EXHIBIT 15
[EXECUTION VERSION]
INCOME PARTICIPATION CERTIFICATE
PURCHASE AGREEMENT
This Income Participation Certificate Purchase Agreement dated as of
December 1, 1998 ("Agreement"), is made by Kafus Environmental Industries Ltd.
("Kafus") in favor of Enron Capital & Trade Resources Corp. (the "Lender").
INTRODUCTION
This Agreement is made by Kafus in connection with the Subordinated Loan
Agreement dated as of December 1, 1998 (as modified from time to time, the "Loan
Agreement"), between CanFibre of Lackawanna LLC (the "Company"), and the Lender,
and the related Income Participation Certificate dated as of December 1, 1998
(as modified from time to time, the "Income Participation Certificate"), made by
the Company in favor of the Lender. The effectiveness of this Agreement is a
condition precedent to the effectiveness of the Loan Agreement and the extension
of credit to the Company provided thereunder. As the Company is a subsidiary of
Kafus, Kafus believes that it will receive substantial benefit from such credit
extended to the Company by the Lender. Therefore, to induce the Lender to enter
into the Loan Agreement, and for other good and valuable consideration, Kafus
and the Lender hereby agree as follows:
Section 1. Definitions. Capitalized terms used herein but not defined herein
shall have the meanings set forth or referred to in the Loan Agreement. As used
herein, the following terms shall have the following meanings:
"Annual Period" has the meaning assigned to such term in the Income
Participation Certificate.
"Assumed Income Discount" means, as of any Exercise Date, an amount
equal to the net present value as of the Closing Date of the following stream of
payments which, for purposes of this definition, are assumed to have been
received by the Lender under the Income Participation Certificates on the
following dates and in the following amounts: (a) for each complete Annual
Period which precedes the Exercise Date (including the Annual Period which
includes the Exercise Date, if exercise of the options in Section 2 or 3 hereof
occurs on the last day of an Annual Period), the assumed payment for each such
Annual Period shall be an amount equal to the IPC Current Annual Amount for such
Annual Period, and such assumed payment shall be assumed to have been made on
the last day of such Annual Period and (b) for the Annual Period which includes
the Exercise Date (if such Exercise Date is not the last day of such Annual
Period), the assumed payment shall be an amount equal to the aggregate amount of
the payments actually paid to the
Lender during such Annual Period in accordance with the Income Participation
Certificates and which were deemed applied to the IPC Current Annual Amount due
with respect to such Annual Period in accordance with the terms of the Income
Participation Certificates, and such assumed payment shall be assumed to have
occurred on the day which is the midpoint of the period from the beginning of
the Annual Period which includes the Exercise Date to the Exercise Date. The net
present value of the above described stream of payments shall be calculated by
discounting such payments back to the Closing Date at a discount rate of 12.00%
per annum using standard financial techniques selected by the Lender (but when
applied as of the Exercise Date in calculating the IPC Put/Call Value, such
amount shall not be adjusted to bring such net present value as of the date of
this Agreement forward to the Exercise Date).
"Available Cash Flow" has the meaning assigned to such term in the
Income Participation Certificate.
"Dollars" and "$" means lawful currency of the United States of
America.
"Exercise Date" means the date upon which either the put (or guaranty)
or call is exercised pursuant to Section 2 or Section 3 hereof.
"IPC Current Annual Amount" has the meaning assigned to such term in
the Income Participation Certificate.
"IPC Put/Call Value" means the sum of (a) the positive difference, if
any, between (i) U.S. $11,000,000 and (ii) the Assumed Income Discount, plus (b)
the amount of any IPC Shortfall Amount which is unpaid as of the Exercise Date
in accordance with the Income Participation Certificates, plus (c) the amount of
any IPC Shortfall Interest Amount as of the Exercise Date determined in
accordance with the Income Participation Certificates. For purposes of
determining the IPC Put/Call Value on any date subsequent to an adjustment under
clause (i) or (ii) of Section 3(e) of the Income Participation Certificates,
there shall be substituted for the amount $11,000,000, which appears in clause
(i) of the preceding sentence, an amount equal to the net present value of the
stream of the IPC Current Annual Amounts that are payable under the Income
Participation Certificates for each of the first twelve Annual Periods, after
giving effect to the adjustment(s) under such clauses (i) and (ii) of such
Section 3(e) of the Income Participation Certificates of the IPC Current Annual
Amounts for the then-current and succeeding Annual Periods (assuming that the
IPC Current Annual Amount for each Annual Period is payable on the last day of
such Annual Period, and with the net present value of each such IPC Current
Annual Amount being determined by discounting such IPC Current Annual Amount
from the date it is so assumed to be payable back to the Closing Date, using a
discount rate of 12.00% per annum).
"IPC Required Payment Amount" has the meaning assigned to such term
in the Income Participation Certificate.
"IPC Shortfall Amount" has the meaning assigned to such term in the
Income Participation Certificate.
"IPC Shortfall Interest Amount" has the meaning assigned to such
term in the Income Participation Certificate.
"Purchase Activation Date" means the earlier of one calendar year
after the Completion Date or the date of the occurrence of any Event of Default
under the Loan Agreement.
Section 2. Put Agreement. Upon demand by the Lender at any time after the
Purchase Activation Date, Kafus shall purchase all, but not less than all, of
the Income Participation Certificates from the Lender at a price equal to the
IPC Put/Call Value. Any written certificate provided by the Lender to Kafus
showing the calculation of the purchase price shall be conclusive and binding
for all purposes, absent manifest error. Kafus shall make payment to the Lender
within five business days after presentation to Kafus of the Income
Participation Certificate accompanied with such transfer endorsements or
instruments as are necessary to transfer the same to Kafus.
Section 3. Call Agreement. Upon demand by Kafus at any time after the Purchase
Activation Date, the Lender shall sell to Kafus all, but not less than all, of
the Income Participation Certificates at a price equal to the IPC Put/Call
Value. Any written certificate provided by the Lender to Kafus showing the
calculation of the purchase price shall be conclusive and binding for all
purposes, absent manifest error. If Kafus elects to purchase the Income
Participation Certificate at such price, Kafus shall make payment to the Lender
upon presentation to Kafus of the Income Participation Certificate accompanied
with such transfer endorsements or instruments as are necessary to transfer the
same to Kafus.
Section 4. Method of Payment.
4.1 Kafus shall make each payment to the Lender at the option of the
Lender (a) in wire transfer of U.S. Dollars in immediately available funds to
the Lender at such payment location as directed by the Lender, (b) in shares of
the common stock of Kafus issued to the Lender with the value of the shares
determined based upon the Price (as defined below) applicable at the time of
payment, or (c) in any combination of the methods expressed in clauses (a) and
(b) above as determined by the Lender. As used herein, the "Price" with
respect to the common stock of Kafus means, on any day, (i) the preceding 20-day
average of the reported "high" and "low" sales prices for such shares (w) on
the American Stock Exchange or (x) if such shares are not so listed, then on the
largest national securities exchange (based on the aggregate dollar value of
securities listed) on which such shares are listed or traded or (y) if such
shares are not listed on any national securities exchange, then through the
NASDAQ National Market or, (z) if such shares shall not be so listed, the trade
weighted average of all transactions in the common stock of Kafus in an over-
the-counter market; or (ii) in the event the common stock of Kafus is not listed
or traded as described in (i)
above, then the Price shall be equal to the value of one share of the common
stock of Kafus, as determined in good faith by the disinterested members of the
board of directors of Kafus.
4.2 In the event the Lender elects to receive shares of common stock of
Kafus as described herein, Kafus shall deliver to the Lender certificates
representing the number of fully paid and nonassessable shares of common stock
determined in accordance with this Section, and Kafus and the Lender shall
concurrently enter into a Registration Rights Agreement with respect to such
shares, which shall be in form and substance satisfactory to the Lender and
shall provide Lender with rights and privileges comparable to those set forth in
the Registration Rights Agreements entered into between Kafus and the Lender on
or prior to the date hereof.
4.3 The Lender is hereby authorized at any time following any demand for
payment hereunder to set off and apply any indebtedness owed by the Lender to
Kafus against any and all of the obligations of Kafus under this Agreement. The
Lender agrees to promptly notify Kafus after any such setoff and application,
but the failure to give such notice shall not affect the validity of such setoff
and application.
Section 5. Obligations Absolute.
5.1 Kafus guarantees that payments due hereunder and under the Income
Participation Certificate will be paid strictly in accordance with the terms of
this Agreement and the Income Participation Certificate, regardless of any law,
regulation, or order now or hereafter in effect in any jurisdiction affecting
any of such terms or the rights of the Lender with respect thereto. Kafus
agrees that its obligations under this Agreement shall not be released,
diminished, or impaired by, and waives any rights which it might otherwise have
which relate to:
(a) Any lack of validity or enforceability of the Income
Participation Certificate or any other agreement or instrument relating
thereto; any increase, reduction, extension, or rearrangement of amounts
due under the Income Participation Certificate; any amendment, supplement,
or other modification of the Income Participation Certificate; any waiver
or consent granted under the Income Participation Certificate; or any sale,
assignment, delegation, or other transfer of the Income Participation
Certificate;
(b) Any grant of any security or support for the amounts due under
the Income Participation Certificate, or any impairment of any security or
support for the amounts due under the Income Participation Certificate,
including any full or partial release, exchange, subordination, or waste of
any collateral for the amounts due under the Income Participation
Certificate or any full or partial release of the Company or any other
Person liable for the payment or performance of the amounts due under the
Income Participation Certificate;
(c) Any change in the organization or structure of the Company,
Kafus, or any other Person liable for the payment or performance of the
amounts due under the Income
Participation Certificate, or the insolvency, bankruptcy, liquidation, or
dissolution of the Company, Kafus, or any other Person liable for the
payment or performance of the amounts due under the Income Participation
Certificate;
(d) The manner of applying payments on the amounts due under the
Income Participation Certificate or the proceeds of any security or support
for the amounts due under the Income Participation Certificate against the
amounts due under the Income Participation Certificate;
(e) The failure to give notice of the occurrence of any default or
event of default, however denominated, under the Income Participation
Certificate, notice of bringing of action to enforce the payment or
performance of the amounts due under the Income Participation Certificate,
notice of any sale or foreclosure of any collateral for the amounts due
under the Income Participation Certificate, notice of the financial
condition of or other circumstances regarding the Company, Kafus, or any
other Person liable for the amounts due under the Income Participation
Certificate, or any other notice of any kind relating to the amounts due
under the Income Participation Certificate; or
(f) Any other action taken or omitted which affects the Income
Participation Certificate or the capacity of Kafus to perform under this
Agreement, including action taken with respect to the enforcement of the
Loan Agreement against the Company or with respect to the enforcement of
any obligations of Kafus to the Lender against Kafus, whether or not such
action or omission prejudices Kafus or increases the likelihood that Kafus
will be required to make payments or perform hereunder pursuant to the
terms hereof--it is the unambiguous and unequivocal intention of Kafus that
Kafus shall be obligated to make payments and perform under this Agreement
in accordance with the terms of this Agreement, notwithstanding any
occurrence, circumstance, event, action, or omission whatsoever, whether
contemplated or uncontemplated, and whether or not particularly described
herein.
5.2 This Agreement shall continue to be effective or be reinstated, as
the case may be, if any payment on the amounts due under the Income
Participation Certificate must be refunded for any reason including any
bankruptcy proceeding. In the event that the Lender must refund any payment
received against the amounts due under the Income Participation Certificate, any
prior release from the terms of this Agreement given to Kafus by the Lender
shall be without effect, and this Agreement shall be reinstated in full force
and effect. It is the intention of Kafus that Kafus's obligations hereunder
shall not be discharged except by final payment of the amounts due under the
Income Participation Certificate.
Section 6. Unimpaired Collection. There are no conditions precedent to the
enforcement of this Agreement, except as expressly contained herein. It shall
not be necessary for the Lender, in order to enforce payment by Kafus under this
Agreement, to show any proof of the Company's default, to exhaust the Lender's
remedies against the Company or any other Person liable for the payment or
performance of the amounts due under the Income Participation Certificate, to
enforce any security or support for the payment or performance of the amounts
due under the Income Participation Certificate, or to enforce any other means of
obtaining payment or performance of the amounts due under the Income
Participation Certificate. The Lender shall not be required to mitigate damages
or take any other action to reduce, collect, or enforce the amounts due under
the Income Participation Certificate.
Section 7. Miscellaneous.
7.1 Kafus shall pay to the Lender on demand all costs and expenses of
the Lender in connection with the preservation or enforcement of the Lender's
rights under this Agreement, whether through negotiations, legal proceedings, or
otherwise, including fees and expenses of counsel for the Lender. The
provisions of this paragraph shall survive any purported termination of this
Agreement that does not expressly reference this paragraph.
7.2 (a) Kafus shall at all times protect and hold the Lender and its
respective shareholders, affiliates, directors, officers, employees, agents, and
servants and the persons under their respective control or supervision
(collectively, the "Indemnified Parties") harmless of, from, and against any and
all claims (whether in tort, contract, or otherwise), demands, damages, losses,
liabilities, costs, or expenses of any kind or nature whatsoever (each referred
to herein as a "Loss") which an Indemnified Party may incur or which may be
claimed against an Indemnified Party by any Person, in each case by reason of,
or arising out of this Agreement and the Income Participation Certificate or any
other document or instrument delivered in connection herewith or therewith or
the enforcement of any of the terms or provisions hereof or thereof or the
transactions contemplated hereby or thereby; provided, however, that the
indemnity set forth in this Section shall not extend to any Loss arising, in
the case of any Indemnified Party, as a result of the gross negligence or
willful misconduct of such Indemnified Party. Kafus further covenants and
agrees, to the extent permitted by law, to pay or to reimburse the Indemnified
Parties for any and all costs, reasonable attorneys' fees, liabilities, or
expenses incurred in connection with investigating, defending against, or
otherwise in connection with any such losses, claims, damages, liabilities,
expenses, or actions, except to the extent that the same arise out of the gross
negligence or willful misconduct of the Indemnified Party claiming such payment
or reimbursement.
(b) An Indemnified Party shall promptly notify Kafus in writing
of any claim or action brought against such Indemnified Party in which indemnity
may be sought against Kafus pursuant to this Section; and such notice shall be
given in sufficient time to allow Kafus to defend such claim or action. However,
the failure to give such notice in sufficient time shall not constitute a
defense hereunder nor in any way impair the obligations of Kafus under this
Section, if (i) the Indemnified Party shall not have had knowledge or notice of
such claim or action, (ii) neither Kafus nor any Affiliate thereof shall have
had knowledge or notice of such claim or action, or (iii) Kafus's ability to
defend such claim or action shall not thereby be materially impaired. In the
event, however, that (i) the Indemnified Party shall not have timely notified
Kafus of any such claim or
action, (ii) neither Kafus nor any Affiliate thereof shall have had knowledge or
notice of such claim or action, and (iii) Kafus's ability to defend or
participate in such claim or action is materially impaired by reason of not
having received timely notice thereof from the Indemnified Party, then Kafus's
obligation to so defend and indemnify shall be qualified to the extent (and only
to the extent) of such material impairment.
(c) The obligations of Kafus under this Section shall survive the
termination of this Agreement and remain in full force and effect, with respect
to each Loss of each Indemnified Party, until the later of (i) the expiration of
the period stated in the applicable statute of limitations during which a claim
or cause of action may be brought, and (ii) payment in full or the satisfaction
of such claim or cause of action and of all expenses and charges incurred by
such Indemnified Party relating to the enforcement of the provisions herein
specified.
7.3 This Agreement shall be governed by the internal laws of the Province
of British Columbia, Canada (without reference to principles of conflicts of
laws that would select another law). Unless otherwise specified, all monetary
amounts expressed hereunder and all payments required to be made hereunder are
in U.S. Dollars. Any and all payments by Kafus under this Agreement 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 Lender by any jurisdiction in which the Lender is
a permanent 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
Kafus shall be required by law to deduct any Taxes from any sum, including
common stock of Kafus, payable to the Lender (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 Lender receives an amount equal to the sum it would have
received had no such deductions been made, (ii) Kafus shall make such
deductions, and (iii) Kafus shall pay the full amount deducted to the relevant
taxation authority or other authority in accordance with applicable law. Kafus
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, this Agreement. Further, If any sum due from Kafus under this
Agreement 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 Kafus with any
governmental authority or in any court, tribunal, or arbitration panel or (ii)
enforcing any order or judgment given in relation hereto, Kafus shall indemnify
the Lender 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 Lender 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 Kafus 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 If any provision in this Agreement is held to be unenforceable, such
provision shall be severed and the remaining provisions shall remain in full
force and effect. All representations, warranties, and covenants of Kafus in
this Agreement shall survive the execution of this Agreement and any other
contract or agreement. If a due date for an amount payable is not specified in
this Agreement, the due date shall be the date on which the Lender demands
payment therefor. The Lender's remedies under this Agreement and other
documents and agreements shall be cumulative, and no delay in enforcing this
Agreement shall act as a waiver of the Lender's rights thereunder. The
provisions of this Agreement may be waived or amended only in a writing signed
by the party against whom enforcement is sought. This Agreement shall bind and
inure to the benefit of Kafus and the Lender and their respective successors and
assigns. Kafus may not assign its rights or delegate its duties under this
Agreement. The Lender may assign its rights and delegate its duties under this
Agreement. This Agreement may be executed in multiple counterparts each of
which shall constitute one and the same agreement.
7.5 Except as otherwise provided herein, any notice, demand, direction,
certificate, request, instrument, or other communication authorized or required
by this Agreement to be given to or filed with the Lender or Kafus shall be
deemed to have been sufficiently given or filed for all purposes of this
Agreement if and when delivered by messenger or by a recognized courier service
or sent by registered or certified mail, return receipt requested, postage
prepaid or sent by confirmed telecopy, as follows:
(a) To the Lender, to:
Enron Capital & Trade Resources Corp.
0000 Xxxxx Xxxxxx
Xxxxxxx, Xxxxx 00000
Attention: Xxxxx Xxxxx
Telecopy No.: 000-000-0000
(b) To Kafus, to:
Kafus Environmental Industries Ltd.
Xxxxx 000, 0000 Xxxxxx Xxxxxx
Xxxxxxxxx, Xxxxxxx Xxxxxxxx
Xxxxxx X0X 0X0
Attention: Xxxxxxx X. Xxxxxxxxx
Telecopy No.: 604-685-2426
with a copy to:
Paul, Hastings, Xxxxxxxx & Xxxxxx LLP
000 Xxxx Xxxxxx, Xxxxxx-Xxxxx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Euclid X. Xxxxxx, Esq.
Telecopy No.: 000-000-0000
The Lender and Kafus may, by like notice, designate any further or
different addresses or telecopy numbers to which subsequent notices, demands,
directions, certificates, requests, instruments, or other communications
hereunder shall be sent. Any notice, demand, direction, certificate, request,
instrument, or other communication hereunder shall, except as may expressly be
provided herein, be deemed to have been delivered or given as of the date it
shall have been delivered by messenger or courier service or sent by confirmed
telecopy or upon receipt if mailed.
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THIS WRITTEN AGREEMENT AND THE INCOME PARTICIPATION CERTIFICATE REPRESENT THE
FINAL AGREEMENT BETWEEN THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF
AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT
ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
EXECUTED as of the date first above written.
KAFUS ENVIRONMENTAL INDUSTRIES LTD.
By:
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Name:
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Title:
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ENRON CAPITAL & TRADE RESOURCES CORP.
By:
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Name:
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Title:
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