Advancing Credit
Facility Note"), made by the Company and payable to ECTMI;
(b) the $12,500,000 Convertible Promissory Note (Advancing Credit
Facility) dated as of December 31, 1998 (the "$12,500,000 Advancing Credit
Facility Note", and collectively with the $7,500,000 Advancing Credit
Facility Note, the "Advancing Credit Facility Notes") made by the Company
and payable to ECT, which note has been assigned by ECT to the Purchaser
pursuant to the Assignment dated as of December 18, 1998, between ECT as
assignor and the Purchaser as assignee, and subsequently reassigned by the
Purchaser to ECT pursuant to the Assignment dated as of March 1, 1999,
between the Purchaser as assignor and ECT as assignee, and subsequently
assigned to ECTMI pursuant to the Assignment, Acknowledgment and Consent
dated as of March 1, 1999, among ECT as assignor, ECTMI as assignee, and
the Purchaser,
(c) the Amended and Restated $10,000,000 Convertible Promissory Note
(Term Loan B) dated as of March 11,1999 (the "$10,000,000 Term Loan B
Note"), made by the Company and payable to ECTMI, which $10,000,000 Term
Loan B Note was an amendment and restatement of the $10,000,000 Convertible
Promissory Note (Term Loan B) dated as of December 31, 1998, made by the
Company and payable to ECT and assigned by ECT to ECTMI pursuant to the
Assignment dated as of December 31, 1998, between ECT as assignor and ECTMI
as assignee,
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(d) the $4,250,000 Convertible Promissory Note (Term Loan C) dated as
of December 31,1998 (the "$4,250,000 Term Loan C Note"), made by the
Company and payable to ECT and assigned by ECT to ECTMI pursuant to the
Assignment dated as of March 1, 1999, between ECT as assignor and ECTMI as
assignee.
"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 December 31,
1998, made by the Company in favor of ECT, pledging 100% of the shares in Kafus
Cement Fibre Industries, Inc., a Delaware corporation, to ECT as collateral for
certain Loan Obligations.
"Purchaser" has the meaning specified in the introduction. "Purchasers"
means the Purchaser and ECTMI as Purchaser under the ECTMI Note Agreement. The
terms "Purchaser" and "Purchasers" shall include the original Purchasers and
each subsequent holder of any of the Notes.
"Registration Rights Agreement" means 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 any Notes.
"Samarac" means The Samarac Corporation Ltd., an Ontario corporation.
"Security Agreement" means the Security Agreement dated as of December 31,
1998, made by the Company in favor of ECT, granting ECT a security interest in
the CanFibre Group Agreements and the Asset Purchase Agreement to secure certain
Loan Obligations.
"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.
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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 Majority Purchasers.
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 Unless otherwise stated, all monetary amounts expressed under the
Loan Documents and all payments due under the Loan Documents are expressed in
and shall be due in U.S. Dollars.
Section 2. The Notes.
2.1 $7,500,000 Advancing Credit Facility Note . Effective on March 11,
1999, the Company has issued the $7,500,000 Convertible Promissory Note to
ECTMI, in exchange for the commitment of ECTMI to make advances thereunder.
2.2 $12,500,000 Advancing Credit Effective on December 31, 1998,
Facility Note. the Company amended and restated the prior outstanding
$12,500,000 Convertible Promissory Note dated as of August 18, 1998, made by the
Company and payable to ECT, into the $12,500,000 Advancing Credit Facility Note
described herein. The outstanding principal amount of such prior note was
continued under the $12,500,000 Advancing Credit Facility Note. As of the date
of this Agreement, the $12,500,000 Advancing Credit Facility Note is held by
ECTMI, and the outstanding principal amount thereof is $12,500,000.
2.3 $10,000,000 Term Loan A Note. Effective on December 31, 1998, the
Company issued the $10,000,000 Term Loan A Note to ECT, in exchange for the
delivery to the Company of the $10,000,000 Subordinated Convertible Promissory
Note dated as of December 31, 1997, made by CanFibre Group and payable to ETC.
As of the date of this Agreement, the $10,000,000 Term Loan A Note is held by
the Purchaser, and the outstanding principal amount thereof is $10,000,000.
2.4 $10,000,000 Term Loan B Note. Effective on March 11,1999, the
Company has amended and restated the prior outstanding U.S.$10,000,000
Convertible Promissory Note (Term Loan B) dated as of December 31, 1998 (the
"Prior Note B"), made by the Company and payable to ECT, which Prior Note B was
issued in exchange for the termination of the Limited Recourse Guaranty,
Assignment Agreement, and Security Agreement each dated as of August 18, 1998,
and between Samarac and ECT, releasing certain interests under the CanFibre
Group Agreements so that
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they might be purchased by the Company under the Asset Purchase Agreement. The
outstanding principal amount of the Prior Note B is continued under the
$10,000,000 Term Loan B Note, and as of the date of this Agreement, is
$10,000,000.
2.5 $4,250,000 Term Loan C Note. Effective on December 31, 1998, the
Company amended and restated and increased the prior outstanding $3,000,000
Convertible Promissory Note dated as of December 31, 1997, made by the Company
and payable to ECT, into the $4,250,000 Term Loan C Note described herein. The
outstanding principal amount of the prior note was continued under the
$4,250,000 Term Loan C Note and increased to the face amount of the $4,250,000
Term Loan C Note in satisfaction of certain fees due to ECT in connection with
ECT's investments in CanFibre of Lackawanna LLC, a subsidiary of the Company. As
of the date of this Agreement, the $4,250,000 Term Loan C Note is held by ECTMI,
and the outstanding principal amount thereof is $4,250,000.
Section 3. Representations and Warranties. Upon the execution of this
Agreement, and with each advance or deemed advance of principal under any Note,
the Company represents and warrants to the Purchaser as follows:
3.1 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.
3.2 Authorization. The Company has all requisite corporate power to
execute and deliver the Loan 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 Loan Documents to
which it is a party and the performance by the Company of its obligations
thereunder have been taken. Each Loan 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.
3.3 Capitalization.
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(a) As of the date of this Agreement the authorized capital stock of
the Company consists of:
(i) 50,000,000 Preference Shares, without par value, of which:
15,000 have been designated as Series I Preference Shares and
all of which are issued and are outstanding,
5,000 have been designated as Series II Preference Shares of
which none are issued and outstanding,
3,000 have been designated as Series III Preference Shares of
which none are issued and outstanding,
1,000 have been designated as Series IV Preference Shares of
which 1,000 are issued and outstanding,
75 have been designated as Series V Preference Shares of which
none are issued and outstanding,
75 have been designated as Series VI Preference Shares of which
none are issued and outstanding,
75 have been designated as Series VII Preference Shares of which
none are issued and outstanding, and
2,500 have been designated as Series VIII Preference Shares of
which 2,500 are issued and outstanding; and
(ii) 100,000,000 shares of Common Stock, without par value, of
which 25,407,716 shares are issued and outstanding as of March 3, 1999.
(b) 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.
(c) 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) rights of first refusal, preemptive rights, or other rights,
warrants, options, conversion privileges, subscriptions, contracts, or
other rights or agreements obligating the
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Company either directly or indirectly to issue, sell, purchase, or redeem
any equity securities of the Company or any Subsidiary of the Company
granted to the Purchasers;
(ii) the Series I, IV, and VIII Preference Shares;
(iii) outstanding warrants to purchase shares of Common Stock as
set forth in the attached Schedule 3.3(c)(iii);
(iv) outstanding options to purchase shares of Common Stock as
set forth in the attached Schedule 3.3(c)(iv);
(v) 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.
(vi) 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;
(vii) 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;
(viii) 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;
(ix) 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;
(x) 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;
(xi) 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.;
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(xii) The Company has since December 29, 1998, issued a
$3,000,000 Promissory Note (the "$3,000,000 HSB Note") payable to HSB
Engineering Finance Corporation ("HSB"), which becomes payable upon deemed
funding in connection with draws under a $3,000,000 letter of credit issued
at the request of CanFibre of Lackawanna LLC ("CanFibre Lackawanna"). The
$3,000,000 HSB Note is secured by a pledge of 1,250,000 shares of Common
Stock of the Company pledged by HY Holdco Enterprises No. 2 Inc.. In
addition, the Company is issuing 75,000 shares of Common Stock to HSB in
connection with the $3,000,000 HSB Note;
(xiii) The Company has entered into an Option Agreement with HSB
pursuant to which, among other things: (a) the Company has granted to HSB
the right (the "HSB Equity Interest Put Right"), exercisable from and after
the first anniversary of the Acceptance Date (as defined in the Amended and
Restated Limited Liability Agreement of CanFibre Lackawanna dated as of
December 31, 1998) to the twelfth anniversary of the Acceptance Date, to
require the Company to purchase from HSB HSB's US $9,500,000 equity
interest (consisting of 100% of the preferred interest and 1% of the common
interest) in CanFibre Lackawanna ("HSB's Equity Interest"); and (b) HSB has
granted to the Company the right (the "HSB Equity Interest Call Right"),
exercisable for a term of 12 years following the Acceptance Date, to
purchase HSB's Equity Interest. The price payable upon exercise of the HSB
Equity Interest Put Right or the HSB Equity Interest Call Right, as the
case may be is based on an investment rate of return (33.5% in the case of
the HSB Equity Interest Put Right, and 37% in the case of the HSB Equity
Interest Call Right) calculated with reference to HSB's capital
contributions to CanFibre Lackawanna, subject to certain adjustments giving
effect to any tax benefits and cash distributions. Such price will be
payable in cash, or, at the option of HSB if the HSB Equity Interest Put
Right or the HSB Equity Interest Call Right is exercised between the first
and third anniversaries of the Acceptance Date, all or a portion thereof
not in excess of the greater of (x) fifty percent (50%) of such price and
(y) US$9,500,000, will be payable in and converted into common shares of
the Company at a conversion price equal to a 15% discount to the weighted
average trading price of the Company's common shares for the 30 day period
immediately preceding the date on which the price is payable, subject in
certain circumstances to specified minimum and maximum amounts per share;
(xiv) Dieffenbacher Panel Production Systems GmbH has an option
to acquire preference equity in CanFibre Group at an issue value of
$750,000 which becomes exerciseable upon deemed funding in connection with
draws under a $750,000 letter of credit issued at the request of CanFibre
of Lackawanna LLC and may be converted to common stock of CanFibre Group
three years after the option becomes exerciseable;
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(xv) Stone & Xxxxxxx Development Corp. has an option to acquire
preference equity of CanFibre of Lackawanna LLC which becomes exerciseable
upon deemed funding in connection with draws under a $3,500,000 letter of
credit issued at the request of CanFibre of Lackawanna LLC which may be
converted into preference stock of CanFibre of Lackawanna LLC two years
after the option becomes exercisable. The preference stock of CanFibre of
Lackawanna LLC may be converted to common stock of CanFibre Group three
years after the option becomes exercisable; and
(xvi) Xxxxxxx Xxxxxxxx and R&S Stanztechnik GmbH have since
December 29, 1998, been issued 25,000 shares of Common Stock for services
rendered.
3.4 Subsidiaries. As of the date of this Agreement, Schedule 3.4 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 Material 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.
3.5 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 Loan Documents.
3.6 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
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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 Notes, have not made, at any time, any oral communication in
connection with the issuing of the Notes 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 June 30, 1998, 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 by the SEC under the Exchange Act and, therefore, affirms
that it is a foreign issuer not meeting the following conditions: (1) more than
50 percent of the outstanding voting securities of the Company are held of
record either directly or indirectly through voting trust certificates or
depositary receipts by residents of the United States; and (2) any of the
following: (i) the majority of the executive officers or directors are United
States citizens or residents, (ii) more than 50 percent of the Company is
administered principally in the United States, or (iii) the business of the
Company is administered principally in the United States. 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.
3.7 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.
3.8 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 Notes 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
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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.
3.9 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.
3.10 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 Loan 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.
3.11 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.
3.12 Environmental Matters. There has been no storage, disposal,
generation, manufacture, spill, discharge (or any threatened spill or
discharge), refinement, transportation,
-13-
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.
3.13 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 Loan Documents, except for filings pursuant
to Regulation D promulgated under the Act, Blue Sky filings, securities filing
required by governmental authorities in British Columbia and Ontario, 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 Notes will
require listing approval of the American Stock Exchange prior to being publicly
traded.
3.14 Private Offering. The offer, issuance, and sale of the Notes and the
shares of Common Stock issuable upon conversion of the Notes 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.
3.15 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 Notes, and the shares of Common
Stock issuable upon conversion of the Notes.
3.16 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
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Information Statement dated February 6, 1998, and Form 20-F for the year ended
September 30, 1997, each as filed with the SEC.
3.17 True and Complete Disclosure.
(a) All factual information furnished by or on behalf of the
Company in writing to the Purchaser or the Purchaser's predecessor in interest
in connection with the Loan 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 3.17 regarding issuance shares of Common Stock upon
conversion of any Note. In 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 4. Covenants. So long as the Purchaser retains any commitments
hereunder or any Loan Obligations remain outstanding, the Company covenants as
follows:
4.1 Use of Proceeds. The Company shall use the proceeds of the Notes
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.
4.2 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.
4.3 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
-15-
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 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 Majority
Purchasers, 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 Purchasers; (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 4.3(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; (vii) Debt in the form of
unsecured subordinated indebtedness of the Company for borrowed money having
subordination terms reasonably acceptable to the Majority Purchasers not to
exceed U.S. $5,000,000; and (viii) Debt in the form of the $3,000,000 HSB Note.
(c) Without the prior written approval of the Majority
Purchasers, 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
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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).
4.4 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 Majority
Purchasers, 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
owed to the Purchaser and other Debt owed to the Purchaser; (ii) [intentionally
deleted]; (iii) [intentionally deleted]; (iv) Liens securing Debt permitted
under Section 4.3(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 4.3(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 4.3(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
-17-
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.
(c) Without the prior written approval of the Majority
Purchasers, 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.
4.5 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.
4.6 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.
4.7 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
Majority Purchasers, but no further investments therein unless such further
investments have been approved by the Majority Purchasers, 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
-18-
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 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 or
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.
4.8 Corporate Transactions. Without the prior written consent of the
Majority Purchasers, 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
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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 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
Majority Purchasers.
4.9 Dividends. Without the prior written approval of the Majority
Purchasers, 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.
4.10 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 Majority Purchasers 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.
4.11 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.
4.12 Transactions with Affiliates. Without the prior written consent of
the Majority Purchasers, 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
-20-
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.
4.13 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.
4.14 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 Notes. 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 Notes 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.
4.15 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.
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4.16 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 Notes 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.
4.17 HSR Act. The Company agrees that, in the event that conversion of
the Notes 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.
4.18 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 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 4.18
shall terminate on the date the Purchasers and their respective Affiliates
beneficially own less than 10% of the outstanding Common Stock.
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Section 5. Default and Remedies.
5.1 Events of Default. Each of the following shall be an "Event of
Default" for the purposes of this Agreement and the ECTMI 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 Equity
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 Equity Document or any covenant in
any Loan Document or Equity 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 Equity Document which breach is not
cured within 30 days after receipt of written notice from either Purchaser of
such breach;
(d) Any Loan Document or Equity 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;
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(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) other than as a result
of the voting of the Purchaser, 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.
5.2 Remedies.
(a) During the continuation of any Event of Default, the Majority
Purchasers may (i) declare by written notice to the Company all of the
commitments of the Purchasers 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 Purchasers shall
terminate immediately and automatically), and (ii) declare by written notice to
the Company all Loan Obligations owed to the Purchasers to be immediately due
and payable, whereupon such amounts
-24-
shall become immediately due and payable (provided that upon the occurrence of
any Bankruptcy Event of Default, all Loan Obligations shall 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 Majority
Purchasers 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 Purchasers upon demand of the
Majority Purchasers.
(c) During the continuation of an Event of Default, and subject to
Section 6.6 of this Agreement, 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 Majority
Purchasers may exercise all of their rights under the Loan Documents and all
other rights at law or in equity.
(e) Following an acceleration of the Loan Obligations, all payments
and collections shall be applied to the Loan Obligations of the Purchasers in
the following order:
First, to the accrued but unpaid fees and reimbursable out of pocket
expenses due and payable to the Purchasers under the Loan Documents,
ratably in accordance with the amount of such obligations which are owed to
each Purchaser at the time of disbursement,
Second, to the accrued but unpaid interest and premium due and payable to
Purchasers under the Loan Documents, ratably in accordance with the amount
of such obligations which are owed to each Purchaser at the time of
disbursement,
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Third, to the outstanding principal balance of the Notes due and payable to
Purchasers under the Loan Documents, ratably in accordance with the amount
of such obligations which are owed to each Purchaser at the time of
disbursement,
Fourth, to any other accrued but unpaid Loan Obligations due and payable to
the Purchasers under the Loan Documents, ratably in accordance with the
amount of such obligations which are owed to each Purchaser at the time of
disbursement, and
Then, the remainder, if any, to the Company or any other party lawfully
entitled thereto.
Notwithstanding the foregoing, any amounts received by ECTMI on realization upon
the collateral securing the Advancing Credit Facility Notes shall be solely for
the benefit of ECTMI and shall not be subject to ratable application to the Loan
Obligations of the Purchasers under this Section 5.2(e).
(f) Except as set forth below or where the remedial action is
automatically provided for in the Loan Documents, and notwithstanding any
provision to the contrary in any Note, the exercise by the Majority Purchasers
of any remedial action, including accelerating any Loan Obligations, or
initiating any enforcement proceedings, shall require an affirmative vote of the
Majority Purchasers; provided, however, that during an Event of Default, ECTMI
may exercise the rights granted under the Security Agreement and the Pledge
Agreement, including foreclosing on any collateral.
(g) Subject to the foregoing paragraph (f), 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 6. Miscellaneous.
6.1 Expenses. The Company shall pay directly or reimburse the Purchaser
for all reasonable expenses of the Purchaser, including reasonable charges and
disbursements of legal counsel for the Purchaser, in connection with the
amendment, modification, waiver, or interpretation of the Loan Documents, and
the preservation or enforcement of any rights of the Purchaser under the Loan
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
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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.
6.2 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 6.2, 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 Loan Documents and (b) any
litigation or proceeding relating to the Loan 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.
6.3 Certain Provisions Regarding Payments.
(a) Unless otherwise specified, the Company shall make all payments
required under the Loan 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 Loan
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
Loan Documents, such obligation shall be payable upon demand.
(b) Any and all payments by the Company under the Loan Documents
shall be made free and clear of and without deduction for any and all present or
future taxes, levies, 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
-27-
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 Loan Documents.
(d) If any sum due from the Company under the Loan 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.
6.4 Waiver, Amendment, and Survival. (a) Performance under the Loan
Documents to may be waived only in a writing signed by Majority Purchasers and,
if the Company is a party to the applicable Loan Document, also by the Company,
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 may be amended,
supplemented, and otherwise modified only in a writing signed by the Majority
Purchasers and, if the Company is a party to the applicable Loan Document, also
by the Company, and such an amendment, supplement, or other modification shall
be effective only for the purposes and only to the extent stated in that
writing. Any modification, waiver, or consent given or made by the Majority
Purchasers applies equally to all Purchasers (including those Purchasers that
have not signed the writing memorializing such modification, waiver, or consent)
and is binding upon them and upon the Company without regard to whether any Note
has been marked to indicate such modification or waiver.
-28-
(b) For the purposes of determining whether the requisite
percentage of Purchasers have approved or consented to any modification, waiver
or consent to be given under this Agreement, or have directed the taking of any
action provided herein to be taken upon the direction of the holders of a
specified percentage of the aggregate principal amount of Notes then
outstanding, Notes directly or indirectly owned by the Company or any of its
Affiliates shall be deemed not to be outstanding.
(c) All representations, warranties, and covenants of the Company
in the Loan Documents shall survive the execution of this Agreement and any
other document or agreement.
6.5 Successors and Assigns. The Loan Documents shall bind and inure to
the benefit of the Company and the Purchasers and their respective successors
and assigns. The Company may not assign its rights or delegate its duties under
the Loan Documents. The Purchasers may not assign or participate their
respective rights or delegate their respective 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
Purchasers may assign or participate their respective rights and delegate their
respective 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 Purchasers may, at any time, assign their respective rights
and duties under the Loan Documents to their respective Affiliates.
6.6 Sharing. During the continuation of an Event of Default, if any
Purchasers should receive any payment against the Loan Obligations of such
Purchasers in excess of the ratable payments received by the other Purchasers
(whether by exercise of the right of setoff or banker's lien, counterclaim or
cross action, enforcement of any right under the Loan Documents, or otherwise),
then the Purchasers receiving less than their ratable share of the applicable
payment (the "underpaid Purchasers") shall sell to the other Purchasers (the
"overpaid Purchasers"), and the overpaid Purchasers shall purchase from the
underpaid Purchasers, for cash without recourse, such participations in the Loan
Obligations of the underpaid Purchasers as shall result in a ratable sharing of
the payments received by all Purchasers; provided, that if all or any portion of
any excess payment is thereafter recovered from the overpaid Purchasers, such
purchases of participations shall be rescinded and the purchase price restored
to the extent of such recovery. Notwithstanding the foregoing, any amounts
received by ECTMI on realization upon the collateral securing the Advancing
Credit Facility Notes shall be solely for the benefit of ECTMI and shall not be
subject to redistribution under this Section 6.6.
6.7 Notice. 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
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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.
Kafus Environmental Industries Ltd.
Xxxxx 000, 000 Xxxxxxx Xxxxxx
Xxxxxxxxx, XX Xxxxxx X00 0X0
Attn: Xx. Xxx Xxxxxxxxx
Telephone: 000-000-0000
Telecopier: 604-685-2426
and
Kafus Environmental Industries Ltd.
000 Xxxxxx Xxxxxx
Xxxxxx XX 00000
Attn: Xx. Xxxxxxx X. XxXxxx
Telephone: 000-000-0000
Telecopier: 000-000-0000
Sundance Assets, L.P.
Attn: Xxxx X. Xxxxxxxxx
0000 Xxxxx Xxxxxx
Xxxxxxx, Xxxxx 00000
Telephone: 000-000-0000
Telecopier: 000-000-0000
With a copy to:
Enron Capital & Trade Resources Corp.
Attn: Xxxxx Xxxxx
0000 Xxxxx Xxxxxx
Xxxxxxx, Xxxxx 00000
telephone: 000-000-0000
telecopier: 000-000-0000
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And a copy to:
Enron Capital Management
Attn: Xxx Xxxxxx
0000 Xxxxx Xxxxxx
Xxxxxxx, Xxxxx 00000
telephone: 000-000-0000
telecopier: 000-000-0000
6.8 Choice of Law. 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 British Columbia and the applicable laws of Canada,
without regard to conflicts of law principles which would select another law.
6.9 Arbitration. 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 Company and the Majority Purchasers, 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 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.
6.10 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 Loan 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 Loan
Documents which constitutes interest in excess of the Highest Lawful Rate, then
any such
-31-
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 Loan Documents.
6.11 Counterparts. This Agreement may be executed in multiple
counterparts which together shall constitute one and the same instrument.
6.12 Intended Third Party Beneficiary. The Purchaser agrees and
acknowledges that the provisions of this Agreement which involve sharing of
certain payments, application of payments following the acceleration of the Loan
Obligations, voting rights, waivers and amendments, pursuit of remedies, actions
to be taken upon the determination of the Majority Purchasers, and other actions
or decisions hereunder referring to or affecting the Purchasers are intended to
benefit all Purchasers, and each other Purchaser is an intended third party
beneficiary of this Agreement.
6.13 Amendment and Restatement. This Agreement and the Amended and
Restated Note Agreement dated as of March 11,1999, between the Company and ECTMI
represent a full and complete amendment, restatement, and bifurcation of the
Note Agreement dated as of December 31, 1998, between the Company and ECT, the
terms of which superceded the Securities Purchase Agreement dated as of August
18, 1998, between the Company and ECT, with respect to the Notes thereunder. The
indebtedness under such prior versions of this Agreement and the Notes continues
under this Agreement and the respective Notes, and the execution of this
Agreement and the Notes does not indicate a payment, satisfaction, novation, or
discharge thereof. All support for the indebtedness under the prior versions of
this Agreement and the Notes continues to support the indebtedness hereunder.
6.14 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.
-32-
EXECUTED as of the date first above written.
Very truly yours,
SUNDANCE ASSETS, L.P.
By: Ponderosa Assets, L.P., its general partner
By: Enron Ponderosa Management Holdings, Inc.
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
AGREED TO AND ACCEPTED
as of the date first
above written.
KAFUS ENVIRONMENTAL INDUSTRIES LTD.
By:
--------------------------
Name:
-----------------------------
Title:
-----------------------
[Sundance Amended and Restated Note Agreement]
-33-
